The Bureau of Industry and Security (“BIS”) released today a revision of the de minimis rules which BIS touted as a major simplification of the rules. I think most people when reviewing the new rules will find them as complicated as ever.

The de minimis rules are an effort by BIS to define when the U.S.-origin content of a commodity is sufficiently small that the commodity will not be deemed to be subject to the export control restrictions set forth in the Export Administration Regulations. When U.S. content doesn’t satisfy the requirements of the de minimis rule, then the incorporation of that content, even if that content is not itself subject to U.S. export controls, into a commodity may subject that commodity to U.S. export controls.

Leaving aside whether the new rules are ultimately a simplification or not, there is one significant area in which the new rule may permit a de minimis finding where the old rules would not — namely, hardware commodities that bundle U.S. origin software. Under the prior rule, the de minimis calculation had to be made separately for hardware, software and technology. Under the new rule, the value of “bundled” U.S.-origin software will be compared with the value of the hardware. If it constitutes less than 25% of the commodities value (or 10% in the case of exports to Cuba, Iran, North Korea, Sudan or Syria), then the de minimis rule applies and the commodity is not subject to U.S. export controls.

The new rules define bundled in a broad way that would go beyond pre-installed software but which would also include un-installed software distributed on a separate disk with the hardware. Think printer drivers, for example. To qualify as bundled software, the software must be exported or re-exported with the hardware and must be configured for the hardware. Additionally, if the software is listed on the Commerce Control List it must only be controlled for anti-terrorism reasons. Software that is controlled for export for other reasons can slip out of the country under the de minimis rule no matter what percentage its value bears to the value of the hardware with which its bundled.

Actually, the penalty that freight forwarder Demetrios International Shipping recently agreed to pay was only $6,000, but it was for export of two Raptor 100K stun guns to Algeria without a license from the Bureau of Industry and Security (“BIS”). My apologies for the bad pun.

Stun guns, all of them, even those built by hobbyists from disposable cameras, are classified under ECCN 0A985 and require BIS licenses for exports to all destinations mostly because of concerns that they can be used as implements of torture. The Raptor 100k stun guns involved here, which retail at around $12 each, are relatively benign. Here’s an undeniably inane video (with some language that may not be safe for work) posted on YouTube by some dimwitted teenagers using a 100k stun gun on themselves to no apparent ill effect. These low end stun guns are probably not the first choice of Algerian police officers or Middle Eastern terrorists as implements of torture.

And, of course, it goes without saying that stun guns are readily available outside the United States. They are also easy to build from commonly-available electronic components using schematics readily available on the Internet. (WARNING: these schematics are controlled by ECCN 0E982. If you live outside the United States or are not a U.S. citizen or permanent resident, clicking the preceding link to those schematics will violate U.S. law and subject you to civil and criminal penalties, including imprisonment.)

Of course, none of these considerations are defenses to the violation by Demetrios. But it does suggest that there are good policy reasons for a review of ECCN 0A985 to restrict its application to stun guns that people might find, shall we say, more shocking.

Another freight forwarder pays for the sins of its customers. Cargoland Air and Ocean Cargo, Inc., a Miami-based freight forwarder, recently agreed to pay to the Bureau of Industry and Security a penalty of $36,000 in connection with its attempted export of 210 riot helmets to Venezuela without a license. According to the Settlement Agreement, the riot helmets were classified as ECCN 0A979.

As is usually the case, the charging and settlement documents released by BIS provide only minimal details of the circumstances leading to the violation and nothing to explain its theory of liability by the freight forwarder. For all that can be gleaned from these documents, the exporter might have described the exported items as bicycle helmets, meaning that the freight forwarder’s liability is premised on its failure to open and inspect the contents of the shipment.

The documents released by BIS refer to the exported items as “riot helmets,” suggesting that perhaps this was the exporter’s description of the items. If that was the case, BIS was apparently expecting to the forwarder to discern from this description that the product was properly classified as ECCN 0A0979, even though that ECCN heading is “police helmets and shields; and parts, n.e.s.” and the ECCN states that the “list of items controlled is contained in the ECCN heading.” Now certainly the exporter and manufacturer of the helmets and related equipment should understand that riot helmets are police helmets, but it is not entirely clear that the freight forwarder should make this connection.

As BIS continues to expand the liability of freight forwarders, one has to wonder whether the only way for a freight forwarder to avoid liability for unlawful exports is to file a classification request for each item before it is shipped. Granted there may be circumstances in this case that demonstrated that the freight forwarder should have been aware of the proper classification of the helmets, but, if that was the case, BIS would do everyone a favor by disclosing the facts that caused the agency to reach such a conclusion.