17-1025 Wednesday “Daily Bugle”

17-1025 Wednesday “Daily Bugle”

Wednesday, 25 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. Commerce/BIS Announces ISTAC Meetings on 1-2 Nov in Wash DC
  2. Justice/ATF Revises Information Collection Concerning Records of Explosives Imports
  1. Ex/Im Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.)
  3. State/DDTC: (No new postings.)
  1. Euractiv: “MEPs Want Human Rights Safeguard on Tech Exports”
  2. Expeditors News: “Saudi Arabian Customs Will Not Require a Certificate of Origin with Indelible Marking of Origin”
  3. The Hill: “Bipartisan Lawmakers Push Tillerson to Relist North Korea as State Terror Sponsor”
  4. Reuters: “Draft Senate Iran Legislation Sets Tough New U.S. Terms for Deal”
  5. ST&R Trade Report: “New CBP Enforcement Initiative Targets Goods Made with Forced Labor”
  6. The Times of India: “U.S. Ready to Provide Best Tech for India’s Military Modernization: Tillerson”
  1. D.M. Edelman: “Global Sanctions 2017”
  2. J. Aitken, J. Davies & B. Embley: “UK Catches the Global Protectionist Wave – New Proposed Laws for Deals Covering Security, Technology, and Critical Sectors Providing Essential Functions”
  3. M. Volkov: “Five Essential Steps to Improve Corporate Board Oversight and Support of Compliance”
  4. W. Berg & S.J. Mobley: “European Union to Tighten Control Over Foreign Investment”
  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. Commerce/BIS Announces ISTAC Meetings on 1-2 Nov in Wash DC

(Source: Federal Register, 25 Oct 2017.) [Excerpts.]
82 FR 49314: Information Systems Technical Advisory Committee: Notice of Partially Closed Meeting–Revised
  The Information Systems Technical Advisory Committee (ISTAC) will meet on November 1 and 2, 2017, 9:00 a.m., in the Herbert C. Hoover Building, Room 3884, 14th Street between Constitution and Pennsylvania Avenues NW., Washington, DC. The Committee advises the Office of the Assistant Secretary for Export Administration on technical questions that affect the level of export controls applicable to information systems equipment and technology.  …
  The open session will be accessible via teleconference to 20 participants on a first come, first serve basis. To join the conference, submit inquiries to Ms. Yvette Springer at Yvette.Springer@bis.doc.gov, no later than October 25, 2017.
  A limited number of seats will be available for the public session. Reservations are not accepted. To the extent time permits, members of the public may present oral statements to the Committee. The public may submit written statements at any time before or after the meeting. However, to facilitate distribution of public presentation materials to Committee members, the Committee suggests that public presentation materials or comments be forwarded before the meeting to Ms. Springer.
  The Assistant Secretary for Administration, with the concurrence of the delegate of the General Counsel, formally determined on February 27, 2017 … that the portion of the meeting concerning trade secrets and commercial or financial information deemed privileged or confidential … and the portion of the meeting concerning matters the disclosure of which would be likely to frustrate significantly implementation of an agency action … shall be exempt from the provisions relating to public meetings… The remaining portions of the meeting will be open to the public.
  For more information, call Yvette Springer at (202) 482-2813.
Yvette Springer, Committee Liaison Officer.

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2. Justice/ATF Revises Information Collection Concerning Records of Explosives Imports

(Source: Federal Register, 25 Oct 2017.) [Excerpts.]
82 FR 49424: Agency Information Collection Activities; Proposed eCollection eComments Requested; Revision of a Currently Approved Collection; Records and Supporting Data: Importation, Receipt, Storage, and Disposition by Explosives Importers, Manufacturers, Dealers, and Users Licensed Under Title 18 U.S.C. Chapter 40 Explosives
* AGENCY: Bureau of Alcohol, Tobacco, Firearms and Explosives, Department of Justice.
* ACTION: 60-Day notice.
* SUMMARY: The Department of Justice (DOJ), Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), will submit the following information collection request to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995.
* DATES: Comments are encouraged and will be accepted for 60 days until December 26, 2017. …
* SUPPLEMENTARY INFORMATION: … Overview of This Information Collection
  – Type of Information Collection (check justification or form 83): Revision of a currently approved collection.
  – The Title of the Form/Collection: Records and Supporting Data: Importation, Receipt, Storage, and Disposition by Explosives Importers, Manufacturers, Dealers, and Users Licensed Under Title 18 U.S.C. Chapter 40 Explosives. …
  – Form number (if applicable): None.
  – Component: Bureau of Alcohol, Tobacco, Firearms and Explosives, U.S. Department of Justice. …
  – Abstract: The records show daily activities in the importation, manufacture, receipt, storage, and disposition of all explosive materials covered under 18 U.S.C. Chapter 40 Explosives. The records are used to show where and to whom explosive materials are sent, thereby ensuring that any diversions will be readily apparent, and if lost or stolen, ATF will be immediately notified. …
  Dated: October 19, 2017.
Melody Braswell, Department Clearance Officer for PRA, U.S. Department of Justice.

