[Federal Register Volume 63, Number 183 (Tuesday, September 22, 1998)]
[Rules and Regulations]
[Pages 50516-50527]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-25096]
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DEPARTMENT OF COMMERCE
Bureau of Export Administration
15 CFR Parts 732, 734, 740, 742, 743, 748, 750, 752, 770, 772, and
774
[Docket No. 980911233-8233-01]
RIN 0694-AB80
Encryption Items
AGENCY: Bureau of Export Administration, Commerce.
ACTION: Interim rule.
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SUMMARY: This interim rule amends the Export Administration Regulations
(EAR) by clarifying controls on the export and reexport of encryption
items (EI) controlled for ``EI'' reasons on the Commerce Control List.
This rule incorporates public comments on an interim rule published in
the Federal Register on December 30, 1996, and implements new licensing
policies for general purpose non-recoverable non-voice encryption
commodities or software of any key length for distribution to banks and
financial institutions in specified countries.
DATES: Effective Date: This rule is effective September 22, 1998.
Comments: Comments on this rule must be received on or before November
6, 1998.
ADDRESSES: Written comments on this rule should be sent to Nancy Crowe,
Regulatory Policy Division, Bureau of Export Administration, Department
of Commerce, P.O. Box 273, Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT: James Lewis, Office of Strategic Trade
and Foreign Policy Controls, Bureau of Export Administration,
Telephone: (202) 482-0092.
SUPPLEMENTARY INFORMATION:
Background
On December 30, 1996, the Bureau of Export Administration (BXA)
published in the Federal Register (61 FR 68572) an interim rule that
exercises jurisdiction over, and imposes new combined national security
and foreign policy controls on, certain encryption items that were on
the United States Munitions List, consistent with Executive Order
(E.O.) 13026 and pursuant to the Presidential Memorandum of that date,
both issued by President Clinton on November 15, 1996.
BXA received comments from 45 commenters, and the comments fall
into three broad categories: general concerns and objections to the
policy embodied in the regulations; recommendations for specific
changes or clarifications to the regulations that are consistent with
the broad encryption policy implemented in the December 30 rule; and
recommendations for additional changes to encryption policy.
Suggestions for Changes to Clarify Existing Policy
A number of commenters provided specific suggestions for changes or
clarifications which are consistent with the intent of the policy and
which would streamline or improve the regulations. Many of these
suggestions are implemented in this rule, such as clarifying that the
tools of trade provisions of License Exception TMP and License
Exception BAG apply globally and clarifying that anti-virus software
does not require a license for export.
Several commenters asked the Department of Commerce to adopt
exemptions to license requirements which were available for encryption
exporters under Sec. 123.16(b)(2) and (b)(9) of the International
Traffic and Arms Regulations (ITAR), such as those which allowed the
export of components to a U.S. subsidiary or which allowed the export
of spare parts and components without a license for an already approved
sale. This rule adds these new provisions under License Exception TMP,
making them applicable to encryption controlled items as well as other
items eligible for TMP treatment.
Two commenters asked that the regulations clarify that the ITAR
licensing policy for equipment specially made for and limited to the
encryption of interbanking transactions had not changed with the
transfer of jurisdiction of encryption products to the Department of
Commerce. This interim rule clarifies that this equipment is not
subject to EI controls.
Several commenters recommended a number of changes to the Key
Escrow Product and Agent criteria found in Supplement Nos. 4 and 5 part
to 742 of the EAR. These recommendations were to simplify the criteria,
and to modify some of the specific prescriptions to allow for greater
flexibility and variation on the part of exporters. Many commenters
found the criteria too bureaucratic and legalistic to help advance U.S.
encryption policy goals, while others noted that the criteria were
still overly focused on key escrow and not consistent with the broader
approach to key recovery found elsewhere in the regulation. Several
commenters also encouraged the administration to make clear that it had
moved beyond key escrow to key recovery in its policy. One commenter
[[Page 50517]]
focused on weaknesses and omissions found in the key escrow product and
agent criteria found in Supplement Nos. 4 and 5 to part 742 of the EAR,
and provided suggested additions to the criteria to make them more
consistent with emerging business practices. The criteria specified in
Supplement Nos. 4 and 5 were discussed extensively with industry prior
to publication of the December 30 interim rule, and the rule reflects
these discussions. However, BXA continues to look for ways to
streamline the criteria, and will address revisions in a future
regulation.
Several commenters expressed concerns over the longer processing
time required for licenses at the Department of Commerce. Some
commenters noted that the involvement of Departments of Energy and
State, the Arms Control and Disarmament Agency and other agencies which
did not review license applications for encryption products submitted
to the Department of State added unnecessary levels of review and
caused unwarranted delays. BXA is continuing to work with other
reviewing Departments and Agencies to ensure expeditious review of
encryption license applications. Many commenters noted that the
requirements for a Department of Commerce license were substantially
greater than what was required at the Department of State. The
Department of Commerce, for example, requires an end-use certificate to
be obtained for some destinations before approving an export; the
Department of State did not and exporters question the need for this
change. Other commenters noted that the Department of State licensing
system was more flexible and faster for approvals of distribution and
manufacturing arrangements. The Department of Commerce has no
equivalent licenses, but is reviewing the possibility of such licenses.
Many oral comments received since the close of the comment period note
that unlike the Department of State, the Department of Commerce does
not allow licenses to be amended, so that if an exporter has, for
example, a license which allows him to ship to thirty countries and
wishes to add one more, the Department of Commerce requires submission
of an entire new license while the Department of State was content with
a simple letter noting the requested change. This rule will now allow
the addition of countries to an Encryption Licensing Arrangement by
letter. BXA understands industry concerns about the license process
under the EAR, and continues to look for ways to streamline the
process.
Additional Recommendations for Changes to Encryption Policy
A number of commenters asked that the Administration revisit a
number of decisions made in the course of the development of the
encryption policy as reflected in the December 30 interim rule. Several
asked that we reconsider and liberalize the treatment of Cryptographic
Application Program Interface. Others questioned the addition of
``defense services'' controls similar to that contained in the ITAR
(which prohibits U.S. persons from assisting foreign entities from
developing their own indigenous encryption products). Several
commenters objected to the structure of License Exception KMI for non-
recoverable 56 bit products, with its requirement for a review every
six months. Other commenters also called for a reversal of the decision
to exempt transferred encryption items from normal Department of
Commerce regulatory practices. Finally, several commenters recommended
that the licensing criteria and License Exceptions applicable to other
dual-use items be fully applicable to encryption products, such as
considerations of foreign availability, the de minimis content
exclusion, public domain treatment and the use of License Exceptions.
This rule focuses on clarifications to existing encryption policy.
Based on public comments to the December 30 interim rule, this
interim rule specifically makes the following changes:
--In Secs. 732.2(d) and 732.3(e)(2), makes editorial corrections to
clarify that encryption items controlled for ``EI'' reasons under ECCNs
5A002, 5D002 and 5E002 are not eligible for De Minimis treatment.
--In Sec. 734.2, clarifies that downloading or causing the downloading
of encryption source code and object code in Canada is not controlled
and does not require a license.
--In Sec. 740.6, clarifies that letters of assurance required for
exports under License Exception TSR may be accepted in the form of a
letter or any other written communication from the importer, including
communications via facsimile.
--Sec. 740.8 is also amended by adding a new paragraph to authorize,
after a one-time technical review, exports and reexports under License
Exception KMI of non-recoverable financial-specific encryption software
(which is not eligible under the provisions of License Exception TSU
for mass market software, such as SET or similar protocols) and
commodities of any key length that are restricted by design (e.g.,
highly field-formatted with validation procedures, and not easily
diverted to other end-uses) for financial applications to secure
financial transactions, for end-uses such as financial transfers or
electronic commerce. No business and marketing plan to develop,
produce, or market encryption items with recoverable features is
required. Such exports and reexports are eligible to all destinations
except Cuba, Iran, Iraq, Libya, North Korea, Sudan and Syria.
Conforming changes are also made in Sec. 742.15.
--Sec. 740.8 is also amended to authorize, after a one time review,
exports and reexports under License Exception KMI of general purpose
non-recoverable non-voice encryption commodities or software of any key
length for distribution to banks and financial institutions (as defined
in part 772 of the EAR) in destinations listed in new Supplement No. 3
to part 740, provided the end-use is limited to secure business
financial communications or transactions or financial communications/
transactions between the bank or financial institution and its
customers. No customer to customer communications or transactions are
permitted. Software and commodities that have already received a one-
time technical review through a classification request or have been
licensed for export under an Encryption Licensing Arrangement or a
license are eligible for export to banks and financial institutions
under License Exception KMI without an additional one-time technical
review. Note that no business or marketing plan is required. Conforming
changes are also made in Sec. 742.15. Software and commodities that
have already been approved under an Encryption Licensing Arrangement to
banks in specified countries may now be exported or reexported to other
banks and financial institutions in those countries under the same
Encryption Licensing Arrangement.
