;

17-0725 Tuesday “Daily Bugle”

17-0725 Tuesday “Daily Bugle”

Tuesday, 25 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. State/DDTC: (No new postings.)
  4. UK/DIT ECO Publishes Export Control Training Bulletin (July – December 2017)
  1. CBC News: “Canadian Defense Deal with Azerbaijan Raises New Questions About Arms Export Controls”
  2. Reuters: “Arab States Add 18 People, Groups to Terrorist Lists”
  3. ST&R Trade Report: “CBP Needs to Improve Enforcement, Assess Effectiveness of ISF Requirements, GAO Says”
  4. ST&R Trade Report: “Drawback, Recordkeeping, Exclusion Orders Among New Rules on CBP Agenda”
  5. The Sydney Morning Herald: “Turnbull Government Moves a Step Closer to Export Controls for Gas Producers”
  1. M. Volkov: “The Strange Case of OFAC Against Exxon for Sanctions Violations”
  2. Z. Brez, M. Thompson & M.S. Casey: “OFAC Hits ExxonMobil with $2 Million Sanctions Penalty and Public Rebuke”
  1. ECTI Presents: U.S. Export Control (ITAR/EAR/OFAC) Seminar Series in Austin, TX, 18-21 September 
  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

* President; EXECUTIVE ORDERS; U.S. Manufacturing and Defense Industrial Base and Supply Chain Resiliency; Policy to Assess and Strengthen (EO 13806) [Publication Date: 26 July 2017.]
 
* Treasury/OFAC; NOTICES; Blocking or Unblocking of Persons and Properties [Publication Date: 26 July 2017.]
 
* State; NOTICES; Designations as Global Terrorists: Yarmouk Martyrs Brigade (and Other Aliases) [Publication Date: 26 July 2017.]

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

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

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

OGS_a44
.

UK/DIT ECO Publishes Export Control Training Bulletin (July – December 2017)

 
The Export Control Organisation (ECO) of the UK Department of International Trade (DIT) has published the Export Control Training Bulletin for the July – December 2017 period.
 
This bulletin contains details of courses, seminars and workshops from the Export Control Organisation to increase your understanding of the UK’s strategic export controls.
 
Events are aimed at exporting and trading individuals or companies of all sizes, as well as government organisations and cater for a wide range of knowledge levels.
 
Includes all details, charges and an application form. This issue covers new courses from July to December 2017.

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

NWSNEWS

NWS_a15
.

CBC News: “Canadian Defense Deal with Azerbaijan Raises New Questions About Arms Export Controls”

(Source:
CBC News, 24 July 2017.) [Excerpts.]
 
Export permits for military vehicles issued despite concerns over Azerbaijan’s poor human rights record
 
A deal by a Canadian company to export armoured personnel carriers to Azerbaijan and set up a joint production of these military-style vehicles in the oil-rich former Soviet republic is once again raising questions about the efficacy of Canada’s defense export controls.
 
Toronto-based INKAS Armored Vehicle Manufacturing has signed a deal with Azerbaijan’s interior ministry under which the company has already delivered “a few” Canadian-made armoured personnel carriers (APCs). …
 
  “Azerbaijan is a very unique country in terms of geographic location, in terms of geopolitical challenges, because they are in the middle between Iran and Armenia and Turkey,” said Shimonov, who has also been appointed CEO of the joint venture AZCAN Defence Solutions. “And they have resources, more resources than other countries, and they are looking to be able to have more solutions in terms of defense – and not only defense, they’re looking to protect their borders.”
 
Global Affairs Canada, the federal department responsible for issuing export permits for military and controlled goods, said “all applications for permits to export dual-use, military and strategic goods are assessed on a case-by-case basis, based on the specific goods and technology being exported, the destination country, and the specific end-use and end-user, amongst other criteria.”
 
  “Regional peace and stability, including civil conflict and human rights, as well as the possibility of unauthorized transfer or diversion of the exported goods and technology, are actively considered,” said Global Affairs spokesperson Natasha Nystrom. … 

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

NWS_a26
.

Reuters: “Arab States Add 18 People, Groups to Terrorist Lists”

(Source:
Reuters, 25 July 2017.) [Excerpts.]
 
Four Arab countries have added 18 more groups and individuals that they say are linked to Qatar to their “terrorist” lists, Saudi state news agency SPA reported on Tuesday, further escalating a row with Doha that has stoked regional tensions.
 
