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17-0426 Wednesday “The Daily Bugle”

17-0426 Wednesday “Daily Bugle”

Wednesday, 26 April 2017

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The 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 Seeks Comments on Effects on the National Security of Imports of Steel 
  2. Commerce/BIS: MTAC to Meet on 11 May in Wash DC 
  3. Justice/ATF Continues to Seek Comments on Inventories, Licensed Explosives Importers, Manufacturers, Dealers, and Permittees 
  1. Ex/Im Items Scheduled for Publication in Future Federal Register Editions 
  2. Commerce/BIS: (No new postings.) 
  3. DHS/CBP Announces ACE PRODUCTION Deployment of ACE Cargo Release on 27 Apr 
  4. DHS/CBP Revises Notice on Final FTR Rule Concerning Clarification on Filing Requirements 
  5. State/DDTC Announces DTAS Information Systems Will Be Unavailable on 28 Apr 
  6. EU High Representative Delivers Speech on the CWC and the Organization for the Prohibition of Chemical Weapons 
  7. EU Amends Restrictive Measures Against Myanmar/Burma 
  1. New York Times: “Huawei, Chinese Technology Giant, Is Focus of Widening U.S. Investigation” 
  2. ST&R Trade Report: “Lighthizer Moves Toward Confirmation as U.S. Trade Representative” 
  1. Global Trade News: “Weise Wednesday: What Are Your Thoughts on Where the Trump Administration’s Trade Agenda Is Heading?” 
  2. M. Volkov: “Yates, AG Sessions and Individual Criminal Prosecutions” 
  3. T. McVey: “Dealing with Violations in Export and Import Transactions – Part I” 
  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

1. Commerce/BIS Seeks Comments on Effects on the National Security of Imports of Steel

(Source: Federal Register) [Excerpts.]
 
82 FR 19205-19207: Notice Request for Public Comments and Public Hearing on Section 232 National Security Investigation of Imports of Steel
 
* AGENCY: Bureau of Industry and Security, Office of Technology Evaluation, U.S. Department of Commerce.
* ACTION: Notice of request for public comments and public hearing.
* SUMMARY: The Secretary of Commerce initiated an investigation to determine the effects on the national security of imports of steel. This investigation has been initiated under section 232 of the Trade Expansion Act of 1962, as amended. Interested parties are invited to submit written comments, data, analyses, or other information pertinent to the investigation to the Department of Commerce’s Bureau of Industry and Security. The Department of Commerce will also hold a public hearing on the investigation on May 24, 2017 in Washington, DC. This notice identifies the issues on which the Department is interested in obtaining the public’s views. It also sets forth the procedures for public participation in the hearing.
* DATES: Comments may be submitted at any time but must be received by May 31, 2017.
The hearing will be held on May 24, 2017 at the U.S. Department of Commerce auditorium, 1401 Constitution Avenue NW., Washington, DC 20230. The hearing will begin at 10:00 a.m. local time and conclude at 1:00 p.m. local time.
* ADDRESSES:
  – Written comments: Send written comments to Brad Botwin, Director, Industrial Studies, Office of Technology Evaluation, Bureau of Industry and Security, U.S. Department of Commerce, 1401 Constitution Avenue NW., Room 1093, Washington, DC 20230 or by email to Steel232@bis.doc.gov.
   – Public hearing: Send requests to speak and written summaries of the oral presentations to Brad Botwin, Director, Industrial Studies, Office of Technology Evaluation, Bureau of Industry and Security, U.S. Department of Commerce, Room 1093, 1401 Constitution Avenue NW., Washington, DC 20230 or by email to Steel232@bis.doc.gov, by May 17, 2017. Any person, whether presenting or not, may submit a written statement through May 31, 2017–7 days after the hearing date.
* FOR FURTHER INFORMATION CONTACT: Brad Botwin, Director, Industrial Studies, Office of Technology Evaluation, Bureau of Industry and Security, U.S. Department of Commerce (202) 482-4060, brad.botwin@bis.doc.gov. For more information about the section 232 program, including the regulations and the text of previous investigations, see www.bis.doc.gov/232.
* SUPPLEMENTARY INFORMATION: …
The Department is particularly interested in comments and information directed to the criteria listed in Sec. 705.4 of the NSIBR as they affect national security, including the following: (a) Quantity of steel or other circumstances related to the importation of steel; (b) Domestic production and productive capacity needed for steel to meet projected national defense requirements; (c) Existing and anticipated availability of human resources, products, raw materials, production equipment, and facilities to produce steel; (d) Growth requirements of the steel industry to meet national defense requirements and/or requirements to assure such growth; (e) The impact of foreign competition on the economic welfare of the steel industry; (f) The displacement of any domestic steel causing substantial unemployment, decrease in the revenues of government, loss of investment or specialized skills and productive capacity, or other serious effects; (g) The displacement of any domestic steel causing substantial unemployment, decrease in the revenues of government, loss of investment or specialized skills and productive capacity, or other serious effects; (h) Relevant factors that are causing or will cause a weakening of our national economy; and (i) Any other relevant factors. …
 
Public Hearing
 
   Consistent with the interest of the U.S. Department of Commerce in soliciting public comments on issues affecting U.S. industry and national security, the Department is holding a public hearing as part of the investigation. The hearing will assist the Department in determining whether imports of steel threaten to impair the national security and in recommending remedies if such a threat is found to exist. Public comments at the hearing should address the criteria listed in Sec. 705.4 of the NSIBR as they affect national security described above.
   The hearing will be held on May 24, 2017 at the U.S. Department of Commerce auditorium, 1401 Constitution Avenue NW., Washington, DC 20230. The hearing will begin at 10:00 a.m. local time and conclude at 1:00 p.m. local time. …
 
  Dated: April 21, 2017.
Wilbur L. Ross, Secretary of Commerce.

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EXIM_a2

2. Commerce/BIS: MTAC to Meet on 11 May in Wash DC

(Source:
Federal Register
) [Excerpts.]
 
82 FR 19205: Materials Technical Advisory Committee; Notice of Partially Closed Meeting
 
The Materials Technical Advisory Committee (MTAC) will meet on May 11, 2017, 10:00 a.m., Herbert C. Hoover Building, Room 3884, 14th Street between Constitution & Pennsylvania Avenues NW., Washington, DC. The Committee advises the Office of the Assistant Secretary for Export Administration with respect to technical questions that affect the level of export controls applicable to materials and related technology. …
  The open session will be accessible via teleconference to 20 participants on a first come, first serve basis. To join the conference, submit inquiries to Ms. Yvette Springer at
Yvette.Springer@bis.doc.gov
, no later than May 4, 2017.
A limited number of seats will be available during the public session of the meeting. Reservations are not accepted. To the extent time permits, members of the public may present oral statements to the Committee. Written statements may be submitted at any time before or after the meeting. However, to facilitate distribution of public presentation materials to Committee members, the materials should be forwarded prior to the meeting to Ms. Springer via email.
  The Assistant Secretary for Administration, with the concurrence of the delegate of the General Counsel, formally determined on February 15, 2017, pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. app. 2 sec. 10(d)), that the portion of the meeting dealing with pre-decisional changes to the Commerce Control List and the U.S. export control policies shall be exempt from the provisions relating to public meetings found in 5 U.S.C. app. 2 sections 10(a)(1) and 10(a)(3). The remaining portions of the meeting will be open to the public.
   For more information, call Yvette Springer at (202) 482-2813.
 