--In Sec. 740.9, removes the reference to Country Group D:1. With this
change, commodities and software are eligible for export under the
tools of trade provisions of License Exception TMP to all destinations
except countries listed in country group E:2 or Sudan. This also
clarifies that encryption software controlled for EI reasons under ECCN
5D002 may be pre-loaded on a laptop and temporarily exported under the
tools of trade provisions of License Exception TMP
[[Page 50518]]
to most countries, including those listed in Country Group D:1.
--Also in Sec. 740.9, adds a new paragraph (a)(2)(ix) to authorize
under License Exception TMP the export of components, parts, tools or
test equipment exported by a U.S. person to its subsidiary, affiliate
or facility in a country in Country Group B that is owned or controlled
by the U.S. person, if the components, part, tool or test equipment is
to be used for manufacture, assembly, testing, production or
modification, provided that no components, parts, tools or test
equipment or the direct product of such components, parts, tools or
test equipment are transferred or reexported to a country other than
the United States from such subsidiary, affiliate or facility without a
license or other authorization from BXA.
--In Sec. 740.11, excludes items controlled for EI reasons from
eligibility under the International Safeguards provisions of License
Exception GOV.
--In Sec. 740.14, clarifies existing provisions of License Exception
BAG to distinguish temporary from permanent exports and imposes a
restriction on the use of BAG for exports or reexports of EI-controlled
items to terrorist supporting destinations or by persons other than
U.S. citizens and permanent residents.
--New Supplement No. 3 to part 740 is added to list the countries
eligible to receive under License Exception KMI general purpose non-
recoverable non-voice encryption commodities or software of any key
length for distribution to banks and financial institutions.
--In Sec. 742.15, adds 40-bit DES as being eligible for consideration
under the 15-day review, for mass-market eligibility, subject to the
additional criteria listed in Supplement No. 6 to part 742.
--In Sec. 742.15(b)(1), clarifies that subsequent bundling, updates or
releases may be exported and reexported under applicable provisions of
the EAR without a separate one-time technical review so long as the
functional encryption capacity of the originally reviewed mass-market
encryption software has not been modified or enhanced.
--New paragraph (b)(4) is added to Sec. 742.15 to authorize exports and
reexports under an Encryption Licensing Arrangement of general purpose
non recoverable, non-voice encryption commodities and software of any
key length for use by banks/financial institutions as defined in part
772 of the EAR in all destinations except Cuba, Iran, Iraq, Libya,
North Korea, Syria and Sudan. No business or marketing plan is
required. Exports and reexports for the end-uses to secure business
financial communications or between the bank and/or financial
institution and its customers will receive favorable consideration. No
customer to customer communications or transactions are eligible under
the Encryption Licensing Arrangement.
--In Supplement No. 4 to part 742, paragraph (3), revises ``reasonable
frequency'' to ``at least once every three hours'' to resolve the
ambiguity on how often the output must identify the key recovery agent
and material/information required to decrypt the ciphertext.
--In Supplement No. 4 to part 742, paragraph (6)(i), clarifies that the
U.S. government must be able to obtain the key(s) or other material/
information needed to decrypt all data, without restricting the means
by which the key recoverable products allow this.
--In Supplement No. 6 to part 742 for 7-day mass-market classification
requests, clarifies that a copy of the encryption subsystem source code
may be used instead of a test vector to determine eligibility for
License Exception TSU for mass market software.
--In Sec. 743.1, requires reporting under the Wassenaar Arrangement for
items controlled under ECCNs 5A002 and 5D002 when exported under
specific provisions of License Exception KMI. This is not a new
reporting requirement, but replaces and narrows the scope of the
reporting requirement under the Encryption License Arrangement for
financial-specific commodities and software and general purpose non-
recoverable non-voice encryption commodities and software of any key
length for distribution to banks and financial institutions that are
eligible for License Exception KMI.
--In Secs. 748.9 and 748.10, clarifies a long-standing policy that no
support documentation is required for exports of technology or
software, and it removes the requirement for such support documentation
for exports of technology or software to Bulgaria, Czech Republic,
Hungary, Poland, Romania, or Slovakia. This rule also exempts from
support documentation requirements all encryption items controlled
under ECCNs 5A002, 5B002, 5D002 and 5E002. This conforms with the
practice under the ITAR prior to December 30, 1996.
--In Sec. 750.7, allows requests to add countries of destination to
Encryption Licensing Arrangements by letter.
--In Sec. 752.3, excludes encryption items controlled for EI reasons
from eligibility for a Special Comprehensive License.
--In Sec. 770.2, adds a new interpretation to clarify that encryption
software controlled for EI reasons under ECCN 5D002 may be pre-loaded
on a laptop and exported under the tools of trade provision of License
Exception TMP or the personal use exemption under License Exception
BAG, subject to the terms and conditions of such License Exceptions.
--In part 772, adds new definitions for ``bank'', ``effective
control'', ``encryption licensing arrangement'', and ``financial
institution''.
--In Supplement No. 1 to part 774, Category 5--Telecommunications and
Information Security is amended by revising ECCN 5A002 to authorize
exports of components and spare parts under License Exception LVS,
provided the value of each order does not exceed $500 and the
components and spare parts are destined for items previously authorized
for export, and to clarify that equipment for the encryption of
interbanking transactions is not controlled under that entry.
--Revises the phrase ``up to 56-bit key length DES'' where it appears
to read ``56-bit DES or equivalent'', and makes other editorial
changes.
Note that this rule does not affect exports or reexports authorized
under licenses issued prior to the effective date of this rule.
Several commenters also noted that the exemptions found under
Sec. 125.4(b) of the ITAR should be implemented in the EAR. Most of the
exemptions found in Sec. 125.4(b) of the ITAR are already available
under existing provisions of the EAR. For example, Sec. 125.4(b)(4) of
the ITAR authorizes exports without a license of copies of technical
data previously authorized for export. The EAR has no restrictions on
the number of copies sent to a consignee authorized to receive
technology under license or a License Exception. Section 125.4(b)(5)
authorizes exports without a license of technical data in the form of
basic operations, maintenance, and training information relating to a
defense article lawfully exported or authorized for export provided the
technical data is for use by the same recipient. Further, Section
125.4(2) authorizes exports of technical data in furtherance of a
manufacturing license or technical assistance agreement. License
Exception
[[Page 50519]]
TSU for operation technology and software (see Sec. 740.13 of the EAR)
authorizes the export and reexport of the minimum technology necessary
for the installation, operation, maintenance and repair of those
products (including software) that are lawfully exported or reexported
under a license, a License Exception, or non license required (NLR).
Section 125.4(b)(7) of the ITAR allows the return of technical data to
the original source of import. License Exception TMP similarly
authorizes the return of any foreign-origin item, including technology,
to the country from which it was imported if the characteristics have
not been enhanced while in the United States (see Sec. 740.9(b)(3) of
the EAR).
BXA has also received many inquiries on Shipper's Export
Declaration (SED) requirements for Canada. Note that the EAR do not
require exporters to file an SED for exports of any item to Canada for
consumption in Canada, unless a license is required. Further note that
a license is not required for exports of encryption items for
consumption in Canada, including certain exports over the Internet.
Finally, BXA has received many requests for clarification on SED
requirements for electronic transfers. Neither the EAR nor the FTSR
provide for the filing of SEDs for electronic transfers of items
controlled by the Department of Commerce under the EAR .
As further clarifications and changes to the encryption provisions
of the EAR are intended, in particular regarding Supplement Nos. 4 and
5 to part 742 of the EAR, BXA will publish additional interim rules in
the Federal Register.
Rulemaking Requirements
1. This interim rule has been determined to be significant for
purposes of E. O. 12866.
2. Notwithstanding any other provision of 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 Paperwork Reduction Act, unless that collection of
information displays a currently valid Office of Management and Budget
Control Number. This rule contains collections of information subject
to the Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et seq.). These
collections have been approved by the Office of Management and Budget
under control numbers 0694-0088, ``Multi-Purpose Application,'' which
carries a burden hour estimate of 52.5 minutes per submission; and
0694-0104, ``Commercial Encryption Items Transferred from the
Department of State to the Department of Commerce,'' which carries the
following burden hours: marketing plans (40 hours each); semiannual
progress reports (8 hours each); safeguard procedures (4 hours);
recordkeeping (2 hours); annual reports (4 hours); and Encryption
Licensing Arrangement letters (15 minutes).
