New Military-Intelligence Rules Apply to Certain Transactions

January 15, 2021 by Leave a comment

New US rules published today create new restrictions on support of certain military-intelligence end uses and end users. This will authorize the addition of new entities to the export control lists, and will also impose a de facto requirement to ensure your transactions are not supporting restricted military-intelligence end uses. This new restriction comes on the heels of new restrictions related to military end uses and military end users.

15 C.F.R. is being amended to create new restrictions on the support of certain military-intelligence end uses and end users.

The specific restrictions apply to transactions – of any item subject to the Commerce Department export regulations – because there is an unacceptable risk of use in, or diversion to, a ‘military-intelligence end use’ or a ‘military-intelligence end user’ in the People’s Republic of China, Russia, or Venezuela; or a country listed in Country Group E:1 or E:2 (currently Cuba, Iran, North Korea, Sudan and Syria).

Two key definitions are also added to the regulations, to explain the scope of the new restrictions:

‘Military- intelligence end use’ means the design, ‘‘development,’’ ‘‘production,’’ use, operation, installation (including on-site installation), maintenance (checking), repair, overhaul, or refurbishing of, or incorporation into, items described on the U.S. Munitions List (USML) (22 CFR part 121, International Traffic in Arms Regulations), or classified under ECCNs ending in ‘‘A018’’ or under ‘‘600 series’’ ECCNs, which are intended to support the actions or functions of a ‘military- intelligence end user,’ as defined in this section.

15 C.F.R. § 744.22(f)(1) (March 16, 2021).

‘Military-intelligence end user’ means any intelligence or reconnaissance organization of the armed services (army, navy, marine, air force, or coast guard); or national guard. For license requirements applicable to other government intelligence or reconnaissance organizations in China, Russia, or Venezuela, see § 744.21 of the EAR. Military-intelligence end users subject to the license requirements set forth in this § 744.22 include, but are not limited to, the following:

(i) Cuba. Directorate of Military Intelligence (DIM) and Directorate of Military Counterintelligence (CIM).

(ii) China, People’s Republic of. Intelligence Bureau of the Joint Staff Department.

(iii) Iran. Islamic Revolutionary Guard Corps Intelligence Organization (IRGC– IO) and Artesh Directorate for Intelligence (J2).

(iv) Korea, North. Reconnaissance General Bureau (RGB).

(v) Russia. Main Intelligence Directorate (GRU).

(vi) Syria. Military Intelligence Service.

(vii) Venezuela. General Directorate of Military Counterintelligence (DGCIM).

15 C.F.R. § 744.22(f)(2) (March 16, 2021).

In summary, the recent expansion to the military end use/user rules is further expanded to include military intelligence services (in the seven affected countries) as well.

The most difficult compliance target may be China, because of the complicated manner in which the private sector and the state are intertwined (and also because of the large volumes of trade between these two nations). Compliance in China in particular will require special attention to detail, and to ensuring that regulatory obligations are understood and that compliance is well-documented.

The new rules apply to both direct exports and also to certain transactions that are not U.S. exports. There are some limited, specific cases where the U.S. export laws apply to transactions that are not U.S. exports. The best known case is re-exports, where U.S. origin products that are exported from one third-country location to another are nonetheless subject to U.S. export regulations.

Another special case involves weapons of mass destruction, the restrictions for which have been summarized in subsection 730.5(d). Current regulations provide:

“(d) U.S. Person Activities. To counter the proliferation of weapons of mass destruction, the [Export Administration Regulations] restrict the involvement of “United States persons” anywhere in the world in exports of foreign-origin items, or in providing services or support, that may contribute to such proliferation.”

15 C.F.R. § 730.5(d) (2020).

In today’s Federal Register, the government expanded the scope of subsection 730.5(d) to read as follows (note that restrictions on missiles and nuclear, chemical, and biological weapons already existed in the regulations, but the text dealing with them is also expanded in the new rule change):

(d) ‘‘U.S. person’’ activities. The[Export Administration Regulations] restrict specific activities of ‘‘U.S. persons,’’ wherever located, related to the proliferation of nuclear explosive devices, ‘‘missiles,’’ chemical or biological weapons, whole plants for chemical weapons precursors, and certain military-intelligence end uses and end users, as described in § 744.6 of the [Export Administration Regulations].

