This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

60829

Vol. 69, No. 197

Wednesday, October 13, 2004

DEPARTMENT OF COMMERCE 

Bureau of Industry and Security 

15 CFR Parts 732, 736, 740, 744, 752, 

764, and 772 

[Docket No. 040915266–4266–01] 

RIN 0694–AC94 

Revised ‘‘Knowledge’’ Definition, 

Revision of ‘‘Red Flags’’ Guidance and 

Safe Harbor

AGENCY: Bureau of Industry and 

Security, Commerce.

ACTION: Proposed rule.

SUMMARY: This proposed rule would 

revise the knowledge definition in the 

Export Administration Regulations to 

incorporate a ‘‘reasonable person’’ 

standard and to replace the phrase 

‘‘high probability’’ with the phrase 

‘‘more likely than not.’’ It also would 

update the ‘‘red flags’’ guidance and 

would provide a safe harbor from 

liability arising from knowledge under 

that definition.

DATES: Comments must be received by 

November 12, 2004.

ADDRESSES: Send comments on this 

proposed rule to: the Federal 

eRulemaking Portal: http://

www.regulations.gov, via e-mail to 

rpd2@bis.doc.gov, fax them to 202–482–

3355, or on paper to Regulatory Policy 

Division, Office of Exporter Services 

Room 2705, U.S. Department of 

Commerce, Washington, DC 20230. 

Refer to Regulation Identification 

Number 0694–AC94 in all comments.

FOR FURTHER INFORMATION CONTACT: For 

further information regarding this 

proposed rule, contact: William Arvin, 

Office of Exporter Services, at 

warvin@bis.doc.gov, fax 202–482–3355 

or telephone 202–482–2440

SUPPLEMENTARY INFORMATION:

Background 

Knowledge Definition 

The current definition of 

‘‘knowledge’’ in § 772.1 of the EAR 

encompasses ‘‘not only positive 

knowledge that a circumstance exists or 

is substantially certain to occur, but also 

an awareness of a high probability of its 

existence or future occurrence. Such 

awareness is inferred from evidence of 

the conscious disregard of facts known 

to a person and is also inferred from a 

person’s willful avoidance of facts.’’ 

This proposed rule would amend the 

definition of knowledge in four ways, 

incorporating a ‘‘reasonable person’’ 

standard, replacing the phrase ‘‘high 

probability’’ with the phrase ‘‘more 

likely than not,’’ adding the phrase 

‘‘inter alia’’ to the description of the 

facts and circumstances that could make 

person aware of the existence or future 

occurrence of a fact, and eliminating the 

phrase ‘‘known to the person’’ from the 

sentence in the knowledge definition 

that states that knowledge may be 

inferred from ‘‘conscious disregard of 

facts known to the person.’’ The 

proposed rule also limits the 

applicability of the definition to certain 

actors in transactions subject to the 

Export Administration Regulations 

(EAR) and excludes certain usages from 

the definition. 

BIS believes that incorporating the 

reasonable person standard into the 

definition will facilitate public 

understanding of the definition, 

particularly as it applies to knowledgebased license requirements, and 

restrictions on use of License 

Exceptions. Under this revised 

definition a party would have 

knowledge of a fact or circumstance if 

a reasonable person in that party’s 

situation would conclude, upon 

consideration of the facts and 

circumstances, that the existence or 

future occurrence of the fact or 

circumstance in question is more likely 

than not.

BIS believes that replacing the phrase 

‘‘high probability’’ with the phrase 

‘‘more likely than not’’ is not a change 

from current policy and practice. The 

phrase ‘‘more likely than not’’ is better 

understood than ‘‘high probability.’’ 

Moreover, companies with a strong 

compliance commitment are unlikely, 

even under the current definition, to 

proceed with transactions if they 

conclude that the circumstance of 

concern is ‘‘more likely than not.’’ 

Adding the phrase ‘‘inter alia’’ to the 

description of the circumstances under 

which knowledge may be inferred 

emphasizes that the factors cited in the 

definition, i.e. the conscious disregard 

or willful avoidance of facts are not the 

only factors from which knowledge may 

be inferred. 

Removing the phrase ‘‘known to the 

person’’ from the sentence in the 

knowledge definition that states that 

knowledge may be inferred from 

‘‘conscious disregard of facts known to 

the person’’ would eliminate the use of 

the defined term in the definition. 

Other proposed changes to the 

definition address the scope of its 

application. The phrase ‘‘When referring 

to an actor in a transaction that is 

subject to the EAR’’ would be added to 

the beginning of the definition, and 

language would be added to specify that 

the definition concerns knowledge of a 

fact or circumstance relating to such a 

transaction. These changes would make 

clear that the definition would not 

apply to provisions of the EAR in which 

‘‘knowledge’’ and related terms are 

used: (1) To refer to technology; (2) to 

‘‘personal knowledge’’ or to knowledge 

of the EAR; (3) to describe the basis for 

an agency or official to take an 

enforcement or administrative action; 

(4) to indicate an alternative name (as in 

the phrase ‘‘also known as’’); (5) in 

explanatory text that has no legal effect; 

(6) in a requirement that a party certify 

that a statement is true to the best of its 

knowledge; or (7) when referring to the 

requirements or prohibitions of a law 

other than those implemented by the 

EAR. Finally, language would be added 

excluding from the definition the use of 

‘‘knowledge’’ terms in the description of 

criminal liability in Section 764.3(b). 

The proposed definition, like the 

current definition of ‘‘knowledge’’ in 

§ 772.1, would also not apply to Part 

760 of the EAR (Restrictive Trade 

Practices or Boycotts). 

Enhanced Red Flags 

BIS is proposing to update and 

augment the ‘‘red flag’’ guidance and to 

increase from 12 to 23 the number of 

circumstances expressly identified as 

presenting a red flag. The revised 

guidance would reflect experience 

gained since the existing red flags and 

guidance were developed in the mid1980s. The ‘‘red flags’’ would continue 

to provide guidance that BIS believes is 

useful in preventing the diversion of 

items that are subject to the EAR to 

proliferation related purposes as well as 

60830 Federal Register / Vol. 69, No. 197 / Wednesday, October 13, 2004 / Proposed Rules 

other potential violations of the EAR. 

Although the ‘‘red flags’’ provide 

guidance, this rule would also 

incorporate them by reference into the 

proposed safe harbor and the Internal 

Compliance Programs requirements of 

Special Comprehensive Licenses. To 

clarify the role the red flags would play 

under this rule, BIS is proposing to add 

a statement that the red flags and know 

your customer guidance do not derogate 

from obligations imposed elsewhere in 

the EAR and to remove the statement 

‘‘This guidance does not change or 

interpret the EAR’’ from supplement No. 

3 to part 732. 

BIS believes that many conscientious 

participants in export transactions are 

following the current ‘‘red flag’’

guidance. BIS anticipates that the added 

benefit of the safe harbor provision 

would encourage more parties to take 

these measures and thereby prevent 

diversions to proscribed or 

inappropriate end-uses. 

