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20-0429 Wednesday “Daily Bugle”

20-0429 Wednesday “Daily Bugle”

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Wednesday, 29 April 2020

  1. Justice/FBI Announces Agency Information Collection Activities (CIV)
  1. Items Scheduled for Future Federal Register Edition
  2. Commerce/BIS Tightens Restrictions on Technology Exports to Combat Chinese, Russian and Venezuelan Military Circumvention Efforts
  3. DoD/DSCA Updates and Clarifying Memorandum for the Transfer of Authorized Offsetting Collections to the Special Defense Acquisition Fund
  4. State/DDTC Announces Outage on 30 Apr 2020
  1. Expeditors: “CBP Publishes FAQs for Exports of Personal Protective Equipment”
  2. Reuters: “Amazon Turns to Chinese Firm on U.S. Blacklist to Meet Thermal Camera Needs”
  3. STR: “Significant EAR Changes Will Further Restrict Exports to China, Russia, Others”
  1. Arent Fox: “OFAC’s COVID-19 Response: Existing Exceptions, Filing and Compliance Flexibility, and a Little Loosening on Iran”
  2. Baker McKenzie: “EU Updates Export Controls on Personal Protective Equipment in Response to COVID-19”
  3. Husch Blackwell: “U.S. Customs and Border Protection Issues FAQ Guidance on PPE Exports”
  4. Steptoe: “Commerce Issues Long-Awaited Export Control Rules for China, Russia, and Venezuela”
  5. Thompson Hine: “BIS Tightens Export Controls on National Security-Controlled Items: Focus on Diversion for Military End Use in China, Russia, and Venezuela”
  1. Ankura Presents: CFIUS Developments Webinar Foreign Investment Review in a Post-Pandemic Economy; 30 Apr 
  2. FCC Academy Presents Webinar: “An Introduction to EU/Dutch Dual-use and Military Export Controls”; 12 May 
  3. FCC Academy Presents June Webinars: U.S. Export Controls: ITAR, EAR, and FMS 
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EXIMITEMS FROM TODAY’S FEDERAL REGISTER

EXIM_a11
.
Justice/FBI Announces Agency Information Collection Activities”

(Source: Federal Register, 29 Apr 2020) [Excerpts]
 

85 FR 23855: Agency Information Collection Activities; Proposed eCollection

eComments Requested; Extension Without Change, of a Currently Approved Collection; The National Instant Criminal Background Check System (NICS) Checks by Criminal Justice Agencies 

  

* AGENCY: Federal Bureau of Investigation, Department of Justice.
* ACTION: 60-Day notice.
* SUMMARY: The Department of Justice (DOJ), Federal Bureau of Investigation (FBI), Criminal Justice Information Services (CJIS) Division, will be submitting the following information collection request to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995.
* DATES: Comments will be accepted for 60 days until 29 Jun 2020.

 
* * * * * * * * * * * * * * * * * * * *  

OGSOTHER GOVERNMENT SOURCES

* USTR; NOTICES;
Request for Comments: Extension of Particular Exclusions Granted Under the July 2019 Product Exclusion Notice from the 16 Billion Action Pursuant to Section 301; China’s Acts, Policies, and Practices Related to Technology; [Pub. Date: 30 Apr 2020]
 
* USTR; NOTICES; Extension of Particular Exclusions Granted Under the July 2019 Product Exclusion Notice from the 34 Billion Dollar Action Pursuant to Section 301; China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation; [Pub. Date: 30 Apr 2020]

 
* * * * * * * * * * * * * * * * * * * *  

(Source: Commerce/BIS)

 
* * * * * * * * * * * * * * * * * * * *  

OGS_a3
4.
DoD/DSCA Updates and Clarifying Memorandum for the Transfer of Authorized Offsetting Collections to the Special Defense Acquisition Fund

(Source: DoD/DSCA, 25 Apr 2020)
 
The purpose of this memorandum is to provide clarifying and updated reporting and accounting guidance for the recoupment of authorized offsetting collections under Section 51(b) of the Arms Export Control Act of 1976, as amended (22 U.S.C. Chapter 39) (hereafter referred to as Section 51(b)), for the Special Defense Acquisition Fund (SDAF).
 
This memo updates C11.9.3.5.2. and C11.9.3.5.2.1

 
* * * * * * * * * * * * * * * * * * * *  

OGS_a45.
State/DDTC: DDTC Announces Outage on 30 April 

(Source: State/DDTC, 29 Apr 2020) 
 
The Defense Export Control and Compliance (DECCS) Registration and Licensing applications will be unavailable to industry from 6:00 AM (EST) through 8:00 AM (EST) Thursday, 20 Apr 2020 for scheduled system maintenance. Please ensure work in progress is saved prior to the scheduled downtime.

Due to COVID-19 restrictions, the DDTC In-House Seminar scheduled for Wednesday, 29 April 2020, has been postponed indefinitely. DDTC is exploring options to offer the seminar as a virtual event in the near future; please continue to check the DDTC News & Events page for updates and attendance information. Contact us at DDTCInHouseSeminars@state.gov with any additional questions.

