Every month we post the highlights of FCC’s Export/Import Daily Update (“The Daily Bugle”). The Daily Bugle is sent out every business day to approximately 10,000 readers, who keep up to date with changes of defense and high-tech trade laws and regulations. It is a free daily newsletter from Full Circle Compliance, edited by James E. Bartlett III and Elina Tsapouri.
We check the following sources daily: Federal Register, Congressional Record, Commerce/AES, Commerce/BIS, DHS/CBP, DOE/NRC, DOJ/ATF, DoD/DSS, DoD/DTSA, FAR/DFARS, State/DDTC, Treasury/OFAC, White House, and similar websites of European Union, Australia, Canada, U.K., and other countries and international organizations. Due to space limitations, we do not post Arms Sales notifications, Denied Party listings, or Customs AD/CVD items. To subscribe, click here.
Last month’s highlights of The Daily Bugle included in this edition are:
- State/DDTC Proposed Rule: “ITAR Corrections and Clarifications for Export and Reexport; Canadian Exemptions; Exemptions Regarding Intra-Company, Intra-Organization, and Intra-Governmental Transfers to Employees Who Are Dual Nationals or Third-Country Nationals; and Voluntary Disclosures”; Wednesday, 2 Feb 2022; Item #1
- Commerce/BIS: “Foreign-Direct Product Rules: Organization, Clarification, and Correction”; Thursday, 3 Feb 2022; Item #1
- UK ECJU: “Consolidated List of Strategic Military and Dual-Use Items That Require Export Authorisation”; Monday, 7 Feb 2022; Item #5
- European Union: “Measures Adopted by EU Member States on Dual-use Items”; Thursday, 10 Feb 2022; Item #8
- EUS: “UK issued £1.4M in Fines for Unlicenced Military & Dual-Use Exports from 2017-2021”; Friday, 18 Feb 2022; Item #6
- Treasury/OFAC Issues E.O. Blocking Certain Transactions re Russian Efforts Related to Ukraine; Issues Ukraine-related General Licenses; Tuesday, 22 Feb 2022; Item #5
- Commerce/BIS Implements Sweeping Restrictions on Exports to Russia in Response to Further Invasion of Ukraine; Friday, 25 Feb 2022; Item #4
- Treasury/OFAC: “Russia-related Designations; Belarus Designations; Issuance of Russia-related Directive 2 and 3; Issuance of Russia-related and Belarus General Licenses; Publication of new and updated Frequently Asked Questions”; Thursday, 25 Feb 2022; Item #7
- White House Sanctions Nord Stream 2; Friday, 25 Feb 2022; Item #8
- Belgium Suspends Export Licenses to Russia; Monday, 28 Feb 2022; Item #7
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State/DDTC Proposed Rule: “ITAR Corrections and Clarifications for Export and Reexport; Canadian Exemptions; Exemptions Regarding Intra-Company, Intra-Organization, and Intra-Governmental Transfers to Employees Who Are Dual Nationals or Third-Country Nationals; and Voluntary Disclosures”
(Source: Today’s Federal Register, 87 FR 5759, 2 Feb 2022) [Excerpts]
* AGENCY: Department of State.
* ACTION: Proposed rule.
* SUMMARY: The Department of State (DOS) proposes to amend the International Traffic in Arms Regulations (ITAR) to clarify the definitions of export and reexport. Further, the Department proposes to replace the term “national” with “person” in the Canadian exemptions; revise the exemption for intra-company, intra-organization, and intra-governmental transfers to dual nationals or third-country nationals; and correct administrative errors in the section on voluntary disclosures.
* DATES: The Department of State will accept comments on this proposed rule until April 4, 2022.
[Editor’s Notes: The following ITAR sections are proposed to be amended:
- 120.17(b), §120.10(b); § 126.5(b); § 126.18(c)(2); and § 127.12(b)(5). A new edition of the BITAR, published today, contains footnotes showing how each section is proposed to be amended. See BITAR subscription information below at Item # 11.]
