On March 16, 2021, the Commerce Department’s Bureau of Industry and Security (BIS) implemented its interim final rule to apply certain provisions of the Export Control Reform Act of 2018 (ECRA). The rule imposes additional licensing requirements under the Export Administration Regulations (EAR) for exports, reexports, and in-country transfers and it expands restrictions on activities of U.S. persons, even when the relevant items are not subject to the EAR.
Restrictions on U.S. Persons
A “U.S. person” is defined as any individual who is a U.S. citizen, a permanent resident alien of the U.S., or a protected individual. The designation of a “U.S. person” also applies to companies incorporated or registered in the U.S., including their branches that operate overseas.
Section 1753 of the ECRA directs the President to impose controls on the activities of U.S. persons, wherever they are located, relating to specific nuclear explosive devices, missiles, chemical or biological weapons, whole plants producing chemical weapons precursors, foreign maritime nuclear projects, and foreign military intelligence services.
The EAR generally controls items, such as hardware, software, and technology that are made or developed in the U.S., or in some cases, foreign-origin items made with U.S. content or technology, rather than services. However, the EAR long has included prohibitions on certain activities by U.S. persons related to sensitive nuclear activities, missiles (including UAVs), chemical and biological weapons. With the interim final rule, BIS is harmonizing definitions and updating its regulations to encompass certain activities of U.S. persons, including, for the first time, with foreign military intelligence end uses and end users.
Section 744.6 of the EAR details the licensing requirements that apply to specific activities of U.S. persons with regard to exports, reexports, and in-country transfers, as well as activities unrelated to exports including contracts, services, and employment when connected to identified activities.
Restricted Activities and “Support” by U.S. Persons
Under these rules, U.S. persons are prohibited from providing “support” for:
- Design, development, production, operation, installation (including on-site installation), maintenance (checking), repair, overhaul, or refurbishing of nuclear explosive devices in any country not identified in Supplement No. 3 to Part 744
- Design, development, production, operation, installation (including on-site installation), maintenance (checking), repair, overhaul, or refurbishing of missiles in or by a country in Country Groups D:4 or E:2
- Design, development, production, operation, installation (including on-site installation), maintenance (checking), repair, overhaul, or refurbishing of chemical or biological weapons in or by any country worldwide
- Design, development, production, operation, installation (including on-site installation), maintenance (checking), repair, overhaul, refurbishing, shipment, or transfer (in-country) of a whole plant to make chemical weapons precursors in ECCN 1C350 in or by countries not in Country Group A:3
- A military-intelligence end-use or a military intelligence end-user in Burma, China, Russia, Venezuela, or a country in Country Groups E:1 or E:2
Under the new rule, U.S. persons must obtain a BIS license to “support” identified activities, a looser standard that a previous prerequisite that the U.S. person “directly assist” the prohibited activity.
The term “support” is expansively defined by BIS as any of the following:
- Shipping or transmitting from one foreign country to another foreign country any item not subject to the EAR knowing it will be used in or by any of the end uses or end users described above
- Transferring (in-country) any item not subject to the EAR knowing it will be used in or by any of the end uses or end users described above
- Facilitating such shipment, transmission, or transfer (in-country)
- Performing any contract, service, or employment knowing it may assist or benefit any of the end uses or end users described above, including, but not limited to: Ordering, buying, removing, concealing, storing, using, selling, loaning, disposing, servicing, financing, transporting, freight forwarding, or conducting negotiations in furtherance of.
To provide just one example of how EAR 744.6 might impose a license requirement, imagine a U.S.-Polish dual citizen working as a logistics manager for a company based in Warsaw. If the company sells Polish-origin paper products (not subject to the EAR) to the Russian military intelligence agency GRU, and the U.S. person logistics manager knowingly assists this prohibited military-intelligence end-user through her employment, the EAR would require the logistics manager to obtain a license.
Additional Prohibitions on Military Intelligence End Uses and End Users
BIS added restrictions in the interim final rule with regard to the activities of U.S. persons in support of certain military intelligence end uses and end users. It requires a U.S. person to obtain an BIS license to “support” a military intelligence end use or end user in Burma, China, Cuba, Iran, North Korea, Syria, Russia, or Venezuela (or any country which may be added to Country Groups E:1 or E:2 in the future). However, it is highly unlikely that a license application for these purposes will be approved, as BIS would review the application under a presumption of denial.
These new requirements are unusual for the EAR, but have parallels in other U.S. export controls and sanctions programs. For example, the International Traffic in Arms Regulations (ITAR), administered by the Directorate of Defense Trade Controls (DDTC), regulates the furnishing of “defense services” to foreign persons by U.S. persons. “Defense services” can range from providing military training to something as mundane as turning a wrench on a foreign military aircraft. Another example is found in sanctions programs administered by the Office of Foreign Assets Control (OFAC). Most sanctions programs prohibit a broad range of activities and transactions involving U.S. persons and the country, group, or individual targeted for sanctions. For example, a U.S. person anywhere in the world is generally prohibited from facilitating transactions or furthering trade with Iran.
Implications for U.S. Companies
U.S. persons (both individuals and companies) engaged in these restricted activities without proper licensing face the same criminal and civil penalties that apply to any other violation of the EAR. Any person or company that employs U.S. persons (especially non-U.S. companies that employ U.S. persons), as well as those individual U.S. citizens or U.S. permanent residents who may be working for a foreign company or government, should be aware of the additional restrictions on their activities.
Need More Information?
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Scott Gearity is President of ECTI, Inc.