 
* * * * * * * * * * * * * * * * * * * *  

COMNEWS

NWS_a16.
Expeditors: “CBP Publishes FAQs for Exports of Personal Protective Equipment”

(Source: Expeditors Newsflash, 28 Apr 2020)
 
On 27 Apr 2020, in Cargo Systems Messaging Service (CSMS) #42506108, U.S. Customs and Border Protection (CBP) published Frequently Asked Questions (FAQs) for exports of personal protective equipment (PPE). CBP addressed operational questions on holds and shipment processing, including topics such as:
 
(1) Letter of Attestation submission;
(2) Shipments of PPE to Canada; and
(3) CBP shipment identification and hold processes.
 
CSMS #42506108 can be found here:
 

NWS_a27.
Reuters: “Amazon Turns to Chinese firm on U.S. Blacklist to Meet Thermal Camera Needs”

(Source: Reuters, 29 Apr 2020) [Excerpts]
 
Amazon.com Inc has bought cameras to take temperatures of workers during the coronavirus pandemic from a firm the United States blacklisted over allegations it helped China detain and monitor the Uighurs and other Muslim minorities, three people familiar with the matter told Reuters.
 
China’s Zhejiang Dahua Technology Co Ltd (002236.SZ) shipped 1,500 cameras to Amazon this month in a deal valued close to $10 million, one of the people said. At least 500 systems from Dahua – the blacklisted firm – are for Amazon’s use in the United States. …
 
However, the United States “considers that transactions of any nature with listed entities carry a ‘red flag’ and recommends that U.S. companies proceed with caution,” according to the BIS. …
 
The deal comes as the U.S. FDA warned of a shortage of temperature-reading devices and said it wouldn’t halt certain pandemic uses of thermal cameras that lack the agency’s regulatory approval.

NWS_a38.
STR: “Significant EAR Changes Will Further Restrict Exports to China, Russia, Others”

(Source: Sandler, Travis & Rosenberg, 29 Apr 2020)
 
Removal of License Exception CIV
 
Effective June 29, a BIS final rule will remove license exception CIV (civil end users) from the Export Administration Regulations. This exception authorizes exports, reexports, and transfers (in-country) of certain national security-controlled items without prior review by BIS to most civil end-uses in country group D:1 destinations, which currently include Armenia, Azerbaijan, Belarus, Cambodia, China, Georgia, Iraq, Kazakhstan, North Korea, Kyrgyzstan, Laos, Libya, Macau, Moldova. Mongolia, Russia, Tajikistan, Turkmenistan, Ukraine, Uzbekistan, Venezuela, Vietnam, and Yemen.
 
BIS states that it is removing this license exception due to concerns related to the increasing integration of civilian and military technology developments in these countries. As a result, effective June 29 BIS will require a license for exports of national security-controlled items on the Commerce Control List to D:1 countries.
 
In a related move, BIS is proposing to modify license exception APR (additional permissive reexports) to prohibit the use of this exception for reexports of items controlled for national security reasons on the CCL (1) to D:1 countries (2) from Hong Kong and country group A:1 countries, which currently include Argentina, Australia, Austria, Belgium, Bulgaria, Canada, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, India, Ireland, Italy, Japan, Latvia, Lithuania, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Luxembourg, Slovakia, Slovenia, South Africa, South Korea, Spain, Sweden, Switzerland, Turkey, and United Kingdom.
 
BIS is proposing this change because it has evidence of differences in licensing review standards under which A:1 countries may approve a license for the reexport of a U.S.-origin item that would have been denied if exported directly from the U.S. Comments on this proposed rule are due no later than June 29.
 
Expansion of Military End-Use/End-User Export Controls
 
Also effective June 29, a separate BIS final rule will expand license requirements on exports, reexports, and transfers (in-country) of items intended for military end-use or military end-users in China, Russia, or Venezuela. Specific changes include the following.
 
– expanding the licensing requirements for China to include military end-users in addition to military end-uses, which will require increased diligence with respect to the evaluation of end-users in China, particularly in view of China’s widespread civil-military integration
 
– broadening the list of items for which the military end-use and end-user licensing requirements and review policy apply to include a number of ECCNs in the categories of materials processing, electronics, telecommunications, information security, sensors and lasers, and propulsion
 
– expanding the definition of “military end-use” beyond items for the use, development, or production of military items to include items that support or contribute to the operation, installation, maintenance, repair, overhaul, refurbishing, development, or production of military items
 
– creating a new reason for control and the associated review policy for regional stability for certain items exported to China, Russia, or Venezuela
 
– requiring the filing of electronic export information for exports to China, Russia, and Venezuela regardless of the value of the shipment (unless eligible for license exception GOV)

COMCOMMENTARY

COM_a19. Arent Fox: “OFAC’s COVID-19 Response: Existing Exceptions, Filing and Compliance Flexibility, and a Little Loosening on Iran” 

(Source:  
Arent Fox LLP
, 28 Apr 2020)
 
* Principal Author: Matthew Tuchband, Esq., 1-202-857-6212, Arent Fox LLP
 
Recognizing that COVID-19 is further straining humanitarian needs in sanctioned countries and complicating compliance with economic sanctions, and perhaps also in response to reports that US sanctions are hindering COVID-19 response in Iran and Cuba, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued web-based guidance to remind the public of the many ways medical exports and other humanitarian services, supplies, and donations can legally flow to sanctioned countries, to offer reporting and compliance flexibility, and to provide some Iran “secondary sanctions” relief.
 
