BIS Adds Two Parties in UAE to Entity List For Diverting Internet Proxy Devices to Syria

The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) published a final rule in the Federal Register on Friday, December 16, 2011, adding the following individual and company in United Arab Emirates to the BIS Entity List. 

• Infotec, a.k.a., Info Tech, Ras Al Khaimah Free Trade Zone, U.A.E.
• Waseem Jawad, Ras Al Khaimah Free Zone, U.A.E.; P.O. Box: 25123, Dubai U.A.E.

The BIS Entity List includes the names of businesses, research institutions, government organizations and individuals that have been identified as being involved in activities that merit additional scrutiny and licensing requirements. The entries on the Entity List specify the license requirements and license review policy that are applicable to shipments to each listed entity and in many cases the listed entities are prohibited from receiving items subject to U.S. jurisdiction.

In this case, the entries on the Entity List for Infotec and Mr. Jawad specify a license requirement for "all items subject to the EAR" and the license review policy is "presumption of denial."

BIS stated that the two parties in the U.A.E. are being added to the Entity List based on evidence that they purchased U.S.-origin internet filtering devices and transshipped the devices to Syria. Specifically, BIS’s Office of Export Enforcement allegedly obtained evidence that Mr. Jawad, using the company name Infotec, ordered multiple Blue Coat SG9000-20 Proxy devices in December 2010 from a Blue Coat authorized distributor in the U.A.E. That authorized distributor in turn placed an order for the devices with Blue Coat in the U.S. A December 2010 email notification identified the end-user of the Blue Coat products for this order as the Ministry of Communication in Baghdad, Iraq. In February 2011, the devices were shipped from the U.s. to the United Arab Emirates, and ownership was transferred to Mr. Jawad in the Ras Al Khaimah Free Trade Zone in the U.A.E. Approximately three days later, the devices departed the U.A.E. for delivery to Syria. According to BIS, several of the proxy devices were identified by serial number as devices being used by the Syrian Telecommunications Establishment in Damascus, Syria.

BIS's December 16, 2011 final rule also removed the following four entities from Entity List based on the results of the annual review of the Entity List:

Singapore:

(1) Strive Components, Block 10 Toa Payoh Industrial Park Lor 8 #01–1221, Singapore, 319062; and

(2) Synoptics Imaging Systems Pte Ltd., 12 Lor Bakar Batu #06–09, Singapore, 348745.

Taiwan:

(1) Christine Sun, 7th Floor, Number 17, Zhonghua Rd., Sec 2, Xinzhuang City, Taipei, Taiwan; and

(2) In-Tech Company, a.k.a., In-Tech Telecom, Number 15, Lane 347, Jhongjheng Road, Sinjihuang City, Taipei, Taiwan, and 7th Floor, Number 17, Zhonghua Rd., Sec 2, Xinzhuang City, Taipei, Taiwan.

The removal of the four entities from the Entity List eliminates the existing BIS license requirements for exports, reexports and in-country transfers to the four entities. However, the removal of these four entities from the Entity List does not relieve persons of other obligations under part 744 of the EAR or under other parts of the EAR.

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Lessons Learned from Flowserve's BIS and OFAC Voluntary Disclosures: December 6, 2011 in Dallas, TX

On December 6, 2011, a unique event in the Dallas, Texas area will be held on the lessons learned from Flowserve Corporation's export controls and sanctions voluntary-self disclosure (VSD) that led to a $3 million civil settlement with OFAC and BIS.

The event, which will take place from 9 am to 4:30 pm at the Center for American International Law's (CAIL) campus in Plano, Texas, will feature the "inside scoop" on Flowserve’s VSD from company and government speakers. The topics will include:

• What Went Wrong?
• How Did the Company Respond?
• Effectively Planning and Executing a Global
• Disclosure
• Implementing Remedial Measures
• Negotiating Settlements Across Multiple Agencies
• The Government’s Perspective
• Lessons Learned

The fee to attend is only $25, although attendance is limited. For further information see blow. To register for this event click here.
Flowserve VSD Event Flyer - December 6, 2011

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Summary of BIS 2011 Update Conference on Export Controls and Policy (Part 2 of 2)

For those readers that were not able to attend last month's Update 2011 Conference on Export Controls and Policy in Washington, DC, we are presenting a two part summary of the conference prepared by Benjamin Tarr, a law student at the American University's Washington College of Law who is focusing on international law. Below is part two, which covers days two and three of Update 2011. Part one, which covers the first day of Update 2011, can be found here.

Wednesday July 20, 2011

This day began with an Interagency Panel featuring speakers from BIS and the Departments of State and Defense. The first speaker was Ann Ganzer, Acting Assistant Secretary of State for Non-Nuclear and Counter Proliferation. She underscored the need for a multilateral approach to export controls that would curtail and prevent instability. She noted that the State Department is working with the United Nations on arms embargo treaties and is working towards worldwide acceptance of non-proliferation standards in subsequent treaties.

Mr. Anthony Aldwell, Deputy Director of the Defense Technology Security Administration (DTSA) highlighted four factors to be considered for whether to issue export licenses. First, the end state’s policies should be evaluated for friendliness or antagonism towards America’s interests. Second, the end state’s technology level shall be considered. Third, consider the end-user and its history. Fourth, consider the export licenses’ impact on America’s international agreements to ensure compliance with international law. 

He also discussed the key objectives of export control policy, including: protecting assets that give America’s military a critical edge in the fight against terrorism; fostering partnerships among allies; it should enhance enforcement and intelligence agencies.

Wednesday's keynote address was presented by Georg Pietsch, who serves as Director General, Export Controls, of Germany's Federal Office of Economics and Export Controls, which is is commonly known as BAFA.  Mr. Pietsch noted in 2010 approximately 2,700 companies, most of these medium sized companies, submitted over 35,000 formal licence applications to BAFA. In addition, more than 10,000 general inquiries were sent to BAFA’s technical and administrative experts. He noted that number of licence applications has increased by over 50% in six years and the total value of export licence applications received by BAFA in 2010 was approximately 13 billion Euros. He noted that this growth has been very difficult to handle for BAFA and is another reason why BAFA has been following the export control reforms in the U.S. very closely.

Mr. Pietsch addressed how U.S. export controls impact German and other European companies and he noted some legal concerns on the implementation of the State Department's recently published final rule on dual and third country nationals. In addition, he addressed how U.S. export control rules involving classification, exports/reexport and de minimis calculations have a significant impact on German companies.

Mr. Pietsch also addressed BIS's new Strategic Trade Authorization (STA) license exception. On the one hand he noted that "the willingness to enact such liberalizations for long-time partners is without doubt a step in the right direction to get rid of some ineffective, unduly burdensome regulations that restrict German–American economic relations." On the other hand he asked "whether the additional documentation requirements that will come with the STA are really necessary in the case of your closest allies" and that such requirements raise a number of issues for companies located in the European Union. (Editor's note: the full text of Mr. Pietsch's  speech can be found here.)

During the afternoon, there were a number of break out sessions, including one on the new I-129 Form and Deemed Exports. The main theme was the poor communication between compliance officials within the private sector.

