Sep
14
New BIS Rules Stretch U.S. Jurisdiction To The Breaking Point
Posted by Clif Burns at 7:15 pm on September 14, 2009
Category: BIS
In an ambitious display of extraterritorial overreach, the Bureau of Industry and Security (“BIS”) last week amended the Export Administration Regulations (“EAR”) to expand the scope of the regulations to cover in-country transfers to companies and individuals on the agency’s Entity List.
Most readers should be familiar with that list, but for those that may not be, the Entity List is a list of several hundred, well, entities in foreign countries. The companies and individuals have been placed on the list because of the U.S. government’s concern about their activities in nuclear proliferation, missile technology, chemical warfare agent development or other areas of foreign policy concern. The result of an Entity List designation is to require licenses for the export or re-export of specified items to the designated entity. In most cases the list indicates that the items which require licensing are “all items subject to the EAR,” which is BIS-ese for items with specified amounts of U.S. content. These need not be sensitive dual-use items listed on the Commerce Control List but include, for example, a U.S. flag (assuming it wasn’t made in China). And in most cases the Entity List indicates that there is a presumption of denial for license requests.
Under the new rules, a license would be required not only for exports of an item from the United States to the designated “entity” or exports of the item from a foreign country to the entity (“re-exports”) but also for in-country transfers to the designated entity. To understand the impact of the amendment, consider this example. The first entity on the list is one Ali Bakshien, a resident of Toronto, Canada. Ali’s mother goes to the American Apparel Store on College Street in Toronto and buys some trendy, and American-made, shirts, underwear and socks as a birthday gift for Ali. Unless she asks BIS for permission to give these shirts, socks and briefs to Ali, she becomes subject to a civil penalty of $250,000 under U.S. law when gives Ali his birthday present. And, if she knew that Ali was on the Entity List and knew that prohibited the unlicensed birthday present to Ali, did she commit a felony in giving him the items?
So what is BIS going to do? Send Ali’s mother a charging letter? If BIS thinks Ali’s mom knew about the Entity List designation and the in-country transfer restrictions, is it going to have the Department of Justice request extradition? (You don’t have to have a very vivid imagination to figure out what Canada’s likely response would be to an extradition petition in this situation, particularly if you picture a pounding hammer and a box of sand.) Will they arrest her at JFK if she takes a trip to catch a few Broadway shows?
Needless to say, I don’t believe the U.S. has jurisdiction, either under international or U.S. law, over this conduct simply because it involved a t-shirt made in LA shipped by the manufacturer to Canada where it was then bought and given to another Canadian. But U.S. export agencies — DDTC included — have continued to insist that jurisdiction can be hung on such a weak thread. And this recent amendment of the entity list rules continues down this misguided path.
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Copyright © 2009 Clif Burns. All Rights Reserved.
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10 Comments:
The “Entities List” is nothing more than yet another circumvention of 50 USC 1705 and yet another evasion of due process because it imposes a sanction not authorised by law upon those persons and organizations listed, and imposes such sanction without prior notice and opportunity to be heard as required by law. The Administrative Procedures Act at 5 USC 558(b) provides that “A sanction may not be imposed or a substantive rule or order issued except within jurisdiction delegated to the agency and as authorized by law.” There is nothing in IEEPA nor even the long expired Export Administration Act which authorises the creation of an “Entities List”.
There has been no Presidential proclamation of an emergency requiring an “Entities List” nor are there any subsequent Presidential proclamations justifying additions to the Entities List, as required by IEEPA. While DoJ habitually misrepresents dicta in Regan v. Wald to the effect that IEEPA grants carte blanche to the Executive in matters regarding regulation of international trade (which is actually a plenary power of Congress, not the Executive), DoJ routinely omits all mention of the preliminary discussion in Regan v. Wald in which the Court recognized that imposition of additional travel restrictions on Cuba under IEEPA would have required a presidential declaration of national emergency if imposed under IEEPA, which had not occurred, and the new Treasury rule then in question could only be sustained under the grandfather clause for authorities previously exercised under color of the Trading With the Enemy Act. Furthermore, language in the dissent, which was not contradicted by the majority, cites the legislative history of IEEPA, specifically the mark-up session, as authority that IEEPA was never intended to be a broad grant of power to regulate trade on an on-going basis, and that IEEPA was only intended to permit the temporary exercise of powers in response to extraordinary events that could not be addressed in a timely fashion by Congress.
Its time to put the due process leash back on BIS.
Hey Hillybilly. Do you have any thoughts on who — and how — should/could put that leash on BIS?
For a fair discussion of the intent of this reg revision, consider that this change is not designed to capture T-shirt transactions. The goal is to retain some control over U.S. dual-use items that are national security or NP controlled sold through resellers…say in China then end up in a weapons research program.
Worry not Clif. Most assuredly everything you listed as gifts that would be purchased by Ali’s mother would have originated in China. ESPECIALLY the ones with the American Flag as part of their design.
Problem Solved.
If that were the case, Lorraine, BIS should have amended the definition of re-export in 734.2(b) to include in-country transfers. Or, it could have said that items subject to the in-country transfer rules for persons on the entity list were only items listed on the CCL even if the items covered by the Entity List were “all items subject to the EAR.” It did neither, so I think your speculation as to the intent of the regulation doesn’t stand up. Perhaps someone in BIS didn’t really intend these rules to cover T-shirts, but that intention is trumped by the language of the rule. And, we also don’t have to look to hard in the analogous area of denied parties to see criminal prosecutions for exports of benign EAR99 items like t-shirts and other items of apparel.
Actually, Chris, I picked American Apparel in the example because they actually make their stuff in LA. They are almost certainly the only national clothing company that doesn’t produce their clothing in China or other low wage areas.
This amendment seems to be in tune politically with the 9-11 nomination of the Executive Secretary of ICOTT to the position of under Secretary of Commerce nomination,in charge of BIS. You can bet that ICOTT, an organization whose sole purpose seems to be to deregulate exports of American technology for those they deem acceptable, wont be rising to the defense of Mrs Ali. In fact they will probably be encouraging BIS to spend millions in taxpayer money to find out how it could happen.
Who can say Kim Il Jong Jumbo Jet three times fast?
What about the ITAR? I’ve heard at SIA that after initial licensed export overseas, subsequent retransfers, even to and within the United States, remain perenially ITAR-controlled and require license or exemption. ITAR 123.9 requires written approval before “reselling, transferring, transshipping, or disposing of a defense article to ANY [my emphasis] end user, end use or destination other than as stated on the export license” (or SED in case of exemption). Not squarely in line with this discussion, but of the same genus….
The difference with ITAR is that, outside of sporting and personal weapons in Cat. I, the great majority of weapons systems are developed with government funds and could be controlled contractually anyway – which is probably the way it ought to be handled. To put this in historical perspective, early in the 20th Century when the Wrights and Holland fought little interest in their inventions – the airplane and the submarine, respectively – by the U.S. government, they did not have to seek government permission to peddle their wares outside the U.S. Peacetime export controls never existed until the FDR Administration.
Miraculously, a few hours after Sept.22,2009, 2:00pm, the entity list contained again all names it had lost on Sept.8,2009. No act of mercy!