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

* DHS/CBP; NOTICES; Meetings: Commercial Customs Operations Advisory Committee [Publication Date: 26 Oct 2017.]
* Treasury/OFAC; NOTICES; Blocking or Unblocking of Persons and Properties [Publication Date: 26 Oct 2017.]

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State/DDTC Posts Name Change Announcement for Moog Dublin Ltd

State/DDTC, 23 Oct 2017.) [Excerpts.]
Effective immediately, Moog Dublin Ltd. has changed as follows: Nammo Ireland Ltd. Due to the volume of authorizations requiring amendments to reflect this change, the Deputy Assistant Secretary for Defense Trade Controls is exercising the authority under 22 CFR 126.3 to waive the requirement for amendments to change currently approved license authorizations. The amendment waiver does not apply to approved or pending agreements. … 

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Euractiv: “MEPs Want Human Rights Safeguard on Tech Exports”

(Source: Euractiv, 25 Oct 2017.) [Excerpts.]
MEPs steering a controversial export control bill through the European Parliament have agreed to apply stricter human rights safeguards for technologies that can be used for online surveillance.
The European Commission proposed an update to the dual use regulation last year, which controls when companies can export products that can be used either as weapons or for civil purposes. The regulation was agreed in 2009, and the updated proposal adds new restrictions for firms that sell technology products that can be used for surveillance to countries outside the bloc.
MEPs want to restrict companies from exporting those products that can be used for online surveillance if they may harm human rights.
That marks a change from the Commission’s original proposal, which suggested applying the human rights control to a broad range of dual use items, extending beyond technology products to equipment and other products that can be damaging. … 

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Expeditors News: “Saudi Arabian Customs Will Not Require a Certificate of Origin with Indelible Marking of Origin”

(Source: Expeditors News, 24 Oct 2017.)
On October 8, 2017, Saudi Arabian Customs issued a statement that importers would not need a Certificate of Origin when importing products that bear an indelible marking of origin.
The change is effective immediately, and is in place for all land, sea, and air checkpoints for Saudi Arabia and only for freight that bears a fixed, un-removable marking of origin. Saudi Customs stated that “non-claim of ‘Certificate of Origin’ concerns custom clearance only, and the partners of Custom business from other parties have the right to ask for ‘Certificate of Origin’ directly from the importer.”
The statement further indicates that certificates of origin are still required for claims of preferential treatment, otherwise, full duties must be paid.
The original Arabic text may be found here. An English translation may be found here

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The Hill: “Bipartisan Lawmakers Push Tillerson to Relist North Korea as State Terror Sponsor”

(Source: The Hill, 24 Oct 2017.)
A bipartisan group of House Foreign Affairs Committee members are urging the State Department to relist North Korea as a state sponsor of terrorism.
  “The world looks to the United States to lead in responding to the dangerous nuclear belligerence of Kim Jong-un,” the lawmakers wrote to Secretary of State Rex Tillerson in a letter released Tuesday. “Duly relisting his regime as a State Sponsor of Terrorism is an important component of this leadership, as it will further the case for our diplomatic and economic isolation campaign, and underscore the importance of cutting ties with North Korea.”
The letter was signed by 10 Republicans and six Democrats, including committee Chairman Ed Royce (R-Calif.) and ranking member Eliot Engel (D-N.Y.).

