Home / News / The Export Control Update: September 2016


EAR CCL Category 5 Part 2 Update List

By: Danielle McClellan

BIS has published final rules implementing the Wassenaar Arrangement’s decision to re-write Category 5 Part 2, below is a list of updates. BIS will be updating their Encryption website soon to reflect these changes.

ECCN Changes to Category 5 Part 2

  • Separates C5P2 into 3 subsections:

    • Cryptographic information security

    • Non-cryptographic information security – 5A003

    • Defeating, Weakening, or bypassing information security – 5A004

  • Deletes ECCNS 5A992/5D992 a&b, as well as 5E992.a

  • Keeps mass market ECCNs 5A992/5D992.c and 5E992.b

  • Decontrol notes (Note to 5A002.a) moved around to remove previously unused paragraphs

  • Removes previous Note 1 to C5P2 – moved to a General Information Security Note (Supp. No. 2 to Part 774), removed all the pointers in the EAR to C5P2

  • Adds a sentence to the Note to Note 3 saying that simple price inquiry is not a consultation

  • Deletes 5A002 a.7 control on products above EAL-6

License Exception Changes

  • License Exception TSU - Publicly available source code is no longer subject to the EAR once the email notification is sent. The Notification requirement that was previously under TSU §740.13(e) is moved to §742.15(b)

  • License Exception TMP – 5E002 encryption technology now eligible for tools of the trade provisions under 740.9

  • §742.15 – Encryption Mass market provisions are moved from §742.15 to §740.17

  • License Exception ENC – §740.17

    • Paragraph (a)(1) - Adds an exception for certain related parties transactions for companies headquartered in a Supp. 3 country

    • §740.17(b)(4) – Deletes paragraph on short-range wireless items, paragraph on foreign made products is moved to paragraph (a)

    • Encryption Registrations no longer required – some of the information from the registration now goes into the Supp. No. 8 to Part 742 report

    • If an exporter submits a CCATS review for an item under §740.17(b)(1), it does NOT have to go on the self-classification report

    • §740.17(b)(2) – updates performance parameters

  • § Edits headers to make it clear that there should only be one parameter that applies to a product

  • § Aggregate encrypted throughput increased from 90 Mbps to 250 Mbps

  • § Deletes single channel input data rate

  • § Deletes 250 concurrent encrypted data channels

  • § Media parameter raised from 1,000 endpoints to 2,500

  • § Carves out for mass market satellite modems that use end-to-end encryption between the modem and the hub

  • § 5A002.d (channelizing codes) and 5A002.e (spread spectrum) moved to §740.17(b)(2)

  • § New authorization for network infrastructure items to less-sensitive government end-users.

  • Delets grandfathering provisions

  • Adds Croatia added to Supp. No. 3 to Part 740

  • Revises Supp. No. 6 to Part 742 questions

  • Definition of government end-user states that government-owned public schools and universities are "government end-users" as defined in Section 772

  • Adds definition of “More sensitive government end-users” and “Less-sensitive government end-users”


Classifications issued for 5A992/5D992 a&b and 5E992.a prior to the elimination of these ECCNs may now be classified elsewhere (e.g., 5A991,) if applicable, or EAR99.

Mass market encryption authorizations issued under 742.15(b)(1) or (b)(3) prior to this rule change continue to be authorized under the newly located mass market encryption provisions found in 740.17(b)(1) and (b)(3), respectively. A new classification is NOT required merely because the item moved from 742.15 to 740.17.

Wassenaar Arrangement Ruling: https://www.federalregister.gov/documents/2016/09/20/2016-21544/wassenaar-arrangement-2015-plenary-agreements-implementation-removal-of-foreign-national-review

BIS Final Rule: http://www.bis.doc.gov/InformationSecurity2016-updates




Israel’s Defense Ministry Raises Export Violation Fines

By: Danielle McClellan

Currently, the Ministry of Defense is capable of imposing a maximum fine of NIS 1 million for companies who violate the Defense Export Controls Act.  The head of Defense Control Agency, Dub Lavi, announced that Israel will be raising the maximum fine to NIS 5 million for violations by companies with sales exceeding NIS 80 million during 3 consecutive years.  The Ministry of Defense does require marketing permits as well as receipts of export permits before items are exported.

