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17-0705 Wednesday “Daily Bugle”

17-0705 Wednesday “Daily Bugle”

Wednesday, 5 July 2017

TOP
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 
here for free subscription.  Contact us
for advertising inquiries and rates(The Daily Bugle was not published yesterday, 4 July, U.S. Independence Day.)

  1. President Delegates Authority Under the National Defense Authorization Act for Fiscal Year 1998
  1. Ex/Im Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.)
  3. DHS/CBP Updates Schedule B and HTS in AES
  4. State/DDTC Posts DTAG Tasking Letter
  5. EU Council Releases Declaration on the Alignment of Certain Countries Concerning Restrictive Measures Against the Democratic Republic of the Congo
  6. UK/DIT ECO Publishes Notice on EU Sanctions Concerning Ukraine and Russia
  1. Reuters: “Siemens Turbines Delivered to Crimea Despite Sanctions”
  1. C. Johnson: “If You Give a Mouse a Cookie: Ongoing Regulatory Monitoring Increasing in Federal and State Non-Compliance Resolution”
  2. J.E. Bartlett: “ICPA Half-Price Membership Drive”
  3. M. Fey: “The Increasing Salience of 3D Printing for Nuclear Non-Proliferation”
  4. T. Gorman, Z. Davison & C. Richards: “Effective FCPA Compliance Programs: Building a Compliance Defense”
  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 (28 Jun 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. President Delegates Authority Under the National Defense Authorization Act for Fiscal Year 1998

(Source: Federal Register)
 
82 FR 31239: Memorandum of June 29 2017; Delegation of Authority Under the National Defense Authorization Act for Fiscal Year 1998
 
  Memorandum for the Secretary of Commerce
 
By the authority vested in me as President by the Constitution and the laws of the United States of America, including section 301 of title 3, United States Code, I hereby delegate to the Secretary of Commerce the functions and authorities vested in the President under section 1211 of the National Defense Authorization Act for Fiscal Year 1998 (Public Law 105-85) (the ”Act”), to prepare and submit required reports and justifications to appropriate congressional committees on changes to levels governing prior notification for exports to Computer Tier 3 countries, or removal of a country from Computer Tier 3 status, in the Department of Commerce’s Export Administration Regulations.
 
The delegation in this memorandum shall apply to any provision of any future public law that is the same or substantially the same as section 1211 of the Act.
 
You are authorized and directed to publish this memorandum in the Federal Register.
 
  (Presidential Sig.)
 
THE WHITE HOUSE,
Washington, 29 June 2017

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OGSOTHER GOVERNMENT SOURCES

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

[No items of interest noted today.]
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OGS_a34.

DHS/CBP Updates Schedule B and HTS in AES

(Source:
CSMS# 17-000391, 5 July 2017.)
 
Effective immediately, the Schedule B, Harmonized Tariff Schedule (HTS), and HTS Codes That Are Not Valid for AES tables have been updated to accept the changes to the 1 July 2017 codes.
 
AES will accept shipments with outdated codes during a grace period for 30 days beyond the expiration date of 30 June 2017. Reporting an outdated code after the 30-day grace period will result in a fatal error.
 
The ACE AESDirect program has been updated with the 2017 codes and will accept shipments with outdated codes during the grace period as well.
 
The 2017 Schedule B and HTS tables are available for downloading here. The current list of HTS codes that are not valid for AES are available here.
 
For further information or questions, contact the U.S. Census Bureau’s International Trade Indicator Micro Analysis Branch.
 
  – Telephone: (800) 549-0595, select option 2 for International Trade Indicator Micro Analysis Branch
  – Email: eid.scheduleb@census.gov
  – Online:
www.census.gov/trade

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OGS_a45
.

State/DDTC Posts DTAG Tasking Letter

 
DDTC has published a 12 June Defence Trade Advisory Group (DTAG) Tasking Letter on its website. To read more about DTAG’s recent activities, click on the source link above.
 
