|Wednesday, 18 January 2017 |
| | The Daily Bugle is a free daily newsletter from Full Circle Compliance, containing changes to export/import regulations (ATF, Customs, NISPOM, EAR, FACR/OFAC, FTR/AES, HTSUS, and ITAR), plus news and events. Subscribe here for free subscription. Contact us for advertising inquiries and rates.
- President Revokes Certain Sudan-Related Sanctions
- President Continues National Emergency With Respect to Terrorists Who Threaten To Disrupt the Middle East Peace Process
- Ex/Im Items Scheduled for Publication in Future Federal Register Editions
- Commerce/BIS: (No new postings.)
- Commerce/Census: “Tips on How to Resolve AES Fatal Errors”
- DoD/DSCA Posts SAMM and Policy Memoranda, Week 15-21 Jan
- State/DDTC Posts Name Change For Bluefin Robotics Corporation
- EU Posts Combined Nomenclature – Dual Use Codification Correlation Table
- ST&R Trade Report: “$516,000 Penalty for Trade Finance Transactions Violating Sanctions on Iran and Cuba”
- J. Dickeson: “Routed Exports – Dangers to the Exporter and USPPI”
- S. Aminian, D.F. Feldman & J.C. Poling: “Obama Administration to Terminate Sudan Sanctions Program”
- T.B. McVey, C.R. Webb & C.E. James, Jr.: “ITAR Guide for the Firearms Industry”
- “16th Annual ‘Partnering for ComplianceTM’ East ECR/Export/Import Control Program” in Orlando FL, Mar 7-10
- Bartlett’s Unfamiliar Quotations
- Are Your Copies of Regulations Up to Date? Latest Changes: ATF (15 Jan 2016), Customs (20 Dec 2016), DOD/NISPOM (18 May 2016), EAR (17 Jan 2017), FACR/OFAC (17 Jan 2017), FTR (15 May 2015), HTSUS (1 Jan 2017), ITAR (10 Jan 2017)
EX/IM ITEMS FROM TODAY’S FEDERAL REGISTER
1. President Revokes Certain Sudan-Related Sanctions
82 FR 5331-5333: Recognizing Positive Actions by the Government of Sudan and Providing for the Revocation of Certain Sudan-Related Sanctions
By the authority vested in me as President by the Constitution and the laws of the United States of America, including the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.), the National Emergencies Act (50 U.S.C. 1601 et seq.), the Trade Sanctions Reform and Export Enhancement Act of 2000 (22 U.S.C. 7201-7211) (TSRA), the Comprehensive Peace in Sudan Act of 2004, as amended (Public Law 108-497) (CPSA), the Darfur Peace and Accountability Act of 2006 (Public Law 109-344) (DPAA), and section 301 of title 3, United States Code,
I, BARACK OBAMA, President of the United States of America, find that the situation that gave rise to the actions taken in Executive Order 13067 of November 3, 1997, and Executive Order 13412 of October 13, 2006, related to the policies and actions of the Government of Sudan has been altered by Sudan’s positive actions over the past 6 months. These actions include a marked reduction in offensive military activity, culminating in a pledge to maintain a cessation of hostilities in conflict areas in Sudan, and steps toward the improvement of humanitarian access throughout Sudan, as well as cooperation with the United States on addressing regional conflicts and the threat of terrorism. Given these developments, and in order to see these efforts sustained and enhanced by the Government of Sudan, I hereby order:
Section 1. Effective July 12, 2017 and provided the criteria in section 12(b) of this order are met, sections 1 and 2 of Executive Order 13067 of November 3, 1997, are revoked, and Executive Order 13412 of October 13, 2006, is revoked in its entirety. The revocation of those provisions of Executive Order 13067 and of Executive Order 13412 shall not affect any violation of any rules, regulations, orders, licenses, or other forms of administrative action under those orders during the period that those provisions were in effect.
Sec. 2. Pursuant to section 908(a)(3) of TSRA, I hereby determine that it is in the national security interest of the United States to waive, and hereby waive, the application of section 908(a)(1) of TSRA with respect to Sudan.
Sec. 3. Pursuant to section 6(d) of CPSA, I hereby determine and certify that it is in the national interest of the United States to waive, and hereby waive, the application of sections 6(a) and (b) of CPSA.
Sec. 4. The function of the President under section 6(c)(1) of CPSA is assigned to the Secretary of the Treasury.
Sec. 5. The functions of the President under section 6(c)(2) and the last sentence of section 6(d) of CPSA are assigned to the Secretary of State, except that the function of denial of entry is assigned to the Secretary of Homeland Security.
Sec. 6. The function of the President under section 8 of DPAA is assigned to the Secretary of State.
Sec. 7. The Secretary of the Treasury and the Secretary of Commerce are authorized to issue regulations, licenses, and orders, and conduct such investigations as may be necessary, to implement the provisions of section 906 of TSRA.
Sec. 8. This order is not intended to, and does not, otherwise affect the national emergency declared in Executive Order 13067 of November 3, 1997, as expanded in scope by Executive Order 13400 of April 26, 2006, which shall remain in place.
Sec. 9. This order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.
Sec. 10. On or before July 12, 2017, the Secretary of State, in consultation with the Secretary of the Treasury, the Director of National Intelligence, and the Administrator of the U.S. Agency for International Development, and based on a consideration of relevant and credible information from available sources, including nongovernmental organizations, shall provide to the President a report on whether the Government of Sudan has sustained the positive actions that gave rise to this order, including carrying out its pledge to maintain a cessation of hostilities in conflict areas in Sudan; continued improvement of humanitarian access throughout Sudan; and maintaining its cooperation with the United States on addressing regional conflicts and the threat of terrorism. As much of the report as possible, consistent with sources and methods, shall be unclassified and made public.
Sec. 11. (a) The Secretary of State, in consultation with the Secretary of the Treasury, the Director of National Intelligence, and the Administrator of the U.S. Agency for International Development, and based on a consideration of relevant and credible information from available sources, including nongovernmental organizations, shall provide to the President an updated version of the report required in section 10 of this order annually thereafter. As much of the report as possible, consistent with sources and methods, shall be unclassified and made public. To the extent a report concludes that the Government of Sudan has or has not sustained the positive actions that gave rise to this order, the Secretary of State, in consultation with the Secretary of the Treasury, the Director of National Intelligence, and the Administrator of the U.S. Agency for International Development, shall provide to the President recommendations on appropriate U.S. Government responses.
