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20-1110 Tuesday “Daily Bugle”

20-1110 Tuesday “Daily Bugle”

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Tuesday, 10 November 2020

  1. Commerce/BIS Request Comments on Additional Protocol to the U.S.-International Atomic Energy Agency Safeguards
  2. Commerce/BIS Request Comments on Import, End-User, Delivery Verification Certificates and Firearms Entry Clearance Requirements
  1. Items Scheduled for Future Federal Register Edition
  2. Commerce/BIS: (No new postings)
  3. State/DDTC: (No new postings)
  4. EU Commission Welcomes Agreement on the Modernization of EU Export Controls
  5. EU Council: “New Rules on Trade of Dual-Use Items Agreed”
  1. EUS: “DOJ Serves Subpoenas on 3D Systems over Iran Exports”
  1. KWM: “New Export Control Law — 5 Issues Remains to be Clarified” (Part I of II)
  2. Thompson Hine: “BIS Proposes Controls on Another Emerging Technology – Genetic Element Design Software”
  3. Winston: “OFAC Recent Actions and Updates”
  1. ECS Presents: “ECS ITAR/EAR Webinar Series”
  2. FCC Academy Presents: 1 and 3 Dec; “U.S. Export Controls: ITAR/EAR” and “FMS”
  1. Bartlett’s Unfamiliar Quotations 
  2. Are Your Copies of Regulations Up to Date? Find the Latest Amendments Here. 
  3. Weekly Highlights of the Daily Bugle Top Stories 
  4. Submit Your Job Opening and View All Job Openings 
  5. Submit Your Event and View All Approaching Events 

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EXIM ITEMS FROM TODAY’S FEDERAL REGISTER

(Source: Federal Register, 10 Nov 2020) [Excerpts]
 
85 FR 71605: Notice
  The Department of Commerce will submit the following information collection request to the Office of Management and Budget (OMB) for review and clearance in accordance with the Paperwork Reduction Act of 1995, on or after the date of publication of this notice. We invite the general public and other Federal agencies to comment on proposed, and continuing information collections, which helps us assess the impact of our information collection requirements and minimize the public’s reporting burden. Public comments were previously requested via the Federal Register on August 17, 2020 during a 60-day comment period. This notice allows for an additional 30 days for public comments.
* Agency: Bureau of Industry and Security, Commerce.
* Title: Additional Protocol to the U.S.-International Atomic Energy Agency Safeguards.
* OMB Control Number: 0694-0135.
* Form Number(s): AP-1 through AP-17, and AP-A through AP-Q.
* Type of Request: Regular submission, extension of a current information collection.
* Number of Respondents: 500.
* Average Hours per Response: 23 minutes to 6 hours.
* Burden Hours: 920.
* Needs and Uses: The Additional Protocol requires the United States to submit declaration forms to the International Atomic Energy Agency (IAEA) on a number of commercial nuclear and nuclear-related items, materials, and activities that may be used for peaceful nuclear purposes, but also would be necessary elements for a nuclear weapons program. These forms provides the IAEA with information about additional aspects of the U.S. commercial nuclear fuel cycle, including: Mining and milling of nuclear materials; buildings on sites of facilities selected by the IAEA from the U.S. Eligible Facilities List; nuclear-related equipment manufacturing, assembly, or construction; import and export of nuclear and nuclear-related items and materials; and research and development. The Protocol also expands IAEA access to locations where these activities occur in order to verify the form data.
* Affected Public: Business or other for-profit organizations.
* Frequency: On Occasion.
* Respondent’s Obligation: Voluntary or Mandatory. …
* Legal Authority: Additional Protocol Implementation Act (Title II of Pub. L. 109-401), Executive Order (E.O.) 13458.

