What You Need to Know About

U.S. Export Controls andEconomic Sanctions

LawsNov. 14, 2006

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Why is This Important?

Supports the U.S. Government’s objectives of protecting U.S. national security and furthering foreign policy interests

Establishes the university as a “good corporate citizen”

Avoids reputational harm and adverse publicity• Don’t want to see headlines “UofA and its Researcher

Caught Releasing Sensitive Technology”

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Why is This Important?

Avoids severe criminal and civil penalties for the institution and the individuals involved• Civil penalties up to $500,000

• Criminal penalties including fines of up to $1 million and jail time

• Suspension/Denial of Export Privileges Could have an adverse impact on

government contracts

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Are Universities Targeted?

State/Commerce/Defense Depts. are focused on universities• GAO conducted visits

• IG report highlighted export control issues Treasury Dept. has fined universities for

sanctions violations involving Cuba, Iran and Sudan• E.g., UCLA, Pace Univ., Frederick Taylor Univ.

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What are Export Controls?

US laws that regulate the transfer of items, technology, software, and services• Other countries have similar laws

Apply to all activities with foreign persons and foreign countries – not just sponsored research projects

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How Does This Affect UofA?

Many activities qualify for an exception

National Security Decision Directive (NSDD) 189:

• “Fundamental research means basic and applied research in science and engineering, the results of which ordinarily are published and shared broadly within the scientific community, as distinguished from proprietary research and from industrial development, design, production, and product utilization, the results of which ordinarily are restricted for proprietary or national security reasons.”

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How Does This Affect UofA? Thus, not all research activities are

exempt Export controls may restrict:

• Ability of foreign students or researchers to participate in research

• Ability to provide services (including training in the use of equipment) to foreign persons

• Ability to send equipment, spare/replacement parts, technology or software to foreign countries

• Ability to collaborate with researchers in foreign countries

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What is an Export?

Physical transfers of tangible items outside the U.S.

Electronic or digital transfers of software or technical data outside the U.S.

Release or disclosure of software or technical data to any foreign person by e-mail, Internet, phone/fax, in-person (oral) communication, or visual inspection

Application of technical data abroad

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What Else is an Export?

“Deemed Export” -- disclosure of technical data or software source code to a non-U.S. person in the United States (including foreign embassy staff)• This transfer is “deemed” to be an export to his/her

home country

Reexport -- an export of a U.S.-origin item, software or technology from one foreign country to another

• U.S. laws “follow” the item

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Who is a U.S. Person?

U.S. person• Everyone who is a U.S. citizen, a U.S. legal

permanent resident (“green card” holder) or an asylee/refugee• Not F-1, J-1, H-1B, O-1 visa holders

• A U.S. corporation, partnership, trust, society or other entity incorporated or organized to do business in the United States

Everyone else is a “foreign person” Special rules apply to “dual nationals”

• E.g., a citizen of China who also is a Canadian citizen

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Defense Department

(DOD)

Structure of U.S. Export Controls

Federal Acquisition Regulations (FAR)

Commerce Department: Bureau of Industry and

Security (BIS)

Export Administration Regulations (EAR)

“dual use”/ commercial

State Department: Directorate of Trade

Controls (DTC)

International Traffic in Arms Regulations

(ITAR)

military use

Economic Sanctions: Countries, Entities,

and Individuals

Treasury Department: Office of Foreign Assets

Control (OFAC)

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What is Subject to the ITAR?

Broad restrictions on exports, reexports, imports, proposals to sell and brokering• Defense Articles

• Technical Data

• Defense Services

Items on the U.S. Munitions List (USML)

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What is a Defense Article?

Any item listed on the USML• Includes raw materials, components, parts,

software, and related technical data (i.e., not just end products)

Any item specifically designed, developed or modified for a military application

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What are Some Examples?

USML examples include:• Launch vehicles, missiles, rockets

• Military aircraft and vehicles

• Military training and simulation

• Military electronics

• Toxicological agents, including chemical and biological agents, and associated equipment

• Spacecraft systems and satellites

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What is Technical Data?

Broad scope• Information required for design, development,

production, manufacture, assembly, operation, repair, testing, maintenance or modification of Defense Articles

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What is a Defense Service?