The lists now include three Yemeni charities, three Libyan media outlets, two armed groups and a religious foundation, some of which are already subject to U.S. sanctions.
 
  “The terrorist activities of the aforementioned entities and individuals have direct and indirect ties with the Qatari authorities,” a statement issued by Saudi Arabia, Egypt, the United Arab Emirates and Bahrain said.
 

The four states cut ties with Qatar – a major global gas supplier and host to the biggest U.S. military base in the Middle East – on June 5, accusing it of financing militant groups in Syria, and allying with Iran, their regional foe. … 

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

NWS_a3
7.

ST&R Trade Report: “CBP Needs to Improve Enforcement and Assess Effectiveness of ISF Requirements, GAO Says”

 
A recent Government Accountability Office report states that U.S. Customs and Border Protection needs to better evaluate the effectiveness of the importer security filing rule as well as its own strategies to enforce that rule. Utilizing CBP’s compliance and enforcement data for 2012 through 2015, this report addresses importers’ and carriers’ submission rates for ISF rule requirements, CBP’s actions to enforce the ISF rule and assess whether enforcement actions have increased compliance, and the extent to which the ISF rule has improved CBP’s ability to identify high-risk shipments.
 
The ISF rule requires importers and vessel carriers to submit additional information to CBP before cargo is loaded onto U.S.-bound vessels. Importers are responsible for submitting ISF-10s (required for cargo destined for the U.S.) and ISF-5s (required for cargo transiting but not destined for the U.S.) and vessel carriers are responsible for submitting vessel stow plans (depicting the position of each cargo container on a vessel) and container status messages (reporting container movements and status changes). CBP uses this additional cargo information to assess the risk of arriving cargo shipments.
 
According to the report, submission rates for ISF-10s increased from about 95 percent in 2012 to 99 percent in 2015 while submission rates for ISF-5s ranged from about 68 to 80 percent. GAO could not determine submission rates for vessel stow plans, but CBP officials said compliance is likely nearly 100 percent because advance targeting units responsible for identifying high-risk shipments contact carriers if they have not received stow plans. CBP has enforced ISF and stow plan submissions by using holds, which prevent cargo from leaving ports, and issuing liquidated damages claims.
 
However, the report finds that CBP has not determined submission rates for CSMs or enforced CSM submissions, shortcomings both attributed to the agency’s lack of access to carriers’ private data systems. In response, the report encourages CBP to take enforcement actions when targeters become aware that CSMs have not been received based on reviewing other information sources, which could provide an incentive for carriers to submit all CSMs. CBP responded that it plans to develop a CSM enforcement policy and disseminate it to ATUs.
 
The report also calls on CBP to assess the effects of its enforcement actions on compliance at the port level. ATUs have used varying methods to enforce the ISF rule and ports’ ISF-10 submission rates vary, the report states, so determining and implementing the most effective enforcement strategies could increase compliance at ports with relatively low submission rates. CBP said it will discuss enforcement strategies during monthly conference calls and work with ATUs overseeing ports with lower submission rates to identify potential solutions.
 
Finally, the report states that collecting performance information would allow CBP to better evaluate whether and how effectively the ISF program is fulfilling its objective of improving the identification of high-risk cargo shipments. CBP said it plans to analyze ISF data from a targeting standpoint to evaluate program performance; e.g., by determining the number of times potential terrorism matches were made against ISF data that were not identified using manifest data. CBP plans to complete these actions by Feb. 28, 2018.

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

NWS_a48.

ST&R Trade Report: “Drawback, Recordkeeping, Exclusion Orders Among New Rules on CBP Agenda”

 
The departments of Homeland Security and the Treasury have issued their semiannual regulatory agendas, which list the following regulations affecting international trade that could be issued within the next year as well as rulemaking proceedings that have been in process for some time and are not as likely to see further progress in the near term. The expected timeframes for issuance of these rules are indicated in parentheses.
 