In a Nutshell
 
On April 16, OFAC published a fact sheet (“Fact Sheet: Provision of Humanitarian Assistance and Trade to Combat COVID-19“) compiling brief explanations of, and links to, most existing sanctions exceptions related to humanitarian exports of products, such as food and personal protective equipment (PPE), and services and the provision of financial assistance in the Cuba, Iran, North Korea, Syria, Ukraine/Russia, and Venezuela sanctions. Somewhat buried in this garden of pre-existing policy is a COVID-19-related relaxation of Iran secondary sanctions.
 
On April 20, OFAC published further guidance (“OFAC Encourages Persons to Communicate OFAC Compliance Concerns Related to COVID-19“) offering flexibility for those having reporting or compliance challenges due to COVID-19 and, like other US Government agencies, providing an electronic mailbox for submission of self-disclosures of possible violations.
 
Background
 
Economic sanctions administered by OFAC restrict the flow of goods, services, and funds to sanctioned countries, regions, governments, entities, and individuals when those goods or funds come from the United States, from U.S. persons (individuals and entities), and in some cases from entities owned or controlled by US persons. Many sanctions programs also threaten non-US persons with sanctions (often called “secondary sanctions”) if they engage in transactions with specified persons or industry sectors in targeted countries. To avoid causing undue humanitarian hardship, most sanctions contain exceptions in the form of exemptions, standing authorizations (i.e., general licenses), case-by-case licensing policies, and interpretations in Frequently Asked Questions (FAQs) and other web-published guidance.
 
When humanitarian emergencies affecting sanctioned countries arise, OFAC often receives a surge of public inquiries and requests from policymakers about humanitarian exports and financial assistance. As with most of the country, however, the majority of OFAC’s relatively small but capable staff and leadership currently is handling these inquiries and requests from their homes with their kids screaming, dogs barking, and internet blinking on and off. OFAC is using its web-based guidance to address these inquiries, announce changes in sanctions policy, and provide reporting, compliance, and enforcement self-disclosure flexibility in this difficult time.
 
A Collection of Existing Exceptions.  OFAC’s extensive 10-page Fact Sheet provides a country-by-country list with brief descriptions of, and links to, the most relevant humanitarian exceptions in the Cuba, Iran, North Korea, Syria, Ukraine/Russia, and Venezuela sanctions. Given the complexity of each of these sanctions programs, this one-stop-shop for your COVID-19 sanctions-related needs is quite helpful.
 
But is there anything new here?
Just a little change in Iran policy, as discussed below, and an explanation that OFAC is prioritizing COVID-19-related requests; otherwise OFAC has largely compiled existing policy.
 
Is there anything OFAC did not include?
These sanctions programs are the largest and most complex ones, and OFAC appears to have done a good job identifying the most relevant humanitarian exceptions. Our review identified only a few additional provisions worth noting:
 
(1) Informational material and travel:
Each of these sanctions programs has an exemption for the exportation of pre-existing informational material, such as instructions for the use of PPE, provided the information itself is not on the Commerce Control List. This exemption does not cover technical assistance and other services. For travel, each program except for Cuba has an exemption for transactions related to travel to and from, including related maintenance within, each country/region. Note that both the informational materials and travel exemptions are somewhat limited in the North Korea sanctions program.
 
(2) Cuba:
In addition to the exceptions noted in the Fact Sheet, there is an exemption for certain donations of food, general licenses for certain medical research and air ambulance and emergency medical services, and a Department of Commerce (Commerce) authorization for exports of certain items that support the Cuban people.
 
(3) North Korea:
In addition to the exceptions noted in the Fact Sheet, there is an exemption for additional UN activities and an exception for Commerce-licensed exports.
 
(4) Ukraine/Russia:
In addition to the exceptions noted in the Fact Sheet, there is a general license for emergency medical services.
 
Do the humanitarian exceptions cover transactions with all blocked persons?  The policies listed in the Fact Sheet or noted above sometimes do not apply to transactions involving persons that are separately sanctioned in the same sanctions program or their 50% or more owned entities, and frequently there are persons blocked under other sanctions programs present in sanctioned countries. It is critical to check OFAC sanctions lists, do adequate due diligence on ownership, and review the relevant general license or interpretation carefully to make sure it applies.
 
What about OFAC’s other sanctions programs? The vast majority of OFAC’s 30+ other sanctions programs (Belarus, Narcotics, South Sudan, WMD Proliferation, Zimbabwe, etc.) only identify persons for blocking and do not contain any geographic basis for sanctions. Even those programs, however, usually contain the informational materials and travel exemptions noted above (though some, such as the Global Terrorism sanctions program, do not), and most contain some form of a general license for emergency medical services.
 