Furnishing of assistance or training to a Foreign Person in the design, development, engineering, production, assembly, testing, processing, manufacture, use, operation, overhaul, repair, maintenance, or modification of Defense Articles

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How Strict are ITAR Controls?

VERY! Almost all ITAR activities require a

license from the US Govt. prior to engaging in the controlled activity

Even proposals are regulated—for example, proposals to a country subject to a U.S. arms embargo are prohibited

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Which are ITAR Proscribed Countries?

Afghanistan Haiti Rwanda

Belarus Indonesia Somalia

Burma Iran Sudan

China Iraq Syria

D.R. of Congo (former Zaire)

Ivory CoastVenezuela

Vietnam

Liberia Yemen

Cuba Libya Zimbabwe

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What is Subject to the EAR?

Items not on the USML Items on the Commerce Control List

(CCL) including commercial as well as “dual-use” goods, software and technology

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What is on the CCL?

Ten categories:

0-Nuclear Materials, Facilities & Equipment (and Miscellaneous Items)

1-Materials, Chemicals, Microorganisms, and Toxins 2-Materials Processing 3-Electronics Design, Development and Production 4-Computers 5-Telecommunications and Information Security 6-Sensors and Lasers 7-Navigation and Avionics 8-Marine 9-Propulsion Systems, Space Vehicles and Related Equipment

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What is Export Classification?

If an item appears on the CCL, it will be assigned a five digit alpha-numeric Export Control Classification Number (“ECCN”)• Each ECCN dictates where an item can be

exported

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What are Some Examples? ECCN Examples:

• 3C003 covers the following “organo-inorganic compounds”• Organo-metallic compounds of aluminium, gallium or indium

having a purity (metal basis) better than 99.999%

• Organo-arsenic, organo-antimony and organo-phosphorus compounds having a purity (inorganic element basis) better than 99.999%

• 6A002 covers a number of “optical sensors” including• “Space-qualified” solid-state optical detectors

• Pyroelectric detectors using enumerated materials

• Non-”space-qualified” focal plane arrays with specified characteristics

• Monospectral imaging sensors and multispectral imaging sensors having any of the enumerated characteristics

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What is Known as “EAR99”?

If an item does not have a specific entry on the CCL, it falls into the basket category, known as “EAR99”

EAR99 items are subject to minimal export controls

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Who are Restricted Persons?

BIS designates persons and entities with whom certain transactions are restricted (i.e., a license generally is required) or are prohibited altogether:

•Entity List

•Denied Persons List

•Unverified List

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Who are Restricted Persons?

What do these four entities have in common?• Beijing Huahang Radio Measurements

Research Institute in China

• Bharat Dynamics Limited in India

• Al Kayali Corporation in Richardson, Texas

• Arrow Electronics Industries in the UAE

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Is a License Always Required?

Most items controlled under the EAR do not require an export license

A license to export or reexport items may be required based on:• Export classification of the item or technology

• Destination country

• Identity of the intended recipient (“end user”)

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When Do Universities Need an Export License?

When making shipments of controlled items or software outside the U.S.

Transferring controlled technical information and software source code to a foreign person in the U.S. or abroad, unless an exclusion applies

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What are the Exclusions?

A license is not required if one of four exclusions applies:

1. Education Exclusion

2. “Public Domain” Exclusion

3. “Fundamental Research” Exclusion

4. Employment Exclusion (ITAR only)

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1. Education Exclusion

Information concerning general scientific, mathematical or engineering principles commonly taught in colleges or universities

Applies to information released during catalog-listed courses at UofA (through lectures, course materials, or instruction in laboratories)

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2. “Public Domain” Exclusion Information generally accessible to the public in any form,

including information:

• readily available at libraries open to the public or at university libraries

• in patents and published patent applications available at any patent office

• released at an open conference, meeting, seminar, trade show, or other open gathering

• published in periodicals, books, print, electronic, or other media available for general distribution (including websites that provide free uncontrolled access) or for distribution to a community of persons interested in the subject matter, such as those in a scientific or engineering discipline, either free or at a price that does not exceed the cost of reproduction and distribution

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3. “Fundamental Research” Exclusion

• Information arising during or resulting from:

• Basic and applied research in science and engineering

• At an accredited US institution of higher learning

• Where the resulting information is ordinarily published and shared broadly in the scientific community