Note
: The DTAG, established as a continuing committee under the authority of 22 U.S.C. 2656 and the Federal Advisory Committee Act, provides the Bureau of Political-Military Affairs with a formal channel for regular consultation and coordination with U.S. private sector defense exporters and defense trade specialists on issues involving U.S. laws, policies, and regulations for munitions exports. The DTAG advises the Bureau on its support for and regulation of defense trade to help ensure that impediments to legitimate exports are reduced while the foreign policy and national security interests of the U.S. continue to be protected and advanced in accordance with the Arms Export Control Act, as amended.
 
DTAG members are appointed by the Assistant Secretary of State for Political-Military Affairs on the basis of individual substantive and technical expertise and qualifications, and are drawn from a representative cross-section of U.S. defense industry, association, academic, and foundation personnel, including appropriate technical and military experts.

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OGS_a56
. EU Council Releases Declaration on the Alignment of Certain Countries Concerning Restrictive Measures Against the Democratic Republic of the Congo

 
On 29 May 2017, the EU Council adopted Decision (CFSP) 2017/905 [FN/1] implementing Council Decision 2010/788/CFSP.
 
The Decision amends the list of persons and entities subject to restrictive measures as set out in Annex II to Decision 2010/788/CFSP, adding nine persons to the list.
 
The Candidate Countries the former Yugoslav Republic of Macedonia*, Montenegro* and Albania*, and the EFTA countries Iceland, Liechtenstein, members of the European Economic Area, as well as the Republic of Moldova align themselves with this Council Decision. 

They will ensure that their national policies conform to this Council Decision. 
The European Union takes note of this commitment and welcomes it.
 
——–
  [FN/1] Published on 29.05.2017 in the Official Journal of the European Union no. L 138, p. 6.
  * The former Yugoslav Republic of Macedonia, Montenegro and Albania continue to be part of the Stabilisation and Association Process.

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OGS_a67
. UK/DIT ECO Publishes Notice on EU Sanctions Concerning Ukraine and Russia

(Source:
UK/DIT ECO)   
 
The Export Control Organisation (ECO) of the UK Department of International Trade (DIT) has published the following Notice (2017/12):
 
The EU has renewed its territorial sanctions on Crimea and Sevastopol (Council Decision [CFSP] 2017/1087) until 23 June 2018, and its territorial sanctions on Russia (Council Decision [CFSP] 2017/1148) until 31 January 2018.
 
  (1) Crimea and Sevastopol
 
Council decision 2014/386/CFSP of 23 June 2014 introduced restrictions on goods originating in Crimea or Sevastopol, in response to the illegal annexation of Crimea and Sevastopol. The decision has been amended several times and the measures in place now include:
 
  – ban on imports of goods from Crimea or Sevastopol
  – ban on investment in real estate in Crimea and Sevastopol  
  – ban on investment in entities in Crimea and Sevastopol
  – embargo on certain goods and technology for use in certain sectors (transport, telecommunications, energy, oil, gas and mineral resources)
  – ban on provision of certain services (related to such goods and technology)
  – ban on provision of certain services related to infrastructure in certain sectors (transport, telecommunications, energy, oil, gas and mineral resources)
  – ban on provision of certain services related to tourism
  – prohibition for certain ships to enter ports in Crimea and Sevastopol
 
On 19 June the EU renewed the restrictive measures and these will remain in place until 23 June 2018.
 
  (2) Russia
 
Council decision 2014/512/CFSP of 23 June 2014 introduced EU economic sanctions in response to Russia’s destabilising role in Eastern Ukraine. As a reminder to exporters, the restrictive measures include:
 
  – an arms embargo
  – a prohibition on supply of dual-use items which are or may be intended for military end-use or for a military end-user in Russia
  – requirement of an export licence for the export of certain energy-related equipment and technology to Russia (or any other country if such equipment or technology is for use in Russia)
 
On 28 June the EU renewed the restrictive measures and these will remain in place until 31 January 2018.

