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17-0628 Wednesday “Daily Bugle”

17-0628 Wednesday “Daily Bugle”

Wednesday, 28 June 2017

TOP
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  1. DoD Seeks Comments on Form 254, Contract Security Classification Specification
  1. Ex/Im Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.)
  3. DHS/CBP Announces ACE Certification Outage on 28 June
  4. DHS/CBP Updates Centers of Excellence and Expertise Trade Process Document
  5. State/DDTC Posts Name and Address Change Announcements
  6. Australia DEC Posts Reminder on Updates to Application Forms
  7. EU Prolongs Economic Sanctions Against Russia By Six Months
  8. EU P2P Post Summary of Activities
  1. Access Now: “Italy to Revoke Export License for Cyber Surveillance Company”
  2. New Europe: “Sweden Introduces “Democracy Clause” for Arms Exports”
  1. M.C. Horowitz: “Drones Aren’t Missiles, so Don’t Regulate Them Like They Are”
  2. M. Volkov: “The Importance of Compliance Program Audits”
  3. R.C. Burns: “OFAC Fines AIG for Drafting Error in Global Insurance Policies”
  1. Blount Stewart Moves to Raytheon 
  1. ECS Presents ITAR/EAR Boot Camp in Seattle, 11-12 July 
  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 (22 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 

EXIMEX/IM ITEMS FROM TODAY’S FEDERAL REGISTER

EXIM_a1

1. DoD Seeks Comments on Form 254, Contract Security Classification Specification

(Source: Federal Register) [Excerpts.]
 
82 FR 29279-29280: Submission for OMB Review; Comment Request
 
* ACTION: Notice. …
* DATES: Consideration will be given to all comments received by July 28, 2017. …
* SUPPLEMENTARY INFORMATION:
  Title, Associated Form and OMB Number: Department of Defense Contract Security Classification Specification, DD Form 254; OMB Control Number 0704-XXXX. …
  Needs and Uses: The information collection requirement, authorized by the DoD 5220.22-R, “DoD Industrial Security Regulation,” and the Federal Acquisition Regulation, is necessary to provide security classification guidance to a U.S. contractor and any subcontractors in connection with a contract requiring access to classified information (hereinafter referred to as a “classified contract”). The DD Form 254, with its attachments, supplements, and incorporated references, is the principal authorized means for providing security classification guidance to a U.S. contractor in connection with a classified contract. …
  Comments and recommendations on the proposed information collection should be emailed to Ms. Jasmeet Seehra, DoD Desk Officer, at
Oira_ submission@omb.eop.gov
.
Please identify the proposed information collection by DoD Desk Officer and the Docket ID number and title of the information collection. … 
 
  Dated: June 23, 2017.
Aaron Siegel, Alternate OSD Federal Register Liaison Officer, Department of Defense.

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OGSOTHER GOVERNMENT SOURCES

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

* DoD; NOTICES; Meetings; Federal Advisory Committee; Government-Industry Advisory Panel [Publication Date: 29 June 2017.]

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

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OGS_a34.

DHS/CBP Announces ACE Certification Outage on 28 June

(Source:
CSMS# 17-000378, 28 June 2017.)
 
There will be an ACE CERTIFICATION Outage this evening, Wednesday, June 28, 2017 from 1700 ET to 2000 ET for the following ACE Deployment:
 
ACE Import Manifest
  – CAOM-11269: Air CAMIR AGT line rejected FIRMS code with AAAN format.
 
ACE Entry Summary & Document Imaging System (DIS)
  – CAOM-7737: UC7 (Entry Summary Status Notification message: Disposition Type “Document Receipt Acknowledgement”) was not being sent for DIS documents.
 
When documents are received in DIS, and contain a Validation Activity (VA) Action Identifier, a UC7 message should be sent to Trade with the Action Identification Number in the output E2 record, position 49-60.
 
ACE Accounts Portal
  – CAOM-11478: Ticket# 2334951: Restrict Date of Birth (DOB) information from all users’ view after an account is created.
  – CAOM-9919: Provide Accounts UI capability for authorized users to reset Pending or Denied “Reports Access Requests” for an EIN.
  – CAOM-11299: Update OMB number on CF28 (CBP form for “Request for Information”).

