Archive for the ‘Deemed Exports’ Category



Naming Names

Posted by at 10:09 pm on November 7, 2013
Category: BISDDTCDeemed ExportsExport Reform

By MediaPhoto.Org ( Own work) [CC-BY-3.0 (], via Wikimedia Commons Bureau of Industry and Security has released new guidance on deemed re-exports which is intended to deal with issues arising when a U.S. company exports technology to a foreign company that then re-exports that technology to its own employees which are not of the same nationality as the foreign company receiving the technology export. The purpose of the guidance is to address certain issues raised by the current export control reform effort and, specifically, to deal with re-exports of technology relating to the newly created 600 series of items that have been transferred from the United States Munitions List (“USML”) to the Commerce Control List (“CCL”).

As the guidance notes, one of the overarching principles of the export control effort is that military items moved from the USML to the CCL should not thereby be subjected to more stringent controls than were applicable to the item when it was on the USML. Under the International Traffic in Arms Regulations (the “ITAR”) “technical data” is subject to certain license exemptions permitting technical data, in certain cases, to be transferred without license by foreign companies to their employees who are not of the same nationality as the foreign company. These employees include “third country nationals” who are nationals of countries other than the nationality of the foreign company involved and “dual nationals” which are nationals of two countries, one of which may, but does not necessarily include, the nationality of the foreign company.

The first of these exceptions, found in section 124.16 of the ITAR,  allows such retransfer from companies in NATO countries, the EU, Australia, Japan, New Zealand and Switzerland to retransfer technologies to third country nationals who are also from such countries and subject to certain further conditions. And the other exception, found in section 126.18, permits intra-company transfers of technical data from the foreign company to employees without regard to the country restrictions of 124.16 but subject to certain other restrictions such as requiring the third country national employees to sign non-disclosure agreements and requiring the company to assure that the third country national doesn’t have “substantive contacts” with countries subject to arms embargoes under section 126.1 of the ITAR.

Nothing in the Export Administration Regulations (the “EAR”) provides equivalent license exceptions to permit the transfer of technology to nationals of NATO countries, the EU, Australia, Japan, New Zealand, and Switzerland without a license as permitted by section 124.16 of the ITAR. Accordingly, the new guidance indicates that it is the policy of BIS to permit transfers of technology relating to series 600 items without a license if the conditions of 124.16 are fulfilled. Also to the extent that section 126.18 of the ITAR permits transfers to third country nationals outside of the EU, Australia, Japan, New Zealand and Switzerland if they sign an NDA and are screened for contacts with embargoed countries, BIS will permit similar transfers of series 600 technology.

The situation with section 126.18 is more complicated because section 126.18 addresses an issue under the ITAR that is not a problem under the EAR, namely the problem of dual nationals born in countries subject to arms embargoes. Section 126.18 was designed to deal with the thorny problem of dual nationals under DDTC which require that a dual national should be treated as a citizen of both countries. Accordingly a naturalized U.K. citizen born in China would still be treated as Chinese, and thus ineligible to receive ITAR-controlled technical data even if he had been awarded the OBE by the Queen because, in DDTC’s eyes, that dual national was irrevocably and permanently tainted with Chinese blood. Although such discrimination would be illegal if applied by DDTC in the United States, DDTC saw no problem with applying this rule in foreign countries even if it would, as it often did, violate the human rights laws of that foreign country to discriminate against someone solely based on place of birth. Under BIS rules, in contrast,
a person is treated as a citizen of the country of his or her most recent nationality. A naturalized UK citizen would be treated simply as a UK citizen without regard to the fact that he or she was born in China and was once Chinese. Thus, strictly speaking, the BIS guidance does not need to implement those parts of 126.18 as they relate to dual nationals.

There is, however, one problem relating to technology re-exports for series 600 items where the transfer from the USML to the EAR will subject the technology to more stringent requirements and which is not addressed by this guidance. Under DDTC’s application procedures, a U.S. exporter seeking authority for a foreign company to transfer technical data to its third country and dual nationals, the U.S. exporter need only list the nationalities of the employees. In other words, the U.S. exporter says, for example, that the technical data will be exported to French, German and Mexican nationals. Under BIS application guidelines, however, the U.S. exporter must give the names, passport numbers and addresses for each employee that will receive the technology re-export. In addition to that, a resume for each individual, showing education, employment history and military service, must be provided for each employee.