(b) Concurrent with the provision of the reports required in section 11(a) of this order, the Secretary of State, in consultation with the Secretary of the Treasury, the Director of National Intelligence, and the Administrator of the U.S. Agency for International Development, shall publish a notice in the Federal Register stating whether the Government of Sudan has sustained the positive actions that gave rise to this order.
Sec. 12. (a) This order is effective on January 13, 2017, except for sections 1, 4, 5, 6, and 7 of this order;
(b) Sections 1, 4, 5, 6, and 7 of this order are effective on July 12, 2017, provided that the Secretary of State, in consultation with the Secretary of the Treasury, the Director of National Intelligence, and the Administrator of the U.S. Agency for International Development, has published a notice in the Federal Register on or before that date, stating that the Government of Sudan has sustained the positive actions that gave rise to this order and that the Secretary of State has provided to the President the report described in section 10 of this order.
THE WHITE HOUSE,
January 13, 2017.
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2. President Continues National Emergency With Respect to Terrorists Who Threaten To Disrupt the Middle East Peace Process
(Source: Federal Register) [Excerpts.]
82 FR 6165: Continuation of the National Emergency With Respect to Terrorists Who Threaten To Disrupt the Middle East Peace Process
On January 23, 1995, by Executive Order 12947, the President declared a national emergency pursuant to the International Emergency Economic Powers Act (50 U.S.C. 1701-1706) to deal with the unusual and extraordinary threat to the national security, foreign policy, and economy of the United States constituted by grave acts of violence committed by foreign terrorists that disrupt the Middle East peace process. On August 20, 1998, by Executive Order 13099, the President modified the Annex to Executive Order 12947 to identify four additional persons who threaten to disrupt the Middle East peace process. On February 16, 2005, by Executive Order 13372, the President clarified the steps taken in Executive Order 12947.
These terrorist activities continue to threaten the Middle East peace process and to pose an unusual and extraordinary threat to the national security, foreign policy, and economy of the United States. For this reason, the national emergency declared on January 23, 1995, and the measures adopted to deal with that emergency must continue in effect beyond January 23, 2017. Therefore, in accordance with section 202(d) of the National Emergencies Act (50 U.S.C. 1622(d)), I am continuing for 1 year the national emergency with respect to foreign terrorists who threaten to disrupt the Middle East peace process. …
THE WHITE HOUSE,
January 13, 2017.
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OTHER GOVERNMENT SOURCES
|3. Ex/Im Items Scheduled for Publication in Future Federal Register Editions |
(Source: Federal Register)
* Commerce; Industry and Security Bureau; RULES; Export Administration Regulations [Publication Date: 19 January 2017.]:
– Amendments Implementing Additional Phase of India-U.S. Export Control Cooperation
– Support Document Requirements with Respect to Hong Kong
* President; ADMINISTRATIVE ORDERS [Publication Date: 19 January 2017.]:
– Cuba; Continuation of National Emergency and Emergency Authority Relating to the Regulation of the Anchorage and Movement of Vessels (Notice of January 13, 2017)
– Iran; Continuation of National Emergency (Notice of January 13, 2017)
– Libya; Continuation of National Emergency (Notice of January 13, 2017)
– Ukraine; Continuation of National Emergency (Notice of January 13, 2017)
– Venezuela; Continuation of National Emergency (Notice of January 13, 2017)
– Zimbabwe; Continuation of National Emergency (Notice of January 13, 2017)
* State; NOTICES; Blocking or Unblocking of Persons and Properties [Publication Date: 19 January 2017.]
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When a shipment is filed to the AES, a system response message is generated and indicates whether the shipment has been accepted or rejected. If the shipment is accepted, the AES filer receives an Internal Transaction Number (ITN) as confirmation. However, if the shipment is rejected, a Fatal Error notification is received.
To help you resolve AES Fatal Errors, here are some tips on how to correct the most frequent errors that were generated in AES for this month.
Fatal Error Response Code: 336
– Narrative: Ultimate Consignee State Cannot be Reported
– Reason: The Country of Destination reported does not allow a State Code.
– Resolution: Report a State Code only if the Country of Destination is the United States or Mexico. Verify the Ultimate Consignee Country Code and State Code, correct the shipment and resubmit.
Fatal Error Response Code: 503
– Narrative: The Port of Unlading Code is missing. All vessel shipments, and any air shipments between the United States and Puerto Rico must provide a Port of Unlading Code.
– Reason: The Port of Unlading Code is missing. All vessel shipments, and any air shipments between the United States and Puerto Rico must provide a Port of Unlading Code.
– Resolution: The Port of Unlading Code is the foreign port where the exported merchandise is unloaded from the exporting carrier. Report a valid Port of Unlading Code for all vessel shipments, and any air shipments between the United States and Puerto Rico. Verify the Port of Unlading Code, correct the shipment and resubmit.
For a complete list of Fatal Error Response Codes, their reasons, and resolutions, see Appendix A – Commodity Filing Response Messages.
It is important that AES filers correct Fatal Errors as soon as they are received in order to comply with the Foreign Trade Regulations. These errors must be corrected prior to export for shipments filed predeparture and as soon as possible for shipments filed postdeparture, but not later than five calendar days after departure.
For further information or questions, contact the U.S. Census Bureau’s Data Collection Branch.
– Telephone: (800) 549-0595, select option 1 for AES.
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| | 7. State/DDTC Posts Name Change For Bluefin Robotics Corporation
(Source: State/DDTC) [Excerpts.]
Effective immediately, Bluefin Robotics Corporation will change as follows: General Dynamics Mission Systems Inc. Due to the volume of authorizations requiring amendments to reflect this change, the Deputy Assistant Secretary for Defense Trade Controls is exercising the authority under 22 CFR 126.3 to waive the requirement for amendments to change currently approved license authorizations. The amendment waiver does not apply to approved or pending agreements. …
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| | 8. EU Posts Combined Nomenclature – Dual Use Codification Correlation Table
The Combined Nomenclature – Dual Use (CN-DU) codification correlation table assists in connecting Combined Nomenclature codes with the corresponding Export Control Dual-Use codification numbers.
The CN-DU correlation table – January 2017 can be found here.
