Archive for the ‘USA Regulations’ Category

USML Categories VIII, XII, and XV Amended and Some Items Shifting to CCL

Tuesday, November 15th, 2016 by Danielle McClellan

The Department of State has published a final rule that will be effective December 31, 2016 that will revise Category XII (fire control, laser, imaging, and guidance equipment) of the U.S. Munitions List (USML) to remove certain items from control on the USML and to describe more precisely the articles continuing to warrant control on the USML. The Department of State also amends USML Categories VIII, XIII, and XV to reflect that items previously described in those Categories are now controlled under the revised Category XII or Commerce Control List. Further, the Department revises USML Category XI to move items to the CCL as a result of changes to related control in USML Category XII. The Export Administration Regulations (EAR) amends Export Control Classification Number (ECCN) 7A611 and creates a new ‘‘600 series’’ ECCNs 7B611, 7D611, and 7E611. In addition, for certain dual-use infrared detection items, this final rule expands controls for certain software and technology, eliminates the use of some license exceptions, revises licensing policy, and expands license requirements for certain transactions involving military end users or foreign military commodities. This final rule also harmonizes provisions within the EAR by revising controls related to certain quartz rate sensors.

ITAR Changes Below:

Section 121.1 is amended by:

  • Removing and reserving paragraph (e) in U.S. Munitions List Category VIII;
  • Revising paragraphs (a)(3)(ii) and (a)(10) of U.S. Munitions List Category XI;
  • Revising U.S. Munitions List Category XII; Removing and reserving paragraph (a) in U.S. Munitions List Category XIII; and
  • Removing and reserving paragraph (c) in U.S. Munitions List Category XV

Federal Register: https://www.gpo.gov/fdsys/pkg/FR-2016-10-12/pdf/2016-24225.pdf

 

EAR Changes Below:

  • Part 734
    • Section 734.4 is amended by removing and reserving paragraph (a)(3) and revising paragraph (a)(5).
  • Part 740
    • Section 740.2 is amended by adding paragraph (a)(7) and removing and reserving paragraph (a)(9).
    • Section 740.16 is amended by revising paragraphs (a)(2) and (b)(1) through (3)
    • Section 740.20 is amended by revising paragraphs (b)(2)(ii) and (b)(2)(x)
  • Part 742
    • Section 742.6 is amended by revising paragraph (b)(1)
  • Part 744
    • Section 744.9 is amended by revising the section heading and paragraphs (a) and (b)
  • Part 772
    • Section 772.1 is amended by revising the last sentence in Note 1 to the definition of ‘‘specially designed’’
  • Part 774
    • In Supplement No. 1 to part 774, Category 0, ECCN 0A919 is amended by revising the Items paragraph of the List of Items Controlled section
    • In Supplement No. 1 to part 774, Category 0, ECCN 0A987 is amended by:
      • Revising the Related Controls paragraph in the List of Items Controlled section;
      • Revising paragraph f. in the Items paragraph in the List of Items Controlled section; and
      • Adding a note to 0A987.f
    • In Supplement No. 1 to part 774, Category 2, ECCN 2A984 is amended by revising the heading and Note 1 of the Related Controls paragraph in the List of Items Controlled section
    • In Supplement No. 1 to part 774, Category 6, ECCN 6A002 is amended by:
    • Removing the ‘‘Special Conditions for STA’’ section; and
    • Revising the Related Controls paragraph in the List of Items Controlled section.
    • In Supplement No. 1 to part 774, Category 6, ECCN 6A003 is amended by:
      • Adding a License Requirement Note in the License Requirements section;
      • Revising notes 3 and 4 in the Related Controls paragraph in the List of Items Controlled section; and
      • Adding note 5 to the Related Controls paragraph in the List of Items Controlled section
    • In Supplement No. 1 to part 774, Category 6, ECCN 6A004 is amended by revising the Related Controls paragraph in the List of Items Controlled section
    • In Supplement No. 1 to part 774, Category 6, ECCN 6A005 is amended by revising the last two sentences in the Related Controls paragraph in the List of Items Controlled section
    • In Supplement No. 1 to part 774, Category 6, ECCN 6A007 is amended by revising the Related Controls paragraph in the List of Items Controlled section
    • In Supplement No. 1 to part 774, Category 6, ECCN 6A008 is amended by revising the Related Controls paragraph in the List of Items Controlled section
    • In Supplement No. 1 to part 774, Category 6, ECCN 6A107 is amended by revising the Related Controls paragraph in the List of Items Controlled section
    • In Supplement No. 1 to part 774, Category 6, ECCN 6A611 is revised
    • In Supplement No. 1 to part 774, Category 6, ECCN 6A990 is revised
    • In Supplement No. 1 to part 774, Category 6, ECCN 6A993 is amended by revising the Related Controls paragraph in the List of Items Controlled sectionn Supplement No. 1 to part 774, Category 6, ECCN 6D002 is amended by revising the TSR paragraph in the List Based License Exceptions section and the Related Controls paragraph in the List of Items Controlled section
    • In Supplement No. 1 to part 774, Category 6, ECCN 6D003 is amended by revising the TSR paragraph in the List Based License Exceptions section and the Related Controls paragraph in the List of Items Controlled section
    • In Supplement No. 1 to part 774, Category 6, ECCN 6D991 is revised
    • In Supplement No. 1 to part 774, Category 6, ECCN 6E001 is amended by revising the TSR paragraph in the List Based License Exceptions section and the Related Controls paragraph in the List of Items Controlled section
    • In Supplement No. 1 to part 774, Category 6, ECCN 6E002 is amended by revising the TSR paragraph in the List Based License Exceptions section and the Related Controls paragraph in the List of Items Controlled section
    • In Supplement No. 1 to part 774, Category 6, The following ECCNs will be amended by revising the Related Controls paragraph in the List of Items Controlled section
      • ECCN 6E990
      • ECCN 7A001
      • ECCN 7A002
      • ECCN 7A003
      • ECCN 7A005
      • ECCN 7A101
      • ECCN 7A102
    • In Supplement No. 1 to part 774, Category 7, ECCN 7A611 is revised
    • In Supplement No. 1 to part 774, Category 7, ECCN 7A994 is revised
    • In Supplement No. 1 to part 774, Category 7, add ECCN 7B611 between ECCNs 7B103 and 7B994
    • In Supplement No. 1 to part 774, Category 7, add ECCN 7D611 between ECCNs 7D103 and 7D994
    • In Supplement No. 1 to part 774, Category 7, add ECCN 7E611 between ECCNs 7E104 and 7E994
    • In Supplement No. 1 to part 774, Category 7, ECCN 7E994 is amended by revising the Related Controls paragraphin the List of Items Controlled section
    • In Supplement No. 1 to part 774, Category 8, ECCN 8A002 is amended by adding a sentence to the end of the Related Controls paragraph in the List of Items Controlled section
    • In Supplement No. 1 to part 774, Category 9, ECCN 9A991 is amended by:
      • Removing the License Requirement Notes paragraph in the License Requirements section, and
      • Revising the Related Controls paragraph in the List of Items Controlled section.

Federal Register: https://www.gpo.gov/fdsys/pkg/FR-2016-10-12/pdf/2016-24220.pdf

Want a more detailed overview of these regulation changes? Our Export Control Reform for USML Category XII: Fire Control, Laser, Imaging, and Guidance Webinar will cover the following:

  • Significant changes to USML Category XII and corresponding revisions to Categories VIII, XI, XIII, and XV, which will result in some items moving off the USML
  • What the definition of “specially designed” really means for classification purposes, and how Category XII has introduced a new concept of “specially designed for a military end-user”
  • How to classify formerly ITAR-controlled items on the Commerce Control List, especially the new and revised “600 series” Export Control Classification Numbers (ECCNs) (7A611, 7B611, 7D611, and 7E611)
  • Adjustments to several related non-600 series ECCNs is CCL Categories 0, 2, 6, 7, 8, and 9
  • License exception eligibility for these items, including important changes to License Exceptions APR, GOV, and STA
  • Revisions to unique EAR military end use and end user controls
  • The actions exporters should take now to prepare for the rapidly approaching effective date of these changes

Learn More at: http://www.learnexportcompliance.com/Webinars/Export-Control-Reform-for-USML-Category-XII-Fire-C.aspx

DDTC Corrects July 1 Category XI Amendments

Wednesday, February 4th, 2015 by Brooke Driver

By: Brooke Driver

In December, the State Department released corrections to its July 1 revisions of the USML Category XI (Military Electronics). The changes are minor and meant to clarify the original rule and included revisions of certain text, conforming updates to Supplement No. 1 to part 126 and a few alterations to section 126.6. The section has been altered to remove subparagraphs (c)(4) and (c)(7)(iv) and revise subparagraph (c)(6)(ii) to replace the obsolete term “Shippers Export Declaration” with “Electronic Export Information.”

