LATEST EXPORT CONTROLS AND COMPLIANCE UPDATE
This newsletter is a listing of the latest changes in export control regulations through December 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.
Department of Commerce – Bureau of Industry and Security
BIS Amended The EAR To Correct Errors In Sept 11, 2020 Report Of Decisions Made At The Wassenaar Arrangement 2018 Plenary And Other Revisions Related To National Security Controls
Dec. 4, 2020 – 85 Fed. Reg. 78684: The Bureau of Industry and Security (BIS) amended the Export Administration Regulations (EAR, 15 CFR Parts 730-774) to correct errors in Sep. 11, 2020, report of decisions made at the Wassenaar Arrangement 2018 Plenary and other revisions related to national security controls (85 Fed. Reg. 56294). The corrections, which do not change BIS policy, including any applicable licensing requirements, are in Export Control Classification Numbers (ECCNs) 3A001, 3A002, 3A991, 5A002, 7A005, and 9E003.
BIS Published 26 FAQs About Changes To The Foreign-Produced Direct Product Rule
Dec. 18, 2020: BIS published a compendium of 26 FAQs about an amendment to the Foreign-Produced Direct Product Rule (FDP Rule, General Prohibition Three, EAR Sec. 736.2(b)(3)) issued on August 20, 2020 (85 Fed. Reg. 51596), which revised the control over certain foreign-produced items when there is knowledge that the items will be incorporated into, or will be used in the production or development of, any part, component or equipment produced, purchased or ordered by an entity on the Entity List (EAR Part 744, Supp. No. 4) with a footnote 1 designation or when an entity with a footnote 1 designation is involved in a transaction involving the foreign-produced item. At present, all of the entities with a “Footnote 1” designation in the Entity List are affiliates of Huawei located outside of the United States. The FAQs clarify the manner in which the EAR’s Foreign-Produced Direct Product Rule applies for exports from abroad and re-exports (i.e., export activities involving non-US parties) where the EAR governs the export activity as a result of the foreign product being produced using U.S. origin technology and/or equipment or produced in a plant (or major component of a plant) that is a direct product of U.S. origin technology and/or equipment. The FAQ addresses the scope of the revised FDP Rule and includes the following topics: Types of Items, Prior Exports, Plant/Major Component, De Minimis, Supply Chain, Prior Licenses, Licensing Policy, Item-Specific Questions, and Savings Clause. The FAQs can be found at https://www.bis.doc.gov/index.php/documents/about-bis/2681-2020-fpdp2-faq-120820-ea/file.
BIS ADDS 77 Entities In 10 Countries to the Entity List
Dec. 22, 2020 – 85 Fed. Reg. 83416: BIS amended the EAR by adding 77 entities in 10 countries to the Entity List based on a determination that each of these entities had acted contrary to the national security or foreign policy interests of the U.S. Over 60 of these entities are in China; the remaining entities are listed in Bulgaria, France, Germany, Hong Kong, Italy, Malta, Pakistan, Russia, and the United Arab Emirates (UAE). A license requirement will now apply to exports, reexports, or in-country transfers to the listed entities of all items subject to the EAR, and no license exceptions will be available to them. A license review policy of presumption of denial will apply to 60 of the persons; license policies for the remaining 17 persons vary.
Most notably, BIS states that Semiconductor Manufacturing International Corporation (SMIC), commercial done manufacturer and retailer, DJI, and SMIC related entities were included in this action as a result of China’s military-civil fusion (MCF) doctrine and evidence of activities between these entities and parties of concern in the Chinese military-industrial complex. The designation under the Entity List will limit SMIC’s, DJI’s, and the other listed parties’ abilities to acquire U.S. technology by requiring exporters, reexporters, and in-country transferors of such technology to apply for a license to export any product subject to the EAR (including EAR99 items) to these companies. All items subject to the EAR will have a presumption of denial for export to DJI, except items necessary to detect, identify, and treat infectious disease. Items destined for SMIC and affiliates that are uniquely required to produce semiconductors at advanced technology nodes (10 nanometers or below, including extreme ultraviolet technology) will be subject to a presumption of denial to prevent such technology from supporting China’s military modernization efforts. Other items subject to the EAR will be subject to a case-by-case review by BIS.
