On February 2, 2022, the Department of State, Directorate of Defense Trade Controls (DDTC) issued a proposed rule (87 FR 5759) that would make multiple revisions to the International Traffic in Arms Regulations (ITAR).  The most significant of these revisions would scale back the longstanding approach toward determining the nationality of foreign persons, to an approach more in line with the Export Administration Regulations (EAR).

Currently, the ITAR definitions of export and reexport include the statement:

Any release… of technical data to a foreign person is deemed to be an [export or reexport] to all countries in which the foreign person has held or holds citizenship or holds permanent residency.

Under these definitions, current nationality is considered as well as any other nationality, even if no longer held.  The result of this is that foreign persons originally from a third country, particularly those from § 126.1 prohibited destinations, are either barred from ITAR work or require more complex authorizations.

The revised definitions state:

Any release… of technical data to a foreign person is deemed to be an export to all countries in which the foreign person holds citizenship or permanent residency.

It will remain possible for a foreign person to have multiple nationalities, but will not require consideration of former nationalities.

The proposed approach is much closer to the EAR definitions, which state:

Any release… is a deemed [export or reexport] to the foreign person’s most recent country of citizenship or permanent residency…

The proposed definition is also in line with the definition of U.S. person, which looks only at whether someone is a U.S. citizen, permanent resident, or one of a limited set of other immigration statuses.  A lawful permanent resident of the U.S. who once held another foreign nationality, including from a § 126.1 country, is unambiguously a U.S. person.

The proposed rule also makes a series of corrections and clarifications to:

• 126.5(b) (Canadian exemptions),
• 126.18(c)(2) (Exemptions regarding intra-company, intra-organization, and intra-governmental transfers to employees who are dual nationals or third-country nationals), and
• 127.12 (Voluntary disclosures).

For additional information and how to submit comments, please refer to the Federal Register Notice.  Comments will be accepted through April 4, 2022.  As it is a proposed rule, the changes will not take effect until a final rule is published.

Cambodia Added to ITAR §126.1 Prohibited Destinations

On December 9, 2021, the Department of State, Directorate of Defense Trade Controls (DDTC) issued a new rule (86 FR 70053) that adds Cambodia to the International Traffic in Arms Regulations (ITAR) § 126.1 list of prohibited destinations.  After Russia and Ethiopia, this is the third country added to § 126.1 this year.

The primary rationale of the new listing is the military presence and other activities in Cambodia by the People’s Republic of China, particularly the construction of exclusive-use facilities on the Gulf of Thailand.  Corruption and human rights abuses were also identified as concerns leading to the § 126.1 listing (see the OFAC advisory below for more background).

Cambodia is now listed in § 126.1(o) with case-by-case exceptions related to conventional weapons destruction and humanitarian demining activities.

While the main effect of this change will be that defense articles may no longer be exported or reexported to or imported from Cambodia, there are a number of follow-on effects of the §126.1 listing that companies need to be aware of, including:

• Proposed and final sales: Broad prohibition includes proposals and presentations as well as actual sales and exports.
• Disclosures: An affirmative duty to immediately inform DDTC of any “proposed, final, or actual sale, export, transfer, reexport, or retransfer of articles, services, or data.”
• Exemptions: Most exemptions are not available for § 126.1 countries.
• Dual/Third Country Nationals: § 126.18(c)(2) will require screening for substantive contacts with Cambodia.
• Brokering: Additional restrictions under Part 129.

The listing was effective on the date of publication, December 9^th.  Cambodia had previously been removed from the list of prohibited destinations in 1994.

Cambodia Faces New EAR Restrictions

Also on December 9, the Department of Commerce, Bureau of Industry and Security (BIS) issued a new rule (86 FR 70015) making parallel changes to the Export Administration Regulations (EAR).

Based on the same rationale provided in the § 126.1 notice, Cambodia has been added to the following EAR lists:

1. Countries subject to the licensing policy in EAR § 742.4(b)(7) (review policy for national security controlled items, based on risk of diversion to military end user or end use),
2. Countries subject to military end use and end user controls in § 744.21,
3. Countries subject to military intelligence end use and end user controls in § 744.22, and
4. Countries subject to a U.S. arms embargo under Country Group D:5.

