I write regularly about compliance convergence. One of the areas which converge with anti-corruption compliance is export control. Within the area of export control, a sub-area which is little discussed and less understood, is the area of deemed exports. I recently saw an article on this issue in the Oct/Nov issue of the SCCE Magazine, entitled “Understanding the compliance risk of deemed exports” by Anthony Hardenburgh. The author, Vice President of Global Trade Content for Amber Road (formerly Management Dynamics Inc,) laid out the regulations governing this issue and then delineates some controls to manage this export control risk of deemed exports.
What is a Deemed Export?
As a general rule, a deemed export occurs when US technology, which otherwise requires a license for export, is made available to a foreign national by verbal communication, visual inspection or practical use within or outside the United States. The deemed export rule is of great importance to both universities and in the business world. There are numerous ways in which a deemed export can occur. It can come through discussions by professional colleagues in academia, presenting a paper with licensed technology at a conference or by a plant tour of your company.
The consequences of a violation of the deemed export rule can be severe. An administrative penalty can be the greater of $250,000 or twice the value of the transaction involved for each administrative violation. Such a violation can also include the denial of export rights, which for a company with an international business can be devastating. There can also be a criminal penalty attached for serious violations, with a fine levied of up to $1MM and/or up to 20 years in prison. Indeed a University of Tennessee professor was criminally convicted and sentenced to 48 months in prison for “allowing foreign students access to export-controlled research”, in spite of warnings by the university compliance officer that such conduct was not allowed under the deemed export rule.
What steps can you, as a compliance officer, take to manage this risk? Hardenburgh notes that many compliance officers will not know or even understand everything happening in every university lab or company test facility. The management of this risk begins with preventative steps which Hardenburgh lists as follows:
- Written Export Control Policy, including Deemed Exports.
- Ongoing training on this Policy.
- Continuing communications to employees.
- Risk evaluation to determine if export licenses are required. If licenses are required make certain that such technology is not made available until the licenses are obtained.
- Monitoring the entire process to detect any deviations from the Compliance Program.
- Safeguard licensed technologies from viewing or release to foreign nationals.
- Document all steps taken.
The steps that Hardenburgh has suggested will not sound new or radical to the compliance professional. Determining if a risk exists, evaluating that risk and then managing that risk is standard fair in the compliance world. The deemed export rule is just one additional risk that should fall under compliance through export control. Although the penalties can be severe, the solutions to manage the risk are relatively straight-forward.
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© Thomas R. Fox, 2011