Category Archives: All

Export Regulatory and Policy Update Roundup: Fall 2024

In addition to recent proposals and changes for space-related export controls, here’s a wrap-up of other recent export-related actions.

Department of State: DDTC / ITAR

AUKUS Authorized Users Available         

As required for the new AUKUS Exemption at International Traffic in Arms Regulations (ITAR) § 126.7, the list of “authorized users” in Australia and the United Kingdom is now available in the Department of State, Directorate of Defense Trade Controls (DDTC)’s DECCS.  Currently including 87 entities, the authorized users are approved by their respective governments and the list is subject to change.

Precision Castparts Consent Agreement

DDTC announced a Consent Agreement with Precision Castparts:

Precision Castparts Corp. settled allegations that it violated the International Traffic in Arms Regulations (ITAR) in connection with unauthorized exports of technical data to foreign-person employees from Bhutan, Burundi, El Salvador, Honduras, Mexico, and Peru pertaining to tools (specifically, wax pattern and core dies) and wax patterns consumed in the subsequent production of casting blades used in gas turbine engines.

This is the third Consent Agreement from DDTC this year, following The Boeing Company and RTX Corporation.

Cyprus

Cyprus remains in the unique situation of being found in the ITAR § 126.1 list of proscribed destinations, but with an annually suspended status.   Under 89 FR 79140 (September 27, 2024), the Republic of Cyprus’ status as a proscribed destination is suspended from October 1, 2024, through September 30, 2025.

Department of Commerce: BIS / EAR & CCL

Data Center Validated End User Authorization

The Department of Commerce, Bureau of Industry and Security (BIS) expanded the Validated End User Authorization (VEU) at Export Administration Regulations (EAR) § 748.15 to include data centers.

Connected Vehicles Supply Chain

Notice of Proposed Rulemaking (NPRM) would “prohibit transactions involving Vehicle Connectivity System (VCS) hardware and covered software designed, developed, manufactured, or supplied by persons owned by, controlled by, or subject to the jurisdiction or direction of the People’s Republic of China, including the Hong Kong Special Administrative Region (PRC), or the Russian Federation (Russia).”

  • Part of effort to secure the information and communications technology and services supply chain
  • 89 FR 79088, September 26, 2024
  • Press release

Implemented Export Controls (IEC)

At EAR § 740.24 License Exception Implemented Export Controls (IEC) authorizes exports, reexports, and transfers (in-country) of eligible items to, among, or within specified destinations.

Best Practices for Financial Institutions

BIS Issues Guidance to Financial Institutions on Best Practices for Compliance with the Export Administration Regulations

  • Recommendations include due diligence best practices, red flags, and a real-time screening.
  • Press Release, October 9, 2024

Department of Defense

Cybersecurity Maturity Model Certification (CMMC) Program

Under development since 2010, the CMMC Program is intended “to verify contractors have implemented required security measures necessary to safeguard Federal Contract Information (FCI) and Controlled Unclassified Information (CUI).”

  • Tiered model based on the type and sensitivity of relevant information.
  • Levels include self-assessment, third party assessment, and government assessment.
  • Phased implementation, with four phases over three years.
  • 89 FR 83092, October 15, 2024
  • Effective December 16, 2024

Department of the Treasury: OFAC

 Recordkeeping Requirements Extended to Ten Years

 The Department of the Treasury’s Office of Foreign Assets Control (OFAC) has extended recordkeeping requirements for sanctions-related transactions from five years to ten years to match the related statute of limitations.

  • Statute of limitations for civil and criminal violations of the International Emergency Economic Powers Act (IEEPA), and the Trading with the Enemy Act, (TWEA) was extended from five to ten years in April 2024.
  • Includes transactions authorized under general or specific licenses after April 24, 2019
  • Effective March 12, 2025
  • 89 FR 74832, September 13, 2024

Maritime Shipping Industry Sanctions Guidance

OFAC issued scenario-based guidance to the maritime shipping industry.

  • Scenarios identifying new or common fact patterns include deceptive shipping practices, Specially Designated Nationals (SDNs) on trade documentation, obscured or complex ownership structures, and mid-voyage notification of sanctions risk.

Press Release, October 31, 2024

State and Commerce Departments Propose Spacecraft Control Changes

On October 23, 2024, the Department of State, Directorate of Defense Trade Controls (DDTC) and Department of Commerce, Bureau of Industry and Security (BIS) issued a pair of proposed rules (89 FR 84482) and (89 FR 84784) which would revise controls on space-related exports under the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations (EAR).  Generally, the proposed changes are intended to support the U.S. space industrial base consistent with U.S. national security and foreign policy.  Spacecraft used for remote sensing, servicing, and fundamental research are of particular interest.

Proposed ITAR Revisions

The DDTC Proposed Rule would primarily revise US Munitions List (USML) Categories IV and XV.  Any company with USML Category IV or XV products should review the proposed rules carefully.

Proposed changes include:

  • Revised/added definitions
  • Reorganizes parts controlled under USML Categories IV and XV
  • New license exceptions under ITAR § 126.8:
    • Official Space Agency Exemption (for USG space programs, excluding their launch vehicles)
    • Space Activity Exemption (includes limited articles and services, space launch telemetry, on-orbit fundamental research, and services related to on-orbit transmissions)
    • Space Tourism and Research Exemption (certain transfers of manned spacecraft for space tourism or in support of fundamental research)
    • Special Licensing Provision for Defense Articles Incorporated Into Spacecraft Subject to the EAR

USML Category XV controls on spacecraft would exclude certain NASA, remote sensing, Position, Navigation, and Timing (PNT), autonomous collision avoidance-capable, and servicing spacecraft.  New paragraphs control “spacecraft capable of non-cooperative grappling or docking, in-orbit construction of other defense articles, and deploying multiple spacecraft into different orbits.”  Descriptions of various spacecraft systems and components would also be reorganized and revised.