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OGS_a45
.

DHS/CBP Updates Centers of Excellence and Expertise Trade Process Document

(Source:
CSMS# 17-000377, 28 June 2017.)
 
The Centers of Excellence and Expertise (Centers) Trade Process Document clarifies how CBP and the trade community may interact with respect to commercial trade activities. The Centers are now permanent organizations with full regulatory authority to make post-entry decisions.
 
The Trade Process Document includes procedures and information for importers, filers and brokers to interact and submit entry documentation to the Centers, such as:
 
  – Importers that were accepted into the test are no longer known as “participating accounts”, although they continue to be processed on an account basis.
  – Directory of Center supervisors and their contact information.
  – How to send entry summary documentation to the Centers through official systems of record.
  – The Trade should utilize existing electronic submission methods (ACE portal and DIS) where possible, in order to streamline the trade processing for both internal and external stakeholders.
 
The document is available here

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OGS_a5
6. State/DDTC Posts Name and Address Change Announcements

(Source: State/DDTC) [Excerpts.]
 
The Directorate of Defense Trade Controls (DDTC) has published the following name and address change announcements. Excerpts are included below.
 
 
Effective July 1, 2017, Airbus Safran Launchers GmbH will change as follows: ArianeGroup GmbH. Due to the volume of authorizations requiring amendments to reflect this change, the Deputy Assistant Secretary for Defense Trade Controls is exercising the authority under 22 CFR 126.3 to waive the requirement for amendments to change currently approved license authorizations. The amendment waiver does not apply to approved or pending agreements. …
 
 
Effective July 1, 2017, Airbus Safran Launchers SAS will change as follows: ArianeGroup SAS. Due to the volume of authorizations requiring amendments to reflect this change, the Deputy Assistant Secretary for Defense Trade Controls is exercising the authority under 22 CFR 126.3 to waive the requirement for amendments to change currently approved license authorizations. The amendment waiver does not apply to approved or pending agreements. …
 
 
Effective immediately, Titan Engineering & Automation Limited at Unit-II, No. 141, S. Muduganapalli, Denkanikottai Road, Hosur – 635110, Tamilnadu, India will change as follows: Titan Company Limited at Precision Engineering Division, 15B, Bommasandra Industrial Area, Bangalore – 560099, Karnataka, India. Due to the volume of authorizations requiring amendments to reflect this change, the Deputy Assistant Secretary for Defense Trade Controls is exercising the authority under 22 CFR 126.3 to waive the requirement for amendments to change currently approved license authorizations. The amendment waiver does not apply to approved or pending agreements. …
 

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OGS_a6
7. Australia DEC Posts Reminder on Updates to Application Forms

(Source: Australia DEC)
 
Australian Defense Export Controls (DEC) has posted a reminder on updates to its application forms. The latest versions of these forms can be accessed and downloaded from the “Forms” page on the DEC website. Applicants are encouraged to check the “Forms” page before lodging applications with DEC to ensure they are completing the most recent version of these documents. DEC cannot accept older versions of these forms, as they are no longer compatible with our IT system.
 
DEC’s application forms can be accessed via the following link.

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OGS_a78
EU Prolongs Economic Sanctions Against Russia By Six Months

 
On 28 June 2017, the Council prolonged economic sanctions targeting specific sectors of the Russian economy until 31 January 2018.
 
This decision follows an update from President Macron and Chancellor Merkel to the European Council of 22-23 June 2017 on the implementation of the Minsk Agreements. This paved the way for the renewal of sanctions for a further six months.
 
The Council formalised this decision today by written procedure and, in line with the rule for all such decisions, unanimously.
 
The measures were originally introduced on 31 July 2014 for one year in response to Russia’s actions destabilising the situation in Ukraine. They were strengthened in September 2014. They target the financial, energy and defence sectors, and the area of dual-use goods.
 
On 19 March 2015, the European Council agreed to link the duration of the sanctions to the complete implementation of the Minsk agreements, which was foreseen to take place by 31 December 2015. Since this did not happen, and given that the Minsk agreements have still not been fully implemented, the Council has extended the sanctions.
 