Confession: Good for the Soul, but Bad for Business?

Thursday, November 6th, 2014 by Brooke Driver

By: Stephen Wagner

A few days ago, your company filed a voluntary disclosure with the Directorate of Defense Trade Controls stating that you violated the ITAR in an export transaction. Your in-house counsel told you that you had to file quickly and that you were legally obligated to disclose your violation voluntarily. You really didn’t have time to do anything other than gather all of the documents related to the transaction and send those papers to the government along with a summary of what happened and what you had done to fix the problem.

Last night, you told this story to a friend who is a criminal defense lawyer. She shocked you by asking why you would EVER voluntarily “confess to a crime.” Your legal department told you that you would escape serious legal liability by making the voluntary disclosure to the DDTC. But now you are not so sure.

Did your company do the right thing, or did you just make a serious mistake?

The question of whether or not a company should make a disclosure to the government in any regulatory matter – including exports, imports, food and drug, anti-money laundering – should never be evaluated in normative, ethical constructs of doing the “right” or the “wrong” thing. Instead, a company should carefully consider all of the business and legal implications of disclosure and then decide. If your company did that here, then the decision would always be the “right thing,” regardless of whether you ended up making the disclosure or not.

In your particular case, however, it doesn’t sound like your company carefully evaluated all of the angles before dashing off a letter to Washington.

Federal regulations provide for the voluntary disclosure of compliance violations by exporters, and making such disclosures can be very beneficial in enforcement matters. The Office of Export Enforcement, Bureau of Industry and Security notes that a voluntary disclosure will be given “great weight” as a mitigating factor in administrative sanction decisions. The Office of Foreign Assets Control (OFAC) states that voluntary self-disclosure will result in a capping of maximum penalties at 50% of their normal level. (31 C.F.R. § 501, App. A.) U.S. Customs and Border Protection offers similar, strong mitigation of administrative penalties for voluntary disclosures in matters involving Automated Export System (AES) violations under the Census regulations (15 C.F.R. § 30.74, CBP Dec. 08-50 (“Extraordinary Mitigating Factor”)).

But these benefits of voluntary disclosures are not automatically accorded by all export enforcement agencies. DDTC regulations state, “the Department may consider a voluntary disclosure as a mitigating factor in determining the administrative penalties, if any, that should be imposed” (22 C.F.R. § 127.12(a) (emphasis added)). Therefore, it is possible that no mitigation of administrative penalties may occur upon the filing of a voluntary disclosure under the ITAR.

The fundamental truth is that a voluntary disclosure is an admission that your company has violated export control laws. A company must be aware, therefore, of the ramifications of a voluntary disclosure:

  • It will result in an investigation of the company and its export activities.
  • It most likely will result in sanctions which can range from a warning letter up to significant fines and even jail time.
  • If a disclosure (or the subsequent investigation) reveals other violations (e.g., of tax laws or securities laws), those matters will be referred to other enforcement agencies.
  • If a disclosure reveals the clear intent of a company to violate export laws and/or egregiously violative activities, the case most likely will be referred to the Justice Department for criminal prosecution (in addition to administrative sanctions).

While the voluntary disclosure can significantly mitigate sanctions and even convince an agency to proceed administratively instead of criminally in some circumstances, every effect on the company must still be considered before making the disclosure.

What Should Companies Consider?