Revisions to USML Category IV were also proposed, including the definitions and control thresholds for:

  • MANPADS (Man-Portable Air-Defense Systems)
  • Anti-tank missiles
  • Rockets
  • Bombs
  • Mines
  • Grenades
  • Loitering munitions
  • Kinetic kill vehicles
  • Post-boost vehicles
  • Hypersonic glide vehicles
  • Re-entry vehicles
  • Launch platforms
  • Rocket, SLV, and missile power plants
  • Non-nuclear warheads for rockets, bombs, and missiles (e.g., explosive, kinetic, EMP, thermobaric, shape charge, and fuel air explosive (FAE))
  • Systems, subsystems, parts, components, accessories, attachments, or associated equipment

Proposed EAR Revisions

The BIS Proposed Rule would make conforming changes to the Commerce Control List (CCL) for items no longer controlled by the USML and create a license exception Commercial Space Activities (CSA).

CCL changes include revisions to descriptions of spacecraft and related systems in Export Control Classification Number (ECCN) 9A515 (Spacecraft and related commodities), a new 9C515 for some spacecraft materials, and revisions to software and technology controls under 9D515 and 9E515.

New license exception under EAR § 740.26 for Commercial Space Activities (CSA), similar to the proposed ITAR exemption, would provide a licensing exception for official space agency programs and space tourism and research.

Comments on both proposed rules will be accepted through November 22, 2024.  The Federal Register Notices (89 FR 84482) and (89 FR 84784) contain additional details on how to submit comments.  Both notices includes summaries of comments provided in response to a pair of 2019 advanced notice of proposed rulemaking and provide additional questions for which comments are specifically requested.  DDTC also requests comments on satellite signature reduction “to facilitate industry efforts to reduce the apparent magnitude, as viewed from Earth, of satellite brightness.”

BIS Rules Effective Immediately

Also on October 23rd, BIS published a final rule (89 FR 84766) and an interim final rule (89 FR 84770), both effective the same day, remove license requirements for Australia, Canada, and the United Kingdom and reduce licensing requirements over 40 countries.

The first removes controls on some spacecraft and related items when exported or reexported to Australia, Canada, and the United Kingdom.  Following the BIS AUKUS rule in April, 9×515 spacecraft and related items that involved remote sensing or space-based logistics, assembly, or servicing still required licenses to all destinations worldwide pursuant to § 742.6(a)(9).  This requirement is now removed.

The second removes license requirements for certain spacecraft components to over 40 countries, reduces license requirements for less sensitive components to most destinations, and broadens license exception GOV to support NASA cooperative programs.

The main revisions include:

  • Changing controls on 9A515.x from NS1 and RS1 to NS2 and RS2
  • Adding items to 9A515.y
  • Adding software and technology exclusion for standards-related activity
  • Changes to 9A004

Comments on the interim final rule will be accepted through November 22, 2024 (see the FRN for details).

New DDTC Rules: AUKUS Exemption, Defense Services Proposal, and Non-Exports

State/DDTC Enacts AUKUS Exemption   

On August 20, 2024, the Department of State, Directorate of Defense Trade Controls (DDTC) issued an interim final rule (89 FR 67270) creating a new International Traffic in Arms Regulations (ITAR) license exception to support the AUKUS (Australia, the United Kingdom, and the United States) Trilateral Security Partnership.  This follows the proposed rule issued in May.  The new exemption, located at ITAR § 126.7, will be effective September 1, 2024.

The new exemption includes four main elements:

  1. Creates an exemption to the requirement to obtain a license or other approval from DDTC prior to any export, reexport, retransfer, or temporary import of defense articles, the performance of defense services, or engaging in brokering activities… between or among authorized users… within Australia, the United Kingdom, and the United States” (new § 126.7, previously reserved);
  2. Includes a “list of defense articles and defense services excluded from eligibility for transfer under the proposed new exemption” (affects multiple USML categories, identified in Supplement No. 2 to Part 126);
  3. Expands the 126.18 exemptions regarding intra-company, intra-organization, and intra-governmental transfers to employees who are dual nationals or third-country nationals to allow for the transfer of classified defense articles to certain dual nationals who are authorized users or regular employees of an authorized user within the United Kingdom and Australia” (new § 126.18(e)); and
  4. Revises the section on expediting license review applications by referencing new processes for Australia, the United Kingdom, and Canada. (126.15).

The exemption is limited to authorized users and with an excluded list of articles and defense services, which is a similar approach to the existing Canadian Exemption (§ 126.6) as well as the Australia and UK Defense Trade Cooperation Treaty exemptions (§ 126.16 and § 126.17).  The proposed exemption does not amend the treaty exemptions, but is intended to be broader in scope and easier to use.

A list of “authorized users” in Australia and the United Kingdom will be available in DDTC’s DECCS.  Authorized users will be approved by their respective governments.

Transfer values must also be less than the § 123.15 Congressional Notification thresholds and may not involve the manufacturing abroad of significant military equipment (also for Congressional Notification reasons).

The interim final rule includes various changes from the proposed rule, including the removal of a requirement to obtain nontransfer and use assurances (Form DSP-83) for significant military equipment (SME), as these will be covered through the “authorized user” process.  The Excluded Technologies List was also significantly revised.

