On December 9, 2021, the Department of Commerce’s Bureau of Industry and Security (BIS) announced that it was amending the Export Administration Regulations (EAR) to apply more restrictive treatment to exports and reexports to, and transfers within, Cambodia of items subject to the EAR.  BIS stated that it is taking this action “to address recent actions by the Government of Cambodia that are contrary to the national security and foreign policy interests of the United States, “ which include increasing Chinese military influence in the country as well as growing corruption and human rights abuses.

In the final rule published by BIS, the Country Group designation for Cambodia has been modified to reflect the country’s identification by the State Department as subject to a United States arms embargo with a designation under Country Group D:5.  Cambodia has also been added to the list of countries subject to military end use and end user controls and restrictions (i.e., MEU List), and to the list of countries subject to military intelligence end use and end user (i.e., MIEU) controls and restrictions.  Going forward, all license applications for export to Cambodia will be reviewed to determine the risk of diversion to a military end user or military end use.  In such a review, BIS has stated that there will be a “general policy of approval for license applications to export, reexport, or transfer items determined to be for civil end users for civil end uses;” however, there will be a “presumption of denial” for license applications involving transactions that “would make a material contribution to the development, production, maintenance, repair, or operation of weapons systems, subsystems, and assemblies.”

Also effective December 9, 2021, the Department of State’s Directorate of Defense Trade Controls (DDTC) amended the International Traffic in Arms Regulations (ITAR) to add Cambodia to its list of proscribed countries. As a result, it is now the policy of the United States to deny licenses and other approvals for exports and imports of defense articles and defense services destined for or originating from Cambodia. The Federal Register notice states that this action is being taken in response to “significant credible evidence of corruption, human rights abuses, and an exclusive agreement with the People’s Republic of China (PRC) on military expansion in Cambodia by the Cambodian government.”

On December 15, 2021, President Joseph Biden signed “Executive Order on Imposing Sanctions on Foreign Persons Involved in the Global Illicit Drug Trade,” an order finding that “the trafficking into the United States of illicit drugs, including fentanyl and other synthetic opioids, is causing the deaths of tens of thousands of Americans annually, as well as countless more non-fatal overdoses with their own tragic human toll.” Noting that drug cartels, transnational criminal organizations, and their facilitators “are the primary sources of illicit drugs and precursor chemicals that fuel the current opioid epidemic, as well as drug-related violence that harms our communities,” the president declared a national emergency to deal with the threat. The executive order authorizes the Department of the Treasury to target any foreign person engaged in drug trafficking activities, and to sanction foreign persons who knowingly receive property that constitutes, or is derived from, proceeds of illicit drug trafficking activities.

Immediately following issuance of the executive order, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated 25 actors (10 individuals and 15 entities) in four countries determined to be involved in the global illicit drug trade for having engaged in, or attempted to engage in, activities or transactions that have materially contributed to, or pose a significant risk of materially contributing to, the international proliferation of illicit drugs or their means of production. According to OFAC, these designations target individuals and drug trafficking organizations located in Brazil, China, Colombia and Mexico and are “individuals who traffic fentanyl, and its precursor chemicals, methamphetamine, cocaine, and heroin, as well as organizations that pose the greatest drug threat to the United States.” As a result of these sanctions, all property and interests in property of the designated persons and entities that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, 50 percent or more by one or more designated persons are also blocked. Unless authorized by a license or exemption issued by OFAC, all transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or otherwise blocked persons are prohibited.

In addition to designating persons and entities engaged in illicit drug trade and blocking property, the executive order also authorizes the Treasury Department to select one or more other sanctions, including:

  • prohibit any transfers of credit or payments between financial institutions, or by, through, or to any financial institution, to the extent that such transfers or payments are subject to the jurisdiction of the United States and involve any interest of the sanctioned person;
  • prohibit any U.S. financial institution from making loans or providing credit to the sanctioned person;
  • prohibit any transactions in foreign exchange that are subject to the jurisdiction of the United States and in which the sanctioned person has any interest;
  • prohibit any U.S. person from investing in or purchasing significant amounts of equity or debt instruments of the sanctioned person; or
  • impose on the principal executive officer or officers of the sanctioned person, or on persons performing similar functions and with similar authorities as such officer or officers, any of these sanctions.

