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20-1222 Tuesday “Daily Bugle”

20-1222 Tuesday “Daily Bugle”

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Tuesday, 22 December 2020

  1. Commerce/BIS: “Addition of Entities to the Entity List, Revision of Entry on the Entity List, and Removal of Entities From the Entity List”
  1. Items Scheduled for Future Federal Register Edition
  2. Commerce/BIS Publishes the First Military End User List Naming More Than 100 Chinese and Russian Companies
  3. Justice: “International Trio Indicted in Austin for Illegal Exports to Russia”
  4. State/DDTC: (No new postings)
  1. ANI: “US Restricts Export With Russian, Chinese Entities over Military Ties”
  2. Reuters: “Kremlin Says New U.S. Sanctions Are Hostile Act by Outgoing Trump Administration”
  1. Husch Blackwell: “U.S. Sanctions Turkey’s Defense Procurement Entity Over Its Purchase of Russian Missile System”
  2. Mayer Brown: “US Imposes Technology Transfer and Export Restrictions on Dozens of Chinese Companies, Including Top Chipmaker and Drone Manufacturer”
  3. Nicholas Turner: “Sanctions Top-5 for the Week Ending 18 Dec”
  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 
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EXIM ITEMS FROM TODAY’S FEDERAL REGISTER

EXIM_a11. Commerce/BIS: “Addition of Entities to the Entity List, Revision of Entry on the Entity List, and Removal of Entities From the Entity List”

 
85 FR 83416: Rule
* AGENCY: Bureau of Industry and Security, Commerce.
* ACTION: Final rule.
* SUMMARY: In this rule, the Bureau of Industry and Security (BIS) amends the Export Administration Regulations (EAR) by adding seventy-seven entities, under a total of seventy-eight entries, to the Entity List. These seventy-seven entities have been determined by the U.S. Government to be acting contrary to the national security or foreign policy interests of the United States. These entities will be listed on the Entity List under the destinations of the People’s Republic of China (China), Bulgaria, France, Germany, Hong Kong, Italy, Malta, Pakistan, Russia, and the United Arab Emirates (U.A.E.). This rule also revises one existing entry on the Entity list under the destination of China and one under the destination of Pakistan. Finally, this rule removes a total of four entities under the destinations of Israel and the U.A.E. The removals are made in connection with requests for removal that BIS received pursuant to the EAR and a review of information provided in those requests.
* DATES: This rule is effective December 18, 2020.
* FOR FURTHER INFORMATION CONTACT: Chair, End-User Review Committee, Office of the Assistant Secretary, Export Administration, Bureau of Industry and Security, Department of Commerce, Phone: (202) 482-5991, Fax: (202) 482-3911, Email: ERC@bis.doc.gov.

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OGS OTHER GOVERNMENT SOURCES

(Source: Federal Register)
 
* Commerce/BIS: RULES; Addition of ‘Military End User’ List to the Export Administration Regulations and Addition of Entities to the Military End User List [Pub. Date: 23 Dec 2020] (PDF)
* Commerce/BIS: RULES; Removal of Hong Kong as a Separate Destination under the Export Administration Regulation [Pub. Date: 23 Dec 2020] (PDF)
* State: NOTICES; Sudan; Determination Under Presidential Proclamation [Pub. Date: 23 Dec 2020] (PDF)
* Treasury/OFAC: NOTICES; Blocking or Unblocking of Persons and Properties [Pub. Date: 23 Dec 2020] (PDF)

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(Source: Commerce/BIS, 22 Dec 2020)
 
