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BIS Requests Comments from Information and Communications Technology (ICT) and Semiconductor Supply Chains on Supply Chain Vulnerabilities

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BIS Requests Comments from Information and Communications Technology (ICT) and Semiconductor Supply Chains on Supply Chain Vulnerabilities

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The Department of Commerce’s (“Commerce”) Bureau of Industry & Security (“BIS”) recently issued requests for comment on risks to the information communications and technology (“ICT”) and semiconductor supply chains. These comments are being requested as part of the U.S. government’s broader review of supply chain vulnerabilities.

ICT Supply Chain Request for Comment:

Executive Order 14017 (“EO 14017”) requires Commerce and the Department of Homeland Security (“DHS”) to issue a report on supply chains for critical sectors and subsectors of the ICT industrial base. The recent Federal Register notice, published on September 20, 2021, describes the ICT industrial basis as: (a) hardware that enables terrestrial distribution, broadcast/wireless transport, satellite support, data storage to include data center and cloud technologies, and end user devices including home devices such as routers, antennae, and receivers, and mobile devices; (b) critical software; and (c) services that have direct dependencies on one or more of the enabling hardware. BIS seeks comments on eleven (11) topics, which are described in further detail in the notice and which we summarize below:

-“Critical goods and materials,” as defined in EO 14017, Section 6(b);

-“Other essential goods and materials,” as defined in EO 14017, Section 6(d);

-Manufacturing, or other capabilities necessary to produce or supply “critical goods and materials” and “other essential goods and materials”;

-Supply chain disruption and compromise threats such as cyber, health, climate, environmental, geopolitical, forced-labor, and other risks;

-Resilience and capacity of domestic ICT supply chains to support domestic requirements as described in EO 14017, such as national, economic, and information security;

-Allies’ and partners’ actions on ICT supply chains;

-Primary causes of risks for any vulnerable aspects of the ICT supply chain;

-Prioritization of “critical goods and materials” and “other essential goods and materials” to identify options and policy recommendations;

-Specific policy recommendations for ensuring a resilient ICT supply chain;

-Executive, legislative, regulatory, and policy changes needed to strengthen domestic ICT supply chain manufacturing and prevent supply chain disruption and compromise; and

-Suggested improvements to the government-wide effort to strengthen supply chains.

Comments on the ICT supply chain are due by November 4, 2021.

Semiconductor Supply Chain Request for Comment:

On September 24, 2021, BIS published a Federal Register notice which requests comments from interested parties, especially domestic and foreign semiconductor designers, manufacturers, material/equipment suppliers, as well as intermediate and end-users. Any interested party may submit comments, however. The BIS notice includes a questionnaire for semiconductor designers, manufacturers, and microelectronic assemblers, and their suppliers and distributors, as well as a questionnaire for intermediate and end-users of semiconductor products or integrated circuits. The questions mainly cover the production process and focus on disruptions to the semiconductor and integrated circuit inventories of intermediate and end-users. Interested parties should note before filing comments at regulations.gov that BIS requires commenters fill out an Excel spreadsheet form posted on BIS’ website to be completed and filed along with the comments. Comments on the semiconductor supply chain (including a completed form) are due by November 8, 2021.

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Cortney O’Toole Morgan is a Washington D.C.-based partner with the law firm Husch Blackwell LLP. She leads the firm’s International Trade & Supply Chain group.

Grant Leach is an Omaha-based partner with the law firm Husch Blackwell LLP focusing on international trade, export controls, trade sanctions and anti-corruption compliance.

Tony Busch is an attorney in Husch Blackwell LLP’s Washington, D.C. office.

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U.S. Government Imposes Sanctions and Issues Joint OFAC/BIS Telecommunications Fact Sheet to Support Cuban Protests

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During the past month, the U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”) has issued three separate rounds of Specially Designated Nationals & Blocked Persons List (“SDN List”) designations in order to support protests in Cuba that began on July 11th. Further, OFAC and the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) issued a joint fact sheet describing existing OFAC general licenses (“GLs”) and BIS license exceptions that facilitate certain telecommunications equipment, software, and services exports to Cuba without prior approval by the U.S. government.

