Export Control Regulations – a new hurdle for the H-1b/O/L visa

Export Control Regulations – a new hurdle for the H-1b/O/L visa

By Farhad Sethna, Attorney – copyright March 2011

Please note: This article is a general overview of the topic and is not intended as specific legal advice. For specific legal advice about how the law may apply to your case and your individual circumstances, please consult a licensed professional.

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The Export Control rule – Background:

Since March 2011, every H-1b / L / O applicant has to affirm, under penalty of perjury, that either (1) it does not require an export license to release certain restricted information to a foreign worker; or (2) if a license is needed, the applicant will obtain such a license before permitting the foreign employee access to such information.

The requirement to control the “release” and thus, a “deemed export” of sensitive technology / data / equipment / materials to nationals of a foreign country who are in the United States is not new – it has been in existence since 1994. However, it was only in 2011 based on national security concerns that the USCIS incorporated the “deemed export” rule into the application for classification of foreign workers for H / L / or O visa status.

Since the H/L/O visa application is typically initiated by the employer’s HR department, the pronoun “you” in this article is intended to refer to the HR professional who will be accumulating the information needed to file the application and sending it either to the company’s internal legal department or to outside counsel for assembly and filing with the USCIS (United States Citizenship and Immigration Service).

What is “release”?

It is defined very broadly to include: physically sharing information; verbal discussions including meetings and presentations; electronic sharing of information; visual information gathering or dissemination including through inspection of facilities, design, repair or servicing equipment.

What is a “deemed export”?

The act of disseminating or exposing the protected information / materials / equipment to the foreign national, which would provide the country of his or her nationality with that protected information. The restricted item / technology does not even have to leave the country – even exposing the foreign national to such materials is prohibited.

What are these rules and which entity administers them?

The Export Administration Regulations (EAR – US Dept of Commerce); International Traffic in Arms Regulations (ITAR – DoD) and Office of Foreign Assets Control (OFAC – US Treasury).

The actual EAR regulations can be found at Title 15 of the Code of Federal Regulations, parts 730-774.

That being said, the US Department of Commerce – Bureau of Industry and Security has developed an extensive FAQ on “deemed exports” as they apply to foreign workers at:

http://www.bis.doc.gov/deemedexports/deemedexportsfaqs.html

Applying the rules:

So, how do you determine if your intended foreign employee is subject to these license requirements before he or she can receive access to specific technologies or data covered by these regulations?

First step: What is the specific technology / data that the foreign worker will be exposed to or have access to?

Second step: Is a license needed for release of such technology, data, or equipment to the country of the foreign worker’s nationality or permanent residence?

Third step: are there any exceptions or special cases that either reduce the burden or increase the burden on the hiring employer?

A useful “Export Control Decision Tree” can be found at the US Government web address:

http://www.gpo.gov/bis/ear/pdf/732.pdf

I. What technology/information will be exposed?

Any item including information; Deemed Exports; Defense services or technical data and obviously – defense materials. Exclusions are for items in the public domain (books, public manuals, publications), and artistic or non-technical publications. Also covers dual-use items (items designed for commercial or industrial purposes that also have military applications). Restricts most exports to sanctioned countries and nationals of sanctioned countries.

II. Is a license required?

Determine if a license is required. In this analysis, keep in mind that we are dealing for the most part with “deemed exports” because the non-immigrant visa classification that the employer is seeking is for a foreign worker to be employed in the USA.

Thus, undertake a two-part analysis: (1) is the information / technology / materials to be disseminated to the foreign national listed under the EAR or the ITAR? and (2) if it is listed, is a license needed to export it to the country of the foreign person’s nationality or permanent residence?

To determine if a license is needed, the following needs to be ascertained:

What is being exported?

To where is it being exported? (Or, in the case of the deemed export rule, what is the nationality or country of permanent residence of the foreign worker who will have access?)

Who will receive the exported item?

What will the exported item be used for? (Especially relevant for dual use items)

The Commerce Control List (CCL) and Export Control Classification Numbers (ECCN)

In order to determine whether a license is needed, use the information above to look up whether the item has a specific Export Control Classification Number (ECCN) assigned by the Department of Commerce’s Bureau of Industry and Security (BIS) – you may want to consult on this with the respective department where the foreign worker will be employed and his or her supervisor to determine the scope of the worker’s employment to be doubly sure this item is thoroughly analyzed. There are several tools you can use:

1. Good background and explanation of how the ECCN system is set up can be found at:

http://www.bis.doc.gov/licensing/exportingbasics.htm

and also at:

http://www.gpo.gov/bis/ear/pdf/738.pdf

2. A helpful process guide to determine if an ECCN exists can be found at:

http://www.bis.doc.gov/licensing/do_i_needaneccn.html

3. You can also use the alphabetical index to determine if an ECCN exists:

http://www.bis.doc.gov/policiesandregulations/ccl_index.pdf

4. The actual ECCN list from the government regulations can be found at: (caution – this is a very long list and will take a few seconds to load)

“>http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=c5cc9a1c749a6f225283bdfa124431d0&rgn=div9&view=text&node=15:2.1.3.4.45.0.1.3.87&idno=15

Alternatively, if you want to seek out more information on the ECCN and the actual text of the regulations covering agencies that may have export controls other than the Department of Commerce, you can also internet-search the term “US Department of Commerce ECCN”

There are two options once you have conducted your ECCN research:

A. What if your item is NOT on the ECCN? Then it falls under the “EAR99″ catch-all category which DOES NOT need a license in most situations EXCEPT if the item will be sent to restricted countries, or to restricted persons, or to support a prohibited end-use (dual use item).

B. If you find an ECCN for your item, then we move to the second part of Step II above: is a license needed? To do so, compare the ECCN with the Country Commerce Chart, which is found at:

http://www.access.gpo.gov/bis/ear/ear_data.html

Select “Part 738 – Commerce Control List Overview and the Country Chart” from the menu.

The Commerce Country Chart:

Now, this part is pretty complex:

First, you have to read the entry for that item very carefully in the CCL (which gave you the ECCN) list. See what requires a license and whether it refers you to the Country Chart; if it does not refer you to the Country Chart, the following part of this explanation does not apply. If it does, then read on…..

You have to cross reference the ECCN number for that item with the Country Chart to see what items are controlled and for what reasons.

Then, you have to review additional regulations if the item IS controlled, to see if there are any exceptions or inclusions. Sounds difficult? Well, it is. Here’s the example from the E-CFR:

(3) Sample analysis. After consulting the CCL, I determine my item, valued at $10,000, is classified under ECCN 2A000.a. I read that the entire entry is controlled for national security, and anti-terrorism reasons. Since my item is classified under paragraph .a, and not .b, I understand that though nuclear nonproliferation controls apply to a portion of the entry, they do not apply to my item. I note that the appropriate Country Chart column identifiers are NS Column 2 and AT Column 1. Turning to the Country Chart, I locate my specific destination, India, and see that an “X” appears in the NS Column 2 cell for India, but not in the AT Column 1 cell. I understand that a license is required, unless my transaction qualifies for a License Exception or Special Comprehensive License. From the License Exception LVS value listed in the entry, I know immediately that my proposed transaction exceeds the value limitation associated with LVS. Noting that License Exception GBS is “Yes” for this entry, I turn to part 740 of the EAR to review the provisions related to use of GBS.

After you are able to see straight, you now know how complex this area of the law can be.

Time permitting, I will try to post a couple of “real” examples using the ECCN numbers from the CCL and correlating the results with the Country Chart.

The USA is very liberal when it comes to nationals / residents of “friendly” countries. For example, there are only two areas in which exports are restricted to Canada – chemical and biological weapons, and under the firearms convention. On the other hand, exports of most “protected” materials to countries that are seen as a threat to the USA (“countries of concern” or “terrorist supporting” are significantly restricted or barred altogether.

III. Are there any exceptions to obtaining a specific license?

If your item is not included in the CCL, it is an EAR99 (the catch-all designation for items that do not need a license). However, even if you find that your item is on the CCL, some exceptions may still apply:

a. Typical ECCN List exceptions (complete list at EAR 740):

LVS – Shipments of Limited Value (upto the value listed in the CCL)

GBS – Shipments to countries on list B (less restricted than Countries of Concern or Terrorist Supporting)

CIV – Civil End Users (relevant to dual use items)

TSR – Technology and Software Restricted

b. Special exception for universities or research institutions:

There are exceptions for “fundamental research” (as at a university or research facility, with exceptions, of course), and basic or applied research in science or engineering at a “institution of higher education” where information is normally shared with the rest of the community. If the university has general restrictions on the publication of the information, then the information will not be deemed to be in the “public domain” and will therefore be restricted. Alternatively, the university may have accepted restrictions on the dissemination of the results in order to accept or be qualified for federal or other government grants. See, EAR 734.7 – 734.10.

But, it’s not all that bad:

Most everyday intellectual property (IP) items will NOT be included in the CCL and hence are exempt from licensing requirements. However, even if an item is considered EAR99 it may still require a license in some cases – see the exceptions list at EAR 736.2(b)(4-10). Where your company’s items or data are covered, it is likely that your company already has export licenses (if it exports the products or technology).

Verification:

In order to protect the applicant (employer, in this case), it is necessary to verify that the applicant DOES NOT need a license to expose the foreign employee to the protected technology / data / materials / or equipment, OR, if the applicant DOES require such a license, that the applicant will restrict the employee’s access to the protected item(s) until the applicant applies for and receives the necessary license(s).

Summary:

The sequence of your analysis should proceed through the following filters:

1. Ensure, of course, that the “foreign” worker is not a naturalized US citizen, or a Legal Permanent Resident of the USA, or a “protected individual” under US law (example – approved asylum applicant)

2. Is the information publicly available?

3. Is the information educational in nature? (Eg: contained in a textbook, paper, monograph, professional journal, etc)

4. Is it already patented or in the patent approval process?

5. Could the information be classified as “fundamental research”?

6. Is it classified under EAR99 (catch-all license exempt classification)

7. Even if the item requires a license under the EAR, do any of the exemptions in the ECCN apply to exempt it from that requirement?

8. If none of these exemptions apply, then you must apply for a license.

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Resources:

Requesting an ECCN: Obtain a PIN number through the BIS website http://www.bis.doc.gov, and then request an ECCN electronically through the Electronic Request for Item Classification (ERIC), which is available through the Electronic Licensing Application Information Network (ELAIN). For assistance, you can also try the BIS Operations Support Division at (202) 482-3290.

For help getting an ECCN: http://www.bis.doc.gov/licensing/do_i_needaneccn.html

Applying for a license: You may apply for a license using the Simplified Network Application Process (SNAP). For additional information visit the BIS website, http://www.bis.doc.gov/snap/index.htm.

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Copyright, Farhad Sethna, Attorney, 2011 – all rights reserved

Please note: This article is a general overview of the topic and is not intended as specific legal advice. For specific legal advice about how the law may apply to your case and your individual circumstances, please consult a licensed professional.