Safe Harbor 

BIS is proposing to create a safe 

harbor from liability arising from 

knowledge-based license requirements, 

knowledge-based restrictions on use of 

License Exceptions, and other 

knowledge provisions in the EAR that 

are subject to the proposed definition of 

knowledge described above. Under this 

safe harbor, parties who take steps 

identified in a new § 764.7 will not have 

knowledge imputed to them by 

application of the ‘‘reasonable person’’

standard stated in the new definition. 

Parties who report to BIS’s Office of 

Enforcement Analysis, prior to 

shipment, all material information 

regarding the existence, assessment, and 

satisfactory resolution of the red flag(s) 

and who do not otherwise have 

‘‘knowledge,’’ as defined in § 772.1, will 

be eligible for a safe harbor from any 

enforcement action arising from the red 

flag(s) that they have addressed. 

The steps to be listed in § 764.7 are: 

(1) Comply with any item and/or 

destination-based license requirements 

and other notification or review 

requirements;

(2) Determine whether parties in the 

transaction are subject to a denial order 

or to certain sanctions, whether they 

appear on the Entity List or the 

Unverified List, whether the transaction 

is governed by a general order issued by 

BIS; and 

(3) Follow the procedures for 

identifying and resolving red flags set 

forth in Supplement No. 3 to Part 732. 

If BIS concludes that a reported 

transaction involves unresolved red 

flags, it will so advise the submitting 

party. If a party has actual knowledge or 

awareness that the fact or circumstance 

in question is more likely than not, then 

even if the party receives BIS 

concurrence (based on a report to the 

Office of Enforcement Analysis) that red 

flags are resolved, the party will not be 

eligible for the safe harbor nor will BIS 

concurrence bind a subsequent 

enforcement action or prosecution, 

because the report would have 

misstated or withheld relevant 

information. 

BIS expects to respond to most such 

reports within 45 days of receipt. BIS 

will acknowledge in writing receipt of 

all reports and will provide a telephone 

number for the reporting party to call to 

learn the status of the report if it has not 

heard from BIS by the date stated in the 

acknowledgment. BIS may consult with 

other government agencies before 

responding to the party submitting the 

report. However, until receiving written 

confirmation from BIS or contacting BIS 

after the date specified in the 

acknowledgment and learning that BIS 

will not be responding to the report, the 

party is not entitled to conclude that BIS 

concurs in the party’s assessment that 

any red flags have been successfully 

resolved. 

Parties who have filed such reports 

may not file a license application 

relating to the same situation while the 

report is under review by BIS. Such 

license applications will be returned 

without action. In addition to language 

in the new § 764.7, § 748.4(f) would be 

modified to implement this prohibition. 

Other Clarifying Amendments and 

Conforming Changes 

The proposed rule would also amend 

the EAR in the following ways: 

(1) Removal of Superfluous or 

Potentially Confusing Uses of a 

‘‘Knowledge’’ Term 

The proposed rule would revise three 

provisions of the EAR to clarify that 

they refer to all requirements under part 

744, not just to requirements based on 

knowledge. These amendments would 

not change the substance of any 

provision. The provisions to be 

amended in this way are:

—General Prohibition Five, which 

references the recipient and end-use 

based export and reexport 

requirements of part 744 and which is 

found at § 736.2(b)(5);

—The prohibition on using License 

Exception AGR for transactions in 

which a license is required by part 

744 found at § 740.18; and 

—The prohibition on using Special 

Comprehensive Licenses to meet 

license requirements imposed by part 

744 found at § 752.9(a)(3)(ii)(H). 

(2) Consolidation of ‘‘Red Flags’’

Terminology 

—The recitation of the text of the ‘‘red 

flags’’ that are currently described as 

‘‘* * * signs of potential diversion 

***’’ in § 752.11(c)(13)(i) would be 

replaced with a reference to 

supplement No. 3 to part 732. 

Request for Comments 

BIS is seeking public comments on 

this proposed rule. BIS will consider 

comments about all aspects of this 

proposed rule, but is particularly 

seeking comments on whether the 

proposed changes to the definition of 

the term ‘‘knowledge’’ will increase the 

burden on small entities and whether 

the economic impact of the proposal 

will be significant and on whether the 

‘‘safe harbor’’ provision is likely to be 

useful. The period for submission of 

comments will close November 12, 

2004. BIS will consider all comments 

received before the close of the 

comment period in developing a final 

rule. Comments received after the end of 

the comment period will be considered 

if possible, but their consideration 

cannot be assured. BIS will not accept 

public comments accompanied by a 

request that a part or all of the material 

be treated confidentially because of its 

business proprietary nature or for any 

other reason. BIS will return such 

comments and materials to the persons 

submitting the comments and will not 

consider them in the development of the 

final rule. All public comments on this 

proposed rule must be in writing, 

including fax or e-mail, and will be a 

matter of public record, available for 

public inspection and copying. The 

Office of Administration, Bureau of 

Industry and Security, U.S. Department 

of Commerce, displays these public 

comments on BIS’s Freedom of 

Information Act (FOIA) Web site at 

http://www.bis.doc.gov/foia. This office 

does not maintain a separate public 

inspection facility. If you have technical 

difficulties accessing this web site, 

please call BIS’s Office of 

Administration at (202) 482–0637 for 

assistance. 

Rulemaking Requirements 

1. This proposed rule has been 

determined to be significant for 

purposes of E.O. 12866. 

2. Notwithstanding any other 

provision of the law, no person is 

required to respond to, nor shall any 

person be subject to a penalty for failure 

to comply with a collection of 

information, subject to the requirements 

of the PRA, unless that collection of 

information displays a currently valid 

Federal Register / Vol. 69, No. 197 / Wednesday, October 13, 2004 / Proposed Rules 60831

OMB control number. This proposed 

rule involves a collection-of-information 

requirement approved by the Office of 

Management and Budget (OMB) under 

the Paperwork Reduction Act (PRA). 

The OMB control number for this 

collection is 0694–0088, which relates 

to BIS’s application forms. This 

proposed rule also would create a new 

information collection in which private 

parties provide the government 

information about suspicious 

circumstances they encounter and how 

they resolve them. This information 

collection would require OMB approval 

before being implemented. 

3. This rule does not contain policies 

with Federalism implications as this 

term is defined in Executive Order 

13132. 

4. The Chief Counsel for Regulation of 

the Department of Commerce has 

certified to the Counsel for Advocacy 

that this proposed rulemaking is not 

expected to have a significant economic 

impact on a substantial number of small 

entities. 