The interim final rule includes a request for comments, which will be accepted through November 18, 2024.  The Federal Register Notice contains additional details on how to submit comments.  Summaries and responses to previous public comments are also included.

The State Department posted a fact sheet on the new exemption.  DDTC also posted a fact sheet and FAQs on their website.

This exemption follows the Department of Commerce, Bureau of Industry and Security (BIS) which issued an interim final rule on April 19, 2024 implementing changes to the to the Export Administration Regulations (EAR).

State/DDTC Proposes Revision to Defense Services

On August 15, 2024, DDTC issued a proposed rule (89 FR 60980) which would revise the ITAR definition of defense services and related controls.  It would revise the existing definition of defense services found at ITAR § 120.32 and USML Category IX (Military Training Equipment and Training).

As proposed, the definition would read as follows:

§ 120.32 Defense service.

(a) Defense service means:

(1) The furnishing of assistance, including training or consulting, to foreign persons in the development (including, e.g., design), production (including, e.g., engineering and manufacture), assembly, testing, repair, maintenance, modification, disabling, degradation, destruction, operation, processing, use, or demilitarization of a defense article; or

(2) The furnishing of assistance, including training or consulting, to foreign persons, regardless of whether a defense article is involved, as described in USML Category IX(s)(2) or (3) in § 121.1 of this subchapter.

Note to paragraph (a):

For military training previously described in this paragraph, see paragraph (a)(1) and USML Category IX(s)(2) and (3).

Compared to the current § 120.32, the proposed rule would add “consulting” as a type of assistance and “disabling” and “degradation” to the list of services.  The new USML Category IX(s) defense services would be:

(s) Defense Services, as follows:
(1) [Reserved]
(2) Assistance, including training or consulting, to a foreign government, unit, or force, or their proxy or agent, that creates, supports, or improves intelligence activities, including through planning, conducting, leading, providing analysis for, participating in, evaluating, or otherwise consulting on such activities, for compensation, except for the following types of assistance:

(i) Furnishing of medical, translation, financial, insurance, legal, scheduling, or administrative services, or acting as a common carrier;

(ii) Participation as a member of a regular military force of a foreign nation by a U.S. person who has been drafted into such a force (see also § 124.2(b) of this subchapter);

(iii) Training and advice that is entirely composed of general scientific, mathematical, or engineering principles commonly taught in schools, colleges, and universities;

(iv) Information technology services that support ordinary business activities not specific to a particular business sector;

(v) Any lawfully authorized investigative, protective, or intelligence activity of a law enforcement or intelligence agency of the United States or of a territory, possession, State, or District of the United States, including political subdivisions thereof; or

(vi) Maintenance or repair of a commodity or software.

(3) Assistance, including training or consulting, to a foreign government, unit, or force, or their proxy or agent, that creates, supports, or improves the following, other than as specified in paragraph (s)(3)(iv) of this category:

(i) The organization or formation of military or paramilitary forces; (ii) Military or paramilitary operations, by planning, leading, or evaluating such operations; or

(iii) Military or paramilitary capabilities through advice or training, including formal or informal instruction.

(iv) Assistance in paragraphs (s)(3)(i) through (iii) of this category does not include:

(A) Furnishing of medical, translation, financial, insurance, legal, scheduling, or administrative services, or acting as a common carrier;

(B) Participation as a member of a regular military force of a foreign nation by a U.S. person who has been drafted into such a force (see also § 124.2(b) of this subchapter); or

(C) Training and advice that is entirely composed of general scientific, mathematical, or engineering principles commonly taught in schools, colleges, and universities.

Comments will be accepted through September 27, 2024.  The Federal Register Notice contains additional details on how to submit comments.

The proposed rule is intended to complement recent Export Administration Regulations (EAR) controls over U.S. person activities related to foreign military, security, and intelligence services.  These controls have also seen recent proposals to expand controls in 89 FR 60985 and 89 FR 60998 (comments for both accepted through September 27, 2024).

State/DDTC Addresses Sovereign Deployments and Previously Imported Foreign Defense Articles        

On August 15, 2024, DDTC issued a final rule (89 FR 66210) amending the ITAR definition of activities that are not exports, reexports, retransfers, or temporary imports.  The new rule, initially proposed in December 2023, will be effective September 16, 2024.  These changes largely formalize longstanding policy.

The new rule adds two paragraphs to ITAR § 120.54 (Activities that are not exports, reexports, retransfers, or temporary imports):

1. Sovereign deployments:

(a)(6) The taking of a defense article subject to the reexport or retransfer requirements of this subchapter on a deployment or training exercise outside a previously approved country, provided:

(i) There is no change in end-use or end-user with respect to the defense article;

(ii) The defense article is transported by and remains in the possession of the previously authorized armed forces of a foreign government or United Nations military personnel; and

(iii) The defense article is not being exported from or temporarily imported into the United States;

2. Foreign defense articles:

(a)(7) The transfer of a foreign defense article previously imported into the United States that has since been exported from the United States pursuant to a license or other approval under this subchapter, provided:

(i) The foreign defense article was not modified, enhanced, upgraded, or otherwise altered or improved in a manner that changed the basic performance of the item prior to its return to the country from which it was imported or a third country;

(ii) A U.S.-origin defense article was not incorporated into the foreign defense article; and

(iii) The defense article is not being exported from or temporarily imported into the United States.

Paragraph (a)(6) is meant “to clarify long-standing policy regarding reexports and retransfers outside of the United States of properly authorized defense articles previously exported from the United States and in the possession of the armed forces of a foreign government or United Nations military personnel.”

