Export Compliance: Graduate Studies at the School of Hard

KnocksDavid Brady, Director, Office of Export and Secure Research Compliance, Virginia Tech dbrady@vt.edu

David Brady

David Brady is the Director of the Office of Export and Secure Research Compliance at Virginia Polytechnic Institute and State University (Virginia Tech). He is the Virginia Tech Facility Security Officer and an Empowered Official of the university. David's office is responsible for ensuring university-wide export and trade sanctions compliance and providing export compliance education. These duties include export determinations, export license preparation, submission, and monitoring. David has also served as Virginia Tech's senior contract negotiator for the Office of Sponsored Programs. David is a graduate of the United States Naval Academy and a former naval nuclear propulsion engineer. He is a current member and past chair of the Association of University Export Control Officers.

Graduate Studies at the School of Hard Knocks-Export & Sanctions Compliance in Pre-Award

“Regulation trumps policy”“The Color of Money”“Mere access…”“ITAR until proven innocent?”“The official policy”“When you think it’s FR, but it’s not!”“The Number 1 Problem Clause”“Grants.ITAR”“Will the real restricted party please stand up?”“Follow the money” (preferably before Treasury does)“Tips to avoiding a Bona Fide Full Time Headache”“Yes, Virginia, there are other export regulations…”“Sanctions, why did it have to be sanctions?”“Not technically exports but…”“Knock, knock. Who’s there? The FBI. The FBI who?”

“Regulation trumps policy”

– ITAR, EAR, DoE/NRC export regulations all have the force of law

– NNSD 189, DoD Policy Memos on Contracted Fundamental Research do not

• NSDD 189 Provides definition:– “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. Where national security requires control, the mechanism for control at universities is classification

• However…NSDD 189 also states:– No restrictions may be placed upon the conduct or

reporting of federally-funded fundamental research that has not received national security classification, except as provided in applicable U.S. Statutes.

– Arms Export Control Act, Export Administration Act, Atomic Energy Act, International Economic Emergency Powers Act- are all applicable statutes

N.B.: Contract terms trump policy too!

“The Color of Money”

• Roth appellate ruling raises issues as to the scope of fundamental research and its applicability to 6.2 DoD funding

“The Color of Money”

“Atmospheric submitted the winning Phase I proposal and the Air Force awarded it the contract in May 2004 with Roth working as a consultant for the project. At or around that time, Sherman told Roth that the project would be paid for with “6.2” funds, which Roth knew implied that the research would be subject to export control laws that prohibit allowing access to the research outside of the United States or to foreign nationals unless a license has been obtained.”

“The Color of Money”

– 6th Circuit opinion appears to hold that all stages of research relating to items on the Munitions List are subject to export controls

– Impact on fundamental research unclear– State takes a very broad view of export regulations

when DoD funds are involved

Voluntary DisclosureCase Study: Cooperative agreement

“The Color of Money”]Voluntary Disclosure

Letter from DTCC said…..•“University also indicated that Company X effort was fundamental research as defined in the ITAR,§120.11(a)(8) but failed to consider the funding for Company X was provided by DoD…”.

“Mere access…”

…to a defense article is a defense service.

ITAR 121.1(a) The following articles, services and related technical data are designated as defense articles and defense services pursuant to §§38 and 47(7) of the Arms Export Control Act (22 U.S.C. 2778 and 2794(7)). Changes in designations will be published in the Federal Register. Information and clarifications on whether specific items are defense articles and services under this subchapter may appear periodically through the Internet Web site of the Directorate of Defense Trade Controls.

“Mere access…”…to a defense article is a defense service.

Licensing of Foreign Persons Employed by a U.S. Person – UPDATEDhttp://www.pmddtc.state.gov/licensing/documents/WebNotice_LicensingForeign2.pdf

“A foreign person employee access authorization must be obtained for all foreign persons who require access to ITAR-controlled defense articles and/or technical data in the performance of their job responsibilities.”

“ITAR until proven innocent?”

DoD: Federal Register Volume 75, Number 67 (Thursday, April 8, 2010)]

“DoD does not have authority to issue ``export direction'' regarding contractor responsibilities to comply with the ITAR and the EAR.”

BIS: Federal Register Volume 75, Number 147 (Monday, August 2, 2010)

“ Thus, this [Commodity Classification] document is not, and may not be relied upon as, a U.S. Government determination that the above-listed items are not, for example, subject to the export control jurisdiction of the International Traffic in Arms Regulations (ITAR) (22 CFR Parts 120-130), which are administered by the U.S. Department of State.”

“ITAR until proven innocent?”