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NWSNEWS

NWS_a18
.

Reuters: “Siemens Turbines Delivered to Crimea Despite Sanctions”

(Source:
Reuters, 5 July 2017.)
 
Russia has delivered electricity turbines made by Germany’s Siemens to Crimea, a region subject to European Union sanctions barring EU firms from supplying it with energy technology, three sources with knowledge of the delivery told Reuters.
 
Reuters was unable to determine if Siemens knew of or condoned the equipment transfer, but the move exposes the German company to potential accusations of indirect sanctions-busting and of not taking sufficient safeguards to ensure its equipment does not end up on territory most countries view as illegally annexed, say legal experts.
 
  “Siemens has not delivered turbines to Crimea and complies with all export control restrictions,” said Wolfram Trost, a spokesman for Siemens in Munich, when asked to confirm the turbine transfer to Crimea.
 
Citing client confidentiality, he did not answer written questions asking whether Siemens was aware that the turbines had been shipped to Crimea and whether it would now be activating or servicing them.  . . .
 
Russia’s Energy Ministry, which oversees the Crimea power plants project, declined to comment. It referred questions to Technopromexport, the Russian state-owned firm which is building the plants. Technopromexport declined to comment.  . . .

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COMMCOMMENTARY

COMM_a01
9.
C. Johnson: “If You Give a Mouse a Cookie: Ongoing Regulatory Monitoring Increasing in Federal and State Non-Compliance Resolution”

 
* Claire Johnson, Esq., Farella Braun + Martel LLP. To contact the office, go here.
 
Earlier this year we highlighted the growing trend of regulators asserting continuing post-investigation control over the operations of companies accused of compliance failures. At the state level, we highlighted a deal reached between the California Department of Industrial Relations (DIR) and Zenefits, a privately-held health care brokerage firm, in which the DIR agreed to forgive half of a $7 million fine in exchange for continuing audits to evaluate future compliance with state regulations.
 
At the federal level, we’re seeing the same trend. As a new report shows, in 2016 the Department of Justice entered more Deferred Prosecution (DPA) or non-prosecution agreements (NPA) than in any year since 2011 (excluding the Swiss bank common NPA of 2015). DPAs and NPAs avoid company criminal convictions, but often come with onerous and intrusive restrictions on a company’s ongoing operations. The authors of the new report state, “the vast regulatory powers that the government assumes over businesses through DPAs and NPAs have no statutory authorization and would never be permissible remedies in a court of law,” including:
 
  – “Firing key employees, including chief executives;
  – Hiring new corporate officers and setting up new company departments and board committees;
  – Hiring “independent” corporate monitors who are given broad investigatory and oversight powers but report to the government;
  – Modifying compensation plans; and
  – Modifying sales and marketing practices.”
 
The report points out that in 2016, for the first time, a majority of DPAs and NPAs required that the company under investigation embed a “corporate monitor” in their organization. These third-party monitors, who are required to report to federal regulators but are paid for at company expense, are responsible for assessing and monitoring corporate compliance with the terms of the DPA or NPA. However, they are also tasked with reporting any misconduct they uncover, not just wrongdoing associated with the subject of the DPA or NPA. Moreover the imposition of corporate monitors is not just limited to public companies. As far back as 2011 the privately-held home nursing care company Maxim Healthcare Services, Inc. entered into a DPA was forced to hire an independent monitor selected by federal law enforcement, in addition to paying $150 million in civil and criminal penalties.
 
Given the growing state and national trend of strings-attached prosecution agreements for both private and public companies accused of wrongdoing, ongoing government oversight and monitoring may be becoming an inevitable fact of life.

