For several years, we have witnessed the emergence of a statutory and regulatory framework to tighten controls on the export of emerging and critical technology, as well as the review of inward foreign investment into said technology. As was evident in the listing of Huawei and other Chinese technology giants, the United States has demonstrated a willingness to use alternative punitive measures against China. Whether the desired impact of this approach has been achieved is difficult to determine. We have, nevertheless, no reason to believe that the tide will ebb in 2020.

The United States and China: A Conscious Decoupling?

Despite the recent announcement of a “phase one” trade deal with China, the year to come is likely to continue to see the United States erecting technology transfer controls and increased export-controlled enforcement targeting China. Even if China’s negotiating position is earnest regarding competitive devaluations of its currency and measures to improve access to its market for U.S. financial services entities, China has made no concessions regarding its use of industrial subsidies and state-owned enterprises, nor cybertheft. There also remain significant doubts as to the ability and willingness of certain Chinese entities to abide by U.S. regulations. Consider the fact that some 200 Chinese entities are listed on the U.S. stock exchanges; however, few have allowed the U.S. Securities and Exchange Commission (SEC) or the Public Company Oversight Board (PCAOB) to audit their financial reports. In 2017, U.S.-listed Chinese companies had a market capitalization of $1.2 trillion, which included over $120 billion in pension funds, retirement plans, mutual funds, and exchange-traded funds. China has alternatively resisted this by positing that an audit of a Chinese company is an offense against Chinese government sovereignty and that an audit report of a Chinese company constitutes a state secret.

The phase-one deal likely ushers a new phase of competition, one increasingly fraught with export and import controls, investment restrictions, and sanctions rather than with tariffs. There is now proposed legislation that would give foreign companies three years to cooperate with the SEC and PCAOB or be delisted from U.S. stock exchanges. Below are agency-specific developments of note in the past year.

U.S. Department of Justice

Export Controls Voluntary Self-Disclosures

In December, the U.S. Department of Justice’s (DOJ) National Security Division (NSD) released a revised policy regarding voluntary self-disclosures of willful export control and sanctions violations and, in doing so, supersedes its prior “Guidance Regarding Voluntary Self-Disclosures, Cooperation, and Remediation in Export Control and Sanctions Investigations Involving Business Organizations,” dated October 2, 2016.

According to the revised policy, when an entity (1) voluntarily self-discloses export control or sanctions violations to NSD’s Counterintelligence and Export Control Section, (2) fully cooperates, and (3) timely and appropriately remediates, said entity will benefit from a presumption that it will receive a non-prosecution agreement and will not pay a fine, absent aggravating factors. It is very important to note that aggravating factors include exports of items that are particularly sensitive or to end-users that are of heightened concern; repeated violations; involvement of senior management; and significant profit. Note that exports of military items to a hostile foreign power (read China and Russia, among others) are among the aggravating factors.

Prompt disclosure and timeliness are key. More importantly, the DOJ has now outlined what this means in the context of a merger or acquisition. Specifically, if misconduct by the merged or acquired entity is uncovered through timely due diligence or, in appropriate instances, through post-acquisition audits or compliance integration efforts, and said misconduct is voluntarily self-disclosed and otherwise remedied (including, inter alia, through the timely implementation of an effective compliance program), there will be a presumption of a non-prosecution agreement. Entities, therefore, are now being encouraged by the DOJ to allow their export controls, sanctions, and trade counsel enough time to conduct thorough due diligence and remediation, if necessary, in any merger or acquisition.

Foreign Corrupt Practices Act Enforcement

The DOJ and the SEC prosecuted more than a dozen companies between them, leading to penalties of $2.9 billion. Telefonaktiebolaget LM Ericsson, known to most of us as Ericsson, accounted for $1.06 billion of that number, making it one of the biggest enforcement cases of all time. According to the DOJ, for the year through December 2019, criminal charges were announced against 34 individuals and guilty pleas were made by 30 individuals. Each representing the historical high-water mark for FCPA prosecutions.

U.S. Department of Commerce

The U.S. Department of Commerce (“Commerce”) has been particularly busy this past November. We highlight some key developments below.

Implementation of the Export Control Reform Act

The Export Control Reform Act implementation began, in earnest, with an Advanced Notice of Proposed Rulemaking (ANPR) in November regarding the imposition of controls and determination of emerging technologies. Commerce has established teams to review industry comments and other sources regarding technologies to be controlled. According to Commerce officials, the goal is not to control categories writ large, but instead to control subsets—commodities, technologies within artificial intelligence (AI) (for example)—or any of the other 14 illustrative categories. The categories are: biotechnology; AI and machine learning; position, navigation, and timing technology; microprocessor technology; advanced computing technology; data analytics technology; quantum information and sensing technology; logistics technology; and additive manufacturing (e.g., 3D printing), robotics, brain-computer interfaces, hypersonics, advanced materials and advanced surveillance technologies.