The rule also revises one existing destination in China and one in Pakistan and removes a total of 4 entities in Israel and the United Arab Emirates. A list of all the affected entities is on the BIS website at https://www.federalregister.gov/documents/2020/12/22/2020-28031/addition-of-entities-to-the-entity-list-revision-of-entry-on-the-entity-list-and-removal-of-entities.
Refer to our consultant corners article for more details at https://www.fdassociates.net/consultants-corner.
BIS Amends The EAR Removing Hong Kong As A Separate Destination From The People’s Republic of China
Dec. 23, 2020 – 85 Fed. Reg. 83765: BIS amended the EAR to remove the PRC Special Administrative Region of Hong Kong as a separate destination under the EAR. In most cases, it will now be considered a part of China. Accordingly, BIS also removed the entries for Hong Kong in the Commerce Country Chart (EAR Part 738, Supp. No. 1) and the Country Group List (EAR Part 740, Supp. No. 1, Country Groups A:6 and B), and in other provisions that provide differential and preferential treatment for Hong Kong as compared to the treatment of such transactions to or within China. (Provisions specific to Hong Kong that remain in the EAR recognize certain differences but do not provide preferential treatment.) With respect to submissions in the Automated Export System (AES) for the exports of items that are intended for end use in Hong Kong, the Foreign Trade Regulations (FTR) have not been modified to remove Hong Kong. Exporters should still cite HK as the Ultimate Country of Destination in EEI filings where ultimate end-use or the ultimate consignee is located in Hong Kong. While exporters should continue to use HK in EEI submissions as the Ultimate Country of Destination for exports with the ultimate consignment to Hong Kong, the exports will be treated pursuant to the EAR as though they are exports to China. Thus, EEI submissions are required for all exports intended for ultimate consignment to Hong Kong of items on the Commerce Control List (CCL) (e.g., with an ECCN) regardless of value.
BIS Adds Supplement No. 7 to EAR Part 744 - Military End User List
Dec. 23, 2020 – 85 Fed. Reg. 83793: BIS amended EAR Part 744 by adding a new Supplement No. 7, “Military End User” (MEU) List of entities that have been determined to be “military end-users” for purposes of the “military end user” control that imposes a license requirement on exports, reexports, or transfers (in-country) of specified items to China, Russia, and Venezuela when such items are destined for a “military end-user.” The MEU List is non-exhaustive, i.e., parties not included on the list remain subject to the “military end-use” and “military end user” controls.
This announcement also includes the first tranche of 103 MEUs, consisting of 58 Chinese and 45 Russian companies.
Editor’s note: These additions to the military end-user list impose additional due diligence obligations on exporters to ensure licenses are obtained prior to export, reexport, or in-country transfer.
BIS Amended The EAR To Change The Country Group Designations For Ukraine, Mexico, And Cyprus
Dec. 28, 2020 – 85 Fed. Reg. 84211: BIS amended the Country Group List (EAR Part 740, Supp. No. 1) to revise the designations for Ukraine, Mexico, and Cyprus. Ukraine is moved from Country Group D:1 to Country Group B but is noted to be ineligible for License Exceptions GBS (Shipments to Country Group B countries) and TSR (Technology and Software Under Restriction); Mexico is added to Country Group A:6; and Cyprus is also added to Country Group A:6. At the same time, however, Cyprus also remains in Country Group D:5 (U.S. Arms Embargoed Countries). The announcement includes a section on the “Impact of the Amendments in this Rule” that specifically describes the impact of the changes for each country at the level of the availability of specific license exceptions and licensing policies that are affected by the changes. The rule also includes conforming changes. A full copy of the Federal Register notice is found here: https://www.federalregister.gov/documents/2020/12/28/2020-26552/amendment-to-country-groups-for-ukraine-mexico-and-cyprus-under-the-export-administration.
Editor’s note: These shifts in-country groups change the requirements for BIS licenses and available EAR license exceptions for exports to Ukraine, Mexico, and Cyprus. When exporting to any of these countries, it is imperative to reconfirm the export obligations after reviewing the ECCNs, the reason for control, the country chart, and EAR general prohibitions.