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Commerce/BIS: “Foreign-Direct Product Rules: Organization, Clarification, and Correction”
(Source: 87 FR 6022, 3 Feb 2022) [Excerpts]
* AGENCY: Bureau of Industry and Security, Department of Commerce.
* ACTION: Final rule.
* SUMMARY: The Bureau of Industry and Security (BIS) is clarifying, reorganizing, and making minor corrections to the provisions of the foreign-direct product (FDP) rules. Before this final rule, the FDP rules appeared in parts 736 and 744 of the Export Administration Regulations (EAR); now, the rules are consolidated in part 734 of the EAR. These revisions clarify the applicability of the FDP rules and make one correction applicable to the FDP rules as to the term “U.S.-origin technology and software.”
* DATES:The effective date of this rule is today, February 3, 2022.
* FOR FURTHER INFORMATION CONTACT: Sharron Cook, 202-482-2440, Sharron.Cook@bis.doc.gov.
* SUPPLEMENTARY INFORMATION:
Consolidation and Organization of the Foreign-Direct Product (FDP) Rules:
This final rule consolidates the FDP rules in § 734.9 of the Export Administration Regulations (EAR). Before publication of this rule, the FDP rules were found in § 736.2(b)(3) (General Prohibition 3) and footnote 1 to supplement no. 4 to part 744 (the Entity List). Placing the FDP rules in part 734 (Scope of the EAR) clarifies that they are used to determine if a foreign-produced item is subject to, and thus within the scope of, the EAR. To further clarify the FPD rules, this rule moves the license requirement, license review policy, and license exception applicability text for listed entities from the Entity List’s footnote 1 to supplement no. 4 to part 744 to § 744.11(a), where the overall license requirements pertaining to listed entities are located.
Organization of the FDP Rules
In new § 734.9, this rule separates the FDP provisions into four paragraphs: The National Security FDP rule, the 9×515 FDP rule, the “600 series” FDP rule, and the Entity List FDP rule. While the product scope of the first three FDP rules is relatively similar in format, the country scopes of each rule are different. This reorganization and naming of the FDP rules does not make substantive changes to the FDP rules. Rather, it facilitates reference to and compliance with the rules.
The original national security-focused FDP rule is now the National Security FDP rule. The provisions of the 9×515 FDP rule and the “600 series” FDP rule are reorganized into separate paragraphs with a description of the product scope followed by the country scope. The provisions of the Entity List FDP rule are organized with a description of the Start Printed Page 6023 product scope followed by the applicable end-user scope.
This rule moves a definition of the term ‘major component’ from a note to footnote 1 to Supplement no. 4 to part 744 of the EAR to a new definition paragraph in § 734.9(a) of the EAR. In making this change, this rule clarifies that the definition of the term ‘major component’ applies to all the FDP rules, and not just the Entity List FDP rule. A ‘major component’ of a plant located outside the United States for all FDP rules is “equipment” that is essential to the “production” of an item, including testing “equipment.” As noted in the August 20, 2020, final rule that amended the Entity List FPD rule (see 85 FR 51596, at 51601), any equipment that is involved in any of the production stages is considered essential. As a conforming edit, to indicate that the term is defined in that section, BIS added single quotation marks around the term `major component’ wherever it appears in § 734.9.
Clarification of the FDP Rules
This rule further clarifies the FDP rules by adding double quotation marks around terms that are defined in part 772 of the EAR, e.g., direct product, technology, software, and equipment. BIS has received requests for additional guidance about determining the scope of production equipment in relation to the Entity List FDP rule and clarifying that these are defined terms should help the public better understand its obligations.
In addition, this rule clarifies in § 736.2(b)(3) of the EAR (General Prohibition Three), that foreign-direct products subject to the EAR are not necessarily subject to a license requirement and that license requirements must be determined based on an assessment of the classification, destination, end user, and end use of the items.
