This newsletter is a listing of the latest changes in export control regulations through November 30, 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 info@fdassociates.net 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.
REGULATORY UPDATES
European Union
EU Seeks To Replace The Current EU Dual-Use Regulation
Nov. 9, 2020: The European Council announced a provisional agreement on a revised regulation setting out the European Union (EU) regime for the control of exports, brokering, technical assistance, transit, and transfer of dual-use items. This regulation would replace the current EU Dual-Use Regulation (Regulation No. 428/2009), which has been in place since 2009. The main features of the new regulation include –
- Subjecting exports of cyber-surveillance technology to stricter controls aimed at promoting human rights compliance;
- Establishing an EU-level coordination mechanism concerning the export of cyber-surveillance items;
- Introducing new general EU export authorizations to facilitate the licensing process for exports of certain software, technology, and cryptographic goods;
- Introducing new controls, including catch-all controls, on exports of items intended for use involving internal repression and/or commission of human rights or humanitarian law violations;
- Strengthening enforcement of controls through improved cooperation between licensing and customs authorities, including new mechanisms allowing member states to strengthen their cooperation in this area;
- Introducing transmissible controls allowing a member state to impose new export controls on items that are subject to export-control authorizations in another member state;
- Harmonizing at the EU level certain rules applicable to technical assistance that is currently regulated at the national level;
- Expanding the scope of the definition of a “broker”; and
- Introducing reporting rules allowing for more transparency on trade in dual-use items while respecting the confidentiality of business secrets and national security interests.
To become law, the agreement must still be endorsed by the EU Permanent Representatives Committee (Coreper) and then adopted by the European Parliament and the EU Council.
U.S. Department of Commerce – Bureau of Industry and Security
BIS Proposed To Add New ECCN 2D352 To Control Software For The Operation Of Nucleic Acid Assemblers And Synthesizers
Nov. 6, 2020 – 85 Fed. Reg. 71012: The Bureau of Industry and Security (BIS) proposed to amend the Commerce Control List (CCL, 15 CFR Part 774, Supp. No. 1) by adding new Export Control Classification Number (ECCN) 2D352 to control ‘‘software’’ for the operation of nucleic acid assemblers and synthesizers controlled under ECCN 2B352 that is capable of designing and building functional genetic elements from digital sequence data. This software could be exploited for biological weapons purposes, as it could be used to generate pathogens and toxins without the need to acquire controlled genetic elements and organisms. If the control is adopted, this software, which has been identified as an “emerging technology,” would be controlled under the CB2 column on the Commerce Country Chart. This software is not currently included on any of the Australia Group (AG) common control list; consequently, this control will be unilateral, absent adoption of comparable controls by the Australia Group. The deadline for comments on this proposal is Dec. 21, 2020. See the announcement at https://www.bis.doc.gov/index.php/documents/regulations-docs/federal-register-notices/federal-register-2020/2658-85-fr-71012-commerce-control-list-proposed-controls-on-software-for-the-operation-of-certain-automated-nucleic-acid-assemblers-and-synthesizers-request-for-comments/file for specific topics on which BIS requests comments.
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BIS Amended And Clarified Provisions Of The EAR To Make Them Consistent With The Export Control Reform Act of 2018
Nov. 18, 2020 – 85 Fed. Reg. 73411: In a final rule, BIS amended and clarified many provisions of the Export Administration Regulations (EAR, 15 CFR Parts 730-774) to reflect the expanded scope of the export control authority given to the Secretary of Commerce by the Export Control Reform Act of 2018 (ECRA, 50 U.S.C. § 4801 et seq.); update other provisions to make them consistent with ECRA; and make changes not related to ECRA concerning the issuance of licenses and denial orders and the payment of civil penalties. The changes cover, among many other things –
- Authority of BIS to conduct pre-license checks (PLCs) and post-shipment verifications (PSVs) outside the U.S. (new Sec. 734.11);
- Rules regarding the production of books, records, and other information for inspection, both inside the U.S. (Sec. 762.7(a)) and outside the U.S. (Sec. 762.7(b)), required to be kept pursuant to the EAR by persons located within the US;
- Description of the manner in which export enforcement investigations will be conducted outside the U.S. (new Sec. 734.11);
- Outline of actions the Office of Export Enforcement (OEE) may take to ensure that exports, reexports, and transfers (in-country) comply with the law (Sec. 758.7(b));
- Description of actions a carrier must take to return and unload cargo when ordered by OEE and clarification of OEE’s power to order the return and unloading of cargo to ensure compliance with export laws and regulations (Sec. 758.8(b));
- Addition of a prohibition on transfers (in-country) to, or on behalf of, a denied person to the terms of a standard denial order (Supp. No. 1 to Part 764);
- Clarification that any license obtained based on a false or misleading misrepresentation or the falsification or concealment of a material fact is void as of the date of issuance (Sec. 750.7(a));
- Revision of the maximum time period for payment of civil penalties, as a condition of receiving certain privileges under the EAR, from one year to two years (Sec. 764.3(a)(1)(ii); and
- Revised Sec. 764.3(c)(2)(ii)(A) of the EAR, which now states that the Department of State may not issue licenses, or may deny licenses, for the export or reexport of defense articles and defense services to persons convicted of criminal offenses specified at 22 USC 2778(g)(1)(A), or to persons denied export privileges by BIS or another agency (Sec. 764.3(c)(2)(ii)(A).
