BIS Publishes New “Best Practices” for Industry to Guard Against Unlawful Diversion through Transshipment Trade

On August 31, 2011, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) published a new “best practices” guide for to help guard against the diversion of dual-use items shipped to a transshipment "hub," or to any intermediate country before being shipped to the country of ultimate destination. BIS states that these best practices were developed in conjunction with U.S. industry.

In the announcement, BIS stated:

Transshipment is a routine and growing part of legitimate world trade with logistical benefits, but also can be used illegally to disguise the actual country of ultimate destination. Transshipment practices may also create a risk that items are diverted to unauthorized end-users or end-uses.

“These new best practices provide a formidable tool to help secure trade through transshipment hubs,” said Assistant Secretary for Export Administration Kevin J. Wolf. "BIS is committed to working with industry to adopt best practices critical to safeguarding U.S. national security interests.”

The following new best practices will help exporters, re-exporters, freight forwarders and other parties to comply with US export control regulations and laws and augment BIS’s Export Management and Compliance Guidelines. BIS is encouraging industry to:

  • Pay heightened attention to BIS’s Red Flag Indicators and communicate red flag concerns internally.
  • Seek to utilize only those trade facilitators and freight forwarders that administer sound export control management and compliance programs that include transshipment trade best practices.
  • Obtain detailed information on the credentials of foreign customers to assess diversion risk.
  • For routed transactions, establish and maintain a trusted relationship with parties to mitigate risks.
  • Communicate export control classification and destination information to end-users and consignees on government and commercial export documentation.
  • Provide the ECCN or the EAR99 classification to freight forwarders for all export transactions and report the classifications in the Automated Export System (AES), if applicable.
  • Use information technology to the maximum extent feasible to augment "know your customer" and other due-diligence measures in combating the threats of diversion and increase confidence that shipments will reach authorized end-users for authorized end-uses.

This set of best practices, aimed at U.S industry, supports one of ten best practices suggested by the State Department’s Bureau of International Security and Nonproliferation to foreign governments at the Global Transshipment Seminar in Dubai, United Arab Emirates, in March 2011. That best practice suggestion encouraged industry to develop stronger internal compliance programs, conduct focused outreach, and raise awareness of export control obligations.

The 2011 “Best Practices for Preventing Unlawful Diversion of U.S. Dual-Use Items Subject to the Export Administration Regulations, Particularly through Transshipment Trade” are posted on the BIS
website.

BIS Posts Session and Panel Presentations from Update 2011 Conference on Export Controls & Policy

The Bureau of Industry and Security (BIS) posted on its website session and panel presentations from Update 2011 Conference on Export Control & Policy that detail the status of Export Control Reform implementation.

BIS Seeks Comments on Proposed Revisions to EAR re: Control of Items that No Longer Warrant ITAR Control Under the USML

On July 15, 2011, the Bureau of Industry and Security (BIS) issued a rule in the Federal Register proposing a new regulatory construct for the transfer of items on the USML that, in accordance with section 38(f) of the Arms Export Control Act (AECA), the President determines no longer warrant control under the AECA and that would be controlled under the Export Administration Regulations (EAR) Commerce Control List (CCL) once the congressional notification requirements of section 38(f) and corresponding amendments to the International Traffic in Arms Regulations (ITAR) and its USML and the EAR and its CCL are completed.

This rule also proposes amending the EAR to establish a process by which certain items moving from the USML to the CCL would be made eligible for License Exception Strategic Trade Authorization (STA), and proposes EAR amendments related to movement of USML items to the CCL, such as new definitions of relevant terms, including “specially designed,” “end items,” “parts,” and “components.” The proposed rule also establishes a new holding Export Control Classification Number (ECCN) in which items that warrant a significant level of control, but are not otherwise classified on the CCL, may be temporarily placed.

Finally, the rule proposes the transfer of an initial tranche of items from USML Category VII (Tanks and Military Vehicles) to the CCL.

Comments to BIS are due September 13, 2011.

BIS Adds the New State of the Republic of South Sudan

On July 13, 2011, the Bureau of Industry and Security (BIS) amended the Export Administration Regulations (EAR) adding controls on exports and reexports of U.S.-origin dual-use items to a new nation, the Republic of South Sudan.

In January 2011, the region of Southern Sudan held a referendum to determine whether that region would remain part of Sudan or become a separate, independent nation. On February 7, 2011, the referendum commission announced that the region of Southern Sudan had voted to become a separate nation, effective July 9, 2011.

On February 7, 2011, recognizing this development in the implementation of the Comprehensive Peace Agreement (CPA), President Obama announced the intention of the U.S. to formally recognize the Republic of South Sudan as a sovereign state in July, 2011.

BIS amended the EAR to reflect the July 9, 2011 formal recognition by adding the new nation, the Republic of South Sudan, to the Commerce Country Chart. The new country is included in Country Group B, which will render the destination eligible for certain export and reexport License Exceptions. The controls that continue to apply to “Sudan” under the EAR will not apply to the Republic of South Sudan.

This rule is effective July 9, 2011.

North Carolina CEO Fined for Unauthorized Exports to Libya

On July 1, 2011, the Bureau of Industry and Security (BIS) announced that Mohammed El-Gamal, also known as Moe Zayed El-Gamal (Gamal), President and CEO of Applied Technology, Inc. (ATI) of Kenansville, NC, has agreed to pay a civil penalty of $340,000 to settle allegations that he violated the Export Administration Regulations (EAR) by exporting controlled networking equipment to Libya without the required export licenses.

BIS alleged that on three occasions during June and July of 2006, Gamal sent networking equipment, controlled for Anti-Terrorism reasons, to the General Electric Company of Libya, without the required Department of Commerce licenses. In connection to one of these shipments, agents searched an ATI employee flying from Detroit, MI to Libya and found three computer cards hidden in his carry-on luggage.

To settle the administrative case, Gamal agreed to conduct a compliance audit of ATI covering the first year of exports following the settlement, put in place a compliance program, attend BIS export compliance training, and complete an audit for past exports.

On February 14, 2011, Gamal also pleaded guilty in the District Court for District of Columbia to one count of Material False Statements made to agents in the course of investigation. On May 16, 2011, he was sentenced by United States District Judge to pay a fine of $5,000, to perform 100 hours of community service, and to serve two years supervised probation.  The judge also ordered Gamal to provide monthly reports to the Department of Commerce regarding his export activities during the probationary period.

BIS Publishes Changes to ECCN 4A003 and Revisions to License Exception APP

On June 24, 2011, the Bureau of Industry and Security (BIS) published a final rule revising the Export Administration Regulations (EAR) to implement changes made to the Wassenaar Arrangement’s List of Dual Use Goods and Technologies (Wassenaar List) maintained and agreed to by governments participating in the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual Use Goods and Technologies (Wassenaar Arrangement, or WA) at the December 2009 WA Plenary Meeting (the Plenary) that relate to Export Control Classification Number (ECCN) 4A003.

This rule also makes corresponding revisions to License Exception APP, the de minimis rule, and post shipment verification reporting requirements in the EAR.

Additionally, this rule moves Albania and Croatia from Computer Tier 3 to Computer Tier 1 in the section of the EAR dedicated to export control requirements for high performance computers. The Administration believes Albania and Croatia are eligible to be treated as Computer Tier 1 countries because their governments have made the necessary reforms to allow the countries to join the North Atlantic Treaty Organization, and have adopted accepted global standards in export controls.

This rule is effective on June 24, 2011.

BIS Implements Strategic Trade Authorization License Exception

On June 16, 2011, the Bureau of Industry and Security (BIS) posted a final rule in the Federal Register that adds the Strategic Trade Authorization (STA) license exception to the Export Administrations Regulations (EAR). STA authorizes the export, reexport, and transfer (in- country) of specified items to destinations that pose relatively low risk that those items will be used for a purpose that licensing requirements were designed to prevent.

To use the STA license exception, parties to the transaction must exchange notifications and statements designed to provide assurance against diversion of such items to other destinations. The exception is only relevant to exports, reexports, and transfers for which a license is required under the EAR. Thus, if the EAR do not impose an obligation to apply for and receive a license before exporting, reexporting, or transferring an item subject to the EAR, STA is not relevant to the transaction.

STA license exception is expected to facilitate exports between the U.S. and partner countries while enhancing the competitiveness of U.S.’s key industrial base sectors.

The final rule is effective June 16, 2011.

BIS Revokes the Suspension of a $2M Penalty and Accelerates Payment of Outstanding $5.2 Penalty for Balli Group

On June 13, 2011, the Bureau of Industry and Security (BIS) announced that in response to a May 20, 2011 order revoking the suspension of a $2M civil penalty and invoking the acceleration clause for the two remaining $2.6M installment payments, Balli Group PLC and Balli Aviation paid a total of $7.2M in civil penalties.

BIS and the Treasury Department’s Office of Foreign Assets Control (OFAC) had entered into an agreement with Balli Group PLC and Balli Aviation Ltd. (collectively “Balli&rdquoWinking in February 2010, with civil penalties totaling $15M, originally suspending $2M, regarding allegations that Balli conspired to export or reexport commercial aircraft from the United States to Iran in violation of the Export Administration Regulations (EAR) and the Iranian Transactions Regulations (ITR). This case represented the largest civil penalty ever imposed by BIS.

In his revocation order, BIS Assistant Secretary Mills stated: "[Balli] failed in my judgment to arrange its business and financial affairs in such a manner as to ensure compliance with its civil penalty payment obligations – obligations that were imposed, moreover, as a result of Balli’s egregious conduct that violated U.S. export control laws and provided support to Iran and its proliferation efforts."

BIS previously had charged that between 2005 and 2008 Balli conspired with an Iranian airline to export or reexport U.S.-origin Boeing 747 aircraft to Iran without the required U.S. Government authorization. Specifically, three of the aircraft were flying on routes in and out of Iran using Iranian flight numbers while under the operational control of the Iranian airline. Balli allowed the aircraft to continue to be operated contrary to U.S. export control laws, despite warnings from BIS and the manufacturer. Additionally, Balli misled and concealed information from BIS regarding the role the Iranian airline played in the acquisition and financing of the aircraft via funds from the Iranian Foreign Exchange Reserve Fund.

BIS also had charged that from July 2008, through September 2008, Balli took actions prohibited by a BIS order temporarily denying its export privileges. Balli conducted negotiations with persons, including another person subject to the Temporary Denial Order, concerning financing, receiving and/or using three additional U.S.-origin aircraft that had been exported from the United States and are subject to the EAR.

BIS Issues Statement on Suspension of Export Licenses to Syria

On May 18, 2011, BIS issued the following statement:

Effective May 18, 2011, the Department of Commerce's Bureau of Industry and Security (BIS) suspended certain licenses for the export and reexport to Syria of U.S. origin parts and components needed for the overhaul/refurbishment of certain long-range, high capacity commercial aircraft not currently in service. Due to the commission of human rights abuses related to political repression in Syria, export and reexport of these items is now deemed contrary to the foreign policy interests of the United States. BIS took this action under the authority of Section 750.8 of the Export Administration Regulations and all persons holding relevant licenses have been notified of this action.

BIS Publishes Final Rule Amending CCL

On May 20, 2011, the Bureau of Industry and Security (BIS) published a final rule in the Federal Register amending the Commerce Control List (CCL) to conform with the Wassenaar Arrangement 2010 Plenary Agreements Implementation.

This final rule revises the CCL to implement changes made to the Wassenaar Arrangement’s List of Dual-Use Goods and Technologies (Wassenaar List) maintained and agreed to by governments participating in the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies (Wassenaar Arrangement, or WA) at the December 2010 WA Plenary Meeting (the Plenary). The Wassenaar Arrangement advocates implementation of effective export controls on strategic items with the objective of improving regional and international security and stability. To harmonize the CCL with the changes made to the Wassenaar List at the Plenary, this rule amends entries on the CCL that are controlled for national security reasons in Categories 1, 2, 3, 4, 5 Parts I & II, 6, 7, 8, and 9, revises reporting requirements, and adds and amends definitions in the EAR.

BIS Publishes Testimony of Under Secretary Hirschhorn on the President's Export Control Reform Initiative

On May 12, 2011, Under Secretary of Commerce Bureau of Industry and Security (BIS), Eric Hirschhorn, testified before the U.S. House of Representatives’ Committee on Foreign Affairs in its Hearing on “Export Controls, Arm Sales, and Reform: Balancing U.S. Interests, Part I.”

Hirschhorn testified regarding:

  1. The Current Export Control Role of the Department of Commerce
  2. Changes at the Department of Commerce
    • List Review & Licensing Policy
    • Outreach
    • Compliance and Enforcement
  1. The Export Enforcement Coordination Center
  2. The Role of Congress in Export Controls

All Registered SNAP-R Companies Must Designate an Administrator by June 9, 2011 

The Bureau of Industry and Security (BIS) posted a reminder on its website that all registered Simplified Network Application Process Redesign (SNAP-R) companies must designate an administrator by June 9, 2011.

After this date, all active SNAP-R user accounts associated to the company’s company identification number (CIN) without a designated company administrator will become inactive until at least one company administrator is designated.

BIS Posts Comments Received in Response to Proposed Regulations

The Bureau of Industry and Security (BIS) posted public comments in response to: (1) the proposed rule regarding Strategic Trade Authorization (STA) license exception, and (2) the proposed rule regarding revising descriptions of items and foreign availability.

BIS issued the proposed rule on the Strategic Trade Authorization license exception on December 9, 2010. It adds a new license exception to the Export Administration Regulations (EAR). The exception allows exports, reexports and transfer (in-country) of specified items to destinations that pose little risk of unauthorized use of those items. To prevent diversion to unauthorized destinations, transactions under this license exception would be subject to notification, destination control statement and consignee statement requirements.

With regard to amending the EAR, BIS sought public comments on how descriptions of items controlled on the Commerce Control List (CCL) of the EAR could be more clear and positive and “tiered” in a manner consistent with the control criteria the Administration has developed as part of the export control reform effort.

BIS Clarifies Its Authority to Revise, Suspend and Revoke Licenses

On March 7, 2011, the Bureau of Industry and Security (BIS) amended the Export Administration Regulations (EAR) to clarify the Application Processing, Issuance, and Denial provisions regarding BIS’s authority to revise, suspend or revoke licenses.

Part 750 of the EAR provides for the revision, suspension or revocation of licenses whenever it is known that the violation of the EAR has or is about to occur. The final rule revises revocation or suspension of licenses at §750.8 by removing the phrase “whenever it is known that the EAR have been violated or that a violation is about to occur.”