Given the significant risks and benefits involved in voluntary disclosures, what should companies consider when evaluating whether to make such a disclosure? There are myriad factors and many are particular to the company, its compliance history and the particular facts of the violation(s); however, the following are some important elements that must be considered by every exporter:

  • Is Disclosure Required? Under some circumstances, voluntary disclosure is not just a good idea, but is required by law. For example, under 22 C.F.R. §126.1(e) (ITAR), “Any person who knows or has reason to know of such a final or actual sale, export, transfer, reexport or retransfer of such articles, services or data [to certain listed, embargoed countries] must immediately inform the Directorate of Defense Trade Controls” (Emphasis added). In fact, the ITAR regulation’s general policy statement would seem almost to compel voluntary disclosure: “Failure to report a violation may result in circumstances detrimental to U.S. national security and foreign policy interests, and will be an adverse factor in determining the appropriate disposition of such violations” (22 C.F.R. § 127.12(a) (emphasis added)).
  • Will the Government find out about the violation anyway? A company must ask itself whether, absent disclosure, the Government will likely find the violation on its own. If your company has aggressive competitors or disgruntled employees who may learn of the violation and contact enforcement officials, the odds of discovery increase. Similarly, if the violation involved a recurring transaction or an item that may be returned for repair or replacement, the Government is more likely to find out about the violation eventually. If the chance for discovery is higher, you might as well disclose the violation(s) to take advantage of potential mitigation of sanctions. Voluntary disclosure can also avoid an inference of a company’s intent to violate export control laws (in a potential criminal investigation) when the violation was, in fact, an accident or unintended.
  • Is this an isolated or recurring issue? Does it involve potentially criminal activity? Before making a disclosure of an export violation, a company needs to know all of the facts surrounding the issue. Since the Government will launch a complete investigation upon receiving the voluntary disclosure, your company needs to thoroughly investigate the transaction(s) and audit its export compliance program to determine if there is a systemic problem, or if criminal activity is present. Factors such as these could significantly increase penalties and even result in prison sentences for company employees; all things you will want to know before making the disclosure.
  • What are the effects of disclosure on other aspects of my business? Voluntary disclosures can result in public pronouncements (charging letters, consent agreements) that can adversely affect a company’s goodwill (and revenues). Moreover, disclosures of export violations may implicate potential issues in import transactions, tax returns, accounting records, shareholder and Securities and Exchange Commission (SEC) disclosures. Making a voluntary disclosure without a complete understanding of the nature of the violation(s) and the ripple effects on your business is playing Russian roulette with your company’s future.

The fact of the matter is that voluntary disclosure is a double-edged sword. It can be a powerful way for an exporter to “clean the slate” of its violations and greatly mitigate penalties. It can also launch a Government investigation (of a matter the Government may never have found on its own) and serve as your signed confession to a federal crime. However, for these reasons, even if your company has an in-house attorney, you may want to consult with an unbiased outside counsel before deciding whether to make a prior disclosure.

For more detailed information on the business and legal issues surrounding voluntary self-disclosure of export control violations, please join us for “Voluntary Disclosure: The Messy Issues on ‘Coming Clean,'” a webinar to be held on December 4, 2014. Click here for more information and to register.

Determining Classification After U.S. Export Control Reform: The reexporter’s guide to determining US export license requirements in a reformed world

Wednesday, August 27th, 2014 by Brooke Driver

By: Scott Gearity

— originally published in the World ECR…the journal of export controls and sanctions

This article is the second in a series of articles examining how U.S. export control reform impacts non-US firms. In the last installment, we introduced readers to this subject with a step-by-step guide to the application of U.S. export controls outside the U.S. In this and future articles, we will introduce case studies in export control reform and identify answers to common questions.

As U.S. exporters acclimate to the major changes to their country’s export control system, which began to come into effect last year, many non-U.S. firms affected by export control reform are just starting to appreciate what the new rules mean to them.

To illustrate some of the issues facing non-U.S. companies as a result of the U.S. reforms, consider a scenario involving a fictional Belgian aerospace and defense firm, which we will call “EuroAero.” EuroAero is the prime contractor for a fourth-generation fighter aircraft assembled in Belgium. Since the inception of the program, EuroAero has purchased the aircraft canopy actuator from its longtime U.S. supplier California Actuation. The actuator is made to EuroAero’s specifications in order to fit properly and integrate with the other components of the canopy assembly. California Actuation has always obtained U.S. Department of State licenses to authorize the export of the actuators to Belgium and onward to the various governments operating the aircraft.

EuroAero’s legal director calls you into his office. You immediately notice a newspaper clipping about U.S. export control reform on her desk. She says, “I just read this article about the new U.S. export control regulations and I have a few questions: Will these U.S.-origin actuators still be controlled by the Department of State under the International Traffic in Arms Regulations? If not, will they be controlled at all by the U.S.?”

