China Telecomm Giant ZTE Gets Another Temporary Reprieve from US Export Denial List
By: John Black
The Commerce Department’s Bureau of Industry and Security (BIS) announced that it is extending the temporary general license for ZTE to effectively suspend ZTE’s denial list status until August 30, 2016. BIS originally put ZTE on its Entity List on March 8, 2016, based on BIS’ allegations that ZTE, including its senior management, established a complex network as part of its efforts to illegally transfer US technology to Iran and other prohibited destinations. The original denial prohibited all transfers from anywhere in the world of US origin items to ZTE as well as exports from outside the United States of non-US origin items with more than 25% US controlled content and certain foreign items produced directly from using US technology. The original listing was clearly the biggest EAR penalty ever imposed in my 32 years in this field.
As previously reported in this newsletter, on March 24, 2016 BIS announced a general license that effectively temporarily suspended until June 30, 2016, the denial against:
Now BIS has extended that general license for these two entities through August 31, 2016. It is easy to infer from this that ZTE must have originally refused to cooperate with BIS regarding the diversions to prohibited destinations, but after being placed on the Entity List ZTE rounded up a hoard of Washingotn lawyers and came crawling on its knees to BIS promising to cooperate and take decisive remedial actions. The extension indicates that ZTE is continuing to cooperate with BIS, at least as much as is necessary to get the suspension of its denial extended until the end of August.
These two ZTE entities remain on the EAR Entity List:
For more information go to: http://www.bis.doc.gov/index.php/regulations/federal-register-notices#fr41799
3 Men & Illegal Exports to Syria
By: Danielle McClellan
In November 2012, three individuals and one company were indicted with charges of criminal conspiracy, wire fraud, illegal export of goods, money laundering, and false statements. Until now the indictment remained under seal pending the arrest of the defendants.
Between 2003 and 2012, d-Deri Contracting & Trading (owned by Ahmad Feras Diri of London) was exporting goods originally from the US from Global Parts Supply (owned by Harold Rinko of Hallstead, PA) to his brother and business partner Moawea Deri who was located in Syria. The goods purchased from Rinko’s US company were done so based on false invoices, undervalued and mislabeled goods. Then the purchased goods were exported by falsely listing their identity and final geographic location on all documentation. The items would be shipped from the US to Jordan, the UAE, and the UK, and finally transshipped to Syria.
The items exported allegedly included:
a portable gas scanner used for detection of chemical warfare agents by civil defense, military, police and border control agencies;
a handheld instrument for field detection and classification of chemical warfare agents and toxic industrial chemicals;
a laboratory source for detection of chemical warfare agents and toxic industrial chemicals in research, public safety and industrial environments;
a rubber mask for civil defense against chemicals and gases;
a meter used to measure chemicals and their composition;
flowmeters for measuring gas streams;
a stirrer for mixing and testing liquid chemical compounds;
industrial engines for use in oil and gas field operations and a device used to accurately locate buried pipelines
Note: Nearly all exports to Syria will be denied, other than a few items categorized under humanitarian food and medicine. The goal of the embargo on Syria is to shut down the supply chain used by the Syrian state to support terrorism and create proliferate weapons of mass destruction, and in this specific case, chemical weapons.
Fast forward to this month, Ahmad Feras Diri (age 43) of London has plead guilty to conspiracy to illegally export items used to detect chemical warfare agents to Syria. He lost his extradition fight in the UK in November 2015 at which point he was brought to the US to face the charges. Diri admitted that he conspired to export items from the US through third party countries to customers in Syria without obtaining the required US Commerce Department licenses.
Harold Rinko (age 73 of Hallstead, PA) was indicted by a grand jury in November 2012 and admitted in court that he conspired to export the items from the US through third party countries to customers in Syria without an export license.
Moawea Deri remains at large and is considered a fugitive but will likely remain in Syria as extradition is unlikely to occur.