To estimate the number of small 

entities that would be affected by this 

rule, BIS evaluated its licensing 

database to determine the number of 

businesses that applied for export 

licenses where ‘‘knowledge’’ of a 

particular circumstance concerning the 

end-use or end-user triggers a license 

requirement. A total of 149 entities 

applying for such licenses in 2003 were 

identified. BIS then conducted an 

Internet search of those businesses to 

determine which of those businesses 

disclosed their sales or employment 

levels on Web sites. BIS compared those 

sales or employment levels to those 

found in the Small Business 

Administration’s Table of Small 

Business Size Standards Matched to 

North American Industry Classification 

System published on its Web site at 

http://www.sba.gov/size/

sizetable2002.html. That table provides 

maximum sales or employment levels 

that constitute a small business for a 

number of industries. BIS does not have 

similar industry classification for the 

entities in its licensing database so it 

adopted a conservative approach and 

used the maximum sales and 

employment values from the SBA table. 

Those values were $28.5 million and 

1500 employees, respectively. BIS 

excluded any entity that it could 

identify as exceeding either of these 

values. Forty-three entities were 

excluded by this method, leaving a total 

of 106 that might be small entities. All 

of these entities would be subject to this 

rule. In addition, this rule would not 

increase the number of entities that are 

subject to the Export Administration 

Regulations or to the provisions of those 

regulations under which knowledge 

triggers a requirement to act or refrain 

from acting. 

BIS does not have data to indicate 

how many enforcement proceedings 

under the Export Administration 

Regulations apply to small entities. 

However, in its Fiscal Year 2003 Annual 

Report, BIS reported the criminal 

‘‘conviction of 21 individuals and 

businesses’’ and ‘‘34 administrative 

enforcement settlements’’ for the fiscal 

year. In addition, there were three 

administrative proceedings that resulted 

in denials of export privileges. Some of 

these actions probably did not involve 

small entities and there may be some 

overlap in cases where a single entity 

received both criminal and 

administrative sanctions. 

Assuming that all of BIS’s FY 2003 

enforcement actions were against small 

entities and that 106 of the 149 entities 

that applied for a license in FY 2003 

were all small entities, the rule would 

affect a substantial number of small 

entities. However, although there would 

be a substantial number of small entities 

affected by this rule, this rule will not 

have a significant economic impact on 

a substantial number of small entities 

because the overall economic costs 

associated with this rule are minimal. 

As discussed below, BIS does not 

believe that businesses will see this 

change as imposing a materially 

different standard on their compliance 

activities.

Although this proposal has the 

potential to impact a substantial number 

of small entities, BIS does not believe 

that it will have a significant economic 

impact on the affected small entities. 

Fundamentally, BIS does not believe 

that moving to a ‘‘more likely than not’’

formulation increases a company’s 

responsibility with respect to 

knowledge. Rather, as stated in the rule, 

we see this as a clarification of the 

current standard and as consistent with 

existing BIS and industry practice. 

From a practical perspective, based on 

BIS’s experience with industry 

compliance with the existing standard, 

BIS believes that companies treat facts 

that are ‘‘more likely than not’’ as 

creating a ‘‘high probability’’ of the fact. 

In other words, in our experience, 

companies would take the position that 

there is a ‘‘high probability’’ of a given 

fact if the fact is ‘‘more likely than not.’’

Those who must comply with these 

regulations are in businesses engaged in 

exporting and reexporting and must 

make decisions quickly based on 

practical considerations. The likely 

scenarios are that either (1) the party has 

knowledge of some facts that suggest a 

proliferation end-use, an obligation to 

disclose or a possible violation of law 

and with that knowledge decides to 

either apply for a license or to forego the 

business, or (2) that the party has no 

knowledge of any such facts, and would 

not be required to obtain a license under 

either the old or the new definitions. 

Thus, even if there were a distinction 

between the terms ‘‘high probability’’

and ‘‘more likely than not,’’ the 

distinction would be unlikely to affect 

the decision making process of a 

business person who is deciding 

whether to proceed with a sale. Stated 

otherwise, if a party preparing to 

undertake an export transaction 

encounters a reason to believe that a fact 

or circumstance exists that implicates a 

licensing requirement under the 

Regulations, that party can reasonably 

be expected either to apply for a license 

or forego the transaction, regardless of 

whether ‘‘knowledge’’ is defined by 

reference to a ‘‘more likely than not’’ or 

‘‘high probability’’ formulation. 

To the extent that a business engages 

in this kind of legal analysis, use of the 

term ‘‘more likely than not,’’ which is a 

well known legal standard, will reduce 

uncertainty among those who make 

these decisions, and thereby will reduce 

the economic impact of the control and 

the necessity of legal counsel. In 

addition, BIS does not believe that small 

entities will incur additional costs due 

to training or legal counseling to comply 

with the new requirements. BIS 

provides a number of opportunities for 

counseling or training to assist 

businesses in their compliance efforts at 

no charge or at a reasonable cost. BIS 

maintains telephone advice lines in 

California and Washington to provide 

timely answers to people who have 

questions concerning its regulations. It 

also provides an e-mail address where 

such questions may be submitted. BIS 

gives written advisory opinions 

concerning its regulations. BIS provides 

training seminars in cooperation with 

trade associations and other groups 

around the country. The costs of this 

training ranges from $75 to $350 

depending on the nature, length and 

location of the program. However, one 

should not attribute the entire training 

cost or even a significant portion of it 

to this proposed rule. Even if one did, 

BIS does not believe that $350 would 

constitute a significant economic 

impact. 

In terms of the costs of the inquiry 

that BIS recommends companies 

conduct in response to red flags, BIS 

does not believe that the costs will 

significantly increase when compared to 

the company’s responsibility under the 

existing rule. Companies are currently 

60832 Federal Register / Vol. 69, No. 197 / Wednesday, October 13, 2004 / Proposed Rules 

expected to make inquiries before 

proceeding when information indicating 

a proliferation end-use, an obligation to 

disclose, or a violation of law comes to 

their attention. The Regulations 

currently provide an illustrative list of 

red flags, but do not limit any duty to 

inquire to the circumstances on that list. 

By increasing the number of 

circumstances that are specifically 

called out as ‘‘red flags,’’ BIS is reducing 

any uncertainty that a company faces in 

determining what information provides 

such indications. BIS expects that, 

under the proposed rule, the cost of the 

inquiries performed by companies will 

not increase and will continue to be 

reasonable given the information that 

the company has received and the items 

involved in the transaction. The 

proposed rule makes this point clear by 

stating that:

You are expected to conduct an inquiry that 

is reasonable for a party in your 

circumstances. Thus, if you are exporting 

specially ordered equipment that you 

manufactured as part of a negotiated sale to 

an end-user in an industry with which you 

do a substantial part of your business, you 

may be expected to conduct a more thorough 

and better targeted inquiry than a distributor 

exporting off-the-shelf equipment that is used 

in a wide range of commercial and industrial 

contexts.

The purpose of the rule is to clarify 

responsibilities and provide greater 

certainty to parties involved in export 

transactions when confronted with 

indications of a proliferation end-use, 

an obligation to disclose or a possible 

violation of law. 

