Archive for the ‘BIS’ Category


Dec

10

Expressio Unius Est Exclusio Alterius: E Pluribus (License Conditions) Unum


Posted by at 9:33 pm on December 10, 2014
Category: BIS

By Daderot (Own work) [CC0], via Wikimedia Commons http://commons.wikimedia.org/wiki/File%3APatent_quote_-_United_States_Department_of_Commerce_-_DSC05103.JPGThe Bureau of Industry and Security has announced that, starting on December 8, a new license condition will appear on all validated licenses. That condition reads as follows:

Unless limited by a condition set forth below, the export, reexport or transfer (in-country) authorized by this license is for the item(s), end-use(s), and parties described in the license application and any letters of explanation. The applicant is responsible for informing the other parties identified on the license, such as ultimate consignees and end-users, of the license’s scope and of the specific conditions applicable to them. BIS has granted this license in reliance on representations the applicant made in the license application, letters of explanation, and other documents submitted.

The laudable purpose here is to get rid of the silly license conditions that simply reiterate existing requirements of the Export Administration Regulations, such as Part 744′s prohibition on nuclear end uses. BIS is concerned about possibility that the existence of, say, the no nuclear use condition will give someone the idea that it is okay to allow the exported item to be used in the production of chemical weapons in violation of section 744.4 of the EAR. Expressio unius and all that.

But I wonder, and the BIS announcement does not say, whether the language quoted above will replace the following condition that is included, in one form or another, on all licenses:

No resale, transfer, or reexport of the items listed on this license is authorized without prior authorization by the U.S. Government.

The issue here is an odd lacuna in the EAR. If you look through the General Prohibitions, there is no explicit prohibition against in-country transfers of items exported under license. The prohibitions on certain exports and re-exports do not, by definition, reach in-country transfers. Rather the General Prohibitions only address in-country transfers in connection with denial orders (General Prohibition 4) and illegally exported items (General Prohibition 10). Instead, the way that in-country transfers are prohibited is through General Prohibition 9, which prohibits violation of any license condition, such as the one quoted above, which makes clear that no in-country transfer can occur with U.S. Government approval.

The new license condition is worded in such a way that it seems possible that it will replace the standard condition prohibiting resale, transfer or re-export without government approval. But if it does, BIS will have unintentionally opened the door to unlicensed in-country transfer of items exported under license.

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Dec

4

Some Clouds Do Have Silver Linings (or Not)


Posted by at 9:15 pm on December 4, 2014
Category: BIS

Lonely Cloud by Kate Haskell https://www.flickr.com/photos/fuzzcat/32487111/ CC BY 2.0 [https://creativecommons.org/licenses/by/2.0/] (cropped)In an advisory opinion dated November 13, 2014, the Bureau of Industry and Security (“BIS”) rode once again into the cloud computing breach to confront the tricky metaphysical question of when software that lives in the cloud is exported.  At issue is this: when a foreign user accesses a U.S. server running a software application, say Adobe Photoshop, has the software for the application been exported to the  foreign user? In such a scenario, the foreign user will be using the software in exactly the same fashion as if it had been download and installed on his local hard drive, with the only difference being a slight lag if his Internet connection is poor.

The BIS advisory opinion takes what might be called, in philosophical terms, a positivist approach to this question:

Instead of downloading the software and processing data locally the foreign user of a U.S. server sends its data to the cloud for processing, and causes its processed data to be transmitted back to it. Although there may be export of technology in this context, there is no export of software.

So the silver lining here, for cloud companies, is this literalist view of software exports. Software is exported when a physical disk with the software or an electrical impulse representing the code crosses a border. Just because someone uses the software remotely it has not been exported.

Now for the “Or Not” in the headline. Although BIS’s literalist approach to the download of software has a certain appeal, and is likely to be welcomed by cloud providers, there is something that the advisory opinion does not say. And this is where we can see the utter insanity of having export control scattered over competing agencies each trying to establish their own primacy in the export control domain. The advisory opinion says nothing about the rules of the Office of Foreign Assets Control (“OFAC”) which, in more than a few instances, might be implicated by the cloud scenario described above. Suppose the foreign user is in, say, Iran. Although the U.S. cloud provider might not be exporting software to Iran, at least the way BIS sees it, it certainly will be exporting a service to Iran in violation of OFAC rules.

Faithful readers of this blog will likely recognize this issue, but others reading the BIS opinion might conclude that, because there is no export of the software to Iran, it is completely legal to make the program available to Iranians from a U.S. based cloud. Until all export control is moved under the control of one agency, this kind of nonsensical trap will continue to snare innocent people and businesses for no good reason.