"This extradition demonstrates HSI’s commitment to use all its resources to prevent sensitive and restricted technology from being exported to Syria through the black market,” said HSI Philadelphia Special Agent in Charge John Kelleghan. "No good comes of illegal exports to Syria, especially during this time of gross misgovernment and civil strife. As the principal enforcer of export controls, HSI will continue to do everything in its power to ensure that sensitive technology doesn't fall into the wrong hands in Syria. I applaud our colleagues at the Department of Commerce, the U.S. Attorney’s Office for the Middle District of Pennsylvania, along with our law enforcement counterparts in the United Kingdom. This coordinated effort helped us make this complex investigation a success."
More Information: https://www.ice.gov/news/releases/uk-resident-connected-syrian-export-scheme-extradited-us-face-federal-charges
The Expired DSP-83 is Back
By: Danielle McClellan
Effective immediately an expired DSP-83 forms that the DDTC receives will be processed.
The notice published on the State Department website on May 6, 2016 is rescinded. If you received a proviso directly an upload of the new DS-83 form in accordance with the rescinded Notice can hereby disregard the proviso by citing this revised notice.
The State Department has updated its policy regarding the DSP-83, although it cannot mandate the use of the expired form, an individual or entity may voluntarily submit the form and it can be processed as long as it contains all of the information and certifications required by the current, unexpired form. At this point, the DSP-83 has not been substantially amended so DDTC will continue to accept the expired form.
DDTC is strongly urging that entities and individuals that do not use the current DSP-83 form provided by the them to implement the new form no later than October 1, 2016 to avoid confusion during the future revisions.
Link to Notice: http://pmddtc.state.gov/documents/DSP83_WebNotice2.pdf
Say Good Bye to License Type C32…and Get to Know C33
By: Danielle McClellan
Effective October 1, 2016, the Bureau of Industry and Security (BIS) will remove license type C32, No License Required (NLR), from the list of License Types found in the Automated Export System (AES). Beginning October 1, 2016, C33 will be the only License Type in AES designating a NLR shipment. Changes to License Type C32 designated Electronic Export Information (EEI) will be accepted in AES for 6 months after the October 1, 2016 effective date.
United States Principal Parties in Interest (USPPIs) and their authorized filing agents (AES filers) must adhere to the Export Controls Classification Number (ECCN) reporting requirements for NLR designated shipments under C33 as per the EAR 758.1(g) (3).
Items that have a reason for control other than or in addition to Anti-Terrorism (AT), should report NLR (C33) as the license type in the EEI filing.
A complete list of AES License Type Codes is available at: https://www.cbp.gov/sites/default/files/assets/documents/2016-Jun/Appendix_F.pdf
For questions regarding these AES changes, please contact the Bureau of Industry and Security by email at ECR_AES@bis.doc.gov or at (202) 482-4933.
For general questions regarding AES, please contact the International Trade Management Division at the Bureau of the Census at 1-800-549-0595, option 1.
For classification questions about ECCNs, please contact the Bureau of Industry and Security at one of the numbers below:
Outreach and Educational Services Division (located in Washington, DC) (202) 482-4811
Western Regional Office (located in Irvine, CA) (949) 660-0144
Northern California branch (located in San Jose, CA) (408) 998-8806
DDTC Company Visit Program Frequently Asked Questions
Question: What is the Company Visit Program?
Answer: The Company Visit Program (CVP) is administered by the Compliance and Registration Division (CRD) Office of Defense Trade Controls Compliance. The program involves visits by Department of State officials to U.S. companies that are registered with DDTC as manufacturers, exporters or brokers of defense articles and defense services.
Question: What is the purpose of the Company Visit Program?
Answer: The purpose of the program is several-fold. First is to learn how companies establish an overall defense trade control program. Second, is to understand how those programs are implemented and comply with the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR). Third, is to gather information for the Department to determine whether we are properly exercising our regulatory responsibility in licensing and compliance. Fourth, is to use the information gathered from visits to adjust or revise our regulations and practices accordingly. Fifth, is to provide direct feedback to companies that we visit, and to learn and disseminate industry best practices.
Question: Is a visit considered an audit or inspection?
Answer: A visit is neither an audit nor an inspection. DDTC uses the program as a learning tool to provide information on how companies comply with the law and regulations and how DDTC can better do its job as regulator thereof. In visiting companies, DDTC is also exercising its responsibility under recordkeeping requirements detailed in Section 122.5(b) of the ITAR.
Question: How are companies selected for a visit?
