Encryption Items Transferred From the U.S. Munitions List to the Commerce Control List

DEPARTMENT OF COMMERCE

Bureau of Export Administration

15 CFR Parts 730, 732, 734, 736, 738, 740, 742, 744, 748, 750, 768,

772, and 774

[Docket No. 960918265-6366-03]

RIN 0694-AB09

Encryption Items Transferred From the U.S. Munitions List to the

Commerce Control List

AGENCY: Bureau of Export Administration, Commerce.

ACTION: Interim rule.

-----------------------------------------------------------------------

SUMMARY: This interim rule amends the Export Administration Regulations

(EAR) by exercising jurisdiction over, and imposing new combined

national security and foreign policy controls on, certain encryption

items that were on the United States Munitions List,

[[Page 68573]]

consistent with Executive Order 13026 and pursuant to the Presidential

Memorandum of that date, both issued by President Clinton on November

15, 1996.

On October 1, 1996, the Administration announced a plan to make it

easier for Americans to use stronger encryption products to protect

their privacy, intellectual property and other valuable information.

The plan envisions a worldwide key management infrastructure with the

use of key escrow and key recovery encryption items to promote

electronic commerce and secure communications while protecting national

security and public safety. To provide for a transition period for the

development of this key management infrastructure, this rule permits

the export and reexport of 56-bit key length DES or equivalent strength

encryption items under the authority of a License Exception, if an

exporter makes satisfactory commitments to build and/or market

recoverable encryption items and to help build the supporting

international infrastructure. This policy will apply to hardware and

software.

DATES: Effective Date: This rule is effective December 30, 1996.

Comment Date: February 13, 1997.

ADDRESSES: Written comments (six copies) should be sent to: Nancy

Crowe, Regulatory Policy Division, Bureau of Export Administration,

Department of Commerce, 14th Street and Pennsylvania Ave., N.W., Room

2705, Washington, D.C. 20230.

FOR FURTHER INFORMATION CONTACT: James A. Lewis, Office of Strategic

Trade and Foreign Policy Controls, Telephone: (202) 482-0092.

SUPPLEMENTARY INFORMATION:

Background

Following upon the Administration's October 1 announcement, on

November 15, 1996, the President issued the Memorandum directing that

all encryption items controlled on the U.S. Munitions List, except

those specifically designed, developed, configured, adapted, or

modified for military applications, be transferred to the Commerce

Control List. The Memorandum and Executive Order 13026 (November 15,

1996, 61 FR 58767) also set forth certain additional provisions with

respect to controls on such encryption items to be imposed by the

Department of Commerce. The Executive Order also provides for

appropriate controls on the export and foreign dissemination of

encryption items controlled on the U.S. Munitions List that are placed

on the Commerce Control List. In issuing the Memorandum the President

stated:

Encryption products, when used outside the United States, can

jeopardize our foreign policy and national security interests.

Moreover, such products, when used by international criminal

organizations, can threaten the safety of U.S. citizens here and

abroad, as well as the safety of the citizens of other countries.

The exportation of encryption products must be controlled to further

U.S. foreign policy objectives, and promote our national security,

including the protection of the safety of U.S. citizens abroad.

This initiative will support the growth of electronic commerce;

increase the security of the global information infrastructure; protect

privacy, intellectual property and other valuable information; and

sustain the economic competitiveness of U.S. encryption product

manufacturers during the transition to a key management infrastructure.

Under this initiative, non-recoverable encryption items up to 56-bit

key length DES or equivalent strength will be permitted for export and

reexport after a one-time review of the strength of the item and if the

exporter makes satisfactory commitments to build and/or market

recoverable encryption items, to support an international key

management infrastructure. This policy will apply to hardware and

software and will last through December 31, 1998.

The initiative addresses important foreign policy and national

security concerns identified by the President. Export controls on

cryptographic items are essential to controlling the spread abroad of

powerful encryption products which could be harmful to critical U.S.

national security, foreign policy and law enforcement interests. This

initiative will preserve such controls and foster the development of a

key management infrastructure necessary to protect important national

security, foreign policy and law enforcement concerns.

Encryption software can be used to maintain the secrecy of

information, and thereby may be used by persons abroad to harm national

security, foreign policy and law enforcement interests. As the

President indicated in E.O. 13026 and in his Memorandum of November 15,

1996, export of encryption software, like export of encryption

hardware, is controlled because of this functional capacity to encrypt

information on a computer system, and not because of any informational

or theoretical value that such software may reflect, contain, or

represent, or that its export may convey to others abroad. For this

reason, export controls on encryption software are distinguished from

other software regulated under the EAR.

The government recognizes that several factors, including the

development of common international encryption policies, the need for

an international key recovery infrastructure, and technological change,

will influence market development in key recovery products. At the same

time, the government is committed to a two-year transition period. The

government will continually evaluate progress towards key recovery

throughout and beyond the two-year period and will tailor the

implementation of its policies in consultation with the public.

This interim rule implements the Administration's policy on

encryption exports and reexports. This rule amends the Export

Administration Regulations (EAR) by imposing national security and

foreign policy controls (``EI'' for Encryption Items) on certain

information security systems and equipment, cryptographic devices,

software and components specifically designed or modified therefor, and

related technology (``encryption items'). ``Encryption items'' subject

to the EAR do not include encryption items specifically designed,

developed, configured, adapted or modified for military applications

(including command, control and intelligence applications). Such items

remain on the U.S. Munitions List, and continue to be controlled by the

Department of State, Office of Defense Trade Controls. EI controls

apply to encryption software 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 the

same date.

This interim rule also amends the Export Administration Regulations

by requiring a license for exports and reexports to all destinations,

except Canada, of certain encryption items controlled for EI reasons.

Except as otherwise noted, applications will be reviewed on a case-by-

case basis by BXA in conjunction with other agencies to determine

whether the export or reexport is consistent with U.S. national

security and foreign policy interests. Exporters should allow 40 days

for the processing of licenses, consistent with E.O. 12981. The

licensing policy is as follows:

(1) Certain mass-market encryption software. Certain encryption

software that was 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

[[Page 68574]]

pursuant to the Presidential Memorandum of that date may be released

from ``EI'' controls and thereby made eligible for mass market

treatment after a one-time BXA review. To determine eligibility for

mass market treatment, exporters must submit a classification request

to BXA. 40-bit mass market encryption software may be eligible for a 7-

day review process, and company proprietary software may be eligible

for 15-day processing. See new Supplement No. 6 to part 742 and

Sec. 748.3(b)(3) for additional information. Note that the one-time

review is for a determination to release encryption software in object

code only. Exporters requesting release of the source code should refer

to paragraph (b)(3)(v)(E) of Supplement No. 6 to part 742. If, after a

one-time 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. 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) Key Escrow, Key Recovery and Recoverable encryption software

and commodities. Recovery encryption software and equipment controlled

for EI reasons under ECCN 5D002 or under ECCN 5A002, including

encryption equipment designed or modified to use recovery encryption

software, may be made eligible for License Exception KMI after a one-

time BXA review. License Exception KMI is available for all

destinations except Cuba, Iran, Iraq, Libya, North Korea, Syria and

Sudan. To determine eligibility, exporters must submit a classification

request to BXA. Requests for one-time review of key escrow and key

recovery encryption products will receive favorable consideration

provided that, prior to the export or reexport, a key recovery agent

satisfactory to BXA has been identified (refer to new Supplement No. 5

to part 742) and security policies for safeguarding the key(s) or other

material/information required to decrypt ciphertext as described in

Supplement No. 5 to part 742 are established to the satisfaction of BXA

and are maintained after export or reexport as required by the EAR. If

the exporter or reexporter intends to be the key recovery agent, then

the exporter or reexporter must meet all of the requirements of a key

recovery agent identified in Supplement No. 5 to part 742. In addition,

the key escrow or key recovery system must meet the criteria identified

in Supplement No. 4 to part 742. Note that eligibility is dependent on

continued fulfilment of the requirements of a key recovery agent

identified 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 recovery encryption products which facilitate

establishment of the key management infrastructure before a key

recovery agent is named, consistent with national security and foreign

policy. When BXA approves such cases, exporters of products described

in Supplement No. 4 to part 742 are required to furnish the name of an

agent by December 31, 1998. Requests for one-time review of recoverable

products which allow government officials to obtain, under proper legal

authority and without the cooperation or knowledge of the user, the

plaintext of the encrypted data and communications will also receive

favorable consideration.

