17-0615 Thursday “Daily Bugle”

17-0615 Thursday “Daily Bugle”

Thursday, 15 June 2017

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  1. President Continues National Emergency Concerning Belarus
  1. Ex/Im Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.)
  3. DHS/CBP Announces Changes to EDI Manifest and Entry Summary Filings Using Four-Digit Foreign Port Codes
  4. DHS/CBP Announces Drug Enforcement Agency (DEA) Webinar on Mandatory Filing
  5. DoD/DSCA Publishes SAMM and Policy Memorandum, 11-17 June
  6. State/DDTC: (No new postings.)
  7. Australia DFAT: Nuclear Cooperation Agreement with Ukraine Enters Into Force
  1. The Australian: “Australian Taxes May Help Finance Chinese Military Capability”
  2. BBC News: “How BAE Sold Cyber-Surveillance Tools to Arab States”
  3. MyNewsLA: “Gun-Running Woman Gets Home Confinement for Illegal Firearm, Ammo Shipments to Philippines”
  4. Reuters: “U.S. Sanctions on Russia Threaten European Energy Firms”
  5. ST&R Trade Report: “Importer Ordered to Pay Negligence Penalty in Misclassification Case”
  1. J. Gray, B. Hipp & S. Blackman: “‘Creating a Risk’ of Bribery Can Violate the FCPA: Low Threshold for SEC Enforcement Actions”
  2. M. Burke: “Not Another Brick in the Wall”
  3. M. Volkov: “Two Steps Forward, One Step Back – Mixed Bag of Compliance Progress”
  4. Gary Stanley’s ECR Tip of the Day
  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 (14 Jun 2017), FACR/OFAC (10 Feb 2017), FTR (19 Apr 2017), HTSUS (26 Apr 2017), ITAR (11 Jan 2017) 
  3. Weekly Highlights of the Daily Bugle Top Stories 



82 FR 27605: Continuation of the National Emergency With Respect to the Actions and Policies of Certain Members of the Government of Belarus and Other Persons to Undermine Democratic Processes or Institutions of Belarus
On June 16, 2006, by Executive Order 13405, 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 and foreign policy of the United States constituted by the actions and policies of certain members of the Government of Belarus and other persons to undermine democratic processes or institutions of Belarus, manifested in the fundamentally undemocratic March 2006 elections; to commit human rights abuses related to political repression, including detentions and disappearances; and to engage in public corruption, including by diverting or misusing Belarusian public assets or by misusing public authority.
The actions and policies of certain members of the Government of Belarus and other persons continue to pose an unusual and extraordinary threat to the national security and foreign policy of the United States. For this reason, the national emergency declared on June 16, 2006, and the measures adopted on that date to address that emergency, must continue in effect beyond June 16, 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 declared in Executive Order 13405.
  (Presidential Sig.)
  June 13, 201

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OGS_a12. Ex/Im Items Scheduled for Publication in Future Federal Register Editions

(Source: Federal Register)

* Foreign Assets Control Office;
  – RULES; Removal of Burmese Sanctions Regulations [Publication Date: 16 June 2017.]
  – NOTICES; Blocking or Unblocking of Persons and Properties [Publication Date: 16 June 2017.]
* Industry and Security Bureau; NOTICES; Agency Information Collection Activities; Proposals, Submissions, and Approvals:
  – Additional Protocol to the U.S.-IAEA Safeguards Agreement Report Forms [Publication Date: 16 June 2017.]
  – Import, End-User, and Delivery Verification Certificates [Publication Date: 16 June 2017.]
  – Procedures for Acceptance or Rejection of a Rated Order [Publication Date: 16 June 2017.]

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OGS_a23. Commerce/BIS: (No new postings.)


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DHS/CBP Announces Changes to EDI Manifest and Entry Summary Filings Using Four-Digit Foreign Port Codes

CSMS# 17-000346, 15 June 2017.)
On 22 July 2017, the ACE Technical team is planning to remove four-digit foreign port codes, which are supposed to be five-digits, from the reference table of valid Foreign Port (Schedule K) Codes. When the foreign port code has a leading zero, a few carriers and filers have been omitting the first digit when filing a manifest, QP in-bond, or entry summary via EDI.

After 22 July, providing a four-digit foreign port code in the aforementioned EDI transactions will result in an Invalid Foreign Port Code error.

