International Trade Law News

U.S. Immigration and Customs Enforcement (ICE) announced yesterday that a federal grand jury in Los Angeles indicted the former owner of a Los Angeles-area gun store and two employees of a freight forwarding company for violating international arms trafficking and export control laws for allegedly exporting gun sights and equipment used to manufacture assault rifles to the Philippines without the required export licenses.

The three men are accused of conspiring to illegally ship defense articles and other controlled items to the Philippines in violation of the Arms Export Control Act and the International Emergency Economic Powers Act.

According to the indictment, the defendants conspired to purchase and export to the Philippines, in three separate shipments, a total of 250 forging for AR-15 assault rifles and 11 holographic rifle sights. Two of the shipments were intercepted by Philippine customs officials. It is alleged that the forgings are subject to the jurisdiction of the International Traffic in Arms Regulations and the rifle sights are subject to the jurisdiction of the Export Administration Regulations.

Two of the defendants were arrested yesterday and the third defendant apparently fled to the Philippines several years ago.

Labels: BIS, Export Controls, ITAR

Below are some photos from the Bureau of Industry and Security's 2010 Export Control Forum that was held earlier this week in Irvine, California. The event's Keynote Speaker was Kevin Wolf, who was recently sworn in as Assistant Secretary of Commerce for Export Administration. In addition to speakers from BIS, the program also featured speakers from OFAC, Census, DDTC and DTSA.

Photos courtesy of John Priecko, Chief Executive Officer and President of Trade Compliance Solutions (photos 1-4), and Melissa Miller Proctor, Sandler, Travis & Rosenberg, P.A.

Registration


Kevin Wolf, Keynote Speaker



Kevin Wolf and other BIS officials

Erin Clark, STTAS & Melissa Miller Proctor, STR

Labels: BIS

Yesterday the U.S. Senate confirmed Kevin Wolf to serve as Assistant Secretary of Commerce for Export Administration and David Mills to be Assistant Secretary of Commerce for Export Enforcement.

These two confirmations, along with 25 positions at other agencies, occurred after Senate Republicans earlier this week released a hold on a number of pending nominees following President Obama's threat to fill open positions by way of a recess appointment while the Senate is in recess next week.

However, the Senate confirmations did not include the nomination of Eric Hirschhorn to serve as Under Secretary of Commerce for Export Administration, the most senior position at the Bureau of Industry and Security. Mr. Hirschhorn's nomination was reported to the full Senate and has been included on the Senate calendar since December 17, 2009. Mr. Hirschhorn and 35 other nominees still await Senate confirmation. It is expected that the Senate will act on Mr. Hirschhorn's nominations in the coming weeks.

In a statement issued by President Obama after yesterdays' confirmations, he said that the Senate's action "is a good first step, there are still dozens of nominees on hold who deserve a similar vote, and I will be looking for action from the Senate when it returns from recess.  If they do not act, I reserve the right to use my recess appointment authority in the future."

Labels: BIS

While there have been many export control reform proposals issued in the past few months, very few of them have focused on the legal aspects of the U.S. export control regime.

Neena Shenai, an adjunct scholar at the American Enterprise Institute for Public Policy Research, has added an interesting perspective to the export control reform debate in her working paper entitled Export Control Reform 2010: Transforming the Legal Architecture of Dual-Use and Defense Trade Controls (available here in PDF format). Ms. Shenai, an attorney, is well-suited to provide this perspective given her experience in the private sector and in government, which includes serving as a law clerk to a judge at the U.S. Court of International Trade, practicing international trade law at a leading law firm and serving as an advisor to the Assistant Secretary for Export Administration at the Commerce Department's Bureau of Industry and Security.

The paper offers the thesis that improvements in the export control system’s legal architecture, including administrative procedural safeguards and limited judicial review while also protecting classified information and national security determinations, will improve the workings of the system in general.

Ms. Shenai reaches that conclusion by discussing the existing legal framework of dual-use and defense-related export controls, examining the various shortcomings of the existing export controls legal regime and discussing what can be learned from other U.S. international-related legal regimes that could serve as useful models for reform of the U.S. export control system. The regimes examined include the licensing of nuclear products by the Nuclear Regulatory Commission, the administration of trade remedy laws, the administration of U.S. customs laws and the treatment of national security information protected from disclosure under the Freedom of Information Act.

The paper then provides a number of general and specific recommendations to improve the legal framework of the export control system, including improvements to the commodity jurisdiction (CJ), commodity classification and licensing processes. For example, the paper advocates having agency decisions provide applicants with detailed information on why licenses were granted or denied, the grounds on how CJ determinations are made and allowing applicants the ability to appeal such decisions to a federal court, preferably the Court of International Trade, given its longstanding history of hearing cases under the U.S. trade laws.

Ms. Shenai concludes by noting that "the recommendations made in this paper, if implemented, would serve to ensure that the U.S. export control laws are administered in a fair, transparent, predictable, and accountable fashion, while simultaneously maintaining national security protections."

It should be noted that this working paper has not yet been finalized and Ms. Shenai welcomes comments and corrections. Information on how to contact Ms. Shenai can be found in the document.

Labels: BIS, Export Controls, ITAR

Balli Aviation Ltd., a subsidiary of the United Kingdom-based Balli Group PLC (collectively "Balli"), pleaded guilty today in the U.S. District Court for the District of Columbia to a two-count criminal information in connection with its illegal export of commercial Boeing 747 aircraft from the United States to Iran.

In a related civil enforcement case, Balli entered into a joint settlement agreement with the Treasury Department's Office of Foreign Assets Control (OFAC) and the Commerce Department's Bureau of Industry and Security (BIS) to settle alleged violations of U.S. export controls and sanctions laws..

Under the criminal plea agreement, Balli agreed to pay a $2 million criminal fine and be placed on corporate probation for five years. In the civil settlement with BIS and OFAC, Balli agreed to pay a $15 million civil penalty (payable in five installments over two years) to settle alleged violations of the Iranian Transactions Regulations and Export Adminstration Regulations. The terms of the civil settlement agreement provide that $2 million of Balli's civil penalty will be suspended and waived if Balli remains in compliance with U.S. export control laws.

According to count one of the criminal information, from 2005 through 2008, Balli conspired to export three Boeing 747 aircraft from the United States to Iran via a subsidiary without first having obtained the required export license from BIS or authorization from OFAC, in violation of the EAR and Iranian Transactions Regulations. The criminal information also states that the Boeing 747 was purchased  with financing obtained from Mahan Airlines, the first private airline in Iran. (Mahan Airlines prominently features the Boeing 747 on its home page).

Count two of the information states that Balli violated a Temporary Denial Order (TDO) issued by BIS in March 2008 that prohibited the company from conducting any transaction involving any item subject to the EAR. The Justice Department alleged Balli subsequently violated the TDO by carrying on negotiations with others concerning buying, receiving, using, selling and delivering U.S.-origin aircraft.

In the civil case, Balli was charged with conspiracy to violate the EAR by working with the Iranian airline to export the U.S.-origin aircraft to Iran. BIS also charged Balli with one count of acting contrary to the terms of a TDO by attempting to sell and export three additional 747s to Iran.

In addition to the civil monetary penalties, BIS suspended Balli's export privileges for five years (as noted, Balli was previously subject to a BIS TDO that was later lifted), although BIS agreed to suspend the denial order as long as the penalty is timely paid and the company remains compliant with the EAR. Mahan Airways remains on BIS's Denied Persons List.

In addition, the civil settlement agreement requires Balli to hire an unrelated third-party consultant with expertise in U.S. export control laws and sanctions regulations to conduct audits of Balli's U.S. export control and sanctions compliance on an annual basis during the next five years and to submit the audit results to BIS and OFAC.

The OFAC and BIS joint settlement agreement, which contain additional details on Balli's alleged activities, can be found here (pdf).