Don’t forget about other restrictions on exports of PPE
. As covered in our other alerts (FEMA Temporarily Halts Exports of Certain PPE and Reference Guide: Worldwide Export Controls on Face Masks and Other Medical Personal Protective Equipment) and more recent updates – the United States and many other countries have put in place various controls on exports of certain PPE, so you will need to check for those possible restrictions as well.
 
What’s New: A Relaxation of Iran-Related “Secondary Sanctions”
 
The Fact Sheet contains one piece of guidance different from the rest – not a reference to a pre-existing policy, but an interpretation, provided publically in writing for the first time, that OFAC will not consider certain Iranian manufacturers of medicine, medical devices, PPE, hygiene items, and several other products to be part of the “manufacturing sector of the Iranian economy,” for purposes of Executive Order (EO) 13902, on which we previously reported. That EO, issued this past January, authorizes OFAC to block entities that are part of Iran’s manufacturing sector as well as third-country entities providing goods or services used in connection with that sector. The provision to Iran of agricultural commodities, food, medicine, and medical devices is exempted in the EO, but it appeared that Iranian manufacturers of medicine and medical supplies were part of the manufacturing sector, and the provision of other goods or services to them would risk sanctions.
 
Following the issuance of the Fact Sheet, third-country entities no longer risk being blocked under E.O. 13902 when they sell any of their products or services to entities in Iran producing “medicines, medical devices, or products used for sanitation, hygiene, medical care, medical safety, and manufacturing safety, including soap, hand sanitizer, ventilators, respirators, personal hygiene products, diapers, infant and childcare items, personal protective equipment, and manufacturing safety systems” provided the items produced in Iran are for use there and not for export from Iran. Other “secondary sanctions” risks are still out there for third-country entities doing business with Iran, including under other parts of E.O. 13902, but OFAC has clearly signaled that it is not in the business of targeting third-country suppliers to these parts of the Iranian economy linked to Iran’s ability to fight the COVID-19 pandemic.
 
A Nod to the Need for Flexibility.  While no one has ever mistaken OFAC’s Compliance or Enforcement division for their compassionate and forgiving brother Steven, the good folks who work there are far more interested in helping companies get on the right path than playing “gotcha” when a reporting deadline is missed. OFAC’s follow-up web guidance on April 20 makes clear that, while OFAC may wield a big stick, it understands that times are tough all around right now.
 
(1) Deadline extensions.  In its web guidance, OFAC signals that its deadlines – such as for reporting blocked assets or rejected transactions, responding to administrative subpoenas, and filing reports required by some licenses – will be treated more flexibly for those facing delays due to the COVID-19 pandemic. Those in need of additional time, however, should reach out to OFAC as early as possible to let it know and arrange for a possible extension.
 
(2) Disclosure mailbox.  As discussed above, OFAC has set up an electronic mailbox to encourage the electronic submission of self-disclosures (OFACdisclosures@treasury.gov) , and submitters should take note of OFAC’s data delivery standards for enforcement and compliance submissions. OFAC also provides email submission options for reports on blocked property, rejected transactions, and licenses (ofac_feedback@treasury.gov) as well as for SDN de-listing requests (ofac.reconsideration@treasury.gov) .
 
COVID-19 compliance program challenges.

Finally, and perhaps most telling of the depth of OFAC’s COVID-19 concerns, the web guidance hints that OFAC understands that compliance programs are challenged during the pandemic and perhaps will be under-funded or not performed as well. Notwithstanding OFAC’s view that the lack of an adequate compliance program is an aggravating factor that can increase a civil penalty amount, in the web guidance, OFAC announces that it will view COVID-19 challenges as a factor (presumptively a mitigating one) for those companies that need to temporarily reallocate some sanctions compliance resources or that face technical issues, such as remote work and unforeseen IT problems, during this difficult period. This is no unbreakable vow, however, and the web guidance is amorphous. Only time will tell, and likely not until several years from now, how much the statement “it was during the COVID-19 pandemic” will count as a mitigating factor, but everything helps when you are staring down a possible civil penalty. Any entity considering a shift in compliance resources would be well advised to document the need for the shift and how the resulting compliance funding continues to provide a risk-based approach to sanctions compliance.

COM_a210. Baker McKenzie: “EU Updates Export Controls on Personal Protective Equipment in Response to COVID-19”
 
 
 

(Source: International Trade Compliance Blog, 27 Apr 2020)
 
* Principal Author: Sunny Mann, Esq., 44-20-7919-1397, Baker McKenzie LLP
 
On 24 April 2020, the European Commission published Implementing Regulation (EU) 2020/568 (the “Implementing Regulation”), which prohibits the export from the EU of certain personal protective equipment unless a licence is first obtained from an EU Member State authority. The Implementing Regulation came into force on 26 April 2020.
 
