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17-0706 Thursday “Daily Bugle”

17-0706 Thursday “Daily Bugle”

Thursday, 6 July
 2017

TOPThe Daily Bugle is a free daily newsletter from Full Circle Compliance, containing changes to export/import regulations (ATF, Customs, NISPOM, EAR, FACR/OFAC, FTR/AES, HTSUS, and ITAR), plus news and events. Subscribe 
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[No items of interest noted today.]

  1. Ex/Im Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.)
  3. State/DDTC Publishes Address Change Announcement
  4. Singapore Customs Announces Briefing on Strategic Goods Control Order 2017 and Wassenaar Arrangement Outreach Seminar
  1. A. Wong: “Malaysia’s Strategic Trade (Amendment) Act 2017”
  2. C.T. Cherniak: “Canada Imposes Very Strict/Limiting Export Controls And Economic Sanctions Against North Korea”
  3. M. Volkov: “Justice Department Resolves Two Cases Under FCPA Pilot Program”
  4. P.J. Bezanson & G.A. Kopp: “Anti-Corruption Enforcement in Mexico: Your Integrity Policy Matters”
  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

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OGS
OTHER GOVERNMENT SOURCES

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

(Source: Federal Register)

* Commerce/BIS: RULES; Export Administration Regulations: Revisions to the Export Administration Regulations Based on the 2016 Missile Technology Control Regime Plenary Agreements [Publication Date: 6 July 2017.]
 
* DHS/CBP; NOTICES; Determinations; Digital Radiography System [Publication Date: 6 July 2017.] 

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OGS_a22Commerce/BIS: (No new postings.)

(Source: Commerce/BIS)

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OGS_a33.

State/DDTC Publishes Address Change Announcement

(Source:
State/DDTC) [Excerpts.]
 
The Directorate of Defense Trade Controls (DDTC) has published an address change announcement. Excerpts are included below.
 
 
Effective immediately, NorthStar Aviation USA LLC, 1750 Tysons Boulevard, Suite 1500, McLean, Virginia 22101 will change as follows: NorthStar Aviation USA LLC, 1775 Tysons Blvd., Suite #5, Tysons, VA 22101. 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_a4
4.
Singapore Customs Announces Briefing on Strategic Goods Control Order 2017 and Wassenaar Arrangement Outreach Seminar

(Source: Singapore Customs)
 
Singapore Customs has published Notice No. 08/2017 concerning the awareness briefing on the upcoming Strategic Goods Control Order (SGCO) 2017 and Wassenaar Arrangement (WA) Outreach Seminar on Wednesday, 12 July 2017. The notice is available here

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COMMCOMMENTARY

COMM_a15.

A. Wong: “Malaysia’s Strategic Trade (Amendment) Act 2017”

 
* Author: Adeline Wong, Esq., adeline.wong@wongpartners.com, Baker McKenzie, Kuala Lumpur, Malaysia.
 
  Background
 
By way of background, the Strategic Trade Act 2010 (STA) came into force on 1 January 2011 and implemented for the first time in Malaysia export controls based on the Wassenaar Arrangement, the Australia Group, the Missile Technology Control Regime, and the Nuclear Suppliers Group. Malaysia was the second country within ASEAN to implement such export controls after Singapore.
 
The STA applies to any person who exports, transships, brings-in-transit and brokers strategic items or unlisted items, whereby a permit would be required from the Strategic Trade Controller of the Ministry of International Trade and Industry (MITI). Strategic items are prescribed in the Strategic Trade (Strategic Items) Order 2010 (updated as of 2017), which provides two separate lists for military items and dual-use items.
 
Since the inception of the STA, MITI as the relevant ministry in charge of the STA, has lead various efforts across industries in both the private and public sector to raise awareness of export control obligations under the STA and its licensing requirements. In its efforts also to be more trade facilitative, MITI had engaged various stakeholders to study the impact of the STA on business, and to identify areas of improvement.
 
