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17-0323 Thursday “The Daily Bugle”

17-0323 Thursday “Daily Bugle”

Thursday, 23 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 
here
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[No items of interest noted today.] 

  1. Ex/Im Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.) 
  3. Justice: ZTE Corporation Pleads Guilty for Violating U.S. Sanctions by Sending U.S.-Origin Items to Iran 
  4. State/DDTC: DTAS System Outage on 24 Mar
  5. EU Parliament Approves Proposal to Stop Trade in Conflict Minerals
  6. EU Parliament Discusses Future of EU Export Controls
  1. ST&R Trade Report: “C-TPAT Minimum Security Criteria Updates Under Consideration” 
  2. ST&R Trade Report: “Imports and Exports of Synthetic Opioid Restricted” 
  1. D. Kelley & N. Gerrard: “Corporate Compliance Programs: US and UK Perspectives” 
  2. J.A. Pérez Santiago: “Post-Election Update on Cuba” 
  3. M. Volkov: “Legal and Compliance Coordination – An Essential Foundation to an Effective Compliance Program” 
  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

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OGS
OTHER GOVERNMENT SOURCES

OGS_a11. Ex/Im Items Scheduled for Publication in Future Federal Register Editions

(Source: Federal Register)
 

* President; ADMINISTRATIVE ORDERS; South Sudan; Continuation of National Emergency (Notice of March 22, 2017) [Publication Date: 24 Mar 2017.]
 
* Defense Acquisition Regulations System; NOTICES; Agency Information Collection Activities; Proposals, Submissions, and Approvals [Publication Dates: 24 Mar 2017.]
  – Defense Federal Acquisition Regulation Supplement (DFARS), Part 204, Administrative Matters and Related Clause at 252.204.
  – Defense Federal Acquisition Regulation Supplement (DFARS) Subpart 209.5, Organizational and Consultant Conflicts of Interest, and related provision at DFARS 252.209-7008, Notice of Prohibition Relating to Organizational Conflict of Interest-Major Defense Acquisition Program.


 
* International Trade Administration; MEETINGS; Advisory Committee on Supply Chain Competitiveness [Publication Date: 24 Mar 2017.] 

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OGS_a22. Commerce/BIS: (No new postings.)

(Source: Commerce/BIS

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OGS_33Justice: ZTE Corporation Pleads Guilty for Violating U.S. Sanctions by Sending U.S.-Origin Items to Iran

(Source:
Justice)
 
ZTE Corporation pleaded guilty today to conspiring to violate the International Emergency Economic Powers Act (IEEPA) by illegally shipping U.S.-origin items to Iran, obstructing justice and making a material false statement.
 
Attorney General Jeff Sessions of the U.S. Department of Justice, Acting Assistant Attorney General Mary B. McCord for National Security, U.S. Attorney John R. Parker for the Northern District of Texas and Assistant Director Bill Priestap for the FBI’s Counterintelligence Division made the announcement today. The plea was entered before U.S. District Judge Ed Kinkeade.
 
Specifically, ZTE pleaded guilty to one count of conspiring to unlawfully export in violation of the IEEPA, one count of obstruction of justice and one count of making a material false statement. ZTE agreed to pay a fine in the amount of $286,992,532 and a criminal forfeiture in the amount of $143,496,266, and submit to a three-year period of corporate probation, during which time an independent corporate compliance monitor will review and report on ZTE’s export compliance program.
 
As previously announced on March 7, at the time that ZTE agreed to plead guilty, the Corporation simultaneously reached settlement agreements with the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) and the U.S. Department of the Treasury’s Office of Foreign Assets Control. In total ZTE has agreed to pay the U.S. Government $892,360,064. The BIS has suspended an additional $300,000,000, which ZTE will pay if it violates its settlement agreement with the BIS.
 
According to plea documents filed in the case, between January 2010 and January 2016, ZTE, either directly or indirectly through a third company, shipped approximately $32,000,000 of U.S.-origin items to Iran without obtaining the proper export licenses from the U.S. government. In early 2010, ZTE began bidding on two different Iranian projects. The projects involved installing cellular and landline network infrastructure. Each contract was worth hundreds of millions of U.S. Dollars and required U.S. components for the final products.
 