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COMM_a2
10J.E. Bartlett: “ICPA Half-Price Membership Drive”

 
* Author: James E. Bartlett, Principal, Law Office of James E. Bartlett III, PLLC,
JEBartlett@JEBartlett.com, +1 202-802-0646; and Partner, Full Circle Compliance.
 
The International Compliance Professionals Association (ICPA) is an organization I recommend for compliance professionals. (I have been a member for many years, was a member of the ICPA Board and US Counsel to ICPA in the past, and I am a frequent speaker at ICPA conferences.) ICPA’s purpose is to:
 
  – Create an On-Line Network for global import and export problem-solving
  – Facilitate networking opportunities among the membership body
  – Provide opportunities for resource sharing and benchmarking opportunities
  – Disseminate information on international trade related matters
  – Facilitate Job Opportunities
  – Provide Education and Training including Conferences, Seminars and Webinars
 
CPA is having a half price membership drive for “regular” members. These are people who work at an importer / exporter that makes or sells a product of some kind. To take advantage of this go here and click on JOIN/RENEW tab at the top of the screen. Look for the promo special. At the bottom of the sign-up page you will see a “Referred By” space.  Please enter: “Jim Bartlett”.

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COMM_a3
11. M. Fey: “The Increasing Salience of 3D Printing for Nuclear Non-Proliferation”

 
* Author: Marco Fey, Research Associate, International Security Department, Peace Research Institute Frankfurt, fey@hsfk.de.
 
A growing number of defense-industrial 3D printing fairs, print-a-thons and the amount of defense dollars, particularly in the US, going into the technology of 3D printing speak to the fact that the defense industry and some countries’ armed forces recognize the great potential of the technology. 3D printing indeed allows the quicker, cheaper, and easier development of weapons, and even entirely new weapon designs. This applies to the full range of weapons categories: Small arms and light weapons (e.g. guns, guns, guns and grenade launchers), conventional weapon systems (drones, tanks, missiles, hypersonic scramjets) – and possibly even weapons of mass destruction.
 
3D printing, or additive manufacturing (AM), is increasingly adopted by various industries for rapid prototyping, the production of very complex objects in small numbers, and even the rapid production of end parts. Because of the features associated with 3D printing, particularly the high flexibility, the technology is, in a sense, the epitome of dual-use: One and the same 3D printer can produce both tools and weapons. A growing concern in the international security realm is that 3D printing could help a proliferating state in its quest for a secret nuclear weapons program.
 
In particular metal additive manufacturing, that is the printing of metals such as maraging steel, aluminum alloys or carbon fiber, could have an impact on a country’s path to the bomb. The US National Laboratories, for example, which are in charge of maintaining and advancing the US nuclear weapons stockpile, are at the forefront of research and development in the field of metal additive manufacturing. 3D printing enables the labs to drive down the costs of stockpile maintenance, work with new materials, and produce stronger and yet lighter parts. Also the civilian nuclear industry is increasingly looking into 3D printing: Siemens recently installed a printed metal part at the Krsko nuclear power plant in Slovenia and the China Nuclear Power Research Institute claims to have printed a 400kg metal pressure vessel cylinder.
 
  3D Printing and Nuclear Proliferation?
 
Of course, no one argues that – with today’s state of the technology – a complete nuclear weapon could possibly be printed. It is simply impossible to print the critical part of a nuclear weapon, the nuclear core containing fissile material (highly enriched uranium or plutonium), tamper, and explosives – just as it is impossible to print entire gas centrifuges for the enrichment of uranium. But that does not mean that the technology should not be carefully watched from a non-proliferation perspective. Recent analyses, in particular Matthew Kroenig and Tristan Volpe’s 2015 Washington Quarterly article, Grant Christopher’s 2015 Strategic Trade Control piece and Robert Kelley’s 2017 Non-Proliferation paper, point to the technology’s potential for use in a number of nuclear proliferation activities. A couple of high-profile events with government participation, including an emerging technologies workshop at the International Atomic Energy Agency in Vienna in February and a Carnegie Endowment for International Peace workshop in May on “The Impact of Additive Manufacturing on Nuclear Proliferation”, put together by Tristan Volpe, testify to the issue’s increasing salience.
 