Lastly, this rule clarifies the circumstances under which the “600 series” FDP rule applies to items described in Export Control Classification Number (ECCN) 0A919. The text of ECCN 0A919 states that it includes the foreign direct product of “600 series” technology or software. However, before this rule, the text of General Prohibition Three did not explicitly include ECCN 0A919 items when describing other aspects of determining applicability of the “600 series” FDP rule. This rule also replaces the cross reference in ECCN 0A919.a.3 as a conforming edit.
Correction: U.S.-Origin “technology” and “software”
In this rule, BIS corrects an earlier revision to General Prohibition Three to clarify when the FDP rules are intended to apply to the direct product of U.S.-origin technology or software. On May 19, 2020, BIS published a rule entitled “Export Administration Regulations: Amendments to General Prohibition Three (Foreign-Direct Product Rule) and the Entity List” (85 FR 29849).
This rule removed the word “U.S.” from the heading of § 736.2(b)(3) (Foreign-Direct Product rule) where it had been placed in front of the words “technology and software.” This revision was made because the scope of the heading did not align with the scope of the Entity List foreign-direct product rule being added to the EAR on that date. The Entity List FDP rule in § 734.9(e), and as it previously appeared in footnote 1 to supplement no. 4 to part 744 of the EAR, applies to the FDP of technology or software that is subject to the EAR, but that is not necessarily technology or software of U.S. origin.
The preamble of the May 19 rule that added the Entity List FDP rule clearly stated that BIS did not intend to change the scope of the other FDP rules, noting General Prohibition Three: “continues to apply to foreign-produced items controlled for national security reasons, 9×515 items, or “600 series” items and has three criteria: The reason for control or classification of the U.S. “technology” or “software”; the foreign-produced item’s reason for control or classification; and the destination country of the foreign-produced item[.]” The May 19 rule stated that it “maintains the scope and criteria of General Prohibition Three[.]”
Nevertheless, by removing the term “U.S.” from General Prohibition Three’s heading, BIS may have inadvertently caused confusion as to whether the revision was intended to change the product scope of all FDP rules, because the term “U.S.” had only been in the heading and not in the other FDP rules’ product scope descriptions. For this reason, this rule clarifies the EAR by specifically stating in each of the FDP rules that the application of the rule relates to U.S.-origin technology or software. . . . .
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UK ECJU: “Consolidated List of Strategic Military and Dual-Use Items That Require Export Authorisation”
(Source: UK Export Controls Joint Unit, 4 Feb 2022)
The UK Strategic Export Control Lists (known as the consolidated list) are compiled from 7 lists in various pieces of international legislation which set out what types of goods are controlled.
Use the online checker tools to establish:
- if your items are controlled
- the appropriate control entry reference in the consolidated list
- if an appropriate open general export licence (OGEL)exists
If your items are listed under a control list (‘rating’) entry you need an export licence from the Export Control Joint Unit (ECJU).
If your goods are not on the control lists, you may still need a licence under end-use controls. This applies where there are concerns over their use in a weapons of mass destruction (WMD) programme.
Types of controlled goods
Broad categories are:
- items specifically designed or modified for military use and their components
- dual-use items that can be used for civil or military purposes
- associated technology and software
- goods that might be used for torture
- radioactive sources
Update
List republished following amendments to the military control list which came into force on 7 June 2021 as set out in the statutory instrument SI2021/586 (The Export Control [Amendment] Order 2021).
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European Union: “Measures Adopted by EU Member States on Dual-use Items”
(Source: European Journal, 8 Feb 2022) [Excerpts]
The European Commission publishes an Informational Note regarding the measures adopted by the Member States in conformity with Articles 4, 6, 7, 9, 11, 12, 22 and 23 of the EU’s new dual-use export control Regulation (EU) 2021/821.
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EUS: “UK issued £1.4M in Fines for Unlicenced Military & Dual-Use Exports from 2017-2021”
(Source: EU Sanctions Law Practice and Guidance, 18 Feb 2022)
HM Revenue & Customs (HMRC) imposed 47 compound penalties on UK exporters for unlicenced exports of dual-use and military-related goods between January 2017 and December 2021, according to its recent response to a Freedom of Information request by Action on Armed Violence (AOAV). Letter & Data. The response shows that:
- Individual penalties ranged from £1,000 to £211,250, and amounted to more than £1.4 million over the 5 years; and
- in 2017, only 1 penalty was issued, compared to 19 penalties in 2020 and 12 in 2021.
