International Trade Law News

The Commerce Department's Bureau of Industry and Security (BIS) recently imposed a $31,500 penalty on TFC Manufacturing Inc., a Lakewood, California-based aerospace fabrication facility, for violating the "deemed export" rule.

According to the Settlement Agreement and Proposed Charging Letter, BIS alleged that between March and April 2006, TFC engaged in the unlicensed released in the U.S. of technology for the production of aircraft parts (classified under ECCN 9E991) to an employee who was a national of Iran. Pursuant to the deemed export rule in section 734.2(b)(ii) of the Export Administration Regulations (EAR), the release of technology to a national of Iran is deemed to be the export of the technology to Iran and is prohibited without a license.

This penalty was imposed under the increased penalty provisions of the IEEPA Enhancement Act.

Labels: BIS, Deemed Exports

The National Council on International Trade Development (www.ncitd.org) has announced that its next monthly international trade compliance meeting on May 8, 2008 in Washington, DC will feature the following speakers:

Ms. Hillary Hess
Director, Regulatory Policy Division
Bureau of Industry and Security, U.S. Department of Commerce

Ms. Randy Pratt
Director, Information Technology Controls Division
Bureau of Industry and Security, U.S. Department of Commerce

Ms. Lauren Airey
Legislative Assistant to Rep. Don Manzullo (IL-16)
Speaking on H.R. 5828, the Securing Exports Through Coordination and Technology Act of 2008

For information on how to join NCITD or to attend the meeting, see www.ncitd.org or contact the NCITD Secretariat at 202-872-9280.

Also, it is not too late to sign up for the NCITD's "Free Trade Agreements for U.S. Businesses: A Practical Seminar on how U.S. Free Trade Agreements Work" program on May 7, 2008. Click here for more information.

Labels: AES, BIS

Saturday's New York Times reported on the China International Exhibition on Police Equipment that was sponsored by China's Ministry of Public Security and recently held in Beijing. The article describes the large number of U.S. companies exhibiting at the show and that "the trade show coincided with increasing controversy in the United States over American exports of crime-control equipment to China."

The number of U.S. companies exhibiting at trade show has apparently attracted the interest of the Bureau of Industry and Security:

Asked about the abundant American gear shown at the police equipment trade show, Mario Mancuso, the under secretary of commerce for industry and security, replied with a one-sentence written statement: “Enforcing U.S. regulations on crime control equipment, including the Tiananmen Square Sanctions, is a top priority, and we continually review our regulations to ensure that they effectively support our national security and foreign policy.”

Another Commerce Department official said that questions from The New York Times about American equipment exhibited at the trade show had prompted the department to begin a review of whether American laws might have been broken. The official insisted on anonymity, in keeping with a department policy of not commenting on work that might lead to law enforcement actions.

The department has officials in Beijing and Hong Kong who look for violations of export control laws, but did not try to send anyone into the police equipment trade show.

Labels: BIS, China

The U.S. Department of Commerce's Bureau of Industry and Security (BIS) has announced a series of updates to the Commerce Control List (CCL) as part of a systematic effort to update and refine the U.S. dual-use export control system.

The changes to the CCL were published in the Federal Register last Friday and are the first round of improvements which resulted from a systematic review of the CCL initiated by BIS in 2007, with input from its technical advisory committees and the public. BIS has indicated that it will continue to work with its interagency partners on additional CCL enhancements which were identified during the course of that review.

BIS also announced that it intends to conduct similar systematic CCL reviews in the future, building on the success and lessons learned from the 2007-2008 CCL review. Once the current CCL review is completed, BIS said that it plans to review 1/3 of the CCL each year to create a three year review cycle. BIS noted that the subsequent CCL reviews may allow for a more in-depth analysis of a particular CCL category or industry sector.

BIS has also created an "Establishment of a Regularized Commerce Control List Review Process" web page containing additional information describing the CCL review process. The new site also contains a redlined version of the various recent changes to the CCL.

Labels: BIS, Export Controls

Note: The following article appeared in the Winter 2008 edition of the American Bar Association Section of International Law's International Trade Committee Newsletter and has been reprinted with permission.

Export Misdirection: Cracking Down on Third Country Transshipment Violations

By: Jordan Collins, Esq.*

Transshipment Concerns Aggressively Pursued

Towards the end of 2007, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) reached two civil settlements with U.S. companies that allegedly violated the Export Administration Regulations (EAR). In addition to the two settlement agreements, BIS issued a Temporary Order denying export privileges to a Dutch company. In a parallel proceeding, a criminal complaint was filed against the Dutch company by the Department of Justice (DOJ) for violating US embargoes and making false statements on export control documents.

What makes these cases noteworthy is the common theme - in all three cases, the exporting company tried to disguise prohibited exports to Iran by transshipping the goods through an intermediate destination prior to reaching their ultimate end-user. While transshipment is a commonly used practice in legitimate trade, transshipment can also serve as a strategy to disguise exported goods intended country of destination.

Commerce’s Civil Export Enforcement Initiatives

To help combat transshipment violations, both the Department’s Commerce and Justice have made export control enforcement a growing priority. In 2003, BIS launched the Transshipment Country Export Control Initiative (TECI). According to BIS, TECI was established because:

“The illicit transshipment, re-export, and diversion of goods and technologies in international commerce compromise the effectiveness of U.S. trade agreements and export control laws. In so doing, such illicit transshipments harm U.S. industry, threaten U.S. security, weaken confidence in the international trading regime, and undermine international efforts to liberalize trade.”

BIS has identified a number of countries that are common transshipment hubs, including the United Arab Emirates (UAE), Singapore, Hong Kong, Thailand, Malaysia, Cyprus, Malta, and Panama. A primary country exporters use to illegally transship goods in the Middle East is the UAE. While the UAE is a growing market for legitimate trade, because of its proximity to embargoed countries, the UAE is commonly used by exporters seeking to circumvent U.S. sanctions on Iran, Sudan and Syria.