The first day concluded with a review of export enforcement issues, including a keynote address by David Mills, Assistant Secretary for Export Enforcement and with an export enforcement panel led by Donald Salo, Jr., Deputy Assistant Secretary for Export Enforcement.

Assistant Secretary Mills noted that he is a strong supporter of outreach and information aimed at small to medium sized businesses since understanding all the elements of export controls remains a challenge and compliance with such laws should not need large staffs.

Striking the right balance between compliance, enforcement and the competitiveness of our exporting community is critical, and as a result, we seek to broaden a two-way dialogue on key control and enforcement issues.

With respect to voluntary self-disclosures, which he called a "pivotal element of compliance", Assistant Secretary Mills said that BIS has implemented a process to centralized the review process of VSDs in Washington, DC, which has resulted in more consistent and speedier resolution. He noted that in fiscal year 2010 226 VSD’s were closed.  Of these, 19% were found not to involve any actual violation, and 67% resulted in warning letters only.  Only 6% of the VSDs resulted in administrative sanctions.  He also said that during the first three quarters of fiscal year 2011, BIS received 193 VSDs, a disclosure rate comparable to previous years.

Mr. Mills also discussed some recent export enforcement cases and BIS's current focus on  seeking penalties against individuals or supervisors who are complicit in deliberate export control violations made by subordinates. (Editor's note: the full text of Mr. Mills' speech can be found here.)

Thursday July 21, 2011

           

In addition to the the popular roundtable discussion sessions with staff from BIS and other agencies, the main program on Thursday was an encryption workshop. In this session, the panel examined the changes made to the encryption provisions of the Export Administration Regulations that were published in the Federal Register on June 25, 2010.

This workshop noted some common encryption mistakes made by applicants. One mistake is that companies use the old Supplement No. Five to Part 742 of the EAR. Another common mistake is that the new Note Four to Category 5, Part 2 of the Commerce Control List, which eliminates encryption controls on many items where encryption is not the primary function, does not require registration and Note Four overrides every other Category Five requirement. 

Editor's note: The presentations from most of the panel presentations can be found here on the BIS website.

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Summary of BIS 2011 Update Conference on Export Controls and Policy (Part 1 of 2)

For those readers that were not able to attend last month's Update 2011 Conference on Export Controls and Policy in Washington, DC, we are presenting a two part summary of the conference prepared by Benjamin Tarr, a law student at the American University's Washington College of Law who is focusing on international law.

Day 1 - Tuesday July 19, 2011

The Update 2011 conference presented by the Commerce Department's Bureau of Industry and Security (BIS) commenced with a short welcome address from Mr. Bernard Kritzer, who serves as the Director of the Office of Exporter Services. He applauded President Obama for his August 2009 pledge to reform the export system to create a classification system which allows government organizations to focus on examining sensitive items for classification while allocating less effort to classifying conventional, non-sensitive items for national security reasons.

After Mr. Kritzer’s speech, Deputy Under Secretary for Industry and Security Daniel O. Hill addressed conference attendees. He announced that President Obama’s export control policies have succeeded, despite widespread skepticism and opposition expressed during Update 2010. Mr. Hill placed special emphasis on the fact that President Obama has led the effort to place the Defense, State and Commerce departments all on the same export control IT system, thus enabling greater efficiency in the export control process. Mr. Hill commended the participants in Update for attending, as the sold-out nature of the conference indicates a surge in interest and attention given to this field.

The morning’s events culminated with a by Eric L. Hirschhorn, Under Secretary for Industry and Security. Under Secretary Hirschhorn opined that the current export control system is based on outdated Cold War technologies and “is not responsive to current threats.” He noted that export control policy and American global competitiveness is directly linked to national security. He applauded the current efforts to implement of a more simplified U.S. Munitions List that created a tiered structural system designed to control sensitive items. This is important, according to Mr. Hirschhorn, because the private sector now manufactures most of the goods used by the military. He believes that the government should focus its resources on the most sensitive items going to countries that pose great risks to U.S. national security. Less important military items should be subject to lesser scrutiny than should items of high sensitivity.

Mr. Hirschhorn elaborated on the Administration's three-tiered control list and mentioned the recent implementation of license exception Strategic Trade Authorization (STA) where exporters can export certain items license-free, absent any specific statutory requirements, to 36 countries including Canada, Australia and countries in the European Union. Specifically, these export reform efforts have focused on eliminating “easy cases” from governmental scrutiny vis-à-vis licensing to enable government resources to focus more of its energy on cases that require further examination as to whether or not to grant licenses. License exception STA will potentially eliminate 3,000 of the 22,000 licenses issued by BIS.

Under Secretary Hirschhorn also mentioned the Administration's role in continuing the sanctions regimes on North Korea, Iran, and Cuba. He also noted BIS's role in efforts to implement UN Security Council Resolution 1540, which directs U.N. members to establish an export control system and to collaborate to advance non-proliferation and counterterrorism goals. Additionally, he noted the Executive Order requiring the BIS, FBI, and military intelligence to share information in counterterrorism efforts.

With respect to enforcement of export control laws and regulations, Mr. Hirschhorn mentioned that BIS will continue to penalize individuals for deliberate violations of BIS regulations with punishment including, but not limited to, fines, imprisonment, and a denial of export privileges. However, the penalties can be mitigated if voluntary self-disclosed. (Editor's note: the full text of Under Secretary Hirschhorn's speech can be found here.)

The next speaker was Assistant Secretary for Export Administration Kevin Wolf who noted that his three goals since joining BIS were: first, to ensure aggressive compliance with the laws and regulations that we have now; second, trying to address the biggest problems that exporters face on a day-to-day basis, such as unnecessary impediments on trade with U.S. allies and dealing with the overlap between the U.S. USML and the CCL. His long-term goal is to address the compliance burden faced by those subject to the U.S. export control system.

Assistant Secretary Wolf then provided detailed information on the recently published proposed rule on how items removed from the USML will be eventually controlled on the CCL. He also mentioned that later this year BIS will be issuing a notice soliciting public comments on efforts that can be taken to streamline and clarify the EAR and are reviewing the public comments received on the notice seeking information on making the CCL a more positive list. He noted that it is BIS's goal by the end of 2012 to have a comprehensive proposal to simplify the EAR and start addressing the regulatory compliance burdens that drain corporate resources. (Editor's note: the full text of Assistant Secretary Wolf's speech can be found here.)

The lunch speaker was William Daley, President Obama’s Chief of Staff and a former Secretary Commerce. He noted that President Obama’s goals will allow the U.S. to double its exports in five years. He also criticized the U.S. control system because it still contains two control lists, each with its own control and IT policies and noted that “One branch doesn’t know what the other is doing.” (Editor's note: The White House's summary of Daley's remarks can be found here).

In one of the afternoon break out sessions, panelists from BIS, OFAC, the State Department and DTSA briefed attendees on sanctions policy issues. Among other things, they noted the recent sanctions imposed on certain companies under the amended Iran Sanctions Act and recently listed Iran Air and Tidewater Mid East Company as supporters of Iran’s WMD program and has imposed sanctions on these two companies. Regarding the situation in Libya, BIS has suspended all licenses to Libya. However, no changes have been implemented vis-à-vis exception eligibility for licenses to Libya.