Department of Commerce – Census Bureau
Census Updated The Schedule B and Harmonized Tariff Schedule
Dec. 30, 2020: In its Global Reach Blog, the Census Bureau noted that the Schedule B and Harmonized Tariff Schedule (HTS) tables had been updated to accept the changes to the Jan. 1, 2021 codes. Shipments with outdated codes will be accepted during a 30-day grace period; an outdated code after Jan. 30, 2021, will result in a fatal error. The ACE AESDirect program has been updated with the 2021 codes.
The 2021 Schedule B and HTS tables are available for download at http://www.census.gov/foreign-trade/aes/documentlibrary/#concordance. The list of HTS codes that are not valid for AES remains unchanged.
Department of State
DDTC Name And Address Changes Posted To Website
Dec. 1, 7, 19, and 23, 2020: The Directorate of Defense Trade Controls (DDTC) posted the following name and/or address changes on its website at:
- Effective November 30, 2020, change in address for Raytheon Saudi Arabia to Riyadh Front, Bldg. S-1, 9054 King Khalid International Airport, Riyadh 13413-3677, Kingdom of Saudi Arabia.
- Due to corporate restructuring and reorganization, changes in a name for the following Singapore Technologies Engineering, Ltd., legal entities effective on the following dates:
- Effective January 1, 2021, change in name from ST Engineering Aerospace Aircraft Maintenance Pte. Ltd. to ST Engineering Defence Aviation Services Pte. Ltd.
- Effective November 2, 2020, change in name from ST Synthesis Pte. Ltd. to ST Engineering Synthesis Pte. Ltd.
- Effective January 1, 2021, change in name from SDDA Pte. Ltd. to ST Engineering Land MRO & Services Pte. Ltd.
- Effective January 1, 2021, change in name from ST Electronics (Info-Software Systems) Pte. Ltd. to ST Engineering Mission Software & Services Pte. Ltd.
- Effective January 1, 2021, change in name from ST Electronics (Training and Simulation Systems) Pte. Ltd. to ST Engineering Training and Simulation Systems Pte. Ltd.
- Effective January 1, 2021, change in name from ST Electronics (SatCom & Sensor Systems) Pte. Ltd. to ST Engineering SpaceTech Pte. Ltd.
- Effective January 1, 2021, change in name from ST Engineering Aerospace Ltd., EDC Division to ST Engineering Defence Aviation Services Pte. Ltd.
- Effective January 1, 2021, change in name from ST Engineering Aerospace Supplies Pte. Ltd., part of Logs Division, to ST Engineering Defence Aviation Services Pte. Ltd.
- Effective January 1, 2021, change in name from ST Engineering Electronics Ltd. Part of Large Scale Group Division to ST Engineering Advanced Networks & Sensors Pte. Ltd.
- Effective January 1, 2021, change in name from ST Electronics (SatCom & Sensor Systems) Pte. Ltd., Defense Division to ST Engineering Advanced Networks & Sensors Pte. Ltd.
- Effective January 1, 2021, change in name from ST Electronics Engineering Ltd., Defense Division to ST Engineering Unmanned & Integrated Systems Pte. Ltd.
- Effective January 1, 2021, change in name from ST Electronics (Info-Comm Systems) Pte. Ltd., AUV/UW Division to ST Engineering Unmanned & Integrated Systems Pte. Ltd.
- Effective January 1, 2021, change in name from ST Engineering Electronics Ltd., Part of Large Scale Group Division to ST Engineering Unmanned & Integrated Systems Pte. Ltd.
- Effective December 17, 2020, change in name from VMS International Pty Ltd. to TR Pty Ltd. Due to corporate reorganization.
- Effective January 1, 2021, change in name from Kongsberg Maritime CM AS to Kongsberg Maritime AS and change in address to Strandpromenaden 50, 3183 Horten, Norway due to corporate reorganization.
- Effective December 23, 2020, change in name from HII Mission Driven Innovative Solutions, Inc., to HII Defense and Federal Solutions, Inc. due to corporate reorganization.
- Effective December 23, 2020, change in name from Nammo Buck GmbH to Nammo Defence Germany GmbH due to corporate rebranding.
Each announcement includes a link to a notice detailing the change and its effects on pending and currently approved authorizations involving the listed entity.
