The Daily Bugle Weekly Highlights: Week 49 (2 – 6 Dec 2019)

Every Monday we post the highlights out of last week’s FCC Export/Import Daily Update (“The Daily Bugle”). Send out every business day to approximately 7,500 readers of changes to defense and high-tech trade laws and regulations, The Daily Bugle is a free daily newsletter from Full Circle Compliance, edited by James E. Bartlett III, and Alexander Witt.

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Last week’s highlights of The Daily Bugle included in this edition are:

1. Justice Announces Arrest of United States Citizen for Assisting North Korea in Evading Sanctions; The Daily Bugle; Monday, 2 December; Item #3.
2. Justice Announces Indictment Charging Russians, Italians and Others with Attempting to Evade Security Sanctions ; The Daily Bugle; Tuesday, 3 December 2019; Item #4.
3. Justice: “Former U.S. Navy Contractor and its President Sentenced for Scheme Related to Transfer of U.S. Navy Submarine Rescue Technology”; The Daily Bugle; Thursday 5 December 2019; Item #3.
4. UK ECJU Updates Open General Licenses; The Daily Bugle; Thursday, 5 December 2019; Item #5.
5. DHS/CBP Guidance: Section 301 $200B –Tranche 3 Fifth Round of Product Exclusions from China; The Daily Bugle, Friday, 6 December 2019; Item #3.

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1. Justice Announces Arrest of United States Citizen for Assisting North Korea in Evading Sanctions

(Source: Justice, 2 Dec 2019.) [Excerpt.]

 The Department of Justice announced the unsealing of a criminal complaint charging Virgil Griffith, a United States citizen, with violating the International Emergency Economic Powers Act (IEEPA) by traveling to the Democratic People’s Republic of Korea (“DPRK” or “North Korea”) in order deliver a presentation and technical advice on using cryptocurrency and blockchain technology to evade sanctions. Griffith was arrested at Los Angeles International Airport Thursday, Nov. 28, 2019 and will be presented in federal court today.

“Despite receiving warnings not to go, Griffith allegedly traveled to one of the United States’ foremost adversaries, North Korea, where he taught his audience how to use blockchain technology to evade sanctions,” said Assistant Attorney General for National Security John C. Demers.  “By this complaint, we begin the process of seeking justice for such conduct.”

 “As alleged, Virgil Griffith provided highly technical information to North Korea, knowing that this information could be used to help North Korea launder money and evade sanctions, said U.S. Attorney Geoffrey S. Berman for the Southern District of New York.  “In allegedly doing so, Griffith jeopardized the sanctions that both Congress and the president have enacted to place maximum pressure on North Korea’s dangerous regime.”

“There are deliberate reasons sanctions have been levied on North Korea.  The country and its leader pose a literal threat to our national security and that of our allies,” said FBI Assistant Director-in-Charge William F. Sweeney Jr.  “Mr. Griffith allegedly traveled to North Korea without permission from the federal government, and with knowledge what he was doing was against the law.  We cannot allow anyone to evade sanctions, because the consequences of North Korea obtaining funding, technology, and information to further its desire to build nuclear weapons put the world at risk.  It’s even more egregious that a U.S. citizen allegedly chose to aid our adversary.”

According to the complaint unsealed in Manhattan federal court:

Pursuant to the IEEPA and Executive Order 13466, United States Persons are prohibited from exporting any goods, services, or technology to the DPRK without a license from Department of the Treasury, Office of Foreign Assets Control (OFAC).

In or about April 2019, Griffith traveled to the DPRK to attend and present at the “Pyongyang Blockchain and Cryptocurrency Conference” (the “DPRK Cryptocurrency Conference”).  Despite that the U.S. Department of State had denied Griffith permission to travel to the DPRK, Griffith presented at the DPRK Cryptocurrency Conference, knowing that doing so violated sanctions against the DPRK.  At no time did Griffith obtain permission from OFAC to provide goods, services, or technology to the DPRK.

At the DPRK Cryptocurrency Conference, Griffith and other attendees discussed how the DPRK could use blockchain and cryptocurrency technology to launder money and evade sanctions. Griffith’s presentation at the DPRK Cryptocurrency Conference had been approved by DPRK officials and focused on, among other things, how blockchain technology, including a “smart contract,” could be used to benefit the DPRK.  Griffith identified several DPRK Cryptocurrency Conference attendees who appeared to work for the North Korean government, and who, during his presentation, asked Griffith specific questions about blockchain and cryptocurrency and prompted discussions on technical aspects of those technologies.