Answer: Companies are selected for a variety of reasons, including: registration status, volume of licensed activity, experience conducting ITAR activities, nature of business, type and sensitivity of technology, geographic location, follow-up to a disclosure of an ITAR violation, or monitoring of a consent agreement.
Question: How is a visit conducted and what should a company expect?
The company is sent a visit notification letter approximately 6-8 weeks in advance of the visit.
The visit letter outlines material that the company is to provide in advance of the team's visit (e.g., export compliance manual, export compliance policies and procedures, organizational chart, and an overview of ITAR controlled programs at the facility).
In consultation with the company, the CVP team establishes an agenda for the one or two day visit.
The visit occurs on the company's premises in offices, conference rooms and tours of business operations within the facility (e.g., business development, contracts, procurement, design, manufacture, security, IT, personnel, shipping, etc.).
At the conclusion of the visit, the team conducts a post-visit briefing with senior management and export control staff sharing information the team has gathered.
The team returns to the Department and will generate a report for DTCC management. The team will send a formal letter to the company, which records the matters raised in the post-visit briefing.
The letter should address any recommendations for improvement and provide feedback on any company best practices.
Question: How is the team staffed?
Answer: The visit team normally consists of two to four staff from the DTCC, depending upon the size of the company being visited, and number of companies/facilities visited per trip. The team includes civil servants and contract personnel. On some visits, staff members from the Office of Defense Trade Controls Licensing and Policy may participate.
Question: How many companies have been visited?
Answer: More than 60 companies have been visited since the program's inception in October 2005. The results overall have been positive for companies and for DDTC. Companies have benefited from meeting DDTC officials, explaining their defense trade control program, discussing best practices and identifying areas for improvement. DDTC has benefited from learning first-hand how companies control and comply and using the results to better inform our regulatory practices.
Court of Appeals Judges Question Justice Department on ITAR Prior Restraint Against Speech at Libraries, the Internet, and other Public Forums
By: Matthew A. Goldstein, Esq., firstname.lastname@example.org, 202-550-0040
Originally filed in the U.S. Federal District Court for the Western District of Texas in Austin under Case No. 1:15-cv-00372, the case of Defense Distributed and the Second Amendment Foundation against the U.S. Department of State and other government defendants seeks to prevent application of the International Traffic in Arms Regulations [FN/1] ("ITAR") as a prior restraint against public speech.
Following the District Court's denial of the plaintiffs' request for a preliminary injunction against the State Department, the plaintiff's appealed to the United States Court of Appeals for the Fifth Circuit.
At last week's oral argument before the Court of Appeals, a panel of judges questioned the Justice Department on the scope of the State Department's prior restraint. The Justice Department's responses were inconsistent with prior State Department positions in the case and contrary to the State Department's June 13, 2015 notice of proposed rulemaking that announced the government's sudden application of the ITAR as a prior restraint on public speech. [FN/2]
Has the State Department Previously Enforced the Prior Restraint?
Considering how the regulations have been in effect for 60 years, the Court asked the Justice Department to provide examples of when the State Department previously regulated prepublication of information about guns. The Justice Department responded that it did not know of any examples, "but there certainly aren't a lot..." [FN/3]
The Justice Department's representation that "there certainly aren't a lot" of examples is unclear, but seems to assume there is at least one. Yet, the State Department has not cited a single case of enforcement in its briefs filed with the court.
The Justice Department claim there "aren't not a lot" of examples also conflicts with a Justice Department representation to the court that followed its original response, where it concedes the State Department has not previously regulated information about handguns. [FN/4]
Is Exposing Technical Data to a Foreign Person Controlled?
The Justice Department told the Court that exposing technical data to a foreign is not the relevant standard. [FN/5] However, the State Department's June 3, 2016 proposed rule discussing the prior restraint states: "'technical data' may not be made available to the public without authorization." [FN/6]
Does the Prior Restraint Apply to Scientific Information?
The Justice Department told the court that it did not think that anybody could read the prior restraint to apply to scientific exchanges. [FN/7] However, the ITAR U.S. Munitions List ("USML") designates a vast amount of scientific information as technical data and the State Department's rule does not provide any across-the-board exclusion from the prior restraint for exchanges of scientific information.