South Sudanese independence has resulted in challenges to BIS since the U.S. must decide which sanctions, if any, apply to South Sudan. Currently, South Sudan is not subject to anti-terrorism controls that previously applied to all of Sudan. But, sanctions do apply to areas where Sudan and South Sudan cooperate, including much of the oil and gas industry.

Editor's note: The presentations from the Sanctions Panel and other panel presentations can be found here on the BIS website.

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BIS Adds 15 Parties and Makes Other Changes to Entity List

Today the Bureau of Industry and Security (BIS) published a final rule in the Federal Register (pdf) adding 15 parties to the Entity List and making a number of changes to other entries as a result of the agency's annual review of the Entity List.

The Entity List includes the names of businesses, research institutions, government organizations and individuals that have been identified as being involved in activities that merit additional scrutiny and can trigger licensing requirements, even for items that may not otherwise require an export license.

The 15 parties added to the Entity List included a number of individuals, companies and airlines located in Cyprus, Greece, Iran, Syria, Ukraine and the United Kingdom.  These parties were added to the Entity List for violating U.S. restrictions involving exports to Syria and Iran. As a result of being added to the Entity List, a license will be required to export any item subject to the jurisdiction of the U.S. Export Administration Regulations (EAR) to any of the 15 parties and license exceptions are not available for transactions involving these parties. In addition, there will be a presumption of denial of any license application submitted involving any of these parties.

The changes to the Entity List also included modifying a number of current entries involving entities located in Syria and China.

For further information on the importance of checking the Entity List, see our previous post entitled "Failing to Check Entity List can be Costly."

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Failing to Check BIS Entity List Can be Costly (From the ATTUS Technologies Blog)

The following article was recently published on the ATTUS Technologies Blog and is reprinted by permission.

Failing to Check BIS Entity List Can be Costly

By Douglas N. Jacobson*

The recent payment of a $200,000 civil penalty to settle an enforcement action brought by the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) serves as an important reminder to parties involved in export transactions of the need to check all restricted party lists maintained by the U.S. Government in connection with export transactions, including the Entity List.

On July 28, 2011, the Deputy Assistant Secretary for Export Enforcement signed an order approving a settlement agreement whereby freight forwarder Toll Global Forwarding (USA) Inc. agreed to pay $200,000 to settle allegations that a company that it had previously acquired, Baltrans Logistics, Inc., had arranged for the export of a number of shipments to organizations in India that were included on BIS’s Entity List.

BIS maintains three restricted party lists: the Denied Persons List, the Entity List and the Unverified List. The Entity List includes the names of businesses, research institutions, government organizations and individuals that have been identified as being involved in activities that merit additional scrutiny and licensing requirements. The entries on the Entity List specify the license requirements and license review policy that are applicable to shipments to each listed entity. In some cases, a license will be required to ship items classified as EAR99 to the customer, even when a license would not normally be required. In other cases, all items subject to the Export Administration Regulations will require a license. The export license review policy also varies from entity to entity. In some cases, there is a presumption of approval or denial and, in other cases, the license will be reviewed by BIS on a case-by-case basis.

In this case, the freight forwarder arranged for the export of electronic components and platinum pellets, both classified as EAR99, from the U.S. to Bharat Dynamics Limited and the Solid State Physics Laboratories in India. While the export of EAR99 items to India would not normally require an export license, Bharat Dynamics Limited and the Solid State Physics Laboratories were included on the Entity List at the time the shipments occurred. The BIS licensing policy for these entities was a “presumption of approval for EAR99 items” and thus an export license may have been issued if a license application would have been submitted.

Because the freight forwarder either did not check to determine whether these two organizations were included on the Entity List prior to the shipment or was not aware of the export license requirements, the freight forwarder was charged by BIS with nine violations of 15 CFR § 764.2(b), causing, aiding and abetting an act prohibited by the Export Administration Regulations (EAR).

In addition to agreeing to settle this case for $200,000, the settlement agreement requires the freight forwarder to undergo an external export compliance audit and submit the results of the audit to BIS next year. The settlement agreement also requires that any potential violations of the EAR must be submitted to BIS for review and that the failure to pay the penalty or submit the audit results as required could lead to a denial of the freight forwarder’s export privileges.

While Bharat Dynamics Limited and the Solid State Physics Laboratories were removed from the Entity List on Jan. 25, 2011, BIS adds new parties to the Entity List and the other lists that it maintains on a regular basis. The charging letter, settlement agreement and other documents related to this case can be found here.

*Douglas N. Jacobson is a Washington, D.C.-based attorney who specializes in export controls, sanctions and other international trade legal issues. He can be reached at (202) 431-2407 or info@djacobsonlaw.com.

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Commerce Department's Press Release on New License Exception STA

Below is the press release issued today by the U.S. Department of Commerce announcing the issuance of the final rule on License Exception Strategic Trade Authorization (STA) that is the subject of the previous post. I will leave it to readers to determine whether License Exception STA is actually a "major" or "significant" step forward in the export control reform process.

Commerce Department Implements New Export Control Rule to Enhance National Security, Facilitate Trade

Major step forward in President's reform initiative to modernize export control system

Washington, DC (MMD Newswire) June 16, 2011 - - U.S. Commerce Secretary Gary Locke today announced the next step in President Obama's export control reform (ECR) initiative aimed at strengthening U.S. national security and ensuring the competitiveness of American companies abroad. The Department will implement today a new license exception, Strategic Trade Authorization (STA), that will facilitate exports between the United States and partner countries while enhancing the competitiveness of key industrial base sectors.

The Export Control Reform Initiative aims to build higher fences around a core set of items whose misuse can pose a national security threat to the United States. By facilitating trade to close partners and allies, the Commerce Department can better focus its resources ensuring the most sensitive items do no end up where they should not.

"This is an important first step towards creating a system that addresses the serious threats we face in today's changing economic and technological landscape. This new license exception will eliminate the need for U.S. exporters to seek licenses in nearly 3,000 types of transactions annually, affecting an estimated $1.4 billion in goods and technology," Commerce Secretary Gary Locke said. "The new license exception will allow us to focus our resources on items that pose a significant national security risk and help facilitate U.S. exports."

"This is a significant step in President Obama's Export Control Reform Initiative which enhances our national security and makes U.S. exporters more competitive by easing their licensing burden for exports to partners and allies," said Under Secretary of Commerce for Industry and Security Eric L. Hirschhorn.

Items such as electronic components for use on the International Space Station, cameras for search and rescue efforts for fire departments, components for civil aviation navigation systems for commercial aircraft, airport scanners, and toxins for vaccine research will be eligible for the new license exception.

At the same time, the license exception establishes new safeguards designed to ensure Department of Commerce approval is obtained before controlled items exported under the exception are re-exported outside of authorized destinations.

To see a copy of the regulation published in the Federal Register Notice, go to http://www.gpo.gov/fdsys/pkg/FR-2011-06-16/pdf/2011-14705.pdf.