DDTC Extended Its Temporary Suspensions, Modifications, And Exceptions To The Requirements Of The ITAR That Are Currently In Effect Due To SARS-COV2
Dec. 11, 2020 – 85 Fed. Reg. 79836: The State Department announced a further extension of temporary suspensions, modifications, and exceptions to the requirements of the International Traffic in Arms Regulations (ITAR, 22 CFR Parts 120-130) that are currently in effect to permit continuity of operations during the current SARS-COV2 public health emergency and to provide time for DDTC to consider a permanent revision to the ITAR provisions relating to remote work. The following suspensions will continue to apply until June 30, 2021, unless further extended in writing:
- The suspension of the requirement that a regular employee work at the company's facilities, to allow the employee to work at a remote location (except Russia or a country listed in ITAR Sec. 126.1); and
- The suspension authorizing a regular employee of a licensed entity who is working remotely in a country not currently authorized by a technical assistance agreement, manufacturing license agreement, or exemption to send, receive, or access any technical data authorized for export, reexport, or re-transfer to their employer via a technical assistance agreement, manufacturing license agreement, or exemption (so long as the regular employee is not located in Russia or a country listed in ITAR § 126.1).
These actions were initially authorized May 1, 2020 (85 Fed. Reg. 25287) and were extended to December 31, 2020, on July 29, 2020 (85 Fed. Reg. 45513).
Department of the Treasury
OFAC Enacted A New Non-SDN Menu Based Sanctions List
Dec. 4, 2020: The Office of Foreign Assets Control (OFAC) announced the introduction of a new Non-Specially Designated National Menu Based Sanctions (NS-MBS) List, located on the Treasury Department website at and https://www.treasury.gov/ofac/downloads/mbs/mbslist.pdf and https://www.treasury.gov/ofac/downloads/mbs/mbslist.txt. The NS-MBS List will identify persons subject to menu-based sanctions such as those described in Countering America’s Adversaries Through Sanctions Act of 2017 (CAATSA); if the chosen sanctions do not include blocking, that will cause the person to be identified on OFAC’s List of Specially Designated Nationals and Blocked Persons (SDN List, https://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx). Additional information about the NS-MBS List and other OFAC sanctions lists is at https://home.treasury.gov/policy-issues/financial-sanctions/consolidated-sanctions-list/non-sdn-menu-based-sanctions-list-ns-mbs-list.
OFAC Updated Four FAQs related to EO 13902, "Imposing Sanctions With Respect to Additional Sectors of Iran"
Dec. 7, 2020: OFAC updated four export-related FAQs related to EO 13902, "Imposing Sanctions With Respect to Additional Sectors of Iran" (Jan. 14, 2020 - 85 Fed. Reg. 2003 - See January 2020 and June 2020 Regulatory Updates). The FAQs address the scope of products, services, economic sectors, and activities that are covered under this EO. Updated FAQs 830, 831, 832, and 847 are on the Treasury Department website at https://home.treasury.gov/policy-issues/financial-sanctions/faqs/830, https://home.treasury.gov/policy-issues/financial-sanctions/faqs/831, https://home.treasury.gov/policy-issues/financial-sanctions/faqs/832, and https://home.treasury.gov/policy-issues/financial-sanctions/faqs/847.
OFAC Issued Three New FAQs About The Scope Of Sanctions Under The Syrian Sanctions Regulations
Dec. 22, 2020: OFAC issued three new FAQs about the scope of sanctions under the Syrian Sanctions Regulations (SySR, 31 C.F.R. Part 542) for engaging in transactions with the Central Bank of Syria (CBoS) (FAQ 866, https://home.treasury.gov/policy-issues/financial-sanctions/faqs/866 ); engaging with the CBoS in connection with humanitarian assistance and certain other trade with Syria otherwise authorized by the SySR or exempt from regulation (FAQ 867); and engagement by a non-U.S. person in certain humanitarian-related transactions or activity (FAQ 868).
OFAC Issued Ukraine-Related General License (GL) 15J
Dec. 23, 2020: OFAC issued Ukraine-related General License (GL) 15J, authorizing certain transactions and activities otherwise prohibited by the Ukraine Related Sanctions Regulations ("URSR", 31 C.F.R. Part 589) that are ordinarily incident and necessary to the manufacture and sale of specified vehicles and components produced by GAZ Group until Jan. 26, 2022, and superseding Ukraine-related GL 15I.
