Archive for the ‘Telecommunication’ Category

President Signs Export Controls Legislation Subjecting Emerging and Foundational Technologies to Enhanced Controls

2018/08/30

(Source: Vinson & Elkins LLP, 14 Aug 2018.)

By: David R. Johnson, Esq., drjohnson@velaw.com, +1 202-639-6706; and Daniel J. Gerkin, Esq., dgerkin@velaw.com, +1 202-639-6654. Both of Vinson & Elkins LLP.

The President has signed the National Defense Authorization Act of 2019 (“NDAA”), which, in addition to expanding the jurisdiction of the Committee on Foreign Investment in the United States (“CFIUS”) to review foreign direct investment,1 implements the Export Control Reform Act of 2018 (“ECA”), which sharpens the focus of the U.S. government on emerging and foundational technologies that are deemed not to have been adequately addressed by the prevailing U.S. export control regimes. The NDAA also places limits on the procurement of equipment and services from certain Chinese entities, though certain Members of Congress had adamantly advocated for much more stringent restrictions.

Please find a more detailed discussion of certain of the key aspects of the ECA, as well as the procurement-related restrictions set forth in the NDAA, below.

Export Controls Act of 2018

Permanent Statutory Authority for U.S. Export Controls. With limited exceptions, the ECA repeals the Export Administration Act of 1979, which lapsed several years ago and has been statutorily authorized each year since pursuant to Executive Orders issued under the International Emergency Economic Powers Act (“IEEPA”). Accordingly, the ECA now serves as the permanent statutory authority for the U.S. Export Administration Regulations (“EAR”), which generally govern the export, reexport, and in-country transfer of commercial and dual-use commodities, software and technology, and which are administered by the Bureau of Industry and Security, U.S. Department of Commerce (“BIS”).2

Treatment of Emerging and Other Types of Critical Technologies. In addition to ensuring permanent statutory authority for the existing commercial and dual-use export controls regime, the ECA directs the President, in coordination with the Departments of Commerce, Defense, State, and Energy to develop a “regular and robust process to identify the emerging and other types of critical technologies of concern and regulate their release to foreign persons as warranted regardless of the nature of the underlying transaction.” Specifically, these agencies are tasked by the ECA with identifying “emerging and foundational technologies” that are essential to the national security of the United States, but which are not currently controlled for export purposes.3

The process for identifying such technologies will be informed by publicly available information, classified information, information arising out of the CFIUS review process, and information generated by the various BIS advisory committees, and will take into account the development of such technologies in foreign countries, the effect export controls might have on continuing U.S. development efforts, and the effectiveness of export controls with respect to limiting the proliferation of such technologies to foreign countries.

The identified technologies will, following a notice and comment period, be subjected to enhanced U.S. export controls, possibly to include licensing requirements, and will be proposed for inclusion in multilateral export control regimes. At a minimum, licenses will be required for countries subject to a U.S. embargo, including those that solely are arms embargoed, such as China.4 Please note that license applications submitted by or on behalf of a joint venture, joint development agreement, or similar collaborative arrangement may require the identification of any foreign person with a significant ownership interest in a foreign person participating in the arrangement.

The following activities will be excepted from any licensing requirements:

  • The sale or lease of a finished item and the provision of associated technology if such items and technology are generally made available to customers, distributors, or resellers;
  • The sale or license to a customer of a product and the provision of integration or similar services if such services generally are made available to customers;
  • The transfer of equipment and provision of associated technology to operate the equipment if the foreign person could not use the equipment to produce critical technologies;
  • The procurement by a U.S. person of goods or services, including manufacturing services, from a foreign person if the foreign person has no rights to exploit any technology contributed by the U.S. person other than to supply the procured goods or services; and
  • Contributions and associated support provided by a U.S. person to an industry organization related to a standard or specification, whether in development or declared, including any license of, or commitment to license, intellectual property in compliance with the rules of any standards organization.

The ECA requires reporting to Congress and to CFIUS every 180 days regarding actions taken to identify and control emerging and foundational technologies.