In December 2010, ZTE finalized the contracts with Iranian customers. The contracts were signed by four parties: the Iranian customer, ZTE, Beijing 8 Star and ZTE Parsian (ZTE’s subsidiary in Iran). Court documents explain that ZTE identified Beijing 8 Star (8S) as a possible vehicle for hiding its illegal shipments of U.S. items to Iran. It intended to use 8S to export U.S.-origin items from China to ZTE customers in Iran. As part of this plan, ZTE supplied 8S with necessary capital and took over control of the company.
 
Under the terms of the Iran contracts, ZTE agreed to supply the “self-developed equipment,” collect payments for the projects and manage the whole network. ZTE Parsian was to provide locally purchased materials and all services. 8S was responsible for “relevant third-party equipment,” which primarily meant parts that would be subject to U.S. export laws. ZTE intended for 8S to be an “isolation company,” that is, ZTE intended for 8S (rather than ZTE) to purchase the embargoed equipment from suppliers and provide that equipment under the contract in an effort to distance ZTE from U.S. export-controlled products, and insulate ZTE from U.S. export violations. However, 8S had no purchasing or shipping history and no real business reputation.
 
Ultimately, although 8S was a party to the contracts, ZTE itself purchased and shipped the embargoed goods under the contract. In its shipping containers, it packaged the U.S. items with its own self-manufactured items to hide the U.S.-origin goods. ZTE did not include the U.S. items on the customs declaration forms, though it did include the U.S.-origin items on the packing lists included inside of the shipments.
 
In early 2011, when ZTE determined that the use of 8S was insufficient to hide ZTE’s connection to the illegal export of U.S.-origin goods to Iran, senior management of ZTE ordered that a company-level export control project team study, handle and respond to the company’s export control risks. In September 2011, four senior managers signed an Executive Memo, which proposed that the company identify and establish new “isolation companies” that would be responsible for supplying U.S. component parts necessary for projects in embargoed countries. The isolation companies would conceal ZTE’s role in the transshipment scheme and would insulate ZTE from export control risks.
 
In March 2012, Reuters published an article regarding ZTE’s sale of equipment to Iran. In response, ZTE made a decision to temporarily cease sending new U.S. equipment to Iran. By November 2013, however, ZTE had resumed its business with Iran. Beginning in July 2014, ZTE began shipping U.S.-origin equipment to Iran once again without the necessary licenses.
 
Instead of using 8S, however, ZTE identified a new isolation company. ZTE signed a contract with the new isolation company, which in turn signed contracts with the two Iranian customers. According to the new scheme, ZTE purchased and manufactured all relevant equipment – both U.S.-origin and ZTE-manufactured – and prepared them for pick-up at its warehouse by the new isolation company. The new isolation company then shipped all items to the Iranian customers. Shipments to Iran continued from January 2014 through January 2016.
 
Despite its knowledge of an ongoing grand jury investigation into its Iran exports, according to plea documents, ZTE took several steps to conceal relevant information from the U.S. government. It further took affirmative steps to mislead the U.S. government. In the summer of 2012, ZTE asked each of the employees who were involved in the Iran sales to sign nondisclosure agreements in which the employees agreed to keep confidential all information related to the company’s U.S. exports to Iran.
 
During meetings throughout late 2014, late 2015 and early 2016, outside counsel for ZTE, unaware that the statements ZTE had given to counsel for communication to the U.S. Government were false, represented to the DOJ and federal law enforcement agents that ZTE had stopped doing business with Iran and therefore was no longer violating U.S. export laws. Similarly, on July 8, 2015, in-house counsel for ZTE accompanied outside counsel in a meeting with the DOJ and federal law enforcement agents and reported that ZTE was abiding by U.S. laws. That statement was also false.
 
ZTE also hid data related to its resumed illegal sales to Iran from a forensic accounting firm hired by defense counsel to conduct an internal investigation into the company’s Iran sales. ZTE knew the forensic accounting firm was reviewing its systems and knew that the analysis was being reported to the DOJ and U.S. law enforcement. To avoid detection of its 2013-2016 resumed illegal sales to Iran, ZTE formed the “contract data induction team” (“CDIT”). The CDIT was comprised of approximately 13 people whose job it was to “sanitize the databases” of all information related to the 2013-2016 Iran business. The team identified and removed from the databases all data related to those sales. ZTE also established an auto-delete function for the email accounts of those 13 individuals on the CDIT, so their emails were deleted every night – a departure from its normal practices – to ensure there were no communications related to the hiding of the data.
 
The case is being prosecuted by Deputy Chief Elizabeth Cannon of the National Security Division’s Counterintelligence and Export Control Section and Assistant U.S. Attorney Mark Penley of the Northern District of Texas. 