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(Source: Federal Register, 10 Nov 2020) [Excerpts]
 
85 FR 71605: Notice
   The Department of Commerce will submit the following information collection request to the Office of Management and Budget (OMB) for review and clearance in accordance with the Paperwork Reduction Act of 1995, on or after the date of publication of this notice. We invite the general public and other Federal agencies to comment on proposed, and continuing information collections, which helps us assess the impact of our information collection requirements and minimize the public’s reporting burden. Public comments were previously requested via the Federal Register on 8/27/2020 (85 FR 52949) during a 60-day comment period. This notice allows for an additional 30 days for public comments.
* Agency: Bureau of Industry and Security, Commerce.
* Title: Import, End-User, Delivery Verification Certificates and Firearms Entry Clearance Requirements.
* OMB Control Number: 0694-0093.
* Form Number(s): BIS-645P, BIS-647P.
* Type of Request: Regular submission, extension of a current information collection.
* Number of Respondents: 11,776.
* Average Hours per Response: 1 to 30 minutes.
* Burden Hours: 1,630.
* Needs and Uses: This collection of information addresses three activities: (1) Import Certificates/End Use Certificates, (2) Delivery Verification, and (3) Firearms Entry Clearance Requirements.
* Import Certificates or End-User Certificates (IC/EUC)-The IC/EUC, BIS-645P, is obtained by the foreign importer and transmitted to the U.S. exporter. They are issued by the government of the country of ultimate destination to exercise legal control over the disposition of the items covered by the IC/EUC. The control exercised by the government issuing the IC/EUC is in addition to the conditions and restrictions placed on the transaction by BIS.
* Delivery Verification-The Delivery Verification Certificate (DV) is required by BIS as part of its export control program. The license holder is responsible for having the ultimate consignee complete the BIS-647P, Delivery Verification Certificate Form when the goods are delivered. BIS uses the DV procedure on an “as needed” basis. The DV is usually required when there is suspicion of violation of the EAR. Therefore, if the exporter cannot supply the DV, BIS must be notified to determine if an exception is legitimate. Otherwise, the exporter would be in violation of the EAR.
* Firearms Entry Clearance Requirements-On January 23, 2020, The Department of Commerce issued a final rule that described how articles the President determines no longer warrant control under the United States Munitions List (USML) Category I-Firearms, Close Assault Weapons and Combat Shotguns; Category II-Guns and Armament; and Category III-Ammunition/Ordnance would be controlled under the Commerce Control List (CCL). This final rule, which became effective on March 9, 2020, was published in conjunction with a final rule on Categories I, II, and III from the Department of State, Directorate of Defense Trade Controls (DDTC).
This entry clearance requirement is necessary due to the changes by the President in determining that certain items no longer warrant control under United States Munitions List (USML) Category I-Firearms, Close Assault Weapons and Combat Shotguns; Category II-Guns and Armament; and Category III-Ammunition/Ordnance would be controlled under the Commerce Control List (CCL). As the State Department previously collected this same type of information, the Department of Commerce controls the CCL and must now take over this collection of information. Section 758.10 Entry clearance requirements for temporary imports will specify the EAR procedures for temporary imports and subsequent exports.
* Affected Public: Business or other for-profit organizations.
* Frequency: On Occasion.
* Respondent’s Obligation: Mandatory.
* Legal Authority: §§748.9, 748.10, 748.12, 748.14, Part 748 Supplement No. 5, 758.10, 762.5(d), 762.6, 764.2(g)(2), and of the Export Administration Regulations (EAR).

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OGS OTHER GOVERNMENT SOURCES

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OGS_a24. Commerce/BIS: (No new postings)

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   The European Commission welcomes the agreement reached today by the European Parliament and the Council on its proposal for a modernisation of EU export controls on sensitive dual-use goods and technologies. 
The changes agreed today will upgrade and strengthen the EU’s export control toolbox to respond effectively to evolving security risks and emerging technologies. Thanks to the new Regulation, the EU can now effectively protect its interests and values and, in particular, address the risk of violations of human rights associated with trade in cyber-surveillance technologies without prior agreement at multilateral level. It also enhances the EU’s capacity to control trade flows in sensitive new and emerging technologies.
   Commission Executive Vice-President and Commissioner for Trade Valdis Dombrovskis said: “I warmly welcome this agreement to upgrade our controls on dual-use technologies. These can have a far-reaching impact and pose a risk to national and international security, while cyber-technologies can lead to human rights violations. We will now have robust export controls to mitigate against abuses of dual-use tech and exporters will have to follow due diligence obligations. The Commission will work now closely with Member States and the European Parliament to implement the new Regulation effectively. We will also interact closely with industry, which is the ‘first line of defence’ to guard against proliferators and other malevolent actors.”
   This new Regulation provides a new basis for the coordination of controls on a wider range of emerging dual-use technologies between the Commission and Member States in support of the effective enforcement of controls throughout the EU. Due diligence obligations and compliance requirements for exporters have also been introduced, recognising the role of the private sector in addressing the risks posed by trade in dual-use items to international security. Transparency will also be enhanced through the obligation to publish reports on the licenses granted.
   Finally, the new Regulation provides a strong basis for the EU to engage with third countries in order to support a global level-playing field and enhance international security through more convergent approaches to export controls at global level.
 
