[Federal Register Volume 69, Number 197 (Wednesday, October 13, 2004)]
[Proposed Rules]
[Pages 60829-60836]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-22878]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

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.

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

[[Page 60829]]



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.

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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 
<a href="/cdn-cgi/l/email-protection#483a382c7a082a213b662c272b662f273e"><span class="__cf_email__" data-cfemail="ddafadb9ef9dbfb4aef3b9b2bef3bab2ab">[email protected]</span></a>, 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 
<a href="/cdn-cgi/l/email-protection#91e6f0e3e7f8ffd1f3f8e2bff5fef2bff6fee7"><span class="__cf_email__" data-cfemail="b7c0d6c5c1ded9f7d5dec499d3d8d499d0d8c1">[email protected]</span></a>, fax 202-482-3355 or telephone 202-482-2440

SUPPLEMENTARY INFORMATION: 

Background

Knowledge Definition

    The current definition of ``knowledge'' in Sec.  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 knowledge-based 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 Sec.  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 mid-1980s. 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

[[Page 60830]]

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 Sec.  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 Sec.  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 Sec.  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 Sec.  764.7, Sec.  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 Sec.  736.2(b)(5);
--The prohibition on using License Exception AGR for transactions in 
which a license is required by part 744 found at Sec.  740.18; and
--The prohibition on using Special Comprehensive Licenses to meet 
license requirements imposed by part 744 found at Sec.  
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 Sec.  
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

[[Page 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

[[Page 60832]]

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 Sec.  772.1 of the EAR) of a 
particular fact or circumstance. Examples include Sec.  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 Sec.  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 
Sec.  764.7 (Safe Harbor from Certain Knowledge-based 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 
Sec.  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, end-user 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 Sec.  744.12), specially designated 
terrorists (see Sec.  744.13), designated foreign terrorist 
organizations (see Sec.  744.14), persons on the list of specially 
designated nationals identified by the bracketed suffix IRAQ2 (see 
Sec.  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

[[Page 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 export-related 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 Sec.  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 end-user, 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 Sec.  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, end-user, 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:

[[Page 60834]]

    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 Sec.  736.2, revise paragraph (b)(5) to read as follows:


Sec.  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 Sec.  740.18, revise the last sentence of paragraph (c)(4) to 
read as follows:


Sec.  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 Sec.  748.4, revise paragraph (f) to read as follows:


Sec.  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 Sec.  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).


[[Page 60835]]


    10. In Sec.  752.9, revise paragraph (a)(3)(ii)(H) to read as 
follows:


Sec.  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 Sec.  752.11, revise paragraph (c)(13) to read as follows:


Sec.  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 Sec.  764.7 to read as follows:


Sec.  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 Sec.  772.1. The safe harbor can apply only to requirements or 
prohibitions of the EAR that incorporate knowledge, as defined in Sec.  
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, Sec.  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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    (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 Sec.  744.1(c). Any applicable license 
requirements must be met before you proceed with the transaction.
    (iv) Specially designated global terrorists [SDGT], (see Sec.  
744.12), specially designated terrorists [SDT] (see Sec.  744.13), 
designated foreign terrorist organizations [FTO] (see Sec.  744.14), 
and persons on the list of specially designated nationals identified by 
the bracketed suffix [IRAQ2] (see Sec.  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

[[Page 60836]]

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 Sec. Sec.  
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 Sec. Sec.  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 Sec.  772.1 revise the definition of knowledge to read as 
follows:


Sec.  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 Sec. Sec.  
730.8(a)(4)(iv); 732.1(d)(1)(x); 732.3(m); 732.4(a); Supp. No. 2 to 
part 732; Sec. Sec.  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); 
Sec. Sec.  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); Sec. Sec.  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); Sec. Sec.  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 Sec.  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: Sec. Sec.  
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


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