Archive for the ‘Nonproliferation & Nuclear’ Category

EAR Expands License Application Support Document Requirements for Hong Kong

2017/03/02

By: John Black

Effective April 19, 2017, the Bureau of Industry and Security (BIS) will  require persons planning on exporting and reexporting to Hong Kong any items subject to the Export Administration Regulations (EAR) and controlled on the Commerce Control List (CCL) for national security (NS), missile technology (MT), nuclear nonproliferation (NP column 1), or chemical and biological weapons (CB) reasons to obtain, prior to the export or reexport, a copy of a Hong Kong import license or a written statement from the Hong Kong Government that such a license is not required.   The purpose of this change is to require that the Hong Kong Government issue an import license as an acknowledgement that sensitive EAR-controlled items are entering Hong Kong and as an agreement to prevent unauthorized reexport or transfer of those items to prohibited destinations.  Interestingly, the prohibited destination that most concerns the US is the People’s Republic of China (PRC).  The EAR treats Hong Kong as a separate “country” from the PRC even though the PRC, the United Nations, and nearly everybody else in the world considers Hong Kong to be part of the PRC because Hong Kong is part of the PRC.

Leaving behind the interesting point that the EAR treats Hong Kong as if it is not part of the PRC, there are a lot of details in this new rule.  In addition what was described above, this rule will also require persons planning on reexporting from Hong Kong any item subject to the EAR and controlled for NS, MT, NP column 1, or CB reasons to obtain a Hong Kong export license or a statement from Hong Kong government that such a license is not required. This final rule will be effective April 19, 2017.

The following amendments have been made:

  • In § 740.2, add paragraphs (a)(19) and (20) to read as follows:

(a) *  *  *

(19) The exporter or reexporter to Hong Kong of any item subject to the EAR and controlled on the CCL for NS, MT, NP Column 1, or CB reasons has not received one of the following with respect to the item:

(i) A copy of an import license issued to the Hong Kong importer by the Government of the Hong Kong Special Administrative Region, pursuant to the Hong Kong Import and Export (Strategic Commodities) Regulations, that covers all items to be exported or reexported pursuant to that license exception for which a Hong Kong import license is required and that is valid on the date of the export or reexport that is subject to the EAR; or

(ii) A copy of a written statement issued by the Government of the Hong Kong Special Administrative Region that no import license is required to import into Hong Kong the item(s) to be exported or reexported. The statement may have been issued directly to the Hong Kong importer or it may be a written statement available to the general public. The statement may be used for more than one export or reexport to Hong Kong so long as it remains an accurate statement of Hong Kong law.

(20) The reexporter from Hong Kong of any item subject to the EAR controlled on the CCL for NS, MT, NP column 1, or CB reasons has not received one of the following with respect to the item:

(i) An export license issued by the Government of the Hong Kong Special Administrative Region, pursuant to the Hong Kong Import and Export (Strategic Commodities) Regulations, that covers all items to be reexported pursuant to that license exception for which a Hong Kong export license is required and that is valid on the date of the reexport that is subject to the EAR; or

(ii) A copy of a written statement issued by the Government of the Hong Kong Special Administrative Region that no Hong Kong export license is required for the item(s) to be rexported.

The statement may have been issued directly to the Hong Kong reexporter or it may be a written statement available to the general public. The statement may be used for more than one reexport from Hong Kong so long as it remains an accurate statement of Hong Kong law.

  • 748.9(b) is amended by revising the section heading, revising paragraph (b) and all notes to paragraph (b), and adding two sentences to the end paragraph of (e)(1), to read as follows:

§ 748.9    Support documents for evaluation of foreign parties in license applications and/or for promoting compliance with license requirements.

(b) Requirements to obtain support documents for license applications. Unless an exception in paragraph (c) of this section applies, a support document is required for certain license applications for:

(1) The People’s Republic of China (PRC) other than the Hong Kong Special Administrative Region (see §§ 748.10 and 748.11(a)(2));

(2) ‘‘600 Series Major Defense Equipment’’ (see § 748.11);

(3) Firearms and related commodities to member countries of the Organization of American States (see § 748.12); and

(4) The Hong Kong Special Administrative Region of the People’s Republic of China (see § 748.13).

Note 1 to Paragraph (b): On a case-by-case basis, BIS may require license applicants to obtain a support document for any license application.