One common criticism of the STA centered around the wide definition of the term ‘brokering’, as the existing term caught not only intermediaries who buy and sell strategic items on behalf of others, but also those facilitating the purchasing, financing, conveying, sale or supply of such items. This was broad enough to cover a wide range of persons involved in any transaction within a supply chain such as freight forwarders, financiers, insurers, and even persons providing support-based services which could be deemed to facilitate the sale or supply of strategic items.
 
The other criticism of the STA surrounded the harsh penalties that could be imposed under the STA, from the death penalty for exports of or brokering of military arms without a licence (which results in death), to minimum fines of MYR 10 to 30 million (approximately USD 2.38 to 7.2 million) for corporations found to have exported strategic or unlisted items without a licence, and MYR 5 to 10 million (approximately USD 1.2 to 2.38 million) for individuals found to have exported strategic or unlisted items without a licence.
 
Through industry efforts and the support of MITI to ensure that Malaysia remains competitive as a trading hub, amendments were proposed to the STA. On 27 April 2017, the Strategic Trade (Amendment) Bill 2017 (Amending Bill) was passed by the Upper House of Parliament and finally received royal assent on 19 June 2017. The effective date of the Act has yet to be announced but is expected to be gazetted soon.
 
  Key Changes
 
The Act introduces new provisions within the STA and amends several existing provisions within the STA. The key changes under the Act are summarised as follows:
 
  (a) Refined “Brokering” Definition and Carve-Out for ‘Ancillary Services’
 
Under the STA, any act of brokering of strategic items requires a valid broker registration permit from MITI. As stated above, under the previous definition, “brokering” was very widely defined to include any acts of facilitating the purchase, financing, insurance, conveyance, sale or supply of strategic items. The Amending Bill has removed the term facilitation, and restricts the application of the term to any person who negotiates or arranges the purchase, sale or supply of strategic items, or who purchases, sells or supplies strategic items, from one foreign country to another foreign country.
 
A specific exclusion is also given to any person whose sole involvement in a strategic item transaction, is to provide ‘ancillary services’, which includes transportation, financial services, insurance or re-insurance, general advertisement, or any other ancillary services as may be determined by MITI.
 
The effect of the amendment is to restrict the brokering registration requirement to only transactions occurring outside Malaysia, whereas the previous position applied to transactions within Malaysia, from within Malaysia to outside Malaysia, and vice versa. The carve-out provided in new section 11(4) is also useful to persons providing ‘ancillary services’ to bring them outside the scope of the brokering registration requirement.
 
  (b) Broader Definition of “Authorised Officers”
 
Under the STA, powers of enforcement of the act were granted to officers from the Royal Malaysian Customs Department, the Royal Malaysia Police, the Malaysian Maritime Enforcement Agency and the Malaysian Communications and Multimedia Commission. The Amending Bill now extends such powers to officers from the Atomic Energy Licensing Board (AELB), the Pharmaceutical Services Division (PSD), the Central Bank of Malaysia, the Securities Commission of Malaysia and the Labuan Financial Services Authority.
 
This amendment was deemed appropriate as it would afford agencies such as the AELB and PSD (which are involved in reviewing and approving licence applications for strategic items related to nuclear and chemical items) enforcement powers for offences involving items falling under their purview and expertise. On the other hand, the enforcement powers given to the Central Bank of Malaysia, the Securities Commission of Malaysia, and the Labuan Financial Services Authority would be required in relation to offences regarding provision of financial services, funds or other types of economic resources or assistance to persons falling within the Strategic Trade (Restricted End-Users and Prohibited End-Users) Order 2010.
 
  (c) Presumption as to Export
 
The Amending Bill introduces a new provision in the form of section 12A to provide that strategic items and unlisted items will be deemed to have been exported from Malaysia if such items (i) have been cleared by Customs on their route out of Malaysia, (ii) have been loaded onto a conveyance which is about to depart from a port or place in Malaysia, or (iii) have been cleared by Customs at an inland clearing depot or customs station on their route out of Malaysia through a customs port or airport.
 
