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17-0427 Thursday “Daily Bugle”

17-0427 Thursday “Daily Bugle”

Thursday, 27 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. DHS/CBP Deploys New Enhancements to the SO Bill Deleted Disposition 
  4. DHS/CBP Deploys New Functionality into Cargo Release Transaction 
  5. DHS/CBP Posts Harmonized Systems Update 1703 
  6. State/DDTC: (No new postings.) 
  7. German BAFA Publishes Export Control Newsletter 
  1. Dallas News: “Huawei’s Plano Office Responds to NYT Report About Investigation into Smartphone Maker’s Sales to Iran, Syria, Others” 
  2. The Guardian: “Gas Producers Attack Export Controls as Industrial Users Cheer ‘Bold’ Changes” 
  3. Reuters: “Sanctions Short-Circuit Russia’s Electricity Plans For Annexed Crimea” 
  1. M. Volkov: “Compliance is Not “Rocket Science”” 
  2. S. Kovarovics & B. Gevers: “Voluntary Disclosures: Whether, When and To Whom-US and EU Perspectives – Part II: When to Disclose” 
  3. T. McVey: “Dealing With Violations In Export And Import Transactions – Part II” 
  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 (26 Apr 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)
* Energy Department; NOTICES; Authorizations to Export or Import of Natural and Liquefied Natural Gas Talisman Energy USA Inc.., et al. [Publication Date: 28 April 2017.]
 
* Foreign Assets Control Office; NOTICES; Blocking or Unblocking of Persons and Properties [Publication Date: 28 April 2017.] 

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

(Source: Commerce/BIS

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OGS_a33.

DHS/CBP Deploys New Enhancements to the SO Bill Deleted Disposition

(Source:
CSMS# 17-000243, 27 April 2017.)
 
Automated Broker Interface
 
On April 27, 2017, CBP deployed new enhancements to provide more accurate information in the status notification message. As part of the enhancements two dispositions “93: BILL DELETED AFTER ARRIVAL” and “92: BILL DELETED” will be sent when a bill is deleted. Previously, a “91: NO BILL MATCH” was sent when a bill was deleted.

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OGS_a44.

DHS/CBP Deploys New Functionality into Cargo Release Transaction

(Source:
CSMS# 17-000242, 27 April 2017.)
 
New ACE Programming
 
On April 27, 2017, CBP deployed new functionality into the Cargo Release transaction: an optional Perishable Goods Indicator (PER). The purpose of this indicator is to provide the Trade filer the opportunity to electronically mark the Cargo Release submission as covering perishable merchandise. The presence of the PER indicator enables the CBP system to bring the shipment to the attention of CBP in the Port of Entry as “PERISHABLE”
 
When the Trade filer opts to submit the Perishable Goods Indicator, he does so as follows:
 
  – Submit “PER” in the SE20 record, Positions 5-7, Reference Identifier Qualifier.
  – Submit “Y” in the SE20 record, Positions 8-57, Reference Identifier. {input is left justified}
 
PER, Perishable Goods Indicator, is always optional. When the Reference Identifier Qualifier is PER, the Reference Identifier must always be a “Y” to indicate that this cargo release filing is for merchandise which is perishable.
 
Please note that the submission of this indicator has no effect on the system processing of the Cargo Release transaction and its presence does not append or supersede existing CBP policy with respect to the handling of perishable shipments.
 
CBP will make an updated version of the ACE Cargo Release CATAIR.

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OGS_a55
.

DHS/CBP Posts Harmonized Systems Update 1703

(Source:
CSMS #17-000236, 26 Apr 2017)
 
Harmonized System Update (HSU) 1703 was created on April 24, 2017 and contains 2,512 ABI records and 395 harmonized tariff records.
 
Modifications include agency requested PGA indicator changes made to support the PGA message set functionality. 
 
Adjustments required by the verification of the 2017 Harmonized Tariff Schedule (HTS) are also included. 
 
The modified records are currently available to all ABI participants and can be retrieved electronically via the procedures indicated in the CATAIR.  For further information about this process, please contact your client representative. 
 

For all other questions regarding this message, please contact Jennifer Keeling via email at Jennifer.L.Keeling@cbp.dhs.gov

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OGS_a77.

German BAFA Publishes Export Control Newsletter

 
The Information Service of the German Federal Office for Economic Affairs and Export Control (BAFA) has published the latest issue (April 2017) of its Export Control Newsletter.  The content of the newsletter is included below.
 
EUROPEAN LAW / EMBARGO MEASURES
 
Afghanistan
 
In accordance with the Council Implementing Regulation (EU) 2017/404 of 7 March 2017 (OJ L 63 of 9.3.2017, page 20) implementing Article 11 (4) of Regulation (EU) No. 753/2011 concerning restrictive measures directed against certain individuals, groups, undertakings and entities in view of the situation in Afghanistan, one person was removed from the list in Annex I to Regulation (EU) No. 753/2011 and the information related to the persons and entities was updated.
 
The amendment implements the resolution adopted by the United Nations Security Council Committee on 12 January 2017.
 
Guinea-Bissau
 
The Council Implementing Regulation (EU) 2017/403 of 7 March 2017 (OJ L 63 of 9.3.2017, page 15) implementing Article 11(1) of Regulation (EU) No 377/2012 concerning restrictive measures directed against certain persons, entities and bodies threatening the peace, security or stability of the Republic of Guinea-Bissau updated the information concerning 11 persons subject to restrictive measures.
 
Iraq
 
With the Commission Implementing Regulation (EU) 2017/441 of 13 March 2017 (OJ L 67 of 14.3.2017, p. 78) amending Council Regulation (EC) No. 1210/2003 concerning certain specific restrictions on the economic and financial relations with Iraq, one entry was removed from the list of persons and entities to whom the freezing of funds and economic resources applies in Annex III to Regulation (EC) No. 1210/2003.
 
The amendment implements the resolution adopted by the Sanctions Committee of the United Nations Security Council on 8 March 2017.
 
Democratic Republic of Congo
 
The Council Implementing Regulation (EU) 2017/396 of 7 March 2017 (OJ L 60 of 8.3.2017, p. 9) amending Article 9 (5) of Regulation (EC) No. 1183/2005 imposing certain specific restrictive measures directed against persons acting in violation of the arms embargo with regard to the Democratic Republic of the Congo updated the identifying information related to 30 persons and nine entities listed in Annex I to Regulation (EC) No. 1183/2005.
 
The amendment implements the Resolution adopted by the United Nations Security Council Committee on 12 January 2017.
 
