20-0730 Thursday “Daily Bugle”

20-0730 Thursday “Daily Bugle”

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Thursday, 30 July 2020

  1. USTR: “Notice of Product Exclusion Extensions – China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation”
  1. Items Scheduled for Future Federal Register Edition
  2. Commerce/BIS: (No new postings)
  3. State/DDTC: (No new postings)
  4. Australia DEC: “Defence Export Controls Hypersonic Technologies and Australia’s Export Controls online Outreach”
  5. EU Council: “EU Confirms Autonomous Sanctions for a Year Against N. Korea”
  1. EU Sanctions: “EU Restricts Exports to Hong Kong of Equipment for Internal Repression”
  2. JD Supra: “DOJ and OFAC Settle with UAE Company for $665,112 for Violations of North Korea Sanctions”
  3. WORLDecr: “As UK Extends China Arms Embargo to Hong Kong, EU Announces Its Own Measures”
  1. Husch Blackwell: “USTR Grants Extensions to Products Subject to Section 301 List 2”
  2. Winston & Strawn: “Implications of the New Hong Kong Related Sanctions Restrictions”
  1. Bartlett’s Unfamiliar Quotations 
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Federal Register, 30 Jul 2020) [Excerpts]
85 FR 45949: Notice
* AGENCY: Office of the United States Trade Representative.
* ACTION: Notice of product exclusion extensions.
* SUMMARY: Effective August 23, 2018, the U.S. Trade Representative imposed additional duties on goods of China with an annual trade value of approximately $16 billion as part of the action in the Section 301 investigation of China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation. The U.S. Trade Representative initiated the exclusion process in September 2018 and, to date, has granted three sets of exclusions under the $16 billion action. The first set of exclusions was published in July 2019 and will expire in July 2020. On April 30, 2020, the U.S. Trade Representative established a process for the public to comment on whether to extend particular exclusions granted in July 2019 for up to 12 months. This notice announces the U.S. Trade Representative’s determination to extend certain exclusions through December 31, 2020.
* DATES: The product exclusion extensions announced in this notice will apply as of July 31, 2020, and extend through December 31, 2020. U.S. Customs and Border Protection will issue instructions on entry guidance and implementation.
* FOR FURTHER INFORMATION CONTACT: For general questions about this notice, contact Assistant General Counsels Philip Butler or Benjamin Allen, or Director of Industrial Goods Justin Hoffmann at (202) 395-5725. For specific questions on customs classification or implementation of the product exclusions identified in the Annex to this notice, contact traderemedy@cbp.dhs.gov.

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* Commerce/BIS: RULES; Export Administration Regulations:  Suspension of License Exceptions for Hong Kong [Pub. Date: 31 Jul 2020] (PDF)

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OGS_a23. Commerce/BIS: (No new postings)

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Australia DEC, 29 Jul 2020)
  Defence Export Controls (DEC) is presenting an online outreach event on Hypersonic Technologies and Australia’s Export Controls on Thursday 13 August 2020 from 9:30 – 10:30am (AEST).
  DEC is developing online and virtual formats for outreach to continue to provide information and support to stakeholders amidst current COVID-19 restrictions. Outreach is aimed at industry, academia and research institutions that are involved in the export, supply, publication or other movement of military and dual-use goods and technology. The goal of this program is to raise awareness of export controls by looking at when controls may apply, what is required of exporters, what to expect when applying, and the export landscape.
  This event is a sector specific presentation on Hypersonics and will be presented by Dr Michael West. Dr West has degrees in Aerospace Engineering and Science (majoring in Physics and Geophysics) from the University of Sydney and a PhD in Applied Physics from the Australian National University. Dr West has over a decade of experience with the Department of Defence and has worked in engineering analysis, policy and governance, and technical management roles that support the Defence capability development and acquisition process. Dr West is a Senior Member of the American Institute of Aeronautics & Astronautics (AIAA) and in 2018 received AIAA’s prestigious Lawrence Sperry Award for his contributions to the AIAA and the Australian aerospace sector.
Registration is via the Eventbrite site, which can be accessed 

Event Details: Thursday 13 August 2020, 9:30am – 10:30am (AEST)