To be identified as emerging and foundational technologies per 50 U.S.C. § 4817, the item must be essential to United States security. It appears that the Bureau of Industry and Security (BIS) is focusing on EAR99 items, which, once identified, would be subject to D5 controls (essentially the same as 22 C.F.R. § 126.1). The items are being identified through numerous sources, including labs, universities, and industry.

It has been suggested that BIS may use the OY521 process, implemented April 13, 2012, wherein items are classified as ECCN 0Y521 by BIS and controlled for export because they give a significant military or intelligence advantage to the United States. In effect, such a designation functions as a pause button, allowing BIS time to review the emerging technology and its impact. Officials at Commerce have confirmed that they intend to publish an ANPR on foundational technologies in the coming weeks and that the proposed rules on emerging and foundational technologies will not impact public domain.

Information and Communications Technology and Services Proposed Rule

Commerce issued a proposed rule to implement Executive Order 13873, “Securing the Information and Communications Technology and Services Supply Chain” (Executive Order 13873) granting the Secretary of Commerce sweeping authority to prevent or modify transactions involving information and communications technology and services (ICTS) originating in countries designated as “foreign adversaries” (again, read China and Russia, among others). Such transactions must pose an undue risk to critical infrastructure or the digital economy in the United States, or an unacceptable risk to national security of the United States. The potential impact of Executive Order 13873 touches every industry and allows for the Secretary’s case-by-case review of any transaction that is ongoing as of, or was initiated on or after, May 15, 2019. As written, Executive Order 13873 does not grant industry a preclearance mechanism for covered transactions. Comments are now due on or before January 10, 2020, and we highly recommend that companies participate.

The Secretary will ostensibly be guided by the following in determining whether to approve the transaction: it is conducted by persons subject to the jurisdiction of the United States or involves property subject to the jurisdiction of the United States; it involves any property in which any foreign country or a national thereof has an interest (including through an interest in a contract for the provision of the technology or service); it is initiated, is pending, or will be completed after May 15, 2019, regardless of contract execution date (for example, ongoing activities—such as managed services, software updates, or repairs; it involves ICTS designed, developed, manufactured, or supplied by persons owned by, controlled by, or subject to the jurisdiction or direction of a foreign adversary; and it poses (i) an undue risk of sabotage to or subversion of the design, integrity, manufacturing, production, distribution, installation, operation, or maintenance of information and communications technology or services in the United States; (ii) an undue risk of catastrophic effects on the security or resiliency of United States critical infrastructure or the digital economy of the United States; or (iii) an unacceptable risk to the national security of the United States or the security and safety of United States persons.

As to whether the transaction involves ICTS designed, developed, manufactured, or supplied by persons “owned by, controlled by, or subject to the jurisdiction or direction of a foreign adversary,” the Secretary will be guided by: the laws and practices of the foreign adversary; whether equity interest, access rights, seats on a board of directors or other governing body, voting rights, and control over design plans, operations, hiring decisions, or business plan development are acquired by the foreign entity or individual.

Entity List

There were seven amendments to the Entity List, supplement 4 to part 744 of the Export Administration Regulations (EAR). The list is growing by leaps and bounds because Commerce has found it very handy. It may be tailored and does not have a 50% rule. In the past two decades, nearly 1,000 entities have been added.

Extension of Huawei Temporary General License

The Bureau of Industry and Security (BIS) issued a final rule, extending through February 16, 2020, about the validity of the Temporary General License (TGL) authorizing certain transactions involving the export, reexport, and transfer of items subject to the Export Administration Regulations to Huawei Technologies Co. Ltd. (“Huawei”) and its subsidiaries and affiliates designated on the BIS Entity List. Prior to the extension, the TGL had been set to expire on November 18, 2019.

Since this extension of the TGL, BIS has reportedly begun issuing some individual licenses to authorize limited and specific activities which do not impose a significant risk to U.S. national security or foreign policy interests, but it has also stated that it intends to deny other license applications.

U.S. Department of Defense

The National Defense Authorization Act (NDAA) for Fiscal Year 2020 became Public Law No: 116-92 on December 20, 2019. The NDAA directs DOD to “establish streamlined procedures to collect appropriate information relating to individuals, including United States citizens and foreign nationals, who participate in defense research and development activities (other than basic research),” and to maintain the privacy of that information. The same provision also elaborates on how DOD should collaborate with academic institutions to disseminate best practices and directs the department to maintain a list of academic institutions in Russia, China, and other countries that are considered to pose research security risks.