The Implementing Regulation replaces the temporary export controls imposed by the Implementing Regulation (EU) 2020/402 published on 15 March 2020, as amended by Implementing Regulation (EU) 2020/426 on 20 March 2020 (please see our previous posts on Implementing Regulation (EU) 2020/402 and Implementing Regulation (EU) 2020/426).
 
The new Implementing Regulation expands the list of destinations for which no licence is required to include Albania, Andorra, Bosnia and Herzegovina, the Faeroe Islands, Gibraltar, Iceland, Kosovo, Liechtenstein, Montenegro, Norway, North Macedonia, San Marino, Serbia, Switzerland, the Vatican City State, Büsingen, Heligoland, Livigno, Ceuta, Melilla and other specified overseas countries and territories. The exemption also applies to exports to facilities located on the continental shelf or exclusive economic zone of a Member State.
 
The protective equipment covered by the Implementing Regulation includes protective spectacles and visors, mouth-nose-protection equipment and protective garments, as listed in the Annex. The updated list lifts the previous restrictions on face shields and gloves (provided that the item in question is not otherwise covered by a provision in the Annex).

COM_a311.
Husch Blackwell: “U.S. Customs and Border Protection Issues FAQ Guidance on PPE Exports”

(Source: International Trade Insights, 28 Apr 2020)
 
* Principal Author: Beau Jackson, Esq., 1-816-983-8202, Husch Blackwell LLP
 
Following an April 10 temporary final rule restricting the export of personal protective equipment (PPE) and an April 21 Notice of Exemptions from the Federal Emergency Management Agency (FEMA), U.S. Customs and Border Protection (CBP) has now issued a set of Frequently Asked Questions (FAQs) regarding the export of PPE. The FAQs, available here, include important information regarding Letters of Attestation and how they are to uploaded into CBP’s Document Imaging System (DIS).

COM_a412. Steptoe: “Commerce Issues Long-Awaited Export Control Rules for China, Russia and Venezuela”

 
* Principal Author: Peter Jeydel, Esq., Steptoe & Johnson LLP
 
Today, the U.S. Commerce Department’s Bureau of Industry and Security (“BIS”) is publishing a new set of regulations tightening export controls on China, Russia and Venezuela (the new “Rule”). The new Rule will take effect on June 29, 2020, and will apply to goods, software and technology subject to U.S. export controls jurisdiction – it will not be limited to U.S. persons.
 
The most significant parts of this new Rule will increase the licensing requirements and due diligence expectations that apply to trade with China, Russia and Venezuela under the U.S. Export Administration Regulations (“EAR”) when “military end users” or “military end uses” are involved. However, in light of the way these terms are defined, industry should note that the impact of this new Rule will extend into many areas of commercial technology and trade with these countries, beyond the defense sector.
 
In two additional rulemakings published today, BIS is removing one license exception under the EAR (CIV) and proposing to modify another EAR license exception (APR).
 
Restriction on Items that “Support or Contribute to” Military Applications in China, Russia or Venezuela
 
China’s defense sector has long been subject to a broad U.S. arms embargo. In addition, since 2007, BIS has imposed a licensing requirement on trade with China when the exporter has knowledge or reason to know that the products are intended for a “military end use” in China. BIS subsequently extended that requirement to Russia and Venezuela. This licensing requirement applies (under Part 744 of the EAR) even when a license would not generally be required to export a particular type of product to these countries. However, this restriction has had a limited practical impact on trade with China because (1) it has been based on a narrow definition of “military end use,” and (2) it applies only to a limited number of products (in Supplement No. 2 to Part 744 of the EAR).
 
The new Rule expands the scope of the licensing requirement by redefining “military end use” more broadly and by increasing the number of products now subject to the restriction. We anticipate that this expanded military end use restriction will have a significant impact on trade with China and associated export control compliance burdens in many areas of commercial technology, including the technology and telecommunications sectors. Below we discuss the two major changes made by the new Rule.
 
First, the new Rule expands the definition of “military end use,” which will capture a greater scope of trade with China, Russia, and Venezuela within this licensing requirement. The pre-existing military end use restriction applied when covered items were exported to these countries for “incorporation into a military item… or for the “use,” “development,” or “production” of military items”. … (Military items include defense articles as described on the U.S. Munitions List or the Wassenaar Arrangement Munitions List, along with items described under the EAR’s “600 series” and “A018” classifications.) Under that pre-existing provision, the term “use” was defined as “operation, installation (including on-site installation), maintenance (checking), repair, overhaul and refurbishing” (emphasis added). The restriction only applied when the exported item was “for” all such applications relating to military items.
 
The new Rule applies when the exported item “supports or contributes to the operation, installation, maintenance, repair, overhaul, refurbishing, “development,” or “production,” of military items . . .” (emphasis added). The use of the term “or” rather than “and” means that an exported item used in connection with any one of these applications may now trigger this licensing requirement.
 
As BIS stated, the new Rule identifies “each element of the definition of “use” so that any one of the six elements, standing alone, is sufficient.” Moreover, the new Rule applies to exports that merely “support or contribute to” such activity relating to military items. These terms are undefined, and the risk of proceeding with certain exports to China in particular without a license from BIS could be elevated in light of broad statements by U.S. government officials regarding China’s “civil-military fusion” efforts. Also, this restriction applies when an export may only “in part” “support or contribute to” such an end use. This new Rule may call for expanded due diligence regarding potential end uses of exported products in China and in some cases seeking other protections such as contractual safeguards around restricted end uses.
 
