ExportLawBlog

Archive for the ‘BIS’ Category

Feb

8

Once More Unto the Breach

Posted by Clif Burns at 8:35 pm on February 8, 2011

The Bureau of Industry and Security (“BIS”) previously did battle with cloud computing in an advisory opinion it released in January 2009. Almost two years later BIS charges into battle yet again, and yet again there is no clear victor.

In the 2009 advisory opinion, BIS noted that the provider of cloud computing services was only providing a service and was not exporting data or technology. Only the customer of the service could be the exporter, and only the customer of the service would be in export hot water if the data or technology was transferred in violation of the Export Administration Regulations. This logic seemed a bit at odds with the normal concept that providing access to technical data to foreign nationals was an export, but let’s not trouble ourselves here with minor details. A sly little sentence dropped at the end of the opinion also reminded everyone that the Office of Foreign Assets Control (“OFAC”) might have concerns with the provision of cloud computing services to blocked persons or embargoed destinations even if BIS did not.

Now, two years later, BIS confronts the related and more difficult question of what cloud computing service provides ought to do about their own foreign national IT staff who might have access to controlled technology placed on the cloud by the service’s customers. Not to worry, says the opinion, because the cloud computing service provider isn’t an exporter and thus can’t be a deemed exporter:

Because the service provider is not an “exporter,” [it] would not be making a “deemed export” if a foreign national network administrator monitored or screened, as described above, user-generated technology subject to the EAR.

But the problem with this logic is that the person who gives a foreign national access to controlled technology is a deemed exporter even if he isn’t an exporter. That’s why they call it a “deemed” export.

Of course, none of this addresses the 900-pound gorilla in the room which is, of course, the user of the cloud service and its liability for using a cloud service where foreign IT personnel have access to the controlled data that the user may have placed on the cloud. And don’t think the problem starts and ends with cloud computing. The Internet, is also a cloud of sorts linking various servers together to permit transit of data to its final destination. Any of those servers may have foreign network administrators who could use packet sniffers to see controlled technical data. Worse yet, the routing servers may be located in foreign countries even when the sender and the receiver are both located in the United States.

What I think we’d like to hear is what BIS and DDTC think about this. Or maybe not.

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Jan

25

U.S. Implemented India Export Reforms Today

Posted by Clif Burns at 8:28 pm on January 25, 2011

Category: BIS • India

Love Fest A Federal Register notice issued today implemented expected reforms which loosen certain controls on U.S. exports to India. The notice removed some, but not all, Indian companies and organizations on the Entity List, a list maintained by the Bureau of Industry and Security (“BIS”). All U.S. exports to countries on the Entity List require a license from BIS.

Today’s action removes nine organizations from the Entity List: Bharat Dynamics, Ltd., four subsidiaries of India’s Defense Research and Development Organization (“DRDO”) and four subsidiaries of the Indian Space Research Organization (“ISRO”). The Department of Atomic Energy entities that were on the list remain on the list. The major effect of the removal is that EAR99 items will no longer require licenses to the nine removed entities. Items with ECCNs that would otherwise require licenses to these entities will still require licenses for exports to these companies.

India was also removed from country groups D:2, D:3 and D:4 and added to country group A:2. This will, among other things, make certain license exceptions available for India such as License Exception APR for additional permissive re-exports as well as unaccompanied baggage under License Exception BAG.

Not surprisingly, Pakistan is irritated by all this and threatens to add to its nuclear arsenal to protect itself from a what it sees as a newly emboldened India that will result from these new export rules.

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Jan

12

Hey Big Brother

Posted by Clif Burns at 10:18 pm on January 12, 2011

Category: BIS • China • Foreign Export Controls • Wassenaar

ABOVE: Johan Gadolin,
discoverer of yttrium

China Daily is a great source of unintentional humor, and I really wish I had more time to peruse it. I did stumble across a recent opinion piece in China Daily on the rare earth export issue and, not surprisingly, there is much to snicker about in it, unless, of course, your business depends on the availabilities of the lanthanides, known to us non-technical sorts as the rare earth elements.

