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17-0809 Wednesday “Daily Bugle”

17-0809 Wednesday “Daily Bugle”

Wednesday, 9 August 2017

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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 
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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. Commerce/Census Updates ACE Export Reports
  4. State/DDTC Posts Address Changes for Two Entities
  5. Japan METI Updates End-User List
  1. Bloomberg: “U.S. Companies Should Brace for New Chinese Export Control Law”
  1. D.M. Edelman: “Update on NAFTA Negotiations”
  2. M. O’Kane: “New UK Sanctions Reporting Requirements Now in Force”
  3. M. Volkov: “Maximizing Compliance Opportunities: Your Vendor Onboarding Process and Vendor Master File”
  4. Gary Stanley’s ECR Tip of the Day
  1. Bartlett’s Unfamiliar Quotations 
  2. Are Your Copies of Regulations Up to Date? Latest Changes: ATF (15 Jan 2016), Customs (28 Jul 2017), DOD/NISPOM (18 May 2016), EAR (7 Jul 2017), FACR/OFAC (16 Jun 2017), FTR (19 Apr 2017), HTSUS (25 Jul 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.]

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OGSOTHER GOVERNMENT SOURCES

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

[No items of interest noted today.]

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We have added a few new features to the Filer (AES-201) and the Agent-Filed Routed (AES-203) Export Reports. These changes were prompted by feedback from ACE users, to include comments provided on the ACE Export Reports webinar held on July 12, 2017. One change we would like to highlight is that the ‘Export Date’ and ‘EEI Filing Date’ are now included in the search criteria for the AES-203 report to allow users to filter results accordingly. 
 
Below is a summary of all updates:
 
AES 201
  – The ‘Routed Transaction Indicator’ has been added as a default prompt to the AES-201 report.
 
AES 203
  – The ‘EEI Filing Date’ has been added to the data elements provided in this report.
  – The ‘Export Date’ and ‘EEI Filing Date’ have been added as default search prompts to the AES-203 report. 
 
Benefits of the ACE Export Reports
 
The ACE Export Reports feature provides users in the trade community the ability to access their official export records free of charge. Users have access to 5 year’s worth of data in addition to the current year and can create customizable reports (dynamic or scheduled). This is a great auditing and compliance tool because users now have access to data they file directly and data filed on their behalf.
 
A webinar demonstrating the features and benefits of the ACE Export Reports functionality can be viewed here.

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OGS_a44. State/DDTC Posts Address Changes for Two Entities

 
  – BAE Systems Australia Ltd Address Change
  – BAE Systems Marine Ltd Address Change

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Information on the entities involved in programs related to WMDs and ballistic missile development was added to the End User List. The added information can be found here.

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NWSNEWS

 
U.S. companies from Dow Chemical to Intel should prepare for a new defense-related export control law that could affect their business operations in China and come with stiff penalties for breaking the rules, analysts in China are telling Bloomberg BNA.
 
The proposal still could be changed, since the government released the draft law earlier in the year and the deadline for comments ended just weeks ago. According to IHS Jane’s Defence Industry, the draft legislation is expected to be introduced in the National People’s Congress in 2018.
 
If approved, the draft export control law would strengthen the government’s authority to deal with companies that export controlled goods in four categories: dual-use items (goods used for both military and peaceful purposes); military items; nuclear items and other items that may affect national security.
 
The draft law also would give Beijing authority to take retaliatory action against foreign countries that implement discriminatory export controls directed at China. The Ministry of Commerce, the Chinese Customs Bureau, and the State Council and Central Military Commission administer and enforce Chinese export control laws, according to the U.S. Bureau of Industry and Security.
 
For U.S. companies with facilities in China it would mean taking a more cautious approach to exporting from the country, according to analysts, and some may want to consider the viability of facilities there altogether because of data transfer issues between China and the outside world.
 
“Wide Range of Industries”
 
  “A wide range of industries may be affected, such as those related to aerospace, military, and defense, energy, material-processing, electronics, semiconductors and navigation,” David Stepp, partner at Bryan Cave, an international law firm with offices in China, told Bloomberg BNA.
 
Chemical producers, biotechnology companies, and technology firms “who manufacture goods or develop some technology that may be used for the production of missiles or of a nuclear weapon could also be affected,” according to Ren Qing, a partner in the Beijing office of the Global Law Firm.
 
U.S. companies that could potentially be affected because they operate facilities in China include semiconductor maker Intel Corp.; Esterline Technologies Corp., which makes defense and aerospace technology; and Dow Chemical Co., which has facilities in Shanghai.
 
While the law affects U.S. companies in China, it is a not a reaction to Trump administration actions or to U.S. export controls, according to Stepp. The main reason for the law is to strengthen enforcement powers and meet international obligations as a permanent member of the United Nations Security Council and a member state to relevant international treaties, including the Treaty on the Non-Proliferation of Nuclear Weapons, the Chemical Weapons Convention, and the Biological Weapons Convention, Ren said.
 