  Upcoming Regulations
 
  – a U.S. Customs and Border Protection proposed rule implementing changes to the drawback laws contained in the Trade Facilitation and Trade Enforcement Act by requiring claims to be filed electronically, extending and standardizing timelines for filing claims, modifying recordkeeping requirements, and establishing a new standard for substituting merchandise based on its tariff classification (September; first time published)
  – a CBP proposed rule amending the regulations pertaining to the importation of goods that violate or are suspected of violating the copyright laws in accordance with title III of the TFTEA and certain provisions of the Digital Millennium Copyright Act (September; first time published)
  – an Alcohol and Tobacco Tax and Trade Bureau proposed rule to update procedures for exports of distilled spirits, wine, beer, and tobacco products and implement the International Trade Data System all-electronic environment (September; previously April)
  – a CBP final rule prescribing procedures for the donation of technologies, training, or other support services to assist CBP in intellectual property rights enforcement (September; proposed rule published in January 2017)
  – a CBP final rule to give effect to certain liberalized changes to the NAFTA preference rules of origin that have been agreed to by the U.S., Canada and Mexico (September; proposed rule issued July 2016)
  – a CBP proposed rule to update and modify the (a)(1)(A) list in the appendix to 19 CFR Part 163 (October; first time published)
  – a CBP final rule clarifying the circumstances under which a notice of arrival must be filed for imported pesticides and pesticidal devices, codifying existing required NOA data elements, requiring the submission of additional NOA data elements for unregistered pesticides that are currently optional, and permitting the NOA to be filed electronically in the Automated Commercial Environment (November; interim final rule published in September 2016)
  – a CBP final rule on procedures for investigating evasion of antidumping and countervailing duty orders (November, previously March; interim final rule published in August 2016)
  – a CBP final rule reflecting that the Automated Commercial System is being phased out as a CBP-authorized electronic data interchange system for the processing of electronic entry and entry summary filings (November, previously March; interim final rule issued October 2015)
  – a CBP final rule raising from $200 to $800 the de minimis value of articles that may be imported by one person on one day free of duty and tax (November, previously April; interim final rule published in August 2016)
  – a CBP proposed rule seeking to promote the speed, accuracy, and transparency of administrative rulings concerning the importation of articles that may be subject to exclusion orders issued by the International Trade Commission under section 337 of the 1930 Tariff Act (December; first time published)
  – a CBP final rule to expand the definition of “importer” under the importer security filing rule for certain types of shipments to ensure that the party that has the best access to the required information is the party responsible for filing the ISF (December; proposed rule issued in July 2016)
  – a CBP proposed rule to implement the Air Cargo Advance Screening pilot as a regulatory program (December; no change)
  – a CBP final rule shifting authority to make certain decisions regarding customs transactions from port directors to directors of the Centers of Excellence and Expertise (May 2018; previously December)
 
  Regulations in Process
 
  – a final rule setting forth due process procedures for CBP to follow before suspending or revoking assigned entry filer codes, immediate delivery privileges, or remote location filing privileges
  – a CBP final rule reflecting the U.S.-Singapore free trade agreement
  – a final rule to enhance CBP’s ability to regulate and track in-bond merchandise and ensure that it is properly entered or exported
 
  Regulations Completed
 
  – a CBP final rule to update the customs broker examination procedures
  – a TTB final rule updating procedures for imports of distilled spirits, wine, beer, and tobacco products and implement ITDS
  – a CBP final rule removing the consumptive demand clause from the regulations concerning the prohibition on imports of goods produced by convict, forced, or indentured labor
  – a CBP final rule allowing Toxic Substances Control Act certifications to be filed electronically and eliminating the paper-based blanket certification process

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

NWS_a59
.

The Sydney Morning Herald: “Turnbull Government Moves a Step Closer to Export Controls for Gas Producers”

(Source: 
The Sydney Morning Herald, 24 Jul 2017.) [Excerpts.]
 
The Turnbull government is moving a step closer to slapping export restrictions on liquefied natural gas producers as part of its bid to secure domestic supply and bring down prices.

Resources Minister Matt Canavan will give formal notice to LNG producers on Monday [24 July] that he will use the Australian Domestic Gas Security Mechanism to assess whether 2018 will be a gas “shortfall year”.
 
Introduced on July 1 as part of the Coalition’s energy security push, the mechanism allows the government to intervene in the LNG market to ensure there is sufficient gas supply to meet the needs of Australian consumers. It can do so by requiring those LNG projects which are drawing gas from the domestic market to limit exports or find offsetting sources of new gas.
 