SIDEBAR: On a somewhat related note, last month marked the 40th anniversary of the first commercial flight of the Boeing 747 from New York to London by its launch customer Pan American World Airways.  The Flightglobal website has put together a special section marking the 40th anniversary of the Boeing 747 here.

Labels: BIS, OFAC, Sanctions; Iran

Yesterday the Senate Committee on Banking, Housing, and Urban Affairs approved the nominations of Kevin Wolf to serve as Assistant Secretary of Commerce for Export Administration and David Mills to be Assistant Secretary of Commerce for Export Enforcement.

The Senate Banking Committee held a hearing to consider these and other Obama Administration nominees on January 21, 2010. The webcast of the hearing can be viewed here. 

On November 5, 2009, the Senate Banking Committee held a hearing on the nomination of Eric Hirschhorn to serve as Under Secretary of Commerce for Export Administration, the most senior position at the Bureau of Industry and Security. Mr. Hirschhorn's nomination was reported to the full Senate and has been included on the Senate calendar since December 17, 2009. However, the Senate has not yet held a vote on Mr. Hirschhorn's nomination or the nominations of several other nominees.

Labels: BIS, Congress

As mentioned in our previous post, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing today on the confirmation of two senior Bureau of Industry and Security officials, Kevin Wolf, nominated as Assistant Secretary of Commerce for Export Administration, and David Mills, nominated to serve as Assistant Secretary of Commerce for Export Enforcement. The webcast of the hearing, which also included nominees for other agencies, can be viewed here.  

The hearing was presided over by Senator Dodd (D-CT) and Senator Shelby (D-AL), the committee's chairman and ranking member.

While not a member of the Senate Banking Committee, Senator Blanche Lincoln (D-AR) gave a very nice introduction to Kevin Wolf. Unfortunately, due to audio problems, Kevin Wolfe's introductory remarks were inaudible, but in his prepared opening statement, which can be found here, he said note that "his background will also be helpful in crafting and implementing . . . the details of the significant export control reforms the President and the Secretary have announced . . . " He added that "if confirmed, [he will] be committed to the rule of law, transparency, and advancing the use of modem technology."

In his prepared remarks, David Mills discussed how his long time service at OFAC prepared him for this position and indicated that he believes that "the enforcement of those regimes must not only be fair and firm, but also as clear and transparent as possible, in order to advance both our national security and foreign policy interests and our economic potential through export promotion."

Several Senators asked questions to Messrs. Wolfe and Mills, including questions on a variety of export controls-related issues, including diversion-related issues, export control modernization, foreign availability, export enforcement penalties and whether BIS and its agents have the sufficient resources and powers to accomplish their goals. Senator Dodd's initial questions on export control issues start at the 71 minute mark of the webcast.

Labels: BIS, Export Controls

The Senate Committee on Banking, Housing, and Urban Affairs will hold a hearing tomorrow, January 21, 2009, on the confirmation of several persons nominated to serve in the Obama Administation, including two senior officials at the Commerce Department's Bureau of Industry and Security (BIS).

The Committee will consider the nominations of Kevin Wolf  to serve as Assistant Secretary of Commerce for Export Administration and David Mills to serve as Assistant Secretary of Commerce for Export Enforcement, both of whom were nominated in December.

On November 5, 2009, the Committee held a hearing today on the nomination of Eric Hirschhorn to serve as Under Secretary of Commerce for Export Administration, the most senior position at BIS. While Mr. Hirschhorn's nomination was reported to the full Senate for inclusion on the Senate calendar on December 17, 2009, the Senate's vote was delayed due to the debate on health care and the Christmas recess.

Labels: BIS

The Coalition for Security and Competitiveness (CSC) today released detailed recommendations on the specific steps the Obama Administration and Congress can take to reform and modernize the U.S. export control system.

The document, entitled "Recommendations for a 21st Century Technology Control Regime", which was included with a letter sent to to President Obama and other key members of the Obama Administration, states that:

United States export control system has not been significantly revised in more than twenty years. The result is a system that no longer fully protects our national security, has not kept up with accelerating technological change, and does not function with the efficiency and transparency needed to keep the United States competitive in the global marketplace.

The Administration’s export control review, as well as impending legislative proposals, provides an opportunity to strengthen our security and give business the clarity and guidance it needs to comply with the rules and remain competitive.

In order to accomplish these reforms, the CSC indicated that these goals can best be accomplished in the near term by structuring export control reform around the following five themes:

Labels: BIS, BIS; EAR, DDTC, Export Controls, ITAR

The Bureau of Industry and Security (BIS) published a notice in today's Federal Register amending the Export Administration Regulations (EAR) to suspend the Authorization Validated End-User (VEU) status of Aviza Technology China and GE Fanuc Systems PVT Ltd. in India.

BIS is suspending the availability of Authorization VEU for exports, reexports, and in-country transfers to these two facilities due to material changes at the companies and not due to any prohibited activities by the two companies.

Labels: BIS

Today President Obama nominated Kevin Wolf, a partner in the Washington, D.C. office of Bryan Cave LLP, to be Assistant Secretary of Commerce for Export Administration. Since joining that firm in 1993 Kevin's practice has focused on export controls and economic sanctions matters.

Kevin is the last of the three political appointees named to the Bureau of Industry and Security's (BIS) senior leadership team.

On September 11, 2009, Eric Hirschorn was nominated to serve as Under Secretary of Commerce for Export Administration and head of BIS. The Senate Banking Committee today approved Mr. Hirschorn's nomination and he now awaits confirmation from the full Senate.

David Mills was nominated to serve as Assistant Secretary of Commerce for Export Enforcement on December 2, 2009.

Labels: BIS

On Friday, December 11, 2009, the Bureau of Industry and Security (BIS) will publish a final rule in the Federal Register amending the Export Administration Regulations (EAR)  to implement changes made to the Wassenaar Arrangement's List of Dual Use Goods and Technologies (Wassenaar List) agreed upon at the December 2008 Wassenaar Arrangement Plenary Meeting.

While the final rule adds only one new Export Control Classification Number (ECCN) to the Commerce Control List (CCL), ECCN 1A008, changes were made to a number of ECCNs, including ECCNs 1A001, 1A002, 1A003, 1A004, 1A007, 1A008, 1B001, 1B003, 1C008 1C010, 1D003, 1E001, 1E002, 2A983, 3A001, 3A002, 3B001, 4D001, 4D003, 4E001, 5A001, 5B001, 5D001, 5E001, 5A002, 5B002, 5D002, 5E002, 6A001, 6A004, 6A005, 6A006, 6A008, 6A996, 6D003, 6E993, 7A003, 8A001, 8A002 and 9A012.

The final rule also imposes new or expanded National Security (NS) Column 1 controls, NS Column 2 controls and anti-terrorism (AT) controls on certain ECCNs.

The final rule also revises certain definitions in the EAR, by adding the terms: “Bias (accelerometer)” and “Personalized smart card”, removing the term “Noise Level” and adding the terms “Explosives”, “Fusible” and “personal area network.”

The final rule also removes and adds some reporting requirements. 

BIS noted in the final rule that changes made by the Wassenaar Arrangement to ECCNs 6A002 and 6A003 will be implemented in a separate rule, "because of the sensitivity of the items and complexity of procedures and controls for these items."

A copy of the advance version of the final rule can be found here.

Because of the large number of changes to the CCL made by this final rule exporters should carefully review this notice to determine whether any of the export control requirements applicable to their products have changed.

Labels: BIS, Export Controls

In order to save the government time and money, the Bureau of Industry and Security (BIS) issued a proposed rule in today's Federal Register that would eliminate the use of most paper documents that it sends to parties having business before the agency. The documents that would be affected by this proposed rule include:

• export and reexport licenses,
• notices of denial of license applications, 
• notices of return of a license application without action, 
• classification results, 
• License Exception AGR notification results, and 
• encryption review request results.
  

