On July 25, 2024, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) published two (2) new rules in the Federal Register that significantly expand the scope of existing “U.S. Person” prohibitions currently in existence under the Export Administration Regulations (“EAR”) to encompass support activities that relate to both newly defined “foreign-security” end users as well as certain redefined “military” end users. The rules—introduced by BIS to implement the provisions of the National Defense Authorization Act (“NDAA”) for Fiscal Year 2023—are the latest in a series of efforts taken by BIS to curb the ability of foreign adversaries to rely on U.S. Person support in the context of transactions that involve the acquisition of both EAR and non-EAR controlled (foreign origin) commodities.
Under the proposed “foreign-security end user” rule, BIS would move to require a license for any exports, re-exports, and transfers (in-country) of any items subject to the EAR that are actually enumerated on the Commerce Control List (“CCL”) when such those items are destined for “foreign-security end users.” The rule explicitly defines “foreign-security end user” as governmental and other entities with the authority to “arrest, detain, monitor, search, or use force in furtherance of their official duties,” as well as “other persons or entities” performing similar functions, including, but not limited to, “analytic and data centers, forensic laboratories, jails, prisons, other detention facilities, labor camps, and reeducation facilities” as well as any parties designated by BIS with a “footnote 8” entry on the Entity List. While applications to export, re-export, and transfer commodities to such end users will be evaluated “on a case-by-case basis,” BIS reserves the right to apply a license review policy with a presumption of denial for transactions that pose an “unacceptable risk of use in human rights violations or abuses.” Notably, however, the definition of “foreign-security end user” proposed by BIS explicitly excludes “civilian emergency medical, firefighting, and search-and-rescue end users.” In situations where a country maintains an integrated public safety department that couples security services with the provision of emergency medical and search-and-rescue services, BIS will seek to ensure that export activities involving items needed to “protect lives” is not unduly disrupted.
The foreign-security end user rule further amends Section 744.6 of the EAR to prohibit “U.S. Persons” from providing any “support” to entities bearing a “footnote 8” designation when that support involves the provision of foreign origin commodities. The term “support” specifically includes: (1) shipping or transmitting from one foreign country to another any item not subject to the EAR that the person “knows” will be used by a footnote 8 designated entity; (2) transferring (in-country) any item not subject to the EAR that the person likewise “knows” will be used by such an end user; (3) facilitating any such shipments, transmissions, or transfers; and (4) providing any contract, service, or employment that the person “knows” will assist or benefit a foreign-security end user. To the extent a “U.S. Person” seeks to engage in these activities, the new rule requires that a license be obtained from BIS, which will be reviewed consistent with the policy governing the export of EAR-controlled commodities.
Under proposed revisions to the existing “military end user” rule, BIS intends to adopt changes that significantly expand the scope of current prohibitions by—inter alia— amending the definition of “military end user” to include “any person or entity performing the functions of a ‘military end user,’ including mercenaries, paramilitary, or irregular forces.” As BIS itself notes, this change is primarily intended to capture “private companies, non-state actors and parastatal entities” that engage in combat or other activities typically performed by conventional military forces. In connection with this change, BIS further proposes to revise the general prohibition applicable to military end users to impose a license requirement on the export, re-export, and in-country transfer of all items subject to the EAR, as opposed to the narrower subset of commodities currently referenced in Supplement No. 2 to Part 744. Consequently, a license will soon be required for engaging in any export-related activity involving an item subject to the EAR when: (1) the person has specific “knowledge” that end use will occur in, or the product of the military end use is destined for, Macau or a Group D:5 country; or (2) the transaction involves a military end user, wherever located, of Macau or a Group D:5 country. License applications submitted by persons to engage in these activities will be reviewed by BIS under a presumption of denial with respect to Burma, China, Cuba, Iran, Macau, Nicaragua, North Korea, Syria, and Venezuela, and under a policy of denial with respect to Russia and Belarus. For all other jurisdictions, license applications will be reviewed on a “case-by-case” basis.
As is the case with the previously mentioned “foreign security end user” rule, the proposed changes to the current iteration of the “military end user” rule are likewise supplemented by additional proscriptions governing the activities of “U.S. Persons” as well. Pursuant to these modifications, “U.S. Persons” are prohibited from engaging in “support” for: (1) the design, development, production, operation, etc. of a whole plant to make chemical weapons precursors identified in ECCN 1C350 in or by countries other than those listed in Country Group A:3; (2) military end users in or from a destination specified in Country Group D:5 or Macau (designated by a footnote 3 or 5 entry on the Entity List) and military support end users (designated by a footnote 6 entry on the Entity List); (3) certain “military production” activities, when the activity occurs in, or the product of such activity is destined for, Macau or Country Group D:5; and (4) newly defined “intelligence end users,” wherever located, from a destination specified in Country Group D or E (but not also listed in Country Group A:5 or A:6). Significantly, however, the new rule now excludes from control a subset of commercial support activities related to the movement of goods by common carriers to permit continued “U.S. Person” involvement in the transportation, shipping, and or/transfer of items not subject to the EAR when the person lacks specific knowledge that the items will be used to support otherwise prohibited end-users and end uses. According to BIS, this exclusion is intended to “ensure that the EAR’s ‘U.S. Person’ ‘support’ controls do not adversely impact the basic business operations of shipping lines and air carriers”—organizations that are not typically involved in the underlying sale of the commodities under shipment.
Comments concerning both proposed rule revisions must be submitted to BIS by interested parties no later than September 27, 2024.
