17-1004 Wednesday “Daily Bugle”

17-1004 Wednesday “Daily Bugle”

Wednesday, 4 October 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. Justice/ATF Seeks Comments on Form ATF F 6A (5330.3C), Release and Receipt of Imported Firearms, Ammunition and Defense Articles
  1. Ex/Im Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: Oxyde Chemicals, Inc., to Pay $59,600 to Settle Alleged Antiboycott Violations
  3. DHS/CBP Announces ACE CERTIFICATION Outage for Tonight
  4. Justice: “Three Miami Residents Plead Guilty to Conspiracy to Illegally Export Prohibited Articles to Syria in Violation of U.S. Export Control Laws”
  5. State/DDTC: (No new postings.)
  6. Australia DFAT Announces International Cyber Engagement Strategy
  1. C. Todgham Cherniak: “Canada’s Magnitsky Act Takes Important Step Forward”
  2. H. Krause, M. Huizinga & M. Daghles: “Foreign Investment Control in Germany: Berlin Wall Rebuilt or Storm in a Water Glass?” (Part 2 of 2)
  3. M. Lester: “BelTechExport’s Belarus Re-listing upheld by European Court”
  4. T.P. O’Toole, A.S. Hussain & K.D. Behre: “Focus on Iran: Inaugural Issue”
  5. W. Shahid, R. Cook, R. Giambalvo: “Separating Signal from Noise: A Framework for Monitoring Compliance Program Performance” (Part 2 of 3)
  1. Fred Czarske Returns to Northrop Grumman 
  1. Bartlett’s Unfamiliar Quotations 
  2. Are Your Copies of Regulations Up to Date? Latest Changes: ATF (15 Jan 2016), Customs (28 Sep 2017), DOD/NISPOM (18 May 2016), EAR (3 Oct 2017), FACR/OFAC (16 Jun 2017), FTR (20 Sep 2017), HTSUS (25 Jul 2017), ITAR (30 Aug 2017) 
  3. Weekly Highlights of the Daily Bugle Top Stories 


EXIM_a11. Justice/ATF Seeks Comments on Form ATF F 6A (5330.3C), Release and Receipt of Imported Firearms, Ammunition and Defense Articles

(Source: Federal Register) [Excerpts.]
82 FR 46282-46286: Agency Information Collection Activities; Proposed eCollection eComments Requested; Release and Receipt of Imported Firearms, Ammunition and Defense Articles; ATF F 6A (5330.3C)
* AGENCY: Bureau of Alcohol, Tobacco, Firearms and Explosives, Department of Justice.
* ACTION: 30-Day notice. …
* DATES: Comments are encouraged and will be accepted for an additional 30 days until November 3, 2017.
* FOR FURTHER INFORMATION CONTACT: If you have additional comments, particularly with respect to the estimated public burden or associated response time, have suggestions, need a copy of the proposed information collection instrument with instructions, or desire any other additional information, please contact Desiree M. Dickinson, ATF Firearms and Explosives Imports Branch either by mail at 244 Needy Road, Martinsburg, WV 25405, or by email at desiree.dickinson@atf.gov. Written comments and/or suggestions can also be directed to the Office of Management and Budget, Office of Information and Regulatory Affairs, Attention Department of Justice Desk Officer, Washington, DC 20503 or sent to OIRA_submissions@omb.eop.gov.
  – The Title of the Form/Collection: Release and Receipt of
Imported Firearms, Ammunition, and Defense Articles.
  – Form number: ATF F 6A (5330.3C).
  – Component: Bureau of Alcohol, Tobacco, Firearms and Explosives,
U.S. Department of Justice. …
  – Abstract: The data provided by this information collection request is used by ATF to determine if articles imported meet the statutory and regulatory criteria for importation, and if the articles shown on the permit application have been imported. …
  If additional information is required contact: Melody Braswell, Department Clearance Officer, United States Department of Justice, Justice Management Division, Policy and Planning Staff, Two Constitution Square, 145 N Street NE., 3E.405A, Washington, DC 20530.
   Dated: September 29, 2017.
Melody Braswell, Department Clearance Officer for PRA, U.S. Department of Justice.

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OGS_a12. Ex/Im Items Scheduled for Publication in Future Federal Register Editions
(Source: Federal Register

* Commerce; Industry and Security Bureau; NOTICES; Export Privileges; Denials [Publication Date: 5 October 2017.]:
  – John Francis Stribling
  – Mark Henry
  – Robert J. Shubert, Sr.
  – Shantia Hassanshahi
  – Shehzad John
  – Tayabi Fazal Hussain
[Editor’s Note: The export privileges denials items were all included in the Monday, 2 October 2017, Daily Bugle, item #2, and will not be reprinted in tomorrow’s edition.]

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

* Respondent: Oxyde Chemicals, Inc., Houston, TX.
* Case No: 14-05
* Charges: Seventeen Violations of the EAR:
  – Two violations of 15 C.FR. §760.2(a) – Refusal to Do Business;
  – Four violations of 15 C.FR. §760.2(d) – Furnishing Information about Business Relationships with Boycotted Countries or Blacklisted Persons; and
  – Eleven violations of 15 CFR. §760.5 – Failing to Report the Receipt of a Request to Engage in a Restrictive Trade Practice or Foreign Boycott Against a Country Friendly to the United States.
* Fine or Civil Settlement: Civil penalty of $59,600.
* Debarred or Suspended from Export Transactions: Not if penalty is paid as agreed.
* Date of Order: 28 September 2017
* * * * * * * * * * * * * * * * * * * * 

4. DHS/CBP Announces ACE CERTIFICATION Outage for Tonight

(Source: CSMS #17-000637, 4 Oct 2017.)
There will be an ACE CERTIFICATION Outage this evening, Wednesday, October 4, 2017 from 1700 ET to 2000 ET for ACE Infrastructure maintenance activities.

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Justice) [Excerpts.]
Three Miami-Dade County, Florida residents, Ali Caby, aka “Alex Caby,” 40, Arash Caby, aka “Axel Caby,” 43, and Marjan Caby, 34, pleaded guilty on Oct. 3 to Count 1 of an Indictment charging them with conspiracy to defraud the United States and to illegally export aviation parts and equipment to Syria in violation of the International Emergency Economic Powers Act (IEEPA). The exports were sent to Syrian Arab Airlines, aka “Syrian Air,” which had been designated as a Specially Designated National (SDN) by the U.S. Department of Treasury, Office of Foreign Assets Control (OFAC). U.S. persons and entities are prohibited from doing business with SDNs, such as Syrian Air, without obtaining a license from OFAC. …
The defendants were indicted for their alleged participation in a conspiracy to violate the IEEPA by exporting dual-use goods, that is, articles that have both civilian and military application. The dual-use goods were exported without a license to Syrian Air, the Syrian government’s airline, which is an entity designated and blocked by OFAC for transporting weapons and ammunition to Syria in conjunction with Hizballah, a terrorist organization, and the Iranian Revolutionary Guard Corps (IRGC).
According to court documents, Ali Caby ran the Bulgaria office of AW-Tronics, a Miami export company that was managed by Arash Caby, and which shipped and exported various aircraft parts and equipment to Syrian Air. Ali Caby and Arash Caby closely supervised and encouraged subordinate employees of AW-Tronics in the willful exportation of the parts and equipment to SDN Syrian Air, whose activities have assisted the Syrian government’s violent crackdown on its people. Marjan Caby, as AW-Tronics’ export compliance officer and auditor, facilitated these exports by submitting false and misleading electronic export information to federal agencies.
The defendants are scheduled to be sentenced by U.S. District Judge Beth Bloom on Dec. 19. They face a statutory maximum sentence of up to 5 years in prison, 3 years of supervised release and a $250,000 fine. The maximum statutory sentence is prescribed by Congress and is provided here for informational purposes. If convicted of any offense, the sentencing of the defendant will be determined by the court after considering the advisory Sentencing Guidelines and other statutory factors. …

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OGS_a066. State/DDTC: (No new postings.)

(Source: State/DDTC)

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OGS_a67. Australia DFAT Announces International Cyber Engagement Strategy

(Source: Australia DFAT)
Minister Bishop and the Minister Assisting the Prime Minister for Cyber Security, Dan Tehan, have today launched a new International Cyber Engagement Strategy outlining Australia’s cyber affairs agenda for the next three years, and creating the environment for digital trade to generate economic growth and opportunities for Australia and Australians.