  (d) Requirement of ‘End-Use’ Statements now Optional rather than Mandatory
 
Previously under the STA, any person applying for a licence (to export, transship or bring-in-transit strategic items) or special licence (to export to restricted end-users) under section 14 of the act, shall accompany such application with an end-use statement in the prescribed format. Under the Amending Bill, it is no longer mandatory for the exporter to provide an end-use statement for an application for a licence or special licence unless required by MITI.
 
  (e) Replacement of Minimum Fines to Maximum Fines
 
Penalties for offences under the STA were previously imposed on a ‘minimum penalty’ basis (e.g. minimum of five (5) years imprisonment, and/or minimum fines of MYR 5 million). Whilst the penalty amounts under the STA remain the same, these are now prescribed to be on a ‘maximum penalty’ basis (e.g. maximum of five (5) years imprisonment, and/or minimum fines of MYR 5 million).
 
  (f) Power to Compound Offences under the STA
 
Previously under the STA, there was no provision for compounding of any offences committed the act. In other words, MITI had no discretion to compound an offence committed under the act by offering a fine in exchange for non-prosecution of any offence. These powers are generally useful as they allow authorities a discretion to compound less serious offences which may not warrant prosecution (e.g. intra-group transfers of strategic items, inadvertent exports to ‘low-risk’ countries or end-users, or other non-compliances of a less serious nature).
 
Accordingly, under the existing STA, MITI would have no other option but to refer any non-compliances to the Attorney General’s Chambers for a decision on whether to prosecute an offence under the act. If found guilty, minor offenders and serious offenders alike were subjected to harsh penalties under the STA.
 
Based on the Amending Bill, the Minister of International Trade and Industry may make regulations prescribing any offences under the Act to be a compoundable offence, and set out the criteria for compounding of such offence and the method and procedure to compound such offence.
 
Based on such regulations, any authorised officer may make a written offer to the person suspected of committing an offence to compound such offence by paying a sum not more than 50% of the maximum fine prescribed for such offence. Such offer would need to have obtained the consent in writing of the public prosecutor. To date however, the regulations setting out the criteria for MITI to compound an offence under the STA is still pending.
 
  Conclusion
 
The Amending Bill introduces much welcomed changes to the STA and MITI is commended on its efforts in pushing ahead with the amendments to have more trade-facilitative export control laws, to cater to today’s changing and dynamic business environment. This is important as Malaysia remains a crucial trading partner of many major economies around the world and is plugged into international supply chains.
 
The new brokering definition is particularly helpful to companies falling within the ‘unjustifiably wide’ ambit of the brokering controls previously, and the introduction of compounding provisions and maximum penalties also make it useful for companies who have inadvertent gaps in export control compliance to go forward to the authorities to disclose non-compliances and receive administrative fines without criminal sanctions in return. This will contribute towards a higher compliance culture, akin to other more developed countries who have also adopted export control legislation around the world.
 
As the regulations prescribing the criteria to compound offences under the STA have not been announced, this will be awaited with baited breath by industry professionals and practitioners alike.
 
It should be noted also that whilst the Amending Bill has introduced more flexibility to the STA, there could also be heightened monitoring and enforcement of the licensing obligations under the act given the extension of powers now given to additional government authorities and agencies. As such, businesses are well advised to ensure strict and continued compliance with export control laws under the STA to minimise risks and exposure moving forward.
 
[Editor’s Note: the official Malaysia MITI alert concerning the Strategic Trade (Strategic Items) (Amendment) Order 2017 was included in the Daily Bugle of 6 April 2017, item #9.]

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COMM_a26. C.T. Cherniak: “Canada Imposes Very Strict/Limiting

Export Controls And Economic Sanctions Against North Korea”
(Source: LexSage PC)
 
* Author: Cyndee Todgham Cherniak, Esq., LexSage PC, cyndee@lexsage.com, 416-307-4168
 
North Korea just launched an intercontinental ballistic missile and Canada has unreservedly condemned this action.  It is time for Canadian exporters to review the rules about exporting goods to North Korea – to not take a moment to do so may be regretted.  First, North Korea is on Canada’s Area Control List.  The Area Control List is a regulation promulgated under the Export and Import Permits Act.  Second, Canada has also imposed economic sanctions under the United Nations Act and the Regulations Implementing the United Nations Regulations on the Democratic People’s Republic of Korea (DPRK), which enact in Canada’s laws multilateral UN sanctions against North Korea. Third, Canada has also imposed unilateral economic sanctions against North Korea under the Special Economic Measures Act and the Special Economic Measures (DPKR) Regulations, which impose sanctions above and beyond UN sanctions (“Canada’s Unilateral Economic Sanctions”).  Canada’s restrictions against North Korea are some of the most severe and restrictive in the world.
 