3. This rule does not contain policies with Federalism implications
sufficient to warrant preparation of a Federalism assessment under E.O.
12612.
4. The provisions of the Administrative Procedure Act (5 U.S.C.
553) requiring notice of proposed rulemaking, the opportunity for
public participation, and a delay in effective date, are inapplicable
because this regulation involves a military and foreign affairs
function of the United States (Sec. 5 U.S.C. 553(a)(1)). Further, no
other law requires that a notice of proposed rulemaking and an
opportunity for public comment be given for this interim final rule.
Because a notice of proposed rulemaking and an opportunity for public
comment are not required to be given for this rule under 5 U.S.C. or by
any other law, the requirements of the Regulatory Flexibility Act (5
U.S.C. 601 et seq. ) are not applicable.
However, because of the importance of the issues raised by these
regulations, this rule is issued in interim form and comments will be
considered in the development of final regulations. Accordingly, the
Department of Commerce encourages interested persons who wish to
comment to do so at the earliest possible time to permit the fullest
consideration of their views.
The period for submission of comments will close November 6, 1998.
The Department of Commerce will consider all comments received before
the close of the comment period in developing final regulations.
Comments received after the end of the comment period will be
considered if possible, but their consideration cannot be assured. The
Department 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. The Department
of Commerce will return such comments and materials to the person
submitting the comments and will not consider them in the development
of final regulations. All public comments on these regulations will be
a matter of public record and will be available for public inspection
and copying. In the interest of accuracy and completeness, the
Department of Commerce requires comments in written form.
Oral comments must be followed by written memoranda, which will
also be a matter of public record and will be available for public
review and copying. Communications from agencies of the United States
Government or foreign governments will not be made available for public
inspection.
The public record concerning these regulations will be maintained
in the Bureau of Export Administration Freedom of Information Records
Inspection Facility, Room 4525, Department of Commerce, 14th Street and
Pennsylvania Avenue, NW, Washington, DC 20230. Records in this
facility, including written public comments and memoranda summarizing
the substance of oral communications, may be inspected and copied in
accordance with regulations published in Part 4 of Title 15 of the Code
of Federal Regulations (CFR). Information about the inspection and
copying of records at the facility may be obtained from Margaret
Cornejo, Bureau of Export Administration Freedom of Information
Officer, at the above address or by calling (202) 482-5653.
List of Subjects
15 CFR Parts 732, 740, 743, 748, 750, and 752
Administrative practice and procedure, Exports, Foreign trade,
Reporting and recordkeeping requirements.
15 CFR Part 734
Administrative practice and procedure, Exports, Foreign trade.
15 CFR Parts 742, 770, 772 and 774
Exports, foreign trade.
Accordingly, 15 CFR chapter VII, subchapter C, is amended as
follows:
1. The authority citation for 15 CFR parts 732, 740, 748, 752 and
772 continues to read as follows:
Authority: 50 U.S.C. app. 2401 et seq.; 50 U.S.C. 1701 et seq.;
E.O. 12924, 59 FR 43437, 3 CFR, 1994 Comp., p. 917; Executive Order
13026 (November 15, 1996, 61 FR 58767); Notice of August 17, 1998
(63 FR 55121, August 17, 1998).
2. The authority citation for 15 CFR part 734 continues to read as
follows:
Authority: 50 U.S.C. app. 2401 et seq.; 50 U.S.C. 1701 et seq.;
E.O. 12924, 59 FR 43437, 3 CFR, 1994 Comp., p. 917; E.O. 12938, 59
FR 59099, 3 CFR, 1994 Comp., p. 950; Executive Order 13026 (November
15, 1996, 61 FR 58767); Notice of August 17, 1998 (63 FR 55121,
August 17, 1998).
3. The authority citation for 15 CFR part 742 continues to read as
follows:
Authority: 50 U.S.C. app. 2401 et seq.; 50 U.S.C. 1701 et seq.;
18 U.S.C. 2510 et seq.;
[[Page 50520]]
22 U.S.C. 3201 et seq.; 42 U.S.C. 2139a; E.O. 12058, 43 FR 20947, 3
CFR, 1978 Comp., p. 179; E.O. 12851, 58 FR 33181, 3 CFR, 1993 Comp.,
p. 608; E.O. 12924, 59 FR 43437, 3 CFR, 1994 Comp., p. 917; E.O.
12938, 59 FR 59099, 3 CFR, 1994 Comp., p. 950; Executive Order 13026
(November 15, 1996, 61 FR 58767); Notice of August 17, 1998 (63 FR
55121, August 17, 1998).
4. The authority citation for 15 CFR part 743 continues to read as
follows:
Authority: 50 U.S.C. app. 2401 et seq.; 50 U.S.C. 1701 et seq.;
E.O. 12924, 59 FR 43437, 3 CFR, 1994 Comp., p. 917; Notice of August
17, 1998 (63 FR 55121, August 17, 1998).
5. The authority citation for 15 CFR part 750 continues to read as
follows:
Authority: 50 U.S.C. app. 2401 et seq.; 50 U.S.C. 1701 et seq.;
E.O. 12924, 59 FR 43437, 3 CFR, 1994 Comp., p. 917; Notice of August
15, 1995 (60 FR 42767, August 17, 1995); E.O. 12981, 60 FR 62981;
Notice of August 17, 1998 (63 FR 55121, August 17, 1998).
6. The authority citation for 15 CFR part 770 continues to read as
follows:
Authority: 50 U.S.C. app. 2401 et seq.; 50 U.S.C. 1701 et seq.;
E.O. 12924, 59 FR 43437, 3 CFR, 1994 Comp., p. 917; Notice of August
17, 1998 (63 FR 55121, August 17, 1998).
7. The authority citation for 15 CFR part 774 continues to read as
follows:
Authority: 50 U.S.C. app. 2401 et seq.; 50 U.S.C. 1701 et seq.;
10 U.S.C. 7420; 10 U.S.C. 7430(e); 18 U.S.C. 2510 et seq.; 22 U.S.C.
287c; 22 U.S.C. 3201 et seq.; 22 U.S.C. 6004; Sec. 201, Pub. L. 104-
58, 109 Stat. 557 (30 U.S.C. 185(s)); 30 U.S.C. 185(u); 42 U.S.C.
2139a; 42 U.S.C. 6212; 43 U.S.C. 1354; 46 U.S.C. app. 466c; 50
U.S.C. app. 5; E.O. 12924, 59 FR 43437, 3 CFR, 1994 Comp., p. 917;
Executive Order 13026 (November 15, 1996, 61 FR 58767); Notice of
August 17, 1998 (63 FR 55121, August 17, 1998).
PART 732--[AMENDED]
Sec. 732.2 [Amended]
8. Section 732.2(d) amended by revising the phrase ``ECCN 5A002 or
ECCN 5D002'' to read ``ECCNs 5A002, 5D002 or 5E002''.
Sec. 732.3 [Amended]
9. Section 732.3(e)(2) is amended by revising the phrase ``ECCN
5A002 or ECCN 5D002'' to read ``ECCNs 5A002, 5D002 or 5E002''.
PART 734--[AMENDED]
10. Section 734.2 is amended by revising paragraph (b)(9)(ii) to
read as follows:
Sec. 734.2 Important EAR terms and principles.
(a) * * *
(b) * * *
(9) * * *
(ii) The export of encryption source code and object code software
controlled for EI reasons under ECCN 5D002 on the Commerce Control List
(see Supplement No. 1 to part 774 of the EAR) includes downloading, or
causing the downloading of, such software to locations (including
electronic bulletin boards, Internet file transfer protocol, and World
Wide Web sites) outside the U.S. (except Canada), or making such
software available for transfer outside the United States (except
Canada), over wire, cable, radio, electromagnetic, photo optical,
photoelectric or other comparable communications facilities accessible
to persons outside the United States (except Canada), including
transfers from electronic bulletin boards, Internet file transfer
protocol and World Wide Web sites, unless the person making the
software available takes precautions adequate to prevent unauthorized
transfer of such code outside the United States or Canada. Such
precautions shall include ensuring that the facility from which the
software is available controls the access to and transfers of such
software through such measures as:
(A) The access control system, either through automated means or
human intervention, checks the address of every system requesting or
receiving a transfer and verifies that such systems are located within
the United States or Canada;
(B) The access control system provides every requesting or
receiving party with notice that the transfer includes or would include
cryptographic software subject to export controls under the Export
Administration Regulations, and that anyone receiving such a transfer
cannot export the software without a license; and
(C) Every party requesting or receiving a transfer of such software
must acknowledge affirmatively that he or she understands that the
cryptographic software is subject to export controls under the Export
Administration Regulations and that anyone receiving the transfer
cannot export the software without a license. BXA will consider
acknowledgments in electronic form provided that they are adequate to
assure legal undertakings similar to written acknowledgments.