Over and above the obvious burden of compiling this information in the first place, the U.S. exporter will be required to obtain amendments or new authorizations each time the foreign transferee hires new employees in the affected program area. Under DDTC’s rules, an amendment is required only if an employee with a nationality not previously approved is hired. Granted this burden can be minimized to some extent through reliance on section 126.18, but this may not be possible where the foreign employer is either unable or unwilling to comply with all of the conditions required by section 126.18, including screening employees for contacts with embargoed countries, maintaining records of this screening, and fulfilling the other requirements of section 126.18.

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Hackers Are Exporters Too

Posted by at 5:50 pm on May 28, 2013
Category: DDTCDeemed Exports

By Poa Mosyuen (Own work) [CC-BY-SA-3.0 (], via Wikimedia Commons Washington Post reported today that a confidential report from a Pentagon advisory group indicated that Chinese hackers had obtained sensitive military plans for a number of defense systems, including the Patriot Missile PAC-3, the F/A-18 fighter jet, the V-22 Osprey, the Black Hawk helicopter and the Navy’s new Littoral Combat Ship. The report did not specify whether these plans had been obtained by hackers from computers operated by the U.S. government or by the defense contractors involved.

So with this blockbuster revelation in hand, think for a moment about the ITAR-controlled technical data sitting on your computer system. You’ve gone to all the trouble to secure these files and prevent access by persons in your company who aren’t U.S. nationals. Then you’re hacked and this data is exfiltrated to China. What now?

Well, for starters, consider this: the definition of “export” in section 120.17 of the International Traffic in Arms regulations does not have a carve out for data hacked out of your system by foreign nationals. In fact, it covers “transferring technical data to a foreign person, whether in the United States or abroad,” without specifying how that transfer occurs. And make no mistake about it: when your system has been hacked by the People’s Liberation Army, it has transferred technical data to foreign nationals.

“But I didn’t mean for that data to be shipped to China!” you protest. Well, that may mean you lack the necessary scienter for a criminal prosecution, but civil penalties do not require intent. That also means it is probably time to think about a voluntary disclosure. And of course, one of the mitigating factors will be that you did not intentionally transfer the data to the PRC.

But here is the rub. Maybe you did not send the PLA an engraved invitation asking them to come hack your system, but maybe you also did not really have robust systems in place to prevent hacking. Often hackers get control of systems by sending infected links to employees. What protections do you have in place to prevent employees from clicking links in emails from outside the system? What systems do you have in place to monitor outbound traffic from your computers? And if you say, well, we have X or Y antivirus installed, you are going to hear the sad trombone because hackers can get around commercial antivirus software faster than Lindsey Lohan can sneak out of rehab.

Consider the Washington Post story a warning. It’s time to take a hard look at your security systems so that you either do not have to file a voluntary disclosure that you’ve been hacked or,  if you do have to make such a disclosure, you can honestly say you took every reasonable precaution.

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DDTC Slams Stable Door After The Horses Have Bolted

Posted by at 1:02 am on May 10, 2013
Category: Arms ExportDDTCDeemed Exports

Liberator Hand Gun [By Permission of Defense Distributed]Unless you have been vacationing on the dark side of the moon today, you probably have seen that the Directorate of Defense Trade Controls (“DDTC”) told Defense Distributed to take down the plans that it had posted for producing a crappy plastic handgun using an expensive 3-D printer. You can read the letter by clicking this link.

Not surprisingly, DDTC takes the position that these plans are technical data relating to an article in Category I of the USML and that putting the plans on the Internet is an export of that technical data. Of course, whether these plans are technical data may not be entirely clear given the public domain exception to the definition of technical data. Detailed gun schematics are available in numerous widely available publications and all over the Internet. A Google search, for example, quickly brings up these schematics.

