Author Archives: Export Compliance Solutions

Iran Sanctions Reimposed—No More Mr. Nice Guy

On May 8, 2018, the White House announced the termination of U.S. participation in the Joint Comprehensive Plan of Action (JCPOA) with Iran. Previously suspended sanctions, particularly related to Iran’s energy, petrochemical, and financial sectors will be re-imposed subject to a wind-down periods for existing business.

The Department of the Treasury released a follow-on statement including the following:

As soon as is administratively feasible, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) expects to revoke, or amend, as appropriate, general and specific licenses issued in connection with the JCPOA. At that time, OFAC will issue new authorizations to allow the wind down of transactions and activities that were authorized pursuant to the revoked or amended general and specific licenses. At the end of the 90-day and 180-day wind-down periods, the applicable sanctions will come back into full effect.

OFAC also posted FAQs on the re-imposition of sanctions. Notably, the 90-day wind-down period that ends on August 6, 2018 includes:

ii. Activities undertaken pursuant to specific licenses issued in connection with the Statement of Licensing Policy for Activities Related to the Export or Re-export to Iran of Commercial Passenger Aircraft and Related Parts and Services (JCPOA SLP); and

iii. Activities undertaken pursuant to General License I relating to contingent contracts for activities eligible for authorization under the JCPOA SLP.

The 180-day wind-down period that ends on November 4, 2018 includes shipping, shipbuilding, petroleum, and energy sectors. Other categories of business are distributed between the two wind-down periods.

Due to the wind-down periods, sanctions and license revocations were not yet officially implemented. The full FAQs may be found here.

For ITAR purposes, Iran was and remains a prohibited destination subject to a policy of denial under Section 126.1. The Department of Commerce Export Administration Regulations (Section 746.7) include both Commerce Department and OFAC licensing requirements for Iran.

Leveling the Playing Field—We Now Have a New Conventional Arms Transfer (CAT) Policy

On April 19, 2018, the White House released a new Conventional Arms Transfer Policy (CAT). This is a high level policy which directs the Departments of State, Defense, Commerce, and Energy to coordinate on the policy considerations for arms transfers. Replacing the 2014 Conventional Arms Transfer Policy, it adds “Economic Security” to the list of factors used in evaluating proposed armed transfers, retaining the factors of national security, relationships with allies and partners, and nonproliferation. “Economic Security” includes the effect of a proposed transfer on the defense industrial base and the availability of comparable foreign systems.

The State Department’s Directorate of Defense Trade Controls (DDTC) has posted a statement on the new CAT policy which includes some useful examples:

Specifically, we will increase opportunities for pre-deployment training and simulations of complex operational environments to help partners avoid civilian casualties. We will also encourage acquisitions of U.S. technology and training to enable more accurate battlespace awareness and more accurate targeting. We will also continue training to assist security forces in carrying out operations in a manner that respects human rights.

DDTC welcomes submission of stakeholder comments to ArmsTransferProcess@state.gov.

It remains to be seen what effect these changes will have on particular license applications, but the consideration of foreign availability is one of the major factors driving the simultaneous reevaluation of unmanned aerial systems (UAS) policy.

The State Department released a fact sheet on the new UAS export policy which seeks to increase trade opportunities for U.S. companies, enhance partner security and counterterrorism capabilities, and strengthen bilateral relationships while preserving U.S. military advantage and preventing the weapons of mass destruction delivery system proliferation. UAS transfers remain subject to the Missile Technology Control Regime (MTCR).

For additional background on the Conventional Arms Transfer and UAS policies from Peter Navarro, Assistant to the President and Director of the Office of Trade and Manufacturing Policy, click here.

Finally, DDTC has announced the launch of a redesigned website effective April 30, 2018, intending “a number of significant enhancements including improved navigation, searchability, and accessibility, with a consistent, full-featured experience across mobile devices.” The redesign has changed many links, so bookmarks and other saved references may need to be updated.

Seize the Opportunity to Review & Test State/DDTC’s Electronic Disclosure Form!