This year’s NDAA brings a bevy of directives:

Emerging Technology

The DOD is directed to establish a process ensuring continuous updates to policies relating to emerging technologies, including how they may bear on treaties. The DOD will be charged with determining which technologies are “emerging.” We can already confirm that quantum computing, big data analytics, artificial intelligence, autonomous technology, robotics, directed energy, hypersonics, and biotechnology are among those listed in the bill.

Quantum Information Science

The NDAA clarifies that the DOD Quantum Information Science (QIS) program may partner with international entities and should coordinate with efforts initiated under the National Quantum Initiative Act. The NDAA also directs the DOD to develop a “taxonomy” for QIS and authorizes each DOD branch to create QIS research centers.


The NDAA directs the Defense Science Board to study the possibility of a coordinated DOD research program in emerging biotechnologies and recommend appropriate legislative and administrative actions.


The NDAA directs the DOD to develop a plan for harnessing 5G telecommunications technology that address, inter alia, spectrum-sharing technologies and frameworks, testbed development, and engagement with industry and academia. Unlike the Senate proposal for R&D in biotechnology, the NDAA did not adopt a Senate proposal requiring the establishment of an R&D program in 5G spectrum sharing.

U.S. Department of State

Transfer of Categories I, II, and III to Commerce Jurisdiction?

On November 21, 2019, the Trump administration gave formal notification to Congress of the proposal to amend the International Traffic in Arms Regulations (ITAR) to revise Categories I (firearms, close assault weapons and combat shotguns), II (guns and armament), and III (ammunition and ordnance) of the U.S. Munitions List (USML) and, more specifically, to remove some of those items from the USML and transfer them to Commerce Control List. The measure, unless blocked, could go into effect in 2020. The proposed rule changes were announced contemporaneously by the Commerce Department and the State Department in May 2018. Under the proposal, only fully automatic firearms, shotguns, and their ammunition and related technology would remain under State’s jurisdiction.

The U.S. Government Accountability Office (GAO) issued a report earlier this year describing how the proposed rule would impact licensing, registration, end-use monitoring, and congressional notification requirements. Aside from no longer requiring manufacturers, exporters, and brokers of items in Categories I-III to register with the DDTC, the GAO report warns that “critical information needed to effectively screen applicants and target licenses for end-use monitoring may be unavailable to Commerce unless State shares its watch list data.” Commerce, unlike State, has license exceptions—called Strategic Trade Authorization (STA) exemptionsfor exports to a total of 37 countries. Among those is Turkey, a NATO member.

End-use monitoring of controlled exports was also cited by GAO as a potential deficiency. The Directorate of Defense Trade Controls (DDTC) also requires end-use certification for firearms and ammunition, whereas BIS typically does not require these for most items on the Commerce Control List. While DDTC conducts end-use monitoring through its network of embassies and consulates worldwide, Commerce does not have such infrastructure. According to GAO, Commerce does not plan to create said infrastructure, relying instead on BIS special agents to travel abroad to conduct end-use checks.

DDTC Defines What Is Not an Export, Allows Cloud Computing

In December, DDTC published an interim final rule amending the ITAR to create a definition of “activities that are not exports, reexports, retransfers, or temporary imports.” DDTC also clarified that the electronic transmission and storage of properly secured unclassified technical data via foreign communications infrastructure does not constitute an export. The new definition, 22 C.F.R. § 120.17, will be valid as of March 25, 2020, and reads as follows:

(a) The following activities are not exports, reexports, retransfers, or temporary imports:

(1) Launching a spacecraft, launch vehicle, payload, or other item into space.

(2) Transmitting or otherwise transferring technical data to a U.S. person in the United States from a person in the United States.

(3) Transmitting or otherwise transferring within the same foreign country technical data between or among only U.S. persons, so long as the transmission or transfer does not result in a release to a foreign person or transfer to a person prohibited from receiving the technical data.

(4) Shipping, moving, or transferring defense articles between or among the United States as defined in § 120.13 of this subchapter.

(5) Sending, taking, or storing technical data that is:

(i) Unclassified;

(ii) Secured using end-to-end encryption;

(iii) Secured using cryptographic modules (hardware or software) compliant with the Federal Information Processing Standards Publication 140-2 (FIPS 140-2) or its successors, supplemented by software implementation, cryptographic key management, and other procedures and controls that are in accordance with guidance provided in current U.S. National Institute for Standards and Technology (NIST) publications, or by other cryptographic means that provide security strength that is at least comparable to the minimum 128 bits of security strength achieved by the Advanced Encryption Standard (AES-128);

(iv) Not intentionally sent to a person in or stored in a country proscribed in § 126.1 of this subchapter or the Russian Federation; and

(v) Not sent from a country proscribed in § 126.1 of this subchapter or the Russian Federation.

