Hi Jay Jesse, here,
I like to try to shed a little light on things small defense companies go through as they grow. There are so many things that are a mystery when you first across them. One of those topics is export. There are so many possible customers outside the US, but when your technology is defense related, it can seem intimidating to even get started. It can be worth it though. ISS went from having no exports to having relationships with dozens of international entities, companies and governments.
I thought I’d bring in Rachel Booth to talk a bit about this. Rachel and I have worked together for many years. She’s an absolute expert on this stuff and helped ISS navigate each new trade compliance challenge.
Jay: Hi, Jay Jesse Here. One of the things I have being doing a lot of lately is trying to shed a little bit of light on some of the mysteries that small and growing defense companies have. As they grow, there are just so many things where the first time you come across them, there’s this “that’s daunting, and I just don’t even know where to start” feeling. So, one of the things I’ve been doing is trying to help companies understand what that is. As a founder and CEO of ISS, we went through a number of those things.
One of them that is scary in the beginning is exports. It’s like, “Wow, that’s scary. Exporting defense technology.” But, there’s really a lot customers out there. There’s a lot of customers outside the US, both governments and other companies, and ISS went from having no exports whatsoever to literally having dozens of customers and relationships with governments and private industry. It was a very rewording experience, but it didn’t come without a big learning experience.
Luckily, I have an expert and a friend of mine, Rachel Booth. We’ve worked together for many years, and she helped me navigate through that with ISS, and I thought I’d bring her on to help shed a little bit of light. So, thanks Rachel for coming on.
Rachel: Yeah, thanks for having me.
Jay: So, just give me a sense for how the trade compliance challenge – how should a small company, a defense company especially, how should they think about that to start?
Rachel: Sure, absolutely. I think the first major point of understanding in any company really, whether its defense or purely commercial, is the traditional understanding of what an export is. So, most people, if they are a services company, a technology company, or a software company, they think, “I’m not exporting anything. I’m not putting anything in a box and physically shipping something from the United States to another country.” And, what’s important to understand, especially when you’re dealing with defense technology or technology that might be sensitive in some way, is that the U.S. government not only controls that physical transaction of a goods leaving the United States to another country, but it also controls deemed exports. So that [deemed exports] is the intangible transfer of technology or software or information within the United States, or even that virtual transaction of that same type of digital technology and software outside of the United States. A good example would be emails, drawings, and documents that you might send or provide to a foreign person, whether here in the United States or abroad. And in many instances too, the United States can control purely a service. When, in the instance of, say technical training to a military end user, or teaching someone how to repair or provide repairs for certain types of equipment overseas. That service, in and of itself, can also be controlled and require permission from the United States government.
Jay: Doesn’t necessarily come to mind that an export can be something that never leaves the country. It’s something that’s actually happening inside the U.S., and yet its still an export that’s controlled by the State Department or some other part of the government. Do you mind talking a little bit more about that?
Rachel: Yeah, absolutely. So, that deemed export or that intangible transfer of software or technology to a foreign person, even here in the United States, can constitute an export. For example, if you have a foreign person who you employee in, say, some type of technical role and they’ll have access to controlled information – think of design, development, production, manufacturing, detailed information – the U.S. government takes the position that, if that person is a foreign person, and is not a US citizen or a Green Card Holder or otherwise has some type of protected status, they consider that to an export to that person’s home country. And so, you treat it as if it were a physical export to say India, or some other country outside of the United States. Where that really comes into play is, if you hire a foreign person on say a H1B Status, or potentially engineers who are here in the United States for school, and they do their visa extension and career development here in the United States, then can be employed, you still have to consider if that role would constitute or if they would have access to technology or software that would potentially need a license to that person’s home country.
Jay: Its such an international world that the work forces these days are a good mixture of people. Which is good, but it does have some complications.
Rachel: Absolutely! And I think another really important point is that we have immigration, and then we have export, and these things don’t always align but they definitely run in parallel. There are a few triggers in the immigration and visa process that might raise the awareness of that, but it might not always be as obvious.
Jay: Right. I think something else you said that reminded me of something, or at least a predisposition, where you think of export as exporting a thing. But in fact, a lot of times it’s a pure service. Its not a thing, it’s a service. Can you give an example of that kind of export maybe?
Rachel: Absolutely. So anytime a U.S. person is providing a service, such as military training or technical assistance, to any foreign person in the United State or abroad, it’s something that could be controlled, depending on what that service is. So for example, when you are supporting allied forces in the Middle East, or supporting a space launch, which is another really good one, that is very broad in terms of the regulations for the planning and onsite support of any non U.S. launch. This would require some type of prior authorization before a U.S. persons supports that. We also run into instances where a U.S. person who is employed overseas, depending on who they are working with and their role, their employment could be subject to an export authorization prior to the provision of that employment, and therefore that service they are providing to a non U.S. company.
Jay: So you’ve talked a bit about this prior authorization. How do you go about getting that? What do you do?
Rachel: Typically, it comes in the form of some type of export authorization, and I use that very generally. But it depends on the type of work that you are doing, the type of technology or software you are working on, and who actually has jurisdiction. There are two primary agencies that we work with, or departments rather. Department of State for defense and military type technologies, and then also Department of Commerce, the Bureau of Industry and Security specifically. They do dual use and commercial and some less sensitive military items fall into their jurisdiction as well. And so, depending on the jurisdiction, or who we need to ask for permission, we use a licensed exception, so these are more general authorizations. Some analysis and eligibility to use a licensed exception have to be done before you can do so. And then in many cases an explicit authorization is required which is when we write a license to the U.S. government, and the relevant department or agency and say, “We want to do X transaction,” and we provide a detailed explanation of the country, the parties involved, where the activities are going to occur, etc. If we have to go through that licensing process, then we will submit that license to the specific agency or department for approval.
Jay: Does that take a long time? How long? Can you give any sort of sense of timing?
Rachel: It can. So, a license exception can take anywhere from a few days to do some analysis and discussion to get some more details, all the way up to roughly 120 days on average. It depends on the agency and the license type that a company or a person may need.
Jay: Rachel, I really appreciate you kind of stepping in. I know it’s a complicated subject and there’s a lot more. We could go on for hours on this stuff, and probably should. I just thought it would be useful to get kind of get an introduction, and if people have questions or comments, just comment on the video or send us a message and we can answer them. But again, I really appreciate you taking the time Rachel.
Rachel: Yeah, absolutely. Thanks for having me.