17-0406 Thursday “The Daily Bugle”

17-0406 Thursday “Daily Bugle”

Thursday, 6 April 2017

TOPThe Daily Bugle is a free daily newsletter from Full Circle Compliance, containing changes to export/import regulations (ATF, Customs, NISPOM, EAR, FACR/OFAC, FTR/AES, HTSUS, and ITAR), plus news and events. Subscribe 
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  1. Commerce/BIS Amends EAR, Adds Six Persons to the UVL 
  1. Ex/Im Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.) 
  3. DoD/DSS Revises Standard Form 328, Certificate Pertaining to Foreign Interests 
  4. State/DDTC: (No new postings.) 
  5. EU Council Adopts New Rules to Reduce Financing of Armed Groups Through Trade in Conflict Materials 
  6. EU Expands Sanctions Against North Korea 
  7. UK Launches Inquiry into Post-Brexit Sanctions Policy 
  8. Malaysian MITI Posts Update Concerning Strategic Trade (Strategic Items) (Amendment) Order 2017 
  1. Customs & Trade Compliance News: “Another Broker Agrees to POA Validation Requirements in Trademark Settlement with Nike” 
  2. Customs & Trade Compliance News: “CBP Form 28s and 29s Increasingly Going to Importers of Record, Not Brokers” 
  3. Nature: “Japanese Scientists Call for Boycott of Military Research” 
  4. Reuters: “Tech Firms Must Go beyond Congo’s ‘Conflict Minerals’ to Clean Supply Chain” 
  5. ST&R Trade Report: “Landmark Penalty Case Has Lessons for Exporters, Official Says”  
  1. A. Keller, B. Peters & A. Dukic: “Conflict Minerals: Recent Developments and Business Implications of Potentially Diverging U.S. and EU Approaches” 
  2. James Martin Center for Nonproliferation Studies: “Findings From the 2016 Symposium on Export Control of Emerging Biotechnologies” 
  3. Protiviti: “DOJ Fraud Section Puts Boards of Directors on Notice Regarding ‘Conduct at the Top'” 
  4. T. Hesselink, L. Kanters, and B.J. Kalshoven: “EU Export Control Reform Update” 
  5. R.C. Burns: “American University in Beirut Dinged by DOJ for SDN Listing in Directory Database” 
  1. Ian Moss Moves to Hydroid 
  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 (6 Apr 2017), FACR/OFAC (10 Feb 2017), FTR (15 May 2015), HTSUS (7 Mar 2017), ITAR (11 Jan 2017) 


. Commerce/BIS Amends EAR, Adds Six Persons to the UVL

82 FR 16730-16733: Revisions to the Unverified List (UVL)
* AGENCY: Bureau of Industry and Security, Commerce.
* ACTION: Final rule.
* SUMMARY: The Bureau of Industry and Security (BIS) is amending the Export Administration Regulations (EAR) by adding six (6) persons to the Unverified List (the “Unverified List” or “UVL”); revising two addresses and adding an alternate name, or a.k.a., for one (1) person currently listed on the UVL; and revising three addresses, adding three additional addresses, and adding an alternate name, or a.k.a, for one (1) person currently listed on the UVL. The six persons are being added to the UVL on the basis that BIS could not verify their bona fides because an end-use check could not be completed satisfactorily for reasons outside the U.S. Government’s control. Two addresses are revised for one person currently listed on the UVL to add the official Hong Kong district name. In addition, this rule adds an alternate name for this person. This rule also revises three addresses for an additional person currently listed on the UVL to add the official Hong Kong district names and correct a previous error. Finally, this rule adds three additional addresses and an alternate name for this person, as BIS has determined this person is receiving U.S. exports at additional addresses and using an additional name.
* DATES: Effective date: This rule is effective: April 6, 2017.
* FOR FURTHER INFORMATION CONTACT: Kevin Kurland, Director, Office of Enforcement Analysis, Bureau of Industry and Security, Department of Commerce, Phone: (202) 482-4255 or by email at UVLRequest@bis.doc.gov.
Changes to the EAR
Supplement No. 6 to Part 744 (“the Unverified List” or “UVL”)
This rule adds six (6) persons to the UVL by amending Supplement No. 6 to Part 744 of the EAR to include their names and addresses. BIS adds these persons in accordance with the criteria for revising the UVL set forth in Sec. 744.15(c) of the EAR. The new entries consist of three persons located in China and one person located in each of the following countries or territories: Azerbaijan, Lebanon, and the United Arab Emirates. Each listing is grouped within the UVL by country with each party’s name(s) listed in alphabetical order under the country; each entry includes available alias(es) and address(es), as well as the Federal Register citation and the date the person was added to the UVL. The UVL is included in the Consolidated Screening List, available at www.export.gov.
  This rule also revises two addresses for one person currently listed on the UVL, Brilliance Technology Ltd., to add the official Hong Kong district name. In addition, BIS is adding an alternate name for Brilliance Technology Ltd., as BIS has determined this person is doing business as Brilliance Technology Group. Additionally, this rule revises two addresses for Ling Ao Electronic Technology Co., Ltd., which is currently listed on the UVL, to add the official Hong Kong district name. BIS is revising a third address for this person to correct a previous error in the street name and to add the name of the building in which this person is located. BIS is also adding three additional addresses for Ling Ao Electronic Technology Co., Ltd., as BIS has determined this person is receiving U.S. exports at these addresses. Finally, BIS is adding Xuan Qi Technology Co., Ltd. as an alternate name for Ling Ao Electronic Technology Co., Ltd. …
  Dated: March 29, 2017.
Matthew S. Borman, Deputy Assistant Secretary for Export Administration.

