;

17-0718 Tuesday “Daily Bugle”

17-0718 Tuesday “Daily Bugle”

Tuesday, 18 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.

[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. Commerce/ITA: Learn Exporting Essentials to Capitalize on Foreign Markets
  4. DHS/ICE Newsroom: Portuguese Engineer Pleads Guilty to Conspiring to Export Technology to Iran Without Approval from the U.S. Government
  5. Justice: Two Iranian Nationals Charged in Hacking of Vermont Software Company
  6. State/DDTC: (No new postings.)
  7. EU Amends Restrictive Measures Concerning Libya, Democratic Republic of Congo, Syria, and North Korea
  8. UK/DIT ECO Publishes Licensing Statistics for Strategic Export Controls in 2013-2016
  1. Reuters: “U.S. Puts New Sanctions on Iran Over Ballistic Missile Program”
  2. ST&R Trade Report: “Imports and Exports of Acryl Fentanyl Restricted”
  1. D. Kyle & J. Jensen: “International Trading Services Case Reaffirms Expansion of U.S. Importer Liability”
  2. L. Béraud-Sudreau: “Arms Trade and Democracy: Sweden’s New Criteria for Export Controls”
  3. M. Volkov: “CCO’s and Delusions About a Company’s Ethical Culture”
  1. Bartlett’s Unfamiliar Quotations 
  2. Are Your Copies of Regulations Up to Date? Latest Changes: ATF (15 Jan 2016), Customs (13 Jul 2017), DOD/NISPOM (18 May 2016), EAR (7 Jul 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

[No items of interest noted today.]

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

OGSOTHER GOVERNMENT SOURCES

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

* Justice/ATF; NOTICES; Agency Information Collection Activities; Proposals, Submissions, and Approvals: Notification of Change of Mailing or Premise Address [Publication Date: 18 July 2017.]

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

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

OGS_a33.

Commerce/ITA: Learn Exporting Essentials to Capitalize on Foreign Markets

(Source:
Tradeology, 17 July 2017.)
 
By Linda Abbruzzese, Senior International Trade Specialist at the Office of Digital Initiatives, U.S. Commercial Service and Patrick Morris, Intern at the Office of Strategic Partnerships, Industry and Analysis.
 
The U.S. Commercial Service, the export promotion arm of the U.S. Department of Commerce’s International Trade Administration (ITA), is collaborating with the National Customs Brokers Freight Forwarders Association of America (NCBFAA) Educational Institute to present an exporting mechanics webinar series. The NCBFAA represents more than 970 member companies with 110,000 employees in international trade, and through its various committees, counsel and representatives, the Association maintains a close watch over legislative and regulatory issues that affect trade.
 
NCBFAA, an ITA Strategic Partner since 2016, collaborates with ITA to provide educational opportunities to the larger trade community. Based on a mutual desire to increase U.S. wages and jobs through exporting, ITA and NCBFAA host educational sessions in areas that include supply chain management, customs brokerage, global logistics, and export transactions. In 2015, exports supported an estimated 11.5 million jobs in the U.S., providing increased security to the job market and greater prosperity to the national economy.
 
This series will give U.S. small and medium size businesses the basic exporting information they need to help them increase exports abroad, while increasing employment in the United States. The series will consist of 12 hour-long, monthly sessions and cover a variety of topics, including “Ecommerce Best Practices and Strategies”, “AES / EEI Regulations”,

Export Compliance”, “Export Control Basics”, “ATA Carnet 101”, “Sanctions”, “Export Administration Regulations”, “Export Licenses”, “ECCN Classification Numbers”, “Letters of Credit”, “U.S. Harmonized Tariff Classification Numbers”, “Duty Drawback and Refunds.”
 
The informational sessions are designed to assist companies in the preliminary stages of the exporting business, including those that have never exported before. The series will provide valuable tips as well as contacts in the exporting community to help companies grow and compete in foreign markets across the global.
 
For more information about the webinar series or to register for the sessions, please click here

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

OGS_a44
.

