Re: Crypto reg clarification from Commerce Department

["Richard L. Field" <field@pipeline.com>]

  To follow up on Lucky Green's conversation with Bruce Kutz on Sec. 736.2:


  The General Prohibitions (1 - 10) in the EAR preexisted these new crypto
regs.  What was changed in General Prohibition Seven (which previously
applied only to nuke and missile technologies) was the addition of a subpart
(ii):  "You may not, without a license from BXA, provide certain technical
assistance to foreign persons with respect to encryption items, as described
in Sec 744.9 of the EAR."

   Sec. 744.9 is a new addition.  It says:

   "(a)  General prohibition.  No U.S. person may, without a license from
BXA, provide technical assistance (including training) to foreign persons
with the intent to aid a foreign person in the development or manufacture
outside the United States of encryption commodities and software that, if of
United States origin, would be controlled for "EI" reasons under ECCN 5A002
or 5D002. [...] Note in addition that the mere teaching or discussion of
information about cryptography, including, for example, in an academic
setting, by itself would not establish the intent described in this section,
even where foreign persons are present." [...]

   When it comes to financing and contracting, it's General Prohibition Ten
you ought to be looking at.  That hasn't changed under the new rules and it
doesn't just apply to nukes and missiles.  It says:

   "Sec. 736.2(b)(10) General Prohibition Ten -- Proceeding with
transactions with knowledge that a violation has occurred or is about to
occur (Knowledge Violation to Occur).  You may not sell, transfer, export,
reexport, finance, order, buy, remove, conceal, store, use, loan, dispose
of, transfer, transport, forward, or otherwise service, in whole or in part,
any item subject to the EAR and exported or to be exported with knowledge
that a violation of the Export Administration Regulations, the Export
Administration Act or any order, license, License Exception, or other
authorization issued thereunder has occurred, is about to occur, or is
intended to occur in connection with the item.  Nor may you rely upon any
license or License Exception after notice to you of the suspension or
revocation of that license or exception.  There are no License Exceptions to
this General Prohibition Ten in part 740 of the EAR."


  Furthermore, in the Violations section (Sec. 764.2) it says:

   "(b) Causing, aiding, or abetting a violation.  No person may cause or
aid, abet, counsel, command, induce, procure, or permit the doing of any act
prohibited, or the omission of any act required, by the EAA, the EAR, or any
order, license or authorization issued thereunder."

   "(e) Acting with knowledge of a violation.  No person may order, buy,
remove, conceal, store, use, sell, loan, dispose of, transfer, finance,
forward, or otherwise service, in whole or in part, any item exported or to
be exported from the United States, or that is otherwise subject to the EAR,
with knowledge that a violation of the EAA, the EAR, or any order, license
or authorization issued thereunder, has occurred, is about to occur, or is
intended to occur in connection with the item."

   In the past, some banks worried about this when financing letters of
credit.  I'm told they were assured back then that this sort of financing
was not going to be prosecuted....but it's still in the regs so I wouldn't
bet the ranch on it never happening.

   - Richard Field