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Copy of 17-0509 Tuesday “Daily Bugle”

17-0509 Tuesday “Daily Bugle”

Tuesday, 9 May 2017

TOPThe 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. Commerce/BIS Seeks Comments on National Security Investigation of Aluminum Imports and Announces Related Public Hearing on 22 Jun in Wash DC 
  1. Ex/Im Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.) 
  3. Commerce/ITA Posts Reminder on Request for Input on Factors Contributing to the U.S. Trade Deficit 
  4. DHS/CBP Updates ACE CATAIR Documentation  
  5. State/DDTC: (No new postings.) 
  6. UK/HM R&C Releases Customs Information Paper Concerning the EU Export Control System Upgrade  
  1. IndustryWeek: “Managing Export Documents: The Hidden Risks and Opportunities” 
  2. Reuters: “Germany Eyes New Sanctions Against North Korea”
  3. RT: “Russia Slams US Arms Control Report as ‘Biased’, Says it Ignores Washington’s Violations” 
  4. The Washington Times: “Gunmakers Want Oversight Shift From State to Commerce” 
  1. M. Fürstenau: “Arms Control is Needed in Cyberspace” 
  2. P.V. Kelly & R.C. McCullough: “Department of Justice Renews Commitment to Enforcement of FCPA” 
  3. W.L. Wysong & N. Turner: “Supply Chains Rattled By Hidden U.S. Sanctions Risks: A Case for Thorough Due Diligence” 
  4. Q. Michel & I. Stewart: “Brexit and Strategic Trade Controls: Key Implications” 
  5. 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 (18 Apr 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 

EXIMEX/IM ITEMS FROM TODAY’S FEDERAL REGISTER

 
82 FR 21509-21511: Notice of Request for Public Comments and Public Hearing on Section 232 National Security Investigation of Imports of Aluminum
 
* AGENCY: Bureau of Industry and Security, Office of Technology Evaluation, U.S. Department of Commerce.
* ACTION: Notice of request for public comments and public hearing.
* SUMMARY: The Secretary of Commerce initiated an investigation to determine the effects on the national security of imports of aluminum. This investigation has been initiated under section 232 of the Trade Expansion Act of 1962, as amended. 
Interested parties are invited to submit written comments, data, analyses, or other information pertinent to the investigation to the Department of Commerce’s Bureau of Industry and Security.
 The Department of Commerce will also hold a public hearing on the investigation on 22 June 2017, in Washington, DC.
  This notice identifies the issues on which the Department is interested in obtaining the public’s views. It also sets forth the procedures for public participation in the hearing.
* DATES: Comments may be submitted at any time but must be received by 29 June 2017. The hearing will be held on 22 June 2017, at the U.S. Department of Commerce auditorium, 1401 Constitution Avenue NW., Washington, DC 20230. The hearing will begin at 10:00 a.m. local time and conclude at 1:00 p.m. local time.
* ADDRESSES: Written comments: Send written comments to Brad Botwin, Director, Industrial Studies, Office of Technology Evaluation, Bureau of Industry and Security, U.S. Department of Commerce, 1401 Constitution Avenue NW., Room 1093, Washington, DC 20230 or by email to Aluminum232@bis.doc.gov.
  Public hearing: Send requests to speak and written summaries of the oral presentations to Brad Botwin, Director, Industrial Studies, Office of Technology Evaluation, Bureau of Industry and Security, U.S. Department of Commerce, 1401 Constitution Avenue NW., Room 1093, Washington, DC 20230 or by email to Aluminum232@bis.doc.gov, by 15 June 2017. Any person, whether presenting or not, may submit a written statement through 29 June 2017–seven days after the hearing date.
* FOR FURTHER INFORMATION CONTACT: Brad Botwin, Director, Industrial Studies, Office of Technology Evaluation, Bureau of Industry and Security, U.S. Department of Commerce, (202) 482-4060, brad.botwin@bis.doc.gov. For more information about the section 232 program, including the regulations and the text of previous investigations, see www.bis.doc.gov/232.
* SUPPLEMENTARY INFORMATION: …
  The Department is particularly interested in comments and 
information directed to the criteria listed in Sec. 705.4 of 
the regulations as they affect national security, including the 
following: (a) Quantity of or other circumstances related to the 
importation of aluminum; (b) Domestic production and productive  capacity needed for aluminum to meet projected national defense requirements; (c) Existing and anticipated availability of human resources, products, raw materials, production equipment, and facilities to produce aluminum; (d) Growth requirements of the aluminum industry to meet national defense requirements and/or requirements to assure such growth; (e) The impact of foreign competition on the economic welfare of the aluminum industry; (f) The displacement of any 
domestic aluminum causing substantial unemployment, decrease in the revenues of government, loss of investment or specialized skills and productive capacity, or other serious effects; (g) Relevant factors that are causing or will cause a weakening of our national economy; and (h) Any other relevant factors. …
 
