17-1024 Tuesday “Daily Bugle”

17-1024 Tuesday “Daily Bugle”

Tuesday, 24 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. DHS/CBP Revokes 3 Customs Broker’s Licenses
  2. DoD Seeks Comments for Section 809 Advisory Panel on Streamlining and Codifying Acquisition Regulations
  1. Ex/Im Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.)
  3. DHS/CBP Announces East Coast Trade Symposium on 5-6 Dec in Atlanta
  4. DHS/CBP Updates AESTIR Documentation
  5. State/DDTC: (No new postings.)
  6. Treasury/OFAC Posts Belarus General License 2D
  7. White House Releases Notice Concerning Continuation of National Emergency with Respect to Democratic Republic of the Congo
  8. EU Amends Restrictive Measures Concerning Burundi, Republic of Guinea, and Moldavia, Publishes Recommendation Concerning Misuse of Explosive Precursors
  9. UK/DIT/ECO Releases Reminder of Email Address for OGEL or Crown Exemption Letters
  10. Hong Kong TID Announces Hong Kong-Japan Joint Industry Outreach Seminar on Strategic Trade Control on 17 Nov
  1. Reuters: “U.S. Says it is Considering Sanctions over Myanmar’s Treatment of Rohingya”
  1. A. Hockley & V. Newbold: “Laudable Security Aims and Protectionist Creep – Major Reform to UK Merger Control and FDI Rules”
  2. D. Yang & C.N. Curran: “Managing the Export Controls Minefield” (Part 2 of 3)
  3. D.M. Edelman: “As ‘Significant Conceptual Gaps’ Persist, NAFTA Talks Extended to 2018”
  4. J. Suetomi: “Japan Implements Amendment of the Foreign Exchange and Foreign Trade Act”
  5. S.W. Pelak, J.E. Prince & G. Green: “Second Circuit Upholds Sentence for Attempt to Export F-35 Technology to Iran”
  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 (23 Oct 2017), FACR/OFAC (16 Jun 2017), FTR (20 Sep 2017), HTSUS (20 Oct 2017), ITAR (30 Aug 2017) 
  3. Weekly Highlights of the Daily Bugle Top Stories 



1. DHS/CBP Revokes 3 Customs Broker’s Licenses

(Source: Federal Register, 24 Oct 2017.) [Excerpts.]
82 FR 49219: Notice of Revocation of Customs Brokers’ Licenses
* AGENCY: U.S. Customs and Border Protection, Department of Homeland Security.
* ACTION: Revocation of customs brokers’ licenses.
* SUMMARY: This document provides notice of the revocation by operation of law of customs brokers’ licenses. …
* SUPPLEMENTARY INFORMATION: … The following list of customs brokers’ licenses and all associated permits are revoked by operation of law for failure to employ at least one 
qualifying individual.
  – Global Dispatch Services, Inc. (License #16679, issued in Laredo)
  – FK Logistics LLC (License #30968, issued in Chicago)
  – Naniq Global Logistics, LLC (License #30012, issued in Anchorage)
   Dated: October 18, 2017.
Brenda B. Smith, Executive Assistant Commissioner, Office of Trade. 

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2. DoD Seeks Comments for Section 809 Advisory Panel on Streamlining and Codifying Acquisition Regulations

(Source: Federal Register, 24 Oct 2017.) [Excerpts.]
82 FR 49200: Advisory Panel on Streamlining and Codifying Acquisition Regulations
* AGENCY: Office of the Under Secretary of Defense (Acquisition, Technology, and Logistics), DoD.
* ACTION: Notice of Advisory Panel.
* SUMMARY: The Department of Defense is publishing this notice to encourage feedback for the Section 809 Advisory Panel on Streamlining and Codifying Acquisition Regulations (hereafter “the Panel”). The Panel meets on a monthly basis and will provide a final report to the Secretary of Defense and Congress in 2019. The agendas, meeting times, and contact information are posted on the Panel Web site. Public feedback can be submitted in the “Contact Us” section of the Web site as either general comments or specific recommendations. …
  Dated: October 18, 2017.
Aaron Siegel, Alternate OSD Federal Register Liaison Officer, Department of Defense.

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

* President; Administrative Orders; Congo, Democratic Republic of the; Continuation of National Emergency (Notice of October 23, 2017) [Publication Date: 25 Oct 2017. Included in today’s Daily Bugle under “Other Government Sources” section.]
* Commerce/BIS; Notices; Meetings: Information Systems Technical Advisory Committee [Publication Date: 25 Oct 2017.]
* Justice/ATF; NOTICES; Agency Information Collection Activities; Proposals, Submissions, and Approvals: Records and Supporting Data: Importation, Receipt, Storage, and Disposition by Explosives Importers, Manufacturers, Dealers, and Users [Publication Date: 25 Oct 2017.]

