Archive for the ‘BIS’ Category

Sep

13

Entity List Screening Headaches Can Be Costly: The Abbreviated Version

Posted by at 6:51 pm on September 13, 2018
Category: BIS • Civil Penalties • Entity List

VNIEFF via http://www.vniief.ru/en/resources/2d252b804af3374599869d5b6de8bab2/12.jpg [Fair Use]BIS recently announced a settlement with Mohawk Global Logistics Corporation for $155,000 ($20,000 of which was suspended if Mohawk behaved itself during a probationary period).   The penalty arose out of Mohawk’s export of items to institutions on the Entity List without the required license.  In both instances, Mohawk screened against the list, but things went wrong.

One of the exports went to the University of Electronic Science and Technology of China (“UESTC”).  Rather than screen against the full name of the university, Mohawk just screened the university’s commonly-used acronym — UESTC.   As a result, it failed to flag the transaction.  BIS, in the charging documents, noted that the address it had for UESTC was a “near-match” (whatever that means) to the address shown for UESTC on the Entity List.  The take-away here, of course, is that exporters should screen entire names and addresses.

One of the other exports was to the All-Russian Scientific Research Institute of Experimental Physics otherwise known as VNIIEF (because the name in Russian – Всероссийский Научно-Исследовательский Институт Експериментальной Физики [Vserossiyskiy Nauchno-Issledovatelckiy Eksperimentalnoy Fiziki] — is abbreviated as ВНИИЕФ or VNIIEF when transliterated to the Roman alphabet — got that?).  Now for this export the transliterated Roman abbreviation resulted in a hit, which, for some unexplained reason, the Mohawk export supervisor simply ignored.

A footnote dropped by BIS on VNIIEF reveals the perils of foreign language names and the Entity List.   The initial listing was for the “All-Union” Scientific Research Institute of Experimental Physics.  When this was updated to the correct “All-Russian” Scientific Research Institute of Experimental Physics in 2011, the common acronym VNIIEF (but not ARSIEP, which is, clearly, a better acronym) was added.  But searches of VNIIEF, the common name of that entity, prior to 2011 would not have turned up anything.   The moral of this story:  don’t search abbreviations or acronyms.

The fine here seems high.   The goods involved were EAR99 items and worth, in total, about $200,000.  A license probably would have been granted if requested so there’s no palpable harm to national security here.  And Mohawk tried to screen but just did not do a very good job of it.  However, it’s not like they, like many exporters, did not even try to screen the recipients.   Granted the inexplicable activity of the Mohawk supervisor in overriding the hit for VNIIEF would permit some aggravation of the penalty.  And perhaps the failure to screen addresses when they had a “near match” of the correct address further annoyed BIS.  But it seems to me here that BIS is fining incompetence rather than malice.

 

 

 

https://efoia.bis.doc.gov/index.php/documents/export-violations/export-violations-2018/1193-e2561/file

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Copyright © 2018 Clif Burns. All Rights Reserved.
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Aug

22

The Export Control Reform Act: Long on Control, Short on Reform

Posted by at 2:19 pm on August 22, 2018
Category: BIS • CCL • Civil Penalties • Export Reform

John McCain Official Portrait via https://commons.wikimedia.org/wiki/File:John_McCain_official_portrait_2009.jpg [Public Domain - Work of U.S. Government]The John McCain National Defense Authorization Act of 2018,  in addition to passing the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”), which reforms the CFIUS process, also enacted the Export Control Reform Act of 2018 (“ECRA”). That name is, I think, something of a misnomer given what the ECRA actually does. Perhaps a better name would have been the Export Administration Act Reenactment Act. After Congress in 1994 was unable to renew the Export Administration Act (“EAA”), which was the statutory authority for the parts of the U.S. export control regime covering dual use items and administered by the Commerce Department’s Bureau of Industry and Security (“BIS”), every U.S. President has resurrected the dead statute each year with an executive order under the International Emergency Economic Powers Act. With the passage of ECRA, that is one less executive order that the White House will need to issue each year.