  – More information: Cyber affairs

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8. C. Todgham Cherniak: “Canada’s Magnitsky Act Takes Important Step Forward”

* Author: Cyndee Todgham Cherniak, Esq, LexSage PC, cyndee@lexsage.com, 416-307-4168
October 2, 2017 is an important day for those following Canada’s Magnitsky Act. Bill S-226 “An Act to provide for the taking of restrictive measures in respect of foreign nationals responsible for gross violations of internationally recognized human rights and to make related amendments to the Special Economic Measures Act and the Immigration and Refugee Protection Act” to be known as “Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law)” (we have linked the April 11, 2017 version of the bill, which will be updated on October 2, 2017) is scheduled for concurrence at report stage in Canada’s House of Commons on Monday, October 2, 2017 at 5:30PM. What this means is that the House of Commons will adopt the changes to Bill S-226 recommended by the House of Commons Standing Committee on Foreign Affairs and International Development (FAAE) in June and a new version of the bill will be published.
There is bi-partisan support for Bill S-226 in Canada’s House of Commons. Bill S-226 fundamentally changes Canada’s economic sanctions laws and adds another tool to change undesirable behaviour of foreign officials. In particular, Bill S-226 enables Canada’s Governor-in-Council (that is Cabinet), to list foreign officials who engage in gross human rights abuses or corrupt activities. If one reads “Red Notice” written by Bill Browder, it will be easy to understand what types of activities may be sanctioned. If a foreign government official orders the torture and murder of a person or people, they can get listed under Canada’s new sanctions law. If a foreign government official uses his/her position to expropriate a company to divert tax dollars for personal gain, they can get listed under Canada’s new sanctions law. These are just two examples of how Canada’s new sanctions law may work in practice.
It is expected that the FAAE Report will be adopted and Bill S-226 will proceed to Third Reading and be passed by Canada’s House of Commons. Third Reading is scheduled for October 4, 2017 in the House of Commons.
Since Bill S-226 was amended by the FAAE Committee, the Bill will have to return to Canada’s Senate. Since the Senate has already passed Bill S-226 at Third Reading (as originally drafted) and Bill S-226 is a Private Member’s Bill, the amendments approved by the House of Commons will have to be adopted. Bill S-226 may go to a Committee of the Whole or to the Senate Committee that originally reviewed Bill S-226 and wrote the Senate Report. Bill S-226 may be approved without further review or significant debate. The changes may simply be adopted by the Senate. If the Senate objects to any amendments (which is unlikely in this case), there will be back-and-forth with the House of Commons.
Royal Assent (by Canada’s Governor General) will take place after acceptance of the Amended Bill by the Senate (after review by the Committee of the Whole or the Senate Committee that originally reviewed Bill S-226). It is expected that Canada’s Magnitsky Act will enter into force before the end of this year. Bill S-226 passed in Canada’s Senate before the amendments and it is expected to pass with ease and bi-partisan support. The Amendments improved the Bill, such as adding a penalty for non-compliance (which was not in the original version). Canadians from all political parties can support justice for Sergei Magnitsky.
Also, if you have read Red Notice, the book by Mr. Browder about Sergei Magnitsky, you will see a familiar name – Chrystia Freeland. She has yet to write the next chapter in Mr. Browder’s book and the Sergei Magnitsky story. Ms. Freeland, formerly a reporter in Moscow, is now Canada’s Minister of Foreign Affairs. Ms. Freeland is the person who will draft the first list of names of corrupt foreign officials who will be subject to Canada’s Magnitsky Act. Canada’s Cabinet, of which Ms. Freeland is a senior member, will promulgate the first list by way of a regulation. The naming of names will not require a Parliamentary vote. The regulation may be changed by the government of the day and new names can be added at any time (names can also be deleted).
Bill Browder spoke to my University of Windsor, School of Law/University of Detroit Mercy, School of Law class recently and spoke about why Canada should pass Bill S-226. Bill Browder remarked that “Canada is a champion of human rights in the World … Canada’s image in the World is that it upholds human rights” (or is working hard to uphold human rights). “It is one thing for the United States to sanction people” says Bill Browder. “Canada is not seen [as a bully on the World stage] … Canada is seen as an ethical country” and brings its “moral reputation” says Browder. It is the right thing to do morally.
Bill Browder is right. There is a moral imperative to speak out against human rights abuses. Canada’s voice is just one voice and Canada should join this chorus. Not because Canada has moral superiority (which we do not); but because Canada strives to be better.
While it can be argued that businesses bear the brunt of sanctions enforcement, in this case Canadian companies will benefit from sanctions imposed under Canada’s Magnitsky Act. Any name listed in Canada’s regulation will be a person who has committed gross human rights abuses in their own country. Canadian companies should know those names in order to prevent harm to their own people (management, employees, representatives, agents, lawyers, accountants, etc.). It is difficult to know who are the corrupt foreign public officials in the World who might order your imprisonment and, possibly, death in prison. If the Canadian government makes a list after careful consideration (and access to confidential inter-governmental reports), you probably should think twice about doing business with the named persons.
Canada’s Magnitsky Act will enable the creation of a global list of names – not just Russian officials. It will not only list officials who do harm to their own people. Canada’s Magnitsky Act will allow the Canadian government to react if a Canadian citizen or a Canadian resident is imprisoned in a foreign jurisdiction and tortured and/or murdered in prison by foreign officials. For example, Zahra “Ziba” Kazemi-Ahmadabad, a Canadian-Iranian freelance journalist, was imprisoned in Iran and tortured and murdered. Canada could list the Iranian officials who ordered her imprisonment and participated in her torture and murder. Canada could list names of current foreign officials who torture and murder Canadians. This will be of great benefit for Canadians – foreign officials will think twice before committing gross human rights abuses against Canadians for fear that they will be listed by the Canadian government and any assets they own in Canada will be seized and held as forfeit by the Government of Canada.
Canada’s Magnitsky Act will be a tool that can be used along with the Corruption of Foreign Public Officials Act (Canada’s Foreign Corrupt Practices Act) and the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. Corrupt foreign officials will not be able to hide their ill-gotten gains in Canada. If a foreign public official engages in gross human rights abuses against Canadians or their own people, they may find their assets in Canada seized. This is an important disincentive to committing gross human rights abuses.

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9. H. Krause, M. Huizinga & M. Daghles: “
Foreign Investment Control in Germany: Berlin Wall Rebuilt or Storm in a Water Glass?” (Part 2 of 2)