How do you answer her?

Answers

The ITAR now takes a very different approach to controls on aircraft parts and components then it did prior to October 15, 2013, when U.S. reforms began to come into effect. In the past, the U.S. Munition List took a very general, vague approach to controls on these items. A handful of things were identified by name, but virtually any aircraft part could be subject to strict Department of State controls in USML Category VIII(h) if it were “specifically designed or modified” for a military aircraft. (And the U.S. Government never defined what was meant by “specifically designed or modified,” resulting in widely varying interpretations by exporters and reexporters).

Under export control reform, that is no longer the case. Now, there are only two ways in which an aircraft part may be controlled on the USML: either it is (a) “specially designed” for a handful of the most advanced U.S.-origin aircraft types, such as the B-2, F/A-18E/F/G or F-35 or (b) actually identified by characteristics or functions in a specific entry within Category VIII(h). A few examples of these items, which are now enumerated on the USML, are automatic rotor blade folding systems, weapons pylons and air-to-air refueling systems. In some instances, specially designed parts and components of these identified items are also ITAR-controlled.

Now let’s apply these concepts to EuroAero – a Belgian firm procuring a canopy actuator for their modern fighter aircraft. This is an aircraft component, so we review USML Category VIII(h). Since the actuator is made to EuroAero’s specifications for their aircraft, it is highly unlikely that it could be considered “specially designed” for one of the U.S. aircraft types listed in paragraph (h)(1). Next, we turn our attention to the items described in paragraphs (h)(2)-(26). None of these controls mention either canopies or actuators more generally. The probable conclusion – this actuator is no longer controlled under the ITAR. (It is worth noting that it is still possible to have an ITAR-controlled actuator if, for example, that actuator is “specially designed” for an automatic rotor blade folding system.)

The ITAR may no longer control this actuator, but that does not mean that no U.S. export controls apply to it.

To identify the relevant controls, the next step is to review the Commerce Control List within the Export Administration Regulations, in particular the new 600 series Export Control Classification Number 9A610, which was created largely to control military aircraft and related items no longer described on the USML. Some paragraphs of ECCN 9A610 do identify specific aircraft components (e.g. aircrew life support equipment in 9A610.g and certain radar altimeters in 9A610.v), but catch-all paragraph ECCN 9A610.x is now one of the most common classifications for military aircraft parts.

ECCN 9A610.x controls virtually any part, component, accessory or attachment “specially designed” for a military aircraft controlled in USML Category VIII(a) or ECCN 9A610.a, which is not otherwise controlled on the USML or by ECCN 9A610.y. If the canopy actuator is “specially designed” for EuroAero’s fighter jet, ECCN 9A610.x is now the most likely classification. Of course, in practice you would want to confirm this with the actuator manufacturer.

Scott Gearity will be discussing classification for European companies as well as many other important topics at ECTI’s “US Export Controls on Non-US Transactions” seminar in Amsterdam in October 2014.

Reexporting No License Required: The reexporter’s guide to determining US export license requirements in a reformed world

Wednesday, August 27th, 2014 by Brooke Driver

By: Scott Gearity

— originally published in the World ECR…the journal of export controls and sanctions

This article is the third in a series of articles examining how U.S. export control reform impacts non-US firms. In this and future articles, we will introduce case studies in export control reform and identify answers to common questions.

The Case: Reexporting No License Required

There are many unpleasant aspects to applying the International Traffic in Arms Regulations (ITAR), but determining license requirements is not one of them. If an item is a defense article described by the U.S. Munitions List (USML), exporting it from the U.S. requires a Department of State license perhaps 99 percent of the time (with the remaining one percent permitted by exemption). Outside the U.S., where most ITAR exemptions are unavailable, the proportion of retransfers requiring specific authorization is probably even higher. The basic rule is simple – if the item is ITAR-controlled, expect to need a license. Simple, yes, but also quite burdensome.

Now, enter the Export Control Reform Initiative (ECR). How do the recent U.S. regulatory adjustments affect the license requirements applicable to reexports of items now subject to the Export Administration Regulations (EAR)?