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“Fundamental Research” (cont’d)

Distinguished from proprietary research or industrial design or development, where research results are restricted for proprietary or specific national security reasons

Federal government and commercial sponsors of university research increasingly are inserting export-control related clauses in agreements• Prepublication approval, citizenship requests,

non-disclosure restrictions

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The Fundamental Research Exclusion Does Not Apply if

UofA accepts any contract clause, for example, that:

• Forbids / restricts the participation of foreign persons

• Gives the sponsor a right to approve publications resulting from the research

• Restricts access to and disclosure of research results

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U.S. Govt. Funded Research

Special rules apply to research funded by the U.S. Government when there are specific access and dissemination controls protecting information resulting from the research

• ITAR-controlled: Not “fundamental research” if such controls are accepted

• EAR-controlled: May still qualify for the “fundamental research” exclusion under certain circumstances

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Prepublication Review

UofA could accept prepublication review provisions and still claim the exclusion for the research results if the review is solely to ensure that publication:• Would not divulge proprietary information that the

sponsor provided to UofA researchers

• Would not compromise patent rights and it only causes a temporary delay in publication

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“Fundamental Research” & Input Data

If, however, UofA

• accepts such prepublication review, or

• agrees that the sponsor may withhold from publication some or all of the information it provided to UofA

Then the information provided by the sponsor to UofA (“input data”) could be export controlled

UofA would have to assess the export classification of the input data and prevent its “deemed” export to a foreign person on the project

• E.g., maybe only PI needs access to the input data

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You Should Watch Out For

“Side deals” between a PI and Sponsor that may destroy the fundamental research exclusion

Presence of or access to “classified information” during research—special rules apply and only U.S. citizens can receive it

Items, software or materials that arise from research do not qualify for this exclusion and a license may be required for export outside the US

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Case Study # 1

Q. UofA enters into a cooperative research arrangement with a US company and the research would be conducted at UofA’s lab. UofA has agreed to a prepublication review so that the company could decide whether to hold the research results as trade secrets (or otherwise proprietary) or whether to allow UofA to publish the results. Can my student from China work in the lab?

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Case Study # 1 (cont’d)

A. First, the research would not qualify as “fundamental” because the sponsor has the right prevent publication (there is no intent to publish at the time of entry into the agreement). Second, if UofA received any proprietary or confidential information from the company (input data), you would need to determine the export classification of such data in order to determine whether a license is required, or a license exception is available, for China. Third, perform the same analysis for the research results (even if there was no input data).

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Case Study # 1 (cont’d) Q. What if the prepublication review was intended

solely to prevent inadvertent disclosure of proprietary information or to avoid compromising patent rights?

A. That changes the outcome. Such prepublication review does not destroy the fundamental research exclusion. You could involve the Chinese student on the project, provided that UofA has not agreed to any other restrictions (e.g., access by foreign persons etc.) and that the input data is not controlled for export to China, if the student even needs access to such data. If the input data is controlled for China, you would need to determine if a license exception is available and, if not, UofA would need to restrict the student’s access to the input data.

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Case Study # 2

Q. What if a non-US company is funding the research at UofA and there are no prepublication restrictions but there is a requirement that UofA researchers do some work at the foreign company’s facility abroad?

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Case Study # 2 (cont’d) A. You should be very careful. Application

abroad of personal knowledge or technical experience acquired in the US constitutes an “export” of that knowledge / experience and such export may be controlled under the EAR. If the project is ITAR-controlled, you could be providing a Defense Service, which generally requires a license. You would need to determine the proper export classification and assess whether a license is required, or a license exception is available, for that particular foreign country.

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Case Study # 3 Q. On a DOD-funded project, UofA accepts certain

national security controls (90-day prepublication review and DOD approval before any foreign national is assigned to the project). Does the information resulting from the research qualify for the “fundamental research” exclusion?

A. If the project is subject to the ITAR, the exclusion is not available. If, however, the project is subject to the EAR and you abide by the specific controls you have agreed to, the export of information consistent with the controls will still qualify for the “fundamental research” exclusion.

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Case Study # 3 (cont’d)

Q. What if the agreed controls did not ask for DOD approval prior to assignment of foreign persons but rather had an explicit prohibition on participation of anyone who was not a U.S. citizen?

