17-0907 Thursday “Daily Bugle”

17-0907 Thursday “Daily Bugle”

Thursday, 7 September 2017

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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  1. Commerce/BIS Seeks Comments on the Effects of Extending Foreign Policy-Based Export Controls Through 2018
  2. DHS/CBP Renews Charter for U.S. Customs and Border Protection’s UFAC
  1. Ex/Im Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/Census: “Becoming Familiar with Automated Export System Downtime Procedures”
  3. Commerce/BIS: (No new postings.)
  4. DHS/CBP Releases Guidance on Cargo Processing During Hurricane Irma and Harvey
  5. State/DDTC: (No new postings.)
  6. EU Commission: “EU to Launch Global Alliance for Torture-Free Trade”
  1. Reuters: “New York Regulator Fines Pakistan’s Habib Bank $225 Million For Compliance Failures”
  2. Reuters: “U.S. Warns of Sanctions on Any Country Trading with North Korea”
  3. The Washington Post: “U.S. Charges Ex-Turkish Minister with Conspiring to Evade Sanctions Against Iran”
  1. L. Krahulcova: “Case Study: Denmark and the Failure of EU Export Controls”
  2. M. Volkov: “The Objective of Due Diligence: To Protect Your Culture”
  3. T. Murphy: “The Future of KORUS”
  4. Gary Stanley’s ECR Tip of the Day
  1. ECS Presents ITAR/EAR Critical Compliance & Agreement Workshop on 17-18 Oct in Charleston, SC
  2. NAITA Presents 2017 Export Control Update (ITAR/EAR/OFAC) on 18-19 Sep in Huntsville, AL
  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 (15 Aug 2017), FACR/OFAC (16 Jun 2017), FTR (19 Apr 2017), HTSUS (25 Jul 2017), ITAR (30 Aug 2017) 
  3. Weekly Highlights of the Daily Bugle Top Stories 



Commerce/BIS Seeks Comments on the Effects of Extending Foreign Policy-Based Export Controls Through 2018

82 FR 42279-42281: Effects of Extending Foreign Policy-Based Export Controls Through 2018
* AGENCY: Bureau of Industry and Security, Commerce.
* ACTION: Request for comments.
* SUMMARY: The Bureau of Industry and Security (BIS) is seeking public comments on the effect of existing foreign policy-based export controls in the Export Administration Regulations. Section 6 of the Export Administration Act requires BIS to consult with industry on the effect of such controls and to report the results of the consultations to Congress. BIS is conducting the consultations through this request for public comments.
  Comments from all interested persons are welcome and will help BIS determine whether its foreign policy-based export controls should be continued for another year. All comments will be made available for public inspection and copying and included in a report to be submitted to Congress.
* DATES: Comments must be received by October 10, 2017. …
* SUPPLEMENTARY INFORMATION: Foreign policy-based controls in the Export Administration Regulations (EAR) are implemented pursuant to section 6 of the Export Administration Act of 1979, as amended, (50 U.S.C. 4601-4623 (Supp. III 2015)) (EAA). The current foreign policy-based export controls maintained by the Bureau of Industry and Security (BIS) are set forth in the EAR (15 CFR parts 730-774), including in parts 742 (CCL Based Controls), 744 (End-User and End-Use Based Controls) and 746 (Embargoes and Other Special Controls). These controls apply to a range of countries, items, activities and persons, including:

  – Chemical precursors and biological agents, associated equipment, technical data, and software related to the production of chemical and biological agents (Sec. Sec.  742.2 and 744.4) and various chemicals included on the list of those chemicals controlled pursuant to the Chemical Weapons Convention (Sec.  742.18);
  – Equipment and related technical data used in the design, development, production, or use of certain rocket systems and unmanned air vehicles (Sec. Sec.  742.5 and 744.3);
  – Regional stability (Sec.  742.6);
  – Crime control and detection items (Sec.  742.7);
  – Countries designated as Supporters of Acts of International Terrorism (Sec. Sec.  742.8, 742.9, 742.10, 742.19, 746.4, 746.7, and 746.9);
  – Specially designed implements of torture (Sec.  742.11);
  – Communication intercepting devices, software and technology (Sec.  742.13);
  – Significant items (SI): Hot section technology for the development, production, or overhaul of commercial aircraft engines, components, and systems (Sec.  742.14);
  – Encryption items (Sec.  742.15);
  – Certain firearms and related items based on the Organization of American States Model Regulations for the Control of the International Movement of Firearms, their Parts and Components and Ammunition included within the Inter-American Convention Against the Illicit Manufacturing of and Trafficking in Firearms, Ammunition, Explosives, and Other Related Materials (Sec.  742.17);
  – Maritime nuclear propulsion (Sec.  744.5);
  – Certain foreign aircraft and vessels (Sec.  744.7);
  – Certain persons designated as proliferators of weapons of mass destruction (Sec.  744.8);
  – Certain cameras to be used by military end-users or incorporated into a military commodity (Sec.  744.9);
  – Certain entities in Russia (Sec.  744.10);
  – Individual terrorists and terrorist organizations (Sec. Sec.  744.12, 744.13 and 744.14);
  – Entities acting contrary to the national security or foreign policy interests of the United States (Sec.  744.11);
  – Certain general purpose microprocessors for “military end-uses” and “military end-users” (Sec.  744.17);
  – Certain persons designated by Executive Order 13315 (“Blocking Property of the Former Iraqi Regime, Its Senior Officials and Their Family Members”) (Sec.  744.18);
  – Certain sanctioned entities (Sec.  744.20);
  – Embargoed countries (Part 746);
  – U.S. and U.N. arms embargoes (Sec.  746.1 and Country Group D:5 of Supplement No. 1 to Part 740); and
  – Industry sectors and regions related to U.S. policy towards Russia (Sec.  746.5).

  In addition, the EAR impose foreign policy-based export controls on certain nuclear related commodities, technology, end-uses and end-users (Sec. Sec.  742.3 and 744.2), in part, implementing section 309(c) of the Nuclear Non-Proliferation Act (42 U.S.C. 2139a).
  Under the provisions of section 6 of the EAA, export controls maintained for foreign policy purposes must be extended annually. Section 6 of the EAA requires a report to Congress when foreign policy-based export controls are extended. The EAA expired on August 20, 2001. Executive Order 13222 of August 17, 2001 (3 CFR, 2001 Comp., p. 783 (2002)), as amended by Executive Order 13637 of March 8, 2013 (3 CFR, 2013 Comp., p. 223 (2014), which has been extended by successive Presidential Notices, the most recent being that of August 15, 2017, (82 FR 39005 (August 16, 2017)) continues the EAR and, to the extent permitted by law, the provisions of the EAA, in effect under the International Emergency Economic Powers Act (50 U.S.C. 1701, et seq. (2012)). The Department of Commerce, as appropriate, follows the provisions of section 6 of the EAA by reviewing its foreign policy-based export controls, conducting consultations with industry on such controls through public comments and preparing a report to be submitted to Congress. In January 2017, the Secretary of Commerce, on the recommendation of the Secretary of State, extended for one year all foreign policy-based export controls then in effect. BIS is now soliciting public comment on the effects of extending the existing foreign policy-based export controls from January 2018 to January 2019. Among the criteria considered in determining whether to extend U.S. foreign policy-based export controls are the following:

  (1) The likelihood that such controls will achieve their intended foreign policy purposes, in light of other factors, including the availability from other countries of the goods, software or technology proposed for such controls;
  (2) Whether the foreign policy objective of such controls can be achieved through negotiations or other alternative means;
  (3) The compatibility of the controls with the foreign policy objectives of the United States and with overall U.S. policy toward the country subject to the controls;
  (4) Whether the reaction of other countries to the extension of such controls is not likely to render the controls ineffective in achieving the intended foreign policy objective or be counterproductive to U.S. foreign policy interests;
  (5) The comparative benefits to U.S. foreign policy objectives versus the effect of the controls on the export performance of the United States, the competitive position of the United States in the international economy, the international reputation of the United States as a supplier of goods and technology; and
  (6) The ability of the United States to effectively enforce the controls.
  BIS is particularly interested in receiving comments on the economic impact of proliferation controls. BIS is also interested in industry information relating to the following:

  (1) Information on the effect of foreign policy-based export controls on sales of U.S. products to third countries (i.e., those countries not targeted by sanctions), including the views of foreign purchasers or prospective customers regarding U.S. foreign policy-based export controls.
  (2) Information on controls maintained by U.S. trade partners. For example, to what extent do U.S. trade partners have similar controls on goods and technology on a worldwide basis or to specific destinations?
  (3) Information on licensing policies or practices by our foreign trade partners that are similar to U.S. foreign policy based export controls, including license review criteria, use of conditions, and requirements for pre- and post-shipment verifications (preferably supported by examples of approvals, denials and foreign regulations).
  (4) Suggestions for bringing foreign policy-based export controls more into line with multilateral practice.
  (5) Comments or suggestions to make multilateral controls more effective.
  (6) Information that illustrates the effect of foreign policy-based export controls on trade or acquisitions by intended targets of the controls.
  (7) Data or other information on the effect of foreign policy-based export controls on overall trade at the level of individual industrial sectors.
  (8) Suggestions for measuring the effect of foreign policy-based export controls on trade.
  (9) Information on the use of foreign policy-based export controls on targeted countries, entities, or individuals. BIS is also interested in comments relating generally to the extension or revision of existing foreign policy-based export controls. …
Matthew S. Borman, Deputy Assistant Secretary for Export Administration.