To better understand the answer to this question, imagine a fictional Belgian aerospace and defense firm known as EuroAero. EuroAero has been working diligently with its suppliers to reclassify various U.S.-origin components in its inventory to reflect ECR changes. Among the recently reclassified items are the following:

Part No. Description ECCN
34507 fuel tank 9A610.x
43900 check valve 9A610.y.4
84366 armored truck 0A606.b.1

 

The business team is pursuing opportunities to sell these products in Canada, Poland and Qatar. The team needs to set customer expectations for lead times, and U.S. reexport license requirements are an important factor. Your assignment is to advise them as to which of these items may be shipped No License Required (NLR) to each of the three prospective destinations.

The response:

In contrast to ITAR-controlled defense articles, reexporters may ship many EAR-controlled items NLR. This is true even for items classified in some of the new 600 series Export Control Classification Numbers (ECCNs). The determination mainly depends on the item’s ECCN and the country of destination. NLR is not merely a statement that no specific, advance approval of the Bureau of Industry and Security (BIS) is necessary; it is a reexport authorization in and of itself on par with a BIS license or regulatory license exception.

First, consider the fuel tank classified in ECCN 9A610.x, a common classification for parts specially designed for a military aircraft, but which are not controlled on the USML. The “License Requirements” section of the ECCN tells us that items classified 9A610.x are controlled for four reasons – National Security (NS1), Regional Stability (RS1), Anti-terrorism (AT1) and United Nations (UN) Embargo. By cross-referencing the reasons for control against the EAR’s Commerce Country Chart, we learn that none of these reasons for control apply to Canada, but NS and RS are each applicable to Poland and Qatar. This fuel tank is eligible for NLR reexport to Canada, but not to Poland or Qatar. Parts described by ECCN 9A610.x are highly controlled. In fact, Canada is the only NLR-eligible destination.

The next part in EuroAero’s classification matrix is a check valve with an ECCN of 9A610.y.4. Despite sharing the same base ECCN as the fuel tank classified 9A610.x, the only applicable reason for control for the .y paragraph of ECCN 9A610 is AT1. Referring again to the Country Chart, we note that AT1 controls are inapplicable to all three of the countries of interest. Therefore, the check valve is NLR-eligible for shipment to Canada, Poland and Qatar.

Finally, there is the matter of the armored truck classified in ECCN 0A606.b.1. NS, RS, AT and UN reasons for control all apply to this truck. But, importantly, the NS and RS controls are each of the Column 2 variety, which do not apply to a much larger group of countries than the corresponding Column 1 controls. So the armored truck is eligible for NLR reexport to both Canada and Poland, but not to Qatar.

Three different items – all controlled by new 600 series ECCNs – and in each case subject to a different set of determinations for reexporting without a license.

It is important to remember that NLR eligibility does not necessarily mean that EuroAero can actually make the reexport NLR. Other factors, such as a problematic end-use or an ineligible end-user might intervene. Also beware other EAR restrictions which are not handled by the Country Chart, such as the blanket prohibition on the reexport of 600 series items (including those classified in a .y paragraph) to China.

Cold War II: The Economic Battle Against Russia Continues

Friday, May 23rd, 2014 by Brooke Driver

By: Brooke Driver

In alignment with his goal of creating economic instability in Russia by cutting off American support, President Obama released a list of denied persons, mainly consisting of high-ranking officials in President Vladimir Putin’s inner circle. The president recently added to that list, and both the State and Commerce Departments have responded accordingly.

Expanding the scope of the first round of sanctions, this round of sanctions against Moscow will target not only a number of additional parties and companies closely related to Putin, but Russia’s defense industry as a whole. According to President Obama,

“It is important for us to take further steps sending a message to Russia that these kinds of destabilizing activities taking place in Ukraine have to stop.” And, while Obama has continued to withhold direct military support to Ukraine by refusing to meet the country’s demand for weapons, according to deputy national security advisor Tony Blinken, the United States will offer substantial monetary aid to the country. The president will coordinate with his allies and the World Bank to gather an estimated $37 billion to support Ukraine in its fight against Russia.

For their part, the State department has executed Obama’s order to cut off licensure for Russian entities, as stated by State Department spokeswoman Jen Psaki:

“Effective immediately, the Department’s Directorate of Defense Trade Controls (DDTC) will deny pending applications for export or re-export of any high technology defense articles or services regulated under the U.S. Munitions List to Russia or occupied Crimea that contribute to Russia’s military capabilities…In addition, the Department is taking actions to revoke any existing export licenses which meet these conditions.”

