Export News and Regulations

Don’t Sweep Your Deemed Exports Under the Rug

If you’ve ever parented or babysat toddlers you may be familiar with their “If I can’t see you, you can’t see me” tactic.

You know how it goes – it’s time to go to bed or to take a bath, so the child closes his eyes and believes himself invisible. In his mind, he’s off the hook!

When it comes to deemed exports, some companies appear to believe that if they close their eyes to certain violations, those violations simply don’t exist.  The practice of deemed export “self-blinding,” observed one university lawyer, “is the cause of countless violations”. These are companies that would likely never take a chance on packing up tangible controlled goods and shipping them overseas license-free. But with a non-physical deemed export, self-delusion can be easy.  Many a frustrated compliance officer has experienced the difficulties of convincing employees that deemed exports are, in fact, real exports.

Recently a leading global technology company was charged fines totaling $115,000 for several violations of the Export Administration Regulations (EAR). Between 2005 and 2010, the organization provided controlled technical data (including drawings and blueprints for parts used in hard disk drive manufacturing) to Russian and Chinese foreign nationals.  Apparently the company was well aware that their data was controlled (they had created a secure location to store it). Yet they readily provided non-U.S. citizens with access credentials to this technology without first acquiring a license.  Employees did recognize they needed a license from the Department of Commerce. However, according to authorities they applied for it only after discovering the initial release of the technology – then failed to prevent subsequent releases while the license was pending. The Bureau of Industry and Security (BIS) “considered the company’s conduct to be an aggravating factor in the penalty assessment,” a Commerce Department statement explained.

Why did employees take such risks despite knowing their technical data required licensing in order to be legally shared?  Knowing the potential for legal and financial penalties and possible security threats, why did they close their eyes to their export compliance obligations? It’s possible that while waiting for their license acceptance to materialize, bottom-line driven deadlines loomed. Many a poor business decision has been made due to panic, frustration, pressure from management or all of the above.  And with deemed exports, it’s alarmingly easy to downplay the severity of bending the law using various justifications (“It’s to keep a good customer”, “It’s to save our company money and time”, “We know we can trust our employees.”)

It may be easier to justify skirting around deemed export regulations than it is to justify exporting a crate of hand grenades to an embargoed nation… but that doesn’t make unauthorized deemed exports any less illegal.  Even if you close your eyes and pretend the violations aren’t there.