Background and further details
  The Commission adopted its legislative proposal to modernise EU controls on exports of sensitive dual-use goods and technology in September 2016. Such items have many civilian uses but can also be used for defence, intelligence and law enforcement purposes (nuclear and special materials, telecommunication, electronics and computers, space and aerospace, marine equipment etc.).
  The new Regulation includes many of the Commission proposals for a comprehensive “system upgrade”, and will make the existing EU Export control system more effective by:
  • introducing a novel ‘human security’ dimension so the EU can respond to the challenges posed by emerging dual-use technologies – especially cyber-surveillance technologies – that pose a risk to national and international security, including protecting human rights;
  • updating key notions and definitions (e.g. definition of an “exporter” to apply to natural persons and researchers involved in dual-use technology transfers);
  • simplifying and harmonising licensing procedures and allowing the Commission to amend – by ‘simplified’ procedure, i.e. delegated act – the list of items or destinations subject to specific forms of control, thereby making the export control system more agile and able to evolve and adjust to circumstances;
  • enhancing information-exchange between licensing authorities and the Commission with a view to increasing transparency of licensing decisions;
  • coordination of, and support for, robust enforcement of controls, including enhancing secure electronic information-exchange between licensing and enforcement agencies;
  • developing an EU capacity-building and training programme for Member States’ licensing and enforcement authorities;
  • outreach to industry and transparency with stakeholders, developing a structured relationship with the private sector through specific consultations of stakeholders by the relevant Commission group of Member-State experts, and;
  • setting up a dialogue with third countries and seeking a level playing field at global level.

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  The EU will soon be equipped with a set of new rules allowing for more accountable, competitive and transparent trade of dual-use items. These are a vast group of goods, materials, software and technology which can be used for both civil and military purposes.
  The German presidency of the Council and European Parliament representatives today reached a provisional political agreement on a revised regulation setting out the EU regime for the control of exports, brokering, technical assistance, transit and transfer of dual-use items.
  Today’s agreement on trade of dual-use items is an important contribution in making the European Union fit for modern trade challenges. The new rules strike the right balance between strengthening the competitiveness of the EU, ensuring our security interests and promoting human rights. Thanks to the new rules, we will in the future be better equipped to allow legitimate trade to be carried out smoothly, but also to put an emphasis on control of certain technologies, especially cyber-surveillance items, which can be misused in connection with human rights violations. Furthermore, we strengthen our common EU approach by providing for more ways in which the member states can cooperate in the field of export controls.
  The agreement now needs to be endorsed by member states’ ambassadors sitting on the Permanent Representatives Committee (Coreper). Parliament and Council will then be called on to adopt the proposed regulation at first reading.
The EU’s current export control system for dual-use items has been in place since 2009. This system needed, however, to be adapted to the changing technological, economic and political circumstances.
  More generally, the new rules aim to further strengthen EU action on the non-proliferation of weapons of mass destruction and their means of delivery, to contribute to regional peace, security and stability, and to help ensure respect for human rights and international humanitarian law by controlling the export of dual-use items from the European Union.
  The main features of the agreed regulation are as follows:
– in order to prevent human rights violations and security threats linked to the potential misuse of cyber-surveillance technology, the new rules include provisions making this technology subject to stricter export controls in certain circumstances
– moreover, the regulation now includes an EU-level coordination mechanism which allows for greater exchange between the member states concerning the export of cyber-surveillance items
– the regulation introduces two new, general EU export authorisations for the export of dual-use items – one for cryptographic items and one for intra-group technology transfers under certain circumstances – thereby significantly reducing the administrative burden for both companies and licensing authorities
– the regulation also strengthens the enforcement of controls through improved cooperation between licensing and customs authorities, and introduces mechanisms allowing member states to strengthen their cooperation in this area
– the regulation introduces a new provision on transmissible controls, allowing, in certain cases, a member state to introduce export controls on the basis of the legislation established by another member state, thereby allowing for a cross-border effect of member states’ export controls
– the regulation harmonises at EU-level the rules applicable to certain services with regard to dual-use items currently regulated at national level (technical assistance)
– new reporting rules will allow for more transparency on trade in dual-use items while at the same time respecting the confidentiality of business secrets and of national security interests.
 