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DHS/CBP Announces East Coast Trade Symposium on 5-6 Dec in Atlanta

CSMS# 17-000676, 24 Oct 2017.)
U.S. Customs and Border Protection is proud to announce that the 2017 East Coast Trade Symposium (ECTS) will be held on 5-6 December 2017 at the Atlanta Marriott Marquis in Atlanta, GA. Registration will open on Thursday, 26 October at 12:00 pm EST.
This year’s symposium includes discussions on:
  – CBP De Minimis (Section 321)
  – Facilitation and Enforcement
  – Interagency Import Safety
  – Western Hemisphere Enforcement Outlook
  – Border Interagency Executive Council
We look forward to seeing you at the CBP 2017 East Coast Trade Symposium.
  – Related CSMS No. 17-000634 

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DHS/CBP Updates AESTIR Documentation

CSMS# 17-000674, 23 Oct 2017.)
U.S. Customs and Border Protection (CBP) has updated the Automated Export System Trade Interface Requirements (AESTIR) Appendix A – Automated Commodity System Commodity Filing Response Messages document on CBP.gov.
The updated appendix document can be accessed here. The changes for the updated Appendix A document are listed in the Summary of Changes to AESTIR document. To review the document, go here. For more information about the AESTIR, please visit the CBP “AESTIR Introduction and Guidelines” page here

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Treasury/OFAC Posts Belarus General License 2D

Treasury/OFAC, 24 Oct 2017.)    
The Department of the Treasury’s Office of Foreign Assets Control, in consultation and coordination with the Department of State, is authorizing by general license transactions involving certain Belarusian entities blocked pursuant to Executive Order (E.O.) 13405. This general license does not authorize the release of property blocked pursuant to E.O. 13405. This authorization expires on April 30, 2018, unless extended or revoked.

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White House Releases Notice Concerning Continuation of National Emergency with Respect to Democratic Republic of the Congo  

The White House, 23 Oct 2017.)
On October 27, 2006, by Executive Order 13413, the President declared a national emergency with respect to the situation in, or in relation to, the Democratic Republic of the Congo and, pursuant to the International Emergency Economic Powers Act (50 U.S.C. 1701-1706), ordered related measures blocking the property of certain persons contributing to the conflict in that country. The President took this action to deal with the unusual and extraordinary threat to the foreign policy of the United States constituted by the situation in, or in relation to, the Democratic Republic of the Congo, which has been marked by widespread violence and atrocities and continues to threaten regional stability. The President took additional steps to address this national emergency in Executive Order 13671 of July 8, 2014.
The situation in, or in relation to, the Democratic Republic of the Congo continues to pose an unusual and extraordinary threat to the foreign policy of the United States.  or this reason, the national emergency declared in Executive Order 13413 of October 27, 2006, as amended by Executive Order 13671 of July 8, 2014, and the measures adopted to deal with that emergency, must continue in effect beyond October 27, 2017. Therefore, in accordance with section 202(d) of the National Emergencies Act (50 U.S.C. 1622(d)), I am continuing for 1 year the national emergency with respect to the situation in, or in relation to, the Democratic Republic of the Congo declared in Executive Order 13413, as amended by Executive Order 13671.
This notice shall be published in the Federal Register and transmitted to the Congress.
October 23, 2017.

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EU Amends Restrictive Measures Concerning Burundi, Republic of Guinea, and Moldavia, Publishes Recommendation Concerning Misuse of Explosive Precursors


* Council Decision (CFSP) 2017/1933 of 23 October 2017 amending Decision (CFSP) 2015/1763 concerning restrictive measures in view of the situation in Burundi
* Council Decision (CFSP) 2017/1934 of 23 October 2017 amending Decision 2010/638/CFSP concerning restrictive measures against the Republic of Guinea
* Council Decision (CFSP) 2017/1935 of 23 October 2017 amending Decision 2010/573/CFSP concerning restrictive measures against the leadership of the Transnistrian region of the Republic of Moldova
* Commission Recommendation (EU) 2017/1936 of 18 October 2017 on immediate steps to prevent misuse of explosives precursors (Text with EAA relevance)

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UK/DIT/ECO Releases Reminder of Email Address for OGEL or Crown Exemption Letters

UK/DIT ECO, 24 Oct 2017.) [Excerpts.]
The Export Control Organisation (ECO) of the UK Department of International Trade (DIT) has published the following notice to exporters (2017/23):
The Ministry of Defence (MOD) team in the Export Control Joint Unit (ECJU) would like to remind exporters that requests for open general export licence (OGEL) or Crown Exemption letters should be sent to this e-mail address: ECJU-MODTeam@mod.gov.uk.
Note that ECJU MOD has a target of processing OGEL and Crown Exemption requests within 10 working days. There has been an increase in requests to issue OGEL and Crown Exemption letters on the same day that the request is received. Unless a strong justification, which is acceptable to ECJU MOD, to expedite the request is provided at the time the request is made, the 10 working day target will apply. Please build this timescale into your export plans.
For existing letters which require renewal the onus is on the exporter to make the request at least 10 working days before the expiry date of the current letter, as ECJU MOD does not automatically renew existing authorities. … 