But leaving aside whether or not these plans are controlled technical data that cannot be put on the Internet without a DDTC license, this whole brouhaha seems to be a waste of time by DDTC. Real guns that won’t blow up in your hand, can fire multiple shots before falling apart, and which can be much more cheaply manufactured are readily available outside the United States, so the danger posed by exporting these plans is, well, non-existent. Foreign militaries aren’t very likely to abandon their AK47s now that they can print their own plastic handguns. Worse yet, the plans had apparently been downloaded more than a 100,000 times before the Feds dropped the ban hammer. There is no way that DDTC can now stuff all that toothpaste back in the tube.

Finally, the DDTC letter seems to concede some uncertainty about whether the plans are technical data. Instead of simply demanding the removal of the plans and threatening enforcement action, the letter requests that Defense Distributed file a commodity jurisdiction request to “resolve” the “proper jurisdiction” of the technical data “officially.” So, stay tuned, this affair is far from over.

(The picture of the plastic gun parts from the Defense Distributed site that illustrates this post has been pixelated for your protection.)

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Do As I Say Not As I . . . etc. etc.

Posted by at 2:15 pm on May 3, 2013
Category: ChinaDDTCDeemed Exports

Credit: China Great Wall Industry Corporation [Fair Use]
ABOVE: Apstar-7 launch in China

Picture this scenario: a U.S. defense contractor leases time on a Chinese satellite and uses the transponders of that satellite to beam ITAR-controlled technical data between and among its facilities in the United States. The Directorate of Defense Trade Controls (“DDTC”) which licenses exports of ITAR-controlled technical data by U.S. exporters and which has imposed an absolute ban on transferring such data to China would, pardon the metaphor, go ballistic. The defense contractor would be investigated, fined millions of dollars, forced to conduct public self-shaming sessions (i.e. compulsory self audits) and either debarred or threatened with debarment. The zombie apocalypse would seem a Sunday afternoon outing in the park compared to the terror that the agency would rain down on the guilty exporter.

Now, suppose that the U.S. defense contractor in this story is not a private contractor but instead . . . (are you sitting down?) . . . is the Pentagon. What has DDTC to say about this catastrophic breach of national security? Let’s listen: (Crickets chirping . . . crickets chirping . . .) Speak up, over there, Foggy Bottom. I can’t hear you. What? Nothing? Not a peep?

And, no, this is not merely a hypothetical. It is a fact.

Doug Loverro, deputy assistant secretary of defense for space policy, testified at an April 25 hearing of the House Armed Services strategic forces subcommittee that when he assumed his duties a month ago, he learned of DOD leases with a Chinese satellite service provider that were issued early last year following a joint urgent operational needs statement in support of “warfighter needs.”

“The warfighter needed [satellite communication] support in his area of operations. He went to the Defense Information Systems Agency to request that support,” Loverro said.

Loverro said DISA responded to the request by reaching out to its pool of providers. Only one of those providers, a company based in China, had the bandwidth available to meet the communications needs. …

“From that perspective, I’m very pleased with what we did,” Loverro said. …

According to Wired, the satellite in question is the Apstar-7, launched in China and operated by APT Satellite Holdings Ltd., which is owned by the PRC.

The point of raising this is not just to show the double standard the government exercises with respect to defense-related information but also to find some support for a potential problem that has been bedeviling exporters and (to a lesser extent) the export licensing agencies themselves — namely, the issue of the interaction between export law, controlled technology, the “cloud” and the use of the Internet and email for information transfer. Everyone pretty much agrees that if controlled technical data so much as traverses a foreign internet server for a nanosecond — even if the information originated in the United States and is being sent to another user in the United States  — there has been an unlicensed export of that data. And yet, no one who puts information in the cloud, or sends it by email, or otherwise transfers the data using the Internet can be certain of the path the information will take and that it won’t pay an infinitesimally brief visit to a server outside the United States. Does this mean that everyone with controlled data has foresworn the Internet, keeps all controlled data on paper locked in file cabinets and uses the good offices of the United States Snail Mail service to send it about? Of course not.

Instead, it appears that those who have thought about the vagaries of Internet routing and cloud storage have adopted, at least as a best practice and perhaps as a mitigating factor, the use of encryption on controlled technical data being sent by email or stored in the cloud even where this is intended to be a solely domestic transaction. Of course, there is nothing in the ITAR or the EAR that endorses this and, technically speaking, the export of encrypted technical data is still the export of technical data.

