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October 2013 [This Update Under Review]

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October 2013 [This Update Under Review] COMPLIANCE WITH U.S. EXPORT AND REEXPORT CONTROLS October 2013 [This Update Under Review] By Benjamin H. Flowe, Jr. Berliner, Corcoran & Rowe, L.L.P. 1101 17th Street, N.W., Suite 1100 Washington DC 20036 Phone: 202-293-5555 Fax: 202-293-9035 [email protected] © 2013 Benjamin H. Flowe, Jr. [email protected] Compliance with U.S. Export and Reexport Controls Benjamin H. Flowe, Jr. November 2012 1. Introduction. 1 2. Extraterritorial Application of U.S. Law. 1 3. Basic Guidance for U.S. Reexport Control Compliance. 3 4. Reasons for Export Controls and Applicable Multilateral Regimes. 4 4.1 National Security Controls: Wassenaar Arrangement as COCOM Successor. 5 4.2 Nuclear Controls: Nuclear Suppliers Group. 8 4.3 Missile Technology: Missile Technology Control Regime. 9 4.4 Chemical and Biological Weapons: Australia Group and Chemical Weapons Convention.. 10 4.5 Tension Between Export Controls, Export Promotion, and Free Speech . 19 5. Which Laws and Agencies Govern. 13 5.1 Commerce Department Export Administration Act for Dual-Use Items.. 13 5.2 State Department Arms Export Control Act for Munitions Items.. 15 5.3 Treasury Department's Embargo and Sanctions Programs. 16 5.4 Other Specialty Export Control Agencies and Laws. 18 5.5 Need to Address Agencies Other Than Commerce. 18 6. Export Administration Regulations. 18 6.1 Export Control Factors of Concern .. 19 6.2 Scope of the EAR.. 19 6.3 General Prohibitions. 20 6.4 Commerce Control List and Country Chart.. 21 6.5 License Exceptions. 22 6.6 End-Use and End-User Controls. 23 6.7 Export Shipping and Recordkeeping. 23 6.8 Reporting Requirements. 24 6.9 Exploration of the “Deemed Export” Rule. 6.9.1 Development of Deemed Export Rule.. 6.9.2 Enforcement of the Deemed Export Rule. 7. Controls on Encryption Products and Technology. 24 7.1 June 25, 2010 Encryption Review and Reporting Streamlining and Ancillary “Note 4" Implementation.. 25 7.1.1 Overview of Review and Reporting Streamlining for Most ENC-U and Mass Market Products................................................................................26 7.1.2 Ancillary Note 4 Implementation...............................................................28 7.1.3 Benefits and Drawbacks of the Streamlining Rule............................29 7.2 Structure of Revised Encryption Controls. 29 7.3 How to Apply Export Control Categories for Encryption Products. 31 7.3.1 Determine Whether the Encryption is Eligible for the Medical Note. 31 7.3.2 Determine Whether the Encryption is Eligible for Note 4 to CCL Category 5, Part 2 (formerly “Ancillary”). 31 7.3.3 Determine Whether Encryption is Eligible for Self-Classification Under © 2013 Benjamin H. Flowe, Jr. [email protected] ii ECCNs 5A992, 5D992, or 5E992 (Without Notification or Review). 31 7.3.4 Non-U.S. Product Incorporating U.S. Encryption. 32 7.3.5 Mass Market Items Requiring Review or ERN. 32 7.3.6 5X002 Items– Exports to U.S./FTC Subsidiaries. 34 7.3.7 5D002 Items– Publicly Available Source and Object Code. 34 7.3.8 5X002 Items Not Listed in Section 740.17(b)(2) or (b)(3) qualify for (b)(1) . 34 7.3.9 5X002 Items – Sections 740.17(b)(2) and (b)(3) Items ............................34 7.3.10 5X002 Items– ENC Ineligible – License Required. 