The Department of State, Directorate of Defense Trade Controls (DDTC) has published the following notice on their website:

Industry Notice: Industry Feedback on Electronic Disclosures (DS-7787) (4.12.18) DDTC is developing an electronic version of the current DS-7787: Disclosure of Violations of the Arms Export Control Act form, also known as Disclosures. As an alternative to paper and mail, the online version will allow Industry personnel to submit Disclosures directly through DDTC’s Defense Export Compliance and Control System (DECCS). In an effort to improve this electronic form, DDTC is enabling a test version of the new online process for Industry feedback between April 16, 2018 – April 30, 2018, prior to it being publicly available online. If you are interested in participating, please visit https://pmddtcqa.service-now.com/um/ for more information on how to access and use the test version. Once you have completed testing, you can submit feedback or comments through the Provide feedback button.

As disclosures are an important part of compliance programs, this is a great opportunity to see what DDTC is developing and help make it more useful and user-friendly in the future.

EAR Amended to Reflect Australia Group Decisions; DTAG Meeting; More Penalty Inflation Adjustments

Australia Group EAR Amendments

On April 2, 2018 (83 FR 13849), the Department of Commerce amended the Export Administration Regulations (EAR) to revise the following Export Control Classification Numbers (ECCNs) based on 2017 Australia Group decisions:

1C350 (toxic chemical agent precursors)
1C351 (human and animal pathogens and toxins)
1C353 (genetic elements and genetically-modified organisms)
2B350 (chemical manufacturing facilities and equipment)
2B351 (toxic gas monitors and monitoring systems)
2B352 (equipment capable of use in handling biological materials)

The specific changes, largely intended to clarify the entries, are detailed in the Federal Register Notice.

In addition, due to the admission of India to the Australia Group in January, an international forum for harmonizing for chemical and biological export controls, the Country Commerce Chart (Supplement No. 1 to part 738 of the EAR) was revised to remove the “X” in India’s entry for the CB 2 column (Chemical and Biological Weapons) and India was added to the Australia Group column (A:3) in the Country Groups chart (Supplement No. 1 to part 740 of the EAR).

DTAG to Meet in May

The Defense Trade Advisory Group (DTAG) will meet on May 10, 2018 to discuss the following topics:

Address one remaining task not briefed as final by the IT working group at the February 1 plenary meeting. Pass any remaining work by way of recommendations for further study;
Provide recommended changes to ITAR § 123.17 exemption that would cover other commonly carried Government Furnished Equipment (GFE); and
Further discussion and recommendations with regards to the Defense Services Working Group.

The DTAG meeting is open to the public, with seating limited to 125 persons. For meeting and registration information, click here for the meeting notice.

OFAC and DHS Inflation Adjustments of Civil Monetary Penalties

On March 19, 2018, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) published inflation adjustments for civil monetary penalties under multiple sets of regulations. The changes are detailed in the Federal Register Notice, 83 FR 11876.

On April 2, 2018, the Department of Homeland Security (DHS) published inflation adjustments for civil monetary penalties under DHS components, including the Chemical Facility AntiTerrorism Standards (CFATS), U.S. Customs and Border Protection (CBP), U.S. Immigration and Customs Enforcement (ICE), and the U.S. Coast Guard. The changes are detailed in the Federal Register Notice, 83 FR 13826.

State Department Requests Comments on License Forms, Agreement Vehicle, and Recordkeeping

License Application Forms and DSP-83

On February 26, the Department of State, Directorate of Defense Trade Controls (DDTC) published a notice (83 FR 8312) requesting comments on the following forms:

DSP-5 – Application/License for Permanent Export of Unclassified Defense Articles and Related Unclassified Technical Data
DSP-61 – Application/License for Temporary Import of Unclassified Defense Articles
DSP-73 – Application/License for Temporary Export of Unclassified Defense Articles
DSP-85 – Application/License for Permanent/ Temporary Export or Temporary Import of Classified Defense Articles and Related Classified Technical Data,
DSP-6, DSP-72, and DSP-74 – Application for Amendment to License for Export or Import of Classified or Unclassified Defense Articles and Related Classified Technical Data
DSP-83 – Nontransfer and Use Certificate

Comments are requested to:

Evaluate the necessity of the information collection
Evaluate the accuracy of the forms’ estimated time and cost burden
Enhance the quality, utility, and clarity of the information collected
Minimize reporting burdens

Comments may be submitted at www.regulations.gov (Docket No. DOS–2017–0047), by email to DDTCPublicComments@state.gov, or by mail through April 27, 2018. (Refer to the Federal Register Notice for additional information.)