North Korea was taken off America’s list of state sponsors of terrorism in 2008 as the George W. Bush administration worked to salvage a nuclear deal, talks for which later broke down.
Several lawmakers this year have called for North Korea to be put back on the list as Pyongyang makes progress on its nuclear and missile programs. The death of Otto Warmbier, an American student held in North Korea for 17 months who died after being returned to the U.S. in a coma, has also galvanized support for relisting the country.
A sanctions bill passed in August included a provision requiring the State Department to tell Congress within 90 days whether North Korea meets the criteria for designation as a state sponsor of terrorism.
In their letter, the lawmakers said they looked forward to Tillerson’s “timely determination” on the issue.
  “Since North Korea was removed from the state sponsors of terrorism list in 2008, the Kim regime has repeatedly perpetrated or supported heinous acts, the most recent example of which was the illegitimate detention, murderous mistreatment, and tragic death of Otto Warmbier,” the Foreign Affairs members wrote to Tillerson.
The lawmakers also highlighted the assassination of Kim Jong Nam, the North Korean leader’s half brother, with VX nerve agent in Malaysia.
  “As you know, the willful aiding or abetting of the use or acquisition of chemical weapons is an explicit component of international terrorism under the Arms Export Control Act, one of the authorities authorizing you to designate state sponsors of terrorism,” they wrote.
Warmbier’s death and Kim Jong Nam’s assassination are not isolated incidents, they added.
  “For years, North Korea has regularly kidnapped foreign citizens in violation of international law,” they wrote. “Since 2008, North Korea has conducted cyber-attacks and cyber-blackmail against civilian targets, attempted assassinations across international borders, and sold arms to terrorist groups.”

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Reuters: “Draft Senate Iran Legislation Sets Tough New U.S. Terms for Deal”

(Source: Reuters, 25 Oct 2017.)
Draft legislation responding to U.S. President Donald Trump’s refusal to certify the Iran nuclear deal would set tough new terms for the pact, including restoring sanctions if Iran tests a ballistic missile able to carry a warhead or bars nuclear inspectors from any sites.
Critics of the legislation drafted by Republican Senators Bob Corker and Tom Cotton, with support from the Trump administration, said it could put the United States in violation of the international agreement if it were enacted.
The draft, seen by Reuters on Tuesday, was in the works on Oct. 13 when Trump announced he would not formally certify that Tehran was complying with the international nuclear pact, and called on Congress to write legislation to toughen it.
Since then, Corker has met with Senate Democratic colleagues, at least some of whom would have to back the legislation for it to pass. They have insisted that Washington work with European allies who co-signed the deal before making any changes.
Britain, France, Germany and the European Union, which also signed the nuclear accord – as did Russia and China – warned that Trump’s plan could cause a split with Washington and risked U.S. credibility abroad.
Corker, chairman of the Senate Foreign Relations Committee, told Reuters last week that the Trump administration must work closely with European allies as it develops its new Iran policy.
The draft legislation, a proposed amendment to the Iran Nuclear Agreement Review Act passed in 2015, broadens a required administration assessment on whether Iran is complying with the pact to add factors related to issues from trade to whether Iran is using commercial aircraft licensed by the United States for non-civil aviation purposes.
As previously reported, it would instantly reimpose, or “snap back” sanctions lifted under the agreement if Iran were deemed capable of developing a nuclear weapon within a year.
The Iran issue has been complicated by Trump’s recent attacks on Corker, in which he blamed him for the nuclear deal forged under former Democratic President Barack Obama. The pact, which world leaders have urged Trump not to derail, was opposed by every Republican in Congress including Corker.
Corker has lashed back at Trump by saying he has failed to grow into the job as president and blaming him for breaking down important international relationships.
A spokeswoman for Corker did not immediately respond to a request for comment on how the dispute with the president might affect the Iran legislation.

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ST&R Trade Report: “New CBP Enforcement Initiative Targets Goods Made with Forced Labor”

