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17-0420 Thursday “Daily Bugle”

17-0420 Thursday “Daily Bugle”

Thursday, 20 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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[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. State/DDTC: (No new postings.) 
  4. Treasury/OFAC Publishes FAQs Regarding the List Removal Process 
  5. Australia Concludes Pacific Trade and Development Agreement with New Zealand and Pacific Island Countries 
  6. UK/DIT ECO Releases Guide on Restrictive Measures Concerning Libya 
  1. Defense News: “U.S. President’s ‘Buy America’ Order Could Drive Costs in Defense Supply Chain” 
  2. ST&R Trade Report: “FTA Waivers of Buy American Laws Under Scrutiny” 
  1. E.G.H. Sloane, J. Holtmeier & K.A. Parker: “Evaluating FCPA Pilot Program: Lessons And Expectations” 
  2. Li Bin: “Political Barriers in U.S. Exports to China and U.S.-China Trade Deficits” 
  3. A. Capobianco, B. Curran & A. Kuntamukkala: ” Top International Trade and Export Control Developments in 2017 for ADG Companies” 
  4. Gary Stanley’s ECR Tip of the Day 
  1. Bartlett’s Unfamiliar Quotations 
  2. Are Your Copies of Regulations Up to Date? Latest Changes: ATF (15 Jan 2016), Customs (27 Jan 2017), DOD/NISPOM (18 May 2016), EAR (18 Apr 2017), FACR/OFAC (10 Feb 2017), FTR (19 Apr 2017), HTSUS (7 Mar 2017), ITAR (11 Jan 2017) 
  3. Weekly Highlights of the Daily Bugle Top Stories 

EXIMEX/IM ITEMS FROM TODAY’S FEDERAL REGISTER

EXIM_a1

[No items of interest noted today.]

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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; EXECUTIVE ORDER; Buy American and Hire American (EO 13788) [Publication Date: 21 April 2017.] 

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

(Source: Commerce/BIS

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OGS_a44.

Treasury/OFAC Publishes FAQs Regarding the List Removal Process

 
The Department of the Treasury’s Office of Foreign Assets Control (OFAC) is publishing Frequently Asked Questions (FAQs) related to petitions for removal from the SDN list.  The FAQs are available
here.

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OGS_a55.

Australia Concludes Pacific Trade and Development Agreement with New Zealand and Pacific Island Countries

 
Australia has successfully concluded negotiations with New Zealand and 12 Pacific Island countries in Brisbane today to implement PACER Plus – the Pacific Agreement on Closer Economic Relations Plus. This agreement will drive economic growth and raise living standards in our region.
 
PACER Plus is unique in that it is both a trade and a development agreement. It has the potential to reshape the economic fundamentals of the Pacific region by creating new opportunities for trade and investment in our neighbourhood.
 

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OGS_a66.

UK/DIT ECO Releases Guide on Restrictive Measures Concerning Libya

 
The Export Control Organisation (ECO) of the UK Department of International Trade (DIT) has released information on embargoes on Libya and how to apply for an export licence. 
 
OVERVIEW
 
This guide contains information about embargoes and sanctions on Libya, and provides information for exporters. You can find more general information here on
sanctions, embargoes and restrictions, and a list of all the countries where there are
current restrictions.
 
Almost all governments control the export of goods for different reasons, depending on the nature and destinations of the proposed exports. The export of strategic goods and technologies are controlled for various reasons including:
 
  – concerns about a country’s internal repression of its citizens, regional instability and other human rights violations
  – concerns about the development of weapons of mass destruction
  – foreign policy and international treaty commitments, such as the imposition of European Union (EU) or United Nations (UN) trade sanctions or arms embargoes
  – concerns for the national and collective security of the UK and its allies
 
An arms embargo is in force on Libya. This page outlines relevant information about the arms embargo on Libya only.
 
EXPORT CONTROL UPDATES
 
If you intend to export to Libya, you should keep yourself well informed of the current situation through the media and other information channels.
 
To keep informed of latest updates about arms embargoes and changes to strategic export control legislation, read the Export Control Organisation’s
Notices to Exporters. You can subscribe to receive an email alerting you to publication of the latest notice.
 
EXTENT OF THE ARMS EMBARGO ON LIBYA
 
An arms embargo is a ban on the export of ‘arms and related material’ – eg military ammunition, weapons and goods – imposed by either the UN, the EU, the Organisation for Security and Co-operation in Europe, or at a UK national level.
 
The UK generally interprets an arms embargo as covering all goods and items on the UK Military List (which forms part of the
UK Strategic Export Control Lists) unless stated otherwise.
 
APPLYING FOR AN EXPORT LICENSE TO LIBYA
 
Exporters can apply for an export licence for their goods. All applications will be considered by the government on a case-by-case basis in line with the provisions of the Consolidated EU and National Arms Export Licensing Criteria.
 
For details on different export licences available see the guide on licences: export, trade control and transhipment.
 
  – You can apply for an export licence using
SPIRE.
 
When applying for a licence, you should be aware of the current licence processing times by destination. Read
strategic export controls: licensing data.
 
In applying and using any licence, exporters should be aware of their responsibilities. For more information, see the guide on compliance and enforcement of export controls.
 
If you are unsure if your goods are controlled, you should read the guide about strategic exports: when to request an export licence.
 
LIBYA ARMS EMBARGO KEY LEGISLATION
 
The arms embargo on Libya has been imposed by UN and EU laws, and implemented into UK legislation by statutory instruments.
 
UN Security Council Resolutions
 
In response to the violation of human rights in Libya, the UN Security Council made a unanimous decision to impose sanctions on the country in February 2011. The sanctions include an arms embargo, travel ban and assets freeze on the family of Muammar Al-Qadhafi and certain government officials. The restrictive measures are imposed via Resolution 1970 (2011).
 
You can find copies of relevant UN Resolutions on the UN
website.
 
EU Legislation
 
Subsequent to the adoption of Resolution 1970, the EU has also imposed an arms embargo as outlined in
Council Decision 2015/1333/CFSP. The details are provided in
Council Regulation (EU) No 2016/44.
 