A. Foreign persons could not participate and must not have access to the data. Fundamental research exclusion does not apply.

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4. Employment Exclusion No license is required to share ITAR-

controlled technical information with a foreign person who • Is a full-time, bona fide regular UofA employee

(generally not applicable to graduate or undergraduate students)

• Has a permanent place of abode in the U.S. while employed

• Is not a national of an ITAR proscribed country, and

• Is advised in writing not to share ITAR-controlled information with other foreign persons

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What About Equipment Use?

Use of Equipment vs. “Use” Data

For limited types of equipment, the US Govt. restricts the transfer of information related to its “use”

Commerce Dept.: interprets “use” to mean “operation, installation, maintenance, repair, overhaul and refurbishing” so only data related to all 6 activities would need an EAR license

State Dept.: all “use” data is restricted

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Case Study # 4

Q. I work on a research project involving semiconductors and want to involve my students from India and S. Korea. Students will work with me to come up with a solution to a problem that has been identified in literature and we intend to publish all of our results. Do I need an export license to brainstorm with students and have them help me resolve the technical problem?

A. No.

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Case Study # 4 (cont’d) Q. I would also like my students to maintain the

equipment (a frequency changer operating in the 600-2000 Hz range with total harmonic distortion below 10% and frequency control better than 1%). Can I instruct them on how to operate and maintain the equipment?

A. Yes, provided that you do not also provide the Indian student information on installation, repair, overhaul and refurbishing of the equipment (which would, in total, constitute “use” data). The S. Korean student could even receive use data because it is not controlled for export to S. Korea.

• Equipment is listed under 3A225 (subject to NP controls); 3E201 controls technology (“use” data) for such equipment

• NP controls do not restrict exports to S. Korea but do restrict to India

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What If I Do Need to Transfer Abroad?

A license is required to ship or otherwise transfer items, technical data and software, or provide services, controlled by ITAR to any foreign country (few exclusions or exceptions)

A license may be required to transfer items, technology or software controlled under the EAR out of the US depending on the export classification, where it is being sent, who is the end-user, and whether an exception applies

Replacement or spare parts may require a separate license, even if the initial equipment was exported pursuant to a valid license

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Transfers Abroad cont’d

The process to classify equipment, technology and software under the EAR is tedious, detailed and time consuming

It can take monthsmonths to obtain a license from State or Commerce

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What are the “Red Flags”?

UofA must take into account “red flags” -- any abnormal circumstances that indicate inappropriate end-use, end-user, or destination

When red flags are raised, there is a duty to investigate before proceeding

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What are Some Examples?

Other party reluctant to offer information about end-use or end-user

When questioned, the recipient is evasive and/or unclear about whether the product is for domestic use, for export, or for reexport

Product’s capabilities do not fit the recipient’s line of business

The shipping route is abnormal for the product and destination

The item ordered is incompatible with the technical level of the country to which it is being shipped

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Proposal Stage: Compliance Issue-Spotting• Does the Project involve

• Shipping equipment to a foreign country?

• Collaborating with foreign colleagues in foreign countries?

• Training foreign researchers in using equipment outside the classroom?

• Working with a country subject to US sanctions?

• Is the RFP marked “Export Controlled” or does it reference “Classified Information”?

• Is the sponsor demanding pre-approval rights over publications or the participation of foreign national students?

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If you answer yes…

A determination must be made by UofA as to possible license requirements

Note 1: If license is needed it takes much time and effort of faculty and administrators and can be months in process

Note 2: These laws apply to all activities – not just sponsored projects

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License ExampleUniversity archeologists desire to take GPSsystems to France to use in training foreign colleagues • GPS equipment is covered by EAR Category 7, Navigation

and Avionics, under ECCN nos. 7A005, 7A105, and 7A994. Two of those entries redirect the exporter to ITAR

• The exporter must evaluate the EAR entries and ITAR Category XV, Spacecraft Systems and Associate Equipment, to identify the appropriate licensing authority and classification

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Accepting Export Controlled Information

In deciding whether to accept an award that requires the institution to receive export controlled information, consider whether the information is• Central to the project (probably rendering the

entire project export controlled) or

• Tangential in that the PI needs the information but not others working on the project

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Accepting Export Controlled Information (cont’d) If you decide the information is tangential