Changes to Licensing Process. The ECA mandates that applications for licenses address “the impact of a proposed export of an item on the United States defense industrial base” and an assessment of whether “the denial of an application for a license or a request for an authorization of any export that would have a significant negative impact on such defense industrial base.” By significant negative impact, the ECA means:

  • “A reduction in the availability of an item produced in the United States that is likely to be acquired by the Department of Defense . . . for the advancement of the national security of the United States, or for the production of an item in the United States for the Department of Defense . . . for the advancement of the national security of the United States.”
  • “A reduction in the production in the United States of an item that is the result of research and development carried out, or funded by, the Department of Defense . . . to advance the national security of the United States, or a federally funded research and development center.”
  • “A reduction in the employment of United States persons whose knowledge and skills are necessary for the continued production in the United States of an item that is likely to be acquired by the Department of Defense . . . for the advancement of the national security of the United States.”

Criminal and Civil Penalties. Like the IEEPA, the ECA authorizes criminal penalties of up to $1 million and imprisonment for not more than 20 years. However, the ECA increases the current inflation-adjusted maximum civil penalty to the greater of $300,000 or twice the value of the underlying transaction. These also are the criminal and civil penalties set forth in the Anti-Boycott Act of 2018.

Treatment of Certain Chinese Telecommunications Equipment Manufacturers and Service Providers

Over the objections of Sen. Marco Rubio, among others, the NDAA ultimately did not reimpose sanctions on Chinese telecommunications equipment manufacturer and service provider, Zhongxing Telecommunications Equipment Corporation (“ZTE Corporation”), and certain of its affiliates, which were subject to a BIS denial order arising out of U.S. export control violations stemming from transactions involving Iran and North Korea. That denial order was terminated, effective July 13, 2018.

The ECA does, however, prohibit federal agencies from procuring or obtaining, or entering into contracts with entities using, equipment, systems, or services that, in turn, use Chinese-origin telecommunications equipment or services deemed to be a “substantial or essential component of any system” or “critical technology as part of any system.” The targeted Chinese-origin telecommunications equipment or services are:

  • Telecommunications equipment produced by Huawei Technologies Company or ZTE Corporation or any subsidiary or affiliate of such entities;
  • For the purpose of public safety, security of government facilities, physical security surveillance of critical infrastructure, and other national security purposes, video surveillance and telecommunications equipment produced by Hytera Communications Corporation, Hangzhou Technology Company, Dahua Technology Company, or any subsidiary or affiliate of such entities;
  • Telecommunications or video surveillance services provided by any of the above-named entities or using the above-described equipment; and
  • Telecommunications or video surveillance equipment or services produced or provided by an entity reasonably believed to be owned or controlled by, or otherwise connected to, the Chinese government.

 

Visit our website to learn more about V&E’s Export Controls and Economic Sanctions practice. For more information, please contact Vinson & Elkins lawyers Dave Johnson or Daniel Gerkin.

The changes to the CFIUS review process are discussed in greater detail at http://www.velaw.com/Insights/President-Signs-Sweeping-Expansion-of-CFIUS-Review-of-Foreign-Direct-Investment/.
2 The EAR also encompass the regulations that govern the participation of U.S. persons in unsanctioned foreign boycotts. These regulations now are permanently authorized by the Anti-Boycott Act of 2018.
Please note that the EAR currently allow for the imposition of temporary controls on items in accordance with their interim classification within Export Control Classification Number 0Y521.
4 The ECA also requires a review of the current controls on exports, reexports, and in-country transfers for military end uses and military end users in U.S. and United Nations arms-embargoed countries, as well as a review of the Commerce Control List of items that currently are not subject to any licensing for U.S. arms-embargoed countries.


BIS EAR Licensing Requirements for EAR-Controlled Items Destined to ISIL-Controlled Facilities or Territory

2016/04/06

(Source: Commerce/BIS)

BIS prohibits the shipment of items subject to the Export Administration Regulations (EAR) to the Islamic State of Iraq and the Levant (ISIL) absent a license in conjunction with regulations administered by the Department of the Treasury’s Office of Foreign Assets Control (OFAC). OFAC has designated ISIL as a Specially Designated Global Terrorist (SDGT) and the Department of State has designated ISIL as a Foreign Terrorist Organization (FTO).

