LATEST EXPORT CONTROLS AND COMPLIANCE UPDATE
This newsletter is a listing of the latest changes in export control regulations through August 31, 2020. The newsletter is provided as a complimentary service to assist exporters with their ITAR and EAR export compliance responsibilities. It summarizes recent changes to export control regulations or other regulatory matters of interest that may impact your company’s international trade and export compliance functions. Call us at 703-847-5801 or email email@example.com with questions or comments.
See also our “Latest Sanctions Fines & Penalties” section below for an update on companies and persons denied export privileges by the United States Government.
President Issues Executive Order To Extend The Export Administration Act Of 1979
Aug. 14, 2020 -- 85 Fed. Reg. 49939: President Trump issued Executive Order (EO) 13222 pursuant to the International Emergency Economic Powers Act (IEEPA, 50 USC 1701 et seq.), continuing for an additional year the national emergency regarding the unusual and extraordinary threat to the national security, foreign policy and economy of the U.S. that has existed since the Export Administration Act of 1979, as amended (EAA, 50 USC 4601 et seq.), expired in 2001. This action is needed to provide authority for carrying out certain sanctions under the IEEPA that are not authorized by other legislation.
Department of Commerce – Bureau of Industry and Security
BIS Adds 38 Non-U.S. Huawei Affiliates In 21 Countries To The Entity List And Updates General Prohibition # 3 “The Foreign Direct Product” Rule
Aug. 20, 2020 -- 85 Fed. Reg. 51596: BIS further restricts access by Huawei Technologies (“Huawei”) and its non-U.S. affiliates to U.S. products subject to the Export Administration Regulations (“EAR”) by adding 38 non-U.S. Huawei affiliates in 21 countries to the Entity List (EAR Part 744, Supp. No. 4). Specifically, BIS advised that the 38 listed Huawei affiliates needed to be added to the Entity List – and prohibited from receiving the benefit of U.S. exports because the entities “present a significant risk of acting on Huawei’s behalf contrary to the national security or foreign policy interests of the United States.”
The entities added are:
- Huawei Cloud Computing Technology;
- Huawei Cloud Beijing;
- Huawei Cloud Dalian;
- Huawei Cloud Guangzhou;
- Huawei Cloud Guiyang;
- Huawei Cloud Hong Kong;
- Huawei Cloud Shanghai;
- Huawei Cloud Shenzhen;
- Huawei OpenLab Suzhou;
- Wulanchabu Huawei Cloud Computing Technology;
- Huawei Cloud Argentina;
- Huawei Cloud Brazil;
- Huawei Cloud Chile;
- Huawei OpenLab Cairo;
- Huawei Cloud France;
- Huawei OpenLab Paris;
- Huawei Cloud Berlin;
- Huawei OpenLab Munich;
- Huawei Technologies Dusseldorf GmbH;
- Huawei OpenLab Delhi;
- Toga Networks;
- Huawei Cloud Mexico;
- Huawei OpenLab Mexico City;
- Huawei Technologies Morocco;
- Huawei Cloud Netherlands;
- Huawei Cloud Peru;
- Huawei Cloud Russia;
- Huawei OpenLab Moscow;
- Huawei Cloud Singapore;
- Huawei OpenLab Singapore;
- Huawei Cloud South Africa;
- Huawei OpenLab Johannesburg;
- Huawei Cloud Switzerland;
- Huawei Cloud Thailand;
- Huawei OpenLab Bangkok;
- Huawei OpenLab Istanbul;
- Huawei OpenLab Dubai; and
- Huawei Technologies R&D UK.
For these entities, there is a license requirement for all items subject to the EAR, except certain items under specified circumstances relating to “standards organizations,” with a presumption of denial and no available license exceptions. The rule also revised the following four existing Entity List entries: Huawei Device Co., Ltd. (Dongguan); Huawei Device (Shenzhen) Co., Ltd.; Huawei do Brasil Telecomunicacões Ltda; and Huawei Technologies Co., Ltd. (Huawei).