• Work with RSSP/General Counsel to put in place a nondisclosure agreement prior to receiving the information

• Require that the information be clearly marked “export controlled”

• Work with the PI to safeguard the information and have the PI sign a statement accepting responsibility for protecting the information

• A U.S. person may receive the information but the right to publish must remain unrestricted

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Accepting Export Controlled Information (cont’d)

Contact RSSP if:• you agreed to receive controlled information to

determine compliance issues

• you are aware that UofA has accepted controlled information or signed DoD form DD2345 (Militarily Critical Technical Data Agreement)

Acceptance creates compliance issues for individuals and the university

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What are Economic Sanctions?

US laws that prevent target countries, entities and persons from benefiting from U.S. capital, goods, technology or services

US sanctions prohibit a wide range of transactions with designated countries, entities and persons

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What is Prohibited?

U.S. persons (incl. UofA and its faculty and staff) generally may not, without a license or other authorization:• Export/import goods, services, or technology to/from,

or enter into a contract involving, or otherwise provide services to, a sanctioned country, entity, or individual

• Engage in any transaction with persons/entities designated by the U.S. Government as Specially Designated Nationals (SDNs)

• Approve or facilitate any of the above

• Evade provisions of the sanctions regulations

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How Can This Affect Research?

UofA researchers can encounter sanctions issues by:

• Conducting surveys and interviews in sanctioned countries

• Hiring persons in sanctioned countries to perform services for UofA such as research or field work

• Collaborating on research projects with persons or entities from sanctioned countries

• Providing marketing or business services to persons or entities in sanctioned countries

• Creating materials at the request of a person or entity from a sanctioned country

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Which Countries are Sanctioned?

Currently U.S. sanctions apply to:• Comprehensive: Cuba, Iran, Sudan and Syria

• Limited: Burma (Myanmar), Iraq, Liberia, North Korea

• Non-territorial: Belarus, Côte D’Ivoire, D.R. of Congo, Zimbabwe

Restrictions are country-specific and vary considerably

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What About Travel?

In general, only travel to Cuba is restricted (trips have to be authorized by OFAC)

Trips to other sanctioned countries should be reviewed due to the restrictions on activities and expenditures

Also, the ability to take along certain items (e.g., laptops, testing equipment) is restricted

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OFAC Case Study Q. I am working on a research project and need empirical data

regarding the growth rate of a rare plant in Sudan. I know a research institute in Sudan and want to hire their researcher to observe the plant and record the results. Can I do this?

A. Not without a specific license. OFAC regulations prohibit the importation of services from Sudan. By hiring a person in Sudan to perform the work, you would be importing his/her services, which is prohibited under U.S. law (even if he/she is not an SDN of Sudan)

Q. Can I go myself and watch the plant grow? A. Yes. Travel to Sudan is not prohibited. However, if you need

to take your laptop or technical information related to your research, you need to analyze sanctions and export control law provisions to determine whether such export is permitted (e.g., whether the laptop contains encryption software etc.)

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Who are SDNs?

List of Specially Designated Nationals (SDNs) – more than 6,000 entries for individuals and entities with whom transactions are prohibited, including:• Terrorists and sponsors of terrorist activities

• Narcotics traffickers and kingpins

• Agents of sanctioned country governments and

• Weapons proliferators

The SDN list changes frequently due to new designations by the US Government

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Who are SDNs? The vast majority of the SDNs are located outside the

United States. However:• Some of the SDNs are located in the United States (e.g.,

Richard A. Chichakli in TX, AERO Continente Inc. in FL, Al-Haramain (US branch) in OR, Ash Trading Inc. in FL, IAC International Inc. in FL, Sepulveda-Iragorri Inc. in FL)

• Some of the SDNs have U.S. Soc. Sec. numbers (e.g., Julio C. Flores Monroy, Raed M. Hijazi, Abu Ahmad) or were born in the United States (e.g., Abdul Rahman Taha)

All citizens of Cuba (except those in the United States) and all entities owned or controlled by the Cuban Government or citizens of Cuba are considered SDNs, even though not specifically named on the SDN list

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What About Peer Review? OFAC general licenses authorize U.S. persons to

engage in certain activities related to the publishing of articles authored by persons in Cuba, Iran and Sudan. • Collaborating on the creation and enhancement of written

publications• Augmenting and substantive editing of written publications

However, cannot engage in transactions involving:• Retention of a publishing house or a translator in one of those

countries, with limited exceptions• Goods or services not necessary and ordinarily incident to

publishing (e.g., accounting, legal, design or consulting services)• The development, production, design or marketing of software• The sanctioned country government or its agencies (excluding

academic or research institutions and their personnel)• ITAR-controlled technology or export information controlled under

the ITAR or the EAR

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What are Anti-Boycott Regulations?