As I have argued in a recent PRIF Report, additive manufacturing may in fact present serious challenges for the nuclear non-proliferation regime sooner than it is currently believed. Should the technology continue to advance as rapidly as it has over the past couple of years, 3D printing could make the (clandestine) pathway to the bomb easier in five ways: 
     Firstly, the technology could significantly increase the indigenous manufacturing capabilities of countries. Certain components and materials needed for a nuclear weapons program, which are difficult to obtain because their export is controlled, could then be manufactured additively. 
     Secondly, the wider diffusion of additive manufacturing processes could have an indirect impact on proliferation, as it increases a proliferator’s autonomy. A decreased dependence on imports, for example, of spare parts for the energy or other high-tech sectors, reduces the effectiveness of international sanction regimes. This would potentially undermine sanctions and with that a central non-proliferation instrument. 
     Thirdly, 3D printing significantly decreases development cycles and lead times to a degree that, for an indigenous nuclear weapons program, ‘trial and error’ may substitute a lack of engineering skills and expertise in metal-working, for example, in rolling, milling, or forging. Fourthly, 3D printers, software, and 3D scanning technology could facilitate the easier transfer of know-how and construction plans due to AM’s high proportion of cyber-automation. 
     Finally, additive manufacturing might also decrease the ‘footprint’ of production facilities for nuclear weapon parts, which might make it harder to detect illicit activities.
 
  Mitigating the Risks
 
What, then, can be done to balance the huge opportunities of 3D printing with the risks and challenges its further development, adaptation, and diffusion present to nuclear non-proliferation efforts? The lowest hanging fruit is awareness-raising. Export control authorities, customs officers, law enforcement agencies, and IAEA weapons inspectors should be trained and educated to recognize potentially dangerous items or illicit shipments. IAEA weapons inspectors as well as intelligence services will have to adapt to new manufacturing setups for illicit and clandestine activities, but also to new supply chains. Awareness should also be raised in the academic context. Similar to dual-use research of concern (DURC) measures in the (life) sciences, engineering departments in universities and other research institutions operating 3D printers or otherwise engaging in additive manufacturing R&D should have policies in place that minimize the risk of malevolent use of their equipment and know-how.
 
Industry self-regulation and best practices is another low hanging fruit. Some major technology providers refrain from doing business with certain countries or suspicious companies. National and transnational industry associations could pick that up and adopt sets of best practices on where and when to refrain from exporting printers, software, materials, or know-how.
 
Another set of proposals focuses on strengthening cyber security. The danger that digital build files of critical items proliferate as a result of cyber espionage or cyber theft must be minimized through more effective protection of critical IT infrastructures, including the 3D printers’ firmware. Compartmentalizing build files, their decentralized storage, and encryption of the data is also mentioned in this regard. Smart contracting technology could be applied as a further safeguard that prevents a stolen file from being printed.
 
Incorporating safeguards against unintended use directly into software, hardware, and even materials is somewhat more complicated and would require creative solutions. Kroenig and Volpe suggest incorporating a single-use mechanism into digital build files which corrupts them after they have completed their task once. With regard to AM hardware, they propose placing unique IDs on metal printers and corresponding markings on every object produced by these printers. This could be helpful for tracking and tracing the whereabouts of high-end printers, possibly by the IAEA.
 