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

(Source: Federal Register)

* President; ADMINISTRATIVE ORDERS;  Somalia; Continuation of National Emergency (Notice of April 6, 2017) [Publication Date: 7 April 2017.]

* U.S. Customs and Border Protection; NOTICES; Meetings: 2017 West Coast Trade Symposium — Looking Ahead Together: What’s Next for Trade? [Publication Date: 7 April 2017.]

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

(Source: Commerce/BIS

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OGS_a34. DoD/DSS Revises Standard Form 328, Certificate Pertaining to Foreign Interests

(Source: DoD/DSS)
The Standard Form (“SF”) 328, “Certificate Pertaining to Foreign Interests,” supporting the National Industrial Security Program (NISP) was revised and has a new issuance date of March 2017, under Office of Management and Budget Control Number 0704-0194.
OMB approval for the SF 328 will expire on Sept. 30, 2019, unless the form is renewed prior to that date. Previous blank forms are obsolete. Revisions to the form include the removal of the prior requirement for application of a corporate seal. A single witness to the contractor representative signing the SF 328 is required. The government representative accepting the SF 328 may not act as the witness. Forms may be obtained through the General Services Administration website, or the DSS Checklist for New Facility Security Clearances. Existing records of DSS and contractors must be updated as changed conditions affecting the SF 328 occur.

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5. State/DDTC: (No new postings.)

(Source: State/DDTC)

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OGS_a56. EU Council Adopts New Rules to Reduce Financing of Armed Groups Through Trade in Conflict Materials

On 3 April 2017, the Council adopted a regulation aimed at stopping the financing of armed groups through trade in conflict minerals.
The regulation obliges EU companies to source their imports of tin, tantalum, tungsten and gold responsibly and to ensure that their supply chains do not contribute to funding armed conflict. These ‘due diligence’ rules will become binding from 1 January 2021, though importers are encouraged to apply them as soon as possible.
Tin, tantalum, tungsten and gold can be used in everyday products such as mobile phones, automobiles or jewelry. In conflict-affected and high-risk areas, armed groups often use forced labour to mine these minerals which they then sell to fund their activities. By ensuring product traceability, the regulation is aimed at cutting off a major source of their income.
The regulation carries clear obligations to source responsibly for the ‘upstream’ part of the production process, which involves the extraction and refining of these minerals. At least 95% of all EU imports of metals and minerals will be covered, while small volume importers will be exempt. The competent authorities will carry out checks to ensure that EU importers of minerals and metals comply with their due diligence obligations.
In addition, the Commission will carry out a number of other measures to further boost due diligence by both large and small EU ‘downstream’ companies, which are those that use these minerals as components to produce goods. The Commission will also draft a handbook including non-binding guidelines to help companies, and especially SMEs, with the identification of conflict-affected and high-risk areas.
The regulation builds upon 2011 OECD guidelines which set the international benchmark for supply chain due diligence. The text adopted by the Council results from an agreement reached with the European Parliament in November 2016, subsequently approved by the Parliament in a plenary vote on 16 March 2017.
  – Visit the meeting page.

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OGS_a67. EU Expands Sanctions Against North Korea

On 6 April 2017, the Council adopted additional restrictive measures against the Democratic People’s Republic of Korea (DPRK or North Korea). These measures complement and reinforce the sanctions regime imposed by United Nations Security Council (UNSC) resolutions.
The EU decided to expand the prohibition on investments in the DPRK to new sectors, namely the conventional arms-related industry, metallurgy and metalworking, and aerospace. The Council also agreed to prohibit the provision of certain services to persons or entities in the DPRK, namely computer services and services linked to mining and manufacturing in the chemical, mining and refining industry.
The Council took these additional restrictive measures considering that the actions of the DPRK violate multiple UNSC resolutions and constitute a grave threat to international peace and security in the region and beyond. The EU calls again on the DPRK to re-engage in a credible and meaningful dialogue with the international community, to cease its provocations, and to abandon all nuclear weapons and existing nuclear programmes as well as other weapons of mass destruction and ballistic missile programmes in a complete, verifiable and irreversible manner.
The Council also decided to add four persons to the list of persons targeted by the EU’s restrictive measures for being responsible for supporting or promoting the DPRK’s nuclear-related, ballistic missile-related or other weapons of mass destruction-related programmes. This brings the total number of persons subject to travel restrictions and asset freeze to 41. Seven entities are also subject to an asset freeze.
The legal acts are published in the Official Journal of 7 April 2017. They were adopted by written procedure.
EU restrictive measures against North Korea were introduced on 22 December 2006. The existing measures implement all UNSC resolutions adopted in response to the DPRK’s nuclear tests and launches using ballistic missile technology and include additional EU autonomous measures.
They target North Korea’s nuclear weapons and nuclear programmes, other weapon of mass destruction and ballistic missile programmes. The measures include prohibitions on the export and import of arms, goods, services and technology that could contribute to these programmes.
  – Press Release 27 February 2016, EU expands sanctions against the Democratic People’s Republic of Korea (DPRK) in line with UN Security Council resolution.