Yvette Springer, Committee Liaison Officer.

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

EXIM_a3

3.
Justice/ATF Continues to Seek Comments on Inventories, Licensed Explosives Importers, Manufacturers, Dealers, and Permittees

(Source:
Federal Register
) [Excerpts.]
 
82 FR 19259-19260: Agency Information Collection Activities; Proposed eCollection eComments Requested; Inventories, Licensed Explosives Importers, Manufacturers, Dealers, and Permittees
 
* AGENCY: Bureau of Alcohol, Tobacco, Firearms and Explosives, Department of Justice.
* ACTION: 30-Day notice.
* SUMMARY: The Department of Justice (DOJ), Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), will submit the following information collection request to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995. The proposed information collection was previously published in the Federal Register 82 FR 11650, on February 24, 2017, allowing for a 60-day comment period. This information collection is being revised due to a burden reduction, specifically a decrease in both the number of respondents and the total burden hours for this collection.
* DATES: Comments are encouraged and will be accepted for an additional 30 days until May 26, 2017.
* FOR FURTHER INFORMATION CONTACT: If you have additional comments, particularly with respect to the estimated public burden or associated response time, have suggestions, need a copy of the proposed information collection instrument with instructions, or desire any other additional information, please contact please contact Anita Scheddel, Program Analyst, Explosives Industry Programs Branch, either by mail 99 New York Ave. NE., Washington, DC 20226, by email at
Anita.Scheddel@atf.gov
. Written comments and/or suggestions can also be directed to the Office of Management and Budget, Office of Information and Regulatory Affairs, Attention Department of Justice Desk Officer, Washington, DC 20503 or sent to
OIRA_submissions@omb.eop.gov
.
* SUPPLEMENTARY INFORMATION: …
  – The Title of the Form/Collection: Inventories, Licensed
Explosives Importers, Manufacturers, Dealers, and Permittees.
  – Form number: None.
  – Component: Bureau of Alcohol, Tobacco, Firearms and Explosives, U.S. Department of Justice.
  – Abstract: The records show the explosive material inventories of those persons engaged in various activities within the explosive industry and are used by the government as initial figures from which an audit trail can be developed during the course of a compliance inspection or criminal investigation. …
  – If additional information is required contact: Melody Braswell, Department Clearance Officer, United States Department of Justice, Justice Management Division, Policy and Planning Staff, Two Constitution Square, 145 N Street NE., 3E.405A, Washington, DC 20530.
 
Dated: April 21, 2017.
Melody Braswell, Department Clearance Officer for PRA, U.S. Department of Justice.

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

OGSOTHER GOVERNMENT SOURCES

OGS_a14. Ex/Im Items Scheduled for Publication in Future Federal Register Editions
(Source: Federal Register

[No items of interest noted today.]

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(Source:
CSMS# 17-000240, 26 April 2017.)
 
There will be an ACE PRODUCTION deployment of ACE Cargo Release, PGA, and Entry Summary Validations on Thursday morning, April 27, 2017, during the 0500 – 0700 ET window, which will impact ACE Cargo Release and ACE Entry Summary processing.

To be deployed:

Cargo Release 

* SE-8640, 8662, 8666, 8671 – Implement Perishables Goods Indicator in SE20 record and in CBP’s Cargo Release UI

* SE-8614, 8645 – After 3 Months, most events on an entry should not impact entry status

* SE-8126 – Bill cancel/delete after arrival and release will not suspend the entry release status

* SE-8676 – SO (status notification) message Bill Deleted disposition included for Bill Delete after arrival and release

PGA/ITDS

EPA:

* PGAD-14942 Implement coding changes related to EPA IG version 9.1 into PROD:
  – The Harmonized Tariff Schedule (HTS) flagging for all EPA programs will NOT be enforced on 4/27/17 since EPA and CBP are finalizing the HTS flags.
  – EPA will notify trade when enforcement of the flagging will occur. Until then, filers will continue to receive a warning (PU2 – PGA DATA MSNG FOR HTS-NO ACTION REQD) if they do not provide data or a disclaim, on EPA-flagged HTS codes. 
  – Reminder from EPA: The importer is responsible for knowing what to file, regardless of whether a tariff code has been flagged.
  – Please refer to CSMS#17-000160 – Correction: Updated ACE PGA Documentation Posted on CBP.gov for additional information about EPA.

FDA:

* PGAD-14672 Bug fix for Intended Use Code 920.000 incorrectly requiring Affirmations of Compliance (DRU)

* PGAD-14830 FDA DRU Rule Edits
  – Intended Use Codes are not applicable or allowed for Pharmaceutical Necessities (DRU/PHN)
  – New validation to require mandatory entities and disallow entities in a program code if they are not applicable (Example: PN Entities not allowed under DRU)

* PGAD-14680 Bug fix for failed validation of PG20 Country Code presence (RAD)

All of the changes align with FDA’s Supplemental Guide V 2.5.

If you have questions or receive rejects as a result of these updates, please contact FDA’s ACE Support, 6:00 AM to 10:00 PM, 7 days a week at: ACE_Support@fda.hhs.gov, 877-345-1101, or 571-620-7320.

OTHER:

* PGAD-14659 New PGA message set spec level validation for state/province codes for US, CA, and MX

* PGAD-14759 Beginning Tariff position incorrect on UC Transaction

ACE Entry Summary (AE message) Validations – REDEPLOYMENT of Apr. 20th Deploy

* CES-6979: Errors when Converting ’01’ with Recon/Other Recon to ’03’.

When editing a summary to convert entry type ’01’ with Recon to ’03’, Entry Summary Validations was rejecting the summary updates with error OTHER RECON NOT ALLOWED – ENTRY TYPE when there was no FTA (Free Trade Agreement) or Other Recon. Converting the entry type is now allowed.

* CES-7074: Allow change from Temporary In-bond (TIB) 23 to 01 in Entry Summary (ES) Change or Post-Summary Correction (PSC) scenario.

When an ACE ES in CBP Control-Rejected is being corrected or when applying a PSC, or correcting an existing PSC in CBP Control-Rejected, error ENT TYP CHNG NOT ALLOWED POST ACCEPTANCE or PSC ENTRY TYPE CHANGE NOT ALLOWED was received when changing from Entry Type 23 to Entry Type 01. This entry type change is now allowed.

