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17-0316 Thursday “The Daily Bugle”

17-0316 Thursday “The Daily Bugle”

Thursday, 16 March 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. President Signs Executive Order for Reorganizing the Executive Branch 
  2. Commerce/BIS Seeks Comments Regarding Retention Requirement for Export Transactions and Boycott Actions 
  3. Commerce/ITA Seeks Comments on Form ITA-338P, Request for Duty-Free Entry of Scientific Instruments or Apparatus 
  4. Justice/ATF Seeks Comments on Form 5300.11, Annual Firearms Manufacturing and Exportation Report 
  1. Ex/Im Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.) 
  3. State/DDTC: (No new postings.) 
  4. U.S. Court of Appeals Denies Appeal by Defense Distributed for Rehearing of 3-D Printed Gun Case
  1. ST&R Trade Report: “Large Penalty Assessed for Widespread EAR Violations” 
  1. J. Sturtevent: “Technology – Part I: An Overview” 
  2. M.A. Goldstein: “Attorneys as Arms Brokers; the DDTC Finder Rule” 
  3. M. Volkov: “DOJ’s Compliance Program Evaluation Guidance” 
  4. R.C. Burns: “Word of the Day: Peloteros” 
  1. ECTI Presents United States Export Control (EAR/OFAC/ITAR) Seminar Series on 5-8 Jun in Wash DC 
  1. Bartlett’s Unfamiliar Quotations 
  2. Are Your Copies of Regulations Up to Date? Latest Changes: ATF (15 Jan 2016), Customs (27 Jan 2017), DOD/NISPOM (18 May 2016), EAR (24 Feb 2017), FACR/OFAC (10 Feb 2017), FTR (15 May 2015), HTSUS (7 Mar 2017), ITAR (11 Jan 2017) 

EXIMEX/IM ITEMS FROM TODAY’S FEDERAL REGISTER

EXIM_a11. President Signs Executive Order for Reorganizing the Executive Branch

(Source: Federal Register)
 
82 FR 13959-13960: Executive Order 13781 of March 13, 2017; Comprehensive Plan for Reorganizing the Executive Branch
 
By the authority vested in me as President by the Constitution and the laws of the United States of America, it is hereby ordered as follows:

Section 1. Purpose. This order is intended to improve the efficiency, effectiveness, and accountability of the executive branch by directing the Director of the Office of Management and Budget (Director) to propose a plan to reorganize governmental functions and eliminate unnecessary agencies (as defined in section 551(1) of title 5, United States Code), components of agencies, and agency programs.

Sec. 2. Proposed Plan to Improve the Efficiency, Effectiveness, and Account- ability of Federal Agencies, Including, as Appropriate, to Eliminate or Reorga- nize Unnecessary or Redundant Federal Agencies.
  (a) Within 180 days of the date of this order, the head of each agency shall submit to the Director a proposed plan to reorganize the agency, if appropriate, in order to improve the efficiency, effectiveness, and accountability of that agency.
  (b) The Director shall publish a notice in the Federal Register inviting the public to suggest improvements in the organization and functioning of the executive branch and shall consider the suggestions when formulating the proposed plan described in subsection (c) of this section.
  (c) Within 180 days after the closing date for the submission of suggestions pursuant to subsection (b) of this section, the Director shall submit to the President a proposed plan to reorganize the executive branch in order to improve the efficiency, effectiveness, and accountability of agencies. The proposed plan shall include, as appropriate, recommendations to eliminate unnecessary agencies, components of agencies, and agency programs, and to merge functions. The proposed plan shall include recommendations for any legislation or administrative measures necessary to achieve the proposed reorganization.
  (d) In developing the proposed plan described in subsection (c) of this section, the Director shall consider, in addition to any other relevant factors:
    (i) whether some or all of the functions of an agency, a component, or a program are appropriate for the Federal Government or would be better left to State or local governments or to the private sector through free enterprise;
    (ii) whether some or all of the functions of an agency, a component, or a program are redundant, including with those of another agency, component, or program;
    (iii) whether certain administrative capabilities necessary for operating an agency, a component, or a program are redundant with those of another agency, component, or program;
    (iv) whether the costs of continuing to operate an agency, a component, or a program are justified by the public benefits it provides; and
    (v) the costs of shutting down or merging agencies, components, or pro- grams, including the costs of addressing the equities of affected agency staff.
  (e) In developing the proposed plan described in subsection (c) of this section, the Director shall consult with the head of each agency and, con- sistent with applicable law, with persons or entities outside the Federal
Government with relevant expertise in organizational structure and management.

Sec. 3. General Provisions.
  (a) Nothing in this order shall be construed to impair or otherwise affect:
    (i) the authority granted by law to an executive department or agency, or the head thereof; or
    (ii) the functions of the Director relating to budgetary, administrative, or legislative proposals.
  (b) This order shall be implemented consistent with applicable law and subject to the availability of appropriations.
  (c) This order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.    
          