(3) Non-recovery encryption items up to 56-bit key length DES or

equivalent strength supported by a satisfactory business and marketing

plan for exporting recoverable items and services. Manufacturers of

non-recovery encryption items up to 56-bit key length DES or equivalent

strength will be permitted to export and reexport under the authority

of License Exception KMI, provided that the requirements and conditions

of the License Exception are met. Exporters must submit a

classification request for an initial BXA review of the item and a

satisfactory business and marketing plan that explains in detail the

steps the applicant will take during the two-year transition period

beginning January 1, 1997 to develop, produce, and/or market encryption

items and services with recoverable features. Producers would commit to

produce key recovery products. Others would commit to incorporate such

products into their own products or services. Plans will be evaluated

in consideration of good faith efforts by the exporter to promote key

recovery products and infrastructure. Such efforts can include: the

scale of key recovery research and development, product development,

and marketing plans; significant steps to reflect potential customer

demand for key recovery products in the firm's encryption-related

business; and how soon a key recovery agent will be identified. Note

that BXA will accept requests for classification of non-recoverable

encryption items up to 56-bit key length DES or equivalent strength

under this paragraph from distributors, re-sellers, integrators, and

other entities that are not manufacturers of the encryption items. The

use of License Exception KMI is not automatic; eligibility must be

renewed every six months. Renewal after each six-month period will

depend on the applicant's adherence to explicit benchmarks and

milestones as set forth in the plan approved with the initial

classification request and amendments as approved by BXA. This

relaxation of controls and use of License Exception KMI will last

through December 31, 1998. The plan submitted with classification

requests for the export of non-recoverable encryption items up to 56-

bit key length DES or equivalent strength must include the elements in

new Supplement No. 7 to part 742. Note that distributors, re-sellers,

integrators, and other entities that are not manufacturers of the

encryption items are permitted to use License Exception KMI for exports

and reexports of such items only in instances where a classification

has been granted to the manufacturer of the encryption items. The

authority to so export or reexport will be for a time period ending on

the same day the producer's authority to export or reexport ends.

Exporters authorized to export 56-bit DES or equivalent strength

non-key recovery products in exchange for commitments to key recovery

will be allowed to service and support the customers of those products

during and after the two-year period. Support and service includes

maintenance or replacement of products to correct defects or maintain

existing functionality. It also includes upgrades that do not increase

the strength of the encryption in the product.

Exporters authorized to export 56-bit DES or equivalent strength

non-key recovery products during the interim period may also export

under a license additional quantities of those 56-bit DES or equivalent

strength non-key recovery products after the two-year period to

existing customers. Such sales may be made to the customers of any

exporter that was authorized to export such products in exchange for

key recovery commitments during the two-year period. The additional

quantities sold may not be disproportionate to the customer's embedded

base.

(4) All other encryption items--(i) Encryption licensing

arrangement. This is intended to continue without change the regulatory

treatment of the distribution and warehouse arrangements currently

permitted under

[[Page 68575]]

the International Traffic in Arms Regulations. 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. Encryption

licensing arrangements may be approved with extended validity periods

specified by the applicant in block #24 on Form BXA-748P. In addition,

the applicant must specify the sales territory and classes of end-

users. Such licenses may require the license holder to report to BXA

certain information such as item description, quantity, value, and end-

user name and address.

(ii) Applications for encryption items not authorized under an

encryption licensing arrangement. Applications for the export and

reexport of all other encryption items will be considered on a case-by-

case basis.

(5) Applications for encryption technology. Applications for the

export and reexport of encryption technology will be considered on a

case-by-case basis.

Note that all ``EI'' encryption items are not subject to any

mandatory foreign availability procedures of the EAA or the EAR. In

section 1(a) of Executive Order 13026, the President states:

I have determined that the export of encryption products

described in this section may harm national security and foreign

policy interests even where comparable products are or appear to be

available from sources outside the United States, and that facts and

questions concerning the foreign availability of such encryption

products cannot be subject to public disclosure or judicial review

without revealing or implicating classified information that could

harm United States national security and foreign policy interests.

Accordingly, section 4(c) and 6(h)(2)-(4) of the Export

Administration Act of 1979 (``the EAA'') * * *, all other analogous

provisions of the EAA relating to foreign availability, and the

regulations in the EAR relating to such EAA provisions, shall not be

applicable with respect to export controls on such encryption

products.

This interim rule amends part 768, Foreign Availability, to make

clear that the provisions of that part do not apply to encryption items

transferred to the Commerce Control List.

This interim rule also amends part 734 to exclude encryption items

transferred from the U.S. Munitions List to the Commerce Control List

consistent with E.O. 13026 (61 FR 58767, November 15, 1996) and

pursuant to the Presidential Memorandum of that date from the de

minimis provisions for items exported from abroad. This rule also

amends part 734 of the EAR to reflect that encryption software

controlled for EI reasons under ECCN 5D002 that has been transferred to

the Department of Commerce from the Department of State by Presidential

Memorandum will be subject to the EAR even when publicly available. A

printed book or other printed material setting forth encryption source

code is not itself subject to the EAR (see Sec. 734.3(b)(2)). However,

notwithstanding Sec. 734.3(b)(2), encryption source code in electronic

form or media (e.g., computer diskette or CD ROM) remains subject to

the EAR (see Sec. 734.3(b)(3)). The administration continues to review

whether and to what extent scannable encryption source or object code

in printed form should be subject to the EAR and reserves the option to

impose export controls on such software for national security and

foreign policy reasons. Note that there is a new definition of ``export

of encryption source code and object code software'' (see

Sec. 734.2(b)(9)).

This rule creates a new License Exception KMI for exports of

certain encryption software and equipment. This rule also amends part

740 and Supplement No. 2 to part 774 to reflect that encryption

software will not be eligible for ``mass market'' treatment under the

General Software Note or for export as beta-test software under License

Exception BETA unless released from EI controls through a one-time BXA

review (refer to new Supplement No. 6 to part 742). Encryption items

transferred from the USML to the CCL prior to November 15, 1996 are not

controlled for EI reasons. Note that License Exception TMP is available

for temporary exports and reexports of encryption items except under

the provisions for beta-test software. License Exceptions TMP and BAG

effectively replace the Department of State's personal use exemption.

Software and technology that was controlled by the Department of

Commerce prior to December 30, 1996 are not affected by this rule and

will continue to be eligible for the publicly available treatment.

Software controlled by the Department of Commerce prior to December 30,

1996 will continue to be eligible for mass market treatment under the

General Software Note, and License Exception TSU for mass-market

software.

For purposes of this rule, ``recovery encryption products'' refers

to encryption products (including software) that allow government

officials to obtain under proper legal authority and without the

cooperation or knowledge of the user, the plaintext of encrypted data

and communications. Such products fulfill the objectives of the

Administration's encryption policy. Other approaches to access and

recovery may be defined in the future.

This interim rule also amends part 742 to reflect the new combined

national security and foreign policy controls imposed by this rule, and

adds a new Supplement No. 4 titled ``Key Escrow or Key Recovery

Products Criteria'' that includes product criteria, a new Supplement

No. 5 titled ``Key Escrow or Key Recovery Agent Criteria, Security

Policies, and Key Escrow or Key Recovery Procedures'' that includes

interim requirements for key recovery agents, a new Supplement No. 6

titled ``Guidelines for Submitting a Classification Request for a Mass

Market Software Product that contains Encryption'' that includes the

criteria for the one-time review of classification requests for release

of certain encryption software from EI controls, and a new Supplement

No. 7 titled ``Review Criteria for Exporter Key Escrow or Key Recovery

Development Plans.''

This interim rule also amends part 744 to add a general prohibition

in Sec. 744.9 with respect to technical assistance in the development

or manufacture abroad of encryption commodities and software controlled

for EI reasons and makes conforming changes throughout the EAR.

This interim rule makes conforming changes in part 748 for

classification requests, amends part 750 of the EAR to reflect the

Department of Justice role in the review of encryption license

applications, adds new definitions to part 772, and amends the Commerce

Control List (Supplement No. 1 to part 774) by adding new EI controls

under ECCNs 5A002, 5D002, and 5E002 for commodities, software and

technology that are placed under Commerce Department jurisdiction,

consistent with E.O. 13026, by Presidential Memorandum.

In certain cases, semiannual reporting requirements on quantities

shipped and country of destination will be imposed on exporters, in

order to allow the United States to fulfill the reporting requirements

of its international obligations, such as the Wassenaar Arrangement.

The scope of controls on the release to foreign nationals of

technology and software subject to the EAR may be amended in a separate

Federal Register Notice.

This rule involves no new curtailment of exports, because the

transfer or removal of items from the United States Munitions List to

the CCL maintains a continuity of controls. Therefore, the

[[Page 68576]]

provisions regarding the impact of new controls do not apply, and

contract sanctity also does not apply to this imposition of controls.