North Korea
 
The Council Regulation (EU) 2017/330 of 27 February 2017 (OJ L 50 of 28.2.2017, page 1) amending Regulation (EC) No. 329/2007 concerning restrictive measures against the Democratic People’s Republic of Korea provided for new restrictive measures. These include an import ban for copper, nickel, silver, zinc and statues from North Korea, and an export ban for helicopters and vessels to North Korea; in addition the prohibitions in the transport sector are tightened and new restrictions are imposed on the bank and real-estate sector.
 
Zimbabwe
 
The Council Regulation (EU) 2017/284 of 17 February 2017 (OJ L 42 of 18.2.2017, page 1) amending Regulation (EC) No. 314/2004 concerning certain restrictive measures in respect of Zimbabwe introduced a derogation from the prohibition on the sale, supply, transfer and export of equipment which might be used for internal repression in order to enable the authorisation of certain explosives and related equipment, where appropriate, for the purposes of civilian use in mining or infrastructure projects.
 
Somalia
 
The Council Implementing Regulation (EU) 2017/395 of 7 March 2017 (OJ L 60 of 8.3.2017, page 1) implementing Article 13 of Regulation (EU) No. 356/2010 imposing certain specific restrictive measures directed against certain natural or legal persons, entities or bodies, in view of the situation in Somalia updated the information relating to 12 persons and one entity subject to restrictive measures.
 
The amendment implements the resolution adopted by the United Nations Security Council Committee on 12 January 2017.
 
South Sudan
 
The Council Implementing Regulation (EU) 2017/402 of 7 March 2017 (OJ L 63 of 9.3.2017, page 7) implementing Article 20 (3) of Regulation (EU) 2015/735 concerning restrictive measures in respect of the situation in South Sudan updated the information related to six individuals subject to restrictive measures.
 
The amendment implements the resolution adopted by the Sanctions Committee of the United Nations Security Council on 12 January 2017.
 
Sudan
 
The Council Implementing Regulation (EU) 2017/401 of 7 March 2017 (OJ L 63 of 9.3.2017, page 3) implementing Article 15 (3) of Regulation (EU) No. 747/2014 concerning restrictive measures in view of the situation in Sudan updated the information related to four individuals subject to restrictive measures.
 
The amendment implements the resolution adopted by the United Nations Security Council Committee on 12 January 2017.
 
Syria
 
In accordance with the Council Implementing Regulation (EU) 2017/480 of 20 March 2017 (OJ L 75 of 21.3.2017, page 12) implementing Regulation (EU) No. 36/2012 concerning restrictive measures in view of the situation in Syria, four individuals were added to the list in Annex II to Regulation (EU) No. 36/2012.
 
Ukraine – Restrictive measures in view of the situation in Ukraine
 
In accordance with the Council Implementing Regulation (EU) 2017/374 of 3 March 2017 (OJ L 58 of 4.3.2017, page 1) implementing Regulation (EU) No. 208/2014 concerning restrictive measures directed against certain persons, entities and bodies in view of the situation in Ukraine, the entry related to one person listed in Annex I to Regulation (EU) No. 208/2014 was deleted.
 
Ukraine – Measures in view of threats to the territorial integrity of Ukraine
 
In accordance with the Council Implementing Regulation (EU) 2017/437 of 13 March 2017 (OJ L 67 of 14.3.2017, page 34) implementing the Regulation (EU) No. 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, the entries for two persons on the list of natural and legal persons, entities and bodies subject to restrictive measures in Annex I to Regulation (EU) No. 269/2014 are deleted and the other entries are updated.
 
Belarus
 
The Council Regulation (EU) 2017/331 of 27 February 2017 (OJ L 50 of 28. 2.2017, page 9) amending Regulation (EC) No. 765/2006 concerning restrictive measures in respect of Belarus exempted rifles and related equipment that are intended exclusively for use in biathlon events and training from the export ban to Belarus.
 
Central African Republic
 
The Council Regulation (EU) 2017/400 of 7 March 2017 (OJ L 63 of 9.3.2017, page 1) amending Regulation (EU) No. 224/2014 concerning restrictive measures in view of the situation in the Central African Republic amended the decisive designation criteria for the inclusion of individuals in the list of persons subject to asset freeze.
 
The decision implements Resolution 2339 (2017) adopted by the United Nations Security Council on 27 January 2017.
 
Al Qaida and ISIL (Da´esh)
 
In accordance with the Commission Implementing Regulations (EU) 2017/296 of 20 February 2017 (OJ L 43 of 21.2.2017, p. 205) and (EU) 2017/326 of 24 February 2017 (OJ L 49 of 25.2.2017, p. 30) amending for the 260th and 261st times Regulation (EC) No. 881/2002 imposing certain specific restrictive measures directed against certain persons and entities associated with the ISIL (Da´esh) and Al-Qaida organisations, four entries are amended and four persons were added to the list set out in Annex I to Regulation (EC) No. 881/2002.
 
The amendments implement the resolutions adopted by the Sanctions Committee of the United Nations Security Council on 15 and 22 February 2017.

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NWSNEWS

NWS_a18.

Dallas News: “Huawei’s Plano Office Responds to NYT Report About Investigation into Smartphone Maker’s Sales to Iran, Syria, Others”

(Source:
Dallas News) [Excerpts.]
 
Chinese cell phone maker Huawei — which has its U.S. headquarters in Plano — is the target of a widening U.S. investigation,
according to The New York Times.
 
American officials are investigating whether the company violated 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 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.
 
Huawei had
received another subpoena this summer from the U.S. Department of Commerce, which oversees sanctions and exports of technology. The subpoena was sent to the Chinese company’s U.S. headquarters in Plano. It requested all information about the potential export or re-export of American technology to Cuba, Iran, North Korea, Sudan and Syria, according to the New York Times report.
 
Huawei is the third largest smartphone maker after Samsung and Apple, and its executives have ambitions to surpass them. But the company has not been able to crack into the U.S. market. It has, however, expanded to markets like Syria that have shaky relations with the U.S. Those business deals have caught the attention of U.S. investigators. … 

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NWS_a29.

The Guardian: “Gas Producers Attack Export Controls as Industrial Users Cheer ‘Bold’ Changes”

(Source: 
The Guardian) [Excerpts.]
 
[Australian] Gas producers have labeled the government’s imposition of export controls an “almost unprecedented” sovereign risk that threatens investment in gas production that would increase supply.
 
But Australian industrial gas users, represented by the Australian Industry Group, have cheered the “bold” changes to secure domestic supply.
 
Malcolm Turnbull initially said gas prices should halve as a result of new export restrictions announced on Thursday but was forced to clarify that wholesale prices may halve but retail prices paid by households would not.
 