(Presidential Sig.)
THE WHITE HOUSE,
March 13, 2017.

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EXIM_a2
2. Commerce/BIS Seeks Comments Regarding Retention Requirement for Export Transactions and Boycott Actions

(Source: Federal Register) [Excerpts.]
 
82 FR 13973: Submission for OMB Review; Comment Request; Five-Year Records Retention Requirement for Export Transactions and Boycott Actions
 
The Department of Commerce will submit to the Office of Management and Budget (OMB) for clearance the following proposal for collection of information under the provisions of the Paperwork Reduction Act (44 U.S.C. Chapter 35).
  – Agency: Bureau of Industry and Security.
  – Title: Five-Year Records Retention Requirement for Export Transactions and Boycott Actions. …
  – Needs and Uses: All parties involved in export transactions and the U.S. party involved in a boycott action are required to maintain records of these activities for a period of five years. Without this authority, potential violators could discard records demonstrating violations of the Export Administration Regulations prior to the expiration of the five-year statute of limitations.
  – Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to OIRA_Submission@omb.eop.gov.
 
Sheleen Dumas, PRA Departmental Lead, Office of the Chief Information Officer.

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EXIM_a3
3. Commerce/ITA Seeks Comments on Form ITA-338P, Request for Duty-Free Entry of Scientific Instruments or Apparatus

(Source: Federal Register) [Excerpts.]
 
82 FR: 13973: Submission for OMB Review; Comment Request
 
The Department of Commerce will submit to the Office of Management and Budget (OMB) for clearance the following proposal for collection of information under the provisions of the Paperwork Reduction Act (44 U.S.C. Chapter 35).
  – Agency: International Trade Administration.
  – Title: Request for Duty-Free Entry of Scientific Instruments or Apparatus.
  – Form Number(s): ITA-338P. …
  – Needs and Uses: The Departments of Commerce and Homeland Security (“DHS”) are required to determine whether non-profit institutions established for scientific or educational purposes are entitled to duty-free entry for scientific instruments that the institutions import under the Florence Agreement. Form ITA-338P enables: (1) DHS to determine whether the statutory eligibility requirements for the institution and the instrument are fulfilled, and (2) Commerce to make a comparison and finding as to the scientific equivalency of comparable instruments being manufactured in the United States. Without the collection of the information, DHS and Commerce would be unable to carry out the responsibilities assigned by law. …
  – Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to Wendy Liberante, OMB Desk Officer, Fax number (202) 395-7285 or via the Internet at Wendy_L._Liberante@omb.eop.gov.
 
Sheleen Dumas, PRA Departmental Lead, Office of the Chief Information Officer.

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EXIM_a4
4. Justice/ATF Seeks Comments on Form 5300.11, Annual Firearms Manufacturing and Exportation Report

(Source: Federal Register) [Excerpts.]
 
82 FR 14031-14032: Agency Information Collection Activities; Proposed eCollection eComments Requested; Revision of a Currently Approved Collection; Annual Firearms Manufacturing and Exportation Report
 
* AGENCY: Bureau of Alcohol, Tobacco, Firearms and Explosives, Department of Justice.
* ACTION: 60-day notice.
* SUMMARY: The Department of Justice (DOJ), Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), will submit the following information collection request to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995.
* DATES: Comments are encouraged and will be accepted for 60 days until May 15, 2017.
* FOR FURTHER INFORMATION CONTACT: Jodie Trovinger, Federal Firearms Licensing Center, Firearms and Explosives Services Division either by mail at 244 Needy Road, Martinsburg, WV 25405, by email at Jodie.Trovinger@atf.gov, or by telephone at 304-616-4673.
* SUPPLEMENTARY INFORMATION:
  – The Title of the Form/Collection: Annual Firearms Manufacturing and Exportation Report Under 18 U.S.C. Chapter 44, Firearms. …
  – Form number (if applicable): ATF F 5300.11.
  – Component: Bureau of Alcohol, Tobacco, Firearms and Explosives, U.S. Department of Justice. …
  – Abstract: The information collected is used to compile statistics on the manufacture and exportation of firearms. The furnishing of this information is mandatory under 18 U.S.C. 923(g)(5)(A). This form must be submitted annually for every Type 07 and Type 10 Federal Firearms License (FFL), even if no firearms were exported or distributed for commerce.

If additional information is required contact: Melody Braswell, Department Clearance Officer, United States Department of Justice, Justice Management Division, Policy and Planning Staff, Two Constitution Square, 145 N Street NE., 3E.405A, Washington, DC 20530.
 
Dated: March 13, 2017.
Melody Braswell, Department Clearance Officer for PRA, U.S. Department of Justice.