The economic sanctions prolonged by this decision include:
 
  – limiting access to EU primary and secondary capital markets for 5 major Russian majority state-owned financial institutions and their majority-owned subsidiaries established outside of the EU, as well as three major Russian energy and three defence companies;
  – imposing an export and import ban on trade in arms;
  – establishing an export ban for dual-use goods for military use or military end users in Russia;
  – curtailing Russian access to certain sensitive technologies and services  that can be used for oil production and exploration.
 
In addition to these economic sanctions, several EU measures are also in place in response to the crisis in Ukraine including:
 
  – targeted individual restrictive measures, namely a visa ban and an asset freeze, currently against 150 people and 37 entities until 15 September 2017;
  – restrictive measures in response to the illegal annexation of Crimea and Sevastopol, limited to the territory of Crimea and Sevastopol, currently in place until 23 June 2018.
 

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OGS_a89
EU P2P Post Summary of Activities

(Source: EU P2P)
 
The EU Partner-to-Partner (EU P2P) Program has published the following summary of its activities in Montenegro:
 
  – 21-22 June 2017: Podgorica, Montenegro: Legal Workshop in Montenegro.

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NWSNEWS

NWS_a110
.

Access Now: “Italy to Revoke Export License for Cyber Surveillance Company”

(Source:
Access Now, 27 June 2017.)
 
Today (Tuesday), the Italian Ministry of Economic Development will decide whether to revoke the currently suspended export licence to Area, a company under review for supply of surveillance technologies to Syrian intelligence. Access Now and a coalition of NGOs, led by the Italian Coalition for Civil Liberties and Rights (CILD), encourages the advisory committee to revoke the licence and make clear that selling surveillance to repressive regimes will not be tolerated.
 
  “Several Italian and European companies produce such surveillance software, and some violate established laws by selling to repressive regimes. Almost weekly, we hear new stories about governments using these technologies to monitor dissidents, journalists, and lawyers. We need to enforce the law and provide more transparency. The Ministry can take an important step by revoking the licence and making more information available,” says Antonella Napolitano, Italian Coalition for Civil Liberties and Rights.
 
Area’s licence is currently under suspension after a review by the Ministry. Last January, CILD, Privacy International, and Hermes Center, wrote to the Ministry asking for clarification and action after an announcement that Area would be authorized to sell network monitoring technology to the Technical Research Department (TRD) – an obscure Egyptian intelligence agency. A response by the Ministry on 23 January 2017 promised that following a review process “authorization has been suspended and will be revoked at the next meeting of the Advisory Committee.”
 
Additional Background
 
The UN Human Rights Committee has raised surveillance technology exports as an area of concern for Italy’s compliance with its international obligations. Last March, during the review of Italy’s obligations under the International Covenant on Civil and Political Rights (ICCPR), the Human Rights Committee expressed its concerns about “allegations that companies in the State of the investigation provided online surveillance equipment to foreign governments who have committed serious violations of human rights,” and recommended that the Italian authorities “take measures to ensure that all companies within their jurisdiction, in particular those producing technology, respect human rights standards in their activities abroad.”
 
Additionally, the European Union is currently revising its export controls regulation in order to anchor stronger human rights standards in the process. According to the UN Guiding Principles for Business and Human Rights (UNGPs), states bear the responsibility to protect against business-related human rights harms, and to ensure through legislation, regulation, and the courts that companies operate with respect to international human rights standards.
 
  “Italy is the prime example of how the existing EU framework fails to protect activists, human rights defenders, journalists, and regular users from the detrimental impact of cyber-surveillance technology,” said Lucie Krahulcova, EU Policy Associate at Access Now. “The Commission must take action to ensure that EU member states fulfill their human rights obligations.”

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NWS_a2
11.

New Europe: “Sweden Introduces “Democracy Clause” for Arms Exports”

(Source:
New Europe, 27 June 2017.) [Excerpts.]
 
Sweden becomes the first country to set a “democracy clause” on its €1bn arms exports industry.
 