(Source: Allen & Overy)
* Authors: Hartmut Krause, Esq., hartmut.krause@allenovery.com; Michiel Huizinga, Esq., michiel.huizinga@allenovery.com; and Murad Daghles, Esq., murad.daghles@allenovery.com. All of Allen & Overy, Frankfurt and Düsseldorf, respectively.
[Editor’s Note: due to space limitations, this article is divided into two parts. Part 1 was published in yesterday’s Daily Bugle.]
Germany’s new rules on foreign direct investment control in light of the new approach presented by European Commission President Juncker
* There are two regimes of German investment control: (i) sector-specific investment review for the defence sector; and (ii) cross-sector review for all other sectors.
Under the FTR, the Ministry of Economic Affairs (the Ministry) enjoys authority to review investments made by non-European investors in a German business, provided that the foreign investor acquires directly or indirectly more than 25% of the voting rights in such German business. The FTR distinguishes between two review regimes, a regime for review in all sectors but defence and cryptography (Sec. 55 et seq. FTR), and a regime for investments in defence and encryption businesses (Sec. 60 et seq. FTR).
Cross-Sector Investment Screening and Current Amendments
Scope of Application
* Scope of application clarified by a non-exhaustive list of examples of sensitive businesses, with particular emphasis on critical infrastructure.
* Anti-circumvention rule addressing potential illegitimate bypassing of the screening procedure.
Under the rules on cross-sector investment screening, the Ministry has authority to examine whether the direct or indirect acquisition of 25% or more of the voting rights in a German company by a non-European investor presents a threat to the public order or safety of the Federal Republic of Germany (Sec. 55(1)1 FTR).
The terms of public safety and order originate from the fundamental freedoms enshrined in the Treaty on the Functioning of the European Union and from case law of the European Court of Justice (ECJ). As clarified in ECJ case law, EU Member States enjoy discretion in determining public policy and public security requirements in the light of their national needs, but those public interests cannot be determined unilaterally by the EU Member States without any control by the institutions of the EU and must be interpreted strictly; they may be relied on only if there is a genuine and sufficiently serious threat to a fundamental interest of society. Restrictions to fundamental freedoms must not be misapplied so as to, in fact, serve purely economic ends. ECJ case law recognises that the secure supply of goods and services in strategically important sectors such as telecommunications and electricity, railways, port operations and merchant shipping even in the event of a crisis is a matter of public safety and order.
Under the amendments to the FTR, the notion of public safety and order has been significantly refined by a non-exhaustive list of examples of particularly sensitive business areas, especially in relation to critical infrastructure (Sec. 55(1)2 FTR).
Foreign investment in a German company operating in one of the following sectors may, but does not necessarily have to, be considered as a threat to public order or safety:
(i) Operator of a Critical Infrastructure as defined by the Act on the Federal Authority for Information Security (Sec. 55(1)2 no. 1 FTR).
Critical infrastructures within the meaning of the Act on the Federal Authority for Information Security (Gesetz über das Bundesamt für Sicherheit in der Informationstechnik; the BSI-Act) are facilities, systems or parts thereof belonging to the (i) energy, (ii) information technology and telecommunications, (iii) transport and haulage, (iv) health, (v) water, (vi) nutrition, and (vii) financial and insurance sectors, and which are of significant importance for the functioning of the community because their failure or impairment would result in significant supply shortages or threats to public safety.
According to a regulation issued by the Federal Ministry of the Interior (Verordnung zur Bestimmung Kritischer Infrastrukturen nach dem BSI-Gesetz; the BSI-Regulation), facilities and systems qualify as critical infrastructure if they ensure the supply of at least 500,000 individuals in the energy, water, nutrition and information technology and telecommunications sectors. The Ministry assumes that there are 2,000 operators of critical infrastructure in Germany, among them 750 operate within the water, energy, nutrition and telecommunication sectors.
(ii) Development or modification of industry-specific software for the operation of Critical Infrastructures (Sec. 55(1)2 no. 2 FTR)
This industry-specific software for the operation of Critical Infrastructures is defined in an exhaustive list in Sec. 55(1)3 FTR. The list includes, inter alia, (i) software for power plants and network control technology in the energy sector, (ii) software for control and automation technology for facilities in the water supply sector, (iii) software for operating systems or systems for voice and data transmission or data storage in the information technology and telecommunication sectors, (iv) software for cash supply, card-based payment transactions, conventional payment transactions, the transfer of cash and the settlement of securities and derivatives transactions in the finance and insurance sector, (v) software for the operation of a hospital information system and the distribution of prescription medicines in the health sector, (vi) software for the transport of passengers and goods by air, rail, sea, waterway transport, road transport and local public transport in the transport sector, and (vii) software for food supply in the nutrition sector.
(iii) Operator entrusted with organisational measures in accordance with Sec. 110 of the Federal Telecommunications Act (Sec. 55(1)2 no. 3 FTR).
This provision covers domestic operators of communication systems providing publicly available telecommunications services.
(iv) Operator providing cloud computing services (Sec. 55(1)2 no. 4 FTR).
This provision covers domestic operators of cloud computing services transferring a certain data volume per annum (according to Annex 4 of the BSI-Regulation).
(v) Owners of approvals for components or services of the telematics infrastructure (Sec. 55(1)2 no. 5 FTR).
Telematics infrastructure means a platform connecting the various stakeholders of the German statutory health insurance funds system (doctors, patients, insurance companies etc.), allowing these stakeholders to exchange personal data according to the Social Security Code V (Sozialgesetz­buch V).
Technically speaking, the list of examples of particularly sensitive business areas has not broadened the interpretation of the terms of “public safety and order”. If, in the past, the acquisition of a business active in one of the sensitive areas had to be screened, it would have been possible to block the acquisition based on concerns of public safety or public order. This notwithstanding, the non-exhaustive list includes cases which, in fact, would not have been considered a threat to public safety or order in the past. Therefore, based on the amendments, the administrative practice of the Ministry may be expected to change.
The Ministry may also screen cases beyond the non-exhaustive list. However, domestic businesses in the automotive, chemical and engineering sectors will usually not have the necessary strategic importance to justify a prohibition of the acquisition (even though, in practice, it can be observed that the Ministry requests rather detailed information on the activity of the target in these sectors once a transaction has been notified).
However, it cannot be ruled out that the proposed European Regulation will have an impact on how the terms public order and public safety will have to be interpreted going forward. The proposed regulation lays out another non-exhaustive list of examples of particularly sensitive industry sectors (Article 4 Draft Regulation). In addition to critical infrastructure, such list contains critical technologies (including artificial intelligence, robotics, semiconductors, technologies with potential dual use applications, cyber security, space or nuclear technology), critical inputs (supply with natural resources), and sectors with access to, or the ability to control, sensitive information. Therefore, if the proposed European Regulation is adopted (possibly even before this is the case), the acquisition of businesses might be subject to screening pursuant to the FTR.
In addition, according to the proposed European Regulation, it is permissible for foreign investment control carried out by the EU Member States to take into account whether the investor is directly or indirectly controlled or significantly funded by the government of a non-European country (Article 4 Draft Regulation).
As regards the anti-circumvention rule, the amendments specify (in line with the prior administrative practice) that it constitutes a sign of circumvention if the purchaser of record does not have significant domestic substance or no permanent presence in the form of premises, personnel or equipment in Germany (Sec. 55(2)2 FTR).
Screening Procedure
  (i) Notification requirements.
* Mandatory notification requirements for investments in critical infrastructure.
* Possibility to combine notification with application for certificate of non-objection.
Before the amendments took effect, investors in businesses outside the defence sector were not required to notify proposed acquisitions to the Ministry. The purchaser had the choice to apply for a certificate of non-objection (Unbedenklichkeitsbescheinigung) to receive clearance for the acquisition. Under the amended FTR, the signing of a share purchase agreement relating to a direct or indirect acquisition of a German company in one of sectors outlined above must be notified in writing to the Ministry (Sec. 55(4) FTR). There is no deadline for the notification. But since the notification triggers the three-month period during which the Ministry can ex officio start a screening of the transaction parties have a vital interest to notify the Ministry as soon as possible. Apart from the fact that the three-month period does not start, there are no administrative sanctions in the case that the purchaser fails to notify the Ministry. In particular, the notification is no statutory closing condition to the acquisition. Further, there is no statutory requirement that the purchaser must combine the notification with an application for a certificate of non-objection.
However, from a practical perspective, we advise combining the notification with the application for a certificate of non-objection for two reasons: (i) an application for a certificate of non-objection reduces the deadline for the Ministry to launch a screening from three to two months; and (ii) a mere notification to the Ministry regarding a relevant acquisition without a reasoned written application can especially create suspicion at the Ministry and trigger an extensive investigation that might delay the closing of the transaction significantly.
  (ii) Screening Periods.
* Unless notified by the purchaser, the Ministry may start the screening process within five years after signing.
* Notification of the transaction to the Ministry, or knowledge of the transaction that the Ministry gains from other sources, triggers a three-month screening period.
* The Ministry has authority to prohibit an acquisition, or impose conditions, within four months (previously: two months) after receipt of the complete documentation. The period starts running only when the file is complete, i.e. in practice the screening process may be longer.
* Requests for information may be addressed to all parties to the transaction (previously: only to the purchaser).
* If and as long as the Ministry and purchaser are negotiating, the screening period is suspended.