DHS/ICE Newsroom: Portuguese Engineer Pleads Guilty to Conspiring to Export Technology to Iran Without Approval from the U.S. Government

(Source:
DHS/ICE, 17 July 2017.) [Excerpts.]
 
Joao Pereira da Fonseca, 55, a citizen of Portugal, pled guilty today to a federal charge stemming from a scheme in which he conspired to help an Iranian company unlawfully obtain sophisticated equipment from two companies in the United States. …
 
Fonseca, of Coimbra, Portugal, pled guilty to conspiring to unlawfully export goods and technology to Iran and to defraud the United States. He entered the guilty plea before the Honorable Emmet G. Sullivan, on the day his trial was to begin in the U.S. District Court for the District of Columbia. The charge carries a statutory maximum of five years in prison and potential financial penalties. The plea, which is contingent upon the Court’s approval, calls for a prison sentence of 20 months. Judge Sullivan accepted the plea today and scheduled sentencing for Sept. 7, 2017. Upon completion of his prison term, Fonseca faces deportation proceedings.
 
At the time he entered his guilty plea, Fonseca admitted to taking part in the scheme between October 2014 and April 2016. One of the companies in the United States manufactures machines that help produce sophisticated optical lenses that have both commercial and military uses. The other company manufactures machinery that tests components of inertial guidance systems that have both commercial and military uses. Fonseca was a contractor for a Portuguese engineering company that served as a front company to purchase the machines on behalf of their Iranian client. The Portuguese company claimed that it was purchasing the machines for its own use, but planned to have the machines shipped to Iran. Fonseca is a mechanical engineer whose role in the conspiracy was to travel to the U.S. to approve the machinery and learn how to install and maintain the machinery once it was shipped to its final destination in Iran.
 

Due to the investigation conducted by a Special Agent from U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI), the government prevented both machines from leaving the U.S. Fonseca traveled to the United States to receive training on how to use the optical lens equipment in October 2015. He returned to the United States in late March 2016 to be trained on how to use the inertial guidance system equipment at the company that manufactures it. After a week of training, HSI had gathered sufficient evidence to detain Fonseca before he could fly back to Portugal. Soon thereafter, criminal charges were brought against Fonseca. He has been in custody ever since. … 

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

OGS_a55
Justice: Two Iranian Nationals Charged in Hacking of Vermont Software Company

(Source: Justice) [Excerpts.]
 
An indictment was unsealed today charging Mohammed Reza Rezakhah, 39 and Mohammed Saeed Ajily, 35, both Iranian nationals, with a criminal conspiracy relating to computer fraud and abuse, unauthorized access to, and theft of information from, computers, wire fraud, exporting a defense article without a license, and violating sanctions against Iran. The court issued arrest warrants for both defendants. …
 
According to the allegations in the indictment filed in Rutland, Vermont, beginning in or around 2007, Rezakhah, Ajily, and a third actor who has already pleaded guilty in the District of Vermont for related conduct, conspired together to access computers without authorization in order to obtain software which they would then sell and redistribute in Iran and elsewhere outside the U.S. Ajily, a businessman, would task Rezakhah and others with stealing or unlawfully cracking particular pieces of valuable software. Rezakhah would then conduct unauthorized intrusions into victim networks to steal the desired software. Once the software was obtained, Ajily marketed and sold the software through various companies and associates to Iranian entities, including universities and military and government entities, specifically noting that such sales were in contravention of U.S. export controls and sanctions.
 
As part of this conspiracy, in October 2012, Rezakhah hacked a Vermont-based engineering consulting and software design company best known for its software that supports aerodynamics analysis and design for projectiles. This software is designated as a “defense article” on the U.S. Munitions List of the International Traffic in Arms Regulations (ITAR), meaning it cannot be exported from the U.S. without a license from the U.S. Department of State. Ajily thereafter promoted the same software as one of the products he could offer to his Iranian clients.
 
The charges in the indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty. … 

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

OGS_a66
State/DDTC: (No new postings.)

(Source: State/DDTC)

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

OGS_a77
EU Amends Restrictive Measures Concerning Libya, Democratic Republic of Congo, Syria, and North Korea

(Source: Official Journal of the European Union, 18 July 2017.)
 