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DHS/CBP Announces Drug Enforcement Agency (DEA) Webinar on Mandatory Filing

(Source: CSMS# 17-000347, 15 June 2017.)
A National Webinar for Trade will be held on 20 June 2017 with representation from DEA and Customs and Border Protection (CBP). DEA will give a presentation on New Import and Export Regulations for Controlled Substances and Listed Chemicals. If you would like to attend please register below.

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. State/DDTC: (No new postings.)

(Source: State/DDTC)

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Australia DFAT: Nuclear Cooperation Agreement with Ukraine Enters Into Force

The Nuclear Cooperation Agreement enables Australia to export uranium to Ukraine, one of the world’s top ten generators of nuclear power.
All exports of Australian uranium will be subject to internationally agreed security standards, and ongoing security risk assessment and contingency planning. Exports will also be controlled to ensure Australian nuclear material is only used for peaceful purposes.

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The Australian: “Australian Taxes May Help Finance Chinese Military Capability”

The Australian, 10 June 2017.) [Excerpts.]
For several years the Chinese party-state has been pursuing a coordinated program to acquire from abroad advanced military and industrial technology, and to do so by fair means or foul. It now emerges that Australian universities inadvertently are helping to give China the technological leadership it craves.
The Australian Research Council (ARC) is funneling Australian taxpayer funds into research with applications to China’s advanced weapons capacity through its linkage program. The program aims to encourage national and international research collaborations between university researchers and partners in industry or other research centers, in this case with Chinese military scientists. …
According to close observers, China has embarked on “a deliberate state-sponsored project to circumvent the costs of research, overcome cultural disadvantages, and ‘leapfrog’ to the forefront by leveraging the creativity of other nations”. This is the warning made by William Hannas, James Mulvenon and Anna Puglisi in their definitive 2013 book Chinese Industrial Espionage.

Another expert, James McGregor, in a report for the US Chamber of Commerce, put it even more bluntly: China’s hi-tech research plan is a “blueprint for technology theft on a scale the world has never seen before”. … 

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BBC News: “How BAE Sold Cyber-Surveillance Tools to Arab States”

BBC News, 15 June 2017.) [Excerpts.]
A year-long investigation by BBC Arabic and a Danish newspaper has uncovered evidence that the UK defense giant BAE Systems has made large-scale sales across the Middle East of sophisticated surveillance technology, including to many repressive governments.
These sales have also included decryption software which could be used against the UK and its allies.
While the sales are legal, human rights campaigners and cyber-security experts have expressed serious concerns these powerful tools could be used to spy on millions of people and thwart any signs of dissent.
The investigation began in the small Danish town of Norresundby, home to ETI, a company specialising in high-tech surveillance equipment.
ETI developed a system called Evident, which enabled governments to conduct mass surveillance of their citizens’ communications.
A former employee, speaking to the BBC anonymously, described how Evident worked.
  “You’d be able to intercept any internet traffic,” he said. “If you wanted to do a whole country, you could. You could pin-point people’s location based on cellular data. You could follow people around. They were quite far ahead with voice recognition. They were capable of decrypting stuff as well.” … 

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MyNewsLA: “Gun-Running Woman Gets Home Confinement for Illegal Firearm, Ammo Shipments to Philippines”

MyNewsLA, 15 June 2017.) [Excerpts.]
A Long Beach, CA, woman was sentenced Thursday to six months of home confinement for illegally shipping hundreds of thousands of dollars worth of firearms parts and ammunition to her native Philippines.
Marlou Mendoza, 62, pleaded guilty in February to federal charges of failing to provide the required written notice to freight forwarders that she was shipping ammunition.
Federal prosecutors argued that Mendoza should receive an 18-month prison term, but U.S. District Judge George Wu sentenced her to probation, including home confinement.
An indictment, filed in December, cites three instances in 2011 when Mendoza shipped tens of thousands of rounds of .22-caliber ammunition and bullets to her son. …
The son, Mark Louie Mendoza, is named in a separate eight-count indictment, filed in Los Angeles federal court, that charges him with conspiracy, the unlawful export of munitions, smuggling and money laundering. …
Those items included parts for M-16 and AR-15-type rifles, listed as defense articles on the U.S. Munitions List, authorities said. … 