Five Countries Now Subject to MEU

Cambodia joins Burma, China, Russia, and Venezuela as subject to the military and military intelligence end use and end user controls.  Although no entity in Cambodia has yet been identified as a “Military End User” (MEU) in Supplement No. 7 to Part 744, it is important to note that the MEU List is not an exclusive list of parties subject to the MEU restrictions.  Careful evaluation of potential exports to those five countries is advised.  Even business entities may be considered “military end users” which are defined broadly to include “any person or entity whose actions or functions are intended to support ‘military end uses.’”

Although apparently due to oversight, BIS has not formally added Russia or Ethiopia to Country Group D:5, they are both considered D:5 countries because the ITAR § 126.1 list is controlling (see Footnote 1 to Country Group D).

OFAC Publishes Cambodia Business Advisory

In a related development, the U.S. Department of the Treasury, Office of Foreign Assets Control (OFAC) published a business advisory for Cambodia on November 10, 2021.

The “Cambodia Business Advisory on High-Risk Investments and Interactions” was issued “to caution U.S. businesses currently operating in or considering operating in Cambodia to be mindful of interactions with entities and sectors potentially involved in human rights abuses, criminal activities, and corrupt business practices.”  Specific business sectors include financial, real estate, casino, infrastructure, manufacturing, and timber as well as entities involved in trafficking persons, wildlife, and narcotics.  Forced labor is a particular concern for manufacturing.

The advisory details known problems in Cambodia, as well as relevant U.S. laws and regulations related to financial and supply chain and links to a number of U.S. government reports on the situation in Cambodia.  This report preceded the ITAR and EAR actions described above, but remains relevant for activities that are not specifically prohibited.

Ethiopia Sanctions and 126.1

Following the announcement of sanctions targeting the conflict in Ethiopia on September 17, the Department of State, Directorate of Defense Trade Controls (DDTC) announced on its website that it intends to add Ethiopia to ITAR §126.1 and revise the entry for Eritrea.

While the main effect of this change will be that defense articles may no longer be exported or reexported to Ethiopia (where approvals would already have been unlikely), there are a number of follow-on effects of the §126.1 listing that may catch some companies by surprise.  Such effects include the following:

• Proposed and final sales: Broad prohibition includes proposals and presentations as well as actual sales and exports.
• Disclosures: An affirmative duty to immediately inform DDTC of any “proposed, final, or actual sale, export, transfer, reexport, or retransfer of articles, services, or data.”
• Exemptions: Most exemptions are not available for §126.1 countries.
• Dual/Third Country Nationals: §126.18(c)(2) will require screening for substantive contacts with Russia.
• Brokering: Additional restrictions under Part 129.

Through its addition to §126.1, Ethiopia will also be added to the Commerce Department’s Export Administration Regulations (EAR) Country Group D:5.

Ethiopia will be the second addition to §126.1 this year, following Russia’s listing in March.

Cyprus §126.1 Revision Extended

In other ITAR §126.1 news, last year’s temporary modification of the policy towards Cyprus was extended for another year.  The modification potentially allowing the export of non-lethal defense articles and services is now in effect until September 30, 2022, unless extended (86 FR 54044).

Cyprus, a member of the European Union since 2004, was originally listed in §126.1 with the objective to prevent an arms race on the island.  Cyprus is currently divided between the Republic of Cyprus and the internationally unrecognized Turkish Republic of Northern Cyprus, a division which followed the 1974 Turkish invasion.  The relaxed §126.1 policies are based on the cooperation of Cyprus on additional U.S. foreign policy objectives of anti-money laundering and denial of ports for Russian military vessels.

USML Category XI(b) Extended for Five Years

In what had become an annual or biennial event, on August 30, 2021 DDTC published a notice (86 FR 48021) continuing the current text controlling intelligence-analytics software in USML Category XI(b).  DDTC and its interagency partners have been unable to resolve how Category XI controls such software, and are now deferring to a wholesale revision of the category expected by 2026.

Export Control Reform measures were originally scheduled to remove “software” from XI(b) as well as the capability to analyze and produce information from the electromagnetic spectrum.  Some software would remain controlled under XI(d).  Based concerns that a revised category would no longer clearly control “certain intelligence-analytics software,” DDTC has continued to “amend” XI(b) to maintain the original text.

DTAG Meeting Announced

On September 24, 2021, DDTC published a notice (86 FR 53137) announcing that the next Defense Trade Advisory Group (DTAG) open meeting will be on November 4, 2021.  The meeting will be held virtually with discussion on the following topics:

(1) Advise on best practices for conducting internal audits to evaluate ITAR compliance programs, and

(2) provide sources for recordkeeping and reporting requirements for all licenses, agreements, and exemptions, as well as industry perceptions of the return on investment of said requirements, plus any recommendations for improvement.