Background

The President has directed a broad-based interagency reform of the U.S. export control system with the goal of strengthening national security and the competitiveness of key U.S. manufacturing and technology sectors by focusing on current threats and adapting to the changing economic and technological landscape.

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Bureau of Industry and Security Unveils New License Exception Strategic Trade Authorization (STA)

As part of the ongoing export control reform process, the Bureau of Industry and Security today published in the Federal Register (PDF version of notice) the anticipated new license exception Strategic Trade Authorization (STA).

Under the U.S. Export Administration Regulations, a license exception authorizes the export or reexport of eligible products, software and technology without having to submit a license application and obtain a license from BIS as long as the specific conditions of the license exception are followed.

While License Exception STA will take effect immediately for eligible products, software and technology, as discussed below, it will take some time before the Automated Export System (AES) is modified by the Census Bureau to add the appropriate code in AES.

The scope of the final version of License Exception STA was significantly changed from the version included in the proposed rule published in December 2010. For example, the list of countries eligible to export controlled items that are considered to be less sensitive items was narrowed from 125 countries to eight. Although the final rule does not mention the reason, Ukraine was removed from the list of STA eligible countries.

In addition, based on input received during the public comment period BIS has clearly indicated that License Exception STA can be used for "deemed exports."

According to the final rule, License Exception STA can only be used to export products, software and technology in specific Export Control Classification Numbers (ECCNs) on the Commerce Control List without a license to the following 36 countries (known as 740.20(c)(1) destinations):

Argentina, Australia, Austria, Belgium, Bulgaria, Canada, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, Turkey, and the United Kingdom.

ECCNs eligible to be exported to these 36 countries are indicated by the designation "STA" in the License Exception section of the particular ECCN.

For certain ECCNs involving less sensitive items, software and technology, the following eight additional countries (known as 740.20(c)(2) destinations) are eligible for license exception STA shipments:

Albania, Hong Kong, India, Israel, Malta, Singapore, South Africa, and Taiwan.

However, items controlled for national security reasons are not eligible to be exported under STA to these eight countries and are indicated by "exclusion paragraphs" in the specific ECCN text. 

In addition, items on the Commerce Control List that are subject to control for encryption (EI), short supply (SS), surreptitious listening (SL), missile technology (MT), chemical weapons (CW), and human rights reasons are not eligible for License Exception STA because of various requirements imposed by statutes, treaties or U.S. implementation of international commitments.

The final rule made some favorable changes to the notification requirement contained in the proposed rule. However, the following three conditions will apply to exports, reexports and transfers made under STA:

Condition 1. The consignee must be furnished with the ECCN that applies to each item transferred under License Exception STA. The ECCN notification needs to be made only once for each item to be shipped. As long as the ECCN remains accurate, it does not need to be refurnished for subsequent shipments.

Condition 2. Consignees must provide, prior to the shipment, the following written statement identifying the items to be shipped and restating the ECCN(s) to be shipped.

[CONSIGNEE NAME]:
(i) Is aware that [INSERT DESCRIPTION AND APPLICABLE ECCNS OF ITEMS TO BE SHIPPED] will be shipped pursuant to License Exception Strategic Trade Authorization (STA) in § 740.20 of the United States Export Administration Regulations (15 CFR 740.20); (ii) Has been informed of the ECCNs noted above by [INSERT NAME OF EXPORTER, REEXPORTER OR TRANSFEROR];
(iii) Understands that items shipped pursuant to License Exception STA may not subsequently be reexported pursuant to paragraphs (a) or (b) of License Exception APR (15 CFR 740.16(a) or (b));
(iv) Agrees not to export, reexport or transfer these items to any destination, use or user prohibited by the United States Export Administration Regulations; and
(v) Agrees to provide copies of this document and all other export, reexport or transfer records (i.e., the documents described in 15 CFR part 762) relevant to the items referenced in this statement to the U.S. Government as set forth in 15 CFR 762.7.

The consignee’s written statement must be maintained as well as a log or other written record that identifies each shipment associated with a particular statement.

Condition 3. The consignee must be notified in writing that the shipment is made pursuant to License Exception STA. The notice must either specify which items are subject to License Exception STA or state that the entire shipment is made pursuant to License Exception STA. The notice must clearly identify the shipment to which it refers. The written notice may be conveyed by paper documents or by electronic methods such as facsimile or email.

For "deemed exports," the ECCN notification, consignee statement, and destination control statement requirements are replaced with a requirement that the releaser of the technology or source code notify the recipient in writing of the restrictions on further release and other requirements.

As with all BIS license exceptions, the applicable license exception symbol and code will have to be reported in Electronic Export Information (EEI) filings, regardless of the value of the shipment. The U.S. Census Bureau will soon modify the Automated Export System (AES) by adding a new License Type Code for License Exception STA.

BIS has previously indicated that License Exception STA has the potential to eliminate approximately 3,000 individual licenses that BIS issued last year. Given the narrowed scope of the final version of STA, this number is likely to be reduced. Nevertheless, even if a smaller number of individual licenses do not have to be obtained by U.S. exporters, License Exception STA is a positive development.

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Reminder: February 20th is Effective Date of Export Control Licensing Certification on USCIS Visa Form I-129

This is a reminder that February 20, 2011 is the effective date for completion of the new "Certification Pertaining to the Release of Controlled Technology or Technical Data to Foreign Persons in the United States" contained in the new I-129 Petition for Non-Immigrant Worker forms submitted to the U.S. Citizenship and Immigration Service (USCIS).

Part 6 of the new I-129 form requires employers submitting certain visa petitions for foreign workers to certify as follows:

With respect to the technology or technical data the [employer] will release or otherwise provide access to the [foreign employee], the [employer] certifies that it has reviewed the Export Administration Regulations (EAR) and International Traffic in Arms Regulations (ITAR) and has determined that:

(1) A license is not required from either the U.S. Department of Commerce or the U.S. Department of State to release such technology or technical data to the foreign person;

         or

(2) A license is required from the U.S. Department of Commerce and/or the U.S. Department of State to release such technology or technical data to the beneficiary and the petitioner will prevent access to the controlled technology or technical data by the beneficiary until and unless the petitioner has received the required license or other authorization to release it to the beneficiary.

Because of concerns and other inquiries raised by immigration attorneys and the business community about this new export certification requirement, USCIS announced that they would delay the original effective date of December 22, 2010 to February 20, 2011.

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BIS Issues Final Rule Implementing Changes to Export Controls on India

The Commerce Department' Bureau of Industry and Security (BIS) will publish a final rule in tomorrow's Federal Register implementing changes to U.S. export controls on India that were announced by President Obama and Indian Prime Minister Singh on November 8, 2010. The changes announced in the final rule will go into effect on January 25, 2010.

As expected, the final rule amends the Export Administration Regulations (EAR) as follows:

Removal From Certain Indian Organizations From Entity List
 
The final rule removes the following Indian entities from the Entity List:

A. Bharat Dynamics Limited
B. Four remaining subordinates of the Defense Research and Development Organization (DRDO):

• Armament Research and Development Establishment (ARDE)
• Defense Research and Development Lab (DRDL)
• Missile Research and Development Complex
• Solid State Physics Laboratory

C. Four remaining subordinates of the Indian Space Research Organization (ISRO):

• Liquid Propulsion Systems Center
• Solid Propellant Space Booster Plant (SPROB)
• Sriharikota Space Center (SHAR), and
• Vikram Sarabhai Space Center (VSSC).