Proposed in export reform- State cedes jurisdiction to DoD over developmental items not already on the Munitions List:

(7) Developmental electronic devices, systems, or equipment funded by theDepartment of Defense;Note 1 to paragraph (a)(7): Paragraph XI(a)(7) does not controldevelopmental electronic devices, systems, or equipment (a) determined tobe subject to the EAR via a commodity jurisdiction determination (see§120.4 of this subchapter) or (b) identified in the relevant Department ofDefense contract as being developed for both civil and military applications.Note 2 to paragraph (a)(7): Note 1 does not apply to defense articlesenumerated on the USML, whether in production or development.

77 FR 70958 (November 28, 2012)

“The Official Policy”

The jurisdiction of an article or data is determined at the time of manufacture or creation

ITAR-controlled articles or data retain this jurisdiction from manufacture through the life of the article or data

Articles and data retain ITAR jurisdiction even if the exporter incorrectly identified them as not subject to the ITAR

http://www.pmddtc.state.gov/documents/Jurisdictional_Policy_Document.pdfFebruary 2013

“When you think it’s FR, but it’s not!”

• Watch for: – Contradictory restrictive terms in

contracts– Contract terms hidden in the SOW– Restrictive Distribution Statements

in CDRLs– Don’t trust small businesses, and some large ones

too

Case study: Terms found in a DoD grantCase study: Foreign contractor

“When you think it’s FR, but it’s not!

Voluntary Disclosure because - • University thought SOW was

controlled• Foreign National post-doc• Small business said they were not giving University “Government Furnished Information” so it wasn’t controlled• Guess what, it was ITAR controlled!

“When you think it’s FR, but it’s not!”*

(d) states "The Recipient shall not release to anyone outside the Recipient's organization any unclassified information, regardless of medium (e.g. film, tape, document), pertaining to any part of this contract or any program related to this assistance agreement, unless the Grants Officer has given prior approval."

(e) states "Requests for approval shall identify the specific information to be released, the medium to be used, and the purpose for the release. The recipient shall submit its request to the Grants Officer at least 45 days before the proposed date of release.

There was also a section (f) that made these mandatory flowdowns.

*No actual contracts were harmed with these publication terms

“The Number One Problem Clause”

• DFAR 252.204-7000 Disclosure of Information – requires APPROVAL, voids fundamental research: 15 CFR 734.11, 22 CFR 120(11)(8)

• When the Contractor will have access to or generate unclassified information that may be sensitive and inappropriate for public release , include the clause DFARS 252.204-7000.

• Approval requirement destroys fundamental research exclusion, export licensing may be necessary for foreign national participation in research

“The Number One Problem Clause”

DISCLOSURE OF INFORMATION (Dec 1991)• The Contractor shall not release to anyone outside the Contractor’s

organization any unclassified information, regardless of medium (e.g., film, tape, document) pertaining to any part of this contract or any program related to this contract, unless—– The Contracting Officer has given prior written approval; or– The information is otherwise in the public domain before the date of

release• Requests for approval shall identify the specific information to be

released, the medium to be used, and the purpose of the release. The Contractor shall submit its request to the Contracting Officer at least 45 days before the proposed date for release.

“The Number One Problem Clause”

• DFAR 252.204-7000 Disclosure of Information – widely misused by DoD and industry

• Mandatory flow-down if in the Prime

• “Sensitive Information” not defined in DFAR for subpart 204- was originally defined, but the definition was removed in 1991 to:

“The Number One Problem Clause”

• DFAR 252.239.7016 (a)(2) defines “Sensitive Information” but only as applicable to the clause:

“Sensitive information means any information the loss, misuse, or modification of which, or unauthorized access to, could adversely affect the national interest or the conduct of Federal programs, or the privacy to which individuals are entitled under 5 U.S.C. 552a (the Privacy Act), but which has not been specifically authorized under criteria established by an Executive Order or Act of Congress to be kept secret in the interest of national defense or foreign policy.”

• Sensitive information is only restricted in solicitations and contracts when performance of a contract requires secure telecommunications DFAR 239.7411(d)

“The Number One Problem Clause”

• Subcontract must include “substantially similar” clause

• Strategies for dealing with DFAR 252.204-7000 in flow-down contracts– Satisfy the clause with Contracting Officer’s prior written

authorization– Negotiate deviation– Inject self-destruct clause – Insert “substantially similar” clause with no pub restriction

for university subcontract– Set up separate contract direct from government w/o clause

“The Number One Problem Clause”

252.204-7000 Release of Information (DEC 1991) Deviation

The contractor shall be free to publish, permit to be published, or distribute for public consumption, any information, oral or written, concerning the results or conclusions made pursuant to performance of this contract; provided, however, that it shall provide copies of any such publication or release of information to the government's contracting officer for review and comment at least thirty (30) days prior to any such release.

“Grants.ITAR”

• Watch out for defense articles being used in financial assistances agreements

• DoS Guidance: “A foreign person employment authorization must be

obtained for all foreign persons who require access to ITAR-controlled defense articles and/or technical data in the performance of their job responsibilities.”