The government and the opposition have reached consensus over a law to prohibit arms sales to dictatorships with a substandard human rights record, Swedish Radio reported on Monday.
 
The “democracy clause” is expected to pass on Thursday, following an agreement between the government and the center-right opposition Alliance. The clause would outlaw sales to regimes such as Saudi Arabia, Oman, and the United Arab Emirates, where Swedish manufacturers have secured contracts in the past. Sales to such regimes may account for 20-25% of their sales, although exports are directed to the EU, Norway, South Korea, the United States, and Canada. …
 
The President of Saab, Håkan Buskhe, has warned that the “democracy clause, could mean that the company moves some of its production abroad while warning that fewer exports could raise the cost of production for the Swedish armed forces.

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COMMCOMMENTARY

COMM_a01
12. 
M.C. Horowitz: “Drones Aren’t Missiles, so Don’t Regulate Them Like They Are”

 
* Author: Michael C. Horowitz, Associate Professor of Political Science and Associate Director of Perry World House, University of Pennsylvania, horom@sas.upenn.edu.
 
This year marks the 30th anniversary of the Missile Technology Control Regime (MTCR), a voluntary arrangement founded by seven countries in 1987 to prevent the spread of longer-range cruise and ballistic missiles with the potential to carry weapons of mass destruction. Today, the MTCR has 35 member states, and while containing cruise missile proliferation has proven difficult, it has effectively slowed the spread of long-range ballistic missiles.
 
With any regime focused on controlling specific technologies, though, there is always a risk that advances in the field will outstrip the initial regulatory framework. Unfortunately, that is exactly what has happened to the MTCR in at least one respect. When the regime was set up in the 1980s, remotely-piloted aircraft-better known as drones-had a lot in common with missiles. They were generally either target drones with limited utility, designed for one-way missions to test missile accuracy, or very short-range surveillance platforms. The MTCR was therefore set up to control them too.

Current-generation drones, however, are much more akin to aircraft than missiles, because they are recoverable airframes designed to conduct increasingly sophisticated surveillance missions or launch weapons at a target and then return to base. The MTCR was never intended to regulate aircraft, a ubiquitous technology that cannot be controlled with export regimes. Regulating the export of drones and drone parts using range and payload standards relevant for missiles represents a mismatch between technology and reality, which could have negative effects. Advanced and armed drones are proliferating rapidly, many exported by China. Drone proliferation threatens to undermine the MTCR as a whole, signaling its general lack of effectiveness, if the regime purports to control the technology while clearly failing to do so. Sustaining the original intent of the regime-to halt or at least slow the spread of missiles capable of delivering weapons of mass destruction-may therefore require a new path forward. Placing drones in the same exempt category as crewed aircraft would reflect the technological reality and help preserve the integrity of the regime.
 
How does the MTCR work?
The MTCR seeks to prevent the spread of Category I missile systems, or missiles that can travel more than 300 kilometers (km) and carry a payload of more than 500 kilograms (kg). Under the regime’s guidelines, members are not permitted to export Category I items except on rare occasions. (The phrase used by the regime is that there is a “strong presumption of denial” against exporting such systems.) Compliance is voluntary, though states commit to announcing any Category I exports. Given that many airplanes can also travel more than 300 km and carry a payload of more than 500 kg, crewed aircraft are exempt.
 
Though it is not a treaty, making it more informal than agreements such as the Nuclear Nonproliferation Treaty, many analysts believe that the MTCR has played at least a modestly useful role in restricting long-range missile proliferation. Long-range rocket engines and guidance systems are difficult to design and build. Given the technological hurdles necessary to acquire long-range missiles and the membership of nearly all advanced missile producers in the MTCR, voluntary compliance has meaningfully moved the needle. Even the People’s Republic of China, though not a member, has committed itself to following MTCR guidelines since 1991.

