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.
Risk Management
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.
Compliance Convergence
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.
Visit the FCPA Compliance and Ethics Blog,
hosted by Thomas Fox, for more commentary on FCPA compliance, indemnities and
other forms of risk management for a worldwide energy practice, tax issues
faced by multi-national US companies, insurance coverage issues and protection
of trade secrets.
This publication contains general information
only and is based on the experiences and research of the author. The author is
not, by means of this publication, rendering business, legal advice, or other
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action that may affect your business. Before making any decision or taking any
action that may affect your business, you should consult a qualified legal
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© Thomas R. Fox, 2011
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