  Area Control List
 
Since North Korea is on the Area Control List, many of the economic sanctions are redundant insofar as goods are concerned.  The general rule is that exports of all goods and all technology to North Korea is prohibited (including benign items such as paperclips or soap).
 
The general prohibition is contained in subsection 13(1) of the Export and Import Permits Act:
 
No person shall export or transfer, or attempt to export or transfer, any goods or technology included in an Export Control List or any goods or technology to any country included in an Area Control List except under the authority of and in accordance with an export permit issued under this Act.
 
What this means is that exporting any type of goods or technology to North Korea is prohibited.  Transferring any any type of goods or technology to North Korea is prohibited.  Attempting to export or transfer any type of goods or technology to North Korea is prohibited.  It is only under an authority of an export permit granted by the Minister of Foreign Affairs or the Minister of International Trade that any goods or technology is going to be permitted to be exported by a Canadian entity, or any person, to North Korea.  The export permit applications will be reviewed on a case-by-case basis (See Notice to Exporters No. 172).  The Ministers will not issue any export permits, with very limited exceptions.
 
Persons cannot do indirectly what they cannot do directly.  Goods and technology cannot be diverted to North Korea via another country.    Subsection 15(1) of the Export and Import Permits Act provides:
 
Subject to subsection (2), and except with the authority in writing of the Minister, no person shall knowingly do anything in Canada that causes or assists or is intended to cause or assist any shipment, transhipment, diversion or transfer of any goods or technology included in an Export Control List to be made, from Canada or any other place, to any country included in an Area Control List.
 
What this means is that exporting goods and technology to another destination (e.g., China) in a manner that causes the goods or technology to end up in North Korea is prohibited. Knowingly assisting in the export of goods and technology to North Korea is prohibited.  Transshipping goods and technology to North Korea is prohibited.  Diverting goods and technology to North Korea is prohibited.  Let’s be very frank – if a Canadian good ends up as a part on a North Korean ballistic missile, the Canadian government will conduct an investigation as to how the goods got into the hands of the North Koreans.  If a Canadian good is seen in a photograph of a North Korean laboratory, the Canadian government will conduct an investigation as to how the goods got into the hands of the North Koreans. It is not just the Canadian government that will be asking questions, other governments will be asking questions also.
 
Subsection 18(1) of the Export and Import Permits Act prohibits aiding and abetting:
 
No person shall knowingly induce, aid or abet any person to contravene any of the provisions of this Act or the regulations.
 
What this means is that aiding or abetting any person selling or transferring goods and technology (not just Canadian goods and technology) to North Korea (directly or indirectly) is prohibited.
 
  Economic Sanctions
 
Canada takes the above restrictions steps further on its economic sanctions prohibitions.  Pursuant to sections 2-9 of the Canada’s Unilateral Economic Sanctions, the following are prohibited (with limited exceptions):
 
  – Exports: it is prohibited for any person in Canada and any Canadian outside Canada to export, sell, supply or ship any goods, wherever situated, to North Korea or any person in North Korea or to deal in any goods destined for North Korea or any person in North Korea;
 
  – Technical data exports: it is prohibited for any person in Canada and any Canadian outside Canada to transfer, provide or communicate, directly or indirectly, technical data to North Korea or any person in North Korea;
 
  – Imports: it is prohibited for any person in Canada and any Canadian outside Canada to import, purchase, acquire or ship any goods that are exported, supplied or shipped from North Korea, whether the goods originated in North Korea or elsewhere;
 