  Regulations
 
* Council Regulation (EU) 2017/1325 of 17 July 2017 amending Regulation (EU) 2016/44 concerning restrictive measures in view of the situation in Libya
* Council Regulation (EU) 2017/1326 of 17 July 2017 amending Regulation (EC) No 1183/2005 imposing certain specific restrictive measures directed against persons acting in violation of the arms embargo with regard to the Democratic Republic of the Congo
* Council Implementing Regulation (EU) 2017/1327 of 17 July 2017 implementing Regulation (EU) No 36/2012 concerning restrictive measures in view of the situation in Syria
* Commission Implementing Regulation (EU) 2017/1330 of 17 July 2017 amending Council Regulation (EC) No 329/2007 concerning restrictive measures against the Democratic People’s Republic of Korea
 
  Decisions

* Council Decision (CFSP) 2017/1338 of 17 July 2017 amending Decision (CFSP) 2015/1333 concerning restrictive measures in view of the situation in Libya
* Council Decision (CFSP) 2017/1339 of 17 July 2017 amending Decision (CFSP) 2016/849 concerning restrictive measures against the Democratic People’s Republic of Korea
* Council Decision (CFSP) 2017/1340 of 17 July 2017 amending Decision 2010/788/CFSP concerning restrictive measures against the Democratic Republic of the Congo
* Council Implementing Decision (CFSP) 2017/1341 of 17 July 2017 implementing Decision 2013/255/CFSP concerning restrictive measures against Syria

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

OGS_a88
UK/DIT ECO Publishes Licensing Statistics for Strategic Export Controls in 2013-2016

(Source:
UK/DIT
ECO)   
 
The Export Control Organisation (ECO) of the UK Department of International Trade (DIT) has published licensing statistics for strategic export controls in 2013, 2014, 2015, and 2016.  The statistics are available here

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

NWSNEWS

NWS_a19
.

Reuters: “U.S. Puts New Sanctions on Iran Over Ballistic Missile Program”

(Source:
Reuters, 18 July 2017.) [Excerpts.]
 

The United States unveiled new economic sanctions against Iran over its ballistic missile program on Tuesday and said it was deeply concerned about Tehran’s “malign activities” in the Middle East.

 
The measures signaled that the administration of President Donald Trump was seeking to put more pressure on Iran while keeping in place for now a 2015 agreement between Tehran and six world powers to curb its nuclear program in return for lifting international oil and financial sanctions.
 
The U.S. government said it was targeting 18 entities and people for supporting what is said was “illicit Iranian actors or transnational criminal activity.”
 
Those sanctioned had backed Iran’s military or Iran’s Islamic Revolutionary Guard Corps by developing drones and military equipment, producing and maintaining boats, and procuring electronic components, it said. Others had “orchestrated the theft of U.S. and Western software programs” sold to Iran’s government, the Treasury Department said.
 
On Monday, the Trump administration said that Iran was complying with the nuclear agreement but it was also in default of the spirit of the accord and Washington would look for ways to strengthen it.
 
It was the second time Trump certified Iranian compliance with the agreement since he took office in January, despite having described it as “the worst deal ever” during his 2016 election campaign, criticizing then-President Barack Obama whose administration negotiated the accord. … 

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

NWS_a210
.

ST&R Trade Report: “Imports and Exports of Acryl Fentanyl Restricted”

 
The Drug Enforcement Administration has issued an order temporarily including the synthetic opioid N-(1-phenethylpiperidin-4-yl)-N-phenylacrylamide (acryl fentanyl or acryloylfentanyl), as well as its isomers, esters, ethers, salts, and salts of isomers, esters, and ethers, into schedule I of the Controlled Substances Act. Available data and information indicate that this substance has a high potential for abuse, no currently accepted medical use in treatment in the U.S., and a lack of accepted safety for use under medical supervision.
 