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OGS_a78. UK Launches Inquiry into Post-Brexit Sanctions Policy

(Source: UK Parliament)
On 31 March 2017, the United Kingdom’s EU External Affairs Sub-Committee announced its intention to launch an inquiry (April/May 2017) into post-Brexit sanctions policy (arms embargoes, asset freezes, visa or travel bans, and trade embargoes).
As the UK is still a member of the EU, its sanctions policy is part of the EU’s CFSP (Common Foreign and Security Policy). Once London leaves the EU, it will no longer be bound by the EU’s CFSP.
Scope of inquiry
The inquiry will explore:
  – The advantages and disadvantages of future co-operation between the UK and EU on sanctions policy;
  – How such co-operation might take place;
  – Examples of EU co-ordination with non-Member States on sanctions;
  – The current sanctions regime and how this will be transposed into UK law, including through the Great Repeal Bill; and
  – The impact of a separate UK sanctions regime on the UK’s ability to achieve its foreign policy goals.
The Committee will hold oral evidence sessions for the inquiry in April and May 2017. The next meeting is scheduled on 24 April 2017.

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OGS_a89. Malaysian MITI Posts Update Concerning Strategic Trade (Strategic Items) (Amendment) Order 2017

(Source: Malaysian MITI)
The Strategic Trade Secretariat of the Malaysian Ministry of International Trade and Industry (MITI) has posted the following update:
Please be informed that the Strategic Trade (Strategic Items) (Amendment) Order 2017 has been published in the Federal Government Gazette Ref.P.U.(A) 90/2017.
The Strategic Trade (Strategic Items) (Amendment) Order 2017 entered into force on 30 March 2017.
[Editor’s note: the new Strategic Trade Order can be accessed
here. Please scroll to page 645 for the English section.]

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NWS_a110. Customs & Trade Compliance News: “Another Broker Agrees to POA Validation Requirements in Trademark Settlement with Nike”

Another customs broker recently agreed to additional requirements for validation of powers of attorney as part of a settlement of a trademark lawsuit with Nike. Like the recent settlement between Nike and Alto Customhouse Brokers, a settlement reached in December in Los Angeles federal court
between Nike and KAL America requires the customs brokerage to validate all new powers of attorney it receives from importers by means of notarization, phone calls and checking government-issued IDs. The settlement ends one of the few remaining of a series of trademark cases brought by Nike against customs brokers. Nike has over time moved away from the practice, according to customs lawyers familiar with the issue.
According to a search on the federal courts’ Pacer filing database, the KAL America case is an outlier in that it wasn’t filed until 2015. Out of 36 trademark lawsuits listed as filed by Nike since the beginning of 2010, a total of 13 targeted customs brokers. Nearly all have resulted in settlements that required additional validation of powers of attorney. But most of the lawsuits against brokers were filed in 2010 and 2011. Coach, the leather goods maker, has also pursued trademark cases against customs brokers.
Intellectual property rights holders may have realized the lawsuits against customs brokers are not an effective means of combating the issue of counterfeits, customs lawyers said. “Invariably, the brokers have been victims of some form of identity theft. IP holders tend only to sue very small brokers (and never large brokers or carriers who they might use themselves), and the defendants have little money to defend themselves or pay judgments,” said John Peterson of Neville Peterson, who represented KAL America but declined to comment specifically on the case. “If the goal was to stop counterfeiting, these cases have not been very effective. If the goal was to collect damages, again, not effective. Most settlements I’ve seen won’t even cover the IP owner’s cost of bringing suit. That probably explains the decline in the tactic,” he said.
Going after an intermediary that never sees the cargo is not the appropriate way to handle the counterfeiting problem, said Su Kohn Ross of Mitchell Silberberg. Nike may have realized “that this is not going to accomplish what they want,” she said. And the POA validation requirements included in the settlements are “totally unworkable,” she said. The injunctions that form part of the settlements require that the customs broker check the government-issued identification of the employee of the importer that signs the POA. “If I’m a broker in Los Angeles, and my importer is in New York, tell me how I actually know that the government ID that I’m receiving belongs to the person who is supposedly signing the POA?” she asked.
Having another broker based near the importer check the employee’s ID and attest to its validity is not an option, Kohn Ross said. “You are now telling me I need to say to my importer, who already is going to beat me up on fees, ‘now you need to get in front of another customs broker,'” she said. “You tell me how that’s going to work. Nobody’s going to do it. There’s a cost associated with it nobody’s going to incur.”
Nike has also gone after some more established brokers and, once satisfied they have due diligence procedures in place, Nike left them alone, Kohn Ross said. But the problem is not the “serious well-established, long in-business” brokers. What the injunctions really accomplish is pushing illegitimate importers to brokers that don’t have resources and are in a position to be taken advantage of, she said. “They haven’t had any impact at all on the quantity of counterfeit goods.” Nike did not comment.
The underlying problem is the lack of any “decent protections against identity theft” in the Automated Broker Interface, Peterson said. “CBP does not have an importer directory, nor do they require the filing of POAs. On any given day, someone with access to ABI or ACE can say they’re representing anyone, importing anything, and CBP has no way to know whether that’s true,” he said. That’s in contrast with Mexico, which doesn’t let anyone import until they’ve been accepted into a central directory. In Mexico, “if an entry is filed for Company X by a broker that’s not in the system, the entry will not be accepted,” Peterson said. But here, “identity theft is super-easy. If you steal a company’s EIN or importer number, the ABI/ACE system will give you the company’s bond information and accept the entry. Companies large and small have been victimized,” Peterson said.
The Trade Facilitation and Trade Enforcement Act of 2015 authorizes CBP to establish an importer directory and impose “know your importer” regulations on brokers,” Peterson said. “It will be interesting to see when and how these things develop,” he said. But otherwise, “it’s a bit surprising that CBP has done nothing to come to the defense of their licensed brokers on issues like this,” Peterson said. “Brokers have to work within the constraints CBP places on them.” CBP did not immediately comment.
Meanwhile, brokers have been developing their own due diligence programs, including the Broker Known Importer Program developed by the National Customs Brokers & Forwarders Association of America. CBP has allowed brokers use an ACE flag for entries from importers that have been vetted according to
BKIP guidelines, though some controversy still exists over the lack of a clear definition of what it means to be “known,” Kohn Ross said. The concept of a broker asking the right questions, understanding the transaction involved and the importer’s business, and exercising what the law calls responsible supervision is something that brokers, whether associated with the program or not, have been doing for years, she said. It’s good to see CBP acknowledging that contribution, Kohn Ross said.
One takeaway from the trademark suits against customs brokers is the caution that brokers must exercise when taking on clients referred by freight forwarders, Kohn Ross said. There’s nothing wrong with the practice, which happens in “a lot of different contexts,” she said. But brokers need to be able to make the forwarder understand that the forwarder will not act as the intermediary, and that the broker needs to have contact with the importer directly. “I need make sure that what I’m saying on behalf of the importer-the entry that I’m preparing or responding to questions from customs-that the information is accurate,” she said. Sometimes, for business or other reasons the broker is not willing or able to stand up to the forwarder when the forwarder says no, Kohn Ross said. “If you’re dealing with a forwarder that says no, the next words out of your mouth should be, ‘thank you very much we can’t do business together.'” 