  – Investments: it is prohibited for any person in Canada and any Canadian outside Canada to make an investment in any entity in North Korea that involves a dealing in any property, wherever situated, held by or on behalf of North Korea, any person in North Korea, or a national of North Korea who does not ordinarily reside in Canada;
 
  – Financial Services: it is prohibited for any person in Canada and any Canadian outside Canada to provide or acquire financial services – including those that are intended to facilitate an investment in any entity – to, from or for the benefit of or on the direction or order of North Korea or any person in North Korea;
 
  – Ships From North Korea: it is prohibited for any person to dock in Canada or pass through Canada any ship that is registered in North Korea unless such docking or passage is necessary to safeguard human life;
 
  – Aircraft From North Korea: it is prohibited for any person to land in or fly over Canada an aircraft that is registered in North Korea, unless such landing or flying is necessary to safeguard human life; and
 
  – Aiding & Abetting: it is prohibited for any person in Canada and any Canadian outside Canada to do anything that causes, assists or promotes or is intended to cause, assist or promote any act or thing prohibited.
 
Canada imposes the following multilateral UN-related restrictions against North Korea:
 
  – Deal in Property of Designated Persons: it is prohibited for any person in Canada or any Canadian outside Canada to knowingly deal in any property in Canada that is owned, held or controlled, directly or indirectly, by a designated person, by a person acting on behalf of or at the direction of a designated person or by a person that is owned, held or controlled by a designated person or enter into or facilitate any transaction related to such a dealing;
 
  – Investments/financial dealings with Designated Persons: it is prohibited for any person in Canada or any Canadian outside Canada to knowingly provide any financial or related services in respect of any property in Canada that is owned, held or controlled, directly or indirectly, by a designated person, by a person acting on behalf of or at the direction of a designated person or by a person that is owned, held or controlled by a designated person;
 
  – Indirect Dealings with Designated Persons: it is prohibited for any person in Canada or any Canadian outside Canada to knowingly make available any property, or provide any financial or related services, directly or indirectly, to a designated person, to a person acting on behalf of or at the direction of a designated person or to a person that is owned, held or controlled by a designated person;
 
  – Bulk Cash Transfers: it is prohibited for any person in Canada or any Canadian outside Canada to knowingly supply or transfer, directly or indirectly, any bulk cash that is destined for North Korea, for any person in North Korea or for any national or to knowingly receive any bulk cash from North Korea, from any person in North Korea or from any national;
 
  – Provide Financial or Related Services: it is prohibited for any person in Canada or any Canadian outside Canada to knowingly provide financial or related services to North Korea, to any person in North Korea or to a person acting on behalf of or at the direction of North Korea or any person in North Korea that is intended to cause, facilitate or assist in any act or thing prohibited by these Regulations;
 
  – Accept Financial or Related Services: it is prohibited for any person in Canada or any Canadian outside Canada to accept any financial or related services from North Korea, from any person in North Korea or from a person acting on behalf of or at the direction of North Korea or any person in North Korea that is intended to cause, facilitate or assist in any act or thing prohibited by these Regulations;
 
  – Branch Operations:  it is prohibited for any entity referred to in subsection 11(1) to open a new branch in North Korea;
 
  – Exports of Specific Products:  it is prohibited for any person in Canada or any Canadian outside Canada to knowingly sell, supply or transfer, directly or indirectly, any of the following products, wherever situated, that are destined for North Korea or for any person in North Korea (a) arms and related material; (b) luxury goods; and (c) aviation fuel including aviation gasoline, naptha-type jet fuel, kerosene-type jet fuel and kerosene-type rocket fuel, except for aviation fuel provided to North Korean passenger aircraft for its return flight to North Korea.  It is prohibited for any person in Canada or any Canadian outside Canada to knowingly sell, supply or transfer, directly or indirectly, any of the following products, wherever situated, that are destined for North Korea or for any person in North Korea goods listed in UN Security Council Resolutions and other international documents.  It is prohibited for any person in Canada or any Canadian outside Canada to knowingly provide technical assistance to North Korea, or to any person in North Korea, related to the sale, supply, transfer, manufacture, use or maintenance of such specific products.;
 