There is a limited exclusion for information that arises or results from "fundamental research," but the State Department takes a very narrow interpretation of the scope of this exclusion-to the point that it does not exist in reality. This is because the fundamental research exclusion, codified at 120.11(a)(8), is nested within the ITAR definition of public domain at 120.11(a) [FN/8]-and is therefore under the shadow of the State Department's prepublication approval requirement. Here, the State Department warns universities: "The only part of fundamental research that is not controlled by the ITAR is the published information that meets the definition of public domain." [FN/9]
Does the Prior Restraint Apply to Information on Guns?
The Justice Department told the court the ITAR does not prohibit the dissemination of information about guns for a number of reasons and claimed that a lot of that information is already in the public domain. [FN/10]
Of course, the ITAR definition of "technical data" includes information on any article listed on the ITAR USML, not just guns. But it most definitely controls "information required for the design, development, production, manufacture, assembly, operation, repair, testing, maintenance or modification" of guns listed on the USML. [FN/11]
Moreover, the State Department's June 3, 2015 proposed rule prevents reliance on the public domain exclusion for the vast majority of information on the Internet, public libraries, and other public forums where it states:
"'Technical data' and software that is made publicly available without proper authorization remains 'technical data' or software and therefore remains subject to the ITAR." [FN/12]
Considering how the State Department has not publicly enforced its prepublication approval requirement against anyone other than Defense Distributed, most, if not all, persons who previously posted technical data to the Internet, at libraries, and other public forums had no reason to know that the State Department required prior U.S. government authorization for public speech. As a result, the vast majority of publicly available technical data on guns is not "already in the public domain" because the publishers did not obtain U.S. government authorization before publication.
Does the Prior Restraint Criminalize Placing Books at Libraries?
The Court asked the Justice Department whether the State Department restricts placing books at public libraries. [FN/13] The Justice Department did not clearly answer "yes" or "no." Instead, it argued that the State Department has not faced the issue and that upholding the State Department's prior restraint in the present case would not impact the issue. [FN/14]
However, the State Department's June 3, 2015 proposed rule claims that prior government authorization is required for any transmission of technical data into the public domain, regardless of the means of transmission. As announced by the Stated Department in its proposed rule:
Prior to making available ''technical data'' or software subject to the ITAR, the U.S. government must approve the release through one of the following: (1) The Department; (2) the Department of Defense's Office of Security Review; (3) a relevant U.S. government contracting authority with authority to allow the ''technical data'' or software to be made available to the public, if one exists; or (4) another U.S. government official with authority to allow the ''technical data'' or software to be made available to the public. [FN/15]
There is no carve-out for technical data in books placed at public libraries. To the contrary, the proposed rule states the ITAR prior restraint applies to a release of technical data by publishing in a book as much as publishing on the Internet:
The requirements of paragraph (b) are not new. Rather, they are a more explicit statement of the ITAR's requirement that one must seek and receive a license or other authorization from the Department or other cognizant U.S. government authority to release ITAR controlled ''technical data,'' as defined in § 120.10. A release of ''technical data'' may occur by disseminating ''technical data'' at a public conference or trade show, publishing ''technical data'' in a book or journal article, or posting ''technical data'' to the Internet. [FN/16]
Accordingly, if the Court of Appeals rules in favor of the State Department, the Court will indeed be upholding a broad prior restraint on the placing of books at public libraries, as well as releases of technical data at public conferences, and any other public forum.
Moreover, same as the exclusion for fundamental research discussed above, because the exclusion for information that is available at "libraries open to the public", as codified at 120.11(a)(4), is nested within the ITAR definition of public domain at 120.11(a) [FN/17]-it is subsumed within the State Department's prepublication approval requirement-as are the other public forums nested below 120.11(a) (i.e., through sales at newsstands and bookstores, subscriptions, second class mailing privileges, etc.)-which are all subject to the State Department's prior restraint.
Does the ITAR Restrict Republications of Information?
The Justice Department told the court that republication of technical data that was made available without government authorization is a violation under the State Department's proposed rule if made with "knowledge that it was put out originally in violation of the regulations..." [FN/18] But the Justice Department did not explain what it means by "knowledge"-a legal term of art that can include actual knowledge of a fact or constructive knowledge of a fact.