* * * * *
Sec. 734.4 [Amended]
11. Section 734.4 is amended by revising the phrase ``ECCN, 5A002,
ECCN 5D002, and 5E002'' in paragraph (b)(2) to read ``ECCNs 5A002,
5D002, and 5E002''.
PART 740--[AMENDED]
12. Section 740.3 is amended by adding a new paragraph (d)(5) to
read as follows:
Sec. 740.3 Shipments of limited value (LVS).
* * * * *
(d) * * *
(5) Exports of encryption items. For components or spare parts
controlled for ``EI'' reasons under ECCN 5A002, exports under this
License Exception must be destined to support an item previously
authorized for export.
* * * * * .
13. Section 740.6 is amended by revising the first sentence in
paragraph (a)(3) to read as follows:
Sec. 740.6 Technology and software under restriction (TSR).
(a) * * *
(3) Form of written assurance. The required assurance may be made
in the form of a letter or any other written communication from the
importer, including communications via facsimile, or the assurance may
be incorporated into a licensing agreement that specifically includes
the assurances. * * *
* * * * *
14. Section 740.8 is amended:
(a) By revising paragraph (b)(2);
(b) By revising the phrase ``recovery encryption software and
equipment'' in paragraph (d)(1) to read ``recoverable encryption
items'';
(c) By revising the phrase ``March 1 and no later than September
1'' in paragraph (e)(2) to read ``February 1 and no later than August
1'', as follows:
Sec. 740.8 Key management infrastructure.
* * * * *
(b) * * *
(2)(i) Non-recoverable encryption commodities and software.
Eligible items are non-recoverable 56-bit DES or equivalent strength
commodities and software controlled under ECCNs 5A002 and 5D002 that
are made eligible as a result of a one-time BXA review. You may
initiate this review by submitting a classification request for your
product in accordance with paragraph (d)(2) of this section.
(ii) Non-recoverable financial-specific encryption commodities and
software of any key length. (A)(1) After a one-time technical review
through a classification request (see Sec. 748.3 of the EAR), non-
recoverable, financial-specific encryption software (which is not
eligible under the provisions of License Exception TSU for mass market
software such as SET or similar protocols); and commodities of any key
length that are
[[Page 50521]]
restricted by design (e.g., highly field-formatted with validation
procedures, and not easily diverted to other end-uses) for financial
applications to secure financial communications/transactions for end-
uses such as financial transfers, or electronic commerce will be
permitted under License Exception KMI for export and reexport to all
destinations except Cuba, Iran, Iraq, Libya, North Korea, Sudan, and
Syria.
(2) For such classification requests, indicate ``License Exception
KMI'' in block #9 on Form BXA748P. Submit the original request to BXA
in accordance with Sec. 748.3 of the EAR and send a copy of the request
to: Attn: Financial Specific Encryption Request Coordinator, P.O. Box
246, Annapolis Junction, MD 20701-0246.
(B) Upon approval of your classification request for a non-
recoverable financial-specific encryption commodities or software, you
will become eligible to use License Exception KMI. This approval allows
the export or reexport of encryption commodities and software
specifically designed and limited for use in the processing of
electronic financial (commerce) transactions, which implements
cryptography in specifically delineated fields such as merchant's
identification, the customer's identification and address, the
merchandise purchased, and the payment mechanism. It does not allow for
encryption of data, text or other media except as directly related to
these elements of the electronic transaction to support financial
communications/transactions. For exports and reexports under the
provisions of this paragraph (b)(2)(ii), no business and marketing plan
is required, and the reporting requirements of paragraph (e) of this
section and the criteria described in Supplement Nos. 4 and 5 to part
742 of the EAR are not applicable. However, you are subject to the
reporting requirements of the Wassenaar Arrangement (see Sec. 743.1 of
the EAR)
(iii) General purpose non-recoverable encryption commodities or
software of any key length for use by banks/financial institutions.
(A)(1) After a one-time technical review through a classification
request (see Sec. 748.3 of the EAR), exports and reexports of general
purpose non-recoverable non-voice encryption commodities or software of
any key length will be permitted under License Exception KMI for
distribution to banks and financial institutions as defined in part 772
of the EAR in all destinations listed in Supplement No. 3 to part 740
of the EAR, and to branches of such banks and financial institutions
wherever located. The end-use is limited to secure business financial
communications or transactions and financial communications/
transactions between the bank and/or financial institution and its
customers. No customer to customer communications/transactions are
permitted.
(2) For such classificiation requests, indicate ``License Exception
KMI'' in block #9 on Form BXA748P. Submit the original request to BXA
in accordance with Sec. 748.3 of the EAR and send a copy of the request
to: Attn: Financial Specific Encryption Request Coordinator, P.O. Box
246, Annapolis Junction, MD 20701-0246.
(3) Upon approval of your classification request for a non-
recoverable financial-specific encryption commodities or software, you
will become eligible to use License Exception KMI.
(B) Software and commodities that have already received a one-time
technical review through a classification request or have been licensed
for export under an Encryption Licensing Arrangement or a license are
eligible for export under the provisions of this paragraph (b)(2)(iii)
without an additional one-time technical review.
(C) Software and commodities that have already been approved under
an Encryption Licensing Arrangement to banks and financial institutions
in specified countries may now be exported or reexported to other banks
and financial institutions in those countries under the same Encryption
Licensing Arrangement.
(D) For exports and reexports under the provisions of this
paragraph (b)(2)(iii), no business and marketing plan is required and
the reporting requirements of paragraph (e) of this section are not
applicable. However, you are subject to the reporting requirements of
the Wassenaar Arrangement (see Sec. 743.1 of the EAR).
* * * * *
15. Section 740.9 is amended:
a. By revising paragraph (a)(2)(i);
b. By revising the reference to ``Sec. 740.9(a)'' in paragraph
(a)(2)(ii)(C) to read ``Sec. 740.10(a)'';
c. By revising the reference to ``under Sec. 740.8(b)(1)'' in the
introductory text of paragraph (b)(1)(iii) to read ``under this
paragraph (b)(1)''; and
d. By adding a new paragraph (a)(2)(ix) to read as follows:
Sec. 740.9 Temporary imports, exports, and reexports (TMP).
* * * * *
(a) * * *
(2) * * *
(i) Tools of trade. Usual and reasonable kinds and quantities of
tools of trade (commodities and software) for use by the exporter or
employees of the exporter in a lawful enterprise or undertaking of the
exporter. Eligible tools of trade may include, but are not limited to,
such equipment and software as is necessary to commission or service
goods, provided that the equipment or software is appropriate for this
purpose and that all goods to be commissioned or serviced are of
foreign origin, or if subject to the EAR, have been legally exported or
reexported. The tools of trade must remain under the effective control
of the exporter or the exporter's employee (see part 772 of the EAR for
a definition of ``effective control''). The shipment of tools of trade
may accompany the individual departing from the United States or may be
shipped unaccompanied within one month before the individual's
departure from the United States, or at any time after departure. No
tools of the trade may be taken to Country Group E:2 (see Supplement
No. 1 to part 740) or Sudan. For exports under this License Exception
of laptop computers loaded with encryption software, refer to item
interpretation 13 in Sec. 770.2 of the EAR.
* * * * *
(ix) Temporary exports to a U.S. subsidiary, affiliate or facility
in Country Group B. (A) Components, parts, tools or test equipment
exported by a U.S. person to its subsidiary, affiliate or facility in a
country listed in Country Group B (see Supplement No. 1 to this part)
that is owned or controlled by the U.S. person, if the components,
part, tool or test equipment is to be used for manufacture, assembly,
testing, production or modification, provided that no components,
parts, tools or test equipment or the direct product of such
components, parts, tools or test equipment are transferred or
reexported to a country other than the United States from such
subsidiary, affiliate or facility without prior authorization by BXA.