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Reuters: “U.S. Sanctions on Russia Threaten European Energy Firms”

Reuters, 15 June 2017.)
Germany and Austria on Thursday censured the U.S. Senate for approving new sanctions on Russia, saying the new punitive measures expose European companies involved in energy projects there to fines for breaching U.S. law.
U.S. senators on Wednesday approved sanctions against Russia over its meddling in the 2016 U.S. election, including some on certain Russian energy projects. Their vote put into law sanctions previously imposed by presidential executive order.
German Foreign Minister Sigmar Gabriel and Austrian Chancellor Christian Kern said in a joint statement the sanctions would help secure U.S. energy jobs and threaten Russian gas deliveries to Europe.
  “Political sanctions should not linked up to economic interest,” Gabriel and Kern said.
  “To threaten companies in Germany, Austria and other European firms with fines in the U.S. if they take part in or finance energy projects like Nord Stream 2 represents a new and negative dimension to U.S.-European relations,” they added.
They said they support efforts by the U.S. State Department to amend the sanctions.
Western partners of Russian gas giant Gazprom agreed in April on financing the 9.5-billion euro ($10.59 billion) Nord Stream 2 pipeline, removing a key hurdle for the Russian plan to pump more gas to Europe.

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ST&R Trade Report: “Importer Ordered to Pay Negligence Penalty in Misclassification Case”

The Court of International Trade has determined that an importer is liable for a negligence penalty in a case involving misclassified imports. In an earlier decision in this case the CIT awarded U.S. Customs and Border Protection unpaid duties and pre-judgment interest.
This case involves various types of plywood that were entered or attempted to be entered under inapplicable duty-free tariff subheadings. CBP demanded payment of $120,254 in outstanding duties as well as a penalty of $324,540 for negligence. CBP recovered $50,000 from the importer’s surety and in 2015 the CIT ordered the importer to pay the remaining $70,254 in duties owed after the importer admitted to the misclassification.
The CIT withheld a decision on the negligence penalty because there was a genuine factual issue as to whether the importer exercised reasonable care. The importer claimed it made the entries using an authorized customs broker but the court said it appeared that the importer had instructed its broker to use one of the inapplicable classifications with respect to at least some of the entries, even after CBP advised it of the correct classification.
The CIT now states that there is no evidence as to any steps taken by the importer or its broker to ascertain the correct classification and that the imported failed to demonstrate that it made a good faith effort to assert the correct classification at entry. In addition, the record demonstrates that the importer disregarded information on invoices that contradicted its description of the goods on the entries. As a result, the court states, the record lacks any evidence to suggest a reason for the importer’s actions other than an unlawful effort to obtain duty-free treatment.

Nevertheless, the CIT declined to impose the statutory maximum penalty for negligence, instead setting the amount at $162,270. The court states that a significant penalty is warranted due to the nature of the violations as well as the importer’s “slow-playing” the government by drawing these proceedings out over several years. However, the CIT also rejects CBP’s efforts to include the defendant’s “uncooperative and dilatory behavior before the court” in the calculation of an administrative penalty because such conduct is governed by other more specific court rules.     

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J. Gray, B. Hipp & S. Blackman: “‘Creating a Risk’ of Bribery Can Violate the FCPA: Low Threshold for SEC Enforcement Actions”