Drone evolution.
If current-generation drones are more like crewed aircraft than other systems, how did they end up wrapped up in the MTCR in the first place? Drones were once considered a subset of cruise missiles because they had active guidance, and were generally used for target practice. However, developments in drone technology over the last few decades mean that the real-world uses of drones by national militaries bear little if any resemblance to the technologies of the late 1980s and early 1990s. The regime originally included drones out of fear they could be used as cruise missiles armed with weapons of mass destruction. Today’s drones, though, are much more like aircraft than cruise missiles. Like aircraft, drones such as China’s CH-4, Israel’s Heron TP, or the United States’s MQ-9 Reaper can stay in the air for hours or days to conduct surveillance missions, and they increasingly have the ability to launch precision-guided missiles, such as the Hellfire in the case of the MQ-9 Reaper. The RQ-4 Global Hawk used by the United States even carries much of the same surveillance equipment as the crewed U-2 aircraft. While one could still put a weapon of mass destruction on a drone and fly it into a target, rather than use it as a recoverable airframe, the same is true of aircraft.

Yet the MTCR has not changed, meaning that members including the United States subject themselves to export control rules for drones with range (300km) and payload (500kg) restrictions meant to apply to missiles. These restrictions are arbitrary when applied to current-generation drones, since they do not represent any meaningful break-point in capability. Furthermore, given that drone technology continues to advance, the conceptual mismatch between the reality of military drones and their inclusion in the MTCR will only become clearer in the years ahead. The restrictions also mean that, functionally, it is harder for a country such as the United States to export an unarmed MQ-9 Reaper drone to a NATO ally than it is to sell them an F-35, precision guided munitions, or a tank. 

A path forward
. Politically there is no easy way to proceed, because the MTCR operates by consensus, but an exemption for drones similar to the one for crewed aircraft could represent a credible step forward. Such an exemption would reflect today’s technological realities and help the regime move forward. The goal should be to strengthen its ability to do what it was designed to do in the first place: prevent the spread of long-range ballistic and cruise missiles with the ability to deliver weapons of mass destruction.
 
A substantive criticism of this proposal might be that, even if including drones in the MTCR is arbitrary based on the reality of today’s technology, an overly restrictive policy is good because it helps prevent the spread of systems that could be used for targeted killings or domestic repression. Unfortunately, the current approach to drones within the MTCR framework is not substantially limiting drone proliferation, as a new report from the Center for a New American Security makes clear. (Full disclosure: I am one of the authors of the report.) Drone exports are increasing anyway, and both states and non-state actors have a growing ability to use commercial technology to build their own armed drones. Put another way, drone proliferation is inevitable: About 17 countries already have armed drone capabilities and more than a dozen are pursuing them. Of those countries, six or seven have acquired them in just the last two years, meaning the rate of proliferation is accelerating.
 
The United States has only exported armed drones to one country, the United Kingdom, though it also approved a sale that would arm previously unarmed MQ-9 Reaper drones it sold to Italy in 2011. China, however, has reportedly exported armed drones to 10 countries (Egypt, Iraq, Jordan, Kazakhstan, Myanmar, Nigeria, Pakistan, Saudi Arabia, Turkmenistan, and the United Arab Emirates), and another six countries have built armed drones themselves (China, Iran, Israel, Russia, Turkey, and the United States). Iran has allegedly exported drones to Hezbollah, a non-state militant group. Essentially, suppliers exist that can deliver significant capabilities, and countries are beginning to have success at designing their own advanced and armed drones.
 
Moreover, to claim technical compliance with MTCR guidelines, the armed drones China exports (the CH-3, Wing-Loong, and CH-4B) tend to have publicly announced payloads that fall just under 500 kg. (Countries voluntarily declare whether their platforms pass the Category I threshold, but there is no way to verify whether their statements about payload size are accurate.) Similarly, later this year, the Israeli firm IAI will deliver 10 armed Heron TP drones to India as part of a contract signed in 2015. IAI says that the exported variant of the Heron TP has a payload of 450 kg, in contrast to the more capable Israeli-operated variant, which is a Category I system. Why does this matter? There is nothing inherently consequential about the difference between 450 kg and 500 kg when it comes to the capabilities of a current-generation drone. In fact, what enables a country to operate a drone effectively is not a 50 kg difference in payload, but whether it has the organizational capacity to integrate large amounts of intelligence, surveillance, and reconnaissance data in real time. Nevertheless, continued gaming of the system undermines the MTCR as a whole by demonstrating that it cannot succeed over time in significantly restricting the number of states with militarily relevant drones.
 