This change will clarify BIS's authority to revise, suspend, or revoke licenses and will harmonize §750.8(a) of the EAR, concerning licenses, with an analogous provision in §740.2(b) regarding the revision, suspension or revocation of license exceptions under the EAR.

The change in Part 750 is expected to make it clear that the United States’ ability to revoke or suspend a license is not limited to those cases where the EAR have been violated or where a violation is about to occur. The authority to revoke or suspend a license also extends to cases where BIS seeks to prevent licensed export transactions in which the U.S. may subsequently have an interest, including a foreign policy interest.

Export Control Forum Remarks of BIS Under Secretary Hirschhorn Posted

On February 28, 2011, BIS posted to its website the opening remarks of Commerce Under Secretary for Industry and Security Eric L. Hirschhorn at BIS’ Export Control Forum in Irvine, CA.

In his remarks, Under Secretary Hirschhorn detailed the export control initiative and addressed:

  • The U.S. Munitions List
  • The Commerce Control List
  • The Parallel-Tiered Control Lists
  • Licensing Policy
  • Related Export Control Issues
  • Compliance and Enforcement
  • Information Technology System

Commerce Announces Appointees to President’s Export Council Subcommittee on Export Administration

On February 23, 2011, Commerce Secretary Gary Locke announced the appointment of members to the President’s Export Council Subcommittee on Export Administration (PECSEA), which will advise the Commerce Department on the administration’s export control reform initiative.

“The PECSEA will provide invaluable advice as we continue to enhance our national security through the President’s reform efforts,” Locke said. “Export Control Reform requires a public-private partnership, and the business community’s insight on how that effort impacts the industrial base is vital.”

President’s Export Council (PEC) member Raul Pedraza, Founder and President of Magno International L.P., will chair the PECSEA, which has scheduled its first meeting for March 10. Marion Blakey, President and Chief Executive Officer of the Aerospace Industries Association, will serve as the Vice Chair.

Additional PECSEA Members

Gregory Bourn, Finmeccanica North America, Inc.
Leslie Bowen, Material Systems, Inc.
Darrell Coleman, DynCorp International, LLC
Curtis Dombek, Sheppard, Mullin, Richter & Hampton, LLP
Nelson Dong, Dorsey & Whitney, LLP
Jefferson Hofgard, The Boeing Company
Beth Ann Johnson, Northrop Grumman Corporation
Dean Johnson, Systron Donner Inertial
Tino Oldani, Ingersoll Machine Tools, Inc.
Kathleen Lockard Palma, General Electric Company
Roy Paulson, Paulson Manufacturing Corporation
Kimberly Pritula, Sturm, Ruger & Company, Inc.
Gregory Robbins, Veeco Instruments, Inc.
Carlos Romero, University of New Mexico
Robert Schacht, Hyrdra-Electric Company
Michelle Schulz, Braumiller Schulz, LLP
Chiradeep Sengupta, Federal Express
Michael Slonim, Honeywell International, Inc.
Osval “Chip” Storie, MAG Industrial Automation Systems
Michael Swartz, Lake Shore Cryotronics, Inc.
Chuck Tabbert, Ultra Communications, Inc.
Song Volk, Hughes Network Systems, LLC

Reports on Offsets Related to Foreign Sales of Defense Articles and Services Due June 15

On February 23, 2011, U.S. Bureau of Industry and Security (BIS) posted a notice in the Federal Register reminding that U.S. firms are required to report annually to the Department of Commerce on contracts for the sale of defense articles and defense services to foreign countries or foreign firms that are subject to offsets agreements exceeding $5 million in value.

U.S. firms are also required to report annually to Department of Commerce on offsets transactions completed in performance of existing offsets commitments for which offsets credit of $250,000 or more has been claimed form the foreign representative. This year, such report must include relevant information from calendar year 2010 and must be submitted to Commerce no later than June 15, 2011.

BIS Implements Mandatory Electronic Registration for SNAP-R

On February 9, 2011, the Bureau of Industry and Security (BIS) posted a final rule in the Federal Register that amends the Export Administration Regulations (EAR) implementing mandatory on-line registration process for obtaining an account to submit license applications and similar documents electronically through Simplified Network Application Processing (SNAP-R) system.

The final rule sets forth the information that parties registering online are required to provide to BIS and other duties that registered parties have with respect to keeping information in their accounts current. In the past, BIS required filing entities to register for a SNAP-R account through a paper and facsimile process.

The rule is effective March 11, 2011. Beginning on April 11, 2011, all new SNAP-R registrations must be made in accordance with this rule.

The rule also provides that, beginning on June 10, 2011, SNAP-R accounts of filing entities that do not have account administrators will not be accessible until an existing individual user for that entity logs-on to SNAP-R and registers as account administrator. Beginning September 8, 2011, any accounts that do not have an account administrator will be inactivated. Filing entities will be able to register again but will have to go through entire registration process that applies to new entities.

BIS Reviews Progress of U.S. Export Controls Reform in the C5 European Forum

On February 7, 2011, Daniel O. Hill, Deputy Under Secretary for Industry and Security, spoke at the C5 European Forum on Export Controls in Brussels, Belgium, commenting on the U.S. export controls system reform.

Mr. Hill emphasized the need to reform the U.S. export controls to keep pace with geopolitical changes and innovations in industries: Our current system operates under two different control lists with distinctly different approaches to identifying and controlling products. The Department of State administers the Munitions List, which generally includes items specifically designed for military applications, a concept as opaque as it is outdated. And the Commerce Department administers the Commerce Control List, or CCL, which is a far more specific list of mostly “dual use items” – that is commercial items that could have military applications – items like truck parts, electronic components and even computers. There are three primary U.S. licensing agencies – each with different procedures and different information technology systems – and scores of different regulatory definitions. It would be hard for anyone to argue that this existing system is maximizing our security or is a model of efficiency. The Munitions List was created during the Cold War. Most of the items used by the military were developed by, or solely for the military. But times have changed. The commercial sector alone now develops nearly two-thirds of the technologies our military uses. For exporters and companies with production lines spread across the globe, time they could be spending creating innovative, game-changing products to sell in different countries is instead spent navigating a confusing and time-consuming export control bureaucracy. An equally disturbing phenomenon is that U.S. companies are sometimes being “engineered out” of collaborative foreign projects due to U.S. export control requirements. We have heard of examples of sales contracts including provisions that explicitly bar the use of U.S.-manufactured articles because companies don’t want to have to deal with our export control system.America puts our exporters in an untenable position when we forbid or delay them from selling a widely available item to an overseas market even when comparable foreign items face no similar restrictions from their home country.”



Mr. Hill also spoke of improving the export controls regime by reforming the United States Munitions List (USML), changing the export controls structure, and establishing a licensing policy that ensures an appropriate agency review.

As for the USML, the “goal is to create one list that will include every item or technology that requires control; have one agency that will administer these controls; have one enforcement coordination agency that handles every investigation of criminal violations; and run everything using one IT platform.” The Department of Defense and the Department of State are working on harmonizing the way the USML and the Commerce Control List (CCL) control items, software and technology. USML is being converted into a positive list of controls. Mr. Hill also stated that a three-tiered licensing system is being created that will apply in the same manner to items on both the USML and the CCL.

When the two control lists are updated, the plan is to implement common criteria for classifying items on both lists. This will be achieved by dividing each of the two lists into a three-tiered structure, which will distinguish between the most sensitive items available only in the U.S., items in the middle tier that provide a substantial military or intelligence advantage, and items in the lowest tier reserved for items that provide a significant military or intelligence advantage and which are more broadly availably.

These tiers are expected to improve the U.S. national security and competitiveness by permitting the government to adjust controls in a timely manner over a product’s life cycle.

A corresponding licensing policy will be implemented to ensure appropriate agency review. Top tier items will generally require a license for all destinations, many of the items in the middle tier will be eligible to be exported to allies and most multilateral partners under a license exception or general authorization, and licenses for the lowest tier items not considered proliferation concerns will typically not be required.

In the final phase of export controls reform, U.S. government plans to merge the USML and the CCL into one list.

The upcoming changes will be documented in the Federal Register.

BIS Implements US-India Bilateral Understanding Regarding Export Controls

On January 25, 2011, the Bureau of Industry and Security (BIS) issued a final rule in the Federal Register amending the Export Administration Regulations (EAR). The rule implements parts of understanding between the U.S. and India regarding nonproliferation and export controls reform program.

Specifically, BIS began implementation of the U.S.-India agreement by revising certain export and reexport controls for India, including removal of nine Indian entities from the Entity List. In addition, BIS amended the EAR to remove India from Country Groups D:2, D:3, and D:4 and instead add India to Country Group A:2.

These changes in the EAR are also a part of the initial steps to implement the export control reform program outlined in the November 8, 2010 U.S.-India bilateral understanding.

The rule is effective January 25, 2011.

BIS Publishes 3 New Government Reports

On January 14, 2011, the Bureau of Industry and Security (BIS) published the following reports:

BIS Publishes Final Rule on Mass Market Encryption

On January 7, 2011, the Bureau of Industry and Security (BIS) published a final rule on publicly available mass market encryption software and other specified publicly available encryption software in object code.

Through this Final Rule, BIS is removing from the scope of items subject to the Export Administration Regulations (EAR) ‘‘publicly available’’ mass market encryption object code software with a symmetric key length greater than 64- bits, and ‘‘publicly available’’ encryption object code classified under Export Control Classification Number (ECCN) 5D002 on the Commerce Control List when the corresponding source code meets the criteria specified under License Exception TSU. This change is being made pursuant to a determination by BIS that, because there are no regulatory restrictions on making such software ‘‘publicly available,’’ and because, once it is ‘‘publicly available,’’ by definition it is available for download by any end user without restriction, removing it from the jurisdiction of the EAR will have no effect on export control policy. This action will not result in the decontrol of source code classified under ECCN 5D002, but it will result in a simplification of the regulatory provisions for publicly available mass market software and specified encryption software in object code.

BIS Implements Additional Changes from Annual Review of Entity List for Entities in China and Russia

On December 17, 2010, the Commerce Department’s Bureau of Industry and Security (BIS) issued a final rule implementing additional changes to the Entity List based on the annual review of the list conducted by the End-User Review Committee (ERC).

The changes to the Entity List from the annual review is being implemented in three rules. The first rule published on May 28, 2010 (75 FR 29884) implemented the results of the annual review for listed entities located in Canada, Egypt, Germany, Hong Kong, Israel, Kuwait, Lebanon, Malaysia, South Korea, Singapore, and the United Kingdom.

The second rule, published on 12/17/10, implements the results of the annual review for entities located in China and Russia. This rule removes five entities from the Entity List under Russia and makes twenty-one modifications to the Entity List (consisting of modifications to eighteen Chinese entries and three Russian entries currently on the Entity List) by adding additional addresses, aliases and/or clarifying the names for these twenty-one entities.

The third rule, which will likely be published in early 2011, will implement the remaining results of the annual review.

The Entity List provides notice to the public that certain exports, reexports, and transfers (in-country) to entities identified on the Entity List require a license from the Bureau of Industry and Security and that availability of license exceptions in such transactions is

BIS Issues Advance Notice of Proposed Rulemaking re: Revising the Descriptions of Items on the CCL and Foreign Availability

On December 9, 2010, the U.S. Commerce Department's Bureau of Industry and Security (BIS) issued an Advance Notice of Proposed Rulemaking in the Federal Register. As part of the President's export control reform initiative, BIS is seeking public comment on how the descriptions of items controlled on the Commerce Control List (CCL) of the Export Administration Regulations (EAR) could be more clear and positive and "tiered" in a manner consistent with the control criteria the Administration has developed as part of the reform effort. The request for comments on how items on the CCL could be tiered includes a request for comments on the degree to which a controlled item provides the United States with a critical, substantial, or significant military or intelligence advantage; and the availability of the item outside certain groups of countries.

BIS states that:

A core task of the Administration’s Export Control Reform Initiative is to enhance national security by reviewing and revising, as necessary and to the extent permitted by law and regime obligations, the lists of items (i.e., commodities, software, and technology) controlled for export and reexport so that they (1) are clearer and more "positive" in nature and (2) can more easily be screened into three tiers based upon a set of criteria. The Administration has developed a three- tiered set of criteria to help determine whether a license should be required or a license exception should be available to allow license-free export, reexport, or transfer (in-country) of a given item, with appropriate conditions, to various destinations. The three-tiered set of criteria has two primary elements-(a) the degree to which an item provides the United States with a military or intelligence advantage and (b) the availability of the item outside the United States, its close allies and multilateral export control regime partners.


Accordingly, BIS seeks public comments on how certain export control classification numbers (ECCNs) that do not contain "positive" descriptions or that are unclear can be made more clear and more specific. In addition, BIS also seeks public comments on whether items with the capabilities and characteristics described on the CCL, and controlled for other than solely anti- terrorism (AT) reasons or Crime Control (CC) reasons, are indigenously developed, produced, or enhanced (a) almost exclusively in the United States or (b) in destinations other than Argentina, Australia, Austria, Belgium, Bulgaria, Canada, Croatia, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, Turkey, Ukraine, or the United Kingdom.

BIS Proposes New License Exception STA

On December 9, 2010, the U.S. Commerce Department’s Bureau of Industry and Security (BIS) issued a proposed rule adding a new license exception to the Export Administration Regulations (EAR). The new Strategic Trade Authorization (STA) license exception would allow exports, reexports and transfers (in-country) of specified items to destinations that pose little risk of unauthorized use of those items. To provide assurance against diversion to unauthorized destinations, transactions under this license exception would be subject to notification, destination control statement and consignee statement requirements. This proposed rule is part of the Administration’s Export Control Reform Initiative undertaken as a result of the fundamental review of the U.S. export control system announced by the President in August 2009.

This license exception would encompass three different authorizations, based on the reason(s) for control underlying the license requirements that would apply to the item in the particular transaction at issue, the destination, the sensitivity of the item and the end-use. One authorization would allow items subject to any (or all) of seven reasons for control to go to 37 destinations. Another authorization would allow less sensitive items subject to only national security reasons for control to go to two additional destinations. The third authorization would allow less sensitive items subject to only national security reasons for control to go to 125 additional destinations for civil end- uses. National security-controlled items that are ineligible for the last two authorizations would be identified by the new ‘‘STA exclusion paragraphs’’ in the ‘‘License Exceptions’’ sections of 50 ECCN entries on the Commerce Control List. Thus, the STA exclusion serves the opposite function of a typical list-based license exception paragraph, such as those setting forth license exceptions LVS (§ 740.3) and GBS (§ 740.4), which identifies items that are eligible for a license exception.