* Authors: Jason Gray, Esq., jason.gray@allenovery.com; Bethany Hipp, Esq., bethany.hipp@allenovery.com; and Sarah Blackman, Esq., sarah.blackman@allenovery.com. All of Allen & Overy LLP, Sydney, Singapore, and Sydney, respectively.
SEC enforcement actions under the U.S. Foreign Corrupt Practices Act have been setting an ever-lower threshold for violations of the FCPA’s books and records, and internal controls provisions. Most recently, the SEC has charged violations of the FCPA’s internal controls provisions where an issuer has been deemed to have “created a risk” of bribery through inadequate compliance policies, procedures and internal controls.
Despite uncertainty about the direction of U.S. Securities and Exchange Commission (“SEC”) enforcement strategy under the administration of President Donald Trump, companies should note that SEC enforcement actions under the U.S. Foreign Corrupt Practices Act (“FCPA”) in recent years have been setting an ever-lower threshold for violations of the FCPA’s books and records and internal controls provisions. These provisions generally provide that issuers must: (i) maintain books, records and accounts which, in reasonable detail, accurately and fairly reflect issuer transactions and disposition of assets, and (ii) devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are properly authorized, recorded, and accounted for by the issuer.
Over the last few years, the SEC has developed a broad definition of “books, records and accounts” and, more significantly, has charged FCPA violations where a company has allegedly “created a heightened risk” environment for bribery and corrupt conduct through what are deemed by the SEC as lacking compliance policies, procedures and internal controls. Additionally, the SEC has found violations of the FCPA in circumstances where no underlying bribery has been alleged or where evidence of bribery was difficult to establish.
In this article we will examine these developments, and consider the lessons to be learned and the practical steps companies might take in response.
“Creating a Risk”
The SEC has been increasingly using the FCPA’s books and records and internal controls provisions to bring enforcement actions where evidence of bribery is lacking. The SEC started developing a new “creating a heightened risk” standard to bring enforcement action against companies under the FCPA as early as 2012. During that year the SEC charged Oracle with violations of the FCPA for failing to prevent an overseas subsidiary from setting aside off-the-books money and using the funds to make unauthorised payments to certain vendors in India. [FN/1] A number of these payments were also documented with fake invoices. In developing a new threshold for books and records violations, the SEC found that Oracle’s Indian subsidiary’s use of secret cash and its failure to accurately record the off-the-books funds “created the potential that they could be used for bribery or embezzlement” [emphasis added] and therefore violated the FCPA. However, no actual evidence of bribery was cited in the settlement documents. Oracle agreed to pay a USD2 million penalty to settle the SEC’s charges.
The SEC’s “creating a risk” standard was seen again in May 2015 when the SEC announced that a multinational mining and resources company had agreed to pay a USD25m penalty to settle allegations that the company violated the books and records and internal controls provisions of the FCPA in connection with sponsoring foreign government officials to attend the 2008 Beijing Summer Olympics. In its order against the company, the SEC noted that inviting government officials to the Olympics created a “heightened risk” of violating anti-corruption laws and the company’s own compliance and ethics policies, and that the tailored internal controls developed and relied upon by the company were insufficient to mitigate that risk. As a result, the company’s controls around its Olympics hospitality program were found to be lacking and resulted in violations of the FCPA’s books and records and internal controls provisions.
Further establishing that “creating a risk” of bribery is enough to violate the FCPA, the SEC announced an enforcement action against Mondelez International, Inc. (formerly known as Kraft) on January 9, 2017 alleging that Cadbury, a subsidiary of Mondelez, Inc., and its subsidiaries failed to conduct appropriate due diligence on and monitor the activities of its agent in India. [FN/2] According to the SEC, the lacking due diligence and internal controls “created the risk” that funds paid to the agent could be used for improper purposes or bribes. The SEC also alleged that Cadbury India’s books and records did not accurately reflect the agent’s services. The SEC cited no evidence that the funds were used to pay a bribe or that there were any accounting irregularities – Cadbury’s failure to conduct due diligence on the agent and to monitor the expenditure of the agent’s funds were enough for the SEC to find “a risk” of bribery. Mondelez agreed to pay a USD13m penalty for its controls failures.
All three cases show the creeping expansion of the SEC’s use of the FCPA’s book and records and internal controls provisions to bring enforcement actions where there is a risk of bribery. In the later two cases, there were no accounting irregularities or allegations of bribery – lacking internal controls were sufficient to “create a risk” of bribery and therefore a violation of the FCPA.
Broader Definition of “Books, Records and Accounts”
Enforcement actions in recent years are also noteworthy for the adoption by the SEC of a broad definition of “books, records and accounts.” In the case against the multinational mining and resources company discussed above, the SEC noted that internal documents relating to the company’s hosting of customers at the 2008 Olympics formed part of the company’s books and records. In particular, the SEC noted that certain Olympic hospitality applications and forms “did not, in reasonable detail, accurately and fairly reflect [the company’s] pending negotiations or business dealings” with government officials invited to the Olympics.