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DHS/CBP Renews Charter for U.S. Customs and Border Protection’s UFAC

82 FR 42353: U.S. Customs and Border Protection User Fee Advisory Committee (UFAC) Charter Renewal
* AGENCY: U.S. Customs and Border Protection, Department of Homeland Security (DHS).
* ACTION: Committee management; notice of Federal Advisory Committee charter renewal.
* SUMMARY: The Department of Homeland Security (DHS) renewed the charter for the U.S. Customs and Border Protection’s User Fee Advisory Committee (UFAC) on June 22, 2017. The charter will expire on June 22, 2019. …
  Name of committee: U.S. Customs and Border Protection User Fee Advisory Committee (UFAC).
  Purpose and objective: The charter of the U.S. Customs and Border Protection User Fee Advisory Committee (UFAC) was renewed for two years in accordance with the Federal Advisory Committee Act (FACA) 5 U.S.C. Appendix. A copy of the charter can be found here. UFAC is tasked with providing advice to the Secretary of the Department of Homeland Security through the Commissioner of U.S. Customs and Border Protection on matters related to the performance of inspections coinciding with the assessment of an agriculture, customs, or immigration user fee. …
  Dated: August 28, 2017.

Bradley Hayes, Executive Director, Office of Trade Relations. 

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OGS_a13. Ex/Im Items Scheduled for Publication in Future Federal Register Editions
Federal Register

[No items of interest noted today.]

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Commerce/Census: “Becoming Familiar with Automated Export System Downtime Procedures”

Are you aware of the procedures if the Automated Export System (AES) or Automated Commercial Environment (ACE) AESDirect program is down? To help clarify the process during an unscheduled outage, we created the following scenario to highlight the steps involved.
While attempting to file his shipment in ACE AESDirect, Mike noticed an issue with the system. He wasn’t able to transmit his Electronic Export Information (EEI). Instead, he needs to wait for guidance from the U.S. Census Bureau and U.S. Customs and Border Protection (CBP) regarding system status and the possible use of the AES Downtime Policy.
The AES Downtime Policy provides uniform procedures when the AES or the ACE AESDirect program is unavailable for transmission. During this time, the Census Bureau and CBP will work together to determine the cause and resolution for the problem. If the issue is not fixed within two hours, the Census Bureau and CBP will evaluate and determine if the use of the AES Downtime Policy is appropriate. If the AES Downtime Policy is jointly approved, Mike will be notified through a nationwide email broadcast.
Automated Export System Unscheduled Outage

  The outage is effective immediately.
  AES filers may submit shipments under the AES Downtime Policy. State Department licensable shipments cannot be exported under the AES Downtime Policy and must be held until the connection is restored and an Internal Transaction Number (ITN) is received. Once connection is brought back on-line after the outage, all shipments that were exported under the AES Downtime Policy must be filed along with any new AES transactions.
  If you use the AES Downtime Policy for export, please contact the port from which you will be exporting. In lieu of the AES Proof of Filing citation, please use the AES Downtime citation, which consists of the phrase AESDOWN, your individual company’s Filer ID, followed by the date.
         For example: AESDOWN 123456789 09/01/2017
  Please see the CBP website for further information on the AES Downtime Policy.
The broadcast message will include the AES Downtime Citation, a statement used in place of the AES Proof of Filing Citation to move cargo. However, it can only be used once the AES Downtime Policy has been enacted by the Census Bureau and CBP and the nationwide email broadcast has been issued.
AESDOWN        123456789       09/01/2017
As established in the Foreign Trade Regulations 30.7 (b), Mike must include the AES Downtime Citation on either the bill of lading, air waybill or other commercial loading documents. Moreover, Mike will not be able to use the AES Downtime Citation for U.S. State Department licensable shipments.
After receiving the broadcast message from the Census Bureau, Mike will follow the instructions and use the approved AES Downtime Citation to move his cargo. However, he is not done yet. Mike must keep a log of all shipments exported while the AES Downtime Policy is in effect. Once the issue has been resolved, another nationwide email broadcast will be sent indicating that the AES Downtime Policy is deactivated and the AES or ACE AESDi
rect is operational.
AES Downtime Policy Has Been Deactivated