As part of its efforts against ISIL, the U.S. Government is targeting not only ISIL’s abilities to raise revenue but also its purchase and use of U.S.-origin items.  BIS is committed to preventing ISIL from procuring U.S.-origin items, like oilfield equipment, that generate wealth as well as components useful for improvised explosive devices to support terrorist activities.  Our goal is to provide industry with information on potential diversion risks to safeguard the export, reexport, and transfer (in-country) of U.S.-origin items and protect national security.

ISIL controls facilities located in the areas which it controls and uses the facilities to generate revenue; some of these facilities require U.S.-origin parts and accessories to operate.  A list of ISIL-controlled facilities in Iraq and the addresses thereof is incorporated into Attachment A of this notice (see below).  BIS advises persons exporting or reexporting U.S.-origin items to Iraq to review Attachment A on a regular basis; it will be updated as necessary.  BIS also reminds persons exporting or reexporting U.S.-origin items to Syria of the existing license requirements for all items subject to the EAR, other than food or medicine classified as EAR99.  The full text of BIS’s licensing requirements and policy specific to Syria is found here.

Exporters/reexporters are advised that sanctions administered by other agencies, including those administered by OFAC, may also impact transactions in the region.  Exporters/reexporters should note that U.S. entities/persons are generally prohibited from engaging in activities with any entities/persons who are on the OFAC administered Specially Designated Nationals and Blocked Persons List.

Pursuant to Section 744.12  of the EAR, BIS requires a license for the export or reexport to an SDGT of any item subject to the EAR.  However, to avoid duplication, U.S. persons are not required to seek authorization for an export or reexport to an SDGT of an item that is subject to both the EAR and OFAC’s regulatory authority from both OFAC and BIS.  Rather, if OFAC authorizes an export from the United States or an export or reexport by a U.S. person to an SDGT, no separate authorization from BIS is necessary.  However, U.S. persons must seek authorization from BIS for the export or reexport to an SDGT of any item subject to the EAR that is not subject to OFAC’s jurisdiction and non-U.S. persons must seek authorization from BIS for any export from abroad or reexport of any item subject to the EAR to an SDGT.  BIS will generally review license applications for exports or reexports to SDGTs under a policy of denial.  No license exceptions or other BIS authorizations are available for the export or reexport to an SDGT of an item subject to the EAR.   Additionally, the EAR does not make contract sanctity available for export or reexport license applications to SDGTs.

BIS’s license requirements for shipments of items subject to the EAR to FTOs are found in Section 744.14 of the EAR.  Note especially the guidance in Section 744.14(e), which is specific to FTOs that are also designated as Specially Designated Terrorists (SDTs) or SDGTs, and directs that the guidance specific to SDTs or SDGTs, as applicable, will apply instead.

BIS also notes that an export, reexport, or transfer (in-country) to geographic areas controlled by ISIL carries a “red flag” and suggests that you exercise caution and strong oversight if you opt to engage in an EAR transaction within these areas. A list of geographic areas known to be under ISIL control is contained in Attachment B (see below).

For additional information on this FAQ or attachments, please contact the Office of Enforcement Analysis at the following: EEinquiry@BIS.DOC.GOV or 202-482-1881.


DDTC Agrees that the Public Domain Prior Approval Requirement is Unreasonable

2015/11/05

By: Christopher B. Stagg, Esq., chris@staggpc.com, 202-765-2278; Stagg P.C..

On June 3, 2015, the Directorate of Defense Trade Controls issued a proposed rule to amend the public domain exclusion within ITAR § 120.11 to include a prior government approval requirement. In proposing this revision, DDTC made a curious statement in the preamble that prior government approval is not a new requirement and that the proposed revision is merely “a more explicit statement of the ITAR’s requirement that one must seek and receive a license or other authorization [to put information into the public domain].”  The federal court case where DDTC made these statements is Bernstein v. Department of State in DDTC’s opposition to the plaintiff’s motion for summary judgment at 25, 945 F. Supp. 1279 (N.D. Cal. 1996).  A copy of DDTC’s statements to the federal court is provided here.

This is a curious statement because DDTC has previously stated to the federal courts that reading ITAR § 120.11 to impose a prior approval requirement is “by far the most un-reasonable interpretation of the provision” and also “one that people of ordinary intelligence are least likely to assume is the case.” Accordingly, DDTC confirmed to the federal courts in 1996 that there is no prior approval requirement to put information into the public domain.