Finally, in assessing the possible 

economic impact of this rule, one 

should look at it in its entirety. The rule 

contains a safe harbor provision that 

enables a business to learn, before 

proceeding with the transaction, 

whether BIS concurs that its actions 

qualify for the safe harbor. This 

opportunity to avoid fines and penalties 

mitigates the impact of this rule. 

Accordingly, the Chief Counsel for 

Regulation of the Department of 

Commerce has certified to the Chief 

Counsel of Advocacy that this proposed 

rule will not have a significant 

economic impact on a substantial 

number of small entities. BIS invites 

comment on this certification, 

including, but not limited to whether 

the proposed changes to the definition 

of the term ‘‘knowledge’’ will increase 

the burden on small entities and 

whether the economic impact of the 

proposal will be significant.

List of Subjects 

15 CFR Parts 732, 740, 748, and 752 

Administrative practice and 

procedure, Exports, Reporting and 

record keeping requirements. 

15 CFR Parts 736, and 772

Exports. 

15 CFR Part 744 

Exports, Reporting and record keeping 

requirements. 

15 CFR Part 764 

Administrative practice and 

procedure, Exports Law enforcement, 

Penalties.

Accordingly, parts 732, 736, 740, 744, 

752, 764, and 772 of the Export 

Administration Regulations (15 CFR 

730–799) are amended as follows.

PART 732—[AMENDED] 

1. Revise the authority citation for 

part 732 to read as follows:

Authority: 50 U.S.C. app. 2401 et seq.; 50 

U.S.C. 1701 et seq.; E.O. 13026, 61 FR 58767, 

3 CFR, 1996 Comp., p. 228; E.O. 13222, 66 

FR 44025, 3 CFR, 2001 Comp., p. 783; Notice 

of August 6, 2004, 69 FR 48763 (August 10, 

2004).

2. Revise supplement No. 3 to part 

732 to read as follows: 

Supplement No. 3 to part 732—BIS’s 

Know Your Customer Guidance and Red 

Flags 

(a) Introduction. Several provisions of 

the EAR are applicable if a party has 

knowledge (as defined in § 772.1 of the 

EAR) of a particular fact or 

circumstance. Examples include 

§ 764.2(e), which prohibits taking 

certain actions regarding an item that is 

subject to the EAR with knowledge that 

a violation has occurred, is about to 

occur or is intended to occur with 

respect to that item and § 744.4, which 

requires a license to export or reexport 

any item subject to the EAR if the 

exporter or reexporter knows that the 

item will be used in the design, 

development, production, stockpiling, 

or use of chemical or biological 

weapons in or by any country. The 

following guidance is provided with 

respect to these knowledge standards. It 

is also useful with respect to other EAR 

requirements because a heightened 

awareness of the signs of potential 

diversion can help to prevent violations. 

This guidance and the red flags are also 

incorporated by reference in § 764.7 

(Safe Harbor from Certain Knowledgebased Requirements) of the EAR. The 

red flags are incorporated into the 

system for screening customers that is 

part of the internal control program 

required of Special Comprehensive 

License holders and consignees and 

described in § 752.11(c)(13)(i) of the 

EAR. The ‘‘red flags’’ and know your 

customer guidance do not derogate from 

obligations imposed elsewhere in the 

EAR. 

(b) Know Your Customer Guidance.

(1) Look out for red flags. In all 

transactions subject to the EAR, look out 

for any abnormal circumstances that 

indicate that the transaction may 

involve an inappropriate end-use, enduser or destination or otherwise violate 

the EAR. Such circumstances are 

referred to as ‘‘red flags.’’ Red flags may 

be presented by information provided 

by a customer or information obtained 

from another source (e.g., a credit report 

that you might run on a new customer 

wishing to place a large order). 

(i) Red flags point to a heightened risk 

of a problem with the transaction. Most 

commonly, red flags indicate a 

heightened risk that a claimed end-use, 

end-user or ultimate destination is not 

the actual one. Red flags of this type 

thus can point to the possibilities that 

the export or reexport is actually 

destined for an embargoed country, an 

end use that triggers a license 

requirement under part 744 of the EAR, 

a person denied export privileges under 

part 764 of the EAR, a person on the 

Entity List in supplement No. 4 to part 

744, specially designated global 

terrorists (see § 744.12), specially 

designated terrorists (see § 744.13), 

designated foreign terrorist 

organizations (see § 744.14), persons on 

the list of specially designated nationals 

identified by the bracketed suffix IRAQ2 

(see § 744.18), a transaction that would 

violate a BIS General Order (see

supplement No. 1 to part 736), persons 

on the Unverified List published by BIS, 

or an end-use or end-user that is 

restricted under part 744.

(ii) What constitutes a red flag 

depends on the context. A fact or 

circumstance that raises a red flag for an 

export of one type of item, to a given 

destination, or a particular business 

model may be innocuous for an export 

involving a different item, a different 

destination, or different business model. 

The role that you are playing in a 

transaction is also relevant to what facts 

or circumstances you are expected to 

recognize as red flags. For example, a 

manufacturer who is exporting one of its 

products will be expected to be highly 

familiar with the configurations or 

specifications required for an end-use 

stated by a customer. Thus, a 

manufacturer should be able to 

recognize when a deviation from such 

parameters is indicative of an end-use 

Federal Register / Vol. 69, No. 197 / Wednesday, October 13, 2004 / Proposed Rules 60833

other than what is stated. Similarly, if 

a freight forwarder is better able than an 

exporter to recognize that the location of 

an intermediate consignee is 

incongruous with the claimed ultimate 

destination, then such information 

could be regarded as a red flag for the 

freight forwarder, but not the exporter. 

The general rule is that you should treat 

a fact or circumstance as a red flag if it 

would cause a reasonable person in 

your situation (e.g., manufacturer/

exporter, freight forwarder, distributor/

reexporter) to suspect that a transaction 

may involve an inappropriate end-use, 

end-user or destination, or otherwise 

violate the EAR. 

(iii) Red flags may also be raised in 

exports that have been licensed by BIS; 

for example, information you receive 

after obtaining an export license may 

suggest a risk of diversion. Parties 

should identify and respond to red flags 

in all transactions, including ones for 

which an export license has been 

obtained. 

(2) Make those who act on your behalf 

aware. Your employees and others 

acting on your behalf (for example, a 

contractor hired to perform exportrelated functions) need to know how to 

take the steps described below, 

especially identifying and responding to 

red flags. If such persons have 

knowledge or reason to know a fact or 

circumstance, that knowledge or reason 

to know can also be imputed to 

employers or other principals, so that 

the latter are also liable for a violation. 

Thus, it is especially important for firms 

to establish clear policies and effective 

compliance procedures to ensure that 

knowledge about transactions can be 

evaluated by responsible senior 

officials. Failure to do so could be 

regarded as a form of self-blinding (see

paragraph (b)(5) of this supplement No. 

3 and § 772.1, definition of knowledge). 

(3) If there are red flags, inquire.