35 7.3.11 Mechanics of Revised Encryption Structure.. 35 7.3.11.1 Obtaining an Encryption Registration Number (“ERN”). 35 7.3.11.2 Annual “Self-Classification” Report. 35 7.3.11.3 Clarification of Information Required for Encryption Classifications. 36 7.3.11.4 Further Tips for Applications.. 36 7.3.11.4 Semi-Annual Shipment Reporting Requirements for License Exception ENC Exports. 36 7.3.11.5 License Exception ENC Eligibility (After Registration of Review Request) for Exports to Any End-User in FTC. 37 7.3.11.6 License Exception ENC Compliance Tips.. 37 7.3.11.7 Commercial Source Code That is Not Publicly Available.37 7.3.11.8 Open Cryptographic Interfaces. 37 7.3.11.9 Reexports of Resultant Non U.S.-Produced Products and the “Crypto-Aware” Concept.. 38 7.3.11.12 Encryption Licensing Arrangements (ELAs) and Other Licenses. 39 7.4. Concerns Remain Regarding “Hidden” Licensing Requirements for Offshore Development and Sales of Encryption Items.. 39 7.5. Upgrades to Key Lengths and Subsequent Bundling.. 40 7.6. Decontrol of Published Software with Encryption Functions. 7.7 Compliance with Encryption Controls Remains Critical.. 41 7.8 Further Changes Needed. 42 8. Exceptions to EAR Reexport Controls. 42 8.1 Two Sets of EAR Reexport Controls Apply. 43 8.2 Exemptions Applicable to U.S.-Origin Products.. 44 8.2.1 No License Required. 44 8.2.2 License Exceptions. 44 8.2.3 Reexports Covered by Specific Authorizations. 44 8.2.4 Reexports to Country Group A:1 and Cooperating Countries.. 44 8.2.5 Reexports to Most Other Countries Approved by Governments of Country Group A:1 and Cooperating Countries. 45 8.2.6 Reexports with De Minimis U.S. Components. 45 8.2.7 Secondary Incorporation Rule – for U.S. Parts and Components. 48 8.2.8 Problems with Application to “Operations Software” Ameliorated. 49 8.2.9 Special Provisions Authorize Certain Exports for Servicing.. 49 8.3 Separate Exemptions Applicable to Exports of Direct Products of U.S.-Origin Technical Data. 50 8.3.1 Application of Permissive Reexport Provisions. 50 © 2013 Benjamin H. Flowe, Jr. [email protected] iii 8.3.2 Product Not NS Controlled. 51 8.3.3 Non-Controlled Technology. 51 8.3.4 Indirect Products. 51 8.3.5 Incorporated Direct Products. 52 8.3.6 Public Domain Technology. 52 8.3.7 De Minimis Technology and Software Not Subject to U.S. Reexport Controls. 52 9. Compliance with OFAC Reexport Sanctions and Embargo Controls.. 52 9.1 Applicable Penalties.. 53 9.2 Application to More than Just “U.S. Persons”.. 53 9.3 Proscribed Countries. 54 9.4 Restrictions On Nationals and “Specially Designated Nationals”.. 58 9.4.1 Nationals of Sanctioned Countries.. 58 9.4.2 Narcotics Traffickers and Terrorists. 58 9.5 Prohibited Activities. 60 9.5.1 Imports. 60 9.5.2 Contracts in Which Proscribed Countries or Their Nationals Have an “Interest”. 60 9.5.3 Exports. 60 9.5.4 Payments. 61 9.5.5 Travel. 61 9.5.6 Bank Accounts and Other Assets.. 61 9.6 Letters of Intent and Discussions Permitted but Not Binding Contracts. 61 9.7 Licensing Under OFAC Regulations.. 61 9.8 Controversial U.S. Unilateral Sanctions. 62 9.8.1 Helms-Burton Act. 62 9.8.2 Iran Libya Sanctions Act and Comprehensive Iran Sanctions, Accountability and Divestment Act.. 63 9.8.2.1 Iran Libya Sanctions Act (“ILSA”). 9.8.2.2 Comprehensive Iran Sanctions, Accountability and Divestment Act.
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