SDN Designations

Using its authority under the Global Magnitsky Act, OFAC added a total of five Cuban government officials and three Cuban government entities to the SDN List on July 22nd, July 30th, and August 13th. All property and interests in property of these SDNs that are or come within the U.S. or the possession or control of U.S. persons are blocked as of the below effective dates, and U.S. persons are generally prohibited from engaging in transactions involving such SDNs unless authorized by OFAC.

Entities:

-Brigada Especial Nacional del Ministerio del Interior (“SNB”) – Also known as the Boinas Negras or Black Berets, the SNB is a special forces unit under the Cuban Ministry of the Interior – Blocked July 22, 2021

-Policia Nacional Revolucionaria (“PNR”) – A police unit under the Cuban Ministry of the Interior – Blocked July 30, 2021

-Tropas de Prevencion (“TDP”) – Also known as the Boinas Rojas or Red Berets, the TDP is a military police unit of Cuba’s Revolutionary Armed Forces, which is commanded by Cuba’s Ministry of Revolutionary Armed Forces – Blocked August 13, 2021

Individuals:

-Lopez Miera, Alvaro – Minister of the Revolutionary Armed Forces of Cuba – Blocked July 22, 2021

-Callejas Valcarce, Oscar Alejandro – Director of the PNR – Blocked July 30, 2021

-Sierra Arias, Eddy Manuel – Deputy Director of the PNR – Blocked July 30, 2021

-Martinez Fernandez, Pedro Orlando – Chief of the Political Directorate of the PNR – Blocked August 13, 2021

-Sotomayor Garcia, Romarico Vidal – Chief of the Political Directorate of the Cuban Ministry of the Interior – Blocked August 13, 2021

OFAC’s “50% Ownership Rule” will also extend these blocking sanctions to any entities owned 50 percent or more, individually or in the aggregate, directly or indirectly, by one or more of these newly designated SDNs.

Joint Fact Sheet: “Supporting the Cuban People’s Right to Seek, Receive, and Impart Information through Safe and Secure Access to the Internet”

Cuba remains comprehensively sanctioned by the U.S. government and most transactions between the U.S. and Cuba remain prohibited. However, in a jointly issued fact sheet dated August 11th, 2021, OFAC and BIS outlined existing OFAC GLs and BIS license exceptions available to exporters of telecommunications equipment, software, and services to Cuba under the Cuba Assets Control Regulations (31 CFR § 515.101, et seq., the “CACR”) and the Export Administration Regulations (15 CFR § 730.1, et seq., the “EAR”). The fact sheet serves as a reminder that despite the embargo on Cuba, there are certain avenues for trade that the U.S. government allows without any prior review, so long as there is strict adherence to the CACR and the EAR.  OFAC GLs highlighted by the fact sheet include:

-Exportation or reexportation of services incident to the exchange of communications over the internet, and installation, repair, or replacement services for certain described items. See CACR §§ 515.578, 515.533.

-Exportation or reexportation of telecommunications-related services and related payments. See CACR § 515.542.

-Transactions necessary to maintain a physical presence undertaken by various enumerated types of organizations such as news bureaus, educational organizations, religious organizations, humanitarian organizations, telecommunications services providers, and internet-based services providers. See CACR § 515.573.

-Provision of internet-based distance learning. See CACR § 515.565.

-Exportation or reexportation of information and informational materials (including of a commercial nature) so long as certain requirements are met. See CACR §§ 515.206(a), 515.545.

BIS license exceptions highlighted by the fact sheet include:

-Consumer Communications Devices (“CCD”). Authorizing the export and reexport of certain items such as mobile phones and modems to individuals and independent non-governmental organizations in Cuba. See EAR § 740.19.

-Items in Support of the Cuban People (“SCP”). Authorizing the export and reexport of certain EAR99-designated items and of certain telecommunications infrastructure items. See EAR § 740.21.