(B) For purposes of this paragraph (a)(2)(ix), U.S. person is
defined as follows: an individual who is a citizen of the United
States, an individual who is a lawful permanent resident as defined by
8 U.S.C. 1101(a)(2) or an individual who is a protected individual as
defined by 8 U.S.C. 1324b(a)(3). U.S. person also means any juridical
person organized under the laws of the United States, or any
jurisdiction within the United States (e.g., corporation, business
association, partnership, society, trust, or any other entity,
organization or group that is
[[Page 50522]]
incorporated to do business in the United States).
* * * * *
Sec. 740.10 [Amended]
16. Section 740.10 is amended by revising the reference to
``Sec. 740.8(a)(2)(ii)'' in paragraph (a)(2)(i) to read
``Sec. 740.9(a)(2)(ii)''.
17. Section 740.11 is amended by adding new paragraph (a)(3) to
read as follows:
Sec. 740.11 Governments and international organizations (GOV).
* * * * *
(a) International safeguards. * * *
(3) No encryption items controlled for EI reasons under ECCNs
5A002, 5D002, or 5E002 may be exported under the provisions of this
paragraph (a).
* * * * *
18. Section 740.14 is amended by revising paragraphs (a), (b), and
(c); by adding a sentence to the end of paragraph (d); and by adding
paragraph (f) to read as follows:
Sec. 740.14 Baggage (BAG).
(a) Scope. This License Exception authorizes individuals leaving
the United States either temporarily (i.e., traveling) or longer-term
(i.e., moving) and crew members of exporting or reexporting carriers to
take to any destination, as personal baggage, the classes of
commodities and software described in this section.
(b) Eligibility. Individuals leaving the United States may export
or reexport any of the following commodities or software for personal
use of the individuals or members of their immediate families traveling
with them to any destination or series of destinations. Individuals
leaving the United States temporarily (i.e., traveling) must bring back
items exported and reexported under this License Exception unless they
consume the items abroad or are otherwise authorized to dispose of them
under the EAR. Crew members may export or reexport only commodities and
software described in paragraphs (b)(1) and (b)(2) of this section to
any destination.
(1) Personal effects. Usual and reasonable kinds and quantities for
personal use of wearing apparel, articles of personal adornment, toilet
articles, medicinal supplies, food, souvenirs, games, and similar
personal effects, and their containers.
(2) Household effects. Usual and reasonable kinds and quantities
for personal use of furniture, household effects, household
furnishings, and their containers.
(3) Vehicles. Usual and reasonable kinds and quantities of
vehicles, such as passenger cars, station wagons, trucks, trailers,
motorcycles, bicycles, tricycles, perambulators, and their containers.
(4) Tools of trade. Usual and reasonable kinds and quantities of
tools, instruments, or equipment and their containers for use in the
trade, occupation, employment, vocation, or hobby of the traveler or
members of the household being moved. For special provisions regarding
encryption items subject to EI controls, see paragraph (f) of this
section.
(c) Limits on eligibility. The export of any commodity or software
is limited or prohibited, if the kind or quantity is in excess of the
limits described in this section. In addition, the commodities or
software must be:
(1) Owned by the individuals (or by members of their immediate
families) or by crew members of exporting carriers on the dates they
depart from the United States;
(2) Intended for and necessary and appropriate for the use of the
individuals or members of their immediate families traveling with them,
or by the crew members of exporting carriers;
(3) Not intended for sale or other disposal; and
(4) Not exported under a bill of lading as cargo if exported by
crew members.
(d) * * * No items controlled for EI reasons may be exported or
reexported as unaccompanied baggage.
* * * * *
(f) Special provisions: encryption software subject to EI controls.
(1) Only a U.S. citizen or permanent resident as defined by 8 U.S.C.
1101(a)(20) may permanently export or reexport encryption items
controlled for EI reasons under this License Exception.
(2) The U.S. citizen or permanent resident must maintain effective
control of the encryption items controlled for EI reasons.
(3) The encryption items controlled for EI reasons may not be
exported or reexported to Country Group E:2, Iran, Iraq, Sudan, or
Syria.
19. New Supplement No. 3 is added to read as follows:
Supplement No. 3 To Part 740--Countries Eligible To Receive General
Purpose Encryption Commodities and Software for Banks and Financial
Institutions
Anguilla
Antigua
Argentina
Aruba
Australia
Austria
Bahamas
Barbados
Belgium
Brazil
Canada
Croatia
Denmark
Dominica
Ecuador
Finland
France
Germany
Greece
Hong Kong
Hungary
Iceland
Ireland
Italy
Japan
Kenya
Luxembourg
Monaco
Netherlands
New Zealand
Norway
Poland
Portugal
St. Kitts & Nevis
St. Vincent/Grenadines
Seychelles
Singapore
Spain
Sweden
Switzerland
Trinidad & Tobago
Turkey
Uruguay
United Kingdom
PART 742--[AMENDED]
20. Section 742.15 is amended:
a. By revising paragraph (b)(1);
b . By revising the phrase ``up to 56-bit key length DES or
equivalent strength'' to read ``56-bit DES or equivalent'' in paragraph
(b)(3) wherever it appears;
c.-d. By revising the phrase ``The use of License Exception KMI''
in the seventh sentence of paragraph (b)(3)(i) to read ``Authorization
to use License Exception KMI';
e. By redesignating paragraphs (b)(4) and (5) as (b)(6) and (7);
f. By adding new paragraphs (b)(4) and (b)(5); and
g. By revising newly designated paragraph (b)(6)(i) to read as
follows:
Sec. 742.15 Encryption items.
* * * * *
(b) * * *
(1) Certain mass-market encryption software. (i) Consistent with
E.O. 13026 of November 15, 1996 (61 FR 58767), certain encryption
software that was transferred from the U.S. Munitions List to the
Commerce Control List pursuant to the Presidential Memorandum of
November 15, 1996 may be released from EI controls and thereby made
eligible for mass market treatment after a one-time technical review.
To determine eligibility for mass market
[[Page 50523]]
treatment, exporters must submit a classification request to BXA. 40-
bit mass market encryption software using RC2 or RC4 may be eligible
for a 7-day review process, and company proprietary software or 40-bit
DES implementations may be eligible for 15-day processing. Refer to
Supplement No. 6 to part 742 and Sec. 748.3(b)(3) of the EAR for
additional information. Note that the one-time technical review is for
a determination to release encryption software in object code only
unless otherwise specifically requested. Exporters requesting release
of the source code should refer to paragraph (b)(3)(v)(E) of Supplement
No. 6 to part 742.
(ii) If, after a one-time technical review, BXA determines that the
software is released from EI controls, such software is eligible for
all provisions of the EAR applicable to other software, such as License
Exception TSU for mass-market software. Furthermore, for such software
released from EI controls, subsequent bundling, updates, or releases
consisting of or incorporating this software may be exported and
reexported without a separate one-time technical review, so long as the
functional encryption capacity (e.g., algorithm, key modulus) of the
originally reviewed mass-market encryption software has not been
modified or enhanced. However, if BXA determines that the software is
not released from EI controls, a license is required for export and
reexport to all destinations, except Canada, and license applications
will be considered on a case-by-case basis.
(2) * * *
(3) * * *
(4) General purpose non-recoverable encryption commodities or
software of any key length for use by banks/financial institutions. (i)
Commodities and software that have already received a one-time
technical review through a classification request or have been licensed
for export under an Encryption Licensing Arrangement or a license are
eligible for export under License Exception KMI (see
Sec. 740.8(b)(2)(iii) of the EAR) without an additional one-time
technical review, providing that the export meets all the terms and
conditions of License Exception KMI.
(ii) For exports not eligible under License Exception KMI, exports
of general purpose non-recoverable non-voice encryption commodities or
software of any key length will be permitted under an Encryption
Licensing Arrangement for use by banks and financial institutions as
defined in part 772 of the EAR in all destinations except Cuba, Iran,
Iraq, Libya, North Korea, Syria and Sudan. No business or marketing
plan is required. Applications for such commodities and software will
receive favorable consideration when the end-use is limited to secure
business financial communications or transactions and financial
communications/ transactions between the bank and/or financial
institution and its customers, and provided that there are no concerns
about the country or financial end-user. No customer to customer
communications or transactions are allowed. Furthermore, licenses for
such exports will require the license holder to report to BXA
information concerning the export such as export control classification
number, number of units in the shipment, and country of ultimate
destination. Note that any country or end-user prohibited to receive
encryption commodities and software under a specific Encryption
Licensing Arrangement is reviewed on a case-by-case basis, and may be
considered by BXA for eligibility under future Encryption Licensing
Arrangement requests.
