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In another attempt to impose restrictions on Chinese technology companies in the final days of his presidency, on January 5, 2021, Trump issued a new Executive Order (EO) “Addressing the Threat Posed By Applications and Other Software Developed or Controlled By Chinese Companies.”  The EO, which was issued pursuant to the International Emergency Economic Powers Act, authorizes the imposition of restrictions, on or after February 19, 2021, against eight popular Chinese connected software applications.

The new EO declares that “additional steps must be taken to deal with the national emergency with respect to the information and communications technology and services supply chain declared in [EO 13873].”  The new EO alleges that “a number of Chinese connected software applications automatically capture vast amounts of information from millions of users in the United States,” including sensitive “personally identifiable information.”  It cites to “the continuing activity” of China and the Chinese Communist Party “to steal or otherwise obtain United States persons’ data” as “mak[ing] clear that there is an intent to use bulk data collection to advance China’s economic and national security agenda.”  The new EO states that the United States “must take aggressive action against those who develop or control Chinese connected software applications to protect our national security.”…

Continue Reading New Executive Order targets Chinese connected software applications

In the latest shoe to drop in the escalation of tensions between the United States and China, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a final rule on December 23, 2020, removing Hong Kong as a separate destination under the Export Administration Regulations (EAR). Rather than adding Hong Kong alongside the People’s Republic of China to Country Group D in the Commerce Country Chart, BIS eliminated references to it in all but a few sections of the EAR.

The removal of Hong Kong as a separate destination is a further step toward implementation of Executive Order (EO) 13936, signed July 14, 2020. (85 FR 43413, 7/17/2020). Steptoe’s prior analysis of EO 13936 is available here. EO 13936 directed relevant agencies to amend their regulations to remove differential and preferential treatment for exports, reexports, or transfers (in-country) to or within Hong Kong of all items subject to the EAR when compared to the treatment for such transactions to or within China. The final rule codifies the BIS rule issued July 31, 2020, which required that Hong Kong be treated the same as China in almost all circumstances; that is, Hong Kong would be subject to the same license requirements, license exceptions, and other applicable provisions as China under the EAR (85 FR 45998).

Specifically, in this new rule, BIS removes the entry for Hong Kong from the Commerce Country Chart at Supplement No. 1 to Part 738, since Hong Kong is now to be governed by the entry for China. Most references to Hong Kong in Part 740 of the EAR governing license exceptions were previously removed, consistent with the July 31 final rule. The Hong Kong entities listed separately on the Unverified List, Supplement No. 6 to Part 744, are now merged, alphabetically under the entries for China.…

Continue Reading Hong Kong Removed as a Separate Destination from China Under the EAR

On December 23, 2020, the US Department of Commerce, Bureau of Industry and Security (BIS) added its long-anticipated Military End User (MEU) List to the Military End Use/User Rule (MEU Rule) of the Export Administration Regulations (EAR). The initial tranche of parties included on the MEU List consists of 102 “military end users,” comprising 57 Chinese companies and 45 Russian companies. Exporters are now on notice that a license is required for exports, reexports, or transfers of any item subject to the EAR listed in Supplement No. 2 to Part 744 (MEU Item) if any of these newly-listed companies are the purchaser, intermediate or final consignee, or end user. License exceptions are generally not available for exports, reexports, or transfers of MEU Items to a MEU listed entity (unless authorized under License Exception GOV as specified). License applications for MEU Items will be reviewed with a presumption of denial.

The published MEU List is substantially revised from the draft that was previously leaked, and widely publicized a month earlier, which listed 117 companies (89 Chinese companies and 28 Russian companies).

The MEU List was published as part of a new final rule that amended the EAR’s MEU Rule, which requires licenses for shipments of MEU Items to “military end users” or for “military end uses” in China, Russia, or Venezuela. The MEU Rule places the onus on exporters to determine whether a transaction is to a military end user or for a military end use and therefore, requires a license. After the MEU Rule was amended and broadened in April 2020, exporters had requested further guidance from BIS to assist with determinations as to whether specific shipments would require licenses under the MEU Rule.  BIS subsequently published FAQs that provided some additional guidance.  The MEU List provides further guidance and clarification to exporters, by informing and providing notice to the public when an entity is considered by the US government to be a “military end user” for purposes of the MEU Rule.…

Continue Reading Bureau of Industry and Security Issues New Military End User List

In this advisory, members of our Sanctions and Export Control team provide a preliminary assessment of the expected policy approach of President-elect Biden’s administration to major US sanctions programs, including China and Hong Kong, Russia, Iran, Cuba, Venezuela, Syria, North Korea, and Sudan sanctions programs.

While specific steps to be taken will be revealed in…

On September 10, 2020, Judge John Bates of the DC District Court issued a memorandum opinion dismissing a lawsuit against the US Department of Commerce filed by a US-based carrier in June 2019 in response to the Bureau of Industry and Security’s (BIS) decision to add a major Chinese telecommunications manufacturer and numerous affiliates to the Entity List in May 2019. The carrier argued that the BIS rule infringed on its due process rights because the carrier could be held strictly liable for violations of the Export Administration Regulations (“EAR”) caused by its customers. It also argued that BIS exceeded its authority under the Export Control Reform Act of 2018 (“ECRA”).