U.S. Customs and Border Protection has launched an initiative to enforce laws broadening the existing ban on imports of goods made with forced labor. This effort is currently focused on gathering information from importers, but CBP retains the authority to detain shipments suspected of noncompliance. In addition, importers may be at risk for monetary and criminal penalties.
19 USC 1307 prohibits the importation of goods mined, produced, or manufactured, wholly or in part, in any foreign country by forced labor, including convict labor, forced child labor, and indentured labor. Effective March 1, 2016, the Trade Facilitation and Trade Enforcement Act closed a loophole in this law that had allowed imports of certain forced labor-produced goods if there was insufficient domestic production to meet consumptive demands. When information reasonably indicates that goods within the purview of 19 USC 1307 are being imported, CBP may issue withhold release orders requiring detention of those goods at all U.S. ports of entry (and has done so with respect to a handful of goods from China).
In a significant but little-noticed change, the Countering America’s Adversaries through Sanctions Act (H.R. 3364) created a presumption that “significant goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part by the labor of North Korean nationals or citizens” are forced labor goods in violation of 19 USC 1307 and prohibited from entry into the U.S. This provision could have a significant impact on imports from China, Russia, Mexico, Poland, and other countries in which North Koreans have been known to work, including in the apparel, seafood, and other industries.
This presumption may be rebutted for specific goods that CBP finds, by clear and convincing evidence, were not produced with convict, forced, or indentured labor under penal sanctions. However, whereas 19 USC 1307 requires the U.S. government to prove that goods are made with forced labor, CAATSA places the burden on importers to prove that they are not; i.e., that North Koreans were not involved in the production of their goods or, if they were, that they were not working as forced laborers.
CBP has begun sending importers requests for information about their efforts to ensure their supply chains are free from forced labor, including labor performed by North Koreans. Among other things, CBP is asking importers to provide information on their due diligence programs, contact information for manufacturers at all levels of their supply chains, and copies of any forced labor audits, including findings and recommendations.
According to ST&R member Marilyn-Joy Cerny, a U.S. Immigration and Customs Enforcement official said recently that importers may well need to change their approach to forced labor compliance because typical corporate social responsibility and supply chain due diligence processes will likely be insufficient to meet obligations under CAATSA.

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The Times of India: “U.S. Ready to Provide Best Tech for India’s Military Modernization: Tillerson”

(Source: The Times of India, 25 Oct 2017.) [Excerpts.]
The U.S. on Wednesday backed India’s emergence as a “leading power” and promised to provide the “best technology” for its military modernization.
  “U.S. backs India’s emergence as a leading power and will continue to help Indian capabilities in providing security for the region. We are ready to provide the best technology for India’s military modernization,” said U.S. secretary of state Rex Tillerson in a joint statement with external affairs minister Sushma Swaraj.
Tillerson added that he was “looking forward to discussing deals for F16 and F18 fighter jets with India.”
Both countries also decisively condemned terrorism and those who provide “safe havens” to terrorists.
  “The U.S. and India agree that Pakistan must work to immediately get rid of terror safe havens operating there,” said Swaraj.
Tillerson, who is in India as part of his five-nation visit, echoed Swaraj’s views and said that “terror safe havens will not be tolerated.” … 

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12D.M. Edelman: “Global Sanctions 2017”

(Source: Global Trade Magazine, 20 Oct 2017.) [Excerpts.]
* Author: Doreen M. Edelman, Esq., Baker Donelson LLP, 202-508-3460, dedelman@bakerdonelson.com
Policy Shift Stalls as Businesses Await OFAC Implementation.
President Donald Trump’s issuance of a National Security Presidential Memorandum on Strengthening the Policy of the United States Toward Cuba on June 16 signaled a sweeping shift from the Obama-era Cuba policy that concentrated on ending the US’s longstanding sanctions program on Cuba and the Castro regime. That day, in a speech given in Miami, the president emphasized that the latest update in policy is motivated by a desire to restrict the flow of US currency to the military, security and intelligence apparatuses of the Castro regime.
While the Cuba memo sets out a basic framework of change for agencies such as the Department of the Treasury’s Office of Foreign Assets Control (OFAC) and the Department of Commerce’s Bureau of Industry and Security (BIS), the memorandum did not have the force of an executive order. OFAC issued a press release designed to answer frequently asked questions about the modified sanctions in conjunction with the president’s announcement of a revised Cuba policy, and then later released an updated Cuba FAQs on July 25 to clarify the extent of those changes. According to the update, OFAC planned to issue the regulatory amendments in the “upcoming months” and that the announced changes will not take effect until these regulations are issued. The State Department also plans to publish a list of entities with which direct transactions will be prohibited. …
[Editor’s Note: due to copyright restrictions, we are not authorized to include the entire article. To read the remaining sections, click on the source link below the item title.]