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The Office of Foreign Assets Control announced Jan. 13 that a financial institution headquartered in Canada [Editor’s Note: Toronto-Dominion Bank] has agreed to pay $516,105 to settle potential civil liability for 167 violations of the U.S. sanctions against Iran and Cuba. OFAC has also issued a finding of violation to this bank for 3,491 sanctions violations by two wholly-owned subsidiaries that handle securities transactions. OFAC states that this enforcement action highlights the importance of institutions taking appropriate measures to ensure compliance with all applicable sanctions when they have subsidiaries in high-risk industries, such as securities firms, that may not be aware of the parent’s U.S. sanctions compliance obligations.
According to OFAC, the bank engaged in a series of trade finance transactions generally involving import-export letters of credit for Canadian customers that the bank failed to screen for any potential nexus to an OFAC-sanctioned country or entity prior to processing related transactions through the U.S. financial system. The bank also maintained several accounts in Canada for a business that ships oil and gas-related equipment to destinations in the Middle East and was listed as a sales agent for an entity on OFAC’s List of Specially Designated Nationals and Blocked Persons and located in Iran.
The total base penalty amount for the apparent violations was $955,750. OFAC found the following to be aggravating factors: several bank employees (including those in its compliance unit and supervisory and management personnel) were aware that the bank processed USD transactions on behalf of a Cuban entity and were aware of a gap in the bank’s procedures permitting such transactions to clear through the U.S. financial system; various bank personnel had reason to know of the conduct that led to the apparent violations due to documentation or information in the bank’s possession regarding various clients’ ties to, or locations in, countries subject to OFAC sanctions; the bank is a large and sophisticated financial institution with a global presence; and the bank’s compliance program does not appear to have had controls in place sufficient to identify and prevent the bank from processing transactions to, through, or within the U.S. that were for or on behalf of customers owned by entities located in, or that conducted business with, OFAC-sanctioned countries.
The following were considered mitigating factors: no bank managers or supervisors appear to have had actual knowledge regarding certain conduct; the Cuba-connected customers were eligible for specific licenses from OFAC to become unblocked Cuban nationals and were eventually covered by a general license published in January 2011; the bank has not received a penalty notice or finding of violation from OFAC in the five years preceding the earliest dates of the transactions giving rise to the apparent violations; the bank undertook a robust remedial response, including by changing its policies and procedures as well as its compliance structure; and the bank provided substantial cooperation to OFAC throughout its investigation by voluntarily self-disclosing the apparent violations, providing detailed and well-organized information in response to OFAC’s requests, and signing a tolling agreement and multiple extensions to the agreement thereafter.
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| | 10. J. Dickeson: “Routed Exports – Dangers to the Exporter and USPPI”
* Author: Jim Dickeson, firstname.lastname@example.org, 206-910-0311
The Census rules for routed exports are often discussed, and many exporters and freight forwarders understand them fairly well. But it seems that most are unaware of the BIS rules for routed exports, and these are more likely to be violated. I have prepared a video lecture pointing out the differences between Census and BIS rules, the dangers particular to BIS, and some suggestions on how to protect yourself. Watch the video here. It’s free. Enjoy! Call 206-910-0311 if you have any questions.
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| | 11. S. Aminian, D.F. Feldman & J.C. Poling: “Obama Administration To Terminate Sudan Sanctions Program”
* Authors: Shiva Aminian, Esq., email@example.com, 310-552-6476; Daniel F. Feldman, Esq., firstname.lastname@example.org, 202-887-4035; and Jonathan C. Poling, Esq., email@example.com, 202-887-4029. All of Akin Gump Strauss Hauer & Feld LLP.
– Effective today, a new general license reverses two decades of U.S. policy by authorizing all transactions otherwise prohibited by the Sudanese Sanctions Regulations (SSR), including all transactions with Sudan or the Government of Sudan. In a parallel action, the Bureau of Industry and Security announced today that the agency has changed its review policy for applications for licenses to export or reexport certain items to Sudan from a policy of denial to a policy of approval.
– President Obama issued an executive order effective July 12, 2017, revoking prior executive orders underlying the SSR and effectively abolishing the Sudan sanctions program, provided that the incoming Secretary of State issues a finding regarding Sudan’s cooperation.
– Important limitations remain. For example, these actions do not authorize activities prohibited under the Darfur or South Sudan sanctions programs, and U.S. export controls continue to restrict severely the export or reexport of dual-use items to Sudan. In addition, companies previously doing business in Sudan under authorizations for medical and agricultural items issued pursuant to the Trade Sanctions Reform and Export Enhancement Act of 2000 remain subject to a one-year contract requirement. Finally, state divestment policies discouraging business with Sudan will continue to apply.
On January 13, 2017, the Obama administration announced that it would lift sanctions imposed on Sudan issued under the Sudanese Sanctions Regulations (SSR), which are administered by the Treasury Department’s Office of Foreign Assets Control (OFAC). The action reverses nearly 20 years of U.S. policy toward Sudan, a country that had been the target of a comprehensive trade embargo due to human rights abuses and support for international terrorism. The United States has stated that its decision comes after months of bilateral engagement with Sudan, which has revealed that country’s support for key U.S. foreign policy goals, such as ceasing hostilities in conflict areas, including Darfur, and enhancing counterterrorism cooperation.
Summary of Changes
Effective today, a new general license at 31 C.F.R. § 538.540 authorizes all transactions otherwise prohibited by the SSR. Under this general license, both U.S. and non-U.S. persons can engage in transactions with individuals and entities in Sudan, and with the government of Sudan, provided that the transactions in which they engage do not violate any other sanctions programs or any other relevant laws and regulations, the most pertinent of which are detailed in the next section.
In addition to the general license, the Obama administration issued an executive order that will revoke prior executive orders underlying the SSR. The executive order becomes effective on July 12, 2017, provided that the incoming Secretary of State publishes a notice in the Federal Register on or before that date stating that the Government of Sudan has sustained positive action toward cessation of hostilities in conflict areas in Sudan; continued improvement of humanitarian access throughout Sudan; and maintained its cooperation with the United States on addressing regional conflicts and the threat of terrorism.