After the DPRK Cryptocurrency Conference, Griffith began formulating plans to facilitate the exchange of cryptocurrency between the DPRK and South Korea, despite knowing that assisting with such an exchange would violate sanctions against the DPRK.  Griffith also encouraged other U.S. citizens to travel to North Korea, including to attend the same DPRK Cryptocurrency Conference the following year.  Finally, Griffith announced his intention to renounce his U.S. citizenship and began researching how to purchase citizenship from other countries.

Virgil Griffith, 36, is a resident of Singapore and citizen of the United States.  Griffith is charged with conspiring to violate the IEEPA, which carries a maximum term of 20 years in prison.  The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge. …

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2. Justice Announces Indictment Charging Russians, Italians and Others with Attempting to Evade Security Sanctions

(Source: Justice, 3 Dec 2019.) [Excerpts.]

A newly unsealed superseding indictment has charged Russian and Italian nationals, a U.S. citizen and various companies in a conspiracy to evade international trade sanctions.

The United States District Court for the Southern District of Georgia unsealed the superseding indictment on Dec. 2, 2019, charging two Russian nationals, two Italian nationals, a U.S. citizen, and various companies with violating and conspiring the violate the International Emergency Economic Powers Act (IEEPA) and the Export Control Reform Act of 2018 (ECRA), conspiracy to commit wire fraud, and conspiracy to commit money laundering. …

According to the indictment, an unnamed Russian government-controlled business contracted with Nikitin and KSE to purchase a Vectra 40G power turbine from a U.S.-based manufacturer for approximately $17.3 million. The Vectra 40G was designed and manufactured for integration with gas generators to enable direct drive of high-power gas compressors. Evidence in the case established the intent of the Russian company to use the Vectra on a Russian Arctic deepwater (greater than 500 feet) drilling platform. For reasons of national security, the U.S. Department of Commerce expressly prohibited any unlicensed shipment or transfer of the Vectra to the Russian company for that purpose.

In an attempt to evade U.S. export laws, the indictment alleges that Nikitin, Cheremukhin and KSE hired Villone, Caparini and GVA to obtain the Vectra on their behalf. Villone, Caprini and GVA then employed the services of Bagrou and WMO to procure the Vectra from a U.S.-based manufacturer and to have the Vectra shipped overseas. The parties conspired to conceal the true end user of the Vectra from both the U.S. manufacturer and the U.S. government by submitting false documentation that stated the Vectra would be used by a U.S. company in and around Atlanta.

Nikitin, Cheremukhin, Villone and Caparini face a maximum sentence of 20 years in prison and a $1 million fine on the charge of violating IEEPA/ECRA and a maximum of five years in prison and a $250,000 fine for conspiracy to violate IEEPA/ECRA and to defraud the United States. Bagrou and the aforementioned defendants also face a maximum of 20 years in prison and a $500,000 fine on the charges of conspiracy to commit wire fraud and conspiracy to launder monetary instruments.

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3. Justice: “Former U.S. Navy Contractor and its President Sentenced for Scheme Related to Transfer of U.S. Navy Submarine Rescue Technology”

(Source: Justice, 4 Dec 2019.) [Excerpts.]

Former U.S. Navy Contractor, Canada-based OceanWorks International Cooperation (“OceanWorks”) was sentenced on December 2, 2019, for a scheme to falsify facts in a disclosure to the Department of Commerce and the company’s president, Glen Omer Viau, 52, of British Columbia, Canada, was sentenced for unauthorized use of government property. …

According to the government’s evidence, the OceanWorks scheme, which started in 2016, involved misrepresenting to and concealing from, the Office of Export Enforcement within the Department of Commerce, the true nature and extent of the transfer of U.S. Navy technical data to China. The scheme was performed in connection with a proposal by OceanWorks and an unindicted company based in China (“the Chinese Company”) to the People’s Liberation Army (PLA) Navy for the design and construction of remotely-operated submarine rescue vehicles.

OceanWorks was the prime contractor for the U.S. Navy’s Submarine Rescue Diving and Recompression System (“SRDRS”). One component of the SRDRS was the submarine rescue system, a tethered, remotely-operated vehicle that included a Pressurized Rescue Module (“PRM”). The Department of Commerce issued a formal determination that the PRM and its technical data could not be exported to China without a license and were controlled under U.S. regulations. …

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4. UK ECJU Updates Open General Licenses

(Source: UK ECJU, 5 Dec 2019.) [Excerpt.]