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Hong Kong TID Announces Hong Kong-Japan Joint Industry Outreach Seminar on Strategic Trade Control on 17 Nov

Hong Kong TID, 18 Oct 2017.)
The Trade and Industry Department (TID) of Hong Kong has published the below announcement.
An outreach seminar on strategic trade control jointly organized by the Trade and Industry Department and the Customs and Excise Department of the Hong Kong Special Administrative Region Government and the Ministry of Economy, Trade and Industry of Japan will be held on 17 November 2017.  Companies who would like to know more about the strategic trade control systems in Hong Kong and Japan are welcomed to join. For details of the seminar and reservation procedures, please refer to the invitation letter, available

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Reuters: “U.S. Says it is Considering Sanctions over Myanmar’s Treatment of Rohingya”

(Source: Reuters, 24 Oct 2017.) [Excerpts.]
The United States is taking steps and considering a range of further actions over Myanmar’s treatment of its Rohingya Muslim minority, including targeted sanctions under its Global Magnitsky law, the State Department said on Monday. …
Secretary of State Rex Tillerson said on Wednesday the United States held Myanmar’s military leadership responsible for its crackdown on the Rohingya Muslim minority. …
It marked the strongest U.S. response so far to the months-long Rohingya crisis but came short of applying the most drastic tools at Washington’s disposal such as reimposing broader economic sanctions suspended under the Obama administration.
The State Department said on Monday: “We are exploring accountability mechanisms available under U.S. law, including Global Magnitsky targeted sanctions.” …
Interviews with more than a dozen diplomats and government officials based in Washington, Myanmar’s capital, Yangon, and Europe have revealed that punitive measures aimed specifically at top generals were among a range of options being discussed in response to the Rohingya crisis.
Such measures could include the possibility of imposing asset freezes and prohibiting American citizens from doing business with them. …
Forty-three U.S. lawmakers urged the Trump administration to reimpose U.S. travel bans on Myanmar’s military leaders and prepare targeted sanctions against those responsible for the crackdown.
The Magnitsky Act, originally passed in 2012, imposed visa bans and asset freezes on Russian officials linked to the 2009 death in prison of Sergei Magnitsky, a 37-year-old Russian whistleblower. It has since been expanded to become the Global Magnitsky Act, which could be used against the generals in Myanmar.

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14A. Hockley & V. Newbold: “Laudable Security Aims and Protectionist Creep – Major Reform to UK Merger Control and FDI Rules”

