17-0301 Wednesday “The Daily Bugle”

17-0301 Wednesday “Daily Bugle”

Wednesday, 1 March 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 
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  1. President Announces Enforcing the Regulatory Reform Agenda 
  1. Ex/Im Items Scheduled for Publication in Future Federal Register Editions 
  2. Commerce/BIS: (No new postings.) 
  3. DHS/CBP Deploys ACE Cargo Release and PGA Items, 2 Mar 
  4. Justice: “Exporter of Microelectronics to Russian Military Sentenced to 135 Months in Prison Following Convictions on All Counts” 
  5. State/DDTC Posts DSP-83 Requirement for Licensing of CARC Paint 
  6. UK/DIT ECO Updates and Amends Six OGELs 
  1. The Gazette: “Lebanese Man Accused of Buying Guns Shipped from Cedar Rapids to Lebanon” 
  2. Reuters: “Trump Administration Would Ignore WTO Rulings It Sees as Anti-U.S.: FT” 
  3. ST&R Trade Report: “Commerce Secretary Confirmed, Trade Advisors Named” 
  4. Wall Street Journal: “Trump Trade Policy Expected to Seek Smaller WTO Role in the U.S.” 
  1. Global Trade News: “Weise Wednesday: What Steps Should an Importer Take to Prepare for a Focused Assessment?” 
  2. M. Volkov: “Under the Dark of Night, DOJ Moves the Compliance Ball (Part I of IV)” 
  3. O. Torres & D. Kyle: “Key Differences Remain in the Export Regulation Regimes, Spurring Cybersecurity Reviews” 
  4. Gary Stanley’s ECR Tip of the Day 
  5. R.C. Burns: “ZTE License Extended; Iranian News Outlet Gets It Wrong” 
  1. Bartlett’s Unfamiliar Quotations 
  2. Are Your Copies of Regulations Up to Date? Latest Changes: ATF (15 Jan 2016), Customs (27 Jan 2017), DOD/NISPOM (18 May 2016), EAR (24 Feb 2017), FACR/OFAC (10 Feb 2017), FTR (15 May 2015), HTSUS (10 Feb 2017), ITAR (11 Jan 2017) 



1. President Announces Enforcing the Regulatory Reform Agenda
(Source: Federal Register)
82 FR 12285-12287: Enforcing the Regulatory Reform Agenda.
By the authority vested in me as President by the Constitution and the laws of the United States of America, and in order to lower regulatory burdens on the American people by implementing and enforcing regulatory reform, it is hereby ordered as follows:
Sec 1. Policy. It is the policy of the United States to alleviate unnecessary regulatory burdens placed on the American people.
Sec. 2. Regulatory Reform Officers.
  (a) Within 60 days of the date of this order, the head of each agency, except the heads of agencies receiving waivers under section 5 of this order, shall designate an agency official as its Regulatory Reform Officer (RRO). Each RRO shall oversee the implementation of regulatory reform initiatives and policies to ensure that agencies effectively carry out regulatory reforms, consistent with applicable law. These initiatives and policies include:
    (i) Executive Order 13771 of January 30, 2017 (Reducing Regulation and Controlling Regulatory Costs), regarding offsetting the number and cost of new regulations;
    (ii) Executive Order 12866 of September 30, 1993 (Regulatory Planning and Review), as amended, regarding regulatory planning and review;
    (iii) section 6 of Executive Order 13563 of January 18, 2011 (Improving Regulation and Regulatory Review), regarding retrospective review; and
    (iv) the termination, consistent with applicable law, of programs and activities that derive from or implement Executive Orders, guidance documents, policy memoranda, rule interpretations, and similar documents, or relevant portions thereof, that have been rescinded.
  (b) Each agency RRO shall periodically report to the agency head and regularly consult with agency leadership.
Sec. 3. Regulatory Reform Task Forces.
  (a) Each agency shall establish a Regulatory Reform Task Force composed of:
    (i) the agency RRO;
    (ii) the agency Regulatory Policy Officer designated under section 6(a)(2) of Executive Order 12866;
    (iii) a representative from the agency’s central policy office or equivalent central office; and
    (iv) for agencies listed in section 901(b)(1) of title 31, United States Code, at least three additional senior agency officials as determined by the agency head.
  (b) Unless otherwise designated by the agency head,
the agency RRO shall chair the agency’s Regulatory Reform Task Force.
  (c) Each entity staffed by officials of multiple agencies, such as the Chief Acquisition Officers Council, shall form a joint Regulatory Reform Task Force composed of at least one official described in subsection (a) of this section from each constituent agency’s Regulatory Reform Task Force. Joint Regulatory Reform Task Forces shall implement this order in coordination with the Regulatory Reform Task Forces of their members’ respective agencies.
  (d) Each Regulatory Reform Task Force shall 
evaluate existing regulations (as defined in section 4 of Executive Order 13771) and make recommendations to the agency head regarding their repeal, replacement, or modification, consistent with applicable law. At a minimum, each Regulatory Reform Task Force shall attempt to identify regulations that:
    (i) eliminate jobs, or inhibit job creation;
    (ii) are outdated, unnecessary, or ineffective;
    (iii) impose costs that exceed benefits;
    (iv) create a serious inconsistency or otherwise interfere with regulatory reform initiatives and policies;
    (v) are inconsistent with the requirements of section 515 of the Treasury and General Government Appropriations Act, 2001 (44 U.S.C. 3516 note), or the guidance issued pursuant to that provision, in particular those regulations that rely in whole or in part on data, information, or methods that are not publicly available or that are insufficiently transparent to meet the standard for reproducibility; or
    (vi) derive from or implement Executive Orders or other Presidential directives that have been subsequently rescinded or substantially modified.
  (e) In performing the evaluation described in subsection (d) of this section, each Regulatory Reform Task Force shall seek input and other assistance, as permitted by law, from entities significantly affected by Federal regulations, including State, local, and tribal governments, small businesses, consumers, non-governmental organizations, and trade associations.
  (f) When implementing the regulatory offsets required by Executive Order 13771, each agency head should prioritize, to the extent permitted by law, those regulations that the agency’s Regulatory Reform Task Force has identified as being outdated, unnecessary, or ineffective pursuant to subsection (d)(ii) of this section.
  (g) Within 90 days of the date of this order, and on a schedule determined by the agency head thereafter, each Regulatory Reform Task Force shall provide a report to the agency head detailing the agency’s progress toward the following goals:
    (i) improving implementation of regulatory reform initiatives and policies pursuant to section 2 of this order; and
    (ii) identifying regulations for repeal, replacement, or modification.
Sec. 4. Accountability. Consistent with the policy set forth in section 1 of this order, each agency should measure its progress in performing the tasks outlined in section 3 of this order.
  (a) Agencies listed in section 901(b)(1) of title 31, United States Code, shall incorporate in their annual performance plans (required under the Government Performance and Results Act, as amended (see 31 U.S.C. 1115(b))), performance indicators that measure progress toward the two goals listed in section 3(g) of this order. Within 60 days of the date of this order, the Director of the Office of Management and Budget (Director) shall issue guidance regarding the implementation of this subsection. Such guidance may also address how agencies not otherwise covered under this subsection should be held accountable for compliance with this order.
  (b) The head of each agency shall consider the progress toward the two goals listed in section 3(g) of this order in assessing the performance of the Regulatory Reform Task Force and, to the extent permitted by law, those individuals responsible for developing and issuing agency regulations.
Sec. 5. Waiver. Upon the request of an agency head, the Director may waive compliance with this order if the Director determines that the agency generally issues very few or no regulations (as defined in section 4 of Executive Order 13771). The Director may revoke a waiver at any time. The Director shall publish, at least once every 3 months, a list of agencies with current waivers.
Sec. 6. General Provisions.
  (a) Nothing in this order shall be construed to impair or otherwise affect:
    (i) the authority granted by law to an executive department or agency, or the head thereof; or
    (ii) the functions of the Director relating to budgetary, administrative, or legislative proposals.
  (b) This order shall be implemented consistent with applicable law and subject to the availability of appropriations.
  (c) 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.
(Presidential Sig.)
February 24, 2017.