Senator Canavan will consult with producers, major gas users, the Australian Energy Market Operator (AEMO) and the Australian Competition and Consumer Commission (ACCC) before making a decision on export controls in the coming weeks. If he does label 2018 a shortfall year he will be granted unprecedented powers to control export volumes. … 

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

COMMCOMMENTARY

COMM_a01
10M. Volkov: “The Strange Case of OFAC Against Exxon for Sanctions Violations”

(Source: Volkov Law Group Blog. Reprinted by permission.)
 
* Author: Michael Volkov, Esq., Volkov Law Group, mvolkov@volkovlaw.com, 240-505-1992.
 
In a bizarre enforcement action, The Treasury Department’s Office of Foreign Asset Control (“OFAC”) assessed a $2 million civil monetary penalty against ExxonMobil (“Exxon”) for violations of the Ukraine sanctions. (Copy available here).
 
OFAC’s enforcement action boiled down to Exxon’s execution of eight legal documents with Igor Sechin, the CEO of Rosneft OAO (“Rosneft”), who is a Specially Designated Nation and Blocked Person on what is commonly referred to as the “SDN List.” Rosneft is Russia’s largest oil conglomerate. Sechin is a close confidant of Putin and has a long-standing relationship with Russia’s FSB.
 
OFAC has argued that Exxon’s execution of the contracts with Sechin violated the Ukraine sanctions regulations. Under the Ukraine sanctions, Exxon is prohibited from the receipt of any contribution or provision of funds, good or services from Sechin as a designated SDN. In other words, Exxon was prohibited from doing business with Sechin. Rosneft is not a prohibited entity.
 
The interesting twist to OFAC’s case against Exxon is whether Exxon violated the Ukraine sanctions when Exxon executed the contracts with Sechin in his capacity as the President and CEO of Rosneft. Sechin signed the contracts in his representative capacity as the CEO of Rosneft, not in his personal capacity.
 
Exxon is challenging the OFAC civil monetary penalty assessed for its execution of the contracts. Exxon argues that it executed the contracts with Sechin in his representative capacity not in his personal capacity.
 
In response, OFAC cites the plain language of the applicable Executive Order and in the Ukraine regulations, the purpose of the sanctions against a designated national, as opposed to the corporate entity, Rosneft, as reflecting its intent to sanction business transactions with SDNs and not Rosneft. In sum, OFAC claimed that U.S. persons may not deal with a designated national, including Igor Sechin or receive, deal in, or benefit from any service a designated person (like Sechin) might provide.
 
OFAC also cited a FAQ on its website addressing this issue in relation to the Burma sanctions program. FAQ #285 stated that US parties should be “cautious in dealings with [a non-designated] entity to ensure that they are not providing funds, goods, or services to the SDN, for example, by entering into any contracts that are signed by the SDN.”
 
Exxon is challenging OFAC’s enforcement assessment and filed suit in federal court. Exxon argues that OFAC’s enforcement action defies common sense. Sechin executed the contract as the CEO of ROsneft, which is not a prohibited entity under OFAC regulations. Rosneft is subject to the Ukraine Sectoral Sanctions that restricts the permissible transactions that persons can conduct with the designated individual.
 
igIt is hard to predict how this case will turn out – from my perspective, I give a slight advantage to Exxon in this case. Exxon executed the contracts with Sechin as the CEO of Rosneft and not in his personal capacity. The fact that Rosneft was not placed on the SDN list suggests that OFAC intended only to benefit transactions with Sechin from which Sechin would benefit, as opposed to a transaction in which Sechin serves in a representative capacity.
 

OFAC characterized this case as an “egregious” violation and cited Exxon’s sophisticated understanding of sanctions regulations and its reckless disregard of known OFAC SND regulations.

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

COMM_a2
11Z. Brez, M. Thompson & M.S. Casey: “OFAC Hits ExxonMobil with $2 Million Sanctions Penalty and Public Rebuke”

(Source: Ropes & Gray LLP)
 
* Authors: Zach Brez, Esq., Zachary.Brez@ropesgray.com; Marcus Thompson, Esq., Marcus.Thompson@ropesgray.com; and Michael S. Casey, Esq., Michael.Casey@ropesgray.com. All of Ropes & Gray LLP, New York and London, respectively.
 