U.S. persons holding valid USML licenses and other approvals issued

by the Department of State prior to December 30, 1996 may ship

remaining balances authorized by such licenses or approvals under the

authority of the EAR by filing Shippers Export Declarations (SEDs) with

District Directors of Customs, citing this Federal Register Notice and

the State Department license number. Such shipments shall be in

accordance with the terms and conditions, including the expiration

date, existing at the time of issuance of the State license. Any

reports required for distribution and other types of agreements

previously authorized by the Department of State, valid at the time of

this publication, should be henceforth submitted to the Department of

Commerce. Actions pending at the Department of State on December 30,

1996, including pending license applications, must be refiled with the

Department of Commerce. Export violations, including the terms and

conditions of export, shall hereafter constitute a violation of the

EAR.

Consistent with the provisions of section 6 of the Export

Administration Act, a foreign policy report was submitted to Congress

on December 24, 1996, notifying the Congress of the Department's

intention to impose controls on certain information security systems

and equipment, cryptographic devices, software and components

specifically designed or modified therefor, and related technology that

will be controlled on the CCL and that will be subject to new control

procedures.

Although the Export Administration Act (EAA) expired on August 20,

1994, the President invoked the International Emergency Economic Powers

Act and continued in effect, to the extent permitted by law, the

provisions of the EAA and the EAR in Executive Order 12924 of August

19, 1994, notice of August 15, 1995 (60 FR 42767), and notice of August

14, 1996 (60 FR 42527).

Rulemaking Requirements

1. This interim rule has been determined to be significant for

purposes of E.O. 12866. A cost benefit analysis has been prepared and

is available upon request by contacting James A. Lewis at (202) 482-

0092.

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 (PRA), unless that

collection of information displays a currently valid OMB Control

Number. This rule involves collections of information subject to the

Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.). These

collections have been approved by the Office of Management and Budget

under control numbers 0694-0048 and 0694-0088. This rule also contains

a new collection-of-information requirement subject to the PRA that has

received emergency approval under OMB control number 0694-0104. The new

information requirement and estimated public burden hours include:

marketing plans (40 hours each); semiannual progress reports (8 hours

each); safeguard procedures (4 hours); recordkeeping (2 hours); and

annual reports (4 hours). These estimates include the time for

reviewing instructions, searching existing data sources, gathering and

maintaining the data needed, and completing and reviewing the

collections of information. Send comments regarding these burden

estimates or any other aspect of these collections of information,

including suggestions for reducing the burden, to OMB Desk Officer, New

Executive Office Building, Washington, DC 20503.

3. This rule does not contain policies with Federalism implications

sufficient to warrant preparation of a Federalism assessment under

Executive Order 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 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 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 February 13, 1997.

The Department 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 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 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, N.W., Washington, D.C. 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. 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.

This rule has been determined to be a major rule as defined in 5

U.S.C. Sec. 804(2) for purposes of Congressional review under 5 U.S.C.

ch. 8. Notwithstanding 5 U.S.C. Sec. 801(a)(3), this rule is effective

December 30, 1996 pursuant to authority at 5 U.S.C. Sec. 808(2) as

there is good cause to waive the requirement to provide notice and

public procedure thereon. This action implements an Administration

initiative that is intended to protect the national security and

foreign policy interests of the United States and streamlines export

controls for encryption items. Therefore,

[[Page 68577]]

notice and public procedure that would delay implementation of this

rule is contrary to the public interest.

List of Subjects

15 CFR Part 730

Administrative practice and procedure, Advisory committees,

Exports, Foreign trade, Reporting and recordkeeping requirements,

Strategic and critical materials.

15 CFR Parts 732, 740, 748, 750, and 768

Administrative practice and procedure, Exports, Foreign trade,

Reporting and Record keeping requirements.

15 CFR Part 734

Administrative practice and procedure, Exports, Foreign trade.

15 CFR Parts 736, 738, 742, 772, and 774

Exports, Foreign trade.

15 CFR Part 744

Exports, Foreign trade, Reporting and Recordkeeping requirements.

Accordingly, parts 730, 732, 734, 736, 738, 740, 742, 744, 748,

750, 768, 772, and 774 of the Export Administration Regulations (15 CFR

Parts 730-799) are amended as follows:

1. The authority citation for 15 CFR part 730 is revised 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;

E.O. 11912, 41 FR 15825, 3 CFR, 1976 Comp., p. 114; E.O. 12002, 42

FR 35623, 3 CFR, 1977 Comp., p.133; E.O. 12058, 43 FR 20947, 3 CFR,

1978 Comp., p. 179; E.O. 12214, 45 FR 29783, 3 CFR, 1980 Comp., p.

256; E.O. 12851, 58 FR 33181, 3 CFR, 1993 Comp., p. 608; E.O. 12867,

58 FR 51747, 3 CFR, 1993 Comp., p. 649; E.O. 12918, 59 FR 28205, 3

CFR, 1994 Comp., p. 899; 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 15, 1995 (60 FR 42767, August 17, 1995); and Notice of August

14, 1996 (61 FR 42527); E.O. 12981 (60 FR 62981).

2. The authority citation for 15 CFR parts 732, 736, 740, 748, 768,

and 772 is revised 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 15, 1995 (60

FR 42767, August 17, 1995); and Notice of August 14, 1996 (61 FR

42527).

3. The authority citation for 15 CFR part 734 is revised 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 15, 1995 (60 FR 42767,

August 17, 1995); and Notice of August 14, 1996 (61 FR 42527).

4. The authority citation for 15 CFR parts 738 and 774 is revised

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 15, 1995 (60 FR 42767, August 17, 1995); and Notice of August

14, 1996 (61 FR 42527).

5. The authority citation for 15 CFR part 742 is revised 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.; 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 15, 1995 (60 FR 42767, August 17, 1995); and Notice of

August 14, 1996 (61 FR 42527).

6. The authority citation for 15 CFR part 744 is revised to read as

follows:

Authority: 50 U.S.C. app. 2401 et seq.; 50 U.S.C. 1701 et seq.;

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; Notice of August 15,

1995 (60 FR 42767, August 17, 1995); and Notice of August 14, 1996

(61 FR 42527).

7. The authority citation for 15 CFR part 750 is revised 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 15, 1995

(60 FR 42767, August 17, 1995); E.O. 12981, 60 FR 62981; and Notice

of August 14, 1996 (61 FR 42527).

PART 730--[AMENDED]

8. Section 730.5 is amended by adding a new sentence to the end of

paragraph (d) to read as follows:

Sec. 730.5 Coverage of more than exports.

* * * * *

(d) * * * The EAR also restrict technical assistance by U.S.

persons with respect to encryption commodities or software.

PART 732--[AMENDED]

9. Section 732.2 is amended by adding two new sentences at the end

of the introductory text to paragraph (b) and by adding two new

sentences at the end of the introductory text to paragraph (d) to read

as follows:

Sec. 732.2 Steps regarding scope of the EAR.

* * * * *

(b) * * * Note that encryption software controlled for EI reasons

under ECCN 5D002 on the Commerce Control List (refer to Supplement No.1

to Part 774 of the EAR) shall be subject to the EAR even if publicly

available. Accordingly, the provisions of the EAR concerning the public

availability of items are not applicable to encryption items controlled

for ``EI'' reasons under ECCN 5D002.

* * * * *

(d) * * * Note that encryption items controlled for EI reasons

under ECCN 5A002 or ECCN 5D002 on the Commerce Control List (refer to

Supplement No.1 to Part 774 of the EAR) shall be subject to the EAR

even if they incorporate less than the de minimis level of U.S.

content. Accordingly, the provisions of the EAR concerning de minimis

levels are not applicable to encryption items controlled for ``EI''

reasons under ECCN 5A002, ECCN 5D002, or ECCN 5E002.

* * * * *

10. Section 732.3 is amended by adding two new sentences to the end

of paragraph (e)(2) to read as follows:

Sec. 732.2 Steps regarding the ten general prohibitions.

* * * * *

(e) Step 10: Foreign-made items incorporating U.S.-origin items and

the de minimis rule. * * *

(2) * * * Note that encryption items controlled for EI reasons

under ECCN 5A002 or ECCN 5D002 on the Commerce Control List (refer to

Supplement No.1 to Part 774 of the EAR) shall be subject to the EAR

even if they incorporate less than the de minimis level of U.S.

content. Accordingly, the provisions of the EAR concerning de minimis

levels are not applicable to encryption items controlled for ``EI''

reasons under ECCN 5A002, ECCN 5D002, or ECCN 5E002.

PART 734--[AMENDED]

11. Section 734.2 is amended by revising paragraphs (b)(1) and

(b)(2)

[[Page 68578]]

introductory text and by adding a new paragraph (b)(9) to read as

follows:

Sec. 734.2 Important EAR terms and principles.

