One of the most indefensible parts of the U.S. export control regime, and one that is not even addressed by the export control reform initiative, is the overlapping jurisdiction of two separate agencies — the Bureau of Industry and Security (“BIS”) and the Office of Foreign Assets Control (“OFAC”) — over sanctioned countries. No one has ever articulated a rationale for this other than the need to gouge federal taxpayers by hiring multiple people in multiple agencies to do exactly the same thing and to keep private lawyers employed to explain to baffled exporters which agency needs to bless a particular export. And nowhere has the insanity of this overlapping jurisdiction been made more clear than in the recent amendments by both agencies (and an accompanying tsunami of ink in the Federal Register) to permit the export of communications hardware and fee-based personal communications hardware and software to Sudan.
To understand what is going on, you must first understand that both BIS and OFAC assert jurisdiction over Sudan (unlike say Cuba and Iran where they have called a truce and agreed that one agency would be responsible for export licensing). Section 538.205 of the Sudanese Sanctions Regulations requires licenses for all exports by anyone from the United States to Sudan, all exports by United States persons from anywhere to Sudan, and all re-exports to Sudan from foreign countries by foreign persons of goods originally exported from the United States. This broad prohibition also necessarily covers by its terms exports or re-exports by U.S. persons of items “subject to the EAR” and which are on the CCL with an AT reason for control. Such exports of course, will therefore also require a BIS license in addition to the OFAC license. The language of 538.205 also covers exports of EAR99 items and items not “subject to the EAR” which would not require a BIS license and, thus, require only an OFAC license. Re-exports by foreign persons of foreign manufactured items on the CCL with more than de minimis U.S. content to Sudan are covered by the EAR and not 538.205 and, thus, would be licensed by BIS alone. Items that are EAR99 or foreign manufactured with less than 10 percent U.S. content, are outside the United States and are re-exported to Sudan by foreign persons are not within the scope of sections 538.205 or 538.507 of the SSR or the EAR and would, therefore, not require a license by either agency. Got that? I thought so.
The new OFAC amendments to the Sudan Sanctions Regulations (“SSR”) and the BIS amendments to License Exception CCD are designed to expand to Sudan the previous authorizations for exports to Iran (by OFAC) and Cuba (by BIS) of certain services, software and hardware for personal communications. How these two sets of rules now apply to exports to Sudan and the overlapping jurisdiction of OFAC and BIS is, not surprisingly, is a needlessly complex matter.
Let’s start by looking at certain hardware exports that can require authorization by both agencies, namely exports by U.S persons of items that are subject to the EAR and are not EAR99 that U.S. persons wish to export. Take, for example, a television receiver with encryption functionality classified as 5A992. Because the item is 5A992 it may require a license to be exported by a U.S. person to Sudan. However, such an item is listed in License Exception CCD at section 740.19(b)(14) and therefore does not require a BIS License. Under section 538.533(a)(3)(i) of the SSR, only hardware items on Appendix B to Part 538 are exempt from OFAC’s license requirement. Television receivers, however, are not on Appendix B. Digital cameras classified as 5A992 are included in CCD but not in Appendix B. Why OFAC and BIS would have differing views on whether these items are personal communications devices and why OFAC would still require a license for an item covered by CCD is, of course, anyone’s guess.
The analysis becomes a bit more confusing for software. Consider publicly-available free (or at cost) software with encryption functionality which, because it meets the mass market criteria, is classified as 5D992. Under EAR section 734.3(b)(3) that software is not subject to the EAR and could be freely exported by a U.S. person to Sudan without a BIS license even prior to the latest amendments. If, on the other hand, it is not free (or at cost), then it is subject to the EAR and, because it is 5D992, would require a BIS license to Sudan unless it is listed on CCD. (The basic change by adding Sudan to CCD was, in fact, to capture mass market software that was not free or at cost.)
Now let’s look at this software from the OFAC perspective since you have to look at both OFAC and BIS rules for goods that are not EAR99. Prior to the amendment, section538.533(a)(2) of the SSR permitted the export if the software was not subject to the EAR which, under EAR 734.3(b)(3), this would not be, and was for personal communication over the Internet. If the software was not free, then the old section 538.533 would not apply, and an OFAC license would have been required in addition to the BIS license. Under the amended version of 538.533, section (a)(2) would permit software, whether or not mass market and/or free, to be exported by U.S. persons or from the United States to Sudan if it was necessary for personal communications over the Internet. Software not related to personal communications over the Internet and that is either not subject to the EAR because it is free or at cost and publicly available or because it is outside the United States, would still not need an OFAC license if it is on Appendix B, which includes things like anti-virus, anti-tracking and VPN software.
As you can see, because of the overlapping (and unnecessarily duplicative) jurisdiction of both agencies over Sudan exports, both OFAC and BIS regulations must be consulted for most exports to Sudan, making the process difficult and confusing. If you have a headache after reading the analysis above, then start clamoring for real export control reform which would involve merging the export control functions of BIS and OFAC into one agency.
Oh, and one more even bigger headache before we wrap up this post: OFAC itself apparently cannot figure out how it shares jurisdiction with BIS. In the FAQ on the new amendments, OFAC now says this:
427. May a non-U.S. person export, reexport, or provide to Sudan hardware and software that is subject to the EAR pursuant to § 538.533?
The Department of Commerce, Bureau of Industry and Security (BIS), has jurisdiction over non-U.S. persons’ exportation and reexportation to Sudan of items subject to the EAR. Please consult BIS, www.bis.doc.gov, for guidance on such transactions.
Now go back and re-read section 538.205 of the SSR, which clearly forbids exports to Syria by non-U.S. persons of hardware and software located in the United States. Now try to find a rule in the SSR that says that if such exports from the United States by non-U.S. persons are licensed by BIS no OFAC license is required. Nope, not there. When even the agencies themselves cannot figure out which agency is in charge, there is no conceivable remaining excuse to have both agencies regulating these exports.