The removal of these nine Indian entities from the Entity List eliminates the existing
license requirements for exports, reexports, and in-country transfers to these entities.

The parties named on the Entity List associated with India's Department of Atomic Energy, including India's nuclear reactors, will remain on the Entity List for the foreseeable future and an export license is required to export or reexport all items subject to the EAR to such entities. BIS has a case-by-case licensing approval policy for controlled items and a presumption of approval for EAR99 items.

India Moves to Country Group A:2 From Country Groups D:2, D:3 and D:4

The final rule removes India from Country Groups D:2, D:3, and D:4 in Supplement No. 1 to part 740 of the EAR and adds India to Country Group A:2, the group consisting of countries adhering to the Missile Technology Control Regime.

While this change will result in the elimination of license requirements to export or reexport certain controlled products to India, this change will not change licensing policy toward India for items included in the Commerce Control List that are controlled for nuclear nonproliferation reasons (NP1). As a result, a license will still be required to export or reexport NP1 controlled items to all destinations in India. In addition, an export license to India will still be required for items controlled for missile technology (MT) reasons.

Exports to India of items classified as EAR99 (the designation for items not on the Commerce Control List) can take place without having to obtain an export license from BIS. Of course, no unlicensed exports can be made to prohibited parties or for prohibited end-uses.

It is important to note that these changes have no impact on the export of defense articles to India subject to the jurisdiction of the International Traffic in Arms Regulations (ITAR). An export license from the Directorate of Defense Trade Controls is required to export all items to India that are subject to the jurisdiction of the ITAR and the Arms Export Control Act.

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U.S. Export Controls Involving India: A Reality Check

Following the President's trip to India last month there has been a great deal of misinformation in the Indian press regarding the "lifting" and "relaxation" of dual-use export controls on India, including the removal of Indian entities from the Bureau of Industry and Security's Entity List (15 CFR Part 744, Supplement 4). (See previous post on importance of complying with Entity List.)

Although U.S. dual-use export controls affect less than one percent of U.S. trade with India trade, there has been a good deal of misunderstanding on the scope of U.S. export controls involving exports of goods, software and technology to India. An excellent report by the American Enterprise Institute noted that in in 1999 24 percent of total U.S. exports to India required a “dual-use” license from BIS.  That number is less than 0.2 percent today.

Here is a summary of the pending changes to U.S. export controls on India:

First, only the following India companies and organizations will be removed from the Entity List:

• Bharat Dynamics Limited
• Four remaining subordinates of the Defense Research and Development Organization (DRDO): 
• Armament Research and Development Establishment (ARDE)
• Defense Research and Development Lab (DRDL) 
• Missile Research and Development Complex
• Solid State Physics Laboratory
• Four remaining subordinates of the Indian Space Research Organization (ISRO): 
• Liquid Propulsion Systems Center,
• Solid Propellant Space Booster Plant (SPROB)
• Sriharikota Space Center (SHAR), and 
• Vikram Sarabhai Space Center (VSSC).

The entities associated with India's Department of Atomic Energy, including India's nuclear reactors, will remain on the Entity List for the foreseeable future. As a result, an export license is required to export all items "subject to the EAR" to Department of Atomic Energy facilities. BIS has a case-by-case licensing approval policy for controlled items and a presumption of approval for EAR99 items.


Note that the entities listed above will remain on the Entity List until BIS issues a final rule in the Federal Register amending the Entity List, which is expected in the coming weeks.

Second, BIS will “realign” India in the Export Administration Regulations to reflect its status as a strategic partner and therefore treating India similarly to other close allies and partners. This realignment will remove India from categories within the EAR that connote it as a “country of concern”—with a focus on Country Groups A and D. In exchange, India has agreed to undertake to harmonize its national control list with the multilateral regimes and impose reexport controls on certain U.S.-origin items.

Third, the U.S. has agreed to support India’s membership in the four multilateral export control regimes—the Nuclear Suppliers Group, Missile Technology Control Regime, Australia Group, and Wassenaar Arrangement. India will undertake to adopt the multilateral regimes’ export control requirements to reflect its prospective membership. The U.S. has indicated that India should qualify for membership in the Australia Group and the Wassenaar Arrangement once India imposes export controls over all items on these regimes’ control lists.


Exports to India will not be eligible for the proposed Strategic Trade Authorization (STA) License Exception that was recently published by BIS in the Federal Register.

In general, exports to India of items classified as EAR99 (the designation for items not on the Commerce Control List) can take place without having to obtain an export license from BIS. As with all exports, no unlicensed exports can be made to prohibited parties or for prohibited end-uses. An export license is required to export most items to India included on the Commerce Control List.

No change has been made to U.S. exports of defense articles to India subject to the ITAR. An export license from the Directorate of Defense Trade Controls is required to export all items to India that are subject to the jurisdiction of the ITAR and the Arms Export Control Act.

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U.S. Company and Its Chinese Subsidiary Pay $3.75 Million in Criminal and Civil Fines for Export Control Violations Involving Pakistan Nuclear Facility

The Departments of Justice and Commerce announced today that PPG Paints Trading (Shanghai) Co., Ltd., a wholly-owned Chinese subsidiary of United States-based PPG Industries, Inc., pled guilty to conspiring to violate the International Emergency Economic Powers Act and the Export Administration Regulations and other related charges.

In addition to the guilty plea, PPG Paints Trading agreed to pay a $2 million criminal fine and forfeit the $32,319 in gross proceeds of the sale.

PPG Industries and PPG Paints Trading entered into a settlement agreement with BIS in which they agreed to pay civil penalties of $750,000 and $1 million respectively and undergo an audit of 2011 and 2012 export transactions.

The guilty plea resulted from actions allegedly taken by PPG Paints Trading to reexport PPG Industries' high-performance coatings from the U.S. to the Chashma 2 Nuclear Power Plant under construction in Pakistan via a third-party distributor in China without obtaining the required BIS export or reexport licenses from BIS.

A BIS export license is required to export the coatings to the Chasma 2 Nuclear Power Plant since the facility is owned by the Pakistan Atomic Energy Commission, which is included on BIS's Entity List. An export license issued by BIS is required to export or reexport all items "subject to the EAR" to PAEC nuclear facilities. (Note - this illustrates the importance of due diligence in screening end-users against the Entity List and other restricted party lists since this particular facility is not specifically named on the Entity List. Only the parent entity, Pakistan Atomic Energy Commission is named on the Entity List).

In this case, PPG Industries complied with the Entity List requirement by applying to BIS for a license to export their coatings to Chashma 2.  However, the export license was denied by BIS. Following that denial, PPG Paints Trading allegedly agreed to sell the high-performance coatings to a third-party distributor in China which, in turn, would deliver the coatings to the Chashma 2 facility. In its purchase orders for the shipments in question, PPG Paints Trading apparently stated that the coatings were to be used at a nuclear power plant in China that did not require a BIS license.