  The AES Downtime Policy has been deactivated and the AES is now operational.
  Please file all Electronic Export Information (EEI) for shipments that were exported under the AES Downtime Policy, along with any new AES transactions, to receive an Internal Transaction Number (ITN).
  Due to the high volume of shipments that are being processed at this time, please be patient in obtaining an AES response message. Do not submit shipments more than once.
At this time, Mike is required to transmit the shipments that were moved during downtime to AES for an Internal Transaction Number (ITN). Mike should retain all documentation pertaining to the shipments that were moved, including a copy of the broadcast message issued at that time, along with the ITNs.
If you have questions about the AES Downtime Policy, please contact the Data Collection Branch at 1-800-549-0595, using option 1 or email askaes@census.gov. If you are not receiving the email broadcast messages, you can subscribe by clicking the Get Email Updates button on our website.

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OGS_a46. DHS/CBP Releases Guidance on Cargo Processing During Hurricane Irma and Harvey

(Source: CSMS# 17-000543, 7 Sep 2017.)
  CBP HQ and Field Offices continue to closely monitor Hurricane Irma, as well as the effects on trade caused by Hurricane Harvey, and will continue to provide updated guidance and information as applicable. In addition, CBP is providing the following updated guidance:
For a weekly estimated entry that is filed after the fact due to system downtime caused by this season’s hurricanes and receiving an error message about elected entry date being greater than 7 days from the filing date, it may be best to adjust the elected date to match the current filing date and notify the port about the change as required. Trade partners and CBP should make note in their records that this occurred to avoid post audit problems later.
In addition, CBP should exercise due diligence in situations where they are issuing liquidated damage claims for late filing of entry summary during these events. Filers should be notifying CBP of any issues to avoid additional work and expense.
  In response to the port closures for Hurricane Harvey and Hurricane Irma, FDA will be extending the expiration dates for standalone Prior Notice filings via either PNSI or ACE standalone transmissions (PE transaction) for shipments going to those ports that were/are subject to closure. Note that if cargo is diverted to another US port of unlading, there is no need for a new Prior Notice. If the cargo diverts and discharges in a foreign country for transit to the US, then this is considered a new shipment that requires a new prior notice.
Questions regarding prior notice during this downtime should be presented to the FDA’s Division of Food Defense Targeting 24/7 at (866) 521-2297.
Guidance for FWS related issues may be found here.
  – Related CSMS No. 17-000540

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OGS_a57. State/DDTC: (No new postings.)

(Source: State/DDTC

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OGS_a68. EU Commission: “EU to Launch Global Alliance for Torture-Free Trade”

(Source: EU Commission) [Excerpts.]
EU Trade Commissioner Cecilia Malmström today announced that the EU will launch an international Alliance for Torture-Free Trade. 
The initiative – a joint effort with Argentina and Mongolia – aims to end the trade in goods used for capital punishment and torture and will be formally launched on 18 September during United Nations General Assembly week in New York.
The Alliance for Torture-Free Trade is a global effort by countries from all over the world to stop the trade in goods used for torture and the death penalty. International law bans torture in all circumstances. Yet despite this, tools of death and pain are still traded across the globe. These include batons with metal spikes, electric shock belts, and grabbers that seize people by the waist or limb while electrocuting them, chemicals used to execute people and the forced injection systems that go with them. … 
The launch on 18 September at the UN headquarters is the result of a joint effort between the EU, Argentina and Mongolia, and will see countries signing up to a joint political declaration (the website of the Alliance is now online). Some 50 UN member countries in total are expected to join on launch day, from around the globe – Africa, the Americas, Asia and Europe. The Alliance could become a basis for broader UN cooperation in this field.
By signing up to the Alliance, countries will be agreeing to the four action points:
  – Take measures to control and restrict exports of these goods;
  – Equip customs authorities with appropriate tools. The Alliance will set up a platform to monitor trade flows, exchange information, and identify new products;
  – Make technical assistance available to help countries with setting up and implementing laws to ban this trade;
  – Exchange practices for efficient control and enforcement systems.
The EU is committed to protecting human rights, and to the fight against torture and the abolition of the death penalty. The EU’s tough legislation on trade in goods used for torture or the death penalty has already reaped results. Partly as a consequence of tougher EU rules, drugs for lethal injections have become more difficult to get and more expensive to buy.
But EU legislation only applies in Europe. Producers and traders of these goods try to circumvent EU laws, so the more countries that commit themselves to banning their export, the more effective efforts will be to put an end to the trade. The Alliance is a way to take concrete action and specific steps to stop the trade in such goods globally, making it significantly more difficult to obtain them.
One of the aims of the EU’s foreign policy is to promote respect for fundamental rights. Its commitment to stopping torture and abolishing capital punishment includes since 2005 measures to prevent the trade in goods that could be used for capital punishment or torture or other cruel, inhuman or degrading treatment.
The EU lists banned products and provides for a fast-track mechanism to make sure that new products can also be banned. It has in place rules for export controls to prevent listed medicinal products from being used for capital punishment, bans supplying brokering services related to any listed goods, and technical support to third countries. Last year, the EU tightened its legislation even further to make sure it includes a ban on transit through EU territory and in ports, and promotion, such as at trade fairs. … 