According to the SEC, some hospitality applications described certain employees of state-owned enterprises as “customer” rather than “representative of government” and provided little detail of the company’s past and future dealings with the prospective guests. Based on the descriptions in the hospitality applications, the SEC alleged violations of the books and records and internal controls provisions, noting that the company did not devise and maintain adequate oversight or internal control mechanisms around the Olympic hospitality program that would have captured, for example, inaccurate descriptions on internal hospitality applications. The hospitality forms themselves were deemed “books, records and accounts” that violated the FCPA. The SEC’s allegations in this case did not relate to any accounting misrepresentations or how the hospitality applications may have impacted the company’s books and financial statements. Similarly, the SEC did not find any corrupt intent underlying the inadequate descriptions on the hospitality applications or link the hospitality program to any evidence of improper payments. Despite this, the SEC concluded that the company had violated the FCPA.
Absence of Link to an Improper Payment
The SEC is also increasingly finding violations of the FCPA in the absence of any link to an improper or corrupt payment. In 2016, the SEC charged Las Vegas Sands, a Nevada-based owner and operator of casinos in Asia and the United States, with a USD9m civil penalty to settle alleged books and records and internal controls violations despite there being no evidence of any alleged bribery. [FN/3] The SEC found that the company failed to properly account for payments associated with a Beijing real estate project, a Macau ferry operator, and for a transaction to purchase a Chinese basketball team with the help of an agent. In the settlement documents, the SEC presented no evidence that the payments to the agent hired to assist with the transaction were used to obtain government approval for the acquisition of the team or amounted to an unauthorised payment. The improper accounting for payments to the agent and lacking internal controls were enough to violate the FCPA.
Practical Considerations for Issuers Arising Out of these Cases
While we wait to see the enforcement strategy of the SEC under a Trump administration, the increasing ease with which the SEC has been able to find a violation of the FCPA’s books and records and internal controls provisions in recent years demonstrates the potency of the provisions.
These cases also demonstrate the degree to which the SEC will inquire into the minutiae of the anti-bribery and corruption compliance program of a company under investigation for potential violations of the FCPA. Errors and oversights in the filling out of internal approval forms, even without corrupt intent, may be enough to violate the FCPA.
These enforcement actions serve as a reminder to issuers of the importance of designing and implementing an appropriate risk-based anti-bribery and corruption compliance program. Perhaps more importantly, they also remind companies to make sure that their compliance program is regularly reviewed, tested and enhanced in an effort to avoid inadvertently “creating a risk” of bribery as a result of a compliance program that is out-dated or illdesigned to combat the bribery risks facing the company.
In particular, companies should consider the following:
Regular compliance program risk assessments are critical
: Be aware of the importance of regular internal risk assessments designed to continuously improve, periodically test and review your compliance environment. Testing, reviewing and enhancing your compliance program is the best defense against a claim that it may be inadequate or “creates a risk” of bribery.
Importance of internal controls that can be audited against to test their effectiveness
: Be aware of the need to not just develop and implement internal controls, but the need to develop internal controls that can be audited against to test their effectiveness. One of the best defenses against a charge of inadequate internal controls is to be able to place the results of testing and review of internal controls – and any remediation steps taken – in front of authorities.
Look to recent U.S. government guidance to understand how authorities will look at your compliance program and the questions they may ask in assessing its appropriateness
: In February 2017, the Fraud Section of the U.S. Department of Justice (“DOJ”), published a new set of sample questions that it may ask in the course of evaluating the effectiveness of a corporate compliance program, titled “Evaluation of Corporate Compliance Programs.” While the new questions have not come from the SEC and are largely based on a number of pre-existing U.S. government publications and guidance documents, they do provide additional insight on various topics, including the DOJ’s view of what companies should be asking themselves when undertaking risk assessments and periodic reviews of their compliance programs.
The design and structure of your company’s anti-bribery and corruption compliance program can be an FCPA risk
: The cases discussed in this article show that overseas subsidiaries, third party intermediaries, and corporate gifting and hospitality can be a source of bribery and corruption risk. Importantly, the cases also show that the design and structure of your anti-bribery and corruption compliance program can also present FCPA compliance risks. Companies should not just focus on external risks when conducting an anti-bribery and corruption risk assessment. Look at the workings of your internal risk processes and oversight mechanisms as well as they will be a focus of U.S. authorities as much as external facing risks.
  [FN/1] US Securities and Exchange Commission Press Release No. 2012-158: SEC Charges Oracle Corporation with FCPA Violations Related to Secret Side Funds in India (16 August 2012); Securities and Exchange Commission v. Oracle Corp., Civil Action No. CV-12-4310 CRB (N.D.Cal. August 16, 2012).
  [FN/2] Order Instituting Cease-and-Desist Proceedings, In the Matter of Cadbury Limited and Mondelez International, Inc., Rel. No. 79753 (January 6, 2017).
  [FN/3] Order Instituting Cease-and-Desist Proceedings, In the Matter of Las Vegas Sands Corp., Rel. No. 77555, File No. 3-17204 IV.C.1-2,4,13 (April 7, 2016).