Under the plan the government would gain a power to impose a limit on exports, acting on advice from the Australian Energy Market Operator and the competition regulator that a shortage existed.
 
The Australian Petroleum Production and Exploration Association chief executive, Malcolm Roberts, said that the move was “almost unprecedented for Australia”.
 
  “At a time when we need billions in new investment to create more gas supply, any intervention which creates sovereign risk is alarming.” … 

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NWS_a310.

Reuters: “Sanctions Short-Circuit Russia’s Electricity Plans For Annexed Crimea”

 
Russia’s $1.3 billion plan to build two new power plants in Crimea aimed to show that Moscow could complete high-tech projects on the annexed peninsula despite Western technology sanctions.
 
But two years after its approval, the plan, which would supply Crimea’s residents with power they once got from Ukraine, has been knocked off course by an obstacle thrown up by the same sanctions, four sources familiar with the plans told Reuters.
 
The plants were designed to house gas turbines made by a unit of Siemens. But the German engineering firm risks violating sanctions if it delivers them. With no turbines, the project faces delays, the sources said. Siemens officials have always said there were no plans to supply the turbines.
 
Russia explored buying turbines from Iran, changing the design to accommodate Russian-made turbines and using Western-designed turbines already in Russia. Each alternative had problems, the sources said, leaving officials and managers unable to agree on how to move forward.
 
The saga shows that the sanctions are having a real impact on Russia, despite official protestations. It also shines a light on decision-making under President Vladimir Putin and the tendency, according to people close to the Kremlin, to make grand political promises that are near-impossible to implement.
 
  “The power stations were designed for Siemens turbines,” said Alexei Chaliy, a Crimea lawmaker who in 2014 was one of the two most senior local officials under Moscow’s de facto rule.
 
  “In 2014 I warned there would be problems. Over the past 20 years, Russia has lost the ability to produce turbines of that capacity. And so it ended badly.”
 
  “They have started to build the power stations … but there are no turbines.”
 
A Reuters reporter visiting the site of one of the two new power stations, near the city of Sevastopol, in February and March, saw the metal frames of several structures already erected, and cranes and dozens of workers building the main hall for the turbines.
 
TIMETABLE SLIPPING
 
The Kremlin said it wanted the power stations partially operational by September and fully operational by March 2018. That is the anniversary of the Crimean annexation and the month when Russia votes in a presidential election. Putin is expected to run for a new term.
 
  “The timetable is going to slip, that’s totally certain,” the person said.
 
Russia’s energy ministry did not respond to a written request for comment.
 
European Union sanctions forbid the supply to Crimea of technology used in the energy sector. Policing EU sanctions is the responsibility of the bloc’s member states. The German government has said in the past that German firms flouting the sanctions face unspecified penalties.
 
The firm selected to build the power stations, Technopromexport, is controlled by Rostec, a state-owned conglomerate subject to U.S. sanctions.
 
The foundations of the two power plants were designed to accommodate 160-187 megawatts turbines which can deliver the 940 megawatts in extra electricity that Russia promised Crimea to end frequent power cuts.
 
The only Russian producer of such turbines is a Siemens joint venture in St Petersburg. Three sources said that Russian officials and people involved in the power plant project had concluded that, because of the sanctions, it was not possible to buy the Siemens turbines.
 
  “Siemens’ business policy is very clear: Siemens complies with all export control restrictions,” a Siemens spokesman said.
 
A Technopromexport spokesman said the timetable for completion was likely to slip, but that the delay was not caused by a problem with sourcing the turbines.
 
He said the delay was due to a decision to change some technical aspects of the project to make it more effective and environmentally-friendly.
 
  “All the technical decisions have already been taken,” the spokesman said in an emailed statement.
 
ALTERNATIVES
 
Two of the sources familiar with the project said that the energy ministry was exploring whether it could install 25-megawatt turbines made by ODK, part of the Rostec group.
 
The sources said there was no consensus on doing this and any decision would need to be swift.
 
“There is an option to re-do the design,” said one of the sources. “But it needs to be decided now,” before work on the sites gets too advanced.
 
Russian officials have said they are exploring buying large turbines from a country that does not support the sanctions. Rostec head Sergei Chemezov, an old friend of Putin’s, has said negotiations were underway with Iran.
 
However, two sources in the Russian engineering sector said that any large capacity turbines in Iran would either have been manufactured under license from a big global engineering firm, or bought from one of these big firms. Those firms might resist because of the sanctions risk.
 
A third option, voiced this month by Russian Energy Minister Alexander Novak, is to use Western-made turbines already in Russia which are lying idle.
 
A source in Russia’s power sector said it could be hard to find enough compatible turbines from a single manufacturer. Even if a full set was found the manufacturer would need to get them working — potentially falling foul of sanctions.
 
  “A person needs to come from the manufacturer with a thumb drive and a laptop to start it up,” said the source. “I cannot imagine how you can hide that.”

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COMMCOMMENTARY

COMM_a111.

M. Volkov: “Compliance is Not “Rocket Science””

(Source:
Volkov Law Group Blog. Reprinted by permission.)
 
* Author: Michael Volkov, Esq., Volkov Law Group,
mvolkov@volkovlaw.com, 240-505-1992.
 
In the compliance arena, like in many others in life, we value simplicity. I have repeatedly stressed the importance of compliance initiatives that are relatively simple. Too often, lawyers and compliance professionals confuse complexity with efficacy.
 
We can all spin together complex compliance controls that address every possible permutation of events, contingencies and possibilities. That is not the challenge. Compliance is a delicate balance between controls and risks.   Not every conceivable risk needs to be addressed by a detailed control.
 
The delicate balance in compliance focuses on effective strategies to mitigate risk. The effectiveness of a strategy depends on acceptance by managers and employees and their follow through on specific control requirements.
 
Two significant themes have to co-exist in an ethical compliance culture.
 
First, a company has to commit to adhere to specific values and principles – trust and integrity. Assuming that the company commits to conduct itself and promote such values, the foundation exists for building effective controls to reinforce the company’s culture.
 
Second, a company has to commit itself to creating, implementing and enforcing a set of compliance controls as part of its overall set of internal controls. These controls have to be clear, communicated throughout the company, and understood by everyone. As part of this overall framework, the company has to enforce these controls, adhere to them in its operational activities and make sure they are operating effectively.
 
I often hear from compliance professional that compliance is not “rocket science.” In a way, this is an ambiguous statement – what precisely does it mean?
 
My first reaction is to agree – yes, compliance is not rocket science, meaning it is not hard to figure out how to design and implement an effective compliance program. But there is more to the design of effective controls, or how to address a specific risk.
 
