Sleeper Trump Rule on ‘Military-Intelligence End Uses or Users’ Goes Into Effect

In an interim rule published on, January 15, 2020, the Department of Commerce, Bureau of Industry and Security (BIS), introduced expansive changes to General Prohibition 7 of the Export Administration Regulations (EAR) by including new controls on military-intelligence end uses and users, making the already tricky process of conducting business with foreign entities that much more complicated.

After minor corrections, a rule that many missed or ignored goes into effect on March 16, 2021. The rule will impact US companies and persons, as it affects the activities of US persons – even if the US person is not dealing with an item that is not subject to US export control laws!

What Does the Rule Do?

General Prohibition 7 of the EAR covers the restrictions on activities by US persons[1] related to the proliferation of WMDs. Notably, these activities do NOT have to involve an item subject to the EAR – critically this is the only part of the EAR that applies to activities of US persons rather than commodities, software, or technology.

The interim final rule substantially expands on those service areas that could violate the EAR’s General Prohibition 7 –  for services in or rendered to entities in China, Russia, Venezuela, and other embargoed countries. The rule:

• Expands the destinations for existing end use controls on US person activities involving the specific Weapons of Mass Destruction (WMDs) end uses already included in EAR Part 744.6;
• Expands the range of “supporting” activities that are prohibited;  
• Adds new restrictions on the activities of US persons in support of certain military-intelligence end uses and users in China, Russia, Venezuela, or other embargoed countries to the scope of General Prohibition 7; and
• Establishes a broad base of items subject to restrictions related to military-intelligence end uses and users to include all items subject to the EAR, including EAR99 items.

What Types of Activities by Us Persons Are Now Restricted?

The new rule states that a license is now required for any US person who knowingly “supports” any one of the following (new activities to worry about are bolded and changes in country coverage is noted in brackets):

1. The design, “development,” “production,” operation, installation (including on-site installation), maintenance (checking), repair, overhaul, or refurbishing of nuclear explosive devices in or by any country not listed in supplement no. 3 to this part.
   • Previously applied to countries listed in D:2, nine countries. Supp. No. 3 has 22 countries, so this is equivalent to adding most of the world to the nuclear explosive device list
2. The design, “development,” “production,” operation, installation (including on-site installation), maintenance (checking), repair, overhaul, or refurbishing of “missiles” in or by a country listed in Country Groups D:4 or E:2.
   • Previously applied to countries listed in D:4; this change only adds Cuba
3. The design, “development,” “production,” operation, installation (including on-site installation), maintenance (checking), repair, overhaul, or refurbishing of chemical or biological weapons in or by any country or destination worldwide.
   • Geographical scope unchanged;
4. The design, “development,” “production,” operation, installation (including on-site installation), maintenance (checking), repair, overhaul, refurbishing, shipment, or transfer (in-country) of a whole plant to make chemical weapons precursors identified in ECCN 1C350, in or by countries other than those listed in Country Group A:3 (Australia Group).
   • Geographical scope unchanged
5. A ‘military-intelligence end use’ or a ‘military-intelligence end user,’ as defined in §744.22(f) of the EAR, in the People’s Republic of China, Russia, or Venezuela; or a country listed in Country Groups E:1 or E:2
   • Brand new rule

The rule introduces three main changes:

1. Expanded geographical scope for nuclear explosive and missile end uses: Provisions (1) and (2) expand the destinations to which activities by US persons related to WMDs are restricted.
2. Expanded activities prohibited: The rule expands the kinds of supporting activities that are prohibited.  As noted, the revised rule added the verbs we highlighted in bold above. 
   • Export nerd alert!: The reason provided in the Preamble (at 86 Fed. Reg. 4868) to the rule stated that the prior language was limited by the word “use” (and additional words such as “development” and “production”) in 744.3, 744.4, and 744.6 is in fact incorrect. None of the sections identified by the Preamble as limiting the scope to “use” put quotation marks around use. Therefore the terms in parts 744.3, 744.4, and 744.6 were in fact not the defined terms. To put it differently, the verb used in 744.6 was not the verb “use” as defined in part 772.1, so BIS was in fact incorrect as a matter of law for these verb changes.

But perhaps far more important than the largely unnecessary and painful verb shuffling is the breadth of the term support, which we address separately below.

3. Military Intelligence End User/Use Prohibition added: Perhaps most importantly, provision (5) adds a new restriction on activities of US persons in support of certain military-intelligence end uses and users, a rule that was expanded last year.

What Does the Term “Support” Include?

A better question may be what “support” does not include. For example, kitchen sinks are clearly included.

According to the new rule, any one of the following activities may be considered “support” for one of the restricted activities or end users:

1. 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;
2. 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;
3. Facilitating such shipment, transmission, or transfer (in-country); or
4. 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.

As can be seen, the definition of “support” in the rule is very broad and encompasses a range of activities with the potential to significantly impact the ability of parties to conduct business with foreign entities. Specifically, the provision stating that the performance of “any contract, service, or employment,” including activities such as “ordering, buying, removing, concealing, storing, using, selling, loaning, disposing, servicing, financing, transporting, freight forwarding, or conducting negotiations in furtherance of” a restricted end use or end user opens the door for BIS to find previously safe business dealings with foreign entities to now represent “support” of a military-intelligence end user.