Paragraph (a)(7) is meant to eliminate “the need to submit reexport and retransfer requests for activities that are routinely approved and to provide clarity regarding subsequent control of unmodified foreign-origin defense articles that have been subject to ITAR control while in the United States.”

As the explanation within the rule states:

Like foreign persons who generally become subject to U.S. laws and regulations when they enter the United States, foreign defense articles that enter the United States generally become subject to U.S. laws and regulations, including the ITAR, while in the United States. However, U.S. laws and regulations generally do not govern the activities of foreign persons abroad. Similarly, foreign defense articles that leave the United States are no longer subject to the ITAR under the circumstances described in paragraph (a)(7).

The Federal Register Notice includes the new text and responses to comments from the proposed rule.

Commerce Updates: Firearms, Countries, and Turkey Antiboycott Advisory

BIS Revises Firearms License Requirements

On April 30, 2024, the Department of Commerce, Bureau of Industry and Security (BIS) issued an interim final (89 FR 34680) making to the Export Administration Regulations (EAR) to revise firearms license requirements. 

Overall, the new rule makes the following changes:

  • Identifies semi-automatic firearms under new Export Control Classification Numbers (ECCNs);
    • ECCN 0A506 controls semi-automatic rifles
    • ECCN 0A507 controls semi-automatic pistols
    • ECCN 0A508 controls semi-automatic shotguns, and
    • ECCN 0A509 controls certain “parts,” “components,” devices, “accessories,” and “attachments” for items controlled under ECCNs 0A506, 0A507, and 0A508.
  • Adds additional license requirements for Crime Control and Detection (CC) items, thereby resulting in additional restrictions on the availability of license exceptions for most destinations;
  • Amends license review policies so that they are more explicit as to the nature of review that will accompany different types of transactions and license exception availability (including adding a new list of high-risk destinations);
  • Updates and expands requirements for support documentation submitted with license applications; and
  • Better accounts for the import documentation requirements of other countries (such as an import certificate or other permit prior to importation) when firearms and related items are authorized under a BIS license exception.

Effective July 1, 2024, BIS also revoked “existing licenses for the export and reexport of firearms and related items to non-government end users in destinations identified in supplement no. 3 to part 742 ” and modified other licenses to expire on May 30, 2025.

The new Supplement No. 3 to part 742 (High-Risk Destinations for Firearms and Related Items) includes:

  • The Bahamas
  • Bangladesh
  • Belize
  • Bolivia
  • Burkina Faso
  • Burundi
  • Chad
  • Colombia
  • Dominican Republic
  • Ecuador
  • El Salvador
  • Guatemala
  • Guyana
  • Honduras
  • Indonesia
  • Jamaica
  • Kazakhstan
  • Kyrgyzstan
  • Laos
  • Malaysia
  • Mali
  • Mozambique
  • Nepal
  • Niger
  • Nigeria
  • Pakistan,
  • Panama
  • Papua New Guinea
  • Paraguay
  • Peru
  • Suriname
  • Tajikistan
  • Trinidad and Tobago
  • Uganda
  • Vietnam
  • Yemen

Complete details can be found in the Federal Register Notice.  Comments were accepted through July 1, 2024.

BIS Updates Country Information

On May 10, 2024, BIS issued a final rule (89 FR 40369) updating country names, license requirements, and Country Group D:5 as follows:

  • Updates country names of Swaziland (now Eswatini), Macedonia (The Former Yugoslav Republic of) (now North Macedonia), and Turkey (now Türkiye).
  • Corrects license requirements for Australia and the United Kingdom following the publication of the BIS AUKUS rule and the firearms rule (above).
  • Updates Country Group D:5 to remove Cyprus (currently annually suspended as a member of the ITAR § 126.1 prohibited destination list) and finally add Russia (added to §126.1 in 2021).  Of note, when there is a discrepancy between Country Group D:5 and ITAR § 126.1, § 126.1 controls.  Additional changes were made to remove redundant references to Russia.       

BIS Issues Turkey Antiboycott Advisory

On May 14, 2024, BIS issued a press release following the Turkish government’s recent announcement that it will suspend all exports and imports to and from Israel.  The press release reminds U.S. persons that “taking certain actions in furtherance or support of an unsanctioned foreign boycott maintained by a country against a country friendly to the United States and require reporting of receipt of a boycott-related request to BIS.”  In particular, U.S. companies operating in Turkey should be aware of potential boycott requests originating in that country.  Examples of recent boycott requests are posted on the BIS website.

Prohibited actions and reporting requirements are defined in EAR Part 760.  More information is also available from the BIS Office of Antiboycott Compliance (OAC).  The U.S. Department of the Treasury administers additional restrictions.

Following Commerce/BIS, State/DDTC Proposes AUKUS Exemption! 

On May 1, 2024, the Department of State, Directorate of Defense Trade Controls (DDTC) issued a proposed rule (89 FR 35028) to create a new license exception to support the AUKUS (Australia, the United Kingdom, and the United States) Trilateral Security Partnership.

The proposed exemption includes four main elements:

  1. Creates “an exemption to the requirement to obtain a license or other approval from the Department’s Directorate of Defense Trade Controls (DDTC) prior to any export, reexport, retransfer, or temporary import of defense articles; the performance of defense services; or engagement in brokering activities between or among authorized users within Australia, the United Kingdom, and the United States” (new § 126.7, currently reserved);

  2. Includes a “list of defense articles and defense services excluded from eligibility for transfer under the proposed new exemption” (affects multiple USML categories);
  3. Expands “the scope of the exemption for intra-company, intra-organization, and intra-governmental transfers to allow for the transfer of classified defense articles to certain dual nationals who are authorized users or regular employees of an authorized user within the United Kingdom and Australia” (new § 126.18(e)); and

  4. Revises “the section on expediting license review applications by referencing new processes for Australia, the United Kingdom, and Canada” (126.15).