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U.S. Export Controls/Sanctions Programs to be Held in Frankfurt, Germany on January 17-18, 2011

The AWA Foreign Trade Academy is holding two one-day programs on U.S. export controls and sanctions on January 17 and 18, in Frankfurt, Germany.

The first day of the program will focus on what European companies need to know about ITAR and U.S. defense trade controls.

The second day of the program will feature information on U.S. dual-use export/reexport controls and economic sanctions programs and their impact on European companies, including information on recent export controls and sanctions developments from BIS and OFAC.

Further information on these programs, including the agenda for each day, speaker bios and registration information, can be found below.
AWA ITAR-Export Controls Programs

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September NCITD Meeting to Focus on Export Controls and Sanctions Enforcement

The next meeting of the National Council on International Trade Development (NCITD) will take place on September 8, 2010 in Washington, DC. The program will focus on export controls and sanctions enforcement and will feature the following speakers:

• John Sonderman, Acting Director, Office of Export Enforcement, Bureau of Industry and Security, U.S. Department of Commerce

• Michael Geffroy, Assistant Director for Enforcement, Office of Foreign Assets Control, U.S. Department of the Treasury

• Lisa Studtmann, Director, Office of Defense Trade Controls Compliance, U.S. Department of State

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

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DDTC Publishes Final Rule Requiring CJs to be Submitted Electronically Using DS-4076 Form

The State Department's Directorate of Defense Trade Controls (DDTC) published a final rule in today's Federal Register amending the International Traffic in Arms Regulation (ITAR) that will require commodity jurisdiction (CJ) determinations to be submitted electronically using the DS-4076 CJ Determination Request Form that was introduced by DDTC last year.

The regulation specifies that paper CJs may be submitted for 29 days after the effective date, which means that  September 2, 2010 will be the last day to submit CJs the old fashioned way. Starting on September 3, however, CJs will have to be submitted electronically via DTrade2, DDTC's defense export electronic licensing system.

DDTC has yet to make any changes to the DS-4076 CJ form to incorporate the suggestions submitted by industry during the public comment period.

Determining the proper government agency that has jurisdiction over products, technology or software to be exported is an important first step in the U.S. export controls system.

The purpose of submitting a CJ to DDTC is to obtain a determination whether a product, technical data or service is covered by the U.S. Munitions List (USML) and is subject to the ITAR's export licensing requirements or not.
 A commodity classification (commonly known as a CCATS) can be obtained from the Commerce Department's Bureau of Industry and Security (BIS) to determine the proper Export Control Classification Number (ECCN) if the CJ determination states that the article is subject to the Commerce Department's jurisdiction. 

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Interim Final Rule Intended to Clarify Purpose of BIS Commodity Classifications and Advisory Opinions Has Been Misinterpreted

The Bureau of Industry and Security published an interim final rule in today's Federal Register intended to clarify the purpose of the commodity classifications (commonly known as CCATS) and advisory opinions that it issues. Unfortunately, the purpose of this interim rule, which was to help educate exporters with export compliance, has been widely misinterpreted.

The interim final rule amends sections 734.3 and  748.3 of the Export Administration Regulations (EAR) by adding language noting that: 

• Commodity classifications and advisory opinions may not be relied upon as determinations that the items in question are "subject to the EAR" as described in section 748.3 of the EAR.
• Those who request commodity classifications and advisory opinions should have determined that the items at issue are not subject to the exclusive export control jurisdiction of one of the other U.S. Government export control agencies, such as the Directorate of Defense Trade Controls, OFAC, and Nuclear Regulatory Commission.
• Advisory opinions are limited to BIS's interpretation of EAR provisions and may not be relied upon or cited as evidence that the items in question are not subject to the to the export control jurisdiction of another U.S. Government agency.

The interim final rule also indicates that BIS will begin inserting the following reminder language on all future commodity classifications (CCATS):

This commodity classification sets forth the classification of the above-listed items if they are subject to the EAR. This commodity classification is not a determination by BIS as to whether the above-listed items are ‘‘subject to the EAR.’’ As defined and  described in sections 734.2 through 734.4 of the EAR, the term ‘‘subject to the EAR’’ means, among other things, that the item(s) are not exclusively controlled for export or reexport by another agency of the U.S.
Government. See 15 CFR 734.3(b)(1). Thus, this document is not, and may not be relied upon as, a U.S. Government determination that the above-listed items are not, for example, subject to the export control jurisdiction of the International Traffic in Arms Regulations (ITAR) (22 CFR Parts 120– 130), which are administered by the U.S. Department of State.

BIS's interim final rule was intended to remind exporters that the purpose of a commodity classifications, which is to provide the Export Control Classification Number (ECCN) of products, technology or software as described on the Commerce Control List (CCL), is only one part of the export analysis. Prior to seeking a commodity classification from BIS, an exporter should first determine the proper government agency that has jurisdiction over their item, technology or software. For example, products that are included on the U.S. Munitions List or are considered to be "defense articles" under the International Traffic in Arms Regulations (ITAR) are subject to the export licensing jurisdiction of the State Department's Directorate of Defense Trade Controls (DDTC).

Under the current U.S. export control regime, DDTC is the only agency that can issue commodity jurisdictions, commonly known as CJs, to advise an exporter whether an item or service is subject to the ITAR or not. Because of the intended purpose of CJs and commodity classifications, the information submitted to BIS to obtain a commodity classification (product specifications, etc.) is very different than the information submitted to DDTC to obtain a CJ (design intent, application, military versus commercial sales, etc.).

The modifications made to the EAR, as well as the new language included on commodity classifications, is also intended to eliminate, to the extent possible, those cases where a person or company exporting a defense article can avoid criminal prosecution under the Arms Export Control Act by claiming that they had obtained a CCATS from BIS for an item when the item was actually subject to the jurisdiction of the ITAR.

The interim final rule also sought to educate those in law enforcement who prosecute export control violations by helping to distinguish commodity classifications from commodity jurisdictions.

Despite the clear purpose of this rule, there have been headlines in various publications indicating that this interim final rule is confusing as it seems to indicate that BIS will not accept responsibility for its decisions, that such classification are not dependable or that exporters can not rely on commodity classifications or advisory opinions issued by BIS.

These interpretations are incorrect. BIS classifications and advisory opinions can certainly be relied upon for issues relating to the EAR. However, under the current export control regime, which provides that different agencies have jurisdiction over dual-use and defense articles, exporters must be certain that their item is "subject to the EAR" before relying on a commodity classification or advisory opinion issued by BIS. While this confusion may be eventually eliminated by the creation of a single export control list and single licensing agency, the clarification in this interim final rule is useful and is long overdue.

October 1, 2010 is the deadline for submission of public comments to BIS on the interim final rule.

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International Trade News and Notes for June 30, 2010

• Iran Sanctions - At 6:15 pm EDT tomorrow, July 1st, President Obama will sign into law H.R. 2194, the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010. 