Likewise, the Commerce Department has promised to deny any applications for the export/re-export to Russia of any high technology products that could contribute to the country’s militant efforts and stated its intent to revoke relevant existing licenses. In addition, BIS has added 13 Russian and Crimean companies suspected of aiding the Russian military to its denied parties list.

A Modest Post-ECR Proposal

Monday, March 31st, 2014 by Brooke Driver

By: Scott Gearity

A longer and more technical U.S. Munitions List. Dozens of new Export Control Classification Numbers. A 1,588 word Export Administration Regulations definition of “specially designed” (the International Traffic in Arms Regulations manage a definition of the same term in a comparatively brief 987 words). A license exception (STA) with enough limitations and conditions to leave even the most grizzled ITAR veteran fondly recalling her DSP-5-related repetitive stress injury.

All are consequences of the recent revisions to the ITAR and EAR. The Obama Administration’s approach to Export Control Reform is largely succeeding in its aims to refashion the US export control system in a more sensible, more reasonable and less ambiguous direction. But, by this stage, it should be clear to even the not-so-keen observer that riding along with these very real and not to be understated improvements is an unwelcome passenger – increased complexity. Administration advocates for the reform initiative might argue that more complexity is the unavoidable tradeoff for enhanced transparency and flexibility. Many in industry would likely agree that the ECR changes are very welcome overall, and they would be loath to insist upon anything that could upset this steadily accelerating applecart.

No one seriously doubts the necessity of export control regulations. Still, regulatory complexity is unwelcome, regardless of what is being regulated. It increases the cost of compliance. And, as with anything else, when the “cost” of compliance increases, people can be expected to “buy” less of it. There is another, more insidious downside to overly complex regulations. They tend to breed contempt among the regulated. When well-intentioned, intelligent and diligent exporters feel little choice but to rely upon expensive attorneys or consultants to understand and interpret the rules for them, should we be surprised if the exporters develop a sense of cynicism about the regulations? That is a problem, because some strategic trade controls are very important (a category which certainly includes most defense articles described in amended USML categories and many 600 series items). All else equal, simpler rules are better.

If we assume that ECR as presently conceived will continue apace, the question is this – what else can be done to offset the added complexity introduced by the reform process? This is my modest proposal:

BIS should remove from the CCL every commodity, software and technology controlled exclusively for purported “anti-terrorism” reasons. Just get rid of them all.

You have likely encountered the controls to which I refer, which date, in their current format if not all the details, to the major restructuring of the EAR in 1996. These are the ECCNs which capture such advanced technologies as Clinton Administration-vintage PCs (4A994), 737 lavatory faucets (9A991), drugstore-bought disposable waterproof cameras (8A992) and that new Xbox One you just bought your kid (5A992). There are also cell phone antennas (5A991), the stainless steel pipes under your kitchen sink (2B999) and that GPS-enabled wristwatch you wear while jogging after work to offset the eight hours you just spent chained to your desk while painstakingly classifying low-end, mass-produced consumer goods (7A994).

These restrictions might (emphasis on might) have had some real meaning back when the list of countries subject to AT controls (effectively Cuba, Iran, North Korea, Sudan and Syria) was different from the list of countries subject to general export bans (also Cuba, Iran, North Korea, Sudan and Syria), but in today’s environment, they have very limited impact. Anti-terrorism, as an EAR reason for control, fails any regulatory cost-benefit analysis. And nothing is more frustrating (not to mention pointless) than regulations which serve little or no purpose. Does anyone really believe that AT controls do anything to reduce the actual risk of terrorism?

The benefits of giving the CCL the Biggest Loser treatment are clear: (1) fewer ECCNs means quicker, more accurate classifications by exporters; (2) as with ECR, concentrating controls on the more important technologies will improve respect for and compliance with the parts of the EAR which actually matter; and (3) this change will support a more level playing field with U.S. allies, who do not generally include these sorts of commonplace items on their control lists. If BIS is looking for a next act after completing the transition of items from the USML to the CCL, axing AT controls is a good place to start.