The exemption is limited to authorized users and with an excluded list of articles and defense services, which is a similar approach to the existing Canadian Exemption (§ 126.6) as well as the Australia and UK Defense Trade Cooperation Treaty exemptions (§ 126.16 and § 126.17).  The proposed exemption does not amend the treaty exemptions, but is intended to be broader in scope and easier to use.

Unlike the Department of Commerce, Bureau of Industry and Security (BIS) which issued an interim final rule implementing changes to the to the Export Administration Regulations (EAR), this is only a proposed rule and will require a subsequently published rule to make any new exemption effective.  That rule is expected sometime after review of comments is complete.

Comments will be accepted through May 31, 2024.  The Federal Register Notice contains additional details on how to submit comments.  Industry organizations are also collecting input for group comments.

BIS Announces AUKUS Exemption, DDTC Proposes Fee Increase

BIS Announces AUKUS Exemption

On April 19, 2024, the Department of Commerce, Bureau of Industry and Security (BIS) issued an interim final (89 FR 28594) making to the Export Administration Regulations (EAR) to support the AUKUS (Australia, the United Kingdom, and the United States) Trilateral Security Partnership. 

In order to streamline defense trade among the three countries, license requirements were removed for exports, reexports, and transfers (in-country) of items controlled by:

  • National Security Column 1 (NS1)
  • Regional Stability Column 1 (RS1)
  • Missile Technology Column 1 (MT1)

As a result, the following items no longer require a license for Australia or the UK:

  • “600 series” items;
  • Items controlled under the EAR for missile technology reasons (MTCR Annex);
  • 9×515 satellite-related items, except for those items requiring a license to all destinations worldwide pursuant to § 742.6(a)(9);
  • 0A919 items to Australia and the UK;
  • Certain cameras, systems, or related components for military end-use and end-users; and
  • Significant Items (SI) ( i.e., hot section technology for the development, production or overhaul of commercial aircraft engines, components, and systems) controlled under ECCN 9E003.a.1 through a.6, a.8, .h, .i, and .l.

Of note:

Under the EAR, firearms-related items and other CC controlled items in ECCNs 0A501 (except 0A501.y), 0A502, 0A503, 0A504, 0A505. a, .b, and .x, 0A981, 0A982, 0A983, 0D501, 0D505, 0E501, 0E502, 0E504, 0E505, and 0E982 will continue to require a license when destined to and among the UK and Australia.

This is implemented through a note in the Commerce Country Chart.  Items controlled for Chemical and biological weapons purposes (CB Column 1) also remain controlled for Australia or the UK.  Canada’s treatment is similar, with controls only for CB Column 1 and firearms convention (FC1).

Other minor revisions are made throughout the EAR to implement the policy changes.

The changes were effective on the date of publication, April 19th.  The Commerce Department also published a press release on the changes.  Comments will be accepted through June 3, 2024.  The Federal Register Notice contains additional details on how to submit comments.  In particular, comments are requested on the impacts of these changes, additional changes to enhance defense industrial base cooperation and technology innovation, and the potential impact of removing encryption items (EI) licensing requirements for Australia and the UK.

These changes to the EAR also acknowledge that Australia and the UK are included in the National Technology and Industrial Base (NTIB).  Canada and New Zealand are also included in the NTIB.  EAR treatment of Australia and the UK now aligns with previous treatment of Canada.

The Department of State, Directorate of Defense Trade Controls (DDTC) has not yet made any changes to the International Traffic in Arms Regulations (ITAR), but Australia and the UK do have existing Defense Trade Cooperation Treaty exemptions under § 126.16 and § 126.17 respectively.  DDTC is expected to expand on these exemptions, but not as broadly as the new BIS rule.

DDTC Proposes Fee Increase

On April 24, 2024, the Department of State, Directorate of Defense Trade Controls (DDTC) issued a proposed rule (89 FR 31119) to amend the International Traffic in Arms Regulations (ITAR) to increase and specify registration fees.

As proposed the new fee structure would be as follows:

  • Tier 1: $3000
    • New registrants and registrants with no authorization approvals
    • Increase from $2250
  • Tier 2: $4000
    • Registrants with five or fewer approvals
    • Increase from $2750
    • Previous threshold was ten approvals
  • Tier 3: $4000 + $1100 for each approval after the first five
    • Registrants with more than five approvals
    • Increase from $2750 + $250 for each approval after the first ten

Brokering registration fees remain tied to Tier 1, regardless of the number of brokering authorizations submitted or approved.  No additional fee is required for brokers already registered as manufacturers or exporters.  An existing discount for non-profit organizations will also remain available.

According to DDTC, the proposed fee increases are intended to reflect inflation since the last fee increase, increased technological improvements, and improved services, as well as support continued and modernized DDTC operations.

The proposed rule also includes minor changes regarding registration requirements in ITAR § 122.1 through § 122.3.                                 

Comments will be accepted through June 10, 2024.  The Federal Register Notice contains additional details on how to submit comments.