This order imposes the administrative, civil, and criminal sanctions and regulatory controls applicable to schedule I substances under the CSA on the importation, exportation, manufacture, distribution, reverse distribution, possession, research and conduct of instructional activities, and chemical analysis of this substance. It is effective as of July 14 and will remain in effect until July 15, 2019, unless it is extended for an additional year or a permanent scheduling proceeding is completed.

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

COMMCOMMENTARY

COMM_a01
11. D. Kyle & J. Jensen: “International Trading Services Case Reaffirms Expansion of U.S. Importer Liability”

(Source: Torres Law PLLC)
 
* Authors: Derrick Kyle, Esq.; and Jordan Jensen, Esq.. Both of Torres Law PPLC.
Contact information: 214-593-7120, 
info@torrestradelaw.com
.
 
Two recent U.S. court decisions will increase corporate officers’ and compliance professionals’ risks for personal liability for Customs law violations. Specifically, the decisions relate to fraudulent, grossly negligent, or negligent activity under the Customs penalty statute, 19 U.S.C. § 1592.
 
In May 2017, the United States Court of International Trade heard a suit brought by U.S. Customs and Border Protection (“CBP”) against an importer of record named International Trading Services, LLC (“ITS”) and its CEO Mr. Julio Lorza. [FN/1] Through ITS, Mr. Lorza imported eight shipments of sugar into the U.S. under an improper subheading of the Harmonized Tariff Schedule of the United States (“HTSUS”). [FN/2] Although ITS classified the sugar shipments under a subheading specific to “[c]ane or beet sugar and chemically pure sucrose” which carries a lower duty rate per kilogram of sugar, none of the ITS shipments contained sugar that met those requirements. [FN/3] ITS’ sugar shipments actually fell under another subheading with a higher duty rate. [FN/4] Thus, ITS owed the difference in duty due to the incorrect classification.
 
The Court of International Trade held that because neither ITS nor Mr. Lorza could offer evidence rebutting their negligence in misclassifying the shipments, both parties were “jointly and severally liable for unpaid duties, penalties, and applicable interest.” [FN/5] After considering a 14-factor analysis for determining penalties under 19 U.S.C. § 1592(c)(3), which grants the court complete discretion in awarding judgments, the Court of International Trade found the defendants had acted negligently and awarded CBP $691,311.54, which was double the calculated value of the unpaid customs duties i.e., the penalty for negligence under §1592(c)(3). [FN/6] The court reasoned that the penalty was appropriate because ITS and Mr. Lorza were exceedingly negligent by making material false statements or omissions in the misclassification of the sugar shipments. [FN/7] This decision reaffirms the expansion of U.S. importer liability that began with the earlier Trek Leather decision of the U.S. Court of Appeals.
 
In 2014, the U.S. Court of Appeals for the federal circuit heard an appeal on a suit brought by CBP against Trek Leather Inc. and its sole shareholder and president, Mr. Harish Shadadpuri. [FN/8] In Trek Leather, the goods were undervalued because Mr. Shadadpuri failed to declare certain assists. CBP defines assists as items, such as materials or tools, that “the buyer of imported merchandise provides directly or indirectly, free of charge or at a reduced cost, for use in the production or sale of merchandise for export to the United States.” [FN/9]
 
Mr. Shadadpuri, through either Trek Leather or another company, supplied the manufacturer of the imported suits with free fabric. [FN/10] Because the fabric used in the production of the imported suits was provided to the manufacturer free of charge, the fabric assist cost should have been included in the value of the entered merchandise. [FN/11] However, Mr. Shadadpuri did not include the assist in the Customs declaration, resulting in violations. [FN/12] The goods were undervalued by $133,605.08. [FN/13]
 
Mr. Shadadpuri contested the penalty under § 1592 by arguing that he was not a “person” under the penalty statute.[14] The Court of Appeals reviewed Mr. Shadadpuri’s appeal and considered two issues: (1) whether Mr. Shadadpuri was a “person” under 19 U.S.C. § 1592; and (2) whether Mr. Shadadpuri’s actions fell under the activities listed in the statute. [FN/15] The Court of Appeals looked to § 1592(1)(A) to determine if Mr. Shadadpuri’s actions constituted “enter[ing], introduc[ing], or attempt[ing] to enter or introduce any merchandise into the commerce of the United States . . . .” [FN/16] In response to both issues, the Court of Appeals held that the answer was affirmative. [FN/17]
 