I have a different perspective on this issue. A CCO has to possess a number of important talents to bring about an effective compliance program, including creativity, intelligence, inter-personal skills, and leadership. Effective compliance, however, does not depend on the actions of one person, even the CEO. Effective compliance turns on an organization’s commitment that reflects the actions of key stakeholders and a consistent demonstration of such commitment.
 
While effective compliance programs do not require “rocket science,” they do require inter-dependent functions to coordinate and cooperate with each other. The inter-dependency of compliance functions is perhaps the most important aspect of a compliance program that needs to be viewed and understood from a macro-level all the way down to a micro-level understanding of specific controls and how they coexist.
 
While I may have garbled the last idea, my point is that compliance is a delicate operation requiring careful balances within an organization. Each culture and organizational framework is different. Once the landscape is understood, it is not so difficult (i.e. not “rocket science”) to envision an effective ethics and compliance program from this perspective.
 
In the end, compliance may be more difficult “in the doing” than it is in the “designing.” Common sense, inter-personal skills and leadership qualities are not something that appear out of thin air – compliance professionals have to possess those skills but more importantly understand how to use them to support and important organizational goal – effective compliance.

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COMM_a212.

S. Kovarovics & B. Gevers: “Voluntary Disclosures: Whether, When and To Whom-US and EU Perspectives – Part II: When to Disclose”

 
* Author: Susan Kovarovics, Esq., Brian Cave LLP,
susan.kovarovics@bryancave.com, +1-202-508-6132; Bert Gevers, Esq., Loyens & Loeff (Brussels),
bert.gevers@loyensloeff.com, +32-2-743-4343.
[Editor’s Note: This is the second part in a series of World Trade Controls Blog items on Voluntary Disclosures. Part I was included in the Daily Bugle of Friday, 31 March 2017, item #14.]
 
Once you have decided to do a voluntary disclosure, timing of the submission is an important consideration.
 
Under US export controls and trade sanctions regulations, the disclosure will count as a “voluntary disclosure” only to the extent that it is submitted to the relevant agency before the US government discovers the violation itself or has begun an investigation of the same or substantially similar matter.  Hence, it is important to consider not just whether to disclose, but when to do so.
 
Waiting until the entire investigation is complete may not be timely enough.  Some investigations can take many months and the risk of the government agency starting its own investigation may increase during that time.  Not to mention that if the matter at issue is particularly serious, notifying the relevant authorities sooner rather than later could enable them to mitigate some of the harm.
 
You likely do not want to disclose before you have a fairly high level of certainty that a violation did actually happen.  Let’s face it-it is hard to “unring” the bell if you file a voluntary disclosure about a matter thinking that a violation had occurred, only to discover as your investigation proceeds that there was, in fact, proper authorization for the activities at issue or the facts about what had actually happened were mistaken.  If you have already filed a voluntary disclosure, you would then find yourself having to convince the enforcement agency that the disclosure was just an exercise of caution and the company’s efforts to be a good corporate citizen, but, alas, there was no violation after all.  Sometimes that is not such an easy sell, particularly if the facts are complicated.
 
So finding the correct time in your investigation to disclose is critical.  Under the voluntary disclosure programs for export controls and trade sanctions, the relevant agencies permit parties to submit an initial notice of voluntary disclosure.  An initial notice of voluntary disclosure allows the party to inform the government that there is an issue prior to the party’s full internal investigation being completed. Hence, giving the party the opportunity to do a full investigation, while not having to fear that the government could start its own investigation in the meantime and the party would lose the mitigation benefits of the voluntary disclosure.   Upon determining with enough certainty that a violation did occur, but before conducting your complete investigation, consider submitting an initial notice of voluntary disclosure.
 
Upon completion of your investigation, you are still obligated to file a full disclosure report with the agency involved.  Timing for submission of the full disclosure report varies based on the regulations:  60 days under the ITAR, 180 days under the EAR and within a “reasonable period of time” under the various US sanctions programs.
 
As mentioned in Part 1 of these series most EU Member States (including Belgium, Netherlands and Luxembourg) do not provide any procedural requirements or guidance with respect to voluntary disclosures. Nevertheless the principle remains that a voluntary disclosure (and its mitigating effect) is no longer ‘voluntary’ once the competent regulator and/or enforcement agency has initiated an investigation. It is therefore indeed best to file the preliminary disclosure only at the moment that an  investigation shows that it is likely that a violation has occurred. In practice a (potential) violation is often discovered at the time of a due diligence investigation in the framework of an M&A or financing transaction. Under those circumstances the company has no choice to disclose as soon as possible or abandon the transaction.
 
Once the preliminary disclosure has been filed one could generally agree on the timing to submit the full disclosure and even then extensions are generally accepted. If the disclosure includes multiple jurisdictions, it is advisable to foresee sufficient time to prepare a coherent disclosure and to align submission dates. You only get one chance to make a good impression. 

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COMM_a313.

T. McVey: “Dealing With Violations In Export And Import Transactions – Part II”

(Source: Editor)
 
* Author: Thomas McVey, Esq.,
tmcvey@williamsmullen.com, +1 202-293-8118, Williams Mullen.
 
[Editor’s Note: The following is Part II of Thomas McVey’s article “Dealing With Violations In Export and Import Transactions”.  Part I of the article was included in the Daily Bugle of Wednesday, 26 April 2017, and is available
here
.]
 
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.
 
(6) Other Issues In Export and Import Enforcement Actions
 
Enforcement actions for export violations are different than those of many other federal agencies due to the special rights of the government based on national security and limited judicial review.  Customs cases also present specialized issues involving import administration, port security, border security and appeals to a specialized court.  Consequently the defense of these cases raises a number of unique and challenging issues. 
 
In the export area, each of the three export agencies has its own procedures for adjudicating civil enforcement cases. [FN/1]  For ITAR violations, the Office of Defense Trade Controls Compliance within DDTC has a highly specialized enforcement staff that conducts investigations and resolves many of its major civil enforcement cases through a negotiated settlement process.  BIS’ Office of Export Enforcement, on the other hand, maintains a broad enforcement operation including agents in eight field offices across the U.S. with authority to bear firearms, make arrests, execute search warrants, serve subpoenas, detain and seize goods and investigate both civil and criminal violations.  OFAC also has a highly specialized enforcement division engaged in investigations and administrative settlements. [FN/2]  The agencies rely on multiple investigative agencies and intelligence services for support, including the Federal Bureau of Investigation, Customs and Border Protection, Immigration and Customs Enforcement, Defense Criminal Investigative Service, Defense Security Service and various intelligence agencies.
 