USML Capacitor Controls Revised

On March 25, 2024, DDTC published a new rule (89 FR 20546) to amend the ITAR to remove U.S. Munitions List (USML) Category XI(c)(5) controls on certain high-energy storage capacitors.  The rule changes the technical thresholds for USML control and adds an explanatory note defining the relevant terms (e.g., “rated voltage).  The rule took effect April 24, 2024.

New Export Restrictions for Nicaragua: § 126.1 Prohibited Destination and EAR Military End User Rule Now Apply!

Nicaragua Added to ITAR §126.1 Prohibited Destinations

On March 15, 2024, the Department of State, Directorate of Defense Trade Controls (DDTC) issued a new rule (89 FR 18796) that adds Nicaragua to the International Traffic in Arms Regulations (ITAR) § 126.1 list of prohibited destinations.

The primary rationales of the new listing are based on human rights concerns and security cooperation with Russia.  Nicaragua is now listed in § 126.1(p) with case-by-case exceptions related to “non-lethal military equipment intended solely for humanitarian assistance, to include natural disaster relief.”

While the main effect of this change will be that defense articles may no longer be exported or reexported to or imported from Nicaragua, 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 to individuals and companies as well as for actual sales and exports. For example, information on the equipment’s performance characteristics, price, and probable availability for delivery would be a proposal or presentation requiring a license or other approval.
  • 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.” Failure to provide a full disclosure within a reasonable time may result in a decision by State/DTCC to not consider the notification as a mitigating factor in determining the appropriate disposition of the violation.
  • 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 Nicaragua.
  • Brokering: Note Part 129 for additional restrictions.

The listing was effective on the date of publication, March 15th.  The State Department also published a press release on the new restrictions.

Nicaragua Faces New EAR Restrictions

Also on March 15, the Department of Commerce, Bureau of Industry and Security (BIS) issued a new rule (89 FR 18780) 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. Country Group D:1 (National Security concern) (removal from Country Group B makes certain license exceptions unavailable and foreign direct product rules now apply);
  2. 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);
  3. Countries subject to military end use and end user controls in § 744.21; and
  4. Countries subject to a U.S. arms embargo under Country Group D:5.

Seven Countries Now Subject to MEU Rule

Nicaragua joins Belarus, Burma, Cambodia, China, Russia, and Venezuela as subject to the military end use and end user controls.  Although no entity in Nicaragua 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 seven 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.’”

Export Regulatory and Policy Update Roundup: Winter 2024

Since our last update, more U.S. Government actions have taken place that may affect your business’s export compliance efforts.  Ranging from a five-agency “know your cargo” advisory to revisions of the Commerce Control List (CCL) and inflation adjustments for export-related penalties, we have the highlights below.

Multi-Agency Actions

Know Your Cargo Advisory

  • Departments of Justice, Commerce, Homeland Security, State and Treasury issue an advisory highlighting common tactics deployed by malign actors in the maritime and other transportation industries as well as recent enforcement actions taken in response to alleged violations.
  • Summarizes recent compliance actions, including criminal prosecutions and civil enforcement actions.
  • Relevant items range from shipping red flags to compliance best practices.
  • The Department of Commerce indicated it anticipates updating freight forwarder guidance in the near future.
  • Department of Justice, December 11, 2023.

Department of State: DDTC / ITAR

Russia Business Advisory

  • Bureau of European and Eurasian Affairs publishes “Risks and Considerations for Doing Business in the Russian Federation and Russia-Occupied Territories of Ukraine”
  • Details legal, financial, and reputational risks of doing business in the Russian Federation and in Russian-occupied territories of Ukraine.
  • Highlights existing sanctions, export controls, import prohibitions, money laundering and corruption concerns, human rights, etc.
  • Russia remains an ITAR prohibited destination under § 126.1(l).
  • Public Release, February 23, 2024.

Department of Commerce: BIS / EAR & CCL

BIS Proposes Updates to License Exception Strategic Trade Authorization (STA)

  • Proposed changes intended to encourage additional use of License Exception STA.
  • 88 FR 85734, December 8, 2023.

Commerce to Reestablish President’s Export Council Subcommittee on Export Administration (PECSEA)

  • The PECSEA will advise the Secretary of Commerce or the Secretary’s designee on matters pertinent to the Export Control Reform Act of 2018 (ECRA), the International Emergency Economic Powers Act (IEEPA), and other relevant laws and regulations administered by the Bureau of Industry and Security (BIS).
  • 89 FR 1064, January 9, 2024.

Commerce Control List: Revisions to Australia Group and Crime Control and Detection Controls

  • Removes Proliferation of Chemical and Biological Weapons (CB) controls on specified pathogens and toxins destined for Australia Group member countries.
  • Affects ECCNs 1C351, 1C353, 1C354, 1E001, and 1E351.
  • Removes Crime Control and Detection (CC) controls on such items destined for Austria, Finland, Ireland, Liechtenstein, South Korea, Sweden, and Switzerland.
  • 88 FR 85479, December 8, 2023.

Commerce Control List: MTCR Amendments

  • EAR amended to reflect changes to the Missile Technology Control Regime (MTCR) Annex that were agreed to by MTCR member countries at the Technical Experts Meetings in 2018, 2019, and 2021.
  • Expands eligibility for the use of license exceptions for MT-controlled items.
  • Affects ECCNs 1C111, 2A101, 2B119, 6A107, 9A101, 9E515
  • 88 FR 85487, December 8, 2023.