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Nov

20

BIS Updates FAQs on Shale Issue


Posted by at 8:54 pm on November 20, 2014
Category: BISOFACRussia Sanctions

Ocean Star Drilling Rig by Ed Schilpul [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr http://www.flickr.com/photos/eschipul/4577660624In our prior post on the Russia sanctions and export of equipment to be used in oil production and exploration in shale, we noted that BIS had not yet weighed in on whether its export ban, like OFAC’s restriction, covered only production and exploration of oil in shale and not production and exploration which went through shale to oil reservoirs below. Well, in fact BIS has also recently updated its FAQs and has reached the same conclusion as OFAC. BIS is to be commended for phrasing its FAQ on this issue in a clear and intelligible way, unlike the cryptic version posted by OFAC.

Q11: When the August 6 rule refers to shale and uses the terms exploration or production in shale, do the restricted end uses apply only to situations, such as fracking, where the hydrocarbon is located in shale formations, or do they also apply to projects involving penetrating a layer of shale to reach a reservoir located below the shale formation? What about projects that involve unconventional methods of extracting oil from shale (e.g., from shale reservoirs or oil shale processing)?

A11: The license requirements of §746.5 of the EAR apply to the specified items when you know that the item will be used directly or indirectly in exploration for, or production of, oil or gas in Russian deepwater (greater than 500 feet) or Arctic offshore locations or shale formations in Russia, or are unable to determine whether the item will be used in such projects. Thus, the license requirement applies to exploration for, or production of, oil or gas from a shale formation. The license requirement does not apply to exploration or production through shale to locate or extract crude oil or gas in reservoirs.

You can’t get any clearer than that.

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Nov

18

Alex, I’ll Take “Shale Formations” for $100


Posted by at 6:21 pm on November 18, 2014
Category: BISOFACRussia Sanctions

In Situ Shale Oil Extraction via http://energy.cr.usgs.gov/images/other/oil_shale/shell_insitu.gif [Public Domain]OFAC today released a new FAQ on the Ukraine Sanctions and shale formations. The purpose of FAQs, at least outside the Treasury Department, is to present clear and concise answers to resolve questions that many people might have. OFAC seems to have the idea instead that the FAQs are a place for cryptic and oracular pronouncements to obscure questions.

So let’s play OFAC Jeopardy. I give you the answer and if you can tell me the question you win a free subscription to Export Law Blog:

The prohibitions in Directive 4 under Executive Order 13662 apply to deepwater, Arctic offshore, or shale projects with the potential to produce oil in the Russian Federation, or in maritime area claimed by the Russian Federation and extending from its territory. The term “shale projects” applies to projects that have the potential to produce oil from resources located in shale formations. Therefore, as long as the projects in question are neither deepwater nor Arctic offshore projects, the prohibitions in Directive 4 do not apply to exploration or production through shale to locate or extract crude oil (or gas) in reservoirs.

Now when you first read this, it seems that OFAC is saying something radical: that the Directive 4, which prohibits exports of goods and services in support of the listed projects doesn’t apply to shale projects unless they are in the Arctic or in deepwater, meaning that the question was “Do the Ukraine sanctions apply to shale projects not located in deepwater or in the Arctic offshore?” Of course, this would be a silly reading and result even by federal regulatory standards. I’m not even sure that there is shale in deepwater or the arctic offshore regions.

But then I figured out the real question. “Do the sanctions apply to oil projects where the oil is underneath a shale formation? Is that a “shale project” under Directive 4?” And the answer is no, shale projects are when you get the oil in shale not under shale. Oh, I see. . .

Now the burning question is this: the recently added section 746.5 of the EAR forbids exports of items with certain ECCNs when the exporter knows that the items “will be used directly or indirectly in exploration for, or production of, oil or gas in Russian deepwater (greater than 500 feet) or Arctic offshore locations or shale formations in Russia.” Does this rule cover exploration and production of oil under shale formations? Who knows?  UPDATE: BIS now says that its rule covers exploration and production in, rather than through, shale

But this gives us time for one more round of Jeopardy. Alex, I’ll take Regulatory Conundrums for $500. Answer: Because Directive 4 applies to exports by U.S. persons even if the items are not subject to the EAR and 746.5 applies to re-exports by foreign persons of items subject to the EAR.

[Hit the buzzer below to answer!]

Question: If Directive 4 prohibits all exports in support of the forbidden oil projects, why do we need 746.5 which prohibits exports of only certain items in support of the forbidden oil projects.

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Nov

12

Venezuela Joins the Axis of Evil


Posted by at 11:44 pm on November 12, 2014
Category: BISVenezuela

Venezuela Capitol Building by Márcio Cabral de Moura via https://www.flickr.com/photos/mcdemoura/2316759071/ [CC-BY-2.0 (http://creativecommons.org/licenses/by/2.0)]It is probably safe to say that no one was particularly shocked earlier this week when the Bureau of Industry and Security added Venezuela to the list of countries (currently Russia and China) to which certain dual use items may not be exported if these items are for military end use. The specific items subject to this restriction are those listed in Supplement 2 to Part 744 of the Export Administration Regulations. These items include, among other things, certain composite materials, lasers, and aircraft navigational equipment.

The rule was adopted in final form and went into immediate effect on November 7.

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