DSP-5 “Vehicle” for Agreements

On February 27, the DDTC published a notice (83 FR 8563) requesting comments on the use of the DSP-5 “vehicle” to transmit proposed technical assistance, manufacturing, or distribution license agreements for DDTC approval.

As above, comments are requested to:

Evaluate the necessity of the information collection
Evaluate the accuracy of the forms’ estimated time and cost burden
Enhance the quality, utility, and clarity of the information collected
Minimize reporting burdens

Comments may be submitted at www.regulations.gov (Docket No. DOS–2018–0011), by email to DDTCPublicComments@state.gov, or by mail through April 30, 2018. (Refer to the Federal Register Notice for additional information.)

Recordkeeping by DDTC Registrants

Finally, on February 27, DDTC also published a notice (also 83 FR 8563) requesting comments on the general record-keeping requirements imposed on registrants by the ITAR. ITAR § 122.5 requires registrants to “maintain records concerning the manufacture, acquisition and disposition (to include copies of all documentation on exports using exemptions and applications and licenses and their related documentation), of defense articles; of technical data; the provision of defense services; brokering activities; and information on political contributions, fees, or commissions furnished or obtained, as required by part 130 of this subchapter” with additional conditions for storage methods and duration.

As with the other requests, comments are requested to:

Evaluate the necessity of the information collection
Evaluate the accuracy of the forms’ estimated time and cost burden
Enhance the quality, utility, and clarity of the information collected
Minimize reporting burdens

Comments may be submitted at www.regulations.gov (Docket No. DOS–2018–0009) or by email to DDTCPublicComments@ state.gov through April 30, 2018. (Refer to the Federal Register Notice for additional information.)

Please be aware that comments are considered public record and should not include proprietary or other sensitive information.

State and Commerce Departments Request Comments on USML Categories V, X, and XI and Related ECCNs

State Department Request for Comments

On February 2, the Department of State published a notice (83 FR 5970) seeking comments on the following topics as they relate to U.S. Munitions List (USML) Categories V (Explosives and Energetic Materials, Propellants, Incendiary Agents, and Their Constituents), X (Personal Protective Equipment), and XI (Military Electronics). Specifically, the notice requests comments on the following issues:

Emerging and new technologies that are appropriately controlled by one of the referenced categories, but which are not currently described in subject categories or not described with sufficient clarity.

Defense articles that are described in subject categories, but which have entered into normal commercial use since the most recent revisions to the category at issue. For such comments, be sure to include documentation to support claims that defense articles have entered into normal commercial use.

Defense articles for which commercial use is proposed, intended, or anticipated in the next 5 years.

Drafting or other technical issues in the text of all of the referenced categories.

Comments regarding USML Category XI paragraph (b) modification.

Potential cost savings to private entities from shifting control of specific commercial items from USML to the Export Administration Regulations. To the extent possible, please quantify the cost of compliance with USML control of commercial items, to include the time saved, the reduction in paperwork, and any other cost savings for a particular change.

Comments may be submitted by internet at www.regulations.gov (Docket No. DOS–2017–0017) or by email to DDTCPublicComments@ state.gov through April 13, 2018. Comments will be published and should not include proprietary or other sensitive information.

For the current USML categories, click here.

Commerce Department Request for Comments

In a related notice (83 FR 5968), the Department of Commerce requests comments on the following Commerce Control List (CCL) ECCNs (Export Control Classification Numbers): energetic materials (1B608, 1C608, 1D608 and 1E608); armored and protective equipment (1A613, 1B613, 1D613, 1E613); military electronics (3A611, 3B611, 3D611 and 3E611); and cryogenic and superconducting equipment (9A620, 9B620, 9D620 and 9E620). Specifically, the notice requests comments on the efficacy of the previous revisions, how to improve the implementation of these 600 series items on the CCL, and the potential cost savings of shifting control of these specific items from the USML to the CCL.

