Archive for the ‘BIS’ Category


Apr

22

Houston CEO Indicted For Not Having an Export License That He Didn’t Need


Posted by at 7:23 pm on April 22, 2015
Category: BISCriminal PenaltiesIran SanctionsOFAC

Smart Power Systems and Bahram Mechanic via http://www.smartpowersystems.com/content/main/corporateinformation.html [Fair Use]Houston-based Smart Power Systems and its CEO Bahram Mechanic (as well as various other individuals) were indicted last week on charges that they exported certain export-controlled items to Iran without a license. The indictment alleges that certain uninterruptible power supplies, microcontrollers and digital signal processing chips, all allegedly classified as ECCNs 3A991,  were transshipped through third countries to a company in Tehran, allegedly controlled by Mechanic.

Not surprisingly, the indictment tries to make the case that these run-of-the-mill electronic items are critical military goods that Iran can use to launch missiles and build nuclear bombs. Of course, the government’s credibility in its assessment of the alleged capabilities of these items is rather diminished by its claim that these items are classified as ECCN 3A991, one of the least stringent export controls under the Export Administration Regulations. At best, however, the microcontrollers are 3A991.a, which covers microprocessors meeting certain computational benchmarks. The uninterruptible power supplies are not covered at all by 3A991 and are almost certainly EAR99.

Worse, for the government, if the uninterruptible power supplies are EAR99,  then the government’s theory of what laws were broken by their exports to Iran completely collapses. The indictment alleges that the defendants violated the International Emergency Economic Powers Act because no license was obtained from the Bureau of Industry and Security (“BIS”). Apparently, no one at the DOJ looked at EAR Section 746.7, which indicates that a BIS license is required only for certain items. EAR99 items are not among them.

Of course, a license from the Office of Foreign Assets Control (“OFAC”) is required to export EAR99 items from the United States to Iran. But the government is not alleging Mechanic and Smart Power needed an OFAC license; instead, it is saying they  didn’t have a BIS license even though they did not need that license. If the government can’t get the law it is enforcing right, it should not try to send people to jail for violating it.

Permalink Comments (3)

Bookmark and Share



Apr

13

White House May Take Cuba off Terrorism List


Posted by at 8:35 pm on April 13, 2015
Category: BISCuba SanctionsDDTC

Cuba - Havana - Car by Didier Baertschiger [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://www.flickr.com/photos/didierbaertschiger/11785935544[cropped]

There have been news reports suggesting that Obama is contemplating, as part of the thaw in U.S.-Cuba relations, to remove Cuba from the list of countries that are state sponsors of terrorism. Beyond the symbolic significant of such a move, what would be the real consequences?

Of course, one consequence of being on the list is that, under section 40 of the Arms Export Control Act, 22 U.S.C. § 2780, any country put on the list of state sponsors of terrorism is automatically subject to an arms embargo. Of course, even if Cuba is removed from the list, I would not count on arms shipments from the U.S. to Havana in the foreseeable future.

Second, section 6(j) of the defunct Export Administration Act, 50 App § 2405, requires a license for exports to state sponsors if the export could make a “significant contribution to the military potential of such country” or if it could “enhance the ability of such country to support acts of international terrorism.” And, in those instances, Congress must be given notice of such exports thirty days in advance. Of course, the Export Administration Act is no longer in force and is only even in the appendix to Title 50 of the U.S.C. because the President breathes life into it every year using the superpowers bestowed on him by the International Economic Emergency Economic Powers Act. So the White House could end any license requirement for Cuba and end the notification requirement using the same superpowers that resurrected those provisions in the first place.

You might also think that removing Cuba from the list might make it easier to ship agricultural products, medicine and medical devices to Cuba under the Trade Sanctions Reform and Export Enhancement Act of 2000. After all, the Act, in section 7205, imposes a license requirement for shipping those goods to a sanctioned country if that country is also on the state sponsor of terrorism list. However, that section specifically identifies Cuba as a state sponsor of terrorism and imposes the license requirement on exports of agricultural products, medicines and medical products to Cuba. So, removing Cuba from the terrorism list will not eliminate the need for exporters to Cuba to continue to file the export notifications required to utilize License Exception AGR for TSRA exports to Cuba.

Permalink Comments (0)

Bookmark and Share



Feb

25

Two Agencies Are Never Better Than One


Posted by at 10:06 pm on February 25, 2015
Category: BISOFACSudan

Church of the Granite Columns CC-BY-2.0 [http://creativecommons.org/licenses/by/2.0], via Wikimedia Commons http://commons.wikimedia.org/wiki/File:Church_of_the_Granite_Columns_2007-10-03_02.jpg#mediaviewer/File:Church_of_the_Granite_Columns_2007-10-03_02.jpg [Cropped]

One of the most indefensible parts of the U.S. export control regime, and one that is not even addressed by the export control reform initiative, is the overlapping jurisdiction of two separate agencies — the Bureau of Industry and Security (“BIS”) and the Office of Foreign Assets Control (“OFAC”) — over sanctioned countries. No one has ever articulated a rationale for this other than the need to gouge federal taxpayers by hiring multiple people in multiple agencies to do exactly the same thing and to keep private lawyers employed to explain to baffled exporters which agency needs to bless a particular export. And nowhere has the insanity of this overlapping jurisdiction been made more clear than in the recent amendments by both agencies (and an accompanying tsunami of ink in the Federal Register) to permit the export of communications hardware and fee-based personal communications hardware and software to Sudan.