The Bureau of Industry and Security (BIS) amends the Export Administration Regulations (EAR) by adding a new ‘Military End User’ (MEU) List, as well as the first tranche of 103 entities, which includes 58 Chinese and 45 Russian companies. The U.S. Government has determined that these companies are ‘military end users’ for purposes of the ‘military end user’ control in the EAR that applies to specified items for exports, reexports, or transfers (in-country) to the China, Russia, and Venezuela when such items are destined for a prohibited ‘military end user.’
“This action establishes a new process to designate military end users on the MEU List to assist exporters in screening their customers for military end users,” said Commerce Secretary Wilbur Ross.  “The Department recognizes the importance of leveraging its partnerships with U.S. and global companies to combat efforts by China and Russia to divert U.S. technology for their destabilizing military programs, including by highlighting red flag indicators such as those related to Communist Chinese military companies identified by the Department of Defense.”
The MEU List informs exporters, reexporters, and transferors that a license will be required to export, reexport, or transfer (in-country) designated items to listed entities. The U.S. Government has determined that these entities represent an unacceptable risk of use in or diversion to a ‘military end use’ or ‘military end user’ in China, Russia, or Venezuela.
Commerce is taking this action, which is scheduled to go on public display at the Federal Register on December 22, to respond to requests received from the public to identify specific ‘military end users’ by name and address in the regulations. The MEU List supports the export community by identifying military end users known to the U.S. Government, improving the effectiveness of military end-use and military end-user controls.
Importantly, this is a non-exhaustive list, and does not imply that other parties not included on the list are exempt from regulatory prohibitions. For example, parties not listed on the MEU List but included on the Department of Defense’s Section 1237 list of the National Defense Authorization Act would raise a Red Flag under the EAR and require additional due diligence by exporters, reexporters, or transferors.
While the initial MEU list includes 103 companies, additional parties may be added or deleted from the MEU List pursuant to a determination made by the End-User Review Committee, the interagency body composed of Commerce, and the Departments of Defense, Energy, State, and, where appropriate, the Treasury.
This final rule adds the following 103 entities to the MEU List:
China
  • Academy of Aerospace Solid Propulsion Technology (AASPT);                      
  • The following eight subordinate institutions of Aero-Engine Company of China: AECC Aero Science & Technology Co. Ltd.; AECC Aviation Power Co. Ltd.; AECC Beijing Institute of Aeronautical. Materials; AECC China Gas Turbine Establishment; AECC Commercial Aircraft Engine Co. Ltd.; AECC Harbin Dongan Engine Co., Ltd.; AECC Shenyang Liming Aero Engine Co., Ltd.; and AECC South Industry Company Limited;                                          
  • Anhui Yingliu Hangyuan Power;                                                  
  • The following seven subordinate institutions of Aviation Industry Corporation of China:
    AVIC Aircraft Co. Ltd.; AVIC Chengdu Aircraft Industrial (GROUP) Co., Ltd.; AVIC Flight Automatic Control Research Institute (FACRI); AVIC General Aircraft Huanan Industry Co. Ltd.; AVIC General Aircraft Zhejiang Institute Co., Ltd.; AVIC International Holding Corporation; AVIC Leihua Electronic Technology Research Institute (LETRI);
  • Baimtec Material Co., Ltd.;                                                    
  • Beijing Aero Lever Precision Ltd.;                                              
  • Beijing Ander Tech. Co., Ltd.;                                                  
  • Beijing Guang Ming Electronics Co., Ltd.;                                        
  • Beijing Siyuan Electronic Co., Ltd.;                                            
  • CAST Xi’an Spaceflight Engine Factory;                                        
  • Chengdu Holy Aviation Science & Tech;                                              
  • China Aviation Ind. Std. Parts;                                                        
  • CSSC Xijiang Shipbuilding Co., Ltd.;                                              
  • Elink Electronic Technology Co., Ltd.;                                          
  • Fly Raise International Limited;                                                
  • Fuhua Precision Man. Co.;                                                        
  • Government Flying Service;                                                      
  • Guangzhou Hangxin Aviation Technology Co., Ltd.;                              
  • Guizhou Aviation Tech. Dev. Nat.;                                              
  • Guizhou Liyang Intl Manufacturing Co., Ltd.;                                      
  • Hafei Aviation Industry Co., Ltd. (HAFEI);                                      
  • Hangzhou Bearing Test & Research Center Co., Ltd.;                              
  • Harbin General Aircraft Industry Co., Ltd.;
  • Henan Aerospace Precision Mach;                                                  
  • Hunan South General Aviation Engine Co., Ltd.;                                  