Background & next steps

  Under international commitments, EU member states need to have measures in place at national level to prevent the proliferation of nuclear, chemical or biological weapons and their means of delivery. This includes controls over dual-use items, that is related materials, equipment and technology for export which can be used for both civilian and military purposes, including the purposes mentioned above.
  To this end, in 2009 the EU adopted a regulation setting up a regime for the control of exports, brokering, technical assistance, transit and transfer of dual-use items.
  To adapt to the rapidly changing technological, economic and political circumstances, in September 2016 the Commission presented a proposal for a revised regulation which would update and extend the existing rules.
  In June 2019 the Council agreed on its negotiating mandate, and since then trilogues have been held in October 2019, November 2019, February 2020 and September 2020.
  The agreement will be submitted for endorsement by Coreper. Parliament and Council will then be called on to adopt the proposed regulation at first reading.

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COM NEWS

 
  3D Systems, a South Carolina-based printing company, has disclosed in a Securities and Exchange Commission (SEC) filing that it has been served with 2 federal grand jury subpoenas by a federal court in the Northern District of Texas requiring it to produce information about potentially unauthorised exports of technical data to Iran.
  After a receiving an administrative subpoena from BIS in October 2017, 3D Systems launched an internal investigation which uncovered potential violations of the International Traffic in Arms and Export Administration Regulations. The DOJ, BIS, DDTC, OFAC, and the Homeland Security and Defence Departments have since commenced investigations into the exports. 3D Systems confirmed that it is fully cooperating with the DOJ and other agencies in the investigations, and that its compliance programme has been enhanced.

COM COMMENTARY

(Source: China Law Insight, 5 Nov 2020) [Part II will be published tomorrow]
 
* Principal Author: Feng Wang, King & Wood Mallesons
 

  The official release of the Export Control Law of the People’s Republic of China (the “Export Control Law”) on 17 October 2020 marks the beginning of a new phase in China’s export control legislation – from law-making to law enforcement. The new law has many material changes and breakthroughs to the existing rules and concepts of export control in China. Therefore, how the export control enforcement will unfold in China under the Export Control Law to be effective on 1 December 2020 has aroused wide public attention.

  In this article, we will discuss several issues that may be further clarified while implementing the Export Control Law by looking into the provisions, the practices in China and other jurisdictions in export control management, and sharing our experience in advising on matters involving the import and export of technologies. We hope this can be helpful.
 

Issue 1: How to establish a new regulatory system under the Export Control Law?

  Prior to the enactment of the Export Control Law, the existing legal system related to export control in China was largely based on theForeign Trade Law of the People’s Republic of China (the “Foreign Trade Law”). However, as a general law governing China’s foreign trade, the Foreign Trade Law does not have specific provisions on export control, which causes series of problems in relevant administrative regulations and ministerial rules on export control by the State Council and its relevant ministries – lacking top-level design and uniformity in regulations and administrative measures. In addition, the ministries under the State Council do not have law enforcement power in practice, while the field operations personnel responsible for day-to-day regulation cannot effectively identify export control violations, which directly compromises the implementation of the existing export control rules in China.
  The framework of this new law reflects China’s resolution to unify its regulatory system of export control. Articles 4 and 5 of the Export Control Law respectively highlight the necessity to establish a unified export control list and an export control system coordinated by the State Council, the Central Military Commission, and relevant ministries. However, this goal cannot be achieved simply by the Export Control Law itself. In order to realize such visions, it is imperative to fully amend relevant administrative regulations and ministerial rules or even start from scratch. In a sense, these are even more challenging than the enactment of the Export Control Law. Based on our understanding of the existing export controls regulations, in general, the two aspects below may be the key to establishing the regulatory system under the Export Control Law:
 