Each of the above OFAC GLs and BIS license exceptions impose specific limitations, terms and conditions which must be complied with carefully. None of the above GLs or license exceptions would authorize a transaction involving an SDN or an entity controlled 50 percent or more by SDNs— specific licenses would be required under such circumstances. Additionally, depending on the specific facts and circumstances of a given activity, many of the above-listed OFAC GLs will prohibit direct financial transactions between persons subject to U.S. jurisdiction and persons listed on the U.S. State Department’s Cuba Restricted List.

The fact sheet also indicated that OFAC and BIS will provide favorable licensing treatment for activities benefiting the free flow of information to and from Cuba that are not otherwise authorized under the above-described OFAC GL’s and BIS license exceptions.  For OFAC’s licensing policy, the fact sheet states that “For prohibited transactions not otherwise authorized by OFAC general licenses, OFAC considers specific license requests on a case-by-case basis and will prioritize license applications, compliance questions, and other requests that may concern internet freedom in Cuba . . . OFAC has a favorable licensing posture towards specific license requests involving transactions that are ordinarily incident and necessary to ensure that the Cuban people have safe and secure access to the free flow of information on the internet.” Likewise, for BIS’s licensing policy, the fact sheet states that “A general policy of approval applies to [BIS] license applications for telecommunications items and internet-related items intended to improve communications to, from, and among the Cuban people (emphasis supplied).”

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Cortney O’Toole Morgan is a Washington D.C.-based partner with the law firm Husch Blackwell. She leads the firm’s International Trade & Supply Chain group.

Grant Leach is an Omaha-based partner with the law firm Husch Blackwell focusing on international trade, export controls, trade sanctions and anti-corruption compliance.

Tony Busch is an attorney in Husch Blackwell’s Washington, D.C. office.

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New Executive Order Authorizes Imposition of Additional Sanctions on the Government of Belarus and Certain Sectors of the Belarusian Economy

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On August 9, 2021, President Biden issued Executive Order 14038 (the “EO”) which expanded the scope of the national emergency previously declared in EO 13405 of June 16, 2006. The EO imposes additional sanctions in response to conduct by the Government of Belarus (“GoB”) and the President Alyaksandr Lukashenka regime which the Biden Administration described as “long-standing abuses aimed at suppressing democracy and the exercise of human rights and fundamental freedoms.” As specific examples, the EO cites the “fraudulent” August 9, 2020 election administered by the GoB, in which Lukashenka was reelected, and the GoB’s forced grounding of an international flight to arrest Belarusian journalist Raman Pratasevich and his partner Sofia Sapega.

Among other things, the EO gives the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) the discretionary authority, in consultation with the U.S. Secretary of State, to impose blocking sanctions on GoB agencies, GoB leaders and officials, and individuals and companies operating in the defense and related materiel, security, energy, potassium chloride (potash), tobacco products, construction or transportation sectors of the Belarusian economy. The EO also authorizes OFAC to sanction individuals and entities “responsible for or complicit in” activities such as “actions or policies that threaten the peace, security, stability, or territorial integrity of Belarus,” suppression of human rights and freedom of the press, electoral fraud, deceptive transactions, and public corruption.

OFAC immediately used its authority under the EO in order to add multiple persons and entities to its Specially Designated Nationals & Blocked Persons List (“SDN List”). Those added to the SDN List under the EO include:

-BelKazTrans and Closed Joint-Stock Company New Oil Company, who were sanctioned for operating in the energy sector of the Belarusian economy;

-Inter Tobacco, Energo-Oil and Grodno Tobacco Factory Neman, who were sanctioned for operating in the tobacco product sector of the Belarusian economy;

-Cyprus-based Dana Holdings Limited, who was sanctioned for operating in the construction sector of the Belarusian economy; and

-Belaruskali OAO, who was sanctioned for being owned by the GoB and for operating in the potassium chloride (potash) sector of the Belarusian economy.

The U.S. Treasury Department published a separate press release which identifies all of the SDNs designated by OFAC under the EO. As a result of these designations, all property and interests in property of these SDNs that are or come within the U.S. or the possession or control of U.S. persons are blocked, and U.S. persons are generally prohibited from engaging in transactions involving such SDNs unless authorized by OFAC. OFAC’s “50% Ownership Rule” will also extend these blocking sanctions to any entities owned 50 percent or more, individually or in the aggregate, directly or indirectly, by one or more of these newly designated SDNs. Additionally, the EO gives OFAC the authority to impose blocking sanctions on any non-U.S. persons who provide material assistance to any SDN designated pursuant to the EO.