Note 2 to Paragraph (b): For End-Use Certificate requirements under the Chemical Weapons Convention see § 745.2 of the EAR.

*       *       *       *       *

(e) *  *  *

(1) *  *  * The documents issued by the Government of the Hong Kong Special Administrative region that are required pursuant to § 748.13 are not used to evaluate license applications. They must be obtained before shipment and need not be obtained before submitting a license application.

  • Redesignate § 748.13 as § 748.14 and add new § 748.13 to read as follows:

§ 748.13    Hong Kong import and export licenses.

(a) Requirement to obtain the document—(1) Exports and reexports to Hong Kong. An exporter or reexporter must obtain the documents described in paragraph (a)(1)(i) or (a)(1)(ii) of this section before using a license issued by BIS to export or reexport to Hong Kong any item subject to the EAR and controlled on the CCL for NS, MT, NP column 1, or CB reasons. Collectively, the documents issued by Hong Kong must cover all of the items to be exported or reexported pursuant to a license.

(i) A copy of an import license issued to the Hong Kong importer by the Government of the Hong Kong Special Administrative Region, pursuant to the Hong Kong Import and Export (Strategic Commodities) Regulations, that covers the items to be exported or reexported pursuant to that BIS license for which a Hong Kong import license is required and that is valid on the date of the export or reexport that is subject to the EAR; or

(ii) A copy of a written statement issued by the Government of the Hong Kong Special Administrative Region that no import license is required to import into Hong Kong the item(s) to be exported or reexported to Hong Kong. The statement may have been issued directly to the Hong Kong importer or it may be a written statement available to the general public. The statement may be used for more than one export or reexport to Hong Kong so long as it remains an accurate statement of Hong Kong law.

(2) Reexports from Hong Kong. No license issued by BIS may be used to reexport from Hong Kong any item subject to the EAR controlled on the CCL for NS, MT, NP column 1, and/or CB reasons unless the reexporter has received either:

(i) An export license issued by the Government of the Hong Kong Special Administrative Region, pursuant to the Hong Kong Import and Export (Strategic Commodities) Regulations, that covers all items to be rexported pursuant to that BIS license for which a Hong Kong export license is required and that is valid on the date of the reexport that is subject to the EAR; or

(ii) A copy of a written statement issued by the Government of the Hong Kong Special Administrative Region that no export license is required from Hong Kong for the item(s) to be reexported. The statement may have been issued directly to the Hong Kong reexporter or it may be a written statement available to the general public. The statement may be used for more than one reexport from Hong Kong so long as it remains an accurate statement of Hong Kong law.

(b) Recordkeeping. The documents required to be obtained by paragraph (a) of this section must be retained and made available to the U.S. Government upon request in accordance with part 762 of the EAR.

  • In § 762.2 remove the word ‘‘and’’ from the end of paragraph (b)(52); remove the period from the end of paragraph (b)(53) and add in its place a semicolon followed by the word ‘‘and’’; add paragraph (b)(54) to read as follows:

§ 762.2    Records to be retained.

*       *       *       *       *

(b) *  *  * (54) § 748.13, Certain Hong Kong import and export licenses.

 

Federal Register: https://www.gpo.gov/fdsys/pkg/FR-2017-01-19/pdf/2017-00446.pdf


BIS Amends EAR Concerning Burma

2017/01/31

In Executive Order 13742 of October 7, 2016, President Obama terminated the national emergency declared in Executive Order 13047 and revoked that Executive Order and the five additional Burma-related Executive Orders, including Executive Orders 13310, 13448 and 13464. Consistent with the President’s action, in this final rule, BIS removes and reserves § 744.22 of the EAR.

Effective December 27, 2016, the Bureau of Industry and Security (BIS) has removed the license requirements and other restrictions on exports, reexports or transfers (in country) of items subject to the EAR made to person whose property and interests in property were blocked pursuant to three Burma-related Executive Orders  that were revoked on October 7, 2016. This rule also moves Burma from Country Group D:1 to Country Group B, a less restrictive country group placement.