Most of what ECRA does is provide the statutory authority for BIS that it previously had under the EAA and the yearly executive orders, although now with higher penalties for violations, which have been upped to $300,000 per violation. Why, after all, pass a law if you can’t raise the penalties? The only thing in ECRA which might be called a reform in a traditional sense of making life easier for regulated parties is section 1757 which says the President may authorize BIS to provide export counseling to exporters. This provision has generated so much excitement among exporters that U.S. exporters were popping bottles of Dom Perignon in celebration. Sorry, just kidding.

Rather than making life easier for exporters, the ECRA contains new controls certain to make exporters’ lives more difficult.  (In addition to the higher penalties.  Did I already mention those?) License applications will now have to explain why the export of an item will not have a negative impact on the U.S. defense industrial base. The law also mandates that BIS consider stopping exports of items on the Commerce Control List to countries that are subject to State Department arms embargoes. (Ahem, does anybody think that’s a dog whistle for restricting more exports to China?)

But the biggest change, and potential headache for exporters aside from higher penalties, is section 1758, which requires BIS, in cooperation with the Departments of State, Energy and Defense to identify and control “emerging and foundational technologies.” What on earth, you rightly wonder, is an emerging and foundational technology? The act only says that they are technologies that are “essential to the national security of the United States” but not already subject to export controls. Basically, since all export controls are based on national security, the only real definition of an emerging and foundational technology is something that is not already export controlled but should be. Your guess is as good as mine (and Congress’s) as to what these four agencies will decide to control under this new rubric.

Once the list of these new export controlled items is in force, then the ECRA requires as a minimum level of control that export of this technology to a “country subject to an embargo, including an arms embargo, imposed by the United States” would require a license. (Hello, China!) Embargo is not defined, so it’s not clear if a license would be required for these technologies with respect to a country to which the United States prohibited only a few types of goods or arms. A more significant issue is how this requirement, which applies to any “country” subject to an embargo would affect exports of emerging technologies to the Crimean territory, which is subject to a comprehensive embargo. This provision would impose the license requirement on either Russia or Ukraine depending on which country is considered to own Crimea and whether an embargo of a territory of a country means that the country is subject to an embargo.

The last thing to note about section 1758 is that the license requirement would not apply to what the Senate version referred to as “ordinary business transactions.” In the legislation as passed, these ordinary business transactions are described, for example, as

The sale or license of a finished item and the provision of associated technology if the United States person that is a party to the transaction generally makes the finished item and associated technology available to its customers, distributors, or resellers.

For those used to the EAR’s treatment of technology this provision seems odd and unnecessary. “Associated technology” generally made available to customers would be “published,” as defined in section 734.7 of the EAR, and thus not subject to the EAR or any license requirement, making this exception completely unnecessary. I suspect that the ECRA, which never defines “technology,” is using the term in a loose sense that would cover physical goods in addition to information. In any event, count on these exceptions to cause much confusion when the list of emerging and foundational technologies finally appears.

Oh, and did I mention the higher penalties?

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(No republication, syndication or use permitted without my consent.)
Aug

8

Sanctions in Name Only Imposed on Russia for Nerve Gas Attack

Posted by at 8:24 pm on August 8, 2018
Category: BIS • Russia Sanctions

Novichok Vodka via https://www.rt.com/business/426529-novichok-brand-russia-business/ [Fair Use]According to a State Department press release released today, the United States has made a determination that Russia used novichok, a chemical warfare agent, in an attack on British soil and, as a result, the US will impose sanctions on Russia under the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991 (the “CBWC Act”), 22 U.S.C. § 5601 et seq.  The text of these sanctions was not released.  Instead, the text will be in a Federal Register notice expected to be published on or around August 22.  The sanctions will be effective as of the date of the publication of that notice.