The federal court case where DDTC made these statements is Bernstein v. Department of State. A copy of DDTC’s statements to the federal court is provided here (click on image for a high-resolution version):

These are highly damaging statements by DDTC. Not only does DDTC’s statement unequivocally maintain that there is no prior approval requirement, but it also establishes that the position DDTC now takes is admittedly “by far the most un-reasonable interpretation of the provision” and “that people of ordinary intelligence are least likely to assume is the case.”

Since DDTC concedes that “people of ordinary intelligence” would not read the public domain exclusion to impose a prior approval requirement, this raises a due process claim under the Fifth Amendment that DDTC’s new interpretation is unconstitutionally vague. The legal standard for a due process vagueness claim is whether the law would give fair notice to persons of ordinary intelligence of the legal requirements. Also, in laws that concern speech covered by the First Amendment, the federal courts impose an even higher standard by requiring that the law has even greater clarity. Here, DDTC concedes that such persons would not have notice.

DDTC’s statements in the court case also confirms that it has a long-standing practice of not requiring prior government approval to put information into the public domain. In changing its practice, it is well-established law that a regulatory agency must (1) acknowledge it is departing from prior practice and (2) explain the reason for the departure. The failure by a regulatory agency to follow these requirements raises due process issues. For instance, without an agency following these procedural requirements in changing its position, courts could not know whether a regulatory agency acted erroneously.

Here, DDTC fails both requirements. Instead of recognizing it is departing from prior practice, DDTC simply asserts that this is not a new requirement. Yet, the regulatory history of the public domain exclusion and DDTC’s own admissions to the federal courts clearly evidences this is incorrect. Since DDTC failed to acknowledge it is departing from prior practice, it also failed to fulfill the second well-established requirement of explaining the reason for its departure.

To read the rest of this article (including exhibits), please click here.


State Department Clarifies Recent Press Release Regarding Tokenization and Cloud Computing

2014/07/16

By: Brooke Driver

The Department of State’s Directorate of Defense Trade Controls recently issued minor clarifications to the postings on the Perspecsys, Inc. website relating to an advisory opinion on the secure transfer of technical data via the internet. The advisory opinion is stated below:

“In accordance with [ITAR] § 125.4(b)(9), tokenization may be used to process controlled technical data using cloud computing applications without a license even if the cloud computing provider moved tokenized data to servers located outside the U.S., provided sufficient means are taken to ensure the technical data may only be received and used by U.S. persons who are employees of the U.S. government or are directly employed by a U.S. corporation and not by a foreign subsidiary throughout all phases of the transfer, including but not limited to transmission, storage, and receipt. Inclusions of transfers to foreign persons would require the appropriate authorization from the Directorate of Defense Trade Controls.”

“Additionally, in all cases the technical data must be sent by a U.S. person who is an employee of a U.S. corporation or a U.S. government agency. Transmission of classified information through this means if sent or taken outside of the United States must be accomplished in accordance with the requirements of the Department of Defense National Industrial Security Program Operating Manual.”

The DDTC claims that the advisory opinion is not intended to imply that “sufficient means” to accomplish the requisite assurance levels exist today technologically, nor that tokenization by itself could achieve that end. In addition, the DDTC insists that the advisory opinion states that the use of cloud computing applications (even through tokenization) is limited to receipt and use of unclassified technical data by U.S. entities; transfer to a foreign entity would require separate authorization.
Finally, the DDTC asks readers to remember that advisory opinions are released in response to individual submissions and particular to individual situations, and therefore should not be considered reliable guidance or precedence for the general audience.


Wassenaar Arrangement Modifies Controls on Electronic Surveillance Tools

2014/01/30

By: Brooke Driver

At its annual plenary meeting in Austria December 3-4, 2013, the Wassenaar Arrangement, a group of 41 countries including the U.S., Russia, the U.K. and most E.U. states, focused on export controls for conventional arms and dual-use goods and technology, agreed on new harsher export controls on cybersecurity technologies, recognizing their great potential for terrorism. Each participating country must now implement these changed policies, one major area of which is surveillance and intelligence gathering tools, including malware and rootkits, which governments can use to bypass security features on electronic devices in order to attain supposedly protected data. Internet protocol network surveillance systems or equipment are also now subject to revised export controls, which include technologies used to screen for malware, viruses and surveillance programs. These technologies are subject to new controls, because representatives of the 41 countries believed that they could be used to both block cyber attacks and grant foreign persons dangerous insight into Western screening systems, increasing the potential for hacks. The agreement also places stricter controls on intelligence gathering technologies that analyze individuals’ or groups’ relational networks and activities, although there will be exceptions for companies using such software for marketing or consumer-monitoring purposes.