(Source: Berwin Leighton Paisner LLP, 23 Oct 2017.)
* Authors: Andrew Hockley, Esq., andrew.hockley@blplaw.com; and Victoria Newbold, Esq., victoria.newbold@blplaw.com. Both of Berwin Leighton Paisner LLP.
[UK] BIS has published a consultation on proposed changes to the way the UK reviews the national security implications of foreign investment.
At present, the Government’s key powers to intervene in investment activity on national security grounds come from the UK and EU merger regimes. The proposals, set out in the National Security and Infrastructure Investment Review, will significantly widen the Government’s ability to intervene in deals on national security grounds, including the prospect of mandatory notification of deals across a wide range of sectors.
What are the proposed changes?
The Government is proposing two major changes to the way in which deals that may raise national security concerns are scrutinised.
In the short term…lowering the merger threshold for two sectors
Currently, under the Enterprise Act 2002, (the “EA02”) the Government only review deals where either:
  – the turnover of the entity being acquired is £70m or more; or
  – the transaction will result in the creation of, or increase in a 25% or more share of supply in the UK market for the relevant goods and services.
The Secretary of State can review deals that do not meet these thresholds (the special public interest regime), but these powers are very limited. The Government also has the ability to review deals, on national security grounds, that are notified to the European Commission.
As an immediate step, the Government proposes to amend the EA02 to lower the turnover threshold to £1 million and to remove the requirement for any competitive overlap between the merging firms in respect of deals in the military and dual use sector (businesses who manufacture or design items that are on the Strategic Export Control List), and deals relating to multi-purpose computing hardware and quantum technology. In these latter hi-tech categories , there would appear to be a significant risk that deals raising no or little national security aspects, nor material competition concerns, may nevertheless fall for review (and the costs and potential delay/chilling effect upon transactions that may entail).
These changes will apply to both domestic and foreign investment.
In the long term…enabling greater scrutiny of transactions that may raise national security concerns across a wider range of sectors
The proposals include:
(1) Introducing a three month “call-in” power to allow Government to scrutinise a broader range of transactions for national security concerns arising out of domestic or foreign investment.
Similar to the power enjoyed by the Competition and Markets Authority under EA02 for deals that may give rise to competition issues. The Secretary of State would be able to make a special “national security intervention” where national security risks are raised by following types of transaction:
  – the acquisition of more than 25% of shares or votes in a business; and/or
  – any transaction that gives (directly or indirectly) significant influence or control over a company or its assets or business in the UK. “Significant influence or control” is yet to be defined.
  – Additionally, in the future, the “call in” power could be extended to include sales of bare assets (such as machinery and IP) without the other elements of a stand-alone business.
This will allow the Government to review deals that do not meet the EA02 merger control thresholds and also potentially, to review deals that would not qualify as a “relevant merger situation” for the purposes of the EA02.
(2) Introducing a mandatory notification regime for foreign direct investment in certain parts of the economy which are deemed critical for national security
The Government proposes that these sectors include civil nuclear, defence, energy, telecoms, transport, the manufacture of military and dual-use items and advanced technology, insofar as the transaction impacts specified “essential functions” in these sectors. A draft set of definitions for these “essential functions” is included in the annexes to the consultation, although the Government proposes that it be able to amend these definitions in the future via secondary legislation. Additionally, there may also be a case to extend to the Government and emergency services sectors and even to the acquisition of plots of land that are near to a national security sensitive site. These changes represent a significant departure from the UK’s existing “voluntary” merger control regime.
What is the rationale for the long term changes?
The Government is concerned that over reliance on voluntary notification will result in deals slipping through the net and is looking to “close loopholes” in the merger regime “to enable greater scrutiny of foreign investment in a changing market”. For example, the current EA02 regime does not catch the transfer of bare assets, or investment in new projects such as investment in power stations (until they begin operation).
How will these changes affect businesses looking to invest in the UK?
If these changes are implemented, the most significant impact will be the erosion of the voluntary notification regime, effectively taking the choice away from foreign investors as to whether or not they notify their deals, a choice which may not have to be made by domestic investors. The relative ease with which the Government could change the definition of “essential services” could lead to significant uncertainty, and appears to introduce effective political control over foreign direct investment.

Although the Government envisages the new rules applying to a small minority of transactions, we envisage that the proposals would result in an increased burden on businesses which will effectively have to conduct a competition, security and FDI analysis of their transactions irrespective of financial scale, and also face the greater risk of their deals being subject to more costly and lengthy review by multiple authorities (the increased burden on the CMA is not addressed in the report). It remains to be seen whether this would have a dampening effect on inbound investment.

It is right that the Government should be able to adapt its approach to investment activity in light of changing technologies and shifting threats to national security – and in a number of regards, the proposed reforms simply bringer the UK closer to the FDI regimes in place in other major economies. However, the Government must be careful not to send signals that the UK is closed to foreign investors. Nor must it be seen to be introducing protectionist measures by stealth.
We expect the Government to face strong pushback during the consultation process. The consultation leaves many questions open as to how the regime would work in practice, including how it will interact with the competition regime and the EU free movement rules (insofar as they continue to apply in the Brexit context). The precise shape and scope of these reforms will be informed by this consultation and we strongly recommend that businesses take advantage of the opportunity to have their say (as BLP intends to do).
How can I respond to the consultation?
You can respond online or contact BIS directly. Contact details are provided on the consultation page. 
The consultation on amending the EA02 closes on 14 November 2017. 
The consultation on longer-term reforms including the expanded version of the “call in” power and mandatory notification regime closes on 9 January 2018.

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15D. Yang & C.N. Curran: “Managing the Export Controls Minefield” (Part 2 of 3)