Another measure that could help preventing the use of 3D printing for illicit nuclear weapons activities is export controls. Both Kroenig and Volpe and Christopher propose amending existing export control guidelines with technological parameters of AM machines (e.g. printers’ axes, power of lasers, etc.). As to printing materials, most special metallic powders are already on the EU dual-use control list with the notable exception of maraging steel powder. The Nuclear Suppliers Group (NSG) discusses and defines which critical technologies, items, materials and know-how should be placed on dual-use export control lists. It put additive manufacturing on its agenda – as have other export control regimes. However, it is not easy to find a sustainable approach on controlling additive manufacturing. For one, the genie is already out of the bottle as many countries outside the NSG have indigenous 3D printing industries and technology providers. Moreover,  the technology advances in such a rapid pace – with new metal additive manufacturing techniques like Fraunhofer’s 3D screen printing, the University of Sheffield’s diode area melting, Vader System’s MagnetoJet liquid metal printing, or Markforged’s atomic diffusion additive manufacturing being but four examples – that the export control regimes would constantly have to chase such developments and amend the control lists. And finally, there seems to be no real sense of urgency within the export control regimes as there remain doubts regarding the technology’s maturity.
 
Hence, the search for viable means that would minimize the security risks associated with 3D printing without at the same time minimizing its opportunities should continue with a greater sense of urgency. It requires more debate and input from all stakeholders. Above all, authorities, decision makers, industry and academia should place the security policy dimension more firmly on the agenda.

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COMM_a0412T. Gorman, Z. Davison & C. Richards: “Effective FCPA Compliance Programs: Building a Compliance Defense”

 
* Authors: Thomas O. Gorman, Esq., gorman.tom@dorsey.com; Zach Davison; Esq., davison.zach@dorsey.com; and Chad Richards, Esq., richards.chad@dorsey.com. All of Dorsey & Whitney LLP.
 
The classic 1957 American mystery film “Three Faces of Eve,” about a woman with multiple personalities, may well describe the approach taken by the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) in evaluating the effect company compliance programs have in enforcement proceedings. Both enforcers reject the notion of a compliance defense. Both agree that compliance is key in remediating wrongful conduct and preventing its reoccurrence in the future. And, both agree that effective compliance can result in a declination even if a violation is found.
 
Recent comments by the DOJ’s compliance expert, posted on LinkedIn, appear to mirror the schizophrenic approach the federal government takes to compliance. Hui Chen, former DOJ compliance counsel, chided the authors of unidentified compliance articles for a “lack of precision and intellectual rigor.” [FN/1] Recommendations from compliance professionals should be built on “substantiation,” evidence, accuracy, and conclusions tethered to clearly articulated logic, according to the comments. Compliance professionals should avoid relying on generalized statements or hyperbole and should be “more specific and concrete,” Ms. Chen wrote.
 
The point of Ms. Chen’s posting is difficult to ascertain. No one would dispute the fact that guidance on the subject should be founded on appropriate evidence and principles. No one would argue that companies need to tailor their compliance systems to the specific situations faced by the business-a “one size fits all” approach is inappropriate.
 
Ms. Chen’s LinkedIn comments, however, concern articles and blogs that of necessity discuss general principles and building blocks, which ultimately serve as the predicate for compliance systems. Viewed in this context, the remarks are puzzling. If the point was to remind compliance professionals to start with the basic building blocks and apply those principles to the specific circumstances of the firm, then the comments serve a useful purpose, although somewhat awkwardly presented.
 
Indeed, viewed in this context, the first critical step for firms seeking to build a compliance program to overcome the government’s unhinged approach to compliance should begin with the principles detailed by the DOJ and SEC in their guide on the FCPA. [FN/2] Those principles require as follows:
 
  – Tone at the Top: “… compliance begins with the board of directors and senior executives setting the proper tone for the rest of the company.” Id. at 57. This necessitates more than a well-written program. It requires that the firm create a dynamic, pervasive culture that demands fair play.
 
