Catch-all in Export Control- Never stay passive
Date: 14 December 2021
Jurisdictions: Luxembourg (incl. EU)
The catch-all system is an important part of the EU export control system. It complements the controls on goods listed as dual-use items or defence-related products. It is a higher-quality control on sensitive end-use.
Three preliminary remarks are important for the scope of application of the catch-all provisions, as they are currently in force in the European Union and in particular in Luxembourg, the country on which the following developments are based.
In any case, if the exporter, intentionally or by negligence, omits to inform the national authorities, his responsibility could be engaged and administrative and/or criminal penalties could be applied. To engage the exporter’s responsibility, the authorities will have to prove, on one hand, that the end-use is critical and, on the other hand, that the exporter was aware of these facts.?
The following applies to non-listed
Not only exports are governed by the catch-all provisions. These also apply, in certain circumstances, to brokering services or technical assistance.
The challenge for exporting companies and service providers resides, first, in the awareness that such non-listed goods are subject to compliance measures and, secondly, in the adequate implementation of these compliance measures. Violations of the operator's obligations may result in an imprisonment of 5 to 10 years and/or a fine of 25.000 to 1.000.000 EUR, knowing that under Luxembourg law, not only natural persons, but also companies may incur a criminal liability, the latter for crimes and offenses committed by their corporate bodies, directors or shadow directors in the name of, on behalf and in the interest of the company.
In order to be as concise as possible, not to overload the contribution and to make reading easy, we will neglect references to legal texts for the following individual developments. The applicable legislation is currently:
1 - There are 5 cases to consider for a proper catch-all assessment
Catch-all provisions only apply if there is a specific technical and function relationship between the item concerned and a critical or sensitive end-use. These critical end-use situations are defined in the law and include five different cases.
Evidently, to verify if the relevant case has occurred, the operator is required to proceed by a case-by-case assessment, on the spot of the transaction.
Case 1 - The item is or may be intended, in whole or part, to contribute to (chemical, biological, nuclear) weapons of mass destruction
The first case is the "proliferation" or "WMD" (weapons of mass destruction) case.
Proliferation, under Luxembourg law, means any act that contributes to the manufacturing, acquisition development, possession, export, transhipment, transfer, brokering, storage and use of chemical, biological or nuclear weapons or other nuclear explosive devices and missiles capable of serving as a vehicle for such weapons, in infringement with an international treaty binding the Grand Duchy of Luxembourg.
The proliferation of weapons of mass destruction and their means of delivery such as ballistic missiles are a growing threat to international peace and security.
To assess the risk of WMD end-use to a proposed export, one must take into account the specific circumstances of each individual case. It shall be based on detailed consideration of a range of questions, including the following:
Case 2 - The export, or the item, affects or is likely to affect the national or external security of the Grand Duchy of Luxembourg or the safeguarding of human rights
The assessment of this case requires a double security verification.
In Luxembourg law, "national security" is defined by independence and sovereignty of the State, security and functioning of the institutions, fundamental rights and freedoms, security of persons and property, scientific and technical potential or economic interests.
The "external security" is the security of foreign States or international or supra-national organizations which which Luxembourg pursues common objectives on the basis of an international treaty.
Case 3 - The Buyer or destination country is subject to an EU/OSCE/UN arms embargo and the item is or may be intended, on whole or part, for a military end-use
The assessment of this case also requires a double verification, the first one being related to arms embargo to which the buying entity of the country of destination may be subject to.
EU arms embargoes are all implemented in Luxembourg law. Information related to the embargo countries may be accessed by reading Annex 2 of the Grand Duke Regulation of 14 December 2018 on export control.
On overview of arms embargoes may be found on the SIPRI website.
The second criteria is the, actual or potential, "military end-use" of the product. This means one of the following:
Case 4 - The item is or may be intended, in whole or part, for use as parts or components of defence-related products exported from Luxembourg without the required authorization
During the assessment of this case, the operator should consider that "exported ... without the required authorization" covers the case of an export without any license, but also the case of the export made in violation of an existing license.
