The Last Hoorah for Reform?

September 6th, 2016 by Danielle McClellan

By: Danielle McClellan

Over three years ago (April 2013) the first set of Export Control Reform regulations were published in the Federal Register, they were over 100 pages long and made the regulations more complex but also significantly relaxed controls on some items. Over the last few years reform has come in the form of waves and moved items from the USML onto the CCL in batches. Now, as the Obama Administration is moving out it looks as though we are about to see the last list shift for a while.

The final rule, which will be effective December 31, 2016, will move specific items controlled under Category XIV and Category XVIII. Basically, items that have been determined to no longer warrant ITAR control (toxicological agents, including chemical agents, biological agents, and associated equipment, along with directed energy weapons) will be controlled under the Commerce Control List (CCL). The affected Category XIV items consist of dissemination, detection, and protection “equipment” and related articles, such as production and test “equipment,” and will be controlled under new ECCNs 1A607, 1B607, 1C607, 1D607 and 1E607. The affected Category XVIII articles will follow in suit with being primarily tooling, production “equipment,” test and evaluation “equipment,” test models, and related articles and will be controlled under new ECCNs 6B619, 6D619, and 6E619.

Specific Regulation Changes:

ITAR:

  • This final rule adopts for those pathogens and toxins that meet specific capabilities listed in paragraph (b) the ‘‘Tier 1’’ pathogens and toxins established in the Department of Health and Human Services and the United States Department of Agriculture select agents and toxins regulations (42 CFR part 73 and 9 CFR part 121). The Tier 1 pathogens and toxins that do not meet these capabilities remain controlled in Export Control Classification Number (ECCN) 1C351 on the CCL.
  • Additionally, this rule, in concert with the analogous rule published by the Department of Commerce, moves riot control agents to the export jurisdiction of the Department of Commerce, as well as the articles covered previously in paragraphs (j), (k), and (l), which include test facilities, equipment for the destruction of chemical and biological agents, and tooling for production of articles in paragraph (f), respectively.
  • Other changes include the addition of paragraph (a)(5) to control chemical warfare agents ‘‘adapted for use in war’’ and not elsewhere enumerated, as well as the removal of paragraphs (f)(3) and (f)(6) and movement to the CCL of equipment for the sample collection and decontamination or remediation of chemical agents and biological agents.
  • Paragraph (f)(5) for collective protection was removed and partially combined in paragraph (f)(4) or the CCL.
  • Paragraph (g) enumerates antibodies, recombinant protective antigens, polynucleotides, biopolymers, or biocatalysts exclusively funded by a Department of Defense contract for detection of the biological agents listed in paragraph (b)(1)(ii).
  • The Department notes that the controls in paragraph (f)(2) that include the phrase ‘‘developed under a Department of Defense contract or other funding authorization’’ do not apply when the Department of Defense acts solely as a servicing agency for a contract on behalf of another agency of the U.S. government. Moreover, ‘‘other funding authorization’’ refers to other funding authorization from the Department of Defense.
  • The Department notes that the controls in paragraphs (g)(1) and (h) that include the phrase ‘‘exclusively funded by a Department of Defense contract’’ do not apply when the Department of Defense acts solely as a servicing agency for a contract on behalf of another agency of the U.S. government, or, for example, in cases where the Department of Defense provides initial funding for the development of an item but another agency of the U.S. government provides funding to further develop or adapt the item.
  • Paragraph (h) enumerates certain vaccines funded exclusively by the Department of Defense, as well as certain vaccines controlled in (h)(4) that are specially designed for the sole purpose of protecting against biological agents and biologically derived substances identified in (b). Thus, the scope of vaccines controlled in (h)(4) is circumscribed by the nature of funding and the satisfaction of the term ‘‘specially designed’’ as that term is defined in ITAR § 120.41. In evaluating the scope of this control, please note that the Department offers a decision tool to aid exporters in determining whether a defense article meets the definition of ‘‘specially designed.’’ This tool is available at http://www.pmddtc.state.gov/licensing/dtSpeciallyDesigned.htm.
  • Paragraph (i) is updated to provide better clarity on the scope of the control by including examples of Department of Defense tools that are used to determine or estimate potential effects of chemical or biological weapons strikes and incidents in order to plan to mitigate their impacts.
  • A new paragraph (x) has been added to USML Category XIV, allowing ITAR licensing on behalf of the Department of Commerce for commodities, software, and technology subject to the EAR, provided those commodities, software, and technology are to be used in or with defense articles controlled in USML Category XIV and are described in the purchase documentation submitted with the application. The intent of paragraph (x) is not to impose ITAR jurisdiction on commodities, software, and technology subject to EAR controls. Items described in paragraph (x) remain subject to the jurisdiction of the EAR. The Department added the paragraph as a regulatory reference point in response to industry requests to be able to use a Department of State license to export shipments that have a mix of ITAR controlled items and EAR controlled items for use in or with items described in that category.
  • Finally, this rule establishes USML control in subparagraph (f)(2) of certain chemical or biological agent equipment only when it contains reagents, algorithms, coefficients, software, libraries, spectral databases, or alarm set point levels developed under a Department of Defense contract or other funding authorization.