1.   To define the regulatory framework of the Export Control Law

  Article 1 of the Export Control Law clearly states that it is enacted for the purpose of safeguarding national security and interests, performing non-proliferation and other international obligations, and strengthening and standardizing export control. This means that the implementation rules of the Export Control Law should determine their regulatory priorities based on the above legislative purpose. However, the existing administrative regulations and ministerial rules with provisions on export control, such as theRegulations of the People’s Republic of China on the Administration of Import and Export of Technologies (the “Regulations on the Administration of Import and Export of Technologies”), focus more on maintaining the order of import and export trade while giving little thought to national security. In addition, they include both import and export regulations, which is inconsistent with the purpose of the Export Control Law focusing on export control only. Therefore, after the implementation of the Export Control Law, how to control the export of technologies involving national interests and national security remains an issue calling for further consideration in future legislation – whether through an overall amendment to the Regulations on the Administration of Import and Export of Technologies to make it a subordinate administrative regulation that implements the relevant requirements of the Export Control Law or through a separate draft of a new regulation focusing on export control of technologies to take away and inherit this part of the function of the Regulations on the Administration of Import and Export of Technologies. Either way, the purpose is to ensure the unity and consistency of the entire export control system and avoid conflicts between the principal and subordinate laws in future law enforcement. As mentioned above, we are also engaged in the discussion of regulations governing the import and export of technologies in China, and we look forward to timely feedback from enterprises in this regard so that we can make joint contributions to the development of the legal regime of China.

 

2.   To specify the authorities and duties of each regulatory agency

  As mentioned above, since the Export Control Law has specified the unity of export control regulation as a general principle, it is necessary to change the situation that the current administrative regulations and ministerial rules governing export control in China involve multiple law enforcement agencies with overlapping duties. Taking the Ministry of Commerce of the People’s Republic of China (“MOFCOM”) as an example – currently, the goods and technologies restricted from export and dual-use items and technologies are respectively regulated by the Foreign Trade Department, the Service Trade Department and the Bureau of Industry, Security, Import and Export Control under MOFCOM. Each regulatory agency has its own regulation system, and the control information in the published catalog overlaps with each other (e.g. some technologies are listed both in the catalog of technologies restricted from export and in the catalog of dual-use items and technologies). Thus, a single export may require multiple reviews and approvals, posing challenges to enterprises in their export business.
  In contrast, the current US export control legislation system also involves multiple agencies in the regulation of export control, such as the Bureau of Industry and Security (“BIS”), the Directorate of Defense Trade Controls (“DDTC”), the Nuclear Regulatory Commission (“NRC”), and the Office of Foreign Assets Control (“OFAC”) responsible for imposing sanctions. However, the US has distinguished and clarified the duties of each regulatory agency by means of unified authorization (e.g. the export license for controlled items involved in Iran sanctions is uniformly issued by OFAC) and clear scopes of duties (e.g. the relevant mechanism for adjusting items between the US Munitions List (“USML”) maintained by DDTC and the Commercial Control List (“CCL”) maintained by BIS), etc. The applicants thereby can avoid unnecessary approvals. This sets a great example for China. We can refer to such framework and mechanism in our future legislation on export control, so as to achieve unified regulation in export control.

 

Issue 2: How to define controlled items under the Export Control Law?

  Article 2 of the Export Control Law provides that controlled items include goods, technologies and services, as well as technical information and data related to the items. This is clearer than what was defined in China’s previous regulations such as the Measures for the Administration on Import and Export Licenses for Dual-use Items and Technologies. Although the forms of controlled items are provided, the law does not specify the sources, contents, possible exceptions and other details of the controlled items. Considering the diversity of current supply chain arrangements and cross-border R&D in international trade, the existing definition may not be sufficient for enterprises to identify controlled items in their daily operations, for instance:
  1) Are foreign-made items containing components of China-origin controlled items? If yes, what is the threshold for the proportion, and what is the standard for calculation?
  2) Should public information developed in China (such as certain open source code) be regarded as controlled items? If yes, how to regulate and keep track of the export of public information?
  3) Should technologies and other items developed by Chinese nationals outside China be considered as controlled items?
  4) If the externally provided object code based on technical services does not contain the underlying technical information, should it also be regarded as a controlled item?

  5) Should non-technical data such as personal data related to items be regulated under Article 2 of the Export Control Law, or should they be deemed as non-controlled items and regulated by other laws and regulations such as the Cybersecurity Law?