  – Related CSMS No. 17-000223

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

OGS_a47
. DHS/CBP Revises Notice on Final FTR Rule Concerning Clarification on Filing Requirements

(Source: CSMS# 17-000239, 25 April 2017.)
 
New ACE Programming
 
This broadcast is a revision of the “Final Rule – Foreign Trade Regulations: Clarification on Filing Requirements” broadcast sent on April 19, 2017.
 
Publication Announcement:
The Census Bureau’s International Trade Management Division (ITMD) is announcing the publication of a Final Rule revising several sections of the Foreign Trade Regulations (FTR), Title 15, Part 30.
 
The amendments reflect the implementation of the International Trade Data System (ITDS), in accordance with the Executive Order 13659, Streamlining the Export/Import Process for American Businesses. Section 405 of the Security and Accountability for Every (SAFE) Port Act of 2006 (Pub. L. 109-347, 120 Stat. 1884) established the ITDS.
 
The Final Rule also enhances the information provided in the Automated Commercial Environment’s (ACE) export trade reports. Where the authorized agent files an Automated Export System (AES) record in a routed export transaction, the agent is required to provide the filer name, Internal Transaction Number (ITN), and date of export in addition to the current data elements listed in Section 30.3(e)(2), upon request. The AES-203 Report will include the three additional data elements in ACE on April 27, 2017.
 
In addition, the changes reflect the capability to report the original ITN in subsequent commodity filings related to the original Electronic Export Information submission. The original ITN is an optional field. The functionality to report the original ITN will become operational on April 27, 2017.
 
The Census Bureau also revised the rule to clarify existing reporting requirements and address comments received on the Notice of Proposed Rulemaking. The requirement to report the export of used electronics via a new data element is not included in the Final Rule.
 
Please find the Final Rule in its entirety here. For further information or questions about the FTR, contact the Trade Regulations Branch (TRB), ITMD at 800-549-0595, Option 3.

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

OGS_a58
. State/DDTC Announces DTAS Information Systems Will Be Unavailable on 28 Apr

(Source: State/DDTC)
 
The DTAS information systems will be unavailable from April 28th, 2017 at 6:00PM through 12:00AM for scheduled routine maintenance and patching. The DTAS systems will be available April 29th, 2017 after 12:00AM.

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OGS_a69
. EU High Representative Delivers Speech on the CWC and the Organization for the Prohibition of Chemical Weapons

(Source: EU External Action)
 
The statement by High Representative/Vice-President Federica Mogherini on the Twentieth Anniversary of the entry into force of the Chemical Weapons Convention (CWC) and the founding of the Organization for the Prohibition of Chemical Weapons is available here.

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OGS_a710
. EU Amends Restrictive Measures Against Myanmar/Burma

 
Decisions:
  – Council Decision (CFSP) 2017/734 of 25 April 2017 amending Decision 2013/184/CFSP concerning restrictive measures against Myanmar/Burma
 

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NWSNEWS

NWS_a111
. New York Times: “Huawei, Chinese Technology Giant, Is Focus of Widening U.S. Investigation”

 
As one of the world’s biggest sellers of smartphones and the back-end equipment that makes cellular networks run, Huawei Technologies has become one of the major symbols of China’s global technology ambitions.
 
But as it continues its rise, its business with some countries has fallen under growing scrutiny from investigators in the United States.
 
American officials are widening their investigation into whether Huawei broke American trade controls on Cuba, Iran, Sudan and Syria, according to an administrative subpoena sent to Huawei and reviewed by The New York Times. The previously unreported subpoena was issued in December by the United States Treasury Department’s Office of Foreign Assets Control, which oversees compliance with a number of American sanctions programs.
 
The Treasury’s inquiry follows a subpoena sent to Huawei this summer from the United States Department of Commerce, which carries out sanctions and also oversees exports of technology that can have military as well as civilian uses. …

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NWS_a2
12. ST&R Trade Report: “Lighthizer Moves Toward Confirmation as U.S. Trade Representative”

 
The Senate Finance Committee unanimously approved April 24 the nomination of Robert Lighthizer as U.S. trade representative. Lighthizer’s confirmation by the full Senate, which could come within the next week, could spur progress on Trump administration trade initiatives such as renegotiating NAFTA.
 
The White House has emphasized Lighthizer’s trade enforcement experience, signaling the direction he is expected to take. As deputy USTR in the Reagan administration he “played a major role” in “negotiating roughly two dozen bilateral international agreements” that “frequently resulted in significant reductions in the shipment of unfairly traded imports into the United States,” a press release said. He also served as chief of staff on the Senate Finance Committee “when Congress passed the Reagan program of tax cuts and spending reductions,” aided in the passage of legislation that implemented the Tokyo Round of trade negotiations, and represented the U.S. at meetings of the Organization for Economic Cooperation and Development and meetings related to the General Agreement on Tariffs and Trade (the precursor to the World Trade Organization). In private practice, Lighthizer has represented U.S. manufacturers in “many of the largest and most significant trade cases of the last 25 years,” helping secure outcomes that “reduc[ed] unfair imports and help[ed] thousands of American workers and numerous businesses.”
 
Senate Finance Committee Chairman Orrin Hatch, R-Utah, said Congress sees the USTR as “the primary official responsible for developing and executing trade policy” and Ranking Member Ron Wyden, D-Ore., added that “it’s clear from an institutional and legal standpoint that Mr. Lighthizer as the U.S. trade representative is the leading person.” However, the White House’s view of Lighthizer’s role has been less clear. While administration officials have said the USTR will remain the “principal negotiator on trade deals” they have also said Commerce Secretary Wilbur Ross, National Trade Council chief Peter Navarro, and special representative for international negotiations Jason Greenblatt will play an “instrumental role” in trade negotiations and trade policy.

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COMMCOMMENTARY

COMM_a113
. Global Trade News: “Weise Wednesday: What Are Your Thoughts on Where the Trump Administration’s Trade Agenda Is Heading?”

 
Welcome to Weise Wednesday! Every week we will share a brief Q&A with the former U.S. Commissioner of Customs, Mr. George Weise. Please send questions to AskGeorge@IntegrationPoint.com.
 
Q: At this stage of the Trump Administration, what are your thoughts on where his trade agenda is heading?
 
A: Although we have seen some early signs of the direction of the administration’s trade agenda, many questions remain as to where it will end up. During the campaign, candidate Trump was very critical of prior administrations’ handling of trade. 
 
He strongly opposed the Trans-Pacific Partnership (TPP), was highly critical of the North American Free Trade Agreement (NAFTA), and threatened to pull us out of the World Trade Organization (WCO). He vowed that, under his administration, better trade deals would be negotiated that put America first and better served U.S. workers. On the immigration front, he committed to build a wall along our border and said Mexico would pay for it.
 