Because these sanctions are being imposed under the CBWC Act, we can already get a good idea of what these sanctions will be.   The Act contemplates sanctions being imposed in two stages.  The first stage, described in section 5605(a), sets forth the following sanctions, all of which are required to be imposed upon the offending country:

  • Termination of all foreign assistance
  • Termination of all arms sales
  • Termination of all foreign military financing
  • Denial of U.S. government credit or assistance
  • Termination of all exports of items controlled on the Commerce Control List for NS reasons

To be honest, none of these sanctions will have any significant impact on Russia.  Arms sales to Russia have been prohibited for some time now.   The country chart already has Russia controlled for both columns of NS controls.  Of course, you could say that the new sanctions will mean that NS items will not be considered for licenses under any circumstances.  But I don’t think licenses to export NS items to Russia are being readily granted now.

The second stage, if it happens, would take place on November 8 of this year unless the President determines that Russia is no longer using chemical or biological weapons.  If that determination is not made, the President is required to impose three sanctions from a set of six possible sanctions.  Those six possible sanctions are:

  • Opposing multilateral bank financial assistance to Russia
  • Prohibition of U.S. bank loans to the government of Russia
  • Prohibition of all exports of all U.S. goods and technology to Russia
  • Downgrading or suspending diplomatic relations with Russia
  • Termination of all service to and from the United States by Russian airlines

Whether the President will make the findings necessary to impose this second stage and which three of the six will be imposed is anyone’s guess, although I suspect that most people likely have a pretty good guess.   The upcoming Federal Register notice will probably not even address the second stage sanctions.   If the United States does in fact impose the three second stage sanctions, the best guess is probably that he will impose the least restrictive of those, i.e., opposing multilateral bank loans, prohibiting U.S. bank loans, and expelling a few more diplomats.

 

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Copyright © 2018 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)
Aug

1

Federal Court Incorrectly Says DDTC Jumped the Gun on Gun Printing Plans

Posted by at 1:29 pm on August 1, 2018
Category: Arms Export • BIS • DDTC • USML

Printed Guns via http://defdist.tumblr.com/post/85127166199/i-have-often-been-asked-who-the-first-person-to-be [Fair Use]Just hours before Defense Distributed, pursuant to a Settlement Agreement with the Department of State’s Directorate of Defense Trade Controls, planned to upload plans to allow anyone who can afford a 3-D printer to make their own plastic guns, a federal district court in Seattle entered a temporary restraining order prohibiting the uploading of those plans.   The temporary restraining order was entered at the request of attorneys general from eight states and the District of Columbia.   In entering the order, the court stated that the plaintiffs were likely to prevail on the merits for two reasons — both, frankly, fairly questionable.

The first reason the court thought that plaintiffs would likely prevail is that, in the court’s view, the Settlement Agreement effectively removed items from the United States Munitions List (“USML”) without the prior thirty-day notice to Congress as required by section 38(f) of the Arms Export Control Act, 22 U.S.C. § 2278(f).  As you probably recall, DDTC and BIS so far have only issued proposed rules.   As noted early on in the export control process, State and Commerce indicated that they would provide the section 38(f) notices to Congress 30 days prior to publishing the final rule.  At this point, only the proposed rules have been issued and the comment period ended on July 9, so it is likely that no section 38(f) notices have been sent to Congress as the court states. Certainly they would not have been sent thirty days prior to the execution of the Settlement Agreement on June 29 as the Court said should have been done.

The problem with this argument is that the Settlement Agreement did not remove Category I (or any other) items from the USML.  The Settlement Agreement is quite clear that DDTC was not removing anything from the list but, rather, was granting an exemption under ITAR  section 125.4(b)(13).  Under that section, an export of technical data does not require a license if that data has been “approved for public release” by DDTC.  All that DDTC did in the Settlement Agreement was approve public release of specified Defense Distributed plans making their export eligible for the exemption in section 125.4(b)(13).  Nothing has been removed from the USML by the Settlement Agreement, and, thus, no section 38(f) notice was required as a result of the Settlement Agreement.