When there is a red flag, you have an 

affirmative duty to inquire into the 

circumstances giving rise to the red flag 

and whether they in fact present a 

heightened risk of an inappropriate enduser, end-use or ultimate destination, or 

of some other possible violation of the 

EAR. In so doing, your object is to verify 

or substantiate whether the concerns 

indicated by the red flag are really 

present (e.g., the real end-use, end-user 

or ultimate destination). This duty of 

heightened scrutiny is present in all 

transactions subject to the EAR 

involving red flags. Absent red flags (or 

an express requirement in the EAR), you 

do not have an affirmative duty to 

inquire, verify, or otherwise ‘‘go 

behind’’ the customer’s representations. 

Thus, if there are no red flags, you can 

rely upon representations from your 

customer in preparing and submitting 

export control documents and any 

license application that may be 

required. 

(i) In responding to red flags, you are 

expected to conduct an inquiry that is 

reasonable for a party in your 

circumstances. Thus, if you are 

exporting specially ordered equipment 

that you manufactured as part of a 

negotiated sale to an end-user in an 

industry with which you do a 

substantial part of your business, you 

may be expected to conduct a more 

thorough and better targeted inquiry 

than a distributor exporting off-the-shelf 

equipment that is used in a wide range 

of commercial and industrial contexts. 

(ii) The following are means of 

inquiry that, depending on particular 

circumstances, you should pursue in 

response to a red flag: 

(A) Seek further information or 

clarification from the customer, the 

ultimate consignee, and/or end-user. 

(B) Conduct searches of relevant 

publications or public information on 

the Internet for additional information 

or to confirm representations you have 

received. 

(C) Where appropriate for a particular 

industry or commercial context, consult 

standard references or official sources. 

For example, the International Atomic 

Energy Agency (IAEA) makes available 

information about what nuclear 

facilities are under IAEA safeguards, 

which is relevant to determining 

whether export or reexport for use at a 

particular nuclear facility requires a 

license under § 744.2.

(4) Reevaluate all of the information 

after the inquiry. The purpose of your 

inquiry is to provide a basis for making 

an honest, well-informed assessment of 

whether the concerns indicated by the 

red flag are really present in your 

transaction. One way of making this 

assessment is to determine that the red 

flag is in fact explained by 

circumstances that, in the context of 

your transaction, do not present the 

concerns generally associated with the 

red flag. For example, a sudden change 

in delivery instructions can present a 

red flag, but the red flag could be 

resolved by establishing that the facility 

to which the items were originally to be 

delivered had been recently damaged by 

fire. If the result of your reasonable 

inquiry and reevaluation is that this red 

flag does not point to a risk of diversion 

or concealed end-use, you could 

proceed with the transaction. On the 

other hand, if after evaluating in good 

faith all of the facts and circumstances 

you have ascertained, you believe that 

the export is actually destined for a 

country, end-user or end-use for which 

an export license is required, you 

should not proceed with the transaction 

without complying with that license 

requirement. In making such an 

assessment, you are expected to bring to 

bear whatever relevant background or 

expertise you have. 

(5) Do not self-blind. Throughout the 

process of identifying and responding to 

red flags, you must honestly take into 

account the facts and circumstances 

presented to you. Do not cut off the flow 

of information obtained or received in 

the normal course of business. For 

example, do not instruct the sales force 

to tell potential customers to refrain 

from discussing the actual end-use, enduser, and ultimate destination for the 

product your firm is seeking to sell. Do 

not put on blinders that prevent 

learning relevant information. An 

affirmative policy of steps to avoid 

‘‘bad’’ information would not insulate a 

company from liability, and would be 

considered evidence of knowledge or 

reason to know the facts in question. 

(6) If there are still reasons for 

concern, refrain from going forward with 

the transaction or contact BIS. If you 

continue to have reasons for concern 

after your inquiry and reevaluation, 

then you should either refrain from 

going forward with the transaction or 

submit all of the relevant information to 

BIS in the form of an application for a 

license or in such other form as BIS may 

specify. You have an important role to 

play in preventing exports and reexports 

contrary to the national security and 

foreign policy interests of the United 

States. BIS will continue to work in 

partnership with the private sector to 

make this front line of defense effective, 

while minimizing where possible the 

regulatory burden on legitimate 

participants in export transactions. If 

you have any question about whether 

you have encountered a red flag or what 

steps you should take in response to a 

red flag, or if you decide to refrain from 

the transaction, but believe you have 

information relating to completed or 

attempted violations of the EAR, you are 

encouraged to advise BIS’s Office of 

Export Enforcement through BIS’s Web 

site or at 1–800–424–2980 or the Office 

of Exporter Services at (202) 482–4811. 

(c) Red Flags: Examples. As described 

below, BIS has identified a number of 

red flags that apply in different contexts. 

This discussion is not all-inclusive, but 

is intended to illustrate the types of 

circumstances to which you should be 

alert. BIS may supplement this 

description of red flags in future 

guidance on its Web site. Examples of 

red flags in various situations include: 

60834 Federal Register / Vol. 69, No. 197 / Wednesday, October 13, 2004 / Proposed Rules 

1. The customer or purchasing agent 

is vague, evasive, or inconsistent in 

providing information about the end-use 

of a product. 

2. The product’s capabilities do not fit 

the buyer’s line of business or level of 

technical sophistication. For example, a 

customer places an order for several 

advanced lasers from a facility with no 

use for such equipment in its 

manufacturing processes. 

3. A request for equipment 

configuration is incompatible with the 

stated ultimate destination (e.g., 120 

volts for a country with 220 volts). 

4. The product ordered is 

incompatible with the technical level of 

the country to which the product is 

being shipped. For example, 

semiconductor manufacturing 

equipment would be of little use in a 

country without an electronics industry. 

5. The customer has little background 

in the relevant business. For example, 

financial information is unavailable 

from ordinary commercial sources and 

the customer’s corporate principal is 

unknown. 

6. The customer is willing to pay cash 

for an expensive item when the normal 

practice in this business would involve 

financing. 

7. The customer is unfamiliar with the 

product’s performance characteristics, 

but still wants the product. 

8. Installation, testing, training, or 

maintenance services are declined by 

the customer, even though these 

services are included in the sales price 

or ordinarily requested for the item 

involved. 

9. Terms of delivery, such as date, 

location, and consignee, are vague or 

unexpectedly changed, or delivery is 

planned for an out-of-the-way 

destination. 

10. The address of the ultimate 

consignee, as listed on the airway bill or 

bill of lading, indicates that it is in a free 

trade zone. 

11. The ultimate consignee, as listed 

on the airway bill or bill of lading, is a 

freight forwarding firm, a trading 

company, a shipping company or a 

bank, unless it is apparent that the 

ultimate consignee is also the end-user 

or the end-user is otherwise identified 

on the airway bill or bill of lading. 

12. The shipping route is abnormal for 

the product and destination. 

13. Packaging is inconsistent with the 

stated method of shipment or 

destination. 