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Reuters: “New York Regulator Fines Pakistan’s Habib Bank $225 Million For Compliance Failures”

Reuters, 7 Sep 2017.)
The New York State Department of Financial Services said on Thursday it had fined Pakistan’s Habib Bank and its New York branch $225 million for failures to comply with laws and regulations designed to combat illicit money transactions.
The DFS statement followed an announcement by the regulator last month that it was seeking to fine Pakistan’s biggest lender, known as HBL, up to $630 million for “grave” compliance failures relating to anti-money laundering and sanctions rules at its only U.S. branch.
The DFS said on Thursday it had also imposed an order outlining conditions for the orderly closure of HBL’s New York branch. These conditions include an investigation of transactions processed by the branch from October 2013 to the end of September 2014, and from April 2015 through the end of July 2017.
The enforcement action was brought following a 2016 review during which the department said it found “weaknesses in the bank’s risk management and compliance” which bank management had failed to address.
  “The bank has repeatedly been given more than sufficient opportunity to correct its glaring deficiencies, yet it has failed to do so,” Financial Services Superintendent Maria Vullo said in the statement.
  “DFS will not stand by and let Habib Bank sneak out of the United States without holding it accountable for putting the integrity of the financial services industry and the safety of our nation at risk.”
Officials at Habib Bank, which is listed in Karachi, were not immediately available for comment outside normal working hours.
The bank disclosed last month that it was in negotiations with the DFS regarding the potential fine and would also shutter its New York branch.
Nausheen Ahmad, the bank’s company secretary, said in a statement at the time that the DFS did not recognize “the significant progress that HBL has made at its branch in New York” and that the bank would vigorously contest the proposed fine in U.S. courts.
The bank also said the closure of its New York operation would have no material impact on its business outside the United States. 

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Reuters: “U.S. Warns of Sanctions on Any Country Trading with North Korea”

Reuters, 7 Sep 2017.)
U.S. Treasury Secretary Steve Mnuchin said on Wednesday that if the United Nations does not put additional sanctions on North Korea over nuclear tests, he has an executive order ready for President Donald Trump to sign that would impose sanctions on any country that trades with Pyongyang.
  “I have an executive order prepared. It’s ready to go to the president. It will authorize me to stop doing trade, and put sanctions on anybody that does trade with North Korea. The president will consider that at the appropriate time once he gives the U.N. time to act,” Mnuchin told reporters on a flight back to Washington from North Dakota, where Trump gave a speech on tax reform. 

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The Washington Post: “U.S. Charges Ex-Turkish Minister with Conspiring to Evade Sanctions Against Iran”

The Washington Post, 7 Sep 2017.) [Excerpts.]
Federal prosecutors in New York have charged a former minister and other high-profile Turkish figures with conspiracy to evade U.S. sanctions on Iran, broadening an investigation into a Turkish Iranian trader to include allies of President Recep Tayyip Erdogan. …  
The indictment from the U.S. Attorney’s Office for the Southern District of New York charged that Caglayan, in his capacity as economy minister, accepted tens of millions of dollars worth of bribes from the proceeds of the scheme. He also “directed other members” to engage in transactions that would evade or deceive U.S. regulators, the indictment says.
In more than 50 pages, prosecutors laid out what they say was a “multiyear scheme” to violate sanctions that included senior government officials in Turkey and Iran.
The alleged crimes occurred at the height of U.S. sanctions in 2012 and 2013, ahead of the relaxation of restrictions that accompanied the implementation of Iran’s 2015 nuclear deal with world powers. … 