The other reason relied on by the district court in temporarily blocking the Settlement Agreement was the requirement in Executive Order 11958 that any removal of any item from the USML by DDTC would need the concurrence of the Department of Defense.  The court stated:

When the President delegated his authority under the AECA to the Secretary of State, he also imposed a requirement that any changes in designations of defense articles and defense services subject to export control had to have the concurrence of the Secretary of Defense. There is no indication that the federal government followed the prescribed procedures

Apparently, the district court had not bothered to read the initial notice from the Department of Commerce on the proposed removal of Category I firearms from the United States Munitions List to the Commerce Control List.   That notice clearly states:

The changes described in this proposed rule and in the State Department’s companion proposed rule on Categories I, II, and III of the USML are based on a review of those categories by the Department of Defense, which worked with the Departments of State and Commerce in preparing the amendments.

Oops.  So even if the Settlement Agreement effectively removed certain Article I items from the USML, which it did not, the DOD had already agreed to that prior to the publication of the initial notices proposing removal of those items.

The problem here is that if states or the federal government want to regulate 3-D gun plans, the export laws are not the way to do it because the policy driving these decisions has nothing to do with exports at all but rather with purely domestic considerations such as detectability and traceability.  The states attorneys general presumably don’t really care whether these gun plans and the plastic guns made from them wreak havoc in Croatia; they are worried about the consequences right at home in their own states.  Moreover, there is already a law on the books –  the Undetectable Firearms Act of 1988, 18 U.S.C. § 922(p) — which makes it illegal to manufacture undetectable weapons.  So, rather than try to shoehorn these issues into the Arms Export Control Act, lawmakers and officials should confront any issues with these plans directly.

 

 

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Jul

16

Chronicle of a Death Foretold

Posted by at 4:40 pm on July 16, 2018
Category: BIS • DDTC • Export Reform

Printed Guns via http://defdist.tumblr.com/post/85127166199/i-have-often-been-asked-who-the-first-person-to-be [Fair Use] Of course, the Interwebs are all abuzz with the news that the Directorate of Defense Trade Controls (“DDTC”) settled the Defense Distributed case as if that were somehow remarkable.  Of course, it was about as remarkable as 100 degree days in DC in August or the All Star Game being a pointless, mind-numbing bore.  DDTC’s position in this case was on life support, if not already dead, since last May when DDTC and BIS finally announced export control reform which would result in the transfer of most firearms and related technical data, including the types of firearms described in the 3-D printing plans at issue in the  case, from the jurisdiction of DDTC to that of the Bureau of Industry and Security (“BIS”).

It is no secret that BIS and DDTC have radically different ideas about the consequences of putting something of the Internet.   As far as DDTC is concerned, putting anything of the Internet is an export of that item to every foreign country with access to the Internet, i.e.,  everywhere but the outer reaches of Mongolia.  BIS, on the other hand, takes the position that publication on the Internet means that an item is no longer subject to export controls.  As BIS said in its proposed notice of rulemaking:

[I]f a gun manufacturer posts a firearm’s operation and maintenance manual on the Internet, making it publicly available to anyone interested in accessing it and without restrictions on further dissemination (i.e., unlimited distribution), the operation and maintenance information included in that published operation and maintenance manual would no longer be “subject to the EAR.”

So once the Category I transition is complete, the fat tenor has sung and the game is over.

DDTC, of course, could have waited until the last notes of Nessun Dorma, but instead agreed to move ahead. To do that before the transition of the firearms in question to BIS was complete, there are several housekeeping matters that the settlement agreement needed to address. First, DDTC agreed to continue with the announced proposed rules and to adopt a final rule that would remove the plans at issue from Category I of the USML. Second, DDTC would announce a temporary modification of the rules to exempt the plans prior to the transition from the USML to the Commerce Control List becoming effective. Third, DDTC agreed to issue a letter saying that the plans had been approved for public release — something not really necessary in light of the temporary modification of the rules to exempt the plans. Fourth, an acknowledgment that the letter permitted people to do whatever they wanted with those plans — again something not really necessary in light of the temporary modification and the letter itself.

What comes as a surprise to me was not that DDTC dropped the case, or that it did so before the guns at issue were removed from the USML, but that it agreed to fork over $39,581 to the plaintiffs. Granted that’s not a huge sum. Still, DDTC has not conceded that its position that putting USML technical data on the Internet is an export is wrong. Indeed, that will continue to be the case for items remaining on the USML. Well, I guess lawyers have to eat too.

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