If drone proliferation is inevitable, the logic of using arbitrary and overly restrictive MTCR guidelines to govern their export is unpersuasive. Rather than making drone proliferation less likely, the MTCR as presently constructed simply shifts who supplies armed drones, and incentivizes countries to develop their own.
 
A threat to the MTCR.
Inaction also creates risks. The current approach to grouping drones in the MTCR threatens to undermine the regime as a whole.
 
First, it links two disparate issues, drones on the one hand and cruise or ballistic missiles on the other, so that exports by MTCR members of the former could undermine the regime’s rules against exporting the latter. Countries seeking to sell surveillance drones to allies, for example, could see their exports used by another member to justify that member’s ballistic missile sales.

Second, the spread of drones despite the MTCR framework undermines its perceived effectiveness.
 
Third, the MTCR is under pressure from other avenues. Intermediate-range cruise and ballistic missiles could represent an important capability for US allies and partners seeking to build their capacity to impose costs on potential aggressors, especially in the Pacific. Addressing the legitimate issues that MTCR members may have with regards to missile proliferation will become harder due to distraction caused by the drone export debate.
 
Another option, and one that could be pursued in tandem with an exemption, would be for current members, or a broader set of nations, to pursue a separate export agreement for drones.
 
Regardless of what path members choose, the status quo appears increasingly unsustainable as advanced and armed drones spread widely; they could become as widespread as fighter aircraft or tanks within a generation. Therefore, while opening a discussion on MTCR reforms might seem risky, failing to pursue reforms might be even riskier, because if the regime as a whole is weakened, broader proliferation of long-range ballistic and cruise missiles would become more likely.

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COMM_a213
M. Volkov: “The Importance of Compliance Program Audits”

(Source: Volkov Law Group Blog. Reprinted by permission.)
 
* Author: Michael Volkov, Esq., Volkov Law Group, mvolkov@volkovlaw.com, 240-505-1992.
 
Chief Compliance Officers (CCOs) spend a significant amount of time comparing their compliance programs with other companies’ programs. CCOs often find solace when benchmarking their respective programs against other companies’ programs. I often refer to “benchmarking” as a process designed to reduce anxiety.
 
CCOs need feedback on their efforts. CCOs want to know where they stand and develop priorities for initiatives. So where should CCOs turn?
 
As a profession, CCOs are willing to share information, techniques and strategies with each other. Unlike other professions, compliance officers are cooperative and very helpful to each other. CCOs should take advantage of the ability to share with other professionals, and use such information to provide some feedback or context for their own program.
 
Rather than spending so much time on “benchmarking,” and comparing themselves to industry or professional standards, CCOs should focus more attention on conducting self-assessments, reviews and audits. By relying on internal compliance audits, CCOs will quickly identify issues that need to be addressed. To carry this process out, CCOs need to create their own internal review process.
 
Most CCOs rely on internal audit to check compliance issues while conducting specific audit projects. While helpful, using the piggyback strategy is not a very effective approach. CCOs need to jettison their reliance on internal audit, and expand their own operation to include compliance reviews.
 
A compliance program audit program should be developed each year. Such a program allows the CCO to identify and manage program priorities, learn about potential weaknesses, and develop a continuous process. In conducting such audits, compliance officers should rely on risk-ranking, sampling and transaction testing to leverage existing resources and conduct as many compliance audits as possible.
 
Where appropriate, compliance reviews can be coordinated with internal audit. In these situations, a joint compliance and financial audit is an ideal. However, compliance reviews can be conducted remotely, although on-site audits are preferable. Given this situation, some compliance audits can be conducted remotely and some in coordination with internal audit. This underscores the need for CCOs and internal audit to coordinate on their priorities and activities.
 
Compliance program audits can be organized and scheduled on a continuous basis. Relevant findings can be addressed and the schedule adjusted based on identified issues. Compliance reviews can be focused on specific geographic operations or functions such as third party due diligence and contracting.
 