Comments may be submitted by internet at www.regulations.gov (Docket No BIS–2018–0004) through April 13, 2018. Comments will be published and should not include proprietary or other sensitive information.

For the current CCL categories click here.

South Sudan Policy of Denial; Will be Added to 126.1 Prohibited Destinations

The State Department’s Directorate of Defense Trade Controls (DDTC) has published a web notice announcing a policy change for South Sudan:

Change in Policy on Exports of Defense Articles and Defense Services to South Sudan (2.2.18)
Pursuant to section 38(a) of the Arms Export Control Act and the delegated authority of the Secretary of State thereunder, the Secretary has determined that it is the policy of the Department of State to deny, with limited exceptions, export licenses or other approvals for defense articles and defense services subject to the International Traffic in Arms Regulations (ITAR) and destined for South Sudan. This policy is effective immediately. DDTC will publish a rule in the Federal Register to implement a conforming change to ITAR §126.1.

Sudan is already listed as a prohibited destination under ITAR § 126.1, which includes a note on South Sudan’s previous post-independence status:

Note to §126.1. On July 9, 2011, the Republic of South Sudan declared independence from Sudan and was recognized as a sovereign state by the United States. This policy does not apply to the Republic of South Sudan. Licenses or other approvals for exports or imports of defense articles and defense services destined for or originating in the Republic of the South Sudan will be considered on a case-by-case basis.

The State Department has also published a more detailed press release on the policy change based on continuing violence in South Sudan.

UPDATE: The amendment (83 FR 6457) adds South Sudan under 126.1(w) effective February 14, 2018:

(w) South Sudan. It is the policy of the United States to deny licenses or other approvals for exports of defense articles and defense services destined for South Sudan, except that a license or other approval may be issued, on a case-by-case basis, for:

(1) Defense articles and defense services for monitoring, verification, or peacekeeping support operations, including those authorized by the United Nations or operating with the consent of the relevant parties;

(2) Defense articles and defense services intended solely for the support of, or use by, African Union Regional Task Force (AU-RTF) or United Nations entities operating in South Sudan, including but not limited to the United Nations Mission in the Republic of South Sudan (UNMISS), the United Nations Mine Action Service (UNMAS), the United Nations Police (UNPOL), or the United Nations Interim Security Force for Abyei (UNISFA);

(3) Defense articles and defense services intended solely for the support of or use by non-governmental organizations in furtherance of conventional weapons destruction or humanitarian demining activities;

(4) Non-lethal defense articles intended solely for humanitarian or protective use and related technical training and assistance;

(5) Personal protective equipment including flak jackets and helmets, temporarily exported to South Sudan by United Nations personnel, human rights monitors, representatives of the media, and humanitarian and development workers and associated personnel, for their personal use only; or

(6) Any defense articles and defense services provided in support of implementation of the Comprehensive Peace Agreement, the Agreement on the Resolution of the Conflict in the Republic of South Sudan, or any successor agreement.

New Year State and Commerce Maximum Penalty Adjustments,
EAR Corrections, and Invitation for DTAG Membership

Editorial Updates to EAR

On December 27, 2017 (82 FR 61153, corrected by 83 FR 709), the Department of Commerce issued a series of revisions, clarifications, and technical corrections to the Export Administration Regulations (EAR). These are editorial corrections that do not affect license requirements. The rule also updates the Export Control Decision Tree (supplement No. 1 to part 732), last revised in 2004, primarily to correct references to the EAR. The flow of the Export Control Decision Tree is unchanged.

Civil Penalties Adjusted for Inflation

On January 3, 2018 (83 FR 234, corrected by 83 FR 2738), the Department of State amended the ITAR (and other Title 22 regulations) to adjust the maximum civil penalties for inflation. The § 127.10 civil penalties were amended as follows:

127.10(a)(1)(i) increased from $1,111,908 to $1,134,602.
127.10(a)(1)(ii) increased from $808,458 to $824,959 (or five times the amount of the prohibited incentive payment, whichever is greater).
127.10(a)(1)(iii) increased from $962,295 to $981,935.

On January 8, 2018 (83 FR 706), the Department of Commerce published its adjustments for inflation, including increasing the maximum penalty for a violation of the International Emergency Economic Powers Act from $289,238 to $295,141.