  – Code of Conduct: The foundation of any system is often the code of conduct. The Guide states that the policies and procedures of an organization should “outline responsibilities for compliance within the company, detail proper internal controls, auditing practices, and documentation policies, and set forth disciplinary procedures …” Id. at 57-58. These can take a variety of forms, such as a web-based compliance program for the approval of routine gifts, travel, and entertainment.
Responsibility: Critical to any program is assigning responsibility “for oversight and implementation of a company’s compliance program to one or more specific senior executives within the organization. Those individuals must have appropriate authority within the organization, adequate autonomy from management, and sufficient resources …” Id. at 58.
 
  – Risk Assessment: Fundamental to an effective compliance program is risk assessment. One size does not fit all, nor does it fit every part of a single organization. The approach and procedures may differ across an entity depending on the risks assessed. The Guide states that factors to be considered by an organization “include risks presented by: the country and industry sector, the business opportunity, potential business partners, level of involvement with governments, amount of government regulation and oversight, and exposure to customs and immigration in conducting business affairs.” Id. at 59.
 
  – Training and Updating: To be effective, compliance procedures must be communicated throughout the organization and periodically updated in view of experience. This can be done in a variety of ways, such as through web-based and in-person training sessions. Personnel should also conduct periodic reviews and updates of the system pursuant to the organization’s past experiences along with the dictates of the marketplace. Id. at 59.
 
  – Incentives and disciplinary measures: The procedures must apply to every person in the organization. Critical to this is engraining integrity and ethics into the company’s overall promotion, compensation, and evaluation process, which provides positive incentives for compliance achievement. At the same time, the company must install an appropriate disciplinary scheme as a remedy for those who do not comply with the system. Id. at 59.
 
  – Third party due diligence: Agents, consultants, distributors, and other third-parties have frequently been at the center of FCPA actions. An effective set of procedures focused on risk-based principles, an understanding of the business rationale for using the third-party, and any corresponding payments coupled with ongoing monitoring of these relationships is key. Again, this is not a one size fits all approach but rather a program crafted to the dictates of the marketplace and particular situation of the specific company. Id. at 60.
 
  – Confidential Reporting: Finally, any program must provide a mechanism for confidential reporting. This mechanism can be used to encourage employees to report questions and issues to the organization. There should also be provisions for conducting appropriate follow-up on the reports and, where necessary taking the appropriate remedial steps. [FN/3]
 
Step two in building a compliance defense requires the company to bring the system to life. To do this, the Chief Compliance Officer (CCO) must facilitate the implementation of the system, bring it off the printed page and instill it in to the life blood of the organization. Former SEC Chief of Staff Andrew Donohue-himself a former CCO-recently detailed how this is done: [FN/4]
 
  – Knowledge of Business: The CCO should know the business better than those who run it and should have a deep knowledge of the regulatory regimes under which the organization operates;
  – Risks: It is essential that the CCO identifies the key risks faced by the organization;
  – People: The CCO must understand and appreciate the people and their focus;
  – Systems: It is critical that the CCO understand the systems employed, its limitations and the people involved with them; and
Resolution: When an issue is identified, it must be addressed and resolved quickly.
 
Mr. Donohue’s final point may be the most important. The effective CCO must constantly ask: “What am I missing?” The effective CCO must work to instill a culture that constantly evaluates, adjusts, and updates its compliance system to respond to business growth and changes in the environment and marketplace. When this is properly done, the system improves the overall functioning of the business.
 
If the compliance system is properly constructed, implemented, and brought to life it can be used as a compliance defense, moving past the seemingly contradictory approach to compliance taken by the enforcers. When an issue arises, the system can be used by the firm in meetings with the DOJ and SEC on the question to first discuss the effectiveness of the compliance system and then to characterize the issue as an outlier. This contrasts sharply with the more typical approach taken by firms in which any reference to compliance is relegated to the remediation part of the conversation as Mr. Donohue notes. Building an effective compliance system permits the firm to move past the “Three Faces of Eve” approach of the DOJ and SEC at the meeting and to seek a declination.
 
