On November 7, 2014, the U.S. Commerce Department’s Bureau of Industry and Security (“BIS”) published a final rule that amends the U.S. Export Administration Regulations (“EAR”) to impose export restrictions on the Venezuelan defense sector. The final rule is effective immediately, and imposes a license requirement for certain items destined to Venezuela that are intended for a “military end use” or a “military end user.”  BIS took this action in response to the Venezuelan military’s crackdown on protestors and related anti-democratic actions, and it is consistent with the existing U.S. arms embargo against Venezuela. The final rule also comes on the heels of a similar rule issued in September (as previously reported), which restricts exports of the same products to Russian military end users and end uses.

We have summarized below the most significant changes to the EAR of which U.S. and non-U.S. companies dealing with Venezuela should be aware, as well as a number of key  takeaways for companies dealing in the identified defense-related items.

Military End Use Restrictions

The final rule amends Section 744.21 of the EAR to implement “military end use” and “military end user” license requirements for exports, reexports, and transfers (in-country) of certain items to Venezuela. BIS first adopted military end use restrictions in 2007 to prevent the improvement of certain countries’ military capabilities which would be  adverse  to  U.S. national  security and  foreign policy interests. These restrictions are based on the knowledge that exports, reexports, or transfers of certain items would be used for a military end use.1  Initially, the military end use restriction was limited to certain defense-related items destined for China, and the restrictions were extended to Russia in September 2014.

The final rule expands these restrictions to cover certain defense-related items shipped to Venezuela. The prohibition in Section 744.21 now states that a company may not export, reexport, or transfer any item subject to the EAR listed in Supplement No. 2 to Part 744 (“Supplement No. 2”) to Venezuela without a license if, at the time of the export, reexport, or transfer, either: (i) you know that the Item is intended, entirely or in part, for a “military end use” or “military end user” in Venezuela, or (ii) you have been notified by BIS that a certain Item is or may be intended, entirely or in part, for a “military end use” or “military end user” in Venezuela.

These restrictions apply to items specifically listed in Supplement No. 2, which contains 32 Export Control Classification Numbers (“ECCNs”) from nine out of the ten categories on the Commerce Control List. The list of ECCNs contains a range of items, including items that may be used for military end uses more indirectly, such as software and technology used to develop, produce, or use certain defense-related items.

In addition, companies are prohibited from exporting, reexporting, or transferring all ECCN 9x515 and “600 series” items to Venezuela (in addition to China and Russia) without a license.

While companies may apply for a license to ship the restricted defense-related items to Venezuela, such applications will be reviewed on a case-by-case basis to determine whether the shipment would materially contribute to Venezuela’s military capabilities and, if so, the license application would be denied.

Finally, similar to the Russia-related restrictions under Section 744.21, this final rule restricts shipments to Venezuela known to have a military end use or to involve a military end user.2 The restrictions on China, on the other hand, only apply to military end uses. Therefore, the new license requirement applies to dual-use items (e.g., computers, telecommunications equipment, etc.) that are destined for Venezuelan military end users, even if the exporter knows that the intended end use is commercial in nature.

Key Takeaways

To some extent, this final rule extends the current U.S. arms embargo against Venezuela to certain dual- use items. U.S. exporters have long been unable to export to Venezuela any items controlled under the International Traffic in Arms Regulations (ITAR). Now BIS has enacted restrictions on certain dual-use items to the same Venezuelan end users and for similar end uses.

As an initial matter, U.S. and non-U.S. companies exporting to Venezuela should determine whether their dual-use goods are listed in Supplement No. 2. In the event that you determine that you export, reexport, or deal in any Supplement No. 2 items destined for Venezuela, you should carefully assess whether any such items are intended, entirely or in part, for a military end use or a military end user in Venezuela. If you are unable to determine whether such items are intended for a military end use or a military end user, we would recommend applying for a license from BIS. As has been the case with China for several years (and with Venezuela under the ITAR), exporters must now carefully consider any EAR-controlled transaction related to the Venezuela defense sector to determine whether the transaction may involve a Venezuela military end use or end user.

The timing of this rule is also interesting for several reasons. First, Congress and the Administration had been vocal earlier this year about Venezuela’s anti-democratic crackdown. The State Department imposed visa restrictions on certain Venezuelan officials in July and bills were introduced in both houses of Congress. However,  prior to this final rule, there had been no action in Congress or relevant announcements from the Executive Branch for several months. Second, BIS imposed similar license restrictions on Russia less than two months ago, after imposing military end-use restrictions only on China for seven years. As more defense-related items move from ITAR control to the EAR under export control reform, it seems that BIS may be more willing to restrict exports of EAR-controlled military items for strategic foreign policy reasons.