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13J. Aitken, J. Davies & B. Embley: “UK Catches the Global Protectionist Wave – New Proposed Laws for Deals Covering Security, Technology, and Critical Sectors Providing Essential Functions”

(Source: Freshfields Bruckhaus Deringer LLP, 18 Oct 2017.)
Authors: James Aitken, Esq., james.aitken@freshfields.com; John Davies, Esq., john.davies@freshfields.com; and Bruce Embley, Esq., bruce.embley@freshfields.com. All of Freshfields Bruckhaus Deringer LLP
In the latest in a series of legislative steps taken globally that have been designed to allow governments to exercise tighter rules over foreign investments, the UK Government has published proposals to enable it to intervene in a broader range of foreign investments that may raise national security concerns:
  – Military and dual use products and advanced technology: investments in these sectors will no longer need to meet UK merger control thresholds to fall under review. The UK Government will be able to intervene if the target business has UK turnover of over £1 million (instead of £70 million) or a share of supply of 25% or more (with no need for an increase). The UK Government intends to make these changes as a matter of urgency by way of secondary legislation; and
  – Broader powers to review deals on national security grounds: two options are being considered for long-term reform that will require primary legislation: first a ‘call-in’ power to allow the UK Government to review a broader range of transactions within a voluntary notification regime and, second, a mandatory notification regime for foreign investments in certain key sectors, businesses or assets. These powers will catch a much wider class of transactions in key sectors than those caught by the existing UK merger control regime, including new projects and asset deals.
Faced with the possibility of up to 100 transactions per year being scrutinised under the new plans, early preparation and consideration of potential issues will be crucial for many prospective investors into the UK.
The proposals come as no surprise to many. They were announced in the Queen’s speech in June 2017, and follow several statements by Theresa May and her Government on the importance of scrutinising foreign investments in strategic sectors. They are, however, notable given the UK’s long track record of open investment and its comparative lack of political intervention in deals to date. To some, they look more like a blast from the past, when the UK reviewed mergers under the broad public interest test that was replaced by a competition-based assessment for the majority of deals in 2003.
Nevertheless, the UK is not alone in tightening up its approach to the screening of foreign direct investment. These proposals follow the unveiling last month of the European Commission’s draft proposed regulation on foreign direct investments, while Germany has recently updated its own rules in this area. On a similar note, the Trump Administration last month blocked Chinese-backed private equity fund Canyon Bridge’s acquisition of Lattice Semiconductor, following a unanimous vote from the CFIUS committee, amid calls from some quarters for a broadening of CFIUS’s role.
The UK Government has stated that it wishes to provide as much clarity as possible about national security assessments going forward. For this reason it has established a cross-government forum to bring together relevant UK Government departments and agencies. Businesses and investors who wish to engage with the UK Government about transactions that may have a national security dimension are therefore invited to contact the UK Government department that has responsibility for their sector. In addition, a public consultation period is now open on the specific proposals. If you would like to discuss the proposals with us, please get in touch.
The Proposed New Regime
The UK Government has proposed a set of measures aimed at giving itself a broadened scope to intervene in foreign investments and acquisitions that raise national security concerns. The proposed measures would significantly expand the UK Government’s existing powers in this area.
The UK merger control regime currently enables the Secretary of State to review deals on the basis of specified public interest grounds: national security, plurality and quality of the media and stability of the UK financial system. However, (with some limited exceptions) intervention is only permitted if a transaction falls above certain turnover and share of supply thresholds.
The UK Government’s stated policy objective is to ensure that it has a clear and consistent means available to take necessary and proportionate steps to protect national security where required, both in the short and long term.
Short-Term Reforms: Military and Dual-Use and Advanced Technology
The UK Government believes that there are certain “gaps” in existing legislation that require immediate action in order to protect national security. It is proposing to amend the existing turnover threshold and share of supply tests under the UK Enterprise Act 2002 to allow it to examine and potentially intervene on a national security basis in much smaller transactions in two specific sectors: (i) the dual-use and military sector; and (ii) parts of the advanced technology sector. For these two sectors only, the proposal is to reduce the turnover threshold so that certain small and medium sized businesses are brought into scope for review (i.e. those with a UK turnover of greater than £1 million) and to amend the share of supply test to remove the requirement for the merger to result in an increase in share of supply (the test is met if the target business has an existing share of supply of 25% or more of the relevant goods or services). A knock on effect would be that mergers in these two sectors that meet the new thresholds would also be subject to competition review by the UK’s competition authority.
The dual-use and military sectors cover the design and production of military items and “dual-use” items which could have both military and civilian uses. To provide clarity as to the basis for which businesses in this sector would be subject to the amended thresholds for intervention, the UK Government intends to rely on the Strategic Export Control Lists, proposing that enterprises that design or manufacture items or hold related software and technology specified on the UK Military List, UK Dual-Use List, UK Radioactive Source List and EU Dual-Use Lists would be in scope.
Parts of the advanced technology sector are included on the basis that mergers involving certain categories of advanced technology, which are often developed by small businesses, have the potential to give hostile actors knowledge or expertise that could be used to undermine national security. The key areas set out in the proposal for the amended thresholds to apply are:
  – Multi-purpose computing hardware – enterprises that: (i) own or create intellectual property rights in the functional capability of multi-purpose computing hardware; or (ii) design, maintain or support the secure provisioning or management of roots of trust of multi-purpose computing hardware; and
  – Quantum-based technology – enterprises that research, develop, design or manufacture goods for use in, or supply services based on, quantum computing or quantum communications technologies. This would include the creation of relevant intellectual property or components.