Comments on the proposed rule must be received by BIS no later than February 7, 2011.

BIS Seeks Comments on SNAP-R System

On November 23, 2010, the Bureau of Industry and Security (BIS) issued a proposed rule in the Federal Register seeking comments on Simplified Network Application Processing (SNAP-R) System, On-Line Registration and Account Maintenance

BIS is proposing to implement an on-line registration process for obtaining an account to submit license applications and similar documents electronically. The current registration process requires paper and facsimile submissions.

This proposed rule sets forth the information that parties registering on-line would be required to provide to BIS and sets forth the duties that registered parties would have with respect to keeping information in their accounts current.

Comments are due January 24, 2011.

BIS Issues Corrections to Wassenaar Arrangement 2009 Plenary Agreements Implementation

On October 13, 2010, the Bureau of Industry and Security (BIS) published correcting amendments to the final rule issued in the Federal Register on September 7, 2010 that revised the Export Administration Regulations (EAR) by amending entries for certain items that are controlled for national security reasons in Categories 1, 2, 3, 4, 5 Part I (telecommunications), 6, 7, and 9; adding new entries to the Commerce Control List (CCL); revising reporting requirements; and adding and amending EAR Definitions.

According to the correcting amendments, the final rule of September 7, 2010 contained errors that affect Export Control Classification Numbers (ECCNs) 6A005, 6A006, and 9A001, as well as the definition of “energetic materials.” In addition, the final rule’s preamble erroneously identified ECCN 6E993 as one of the ECCNs that was revised in the rule’s text.

The rule, as corrected, removes the note after 6A008.f. Also, the rule of September 8 listed an incorrect citation of “6.A.5.d.1.d” instead of “6A005.d.1.d” in 6A005.d.1.e, which is corrected by the amendment of October 13. The current rule also replaced two incomplete citations in the introductory text of ECCN 9A001.a; this rule replaces the citations “.a or .h” with “9E003.a or 9E003.h”.

Amendments are effective October 13, 2010.

BIS Seeks Comments Regarding Small and Medium Enterprises’ Understanding of the EAR

On October 6, 2010, the Bureau of Industry and Security (BIS) published a notice in the Federal Register seeking comments regarding small and medium enterprises’ understanding of and compliance with export controls under the Export Administration Regulations (EAR). Specifically, BIS is seeking comments that identify issues and make recommendations regarding small and medium enterprises’ awareness and understanding of the EAR, as well as their experiences complying with the EAR.

In addition, BIS invites the public to submit comments on the following:

(1) The principal challenges small and medium enterprises face in trying to comply with the EAR, including any challenges that small and medium enterprises uniquely face and approaches to overcoming these challenges;
(2) The value of current BIS outreach, education and counseling to small and medium enterprises in understanding and complying with the EAR;
(3) Ways to improve or expand small and medium enterprises' awareness, knowledge and understanding of the EAR and increase their capacity to comply with them; and
(4) Data, including comparative international data, that support comments and recommendations related to items (1) through (3) above; and that provide examples of effective methods of administering and enforcing export controls with special attention to small and medium enterprises.

Comments are due by December 6, 2010.

BIS RPTAC Meeting Minutes Published

The Bureau of Industry and Security (BIS) published the Regulations and Procedures Technical Advisory Committee (RPTAC) September 14, 2010 meeting minutes.

John Sonderman of the BIS Office of Enforcement summarized the voluntary self-disclosure (VSD) enforcement program:
  • In Fiscal Year (FY) 2009, BIS closed 109 cases with an average processing time of 17 months;
    • In FY2010, the processing time decreased to 16 months;
    • In 2010, 21 cases have been closed as of May 2010 with an average 6 week processing time. A notable change for this time period is that BIS officers located at headquarters replaced field officers as point of contact;
    • In FY 2009 - 163 cases or 71% of VSDs resulted in a warning letter; 9 cases resulted in sanctions;
    • In FY2009, 67% of VSDs resulted in a warning letter; 13 cases resulted in sanctions.
According to Mr. Sonderman, misclassification remains the biggest factor in VSD submissions.

As for recent and upcoming BIS regulations, Hilary Hess of BIS Regulatory Policy Division stated that:
  • On September 7, 2010, BIS published new rules regarding the revised Wassenaar Arrangement’s list that affects most CCL categories except for Category 3. The new rules do not include some items on Category 6 as they are covered under the Directorate of Defense Trade Controls (DDTC) jurisdiction. Category 5, Part 2 will be covered separately as part of an encryption rule;
    • BIS recently updated its statement of legal authority outlined under the International Emergency Economic Powers Act (IEEPA);
    • BIS amended the licensing process for commodities: the new process does not require determination of commodity jurisdiction;
    • BIS amended its Foreign Product Rule to require a license on all foreign products using U.S. components destined for D1 list and Terrorist Supporting countries beyond Cuba;
    • BIS revised CCL to cover crime control items potentially used for human rights violations. Items covered by the revision will generally be denied; infrasound sensors will be moved from the munitions list to the CCL; and
    • BIS issued a Notice of Proposed Rule Making that concerns transshipment guidelines (not a rule).

Finally, Dale Kelly of Foreign Trade Division Bureau of the Census (Census) stated that the Foreign Trade Division (FTD) continues to work on revising the Automated Export System (AES) regulations and is waiting on concurrence from Department of Homeland Security (DHS) and Customs Border Protection (CBP). There is no indication as to when this may occur.

BIS Recruiting Private-Sector Members for PECSEA

On September 9, 2010, the Bureau of Industry and Security posted a notice in the Federal Register announcing the recruitment of private-sector members to the President’s Export Council Subcommittee on Export Administration (PECSEA). The PECSEA advises the U.S. Government on matters and issues pertinent to implementation of the provisions of the Export Administration Act and the Export Administration Regulations (EAR).

BIS states that, “The PECSEA draws on the expertise of its members to provide advice and make recommendations on ways to minimize the possible adverse impact export controls may have on U.S. industry. The PECSEA provides the Government with direct input from representatives of the broad range of industries that are directly affected by export controls.”

“PECSEA members are appointed by the Secretary of Commerce and serve at the Secretary's discretion. The membership reflects the Department's commitment to attaining balance and diversity. PECSEA members must obtain secret-level clearances prior to appointment. . . The PECSEA meets 4 to 6 times per year. Members of the Subcommittee will not be compensated for their services.”

“The PECSEA is seeking private-sector members with senior export control expertise and direct experience in one or more of the following industrics: Machine tools, semiconductors, commercial communication satcllitcs, high performance computers, telecommunications, aircraft, pharmaceuticals, and chemicals.”

BIS Seeks Comments on the Effectiveness of Licensing Procedures for Agricultural Commodities Exported to Cuba

On September 8, 2010, the Bureau of Industry and Security (BIS) published a notice in the Federal Register requesting public comments on the effectiveness of its licensing procedures as defined in the Export Administration Regulations for the export of agricultural commodities to Cuba. BIS will include a description of these comments in its biennial report to the Congress, as required by the Trade Sanctions Reform and Export Enhancement Act of 2000 (22 U.S.C. 7201 et seq.), as amended.

Comments must be received by October 8, 2010.

BIS Seeks Comments on Effects of Foreign Policy-Based Export Controls

On September 8, 2010, the Bureau of Industry and Security (BIS) published a request for comments on the effects of foreign policy-based export controls. In the notice, BIS stated that it “is reviewing the foreign policy-based export controls in the Export Administration Regulations to determine whether they should be modified, rescinded or extended. To help make these determinations, BIS is seeking public comments on how existing foreign policy-based export controls have affected exporters and the general public.”

The notice also provided:

In January 2010, the Secretary of Commerce, on the recommendation of the Secretary of State, extended for one year all foreign policy-based export controls then in effect. BIS is now soliciting public comment on the effects of extending or modifying the existing foreign policy-based export controls for another year. Among the criteria considered in determining whether to continue or revise U.S. foreign policy-based export controls are the following:

1. The likelihood that such controls will achieve their intended foreign policy purposes, in light of other factors, including the availability from other countries of the goods, software or technology proposed for such controls;

2. Whether the foreign policy objective of such controls can be achieved through negotiations or other alternative means;

3. The compatibility of the controls with the foreign policy objectives of the United States and with overall U.S. policy toward the country subject to the controls;

4. Whether the reaction of other countries to the extension of such controls is not likely to render the controls ineffective in achieving the intended foreign policy objective or be counterproductive to U.S. foreign policy interests;

5. The comparative benefits to U.S. foreign policy objectives versus the effect of the controls on the export performance of the United States, the competitive position of the United States in the international economy, the international reputation of the United States as a supplier of goods and technology; and

6. The ability of the United States to effectively enforce the controls.

BIS is particularly interested in receiving comments on the economic impact of proliferation controls. BIS is also interested in industry information relating to the following:

1. Information on the effect of foreign policy-based export controls on sales of U.S. products to third countries (i.e., those countries not targeted by sanctions), including the views of foreign purchasers or prospective customers regarding U.S. foreign policy- based export controls.

2. Information on controls maintained by U.S. trade partners. For example, to what extent do U.S. trade partners have similar controls on goods and technology on a worldwide basis or to specific destinations?

3. Information on licensing policies or practices by our foreign trade partners that are similar to U.S. foreign policy- based export controls, including license review criteria, use of conditions, and requirements for pre- and post-shipment verifications (preferably supported by examples of approvals, denials and foreign regulations).

4. Suggestions for revisions to foreign policy-based export controls that would bring them more into line with multilateral practice.

5. Comments or suggestions as to actions that would make multilateral controls more effective.

6. Information that illustrates the effect of foreign policy-based export controls on trade or acquisitions by intended targets of the controls.

7. Data or other information on the effect of foreign policy-based export controls on overall trade at the level of individual industrial sectors.

8. Suggestions as to how to measure the effect of foreign policy-based export controls on trade.

9. Information on the use of foreign policy-based export controls on targeted countries, entities, or individuals.

BIS is also interested in comments relating generally to the extension or revision of existing foreign policy-based export controls.

Comments are due by October 8, 2010.

BIS Implements 2009 Wassenaar Arrangement Plenary Meeting Changes

On September 7, 2010, the Bureau of Industry and Security BIS) issued a final rule in Federal Register that revises Export Administration Regulations (EAR) to implement changes made to the Wassenaar Arrangement’s List of Dual Use Goods and Technologies pursuant to the December 2009 Wassenaar Arrangement Plenary Meeting.

The following Export Control Classifications Numbers (ECCNs) are affected: 1A001, 1A002, 1B001, 1C002, 1C006, 1C007, 1C008, 1C010, 1C011, 1E002, 2B006, 3A001, 3A002, 3B001, 4A001, 4A003, 4D001, 4D993, 4E001, 5A001, 5B001, 5D001, 5E001, 6A001, 6A005, 6A006, 6A008, 6C004, 6D003, 6E993, 7A005, 7B001, 7D003, 7E004, 9A001, 9A003, 9B002, 9D003, and 9E003. 4D003 is removed by the final rule.

Changes pertaining to ECCNs 5A002, 5D002, 6A002, 6A003, 8A002 and all related ECCNs will be implemented in a separate rule because of the sensitivity of the items and controls for these items.

For more information, refer to the final rule, which can be accessed
here.

BIS Publishes Comments of Export Enforcement Assistant Secretary

On September 1, 2010, the Bureau of Industry and Security (BIS) published the remarks of David Mills, Assistant Secretary for Export Enforcement made at BIS’ Annual Update Conference.

Assistant Secretary Mills summarized BIS’ export enforcement activities over the past year. Specifically, he stated that:

  • BIS has agents based around the United States as well as in critical hubs such as Hong Kong, Singapore, and the United Arab Emirates.
  • The Office of Enforcement Analysis (OEA) evaluates export transactions, visas, press reporting, and intelligence information to help Special Agents identify and investigate bad actors. The OEA also conducts end use checks abroad.
  • The Office of Antiboycott Compliance (OAC) negotiated settlements in 11 cases last year, resulting in fines of more than $350,000.
  • The U.S. Government’s change in focus on export licensing will necessitate BIS’ export enforcement efforts as well. While BIS will continue to encourage Voluntary Self-Disclosures and provide mitigation of possible penalties for companies that had good internal compliance programs prior to a violation. But, BIS will be taking a harder line in other circumstances involving willful misconduct. Mills stated that although BIS typically sought penalties more against companies than individuals, BIS will now consider seeking penalties against an individual when a violation is a deliberate action of an individual, including seeking the denial of export privileges, fines, and imprisonment. This will also hold true for a supervisor who is complicit in these deliberate violations by a subordinate.
  • BIS will focus on disrupting major illicit procurement networks as in the past decade, countries like Iran and North Korea have turned to foreign middlemen and front companies to acquire U.S.-origin goods. During the last two years, BIS has added 185 foreign entities to the Entity List.
  • In February 2010, Balli Aviation agreed to pay $15 million, the largest civil penalty in the history of BIS. In addition, a federal judge imposed a $2 million criminal fine and a five year probation against a Balli subsidiary.

Video Remarks by President at BIS' Export Controls Update Conference Published

On August 30, 2010, the White House published the video remarks by President Obama that will be presented at the U.S. Department of Commerce’s Bureau of Industry and Security’s (BIS) Export Controls Update Conference on August 31, 2010. The full remarks are as follows:

Hello everyone. I’m sorry I’m not able to be with you in person today, but I’m pleased to have the chance to join you by video to talk about our export control reform initiative.

About a year ago, we launched a comprehensive review of our export controls and determined that we need fundamental reform in all four areas of our current system – in what we control, how we control it, how we enforce those controls, and how we manage our controls. I want to thank Secretary Locke, Secretary Gates, Secretary Clinton and many others for their work on this initiative. And today I want to highlight the key elements of our new approach and the first steps toward its implementation.

For too long, we’ve had two very different control lists, with agencies fighting over who has jurisdiction. Decisions were delayed, sometimes for years, and industries lost their edge or moved abroad.
Going forward, we will have a single, tiered, positive list – one which will allow us to build higher walls around the export of our most sensitive items while allowing the export of less critical ones under less restrictive conditions.