  Dated: May 3, 2017.
Wilbur Ross, Secretary of Commerce. 

* * * * * * * * * * * * * * * * * * * * 

OGS
OTHER GOVERNMENT SOURCES

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

(Source: Federal Register)

* President; ADMINISTRATIVE ORDERS;
  – Central African Republic; Continuation of National Emergency (Notice of 9 May 2017) 
[Publication Date: 10 May 2017.]
  – Syria; Continuation of National Emergency (Notice of 9 May 2017)[Publication Date: 10 May 2017.]
  – Yemen; Continuation of National Emergency (Notice of 8 May 2017) [Publication Date: 10 May 2017.]

* * * * * * * * * * * * * * * * * * * *

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

(Source: Commerce/BIS

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OGS_a34.

Commerce/ITA Posts Reminder on Request for Input on Factors Contributing to the U.S. Trade Deficit

 
The Trump administration is analyzing the causes of America’s persistent and massive trade deficits. U.S. Secretary of Commerce Wilbur Ross is asking for input from American stakeholders on the factors that contribute to the more than $500-billion-annual goods and services trade deficit facing the United States. The comment period is already underway with the deadline for submissions tomorrow, Wednesday, 10 May. The Department of Commerce and the United States Trade Representative will hold a public hearing on Thursday, 18 May, at the U.S. Department of Commerce in Washington D.C., at 9:30 am.
 
This hearing and request for comments allows all American stakeholders to provide relevant information on the effects of international trade with the countries with which the United States has significant bilateral trade deficit in goods.
 
Reducing or eliminating these trade deficits will usher in a new era of prosperity for American companies and workers. If your company or industrial sector is experiencing problems exporting goods or services to China, Mexico, Europe, Japan, India, Korea or any other major foreign market, then we want to hear your story, as well as your ideas on how to fix the trade deficit. We also want to hear from you if your company or sector is being harmed by illegally subsidized or dumped foreign imports.
 
Comments will be submitted in a report to President Trump. This information will help the administration renegotiate trade deals and more effectively deter and punish trade abuses when they occur. Differential tariffs, non-tariff barriers, dumping, and unfair subsidies have reduced exports, harmed American workers, and shuttered U.S. businesses. The report will include an examination of how the United States’ trade relationships impact job creation and wage growth at home.
 
Information on submitting comments or requests to appear at the hearing can be found here.

* * * * * * * * * * * * * * * * * * * *

OGS_a45.

DHS/CBP Updates ACE CATAIR Documentation

(Source: CSMS# 17-000268, 9 May 2017.)

Automated Broker Interface
 
On May 8, 2017, CBP posted updated CATAIR documentation related to Statements. To download a copy of the updated CATAIR Chapters, please visit the “ACE ABI CATAIR” page of CBP.gov/ACE. You may also copy and paste the URL below to your internet browser:
 
  – Draft Chapters – Statement Processing: Request Reroute (click here)
  – Supporting Documents – ACE Statement Error Dictionary (click here)
  – Appendices – Appendix G – ACE ABI Condition Codes and Narrative Text Reference Inform (click here)

* * * * * * * * * * * * * * * * * * * *

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OGS_a67.

UK/HM R&C Releases Customs Information Paper Concerning the EU Export Control System Upgrade

 
The UK Her Majesty’s Revenue & Customs Department (HM R&C) has released the “Customs Information Paper 8 (2017) Concerning the Export Control System EU Update of 1 October 2017”.
 
This Customs Information Paper explains changes to the destination type for export declarations which have been introduced by the EU Commission.
 
The paper is available here

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NWSNEWS

NWS_a18.