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
Dec. 1, 2020 – 85 Fed. Reg. 77147: BIS renewed for an additional 180 days the Temporary Denial Order (TDO) against the following persons and when acting for or on their behalf, any successors or assigns agents, or employees:
- Mahan Airways, Tehran, Iran;
- Pejman Mahmood Kosarayanifard A/K/ A Kosarian Fard, Dubai, United Arab Emirates (UAE);
- Mahmoud Amini, Dubai, UAE;
- Kerman Aviation A/K/A Gie Kerman Aviation, Paris, France;
- Sirjanco Trading LLC, Dubai, UAE;
- Mahan Air General Trading LLC, Dubai, UAE;
- Mehdi Bahrami, Istanbul, Turkey;
- Al Naser Airlines A/K/A Al-Naser Airlines A/K/A Al Naser Wings Airline A/K/A Alnaser Airlines And Air Freight Ltd., Baghdad, Iraq, Dubai, UAE, and Amman, Jordan;
- Ali Abdullah Alhay A/K/A Ali Alhay A/K/A Ali Abdullah Ahmed Alhay, Baghdad, Iraq, and Qatif, Saudi Arabia;
- Bahar Safwa General Trading, Dubai, UAE;
- Sky Blue Bird Group A/K/A Sky Blue Bird Aviation A/K/A Sky Blue Bird Ltd A/K/A Sky Blue Bird FZC Ras Al Khaimah Trade Zone, UAE; and
- Issam Shammout A/K/A Muhammad Isam Muhammad Anwar Nur Shammout A/K/A Issam Anwar, Damascus, Syria, Beirut, Lebanon, London, United Kingdom, and Istanbul, Turkey.
Dec. 14, 2020: BIS announced that it had implemented a policy of denial for license applications for exports to the Turkish Presidency of Defense Industries (Savunma Sanayii Baskanligi, or SSB) as a result of Turkey’s acquisition of the S-400 long-range surface-to-air missile system from Russia. This action was coordinated with the Department of State, based on sanctions imposed under the Countering America’s Adversaries Through Sanctions Act of 2017 (CAATSA, 22 USC 9201 et seq.). See below for State Department imposition of CAATSA sanctions on SSB.
Department of State
Dec. 15, 2020: The Secretary of State, in consultation with the Secretary of the Treasury, imposed 5 sanctions on the Turkish Presidency of Defense Industries (Savunma Sanayii Baskanligi, or SSB), a Turkish government entity, and its President and 4 of its senior officers. The sanctions include a prohibition on the grant of specific authorizations to export or re-export any defense articles, including technical data or defense services where SSB is a party to the transaction. (See Commerce Department section above for action against SSB taken by BIS implementing this sanction.) The sanctions were triggered when Turkey took initial delivery of a Russian S-400 surface-to-air missile system under a contract reportedly worth approximately $2.5 billion. The sanctions were imposed pursuant to Section 231 of the Countering America’s Adversaries Through Sanctions Act of 2017 (CAATSA, 22 USC 9201 et seq.), based on a determination that SSB had knowingly engaged in a significant transaction with a person operating on behalf of the defense or intelligence sectors of the Government of the Russian Federation.
Fines and Penalties
Dec. 17, 2020: Colin Fisher, a citizen of the United Kingdom, was sentenced in federal court in Pensacola, FL to 2-1/2 years in federal prison and fined $5,000 based on his September 2020 plea of guilty of violating the International Emergency Economic Powers Act (IEEPA, 50 USC Sec. 1701-1707) and attempted smuggling in an effort to violate the Iranian embargo by attempting to export a Solar Mars 90 S turbine core engine and parts from the U.S. to an end-user in Iran. U.S. law enforcement authorities discovered the plan and seized the turbine before its transatlantic journey to a co-conspirator in Iran who was linked to an Iranian energy company. Fisher was arrested on Aug. 7, 2020, when he arrived at the Pensacola International Airport to finalize the illegal transaction. Fisher’s U.S. co-conspirator, James Meharg, is currently serving a 3-1/2 year sentence in federal prison. (See January and September 2020 Regulatory Updates.)