EAR:

This final rule creates five new “600 series” ECCNs in CCL Category 1 (ECCNs 1A607, 1B607, 1C607, 1D607, and 1E607) that clarify the EAR controls applicable to certain dissemination, detection and protection “equipment” and related items that the President has determined no longer warrant control under USML Category XIV. Terms such as “part,” “component” “accessories,” “attachments,” and “specially designed” are applied in the same manner in this rule as those terms are defined in Section 772.1 of the EAR. In addition, to assist exporters in determining the control status of their items, a “Specially Designed” Decision Tool and a CCL Order of Review Decision Tool are available on the BIS Web site at: http://www.bis.doc.gov/index.php/decision-tree-tools.

  • New ECCN 1A607 Military dissemination “equipment” for riot control agents, military detection and protection “equipment” for toxicological agents (including chemical, biological, and riot control agents), and related commodities. In new ECCN 1A607, paragraphs .a through .d, paragraph .i, and paragraphs .l through .w are reserved. Paragraph .e of ECCN 1A607 controls “equipment” “specially designed” for military use and for the dissemination of any of the riot control agents controlled in ECCN 1C607.a. Paragraph .f of ECCN 1A607 controls protection “equipment” “specially designed” for military use and for defense against either materials controlled by USML Category XIV(a) or (b) or any of the riot control agents in new ECCN 1C607.a. Paragraph .g of ECCN 1A607 controls decontamination “equipment” not controlled by USML Category XIV(f) that is “specially designed” for military use and for the decontamination of objects contaminated with materials controlled by USML Category XIV(a) or (b). Paragraph .h controls “equipment” not controlled by USML Category XIV(f) that is “specially designed” for military use and for the detection or identification of either materials specified by USML Category XIV(a) or (b) or riot control agents controlled by new ECCN 1C607.a. Paragraph .j controls “equipment” “specially designed” to: (i) Interface with a detector, shelter, vehicle, vessel, or aircraft controlled by the USML or a “600 series” ECCN; and (ii) collect and process samples of articles controlled in USML Category XIV(a) or (b). Paragraph .k controls medical countermeasures that are “specially designed” for military use (including pre- and post- treatments, antidotes, and medical diagnostics) and “specially designed” to counter chemical agents controlled by USML Category XIV(a). Paragraph .x controls “parts,” “components,” “accessories,” and “attachments” that are “specially designed” for a commodity controlled under ECCN 1A607.e, .f, .g, .h, or .j or a defense article controlled in USML Category XIV(f) and that are not enumerated or otherwise described elsewhere in the USML.
  • New ECCN 1B607 Military test, inspection, and production “equipment” and related commodities “specially designed” for the “development,” “production,” repair, overhaul, or refurbishing of commodities identified in ECCN 1A607 or 1C607, or defense articles enumerated or otherwise described in USML Category XIV.
  • In new ECCN 1B607, paragraph .a controls “equipment,” not including incinerators, that is “specially designed” for the destruction of chemical agents controlled by USML Category XIV(a). Paragraph .b of ECCN 1B607 controls test facilities and “equipment” that are “specially designed” for military certification, qualification, or testing of commodities controlled by new ECCN 1A607.e, .f, .g, .h, or .j or by USML Category XIV(f), except for XIV(f)(1). Paragraph .c of ECCN 1B607 controls tooling and “equipment” “specially designed” for the “development,” “production,” repair, overhaul, or refurbishing of commodities controlled under new ECCN 1A607.e, .f, .g, .h, or .j or USML Category XIV(f). Paragraphs .d through .w are reserved. Paragraph .x controls “parts,” “components,” “accessories,” and “attachments,” not enumerated or otherwise described elsewhere in the USML, that are “specially designed” for a commodity controlled by ECCN 1B607.b or .c or for a defense article controlled by USML Category XIV(f). As indicated above, ECCN 1B607.b does not control test facilities and “equipment” that are “specially designed” for military certification, qualification, or testing of commodities and are enumerated or otherwise described in USML Category XIV(f)(1), as set forth in State’s companion rule to this final rule (e.g., see the equipment in USML Category XIV(f)(1)(ii) that is “specially designed” for testing the articles controlled in paragraph (a), (b), (c), (e), or (f)(4) of USML Category XIV). In addition to the test facilities and “equipment” controlled by ECCN 1B607.b, see the tooling and “equipment” classified under ECCN 2B350 or 2B352 for producing the chemical/biological agents, precursors, or defoliants described in USML Category XIV(a), (b), (c), or (e). The EAR also control tooling and “equipment” to produce the antibodies/polynucleotides and vaccines described in USML Category XIV(g) and (h), respectively, as follows: lab “equipment” designated as EAR99 under the EAR; biological dual-use “equipment” (including protective “equipment”) classified under ECCN 2B352; and EAR-controlled biological systems for making vaccines (involving the use of mice, rabbits, etc.).
  • New ECCN 1C607?Tear gases, riot control agents and materials for the detection and decontamination of chemical warfare agents. New ECCN 1C607.a controls specified tear gases and riot control agents. Paragraph .b of ECCN 1C607 controls “biopolymers” not controlled by USML Category XIV(g) that are “specially designed” or processed for the detection or identification of chemical warfare (CW) agents specified by USML Category XIV(a) and the cultures of specific cells used to produce them. Paragraph .c controls specified “biocatalysts” and biological systems that are not controlled by USML Category XIV(g) and are “specially designed” for the decontamination or degradation of CW agents specified by USML Category XIV(a). Paragraph .d controls chemical mixtures not controlled by USML Category XIV(f) that are “specially designed” for military use for the decontamination of objects contaminated with materials specified by USML Category XIV(a) or (b).
  • New ECCN 1D607?“Software” “specially designed” for the “development,” “production,” operation, or maintenance of items controlled by 1A607, 1B607 or 1C607. New ECCN 1D607.a controls “software” “specially designed” for the “development,” “production,” operation, or maintenance of items controlled by ECCN 1A607, 1B607 or 1C607. Paragraph .b of ECCN 1D607 is reserved.
  • New ECCN 1E607?“Technology” “required” for the “development,” “production,” operation, installation, maintenance, repair, overhaul, or refurbishing of items controlled by ECCN 1A607, 1B607, 1C607, or 1D607. New ECCN 1E607.a controls “technology” “required” for the “development,” “production,” operation, installation, maintenance, repair, overhaul, or refurbishing of items controlled by ECCN 1A607, 1B607, 1C607, or 1D607. Paragraph .b of ECCN 1E607 is reserved.
  • Amendments to License Exceptions BAG and TMP related to Individual Protection “Equipment” in ECCN 1A607.f. This final rule amends the License Exception BAG provisions in Section 740.14(h) of the EAR to authorize exports, reexports, or in-country transfers of chemical or biological agent protective gear consistent with the requirements and restrictions described therein. In a corresponding change, this final rule also amends the License Exception TMP provisions in Section 740.9(a)(11) of the EAR to authorize temporary exports, reexports, or in-country transfers of chemical or biological agent protective gear consistent with the requirements and restrictions described therein. The amendments to License Exceptions BAG and TMP also change the requirements for Afghanistan to be consistent with those of the majority of other Country Group D:5 destinations (i.e., the U.S. person authorized to use the license exception must be affiliated with the U.S. Government and be traveling on official business or traveling in support of a U.S. Government contract). The same requirement applies to the use of these license exception provisions for Iraq, also a D:5 country, with the additional option that the U.S. person must be traveling to Iraq under a direct authorization by the Government of Iraq and engaging in activities for, on behalf of, or at the request of, the Government of Iraq. These amendments are also intended to ensure that the scope of these license exceptions, as they apply to chemical or biological agent protective gear controlled under new ECCN 1A607.f, conforms with the scope of the ITAR exemption for personal protective equipment in Section 123.17 of the ITAR (e.g., by correcting the provisions for Afghanistan, as described above, to be consistent with those of the majority of other Country Group D:5 destinations).