IndustryWeek: “Managing Export Documents: The Hidden Risks and Opportunities”

(Source:
IndustryWeek) [Excerpts.]
 
Document management takes on a new meaning when small and midsize manufacturers enter the export market. Manufacturers already contend with a high volume of documents to process and manage – whether it’s invoices, regulatory forms or purchase orders. The document-management game can become even more complex when manufacturers decide to export.
 
Common documents, such as customer agreements, may require additional or different language to comply with laws in the country of destination.
 
  “Every country or jurisdiction has unique regulations that can cover and impact sometimes surprising aspects of a contract,” says Francis Dion, CEO of Xpertdoc, a document management and customer communications technology provider.
 
For example, in France it’s illegal to demand terms longer than “end-of-month plus 45 days,” Dion says. Also, in Quebec, Canada, a vendor can likely get a client to accept a contract or proposal written in English, but manufacturers might also need to include a statement in French or a court might deem the contract null and unenforceable, Dion explains.
 
In some instances, small and midsize enterprises (SMEs) might be missing opportunities to take advantage of tax incentives if they don’t properly document or track their export sales. … 

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NWS_a29.

Reuters: “Germany Eyes New Sanctions Against North Korea”

 
The German government plans to implement new economic sanctions against North Korea over its nuclear program, German newspaper Sueddeutsche Zeitung and broadcasters NDR and WDR reported on Tuesday.
 
The report cited the foreign ministry as saying that the planned measures were being coordinated with the chancellery and other government agencies and they would be implemented soon.
 
Specifically, Germany plans to ban North Korea’s operation of a hostel and conference center at the site of the North Korean embassy in the center of Berlin, according to the report. 

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NWS_a310.

RT: “Russia Slams US Arms Control Report as ‘Biased’, Says it Ignores Washington’s Violations”

(Source:
Russia Today) [Excerpts.]
 
The Russian Foreign Ministry has criticized an annual report by the US State Department on global arms control, saying Washington remains in denial about its own misdeeds, while accusing other nations of violations.
 
The US report, released earlier this month [April], reviewed several international treaties on arms control, non-proliferation and reduction in which the US has an interest. It stated that the US has been in compliance with its own obligations under those treaties and accused several other nations, including Russia, of deviating from theirs.
 
In a statement Saturday, the Russian Foreign Ministry said Washington’s report was biased and failed to acknowledge issues with America’s adherence to its international obligations.
 
  “The US claims it has monopoly rights in assessing other nations’ compliance with treaties. Washington does this in a lecturing manner and ignores the established practice for settling points of dispute through corresponding multilateral mechanisms,” the statement said. 
It also accused the US of bringing “unfounded accusations” and trying to conceal its own violations of international arms control treaties.
 
In recent years, Russia has received a “growing [amount] of evidence showing that the reasons for such actions by the US by no means consist in a reluctance to burden itself with a difficult and lengthy expert dialogue, but rather lie in something much more serious – in Washington’s fear of being exposed as a [state] bringing unfounded accusations against other countries, as well as the US’s own violations of international arms control treaties,” the Russian Foreign Ministry said.
 
It went on to say that it was particularly “not the first time, when the US side repeats trite accusations against Russia concerning its alleged violations of the Treaty on Open Skies,” adding that the US “keeps quiet about their own violations … of [this treaty] as well as about violations committed by their NATO allies and other states affiliated with the US.”
 
First signed in March 1992, the Open Skies Treaty entered into force in 2002 and now has 34 states as signatories, including Russia, the US and most European countries. The agreement allows its participants to conduct unarmed surveillance flights over the entire territory of other countries and to gather information about those countries’ armed forces to enhance mutual understanding and trust.
 

In total, the Russian Foreign Ministry listed 11 complaints Moscow has with Washington relating to arms control and nonproliferation. Many of these issues are also mentioned in the American report, but it only states that the US is in full compliance with its obligations. … 

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NWS_a411.

The Washington Times: “Gunmakers Want Oversight Shift From State to Commerce”

 
The gun industry wants the Trump administration to move oversight of certain gun and ammunition exports from the State Department to the Commerce Department, saying the State Department is snaring gunsmiths and hobbyists in arcane rules and fees.
 