In January 2022, the ECJU published a notice of the compound penalties related to unlicensed exports of dual-use and military goods issued March and November 2021. See the previous post. See also previous posts for 2020 and 2019 UK Strategic Export Controls Annual Reports.
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Treasury/OFAC Issues E.O. Blocking Certain Transactions re Russian Efforts Related to Ukraine; Issues Ukraine-related General Licenses
(Source: Treasury/OFAC, 21 Feb 2022)
The President has signed a new Executive Order Blocking Property Of Certain Persons And Prohibiting Certain Transactions With Respect To Continued Russian Efforts To Undermine The Sovereignty And Territorial Integrity Of Ukraine.
OFAC has issued Ukraine General License Number 17, Ukraine General License Number 18, Ukraine General License Number 19, Ukraine General License Number 20, Ukraine General License Number 21, and Ukraine General License Number 22.
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Commerce/BIS Implements Sweeping Restrictions on Exports to Russia in Response to Further Invasion of Ukraine
(Source: Commerce/BIS, 24 Feb 2022)
WASHINGTON, D.C., 24 Feb 2022 – Today, the U.S. Commerce Department, through its Bureau of Industry and Security (BIS), responded to Russia’s further invasion of Ukraine by implementing a sweeping series of stringent export controls that will severely restrict Russia’s access to technologies and other items that it needs to sustain its aggressive military capabilities.
These controls primarily target Russia’s defense, aerospace, and maritime sectors and will cut off Russia’s access to vital technological inputs, atrophy key sectors of its industrial base, and undercut its strategic ambitions to exert influence on the world stage.
BIS’s actions, along with those of the Department of the Treasury, are part of the Biden-Harris Administration’s swift and severe response to Russian aggression. These measures also reflect momentous cooperation among the United States, the European Union (EU), Japan, Australia, United Kingdom, Canada, and New Zealand, with more expected to join, in aligning on export control policies and requirements. If necessary, based upon any subsequent destabilizing actions by Russia, the U.S. government will follow up in the days to come with additional stringent economic measures.
The export control measures announced today are the most comprehensive application of Commerce’s export authorities on U.S. items, including technology, as well as on foreign items produced using U.S. equipment, software, and blueprints, targeting a single nation. These actions, in concert with those that our partners are taking, restrict Russia’s access to items that can support the country’s defense industrial base and military and intelligence services.
“Russia’s actions are an immediate danger to those living in Ukraine, but also pose a real threat to democracy throughout the world,” said Secretary of Commerce Gina M. Raimondo. “By acting decisively and in close coordination with our allies and partners, we are sending a clear message today that the United States of America will not tolerate Russia’s aggression against a democratically-elected government. The Commerce Department, along with our partners internationally and across the Biden-Harris Administration, will continue to use every tool at our disposal to restrict products, software, and technology that support Russia’s military capabilities.”
“Russia’s attack on Ukraine is an attack on the democratic, rules-based order and the United States must meet this aggression with real consequences,” said Deputy Secretary of Commerce Don Graves. “This coordinated policy is a strong statement of solidarity from the United States and the international community with the people of Ukraine. This powerful response was developed in close consultation with our global allies and partners to cut the Russian military off from the technologies and products it needs to sustain its unprovoked and unacceptable aggression.”
“With these export controls, we, together with our allies and partners, are technologically isolating Russia and degrading its military capabilities,” said Assistant Secretary of Commerce for Export Administration Thea D. Rozman Kendler. “Russia’s access to cutting-edge U.S. and partner country technology will halt. Its defense industrial base and military and intelligence services will not be able to acquire most Western-made products. Even most products made overseas using sensitive U.S. technology will be restricted for export to Russia. Russia’s violation of Ukraine’s territorial integrity and sovereignty warrants this swift and expansive export controls response.”
