At their December 2009 Plenary Session, the member countries of the Wassenaar Arrangement on dual-use export controls adopted a new Note 4 to Category 5 - Part 2 of the Dual-Use List covering information security and encryption.
Effective December 22, 2008, the U.S. Department of the Treasury (“Treasury”) issued new rules relating to the procedures that the Committee on Foreign Investment in the United States (“CFIUS” or “the Committee”) will use in reviewing foreign investments in U.S. companies. See 73 Fed. Reg. 70702. The revised, final rules continue to focus on the potential impact that a particular transaction may have on U.S. national security and retain many of the features of the proposed rules, which we have previously discussed here and here.
Continue Reading...On October 3, 2008, the U.S. Department of Commerce, Bureau of Industry and Security ("BIS") published a proposed rule on a new export license exception authorizing intra-company transfers ("ICT") of products, software and technology restricted under the Export Administration Regulations ("EAR") (15 CFR Parts 730-772). 73 Federal Register 57554. The proposed rule is similar, in effect, to the current policy permitting special comprehensive licenses (15 C.F.R. Part 752); BIS hopes, however, that the new proposed rule will be better able to streamline the export licensing process for internal company exchanges of hardware and technology. If adopted, the proposed ICT rule would significantly reduce existing barriers to the unlicensed, world-wide, intra-company transfer of large categories of controlled products and technology. The freedom that would accompany the rule, however, comes with a heavy administrative burden.
Continue Reading...On October 3, 2008, the U.S. Department of Commerce, Bureau of Industry and Security ("BIS") published new interim rules, effective immediately, rewriting and altering the export regulations on encryption items (specifically, the encryption restrictions at EAR 742.15 and the ENC license exception at EAR 740.17). 73 Federal Register 54795. BIS hopes that the new rules will streamline the existing encryption review process, expand the availability of the ENC license exception, and more fully harmonize the encryption restrictions with the rest of the Export Administration Regulations ("EAR").
Continue Reading...On October 1, 2008, the U.S. Department of Commerce, Bureau of Industry and Security ("BIS") published a new interim rule, effective immediately, modifying the provisions by which companies calculate the de minimis value of U.S. components, materials, or technologies incorporated in foreign-manufactured products. 73 Federal Register 56964. While the new rules do not substantively modify current export policy, they do effect some changes that could benefit foreign companies in determining whether their foreign-manufactured products are beyond the scope of the Export Administration Regulations ("EAR") (15 CFR Parts 730-772).
Continue Reading...Effective September 25, 2008, the U.S. Department of State, Directorate of Defense Trade Controls ("DDTC") – the agency that administers export control regulations under the International Traffic in Arms Regulations ("ITAR") (22 C.F.R. Parts 120-130) – issued a final rule modifying the ITAR registration procedures and increasing the registration fees based on a company's need for licenses. See 73 Federal Register 55349 (amending ITAR § 122.2, 122.3, and 129.4). The goal of these changes is to try to self-finance DDTC licensing requirements.
Continue Reading...Effective July 21, 2008, the U.S. Department of Defense ("DOD") issued an interim rule with a request for comments that creates a contractual obligation for all DOD contractors to comply with U.S. export control laws. See 73 Federal Register 42274. While, technically, the interim rule does not impose any new requirement on U.S. businesses, because all are already required to comply with U.S. export requirements, the interim rule does impose additional risks and liabilities on defense contractors because a violation of U.S. export laws could now also result in a breach of contract. Given the fact that many companies do not fully understand the scope or intricacies of U.S. export laws, inadvertent export violations are a common occurrence. Accordingly, this new rule could easily increase contractual (and related) risks for DOD contractors.
Continue Reading...As discussed in a prior posting on this blog, the U.S. Department of the Treasury published on April 21, 2008 proposed rules designed to strengthen the process by which the Committee on Foreign Investment in the United States ("CFIUS") reviews and approves certain business transactions involving foreign investment. The proposed rules were issued under the Foreign Investment and National Security Act of 2007, Pub. L. No. 110-49 (“FINSA”), which requires a more intense CFIUS process that allows the government more discretion in investigating and altering business transactions that may impact national security. The U.S. Department of the Treasury invited comments on the proposed rules through June 9, 2008. Now that the comment period is over, we thought it might be worthwhile to see what types of comments were received. Not surprisingly, it is a mixed bag.
Continue Reading...On April 21, 2008, the U.S. Department of the Treasury ("Treasury") proposed new rules relating to the procedures that the Committee on Foreign Investment in the United States (“CFIUS”) should use in reviewing (and potentially halting) foreign investments in U.S. companies based on a potential impact on national security. See 79 Fed. Reg. 21861. While Congress previously mandated that changes be made to the CFIUS process following the much ballyhooed Dubai Ports World controversy in 2006, the current rules are merely proposed, and are not yet final. Treasury is accepting comments on the proposed rules until June 9, 2008.
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Background on U.S. Trade Regulations and Export Laws
Many people say that U.S. foreign policy is a mess. While this point is clearly debatable, it seems clear that the U.S. laws, regulations, and executive orders attempting to implement U.S. foreign policy certainly are a mess. Nowhere is this "mess" more clearly evident in the U.S. regulatory scheme than with the U.S. export laws, which are a veritable maze of statutes, regulatory schemes, and inter- and intra-agency enforcement regimes. For U.S. companies selling in international markets, it is not always easy to figure out what is "right."
Continue Reading...An effective export control policy – one that addresses all of the applicable export regimes, effectively trains company personnel with respect to the companies’ obligations, and monitors adherence to the requirements set forth in the policy – is an essential element of a comprehensive corporate compliance program. Although the need for such policies may appear to be most obvious with respect to goods and services of a military character, the need is far more pervasive, applying generally to virtually any goods or technology that originate or are modified in the United States. Depending on the regulatory regime, restrictions can apply based on the character of the goods or services, the immediate or ultimate destinations, the uses to which the exports can be put, and, when overseas entities are involved, the extent to which United States persons may have been involved in the transaction. For an overview of the principal export control regulatory regimes, see Export Control Booklet.
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John W. Chierichella and Marko W. Kipa
Legal Times
10-08-2007
Reform is not always popular among those who enjoyed the old regime. The current push to strip away protections afforded to contractors participating in commercial-item acquisitions illustrates this struggle - and why the reforms were valuable in the first place.
Continue Reading...On June 20, 2007, the U.S. Department of Justice announced the appointment of Steven W. Pelak as the first-ever National Export Control Coordinator. Mr. Pelak's job is "to improve the investigation and prosecution of illegal exports of U.S. arms and sensitive technology." The creation of this position follows on a number of recent high profile enforcement actions in which companies and individuals have sold high-end military technology to foreign companies. Most notable among these recent enforcement actions is the guilty plea entered by ITT Corp. earlier this year, in connection with which ITT may be fined up to $100 million for the illegal export of night vision technology to China. While most enforcement actions for export violations involve administrative fines, with a maximum of $50,000 per violation, criminal convictions can add a $1 million penalty and up to 20 years in prison. Increasingly, the Government is pursuing actions against both the offending company and its management.
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