Technology startups are at the forefront of innovation, driving advances that improve efficiency, enable growth and prosperity, and make people’s lives easier, healthier and more rewarding.
If you’re involved in a technology startup business, or if you fund one, you know how important ideas, initiative, timing, persistence and execution are to the ultimate success of your venture. What you may not know is that if this venture seeks to export items overseas (including software and technology)…if it employs or contracts with non-U.S. residents…or if it maintains operations beyond U.S. borders…then it could likely be subject to U.S. export control regulations. And achieving 100% compliance with these laws is essential.
Startup businesses face enough challenges as it is. The last thing your startup needs to do is run afoul of U.S. export controls and face potentially stiff penalties. And yet, federal law enforcement has made it a key priority to investigate technology transfers, hiring and other export-sensitive activities within the emerging technology space.
What to do?
The Export Compliance Training Institute understands the challenges that technology startups and their funders face. We have built our business around the goals of simplifying U.S. export control compliance and helping businesses of all sizes and scopes achieve compliance and maintain it over time.
To help technology startups, funders and trusted advisors understand key issues that apply in the startup arena, empower them to confront these challenges and mitigate their impact on business operations, ECTI created a two-part series, “Export Controls in 60 Minutes for Tech Startups and Their Funders” (view Part I here and Part II here). This series was designed to quickly explain the most important aspects of U.S. export, employment and investment laws with the most impact on companies that may:
- Hire non-U.S. persons, including those on student and other temporary visas
- Have non-U.S. persons as founders or board members
- Be potential targets for acquisition
- Seek funds from investors that may represent foreign principals
- Be venture capital investors in emerging technologies
A Foundation of Export Compliance Knowledge for Technology Startups
Before your technology startup engages in any exports, it’s essential to understand if your technology is considered sensitive and thus subject to U.S. export controls. If you don’t know where to begin, we recommend our blog, “The Export Compliance Basics of ITAR and EAR – Understanding Key Terms, Issues, Similarities and Differences.” In it, you’ll learn the basics of the ITAR and the EAR, the most important U.S. export control regulations. This, in turn, can help you and your startup understand whether you need a license for your items, and which government approvals might be needed in advance of exporting activities.
As an initial step, technology startups and their advisors should make it a priority to assess the universe of risks associated with their export activities, prioritize them and then address them with strategies designed to minimize or eliminate them. From there, the task becomes establishing a baseline export control policy (ideally as part of a broad export compliance program) and then achieving compliance over time. In this regard, Part II of our series delves deeper into the subject and highlights several critical issues of importance to technology startups and their funders, including:
- How “deemed export” rules apply to U.S. visa requirements for non-U.S. engineers. This rule centers on releasing technology or, in some cases, software to foreign persons in the U.S. Many technology startups aren’t aware of this rule. It can seem counterintuitive, since even without sending anything outside the U.S., your business could, in fact, be making an export—at least as far as U.S. export controls are concerned.
- Implications of moving away from the protections of “fundamental research” which excludes certain unrestricted research and its outputs from export control restrictions.
- Obtaining funding from foreign sources—specifically, restrictions around foreign investments
- Managing visa requirements for foreign national employees and foreign visitors
- Strategic planning for the hiring of foreign nationals
- Basics of H1-B, and transitioning student visas to H1-B and other visa types
Beyond the basic tenets of U.S. export control compliance, it’s important for technology startups and their funders to understand how their activities can trigger U.S. governmental reviews—specifically by the Committee on Foreign Investment in the U.S (CFIUS). This process pertains to rules that govern investments from foreign individuals or entities from a national security perspective. Many technology startups receive venture capital and/or angel funding—and this can come from abroad. If the company’s work involves export controlled (or “critical”) technologies the investment may be subject to a mandatory filing, and CFIUS review of the foreign investment. While this isn’t directly tied to U.S. export controls per se, it can be relevant for your technology startup if export control-related work is occurring.
One final note: In everything we do, the possibility of human error is omnipresent. Mistakes happen. Deadlines can be missed as the tide of business swirls around you. No one is perfect. Therefore, being proactive in undertaking established and reputable export compliance training helps to demonstrate that your technology startup business has made a tangible commitment to pursuing compliance. Training in and of itself is considered by the U.S. government as a mitigating factor when considering penalties for non-compliance; so, if you can show the government that you and your tech startup invested in export compliance training, you will prove that you have made an honest effort to comply with U.S. export controls. That, in turn, can greatly reduce the chances that the government will pursue an enforcement proceeding or penalty against you or your business.
We hope this article helps you understand the importance for technology startups of complying with U.S. export controls, and the ways that training can help achieve that. Your startup’s investments rely on achieving 100% compliance with all applicable export regulations and controls. That said, it is absolutely achievable—you can do it, provided you take the necessary time up front to align with an established and widely acclaimed export compliance training partner who can guide you step by step toward compliance success.
Do you have questions about export compliance challenges for your technology startup business? Visit www.learnexportcompliance.com to learn about our company, our faculty, our staff and our esteemed Export Compliance Professional (ECoP®) certification program. To find upcoming e-seminars, live seminars and live webinars and browse our catalog of 80-plus on-demand webinars, visit our ECTI Academy. You can also call the Export Compliance Training Institute at 540-433-3977 for more information.
Scott Gearity is President of ECTI, Inc.