Finally, the Department of Commerce’s Bureau of Industry and Security (BIS) revised its denial policy for Sudan export and reexport license applications to an approval policy, provided that the transaction involves certain items that are intended to ensure the safety of civil aviation or the safe operation of fixed-wing commercial passenger aircraft, or items that will be used to inspect, design, construct, operate, improve, maintain, repair, overhaul or refurbish railroads in Sudan. As explained below, this new rule does not remove any existing license requirements for exports or reexports to Sudan.
Remaining Limitations and Key Considerations
Notwithstanding the general license, important limitations remain that should be considered by U.S. and non-U.S. persons seeking to conduct Sudan-related business. The following provides a brief overview of these remaining limitations and considerations:
– U.S. List-Based Sanctions. While the action taken by the U.S. government serves to unblock the property of parties designated solely pursuant to the SSR, it does not affect other U.S. sanctions programs, some of which may intersect with activities in Sudan, such as the programs relating to South Sudan and Darfur. As with many of the sanctions programs administered by OFAC, these programs are list-based and prohibit companies from doing business with individuals on OFAC’s Specially Designated Nationals (SDN) list. Companies therefore should continue to screen parties for hits against the SDN list, regardless of the recent policy changes.
– Export Controls. Notwithstanding the OFAC changes and BIS’s revised licensing policy, exports and reexports to Sudan of items subject to U.S. export controls continue to be severely restricted. This means that, even though U.S. persons can now engage in transactions with Sudan, these activities may not involve the export or reexport of items subject to U.S. export controls, other than very low-level (i.e., EAR99 [FN/1]) items, without prior U.S. government authorization. Notably, because Sudan is not subject to embargoes or other special controls under the Export Administration Regulations (EAR), certain EAR license exceptions may be available to authorize transactions of items listed on the U.S. Commerce Control List (CCL) to Sudan.
– Agricultural Commodities, Medicine and Medical Devices. Persons engaged in the trade of agricultural commodities (including food), medicine and medical devices continue to be subject to restrictions requiring that any exports or reexports of agricultural commodities, medicine or medical devices destined for Sudan be shipped within a 12-month period, which runs from the date of the signing of the contract for export or reexport. This restriction is mandated by the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA) and will remain in place absent an act of Congress. Effectively, this restriction requires entities dealing in such items to enter into new contracts annually, rather than rely on long-term contractual arrangements.
– Financial Institutions. Financial institutions are now permitted to process transactions denominated in U.S. dollars involving Sudan, both as correspondent institutions and on behalf of their own customers. However, banks should be mindful of these remaining restrictions, particularly in the context of trade finance transactions where the export control restrictions described above can expose the institution to risk for financing a transaction in violation of U.S. export control laws.
– Contractual Limitations. Given that Sudan has long been a target of comprehensive sanctions by the U.S. government, it is not uncommon to find broad limitations on Sudan-related transactions in business contracts. Companies seeking to do business in Sudan under the new general license should review existing agreements to ensure that legally permissible Sudan-related business does not give rise to breaches of commercial agreements.
– State Divestment Policies. Various U.S. states continue to maintain Sudan-related divestment sanctions laws, prohibiting investments and requiring divestment by public funds from companies that engage in certain types of business activities involving Sudan. These laws will continue to pose business and reputational risks for companies that engage in business activities associated with Sudan under the new general license.
The reversal of U.S. policy on Sudan is a significant change in the final days of the Obama administration and is likely to have major implications for U.S. and non-U.S. companies that conduct business in the region. Accordingly, we expect these changes to remain in place unless the incoming administration fails to issue a finding, before July 12, 2017, that Sudan has taken positive steps toward U.S. policy goals in the region, such as maintaining a cessation of hostilities in conflict areas in Sudan, improving humanitarian access throughout Sudan, and/or cooperating with the United States on counterterrorism and regional conflicts.
[FN/1] EAR99 items are those items that are subject to the EAR, but not listed on the CCL, and are not subject to the International Traffic in Arms Regulations (ITAR).
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| | 12. T.B. McVey, C.R. Webb & C.E. James, Jr.: “ITAR Guide for the Firearms Industry”
* Authors: Thomas B. McVey, Esq., firstname.lastname@example.org, 202-293-8118; Camden R. Webb, Esq., email@example.com, 202-327-5089; and Charles E. James, Jr., Esq., firstname.lastname@example.org, 202-293-8113. All of Williams Mullen.
The U.S. firearms industry is regulated under the National Firearms Act, Gun Control Act and other federal and state firearms laws. However there is another important area of regulation that applies to the firearms industry as well – the International Traffic In Arms Regulations (“ITAR”). ITAR are the State Department controls that regulate defense products and services. Companies regulated under ITAR are subject to a number of requirements including registration, licensing, restrictions on transferring controlled technical data and performing defense services, among others. Following recent amendments, a second set of regulations – the Export Administration Regulations (“EAR”) – impose related requirements and must be considered alongside ITAR. Contrary to popular belief, these apply beyond export transactions to many domestic activities of U.S. firms, as well as many foreign firms that have contacts with the U.S.
The stakes are high – violations can result in civil and criminal penalties, including up to twenty years imprisonment for the company’s owners and employees. In light of the serious nature these requirements, firearms companies should have a clear understanding of this area of the law. [FN/1]
IS MY COMPANY SUBJECT TO ITAR?
The U.S. Munitions List
. At the core of the ITAR is a list of products called the U.S. Munitions List (“USML”). [FN/2] The USML contains a wide array of products as well as software and technical data. If a company’s product, software or technical data are identified on the list, the company is subject to the ITAR requirements.
Firearms and ammunition are listed in a number of categories of the USML. For example, Category I – Firearms, Close Assault Weapons and Combat Shotguns – includes automatic, semi-automatic and non-automatic firearms to .50 caliber inclusive (12.7 mm), silencers, certain riflescopes and other firearms items, technical data and parts, components and attachments for the articles in this category. Category II – Guns and Armaments – includes guns over .50 caliber, other weapons, tooling and equipment, test and evaluation equipment, certain autoloading systems, parts, components and technical data. Category III – Ammunition/Ordinance – includes ammunition and ordinance for articles in Categories I and II, certain ammunition loading equipment, other equipment, tooling, certain components, parts, accessories, attachments, equipment and technical data.
A complete list of the 21 Categories covered on the USML is found in Exhibit A here. If a company’s product is on the USML, the company is subject to a number of requirements in domestic and international activities, as more fully described below.
