From: azur@netcom.com (Steve Schear)
Date: Sun, 29 Dec 1996 16:03:27 -0800 (PST)
To: Lucky Green <shamrock@netcom.com>
Subject: Re: New crypto regs outlaw financing non-US development
Message-ID: <v02140b04aeec957d92db@[10.0.2.15]>
MIME-Version: 1.0
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> Lucky Green writes:
[snip]
>Finally, to the big one:
>>Sec. 736.2  General prohibitions and determination of applicability.
>>
>>* * * * *
>>    (7) General Prohibition Seven--Support of Certain Activities by
>>U.S. persons--(i) Support of Proliferation Activities (U.S. Person
>>Proliferation Activity). If you are a U.S. Person as that term is
>>defined in Sec. 744.6(c) of the EAR, you may not engage in any
>>activities prohibited by Sec. 744.6 (a) or (b) of the EAR which
>>prohibits the performance, without a license from BXA, of certain
>>financing, contracting, service, support, transportation, freight
>>forwarding, or employment that you know will assist in certain
>>proliferation activities described further in part 744 of the EAR.
>>There are no License Exceptions to this General Prohibition Seven in
>>part 740 of the EAR unless specifically authorized in that part.
>
>IMHO, this closes the door on the foreign contracting loophole used by C2
>and others. It is now illegal for US persons to finance or contract out
>overseas crypto development, since doing so will obviously assist in
>proliferation. While not unexpected (I offered a bet on Cypherpunks that
>this would happen. Nobody took the bet.), this provision sets a dangerous
>precedence. The technical assistance prohibitions of the past have been
>transformed into general prohibitions against "financing, contracting,
>service, support, transportation, freight forwarding, or employment".
>
>Again, IANAL.
>

If they have not already done so, those currently doing work for/with C2
can form an off-shore company to manage and develop the crypto work.  This
off-shore company can then sell shares (private/public) to citizens and
companies (both foreign and domestic) and use the proceeds to develop the
software.  Some of the investors (e.g., C2) could be offered the
opportunity to become distributors and support the products in their
respective countries.

I doubt the Executive order can be interpreted to mean U.S. citizens cannot
purchase stocks of foreign companies engaged in crypto.  There are many
companies (e.g., NEC, Siemans, Philips, ect.) which engage in development
of crypto equipment which would not be exportable if they were produced in
the U.S.  Can the gov't deny us the right to invest in these and other
offshore companies?

Since those working for C2 are already doing so offshore (e.g., Australia
and England, I believe) these parties would only need to separately
incorporate an entity to conduct that portion of their current business now
under contract to C2.

--Steve