• Case Study: Hearing protection• Case Study: Night vision goggles

“Left Behind”

• Getting a license is the beginning of your compliance role, not the end

• How good is your export license/technology control plan for tangible exports?

• Who pays for the investigation/recovery of items lost, stolen, or …left behind?

Case Studies: Tanzania-camera Chile-camera

“Will the real restricted party please stand up?”

• How much due diligence restricted party screening is enough?

• “Am I too paranoid, or am I paranoid enough?”

Case study: The front organizationCase study: torpedotiger@sina.com

“Will the real restricted party please stand up?”

• Case Study: Homi Bhabha National Institute

– “A “Deemed University” (by act of Indian legislature

– “Faculty” mostly from comprehensively embargoed Indian nuclear weapons manufacturers (e.g., BARC, IGCAR)

“Will the real restricted party please stand up?”• Case Study: Visiting UUV scholar “omitted” some

papers on his CV and affiliation with embargoed entity

“Follow the money” (preferably before Treasury does)

• Banking in or around sanctioned countries, or with sanctioned entities or individuals

• Wire transfers

Case Studies: Sudan, Iran

“Tips to avoiding a Bona Fide Full Time Headache”

• ITAR Bona Fide Full Time Employee Exemption –be careful howyou use it!

“Tips to avoiding a Bona Fide Full Time Headache”

• 22 CFR 125.4 (b) (10) Disclosures of unclassified technical data in the U.S. by U.S. institutions of higher learning to foreign persons who are their bona fide and full time regular employees. This exemption is available only if:

• (i) The employee's permanent abode throughout the period of employment is in the United States;

• (ii) The employee is not a national of a country to which exports are prohibited pursuant to 126.1 of this subchapter; and

• (iii) The institution informs the individual in writing that the technical data may not be transferred to other foreign persons without the prior written approval of the Office of Defense Trade Controls;

• That’s just the beginning…

“Tips to avoiding a Bona Fide Full Time Headache”

• Does not apply to graduate students• Applies to disclosure of technical data

and internal university technical discussions only

• TAA still required for external Technical discussions

Case Study: Stanford-DDTC correspondenceCase Study: UTxA-DDTC correspondence

“Tips to avoiding a Bona Fide Full Time Headache”

- Email from DDTC:“Yes, the exemption includes discussions of the tech data with other employees of the University. No, the exemption does not include discussions and interchange of technical data between the foreign national employee and third parties.”Stephen Geis, DDTC

“Tips to avoiding a Bona Fide Full Time Headache”

• Documentation– 22 CFR 123.26 Recordkeeping requirement for exemptions.– 22 CFR 125.6 Certification requirements for exemptions

• “Yes, Virginia, there are other export regulations…”

• Export Administration Regulations• 15 CFR §760-766 Antiboycott Regulations• Nuclear Regulatory Commission • 10 CFR §110 Exporting Nuclear Materials & Equip.• Department of Energy • 10 CFR §810 Assistance to Foreign Atomic Energy

Activities• Bureau of Alcohol, Tobacco, and Firearms • 27 CFR §444-555 Munitions Import• Office of Patents and Trademarks (PTO) • 37 CFR §5 Patents

“Sanctions, why did it have to be sanctions?”

• New Iran Sanctions, Accountability, and Human Rights Act of 2012 [Pub.L. 112-158]. Section 501

“Sanctions, why did it have to be sanctions?”

• Restrictions on Iranian students:• in “energy” and “nuclear” areas of study• Clarification of restrictions on EAR “software”

use in educational activities • NAFSA guidance

“Not technically exports but…” the NASA/China Law

• Public Law112-55 – Affects appropriation bills for the past two years (NASA’s 2011

continuing resolution and NASA’s fiscal year 2012 appropriation)– Prohibits work involving bilateral participation, collaboration, or

coordination with China or any Chinese-owned company or entity, whether funded or performed under a no-exchange-of-funds arrangement.

– applies to any NASA grant, cooperative agreement, or contract and applies to all sub recipients at any level.

• Restricts by “affiliation” not citizenship or nationality, hence- J-1s, potentially F-1s

“Not technically exports but…” the NASA/China Law• NASA guidance

– http://science.nasa.gov/researchers/sara/faqs/prc-faq-roses-2012/– http://prod.nais.nasa.gov/pub/pub_library/grantnotices/gic12-01.html– http://www.hq.nasa.gov/office/procurement/regs/pic12-01A.html

• Direct questions to:– SARA@NASA.gov– Contracting Officer for existing awards

“Knock, knock. Who’s there? The FBI. The FBI who?”

• Don’t be caught flatfooted when law enforcement comes calling

• Have a plan, designate a POC, know what can or cannot be given withoutjudicial order, set guidelines for dealing

with students– Production of documents, emails, etc.

Questions?

NCURA 54th Annual Meeting * November 4-7, 2012 * Washington, DC