ITAR covers not just physical products, but software and technical data as well. Technical data is defined to include information required for the design, development, production, manufacture, assembly, operation, repair, testing, maintenance or modification of articles on the USML. [FN/3] If a company produces any of these items it is subject to ITAR.
ITAR also covers defense services. If an item is listed on the USML, the performance of services related to such item for foreign parties are also covered on the USML and subject to ITAR. This includes services involving the installation, design, development, engineering, manufacture, production, assembly, testing, repair, maintenance, modification, operation, demilitarization, destruction, processing or use of USML items. Even if a company does not manufacture a particular product that is listed on the USML, if it performs services related to such item the services may be covered under ITAR.
The USML covers not just end-products but also subsystems and certain firearms parts, components, accessories and attachments. Under the State Department’s interpretative “See-Through Rule,” if a part or component is subject to ITAR and used in a larger system, the entire larger system becomes subject to ITAR regulation. This creates significant complications for both U.S. and foreign companies that supply firearms components including second- and third-tier suppliers. Thus these controls reach far and wide within the industrial supply chain.
Registration Under ITAR Part 122
If a U.S. company manufactures, exports, temporarily imports or brokers an item on the USML or performs a “defense service” the company is required to register with DDTC under ITAR Part 122. [FN/4] Note that registration is required even if a company only performs domestic manufacturing activities – exporting is not required to trigger the registration obligation.
On July 22, 2016, the State Department issued new policy guidance (the “Policy Guidance”) regarding the requirement for gunsmiths and others involved in the firearms industry to register with the State Department under Part 122. According to the Policy Guidance, the following activities constitute “manufacturing” and parties that engage in such activities are required to register under ITAR §122.1:
(a) Use of any special tooling or equipment upgrading in order to improve the capability of assembled or repaired firearms;
(b) Modifications to a firearm that change round capacity;
(c) The production of firearm parts (including, but not limited to, barrels, stocks, cylinders, breech mechanisms, triggers, silencers, or suppressors);
(d) The systemized production of ammunition, including the automated loading or reloading of ammunition;
(e) The machining or cutting of firearms, e.g., threading of muzzles or muzzle brake installation requiring machining, that results in an enhanced capability;
(f) Rechambering firearms through machining, cutting, or drilling;
(g) Chambering, cutting, or threading barrel blanks; and
(h) Blueprinting firearms by machining the barrel.
DDTC has also advised in the Policy Guidance that registration may be required for other activities beyond manufacturing such as:
(a) Assisting foreign persons in the design, development, and repair of firearms may constitute the export of a defense service (
see 22 CFR § 120.9) and require ITAR registration with and authorization from DDTC; and
(b) Exporting a firearm or any other item on the USML requires ITAR registration with and authorization from DDTC.
The new Policy Guidance reinforces DDTC’s serious position on the importance of ITAR compliance for the firearms industry.
Other Obligations Under ITAR
. In addition to the registration requirement, if a company’s products, software, technical data or services are on the USML, ITAR imposes a number of other requirements:
* Transfer of Technical Data And Software to Foreign Nationals – The company is prohibited from transferring software or technical data on the USML to foreign nationals, either in the US or abroad, without an export license, unless a license exemption applies. This applies even if the foreign national is an employee of the company that owns the technical data.
* Defense Services – The company is prohibited from performing “defense services” [FN/5] related to items on the USML for foreign parties, either in the US or abroad, without obtaining a State Department authorization called a Technical Assistance Agreement (“TAA”) unless an exemption applies;
* Export License – The company is prohibited from exporting products listed on the USML in permanent or temporary export transactions without obtaining an export license unless a license exemption applies.
* Reexports/Retransfers – If an ITAR-controlled item is exported under a license, the foreign recipient is not permitted to reexport the item (ie, export the item to another foreign country) or retransfer the item (ie, transfer the item to another party or for a different end use in the same foreign country) unless the State Department has provided specific authorization for the reexport/retransfer.
* Temporary Imports – The company is prohibited from importing defense items listed on the USML in temporary import transactions without obtaining a temporary import license;
* Recordkeeping Requirement – The company is required to maintain records in accordance with the ITAR recordkeeping requirements set forth at 22 CFR §122.5;
* Brokering – If companies perform activities to assist or facilitate the sale of ITAR-controlled items to non-US parties this is generally referred to as “brokering activity.” Parties who engage in brokering activities are subject to numerous requirements including broker registration, the requirement to obtain advanced State Department authorization to perform brokering activities for certain products, reporting, recordkeeping and restrictions on engaging in brokering transactions involving the Section 126.1 “Proscribed Countries” (See below).
* Reports For Payments of Sales Commission – Companies that pay sales commission, fees and/or political contributions in connection with the sale of ITAR-controlled products or services that meet the requirements of ITAR Part 130 are required to file reports with DDTC regarding such payments and comply with other requirements under ITAR Part 130.
* Transactions With Debarred Parties – Persons who have been debarred or who are deemed “ineligible” under the provisions of ITAR §120.1(c)(2) are prohibited from entering into transactions regulated under ITAR. In addition, companies are prohibited from entering transactions regulated under ITAR if other parties involved in such transactions have been debarred or are otherwise ineligible under §120.1(c)(2).
* Products Manufactured Abroad Using ITAR-Controlled Items – If a foreign party uses an ITAR-controlled component in a product manufactured abroad, or manufactures a foreign product based upon ITAR-controlled technical data, the product manufactured abroad becomes ITAR-controlled. As such, the foreign party becomes subject to a number of ITAR requirements including that the company is not permitted to transfer the foreign produced item to any other parties unless DDTC provides specific authorization for such transfer. [FN/6]
* §126.1 Proscribed Countries – Companies are prohibited from (i) entering transactions regulated under ITAR involving countries listed in ITAR §126.1 (referred to as the “Section 126.1 Proscribed Countries”) without specific DDTC authorization (which is subject to a policy of denial); (ii) submitting marketing proposals or presentations to parties in the Section 126.1 Proscribed Countries without advanced authorization from DDTC; and (iii) engaging in brokering transactions with parties involving the Section 126.1 Proscribed Countries. In addition, if a person knows or has reason to know of a proposed, final or actual sale, export or other transfer of ITAR-controlled items involving the Section 126.1 Proscribed Countries they are required to immediately inform DDTC of such event.