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OGS
OTHER GOVERNMENT SOURCES

OGS_a15. Ex/Im Items Scheduled for Publication in Future Federal Register Editions

(Source: Federal Register)
* Commerce; Industry and Security Bureau; NOTICES; Denials of Export Privileges: Eyad Farah [Publication Date: 17 March 2017.]

* Treasury; Foreign Assets Control Office; NOTICES; Blocking or Unblocking of Persons and Properties [Publication Date: 17 March 2017.]

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OGS_a26. Commerce/BIS: (No new postings.)

(Source: Commerce/BIS

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OGS_4

8. U.S. Court of Appeals Denies Appeal by Defense Distributed for Rehearing of 3-D Printed Gun Case


(Source: USCA Files)

 
* Case: Defense Distributed; Second Amendment Foundation, Inc. v. U.S. Dept. State, et al. (Case # 15-50759 Document: 00513913565)


* Citation: 838 F.3d 451 (2016)


* Court: U.S. Court of Appeals (5th Cir.)


* Action: Appellees Appeal from the USDC (WD Texas) opinion of Sept. 20, 2016; Petition for Rehearing En Banc


* Date Filed: Mar. 15, 2017


* Judges: DAVIS, JONES, and GRAVES, Circuit Judges.


* Opinion: 


The Court having been polled at the request of one of its members, and a majority of the judges who are in regular service and not disqualified not having voted in favor (Fed. R. App. P. 35 and 5th Cir. R. 35), the Petition for Rehearing En Banc is DENIED. In the en banc poll, five judges voted in favor of rehearing (Judges Jones, Smith, Clement, Owen and Elrod) and nine judges voted against rehearing (Chief Judge Stewart and Judges Jolly, Dennis, Prado, Southwick, Haynes, Graves, Higginson and Costa).



ENTERED FOR THE COURT:  

W. EUGENE DAVIS, UNITED STATES CIRCUIT JUDGE JENNIFER WALKER ELROD, Circuit Judge, joined by JONES, SMITH, and CLEMENT, Circuit Judges, dissenting from the denial of rehearing en banc: 

The panel opinion’s flawed preliminary injunction analysis permits perhaps the most egregious deprivation of First Amendment rights possible: a content-based prior restraint. Judge Jones’s cogent panel dissent thoroughly explores the flaws in the panel opinion. I write here to highlight three errors that warrant en banc review. 


     First, the panel opinion fails to review the likelihood of success on the merits–which ten of our sister circuits agree is an essential inquiry in a First Amendment preliminary injunction case. 


     Second, the panel opinion accepts that a mere assertion of a national security interest is a sufficient justification for a prior restraint on speech.


     Third, the panel opinion conducts a fundamentally flawed analysis of irreparable harm. 


Accordingly, I respectfully dissent from the denial of en banc review in this case. Prior restraints are “the most serious and least tolerable infringement on First Amendment rights.”  [Citations omitted.]  In the context of a party seeking a preliminary injunction, we have stressed the importance of determining the likelihood of success on the merits-calling it “arguably the most important factor.” [Citations omitted.]

Accordingly, ten of our sister circuits have held that the likelihood of success on the merits is a crucial, indispensable inquiry in the First Amendment context. [Citations omitted.] Strikingly, however, the panel opinion entirely fails to address the likelihood of success on the merits, and in so doing creates a circuit split. This error alone merits rehearing en banc. Moreover, the panel opinion’s failure to address the likelihood of success on the merits infects its public interest analysis. A court that ignores the merits of a constitutional claim cannot meaningfully analyze the public interest, which, by definition, favors the vigorous protection of First Amendment rights. [Citations omitted.]  

The panel opinion’s failure to address the likelihood of success on the merits denies Defense Distributed a meaningful review of the public interest factor. The panel opinion’s public interest analysis is also flawed because it relies on a mere assertion of a national security interest. [Citations omitted.]  Certainly there is a strong public interest in national security. But there is a paramount public interest in the exercise of constitutional rights, particularly those guaranteed by the First Amendment: “Any system of prior restraints of expression comes to this Court bearing a heavy presumption against its constitutional validity. The Government thus carries a heavy burden of showing justification for the imposition of such a restraint.” [Citations omitted.]  


To justify a prior restraint, we have held that the Government must show that the “expression sought to be restrained surely will result in direct, immediate, and irreparable damage.” [Citations omitted.]  The Supreme Court has articulated similar requirements: there must be a “requisite degree of certainty [of danger] to justify restraint,” there must be no “alternative measures” available, and the restraint must “effectively . . . operate to prevent the threatened danger.” [Citations omitted.]  The Government contends that the gun designs at issue could potentially threaten national security. However, this speculation falls far short of the required showing under Bernard and Nebraska Press, showing neither the immediacy of the danger nor the necessity of the prior restraint. Allowing such a paltry assertion of national security interests to justify a grave deprivation of First Amendment rights treats the words “national security” as a magic spell, the mere invocation of which makes free speech instantly disappear.