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L. Krahulcova: “Case Study: Denmark and the Failure of EU Export Controls”

* Author: Lucie Krahulcova, Policy Analyst, Access Now Brussels office. Contact Lucie at lucie@accessnow.org.
In August, the Danish Foreign Minister Anders Samuelsen confirmed that Denmark granted licenses for the export of surveillance technology that can be used against human rights defenders, activists, and journalists. Previously reported information confirms that licenses had been granted for sales to Saudi Arabia, the United Arab Emirates, Tunisia, Oman, Morocco, Algeria, and other states. The Minister indicated that Denmark granted the licenses because it follows a minimal interpretation of the current EU dual-use export assessment criteria (more below). This makes clear the urgent need for the current push to update EU export controls to address deficiencies and derivations like this at the member state level.
Evidently Harming Human Rights
In June 2017, a BBC investigation revealed that ETI, a Danish subsidiary of UK-based BAE Systems, sold surveillance technology to several Arab states. The system in question, called Evident, is designed to assist authoritarian leaders in keeping tabs on citizens’ communications. As part of the investigation, the BBC revealed that Evident can intercept any internet traffic (even an entire country’s worth of traffic), pinpoint and track a target’s location based on cellular data, track an individual through voice recognition technology, decrypt messages, and more. The technology is easy to use; because data are indexed, a simple word or name search is all it takes to get a full online write-up of someone’s life and activities.
Why Did Denmark Lower the Bar?
The existing EU regime for export controls contains a vague nod to human rights considerations for dual-use items, but allows for considerable member state discretion in applying established criteria for issuing licenses. Prior to 2014, Denmark had a strict interpretation of the EU rules, but then the Ministry of Foreign Affairs changed the policy without notifying the Danish Parliament. When the Parliament questioned the shift, Samuelsen wrote that “at a political level” [they decided] “to move away from a more restrictive approach” prescribed by the EU Regulation. The Parliament did not take the news well, saying that it represents a shift in Denmark’s approach to Middle East policy, and it should have been subject to Parliamentary debate.
The rationale for the shift appears to be that even authoritarian regimes deserve to be well equipped in the fight against terrorism, and it’s only an added benefit that selling to these regimes is a boon for the domestic technology industry. Helle Lykke Nielsen, an associate professor at the University of Southern Denmark and an expert in the Gulf States, points out that Denmark’s current regime is evidently focused more on the implications for the country’s own financial well being and direct security than it is on protection of human rights abroad. Yet, Nielsen writes, “There is no doubt in my mind that the regimes in Saudi Arabia and the other Gulf states primarily use it against ordinary political opponents”. Inadvertently, Denmark’s post-2014 interpretation could have dire long term consequences for users in Europe, just as much as those abroad.
Change on the Horizon
As we note above, the EU is moving to tighten export controls, especially for export of cyber-surveillance technology to countries where the technology poses a critical risk to activists, journalists, and citizens. The European Parliament and the Council are currently examining the draft text for these controls, submitting amendments, and the text will be debated in the coming months and into 2018 (the European Parliament will be voting on the text in October and November according to the current timeline).
The draft text released by the Commission would address the issue of inconsistencies in domestic application by strengthening the human rights criteria to include violations of freedom of expression and privacy, imposing the need to deny or prohibit licenses when these human rights risks are present, and extending the existing “catch all” mechanism (under which previously non dual-use items can be “caught” for licensing consideration) to the technological part of the text. If these changes can withstand the coming political negotiations, they would help safeguard the human rights of vulnerable people and communities everywhere.
Civil society has been overwhelmingly supportive of the current effort. The focus of our coalition’s commentary has been to reinforce the Commission draft and to further recommend that:
  – Human rights protections be strengthened and have definitive impact. The proposal should make clear that states are required to deny export licenses where there is a substantial risk that those exports could be used to violate human rights; where there is no legal framework in place in a destination governing the use of a surveillance item; or where the legal framework for its use falls short of international human rights law or standards.
  – All relevant surveillance technology be covered. A mechanism to update the EU control list should be agreed, which will decide on updates to the EU control list in a transparent and consultative manner, taking into account the expertise of all stakeholders, including civil society, and international human rights law.
  – Greater transparency and reporting is made mandatory. Greater transparency in export licensing data is needed. Such transparency is crucial in enabling parliaments, civil society, industry, and the broader public – both in the EU and in recipient countries – to meaningfully scrutinise the human rights impact of the trade in dual-use items.
  – Security research and security tools be protected. To reinforce the protection of research as stated in the preamble, the new regulation should include clear and enforceable safeguards for the export of information and communication technology used for legitimate purposes and internet security research.
Other Lax Regimes
Denmark is far from alone in demonstrating the harm of the current EU regime. For instance, in Bahrain, activists have been targeted by FinFisher, software created by Gamma international and marketed exclusively for remote monitoring and keylogging operations. Privacy International has spearheaded a civil society challenge of Gamma at the Organization for Economic Co-operation and Development where – for the first time – the OECD found a surveillance software company to be in violation of human rights guidelines.
More people are becoming aware of the human rights impact of the trade of cyber-surveillance technology, in Europe and around the world. We are seeing this reflected in the media, with an in-depth investigation by De Correspondent, Security for Sale, and the Al Jazeera investigation, Spy Merchants.
We’re excited to see awareness increase, and we will continue to support the initiative to recast the EU dual-use policy and tighten controls so that Europe can uphold its human rights obligations around the world.
[Editor’s Note: the above mentioned Al Jazeera investigation,
Spy Merchants
, was also included in the Daily Bugle of 12 April 2017, item #6. Other commentaries concerning this topic were published in the Daily Bugle of 13 April 2017 and 19 May 2017, items #13 and #12, respectively.] 