You can read the Common Foreign and Security Policy (CFSP) legislation on the Europa
website.
 
UK Legislation
 
The relevant statutory instruments implemented in UK law are the:
 
 
For more information, see the
guide to the Export Control Order 2008. You can download copies of UK legislative orders from the Legislation.gov.uk
website.
 
Financial Sanctions
 
You can view a
current list of asset freeze targets designated by the United Nations (UN), European Union and United Kingdom, under legislation relating to Libya.
 
You are able to download
specific forms for licence applications and prior notification and authorisation applications for Libya. Licences authorise certain activities or types of transaction that would otherwise be prohibited by asset freezing legislation.
 
FURTHER INFORMATION
 
  – ECO Helpline: T: +44 (0)20 7215 4594 / @:
eco.help@trade.gsi.gov.uk
  – Apply for an export licence using
SPIRE.
  – Security Council resolutions on the UN
website.
  – ECO performance reports and statistics on the ECO Reports and Statistics
website.

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NWSNEWS

NWS_a17.

Defense News: “U.S. President’s ‘Buy America’ Order Could Drive Costs in Defense Supply Chain”

 
With a swipe of a pen Tuesday, U.S. President Donald Trump issued a new executive order directing the federal government to reemphasize “Buy American” laws – a move which analysts say could impact the existing supply chain for the U.S. defense industry.
 
The order is focused on tightening the process under which all federal agencies – including the Department of Defense – get waivers from the 1933 Buy American Act. It would also create a series of reviews of America’s policies and reforms of the H-1B visa program.
 
The core of the document involves the creation of a 150-day review period, wherein agencies will have to asses how well they follow applicable Buy American laws and whether they are relying too much on waivers for goods that could be produced domestically. During that same time period, the Secretary of Commerce and the United States Trade Representative will look over various free trade agreements and the World Trade Organization Agreement in order to judge their impact of Buy American laws.
 
Those reports will be worked together into a final report to the White House on the implementation of Buy American laws, within 220 days of the EO being issued, a report that will become an annual requirement going forward.
 
At least one Senate Democrat welcomed the executive order. Sen. Chris Murphy of Connecticut has claimed that the DoD, the largest purchaser of manufactured goods in the world, has spent nearly $200 billion on manufactured goods made by foreign companies in the last decade through the use of hundreds of thousands of waivers of the Buy American Act and other government purchasing laws. 
 
But Andrew Hunter, a former Pentagon acquisition official and Congressional staffer, now with the Center of Strategic and International Studies, saw no glaring problem with DoD waivers to domestic-source restrictions and that most purchases “are extremely high U.S. content.” 
 
  “There is very substantial compliance with the act, and less than 7 percent of all purchases are associated with coming from a foreign entity, and a significantly smaller share are actual waivers to Buy America Act requirements,” he said. “Waivers are pretty rare.”
 
Hunter called the U.S. defense industry an all-star when it comes to providing domestic manufacturing jobs, a fact that may not  be readily apparent. And he praised the White House for pushing a review before making changes, saying it’s likely to find that the number of waivers have actually fallen from a recent peak during the Iraq and Afghanistan wars. Fuel in overseas operations and perishables at foreign bases in Germany and Italy likely make up the most of it.
 
Waivers will still be allowed under specific conditions; that may mean the impact of the EO on the defense industry will eventually be limited, in part because the defense sector in 2017 is finding it almost impossible to find a prime program that is truly “American.”
 
Take the Air Force competition to replace its trainer aircraft, known as the T-X program. The main competitors there are all American companies teamed with international partners: Lockheed Martin is teamed with Korean Aerospace Industries; Boeing is teamed with Swedish giant Saab; DRS Technologies is teamed with its parent company, the Italian-owned Leonardo; and Sierra Nevada is working with Turkish Aerospace industries on their offering.
 
The F-35 joint strike fighter, meanwhile, is designed specifically to have industrial participation from Australia, Canada, Denmark, Italy, the Netherlands, Norway, Turkey, and the United Kingdom, putting an inherently international supply chain at the heart of the Pentagon’s largest acquisition program.
 
Because of that international nature, the supply chain is more likely to be where protectionist policies are felt, at least in the early days, says Byron Callan, an analyst with Capital Alpha Partners.
 
  “It may matter more for steel or aluminum than end products like aircraft,” Callan said. “If you increase demand for U.S. steel, it may have a knock-on effect on raw materials pricing.”
 
Another change that may have long-last impacts would be cracking down on the use of H1-B visas for foreign technical talent, something the Trump administration has been vocal about planning to do. Reducing the supply of foreign engineers would logically increase the number of those jobs to U.S. workers.
 
But, Callan notes, that demand increases across all technical sectors, which means the defense industry would be in even hotter competition with the commercial sector to keep employees, when the commercial technology sector already offers generally higher wages and better perks.
 
Jeff Bialos, a former deputy undersecretary of defense for industrial policy now with Eversheds Sutherland, says the U.S. defense industry has looked abroad, particularly in the supply chain, for three reasons: lower cost, a capability the U.S. cannot match, and as trade-offs to encourage sales of U.S. equipment abroad to partners.
 

A major change to the use of waivers at DoD “would impact cost chains to primes, and also increase program costs if primes have to requalify systems and to seek alternatives to foreign vendors,” Bialos said. “The president came into office looking for more affordable contracting. ‘Buy American’ restrictions are at odds with getting the most affordable solutions for the customer.”

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NWS_a28.

ST&R Trade Report: “FTA Waivers of Buy American Laws Under Scrutiny”

 
President Trump issued April 18 an executive order that a senior administration official said will “usher in a new, more muscular Buy American policy” based on maximizing the use of goods, products, and materials produced in the U.S. This effort aims to promote economic and national security, help stimulate economic growth, and support the U.S. manufacturing and defense industrial bases.
 