Over the past few years, the U.S. government has increased pressure on the UAE and other common transshipment countries to clamp down on prohibited transshipments by adopting domestic export control laws. One method the U.S. applied this pressure was by proposing amendments to the EAR in early 2007 that would designate countries as “Destinations of Diversion Concern” in Country Group C. The proposal stated that countries in Country Group C would potentially result in: (1) more license applications required for exports to such countries, (2) more stringent license review policies, (3) delays in authorizations due to increased end-use checks, and (4) decline of authorizations.

As a result of U.S. pressure, UAE’s government subsequently passed a “stringent new export control laws that included stiffer penalties for parties involved in the diversion of controlled shipments.”[1]

Department of Justices’ Criminal Export Control Initiatives

The Department of Justice (DOJ) handles all export-related criminal cases. In June 2007, DOJ appointed Steven W. Pelak, an 18-year veteran federal prosecutor, to serve as the Justice Department’s first-ever National Export Control Coordinator (NECC) to improve the investigation and prosecution of illegal exports of U.S. arms and sensitive technology. The NECC is detailed to the Counter-Intelligence Section of Justice’s National Security Division. Mr. Pelak is also responsible for ensuring full coordination between the Justice Department and the many other U.S. law enforcement, licensing and intelligence agencies that play a role in export enforcement.

The creation of the NECC underscores a trend towards heightened export control enforcement. The U.S. government views export controls as vital tools to protect national security, the last several years witnessed a consistent increase in government resources focused on export enforcement.

U.S. Sanctions on Iran

Exports and re-exports of U.S. origin goods to Iran are subject to comprehensive export controls, due to the nation’s status as an embargoed country since 1977.[2] Such restrictions are governed by regulations issued by both the Treasury Department’s Office of Foreign Assets Control (OFAC) and Commerce’s Bureau of Industry and Security (BIS).

As a general rule, pursuant to OFAC’s Iranian Transactions Regulations[3], U.S companies and individuals are prohibited from exporting all U.S.-origin goods, technology or services directly or indirectly to Iran.[4] However, exceptions have been carved out of the regulations for certain types of humanitarian products, including medicines, medical devices and agricultural commodities which can be exported to Iran upon the receipt of a one-year specific license issued by OFAC pursuant to the Trade Sanctions Export Reform and Enhancement Act of 2000 (TSRA).[5]

The International Emergency Economic Powers Act (IEEPA) is the implementing legislation for most of the economic sanctions programs administered by OFAC.[6] IEEPA was recently amended by the IEEPA Enhancement Act (Enhancement Act), which was signed into law by President Bush in October 2007.[7] The Enhancement Act increased the maximum civil and criminal penalties for violations of economic sanctions imposed under IEEPA, raising the civil penalties to $250,000 or twice the value of the underlying transaction. The criminal penalties have risen from $50,000 and ten years of imprisonment to $1,000,000 and twenty years. This is the second such increase in IEEPA penalties in two years. In March 2006, the maximum civil penalty for violations of IEEPA-based economic sanctions increased from $11,000 to $50,000.[8]

Concurrently, BIS governs the re-export of U.S. origin goods to Iran. Under 15 C.F.R. §764.7 of the EAR, an exporter must obtain a license from the BIS to legally export goods to Iran. However, 15 C.F.R. 742.8(b)(1) states:

“BIS is required to deny licenses for items controlled to Iran for national security or foreign policy reasons absent contract sanctity or a Presidential waiver. License applications for which contract sanctity is established may be considered under policies in effect prior to the enactment of that Act. Otherwise, licenses for such items to Iran are subject to a general policy of denial (Emphasis Added).”

Recent Domestic Enforcement Proceedings

Turning to the recent cases, Jennifer L. Reul-Marr, a resident of Ridgefield, Connecticut, was alleged by BIS to be a co-conspirator involving the re-export of dental equipment (classified as EAR99 under the EAR regulations) to Iran. Ms. Reul-Marr allegedly conspired to export the dental equipment by transshipping the goods to the UAE, an illegal export activity without a proper license.

According to BIS, Ms. Reul-Marr failed to obtain the proper license for such an export, as required by law. Subsequently, BIS brought an enforcement case against Ms. Reul-Marr and issued a proposed charging letter. Ms. Reul-Marr agreed to pay $7,700 to settle this matter. Because Ms. Reul-Marr’s proceeding was instituted before the IEEPA Enhancement Act was signed into law, it was not applicable to her proceeding.

Within the same industry, Centerpulse Dental, Inc. engaged in similar conduct on a larger scale. Centerpulse was charged with 52 counts of exporting dental equipment without the prerequisite governmental licensing required pursuant to both the EAR and OFAC regulations. Zimmer Dental, Inc. was held liable for Centerpulse’s actions as successor-in-interest, and therefore assumed liability for Centerpulse’s alleged export violations.

Like Ms. Reul-Marr, Centerpulse allegedly attempted to export dental equipment to Iran by transshipping the goods through the UAE. Centerpulse/Zimmer Dental received a $175,000 civil penalty under the terms of the settlement agreement. A $75,000 portion of that penalty was suspended for one year, and will be waived if Zimmer Dental commits no further violations of the EAR. Failure to comply with the terms of the settlement agreement would result in the full enforcement of the penalty and the denial of all export privileges for one year.

Although it is not clear whether Ms. Reul-Marr and Centerpulse knew that obtaining a TSRA license from OFAC would have allowed them to legally export dental equipment to Iran, both Ms. Reul-Marr and Centerpulse could have avoided the significant expense, time, and the negative publicity associated with their cases if a specific license had been obtained.

Foreign Entities & Export Proceedings

BIS took a different tactical approach to thwarting a third company from exporting goods to Iran via transshipment through UAE and Cyprus. Aviation Services International, B.V. , a Dutch company located in Heerhugowaard, Netherlands, as well as its subsidiaries and owners individually, were criminally charged with five counts of willful export and attempted transshipment of U.S. origin products to Iran via Poland. Aviation Services allegedly employed elaborate schemes that involved several distinct transactions.