(Source: Government Contractors Navigator, 19 Oct 2017.)
* Authors: David Yang, Esq., DYang@BlankRome.com; and Christian N. Curran, Esq. Both of Blank Rome LLP, Wash DC.
[Editor’s Note: the first part of the series was included in the Daily Bugle of Monday, 23 October. The third part has not been published yet.]
As the recent Bright Lights USA case demonstrates, export violations continue to be met by aggressive enforcement actions by U.S. government authorities. In Bright Lights USA, the U.S. State Department’s Directorate of Defense Trade Controls (“DDTC”) charged and fined a small manufacturer $400,000 for violating the International Traffic in Arms Regulations (“ITAR”) by exporting, without obtaining a license, engineering designs and drawings abroad for minor vehicle spare parts (such as rubber seals, gaskets and grommets, etc.) in connection with bids sent to foreign manufacturers to produce the parts for Bright Lights to resell to its commercial and public sector customers. Although the parts were commercial items and many other similar parts in the category in which Bright’s Lights conducted business had transitioned off of the U.S. Munitions List, the company had failed to update its list for parts that were still controlled. The DDTC found that the violations had occurred in large part due to the company’s “significant training and compliance program deficiencies.”
The Bright Lights case demonstrates that even if the violations do not warrant heavier sanctions or criminal prosecution, the U.S. government will pursue less punitive remedies, such as substantial fines, regardless of intent or the sensitivity of the items that were improperly exported, and underscores the need for companies of all sizes that deal in controlled items, whether they are commercial, military, or quasi-military in nature, to have an ITAR compliance program in place across the organization to ensure that stakeholders are cognizant of the ITAR requirements, apprised of any changes in law or procedures, and have documented processes that employees are directed to follow to avoid inadvertent disclosures of controlled items.
In Part 1 of this series [published in the Daily Bugle of 23 October], we addressed the regulatory and definitional landscapes for controlled items, including the principal government enforcement agencies that patrol these often interrelated regulatory areas.  In Part 2, we go over five best practices that your company should consider and stack against your existing compliance programs to evaluate any risks, weaknesses, or gaps in your existing plan, or in the event your company does not currently have a compliance program in place, to consider promptly incorporating in developing and implementing a compliance program. A compliance program, tailored to the specific needs, business lines, and operational structure of your company is an essential risk mitigation tool that will substantially reduce, if not prevent, an inadvertent disclosure of controlled items and can be doubly useful as a mitigating factor when negotiating a resolution with government authorities in the event of an unauthorized disclosure.
(1) Find the Plan That Suits Your Company
Unfortunately, there is not a one-size-fits-all compliance plan for companies. Rather, each company whose operations involve controlled items will need, and best be served by, developing a plan that is tailored for their business needs and risk tolerance level. For example, a company whose business lines heavily involve the use, access, and distribution of controlled items will likely require a more comprehensive compliance program, including, as appropriate, specific procedures and even dedicated forms, than a company that only seldom works in this area. However, despite the lack of a generic blueprint, all companies whose businesses touch on items that are controlled or even potentially controlled by U.S. export restrictions, should have a written compliance program that, at a minimum, includes an executive management statement that the company takes its export obligations seriously and expects and empowers its employees to do so as well on a proactive basis to resolve issues before they become problems. Although only the first step, this fundamental corporate message (which is often included in a broader company code of conduct that the company will abide by regarding the other serious matters) is not only an example of good corporate governance, but it can help mitigate damage by showing the government that the company takes its obligations seriously in resolving an investigation or enforcement action. Along with other components in a documented compliance plan (discussed below), an executive statement from the highest levels within the organization can be used to rebut an assertion that the company acted recklessly and can serve as evidence that the company has robust and systematic controls in place, takes its compliance obligations seriously, and that any violation was the result of a rogue actor within the company. Such indicia can potentially mitigate and reduce the penalties assessed by the government or persuade the government to defer or not pursue more serious enforcement actions such as sanctions or criminal proceedings.
(2) Considerations for an Effective Compliance Plan
As noted, there is no one-size-fits-all compliance plan when it comes to export compliance. Nevertheless, there are some common practices that a company, regardless of size or industry, should consider in developing its compliance program. In addition to a broad executive statement, companies should implement a more detailed policy designed to implement the management message. Companies of all sizes should have a policy on export controls that defines, at a minimum, the relevant definitions and legal standards and requirements when dealing with controlled items and foreign nationals who may work at the company. For example, a policy should define the controlled items under the ITAR and related export regimes instituted by the U.S. government, identity a person or persons responsible for managing the company’s export matters, including whether an export is controlled, a license is required, or an exemption applies, and communicating with the relevant authorities regarding such proposed disclosures overseas or to foreign nationals in the United States.