Are suspicious circumstances enough for prosecution?
Is it sufficient that a speaker knows or should know the facts indicate technical data or software was made publicly available without an authorization?
What, if any, actions constitute sufficient due diligence to guard against imputation of such knowledge?
These questions are particularly relevant considering how the government has not publicly enforced the prior restraint, which means the public is on constructive notice that the vast majority of all technical data in the public domain was placed there without U.S. government authorization.
For instance, under the proposed rule, it is unclear whether a person can be held liable for reposting technical data if they do not actually know whether the original poster of technical data had permission from the government, but circumstances exist indicating a lack of such approval (i.e., no indication that government approval was obtained, technology of a nature that the government is unlikely to approve, etc.).
The republication requirement will also violate the First Amendment under the Supreme Court's holding in Bartnicki v. Vopper Williams, 532 U.S. 514 (2001). In Bartnicki the Supreme Court addressed the question: "Where the publisher has lawfully obtained information from a source who obtained it unlawfully, may the government punish the ensuing publication based on the defect in a chain?" [FN/19]
The Supreme Court concluded that, under the statutory language at issue in the case, a person speaking on matters of public concern could not be prohibited from publishing the contents of an electronic communication, even where he or she knows or has reason to know that the information was obtained through an illegal interception. The Supreme Court noted:
"It would be quite remarkable to hold that speech by a law-abiding possessor of information can be suppressed in order to deter conduct by a non-law-abiding third party." [FN/20]
Equally important to note, the Supreme Court has held that government bans on the republication of information does not meaningfully advance any legitimate government interest. [FN/21]
What Happens Next?
As explained in the plaintiffs' briefings to the Court, the State Department's prior restraint is unconstitutional under the First Amendment and for a variety of other reasons. However, much more than protection of the First Amendment and other fundamental rights are at stake in the upcoming Court of Appeals decision.
A Dangerous Precedent
A decision in favor of the State Department will establish a dangerous precedent wherein the government is allowed to maintain a list of topics that citizens cannot discuss publicly without a license from some unnamed government official (or contractors working for the State Department).
Although the case concerns information about guns and other topics listed on the USML, future lists can include virtually any topic that some unnamed government official or contractor decides to "designate" or otherwise place on a list-unless the prospective speaker has the time and money to hire a team of attorneys, file a lawsuit, and eventually wins in court.
Adversely Impact Innovation
The ITAR controls many developmental electronics, aeronautics, and other technologies. [FN/22] It even controls emerging technologies not yet enumerated on the USML. [FN/23] Although it is important to protect these technologies, the development of advanced and innovative technologies through open research and development is the key to U.S. National Security. The State Department's proposed prepublication approval requirement will defeat this important government interest by creating increased caution and restraint in the scientific community that will inhibit the free exchange of information necessary to innovation.
Chilling Effect on Speech
The prior restraint's impact will be far-reaching because a prepublication review requirement will necessarily subject a wide range of technical information to review. Most persons publishing information in books, newspapers, magazines, journals, and on the Internet are not generally knowledgeable about export controls. Because of this, they are unlikely to recognize the proper scope of ITAR controls and will likely refrain from participating on exchanges for fear of inadvertently violating the regulations.
Changes Contrary to Stated ECR Goals
The prior restraint is contrary to the stated goal of the President's Export Control Reform ("ECR"). The primary ECR goal is a system where "higher walls are placed around fewer, more critical items" that focuses agency resources on license reviews of critical technologies that matter. The proposed prepublication approval requirement is contrary to this stated goal because it will require the devotion of significant agency resources to reviews of unclassified, non-proprietary information, which does not generally describe the state of art technology or implicate military critical technologies.
Ineffective and Waste of Taxpayer Dollars
Considering the annual volume of academic and professional publications and the sheer volume of daily publications on the Internet that may contain technical data, the costs of adding more staff with the technical expertise required to administer the proposed prepublication review requirement will no doubt exceed existing DDTC capacities. In the meantime, further lawsuits by newspapers, magazines, academic journals, and other would-be publishers will further burden agency resources and waste taxpayer dollars.