  • Hutchison Optel Telecom Technology Co., Ltd.;                                  
  • Jiangsu Meilong Aviation Components Co.;                                      
  • Jiatai Aircraft Equipment Co., Ltd.;                                            
  • Jincheng Group Imp & Exp. Co., Ltd.;                                              
  • Laboratory of Toxicant Analysis, Institute of Pharmacology and Toxicology;      
  • Molecular Devices Shanghai Corporation;                                        
  • Nanjing Engineering Institute of Aircraft Systems (NEIAS);           
  • National Satellite Meteorological Bureau;                                      
  • Second Institute of Oceanography, Ministry of Natural Resources;                
  • Shaanxi Aero Electric Co., Ltd.;                                                
  • Shaanxi Aircaft Industry Co., Ltd.;                                                
  • Shanghai Aerospace Equip. Man.;                                                
  • Shanghai Aircraft Design and Research Institute;                                
  • Shanghai Aircraft Manufacturing Co., Ltd. (SAMC);                                
  • Shanghai Tianlang Electronic Science Co., Ltd.;                                
  • Shenyang Academy of Instrumentation Science Co., Ltd.;                        
  • Shenyang Aircraft Corporation;                                                  
  • Shenyang Xizi Aviation Industry Co., Ltd.;                                      
  • Sichuan Hangte Aviation Tech. Co., Ltd.;                                        
  • Star Tech Aviation Co., Ltd.;                                                    
  • Sumec Instruments Equipment Co., Ltd.;                                          
  • Suzhou Eric Mechanics and Electronics Co., Ltd.;                                  
  • Wuxi Hyatech Co., Ltd.;                                                        
  • Wuxi Paike New Mat. Tech. Co., Ltd.;                                            
  • Wuxi Turbine Blade Co. Ltd.;                                                      
  • Xac Group Aviation Electronics Import & Export Co. Ltd.;                          
  • XAIC Tech (Xi’an) Industrial Co., Ltd.;                                          
  • Xian Aero-Engine Controls Co., Ltd.;                                            
  • Xian Aircraft Industrial Company Limited;                                    
  • Xi’an Xae Flying Aviation Manufacturing Technology Co., Ltd.;                    
  • Xian Xr Aero- Components Co., Ltd.;                                                
  • Yibin Sanjiang Machine Co., Ltd.; and                                              
  • Zhejiang Perfect New Material Co., Ltd.
Russia
  • Admiralty Shipyard JSC;
  • Aleksandrov Scientific Research Technological Institute NITI;
  • Argut OOO;                                                                    
  • Communication center of the Ministry of Defense;                                
  • Federal Research Center Boreskov Institute of Catalysis;                      
  • Federal State Budgetary Enterprise of the Administration of the President of Russia;
  • Federal State Budgetary Enterprise Special Flight Unit Rossiya of the Administration of the President of Russia;
  • Federal State Unitary Enterprise Dukhov Automatics Research Institute (VNIIA);  
  • Foreign Intelligence Service (SVR);
  • Forensic Center of Nizhniy Novgorod Region Main Directorate of the Ministry of Interior Affairs;
  • Irkut Co.;                                                            
  • Irkut Research and Production Corporation Public Joint Stock Company;          
  • Joint Stock Company Scientific Research Institute of Computing Machinery;      
  • JSC Central Research Institute of Machine Building (JSC TsNIIMash);
  • JSC Rocket and Space Centre – Progress;
  • Kamensk-Uralsky Metallurgical Works J.S. Co.;
  • Kazan Helicopter Plant PJSC;                                                    
  • Komsomolsk-na-Amur Aviation Production Organization (KNAAPO);
  • Korporatsiya Vsmpo Avisma OAO;                                                  
  • Ministry of Defence RF;                                                          
  • Molot Oruzhie;
  • NPO High Precision Systems JSC;
  • NPO Splav JSC;
  • Oboronprom OJSC;
  • PJSC Beriev Aircraft Company;
  • PJSC Irkut Corporation;                                                        
  • PJSC Kazan Helicopters;                                                        
  • POLYUS Research Institute of M.F. Stelmakh Joint Stock Company;                
  • Promtech-Dubna, JSC;                                                          
  • Public Joint Stock Company United Aircraft Corporation;                        
  • Radiotechnical and Information Systems (RTI) Concern;
  • Rapart Services LLC;                                                            
  • Rosoboronexport OJSC (ROE);
  • Rostec (Russian Technologies State Corporation);
  • Rostekh – Azimuth;                                                            
  • Russian Aircraft Corporation MiG;
  • Russian Helicopters JSC;
  • Sukhoi Aviation JSC;
  • Sukhoi Civil Aircraft;                                                        
  • Tactical Missiles Corporation JSC;
  • Tupolev JSC;
  • UEC-Saturn;
  • United Aircraft Corporation;
  • United Engine Corporation; and
  • United Instrument Manufacturing Corporation.
For more information, visit www.bis.doc.gov.