Moreover, to the extent your company employs foreign nationals who have not been cleared to access controlled information, the policy should consider whether sufficient firewalls are in place to prevent unauthorized access to that information by those individuals. And, if a foreign national who was not initially hired in a role that contemplated the access or use of controlled information has changed to a role within the organization that now does, your policy should have a process to ensure that the individual receives the necessary licenses and training on the access and use of controlled items. Because fluid situations may arise, an effective policy will benefit from inviting input from and buy-in of multiple stakeholders across the organization, including legal, human resources, engineering, and other functional areas whose tasks directly or indirectly impact or relate to controlled items. An effective policy must reflect how your company actually operates so that clear lines of communication and responsibilities can be properly established, implemented, and monitored.
In addition, depending on your export volume and activity, your company may also benefit from having specific procedures and detailed forms or instructions for employees to use when dealing with controlled matters. In this regard, unlike a policy, which provides guidance at a higher level, a procedure will set forth the specific processes, channels of communication and responsibility, and persons designated for determining whether information or a product is subject to controls or restrictions and, if so, the steps needed to process these items with government regulators to ensure that the proper licenses or exemptions are in place for exports abroad. Your company’s procedures should not be limited to data, drawings, or physical products, but should also include, as noted, the screening, access, monitoring, and management of foreign nationals who work at the company.
Depending on the frequency with which your company deals with controlled exports, having detailed instructions in the way of procedures and forms can be a very useful protocol to help reduce confusion within the company about how controlled items are handled and by whom, including proactively identifying, managing. and minimizing errors in processing such items for export. Management should review their business lines and determine whether a greater degree of detail would benefit or burden the company.
(3) Routinely Review Your Compliance Program
As demonstrated by the Bright Lights case, changes to the U.S. Munitions List and related controlled item regimes change from time to time so it is important to periodically review and update your compliant roster to ensure that your program has the most up to date information. In Bright Lights USA, the company appeared to have been confused about whether the spare parts it was procuring from foreign manufacturers were controlled since many similar parts from that category of items had been removed from the U.S. Munitions List in 2013 as part of reform efforts to the export rules-a fact which Bright Lights would have discovered, and a costly mistake it could have avoided, had it maintained a current list of controlled items still governed under ITAR. Depending on the complexity and breadth of your operations, you may also want to dedicate an individual to monitor the regulatory landscape for proposed and actual changes and recent enforcement trends in order to stay abreast of the latest developments. After all, any compliance program is only as good as the information it relies upon.
Additionally, while any review should assess any legal changes that may impact your current processes, it is equally important that any organizational or structural changes to your company (such as acquisitions, corporate restructurings, and the like) also be assessed to determine what, if any, impact such changes may have on the company’s export compliance protocols and procedures. For example, the acquisition of a foreign entity as an operating subsidiary and affiliate may require a review of whether existing firewalls in place at the company’s U.S. operations are sufficient to preclude the unauthorized export of any controlled items to the subsidiary or whether licenses will be needed to allow necessary coordination and communications between the entities. Again, your review of your compliance program should involve the input from all affected stakeholders in order to address any gaps or oversights that may exist within your current system.
(4) Document, Document, Document
An obvious but surprisingly often overlooked corollary to an effective compliance system is making sure that it is put to work. After all, if your employees do not understand the issues and document their actions, such as maintaining updated control rosters, firewalls for foreign employees, and licenses or exemptions from regulators, the best system on paper will not prevent an export violation or be persuasive in your dealings with the government to resolve a violation in the manner that is most favorable to the company. Having an robust paper trail that demonstrates your company’s best efforts in interpreting and complying with export requirements based on your compliance procedures will go a long way in demonstrating to the government that you have a mature system not only on paper but in practice and that your actions are reasonable, or at least defensible, all of which can be useful mitigating factors when dealing with a violation alleged by the government.
In the same vein, if you are a prime contractor that incorporates components procured from subcontractors you should review their representations and certifications to ensure that the parts they supply comply with all export requirements. You may even want to negotiate an indemnity provision in your subcontracts to cover potential export violations. As a prime contractor, you bear responsibility for the conduct of your subcontractors so it is important not only to factor these considerations into your subcontracts, but to make sure that the proper contractual flow-down provisions are incorporated in your subcontracts so that you have the appropriate level of visibility into subcontractor operations and have the mechanisms to enforce compliance should that become necessary.
(5) Don’t Forget Your People
Finally, a compliance system is only as good as the people who implement it. Accordingly, in addition to periodically updating your compliance program, you should train, and provide refreshers to, the relevant people in your organization on the company’s compliance program, including any developments, trends, and best practices in implementing the system. Moreover, you should encourage employees to be proactive in identifying and reporting any potential issues before they become a problem. And, as with other aspects of your program, you should document and maintain all training records. Also, as with updates to your compliance program, there is no firm rule as to how often you should conduct employee trainings. Program updates, revisions, and employee trainings should be conducted as often as is appropriate to fit the needs of your organization’s particular business line, organizational structure, and risk tolerance, and should be made in consultation with key stakeholders from across your organization, including, potentially, outside counsel and consultants.