This proposed rule also would make a number of changs to the Export Administration Regulations to implement these changes, including modifying the recordkeeping requirements associated with the elimination of paper documents. The proposed rule would also exempt parties who submit documents to BIS via the SNAP-R system from requirements to retain copies of documents submitted even though those documents are "export control documents'' as defined in part 772 of the EAR.

Comments on this proposed rule must be received by BIS by February 2, 2010.

Labels: BIS, Export Controls

Reliable sources have confirmed that David Mills will be nominated by President Obama to serve as Assistant Secretary for Export Enforcement.

Mr. Mills, who formerly served as Chief of Licensing at the Treasury Department’s Office of Foreign Assets Control and in the Office of Chief Counsel for Export Adminstration, is currently Of Counsel in the Washington, DC office of the law firm of DLA Piper.

While the Senate Committee on Banking, Housing, and Urban Affairs held a hearing on November 5, 2009 to consider the nomination of Eric Hirschhorn to serve as Under Secretary of Commerce for Export Administration, the Senate has not yet set a date for a confirmation vote.

Labels: BIS

The Senate Committee on Banking, Housing, and Urban Affairs held a hearing today on the nomination of Eric Hirschhorn to serve as Under Secretary of Commerce for Export Administration, the most senior position in the Bureau of Industry and Security.

Mr. Hirschhorn, who is expected to play a central role in current export control reform efforts, was nominated by President Obama on September 11, 2009.

The hearing, chaired by Senate Banking Committee Chairman Christopher Dodd (D-CT), and included nominees for two other agencies, lasted only an hour and began with prepared statements by Senators Dodd and Ranking Member Richard Shelby (R-AL).

Mr. Hirschhorn was introduced by Representative Stephen Solarz (D-NY). Mr. Hirschhorn worked for Mr. Solarz in the New York Legislature many years ago. Mr. Hirschhorn's prepared remarks, which can be found here, focused on his previous experience work on export control issues at the Department of Commerce in the early 1980s and his many years in private law practice.

Following the prepared remarks, Senators Dodd and Shelby asked several questions. Senator Dodd asked about export control reforms, foreign availability, Iran sanctions and transshipment issues. Senator Shelby asked Mr. Hirschhorn about his past work on behalf of clients opposed to unilateral sanctions as well as export control reform issues.

Mr. Hirschhorn should be easily confirmed by the full Senate in the coming weeks.

Labels: BIS, Congress

Secretary of Commerce Gary Locke met yesterday with Secretary of Defense Robert Gates at the Pentagon to discuss export controls and business visa reform. (Photo courtesy of Department of Commerce).

Locke and Gates met for approximately one hour and agreed to continue to work together with their counterparts at other cabinet agencies toward these reforms.

They plan to meet again in the next few weeks with fellow administration officials to address their progress.

On July 22nd Secretary Gary Locke said that "undertaking a review of export controls" is one of his top five priorities and that he has already instructed the Bureau of Industry and Security to initiate a review of the entire U.S. export control system. The White House subsequently announced that the Obama Administration would conduct a review of the U.S. export control system.

Secretary Locke will be the keynote speaker at next week's Update Conference on Export Controls and Policy presented by the Commerce Department's Bureau of Industry and Security.

We hope to see many of our readers at Update.

Labels: BIS, BIS Update Conference, Export Controls

Registration is now open for the U.S.-China High Technology Working Group public-private sector dialogue that will be held in the Reagan Building in Washington, DC on September 29, 2009.

The one-day event will feature a number of speakers on U.S.-China high technology trade-related issues, including export controls.

The agenda for the program can be found here. Registration is $145.

Labels: BIS, China;

Today, President Obama announced his intent to nominate Washington, DC attorney Eric Hirschorn as Nominee for Under Secretary of Commerce for Export Administration and head of the Bureau of Industry and Security.

As indicated by his biography from the formal announcement below, Mr. Hirschorn has extensive experience in export control-related issues, having served as Deputy Assistant Secretary for Export Administration in the early 1980s and while in private law practice.

Following the nomination Secretary of Commerce Gary Locke issued a statement indicating that:

"Eric Hirschhorn has a wealth of experience working with export controls and I look forward to having him onboard as we implement President Obama's vision to reform the export control system and increase competitiveness of U.S. companies by facilitating the sale of our goods while protecting national security."

There are still two vacant political positions at BIS: Assistant Secretary for Export Administration and Assistant Secretary for Export Enforcement.

President Obama announced his intent to nominate the following individuals today:


Eric L. Hirschhorn, Nominee for Under Secretary of Commerce for Export Administration and head of the Bureau of Industry and Security, Department of Commerce

Eric Hirschhorn, a partner in the Washington, D.C. office of Winston & Strawn LLP, long has been active in the areas of international law, litigation, and professional responsibility. As Deputy Assistant Secretary for Export Administration at the U.S. Department of Commerce (1980-81), Mr. Hirschhorn oversaw U.S. export controls for items having commercial as well as military applications, antiboycott compliance, restraints on imports for national security reasons, and the Department’s participation in the Committee on Foreign Investment in the United States (CFIUS). Earlier, while a member of President Jimmy Carter’s reorganization project staff (1977-80), he worked on reorganizing the government’s international trade, public diplomacy, and foreign assistance mechanisms. Before working in the Executive branch, Mr. Hirschhorn held several congressional staff positions, was in private law practice in New York City, and was a legal services lawyer. Mr. Hirschhorn has represented clients on a wide range of commercial and regulatory matters since returning to private law practice in 1981. Mr. Hirschhorn is Executive Secretary of the Industry Coalition on Technology Transfer (ICOTT), a group whose industry participants are affected by U.S. export control and embargo rules. He is the author of The Export Control and Embargo Handbook, Second Edition, published in 2004, and numerous articles on export controls, embargoes, and related topics. He chairs the D.C. Bar Rules of Professional Conduct Review Committee and is a member (and former chair) of the D.C. Bar Legal Ethics Committee. He also is a member of the New York City Bar Association and the Thurgood Marshall American Inn of Court. Mr. Hirschhorn received his B.A. degree from the University of Chicago and a J.D. degree from Columbia University, where he was a Harlan Fiske Stone Scholar.

Labels: BIS

The Treasury Department's Office of Foreign Assets Control today announced that it released an updated version of its list of Specially Designated Nationals ("SDN List"). While OFAC's update did not include any substantive changes to the parties included on the SDN List, the new version of the SDN List makes a number of changes in the format of the list to consolidate duplicate records and to ensure that it conforms to established list standards and to remove duplicate records.

For example, OFAC merged duplicate names into single records with multiple addresses and standardized records to move aliases into a separate "alias field" (e.g., a.k.a.).

A complete list of all changes made to the SDN List can be found here.

OFAC’s various sanctions regulations generally prohibit transaction with parties named on the SDN List. In addition, part 744 of the Export Administration Regulations imposes export and reexport licensing requirements for items subject to the EAR to any party on the SDN List that contains any of the suffixes "SDGT", "SDT", "FTO", "IRAQ2" or "NPWMD".

Labels: BIS, OFAC

Yesterday's blog posts on the BIS export control enforcement cases involving RFMD and FMC have been updated to include additional information contained in the proposed charging letter and settlement agreements that were posted yesterday afternoon (see posts below).

Labels: BIS, Export Controls

Reprinted from Sandler, Travis & Rosenberg's WorldTrade Interactive daily newsletter:

The Bureau of Industry and Security has posted to its Web site a report summarizing its activities during fiscal year 2008. Highlights of this report include the following.

Licensing. BIS processed 21,293 export license applications worth approximately $72.1 billion, a 9% increase from FY 2007 and the highest number of applications reviewed in 15 years. Over the past decade, the number of export license applications has steadily increased, nearly doubling since 2000.

BIS approved 17,945 license applications (84%), returned 3,171 without action (15%) and denied 177 (less than 1%). The average license application processing time was lowered from 28 days to 27 days.