  – Certain Training Services: It is prohibited for any person in Canada or any Canadian outside Canada to knowingly provide to any national teaching or training in disciplines which could contribute to proliferation-sensitive nuclear activities or the development of nuclear weapon delivery systems in North Korea, including teaching or training in advanced physics, advanced computer simulation and related computer sciences, geospatial navigation, nuclear engineering, aerospace engineering, aeronautical engineering and related disciplines;
Imports of Specific Products: It is prohibited for any person in Canada or any Canadian outside Canada to knowingly import, purchase or acquire any of the products referred to in paragraph 6(1)(a) or subsection 6(2), wherever situated, from North Korea or from any person in North Korea any specific products. It is prohibited for any person in Canada or any Canadian outside Canada to knowingly import, purchase or acquire coal, iron, iron ore, gold, titanium ore, vanadium ore and rare earth minerals, wherever situated, from North Korea or from any person in North Korea.
Ships/Vessels: There are numerous prohibitions applicable to Canadian vessels; and

  – Aiding and Abetting: it is prohibited for any person in Canada or any Canadian outside Canada to knowingly do anything that causes, facilitates or assists in, or is intended to cause, facilitate or assist in, any act or thing prohibited.
 
These sanctions are far-reaching and severely limit any possible activity relating to North Korea.  A ministerial authorization is required to do any thing that is prohibited.  It is unlikely that a ministerial authorization will be issued.
 
  Compliance With Canadian Law
 
Canadian entities need to take this very seriously.  It is time to ask about compliance.  While it is easy to adopt a policy of not selling goods and technology directly to North Korea, it is not as easy to ensure that goods sold to a third country are not ending up in North Korea. The North Koreans are smart and set up entities in countries, such as China, in order to get the goods and technology they wish. There are entities that are fronts for the North Koreans.  If you sell to one of these companies and the goods and/or technology ends up in North Korea, you will be investigated (if someone learns that your goods and/or technology was used in a ballistic missile or is being used by the North Koreans).  Please See “Canadian Companies Should Not Be Duped By North Korea“.
 
Last week the U.S. imposed penalties against entities who sold to Chinese companies with links to North Korea.  There is information publicly available about the names of entities who have links to North Korea.  These names can be researched.  These names appear on computerized lists of designated or sanctioned or flagged persons. It is now very important to adopt a compliance program or hire service providers to undertake such due diligence.
 
If you do not take the steps required, your company’s reputation may be ruined by investigations.  If you are prosecuted, you can face a fine (the amount of which will be set by a judge at the appropriate time – there is no limit in the Export and Import Permits Act).  You could go to jail for up to 10 years.  Think about it, if the goods and/or technology end up in a missile that kills people, the price you will have to pay will be high – very high.
 
Directors and officers of a corporation can be prosecuted in Canada.  Section 10 of the Export and Import Permits Act provides as follows:
 
Where a corporation commits an offence under this Act, any officer or director of the corporation who directed, authorized, assented to, acquiesced in or participated in the commission of the offence is a party to and guilty of the offence and is liable on conviction to the punishment provided for the offence whether or not the corporation has been prosecuted or convicted.
 
What this means is that the operating mind of the entity behind the sale or transfer to North Korea may be prosecuted.  An officer or director who turned a blind eye to the activities of employees can be prosecuted.  An officer or director who did not put in place a compliance program and signed off on sales/transfers to North Korea without undertaking due diligence may be prosecuted.
 
[Editor’s Note: Canada’s official notice on the amendment of the Area Control List was included in the Daily Bugle of Friday, 30 June 2017, item #11.] 

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COMM_a37. M. Volkov: “Justice Department Resolves Two Cases Under FCPA Pilot Program”

(Source: Volkov Law Group Blog. Reprinted by permission.)
 
* Author: Michael Volkov, Esq., Volkov Law Group, mvolkov@volkovlaw.com, 240-505-1992.  
 