Second, the new Rule applies this military end use restriction to a longer list of product types (in Supplement No. 2 to Part 744 of the EAR). Specifically, it adds the following Export Control Classification Numbers (“ECCNs”) relating to materials processing, electronics, telecommunications, information security, sensors/lasers, and propulsion: ECCNs 2A290, 2A291, 2B999, 2D290, 3A991, 3A992, 3A999, 3B991, 3B992, 3C992, 3D991, 5B991, 5A992, 5D992, 6A991, 6A996, and 9B990, and an expanded range of items in ECCNs 3A992, 8A992, and 9A991. Some of these product categories are very broad.
 
For example, “mass market” hardware or software incorporating limited encryption functionality, which includes many types of basic electronics and consumer software applications, will now be covered by this new Rule. In addition, telecommunications testing equipment, and many basic types of industrial and electronics production equipment and software will now be subject to this restriction.
 
When an exporting party determines that the expanded licensing requirement under this new Rule applies, any application for a license will be subject to a “presumption of denial,” such that applying for a license would generally be futile. Tellingly, BIS stated in this rulemaking that it has only received approximately two to three license applications per year under this provision of the EAR in the past, and “BIS believes that the reason for this small number is the likelihood that that such applications will be denied.” BIS stated that it does not expect any significant change in license applications, “due to continuing likelihood of denials.”
 
Related New Restriction on Exports to Certain Parties in China
 
The new Rule adds a licensing requirement for exports to “military end users” in China, in addition to the expanded licensing requirement applicable to “military end uses” in China discussed above. (A “military end user” licensing requirement has previously been in place for Russia and Venezuela.) This new military end user restriction for China applies to the same list of product types as under the military end use restriction (in Supplement No. 2 to Part 744 of the EAR). Also like the military end use provision, this end user restriction applies when the exporter has knowledge or reason to know that the products are intended “entirely or in part” for a military end user in China.
 
The relevant definition of “military end user” under the EAR includes “the national armed services (army, navy, marine, air force, or coast guard), as well as the national guard and national police, government intelligence or reconnaissance organizations, or any person or entity whose actions or functions are intended to support ‘military end uses'” (emphasis added), as discussed in the preceding section. So, under this new Rule, licenses will now be required when an exporter has reason to know that its products may be used, even “in part,” by Chinese armed services, police, intelligence, and similar agencies. While that may include a significant amount of trade with China in light of the expanded list of covered product types, it is a reasonably well-defined regulatory obligation. The more troubling aspect may be in trying to understand or ascertain whether a customer or end-user in China may engage in “actions or functions [that] are intended to support” the broadly-defined set of activities discussed above that are now considered restricted “military end uses” in China.
 
Additional clarification on the scope of this new Rule from BIS would be welcome. For example, it is unclear whether a customer in China whose unrelated activities support these broadly-defined “military end uses” in China, would be treated as a “military end user” for the purpose of all exports covered by this new Rule.
 
BIS has so far provided scant guidance in its announcement of the new Rule, stating that “This expansion will require increased diligence with respect to the evaluation of end users in China, particularly in view of China’s widespread civil-military integration.” Companies will need to make risk-based decisions in construing this new Rule in light of its potentially broad scope.
 
Broader AES Filing Requirement
 
The new Rule requires exporters to China, Russia and Venezuela to file Electronic Export Information (“EEI”) in the Automated Export System (“AES”) for all items on the EAR’s Commerce Control List (“CCL”) and to state the applicable ECCN in these filings, except for intangible exports and shipments eligible for License Exception Governments and International Organizations (“GOV”) in § 740.11 of the EAR.
 
For exports to China, Russia and Venezuela, the new Rule eliminates the previous provision that allowed exporters to forego AES filings when the value of a shipment was $2,500 or less and when a license was not required. For many companies that do not make specific EAR classification determinations for each product or sale, this new requirement could significantly increase their export compliance burden when exporting to China, Russia or Venezuela, as these determinations will now be mandatory even when no license is required.
 
More broadly, this expanded requirement to submit AES filings will increase the risk of possible errors or misstatements, and will also provide increased visibility for the U.S. government into trade with China, Russia, and Venezuela.
 
Removal of License Exception Civil End Users (“CIV”) and Proposed Modification of License Exception Additional Permissive Reexports (“APR”)
 
Also effective on June 29, 2020, BIS is removing License Exception Civil End Users (“CIV”). Thus, BIS will require a license for national security-controlled (“NS”) items on the Commerce Control List (“CCL”) to countries of U.S. national security concern, specifically those in EAR Country Group D:1, including China, Russia, Venezuela and others. Currently, License Exception CIV authorizes exports or reexports of certain items (as specifically designated on the CCL) destined to civil end-users or for civil end-uses that would otherwise require a license from BIS for NS reasons.
 