In addition, under the executive order, the Department of State has announced the formal establishment of the U.S. Council on Transnational Organized Crime (USCTOC) to combat transnational organized crime more effectively. The State Department has also suspended the visas for the individuals designated by OFCA, thus prohibiting them from entering the United States.

On December 10, 2021, the United States joined Australia, Denmark and Norway in announcing the Export Controls and Human Rights Initiative in recognition that “advanced technologies are a vital part of global economic growth and communication, helping people become more interconnected, share knowledge, and advance freedom, democracy, and opportunity” while also acknowledging that authoritarian governments are using such technologies “in connection with serious human rights abuses, both within their countries and across international borders.” In the joint statement announcing the initiative, these countries stated that “legitimate trade in these technologies, and responsible use, is essential for the well-being of our future generations.” The countries announced that over the next year they would commit to working to establish a voluntary, nonbinding written code of conduct “around which like-minded states could politically pledge, to use export control tools to prevent the proliferation of software and other technologies used to enable serious human rights abuses.”

The Export Controls and Human Rights Initiative will seek to address export controls and human rights by:

  • Developing a voluntary written code of conduct intended to guide the application of human rights criteria to export licensing policy and practice.
  • Building policy alignment with likeminded partners that leads to common action, and concrete and practical outcomes.
  • Bringing together policy makers, technical experts, and export control and human rights practitioners to ensure that critical and emerging technologies work for, and not against, democratic societies.
  • Exploring how best to strengthen domestic legal frameworks; share information on threats and risks; share, develop and implement best practices; and improve others’ capacity to do the same.

A Fact Sheet on the initiative is available here. While not signing the joint statement, Canada, France, the Netherlands and the United Kingdom did express support for the Initiative.

On December 10, 2021, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned 15 individuals and 10 entities in several countries for their connection to human rights abuse and repression. In addition, OFAC imposed investment restrictions on one Chinese company in connection with the surveillance technology sector

In China, OFAC has placed on the Specially Designated Nationals (SDN) List: (i) Shohrat Zakir, who served as the Chairman of the Xinjiang Uyghur Autonomous Region of China (XUAR) from at least 2018 until 2021; and (ii) Erken Tuniyaz, who currently serves as the acting Chairman of the XUAR. OFAC states that during their tenures, “more than one million Uyghurs and members of other predominantly Muslim ethnic minority groups have been detained in Xinjiang. The Department of State has also placed visa restrictions on these two individuals.”

OFAC also identified Chinese company SenseTime Group Limited (SenseTime), as a Non-SDN Chinese Military-Industrial Complex Company (CMIC). According to OFAC, this company owns or controls, directly or indirectly, Shenzhen Sensetime Technology Co. Ltd., “which has developed facial recognition programs that can determine a target’s ethnicity, with a particular focus on identifying ethnic Uyghurs. When applying for patent applications, Shenzhen SenseTime Technology Co. Ltd. has highlighted its ability to identify Uyghurs wearing beards, sunglasses, and masks.”

OFAC has also sanctioned the Rapid Action Battalion (RAB) in Bangladesh and certain of its officers who OFAC indicated are responsible for more than 600 disappearances since 2009, nearly 600 extrajudicial killings since 2018, and torture. In addition, several North Korean-related entities and individuals have been placed on the SDN List for generating revenue in foreign countries that could have been used to support North Korea’s weapons of mass production programs. And, finally, OFAC has designated several state agencies and their officers in Burma (Myanmar) for the military regime’s ongoing attacks on democracy and brutal repression.

The full list of these SDN List designations is available here. All property and interests in property of the SDNs that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked. Unless authorized by a license or exemption, all transactions by U.S. persons or within the United States that involve blocked persons or their property are prohibited.