(5) Non-recoverable financial-specific encryption items of any key
length. After a one-time technical review via a classification request,
non-recoverable financial-specific encryption items of any key length
that are restricted by design (e.g. highly field-formatted and
validation procedures, and not easily diverted to other end-uses) for
financial applications will be permitted for export and reexport under
License Exception KMI (see Sec. 740.8 of the EAR). No business and
marketing plan is required.
(6) All other encryption items. (i) Encryption licensing
arrangement. Applicants may submit license applications for exports and
reexports of certain encryption commodities and software in unlimited
quantities for all destinations except Cuba, Iran, Iraq, Libya, North
Korea, Syria, and Sudan. Applications will be reviewed on a case-by-
case basis. If approved, encryption licensing arrangements may be valid
for extended periods as requested by the applicant in block #24 on Form
BXA-748P. In addition, the applicant must specify the sales territory
and class(es) of end-user(s). Such licenses may require the license
holder to report to BXA certain information such as ECCN, item
description, quantity, and end-user name and address.
* * * * *
21. Part 742 is amended by revising Supplement Nos. 4 and 6 to read
as follows:
Supplement No. 4 to Part 742--Key Escrow or Key Recoverable Products
Criteria
Key Recoverable Feature
(1) The key(s) or other material/information required to decrypt
ciphertext shall be accessible through a key recoverable feature.
(2) The product's cryptographic functions shall be inoperable
until the key(s) or other material/information required to decrypt
ciphertext is recoverable by government officials under proper legal
authority and without the cooperation or knowledge of the user.
(3) The output of the product shall automatically include, in an
accessible format and with a frequency of at least once every three
hours, the identity of the key recovery agent(s) and information
sufficient for the key recovery agent(s) to identify the key(s) or
other material/information required to decrypt the ciphertext.
(4) The product's key recoverable functions shall allow access
to the key(s) or other material/information needed to decrypt the
ciphertext regardless of whether the product generated or received
the ciphertext.
(5) The product's key recoverable functions shall allow for the
recovery of all required decryption key(s) or other material/
information required to decrypt ciphertext during a period of
authorized access without requiring repeated presentations of access
authorization to the key recovery agent(s).
Interoperability Feature
(6) The product's cryptographic functions may:
(i) Interoperate with other key recoverable products that meet
these criteria, and shall not interoperate with products whose key
recovery feature has been altered, bypassed, disabled, or otherwise
rendered inoperative;
(ii) Send information to non-key recoverable products only when
assured access is permitted to the key(s) or other material/
information needed to decrypt ciphertext generated by the key
recoverable product. Otherwise, key length is restricted to less
than or equal to 56-bit DES or equivalent.
(iii) Receive information from non-key recoverable products with
a key length restricted to less than or equal to 56-bit DES or
equivalent.
Design, Implementation and Operational Assurance
(7) The product shall be resistant to efforts to disable or
circumvent the attributes described in criteria one through six.
(8) The product's cryptographic function's key(s) or other
material/information required to decrypt ciphertext shall be
escrowed with a key recovery agent(s) (who may be a key recovery
agent(s) internal to the user's organization) acceptable to BXA,
pursuant to the criteria in supplement No. 5 to part 742. Since the
establishment of a key management infrastructure and key recovery
agents may take some time, BXA will, while the infrastructure is
being built, consider exports of key recoverable encryption products
which facilitate establishment of the key management infrastructure
before a key recovery agent is named.
[[Page 50524]]
Supplement No. 6 To Part 742--Guidelines for Submitting a
Classification Request for a Mass Market Software Product That Contains
Encryption
Classification requests for release of certain mass market
encryption software from EI controls must be submitted on Form BXA-
748P, in accordance with Sec. 748.3 of the EAR. To expedite review
of the request, clearly mark the envelope ``Attn.: Mass Market
Encryption Software Classification Request''. In Block 9: Special
Purpose of the Form BXA-748P, you must insert the phrase ``Mass
Market Encryption Software. Failure to insert this phrase will delay
processing. In addition, the Bureau of Export Administration
recommends that such requests be delivered via courier service to:
Bureau of Export Administration, Office of Exporter Services, Room
2705, 14th Street and Pennsylvania Ave., NW, Washington, DC 20230.
In addition, send a copy of the request and all supporting
documents by Express Mail to: Attn: Mass Market Encryption Request
Coordinator, P.O. Box 246, Annapolis Junction, MD 20701-0246.
(a) Requests for mass market encryption software that meet the
criteria in paragraph (a)(2) of this Supplement will be processed in
seven (7) working days from receipt of a properly completed request.
Those requests for mass market encryption software that meet the
criteria of paragraph (a)(1) of this supplement only will be
processed in fifteen (15) working days from receipt of a properly
completed request. When additional information is requested, the
request will be processed within 15 working days of the receipt of
the requested information.
(1) A mass market software product that meets all the criteria
established in this paragraph will be processed in fifteen (15)
working days from receipt of the properly completed request:
(i) The commodity must be mass market software. Mass market
software is computer software that is available to the public via
sales from stock at retail selling points by means of over-the-
counter transactions, mail order transactions, or telephone call
transactions;
(ii) The software must be designed for installation by the user
without further substantial support by the supplier. Substantial
support does not include telephone (voice only) help line services
for installation or basic operation, or basic operation training
provided by the supplier; and
(iii) The software includes encryption for data confidentiality.
(2) A mass market software product that meets all the criteria
established in this paragraph will be processed in seven (7) working
days from receipt of the properly completed request:
(i) The software meets all the criteria established in paragraph
(a)(1)(i) through (iii) of this supplement;
(ii) The data encryption algorithm must be RC4 or RC2 with a key
space no longer than 40-bits. The RC4 and RC2 algorithms are
proprietary to RSA Data Security, Inc. To ensure that the subject
software is properly licensed and correctly implemented, contact RSA
Data Security, (415) 595-8782;
(iii) If any combination of RC4 or RC2 are used in the same
software, their functionality must be separate. That is, no data can
be operated sequentially on by both routines or multiply by either
routine;
(iv) The software must not allow the alteration of the data
encryption mechanism and its associated key spaces by the user or
any other program;
(v) The key exchange used in data encryption must be:
(A) A public key algorithm with a key space less than or equal
to a 512-bit modulus and/or;
(B) A symmetrical algorithm with a key space less than or equal
to 64-bits; and
(vi) The software must not allow the alteration of the key
management mechanism and its associated key space by the user or any
other program.
(b) To submit a classification request for a product that is
eligible for the seven-day handling, you must provide the following
information in a cover letter to the classification request. Send
the original to the Bureau of Export Administration. Send a copy of
the application and all supporting documentation by Express Mail to:
Attn.: Mass Market Encryption Request Coordinator, P.O. Box 246,
Annapolis Junction, MD 20701-0246.
Instructions for the preparation and submission of a
classification request that is eligible for seven day handling are
as follows:
(1) If the software product meets the criteria in paragraph
(a)(2) of this supplement, you must call the Department of Commerce
on (202) 482-0092 to obtain a test vector, or submit to BXA a copy
of the encryption subsystem source code. The test vector or source
code must be used in the classification process to confirm that the
software has properly implemented the approved encryption
algorithms.
(2) Upon receipt of the test vector, the applicant must encrypt
the test plain text input provided using the commodity's encryption
routine (RC2 and/or RC4) with the given key value. The applicant
should not pre-process the test vector by any compression or any
other routine that changes its format. Place the resultant test
cipher text output in hexadecimal format on an attachment to form
BXA-748P.
(3) You must provide the following information in a cover letter
to the classification request:
(i) Clearly state at the top of the page ``Mass Market
Encryption Software--7 Day Expedited Review Requested';
(ii) State that you have reviewed and determined that the
software subject to the classification request meets the criteria of
paragraph (a)(2) of this supplement;
(iii) State the name of the single software product being
submitted for review. A separate classification request is required
for each product;
(iv) State how the software has been written to preclude user
modification of the encryption algorithm, key management mechanism,
and key space;
(v) Provide the following information for the software product:
(A) Whether the software uses the RC2 or RC4 algorithm and how
the algorithm(s) is used. If any combination of these algorithms are
used in the same product, also state how the functionality of each
is separated to assure that no data is operated by more than one
algorithm;
(B) Pre-processing information of plaintext data before
encryption (e.g. the addition of clear text header information or
compression of the data);
(C) Post-processing information of cipher text data after
encryption (e.g. the addition of clear text header information or
packetization of the encrypted data);
(D) Whether a public key algorithm or a symmetric key algorithm
is used to encrypt keys and the applicable key space;
(E) For classification requests regarding source code:
(1) Reference the applicable executable product that has already
received a one-time technical review;
(2) Include whether the source code has been modified by
deleting the encryption algorithm, its associated key management
routine(s), and all calls to the algorithm from the source code, or
by providing the encryption algorithm and associated key management
routine(s) in object code with all calls to the algorithm hidden.