This rule also renames many EAR provisions, updates many cross-references, deletes references to provisions of the lapsed Export Administration Act of 1979 (EAA) or replaces them with references to the ECRA or other laws, as appropriate, and makes many other technical changes.
Department of State
DDTC Name And Address Changes Posted To Website
Nov. 3 and 13, 2020: The Directorate of Defense Trade Controls (DDTC) posted the following name and/or address changes on its website at
- Change in Name from UAB Safariland International to UAB Safariland Lithuania due to corporate reorganization and rebranding;
- Change in Name for Textron subsidiary Howe and Howe Technologies, Inc., to Howe and Howe, Inc., due to corporate rebranding;
- Change in Name from Bullet International S.A. de C.V. to Power Hit S.A. de C.V. due to acquisition of Bullet International by Power Hit;
- Change in Name from Thales Services SAS to Thales Services Numériques SAS due to corporate reorganization and rebranding; and
- Change in Address for Mitsubishi Heavy Industries, Ltd., subsidiary Churyo Engineering Co., 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 Issued General Export License M, Authorizing The Exportation Of Certain Graduate Level Educational Services And Software, Under The Iranian Transactions And Sanctions Regulations
Oct. 29, 2020: To facilitate remote learning by Iranian students during the COVID-19 pandemic, the Office of Foreign Assets Control (OFAC) issued General License (GL) M, Authorizing the Exportation of Certain Graduate Level Educational Services and Software, under the Iranian Transactions and Sanctions Regulations (ITSR, 31 CFR Part 560), authorizing U.S. academic institutions to export online educational services related to graduate educational courses meeting certain requirements, including participation in all activities related to the provision of such online educational services and software meeting certain requirements to students who (a) are individuals located in Iran, or located outside Iran but ordinarily reside in Iran, who are eligible for non-immigrant classification under categories F (students) or M (non-academic students), and have been granted a non-immigrant visa by the U.S. State Department, but are not physically present in the United States due to the COVID-19 pandemic. GL M is on the Treasury Department website at https://home.treasury.gov/system/files/126/iran_gl_M.pdf. At the same time, OFAC also published a new FAQ 853 describing other GLs that authorize certain U.S. academic institutions and other U.S. persons to provide certain services and software to Iranian students. FAQ 853 is at https://home.treasury.gov/policy-issues/financial-sanctions/faqs/853.
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OFAC Issued An Advisory Describing Sanctions Risks That Arise From Dealings In High-value Artwork
Oct. 30, 2020: OFAC issued an advisory describing sanctions risks that arise from dealings in high-value artwork (generally, market value over $100,000) with persons blocked pursuant to OFAC’s authorities. The advisory describes characteristics of the market for high-value artwork that pose sanctions risks and emphasizes the importance of maintaining a “risk-based compliance program” to mitigate such risks. The advisory cautions that it is explanatory only and does not have the force of law. The Advisory and Guidance on Potential Sanctions Risks Arising from Dealings in High-Value Artwork is on the Treasury Department website at https://home.treasury.gov/system/files/126/ofac_art_advisory_10302020.pdf.
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OFAC Issued General Export License 8G Authorizing Transactions Involving Petróleos de Venezuela, S.A.
Nov. 23, 2020: OFAC issued GL 8G, "Authorizing Transactions Involving Petróleos de Venezuela, S.A. (PdVSA) Necessary for the Limited Maintenance of Essential Operations in Venezuela or the Wind Down of Operations in Venezuela for Certain Entities,” extending the authorization for certain limited activities until June 3, 2021. GL 8G is on the OFAC website at https://home.treasury.gov/system/files/126/venezuela_gl8g.pdf.
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 info@fdassociates.net.