Under the amended FTR, the Ministry can launch a screening of the acquisition in its own initiative within three months after becoming aware of the signing of the share or asset purchase agreement or, in the case of a public bid, after becoming aware of the announcement of the bid. In most cases, the Ministry will become aware of the transaction because of the purchaser’s filing. If the purchaser chooses not to apply for clearance, the Ministry may start the screening process within five years after the signing of the share or asset purchase agreement (Sec. 55(3) FTR). Consequently, without a filing, the purchaser will have legal certainty no earlier than five years after signing.
This is a fundamental change in approach. Under the previous regime, the Ministry had authority to start screening acquisitions only within three months after signing, regardless of whether or not the Ministry had become aware of the transaction. The screening periods as extended allow the Commission and other EU Member States to comment on, and be given due consideration in, the German screening process. Such extension may be seen to anticipate the implementation of a European cooperation mechanism between the EU Commission and the EU Member States as foreseen in the proposed regulation. Under such cooperation mechanism, the competent authority of the EU Member State concerned must inform the Commission and all other Member States within five business days after commencement of an investment screening to allow for the submission of non-binding statements on the acquisition within 25 business days or, if extended, a longer period of time (Article 8 Draft Regulation).
The Ministry has authority to prohibit an acquisition, or impose conditions, within four months (previously: two months) after receipt of the complete documentation (Sec. 59(1) FTR;) (previously: two months). However, it is in the hands of the Ministry to determine whether or not the documentation is complete; if it turns out during the process that certain information is missing, the Ministry may request the submission of such information at any time – and the screening period starts running again upon submission of the requested information.
Whereas the responsibility for the filing and submission of information rests on the purchaser, the Ministry has authority to request further documents from all parties directly or indirectly involved in the acquisition (Sec. 57 sentence 3 FTR). In contrast to past practice, this includes the target business and may become relevant where the purchaser is unable to collect the information in question (e.g. information on the target business). Therefore, it may happen that the start of the four-month period is significantly delayed if additional information is requested.
The expiration of the four-month screening period is suspended if the Ministry enters into negotiations with the purchaser regarding contractual provisions guaranteeing the public safety or order of the Federal Republic of Germany (Sec. 59(2) FTR). This might delay closing even further.
In light of the changes to the screening procedure, foreign investors should factor in more time for the closing of their transactions.
  (iii) Certificate of non-objection.
* Period for the Ministry to grant certificate of non-objection was extended from one to two months.
* Certificate of non-objection becomes even more relevant to achieve legal certainty.
A foreign investor can apply for a certificate of non-objection to obtain legal certainty regarding the proposed acquisition. Therefore, in many share or asset purchase agreements the parties agree on a condition to closing that the Ministry grants a certificate of non-objection – including the seller’s obligation to support the purchaser within the clearance procedure and to provide him with all information and documents as requested by the Ministry.
When applying for the certificate, the purchaser must describe the acquisition, the purchaser and the assets to be acquired as well as the main features of the business that the purchaser and the target are conducting. After the receipt of the application, the Ministry has two months (previously: one month) to decide whether to issue the certificate or start the screening of the transaction. If the period expires without the Ministry reacting, the clearance certificate is deemed to be issued (Sec. 58(2) FTR).
We expect that certificates of non-objection will become even more important in future transaction practice. This is mainly because without a filing the Ministry can launch a screening procedure at any time during the five-year period after signing.
  (iv) Legal consequences of a prohibition.
* Risk of unwinding a closed transaction is borne by the purchaser.
* Public law contract as an instrument to avoid a prohibition.
If the Ministry prohibits an acquisition that has already seen its closing, the Ministry may still (i) prohibit or restrict the purchaser in the exercise of its voting rights in the target company, or (ii) appoint a trustee with the mission to unwind the transaction at the expense of the purchaser (Sec. 59(3) FTR).
The amended FTR clarifies that a prohibition of the notified transaction may be avoided by entering into a so-called public law contract (öffentlich-rechtlicher Vertrag) with Germany (Sec. 59(2) FTR). The obligations and the commitments that the purchaser has to accept under such a contract depend on the circumstances of the transaction. However, a purchaser should consider that it may come to negotiations with the Ministry and that such negotiations may have material effects on the timeline to closing.
Sector-specific Investment review and current amendments
Scope of Application
* Broader scope of application for the screening of defence-related investments.
* Anti-circumvention rule has been refined.
Under the sector-specific screening regime, the Ministry has authority to examine whether essential security interests of the Federal Republic of Germany are at risk if a non-German purchaser directly or indirectly acquires a domestic business or a shareholding of more than 25% of the voting rights in a domestic company if such business or company (i) manufactures or develops goods within the meaning of Part B of the War Weapons List (Kriegswaffenliste), (ii) manufactures or develops specially designed engines or gearboxes for tanks or other armoured military vehicles, or (iii) manufactures products with IT security functions designed to process classified information or components essential for the IT security function of such products.
The sector-specific screening regime as amended requires the screening of foreign investments in companies manufacturing or developing certain goods listed on the German Export List (Ausfuhrliste); (Annex 1 to the FTR) (Sec. 60(1) no. 3 and 4 FTR). These goods include, without limitation, fire control systems, weapon sighting devices, target acquisition equipment, special armour or protective equipment, sensor integration equipment, space crafts and their components, specialised equipment for military training (simulators etc.), diving devices, robots, nuclear energy production equipment or laser equipment, in each case specially designed for military use.
According to a new anti-circumvention rule (Sec. 60(2) 1 FTR), it is an indication of circumvention where a domestic purchaser, except for its holding of the target company, either has no significant business activities in Germany or no permanent presence in the form of premises, personnel or equipment in Germany.
Screening Periods
* Screening period was extended to three months (previously: one month).
* Requests for information may be addressed to all parties to the transaction (previously: only to the purchaser).
* If and as long as the Ministry and purchaser are negotiating, the screening period is suspended.
Any acquisition subject to sector-specific screening must be notified to the Ministry. The notification must explain the proposed transaction, the purchaser and the domestic target to be acquired as well as the main features of the business areas of the purchaser and the target company (Sec. 60(3)2 FTR).
The Ministry shall clear the proposed transaction if there are no reasons speaking against it from the point of view of essential security interests of the Federal Republic of Germany. Clearance by the Ministry is a statutory closing condition. A transaction is deemed to be cleared if the Ministry (i) does not start the screening within three months of receipt of the notification (previously: one month), or (ii) does not prohibit the transaction or imposes conditions within three months (previously: one month) after receipt of the complete documentation (Sec. 62(1) FTR). For purposes of the screening, the Ministry may request all parties directly or indirectly involved in the transaction to submit further documents (Sec. 57 sentence 3 FTR).
If the Ministry starts negotiations with the purchaser regarding contractual provisions designed to guarantee the security interests of the Federal Republic of Germany, expiration of the screening period is suspended for the duration of such negotiations (Sec. 62(2) FTR).
If such negotiations cannot address the raised objections in terms of the essential security interests of Germany, the Ministry can prohibit the purchaser from closing the acquisition or issue instructions.
* Early risk assessment will be necessary more than ever before.
* Too early to forecast whether amended FTR will result in more prohibitions and restrictions of foreign direct investments.
* Higher number of applications and screenings expected.
* Certificate of non-objection may become even more relevant.
The amended FTR reflects a change in attitude that the Ministry has applied during the past twelve months and codifies part of the current administrative practice. The extension of the screening periods anticipates a possible implementation of a cooperation mechanism on foreign direct investment review between the European Commission and the EU Member States, as suggested in the proposed European Regulation.
The amended German legal framework presents non-European purchasers with a more complex situation than it has before. Non-European purchasers are well advised to analyse transaction risks early on and prepare their moves very thoroughly from a legal, political and communications point of view.
Given the mandatory notification requirements of the acquisition of targets in the sector of critical infrastructure under the cross-sector investment review, investors will have to assess early on whether their transactions fall under the scope of the FTR.
It remains to be seen whether the amended FTR will result in the Ministry screening acquisitions that it has not looked at in the past. In addition, the proposed European Regulation suggests extending the screening of non-European direct investments to businesses in the sectors of critical technology, natural resources and data security. In light of this wide range of sectors, the Ministry might have the power to initiate screenings of transactions in a similarly wide area in the future. But irrespective of these non-exhaustive lists, the Ministry will still decide on a case-by-case basis whether an acquisition actually constitutes a threat to public order or safety.
In light of the above, precautionary measures will be more important than before. We expect that certificates of non-objection will be increasingly used in future transaction practice. We believe that this is because an application reduces the deadline for the Ministry to launch a screening from three to two months and a mere notification to the Ministry regarding a relevant acquisition without a reasoned written application can especially create suspicion at the Ministry and trigger an extensive investigation that might delay the closing of the transaction significantly.
But even the quick application for a certificate of non-objection will not guarantee a fast closing of a corporate acquisition by a non-European investor. Two months after the amended FTR has taken effect, it has become clear that significantly more filings have been, and will be, submitted to the Ministry than originally expected. This results in the delay in the processing of applications for the certificate of non-objection. Further, in light of the proposed European Regulation, the Ministry might no longer be able to issue a certificate of non-objection until the time limits for submitting comments under the proposed cooperation mechanism have expired.