China was the destination for the largest number of approved license applications. BIS approved 1,990 license applications for exports to China valued at more than $2.7 billion; 25% of these were for deemed export licenses to release controlled technology or source code to Chinese nationals working in U.S. companies and universities. The average processing time for all approved licenses to China was 33 days, down 12% from FY 2007.

During calendar year 2007, U.S. companies exported $2.8 billion of licensed items (of which 11.8% were exported under a special comprehensive license) and $14.2 billion of items under a license exception, representing 0.2% and 1.2%, respectively, of overall U.S. trade.

Classification. In order to ascertain whether an export license is required from BIS, an exporter needs to classify the item to be exported by determining the Export Control Classification Number and may request an official classification. BIS processed 6,629 classification request applications in an average of 33 days.

Commodity Jurisdiction. A commodity jurisdiction request is used to determine whether an item or service is subject to the export licensing authority of the Department of Commerce or the Department of State. BIS processed 539 CJ requests in an average of 37 days.

Encryption. BIS processed 3,396 technical review requests for encryption items, including 627 requests for reviews of "mass market" encryption items. Most items submitted for review became eligible for export as "ENC Unrestricted" or "mass market" encryption commodities and software eligible for export and re-export without a license to both government and non-government end-users in most countries.

BIS also approved approximately 2,320 license applications for the export or re-export of restricted encryption products (such as high-end routers and other network infrastructure equipment) and technology outside the U.S. and Canada to non-sanctioned end-users outside Country Group E:1.

Enforcement. BIS investigations resulted in the criminal conviction of 40 individuals and businesses for export violations with penalties totaling more than $2.7 million in criminal fines, over $800,000 in forfeitures and over 218 months of imprisonment. This compares to 16 convictions and over $25.3 million in criminal fines in FY 2007.

BIS investigations also resulted in the completion of 56 administrative cases against individuals and businesses and over $3.6 million in administrative penalties, as compared to 75 cases and over $6 million in penalties in FY 2007. Of these, six cases involved antiboycott violations that resulted in penalties of $162,450, down from 10 cases and $194,500 in penalties the previous year.

End-use checks play a preventive enforcement role in confirming the bona fides of end-users, ensuring that items will be or have been properly used as authorized and that license conditions are adhered to. BIS completed 490 end-use checks in over 50 different countries, including 151 pre-license checks and 339 post-shipment verifications. BIS completed a significant number of other preventive enforcement actions as well, including 181 warning letters, 104 detentions, 20 seizures, temporary denial orders against nine individuals and 19 companies; the renewal of TDOs against 11 individuals and 19 companies, related-persons orders against four individuals, and five denials under Section 11(h) of the Export Administration Act (which authorizes denial of export privileges of parties convicted under certain federal statutes).

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Labels: BIS

There were various news reports today, including some from Syria, indicating that the U.S. Government had advised Syria that it was lifting sanctions or issuing waivers on the export of U.S.-origin parts and components for civil aircraft "as well as the embargo on exporting communications and information systems equipment and technology to Syria, including software, hardware and internet-related equipment."

This information is not entirely correct. According to a White House spokesman, in a meeting in Damascus on Saturday with Syrian President Bashar al-Assad, George Mitchell, the Obama Administration's Special Envoy for Middle East Peace, said that the Obama Administration "would process all eligible applications for export licenses to Syria as quickly as possible."

As a result of the Syria Accountability and Lebanese Sovereignty Act of 2003 (SAA), the U.S. currently prohibits the export to Syria of any items that appear on the United States Munitions List or Commerce Control List, the export to Syria of U.S.-origin products (other than food and medicine) and aircraft owned or controlled by the Syrian government from taking off from or landing in the United States.

Despite these prohibitions, General Order No. 2, issued by the Bureau of Industry and Security (BIS) in May 2004 to implement the SAA, states that BIS may consider license applications to export six types of items to Syria on a case-by-case basis, including: medicine (listed on the CCL) and medical devices; parts and components intended to ensure the safety of civil aviation and the safe operation of commercial passenger aircraft; and telecommunications equipment and associated computers, software and technology.

BIS and the other U.S. government reviewing agencies involved in the export licensing process have consistently approved licenses to export controlled medicines and medical devices to Syria on a regular basis and in a fairly timely manner since the SAA went into effect. (According to BIS data for 2008 the agency approved 247 licenses, returned without action 91 license applications and rejected 3 applications. The average license processing time in 2008 was 25 days.)

However, the same is not always true of other types of eligible products, such as aircraft components and telecommunication products. U.S. export data issued by the Census Bureau indicates that during 2004 to 2008 BIS approved on a case-by-case export license applications to Syria for other types of eligible products in very limited numbers.

While the Obama Administration's decision to process eligible applications for export licenses to Syria "as quickly as possible" is a positive development for certain U.S. industries, it certainly does not rise to the level of the "lifting of sanctions" and will affect only a relatively small range of products. As a result, until U.S. sanctions are modified, U.S. exporters should be aware that significant restrictions still remain on doing business with Syria, including the need to obtain export licenses from BIS prior to exporting eligible products and ensuring that unlicensed products will not be reexported or diverted to Syria.

Labels: BIS, Sanctions; Syria

In a speech presented this evening to the Washington International Trade Association, Commerce Secretary Gary Locke said that "undertaking a review of export controls" is one of his top five priorities and that he has already instructed the Bureau of Industry and Security to initiate a review of the entire U.S. export control system.

Below is the export controls portion of Secretary Locke's speech. The full text of the speech, including the list of his other four priorities, can be found here.

Yet another area where red tape is challenging American businesses, and American security, is our export control regime.

Earlier this year, former National Security Adviser Brent Scowcroft, chaired a distinguish panel* to look into this issue, and he flatly declared:

“The national security controls on science and technology are broken.”

The panel concluded that our Cold War era export control system has constrained both U.S. commercial and military capabilities from expanding into new fields and from applying new scientific developments.

Our export control system must adapt to America's changing security needs without inhibiting the competitiveness of U.S. companies and institutions. That competitiveness is critical to our economic and national security.

Commerce has already begun to implement programs that will reduce the export licensing burden on U.S. companies. For example, earlier this year, I announced the first Validated End User in India. The VEU program was designed to facilitate high technology trade in India and China by enabling certain items to be transferred without an individual export licenses. But much more needs to be done.

I have instructed Commerce’s Bureau of Industry and Security to initiate a review of the entire export control system. The review will focus on improving the system by targeting our controls at those state and non-state actors who would seek to do us harm, while ensuring that the traditional control lists keep pace with technological developments.

*The panel referred to produced the National Academies' January 2009 report on export controls entitled Beyond 'Fortress America: National Security Controls on Science and Technology in a Globalized World.

Labels: BIS, Commerce Department, Export Controls

The Bureau of Industry and Security (BIS) published a final rule in today's Federal Register amending the Entity List to add and remove certain entities. The modifications to the Entity List contained in today's rule were as follows:

• Thirteen entities in Germany, Hong Kong and Ireland were added to the Entity List on grounds that that they were acting contrary to the national security or foreign policy interests of the United States. There will be a policy of denial of an export license to any products destined for these thirteen entities.
  
• One entity in Pakistan and two entities in the UAE were removed from the Entity List.
• The final rule also made a correction to the address of one party in the UAE listed on the Entity List.
  

The Entity List, established in 1997 and modified periodically, is found in Supplement No. 4 to Part 744 of the Export Administration Regulations. The Entity List includes non-U.S. businesses, research institutions, government and private organizations, individuals, and other types of entities whose activities are contrary to U.S. national security and/or foreign policy interests.

The inclusion of a party on the Entity List notifies exporters that certain exports and reexports to parties identified on the Entity List require an export license from BIS and that the availability of License Exceptions in such transactions is limited. The Entity List also includes the license review policy for each part listed. In some cases, there is a presumption that an export license will not be granted.

U.S. exporters should screen all of the customers and end-users in an export transaction against the Entity List prior to the products being exported from the U.S.