Soon after the inauguration, the President took several actions relating to his campaign pledges on trade and immigration. He announced U.S. withdrawal from TPP and his intention to renegotiate NAFTA. In announcing his intention to build a wall on the U.S.-Mexican border, he suggested that a unilateral tariff on imports into the U.S. from Mexico was one of the options on the table to fund it.
 
More recently, the administration issued its 2017 Trade Policy Agenda announcing its intention to use “a more aggressive approach” than past administrations to address unfair foreign trade practices and open global markets to U.S. goods and services. Some of the key themes stressed in the report include:
 
* The U.S. will use “all possible leverage” to open global markets, including strict enforcement of U.S. trade laws.
  – Adequate and effective protection of U.S. intellectual property rights will be a priority.
  – S. trade laws to prevent dumping and subsidized imports that harm American industries and workers will be vigorously enforced.
 
* The U.S. will focus on bilateral negotiations rather than multilateral negotiations.
 
* The U.S. intends to renegotiate and revise existing agreements (like NAFTA) to better serve U.S. interests.
  – Enforcing labor provisions in existing agreements and enforcing the prohibition of importation and sales of goods made with forced labor will be priorities.
 
* The U.S. will not be bound by international settlement mechanisms like the WTO, and WTO decisions unfavorable to the U.S. will not automatically lead to a change in U.S. law or practice.
 
The administration’s full 2017 Trade Policy Agenda can be found here.
 
It is still too early to predict the steps that will be taken to implement this aggressive trade agenda and how our trading partners will respond to such actions.  As of this writing, the President’s nominee to become U.S. Trade Representative (USTR), Robert Lighthizer, who will be charged with leading this effort, has not yet been confirmed by the Senate.  It is expected that a more detailed report on the President’s Trade Policy Agenda will be issued after the Senate has confirmed Mr. Lighthizer as the USTR, and he has had a chance to provide his input.
 
Meanwhile, the trade community will continue to stay tuned for further developments and hope that that a more aggressive U.S. trade policy does not meet with retaliatory trade actions by our trading partners.

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(Source:
Volkov Law Group Blog. Reprinted by permission.)
 
* Author: Michael Volkov, Esq., Volkov Law Group, mvolkov@volkovlaw.com, 240-505-1992.
 
In recent speeches, the Attorney General (here) and an Principal Deputy Assistant Attorney General (here) in the Criminal Division reconfirmed DOJ’s support for enforcement of the FCPA. No one should be surprised by their respective statements. As I have said all along, the new administration will not make any significant changes in FCPA enforcement, except for tweaking the FCPA Pilot Program to increase possibilities for a declination.
 
Contrary to all the hand-wringers out there, the Justice Department and the FBI have lined up resources, ongoing investigations and international cooperation relationships directed toward continuing, and possibly increasing, FCPA enforcement.
 
In reassuring compliance professionals at his recent speech, Attorney General Sessions reiterated DOJ’s continued focus on individual prosecutions. The Yates Memorandum, which was adopted in late 2015, requires cooperating companies to provide to the government all relevant information concerning culpable individuals in order to qualify for cooperation benefits.
 
The Yates Memorandum has had no appreciable impact on FCPA enforcement of culpable individuals. As many have pointed out, FCPA enforcement of individuals coupled with corporate prosecutions have not yet occurred. The PDVSA criminal prosecutions in Houston, Texas and the December 2016 enforcement against various individuals relating to aviation services between Texas and Mexico do not qualify under the Yates Memo requirements. The classic FCPA enforcement action involves a major corporate settlement after conducting a lengthy and intensive internal investigation. These are the cases that cry out for individual prosecutions.
 
When you look across the wreckage of corporate FCPA enforcement actions, there are numerous cases where individuals could have been prosecuted but for some reasons they were not (as of today). These include VimpelCom, Och-Ziff, Embraer, and one of the more outrageous cases from 2015, Avon.
 
Outside of the FCPA context, however, it is easier to spot the impact of the Yates Memorandum. The General Motors settlement for defective ignition switches did not include prosecution of any culpable individuals, despite the fact that several individuals could have been prosecuted. The General Motors case was resolved several weeks right after adoption of the Yates Memorandum.
 
In contrast to the General Motors case, the VW and Takata criminal cases brought by the Justice Department included prosecution of culpable individual officers. VW paid criminal and civil penalties totaling $4.3 billion. DOJ indicted six corporate officers as part of the alleged conspiracy to evade emission device testing.
 
In the Takata case, the company paid approximately $1 billion for a criminal conspiracy to hide airbag safety malfunctions. DOJ indicted three officers for criminal cases.
 
In the absence of the Yates Memorandum, it is questionable whether DOJ would have indicted the nine corporate officers charged in the VW and Takata cases. If anything, the GM case, like the Takata case, resulted in death of innocent consumers who made the mistake of purchasing a vehicle with the ignition switch or airbag problems.
 
With the exception of FCPA prosecutions, the Yates Memorandum appears to have had an impact on the number of criminal prosecutions. A more careful calculation of criminal cases is needed to confirm what impact the Yates Memorandum has had. The objective of the Yates Memorandum makes sense – to maximize deterrence against criminal conduct by prosecuting individuals for such conduct and imposing significant punishment.
 
Some have challenged the Yates Memorandum as more show than real substance, suggesting that there has been no real impact in the number of criminal prosecutions. Critics have also suggested that imposing the burdens of the Yates Memorandum may chill corporate cooperation in criminal cases for fear of not meeting the high-bar for cooperation set by the Yates Memorandum.
 
Whether these criticisms are valid, DOJ needs to measure the impact of the Yates Memorandum and provide transparency on its efforts to increase accountability of criminally culpable individuals.
* * * * * * * * * * * * * * * * * * * *

 
* Author: Thomas McVey, Esq., tmcvey@williamsmullen.com, 202-293-8118, Williams Mullen.

[Editor’s Note: The following is Part I of Thomas McVey’s article “Dealing with Violations In Export and Import Transactions”. Part II of the article will be published in tomorrow’s Daily Bugle.]

You are the general counsel or CEO of your company. Your compliance manager comes into your office and tells you that he/she may have discovered an export violation within the company. Or perhaps you have received a directed disclosure from the State Department requesting information, an administrative subpoena from BIS, or an informed compliance letter from Customs. You are aware that export and import violations can result in significant civil and criminal penalties, so a lot is at stake.   The following are a number of issues that you might present to your company in responding to this hypothetical situation under the Export Administration Regulations, International Traffic In Arms Regulations, U.S. sanctions laws and U.S. import laws. The details of your response, of course, will vary depending upon the company and violations involved. A lot will have to happen quickly so it is important for you to be prepared in advance for this situation.
 