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COMM_a215. M. Burke: “Not Another Brick in the Wall”

* Author: Michael Burke, Esq., michael.burke@agg.com, Arnall Golden Gregory LLP, Washington DC.
On 5 June 2017, Saudi Arabia, Bahrain, and the United Arab Emirates cut diplomatic ties with, and imposed an economic embargo on, Qatar. U.S. life sciences companies should be mindful that support for or compliance with this economic embargo against Qatar could violate U.S. law.
U.S. life sciences companies operating internationally should be aware of the Antiboycott Regulations at 15 C.F.R. Part 760 and administered by the Commerce Department. These regulations, and their counterpart administered by the Internal Revenue Service, prohibit U.S. businesses and persons from complying with any international economic boycott in which the U.S. does not participate. Most often, these regulations are cited in connection with the Arab League boycott of Israel. However, since as of the writing of this update the U.S. does not participate in the Saudi-led boycott of Qatar, U.S. life sciences companies should ensure that their antiboycott compliance disciplines observed in connection with commercial ties with Israel will be observed in connection with its commercial ties with Qatar.
The Antiboycott Regulations prohibit the following actions by U.S. companies:
  – Refusing or agreeing to refuse to do business with or in a boycotted country, with a national of a boycotted country or a boycotted person.
  – Refusing to employ or otherwise discriminating against a U.S. person, in deference to a boycott request, on the basis of race, religion, sex or national origin.
  – Furnishing information, in response to a boycott request, about the race, religion, sex or national origin of a U.S. person or any owner, officer, director or employee of a U.S. company or controlled in fact non-U.S. affiliate.
  – Furnishing information about any person’s past, ongoing, or proposed future relationships (or the absence of relationships) with other parties, if that information is sought for boycott-related reasons.
  – Furnishing information about any person’s association with or support for any charitable or fraternal organization supporting a boycotted country.
  – Paying, honoring, confirming or otherwise implementing a letter of credit that contains any prohibited boycott requirement or request.
Effective antiboycott compliance efforts require several steps. U.S. life sciences companies should train relevant employees to carefully review all oral and written communications to determine whether any boycott language is present. ‘Boycott language’ includes references to (i) a boycotted country when the transaction does not involve that boycotted country; (ii) a vessel or aircraft, used for shipping products, being able to enter the ports/airport of a boycotting country; (iii) ‘negative’ certificates of product origin (that goods are ‘not of Boycotted Country origin’); (iv) an insurance company having a qualified agent or representative in a boycotting country; (v) compliance with the laws or regulations of a boycotting country generally or boycott laws specifically; and (vi) information about a company’s relationships with a boycotted country. If any problematic boycott language is identified, the relevant transaction should be placed on hold and the specific language sent for review by the U.S. life sciences company’s export compliance officer.
Companies can seek to modify the problematic language to avoid violating U.S. Antiboycott Regulations. Regardless of whether a transaction goes forward, companies should collect required information necessary to ensure proper and timely reporting of any boycott requests to the Commerce and/or Treasury Departments. Commerce Department. Boycott requests must be reported (unless an exception applies), even if the prohibited or penalized action was not taken. Penalties for violations of the Antiboycott Regulations administered by the Commerce Department include civil penalties per violation of $250,000 or twice the value of the transaction, whichever is greater, and criminal penalties of $1 million per violation or 20 years’ imprisonment. The regulations administered by the Internal Revenue Service do not carry specific penalties, but violations of the regulations can result in adverse tax consequences for the U.S. life sciences company.