China initially justified its restrictions on exports of the lanthanides as a measure to encourage companies using lanthanides to relocate to China. Article XI of the General Agreement on Trade and Tariffs generally prohibits export quotas unless they fall within the exceptions set forth in Section 2 of Article XI or Article XX. Not surprisingly, efforts to distort international trade by forcing companies to relocate to the country imposing the quota is not within the exceptions set forth in GATT.

Somewhat later China began to cite the environmental impact of rare earth mining as a justification for the quotas. That argument was easily dismissed as a transparent ruse because China imposed no restrictions on rare earth mining for domestic use, no matter how loudly they complained the foreign exports of rare earths were killing Chinese workers.

Now, the article referenced by this post attempts to concoct another justification for its export quotas: national security. The article starts with a slam at the Wassenaar Arrangement which it claims is some kind of anti-socialist conspiracy by capitalist Western nations and a broad-based justification for China to impose any export controls it can dream up:

Export regulation was originally introduced for security issues. After World War II, the United States and other countries established the Coordinating Committee for Multilateral Export Controls (COCOM) against socialist countries; its successor, in effect today, is the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies.

In recent years the restrictions have become ever tighter. On June 19, 2007, the US Ministry [sic] of Commerce listed more than 2,500 kinds of technologies, devices, and materials banned [sic] for export to China.

Those familiar with the 2007 rule cited by China Daily, may wonder where the author came up with the idea that 2,500 kinds of technologies were banned for export. The rule imposed certain new license requirements for dual use items destined for use by the Chinese military but did not ban those exports. There were bans on items controlled for nuclear proliferation, missile technology, or chemical and biological warfare that would contribute to major Chinese weapons systems, but the 2,500 number is more than a little high as an estimate of the number of technologies involved.

More importantly, China’s claim that these restrictions are premised on national security would be more convincing if it had been its initial justification. And, of course, the Wassenaar list, which represents not a capitalist conspiracy but a multilateral consensus of strategic goods that require export controls, would permit China to exert export controls on the items on that list, items that don’t include the lanthanides.

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Jan

10

Are Virtual Office Addresses a New Red Flag?

Posted by Clif Burns at 10:50 pm on November 23, 2010

Category: BIS

Anvik HQ The Bureau of Industry and Security (“BIS”) recently imposed a temporary denial order (“TDO”) on Singapore-based Anvik Technologies, and its owner Babak Jafarpour. The TDO is based on evidence that BIS alleges that it has demonstrating that Anvik and Jafarpour exported items from the United States to Iran by transshipment through third countries.

What’s interesting here is that the transshipment points were “virtual offices” that Anvik maintained in the United States, Hong Kong and Malaysia. Virtual offices are arrangements with companies that provide an address, a telephone number, answering services and other office services to individuals and companies that don’t have actual physical space at the location and may not ever be actually present in that office.

In one of the transactions described in the TDO an order was placed by Anvik with a U.S. company to ship items to Anvik’s virtual office located at 155 North Wacker Drive, 42nd Floor, Chicago, Illinois 60606. Anvik then instructed the personnel at the Chicago location to ship the items to Anvik’s virtual office in Kuala Lumpur. Anvik instructed the Malaysia virtual office to ship the items to Iran.

Two things are worth noting here. First, should shippers and exporters consider a request to ship items to a virtual office a red flag that the items may be diverted to an impermissible location or party? If you search for “155 North Wacker Drive, 42nd Floor” in Google, this is the first returned result:

search result

So, it wouldn’t take a rocket scientist or back-breaking due diligence to discover that Anvik was using a virtual office and not a real one. This should trigger a further investigation by a shipper as to the identity of Anvik and why it was shipping merchandise to a virtual office in a Chicago high-rise.

Second, the Chicago address is soon going to be on the BIS Denied Parties list. And what is the first red flag on BIS’s list of Red Flags?

The customer or its address is similar to one of the parties found on the Commerce Department’s [BIS’s] list of denied persons.

As a result, other “tenants” at the same North Wacker Drive address may start to encounter difficulties in having packages shipped to that address as shippers and exporters encounter that red flag.

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