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A four-count federal grand jury indictment returned in Austin and unsealed today charges three foreign nationals – a Russian citizen and two Bulgarian citizens – with violating the International Emergency Economic Powers Act (IEEPA), Export Control Reform Act (ECRA), and a money laundering statute in a scheme to procure sensitive radiation-hardened circuits from the U.S. and ship those components to Russia through Bulgaria without required licenses.
 
The indictment alleges that 48-year-old Russian national Ilias Sabirov, 70-year-old Bulgarian national Dimitar Dimitrov and 46-year-old Bulgarian national Milan Dimitrov used Bulgarian company Multi Technology Integration Group EEOD (MTIG) to receive controlled items from the U.S. and send them to Russia.  Under U.S. export control law, the goods could not be shipped to Russia without the permission of the U.S. government.
According to the indictment, Sabirov is the head of two Russian companies–Cosmos Complect and OOO Sovtest Comp.–and controls MTIG.  Both Dimitar Dimitrov and Milan Dimitrov worked for Sabirov at Cosmos Complect and MTIG. 
In 2014, the defendants met with the supplier of the radiation-hardened components in Austin and were informed that radiation-hardened circuits could not be shipped to Russia because of U.S. trade restrictions.  Stymied by U.S. law, Sabirov established MTIG in Bulgaria and bought the controlled electronic circuits.  The radiation-hardened properties of these circuits made them resistant to damage or malfunction in the harsh outer-space environment. Export of the parts was controlled by the U.S. government for these very reasons.  The parts were shipped to Bulgaria in 2015 and MTIG soon thereafter shipped them to Sabirov’s companies in Russia.  OOO Sovtest Comp. transferred over $1 million to MTIG for controlled U.S. parts.
In the same timeframe, MTIG-at Sabirov’s direction-ordered over $1.7 million in other electronic components produced by another U.S. electronics manufacturer.  Sabirov bought these parts to fulfill part of his contract with OOO Sovtest Comp.  Again, the parts were shipped from the U.S. to Bulgaria where they were merely repackaged and onward shipped to Russia.
In late 2018, a Department of Commerce Export Control Officer interviewed Milan Dimitrov during a visit at MTIG to determine whether the radiation-hardened components were still in MTIG’s possession in Bulgaria.  Milan Dimitrov, among other things, fraudulently denied sending the components to Russia.
The indictment charges Sabirov, Dimitar Dimitrov and Milan Dimitrov with two counts related to violations of IEEPA and one count of money laundering.  The indictment also charges Milan Dimitrov with one count of false statements to the government. Each count charged in the indictment calls for up to 20 years in federal prison upon conviction.
In conjunction with the unsealing of these charges, the Department of Commerce is designating Ilias Sabirov, Dimitar Dimitrov, Milan Dimitrov, Mariana Marinova Gargova, MTIG EOOD, Cosmos Complect and OOO Sovtest Comp., adding them to its Bureau of Industry and Security Entity List.  Designation on the Entity List imposes a license requirement before any commodities can be exported from the U.S. to these persons or companies and establishes a presumption that no such license will be granted.
The Entity List identifies foreign parties that are prohibited from receiving some or all items subject to the Export Administration Regulations (EAR) unless the exporter secures a license. Those persons present a greater risk of diversion to weapons of mass destruction (WMD) programs, terrorism or other activities contrary to U.S. national security or foreign policy interests. Commerce – Office of Export Enforcement can add to the Entity List a foreign party, such as an individual, business, research institution or government organization, for engaging in activities contrary to U.S. national security and/or foreign policy interests. In most instances, license exceptions are unavailable for the export, re-export or transfer (in-country) to a party on the Entity List of items subject to the EAR. Rather, a prior license is required, usually subject to a policy of denial.
Commerce – Office of Export Enforcement and the FBI are investigating this case with assistance from Defense Criminal Investigative Service (DCIS). The Justice Department’s Office of International Affairs provided investigative assistance.  The government’s case is being prosecuted by Assistant U.S. Attorneys Michael C. Galdo and G. Karthik Srinivasan of the Western District of Texas, as well as Trial Attorney Thea R. Kendler of the Justice Department’s National Security Division.

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COM NEWS

(Source: ANI, 22 Dec 2020) [Excerpts]

 
In another major setback to China, the US has designated 58 Chinese companies out of 103 companies as foreign entities with military ties thereby restricting export, re-export and transfers with them.
 
Along with the 58 Chinese companies, the remaining are Russian companies, the US Commerce Department said.
 
According to a statement from the Commerce Department, the Bureau of Industry and Security (BIS) will amend the Export Administration Regulations (EAR) by adding a new ‘Military End User’ (MEU) List, as well as the first tranche of 103 entities, which includes 58 Chinese and 45 Russian companies.
“The US Government has determined that these companies are ‘military end users’ for purposes of the ‘military end-user’ control in the EAR that applies to specified items for exports, reexports, or transfers (in-country) to the China, Russia, and Venezuela when such items are destined for a prohibited ‘military end-user’,” the statement read.
 
“This action establishes a new process to designate military end-users on the MEU List to assist exporters in screening their customers for military end-users,” said Commerce Secretary Wilbur Ross as quoted by the statement.
Ross said that the department recognizes the importance of leveraging its partnerships with the U.S. and global companies to combat efforts by China and Russia to divert U.S. technology for their destabilizing military programs, “including by highlighting red flag indicators such as those related to Communist Chinese military companies identified by the Department of Defense.”
 