Industry officials said the State Department effectively puts standard handguns on nearly equal footing with military-grade weaponry such as aircraft, missiles and explosives, imposing restrictions that are far tighter than they need to be. 
The department also charges a $2,250 fee for those who fall under its purview.
 
  “When you’re exporting what’s clearly a commercial item, but it’s being treated as if it’s a grenade launcher, it’s a little tough,” said Frank Harris, vice president of sales and marketing at Kahr Firearms Group.
 
The State Department has oversight because of a law requiring manufacturers of “defense” items, which include certain semiautomatic firearms, silencers and ammunition, to register with the department and pay the associated fee.
 
But industry officials said many of those items don’t belong in the same conversation as military-grade technology. … 

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COMMCOMMENTARY

COMM_a112.

M. Fürstenau: “Arms Control is Needed in Cyberspace”

* Author: Marcel Fürstenau, journalist, Deutsche Welle (DW). 

After spending the past week at cyber conferences, DW’s Marcel Fürstenau is unsure what to do about virtual dangers – but says confidence-building measures are crucial.
 
More prosperity, more democracy, and more peace – the promises of the internet were too good to be true. Although the worldwide web does make everyday life easier in every corner of this earth, it is only one, beautiful side of the coin. When you flip the coin, you see many ugly facets: fraudsters, liars and warriors. They clear out online bank accounts, spread fake news and paralyze power plants. Cybercrime is booming. The same holds true for events where businesses, politicians and scientists discuss counterstrategies. Two high-level conferences were recently held in Berlin and the neighboring city of Potsdam. There, IT specialists, managers, presidents of German security agencies and military officials took part in discussions. What they reported with certainty was worrisome: Cybercrime, a booming sector, is difficult to control. The rise of nefarious internet deeds can be attributed to private, but also state offenders. Perpetrators are rarely investigated or charged.

Sometimes Reminiscent of the Cold War
 
Hans-Georg Maaßen, head of Germany’s domestic intelligence agency, openly admits that he does not know the full extent of cyberattacks. Nobody knows what data may have fallen into the wrong hands after the cyberattack on the German Bundestag in 2015. It is completely uncertain what may still be done with the data, for example in the upcoming federal election campaign. Maaßen is convinced that the attackers were from Russia. One can always depend on former secret service man Vladimir Putin to influence German politics by initiating virtual conflicts.
Nevertheless, it is risky to more or less openly pillory him. The scenario is reminiscent of the Cold War era, when the East and West goaded each other into rhetorical and military escalations. The ice began to thaw, albeit slowly, at the Conference for Security and Cooperation in Europe (CSCE) in the 1970s. Although the military buildup continued for a while, there was at least a reliable dialogue forum with binding rules. Something comparable is necessary on a global scale in order to better manage the dangers in cyberspace today.

A Security Problem: Too Few IT Specialists
 
There have already been some heartening approaches on a national level in Germany. The annual Potsdam Conference for National Cyber Security, which has just come to a close, took place for the fifth time. Hosted by the Hasso Plattner Institute from the University of Potsdam, it brought together experts from IT companies, politicians, researchers and heads of security authorities. However, many of these groups are quite hesitant about interacting because of underlying different interests. Businesses want to offer their customers secure products, for example, software for the encryption of electronic communication. Intelligence agencies, on the other hand, are working on virtual monitoring programs to put a stop to terrorism and other crimes. Highly qualified IT specialists are needed for this and there are very few of them. Businesses and governments are thus competing for the same bright minds.
 
Traditional International Laws Do Not Help
 
The German Armed Forces, the Bundeswehr, who have also joined the competition, began building cyber troops (CIR) in April. In military logic, building an army to ward off virtual attacks is mandatory. However, it is only moving on a potential battlefield with invisible opponents, as cyberwar works the same as cybercrime does: anonymously. This crucial difference to the real world raises serious legal and ethical questions. Who do I fight against, and with what means, if I do not know my enemy? One cannot answer such questions using traditional international law. Only diplomats can find answers to this virtual arms race – on the highest level, at the UN. It may sound like an illusion, but the world does need arms control in cyberspace. In critical cases it may even need something like the Geneva Convention. But rules like this were developed for real, face to face battles, and not ones that are fought anonymously with the click of a mouse.