* * * * *

(b) Export and reexport--(1) Definition of export. ``Export'' means

an actual shipment or transmission of items subject to the EAR out of

the United States, or release of technology or software subject to the

EAR to a foreign national in the United States, as described in

paragraph (b)(2)(ii) of this section. See part 772 of the EAR for the

definition that applies to exports of satellites subject to the EAR.

See paragraph (b)(9) of this section for the definition that applies to

exports of encryption source code and object code software subject to

the EAR.

(2) Export of technology or software. (See paragraph (b)(9) for

provisions that apply to encryption source code and object code

software.) ``Export'' of technology or software, excluding encryption

software subject to ``EI'' controls, includes:

* * * * *

(9) Export of encryption source code and object code software. (i)

For purposes of the EAR, the export of encryption source code and

object code software means:

(A) An actual shipment, transfer, or transmission out of the United

States (see also paragraph (b)(9)(ii) of this section); or

(B) A transfer of such software in the United States to an embassy

or affiliate of a foreign country.

(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., or making such software available for

transfer outside the United States, over wire, cable, radio,

electromagnetic, photooptical, photoelectric or other comparable

communications facilities accessible to persons outside the United

States, 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. Such

precautions shall include:

(A) Ensuring that the facility from which the software is available

controls the access to and transfers of such software through such

measures as:

(1) 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;

(2) 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 Act, and that anyone receiving such a transfer cannot

export the software without a license; and

(3) 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 Act and that anyone receiving the transfer cannot export

the software without a license; or

(B) Taking other precautions, approved in writing by the Bureau of

Export Administration, to prevent transfer of such software outside the

U.S. without a license.

12. Section 734.3 is amended by revising paragraph (b)(3) and by

adding a note to paragraphs (b)(2) and (b)(3) to read as follows:

Sec. 734.3 Items subject to the EAR.

* * * * *

(b) * * *

(3) Publicly available technology and software, except software

controlled for EI reasons under ECCN 5D002 on the Commerce Control

List, that:

(i) Are already published or will be published as described in

Sec. 734.7 of this part;

(ii) Arise during, or result from, fundamental research, as

described in Sec. 734.8 of this part;

(iii) Are educational, as described in Sec. 734.9 of this part;

(iv) Are included in certain patent applications, as described in

Sec. 734.10 of this part.

Note to paragraphs (b)(2) and (b)(3) of this section: A printed

book or other printed material setting forth encryption source code

is not itself subject to the EAR (see Sec. 734.3(b)(2)). However,

notwithstanding Sec. 734.3(b)(2), encryption source code in

electronic form or media (e.g., computer diskette or CD ROM) remains

subject to the EAR (see Sec. 734.3(b)(3)).

* * * * *

13. Section 734.4 is amended by revising paragraph (b) and revising

paragraph (h) to read as follows:

Sec. 734.4 De minimis U.S. content.

* * * * *

(b) There is no de minimis level for the reexport of foreign-origin

items that incorporate the following:

(1) Items controlled by ECCN 9A004.a; or

(2) ``Information security'' systems and equipment, cryptographic

devices, software and components specifically designed or modified

therefor, and related technology controlled for ``EI'' reasons under

ECCN, 5A002 ECCN 5D002, and 5E002. Certain mass market encryption

software may become eligible for de minimis only after a one-time BXA

review (refer to Sec. 742.15(b)(1)).

* * * * *

(h) Notwithstanding the provisions of paragraphs (c) and (d) of

this section, U.S.-origin technology controlled by ECCN 9E003a.1

through a.12, and .f, and related controls, and encryption software

controlled for ``EI'' reasons under ECCN 5D002 or encryption technology

controlled for ``EI'' reasons under ECCN 5E002 do not lose their U.S.-

origin when redrawn, used, consulted, or otherwise commingled abroad in

any respect with other software or technology of any other origin.

Therefore, any subsequent or similar software or technology prepared or

engineered abroad for the design, construction, operation, or

maintenance of any plant or equipment, or part thereof, which is based

on or uses any such U.S.-origin software or technology is subject to

the EAR.

14. Section 734.5 is amended by adding paragraph (c) to read as

follows:

Sec. 734.5 Activities of U.S. and foreign persons subject to the EAR.

* * * * *

(c) Technical assistance by U.S. persons with respect to encryption

commodities or software as described in Sec. 744.9 of the EAR.

15. Section 734.7 is amended by revising paragraph (b) and by

adding paragraph (c) to read as follows:

Sec. 734.7 Published information and software.

* * * * *

(b) Software and information is published when it is available for

general distribution either for free or at a price that does not exceed

the cost of reproduction and distribution. See Supplement No. 1 to this

part, Questions G(1) through G(3).

(c) Notwithstanding paragraphs (a) and (b) of this section, note

that encryption software controlled under ECCN 5D002 for ``EI'' reasons

on the Commerce Control List (refer to Supplement No. 1 to part 774 of

the

[[Page 68579]]

EAR) remains subject to the EAR even when publicly available.

16. Section 734.8 is amended by adding a sentence to the end of

paragraph (a) to read as follows:

Sec. 734.8 Information resulting from fundamental research.

(a) * * * Note that the provisions of this section do not apply to

encryption software controlled under ECCN 5D002 for ``EI'' reasons on

the Commerce Control List (refer to Supplement No. 1 to part 774 of the

EAR).

* * * * *

17. Section 734.9 is revised to read as follows:

Sec. 734.9 Educational information.

``Educational information'' referred to in Sec. 734.3(b)(3)(iii) of

this part is not subject to the EAR if it is released by instruction in

catalog courses and associated teaching laboratories of academic

institutions. Dissertation research is discussed in Sec. 734.8(b) of

this part. (Refer to Supplement No. 1 to this part, Question C(1)

through C(6)). Note that the provisions of this section do not apply to

encryption software controlled under ECCN 5D002 for ``EI'' reasons on

the Commerce Control List (refer to Supplement No. 1 to part 774 of the

EAR).

18. Supplement No.1 to Part 734 is amended by revising the

introductory paragraph to read as follows:

Supplement No. 1 to Part 734--Questions and Answers--Technology and

Software Subject to the EAR

This Supplement No. 1 contains explanatory questions and answers

relating to technology and software that is subject to the EAR. It is

intended to give the public guidance in understanding how BXA

interprets this part, but is only illustrative, not comprehensive. In

addition, facts or circumstances that differ in any material way from

those set forth in the questions or answers will be considered under

the applicable provisions of the EAR. Exporters should note that the

provisions of this supplement do not apply to encryption software

(including source code) 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.

See Sec. 742.15 of the EAR. This Supplement is divided into nine

sections according to topic as follows:

* * * * *

PART 736--[AMENDED]

19. Section 736.2 is amended by revising paragraph (b)(7) to read

as follows:

Sec. 736.2 General prohibitions and determination of applicability.

* * * * *

(7) General Prohibition Seven--Support of Certain Activities by

U.S. persons--(i) Support of Proliferation Activities (U.S. Person

Proliferation Activity). If you are a U.S. Person as that term is

defined in Sec. 744.6(c) of the EAR, you may not engage in any

activities prohibited by Sec. 744.6 (a) or (b) of the EAR which

prohibits the performance, without a license from BXA, of certain

financing, contracting, service, support, transportation, freight

forwarding, or employment that you know will assist in certain

proliferation activities described further in part 744 of the EAR.

There are no License Exceptions to this General Prohibition Seven in

part 740 of the EAR unless specifically authorized in that part.

(ii) You may not, without a license from BXA, provide certain

technical assistance to foreign persons with respect to encryption

items, as described in Sec. 744.9 of the EAR.

* * * * *

PART 738--[AMENDED]

Sec. 738.2 [Amended]

20. Section 738.2 is amended by adding ``EI Encryption Items'' in

alphabetical order to the list of Reasons for Control in paragraph

(d)(2)(i)(A).

PART 740--[AMENDED]

21. Part 740 is amended by redesignating Secs. 740.8 through 740.15

as Secs. 740.9 through 740.16 and by adding a new Sec. 740.8 to read as

follows:

Sec. 740.8 Key management infrastructure.

(a) Scope. License Exception KMI authorizes the export and reexport

of certain encryption software and equipment.

(b) Eligible software and equipment--(1) Recovery encryption items.

Eligible items are recovery encryption software and equipment

controlled under ECCNs 5D002 or 5A002 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)(1) of this section.

(2) Non-recoverable encryption items. Eligible items are 56-bit DES

or equivalent strength non-key recovery software and equipment

controlled under ECCNs 5D002 or 5A002 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.

(c) Eligible destinations. License Exception KMI is available for

all destinations, except Cuba, Libya, North Korea, Iraq, Iran, Syria,

and Sudan.

