New Trade Sanctions Coming to Protect U.S. Technology; Export Screening Urged
Thursday, May 16, 2019
New restrictions on exports to Chinese telecom giant Huawei and 70 affiliates will be effective soon and other trade involving information and communications technology and services could be limited as well after President Trump issued May 15 an executive order declaring a national emergency due to the threat of foreign adversaries using ICT for economic and industrial espionage.
Broad Trade Sanctions Authorized
The EO authorizes the Department of Commerce to prohibit imports and other transactions that involve information and communications technology (or services) designed, developed, manufactured, or supplied by persons owned by, controlled by, or subject to the jurisdiction or direction of a foreign adversary and:
- pose an undue risk of sabotage to or subversion of ICT in the U.S.;
- pose an undue risk of catastrophic effects on the security or resiliency of U.S. critical infrastructure or the digital economy of the U.S.; or
- otherwise pose an unacceptable risk to U.S. national security.
Foreign adversaries are defined as any foreign government or non-government entity engaged in a long-term pattern or serious instances of conduct significantly adverse to U.S. national security.
Exports to Huawei, Others to be Restricted
Following the release of the EO the DOC’s Bureau of Industry and Security confirmed that Huawei and its 70 affiliates are a key target of the new sanctions authorization and will be added to the Entity List. While the precise prohibitions that will be imposed on exports to these entities as a result are unclear pending issuance of an official notice in the Federal Register, it is likely that most if not all transactions subject to U.S. jurisdiction will require a license from BIS. Given the highly political nature of the situation, Sandler, Travis & Rosenberg will be monitoring BIS’ disposition to issue such licenses and expects it to be significantly limited.
Export Screening, Other Actions Urged
Ultimately, companies need to be prepared to stop selling parts and components or providing services to Huawei and its affiliates. Upon release of the official notice by BIS adding these entities to the Entity List, companies should immediately begin screening or re-screening their customer, vendor, and other third-party data to ensure they identify any potential ongoing or pending transactions with these parties and set up appropriate controls to ensure compliance with U.S. export control laws. Violations of Entity List and other restrictions can result in significant financial penalties, denial of export privileges, and reputational damage.
More Entity List additions will likely follow in the coming weeks and months to promote the administration’s goal of securing the U.S. information and communications technology and services supply chain, including hardware, software, and other products for information processing, storage, retrieval, or communication by electronic means.
ST&R’s export controls and sanctions team is positioned to support companies in their screening efforts and help them mitigate the risks of doing business in this ever-evolving geopolitical climate. Please contact export attorney Kristine Pirnia for more information.
© 2019, Sandler, Travis & Rosenberg, P.A. Originally published in the 05/16/19 issue of the Sandler, Travis & Rosenberg Trade Report. Reprinted by permission.