In relation to both sectors, the UK Government is seeking feedback on, amongst other items, the appropriateness of the proposed definitions concerning which types of business should fall into the scope of the amended thresholds for intervention.
In terms of timing, the UK Government plans to put this amendment into effect “as a matter of urgency”, and the relatively short consultation period (all feedback must be made by 14 November 2017) seems to confirm this intention.
Long-Term Reforms: an Expanded ‘Call In’ Power or Mandatory Notification
These short terms reforms will likely eventually be subsumed by the UK Government’s proposals for more far-reaching reforms that it intends to pursue in order to protect national security while maintaining an open approach to trade and investment. Reforms currently under consideration include a combination – or all – of the following proposals:
  (1) An expanded version of the ‘call in’ power within the UK’s existing voluntary merger control regime allowing the UK Government to scrutinise a broader range of transactions for national security reasons, including new projects and bare asset sales. This power appears to cover both foreign and domestic investors.The UK Government envisages using this “call-in” power when more than 25% of a company’s shares or voting rights are acquired (i.e. in line with the current approach under UK merger control rules) but also when a transaction gives (directly or indirectly) significant influence or control over that company or its assets or businesses in the UK. This “second limb” therefore encompasses a much broader range of transactions than those currently covered by UK merger control rules. In line with its existing “call-in” powers, the UK Government is indicating that there would be a similar three month “call-in window” for it to intervene under the new regime.
  (2) A new mandatory notification regime for foreign investment into the provision of a focused set of “essential functions” in key parts of the economy which would likely include, as a minimum, the civil nuclear, defence, energy, telecommunications and transport sectors, and probably also the manufacture of military and dual-use items, advanced technology, government and emergency services sectors. The UK Government states that it intends the mandatory regime to only apply to parts of these sectors, i.e. to an identified set of “essential functions.” Annex C of the document summarising the proposals sets out draft definitions of the essential functions within each key sector. While only parts of sectors are identified, they are still in some instances extremely broad, for example mandatory notification would appear to be required for all telecommunications providers with more than one million customers and retail energy suppliers with a “significant customer base”. Mandatory notification could moreover potentially be required for new projects that could reasonably be expected in future to provide essential functions as well as certain specifically identified businesses or assets even though the sector in which they operate is not in scope, for example if they supply critical services or goods to national infrastructure firms. The UK Government is also seeking views on the merits of including particular plots of land in the UK into the scope of review, where that land is in proximity to a national security-sensitive site. Given the breadth of sectors potentially caught by the mandatory regime, investors may well try to structure deals in two phases to try to carve out essential functions that would be subject to mandatory review. Whether such structuring would be possible is not yet clear. The UK Government refers to the mandatory regime addressing parts of sectors where “foreign ownership or control” could pose national security risks. At this stage, no definition is provided as to which levels of “foreign ownership” would trigger a mandatory notification, but it could well be that non-controlling interests are covered. Unlike the voluntary “call-in” regime, this system does appear to be limited to foreign investors.
How the Reforms are Expected to Operate
The UK Government has emphasized its wish to retain the independence of the UK’s Competition and Markets Authority and a clear separation between competition and national security related assessments, and that it does not intend for the proposed reforms to affect the way in which other public interest assessments (i.e. on the grounds of financial stability or media plurality) operate. However, what is not clear is how such a regime will operate in practice, for example the duration of reviews and what form any review body would take. Interestingly, no extra budget appears to have been allocated to assist with the review of what could be up to 100 transactions per year.
In terms of enforcement, as under the existing regime, the UK Government foresees itself as being able to approve, impose conditions on or – in extreme cases – prevent or unwind a transaction. This would be subject to a judicial review mechanism, which brings the proposals more in line with those unveiled recently by the European Commission than for example the US CFIUS regime, and may provide investors with some comfort that purely political reviews would face some degree of checks and balances. Given the seemingly broad reach of the mandatory regime, investors in a wide range of sectors, potentially acquiring interests equating to less than control, will need to be acutely aware of their notification obligations as sanctions for non-compliance include criminal offences, financials penalties and/or director disqualification.
The UK Remains Open for Business
The introduction of a mandatory notification regime would be a hugely significant step for the UK, which currently operates a voluntary merger control regime and has long held itself out as a favored destination for foreign investment and champion of free trade. This apparent change in direction is particularly notable in some of the mooted long-term proposals, including the wide range of sectors potentially covered by the mandatory notification regime and the possibility of the UK Government having the power to include certain individual businesses or assets in the scope of the mandatory regime even though the wider sector in which they operate is not in scope (i.e. no essential function would need to be identified). If drafted broadly, such a provision could in theory allow the UK Government to review and even block any transaction that it wishes. While the UK Government emphasizes the need to ensure that such a provision still provides clarity to businesses, it is difficult to see how this could be squared with the names of businesses or assets on this list only being published upon the exercise of the power, and in some cases not at all.
Nevertheless, the Business and Energy Secretary Greg Clark stated upon the release of the proposals that “no part of the economy is off-limits to foreign investment and the UK will continue to be a vociferous advocate for free trade and a magnet for global talent”. Whilst the sentiment is clearly consistent with the UK’s over-arching message as a champion of foreign investment, the interpretation and implementation of this new regime (like all laws) has the ability to evolve over time to reflect the then current political mood of the nation.
Next Steps
To allow interested parties to put forward their views on aspects of these proposals, a public consultation is now open:
  – comments on the lower threshold for military and dual use products and advanced technology must be made by 14 November 2017; and
  – comments on the broader powers must be made by 9 January 2018.