* * * * * * * * * * * * * * * * * * * *

 
* Authors: Paul V. Kelly, Esq.,
Paul.Kelly@jacksonlewis.com
; and Ramsay C. McCullough, Esq.,
Ramsay.McCullough@jacksonlewis.com
. Both of Jackson Lewis P.C., Boston and Norfolk, respectively.
 
During his campaign, President Donald Trump raised uncertainty with statements that he disapproved of the Foreign Corrupt Practices Act. Since then, however, the Department of Justice has emphasized its continued enforcement efforts for Foreign Corrupt Practises Act (FCPA) violations.
 
On April 18, 2017, at the Anti-Corruption, Export Controls & Sanctions Compliance Summit, DOJ’s Acting Principal Assistant Attorney General Trevor McFadden made the first statements from a top government official since President Trump took office concerning the FCPA.
 
First, McFadden reiterated the DOJ’s commitment to the concepts articulated in the Yates Memorandum. The Yates Memorandum, issued on September 9, 2015 by the then-Deputy Attorney General Sally Yates, emphasized that DOJ would focus on the role of the individual in criminal misconduct, as opposed to simply that of the corporation. McFadden said DOJ will continue to hold individuals accountable for corporate misconduct.
 
Second, McFadden repeated support for the concepts behind the FCPA Pilot Program, stating, “[T]he department regularly takes into consideration voluntary self-disclosures, cooperation and remedial efforts when making charging decisions involving business organizations.” On April 5, 2016, the Department of Justice released a FCPA Enforcement Plan and Guidance on enforcement, announcing an FCPA enforcement pilot program to promote greater accountability for individuals and companies that engage in corporate crime by motivating voluntary self-disclosure of FCPA-related misconduct, full cooperation with DOJ, and, where appropriate, remediating flaws in controls and compliance programs.
 
Third, on the speed and length of FCPA investigations, McFadden said that the DOJ is compelled to investigate “expeditiously” and conclude investigations as soon as possible. He stated that companies must be prepared to meet the DOJ’s desire for speed with prompt and thorough investigations.  Companies working with the DOJ must “prioritize internal investigations and … respond to Fraud Section requests promptly to ensure there are no unnecessary delays.” McFadden said this faster resolution process will “be good for cooperating companies.  No executive wants to deal with a lingering government investigation or the associated costs and distraction from the company’s mission.” Ultimately, McFadden said, it was his “intent … for our FCPA investigations to be measured in months, not years.”
 
On April 24, 2017, Attorney General Jeff Sessions at the Ethics and Compliance Initiative Annual Conference reemphasized the DOJ’s commitment to enforcing the FCPA. He stated generally that the DOJ will continue to prosecute corporate fraud and acknowledged “one area where this is critical is enforcement of the Foreign Corrupt Practices Act.”  Bolstering McFadden’s earlier statements concerning the Yates Memorandum, he reiterated that the DOJ will seek to hold individuals accountable for corporate wrongdoing.  Lastly, pointing to the importance of corporate compliance programs, Sessions affirmed that DOJ would continue to look favorably on corporations that have good compliance programs, cooperate during government investigations, self-disclose wrongdoing, and take steps to remediate identified problems.
 
Jackson Lewis attorneys have deep experience representing corporations, businesses and executives in FCPA investigations and are available to advise companies and individuals involved in government investigations, to conduct prompt and thorough internal investigations, or to defend such persons or entities if and when criminal charges are filed.

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COMM_a0314.

W.L. Wysong & N. Turner: “Supply Chains Rattled By Hidden U.S. Sanctions Risks: A Case for Thorough Due Diligence”

 
* Authors: Wendy L. Wysong, Esq.,
Wendy.wysong@cliffordchance.com
; and Clifford Chance, Esq., contact details
here
. Both of Clifford Chance, Washington D.C. and Hong Kong.
 
How well do you understand your commercial partners’ compliance programs? Recent eye-popping settlements have reminded non-U.S. companies of the danger of failing to comply with U.S. sanctions and export control laws. But strengthening your own compliance program will not provide complete protection when your business partners are targeted by authorities. An unexpected enforcement action against a key supplier or financial institution can disrupt the flow of goods and services along global supply chains and threaten well-established trading networks.  Customers, lenders, manufacturers and retailers, among others, are taking a closer look at their counterparties and asking for stronger legal protections against follow-on sanctions and export control risks.
 