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OGS_44
.

State/DDTC: DTAS System Outage on 24 Mar

 
The DTAS information systems will be unavailable from 6:00-9:00PM 24 March 2017 due to scheduled routine maintenance.

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OGS_55EU Parliament Approves Proposal to Stop Trade in Conflict Minerals

 
On 16 March 2017, the European Parliament adopted by an overwhelming majority the proposal to stop trade in conflict minerals.
 
  “I’m very glad we now have an ambitious, workable solution to eliminate conflict minerals from supply chains,” said Commissioner for Trade Cecilia Malmström after the vote. “Trade needs to take account of our values and the Parliament’s decision today is a great example of how this can be achieved.
 
The new rules will ensure that minerals used by European industries are sourced responsibly, in a way that does not harm populations in mining regions and does not fuel war. The new regulation will reduce the hardship and human rights abuses that have for too long accompanied this trade.
 
Transparent and responsible supply chains mean revenues will not go into the hands of rebel groups, but to investment in schools and hospitals, supporting a well-governed state underpinned by the rule of law. It means improving people’s lives, from conflict and terror to opportunity and hope. It means encouraging the economic growth that helps the poorest regions grow sustainably.”
 
The regulation brokered by the Commission and voted today by the European Parliament will impose due diligence rules on companies importing tin, tantalum, tungsten and gold. Such metals and minerals are used in the production of everyday products such as mobile phones, car and jewelry. The rules will cover up to 95% of imports as of 1 January 2021. In the meantime, the Commission and Member States will work to make sure that the necessary structures are in place to ensure EU-wide implementation.
 
Together with the new rules, the EU will be putting in place accompanying measures to support small and medium-sized importers, and development aid to ensure the regulation is effective and has a positive impact on the ground. The EU has also been reaching out to governments in Africa, Asia and beyond to encourage them to source responsibly and eliminate alternative markets for conflict minerals.
 
To become effective, the regulation still has to be formally adopted by the Council.
 
  – More information on the EU’s Policy on Conflict Minerals is available
here.
  – The EU’s new Conflict Minerals Regulation is available
here.

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OGS_66EU Parliament Discusses Future of EU Export Controls

 
On 21 March 2017, Members of the Committee on International Trade of the EU Parliament (MEPs) discussed with various experts and stakeholders how to make the EU export control regime ‘future-proof’. The following issues were addressed: due diligence, human rights, catch-all clauses, new surveillance technologies, intangible transfers, a new licensing architecture, to name just a few. The public hearing fed into the Committee’s deliberations of the Commission’s proposal for reviewing ‘Dual Use’ regulation.
 
  – The agenda of the public hearing is available
here.

  – A video of the public hearing is available here

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COMMNEWS

NWS_a27ST&R Trade Report: “C-TPAT Minimum Security Criteria Updates Under Consideration”

 
U.S. Customs and Border Protection is beginning to consider possible changes to the minimum security criteria under the Customs-Trade Partnership Against Terrorism, which has now been in place for more than 15 years. The Commercial Customs Operations Advisory Committee, along with a working group representing various members of the supply chain, is working with CBP in this effort and recently made a number of associated recommendations. Adam Salerno, co-chair of COAC’s Global Supply Chain Subcommittee, said at a recent COAC meeting that the trade community is looking for an appropriate balance between prescriptive language, best practices, and performance-based goals that will allow C-TPAT members to develop compliance measures that best suit them and are scalable to companies of all sizes.
 
COAC’s recommendations include the following.
 
  – C-TPAT should stay focused on supply chain security and additional minimum security criteria should focus on minimizing risks in the supply chain.
  – CBP should give C-TPAT participants 90 days to comment on proposed new MSC and integrate their feedback.
  – CBP and COAC should work together to review and update program benefits and establish metrics while finding ways to offset program costs.
  – CBP should work with C-TPAT participants to develop a cost/benefit analysis.
  – CBP should conduct a pilot test of any new MSC to evaluate their operational feasibility and allow sufficient time for participants to implement them once they are finalized.
  – Prior to finalization and implementation of new MSC they should be reviewed in their totality to streamline requirements, remove potential redundancies with existing MSC or any overlap with existing laws and regulations, and focus both CBP and trade resources on areas of highest risk.
  – CBP should engage with international trade partners to ensure that updated MSC align with authorized economic operator program standards to meet mutual recognition obligations.
  – CBP should provide training and reference materials on the new MSC well in advance of implementation.
  – Updated guidance, including a transparent and uniform Tier 3 best practices and validation process, should be developed and issued to C-TPAT partners and CBP.
  – CBP should consider expanding C-TPAT participation to currently ineligible entities; e.g., drayage carriers, rail carriers, and warehouses.
 