(1) Stop the Unlawful Activity
 
The first step in responding to a possible export or import violation is to stop the potentially wrongful actions. If there are a series of transactions underway or other ongoing activities that create a risk of violation, you should advise the employees involved to cease them. If a company has committed a violation in the past and you are dealing with a single prior incident, this can usually be resolved. However if a violation is ongoing this creates a much more complex problem – the situation gets worse each day and the participants may be acting with knowledge of possible wrongdoing. If you are not sure if an activity constitutes a violation, the safest course always is to stop the activity until you can determine the proper legal course of action.
 
(2) Collect the Relevant Information
 
To properly evaluate a potential violation, you must understand the facts in question. To accomplish this you should identify the persons involved and relevant documents (including electronic documents). You should then meet with the key employees, review the documents and properly protect the results of your review. The following are a number of issues to consider in conducting this review:
 
Preserve Attorney-Client and Other Privileges. If the review is conducted by or at the direction of the company’s legal counsel certain work may be protected under the attorney-client privilege and/or the attorney work-product doctrine. Use care not to waive these privileges through actions such as improper disclosure of the privileged information. Also in certain instances if in-house counsel conducting the review are also performing managerial functions within the company there is risk that the attorney-client privilege may not apply and the company should consider getting its outside counsel involved.

Preservation of Relevant Documents. You should advise persons involved not to destroy documents or delete e-mails that may be relevant to the suspected violation. [FN/2] Also destruction of relevant documents could result in additional violations such as obstruction of justice or destruction/alteration of records. [FN/3]
 
Upjohn. Consider if it is appropriate to provide Upjohn warnings in discussions with employees. [FN/4] In addition, in some instances it may be advisable to have a third person present in employee interviews in the event you need a witness in the future for statements made.

Foreign Legal Requirements. If personnel or documents are located in foreign countries, consider if privacy or other laws in such countries place restrictions on collecting certain information from individuals (including their computer records) and/or removing such information/records from the country.
 
Thoroughness Versus Speed. You must balance the need to conduct a thorough review against the requirement to complete the review in a timely manner. A shoddy review can result in a flawed assessment; and any unnecessary delay can result in more serious violations and unnecessary harm to the company.
 
(3) Analyze Possible Violations; Identify Criminal Violations Early In the Process
 
Types of Trade Violations
. Many attorneys often think of trade violations as overt actions such as exporting without a license or underpaying import duties. However trade violations can also encompass many less obvious activities that can result in significant penalties, such as attempts to commit a violation, aiding and abetting a violation, and acting with knowledge that a violation is about to occur. You should be alert for these other activities as well. 15 CFR §764.2 provides an example of the breadth of actions that constitute violations under the Export Administration Regulations (“EAR”):
 
  – Engaging in conduct that is prohibited by the EAR;
  – Causing, aiding or abetting a violation;
  – Conspiracy to engage in a violation;
  – Solicitation and attempts to cause a violation;
  – Acting with knowledge of a violation;
  – Possession with intent to illegally export;
  – Misrepresentation and concealment of facts;
  – Evasion;
  – Acting contrary to the terms of a denial order;
  – Failure to comply with reporting and recordkeeping requirements.
 
Of course, destroying evidence, obstructing an investigation or providing false information in a government investigation can have significant consequences, often more severe than the underlying trade violation. For example, the maximum criminal penalty for import violations under 18 U.S.C. §541 [FN/5] is a fine and imprisonment of up to two years, but the maximum penalty for obstruction of the related investigation is twenty years imprisonment. [FN/6] both violations are proven, both penalties can be imposed.
 
Violations can also occur in certain instances if your company sells products to a foreign customer and the customer resells the products to a prohibited country, prohibited party or for a prohibited end use. [FN/7]
 
Enforcement Authorities
. To aid in your review, a number of the principal U.S. legal authorities and enforcement agencies related to export violations under the EAR, the International Traffic In Arms Regulations (“ITAR”), U.S. sanctions laws administered by the Office of Foreign Assets Control (“OFAC”) and import laws administered by U.S. Customs and Border Protection (“Customs”) are set forth in the table in Exhibit A below.
 
Criminal Versus Civil Violations
. One of the most important questions in any export or import violation is whether the violation is civil or criminal. Under the two principal export statutes, [FN/8] criminal liability typically arises if an action is “willful.” For example, under both §1705(c) of the International Emergency Economic Powers Act and §2778(c) of the Arms Export Control Act the statutes specify that criminal sanctions are based upon “willful” violations. [FN/9] The standard of what is considered “willful” is different for different federal crimes and in different federal circuits. In United States v. Bishop [FN/10] the Fourth Circuit held that the standard of willfulness in ITAR cases is relatively low – the defendant needs only to have a “general knowledge” that an action is illegal and not specific knowledge that the item is listed on the U.S. Munitions List and subject to licensing requirements. [FN/11] In making this determination, the court relied on the Supreme Court’s decision in Bryan v. United States, [FN/12] and cited other cases, both within and outside the Fourth Circuit. [FN/13] The National Security Division of the Justice Department has also stated that in export control and sanctions cases, its attorneys rely on the standard of willfulness set forth in Bryan v. United States. [FN/14]
 
The standard for criminal violations of import laws is similar. Under the criminal import statutes at 18 U.S.C. §§541and 545 [FN/15], the criminal standards are specified in the statutes as “knowing” or “willful,” and under 18 USC §542 violations are based upon fraudulent actions, false statements, similar wrongful acts and in certain instances on willful acts. [FN/16] In addition, under other statutory provisions available to prosecutors for import-related crimes such as 18 U.S.C. §1001 (false statements), 18 USC §1519 (destruction, alteration or falsification of records) and 18 USC §§1956 and 1957 (money laundering), the standards stated in the statures are typically “knowing” and/or “willful” as well. There has been a recent increase in criminal prosecutions of Customs violations in light of increasing concerns regarding duty evasion, particularly under antidumping and countervailing duty orders, and increased enforcement pressures under the Trade Facilitation and Trade Enforcement Act of 2015, so you should be alert for these issues in your review. [FN/17]
 
For civil export violations under the EAR, ITAR and U.S. sanctions laws, there is typically no willful intent required to prove a violation. [FN/18] For civil violations of Customs laws under 19 USC §1592, parties can be found liable for actions based upon fraud, gross negligence and negligence. [FN/19]
 
If a violation meets the willful standard, parties can often be charged with both civil and criminal penalties for the same wrongful action.
 
The assessment of potential criminal liability in the early part of your internal review has recently become more important. As discussed further below, the Justice Department (“Justice”) recently announced a new program where companies are permitted to file voluntary self- disclosures directly with Justice for criminal violations of export control laws. Under the traditional practice, companies frequently filed initial voluntary disclosures with the Directorate of Defense Trade Controls (“DDTC”), the Bureau of Industry and Security (“BIS”) or OFAC immediately upon discovery of a violation and filed final disclosures sixty days later, and the agencies had the discretion to refer criminal matters to Justice. With the announcement of the new Justice voluntary self-disclosure program, companies must now consider early in the process if they should also file a disclosure with Justice simultaneously with filing the initial voluntary disclosures with the civil agencies. (See discussion of voluntary self-disclosures in Section 4 below.)
 