Registration Open: 10am Wednesday, 29 July 2020 to 5pm Monday, 10 August

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  The Council today confirmed the list of individuals and entities subject to the EU’s autonomous sanctions against the Democratic People’s Republic of Korea (DPRK).
  As a consequence, the existing restrictive measures – travel ban and asset freeze – imposed on the listed persons and entities will continue to apply for one year, until the next annual review.
  The 57 listed individuals and 9 listed entities are subject to the above sanctions for contributing to the DPRK’s nuclear-related, ballistic-missile-related or other weapons of mass destruction-related programmes or for sanctions evasion.
  The EU’s sanctions against the DPRK are the toughest against any country. They were adopted in response to the country’s nuclear weapon and ballistic missile development activities, which are in breach of numerous UNSC resolutions. The EU has transposed all relevant UN Security Council resolutions and has in place its own autonomous sanctions regime with regard to the DPRK, which complements and reinforces the sanctions adopted by the UN. The UN has imposed sanctions on 80 persons and 75 entities.
  The EU has repeatedly expressed its strong conviction that lasting peace and denuclearisation of the Korean Peninsula must be achieved by peaceful means, and that the diplomatic process must be continued as the only way towards realising that goal. 
  The legal acts will be published in the Official Journal on 31 July 2020.

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EU Sanctions
, 29 Jul 2020) [Excerpts]
  The EU has adopted
in relation to China’s adoption of national security legislation for Hong Kong, which the EU considers to be of “grave concern”. The EU has agreed to impose restrictions on the export of “specific sensitive equipment and technologies for end-use in Hong Kong, in particular where there are grounds to suspect undesirable use relating to internal repression, the interception of internal communications or cyber-surveillance”. Press release
  Germany has also
that it will immediately cease exports of military equipment and sensitive dual-use goods to Hong Kong, and that exports to Hong Kong will now be treated in the same way as mainland China.

JD Supra
, 29 Jul 2020) [Excerpts]
  The Justice Department and OFAC announced a settlement with Essentra FZE Company Limited (“Essentra FZE”), a cigarette filter and tear tape manufacturer, for violation of the North Korea Sanctions Program.  The violations were based on payments for goods that were received by a foreign branch of a U.S. bank. 
Essentra FZE, a UAE company, manufactures and sells cigarette filters and tear tape for customers in the Middle East, Africa and elsewhere.  It is a subsidiary of Essentra plc, a UK pubic company, that manufacturers essential components, cigarette filters and packaging materials, with operations in 33 countries.  Prior to March 2019, Essentra FZE was owned by a joint venture between Essentra plc and a foreign-based tobacco company.
DOJ stated that the enforcement action was its first against a corporate actor for violation of the North Korea Sanctions Regulations. DOJ’s participation in the settlement, and inclusion of the DPA, reflected DOJ’s application of its 
Export Control and Sanctions Enforcement Policy for Business Organizations.  Based on this Enforcement Policy, DOJ’s participation in sanctions enforcement matters is expected to increase.
The Illegal Transactions
  Essentra FZE exported cigarette filters to the Democratic People’s Republic of Korea (“DPRK”) through a network of front companies in China and other countries and received payments for shipments of these goods in its bank accounts at a foreign branch of a U.S. bank.
The scheme occurred over roughly a one-year period starting in 2018, when a senior manager from Essentra FZE and an employee were introduced to a DPRK national at a business meeting arranged by the regional director of a foreign tobacco company.  The DPRK national asked if Essentra FZE could manufacture cigarette filter rods to export to the DPRK.
Subsequently, the Essentra FZE employee exchanged messages with the DPRK national who instructed, “[D]on’t mention that customer is in my country… You just mention China or where else. Contract will be signed by other foreign company.” The DPRK national asked Essentra FZE to avoid identifying the DPRK several times. 
OFAC Penalty Calculation
  OFAC outlined its penalty calculation – the maximum civil penalty was $923,766.  Essentra FZE did not voluntarily disclose the conduct.  OFAC determined that the violations constituted an egregious case.  The base civil penalty was $923,766.
OFAC agreed to a discount to $665,112 based on the following aggravating and mitigating factors:

Aggravating Factors
  • Essentra FZE willfully violated the North Korea Sanctions Regulations (“NKSR”);
  • The Essentra FZE senior manager and employee had actual knowledge that the conduct involved the sale of cigarette filters to the DPRK.
  • Essentra FZE’s conduct significantly harmed foreign policy objectives.
  • Essentra FZE is part of a sophisticated commercial group operating in international filters markets around the world.
Mitigating Factors:
  • Essentra FZE has not received a prior penalty notice or finding of violation in the preceding five years.
  • Essentra FZE cooperated substantially with OFAC’s investigation.
  • OFAC noted that the settlement prohibited processing financial transactions even though no U.S. persons were involved in the underlying commercial activity – shipment of goods to or from a third country to an OFAC-sanctioned country. 