  In addition, China’s current control lists share some common problems to varying degrees, such as vague descriptions of listed controlled items, lack of clear technical standards for the control, and lagging update of the lists. The formal procedures of confirmation and Q&A for the control of items are also absent in the previous legislation, leaving difficulties for enterprises, Customs and other field regulation departments to decide whether the items are controlled in their daily operations, which affects the compliance and enforceability of relevant provisions.
  In comparison, other major economies in the world all have more specific restrictions and explanations on the definition and scope of controlled items, as well as special consultation and Q&A procedures. Taking the US as an example – Section 734 of theExport Administration Regulations (the “EAR”) clearly provides the definition and exceptions of controlled items under EAR, and establishes a special Export Control Classification Number (“ECCN”) classification system pursuant to the Wassenaar Arrangement to identify and distinguish all controlled items through CCL. In addition, Section 748.3 of EAR specifies the procedure for confirming the identification and classification of specific items with BIS. Pursuant to BIS’s 2019 annual report, it handled 3,258 applications for ECCN classification in 2019, each with an average response time of 44.6 days. It also responded to 20,654 compliance inquiries by phone e-mails. Such procedure has long been a routine in its daily operations. Similarly, the EU has also established its own ECCN classification system based on Regulation (EC) 428/2009 (“Regulation 428”) of the Council of the EU. Since all EU members are parties to the Wassenaar Arrangement, the framework, notes and other contents of the EU’s ECCN classification system are very similar to those of the CCL of the US, which also ensures the coordination of multinational regulation and control to some extent.
  China is not a participating state to the Wassenaar Arrangement, and our interests in export control are not always consistent with those of European countries and the US. Therefore, it is still open to discussion whether China should fully borrow the ECCN classification systems of the US and the EU and corresponding notes of the catalogs. In order to enable enterprises and relevant institutions to better identify controlled items in their daily operation by themselves, the following adjustments may be considered:
  • Clearer definition and standard of controlled items;
  • A more detailed catalog and technical notes of controlled items ;
  • A clearer procedure for the consultation and classification application of controlled items.

(Source: SmarTrade, 9 Nov 2020)

 
* Author: Scott Diamond, 1-202-263-4197, Thompson Hine
 
  The Bureau of Industry and Security (BIS) has issued a proposed rule to add certain genetic element design software to the Commerce Control List.  Specifically, on November 6, 2020, BIS issued a proposal to add “software” for the operation of nucleic acid assemblers and synthesizers already controlled under ECCN 2B352 that is capable of designing and building functional genetic elements from digital sequence data to the Commerce Control List (CCL) under new ECCN 2D352.
  The notice stated that “BIS has determined that this “software” is capable of being used . . . for the purpose of generating pathogens and toxins without the need to acquire controlled genetic elements and organisms. Consequently, the absence of export controls on this “software” could be exploited for biological weapons purposes.”  BIS also noted that this software is not currently included on any of the Australia Group (AG) common control lists; therefore, the new controls would be unilateral.
  The description of ECCN 2E001 already controls technology for the development of software controlled under Category 2D of the CCL.  Therefore, if the proposed rule goes into effect, ECCN 2E001 would control “technology” for the “development” of the “software” that would be controlled under new ECCN 2D352.
 
  BIS requested comment on whether these new controls should be multilateral instead of unilateral.  In addition, BIS specifically requested comment on:
  (1) Whether the proposed controls are clear and adequately address “emerging and foundational technologies” within the context of biological weapons related capabilities and developments (to the extent that this is not the case, comments should identify specific control text that would be more appropriate to these ends);
  (2) The current capability for the “development” of such “software” in the United States and other countries, including the extent to which the proposed controls would affect “software” that is currently being produced and/or sold, either within or outside the United States (e.g., whether the proposed controls would inadvertently control any “software” that is suitable almost exclusively for legitimate commercial or scientific applications);
  (3) The effect that implementation of the proposed controls would have on the future “development” of such “software” and related “technology” in the United States; and
  (4) The effectiveness of the proposed controls in terms of limiting the availability of such “software” and related “technology” abroad.
  The comment period is open until December 21, 2020.  Comments may be filed on the Federal eRulemaking Portal: http://www.regulations.gov on Docket Number BIS-2020-0024.