Middle Man in Illegal Exports Debarred for 8 Years

September 6th, 2016 by Danielle McClellan

By: Danielle McClellan

Walter Anders and his company Terand, Inc. (he was the sole employee) of Huntersville, NC has been debarred for 8 years for his connection in exporting carbon fiber to Singapore. Anders and his company were used as a middle man to send illegal exports from a company in Middlewtown, NY to a company in Singapore in exchange for multiple $1,400 kick backs.

In 2012, Performance Engineered Nonwovens, of Middletown, NY, was contacted by BIS and told that their license to export T300 carbon fiber (ECCN 1C210.a) to Singapore was revoked due to the concerns surrounding the recipient. Performance Engineered Nonwovens then sought out to find a way to conceal the shipments to Singapore, cue Walter Anders and Terand.  Within a few weeks Anders and the president of Performance Engineered Nonwovens, Peter Gromacki, agreed to have Terand falsely act as the US exporter of record for exports of the items to Singapore in return for a $1,400 commission for each successful export.

Terand created and issued commercial invoices on letterhead that falsely named Terand as the exporter and falsely stated that, “This commodity technology exported from the United States is in accordance with the Export administration Regulations.” The company also acted as the intermediary between Performance Engineered Nonwovens and the freight forwarder, providing instructions to the forwarder, signing any and all required shipping documents, and receiving status reports on the progress of exports to Singapore. Terand also appeared as the US Principal Party in Interest (USPPI) on all of the Shipper’s Export Declarations (SED) that were filed.

Over the course of 2012 Terand made 8 exports of T300 carbon fiber to Singapore (approximately 6,557kg). Gromacki (Performance Engineered Nonwovens president) ensured that this process would continue and told Walter Anders that, “You continue to play a crucial role. I cannot export without your help and hence the commission checks will continue to flow in your direction.”

Walter Anders and his company, Terand, have been charged with 8 counts of Causing, Aiding, and/or Abetting Unlicensed Exports. The 8 illegal exports were valued at $288,736, Anders received $11,200 in commissions and 8 years of debarment.

Federal Register: https://www.federalregister.gov/articles/2016/08/19/2016-19819/in-the-matter-of-walter-anders-10701-huntersville-commons-drive-suite-c-huntersville-nc-28078-terand

Port of Export Codes Deleted in AES

September 6th, 2016 by Danielle McClellan

(Source: census@subscriptions.census.gov, 1 Aug 2016)

 

Please note the following Port of Export codes have been DELETED in the Automated Export System (AES) effective immediately.

  • 2772: Gateway Freight Services, LAX, CA
  • 2773: Air Cargo Handling Services, LA, CA
  • 2774: Virgin Atlantic Cargo, LAX, CA
  • 2792: DHL-HUB Riverside, CA

 

For further information or questions, contact the U.S. Census Bureau’s Data Collection Branch.

DDTC Agreements Guidelines Updated

September 6th, 2016 by Danielle McClellan

On August 11, 2016, the Directorate of Defense Trade Controls (DDTC) announced its newest revision to the Guidelines for Preparing Agreements, which will become effective September 1, 2016. The changes will bring the Agreement Guidelines in line with certain revisions to the International Traffic in Arms Regulations (ITAR) that will also take effect on September 1, 2016.
Highlights of the changes:

  • Various sections of the Agreement Guidelines have been updated to reflect the new definitions for the terms “export,” “reexport” and “retransfer” that will go into effect on September 1.
  • Revision of Section 3.5: Dual/Third Country National (DN/TCN) to remove § 124.16 from Option 2, add references to § 126.18(d) in Option 1, redact the term “retransfer” from the guidance and required statements, remove country of birth as a consideration when vetting DN/TCNs via Option 2, update the required agreement statements for DN/TCN requests pursuant to § 124.8(5), and remove the optional agreement statement for § 126.1 non-(a) TCN requests.
  • The required statements throughout the Agreement Guidelines are updated, including the statement on sublicensing to U.S. Persons, the required statements for DN/TCN requests pursuant to § 124.8(5), and the § 124.8(5) verbatim clause.
  • Templates in Appendix A are updated to remove the § 124.12(a)(10) statement from the transmittal letter, remove the § 124.16 statement from the agreement, and update the required statements mentioned above.