The Justice Department recently resolved two separate FCPA investigations under its Pilot Program. To be sure, DOJ’s resolution of these two matters reinforces the real and tangible benefits of its Pilot Program.
 
  Linde
 
In the first case involving Linde North America Inc. and Linde Gas North America (“Linde”), two private New Jersey companies that are subsidiaries of a public German company, the Justice Department issued a letter dated June 16, 2017 (copy available here), under which it declined to prosecute Linde and related companies and Linde agreed to pay approximately $11 million in disgorgement.
 
The offense conduct occurred from November 2006 to December 2009, when Linde, through its subsidiary, Spectra Gases, which it acquired in October 2006, made corrupt payments to Georgia officials at the National High Technology Center (“NHTC”), a state-owned entity, to purchase income-producing assets from the NHTC. Three Spectra executives agreed to share the profits earned from the sale of boron gas with high-level officials at the NHTC and a third-party intermediary in exchange for the NHTC officials’ assistance in securing approvals for the asset purchase. Spectra officials formed a company and added NHTC officials as part owners of the company. The profits generated were split 25-75 between the Spectra executives and the NHTC officials, respectively. Spectra earned approximately $7.8 million in profits from the transactions.
 
When Linde discovered the misconduct, it initiated an internal investigation, and withheld payments owed under the arrangement.
 
DOJ’s letter declining to prosecute Linde, cited the following: (1) Linde’s timely, voluntary self-disclosure; (2) Linde’s thorough and proactive investigation; (3) Linde’s full cooperation; (4) Linde’s agreement to disgorge the profits Spectra received and forfeit the corrupt proceeds to the United States; (5) Linde’s enhancement (and commitment to continue to enhance) its compliance program and its internal accounting controls; and (6) Linde’s full remediation, including terminating and/or disciplining employees involved in the misconduct).
 
  CDM Smith
 
In the second case involving CDM Smith, Inc., a privately-held engineering and construction firm based in Boston, Massachusetts, the Justice Department issued a letter dated June 28, 2017 (copy available here), in which it declined to prosecute CDM Smith, in exchange for which CDM Smith agreed to pay just over $4 million in disgorgement.
 
The offense conduct occurred from 2011 to 2015, during which employees of CDM Smith’s India operations and its India subsidiary paid bribes to officials at the National highways Authority of India (“NHAI”), India’s state-owned highway management agency and local officials in the state of Goa. Senior officials at CDM Smith approved and participated in the bribery scheme. CDM Smith paid approximately $1.18 million in bribes to secure contracts for highway construction supervision and design from NHAI and for a separate water project in Goa. CDM Smith funneled the bribes to NHAI using false subcontractors. CDM Smith earned approximately $4 million in profits.
 
DOJ’s declination letter cited: (1) CDM Smith’s timely, voluntary self-disclosure; (2) CDM Smith’s thorough and proactive investigation; (3) CDM Smith’s full cooperation; (4) CDM Smith’s agreement to disgorge the profits its companies received; (5) CDM Smith’s enhanced compliance program; and (6) CDM Smith’s full remediation, including terminating and/or disciplining employees involved in the misconduct.

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COMM_a48. P.J. Bezanson & G.A. Kopp: “Anti-Corruption Enforcement in Mexico: Your Integrity Policy Matters”

(Source:
Bracewell LLP)
 
* Authors: Philip J. Bezanson, Esq.,
philip.bezanson@bracewell.com; and Glen A. Kopp, Esq.,
glen.kopp@bracewell.com. Both of Bracewell LLP, Seattle and New York City, respectively.
 
On 19 July 2017, Mexico’s General Law of Administrative Accountability will go into effect. It is the final part of a historic package of far-reaching anti-corruption laws, dubbed the National Anti-Corruption System, that were passed last year. Taken as a whole, the National Anti-Corruption System will have far-flung consequences for those doing business in Mexico or considering doing business in Mexico.
 
When the General Law of Administrative Accountability goes into effect, it will expand the scope of potential anti-corruption enforcement. Whereas the 2012 Public Contracting Anti-Corruption Law – the law repealed and replaced by the General Law of Administrative Accountability – was limited to the federal procurement space, the new law’s prohibitions apply to more conduct and in a wider business context.
 