In the past, there was a lot of confusion about when a license was required. It depended on which agency you asked.
Now, we will have a single set of licensing policies that will apply to each tier of control, bringing clarity and consistency across our system.

In addition, I plan to sign an
Executive Order that creates an Export Enforcement Coordination Center to coordinate and strengthen our enforcement efforts – and eliminate gaps and duplication – across all relevant departments and agencies.

Finally, right now, export control licenses are managed by multiple, different IT systems or, in some cases, even on paper.
Going forward, all agencies will transition to a single IT system, making it easier for exporters to seek licenses and ensuring that the government has the full information needed to make informed decisions.

While there is still more work to be done, taken together, these reforms will focus our resources on the threats that matter most, and help us work more effectively with our allies in the field. They’ll bring transparency and coherence to a field of regulation which has long been lacking both. And by enhancing the competitiveness of our manufacturing and technology sectors, they’ll help us not just increase exports and create jobs, but strengthen our national security as well.

All of this represents significant progress. And as we implement these reforms and take further steps – including working to create a single licensing agency – I look forward to working with both Congress and the export control community to ensure their success. Thank you.

Commerce Secretary Locke's Remarks at BIS' Update Conference Published

On August 30, 2010, the Commerce Department published the prepared remarks of Commerce Secretary Gary Locke for the Bureau of Industry and Security’s (BIS) 23rd Annual BIS Update Conference to be delivered on August 31, 2010.

In his remarks, Secretary Locke stated that, “We are taking important steps towards streamlining and simplifying our export control system to make it more transparent, and to enable exporters to quickly know exactly what can and cannot be exported, and where products can and cannot go. The first step to make this happen is to ensure that the Commerce and State Department control lists clearly lay out which products are controlled, and by which agency.”

“To do this, we are working to make both the Commerce Control List and the Munitions List ‘positive lists.’ What this means is that we’ll have two lists that classify and control items based upon specific characteristics, such as by size or by wavelength, or by the ability to operate under extreme atmospheric conditions.”

“And, when this process is done – creating a ‘bright line’ between the two lists – exporters will be able to know which agency has jurisdiction over their products.”

“An additional step will be to divide each control list into a three-tiered structure. Think of the tiers as shelves in a cabinet:
  • The top tier – or the highest shelf – will be reserved for our most sensitive items, ones made in the U.S. which have high value military or intelligence capabilities;
  • The middle tier – or a more accessible shelf – will hold somewhat less sensitive items, and will be products that are available almost exclusively from our multilateral partners and allies;
  • The lowest tier will be reserved for items that are less sensitive, and which are more broadly available.”

“Once all of the items are placed into a tier, a corresponding licensing policy will be assigned to ensure appropriate agency review.
  • For the top tier, a license will generally be required for all destinations;
  • Many of the items in the middle tier will be eligible to be exported to allies and most multilateral partners under a license exception or general authorization;
  • And for items placed in the lowest tier, licenses will typically not be required.”

“O[f] course we will continue to maintain robust and comprehensive sanctions against countries like Iran, North Korea and Cuba.”

“In the final stage of export reform, we plan to merge the two lists into one – and we will continue to work with our colleagues on Capitol Hill to try to make this happen.”

Remarks of Under Secretary Eric Hirschhorn at BIS Update Conference Published

On August 30, 2010, the Bureau of Industry and Security (BIS) published the remarks of Under Secretary Eric Hirschhorn to be made at BIS’ Update Conference on August 31, 2010.

In his remarks, Under Secretary Hirschhorn states that President’s Obama’s export control reform initiative has been overseen by the White House on a daily basis and its champions include the three key cabinet secretaries principally responsible for reviewing export license applications -- Secretary Locke, Secretary Clinton, and Secretary Gates.

Once the government has implemented “a reformed export control mechanism,” Under Secretary Hirschhorn states that he expects to see a system based on 3 overarching principles -- three “E”s, i.e., efficiency, education, and enforcement.

With regard to
Efficiency, Hirschhorn stated that the government’s approach rests on two fundamental principles: (1) the rules should be transparent and predictable, and (2) we must have streamlined processes and higher fences to control sensitive items appropriately while facilitating exports of less sensitive items to destinations and end users that don’t pose substantial national security, proliferation, or similar concerns.

Hirschhorn states that the Commerce Control List (CCL) generally controls items based on technical parameters. Items not meeting a specified threshold are not subject to control. Hirschhorn states that, “There typically is no corresponding technical basis, though, for determining when an item is subject to the U.S. Munitions List. Instead, the USML relies heavily on the concept of ‘design intent,’ even where the function of an item may not be uniquely military.”

Hirschhorn continues to state, “Our system should make clear when an item, regardless of the intent of its designers, is subject to control. As Secretary
Locke has indicated, we are restructuring the USML and, where necessary, the CCL, to create ‘positive lists’ of controlled items.” Hirschhorn states that they are beginning by turning Category VII of the USML into a positive list of tanks, military vehicles, and elements of such goods that warrant control as defense articles. Additionally, the government will divide each control list into a three-tiered structure with licensing policies corresponding to specific tiers.

Hirschhorn stated that other initiatives that will lead to a more streamlined system will be implemented, including: (1) harmonizing definitions across all the export control regulations; (2) rationalization (e.g., the new encryption regulations); and (3) merging export control IT systems. With regard to merging export control IT systems, Hirschhorn stated that EAR license applications are reviewed by the Departments of State, Energy, Defense, and Commerce. Currently these 4 departments each use different IT systems, have access to different data, and can’t directly communicate with one another. Commerce and the other agencies are developing a single IT system that will allow free and immediate data sharing. Hirschhorn stated that Defense is currently using this system, State will begin doing so early next year, Commerce should be on board later in 2011, and other agencies will follow.

For now, export license applications will continue to be processed through either D-Trade for USML items or SNAP-R for CCL items. When the control lists are merged in Phase III of the export control reform initiative, Hirschhorn stated that he expects to have a single application form that is linked to the common IT system.

The second efficiency principle is to establish streamlined processes and higher control fences. Hirschhorn stated that, “As the new control lists are created, we will tailor our licensing policies to focus on the most sensitive items and on destinations and end-users of concern. We are preparing a regulatory proposal that would provide more flexible licensing authorizations as we move down the tiers.” Hirschhorn also stated that, “BIS will closely scrutinize Automated Export System transactions to ensure that exporters are complying with the EAR. We may require foreign consignees to provide end-use assurances against diversion and similar undertakings from, or at least notification to, subsequent purchasers. We will be stepping up outreach, domestically and abroad.” Hirschhorn continued to state, “Finally, the Administration is preparing legislation that would combine the administrative enforcement and licensing activities of BIS, the State Department’s Directorate of Defense Trade Controls, and the Treasury Department’s Office of Foreign Assets Control into an independent licensing agency. We will seek action on this legislation in the near future.”

With regard to
Education, Hirschhorn stated that, “In addition to outreach publications, seminars, and one-on-one counseling, the Bureau in recent years has expanded its effort to include such cutting edge strategies as on-line training and webinars. Yet we need to spread the word even further—particularly to those who may not even realize they’re subject to controls.”

Hirschhorn stated, “Every exporter must classify its exports and should screen its customers against such lists as the Denied Persons List and the Entity List. BIS has a responsibility to assist exporters, particularly small and medium-sized businesses, to do this.
To that end, we are mining Automated Export System data to identify exporters of interest. We are working with other bureaus and agencies, and with such private sector entities as freight forwarders, to educate exporters. We are employing such outreach techniques as foreign language seminars and CommerceConnect. Moreover, we continue to work with the Census Bureau and Customs and Border Protection on new electronic tools to help exporters make timely and accurate submissions to AES. This will expedite the clearance of exports and facilitate our compliance reviews.” [Emphasis added.]

With regard to
Enforcement, Hirschhorn stated that concurrently with efficiencies and education efforts, enforcement will become an even higher priority. Hirschhorn stated that, “The new Comprehensive Iran Sanctions, Accountability, and Divestment Act confers permanent law enforcement authorities on our export enforcement agents for the first time. This enhances our ability to deter and prosecute violators of the EAR.”

Hirschhorn stated that BIS will ensure coordination with other enforcement agencies, BIS will participate in the National Export Enforcement Coordination Network. BIS will share information and leverage resources by working with colleagues from the Federal Bureau of Investigation (FBI), military security agencies, Immigration and Customs Enforcement (ICE), and the intelligence community. President Obama will soon sign an Executive Order making this coordination center permanent. The order will mandate participation by all relevant law enforcement agencies and the intelligence community.

Hirschhorn stated, “I ask that you carry a message back to your senior management and those who market your products: We are working to create a more efficient export control system and to ensure that those subject to it are aware of that fact.
Also, where appropriate, we will seek to minimize penalties for companies that have good internal compliance programs and make demonstrably unintentional errors. But—and this is an important but—we are planning increased efforts against individuals who flout the rules and against companies whose inadequate internal compliance programs tell us that they are indifferent to whether they follow the rules.” [Emphasis added.]

Finally, Hirschhorn stated that the proposed single licensing agency would include the administrative enforcement functions of BIS, State, and Treasury. The Administration also plans to seek legislation to transfer BIS’s criminal enforcement functions to Immigration and Customs Enforcement, which would have a separate unit dedicated to enforcement of the export control and embargo laws.

BIS Issues Report on Impact of U.S. Export Controls on Green Technology Items

On August 16, 2010, the Bureau of Industry and Security issued its latest Office of Technology Evaluation Report: Technology Assessment on Impact of U.S. Export Controls on Green Technology Items.

In the report, BIS found:

  • Most green technology-related items do not require a BIS export license. Licensed green technology-related exports represented 0.05% of total U.S. exports and a mere 0.004% of all energy sector exports in 2008. Of the $1,300.5 billion in total U.S. exports in 2008, BIS identified 5.8% ($75.0 billion) as green technology-related exports, and only 0.9% ($697.4 million) of these required an export license.

  • Some of the high-technology parts, materials, and equipment used to produce green technology items in the following areas would likely require an export license: wind power, solar power, alternative fuel vehicles, water purification, and energy efficiency.

  • Exporters have expressed concern with the lengthy processing times and difficulty in obtaining export licenses for carbon fiber and machine tools, the material and equipment needed for the production of wind turbines and lighter weight (i.e., energy efficient) commercial composite aircraft structures and engine components. Two companies with production facilities in the United States that are industry leaders for tape laying and tow/fiber placement machines used to manufacture windmill turbine blades are considering moving production of these machines overseas, especially because of the increased demand for wind turbines.

  • The export of Metal-Organic Chemical Vapor Deposition (MOCVD) equipment requires an export license in most cases, and is used to produce the solar cells used in solar panels and LED lighting products. One of the main MOCVD producers in Germany has sold this equipment to a customer that was denied an export license for the same equipment from a U.S. producer.

  • There are several green technology items in the areas of water purification (e.g., chemicals, pumps, valves) and energy efficiency (i.e., industrial gas turbine components and thermal imaging cameras) that are subject to an export license requirement, but the licensing and export statistics do not show that this license requirement is having an adverse affect on the competitiveness of these industries.

  • In most cases, BIS has determined that export licenses are not required for items in the following green technology areas: alternative fuel vehicles, commercial airlines noise reduction, biodegradable/bio-resins for composite materials, and green coating processes. However, research and emerging technologies in these fields could lead to the creation of new high-technology products that would be subject to export license requirements.

Accordingly, BIS states that it will:

  • Issue guidance to exporters clarifying which tape laying and tow/fiber placement machines would be controlled under ECCNs 1B001 or 1B101 for MT or NS reasons.

  • Monitor the volume of export license applications received for chemicals, chemical equipment, industrial gas turbines and components, and thermal imaging cameras and adjust export licensing policy and regulations where possible to ensure that export controls do not hinder trade in these items, especially when intended for civilian (i.e., non-military) green- related end-uses, consistent with national security interests.

  • Develop a green technology working group comprised of existing TAC members to identify emerging technologies that can support green technology initiatives that may be subject to an export license requirement in the future.

  • Work with the Department of Commerce’s International Trade Administration on harmonization with export promotion efforts for the energy sector.

In addition, BIS will work with other U.S. Government (USG) agencies to develop a license exception, fast-track license review, and/or a one-time product/end-user review procedure for the export of items for civilian (i.e., non-military) green-related end-uses only.

BIS Clarifies Reach of Commodity Classification Determinations and Advisory Opinions

On August 2, 2010, Bureau of Industry and Security (BIS) issued an interim final rule in the Federal Register amending the Export Administration Regulations (EAR) to clarify that commodity classification determinations and advisory opinions BIS issues or has issued under the EAR are not and may not be relied upon as U.S. Government determinations that the items described therein are subject to the EAR, as opposed to the jurisdiction of another U.S. Government agency.

Section 748.3(a) the EAR, as amended, requires that exporters, before requesting commodity classifications and advisory opinions, determine that the items at issue are not subject to the exclusive export control jurisdiction of one of the other U.S. Government agencies listed in §734.3(b) of the EAR, such as Directorate of Defense Trade Controls (DDTC), Office of Foreign Assets Controls (OFAC), or the Patent and Trademark Office (PTO).

Only DDTC has authority to issue commodity jurisdiction determinations since they are the agency responsible for administering the U.S. Munitions List (USML) and the International Traffic in Arms Regulations (ITAR). Unlike the ITAR, the EAR does not provide authority to make commodity jurisdiction determinations. Thus, because BIS does not have the authority to issue commodity jurisdiction determinations, a BIS commodity classification only reflects whether an item identified in the commodity classification request is described in the Commerce Control List (CCL).

With respect to advisory opinions, the rule states that they are limited in scope to BIS’s interpretation of EAR provisions, and may not be relied upon or cited as evidence of U.S. Government’s determination that the items described in the advisory opinion are not subject to the export control jurisdiction of another agency of the U.S. Government.

Comments on the interim final rule are due October 2, 2010.

BIS Publishes Final Rule on Direct Products of U.S. Technology

On July 30, 2010, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) published a final rule on foreign direct products of U.S. technology.

BIS clarifies the scope of the ‘‘direct product rule’’ set forth in the Export Administration Regulations (EAR). Under the EAR’s ‘‘direct product rule,’’ foreign-made items that are located outside of the United States; subject to national security controls under the EAR; the direct product of U.S.-origin software or technology that requires a written assurance as a supporting document for a license or as a pre-condition for use of License Exception Technology and Software, Restricted (TSR); and are being reexported to a destination in a country of national security concern or a terrorist supporting country, are subject to the EAR and require an export license or license exception. This rule also makes parallel revisions or clarifications to written assurances required under License Exception TSR (Technology and Software Restricted), information required on the license application for national security controlled technology, and the instructional steps in the EAR that provide guidance on how to apply the direct product rule.