The EO directs every federal agency to “scrupulously monitor, enforce, and comply with Buy American laws” and minimize the use of waivers. “Buy American laws” refers to all statutes, regulations, rules, and EOs relating to federal procurement or federal grants, including those that refer to “Buy America” or “Buy American,” that require or provide a preference for the purchase or acquisition of goods, products, or materials produced in the U.S., including iron, steel, and manufactured goods.
 
Within 150 days federal agencies must assess their compliance with Buy American laws, evaluate how their use of waivers is affecting domestic jobs and manufacturing, and develop and propose policies to ensure compliance with the EO. A senior administration official predicted that this will “immediately change” an existing culture of “lax enforcement, lax monitoring, lax compliance.” For example, the official said, “from day one … there are going to be fewer waivers that are going to be granted.” One reason is a new standard that will allow agencies to consider the effect of foreign-sourced dumped or injuriously subsidized content “that might give a low bidder an unfair advantage relative to domestic-sourced content.”
 
Also within 150 days the Department of Commerce and the Office of the U.S. Trade Representative must assess the impacts of all U.S. free trade agreements and the World Trade Organization Agreement on Government Procurement on the operation of Buy American laws, including the implementation of domestic procurement preferences. The administration official explained that through these agreements the U.S. has waived Buy American laws for 59 trading partners “in exchange for so-called reciprocal access to those countries’ markets.” However, “compelling evidence” from a February 2017 Government Accountability Office report “strongly suggests the U.S. may not be getting its fair share of global government procurement” through these concessions. If the review determines that “America is a net loser” because of these waivers, the official said, they “may be properly renegotiated or revoked.”
 
Before the end of the year DOC will be required submit to the White House a report setting forth the findings from the above reviews along with recommendations on strengthening the implementation of Buy American laws. An administration official said this report and its recommendations “will serve as a blueprint for additional executive and regulatory actions to further strengthen Buy American, as well as guide possible legislative proposals.” 

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COMMCOMMENTARY

COMM_a19.

E.G.H. Sloane, J. Holtmeier & K.A. Parker: “Evaluating FCPA Pilot Program: Lessons And Expectations”

 
* Authors: Erin G.H. Sloane, Esq.,
erin.sloane@wilmerhale.com; Jay Holtmeier, Esq.,
jay.holtmeier@wilmerhale.com; and Kimberly A. Parker, Esq., 
kimberly.parker@wilmerhale.com, all of Wilmer Cutler Pickering Hale and Dorr.
 
On April 5, 2016, the U.S. Department of Justice released a nine-page memorandum launching a one-year pilot program to reward companies that voluntarily self-report violations of the Foreign Corrupt Practices Act. Now that a year has passed and the DOJ is reviewing the results (the program continues during this process), Law360 is publishing a series of guest articles examining the impact and potential future of the FCPA pilot program. This Expert Analysis series includes commentary from attorneys who worked on cases in which declinations were issued under the program.
 
  In April 2016, the U.S. Department of Justice’s Fraud Section introduced the “Foreign Corrupt Practices Act Enforcement Plan and Guidance,” [FN/1] which included a one-year pilot program meant to encourage companies to voluntarily disclose, fully cooperate with DOJ investigations of, and demonstrably remediate, FCPA violations in exchange for cooperation credit, a reduction in financial penalties under the sentencing guidelines, and more lenient charges or even a declination.
 
Through the rest of 2016, the Justice Department settled many cases under the principles of the pilot program, [FN/2] offering substantial discounts off the bottom of the sentencing guidelines range, and in some cases declining to prosecute altogether. In so doing, the DOJ also further defined what full cooperation and remediation looks like, refusing to provide full credit in instances in which companies failed to live up to its standards.
 
Last month, the acting assistant attorney general for the DOJ’s Criminal Division, Kenneth Blanco, said the program would temporarily stay in place past its April 5 sunset date, during which time the department would consider the program’s record and whether and how it might be revised.
 
One year has now officially passed, and time has come to take stock of the pilot program. So how has it done?
 
THE PILOT PROGRAM’S GOALS
 
In the 2016 guidance, the DOJ explained that the principal goal of the pilot program was “to promote greater accountability for individuals and companies,” through:
 
  – “Serv[ing] to further deter individuals and companies from engaging in FCPA violations in the first place”;
  – “Sncourag[ing] companies to implement strong anti-corruption compliance programs to prevent and detect FCPA violations”; and
  “Increas[ing] the Fraud Section’s ability to prosecute individual wrongdoers whose conduct might otherwise have gone undiscovered or been impossible to prove.” [FN/3]
 
Under the pilot program, an organization that voluntarily discloses, fully cooperates, and timely and appropriately remediates may obtain a reduction of up to 50 percent off the bottom end of the sentencing guidelines fine range and may potentially avoid a monitor or, if the company additionally disgorges all ill-gotten gains, receive a declination of prosecution. Some aspects of the pilot program are non-negotiable; credit is only available if a company meets the mandates in the guidance, including reporting relevant facts about the individuals involved in the wrongdoing, one of the key components of DOJ’s 2015 Yates memorandum. [FN/4]
 
NOTABLE SETTLEMENTS
 
Even before the introduction of the pilot program, the DOJ often declined nonpublicly to prosecute companies that may have violated the FCPA, and also provided substantial discounts off the calculated sentencing guidelines fine range in corporate FCPA settlements where companies cooperated and remediated, and in some cases voluntarily disclosed. Under the program principles, the results have varied greatly, depending on the level of cooperation and remediation, and whether or not the conduct was voluntarily disclosed.
 
On one end of the spectrum, the Justice Department cited the pilot program in issuing five declinations in the last year and began a new practice of publicly releasing declination letters sent to companies that had been the targets of FCPA investigations. In three letters issued in the summer of 2016, the DOJ declined to prosecute
Nortek Inc.,
Akamai Technologies Inc. and
Johnson Controls Inc. for conduct by their subsidiaries’ employees in China, citing their “fulsome cooperation” and voluntary disclosure, including the identification of all individuals involved in the misconduct. [FN/5] As a result, the companies did not pay criminal fines, but did disgorge related profits to the
U.S. Securities and Exchange Commission.
 