If criminal export matters are referred to the Justice Department, such cases are typically handled by Justice’s National Security Division, Counterintelligence and Export Control Section.  In addition, individual U.S. Attorneys’ Offices often pursue criminal export control and sanctions prosecutions – some of these are in conjunction with agency enforcement actions while others are initiated independently by Justice or individual U.S. Attorneys’ offices. [FN/3]
 
The agencies also often consult with the Defense Technology Security Administration (“DTSA”) within the Defense Department to assess the potential injury to national security that has occurred as a result of an export violation.  The issue of injury to national security is one of the most important factors considered by the agencies in assessing the seriousness of an export violation.  In addition, the Export Enforcement Coordination Center, an interagency office directed by the Department of Homeland Security (“DHS”), coordinates the investigation and prosecution of export violations among intelligence and law enforcement agencies on a government-wide basis. [FN/4]
 
Customs has a more traditional adjudicative process for civil enforcement actions.  Customs serves multiple roles including enforcing U.S. import laws (such as merchandise classification, valuation, duty collection) as well as enforcing the regulations of over one hundred other federal agencies in import transactions. [FN/5]  Civil actions initiated by Customs are frequently brought under 19 USC§1592 (so-called “592 actions”) for entry of merchandise through fraud, gross negligence or negligence.  Such cases are initially adjudicated through an administrative process with appeal to the U.S. Court of International Trade and eventually to the U.S. Court of Appeals for the Federal Circuit.  If Customs is enforcing the laws of other agencies in the context of an import transaction (for example regulations administered by the Consumer Protection Safety Commission), such other agencies may bring enforcement actions directly or refer matters to the Department of Justice. [FN/6]
 
In some cases, one wrongful action or series of actions can result in violations of multiple sets of regulations.  This can result in a number of agencies conducting separate concurrent investigations of the same activity. [FN/7]  Also, if a company incurs a significant penalty for a compliance violation, this can be followed by a civil shareholder derivative suit against the company’s officers and directors for failure to properly supervise the company.  Investigations by multiple agencies and private parties can complicate the defense of an enforcement action – the company must deal with multiple agencies, sets of regulations and legal standards at the same time.  In attempting to resolve such cases counsel will often need to make complex decisions of whether to settle with one agency while other investigations continue, or wait to obtain a “global” resolution that includes all of the agencies involved.
 
Tolling of Statutes of Limitations.  As part of an investigation, the agency may ask if the company will enter a tolling agreement to extend the statute of limitations for violations that are the subject of the investigation.  This is a complex legal decision.  Statutes of limitations, of course, provide valuable rights to the company, especially if activities being reviewed in the investigation occurred prior to the time limit under the relevant statute.  However, in certain instances there may be benefits to the company for cooperating with the agency, including obtaining credit as a mitigating factor to reduce penalties.  Assessing the risks and benefits of tolling a statute of limitations is similar to assessing a voluntary disclosure – every case is different and the company should review the issue carefully with its counsel based upon the specific facts of its case.
 
Protection of Sensitive Information.  The agencies address protection of sensitive information in different ways.  For administrative proceedings under ITAR, 22 CFR §128.14 provides that proceedings under 22 CFR Part 128 are confidential except for items referenced in §128.14. [FN/8]  For proceedings under the EAR, 15 CFR §766.11(a) provides that the administrative law judge may limit discovery or introduction of evidence or issue protective orders to prevent undue disclosure of the sensitive information.  BIS is also permitted to withhold information from the respondent that is classified or sensitive. [FN/9]  If a case is adjudicated in a court (such as a criminal prosecution or a judicial appeal of an agency action) or an arbitration where there is a risk that sensitive information such as export-controlled technical data will be released to the public, courts can issue protective orders.  In addition, if there is a risk of disclosing export-controlled information to foreign nationals who are parties, witnesses or experts, the parties can apply to DDTC or BIS for a license or other authorization for such disclosure and the agencies will consider such request based upon the merits of the request.
 
Appeals and Judicial Review.  Each of the three export agencies has appeals procedures for reconsideration of lower agency determinations.  For example, under ITAR §128.13 parties have the right to appeal a determination by DDTC to the
 
Under Secretary of State for Arms Control and International Security.  Similarly, under the EAR §§766.21 and 766.22 parties have the right to appeal agency actions by BIS to the Under Secretary of Commerce for Export Administration.  (Appeals of OFAC determinations are discussed separately below.)  Many observers believe that a right of appeal to an Under Secretary of the agency bringing the enforcement action does not provide the same level of objectivity and independent review as an appeal to a more independent reviewer, and litigants should recognize this as they embark on this process.
 
The issue of judicial review of agency determinations in export cases is more complex in light of the national security, foreign affairs and emergency powers issues involved.  Under most areas of federal administrative law, parties are afforded significant rights of procedural protections and judicial review under the Administrative Procedure Act (“APA”). [FN/10]  However DDTC and BIS have attempted to shield themselves from the provisions of the APA – ITAR §128.1 provides that administration of the AECA is expressly exempt from various provisions of the APA, and EAR §766.1 has similar restrictive language. [FN/11]  Notwithstanding the absence of these protections, however, some litigants have found the opportunity to challenge the validity of DDTC and BIS actions in judicial fora, including challenges based upon the constitutionality of agency actions under the first, second and fifth amendments. [FN/12]
 
Appeals and judicial review of OFAC civil enforcement actions are addressed in multiple places throughout the OFAC sanctions regulations, including in regulations for a number of the individual sanctions programs.  See, eg, 31 CFR.§560.704 under the Iran Transactions and Sanctions Regulations.  While IEEPA, the enabling legislation for most of the sanctions programs, is silent on the issue of judicial review except for determinations based upon classified information, many of the OFAC regulations for IEEPA-authorized programs provide that the issuance by OFAC of a penalty notice constitutes a final agency action and respondents are entitled to judicial review of agency actions “in the federal district courts,” [FN/13] and lawsuits have been brought against OFAC in such courts. [FN/14]  (Appeals under the Cuban Assets Control Regulations under the Trading With the Enemy Act are subject to a different procedure set forth in 31 CFR §501.741 – see generally 31 CFR Part 501, Subpart D.)  It should be noted, however, that in judicial review of OFAC actions, courts have afforded great deference to the agency in light of the national security and foreign policy issues involved. [FN/15]
 
Appeals and judicial review of Customs civil enforcement cases for import violations are also resolved through a specialized process.  In such cases, parties are typically entitled to judicial review of agency determinations in the U.S. Court of International Trade (“CIT”), a specialized federal court that sits in New York, with appeals from the CIT to the U.S. Court of Appeals for the Federal Circuit.
 