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COMM_a316. M. Volkov: “Two Steps Forward, One Step Back – Mixed Bag of Compliance Progress”

(Source: Volkov Law Group Blog. Reprinted by permission.)
* Author: Michael Volkov, Esq., Volkov Law Group, mvolkov@volkovlaw.com, 240-505-1992.
Companies are embracing the value of compliance and ethics. Interestingly, companies are implementing robust compliance programs, and enhancing such programs with a focus on ethical business values and decision-making. These are welcome signs of improvement and underscore the continued growth of compliance and ethics strategies as a basic part of corporate governance frameworks.
A recent survey conducted by Ethisphere and Convercent, 2017 Ethics and Compliance Survey, available here, reported some positive developments but contained some surprising results. Two key results reflect the elevation of the Chief Compliance Officer in the corporate governance landscape – 30 percent of CCOs report directly to the CEO, up from 16 percent as reported two years ago; and 49 percent of CCOs are now participating in strategic business decisions, suggesting that more CCOs have line of sight across the organization, and which is up from 39 percent as reported two years ago. Nearly half of all CCOs meet with CEOs more than one time each month.
CCOs continue to suffer from outdated technology and disconnected reporting and data systems. Incredibly, 88 percent of CCOs reported they are relying on handwritten spreadsheets to assemble and analyze data. Over 70 percent of CCOs rely on emails to collect data from other functions, and a large number of CCOs have to reach out to individual functions for data. Companies do not maintain seamless compliance reporting and data systems.
A large number of CCOs, approximately 65 percent, reported that they do not have sufficient time or resources to analyze compliance data, while 52 percent reported that compliance data is housed in disconnected systems.
A significant percentage of companies track employee complaints through hotline or website systems, but only 40 percent track in-person complaints through open door policies and procedures. The failure to track in-person complaints is troubling given the fact that almost three quarters of all employee complaints are reported in person by employees.
Just over 60 percent of CCOs report on company compliance programs to the CEO each quarter; 53 percent of CCOs report quarterly to the General Counsel; to percent of CCOs report to the internal Ethics and Compliance Committee; and 50 percent of CCOs report to the Audit Committee.
On the substance of CCO reporting, the survey revealed that CCOs generally report on training completion rates (78 percent); hotline statistics (74 percent), and investigation statistics (74 percent).
Ethisphere and Convercent provide several significant recommendations based on the survey results.
First, CCOs have to push companies to update technology and data systems to break down silos, increase coordination, and provide seamless access across reporting sections and functions. With the elevation of the compliance functions, companies are far behind the curve on available technology and unnecessarily burdening CCOs with outdated data systems.
Second, CCOs have to track open door employee reporting systems to analyze in-person complaints and concerns, as well as follow up investigations. Given the importance of in-person reporting systems, companies have to mine such data for important trends and concerns.

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COMM_a417. 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,
Reexport or retransfer of paragraph (x) items to end users or locations not currently approved in a TAA or MLA may be accomplished in two ways. The applicant may submit an amendment to expand the scope of the agreement, or the applicant may seek Commerce authorization for the reexport/ retransfer. Be advised that Commerce authorizations only apply to the paragraph (x) items; any expansion of territory for USML defense services, technical data, or hardware must be approved by State via the amendment process.

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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 [New effective date: 21 March 2017.]; and 82 FR 8590: Delay of Effective Date for Toxic Substance Control Act Chemical Substance Import Certification Process Revisions [New effective date: 21 March 2017.]

  – 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:
14 Jun 2017: 82 FR 27108-27110: Wassenaar Arrangement 2015 Plenary Agreements Implementation, Removal of Foreign National Review Requirements, and Information Security Updates; Corrections

: 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: 19 Apr 2017: 82 FR 18383-18393: Foreign Trade Regulations: Clarification on Filing Requirements 
  – HTS codes that are not valid for AES are available
  – The latest edition (19 Apr 2017) 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: 26 Apr 2017: Harmonized System Update 1703, containing 2,512 ABI records and 395 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 10 Jun 2017) of the ITAR with all amendments is contained in Bartlett’s Annotated ITAR (“BITAR”), by James E. Bartlett III.  The BITAR contains all ITAR amendments to date, plus a large Index, over 800 footnotes containing amendment histories, 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
.  BAFTR subscribers receive a 25% discount on subscriptions to the BITAR, please
contact us
to receive your discount code.

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. Weekly Highlights of the Daily Bugle Top Stories
(Source: Editors)

Review last week’s top Ex/Im stories in “Weekly Highlights of the Daily Bugle Top Stories” published 

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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 subscribers to inform 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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