U.S. Department of Treasury

The Office of Foreign Assets Controls (OFAC) also had a very active year, during which it sanctioned some 1,900 individuals, i.e., a new designation every 3.4 days. Among the most market-impactful actions taken by the OFAC are the Countering America’s Adversaries Through Sanctions Act (CAATSA), delisting of Rusal, and the designation of Petróleos de Venezuela, S.A. (PdVSA) pursuant to Executive Order 13850.

In August, pursuant to Executive Order 13883, OFAC identified the following activities, as defined below, by a U.S. bank, including its foreign branches, are prohibited and subject to sanctions, except to the extent provided by law or unless licensed or otherwise authorized by the Office of Foreign Assets Control: (1) Participation in the primary market for non-ruble denominated bonds issued by the Russian sovereign, as defined below, after August 26, 2019; and (2) lending non-ruble denominated funds to the Russian sovereign, as defined below, after August 26, 2019. As a reminder, the Russia Sectoral Sanctions remain in place and prohibit certain activities in the energy, defense, and finance sectors. Directives 1, 2, and 3 restrict the issuance of debt or equity for listed financial, defense, and energy companies beyond very short periods (varies from 14-60 days). Notable examples under directive 1 are Gazprombank, VTB Bank, Sberbank; examples under directive 2 are Rosneft, Gazpromneft, and Novatek. Debt, in this context, includes providing payment terms beyond relevant terms above. Directive 4 prohibits provision of goods, services, and technology in support of oil, deep-water shale, or Arctic offshore with designated companies outside Russia. Directive 4 designations include Lukoil, Rosneft, Gazprom, and Gazprom Neft.

Certain existing sanctions administered by OFAC appear not to have been used despite triggering events. For example: (1) although section 231 of CAATSA requires the imposition of sanctions on anyone engaging in large arms transactions with Russia, no sanctions were imposed on Turkey this year; and (2) although violations of the U.S. Global Magnitsky Human Rights Accountability Act reached an all-time high in 2019 (there are now over 190 individuals and entities designated), nothing came of the potential designation of any Saudi Arabian individual for the murder of Jamaal Khashoggi. We note that with regard to Turkey, the sanctions could be reimposed since the implementing executive order (E.O. 13894) issued on October 14 remains in place.

Office of the United States Trade Representative: Section 301 Tariffs and Wine


For those of you waiting with bated breath for the trade war to abide, we have less than encouraging news. Namely, despite the phase-one deal with China, most of the tariffs on goods of Chinese origin remain in place.  The following is the current status of the Section 301 tariffs:

  • List 1

A 25% tariff remains on $34 billion worth of goods of Chinese origin. The United States Trade Representative (USTR) granted 726 exclusions that are valid for a year. On December 26, 2019, the USTR opened a one-year extension period for previously approved exclusions. The USTR determinations as to the extensions will largely be based on whether the company is able to source goods from elsewhere and the severity of the economic harm to the business of the tariff.

  • List 2

A 25% tariff remains in place on $16 billion worth of goods of Chinese origin. These tariffs commenced on August 23, 2018. The USTR approved 269 exclusions to date; no extension process has been notified to date.

  • List 3

The initial 10% tariff on $200 billion worth of goods of Chinese origin commenced on September 24, 2018. On May 10, 2019, the tariff was increased to 25%. Approximately 200 exclusions have been granted so far and are retroactive to September 24, 2018. The exclusions expire August 7, 2020.

  • List 4A and 4B

The 15% 4A tariffs on $300 billion worth of goods of Chinese origin commenced September 1, 2019. Following the phase-one China trade deal announcement, speculation is that the tariff will be reduced to 7.5% some 30 days after the phase-one deal is finalized. The public docket for submitting exclusion requests opened on October 31, 2019, and will close January 31, 2020. The 15% 4B tariffs were to commence on December 15, 2019; however, the USTR issued a notice on December 18, 2019 (84 Fed. Reg. 69447) announcing the indefinite suspension of the additional duties on goods of Chinese origin.


Finally, we take this opportunity to voice our discontent regarding the October 2019 imposition of a 25% tariff on wine imported from France, Germany, Spain, and Britain. While we were amused to learn that the British produce wine, we found the tariff on French, German, and Spanish wines to be plainly reckless and likely to cause broad societal discord. One salient point is that the tariff doesn’t apply to big wines, i.e., those with an alcohol content of 14% or above. Find refuge in the Grenache-Syrah-Mourvèdre-Zinfandel aisles.