 
* Principal Author: Cari N. Stinebower, Esq., 1-202-282-5788, Winston & Strawn LLP
 
  In the lead up to the 2020 Presidential election, the Trump Administration was active in the sanctions space, implementing changes that may affect individuals and businesses who transact with Cuba, Yemen, or Iran. As reflected by today’s actions, it seems that the focus has not changed after the election as the Trump administration continues to issue sanctions. In particular, it sanctioned a Lebanese entity under the Global Magnitsky Act (here), and several individuals and entities under the Syria program and the Executive Order on Hong Kong Normalization (both here). In particular, the Hong Kong related designations are important as they show the continued focus on implementing the newly imposed Hong Kong sanctions – and target the newly formed (July 2020) Hong Kong national security department.    
      
I. Cuba: Amendments to Cuban Assets Control Regulations May Disrupt Remittances
  On October 27, 2020, the Department of the Treasury’s Office of Foreign Asset Control (OFAC) issued an amendment to the Cuban Assets Control Regulations (CACR) to remove military-run entities from the remittance process. This amendment narrows the scope of certain remittance-related general authorizations to exclude any transactions involving entities or sub-entities identified on the State Department’s Cuba Restricted List. Specifically, the October 27, 2020 rule amends the general licenses relating to remittances (1) from persons subject to U.S. jurisdiction or from blocked accounts (2) provision of remittance forwarding services, and (3) from Cuban nationals to persons subject to U.S. jurisdiction.
  As a result of these amendments, which become effective on November 26, 2020, persons subject to U.S. jurisdiction will no longer be authorized to process remittances to or from Cuba through FINCIMEX or any other entity or sub-entity on the Cuba Restricted List. The exclusion of Cuban military-controlled entity FINCIMEX from the remittance process is significant because it serves as a main remittance processor for agents in Cuba, meaning it processes much of the remittance money that is currently sent to Cuba. It is possible that these amendments will result in the closure of more than 400 Western Union offices in Cuba, although the business stated it is “exploring ways to comply with the new rules.”
 
II. Yemen: Berman Amendment Language Left Out of Reissued Yemen Regulations
  On October 29, 2020, OFAC amended and reissued the Yemen Sanctions Regulations. This final rule replaces the regulations that were published in abbreviated form on November 9, 2012, with a more comprehensive set of regulations that includes additional guidance from OFAC.
  Interestingly, the reissued regulations do not contain the standard exemption language for information and informational materials adopted per the amendment of International Emergency Economic Powers Act (IEEPA) known as the Berman Amendment. Past practice would suggest, however that the exemptions still apply even if they are not included in the regulations. For example, in a 2014 guidance letter, OFAC cites to Executive Order 13551 as the reason “informational materials” are exempt from blocking prohibitions. EO 13551, however, contained only the standard language stating the “[blocking] prohibitions … apply except to the extent provided by statutes…” In other words, in the past, the fact that the Berman Amendment language has not been explicitly included has not necessarily meant that the exemptions did not apply.
 
III. Iran: Targeting the Financial Sector and Allowing Humanitarian Transactions in and the Provision of Educational Software to Iran
  Trump’s Administration plans to continue to put pressure in Iran until it “stops its support of terrorist activities and ends its nuclear programs.”[FN/1] To that effect, it identified the financial sector of Iran’s economy as an additional avenue that funds the Iranian government’s malign activities. On October 8, OFAC imposed additional sanctions on 18 Iranian banks, pursuant to section 1(a)(I) of Executive Order 13902. Sixteen Iranian banks were designated for operating in Iran’s financial sector and one bank for being owned or controlled by a sanctioned Iranian bank. Additionally, it designated an Iranian military-affiliated bank under Treasury’s counter-proliferation authority. 
  The consequences of these designations are twofold – the second of which is aimed primarily at non-U.S. Persons and has the greater impact. First, the property and interests in property of the designated targets in the U.S. or in the possession or control of U.S. persons must be blocked and reported and U.S. persons or persons within the United States (including transactions transiting the United States) are generally prohibited from participating in any transaction that involves property or interests in property of blocked or designated persons. Second, financial institutions and other persons that engage in certain transactions or activities with the sanctioned entities may expose themselves to secondary sanctions or be subject to an enforcement action (i.e., for causing U.S. persons to violate sanctions). OFAC is providing a 45-day period for non-U.S. persons to wind down non-humanitarian transactions that may become subject to sanctions under E.O. 13902.
  OFAC also emphasized that it continues to allow for humanitarian transactions to support the Iranian people, and issued General License L authorizing transactions and activities involving Iranian financial institutions sanctioned under E.O. 13902 that are authorized, exempt, or otherwise not prohibited under the Iranian Transactions and Sanctions Regulations.
  On October 29, 2020, OFAC issued General License M which authorizes accredited graduate and undergraduate degree-granting U.S. academic institutions to export additional services to certain Iranian students that have been granted nonimmigrant visas by the U.S. State Department but are not physically in the U.S. due to the COVID-19 pandemic.
  Specifically, General License M authorizes the provision of certain online educational services related to certain educational courses. This General License appears to be designed to mitigate the effect of COVID-19 on students from Iran and remains in effect until September 1, 2021.
 