Among restricted Chinese entities are the Aero-Engine Company, Aviation Industry Corporation, Academy of Aerospace Solid Propulsion Technology, CAST Xi’an Spaceflight Engine Factory and Government Flying Service.

(Source: Reuters, 22 Dec 2020) [Excerpts]

 
The Kremlin said on Tuesday that the new round of U.S. sanctions against Russia marked another hostile act by the outgoing administration of President Donald Trump and would further harm already poor ties between Moscow and Washington.
 
The Trump administration on Monday published a list of Chinese and Russian companies with alleged military ties that restrict them from buying a wide range of U.S. goods and technology.
 
“Every kick like this pushes us further from the point of normalisation and makes it extremely difficult to get out of the damaging tailspin in our bilateral relations,” Kremlin spokesman Dmitry Peskov told reporters on a conference call.

COM COMMENTARY

(Source: International Trade Insights, 21 Dec 2020) [Excerpts]

 
* Principal Author: Beau Jackson, Esq., 1-202-378-2406, Husch Blackwell
 
The U.S. Department of State (“State Department”) announced the imposition of sanctions on Turkey’s Presidency of Defense Industries (“SSB”) pursuant to Section 231 of the Countering America’s Adversaries Through Sanctions Act (“CAATSA“). The U.S. is sanctioning SSB over its procurement of the S-400 surface-to-air missile system from Russia’s Rosoboronexport (“ROE”). SSB is Turkey’s primary defense procurement entity and ROE is Russia’s main exporter of arms. As a result of Turkey’s actions, the U.S. is imposing full blocking sanctions on four SSB officials along with certain non-blocking CAATSA sanctions on the SSB entity.
 
CAATSA Section 231 requires the President to impose at least five sanctions from the menu of twelve available sanctions authorized under CAATSA Section 235 on any person determined to have knowingly engaged in a significant transaction with the defense or intelligence sectors of the Russian government.  ROE is listed on the State Department’s List of Specified Persons (the “LSP”) and recognized as being a part of the defense sector of the Russian government, therefore the State Department determined that CAATSA required the imposition of sanctions on SSB.
 
The State Department and U.S. Department of Treasury (“Treasury Department”) have selected the following sanctions from CAATSA Section 235 to impose on SSB:
  • “a prohibition on granting specific U.S. export licenses and authorizations for any goods or technology transferred to SSB (Section 235(a)(2));
  • a prohibition on loans or credits by U.S. financial institutions to SSB totaling more than $10 million in any 12-month period (Section 235(a)(3));
  • a ban on U.S. Export-Import Bank assistance for exports to SSB (Section 235(a)(1));
  • a requirement for the United States to oppose loans benefitting SSB by international financial institutions (Section 235(a)(4)); and
  • imposition of full blocking sanctions and visa restrictions (Section 235(a)(7), (8), (9), (11), and (12)) on Dr. Ismail Demir, president of SSB; Faruk Yigit, SSB’s vice president; Serhat Gencoglu, Head of SSB’s Department of Air Defense and Space; and Mustafa Alper Deniz, Program Manager for SSB’s Regional Air Defense Systems Directorate.”
Although CAATSA Section 235 gave the State and Treasury Departments the discretion to impose full blocking sanctions on SSB, they chose not to do so and instead only imposed those blocking sanctions on the four previously-identified SSB senior officers.
 
In order to effectuate these sanctions, the Treasury Department’s Office of Foreign Assets Control (“OFAC”) added SSB to its new “Non-SDN Menu-Based Sanctions” list with designations specifying the above-listed non-blocking, menu-based CAATSA Section 235 sanctions. Additionally, OFAC added the four individual SSB officers to its Specially Designated Nationals and Blocked Persons (“SDN”) list. As a result, all of their property and interests within U.S. jurisdiction are blocked and U.S. persons are prohibited from conducting transactions with them without an OFAC license.
 
State Department’s Directorate of Defense Trade Controls (“DDTC”) is responsible for issuing and administering export licenses under the U.S. International Traffic in Arms Regulations (“ITAR”).  DDTC issued the following notice on December 14, 2020 explaining how it will implement the new export licensing restrictions which are now applicable to SSB under these new CAATSA sanctions:
 