Calculations of Civil Monetary Penalties
. Both OFAC and BIS have adopted administrative enforcement guidelines that provide a transparent methodology for calculating monetary penalties for civil violations of the U.S. sanctions laws and the EAR. For example, under the OFAC Economic Sanctions Enforcement Guidelines [FN/20] (the “OFAC Guidelines”), for sanctions violations OFAC will review the facts and circumstances of the case in question and apply the “General Factors” in determining the appropriate administrative action in response to an apparent violation and the amount of any civil monetary penalty. [FN/21] On June 22, 1016 BIS adopted its version of the administrative guidelines [FN/22] for violations under the EAR (the “BIS Guidelines”) which are modeled on and similar to the OFAC Guidelines. [FN/23] The methodology for calculating penalties for Customs violations under 19 USC §1592 is set forth at 19 USC §1592(c).
 
Successor Liability
. One often overlooked source of export violations is through the merger/acquisition process. If a company acquires a target company in an acquisition and the target company had an export violation prior to the acquisition, the acquiring company can be found liable for the preexisting violation in certain instances. This includes even if the target company was acquired through the purchase of assets (as compared to the purchase of stock or a merger). (See Acquirer Can Be Liable For Export Control Violations of Acquired Company). [FN/24] Acquirers should conduct thorough due diligence reviews for export violations prior to the acquisition of another company – if problems are discovered these can often be resolved through voluntary disclosures filed prior to the closing. If problems are not discovered until after the closing, this creates more complex issues and the acquirer will want to move quickly to attempt to reduce the potential impact on the combined businesses. [FN/25]
 
Compliance Programs
. A major factor considered by each of the export agencies and Justice in assessing liability and the amount of penalties is the existence and adequacy of an export compliance program.
 
(4) Considering A Voluntary Self-Disclosure
 
If you determine that a violation has occurred, you may consider submitting a voluntary self-disclosure. Each of DDTC, BIS, OFAC and Customs has procedures for voluntary self-disclosures and, as discussed below, Justice recently announced a program for parties to submit voluntary self-disclosures for criminal violations of export laws.
 
The decision regarding whether to submit a voluntary self-disclosure is a complex legal question. Export control officials have frequently stated publicly that if a company submits a voluntary disclosure, this can reduce the likelihood of a criminal referral to Justice and often results in reduced or no penalties. As such, a voluntary self-disclosure can be helpful in minimizing the impact of a violation. However a review of the major enforcement cases reveals that many of the major cases initiated by DDTC, BIS and OFAC originated through voluntary disclosures. In addition, companies surrender valuable legal rights in this process. Consequently a company must use care is assessing whether to use a voluntary self-disclosure for a particular situation.
 
The advantages of voluntary self-disclosures include:
 
  – The company could receive a favorable resolution of the violation, including reduced penalties (such as provided under the OFAC and BIS Penalty Guidelines) and in some cases no penalties at all.
  – It reduces the likelihood of the agency referring the matter to Justice for criminal prosecution.
  – It provides the opportunity for your company to tell its side of the story and introduce favorable information such as mitigating factors and corrective steps that the company has taken since the violation.
 
The disadvantages include:
 
  – The company likely waives the attorney-client privilege that might otherwise protect a communication for any such communications that are shared with the government and waives work product protection for work product that is shared;
  – The company loses confidentiality of sensitive information;
  – In most cases the company is admitting that it committed a violation with no assurance that the government will respond favorably;
  – While the company may become entitled to favorable treatment in penalty calculations such as under the OFAC and BIS Enforcement Guidelines, the agency can still proceed with a civil enforcement action and/or impose penalties, especially in egregious cases;
  – The agency can still refer the matter to Justice for criminal prosecution, especially in egregious cases.
 
In most cases, to receive the benefits of the disclosure it must be submitted before the U.S. government learns about the violation. If you submit the disclosure and the government already knows about the violation in question, you have the double problem of possibly losing the protection of the disclosure while having just informed the government about the wrongful actions of your company.
 
Mandatory Disclosures
. In certain instances disclosure of a violation is a mandatory requirement, such as for transactions subject to ITAR: engaging in transactions, submitting marketing proposals or engaging in brokering activity with a “proscribed country” listed in ITAR §126.1, or failing to return ITAR-controlled items to the U.S. that were temporarily exported pursuant to 22 CFR §123.17 (c), (f), or (i). [FN/26]
 
Department of Justice Program For Voluntary Self-Disclosures For Criminal Export Violations
. As referenced above, on October 2, 2016 the Justice National Security Division issued guidance that companies would be permitted to submit voluntary self-disclosures directly to Justice for criminal violations of the export control laws (the “DOJ Guidance”). If a filing company met the requirements under the DOJ Guidance, it may become eligible for “significantly” reduced penalties including “the possibility of a non-prosecution agreement (NPA), a reduced period of supervised compliance, a reduced fine and forfeiture and no requirement for a monitor.” [FN/27] This creates the significant benefit of potentially reducing criminal penalties for a violation, but makes the assessment of filing voluntary self-disclosures more complex. As referenced above, under the traditional practice companies often submitted initial voluntary disclosures to the civil agencies followed up by final disclosures sixty days later, and the agencies have the discretion to refer criminal matters to Justice during this period. With the announcement of the new program, companies must now consider early in the process if they will also file a voluntary self-disclosure with Justice concurrently with filing the initial voluntary disclosures with the civil agencies.
 
(5) Responding To Requests For Information
 
In many trade cases, the activity begins when an agency issues a request for information to your company. This can range from a routine administrative inquiry to a more formal subpoena or other request as part of an investigative process. The agencies have various methods of requesting information in connection with export and import activities. For example, DDTC often issues “directed disclosures” requesting the company to answer questions or submit documents. OFAC may issue an administrative subpoena, often in letter form, and BIS may issue a request for production of records under 15 CFR §762.7. Customs can issue an informed compliance letter, Request For Information (CBP Form 28), Notice of Action (CBP Form 29) and other types of documents. The U.S. Attorney can issue a Subpoena To Testify Before A Grand Jury.
 
Regardless of the form, however, a request from the government is a significant event and must be dealt with properly. The following are a number of points to consider in responding:
 
  – Responding to such requests is usually mandatory (subject to the rights of respondents to object to disclosures for permitted reasons discussed below) and responses must be submitted within the time periods specified in the request. Failure to respond can result in additional violations, waiver of rights and additional penalties. [FN/28]
 
  – Responses must be accurate, truthful and complete. Submission of information that is not truthful can lead to other violations, often more significant than the underlying request, and in certain cases result in criminal penalties.
 