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OGS_a12. Ex/Im Items Scheduled for Publication in Future Federal Register Editions
(Source: Federal Register)

[No items of interest noted today.]  

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OGS_a34. DHS/CBP Deploys ACE Cargo Release and PGA Items, 2 Mar

(Source: CSMS# 17-000112, 1 Mar 2017.)
Please be advised that there will be an ACE PRODUCTION deployment of ACE Cargo Release and PGA items on Thursday morning, March 2, 2017, from 0500 – 0700 ET, which will impact ACE Cargo Release and ACE Entry Summary processing.
To be deployed:
* PGAD-Implement six (6) AMS rules related to zip code.
  – For AMS marketing order (MO1 and MO5) and peanut (PN1) programs, the current business rules check that a zip code is provided. However, AMS noticed that trade did not consistently provide a zip code that was 5 digits. The update to the business rules related to zip code for the marketing order and peanut programs will now check that a zip code is provided and that it is at least 5-digits long.
* PGAD-14533-Entries with NMFS 370 data are incorrectly being rejected (PH3 error) despite the electronic image indicator being provided
  – For some National Marine Fisheries Service (NMFS), 370 program (Tuna Tracking and Verification) filings, trade is properly providing the electronic image indicator in position 17 of the PG01 record to indicate that electronic images for NMFS are provided for this entry and the entry is being rejected for ‘MISSING ELECTRNIC IMGE INDICATOR PER PGA’. The fix being deployed will prevent these filings from being incorrectly rejected.
* PGAD-14518-For FDA drug entries, when claiming UNK as the IUC there are no required AoCs
  – Based on FDA’s final rule, when claiming UNK (unknown) as the intended use code (IUC), there are no required Affirmation of Compliance Codes (AoCs). The fix being deployed will prevent any filings from being incorrectly rejected for missing AoCs under this scenario.
* PGAD-14522-FDA PN Entries Released without Required AoCs.
  – FDA FOO entries that require Prior Notice that are submitted with a manufacturer entity in the PG19, were incorrectly being released without at least one of the following: (1) PG23 record with the PFR (Manufacturer’s Food Facility Registration Number) Affirmation of Compliance Code (AoC) or (2) PG23 with FME (Food Processing Facility Registration Exemption) AoC. The fix being deployed will prevent these filings from incorrectly being accepted without the required AoCs.
* PGAD-14541- Update Spec Rule to NOT reject if intended use code description is not provided.
  – Previously, per the PGA CATAIR, if an intended use code of 980.00 was provided, an intended use code description was required. The rule enforcing this is being removed in tomorrow’s deployment. The PGA CATAIR will be updated at a future date to indicate that the description is no longer required if an intended use code of 980.000 is provided.
ACE Cargo Release
  – SE-8582, 8579: Truck: Process truck events in correct sequence to ensure release of entry
  – SE-8634: Fix issue with miscellaneous XR (Expedited Release) message failures by allowing system retries
  – SE-8265, 8378: Reject entries with no SCAC and bill coming in with 0’s and NONE
  – SE-8550: Reject informal entries with entry value greater than 2499 irrespective of Consignee Id (new validation rule with rejection text TOTAL VALUE FOR ENTRY EXCEEDS 2499)
  – SE-8205: Ticket# 2714291: SX Issue: NO CORRECTION AFTER ARRIVAL AND RELEASE but Cargo has not arrived.
  – SE-8488, 8545: Handcarry Issue (MOT 60): Notification – Entry manually released but goes back to admissible. EntryReplace for MOT 60 is removing entry from released state and setting it to Admissible state. Update rules to ensure EntryReplace doesn’t remove the release. But if an entry replace has a UDR hit, entry should go to intensive/document required.
  – SE-8534: EditReleaseDate event for non-AMS entries should not check if entry is releasable. Entries were going back to admissible when a user edited the release date in the UI.
  – SE-8536: Entry Type 06, event EditReleaseDate, elctd_entry_dt_cd=A sets release date to null. Entries were going back to admissible when a user edited the release date in the UI.
  – SE-8556: Split Clock Validation should not be performed for ACAS (Air Cargo Advanced Screening) or non-split bill.
  – SE-8637: Update validation rule “An Add/Replace transaction is submitted with a line item that has a tariff number that is not on file” to validate data against Tariff table instead of Commodity.
  – SE-8647: Release Date should not take into account Entry File date for an update or replace entry when calculating release date.
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. Justice: “Exporter of Microelectronics to Russian Military Sentenced to 135 Months in Prison Following Convictions on All Counts”