In two additional letters issued in September 2016, the DOJ declined to pursue charges against
NCH Corporation and
HMT LLC, again citing the factors outlined under the pilot program, including the companies’ “full cooperation.” [FN/6] However, unlike the three prior declinations under the program, which all had a concomitant SEC resolution and disgorgement, NCH Corp. and HMT LLC – companies that are not issuers subject to SEC jurisdiction – were required to disgorge to the DOJ all profits related to improper payments. Under the pilot program, the payment of disgorgement counts as a factor in the DOJ’s declination decisions, and this new form of declination with both disgorgement and a lengthier description of alleged conduct, while still superior to an NPA or DPA, is a harsher result than prior declinations.
 
In the middle of the spectrum, 
General Cable Corporation received a fine 50 percent below the bottom of the guidelines range and successfully avoided a compliance monitor. General Cable received full credit (although not a declination) under the program for voluntary self-disclosure, full cooperation and extensive remedial measures, including terminating involved employees and business relationships with third parties. [FN/7]
 
On the other end of the spectrum, at least one company received a fine above the bottom of the guidelines range, and others only received discounts of 15 or 20 percent below the range. In reaching those resolutions, the DOJ determined that, in its view, there had been factors such as no timely voluntary disclosure or only partial cooperation or inadequate remediation. [FN/8]
 
These resolutions raise a number of unanswered questions. First, while both the guidance and the publicly issued letters have increased the transparency around the factors the department considers in deciding to decline prosecution, it is unclear that the pilot program has increased the number of declinations. While there was an uptick from the number of publicly announced declinations issued in 2015 to 2016, the increase is commensurate on a percentage basis with the overall increase in resolutions in 2016. Second, despite increased transparency around the reasons why the department may decline in certain instances, the bases and standards for disgorgement in this new type of declination action remain unclear. Third, although the department is articulating its bases in more detail under the program, it is still impossible to tell why one cooperating company might receive a 15 percent discount and another cooperating company might receive a 20 percent discount. And, perhaps more importantly, the publicly resolved cases do not provide clear indications as to why one company might receive a penalty discount but another company might receive a declination of prosecution, which is of course a far more favorable result.
 
GREATER DEFINITION OF DISCLOSURE, COMPLIANCE AND REMEDIATION
 
Though the ultimate impact the pilot program may have on corporate behavior is still unclear, the program has provided a basis by which companies can measure the likely outcome of an FCPA investigation:
 
What “Voluntary Disclosure” Really Means
 
The DOJ’s pilot program guidance specifies that a company will only receive credit for disclosure if it occurs “prior to an imminent threat of disclosure or government investigation,” “within a reasonably prompt time after becoming aware of the offense,” and includes all relevant facts, including those about individuals involved in any FCPA violation. The disclosure must be truly voluntary and not required by law or contract. The guidance states that without voluntary self-disclosure, a company can only receive up to 25 percent off the bottom of the guidelines fine range (as compared to 50 percent with disclosure).
 
As a result, it has become easier for companies to predict what type of credit they will receive for a voluntary disclosure, and where the DOJ might push back on arguments that disclosure was truly voluntary. Complete voluntarily disclosure has been a prerequisite for receiving a declination under the program, though some companies were able to secure NPAs in instances where they voluntarily disclosed (General Cable; BK Medical ApS), [FN/9] in instances where the department viewed the voluntary disclosure as incomplete (PTC), [FN/10] and in instances where they did not voluntarily disclose at all (JPMorgan). [FN/11]
 
A company’s decision to disclose or not may still be difficult, especially where the underlying facts are unclear. The wise course may be to undertake an internal investigation and self-remediate, rather than placing the company’s faith in the DOJ and hope to be granted credit for voluntary disclosure and cooperation. Anecdotally, former Criminal Division Chief Leslie Caldwell said the pilot program was having an effect and that the DOJ had seen an uptick in the number of companies voluntarily disclosing potential FCPA violations. [FN/12] When
Lennox International reported in October 2016 a potential improper payment of a mere $475 to a Russian government official, commentators suggested it was an example of the influence the pilot program has had. [FN/13]
 
Why Companies Do or Do Not Receive Cooperation Credit
 
The pilot program guidance also delineates what is required for a company to receive full cooperation credit. In general, the requirements for cooperation focus on (1) proactively disclosing all relevant facts; (2) preserving and disclosing documents; (3) making individuals available for interviews; and (4) conducting transparent and timely internal investigations.
 
Between the guidance and the DOJ resolutions in the last year, certain pitfalls have also emerged.
Teva Pharmaceuticals lost cooperation credit because, according to the DOJ, it made vastly overbroad assertions of privilege and failed to produce documents on a timely basis. BK Medical and PTC failed, in the department’s view, to proactively disclose certain relevant facts.
Och-Ziff Capital Management Group LLC, according to the DOJ, failed to produce certain relevant documents. By contrast, companies that received significant credit were praised for providing the government with timely productions that did not implicate foreign data privacy laws (JPMorgan, General Cable), translating documents (Olympus), and facilitating travel of overseas employees for interviews (JPMorgan).
 
The Increasing Expectations for Compliance Programs
 
At the core of the DOJ’s remediation credit is an effective corporate compliance program. In November 2015, the DOJ hired its first full-time compliance expert, who was tasked with helping to develop benchmarks for evaluating corporate compliance and remediation measures. When the pilot program was announced, the guidance included a brief list of attributes an effective compliance and ethics program should include. In February 2017, the Fraud Section released a more comprehensive “Evaluation of Corporate Compliance Programs,” which lists questions the Fraud Section considers in making individualized determinations about the adequacy of a company’s program. While the document did not break substantially new ground, it serves as a useful compendium of previous guidance in the U.S. Attorney’s Manual, FCPA guide, sentencing guidelines and best practices as recognized by individual settlements.
 