(d) Additional eligibility requirements--(1) Recovery encryption

items. Classification requests for recovery encryption software and

equipment must meet the following criteria:

(i) Key escrow and key recovery products. (A) Key escrow and key

recovery products must meet the criteria identified in Supplement No. 4

to part 742 of the EAR;

(B) Key recovery agents must meet the criteria identified in

Supplement No. 5 to part 742 of the EAR;

(C) Key recovery agents must implement the security policies and

key escrow/key recovery procedures identified in Supplement No. 5 to

part 742 of the EAR;

(D) Key recovery agents must comply with all applicable EAR Record

keeping requirements, including record retention requirements; and

(E) Key recovery agents must carry out the key holding obligations

as approved by BXA, and any violation of any of the key holding

obligations shall also constitute a violation of the EAR. Note that the

key recovery agent's continuing compliance with key recovery agent

requirements and key safeguard procedures is a condition for use of

License Exception KMI. The exporter or reexporter, whether that person

is the key recovery agent or not, must submit a new classification

request to BXA if there are any changes (e.g., termination,

replacement, additions) to the previously approved key recovery agent.

(ii) Other recoverable encryption items. Requests for one-time

review of recoverable products which allow government officials to

obtain, under proper legal authority and without the cooperation or

knowledge of the user, the plaintext of the encrypted data and

communications will receive favorable consideration.

(2) Non-recoverable encryption items. Upon approval of your

classification request submitted in accordance with this paragraph

(d)(2), you will become eligible to use License Exception KMI for six

months. In order to continue using this License Exception, you must

renew your eligibility by submitting the progress report described in

paragraph (d)(2)(ii) of this section. Classification requests for 56-

bit DES or equivalent strength non-key recovery software and

[[Page 68580]]

equipment must meet the following criteria:

(i) Initial request must be submitted with a business plan that

explains in detail the steps the applicant will take during the two-

year transition period according to the criteria identified in

Supplement No. 7 to part 742 of the EAR;

(ii) Renewal for use of this License Exception is contingent upon

progress reports sent to BXA every six months and the applicant's

adherence to benchmarks and milestones as set forth in the plan

submitted for the initial classification request.

(iii) Applicants may inform their authorized distributors that an

approved classification and plan has been granted to them and the

distributors' authority to so export or reexport will be for a time

period ending on the same day the applicant's authority to export or

reexport ends.

(e) Reporting requirements. (1) You must provide semiannual reports

to BXA identifying:

(i) Ultimate consignee; specific end-user name and address, if

available; and country of ultimate destination; and

(ii) Quantities of each encryption item shipped.

(2) You must submit reports no later than March 1 and no later than

September 1 of any given year.

22. Newly designated Sec. 740.9 is amended by revising paragraph

(c)(3) to read as follows:

Sec. 740.9 Temporary imports, exports, and reexports (TMP).

* * * * *

(c) * * *

(3) Exports of beta test software. All software that is controlled

by the Commerce Control List (Supplement No. 1 to part 774 of the EAR),

and under Commerce licensing jurisdiction, is eligible for export and

reexport, subject to the restrictions of this paragraph, except

encryption software controlled for EI reasons under ECCN 5D002. Certain

encryption software may become eligible after a one-time BXA review

(refer to Sec. 742.15(b)(1) of the EAR).

* * * * *

23. Newly designated Sec. 740.11 is amended by revising paragraphs

(b)(2)(iii) and (b)(2)(iv) to read as follows:

Sec. 740.11 Governments and international organizations (GOV).

* * * * *

(b) * * *

(2) * * *

(iii) Items for official use within national territory by agencies

of cooperating governments. This License Exception is available for all

items consigned to and for the official use of any agency of a

cooperating government within the territory of any cooperating

government, except:

(A) Computers with a CTP greater than 10,000 MTOPS when destined

for Argentina, Hong Kong, South Korea, Singapore or Taiwan;

(B) Items identified on the Commerce Control List as controlled for

missile technology (MT), chemical and biological warfare (CB), or

nuclear nonproliferation (NP) reasons;

(C) Regional stability items controlled under Export Control

Classification Numbers (ECCNs) 6A002, 6A003, 6D102, 6E001, 6E002,

7D001, 7E001, 7E002, and 7E101 as described in Sec. 742.6(a)(1) of the

EAR; or

(D) Encryption items controlled for EI reasons as described in the

Commerce Control List.

(iv) Diplomatic and consular missions of a cooperating government.

This License Exception is available for all items consigned to and for

the official use of a diplomatic or consular mission of a cooperating

government located in any country in Country Group B (see Supplement

No. 1 to part 740), except:

(A) Computers with a CTP greater than 10,000 MTOPS when destined

for Argentina, Hong Kong, South Korea, Singapore or Taiwan;

(B) Items identified on the Commerce Control List as controlled for

missile technology (MT), chemical and biological warfare (CB), or

nuclear nonproliferation (NP) reasons;

(C) Regional stability items controlled under Export Control

Classification Numbers (ECCNs) 6A002, 6A003, 6D102, 6E001, 6E002,

7D001, 7E001, 7E002, and 7E101 as described in Sec. 742.6(a)(1) of the

EAR; or

(D) Encryption items controlled for EI reasons as described in the

Commerce Control List.

* * * * *

24. Newly designated Sec. 740.13 is amended by revising paragraph

(d)(2) to read as follows:

Sec. 740.13 Technology and software--unrestricted (TSU).

* * * * *

(d) * * *

(2) Software not eligible for this License Exception. This License

Exception is not available for encryption software controlled for

``EI'' reasons under ECCN 5D002. (Refer to Secs. 742.15(b)(1) and

748.3(b) of the EAR for information on item classifications regarding a

one-time BXA review for release from EI controls.)

* * * * *

PART 742--[AMENDED]

25. Part 742 is amended by revising Sec. 742.15 to read as follows:

Sec. 742.15 Encryption items.

Encryption items can be used to maintain the secrecy of

information, and thereby may be used by persons abroad to harm national

security, foreign policy and law enforcement interests. As the

President indicated in E.O. 13026 and in his Memorandum of November 15,

1996, export of encryption software, like export of encryption

hardware, is controlled because of this functional capacity to encrypt

information on a computer system, and not because of any informational

or theoretical value that such software may reflect, contain, or

represent, or that its export may convey to others abroad. For this

reason, export controls on encryption software are distinguished from

controls on other software regulated under the EAR.

(a) License requirements. Licenses are required for all

destinations, except Canada, for ECCNs having an ``EI'' (for

``encryption items'') under the ``Control(s)'' paragraph. Such items

include: encryption commodities controlled under ECCN 5A002; encryption

software controlled under ECCN 5D002; and encryption technology

controlled under ECCN 5E002. (Refer to part 772 of the EAR for the

definition of ``encryption items'). For encryption items 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, U.S. persons holding valid USML

licenses and other approvals issued by the Department of State prior to

December 30, 1996 may ship remaining balances authorized by such

licenses or approvals under the authority of the EAR by filing Shippers

Export Declarations (SEDs) with District Directors of Customs, citing

the provisions of this section effective on December 30, 1996 and the

State Department license number. Such shipments shall be in accordance

with the terms and conditions, including the expiration date, existing

at the time of issuance of the State license. Violations of such

authorizations, terms and conditions constitute violations of the EAR.

Any reports required for distribution and other types of agreements

previously authorized by the Department of State, valid prior to

December 30, 1996, should be henceforth submitted to BXA at the

following address: Office of Strategic Trade and Foreign Policy

Controls, Bureau of Export Administration,

[[Page 68581]]

Department of Commerce, 14th Street and Pennsylvania Ave., N.W., Room

2705, Washington, D.C. 20230.

(b) Licensing policy. The following licensing policies apply to

items identified in paragraph (a) of this section. This section refers

you to Supplements No. 4, No. 5, and No. 7 to this part 742. For

purposes of these supplements, ``products'' refers to commodities and

software. Except as otherwise noted, applications will be reviewed on a

case-by-case basis by BXA, in conjunction with other agencies, to

determine whether the export or reexport is consistent with U.S.

national security and foreign policy interests.