———
  [FN/1] As of June 23, 2017, Ms. Chen has left the DOJ. At the time of her comments, however, Ms. Chen was serving as the DOJ’s compliance counsel.
  [FN/2] A Resource Guide to the U.S. Foreign Corrupt Practices Act, Criminal Division of the U.S. Department of Justice and Enforcement Division of the U.S. Securities and Exchange Commission (revised Nov. 2015) (the “Guide”).
  [FN/3] See also United States Attorneys’ Manual, Title 9 – Criminal, 9-28.000 – Principles of Federal Prosecution of Business Organizations, 9-28.800 Corporate Compliance Programs (revised Nov. 2015); U.S. v. Marubeni Corporation, Criminal No. 314 cr 00052 (D. Conn. filed March 19, 2014) (settlement with recidivist FCPA violator articulating principles to be incorporated into firm’s compliance system).
  [FN/4] Mr. Donohue delivered these remarks to Rutgers Law School Center for Corporate Law and Governance’s New Directions in Corporate Compliance Conference.

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ENEDITOR’S NOTES


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EN_a314
. Are Your Copies of Regulations Up to Date?
(Source: Editor)

The official versions of the following regulations are published annually in the U.S. Code of Federal Regulations (C.F.R.), but are updated as amended in the Federal Register.  Changes to applicable regulations are listed below.


ATF ARMS IMPORT REGULATIONS: 27 CFR Part 447-Importation of Arms, Ammunition, and Implements of War
  – Last Amendment: 15 Jan 2016: 
81 FR 2657-2723: Machineguns, Destructive Devices and Certain Other Firearms; Background Checks for Responsible Persons of a Trust or Legal Entity With Respect To Making or Transferring a Firearm. 
 

CUSTOMS REGULATIONS: 19 CFR, Ch. 1, Pts. 0-199
  – 
Last Amendment: 30 Jun 2017: 
82 FR 29714-29719
: Modernization of the Customs Brokers Examination [Effective Date: 31 July 2017.] 


DOD NATIONAL INDUSTRIAL SECURITY PROGRAM OPERATING MANUAL (NISPOM): DoD 5220.22-M

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


EXPORT ADMINISTRATION REGULATIONS (EAR): 15 CFR Subtit. B, Ch. VII, Pts. 730-774 
  – Last Amendment: 30 Jun 2017: 92 FR 29714: Control Policy: End-User and End-Use Based [Removal of Indira Mirchandani from Entity List.] 

  

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 
 

FOREIGN TRADE REGULATIONS (FTR): 15 CFR Part 30
  – Last Amendment: 
19 Apr 2017: 
82 FR 18383-18393: Foreign Trade Regulations: Clarification on Filing Requirements 
  – HTS codes that are not valid for AES are available 
here.
  – The latest edition (19 Apr 2017) of Bartlett’s Annotated FTR (“BAFTR”), by James E. Bartlett III, is available for downloading in Word format. The BAFTR contains all FTR amendments, FTR Letters and Notices, a large Index, and footnotes containing case annotations, practice tips, and Census/AES guidance.  Subscribers receive revised copies every time the FTR is amended. The BAFTR is available by annual subscription from the Full Circle Compliance 
website.  BITAR subscribers are entitled to a 25% discount on subscriptions to the BAFTR.
 

HARMONIZED TARIFF SCHEDULE OF THE UNITED STATES (HTS, HTSA or HTSUSA), 1 Jan 2017: 19 USC 1202 Annex. (“HTS” and “HTSA” are often seen as abbreviations for the Harmonized Tariff Schedule of the United States Annotated, shortened versions of “HTSUSA”.)
  – Last Amendment: 28 Jun 2017: 
Harmonized System Update 1704, containing 
2,564 ABI records and 463 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.
  – Last 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., compiled by: Editor, James E. Bartlett III; Assistant Editors, Alexander P. Bosch and Vincent J.A. Goossen; and Events & Jobs Editor, John Bartlett. The Ex/Im Daily Update is 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.

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* 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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