BIS Withdraws Proposed Rule on Red Flag Guidance, Safe Harbor, Definition of Knowledge, Etc.
The Bureau of Industry and Security (BIS) has issued a notice, effective October 18, 2006, that withdraws its October 2004 proposed rule to amend the Export Administration Regulations (EAR) in 15 CFR Parts 732, 736, 740, 744, 752, 764, and 772 to update the "red flag" guidance, provide a safe harbor from liability arising from knowledge, and revise the definition of "knowledge."
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(In October 2004, BIS had proposed to amend the current definition of "knowledge" in 15 CFR 772.1 by, among other things, incorporating a "reasonable person" standard, to update and expand the "red flag" guidance, and to create a safe harbor from liability arising from knowledge-based license requirements, restrictions, and other knowledge provisions in the EAR subject to the proposed definition of knowledge. See ITT's Online Archives or 10/15/04, 10/21/04, and 11/16/04 news, 04101520, 04102115, and 04111625, for Parts I and II of the BP summary of the proposed rule, and a notice reopening the comment period, respectively.)
Commenters Criticized Reason for Definition Change, Guidance for "Red Flags," Complexity of Safe Harbor Proposal, Etc.
With regard to revising the definition of knowledge, BIS states that the most frequently expressed opinion was that the proposed revisions were, in fact, substantive changes to the definition rather than mere clarifications. Commenters also stated that BIS had not offered any reason as to why any change in the knowledge definition was necessary.
BIS states that although the proposed revisions to the "red flags" were criticized less than other proposed changes, commenters made suggestions for revisions or elimination of 12 specific "red flags." In addition, some commenters asserted that the proposal increased the number of circumstances that could be "red flags" without providing adequate guidance as to the circumstances when any particular "red flag" would be applicable.
BIS also states that a number of commenters criticized the safe harbor proposal, stating that it was too complex and lengthy. Several predicted that few, if any, firms would be inclined to use it. Some suggested that submitting a license application for the transaction would be simpler and probably faster than waiting to see if BIS approved of the manner in which the party resolved the "red flags."
BIS Withdraws Proposed Rule as it Does not Clarify or Increase Effect of Regs
BIS states that it has considered comments, reviewed the proposed rule as compared to the corresponding existing provisions of the EAR, and has considered several possible modifications of the proposed rule.
As a result of this consideration, BIS has concluded that utilizing this proposed rule as a basis for amending the EAR would neither clarify the public's responsibilities under the EAR nor make the regulations more effective.
(BIS sources also note that at this time, the agency has no plans in the works to 're-do' this proposed rule.)
BIS Contact - William Arvin (202) 482-3355
BIS Withdrawal (D/N 040915266-6239-03, FR Pub 10/18/06) available at http://a257.g.akamaitech.net/7/257/2422/01jan20061800/edocket.access.gpo.gov/2006/pdf/E6-17265.pdf