Dub Lavi explained that, “The vast majority of Israel’s defense industries are disciplined, responsible, and abide by the Defense Export Controls Act. During the decade in which the Ministry of Defense Exports Agency has been operating, both establishment and the companies themselves have matured: even the largest companies do not like reaching a situation in which they are invited to a hearing due to suspected violation.” Over the past few years, Israel has worked to simplify the exports of non-classified means and has continued to add to the current list of 98 states that can receive exports without a permit.  They are also doing the following to aid in simplifying rules for exporters:

  • Fast-tracking export and marketing licenses in special cases;

  • Exemption from further marketing permits for intermediate agents-an exporter with a marketing permit will not be required to file a further permit for a foreign company that will market its products abroad;

  • Extending the license duration from 3 to 4 years;

  • Updating non-controlled technologies in Combat Equipment Act to include unmanned aerial vehicles and satellites for civilian ends corresponding to the standards defined in the Wassenaar Arrangement on the Export Controls for Conventional Arms and Dual-Use Goods and Technologies

Data shows that in 2015 the Export Control Agency received 40,000 new applications for marketing permits for arms, systems, and components to 190 states. They also received about 9,000 export permit applications which is the preliminary process preceding a marketing permit. In the past year they had 176 cases in which defense companies or exporters were suspected of violating the Defense Export Controls Act, but only a few exporters were fined with a total of NIS 2.8 million in penalties received. Israel’s defense exports totaled $5.7 billion last year.

Read more: http://www.globes.co.il/en/article-defense-ministry-mitigates-export-restriction-while-increasing-fines-1001150528




Company Fined $4 Million for Exporting Seeds to Iran

By: Danielle McClellan

PanAmerican Seed Company (PanAm) of West Chicago, Illinois, a division of Ball Horticultural Company has agreed to pay $4,320,000 to settle potential civil liability for alleged violations of the Iranian Transactions and Sanctions Regulations (31 C.F.R. part 560 ITSR). Its alleged that the company exported seeds, primarily of flowers, to two Iranian distributors on 48 different occasions between May 2009 and March 2012.

PanAm and Ball Horticultural employees (including several mid-level managers) were aware of the US economic sanctions involving Iran and the requirement to apply for licenses to export the seeds to Iran. PanAm concealed the shipments by shipping the seeds to consignees based in two third countries located in Europe or the Middle East, and then the Iranian customers arranged for the re-exportation of the seeds to Iran.

The maximum penalty for the violations would be $12 million, OFAC considered the following when applying the $4 million penalty:

OFAC considered the following to be aggravating factors:

  1. PanAm Seed willfully violated U.S. sanctions on Iran by engaging in, and systematically obfuscating, conduct it knew to be prohibited;

  2. PanAm Seed demonstrated recklessness with respect to U.S. sanctions requirements by ignoring its OFAC compliance responsibilities, despite substantial international sales and warnings that OFAC sanctions could be implicated;

  3. Multiple PanAm Seed and Ball Horticultural employees, including mid-level managers, had contemporaneous knowledge of the transactions giving rise to the Alleged Violations. They were aware that the seeds were intended for reexportation to Iran, and PanAm Seed continued sales to its Iranian distributors for nearly eight months after its Director of Finance learned of OFAC’s investigation;

  4. PanAm Seed engaged in this pattern of conduct over a period of years, providing over $770,000 in economic benefit to Iran;

  5. PanAm Seed did not initially cooperate with OFAC’s investigation, providing some information that was inaccurate, misleading, or incomplete; and

  6. PanAm Seed is a division of Ball Horticultural, a commercially sophisticated, international corporation.

OFAC considered the following to be mitigating factors:

  1. PanAm Seed has not received a Penalty Notice or Finding of Violation from OFAC in the five years preceding the earliest date of the transactions giving rise to the Alleged Violations, making it eligible for “first offense” mitigation of up to 25 percent;

  2. The exports at issue were likely eligible for an OFAC license under the Trade Sanctions Reform and Export Enhancement Act of 2000;