The Importance of Personnel Remediation
 
Notwithstanding the small number of individual criminal FCPA enforcement actions in the past year, the DOJ is incentivizing companies to hold senior officials accountable as part of corporate remediation. The emphasis on personnel remediation reflects language in the U.S. Attorney’s Manual about a corporation’s willingness to discipline wrongdoers. [FN/14] The department expects companies to discipline those who either knew or should have known about employee misconduct resulting in FCPA violations. For example, in the
Embraer SA case, the DOJ withheld remediation credit because, according to the DOJ, the company failed to discipline one senior executive who likely knew or should have known about the ongoing bribery scheme. By contrast, JPMorgan received credit for its extensive disciplinary actions.
 
What We Can Expect Going Forward
 
Conventional wisdom suggests that the Justice Department will retain many elements of the pilot program after it finishes its evaluation, and that the principles it outlined over the past year will continue to guide the department’s work. Nonetheless, some changes can be expected, and some uncertainty may remain.
 
The Program May Be Further Clarified in Forthcoming Guidance From DOJ
 
Given the positive reception recent guidance documents have received in the legal community, we expect that the department may further its efforts to clarify the pilot program. As elements of the program become more permanent fixtures, the department may provide additional, permanent guidance about what constitutes full disclosure, full cooperation and full remediation, and how companies and individuals can earn credit or even declinations.
 
Basis for and Future of Disgorgement Element of Pilot Program Remains Unclear
 
Perhaps the most innovative component of the program is the use of disgorgement in connection with declinations. Historically, the DOJ’s primary mechanism for disgorging ill-gotten gains has been civil or criminal forfeiture, which statutorily requires a filed charge or complaint. Because there is no court-filed document associated with a declination, the legal basis for the DOJ to nevertheless collect disgorged profits remains murky. Additionally, the
U.S. Supreme Court, in Kokesh v. SEC, is set to rule on a circuit split as to whether disgorgement is subject to a five-year statute of limitations. [FN/15] The case hinges on whether disgorgement is considered a “punitive” or “nonpunitive” remedy. The Justice Department may offer more clarity on its position on disgorgement after a ruling in Kokesh, but given that the pilot program revolves around discretionary factors used by the DOJ, the DOJ could potentially require the payment of all profits, regardless of timing, in order for a company to obtain a declination, even if the DOJ could not seek the same amount of profits in a litigated case.
 
Continued Crackdown on “Paper” Compliance Programs
 
As the DOJ extends the contract of its compliance expert and continues to hone and escalate the requirements of an effective compliance program through the pilot program and other guidance, we expect that the department will remain vigilant in criticizing “paper” compliance programs and encouraging the development of comprehensive and effective ones.
 
Continued Rise of Criminal Internal Controls Cases and the Return of the Monitor
 
While the DOJ faces a high burden of proving beyond a reasonable doubt that an issuer knowingly failed to devise or maintain an adequate system of internal controls, 2016 saw a remarkable increase in the department’s use of the criminal FCPA internal controls charge. Embraer, LATAM Airlines Group, Teva,
Odebrecht SA/BraskemSA, General Cable and Och-Ziff all resolved criminal internal controls cases and all but General Cable accepted monitors in connection with their resolutions. This trend has continued into 2017, with internal controls charges in resolutions with
Las Vegas Sands Corp., SQM and
Zimmer Biomet.
 
CONCLUSION
 
The DOJ’s pilot program appears to have proven effective in encouraging self-disclosure, cooperation and remediation in exchange for leniency at sentencing and flexibility in charging decisions. While we have entered a new administration with new leadership in the enforcement bodies, and thus do not know if priorities or policies may change, it appears that the pilot program’s principles are likely to continue to guide the DOJ in its approach to corporate resolutions, and we expect the department to offer further guidance as it makes certain components permanent fixtures of its anti-bribery enforcement regime.
 
DISCLOSURE: Jay Holtmeier and Erin Sloane represented Johnson Controls in the matter mentioned above.
 