WORLDecr, 30 Jul 2020) [Excerpts]
  Days after the United Kingdom announced it would be extending its arms embargo on China to Hong Kong – in response to a controversial national security law that Beijing imposed on the former British colony in late June – the European Union said it is following suit with its own measures.
  ‘Given the role China has now assumed for the internal security of Hong Kong, and the authority it is exerting over law enforcement, the UK will extend to Hong Kong the arms embargo that we have applied to mainland China since 1989,’ UK Foreign Secretary Dominic Raab told the House of Commons in a 20 July statement.
  The UK’s Department of International Trade’s Export Control Joint Unit (‘ECJU’) said the prohibition restricts exports of potentially lethal weapons, their components or ammunition and equipment which might be used for internal repression.
  It said restrictions apply to:
  • Lethal weapons, such as machine guns, large-calibre weapons, bombs, torpedoes, rockets and missiles.
  • Specially designed components of the above and ammunition.
  • Military aircraft and helicopters, vessels of war, armoured fighting vehicles and other weapons platforms.
  • Any equipment which might be used for internal repression.
  The ECJU added that open general licences that include Hong Kong ‘will be changed or amended to bring them in line with restrictions on China.’
The EU on Tuesday agreed its own package of measures in response to China’s actions over Hong Kong, including an export restriction to Hong Kong of any equipment or technology that can be used for ‘internal repression, interception of internal communications or cyber surveillance’. …


* Principal Author: Camron J. Greer, 1-202-378-2413, Husch Blackwell LLP
  The Office of the U.S. Trade Representative (“USTR”) announced that it will extend certain product exclusions that were scheduled to expire on July 31, 2020 for fourteen (14) specific products subject to Section 301 List 2 tariffs at a rate of 25%.  As a result of these extensions, the exclusions will now expire on December 31, 2020.
  The products for which the Section 301 exclusions were extended include the following:
  (1) Polytetrafluoroethylene ((C2F4)n), having a particle size of 5 to 500 microns and a melting point of 315 to 329 degrees Celsius (described in statistical reporting number 3904.61.0090);
  (2) Polyethylene film, 20.32 to 198.12 cm in width, and 30.5 to 2000.5 m in length, coated on one side with solvent acrylic adhesive, clear or in transparent colors, whether or not printed, in rolls (described in statistical reporting number 3919.90.5060);
  (3) Rectangular sheets of high-density or low-density polyethylene, 111.75 cm to 215.9 cm in width, and 152.4 cm to 304.8 cm in length, with a sticker attached to mark the center of each sheet, of a kind used in hospital or surgery center operating rooms (described in statistical reporting number 3920.10.0000);
  (4) Gasoline or liquid propane (LP) engines each having a displacement of more than 2 liters but not more than 2.5 liters (described in statistical reporting number8407.90.9010);
  (5) Dispensers of hand-cleaning or hand-sanitizing solutions, whether employing a manual pump or a proximity-detecting battery-operated pump, each article weighing not more than 3 kg (described in statistical reporting number 8424.89.9000);
  (6) Walk behind rotary tillers, electric powered, individually weighing less than 14 kg (described in statistical reporting number 8432.29.0060);
  (7) AC motors, of 18.65 W or more but not exceeding 37.5 W, each with attached actuators, crankshafts or gears (described in statistical reporting number 8501.10.6020);
  (8) Position or speed sensors for motor vehicle transmission systems, each valued not over $12 (described in statistical reporting number 8543.70.4500);
  (9) Wheel speed sensors for anti-lock motor vehicle braking systems, each valued not over $12 (described in statistical reporting number 8543.70.4500);
  (10) Apparatus using passive infrared detection sensors designed for turning lights on and off (described in statistical reporting number 8543.70.9960);
  (11) Liquid leak detectors (described in statistical reporting number 8543.70.9960);
  (12) Robots, programmable, measuring not more than 40 cm high by 22 cm wide by 27 cm deep, incorporating an LCD display, camera and microphone but without “hands” (described in statistical reporting number 8543.70.9960);
  (13) Motorcycles (including mopeds), with reciprocating internal combustion piston engine of a cylinder capacity not exceeding 50 cc, valued not over $500 each (described in statistical reporting number 8711.10.0000);
  (14) Digital clinical thermometers (described in statistical reporting number 9025.19.8040 prior to July 1, 2020; described in statistical reporting number 9025.19.8010 or 9025.19.8020 effective July 1, 2020).
  USTR requested comments in April on whether it should extend the exclusions, which were originally issued on July 31, 2019. Over 50 products which were previously granted exclusions and were not listed in this extension notice will now expire on July 31, 2020.
  To view the full list of extended product exclusions, please click here.