Extraterritorial Power
 
The U.S. government has an impressive arsenal of tools for enforcing laws against non-U.S. persons for conduct taking place outside the United States, especially in the areas of sanctions and export controls (collectively, “sanctions”).
 
The Office of Foreign Assets Control (OFAC) has long been known for its ability to sanction non-U.S. actors who threaten U.S. national security and policy. Individuals and entities who appear on the OFAC list of Specially Designated Nationals (SDNs) are virtually excluded from the U.S. financial system, not to mention the growing number of non-U.S. banks that “voluntarily” follow OFAC regulations to de-risk their operations.
 
Following OFAC’s model, the Commerce Department’s Bureau of Industry and Security (BIS) has used the Entity List to restrict non-U.S. persons’ access to U.S.-origin goods to achieve regulatory objectives. BIS has also used the Entity List to target and force extreme penalties on non-U.S. persons doing business with sanctioned countries, where the BIS would otherwise have less leverage to extend their jurisdiction.
 
The point has been driven home by U.S. Commerce Secretary Wilbur Ross, who recently said: “Those who flout our economic sanctions and export control laws will not go unpunished – they will suffer the harshest of consequences.”
 
Follow-On Risks
 
Being placed on the OFAC SDN List or BIS Entity List is a death warrant for non-U.S. companies that rely on access to the U.S. financial system or U.S.-origin goods. There can also be severe knock-on consequences for their law-abiding counterparties that are unprepared to lose a newly sanctioned commercial partner.
 
Recent high-profile cases involving Chinese companies have magnified the issue. Surprise actions by U.S. regulators can leave manufacturers and retailers scrambling to replace a key purchaser or supplier. Lenders can be forced to accelerate outstanding loans. Employees of the sanctioned entity – but also of the suppliers and customers – inside and outside the United States, face employment uncertainty, while shareholders see their value evaporate.
 
U.S. regulators can limit the domino effects of new sanctions designations by issuing general licenses that permit certain limited activities or provide a wind-down period for existing relationships. However, these measures are discretionary, difficult to obtain, almost always temporary in nature and limited in scope. Moreover, they are not guaranteed and can come with severe conditions.
 
As global trade linkages deepen, these follow-on sanctions risks are bound to increase. This is particularly true as Iran re-integrates into the global economy following the implementation of the Joint Comprehensive Plan of Action in January 2016. Meanwhile, U.S. authorities are sharpening their focus on non-U.S. persons who support the government of North Korea.
 
Know Your Counterparties
 
Companies seeking to reinforce their protections while operating in increasingly global networks have made sanctions questionnaires a standard feature of the due diligence process – demonstrating their own compliance efforts if they are targeted by enforcement.
 
Yet, in practice, many companies fail to closely scrutinize and recognize their counterparties’ true potential for disruptive sanctions risk. Dealings with sanctioned countries or persons, the existence (or not) of a sanctions compliance program and red flags concerning past business activities or regulatory investigations, while not disqualifying, justify a closer look.
 
In some cases, an investigatory firm may be required for a deep dive into a potential counterparty’s reputation for compliance. The goal is to become comfortable with the reliability of a commercial partner’s compliance controls and their viability as a counterparty moving forward.
 
Competitive Compliance
 
Apart from the legal risks, companies that fail to live up to these standards could find themselves at a disadvantage against their risk-adverse competitors.
 
Entities with strong compliance controls are at a competitive advantage, as they have better access to financing from financial institutions that are increasingly asking for sanctions compliance undertakings as a part of lending and underwriting agreements and from investors who demand strong sanctions controls within target companies. Vendor contracts increasingly feature sanctions compliance clauses whereby suppliers and customers mutually agree to abide by applicable sanctions laws. These provisions are often backed by the rights of termination and indemnity arising from violations.
 
Recent sanctions enforcement cases have demonstrated that a supply chain is only as strong as its weakest link. No matter how strong your own link is, a break along the line could threaten the whole structure. 

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COMM_a0415.

Q. Michel & I. Stewart: “Brexit and Strategic Trade Controls: Key Implications”

(Source:
Project Alpha
, Centre for Science and Security Studies at King’s College London)
 
* Quentin Michel, Professor at the University of Liège’s Faculty of Law and Political Science,
qmichel@ulg.ac.be
; and Ian J. Stewart, Senior Research Associate at the King’s College London Centre for Science and Strategic Studies,
ian.stewart@kcl.ac.uk
.
 