(1) Certain mass-market encryption software. 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 review. To determine eligibility

for mass market treatment, exporters must submit a classification

request to BXA. 40-bit mass market encryption software may be eligible

for a 7-day review process, and company proprietary software 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 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. If, after a

one-time 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. 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) Key Escrow, Key Recovery and Recoverable encryption software

and commodities. Recovery encryption software and equipment controlled

for EI reasons under ECCN 5D002 or under ECCN 5A002, including

encryption equipment designed or modified to use recovery encryption

software, may be made eligible for license exception KMI after a one-

time BXA review. License Exception KMI is available for all

destinations except Cuba, Iran, Iraq, Libya, North Korea, Syria and

Sudan. To determine eligibility, exporters must submit a classification

request to BXA. Requests for one-time review of key escrow and key

recovery encryption items will receive favorable consideration provided

that, prior to the export or reexport, a key recovery agent

satisfactory to BXA has been identified (refer to Supplement No. 5 to

part 742) and security policies for safeguarding the key(s) or other

material/information required to decrypt ciphertext as described in

Supplement No. 5 to part 742 are established to the satisfaction of BXA

and are maintained after export or reexport as required by the EAR. If

the exporter or reexporter intends to be the key recovery agent, then

the exporter or reexporter must meet all of the requirements of a key

recovery agent identified in Supplement No. 5 to part 742. In addition,

the key escrow or key recovery system must meet the criteria identified

in Supplement No. 4 to part 742. Note that eligibility is dependent on

continued fulfilment of the requirements of a key recovery agent

identified 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

requests for eligibility to export key recovery encryption products

which facilitate establishment of the key management infrastructure

before a key recovery agent is named, consistent with national security

and foreign policy. When BXA approves such cases, exporters of products

described in Supplement No. 4 to part 742 are required to furnish the

name of an agent by December 31, 1998. Requests for one-time review of

recoverable products which allow government officials to obtain, under

proper legal authority and without the cooperation or knowledge of the

user, the plaintext of the encrypted data and communications will

receive favorable consideration.

(3) Non-recovery encryption items up to 56-bit key length DES or

equivalent strength supported by a satisfactory business and marketing

plan for exporting recoverable items and services. (i) Manufacturers of

non-recovery encryption items up to 56-bit key length DES or equivalent

strength will be permitted to export and reexport under the authority

of License Exception KMI provided that the requirements and conditions

of the License Exception are met. Exporters must submit a

classification request for an initial BXA review of the item and a

satisfactory business and marketing plan that explains in detail the

steps the applicant will take during the two-year transition period

beginning January 1, 1997 to develop, produce, and/or market encryption

items and services with recoverable features. Manufacturers would

commit to produce key recovery products. Others would commit to

incorporate such products into their own products or services. Such

efforts can include: the scale of key recovery research and

development, product development, and marketing plans; significant

steps to reflect potential customer demand for key recovery products in

the firm's encryption-related business; and how soon a key recovery

agent will be identified. Note that BXA will accept requests for

classification of non-recoverable encryption items up to 56-bit key

length DES or equivalent strength under this paragraph from

distributors, re-sellers, integrators, and other entities that are not

manufacturers of the encryption items. The use of License Exception KMI

is not automatic; eligibility must be renewed every six months. Renewal

after each six-month period will depend on the applicant's adherence to

explicit benchmarks and milestones as set forth in the plan approved

with the initial license classification and amendments as approved by

BXA. This relaxation of controls and use of License Exception KMI will

last through December 31, 1998. The plan submitted with classifications

for the export of non-recoverable encryption items up to 56-bit key

length DES or equivalent strength must include the elements in

Supplement No. 7 to part 742.

(ii) BXA will make a determination on such classification requests

within 15 days of receipt. Exports and reexports of non-recoverable

encryption items up to 56-bit key length DES or equivalent strength

will be authorized under the provisions of License Exception KMI,

contingent upon BXA's review and approval of a satisfactory progress

report related to the ongoing plan submitted by the applicant. The

applicant must submit a letter to BXA every six months requesting

approval of the progress report. Note that distributors, re-sellers,

integrators, or other entities that are not manufacturers of the

encryption items are permitted to use License Exception KMI for exports

and reexports of such items only in instances where a classification

has been granted to the manufacturer of the encryption items or a

classification has been granted to the distributors, re-sellers,

integrators, or other entities. The authority to so export or reexport

will be for a time period

[[Page 68582]]

ending on the same day the producer's authority to export or reexport

ends.

(4) 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. Encryption licensing arrangements may be approved with

extended validity periods specified by the applicant in block #24 on

Form BXA-748P. In addition, the applicant must specify the sales

territory and classes of end-users. Such licenses may require the

license holder to report to BXA certain information such as item

description, quantity, value, and end-user name and address.

(ii) Applications for encryption items not authorized under an

encryption licensing arrangement. Applications for the export and

reexport of all other encryption items will be considered on a case-by-

case basis.

(5) Applications for encryption technology. Applications for the

export and reexport of encryption technology will be considered on a

case-by-case basis.

(c) Contract sanctity. Contract sanctity provisions are not

available for license applications reviewed under this section.

(d) [Reserved]

26. Part 742 is amended by revising Supplement No. 4 and Supplement

No. 5, and by adding a new Supplement No. 6 and a new Supplement No. 7

to read as follows:

Supplement No. 4 to Part 742--Key Escrow or Key Recovery Products

Criteria

Key Recovery Feature

(1) The key(s) or other material/information required to decrypt

ciphertext shall be accessible through a key recovery 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 reasonable frequency, 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 recovery 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 recovery 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 interoperate with:

(i) Other key recovery products that meet these criteria, and

shall not interoperate with products whose key recovery feature has

been altered, bypassed, disabled, or otherwise rendered inoperative;

and

(ii) Non-key recovery products only when the key recovery

product permits access to the key(s) or other material/information

needed to decrypt ciphertext generated or received (i.e., one

direction at a minimum) by the key recovery product.

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 recovery encryption products

which facilitate establishment of the key management infrastructure

before a key recovery agent is named.

Exporters of products described in this Supplement No. 4 to part

742 are required to furnish the name of an agent by December 31,

1998.

Supplement No. 5 to Part 742--Key Escrow or Key Recovery Agent

Criteria, Security Policies, and Key Escrow or Key Recovery Procedures

Key Escrow or Key Recovery Agent Requirements; Security Policies; Key

Escrow or Key Recovery Procedures

This Supplement sets forth criteria that the Department of

Commerce will use to approve key recovery agents to support approval

of the export or reexport of key recovery encryption items

controlled for EI reasons under ECCNs 5A002 and 5D002. Any

arrangements between the exporter or reexporter and the key recovery

agent must reflect the provisions contained in this Supplement in a

manner satisfactory to BXA, in conjunction with other agencies. This

Supplement outlines the criteria for employing key recovery agent

personnel for key recovery procedures. An applicant for eligibility

to export or reexport key recovery items shall provide, or cause the

proposed key recovery agent to provide, to BXA sufficient

information concerning any proposed key recovery agent arrangements

to permit BXA's evaluation of the key recovery agent's security

policies, key recovery procedures, and suitability and

trustworthiness to maintain the confidentiality of the key(s) or

other material/information required to decrypt ciphertext. The key

recovery agent, who must be approved by BXA, may be the applicant

for the classification request. When there is no key recovery agent

involved, or the customer will self-escrow abroad, with or without a

legal obligation to the exporter, the customer must be approved by

BXA. BXA retains the right, in addition to any other remedies, to

revoke eligibility for License Exception KMI if BXA determines that

a key recovery agent no longer meets these criteria. The

requirements related to the suitability and trustworthiness,

security policies, and key recovery procedures of the key recovery

agent shall be made terms and conditions of the License Exception

for key recovery items. BXA shall require the key recovery agent to

provide a representation that it will comply with such terms and

conditions.

Note: Use of key recovery agents located outside the U.S. is

permitted if acceptable to BXA in consultation with the host

government, as appropriate.

I. Key Recovery Agent Requirements

(1)(a) A key recovery agent must identify by name, date and

place of birth, and social security number, individual(s) who:

(i) Is/are directly involved in the escrowing of key(s) or other

material/information required to decrypt ciphertext; or

(ii) Have access to key(s) or other material/information

required to decrypt ciphertext, or

(iii) Have access to information concerning requests for key(s)

or other material/information required to decrypt ciphertext; or

(iv) Respond to requests for key(s) or other material/

information required to decrypt ciphertext; or

(v) Is/are in control of the key recovery agent and have access

or authority to obtain key(s) or other material/information required

to decrypt ciphertext, and

(b) Must certify that such individual(s) meet the requirements

of the following paragraphs (b)(i) or (b)(ii). BXA reserves the

right to determine at any time the suitability and trustworthiness

of such individual(s). Evidence of an individual's suitability and

trustworthiness shall include:

(i) Information indicating that the individual(s):

(A) Has no criminal convictions of any kind or pending criminal

charges of any kind;

(B) Has not breached fiduciary responsibilities (e.g., has not

violated any surety or performance bonds); and

(C) Has favorable results of a credit check; or,

(ii) Information that the individual(s) has an active U.S.

government security clearance of Secret or higher issued or updated

within the last five years.

(2) The key recovery agent shall timely disclose to BXA when an

individual no longer meets the requirements of paragraphs

I.(1)(b)(i) or (ii).