14. When questioned, the buyer is 

evasive or unclear about whether the 

purchased product is for domestic use, 

export or reexport. 

15. The customer uses an address that 

is inconsistent with standard business 

practices in the area (e.g., a P.O. Box 

address where street addresses are 

commonly used). 

16. The customer does not have 

facilities that are appropriate for the 

items ordered or end-use stated. 

17. The customer’s order is for parts 

known to be inappropriate or for which 

the customer appears to have no 

legitimate need (e.g., there is no 

indication of prior authorized shipment 

of system for which the parts are 

sought). 

18. The customer is known to have or 

is suspected of having dealings with 

embargoed countries. 

19. The transaction involves a party 

on the Unverified List published by BIS 

in the Federal Register. 

20. The product into which the 

exported item is to be incorporated 

bears unique designs or marks that 

indicate an embargoed destination or 

one other than the customer has 

claimed.

21. The customer gives different 

spellings of its name for different 

shipments, which can suggest that the 

customer is disguising its identity and/

or the nature and extent of its 

procurement activities. 

22. The requested terms of sale, such 

as product specification and calibration, 

suggest a destination or end-use other 

than what is claimed (e.g., equipment 

that is calibrated for a specific altitude 

that differs from the altitude of the 

claimed destination). 

23. The customer provides 

information or documentation related to 

the transaction that you suspect is false, 

or requests that you provide 

documentation that you suspect is false.

PART 736—[AMENDED] 

3. Revise the authority citation for 

part 736 to read as follows:

Authority: 50 U.S.C. app. 2401 et seq.; 50 

U.S.C. 1701 et seq.; 22 U.S.C. 2151 (note), 

Pub. L. 108–175; E.O. 12938, 59 FR 59099, 

3 CFR, 1994 Comp., p. 950; E.O. 13020, 61 

FR 54079, 3 CFR, 1996 Comp. p. 219; E.O. 

13026, 61 FR 58767, 3 CFR, 1996 Comp., p. 

228; E.O. 13222, 66 FR 44025, 3 CFR, 2001 

Comp., p. 783; E.O. 13338, 69 FR 26751, May 

13, 2004; Notice October 29, 2003, 68 FR 

62209, 3 CFR, 2003 Comp., p. 347; Notice of 

August 6, 2004, 69 FR 48763 (August 10, 

2004).

4. In § 736.2, revise paragraph (b)(5) to 

read as follows:

§ 736.2 General prohibitions and 

determination of applicability.

* * * * *

(b) * * * 

(5) General Prohibition Five—

Recipient and end-use license 

requirements. If a license is required 

because of the recipient or end use as 

specified in part 744 of the EAR, you 

may not export or reexport without such 

license.

* * * * *

PART 740—[AMENDED] 

5. Revise the authority citation for 

part 740 to read as follows:

Authority: 50 U.S.C. app. 2401 et seq.; 50 

U.S.C. 1701 et seq.; Sec. 901–911, Pub. L. 

106–387; E.O. 13026, 61 FR 58767, 3 CFR, 

1996 Comp., p. 228; E.O. 13222, 66 FR 44025, 

3 CFR, 2001 Comp., p. 783; Notice of August 

6, 2004, 69 FR 48763 (August 10, 2004).

6. In § 740.18, revise the last sentence 

of paragraph (c)(4) to read as follows:

§ 740.18 Agricultural commodities (AGR).

* * * * *

(c) * * * 

(4) * * * (Note that the fact that you 

have been advised that no agency has 

objected to the transaction does not 

exempt you from other license 

requirements under the EAR, including 

those based on recipient or end-use in 

part 744 of the EAR.)

* * * * *

PART 748—[AMENDED] 

7. Revise the authority citation for 

part 748 to read as follows:

Authority: 50 U.S.C. app. 2401 et seq.; 50 

U.S.C. 1701 et seq.; E.O. 13026, 61 FR 58767, 

3 CFR, 1996 Comp., p. 228; E.O. 13222, 66 

FR 44025, 3 CFR, 2001 Comp., p. 783; Notice 

of August 6, 2004, 69 FR 48763 (August 10, 

2004).

8. In § 748.4, revise paragraph (f) to 

read as follows:

§ 748.4 Basic guidance related to applying 

for a license.

* * * * *

(f) Redundant submissions prohibited.

You may not submit a license 

application for a transaction if: 

(1) You have already submitted a 

license application for that transaction 

and the license application is still 

pending before BIS; or 

(2) You have submitted a safe harbor 

report for the transaction pursuant to 

§ 764.7(c) of the EAR and the BIS 

decision is still pending.

* * * * *

PART 752—[AMENDED] 

9. Revise the authority citation for 

part 752 to read as follows:

Authority: 50 U.S.C. app. 2401 et seq.; 50 

U.S.C. 1701 et seq.; E.O. 13020, 61 FR 54079, 

3 CFR, 1996 Comp. p. 219; E.O. 13222, 66 FR 

44025, 3 CFR, 2001 Comp., p. 783; Notice of 

August 6, 2004, 69 FR 48763 (August 10, 

2004).

Federal Register / Vol. 69, No. 197 / Wednesday, October 13, 2004 / Proposed Rules 60835

1 If you find that a party to your transaction has 

a name or address that is similar, but not identical, 

to a party within one of the listed categories, you 

should take reasonable steps to determine whether 

the party to your transaction is in fact identical to 

the party within that category, then act in 

accordance with your determination and this 

guidance.

10. In § 752.9, revise paragraph 

(a)(3)(ii)(H) to read as follows:

§ 752.9 Action on SCL applications. 

(a) * * * 

(3) * * * 

(ii) * * * 

(H) A notice that the consignee, in 

addition to other requirements may not 

sell or otherwise dispose of any U.S. 

origin items under the SCL if a license 

is required by part 744 of the EAR.

* * * * *

11. In § 752.11, revise paragraph 

(c)(13) to read as follows:

§ 752.11 Internal Control Programs.

* * * * *

(c) * * * 

(13) A system for screening customers 

and transactions to identify any 

circumstances (‘‘red flags’’) that indicate 

an item might be destined for an 

inappropriate end-use, end-user, or 

destination. This system must: 

(i) Be able to identify, as a minimum, 

the red flags in paragraph (c) of 

supplement No. 3 to part 732 of the 

EAR, and; 

(ii) Function in conformance with the 

‘‘know your customer’’ guidance 

provided in paragraph (b) of supplement 

No. 3 to part 732 of the EAR:

* * * * *

PART 764—[Amended] 

12. Revise the authority citation for 

part 764 to read as follows:

Authority: 50 U.S.C. app. 2401 et seq.; 50 

U.S.C. 1701 et seq.; E.O. 13222, 66 FR 44025, 

3 CFR, 2001 Comp., p. 783; Notice of August 

6, 2004, 69 FR 48763 (August 10, 2004).

13. Add § 764.7 to read as follows:

§ 764.7 Safe harbor from knowledge-based 

requirements. 

