In a notice published in today’s Federal Register, BIS has withdrawn the safe harbor and red flag rules that BIS proposed in October 2004.

Under those proposed rules, BIS would have increased the number of red flags from 12 to 23. “Red flag” is a term used by BIS to signify an indication that an export transaction has a high probability of diversion from an authorized end-use, such as an order placed for supercomputers by a bakery in Addis Ababa. The rules also proposed a “safe harbor” that set up a procedure whereby BIS could clear a transaction with “red flags” and the exporter would not be liable if, indeed, the bakery in Addis Abbaba transshipped the supercomputers to North Korea. Finally, the rule expanded the knowledge standard for liability for export violations.

The most interesting part of the withdrawal is BIS’s not-so-tacit admission that it would have taken BIS so long to resolve “red flag” questions that exporters would be better off simply applying for a license for the transaction:

A number of commenters criticized the safe harbor proposal, stating that it was too complex and lengthy. Several predicted that few, if any, firms would be inclined to use it. Some suggested that submitting a license application for the transaction would be simpler and probably faster than waiting to see if BIS approved of the manner in which the party resolved the ‘‘red flags.’’

Also surprising is that, judging from Scott Gearity’s detailed account of BIS’s Update 2006 Conference, which took place on October 16 and 17, no one from BIS breathed a word that the rules would be withdrawn the very next day on October 18. Nor has BIS updated its website to reflect the withdrawal. Of course, no one ever likes admitting a mistake.

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Copyright © 2006 Clif Burns. All Rights Reserved.
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