Moreover, where the prior regulation prohibited US persons from performing contracts, services or employment that the US person knows “will directly assist” in the design, development, production, or use of missiles and chemical and biological weapons, this new regulation prohibits US persons from performing contracts, services or employment that the US person knows  “may assist or benefit any of the end uses or end users described in paragraphs (b)(1) through (5).” In short, the new rule goes from “will directly assist” in two prohibited end uses, to “may assist or benefit” five prohibited end uses.

The language is broad enough to drive a very large truck through. While we can hope that the Office of Export Enforcement (OEE) does not attempt to do this, since when is OEE our Obi-Wan Kenobi?

What Is a Military-Intelligence End Use or User?

In addition to the broad definition above, the new rule imposes a significant expansion of the types of items subject to the restrictions on military-intelligence end uses and users. The rule states that a license from BIS is required for “ the export, reexport, or transfer of all items subject to the EAR to military-intelligence end uses and end users in China, Russia, or Venezuela; and countries listed in Country Groups E:1 and E:2,” if an entity has“ ‘knowledge’ – which includes reason to know – that the item is intended, entirely or in part, for a ‘military-intelligence end use’ or a ‘military-intelligence end user’” in the enumerated countries.

As such even EAR99 items will require a license if the transaction includes an entity that meets the definition of military-intelligence end user and there is some element of knowledge to the transaction.

In addition, as explained above, even absent anything subject to the EAR, US persons are prohibited by §744.6 from “supporting” a ‘military-intelligence end use’ or a ‘military-intelligence end user,’ as defined in §744.22(f) of the EAR, in the People’s Republic of China, Russia, or Venezuela; or a country listed in Country Groups E:1 or E:2.

The new rules defines “military-intelligence end use” as: “the design, ‘development,’ ‘production,’ use, operation, installation (including on-site installation), maintenance (checking), repair, overhaul, or refurbishing of, or incorporation into, items described on the US Munitions List (USML) (22 CFR part 121, International Traffic in Arms Regulations), or classified under ECCNs ending in ‘A018’ or under ‘600 series’ ECCNs, which are intended to support the actions or functions of a ‘military-intelligence end user.

“Military-intelligence end user,” is defined as: “any intelligence or reconnaissance organization of the armed services (army, navy, marine, air force, or coast guard); or national guard.” The rule includes a list of “military-intelligence end users” that may be instructive; however, it should be noted that the list is not exhaustive, and other entities in the subject countries may be found to fit this definition:

1. Cuba: Directorate of Military Intelligence (DIM) and Directorate of Military Counterintelligence (CIM).
2. People’s Republic of China: Intelligence Bureau of the Joint Staff Department.
3. Iran: Islamic Revolutionary Guard Corps Intelligence Organization (IRGC-IO) and Artesh Directorate for Intelligence (J2).
4. North Korea: Reconnaissance General Bureau (RGB).
5. Russia: Main Intelligence Directorate (GRU).
6. Syria: Military Intelligence Service.
7. Venezuela: General Directorate of Military Counterintelligence (DGCIM).

These definitions are quite broad, particularly that of a “military-intelligence end user,” as it includes intelligence or reconnaissance organizations of the armed services. Therefore, parties should proceed with caution when engaging with entities from the subject countries, especially in regards to China, Russia, and Venezuela (because the other countries are embargoed and therefore off-limits for US companies in the first place there is less of a diligence issue related to them). The increasingly symbiotic relationship between Chinese military entities and the Chinese private sector means that support provided to any number of private Chinese entities may now be considered to “assist or benefit” – and therefore “support” – Chinese military intelligence end-users or end uses. What sort of due diligence will BIS now expect US companies to put in place to reduce such risk?

Are There Any License Exceptions To These New Restrictions?

No, not for providing “support” to the WMD activities listed above. However, the rule does provide that “US persons who are employees of a department or agency of the US Government may ‘support’ a ‘military-intelligence end use’ or a ‘military-intelligence end user,’ … if the ‘support’ is provided in the performance of official duties in furtherance of a US Government program that is authorized by law and subject to control by the President by other means.” “Contractor support personnel,” or “those persons who provide administrative, managerial, scientific or technical support under contract to a US Government department or agency,” are also eligible for this exception.

How is Commerce Likely to Review License Applications for These Activities?

Applications by a US person seeking to “support” an end use or user related to WMD proliferation activities will be denied “if such support would make a material contribution to the end uses and end users described” in those provisions. Applications by a US person to “support” military-intelligence end use or user “will be reviewed with a presumption of denial.”

When Does This Rule Go Into Effect?

Although there were question marks over whether the rule would be subject to the Biden Administration’s recently issued regulatory freeze, BIS released a correction to the rule on March 15, 2021, removing any doubt that the rule goes into effect today, March 16, 2021. The correction also revises language in the original rule that would have resulted in the deletion of Part 744.3(a)(3)(i) and (ii) of the EAR, which contains the license requirements for exports, reexporters, and transferors who cannot determine the range capabilities of a rocket system or UAV in those countries listed in Country Group D:4 of the EAR, or whether such a rocket system or UAV will be used in connection with the delivery of certain weapons of mass destruction.

Thus, starting as early as today, “US persons” should be prepared to conduct additional due diligence for any transactions involving entities in the countries enumerated in this rule. The Arent Fox team will be monitoring additional developments closely and is happy to assist companies to navigate any challenges arising from this rule.

[1] A US person is (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.