  – Some requests may appear to be routine administrative inquiries, but the company should bear in mind that any information submitted can be used by the agency to prove wrongdoing by the company or lead to a more serious investigation. The company should use great care in reviewing information before submitting it to the government and take advantage of rights to object to disclosure of information for which there is a legal basis to do so.

  – It may be possible to request a narrowing of the scope of the request, for example to cover a shorter time period or more limited categories of documents, especially if you can show that the materials requested are irrelevant to the investigation, that production creates unnecessary hardship to the respondent and/or will require unnecessary use of the government’s resources to review. However granting such requests is subject to the discretion of the requesting agency. Any agreement to narrow or otherwise amend the scope of the request should be confirmed in writing with the agency.
 
  – Parties typically have the right to object to producing documents that are protected by privileges such as the attorney-client privilege and the attorney work product doctrine. Companies should work with their counsel to review information requested to identify materials that may be subject to privileges. Of course, disclosure of such materials in most cases will constitute a waiver of the applicable privilege. (See Section 2 above regarding instances in which the attorney-client privilege might not be available for in-house corporate counsel.)
 
  – If the request requires review of a large amount of electronic documents, the requesting agency may agree to an automated search of documents using electronic search techniques and search terms agreed to between the parties.
 
  – Parties should use care not to destroy evidence. For example, EAR §762.6 provides that the required period of retention of records is 5 years from triggering events, however EAR §762.6(b) provides that if a party receives a BIS request for the production of documents, the recipient is prohibited from destroying or disposing of records even for a period of time that exceeds the five-year retention period.
 
  – You can ask the agency if your company is a target of the investigation or if the agency is merely collecting evidence in its investigation of another party. In some instances the agency may inform you if your company is a target of the investigation. However if you are told that your company is not a target, you should recognize that information submitted can nonetheless be used to prove a violation by your company or lead to your company eventually becoming a target of the investigation.
 
  – There are mandatory recordkeeping requirements by DDTC, BIS, OFAC and Customs29 and the company must have these records available to produce to the agencies if requested. If the company takes too long to collect and produce its records in response to a request for information, this could result in additional violations for failure to comply with the export or import recordkeeping requirements.
 