You must provide the technical details on how you have modified the
source code;
(3) Include a copy of the sections of the source code that
contain the encryption algorithm, key management routines, and their
related calls; and
(F) Provide any additional information which you believe would
assist in the review process.
(c) Instructions for the preparation and submission of a
classification request that is eligible for 15-day handling are as
follows:
(1) If the software product meets only the criteria in paragraph
(a)(1) of this supplement, you must prepare a classification
request. Send the original to the Bureau of Export Administration.
Send a copy of the application and all supporting documentation by
Express Mail to: Attn.: Mass Market Encryption Request Coordinator,
P.O. Box 246, Annapolis Junction, MD 20701-0246.
(2) You must provide the following information in a cover letter
to the classification request:
(i) Clearly state at the top of the page ``Mass Market Software
and Encryption: 15-Day Expedited Review Requested';
(ii) State that you have reviewed and determined that the
software subject of the classification request, meets the criteria
of paragraph (a)(1) of this supplement;
(iii) State the name of the single software product being
submitted for review. A separate classification request is required
for each product;
(iv) State that a duplicate copy, in accordance with paragraph
(c)(1) of this supplement, has been sent to the 15-day Encryption
Request Coordinator; and
(v) Ensure that the information provided includes brochures or
other documentation or specifications relating to the software, as
well as any additional information which you believe would assist in
the review process.
(3) Contact the Bureau of Export Administration on (202) 482-
0092 prior to
[[Page 50525]]
submission of the classification to facilitate the submission of
proper documentation.
PART 743--[AMENDED]
Sec. 743.1 [Amended]
22. Section 743.1 is amended by revising the phrase ``and GOV'' in
paragraph (b) to read ``GOV and KMI (under the provisions of
Sec. 740.8(b)(2)(ii) and (iii) only''.
PART 748--[AMENDED]
23. Section 748.9 is amended by revising paragraph (a)(7) and by
adding new paragraph (a)(8) to read as follows:
Sec. 748.9 Support documents for license applications.
(a) * * *
(7) The license application is submitted to export or reexport
software or technology.
(8) The license application is submitted to export or reexport
encryption items controlled under ECCNs 5A002, 5B002, 5D002 and 5E002.
* * * * *
24. Section 748.10 is amended by revising paragraph (b)(1) to read
as follows:
Sec. 748.10 Import and End-User Certificates.
* * * * *
(b) * * *
(1) Any commodities on your license application are controlled for
national security (NS) reasons, except for items controlled under ECCN
5A002 or 5B002;
* * * * *
PART 750--[AMENDED]
25. Section 750.3 is amended by revising paragraph (b)(2)(i) to
read as follows:
Sec. 750.3 Review of license applications by BXA and other government
agencies and departments.
* * * * *
(b) * * *
(2) * * *
(i) The Department of Defense is concerned primarily with items
controlled for national security and regional stability reasons and
with controls related to encryption items;
* * * * *
26. Section 750.7 is amended:
a. By redesignating paragraphs (c) introductory text through (c)(5)
as (c)(1) introductory text through (c)(1)(v);
b. By redesignating paragraphs (c)(6) introductory text through
(c)(6)(v) as (c)(1)(vi) introductory text through (c)(1)(vi)(E);
c. By redesignating paragraphs (c)(7) and (8) as (c)(1)(vii) and
(viii); and
d. By adding a new paragraph (c)(2) to read as follows:
Sec. 750.7 Issuance of licenses.
* * * * *
(c) * * *
(2)(i) For Encryption Licensing Arrangements issued by BXA for
exports and reexports of items controlled under ECCN 5A002, 5B002, and
5D002, and for encryption commodities and software previously on the
U.S. Munitions List and currently authorized for export or reexport
under a State Department license, distribution arrangement or any other
authority of the State Department, you must by letter to BXA a request
for approval of any additional country of destination.
(ii) Letters requesting changes pursuant to paragraph (c)(2)(i) of
this section should be made by the license holder on company
letterhead, clearly identifying the original license number and the
requested change. In addition, requests for changes to State licenses
or other authorizations must be accompanied by a copy of the original
State license or authorization. The requested changes may not take
effect until approved in writing by BXA. Send requests for changes to
the following address: Office of Strategic Trade, Bureau of Export
Administration, U.S. Department of Commerce, Room 2705, 14th Street and
Pennsylvania Ave., NW, Washington, DC 20230, Attn: Encryption Division.
* * * * *
PART 752--[AMENDED]
27. Section 752.3 is amended by redesignating paragraphs (a)(5)
through (a)(10) as (a)(6) through (a)(11) and adding a new paragraph
(a)(5) to read as follows:
Sec. 752.3 Eligible items.
(a) * * *
(5) Items controlled for EI reasons on the CCL;
* * * * *
PART 758--[AMENDED]
28. Section 758.1 is amended by adding a new paragraph (e)(1)(i)(D)
to read as follows:
Sec. 758.1 Export clearance requirements.
* * * * *
(e) * * *
(1) * * *
(i) * * *
(D) Exports of tools of trade under License Exception TMP or BAG.
* * * * *
PART 770--[AMENDED]
29. Section 770.2 is amended by revising the section title and
adding a new paragraph (m) to read as follows:
Sec. 770.2 Item interpretations.
* * * * *
(m) Interpretation 13: Encryption software controlled for EI
reasons. Encryption software controlled for EI reasons under ECCN 5D002
may be pre-loaded on a laptop and exported under the tools of trade
provision of License Exception TMP or the personal use exemption under
License Exception BAG, subject to the terms and conditions of such
License Exceptions. This provision replaces the personal use exemption
of the International Traffic and Arms Regulations (ITAR) that existed
for such software prior to December 30, 1996. Neither License Exception
TMP nor License Exception BAG contains a reporting requirement.
PART 772--[AMENDED]
30. Part 772 is amended by adding, in alphabetical order, new
definitions for ``Bank'', ``Effective control'', ``Encryption licensing
arrangement'', and ``Financial Institution'', and revising paragraph
(b) under the definition of ``U.S. person'' to read as follows:
* * * * *
Bank. Means any of the following:
(a) Bank, savings association, credit union, bank holding company,
bank or savings association service corporation, Edge Act corporation,
Agreement corporation, or any insured depository institution, which is
organized under the laws of the United States or any State and
regulated or supervised by a Federal banking agency or a State bank
supervisor; or
(b) A company organized under the laws of a foreign country and
regulated or supervised by a foreign bank regulatory or supervisory
authority which engages in the business of banking, including without
limitation, foreign commercial banks, foreign merchant banks and other
foreign institutions that engage in banking activities usual in
connection with the business of banking in the countries where such
foreign institutions are organized or operating; or
(c) An entity engaged in the business of providing clearing or
settlement services, that is, or whose members are, regulated or
supervised by a Federal banking agency, a State bank supervisor, or a
foreign bank regulatory or supervisory authority; or
(d) A branch or affiliate of any of the entities listed in
paragraphs (a), (b), or
[[Page 50526]]
(c) of this definition, regulated or supervised by a Federal banking
agency, a State bank supervisor or a foreign bank regulatory or
supervisory authority; or
(e) An affiliate of any of the entities listed in paragraph (a),
(b), (c), or (d) of this definition, engaged solely in the business of
providing data processing services to a bank or financial institution,
or a branch of such an affiliate.
* * * * *
Effective control. You maintain effective control over an item when
you either retain physical possession of the item, or secure the item
in such an environment as a hotel safe, a bonded warehouse, or a locked
or guarded exhibition facility. Retention of effective control over an
item is a condition of certain temporary exports and reexports.
Encryption licensing arrangement. A license that allows the export
of specified products to specified destinations in unlimited
quantities. In certain cases, exports are limited to specified end-
users for specified end-uses. Generally, reporting of all sales of the
specified products is required at six month intervals. This includes
sales made under distribution arrangements and distribution and
warehousing agreements that were previously issued by the Department of
State for encryption items.
