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November 01, 2007 

BIS Update 2007, Day 1, Breakout Session: Foreign Nationals and Deemed Exports

Deemed exports are obviously a hot topic in industry right now, as evidenced by the fact that the foreign nationals and deemed exports breakout session was standing room only.

Alex Lopes, Director of BIS's Deemed Exports and Electronics Division, introduced the program by joking that items classified under ECCN 0A983 (i.e., instruments of torture) do not relate to deemed exports.

With respect to deemed export licensing, Mr. Lopes noted that for the first time the number of deemed export license applications received exceeded 1,000 (1,064 to be exact). The number of deemed export licensing exception determinations, however, has dropped. He noted that 80% of license applications were approved and the average license processing time is 40 days. The most common deemed export licenses issued are for semiconductors and electronics in Category 3. The most common foreign nationals for which deemed export license applications are received are from China, followed by India.

Mr. Lopes noted that BIS conducts around 120 outreach events to government, industry and universities each year. For the first time, BIS recently held a webinar to raise deemed export awareness.

Mr. Lopes mentioned that Bernard Kritzer, BIS's Director of the Office of National Security and Tecnology Transfer Controls, is the designated federal officer to the Deemed Export Advisory Committee (DEAC), that was announced by BIS in May 2006. DEAC has held six meetings and will issue a report to the Secretary of Commerce in late 2007. The report will be released to the public on BIS’s website.

Next, Ilona Shtrom, a senior export policy analyst at BIS, discussed third country national issues as they relate to deemed exports. For example, Ms. Shtrom discussed the case of an Indian foreign national who recently obtained UK citizenship. In such a case, for purposes of licensing, it is the foreign national’s most recent obtained permanent residency or citizenship status that is considered.

Ms. Shtrom went through a series of case studies illustrating these issues. For example, what happens when a deemed export license for a Chinese national is submitted, but in the interim the subject obtains Canadian citizenship and thus no license is required? What is the responsibility of an exporter when the exporter knows that the national may have questionable ties? The key, advised the agency, is to have practices in place ahead of time to deal with these issues. When dealing with third country nationals, companies must consider all the facts, ask questions, be aware and be vigilant.

Following Ms. Shtrom, Joseph Conaty, an export policy analyst in the deemed export office, explained the distinction between deemed exports (release of controlled technology to third country national in the U.S.) and deemed re-exports (release of controlled technology to third country national outside of the US).

Next, Special Agent Joel Moss, from the FBI's San Francisco field office, talked about the FBI’s role in combating economic espionage. He noted that the U.S. intelligence community has identified 106 countries that are seeking to obtain technology in the U.S. The top 5 countries conducting economic espionage in the U.S. are China, Russia, Taiwan, South Korea and India.

What is being targeted? Information systems is the leading target, accounting for 25%. Lasers and optics, sensors and electronics are also targeted technologies.

Not surprisingly, unsolicited emails are a leading method used to target technology. Rather than deleting such emails, however, it may be useful to provide the email to the FBI. Front companies are also a common technique. In a survey, many companies did not perceive an economic espionage threat, but such threats are real. Trusted insiders are a common source of economic espionage.

The prime targets are source code, integrated circuit designs, business plans and customer lists. Companies, of course, need to pay attention to economic espionage warning signs and report any suspected acitivities.

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