(Source: Justice) [Excerpts.]
Alexander Posobilov, 62, of Houston, Texas, was sentenced to 135 months in prison for conspiring to export and illegally exporting controlled microelectronics to Russia, and for conspiring to launder money. …
 “Posobilov helped lead a criminal operation that through lies and subterfuge profited handsomely from the unlawful sale and export of sophisticated American microelectronics for use by the Russian military,” stated U.S. Attorney Capers. “Today’s sentence shows that those who compromise the national security of the United States for their personal financial gain will face serious punishment.” Mr. Capers extended his grateful appreciation to the FBI’s Houston Field Office and the Department of Commerce for their leading roles in the investigation.
Posobilov, as well as ten other individuals and two corporations – ARC Electronics, Inc. (ARC) and Apex System, L.L.C. (Apex) – were indicted in October 2012. Posobilov and two co-conspirators were subsequently convicted at trial on all counts in October 2015. Of the remaining defendants, five pleaded guilty and three remain at large. ARC is now defunct, and Apex, a Russian-based procurement firm, failed to appear in court.
Posobilov joined ARC in 2004, where he ascended to become the procurement manager and day-to-day director of the company. Between approximately October 2008 and October 2012, Posobilov managed a team of employees who worked to obtain advanced, technologically cutting-edge microelectronics from manufacturers and suppliers located within the U.S. and to export those high-tech goods to in Russia, while evading the government licensing system set up to control such exports. These commodities have applications and are frequently used in a wide range of military systems, including radar and surveillance systems, missile guidance systems and detonation triggers. Russia was not capable of producing many of these sophisticated goods domestically. Between 2002 and 2012, ARC shipped approximately $50,000,000 worth of microelectronics and other technologies to Russia. ARC’s largest clients were certified suppliers of military equipment for the Russian Ministry of Defense.
To induce manufacturers and suppliers to sell these high-tech goods to ARC, and to evade applicable export controls, Posobilov and his co-conspirators provided false end user information in connection with the purchase of the goods, concealed the fact that they were exporters and falsely classified the goods they exported on export records submitted to the Department of Commerce.
Ultimate recipients of ARC’s products included a research unit for the Russian FSB internal security agency, a Russian entity that builds air and missile defense systems and another that produces electronic warfare systems for the Russian Ministry of Defense. …

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OGS_a56. State/DDTC Posts DSP-83 Requirement for Licensing of CARC Paint

(Source: State/DDTC)
The Directorate of Defense Trade Controls (DDTC) determined that Chemical Agent Resistant Coatings (“CARC”) paint does not possess “substantial military utility or capability” as defined by the term Significant Military Equipment (22 CFR 120.7(a)), and therefore does not require a DSP-83 Non transfer and Use Certificate to accompany a license application for the permanent export of the defense article. As a result of a multi- agency review of export controls and the implementation of Export Control Reform (ECR), CARC paint was reassigned as category XIV(f)(7) on the United States Munitions List (USML).
When submitting a DSP-5 via D-Trade, the selection of any SME category in block 11 automatically identifies the defense article as SME and makes the DSP- 83 a mandatory required document. Follow procedures below to submit your application without the DSP-83:
  – Enter “XIV(f)(7)” in Block 11
  – When asked if a DSP-83 is attached – answer “NO”
  – When further asked “If SME, and a DSP-83 is not attached, state why.” –
answer “Updated DDTC Web Notice 2/22/17 ref: no DSP-83 for CARC.”
  – Please do not attach a copy of the web notice
Any questions or concerns should be directed to Chuck Schwingler at schwinglerBC2@state.gov, Supervisory Defense Controls Analyst for the Light Weapons and PPE Systems Division.