The meeting is open the public and accepts questions by email.  For more information on the meeting including how to register, please refer to the Federal Register Notice.

Commerce Revises EAR Controls

On August 19, 2021, the Department of Commerce, Bureau of Industry and Security (BIS) published a rule (86 FR 46590) making corrections and clarifications to the “0x5zz” firearms Export Control Classification Numbers (ECCNs), including edits, new notes, and some changes to the ECCNs effective September 30, 2021.  Refer to the Federal Register Notice for more information.

On October 5, 2021, BIS published two separate rules (86 FR 54807 and 86 FR 54814).  The first rule makes a series of targeted editorial corrections and clarifications throughout the Export Administration Regulations (EAR).  The second establishes controls on nucleic acid assembler and synthesizer software under new ECCN 2D352, implementing an Australia Group decision from May 2021.  BIS also issued a press release on the new control.

On October 6, 2021, BIS and the Nuclear Regulatory Commission (NRC) issued companion rules (86 FR 55492 and 86 FR 55476) transferring responsibility for licensing exports of deuterium for non-nuclear end use from the NRC to BIS.  Exports of deuterium for nuclear end use remain under NRC jurisdiction.  The revision affects ECCN 1C298, which currently includes graphite, and will take effect December 6, 2021.

DDTC Proposes Revised Definition of “Regular Employee”

On May 27, 2021, the Department of State, Directorate of Defense Trade Controls (DDTC) issued a proposed rule (86 FR 28503) to revise the International Traffic in Arms Regulations (ITAR) §120.39 definition of “regular employee.”  Following temporary measures adopted for the COVID-19 pandemic, the proposed amendment would permanently “allow certain individuals to work remotely, and further proposes to clarify the contractual relationships that meet the definition of regular employee.”  Significantly, the “criterion that an individual must work at a company’s facilities will be removed in the revised definition to allow for remote work.”  The proposed rule also clarifies the treatment of contract employees and the meaning of “long term contractual relationship” as well as consideration of security clearances and secondment.

“Regular employee” is a key definition in the ITAR §126.18 exemptions for dual nationals and third country nationals (DN/TCNs).  Under the 126.18 exemptions, foreign companies can allow access to ITAR-controlled articles and technical data by employees who are nationals of other countries without DDTC approval when the specific conditions are met.

Comments on the proposed definition will be accepted through July 26, 2021.  Please refer to the Federal Register Notice for the full proposal and how to comment.

In a related action, DDTC published a rule (86 FR 30778) on June 10, 2021 temporarily extending the suspension of certain ITAR provisions “to provide for continued telework operations during the current SARS-COV2 public health emergency.”  The suspension is intended to continue until the regular employee final rule is published.

Russia: 126.1 Policy and Country Group D:5

Following the addition of Russia to ITAR §126.1, DDTC has released a fact sheet summarizing the effect of the listing and several FAQs, with particular attention to the effect on commercial space launches.

The Department of Commerce has not yet amended the Export Administration Regulations (EAR) Country Group D:5, which parallels ITAR §126.1.  However, Country Group D:5 includes the following note:

If there are any discrepancies between the list of countries in this table and the countries identified by the State Department as subject to a U.S. arms embargo (in the Federal Register), the State Department’s list of countries subject to U.S. arms embargoes shall be controlling.

Even without a formal EAR amendment, D:5 should be understood to contain Russia.

CCL Wassenaar Updates

On March 29, 2021, the Department of Commerce, Bureau of Industry and Security (BIS) published a rule (86 FR 16482) to revise the Commerce Control List (CCL) to implement changes to the Wassenaar Arrangement List of Dual-Use Goods and Technologies (WA List) that were decided upon at the December 2019 Wassenaar Arrangement Plenary meeting.  Other changes from the December 2019 meeting were published in 2020.

The recent changes are largely related to eliminating reporting requirements and license exceptions for some encryption items, but also include revisions to twenty-two Export Control Classification Numbers (ECCNs) (0A502, 0A503, 0A606, 1A002, 1A005, 1A006, 1A613, 1B002, 1C001, 1C002, 1C006, 1C010, 2A001, 3B001, 3E002, 5A002, 6A004, 6A005, 6A008, 9A011, 9D515, and 9E003).