  3. PanAm Seed took remedial steps to ensure future compliance with OFAC sanctions, including stopping all exports to Iran, implementing a compliance program, and training gat least some of its employees on OFAC sanctions; and

  4. PanAm Seed cooperated with OFAC by agreeing to toll the statute of limitations for a total of 882 days.

OFAC Information: https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20160913_panam.pdf




Pakistani National Extradited and Sentenced to 33 Months in Prison for Conspiracy to Export Gyroscopes to Pakistan

By: Danielle McClellan

Syed Vaqar Ashraf (71) of Lahore, Pakistan (also known as Vaqar A. Jaffrey) was sentenced to 33 months in prison after being extradited from Belgium on July 31, 2015. According to court documents, in June 2012 Ashraf began asking a Tucson-based company, who shall remain nameless, for price quotes for unmanned aerial vehicles (drones). The company specializes in the design, development, and manufacturing of drones for the US military. The company immediately tipped off Homeland Security Investigations (HIS) agents about Ashraf’s requests.  HSI quickly assigned special agents to work undercover as employees of the Tucson-based company and they began dialoging with Ashraf directly.

From June 2012 to August 2014, Ashraf negotiated with special agents. He represented himself as the head of I&E International, based in Lahore, Pakistan.  Most of the correspondence was done via email where he agreed to purchase 18 gyroscopes that were intended to help medium-sized drones fly longer distances as well as 10 optical receiver modules and laser diodes intended to be installed in the aircraft for approximately $440,000.

In September 2013, HSI agents met with Ashraf in Vienna, Austria to work out details regarding the sale. Ashraf explained during the meeting that Pakistan’s nuclear program had been developed using technology exported from the west without a license. This led the agents to believe that Ashraf was working for Pakistan’s Advanced Engineering Research Organization and the intended use for the electronics was for the Pakistani military UAV program.

From January to March 2014 Ashraf asked agents for suggestions to get around the US export controls after agents requested a license from the Commerce Department and were told that the items would require a special license because the optical receive modules could be used in “activities related to nuclear, chemical, or biological weapons or missile delivery systems.” Ashraf asked if there were any alternative descriptions that would appear to cover the items on documents, but would clear arms control hurdles from State and Commerce departments.  Secret agents offered Ashraf with a few different descriptions and asked him if the customer was aware that transaction was “being done without a license.” Ashraf told the agents that they (customer) were “absolutely aware of everything.” Later in an email, Ashraf wrote, “He (customer) is well aware that he cannot get these gyros in a normal way; he’s well aware of that.” The ultimate plan was to transship all of the items; they would be shipped to Pakistan through Belgium.

HIS agents met with Ashraf three more times in face-to-face meetings, including one in the US where they agreed on a series of wire transfers, including one for $67,000. On August 26, 2014 agents set up a final meeting with Ashraf in Belgium to deliver some of the technology. Before the meeting began Belgian police showed up and arrested Ashraf. A little less than a year later Ashraf was extradited to the US to face trial on charges of conspiracy to export defense controlled items without a license which he later pled guilty to.

Read more: https://www.justice.gov/opa/pr/pakistani-national-extradited-and-sentenced-attempting-export-sensitive-technology-pakistani




Tips on How To Resolve AES Fatal Errors

(Source: census@subscriptions.census.gov, 22 Sep 2016)

When a shipment is filed to the AES, a system response message is generated and indicates whether the shipment has been accepted or rejected. If the shipment is accepted, the AES filer receives an Internal Transaction Number (ITN) as confirmation. However, if the shipment is rejected, a Fatal Error notification is received.

To help you resolve AES Fatal Errors, here are some tips on how to correct the most frequent errors that were generated in AES for this month.

* Fatal Error Response Code: 331

  • Narrative: Ultimate Consignee Country Unknown

  • Reason: The Ultimate Consignee Country code reported is not valid in AES.

  • Resolution: The Ultimate Consignee Country code must be a valid ISO Country code found in Appendix C - ISO Country Codes. Verify the Ultimate Consignee Country code, correct the shipment, and resubmit.