Note, however, that Burma will remain in Country Group D:3 (countries raising proliferation concerns related to chemical and biological weapons). Burma will also remain in Country Group D:5 (U.S. Arms Embargoes), consistent with § 126.1 of the International Traffic in Arms Regulations, 22 CFR 120–130. Therefore, the country is subject to the general license exception restrictions described in section 740.2(a)(12) of the EAR that apply to 9×515 or ‘‘600 series’’ items destined to, shipped from, or manufactured in a destination listed in Country Group D:5, except as narrowly provided in subparagraphs (a)(12)(i) and (ii). Further, Burma will remain in Computer Tier 3 in part 740 (License Exceptions) pending additional consideration. Finally, as a general matter, exports and reexports to Burma, and transfers (in country), remain subject to EAR part 744 end user and end-use based controls.

Federal Register: https://www.gpo.gov/fdsys/pkg/FR-2016-12-27/pdf/2016-31208.pdf


Company to Pay an Extra $400k for Shipping Items on an Iranian Vessel

2015/09/11

By: Danielle McClellan

John Bean Technologies Corporation (JBT) of Chicago, IL has agreed to pay $391,950 to settle alleged violations of sanctions against weapons of mass destruction proliferators and their supporters that occurred between April 8-17, 2009. The company shipped items sold to a Chinese company by Islamic Republic of Iran Shipping Lines aboard a blocked vessel from Spain to China. JBT provided trade documents pursuant to a letter of credit for $2,897,936 related to the shipment to a US bank for payment but the US bank declined and advised that an OFAC license was required. JBT then presented the trade documents to a Spanish bank (Banco Santander) for the same amount to receive the payment. JBT reimbursed its foreign subsidiary, JBT AeroTech Spain, for charges paid to their freight forwarder along with the associated Spanish bank fees.

The base penalty for the violations was $670,000 but the following factors reflect OFAC’s considerations regarding the $391,950 penalty.

Aggravating Factors:

  • JBT did not voluntarily self-disclose
  • JBT Management knew of some of the conduct at hand
  • There was an economic benefit in dealing with the blocked entity
  • JBT is a sophisticated entity that conducts business around the world

Mitigating Factors:

  • JBT has not had any violations in the last 5 years
  • JBT implemented remedial measures
  • The company provided employee training and compliance program enhancements along with improved party screening
  • JBT cooperated with OFAC’s investigation
  • The company agreed to toll the statute of limitations for 514 days.

Read More: http://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20150619_jbt.pdf


NNSA Amends Assistance to Foreign Atomic Energy Activities

2015/03/30

By: Brooke Driver

For the first time since 1986, the Department of Energy has released a comprehensive update of 10 CFR Part 810, which controls the export of unclassified nuclear technology and assistance by identifying “generally authorized” activities involving nuclear technology and activities that require “specific authorization” from the Secretary.

The DOE states that, while small changes to Part 810 were made in 1993 and 2000, this comprehensive update was necessary in light of the global expansion of the civil nuclear market, especially in China, the Middle East and Eastern Europe. The nuclear industry has also expanded in France, Japan, the Republic of Korea, Russia and Canada.


Taiwanese Father and Son Arrested for Allegedly Shipping Weapons Machinery to North Korea

2013/06/18

By: Brooke Driver

A 67-year-old Taiwanese man, Alex Tsai was arrested in Tallinn Estonia on May 1, 2013, for allegedly supplying weapons machinery to North Korea. His son, Gary Tsai, also connected to the illegal operation, was arrested the same day in his home in Glenview, Illinois.

Both men were charged in Chicago with identical accusations: one count of conspiring to defraud the United States in its enforcement of laws and regulations prohibiting the proliferation of weapons of mass destruction, one count of conspiracy 2 to violate the International Emergency Economic Powers Act (IEEPA) by conspiring to evade the restrictions imposed on Alex Tsai and two of his companies by the U.S. Treasury Department, and one count of money laundering. The father and son—as well as an unnamed “Individual A”—have been under investigation for some time for exporting goods and materials that could be used to produce weapons of mass destruction. The three men, now Denied Persons, are associated with at least three Taiwan-based companies and one US-based company suspected of criminal activity: Global Interface Company, Inc., Trans Merits Co., Ltd., Trans Multi Mechanics Co., Ltd and Factory Direct Machine Tools, all of which have also been added to the Debarred List. Specifically, Alex and Gary Tsai was debarred for dealing (since the late 1990’s) with the Korea Mining Development Trading Corporation, which was designated as a proliferator by President Bush in 2005. The Tsais has been transporting items to KOMID since the late 1990’s that could be used to support North Korea’s advanced weapons program.