On July 20, 2017, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) penalized ExxonMobil and two of its U.S. subsidiaries (collectively, “ExxonMobil”) $2 million for violations of the Ukraine-Related Sanctions Regulations. The penalty stems from legal documents that ExxonMobil entered into with Rosneft OAO (“Rosneft”) in May 2014, less than two months after OFAC introduced sanctions in response to Russia’s invasion of Ukraine. OFAC found ExxonMobil’s conduct to violate the sanctions because the documents at issue were countersigned by Rosneft’s Chief Executive Officer (“CEO”), Igor Sechin, who was personally targeted by U.S. sanctions when he executed them. Within hours of the penalty announcement, ExxonMobil filed a lawsuit in the Northern District of Texas, challenging OFAC’s action and requesting that the court hold unlawful and set aside the imposed penalty.
 
The ExxonMobil enforcement action is significant for several reasons. Among them, the ExxonMobil penalty is the latest in a string of recent, increasingly aggressive OFAC enforcement actions targeting non-financial institutions. In addition, the ExxonMobil penalty confirms that OFAC, along with other U.S. regulators, continues to pursue oil and gas companies that violate the letter or spirit of U.S. economic sanctions.
 
I. OFAC Penalizes ExxonMobil for Dealings with Russian Oligarch
 
  a. ExxonMobil’s Conduct
 
Between May 14, 2014 and May 23, 2014, while Secretary of State Rex Tillerson served as CEO, ExxonMobil finalized eight legal documents (the “Documents”) with Rosneft, a Russian state-controlled oil and gas company. Seven of the Documents were “completion deeds” that memorialized the completion of certain activities related to various contracts between ExxonMobil and Rosneft, but did not impose new rights or obligations on the parties. The eighth Document extended the term of an agreement between ExxonMobil and Rosneft related to a liquefied natural gas plant. Sechin signed all of the Documents on behalf of Rosneft.
 
A few weeks before ExxonMobil and Rosneft executed the Documents, OFAC had added Sechin, a longtime confidant of Russian President Vladimir Putin, to the Specially Designated Nationals and Blocked Persons List (“SDN List”). As a result, U.S. companies were prohibited from engaging in virtually all business and dealings with Sechin and were obligated to freeze his property that came within their control. Rosneft was not targeted by U.S. sanctions at the time the Documents were signed, and Sechin did not own a majority of Rosneft’s equity. [FN/1] As a result, ExxonMobil was permitted to do business with Rosneft.
 
ExxonMobil contended in discussions with OFAC-and still maintains-that its interactions with Sechin were permissible because they constituted “professional” interactions (i.e., interactions with Sechin in his capacity as CEO of Rosneft, a non-sanctioned entity) as opposed to “personal” interactions (i.e., interactions with Sechin in his personal capacity). More specifically, ExxonMobil claims that Sechin merely signed the Documents in his capacity as a Rosneft representative, but did not personally provide any services to ExxonMobil. In its defense, ExxonMobil has cited an April 2014 news article “that quoted a Department of the Treasury representative as saying that a U.S. person would not be prohibited from participating in a meeting of Rosneft’s board of directors.” [FN/2] In addition, ExxonMobil focused on multiple statements by executive branch officials during the course of 2014. For example, ExxonMobil’s complaint quotes U.S. officials, who reportedly stated that OFAC’s aim in designating Sechin, along with other Russian oligarchs, was to target “personal assets and wealth, rather than the business entities and industries that they may manage or oversee.” The complaint also quotes an April 28, 2014 conference call, during which U.S. officials reportedly stated that Sechin’s designation “wouldn’t impact U.S. companies’ ability to do business with Rosneft[.]”
 
OFAC rejected ExxonMobil’s argument that sanctions regulations recognize a distinction between interactions with SDNs in their professional versus personal capacities. In particular, OFAC interpreted the Ukraine-Related Sanctions Regulations such that ExxonMobil could “not deal with . . . Igor Sechin, or receive, deal in, or benefit from any service a designated person might provide.” ExxonMobil thus violated the sanctions regulations by executing Documents that were countersigned by Sechin. In reaching this conclusion, OFAC cited the Executive Order under which Sechin was designated, a Frequently Asked Question (issued in 2013 in the context of the since-terminated Burmese sanctions program), and other press statements by the White House and Treasury Department (i.e., aside from the statement by the Treasury Department official quoted in the April 2014 article). OFAC asserted that these sources “clearly put ExxonMobil on notice that OFAC would consider executing documents with an SDN to violate the prohibitions in the Ukraine-Related Sanctions Regulations.”
 