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16. D.M. Edelman: “As ‘Significant Conceptual Gaps’ Persist, NAFTA Talks Extended to 2018”

(Source: Export Compliance Matters, 23 Oct 2017.)  
* Author: Doreen M. Edelman, Esq., Baker Donelson LLP, 202-508-3460, dedelman@bakerdonelson.com
On October 17, 2017, trade representatives from the United States, Canada, and Mexico wrapped up the fourth round of negotiations concerning the North American Free-Trade Agreement (NAFTA) in Washington D.C. The latest round of negotiations were openly contentious, and a trilateral statement issued by the nations’ respective trade representatives noted that the “[n]ew proposals have created challenges” and that “significant conceptual gaps” exist amongst the current NAFTA parties. After four rounds and 22 days of negotiations, U.S. Trade Representative Robert Lighthizer stated that he was “[s]urprised and disappointed by the resistance to change from our negotiating partners.” In fact, at least five U.S. proposals have reportedly drawn pushback from our North American neighbors, leaving the parties far apart heading into the fifth round of negotiations scheduled for November in Mexico City.
The first point of contention is the demand for a U.S. content requirement in the auto industry. Currently under NAFTA, vehicles require at least 62.5 percent North American content in order to meet the threshold for duty-free movement between NAFTA member states. Media reports indicate that the U.S. is proposing to increase the North American content requirement to 85 percent, along with a United States content requirement increase to 50 percent. The ultimate goal of such a requirement is the reduction of the current $64 billion U.S. trade deficit with Mexico.
The second U.S. proposal met with backlash is a termination “sunset” clause that would formally end NAFTA after five years, unless all parties agreed to re-authorize and extend the agreement.

Third, the U.S. is seeking to amend the dispute-resolution framework currently outlined in NAFTA’s Chapter 11, 19 and 20, and wants to either eliminate the arbitration panels entirely, make them non-binding, or make them voluntary.
Fourth, NAFTA currently ensures that there is a roughly proportional amount of its parties’ government procurement budget available to other NAFTA member countries. While Canada and Mexico want even more access to U.S. government contracts, both Lighthizer and U.S. Commerce Secretary Wilbur Ross have proposed that the current process is inherently unfair, and now seek a system that limits U.S. procurement from companies in Canada and Mexico while granting greater access to U.S. companies seeking to sell goods and services to those governments.
Finally, the U.S. seeks to end the current “supply management” system for dairy, chicken, eggs, and turkey; a proposal the Canadian government has referred to as a non-starter. The current protections have been in place since the 1970’s and set prices that protect Canadian farmers from competition. However, the system’s detractors view it as government overreach that runs counter to free-market principles.
The U.S. is also pursuing updates that reflect the economic and technological changes that have affected international commerce in the 23 years since NAFTA’s entry into force, including proposed changes that were included in the 2016 Trans-Pacific Partnership regarding digital trade, telecommunications, and anticorruption.
It will be critical to stay up to date on the upcoming fifth and sixth rounds of NAFTA negotiations, which were initially scheduled to conclude by the end of this year but have now been extended into the first quarter of 2018. This signals the large divide currently separating the NAFTA parties, and ultimately does not bode well for the future of negotiations. As key trade representatives from all three nations express frustration at the dearth of unifying policy goals on display to date, the hardline rhetoric from the current U.S. administration will continue to render trade talks difficult.

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17. J. Suetomi: “Japan Implements Amendment of the Foreign Exchange and Foreign Trade Act”

Global Compliance News
, 18 Oct 2017.) 
* Author: Junko Suetomi, Esq., Baker McKenzie, Tokyo.
On October 1, 2017, an order from the Japanese Cabinet went into effect to implement amendments to Japan’s Foreign Exchange and Foreign Trade Act (“Act”), which implements Japanese import and export controls.  The Cabinet order was decided on July 11, 2017 and it also made relevant adjustments in the relevant regulations.  The cabinet order, the ministerial ordinance and the ministry’s notice, which are necessary to implement the amended Act, were promulgated on July 14, 2017. These regulations provide definition of terms in the amended Act as well as clerical and procedural measures for the implementation of the amended Act.
The main parts of the amendments to the Act are as follows:
(1) Strengthen penalties for violations of import / export control regulations.
  – The criminal fine will be increased from up to JPY 10 million (approximately USD 90,000) to JPY 30 million (approximately USD 270,000);
  – New heavy penalty on corporations up to JPY 1 billion (approximately $9 million); and
  – Violations of conditions attached to export licenses may be subject to criminal penalty instead of an administrative penalty.
(2) Strengthen administrative penalties for violations of import / export regulations.
  – Directors of entities that are prohibited from engaging in imports / exports are restricted from appointments as directors of corporations doing similar business;
  – The upper limit of the statute of limitation for import/export prohibitions will be increase from one year to three years; and
  – The scope of an on-site investigation for violations of export license etc. will be expanded to include related persons of exporters, e.g. customs brokers.
(3) Strengthen regulations regarding inbound direct investments into Japan.
  – Scope of a prior checking of unlisted stock transfers between foreign investors will be expanded, depending on the level of national security risk; and
  – Foreign investors making inbound investments without registration may be subject to executive orders, including orders to sell their holding stocks.