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NWS_a211. Customs & Trade Compliance News: “CBP Form 28s and 29s Increasingly Going to Importers of Record, Not Brokers”

CBP forms 28 (Request for Information) and 29 (Notice of Action) are increasingly going straight to importers of record and no copy going to customs brokers, customs brokerage CPH Group said in an email (here). “With the CEEs coming into full force it has become more common that Customs Form (CF) 28 and CF 29 go directly to the importer of record, without the broker receiving a courtesy copy,” it said. “If you receive either a CF 28 Customs Request for Information and/or CF 29 Notice of Action, it is vital to keep your customs broker in the loop! It’s also important to note that the ACE Secure Data Portal allows authorized users to receive and respond to both of these notices.” CBP didn’t comment.

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NWS_a312. Nature: “Japanese Scientists Call for Boycott of Military Research”

(Source: Nature)
The Japanese science community is pushing back against government attempts to enlist academic scientists into research with possible military applications.
The Science Council of Japan, an advisory body to the cabinet, representing some 850,000 Japanese scientists, released a statement on 24 March calling on scientists to boycott military research and for universities and research organizations to evaluate the threats posed by such work. Since the end of the Second World War, Japan has remained staunchly pacifist.
The council’s statement comes as Japan’s government has dramatically increased funding for a programme through which scientists can apply for grants covering ‘dual use’ research: the development of technologies for civilian or commercial purposes, but which could also have a military use. The programme’s budget was ¥300 million (US$2.7 million) when it launched in 2015, before doubling the next year. In the financial year starting in April 2017, spending will balloon to ¥11 billion to cover projects to be selected in August.
The programme is run by the defence ministry’s Acquisition, Technology and Logistics Agency (ATLA). Last year, it funded a range of projects, including research on new lasers, on micro-bubble coatings to reduce friction on ships, and on films for cloaking devices.
Yuko Ito, a science-policy expert at the Japan Science and Technology Agency, thinks that the programme was established partly in response to rescue efforts following the Fukushima nuclear disaster in 2011. Problems arose, for example, when Japanese robots were unable to function in the highly radioactive conditions.
But Morihisa Hamada, a geochemist at the Japan Agency for Marine-Earth Science and Technology in Yokohama, sees a more nefarious driver – the economic policies of Prime Minister Shinzo Abe, known as Abenomics. In 2014, as part of a move to boost the economy through deregulation, Abe’s party dropped the country’s ban on exporting weapons. “Enlisting the cutting-edge technology of universities and research institutes to produce military arms more cheaply and then sell them abroad is part of the Abenomics growth strategy,” says Hamada.
Neither Hamada nor Takashi Onishi, president of the Science Council of Japan, take issue with specific projects funded in the programme’s first two years. But the council is concerned that grant winners are selected by defence-ministry officials, without any external committee. The dual-use programme will ultimately impinge on “the freedom and autonomy of scientific research”, its statement says.
Atsushi Sunami, a science-policy researcher at the National Graduate Institute for Policy Studies in Tokyo who has advised the government and military on science and technology matters, says that ATLA wants to ensure that the researchers funded by the dual-use programme can stick to basic research and publish their findings – but has not clarified how it will achieve such openness. Sunami says he has suggested to the government that they bring in outside experts to design and operate their programme.
More than a dozen universities, including the University of Tokyo, Nagoya University and Waseda University, have charters, guidelines or presidential decrees that forbid or dissuade researchers from accepting dual-use grants, notes Hamada, who has attempted to organize resistance against the programme since its launch.
Some, including the University of the Ryukyus, Niigata University, Tohoku University and Kyoto University, have announced such policies in the last two years with specific reference to the defence ministry’s dual-use programme. Hamada says the council’s statement should put even more pressure on universities to avoid dual-use research.
It seems that individual scientists are voting with their feet, too, says Hamada. There were 109 applicants for the programme in 2015, but only 44 in 2016. “We helped to get the word out about the dangers of military-academic research,” he says. “The spirit of peace is strongly rooted in our society.”
Yet critics of dual-use research will face an uphill struggle, says Sunami. Cash-strapped universities need new sources of funding, and university researchers are already working closely with companies that are in business with the defence ministry. “Today’s science cannot be separated completely from dual-use technology,” he says. “It’s a global trend.”