COAC envisions a multi-stage process that includes (1) developing the revised MSC, circulating them for review, and refining them; (2) developing an implementation plan that may include training and outreach as well as a pilot program to; and (3) implementing the updated MSC in a staged approach that allows sufficient time for C-TPAT members to become educated on the new criteria, evaluate the requirements, and implement them in their own supply chains.
 
CBP officials have responded positively to COAC’s recommendations and said CBP is committed to making any changes in partnership with the trade community. Officials have emphasized that any revisions to the MSC must be achievable, affordable, and articulable. One official noted that it could take several years to expand C-TPAT to more domestic entities, but ST&R’s Lenny Feldman responded that doing so should be pursued expeditiously to help combat homegrown extremists and domestic terrorism.
 
Although CBP continues to consider potential MSC updates within the established working group, general input on this or other C-TPAT issues may be provided to Lenny Feldman (
lfeldman@strtrade.com), who serves on the group.

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NWS_18. ST&R Trade Report: “Imports and Exports of Synthetic Opioid Restricted”

 
The Drug Enforcement Administration has issued a final order that temporarily schedules the synthetic opioid N-(4-fluorophenyl)-N-(1-phenethylpiperidin-4-yl)isobutyramide (4-fluoroisobutyryl fentanyl or para-fluoroisobutyryl fentanyl) and its isomers, esters, ethers, salts, and salts of isomers, esters, and ethers into schedule I pursuant to the temporary scheduling provisions of the Controlled Substances Act.
 
As a result, this substance is subject to the regulatory controls and administrative, civil, and criminal sanctions applicable to the manufacture, distribution, reverse distribution, possession, importation, exportation, research, and conduct of instructional activities and chemical analysis of schedule I controlled substances. This order is effective March 23 and will be in effect for two years, with a possible extension of one year, pending completion of the permanent scheduling process.
 
According to the DEA, available data and information indicate that 4-fluoroisobutyryl fentanyl has a high potential for abuse, no currently accepted medical use in treatment in the U.S., and a lack of accepted safety for use under medical supervision.

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COMMCOMMENTARY

COMM_a19. D. Kelley & N. Gerrard: “Corporate Compliance Programs: US and UK Perspectives”

(Source:
Dechert LLP)
 
* Authors: David Kelley, Esq., +1 212 698 3580 (New York City),
david.kelley@dechert.com; and Neil Gerrard, Esq., +44 20 7184 7672 (London),
neil.gerrard@dechert.com. Both of Dechert LLP.
 
In today’s regulatory environment, companies face mounting pressure from law enforcement agencies to maintain robust compliance programs to deter and detect misconduct by employees, third-party vendors and business partners. In the United States, prosecutors have long considered the effectiveness of an entity’s compliance policy to be an important factor informing charging decisions and the negotiation of deferred and non-prosecution agreements. Prosecutors’ focus on compliance measures has only increased. An emphasis on corporate compliance policies is also observed in the United Kingdom.
 
The U.S. Department of Justice (“DOJ”), Fraud Section recently published a list of topics and questions that it has “frequently found relevant in evaluating a corporate compliance program” in the context of a criminal investigation. In addition, the Fraud Section has announced plans to extend its Foreign Corrupt Practices Act (“FCPA”) Pilot Program, which incentivizes companies to voluntarily self-disclose FCPA-related misconduct and remediate shortcomings in their corporate controls and compliance programs.
 
An emphasis on corporate compliance policies is also observed in the United Kingdom. For instance, “corporate failure to prevent bribery” is a strict liability offense under section 7 of the Bribery Act of 2010 (the “Bribery Act”). The only complete defense available to a company under investigation for such an offense is proof that it had adopted “adequate procedures” to prevent bribery and corruption. Like the DOJ Fraud Section, the U.K. Ministry of Justice has developed a rubric for evaluating whether a company has adopted “adequate procedures” sufficient to avoid criminal liability under the Bribery Act.
 
This memorandum briefly discusses recent developments highlighting the importance of adopting rigorous compliance procedures under U.S. and U.K. law.
 