———
  [FN/1] US Department of Justice Criminal Division, The Fraud Section’s Foreign Corrupt Practices Act Enforcement Plan and Guidance (Apr. 5, 2016), available
here; WilmerHale, DOJ Launches FCPA Pilot Program to Encourage Corporate Voluntary Disclosure and Cooperation (Apr. 8, 2016), available
here.
  [FN/2] Because the Pilot Program technically applied only to investigations commenced after the adoption of the Program, the DOJ’s settlements thus far have applied the principles of the Program even though the Program itself was not applicable to those cases.
  [FN/3] US Department of Justice Criminal Division, The Fraud Section’s Foreign Corrupt Practices Act Enforcement Plan and Guidance (Apr. 5, 2016), available
here.
  [FN/4] Sally Quillian Yates, Former Deputy Attorney General, US Department of Justice, Memorandum on Individual Accountability for Corporate Wrongdoing (Sept. 9, 2015), available
here.
  [FN/5] US Department of Justice Letter from Daniel Kahn to Luke Cadigan, Esq. re: Nortek Inc. (June 3, 2016), available
here; US Department of Justice Letter from Daniel Kahn to Josh Levy, Esq. and Ryan Rohlfson, Esq. re: Akamai Technologies, Inc. (June 6, 2016), available
here; US Department of Justice Letter from Daniel Kahn to Jay Holtmeier, Esq. and Erin Sloane, Esq., re: Johnson Controls, Inc. (June 21, 2016), available
here.
  [FN/6] US Department of Justice Letter from Daniel Kahn to Paul Coggins, Esq. and Kiprian Mendrygal, Esq. re: NCH Corporation, at 1 (Sept. 29, 2016), available
here; US Department of Justice Letter from Daniel Kahn to Steve Tyrell, Esq. re: HMT LLC, at 2 (Sept. 29, 2016), available
here.
  [FN/7] Non-Prosecution Agreement between US Department of Justice and General Cable Corporation (Dec. 22, 2016), available
here.
  [FN/8] Deferred Prosecution Agreement, United States v. LATAM Airlines Group, S.A., No. 16-CR-60195, (S.D. Fla. July 25, 2016); Order Instituting Cease-and-Desist Proceedings, In the Matter of LAN Airlines S.A., Rel. No. 78402, File No. 3-17357, (July 25, 2016); Deferred Prosecution Agreement, United States v. Olympus Latin America, Inc., No. 16-CR-3525, (D.N.J. Mar. 1, 2016); Plea Agreement, United States v. Odebrecht S.A., Cr. No. 16-643 (RJD) (E.D.N.Y. Dec. 21, 2016); Deferred Prosecution Agreement, United States v. Och-Ziff Capital Management Group LLC, No. 16-CR-516 (E.D.N.Y. Sept. 29, 2016); Plea Agreement, United States v. OZ Africa Management GP, LLC, No. 16-CR-515 (E.D.N.Y. Sept. 29, 2016).
  [FN/9] Non-Prosecution Agreement between US Department of Justice and BK Medical ApS (June 21, 2016), available
here.
  [FN/10] Non-Prosecution Agreement between US Department of Justice and PTC Inc. (Feb. 16, 2016), available
here.
  [FN/11] Non-Prosecution Agreement Between US Department of Justice and JPMorgan Securities (Asia Pacific) (Nov. 17, 2016), available
here.
  [FN/12] Leslie Caldwell, Assistant Attorney General, US Deparment of Justice, Remarks Highlighting Foreign Corrupt Practices Act Enforcement at The George Washington University Law School (Nov. 3, 2016), available
here.
  [FN/13] Richard L. Cassin, Lennox International Discloses Alleged $475 Russia Bribe, FCPA BLOG (Oct. 19, 2016, 8:18 AM), available
here; Dylan Tokar, Alleged $475 Bribe Sparks Self-Report to US Authorities, GLOBAL INVESTIGATIONS REVIEW (Oct. 19, 2016), available
here.
  [FN/14] USAM 9-28.1000
  [FN/15] Kokesh v. SEC, No. 16-529, 2017 WL 125673 (U.S. Jan. 13, 2017); circuit split with SEC v. Graham, 823 F.3d 1357 (11th Cir. 2016).

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COMM_a210.

Li Bin: “Political Barriers in U.S. Exports to China and U.S.-China Trade Deficits”

 
* Author: Li Bin, Senior Fellow Nuclear Policy Program and Asia Program, Carnegie Endowment for International Peace,
BLi@ceip.org.
 
On March 31, U.S. President Donald Trump signed two executive orders to review the reasons why United States has trade deficits with some of its trading partners. The U.S.-China trade deficit is certainly an important topic of the review. Traditionally the U.S. government has been focused on factors on the Chinese side
charging that the RMB is undervalued, policy-making in the Chinese government is not transparent, labor rights and intellectual property rights in China are not fully respected, etc.
 
The U.S. government always denies that its own policy significantly contributes to the U.S.-China trade deficit. For example, it has repeatedly claimed that the impact of U.S. restrictions on its exports to China is extremely small and can hence be ignored. Its argument is that the value of denied exports compared to that of total U.S. exports to China is tiny, so the U.S. export controls vis-a-vis don’t create its trade deficit. …
 
Our analysis shows that a significant amount of U.S. potential exports to China were blocked by its political barriers during 2004-2009. The situation continues today. The Trump Administration needs to understand these realities in its review of trade relations with China.

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COMM_a311.

A. Capobianco, B. Curran & A. Kuntamukkala: “Top International Trade and Export Control Developments in 2017 for ADG Companies”

 
* Authors: Anthony Capobianco, Esq.,
anthony.capobianco@hoganlovells.com; Brian Curran, Esq.,
brian.curran@hoganlovells.com; and Ajay Kuntamukkala, Esq.,
ajay.kuntamukkala@hoganlovells.com. All of All of Hogan Lovells, Washington D.C.
 
Aerospace, defense, and government services (ADG) companies increasingly rely on international customers and global supply chains to stay competitive in today’s global market. In the United States, ADG companies rely heavily on an international trade and financial system that enables the export of defense and commercial products and services, while facilitating the import of necessary components and materials. The election of Donald Trump, as well as the rise of populist movements in other countries, is challenging the current rules-based international trade and financial system, resulting in uncertainty for ADG companies. The change is also impacting the manner in which non-U.S. ADG companies view potential direct investments in U.S.-based businesses. ADG companies that implement plans that address this changing environment are far more likely to successfully navigate the challenges and opportunities presented by the developments impacting international trade. Below, we review the most significant international trade related trends in the ADG industry sector that will shape your business in 2017.
 
Changes to Trade Agreements Could Impact Your Supply Chain
 
President Trump has already withdrawn the United States from the Trans-Pacific Partnership, pledged to renegotiate the North American Free Trade Agreement, and called for resetting the terms of trade with China and others to better serve American workers. Trump’s protectionist policies are likely to meet some resistance among Congressional Republicans, who traditionally have been staunch supporters of free trade, but the President does possess sufficient executive authority to take meaningful action without Congressional approval. In addition, House Republicans have proposed a border adjustment tax on imports into the United States as part of broader tax reform. While the President’s position on the border adjustment tax is not entirely clear, the tax would have a major impact on imports of parts, components, and raw materials. As the President’s plans begin to take shape, it will be important to assess the potential impact on global supply chains. In addition, if the imposition of punitive tariffs, e.g., on China or Mexico, triggers a trade war, U.S. exports of aerospace products could be leading candidates for retaliatory measures by U.S. trading partners.
 