Case 5 - The item is a cyber-surveillance items which is or may be intended, in its entirety or in part, for use in connection with internal repression and/or the commission of violations of human rights and international humanitarian law
This case has been added by the recent recast of the EU Dual-Use Regulation, resulting in Regulation 2021/821.
"Cyber-surveillance item" is defined as being a dual-use item specially designed to enable the covert surveillance of natural persons by monitoring, extracting, collecting or analysing data from information and telecommunication systems.
Risks related to cyber-surveillance items relate, in particular, to cases where such items are specially designed to enable intrusion or deep packet inspection into information and telecommunications systems in order to conduct covert surveillance of natural persons by monitoring, extracting, collecting or analysing data, including biometrics data, from those systems.?
Items used for purely commercial applications such as billing, marketing, quality services, user satisfaction, network security are considered to generally not entail the risk of being misused by persons complicit in or responsible for directing or committing serious violations of human rights or international humanitarian law.
Internal repression includes, among other things, torture and other cruel, inhuman and degrading treatment or punishment, arbitrary and mass executions, disappearances and arbitrary detentions.
The human rights mentioned in the EU Regulation are those anchored in customary international law. Rights that may be affected by the use of cyber-surveillance items include, in particular, the right to privacy, the fight to freedom of speech, association and assembly, the right to freedom of thought, conscience and religion and the right to equal treatment or prohibition of discrimination.
2 - If you are aware of, or have grounds for suspecting, ...
There are three triggers for the implementation of the catch-all provisions.
The first is an information notified by the Government that the export, brokering services or technical assistance in relation with non-listed dual-use items or military equipment shall be subject to a license. Such an information may be directed towards a specific exporter or operator, but may also take the form of a collective decision. The operator shall, well understood, have to comply with such a license requirement.
The two other triggers reside on the side of the exporter or operator. There is a general responsibility for all exporters to assess the possible diversion of their products towards a WMD programme or the occurrence of any of the other catch-all cases mentioned here before. If during this assessment which must be recurrent, the exporter gets awareness or grounds of suspecting of the catch-all event, then he must act.
The exporter is "aware" of ...
The wording "aware of" is not defined, neither in the EU Regulation, nor in Luxembourg law. The French versions of the text use the wording "a connaissance", the German ones "ist dem Ausführer bekannt”.
It is generally admitted that awareness results from evidences based on information received directly or indirectly by the exporter. This requires positive knowledge (direct intent). The German authorities, for example, are of the opinion that such awareness also exists when the exporter is acquainted with sufficient sources from which he can acquire the knowledge in a reasonable way and without special effort. The exporter may not deliberately ignore apparent indications, nor completely fail to perform due diligence.
"To deem possible" (exporter's indirect intent, negligent ignorance) is however not sufficient to constitute awareness.
The existence of awareness is assessed throughout the exporter's different departments. Employees who are aware will render the whole company aware.?
The exporter has "grounds for suspecting"
As for "awareness" mentioned here before, the wording "grounds for suspecting” are not further defined in the EU or Luxembourg export control regulations.
In French, the authors have used the wording "soup?on", in German “Grund zur Annahme”. One may note that the German translation seems not be in accordance with the English and French versions, as "suspecting" or "soup?on" are words which be assimilated in German language to "Verdacht" or "Vermutung", more than to "Grund zur Annahme", the latter having higher requirements to the information at hand.
An exporter who is aware of, or has grounds of suspecting that his product or service will end up with a critical end-user or end-use, must abandon passivity and take positive action in order to avoid any liability. The type of action is dependent of the type or product and the operation.
3 - ... An information to the Government and/or a license may be required
There are different actions, depending on whether the operator wants to export a product, or provide brokering services or technical assistance.
Export
In case of an export of non-listed dual-use items, awareness in any of the 5 catch-all situations shall oblige the exporter to file an information to the Luxembourg Government. The same applies if the exporter has grounds for suspecting, and an authorisation may then be imposed by the licensing authorities.?