DOJ COMPLIANCE PROGRAM GUIDANCE
 
In 2015, the DOJ Fraud Section hired a full-time compliance expert, Hui Chen, to consult on the prosecution of business entities and to help prosecutors “develop appropriate benchmarks for evaluating corporate compliance and remediation measures.” [FN/1] Under Ms. Chen’s leadership, the Fraud Section published a guidance document entitled “Evaluation of Corporate Compliance Programs” (the “DOJ Guidance”) on February 8, 2017. Drawing on a number of existing resources-including the United States Attorney’s Manual, the United States Sentencing Guidelines (the “Sentencing Guidelines”), Fraud Section corporate resolution agreements, the November 2012 Resource Guide to the FCPA published by the DOJ and the Securities and Exchange Commission-the DOJ Guidance consists of a list of topics and questions the Fraud Section may consider when making a determination with respect to a company under criminal investigation. While the DOJ Guidance is prefaced with a warning that compliance programs “must be evaluated in the specific context of a criminal investigation that triggers” prosecutorial scrutiny, the topics and sample questions provide a valuable roadmap for companies to assess the soundness of existing corporate compliance policies and to determine what steps to take in the event the company discovers misconduct.
 
The DOJ Guidance is divided into 11 topics:
 
  (1) Analysis and Remediation of Underlying Conduct
  (2) Senior and Middle Management
  (3) Autonomy and Resources
  (4) Policies and Procedures
  (5) Risk Assessment
  (6) Training and Communications
  (7) Confidential Reporting and Investigation
  (8) Incentives and Disciplinary Measures
  (9) Continuous Improvement, Periodic Testing and Review
  (10) Third-Party Management
  (11) Mergers and Acquisitions
 
The DOJ Guidance makes clear that a company’s oversight duties do not end once it drafts and circulates compliance policies and procedures to employees. Rather, the guidance contemplates a continuing commitment to, and investment in, compliance principles at all levels of the organization. For instance, prosecutors will consider whether senior officers and the board of directors have demonstrated a commitment to compliance and remediation efforts, and whether that commitment has been communicated to mid-level managers and other employees. Another relevant consideration is whether the compliance department has been empowered to act with the degree of authority and autonomy necessary to deter and detect misconduct. This factor takes into account practical considerations such as how the compliance function “compare[s] to other strategic functions in the company in terms of stature, compensation levels, rank/title, reporting line, resources and access to key decision-makers.”
 
The DOJ Guidance also highlights the importance of revisiting compliance policies and procedures in light of changing risks. For instance, the guidance notes that the frequency with which the company “update[s] its risk assessments and reviewed its compliance policies, procedures, and practices” is a factor that prosecutors often consider. Other relevant factors are whether and how often the company has audited its compliance policies and controls, particularly with respect to high-risk business units such as those responsible for processing payments or managing third-party vendors.
 
Although the DOJ Guidance provides a series of general questions that prosecutors may consider in assessing the strength of any compliance program, it is critical that every company tailor its compliance program to “the particular risks it faces.” Thus, companies will generally receive favorable consideration for taking a bespoke approach when determining what types of information and metrics to track and how to draw reporting lines up through the organization.
 
PILOT PROGRAM EXTENSION
 
In a March 10, 2017 speech at the American Bar Association’s National Institute on White Collar Crime, Acting Assistant Attorney General Kenneth Blanco announced that the DOJ Fraud Section’s guidance for the investigation and prosecution of FCPA offenses, commonly known as the “Pilot Program,” will “continue in full force” after April 5, 2017, when it was originally scheduled to expire. [FN/2] Under the Pilot Program, companies that meet certain criteria may earn sentencing credit in FCPA matters handled by the Fraud Section, including favorable consideration regarding the type of disposition prosecutors will pursue and reductions in fines below the minimum level recommended under the Sentencing Guidelines. [FN/3] Mr. Blanco stated that the Pilot Program would remain in place while the DOJ evaluates the “utility and efficacy” of the program, whether to extend it and what revisions, if any, to make to the program.
 
The Fraud Section considers three key factors to determine whether, and to what extent, companies will receive credit under the Pilot Program: (1) voluntary self-disclosure; (2) full cooperation; and (3) remediation. Key considerations related to each of these factors include the following:
 
(1) Voluntary Self-Disclosure
 
  – Disclosure occurs “prior to an imminent threat of disclosure or government investigation.”
  – The company discloses “within a reasonably prompt time after becoming aware of the offense.”
  – The company discloses “all relevant facts known to it, including all relevant facts about the individuals involved in any FCPA violation.”
 
