News & Noteworthy

[Note: this post was initially published in early 2017.]

“Quotation marks” are often misused. We have all read passages or seen “signs” where someone “clearly” didn’t realize what they were conveying with the “quotation marks.”

 
This may cross your mind when reading the Export Administration Regulations (EAR) since there are many “words” in quotation marks which seemingly have no business being quoted. But you would be wrong. The use of quotations is deliberate and important, indicating that the quoted word or phrase should be reviewed under Section 772.1 – Definitions of terms as used in the EAR. Some are close to the definitions we typically associate with these words while others aren’t nearly as clear.

It is fitting that the first should be last. The long-awaited revisions of USML Categories I, II, and III are now imminent and will bring the Export Control Reform (ECR) initiative, which began under the Obama Administration, very close to completion.

As compliance experts will remember, the ECR initiative began in 2010 to streamline the USML by tightening its definitions and relaxing controls on less-lethal items. The plan was to transfer select items to the CCL where the manufacturers would benefit from less onerous regulations, but the government would still retain significant, but nuanced, controls to ensure that export policy objectives were attained. The objectives were seen as win-win-win: that is: 1) a  USML list of fewer items and reduced licensing burden for DDTC, 2) lower costs and more nuanced licensing requirements for exporters, and 3) retention of  controls for items transferred  to the EAR with identified targeted purposes, notably national security, nonproliferation, anti-terrorism, human rights or other foreign policy purposes.

Last week the Treasury Department’s Office of Foreign Assets Control (OFAC) announced that it had reached an agreement with Apple, Inc., to resolve apparent violations of the Foreign Narcotics Kingpin Sanctions Regulations (“FNKSR”). Apple allegedly violated the FNKSR by hosting, selling, and facilitating the transfer of software applications developed by SIS, d.o.o. (“SIS”), a Slovenian software company. While the $470,000 settlement is the equivalent of a rounding error for the trillion-dollar company, the interesting part of the settlement agreement was the level of detail regarding Apple’s sanctions screening missteps and their resulting commitments to improve. The settlement highlights the importance of detailed screening procedures for the use of sanctions screening software and adequate employee training to resolve potential red flags.

By popular demand, here is the fourth and final installment in our “technology” series. This time we focus on the EAR’s license exceptions related to controlled “technology:” Technology and Software under Restriction (TSR) and Technology and Software—Unrestricted (TSU). Note: This condensed blog post is not a substitute for consulting the actual text of the EAR to determine whether you can use one of these license exceptions.

Before we dive in, let’s have a quick summary of topics covered in this series:

• In Part I, we explored the concept of controlled technology.
• In Part II, we examined the three different types of technology (“development,” “production,” and “use”) and how they are applied in practice.
• In Part III, we explained what it means when an ECCN controls technology that is “required” for the development, production, or use of an item on the Commerce Control List (CCL).

Compliance is a constant challenge. Once you have invested the time and money to develop or update an Export Compliance Program (ECP)—complete with commodity classification, comprehensive policies, effective procedures, and tailored training—you must persistently guard your system against the potential damage of external and internal transitions. To understand these risks, let’s look at the differences.