Now in that light, consider this nugget from Lovero’s testimony:

Based on his review of the leases, Loverro said, the agency followed all of the current procedures and operational commanders were aware of the safety and business concerns connected with such an agreement. Those commanders, he said, are equipped with the necessary encryption to protect the information being relayed.

File that testimony away, folks, because you may need it. In short, the DoD is endorsing the notion that encryption effectively prevents the transfer of controlled technical data to the Chinese even when it passes through their hands. I’m certainly not guaranteeing that this is a “Get Out Of Jail Free” card, but it might some day be all you have.

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We Apologize for the Inconvenience

Posted by at 5:56 pm on August 21, 2012
Category: DDTCDeemed Exports

ABOVE: DDTC offices in DC

The Directorate of Defense Trade Controls (“DDTC”) has just revised its guidance on licensing foreign persons employed by U.S. persons. Foreign persons that will have access to ITAR-controlled technical data need to be licensed by DDTC prior to obtaining access to that technical data, and the guidelines describe how to use licensing application form DSP-5 to obtain the requisite license.

The revised guidelines contain only one change, and it is a footnote inserted at the beginning of the document relating to the enforcement of anti-discrimination provisions by the Office of Special Counsel in the Civil Rights Division of the Department of Justice. The oddly vague footnotes reads in its entirety as follows:

The ITAR imposes a license requirement for the export of U.S. defense articles and defense services to foreign persons. The ITAR does not, however, impose requirements on U.S. companies concerning the recruitment, selection, employment, promotion or retention of a foreign person. Federal law prohibits discrimination in hiring, firing, or recruitment/referral for a fee based on an individual’s citizenship status or national origin. See Section 274B of the Immigration and Nationality Act (INA), 8 U.S.C. § 1324b. Unless otherwise required to comply with law, regulation, executive order, government contract, or determination by the Attorney General of the United States, discrimination based on an individual’s citizenship status is unlawful. The Office of Special Counsel for Immigration-Related Unfair Employment Practices (Office of Special Counsel) in the Civil Rights Division of the United States Department of Justice enforces Section 274B of the INA. The Office of Special Counsel, located in Washington, D.C., has issued public guidance relating to non-discriminatory practices when complying with ITAR. For additional guidance, please contact the Office of Special Counsel at, its employer hotline at 1-800-255-8155, or visit its website at

You would not be alone if your first reaction to this elliptical mish-mash of bureaucratese and CYA-speak does not seem to make any sense. It seems to be saying that the ITAR requires you to discriminate against non-citizens and that the Immigration and Nationality Act makes it illegal to discriminate against non-citizens and it is entirely up to you to figure out how to comply with both requirements at once. So long, poor exporter, and thanks for all the fish.

This problem is complicated by the footnote referencing “public guidance” by the OSC without, of course, bothering to provide, you know, something helpful like a link to that guidance. In fact, the OSC hasn’t issued anything that might fairly be called public guidance on how to navigate the Scylla of the ITAR and the Charybdis of the INA. Instead, I was able to locate two “Technical Assistance Letters” issued by the OSC in response to narrow questions posed by members of the public.

The first said that it was illegal for employers to use documents gathered in the I-9 process to determine whether the employee was eligible to receive ITAR-controlled technical data. It said, somewhat confusingly, that the employer must gather documents establishing ITAR eligibility in a “separate and distinct verification procedure,” whatever that means.

The second technical assistance letter advises that employers may inquire whether applicants are citizens of embargoed countries for purposes of complying with export obligations “as long as such inquiries were made uniformly and without the intent to discriminate on the basis of national origin or citizenship status.” Just to keep things confusing, the letter says that the OSC reserves the right to examine the “totality of the circumstances” to determine whether an inquiry related to citizenship in an embargoed country was nevertheless discriminatory notwithstanding the export issue.

Reading between the lines of these two OSC letters, there is one thing that can be said with certainty about simultaneous compliance with the INA and the ITAR. Because permanent residents, refugees and asylees are entitled to receive ITAR-controlled technical data and employer may not, in an effort to comply with the ITAR, limit employment to U.S. citizens or even to U.S. citizens and permanent residents. Beyond that, you are pretty much on your own in reconciling the two regulatory schemes, with each agency helpfully pointing its fingers at the other for guidance.

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