Export Classification

On January 13, 2025, the Department of Commerce Bureau of Industry and Security (BIS) announced new rules restricting the export of advanced artificial intelligence (AI) chips and certain closed AI model weights in an expected move that was preemptively criticized by giants in the tech and semiconductor industries. The 168-page “Framework for Artificial Intelligence Diffusion” interim final rule (the “Rule”) adds a global licensing requirement for the export of advanced AI chips and closed AI model weights but with certain exclusions for some allied countries. Compliance with most portions of the new rule is required by May 15, 2025, and interested persons may submit public comments on the rule until May 15, 2025.

The U.S. Department of Commerce's Bureau of Industry and Security (BIS) just issued a significant rule change that reshapes the landscape of export control enforcement.

On April 19, 2024, the Department of Commerce Bureau of Industry and Security (“BIS”) published an interim final rule (“Interim Rule”), amending the Export Administration Regulations (“EAR”) to enhance cooperation and technological innovation between the United States, Australia, and the United Kingdom (“UK”) pursuant to the AUKUS Trilateral Security Partnership (“AUKUS”).

Many companies, particularly Software-as-a-Service (“SaaS”) and start-up companies, continue to struggle with the concept of export control classification of items with encryption functionality. This ongoing confusion is understandable for a few reasons. First, many SaaS companies do not export their software in the traditional sense. Software purchasing has moved beyond the days of downloading and installing software onto a computer from, for example, a CD-ROM. (Most newer laptops no longer contain disc drives.) But these companies may still unknowingly be exporting software according to regulatory definitions.

Ensuring compliance with U.S. export controls, import regulations, and economic sanctions is common practice for companies that engage in international trade. These companies often have internal compliance policies and due diligence practices that help to monitor compliance for everyday operations. In addition, companies undergoing structural, or ownership changes often must conduct trade-related due diligence to assess compliance risks associated with a relevant target company. 

Regular readers of our newsletter, and those familiar with U.S. import and export regulations, know that U.S. Customs and Border Protection (“CBP” or “Customs”) generally enforces the U.S. import regulations, while multiple executive government agencies administer regulations related to the export of goods.

In July 2019, CBP updated its Mitigation Guidelines (the “Guidelines”), specifically the section related to forfeiture remission for export seizures. [1]

Receiving an administrative subpoena, summons, or other request for information from a federal U.S. agency can be surprising, but it is not an uncommon scenario in the trade world. The main agencies in charge of administering and enforcing U.S. trade laws each have the power to compel the disclosure of certain information or documentation that may be related to an agency’s enforcement of import, export, or economic sanctions regulations.

On April 6, 2023, the Department of Treasury Office of Foreign Assets Control (“OFAC”) and the Department of Commerce Bureau of Industry and Security (“BIS”) announced a settlement with Microsoft Corporation (“Microsoft”) and issued a combined $3.3 million in civil penalties to settle potential violations of sanctions and export control laws pertaining to Russia and other sanctioned jurisdictions. 

On October 7, 2022, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) announced a major new rule that restricts the ability of the People’s Republic of China (“PRC” or “China”) to obtain advanced computing chips
 

On May 23, 2022, the U.S. Department of Commerce Bureau of Industry and Security (“BIS”) published a proposed rule identifying new unilateral export controls on four dual-use biological marine toxins, the synthesis and collection of which BIS has identified for evaluation in accordance with the criteria set forth in Section 1758 of the Export Control Reform Act of 2018 (“ECRA”).1 Section 1758 requires BIS to identify and establish appropriate controls on the export, reexport, or transfer (in-country) of “emerging and foundational technologies” that are “essential to the national security of the United States.”2 Importantly, the proposed rule announced a change in BIS’s approach to identifying new technologies of high strategic importance for control: moving forward, BIS will no longer distinguish between “emerging technologies” and “foundational technologies,” but rather “will characterize all technologies identified pursuant to Section 1758 as ‘Section 1758 technologies.’”

In January 2022, a Providence, Rhode Island man was arrested by federal agents on suspicion of making false statements to law enforcement and conspiring to export hundreds of privately made firearms to the Dominican Republic. Federal, state, and local investigators allege that Robert Alcantara, 34, was behind a network that assembled “ghost guns” for export to the Dominican Republic. With Export Control Reform moving the jurisdiction of non-military firearms violations to the U.S. Department of Commerce, similar investigations are becoming more common in the export-enforcement realm.