Parties involved in exports, reexports 

or other activities subject to the EAR 

who meet the requirements of this 

section can avail themselves of a ‘‘safe 

harbor’’ against being found to have had 

knowledge of a fact or circumstance 

under the definition of knowledge in 

§ 772.1. The safe harbor can apply only 

to requirements or prohibitions of the 

EAR that incorporate knowledge, as 

defined in § 772.1, as an element. 

(a) You must not have actual 

knowledge or actual awareness that the 

fact or circumstance at issue is more 

likely than not. The safe harbor is 

available only to parties who do not 

have actual knowledge or actual 

awareness that the fact or circumstance 

in question is more likely than not. For 

example, if you are about to export an 

item subject to the EAR and are aware 

that it is more likely than not that the 

item will be used in the design, 

development, production, stockpiling, 

or use of chemical or biological 

weapons in any country, § 744.4 of the 

EAR requires you to obtain a license for 

that export and the safe harbor will not 

relieve you of that license requirement. 

(b) You must take the following steps.

(1) Comply with item and/or 

destination-based license requirements 

and other notification or review 

requirements. Determine whether a 

license is required because of the 

destination and the item’s status on 

Commerce Control List and comply 

with any such license or other review 

requirements. If you are an exporter or 

reexporter, you must either make a good 

faith effort to classify the item or you 

must obtain a classification from BIS. 

You must obtain any licenses required 

to send the item to the destination you 

intend to send it to. If the item’s reason 

for control on the Commerce Control 

List is EI, you must comply with any 

requirements to notify the U.S. 

government or to obtain U.S. 

government approval prior to export or 

reexport. 

(2) Determine whether the parties to 

the transaction are subject to a denial 

order, or to certain sanctions, and 

whether they appear on the Entity List 

or Unverified List, and whether the 

transaction is governed by a BIS General 

Order. If you are an exporter or 

reexporter, or a freight forwarder or 

other party acting on an exporter’s or 

reexporter’s behalf, determine whether 

the parties to the transaction fall within 

any of the following categories:1

(i) Persons subject to denial of U.S. 

export privileges under a BIS order. 

Such orders are published in the 

Federal Register. BIS also makes 

available unofficial lists of denied 

persons on its Web site at http://

www.bis.doc.gov and in an unofficial 

version of the EAR, which is published 

by the Government Printing Office and 

to which members of the public may 

subscribe. If an end-user, ultimate 

consignee or principal party in interest 

is subject to a denial order that prohibits 

your proposed transaction, you must not 

proceed.

(ii) Persons appearing on the 

Unverified List, which is published by 

BIS in the Federal Register and 

unofficially maintained on BIS’s Web 

site. The Unverified List identifies 

persons in foreign countries that were 

parties to past transactions for which an 

end-use visit (either a pre-license check 

or a post-shipment verification) could 

not be conducted for reasons outside of 

the control of the U.S. Government. The 

presence on the Unverified List of an 

end-user, ultimate consignee or 

principal party in interest presents a red 

flag for the transaction, as described in 

supplement No. 3 to part 732 of the 

EAR. 

(iii) Persons appearing on the Entity 

List in supplement No. 4 to part 744. To 

the extent described in that supplement, 

a license is required to export or 

reexport items subject to the EAR to 

persons on the Entity List. See

§ 744.1(c). Any applicable license 

requirements must be met before you 

proceed with the transaction. 

(iv) Specially designated global 

terrorists [SDGT], (see § 744.12), 

specially designated terrorists [SDT] 

(see § 744.13), designated foreign 

terrorist organizations [FTO] (see

§ 744.14), and persons on the list of 

specially designated nationals identified 

by the bracketed suffix [IRAQ2] (see

§ 744.18). License requirements for 

exports and reexports to such parties are 

described in the referenced sections of 

part 744. Any applicable license 

requirements must be met before you 

can proceed with the transaction. 

(v) The requirements of a BIS General 

Order. These General Orders, which are 

published in the Federal Register and 

codified in supplement No. 1 to part 

736, may place special restrictions on 

exports and reexports certain 

destinations or to named persons. 

Before you may proceed with the 

transaction, you must comply with any 

applicable license requirements or other 

restrictions imposed by any applicable 

General Order. 

(3) Identify and respond to red flags.

If you are a party involved in an export, 

reexport or other activity subject to the 

EAR, comply with the guidance on how 

to identify and respond to red flags as 

set forth in paragraphs (b) and (c) of 

supplement No. 3 to part 732 of the 

EAR. 

(c) Report to BIS. To be eligible for the 

safe harbor, parties must report the red 

flags that they identified and how they 

resolved them. BIS will respond to such 

reports indicating whether it concurs 

with the party’s conclusion. BIS may 

consult with other government agencies 

in developing its response to any such 

report. 

(1) Prior to proceeding with the 

transaction a party seeking to be eligible 

for the safe harbor must submit a 

written report by first-class mail, 

express mail, or overnight delivery to 

60836 Federal Register / Vol. 69, No. 197 / Wednesday, October 13, 2004 / Proposed Rules 

the Bureau of Industry and Security, 

Office of Enforcement Analysis, 14th 

Street and Constitution Avenue, NW, 

Room 4065, Attn: Safe Harbor Guidance, 

Washington, DC 20230. The report must 

demonstrate that the party has taken the 

actions described in paragraph (b) of 

this section. In particular, the report 

must include all material information 

relating to the red flags and the steps the 

party took to resolve the concerns raised 

by the red flags. 

(2) BIS will acknowledge receipt of all 

reports received and provide the 

reporting party with a telephone 

number at which to contact BIS if it 

does not receive a response by the date 

stated in the acknowledgement. BIS 

expects to respond to most reports 

within 45 days of its receipt of the 

report. The response shall: 

(i) State that BIS concurs with the 

party’s judgement that it has adequately 

addressed the concerns raised by the red 

flags; 

(ii) State that BIS does not concur 

with the party’s judgement that it has 

adequately resolved those concerns and 

describe additional information that 

would be necessary to resolve them 

adequately; 

(iii) Issue an ‘‘is informed’’ notice 

(pursuant to §§ 744.2(b), 744.3(b), 

744.4(b), 744.6(b) or 744.17(b) of the 

EAR) informing the party of a license 

requirement under §§ 744.2, 744.3, 

744.4, 744.6, or 744.17(b) of the EAR; or 

(iv) state that more time is needed to 

review the submission. 

(3) The party is not entitled to 

conclude that BIS concurs with the 

party’s judgement that the party has 

adequately resolved the concerns raised 

by the red flags until it either receives 

a response from BIS so stating or 

contacts BIS at the telephone number 

indicated in the acknowledgment and is 

told that BIS will not be responding to 

this report. 