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10. M. Lester: “BelTechExport’s Belarus Re-listing upheld by European Court”

* Author: Maya Lester, Esq., Brick Court Chambers,
, +44 20 7379 3550.
The General Court of the EU has dismissed BelTechExport’s application for its re-listing on the EU’s targeted Belarus sanctions to be annulled. Judgment here: Case T-765/15 BelTechExport ZAO v Council [2017]. BelTechExport, an arms manufacturer, was listed on the grounds that it “benefits from the regime as a main exporter of arms and military equipment in Belarus, which requires authorisation from the Belarusian authorities”, but has since been removed from the EU’s sanctions lists (see previous blog).
BelTechExport was previously listed on the basis that “It supports and provides revenue to the Lukashenka regime by its sale of arms”, “benefits from the regime as the main exporter of arms and military equipment owned by the state or produced by state owned companies”, and has ties to a listed individual, Vladimir Peftiyev; the Court annulled that designation (see previous blog).

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11. T.P. O’Toole, A.S. Hussain & K.D. Behre: “Focus on Iran: Inaugural Issue”

* Editors: Timothy P. O’Toole, Esq., totoole@milchev.com, 202-626-5552; Aiysha S. Hussain, Esq., ahussain@milchev.com, 202-626-1497; and Kirby D. Behre, Esq., kbehre@milchev.com, 202-626-5960.  All of Miller & Chevalier Chartered.


Welcome to the inaugural issue of Focus on Iran. Interest in doing business in Iran has increased since the implementation of the Joint Comprehensive Plan of Action (JCPOA). The JCPOA has made it easier for non-U.S. companies and individuals to conduct business in Iran and this has already begun to boost the Iranian insurance market, energy sectors, shipping industry, mining sector, and automotive sector. As we discuss below, however, recent events in the United States suggest that the future of the JCPOA is unclear. Because doing business in Iran at this stage comes with significant opportunities as well as legal risks, we thought it would be useful to collect and periodically report on the most noteworthy developments and cases so businesses may understand the risks and challenges the Iranian market offers. Most summaries contain links to documents that will provide you with source materials and more in-depth coverage. 
Can I Do Business in Iran?
The answer depends on who you are and what you want to do. With the lifting of many U.S. overseas sanctions on Iran, many more business development opportunities are now open to companies and persons not subject to the jurisdiction of the United States (“non-U.S. companies” and “non-U.S. persons” or collectively “non-U.S. entities”). Generally speaking, non-U.S. persons are no longer subject to many U.S. sanctions related to Iran. Additionally, foreign entities owned or controlled by a person (including a company) subject to the jurisdiction of the United States (a “U.S. person”) are now (assuming they adopt appropriate procedures beforehand) allowed to engage in most of the transactions related to Iran in which non-U.S. persons are now allowed to engage. Thus, aside from certain exceptions, including those related to Specially Designated Nationals (SDNs) and U.S.-origin goods and services, such non-U.S. entities can engage in business development activities related to Iran.
If you are a U.S. person, however, beware. Business development related to Iran is still largely prohibited. U.S. persons are limited to exploratory and non-binding business discussions about the Iranian market, including with Iranian companies and individuals, either within or outside of Iran. Activity beyond this is prohibited for U.S. persons and thus, under current U.S. sanctions, U.S. persons are generally prohibited from discussing specific transactions with Iranian companies or individuals, and from entering into any form of contract, or agreement, whether written or oral, with regard to potential business or projects in Iran, involving any Iranian government agency or entity, or involving any person sanctioned by the United States.
After the Iran Nuclear Deal, What Business Activities Are Permitted?

The “Iran Nuclear Deal”- or the JCPOA – lifted the U.S. secondary sanctions regime. Those secondary sanctions restricted non-U.S. persons (including non-U.S. companies) from conducting business with Iran’s energy, shipping, shipbuilding, financial, and automotive industries. After January 16, 2016, non-U.S. persons are no longer restricted from doing business with these sectors. Non-U.S. persons are also authorized to provide any support services, such as technical assistance, training, insurance, reinsurance, brokering, transportation, and financial services, which are necessary and incident to the activity for which sanctions have been lifted.  