To understand what is going on, you must first understand that both BIS and OFAC assert jurisdiction over Sudan (unlike say Cuba and Iran where they have called a truce and agreed that one agency would be responsible for export licensing). Section 538.205 of the Sudanese Sanctions Regulations requires licenses for all exports by anyone from the United States to Sudan, all exports by United States persons from anywhere to Sudan, and all re-exports to Sudan from foreign countries by foreign persons of goods originally exported from the United States. This broad prohibition also necessarily covers by its terms exports or re-exports by U.S. persons of items “subject to the EAR” and which are on the CCL with an AT reason for control.  Such exports of course, will therefore also require a BIS license in addition to the OFAC license.  The language of 538.205 also covers exports of EAR99 items and items not “subject to the EAR” which would not require a BIS license and, thus, require only an OFAC license. Re-exports by foreign persons of foreign manufactured items on the CCL with more than de minimis U.S. content to Sudan are covered by the EAR and not 538.205 and, thus, would be licensed by BIS alone. Items that are EAR99 or foreign manufactured with less than 10 percent U.S. content, are outside the United States and are re-exported to Sudan by foreign persons are not within the scope of sections 538.205 or 538.507 of the SSR or the EAR and would, therefore, not require a license by either agency. Got that? I thought so.

The new OFAC amendments to the Sudan Sanctions Regulations (“SSR”) and the BIS amendments to License Exception CCD are designed to expand to Sudan the previous authorizations for exports to Iran (by OFAC) and Cuba (by BIS) of certain services, software and hardware for personal communications. How these two sets of rules now apply to exports to Sudan and the overlapping jurisdiction of OFAC and BIS is, not surprisingly, is a needlessly complex matter.

Let’s start by looking at certain hardware exports that can require authorization by both agencies, namely exports by U.S persons of items that are subject to the EAR and are not EAR99 that U.S. persons wish to export. Take, for example, a television receiver with encryption functionality classified as 5A992. Because the item is 5A992 it may require a license to be exported by a U.S. person to Sudan. However, such an item is listed in License Exception CCD at section 740.19(b)(14) and therefore does not require a BIS License. Under section 538.533(a)(3)(i) of the SSR, only hardware items on Appendix B to Part 538 are exempt from OFAC’s license requirement. Television receivers, however, are not on Appendix B. Digital cameras classified as 5A992 are included in CCD but not in Appendix B. Why OFAC and BIS would have differing views on whether these items are personal communications devices and why OFAC would still require a license for an item covered by CCD is, of course, anyone’s guess.

The analysis becomes a bit more confusing for software. Consider publicly-available free (or at cost) software with encryption functionality which, because it meets the mass market criteria, is classified as 5D992. Under EAR section 734.3(b)(3) that software is not subject to the EAR and could be freely exported by a U.S. person to Sudan without a BIS license even prior to the latest amendments. If, on the other hand, it is not free (or at cost), then it is subject to the EAR and, because it is 5D992, would require a BIS license to Sudan unless it is listed on CCD. (The basic change by adding Sudan to CCD was, in fact, to capture mass market software that was not free or at cost.)

Now let’s look at this software from the OFAC perspective since you have to look at both OFAC and BIS rules for goods that are not EAR99. Prior to the amendment, section 538.533(a)(2) of the SSR permitted the export if the software was not subject to the EAR which, under EAR 734.3(b)(3), this would not be, and was for personal communication over the Internet. If the software was not free, then the old section 538.533 would not apply, and an OFAC license would have been required in addition to the BIS license. Under the amended version of 538.533, section (a)(2) would permit software, whether or not mass market and/or free, to be exported by U.S. persons or from the United States to Sudan if it was necessary for personal communications over the Internet. Software not related to personal communications over the Internet and that is either not subject to the EAR because it is free or at cost and publicly available or because it is outside the United States, would still not need an OFAC license if it is on Appendix B, which includes things like anti-virus, anti-tracking and VPN software.

As you can see, because of the overlapping (and unnecessarily duplicative) jurisdiction of both agencies over Sudan exports, both OFAC and BIS regulations must be consulted for most exports to Sudan, making the process difficult and confusing. If you have a headache after reading the analysis above, then start clamoring for real export control reform which would involve merging the export control functions of BIS and OFAC into one agency.

Oh, and one more even bigger headache before we wrap up this post: OFAC itself apparently cannot figure out how it shares jurisdiction with BIS. In the FAQ on the new amendments, OFAC now says this:

427. May a non-U.S. person export, reexport, or provide to Sudan hardware and software that is subject to the EAR pursuant to § 538.533?