Labels: BIS

Five axis grinding machines are controlled by the Export Administration Regulations (EAR) under ECCNs 2B001.b.2 (mills) and 2B001.c.2 (grinders). Exports of five axis machine tools from the U.S. are controlled for NS, NP, and AT reasons and there are no license exceptions.

The following is a summary of the key findings of the critical technology assessment:

• Foreign availability of certain five axis simultaneous control mills, mill/turns, and machining centers controlled by ECCN 2B001.b.2 exists in China and Taiwan, both having an indigenous capability to produce five axis simultaneous control machine tools with parameters comparable to those produced in the U.S.;

• U.S. export license processing times, especially to China, are longer than those of other Wassenaar Arrangement members, placing U.S. exporters at a competitive disadvantage;

• The U.S. is losing market share to its European and Asian competitors, particularly South Korea;

• U.S. producers of five axis simultaneous control machine tools, while currently profitable, face an uncertain future for their five axis machine tool product lines with imports outpacing domestic sales and increasing customer demand for foreign machine tools;

• A potential vulnerability exists with regard to sensitive data stored in the computerized numerical controllers of machine tools connected to the Internet.

As a result of the assessment, the following recommendations were made:

• The EAR should be amended to facilitate the export of five axis simultaneous control mills, mill/turns, and machining centers of certain precision accuracies controlled by ECCN 2B001.b.2 with foreign availability to controlled countries under license exception or similar-type authorization, and work with international partners to modify the existing multilateral export control of five axis simultaneous control machine tools;

• Producers and distributors of these machine tools are encouraged to identify or develop anti-tampering and anti-diversion features that can be utilized to mitigate concerns of machine tool misuse or diversion after export to facilitate interagency review of license applications to sensitive destinations;

• Improve communication between U.S. companies and U.S. export licensing officials to decrease processing times of license applications for exports destined to China;

The complete report can be found here (pdf).

Labels: BIS, Export Controls

Christopher R. Wall, who recently served as the Assistant Secretary of Commerce for Export Administration in the Bureau of Industry and Security (BIS) has rejoined the Pillsbury law firm as senior international trade partner in the firm's Washington, DC office.

Labels: BIS

The House of Representatives today passed by a vote of 245-178 H.R. 1105, the $410 billion Omnibus Appropriations Act of 2009, to fund much of the government for the remainder of fiscal year 2009.

The omnibus appropriations bill makes several changes with respect to Cuba policy. Section 620 of the bill contains language that would amend the Trade Sanctions Reform Act to permit persons to travel to Cuba to market and sell agricultural and medical products under a general license, rather than pursuant to a specific license. Sections 621 and 622 of H.R. 1150 would defund enforcement of the 2005 Bush Administration changes to the rules governing "cash in advance" payments of agricultural sales and travel to visit family members in Cuba.

The bill would also appropriate $83,676,000 to the Bureau of Industry and Security, of which of which $14,767,000 must be used for "inspections and other activities related to national security."

The bill now goes to the Senate, where considerable debate is expected over the bill's high price and numerous earmarks.

Labels: BIS, Congress, Cuba

Persons attending the Bureau of Industry and Security's Annual Export Control Forum in Newport Beach, California from March 16-17 are invited to attend a networking reception that will be held on March 15 from 6-9 p.m. at the Radisson Hotel located at 4545 MacArthur Boulevard, Newport Beach, CA 92660.

The reception, whose sponsors include J.P. Morgan, Chase and The Export Practitioner in cooperation with BIS and the U.S. Commercial Service, will allow trade compliance professionals an opportunity to connect with industry and government counterparts over complimentary appetizers and beverages.

Contact Matt Cunningham at JPMorgan (matthew.p.cunningham@jpmchase.com or 303-532-3833) to RSVP for this event.

Labels: BIS

The Census Bureau's most recent AES Newsletter contains the following FY 2008 export licensing statistics and information from the Bureau of Industry and Security (BIS):

In Fiscal Year (FY) 2008, BIS processed 21,290 export license applications involving trade worth approximately $72.2 billion. This marked an increase of 9% over the 19,504 applications processed in FY 2007 and represented the highest number of applications reviewed by BIS in over a decade.

BIS approved 17,942 license applications, returned 3,171 applications without action, and denied 177 applications. In FY 2008, BIS continued to ensure the timely review of all license applications with an average processing time of 27 days.

Eighty-seven percent of AES transactions involving a license or license exception were reported accurately in FY 2008. The following lists the top compliance problems with EAR-related reporting in AES:

1) Incorrect Use of “No License Required” (NLR) License Type.
2) Missing Export Control Classification Number (ECCN).
3) Incorrect Use of EAR99.
4) Invalid Country Use With Commerce Control List (CCL)-Based License Exception.
5) CCL-Based License Exception Not Applicable to an ECCN.
6) Country Mismatch Between License and AES Destinations.

Labels: AES, BIS, Census

In a series of four related cases involving the unlicensed exports of chemicals, metals and electronic components from the U.S. to Taiwan, the Bureau of Industry and Security has imposed civil penalties and denial orders on two companies and two individuals involved in the transactions.

The settlement agreements and related documents associated with these case were recently posted BIS's electronic reading room site and three of the four orders will be published in tomorrow's Federal Register.

The cases involved Taiwan-based, Well Being Enterprise Co. Ltd., Elecmat, Inc., Well Being's San Francisco-based affiliate, Theresa Chang, a U.S.-based employee of Elecmat and Hui-Fen Chen, a.ka., Angela Chen, an employee of Well Being Enterprise in Taiwan.

According to BIS, the two companies and two individuals participated in a scheme in which Well Being requested Elecmat to procure a number of controlled chemicals, metals and electronic components classified under Export Control Classification Numbers (ECCNs) 1C227, 1C299, 1C230, 1C231, 1C234, 1C240, 1C350 and 3A201. BIS alleged that Well Being instructed Elecmat not to tell the U.S. suppliers that Elecmat would export the items. Elecmat subsequently procured the items and exported them to Taiwan without the required export licenses.

BIS charged Well Being with 25 counts, Elecmat with 39 counts, Ms. Chen with one count and Ms. Chang with three of violating the EAR and settled the cases as follows:

• Well Being Enterprise Co., Ltd. was ordered to pay a $250,000 civil penalty, of which $220,000 will be suspended if the company commits no further violations for the next five years. BIS also imposed a 20 year denial order against Well Being that prohibits the company and its employees from involvement in transactions involving export from the U.S.
  

• Electmat Inc. received a 20 year denial order.

• Ms. Chen received a 20 year denial order.

• Ms. Chang received a two year denial order. In 2007, Ms. Chang pleaded guilty in a related criminal proceeding to one count of making false statements related to the export of nickel powder to Taiwan without an export license was sentenced to pay a $5,000 fine and three years of probation.

Labels: BIS, Export Controls

The well-publicized memorandum from Chief of Staff Rahm Emanual to the heads of executive branch departments and agencies regarding review of pending regulations will be published in Monday's Federal Register. Among other things, the regulatory review memo suggested that agencies "consider extending for 60 days the effective date of regulations that have been published in the Federal Register but not yet taken effect." The memo also notes there are exceptions for national security and other significant circumstances.

The Office of Management and Budget issued a follow-up memo containing a number of factors agencies should use in determining whether to extend the implementation date of pending regulations, including whether the rulemaking process was procedurally adequate, whether the rule reflected proper consideration of all relevant facts, whether the rule reflected due consideration of the agency’s statutory or other legal obligations and several other factors.

Despite rumors to the contrary, neither U.S. Customs and Border Protection (CBP) nor the Bureau of Industry and Security have announced any plans to delay the implementation date of any pending regulations.

The most well known of CBP and BIS's pending regulations is CBP's Importer Security Filing and Additional Carrier Requirements regulation (commonly known as 10+2) that was published in the Federal Register (pdf) on November 25, 2008 and is scheduled to take effect tomorrow, January 26th. Therefore, it appears that the 10+2 regulation will go into effect tomorrow as planned.