Although the lifting of the secondary sanctions has provided some relief, non-U.S. persons are still subject to significant prohibitions. Specifically, they are prohibited from exporting and re-exporting U.S.-origin goods, services, or technology to Iran, or transferring funds through the U.S. financial system in connection with Iranian transactions.
With regard to U.S. persons, significant prohibitions remain in place. However, you are allowed, in limited circumstances, to do business in Iran, such as selling certain medical devices, but a comprehensive compliance program is needed to ensure U.S. laws and regulations are not violated.
With Whom Can I Do Business?
In the wake of the JCPOA, more than 400 individuals and entities have been removed from the list of Specially Designated Nationals (SDNs) and other U.S. sanction lists. However, U.S. persons and non-U.S. persons alike remain prohibited from transactions that involve SDNs or other individuals who remain the subject of the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) or other U.S. regulatory list-based sanctions.
The Iran Nuclear Deal (or JCPOA) – Is It Here to Stay?
President Trump has frequently criticized the JCPOA. He has also personally questioned Iran’s compliance with its obligations. In early September, President Trump’s envoy to the United Nations, Nikki Haley, suggested that President Trump would be on solid ground if he refused to certify Iran’s compliance with its obligations under the JCPOA. She also said the U.S. would act despite the fact our European allies want us to stay in the deal. Her assessment of the world community appears correct-world leaders have repeatedly stated that Iran is honoring its obligations under the JCPOA and that there is no legitimate ground for finding otherwise.
Nonetheless, the U.S. statements on this issue are significant, particularly as to the issue of certifying Iran’s compliance. The legislation implementing the JCPOA requires that the president certify to Congress, every 90 days, that Iran is in compliance with the JCPOA. On July 17, 2017, Secretary of State Rex Tillerson submitted such certification, while also noting that Iran remains a state sponsor of terror and that there is an ongoing interagency review of the JCPOA to determine whether continued suspension of nuclear related sanctions is vital to the national security interests of the United States. This certification keeps the JCPOA alive through October, but the national security review, and recent statements by the president and others in his administration, have raised serious questions as to whether the U.S. will attempt to reimpose the sanctions lifted under the JCPOA.
Given these divisions in the world community, it is difficult to predict what happens next. The JCPOA contains joint resolution procedures-sometimes referred to as a “snapback” provision-but these procedures are premised on presentation of a dispute to an international body. Given that the International Atomic Energy Commission has not supported U.S. claims of non-compliance, it seems unlikely the U.S. intends to exercise those provisions. The U.S. could, alternatively, simply attempt to reimpose secondary sanctions unilaterally, but doing so would arguably place the U.S. in breach of the JCPOA. Whether that would lead Iran to invoke the joint resolution provision, would lead Iran to withdraw from the JCPOA, or whether it would lead to some other result is unclear. Also unclear is how U.S. secondary sanctions will work if they are opposed by the remainder of the world community. The only certainty going forward is that this is a critical issue to watch.
U.S. Imposes New Sanctions on Iran
: On August 2, 2017, President Trump signed a new law imposing sanctions on Iran. The Iran sanctions are directed at U.S. and foreign persons and fall into four categories: 1) ballistic missile sanctions; 2) Islamic Revolutionary Guard Corps (IRGC) sanctions; 3) human rights abuse sanctions; and 4) sanctions to enforce arms embargoes. Transactions involving the sale of agricultural commodities, food, medicine, or medical devices to Iran, or for the provision of humanitarian assistance to Iran, including related financial, transportation, or other necessary services will still be allowed, as well as certain activities related to national security. Though this legislation codifies U.S. sanctions against Iran, the president said in his signing statement that the administration retains “flexibility in granting routine licenses to American businesses, people, and companies.” This legislation follows sanctions imposed by the Trump administration in connection with Iran’s ballistic missile program. It remains to be seen whether such sanctions will cause Iran to withdraw from the JCPOA, triggering the snap back of U.S. sanctions. More information about these new sanctions can be found in Miller & Chevalier’s recent Trade Compliance Flash
OFAC the U.S. Government Enforcer
: OFAC enforces
sanctions against Iran and if a company or individual violates U.S. sanctions, OFAC can impose hefty civil penalties and even refer corporations or individuals for criminal prosecution to the Department of Justice (DOJ).
When OFAC opens an investigation into a company’s conduct it can decide to (1) take no action; (2) send a cautionary letter; (3) find a violation; (4) impose a civil monetary penalty; (5) make a criminal referral to the DOJ; or (6) issue a cease and desist order or action relating to an OFAC license.
In deciding what type of penalty to impose or action to take, OFAC considers 11 factors, and factors such as having a robust compliance program, a proper remedial response, and cooperation with OFAC can weigh against a severe penalty.
In the sections below, we review recent significant criminal and civil enforcement actions related to the Iran sanctions.
Criminal Prosecution Proceeds Against Non-U.S. Citizen Who Used U.S. Banking System in Deal with Iran
: Reza Zarrab, a non-U.S. person who conducted business on behalf of Iran has been charged in the United States with conspiracy to violate U.S. Iranian sanctions. The U.S. government has accused Zarrab of using the U.S. banking system to process transactions made on behalf of the government of Iran. Based on this link to the U.S. financial system, the DOJ charged Zarrab with conspiracy to defraud the United States, conspiracy to violate the International Emergency Economic Powers Act (IEEPA), and the Iranian Sanctions Regulations. Before the U.S. District Court, Zarrab maintained that the U.S. could not criminally prosecute him because he did not violate U.S. sanctions, he is not a U.S. person, and did not make any exports to Iran. He contended that the transactions at issue did not originate from the U.S. and any use of the U.S. banking system was intermediary and in the form of a very minor processing role. The court rejected Zarrab’s arguments, and held that the U.S. has criminal jurisdiction over Zarrab’s conduct because of his use of the U.S. financial system. The U.S. government filed a superseding indictment in September 2017 naming high-profile Turkish officials. For now, foreign companies doing business in Iran should be aware of the expansive reach of U.S. judicial jurisdiction.
OFAC Penalizes Chinese Oil Company Subsidiary for Sending U.S. Goods to Iran Through Singapore and the United Arab Emirates
: On August 24, 2017, OFAC imposed a $415,000 civil penalty against COSL Singapore, a subsidiary of China Oilfield Service Limited. COSL owns rigs and enters into time charter agreements with third party drilling partners, but agrees to maintain the rigs and to procure spare parts and equipment for the oil rig’s operations. COSL, through its subsidiary (COSL Drilling Pan-Pacific), re-exported 55 orders of oil rig supplies from the United States, through Singapore and the United Arab Emirates to Iranian territorial waters.
OFAC Penalizes U.S. Freight Forwarder for Shipping Cars to Afghanistan but Passing Through Iran
: On August 17, 2017, OFAC fined American Export Lines (AEL), a freight forwarder, $518,000. OFAC imposed the fine for transshipment of cars and parts through Iran to Afghanistan. OFAC considered AEL’s small size and compliance program as a mitigating factor, and AEL’s supposed sophistication and OFAC knowledge (as demonstrated by compliance program) as an aggravating factor.
OFAC Penalizes U.S. Parent for Not Clearly Disassociating from Iran Business Conducted by Subsidiaries
: On August 10, 2017, OFAC imposed a $259,200 civil penalty against IPSA International Services. IPSA is a global business investigative and regulatory risk mitigation firm that provides due diligence services for various countries. OFAC found that: 1) IPSA imported Iranian-origin services into the United States because its foreign subsidiaries in Canada and Dubai conducted due diligence in Iran on behalf of and for the benefit of IPSA (a U.S. company); and 2) IPSA engaged in transactions or dealings related to Iranian-origin services because it “facilitated the foreign subsidiaries’ engagement in such transactions [by] review[ing], approv[ing], and initiat[ing] the foreign subsidiaries’ payments to providers of Iranian-origin services.”
OFAC Penalizes Singapore Company Conducting Business in Iran in U.S. Dollars