DTAG Membership Notice

Finally, the Defense Trade Advisory Group (DTAG), the State Department’s advisory group of defense trade representatives, is seeking applications for membership with a postmark deadline of March 2, 2018. For application and submission instructions, please see this notice.

State Department Discontinues DSP-119, Other Forms in Development

The State Department’s Directorate of Defense Trade Controls (DDTC) has published a web notice discontinuing acceptance of the DSP-119 (Application for Amendment to License for Export or Temporary Import of Classified or Unclassified Defense Articles and Related Classified Technical Data):

Web Notice: Discontinuance of ELLIE and form DSP-119: (11.14.17)
Effective December 1, 2017, DDTC will no longer accept form DSP-119 to amend the DSP-85. All pending DSP-119’s will be processed pursuant to 123.25 of the ITAR. Any DSP-119 form submitted to DDTC on or after December 1, 2017 will be returned without action. When amending the DSP-85, the applicant must submit a completely new DSP-85 along with a transmittal letter, signed by the Empowered Official explaining the amended change.

Previously an all-purpose amendment form, the DSP-119 is currently only accepted to amend the DSP-85 Application for Permanent/Temporary Export or Temporary Import of Classified Defense Articles and Related Classified Technical Data. Unclassified licenses are unaffected and may continue to be amended with the appropriate form (DSP-6, DSP-62, or DSP-74).

DDTC continues to work on expanding online DECCS (Defense Export Control and Compliance System) forms which are submitted through an interactive, browser-based form. DECCS currently supports the submission of Commodity Jurisdiction (CJ) requests, which should be joined in the near future Advisory Opinion and Disclosure forms. (Note also that DDTC currently recommends submitting a DSP-5 technical data export license in lieu of a General Correspondence Advisory Opinion when possible.)

DECCS forms for registration renewal and update as well as the single licensing form are also in development.

One-form electronic filing, proposed revisions of the definitions of defense services and manufacturing, and rules regarding release of technical data to foreign dual-nationals will be discussed at the next Defense Trade Advisory Group (DTAG) meeting scheduled for February 1, 2018 (originally December 7, 2017, but rescheduled in a November 20^th Federal Register Notice). To attend the DTAG meeting, please note the instructions at the end of the notice.

State Department Requires Form DSP-83 for Chemical Agent Resistant Coatings

The State Department’s Directorate of Defense Trade Controls (DDTC) has published a web notice on Chemical Agent Resistant Coatings (CARC):

Web Notice: Category XIV(f)(7), including Chemical Agent Resistant Coatings (CARC): (11.01.17)
Consistent with 81 FR 49531 (July 28, 2016), Category XIV(f)(7) defense articles are designated as Significant Military Equipment. Accordingly, any application to export Category XIV(f)(7) defense articles requires a DSP-83 non-transfer and use certificate.

The notice is consistent with the organization of the United States Munitions List (USML) where all of Category XIV(f) is designated Significant Military Equipment (SME), but reverses long-standing policies, including those announced in September 2009 and February 2017 web notices.

Specifically, XIV(f)(7) controls “Chemical Agent Resistant Coatings that have been qualified to military specifications (MIL-PRF-32348, MIL-DTL-64159, MIL-C-46168, or MIL-DTL-53039).”

A related Export Control Reform (ECR) FAQ continues to state that application of Chemical Agent Resistant Coatings (CARC) does not necessarily subject an item to the USML:

Q: Chemical Agent Resistant Coating (CARC) in its most basic form is controlled under USML Category XIV(f)(5). When it is applied to an item subject to either the ITAR or EAR, will the item to which it is being applied now be controlled as Category XIV(f)(5)? To the USML, at a minimum?

A: No. CARC coating on an item, in and of itself, does not provide a military capability warranting USML control. Hence, items that are subject to the EAR and classified on the Commerce Control List, to include vehicles and equipment, do not become subject to the ITAR simply due to the application of CARC paint.

The 2009 and 2017 web notices stated that “CARC paint does not possess ‘substantial military utility or capability,’” but ongoing Export Control Reform (ECR) revisions have not yet removed the SME designation from XIV(f)(7).