One transaction involved controlled receivers and video transmitters. The respondents claimed that the end-user was the Polish Border Control Agency (PBCA), and the goods were to be used in unmanned aircraft vehicles operated by the PBCA. BIS ultimately determined the end-user was not in fact Poland, but rather Iran. Such a determination was made obvious by fact that the PBCA did not have any unmanned aircraft vehicles in its arsenal, nor had it ever contracted with Aviation Services. Instead, Aviation Services provided false information to the U.S. government, stating that the end-user was Lavantia, Ltd., a Cyprus-based company, known as a transshipment intermediary for Iranian businesses.

Even more covertly, Aviation Services used a shell corporation, Delta Logistics, to facilitate the exportation of polyamide from the U.S to Iran. Again, Aviation Services provided false information to the U.S. in their efforts to illegally transship goods subject to the EAR and ITR to Iran. The Aviation Services case is an excellent example at different techniques employed by a company to circumvent U.S. export law. An ex parte adjudicatory proceeding conducted by BIS determined that the issuance of a Temporary Denial Order (TDO) was warranted pursuant to 15 C.F.R § 764.6(c) of the EAR.[9]

Based on the evidence provided, the TDO was granted by the administrative law judge and Aviation Services had its export privileges denied for 180 days.[10] The criminal enforcement case appears to remain pending as of this writing.

Conclusion

The recent string of cases prosecuted by BIS and DOJ highlights the ongoing attention given to transshipment practices by companies attempting to export goods to Iran without proper governmental approval and licenses. Based upon BIS, OFAC, and DOJ’s efforts, the U.S. government is making it evident that they will continue to pursue transshipment violations to the full extent of the law, regardless of the daunting task enforcement of these complex transactions pose.
_____________________________________

*Jordan Collins is with the Overseas Private Investment Corporation. Please contact Jordan Collins at jordan.collins@gmail.com with comments or questions regarding this article.

[1] For an overview of the new UAE Regulations, see www.wam.org.ae/servlet/Satellite?c=WamLocEnews&cid=1188290221292&p=1135099400295&pagename=WAM%2FWamLocEnews%2FW-T-LEN-FullNews. The law authorizes penalties of up to imprisonment for one year and/or fines totaling over US$270,000 for violating the UAE’s export control law.

[2] On May 6, 1995, President Clinton signed Executive Order 12959, pursuant to the International Emergency Economic Powers Act (50 USC § 1705) as well as the International Security and Development Cooperation Act of 1985 ("ISDCA"), substantially tightening sanctions against Iran.

[3] See 31 C.F.R. § 560. President Reagan, on October 29, 1987, issued Executive Order 12613 imposing a new import embargo on Iranian-origin goods and services. Section 505 of the ISDCA was utilized as the statutory authority for the embargo giving rise to the Iranian Transactions Regulations.

[4] For an overview of OFAC Regulations involving sanctions against Iran, see http://treas.gov/offices/enforcement/ofac/programs/iran/iran.pdf.

[5] Pub. L. No.106 387. (October 28, 2000).

[6] 50 USC § 1701, et al.

[7] Pub. L. No. 110-96 (October 17, 2007).

[8] Pub. L. No. 109-177 (March 9, 2006).

[9] BIS may issue an order temporarily denying to a person any or all of the export privileges described in part 764 of the EAR maybe issued upon a showing by BIS that the order is necessary in the public interest to prevent an imminent violation of the EAA, the EAR, or any order, license or authorization issued thereunder. A violation may be "imminent" either in time or in degree of likelihood. To establish grounds for the temporary denial order, BIS may show either that a violation is about to occur, or that the general circumstances of the matter under investigation or case under criminal or administrative charges demonstrate a likelihood of future violations. 15 C.F.R. § 766.24(a),(c).

[10] 15 C.F.R. § 764(b)(4).

Labels: BIS, Export Controls

Twelve trade-related business organizations today sent a letter to U.S. Secretary of Commerce Carlos Gutierrez expressing their concerns with several recommendations contained in the Deemed Export Advisory Committee's (DEAC) December 20, 2007 report. The letter also warned of the significant negative impact on U.S. technological leadership if certain recommendations contained in the DEAC's report were adopted.

The organizations agreed with the DEAC report findings regarding the difficulty of controlling the global flow of technological knowledge, particularly through the use of unilateral U.S. export control regulations. The organizations also endorsed the report's call for limiting the scope of deemed exports. However, the letter criticized the DEAC report for a lack of guidance in addressing either of these issues.

The letter concluded by urging the Commerce Department to "go back to the drawing board and work closely with industry in developing an approach that will produce a more balanced result."

On February 6th, BIS announced that it completed its review of the DEAC's report and has started working with the Departments of Defense, State and Energy to consider the report's analysis and recommendations as a basis for reforming current deemed export policy. On that same date BIS also announced that it would create an Emerging Technologies Advisory Committee to make recommendations to BIS regarding emerging technologies and improve outreach and engagement efforts to the academic and technology communities about deemed export policies.

The letter sent to Secretary of Gutierrez can be found here .

The full text of the DEAC report, entitled "The Deemed Export Rule in the Era of Globalization" can be found here.

Labels: BIS, Deemed Exports

The Wall Street Journal published an interesting article today entitled "Two U.S. Goals Collide: Free Trade, Security". The article describes how the stepped-up enforcement of laws restricting the release of sensitive technology exports to China and Iran can conflict with efforts to reform and streamline export controls.

Labels: BIS, China, Export Controls, Sanctions; Iran

President Bush's recently proposed budget for fiscal year (FY) 2009 would restore funding to the Commerce Department's Bureau of Industry and Security (BIS) that Congress reduced for FY 2008.

The President's FY 2009 budget requests $83,676,000 million for BIS. In H.R. 2764, the 2008 Consolidated Appropriations Act passed by Congress in late December 2007, Congress appropriated $72,855,000 million to BIS, a $2 million decrease from FY 2007.

The FY 2009 budget includes $14,767,000 for inspections and other activities related to national security and $2.4 million in initiatives to upgrade export enforcement and to ensure compliance through end-user checks in foreign countries. The increased funds in FY 2009 would be used by BIS to increase the number of criminal investigators working on counter-proliferation issues and enhance efforts to stop transshipments of sensitive technologies in Southeast Asia. The 2009 budget also includes funding for the Validated End-User (VEU) initiative.