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OGS_a67. UK/DIT ECO Updates and Amends Six OGELs
The Export Control Organisation has updated and amended 6 open general export licenses (OGELs). Changes are detailed in the table below.
The changes reflect amendments to the Export Control Order 2008 which came into force on 22 February (see notice to exporters 2017/02) and the replacement of Schedule 1 to the OGEL for printed circuit boards (PCBs) and components for military goods. All the licenses have been updated to refer to the new Department for International Trade, of which Export Control Organisation forms a part.
The updated OGELs have been published and are accessible as listed in the attached table. The licenses are dated 24 February 2017. However, to give exporters time to absorb the changes, these new licenses will not come into force until 1 March 2017.
The previous OGELs will remain in force until 11:59pm on 28 February. You should refer to the current OGELs until the 28 February. After this date you will need to refer to the updated license.
If you no longer meet the terms and conditions of a particular license you will need to de-register from the license via SPIRE.

Control list classification PL5017 has been removed from five of the amended OGELs. You will still need to complete an annual return at the end of the calendar year in December if you have been using OGELs to export PL5017 goods during 2017.
The range of PCBs and Components for military goods listed in Schedule 1 to that OGEL has been considerably extended to include a wide range of additional minor components for equipment controlled in ML5, ML6, ML9, ML10 and ML11. Exporters are encouraged to familiarize themselves with the new schedule and to consider use of this OGEL if appropriate.
See Open general export licenses (OGELs) for further information about OGELs.
main reason for change
Schedule 1 replaced with revised list
control list classification table: removal of rating code PL501
control list classification table: removal of rating code PL501
control list classification table: removal of rating code PL501
control list classification table: removal of rating code PL501
control list classification table: removal of rating code PL501
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A Lebanese man was charged Tuesday in federal court for buying firearms in Lebanon that were shipped from Cedar Rapids by family members convicted of gun smuggling last year.
Fadi Yassine, 42, who was arrested earlier this month in New York City, is charged with conspiring to violate the Arms Export Control Act – not having a license to export guns, a criminal complaint shows.
U.S. Chief Magistrate C.J. Williams ordered Yassine to remain in custody pending trial. A trial date hasn’t been set. Yassine waived his right to a detention hearing and didn’t request a preliminary hearing.
Yassine was arrested on a warrant when he arrived on an international flight Feb. 6 in New York City, court documents show. Following a federal hearing in Brooklyn, he waived further proceedings in New York and a judge transferred him back to U.S. District Court in Cedar Rapids.
The warrant affidavit shows Yassine purchased guns in Lebanon that had been acquired in the United States and shipped to Lebanon by Ali Al Herz, 51, his son Adam Al Herz, 23, his brother Bassem Herz, 31, and Bassem’s wife, Sarah Zeaiter, 24.

A Homeland Security Investigation special agent reviewed Facebook account records and determined Yassine was advising Bassem Herz on purchasing firearms. In the Facebook messages, the two men referenced the fact that a certain Glock model was the newest firearm on the market. Yassine also advised Herz not to buy Kimber guns or ammunition.
The affidavit also shows Yassine gave $30,000 in cash to Ali Al Herz in Lebanon for him to acquire more guns in the United States.
The Al Herz family members were convicted last year for smuggling guns from Iowa to Lebanon and are all serving federal prison terms.
The initial investigation of the Al Herz family led to the March 2015 seizure of 53 guns and thousands of rounds of ammunition concealed inside Bobcat skid loaders within a shipping container at the Norfolk, Virginia, seaport bound for Lebanon. A subsequent investigation led to the May 2015 seizure of a second shipping container, loaded at Midamar Corp. in Cedar Rapids, also destined for Lebanon, with 99 guns and ammunition concealed inside skid loaders.
Evidence presented during hearings showed the containers were bound for southern Lebanon, which is controlled by Hezbollah, a terrorist organization. But the evidence showed none of the family was part of the terrorist group. Prosecutors said the motive for the crime was greed, as the guns could be sold for 10 times their value in Lebanon than in the United States.
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U.S. President Donald Trump’s administration is preparing to ignore any rulings by the World Trade Organization that it sees as an affront to U.S. sovereignty, the Financial Times reported on Tuesday, citing a report prepared by officials.
The draft document, due to be sent to the U.S. Congress on Wednesday, marks the first time the new administration has laid out its trade plans in writing, the Times said.
  “Ever since the United States won its independence, it has been a basic principle of our country that American citizens are subject only to laws and regulations made by the U.S. government — not rulings made by foreign governments or international bodies,” the report said, according to the Times.
  “Accordingly, the Trump administration will aggressively defend American sovereignty over matters of trade policy,” the report said, according to the Times.
The Wall Street Journal, which also said it reviewed the document, said the policy represents a dramatic departure from the Obama administration, which emphasized international economic rules and the authority of the WTO, a body that regulates trade and resolves disputes among its members.
By contrast, the Trump administration will more assertively defend U.S. sovereignty over trade policy, ramp up enforcement of U.S. trade laws, and use “all possible sources of leverage to encourage other countries to open up their markets,” the document said, according to the Journal.
The White House did not immediately respond to a Reuters request for comment.
Congress requires the president to submit the administration’s trade policy annually by March 1.
In the face of Republican concerns, a congressional aide said language in the draft challenging the WTO could still be toned down in a final, public version, the Journal reported.
Washington is facing several important WTO decisions, particularly involving China. Potentially the most important is a WTO complaint filed in December by Beijing against the EU and the United States for blocking China’s request to be treated as a “market economy” under the institution’s rules.
A final ruling could still be years away. But were the U.S. to ignore a finding in China’s favor it could have major consequences for the WTO as a venue for resolving trade disputes before they fester into destructive trade wars, the Times said.
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NWS_a310. ST&R Trade Report: “Commerce Secretary Confirmed, Trade Advisors Named”
Businessman Wilbur Ross was confirmed as secretary of commerce Feb. 27 by a 72-27 Senate vote. The same day the White House named several senior trade policy advisors to the staff of the National Economic Council.
Ross is expected to play a larger role than is typical for a commerce secretary in the formulation of U.S. trade policy, which appears likely to focus more on protection of domestic industries under the Trump administration. Ross signaled his willingness to pursue such a course in his confirmation hearing before the Senate Commerce Committee, telling senators that the U.S. “should provide access to our markets to those countries who play fair” and that “those who do not … should be punished and severely.” Committee Chairman John Thune asserted that Ross’ “expertise in revitalizing distressed businesses” in the steel, textile, and other industries and his “understanding of the challenges faced by workers and businesses alike … will equip him well” for his new role. One of Ross’ first priorities will be leading the renegotiation of NAFTA, which could get underway within the next few months.
The National Economic Council announced that Kenneth I. Juster will serve as deputy assistant to the president for international economic affairs and deputy director of the NEC, where he will serve as lead U.S. negotiator (Sherpa) for the annual G-7, G-20, and APEC summits. Juster previously served as under secretary of commerce and in senior advisor roles with the Department of State. He has also worked in the private sector with major law and investment firms.
In addition, Andrew Quinn will serve as special assistant to the president for international trade, investment, and development. Quinn previously served as deputy assistant U.S. trade representative and worked on a number of trade negotiations and agreements, principally with countries in Asia and the Western Hemisphere. He has also served on the National Security Council as director for Asian economic affairs, at a number of U.S. embassies abroad as a member of the Senior Foreign Service, and as a legislative assistant for trade and foreign affairs in the Senate.
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NWS_a411. Wall Street Journal: “Trump Trade Policy Expected to Seek Smaller WTO Role in the U.S.”
(Source: Wall Street Journal, subscription required) [Excerpts.]
The Trump administration is developing a national trade policy that would seek to diminish the influence of the World Trade Organization in the U.S. and champion American law as a way to take on trading partners it blames for unfair practices, according to a draft document reviewed by the Wall Street Journal.
The policy, contained in a draft document due to be published as early as Wednesday, represents a dramatic departure from the Obama administration …