BIS Publishes Clarification of Grace Period for New Encryption Registration Requirement

On July 27, 2010, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) published a final rule in the Federal Register to clarify the intent of the encryption registration requirement that appeared in the new encryption rules published on June 25, 2010.

The June 25, 2010 final rule established,
inter alia, an encryption registration requirement for authorization under provisions of License Exception ENC, as codified in § 740.17(b)(1), (b)(2) and (b)(3) of the EAR, and for transactions in connection with mass market encryption transaction, as codified in §§ 742.15(b)(1) and (b)(3) of the EAR. In § 740.17(d)(1)(i)(A) and (d)(1)(i)(B), the rule specified that an encryption registration was required to be filed the first time that a party submits an encryption classification request under § 740.17(b)(2) and (b)(3) or performs an encryption self-classification under § 740.17(b)(1) on or after August 24, 2010. The rule also stated that an encryption registration was required to be submitted in support of an encryption classification or in circumstances where a party is making a mass market encryption item eligible for export and reexport (including the definition at § 734.2(b)(9) for encryption software) under § 742.15(b)(1) for the first time on or after August 24, 2010. Although the rule was issued in final form on June 25, the rule intended to establish a grace period permitting parties to wait until August 24 to submit their registration requirements.

In the clarification, BIS states:

The intent of this grace period was to allow industry time to gather information necessary to accurately submit the information required in the encryption registration (Supplement No. 5 to part 742), to change internal procedures, and to train personnel before submitting the encryption registration. However, the rule inadvertently omitted language that clarifies that parties may self-classify or seek classifications between June 25, 2010 and August 24, 2010 without first submitting a registration. It also inadvertently omitted language that clarifies the post-classification registration requirement for parties that self-classified or sought classifications between June 25, 2010 and August 24, 2010, but did not self-classify or seek a classification again on or after August 24, 2010. This rule corrects the regulations to include language that clarifies the intent of the grace period.



BIS Seeks Comments on Special Comprehensive License Forms BIS-752P and BIS-752P-A

On July 25, 2010, Bureau of Industry and Security (BIS) published a notice in Federal Register requesting comments on Special Comprehensive License forms BIS-752P and BIS-752P-A.

The Special Comprehensive License (SCL) procedure authorizes multiple shipments of items from the U.S. or from approved consignees abroad who are approved in advance by the BIS to conduct servicing, support services, stocking spare parts, maintenance, capital expansion, manufacturing, support scientific data acquisition, reselling and reexporting in the form received, and other activities as approved on a case-by-case basis.

An application for an SCL requires submission of additional supporting documentation, such as the company’s internal control program.

Comments are due on September 24, 2010.

BIS Revises the CCL to Update and Clarify Crime Control License Requirements

On July 15, 2010, the U.S. Department of Commerce’s Bureau of Industry and Security published a final rule in the Federal Register to revise the Commerce Control List (CCL) to update and clarify crime control license requirements under the Export Administration Regulations (EAR). The rule updates and clarifies export and reexport license requirements on striking weapons, restraint devices, shotguns and parts, optical sighting devices, and electric shock devices. It also adds equipment designed for the execution of humans to the Commerce Control List. This rule makes no changes to the longstanding policy of denial of applications to export or reexport specially designed implements of torture. The rule provides additional illustrative examples of such items and adopts a definition of torture used in a U.S. statute that implements the United Nations Convention against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment.

BIS published the rule as part of an ongoing review of crime control license requirements and policy. As part of the ongoing review, BIS received public comments on whether the scope of the items and destinations that are subject to crime control license requirements should be changed. After reviewing the comments and conducting its own internal deliberations, BIS decided to proceed in stages. This final rule is the culmination of the first stage that addresses relatively simple extensions, modifications or removals of items currently on the CCL or additions to the CCL of items that have an easily identified crime control or law enforcement nexus.

BIS plans to publish a subsequent proposed rule that will identify potential expansion of certain Export Control Classification Numbers (ECCNs) as suggested in the comments to the proposed rule; whether, and if so, the extent to which biometric measuring devices, integrated data systems, simulators, and communications equipment should be added to the Commerce Control List; the degree to which software and technology related to commodities on the Commerce Control List should be listed and how such software and technology should be described; and general policy issues such as whether the range of destinations to which crime control license requirements apply should be modified.

BIS Publishes Rule Based Upon a Systematic Review of the Commerce Control List

On June 28, 2010, the Bureau of Industry and Security (BIS) published a final rule revising the Export Administration Regulations (EAR) based upon a systematic review of the Commerce Control List (CCL).

The rule is the third phase of the regulatory implementation of the results of a review of the CCL that was conducted by BIS starting in 2007. The BIS review was aided by input received from BIS’s Technical Advisory Committees (TACs) and comments received from the interested public.

The revisions in this rule include clarifications to existing controls; eliminating redundant or outdated controls; and establishing more focused and rationalized controls. This rule also makes CCL related changes to other parts of the EAR, including CCL related definitions and license exceptions.

The rule is effective upon publication and while no formal comment period, BIS welcomes comments from the public on this rule on a continuing basis.

Freight Forwarder Settles Allegation Of Antiboycott Violation

On June 25, 2010, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) announced that Plane Cargo Inc. (PCI), a freight forwarder located in Houston, TX, has agreed to pay a $5,200 civil penalty to settle allegations that it violated the antiboycott provisions of the Export Administration Regulations (EAR).

The announcement provided that:

BIS, through its Office of Antiboycott Compliance, alleged that on one occasion in 2003, PCI, in connection with a transaction involving the sale and transfer of goods from the United States to Syria, furnished an invoice to a company in Syria that certified that the goods were not of Israeli origin in violation of the antiboycott provisions of the EAR. PCI cooperated fully with the investigation. 

BIS Seeks Comments on Revising Encryption Export Controls

On June 25, 2010, the Bureau of Industry and Security (BIS) issued an interim final rule that amends the Export Administration Regulations (EAR) to modify the requirements of License Exception ENC, “Encryption Commodities, Software and Technology,” and the requirements for qualifying an encryption item as mass market. In addition, the rule also amends specific license requirements for encryption items. EAR sections affected are 15 CFR Parts 730, 734, 738, 740, 742, 748, 772 and 774. BIS also posted on its website a press release, a summary of the rule, and additional information to assist exporters.

BIS believes that the rule will streamline procedures for (1) less sensitive encryption items eligible for export under License Exception ENC and (2) most mass market encryption products. The interim final rule also implements the Wassenaar Arrangement’s decontrol of items that perform “ancillary cryptography” in the Commerce Control List.

The rule includes several significant changes to encryption export controls by modifying the way information about encryption products is collected an analyzed. The rule, as amended:

  • Removes review requirements for less sensitive encryption items;

  • Establishes a company registration requirement for encryption items under License Exception ENC or as mass market encryption items. Under the new rule, authorization for License Exception ENC and mass market treatment is based on company authorizations that operate like a bulk license for the company’s products rather than product-by-product authorizations;

  • Creates an annual self-classification report requirement for such items pursuant to an encryption registration. Under the new rule, the self-classification report would be required to be submitted annually to BIS and the ENC Encryption Request Coordinator in February for items exported and reexported the previous calendar year;

  • Makes encryption technology eligible for export and reexport under License Exception ENC, except to countries of highest concern;

  • Lifts the semi-annual sales reporting for less sensitive encryption items under License Exception ENC. When sales reporting is not required under License Exception ENC, companies need only maintain records as required by the EAR that can be reviewed by appropriate agencies of the U.S. Government upon request;

  • Removes the 30-day delay to export and reexport less sensitive encryption items under License Exception ENC; and

  • Removes the 30-day delay to make most mass market encryption items eligible for mass market treatment.

Comments on the suggested changes are due by August 24, 2010.

BIS Publishes Update 2010 Dates & Instructions

The Bureau of Industry and Security’s (BIS) announced that its annual Update Conference on Export Controls and Policy will be held on August 31- September 2, 2010 in Washington, DC.

To attend this year’s conference, you must follow a two-step process: (1) you must submit the online “
Interest Form” between June 15 and June 28. If there are more potential participants than there is space available, BIS will grant registration through a random selection from the entire list of respondents, regardless of when received during the period. Those selected will be notified and given registration instructions in early July. They must register and submit payment by a designated date indicated in the instructions or their spot will be forfeited and given to someone on the wait list. Those not selected will be notified that they have been placed on a wait list.

More detailed program information will be posted in the coming weeks.

Registration transfers within companies or organizations may be permitted with prior approval from BIS. Registration transfers will not be permitted between different organizations or companies. Registrations may not be resold.

BIS will make every effort to ensure broad company representation at this event. Due to the limited capacity of the Update Conference, BIS reserves the right to limit, restrict or decline registrations to this event. Registrations are not confirmed until accepted and verified by BIS and the registration fee has been paid.

Texas Company Settles Allegations Of Antiboycott Violations

On June 14, 2010, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) announced that Messina, Inc. (Messina) of Dallas, TX, has agreed to pay a $10,800 civil penalty to settle allegations that it violated the antiboycott provisions of the Export Administration Regulations (EAR) on two occasions.

The announcement provided that:

BIS, through its Office of Antiboycott Compliance, alleged that in 2004, in connection with two letter of credit transactions involving the sale and transfer of goods destined for Iraq that were shipped through the UAE, Messina furnished to a U.S. bank two certificates signed by the agent for a vessel that attested to the vessel’s eligibility to call at the port of a boycotting country.  In doing so, Messina furnished information concerning other persons known or believed to be restricted from having any business relationship with or in a boycotting country, in violation of the antiboycott provisions of the EAR. 

BIS Clarifies De Minimis Content Requirements in the EAR

On June 4, 2010, Bureau of Industry and Security (BIS) issued a final rule in Federal Register that clarifies language concerning the de minimis provisions in the Export Administration Regulations (EAR).

The EAR generally do not apply to items that were made and are located outside the U.S. and that contain only a “de minimis” level of U.S-origin content. The procedures for calculating whether an item exceeds the de minimis threshold note that the calculation is appropriate only for items that are made outside the U.S. and are not currently in the U.S.

Effective June 4, 2010, the rule removes EAR provision in §734.3(b)(4), which outlines a category of items not subject to the EAR (“foreign made items that have less than the de minimis percentage of controlled U.S. content&rdquoWinking, because the provision could be erroneously read as applying the de minimis exclusion to foreign made items that are located in the U.S.

In addition, the final rule provides technical corrections to the EAR involving certain performance criteria of turning machines and the rule also removes obsolete cross references, removes and reserves two regulatory provisions,
corrects a typographical error, and removes an unnecessary reporting
requirement.

BIS Publishes Final Rule Adding a Validated End-User for the PRC

On January 15, 2010, the Bureau of Industry and Security (BIS) published a final rule to add an entity to the list of validated end-users for the Peoples' Republic of China (PRC) approved to receive exports, reexports, and transfers of certain items under Authorization Validated End-User (VEU). Specifically, this rule amends the EAR to add one additional validated end-user and identifies eligible items for export and reexport and transfer (in-country) to one facility in the PRC.

BIS Launches Online Export Tracking System

On January 11, 2010, the Bureau of Industry and Security (BIS) launched an online version of its System for Tracking Export License Applications (STELA). STELA allows users to check the status of their export and re-export license applications, classification requests and agricultural license exception (AGR) notifications. To access export data, STELA users must input their application control number (ACN) assigned by BIS.

With the launch of an online system, BIS plans to eventually phase out the phone-based STELA.

BIS Updates Freight Forwarder Guidance

On January 7, 2010, the Bureau of Industry and Security (BIS) updated its online guidance for freight forwarders.

BIS Amends EAR per Wassenaur Revisions

The Bureau of Industry and Security (BIS) issued a final rule in the Federal Register stating that, effective December 11, 2009, revises the Export Administration Regulations (EAR) to implement changes to the Wassenaar Arrangement’s List of Dual-Use Goods and Technologies. The changes were agreed upon by participating countries during Wassenaur Arrangement’s plenary session in December 2010. The U.S., as a participating member of the Wassenaur Arrangement, must modify the Commerce Control List (CCL) in order to incorporate these changes.

The final rule amends CCL categories 1, 2, 3, 4, 5 (Parts 1 and 2), 6, 7, 8 and 9, as well as Definitions and Reports sections.

Detailed changes to CCL can be accessed
here.

BIS Finalizes Encryption Simplification Rule

On October 15, 2009, the Bureau of Industry and Security (BIS) published the Final Encryption Simplification Rule in the Federal Register. BIS had published the interim final rule entitled "Encryption Simplification" on October 3, 2008 (73 Fed. Reg. 57,495). This rule finalizes that rule, corrects errors published in the October 3, 2008 interim final rule, and resolves inconsistencies in that rule identified by the public.

Among other things, the October 3, 2008 interim final rule removed section 744.9 of the EAR, which set forth requirements for authorization from BIS for U.S. persons to provide technical assistance to foreign persons with the intent to aid a foreign perosn in the development or manufacture outside the U.S. of encryption commodities or software that, if of U.S.-origin, would be "EI" controlled under ECCNs 5A002 or 5D002. Although the interim final rule removed section 744.9, other parts of the EAR that referred to that section were inadvertently not removed. The final rule removes those sections and makes other corrections to harmonize with revisions made in the October 3, 2008 interim final rule. Finally, some revisions in the final rule are the results of requests for clarification from the public on the October 3, 2008 encryption simplification rule.

Exporter Settles Allegations of EAR Violations & Agrees to $190,000 Penalty

On August 14, 2009, the Commerce Department’s Bureau of Industry and Security (BIS) announced that RF Micro Devices, Inc. (RFMD) of Greensboro, N.C. has agreed to pay a $190,000 civil penalty to settle allegations that it exported spread-spectrum modems in violation of the Export Administration Regulations (EAR) to China. In addition, Carol Wilkins, RFMD manager whose responsibilities, at the time of the violations, included export control compliance, has agreed to pay a civil penalty in the amount of $15,000 for making false and misleading statements to BIS Special Agents during the investigation.

