BIS Publishes Clarification of Grace Period for New Encryption Registration Requirement
The June 25, 2010 final rule established, inter alia, an encryption registration requirement for authorization under provisions of License Exception ENC, as codified in § 740.17(b)(1), (b)(2) and (b)(3) of the EAR, and for transactions in connection with mass market encryption transaction, as codified in §§ 742.15(b)(1) and (b)(3) of the EAR. In § 740.17(d)(1)(i)(A) and (d)(1)(i)(B), the rule specified that an encryption registration was required to be filed the first time that a party submits an encryption classification request under § 740.17(b)(2) and (b)(3) or performs an encryption self-classification under § 740.17(b)(1) on or after August 24, 2010. The rule also stated that an encryption registration was required to be submitted in support of an encryption classification or in circumstances where a party is making a mass market encryption item eligible for export and reexport (including the definition at § 734.2(b)(9) for encryption software) under § 742.15(b)(1) for the first time on or after August 24, 2010. Although the rule was issued in final form on June 25, the rule intended to establish a grace period permitting parties to wait until August 24 to submit their registration requirements.
In the clarification, BIS states:
The intent of this grace period was to allow industry time to gather information necessary to accurately submit the information required in the encryption registration (Supplement No. 5 to part 742), to change internal procedures, and to train personnel before submitting the encryption registration. However, the rule inadvertently omitted language that clarifies that parties may self-classify or seek classifications between June 25, 2010 and August 24, 2010 without first submitting a registration. It also inadvertently omitted language that clarifies the post-classification registration requirement for parties that self-classified or sought classifications between June 25, 2010 and August 24, 2010, but did not self-classify or seek a classification again on or after August 24, 2010. This rule corrects the regulations to include language that clarifies the intent of the grace period.
BIS Seeks Comments on Revising Encryption Export Controls
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.
Texas Company Settles Allegations Of Antiboycott Violations
The announcement provided that:
BIS, through its Office of Antiboycott Compliance, alleged that in 2004, in connection with two letter of credit transactions involving the sale and transfer of goods destined for Iraq that were shipped through the UAE, Messina furnished to a U.S. bank two certificates signed by the agent for a vessel that attested to the vessel’s eligibility to call at the port of a boycotting country. In doing so, Messina furnished information concerning other persons known or believed to be restricted from having any business relationship with or in a boycotting country, in violation of the antiboycott provisions of the EAR.
BIS Finalizes Encryption Simplification Rule
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.