Export Licenses, Enforcement
 
An exact list of controlled goods has not yet been released, but it is likely to be close to the Wassenaar Arrangement, a multilateral list of controlled items with 41 participating countries, which does not include China, that was established in 1996, according to Robert Clifton Burns, counsel at Bryan Cave.
 
The law would require exporters, foreign importers, end users, agents, freight forwarders, customs brokers, e-commerce platforms and financial service providers involved in the export process of controlled goods to obtain an export license from the Chinese authorities.
 
It would strengthen Chinese authorities’ investigative powers and include tough penalties for rule-breaking, including personal fines of up to $43,000 and company fines of up to up to ten times “illegal turnover.” It also would give the government authority to imprison offenders, seize goods and transportation, revoke export licenses, and freeze bank accounts, according to Ren.

The inclusion of dual-use items, goods that could be used for more than one purpose, within the law, means an array of goods could be affected by it, Ren told Bloomberg BNA. And use of the term “national security” is also broad and “open to abuse” by the authorities, who could use it as a legislative tool to penalize U.S. companies unfairly.
 
“Deemed Exports”
 
However, potentially the most hazardous part of the new legislation, he said, is its reference to “deemed exports.”

Exports, re-exports (that originated in China), transit goods (goods that didn’t originate in China but are passing through its territory), and deemed exports are all subject to the law. Deemed exports include sharing technology or information from inside China with the outside world that could be regarded as breaking export laws, according to Ren, and that could affect U.S. companies with subsidiaries in China communicating research and other information between locations.
 
Subsidiaries in China will need to be “cautious” when “sharing technology or information with colleagues or a parent company abroad by email or by some other electronic transmission,” he said, and this may cause U.S. companies to consider carefully whether they open facilities in China.
 
Retaliatory Measures, Burdens
 
In addition to the company-level regulation, the law would give Beijing the authority to take retaliatory measures against countries that implement discriminatory export controls directed against China.
 
The draft law doesn’t clarify what might be considered discriminatory controls used by a foreign country, leaving the Chinese authorities “with a certain amount of discretion in the application of this provision in practice,” according to Stepp.
 
  “U.S. companies based in China may be affected by this provision, provided the U.S. is deemed as taking discriminatory export control measures against the PRC and China decides to take corresponding measures against the U.S.,” he said, referring to the country’s official name, the People’s Republic of China.

The Chinese regulations could become particularly onerous for companies producing items controlled both in China and the U.S., according Burns.
 
  “The company won’t be able to do anything with respect to that product without getting authorization from both the U.S. and Chinese authorities,” he told Bloomberg BNA.
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COMMCOMMENTARY

COMM_a017
. D.M. Edelman: “Update on NAFTA Negotiations”

        
* Author: Doreen M. Edelman, Esq., Baker Donelson LLP, 202-508-3460, dedelman@bakerdonelson.com
.
 
Canada and Mexico have now appointed negotiating teams of seasoned professionals. Canada also has created a NAFTA Council comprised of public and private sector experts from the energy, auto, labor and agricultural fields. Negotiations will begin in the U.S. during the week of August 16. The next round has already been set to take place in Mexico for the week of September 10. Mexico would like the talks completed by the end of the year, well ahead of the 2018 Presidential election next July. The U.S. has so far acquiesced to such a schedule; however, the Canadians may not be as accommodating.
 
The Mexican government has raised labor issues regarding customs and visa procedures and temporary workers while the U.S. Congressional hearings have highlighted issues relating to specific industries including dairy, beef, seasonal agricultural products, and the oil and gas industry. The Canadians continue to raise cultural preferences as a NAFTA exception which could affect the ability of U.S. film, music, radio, print and other information to be freely shared in Canada under the trade deal. Finally, dispute resolution will likely be a contentious issue.
 
Below please find a short video regarding the Trump Administration’s efforts to renegotiate NAFTA with Mexico and Canada from an interview last week with CGTN’s Rachelle Akuffo.

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COMM_a28
. M. O’Kane: “New UK Sanctions Reporting Requirements Now in Force”

 
* Author: Michael O’Kane, Esq., Peters & Peters Solicitors LLP, mokane@petersandpeters.com.
 
As previously  reported, the UK has expand the scope of requirements to inform HM Treasury of sanctions breaches (see previous blog), and those new requirements came into force yesterday (8 August 2017).
 
The European Union Financial Sanctions (Amendment of Information Provisions) Regulations 2017 now apply to “certain businesses and professions” including “independent legal professionals”, law firms, auditors, casionos, dealers in precious metals or stones, tax advisors, trust or company service providers, accountants, estate agents and others, who will commit an offence if they do not inform HMT if they know or have reasonable cause to suspect that a person has committed a sanctions offence or is a person who is the subject of an asset freeze.
 
