This article is written by Herman Annink and Songul Balaban. Herman ([email protected]) and Songul ([email protected]) are Senior Consultants in the International Services Practice of RSM Netherlands with a focus on Risk & Compliance Services.
The new Regulation offers a wider and detailed definition of dual-use items – i.e. goods, technology, including software, which can be used for both civil and military purposes. It includes items that can be used for the design, development, production or use of nuclear, chemical or biological weapons or their means of delivery, including all items which can be used for both non-explosive uses and assisting in any way in the manufacture of nuclear weapons or other nuclear explosive devices. The new Regulation particularly emphasizes the respect of human rights and international humanitarian law, the ongoing compliance with the provisions and objectives and strengthening effective controls of exports of non-listed items (i.e. “catch-all controls”).
What is particularly new?
- Technical assistance: Under 2021/821, control over technical assistance (e.g. training, storing data on a foreign server) and (cyber) technology will be strengthened. Technical assistance is brought under the 'catch-all' clause and is therefore not limited to the items as described in the 'dual use' list, but it also requires the assessment of the end-use.
- New controls on Cyber-surveillance software and technology: The term “cyber surveillance products”, all products that are specially designed for covert observation of persons, has been included separately in 2021/821.
- Humanitarian law and the 'catch-all' safety net clause: An important change in 2021/821 is that use related to internal repression or committing serious violations of International Human Rights and International Humanitarian Law, is part of the licensing considerations framework, especially for cybersurveillance items.
- Internal Compliance Programme (ICP): The requirement of an ICP is explicitly mentioned in 2021/821 as a condition for obtaining a global export license.
- Export licenses under 2021/821: In certain situations, a permit will be required such as brokering from the Union, by persons established outside the Union; for technical support, when covered by the new catch-all clause and in cyber-surveillance activities.
How does it impact the compliance obligations of Logistic Service Providers?
LSPs are responsible and held accountable under U.S. export controls and EU and local EU Member States’ export controls for compliance regarding activities, such as exporting, transiting, transferring or brokering. LSPs may face legal action in case of aiding and abetting unlawful exports or transfers of export-controlled goods, facilitating exports or transfers involving sanctioned persons or destinations or failing to comply with applicable record-keeping requirements. In general, the import and transit, export, transfer, brokering of and provision of technical assistance with respect to military goods and, conditionally, of dual use goods without a license is forbidden.
The modernization of the Union's export control system has a major impact on the international trade activities of logistic service providers involved in or supporting the export, brokering, technical assistance, transit or transfer of dual-use items. Regarding dual use goods, the competent authority may impose license obligations to the person who has the right to decide on the dispatch of products moving through the customs territory of the Union, or in case the exporter is located outside EU, to the carrier.
How to deal with the new developments?
LSPs have their own responsibility and cannot rely on the compliance actions performed by their customers or other parties in the supply chain. Commercial contracts based on international conventions arrange for the commercial roles and responsibilities of parties and do not restrict the LSPs’ responsibility regarding export controls and sanctions. Therefore, checking the liability of each party in the supply chain, identifying who the exporter is and who has the decision-making authority is crucial to assess the impact of new regulation from liability perspective.
The new regulation will change the way that Logistics Service Providers do their business, therefore their relationship with the authorities and their customers. Understanding the practical implications and being prepared at managerial and organizational level is essential for Logistic Service Providers to manage the risks and stay ahead of the competition.