Click here for details of these changes and others decided upon at this year’s Wassenaar plenary meeting: http://www.wassenaar.org/controllists/2013/Summary%20of%20Changes%20to%20Control%20Lists%202013.pdf


Computerlinks FZCO fined $2,800,000 for Violating Syria Trade Embargo

2013/06/18

By: Brooke Driver

Recently, United Arab Emirates’ Computerlinks FZCO, a Middle East distributer working with Blue Coat Systems, Inc. of Sunnyvale, California, was charged with shipping without permission—or the manufacturer’s knowledge—to the embargoed country Syria. Although Computerlinks FZCO had agreed in its distribution agreement with Blue Coat to abide by US Department of Commerce regulations, the company falsified end user and final destination information it gave to Blue Coat on three occasions.

On or about October 29, 2010, December 31, 2010 and May 15, 2011, Computerlinks FCZO ordered devices from Blue Coat used to monitor and control web traffic along with related equipment and software, informing the manufacturer that the items were bound for the Iraq Ministry of Telecom or Liwalnet (an Internet service provider in Afghanistan), when in fact Computerlinks sent them to the Syrian Telecommunications Establishment. The total value of the three shipments is approximately $1,400,000

Because the value of the shipments was so high and because Computerlink intentionally evaded trade regulations, the BIS chose to:

  • Fine the company a whopping $2,800,000
  • Require three consecutive external audits—the first to analyze the company’s activity during the year prior to the charges, the second to observe the company’s activity the year directly after the charges and the last to analyze its activity two years after the charges

Another Group Complains about the ITAR

2007/09/29

2007/09/29

By: John Black

During the 58th International Astronautical Congress in Hyderabad, India, many speakers from emerging space nations all voiced a concern over the United States International Traffic and Arms Regulations (ITAR). The speakers charged that the United States ITAR is holding back growth in the industry. All of the speakers made a point to explain that both cooperation and competition were necessary to ensure growth of the space industry, and the ITAR is holding emerging space nations back.

China claimed that the U.S. policy was the largest hurdle to be faced by the growth of new actors in the industry, while India claimed that there is more risk to non-US players because of the ITAR rules

(Hmmmm, I guess the US Government is glad to hear that news, because that is exactly the intent of the ITAR. — John Black)

Hua Changzhi, vice president of China Great Wall Corp. pointed out those U.S. satellite manufacturers had lost market share in recent years, he remarked, “This is the price paid by U.S. policy”. Ray A. Williamson, research professor, Space Policy Institute at George Washington University in the United States said that change in ITAR would make it easier for the international space industry to operate, “unfortunately, given the current political situation in the United States, I don’t think ITAR regime will change for the next five to ten years”.

Executive director of Antrix Corp Ltd, the commercial arm of Indian Space Research Organization, K.R. Sridhara Murthy called for addressing certain issues at a political level especially regarding the export policies of advanced countries. Murthy also called for a unified licensing system for space services and complementary ground services and also underlined a need to change policy and regulations to facilitate easy access to remote sensing data used by many companies. Another one of his concerns was the merger of smaller companies with the “big players” in the industry, explaining that the dominant players in the industry hurt the market and consumers. The industry is also faced with the fact that the orbit and spectrum resources are in the hands of the governments.

More information:

US regulations restrict space industry growth (Earth Times)

US regulations restrict space industry growth (India PR Wire)


Thales Builds ITAR-Free Satellite for China: Avoiding ITAR Components Adds 6% to Sales Price

2007/07/30

2007/07/30

By: John Black

Peter Selding of SPACE.com reported China has successfully launched a Thales satellite that did not contain any US components controlled by the International Traffic in Arms Regulations (“ITAR”). Any non-US origin satellite with one or more ITAR-controlled part (regardless of value) would require approval by the US State Department for transfer to China — and the State Department would not approve transfers of any commercial communication satellite with ITAR content to China. The Thales ITAR-free satellite proves that it is possible for companies to build satellites and sell them without having to deal with the cumbersome and sometimes prohibitive ITAR controls.