For Belaruskali OAO, OFAC issued General License 4, which authorizes the wind down of transactions involving Belaruskali OAO, or any entity owned 50% or more by Belaruskali OAO, through 12:01 a.m. eastern standard time on December 8, 2021. OFAC issued FAQ 918 to provide additional information regarding General License 4.

OFAC also issued FAQ 917 which clarifies the scope of the EO’s sector-based sanctions as follows:

The identification of a sector pursuant to E.O. of August 9, 2021 provides notice that persons operating in the identified sector risk exposure to sanctions; however, the identification of a sector does not automatically block all persons operating in that sector of the Belarus economy. Only persons designated on OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List), and entities owned 50 percent or more, individually or in the aggregate, directly or indirectly, by one or more such persons, are subject to blocking sanctions.

As a result, the EO does not automatically sanction persons operating in the identified sectors of the Belarusian economy, but it does provide OFAC with the authority to impose blocking sanctions on such persons at any time.

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Cortney O’Toole Morgan is a Washington D.C.-based partner with the law firm Husch Blackwell. She leads the firm’s International Trade & Supply Chain group.

Grant Leach is an Omaha-based partner with the law firm Husch Blackwell focusing on international trade, export controls, trade sanctions and anti-corruption compliance.

Tony Busch is an attorney in Husch Blackwell’s Washington, D.C. office.

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US Government Adds 4 Military-Connected Entities in Burma to Entity List and Sanctions 22 Burmese Individuals

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As part of the U.S. Government’s ongoing response to the military coup in Burma (Myanmar), the Department of Commerce’s Bureau of Industry and Security (“BIS”) added four entities to the Entity List effective July 6, 2021 and the Department of Treasury’s Office of Foreign Assets Control (“OFAC”) added twenty-two individuals to the Specially Designated Nationals & Blocked Persons List (“SDN List”) effective July 2, 2021.

Commerce Secretary Gina M. Raimondo noted that the four entities include a satellite communications services provider to the Burmese military and three entities that have revenue-sharing agreements with Myanmar Economic Holdings Limited (“MEHL”), an entity that generates revenue for the Burmese military and which was previously added to the Entity List. As a result of the additions, licenses are required for exports, reexports, and in-country transfers of all items “subject to the EAR” to the four entities and BIS will employ a presumption of denial license review policy. The entities are:

-King Royal Technologies Co., Ltd.;

-Myanmar Wanbao Mining Copper, Ltd.;

-Myanmar Yang Tse Copper, Ltd.; and

-Wanbao Mining, Ltd.

The twenty-two individuals added to the SDN List under Executive Order 14014 include two members of the State Administrative Council currently participating in governance of Burma and the Ministers of Information; Investment and Foreign Economic Relations; Labor, Immigration, and Population; and Social Welfare, Relief, and Resettlement. Fifteen of the twenty-two added to the SDN List were added because of being either spouses or adult children of persons on the SDN List.

As a result of the SDN designations, all property and interests in property of these persons in the US or controlled by US persons must be blocked and reported to OFAC. US persons are prohibited from sending or receiving any provision of funds, goods, or services to/from these newly designated SDNs. According to OFAC’s “50% Ownership Rule,” these sanctions also extend to any subsidiaries in which these SDNs directly or indirectly hold, either individually or in the aggregate with other SDNs, an ownership interest of 50% or more.

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Cortney O’Toole Morgan is a Washington D.C.-based partner with the law firm Husch Blackwell LLP. She leads the firm’s International Trade & Supply Chain group.

Grant Leach is an Omaha-based partner with the law firm Husch Blackwell LLP focusing on international trade, export controls, trade sanctions and anti-corruption compliance.

Tony Busch is an attorney in Husch Blackwell LLP’s Washington, D.C. office.

