Revised “Knowledge” Definition, Revision of “Red Flags” Guidance and Safe Harbor, 61435-61436 [E6-17265]

Agencies

• DEPARTMENT OF COMMERCE
• Bureau of Industry and Security
• Industry and Security Bureau

[Federal Register Volume 71, Number 201 (Wednesday, October 18, 2006)]
[Proposed Rules]
[Pages 61435-61436]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-17265]


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DEPARTMENT OF COMMERCE

Bureau of Industry and Security

15 CFR Parts 732, 736, 740, 744, 752, 764, and 772

[Docket No. 040915266-6239-03]
RIN 0694-AC94


Revised ``Knowledge'' Definition, Revision of ``Red Flags'' 
Guidance and Safe Harbor

AGENCY: Bureau of Industry and Security, Commerce.

ACTION: Proposed rule; withdrawal.

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SUMMARY: BIS is withdrawing a proposed rule published October 2004. 
That rule would have revised the definition of ``knowledge'' in the 
Export Administration Regulations. It also would have updated the ``red 
flags'' guidance and would have provided a safe harbor from liability 
arising from knowledge under the definition of that term. In light of 
the public comments received on the proposed rule and BIS's review of 
relevant provisions of the existing regulations, this proposed rule is 
being withdrawn.

DATES: The proposed rule is withdrawn on October 18, 2006.

[[Page 61436]]


FOR FURTHER INFORMATION CONTACT: William Arvin, Office of Exporter 
Services, at warvin@bis.doc.gov, fax 202-482-3355 or telephone 202-482-
2440.

SUPPLEMENTARY INFORMATION:

Background

    On October 13, 2004, BIS published a proposed rule to amend the EAR 
by revising the definition of ``knowledge'' that applies throughout 
most of the regulations, to revise its ``red flag'' guidance and to 
create a safe harbor with respect to certain violations that have 
``knowledge'' as one of the elements of the offense (69 FR 60829, 
October 13, 2004; Comment period reopened 69 FR 65555, November 15, 
2004).
    The proposed rule would have revised the definition of knowledge in 
Sec.  772.1 of the EAR in four ways. It would have incorporated a 
``reasonable person'' standard, replaced the phrase ``high 
probability'' with the phrase ``more likely than not,'' added the 
phrase ``inter alia'' to the description of the facts and circumstances 
that could make a person aware of the existence or future occurrence of 
a fact, and eliminated the phrase ``known to a person'' from the 
sentence in the knowledge definition that states that knowledge may be 
inferred from ``conscious disregard of facts known to a person.'' The 
proposed rule also would have limited the applicability of the 
definition to certain actors in transactions subject to the Export 
Administration Regulations (EAR) and excluded certain usages from the 
definition.
    The proposed rule would have increased from 12 to 23 the number of 
circumstances explicitly set forth as ``red flags'' in Supplement No. 3 
to part 732 of the EAR.
    The proposed rule would have created a ``safe harbor'' from 
knowledge based violations. To take advantage of the safe harbor, a 
party would have to commit no violations of the EAR, in connection with 
the transaction, identify and resolve any ``red flags'' present in the 
transaction and report the red flags found and the resolution to BIS. 
BIS would have been required to acknowledge receipt of all such 
reports. Thereafter, if BIS responded to the party's report by stating 
that it concurred that the party had adequately addressed red flags or 
by advising the party that BIS would not be responding to the report, 
the party would have been able to take advantage of the safe harbor, 
assuming the party had accurately disclosed all relevant information to 
BIS. The proposed rule stated BIS's intention to respond to most 
reports within 45 days. However, the response might consist of a notice 
that BIS needed more time to evaluate the party's report. If BIS did 
not respond to the party's report by the date stated in the 
acknowledgment provided to the party, the party could have contacted 
BIS to inquire about the status of the report.
    BIS received 18 comments on this proposed rule. Nine of these 
comments were filed by associations that have multiple members.
    With regard to revising the definition of knowledge, the most 
frequently expressed opinion was that the revisions were, in fact, 
substantive changes to the definition rather than mere clarifications. 
Commenters also stated that BIS had not offered any reason as to why 
any change in the knowledge definition was necessary.
    Although the revisions to the ``red flags'' were criticized less 
than other proposed changes, commenters made suggestions for revisions 
or elimination of 12 specific ``red flags.'' In addition, some 
commenters asserted that the proposal increased the number of 
circumstances that could be red flags without providing adequate 
guidance as to the circumstances when any particular ``red flag'' would 
be applicable. The notice did state (as does current Supplement No. 3 
to part 732 of the EAR) that not all red flags are applicable in all 
circumstances.
    A number of commenters criticized the safe harbor proposal, stating 
that it was too complex and lengthy. Several predicted that few, if 
any, firms would be inclined to use it. Some suggested that submitting 
a license application for the transaction would be simpler and probably 
faster than waiting to see if BIS approved of the manner in which the 
party resolved the ``red flags.''

Withdrawal of Proposal

    BIS has considered the comments on the proposed rule. BIS has also 
reviewed the proposed rule as compared to the corresponding existing 
provisions of the EAR and has considered several possible modifications 
of the proposed rule. As a result of this consideration, BIS has 
concluded that utilizing this proposed rule as a basis for amending the 
EAR would neither clarify the public's responsibilities under the EAR 
nor make the regulations more effective. Accordingly, BIS is 
withdrawing this proposal.

    Dated: October 11, 2006.
Christopher A. Padilla,
Assistant Secretary for Export Administration.
 [FR Doc. E6-17265 Filed 10-17-06; 8:45 am]
BILLING CODE 3510-33-P