However, as most importers are aware, the 10+2 regulation already contained a "structured review and flexible enforcement period" that will give the trade 12 months, or until January 26, 2010, to adjust to the new reporting requirements. Nevertheless, importers are still required to "make a good faith effort to comply with the rule to the extent of their current ability."

Given that regulatory and policy issues will be in a state of flux for the near term, importers and exporters should closely monitor announcements from CBP, BIS and other agencies governing the import and export of goods.

Labels: BIS, CBP

As a follow-up to our previous post on negotiations involving the China Validated End-User (VEU) program, the Bureau of Industry and Security and China's Ministry of Commerce last night concluded an agreement that would fully implement the China VEU program. Among other things, the agreement permits BIS officials to conduct on-site inspections of the companies in China that have been designated as VEUs.

BIS announced the agreement in the following press release:

WASHINGTON, D.C. – The Bureau of Industry and Security (BIS) today announced the full implementation of the Validated End-User (VEU) program for the People’s Republic of China. With agreement on procedures to ensure the program’s secure and efficient operation, civilian U.S.-China high-technology trade will benefit from the continued export of certain products to VEU-approved companies without individual licenses. The VEU program facilitates civilian trade by reducing administrative and logistical hurdles for certain exports to pre-screened companies in China.

“We are pleased to have reached this milestone agreement with China, one of our nation’s most important trading partners,” Under Secretary of Commerce Mario Mancuso said. “This agreement will maximize the security and trade-enhancing benefits of the VEU program, and continue a promising chapter in civilian U.S.-China high technology trade. U.S. exporters now have a more streamlined way to export to companies in China who have a record of using U.S. technology responsibly.”

Established in 2007, the VEU program uses a market-based approach to facilitate civilian high-technology trade with China. The program permits civilian companies in China, who pass a rigorous national security review and agree to strict follow-on compliance obligations, to receive under a VEU-specific authorization the same U.S.-controlled items they could previously receive under individual Commerce Department licenses.

Labels: BIS, China

Bloomberg reported this afternoon that the Commerce Department's Bureau of Industry and Security (BIS) and the Government of the People's Republic of China are making a last ditch effort to finalize an agreement that would allow the China Validated End-User (VEU) program to continue by permitting BIS officials to conduct on-site inspections in China.

The Washington Times reported last month that BIS was close to issuing a new regulation that would suspend the China VEU program until China agrees to on-site inspections of the five Chinese companies that have been granted VEU status. That regulation has not yet been issued.

Under Secretary of Commerce Mario Mancuso responded to the Washington Times report by saying that "the lack of an agreement diminishes VEU’s trade enhancing benefits, and Commerce is evaluating all options related to the program for China, including suspension."

In October 2008, the Government Accountability Office recommended that the Secretary of Commerce suspend the VEU program until BIS was permitted to conduct on-site reviews in China to ensure that the items shipped to the VEUs in China are used as intended.

Labels: BIS, China

The Bureau of Industry and Security (BIS) published a final rule in Monday's Federal Register making various technical amendments to the Chemical Weapons Convention Regulations (CWCR) (15 CFR Parts 710 through 721).

In addition to updating the address for submitting declarations, reports and advance notifications under the CWCR and for submitting chemical determination requests, etc., the final rule also updates the list of countries that currently are States Parties to the Chemical Weapons Convention by adding Republic of the Congo, Guinea-Bissau and Lebanon, which became parties to the CWC in 2008.

BIS's CWC web site can be found here.

Labels: BIS

Under Secretary of Commerce for Industry and Security Mario Mancuso made the following statement today in response to the Washington Times article entitled “U.S. to Tighten Export Rules on 5 Firms in China (see yesterday's post on this story here):”

First, the Validated End User (VEU) program was designed to ensure that U.S. products are used for commercial purposes consistent with our broader foreign policy towards China. It does not provide companies with access to ‘strategic military equipment.’ The items approved for export under VEU are dual-use in nature and are used for strictly commercial purposes.

Second, VEU does not allow companies to obtain U.S. technology without the formal security checks required for an export license. In fact, companies approved for VEU undergo a much more rigorous and demanding interagency review than that required for an individual export license.

Third, it is incorrect to report that the Commerce Department has been unable to conduct checks of facilities in China. Commerce does have the ability to conduct checks and recently conducted such checks under a pre-existing framework.

The five VEU companies currently authorized have an established licensing history and a proven track record of using U.S. products for commercial purposes. Among other requirements, VEU companies must maintain comprehensive compliance programs and agree to allow on-site reviews.

We continue to work on an agreement that would formalize procedures for VEU-specific on-site reviews. The absence of such procedures does not pose a security risk. However, the lack of an agreement diminishes VEU’s trade enhancing benefits, and Commerce is evaluating all options related to the program for China, including suspension.

The U.S.-China relationship is critical to the prosperity of both countries, and Commerce will continue to consider ways to expand commercial high technology trade with China consistent with our national security interests.

Labels: BIS

The Washington Times reported tonight that the Bureau of Industry and Security (BIS) is close to issuing a new regulation that would suspend the China Validated End-User (VEU) program until China agrees to on-site inspections of the five Chinese companies that have been granted VEU status. The article states that:

A Commerce Department official, who spoke on the condition of anonymity because of ongoing diplomatic negotiations, told The Times that the Bush administration plans to suspend the program unless it can impose safeguards before it leaves office next month.

"This program will either be fixed or ended before Jan. 20," the official said, adding that a decision will be made "in days, not weeks."

China could avoid a suspension of the program by agreeing to U.S. demands for on-site inspections. The official said, however, that it does not appear likely that Beijing will make concessions before the Bush administration leaves office.

In October 2007, the Bureau of Industry and Security (BIS) announced the following five VEUs in China:

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

In January 2008, the Wisconsin Project on Nuclear Arms Control issued a report (PDF) criticizing the selection of two of the five Chinese companies named as VEUs. The report stated that Shanghai Hua Hong NEC Electronics Company, Ltd. and BHA Aerocomposite Parts Co., Ltd. "are affiliated closely to China’s military industrial complex and to companies that have been punished by the U.S. government for proliferation or other improper export behavior."

In October 2008, the Government Accountability Office recommended that the Secretary of Commerce suspend the VEU program until BIS was permitted to conduct on-site reviews in China to ensure that the items shipped to the VEUs in China are used as intended.

Labels: BIS, China

As noted below, two of the Bureau of Industry and Security's Technical Advisory Committees will be meeting in the coming weeks. The meeting agenda and information on how to attend these meetings can be found in the links below:

• The Emerging Technology and Research Advisory Committee (ETRAC) will meet on December 8, 2008, 1:30 p.m., Room 3884, in the Herbert C. Hoover Building, 14th Street between Pennsylvania and Constitution Avenues, NW., Washington, DC. The ETRAC advises the Office of the Assistant Secretary for Export Administration on emerging technology and research activities, including those related to deemed exports.

• The Regulations and Procedures Technical Advisory Committee (RPTAC) will meet December 10, 2008, 9 a.m., Room 4830, in the Herbert C. Hoover Building, 14th Street between Constitution and Pennsylvania Avenues, NW., Washington, DC. The RPTAC advises the Office of the Assistant Secretary for Export Administration on implementation of the Export Administration Regulations (EAR) and provides for continuing review to update the EAR as needed.

Labels: BIS

The Bureau of Industry and Security (BIS) published a notice in today's Federal Register announcing that it is seeking public comment on the prospect of removing from de minimis eligibility commodities controlled for missile technology (MT) reasons under Category 7-Product Group A on the Commerce Control List (CCL), except when the items are incorporated as standard equipment in Federal Aviation Administration (FAA) (or national equivalent) certified civilian transport aircraft.

Commodities controlled by Category 7-Product Group A in the CCL are certain equipment and components related to navigation and avionics. According to BIS, several agencies have raised concerns that such commodities, when controlled for MT reasons, have the potential to provide a foreign product with unique military capabilities, even if the value of the commodity is below normal de minimis levels.