The panel opinion’s flawed analysis in turn infects its evaluation of irreparable harm. The panel opinion justifies the prior restraint on speech because any harm to Defense Distributed would be “temporary.” But irreparable harm occurs whenever a constitutional right is deprived, even for a short period of time. [Citations omitted.]  Even if the panel opinion’s “temporary harm” theory were valid, the deprivation here has been anything but short. Instead, as Judge Jones’s panel dissent notes, because of the lack of a preliminary injunction, Defense Distributed has been effectively muzzled for over three years. Defense Dist’d, slip op. at 17 (Jones, J., dissenting). We have been warned that the “word ‘security’ is a broad, vague generality whose contours should not be invoked to abrogate the fundamental law embodied in the First Amendment.” [Citations omitted.]  Unfortunately, that is exactly what the panel opinion has done.  


Accordingly, I respectfully dissent from the denial of rehearing en banc.

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COMMNEWS

NWS_19. ST&R Trade Report: “Large Penalty Assessed for Widespread EAR Violations”

 
The DOC’s Bureau of Industry and Security has assessed a $27 million civil penalty on a Florida company [Access USA Shipping, LLC, ed.] to settle charges that it committed a total of 150 violations of the Export Administration Regulations, although $17 million of that penalty has been temporarily suspended and will subsequently be waived provided certain conditions are met.
 
BIS states that on 129 occasions beginning on or about April 21, 2011, and continuing through on or about Jan. 7, 2013, the company engaged in transactions or took other actions to evade the EAR. Among other things, the company took actions that enabled foreign customers to purchase items subject to the EAR through the company without U.S. merchants knowing the items were intended for export, with these actions designed, at least in part, to avoid detection by the U.S. government and law enforcement. The actions included mis-describing and undervaluing the items in false export control documents, undervaluing the items improperly to avoid the filing of the required export control documents, allowing foreign customers to place orders through company employees to avoid export scrutiny, destroying or altering export control documents, and failing to maintain records related to export transactions.
 
Additionally, on 17 occasions between on or about Aug. 23, 2011, and on or about Jan. 24, 2013, the company exported or attempted to export to Argentina, Austria, Hong Kong, Indonesia, Libya, South Africa, and Sweden without the required export licenses items classified under Export Control Classification Number 0A987 and controlled for crime reasons. Lastly, on four occasions between on or about Oct. 17, 2012, and on or about Feb. 15, 2013, the company exported or attempted to export items subject to the EAR to a Finnish company on the Entity List.
 
BIS has therefore issued an order that assesses a civil penalty of $27 million on the company but suspends $17 million of that penalty for two years (and waives it thereafter) provided it commits no further export violations during that time, makes full and timely payment of the $10 million penalty, complies with all other terms of the settlement agreement, and commits no violation of the non-prosecution agreement.

[Editor’s Note: The Settlement Agreement with Access USA Shipping, LLC, can be found here.] 

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COMMCOMMENTARY

COMM_a110. J. Sturtevent: “Technology – Part I: An Overview”

(Source: CTP Compliance Solutions) [Excerpts.] 
 
* Author: John Sturtevent, Export Control Specialist, CTP Compliance Solutions. Contact details CTP are available here.
 
  “Quotation marks” are often misused. We have all read passages or seen “signs” where someone “clearly” didn’t realize what they were conveying with the “quotation marks.”
 
This may cross your mind when reading the Export Administration Regulations since there are many “words” in quotation marks which seemingly have no business being quoted. But you would be wrong. The use of quotations is deliberate and important, indicating that the quoted word or phrase should be reviewed under Section 772.1 – Definitions of terms as used in the EAR. Some are close to the definitions we typically associate with these words while others aren’t nearly as clear.
 
A prominent example is the word “technology” which is hugely important in export control. In fact, this post is the first installment in a series on “technology,” as that term is defined under the EAR. We will discuss the definition, what it really means, and something called the General Technology Note: Subsequent posts in this series will go into detail about “development technology;” “production technology;” “use technology;” deemed exports; the definition of “required;” and License Exception TSU (Technology and Software-Unrestricted).
 
With that little preamble, let’s jump into the definition of “technology” which, under Section 772.1 of the EAR, is defined as:
 
Information necessary for the “development,” “production,” “use,” operation, installation, maintenance, repair, overhaul, or refurbishing (or other terms specified in ECCNs on the CCL that control “technology”) of an item.
 
Ok…but what does that mean?
 
Well, under this definition, the drafters provide some helpful notes. First, they ask their readers to note well that controlled “technology” is further defined in what is called the General Technology Note (GTN), found under the Commerce Control List in Supplement No. 1 to Part 744 of the EAR. More on this in a moment.
 