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NWS_a413. Reuters: “Tech Firms Must Go beyond Congo’s ‘Conflict Minerals’ to Clean Supply Chain”

(Source: Reuters)
Abuses linked to mining in countries such as Myanmar and Colombia are being overlooked by technology companies focused only on eliminating “conflict minerals” from war-torn parts of Africa in their supply chains, researchers said on Thursday.
In Democratic Republic of Congo (DRC), competition for mineral resources has fueled two decades of conflict in its eastern provinces, including a 1998-2003 war that killed millions, mostly from hunger and disease.
Congo’s supply of tantalum, tin, tungsten and gold – metals used in smartphones, batteries and laptops – has been under scrutiny since 2010, when U.S. laws required U.S.-listed firms to ensure supply chains were free from “conflict minerals”.
Yet the same minerals are being quarried in areas controlled by armed groups – sometimes using child labor – in countries such as Myanmar, Bolivia and Rwanda, according to research published by Verisk Maplecroft on Thursday.
The problem for tech companies was being able to trace the metals used in their products to the source mine or smelter, the risk consultancy group said in a report.
  “The problem is because this is so far down the supply chain, it’s difficult for technology companies to know if those minerals they’re using are coming from irresponsibly managed operations,” said Stefan Sabo-Walsh of Verisk Maplecroft.
Sabo-Walsh told the Thomson Reuters Foundation that in the most extreme cases the minerals are excavated using forced labor in order to buy weapons and fund violence.
After minerals are mined, they are sold to a middleman and usually taken to the country’s capital, where the raw metal is extracted and blended with other metals, the report said.
The blend is exported to a country such as China and then transformed for use in tech products.
The complicated process “further muddies supply chain transparency efforts” for companies that strive to only use safe and ethical extraction, Verisk Maplecroft said.
Tin, which is used in tablet computers and smartphones, was ranked as having the highest risk for labor rights violations at illegal mines.
Bolivia, Myanmar and Indonesia, some of the largest tin-producing countries, pose an “extreme risk” for child labor at tin mines, the research showed.
Some smaller mines are not run by armed groups but still hurt the environment and local communities and are difficult to police, Sabo-Walsh said.
At illegal mines, waste water runoff often makes its way into local water sources, polluting the supply, he said.
  “Organizations need to be aware of the bigger picture when sourcing minerals from different countries – otherwise they risk a consumer backlash or regulatory penalties from the raft of emerging supply chain legislation,” he said in a statement.

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NWS_a514. ST&R Trade Report: “Landmark Penalty Case Has Lessons for Exporters, Official Says”

The record $1.19 billion criminal and civil penalty assessed against a Chinese company last month highlights some important export compliance lessons, a Bureau of Industry and Security official said recently. Doug Hassebrock, director of the BIS Office of Export Administration, told the agency’s Regulations and Procedures Technical Advisory Committee that in determining the size of the penalty, BIS considered not only the value of the transactions at issue, but also the nature of the company’s behavior (e.g., knowing and willful evasion of export laws and regulations). He added that BIS views these types of violations as national security cases, not export control cases, which increases not only the agency’s sense of urgency in pursuing them but also the likely size of any resulting penalties.
BIS found that from January 2010 through April 2016 Zhonxing Telecommunications Equipment Corporate and ZTE Kangxun Telecommunications Ltd. conspired to evade the U.S. embargo against Iran to obtain contracts with and related sales from Iranian entities to supply, build, operate, and/or service large-scale telecom networks in Iran, the backbone of which would be U.S.-origin equipment and software. Members of the company’s highest-level management were aware of and perpetuated this scheme. After telling the U.S. government the company had ceased its Iran-related activities following the initiation of a government investigation, those leaders decided to surreptitiously resume those activities, which continued until BIS added the company to the Entity List in 2016. Under the direction of those leaders the company engaged in an elaborate scheme to delete evidence of the illegal activities and make knowingly false and misleading representations and statements to U.S. law enforcement agencies.
The penalty assessed against ZTE included a $661 million penalty to be paid to BIS (with $300 million suspended), $430.5 million in combined criminal fines and forfeiture under a plea agreement with the Department of Justice, and $100.8 million as part of a settlement agreement with the Office of Foreign Assets Control. The company also agreed to seven years of monitoring, six years of audits, a seven-year suspended denial of export privileges, and three years’ probation. In addition, criminal penalties could still be issued against the company’s officers. Hassebrock said the unprecedented size and nature of these penalties are designed to incentivize good behavior in the future.
Hassebrock highlighted five lessons from this case to RPTAC members.
  (1) Don’t lie to the government or your own attorneys, auditors, and employees. Once trust is breached, Hassebrock said, the government has no choice but to distrust you, which results in provisions like mandatory monitoring to make sure information you report in the future is accurate.
  (2) Don’t create false or misleading records. ZTE took measures to cover up its illegal activity, such as using code words, that made it easy for BIS to show the violations were willful.
  (3) Don’t destroy evidence. ZTE had a team specifically tasked with getting rid of incriminating documents whose members had to sign non-disclosure agreements concerning that activity.
  (4) Don’t restart criminal activity during a BIS investigation. This makes it easy, Hassebrock said, for BIS to show that you committed willful violations by choosing profit over compliance.
  (5) Don’t create a written strategy for violating the law. ZTE’s legal department prepared, and four senior executives ratified, a document that evaluated the various risks of violating U.S. export control laws and then set forth a “response plan” describing how the company would manage those risks while continuing its illegal export scheme.