: On July 27, 2017, OFAC imposed a $12 million civil penalty on CSE for “causing” financial institutions to engage in unauthorized exportation or re-exportation of financial services from the United States to Iran. CSE entities (non-U.S. companies) used U.S. dollar accounts in Singapore to process telecommunications work in Iran. OFAC noted that this violated CSE’s agreements with its Singapore bank not to route any transactions related to Iran through the bank, and it also suggested that the U.S. dollar transfers intentionally omitted references to Iran. OFAC cites this as an example of the diligence that is required when making warranties to financial institutions about non-use of the U.S. financial system in connection with sanctioned countries. This case pushes the limits of the “causing” theory since the Singapore banks had their own dollar reserves and there is no allegation they were “clearing” specific Iran transactions.
OFAC Penalizes AIG for Providing Insurance on Shipments to Iran
: On June 26, 2017, OFAC fined AIG approximately $150,000 because of 555 transactions totaling approximately $400,000 in premiums and claims for insurance of goods and materials were destined for or transited through Iran, Sudan, or Cuba. Many transactions occurred under global insurance policies but some occurred under single shipment policies. Some insurance contracts had exclusion policies dealing with sanctioned countries but most of the exclusion policies were defective; other contracts had no exclusion policies. Some single shipment policies were negotiated by insureds without exclusion policies.
OFAC, BIS, and DOJ Fine Chinese Company Over $1.2 Billion for Violating Iran Sanctions
: On March 7, 2017, OFAC, the Bureau of Industry and Security (BIS), and the DOJ fined Chinese telecommunications corporation Zhongxing Telecommunications Equipment Corporation (ZTE) and several of its subsidiaries over $1.2 billion-a record-breaking penalty for all three agencies. Over six years, ZTE allegedly engaged in 251 violations of the Iranian Transactions and Sanctions Regulations (ITSR) involving approximately $40 million of U.S.-origin goods. According to the settlement agreement between OFAC and ZTE, ZTE evaded the U.S. sanctions on Iran by using third-party companies to facilitate the sale of U.S. origin goods to Iranian entities. For a more in-depth discussion see Miller and Chevalier’s ZTE Trade Compliance Flash.
U.S. Asserts Jurisdiction Over Foreign Company, Based on Its Appearance in U.S. Bankruptcy Court, for Unrelated Iranian Sanctions Violation
: On February 3, 2017, OFAC announced that it had issued a Finding of Violation against B Whale Corporation (B Whale), a Liberian company based in Taipei, Taiwan, and a member of the TMT Group of Shipping Companies. The finding was based on B Whale’s Liberian flag vessel having conducted a ship-to-ship transfer of approximately two million barrels of oil with a vessel owned by an Iranian National Tanker Company. The Iranian vessel had been included on OFAC’s SDN list prior to the approximately four-day period between August 30, 2013 and September 2, 2013, when the oil transactions occurred. In its announcement, OFAC explained that it had found jurisdiction over this transaction, even though it was between two foreign entities and took place outside the United States, because B Whale had entered into bankruptcy proceedings in the U.S. Bankruptcy Court for the Southern District of Texas on June 20, 2013, and remained a party to those proceedings at the time of the transactions. For a more in-depth discussion see Miller and Chevalier’s Trade Compliance Flash.
OFAC Reaches $17,500 Settlement with Offshore Drilling Company for Violations of Iran Sanctions
: In January 2017, Aban Offshore Limited agreed to pay OFAC $17,500 to settle possible civil claims for violating the Iran sanctions in 2008. Aban’s largest subsidiary, Aban Singapore Pte Ltd., allegedly ordered oil rig supplies from a U.S. vendor, which they planned to re-export from the United Arab Emirates to an oil rig located in Iranian territorial waters, South Pars Gas Fields. According to OFAC, the value of the order was $10,127. Despite finding several aggravating factors, OFAC determined the matter was non-egregious. OFAC considered the following to be aggravating factors: Aban failed to exercise a minimal degree of caution, Aban’s conduct developed Iran’s energy resources, Aban is a sophisticated company doing business throughout the world, and Aban lacked a compliance program. In deciding that the violation was non-egregious, OFAC considered and credited Aban with cooperation during the investigation, lack of prior sanctions violations, and implementing a compliance program.
Canadian Bank Faces Penalties for Sanctions Violations and Lack of Compliance Program
: On January 13, 2017, OFAC issued an enforcement action against Toronto-Dominion Bank (TD Bank), a Canadian company, and its Luxembourg-based subsidiaries that involved apparent violations of the Cuban Assets Control Regulations (CACR) and the ITSR. The apparent violations all stem from the activity of TD Bank’s Canadian operation. First, the Canadian bank failed to screen $1.165 million dollars of transactions for “any potential nexus” to a sanctioned country or entity before processing the transactions through the U.S. financial system. Second, TD Bank maintained accounts in Canada for a customer listed as a sales agent to an entity designated as a SDN under the Iran Sanctions Program. Third, TD Bank maintained accounts on behalf of 62 Cuban nationals residing in Canada and processed 99 transactions totaling less than half a million dollars-through the U.S. financial system. As a result of these activities, which are valued at approximately $2 million-and which TD Bank voluntarily disclosed-OFAC reached a settlement for remittance of $516,105.
In addition to this settlement, OFAC issued a Finding of Violation against TD Bank’s Luxembourg-based online brokerage and banking subsidiary, Internaxx. OFAC found that Internaxx “provided U.S. securities-related products and services for customers resident in countries subject to comprehensive OFAC sanctions programs”-namely to persons residing or based in Cuba or Iran. Internaxx processed 3,491 securities-related transactions valued at approximately $92.869 million. For a more in-depth discussion see Miller and Chevalier’s Trade Compliance Flash.
U.S. Oil Company Fined $25 Million for Violating Cuban, Iranian, and Sudanese Sanctions
: In November 2016, OFAC announced it had issued a nearly $6 million dollar penalty against U.S. oil and gas company National Oilwell Varco Inc. (NOV) and two of NOV’s Canadian subsidiaries. The penalty was part of a larger settlement involving BIS and a non-prosecution agreement with the DOJ. The penalty stemmed from alleged transactions by NOV and its subsidiaries involving Iran, Cuba, and Sudan. OFAC found that senior finance executives at NOV were willfully blind to the consequences of payments to a U.K. entity that resulted from sales to Iran. OFAC noted that aggravating factors considered in the calculation of the penalty included NOV’s “reckless disregard for U.S. sanctions requirements,” harm to U.S. sanctions objectives, the size and sophistication of NOV, and the “wholly inadequate” nature of NOV’s compliance program. The penalty is a reminder of the potential consequences of an insufficient economic sanctions compliance program, as well as the interagency cooperation in this arena.
Amazon.com Self-Reports Violations Based on Transactions with Iran
: According to Amazon.com’s 10-K, from 2012 to 2017, Amazon.com processed transactions and delivered goods-ranging from apparel, electronics, books, software, and home, kitchen, beauty, and automotive products-to groups controlled or owned by the Iranian government. These transactions were in violation of the Iran Threat Reduction and Syria Human Rights Act (ITRA). Amazon.com self-reported these violations to OFAC and BIS. This is an important example of how reporting export control and sanctions violations may also result in required reporting in financial documents.
Iran Sanctions 24 U.S. Companies and Individuals in Response to Missile-Related Designations by the U.S. Departments of State and Treasury
: On March 26, 2017, Iran announced its decision to impose sanctions on 15 U.S. companies, including Raytheon, United Technologies, RE/MAX, and Oshkosh, for human rights violations and support of Israel and its activities in the Palestinian territories. The Iranian government characterized its designations as responsive to the U.S. Department of State’s March 21, 2017 imposition of sanctions on 11 Chinese, North Korean, and Emirati entities and individuals under the Iran, North Korea, and Syria Nonproliferation Act (INKSNA), for their alleged involvement in transferring sensitive items to Iran’s ballistic missile program. On May 18, 2017, Iran sanctioned an additional nine entities and individuals, including Booz Allen Hamilton and its CEO, Horacio D. Rozanski, under similar theories. The second set of designations came in response to OFAC’s May 17, 2017 addition of two senior Iranian defense officials, four Chinese companies, and one Iranian entity to the SDN List for engaging in proliferation activities in connection with Iran’s ballistic missile program and support of the Assad regime in Syria.