Commerce Control List: License Requirements for Certain Cameras, Systems, or Related Components

  • New ECCN 6A293 controls certain cameras not already controlled under ECCNs 6A003 or 6A203.
  • Revises related control and review policies.
  • 89 FR 13590, February 23, 2024

BIS Publishes “Export Enforcement: 2023 Year in Review”

  • Summarizes export enforcement efforts in 2023, including the “Disruptive Technology Strike Force,” related penalties and charges, voluntary self-disclosure (VSD) policy, end-use checks, guidance, and more.
  • Click here for the BIS release.

2024 Inflation Adjustments for Commerce, State, and OFAC Penalties

Department of State

  • § 127.10(a)(1)(i) change from $1,200,000 to $1,238,892 (or the amount that is twice the value of the transaction that is the basis of the violation, whichever is greater)
  • § 127.10(a)(1)(ii) increase from $996,685 to $1,028,998 (or five times the amount of the prohibited payment, whichever is greater)
  • § 127.10(a)(1)(iii) increase from $1,186,338 to $1,224,787.
  • 89 FR 700, January 5, 2024

Department of Commerce

  • International Emergency Economic Powers Act (2007) increase from $356,579 to $368,136
  • Export Controls Act of 2018 (2018) increase from $353,534 to $364,992
  • 88 FR 89300, December 27, 2023

Office of Foreign Assets Control (OFAC)

  • Trading With the Enemy Act increase from $105,083 to $108,489
  • International Emergency Economic Powers Act (2007) increase from $356,579 to $368,136
  • 89 FR 2139, January 12, 2024

As always, if you need more information or assistance in any of these areas, ECS is here to help!

Export Regulatory and Policy Update Roundup: Fall 2023

Since our last update, more export control actions have taken place that may affect your business.  Ranging from country-specific business advisories to a new ITAR Consent Agreement to major changes to BIS semiconductor controls, we have the highlights below.

Multi-Agency Actions

Advisory to Industry on Iran Ballistic Missile Procurement

  • Departments of Justice, Commerce, State and Treasury (OFAC) issue advisory describing key items sought by Iranian ballistic missile programs, relevant controls and sanctions, and ongoing enforcement efforts.
  • Relevant items include production and testing equipment, goods and materials for production, electronics, and guidance, navigation, and control equipment.
  • Department of Justice, October 18, 2023.

Department of State: DDTC / ITAR

South Sudan Business Advisory

  • Risks and Considerations for U.S. Businesses and Individuals Operating in South Sudan
  • Includes areas of risk, particularly related to corruption and human rights concerns.
  • South Sudan remains an ITAR prohibited destination under 126.1(w).
  • Press Release, August 14, 2023.

Island Pyrochemical Consent Agreement

  • Island Pyrochemical Industries Corp. settled allegations that it violated the International Traffic in Arms Regulations (ITAR) in connection with unauthorized brokering involving a corporation from the People’s Republic of China, a proscribed country and false statements on license applications.
  • Violations relate to brokering of Chinese-origin ammonium perchlorate (APC), controlled under USML Category V(d)(2) between 2015 and 2016.
  • Three-year Consent Agreement provides for a Special Compliance Officer, implementation of compliance measures, an automated export compliance system, at least one external audit, and a civil penalty of $850,000 (half suspended for compliance measures).
  • DDTC Penalties & Oversight Agreements, August 25, 2023

Cyprus Continues to be Removed From § 126.1

  • Republic of Cyprus’ status as a proscribed destination is suspended from October 1, 2023, through September 30, 2024
  • 88 FR 63016, September 14, 2023.

DDTC Issues ITAR Compliance Risk Matrix

  • Identifies areas of risk for business activities, organization, and compliance programs.
  • Includes supplement for universities.
  • September 15, 2023 on DDTC website

Department of Commerce: BIS / EAR & CCL

Commerce Control List: Updates Based on the Latest Nuclear Suppliers Group (NSG) Plenary Meetings

  • Revises ECCNs 1B229 (removed), 1B231, 2B209, 2B228, and 3A233.
  • 88 FR 56462, August 18, 2023.

Implementation of 2022 Wassenaar Arrangement Decisions and Request for Comments on License Exception Eligibility for Certain Supersonic Aero Gas Turbine Engine Component Technology

  • Interim Final Rule revises controls on multiple items and requests comments on restricting eligibility for License Exception STA for technology for the development of supersonic aero gas turbine engine components under 9E003.k (formerly 9E001).
  • Revisions 14 ECCNs, with editorial revisions to technical notes in 55 ECCNs.
  • 88 FR 71932, October 18, 2023.
  • Comments accepted through December 4, 2023.

Firearms Pause & Review

  • BIS announces 90 day pause on firearms export licenses to non-governmental users.
  • Intended to assess current firearm export control policies, particularly with regard to regional stability, human rights, and crime concerns.
  • Applies to ECCNs 0A501, 0A502, 0A504, and 0A505 to non-governmental end users.
  • Applies worldwide except end users located in Ukraine, Israel, or a country in Country Group A:1.
    • Country Group A:1 includes 40 Wassenaar Arrangement Participating States (excluding Malta, Russia, and Ukraine), and largely overlaps with other NATO+ lists.
  • Previously approved licenses are not affected. New applications may continue to be submitted, but will be Held Without Action (HWA).
  • BIS memo October 27, 2023.