(7) Personal Liability For Export and Import Violations
 
Individuals have long been subject to personal civil and criminal liability for violations of export laws.  See, for example, cases involving Timothy Gormley, [FN/16]  Peter Gromacki, [FN/17] LeAnne Lemeister, [FN/18] John Reese Roth, [FN/19] Mozaffar Khazaee, [FN/20] Guerman Goutorov and Eric Carlson, to name just a few.   In some instances the individuals were acting in their capacities as employees (Gormley) or officers (Goutorov and Carlson) of exporting companies, and in others they were acting alone (Gromacki).   In one instance the employee was a senior export compliance officer and empowered official of a major U.S. defense contractor (Lemeister).  Many of the cases against individuals are criminal prosecutions with significant financial penalties and prison sentences (Timothy Gromley was sentenced to 42 months imprisonment).  (See Corporate Officers Charged Personally For Export Violations).   
 
Individuals are also subject to personal liability for import violations in certain instances.  In one recent noteworthy case, United States v. Trek Leather, Inc. et al., the U.S. Court of Appeals for the Federal Circuit held that a company’s president can be personally liable for civil Customs violations under 19 USC §1592. [FN/21]  Similarly, many of the recent criminal prosecutions for Customs violations cited above have targeted individual officers and directors of importers.  See, eg., United States v. Wolff et al, (cited above).
 
In 2015, Deputy Attorney General Sally Yates issued the now famous “Yates Memorandum” directing federal prosecutors to focus on individuals personally involved in corporate wrongdoing in federal enforcement cases.  In the recent Volkswagen auto emissions case, involving the largest Customs penalty to date, six Volkswagen executives were also personally indicted and one arrested for their roles in the case, signaling that the Yates mandate to prosecute business executives personally would continue. [FN/22]  While at the time of this writing it is unclear if the Yates mandate will continue in the new Trump administration, regardless of the Yates policy it is expected that individuals will continue to be subject to personal liability for export and import violations as was the case prior to the Yates memorandum.  Consequently individuals should continue to use great care in their export/import compliance activities to protect both their organizations and themselves.
 
The above are just a number of the issues to consider in an enforcement situation and there may be additional issues depending on the facts of your case.
 
———
ENFORCEMENT LEGAL AUTHORITIES FOR EXPORT AND IMPORT VIOLATIONS OVERVIEW
 
The following are some of the principal enforcement legal authorities under U.S. export and import laws.
 
INTERNATIONAL TRAFFIC IN ARMS REGULATIONS
 
Enforcement Agency:
* Compliance, Registration and Enforcement Division, Office of Defense Trade Controls Compliance, Directorate of Defense Trade Controls, Department of State
 
Enforcement Legal Authority:
* Criminal:
  – §2778(c) of the Arms Export Control Act (“AECA”) (22 USC § 2778(c))
  – 22 CFR §127.3
 
* Civil:
  – §2778(e) of AECA (22 USC §2778(e))
  – 22 CFR §127.10 
 
Penalties
* Criminal:  Fines of up to $1 million and imprisonment of up to 20 years, or both, per violation
* Civil:  Civil monetary penalties of up to $500,000 per violation (as adjusted under Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 to $1,094,010 per violation)
 
Other Available Sanctions
* Statutory and administrative debarment, seizure, forfeiture and disposition of defense articles, vessel, vehicles and aircraft involved, under 22 USC §401
 
Investigative Agencies
* In addition to DTCC, multiple investigative agencies and intelligence services including Customs and Border Protection, Immigration and Customs Enforcement, Federal Bureau of Investigation, Defense Criminal Investigative Service, Defense Security Service and various intelligence agencies; the Defense Technology Security Administration (“DTSA”) also may be involved in assessing injury to national security
 
EXPORT ADMINISTRATION REGULATIONS
 
Enforcement Agency
* Office of Export Enforcement (“OEE”), Office of Enforcement Analysis (“OEA”) and Office of Antiboycott Compliance (“OAC”), Bureau of Industry and Security, Department of Commerce
 
Enforcement Legal Authority
* Criminal:
  – §206(c) of the International Emergency Economic Powers Act (22 USC §1705(c)), as amended by §2(a) of the International Emergency Economic Powers Enhancement Act. Note: The EAR was previously authorized by the Export Administration Act (“EAA”) but the EAA has expired and the EAR is currently authorized under IEEPA.
  – 15 CFR §764.3(b)
 
*Civil:
  – §206(b) of IEEPA (22 USC §1705(b))
  – 15 CFR §764.3(a)
  – See Also BIS Guidance On Charging and Penalty Determinations In Settlement of Administrative Enforcement Cases, 15 CFR Part 766 Supplement No. 1, and Guidance On Charging and Penalty Determinations In Settlement of Administrative Enforcement Cases Involving Antiboycott Matters, 15 CFR Part 766 Supplement No. 2 
 
Penalties
* Criminal:  Fines of up to $1 million and 20 years imprisonment, or both, per violation
* Civil:  Civil monetary penalties of the greater of $250,000 (as adjusted under Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 to $284,582 per violation) or an amount that is twice the amount of the transaction that is the basis of the violation with respect to the penalty imposed, per violation
 
Other Sanctions Available
* Denial of export privileges, seizure and forfeiture, exclusion from practice, cross-debarment and statutorily-mandated sanctions related to weapons proliferation. See 15 CFR §764.3
* Protective Administrative Measures under 15 CFR §764.6 including: license exemption limitations, revocation or suspension of licenses, issuances of temporary denial orders and issuance of orders of denial for conviction of an offense specified in EAR §11(h)
* Conduct that constitutes a violation of the EAR may also be prosecuted under 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)
 
Investigative Agencies
* OEE has both civil and criminal investigative authority; in addition Immigration and Customs Enforcement, Federal Bureau of Investigation, Defense Criminal Investigative Service, Defense Security Service and various intelligence agencies; DTSA also may be involved in assessing injury to national security
 
OFFICE OF FOREIGN ASSETS CONTROL
 
Enforcement Agency
* Assistant Director For Enforcement, Office of Foreign Assets Control (“OFAC”), U.S. Department of the Treasury
 
Enforcement Legal Authority
* Criminal: Various statutory authorities – OFAC’s principal enforcement authority is under IEEPA and the Trading With the Enemy Act (see below)
  – §206(c) of the International Emergency Economic Powers Act (22 USC §1705(c)), as amended by §2(a) of the International Emergency Economic Powers Enhancement Act
  – §16 of the Trading With the Enemy Act (“TWEA”)
  – 31 CFR Part 501 generally and regulations governing various
individual OFAC sanctions programs
 