More Than Just Exports
. ITAR is far broader than just exports and regulates a wide variety of activities in purely domestic commercial activity, such as:
– The prohibition against transferring technical data or software subject to ITAR to foreign nationals in the United States;
– The prohibition against the performance of defense services for foreign parties in the United States;
– The requirement for U.S. companies to register with the State Department as a manufacturer of USML items, even if they do not export any products;
– The requirement to comply with ITAR recordkeeping requirements;
– The requirement to obtain import authorization for the import of defense items; and
– The prohibition against the transfer of USML products to representatives of foreign governments and military organizations (including NATO, United Nations, etc.) in the United States.
Obligations On Foreign Companies
. ITAR requirements may also apply to foreign companies. For example, if a foreign company sells firearms products in the U.S. this activity will be regulated under ITAR. Similarly, if a foreign company receives an ITAR controlled item overseas, including hardware, technical data or software, it is prohibited from reexporting or retransferring such item unless the State Department has provided specific authorization (referred to as reexport or retransfer authorization). Also, as mentioned above, if an ITAR-controlled component is exported from the U.S. and incorporated into a foreign-manufactured product, under the “See-Through Rule” the entire foreign-made product becomes subject to ITAR regulation. Other ITAR requirements may also apply to foreign companies under ITAR.
License Exemptions For Firearms Industry
. If a license or TAA is required for a particular transaction, license exemptions may be available. License exemptions that are particularly relevant for firearms or ammunition include: (i) ITAR §123.17(b) (certain non-automatic firearms covered under USML Category I(a) that were manufactured before 1898); (ii) ITAR §123.17(c) (temporary export of limited quantity of firearms and ammunition for personal use subject to conditions); (iii) ITAR §123.17(a) (certain parts and components of firearms listed in USML Category I(a) when the value does not exceed $100); (iv) ITAR §123.18 (certain nonautomatic firearms and ammunition for personal use of members of US Armed Forces and civilian employees of the US Government); (v) ITAR §123.19 (certain shipments originating in Canadian or Mexican that incidentally transit the U.S. en route to a delivery point in the same country that originated the shipment); and (vi) ITAR §125.4(b)(6) (technical data related to firearms not in excess of .50 caliber and ammunition for such weapons, except detailed design, development, production or manufacturing information;) [FN/7] Companies should review the terms and limitations of any license exemption carefully to confirm that it can be applied to a particular factual situation.
It should be noted that license exemptions are subject to significant conditions and limitations and cannot be used in all instances – parties are advised to check the applicable conditions prior to using a particular exemption
. Conditions and limitations that frequently apply for certain ITAR exemptions include that the exemptions cannot be used: (i) for exports to ITAR §126.1 “Proscribed Countries,” (ii) by exporters who are ineligible under ITAR §120.1(c), and (iii) for exports that require Congressional notification. In addition, the State Department states that exporters should be registered under ITAR in order to use most ITAR license exemptions and maintain records of their use of exemptions in particular transactions.
. Penalties for ITAR violations include civil and criminal penalties, including fines of up to $1,000,000 per violation and up to 20 years imprisonment. Other sanctions include debarment and denial of export privileges. Penalties can be imposed on the company defendant as well as officers, directors and employees in their personal capacities.
EXPORT ADMINISTRATION REGULATIONS
The Export Administration Regulations (“EAR”) are administered by the U.S. Department of Commerce. The EAR were originally adopted to regulate commercial and “dual use” products. However, under a series of amendments known as “Export Control Reform” certain military products previously regulated under ITAR were transferred to the EAR and hence the EAR now covers certain military products as well. Consequently, firearms industry companies must be cognizant of both ITAR and EAR in their compliance activities. Proposed Transfer of Regulatory Jurisdiction For Firearms Products Under ECR . At the time of this writing, the majority of firearms and ammunition products are regulated under ITAR and only a small portion are regulated under the EAR. However, the State, Commerce and Defense Departments have considered transferring a large portion of firearms products that are currently listed on the USML to be regulated under the EAR by the Commerce Department under Export Control Reform (“ECR”). Once regulated under the EAR, firearms products will still be subject to many similar requirements as under ITAR including the requirement to obtain export licenses for export transactions, restrictions on the transfer of technology and software, restrictions on reexports and retransfers, etc., but under the jurisdiction of Commerce instead of State. Due to the political sensitivity surrounding the regulation of firearms products, it is unclear if these changes will be adopted and if so which firearms products will be covered. Readers reviewing this article after the date of publication should confirm if such amendments have occurred at the time of their review as certain of the provisions discussed in this article are subject to change.
. The EAR contain a list of products called the Commerce Control List (“CCL”). If an item is listed on the CCL it may be subject to export licensing and other controls depending upon the country to which it will be exported and other factors (these requirements are referred to as the “CCL-Based Controls”).
Certain firearms products are listed on the CCL and subject to requirements under the Export Administration Regulations (“EAR”) administered by the US Department of Commerce. These include (i) certain non-combat shotguns with a barrel length of 18 inches or longer; (ii) certain BB, pellet, and muzzle loading (black powder) firearms; (iii) certain riflescopes and sighting devices that are not manufactured to military specifications; (iv) certain accessories and attachments (e.g., belts, slings, after market rubber grips, cleaning kits) for firearms that do not enhance the usefulness, effectiveness, or capabilities of the firearm, components and parts (but note however that many firearms parts, components and accessories are listed on the USML). Companies should review their products to determine if they are listed on the CCL or the USML. The determination of whether an item is listed on the CCL or USML is a complex process that depends in great part on the technical description and specifications of the product and parties should use care in making these determinations. If a company is unsure of the export jurisdiction or classification of a product it can submit a commodity jurisdiction request to the State Department to determine if an item is subject to ITAR and a classification (“CCATS”) request to the Commerce Department to determine the product’s classification under the EAR.
The requirements under the CCL-Based Controls are similar to many of the requirements under ITAR, including the requirements to obtain export licenses for the export of certain products, restrictions on the transfer of controlled technology and software (including transfers to foreign nationals in the United States or overseas), restrictions on reexports of U.S.-origin products and the incorporation of U.S. components into items manufactured abroad that contain above a de minimis [FN/8] level of US content, and restrictions on the performance of services related to weapons of mass destruction and other restricted activities.