In the same rule, BIS removed the temporary general license (TGL) that it had renewed most recently on May 18, 2020 (85 Fed. Reg. 29610; see May 2020 Regulatory Review). The TGL partially restored the licensing requirements and policies under the EAR for exports, reexports, and transfers (in-country) to Huawei Technologies Co., Ltd. and its listed non-U.S. affiliates (collectively “Huawei”) for a narrow subsection of transactions necessary to permit, for example, U.S. telecommunications carriers with Huawei equipment to maintain their systems (e.g., cybersecurity updates). The purpose of the TGL was to ensure the continued secure operation of portions of telecommunications systems using Huawei products while allowing time for affected companies and persons to identify and shift to other sources of equipment, software, and technology. While most of the TGL was removed, this rule still permits limited disclosures of information to listed Huawei entities for the sole purpose of providing ongoing security research critical to maintaining the integrity and reliability of existing and currently “fully operational networks” and equipment using Huawei products.
Finally, this rule provides an additional expansion on the EAR’s General Prohibition Three, the Foreign Direct Product Rule (“FDP Rule”), which was previously amended in May 2020 to target Huawei’s acquisition of semiconductors that are the direct product of certain U.S. software and technology. (See May 2020 Regulatory Update.) Under the revised FDP Rule, there is a requirement for a license for the export, re-export, or transfer of any foreign produced item that is a direct product of U.S.-origin software or technology falling under ECCNs 3D001, 3D991, 3E001, 3E002, 3E003, 3E991, 4D001, 4D993, 4D994, 4E001, 4E992, 4E993, 5D001, 5D991, 5E001, or 5E991 or a direct product of a foreign plant or major component of a plant that has been developed with U.S. origin software or technology under the preceding ECCNs:
(1) where U.S. software or technology is the basis for the foreign-produced item that will be incorporated into, or will be used in the “production” or “development” of any “part,” “component,” or “equipment” produced, purchased, or ordered by any Huawei entity on the Entity List; or
(2) when any Huawei entity on the Entity List is a party to such transaction, such as a “purchaser,” “intermediate consignee,” “ultimate consignee,” or “end-user”.
This expansion of the FDP Rule means that any party exporting software or technology to China under the above ECCNs – whether to a business partner, supplier, customer, or affiliate -- needs to obtain clear written assurances from the party to whom they are exporting software and technology that the party will not be supplying any product to Huawei using the U.S.-origin software or technology under the referenced ECCNs.
See EAR Section 736.2(b)(3) for the full details of the FDP Rule. The effective date of this rulemaking was August 17, 2020.
If you are considering any transaction involving the export of software or technology falling under the above-listed ECCNs and China, please contact FD Associates for support with performing the appropriate due diligence to ensure compliance with the EAR. Likewise, if you have knowledge that a customer in China is providing products to a Huawei-related company, please contact us to discuss the best way to structure your transactions to ensure compliance with the EAR.
BIS Amends EAR Secs. 744.11 And 744.16
Aug. 20, 2020 -- 85 Fed. Reg. 51335: BIS amended EAR Secs. 744.11 (License requirements that apply to entities acting contrary to the National Security or Foreign Policy interests of the United States) and 744.16 (The Entity List (Supplement No. 4 to part 744), which identifies persons reasonably believed to be involved, or to pose a significant risk of being or becoming involved, in activities contrary to the national security or foreign policy interests of the United States) to clarify that the Entity List’s supplementary license requirements apply to every export, reexport, and transfer (in-country) in which a party listed on the Entity List acts as a purchaser, intermediate consignee, ultimate consignee, or end-user.
BIS Adds 60 Entities (Under 61 Entries) To The Entity List
Aug. 27, 2020 – 85 Fed. Reg. 52898: BIS added 60 entities (under 61 entries) to the Entity List – 24 entities in the People’s Republic of China (China), and the remaining 36 shared among France, Hong Kong, Indonesia, Malaysia, Oman, Pakistan, Russia, Switzerland, and the United Arab Emirates (UAE). In the same rule, BIS also revised one existing Entity List entry each under the destinations of Canada, Germany, Hong Kong, Iran, and the UAE.