• Export Control Reform - In a speech today before the Senate Aerospace Caucus General James L. Jones announced, that as part of the export reform process, the Obama Administration intends to propose a new, single and independent agency that will merge export licensing activities at the State and Commerce departments under a board of directors reporting to the president. Under the proposal, the new agency’s board of directors would be consist of the secretaries of the departments of Defense, State, Commerce, Treasury and Homeland Security. However, the online DoD Buzz published a story this afternoon noting Congressional opposition to the idea of a single licensing agency. Nobody said that export control reform would be easy.

• Antidumping - The AP published an interesting story on the use of "honey-laundering" to evade antidumping duties on U.S. imports of Chinese honey. 

• The Bureau of Industry and Industry and Security published in today's Federal Register a proposed rule to amend the Export Administration Regulations by adding Export Control Classification Number (ECCN) 6A981 to the Commerce Control List to control passive infrasound sensors because of their military and commercial utility. If finalized, items under this new ECCN would be controlled for Regional Stability (RS) and Anti-Terrorism (AT) reasons. BIS also proposes to control technology and software for the development, production, or use of these items for RS and AT reasons under revised ECCNs 6D991 and 6E991. Comments on this proposed rule must be submitted by August 30, 2010.

• The Directorate of Defense Trade Controls has posted the agenda for the July 7, 2010 Defense Trade Advisory Group (DTAG) meeting. 

• This afternoon the House Committee on Agriculture will mark up H.R. 4645, the Travel Restriction Reform and Export Enhancement Act, which would: 

1. lift the restrictions on U.S. citizens traveling to Cuba, 
2. require agricultural exports to Cuba to have same payment requirements as exports to other countries (i.e., lift cash in advance requirement);
3. eliminate current requirement that payments to U.S. agricultural exporters must pass through banks in third countries. 

[Update: The House Agriculture Committee voted this afternoon to report H.R. 4645 to the House floor with a favorable recommendation by a vote of 25 in favor and 20 against. Prospects for final passage of this bill in this term of Congress remain slim. House Foreign Affairs Chairman Howard Berman (D-CA) released a statement indicating his support for the bill and noting that the "travel ban to Cuba simply has not worked to help the Cuban people in any way. It has not hurt the Castros as it was intended to do, but it has hurt U.S. citizens.]

• National Export Initiative - The Obama Administration, through the interagency Trade Promotion Coordinating Committee (TPCC), published an announcement today seeking comments from exporters, other private businesses, trade associations, academia, labor organizations, non-governmental organizations on export programs and other information as part of the National Export Initiative. Comments are due on July 26, 2010,
  

• SNAP-R Maintenance - BIS will be performing updates that will affect SNAP-R this weekend. SNAP-R users will continue to be able to submit their applications via the SNAP-R system. However applications received after midnight on Friday, July 2, 2010 until midnight Monday July 5, 2010 will not be processed until Tuesday July 6, 2010. In addition, the STELA Web application will be unavailable during this time. 

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BIS Press Release on Revised Encryption Regulation

The Bureau of Industry and Security (BIS) issued the following press release this afternoon regarding the changes made to U.S. export controls on certain encryption items. A summary of the changes made by the new regulation and a link to the text of the Federal Register notice are found below.

BIS Updates Encryption Export Rule;
Revised Rule Streamlines Review Process, Enhances National Security

WASHINGTON - The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) today revised its rules regarding the export of most mass market electronic products that contain encryption functions and other encryption products.

“This revised rule enhances our national security and cuts red tape by eliminating the review of readily available encryption items, like cell phones and household appliances, and allows the Government to focus its resources on more sensitive encryption items,” Assistant Secretary of Commerce for Export Administration Kevin Wolf said.

The new rule ends the U.S. government’s 30-day technical review requirement to export most mass market and other types of encryption products. “Mass market” electronic products containing encryption include cell phones, laptops, and disk drives. Exporters and manufacturers of the encryption products may now self-classify the products and then export them without a license if they register on-line with BIS. BIS also requires that they submit an annual self-classification report. This rule is expected to decrease technical reviews by approximately 70 percent and semi-annual reporting by up to 85 percent.

The rule also extends the scope of License Exception ENC authorizations to most encryption technology exports, following a technical review. In addition, it adds a decontrol note for items that perform “ancillary” cryptography, which covers items such as games, robotics, business process automation, and other products that contain encryption capabilities but do not have communication, computing, networking or information security as a primary function.

“This rule is the first step in the President’s effort to fundamentally reform U.S. encryption export controls,” Assistant Secretary Wolf said. “The Administration will continue to review the encryption rules to further enhance national security and ensure the continued competitiveness of U.S. encryption products. This effort will include a review of the current controls on publicly available encryption software, integrated circuits with encryption functionality, high-speed routers, and other types of restricted encryption products.”

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BIS Issues Regulation Reforming Encryption Export Controls

The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) took the first step in the export control reform process by publishing an interim final rule in today's Federal Register making significant changes to the Export Administration Regulations (EAR) governing the export of hardware and software containing encryption algorithms and functions.

This interim final rule, which goes into effect today, June 25, 2010, implements the President's statement in a speech at the Export-Import Bank's annual conference in March 2010 that the current review-and-wait and semi-annual sales reporting requirements would be replaced with a "more efficient" one-time notification-and-ship process. While today's regulation eliminates the 30 day technical review and waiting requirement for most software and hardware containing encryption functionality eligible for license exception ENC and qualifying for "mass market" treatment, the new regulation establishes a new company registration requirement and an annual self-classification reporting requirement.


Today's interim final rule also implements the significant change to encryption export controls made at the Wassenaar Arrangement's December 2009 Plenary by revising note 4 to Category 5, Part 2 of the Commerce Control List (CCL) to exclude from the scope of encryption controls items where the cryptography's primary function is not related to communications, networking, computing or “information security.”

According to BIS, the changes made in this regulation are intended to enhance national security allowing BIS and other government agencies to focus their resources on more sensitive encryption items. This effort is also intended to enhance U.S. exports by reducing interruptions to business cycles and enhancing product development efforts, manufacturing, and product rollout.

While today's regulation is the first step in the reform of export controls on software and hardware containing encryption, BIS has indicated that it will continue to review encryption export controls to ensure the continued competitiveness of U.S. encryption products. This effort will include a review of the current controls on publicly available encryption software, integrated circuits with encryption functionality, high-speed routers and other types of restricted encryption products.

The following is a summary of the significant aspects of the reforms made today to U.S. export controls on software and hardware containing software and hardware:

A. Changes Made to Encryption Review and Reporting Requirements

Under current encryption controls, three types of items are subject to a 30-day technical review by BIS and the ENC Encryption Request Coordinator at the National Security Agency in Fort Meade:

(1) mass market encryption software (classified as ECCN 5D992.c);
(2) certain less sensitive encryption items (ECCNs 5A992 and 5D992) that can be exported pursuant to License Exception ENC to government and non-government end-users in destinations other than the designated terrorism-supporting countries (License Exception ENC unrestricted - current 15 C.F.R. §740.17(b)(3)); and
(3) sensitive encryption items (ECCNs 5A002 and 5D002) that are made eligible for License Exception ENC to non-government end-users in destinations other than the designated terrorism-supporting countries after review, but for which a license is required for export to government end-users in many countries (License Exception ENC restricted - current 15 C.F.R. § 740.17(b)(2)).