The defendants may receive up to the maximum penalty of:

  • 20 years in prison and $1,000,000 fine for violating IEEPA
  • 20 years in prison and a $500,000 fine for money laundering
  • 5 years in prison and a $250,000 fine for conspiracy to defraud the US

Fails! University of Massachusetts at Lowell Pays $100,000 for Shipments to Pakistani Missile Entity

2013/06/18

By: Brooke Driver

The University of Massachusetts at Lowell has chosen to settle with BIS for neglecting to obtain the necessary licenses required by Section 744.11 and Supplement No.4 to Part 744 of the Regulations for export to the Pakistan Space and Upper Atmosphere Research Commission (“SUPARCO”), an organization that has been on the Entity List since November 1998, as it was “determined to be involved in nuclear or missile activities.” In September 1, 2007, UML exported antennae and cables valued at $12,480 and designated as EAR99 to SUPARCO without an export license. UML again exported to SUPARCO without permission in October 6, 2007, this time transporting an atmospheric testing device valued at $191,870—also designated as EAR99.

Based on these charges, and had UML chosen to fight them, they could have faced:

  • The maximum civil penalty of up to the greater of $250,000 per violation or twice the value of the transaction that is the basis of the violation
  • Denial of export privileges and/or
  • Exclusion from practice

Luckily for UML, BIS was merciful, due to UML’s timely response to the charges and desire to settle. However, even these considerations could not save UML from:

  • A $100,000 fine
  • A two year probationary period

Offshore Marine Labs Pays $97,695 for Exports to UAE that Ended Up in Iran

2013/03/04

By: John Black

Offshore Marine Laboratories (“OML”), of Gardena, CA, agreed to pay $97,695 for alleged violations of the Iranian Transactions Regulations and Executive Order 13382, “Blocking Property of Weapons of Mass Destruction Proliferators and Their Supporters.” Between July 11, 2007, and July 17, 2008, OML allegedly exported to a company in the United Arab Emirates eight shipments of spare parts and supplies intended for supply to an offshore oil drilling rig located in Iranian waters. Both the rig owner and operator were located in Iran, and five of the shipments occurred after OFAC blocked the rig owner’s property and blocked interests in property.

Even though OML did not voluntarily disclose its actions to OFAC, OFAC determined that the alleged violations constitute a non-egregious case. OML’s $97,695 penalty is substantially less than the base penalty amount for the alleged violations, which was $167,000.

OFAC said the settlement amount is based on its consideration of these facts:

  • OML harmed sanctions program objectives because the transactions aided the development of Iranian petroleum resources;
  • OML had no OFAC compliance program in place at the time of the alleged violations;
  • OML has no history of prior OFAC violations;
  • OML demonstrated substantial cooperation with OFAC throughout the investigation, including agreeing to waive the expiration of the statute of limitations; and
  • OML took remedial measures by implementing an OFAC compliance program.

The numerous cases involving illegal shipments to the UAE and then on to Iran indicate:

  1. The government is watching for such shipments;
  2. There is a risk that things you send to the UAE may end up in Iran; and
  3. You want to make extra sure you are not knowingly or otherwise involved in something like this.

$450,000 Penalty ($400,000 Suspended) for Illegal Valve and Pump Exports

2009/10/30

By: Danielle McClellan

FSI International, Inc. was charged with 66 violations of the EAR after the company voluntarily self disclosed the violations to BIS earlier this year. The charging letter stated that between 2003 and 2006 FSI exported fluoropolymer-coated valves and pumps from the US to China, Israel, Malaysia, Taiwan, and Singapore. The valves and pumps are classified 2B350 for chemical and biological weapons proliferation reasons.

FSI was fined $450,000 in conjunction with the 66 violations, but don’t feel too sorry for them. The Order states that FSI will have to pay $50,000 over a period of 9 months ($5,000 per month) and the remaining $400,000 will be suspended as long as FSI doesn’t commit any violations in the next year.

Order: http://efoia.bis.doc.gov/exportcontrolviolations/e2141.pdf


MTS Gets $400,000 Penalty for Lying on Export License Applications

2008/05/16

2008/05/16

By: John Black

Have you ever been in a meeting where you are gathering information to put together a license application, and one of your engineers or sales people says, “Don’t put that information in the application.” That will make the government deny the license.” Well, as you know, if you fail to include in an application certain information that would make the government deny the application, you probably are “omitting materials facts,” or as we say out here in my mountains, “lying.” Here is a story that validates that lying on an application can get you in trouble if the government finds out.

