On July 29, 2024, the U.S. Department of Commerce, Bureau of Industry and Security (BIS) proposed a series of transformative new rules aimed at tightening controls related to military, intelligence, and security activities under the Export Administration Regulations (EAR). These proposed changes are set to impact how businesses manage exports and interact with end users, expanding the scope of restrictions to cover a broader range of activities and entities. These proposed changes further the U.S. government’s policy goals of using export control regulations to protect human rights around the globe.
The proposed rules introduce expanded controls on U.S. persons’ activities, tighten end-use and end-user restrictions, and add definitions on specific ECCNs for facial recognition software. BIS and the Directorate of Defense Trade Controls (DDTC) are inviting public comments on the proposed rules until September 27, 2024.
Here’s a breakdown of what these proposed changes entail and what they mean for your business.
Key Takeaways
- Expanded End-Use and End-User Controls: The proposed rules introduce broader definitions and tighter controls around end-users and end-uses. Specifically:
- Military End Users and End Uses: The new definition of “military end user” now encompasses not only national armed forces and the national guard but also private military companies, mercenaries, and irregular forces. The proposed rules would broaden the scope of end-use and end-user controls to encompass all items subject to the EAR (rather than only the items specified in supplement no. 2 to Part 744 of the EAR) and expand the country scope of these end-use and end-user controls to apply to all countries identified in Country Group D:5, as well as Macau.
- Intelligence End Users: The rules now classify any government intelligence or reconnaissance organization—and their supporting entities—as intelligence end users. This broader definition includes a range of functions from planning and analyzing to disseminating intelligence. The updated controls apply to all items subject to the EAR and apply to all countries identified in Country Groups D and E that are not also listed in Country Groups A:5 and A:6.
- Military-Support End Users: The addition of the “military-support end user” definition will regulate entities that provide support to military end uses. The rules will prohibit the export of any item specified in any ECCN on the Commerce Control List, when there is knowledge that the item is intended for a “military-support end user” in a D:5 country or Macau.
- Foreign-Security End Users: The proposed rules would add a definition of “foreign-security end user” to include governmental and other entities engaged in law enforcement and security functions. The proposed rule prohibits the export, reexport, or transfer of items specified with any ECCN on the Commerce Control List, when there is knowledge that the item is intended for “foreign-security end users” of a country listed in Country Group D:5 or E.
- Enhanced U.S. Person Activity Controls: The changes also introduce new restrictions on U.S. persons involved in export activities:
- General Support: Generally, the definition of “support” remains mostly unchanged, aside from some clarifying revisions. “Support” still covers shipping, transmitting, or facilitating shipments for a covered end user, as well as performing any contract, service, or employment for a covered end user. U.S. persons are prohibited from engaging in any of these supporting activities in relation to covered end users. The proposed rule would also carve out an exception for freight forwarders and common carriers, alleviating—but not eliminating—some burdensome diligence.
- Military End Users: U.S. persons will need a license for any activities related to developing or producing items for military end users.
- Intelligence End Users: Support to intelligence end users or entities on the Entity List with a footnote 7 designation is prohibited.
- Military-Support End Users: Support to military-support end users listed on the Entity List with a footnote 6 designation is prohibited.
- Foreign-Security End Users: Support to foreign-security end users or entities on the Entity List with a footnote 8 designation is prohibited.
- New Item Controls: The proposed rules also add facial recognition technology to the Commerce Control List:
- Facial Recognition Systems and Software: ECCN 3A981 will now include facial recognition systems, while ECCNs 3D980 and 3E980 will cover facial recognition software and technology, respectively. This move reflects the increasing importance of controlling advanced technology.
Overall, the proposed rules from BIS represent a material change to export controls, with broad implications for how businesses handle sensitive technologies and interact with various end users. By expanding definitions and tightening restrictions on military, intelligence, and security-related activities, these changes aim to address emerging security concerns and ensure more rigorous oversight. Businesses will need to adapt their compliance strategies to align with the new controls, including updates to their processes for managing end uses and end users, and handling facial recognition systems and software.