“[E]ffective immediately DDTC will not approve any specific license or authorization to export or re-export any defense articles, including technical data, or defense services where SSB is a party to the transaction. This prohibition does not apply to temporary import authorizations or to current, valid, non-exhausted export and re-export authorizations. However, the prohibition does apply to new export and re-export authorizations – including amendments to previously approved licenses or agreements and licenses in furtherance of previously approved agreements. This sanction does not apply to subsidiaries of SSB; however, licenses submitted to DDTC which name subsidiaries of SSB are still subject to a standard case-by-case review, including a foreign policy and national security review. We are not imposing a prohibition on U.S. Government procurement from SSB as part of this action.”
The U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) is responsible for issuing and administering export licenses under the U.S. Export Administration Regulations (“EAR”). BIS also issued its own notice on December 14, 2020 which generally stated BIS “has implemented a policy of denial for export license applications to [SSB].”  However, BIS’s notice did not address whether these new CAATSA sanctions would affect existing BIS export licenses issued for SSB or transactions with SSB subsidiaries under the EAR. …

(Source: Mayer Brown, 21 Dec 2020)

 
* Principal Author: Tamer A. Solman, 1-202-263-3292, Mayer Brown
 
On December 18, 2020, the US Department of Commerce Bureau of Industry and Security (BIS) announced the designation of 60 additional Chinese companies to its Entity List, including SMIC, China’s largest semiconductor manufacturer; over 25 affiliates of China State Shipbuilding Corporation (CSSC); and several other companies in a range of sectors (the “Designations”). As of that date, a license is now required for any export, re-export or transfer of technology, goods or software of items subject to US export controls for which any of the targeted entities is a party to the transaction.

 

This most recent designations follow the US government’s previous actions aimed at China including:  
  • Prohibitions on engaging in securities-related transactions involving 31 entities designated as China military-linked companies, including SMIC and other entities described herein;
  • A series of regulatory changes to effectively impose heightened due diligence requirements for potential “military end-use” and “military end-users” involving sales and technology transfers of certain goods, software and technology to commercial entities in China; 
  • A series of measures to expand the jurisdictional reach of US controls over chipmaking equipment and technologies critical to Huawei’s supply chain; and
  • Establishment of an expansive new legal framework for national security review of transactions involving the US information and communications technology and services supply chain. 
The regulatory amendments reflecting the Designations will be officially published in the Federal Register December 22, 2020. However, those amendments are effective December 18 (the date of the BIS announcement). An advance copy of the Federal Register notice is available here. We provide below our summary and observations regarding these additions to the Entity List. 
 