* Principal Author: Christopher B. Monahan, 1-202-282-5778, Winston & Strawn LLP

  On June 30, 2020, the People’s Republic of China (PRC) passed the “Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region” (National Security Law), implementing new national security measures in Hong Kong, which previously fell outside of PRC’s jurisdiction based on the “one country, two systems” principle in place since Hong Kong’s return to China from the United Kingdom in 1997.
  As a result of the enactment of the National Security Law, on July 14, President Trump signed into law the Hong Kong Autonomy Act (HK Autonomy Act) and simultaneously issued Executive Order 13936, on Hong Kong Normalization (HK Normalization E.O.) that implements many of its provisions. 
Designation Authority 
  As explained in detail in the background section, the HK Normalization E.O. changes the structure of the HK Autonomy Act and provides the immediate authority to impose sanctions on certain individuals, i.e., it is not necessary to wait until the U.S. Department of State (State) issues a report within 90 days of the implementation of the HK Autonomy Act. This, of course, accelerates the need for companies and Financial Institutions (FIs) doing business in Hong Kong and China to adjust compliance programs in order to ensure they are nimble and can address potentially rapidly evolving events. 
Exposure to Sanctioned Entities or Exposed to Potential Sanctions 
  Even when companies are not engaged in activities covered by the HK Autonomy Act or HK Normalization E.O., there is a risk for counterparties, business partners, etc., to be designated. When subject to U.S. jurisdiction, a company shall freeze any business relationship with a designated entity. Given the extraterritoriality effect of U.S. sanctions, even if a company is not subject to U.S. jurisdiction they may face a secondary designation themselves or pressure from FIs or counterparties to comply with U.S. sanctions.
Foreign Financial Institutions (FFIs)
  Under the HK Autonomy Act, State shall identify FFIs that undertake a “significant” transaction for a designated person and to incentivize the FFI to change its behavior by only mandating sanctions 12 months later if the FFI remains on the list. Note that the definition of FFI used in the new legislation is broad and includes insurance companies, travel agencies, pawnbrokers, etc.
The Treasury Report that will be issued between November 11 and December 10 (30 to 60 days from enactment) likely will identify a significant number of FFIs. If an FFI is mentioned in the report, other FIs and companies need to consider the risk of dealing with such entities, as they might be sanctioned within a year of their inclusion in the report. This could include large Chinese banks, insurers, other financial institutions, and others (based on the broad definition).
Conflicting Compliance Obligations 
  The National Security Law, passed after over a year of pro-democracy protests in Hong Kong, targets protest activities and sets strict penalties, including a maximum sentence of life in prison for secession, subversion, terrorism, and collusion with foreign or external forces. It also imposes liability on accessories who assist in these offences. Assistance can be in the form of abetting, inciting or providing financial assistance for the commission of those offences. More importantly, Article 29 prohibits anyone from “directly or indirectly” receiving instructions from a foreign country to impose sanctions against Hong Kong. The National Security Law also has extraterritorial application.
  In practice, FIs and companies doing business in Hong Kong and subject to U.S. jurisdiction or involved in transactions with U.S. nexus, should carefully assess the practical risks under both the National Security Law and U.S. economic sanctions.
HK Autonomy Act 
  Since 2019, and as response to the protests in Hong Kong, the United States has taken measures to create the authority to impose sanctions. In particular, the President signed into law the “2019 Hong Kong Human Rights and Democracy Act” amending the United States-Hong Kong Policy Act of 1992 which, among other customs and import privileges, allowed free exchanges between the U.S. dollar and the Hong Kong dollar. Further, Congress passed unanimously the HK Autonomy Act creating the structure for the potential future imposition of sanctions. In particular, it requires State to issue a report within 90 days after its enactment and annually thereafter (the first such report due by October 12, 2020).
  The Hong Kong Autonomy Act will initially allow (but not require) the President to impose blocking sanctions and/or visa restrictions on persons (entities and individuals) named in the State report. Subsequently, and within one year of the inclusion in the report, sanctions would become mandatory.
  The new Act also targets FFIs, as defined by the U.S. Bank Secrecy Act, 31 U.S.C. § 5312(a). Specifically, 30 to 60 days after State submits its report, the U.S. Department of the Treasury (Treasury) in consultation with State, must submit a report to Congress identifying FFIs that “knowingly conduct a significant transaction with a foreign person identified in the report.” Within one year of including an FFI in the report, the President would be required to impose at least five of the menu of sanctions described below. Within two years of the inclusion in the Treasury report, the President would be required to impose all ten restrictions provided in the menu of sanctions. The restrictions are as follows:
(1) Prohibition on U.S. banks from lending or providing credit;    (2) Prohibition on designation as primary dealer; (3) Prohibition on service as a repository of the U.S. government; (4) Prohibition on foreign exchange transactions when subject to U.S. jurisdiction; (5) Prohibition of transfers, credits or payments between financial institutions; (6) Prohibition in dealing or transacting with property subject to U.S. jurisdiction; (7) Prohibition on exports, reexports, and transfers; (8) Ban of investment in equity or debt of the FFI; (9) Exclusion from the U.S. of alien corporate officers or shareholders with controlling interests; (10) Similar sanctions (1 to 8) to principal executive officers.
  The President may impose sanctions on other non-U.S. persons mentioned in that initial State report or any subsequent report. If the non-U.S. person is mentioned in any two reports the President “shall” impose blocking sanctions.
HK Normalization E.O
  The HK Normalization E.O. creates, in practice, a new Hong Kong / China-related sanctions program targeting non-U.S. persons making “material contributions” to help the situation evolve from ‘one country, two systems’ to one-country, one system. Note that the effects of the new Hong Kong related measures on export controls is treated in a separate alert.
The HK Normalization E.O. provides additional designation criteria beyond those enumerated in the Hong Kong Autonomy Act. Specifically, it grants either the Secretary of State or the Secretary of the Treasury (in consultation with the other) to designate for blocking sanctions any non-U.S. person they determine to:
*       Be, or have been, involved directly or indirectly, in the coercing, arresting, detaining, or imprisoning of individuals under the authority of, or to be, or have been, responsible for or involved in developing, adopting, or implementing, the National Security Law;
*       Be responsible for or complicit in, or to have engaged in, directly or indirectly, in (i) actions or policies that undermine democratic processes or institutions in Hong Kong; (ii) actions or policies that threaten the peace, security, stability, or autonomy of Hong Kong; (iii) censorship or other activities with respect to Hong Kong that prohibit, limit, or penalize the exercise of freedom of expression or assembly by citizens of Hong Kong, or that limit access to free and independent print, online or broadcast media; or (iv) the extrajudicial rendition, arbitrary detention, or torture of any person in Hong Kong or other gross violations of internationally recognized human rights or serious human rights abuse in Hong Kong;
*       Be, or have been, a leader or official of: (i) an entity, including any government entity, that has engaged in, or whose members have engaged in, any of the activities described in subsections (a)(i), (a)(ii)(A), (a)(ii)(B), or (a)(ii)(C) of this section; or (ii) an entity whose property and interests in property are blocked pursuant to this order;