First and foremost, the new law broadly defines prohibited “bribery” as: (1) where a private party offers or gives money or another gift to a public official to cause the official to do or refrain from doing any act related to the official’s functions; or (2) where a public official, directly or indirectly, solicits or receives for himself or another person, money or another gift in exchange for doing or refraining from doing any act related to the official’s functions. In turn, “public official” is broadly defined as any individual that has employment, a position, or a charge of any type in the Mexican government; government majority-owned companies; public trusts; or that handles federal economic resources.
 
Other notable prohibitions under the new law include: using or attempting to use influence or economic or political power on a public official in order to obtain a benefit or advantage or to damage any person; using false information during an administrative proceeding in order to obtain an authorization, benefit or advantage, or to damage any person; taking joint action with other private parties to obtain a benefit or advantage in a federal, state, or municipal public procurement process; participating in administrative proceedings after being prohibited from doing so due to prior misconduct; misusing public resources (material, human, or financial); and hiring current or former government officials with privileged information for competitive advantage.
 
The new law applies to public servants and private parties, including both legal entities and individuals. This includes companies in Mexico and those based outside of Mexico, their affiliates, and their officers who do business in Mexico and have direct or indirect contacts with Mexican officials. Further, a legal entity may be liable for offenses committed by its employees or third parties acting on behalf of the entity in order to obtain benefits for the entity.
 
Penalties for violating the new law can be severe. Individuals and companies face sanctions up to twice the amount of any acquired benefits, compensatory and/or punitive damages, and/or a temporary ban on participating in procurement, leases, services or state-owned projects (e.g., projects with Pemex). Companies further face the brand new penalties of a temporary suspension of operations or dissolution.
 
However, Mexico’s new law also provides that sanctions shall be mitigated by 50-70 percent where a company self-reports past or ongoing misconduct and has implemented and enforced an adequate “Integrity Policy.” An “Integrity Policy” is defined to include, at a minimum:
 
  (1) a document setting forth the functions and responsibilities of each of the company’s areas, the leadership throughout the company, and a clear chain of command;
  (2) a code of conduct with enforcement protocol;
  (3) control and audit systems that regularly supervise standards of compliance within the organization;
  (4) internal whistleblower and reporting systems that allow for appropriate reporting to enforcement authorities and disciplinary procedures for employees acting contrary to company policy or Mexican law; and
  (5) human resources policies for preventing the hiring of persons that may pose compliance risks to the organization.
 
Companies doing business or seeking to do business in Mexico should take action to inform themselves of the legal implications of the National Anti-Corruption System. This includes developing, implementing, enforcing and documenting an Integrity Policy that applies many of the risk assessment-based procedures and controls that are the hallmarks of a modern and effective compliance program.

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ENEDITOR’S NOTES

(Source: Editor)

* Bill Haley (William John Clifton “Bill” Haley, 6 Jul 1925 – 9 Feb 1981, was an American rock and roll musician. He is credited by many with first popularizing this form of music in the early 1950s with his group Bill Haley & His Comets. His million-selling hit, “Rock Around the Clock,” which was the B side of “13 Women and Only One Man in Town,” is commonly used as a line of demarcation between the “rock era” and the music industry that preceded it. Haley was given the title “Father of Rock and Roll” by the media, and by teenagers who had come to embrace the new style of music. With the song’s success, the age of rock music began overnight and ended the dominance of the jazz and pop standards performed by Frank Sinatra, Perry Como, Bing Crosby and others.)
  – “We take a lot of care with lyrics because we don’t want to offend anybody.”
  – “See you later, alligator. After a while, crocodile.”

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EN_a210
. 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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EN_a311
. Weekly Highlights of the Daily Bugle Top Stories
(Source: Editor)

Review last week’s top Ex/Im stories in “Weekly Highlights of the Daily Bugle Top Stories” published 
here
. 

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EPEDITORIAL POLICY

* The Ex/Im Daily Update is a publication of FCC Advisory B.V., 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.

* 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 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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