Opportunity to Influence Export Controls: BIS Seeks Technical Advisory Committee Members

On April 28, 2021, BIS published a notice (86 FR 22390) announcing the recruitment of candidates for its seven Technical Advisory Committees (TACs).  These committees advise the Commerce Department on the technical parameters and administration of export controls in the following areas of responsibility:

1. Information Systems TAC: CCL Categories 3 (electronics), 4 (computers), and 5 (telecommunications and information security)
2. Materials TAC: CCL Category 1 (materials, chemicals, microorganisms, and toxins)
3. Materials Processing Equipment TAC: CCL Category 2 (materials processing)
4. Sensors and Instrumentation TAC: CCL Category 6 (sensors and lasers)
5. Transportation and Related Equipment TAC: CCL Categories 7 (navigation and avionics), 8 (marine), and 9 (propulsion systems, space vehicles, and related equipment)
6. Emerging Technology TAC (identification of emerging and foundational technologies that may be developed over a period of five to ten years with potential dual-use applications)
7. Regulations and Procedures TAC (focuses on the EAR and its implementation)

TAC members are appointed by the Secretary of Commerce, serve terms of not more than four years, and must obtain secret-level security clearances prior to appointment.  Resumes will be accepted through September 30, 2021.  For more information, including how to apply, please refer to the Federal Register Notice.

UAE Removed from Treasury Antiboycott List

On April 8, 2021, the Department of the Treasury published a notice (86 FR 18374) removing the United Arab Emirates (UAE) from the list of countries which “require or may require participation in, or cooperation with, an international boycott.”

This list is routinely published for the purposes of compliance with Part 999 of the Internal Revenue Code of 1986, which includes reporting requirements for certain activities in the listed countries.

The UAE was removed following its August 2020 repeal of a law mandating a boycott of Israel and subsequent actions.  Last December’s version of the antiboycott list included a comment that anticipated the UAE’s removal following its normalization of relations with Israel.

The remaining countries on the list are:

• Iraq
• Kuwait
• Lebanon
• Libya
• Qatar
• Saudi Arabia
• Syria
• Yemen

While this removes one set of requirements specifically required for the UAE, EAR Part 760 (Restrictive Trade Practices or Boycotts) continues to apply to transactions with any country.

In addition, on June 9, 2021, BIS published an interpretation to Supplement No. 17 to Part 760 (86 FR 30535) which clarifies that some requests from the UAE are no longer presumed to be boycott-related if made after August 16, 2020.  This only addresses a presumption and the general requirements of Part 760 continue to apply.

Russia to Rejoin 126.1, Individuals and Entities Face Additional Sanctions

On March 2, 2021, the U.S. Department of State announced a series of new sanctions related to “The Russian Federation’s Use of a Chemical Weapon in the Attempted Assassination of Russian Opposition Figure Aleksey Navalny in August 2020 and his Subsequent Imprisonment in January 2021.”

The addition of Russia to the International Traffic in Arms Regulations (ITAR) §126.1 prohibited destination list, with limited exceptions for government space cooperation, expands on chemical weapons sanctions imposed in 2018, among others.  Including parallel actions by the Department of Commerce, Bureau of Industry and Security (BIS) and the Department of Treasury, Office of Foreign Assets Control (OFAC), new sanctions include:

• New individuals and entities sanctioned under the Countering America’s Adversaries Through Sanctions Act (CAATSA).
• New individuals and entities added to OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List).
• New individuals and entities added to the Entity List.

While Russia has been treated more or less as a §126.1 country through both license review policies and its specific exclusion from the ITAR cloud rule at §120.54(a)(5), the listing will affect a number other ITAR compliance areas:

• Proposed and final sales: Broad prohibition ranges from proposals and presentations to actual sales and exports.
• Disclosures: An affirmative duty to immediately inform the Directorate of Defense Trade Control (DDTC) of any “proposed, final, or actual sale, export, transfer, reexport, or retransfer of articles, services, or data.”
• Exemptions: Most exemptions are not available for 126.1 countries.
• Dual/Third Country Nationals: §126.18(c)(2) will require screening for substantive contacts with Russia.
• Brokering: Additional restrictions under Part 129.

The Department also published a fact sheet on the new sanctions.  Russia had been listed in §126.1 until April 3, 2006.  The new §126.1 listing will take effect through a Federal Register Notice that has not yet been published.