BIS Expands Semiconductor Controls

  • BIS has released multiple updates to export controls on advanced computing and semiconductor manufacturing items to the People’s Republic of China.
  • Advanced Computing Chips Rule (AC/S IFR)
    • Adjusts parameters that determine whether an advanced computing chip requires a license.
    • Imposes new measures to address risks of circumvention – applies to companies and subsidiaries worldwide, if headquartered in Macau or destinations subject to U.S. arms embargo.
    • 88 FR 73458, October 25, 2023 (effective November 17, 2023). Comments will be accepted through December 18, 2023.
  • Expansion of Export Controls on Semiconductor Manufacturing Items Interim Final Rule (SME IFR)
    • Imposes controls on additional types of semiconductor manufacturing equipment.
    • Codifies U.S. person restrictions previously provided as guidance.
    • Expands license requirements to countries for which the U.S. maintains an arms embargoes (Country Group D:5 or ITAR 126.1).
    • 88 FR 73424, October 25, 2023 (effective November 17, 2023). Comments will be accepted through December 18, 2023.
  • Addition to the Entity List of 13 entities involved in the development of advanced computing chips (88 FR 71991).
  • For additional background, see:

As always, if you need more information or assistance in any of these areas, ECS is here to help!

State Department Compliance Guidelines Part 2 of 2: Training, Risk Assessment, Audits & Compliance Monitoring, and the ITAR Compliance Manual

In our last newsletter, we reviewed the first four elements of the U.S. Department of State’s Directorate of Defense Trade Controls December 2022 Compliance Program Guidelines.  These Guidelines are intended to provide an overview of an effective ITAR Compliance Program (ICP) and an introduction to defense trade controls.

The Guidelines are divided into eight sections:

  1. Management Commitment
  2. DDTC Registration, Jurisdiction & Classification, Authorizations, & Other ITAR Activities
  3. Recordkeeping
  4. Detecting, Reporting, & Disclosing Violations
  5. ITAR Training
  6. Risk Assessment
  7. Audits & Compliance Monitoring
  8. ITAR Compliance Manual

This article will focus on the last four sections: ITAR Training, Risk Assessment, Audits & Compliance Monitoring, and the ITAR Compliance Manual.

This guidance is not an official part of the International Traffic in Arms Regulations.  Instead, serves as a way for the Directorate of Defense Trade Controls (DDTC) to express their expectations for export compliance.  DDTC also understands that different companies have unique levels of ITAR activity and may need different approaches.

ITAR Training

An ITAR training program must be “tailored, dynamic, up-to-date, and adequately resourced.”  A tailored ITAR training program is designed to reflect the organization’s type of ITAR work, its relationship with any parent companies, subsidiaries, or affiliates, the nature of its customers and other business partners, the geographic region in which it operates, and the duties and responsibilities of the personnel being trained.  A dynamic and up-to-date training program is reviewed regularly to reflect any changes to the organization as well as changes in the ITAR or other DDTC guidance.  Significant updates should also be shared with personnel in between training sessions.  ITAR violations and even avoided violations may provide valuable training opportunities.  An adequately resourced training program is needed to make sure that all employees get the appropriate level and frequency of training.

The guidelines suggest a four-tiered training program based on employee responsibilities:

  • First Tier: General ITAR Training for All Personnel
  • Second Tier: Senior Management
  • Third Tier: Positions with Export Functions
  • Fourth Tier: Export Compliance Team

Details of what should be provided in each tier are included in the guidance.  Training may be conducted by internal experts or external service providers.  Internal trainers must be able to maintain subject matter expertise in the ITAR, DDTC guidance, and industry best practices.  In order to maintain this expertise, internal trainers will need a higher level of external training.  ECS offers many options for training which can be customized to organizations and categories of employees, from general awareness to train-the-trainer.

Risk Assessment

As DDTC states, “Risk assessments in the defense trade controls context are evaluations of the potential compliance risks that are specific to each organization and that, if left unaddressed, may lead to ITAR violations.”  The risk assessment process reviews many areas of business activity in order to find potential compliance risks.  As important as the risk assessment itself, the risks identified need to be prioritized and mitigated once identified.  Notable risk areas include:

  • Jurisdiction & classification
  • Authorization management
  • Foreign person employees or visitors
  • Vetting of parties and verification of end users
  • License exemptions
  • International travel
  • Facility visits
  • Inventory management

A risk assessment may be conducted by a company’s internal audit function or an external service provider.  ECS provides both risk assessment and audit services.

Audits & Compliance Monitoring

A compliance audit is more in-depth than a risk assessment and may include interviews with personnel in multiple roles, document review, evaluation of IT systems, and site visits.  A sample audit checklist is provided in the guidance.  As with risk assessments, an audit may be conducted by a company’s internal audit function or an external service provider.  Different types of audits include functional-level and program-level, depending on the focus of the audit.  Audits should be periodic, depending on the company’s level of risk, but may be needed in merger and acquisition transactions as part of the due diligence process.  Findings may lead to voluntary disclosures as well as compliance improvements.

Ongoing compliance monitoring essentially means that any organization should be ready to adjust its compliance program based on to the ITAR or DDTC guidance as well as industry best practices and lessons learned from others’ violations.  Changes to the organization’s business and risk factors are also important considerations.

ITAR Compliance Manual

The ITAR compliance manual should provide a written, authoritative source of the organization’s ITAR compliance policies and procedures, as well as employee compliance responsibilities.  It should address all of the main points of the compliance guidelines, starting with management commitment, be readily available to all employees, and identify key ITAR compliance points of contact.  It may also provide copies of the organization’s compliance templates, forms, and checklists.  A well-written manual can be a valuable reference and should continue to be updated based on changes to the ITAR, DDTC guidance, best practices, and company experience (to include risk assessments, audits, violations, and disclosures).

Additional detail on these elements, each being crucial to the success of your export compliance program, is available in the Guidelines themselves.  As always, if you need help with meeting, understanding, or tailoring any export compliance obligations, ECS is here to help!