In the first issue, the Court of Appeals held that, while the term “person” in the penalty statute has traditionally referred to the importer of record, because Mr. Shadadpuri was found to be grossly negligent in the undervaluation of the suits, and the term “plainly covers a human being,” Mr. Shadapuri’s argument that he was not a “person” under the statute failed. [FN/18] For the second issue, the Court of Appeals ignored the term “enter” in § 1592(1)(A) and relied on the word “introduce.” [FN/19] In focusing on the term “introduce,” the Court of Appeals cited to Panama Hats, an earlier Supreme Court decision that explained the reason legislators originally added the term “introduce” to the statute. [FN/20] In Panama Hats, the Supreme Court interpreted “introduce” to “enlarge the scope of conduct” under the statute to include activities other than simply “enter[ing].” [FN/21] Thus, the U.S. Court of Appeals found Mr. Shadadpuri liable under the “flexible and broad” language of the penalty statute. [FN/22]
 
Historically, no direct liability has been imposed on “employees of a corporate importer” who are not listed as the importer of record “for negligent or grossly negligent acts” in importing goods into the United States. [FN/23] Thus, the holdings in Trek Leather and International Trade potentially expand personal liability for U.S. importers. Additionally, the courts’ decisions further the ongoing discussion of what activities are covered under § 1592 and how violations of the statute are penalized. These decisions practically increase an importer’s responsibilities by broadening the meaning of the penalty statute 19 U.S.C. § 1592 and opening the doors for more litigation in the future for importers whose activities might not have previously fallen under the statute.
 
——–
  [FN/1] United States v. Int’l Trading Servs., 222 F.Supp.3d 1325, 1329 (Ct. Int’l Trade 2017).
  [FN/2] Id.at 1329-30.
  [FN/3] Id.
  [FN/4] Id.
  [FN/5] Id. at 1333.
  [FN/6] Id. at 1336.
  [FN/7] Id. at 1336.
  [FN/8] Trek Leather, Inc. v. Shadadpuri, 767 F.3d 1288, 1290 (Fed. Cir. 2014).
  [FN/9] See
here
  [FN/10] Id. at 1292.
  [FN/11] Id.
  [FN/12] Id.
  [FN/13] Id. at 1291.
  [FN/14] Id. at 1294.
  [FN/15] Id. at 1295.
  [FN/16] 19 U.S.C.A. § 1592(1)(A) (West, Westlaw through P.L. 115-40).
  [FN/17] Trek Leather, Inc., 767 F.3d at 1296.
  [FN/18] Id.
  [FN/19] Id. at 1297.
  [FN/20] Id.
  [FN/21] Id. at 1297.
  [FN/22] Id. at 1298.
  [FN/23] Kathleen M. Murphy, Full Federal Circuit Court of Appeal Finds Customs Civil Penalty Statute Applies to Corporate Employee, Nat’l L. Rev., Sept. 24, 2014, available
here
.

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

COMM_a2
12L. Béraud-Sudreau: “Arms Trade and Democracy: Sweden’s New Criteria for Export Controls”

 
* Author: Lucie Béraud-Sudreau, Research Fellow for Defense Economics and Procurement, International Institute for Strategic Studies, London, UK. Contact details available here.
 
On 29 June, the Swedish government submitted a draft bill to tighten arms export controls, which introduced ‘democracy criterion’ into Sweden’s arms-export legislation. The draft bill, sent to the Council of Legislation – a body that reviews bills before they are debated in Parliament – means that the democratic credentials of recipient countries would be taken into account for an export licence to be authorised. If adopted by parliament, the new legislation could, however, further limit the country’s weapons manufacturers’ market access, including to the Gulf region, when it comes into effect in 2018.
 