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. W. Shahid, R. Cook, R. Giambalvo: “Separating Signal from Noise: A Framework for Monitoring Compliance Program Performance” (Part 2 of 3)

* Authors: Waqas Shahid, Esq., 646-291-8546, waqas.shahid@ankuraconsulting.com; Randy Cook, Esq.,randy.cook@ankuraconsulting.com, 646-291-8545; and Rosanne Giambalvo, Esq., rosanne.giambalvo@ankuraconsulting.com, 646-291-8575. All of Ankura Consulting Group LLC.
[Editor’s Note: Due to space limitations, this article is divided into three parts. Part 1 was published in yesterday’s Bugle and part 3 will be published in the Daily Bugle of Thursday 5 October.]
In Part 1 of this article, we laid out a case for Compliance Analytics and described two key processes for compliance analytics:  The Planning Cycle and the Execution Cycle.  In today’s article, we discuss the Planning Cycle in more detail.  
Understanding your business activities and objectives is an important first step of this framework. At a fundamental level, you cannot determine whether your company is conducting business in a compliant manner and whether your compliance programs are efficient if you do not understand your company’s business.
The specific, relevant facets you need to understand will vary by issue area and organization. For an export compliance program, for example, understanding the business means knowing the export touchpoints within your company through an understanding of, among other things, key company products and services (what they do, how they are classified, who buys them, etc.), how critical business processes work, transactional volumes, key customers and locations, key vendors and suppliers, critical enterprise systems (including engineering and IT systems), and existing compliance controls (policies, procedures, systems) you may already have in place. For comparison, for an anticorruption program, you should focus on understanding how your business facilitates and incentivizes sales and transactions, particularly when public officials are involved. Who and where are your sales representatives? How do they operate? How do people get paid? How does your company account for transfers of non-monetary valuables such as services and products? Of course, you should also aim to have a deep understanding of the systems and procedures used for payments and accounting for transfers of value.
Although you may think you have a good idea of how your company functions and how relevant regulations may apply to those activities, the fact is that it is almost impossible for one person to know all the details within an organization of any appreciable size. Conducting a systematic and thorough compliance self-assessment can help you fully identify, document, and understand the key compliance touchpoints for your company, and identify specific risk areas for improvement and compliance program focus.
But don’t stop there. Compliance professionals often mistakenly believe that the success of their compliance program is somehow insulated from the strategic objectives and success of their company’s business activities. It is not. Although compliance with the law is the necessary cornerstone of any credible compliance program, it is not enough. You need to make sure that your compliance programs achieve compliance with the law at the speed of business, promoting the achievement of business objectives rather than hindering them. Otherwise, you run the risk of business personnel finding creative ways to work around compliance systems and safeguards, or applying organizational pressure to scale back compliance.
Accordingly, prior to deciding what and how to measure, make sure you understand your company’s strategic and tactical objectives and how your compliance program may help or hinder those objectives. Doing so will allow you to focus on key compliance processes and craft KPIs related to those processes, resulting in more effective engagement of internal stakeholders and demonstration of compliance program value. For example, if the company is focused on globalizing its manufacturing supply chain, in the export control context, make sure you closely monitor the volume, destination, and speed of technology exports; track remaining values on export authorizations; and track your export authorization pipeline and lead times. Do whatever is in your power to ensure the export process is as smooth as possible. Concurrently, to address the increased sanctions and corruption risks, you should enhance monitoring of third-party screening and hit resolution, and of the number and character of international financial transactions utilized to support the new activities.
Of course, in addition to knowing where you are going, you should also consider where you have been. If your company has faced particular compliance issues in the past, it is a good idea to continue monitoring those specific areas. Even if you think you have fixed the problem, it helps to have data to provide evidence that the fix is effective. For example, if you created an automated workflow to make your gifts and gratuities approval process more efficient and accountable, you should track process performance before and after the automation transition so you can ensure that the company gets the anticipated benefit out of the enhancement and demonstrate the value of the investment. Similarly, in the export control context, if your company previously submitted disclosures regarding failure to timely update your authorizations following a party’s name change, you will want to monitor and track current performance in this area until you are sure that the problem is effectively remedied.
Once you have a functional understanding of how your business operates, its risks, and its objectives, you can start identifying relevant metrics and KPIs.[1] You cannot measure everything (not enough time, bandwidth, or money), so it is important to be methodical in selecting the metrics and KPIs you want to focus on. Broadly speaking, you should aim to select metrics that give you a good idea of what is going on with respect to (1) transactional activity (e.g., export volume, third-party payments, commissions); (2) the health and status of your compliance program; and (3) the impact of compliance activity on key business objectives. KPIs should be selected based on their usefulness and criticality as proxies for measuring the success of your compliance program based on your understanding of company objectives, risks, and known compliance weak spots or areas of concern.
The table below provides an example set of metrics and KPIs for an export control compliance program. These are only intended as examples, and the relevant metrics and KPIs for your program will differ depending on the nature of your business, compliance risks, and the results of your self-assessment. For example, if you discover during your self-assessment that you have no or very immature processes for dealing with required notifications to the State Department for export authorizations, you may want to craft some metrics specifically to monitor compliance in that area.
* How many hardware units were exported last month? Break down by:
  – Product category;
  – Program;
  – Export classification;
  – Authorization type used (license, agreement, exemption/exception, “no license required,” etc.);
  – Exporting business unit/shipping location;
  – Destination country;
  – Receiving customer/partner, etc.
* How many separate export shipments were made last month?
* How many files (technology/technical data) were exported electronically last month? Break down along different dimensions, as with hardware shipments.
* How many export licenses (including agreements) does the company currently hold? Break down by:
  – Product category;
  – License type;
  – Product category;
  – Program;
  – Destination country;
  – Receiving customer/partner, etc.
* How many license requests are currently in the pipeline? Break down by:
  – Type;
  – Status;
  – Requesting BU/department;
  – Destination, etc.
* What is the value remaining on export licenses (export/import/hardware manufactured abroad)?
* What is the forecast for license-required exports forecast v. available export authorization value?
* What are the DSP-83 cycle times and other export authorization-related process times?
* What was the average cycle time last month for preparing and submitting license requests? Break down by license type, requesting business unit, license specialist, etc.
* What was the on-time submission percentage for required license notifications to the government? Break down by license type, BU that owns license, compliance professional, etc.
* How many new part numbers/catalog items were created last month? Break down by jurisdiction/classification.
* How many new technology/technical data jurisdiction/classifications were made last month?
* What was the average cycle time last month for conducting a jurisdiction/classification determination? Break down by product, ultimate classification, and reviewer.
* What is the current classification status (classified, not classified) breakdown of all company part numbers? All technology/technical data to be exported?
* What is the status breakdown of all third-party classification requests?
* What is the burndown status of part numbers affected by ECR change(s)?
* What is the completion status for prior audit observations/corrective actions?
* What is the completion status and results for specific area follow-ups/reviews required because of the last audit?
* How many new compliance issues were reported in the last month? Break down by reporting source, regulatory issue area, compliance program issue/area, implicated policy/procedure, implicated program/product category, severity/importance, etc.
* What is the completion status of corrective actions committed as part of disclosures/investigations?
* What is the year-to-date breakdown of confirmed violations? Break down by regulatory issue area, compliance program issue/area, root cause(s), etc.
* What was the average export review cycle time last month? Break down by jurisdiction/classification time, end user/end use review time, export authorization review time, and export reviewer.
* What was the average export review cycle time last month for technical data/technology shipments? Break down by above dimensions.
* What percentage of export requests were cleared within X days?
* What was the average review cycle time last month for site visits by foreign nationals?
* What was the average review cycle time last month for overseas trips by company personnel?
* What percentage of export reviews were automated vs. manual?
* What is the headcount for compliance professionals? How many empowered officials? Break down by qualification/role, department, average tenure, etc.
* What is the training rate for the organization? Break down by level of compliance training completed, total population trained by business unit, function, etc.
* What percentage of discovered violations resulted from lack of training or employee misconduct?
* What was the average export review cycle time for key strategic products?
* Identify other metrics/KPIs as dictated by your company’s specific business objectives
In addition to the above, you should also consider metrics for any special projects that the compliance program may be undertaking (e.g., export classification effort for a new system/product/bill of materials, burndown of export authorization review requests). For KPIs, also consider establishing various performance targets that will allow you to quickly build scorecards late. Doing so enables you to set a baseline standard and quickly and visually communicate performance against those standards. For example, for a KPI measuring the average export review cycle time, you may want to consider establishing the following performance level targets: “Green – Excellent (< 24 hours),” “Yellow – Acceptable (< 3 days),” and “Red – Remediation Required (> 3 days).”
The next step (and the last in the Planning Cycle) is to build a data map that allows you to methodically correlate metrics to data sources. Of course, it would be easiest to bake in your metrics within your enterprise systems from the very beginning. But in reality, you rarely get that chance. Instead, most corporate compliance personnel must deal with an array of legacy compliance, enterprise resource planning, engineering, quality management, technology exchange, and other systems that all utilize and host data that will be relevant to metrics of interest.
These systems are rarely owned by the compliance function or well-integrated. Even when you think you know all the relevant enterprise systems, it can be daunting to wade through databases, schemas, tables, columns, lookup values, and other technical implementation details every time you want a new metric to figure out what is relevant and what you should ignore.
Accordingly, before you start collecting and crunching data from enterprise systems to feed your metrics machine, take a step back and build a map of your compliance technology ecosystem to guide your data collection and analysis efforts. Like the self-assessment exercise discussed earlier, this step consists of a systematic inventory. But this time, instead of business processes, you are mapping technology systems relevant to export controls.
Once you have an inventory of the different systems that may hold potentially relevant data (e.g., licensing & classification data, payment records, shipment data, training records), identify which systems (or combination of systems) are most likely to hold the data relevant to the KPIs and metrics you previously identified. For each of these key systems, probe deeper to understand the context in which the data is created and maintained, and where to find the specific pieces of information you will need for your analysis.
For example:
* What types of facts or events do the data reflect?
* How are records in this system created, updated, maintained, and purged?
* What do specific tables and fields within a database schema represent?
* How do you distinguish complete records from incomplete or abandoned records?
* Does the system provide the data you want in a readily digestible means (e.g., a report/dashboard form)? How can data/records be exported from the system?
* Who has access to this data/records system? How is access managed?
* Who uses the system? What is the process for creating data?
One thing you might discover through this process is that your technology systems do not contain the requisite data you need for certain metrics or KPIs you want to track. If this is the case, you should consider whether there is a need to plug a critical information gap in your company’s documented procedures and systems of record.
Through this mapping exercise, you should develop a good documented idea of where your data resides, what data/records are relevant, what information to ignore, and how to extract the information you need. Although this exercise may appear cumbersome, it is a necessary step to ensure that the data you collect is complete and an accurate reflection of reality. You should only need to conduct a full inventory and mapping exercise once and update, as needed, when new systems are deployed or existing ones are updated.
In part 3 of this article, we will discuss the Execution Cycle in more detail, exploring how to build data analysis into your compliance program routine and how to extract insight from the data you are collecting to drive program efficiencies and business objectives.

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MS_a113. Fred Czarske Returns to Northrop Grumman

(Source: Editor)

Fred Czarske, previously Director of Global Trade with Raytheon’s Space and Airborne Systems has returned to Northrop Grumman Corporation as Director, International Trade Compliance, Aerospace Systems in El Segundo, CA.  Contact Fred at Fred.Czarske@ngc.com or 310-332-7606.

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* Alvin Toffler (4 Oct 1928 – 27 Jun 2016; was an American writer, futurist, and businessman known for his works discussing modern technology. In 1970 his first major book about the future, Future Shock, became a worldwide best-seller and has sold over 6 million copies.)
  – “It is better to err on the side of daring than the side of caution.”
* Rutherford B. Hayes (Rutherford Birchard Hayes; 4 Oct 1822 – 17 Jan 1893; was the 19th President of the United States (1877-81).)
  – “Unjust attacks on public men do them more good than unmerited praise.”


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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 Sep 2017: 82 FR 45366-45408: Changes to the In-Bond Process [Effective Date: 27 Nov 2017.]

  – 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 

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

  – Last Amendment: 3 Oct 2017: 82 FR 4 5959-45962: Updated Statements of Legal Authority for the Export Administration Regulations

: 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: 20 Sep 2017: 82 FR 43842-43844: Foreign Trade Regulations (FTR): Clarification on Filing Requirements; Correction  
  – HTS codes that are not valid for AES are available
  – The latest edition (20 Sep 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 Category XI of the United States Munitions List
  – The only available fully updated copy (latest edition: 12 Sep 2017) of the ITAR with all amendments is contained in Bartlett’s Annotated 

, 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
. 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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