Following the Secretary of State’s statement to Parliament on 26 September 2019 about inadvertent breaches of the Order made by the Court of Appeal and the commitment given to Parliament on 20 June 2019, we have reviewed open general export licences (OGELs) and open general trade control licences (OGTCLs) permitting exports to Saudi Arabia and its coalition partners carrying out military operations in Yemen.

Until further notice, it will not be possible to register for a number of OGELS and OGTCLs for exports and brokering to Saudi Arabia, Bahrain, Egypt, Jordan, Kuwait, Sudan and United Arab Emirates (listed below).

In addition, following the recent incursion by the Turkish military in north east Syria, we are monitoring the situation in Syria very closely and considering the licensing position. No further export licences to Turkey for items which might be used in military operations in Syria will be granted while we do so.

In light of this, we have reviewed OGELs and OGTCLs where exports or brokering to Turkey have been permitted. Until further notice, it will not be possible to register for a number of OGELS and OGTCLs for Turkey (listed below). …

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5. DHS/CBP Guidance: Section 301 $200B –Tranche 3 Fifth Round of Product Exclusions from China

(Source: CSMS #40901928, 6 Dec 2019.) [Excerpt.]

Background

On November 29, 2019, the U.S. Trade Representative (USTR) published Federal Register (FR) Notice 84 FR 65882 announcing the decision to grant the fifth round of certain exclusion requests from the 10 percent duty, and later amended to 25 percent duty, assessed under the Section 301 investigation related to goods from China ($200B Action – Tranche 3). 

These product exclusions relate to the imposed additional duties announced in 83 FR 47974 on Chinese goods with an annual trade value of approximately $200 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 product exclusions announced in this notice will retroactively apply as of the September 24, 2018 effective date of the $200 billion action (Tranche 3), and will extend through August 7, 2020.

The exclusions are available for any product that meets the description as set out in Annex A to Federal Register Notice 84 FR 65882, regardless of whether the importer filed an exclusion request.  Further, the scope of each exclusion is governed by the scope of the Harmonized Tariff Schedule of the United States (HTSUS) 10-digit headings and product descriptions in the Annex; not by the product descriptions set out in any particular request for exclusion.  For ease of reference, a link to the entire Federal Register Notice is embedded in this message.

The functionality for the acceptance of the fifth round of products of China excluded from Section 301 duties will be available in the Automated Commercial Environment (ACE) as of Noon, December 5, 2019.

Guidance

Instructions for importers, brokers and filers on submitting entries to CBP containing products granted exclusions by the USTR from the Section 301 measures as set out in 84 FR 65882 are as follow:

In addition to reporting the regular Chapters 17, 28, 39, 68, 69, 73, 83, 84, 85, 87, 89, and 94 classifications of the HTSUS for the imported merchandise, importers shall report the HTSUS classification 9903.88.35 (Articles the product of China, as provided for in U.S. note 20(nn) to this subchapter, each covered by an exclusion granted by the U.S. Trade Representative) for imported merchandise subject to the exclusion.

Importers shall not submit the corresponding Chapter 99 HTS number for the Section 301 duties when HTS 9903.88.35 is submitted.

Additional Information

Duty exclusions granted by the USTR are retroactive for imports on or after the initial effective date of September 24, 2018.  To request a refund of Section 301 duties paid on previous imports of products granted duty exclusions by the USTR, importers may file a Post Summary Correction (PSC) if within the PSC filing timeframe.  If the entry is beyond the PSC filing timeframe, importers may protest the liquidation.

Reminder: When importers, brokers, and/or filers are submitting an entry summary in which a heading or subheading in Chapter 99 is claimed on imported merchandise, refer them to CSMS 39587858 (Entry Summary Order of Reporting for Multiple HTS when 98 or 99 HTS are Required).

Imports which have been granted a product exclusion from the Section 301 measures, and which are not subject to the Section 301 duties, are not covered by the Foreign Trade Zone (FTZ) provisions of the Section 301 Federal Register notices, but instead are subject to the FTZ provisions in 19 CFR part 146.

For ease of reference, Summaries of Section 301 Duties and Product Exclusion Notifications are provided below: …