At face value, this would make the export of any military equipment to the Gulf states more difficult. No Gulf Cooperation Council countries featured in the top 100 states in the 2016 Economist Intelligence Unit’s Democracy Index. ‘The lower the democratic status’, according to the Swedish government, ‘the less scope there will be for granting a licence’. The Gulf is, for Sweden, a low-key but nonetheless lucrative market. Swedish defence-aerospace manufacturer Saab has been successful in the region with airborne early warning (AEW) systems, including a US$1.27 billion 2015 deal for two GlobalEye AEW and multi-role surveillance aircraft for the United Arab Emirates (UAE).
 
The government’s proposal also suggests financial penalties in case of violations, and additional transparency measures. The democracy criterion is, however, the most important aspect of the proposed legislation, not only because it has attracted the most attention in the Swedish debate, but also because of its novelty. If adopted, Sweden will be the first country to introduce this type of strict arms-export-control regulation.
 
Specifically, the text as it stands stipulates that respect for human rights and the democratic status of the recipient state will become ‘central conditions’ in the licensing process. Serious and extensive violations of human rights or ‘grave deficiencies‘ in democratic status will constitute an obstacle for granting a licence. The worse the democratic status, the less scope there will be to authorise an export. The assessment of client states’ ‘democratic status’ will be based on the presence of democratic institutions; the possibility to freely form opinions; and the state’s respect for fundamental democratic principles.
 
This proposal is the outcome of much debate and a long political and legislative process in Sweden. The introduction of a democracy criterion has been regularly mentioned since the early 2000s. In 2005, it was not pursued by a legislative review of arms-export controls (Krigsmateriel Utredningen, or KRUT), and the topic dropped off the agenda for a time. After the Arab Spring however, the issue resurfaced following NGO campaigns. The Swedish parliament first requested that the government change the regulations in May 2011. The government responded a year later, in June 2012, proposing a new legislative inquiry called KEX (Krigsmaterielexportöversynskommittén). This came after renewed pressure from civil-society organisations following a scandal over contracts, related to the planned construction of military facilities, between Sweden’s defence authorities and Saudi Arabia.
 
The KEX committee released its report in June 2015 – after the deadline had twice been postponed. Over 1000-pages long, the report included proposals on a democracy criterion, now part of the government’s draft bill.
 
Sweden’s defence industry relies on exports for up to 54% of its revenue. Moreover, it is highly internationalised, with companies like Hagglunds and Bofors part of BAE Systems, and Saab itself having worldwide operations. The new export-control guidelines, if adopted, could potentially impair elements of the Swedish industry’s ongoing international cooperation or arms-export negotiations. Furthermore, another key feature of the new regulation covers ‘follow-on deliveries’ (följdleveranser), which include spare parts or ammunition for previously supplied military equipment, and other deliveries directly related to previously granted licences. Although there is a positive presumption for granting licences for such follow-on deliveries, they will still be judged on a case-by-case basis, i.e. they could be stopped if the democratic status of the client state is assessed as having deteriorated.
 
As well as existing business with the UAE, contracts that could be affected include cooperation with Thailand on the Gripen combat aircraft and Erieye AEW system.
 
The new arms-export control rules, if adopted by parliament, will send a strong signal within Sweden’s domestic political debate, notably fulfilling a long-lasting demand from NGOs. The introduction of the ‘democracy criterion’ will likely reinforce the ability of civil-society organisations and political actors to exercise strict oversight of the export licences granted to defence companies. Nonetheless, as is formulated in the current draft, the democracy criterion remains open to interpretation. Notably, the new ‘democratic status’ aspect that is to be taken into account when assessing export licences is worded as a conditional, not absolute, ban on exports. This provides the Swedish export-control agency, the Inspectorate of Strategic Products (Inspektionen för strategiska produkter, or ISP) with some leeway to deliver arms-export licences even if potential client states are not models of democracy.

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

COMM_a3
13M. Volkov: “CCO’s and Delusions About a Company’s Ethical Culture”

(Source:
Volkov Law Group Blog
. Reprinted by permission.)
 
* Author: Michael Volkov, Esq., Volkov Law Group,
mvolkov@volkovlaw.com
, 240-505-1992.
 