A license requirement for exports of all items subject to the EAR and a prohibition on license exceptions for exports, reexports, or transfers (in-country) will apply to all the added entities. License review policies as a presumption of denial for 51 entities, case-by-case review for one entity, and, for license applications involving certain nuclear end uses for eight entities, policies dictated by considerations detailed in EAR Sec. 744.2(d).
The reasons for adding an entity in this group to the Entity List include involvement in the attempted diversion of controlled U.S.-origin aircraft parts to Iran; contributions to unsafeguarded nuclear activities and missile proliferation activities; involvement in a scheme to falsify information submitted in support of BIS license applications in order to divert U.S.-origin items to Iran; risks that U.S.-origin items exported, reexported, or transferred (in-country) to these entities will be used in military end-use activities in China; involvement with Russian military and biological weapons programs; actual and attempted acquisition of U.S.-origin items for a person on the Entity List and in support of programs for China’s People’s Liberation Army; affiliation with a company already on the Entity List; enabling China to reclaim and militarize disputed outposts in the South China Sea; and involvement in China’s land reclamation efforts in the South China Sea. Contact us for the names of the 60 entities and details of the terms applicable to each entity.
Editors Note: Feeling overwhelmed with the constant updates to the EAR Entity List? Concerned you might not be taking the correct actions with your international transactions. BIS expects your company to complete a Denied Party Screening for each transaction to ensure the parties in your transaction are not on the Entity List. BIS offers the Consolidated Screening Tool on their website for use in conducting Denied Party Screening. FD Associates also provides screening services. Contact us for assistance.
BIS Requests Comments On The Definition Of “Foundational Technologies”
Aug. 27, 2020 – 85 Fed. Reg. 52934: BIS issued an Advance Notice of Proposed Rulemaking (ANPRM) requesting comments from the public on the definition of, and the criteria for identifying, “foundational technologies” that are “essential to the national security,” i.e., technologies “that may warrant stricter controls if a present or potential application or capability of that technology poses a national security threat to the United States,” including items that currently are classified as either EAR99 or those that are controlled only for anti-terrorism (AT) reasons. The BIS announcement includes several additional requirements about the scope of the desired definition, e.g., the technology must be within the scope of the EAR. It also specifies eight topics: (1) How to further define foundational technology to assist in identification of such items; (2) sources to identify such items; (3) criteria to determine whether controlled items identified in AT level Export Control Classification Numbers (ECCNs), in whole or in part, or covered by EAR99 categories, for which a license is not required to countries subject to a U.S. arms embargo, are essential to U.S. national security; (4) the status of development of foundational technologies in the United States and other countries; (5) the impact specific foundational technology controls may have on the development of such technologies in the U.S.; (6) examples of implementing controls based on end-use and/or end-user rather than, or in addition to, technology based controls; (7) any enabling technologies, including tooling, testing, and certification equipment, that should be included within the scope of a foundational technology; and (8) any other approaches to the issue of identifying foundational technologies important to U.S. national security, including the stage of development or maturity level of an foundational technology that would warrant consideration for export control) about which comments are desired and notes that the Export Control Reform Act (ECRA, 50 U.S.C. § 4801 et seq.) requires the establishment of appropriate controls on the export, reexport, or transfer (in country) of emerging and foundational technologies. The deadline for comments is Oct. 26, 2020.
Department of Commerce – Census Bureau
Census Posts Guidance On Exports Between The U.S. And Puerto Rico
Aug. 17, 2020: The Census Bureau’s Global Reach Blog posted “Exports Between the United States and Puerto Rico – When to File Electronic Export Information,” the third and final installment of its series on this topic, on the Census Bureau website at https://www.census.gov/newsroom/blogs/global-reach/2020/08/exports_between_the.html. This installment discusses routed export transactions. (See the June and July 2020 Regulatory Updates for earlier installments of this series.)