According to the report, the Chinasat 6B telecommunications satellite is the fourth satellite built for the Chinese satellite-fleet operators by Thales Alenia Space. And it looks like it doesn’t cost all that much to avoid ITAR components. According to the report, avoiding ITAR restrictions added approximately six percent to the cost of the satellite due to lack of options in choosing more competitive parts suppliers and the currency used in payment. Thales Alenia Space has pointed out going to a fully ITAR-free product line is out of the question because of the risk of not being able to keep up with the market demand as ITAR-free satellites rely on a supply chain that would have difficulty increasing deliveries in the short term. This sale might be a scary prospect for US satellite makers and US satellite component suppliers. The State Department will not approve license for transfers of US satellites or foreign-origin satellites with US content to China. Now Thales seems to have a monopoly on sales of satellites to China, or, at least Thales is going to get sales that neither US satellite manufacturers nor any foreign manufacturers who use ITAR components will get. Clearly, in attempting to prevent satellite sales to China, the US has used the ITAR to dam up most of the river while leaving an opening wide enough to launch a Thales satellite through. So, the Chinese get communication satellites and US manufacturers get bumpkiss (i.e., nothing). Well, perhaps US policy makers still feel good about the symbolic nature of the US “no satellite sales to China” policy, and as US policy makers are perched high atop their self-designated moral high ground, they will have a clear view of the ITAR-free satellite sales to China.

I will not ask if anybody in the US Government has unofficially threatened Thales or attempted to convince Thales to not go down the ITAR-free path.


DDTC Publishes Guidance for Dealing with Alcatel Alenia Space Name Change

2007/05/30

2007/05/30

By: Jill Kincaid

Company Name Changed to Thales Alenia Space

In an effort to facilitate continued licensed defense trade between the United States and the recently renamed Thales Alenia Space, the DDTC has published guidance for dealings with the company and its subsidiaries.

Satellite designer and manufacturer Alcatel Alenia Space SAS (AAS), has its stock held by Alcatel-Lucent Participations SA (France) and Finmeccanica SpA (Italy). Subsidiaries of AAS are located in France, Italy, Belgium and Spain. As the result of a transaction reassigning its current stock, AAS has changed its name to Thales Alenia Space. Subsidiaries have also changed their names accordingly.

For the purposes of exporting against valid licenses after the transaction closing dates (April & May 2007), exporters should note the name change at the time of the AES filing. Submitting a DSP-119 is not necessary.

Example: “Thales Alenia Space France” formerly “Alcatel Alenia Space France”

For the purposes of current TAA and MLA agreements, an amendment must be submitted to each agreement to reflect the name change. Failure to submit the necessary amendment within 60 days of the transaction closing date for each entity will result in the termination of the agreement.

For the purposes of agreements currently in review, those pending approval will be processed under the submitted name. Once approvals are granted, exporters must change the name to the new entity before execution of the agreement or amendment and must note the change in the cover letter of the submission of the executed agreement.

For new licenses & agreements, exporters must supply the new legal name of the entity. New agreements submitted 60 days after specified closing dates with the incorrect name will be returned without action.

The relevant closing dates for entities affected by this change are as follows:

  • Alcatel Alenia Space in France on April 6, 2007
  • Alcatel Alenia Space in Belgium on April 11, 2007
  • Alcatel Alenia Space in Spain on April 11, 2007
  • Alcatel Alenia Space in Italy on May 4, 2007

Affected Companies and their former and current names can be viewed, along with the complete guidelines, at:

  • www.pmddtc.state.gov/docs/exporter_guidance_AAS.doc (Word doc)

Special Libya Update: US Relaxes Export Controls

2006/09/01

2006/09/01

By: John Black

What Happened & What You Need to Do

On August 31, 2006, the Commerce Department published regulations that move Libya off the small list of countries subject to severe US export and reexport controls. Generally speaking, the Export Administration Regulations (EAR) now treat Libya similar to countries such as the PRC, Russia, and Armenia. (more…)