Note:  Applicants are not required to submit an amendment for the sole purpose of updating these statements or removing the § 124.16 statement.  However, the statements must be updated at the next major amendment.  All agreement/amendment applications submitted after September 1, 2016, must include the new required statements, if applicable.  If an old statement is used, a proviso will be added instructing the applicant to change it prior to execution.  Applicants may begin using the new statements prior to September 1.

The templates in Appendix A have been updated to: – Remove the § 124.12(a)(10) statement from the transmittal letter – Remove the § 124.16 statement from the agreement – Update the mandatory statements listed above.

Revised Guidelines: https://www.pmddtc.state.gov/licensing/documents/agreement_guidelinesv4.4.pdf

Summary of Changes: https://www.pmddtc.state.gov/licensing/documents/agreement_guidelines_preamblev4.4.pdf

BIS Extends Temporary General License for ZTE Entities

September 6th, 2016 by Danielle McClellan

On March 24, 2016, a final rule was published that created a temporary general license that allowed, for a short time period, two entities (ZTE Corporation and ZTE Kangxun) that had been added to the Entity List on March 8, 2016, to be able to take part in exports, reexports, and transfers (in- country).

BIS has decided to extend the temporary general license until November 28, 2016. Due to this extension, the final rule will remove the date of August 30, 2016 and substitute the newest expiration date of November 28, 2016. No other changes have been made to the license.

Federal Register Notice: https://www.gpo.gov/fdsys/pkg/FR-2016-08-19/pdf/2016-19828.pdf

Screen Your Parties’ Addresses & Screen Before Shipments: Experienced and Sophisticated Company Fined $90,000 for One Export of EAR99 Item

September 6th, 2016 by Danielle McClellan

By: Danielle McClellan

Spectrolab is an experienced and sophisticated exporter, according to BIS’s Order related to the illegal export of a Large Area Pulsed Solar Simulator (EAR99).  You may be thinking, EAR99 items don’t need a license so how is there an illegal export, but as the title states…screening is important and will find violations that otherwise are not obvious to the naked eye.

In this case, Spectrolab sold and transferred a Large Area Pulsed Solar Simulator to a party on the Entity List in Pakistan. SUPARCO (Pakistan’s Space and Upper Atmosphere Research Commission) was added to the list in 1999 after it was found that they were involved in nuclear or missile activities. SUPARCO used a procurement agent to obtain the simulator from Spectrolab in 2014. Initially the agent said the item was for Pakistan’s Institute of Space Technology (IST) but soon after Spectrolab was made aware that SUPARCO was involved in the transaction. The procurement agent provided Spectrolab with the names and every party involved in the transaction except SUPARCO. Spectrolab screened the names, but not the addresses that they received from the agent which would have alerted them that SUPARCO was on the Entity List as their address was listed as IST.

Spectrolab even hosted an inspection and training session on installation and operation with an engineer from SUPARCO. The engineer even attended the training wearing a SUPARCO badge. As a result, Spectrolab was fully aware that SUPARCO was the end user of the simulator before they ever exported it. Spectrolab failed to run or re-run its screening software to screen either the SUPARCO name or address in connection with the final shipment, a direct contradiction of their own export compliance plan.

There were a few things that went wrong in this case for Spectrolab:

  1. They didn’t screen the companies address; if this was initially done the entire process would have stopped before it even started. BIS noted in the Order that Spectrolab used an export control screening software.
  2. No one raised the question of why the engineer worked for SUPARCO instead of IST or why the end user was SUPARCO instead of IST. This is really where the break down occurred
  3. They didn’t re-run their screening software before shipping the item to Pakistan

The biggest take away from this case is to screen everything about your customers, and that the government expects you to catch on to oddities related to your shipments. In this case, the company name changing, it’s not surprising that no one knew that SUPARCO was on the Entity List, there’s thousands on that list. The issue is that there was a red flag with SUPARCO coming into the transaction but not being listed on the documents. Entities who are on the denial list will be sneaky, and BIS expects you to catch that…that just didn’t happen in this case.

Order:  https://efoia.bis.doc.gov/index.php/electronic-foia/index-of-documents/7-electronic-foia/227-export-violations

Entrapment or Conspiracy? Either Way…Woman Sentenced to Over 4 Years in Prison for Conspiracy to Export to China

September 6th, 2016 by Danielle McClellan

By: Danielle McClellan

Wenxia Man, aka Wency Man, 45 of San Diego, was sentenced this month to 50 months in prison for conspiring to violate the Arms Export Control act by trying to export and cause the export of fighter jet engines, an unmanned aerial vehicle (drone) and related technical data to the People’s Republic of China.