OFAC determined that ExxonMobil’s conduct constituted egregious violations of the sanctions regulations, warranting the statutory maximum civil penalty of $2 million. ExxonMobil did not consent to a settlement agreement, so OFAC imposed the $2 million penalty by issuing a penalty notice. OFAC concluded that ExxonMobil “demonstrated reckless disregard for U.S. sanctions requirements” by failing to “consider warning signs associated with dealing in blocked services of an SDN.” In addition, OFAC treated ExxonMobil’s sophistication, experience, and global operations as aggravating factors in determining the applicable penalty.
 
  b. ExxonMobil’s Legal Challenge
 
On the same day that OFAC issued its enforcement information, ExxonMobil filed a lawsuit in the Northern District of Texas challenging OFAC’s determination and seeking to set aside the penalty. The complaint alleges that OFAC’s interpretation of the relevant Executive Order and Ukraine-Related Sanctions Regulations is “arbitrary, capricious, an abuse of discretion, and not in accordance with law.” In addition, ExxonMobil claims that OFAC’s penalty violates the so-called Fair Notice Doctrine, which prohibits federal agencies from imposing punitive sanctions against a person for misinterpreting an ambiguous regulation when the agency did not inform regulated parties of its preferred interpretation. The complaint includes a detailed chronology of purported statements by Obama administration and Treasury Department officials ostensibly supporting ExxonMobil’s position that its conduct was permissible.
 
II. Fresh off Recent Victories, OFAC Continues to Aggressively Pursue Non-Financial Institutions
 
The ExxonMobil penalty is only the latest in a series of notable OFAC enforcement actions targeting non-financial institutions. In March 2017, OFAC penalized Chinese telecommunications company Zhongxing Telecommunications Equipment Corp (“ZTE”) over $100 million for alleged violations of the Iranian sanctions, marking the largest penalty that OFAC has extracted from a non-financial institution to date. ZTE entered into coordinated settlements with other U.S. regulators, which resulted in a total combined penalty of nearly $900 million.
 
OFAC also has taken aggressive positions in recent enforcement actions targeting other non-financial institutions. For example, in February 2017, OFAC issued a finding of violation to Taiwan-based B Whale Corporation-whose only apparent connection to the United States was as a party in bankruptcy proceedings-because one of its vessels received a transfer of Iranian crude oil in international waters. In that case, OFAC determined that B Whale Corporation’s receipt of Iranian crude oil in the Pacific Ocean constituted an “an importation from Iran to the United States” in contravention of the Iranian Transactions and Sanctions Regulations (“ITSR”).
 
In another enforcement action, OFAC found that Epsilon Electronics, a U.S.-based audio electronics company, had committed egregious violations of the ITSR by exporting audio and video equipment to a Dubai-based purchaser. OFAC found that Epsilon violated the ITSR because the company had reason to know that the Dubai-based entity would resell the products to Iran, even though OFAC was not able to establish that the Dubai-based purchaser actually reexported the equipment to Iran.
 
Invigorated by its recent high-profile victories, OFAC seems likely to continue to pursue non-financial institutions, particularly those that fail to implement robust sanctions compliance programs.
 
III. Companies Operating in the Oil & Gas Industry Have Been Put on Notice
 
Since at least 2013, the U.S. government has been aggressive in pursuing oil and gas companies that violate economic sanctions and export control laws. For example, in 2013, Weatherford International Ltd entered into coordinated resolutions with DOJ, SEC, OFAC, and BIS to resolve alleged violations of the FCPA, sanctions regulations, and export control laws, agreeing to pay $253 million in penalties. Among other violations, U.S. regulators alleged that Weatherford exported equipment from the United States to Cuba, Iran, Sudan, and Syria, in violation of U.S. sanctions. In 2015, Schlumberger Oilfield Holdings Ltd. entered a guilty plea and accepted a $232.7 million penalty for violations of the International Emergency Economic Powers Act related to transactions involving Iran and Sudan. More recently, in 2016, National Oilwell Varco Inc. entered into concurrent settlements with OFAC, BIS, and DOJ, agreeing to pay at least $25 million in penalties related to alleged violations of the Cuban, Iranian, and Sudanese sanctions regulations.
 