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. Global Trade News: “Weise Wednesday: What Steps Should an Importer Take to Prepare for a Focused Assessment?”

Welcome to Weise Wednesday! Twice a month we will share a brief Q&A with the former U.S. Commissioner of Customs, Mr. George Weise. If you have questions, we encourage you to send them to AskGeorge@IntegrationPoint.com.
Q: What steps should an importer take to prepare after being notified by CBP that it will be the subject of a Focused Assessment?

A: Preparing for a Focused Assessment is a serious undertaking for any company. After all, if the Focused Assessment doesn’t go well, you could incur substantial penalties as well as significant additional duty payments. Any company receiving such a notification must act swiftly and carefully to reduce the risk of such penalties. 
What is a Focused Assessment?
A Focused Assessment is a comprehensive audit that assesses the importer’s internal controls over import activities to determine if the importer poses an acceptable risk for complying with CBP laws and regulations.  It typically focuses on the importer’s processes for classification, valuation, special trade programs (such as NAFTA), and CBP trade priority issues (such as antidumping and countervailing duties, intellectual property rights, and slave labor).
After the importer receives notification, there is typically some lead time before the formal assessment process begins. Importers should use this time wisely.  To successfully manage this process, it is critically important that senior management is actively involved in the preparation and that appropriate resources are dedicated to the effort. 
Step 1: Gather your team
A cross-organizational team should be assembled that includes not only the import compliance manager, but also representatives from purchasing, accounting, and import departments.  It is also essential that a representative from General Counsel, and perhaps outside Customs Counsel, participate as well.
Step 2: Review your procedures
During this time, the assembled team should carefully review the company’s import compliance procedures and verify that those procedures are being followed.  In those areas where shortcomings are identified, a quick internal review should be conducted by pulling entries and reviewing them closely for errors.  It sometimes helps to have a third party Customs expert, such as a global trade consulting firm or law firm, assist in this process.
Step 3: Consider filing a Prior Disclosure
If the company determines that significant additional duties are owed, the importer will have the opportunity to consider filing a Prior Disclosure with CBP before the formal initiation of the Focused Assessment.  This matter will require the input of the General Counsel and outside Customs Counsel.  If errors are found, and the Prior Disclosure is filed in a timely fashion, the importer can significantly reduce or even eliminate potential penalties.
Step 4: Update your procedures and address flaws
While conducting the internal review, make sure that you take advantage of this opportunity to update processes and address any flaws that you identify. This will demonstrate to CBP a true commitment to compliance once the official Focused Assessment begins.
Step 5: Assemble and review the materials for CBP
The letter officially commencing the Focused Assessment will include a comprehensive questionnaire that addresses a wide range of trade compliance process issues and requests a good deal of information from the importer.  The assembled team should be responsible for assembling and carefully reviewing all of these materials before they are submitted to CBP.
Step 6: Work with CBP to determine scope
Another important task is to work with CBP in advance of the Focused Assessment’s official start to ensure that the scope of review, as well as the business units involved, is manageable for both CBP and the company.  For example, many large companies have multiple business units widely dispersed geographically.  There may be great variance between these business units in the types and volume of imports and the trade processes used. Typically, CBP is willing to work with the importer to address only those business units and locations that make the most sense for both parties from a resource allocation standpoint.
Key takeaway
All of these steps will help ensure that the Focused Assessment goes as smoothly as possible.  But perhaps the best lesson here is that much of the angst associated with a Focused Assessment can be significantly reduced if companies implement effective compliance programs and review their trade processes on an ongoing basis before receiving notice that a Focused Assessment is imminent.