A Minnesota-based test system manufacturer, MTS Systems Corp. agreed to plead guilty to violating US export laws. The company submitted two false export license applications for exports to India. MTS now has to pay $400,000 penalty, implement a model export compliance program, and be on probation for two years.

Here is the story of the two “false” applications:

In Nov. 21, 2002, MTS received an inquiry to purchase its equipment from the Electrical Research and Development Association (ERDA), located in India. A MTS representative in India then confirmed to MTS employees that ERDA would be using the MTS equipment for testing nuclear power plant components. MTS, therefore, was required to obtain an export license from the Commerce Department. MTS did not initially apply for a license because the MTS employee in charge of export compliance stated that it was “extremely unlikely” that it would be approved unless the customer could make a “strong and convincing” argument that this test system would not and could not make a significant contribution to India’s nuclear energy programs. Neither the customer nor MTS ever attempted to make this argument to the Commerce Department.

(more…)


US Imposes Nonproliferation Sanctions against 14 Foreign Entities

2007/04/17

2007/04/17

By: John Black

Includes Chinese, Singaporean, Malaysian, and Mexican Entities

In the April 17, 2007, Federal Register the US State Department announced sanctions on 14 new entities due to actions that potentially make a material contribution to the development of Weapons of Mass Destruction in Iran and Syria. The sanctions prohibit export license approvals and US Government procurement from, assistance to, and exports to the listed entities. The sanctions have little impact on the newly listed entities in Syria and Iran because those countries are already subject to comprehensive US trade sanctions.

Bottom Line Issue:

These sanctions do not directly prohibit all transfers of items subject to US export/trade controls to the listed entities. As a practical matter, however, exporters and reexporters should add the listed entities to the prohibited parties list against which they screen their transactions because this notice creates a Red Flag that the listed entities may intend to transfer items to weapons programs in Iran and Syria. If you find a match, you should investigate the Red Flag to determine whether your items will be illegally diverted-if your investigation makes you comfortable that your items will not be diverted, document your investigation and proceed with the transaction. Alternatively, you might want to implement a simple policy of never doing business with the listed entities because they are members of this list, even though you could legally do business with them.

Specifically, the sanctions on the entities are:

  1. No department or agency of the U.S. Government may procure goods, technology or services from listed entities.
  2. No department of agency of the U.S. Government may provide assistance to listed entities.
  3. No department or agency of the U.S. Government may sell any item on the United States Munitions List to listed entities.
  4. No new licenses for transfer of items controlled under the EAR or the Export Administration Act of 1979 will be granted and all existing licenses will be suspended for transfer to listed entities.

The Listed Entities are:

  • China National Precision Machinery Import/Export Corporation (CPMIEC) (China) and any successor, sub-unit, or subsidiary thereof
  • Shanghai Non-Ferrous Metals Pudong Development Trade Co. Ltd. (China) and any successor, sub-unit, or subsidiary thereof
  • Zibo Chemet Equipment Company (China) and any successor, sub-unit, or subsidiary thereof
  • Challenger Corporation (Malaysia) and any successor, sub-unit, or subsidiary thereof
  • Target Airfreight (Malaysia) and any successor, sub-unit, or subsidiary thereof
  • Defense Industries Organization (DIO) (Iran) and any successor, sub-unit, or subsidiary thereof
  • Hizballah and any successor, sub-unit, or subsidiary thereof
  • Sokkia Singapore PTE Ltd. (Singapore) and any successor, sub-unit, or subsidiary thereof
  • Army Supply Bureau (Syria) and any successor, sub-unit, or subsidiary thereof
  • Syrian Air Force (Syria) and any successor, sub-unit, or subsidiary thereof
  • Syrian Navy (Syria) and any successor, sub-unit, or subsidiary thereof
  • Industrial Establishment of Defense (Syria) and any successor, sub-unit, or subsidiary thereof
  • Challenger Corporation (Malaysia) and any successor, sub-unit, or subsidiary thereof
  • Target Airfreight (Malaysia) and any successor, sub-unit, or subsidiary thereof
  • Aerospace Logistics Services (Mexico) and any successor, sub-unit, or subsidiary thereof
  • Arif Durrani (Pakistan)

The penalties will be in effect for 2 years unless the Secretary of State deems otherwise.

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