What Entities and Individuals Are Targeted by the Designations? 
The Designations target 77 parties, including 60 Chinese entities and their affiliates. The Designations are notable for the significance of many of the entities listed, as well as the breadth and range of impacted industries. The Designations can be summarized as follows:   
  • SMIC-Related Designations. Among the most notable entities included in the Designations are Semiconductor Manufacturing International Corporation Incorporated (SMIC)-China’s largest chipmaker-and 10 of its affiliates. BIS designated these entities based on concerns relating to China’s “Military-Civil Fusion” initiative and what the US government views as material ties between SMIC and the Chinese military. The designated SMIC entities include both mainland China and Hong Kong affiliates. 
  • CSSC Research Institute Designations. BIS designated 25 research affiliates of CSSC, one of the largest shipbuilding companies in the world, based on what BIS describes as CSSC’s role in acquiring and attempting to acquire US items in support of programs for the People’s Liberation Army of China (PLA). This adds to the existing designation of another CSSC research affiliate in August of this year. As noted below, the Designations also extend to other CSSC affiliates. Notably, CSSC itself has not been added to the Entity List.
  • Entities Involved in South China Sea Activities of Concern. BIS designated several entities on the basis of concerns regarding what the United States describes as Chinese efforts to “reclaim and militarize disputed outposts in the South China Sea.” These include several shipbuilders-including another CSSC entity (CSSC Huangpu Wenchong Shipbuilding Co., Ltd.)-as well as a publicly traded engineering and construction firm involved in several key domestic and international infrastructure projects, including ones under the Belt and Road Initiative. 
  • Human Rights-Related Designations. BIS designated four entities based on US determinations relating to what BIS describes as “wide-scale human rights abuses within China through abusive genetic collection and analysis or high-technology surveillance” and/or the facilitation of export by China of items that “aid repressive regimes around the world.” These Designations span a variety of sectors and include major Shenzhen-based drone maker SZ DJI Technology Co., Ltd. (aka “Da-Jiang Innovations”); the biotech and medical technology firms AGCU Scientech and China National Scientific Instruments and Materials; and Kuang-Chi Group, which is active in aerospace, defense and artificial intelligence.
  • Additional Policy-Based Designations of Chinese Entities
  • Activities in support of PLA programs. Several academic institutions and companies were designated on the list based on determinations that they were involved in or attempted to acquire US-origin items in support of programs for the PLA. The named entities include Beijing Institute of Technology, Nanjing University of Science and Technology, Nanjing University of Aeronautics and Astronautics, Nanjing Asset Management Co., Ltd., Jiangsu Hengxiang Science and Education Equipment Co., Ltd., and Beijing University of Posts and Telecommunications.
  • Activities relating to theft of trade secrets and economic espionage. Several entities and individuals were designated on the basis of alleged involvement in economic espionage and trade secret activities for the purpose of PRC development of products for civilian and military use. These include ROFS Microsystems, Tianjin Micro Nano Manufacturing, Tianjin University and five individuals who have previously been indicted in relation to the activities of concern. 
  • Impairment of US efforts to counter illicit trafficking in nuclear/radioactive materials. One entity, Tongfang Technology Ltd. (NucTech), was listed based on BIS’s determination that its “less stringent cargo screening” equipment impairs certain US counter-proliferation efforts.
  • Designation on Other Grounds. The remaining 18 Designations were based on activities involving other export control and sanctions programs based on determinations that the designated entities and individuals were engaged in certain activities of national security and foreign policy concern. In particular, these include:
  • Five Designations of persons in Europe and the UAE based on alleged participation in unauthorized transfers to Mahan Air, a sanctioned party;
  • Eight Designations of persons in Bulgaria and Russia based on alleged involvement in illicit procurement activities involving Russia;
  • Two Designations of persons in Pakistan based on alleged involvement in unauthorized transfers involving Entity List entities; and
  • Three Designations of persons in Malta and the UAE based on alleged involvement in illicit diversion.
What License Requirements Are Triggered? 
As a result of the Designations, a license is now required for the export, re-export or transfer of goods, software or technology subject to US export controls (“Covered Items”) whenever any of the named targets is a party to the transaction. BIS takes the position that the licensing requirement applies to listed entities “regardless of their role as a party to the transaction,” including but not limited to when the targeted entity is a purchaser, intermediate consignee, ultimate consignee or end-user.     
A Covered Item for these purposes may include not only US-origin items but any of the following categories of non-US origin items:  
  • Foreign-origin items containing more than “de minimis” US content (the relevant level depends on the circumstances and can be as low as any US content at all for certain items)
  • Certain foreign-produced direct products of US technology 
  • Any items in the United States
As the above suggests, the level of sophistication or sensitivity of the item (or lack thereof) is immaterial to whether it is subject to these restrictions.  
What Is the Likelihood That a License Application Will Be Approved? 
Applications for licenses will be reviewed in most cases under a formal policy of “presumption of denial” (which means, as a matter of policy, that BIS is unlikely to grant the application). There are, however, certain notable exceptions where “case-by-case” licensing policy applies, pursuant to which BIS (in coordination with other relevant agencies) will consider, without applying a presumption of denial, whether the proposed transaction would be contrary to US national security and foreign policy interests. A summary of the relevant licensing policies under which BIS will review license applications involving the entities listed in the Designations follows:
  • SMIC and Its Designated Affiliates (11 Designations). The applicable licensing policy for the designated SMIC entities is a presumption of denial for “items uniquely required to produce semiconductors at advanced technology nodes 10 nm or below.” For other items, a licensing policy of case-by-case review applies.  
  • Human Rights-Related Designations (Four Designations). For the four human-rights related Designations identified above-SZ DJI Technology Co., Ltd., AGCU Scientech, China National Scientific Instruments and Materials, and Kuang-Chi Group)-the licensing policy is a case-by-case review for items necessary to detect, identify and treat infectious disease and a presumption of denial for all other Covered Items.
  • Pakistan Entity List-Related Designations (Two Designations). For the two Pakistani entities designated in relation to alleged unauthorized transfers to Entity List entities, the special license review policy set forth at part 744.2(d) for restrictions on certain nuclear-related end-uses applies. 
  • Policy of Denial (Remaining 60 Designations). The remaining 60 persons included in the Designations are subject to a licensing policy of a presumption of denial.

Conclusion 

The Designations may have a significant impact on any company engaging in activities that relate to exports, reexports or transfers of all Covered Items (whether goods, software or technology) to the listed entities (even if those targeted entities are not the ultimate end-user). Due to the breadth of the prohibitions under the regulations, licensing requirements may be triggered not only for direct suppliers of these entities but also for others who may indirectly support a prohibited export, reexport or transfer.
 
While Friday’s announcement of a large number of significant Chinese entities is not unique, it notably comes shortly after the Trump administration’s recent decision to impose broad prohibitions on securities-related transactions involving 31 Chinese entities (including some of the entities referenced above). It reflects a continued focus in the waning days of the current administration to adopt a tough stance on China (although, in practice, the administration has demonstrated a willingness to issue licenses notwithstanding the presumption of denial in a number of instances). The underlying national security and foreign policy issues are long-standing, and it remains to be seen whether the Chinese government will adopt a retaliatory posture and whether the Biden administration will adopt a different approach to addressing these issues.