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U.S. Adds Chinese Entities to BIS Entity List and Updates Xinjiang Supply Chain Business Advisory

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Earlier this month, the US Government updated its ongoing response to what the Department of Commerce (“Commerce”) described as “Beijing’s campaign of repression, mass detention, and high-technology surveillance against Uyghurs, Kazakhs, and members of other Muslim minority groups in the Xinjiang Uyghur Autonomous Regions of China (“XUAR”), where the [People’s Republic of China] continues to commit genocide and crimes against humanity.”

Commerce’s Bureau of Industry and Security (“BIS”) added twenty-four (24) China-based entities to the Entity List on July 12th, thereby prohibiting the export, re-export, or in-country transfer of commodities, software, and technology subject to the Export Administration Regulations (“EAR”) to those entities without a license. Then, on July 13th, a group of agencies including Commerce, the Office of the U.S. Trade Representative (“USTR”), and the Departments of Homeland Security, Labor, State, and Treasury updated its Xinjiang Supply Chain Business Advisory (the “Advisory”) to highlight the increasing legal and reputational risks to companies who maintain supply chains with links to Xinjiang.

BIS specifically linked fourteen (14) of the twenty-four (24) total China-based entity designations to their connection to the ongoing repression of Muslim minority groups in Xinjiang. In addition to companies within China, foreign affiliates of Suzhou Keda Technology Co., Ltd. in the Netherlands, Pakistan, Singapore, South Korea, and Turkey, as well as the foreign affiliate of China Academy of Electronics and Information Technology in the United Kingdom, were also targeted.

These worldwide additions confirm the importance of screening both customers and supply chain participants wherever they are located. The July 12 BIS Entity List additions also included thirteen (13)  Entity List designations of companies and persons located in China and Russia as a result of their use of items for military programs or transfer to sanctioned Office of Foreign Assets Control (“OFAC”) Specially Designated Nationals (“SDNs”). BIS also added one (1) Russian company to the Military End User (“MEU”) list, which restricts the export or reexports of certain items to companies meeting the definition of an MEU.

Besides direct services to prison camps and authorities in Xinjiang, the inter-agency Advisory highlights activities that carry a heightened risk of a nexus to the intrusive surveillance system implemented by China in Xinjiang, which include:

-Venture capital investment in Chinese companies contributing to surveillance in Xinjiang;

-Selling items such as cameras, tracking technology, and biometric devices into China;

-Certain research joint ventures and research partnerships in surveillance-related areas with Chinese firms;

-Exporting, reexporting, or transferring (in-country) EAR-regulated items to companies on the Entity List;

-Trading in the securities of certain Chinese firms listed on the Non-Specially Designated Nationals Chinese Military-Industrial Complex Companies List (“NS-CMIC List”).

The Advisory puts the industry on notice that rigorous due diligence is necessary to mitigate risks in the areas of anti-money laundering (“AML”), potential surveillance assistance, forced labor use by customers or supply chain participants, and the provision of construction materials to Xinjiang authorities, and that the US government will use all agencies, laws, and federal contract clauses available to it to hold companies accountable. The European Union also released its own “Guidance on Due Diligence for EU Businesses to Address the Risk of Forced Labour in Their Operations and Supply Chains” on July 12th.

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Cortney O’Toole Morgan is a Washington D.C.-based partner with the law firm Husch Blackwell LLP. She leads the firm’s International Trade & Supply Chain group.

Grant Leach is an Omaha-based partner with the law firm Husch Blackwell LLP focusing on international trade, export controls, trade sanctions and anti-corruption compliance.

Tony Busch is an attorney in Husch Blackwell LLP’s Washington, D.C. office.

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BIS Implements New Burma Export Controls and Adds Four Entities to the Entity List

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The U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) issued final rules amending the Export Administration Regulations (“EAR”) by implementing new export controls on Burma (Myanmar), and adding four entities linked to the recent coup to the Entity List. These final rules effective March 8, 2021 come less than a month after President Biden imposed sanctions blocking U.S. property and interests of Burmese military and government officials.