The allegations involved fourteen unlicensed exports of spread-spectrum modems, classified under Export Control Classification Number 5A001 and controlled for national security reasons, to China with knowledge that a violation of the Regulations was occurring, was about to occur or was intended to occur in connection with the spread-spectrum modems. Additionally, BIS alleged that on thirteen occasions RFMD made false or misleading statements about the submission of Shipper’s Export Declarations (SEDs).

RFMD voluntarily disclosed the violations that occurred in 2002 and 2003.

BIS Posts Interest Form for BIS Update 2009 Conference

On June 29, 2009, the Bureau of Industry and Security (BIS) posted details on its Update 2009 Conference to be held from September 30 - October 2, 2009 in Washington, D.C.

Interested parties must follow a two-step process to attend this year’s conference. First, you must submit the online “
Interest Form” between June 25 and July 17, 2009. If there are more potential participants than there is space available, BIS will grant registration through a random selection from the entire list of respondents, regardless of when received during the period. Those selected will be notified and given registration instructions in late July. They must register and submit payment by a designated date indicated in the instructions or their spot will be forfeited and given to someone on the wait list.

Those not selected will be notified that they have been placed on a wait list. More detailed program information will be posted in the coming weeks.

Registration transfers within companies or organizations may be permitted with prior approval from BIS. Registration transfers will not be permitted between different organizations or companies. Registrations may not be resold.

BIS Issues Final Rule on Certain Thermal Imaging Cameras

On May 22, 2009, the Bureau of Industry and Security (BIS) published a final rule in the Federal Register revising the license requirements and license exception eligibility for certain thermal imaging cameras and foreign made military commodities incorporating such cameras.

The rule imposes a license requirement for certain exports and reexports of military commodities manufactured outside the United States that are not subject to the International Traffic in Arms Regulations (ITAR), regardless of the level of U.S.-origin content, if those military commodities incorporate certain thermal imaging cameras that are subject to the Export Administration Regulations (EAR).

The rule also removes Commerce Control List (CCL) based export and reexport license requirements with respect to 36 destinations for certain thermal imaging cameras when they are not incorporated into military commodities and if they are not being exported or reexported to be embedded in a civil product. It imposes a semi-annual reporting requirement on the transactions from which it removes the CCL based license requirements.

The rule also imposes a license requirement for software used to increase the frame rate of certain cameras.

BIS states that it is making these changes in recognition of the emerging availability of these cameras around the world, the export licensing practices of other governments and the potential use of these cameras in military applications.

BIS Removes T 37 Jet Trainer and Aircraft Parts from CCL

On May 6, 2009, the Bureau of Industry and Security (BIS) published a final rule in the Federal Register, which removes the T 37 jet trainer aircraft and specially designed parts from under the Department of Commerce’s licensing jurisdiction on the Commerce Control List (CCL).

In the final rule, BIS states that although the T 37 jet trainer aircraft appear on the CCL, the Department of State, Directorate of Defense Trade Controls (DDTC) reviews license applications for these aircraft and parts. Accordingly, BIS is removing the T 37 jet trainer aircraft from the CCL to “avoid potentially overlapping coverage and reduce the possibility of confusion by the public.”

BIS Approves Additional VEU

On April 29, 2009, the Bureau of Industry and Security (BIS) published a final rule in the Federal Register, which adds a name to the list of end-users for the Peoples’ Republic of China (PRC) approved to receive exports, reexports, and transfers of certain items under the authorization Validated End-User (VEU). The rule also amends the Export Administration Regulations (EAR) to add and revise eligible items and destinations for existing VEU authorizations.

The VEU authorization is a mechanism to facilitate increased high-technology exports to companies in the PRC and India that have a record of using such items responsibly. VEUs may obtain eligible items on the Commerce Control List (CCL) without having to wait for their suppliers to obtain export licenses from BIS. In addition to U.S. exporters, VEU authorization may be used by foreign reexporters, and does not have an expiration date.

The final rule amends Supplement No. 7 to Part 748 of the EAR to identify an additional company with eligible facilities in the PRC as a VEU and to identify the items that may be exported, reexported, or transferred under Authorization VEU. The new entry is for Aviza Technology China and lists Export Control Classification Numbers (ECCNs) 2B230, 3B001.c.1.a. and 3B001.e.

BIS Updates Information and FAQs on Entity List

On April 17, 2009, the Bureau of Industry and Security (BIS) updated information and its FAQs regarding the Entity List on its website. BIS describes the Entity List as follows:

The Export Administration Regulations (EAR) contain a list of names of certain foreign persons – including businesses, research institutions, government and private organizations, individuals, and other types of legal persons – that are subject to specific license requirements for the export, reexport and/or transfer (in-country) of specified items.  These persons comprise the Entity List, which is found in Supplement No. 4 to Part 744 of the EAR.  On an individual basis, the persons on the Entity List are subject to licensing requirements and policies supplemental to those found elsewhere in the EAR.

Exporter Charged With Violations of U.S. Export Regulations and False Statements to Government Agency

On April 6, 2009, the Department of Justice (DOJ) announced that federal grand jury sitting in San Jose, California, indicted Fu-Tain Lu (Lu), Funshine Technology, Inc. (Funshine), and Everjet Science and Technology Corporation (Everjet), charging them with conspiracy to violate U.S. export regulations and with lying to federal agents investigating Lu’s conduct.

Funshine, based in Cupertino, California, and Everjet, based in China, were founded by Lu. The indictment alleges that Lu and his two companies conspired to export sensitive microware amplifier technology to China without obtaining the required licenses or authorization from the U.S. Department of Commerce. Items that Funshine shipped and attempted to ship to China were restricted for reasons of national security.

The indictment details that the defendants knew about the licensing restrictions but chose not to comply. Charges against Lu and the companies are supported, in part, by using internal company e-mails in which an Everjet employee told a Funshine employee, “Since these products are a little bit sensitive, in case the maker asks you where the location of the end user is, please do not mention it is in China.” In another e-mail, Lu advised an employee to pretend that the intended end-user for the goods was in Singapore, not China.

Lu, as an individual defendant, faces five years imprisonment and a $250,000 fine (or, twice the gross financial gain from the offense) on each of the counts of conspiracy to violate export regulations and false statements to a government agency; for charges of violation of export regulations, the statutory maximum penalty is 10 years imprisonment and a $50,000 fine, or twice the gross gain from the offense.

BIS Requests Comments on the Utilization Rate of BIS Licenses

On March 20, 2009, the Bureau of Industry and Security (BIS) published a request for public comments on the utilization rate of BIS licenses. Comments must be received no later than May 4, 2009.

In the notice, BIS states:

A significant percentage of the export licenses issued by theBureau of Industry and Security (BIS) appear to be unused or used for less than the quantity or value limits authorized by the license. BIS seeks public comment to help it ascertain the reasons for such lack of use or under use. BIS is particularly interested in whether characteristics of the export license application review process induce applicants to apply for greater authorizations than they need and, if such is the case, any costs associated with such applications.



BIS requests information to help it determine specifically:

  • Whether software and technology export licenses also are not used or are underused;
  • The reasons that export licenses sometimes are not used or are underused; and
  • Whether characteristics of the export licensing process (e.g., ease or difficulty of use, processing times, degree of communication between the government and the applicant, license conditions, etc.) contribute to the practice of not using or under-using export licenses.

The scope of this inquiry is limited to export licenses. It does not encompass reexports, deemed exports or deemed reexports.

The following kinds of information would be useful to BIS's assessment:
  • Whether exporters seek an export license prior to receipt of a purchase order or letter of intent, and examples of typical business cases for seeking a license absent such documentation;
  • Detailed information concerning instances when exporters have obtained an export license from BIS but then did not use it or used it for less than the quantity or value authorized, including information on whether the export licensing process impacted the transaction, whether sales were lost due to the licensing process and the dollar amount of any such lost sales that are directly attributable to the licensing process;
  • Specific information about whether licenses for the export of software or technology are not used or are under used;
  • Whether an extension of the validity period of export licenses issued by BIS would increase the probability of the utilization of licenses; and
  • Process improvements that BIS could make to enhance the utilization of export licenses (e.g., expedited treatment for applications under specific circumstances).

BIS Posts Notice on Transfer of Export Licenses

On February 10, 2009, the Bureau of Industry and Security posted a notice on its website regarding the transfer of licenses. The notice stated the following:

Under the Export Administration Regulations (EAR), BIS issues individual export licenses to parties. In some instances, ownership of the party/licensee changes due to mergers and acquisitions. This may result in a change to the license if the party to whom the license was issued no longer exists, or is no longer engaged in exporting. The EAR contains a procedure under Section 750.10 that provides for the transfer of export licenses in such circumstances. Persons planning corporate mergers, transfers, or acquisitions should consider whether any existing export licenses will need to be transferred and should consult Section 750.10(b) which provides detailed instructions. Please note that the transfer of an export license must be requested by the licensee, therefore, any request for a transfer of a license that is the result of a corporate transaction in which the licensee will cease to exist as a legal entity must be made prior to the licensee ceasing to exist.

California & Taiwan Companies Lose Export Privileges for 20 Years

On February 6, 2009, the Bureau of Industry and Security (BIS) announced that Well Being Enterprise Co., Ltd. ("Well Being") of Taiwan and Elecmat, Inc. of San Francisco, CA settled allegations and each agreed to 20 year denials of export privileges. Well Being also agreed to a civil penalty of $250,000 to settle allegations that it committed 25 violations of the Export Administration Regulations (EAR) related to the unlicensed export of chemicals and metals from the United States to Taiwan that are controlled for Nuclear Proliferation reasons. In addition, Hui-Fen Chen, a Well Being employee, has agreed to a twenty-year denial of export privileges for items on the Commerce Control List (CCL), and Theresa Chang, Elecmat’s former manger, has agreed to a two-year denial of export privileges for items on the CCL.

The denial orders imposed against Well Being, Chen and Chang prohibit them from participating in, or benefiting from, any transaction involving the export of an item listed on the CCL. The denial order imposed against Elecmat prohibits it from participating in, or benefiting from, any transaction involving the export of all items subject to the EAR. BIS has agreed to suspend $220,000 of Well Being’s fine, provided that, in the next five years, no additional violations occur.

Kevin Delli-Colli, Acting Assistant Secretary of Commerce for Export Enforcement stated that, "Individuals who devise schemes and willfully circumvent U.S. export controls warrant having their export privileges suspended. This case demonstrates that domestic sales of controlled items to persons with no technical understanding of the product should be considered a red-flag."

BIS Seeks Public Comments on Effects of Export Controls on Decisions to Use or Not Use U.S.-Origin Parts or Components

On January 5, 2009, the Bureau of Industry and Security (BIS) published a notice in the Federal Register seeking public comments on whether U.S. export controls influence manufacturers' decisions to use or not use U.S.-origin parts and components in commercial products and the effects of such decisions. In the notice, BIS states that it "is interested in obtaining specific information about whether such a practice occurs, and if so, its economic effects in order to assess the effectiveness of export controls as well as the impact of export controls on the U.S. economy.

Comments must be received no later than February 19, 2009.

BIS Announces Full Implementation of VEU Program

On January 13, 2009, the Bureau of Industry and Security (BIS) announced the full implementation of the Validated End-User (VEU) program for the People’s Republic of China. The VEU program, which allows certain exports from the U.S. to "validated end users" in China to be exported without individual export licenses.

The VEU program has been under fire from groups such as the
Wisconsin Project on Nuclear Arms Controls. However, BIS has announced that it has reached agreement with the government of China to allow on-site visits by BIS officials of VEUs in China.

BIS issued the following press release:

WASHINGTON, D.C. – The Bureau of Industry and Security (BIS) today announced the full implementation of the Validated End-User (VEU) program for the People’s Republic of China.  With agreement on procedures to ensure the program’s secure and efficient operation, civilian U.S.-China high-technology trade will benefit from the continued export of certain products to VEU-approved companies without individual licenses.  The VEU program facilitates civilian trade by reducing administrative and logistical hurdles for certain exports to pre-screened companies in China.

“We are pleased to have reached this milestone agreement with China, one of our nation’s most important trading partners,” Under Secretary of Commerce Mario Mancuso said.  “This agreement will maximize the security and trade-enhancing benefits of the VEU program, and continue a promising chapter in civilian U.S.-China high technology trade.  U.S. exporters now have a more streamlined way to export to companies in China who have a record of using U.S. technology responsibly.”

Established in 2007, the VEU program uses a market-based approach to facilitate civilian  high-technology trade with China.  The program permits civilian companies in China, who pass a rigorous national security review and agree to strict follow-on compliance obligations, to receive under a VEU-specific authorization the same U.S.-controlled items they could previously receive under individual Commerce Department licenses.

BIS 4th Annual Export Control Forum in Newport Beach, CA Registration Opens

BIS has opened registration for its 4th Annual Export Control Forum in Newport Beach, CA to be held on March 16, 2009 with a Special Topic on March 17, 2009. BIS states:

The Export Control Forum is a full-day program designed to cover recent developments in export control regulations and policies. The one-day format provides a cost-effective way for the export control professional to hear about the latest in the export control field and to interact with key BIS management, licensing, and policy people. The Export Control Forum will conclude with a gala reception, offering you the opportunity to mingle and discuss issues of concern with the presenters and other participants.


BIS will also conduct two, half-day, Special Topics sessions on the day following the Forum, on March 17, 2009 for those who would like in-depth coverage on issues of interest. This year we will conduct one program on Technology Licensing and another on Encryption Controls. These sessions are independent and are scheduled to run concurrently.


For those of you who have requested an Update-like offering on the west coast, this is it! The streamlined, day or day-and-a-half format is intended to provide great value in a package that fits into your busy schedule. Please act quickly as space is limited.

BIS Update 2008 Web Portal containing Video Recordings Now Available

The Bureau of Industry and Security (BIS) recently announced the launch of a new web portal with video recordings of the past BIS Update 2008 conference. The web portal features the video recordings and speaker presentations from the Update 2008 conference, as well as the conference handout.

BIS Seeks Public Comments on Foreign Produced Items Made from U.S.-Origin Encryption Technology or Software

On January 6, 2009, the Bureau of Industry and Security (BIS) published a notice in the Federal Register requesting public comments on the appropriate extent and scope of U.S. export controls on foreign products that are the direct products of U.S.-origin encryption technology or software. BIS is seeking information on the potential impact of controlling such foreign made items for Encryption Items (EI) reasons under the Export Administration Regulations (EAR) (i.e., those items classified under ECCN 5A002 or 5D002).