The proposed FY 2009 budget would permit BIS to hire up to 392 full-time equivalent (FTE) employees, up from 364 FTEs in 2007 and 2008.

The detailed budget proposals for each of the Commerce Department's 12 bureaus or agencies can be found here: www.whitehouse.gov/omb/budget/fy2009/pdf/appendix/com.pdf.

Labels: BIS

The Bureau of Industry and Security (BIS) announced today that it has completed its review of the Deemed Export Advisory Committee's (DEAC) December 20, 2007 report and has started working with the Departments of Defense, State and Energy to consider the report's analysis and recommendations as a basis for reforming current deemed export policy.

While certain proposals under active consideration will require interagency review and support, Under Secretary Mario Mancuso has directed BIS to immediately:

• Create an Emerging Technologies Advisory Committee, composed of representatives from leading research universities, government research labs and industry to make recommendations to BIS regarding emerging technologies on a regular basis; and

• Improve outreach and engagement efforts to the academic and technology communities about the progress and scope of the deemed export policy efforts.

Other recommendations in the DEAC report, such as creating a category of "Trusted Entities", performing an annual "sunset review" of technologies contained on the Commerce Control List and expanding the determination of the national affiliation of potential licensees will require regulatory changes to implement.

The full text of the DEAC report, entitled "The Deemed Export Rule in the Era of Globalization" can be found here.

Labels: BIS, Deemed Exports

The Bureau of Industry and Security (BIS) published a "fix-it" final rule in today's Federal Register correcting a number of errors contained in the November 5, 2007 final rule that implemented changes to the Commerce Control List (CCL) as a result of the Wassenaar Arrangement's 2006 plenary session.

Today's final rule corrects errors in Parts 742 and 744 of the Export Administration Regulations and Categories 1, 3, 6 and 7 of the CCL.

In addition, the November 5th rule indirectly affected an item of the list of eligible items for Authorized Validated End-User (VEU) Applied Materials China, Ltd. This rule corrects that item listing to harmonize with revisions of the November 5th rule.

Exporters that are involved in shipping products classified in Categories 1, 3, 6 and 7 of the CCL should review today's rule to determine whether their products are affected by these changes.

Labels: BIS, Export Controls

The Bureau of Industry and Security (BIS) has announced a new Automated Export System (AES) reporting requirement for exporters using certain license exceptions. Effective April 28, 2008, it will be mandatory to report the Export Control Classification Number (ECCN) on the AES record when using license exceptions TSR, RPL, GOV, GFT, TSU, BAG, AVS, APR, KMI, TAPS and ENC to export goods, technology or software from the United States.

While section 740.1(d) of the EAR currently requires the use of the ECCN "for all shipments of items exported under a License Exception", AES has required the ECCN to be included in the AES record when using license exceptions APP, AGR, CIV, GBS and LVS only.

The complete list of AES license exception codes is as follows:

C35 LVS
C36 GBS
C37 CIV
C38 TSR
C39 CTP
C40 TMPC
C41 RPL
C42 GOV
C43 GFT
C44 TSU
C45 BAG
C46 AVS
C47 APR
C48 KMI
C49 TAPS
C50 ENC
C51 AGR
C53 APP

Failure to include the ECCN when using these codes will result in a "fatal error" message from AES.

The following is the complete list of the BIS, DDTC, OFAC and NRC license exception/exemption codes from CBP's Automated Export System Trade Interface Requirements (AESTIR):


AES License Exception Codes - Get more free documents

Labels: AES, BIS

In an article entitled "High-tech lobby notches victory", today's The Politico, provides a behind-the-scenes look at the efforts leading to last week's Export Controls Directives issued by President Bush. The article notes that:

The directives, announced by the State and Commerce departments, were the result of a yearlong campaign waged by a coalition of powerful business interest groups that lobbied the White House.

And though the reforms are relatively minor, they represent the biggest victory for business on export control in decades of concerted lobbying.

With that notch in the win column, industry groups — the National Association of Manufacturers, Aerospace Industries Association and the U.S. Chamber of Commerce among them — are now looking to claim credit.

The article notes that a lot of the credit for the directives goes to David McCormick, who served as Undersecretary of Commerce for Industry and Security and as Deputy National Security Advisor to the President for International Economic Affairs, before assuming his current post at Treasury.

National Association of Manufacturers President Gordan England is quoted as as saying that McCormick "had the right background and position to deal with reform, and Bush tasked him with moving it through." The article also notes that Engler has suggested that McCormick "deserves a 'bureaucrat of the year' award for his effort in pushing through the reforms . . ."

Finally, the article correctly asks how useful these directives will actually be in reforming the dual-use and military export controls and licensing process. The article quotes Congressman Brad Sherman (D-CA), who serves as the Chairman of the House Foreign Affair's Subcommittee on Terrorism, Nonproliferation and Trade and held an export controls oversight hearing last July, as saying that:

"It looks like the administration has finally taken some steps in the right direction and that it takes the issue of export controls seriously . . . however, many of these initiatives are not actually policies to be implemented; they are really just instructions to solve this or that specific problem."

Labels: BIS, DDTC, Export Controls

The Commerce Department’s Bureau of Industry and Security (BIS) announced last week that Northrop Grumman Corporation has agreed to pay a $400,000 civil penalty to settle allegations that it committed 131 violations of the Export Administration Regulations, both in its own capacity and as successor to Litton Industries, Inc., which Northrop Grumman acquired in April 2001.

The allegations primarily involved unlicensed exports of specially designed components for navigation equipment and module manufacturing data that were to destinations in the Philippines, Singapore, Malaysia, Italy and the United Kingdom between January 1998 and September 2002.

BIS noted that Northrop Grumman voluntarily self-disclosed the violations and cooperated fully in the investigation.

This case demonstrates the importance of conducting export controls due diligence when buying a company.

Labels: BIS, Export Controls

Pedro Alvarez, the Chairman of Empresa Comercializadora de Alimentos, Cuba's main food importing entity, said last week that the U.S. remains Cuba's largest supplier of food and agricultural products. Alvarez said that in 2007, Cuba purchased more than $600 million in agricultural products from the U.S., which is approximately the same amount purchased from the U.S. in 2006 .