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  [FN/1] See author’s details above.
  [FN/2] You should consider putting this advice to employees in writing. This is frequently referred to as a “litigation hold notice,” “preservation letter” or “stop destruction request.”
  [FN/3] See 18 USC §1519.
  [FN/4] See Upjohn Co. v. United States, 449 U.S. 383 (1981).
  [FN/5] This covers false classifications of quality or value, entry of goods by paying less that the amount of duty legally due, and similar violations.
  [FN/6] See 18 USC §1519. See also 18 U.S.C. §371 (conspiracy), 18 U.S.C. §1001 (false statements), 18 U.S.C. §§1341, 1343, and 1346 (mail and wire fraud) and 18 U.S.C. §§1956 and 1957 (money laundering).
  [FN/7] See, eg., Epsilon Electronics, Inc. v. U.S. Department of the Treasury, Office of Foreign Assets Control, et al., 168 F.Supp.3d 131 (D.C. 2016).
  [FN/8] These are the Arms Export Control Act (22 USC Chapter 39 (§§2751-2799aa-2)), the statutory authority for the International Traffic In Arms Regulations, and the International Emergency Economic Powers Act (50 USC §§ 1701-1707), the statutory authority for the Export Administration Regulations and many of the U.S. Sanctions Programs.
  [FN/9] §1705(c) of IEEPA provides that “a person who willfully commits, willfully attempts to commit, or willfully conspires to commit, or aids or abets in the commission of, an unlawful act described in subsection (a) of this section shall, upon conviction, be fined not more than $1,000,000, or if a natural person, may be imprisoned for not mere than 20 years, or both.” This section was amended in October 2007 under the International Emergency Economic Powers Enhancement Act to increase the applicable penalties under this section. §2778(c) of the AECA provides: “Any person who willfully violates any provision of this section, section 2779 of this title, a treaty referred to in subsection (j)(1)(C)(i), or any rule or regulation issued under this section or section 2779 of this title, including any rule or regulation issued to implement or enforce a treaty referred to in subsection (j)(1)(C)(i) or an implementing arrangement pursuant to such treaty, or who willfully, in a registration or license application or required report, makes any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading, shall upon conviction be fined for each violation not more than $1,000,000 or imprisoned not more than 20 years, or both.”
  [FN/10] United States v. Bishop, 740 F.3d 927 (4th Cir. 2014).
  [FN/11] The court stated: “Under the standard of willfulness described above, [the defendant’s] true belief as to the illegality of transporting the [article subject to control] is sufficient to establish culpability under the AECA even if unaccompanied by knowledge of the contents of the USML.” Id. p. 935.
  [FN/12] Bryan v. United States, 524 U.S. 184 (1998).
  [FN/13] See for example United States v. Hsu, 364 F.3d 192, 198 n.2 (4th Cir. 2004); United States v. Roth, 628 F.3d 827 (6th Cir., 2011) (“[S]ection 2778(c) does not require a defendant to know that the items being exported are on the Munitions List. Rather, it only requires knowledge that the underlying action is unlawful.”; United States v. Tsai, 954 F.2d 155, 162 (3d Cir. 1992) (“If the defendant knew that the export was in violation of the law, we are hard pressed to say that it matters what the basis of that knowledge was.”); and United States v. Murphy, 852 F.2d 1, 7 (1st Cir. 1998) (upholding a jury instruction that “made clear that conviction [under the AECA] would not require evidence that defendants knew of the licensing requirement or were aware of the munitions list.”). But see United States v. Gregg, 829 F.2d 1430, 1437 n. 14 (8th Cir. 1987) in which the court interprets willfully to require that a defendant knew that the underlying exported items were on the Munitions List.
  [FN/14] See Department of Justice Guidance Regarding Voluntary Self-Disclosures, October 2, 2016 (the ” DOJ Guidance”) p. 4, note 5. The DOJ Guidance provides: “Under Bryan, an act is willful if done with the knowledge that it is illegal. The government, however, is not required to show the defendant was aware of the specific law, rule, or regulation that its conduct may have violated.”
  [FN/15] Which deal with violations including false classifications, making false statements in import transactions and duty evasion.
  [FN/16] Some courts have held, however, that statements that are merely “recklessly” made meet the standard for violations of §542. See eg. United States v. Bagnall et al., 907 F.2d 432 (3rd 1990).
  [FN/17] For example, in United States v. Wolff et al, No. 08-CR-00417, indictment filed (N.D. Ill Aug. 31, 2010), a food company and ten individual executives were indicted for import violations in the evasion of payment of approximately $80 million of antidumping duties on Chinese-origin honey. See also United States v. Chen (N.D. Ga 2012) and United States v. Chavez, et al. (SD Cal. 2012). In a related development, in 2016 Congress enacted the Trade Facilitation and Trade Enforcement Act of 2015 which expanded enforcement authority for Customs in import violations. Separately, the Department of Justice has recently been bringing civil actions for import violations under the False Claims Act., which can result in higher penalties than traditional the Customs
enforcement mechanism and a lower standard of proof than criminal cases.
  [FN/18] Under the BIS and OFAC Enforcement Guidelines, “Awareness of Conduct at Issue” is a factor to be considered by the agency in assessing penalties, ie, if a respondent had knowledge or reason to know that the conduct constituted a violation, this would justify a higher penalty amount. However it generally is not a mandatory element to prove knowledge or reason to know in order for a violation to exist. The BIS Enforcement Guidelines provide: “Generally, the greater a Respondent’s actual knowledge of, or reason to know about, the conduct constituting an apparent violation, the stronger the OEE enforcement response will be. In the case of a corporation, awareness will focus on supervisory or managerial level staff in the business unit at issue, as well as other senior officers and managers.” Among the factors OEE may consider in evaluating the Respondent’s awareness of the conduct at issue are actual knowledge, reason to know, and management involvement. See Guidance On Charging and Penalty Determinations In Settlement of Administrative Enforcement Cases, 15 CFR Part 766 Supplement No. 1, Sec. III.
  [FN/19] See 19 USC §1592(a).
  [FN/20] See 31 CFR Part 501 Appendix A.
  [FN/21] To calculate the penalty, OFAC will first determine if the case is “egregious” or “non-egregious,” and then calculate a base penalty amount based upon the transaction value and whether the respondent submitted a voluntary self-disclosure. The base penalty amount will then be adjusted to reflect the applicable General Factors to produce OFAC’s final proposed civil penalty. See OFAC Guidelines, 31 CFR Part 501 Appendix A.
  [FN/22] See BIS Guidance on Charging and Penalty Determinations in Settlement of Administrative Enforcement Cases, 15 CFR Part 766 Supplement No. 1.
  [FN/23] The BIS process includes determining a base penalty amount, adjusting this amount by aggravating and mitigating factors, assessing whether the violation is egregious, determining the presence and adequacy of an export compliance program and whether the respondent submitted a voluntary self-disclosure. The BIS Guidelines do not apply to cases involving violations of Part 760 of the EAR – Restrictive Trade Practices or Boycotts, but rather Part 766 Supplement No. 2 of the EAR apply to such cases.
  [FN/24] See In the Matter of Sigma-Aldrich Business Holdings, Inc.
  [FN/25] The BIS Publication “Don’t Let This Happen To You” provides the following regarding export liability from acquisition transactions: “Businesses can be held liable for violations of the EAR committed by companies that they acquire. Businesses should be aware that the principles of successor liability may apply to them and should perform “due diligence” in scrutinizing the export control practices of any companies that they plan to acquire. A properly structured due diligence review can determine whether an acquired company has violated any
export laws. This review should examine the company’s export history and compliance practices, including commodity classifications, technology exchanges, export licenses and authorizations, end-users, end-uses, international contracts, the status of certain foreign employees who have access to controlled technologies, and the company’s export policies, procedures, and compliance manuals. Voluntary self-disclosures should be submitted outlining any violations that this review uncovers, if not by the company responsible, then by the company seeking to acquire it. Failure to scrutinize properly an acquired company’s export practices can lead to liability being imposed on the acquiring company.” The case of C.A. Litzler Co., Inc. (page 51) demonstrates the importance of conducting due diligence reviews during the acquisition of a company, or in this particular case, the acquisition of a substantial portion of a company’s assets. See p. 19.
  [FN/26] See 22 CFR §§ 126.1(e)(2) and 123.17(j).
  [FN/27] Under the DOJ Guidance, to receive the benefits of a voluntary self-disclosure, the submission must be made on a timely basis, must disclose all of the relevant facts and must be submitted “prior to an imminent threat of disclosure or government investigation.” (citing U.S.S.G. §8C2.5(g)(1)). In addition, the Guidance provides that the submitting party must provide proactive cooperation to Justice in its investigation of the matter and timely and appropriate remediation. If a company meets these criteria, the company can may become eligible for “a significantly reduced penalty, to include the possibility of a non-prosecution agreement (NPA), a reduced period of supervises compliance, a reduced fine and forfeiture and no requirement for a monitor.” DOJ Guidance p. 8. The DOJ Guidance does not set forth specific levels of relief that will be afforded as in the OFAC and BIS Enforcement Guidelines, but rather states that the ultimate resolution will be determined based upon on an evaluation of the totality of the circumstances in a particular case. If more aggravating circumstances are present, a more stringent resolution will be required. The DOJ Guidance states: “Nevertheless, the company would still find itself in a better position than if it had not submitted a VDS, cooperated, and remediated.” Guidance, p. 9.
  [FN/28] It may be possible to obtain an extension of time in which to respond to the request, however there is no assurance that the agency will agree to this so you should submit your extension request early and be prepared in case the request is denied. In addition, while a short extension may be granted, longer extensions are more difficult to obtain. 29 These typically require exporters and importers to maintain records of export and/or import transactions for a five year period and longer in certain instances.

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ENEDITOR’S NOTES

* Alice Cary (26 Apr 1820 – 12 Feb 1871, was an American poet, and the sister of fellow poet Phoebe Cary.)
  – “There’s nothing so kingly as kindness, and nothing so royal as truth.”   

* Ludwig Wittgenstein (Ludwig Josef Johann Wittgenstein (26 Apr 1889 – 29 Apr 1951, was an Austrian-British philosopher. His voluminous manuscript, Philosophical Investigations, were edited and published posthumously, and have since come to be recognized as one of the most important works of philosophy in the twentieth century.)

  – “A serious and good philosophical work could be written consisting entirely of jokes.”
  
  – 
“Our greatest stupidities may be very wise.”
   

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EN_a317
. Are Your Copies of Regulations Up to Date?
(Source: Editor)

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

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

* EXPORT ADMINISTRATION REGULATIONS (EAR): 15 CFR Subtit. B, Ch. VII, Pts. 730-774 
  – Last Amendment: 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 is Bartlett’s Annotated ITAR (“BITAR”), by James E. Bartlett III. The BITAR contains all ITAR amendments to date, plus a large Index, over 750 footnotes containing case annotations, practice tips, DDTC guidance, and explanations of errors in the official ITAR text.  Subscribers receive updated copies of the BITAR in Word by email, usually revised within 24 hours after every ITAR amendment.  The BITAR is available by annual subscription from the Full Circle Compliance website.  BAFTR subscribers receive a 25% discount on subscriptions to the BITAR, please contact us to receive your discount code.

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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 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 of this newsletter 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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