Compliance program audits provide important metrics that can be used as a basis to report to senior management and the board. A CCO can learn valuable information by comparing audit data from one year to another. This information, in turn, provides relevant data for assessing the compliance program.
 
To the extent a CCO cannot secure resources needed to conduct such audit programs, CCOs have contracted with outside consultants and law firms to audit their compliance program. While such audits are helpful, a CCO should seek to develop a consistent, in-house approach, using internal resources.
 
An effective compliance program requires comprehensive assessments, audits and reviews. CCOs know they are required to satisfy this basic requirement. Whether CCOs use internal resources or rely on outside providers, CCOs need to attend to this issue and develop more robust strategies rather than the piggyback approach using internal audit resources.

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COMM_a3
14. R.C. Burns: ” OFAC Fines AIG for Drafting Error in Global Insurance Policies”

(Source:
Export Law Blog
. Reprinted by permission.)
 
* Author: R. Clifton Burns, Esq., Bryan Cave LLP, Wash DC,
Clif.Burns@bryancave.com
, 202-508-6067).
 
Monday, the Office of Foreign Assets Control (“OFAC”) announced that insurance giant AIG had agreed to pay $148,698 to settle charges that it had insured 555 shipments involving Sudan, Iran and Cuba. Although some of the apparent violations involved single shipment policies to the sanctioned destinations or paying claims under global policies on shipments to those destinations, others involved simply accepting premiums under global insurance policies that were later used to cover shipments on which no claims were made to sanctioned destinations.
 
In November of last year, OFAC provided guidance on how global insurance policies should deal with U.S. economic sanctions
 
The best and most reliable approach for insuring global risks without violating U.S. sanctions law is to insert in global insurance policies an explicit exclusion for risks that would violate U.S. sanctions law. For example, the following standard exclusion clause is often used in open marine cargo policies to avoid OFAC compliance problems: “whenever coverage provided by this policy would be in violation of any U.S. economic or trade sanctions, such coverage shall be null and void.” The legal effect of this exclusion is to prevent the extension of a prohibited service (insurance or risk assumption) to sanctioned countries, entities or individuals. It essentially shifts the risk of loss for the underlying transaction back to the insured – the person more likely to have direct control over the economic activity giving rise to the contact with a sanctioned country, entity or individual. [11-16-07]
 
This is a sensible and reasonable policy with respect to global insurance policies. So, you must be assuming, AIG must have left the language cited above out of its global policies and that led to the fines. But you would be wrong. OFAC said this about the AIG global policies:
 
While a majority of the policies were issued with exclusionary clauses, most were too narrow in their scope and application to be effective.
 
And how were they “too narrow in their scope and application”? OFAC is not saying. Apparently, OFAC thinks it will be easier to fine other insurance companies later if it keeps secret the drafting errors in the global policies that made the exclusionary clauses in the AIG global policies “too narrow in their scope and application.” And what about those clauses other than most clauses that were too narrow?  Why was AIG being fined for shipments under policies where the exclusionary clauses were acceptable?
 
Worse yet, after staying mum on what was wrong with “most” of AIG’s exclusionary clauses beyond being “too narrow,” OFAC has the nerve to say this in its announcement:
 
This enforcement action highlights the important role that properly executed exclusionary clauses play in the global insurance industry’s efforts to comply with U.S. economic sanctions programs
.
 
If “properly executed exclusionary clauses” are so gosh-darned important, then why on earth does OFAC refuse to give the insurance industry a single clue as to what exactly are  “properly executed exclusionary clauses” and what was wrong with “most” of the clauses in the AIG global policies? Did they leave out the word “void” from the recommended language? Did they just say “U.S. economic sanctions” instead of “U.S.economic or trade sanctions”?  How hard would it have been for the agency to say precisely and specifically what was wrong with AIG’s exclusionary clauses?  This just underscores the perception that OFAC is more interested in terrifying than regulating U.S. businesses.

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MSEX/IM MOVERS & SHAKERS

MS_a115. Blount Stewart Moves to Raytheon

(Source: Editor)

Blount Stewart has moved from United Technologies Corporation to his new position as Senior Manager, Global Trade Licensing, for Raytheon, in their Rosslyn, VA, office. Contact Blount at 
blount.stewart@raytheon.com or (703) 284-4340.