* Fatal Error Response Code: 628

  • Narrative: 1st Unit of Measure Code/Schedule B/HTS Mismatch

  • Reason: The Unit of Measure (1) reported does not match the Unit of Measure (1) required for the Schedule B/HTS Number reported.

  • Resolution: The Unit of Measure (1) must match exactly the Unit of Measure (1) prescribed by the Schedule B/HTS Number reported. See Appendix K - Units of Measure Codes.  Verify the Unit of Measure (1) required for the reported Schedule B/HTS Number, correct the shipment, and resubmit.

For a complete list of Fatal Error Response Codes, their reasons, and resolutions, see Appendix A - Commodity Filing Response Messages.

It is important that AES filers correct Fatal Errors as soon as they are received in order to comply with the Foreign Trade Regulations. These errors must be corrected prior to export for shipments filed pre departure and as soon as possible for shipments filed post departure, but not later than five calendar days after departure.

For further information or questions, contact the U.S. Census Bureau's Data Collection Branch.




DDTC Posts Revision 4.4a of the Agreement Guidelines

(Source: State/DDTC)

Revision 4.4a of the Agreement Guidelines has been posted and replaces Revision 4.4.

Revision 4.4a corrects an inadvertent omission on page 152. Both Revision 4.4a and a preamble with a summary of changes can be found here. Revision 4.4a is effective September 1, 2016.




DDTC Posts Schedule for Uploading Licensing Submissions and Posting Licenses

(Source: State/DDTC)

Effective September 6, 2016, The Department of State will only be uploading licensing submissions (i.e., DSP -5, -6, -61, -62, -73, -74, and Batch Scheams) and posting licenses (Approved, Approved with Provisos, RWA'ed, and Denied) at 06:30 AM and again at 5:30 PM.




"Who is the USPPI? It could be YOU!"

(Source: Global Reach Blog)

Questions about who the U.S. Principal Party in Interest (USPPI) is often come up when reporting exports. The USPPI is the person or legal entity in the United States that receives the primary benefit, monetary or otherwise, from an export transaction. The following parties can be the USPPI:

  • U.S. seller (wholesaler or distributor) of goods for export

  • U.S. manufacturer (if selling the goods for export)

  • U.S. order party (if directly negotiated between the U.S. seller and foreign buyer and received the order for the export of the goods)

  • U.S. customs broker (obtains clearance of goods through customs)

  • Foreign entity (if physically in the United States to purchase or obtain the goods)

Helpful tips to identify the USPPI 

  • The USPPI remains the same regardless of whether the transaction is standard or routed. For more information on the differences between standard and routed transactions, please see Clarification of Routed Transactions.

  • The exchange of funds does not need to occur for an entity to be the USPPI. For example, a U.S. company exporting goods at no cost (i.e., donations, replacement parts) to a subsidiary abroad would be the USPPI.

Identification scenarios ΜΆ

Scenario 1:

Company A in the United States manufactures lamps. Once assembled, the lamps are sold to Company B in the United States. Company C in Canada places an order with Company B and authorizes Company B to export the lamps to the ultimate consignee in France. Who is the USPPI and why?

Company B is the USPPI because it received the primary benefit from the foreign buyer. The transaction between Companies A and B is a domestic transaction.

Scenario 2:

A representative from Company A in Mexico is in the United States buying electronics from Company B. After making the purchase, Company A's representative authorizes Company C in the United States to file Electronic Export Information in the Automated Export System and move the electronics on Company A's behalf. Company A's representative returns to Mexico. Who is the USPPI and why? 

Company A's representative is the USPPI because they were physically in the United States at the time the goods were purchased.


Scenario 3:

Company A in the United States stores bamboo stalks in a warehouse on behalf of a Foreign Principal Party in Interest. While in the warehouse, Company A converts the bamboo stalks into fishing rods. Who is the USPPI and why?

Company A is the USPPI because it was responsible for converting the bamboo stalks into fishing rods, changing the classification.

I hope this information provides more clarity on who the USPPI is in an export transaction. For assistance, please call 800-549-0595, Option 3 to contact the Trade Regulations Branch of the U.S. Census Bureau.














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