Burma Sanctioned Over Military Coup

On February 17, 2021, BIS published a notice (86 FR 10011) of a more restrictive license review policy and suspension of some license exceptions following the February 1^st military coup in Burma.  On March 8, 2021, this was followed by two new rules (86 FR 13173 and 86 FR 13179).

The first rule amends the Export Administration Regulations (EAR) to:

• Move Burma from Country Group B to Country Group D:1, rendering many license exceptions unavailable;
• Subject Burma to military end use and end user restrictions; and
• Move Burma from Computer Tier 1 to Computer Tier 3 in the Computers (APP) license exception.

The second rule adds four Burmese entities to the Entity List, which imposes a license requirement for all items subject to the EAR under a license review policy of denial.

Sanctions on Burma had been relaxed in recent years, following improvements in human rights and democracy.  Burma was moved from Country Group D:1 to Country Group B in 2016, while remaining in Country Groups D:3 and D:5 (related to chemical and biological weapons proliferation concerns and arms embargoes).  In 2017, OFAC removed the Burmese Sanctions Regulations following the termination of the underlying Executive Order.

Burma has long been and remains ITAR §126.1 prohibited destination.

In separate, but related, December actions, the Department of Commerce’s Bureau of Industry and Security (BIS) and the Department of the Treasury’s Office of Foreign Assets Control (OFAC) published new sanctions lists largely aimed at companies tied to the Chinese military.

The new lists build on the 2020 releases of the Department of Defense list of Communist Chinese military companies.  When first released, the presence of a company on that list was a “red flag,” but not a direct export restriction.  The use of the list by the Departments of Commerce and Treasury changes that.

Commerce Military End User List – NEW ADDITION UNDER SUPPLEMENT #7 OF EAR!

On December 23, 2020, BIS published a rule (85 FR 83793) adding the Military End User (MEU) List to the Export Administration Regulations (EAR).  The list identifies 102 entities, fifty-seven in China and forty-five in Russia, that have been identified by the U.S. government as “military end users” subject to EAR §744.21.  §744.21 restricts the export, reexport, or transfer (in country) of items identified in Supplement No. 2 to part 744 to military end users in China, Russia, and Venezuela.  The restriction takes the form of a license requirement with a presumption of denial.  License exceptions other than GOV may not be used for those entities.

While long-awaited and very helpful for exporters, the MEU List is not an exclusive list of parties subject to the restrictions of §744.21.  Careful evaluation of potential exports to China, Russia, and Venezuela is advised as even business entities may be considered “military end users” which are defined broadly to include “any person or entity whose actions or functions are intended to support ‘military end uses.’”  In the event that a member of the Department of Defense list of Communist Chinese military companies is not included on the MEU list, it should be considered a “red flag” for export compliance review.

The new list is located at Supplement No. 7 to Part 744 of the EAR.

OFAC Chinese Military Companies Investment Ban

On November 12, 2020, the President issued Executive Order 13959 (85 FR 73185) titled “Addressing the Threat From Securities Investments That Finance Communist Chinese Military Companies,” prohibits trading in securities of any “Communist Chinese military company” effective January 11, 2021.

The order includes an annex listing Communist Chinese military companies based on the Department of Defense list and provides for expanding the list in the future.  As of January 8, 2021, the list reflects the three 2020 releases of the Department of Defense list.

To implement the order, OFAC has established the Non-SDN Communist Chinese Military Companies List (NS-CCMC) and has been regularly issuing FAQs on the topic.

Seventy-Seven MORE Added to Entity List

In another notable update, on December 22, 2020, BIS published a rule (85 FR 83416) which added seventy-seven entities to the EAR’s Entity List.  The new entries are located in the People’s Republic of China (China), Bulgaria, France, Germany, Hong Kong, Italy, Malta, Pakistan, Russia, and the United Arab Emirates (U.A.E.).  The bulk of the new entries (60) are located in China.  The rule also removed four entities in Israel and the U.A.E. and revised two entries.  The Federal Register Notice contains the rationale for the additions, typically activity that is considered “contrary to the national security interests of the United States.”

BIS also issued a press release and a statement from Secretary Ross with additional background on the new Chinese entries.

Continuous Screening Recommended ACT NOW!

With the new Military End User List and the continued expansion of the Entity List, denied party screening requires the ongoing attention of export compliance personnel and programs.  Customers, as well as intermediate parties and end users must be screened before an export can take place.  With sanctions lists being updated on a nearly daily basis, continuous screening of those parties is the best way to keep up to date with changes.