BIS’s Russia-specific export control measures impose a policy of denial on sensitive items Moscow relies on for its defense, aerospace, and maritime industries. These items, many of which were not previously subject to controls when destined for Russia, include semiconductors, computers, telecommunications, information security equipment, lasers, and sensors. Today’s rule also imposes stringent controls on 49 Russian military end users, which have been added to BIS’s Entity List.
The EU, Japan, Australia, United Kingdom, Canada, and New Zealand have announced plans to implement substantially similar restrictions and are exempted from new requirements for items produced in their countries. This powerful international response will have serious consequences for the Russian military and defense sector and sends a clear message of our solidarity with the Ukrainian people and additional countries are expected to join in this effort.
These BIS actions were taken under the authority of the Export Control Reform Act of 2018 and its implementing regulations, the Export Administration Regulations (EAR). The regulation will take effect when it is publicly released by the Federal Register on Thursday, February 24, 2022 and is available HERE. [Editor’s note: The Federal Register publication is scheduled for Thursday, March 3, 2022.] A fact sheet is available HERE. Additional information on the Biden-Harris Administration’s response is available HERE.
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Treasury/OFAC: “Russia-related Designations; Belarus Designations; Issuance of Russia-related Directive 2 and 3; Issuance of Russia-related and Belarus General Licenses; Publication of new and updated Frequently Asked Questions”
(Source: Treasury/OFAC, 24 Feb 2022) [Excerpts]
The Department of the Treasury’s Office of Foreign Assets Control (OFAC) is issuing Russia-related:
- Directive 2and Directive 3 under Executive Order 14024 and
- Russia-related General License 5,
- General License 6,
- General License 7,
- General License 8,
- General License 9,
- General License 10,
- General License 11, and
- General License 12.
OFAC is also issuing:
- Belarus General License 6and
- General License 7.
In addition, OFAC has published new Frequently Asked Questions and updated several Frequently Asked Questions.
The following names have been added to OFAC’s list of Specially Designated Nationals list (SDN List), the Non-SDN Menu-Based Sanctions list (NS-MBS List), and the Correspondent Account or Payable-Through Account Sanctions (CAPTA List): [15 names.] . . .
SPECIALLY DESIGNATED NATIONALS LIST UPDATE
The following individuals have been added to OFAC’s SDN List: [Approximately 100 names added.] . . .
Non-SDN Menu-Based Sanctions List Update
The following entities have been added to OFAC’s Non-SDN Menu-Based Sanctions List: [13 entities listed.] . . .
Correspondent Account or Payable-Through Account Sanctions LIST UPDATE
The following entities have been added to OFAC’s CAPTA List: [26 entities listed.] .
Press Release Links:
U.S. Treasury Targets Belarusian Support for Russian Invasion of Ukraine
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White House Sanctions Nord Stream 2
(Source: The White House, 23 Feb 2022)
Since Russia began deploying troops to the Ukrainian border, the United States has worked closely with our Allies and partners to deliver a strong, unified response. As I said when I met with Chancellor Scholz earlier this month, Germany has been a leader in that effort, and we have closely coordinated our efforts to stop the Nord Stream 2 pipeline if Russia further invaded Ukraine.
Yesterday, after further close consultations between our two governments, Germany announced that it would halt certification of the pipeline. Today, I have directed my administration to impose sanctions on Nord Stream 2 AG and its corporate officers. These steps are another piece of our initial tranche of sanctions in response to Russia’s actions in Ukraine. As I have made clear, we will not hesitate to take further steps if Russia continues to escalate.
Through his actions, President Putin has provided the world with an overwhelming incentive to move away from Russian gas and to other forms of energy. I want to thank Chancellor Scholz for his close partnership and continued dedication to holding Russia accountable for its actions.
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Belgium Suspends Export Licenses to Russia
(Source: Chancellery & Foreign Office, 26 Feb 2022) [Excerpts]
Belgium announced that all export licenses with Russia as destination country or country of end-use will be temporarily suspended. The press release of the Flemish Strategic Goods Control Unit can be found here (in Dutch).