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MSEX/IM EVENTS & CONFERENCES

EC_a116. ECS Presents ITAR/EAR Boot Camp in Seattle, 11-12 July

(Source: Suzanne Palmer, spalmer@exportcompliancesolutions.com)
 
* What: ITAR/EAR Boot Camp, Seattle, WA.
* When: 11-12 July 2017.
* Sponsor: Export Compliance Solutions (ECS).
* ECS Speaker Panel:  Suzanne Palmer, Mal Zerden.
* Register
here
or by calling 866-238-4018 or e-mail
spalmer@exportcompliancesolutions.com.

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ENEDITOR’S NOTES

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Jean-Jacques Rousseau (28 Jun 1712 – 2 Jul 1778, was a Francophone Swiss philosopher, writer, and composer of the 18th century. His political philosophy influenced the Enlightenment in France and across Europe, as well as aspects of the French Revolution and the overall development of modern political and educational thought.)
  – “Patience is bitter, but its fruit is sweet.”
  – “A feeble body weakens the mind.”
 
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John Wesley (28 Jun 1703 – 2 March 1791, was an English Anglican cleric and theologian who, with his brother Charles and fellow cleric George Whitefield, founded Methodism.)
  – “Catch on fire and people will come for miles to see you burn.”

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EN_a318
. 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.
 
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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. 
 
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CUSTOMS REGULATIONS
: 19 CFR, Ch. 1, Pts. 0-199
  – Last Amendment: 27 Jan 2017: 82 FR 8589-8590: Delay of Effective Date for Importations of Certain Vehicles and Engines Subject to Federal Antipollution Emission Standards; and 82 FR 8590: Delay of Effective Date for Toxic Substance Control Act Chemical Substance Import Certification Process Revisions.

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

* EXPORT ADMINISTRATION REGULATIONS (EAR): 15 CFR Subtit. B, Ch. VII, Pts. 730-774 
  – Last Amendment: 22 Jun 2017: 82 FR 28405-28410: Russian Sanctions: Addition of Certain Entities to the Entity List

  
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FOREIGN ASSETS CONTROL REGULATIONS (OFAC FACR)
: 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders
  – Last Amendment: 16 Jun 2017: 82 FR 27613-27614: Removal of Burmese Sanctions Regulations 
 
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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.
 
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HARMONIZED TARIFF SCHEDULE OF THE UNITED STATES (HTS, HTSA or HTSUSA)
, 1 Jan 2017: 19 USC 1202 Annex. (“HTS” and “HTSA” are often seen as abbreviations for the Harmonized Tariff Schedule of the United States Annotated, shortened versions of “HTSUSA”.)
  – Last Amendment: 7 Mar 2017: Harmonized System Update 1702, containing 1,754 ABI records and 360 harmonized tariff records. 
  – HTS codes for AES are available
here
.
  – HTS codes that are not valid for AES are available
here.
 
INTERNATIONAL TRAFFIC IN ARMS REGULATIONS (ITAR): 22 C.F.R. Ch. I, Subch. M, Pts. 120-130.
  – Latest Amendment: 11 Jan 2017: 82 FR 3168-3170: 2017 Civil Monetary Penalties Inflationary Adjustment
  – The only available fully updated copy (latest edition 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
here

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EPEDITORIAL POLICY

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

* RIGHTS & RESTRICTIONS: This email contains no proprietary, classified, or export-controlled information. All items are obtained from public sources or are published with permission of private contributors, and may be freely circulated without further permission. Any further use of contributors’ material, however, must comply with applicable copyright laws.

* CAVEAT: The contents of this newsletter cannot be relied upon as legal or expert advice.  Consult your own legal counsel or compliance specialists before taking actions based upon news items or opinions from this or other unofficial sources.  If any U.S. federal tax issue is discussed in this communication, it was not intended or written by the author or sender for tax or legal advice, and cannot be used for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing, or recommending to another party any transaction or tax-related matter.

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