Specifically, BIS is requesting comments regarding the impact this control would have on both U.S. exporters of encryption technology/software and foreign manufacturers of products that are derived in whole or in part from U.S.-origin encryption technology or software.

Comments must be received by BIS no later than March 9, 2009.

BIS Issues Final Rule with Conforming Changes to End-User/End Use Based Controls and Clarification of Terms

On November 18, 2008, the Bureau of Industry and Security (BIS) published a final rule in the Federal Register amending the Export Administration Regulations (EAR) by making conforming changes in certain end-user/end-use controls in the EAR to ensure that the terminology used to describe each type of end-user/end-use control is consistent, to the fullest extent possible, with the terminology in such other controls in the EAR. In addition, the final rule amends the EAR by revising the definition of the term "transfer" and certain related terms, to provide greater clarity regarding these provisions.

With regard to the end-user/end-use conforming changes, BIS states that the amendments clarify that a party cannot proceed with an export, reexport, or transfer (in-country) that is in transit at the time the party is informed by BIS that a license is required (in accordance with certain end-user/end-use controls in the EAR), unless that party first obtains a license from BIS authorizing the completion of the transaction. These changes are intended to enhance the ability of BIS to stop items subject to the EAR, including items not on the CCL, from being exported, reexported or transferred when there is an unacceptable risk that such items will be used in, or diverted to, any of the proliferation activities specified in certain sections of the EAR.

BIS Requests Public Comments on Removing Category 7A Products from De Minimis Eligibility

On November 14, 2008, the Bureau of Industry and Security (BIS) announced in the Federal Register that it is seeking public comments on the prospect of removing from de minimis eligibility commodities controlled for missile technology (MT) reasons under Category 7 - Product Group A on the Commerce Control List (CCL) except when the 7A commodities are incorporated as standard equipment in Federal Aviation Administration (FAA) (or national equivalent) certified civilian transport aircraft.

BIS states that it specifically is seeking public input on the impact the proposed change would have on U.S. manufacturers of Category 7A commodities, as well as the impact such a change would have on foreign manufacturers that incorporate U.S.-origin 7A commodities into their foreign-made products.

Comments must be received no later than January 20, 2009.

BIS to Hold Public Meeting on Proposed Intra-Company Transfer (ICT) Rule

On October 27, 2008, the Commerce Department's Bureau of Industry and Security (BIS) will hold a public meeting to discuss its proposed rule on the Intra-Company Transfer (ICT) license exception. The meeting will be held at 9:00 am in Room 4830 of the Herbert C. Hoover Building in Washington, D.C. on October 27, 2008.

BIS Implements Wassenaar Arrangement Changes to Export Administration Regulations

On October 14, 2008, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) issued a final rule in the Federal Register revising the Export Administration Regulations (EAR) to implement changes made to the Wassenaar Arrangement’s List of Dual Use Goods and Technologies and Munitions (Wassenaar List).

The Wassenaar List is maintained and agreed to by governments participating in the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual Use Goods and Technologies (
Wassenaar Arrangement).

This final rule revises the EAR by amending certain entries that are controlled for national security reasons. Specifically, entries in Categories 1, 2, 3, 5 Part I (telecommunications), Category 5 Part II (information security), and Categories 6, 7, and 9 were amended, and new entries were added to the Commerce Control List (CCL).

The final rule also increases unilateral U.S. export controls on certain items to make them consistent with the amendments made to implement the Wassenaar Arrangement’s decisions.

Although this rule is effective immediately, shipments that were on dock prepared for loading or those that were en route to a port of export on October 14, 2008, may proceed to that destination under the previous license requirements as long as they are exported from the United States before December 15, 2008. Items not exported before the December 15, 2008 deadline will require a license under the new regulations.

An Update from BIS Update 2008

The Department of Commerce's Bureau of Industry and Security (BIS) held its annual update conference in Washington, DC from September 29 - October 1, 2008. Global Trade Expertise were there and here is a short summary of key highlights from the event:

  • BIS videotaped all of the sessions and plans to post the videos on their website in about 4 weeks.
  • BIS announced five regulatory initiatives: (1) Expanding the Entity List; (2) Comprehensive Review of the Commerce Control List; (3) Revisions to the Encryption Regulations; (4) Revised De Minimis Regulations; and (5) a proposed rule will be published next week outlining the Intra-Company Transfer License Exception (ICT), for which a 45-day comment period will follow.
  • BIS has expanded the foreign availability criteria beyond national security controls.
  • Based on the representations by BIS, the Intra-Company Transfer License Exception (ICT) will require prior approval, which will be similar to the license application process; periodic reporting will be required; and only certain technology for deemed exports will be covered by the ICT license exception.

BIS Announces Five Regulatory Changes

On October 1, 2008, the Department of Commerce's Bureau of Industry and Security (BIS) announced five regulatory updates:

  • Final rule to revise the EAR to implement changes agreed upon in the December 2007 Wassenaar Arrangement Plenary Meeting and the provisions regarding solar cells agreed upon in the December 2006 Plenary Meeting. (To be published in the Federal Register)
  • Interim rule to amend the EAR to change the de minimis calculation for foreign produced hardware that is bundled with U.S.-origin software. (Published in today’s Federal Register)

BIS Publishes Update 2008 Plenary Remarks

On September 30, 2008, the Department of Commerce's Bureau of Industry and Security (BIS) published the Plenary Remarks of Assistant Secretary Christopher R. Wall at the 2008 BIS Update Conference in Washington, D.C. here.

BIS to Post Commodity Classificaton Information Based on Exporters' Request

On September 25, 2008, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) announced that it will provide companies the opportunity to have their Commodity Classification information made accessible via the BIS website. 

If a company has, or plans to have, Commodity Classification information or an export control point of contact available on their website, and would like this information to be accessible via the BIS website, they are asked to contact CommodityClassification@bis.doc.gov. In the e-mail, the company must provide the following information, which then will be posted on the BIS website:
1) Company name, 2) General description of the products/services, 3) Commodity classification information website address, and 4) Export control point of contact.

BIS Issues Guidance on Illicit Diversion of Goods to Iran

Following the disbanding of an illicit Iranian global procurement scheme, on September 24, 2008, the U.S. Department of Commerce’s Bureau of Industry and security (BIS) issued guidance on actions exporters can take to prevent illegal diversion of items to support Iran’s nuclear weapons or ballistic missile programs.

Iran is currently
trying to procure items for its uranium enrichment centrifuge program. Iran has admitted to evading international sanctions to procure sensitive items that can contribute to its weapons of mass destruction (WMD) programs. Specifically, Iranian entities form front companies in other countries for the sole purpose of exporting items to Iran that can be used in the nuclear and missile programs.

BIS recommends that the U.S. exporters take the following steps to prevent illicit export to Iran (more detail on the BIS Iranian Guidance website):

  • Know your consumer;
  • Understand “Red Flag” indicators;
  • Be cautious of customers operating in transshipment countries or free trade zones;
  • Screen parties to a transaction using the U.S. Government “Lists to Check” on BIS website;
  • Contact BIS if something does not seem right about the transaction or if you suspect a shipment may have been diverted to Iran;
  • Subscribe to the BIS listserv and to the Department of the Treasury, Office of Foreign Assets Control’s (OFAC) service to receive notifications about changes to the Entity List and List of Specially Designation Nationals and Blocked Persons.
The guidance follows the administrative actions taken last week by BIS and other agencies against 75 entities involved in a global procurement network that sought to illegally acquire and deliver to ultimate buyers in Iran U.S.-origin dual-use and military components for the Iranian Government.

All exports to Iran are subject to the Export Administration Regulations (EAR) and the Department of the Treasury’s Iranian Transaction Regulations (ITR). Exports must be authorized by the Treasury’s Office of Foreign Assets Control (OFAC) prior to exporting to Iran. If ORAC authorizes such an export or reexport, no separate authorization from BIS is necessary.

BIS Announces ETRAC Members

On September 23, 2008, the Department of Commerce's Bureau of Industry and Security (BIS) announced the membership of the Emerging Technology and Research Advisory Committee (ETRAC) here.

ETRAC Members:

Pamela Abshire, University of Maryland
Maja Mataric, University of Southern California
Jeffrey Ashe, General Electric Global Research
Richard McCullough, Carnegie Mellon University
Robert Breault, Breault Research Organization, Inc.
Steven Patterson, Lawrence Livermore National Lab.
Claude Canizares, Massachusetts Institute of Technology
Carl A. Picconatto, MITRE Experimental Laboratory
A. Stephen Dahms, Alfred E. Mann Foundation
Jeffrey Puschell, Raytheon Space & Airborne Systems
Charbel Farhat, Stanford University
Jeffrey Reed, Virginia Tech
Bob Gleichauf, Cisco Systems
Michael Reiter, University of North Carolina
Harry Kington, Honeywell Aerospace
Samuel Stanley, Jr, Washington University
Gerald Kulcinski, University of Wisconsin
Marlin Thomas, Air Force Institute of Technology
Brooks Keel, Louisiana State University
Thomas E. Tierney IV, Los Alamos National Laboratory
Nikolai Leung, Qualcomm, Inc.
James Tour, Rice University
Seth R. Marder, Georgia Institute of Technology
 

Iranian Ring Charged with Procuring IED Components Iranian Ring Charged with Procuring IED Components Iranian Ring Charged with Procuring IED Components Iranian Ring Charged with Procuring IED Components

On September 17, 2008, the Department of Justice (DOJ) announced that a federal grand jury in Miami, Florida, has returned a Superseding Indictment charging sixteen foreign nationals and corporations in connection with their participation in conspiracy to export U.S.-manufactured commodities to prohibited entities and to Iran.

The Indictment includes charges of conspiracy, violations of the International Emergency Economic Powers Act (IEEPA) and the United States Iran Embargo, and making false statements to federal agencies in connection with the export of thousands of U.S. goods to Iran. Specifically, the Indictment alleges that the defendants purchased, and then caused the export of U.S. dual-use goods to ultimate buyers in Iran through middle countries, including the United Arab Emirates, Malaysia, England, Germany, and Singapore. Dual-use commodities are those that have commercial application, but could potentially be used to further the military or nuclear programs of other nations and thus could be detrimental to the foreign policy or national security of the United States.

The goods at issue are controlled by the Export Administration Regulations (EAR) for missile technology, national security and antiterrorism reasons as well as under the International Traffic in Arms Regulations (ITAR). In this case, the Indictment alleges that the defendants exported 120 field-programmable gate arrays, over 5,000 integrated circuits of varying types, around 345 Global Positioning Systems (GPS), 12,000 Microchip brand micro-controllers, and a Field Communication. These commodities have potential military applications, including as components in construction of improvised explosive devises (IEDs).

The charges announced are the result of a criminal investigation that was initiated in July 2006. Led by the
Commerce Department, the investigation also included the efforts of the Departments of Homeland Security, Defense, State and Treasury.

As a result of investigation, the Commerce Department’s Bureau of Industry and Security (BIS) issued a Final Rule in the Federal Register announcing 75 additions to its Entity List because of their involvement in this illegal global procurement network for the benefit of the Iranian Government, and for their relationship to the Mayrow General Trading, one of the procurement front companies.

BIS Requests Comments on Foreign-Based Policy Export Controls

On September 8, 2008, the Department of Commerce's Bureau of Industry and Security (BIS) published a notice in the Federal Register requesting comments on foreign-based policy export controls. BIS is reviewing the foreign policy-based export controls in the Export Administration Regulations (EAR) to determine whether they should be modified, rescinded, or extended. BIS would like to receive comments on how existing foreign policy-based export controls have affected exporters and the general public.

In addition, BIS is particularly interested in comments regarding the Entity List (Supplement No. 4 to Part 744 of the EAR), including comments on its usefulness and format, as well as the specific entities listed and the licensing policies and requirements for each.

Comments must be received by October 8, 2008.

BIS Issues Rule for Expanding Entity List

On August 21, 2008, Bureau of Industry and Security (BIS) issued a final rule that expands the criteria for adding parties to the Entity List. The BIS Entity List lists parties whose involvement in a transaction can require a license under the Export Administration Regulations (EAR). The list specifies the license requirements that apply to each listed entity.

Effective immediately, the new rule authorizes imposition of foreign policy export and reexport license requirements, limiting the availability of license exceptions, and setting license application review policy for exports and reexports. BIS may take such actions “if there is reasonable cause to believe, based on specific and articulable facts, that the entity has been involved, is involved, or poses a significant risk of becoming involved in activities that are contrary to the national security or foreign policy interests of the United States.”

Under the rule, the activities at issue do not have to be subject to EAR in order for a party to be placed on the Entity List. BIS lists five examples of conduct that could be found detrimental to the identified U.S. interests:

Supporting persons engaged in acts of terror;
Actions that could strengthen military or terrorism capabilities of governments that have been designated by the Secretary of State as repeatedly providing support for acts of international terrorism;
Dealing or assisting dealing in conventional weapons in a way contrary to the U.S. national security or foreign policy interest;
Preventing accomplishment of an end use check conducted by BIS or the Directorate of Defense Trade Controls; and
Engaging in conduct that poses a risk of violating the EAR when such conduct raises sufficient concern that prior review of exports or reexports enhances BIS’s ability to prevent EAR violations.
The rule applies to foreign parties only, and will not be used to add U.S. persons on the Entity List. Thus, a foreign party could be added to the Entity List if specific and articulable facts provide that it has been engaged in the type of conduct identified.
The new rule also amends the EAR to include a procedure for addressing requests of a listed parties to be removed from the list or have their listing modified.

BIS Agenda for Next Six Months Outlined

On July 30, 2008, Under Secretary of Commerce Mario Mancuso delivered a keynote address to the Washington International Trade Association entitled, "Sprinting to the Finish - The BIS Agenda for the Final Six Months."
Highlights of the agenda are:
  1. BIS will continue to focus on the areas of highest enforcement concern to the agency: nations of illicit trans-shipment concern, proliferators, and terrorists - with Iran being of particular concern. Reauthorization of the EAA is a priority for the agency.
  2. BIS will work to implement the dual-use directive signed by the President this past January and BIS hopes to make meaningful progress on the following regulatory issues: the intra-company transfer license exception, deemed exports, encryption, thermal imaging, foreign availability, and 17C.
  3. BIS will continue to support its current work and make a smooth transition to the new administration. BIS is committed to doing its best to attract the best and brightest to public service, better integrate its enforcement and policy functions, improving interagency engagement, upgrading its technology infrastructure and business processes over time, and better aligning its workforce to address BIS's highest priorities.