The drafters then provide the following critical note:
 
Note 1 to definition of Technology: “Technology” may be in any tangible or intangible form, such as written or oral communications, blueprints, drawings, photographs, plans, diagrams, models, formulae, tables, engineering designs and specifications, computer-aided design files, manuals or documentation, electronic media or information revealed through visual inspection;
 
Yes, you read that right-even a conversation can involve controlled technology!
 
The premise is simple: as a country, we don’t want bad actors to gain technical information in any way that could be used to develop, produce, or use sensitive equipment or software to harm our national security.
 
What’s more complex is separating the wheat from the chaff, that is, identifying which technical data constitutes controlled technology and which does not. Before you can identify controlled technology, you first have to identify and classify the associated hardware or software. Based on those determinations, you can then evaluate whether the related technical data is required or necessary for the development, production, or use of the item itself. (This is one example of why we preach that “Classification is Job #1.”)
 
Now, back to that General Technology Note. Here’s what the GTN says:
 
The export of “technology” that is “required” for the “development”, “production”, or “use” of items on the Commerce Control List is controlled according to the provisions in each Category.
 
“Technology” “required” for the “development”, “production”, or “use” of a controlled product remains controlled even when applicable to a product controlled at a lower level.
 
License Exception TSU is available for “technology” that is the minimum necessary for the installation, operation, maintenance (checking), or repair of those products that are eligible for License Exceptions or that are exported under a license.
 
In other words, you have to look to the CCL, Product Group ‘E’ ECCNs (which are specific to technology) related to the hardware or software ECCNs to see how that particular technology is controlled.
 
Let’s use an example to illustrate these points. Say we have a shotgun with a barrel longer than 18 inches. That item is enumerated under and controlled by ECCN 0A984. Now say we have some CAD files that contain product engineering and manufacture data for the shotgun, as well as a user manual. Are these documents controlled “technology”?
 
To answer that question, we have to review the ‘0E’ ECCNs to see how the related technology is controlled, if at all. ECCN 0E984 controls “technology” for the “development” or “production” of shotguns controlled by 0A984. There is no ECCN that controls “technology” for the “use” of such shotguns. If the CAD files are necessary or “required” for the production of the shotgun, then they will be controlled production technology under 0E984. Assuming the user manual does not contain any development or production technology, it will default to EAR99 since there is no ECCN that controls related “use” technology. Further, pursuant to the second provision of the GTN, even if the CAD files could be used to produce a shotgun controlled at a level lower than 0A984, they remain controlled under 0E984. … 

 

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COMM_a211. M.A. Goldstein: “Attorneys as Arms Brokers; the DDTC Finder Rule”

(Source:
Defense Trade Law Blog
. Reprinted by permission.)
 
* Author:  Matthew A. Goldstein, Esq.,
matthew@goldsteinpllc.com
, 202-550-0040
 
The United States Court of Appeals for the District of Columbia Circuit recently dismissed a case filed against the State Department Directorate of Defense Trade Controls (“DDTC”) by the author’s law firm, finding that DDTC only intends to apply Arms Broker regulations, codified at Part 129 of the International Traffic in Arms Regulations (“ITAR”) [FN/1], to attorneys who act as “finders” in sales of ITAR-controlled articles and services. [FN/2] This decision, and DDTC representations to the Court of Appeals, provide critical guidance for every export control attorney.
 
Summary of the Case
 
Documents detailing the substantive and procedural history of the case are available here.
 
Shortly after ITAR Part 129 was amended in August 2013 to exclude certain legal advice by attorneys [FN/3], and after a series of correspondence seeking clarification from DDTC on the exact scope of legal advice that may be subject to Part 129, the plaintiff filed suit in federal district court alleging, among other things, that DDTC lacks constitutional and statutory authority to apply Part 129 to bona fide legal advice by licensed attorneys. [FN/4]
 
After the suit was filed, DDTC sent the plaintiff a letter advising that Part 129 would not apply to the legal advice at issue “as long as the client has already identified the foreign party/parties” to a transaction. DDTC then moved to dismiss the lawsuit for lack of standing, and the district court granted the motion. [FN/5]
 
The plaintiff appealed to the Court of Appeals for the District of Columbia Circuit. At oral argument, the Justice Department advised the Court that the only example DDTC can identify of an attorney providing legal advice in a manner that implicates Part 129 is the use of legal advice to steer a client towards a particular buyer or a particular seller. [FN/6]
 
The Court of Appeals Ruling.
 