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M. Volkov: “The Objective of Due Diligence: To Protect Your Culture”

(Source: Volkov Law Group Blog. Reprinted by permission.)
* Author: Michael Volkov, Esq., Volkov Law Group, mvolkov@volkovlaw.com, 240-505-1992.
There has been so much attention paid to due diligence. We have reams and reams of articles highlighting the importance of due diligence. In addition, numerous vendors of due diligence services and technologies fill the marketplace with whitepapers, articles and information underscoring the importance of due diligence and advising on how to conduct effective due diligence.
There is nothing wrong with the attention paid to this important issue. Frankly, over the last ten years, we have seen an explosion in due diligence issues. Given the Justice Department and the SEC’s focus on third-party risks in the FCPA context, such attention is justified. Years ago, companies conducted minimal, if any, due diligence of third parties, and procurement functions related to vendors and suppliers were focused on financial capabilities and quality issues.
The growth in due diligence systems has been marked over the last ten years. More companies are implementing robust due diligence systems for third parties, vendors and suppliers, and many are purchasing automated due diligence systems.
There is no question that the motivation for improving due diligence systems has been a direct response to the government’s aggressive enforcement program. As everyone knows, a high percentage of FCPA enforcement actions involved third parties who engaged in or facilitated bribery schemes.
A robust due diligence program identifies potential risks in engaging a specific third-party. Based on due diligence, a company may decline to engage the third-party or design and implement a number of risk mitigation strategies. In the end, the company’s due diligence system is focused on legal risks from engaging the third-party. A risky third-party in this context may be likely to engage in bribery to further the company’s business operations.
In the event that the company faces an FCPA investigation, the company will often rely on robust due diligence and mitigation strategies to counter any claim that it “knowingly” engaged the third-party with the intent to promote a bribery scheme. Company lawyers will cite the due diligence, monitoring and auditing activities to show that its actions were contrary to an inference of a “knowing” violation.
While this scenario is an important reason for implementing a robust due diligence program, there is more to this issue. Legal risks are one type of serious risk. Another category of risks relates to reputational risks. A company does not want to “do business with” or “associate” with another person, entity or company that itself has a poor reputation or engages in other types of misconduct.
A company creates significant risks when it retains another company that relies on child labor, engages in slavery, violates environmental laws, or engages in illegal anti-competitive. In other words, a company has to avoid engaging other companies that raise reputational risks.
A company’s reputation for ethical business practices can suffer real and substantial harm when it engages with companies that flagrantly skirt the law or social norms. Such business operations threaten a company’s significant asset – its intangible goodwill.
A company’s reputation should be promoted as an important aspect of a company’s culture. Employees want to believe in the mission of the company, and adherence to ethical business practices is essential to protecting the company’s integrity.
An important means to protect the company’s reputation is to ensure that the entities with which the company interacts has a comparable commitment to ethics and integrity. This is where due diligence comes in and provides an important check on company operations. Due diligence has a broader purpose that just managing legal risks – companies conduct due diligence to protect and promote their culture.