(2) Full Cooperation
  – Proactive cooperation, including disclosure of facts relevant to the investigation, “even when not specifically asked to do so.”
  – When requested, “de-confliction of an internal investigation with the government investigation.”
  – Upon request, making company officers and employees (including those located overseas) available for interview by the DOJ.
  – Disclosure of overseas documents (except where such disclosure is impossible due to foreign law).
 
(3) Remediation
  – Implementation of an effective compliance and ethics program.
  – Appropriate discipline of employees, including those identified by the company as responsible for the FCPA-related misconduct and those with oversight responsibility.
  – Adoption of measures to reduce the risk that detected misconduct will be repeated.
 
Companies that voluntarily self-disclose FCPA-related misconduct, cooperate fully in the government’s investigation, and timely and appropriately remediate misconduct in accordance with the Pilot Program guidance will qualify for significant mitigation credit, including up to a 50% reduction off of the lower end of the fine range under the Sentencing Guidelines and a presumption that a monitor will not be appointed. In addition, where all three conditions are met, the Fraud Section may consider a declination of prosecution. If a company does not voluntarily disclose its FCPA-related misconduct, but later fully cooperates with the investigation and takes timely and appropriate remedial measures, the company will qualify for at most a 25% reduction off of the low end of the Sentencing Guidelines fine range.
 
U.K. GUIDANCE
 
A company will run afoul of section 7 of the Bribery Act if it fails to prevent its employees or agents from engaging in bribery. The only defense available to a section 7 charge is to prove that the company had “adequate procedures” in place to prevent bribery.
 
In March 2011, the U.K. Ministry of Justice (“MOJ”) published its Adequate Procedures Guidance containing six high-level (non-prescriptive) principles that a company should consider when implementing or reviewing its compliance program. While these principles are articulated in the context of preventing bribery offenses, they also reflect generally accepted international good compliance practices.
 
(1) Proportionate Procedures
  – Company procedures should be proportionate to the bribery risks it faces and to the scale of its business activities. The procedures should account for the full spectrum of individuals and corporate entities over which the company has control.
 
(2) Top-Level Commitment
  – Management should foster a culture in which bribery is never acceptable and show effective leadership in bribery prevention.
 
(3) Risk Assessment
 
  – A risk assessment should be the starting point for any corporate compliance program. The risk assessment should be: (i) tailored to the particular company; (ii) periodic; (iii) informed; and (iv) documented. Compliance involves more than just a ‘box-ticking’ exercise.
  – Following the completion of the risk assessment, company policies and procedures should be adapted to address the identified risks.
 
(4) Due Diligence
  – To mitigate bribery risks, the company should implement thorough due diligence procedures, taking a proportionate and risk-based approach, with a keen focus on individuals or corporate entities who perform or will perform services for the company.
 
(5) Communication, Including Training
 
  – The company should seek to ensure that its bribery prevention policies and procedures are embedded and understood by all employees, supported by internal and external communication, which includes proportionate training tailored to the risks faced by the company.
 
(6) Monitoring and Review
  – Monitoring includes internal audits and third-party audits of business partners and joint ventures. Effective monitoring should include the consideration of an external review and verification of company procedures and remediation measures where necessary.
 
COMPARISON OF THE U.S. AND U.K GUIDANCE
 
The published guidance from both the U.K. MOJ and U.S. DOJ is broadly aligned. There are, however, some notable differences between the U.K. and U.S. approach to compliance programs. In particular in the U.K., if a company can prove that it had “adequate procedures” in place to prevent bribery, a complete defense is available to a charge under section 7 of the Bribery Act. Conversely in the U.S., the adoption of a compliance program is not a defense to FCPA liability, although prosecutors consider the adoption of effective compliance procedures to be an important factor in determining whether to prosecute and will consider this in the terms of any settlement.
 
CONCLUSION
 
The clear and consistent message from both U.K. and U.S. regulators and enforcement agencies is that the consequences of failing to maintain an effective compliance program can be severe. As a result, companies should broadly adhere to the published guidance of the U.K and U.S. regulators. At a minimum, companies should consider adopting the following good practices:
 
  – Following a detailed risk assessment, the company must tailor its compliance program to the specific risks faced by the company and, where appropriate, third-party vendors.
  – Senior management must communicate its commitment to compliance to the entire company and be actively involved in the continued monitoring of the compliance program.
  – Staff must receive periodic risk-based training.
 