15 C.F.R. § 730.5(d) (March 16, 2021).

This should be of note to ASA members because it expands the scope of this rule to include certain military-intelligence end uses and end users – which means that some transactions that are not strictly U.S. exports will nonetheless be restricted when the participants include U.S. persons.

The new regulation is an interim final regulation. It is exempt from the APA’s requirements for notice and comment so it will go into effect on March 16, 2021 without comment. In the interest of effective rule-making, the government is nonetheless collecting comments on this rule.

As always, if you think that your transactions may be affected by the new rule, please consider seeking our legal advice to support your compliance program.

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BIS Revises Sudan Licensing Policy

January 16, 2017 by Leave a comment

The U.S. Department of Commerce Bureau of Industry and Security (BIS) issued a final rule today revising its policy for review of applications for the export of parts in support of Sudan’s civil aviation industry from a policy of presumptive denial to one of presumptive approval.  This change makes it possible for exporters of aircraft parts to obtain a license to export parts “intended to ensure the safety of civil aviation or the safe operation of fixed-wing, commercial passenger aircraft.”

Prior to this rule change BIS maintained a general policy of denial of export license applications for “[a]ll aircraft (powered and unpowered), helicopters, engines, and related spare parts and components.” 15 C.F.R. § 742.10(b)(1)(iv).  The rule revision replaces that policy “to a general policy of approval for parts, components, materials, equipment, and technology that are controlled on the CCL only for anti-terrorism reasons and that are intended to ensure the safety of civil aviation or the safe operation of fixed-wing, commercial passenger aircraft.” The new rule goes into effect January 17, 2017.

The rule explains that these changes are being made “in connection with ongoing U.S.-Sudan bilateral engagement, and with the aim of enhancing the safety of Sudan’s civil aviation” in furtherance of U.S. goals to improve regional peace and security. The support and enhancement of safety in civil aviation was one of the carrots the United States used during its negotiations of the Iran nuclear deal as well.

One important caveat to the rule change is that a general policy of denial of export (or reexport) license applications has been retained if the transaction would “substantially benefit a sensitive end user.” Sensitive end users include (but are not limited to) Sudan’s military, police, and intelligence services, or persons owned or controlled thereby. Should you be contacted by a potential customer from Sudan it is therefore important to ensure that you follow your export compliance procedures to establish the identity of the ultimate end users.

The relevant text of the new rule is as follows:

15 C.F.R. § 742.10(b)(3)(ii) General policy of approval. Applications to export or reexport to Sudan the following for civil uses by non-sensitive end-users within Sudan will be reviewed with a general policy of approval.

(A) Parts, components, materials, equipment, and technology that are controlled on the Commerce Control List (Supp. No. 1 to part 774 of the EAR) only for anti-terrorism reasons that are intended to ensure the safety of civil aviation or the safe operation of fixedwing commercial passenger aircraft.

. . .

Note to paragraph (b)(3)(ii). Applications will generally be denied for exports or reexports that would substantially benefit a sensitive end user. Sensitive end users include Sudan’s military, police, and intelligence services and persons that are owned by or are part of or operated or controlled by those services.

The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) has simultaneously amended its Sudanese Sanctions Regulations to authorize these exports.

Remember, this policy change does not mean that you can ship to Sudan without a license; rather, it means that as a general rule an export license will be granted for the export of aircraft parts in support of Sudan’s civil aviation industry. Sudan remains the only country on the Commerce Country Chart controlled under column Anti-Terrorism 1 (AT1), and AT1 applies to ECCN 9A991.d, under which most aircraft parts are categorized.

As always, anyone seeking to engage in new, complex, or unfamiliar export transactions should consult an export compliance attorney.

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