* Civil:
  – §1705(b) of IEEPA (22 USC §1705(b)), as amended by the International Emergency Economic Powers Enhancement Act
  – 31 CFR Part 501 generally
  – Regulations governing various individual sanctions programs
  – Appendix A to 31 CFR Part 501 – Economic Sanctions Enforcement Guidelines 
 
Penalties
* Criminal:
  – Under IEEPA, fines of up to $1 million and 20 years imprisonment, or both, per violation
  – Under TWEA, fines of up to $1 million and 20 years imprisonment, or both, per violation
* Civil:
  – Under IEEPA and most sanctions programs, greater of $250,000 (as adjusted under Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 to $289,238) or an amount that is twice the amount of the transaction that is the basis of the violation with respect to the penalty imposed, per violation
  – Under TWEA $50,000 (as adjusted under Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 to $85,236  per violation) 
 
Other Sanctions Available
  – Denial, suspension, modification or revocation of licenses or other authorizations
  – Cease and desist orders
  – Other administrative powers
 
Investigative Agencies
  – In addition to the Assistant Director of Enforcement, Federal Bureau of Investigation, Defense Criminal Investigative Service, Defense Security Service and various intelligence agencies
 
U.S. CUSTOMS AND BORDER PROTECTION
 
Enforcement Agency
* Customs and Border Protection; also Immigration and Customs Enforcement
 
Enforcement Legal Authority
* Customs enforces multiple U.S. statutes and regulations in the context of import transactions, border security and other areas; the principal enforcement legal authority for import transactions is as follows:
* Criminal:
  – 18 USC §541 (false classification, underpayment of duty), §542 (entry by means of false statements), §544 (relanding of goods), §545 (smuggling), §550 (false claims for refunds of duty), §551 (concealing or destroying invoices or papers); see generally 18 USC Chapter 5
  – Other available provisions: 18 U.S.C. §1001 (false statements), 18 USC §1519 (destruction, alteration or falsification of records) and 18 USC §§1956 and1957 (money laundering),
* Civil:
  – The principal civil enforcement authority for Customs import violations is 19 USC §1592 for fraud, gross negligence and negligence
 
Penalties
* Criminal:
  – 18 USC §541 (false classification, underpayment of duty) – fines or imprisonment of up to 2 years or both
  – 18 USC §542 (entry by means of false statements) – fines or imprisonment of up to 2 years or both
  – 18 USC §544 (relanding of goods) – fines or imprisonment of up to 2 years or both
  – 18 USC §545 (smuggling) – fines or imprisonment of up to 20 years or both, forfeiture of merchandise
  – 18 USC §550 (false claim for refund of duty) – fines or imprisonment of up to 2 years or both; forfeiture of merchandise
  – 18 USC §551 (concealing invoices) – fines or imprisonment of up to 2 years or both
 
* Civil:
  – 19 USC §1592(c)(1) (Fraud) – an amount not to exceed the domestic value of the merchandise
  – 19 USC §1592(c)(2) (Gross Negligence) – (A)  the lesser of:  (i) the domestic value of the merchandise, or (ii) four times the lawful duties, taxes, and fees of which the United States is or may be deprived, or (B) if the violation did not affect the assessment of duties, 40 percent of the dutiable value of the merchandise.
  – 19 USC §1592(c)(3) (Negligence) – (A)  the lesser of: (i)   the domestic value of the merchandise, or (ii) two times the lawful duties, taxes, and fees of which the United States is or may be deprived, or (B) if the violation did not affect the assessment of duties, 20 percent of the dutiable value of the merchandise.
 
Other Sanctions Available
* Seizure and forfeiture of merchandise involved in violations
 
Investigative Agencies
* Multiple investigative agencies and intelligence services including Customs and Border Protection, Immigration and Customs Enforcement, Federal Bureau of Investigation, and various intelligence agencies
 
DEPARTMENT OF JUSTICE
 
Enforcement Agency
* Counterintelligence and Export Control Section, National Security Division, Department of Justice (for export control and sanctions cases)
* Individual U.S. Attorneys’ Offices
 