——–
[FN/1] U.S. Dept. of Justice,
New Compliance Counsel Expert Retained by the DOJ Fraud Section
(Nov. 3, 2015).
[FN/2] Kenneth Blanco, Acting Assistant Attorney General,
Address at the American Bar Association National Institute on White Collar Crime
(Mar. 10, 2017).

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COMM_a210. J.A. Pérez Santiago: “Post-Election Update on Cuba”

(Source:
Carlton Fields) [Excerpts.]
 
* Authors: Jorge A. Pérez Santiago, Esq., Carlton Fields Jorden Burt LLP,
jperezsantiago@carltonfields.com, +1-305-539-7371. 
 
New Administration’s Cuba Policy Plans
 
Prior to President Trump’s inauguration, and in an effort to continue normalizing U.S.-Cuba relations, President Obama ended the “wet-foot, dry-foot” policy which since 1995 has granted Cubans who touch American soil the right to stay and get on a faster track to U.S. citizenship. It is unclear what effect this policy change will have on commercial opportunities in Cuba. However, in the short run we expect little impact.
 
Although the Trump administration has not yet acted with respect to federal law on Cuba sanctions, action appears imminent. Secretary of State Rex Tillerson said all of President Obama’s executive orders on Cuba will be reviewed. On February 3, 2017, the status of U.S. relations with Cuba was drawn into question due to Cuba’s increased commercial relationship with Iran and its support of Iran’s nuclear development program. Indeed, White House Press Secretary Sean Spicer recently indicated that the Trump administration was conducting a full review of all U.S. policies toward Cuba, with a focus on human rights policies.
 
If President Trump were to reverse the easing of sanctions, he could do so easily and quickly, as President Obama’s steps were all taken through executive action and could be undone in the same fashion. However, numerous U.S. companies have begun legally operating on the island, including major U.S. hotel chains and airlines. Thus, President Trump would risk a likely business backlash with minimal political gain if all of President Obama’s policies were undone. Nevertheless, eased economic restrictions and sanctions will not likely occur as rapidly under this administration.
 
The U.S. Department of the Treasury’s Office of Foreign Assets Control Continues Enforcing Violations of U.S. Sanctions Against Cuba
 
Recently, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced a $516,000 settlement with a Canadian bank for several violations of U.S. sanctions against Iran and Cuba. These included the maintenance of bank accounts in Canada for Cuban nationals.
 
On November 14, 2016, OFAC also announced it had reached a settlement with National Oilwell Varco, Inc., a U.S.-based oil and gas company, and two of its Canadian subsidiaries, Dreco Energy Services, Ltd. and NOV Elmar (collectively, “NOV”) for, among other things, alleged violations of the Cuban Assets Control Regulations. Almost all the sales to Cuba and other countries subject to U.S. sanctions and regulations occurred outside the United States. Nonetheless, NOV faced an enforcement action in part because the company’s Canadian subsidiaries exported non-U.S.-origin goods to Cuba.
 
These resolutions are reminders that OFAC’s enforcement reaches violations of varying proportions – even those beyond the U.S. border. Moreover, the penalties imposed by OFAC demonstrate that entities must comply with U.S. sanctions regulations when transacting with, or in, the United States. …
 
State of Florida Policy
 
On January 25, 2017, Florida Governor Rick Scott announced that he would ask state lawmakers to pass legislation restricting financial support for ports that “enter into any agreement with the Cuban dictatorship” citing “[s]erious security/human rights concerns.” This came a day after the first legal cargo from Cuba in more than half a century arrived in Fort Lauderdale’s Port Everglades. Days later, Governor Scott added language to his proposed budget which states that no money will be “allocated to infrastructure projects that result in the expansion of trade with the Cuban dictatorship because of their continued human rights abuses.” It is unclear whether this will have any effect on trade in services, such as cruises or ferry service to the island.
 
The port authorities previously indicated that these agreements could lead to joint marketing studies and training. Port Tampa Bay, on the other hand, indicated that it would not reach any agreements with the Cuban government citing “ambiguity” in Cuba policy right now.

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COMM_311. M. Volkov: “Legal and Compliance Coordination – An Essential Foundation to an Effective Compliance Program”

(Source:
Volkov Law Group Blog. Reprinted by permission.)
 
* Author: Michael Volkov, Esq., Volkov Law Group,
mvolkov@volkovlaw.com, 240-505-1992.
 