* * * * *
Financial Institution. Means any of the following:
(a) A broker, dealer, government securities broker or dealer, self-
regulatory organization, investment company, or investment adviser,
which is regulated or supervised by the Securities and Exchange
Commission or a self-regulatory organization that is registered with
the Securities and Exchange Commission; or
(b) A broker, dealer, government securities broker or dealer,
investment company, investment adviser, or entity that engages in
securities activities that, if conducted in the United States, would be
described by the definition of the term ``self-regulatory
organization'' in the Securities Exchange Act of 1934, which is
organized under the laws of a foreign country and regulated or
supervised by a foreign securities authority; or
(c) A US board of trade that is designated as a contract market by
the Commodity Futures Trading Commission or a futures commission
merchant that is regulated or supervised by the Commodity Futures
Trading Commission; or
(d) A US entity engaged primarily in the business of issuing a
general purpose charge, debit, or stored value card, or a branch of, or
affiliate controlled by, such an entity; or
(e) A branch or affiliate of any of the entities listed in
paragraphs (a), (b), or (c) of this definition regulated or supervised
by the Securities and Exchange Commission, the Commodity Futures
Trading Commission, or a foreign securities authority; or
(f) An affiliate of any of the entities listed in paragraph (a),
(b), (c), or (e) of this definition, engaged solely in the business of
providing data processing services to one or more bank or financial
institutions, or a branch of such an affiliate.
* * * * *
U.S. person. (a) * * *
(b) See also Secs. 740.9 and 740.14, and parts 746 and 760 of the
EAR for definitions of ``U.S. person'' that are specific to those
parts.
* * * * *
PART 774--[AMENDED]
31. In Supplement No. 1 to part 774, Category 5--Telecommunications
and Information Security is amended by revising ECCNs 5A002 and 5D002
to read as follows:
5A002 Systems, equipment, application specific ``assemblies'',
modules or integrated circuits for ``information security'', and
specially designed components therefor.
License Requirements
Reason for Control: NS, AT, EI.
------------------------------------------------------------------------
Control(s) Country chart
------------------------------------------------------------------------
NS applies to entire entry............... NS Column 1.
AT applies to entire entry............... AT Column 1.
------------------------------------------------------------------------
EI applies to encryption items transferred from the U.S.
Munitions List to the Commerce Control List consistent with E.O.
13026 of November 15, 1996 (61 FR 58767) and pursuant to the
Presidential Memorandum of that date. Refer to Sec. 742.15 of this
subchapter.
License Requirement Notes: See Sec. 743.1 of the EAR for
reporting requirements for exports of commodities controlled under
5A002 and exported under License Exceptions LVS or GOV.
License Exceptions
LVS: Yes: $500 for components and spare parts only. N/A for
equipment.
GBS: N/A
CIV: N/A
List of Items Controlled
Unit: $ value
Related Controls: See also 5A992. This entry does not control:
(a) ``Personalized smart cards'' or specially designed components
therefor, with any of the following characteristics: (1) Not capable
of message traffic encryption or encryption of user-supplied data or
related key management functions therefor; or (2) When restricted
for use in equipment or systems excluded from control under the note
to 5A002.c, or under paragraphs (b) through (h) of this note. (b)
Equipment containing ``fixed'' data compression or coding
techniques; (c) Receiving equipment for radio broadcast, pay
television or similar restricted audience television of the consumer
type, without digital encryption and where digital decryption is
limited to the video, audio or management functions; (d) Portable or
mobile radiotelephones for civil use (e.g., for use with commercial
civil cellular radiocommunications systems) that are not capable of
end-to-end encryption; (e) Decryption functions specially designed
to allow the execution of copy-protected ``software'', provided the
decryption functions are not user-accessible; (f) Access control
equipment, such as automatic teller machines, self-service statement
printers or point of sale terminals, that protects password or
personal identification numbers (PIN) or similar data to prevent
unauthorized access to facilities but does not allow for encryption
of files or text, except as directly related to the password or PIN
protection; (g). Data authentication equipment that calculates a
Message Authentication Code (MAC) or similar result to ensure no
alteration of text has taken place, or to authenticate users, but
does not allow for encryption of data, text or other media other
than that needed for the authentication; (h) Cryptographic equipment
specially designed, developed or modified for use in machines for
banking or money transactions, and restricted to use only in such
transactions. Machines for banking or money transactions include
automatic teller machines, self-service statement printers, point of
sale terminals, or equipment for the encryption of interbanking
transactions.
Related Definitions: For the control of global navigation
satellite systems receiving equipment containing or employing
decryption (i.e. GPS or GLONASS), see 7A005. Items:
a. Systems, equipment, application specific ``assemblies'',
modules or integrated circuits for ``information security'', and
specially designed components therefor:
a.1. Designed or modified to use ``cryptography'' employing
digital techniques to ensure ``information security'';
a.2. Designed or modified to perform cryptoanalytic functions;
a.3. Designed or modified to use ``cryptography'' employing
analog techniques to ensure ``information security'';
Note: 5A002.a.3 does not control the following:
1. Equipment using ``fixed'' band scrambling not exceeding 8
bands and in which the transpositions change not more frequently
than once every second;
2. Equipment using ``fixed'' band scrambling exceeding 8 bands
and in which the transpositions change not more frequently than once
every ten seconds;
3. Equipment using ``fixed'' frequency inversion and in which
the transpositions change not more frequently than once every
second;
[[Page 50527]]
4. Facsimile equipment;
5. Restricted audience broadcast equipment; and 6. Civil
television equipment;
a.4. Designed or modified to suppress the compromising
emanations of information-bearing signals;
Note: 5A002.a.4 does not control equipment specially designed to
suppress emanations for reasons of health and safety.
a.5. Designed or modified to use cryptographic techniques to
generate the spreading code for ``spread spectrum'' or the hopping
code for ``frequency agility'' systems;
a.6. Designed or modified to provide certified or certifiable
``multilevel security'' or user isolation at a level exceeding Class
B2 of the Trusted Computer System Evaluation Criteria (TCSEC) or
equivalent;
a.7. Communications cable systems designed or modified using
mechanical, electrical or electronic means to detect surreptitious
intrusion.
* * * * *
5D002 Information Security--``Software''.
License Requirements
Reason for Control: NS, AT, EI
------------------------------------------------------------------------
Control(s) Country chart
------------------------------------------------------------------------
NS applies to entire entry............... NS Column 1.
AT applies to entire entry............... AT Column 1.
------------------------------------------------------------------------
EI applies to encryption items transferred from the U.S.
Munitions List to the Commerce Control List consistent with E.O.
13026 of November 15, 1996 (61 FR 58767) and pursuant to the
Presidential Memorandum of that date. Refer to Sec. 742.15 of the
EAR.
Note: Encryption software is controlled because of its
functional capacity, and not because of any informational value of
such software; such software is not accorded the same treatment
under the EAR as other ``software''; and for the export licensing
purposes encryption software is treated under the EAR in the same
manner as a commodity included in ECCN 5A002. License Exceptions for
commodities are not applicable.
Note: Encryption software controlled for EI reasons under this
entry remains subject to the EAR even when made publicly available
in accordance with part 734 of the EAR, and it is not eligible for
the General Software Note (``mass market'' treatment under License
Exception TSU for mass market software). After a one-time BXA
review, certain encryption software may be released from EI controls
and made eligible for the General Software Note treatment as well as
other provisions of the EAR applicable to software. Refer to
Sec. 742.15(b)(1) of the EAR, and Supplement No. 6 to part 742 of
the EAR.
License Requirement Notes: See Sec. 743.1 of the EAR for
reporting requirements for exports of software controlled under
5D002 and exported under License Exception GOV.
License Exceptions
CIV: N/A
TSR: N/A
List of Items Controlled
Unit: $ value
Related Controls: See also 5D992. This entry does not control
``software'' ``required'' for the ``use'' of equipment excluded from
control under to 5A002 or ``software'' providing any of the
functions of equipment excluded from control under 5A002.
Related Definitions: N/A
Items:
a. ``Software'' specially designed or modified for the
``development'', ``production'' or ``use'' of equipment or
``software'' controlled by 5A002, 5B002 or 5D002.
b. ``Software'' specially designed or modified to support
``technology'' controlled by 5E002.
c. Specific ``software'' as follows:
c.1. ``Software'' having the characteristics, or performing or
simulating the functions of the equipment controlled by 5A002 or
5B002;
c.2. ``Software'' to certify ``software'' controlled by
5D002.c.1.
Dated: September 14, 1998.
R. Roger Majak,
Assistant Secretary for Export Administration.
[FR Doc. 98-25096 Filed 9-21-98; 8:45 am]
BILLING CODE 3510-33-P