[FN/1] 22 C.F.R. Part 120 et seq.
[FN/2] See 80 Fed. Reg. 31,525 (June 13, 2015).
[FN/3] June 6, 2016 Hearing Record (hereinafter "06/06/16 H.R.") at 23:32-25:40.
[FN/4] 06/06/16 H.R. at 24:21-25:17.
[FN/5] 06/16/16 H.R. at 30:48-31:26 (Justice Department stating, inter alia, that "exposed to a foreigner is not the standard").
[FN/6] 80 Fed. Reg. at 31,528.
[FN/7] 06/06/16 H.R. at 28:09-28:47; See also 24:11-25:40.
[FN/8] 22 C.F.R. § 120.11 Public domain.
(a) Public domain means information which is published and which is generally accessible or available to the public:
(1) Through sales at newsstands and bookstores;
(2) Through subscriptions which are available without restriction to any individual who desires to obtain or purchase the published information;
(3) Through second class mailing privileges granted by the U.S. Government;
(4) At libraries open to the public or from which the public can obtain documents;
(5) Through patents available at any patent office;
(6) Through unlimited distribution at a conference, meeting, seminar, trade show or exhibition, generally accessible to the public, in the United States;
(7) Through public release (i.e., unlimited distribution) in any form (e.g., not necessarily in published form) after approval by the cognizant U.S. government department or agency (see also §125.4(b)(13) of this subchapter);
(8) Through fundamental research in science and engineering at accredited institutions of higher learning in the U.S. where the resulting information is ordinarily published and shared broadly in the scientific community. Fundamental research is defined to mean basic and applied research in science and engineering where the resulting information is ordinarily published and shared broadly within the scientific community, as distinguished from research the results of which are restricted for proprietary reasons or specific U.S. Government access and dissemination controls...
[FN/9] (emphasis in original) See here.
The State Department also advised that the fundamental research exclusion does not apply to the provision of information to foreign parties during the performance of research involving technical data or a defense article because the provision of such information constitutes a defense service that requires DDTC authorization under ITAR sections 120.9(1) and 124.1(a). Under this DDTC interpretation of the exclusion, the provision of information to foreign parties in the course of research, regardless of if in the public domain or otherwise falling under any other ITAR exclusion, requires DDTC authorization if the research involves ITAR-controlled technical data or a defense article.
[FN/10] 06/06/16 H.R. at 18:51-19:47; 21:45-22:39.
[FN/11] 22 C.F.R. § 120.10.
[FN/12] 80 Fed. Reg. 31,528 (June 3, 3015) ("'Technical data' and software that is made publicly available without proper authorization remains 'technical data' or software and therefore remains subject to the ITAR.").
[FN/13] 06/06/16 H.R. at 25:39-27:13.
[FN/14] 06/06/16 H.R. at 26:27-27:13.
[FN/15] 80 Fed. Reg. at 31,528.
[FN/17] 22 C.F.R. § 120.11 ("(a) Public domain means information which is published and which is generally accessible or available to the public... (4) At libraries open to the public or from which the public can obtain documents...")
[FN/18] 06/06/16 H.R. at 31:26-33:00.
[FN/19] Id. at 528.
[FN/20] Bartnicki at 529-530.
[FN/21] Florida Star v. B.J.F., 491 U.S. 524, 535 (1989) ("punishing the press for its dissemination of information which is already publicly available is relatively unlikely to advance the interests in the service of which the State seeks to act.").
[FN/22] See e.g., USML at 22 C.F.R. § 121.1 paragraphs VI(c), VIII(f), X(f), XI(a)(7), and XX(a)(8).
[FN/23] See e.g., USML Category XXI-Articles, Technical Data, and Defense Services Not Otherwise Enumerated
*(a) Any article not enumerated on the U.S. Munitions List may be included in this category until such time as the appropriate U.S. Munitions List category is amended. The decision on whether any article may be included in this category, and the designation of the defense article as not Significant Military Equipment (see §120.7 of this subchapter), shall be made by the Director, Office of Defense Trade Controls Policy.
(b) Technical data (see §120.10 of this subchapter) and defense services (see §120.9 of this subchapter) directly related to the defense articles covered in paragraph (a) of this category.