The CMIC identification of SenseTime Group Limited prohibits the purchase or sale by U.S. persons of any publicly traded securities of such CMIC entity, or any derivative of such securities. For additional background on CMIC listings, see Update of June 9, 2021.

On December 9, 2021, the Office of Foreign Assets Control (OFAC) announced sanctions on two individuals for corruption involving procurement during the pandemic. The Department of the Treasury stated that “Corruption involving procurement of life-saving medical supplies represents a profound betrayal of public trust and a waste of critically needed resources.” Government officials in El Salvador and Guatemala were sanctioned for allegedly being involved in suspicious procurement, directing suspicious pandemic-related purchases, reselling personal protective equipment and other medial aid at significant markup and for personal gain, and/or for favoring companies where family members were officers. The actions continue the use of the Global Magnitsky sanctions to target global corruption and the inter-agency focus of the U.S. government on pandemic-related fraud.

The OFAC announcement also identifies individuals and entities in several other countries in Central America, Africa, and Europe for various other corrupt practices. As a result of these sanctions, all property and interests in property of the designated persons that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, 50 percent or more by one or more designated persons are also blocked. Unless authorized by a license or exemption, all transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or otherwise blocked persons are prohibited.

On December 2, 2021, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced the expansion of sanctions against Belarus in response to the Lukashenka regime’s continued “disregard for international norms.” The actions taken by OFAC pursuant to Executive Orders 14038 and 13405 include 35 new designations to the Specially Designated Nationals and Blocked Entities (SDN) List and the issuance of a related wind-down license, General License 5 (GL 5), for activities related to two new SDNs, Open Joint Stock Company Belarusian Potash Company (BPC) and BPC subsidiary Agrorozkvit LLC (Agrorozkvit). OFAC also issued Directive 1 imposing restrictions on new debt issued by the Ministry of Finance and the Development Bank of the Republic of Belarus. OFAC published Frequently Asked Questions (FAQs) 939, 940, 941, 942, 943, 944, 945, 946, 947 and 948 on the scope of GL 5 and Directive 1. These actions were taken in coordination with the European Union, United Kingdom and Canada.

The designations target officials and entities playing key roles in disrupting EU border security, shipping ammunition and weapons to foreign conflict zones, and developing military radio-electronics, optics and chassis for missile systems and potash exports. These designations include, among others, state-owned tourism company Republican Unitary Enterprise Tsentrkurort; state-controlled cargo carrier JSC Transaviaexport Airlines and its two aircrafts, EW-78843 and EW-78779; and potash exporters BPC and Agrorozkvit.

OFAC issued GL 5 to provide U.S. persons with 120 days to wind down transactions involving BPC or Agrorozkvit, or any entity in which BPC or Agrorozkvit owns a 50% or greater interest, including the wind-down of such transactions in which Belaruskali OAO has a property interest. GL 5 expires on April 1, 2022. Per FAQ 939, GL 5 does not authorize direct transactions with Belaruskali OAO and does not extend Belarus GL 4, which expires on December 8, 2021.

Directive 1, issued pursuant to EO 14038, prohibits transactions in, provision of financing for, or other dealings by U.S. persons in new debt with a maturity of greater than 90 days issued on or after December 2, 2021 by the Ministry of Finance of the Republic of Belarus or the Development Bank of the Republic of Belarus. FAQ 948 provides that Directive 1 prohibits U.S. persons from entering into derivative contracts linked to underlying assets that constitute prohibited debt thereunder. Pursuant to FAQ 943, the prohibitions of Directive 1 do not apply to any entity that is owned 50% or more by the Ministry of Finance or the Development Bank. Further guidance on the scope of the Directive is available in FAQs 940-947.