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* Authors: Andrew Keller, Esq., andrew.keller@hoganlovells.com; Beth Peters, Esq., beth.peters@hoganlovells.com; and Aleksandar Dukic, Esq., aleksandar.dukic@hoganlovells.com. All of Hogan Lovells, Washington DC.
On April 3, 2017, the Council of the European Union approved a new regulation intended to prevent the trade in conflict minerals, which followed the approval of the European Parliament on March 16, 2017. This puts an end to the legislative procedure for the adoption of the regulation, which was developed over several years and subject to extensive debate. Although inspired at least in part by Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act – the U.S. legislation on conflict minerals – the EU regulation differs in certain key respects from the U.S. approach. The timing for the European regulation is also notable from a trans-Atlantic perspective given press reports that President Trump plans to roll back U.S. regulations in this area. Even if the Trump Administration takes such action, we expect that many companies will continue to adhere to accepted standards of supply chain due diligence even if not legally required to do so.
U.S. companies, in particular, will need to remain vigilant on the compliance front regardless of any potential easing of Section 1502. Sanctions, complex supply chain dynamics, and poor or corrupt governance often intersect in ways that can create legal and reputational risks for companies. A waiver of Dodd-Frank would ease only the securities-related reporting requirement; it would not amend or terminate U.S. laws and regulations that prohibit sourcing from certain sanctioned countries and restricted parties. Accordingly, incorporating strong compliance provisions into supply chain agreements is essential for businesses operating in these complex environments.
Key Features of the EU Regulation
The EU regulation will establish an EU-wide system for supply chain due diligence intended to prevent armed groups from trading in tin, tungsten, tantalum, gold, and their ores. Beginning on January 1, 2021, EU importers will be subject to certain mandatory obligations related to conflict minerals such as:
  – setting up a management system, including incorporating their supply chain policy into contracts with suppliers and publicizing their supply chain policies;
  – adopting a risk management system in which they identify and assess the risks of adverse impacts in their mineral supply chains and implement a strategy to mitigate such risks;
  – carrying out independent third-party audits; and
  – making the results of any third party audit available to the relevant EU Member State competent authority, and making certain supply chain due diligence information available to downstream purchasers and the public.
The EU regulation differs from Section 1502 of Dodd-Frank in certain key respects. For example, it applies to conflict minerals sourced from any country, while the U.S. provision applies only to minerals sourced from the Democratic Republic of the Congo (DRC) and nine adjacent countries. On the other hand, the EU regulation applies to a more narrowly-tailored group of businesses. It does not cover small importers, as defined by volume, or downstream purchasers. As a result, many businesses, including manufacturers of finished products that contain covered minerals, are not required to comply with the due diligence obligations. The Dodd-Frank requirements, in contrast, apply to all companies that file reports pursuant to the Securities and Exchange Act that manufacture, or contract to manufacture, products where the use of minerals is “necessary to the functionality or production” of the product.
From a sheer numbers perspective, the EU anticipates the new regulation will apply directly to between 600 and 1,000 importers and indirectly to 500 smelters and refiners, some of which are based outside of the EU. Dodd-Frank Section 1502 applies to the approximately 6,000 companies listed on U.S. exchanges.
Developments Under the Trump Administration
While Europe is moving forward, the U.S. may be poised to abandon its regulatory approach to conflict minerals. Acting SEC Chairman Michael Piwowar directed his staff to reconsider the SEC’s Dodd-Frank rule, noting his view that it is misguided, onerous, and ineffective. The press reports- and leaked executive order- that closely followed Dr. Piwowar’s statement- indicate that President Trump may waive the requirements of Section 1502 for up to two years. While the SEC rule remains in effect and President Trump has not issued a waiver to date, the U.S. State Department, on March 27, solicited stakeholder input to “inform recommendations of how best to support responsible sourcing” of the minerals in question. It is unclear at this point how the input received by the State Department will feed into the White House process.
Even if the Trump Administration waives the Dodd-Frank requirement, many major companies will likely continue to comply with accepted standards of supply chain due diligence for conflict minerals. Some have made such significant investments in responsible sourcing that turning back the clock is no longer an option. For others, factors including customer demand signals, reputational concerns, or the trend toward responsible sourcing in the EU and among OECD nations, in particular, will incentivize continued adherence to internationally-accepted standards.

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The Symposium on the Export Control of Emerging Biotechnologies was held during October 18-20, 2016 in Monterey, California, USA. Co-hosted by the International Biosecurity and Prevention Forum (IBPF) and the James Martin Center for Nonproliferation Studies (CNS) at the Middlebury Institute of International Studies at Monterey, the symposium’s objectives were to identify emerging biotechnologies that are candidates for export control as well as effective mechanisms for their enforcement. A total of sixty experts from fifteen countries participated in the symposium. They represented the scientific, policy, industry, legal, and enforcement fields in roughly equal proportions. Attendees participated in one of nine working groups that were tasked with identifying emerging biotechnologies of concern and which, therefore, could be subject to realistic mechanisms for export control.
In the event, participants identified seventeen emerging biotechnologies and services and debated whether each posed significant biosecurity risks. Participants then assessed options for new hard controls (export controls) and soft approaches (e.g., industry codes-of-conducts). Most participants flagged four biotechnologies and associated services as engagement priorities: ground-based aerosol generating systems; DNA synthesis and assembly equipment; high-throughput screening systems; and facility-wide production control software. Findings from the symposium have been documented in a final report that was published in April 2017 as CNS Occasional Paper #26.
  – Read the full report here.