The ExxonMobil penalty confirms that OFAC is carefully scrutinizing oil and gas companies’ compliance with U.S. economic sanctions. Accordingly, the penalty underscores the need for oil and gas companies to reassess regularly their existing sanctions compliance controls, to ensure that those controls are commensurate with their current risk profiles. In addition, companies that operate in and around Russia would be well served to reexamine their relationships with entities whose owners, directors, or officers have been-or foreseeably may be-targeted by U.S. sanctions. In particular, it is clear that OFAC takes a broad view of the scope of transactions prohibited by existing sanctions. In the wake of the ExxonMobil enforcement action, relationships forged, at least in part, in reliance upon previous public statements by White House and Treasury Department officials regarding the scope of the Ukraine-Related Sanctions Regulations may need to be reassessed.
 
IV. Conclusion
 
While the ultimate resolution of the ExxonMobil matter is unknown, non-financial institutions, and particularly entities operating in the oil and gas industry, should take notice of the current enforcement environment and OFAC’s increasingly aggressive posture, mindful that violations of economic sanctions can result in significant penalties and non-monetary consequences. We will continue to monitor the ExxonMobil matter and will provide updates regarding subsequent developments.

———
  [FN/1] OFAC subsequently imposed sectoral sanctions against Rosneft in July 2014. Currently, U.S. companies are prohibited from (1) dealing in certain medium- and long-term debt of Rosneft, and (2) exporting goods, services, and technology to Rosneft in support of specific types of oil-producing activities.
  [FN/2] OFAC’s enforcement information does not specify which article ExxonMobil cited in its defense. However, in 2014, The Wall Street Journal published at least two articles suggesting that BP CEO Bob Dudley’s participation on Rosneft’s board of directors had been approved by the Treasury Department. See Justin Scheck, BP’s American CEO in Uncomfortable Place: Rosneft’s Boardroom, Wall Street Journal (May 15, 2014, 11:02 AM), (“A U.S. Treasury Department spokeswoman said Mr. Dudley may participate in board meetings with Mr. Sechin, as long as they are covering Rosneft business and not Mr. Sechin’s personal business.”); Liam Moloney, Pirelli Names Rosneft Chairman Igor Sechin to Board, Wall Street Journal (Jul. 11, 2014, 8:37 AM), (“The U.S. government has said sanctions don’t preclude Mr. Dudley, a Rosneft board member, from interacting with Mr. Sechin as part of his role as a director.”).

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

ECEX/IM TRAINING EVENTS & CONFERENCES

EC_a1
12. ECTI Presents: U.S. Export Control (ITAR/EAR/OFAC) Seminar Series in Austin, TX, 18-21 September

(Source: Jill Kincaid;
jill@learnexportcompliance.com)
 
* What: U.S. Export Control (ITAR/EAR/OFAC) Seminar Series in Austin, TX
* When: ITAR Seminar: 18-19 September 2017; EAR/OFAC Seminar: 20-21 September 2017
* Where: Austin, TX: Hilton Garden Inn Austin Downtown
* Sponsor: Export Compliance Training Institute (ECTI)
* ECTI Speaker Panel: John Black, Scott Gearity and Melissa Proctor

* Register: here or contact Jessica Lemon at 540-433-3977, jessica@learnexportcompliance.com 

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

ENEDITOR’S NOTES

* Elias Canetti (25 Jul 1905 – 14 Aug 1994, was a German language author, born in Ruse, Bulgaria. He was a modernist novelist, playwright, memoirist and non-fiction writer, and won the Nobel Prize in Literature in 1981 “for writings marked by a broad outlook, a wealth of ideas and artistic power”.)
  – “It doesn’t matter how new an idea is: what matters is how new it becomes.”
  – “Success listens only to applause. To all else it is deaf.”
 

*
Eric Hoffer
 (25Jul 1898 – 21 May 1983, was an American longshorman  
who worked on 
the docks of San Francisco
 from 1943 to 1964, but also wrote ten books, and was awarded the 
Presidential Medal of Freedom
 in February 1983. His first book, The True Believer (1951), was widely recognized as a classic, receiving critical acclaim from both 
scholars
 and laymen, although Hoffer believed that The Ordeal of Change was his finest work.)
  – “Propaganda does not deceive people; it merely helps them to deceive themselves.”

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

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: 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.

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

EN_a0315. 
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

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

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