Stricter BIS “end use” and other export control regulations around the corner

On June 29, 2020, the Bureau of Industry and Security (BIS) is scheduled to launch numerous changes to their export control regulations and other provisions.

The scheduled changes, which were announced on April 28, 2020, specifically address two key BIS-related export compliance areas: those with regards to licensing exceptions for Civil End Users, and an expansion of rules associated with military end use.

While the Federal Registers are too dense to go into full detail in this article, we have provided a high-level explanation of some of the new provisions, as well as links should further reading be required.

Proposed license exceptions for Civil End Users

In an effort to gain better visibility into transactions of national security or foreign policy interest to the U.S., BIS is proposing to revise part 740 of the Export Administration Regulations (EAR) (15 CFR, Subchapter C, parts 730–774).

This provision provides information on license exceptions—i.e., authorizations allowing the export, re-export, or in-country transfers—of items subject to the EAR that would otherwise require a license. The updated rule will modify License Exception Additional Permissive Re-exports (APR) (§ 740.16 of the EAR) which, among other things, authorizes certain re-exports between and among countries, such as those included in Country Group A:1, also known as Wassenaar Participating States. These include Australia, Canada, Denmark, France, Germany, India, Japan, Mexico, South Korea, the United Kingdom, and the U.S., among others, as well as Hong Kong.

However, this rule also removes countries in Country Group D:1—which are those deemed a concern for national security reasons, such as Russia, Venezuela, Ukraine, Vietnam, Yemen, to name a few—as ineligible destinations for national security-controlled items. BIS acknowledges many countries seek to align civil and defense technology development in order to achieve greater efficiency, innovation, and growth. That said, there are strict constraints in place.

BIS has mandated that transactions involving the export of national security-controlled items now permitted under the new rules be reviewed by the U.S. Government prior to export, re-export, or in-country transfer. As such, organizations wishing to deal in defense technologies with D:1 countries can expect more paperwork, and the process to be cumbersome and time-consuming.

Information related to these updated rules are detailed in BIS’ Federal Register 23470.

Expansion of rules related to military end use

Similar to the changes to Country Group D:1 in the updated license exceptions for Civil End users, BIS is expanding rules to the export, re-export, and in-country transfer controls for Military End Use and Military End Users in the People’s Republic of China, Russia, and Venezuela. Expanding the definition of ‘‘military end use,” it creates a new reason for control, and the associated review policy for regional stability for certain items exported to said countries.

Microprocessors and associated software, materials processing, electronics, telecommunications, information, security, sensors and lasers, and propulsion technologies are among some of the items included in the new military end use rules.

Additional provisions add Electronic Export Information filing requirements in the Automated Export System for exports to China, Russia, and Venezuela—all in support of the National Security Strategy of the United States. BIS’ Federal Register 23459 contains greater detail on the subject.

Proposed rule on license exception Additional Permissive Re-exports APR

Additional Permissive Re-exports—also referred to as APR—are primarily related to EAR shipments from countries included in the Wassenaar Arrangement. These proposed new rules are not, as of yet, set in stone, and organizations have until June 29, 2020 to provide comment.

In short, the proposed new rules would see shipment of items subject to the EAR from a Wassenaar Arrangement member to a third country potentially require two authorizations:

The proposed provisions would apply to items that are controlled for national security reasons, but not for those controlled for Non-Proliferation (NP), Chemical and Biological Weapons (CW), Missile Technology (MT), Significant items (SI), or Crime Controls and Detection (CC) reasons.

Among the reasoning for these proposed APR exceptions is the differing licensing standards in Wassenaar Arrangement member states and Hong Kong for exports to D:1 countries, and those of the United States The end result will allow permitted re-exports that would have been denied if exported directly from the U.S..

Be ahead of the curve

While the approved regulatory changes will happen on June 29, 2020, and those proposed at a later date, it’s important for organizations to be prepared to adhere to any new BIS rules—and other government bodies, such as the Office of Foreign Assets Control, for that matter—pertaining to export, import, and financial compliance. For rarely does the U.S. government accept ignorance of the law as a defense when it comes to matters of national security.