Sanctions
Department of Commerce
Nov. 5, 2020 – 85 Fed. Reg. 70581: BIS denied the export privileges of Abdul Majid Saidi of Rocky River, OH, for 6 years based on his March 13, 2019, conviction in U.S. District Court for the Western District of Michigan of violating 18 U.S.C. 371 by knowingly and willfully conspiring to export, from the U.S. to Lebanon, guns and gun parts designated as defense articles on the U.S. Munitions List (USML, 22 CFR Sec. 121.1) without having obtained the required licenses from the Department of State. In the court case, Saidi was sentenced to 3 months in prison with credit for time served, two years of supervised release, a $5,000 fine, and a $100 special assessment.
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Nov. 5, 2020 – 85 Fed. Reg. 70582: BIS denied the export privileges of Oswaldo Sanchez of Laredo, TX, for 10 years based on his conviction in U.S. District Court for the Western District of Texas of violating 18 U.S.C. 554(a) by knowingly facilitating the transportation and concealment and aiding and abetting the facilitation and attempted facilitation of, the export of a .50 caliber rifle from the United States to Mexico. In the court case, Sanchez was sentenced to 4 years of probation and a $100 special assessment.
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Nov. 5, 2020 – 85 Fed. Reg. 70583: BIS denied the export privileges of Patrick Germain of Evanston, IL, for 10 years based on his conviction in U.S. District Court for the Northern District of Illinois of violating 18 U.S.C. 554(a) by knowingly and fraudulently attempting to export firearms and ammunition from the United States to Haiti. In the court case, Germain was sentenced to time served, two years of supervised release, and a $100 special assessment.
Fines and Penalties
Nov. 2, 2020: Ge Songtao, of Nanjing, China, the chairman of Shanghai Breeze Technology Do. Ltd., of Shanghai, China, pleaded guilty in U.S. District Court in Jacksonville, FL, to conspiring to submit false export information through the Automated Export System (AES), and, to fraudulently export maritime raiding craft and engines, to China, and attempting to fraudulently export the equipment. According to the plea agreement, Songtao sought to identify a source of supply of U.S.-manufactured combat rubber raiding craft equipped with engines that can operate using gasoline, diesel fuel, or jet fuel. These vessels and multi-fuel engines are used by the U.S. military and can be operated after being launched from a submerged submarine. To induce the manufacturer to sell this equipment, Yang Yang, an employee of Shanghai Breeze, falsely represented that the customer was in Hong Kong rather than mainland China. To facilitate the purchase, Songtao arranged for the wire transfers to a separate company in Hong Kong, Belt Consulting Company Limited, which in turn wired over $110,000 to the U.S. manufacturer. He also coordinated plans to send an employee to Hong Kong to receive the raiding craft and engines and transship them to mainland China. Yang pleaded guilty in September 2020 to the same two charges to which Ge Songtao has now pleaded guilty. (See report in September 2020 Regulatory Update.)
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Nov. 10, 2020: DES International Co., Ltd., a Taiwan business organization, Soltech Industry Co., Ltd., a Brunei business organization related to Soltech, and Chin Hua Huang of Taiwan, a sales agent for DES and Soltech, were charged in U.S. District Court for the District of Columbia with conspiracy to defraud the U.S. and to violate the International Emergency Economic Powers Act (IEEPA, 50 USC Sec. 1701 -1707)
and the ITSR by buying goods from the U.S., concealing the origin of those goods, and sending them to Iran for use by the government and businesses. Huang, on behalf of DES and Soltech, allegedly helped an Iranian research center obtain U.S. goods including a power amplifier and cybersecurity software by concealing their U.S. origin, including by removing serial number stickers with the phrase “Made in the USA” from the packages, and by causing the cybersecurity software to be downloaded onto a computer outside of Iran.
Concurrent with this criminal action by the Justice Department, the Treasury Department sanctioned Huang, DES, Soltech, and 7 related individuals and entities and placed them on the Specially Designated National and Blocked Persons List (SDN List).
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Nov. 18, 2020: Wei Sun, a Chinese national and naturalized U.S. citizen, was sentenced in U.S. District Court for the District of Arizona to 38 months in prison based on his plea of guilty of one felony count of violating the Arms Export Control Act (AECA, 22 USC 2778 et seq.) and the International Traffic in Arms Regulations (ITAR, 22 CFR Parts 120-130) by exporting ITAR-controlled technical information to China without the required export license. (See report of the guilty plea in February 2020 Regulatory Update.) Specifically, on a personal trip to China taken while Sun was employed as an electrical engineer with Raytheon Missiles and Defense, he carried a company-issued computer containing ITAR-controlled data associated with an advanced missile guidance system. Sun knowingly transported the controlled information to China without a license despite having been trained to handle these materials correctly.