Alvarez's comments came during a joint news conference last week with California Secretary of Food and Agriculture A.G. Kawamura, who led the State of California's first agricultural trade mission to Cuba from January 21 – 24, 2008.

California sold about $700,000 in licensed agricultural products to Cuba in 2007. California officials predict that the figure could be increased to $180 million.

The Commerce Department's Bureau of Industry and Security oversees the export of agricultural commodities to Cuba under the authority of the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA).

Labels: BIS, Cuba

The President issued a directive yesterday calling for more efficient procedures at the U.S. Department of State for export licensing of military equipment, services and data. The directive is designed to limit the period of time the government is permitted to make license determinations for items on the U.S. Munitions List to 60 days. Although the directive indicates that additional funding will be allocated for defense export licensing, it is unclear how much financial support will be made available for this purpose. Under the directive, the Secretary of State is also required to update U.S. controls on defense exports involving dual and third country nationals from NATO and other allied countries. The likely affect of this reform is a reduction in the number of goods that will require a license.

The President’s directive also calls for an electronic licensing system that permits all agencies access to defense related licenses. With respect to the resolution of jurisdictional issues arising from the licensing of defense articles, the President directs the creation of a formal interagency dispute mechanism, “the Commodity Jurisdiction process”, made up of the Departments of State and Commerce, and assigns oversight jurisdiction to the National Security Council. In the same breadth, the President’s directive reflects a continued commitment to prevent the diversion of defense articles to unauthorized users.

Update: The State Department's fact sheet on the effect of the President's directive as it applies to defense trade issues can be found here. The Bureau of Industry and Security's fact sheet on the President's directive as it applies to dual-use export controls can be found here.

Labels: BIS, DDTC, Export Controls

In a signing ceremony held in Beijing as part of the 18th Joint Commission on Commerce and Trade (JCCT) between China and the U.S., representatives of the two governments today signed eleven agreements on a variety of import and export issues.

One of the agreements signed today was the "Guidelines for U.S.-China High-Technology and Strategic Trade Development," which outlined the importance of the two countries working cooperatively to achieve the mutual benefits of facilitating safe and secure, bilateral civilian high-technology trade.

The Guidelines, which were signed by Under Secretary of Commerce Mario Mancuso and MOFCOM Vice Minister Wei Jiangguo, were developed by the Bureau of Industry and Security (BIS) and MOFCOM under the U.S.-China High Technology and Strategic Trade Working Group (HTWG) that was established at the 2005 JCCT to further U.S.-China cooperation on export control and high technology trade issues.

Under the Guidelines, the Commerce Department and MOFCOM will jointly identify and carry out steps to enhance secure high technology and strategic trade. For example, the Commerce Department and MOFCOM will continue to review U.S. dual-use policy to identity and implement appropriate processes to streamline the licensing process for legitimate civilian trade. The Guidelines also recognize the critical role of end-use visits conducted by BIS in ensuring the protection of U.S. national security interests in the enhancement of high technology trade.

A number of other agreements were signed during today's signing ceremony, including agreements on expanding U.S. exports to 14 "second-tier" cities in China, a Memorandum of Agreement on the Safety of Food and Feed, and a Memorandum of Agreement on the Safety of Drugs and Medical Devices. A complete list of the agreements that were signed can be found here.

Labels: BIS, China, Export Controls

The National Council on International Trade Development's (www.ncitd.org) December 13, 2007 meeting in Washington, DC will feature the following speakers:

• Ms. Hillary Hess, Director, Regulatory Policy Division, Bureau of Industry and Security, U.S. Department of Commerce.
  

• Mr. William Jacobson, Assistant Chief, Fraud Section, Criminal Division, U.S. Department of Justice and Ms. Stacy Luck, Attorney, Fraud Section, Criminal Division, U.S. Department of Justice.
  

• Mr. Matthew Tanzer, Vice President and Chief Compliance Counsel, Tyco International (US) Inc.
  

Mr. Jacobson, Ms. Luck and Mr. Tanzer will be speaking on the U.S. Foreign Corrupt Practices Act.

For information on how to join NCITD or to attend the meeting, see www.ncitd.org or contact the NCITD Secretariat at 202-872-9280.

Labels: BIS, FCPA

As promised at Update 2007, the Bureau of Industry and Security (BIS) today published a final rule in the Federal Register making the the necessary changes to to the Commerce Control List (CCL) and Export Administration Regulations (EAR) to implement the Wassenaar List revisions that were agreed upon in the December 2006 Wassenaar Arrangement Plenary Meeting. This final rule also adds and expands unilateral U.S. export controls and national security export controls on certain items to make them consistent with the amendments made to implement the Wassenaar Arrangement's decisions. In addition, the final rule removes the remaining references to "Composite Theoretical Performance (CTP)'' and "Millions of Theoretical Operations Per Second (MTOPS)'' in the EAR, which is consistent with agreements made by the Wassenaar Arrangement
with regard to microprocessors.

Today's final rule makes a number of changes to the EAR by amending certain entries that are controlled for national security reasons in Categories 1, 2, 3, 5 Part I (telecommunications), 6, 7, 8, and 9; adds new entries to the Commerce Control List (CCL); amends certain EAR Definitions; adds new definitions to the EAR; and adds a new Statement of Understanding on source code.

The following is a summary of the changes made by today's final rule:

• Imposes new controls and expands NS Column 1 controls by imposing a license requirement under section 742.4(a) of the EAR for exports and reexports to all destinations, except Canada, of certain commodities (and related software and technology) described in ECCNs 1E002.g, 3E001, 7A001, 7A002.a and .c, 7A003.d, 7D001, 7D003, 7E001, 7E002, 7E004.a.7, 9D004.f and .g.
  

• Imposes new controls and expands NS Column 2 controls. This rule imposes a license requirement under section 742.4(a) of the EAR for exports and reexports of commodities (and related software and technology) described in 1C005.a, 1C005.b.1, 1C005.b.2, 1C005.c, 1D003, 2B002.c, 2B002.d, 3A001.b.9, 3A001.e.4, 3A001.g, 3B001.f.2, 3B001.i, 3C005, 5A001.g, 6A008.a, 7A008, 8A002.a, 8A002.a.4 (components) to destinations that are not Country Group A:1 destinations, or that are not cooperating countries.
  