(3) A key recovery agent must, to remain eligible for License

Exception KMI, identify to BXA by name, date and place of birth, and

social security number any new individual(s)

[[Page 68583]]

who will assume the responsibilities set forth in paragraph I.(1)(a)

of this Supplement. Before that individual(s) assumes such

responsibilities, the key recovery agent must certify to BXA that

the individual(s) meets the criteria set forth in subparagraphs

I.(1)(b)(i) or (b)(ii) of this Supplement. BXA reserves the right to

determine at any time the suitability and trustworthiness of such

personnel.

(4) If ownership or control of a key recovery agent is

transferred, no export may take place under previously issued

approvals until the successor key recovery agent complies with the

criteria of this Supplement.

(5) Key recovery agents shall submit suitable evidence of the

key recovery agent's corporate viability and financial

responsibility (e.g., a certificate of good standing from the state

of incorporation, credit reports, and errors/omissions insurance).

(6) Key recovery agents shall disclose to BXA any of the

following which have occurred within the ten years prior to the

application:

(a) Federal or state felony convictions of the business;

(b) Material adverse civil fraud judgments or settlements; and

(c) Debarments from federal, state, or local government

contracting.

The applicant shall also timely disclose to BXA the occurrence

of any of the foregoing during the use of License Exception KMI.

(7) Key recovery agent(s) shall designate an individual(s) to be

the security and operations officer(s).

(8) A key recovery agent may be internal to a user's

organization and may consist of one or more individuals. BXA may

approve such key recovery agents if sufficient information is

provided to demonstrate that appropriate safeguards will be employed

in handling key recovery requests from government entities. These

safeguards should ensure: the key recovery agent's structural

independence from the rest of the organization; security; and

confidentiality.

II. Security Policies

(1) Key recovery agents must implement security policies that

assure the confidentiality, integrity, and availability of the

key(s) or other material/information required for decryption of the

ciphertext.

(a) Procedures to assure confidentiality shall include:

(i) Encrypting all key(s) or other material/information required

to decrypt ciphertext while in storage, transmission, or transfer;

or

(ii) Applying reasonable measures to limit access to the

database (e.g. using keyed or combination locks on the entrances to

escrow facilities and limiting the personnel with knowledge of or

access to the keys/combinations).

(b) Procedures to assure the integrity of the database (i.e.

assuring the key(s) and other material/information required to

decrypt ciphertext are protected against unauthorized changes) shall

include the use of access controls such as database password

controls, digital signatures, system auditing, and physical access

restrictions.

(c) Procedures to assure the availability of the database (i.e.

assuring that key(s) and other material/information required to

decrypt ciphertext are retrievable at any time) shall include system

redundance, physical security, and the use of cryptography to

control access.

(2) Policies and procedures shall be designed and operated so

that a failure by a single person, procedure, or mechanism does not

compromise the confidentiality, integrity and availability of

key(s)or other material/information required to decrypt ciphertext.

Security policies and procedures may include, but are not limited

to, multi-person control of access to recoverable keys, split keys,

and back-up capabilities.

(3) Key recovery agents shall implement policies that protect

against unauthorized disclosure of information regarding whose

encryption material is stored, the fact that key(s) or other

material/information required to decrypt ciphertext was requested or

provided, and the identity of a requester. Procedures to assure the

confidentiality of this information shall include those described in

paragraph II.(1)(a) of this supplement.

(4) Key recovery agents shall provide to BXA prompt notice of a

compromise of a security policy or of the confidentiality of key(s)

or other material/information required to decrypt ciphertext.

III. Key Recovery Procedures

(1) Key recovery agents shall maintain the ability to make the

key(s) or other material/information required to decrypt ciphertext

available until notified otherwise by BXA. Key recovery agents shall

make requested key(s) or other material/information required to

decrypt ciphertext available, to the extent required by the request,

within two hours from the time they receive a request from a

government agency acting under appropriate legal authority.

(2) Key recovery agents shall maintain data regarding key

recovery requests received, release of key(s) or other material/

information required to decrypt ciphertext, database changes, system

administration access, and dates of such events for purposes of

audits by BXA.

(3) The key recovery agent must transfer all key recovery

equipment, key(s) and/or other material/information required to

decrypt ciphertext, key recovery database, and all administrative

information necessary to its key recovery operations to another key

recovery agent approved by BXA in the event that:

(a) The key recovery agent dissolves or otherwise terminates

escrowing operations, or

(b) BXA determines that there is a risk of such dissolution or

termination, or

(c) BXA determines that the key recovery agent is no longer

suitable or trustworthy.

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., N.W., Washington, D.C.

20230.

(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 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 and/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 both RC4 and 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:

[[Page 68584]]

(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) 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. This test vector 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 and/or the RC4 algorithm

and how the algorithm(s) is used. If both 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 on by both

algorithms;

(B) Pre-processing information of plain text 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 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 by Express Mail to:

Attn.: 15 day 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 submission of the classification to facilitate the

submission of proper documentation.

Supplement No. 7 to Part 742--Review Criteria for Exporter Key Escrow

or Key Recovery Development Plans

Exporter Key Recovery Plan

(1) Export of 56-bit digital encryption standard (DES) or

equivalent strength encryption products, without key recovery, will

be permitted, in exchange for specific commitments to key recovery

products and services and a key management infrastructure. After a

one-time review of the strength of the product, the 56-bit DES or

equivalent strength products will be eligible for export License

Exception KMI, provided that the exporter submits an acceptable

plan.

(2) Acceptable plans include: export licenses issued for, and

demonstrations of, key recovery products to appropriate U.S.

agencies; plans describing products under development with key

recovery features (see paragraph (3) of this Supplement), and for

distributors, a plan describing intentions to offer for distribution

key recovery products.

(3) Following are topical areas to include in the plan, which

should be submitted to the Department of Commerce, Bureau of Export

Administration, in the form of a letter from senior corporate

management:

(i) Steps the applicant has taken or will take (depending on its

line of business) to develop, produce, distribute, market, and/or

transition to encryption products with key recovery features. The

plan should include benchmarks and milestones for incorporating key

recovery features into products and services, and for the supporting

key management infrastructure, including key recovery agent(s); and

(ii) Provision, at the applicant's discretion, of other

information to indicate commitment to the development of a key

management infrastructure, such as participation in U.S. Government

pilot programs, current key recovery products or services provided,

role in NIST's Technical Advisory Committee on a Key Management

Infrastructure, participation in other encryption policy committees

or groups, or other support for the key management infrastructure.

(4) Renewal of License Exception KMI must be sought by sending a

letter to BXA every six months reporting progress in meeting

milestones set forth in the exporter's plan for key recovery

products and services.

PART 744--[AMENDED]

27. Part 744 is amended by adding a new Sec. 744.9 to read as

follows:

Sec. 744.9. Restrictions on technical assistance by U.S. persons with

respect to encryption items.

(a) General prohibition. No U.S. person may, without a license from

BXA, provide technical assistance (including training) to foreign

persons with the intent to aid a foreign person in the development or

manufacture outside the United States of encryption commodities and

software that, if of United States origin, would be controlled for

``EI'' reasons under ECCN 5A002 or 5D002. Note that this prohibition

does not apply if the U.S. person providing the assistance has a

license or is otherwise entitled to export the encryption commodities

and software in question to the foreign person(s) receiving the

assistance. Note in addition that the mere teaching or discussion of

information about cryptography, including, for example, in an academic

setting, by itself would not establish the intent described in this

section, even where foreign persons are present.

(b) Definition of U.S. person. For purposes of this section, the

term U.S. person includes:

(1) Any individual who is a citizen or permanent resident alien of

the United States;

[[Page 68585]]

(2) Any juridical person organized under the laws of the United

States or any jurisdiction within the United States, including foreign

branches; and

(3) Any person in the United States.

(c) License review standards. Applications involving activities

described in this section will be reviewed on a case-by-case basis to

determine whether the activity is consistent with U.S. national

security and foreign policy interests.

PART 748--[AMENDED]

28. Section 748.3 is amended by adding a new paragraph (b)(3) to

read as follows:

Sec. 748.3 Classification and Advisory Opinions.

* * * * *

(b) * * *

(3) Classification requests for a one-time Department of Commerce

review of encryption software transferred from the U.S. Munitions List

consistent with E.O. 13026 of November 15, 1996 (61 FR 58767) and

pursuant to the Presidential Memorandum of that date are required prior

to export to determine eligibility for release from EI controls. Refer

to Supplement No. 6 to part 742 for instructions on submitting such

requests for mass market encryption software. For requests for Key

Escrow, Key Recovery, or Recovery encryption products, include the word

``Encryption'' in Block 24: Additional Information.