IV. OFAC Interprets the Berman Amendment to Allow Application of Sanctions to Transactions Involving High-Value Art
  On October 30, 2020, OFAC issued an advisory highlighting how vulnerabilities in the high-value-artwork market can lead to sanctions risk.  Specifically, OFAC warns that high-value-art transactions may play a role in allowing blocked persons to access the U.S. market and financial system in violation of OFAC regulations, given the lack of transparency and high degree of anonymity and confidentiality that are often present in these transactions.  To guard against the possibility of blocked persons using high-value-art transactions to access the U.S. market, OFAC encourages participants in the art market to implement a risk-based compliance program, including risk-based due diligence, to mitigate exposure to sanctions-related violations.
  The advisory also states OFAC’s position that the Berman Amendment, which generally exempts from sanctions regulations the importation or exportation of information or informational materials including but not limited to artwork, does not allow blocked persons to evade sanctions by exchanging financial assets for high-value artwork. Although the language in the advisory is limited to high-value artwork, which is defined as artwork worth more than $100,000, it is not clear if that limitation will hold. Earlier this year, in a U.S. Senate report titled The Art Industry and U.S. Policies that Undermine Sanctions, Treasury wrote that it “does not believe the Berman Amendment is a categorical bar to the application of IEEPA-based sanctions to transactions involving artwork. Evaluation of a specific license application relating to designated persons – including one that implicates Berman Amendment materials – must depend on the particular facts and circumstances presented.”[2] It is conceivable then, that OFAC may lean toward interpreting the Berman Amendment to not categorically bar the application of IEEPA-based sanctions to transactions involving SDNs and lower-value artwork and other informational materials currently exempt from the regulations. 

TE EX/IM TRAINING EVENTS & CONFERENCES

 
*What:  ECS ITAR/EAR Webinar Series
*When:  Webinars Each Week Through December 2020
*Where:  Your Computer
*Sponsor: Export Compliance Solutions & Consulting (ECS)
*ECS Speakers:  Suzanne Palmer
*Register: here for individual webinars, here for a 4-pack, here for an 8-pack, or write to phyllis@exportcompliancesolutions.com or call 1-866-238-4018
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U.S. Export Controls: ITAR & EAR from a non-U.S. Perspective (Tuesday, 1 Dec 2020)
Presenters: Jim Bartlett & Marco Crombach
Register or find more information here

 
The ABC of Foreign Military Sales (FMS) (Thursday, 3 Dec 2020)
Presenters: Mike Farrell & Jim Bartlett
Register or find more information here
* Register for both and take advantage of our discounted price!
 * * * * * * * * * * * * * * * * * * * *

EN EDITOR’S NOTES

EN_a114. Bartlett’s Unfamiliar Quotations

(Source: Editor)

 
* Oliver Goldsmith (10 Nov 1728 – 4 Apr 1774; was an Irish novelist, playwright and poet, who is best known for his novel The Vicar of Wakefield and She Stoops to Conquer.)
  – “Success consists of getting up just one more time than you fall.”
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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. 

9 Oct 2020: 
85 FR 64014:  Revisions to the Unverified List (UVL)

  

24 Apr 2018: 83 FR 17749: Foreign Trade Regulations (FTR): Kimberley Process Certificates.

 

The latest edition of the BAFTR is 9 Nov 2020.
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. 

28 Sep 2020: 85 FR 60874: Temporary Amendment for Republic of Cyprus. The latest edition of the BITAR is 28 Sep 2020. 

 
DOT FOREIGN ASSETS CONTROL REGULATIONS (OFAC FACR): 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders
Amendment of Cuban Assets Control 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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