A new strike force is out, and it’s not a movie or video game (sorry Marvel fans). On February 16, 2023, the United States Department of Justice (“DOJ”) and Department Commerce launched the Disruptive Technology Strike Force (a.k.a. “DIS-TECH Strike Force”). DOJ’s National Security Division and Commerce’s Bureau of Industry and Security (“BIS”) are leading the effort—in coordination with several other agencies—to target actors involved in the illegal acquisition and export of advanced U.S. technologies for use by nation-state adversaries. Who are such adversaries? And what are the relevant export controls? Read on.
The related press release underscores that “[w]hen acquired by nation-state adversaries such as the People’s Republic of China (“PRC”), Iran, Russia, and North Korea, advanced technologies can be used in new or novel ways to enhance their military capabilities or support mass surveillance programs that enable human rights abuses.” Examples of such technologies include those related to supercomputing and exascale computing, artificial intelligence, advanced manufacturing equipment and materials, quantum computing, and biosciences. Although they have important commercial uses, the press release cautions that these technologies “…can threaten U.S. national security when used by adversaries for disruptive purposes, such as improving calculations in weapons design and testing; improving the speed and accuracy of military or intelligence decision-making; and breaking or developing unbreakable encryption algorithms that protect sensitive communications and classified information.”
In short, BIS and DOJ are doubling down on enforcing U.S. export controls related to the acquisition of controlled advanced U.S. technology by the noted nation-states, which are already subject to comprehensive embargo and other strict control measures under BIS’s Export Administration Regulations (“EAR”), 15 C.F.R. parts 730-774. Specifically, the EAR’s Embargoes and Other Special Controls in Part 746 include extensive export controls that are specific to Russia, Iran, North Korea, and other adversarial states (e.g., Cuba and Syria). In addition, the EAR’s End-User and End-Use Based controls in Part 744 have been significantly expanded upon in the last few years to counter and target actors furthering the PRC’s “Military-Civil Fusion” strategy.
Relevant Export Controls Authorities
BIS maintains regulatory jurisdiction over any item (commodities, software, and technology) subject to the EAR, which generally includes U.S.-origin items wherever located, and foreign made-items incorporating or otherwise involving certain specified amounts of controlled U.S.-origin items (i.e., the EAR’s applicable De Minimis and the EAR’s Foreign-Produced Direct Product (“FDP”) Rules). A majority of items subject to the EAR are classified as “EAR99” (i.e, low-technology consumer goods), and do not require a license for their export, reexport, or transfer (in-country) unless they are intended for a restricted end-user, end-use, and/or destination. However, items that are of a more dual-use nature (i.e., civil and military-related application, including the advanced technologies detailed above) are likely to be identified on the EAR’s Commerce Control List (“CCL”) with an Export Control Classification Number (“ECCN”), and may require a license for their export, reexport, or transfer (in-country) depending on their corresponding ECCN licensing requirements.
With this brief overview of the EAR’s scope in mind, it is important for businesses engaging in international commerce to consider the broad prohibitions and extensive licensing requirements that are in place for the export/ reexport of items subject to the EAR that involve Russia, North Korea, Iran, the PRC, and potentially other nation-state adversaries of the United States. Note that the licensing requirements summarized below in relation to Parts 746 and/or 744 of the EAR are also in addition to the licensing requirements specified on the CCL and any other applicable provisions of the EAR.
Russia (and Belarus)
The EAR has several unique and extensive controls related to Russia, which are essentially identical for Belarus. First, § 746.8 of the EAR incorporates a license requirement for the export, reexport, or transfer (in-country) to or within either country for any item subject to the EAR and specified in any ECCN on the CCL, as well as for certain items governed by applicable FDP rules. Furthermore, in § 746.5 BIS has imposed a licensing requirement for both countries involving numerous industrial items related to oil and gas that are specified therein, or in supplements nos. 4 or 6 of part 746 of the EAR. In § 746.10, BIS has also imposed a licensing requirement on specified “luxury goods” subject to the EAR for export, reexport, or transfer (in-country) to either country, or involving any Russian or Belarussian person anywhere in the world that is identified on the U.S. Department of the Treasury’s Office of Foreign Assets Control’s (“OFAC”) Specially Designated Nationals and Blocked Persons (“SDN”) List pursuant to certain specified legal authorities.