BIS notes that its decision to remove License Exception CIV is based on, among other things, strategies implemented by these countries for the integration of civil and military industries. This integration strategy can make it difficult for a U.S. exporter to determine if an NS item is being exported or reexported for a civil end-use or a civil end-user (or instead will be for a military end-user or end-use). In support of this decision, BIS also cited “U.S. government enforcement actions identifying diversion of U.S.-origin items to military end uses and military end users by purported civil end users in these countries.”
 
In addition, BIS is requesting comments on a proposed rule to revise License Exception APR by removing a provision which authorizes reexports from certain countries of certain NS-controlled items to countries in Country Group D:1, aligning it with the removal of License Exception CIV. Currently, License Exception APR authorizes reexports of certain items from a country in Country Group A:1 or Hong Kong to certain destinations (including Country Group D:1), provided that the reexport is consistent with an export authorization from the country of reexport, and that the item is not subject to other reasons for control under the EAR. BIS states that “even Wassenaar participating states in Country Group A:1 may have export authorization policies that do not align with the national security or foreign policy interests of the U.S. government.” Comments must be received by BIS no later than June 29, 2020.
 
Conclusion
 
As we have written previously, the new Rule appears to respond to a requirement enacted into law by Congress for BIS to review existing controls on “military end users” and “military end uses” in China and other countries subject to a U.S. arms embargo – by May 2019. Coming nearly a year after this statutory deadline, this illustrates the complexity of crafting some of the broad new export controls on China that Congress has called for.
 
Other congressionally-mandated export controls on China that have not yet been issued include the new general rules relating to “foundational technologies,” along with the specific rules that BIS is planning to issue covering “emerging technologies.” In addition, there have been reports that BIS is working on a new set of rules expanding the jurisdiction of the EAR when it comes to certain types of exports to China, such as the “foreign direct product” rule (and potentially also the “de minimis” rule). Industry should remain on alert for these continuing developments.

COM_a513.
Thompson Hine: “BIS Tightens Export Controls on National Security-Controlled Items: Focus on Diversion for Military End Use in China, Russia and Venezuela”

(Source: Trump and Trade, 28 Apr 2020)
 
* Author: Scott E. Diamond, Esq., 1-202-263-4197, Thompson Hine LLP
 
The Department of Commerce’s Bureau of Industry and Security (BIS) has issued two final rules and one proposed rule intended to prevent efforts by entities in China, Russia and Venezuela to acquire U.S. technology that could be used in development of weapons, military aircraft or surveillance technology through civilian supply chains or under civilian-use pretenses. In a press release, Secretary of Commerce Wilbur Ross stated, “Certain entities in China, Russia, and Venezuela have sought to circumvent America’s export controls, and undermine American interests in general, and so we will remain vigilant to ensure U.S. technology does not get into the wrong hands.”
 
The actions taken by BIS are:
 
(1) Elimination of License Exception Civil End Users (CIV
)
 
This final rule removes, effective June 29, 2020, the longstanding license exception CIV. This license exception authorizes exports, reexports, or transfers (in-country) of certain items controlled for national security purposes to civilian end users for civil end uses in certain countries otherwise restricted on the Commerce Control List (CCL) country chart for national security reasons. BIS noted that many countries are seeking to “align civil and defense technology development for many reasons – to achieve greater efficiency, innovation, and growth.” However, according to BIS, such integration makes it harder for U.S. exporters to know or determine whether the end use and end users of an item will or will not be intended for military uses or military end users. BIS determined that certain countries have employed a strategy of obscuring U.S. exporters from being able to readily determine the intended end use. Accordingly, BIS determined that transactions involving the national security-controlled items that have been permitted under CIV license exception should henceforth be reviewed prior to export.
 
(2) Expansion of Military End Use/User Controls in China, Russia or Venezuela
 
This final rule, effective June 29, 2020, expands licensing requirement controls on China, Russia and Venezuela to cover “military end users” in all three countries, in addition to “military end uses.” It also broadens the list of items controlled and potentially requiring an export license, including items such as semiconductor equipment, sensors, and other technologies sought for military end use or by military end users in these countries. Importantly, this rule broadens the definition of military end use beyond any item for the ”use,” ”development,” or ”production” to now include any item that supports or contributes to the operation, installation, maintenance, repair, overhaul, refurbishing, ”development,” or ”production,” of military items. BIS clearly notes that these expansions “will require increased diligence with respect to the evaluation of end users in China, particularly in view of China’s widespread civil-military integration.” Finally, the rule expands Electronic Export Information (EEI) filing requirements by removing two exemptions when the destination is China, Russia or Venezuela: (i) from filing EEI for any shipments valued under $2,500 and (ii) from reporting the Export Control Classification Number (ECCN) when the only reason for control is anti-terrorism (AT).
 