On 24/25 April, Quentin Michel from the University of Liege and Ian Stewart from King’s College London convened a small group of government officials, academics, and industry practitioners with the purpose of examining the implications of Brexit on strategic trade controls. The workshop was conducted under Chatham House rules with participation in private capacities. The purpose of this short article is to capture the key impressions and issues identified by the hosts. This document does not reflect the views or comments of any specific participant.
 
The main finding of the workshop was that the exit of the UK from the European Union strategic trade control system will have an impact that goes far beyond trade control law regulations and procedures. Much attention was given to the implications of the trading arrangement that will replace the UK’s access to the ‘single market’. Concerns abound that board tariffs will be adopted by both the EU and UK. However, while the issue of export controls will likely receive scant public attention, inadequate arrangements could have a negative impact that is even more significant than the effect of tariffs. The EU, and separately the UK, must devise mechanisms to ease transfer and, more specifically, licensing of dualuse goods after Brexit. It is unclear presently whether the EU will have the capacity to take the steps required, while also conducting an unrelated review of its own dual-use items export control Regulation, 428/2009. Considering the usual two years delay necessary to finalise the process to adopt a regulation, it is strongly recommended to integrate already the Brexit into the review process.
 
During the course of the workshop, numerous specific implications were identified. These can broadly be categorised into five areas:
 
  – The legal basis and the ‘Norway issue’: Before addressing other issues related to Brexit, an answer is needed on what legal basis the UK will use to implement export controls in the future. One alternative would be that the UK will adopt national legislation (initially through the ‘Great Repeal Act’) implementing the requirements of the international export control regimes directly, rather than drawing on the EU regulation applicable in all EU Member States. If this is the case, UK and EU export controls can thus be expected to diverge over time after Brexit. The alternative would be for the UK to align systematically its national provisions to the EU regulation, perhaps following the path of Norway. However, Norway at present cannot take part in EU working groups on export controls and therefore has not possibilities to defend its views when the regulation is amended or updated. Moreover, Norway is excluded from information sharing arrangements whereas that will change probably soon.
 
  – Harmonisation of controls and competition: There is a real possibility that EU and UK export controls will diverge post-Brexit and that this could result in unhealthy competition and a ‘race to the bottom’ in terms of controls. This might could result in an increase in undesirable transactions, for example. It could also distort markets, particularly if the EU moves forward with the adoption of an autonomous control list in relation to human security issues, as proposed by the European Commission under the recast review, which the UK did not adopt.
 
  – Information sharing: trade facilitations between States and effective implementation of export controls is contingent on various types of information being shared. This includes not only information on licence denials, which is necessary to prevent ‘undercutting’ and a race to the bottom, but also more sensitive intelligence or other information related to specific transactions. In many cases such information sharing could take place through other channels. However, there would be specific advantages to a structured exchange of information in relation to denial notifications and the updating of any relevant control lists. Ideally, the UK will continue to have access to the DUeS platform.
 
  – Licensing conditions: The UK is to leave the single market, which will mean that the transfer of all strategic items will require licensing to and from the UK and not only a limited number (e.g. Annex IV of Dual Use Regulation 428/20009). This will affect a substantial range of goods and sectors. A solution will be required to allow such items to be easily transferred while minimising the burden on industry. The easiest option might well be to create ‘general’ or ‘open’ licences. However, this would generally require companies to report transfers to authorities and be subject to audit, which might in itself be a substantial burden for industry and licensing authorities. Alternatives include reliance on individual licences (which could be burdensome for companies and authorities) or the creation of some new mechanism intended to record transfers in a low-burden way.
 
  – Technical capacity: Presently, the UK drafts the EU control list. The UK also provides vital expertise and advice to EU Member States in assessing technical parameters of certain items. While the UK might still be in a position to provide such support post-Brexit, the EU27 might nonetheless need contingency plans.
 