Today's rule removes the review requirement for most mass market and license exception ENC unrestricted items. The items removed from the review requirement include Local Area Network (LAN) products small routers, and most items that meet the multilateral Wassenaar Arrangement “mass market” criteria. Exporters may now self-classify these items and export them following the submission of a company registration with BIS, answering seven questions using a new submission screen in SNAP-R, BIS’s online system (see screenshot of new registration page below). Upon submission of its registration to BIS the exporter will receive an “encryption registration number” (ERN). Upon receipt of the ERN, the export under license exception ENC will be authorized for certain ECCNs and the exporter or reexporter will not be required to submit a separate encryption registration, classification request or self-classification report to BIS. However, the party submitting the company registration to BIS will be required to file a report on an annual basis listing the items it has self-classified and exported.

Certain mass market and unrestricted items remain subject to 30-day technical review requirements. These items include:
(1) encryption components;
(2) items that provide or perform non-standard cryptography;
(3) certain items providing or performing vulnerability analysis, network forensics or computer forensics; and
(4) cryptographic enabling commodities and software.

Certain restricted items, such as network infrastructure items that exceed certain technical performance parameters, such as routers and 3G wireless base stations, remain subject to a 30-day technical review requirements and require semi-annual sales reporting.

This rule also extends the scope of License Exception ENC eligibility to most encryption technology necessary for manufacturing, development or testing of encryption items to all countries, except those of national security concern or subject to anti-terrorism controls, after the submission of a 30-day review.

The new rule eliminates the 30-day technical review requirement to export most "mass market" products containing encryption functionality. Mass market encryption products are those that are sold in large quantities and are generally available to the public through common retail methods. Exporters and manufacturers of mass market encryption products may now self-classify their products and export them without a license after submission of a company registration via SNAP-R. An annual self-classification report will be required to be submitted.

BIS estimates that the changes made by today's regulation should decrease technical review submissions by approximately 70% and semi-annual reporting by up to 85%. While technical review submissions will decrease, the submission of exporter registration and annual reporting will not completely eliminate the export control burdens associated with encryption items.

B. Changes Made to Items Incorporating "Ancillary Cryptography”

In December 2009, the Wassenaar Arrangement's member countries agreed to decontrol items meeting the “ancillary cryptography” criteria. This rule implements this decontrol by adding Note 4 to Category 5, part 2, of the Commerce Control List and by removing all references to "ancillary cryptography" from the EAR. The new note 4 to Category 5 part 2, reads as follows:

Note 4: Category 5, Part 2 does not apply to items incorporating or using “cryptography” and meeting all of the following:

a. The primary function or set of functions is not any of the following:
1. “Information security”;
2. A computer, including operating systems, parts and components therefor;
3. Sending, receiving or storing information (except in support of entertainment, mass commercial broadcasts, digital rights management or medical records management); or
4. Networking (includes operation, administration, management and provisioning);
b. The cryptographic functionality is limited to supporting their primary function or set of functions; and
c. When necessary, details of the items are accessible and will be provided, upon request, to the appropriate authority in the exporter’s country in order to ascertain compliance with conditions described in paragraphs a. and b. above.

As a result, items incorporating or using “cryptography” will no longer be classified under Category 5, part 2 if their primary function is not communications, networking, computing or “information security” and the cryptographic functionality is limited to supporting the primary function. Examples of such items include robotics, household appliances, fire alarm systems, inventory management software and transportation systems. Such items may be classified under another category of the Commerce Control List or as EAR99.

C. Other Changes to Encryption Export Controls

The interim final rule contains a provision grandfathering most items previously reviewed and classified by BIS for export. As a result, such items will not be subject to the new encryption registration or reporting requirements, as long as the encryption functionality has not changed.

This regulation also makes a number of other important changes to encryption export controls and review and reporting requirements. As a result, manufacturers, developers and exporters of software and hardware containing encryption algorithms and code should carefully review today's regulation to review the specific requirements applicable to the export of such products.

SNAP-R Encryption Registration Screen Shot

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President Announces Details of National Export Initiative at Ex-Im Bank's Annual Conference

In a speech today at the Export-Import Bank of the United States' annual conference in Washington, DC, President Obama provided more details on the National Export Initiative (NEI) and his goal of doubling U.S. exports in the next five years that was announced in his State of the Union Speech in January.

The following is a summary the important points made in today's speech:

• Four aims of NEI are (1) increasing export financing; (2) increasing export advocacy; (3) providing assistance for American businesses to locate, set up shop, and win in new markets; and (4) focusing on making sure American companies have free and fair access to those markets, including enforcing existing trade agreements.

• Signed an Executive Order instructing the federal government to use every available federal resource in support of that mission. That order created an Export Promotion Cabinet, made up of the Secretaries of State, Treasury, Agriculture, Commerce and Labor, along with our U.S. Trade Representative, Small Business Administrator, the Export-Import Bank President, and other senior U.S. officials whose work impacts exports. That cabinet will convene its first meeting in April. 

• Re-launched the President’s Export Council, the principal national advisory committee on international trade. Named Jim McNerney, the President and CEO of Boeing, as its chair; and Ursula Burns, the CEO of Xerox, as vice chair (White House announcement on these appointments here).

• Export promotion efforts will extend throughout the Administration. Secretary Locke is issuing guidance to all senior government officials who have foreign counterparts on how they can best promote our exporters. Secretary Clinton is mobilizing a commercial diplomacy strategy, directing every one of our embassies to create a Senior Visitor Business Liaison who will manage our export advocacy efforts locally.

• Will unleash a battery of comprehensive and coordinated efforts to promote new markets and new opportunities for American exporters. Will bring together the Ex-Im Bank, the SBA, the Departments of Commerce and Agriculture, and the Trade Development Agency to set up one-stop-shops across the country and in the 250 embassies and consulates abroad, to help American businesses gain a foothold in the fastest-growing markets with the most demand. And we’ll provide a comprehensive toolkit of services – from financing to counseling to promotion – to help potential exporters grow and expand.

• Will increase funding for existing promotion efforts, including International Trade Administration at the Department of Commerce, and strengthen the USDA’s ability to connect farmers with new customers overseas.

• Working to reform the U.S. Export Control System for strategic, high-tech industries, which will strengthen our national security. Will concentrate our efforts on enforcing controls on the export of our most critical technologies, making America safer while enhancing the competitiveness of key American industries. Have conducted a broad review of the Export Control System, and Secretary Gates will outline our reform proposal within the next couple weeks.

• Regarding exports, the President announced two specific changes in export control laws that the Administration will work to implement:

1. A new one-time online review process for products containing encryption that is intended to reduce the current 30 to 60 day review process to "30 minutes".
2. Will eliminate unnecessary obstacles for exporting products to companies with dual-national and third-country-national employees by harmonizing the EAR and ITAR standards, making it easier for American and foreign companies to comply with U.S. export control requirements without diminishing national security. 

The video of the speech is below:

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