While certain limited exclusions from the scope of the above licensing requirements exist, license applications are generally subject to a policy of denial, and only a few license exceptions are available. Russia is also subject to various end-user and end-user controls, including military-related, under Part 744 of the EAR. OFAC has also publicized that it will be aggressively using its sanctions authorities to target non-U.S. persons that provide goods, services, or other support for Russia’s military-industrial complex.
North Korea
In § 746.4 of the EAR, BIS imposes a comprehensive embargo on North Korea by requiring a license to export or reexport any item subject to the EAR, including any items classified as EAR99, except food and medicines classified as EAR99, and with only a few available license exceptions.
Iran
In § 746.7 of the EAR, BIS maintains a licensing requirement on numerous listed items (virtually any item with an ECCN)—with limited license exceptions and a general policy of denial—while highlighting OFAC’s comprehensive trade and investment embargo against Iran, as implemented in the Iranian Transactions and Sanctions Regulations (“ITSR”), 31 C.F.R. Part 560. The ITSR includes its own broad prohibitions on the export and reexport of U.S.-origin and certain foreign-made items to Iran.
It is important to underscore here that OFAC and BIS have considerable overlapping jurisdiction on transactions related to the export and reexport of items involving not only Russia, North Korea, and Iran, but also Cuba, Syria, and certain regions of Ukraine that are also subject to embargo controls in Part 746 of the EAR. OFAC’s sanctions programs on these countries/regions are comprehensive in nature—except for Russia that has less restrictive measures in place—prohibiting persons subject to U.S. jurisdiction from engaging in virtually any transactions or dealings with them. In many instances a license may be required from both agencies for transactions involving these destinations, and either or both agencies can respond with an enforcement action for violations of their respective regulations.
China
BIS has taken a more end-user/end-use restriction approach with respect to the PRC (including Hong Kong), with various broad restrictive measures impacting exports, reexport, and transfer (in-country) to or within China implemented in Part 744 of the EAR. For example, numerous Chinese entities have been added to BIS’s Entity List, which generally requires a license even for EAR99 items. In countering China’s military-industrial complex, there are also stringent military end-user and end-use controls in place. Since October 2022, BIS has imposed an effective embargo on items subject to the EAR related to advanced computing integrated circuits, semiconductors, and supercomputers, and involving the PRC or Macau.
Business Compliance Considerations
With BIS and DOJ reinvigorating their enforcement appetite under the DIS-TECH Strike Force, it is important for businesses to reassess their respective export controls-related risk profiles to ensure they have commensurate internal controls in place to prevent violations of the EAR involving their operations. Violations of the Export Control Reform Act of 2018—the statutory basis for the EAR—include a maximum of $353,534 or twice the value of the transaction for civil penalties, while criminal penalties can include up to 20 years of imprisonment and up to $1 million in fines per violation, or both.
In assessing their risks and relevant controls, businesses should determine what touch points their overall operations have with countries/regions that are subject to either comprehensive embargoes (e.g., Iran, North Korea), or otherwise highly restrictive export controls measures under the EAR (e.g., Russia, China). Businesses should also determine what their respective policies are for doing business with such destinations, and implement relevant internal controls to prevent prohibited dealings and/or otherwise monitoring permissible dealings in consideration of established company policy and applicable laws (e.g., restricted party screening, accuracy of ECCN classifications, training on red flags, etc.).
Finally, businesses should be prepared to quickly adjust their operations and compliance program in consideration of the dynamic nature and rapidly changing requirements of U.S. export controls.
The author of this blog post is Kian Meshkat, an attorney specializing in U.S. economic sanctions and export controls matters. If you have any questions please contact him at meshkat@meshkatlaw.com.