(Source: Medium, 22 Dec 2020) [Excerpts] 

 
* Author: Nicholas Turner, Esq., 852-5998-7559, Steptoe & Johnson HK
 
  Here are five things that happened this week in the world of economic sanctions that I think you should know about.
  1. The US Commerce Department’s Bureau of Industry and Security (BIS) added 60 Chinese entities to the Entity List, including chipmaker Semiconductor Manufacturing International Corporation (SMIC). The targets are accused of engaging in a range of activities contrary to US national security and foreign policy interests, as explained in this Federal Register notice and this State Department news release. (More on this below.)
  2. The US State Department announced sanctions on Turkey’s Presidency of Defense Industries (SSB), a military procurement office, and several of its top employees under Section 231 of the Countering America’s Adversaries Through Sanctions Act (CAATSA), in response to Turkey’s 2017 purchase of a Russian S-400 missile system. SSB is subject to a menu of targeted sanctions and export controls. The employees were named Specially Designated Nationals (SDNs). Following the announcement, the US Office of Foreign Assets Control (OFAC) introduced a new “Non-SDN Menu-Based Sanctions (NS-MBS) List”that currently only lists SSB.
  3. The European Union added 30 individuals and 6 entities to the EU Sanctions List in response to the ongoing situation in Belarus. They include “economic actors, prominent businessmen and companies benefiting from and/or supporting the regime of Aleksandr Lukashenko,” according to an EU Council press release.
  4. OFAC named four companies in China and the UAE as SDNs under Executive Order 13846 for engaging in transactions with Triliance Petrochemical Co. Ltd., a Hong Kong-based company sanctioned in January 2020 for Iran-related trade. Meanwhile, the State Department announced sanctions under Executive Order 13846 against a Vietnamese company and its managing director for knowingly engaging in a transaction for the transport of petroleum from Iran.
  5. OFAC named a Venezuelan voting machine vendor and two of its officers as SDNs under Executive Order 13692 for providing equipment and services to the Venezuelan government used in the country’s 6 December legislative elections. According to a State Department news release, the machines were shipped to Venezuela from China (via Iran) by SDN airlines Mahan Air and Conviasa. OFAC used the same authority to sanction China’s CEIEC a few weeks ago.

Comments

There have been rumblings about the potential for Turkey to be sanctioned under CAATSA since 2017, when Turkey and Russia signed the S-400 purchase agreement, and again in 2019 when Russia started delivering the system. In September 2018, OFAC and the State Department named China’ s Equipment Development Department (like Turkey’s SSB) and its director as SDNs pursuant to Section 231 of CAATSA in response to China’s purchase of the S-400 system. In Turkey’s case, the sanctions on SSB are limited to restrictions on certain types of financing and prohibitions on issuing certain export control licenses. For what it’s worth, India also has agreed to purchase the S-400.
Remember: The Entity List imposes a licensing requirement on exports, re-exports, and transfers of items that are subject to the Export Administration Regulations (EAR). In other words, you need the US Commerce Department’s permission to provide US-origin goods, technology, or software to the impacted companies. Often, that permission is granted. The Entity List is not like OFAC’s SDN List, and generally speaking US persons are not otherwise prohibited from dealing with SMIC or other companies on the Entity List. The impact on each company will depend on the degree to which they rely on items subject to the EAR. … 

EN EDITOR’S NOTES

EN_a111. Bartlett’s Unfamiliar Quotations

(Source: Editor)

 
* Thomas Wentworth Higginson (22 Dec 1823 – 9 May 1911; was an American Unitarian minister, author, abolitionist, and Civil War soldier.)
  – “There is no defense against adverse fortune which is so effectual as an habitual sense of humor.”
* * * * * * * * * * * * * * * * * * * *

 

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. 

22 Dec 2020: 
85 FR 83416: Additions of entities, Revision of entries and Removals from the Entity List.

DOC FOREIGN TRADE REGULATIONS (FTR): 15 CFR Part 30.  
24 Apr 2018: 

83 FR 17749: Foreign Trade Regulations (FTR): Kimberley Process Certificates. The latest edition of Bartlett’s Annotated FTR “BAFTR” is 15 Dec 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. 

11 Dec 2020: 85 FR 79836: Extension of temporary suspensions, modifications and exceptions. The latest edition of Bartlett’s Annotated ITAR (BITAR) is 11 Dec 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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