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In February 2017, the U.S. Department of Justice (DOJ) Fraud Section published its latest guidance on corporate compliance programs with the release of the very useful document titled “Evaluation of Corporate Compliance Programs.” [FN/1]
While many legal and compliance scholars have rightly stated that this latest publication isn’t anything radically different than prior authoritative guidance issued by the DOJ and other organizations such as the U.S. Sentencing Commission and the Organisation for Economic Co-operation and Development (OECD), what jumps out is the reframing of the well-worn expression “tone at the top” with the arguably much scarier “conduct at the top.” Some may question what the difference is or may call the issue one of semantics, but no one has ever gone to prison for setting the wrong organizational tone. Conduct, on the other hand, is at the center of our system of criminal justice.
  “Evaluation of Corporate Compliance Programs” includes 117 “sample questions that the Fraud Section has frequently found relevant in evaluating a corporate compliance program.” Many of the questions are designed to examine the level of involvement by the board of directors and senior leadership in compliance-related decision-making, oversight of the compliance function, and the resourcing and support of the compliance team and associated frameworks. Some of the questions delve into the culpability of corporate executives and board members, including, “How high up in the company do investigative findings go?”
It’s important to note that this latest guidance is intended to demystify how the DOJ evaluates corporate compliance programs when meeting with corporate executives and their counsel from companies under investigation. As a result, some of the questions are oriented toward the investigation itself. However, much of the material is of great utility to companies that are not under investigation but are interested in the process the government employs to evaluate compliance programs.

Following is a sampling of those questions that illustrate the degree to which the DOJ is examining senior management and the board of directors while evaluating a corporate compliance program.
Conduct at the top
– How have senior leaders, through their words and actions, encouraged or discouraged the type of misconduct in question? What concrete actions have they taken to demonstrate leadership in the company’s compliance and remediation efforts? How does the company monitor its senior leadership’s behavior?
Shared commitment
– What specific actions have senior leaders and other stakeholders taken to demonstrate their commitment to compliance, including their remediation efforts?
– What compliance expertise has been available on the board of directors? Have the board of directors and/or external auditors held executive or private sessions with the compliance and control functions? What types of information have the board of directors and senior management examined in their exercise of oversight in the area in which the misconduct occurred?
– How does the compliance function compare with other strategic functions in the company in terms of stature, compensation levels, rank/title, reporting line, resources and access to key decision-makers? What has been the turnover rate for compliance and relevant control function personnel? What role has compliance played in the company’s strategic and operational decisions?
– Have the compliance and relevant control functions had direct reporting lines to anyone on the board of directors? How often do they meet with the board of directors? Are members of senior management present for these meetings?
Properly scoped investigation by qualified personnel
– How has the company ensured that investigations have been properly scoped and were independent, objective, appropriately conducted and properly documented?
Response to investigations
– Has the company’s investigation been used to identify root causes, system vulnerabilities and accountability lapses, including among supervisory managers and senior executives? What has been the process for responding to investigative findings? How high up in the company do investigative findings go?
– What disciplinary actions did the company take in response to the misconduct, and when did they occur? Were managers held accountable for misconduct that occurred under their supervision? Did the company’s response consider disciplinary actions for supervisors’ failure in oversight? What is the company’s record (e.g., number and types of disciplinary actions) on employee discipline relating to the type(s) of conduct at issue? Has the company ever terminated or otherwise disciplined anyone (reduced or eliminated bonuses, issued a warning letter, etc.) for the type of misconduct at issue?
While the above is just a sampling, it conveys a picture of what the DOJ is looking for.
These questions make it quite clear that the DOJ has become much more sophisticated in its evaluation of corporate compliance programs since the appointment of Hui Chen, compliance counsel, early last year. In addition, the shift from “tone at the top” to “conduct at the top,” the many questions about the board’s and senior management’s oversight of the corporate compliance program and potential culpability in the underlying conduct, the DOJ’s renewal of the FCPA Pilot Program, and the fact that the compliance counsel has had her contract extended all signal that the DOJ will continue to press the issues of individual accountability outlined in the Yates memo and the FCPA Pilot Program.
Perhaps most important, the DOJ has once again reminded us that boards and senior executives need to do substantially more than a once-a-year “flyover” of their corporate compliance programs if they expect the DOJ to conclude that their program meets the government’s definition of “effective.” Boards need to be well-versed in all elements of the corporate compliance program, regularly interact with compliance and legal personnel, and receive timely briefings on the program and the personnel responsible for its stewardship and operationalization. Directors and senior executives must understand that any compliance failures are something that they may have to answer to.
There is still a place for tone at the top. The board and senior leadership must set the right tone in their communications across the company and outwardly. But tone needs to be paired with persistent actions on the part of the board and senior leadership signaling that ethics and compliance are a top priority and that the company is committed to doing business the right way and is prepared to back up its words with actions, including walking away from business and relationships that are not in alignment with the company’s organizational ethos. That is how tone at the top becomes conduct at the top.
  [FN/1] “Evaluation of Corporate Compliance Programs,” U.S. Department of Justice.