• Imposes new controls and expands antiterrorism (AT) controls on the export and reexport of commodities (and related software and technology) controlled under 1C005.a, 1C005.b.1, 1C005.b.2, 1C005.c, 1D003, 1E002.g, 2B002.d.2, 2B002.d.3, 3A001.b.9, 3A001.e.4, 3A001.g, 3B001.f.2, 3B001.i, 3C005, 3E001, 5A001.g, 6A008.a, 7A001, 7A002.a and .c, 7A003.d, 7A008, 7D001, 7D003.a and .b, 7E001, 7E002, 7E004.a.7, 8A002.a, 8A002.a.4 (components), and 9D004.f and .g for AT reasons to Cuba, Iran, North Korea, Sudan and Syria;
  

• Revises several entries on the CCL and adds a number of new ECCNs to the CCL.

• Amends the EAR to remove the terms "Composite theoretical performance'' and CTP , revises the definition of the terms "Drift rate'' and "Peak power'' and adds definitions for a number of technical terms.

• Adds a Statement of Understanding (SOU) addressing source code explaining that source code may be controlled in either a software or technology entry.

While this final rule is effective today, it contains a "savings clause" providing that shipments of items removed from license exception eligibility or eligibility for export without a license as a result of this regulatory action that were en route to their destination may proceed to that destination under the previous license exception eligibility or without a license so long as they have been exported from the United States before December 5, 2007. Any items not actually exported before midnight on December 5, 2007, require will require a license in accordance with this regulation.

Labels: BIS

As a follow-up to the comments made by Under Secretary of Commerce for Industry and Security Mario Mancuso today at Update 2007, the Bureau of Industry and Security (BIS) this evening issued on its website important information clarifying the implementation of the enhanced penalties contained in the International Economic Powers Act (IEEPA) Enhancement Act that was recently passed by Congress and signed into law on October 16, 2007.

Significantly, the fact sheet issued states that BIS will generally not pursue the enhanced civil penalties of $250,000 specified in the IEEPA Enhancement Act in the following five circumstances:

• Violations with respect to which a valid Voluntary Self-Disclosure (VSD) initial notification was submitted to BIS in accordance with Part 764.5(c)(2) (export control violations) or Part 764.8(c)(2) (antiboycott violations) of the EAR prior to October 16, 2007;
  

• Violations with respect to which BIS filed charging letters with an Administrative Law Judge prior to October 16, 2007;
  

• Violations with respect to which BIS has approved settlement offers or issued settlement offers prior to October 16, 2007, if settlement is reached prior to BIS filing a charging letter with an Administrative Law Judge;
  

• Violations with respect to which BIS issued proposed charging letters prior to October 16, 2007, if settlement is reached prior to BIS filing a charging letter with an Administrative Law Judge; and
  

• Violations with respect to which the parties have executed a statute of limitations waiver prior to October 16, 2007, whether or not a proposed charging letter has been issued, and settlement is reached prior to BIS filing a charging letter with an Administrative Law Judge.
  

If none of these five circumstances are present, then BIS can now impose a civil penalty for each violation of IEEPA (including export control and antiboycott penalties) of up to $250,000, or twice the value of the transaction that is the basis of the violation.

In a statement released in connection with the issuance of the information relating to the IEEPA Enhancement Act, Under Secretary of Commerce for Industry and Security Mario Mancuso said that “We welcome the enhancements provided by Congress and the President” and the “new law provides significant additional support for our cases, which we intend to apply in an equitable, deliberative and rigorous way. Most important, we think the enhancements will better align incentives to improve overall compliance with our regulations.”

The significant changes provided under the IEEPA Enhancment Act include:

• Additional Unlawful Acts: Section 206(a) of IEEPA is amended to clarify that civil penalties may be assessed against those who conspire to violate, or cause a violation of any license, order, regulation, or prohibition of title 50 of the United States Code.

• Administrative Penalties: A civil penalty amounting to the greater of $250,000, or twice the value of the transaction that is the basis of the violation (Enhanced Penalties), may be imposed for each violation of IEEPA.

• Effective Date/Retroactivity: The new civil penalties apply to enforcement action that are pending, which BIS interprets an action to be if a Final Order has not been signed, or commenced on or after October 16, 2007.

• Criminal Penalties: Violators can be fined up to $1,000,000 and/or up to 20 years in prison. Additionally, criminal liability is provided for anyone who “willfully conspires to commit, or aids or abets in the commission of” an unlawful act described in the statute.

Labels: BIS

The Bureau of Industry and Security recently announced that there is a limited amount of space available at next week's Update Conference on Export Controls and Policy that will take place from October 31-November 2, 2007 at the Grand Hyatt Washington in Washington DC. To check on availability, contact BIS at the following e-mail address: UpdateConference@bis.doc.gov.

If you can't make it to Washington, DC next week for Update 2007, International Trade Law News will be blogging from the conference. We will be posting summaries of the various programs and break-out sessions shortly after they are presented. Stay tuned.

Labels: BIS

The Bureau of Industry and Security (BIS) announced in today's Federal Register the first group of five “validated end-users” (VEUs) located in the People’s Republic of China (PRC) to whom U.S. exporters may ship goods without an export license. Today's announcement is the result of the regulation issued by BIS on June 19, 2007 establishing the Authorized End-User Program, whereby VEUs will be able to obtain eligible items that are on the Commerce Control List without having to wait for their suppliers to obtain export licenses from BIS.

The first group of VEUs includes:

• Applied Materials China, Ltd.
• BHA Aerocomposite Parts Co., Ltd.
• National Semiconductor Corporation
• Semiconductor Manufacturing International Corporation
• Shanghai Hua Hong NEC Electronics Company, Ltd.

The final rule lists the names and addresses of 14 facilities that have been authorized under the VEU program and the various ECCNs that have been approved for export to these locations without a specific license issued by BIS.