BIS Announces Dates for Update 2008 Conference

On July 24, 2008, the Bureau of Industry and Security (BIS) announced the dates for its Update 2008 conference. Update 2008 will be held from September 29, 2008 - October 1, 2008. Further information can be found here and the agenda can be found here.

BIS states:

Update activities will begin on Monday, September 29 featuring mini training sessions for those new to Update as well as an Exhibit Hall with industry and government exhibitors. The main conference will begin on Tuesday, September 30 and end on Wednesday, October 1. Please see the Agenda for conference details. A Program Description will be posted in the coming weeks.



BIS had posted information on how to express your interest in attending Update 2008 and will e-mail instructions on how to register on July 25, 2008. BIS states, "
Since there was more interest than space available at the conference, those whose names are not drawn will be placed on a waiting list and notified of how to register as space becomes available." For those who receive the registration email, they must register by August 18th, or their spot will be given to those on the wait list.

BIS Posts Q & As on Recent North Korea Presidential Announcement

On July 8, 2008, the Bureau of Industry and Security (BIS) posted questions and answers on the recent Presidential announcement with regard to the rescission of North Korea from the State Sponsor of Terrorism (SST) List (here). The questions and answers provide exporters with guidance as to what practical changes they can expect as a result a result of the Executive Order (which can be found here).

In essence, the Q&A states that the President's June 26, 2008 announcement triggered a 45-day congressional notification period prior to the formal rescission of the SST designation. The Administration will carry out the formal rescission only after the Six Parties (along with North Korea - China, Russia, Japan, South Korea, and the United States) reach agreement on acceptable verification and monitoring principles and protocols regarding North Korea's nuclear activities. Following such agreement, and barring further congressional action, BIS plans to publish an amendment to the Export Administration Regulations (EAR) removing North Korea from Country Group E:1 and making other conforming changes to implement the rescission. Removing North Korea from Country Group E:1 will raise the threshold value for calculating the de minimis level of foreign goods destined to North Korea to 25% controlled U.S. content. Currently, as a member of Country Group E:1, the threshold value is 10%.

However, the President's announcement does not signal a change for U.S. exporters currently. BIS states that pursuant to Section 746.4 of the EAR, it will continue to require a license for the export or reexport to North Korea of items subject to the EAR, except food and medicine classified as EAR99. BIS also stated that even after North Korea's SST designation is rescinded, certain export control requirements, in particular those related to North Korea's detonation of a nuclear device on October 9, 2006, proliferation activities, and human rights violations, will continue to apply on the basis of other laws and regulations, and in accordance with United Nations Security Council Resolution 1718.

BIS also stated that its licensing policy for North Korea has not yet changed. Once the rescission takes effect, it will review applicable licensing policy. Currently, the licensing policy for North Korea is as follows:

  • The U.S. Government will generally approve applications to export or reexport: (a) Non-food, non-medical humanitarian items meeting subsistence needs and intended for the benefit of the North Korean people; and (b) Items in support of the United Nations and other humanitarian efforts.

  • The U.S. Government will generally deny applications to export or reexport to North Korea: (a) Luxury goods (an illustrative list of luxury goods appears on the BIS website); (b) Arms and related materiel, and items controlled under the multilateral export control regimes; and (c) Items that could contribute to North Korea's nuclear-, ballistic missile-, or other weapons of mass destruction-related programs.
  • The U.S. Government will review, on a case-by-case basis, applications to export and reexport all other items subject to the EAR, consistent with all applicable licensing policies set forth in the EAR

BIS Announces Antiboycott Online Training

On June 17, 2008, the Bureau of Industry and Security (BIS) announced the availability of a new training presentation on antiboycott compliance on its BIS Online Training Room.

BIS Forms Emerging Technology and Research Advisory Committee (ETRAC)

On May 23, 2008, the Bureau of Industry and Security (BIS) announced the establishment of the Emerging Technology and Research Advisory Committee (ETRAC). The ETRAC will assist BIS in evaluating currently controlled technologies and emerging technologies which may have national security significance.

BIS stated:

The ETRAC will provide recommendations to BIS on how to help keep the Commerce  Control List current with respect to emerging technologies and research and development activities that have dual-use applications.  The committee will assess new and existing regulatory controls that are of greatest consequence to U.S. national security and study the implications of the release of dual-use technology to foreign nationals under current deemed exports licensing requirements.


The ETRAC was formed in response to the dual-use export control directive issued by the President on January 22, 2008 to the Secretary of Commerce to implement programs to assess whether regulations "control the export and reexport of sensitive items while minimizing the impact on U.S. competitiveness and innovation." The ETRAC was also established in response to a recommendation of the Deemed Export Advisory Committee (DEAC).

BIS encourages qualified leaders in industry, academia, and research who have an in-depth knowledge of U.S. research and emerging technology that could affect U.S. national security to apply for ETRAC membership (information can be found in this
Federal Register notice).

BIS Seeks Comments on Deemed Export Advisory Committee Recommendations

On May 19, 2008, the Bureau of Industry and Security (BIS) published a notice in the Federal Register seeking public comments on the Deemed Export Advisory Committee (DEAC) Recommendations. Specifically, BIS is seeking comments on whether the scope of technologies on the Commerce Control List that are subject to deemed export licensing requirements should be narrowed, and if so, which technologies should be subject to deemed export licensing requirements. In addition, BIS is seeking comments on whether a more comprehensive set of criteria should be used to assess country affiliation for foreign nationals with respect to deemed exports.

Comments must be received no later than August 18, 2008. The DEAC report may be accessed
here.

BIS Deemed Export Webinar - April 15

BIS announced a Deemed Export Webinar which will take place on April 15, 2008 from 1pm - 2pm Eastern. The webinar costs $35 and one can sign up here. BIS states that participants will learn about the recently issued Deemed Export Advisory Committee's (DEAC) report and will learn about deemed exports rules and regulations. Alex Lopes, Director of the Deemed Exports and Electronics Division of BIS, will be the main speaker and will respond to questions. All that is needed to participate is a telephone for the audio portion and a computer with high speed internet access for the visual portion of the webinar.


Highlights from BIS's 2008 Export Control Forum in Newport Beach

The Bureau of Industry and Security (BIS) held its 3rd Annual Export Control Forum in Newport Beach, CA on March 17, 2008. BIS, Census and Office of Foreign Assets Control (OFAC) provided updates to the trade. Global Trade Expertise attended and in case you missed it, we'll recap the highlights here.
  • In a presentation by Gerry Horner, Senior Trade and Industry Analyst, Office of Technology Evaluation, Mr. Horner stated that BIS has been measuring EAR compliance by comparing data elements in AES and license approvals. For example, BIS is comparing approved licenses to licensed exports, comparing license values to licensed export values, and comparing countries on license with licensed exports. BIS is also scrutinizing license exception uses and EAR99 classifications.
  • Alex Lopes, Director of BIS' Deemed Exports and Electronics Division, gave a presentation and a half-day seminar on Deemed Exports. Mr. Lopes set forth two general findings of the Deemed Export Advisory Committee (DEAC) Report as: (1) strengthening and streamlining deemed export policy and process; and (2) expanding BIS' outreach. With regard to the second recommendation, BIS will be updating its website, providing more frequent webinars, and tailoring outreach. In fact, BIS will be having a webinar on Deemed Exports on April 15, 2008.
  • With regard to implementing the first recommendation: strengthening and streamlining deemed export policy and process, Mr. Lopes set fort the following steps:
  • BIS announced in February the establishment of the Emerging Technologies and Research Advisory Committee (ETRAC), which will work on creating a list of technologies that should be regulated for deemed export purposes;
  • BIS is creating a license exception for intra-company transfers (ICT) of both commodities and technology that is currently being reviewed by other government agencies;
  • BIS is seeking to establish objective licensing criteria when reviewing dual nationals;
  • BIS is in the process of redesigning its website to simply and clarify regulatory language and online guidance; and
  • BIS is undertaking a comprehensive review of the CCL.
  • Darryl Jackson, Assistant Secretary of Commerce for Export Enforcement, stated that the fourth export enforcement priority is now Antiboycott Compliance (after Weapons of Mass Destruction Proliferation, Terrorism and State Sponsorship of Terror, and Diversions to Unauthorized Military End-Use).
  • Mr. Jackson also revealed for the first time the 9 Factors to an Effective Compliance Program that would be entitled to great weight mitigation, which will be posted on the BIS website: (1) whether a company has performed a meaningful risk analysis; (2) the existence of formal written compliance program; (3) whether appropriate senior company officials are responsible for overseeing the export compliance program; (4) whether adequate training is provided to employees; (5) whether the company adequately screens its customers and transactions; (6) whether company meets recordkeeping requirements; (7) the existence and operation of an internal system for reporting export violations; (8) the existence and results of internal or external reviews or audits (with associated updates of the EMCP); and (9) whether remedial activity has been taken in response to export violations.
  • Todd Willis, Assistant Director, Office of Enforcement Analysis gave an update on BIS' end-use checks. In 2008, BIS will begin conducting end-use checks (EUC) on software and technology. Mr. Willis provided information that BIS will look for during end use checks, which elicited questions from the audience regarding how much control BIS expects exporters to exert over foreign customers and what the effects of an unfavorable EUC will have on future license applications.

BIS Establishes Online Export Control Training Room

On March 19, 2008, the Department of Commerce's Bureau of Industry and Security (BIS) announced the creation of an BIS Online Training Room. In its announcement, BIS stated:

As part of its ongoing efforts to improve outreach, BIS will continue to create and supplement the materials regularly.  The initial launch includes the first half of the Essentials of Export Controls seminar that BIS currently offers around the country, as well as five pre-recorded webinars covering a variety of topics.  The training modules are presented in a video streaming format. The pre-recorded BIS webinars were conducted over the past year and focus on specific export control issues.



The Online Training Room currently provides 3 training modules:

1. Export Control Basics
2. Classifying Your Item and Determining If You Need a License
3. General Prohibitions including Prohibited End-Users and End-Uses & Activities

Also included in the Online Training Room are BIS' previously conducted webinars:

1. Reexport Controls (March 12, 2008)
2. An Introduction to Commercial Export Licensing Requirements (Spanish) (October 18, 2007)
3. Intermediate Deemed Exports (August 29, 2007)
4. Update to China Export Control Policy (June 20, 2007)
5. An Introduct to Commercial Export Licensing Requirements (May 15, 2007)

BIS states, "We wll continue to create and update content for the online training room, and would welcome your suggestions for how to further improve our outreach efforts."

BIS Announces Steps to Implement Deemed Export Advisory Committee Recommendations

On February 6, 2008, the Department of Commerce's Bureau of Industry and Security (BIS) announced that it had completed its review of the Deemed Export Advisory Committee's (DEAC) report. BIS states that the Department has begun to work with its U.S. government partners, including the Departments of Defense, State, and Energy, to "consider the report's analysis and recommendations as a basis for reforming current deemed export policy."

A "deemed export" is the transfer of controlled dual-use technology to a foreign national while in the United States. BIS stated that, "Given the significant role that foreign nationals play in the U.S. research system, deemed export policy has significant implications for U.S. national security and economic competitiveness."

Mario Mancuso, Under Secretary of Commerce for Industry and Security, stated, "U.S. deemed export policy must account for the variety of risks we face. While our rules should not permit the transfer of sensitive U.S. technology to a real or potential adversary, they must ensure the United States remains the most innovative and competitive economy in the world."

While certain proposals under active consideration will require interagency support, Under Secretary Mancuso has directed BIS to immediately:
  • Create an Emerging Technologies Advisory Committee, composed of representatives from leading research universities, government research labs, and industry to make recommendations to BIS regarding emerging technologies on a regular basis; and
  • Improve outreach and engagement efforts to the academic and technology communities about the progress and scope of the deemed export policy efforts.

BIS' SNAP-R Webinar Now Available

BIS seal
The Bureau of Industry and Security has posted its webinar on the Simplified Network Application Process Redesign (SNAP-R) online for viewing. It can be found here.

BIS Expands License Exceptions TMP & BAG

BIS seal
On December 12, 2007, the Bureau of Industry and Security (BIS) published a final rule to amend the Export Administration Regulations (EAR) to expand the availability of the License Exceptions for Temporary Imports, Exports, and Reexports (TMP) and Baggage (BAG) to allow for certain temporary exports and reexports of technology. Part 740 of the EAR provides for the License Exceptions TMP (§ 740.9) and BAG (§ 740.14) both contain tools of trade provisions (§ 740.9(a)(2)(i) and § 740.14(b)(4), respectively), which authorize certain temporary exports and reexports for usual and reasonable kinds and quantities of tools of trade. Prior to the new rule, TMP and BAG did not authorize temporary exports or reexports of technology.

The new rule expands the availability of TMP and BAG to allow for certain temporary exports and reexports of technology by U.S persons to U.S. persons or their employees traveling or temporarily assigned abroad. However, there are several significant limitations to the license exceptions for technology:

  1. The license exceptions are only available to U.S. persons or non-U.S. persons otherwise authorized to receive the technology (e.g., under a license or license exception) or, alternatively do not require such authorization due to the technology's NLR status. In addition, the employer must demonstrate and document for recordkeeping purposes the reason that the technology authorized under the tools of trade provisions is needed by the non-U.S. employees.
  2. The technology exported under these license exceptions may not be thereafter be disclosed to anyone who is also not a U.S. person or otherwise authorized to receive the data.
  3. If the technology authorized under License Exception TMP is shipped or transmitted in a format that could facilitate a subsequent release of the technology must be returned to the U.S. or disposed of within 12 months from the export pursuant to the License Exception.
  4. The new rule also requires that the exporting or reexporting party and the recipient take adequate security protections to protect against unauthorized access to the technology while the technology is being transmitted and used overseas, such as secure connections (such as VPN) and the use of password systems and/or personal firewalls on electronic devices.
  5. The technology authorized under these provisions may not be used for foreign production purposes or for technical assistance unless authorized by BIS.
  6. Encryption technology under ECCN 5E002 is not authorized for export or reexport under the amended "tools of trade" provisions of License Exception TMP or under BAG § 740.14 to any destination listed in Country Group E:1 of Supplement No. 1 to part 740. for export or reexport of 5E002 technology by companies, their subsidiaries and employees, BIS states that License Exception Encryption Commodities and Software (ENC) in § 740.17 should be used.

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