Academic journal article Entrepreneurial Executive

Export Controls and Their Effect on Business Operations

Academic journal article Entrepreneurial Executive

Export Controls and Their Effect on Business Operations

Article excerpt

INTRODUCTION

Despite his testimony that he did not intend to break the law, plasma physicist J. Reece Roth, a retired 70-year-old University of Tennessee professor, recently was convicted of exporting scientific know-how in violation of federal law. Roth had worked on U.S. Air Force contracts with a Knoxville technology company, Atmospheric Glow Technologies, to develop plasma-based guidance systems for unmanned surveillance vehicles (drones). Roth improperly shared sensitive information with his students from China and Iran and traveled overseas with electronic versions of that material on his computer. The Knoxville company and another scientist also pled guilty to related charges. Enforcement authorities have warned that there is heightened interest from China and the Middle East in obtaining this type of information from seemingly benign settings such as a university. Roth will be sentenced in early 2009 and may face more than a decade in prison (Johnson, 2008).

Clearly the professor was not a spy engaged in espionage activities, so what law did the professor violate? Federal laws regulate the distribution of strategically important products, services and information to foreign nationals and countries in the interest of our national security. The primary agencies responsible for implementing and managing these export control laws, which apply to the transfer of physical items, information, and services, are the Department of State through its International Traffic in Arms Regulations (ITAR) administered by its Directorate of Defense Trade Controls (DDTC) and the Department of Commerce through its Export Administration Regulations (EAR), administered by its Bureau of Industry and Security (BIS). Additionally, the Department of Treasury enforces economic sanctions and trade embargoes, which prohibit transactions with countries, entities and individuals subject to boycotts and trade sanctions, through its Office of Foreign Assets Control (OFAC).

Such a regulatory scheme must balance the desire for free trade and globalization needed for economic growth with the need for maintaining national security (Juster, 2001).While the federal government historically has treated the enforcement of international trade and security restrictions seriously, the war on terrorism, coupled with the strengthening and commensurate enforcement of corporate ethics and liability laws, are responsible for an increased intensity of monitoring efforts (Clark & Jayaram, 2005).

This regulation of exports, including technical data, is of particular interest to small business owners. According to the Intuit Future of Small Business Report, (Intuit, 2008), small businesses are continuing to drive U.S. economic growth and by 2018, almost half of them will be involved in global trade. Nearly 97 percent of all businesses that export goods are small to medium sized organizations, representing 30 percent of the total value of U.S. goods exported globally. Considering that more than 70 percent of the world's purchasing power, and 95 percent of its population, are outside of the United States (Hernandez, 2007), it is readily apparent that opportunities to market products globally are great. Yet, while military and government officials are expected to be vigilant in safeguarding weapons and sensitive data, and to be punished for their failures (Tyson & White, 2008), it is less intuitive that such expectations and ramifications may also exist for business owners. This paper will discuss the significance of this export control regulatory scheme to business operations and the responsibility of businesses in pursuing global markets while preserving national security interests.

INTERNATIONAL TRAFFIC IN ARMS REGULATIONS (ITAR)

The Department of State has the responsibility for the control of the permanent and temporary export and temporary import of defense articles (such as weapons and technical data) to foreign countries to prevent the development of arms and weapons capabilities. …

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