National Security Reviews of Foreign Investment in the United States
 
While President Trump’s stance on international trade issues has garnered significant attention, the new administration’s approach to foreign direct investment (FDI) in the United States and to national security reviews conducted by the Committee on Foreign Investment in the United States (CFIUS) is uncertain. A Trump transition team draft memorandum outlining Mr. Trump’s trade policy for the first 200 days of his presidency reportedly indicated that President Trump would mandate that CFIUS reviews be expanded to consider food security and reciprocity in the treatment of U.S. investments abroad. This proposed requirement could significantly affect global investors with ties to China, as Chinese investors have in recent years acquired a number of well-known companies in the global food and agricultural sectors (including Smithfield and Syngenta), in part due to concerns over food security in China. Moreover, a reciprocity rule could adversely affect Chinese and other country FDI in the United States because China and other countries already restrict or outright prohibit foreign investments in many sectors. Importantly, the Trump administration has broad discretion to alter the existing CFIUS review process without any regulatory or statutory changes, in part because under existing law, CFIUS reviews are focused on threats to U.S. “national security,” a term that is not defined in the relevant regulations or statute.
 
Cybersecurity Breaches Involving Export Controlled Data Pose a Significant Risk for ADG Companies  
 
Reports have estimated the likely annual cost to the global economy from cybercrime and cyber espionage is now more than US$400bn. In particular, ADG companies will continue to be a primary target of cyber attacks. To the extent such companies have sensitive export controlled data on their networks, they can face significant U.S. Government scrutiny and penalties if their export controlled data is accessed by unauthorized foreign persons. As such, companies should assess their IT security and export control programs to confirm that they are meeting government expectations concerning the security of export controlled data, implement enhancements as appropriate, and develop effective breach response plans that can be immediately implemented in the event of an intrusion.
 
The Future of Ongoing Export Control Reform is unclear
 
Launched by Presidential directive in 2009, the U.S. Export Control Reform process was one of the signature regulatory initiatives of the Obama administration. Long sought by U.S. ADG companies, the reforms have reduced licensing burdens for some companies, clarified the control lists and defined key terms. Nearly eight years later, however, the Trump administration has inherited a reform process that  is still not complete and has been met with criticism for adding complexity to the regulations and failing to significantly reduce burdens on U.S. exporters. With the new administration vowing to slash federal regulations and improve competitive conditions for U.S. companies, the ADG industry will need to watch for signs of the fate and direction of export control reform.
 
Commercial Space
 
The space industry is undergoing a dramatic transformation as an increasing number of companies invest in commercial ventures and innovative new technologies, such as deep space/asteroid mining, in-orbit refueling, and 3D printing in space. In addition, the rapid development of small satellites is fueling a race for the development of small and reusable commercial launch services. As these NewSpace ventures take off, they are encountering a range of complex regulatory issues under restrictive export control regulations and multilateral arrangements, such as the Missile Technology Control Regime. The ability to successfully navigate these regulatory hurdles will be a significant factor in the success of these new space ventures.  
 
U.S. Economic Sanctions in Flux
 
U.S. economic sanctions law will continue to be in flux during the new administration as President Trump has indicated that he will take a different approach to certain sanctioned countries. With regard to Iran, the Trump administration has already imposed new sanctions on Iran’s ballistic missile testing program and has indicated that it will seek to more actively counter Iran’s activities in the Middle East. While the Trump administration may not formally withdraw from the nuclear deal with Iran in the near term, it has the ability to halt any further liberalization of sanctions that are not expressly set forth in the nuclear deal and create a climate that undermines the nuclear deal. It is not yet clear what position the administration will take concerning Cuba and Sudan, and whether it will support further liberalization or attempt to reverse course. With regard to Russia, the Trump administration has indicated that it is seeking to lift sanctions, but certain members of Congress are expected to push back.  
 
Trade with China and Investments In and From China are Likely to be Subject to Increased Scrutiny
 
Amid all the uncertainties in the international trade area, one virtual certainty is that issues related to trade, investment, and monetary policies with respect to China will be increasingly sensitive and tense in the Trump era. With his focus on restoring American jobs and preventing the relocation of businesses overseas, President Trump has repeatedly criticized China’s trade policies, including its overproduction and subsidization of steel and aluminum and its manipulation of exchange rates to drive its exports. If relations between the United States and China veer toward an open trade war, trade litigation and tariffs are sure to follow. The proliferation of cyber breach incidents and broader security concerns related to China’s activities in the Asia-Pacific region are further driving up tensions in the region and with the United States. 
 
India’s Emergence as a Major Defense Partner May Shape ADG Businesses
 
The U.S.-India defense relationship remains one of the few areas of bipartisan agreement, with both parties in support of an enhanced relationship. In June 2016, President Obama and Prime Minister Modi issued a joint statement designating India as a Major Defense Partner. In December 2016, President Obama signed a bill into law that codified India’s designation as a Major Defense Partner and directed the Departments of Defense and State to take certain additional actions to enhance the bilateral defense relationship. While neither Congress nor the Obama administration provided details on what it means to be a Major Defense Partner, a category created specifically for India, some government agencies have begun to take steps to facilitate the defense relationship. In January 2017, the Department of Commerce’s Bureau of Industry and Security implemented a general policy of approval for license applications involving highly controlled items, including certain military items, destined for India, and made other changes to facilitate exports of defense and dual-use items to India. The Trump administration is expected to continue to strengthen the defense relationship with India.
 
Conclusion
 
The degree to which President Trump’s protectionist rhetoric will restrict international trade is unclear. However, a number of changes that will shape the ADG industry appear to be on the horizon. These include not only changes to trade agreements, but also a possible change in approach with regard to export control reforms, changes to U.S. sanctions regimes, increased scrutiny of deals involving China, and increased cooperation with India. Recent cyber attacks have also underscored the risk of cyber breaches for ADG companies housing export controlled data on their networks.

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COMM_a412.

Gary Stanley’s ECR Tip of the Day

 
* Author: Gary Stanley, Esq., Global Legal Services, PC, (202) 352-3059,
gstanley@glstrade.com
 
All reports (i.e., the semi-annual sales report and the annual self-classification report) must be submitted to both BIS and the ENC Encryption Request Coordinator. An annual self-classification report is required for producers of encryption items described by paragraphs 740.17(b)(1) and 742.15(b)(1) of the EAR.  The information required and instruction for this report is provided in Supplement No. 8 to Part 742-Self-Classification Report for Encryption Items.  Reports are submitted to BIS and the Encryption Request Coordinator in February of each year for items exported or reexported during the previous calendar year (i.e., January 1 through December 31) pursuant to the encryption registration and applicable sections 740.17(b)(1) or 742.15(b)(1) of the EAR.  Annual self-classification reports are to be submitted to
crypt-Supp8@bis.doc.gov and
enc@nsa.gov.
 
