Recent BIS Rule May Impose Broad, Burdensome Compliance Obligations, Law Firm Says
The Bureau of Industry and Security's January rule that expanded export restrictions on foreign military intelligence agencies (see 2102190042) and other activities of U.S. companies could lead to expansive licensing requirements and place burdensome compliance obligations on U.S. companies, Akin Gump said in a March 1 letter to BIS. The law firm said it represents a client that may be affected by the rule’s broad language and urged the agency to narrow its breadth to limit impacts on legitimate business.
The firm’s client, which is based in a Country Group D:4 country, “employs or relies on services” provided by U.S. parties that may come under new restrictions when BIS’s rule takes effect March 16, Akin Gump said. The firm’s client “runs a program staffed exclusively by non-U.S. persons” that is developing equipment and software for items that “meet the definition” of missiles in the Export Administration Regulations, the letter said. Although none of the client’s employees is “directly involved” in shipping the equipment for use in missiles, employees “may serve in roles where they may indirectly facilitate a shipment,” Akin Gump said. As a result, the client may be caught by what the firm said are “overly expansive BIS licensing requirements.”
But the firm also said “numerous” other U.S. people and companies could be subject to the rule’s licensing requirements, partially because the rule would apply to people and companies that “unknowingly” support a shipment to a restricted end-user. “This has potentially expansive application to not just U.S. person employees, but also numerous U.S. companies and their overseas branches that provide services that facilitate trade, including among others, third-party logistics providers, freight forwarders, financial institutions and insurers,” the firm said.
The rule could also hurt U.S. employment at foreign companies, the firm added, because foreign companies will “oppose efforts by U.S. persons who seek authorization from BIS.” The firm said foreign companies will not allow their employees to submit license applications to the agency because those applications may “disclose the confidential details of development programs to the U.S. government, particularly when many of these programs are classified under local national security laws.” Because of this, U.S employees may lose their jobs at foreign companies and be replaced with foreign workers to “avoid the potential for such disclosure.”
In other cases, U.S. companies will likely expand their use of end-use and end-user certifications and other contractual language to meet BIS due-diligence expectations, Akin Gump said. This could backfire, the firm said: More foreign companies are unwilling to provide those certifications or unwilling to wait for U.S. companies to receive a BIS license and may instead choose to source from a foreign competitor.
The rule will also likely lead to an increase in applications for “numerous routine transactions,” leading to an “influx” of submissions to BIS. Akin Gump said this will lead to “unnecessary costs” for companies and more work for BIS officials, who will have to process applications that “have a nominal effect on business involving restricted end-uses and end-users.”
The firm urged BIS to revise definitions in the rule, including the rule’s use of “support,” which is used to describe licensing requirements for any U.S. person or company that participates in activities that “support” certain restricted end-uses and end-users. The agency should adopt a “knowledge qualifier” for the definition of “support” to make clear that “only U.S. persons that engaged in ‘facilitation’ activities with knowledge are subject to licensing requirements.” Akin Gump also said BIS should place a “directness qualifier” in the definition to “ensure that only activities by U.S. persons that ‘directly assist or benefit’ a restricted end-use or end-user” are subject to the licensing requirements. The agency should also consider revising the scope of the controls so the licensing requirements apply to a “narrow” set of countries in Country Group D:4 -- which includes several U.S. allies, Akin Gump said, among them, Israel and the United Arab Emirates.
Akin Gump said its recommendations are “tailored to ensure that these requirements do not fall on U.S. persons who engage in tangential and marginal activities that may support a restricted end-use or end-user” while still allowing BIS to protect U.S. national security. The firm said the rule “presents real risk that U.S. individuals and companies that operate abroad may be disproportionately harmed and replaced with foreign counterparts who are not subject to burdensome licensing requirements.” A BIS spokesperson said the agency will “carefully consider” all public comments before making potential revisions or issuing guidance.