In announcing the approval of these five VEUs, BIS indicated that:

approval of these five companies as VEUs should significantly reduce the value of trade that requires a license for export or reexport to the PRC. Approximately $54 million of items described as "eligible items'' in this notice were licensed for
export to these five end-users in 2006. This $54 million represents about 18% of all licensed exports to the PRC in 2006. Approval of these companies as VEUs also represents a significant savings of time for suppliers and end-users. Authorization VEU will eliminate the burden on exporters and reexporters of preparing license applications and on BIS for processing such applications, as exports and reexports will be made
without licenses. This savings will enable exporters and reexporters to supply the VEUs much more quickly, thus enhancing the competitiveness of the exporters, reexporters, and end-users in the PRC.

BIS also noted that it reserves the right to conduct on-site reviews of these VEUs. If such reviews are warranted, BIS will inform the PRC Ministry of Commerce that it will conduct such a review.

Labels: BIS, Export Controls

As a follow-up to yesterday's announcement of the Validated End-User (VEU) Program for India, the Bureau of Industry and Security has posted additional information regarding the program on its website. The information includes the text of the rule, a fact sheet, the press release from the Secretary of Commerce and guidance for submitting to companies on submitting an advisory opinion request to be considered a VEU.

On a separate, but related note, a Commerce Department official today said that the first group of Chinese companies to be approved under the VEU Program will be announced and published in the Federal Register in the next few weeks. While BIS is currently taking more than the 30 calendar days to make VEU determinations, Supplement No. 9 to Part 748 of the EAR makes clear that the 30-day period applies to decisions made by the End-User Review Committee (ERC) after the final application is received and that the period during which the ERC is waiting for additional information from an applicant or potential validated end-user is not included in calculating the 30 calendar day deadline for the ERC's determination.

Labels: BIS, China, India

The U.S. House of Representatives today passed by voice vote the International Emergency Economic Powers Act (S. 1612), a bill that will significantly increase the penalties for violating IEEPA-based export control laws. Because the Senate passed the identical bill in June, the measure will be sent to the President for signature, which is likely to take place in a matter of days.

The passage of the International Emergency Economic Powers Act ("IIEPA Act") means that the maximum civil penalty for violating IIEPA-based export control laws will increase from $50,000 per violation to $250,000 or twice the amount of the transaction that is the basis of the violation with respect to which the penalty is imposed. The maximum criminal penalties for committing willful violations of IEEPA-based export control laws will increase to $1,000,000, with a maximum jail sentence of 20 years.

The original civil penalty amount was set at $10,000 when IEEPA (P.L. 95-223) was passed in 1977. Other than an inflation adjustment raising the maximum penalty amount to $11,000, there were no increases until the renewal of the USA PATRIOT Act in 2005 (Public Law 109-177) raised the level to $50,000. Thus, once the IEEPA Act is signed into law, the maximum civil penalties for export control violations will have increased more than 2170% in two years.

The IEEPA currently serves as the legal basis for the Export Administration Regulations (EAR) and most of the sanctions regimes administered by the Office of Foreign Assets Control (OFAC). The most notable exceptions are the sanctions programs on Cuba and North Korea which were issued under the authority of the Trading With the Enemy Act.

The changes in penalties will apply to all pending enforcement actions as well as those commenced on or after the date of the IIEPA Act's enactment.

Labels: BIS, Congress, OFAC

The Bureau of Industry and Security (BIS) published a final rule in the Federal Register today adding India as an eligible destination for U.S. exports, reexports and transfers under the Authorization Validated End-User (VEU) system. As a result, U.S. companies will be able to export certain controlled commodities and technologies without a license to specific end-users in India, once the end-user is “validated” by the agency. The Authorization VEU may be used for commodity, software or technology exports that require a license, except those that are controlled for missile technology or crime control reasons.

India is the second country named as eligible under the VEU system. On June 19, 2007, BIS rolled out the new authorization scheme for “validated-end users” (VEUs) in eligible country destinations. Concurrently, the BIS designated China as the first eligible country. Although BIS has not announced any Authorized VEUs to date, it intends to do so in the near future.

In order to qualify for Authorization VEU status, an applicant must submit an application to BIS, which includes detailed information about the prospective validated end-user. The specific information required is set forth in Supplement Number 8 to Part 748 of the Export Administration Regulations.

Labels: BIS, India

The Bureau of Industry and Security (BIS) today announced that the United States and Israel have agreed to launch the U.S.-Israel High Technology Forum (HTF). The HTF is an Under Secretary-level bilateral dialogue to address and facilitate high technology trade, investment and related security issues between the two countries.

The HTF was proposed by Mario Mancuso, Under Secretary of Commerce for Industry and Security, to senior officials of the Israeli Ministries of Defense, Foreign Affairs and Industry, Trade and Labor during his recent trip to Israel. In addition to the meetings with government officials, Secretary Mancuso met with Israeli business leaders during his trip.

The HTF is the first step in BIS's new effort to accelerate engagement with countries having the most dynamic and strategic technology markets.

Labels: BIS, Israel

The Bureau of Industry and Security published a notice in today's Federal Register announcing that it will extend the public comment period on changes to the Commerce Control List from September 17 to November 1, 2007.

On July 17, 2007, BIS published a notice in the Federal Register announcing that it is conducting a "systematic review" of the Commerce Control List (CCL) and is seeking comments from the public on the following topics:

1. The overall structure of the CCL, including suggestions for how the structure of the CCL may be changed to better advance U.S. national security, foreign policy, and economic interests;
2. Types of items that should be listed on the CCL and the appropriate levels of controls to be placed on those items, taking into account technology levels, markets, and foreign availability;
3. Any updates to the CCL item descriptions that would enable the descriptions to better reflect the intent of the multinational controls and to eliminate any overly broad descriptions that inadvertently capture non-critical items that are not controlled by other countries; and
4. Coordination and harmonization of controls on items covered by the multilateral regimes, such as the Wassenaar Arrangement.

The Commerce Control List, which is found at Supplement No. 1 to Part 774 of the Export Administration Regulations, identifies the commodities software and technology that are controlled for export and the reasons for control.

