Overview
After months of escalating US economic sanctions on Venezuela and its international partners, the US Commerce Department’s Bureau of Industry and Security (BIS) is implementing major changes to US export controls on Venezuela that will significantly restrict remaining trade between the US (and third countries) and Venezuela in US export-controlled products (including technology transfers). These regulatory changes will also impose licensing requirements in many cases for the employment of or other interactions with Venezuelan nationals in the United States and third countries that need access to export-controlled technology. Effective May 24, 2019, BIS is amending the Export Administration Regulations (EAR) to make the following changes:
- Remove Venezuela from Country Group B (countries eligible for favorable treatment for certain exports of national security-controlled items);
- Add Venezuela to Country Group D:1 (countries of national security concern);
- Add Venezuela to Country Group D:2 (countries of nuclear proliferation concern);
- Add Venezuela to Country Group D:3 (countries of chemical and biological weapons proliferation concern); and
- Add Venezuela to Country Group D:4 (countries of missile technology proliferation concern).
Venezuela had already been subject to a US arms embargo (implemented by Venezuela’s inclusion in EAR Country Group D:5), along with export controls that applied whenever a military “end-use” or military “end-user” was involved in a transaction. It had also already been subject to a BIS licensing requirement for all national security-controlled items (despite its not being included in Country Group D:1 until now). This change expands the scope of BIS licensing requirements for Venezuela to include all items that are controlled for nuclear or chemical/biological weapons proliferation reasons. Previously, only the most sensitive items controlled for nuclear or chemical/biological weapons proliferation reasons required a license for Venezuela – now they all do. Should commercial operators care about this? Yes. The EAR, being a “dual-use” regulatory regime, control a broad array of industrial and commercial products for weapons proliferation reasons. Oil and gas, chemicals, pharmaceuticals, and many other industries routinely use products that are subject to these export controls that are now being imposed on Venezuela. Where companies operating in or trading with Venezuela previously did not require licenses to export many types of goods, software or technology to Venezuela, licenses in many more cases will now be required. In addition, companies dealing with these products and technologies internally, in the United States or third countries, may now need BIS licenses in order to employ or otherwise interact with Venezuelan nationals who will require access to this export-controlled technology. Not all US-controlled products now require a license for Venezuela or Venezuelan nationals. Essentially, those not covered by any Export Control Classification Number (ECCN), designated “EAR99,” and those falling under an ECCN that is only controlled for less-sensitive “anti-terrorism” reasons (along with less common “crime control” reasons), generally will not require a license from BIS. (However, a license from BIS or OFAC may still be required if restricted parties or restricted end-uses are involved, which often calls for due diligence to ensure that sanctioned parties such as PDVSA and military-linked parties are not involved). These changes will also limit the availability of many of the EAR’s license exceptions for Venezuela, increasing the frequency with which companies will need to apply for specific licenses from BIS for many types of routine trade and technology transfers.
- The following license exceptions will no longer be available for Venezuela:
- § 740.3, Shipments of limited value (LVS);
- § 740.4, Shipments to Country Group B countries (GBS); and
- § 740.6, Technology and software under restriction (TSR).
- The following license exceptions will now be more limited for Venezuela:
- § 740.9, Temporary imports, exports, reexports, and transfers (in-country) (TMP);
- § 740.10, Servicing and replacement of parts and equipment (RPL);
- § 740.12, Gift parcels and humanitarian donations (GFT);
- § 740.14, Baggage (BAG);
- § 740.15, Aircraft and vessels (AVS);
- § 740.16, Additional permissive reexports (APR); and
- § 740.17, Encryption, commodities, software, and technology (ENC).
Another important change brought about by these new rules is that the EAR’s jurisdiction as applied to trade and technology transfers with Venezuela will now expand to include more types of transactions conducted entirely outside the United States. Specifically, transfers of non-US-origin items from third countries to Venezuela, even when they have no or “de minimis” levels of controlled US-origin content, can now be subject to BIS’s licensing jurisdiction under the EAR if non-US-origin items with characteristics that would trigger national security controls under the US Commerce Control List (CCL) are the “direct product” of national security-controlled US-origin technology or software (or if the same is true of the “plant” or “major component” of a plant outside the US that is used to produce them). Non-US companies with business in Venezuela should take note of this jurisdictional expansion. Companies still operating in or trading with Venezuela (or dealing with Venezuelan nationals) in sectors impacted by these new restrictions should not lose all hope – it will often be possible to obtain BIS licenses, which can in many instances be issued relatively quickly (less than a month is common) and without too great a burden. In particular, normal commercial uses of less-sensitive controlled items at facilities operated by reputable international companies would be good candidates for well-crafted license applications. In thinking about whether to apply for a license and how to draft the license application, it is important to keep the underlying US government policies in mind. BIS says it is making these changes “to reflect current national security concerns related to Venezuela, e.g., the introduction of foreign military personnel and equipment into Venezuela, and to better protect US national security.” This is presumably a reference to recent (and ongoing) reported deployments of Russian and Cuban military and security personnel to Venezuela, along with broader tensions between the US and Venezuela. This makes sense for the changes in the national security controls applicable to Venezuela, as many of those items have general military applications. Less clear is the rationale behind restricting exports of items controlled for nuclear, missile technology, and chemical/biological weapons reasons. This author is not aware of any reports of the Maduro regime, which is hardly able to import food or produce gasoline, developing advanced nuclear, missile or other weapons of mass destruction programs. This may be in part an effort by the US government to continue to squeeze the Maduro regime economically, using every tool at their disposal. But it is probably also motivated by a concern about potential unlawful diversion from Venezuela to Cuba and other more heavily-sanctioned countries of these sensitive products and technologies. By way of explanation, BIS states “the US Government has determined that Venezuela’s increasing dependence on countries in Country Groups D:3 and E [Country Group E includes sanctioned countries] merited its placement in Country Groups D:2-4.” Companies that are impacted by these new licensing requirements for Venezuela should ensure that their export controls compliance programs reflect these developments. However, there may be reason for optimism that licenses will be granted for activities that do not implicate these US government policy concerns.