Wency Man ran a family business with her husband that produced small electronic components used in cell phones and some radio devices. Around March 2011 she began trying to find jet fighter industry sources to help her find out what it would take to export a fighter jet to China. One of her “jet fighter industry source” contacts alerted federal authorities to Man and an undercover investigation was launched. Eventually Man began communicating with an undercover agent who said he worked for a fictitious company in Broward County; he told Man he could get her the following items on her list:

  • Pratt & Whitney F135-PW-100 engines used in the F-35 Joint Strike Fighter;
  • Pratt & Whitney F119-PW-100 turbofan engines used in the F-22 Raptor fighter jet;
  • General Electric F110-GE-132 engines designed for the F-16 fighter jet;
  • General Atomics MQ-9 Reaper/Predator B Unmanned Aerial Vehicle, capable of firing Hellfire Missiles; and
  • Technical data for each of these defense articles

Wency was trying to get all of the listed items sent to Xinsheng Zhang in China. Zhang works for the China military and the items would have been used by the government of China. Man explained to the undercover agent that Zhang was a “technology spy” and wanted stealth technology. The drone that he wanted was $50 million, and that didn’t include any of the fighter jets.

On June 9, 2016, Man was convicted of one count of conspiring to export and cause the export of defense articles without the required license, although it should be noted that this export would never have been approved by the US government. Man’s lawyer attempted to have the jury verdict thrown out based on the fact that, “It was our position that there was no conspiracy and that she was entrapped,” Alex Strassman (Man’s lawyer) said. “It was pretty clear what would have happened if the government would have left her alone. Nothing more would have happened.”

Fast forward a few months and Wency has been sentenced to 50 months in prison which proves that conspiring can be just as bad as following thru…even if there was almost zero percent chance of your plan actually becoming a reality.

Read More: https://www.justice.gov/opa/pr/california-woman-sentenced-50-months-prison-conspiring-illegally-export-fighter-jet-engines

Editor’s Note:  This story reminded me of the great song by Emerson, Lake and Palmer.  –JB

Wency Man

She had ITAR drones
And tech data by the score
All advanced technology
For export out the door

Ooooh, what a Wency Man she was
Ooooh, what a Wency Man she was

 

Hot section and stealth
They made up her bed
A technology spy
By which she was led

Ooooh, what a Wency Man she was

Ooooh, what a Wency Man she was

 

She procured technology
For her country and Peking
Of her honor and her glory
The people would sing

Ooooh, what a Wency Man she was

Ooooh, what a Wency Man she was

A conviction found her
“You’re guilty” the judge cried
No lawyer could save her
But she didn’t get fried
Ooooh, what a Wency Man she was
Ooooh, what a Wency Man she was

EAR and ITAR Will Require the Same New Destination Control Statement on November 15, 2016

September 6th, 2016 by Danielle McClellan

By: John Black

In the August 17, 2016 Federal Register the Bureau of Industry and Security (BIS) and the Directorate of Defense Trade Controls (DDTC) announced that effective November 1, 2016, the same Destination Control Statements (DCS) will be required for exports under the Export Administration Regulations (EAR) and exports under the International Traffic in Arms Regulations (ITAR).  The good news is that exporters no longer will have to use one statement for EAR exports and a different statement for ITAR exports.

The bad news is neither the current EAR DCS nor the current ITAR DCS will be required under the new rules.  When it comes to reprogramming our software that prints documents, it might have been easier if the government had chosen one of the existing statements already in use.  On the other hand, several adjustments to the ITAR and EAR will make life easier for exporters in the long run.

 

Practical Considerations When Implementing the Change

As you prepare to comply with the requirement to comply with the new rules beginning on for the November 15, 2016, here are some important considerations.

 

The New DCS:

‘‘These items are controlled by the U.S. Government and authorized for export only to the country of ultimate destination for use by the ultimate consignee or end-user(s) herein identified. They may not be resold, transferred, or otherwise disposed of, to any other country or to any person other than the authorized ultimate consignee or end-user(s), either in their original form or after being incorporated into other items, without first obtaining approval from the U.S. government or as otherwise authorized by U.S. law and regulations.’’