Department of State
DDTC Name And Address Changes Posted To Website
Aug. 17 and 25, 2020: The Directorate of Defense Trade Controls (DDTC) posted the following name and/or address changes on its website at
- Change in Name from Showa Optronics Co., Ltd. to KYOCERA SOC Corporation and Change of Address due to acquisition of Showa by KYOCERA CORPORATION, effective Oct. 1, 2020;
- Change in Name from Force Protection Europe Limited (FPE) to General Dynamics United Kingdom Limited (GDUK) due to acquisition of FPE by GDUK;
- Change in Address for Proact Netherlands B.V.;
- Change in Name of the Northrop Grumman Corporation entities listed below due to Northrop Grumman Corporation Internal Legal Entity Restructuring as follows:
- Change in Name from Northrop Grumman Innovation Systems Inc. to Northrop Grumman Innovation Systems LLC;
- Change in Name from Orbital Sciences Corporation to Orbital Sciences LLC;
- Change in Name from ATK Space Systems Inc. to ATK Space Systems LLC; and
- Change in Name from ATK Launch Systems Inc. to ATK Launch Systems LLC; and
- Change in Address for Thales Alenia Space UK Ltd.
Each announcement includes a link to a notice detailing the change and its effects on pending and currently approved authorizations involving the listed entity.
Department of the Treasury
OFAC Changes The Definition Of “Applicable Schedule Amount”
Aug. 11, 2020 – 85 Fed. Reg. 48474: The Office of Foreign Assets Control (OFAC) amended its regulations (31 CFR part 501, Appendix A, Sec. 1.B.6 and Sec. 1.B.7) to change the definition of “applicable schedule amount” (“ASA”), such that in the case of transactions valued at $100,000 or more, but less than $200,000, the ASA is now $200,000, and in the case of transactions valued at $200,000 or more, the ASA is now $307,922. The new ASAs correspond with the current civil monetary penalties (CMPs) for violations of the IEEPA.
OFAC Posts New Sudan Program and Darfur Sanctions Guidance
Aug. 11, 2020: OFAC posted a new Sudan Program and Darfur Sanctions Guidance and updated, amended, and removed several FAQs to reflect that Sudan has not been a comprehensively sanctioned country since Oct. 12, 2017. The Sudan Program and Darfur Sanctions Guidance is on the Treasury Department website at https://home.treasury.gov/system/files/126/sudan_guidance_20200811.pdf. Additional information is at https://home.treasury.gov/policy-issues/financial-sanctions/recent-actions/20200811 and in TSRA Question 5 at https://home.treasury.gov/policy-issues/financial-sanctions/ofac-license-application-page/trade-sanctions-reform-and-export-enhancement-act-of-2000-tsra-program/trade-sanctions-reform-and-export-enhancement-act-of-2000-tsra-program-information.
LATEST SANCTIONS FINES & PENALTIES
This section of our newsletter provides information on the latest sanctions, fines, and penalties for export violations or matters of non-compliance with the ITAR or EAR issued by the US government enforcement agencies. It is provided as a service to exporters and associates of FD Associates to remind them of the importance of extreme due diligence in all international trade and export compliance matters, particularly those involving exports subject to the ITAR or the EAR. Don’t let this happen to you or your company! Call us with questions or concerns at 703-847-5801 or email firstname.lastname@example.org.
Department of Commerce
Aug. 25, 2020 – 85 Fed. Reg. 52321: BIS issued a 180-day Temporary Denial Order (TDO) against the following persons and when acting for or on their behalf, any successors or assigns, agents, or employees:
- Sunarko Kuntjoro, Jakarta, Indonesia;
- Satrio Wihargo Sasmito, Jakarta, Indonesia;
- Triadi Senna Kuntjoro, Jakarta, Indonesia;
- PT MS Aero Support, Jakarta, Indonesia;
- PT Antasena Kreasi, Jakarta, Indonesia; and
- PT Kandiyasa Energi Utama, Jakarta, Indonesia.
The TDO was based on these parties’ operation of an international procurement network of aircraft parts suppliers and repair facilities to acquire and repair U.S.-origin aircraft parts on behalf of Mahan Air, a BIS Denied Person since 2008. (See December 2019 Regulatory Update for the indictment of Sunarko Kuntjoro, PT MS Aero Support, PT Antasena Kreasi, and PT Kandiyasa Energi Utama for conspiracy to evade several U.S. laws in connection with this enterprise. )
Fines and Penalties
July 23, 2020: Independent Freight International LLC of Elk Grove Village, IL, agreed to pay $7,500 to settle charges by BIS of three charges of failure to report boycott requests in connection with the sale and/or transfer of goods or services (including information) to Qatar and the UAE.