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COMM_a418. T. Hesselink, L. Kanters, and B.J. Kalshoven: “EU Export Control Reform Update”

(Source: KPMG Meijburg & Co)
* Author: Tim Hesselink, Esq., Hesselink.Tim@kpmg.com; Leon Kanters, Esq., Kanters.Leon@kpmg.com; and Bart-Jan Kalshoven, Esq., Kalshoven.Bart-Jan@kpmg.com. All of KPMG Meijburg & Co, Amstelveen, Eindhoven, and Rotterdam, the Netherlands, respectively.
On 28 September 2016, the European Commission presented a proposal to update the current EU dual-use regulation (no. 428/2009) for export control in order to modernize the system “to keep up with new threats and rapid technological changes”. On 10 October 2016, we published a first alert on these new developments, available here.
Please find below a link to a presentation on EU Export Control Reform which was given at a recent Amber Road seminar on Global Trade Management in the Netherlands.
  – Click here to open the presentation (PDF).
Even though the legislative process on this proposal is still ongoing, in practice we see that various EU export control authorities have already started applying particular aspects of the proposed legislation to businesses. For example, the Dutch export control authorities will only issue certain types of global licenses if a Human Rights paragraph is included in the Internal Compliance Program. This shows that the local export control authorities are acting in advance of legal developments. Further information about this can be found in the above presentation.

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COMM_a519. R.C. Burns: “American University in Beirut Dinged by DOJ for SDN Listing in Directory Database”
Export Law Blog
. Reprinted by permission.)
* Author: R. Clifton Burns, Esq., Bryan Cave LLP, Wash DC,
, 202-508-6067)
The American University in Beirut (the “AUB”) recently agreed to pay $700,000 to settle claims in a civil suit under the False Claims Act brought by the United States. One of the violations alleged was that the AUB, while receiving funds under government contracts with USAID, provided material support to Jihad al-Binaa, an SDN designated under the SDGT program, by “including Jihad al-Binaa in a database that AUB maintained on its public website (the “NGO database”) for the stated purpose of connecting Non-Governmental Organizations (“NGOs”) with students and others interested in assisting them.”
This seems to run contrary to guidance from OFAC that says that the so-called informational materials exception (otherwise known as the Berman Amendment) allows listings in membership directories. In this guidance, issued in 2003, OFAC says this
The listing of basic information on a website in a uniform format for companies around the world, including Iran, by a U.S. person, is not prohibited by the ITR. … You note in your letter that the information being added to the enhanced listings displayed on your website is based on pre-existing information supplied by customers wishing to purchase enhanced advertising from the U.S. Company. The posting of this alternative layout of information on your website regarding companies in Iran, including additional data elements of identifying information, would not be prohibited, as long as the U.S. Company does not provide any marketing services to customers in Iran or substantively enhance information provided by Iranian customers.
The same logic would seem to apply whether the sanctioned party is a resident of Iran or an SDN designated under another program.
There may be, however, some reasons why it might not. Section 594.201(a)(4)(i) prohibits the provision of “financial, material, or technological support” to an entity designated under those regulations. And although section 594.305 of the SDGT regulations contains the standard definition of “informational materials,” that term, oddly, is not used elsewhere in the SDGT regulations and there is not an explicit informational materials exemption as there is, for example, in 560.210(c) of the Iranian Transactions and Sanctions Regulations. This means that there is at least an argument that the provision of informational materials to an SDN designated under the SDGT program might constitute prohibited “financial, material or technological” support to that SDN.
The language of the Berman Amendment, set forth in 50 U.S.C. § 1702(b)(3) prohibits regulation of “importation from any country, or the exportation to any country” of informational materials. Arguably, the prohibition of provision of informational materials to an SDN does not involve the prohibition of the importation or exportation of informational materials.
The better criticism of the government’s case here is whether simply listing an SDN in a database for students is a financial, material, or technological support of the SDN. If it is, then one might wonder whether OFAC violates its own regulations by providing a listing, complete with an address and alternate names, in the SDN directory, er, list. Also, one has to wonder about how Facebook gets away with giving Jihad al-Binaa its own page without violating the rule if this kind of activity if “financial, material, or technological” support. The answer is simple: providing this sort of information on the Internet is not such support.
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MS_a120. Ian Moss Moves to Hydroid

(Source: Editor)
Ian H. Moss, formerly with Baker Hostetler law firm, has moved to Hydroid corporation in Pocasset, MA.  Contact Ian at 
508-296-6168 or imoss@hydroid.com.

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(Source: Editor)

* Anthony D. Williams (born 1974, is a consultant, researcher, and author. He co-authored Wikinomics, and is a vice president of research with international think tank New Paradigm. His work has been featured in publications including Business Week and The Globe and Mail and the Times of India.)
  – “Spending time with children is more important than spending money on children.”

* Nicolas Chamfort (Sébastien-Roch Nicolas, 6 Apr 1741 – 13 Apr 1794), was a French writer, best known for his witty epigrams and aphorisms. He was secretary to Louis XVI’s sister, and of the Jacobin club.)
  – “The most wasted day of all is that on which we have not laughed.”

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. 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.
: 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 
: 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.]

  – 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.)

  – Last Amendment:
6 Apr 2017: 82 FR 16730-16733: Revisions to the Unverified List (UVL)

: 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders
  – Last Amendment: 10 Feb 2017: 82 FR 10434-10440: Inflation Adjustment of Civil Monetary Penalties.  
: 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
  – 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.
, 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
  – HTS codes that are not valid for AES are available
  – 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
.  BAFTR subscribers receive a 25% discount on subscriptions to the BITAR, please
contact us
to receive your discount code.  

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* 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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