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13. M. Volkov: “Under the Dark of Night, DOJ Moves the Compliance Ball (Part I of IV)”

(Source: Volkov Law Group Blog. Reprinted by permission.)
* Author: Michael Volkov, Esq., Volkov Law Group, mvolkov@volkovlaw.com, 240-505-1992.
In an unusual move, the Justice Department issued an important document in the dead of night – Evaluation of Corporate Compliance Programs. (Available at here.)
We have no explanation from the Justice Department for the issuance of this document.   I can speculate but I suspect there was a personnel issue that explained why the issue was released without notice nor explanation. Whatever the reason, the document itself collects a number of recent trends, provides relevant questions surrounding the trends, and confirms the importance of the explained trends. To those who brushed aside the importance of the compliance document, they ignore the implications of any statement made by DOJ prosecutors in day-to-day interactions, negotiations and enforcement matters.
Aside from the overall analysis of the document, the checklist or question format provides an important tool for companies to use in assessing their own compliance programs. It is not the only tool available, not the most important tool, but it is one exercise among many that provides important insights and analysis.
It is important to review the document and point out important notes, questions and trends. The formulation and the collection of questions gives compliance practitioners another source to develop effective tools, benchmarks and frameworks for analysis.
In this four-part series, I want to take some time to review the topics and questions and point out trends and new areas for focus and attention. Compliance practitioners should review the document carefully, address the issues that are identified, and seek increased internal support based on this new and important document.
At the outset, I would urge every chief compliance officer to provide a copy of the document to the board members, audit/compliance committee members, and make sure there is adequate discussion of the evaluation document. This is a board-worthy document and should be given to each board member for review and analysis. A board that is educated on the importance of a compliance program should understand the questions, the relevance of each, and the need to identify potential issues for analysis and discussion with the CCO. A board has to take the time to learn and understand how a compliance program operates, how to conduct oversight and how to monitor the compliance program. This checklist gives the board a valuable tool to do so.
The Compliance Evaluation lists eleven separate topics for review. Over this four-part series, I will review these topics (except for mergers and acquisitions)
Analysis and Remediation of Underlying Misconduct
The first question is relevant in those circumstances when the company is responding to misconduct that results in a government investigation. However, I think the questions asked provide important insights when a company suffers misconduct that does not result in a government investigation.
Companies often face situations where they discover misconduct, impose discipline and remediate the problems discovered and then move on. This happens more often that misconduct resulting in a government disclosure or a government investigation. In either case, the questions are certainly relevant.
The questions appear to be fairly basic but depending on the circumstances can be deadly accurate in pointing out compliance deficiencies. A “root cause” can implicate not only employee misconduct or failure to exercise proper oversight, but can extend to such issues as a company’s culture, tone-at-the-top and other issues with significant implications for the company’s operations. It is too easy to blame a rogue employee, a concept that has neither relevance nor significance to legal and compliance practitioners who understand how compliance programs work.
Senior and Middle Management
DOJ’s questions, as written, provide some important clues as to how it assesses tone at the top. These clues are not surprising and only underscore repeated admonitions from compliance professionals.
A CEO and senior leaders are judged not just by their words but by their “actions.” A company that relies on its recorded statements by a CEO indicating the company’s commitment to compliance falls short in its tone by failing to demonstrate through his or her “actions” how they lead a compliance program.
A second interesting issue revealed by the questions is how a company monitors the conduct of its CEO and senior leadership team. A company has to assess the risks that its C-Suite creates and tailor its compliance program to address these risks. DOJ’s questions in this area suggest that this is a critical part of an effective ethics and compliance program.
The questions relating to Shared Commitment reflect DOJ’s focus on how companies “operationalize” their compliance program. DOJ recognizes that a compliance program is dependent on the cooperation and coordination among key functions (e.g. legal, finance, audit, human resources) and this inquiry is designed to focus attention on the coordination of key functions to a common objective – promoting ethics and compliance.
Finally, this area of questions highlights an important trend – the existence of compliance expertise on a corporate board. In recent years, corporate governance expert have been highlighting the need for corporate boards to bring compliance expertise to the board. It is a much-needed requirement, and DOJ’s question is designed to reinforce this need.
In the same area, DOJ made sure to remind everyone that CCOs need to have adequate time to report to the board or the supervising committee, and must have a private or executive sessions where they can discuss compliance issues with the board or committee members.
[Editor’s Note: Part II of this series will be included in tomorrow’s Daily Bugle.]