UofA cannot participate in boycotts not sanctioned by the U.S. Government

• Primarily the Arab League boycott of Israel The following countries are currently listed as

maintaining a boycott against Israel

• Kuwait, Lebanon, Libya, Qatar, Saudi Arabia, Syria, Yemen, U.A.E.

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What are Some Examples?

Examples of requests to participate in boycotts • A purchase order asking for confirmation that the goods are not

manufactured in Israel

• A bill of lading stating that goods being shipped to the U.A.E. will not be boarded onto a vessel owned by an Israeli entity

• A Letter of Credit requiring a certification that UofA is not “blacklisted”

• A lease agreement for premises in Saudi Arabia requiring UofA to certify that none of its employees are Israeli

There are complicated, fact-specific exceptions in the regulations

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What Should You Do?

If you believe you have received a boycott related request, contact RSSP immediately• Don’t respond in any way until authorized

• Even responding to a request with a “no” can be a violation

UofA must report requests (even if the university does not respond) to the Commerce Dept. and include information on tax filings to the IRS

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Liability for Violations

Liability is personal and institutional and may take the form of: • Administrative penalties

• Monetary fines

• Jail time Voluntary disclosure of violations may

serve as a “mitigating factor” in deciding penalties

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Administrative Penalties

Termination of export privileges

Suspension and/or debarment from government contracting

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Penalties for EAR Violations

Criminal (willful) violations:

• Up to $1 million for institutions

• Up to $250K per violation for individuals and/or up to 20 years in prison

Civil violations:

• Up to $50K per violation for individuals or institutions

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Penalties for ITAR Violations

Criminal (willful) violations:

• Up to $1 million for institutions

• Up to $1 million per violation for individuals and/or up to 10 years in prison

Civil violations:

• Up to $500K per violation for individuals or institutions

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Penalties for OFAC Violations

Criminal (willful) violations:• Maximum fine of $250K for individuals (including

corporate officers) and/or 20 years imprisonment ($5 million and 30 years for Narcotics Kingpin Act)

• Maximum fine of $1 million for institutions ($10 million for a Narcotics Kingpin Act violation)

Civil penalties:• Maximum fine of $50K per violation in most cases

($65K for Cuba; $55K for foreign terrorist org.)• Maximum fine of $1.075 million for a Narcotics

Kingpin Act violation

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Compliance Steps

Faculty and/or research administrators should ask these questions:

1. Does the project involve, in any way, a U.S. sanctioned country or an SDN?

2. Do the terms of the RFP or award involve:• Restrictions on publication (e.g., sponsor approval rights or

prepublication review beyond a brief review for patent protection and/or release of proprietary information)?

• Restrictions on the participation of foreign persons (e.g., sponsor approval required for participation of foreign persons, explicit prohibition on participation)?

• Requirement to keep information confidential?• Permission for the sponsor to claim research results as

proprietary or trade secret?

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Compliance Steps

3. Is the RFP or SOW marked “Export Controlled” or “Classified Information” or does it contain similar references to U.S. export control regulations?

4. Will the project involve an export of items, software or technical data from the United States?

5. Are there any Red Flags?6. Are any parties on any U.S. Government

restricted party lists?

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Compliance Steps

7. Do you know or have any reason to believe that the item, technical data or software to be exported will be used to support WMD efforts?

8. Are there any boycott-related requests?

If the answer to any of these questions is “YES,” please contact RSSP to assist in a determination whether an export license or other authorization is required; the General Counsel’s office will also assist, as necessary

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For More Information

UofA policies pertaining to export control and other research compliance issues are available at: http://www.uark.edu/admin/rsspinfo/

If you have questions regarding any activity, please contact RSSP

The Office of the General Counsel is also available as a resource