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18. S.W. Pelak, J.E. Prince & G. Green: “Second Circuit Upholds Sentence for Attempt to Export F-35 Technology to Iran”

(Source: Export Control Blog, 9 Oct 2017.)
* Authors: Steven W. Pelak, Esq., swpelak@hollandhart.com; Jason E. Prince, Esq., jeprince@hollandhart.com; and Gwen S. Green, Esq., gsgreen@hollandhart.com. All of Holland & Hart LLP.
On October 5, 2017, the Second Circuit upheld the over 8 years sentence of Mozaffar Khazaee who pleaded guilty in February 2015 to violating the Arms Export Control Act, 22 U.S.C. § 2778 (the “AECA”) by attempting to transfer to Iran proprietary, trade secret and export controlled material relating to the U.S. Air Force’s F-35 Joint Strike Fighter (JSF) Program. Mr. Khazaee allegedly stole the materials from U.S. defense contractors where he had formerly worked, and many of the documents were prominently labeled as “Export-Controlled” and stamped with “ITAR-controlled” warnings.
In November 2015, we published a blog post noting the surprise of many that the U.S. Government originally charged and indicted Mr. Khazaee solely with the federal offense of Interstate Transportation of Stolen Property (“ITSP”) rather than a violation of the AECA and the International Traffic in Arms Regulations (“ITAR”). Mr. Khazaee pleaded guilty on February 25, 2015 via a “Substitute Information” to one count of the unlawful export of technical data from the United States in violation of the AECA. On October 23, 2015, Mr. Khazaee was sentenced to 97 months in prison and ordered to pay $50,000 in fines for violating the AECA.
On appeal, Mr. Khazaee argued that he mistakenly thought he was pleading guilty to ITSP rather than to a violation of the AECA, and claimed he did not admit to willfully violating the AECA. Mr. Khazaee also alleged the U.S. District Court for the District of Connecticut improperly involved itself in the plea negotiations when the court (i) asked Mr. Khazaee directed questions designed to elicit admissions about his conduct, including willfulness, that went beyond those necessary to satisfy the court that Mr. Khazaee understood the nature of the charges and how his conduct rendered him guilty, and (ii) twice directed defense counsel to consult with Mr. Khazaee during the plea allocution.
Sitting for the Second Circuit, U.S. Circuit Judges John M. Walker and Raymond J. Lohier and U.S. District Judge John F. Keenan determined there was no evidence the District Court improperly participated in the plea discussions. The three-judge panel likewise rejected Mr. Khazaee’s claims that he thought he was pleading guilty to ITSP and that he did not admit to “willfully violating” the AECA. According to the Summary Order and Judgment, “Khazaee admitted that he exported documents containing ‘information [that] was illegal to disclose,’ . . . and that, based on his training on export restrictions, he understood that it was illegal to export the information to Iran.” The Second Circuit found this admission satisfied the AECA’s willfulness element and affirmed the lower court’s judgment.
The Khazaee prosecution highlights the challenges and difficulties confronted by law enforcement in light of export control reform and the deregulation of aspects of international commercial arms sales instituted initially in 2013. The prosecutors’ initial decision to charge Mr. Khazaee with the less serious ITSP charge rather than under the AECA reflect growing challenges and difficulties faced by federal investigators and prosecutors as they confront uncertainty and ambiguity surrounding whether the AECA/ITAR controls the export of military technical information relating to weapons systems. The determination whether such military technology is controlled for export by the AECA/ITAR, at least with regard to certain items which are not enumerated on the U.S. Munitions List (“USML”) and which are only controlled for export if “specially designed,” now falls exclusively to an engineer or weapons system designer and her subjective intent and contemporaneous documentation that the part, component, or software “was or is being developed with knowledge that it is or would be for use in or with both defense articles enumerated on the USML and also commodities not on the USML.” See ITAR Section 120.41(b)(4).
Placing the determination whether certain military technology should be controlled for export to foreign nations under the AECA/ITAR exclusively into the hands of private commercial actors creates great ambiguities and uncertainties for investigators seeking to answer promptly and accurately whether an individual unlawfully and willfully sought to export and sell F-35 technology to Iran, China, or another foreign nation. With regard to military technologies and technologies of value to the intelligence community that are controlled for export only on the basis of being “specially designed,” investigators and prosecutors can no longer rely upon the assessment of State Department and Defense Department experts for definitive licensing determinations. Although apparently paradoxical at first glance, federal investigators and prosecutors increasingly may steer clear of charges under the AECA/ITAR and instead rely upon less serious but more generally applicable federal offenses such as the charge of ITSP and wire fraud to protect national security interests in connection with their efforts to support and protect the superiority of United States military technology.

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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: 23 Oct 2017: 82 FR 48925-48931: Amendments to Existing Validated End-User Authorization in the People’s Republic of China: Lam Research Service Co., Ltd

: 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: 20 Oct 2017: Harmonized System Update 1707, containing 27,291 ABI records and 5,164 harmonized tariff records.

  – HTS codes for AES are available here.
  – HTS codes that are not valid for AES are available here.

  – 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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