On November 24, 2021, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued Venezuela-related General License 8I, “Authorizing Transactions Involving Petróleos de Venezuela, S.A. (PdVSA) Necessary for the Limited Maintenance of Essential Operations in Venezuela or the Wind Down of Operations in Venezuela for Certain Entities.” This general license continues to authorize transactions and activities “ordinarily incident and necessary to the limited maintenance of essential operations, contracts, or other agreements,” that:

  1. are for safety or the preservation of assets in Venezuela;
  2. involve PdVSA or any entity in which PdVSA owns, directly or indirectly, a 50% or greater interest; and
  3. were in effect prior to July 26, 2019, for the following entities and their subsidiaries:
    • Chevron Corporation
    • Halliburton
    • Schlumberger Limited
    • Baker Hughes, a GE Company
    • Weatherford International, Public Limited Company

The term “safety or the preservation of assets” covers transactions and activities necessary “to ensure the safety of personnel, or the integrity of operations and assets in Venezuela; participation in shareholder and board of directors meetings; making payments on third-party invoices for transactions and activities authorized” under this general license (or prior to April 21, 2020, if such activity was authorized at that time) as well as “payment of local taxes and purchase of utility services in Venezuela; and payment of salaries for employees and contractors in Venezuela.” The general license authorizes such activities involving PdVSA and the other listed entities through 12:01 a.m. EST, June 1, 2021.

As with past extensions, General License 8I does not authorize any activities related to Venezuelan-origin petroleum or petroleum products; the provision of insurance for such products; the design, construction or work on wells or other facilities or infrastructure in Venezuela; contracting any additional personnel or services (except as required for safety); or the payment of any dividends to PdVSA. Further, this General License does not authorize transactions related to the export or re-export of diluents to Venezuela; the issuance of any loans to, or accrual of additional debt by, or subsidization of PdVSA; or any transactions prohibited by OFAC’s Venezuela Sanctions Regulations (31 C.F.R. part 591) or with any blocked persons other than those identified in this General License.

General License 8I replaces and supersedes General License 8H. See also SmarTrade Update of June 2, 2021.

On November 26, 2021, the Department of Commerce’s Bureau of Industry and Security (BIS) published a Final Rule in the Federal Register adding 27 foreign entities and individuals to the Entity List for engaging in activities that are contrary to the national security or foreign policy interests of the United States. These entities and individuals are located in the People’s Republic of China, Japan, Pakistan and Singapore, as follows:

China

  • Corad Technology (Shenzhen) Ltd.
  • Hangzhou Zhongke Microelectronics Co., Ltd.
  • Hefei National Laboratory for Physical Sciences at Microscale
  • Hunan Goke Microelectronics
  • New H3C Semiconductor Technologies Co., Ltd.
  • Peaktek Company Ltd.
  • Poly Asia Pacific Ltd., (PAPL)
  • QuantumCTek Co., Ltd.
  • Shaanxi Zhi En Electromechanical Technology Co., Ltd.
  • Shanghai QuantumCTek Co., Ltd.
  • Xi’an Aerospace Huaxun Technology
  • Yunchip Microelectronics

 Japan

  • Corad Technology Japan K.K.

 Pakistan

  • Al-Qertas
  • Asay Trade & Supplies
  • Broad Engineering (Pakistan)
  • Global Tech Engineers
  • Jade Machinery Pvt. Ltd.
  • Jiuding Refrigeration & Air-conditioning Equipment Co (Pvt) Ltd.
  • K-SOFT Enterprises
  • Muhammad Ashraf
  • Muhammad Farrukh
  • Prime Tech
  • Q&N Traders
  • Seljuk Traders (SMC-Private) Limited
  • U.H.L. Company

 Singapore

  • Corad Technology Pte Ltd.

Eight of the Chinese entities were added to the Entity List in an effort to prevent U.S. emerging technologies from being used for China’s quantum computing efforts that support military applications. Sixteen Chinese and Pakistani entities and individuals were added to the list due to their contributions to Pakistan’s unsafeguarded nuclear activities or ballistic missile program. Three affiliates of Corad Technology Limited (a Chinese entity placed on the Entity List in 2019) have been added due to their involvement in sales of technology from the United States to Iran’s military and space programs, Democratic People’s Republic of Korea (North Korea) front companies, and Chinese government and defense industry subordinate entities.