If such a policy were implemented, foreign made items that incorporate U.S.-origin 7A commodities would be subject to the Export Administration Regulations, except when the 7A commodities are incorporated as standard equipment in FAA (or national equivalent) certified civilian transport aircraft.

BIS is seeking public input on the impact such a change would have on U.S. manufacturers of category 7A commodities, as well as the impact such a change would have on foreign manufacturers that incorporate U.S.-origin 7A commodities into their foreign-made products.

Comments must be submitted to BIS by January 20, 2009.

Labels: BIS, Export Controls

The next meeting of the National Council on International Trade Development (NCITD) will take place on Wednesday, November 12, 2008 in Washington, DC and will feature the following speakers:

• Janice Owens, Export/Import Licensing Officer, Office of International Programs, U.S. Nuclear Regulatory Commission

• Steven Clagett, Director Missile and Nuclear Technology, Bureau of Industry and Security, U.S. Department of Commerce

• Mario Mancuso, Under Secretary for Industry and Security, U.S. Department of Commerce
  

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, Miscellaneous

The Bureau of Industry and Security (BIS) issued a notice in today's Federal Register requesting public comments on the effectiveness of its licensing procedures for the export of agricultural commodities to Cuba. BIS will include a description of these comments in its biennial report to the Congress, as required by the Trade Sanctions Reform and Export Enhancement Act of 2000. Comments must be received by November 28, 2008.

License Exception AGR authorizes exports and certain reexports of eligible agricultural commodities that are classified as ECCN EAR99 to Cuba, subject to certain criteria and restrictions.

Labels: BIS, Cuba

The Jerusalem Post published a story today by reporter Michael Freund describing a three-day conference that was held in Damascus, Syria last week aimed at reinvigorating the Arab boycott of Israel. The article indicates that the conference was attended by representatives of 14 Arab countries, including including Libya, Syria and Kuwait and representatives of the Palestinians and the Organization of the Islamic Conference.

The article reports that various speakers at the conference reiterated the importance of the embargo on Israel as a means of pressuring the Jewish state and called on the Arab League's members to intensify its enforcement. The Commissioner General of the Arab League's Central Bureau for the Boycott of Israel stated that said the trade embargo Israel aims "to challenge the legitimacy of Israel's existence", the boycott is of "a tolerant nature" because it "targets persons who support the Jewish entity in any way, regardless of their nationalities or religions" and that calls to end the boycott are "illogical" so long as "Israel is pursuing its aggressive policies and committing atrocities."

The antiboycott provisions in Part 760 of the Export Administration Regulations prohibit U.S. persons from complying with unsanctioned foreign boycotts, such as the Arab boycott of Israel. The antiboycott regulations also require U.S. persons receiving certain boycott requests contained in letters of credit and other sales-related documents to report them to the Bureau of Industry and Security's Office of Antiboycott Compliance (OAC). OAC remains active in enforcing the antiboycott regulations and recently imposed a $108,000 civil penalty on a freight forwarder related to alleged violations of the antiboycott regulations.

Labels: BIS, Boycotts

The Commerce Department's Bureau of Industry and Security (BIS) announced that America II Electronics, Inc., an electronics wholesaler based in St. Petersburg, Florida, agreed to pay a $170,000 ($42,500 per violation) civil penalty to settle allegations that it exported certain electronic components from the U.S. to Russia in violation of the Export Administration Regulations.

BIS alleged that on four occasions in 2003 and 2004 American II exported analog-to-digital converters, classified under ECCN 3A001, from the U.S. to Russia without the required export licenses.

This is the eighth administrative penalty case brought by BIS under IEEPA Enhancement Act that went into place nearly a year ago. The IEEPA Enhancement Act raised the maximum civil penalty from $50,000 per violation to the greater of $250,000 or twice the amount of the transaction that is the basis of the violation.

The proposed Charging Letter, Settlement Agreement and Order in this case can be found here (pdf).

Labels: BIS

Today's guest post on BIS's recently issued encryption regulation was written by Felice Laird, a consultant on encryption and other export control issues and founder of Export Strategies, LLC.
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In response to industry pressure and a Presidential Directive issued earlier this year, the Bureau of Industry and Security (BIS) published an interim final rule on October 3, 2008 modifying the Export Administration Regulations (EAR) governing the export of hardware, software and technical data using encryption technology. The rule makes some marginal changes to the regulations but falls short of any significant restructuring of the regulatory regime which as been in place for almost a decade. Despite the limited nature of the changes, many U.S. companies will need to tweak their compliance practices immediately in order to comply with the new rules –– there is no “grace period” for implementation.

The new rule, ironically entitled “Encryption Simplification” takes up eighteen pages in the Federal Register. BIS plans on developing additional guidance to be posted on its website as questions will inevitably be raised regarding the correct interpretation of certain provisions contained in the final rule.

Good News for Some

Companies in the business of making products for the consumer market will benefit from the regulatory changes. For example, companies that make mass-market products using weak cryptography (now defined as using key lengths not exceeding 80 bits; for asymmetric algorithms with key lengths not exceeding 1024 bits; and for elliptic curve algorithms with key lengths not exceeding 160 bits) no longer have to submit a notification of self-classification prior to export. These products can be classified as 5X992 and exported under “NLR”.

The new regulation introduces a category of products performing “ancillary cryptography” and exempt them from review and reporting requirements. Examples provided by BIS in its definition of ancillary cryptography in section 772.1 of the EAR include “business process modeling and automation (e.g., supply chain management, inventory, scheduling and delivery); industrial, manufacturing or mechanical systems (including robotics, other factory or heavy equipment, facilities systems controllers including fire alarms and HVAC); automotive, aviation and other transportation systems. Relief from the review and reporting requirements is also given to companies making products using short-range wireless technology.

BIS has also raised the thresholds that allow some network infrastructure equipment to be exported under the unrestricted provisions of ENC. As a consequence, low-end virtual private network (VPN) hardware and other wide area networking products can now potentially qualify for license-free shipment to both commercial government end-users worldwide.

All exporters will benefit by the inclusion of Bulgaria, Canada, Iceland, Romania and Turkey to the “License Free Zone” (also known as the “Supplement 3 countries”). Both government and commercial entities in these countries may receive product under ENC once a review request is submitted.

Bad News for Others

BIS has made a change affecting the classification of mass-market products that could present a compliance challenge for companies who may conduct a limited international release of product coincident with the submission of a technical review. Companies had previously been allowed to self-classify mass-market products as 5x992 and export under NLR (no license required) pending a 30 day BIS review. The new rules require that future products be temporarily classified as 5x002 pending a final BIS determination and export be made according to the provisions of ENC. This change is viewed as a roll-back of an existing liberalization and will undoubtedly be cited in comment letters to BIS. Companies will likely claim that expensive system change requirements in their order processing, export documentation and ERP systems will be required to comply with the new rule.

BIS is actively working on a long range plan to further modify the encryption regulations. However, given the fact that this is an election year and that fundamental changes to U.S. encryption export rules will require Wassenaar Arrangement approval there will likely be no further changes for at least a year to eighteen months.

Labels: BIS, Export Controls

The next meeting of the National Council on International Trade Development (NCITD) will take place on Wednesday, October 8, 2008 in Washington, DC and will feature the following speakers:

• Ori Lev, Senior Advisor to the Director, Office of Foreign Assets Control

• Brad Brooks-Rubin, Attorney-Advisor to OFAC, Office of the Chief Counsel, Office of Foreign Assets Control

• Gillian Van Schaic, Managing Director and Head of Global Compliance, J.P. Morgan Treasury and Security Services

• Christopher R. Wall, Assistant Secretary of Commerce for Export Administration, Bureau of Industry and Security
  

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, OFAC

Assistant Secretary of Commerce for Export Administration Christopher R. Wall announced at Update 2008 today that the long awaited de minimis rule, the first of five soon to be published regulations, will be published in tomorrow's Federal Register.