* * * * *

PART 750--[AMENDED]

29. Section 750.3 is amended by adding a new paragraph (b)(2)(v) to

read as follows:

Sec. 750.3 Review of license applications by BXA and other government

agencies and departments.

* * * * *

(b) * * *

(2) * * *

(v) The Department of Justice is concerned with controls relating

to encryption items.

PART 768--[AMENDED]

30. Section 768.1(b) is revised to read as follows:

Sec. 768.1 Introduction.

* * * * *

(b) Scope. This part applies only to the extent that items are

controlled for national security purposes. This part does not apply to

encryption items that were formerly controlled on the U.S. Munitions

List and that were transferred 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, which shall not be subject to any

mandatory foreign availability review procedures.

* * * * *

31. Section 768.3 is amended by adding a new sentence at the end of

paragraph (a) to read as follows:

Sec. 768.3 Foreign availability assessment.

(a) * * * The effect of any such determination on the effectiveness

of foreign policy controls may be considered independent of this part.

* * * * *

PART 772--[AMENDED]

32. Part 772 is amended by adding new definitions of ``Encryption

items,'' ``Encryption object code,'' ``Encryption software,'' and

``Encryption source code,'' in alphabetical order and by revising the

definitions of ``Advisory Committee on Export Policy (ACEP),''

``Commodity,'' ``Export Administration Review Board (EARB),'' and

``Operating Committee (OC),'' to read as follows:

PART 772--DEFINITIONS OF TERMS

* * * * *

Advisory Committee on Export Policy (ACEP). The ACEP voting

members include the Assistant Secretary of Commerce for Export

Administration, and Assistant Secretary-level representatives from the

Departments of State, Defense, Justice (for encryption exports),

Energy, and the Arms Control and Disarmament Agency. The appropriate

representatives of the Joint Chiefs of Staff and the Director of the

Nonproliferation Center of the Central Intelligence Agency are non-

voting members. The Assistant Secretary of Commerce for Export

Administration is the Chair. Appropriate acting Assistant Secretary,

Deputy Assistant Secretary or equivalent strength of any agency or

department may serve in lieu of the Assistant Secretary of the

concerned agency or department. Such representatives, regardless of

rank, will speak and vote on behalf of their agencies or departments.

The ACEP may invite Assistant Secretary-level representatives of other

Government agencies or departments (other than those identified above)

to participate in the activities of the ACEP when matters of interest

to such agencies or departments are under consideration. Decisions are

made by majority vote.

* * * * *

Commodity. Any article, material, or supply except technology and

software. Note that the provisions of the EAR applicable to the control

of software (e.g. publicly available provisions) are not applicable to

encryption software. Encryption software is controlled because, like

the items controlled under ECCN 5A002, it has a functional capacity to

encrypt information on a computer system, and not because of any

informational or theoretical value that such software may reflect,

contain or represent, or that its export may convey to others abroad.

* * * * *

Encryption items. The phrase encryption items includes all

encryption commodities, software, and technology that contain

encryption features and are subject to the EAR. This does not include

encryption items specifically designed, developed, configured, adapted

or modified for military applications (including command, control and

intelligence applications) which are controlled by the Department of

State on the U.S. Munitions List.

Encryption object code. Computer programs containing an encryption

source code that has been compiled into a form of code that can be

directly executed by a computer to perform an encryption function.

Encryption software. Computer programs that provide capability of

encryption functions or confidentiality of information or information

systems. Such software includes source code, object code, applications

software, or system software.

Encryption source code. A precise set of operating instructions to

a computer that, when compiled, allows for the execution of an

encryption function on a computer.

* * * * *

Export Administration Review Board (EARB). EARB voting members are

the Secretary of Commerce, the Secretary of State, the Secretary of

Defense, the Secretary of Energy, the Attorney General (for encryption

exports), and the Director of the Arms Control and Disarmament Agency.

The Chairman of the Joint Chiefs of Staff and the Director of Central

Intelligence are non-voting members. The Secretary of Commerce is the

Chair of the EARB. No alternate EARB members may be designated, but the

acting head or deputy head of any agency or department may serve in

lieu of the head of the concerned agency or department. The EARB may

invite the heads of other Government agencies or departments (other

than those identified in this definition) to participate in the

activities of the EARB when matters of interest to such agencies or

departments

[[Page 68586]]

are under consideration. Decisions are made by majority vote.

* * * * *

Operating Committee (OC). The OC voting members include

representatives of appropriate agencies in the Departments of Commerce,

State, Defense, Justice (for encryption exports), and Energy and the

Arms Control and Disarmament Agency. The appropriate representatives of

the Joint Chiefs of Staff and the Director of the Nonproliferation

Center of the Central Intelligence Agency are non-voting members. The

Department of Commerce representative, appointed by the Secretary, is

the Chair of the OC and serves as the Executive Secretary of the

Advisory Committee on Export Policy. The OC may invite representatives

of other Government agencies or departments (other than those

identified in this definition) to participate in the activities of the

OC when matters of interest to such agencies or departments are under

consideration.

* * * * *

PART 774--[AMENDED]

33. In Supplement No. 1 to part 774 (the Commerce Control List),

Category 5--Telecommunications and Information Security is amended by

revising ECCNs 5A002, 5D002 and 5E002, to read as follows:

Category 5--Telecommunications and Information Security

* * * * *

II. Information Security

* * * * *

5A002 Systems, Equipment, Application Specific ``Electronic

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 only 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.

License Exceptions

LVS: N/A

GBS: N/A

CIV: N/A

List of Items Controlled

Unit: $ value

Related Controls: N/A

Related Definitions: N/A

Items:

a. Designed or modified to use ``cryptography'' employing digital

techniques to ensure ``information security'';

b. Designed or modified to perform cryptanalytic functions;

c. Designed or modified to use ``cryptography'' employing analog

techniques to ensure ``information security'';

Note: 5A002.c 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;

4. Facsimile equipment;

5. Restricted audience broadcast equipment; and

6. Civil television equipment;

d. Designed or modified to suppress the compromising emanations of

information-bearing signals;

Note: 5A002.d does not control equipment specially designed to

suppress emanations for reasons of health and safety.

e. Designed or modified to use cryptographic techniques to generate

the spreading code for ``spread spectrum'' or hopping code for

``frequency agility'' systems;

f. 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;

g. Communications cable systems designed or modified using

mechanical, electrical or electronic means to detect surreptitious

intrusion.

Note: 5A002 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 and limited for use

in machines for banking or money transactions, such as automatic teller

machines, self-service statement printers or point of sale terminals.

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 controls apply to encryption software 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

[[Page 68587]]

same treatment under the EAR as other ``software''; and for 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.

License Exceptions

CIV: N/A

TSR: N/A

List of Items Controlled

Unit: $ value

Related Controls: N/A

Related Definitions: 5D002.a controls ``software'' designed or modified

to use ``cryptography'' employing digital or analog techniques to

ensure ``information security''.

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;

c.3. ``Software'' designed or modified to protect against malicious

computer damage, e.g., viruses;

Note: 5D002 does not control:

a. ``Software required'' for the ``use'' of equipment excluded from

control under the Note to 5A002;

b. ``Software'' providing any of the functions of equipment

excluded from control under the Note to 5A002.

5E002 ``Technology'' According to the General Technology Note for the

``Development'', ``Production'' or Use of Equipment Controlled by 5A002

or 5B002 or ``Software'' Controlled by 5D002

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 controls applies only to encryption technology transferred from

the U.S. Munitions 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.

License Exceptions

CIV: N/A

TSR: N/A

List of Items Controlled

Unit: N/A

Related Controls: N/A

Related Definitions: N/A

Items:

The list of items controlled is contained in the ECCN heading.

34. In Supplement No. 2 to Part 774 the ``General Software Note''

is revised to read as follows:

Supplement No. 2 to Part 774--General Technology and Software Notes

I. General Technology Note. * * *

* * * * *

II. General Software Note. License Exception TSU (``mass market''

software) is available to all destinations, except Cuba, Iran, Iraq,

Libya, North Korea, Sudan, and Syria, for release of software that is

generally available to the public by being:

a. Sold from stock at retail selling points, without restriction,

by means of:

1. Over the counter transactions;

2. Mail order transactions; or

3. Telephone call transactions; and

b. Designed for installation by the user without further

substantial support by the supplier.

Note: License Exception TSU for mass market software does not

apply to encryption software controlled for EI reasons under ECCN

5D002. Encryption software may become eligible after a one-time BXA

review according to the provision of Sec. 742.15(b)(1) of the EAR.

Dated: December 23, 1996.

Sue E. Eckert,

Assistant Secretary for Export Administration.

[FR Doc. 96-33030 Filed 12-26-96; 8:45 am]

BILLING CODE 3510-33-P