*       Have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, any person whose property and interests in property are blocked pursuant to this section.


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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.  The latest amendments are listed below.
Latest Update 
: 19 CFR, Ch. 1, Pts. 0-199.


5 Apr 2019: 84 FR 13499:

Civil Monetary Penalty Adjustments for Inflation. 
22 Jul 2020: 85 FR 44159: Addition of Certain Entities to the Entity List; Revision of Existing Entries on the Entity List.

DOC FOREIGN TRADE REGULATIONS (FTR): 15 CFR Part 30.   24 Apr 2018: 83 FR 17749: Foreign Trade Regulations (FTR): Clarification on the Collection and Confidentiality of Kimberley Process Certificates.  

: DoD 5220.22-M. Implemented by Dep’t of Defense. 

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 cancelled Supp. 1 to the NISPOM (Summary here.)  
DOE ASSISTANCE TO FOREIGN ATOMIC ENERGY ACTIVITIES: 10 CFR Part 810.    23 Feb 2015: 80 FR 9359: comprehensive updating of regulations, updates the activities and technologies subject to specific authorization and DOE reporting requirements. 

15 Nov 2017, 82 FR 52823: miscellaneous corrections include correcting references, an address and a misspelling.

DOJ ATF ARMS IMPORT REGULATIONS: 27 CFR Part 447-Importation of Arms, Ammunition, and Implements of War. 
14 Mar 2019: 84 FR 9239: Bump-Stock-Type Devices.



29 Jul 2020: 85 FR 45513 Extension to Certain Temporary Suspensions, Modifications, and Exceptions due to Corona Virus.  The latest edition of the BITAR is 29 July 2020. 


DOT FOREIGN ASSETS CONTROL REGULATIONS (OFAC FACR): 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders

17 Jul 2020:
85 FR 43436:
Nicaragua Sanctions Regulations. 


1 Jan 2019: 19 USC 1202 Annex.
  – HTS codes for AES are available here.
  – HTS codes that are not valid for AES are available here.

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