The table is not so complete when it comes to non-listed military equipment. The Luxembourg lawmakers have here until now not implemented the "cyber-surveillance" catch-all case. There are, as well, blanks in the legislative framework for the information coming from the Government with regard to the "public security" catch-all. Awareness will result for the exporter in an obligation to report to the Government, and grounds for suspecting will directly result in an authorisation requirement - a solution that is difficult to understand when "awareness" (with evidences, compared to simple grounds for suspecting) results in a weaker requirement. Grounds of suspecting, on their side, will not oblige the exporter to any action in the 4th (military end-use) and 5th (use as parts or components of defence-related products exporter without license) catch-all cases.
Note: In the table below, "L2018" refers to the Luxembourg Export Control Law of 27 June 2018. "RUE2021" refers to the EU Dual-Use Regulation 2021/821.
Brokering
Brokering of dual-use items means (a) the negotiation or arrangement of transactions for the purchase, sale or supply of dual-use items from a third country to another third country, or (b) the selling or buying of dual-use items that are located in third countries for their transfer to another third country. The provision of ancillary services (like transportation, financial services, insurance or re-insurance, or general advertising or promotion) are excluded from this definition.
Brokering of defence-related products is defined in a broader way than for dual-use items, as it covers also auxiliary services (Law of 2018, art. 31(2)). There are however, currently, no catch-all provisions for brokering of non-listed military equipment, as the Grand Duchy of Luxembourg has not decided to go into that direction in the Export Control Law of 2018.
In the field of dual-use items, which for the seek of completeness comprises listed and not listed items, there are currently no catch-all provisions for brokering services, in the "public security" and "cyber-surveillance" cases.
In the three other catch-all cases, awareness of the provider of technical assistance must result in an information to the Government, but only if the dual-use items are listed.
Grounds of suspecting are, at the current state, clearly resulting in a license requirement if the dual-use items are non-listed.
Luxembourg law however foresees a general provision (art. 42(1)), not updated after the entry into force of EU Regulation 2021/821, that puts a general authorisation requirement for brokering with listed and non-listed dual-use items if the end-use will be of any of these 3 catch-all situations. There is no mention if this requirement only applies if the Government has informed the provider, or if the provider is aware, or has grounds of suspecting. Prudence will therefore require providers to apply for a license in any case, or, at least, enquire with the Government for clarification before proceeding with the provision of the brokering services, in case they are aware (for non-listed items) or have grounds of suspecting (for listed items).
Technical assistance
Technical assistance in relation to dual-use items is defined as any technical support related to repairs, development, manufacture, assembly, testing, maintenance, or any other technical services. This may take forms such as instruction advice, training, transmission of working knowledge or skills or consulting services, including by electronic means as well as by telephone or any other verbal forms of assistance.
There are, currently, no catch-all provisions for brokering of non-listed military equipment, as the Grand Duchy of Luxembourg has not decided to go into that direction in the Export Control Law of 2018.
In the field of dual-use items, which for the seek of completeness comprises listed and not listed items, there are currently no catch-all provisions for brokering services, in the "public security" and "cyber-surveillance" cases.
In the three other catch-all cases, awareness of the provider of technical assistance must result in an information to the Government, but only if the dual-use items are listed.
No legal rule without exceptions! There are 6 types of exceptions to the obligation pointed out in paragraph here before. One of them only concerns authorities or State agencies. For providers of the private sector, the five remaining exceptions are the following:
(a) pursuant to a contractual relationship placed by the European Space Agency (ESA) or that are transferred by ESA to accomplish its official tasks,
(b) pursuant to a contractual relationship placed by a n EU Member State's national space organisation or that are transferred by it to accomplish its official tasks,
(c) pursuant to a contractual relationship placed in connection with a EU space launch development and production programme signed by two or more EU governments, and
(d) to a State-controlled space launching site in the territory of an EU Member State, unless that Member State controls such transfers;
Grounds of suspecting are, at the current state, not resulting in an obligation to inform the Government. Luxembourg lawmakers have not used, until now, the option foreseen by the EU regulation.
4 - Act now! Passivity does not protect ...
To implement sufficient catch-all controls, exporters and providers of brokering services and technical assistance in relation with non-listed dual-use items or military equipment should do the following: