17-0621 Wednesday “Daily Bugle”

17-0621 Wednesday “Daily Bugle”

Wednesday, 21 June 2017

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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[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 Announces ACE PRODUCTION Deployment, 22 Jun
  4. DHS/CBP Posts Notice on TTB HTS flags in ACE
  5. DoD/DSCA Publishes SAMM and Policy Memorandum, 18-24 Jun
  6. OMB/OIRA Reviews of Proposed Ex/Im Regulations
  7. State/DDTC: (No new postings.)
  8. Australia DEC Updates Export Control Application Forms
  9. Canada TID Posts Annual Report to Parliament on the Administration of the Export and Import Permits Act – 2016
  10. Canada TID Posts 2016 Report on Exports of Military Goods from Canada
  11. EU P2P Post Summaries of Activities
  12. EU Amends Restrictive Measures Concerning Central African Republic, ISIL, and Al-Qaeda
  13. EU INTA Announces Next Meeting on 10-11 July
  1. M. O’Kane: “Queen’s Speech announces UK International Sanctions Bill”
  2. M. Volkov: “Are Risk Assessments Just a Report on the Obvious?”
  3. T.A. Hanusik, D.A. Hahn & T. Wynn: “DOJ’s FCPA Pilot Program Issues First Public Declination Under Trump Administration”
  4. T.H. Barnard & D.M. Edelman: “Update on Regulatory Compliance in the Global Health Care Industry”
  5. Weise Wednesday: “What Is the Origin and Meaning of Informed Compliance?”
  6. Gary Stanley’s ECR Tip of the Day
  7. R.C. Burns: “Shedding Light on Gun Exports on the Dark Web”
  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 (14 Jun 2017), FACR/OFAC (16 Jun 2017), FTR (19 Apr 2017), HTSUS (7 Mar 2017), ITAR (11 Jan 2017) 
  3. Weekly Highlights of the Daily Bugle Top Stories 



[No items of interest noted today.]

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

* Commerce; Industry and Security Bureau; RULES; Russian Sanctions: Addition of Certain Entities to the Entity List [Publication Date: 22 June 2017.]
* Commerce; Industry and Security Bureau; NOTICES; Export Privileges; Denials: Ali Reza Parsa [Publication Date: 22 June 2017.]
* President; ADMINISTRATIVE ORDERS; Defense and National Security: National Defense Authorization Act for Fiscal Year 2012 (Presidential Determination No. 2017-06 of May 17, 2017) [Publication Date: 22 June 2017.]
* Treasury; Foreign Assets Control Office; NOTICES; Blocking or Unblocking of Persons and Properties [Publication Date: 22 June 2017.]
* U.S. Customs and Border Protection; NOTICES; Agency Information Collection Activities; Proposals, Submissions, and Approvals [Publication Date: 22 June 2017.]:
  – Automated Clearinghouse
  – Bonded Warehouse Proprietor’s Submission
  – Bonded Warehouse Regulations
  – Declaration of Person Who Performed Repairs
  – Entry Summary
  – General Declaration
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CSMS #17-000369, 21 Jun 2017)
There will be an ACE PRODUCTION deployment on Thursday morning, 22 June 2017, during the 0500 – 0700 ET window, which will impact ACE Cargo Release and ACE Entry Summary processing.

To be deployed:

  – PGAD-14917- NHTSA- Issue where PK4 (missing or invalid doc ID per PGA) error was generated but correct doc ID is present.
  – PGAD-15038- DEA rejecting for missing PG20, but no PG20 is required for DEA.
  – PGAD-15125- FDA – For medical device entries, unrelated entities should not be allowed.

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CSMS #17-000366, 21 Jun 2017.)
Starting Thursday, 22 June 2017 the Tax and Trade Bureau (TTB) will begin enforcing their HTS flags in ACE. All entry filings with HTS codes regulated by TTB must either have an accompanying TTB Message Set, or provide an electronic disclaim code indicating that the filer is opting to meet TTB data requirements through other approved means. For more details concerning specific products and Message Set requirements, please see the TTB IG posted here.
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. DoD/DSCA Publishes SAMM and Policy Memorandum, 18-24 Jun

  – This memo updates Chapter 8, End-Use Monitoring (EUM),of the SAMM to incorporate several EUM policy updates


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. OMB/OIRA Reviews of Proposed Ex/Im Regulations

* Wassenaar Arrangement 2016 Plenary Agreements Implementation
 – STAGE: Final Rule
 – RIN:
Pending Review

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. State/DDTC: (No new postings.)

(Source: State/DDTC)

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. Australia DEC Updates Export Control Application Forms

(Source: Australia DEC)
The Australian Government’s Defence Export Controls (DEC) has updated various application forms. The updated forms can be found here.

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. Canada TID Posts Annual Report to Parliament on the Administration of the Export and Import Permits Act – 2016

(Source: Canada TID) [Excerpts.]
The Annual Report to Parliament on the administration of the Export and Import Permits Act (EIPA) for the year 2016 is submitted pursuant to Section 27 of the Act, Chapter E-19 of the 1985 Revised Statutes of Canada, as amended, which provides:
  “As soon as practicable after December 31 of each year the Minister shall prepare and lay before Parliament a report of the operations under this Act for that year.”
On 30 June 2016, the Minister of Foreign Affairs and the Minister of International Trade announced that the Global Affairs Canada reporting related to military exports would be updated to increase transparency and strengthen Canadian export controls. This Annual Report includes relevant improvements and references to the Report on the Exports of Military Goods which has more detail regarding certain types of military exports. …

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. Canada TID Posts 2016 Report on Exports of Military Goods from Canada

(Source: Canada TID) [Excerpts.]
The 2016 Report on the Export of Military Goods from Canada is a voluntary report tabled in the Parliament of Canada to increase the transparency of Canadian arms exports. This report has been produced since 1990. The last edition covered 2015 and was tabled in Parliament on 30 June 2016. 
The report only covers exports of goods and technology designed for military purposes, and does not include data on dual use or strategic items. 
Data for this report is assembled following the end of the calendar year, and verified against information received from Canadian industry. 
Data covering Canadian exports of military goods is also captured in two other key reports: the Annual Report on the Administration of the Export and Import Permits Act which is tabled in Parliament (a legal requirement of the Act); and Canada’s submission to the United Nations Register of Conventional Arms (UNROCA).  
Global Affairs Canada does not collect data on most military exports to the United States. Canada and the U.S. have had a Defence Production Sharing Agreement, in place since the 1950s, which has helped create an integrated North American technological and industrial base. As a result, military items shipped between Canada and the U.S. do not require permits and are therefore not included in the data presented in this report. However, permits are required for a small sub-set of goods, such as prohibited firearms. For those items that do require a permit (e.g. automatic weapons) this data is now included here for the first time.
  – For the 2016 calendar year, Canada’s total exports permitted under the Export and Import Permits Act of military goods and technology amounted to approximately $717.7 million.
  – The major share ($627.1 million or 87.37%) went to member countries of the North Atlantic Treaty Organization (NATO) or other countries included on Canada’s Automatic Firearms Country Control List
  – Saudi Arabia was the largest export destination in 2016, receiving approximately $142.2 million in Canadian military exports (accounting for 19.81% of the total value of military exports). 
  – Australia was the second largest destination of Canadian military exports, receiving approximately $115.8 million in military exports (accounting for 16.13% of Canadian military exports).
  – Six NATO countries were in the top ten destinations for the same period: the United Kingdom, France, Germany, Norway, Netherlands and Belgium. …

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. EU P2P Post Summaries of Activities

(Source: EU P2P)
The EU Partner-to-Partner (EU P2P) Program has published the following summaries of its activities in May and June:
  – 10-11 May 2017, Yerevan, Armenia: Second National Licensing Seminar for Armenia
  – 23-24 May 2017, Rabat, Morocco: Regional Workshop for North Africa
  – 24-25 May 2017, Vientiane, Lao DPR: First Legal Workshop in Lao PDR
  – 29 May-1 June 2017, Yerevan, Armenia: Third National Training on STCE for Armenia

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. EU Amends Restrictive Measures Concerning Central African Republic, ISIL, and Al-Qaeda

  – Council Implementing Regulation (EU) 2017/1090 of 20 June 2017 implementing Article 17(1) of Regulation (EU) No 224/2014 concerning restrictive measures in view of the situation in the Central African Republic
  – Commission Implementing Regulation (EU) 2017/1094 of 20 June 2017 amending for the 269th time Council Regulation (EC) No 881/2002 imposing certain specific restrictive measures directed against certain persons and entities associated with the ISIL (Da’esh) and Al-Qaeda organisations
  – Council Implementing Decision (CFSP) 2017/1103 of 20 June 2017 implementing Decision 2013/798/CFSP concerning restrictive measures against the Central African Republic

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. EU INTA Announces Next Meeting on 10-11 July

(Source: EU INTA)
The next meeting of the EU’s International Trade Committee (INTA) will take place on 10 July (from 15.00 to 18.30) and 11 July 2017 (from 9.00 to 12:30 and 15.00 to 18.30).
The last INTA meeting took place on 19 and 20 June 2017.
Draft Agenda, meeting documents and main highlights of this meeting can be found here.

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14. M. O’Kane: “Queen’s Speech announces UK International Sanctions Bill”

* Author: Michael O’Kane, Esq., Peters & Peters Solicitors LLP, mokane@petersandpeters.com.
Prime Minister Theresa May announced today that a new international sanctions bill will form part of the UK’s legislative programme “geared towards making a success of Brexit”, to allow the UK “to continue to comply with our international obligations”.
The Queen’s Speech (link here) included the International Sanctions Bill among the new Brexit-related draft legislation, which will “support our role as a permanent member of the UN Security Council and a leading player on the world stage, by establishing a new sovereign UK framework to implement international sanctions on a multilateral or unilateral basis. The Bill will return decision-making powers on non-UN sanctions to the UK, and enable the UK’s continued compliance with international law after the UK’s exit from the EU. The UK Government has issued a consultation document about the content of this new sanctions bill (see previous blog).

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Volkov Law Group Blog. Reprinted by permission.)
* Author: Michael Volkov, Esq., Volkov Law Group, mvolkov@volkovlaw.com, 240-505-1992.
If you give a Chief Compliance Officer truth serum and ask him/her whether they believe a risk assessment is valuable, what do you think the CCO say?
Let’s start with the cynical side – not that I am a pessimist. Many CCOs will candidly tell you that a risk assessment provides them with a colorful and expensive report on the company’s risks that contains no new information. In other words, many CCOs believe that a risk assessment does not provide them with any new information about the company’s risk profile. Frankly, CCOs will say they know and understand the company’s risk profile. In other words, the bottom line is that a risk assessment is not a high priority for CCOs.
CCOs face a difficult quandary because they have to document that the company’s compliance program is tailored to a risk assessment, or some analysis of the company’s risks. For smaller companies, I have seen many innovative approaches to a risk assessment, including informal roundtable discussions with key stakeholders, group discussions, interviews, surveys and other information gathering procedures.
These strategies, however, do not work well in larger organizations with complicated risk profiles across businesses and geographic operations. A risk assessment process is much more cumbersome in larger organizations but can be focused on key risks surrounding foreign government interactions and touch points.
On the positive side, a risk assessment can be quite valuable. Whenever my firm has conducted a risk assessment, we have worked closely with the CCO and his/her staff the CCO often attends most of the interviews, if available, and finds the process to be informative. I am always surprised by how much a CCO learns through the process. Further, the risk assessment process inevitably unearths some risks that a CCO may not have identified, usually less significant risk but nonetheless worthy of analysis.
A risk assessment also can be valuable if it includes an assessment of the company’s compliance program. After understanding the company’s risk profile, it is important to evaluate how the company’s existing compliance controls mitigate the current risks so that a gap analysis is completed. The combination of a risk and a compliance program assessment is much more relevant to a CCO and provides a specific action plan for minimizing any gaps between risks and compliance controls.
It is easy to launch into a criticism of a CCO who does not understand or know about all of the risks he/she faces in the company. Before doing so, however, a CCO rarely can devote the time and attention to conducting a risk assessment to “learn” every aspect of a company’s operations, develop a risk profile and rank the relevant risks.
As a result, CCOs often rely on law firms or consultants to conduct the risk assessment, tag along where they can to learn about the business, and support a risk and compliance program assessment.
CCOs who are building a compliance program often struggle with the question of whether to conduct a risk assessment or work on a due diligence system where they know that third party risks are the company’s most significant risk.   There is no one answer to the question – companies that have a fairly straightforward risk profile, and are relatively small, may need to focus on due diligence initially and then return to the risk assessment process after building a due diligence system.
When balancing priorities and projects, CCOs always have to consider the size of the organization, the nature of the company’s risks, the available resources, and mitigating the most significant risks. In many cases, a CCO has a firm understanding of the company’s risk profile and can return to the formal risk and compliance program assessment process after addressing some significant risks. Such a two-step process may be a more appropriate solution given the size of the company, the nature of its risks and available resources. 
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* Authors: Thomas A. Hanusik, Esq.,
; Derek A. Hahn, Esq.,
; and Tiffany Wynn, Esq.,
.  All of Crowell & Moring LLP. 
Last Friday, the Department of Justice publically disclosed another declination under its FCPA pilot program.  This is the sixth public declination by the Department since first launching the program in April 2016 (as previously discussed in a
Crowell & Moring alert
). It also represents the first public declination since the Department
announced the temporary extension of the pilot program
on 10 March 2017, and the first under the new administration.
The Facts
In its June 16th
letter to counsel
for Linde North America Inc. and Linde Gas North America LLC, the Department outlined a series of factual findings related to Linde’s FCPA violations. It attributes the offending conduct to Spectra Gases, Inc., a New Jersey company acquired by Linde in October 2006, and states that between approximately November 2006 through December 2009, Linde-through Spectra-“made corrupt payments to high-level officials at the National High Technology Center (NHTC) of the Republic of Georgia, a 100 percent state-owned and -controlled entity, in connection with its purchase of certain income-producing assets from the NHTC.” The alleged scheme involved three high-level Spectra executives agreeing to a profit-sharing arrangement with high-level NHTC officials. Namely, in exchange for the officials’ assistance in ensuring that Spectra was selected as the purchaser of key NHTC assets, the Spectra executives agreed to share profits resulting from future sales with those officials. Ultimately, the NHTC officials “received approximately 75 percent of the profits generated by” Spectra’s arrangement with NHTC. Prior to discovering the misconduct, Linde dissolved Spectra, became its successor-in-interest, and continued to benefit “as a result of the corrupt conduct.”
Cooperation, Cooperation, Cooperation:
Consistent with prior declinations, the Department credited a number of examples of Linde’s cooperation that factored into the declination, including: “Linde’s voluntary self-disclosure of the matter;” “the thorough, comprehensive and proactive investigation undertaken by Linde;” “Linde’s full cooperation in the matter (including its provision of all known relevant facts about the individuals involved in or responsible for the misconduct) and its agreement to continue to cooperate in any ongoing investigations of individuals;” “the steps Linde has taken and continues to take to enhance its compliance program and its internal accounting controls” and “Linde’s full remediation” described as “including terminating and/or taking disciplinary action against the employees involved in the misconduct, including the Spectra Executives and lower-level employees involved in the misconduct),” withholding certain payments from the executives, and terminating a management agreement with and withholding payments from “companies owned or controlled by the NHTC Officials.”
About the Money
Although Linde successfully avoided criminal prosecution, it also agreed to disgorge $7.8 million (representing profits and benefits received by Spectra and, subsequently, Linde) and to forfeit an additional $3.4 million (representing “corrupt proceeds owed to companies owned or controlled by the NHTC Officials”). Linde’s agreement to continue cooperating means that the financial costs may yet increase, and the Department is at least telegraphing that it intends to continue investigating the individuals involved.
Cautionary Tale
Linde got to the right result in this matter, but the cost of getting there was not cheap. Like other matters, this FCPA declination is a stark reminder of the importance of pre-acquisition due diligence.
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* Authors: Thomas H. Barnard, Esq.,
; and Author: Doreen M. Edelman, Esq.,
. Both of Baker Donelson LLP.
A comprehensive understanding of the constantly evolving layers that make up federal anti-corruption statutes, sanctions regulations and export control restrictions is imperative for both the pharmaceutical and health care industries, particularly in light of recent trends in U.S. enforcement actions. One of the most common statutes utilized against these industries is the Foreign Corrupt Practices Act (FCPA), which targets public corruption and fraud in the international marketplace and is enforced by both the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC). The health care industry, including pharmaceutical companies, clinical research organizations and medical device manufacturers, has come under increasing FCPA scrutiny in recent years as anti-bribery enforcement actions have broadened in scope. A more recent health care industry development in the international market concerns an increase in U.S. enforcement actions based on the export of goods to countries subject to sanctions regulations and export-control restrictions. [FN/1] These regulations are enforced by the Treasury Department’s Office of Foreign Assets Control (OFAC) and the Department of Commerce’s Bureau of Industry and Security (BIS).
This article addresses recent developments in FCPA and OFAC enforcement actions as they pertain to the health care industry. It will first briefly detail the flurry of 2016 FCPA enforcement actions against health care entities, as well as the outlook for enforcement in 2017. It will then explain how the latest updates to U.S. sanctions regulations and export licensing restrictions will affect health care industry entities that seek to export to sanctioned nations such as Cuba, Iran and Sudan. Finally, it will review recent OFAC enforcement actions and recommend stringent compliance policies for companies in the modern health care industry.
Eight substantial FCPA enforcement actions were settled last year against health care related entities, culminating in December 2016 when the SEC and DOJ announced a record-breaking $519 million settlement with the world’s largest manufacturer of generic pharmaceutical products, Israeli company Teva Pharmaceutical Industries Ltd. [FN/2] Teva faced parallel civil and criminal charges that it paid bribes to foreign government officials in Russia, Ukraine and Mexico. Its final settlement ultimately constituted the largest ever FCPA resolution involving a health care entity. [FN/3] Similar improper payments to foreign officials in China resulted in multi-million dollar FCPA settlements with UK-based pharmaceutical companies such as GlaxoSmithKline and AstraZeneca PLC, as well as the Swiss-based Novartis LC. [FN/4] While a full report and breakdown of these enforcement actions can be found on the SEC’s website, the common thread is that each health care entity conducted business or sales in a foreign market by improperly bribing local officials or government employees. [FN/5] As the globalization of the health care industry amplifies and our international medical markets become further integrated, medical device distributors and pharmaceutical manufacturers must maintain strict compliance programs regarding anti-bribery regulations and must be aware of the broad extra-territorial application of laws such as the FCPA.
Two major FCPA enforcement actions have been taken thus far in 2017 against health care related entities. On January 12, 2017, the Indiana-based medical device manufacturer Zimmer Biomet agreed to pay more than $30 million to resolve its repeat violations of the FCPA. [FN/6] The case arose from Biomet’s improper transactions with a prohibited distributor in Brazil, as well as its use of a broker to bribe Mexican customs officials to illegally import unregistered dental products. On January 18, 2017, the SEC announced that Texas-based medical device company Orthofix International agreed to pay more than $14 million to settle the charges that it made improper payments to doctors at government-owned hospitals in Brazil to increase its sales. [FN/7] These two cases underscore the importance of rigorous FCPA compliance programs for medical device manufacturers engaging with foreign markets.
U.S. export control regulations are governed by numerous federal agencies, and enforcement responsibilities are comprehensively divided. OFAC and BIS are particularly relevant to the health care industry. The Treasury Department houses OFAC, which is delegated the authority for the enforcement of U.S. economic and trade sanctions against foreign states, certain organizations and individuals. BIS is an organization within the Department of Commerce and maintains a list of controlled items covered under the Export Administration regulations (EAR). The EAR generally control exports of “dual use” goods, or goods which can be utilized for both commercial and military purposes. Many companies in the health care, biotechnology and pharmaceutical industries often find that their products or technologies are covered under EAR. Both OFAC and BIS can make exceptions and issue licenses for certain medical exports that normally would not be allowed under prevailing sanctions regulations or export control restrictions. It is thus critical for health care industry entities that engage with global markets, particularly those that do so through foreign affiliates or subsidiaries, to be aware of any updates or changes to current sanctions regulations. For example, such companies should be aware of recent changes to the regulations governing sanctions and exports to Cuba, Iran and Sudan, as described below.
OFAC and BIS announced in October 2016 updated amendments to U.S. sanctions regulations and export control restrictions applicable to Cuba that could potentially have major effects on health care industry entities. [FN/8] OFAC authorized the importation of Cuban-origin pharmaceuticals that have been approved by the U.S. Food and Drug Administration; as well as their marketing, sale and distribution in the U.S. Additionally, it authorized U.S. citizens to engage in joint medical research projects, whether for commercial or non-commercial purposes, with Cuban nationals. [FN/9] While President Trump has indicated a desire to roll back portions of Obama-era Cuba policies, it is unclear if these particular amendments will be subject to those changes. [FN/10] Regardless, the amendments were designed to stimulate valuable commercial activity in the health care industry, and companies in the field should always be aware of circumstances in which OFAC and BIS ease sanctions or export restrictions for a particular region.
On December 23, 2016, and again on February 2, 2017, OFAC updated, expanded, and clarified the scope of licenses for medical devices authorized for export to Iran. [FN/11] The update eased the existing licensing restrictions in several ways. Previously, only specific items on a “whitelist” issued by OFAC were eligible for a General License. The amendments inverted this regulation, and now medical devices are presumed to be within the scope of a General License unless included on a “blacklist” of items that require a specific authorized license. The expanded General License list allows greater flexibility for medical device training and maintenance, including exports of the required associated software. The February 2 update finalized the List of Medical Devices Requiring Specific Authorization. [FN/12] While these changes allow companies to obtain a General License in a more efficient manner for devices that previously required specific authorization, numerous severe restrictions are still in place regarding Iranian exports, and it is vital to maintain compliance procedures and to conduct proper due diligence when determining the appropriate license for an Iranian transaction.
On January 17, 2017, OFAC amended the Sudanese Sanctions Regulations and BIS amended the EAR to ease licensing restrictions for exports to Sudan. [FN/13] OFAC no longer requires specific licenses to export medicines or medical devices to Sudan, instead utilizing a 12-month time restriction for such General License exports to be completed.
The recent trends discussed above show a general easing of restrictions for medical device and pharmaceutical licenses in sanctioned nations, which is a positive development for the health care industry. However, it does not relieve companies of the responsibility to maintain robust compliance programs to insulate themselves from potential liability in their actions abroad. Two recent cases provide valuable lessons for health care entities seeking to enhance and improve their regulatory compliance policies.
Since 2003, 12 OFAC enforcement actions have been levied against medical device or pharmaceutical companies, all of which involved sanctions regimes in either Cuba, Iran or Sudan. [FN/14] Recently, OFAC has shown aggressive interest in medical device companies.
For example, in 2016 the international eye-care company Alcon was charged with 513 violations involving Alcon’s engagement, over a three-year period, in the unlicensed sale and exportation of surgical and pharmaceutical products to distributors in Iran and Sudan. [FN/15] OFAC’s enforcement action against Alcon helped shape the future analysis for health care industry companies, as it articulated numerous mitigating and aggravating factors. Aggravating factors for Alcon’s case were that: (1) Alcon did not voluntarily self-disclose its violations; (2) senior management knew or should have known about the violations (giving rise to willfulness); and (3) Alcon’s compliance program was virtually non-existent despite the company’s experience in international trade. [FN/16] However, mitigating factors for Alcon’s case were that: (1) Alcon was a first-time offender; (2) the violations were not egregious; (3) the violations did not harm U.S. sanctions programs; and (4) Alcon implemented a compliance program in response to the investigation. [FN/17] Alcon’s agreement to toll the statute of limitations during the investigation was also a key mitigating element. The company ultimately settled with OFAC for more than $7.6 million. [FN/18]
The most recent OFAC enforcement action against a medical device company involved the California-based ultrasound supplier United Medical Instruments, Inc. (UMI). [FN/19] The company knowingly exported its equipment to Iranian buyers through a company in the UAE on 56 different occasions. OFAC noted that the aggravating factors included that: (1) UMI knowingly exported goods to Iran; (2) UMI had knowledge it required a license to export these goods, as demonstrated by a prior 2003 license application; and (3) UMI failed to manage an effective compliance program. However, OFAC considered other mitigating factors, including that: (1) the violations were due to the actions of a single UMI employee; (2) UMI took remedial action and voluntarily ceased transactions involving Iran; and (3) UMI is a “small business” with significant financial difficulties. Once again, OFAC provided a roadmap for future companies in the industry by articulating the aggravating and mitigating factors utilized in its investigation.
Even for companies that have a robust compliance program, the reality of doing business in the heavily regulated health care industry and the closely scrutinized international marketplace is that companies can expect to be subject to administrative or DOJ investigations from time to time, even if they have not engaged in misconduct. The growth of whistleblower claims, coupled with the government’s own independent investigations, makes interaction and responding to one of these types of investigations all but inevitable. As part of a compliance initiative, companies should, through their in-house or outside counsel, address and train key leaders and staff for common situations including: (1) how to respond if served with a subpoena; (2) the appropriate actions, notifications and responses to agents executing a search warrant; (3) how to effectively preserve electronic and other information during litigation or an investigation; (4) how to efficiently organize data to ensure responding to subpoenas and investigations can be cost effective; (5) how to properly protect whistleblowers from retaliation and to encourage and reward an atmosphere of internal reporting and voluntary disclosure; and (6) how to respond if approached by an investigator while outside of the workplace. Including topics like these as part of training and planning not only will help ensure an atmosphere of compliance, but will enable a company to respond to an investigation in the most efficient and cost effective manner possible.
As government scrutiny of the health care industry’s international trade practices expands, so too must the compliance regimes of its numerous participants. Whether enforcing anti-bribery legislation, sanctions regulations or export restrictions, government regulators have the authority and jurisdiction to prosecute actions for wrongdoings across the globe. However, each enforcement body has laid out careful roadmaps in its regulations and investigatory proceedings to help ensure that companies in the industry have all the tools they need for efficacious compliance. In regards to the recent trends in OFAC enforcement actions, it is essential to keep in mind the aggravating and mitigating factors that can help or hinder a potential investigation, articulated in proceedings such as those against Alcon and UMI. The most significant lesson to take away is the importance of compliance programs that incorporate stringent training of employees, robust oversight of international transactions and a mechanism for addressing violations when they do arise. These programs can save companies in the health care industry from potentially ruinous actions resulting in large scale civil settlements.
  [FN/1] See Managing Sanctions and Export Control Risks in the Health Care Industry, Ropes Gray (May 15, 2017).
  [FN/2] See Teva Pharmaceutical Industries Ltd. Agrees to Pay More Than $283 Million to Resolve Foreign Corrupt Practices Act Charges, Dep’t of Justice Press Release (Dec. 22, 2016).
  [FN/3] See Melissa Jampol and Elena Quattrone, A Record FCPA Year for Pharma, Law 360 (Jan. 12, 2017).
  [FN/4] See SEC Enforcement Actions: FCPA Cases, Securities and Exchange Commission (Feb. 9, 2017).
  [FN/5] Id.
  [FN/6] See Biomet Charged With Repeating FCPA Violations, Securities and Exchange Commission Press Release (Jan. 12, 2017).
  [FN/7] See Medical Device Company Charged With Accounting Failures and FCPA Violations, Securities and Exchange Commission Press Release (Jan. 18, 2017).
  [FN/8] See Treasury and Commerce Announce Further Amendments to Cuba Sanctions Regulations, Department of Treasury Press Release (October 14, 2016).
  [FN/9] Id.
  [FN/10] See Niv Ellis, Report: Trump to reverse Obama’s Cuba policy, The Hill (May 29, 2017).
  [FN/11] See Publication of Updated Iranian Transactions and Sanctions Regulations, Dep’t of the Treasury (Dec. 22, 2016; see also Update to the Iranian Transactions and Sanctions Regulations, List of Medical Devises Requiring Specific Authorization, Dep’t of the Treasury (Feb. 2, 2017).
  [FN/12] Id.
  [FN/13] See Sudan and Darfur Sanctions, Dep’t of Treasury (Jan. 17, 2017).
  [FN/14] LI-COR, Inc. (2008); Confi-Dental Products, Co (2008); Iridex Corporation (2008); Zimmer Dental, Inc. (2008); Philips Electronic of North America Corporation (2009); Robbins Instruments, Inc. (2011); Sandhill Scientific, Inc. (2012); Ellman International, Inc. (2013); American Optisurgical, Inc. (2013); Hyperbranch Medical Technology, Inc. (2016); Alcon Laboratories, Inc. (2016); United Medical Instruments, Inc. (2017). See Dan Calloway, Alcon to pay $7.6M fine as OFAC takes a harder line against medical tech companies with faulty sanctions compliance programs, Sanctions Alert (Oct. 15, 2016).
  [FN/15] Id.
  [FN/16] Id.
  [FN/17] See Enforcement Information for July 5, 2016, Dep’t of Treasury (July 5, 2016).
  [FN/18] Id.
  [FN/19] See Enforcement Information for February 28, 2017, Dep’t of Treasury (Feb. 28, 2017).
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Welcome to Weise Wednesday! Today, 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:What is the origin and meaning of the term “Informed Compliance,” and does it apply to transactions outside of the U.S.?
A: The term “Informed Compliance” was formally introduced in the United States with the enactment of the Customs Modernization and Informed Compliance Act (the Mod Act) in 1993. The concept evolved from what had been a somewhat strained and often adversarial relationship between Customs and the trade community.
Under the concept of Informed Compliance, trade compliance is considered a shared responsibility between Customs and the trade community. It requires CBP to clearly and effectively communicate its requirements to the trade; and in return, the business community is obligated to conduct its regulated activities in accordance with U.S. laws and regulations. Under the Mod Act, importers are required to exercise “reasonable care” in carrying out their legal responsibilities and ensuring entries are correct and proper duties are paid.
While the term “Informed Compliance” has specific meaning in the U.S., the concept has been adopted by many Customs administrations around the world. Today there is a greater recognition in most countries that trade compliance is a shared responsibility and that Customs administrations have a responsibility to educate importers on what is expected of them. With that comes a responsibility for the business community to take concrete steps to ensure that they are complying with applicable laws and regulations.
For example, in the spirit of Informed Compliance, most countries have adopted a concept similar to “voluntary disclosure” in the U.S., whereby penalties are reduced, or even eliminated, if the importer discloses errors in transactions before Customs discovers them.
Similarly, the concept of self-assessment or self-audit is becoming more prevalent around the world, whereby Customs administrations are encouraging companies to create internal audit procedures under programs similar to the U.S. Importer Self-Assessment (ISA) program. Such programs reflect a growing global recognition that trade compliance is a shared responsibility between Customs and the trade community.
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* Author: Gary Stanley, Esq., Global Legal Services, PC, (202) 352-3059,
For purposes of paragraph (b)(2)(iii)(B) of License Exception GOV, an item being exported, reexported, or transferred (in-country) does not need to be consigned to the foreign government, international organization or agency. The cooperative program, project, agreement, or arrangement between the U.S. Government and the foreign government, international organization or agency at issue must be in force and effect, but the items do not need to be consigned to the foreign government, international organization or agency. For example, the exporter may export directly to a non-governmental organization or aid recipient, provided there was an agreement between the U.S. Government and the foreign government, international organization or agency, and the non-governmental organization was assisting the foreign government, international organization or agency with implementing the cooperative program, project, agreement or arrangement, or the aid recipients were the intended beneficiaries of the program or agreement with the U.S. Government. In such cases, the consignee must be a documented participant in the program, project, agreement, or arrangement. The responsible U.S. Government agency must certify to the exporter that the consignee is a participant.
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Export Law Blog
. Reprinted by permission.)
* Author: R. Clifton Burns, Esq., Bryan Cave LLP, Wash DC,
, 202-508-6067).
Two geniuses in Georgia hit on what they must have imagined was the perfect crime: sell guns to foreigners anonymously on the dark web; get paid anonymously in Bitcoins; make a billion dollars; spend the rest of their lives watching extreme wrestling and tractor pulls on cable TV. Except, of course, what really happened means that their cable TV viewing options over the next few years are likely to be extremely limited.
Even if, as the dog in the famous cartoon tells the other dog, “on the Internet nobody knows you’re a dog” (or a gun smuggler), you can’t stay on the Internet forever. Not surprisingly, even though the two defendants tried to cloak themselves behind the dark web and supposedly anonymous cryptocurrency, they still had to leave their computers, buy the guns, take them to the post office and ship them to real people. And that, as they say, was all she wrote.
According to the indictment, the two defendants, Gerren Johnson and William Jackson, who used the pseudonyms CherryFlavor and CherryFlavor_2, first captured the attention of authorities when a 9mm pistol was “recovered” in the Netherlands from a buyer who said he bought the gun from dark web vendor named CherryFlavor. Shortly thereafter Australian customs recovered another pistol hidden in a karaoke machine (see, nothing ever good comes from karaoke), and the Australian buyer also identified his seller as CherryFlavor.
And here’s how the feds figured out who was hiding behind the CherryFlavor screen name: according to the indictment, Johnson bought an unusual gun, a Cobray Model M-11 Georgia Commemorative 9mm pistol from a dealer in Georgia. Two days later he posted the gun for sale on his dark web site. Now the feds had the link they needed: a non-virtual gun dealer making a real sale in the real world to a real person of a real gun that then shows up on CherryFlavor’s page. Game over.
The interesting thing is what Messrs. CherryFlavor are charged with in the indictment. The first count is operating an unregistered firearms business. The second and third counts are for exports of two guns in violation of the anti-smuggling statute, 18 U.S.C. 554, which forbids exports from the United States “contrary to any law or regulation of the United States.” Oddly, the law said to be violated was not the Arms Export Control Act but 18 U.S.C. § 922(e) which prohibits shipping a firearm without disclosing to the shipper that a firearm is being shipped.
So why aren’t the defendants charged with what appears to be a clear violation of the Arms Export Control Act? We know that prosecutors have argued, not very persuasively, that the knowledge requirement for violations of section 554 is just an intentional export without any requirement that the defendant knows the intentional export is in violation of law. But here, if the allegations of the indictment are true, the case that the defendants knew what they were doing is, as they say, a slam dunk. They sold guns to foreign customers using pseudonyms on the dark web in exchange for Bitcoins and sent the guns hidden in karaoke machines. Criminal intent does not get much clearer than that. My guess is that there is more going on here than Dumb and Dumber selling guns on the dark web. Charges like this suggest that the prosecutors have negotiated with the defendants in exchange for some broader cooperation. If that’s true, it will be interesting to see what happens next.
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Jean-Paul Sartre (Jean-Paul Charles Aymard Sartre, 21 Jun 1905 – 15 Apr 1980, was a French philosopher, playwright, novelist, political activist, biographer, and literary critic. He was one of the key figures in the philosophy of existentialism and phenomenology, and one of the leading figures in 20th-century French philosophy and Marxism.)
  – “There is only one day left, always starting over: it is given to us at dawn and taken away from us at dusk.”
  – “Commitment is an act, not a word.”
Josiah Stamp (Josiah Charles Stamp, 1st Baron Stamp, 21 Jun 1880 – 16 Apr 1941, was an English industrialist, economist, civil servant, statistician, writer, and banker. He was a director of the Bank of England and chairman of the London, Midland and Scottish Railway.)
  – “It is easy to dodge our responsibilities, but we cannot dodge the consequences of dodging our responsibilities.”

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

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

  – Last Amendment: 18 May 2016: Change 2: Implement an insider threat program; reporting requirements for Cleared Defense Contractors; alignment with Federal standards for classified information systems; incorporated and canceled Supp. 1 to the NISPOM  (Summary here.)

  – Last Amendment: 14 Jun 2017: 82 FR 27108-271: Wassenaar Arrangement 2015 Plenary Agreements Implementation, Removal of Foreign National Review Requirements, and Information Security Updates; Corrections

: 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders
  – Last Amendment: 16 Jun 2017: 82 FR 27613-27614: Removal of Burmese Sanctions Regulations 
: 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
  – 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.
, 1 Jan 2017: 19 USC 1202 Annex. (“HTS” and “HTSA” are often seen as abbreviations for the Harmonized Tariff Schedule of the United States Annotated, shortened versions of “HTSUSA”.)
  – Last Amendment: 7 Mar 2017: Harmonized System Update 1702, containing 1,754 ABI records and 360 harmonized tariff records. 
  – HTS codes for AES are available
  – HTS codes that are not valid for AES are available
  – Latest Amendment: 11 Jan 2017: 82 FR 3168-3170: 2017 Civil Monetary Penalties Inflationary Adjustment
  – The only available fully updated copy (latest edition 10 Jun 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 800 footnotes containing amendment histories, 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

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* The Ex/Im Daily Update is a publication of FCC Advisory B.V., edited by James E. Bartlett III and Alexander Bosch, and emailed every business day to approximately 8,000 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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