On January 19, 2021, the Department of Commerce (“Commerce”) published an interim final rule, “Securing the Information and Communications Technology and Services Supply Chain,” (“ICTS Rule”) implementing Executive Order 13873.

The U.S. semiconductor industry has always been very important to the country’s national security. As a result, the U.S. government ("USG") continues to increase legal protections of the semiconductor industry by imposing certain foreign investment restrictions and export controls.

This article will discuss some of the recent foreign investment deals reviewed by the Committee on Foreign Investment in the United States (“CFIUS”) and recent export controls involving the semiconductor industry.

The long-awaited, Advanced Notice of Proposed Rulemaking ("ANPRM") soliciting comments on the definition of, and criteria for, identifying “foundational technologies” (“the Notice”) was finally issued on August 27, 2020, by the U.S. Department of Commerce, Bureau of Industry and Security (“BIS”). The deadline to submit comments is October 26, 2020.

If your company is fortunate enough to receive federal R&D funding, it is important to remember that these grants do not relinquish responsibility for compliance with trade regulations.

The Department of State Directorate of Defense Trade Controls (“DDTC”) has published an interim final rule (“the Interim Final Rule”) seeking public comments and clarifying that certain transfers of encrypted technical data are not exports, reexports, or retransfers subject to the International Traffic in Arms Regulations (“ITAR”).

Should human rights concerns be a consideration for exporters engaged in international trade? New draft guidance proposed by the U.S. Department of State aims to provide a potential roadmap for tackling this issue.

FedEx Corporation (“FedEx”) has openly challenged the Bureau of Industry and Security’s (“BIS”) jurisdiction to enforce the EAR with respect to actions taken by freight forwarders. 

The export control regulations are difficult enough to understand in their own right. But for companies that are also involved in defense contracting, whether as prime contractors or subcontractors, the export control regulations occasionally intersect with additional requirements of the Defense Federal Acquisition Regulations Supplement (“DFARS”), making compliance much more difficult.

On April 30, 2018, the Directorate of Defense Trade Controls (“DDTC”) announced it had launched a new, redesigned version of its website. This is the first time DDTC has made changes to its website in several years. The new website is designed to improve the navigation, searchability, accessibility, and improve the experience on mobile devices. The improvements are expected to continue in the future, as the Department of State seeks to improve and provide a more consistent experience across all Department sites. If you have any questions about the redesign, or where information is located on the new website, please feel free to contact us or DDTC’s response team at (202) 663-1282. To access the new website, go to https://www.pmddtc.state.gov/.

Section 22 CFR §740.20 of the Export Administration Regulations (“EAR”) provides for the Strategic Trade Authorization (“STA”) license exception. Between July 2011 and December 2016, 849 companies used license exception STA. During the same time period, the Bureau of Industry and Security (“BIS”) conducted 296 STA audits. This means that over 30% of STA users were subject to government review. This article examines STA use and audits by BIS.

Non-U.S. companies involved in the reexporting of U.S. goods or technology should familiarize themselves with the applicable U.S. export laws, regardless of where they are located. This is because the U.S. export and economic sanctions laws have wide ranging extraterritorial reach. 

Perhaps the information came from a colleague or a customer or an anonymous tip left on your company’s “tip line.”  Or it could have been a comment made during a presentation at a professional meeting.  Something caught your attention and triggered the realization that you may have a U.S. export controls violation.  Whether or not you have experienced that sinking feeling, prudent compliance requires that you be prepared to take appropriate action at the first sign of trouble.  

Over the past decade, the availability of cloud computing services has grown exponentially to the point where cloud access is now viewed almost as a public utility. Cloud Service Providers (“CSPs”) may operate internationally, and CSP servers are often located in countries other than that of the user, leading to export control concerns. 

The first weeks of the Trump Administration have been eventful, but there has been little action in the area of export controls and economic sanctions. In this regard, there's no clear consensus just yet as to whether and how significantly President Trump plans to deviate from the course set over the last eight years of the Obama Administration.