Burma Removed from Country Group B with Significant Repercussions

As of March 8, Burma is now in the more highly controlled Country Group D:1 (it was previously in Country Group B). Because of Burma’s move to Country Group D:1, transactions involving Burma are no longer eligible for the following License Exceptions under the EAR:

-Shipments of Limited Value (“LVS”);

-Shipments to Group B Countries (“GBS”); and

-Technology and Software under Restriction (“TSR”).

Additionally, the move to Country Group D:1 limits the availability of the following EAR License Exceptions for transactions involving Burma:

-Temporary Imports, Exports, Reexports, and Transfers (in-country) (“TMP”);

-Servicing and Replacement Parts and Equipment (“RPL”);

-Aircraft, Vessels, and Spacecraft (“AVS”);

-Additional Permissive Reexports (“APR”);

-Encryption Commodities, Technology, and Software (“ENC”); and

-Computers (“APP”)

–(APP was suspended for use to Burma along with LVS, GBS, and TSR effective February 17, 2021, but with the March 8 final rule APP is now available again on a limited basis with Burma now placed in Computer Tier 3.)

Burma’s new Country Group D:1 status will also impose new restrictions on exports, reexports and in-country transfers to Burma involving microprocessors under EAR Section 744.17, export activities to certain foreign vessels and aircraft under EAR Section 744.7, and reexports to Burma of foreign-produced direct products of certain U.S.-origin technology and software under EAR Section 736.2.

MEU and National Security Restrictions Now Apply

Burma joins China, Russia, and Venezuela as one of four countries subject to BIS “military end-use” and “military end user” restrictions. Exports, reexports, and transfers (in-country) of specific items listed in Supplement No. 2 to 15 CFR Part 744 to Burma with “knowledge” that the items are intended for a “military end-use” or a “military end-user” will now require licensing from BIS and BIS will evaluate these license applications with a presumption of denial. The EAR’s definitions of “knowledge”, “military end-use” and “military end-user” are all quite broad and as a result, these new rules could potentially capture a large amount of transactions.

Additionally, items that are “subject to the EAR” and controlled for national security (NS) reasons will continue to require BIS licensing when exported, reexported or transferred (in-country) to Burma. However, BIS will now add an additional layer of review when reviewing those applications in order to determine whether the transactions present a risk of diversion to a “military end-user” or a “military end-use”.  BIS will then apply a presumption of denial when it evaluates whether the subject transactions would materially contribute to Burma’s ability to develop, produce or operate weapons systems, subsystems and assemblies.

Four Entities Added to BIS Entity List

BIS announced on February 18 that “[e]ffective immediately, BIS will apply a presumption of denial for items subject to the EAR requiring a license for export or reexport when destined to Burma’s Ministry of Defense, Ministry of Home Affairs, armed forces, and security services.”  Most recently, on March 8, BIS added four military or military-linked entities to the Entity List. Licenses are required for exports, reexports, or transfers in-country of all items “subject to the EAR” (including EAR99 items) to entities on the Entity List. The four newly designated entities are:

-Ministry of Defence, a.k.a. Ministry of Defense or MOD;

-Ministry of Home Affairs, a.k.a. MOHA;

-Myanmar Economic Corporation, a.k.a. MEC;

-Myanmar Economic Holdings Limited, a.k.a. MEHL, Myanma Economic Holdings Limited, Myanma Economic Holdings Public Company Limited, Myanmar Business Holdings Public Company Limited, Myanmar Economic Holdings Public Company Limited, UMEH, Union of Myanmar Economic Holdings Company Limited, Union of Myanmar Economic Holdings Limited.

The Federal Register notice clarifies no license exceptions are available for export activities to the four newly designated entities above. Anyone applying to BIS for a license to export to the named entities will face a presumption of denial review policy.

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Cortney O’Toole Morgan is a Washington D.C.-based partner with the law firm Husch Blackwell LLP. She leads the firm’s International Trade & Supply Chain group.

Grant Leach is an Omaha-based partner with the law firm Husch Blackwell LLP focusing on international trade, export controls, trade sanctions and anti-corruption compliance.

Tony Busch is an attorney in Husch Blackwell LLP’s Washington, D.C. office.