An additional key area of consideration relates to sanctions. Presently, the UK is a principle actor in relation to EU sanctions. It is understood that the UK has produced several of the evidentiary packages that have been used in relation to specific sanctions designation listings, for example. As one of the largest global economies (equal in size to the 20 smallest EU States) and as a central player in the global financial system, UK adherence to sanctions has been central to their effectiveness. Any move away from harmonisation of sanctions with the European Union could thus undermine either common foreign policy goals or the effectiveness of sanctions. Moreover, practical questions related to sanctions such as who will maintain evidentiary packages for EU sanctions submitted by the UK before Brexit and who will produce evidentiary packages for EU sanctions in the future, if not the UK, must also be considered.
 
Two important final questions emerged from the discussions. The first concerns how the EU will devise a response to the issues outlined above. It seems apparent that only a group of officials, such as the Council’s Dual-use Working Party, will have the necessary expertise to examine these issues in depth and devise a policy for future dual-use trade between the EU and UK. The second question, which is related, is whether it is feasible to advance both Brexit and the recast of the EU export control regulation (428/2009) in parallel. Given the sheer volume of the dual-use trade implications of Brexit and the fact that the recast, which has now been underway for more than 4 years is the main way in which the EU could adopt a new or amended general export licence for the UK, it seems at the least that it would be useful to consider Brexit issues as part of the recast.

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* Author: Gary Stanley, Esq., Global Legal Services, PC, (202) 352-3059,
gstanley@glstrade.com
 

Subparagraph (c) of Note 14 to Supplement No. 1 to ITAR Part 126 requires that to utilize the authorized defense services under the ITAR § 126.5 Canadian Exemption, the U.S. exporter must, among other things, provide DDTC a semi-annual report regarding all of its on-going activities authorized under the exemption. The report shall include the article(s) being produced; the end-user(s); the end-item into which the product is to be incorporated; the intended end-use of the product; and the names and addresses of all the Canadian contractors and subcontractors.

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ENEDITOR’S NOTES

(Source: Editor)

* Harry Vardon (Henry William Vardon, 9 May 1870 – 20 Mar 1937, was a professional golfer from the Bailiwick of Jersey. Vardon won The Open Championship a record six times, and also won the 1900 U.S. Open.)
  – “Don’t play too much golf. Two rounds a day are plenty.”
 
* James M. Barrie (Sir James Matthew Barrie, 1st Baronet, OM, 9 May 1860 – 19 Jun 1937, was a Scottish novelist and playwright, best remembered today as the creator of Peter Pan. Before his death, he gave the rights to the Peter Pan works to Great Ormond Street Hospital for Children in London, which continues to benefit from them.)
  – “Always be a little kinder than necessary.”
  – “A woman can be anything the man who loves her would have her be.”

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EN_a218
. 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.
 
*
ATF ARMS IMPORT REGULATIONS
: 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 
 
*
CUSTOMS REGULATIONS
: 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.]

* DOD NATIONAL INDUSTRIAL SECURITY PROGRAM OPERATING MANUAL (NISPOM): DoD 5220.22-M
  – 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.)

* EXPORT ADMINISTRATION REGULATIONS (EAR): 15 CFR Subtit. B, Ch. VII, Pts. 730-774 
  – Last Amendment:
18 Apr 2017: 82 FR 18217-18220: Revision to an Entry on the Entity List

  
*
FOREIGN ASSETS CONTROL REGULATIONS (OFAC FACR)
: 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders
  – Last Amendment: 10 Feb 2017: 82 FR 10434-10440: Inflation Adjustment of Civil Monetary Penalties.  
 
*
FOREIGN TRADE REGULATIONS (FTR)
: 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
here.
  – 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.
 
*
HARMONIZED TARIFF SCHEDULE OF THE UNITED STATES (HTS, HTSA or HTSUSA)
, 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
here
.
  – HTS codes that are not valid for AES are available
here.
 
INTERNATIONAL TRAFFIC IN ARMS REGULATIONS (ITAR): 22 C.F.R. Ch. I, Subch. M, Pts. 120-130.
  – Latest Amendment: 11 Jan 2017: 82 FR 3168-3170: 2017 Civil Monetary Penalties Inflationary Adjustment
  – The only available fully updated copy (latest edition 8 Mar 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 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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EN_a319
. Weekly Highlights of the Daily Bugle Top Stories
(Source: Editor)

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

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EPEDITORIAL POLICY

* 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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* CAVEAT: The contents 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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