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14. O. Torres & D. Kyle: “Key Differences Remain in the Export Regulation Regimes, Spurring Cybersecurity Reviews”

(Source: Torres Law PLLC)
* Authors: Olga Torres, Esq.; and Derrick Kyle, Esq. Both of Torres Law PLLC. Contact: 214-593-7120, info@torrestradelaw.com.
Over the past decade, the availability of cloud computing services has grown exponentially to the point where cloud access is now viewed almost as a public utility. Cloud Service Providers (“CSPs”) may operate internationally, and CSP servers are often located in countries other than that of the user, leading to export control concerns.
However, as most exporters are aware, in June 2016 the Bureau of Industry and Security (“BIS”) created a carve-out from the Export Administration Regulations’ (“EAR”) definition of “export” for the sending, taking, or storing of unclassified encrypted technology when certain criteria are met. [FN/1] As long as the security criteria are met, storing EAR-controlled technology in the cloud, even if in foreign countries, will not be considered an export of the technology. Importantly, the BIS rule requires security controls that are in accordance with the U.S. National Institute of Standards and Technology (“NIST”) [FN/2] publications or “other equally or more effective cryptographic means.”
Meanwhile, the Directorate of Defense Trade Controls (“DDTC”), which administers the International Traffic in Arms Regulations (“ITAR”), has not published a parallel carve-out rule. [FN/3] At a recent export event, Robert Monjay of DDTC stated that DDTC did not publish a carve-out rule because, unlike BIS, DDTC was not comfortable using a U.S. Government standard such as the NIST published guidance i.e., FIPS 140-2. [FN/4] Mr. Monjay stated that DDTC intends to publish a carve-out rule (similar to the BIS rule) in the spring or summer of 2017. Therefore, the storing or transmission of ITAR-controlled technical data, whether encrypted or not, across international boundaries continues to require DDTC authorization. As such, companies seeking to store data in the cloud or transmit it internationally must ascertain the correct jurisdiction of the data because the EAR and ITAR export definitions are currently not harmonized.
With the recent changes to the EAR export definition, and ITAR changes on the way, exporters should use this as an opportunity to improve their cybersecurity, not only for application of the BIS encryption carve-out, but also for general security protection against hacking and other illicit activities. The NIST provides a Framework for Improving Critical Infrastructure Cyber Security (“the Framework”), available at here. The Framework is geared toward critical infrastructure industries but can be useful for any business. The Framework provides guidelines for core cybersecurity functions: Identify, Protect, Detect, Respond, and Recover. Effective encryption is just one piece of an adequate cybersecurity regime, which should also include physical security, periodic training, monitoring, and response and recovery planning, among other measures.
A review of cybersecurity measures is especially recommended for defense contractors as the Department of Defense (“DoD”) recently published a final rule [FN/5] concerning cybersecurity safeguards and cyber-incident reporting for defense contractors that handle covered defense information (“CDI”). [FN/6] The rule requires defense contractors with access to CDI data to implement NIST SP 800-171 controls by the end of 2017. Defense contractors are also required to report a cybersecurity data breach within 72 hours of its discovery. Further, under a proposed DoD rule, [FN/7] if a data breach results in a violation of U.S. export controls, DoD can temporarily revoke the defense contractor’s ability to access export controlled technical data and technology. [FN/8] If the defense contractor is unable to rebut the information leading to the temporary revocation within twenty days, the contractor may become disqualified from participating in future DoD contracts.
Aside from an overall cybersecurity review, companies should also update export compliance manuals and technology control plans to reflect the difference in the handling of export controlled data between the ITAR and the EAR. Businesses should also consider submitting a voluntary self-disclosure to the relevant agency in the event that ITAR-controlled technical data is exported without authorization, encrypted EAR-controlled technology is transmitted without qualifying for the carve-out, or if their company network gets hacked and an export violation occurs.
  [FN/1] The criteria is as follows: 1) the technology is secured using “end-to-end encryption,” 2) the encryption is compliant with the Federal Information Processing Standards Publication 140-2 (FIPS 140-2), and 3) the technology is not intentionally stored in Russia or countries listed in Country Group D:5. Revisions to Definitions in the EAR, 81 Fed. Reg. 35,586, 35,604 (June 3, 2016) (15 CFR § 734.18).
  [FN/2] NIST maintains a list of vendors with validated FIPS 140-2 compliant cryptographic modules at here.
  [FN/3] DDTC published a proposed rule with a similar encryption carve-out, but that rule never became final. ITAR: Revisions to Definitions of Defense Services, Technical Data, and Public Domain; Electronic Transmission and Storage of Technical Data; and Related Definitions, 80 Fed. Reg. 31,526 (June 3, 2015).
  [FN/4] Robert Monjay, Webinar by the American Bar Association Section of International Law, Cloud Standards of NIST, the ITAR, and the EAR (Jan. 12, 2017).
  [FN/5] Defense Federal Acquisition Regulation Supplement: Network Penetration Reporting and Contracting for Cloud Services (DFARS Case 2013-D018), 81 Fed. Reg. 72,986 (Oct. 21, 2016).
  [FN/6] Covered defense information means unclassified controlled technical information or other information, as described in the Controlled Unclassified Information (CUI) Registry at here, that requires safeguarding or dissemination controls pursuant to and consistent with law, regulations, and Government-wide policies, and is- (1) Marked or otherwise identified in the contract, task order, or delivery order and provided to the contractor by or on behalf of DoD in support of the performance of the contract; or (2) Collected, developed, received, transmitted, used, or stored by or on behalf of the contractor in support of the performance of the contract.
  [FN/7] Withholding of Unclassified Technical Data and Technology from Public Disclosure, 81 Fed. Reg. 75,352 (Oct. 31, 2016).
  [FN/8] The DoD proposed rule uses the ITAR definition of “technical data” found at 22 CFR § 120.10 and the EAR definition of “technology” found at 15 CFR § 772.1.