On March 14, 2017, the Court of Appeals issued an Order affirming the District Court’s dismissal of the case for lack of standing. More specifically, the Court found that DDTC’s 2013 amendment to Part 129 to explicitly remove legal advice from the definition of brokering activities, the letter sent by DDTC after the suit was filed, and DDTC’s representation at oral argument that it only seeks to regulate situations where attorneys act as “finders,” demonstrates that the plaintiff is not subject to Part 129. [FN/7]
 
The Court of Appeals noted:
 
“True, an attorney like Goldstein could provide legal advice in a manner that constituted brokering, but the State Department has explained that the only such situation it has identified is when an attorney acts as a “finder” by, for example, helping clients to identify or locate foreign counterparties for proposed transactions.” [FN/8]
 
The Court therefore held:
 
“[B]ecause the firm alleges that it intends only to provide legal advice and denies that it will act as a finder (or collect a contingency fee) in the process, it has not shown that it faces a meaningful risk that the State Department will seek to enforce Part 129 against it, either by forcing it to register or by penalizing it for failure to register.” [FN/9]
 
The Finder Rule
 
DDTC’s Finder rule is much narrower in focus than what was litigated in the District Court – i.e., DDTC’s position that Part 129 would not apply to legal advice “as long as the client has already identified the foreign party/parties” to a transaction. Addressing this, the Court of Appeals stated that the law firm’s concerns were “based on a misunderstanding” and that the “as long as” language in the DDTC letter was intended to create a limited safe harbor:
 
“when an attorney provides ordinary legal services to a client in a situation where the foreign party has been identified, it is especially clear that the attorney is not helping to ‘find’ the foreign party to the transaction-and thus not engaging in brokering activities. If the foreign party has not been identified, that merely leaves open the possibility that the attorney may be acting as a finder.” [FN/10]
 
Of course, if DDTC truly intended to only impose Part 129 on attorneys who act as finders, it could have simply said so from the start, before the case was filed. It could have added a FAQ stating the new exception to Part 129 for attorneys does not apply where an attorney acts as a finder. It could have clearly stated its intent to only control attorneys who act as finders in the letter it wrote to the plaintiff, ending the case from the start. It could have further stated its intent in the memoranda it filed with the district court. But it never did so.
 
Finder Rule Pitfalls
 
Regardless of whether the initial DDTC position was truly intended as a safe harbor or (in the author’s view) resulted from a change in litigation strategy at the appellate level, it is clear that the Court of Appeals based its decision on DDTC’s assurance that the agency will only impose Part 129 on an attorney who acts as a “finder.” This narrowing of DDTC’s stated focus to finders is a ‘win’ for attorneys because acting as a finder for a fee or commission in sales of defense articles is the very definition of an arms dealer-an act well outside the scope of bona fide legal advice.
 
Nevertheless, attorneys are not entirely in the clear because DDTC apparently takes a broad view of what constitutes a finder. For example, at oral argument the Justice Department explained that “the only example . . . that the Agency has been able to identify” of an attorney providing legal advice in a manner that implicates the brokering regulation involves the use of that “legal advice to steer a client towards a particular buyer or a particular seller.” [FN/11] The Justice Department further described a situation where DDTC might consider an attorney acting as a finder:
 
“[F]or example, if someone comes to an attorney and they want to sell controlled explosives, and they ask the attorney to draft a general sales contract, that would be legal advice, [and] it would not constitute brokering. But if the same person came to the attorney, asked them to draft a general sales contract and the attorney happens to also represent a buyer in Pakistan and knows the buyer would want to buy these controlled explosives, and so the attorney recommends that the contract be translated into Urdu knowing that this is going to be the only likely buyer in the area, then the attorney might have used non-legal knowledge and tried to steer the seller towards the particular buyer even though he was engaging in legal advice.” [FN/12]
 
Of particular significance to many export control attorneys, the DDTC restriction on attorneys who “steer a client towards a particular buyer or a particular seller” logically extends to attorneys that steer clients to foreign companies that produce ITAR-free parts and components. It also extends to attorneys who steer clients towards foreign partners with robust compliance programs, who are willing to sign a DSP-83 nontransfer and use certificate, and who present low risks of diversion.
 
In addition, it is not entirely clear if and how the Finder rule applies to attorneys who steer clients to domestic parties. Here, on the topic of referrals to financial institutions, the DDTC letter to the plaintiff states, “as long as you provide a listing from open sources of potential financial institutions for selection by your client” advising clients on the availability of financing for export sales of defense articles and defense services is not subject to Part 129. [FN/13] The DDTC letter does not state whether this limited exception also applies to referrals to other export-related service providers, such as freight forwarders, custom brokers, etc. Even if it did, DDTC frequently warns that advisory opinions are issued on a case-by-case basis and should not be relied upon by persons other than the requestor.
 
No Decision on the Merits
 
Finally, it is important to note that this case, like so many others against U.S. government agencies, was dismissed for lack of standing. There was no decision on the merits of the underlying claim that DDTC lacks constitutional and statutory authority to apply Part 129 to bona fide legal advice. This means that the claims are still viable and another plaintiff can consider pursuing the same or substantially similar claims in subsequent litigation if they have standing.
 