As with ITAR, the EAR applies not just to physical products but also technology and software as well. The term “technology” is defined broadly at 15 CFR Part 772 to include “specific information necessary for the development, production, or use of a product.” Thus if technology or software is on the CCL, there may be restrictions on exporting such items out of the U.S. and disclosing such items to foreign nationals in the U.S. Other Export Requirements Under the EAR . In addition to the CCL-Based Controls, the EAR contain a number of additional requirements that apply to all export and reexport transactions that are subject to the EAR, even if the item in question is not listed on the CCL. These requirements include the prohibition against undertaking exports and reexports to certain embargoed countries, [FN/9] to certain restricted parties [FN/10] and for use in certain prohibited end-uses. [FN/11]
Penalties For Violations
. Penalties for violations of EAR are similar to ITAR, i.e., civil and criminal penalties including monetary fines of up to $1,000,000 per violation and up to 20 years imprisonment.
Due to the significant overlap of the requirements under ITAR and EAR, it is advised that firearms industry companies review the applicability of both of these sets of regulations to their business on a simultaneous basis. We would be pleased to provide a copy of our Export Classification Checklist to readers for assistance in determining the export jurisdiction and classification of their products and assessing requirements for their business operations.
COMPLIANCE STRATEGIES FOR FIREARMS COMPANIES
Due to the complexity of this area of the law, a company cannot simply rely on good intentions to avoid violations. There are a number of steps that companies commonly take to reduce the risk of violation, including the following:
Identify ITAR Requirements That Apply To Company. The first step is to review the company’s business activities to determine the ITAR and EAR requirements that apply to the company. This process involves a careful review of a company’s products, services, customers and business activities, and comparison of its products and services to the categories of the USML and the CCL. Based upon this review the company can identify the activities that it performs that are subject to regulation and the requirements that apply.
(2) ITAR Compliance Program. An ITAR Compliance Program is a company-wide program for implementing ITAR requirements in the company’s say-to-day operations. This includes: (i) the appointment of a company employee to be in charge of ITAR compliance; (ii) establishing written policies and procedures for your employees to follow in performing activities that are subject to ITAR and EAR; (iii) conducting ITAR compliance training for key employees; (iv) determining the export jurisdiction/classification of the company’s products; (v) adopting a procedure for screening for prohibited parties, prohibited countries and prohibited end-users; (vi) conducting periodic internal compliance audits; and (vii) adopting a procedure for compliance with the ITAR and EAR recordkeeping requirements.
If a company is found to have an ITAR violation, prosecutors, enforcement agents and the courts will often reduce or “mitigate” penalties for companies which have adopted compliance programs, and in some cases impose no penalties at all.
Export Compliance Audit. In many instances it is valuable to conduct an export compliance audit or similar internal review of the company’s past business activities to assess if its activities were in compliance with ITAR and EAR requirements and identify any past violations that may have occurred. This can be valuable in identifying any weaknesses in the company’s compliance practices and for “cleaning up” any past violations. This review can be conducted by a company compliance officer or an outside compliance expert and undertaken in conjunction with the adoption of an ITAR Compliance Program. If problems are found there a number of ways to deal with these including submitting a voluntary disclosure to the agency involved. If the review is conducted by or under the direction of the company’s legal counsel, this increases the likelihood that the results will be subject to the attorney client privilege and protected from disclosure in response to a subpoena in the event there is an investigation. A compliance audit is an excellent way for the company to identify any compliance problems that it has in advance and deal with them before a government agency does.
Taken together, these steps provide a valuable structure and process for a company to undertake a serious effort to protect against ITAR violations. They also provide a firm foundation for a company’s defense in the event any violations occur in the future.
[FN/1] Note: At the time of this writing the State, Commerce and Defense Departments have considered transferring the regulation of certain firearms and ammunition products from ITAR to the EAR. However it is not certain if such transfer will occur or if it does when this will occur and which items will be affected. See Section B below for a further discussion of this issue.
[FN/2] The USML can be found at here
[FN/3] Information is not considered controlled technical data if it is in the “public domain” as defined under ITAR §120.11 or is basic marketing information on function or purpose or general system descriptions of defense articles as set forth in ITAR §120.10.
[FN/4] A number of exemptions from registration are set forth at 22 CFR §122.1(b). It should be noted, however, that even if a party is exempt from the registration requirement under §122.1, it may still be subject to the other requirements under ITAR.
[FN/5] The term “Defense Service” is defined in ITAR §120.9 as follows: (a) Defense service means: (1) The furnishing of assistance (including training) to foreign persons, whether in the United States or abroad in the design, development, engineering, manufacture, production, assembly, testing, repair, maintenance, modification, operation, demilitarization, destruction, processing or use of defense articles; (2) The furnishing to foreign persons of any technical data controlled under this subchapter (see §120.10), whether in the United States or abroad; or (3) Military training of foreign units and forces, regular and irregular, including formal or informal instruction of foreign persons in the United States or abroad or by correspondence courses, technical, educational, or information publications and media of all kinds, training aid, orientation, training exercise, and military advice. (See also §124.1.)
[FN/6] In addition, if a US company grants a foreign party an authorization to manufacture defense articles abroad which involve the use of ITAR-controlled technical data, the parties are typically required to execute a Manufacturing License Agreement (“MLA”) which has been authorized by DDTC and comply with other ITAR requirements. Also, agreements between U.S. companies and foreign companies for the warehousing and distribution of defense articles overseas (referred to as Warehousing and Distribution Agreements) must be approved in advanced by the Directorate of Defense Trade Controls (“DDTC”).
[FN/7] Note – the exemption under ITAR §125.4(b)(6) cannot be used for purposes of establishing offshore procurement arrangements or producing defense articles offshore (see §124.13), except as authorized under §125.4(c). The exemption also cannot be used for exports to proscribed destinations under ITAR §126.1 or for persons considered generally ineligible under ITAR §120.1(c).
[FN/8] This term is defined at 15 CFR §734.4.
[FN/9] See 15 CFR Part 746.
[FN/10] See 15 CFR Part 744.
[FN/11] See 15 CFR Part 744.