(4) A response by BIS stating that it 

concurs with the party’s judgement that 

it has resolved the concerns raised by 

the red flags or a statement by BIS that 

it will not be responding to the reexport 

shall, provided the party submitting the 

report has taken the steps in paragraph 

(b) of this section, serve as confirmation, 

based on the information in the party’s 

submission, that the party has 

adequately resolved the concerns raised 

by the red flags. However, such 

confirmation shall not bind a 

subsequent enforcement action or 

prosecution if the submitting party had 

actual knowledge or actual awareness 

that the fact or circumstance in question 

was more likely than not, or if the 

submission misstated or withheld 

relevant material information. 

(5) If BIS responds as described in 

paragraph (c)(2)(ii) of this section and 

the party proceeds without taking the 

additional steps to resolve the concerns, 

then it will not qualify for the safe 

harbor. 

(6) In this paragraph (c), the date of 

BIS’s receipt of the report shall be the 

date of receipt by the Office of 

Enforcement Analysis as recorded in a 

log maintained by that office for this 

purpose and the date of BIS’s response 

shall be the postmark date of BIS’s 

response.

PART 772—[AMENDED] 

14. The authority citation for part 772 

continues to read as follows:

Authority: 50 U.S.C. app. 2401 et seq.; 50 

U.S.C. 1701 et seq.; E.O. 13222, 66 FR 44025, 

3 CFR, 2001 Comp., p. 783; Notice of August 

6, 2004, 69 FR 48763 (August 10, 2004).

15. In § 772.1 revise the definition of 

knowledge to read as follows:

§ 772.1 Definition of terms as used in the 

Export Administration Regulations (EAR).

* * * * *

Knowledge. When referring to an actor 

in a transaction that is subject to the 

EAR, knowledge (the term may appear 

in the EAR as a variant, such as ‘‘know,’’

‘‘reason to know,’’ or ‘‘reason to 

believe’’) of a fact or circumstance 

relating to the transaction includes not 

only positive knowledge that the fact or 

circumstance exists or is substantially 

certain to occur, but also an awareness 

that the existence or future occurrence 

of the fact or circumstance in question 

is more likely than not. Such awareness 

is inferred, inter alia, from evidence of 

the conscious disregard of facts and is 

also inferred from a person’s willful 

avoidance of facts. This usage of 

‘‘knowledge’’ incorporates an objective, 

‘‘reasonable person’’ standard. Under 

that standard, a party would have 

knowledge of a fact or circumstance if 

a reasonable person in that party’s 

situation would conclude, upon 

consideration of the facts and 

circumstances, that the existence or 

future occurrence of the fact or 

circumstance in question is more likely 

than not. Note: This definition applies 

to §§ 730.8(a)(4)(iv); 732.1(d)(1)(x); 

732.3(m); 732.4(a); Supp. No. 2 to part 

732; §§ 734.2(b)(2)(ii); 736.2(b)(7); 

736.2(b)(10); Supp. No. 2 to part 736, 

Administrative Order Two, paragraph 

(a)(1)(ii)(E); §§ 740.13(e)(4); 740.13(e)(6); 

740.16(i); 740.17(e)(3); 740.5; 

740.7(b)(4); 740.9(a)(3)(iii)(B); 

742.10(a)(2)(ii) ; 742.8(a)(2); Supp. No. 6 

to part 742, paragraph (d)(1); §§ 744.17; 

744.2; 744.3; 744.4; 744.5; 744.6; 

745.1(a)(1)(ix); 746.3(a)(4), 746.3(f)(2)(i), 

746.7(a)(2)(ii); 748.11(e)(4)(ii)(2); 

748.14(g)(2)(vii); 748.3(c)(2)(iii); 

748.4(d)(1); 748.9(g)(3); Supp. No. 1 to 

part 748; Supp. No. 2 to Part 748, 

paragraphs (g)(2)(iii) and (iv); Supp. No. 

2 to Part 748, paragraph (j)(3)(ii); Supp. 

No. 2 to Part 748, paragraph (l); Supp. 

No. 2 to Part 748, paragraph (o)(3)(i); 

Supp. No. 5 to part 748, paragraph 

(a)(5)(ii); §§ 750.7(h)(3); 752.4(b); 

752.11(c)(12); 752.11(c)(13); 752.4; 

754.2(j)(3)(i)(D); 758.3(c); 762.1(a)(2); 

762.6(a)(2); 764.2(e); 764.2(f)(2); 

764.2(g)(2); Supp. No. 1 to part 764(b), 

paragraph (d) under the heading 

‘‘SECOND’; Supp. No. 1 to part 766, III, 

A paragraphs headed ‘‘Degree of 

Willfulness’’ and ‘‘Related Violations’; 

and § 772.1 definition of ‘‘transfer.’’

This definition does not apply to part 

760 of the EAR (Restrictive Trade 

Practices or Boycotts) or to the following 

EAR provisions: §§ 730.8(b); 732.1(c); 

732.3(n); 734.1(a); 734.2(b)(3); Supp. No. 

1 to part 734, questions D(5) and F(1); 

738.4(a)(3); 740.11(c)(1)(ii)(C); 

742.12(b)(3)(iv)(B)(8); 742.18; Supp. No 

4 to Part 742, paragraph 2; 744.12; 

744.14; 745.1(b)(2); 745.2(a)(1); 

748.7(a)(2)(ii); 748.11(c)(1); 748.11(c)(3); 

748.11(e)(4)(i); 750.8; 752.5(a)(2)(iv); 

752.8(d)(9); 754.4(d)(1); 758.7(b)(6); 

764.5(b)(5); 764.5(c)(5); 766.3(b); 

766.6(b); 770.3(d)(1)(i)(A) and (B); 772.1 

definitions of ‘‘basic scientific 

research,’’ ‘‘cryptography,’’ ‘‘deformable 

mirrors,’’ ‘‘defense trade controls,’’

‘‘expert systems,’’ ‘‘multilevel security,’’

‘‘recoverable commodities and 

software,’’ ‘‘technology,’’ and ‘‘time 

modulated wideband’’; Supp. No 1 to 

part 774, Category 1, ECCN 1C351, 

Reason for Control paragraph; Supp. No. 

1 to part 774, Category 1, ECCN 1C991, 

Related Controls paragraph; Supp. No 1 

to part 774, Category 2, ECCN 2B119 

Note to List of Items Controlled; Supp. 

No. 1 to part 774, Category 3, ECCN 

3A001, N.B. to paragraph 8 of List of 

Items Controlled; Supp. No 1 to part 

774, Category 3, ECCN 3A002, Related 

Definitions and List of Items Controlled; 

Supp. No. 1 to part 774 Category 3, 

ECCN 3A225, Heading and List of Items 

Controlled; Supp. No 1 to part 774, 

Category 4, ECCN 4A994, List of Items 

Controlled; and Supp. No. 1 to part 774, 

Category 6, ECCN 6C004 List of Items 

Controlled.

* * * * *

Dated: October 5, 2004. 

Peter Lichtenbaum, 

Assistant Secretary for Export 

Administration.

[FR Doc. 04–22878 Filed 10–12–04; 8:45 am] 

BILLING CODE 3510–33–P