(3) Proposal to Amend License Exception Additional Permissive Reexports (APR)
 
This proposed rule seeks to eliminate certain provisions of the APR license exception which authorizes certain reexports between and among certain identified countries if the requirements of the country authorizing the reexport are met. BIS proposes to remove the provision in this license exception that authorizes the reexport of certain national security controlled items from Country Group A:1 country or Hong Kong to Country Group D:1. According to BIS, this proposed change is due to evidence that partner countries have different standards and have approved licenses for the reexport of a U.S.-origin items that would have been denied if exported directly from the United States. BIS is requesting comment on how the proposed change would impact persons who currently use or plan to use the APR license exception. Comments on this proposed ruled must be received by BIS no later than June 29, 2020, and must be submitted to the federal rulemaking portal (www.regulations.gov) under Docket No. BIS-2020-0010.

TEEX/IM TRAINING EVENTS & CONFERENCES

TE_a1
14.
Ankura Presents: CFIUS Developments Webinar Foreign Investment Review in a Post-Pandemic Economy; 30 Apr
(Source: Ankura)
 
* What: Foreign Investment Review in a Post-Pandemic Economy
* When: 30 Apr 2020; 1:00 p.m. (EDT)
* Where: Webinar
* Sponsor: Ankura Consulting Group
* Ankura Moderator: Waqas Shahid, Senior Managing Director
* Register: Here or contact Ankura at events@ankura.com

Back to top

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TE_a2
15. FCC Academy Presents Webinar: “An Introduction to EU/Dutch Dual-use and Military Export Controls”; 12 May

 
* What: Introduction to EU / Dutch Dual-Use and Military Export Controls
* When: 12 May 
* Where:  Online
* Sponsor: FCC Academy 
* Presenter: Marco F.N. Crombach MSc (Director)
* Register: 

here
, and email
 events@fullcirclecompliance.eu

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* * * * * * * * * * * * * * * * * * * *

ENEDITOR’S NOTES

EN_a117. Bartlett’s Unfamiliar Quotations

(Source: Editor)
 

* Duke Ellington
(Edward Kennedy “Duke” Ellington; 29 Apr 1899 – 24 May 1974; was an American composer, pianist, and leader of a jazz orchestra, which he led from 1923 until his death over a career spanning more than six decades.)
– “People do not retire. They are retired by others.”

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The official versions of the following regulations are published annually in the U.S. Code of Federal Regulations (C.F.R.), but are updated as amended in the Federal Register.  The latest amendments are listed below.
 
Agency 
Regulations 
Latest Update 
DHS CUSTOMS REGULATIONS
: 19 CFR, Ch. 1, Pts. 0-199.
 
 
 
5 Apr 2019:84 FR 13499: Civil Monetary Penalty Adjustments for Inflation.

DOC EXPORT ADMINISTRATION REGULATIONS (EAR): 15 CFR Subtit. B, Ch. VII, Pts. 730-774.

28 Apr 2020:
85 FR 23470
: Elimination of License Exception Civil End Users (CIV).
 

 

DOC FOREIGN TRADE REGULATIONS (FTR): 15 CFR Part 30.   Last Amendment: 24 Apr 2018: 83 FR 17749: Foreign Trade Regulations (FTR): Clarification on the Collection and Confidentiality of Kimberley Process Certificates.

DOD NATIONAL INDUSTRIAL SECURITY PROGRAM OPERATING MANUAL (NISPOM): DoD 5220.22-M. Implemented by Dep’t of Defense.

18 May 2016: Change 2: Implement an insider threat program; reporting requirements for Cleared Defense Contractors; alignment with Federal standards for classified information systems; incorporated and cancelled Supp. 1 to the NISPOM (Summary here.)  
DOE ASSISTANCE TO FOREIGN ATOMIC ENERGY ACTIVITIES: 10 CFR Part 810. 

23 Feb 2015: 80 FR 9359, comprehensive updating of regulations, updates the activities and technologies subject to specific authorization and DOE reporting requirements. 
DOE EXPORT AND IMPORT OF NUCLEAR EQUIPMENT AND MATERIAL; 10 CFR Part 110.

15 Nov 2017, 82 FR 52823: miscellaneous corrections include correcting references, an address and a misspelling.

 

DOJ ATF ARMS IMPORT REGULATIONS: 27 CFR Part 447-Importation of Arms, Ammunition, and Implements of War.

14 Mar 2019: 84 FR 9239: Bump-Stock-Type Devices.

DOS INTERNATIONAL TRAFFIC IN ARMS REGULATIONS (ITAR): 22 C.F.R. Ch. I, Subch. M, Pts. 120-130.  26 Dec 2019: 84 FR 70887; 23 Jan 2020: 85 FR 3819: Encryption rule and USML Categories I, II, III, and related sections regarding guns & ammo. 
 
DOT FOREIGN ASSETS CONTROL REGULATIONS (OFAC FACR): 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders

10 Apr 2020:
85 FR 20158:

North Korea Sanctions Regulations. 

 
 
 
 
USITC HARMONIZED TARIFF SCHEDULE OF THE UNITED STATES (HTS, HTSA or HTSUSA), Revision 8.

1 Jan 2019: 19 USC 1202 Annex.
  – HTS codes for AES are available here.
  – HTS codes that are not valid for AES are available here.
 

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