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EX/IM TRAINING EVENTS & CONFERENCES
|13. “16th Annual ‘Partnering for ComplianceTM‘ East ECR/Export/Import Control Program” in Orlando FL, Mar 7-10 |
* What: The 16th Annual “Partnering for ComplianceTM” East will focus intensely on a broad spectrum of export/import regulatory and compliance matters of current relevance to companies and individuals involved in global trading. Senior-level government officials and trade experts will provide first-class training. Our objective is to greatly expand your knowledge and awareness of the requirements needed to adhere to US export/import control regulations, thus helping to ensure your success as a global trader.
* Where: Orlando/Holiday Inn Orlando International Airport Hotel, Orlando, FL
– Tue – Thurs, 07-09 Mar: “16th Annual ‘Partnering for ComplianceTM’ East ECR/Export Control Program
– Fri, 10 Mar: 1-Day Program “Customs/Import Boot Camp”
* Speakers: DoS/DDTL: Terry Davis & Catherine Hamilton; DoS/DDTC: Daniel Buzby; DoC/BIS: Adam Krepp & OEE Jonathan Barnes; DoD/DTSA: Ken Oukrop; OFAC: Jamie Rose(I); Census Bureau: Dale Kelly; DHS/CBP: Russell Morgan & Joseph Mitchell; ICE: Jacquelyn Metzger; AND, Braumiller Law Group PLLC: Bruce Leeds & Brad Menard (Imports); Global Legal Services, PC: Gary Stanley; General Dynamics Mission Systems-Canada: Kristen Stewart; and Enterprise Florida: Manuel (Manny) A. Mencia. Cyber Security will be covered as appropriate as will ECR updates.
* Cost: Customs/Import 1-day program: $200. Export 3-day program: $600. Both programs: $800.
* Remarks: As time permits, all Government and trade speakers will informally hold short “one-to-one” meetings with participants on a “first-come, first-served” basis.
* Certificates of Completion granting: 4.5 IIEI CEUs and 20 CES NCBFAA Credits for 3-day Exports program, and 6.5 CCS NCBFAA Credits for 1-day Customs/Import Boot Camp will be awarded for each program.
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|EDITOR’S NOTES |
| | (Source: Editor)
Daniel Webster (18 Jan 1782 – 24 Oct 1852, was an American statesman who twice served in the United States House of Representatives, once as a U.S. Senator, and was twice the U.S. Secretary of State, under three presidents.)
– “Keep cool; anger is not an argument.”
Charles de Montesquieu (Charles-Louis de Secondat, Baron de La Brède et de Montesquieu, 18 Jan 1689 – 10 Feb 1755, was a French lawyer, man of letters, and political philosopher who lived during the Age of Enlightenment. He is famous for his articulation of the theory of separation of powers, which is implemented in many constitutions throughout the world.)
– “In most things success depends on knowing how long it takes to succeed.”
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| | 15 . Are Your Copies of Regulations Up to Date? (Source: Editor)
The official versions of the following regulations are published annually in the U.S. Code of Federal Regulations (C.F.R.), but are updated as amended in the Federal Register. Changes to applicable regulations are listed below.
– Last Amendment: 15 Jan 2016: 81 FR 2657-2723: Machineguns, Destructive Devices and Certain Other Firearms; Background Checks for Responsible Persons of a Trust or Legal Entity With Respect To Making or Transferring a Firearm
– Last Amendment: 20 Dec 2016: 81 FR 92978-93027: Regulatory Implementation of the Centers of Excellence and Expertise – Last Amendment: 17 Jan 2017: 82 FR 4781-4783: Revisions to Sudan Licensing Policy
– Last Amendment: 17 Jan 2017: 82 FR 4793-4794: Sudanese Sanctions Regulations
– Last Amendment: 15 May 2015; 80 FR 27853-27854: Foreign Trade Regulations (FTR): Reinstatement of Exemptions Related to Temporary Exports, Carnets, and Shipments Under a Temporary Import Bond – HTS codes that are not valid for AES are available here
– The latest edition (9 Mar 2016) of Bartlett’s Annotated FTR (“BAFTR”), by James E. Bartlett III, is available for downloading in Word format. The BAFTR contains all FTR amendments, FTR Letters and Notices, a large Index, and footnotes containing case annotations, practice tips, and Census/AES guidance. Subscribers receive revised copies every time the FTR is amended. The BAFTR is available by annual subscription from the Full Circle Compliance website. BITAR subscribers are entitled to a 25% discount on subscriptions to the BAFTR.
– HTS codes for AES are available here . – HTS codes that are not valid for AES are available here
– Latest Amendment: 10 Jan 2017: 82 FR 2889-2892: International Traffic in Arms Regulations: Revision of U.S. Munitions List Category XV
– The only available fully updated copy (latest edition 15 Jan 2017) of the ITAR is Bartlett’s Annotated ITAR (“BITAR”), by James E. Bartlett III. (The GPO’s “e-CFR” has not yet been updated to include the amendments effective 15 January.) The BITAR contains all ITAR amendments to date, plus a large Index, over 750 footnotes containing case annotations, practice tips, DDTC guidance, and explanations of errors in the official ITAR text. Subscribers receive updated copies of the BITAR in Word by email, usually revised within 24 hours after every ITAR amendment. The BITAR is available by annual subscription from the Full Circle Compliance website. BAFTR subscribers receive a 25% discount on subscriptions to the BITAR, please contact us to receive your discount code.
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|* The Ex/Im Daily Update is a publication of FCC Advisory B.V., edited by James E. Bartlett III and Alexander Bosch, and emailed every business day to approximately 8,000 readers of changes to defense and high-tech trade laws and regulations. We check the following sources daily: Federal Register, Congressional Record, Commerce/AES, Commerce/BIS, DHS/CBP, DOJ/ATF, DoD/DSS, DoD/DTSA, State/DDTC, Treasury/OFAC, White House, and similar websites of Australia, Canada, U.K., and other countries and international organizations. Due to space limitations, we do not post Arms Sales notifications, Denied Party listings, or Customs AD/CVD items. |
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* CAVEAT: The contents of this newsletter cannot be relied upon as legal or expert advice. Consult your own legal counsel or compliance specialists before taking actions based upon news items or opinions from this or other unofficial sources. If any U.S. federal tax issue is discussed in this communication, it was not intended or written by the author or sender for tax or legal advice, and cannot be used for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing, or recommending to another party any transaction or tax-related matter.
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