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BIS and DDTC Implement New Cambodia-Related Export Controls; OFAC Sanctions Cambodian Military Leaders for Corruption

On December 9, 2021, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) and Department of State’s Directorate of Defense Trade Controls (DDTC) implemented new export control restrictions on Cambodia.  These actions come approximately one month after the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated two Cambodian military leaders as Specially Designated Nationals (SDNs) under the Global Magnitsky Sanctions Program for engaging in corruption related to the Ream Naval Base.

New BIS Export Controls on Cambodia

On December 9, 2021, BIS published a final rule in the federal register that: (i) adds Cambodia to the list of countries subject to Military End User (MEU) and Military Intelligence End User (MIEU) restrictions; (ii) applies a stricter license review policy for national security items destined for Cambodia; and (iii) adds Cambodia to Country Group D:5, the list of jurisdictions subject to U.S. arms embargoes. See 86 Fed Reg 70,015.  BIS stated that it took these actions with respect to Cambodia because of recent changes to Cambodian foreign policy undermining regional security as well as U.S. national security and foreign policy interests, particularly with regard to the People’s Republic of China’s (PRC’s) military presence and construction of facilities at Ream Naval Base in Cambodia.

The implications of these changes for exporters, forwarders, and other logistics and transportation service providers are as follows:

• MEU Related Changes 
• License Requirements. A license from BIS is required to export, re-export, or transfer items subject to the Export Administration Regulations (EAR) and listed in Supp. No. 2 to Part 744 of the EAR (MEU-Restricted Items) to “military end users” or for a “military end use” in Cambodia. 

As a reminder, BIS expanded its definition of “military end use” and “military end user” in 2020.  Under the MEU rules, licensing determinations for shipments of MEU-Restricted Items also require screening of end-users and end-uses.  BIS has published MEU-related FAQs that contain guidance on how to identify military end users and end uses.  Please keep in mind that the MEU List in Supp. No. 7 to Part 744 is non-exhaustive, and therefore parties can be MEUs even if they are not included on that list.

 

• EEI Filing Requirements.  As of the date of this alert, BIS has not added Cambodia to the list of countries that require EEI Filings for all shipments of items with Export Control Classification Numbers (ECCNs) on the Commerce Control List (CCL).
• MIEU Related Changes
• Export License Requirements.  A license from BIS is required to participate in the export, re-export, or transfer of any items subject to the EAR to a military intelligence end user in Cambodia or for a military intelligence end use in Cambodia. 
• Definitions.  As a reminder:
• A military intelligence end user includes an intelligence or reconnaissance organization of Cambodia’s armed services or national guard. 
• A military intelligence end use means the “development,” “production,” operation, installation, maintenance, repair, overhaul, or refurbishing of, or incorporation into, items on the U.S. Munitions List (USML), or classified under “A018” or “600 series” ECCNs. 
• MIEU List Addition.  Cambodia’s General Department of Research and Intelligence (GDRI) was added to the MIEU List in § 744.22(f)(2).
• Facilitation Restrictions.  In addition to the export license requirements, U.S. persons are prohibited from “supporting” military intelligence end users in Cambodia.  This includes freight forwarding or otherwise facilitating a cross-border shipment that will be used by a military intelligence end user or for a military intelligence end use, regardless of whether the shipped items are subject to the EAR.
• Cambodia’s Addition to Country Group D:5
• Cambodia is subject to additional restrictions, stricter licensing policies, and fewer license exceptions for military related items on the EAR (i.e., satellite items and “600 series” items) now that it is part of “U.S. Arms Embargoed Countries” under Country Group D:5.
• Savings Clause

BIS’s action contains a Savings Clause authorizing the completion of ongoing shipments to Cambodia, provided that: (i) prior to December 9, 2021, the shipments were authorized for export, re-export, or in-country transfer to or in Cambodia under a license exception or No License Required (NLR); (ii) the shipments were on dock for loading, on lighter, laden aboard an exporting or transferring carrier, or en route aboard a carrier to a port of export or reexport on January 10, 2022; and (iii) the shipments were subject to actual orders for export, re-export, or in-country transfer to or in Cambodia prior to December 9, 2021. 

New International Traffic in Arms Regulations (ITAR) Changes

In coordination with BIS, DDTC published a final rule adding Cambodia to its list of countries subject to a policy of denial for exports of defense items and services under 22 CFR § 126.1.  See 86 Fed Reg 70,053 (December 9, 2021).  Pursuant to this change:

• DDTC will review license applications for the export or import of USML items and defense services to or from Cambodia with a policy of denial.
• DDTC may, on a case-by-case basis, approve exports or imports for conventional weapon destruction or humanitarian mine action activities.
• Exports and imports of USML items to and from Cambodia may no longer rely on ITAR license exceptions.
• Licensed exports and imports of USML items cannot be transported on vessels or aircraft that are owned by, operated by, leased to, or leased from Cambodian entities and nationals.  

OFAC Sanctions on Military Leaders in Cambodia for Corruption

On November 10, 2021, OFAC designated two Cambodian military officials as SDNs for engaging in corruption in Cambodia: (i) Chau Phirun, the Director-General of the Defense Ministry’s Material and Technical Services Department; and (ii) Tea Vinh, the Royal Cambodian Navy Commander.  These individuals were designated for allegedly inflating costs of facilities at Ream Naval Base in Cambodia and planning to share funds skimmed from the Ream Naval Base project.  Assets in which these individuals have an interest are blocked, and U.S. companies are prohibited from engaging in any unlicensed business with these SDNs.  Further, U.S. companies are prohibited from doing business with any entities in which these SDNs hold a 50 percent or greater ownership interest under OFAC’s 50 Percent Rule.

The U.S. Departments of State, Commerce, and the Treasury released a Cambodia Business Advisory on High-Risk Investments and Transactions (the Advisory) the same day as OFAC’s two Cambodia designations.  The Advisory warns companies of potential high-risk transactions in Cambodia that may violate U.S. law, including: (1) public corruption by Cambodia officials; (2) illicit finance; and (3) trafficking in persons, wildlife, and narcotics. 

OFAC’s action and the Advisory raise the risk that OFAC may designate other Cambodian officials for public corruption in the future.  Accordingly, it would be prudent for forwarders, exporters, and importers, to identify any partners, agents, customers, or other service providers in Cambodia that are ultimately owned by Cambodian officials.  In the event that a Cambodian official owner is designated as an SDN by OFAC, companies owned by that official may also become “blocked persons” under OFAC’s 50 Percent Rule.

We hope this is helpful, but please contact our office at okrischik@gkglaw.com or 202-342-5266 if you have any questions.

Oliver Krischik