 

(Interestingly to me, the EAR Federal Register notice does not put a period after the last word “regulations” in the EAR DCS while the ITAR Federal Register notice does place a period after the last word “regulations” in the ITAR DCS.  I doubt anybody else noticed that.  I also doubt this is a deliberate conspiracy by DDTC and BIS to set up exporters who do not properly include or not include the period in their DCS.)

 

When the DCS Is Required:

  • ITAR:  For all defense articles exported in tangible form
  • EAR:  For all items exported in tangible form except a DCS is not required for EAR99 items and items eligible for license exceptions BAG or GFT.

 

ITAR and EAR DCS Required only for Tangible Shipments.  A DCS is not required for items being exported in intangible form such as electronic, oral or visual exports.

 

Where Do You Have to Put the DCS:   The new DCS must be put on the commercial invoice, and not on the airway bill, bill of lading, or other documents.

 

Other Information You Must Put on the Commercial Invoice:  The ITAR and EAR will require the following be put on the commercial invoice, in addition to the DCS:

 

  • ITAR:  1) The country of ultimate destination,

2) The end-user, and

3) The license or other approval number or exemption citation.

  • EAR:    The ECCN for any 9×515 or 600 series items

 

Information Required When Using ITAR Authorizations to Export EAR-Controlled Items:  The new rule clearly requires that when an ITAR license or authorization (exemption) is used to export EAR controlled items, the exporter must give the ECCN or EAR99 classification for each EAR-controlled item to the end-user and consignees.

Removal of Special Requirements for Certain EAR Exports to India:  The new EAR rule will remove the special DCS requirement for exports to India of items controlled for crime control column 1 or 3 reasons or regional stability column 2 reasons.

Other ITAR Changes

Exports of EAR Items under ITAR Exemptions:  The rule clarifies that EAR Items may be exported under ITAR exemptions only if they are being shipped with ITAR items.

Changes to Required Language in ITAR Agreements and Transmittal Letters:  The rule makes several changes to the required language and clauses in ITAR agreements and transmittal letters.

To see the new EAR and ITAR rules, go to http://www.bis.doc.gov/index.php/regulations/federal-register-notices#fr54721

BIS Revises Penalty Structure

August 9th, 2016 by Danielle McClellan

By: Danielle McClellan

Effective July 22, 2016, The Bureau of Industry and Security (BIS) has updated its Guidance on Charging and Penalty Determinations in Settlement of Administration Enforcement Cases (Supplement No. 1 to Part 766 of the EAR).

Both BIS and the Treasury Department’s Office of Foreign Assets Control (OFAC) use the International Emergency Economic Powers Act (IEEPA) to administer sanctions programs. The goal of this BIS change is to make the civil penalty determinations more predictable and transparent as well as be aligned with OFAC’s penalties.

Under IEEPA, criminal penalties can reach 20 years imprisonment and $1 million per violation, and administrative monetary penalties can reach $250,000 or twice the value of the transaction, whichever is greater. These final rules will not apply to civil administrative enforcement cases for violations under Part 760 of the EAR— Restrictive Trade Practices and Boycotts. Supplement No. 2 to Part 766 continues to apply to enforcement cases involving part 760 violations. This guidance also will not apply to pending matters where, as of July 22, 2016, there are ongoing settlement negotiations and a charging letter has not been filed.

Comments related to this final rule are available in the Federal Register Notice.

Federal Register Notice: https://www.gpo.gov/fdsys/pkg/FR-2016-06-22/pdf/2016-14770.pdf

Justice Department Publishes Major Export Enforcement Cases

August 9th, 2016 by Danielle McClellan

(Source: Justice)

The link below provides a brief description of some of the major export enforcement, economic espionage, theft of trade secrets, and embargo-related criminal prosecutions by the Justice Department since January 2008. These cases resulted from investigations by the Homeland Security Investigations (HSI) [formerly Immigration and Customs Enforcement, (ICE)], the Federal Bureau of Investigation (FBI), the Department of Commerce’s Bureau of Industry and Security (BIS), the Pentagon’s Defense Criminal Investigative Service (DCIS), and other law enforcement agencies. This list of cases is not exhaustive and only represents select cases.

The Department of Justice, National Security Division, has posted its “SUMMARY OF MAJOR U.S. EXPORT ENFORCEMENT, ECONOMIC ESPIONAGE, TRADE SECRET AND EMBARGO-RELATED CRIMINAL CASES (January 2009 to the present: updated August 12, 2015)” at the DOJ website.