————
  [FN/1] 22 C.F.R. Parts 120-130.
  [FN/2] Court of Appeals Order p. 9, available
here.
  [FN/3] 78 Fed. Reg. 52,681, 52,681 (Aug. 26, 2013); relevant section of amendment implemented at 22 C.F.R. § 129.2(b)(2)(iv).
  [FN/4] See Amended Complaint for Declaratory and Injunctive Relief, available here.
  [FN/5] The legal doctrine of standing requires that a plaintiff show an injury or imminent threat of harm from the challenged government action that is sufficient to ensure the plaintiff has a stake in the action
  [FN/6] Court of Appeals Order p. 9, citing Oral Arg. Tr. 28:14-29:3; Recording of Oral Argument, available here.
  [FN/7] Court of Appeals Order p. 11.
  [FN/8] See Court of Appeals at p. 9, citing Oral Arg. Tr. 38:10-14.
  [FN/9] Court of Appeals Order p. 11.
  [FN/10] Court of Appeals Order p. 10.
  [FN/11] Court of Appeals Order p. 9, citing Oral Arg. Tr. 28:14-29:3.
  [FN/12] Court of Appeals Order p. 9 fn 2, citing Oral Arg. Tr. 28:14-29:3.
  [FN/13] See DDTC May 2015 Response to Advisory Opinion Request, available here.

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COMM_a312
. M. Volkov: “DOJ’s Compliance Program Evaluation Guidance”

(Source:
Volkov Law Group Blog. Reprinted by permission.)
 
* Author: Michael Volkov, Esq., Volkov Law Group, mvolkov@volkovlaw.com, 240-505-1992.
 
The Justice Department’s recent guidance on compliance programs, consisting of 110 separate questions, organized around specific compliance topics, has raised a number of interesting procedural and substantive issues.
 
From an enforcement standpoint, how will DOJ prosecutors use the questions in negotiating FCPA enforcement settlements? The possible weight given to the factors will vary depending on a number of factors, including the nature and scope of the violations, the size and geographic footprint of the company, and the weight eventually given to the individual questions.
 
We all know that compliance is not an exact science. But at the same time, we know what looks and smells like an effective compliance program and a compliance program that falls short. As prosecutors apply these questions to weigh how a company responds and remediates its compliance program to prevent future violations, prosecutors have to take great care to avoid narrow solutions to broad problems. To put it another way, DOJ prosecutors should encourage companies to design and implement compliance solutions that are tailored to the company’s individual circumstances without imposing knee-jerk or standard solutions.
 
In the process, DOJ prosecutors have to encourage companies to develop their own unique solutions that reflect their own corporate culture, and that appear to be designed in furtherance of companies’ compliance programs. On the other hand, this flexibility should not be an excuse for allowing companies to avoid adequate remediation by improving culture, implementing improved controls, and making a sustained effort to enhance its compliance program.
 
At the same time, DOJ prosecutors have to provide additional guidance on exactly how the questions will be used, how the weight given to various questions will be scored, and how much companies are expected to do under this new and robust compliance evaluation. There is not question that DOJ has raised the bar on compliance programs. DOJ’s strategy is to encourage companies to improve their compliance programs and this action will do just that – companies should respond to the new guidance by evaluating their programs under this new set of questions.
 
Compliance officers have even more reason to meet and discuss the issues raised by this new evaluation tool with senior management and the board. To the extent that companies fall short, CCOs have to inform the Audit/Compliance Committee and senior management that the company needs to undertake a new effort with additional resources to implement an effective compliance program.
 
To be sure, a new self-evaluation and remediation effort is needed. If companies ignore the import of DOJ’s new guidance, they are only increasing the risk of an enforcement action and a more severe resolution than would otherwise occur.
 
CCOs, however, have to avoid what I call the Chicken Little strategy – it does not serve anyone’s interest to speak about the new compliance program standards by instilling fear in the board or senior management. To the contrary, DOJ’s new compliance standards should encourage companies to enhance their compliance programs as a means to improve corporate culture, develop long-term sustainable growth, improve financial performance, and avoid significant enforcement and legal risks.

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COMM_a413
. R.C. Burns: “Word of the Day: ‘Peloteros'”

(Source:
Export Law Blog
. Reprinted by permission.)
 
* Author: R. Clifton Burns, Esq., Bryan Cave LLP, Wash DC,
Clif.Burns@bryancave.com
, 202-508-6067)
 
It’s time for our annual Cuba baseball post which each year has been motivated by cold weather, spring training, and anxious anticipation of opening day. And what better subject for this post than the recently concluded trial in Miami in which Bartolo Hernandez, a baseball agent, and Julio Estrada, a baseball trainer, were accused of smuggling Cuban players into the United States and which featured testimony by one of these peleteros about how he ate his fake Haitian passport on his plane trip to the United States. (Insert optional better-than-airline-food joke here.)
 