[Editor’s note: this is the fourth and final part of a series of commentaries of Michael Volkov on compliance organization and coordination. Part I (“Operationalizing Compliance: Natural Partners and Breaking Down Walls”), part II (“Bridging the Gap: Uniting Compliance and Financial Controls”), and part III (“Getting to Know You, Getting to Know All About You – Business Buy-In to Compliance “) are available here, here, and here.]
 
Here is a profound grasp of the obvious – Lawyers can be difficult people. Some like to condemn the profession in its entirety (and carry with them a collection of lawyer jokes). As an attorney, I beg to differ. Many professions include and reward difficult people. For example, CEOs have the highest incidence of psychopathy among professionals. Lawyers are no different and expected to zealously advocate on behalf of their clients.
 
Lawyers and compliance professionals are natural partners. With the rise of the compliance profession, lawyers became more territorial. For some reason, some lawyers felt they had to defend their territory in the corporate governance world.
 
Lawyers’ resistance, however, has diminished through the years. There is more than enough work to go around for a CCO and a legal team to help design and implement an effective compliance program. Lawyers are starting to embrace the new landscape without feeling so threatened. (Some cynics may say that lawyers had no choice given the importance of the compliance profession).
 
As compliance programs mature, so do lawyers, and so has their relationship with he compliance profession. An effective compliance program requires lawyers and compliance professionals to work together. If they are at odds with each other, the program will suffer serious debilitating effects. To that end, a general counsel and CCO have to ensure a smooth working partnership. In fact, they can make each other look good by sharing in compliance and legal successes.
 
Lawyers can be excellent compliance practitioners so long as they recognize the essential difference between legal and compliance work. A lawyer defines and advises on the law – the rules of the road. Compliance officers develop controls, policies, procedures, and systems designed to ensure that corporate actors stay within the rules of the road.
 
Lawyers do not define the company’s ethical culture. To the contrary, the board, senior management and the CCO define, instill, promote, manage and measure the company’s culture. A company’s culture is at its most effective internal control, and it is up to the CCO to embrace this responsibility and bring all the key players to the table. Of course, the general counsel should be part of the discussions but the general counsel should not define the company’s culture.
 
In-house counsel are essential partners in conducting training, providing important legal guidance and analyses, marshaling due diligence and conducting internal investigations. Lawyers carry a valuable asset – the legal privilege, an essential tool when a company investigates and determines the nature and scope of a potential legal violation. Lawyers are key partners when it comes to the internal investigation function and working with compliance to develop helpful protocols, and investigation tactics and strategies.
 
Lawyers also play a valuable role in contract management – a key tool used to mitigate risks. A company’s contract system is an important aspect of its internal controls, and the design of risk mitigation provisions to include in appropriate contracts is a critical aspect of the company’s contracting system.
 
Compliance officers integrate legal analysis to design and implement appropriate controls. A CCO needs to work closely with the general counsel to ensured that compliance and legal questions are appropriately handled, that controls adequately cover legal risks, and that such controls are updated when legal interpretations and enforcement positions are adjusted.
 
Besides maintaining a positive working relationship, a CCO and a general counsel must coordinate and communicate regularly. They are natural allies when assessing risk, but they need to recognize they each have a different perspective.
 
A CCO is the guardian of the company’s ethical culture. A general counsel is the protector of the company’s legal risks. A company has to recognize that a legal analysis is not the same as adherence to ethical principles. Once this basic principle is understood, and the expertise that each maintains in their respective areas of concern, a CCO and a general counsel can build a lasting friendship and partnership as part of the company’s effective compliance program.

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ENEDITOR’S NOTES

(Source: Editor)

 
* Erich Fromm (Erich Seligmann Fromm, 23 Mar 1900 – 18 Mar 1980, was a German social psychologist, psychoanalyst, sociologist, humanistic philosopher, and democratic socialist. Fromm’s most popular book was The Art of Loving, which recapitulated and complemented the theoretical principles of human nature found in Escape from Freedom and Man for Himself-principles which were revisited in many of Fromm’s other major works.)
  – “Greed is a bottomless pit which exhausts the person in an endless effort to satisfy the need without ever reaching satisfaction.”
 
*
Alfred P. Sloan (Alfred Pritchard Sloan, Jr., 23 May 1875 – 17 Feb 1966, was an American business executive in the automotive industry. He was a long-time President, chairman and CEO of General Motors Corporation.)
  – “If we are all in agreement on the decision – then I propose we postpone further discussion of this matter until our next meeting to give ourselves time to develop disagreement and perhaps gain some understanding of what the decision is all about.”

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EN_a213
. 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: 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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