On January 15, 2021, in the final days of the Trump Administration, BIS published an Interim Final Rule, Expansion of Certain End-Use and End-User Controls and Controls on Specific Activities of U.S. Persons, also referred to as the Military Intelligence End User rule (“MIEU Rule”). It was set to be effective March 16, 2021 but there were public indications from BIS that the rule might not go into effect as originally planned due to the 60-day “regulatory freeze,”[1] which is common when there is an administration transition. However, on March 17 BIS announced a correction to the MIEU Rule, including that it became effective on March 16, 2021.
MIEU Rule Summary
The MIEU Rule implements the mandate in § 1753(a)(2) of the Export Control Reform Act (ECRA), which directs the President to impose controls on the activities of U.S. persons, wherever located, relating to foreign military intelligence services. To enact this, BIS amended the EAR to create a new section, § 744.22, entitled Restrictions on exports, reexports, and transfers (in-country) to certain military-intelligence end uses or end users.
- 744.22 includes a new list, definition, and prohibition on U.S. person activity, as summarized below:
- MIEU List. § 744.22 includes a new, non-exclusive list of military-intelligence end users as follows:
(i) Cuba. Directorate of Military Intelligence (DIM) and Directorate of Military Counterintelligence (CIM).
(ii) People’s Republic of China. Intelligence Bureau of the Joint Staff Department.
(iii) Iran. Islamic Revolutionary Guard Corps Intelligence Organization (IRGC–IO) and Artesh Directorate for Intelligence (J2).
(iv) North Korea. Reconnaissance General Bureau (RGB).
(v) Russia. Main Intelligence Directorate (GRU).
(vi) Syria. Military Intelligence Service.
(vii) Venezuela. General Directorate of Military Counterintelligence (DGCIM).
- MIEU Definition. In § 744.22(b), MIEU is defined as “any intelligence or reconnaissance organization of the armed services (army, navy, marine, air force, or coast guard); or national guard.”
- In addition to export license requirements, the new rule notably adds significant additional restrictions on “activities of U.S. persons” in § 744.6(b)(5), which states: No ‘‘U.S. person’’[2] may, without a license from BIS, ‘support’ a ‘military-intelligence end use’ or a ‘military-intelligence end user,’ … in the People’s Republic of China, Russia, or Venezuela; or a country listed in Country Groups E:1 or E:2.
In § 744.6(b)(6) ‘Support’ is defined as:
(i) Shipping or transmitting from one foreign country to another foreign country any item not subject to the EAR you know will be used in or by any of the end uses or end users described in paragraphs (b)(1) through (5) of this section, including the sending or taking of such item to or from foreign countries in any manner;
(ii) Transferring (in-country) any item not subject to the EAR you know will be used in or by any of the end uses or end users described in paragraphs (b)(1) through (5) of this section;
(iii) Facilitating such shipment, transmission, or transfer (in-country); or
(iv) Performing any contract, service, or employment you know may assist or benefit any of the end uses or end users described in paragraphs (b)(1) through (5) of this section, including, but not limited to: Ordering, buying, removing, concealing, storing, using, selling, loaning, disposing, servicing, financing, transporting, freight forwarding, or conducting negotiations in furtherance of.
In summary, the U.S. person restrictions prohibit a wide array of activities that BIS might consider to be “support” of an MIEU regardless of whether any items “subject to the EAR” are involved.
MIEU Rule Differs from the MEU Rule
Notable aspects of the new MIEU rule are (1) that support is not limited to items subject to the EAR; it applies to “U.S. person” activities wherever located. This expanded scope is distinct from the MEU Rule, which applies only to certain items listed on Supplement No. 2 to Part 744. (2) Additionally, unlike the MEU Rule that is geographically limited to end-users and end-uses in China, Russia, Venezuela, and now Burma (Myanmar) (see our prior alert here discussing Burma), the MIEU Rule applies to China, Russia, Venezuela, and the E:1 E:2 countries– currently Cuba, Iran, North Korea, and Syria.
Continued Compliance Challenges
This rule comes on the heels of further restrictions on exports to certain end-users or uses identified by different U.S. government agencies, including the Department of Defense’s list of Communist Chinese Military Companies that prohibits U.S. persons from engaging in transactions in publicly traded securities with these entities. Collectively, these lists create a complex web of restrictions on a variety of entities and increase potential exposure for those transacting in any of the countries identified above. Exporters should ensure appropriate screening and compliance procedures are in place to identify possibly higher risk transactions with entities on these expanding lists.
[1] The “regulatory freeze,” formally known as the White House regulatory review, occurs during administration transitions to allow the new administration time to review rules that were published (or set to be published) in the previous administration’s final days.
[2] In § 772, “U.S. person” is defined as, “(1) Any individual who is a citizen of the United States, a permanent resident alien of the United States, or a protected individual as defined by 8 U.S.C. 1324b(a)(3); (2) Any juridical person organized under the laws of the United States or any jurisdiction within the United States, including foreign branches; and (3) Any person in the United States.”