Semi-annual sales reporting is required for exports to all destinations other than Canada, and for reexports from Canada for items described under paragraphs (b)(2) and (b)(3)(iii) of section 740.17.  Paragraph 740.17(e)(1(iii) contains certain exclusions from this reporting requirement.  Paragraphs 740.17(e)(1)(i) and (e)(1)(ii) contains the information required and instructions for submitted the semi-annual sales reports.  The first report is due no later than August 1 for sales occurring between January 1 and June 30 of the year, and the second report is due no later than February of the following year for sales occurring between July 1 and December 31 of the year.  Semi-annual sales reports continue to be submitted to:
crypt@bis.doc.gov and
enc@nsa.gov

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ENEDITOR’S NOTES

(Source: Editor)

*
W.H. Davies (William Henry Davies, 3 Jul 1871 – 26 Sep 1940, was a Welsh poet and writer.  Davies spent a significant part of his life as a tramp or hobo, but became one of the most popular poets of his time.  The principal themes in his work are observations about life’s hardships, the ways in which the human condition is reflected in nature, his own tramping adventures and the various characters he met.)
  – “The more help a person has in his garden, the less it belongs to him.”
  – “Teetotallers lack the sympathy and generosity of men who drink.”
 
*
Pietro Aretino (20 Apr 1492 – 21 Oct 1556, was an Italian author, playwright, poet, satirist and blackmailer who wielded immense influence on contemporary art and politics and invented modern literate pornography.  His sixteen ribald
 
Sonetti Lussuriosi (Lust Sonnets) written to accompany Giulio Romano’s exquisitely beautiful but utterly pornographic series of drawings engraved by Marcantonio Raimondi under the title
 
I Modi finally caused such outrage that he had to flee Rome.)
  – “I am, indeed, a king, because I know how to rule myself.”
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EN_a214
. Are Your Copies of Regulations Up to Date?
(Source: Editor)

The official versions of the following regulations are published annually in the U.S. Code of Federal Regulations (C.F.R.), but are updated as amended in the Federal Register.  Changes to applicable regulations are listed below.
 
*
ATF ARMS IMPORT REGULATIONS
: 27 CFR Part 447-Importation of Arms, Ammunition, and Implements of War
  – Last Amendment: 15 Jan 2016: 81 FR 2657-2723: Machineguns, Destructive Devices and Certain Other Firearms; Background Checks for Responsible Persons of a Trust or Legal Entity With Respect To Making or Transferring a Firearm 
 
*
CUSTOMS REGULATIONS
: 19 CFR, Ch. 1, Pts. 0-199
  – Last Amendment: 27 Jan 2017: 82 FR 8589-8590: Delay of Effective Date for Importations of Certain Vehicles and Engines Subject to Federal Antipollution Emission Standards [New effective date: 21 March 2017.]; and 82 FR 8590: Delay of Effective Date for Toxic Substance Control Act Chemical Substance Import Certification Process Revisions [New effective date: 21 March 2017.]

* DOD NATIONAL INDUSTRIAL SECURITY PROGRAM OPERATING MANUAL (NISPOM): DoD 5220.22-M
  – Last Amendment: 18 May 2016: Change 2: Implement an insider threat program; reporting requirements for Cleared Defense Contractors; alignment with Federal standards for classified information systems; incorporated and canceled Supp. 1 to the NISPOM  (Summary here.)

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

  
*
FOREIGN ASSETS CONTROL REGULATIONS (OFAC FACR)
: 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders
  – Last Amendment: 10 Feb 2017: 82 FR 10434-10440: Inflation Adjustment of Civil Monetary Penalties.  
 
*
FOREIGN TRADE REGULATIONS (FTR)
: 15 CFR Part 30
  – Last Amendment: 19 Apr 2017: 82 FR 18383-18393: Foreign Trade Regulations: Clarification on Filing Requirements 
  – HTS codes that are not valid for AES are available
here.
  – The latest edition (19 Apr 2017) of Bartlett’s Annotated FTR (“BAFTR”), by James E. Bartlett III, is available for downloading in Word format. The BAFTR contains all FTR amendments, FTR Letters and Notices, a large Index, and footnotes containing case annotations, practice tips, and Census/AES guidance.  Subscribers receive revised copies every time the FTR is amended. The BAFTR is available by annual subscription from the Full Circle Compliance website.  BITAR subscribers are entitled to a 25% discount on subscriptions to the BAFTR.
 
*
HARMONIZED TARIFF SCHEDULE OF THE UNITED STATES (HTS, HTSA or HTSUSA)
, 1 Jan 2017: 19 USC 1202 Annex. (“HTS” and “HTSA” are often seen as abbreviations for the Harmonized Tariff Schedule of the United States Annotated, shortened versions of “HTSUSA”.)

  – Last Amendment: 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.  

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

EN_a315
. Weekly Highlights of the Daily Bugle Top Stories
(Source: Editor)

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

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EPEDITORIAL POLICY

* The Ex/Im Daily Update is a publication of FCC Advisory B.V., edited by James E. Bartlett III and Alexander Bosch, and emailed every business day to approximately 8,000 subscribers to inform readers of changes to defense and high-tech trade laws and regulations. We check the following sources daily: Federal Register, Congressional Record, Commerce/AES, Commerce/BIS, DHS/CBP, DOJ/ATF, DoD/DSS, DoD/DTSA, State/DDTC, Treasury/OFAC, White House, and similar websites of Australia, Canada, U.K., and other countries and international organizations.  Due to space limitations, we do not post Arms Sales notifications, Denied Party listings, or Customs AD/CVD items.

* 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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