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15. Gary Stanley’s ECR Tip of the Day
(Source: Defense and Export-Import Update; available by subscription from
* Author: Gary Stanley, Esq., Global Legal Services, PC, (202) 352-3059,
If you are exporting an aircraft that is controlled under USML Category VIII(a), regardless of whether it is a bomber, fighter, or attack helicopter, you do not have to individually itemize all the inclusive systems (e.g., electronics, folding wings, batteries, weapons, etc.) in Blocks 9 through 12 as separate items on the DSP 5 license for items physically (mechanically, electronically, etc.) incorporated into the aircraft. This does not include spare parts, components, etc. that are to accompany the aircraft during shipment, as these items must be accounted for separately as their own unique line item(s).
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16. R.C. Burns: “ZTE License Extended; Iranian News Outlet Gets It Wrong”
Export Law Blog
. Reprinted by permission.)
* Author: R. Clifton Burns, Esq., Bryan Cave LLP, Wash DC,
, 202-508-6067)
Last Friday, the Bureau of Industry and Security extended the duration of the temporary general license which permits exports to ZTE notwithstanding it’s inclusion on the Entity List. Without the temporary general license, unlicensed exports to ZTE of items subject to the EAR would be prohibited.
It is notable that this extension – from February 27, 2017, to March 29, 2017 – is the shortest period of duration for the ZTE temporary general license granted so far, the others having been March 24, 2016, to June 30, 2016; June 30, 2016 to August 30, 2016; August 30, 2016, to November 28, 2016; and November 28, 2016, to February 27, 2017. It’s not quite clear why this duration is so much shorter than has been granted before.
The Financial Tribune, which bills itself as the “First Iranian English Daily” and which is owned by the Iranian newspaper Donya-e-Eqtesad has a rather entertaining, if incorrect, take on the meaning of the extension of the ZTE temporary general license:
ZTE has been granted an exceptional reprieve from the US Department of Commerce to continue exporting its telecoms equipment to Iran.
Er, not so much. After all, it was ZTE’s exports of telecom equipment from the United States to Iran which got ZTE in the snert in the first place. ZTE can export items not subject to the EAR to Iran without need of the temporary general license; and the temporary general license would not authorize ZTE, or anyone else for that matter, to export items subject to the EAR to Iran. All the temporary general license permits is the exports of items subject to the EAR to ZTE.
So, file the Financial Tribune‘s story under “Fake News” or “Wishful Thinking” depending upon your individual inclination.
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(Source: Editor) 

* David Niven (James David Graham Niven (1 Mar 1910 – 29 Jul 1983) was an English actor and novelist. His many roles included Squadron Leader Peter Carter in A Matter of Life and Death, Phileas Fogg in Around the World in 80 Days, and Sir Charles Lytton, (“the Phantom”) in The Pink Panther. He won the Academy Award for Best Actor for his performance in Separate Tables.)

  – “I wonder why it is, that young men are always cautioned against bad girls. Anyone can handle a bad girl. It’s the good girls men should be warned against.


* Frederic Chopin (Frédéric François Chopin, born Fryderyk Franciszek Chopin, 1 Mar 1810 – 17 Oct 1849, was a Polish composer and virtuoso pianist of the Romantic era who wrote primarily for the solo piano.)

  – “As long as I have health and strength, I will gladly work all my days.” 

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. 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.
: 27 CFR Part 447-Importation of Arms, Ammunition, and Implements of War
  – 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. 
: 19 CFR, Ch. 1, Pts. 0-199
  – Last Amendment: 27 Jan 2017: 82 FR 8589-8590: Delay of Effective Date for Importations of Certain Vehicles and Engines Subject to Federal Antipollution Emission Standards; and 82 FR 8590: Delay of Effective Date for Toxic Substance Control Act Chemical Substance Import Certification Process Revisions.

  – Last Amendment: 18 May 2016: Change 2: Implement an insider threat program; reporting requirements for Cleared Defense Contractors; alignment with Federal standards for classified information systems; incorporated and canceled Supp. 1 to the NISPOM  (Summary here.)

  – Last Amendment: 24 Feb 2017: 82 FR 11505-11506: Temporary General License: Extension of Validity 

: 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders
  – Last Amendment:
10 Feb 2017: 82 FR 10434-10440: Inflation Adjustment of Civil Monetary Penalties. 
: 15 CFR Part 30
  – 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
  – 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.
, 1 Jan 2017: 19 USC 1202 Annex. (“HTS” and “HTSA” are often seen as abbreviations for the Harmonized Tariff Schedule of the United States Annotated, shortened versions of “HTSUSA”.)
  – Last Amendment: 10 Feb 2017: Harmonized System Update 1701, containing 1,295 ABI records and 293 harmonized tariff records.  
  – HTS codes for AES are available
  – HTS codes that are not valid for AES are available
  – Latest Amendment: 11 Jan 2017: 82 FR 3168-3170: 2017 Civil Monetary Penalties Inflationary Adjustment
  – The only available fully updated copy (latest edition 24 Jan 2017) of the ITAR is Bartlett’s Annotated ITAR (“BITAR”), by James E. Bartlett III. 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.

* RIGHTS & RESTRICTIONS: This email contains no proprietary, classified, or export-controlled information. All items are obtained from public sources or are published with permission of private contributors, and may be freely circulated without further permission. Any further use of contributors’ material, however, must comply with applicable copyright laws.

* 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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