Penalties
* See “Criminal” penalties for each agency above

———
  [FN/1] For ITAR, see 22 CFR Part 128; for EAR see 15 CFR Part 766, for OFAC Sanctions Programs see 31 CFR Part 501 and provisions in regulations for each of the individual sanctions programs, and for Customs see 19 USC §1592(b).
  [FN/2] The OFAC Sanctions Compliance and Evaluations Division handles enforcement for financial institutions and the Enforcement Division handles other enforcement matters.
  [FN/3] The National Security Division attorneys in Washington also often provide specialized expertise to individual U.S. Attorney offices in handling these cases.
  [FN/4] The office is administered by DHS, with a team that includes officials from DHS, the Federal Bureau of Investigation, the Departments of Commerce, State, Justice, Defense, Treasury, Energy, Office of the Director of National Intelligence and the Postal Inspection Service.
  [FN/5] This includes regulations administered by the Food and Drug Administration, Consumer Product Safety Commission, Federal Trade Commission, International Trade Commission and the enforcement of federal intellectual property laws.
  [FN/6] See United States of America v. LM Import-Export, Inc., et al., Case No. 1:11-cv-20765 (S.D. Fl.) and United States of America v. Hung Lam, et al., Case No. 12-20048-CR (S.D. Fla.).
  [FN/7] For example, in a recent case involving National Oilwell Varco, Inc. (“Varco”) for violations involving Cuba, Iran and Sudan, Varco was subject to investigations by OFAC, BIS and the U.S. Attorney in the Southern District of Texas.  See
here.
  [FN/8] See 22 CFR §§ 128.14 and 128.17.
  [FN/9] However where the administrative law judge determines that documents containing the sensitive matter need to be made available to a respondent to avoid prejudice, the judge may direct BIS to provide an unclassified summary of the documents to the respondent.  The judge may provide the parties opportunity to make arrangements that permit a party or a representative to have access to such matter without compromising sensitive information. Such arrangements may include obtaining security clearances, or giving counsel for a party access to sensitive information and documents subject to assurances against further disclosure, including a protective order, if necessary.  See 15 CFR 766.11.
  [FN/10] Administrative Procedure Act, 5 USC §§551 to 559.
  [FN/11] ITAR Section 128.1 provides that administration of the AECA is expressly exempt from various provisions of the APA.  This section provides: “The administration of the Arms Export Control Act is a foreign affairs function encompassed within the meaning of the military and foreign affairs exclusion of the Administrative Procedure Act and is thereby expressly exempt from various provisions of that Act. Because the exercising of the foreign affairs function, including the decisions required to implement the Arms Export Control Act, is highly discretionary, it is excluded from review under the Administrative Procedure Act.”
Similarly, EAR Sec. 766.1 provides: “This part does not confer any procedural rights or impose any requirements based on the Administrative Procedure Act for proceedings charging violations under the EAA, except as expressly provided for in this part.”
  [FN/12] See for example, Bernstein v. United States Department of State, 945 F. Supp. 1279 (N.D. Cal. 1996), 974 F. Supp. 1288 (N.D. Cal. 1997); Bernstein v. United States Department of Justice, 176 F.3d 1132 (9th Cir. 1999); Bernstein v. Department of Commerce, No. 95-0582 (N.D. Cal. 2003); Junger v. Daley, et al, 209 F.3d 481 (6th Cir. 2000); U.S. v. Zhen Zhou Wu,  Nos. 11-1115, 11-1141 (1st Cir. 2013); Defense Distributed and Second  Amendment Foundation, Inc. v. U.S. Department of State, et al., No. 1:15-CV-372-RP (W.D. Tex..), and Micei International v. Department of Commerce, No. 09-1155 (DC Cir. 2010).  Under §13(c)(3) of the Export Administration Act parties are entitled to judicial review of BIS determinations directly to the U.S. Court of Appeals for the District of Columbia, however the EAA has expired.  IEEPA, the current statutory authority for the EAR, is silent on issues involving judicial review except in connection with determinations based upon classified information.  The EAR previously provided for judicial review pursuant to 15 CFR §766.22(e) which directed the parties to pursue an appeal as set forth in the EAA’s judicial review provision under §13(c)(3), however this provision (§766.22(e)) was deleted from the EAR in technical amendments in 2010.
[13] See eg., 31 CFR.§ 560.704 (Iran),  31 CFR §742.703 (Syria), 31 CFR §538.704 (Sudan) and 31 CFR §547.703 (Dem. Republic of the Congo).
  [FN/14] In light of the important constitutional issues involved in unilateral presidential authority in national emergencies, IEEPA has been the subject of numerous court challenges.  See, eg., Dames & Moore v. Regan. 453 U.S. 654 (1981), Kindhearts For Charitable Humanitarian Development, Inc.  v.  Timothy Geithner, et al, 647 F.Supp.2d 857 (N.D. Ohio 2009) and U.S. v. Ali Amirnazmi, No. 10-1198, (3d Cir. 2011).  More recently, parties have been able to obtain judicial review of OFAC sanctions programs under the provisions of the APA.  See for example Epsilon Electronics, Inc. v. United Stated Department of the Treasury, Office of Foreign Assets Control, et al., 168 F.Supp.3d 131 (D.C. 2016).
  [FN/15] For example, in Epsilon Electronics (see footnote above) Epsilon appealed OFAC’s determination that the company engaged in unauthorized exports to Iran in the U.S. District Court for the District of Columbia.  The appeal was based upon violations of the APA and constitutional protections.  The court upheld OFAC’s determination and its $4,073,000 civil penalty assessment.  Of significance, the court stated that in reviewing OFAC actions courts are required to be “extremely differential” to the agency in reviewing agency actions in light of OFAC’s national security and foreign affairs functions:  The court stated: ”
When reviewing agency decisions in the area of foreign relations, courts must be mindful that “[m]atters related ‘to the conduct of foreign relations . . . are so exclusively entrusted to the political branches of government as to be largely immune from judicial inquiry or inference.'” Regan, 468 U.S. at 242 (quoting Harisiades v. Shaughnessy, 342 U.S. 580, 589 (1952)). Thus, “[a]s a general principal, . . . [a reviewing court] should avoid impairment of decisions made by the Congress or the President in matters involving foreign affairs or national security.” Glob. Relief Found. v. O’Neill, 207 F. Supp. 2d 779, 788 (N.D. Ill. 2002) (citing Haig v. Agee, 453 U.S. 280, 292 (1981)). Accordingly, a review of a decision made by OFAC is “extremely deferential” because OFAC operates “in an area at the intersection of national security, foreign policy, and administrative law.” Islamic Am. Relief Agency v. Gonzales, 477 F.3d 728, 734 (D.C. Cir. 2007). Epsilon, p.8-9.
  [FN/16] See
here.
  [FN/17] See
here.
  [FN/18] See
here.
  [FN/19] United States v. Roth, 628 F.3d 827 (6th Cir., 2011).
  [FN/20] See also actions involving Mozaffar Khazaee in the US District Court for the District of Connecticut on October 23, 2015,
here, and Alexander Posobilov, Shavkat Abdullaev and Anastasia Diatlova in the Eastern District of New York on October 26, 2015,
here.
  [FN/21] See United States v. Trek Leather, Inc. et al., No. 11-1527 (Fed. Cir. 2014).
  [FN/22] In January 2017 Justice and CBP announced that Volkswagen had agreed to pay $4.3 billion in combined criminal and civil penalties in connection with the case.  The $1.45 civil penalty component of this payable to CBP to resolve Customs civil fraud charges was described by CBP as the largest civil penalty collected by CBP.   See
here

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ENEDITOR’S NOTES

(Source: Editor)

* Edward Gibbon (27 April 1737 – 16 Jan 1794; was an English historian, writer, and Member of Parliament. His most important work, The History of the Decline and Fall of the Roman Empire, was published in six volumes between 1776 and 1788.)
  – “Revenge is profitable, gratitude is expensive.”

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EN_a215
. 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: 26 Apr 2017: Harmonized System Update 1703, containing 2,512 ABI records and 395 harmonized tariff records.

  – HTS codes for AES are available
here
.
  – HTS codes that are not valid for AES are available
here.
 
INTERNATIONAL TRAFFIC IN ARMS REGULATIONS (ITAR): 22 C.F.R. Ch. I, Subch. M, Pts. 120-130.
  – Latest Amendment: 11 Jan 2017: 82 FR 3168-3170: 2017 Civil Monetary Penalties Inflationary Adjustment
  – The only available fully updated copy (latest edition 8 Mar 2017) of the ITAR with all amendments is contained in Bartlett’s Annotated ITAR (“BITAR”), by James E. Bartlett III.  The BITAR contains all ITAR amendments to date, plus a large Index, over 750 footnotes containing case annotations, practice tips, DDTC guidance, and explanations of errors in the official ITAR text.  Subscribers receive updated copies of the BITAR in Word by email, usually revised within 24 hours after every ITAR amendment.  The BITAR is available by annual subscription from the Full Circle Compliance
website
.  BAFTR subscribers receive a 25% discount on subscriptions to the BITAR, please
contact us
to receive your discount code.  

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EN_a316
. 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.

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