Placement on the Entity List means that all exports, re-exports, or transfers of items subject to U.S. Export Administration Regulations (EAR) require a license from BIS, regardless of whether a U.S. person is involved in the transaction or whether the transaction involves the U.S. financial system. BIS has imposed a license review policy of a “presumption of denial” for these entities. In addition, no license exceptions are available for exports, reexports, or transfers (in-country) to these entities.

BIS also added the Moscow Institute of Physics and Technology to the Military End-User (MEU) List due to its production of military products for a military end-user. Placement on the MEU List places a requirement for a license for specific export, reexports or transfers (in-country) due to an “unacceptable risk of use in or diversion to a ‘military end use’ or ‘military end user’” in Russia. BIS has imposed a license review policy of a presumption of denial for this Russian entity. In addition, no license exceptions are available for exports, reexports, or transfers (in-country) to this entity for items specified in Supplement No. 2 to Part 744 of the EAR.

This final rule was effective as of November 26, 2021. However, shipments that were en route aboard a carrier to a port of export, reexport, or transfer (in-country) on November 26, 2021, pursuant to actual orders for export or reexport to a foreign destination, may proceed to that destination under the previous eligibility for a license exception or export, reexport, or transfer (in-country) without a license (NLR).

On November 30, 2021, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a Notice of Inquiry in the Federal Register seeking public comments regarding areas and priorities for United States and European Union (EU) export control cooperation. This information gathering is intended to inform and assist the work of the U.S.-EU Trade and Technology Council (TTC) Export Control Working Group. The TTC was established during the U.S.-EU summit in June 2021 (see Update of June 17, 2021) and held its first meeting on September 29, 2021 (see Update of September 30, 2021).

Under the TTC’s Export Control Working Group, the United States and the EU will seek to enhance cooperation in the following areas:

  • Technical consultations on current and upcoming legislative and regulatory developments;
  • Technical consultations on compliance and enforcement approaches;
  • Capacity building assistance to third countries; and
  • Technical consultations regarding multilateral and international cooperation.

Comments should address ways in which existing U.S. and/or EU dual-use export control policies and practices may be “more transparent, more efficient and effective, more convergent, and fit for today’s challenges, in particular with regards to the control of emerging technologies.” The notes highlight that comments “providing specific and concrete examples where further convergence in U.S. and EU export control practices and policies could enhance international security and the protection of human rights, and support a global level-playing field and joint technology development and innovation, would be particularly helpful.”

Comments must be submitted no later than January 14, 2022, using the federal rulemaking portal (www.regulations.gov). The docket number for this request for comments is BIS-2021-0044.

 

On November 24, 2021, the Office of the U.S. Trade Representative (USTR) announced that the United States and India reached an agreement regarding the treatment of Digital Services Taxes (DSTs). Under the agreement, India will remove its existing DSTs before the entry into force of Pillar 1 of the agreement on global taxation of the Organization for Economic Cooperation and Development (OECD). The United States and India agreed that the same terms that apply under the Unilateral Measures Compromise reached in an earlier agreement between the United States and Austria, France, Italy, Spain, Turkey and the United Kingdom will apply under this agreement. See Updates of October 22, 2021 and November 23, 2021.

In circumstances defined in the agreement, liability for DSTs that U.S. companies accrue during this interim period (from April 1, 2022 until either the implementation of Pillar 1 or March 31, 2024 (whichever is earlier)) will be creditable against future income taxes accrued under Pillar 1 of the OECD global taxation agreement. In return, the United States will terminate its currently suspended additional duties on certain imports from India that had been adopted in the USTR’s Section 301 investigation of India’s DSTs. The Department of the Treasury’s announcement of this agreement with India is available here. While the Section 301 investigation into India’s DSTs will soon be terminated, the USTR will monitor implementation of the agreement with India. For more information on this investigation, see Updates of June 4, 2020June 2, 2021, and January 7, 2021.