The Decision

Under the EAR, carriers and other intermediaries can be held liable for facilitating violations of their customers. For example, a carrier that transports US-origin goods to a person on the Entity List who is not licensed to receive those goods could violate the EAR in addition to the sender who initiated the shipment. The carrier in this case had argued that it could not know the contents of every package it transported and that holding it strictly liable for its customers’ violations would not advance US national security or foreign policy goals. It also challenged the rationality of imposing strict liability on common carriers while holding customers liable only if they “knowingly” engage in a prohibited shipment.

The carrier argued that the EAR’s strict liability standard would require the company either to cease all business operations that create a reasonable risk of violating the EAR (e.g., shipping packages to persons on the Entity List) or to “proceed with its business operations and face a substantial risk that it will violate the EAR and suffer harm.”…

Continue Reading Shipping Carrier Sent Packing as Court Rejects Challenge to New US Export Controls Rules

On August 27, 2020, the US Department of Defense (“DoD”) published a second tranche to its list of “Communist Chinese military companies,” pursuant to Section 1237 of the of the National Defense Authorization Act for Fiscal Year 1999 (the “DoD List”).

The announcement follows the DoD’s June 24, 2020, publication of a letter to Senator Tom Cotton enclosing a list of twenty companies headquartered in the People’s Republic of China (“PRC”) which DoD determined are operating directly or indirectly in the United States and are “Communist Chinese military companies.”

(Click here for Steptoe’s blog post following the June 24, 2020 publication of the DoD letter.)…

Continue Reading Update: US Department of Defense Publishes Update to List of “Communist Chinese Military Companies”

The US Department of Commerce’s Bureau of Industry and Security (“BIS”) has issued new FAQs on its website addressing the new military end use / military end user rule (“MEU Rule”) and the expansion of the MEU controls for China, Russia, and Venezuela. For a summary of the MEU rule changes, please see our prior blog post detailing the changes to Section 744.21 and other related provisions in the Export Administration Regulations (“EAR”).

There are 32 FAQs, which provide a summary of the new MEU Rule, guidance on specific scenarios, and interpretations of the key terms, including, “military end use” and “military end user.” Below we discuss a few of the key points from the BIS FAQs regarding military end users, military end uses, and due diligence.…

Continue Reading BIS Issues New FAQs Regarding the Expansion of the Military End Use / Military End User Rule

On June 24, 2020, the US Department of Defense (“DoD”) sent a letter to Senator Tom Cotton enclosing a list of twenty companies headquartered in the People’s Republic of China (“PRC”) which DoD determined are operating directly or indirectly in the United States and are “Communist Chinese military companies.”  Titled “Qualifying Entities Prepared in Response to Section 1237 of the National Defense Authorization Act for Fiscal Year 1999 (PUBLIC LAW 105-261),” the “DoD List” includes some Chinese companies frequently associated with the Chinese military, and others that may not have been previously associated with the Chinese military.

For companies doing business with the US government, the US government may consider the inclusion of any of the listed companies in a government contractor’s supply chain as a “supply chain risk” that must be assessed, particularly in connection with information technology.  DoD contractors are already prohibited by their contracts from acquiring certain items and services from “any Communist Chinese military company.”

While not a sanctions list itself, the DoD List may lead to sanctions actions by the US government, as well as reactions from business partners assessing the risk of further action against the listed companies by the US government, particularly for listed companies that are not currently subject to US sanctions.  Pressure from Congress may continue for the administration to continue to update this list, and to impose restrictions on the companies on this list.…

Continue Reading US Department of Defense Publishes List of “Communist Chinese Military Companies” Operating Directly or Indirectly in United States Pursuant to Section 1237 of the National Defense Authorization Act for Fiscal Year 1999 (the “Act”)

On June 11, 2020, the President issued a new Executive Order, “Blocking Property of Certain Persons Associated with the International Criminal Court” (the “ICC EO”).  The ICC EO authorizes economic sanctions and travel restrictions on persons who are engaged in efforts by the ICC to investigate and prosecute U.S. and allied personnel for alleged war crimes.

The President issued the ICC EO pursuant to the International Emergency Economic Powers Act (IEEPA) in response to the ICC’s “assertions of jurisdiction over personnel of the United States and certain of its allies, including the ICC Prosecutor’s investigation into actions allegedly committed by United States military, intelligence, and other personnel in or relating to Afghanistan.” In invoking IEEPA, the President declared that “any attempt by the ICC to investigate, arrest, detain, or prosecute any United States personnel without the consent of the United States, or of personnel of countries that are United States allies and who are not parties to the Rome Statute or have not otherwise consented to ICC jurisdiction, constitutes an unusual and extraordinary threat to the national security and foreign policy of the United States.”

Although the ICC EO does not immediately impose restrictions on any ICC personnel or supporter, the ICC EO authorizes the imposition of sanctions and travel prohibitions in several circumstances.…

Continue Reading New Executive Order Authorizing Sanctions against International Criminal Court (“ICC”) Officials

On May 19, the US Department of Commerce’s Bureau of Industry and Security (BIS) published a new interim final rule, retroactively effective on May 15, amending the Foreign-Produced Direct Product Rule (FPDP) under the US Export Administration Regulations (EAR). The new rule expands the jurisdictional scope of the EAR and restricts the non-US supply…