The de minimis rule, which will be published as an interim final rule and therefore effective upon publication, represents the first changes to de minimis calculations since 1996. The de minimis rule is important to non-U.S. companies, as it determines whether a foreign-made item that incorporates controlled U.S.-origin items will be subject to U.S. export controls.

Specifically, the de minimis rule, amends the Export Administration Regulations (EAR) in the following ways:

1. Changes the de minimis calculation for foreign produced hardware that is bundled with U.S.-origin software.
2. Clarifies the definition of "incorporate" as it is applied to the de minimis rules and to the medical statement of understanding.
   
3. Removes the requirement to submit a one time report to BIS for foreign-made software that incorporates U.S.-origin software.
   
4. Revises the “Steps for Using the EAR” and General Prohibition Two with regard to the de minimis rules in order to reduce redundancies in the EAR and harmonize the provisions with other revisions made by the rule.
   

In addition, BIS will publish in the coming days the following additional regulations:

1. Intra-Company Transfer license exception (ICT)
   
2. Revision of license exception ENC;
3. Implementation of the December 2007 Wassenaar Arrangement Plenary Agreement;
4. Final rule to implement the Protocol Additional to the Agreement Between the United States of America and the International Atomic Energy Agency (IAEA) for the Application of Safeguards in the United States of America (known as the "Additional Protocol'').

Labels: BIS, BIS Update Conference, Export Controls

In an effort to educate U.S. exporters on how to prevent the diversion of U.S. goods to Iran, the Bureau of Industry and Security (BIS) has created a new web page entitled "Guidance on Actions Exporters Can Take to Prevent Illicit Diversion of Items to Support Iran’s Nuclear Weapons or Ballistic Missile Programs."

The guidance is part of an inter-agency effort to counter Iran’s pursuit of technology that could enable it to develop weapons of mass destruction and the means to deliver them. It follows enforcement and administrative actions taken last week by BIS and other agencies against 75 entities allegedly involved in a global procurement network which sought to illegally acquire U.S.-origin dual-use and military components for the Iranian Government.

Examples of the guidance posted by BIS include:

• Not all items that Iran could use for weapons of mass destruction-development activities are listed on the CCL. Therefore, exporters must be vigilant on the potential end-use of all items exported from the United States. (e.g., epoxy resin). [Note: These are known as EAR99 and may not be exported to Iran and other sanctioned countries without an export license].

• The exportation of any item that is subject to the EAR (including an EAR99 item) to Iran without a license is prohibited under regulations maintained by the Department of the Treasury’s Office of Foreign Assets Control (OFAC). This includes any exports to a third country if the exporter knows or has reason to know that the item will be reexported to Iran. [Note: Only agricultural products, medicine and medical devices are eligible to be exported to Iran pursuant to an OFAC license].

• Exporters should screen parties to a transaction against the Denied Persons List, Entity List, Unverified List, BIS General Orders, and the Specially Designated Nationals and Blocked Persons List. [Note: BIS recently eliminated General Order No. 3].
  

• Exporters should take note of any abnormal circumstances in a transaction that indicate that the export may be destined for an inappropriate end-use, end-user, or destination. For example:

• unusual quantity requests;
• paying above market prices or using unusual payment methods;
• waivers of normal installation, training or maintenance agreements; and
• requests for delivery to one country with original orders from a second country or direct delivery to a freight forwarder.

• When such "red flags" arise, you should check out the suspicious circumstances and inquire about the end-use, end-user, or ultimate country of destination.

• Companies should have in place compliance and/or business procedures to be immediately responsive to theft or unauthorized delivery.

Labels: BIS, Export Controls, Sanctions; Iran

The Emerging Technology and Research Advisory Committee (ETRAC), which was established to advise BIS on technical questions that affect export controls on dual-use research and development and deemed exports, held its first meeting today at the Commerce Department in Washington, DC .

Prior to the meeting, BIS released the names of the ETRAC members, which are as follows:

Pamela Abshire, University of Maryland	Maja Mataric, University of Southern California
Jeffrey Ashe, General Electric Global Research	Richard McCullough, Carnegie Mellon University
Robert Breault, Breault Research Organization, Inc.	Steven Patterson, Lawrence Livermore National Lab.
Claude Canizares, Massachusetts Institute of Technology	Carl A. Picconatto, MITRE Experimental Laboratory
A. Stephen Dahms, Alfred E. Mann Foundation	Jeffrey Puschell, Raytheon Space & Airborne Systems
Charbel Farhat, Stanford University	Jeffrey Reed, Virginia Tech
Bob Gleichauf, Cisco Systems	Michael Reiter, University of North Carolina
Harry Kington, Honeywell Aerospace	Samuel Stanley, Jr, Washington University
Gerald Kulcinski, University of Wisconsin	Marlin Thomas, Air Force Institute of Technology
Brooks Keel, Louisiana State University	Thomas E. Tierney IV, Los Alamos National Laboratory
Nikolai Leung, Qualcomm, Inc.	James Tour, Rice University
Seth R. Marder, Georgia Institute of Technology

Labels: BIS

The BIS final rule adding parties to the Entity List and removing General Order No. 3 that we discussed last week was published in Monday's Federal Register (September 22, 2008) and can be found here.

Labels: BIS

The Bureau of Industry and Security (BIS) has now released the names of the 75 parties added to the Entity List as part of yesterday's coordinated effort with the Departments of Justice and Treasury to rein in the global procurement network that attempted to acquire U.S.-origin dual-use and military components for the Iranian Government.

The 75 names will be included in the Entity List as part of a final rule that will be published in the Federal Register early next week. An advance copy of the final rule can be found here (pdf).

The final rule, which will take effect on the publication date, is significant in that it transfers the 33 parties included on General Order No. 3 to the Entity List and removes General Order No. 3 from the EAR. Thus, the Entity List will now consist of 108 names, which includes the 75 new companies and individuals being added, the 33 parties previously included on the Entity List and 7 persons with addresses in multiple countries, since the Entity List is organized by country.

The final rule notes that the recently created inter-agency End User Review Committee (ERC) "decided to specify a license requirement for all items subject to the EAR and establish a license applications review policy of a general policy of denial." In addition, no license exceptions can be used for shipments to the 108 parties on the Entity List.

The good news for U.S. exporters is that this marks the recent time in recent memory that the U.S. Government has actually removed a restricted party list. Transferring the parties included on General Order No. 3 to the Entity List makes it less likely that exporters and freight forwarders will engage in a prohibited transaction with one of the named parties due to their failure to screen the transaction against General Order No. 3. BIS has already brought several enforcement actions against U.S. exporters and freight forwarders for shipping to parties included on the Entity List.

UPDATE: The final rule mentioned above was published in the Federal Register on September 22, 2008 and can be found here.

Labels: BIS

The Commerce Department’s Bureau of Industry and Security (BIS) and the Justice Department announced today that 16 foreign-based individuals and corporations were indicted and 75 parties were added to the Entity List because of their involvement in a global procurement network that sought to acquire U.S.-origin dual-use and military components for the Iranian Government, and for their relationship to the Mayrow General Trading Company in Dubai, United Arab Emirates.

Mayrow General Trading Company was the first party included in General Order 3 to Part 736 of the EAR for its involvement in procuring IED materiel from the U.S.

The 16 defendants are charged with purchasing and causing the export of U.S. goods to Iran through middle countries, including the United Arab Emirates, Malaysia, England, Germany and Singapore. Details of the various counts can be found in the Justice Department's press release.

According to BIS and Justice, today’s announcement is the result of a criminal investigation that was lead by the BIS Office of Export Enforcement field office in Miami, Florida of Iranian procurement front companies including Mayrow General Trading, that is spread across several countries, including the U.S.

Note: As of this writing the names of the 75 parties added to the Entity List have not been published.

Labels: BIS, Export Controls, Sanctions; Iran