BIS Publishes New “Best Practices” for Industry to Guard Against Unlawful Diversion through Transshipment Trade
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 Seeks Comments on Proposed Revisions to EAR re: Control of Items that No Longer Warrant ITAR Control Under the USML
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.
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.
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.
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.
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
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&rdquo 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.
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.
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
Hirschhorn testified regarding:
- The Current Export Control Role of the Department of Commerce
- Changes at the Department of Commerce
- List Review & Licensing Policy
- Compliance and Enforcement
- The Export Enforcement Coordination Center
- The Role of Congress in Export Controls
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 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.
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.
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
“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
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.
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.
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.
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.
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
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
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.
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 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.
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.
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.
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.
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 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
Comments must be received by October 8, 2010.
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.
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.
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.
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.
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.”
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.
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.
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 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.
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.
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 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.
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.
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 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.
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.
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.
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&rdquo, 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
With the launch of an online system, BIS plans to eventually phase out the phone-based STELA.
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.
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.
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.
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.
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.
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.”
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.
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
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.
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).
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.
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
Comments must be received no later than February 19, 2009.
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.
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 Seeks Public Comments on Foreign Produced Items Made from U.S.-Origin Encryption Technology or Software
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
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 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.
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.
- 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.
- Proposed rule to amend the Export Administration Regulations (EAR) to establish a new license exception entitled "Intra-Company Transfer (ICT)." (To be published in the Federal Register)
- Interim final rule to amend the EAR to make the treatment of encryption items more consistent with the treatment of other items subject to the EAR. (To be published in the Federal Register)
- 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)
- Final rule to amend the EAR as a result of a systematic review of the Commerce Control List. (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)
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.
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.
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.
Abshire, University of Maryland
Mataric, University of Southern California
Ashe, General Electric Global Research
McCullough, Carnegie Mellon University
Breault, Breault Research Organization,
Patterson, Lawrence Livermore National Lab.
Canizares, Massachusetts Institute of
Picconatto, MITRE Experimental Laboratory
Dahms, Alfred E. Mann Foundation
Puschell, Raytheon Space & Airborne
Farhat, Stanford University
Reed, Virginia Tech
Gleichauf, Cisco Systems
Reiter, University of North Carolina
Kington, Honeywell Aerospace
Stanley, Jr, Washington University
Kulcinski, University of Wisconsin
Thomas, Air Force Institute of Technology
Keel, Louisiana State University
Tierney IV, Los Alamos National Laboratory
Leung, Qualcomm, Inc.
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
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.
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.
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.
Highlights of the agenda are:
- 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.
- 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.
- 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.
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.
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
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).
Comments must be received no later than August 18, 2008. The DEAC report may be accessed 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.
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."
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.
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:
- 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.
- 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.
- 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.
- 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.
- The technology authorized under these provisions may not be used for foreign production purposes or for technical assistance unless authorized by BIS.
- 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.