Aug. 4, 2020: Vladimir Volgaev of Sarasota, FL, was sentenced in Federal District Court in Tampa, FL to two years and nine months in federal prison and ordered to forfeit $6,835 based on his guilty plea and conviction of theft of government property and smuggling goods from the U.S. in violation of the International Traffic in Arms Regulations (ITAR, 22 CFR Parts 120-130). Volgaev allegedly shipped more than 1,600 firearm components, including barrels, slides, receivers, and frames from the U.S. to Ukraine, where they were used to construct fully functional firearms, including handguns and rifles.
Aug. 6, 2020: Chong Sik Yu, a/k/a Chris Yu, of Oradell, NJ, the president America Techma Inc. (ATI), a U.S. company, and Yunseo Lee of Fort Lee, NJ, a sales representative of ATI, were arrested on charges of conspiracy to unlawfully export dual-use electronics components in violation of the Export Control Reform Act (ECRA, 50 U.S.C. § 4801 et seq.) and conspiracy to commit wire fraud, bank fraud, and money laundering. ATI allegedly exported electronic components controlled under the Commerce Control List (CCL, EAR Part 774, Supp. No. 1) to Hong Kong for apparent re-export to other countries, including China, without the required export licenses. After U.S. law enforcement detained such a shipment, Yu and Lee allegedly sought to evade future law enforcement scrutiny by transshipping packages through South Korea and by using a separate New Jersey shipper to send shipments to Hong Kong; however, the required export licenses allegedly were not obtained for any of these shipments.
Aug. 10, 2020: Alex Yun Cheong Yue of South El Monte, CA pleaded guilty in federal court in Boston, MA, to conspiracy to violate the EAR, unlawful exports and attempted exports to Hong Kong and smuggling of U.S.-origin cesium atomic clocks controlled under the CCL without the required export licenses. A co-defendant, Victor Zee, remains at large in Hong Kong. Yue purchased the clocks using a fictitious company, “Ecycle Tech International Ltd.,” by falsely representing to the seller that they would be used solely in the U.S. for cordless phone research and development, and then reshipped them to Zee in Hong Kong without obtaining an export license. Later, when Yue attempted to purchase an additional cesium atomic clock, he provided an end-user certificate stating that the clocks would be used in a calibration lab in California. However, when the U.S. seller insisted on a site visit to the California location, Yue abruptly canceled the order.
Aug. 19, 2020: Amin Mahdavi, an Iranian national resident in the UAE, and Parthia Cargo LLC, a freight forwarding company located in the UAE, were charged in U.S. District Court in Washington, D.C. with conspiracy to defraud the U.S. and to violate the IEEPA and the Iranian Transactions and Sanctions Regulations (ITSR, 31 CFR Part 560). Mahdavi, the Managing Director of Parthia, allegedly agreed to use Parthia’s services to help ship a U.S.-origin commercial aircraft part to an Iranian transport company without the required export license, and then Mahdavi and Parthia conspired with individuals and business organizations outside the U.S. to carry out the illegal shipment, including falsely stating to a U.S.-based aircraft parts supplier that the goods would not be shipped to Iran unless authorized by the U.S. Government.
Aug. 25, 2020 – 85 Fed. Reg. 52312: Acting Under Secretary of Commerce for Industry and Security Cordell Hull upheld the $31,425,760 civil monetary penalty that had been imposed in March 2020 on Nordic Maritime Pte. Ltd. (Nordic) and its Chairman and Majority Shareholder, Morten N. Minnhaug, both of Singapore, and determined that no suspension of this penalty was warranted. (See earlier action in March 2020 Regulatory Update.) The actions that resulted in this penalty involved the unauthorized re-export of controlled equipment to perform a 3D offshore seismic survey in a natural gas field in Iranian territorial waters and the provision of false information to BIS.