The Department of Commerce, Bureau of Industry and Security (BIS), has jurisdiction over non-U.S. persons’ exportation and reexportation to Sudan of items subject to the EAR. Please consult BIS, www.bis.doc.gov, for guidance on such transactions.

Now go back and re-read section 538.205 of the SSR, which clearly forbids exports to Syria by non-U.S. persons of hardware and software located in the United States. Now try to find a rule in the SSR that says that if such exports from the United States by non-U.S. persons are licensed by BIS no OFAC license is required. Nope, not there. When even the agencies themselves cannot figure out which agency is in charge, there is no conceivable remaining excuse to have both agencies regulating these exports.

Permalink Comments (3)

Bookmark and Share



Feb

4

Crimea River: BIS Muddies the Water


Posted by at 9:04 pm on February 4, 2015
Category: BISCrimea SanctionsOFAC

The Swallows Nest by Vyacheslav Argenberg [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://www.flickr.com/photos/argenberg/199746052 [cropped]The Bureau of Industry and Security (“BIS”) has issued rules governing exports to Crimea and there’s good news and bad news. The bad news (for exporters): the BIS rule is incomprehensibly written and, arguably, may require you to have a license both from OFAC and BIS for the same export.  The good news (for lawyers):  the BIS rule is incomprehensibly written and, arguably, may require you to have a license both from OFAC and BIS for the same export.

Let’s start with the easy part: BIS amended part 746 of the Export Administration Regulations to add a new section 746.6 to establish a license requirement for exports to the Crimea region of all goods subject to the EAR other than food and medicine.  Note: basic medical supplies, because they are not either food or medicine, are not exempt, apparently on the grounds that the best way to get Putin where it hurts is to make sure that U.S.-origin bandages, hearing aids and hospital beds are kept out of Crimea.  That’ll show him.

But wait a minute.  Didn’t OFAC issue General License 4 permitting the unlicensed export of all items on its list of medical supplies without a license to Crimea?  OFAC, SCHMOFAC — here’s what BIS has to say about that:

The rule establishes a presumption of denial for all such exports or reexports to the Crimea region of Ukraine and transfers within the Crimea region of Ukraine, except with respect to items not exempt from the license requirement but authorized under the Department of the Treasury’s Office of Foreign Assets Control (OFAC) General License No. 4 (discussed in greater detail in the next paragraph) which BIS will review on a case-by-case basis.

And unlike, as is the case with, say, the Iran rules, where BIS says in section 746.7(a)(2) that if an item is authorized by OFAC no license from BIS will be necessary, the new Crimea rules say no such thing. So, what BIS appears to be saying is that OFAC General License No. 4 is nothing more than guidance that BIS will use when it decides whether to grant a license to export medical supplies to Crimea.

There is one contorted interpretation of General License No. 4 and the BIS statements that would avoid this result. General License No. 4 covers exports by U.S. persons or from the United States. Arguably, this may not cover re-exports of medical supplies with more than a de minimis (25%) U.S. controlled content. Such exports would then be licensed by BIS and these license applications would be considered on a case by case basis (rather than under a presumption of denial) for foreign manufactured medical supplies on the list. The problem with this reading is that the foreign manufactured items would not be “authorized under . . . General License No. 4″ and thus would fall back under the presumption of denial.

The bottom line: even if you have an item on the list of medical supplies and eligible for General License No. 4 that you want to export from the United States, you probably should also file a license application with BIS rather than relying on the general license. Better safe than sorry.

Permalink Comments (2)

Bookmark and Share



Jan

29

The Case of the Missing Cuba Embargo Regulations


Posted by at 9:25 pm on January 29, 2015
Category: BISCrimea SanctionsCuba SanctionsOFAC

Cuba Capitole by y.becart(Own work) [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://www.flickr.com/photos/yoh_59/13697566663The recent OFAC amendments to the Cuba embargo regulations, and related statements by OFAC, went to great pains to make clear that, notwithstanding these changes, the embargo was still in place. That being said, it is somewhat perplexing that the Cuba Assets Control Regulations have disappeared, or at least most of the Cuba Assets Control Regulations have disappeared from OFAC’s website.

If you go to OFAC’s page on the Cuba sanctions, and then scroll down to the bottom, you will see under “Code of Federal Regulations” a link for “31 CFR Part 515 – Cuban Assets Control Regulations.” Click on that link, and it will take you here, which is the Federal Register notice with just the amended regulations. The other regulations are nowhere to be found. Maybe OFAC did repeal the Cuba embargo after all?

In another example of epic Web fail, BIS today promulgated new regulations relating to the Crimea Sanctions, which can be found here in the Federal Register. But if you go to the BIS website, the new rules are nowhere to be found. They are not mentioned in the slider at the top listing other current developments. They are not even mentioned in the BIS Newsroom where the latest entry is — seriously — July 22, 2014. What? No news at all for 6 months??

As to the new Crimea regulations themselves, I am not at all sure what they mean. I’ll post on them once I figure that out.

Permalink Comments (1)

Bookmark and Share