DDTC Updates DS-2032 Statement of Registration Form: Older Versions No Longer Accepted

Wednesday, December 4th, 2013 by Brooke Driver

By: Brooke Driver

As of October 25, the State Department has introduced version 4.0 of the DS-2032 form. Be advised that older versions of the form are no longer valid. You may submit the new form electronically, through EFS, or through the mail until December 31, 2013. As of New Year’s Day, however, the form will only be accepted electronically. The changes to the form include the ability for U.S. persons to consolidate manufacturer, exporter and broker registrations, updates to ITAR USML Categories, disclosure of intermediate through ultimate parents, a certification regarding debarred or subsequently reinstated parties and a certification on violations involving any U.S. criminal studies, as well as clarification on foreign ownership.

Ameron International pays $434,700 for Illegal Transactions with Iran and Cuba

Wednesday, December 4th, 2013 by Brooke Driver

By: Brooke Driver

Ameron International Corporation of Pasadena, California recently settled with OFAC for violations of both the Iranian Transactions and Sanctions Regulations and the Cuban Assets Control Regulations that occurred between March 14, 2005 and October 5, 2006. Ameron was accused of:

  • Approving its Singapore and Dutch subsidiaries’ requests to purchase tools and equipment necessary for them to fulfill orders for a South Pars project located in Iran,
  • Passing along to its subsidiaries Iranian business opportunities in order to sidestep preventative U.S. Government regulations, and
  • Providing testing results to its Singapore subsidiary, despite the fact that Ameron professionals had reason to believe that they would be sent to the Iranian company Arvand Petrochemical.

U.S. companies should learn from this case that they may not approve or facilitate another party’s dealings with Iran or Iranian entities. The first two violations above involved the acts of approving subsidiaries requests and passing on business leads. In the third case, Ameron exported tech data to Singapore with knowledge or suspicion that the data was intended to be forwarded on to the Iranian entity.

Ameron also violated the CACR when its Columbian branch sold concrete pipe to a conglomerate that included a Cuban partner.

The company was hit with a relatively significant penalty in this case, because its Iran-related violations involved intentional actions to violate the rules or to try to get around the rules in an illegal fashion. In other words, if you do things wrong on purpose, you pay more.

The base penalty for Ameron’s collected offenses is $690,000. OFAC stated that it arrived at the settlement amount of $434,700 based on the following factors:

  • The case was ruled non-egregious
  • Ameron did not voluntarily disclose
  • Ameron’s management and supervisory staff acted with reckless disregard of U.S. sanctions requirements
  • Ameron had reason to suspect the involvement of the Iranian and Cuban entities in the transactions with its foreign subsidiaries
  • Two of the apparent violations (the approvals of the two capital expenditure requests) caused significant harm to U.S. sanctions program objectives on Iran
  • Many violations involved transactions that were never completed
  • Ameron had not committed any violations in the five years prior to the date of these illegal transactions
  • Ameron has taken remedial steps to improve its compliance program
  • Ameron cooperated with OFAC throughout the investigation

BIS Adapts Some ITAR-Like Policies for Deemed Reexports of Technical Data and Source Code

Wednesday, December 4th, 2013 by Brooke Driver

By: Brooke Driver

BIS has released an updated guidance document regarding deemed reexports of technology, technical data and source code controlled under the EAR. BIS said that this revision addresses the unintentional consequence of the shift of many military items from the ITAR to the EAR. Commerce is making this change, because it discovered that the EAR requires a license in certain situations where the ITAR allows for deemed reexports under the exemptions in 124.16 or 126.18.

In order to make the EAR as generous as the ITAR is to reexporters, BIS has decided to give reexporters three options for deemed reexports:

1)     Follow the longstanding BIS “legacy” guidance regarding deemed reexports; OR

2)    Make license-free deemed reexports consistent with ITAR 124.16; OR

3)     Make license-free deemed reexports consistent with ITAR 126.18.

While ITAR reexporters may be familiar with the ITAR 124.16 and 126.18 exemptions, EAR reexporters likely are unfamiliar with those ITAR exemptions. ITAR and EAR reexporters alike should take a look at the detailed BIS guidance on deemed reexports at:

http://www.bis.doc.gov/index.php/policy-guidance/deemed-exports/deemed-reexport-guidance1

While, of course, three options are more complex than one, the increased options offer reexporters more flexibility. In fact, it is not hard to imagine a scenario where a reexporter may use all of the options, depending on the nationality and technology involved.