It is easy to say something and convince yourself it is true. As George Costanza advised Jerry Seinfeld when Jerry had to take a polygraph examination when he failed to admit that he watched  “Melrose Place,” “Remember Jerry.  It’s  not a lie, if you believe it.” See Video Here.
 
This statement from this Seinfeld episode (Season 6, Episode 16) reminds me of compliance professionals who routinely inform me that their company has an “ethical culture,” and cite isolated statements of support made by the CEO to support their claim.  My reaction to such a statement varies – sometimes their statement is confirmed by my evaluation of the company’s program, but often the statement rings hollow.
 
Compliance officers sometime confuse their role in a company between cheerleader and an objective analyst. In some cases, the compliance officer’s personal belief is used to motivate (or convince) the compliance officer (or his or her staff) of his or her mission at the company – to instill a culture of ethics and compliance.   Sometimes a compliance officer comes across as “needing” to believe in the company’s culture of ethics as a requirement.
 
Compliance officers’ need to assess honestly their company’s ethical culture. I suspect that most will find their company’s culture is deficient. I am not trying to launch a vitriolic complaint against CCOs. But, I am reminding CCOs that an objective assessment of this issue is a basic prerequisite for a CCO to implement an effective ethics and compliance program.
 
A CCO that reflects this common scenario of unjustified belief reflects a significant weakness in a corporate compliance program. The CCO’s belief often is based on misunderstanding (conscious or unconscious) in the board and/or CEO’s commitment to a culture of ethics. A CCO cannot drink the kool-aid; instead, the CCO has to focus on solutions to the problem.
 
A CCO has to start with one basic principle – a company’s culture of ethics requires work, not just by the CCO, but by the board and the C-Suite. If the board and the C-Suite are not committed, the CCO has to retreat and begin to educate the board and C-Suite on the importance of a culture of ethics.
 
A CCO’s education program has to emphasize and demonstrate to the board and the C-Suite the tangible benefits from a culture of ethics – increased profits, sustainable growth and improved employee morale and productivity. While obvious to many, the CCO has to devote time to education on this important issue.
 
A CCO’s work is not finished there. It is just beginning. Perhaps the most difficult task is the dissemination of ethical principles to the company’s business managers. To accomplish this task requires more than just indoctrinating the board and the C-Suite. The CCO has to ensure that business managers devote time and attention to building a culture of ethics in its employees.
 
To do so, business managers themselves must embrace this message and then convince their employees that the company is committed to its ethical culture through ethical business decisions and maintenance of important support functions such as speak up and hotline systems, prompt investigation and discipline of infractions, incentives to reward ethical business conduct and commitment by conduct of board and C-Suite executives.
 
Once instilled, a company’s culture of ethics requires ongoing monitoring through targeted surveys, focus groups, and remediation in business operations to ensure ethically-based operations. A CCO’s work in this area is never done but provides important bottom-line benefits – a company’s ethical culture is the most effective compliance control in an organization. An ethical culture creates a solid foundation on which to build compliance controls to mitigate risk and promote ethical conduct.

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

ENEDITOR’S NOTES

* William Thackeray (William Makepeace Thackeray, 18 Jul 1811 – 24 Dec 1863, was a British novelist, writer and author of the 19th century. He is known for his satirical works, particularly Vanity Fair, a panoramic portrait of English society.)
  – “A good laugh is sunshine in the house.”
  – “Good humor is one of the best articles of dress one can wear in society.”

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

EN_a315
. 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: 13 Jul 2017: 82 FR 32232-32241: Electronic Information for Cargo Exported from the United States; Technical Amendments


* 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: 7 July 2017: 
82 FR 31442-31449: Revisions to the Export Administration Regulations Based on the 
2016 Missile Technology Control Regime Plenary Agreements. 

  
*
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 (18 July 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, Census/AES guidance, and to many errors contained in the official text. 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.

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

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

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

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 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.

* SUBSCRIPTIONS: Subscriptions are free.  Subscribe by completing the request form on the Full Circle Compliance website.

* TO UNSUBSCRIBE: Use the Safe Unsubscribe link below.

Scroll to Top