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14T. Murphy: “The Future of KORUS”

(Source: Author)
* Author: Ted Murphy, Baker & McKenzie LLP, ted.murphy@bakermckenzie.com, 202-452-7069.
As you have likely seen in the press over the past few days, there has been a good deal of speculation about whether the Trump Administration would withdraw from the Korea-U.S. Free Trade Agreement (KORUS). While it is still a possibility, it appears that the decision has been placed on hold for the time-being.
As you know, one of the big focuses for the Trump Administration is addressing bilateral trade deficits (i.e., a country exporting more goods and services to the United States than the United States exports to that country). This view drives much of the President’s trade policy (and rhetoric). The effort to combat trade deficits is central to the U.S. position in the NAFTA renegotiations (and our relationship with Mexico, in particular), as well as our relationships with China, Germany and others.
As for Korea, there is more than just trade involved here (e.g., North Korea). These other geo-political concerns likely played a big role in the decision not to withdraw from KORUS at this time. We expect that the parties will continue to negotiate to address the Administration’s concerns (the United States ran a net trade deficit of $17 billion with Korea in 2016 — for just goods, the deficit was $27.7 billion; but for services there was a surplus of $10.7 billion). If the deficit concern is not addressed to the Administration’s satisfaction (which Korea has not done to date), withdrawal is a real possibility.
As a result, we recommend that all companies that rely on KORUS, either for imports into the United States, or exports to Korea, review their long-term contracts to make sure they are covered in case the Administration does decide to withdraw. For example, if you entered into a contract assuming that the goods would be able to be imported duty free (into either country), would you (or your customer) be able to get out of the contract if the U.S. withdraws from KORUS? Who will bear the significant increase in duties? Better to think about these types of issues now, so you are prepared if it actually happens.

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15Gary Stanley’s ECR Tip of the Day

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

EAR § 770.2(g)(3) provides that commodities that may have been on the U.S. Munitions List are “scrap”, and therefore under the jurisdiction of the Department of Commerce, if they have been rendered useless beyond the possibility of restoration to their original identity only by means of mangling, crushing, or cutting. When in doubt as to whether a commodity covered by the Munitions List has been rendered useless, exporters should consult the Directorate of Defense Trade Controls, U.S. Department of State, Washington, D.C.

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ECS Presents ITAR/EAR Critical Compliance & Agreement Workshop on 17-18 Oct in Charleston, SC

* What: ECS Presents ITAR/EAR Critical Compliance & Agreement Workshop
* When: 17-18 October 2017
* Where: Charleston Marriott ECS Group Rate, Charleston, SC. 
* Sponsor: Export Compliance Solutions (ECS)
* ECS Speaker Panel: Suzanne Palmer, Lisa Bencivenga
* Register: Here or by calling 866-238-4018 or e-mail spalmer@exportcompliancesolutions.com

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NAITA Presents 2017 Export Control Update (ITAR/EAR/OFAC) on 18-19 Sep in Huntsville, AL

* What: NAITA 2017 Export Control Update (ITAR/EAR/OFAC).
* When: 18-19 September 2017.
* Where: The Westin Huntsville; 6800 Governors West, Huntsville, AL 35806.
* Sponsor: North Alabama International Trade Association (NAITA) and Maynard Cooper & Gale PC.
* Speakers Include:  Kevin Wolf, Candace Goforth, Michael Laychak, and Jim Bartlett.
* Credits: Approved by the Mandatory Continuing Legal Education Commission of the Alabama State Bar for 12.5 CLEs.
* Register: Click here for details & registration link or contact Amanda Berkey/NAITA at 256-532-3505, apberkey@madisoncountyal.gov or naita@naita.org.

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* Elizabeth I (7 Sep 1533 – 24 Mar 1603; was Queen of England and Ireland from 1558 until her death. Elizabeth was the daughter of Henry VIII and Anne Boleyn, his second wife, who was executed two-and-a-half years after Elizabeth’s birth.)
  – “Brass shines as fair to the ignorant as gold to the goldsmiths.”
  – “Fear not, we are of the nature of the lion, and cannot descend to the destruction of mice and such small beasts.”

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. 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.
: 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. 
: 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
  – 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.)

: 15 CFR Subtit. B, Ch. VII, Pts. 730-774

  – Last Amendment: 15 Aug 2017: 
82 FR 38764-38819: Wassenaar Arrangement 2016 Plenary Agreements Implementation 

: 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders
  – Last Amendment: 16 Jun 2017: 82 FR 27613-27614: Removal of Burmese Sanctions Regulations 
: 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
  – 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.
, 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
  – HTS codes that are not valid for AES are available
  – Last Amendment: 30 Aug 2017: 82 FR 41172-41173: Temporary Modification of USML Category XI(b)
  – The only available fully updated copy (latest edition: 30 Aug 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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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 

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* 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.

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