The explanatory memorandum is here, and updated guidance at pages 17-21 of OFSI’s guidance document here.

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COMM_a3
9. M. Volkov: “Maximizing Compliance Opportunities: Your Vendor Onboarding Process and Vendor Master File”

(Source: Volkov Law Group Blog. Reprinted by permission.)
 
* Author: Michael Volkov, Esq., Volkov Law Group, mvolkov@volkovlaw.com, 240-505-1992.
 
Compliance practitioners are opportunists. They must look for openings in the corporate resource world to build partnerships with related functions. To put it another way, they are purveyors of compliance thinking – they inject the compliance mindset into functions that can advance the effectiveness of compliance controls.
 
When it comes to the vendor onboarding process, compliance practitioners need to participate in the design and implementation of procedures for screening, onboarding and monitoring vendor activity. For obvious reasons, a company faces significant risks from its vendors – a company must make sure the vendor provides the requested goods and/or services, adheres to the company’s supplier code, and refrains from bribery of the company’s procurement officials or other improper activities. In certain circumstances, shady vendors can be used as a means to gain unauthorized access to company funds.
 
A chief compliance officer and the procurement officials need to coordinate their activities to maximize access to information about the vendor, verification of the vendor’ information, and ongoing monitoring of the goods and/or services it provides as well as payment arrangements for such goods and/or services.
 
A telltale sign of a compliance missed opportunity occurs when a company’s vendor master file contains little information beyond an unverified bank account for vendor payments.
 
As chief compliance officers focus on how to operationalize their compliance programs, they need to build a relationship with the procurement function, and most especially those responsible for vendor onboarding.
 
A vendor master file, if robust, can be an invaluable tool to gain information about a vendor’s ownership, business operations, and payment details. A new vendor should be screened appropriately for all significant risks, including anti-corruption, foreign official ownership, sanctions, and any other adverse information. Of course, new vendors must be reviewed for basic financial information, often referred to as “TIN checks,” or tax identification number verification and basic credit status. In today’s world, however, a TIN check is not sufficient – screening must be more robust for significant risks.
 
Instead, working with the CCO, a procurement system must collect important information about a potential vendor, as well as the expectations for business interactions. What goods and services will the vendor provide? How much will the vendor be paid and what billing arrangements are being made? The vendor’s expenses will have to be coded to the correct company account and invoices will have to be reviewed to ensure that the vendor is actually providing the goods/or services.
 
If the time and investment is made in the vendor database, the CCO will have successfully leveraged a basic compliance function to maximize the collection of information to provide an important check on vendor activities.
 
By working with procurement, a CCO gains line of sight into the vendor and procurement function. In many high-risk countries, especially China, procurement is a high-risk activity because of the ability of the procurement function to be influenced by potential vendors, and shadow vendors are often used to steal money from the company to fund a bribery scheme. A CCO who takes the time to work with procurement is building an important relationship and source for important information needed to minimize risks.

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COMM_a4
10. Gary Stanley’s ECR Tip of the Day

(Source: Defense and Export-Import Update; available by subscription from
gstanley@glstrade.com
)
 
* Author: Gary Stanley, Esq., Global Legal Services, PC, (202) 352-3059,
gstanley@glstrade.com
.
 

You must submit reports to BIS under the provisions of EAR § 743.1 for exports of items on the Sensitive List (Supp. No. 6 to EAR Part 774). Although the items on the Sensitive List are identified by ECCN rather than Wassenaar Arrangement numbering, BIS drew the item descriptions directly from the Wassenaar Arrangement’s Sensitive List.

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ENEDITOR’S NOTES

* Jean Piaget (9 Aug 1896 – 16 Sep 1980, was a Swiss clinical psychologist known for his pioneering work in child development.  Jean Piaget was known as a pioneer of the constructivist theory of knowing. However, his ideas did not become widely popularized until the 1960s. This then led to the emergence of the study of development as a major sub-discipline in psychology. By the end of the 20th century, Piaget was second only to B.F. Skinner as the most cited psychologist of that era.)
  – “Play is the work of childhood.”
  – “The principle goal of education in the schools should be creating men and women who are capable of doing new things, not simply repeating what other generations have done.”
  
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EN_a312
. 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: 28 Jul 2017: 82 FR 35064-35065: Technical Corrections to U.S. Customs and Border Protection Regulations
 
* 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. 

  
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FOREIGN ASSETS CONTROL REGULATIONS (OFAC FACR)
: 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders
  – Last Amendment: 16 Jun 2017: 82 FR 27613-27614: Removal of Burmese Sanctions Regulations 
 
*
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: 25 Jul 2017: Harmonized System Update 1706, containing 834 ABI records and 157 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_a0313. 
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 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.

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