One of the key elements of the case is section 515.505 of the Cuban Assets Control Regulation which unblocks Cuban nationals after they have established residency in a country outside Cuba other than the United States. The other element is that an unblocked Cuban in a third country is, under Major League Baseball’s rules, a “free agent” that can negotiate higher salaries; Cubans who come directly to the United States and become unblocked by seeking permanent residence here are eligible to be signed to an MLB team only through the amateur draft system and will not be able to command the astronomical salaries of a free agent.
 
According to prosecutors, the defendants smuggled the Cubans into third countries and then forged documents that could be used to evidence residency in those countries. The payoff to the defendants was the high commissions (allegedly around $150 million) that they received on the salaries of their free agent clients. The defense claimed that the two defendants did not forge documents and were unaware that the players, desperate to get to the United States, were using forged documents. The jury, however, convicted both men earlier today.
 
In other baseball news, opening day for the Chicago Cubs is Sunday, April 2, in St. Louis, a town that even the Rams had the good sense to escape.  Go Cubs Go!

[Editor’s Note: Opening day for the Washington Nationals is Monday, April 3, in Washington, DC, vs. the Marlins.  Go NATS!”]

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TEEX/IM TRAINING EVENTS & CONFERENCES

TE_a1
14. ECTI Presents United States Export Control (EAR/OFAC/ITAR) Seminar Series on 5-8 Jun in Wash DC

(Source: Jill Kincaid, jill@learnexportcompliance.com)

* What: United States Export Control (EAR/OFAC/ITAR) Seminar Series in Washington, DC
* When: EAR/OFAC Seminar: 5-6 June 2017; ITAR Seminar: 7-8 June 2017
* Where: Alexandria, VA: Embassy Suites Alexandria Old Town
* Sponsor: Export Compliance Training Institute (ECTI)
* ECTI Speaker Panel: John Black, Greg Creeser, Stephen Wagner, Marc Binder and guest speakers: Christopher Tafe & Waqas Shahid
* Register: Here, or Jessica Lemon, 540-433-3977, jessica@learnexportcompliance.com.

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ENEDITOR’S NOTES

(Source: Editor)

Jerry Lewis (born Joseph Levitch, 16 Mar 1926 (age 91) is an American actor, comedian, singer, film producer, film director, screenwriter and humanitarian. He is known for his slapstick humor in film, television, stage and radio, and hosted the live Labor Day broadcast of the Jerry Lewis MDA Telethon for 44 years.)
  – “I get paid for what most kids get punished for.” 

*
Henny Youngman (Henry Youngman, 16 Mar 1906 – 24 Feb 1998, was an American comedian and violinist, famous for his mastery of the “one-liner”. His best-known one-liner was “Take my wife … please!”

  – Some people ask the secret of our long marriage. We take time to go to a restaurant two times a week. A little candlelight, dinner, soft music and dancing. She goes Tuesdays, I go Fridays.”

 – “A doctor gave a man six months to live. The man couldn’t pay his bill, so he gave him another six months.”

 

*
James Madison (16 Mar 1751 – 28 Jun 1836, was an American statesman and Founding Father who served as the fourth President of the United States from 1809 to 1817 (preceded by Thomas Jefferson and succeeded by James Monroe). He is hailed as the “Father of the Constitution” for his pivotal role in drafting and promoting the United States Constitution and the Bill of Rights.)

  – “The truth is that all men having power ought to be mistrusted.”

  – “Americans have the right and advantage of being armed – unlike the citizens of other countries whose governments are afraid to trust the people with arms.”

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EN_a216
. 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; and 82 FR 8590: Delay of Effective Date for Toxic Substance Control Act Chemical Substance Import Certification Process Revisions 

* 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: 24 Feb 2017: 82 FR 11505-11506: Temporary General License: Extension of Validity

  
*
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: 15 May 2015; 80 FR 27853-27854: Foreign Trade Regulations (FTR): Reinstatement of Exemptions Related to Temporary Exports, Carnets, and Shipments Under a Temporary Import Bond 
  – HTS codes that are not valid for AES are available
here.
  – The latest edition (9 Mar 2016) of Bartlett’s Annotated FTR (“BAFTR”), by James E. Bartlett III, is available for downloading in Word format. The BAFTR contains all FTR amendments, FTR Letters and Notices, a large Index, and footnotes containing case annotations, practice tips, and Census/AES guidance.  Subscribers receive revised copies every time the FTR is amended. The BAFTR is available by annual subscription from the Full Circle Compliance website.  BITAR subscribers are entitled to a 25% discount on subscriptions to the BAFTR.
 
*
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: 7 Mar 2017: Harmonized System Update 1702, containing 1,754 ABI records and 360 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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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.

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

* CAVEAT: The contents 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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