Many industry groups and trade associations are currently drafting comments to be submitted to BIS on suggested changes to the CCL. Manufacturers and exporters of products on the CCL are encouraged to participate in this important process.

Labels: BIS, Export Controls

The Bureau of Industry and Security (BIS) published the following two notices in today's Federal Register:

Request for Comments on Foreign Policy-based Export Controls

The first notice published today states that BIS is reviewing the foreign policy-based export controls in the Export Administration Regulations (EAR) to determine whether they should be modified, rescinded or extended. To assist BIS in making these determinations, the agency is seeking comments on how existing foreign policy-based export controls have affected exporters and the general public. BIS is particularly interested in receiving comments and information on how foreign-policy based export controls have affected exporters and the general public, such as the economic impact of proliferation controls. Comments must be submitted to BIS by October 5, 2007.

Updated Statements of Legal Authority for the Export Administration Regulations

The second notice published by BIS is a final rule amending the EAR to update the Code of Federal Regulations (CFR) legal authority citations to reflect that the EAR has been extended by Executive Order since the Export Administration Act expired on August 20, 2001. This final rule indicates that the EAR remains in effect for an additional year as a result of the President's notice entitled "Continuation of Emergency Regarding Export Control Regulations" that was published in the Federal Register on August 16, 2007.

Labels: BIS

President Bush today nominated Assistant Secretary of Commerce for Export Administration Christopher A. Padilla to be Under Secretary of Commerce for International Trade.

Padilla was nominated to replace Franklin Lavin, who recently resigned and is now serving as Managing Director and Chief Operating Officer of Cushman & Wakefield Investors Asia.

If confirmed, Mr. Padilla would serve as the head of the Commerce Department's International Trade Administration, which includes four units: the Commercial Service, Import Administration, Manufacturing and Services and Market Access and Compliance.

Labels: BIS

The Bureau of Industry and Security (BIS) has announced that the next meeting of the Transportation and Related Equipment Technical Advisory Committee will occur on September 12, 2007 in Washington, DC.

As a reminder, the next public meeting of BIS's Regulations and Procedures Technical Advisory Committee (RPTAC) will take place on September 11, 2007 in Washington, DC and the next meeting of the Deemed Export Advisory Committee (DEAC) will be held in Washington, DC on September 10, 2007.

Labels: BIS

The United Arab Emirates (UAE) announced today that it has enacted a new law governing the import and export of goods.

The new law, entitled Federal Law No. 13 of 2007, authorizes the UAE "to ban or restrict the importing, exporting or re-exporting of any commodity for reasons related to safety, public health, environment, natural resources, national security or for reasons related to the UAE's foreign policy."

According to a summary of the law issued by the Emirates News Agency, the new law includes four chapters. Chapter 1 sets forth the general framework for the issuance of import and export licenses. Chapter 2 includes procedures aimed at controlling the import and export of strategic commodities, the export and re-export of technology, and provisions relating to the brokerage and transport of such items. Chapter 3 specifies the penalties for violating the law, ranging from a maximum imprisonment of one year and fines of 1 million UAE dirhams (approximately US$272,000). Chapter 4 provides that the UAE's Cabinet must issue relevant regulations and publish them in the UAE's Official Gazette within one month.

The new law also orders the establishment of the National Commission for Commodities Subject to Import, Export and Re-export Control. The National Commission, which will be chaired by the Ministry of Economy, will include representatives of other concerned federal ministries and bodies and the private sector. It will be tasked with "cooperating and coordinating with relevant authorities on the rules introduced to control imports and exports in compliance with the new law" and "will also provide technical advice to federal and local bodies to ensure the enforcement provisions" of the law are applied.

The U.S. has been pressuring the UAE to strengthen its export control regime. In February of this year, the Bureau of Industry and Security (BIS) published in the Federal Register an advanced notice of proposed rulemaking that would give BIS the authority to place certain countries in Country Group C, resulting in additional licensing requirement. The Dubai Chamber of Commerce and Industry, and eight other companies and organizations submitted comments on the proposed rule to BIS.

BIS has also taken other steps to prevent the transshipment of goods from the UAE to Iran through the issuance of General Order No. 3 on June 5, 2006. General Order No. 3 imposes a license requirement for exports and reexports of all items subject to the Export Administration Regulations (EAR) when the transaction involves companies in the UAE that the U.S. has determined is involved in the supply of electronic components and devices capable of being used to construct Improvised Explosive Devices (IEDs). General Order No. 3 was amended on June 8, 2007 to include additional parties located located in the UAE, Germany, Syria, Lebanon, Malaysia Iran and Hong Kong.

On June 5, 2006, BIS issued a General Order Concerning Mayrow General Trading and Related Entities. This Order imposes a license requirement for the export or reexport of any item subject to the EAR to Mayrow and other named entities. The Order, which does not permit the use of license exceptions, applies to any transaction involving Mayrow or any other named entity. The Order was amended in September 2006 and June 2007 to apply to additional persons.

BIS recently imposed a $36,000 penalty on Georgia-based Ace Systems, Inc. for attempting to export dialogic voice cards to Mayrow General Trading in Dubai, UAE without the required license. Mayrow General Trading was the primary subject of General Order No. 3 when it was issued in June 2006.

Labels: BIS, Export Controls, UAE

The Bureau of Industry and Security (BIS) announced on Friday that Mario Mancuso, Under Secretary of Commerce for Industry and Security, will be in Israel this week to participate in meetings with senior Israeli government officials and business leaders to discuss dual-use export control cooperation, high-technology trade and investment issues.

During his trip to Israel, Under Secretary Mancuso will meet with officials from Israel's Ministries of Industry, Trade and Labor, Defense and Foreign Affairs. He will also meet with Israeli and U.S. business leaders to discuss ways to promote secure high technology trade and investment.

Israel recently passed a new export control law that is intended to strengthen Israel's existing export control regime.

The trip to Israel promises to be the first of Undersecretary Mancuso's visits to key countries in order to elevate the U.S. level of engagement on dual-use export controls and high-technology trade and investment.

Labels: BIS, Israel