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14. M. Volkov: “Five Essential Steps to Improve Corporate Board Oversight and Support of Compliance”

(Source: Volkov Law Group Blog, 23 Oct 2017. Reprinted by permission.)
* Author: Michael Volkov, Esq., Volkov Law Group, mvolkov@volkovlaw.com, 240-505-1992.
Corporate boards need to devote more energy to oversight and improvement of corporate culture and compliance. Over the last ten years, we have witnessed corporate scandals and misconduct that could have been prevented or, at least, mitigated by a corporate board’s proper oversight, and management of a company’s culture and compliance program. All too often, corporate boards fail to identify potential red flags of serious misconduct issues, or ignore obvious risks that result in corporate disasters, reputational harm, and significant enforcement actions, coupled with collateral litigation.
In this era of accountability, and increasing demand by corporate stakeholders, including activist owners and shareholders, corporate boards have to step up and bring about a new and improved level of performance.
There are five steps that corporate boards have to embrace and address:
(1) Acknowledgement of a new responsibility to oversee, monitor, and manage a company’s culture and its compliance program. Corporate culture is a valuable intangible asset that promotes productivity, improves financial performance and protects against employee misconduct. To promote and protect this asset, board members have to participate in the management and oversight of this valuable asset. No longer can corporate board members sit back and exercise board responsibilities as a passive manager, dealing directly with the CEO and senior management. Corporate boards have to embrace a new active agenda.
(2) Attendance at regular training to exercise additional responsibilities for managing a company’s culture. Corporate board members have to increase training on corporate culture and compliance issues. The company’s chief ethics and/or compliance officers, respectively, have to coordinate on these efforts and raise the board’s awareness and ability to exercise meaningful oversight and management.
(3) Increased coordination and meetings with CEO, senior management, chief ethics and/or compliance officer(s), respectively, to adopt important strategies and impose robust reporting requirements to ensure that the board is fully engaged on issues relating to culture and compliance.
(4) Annual ethics and compliance oversight plans developed at the board level to ensure that the board’s information and review needs are being met. In other words, the board should develop its own requirements to ensure that there is a meeting of the minds with ethics and compliance staff as to annual expectations for ethics and compliance programs and strategies.
(5) Annual board evaluation of its performance in conducting oversight and monitoring of company’s ethics and compliance program. The board’s evaluation should be conducted by an independent third party and should be exclusively shared with the board members for development of enhancements to improve overall board functioning relating to ethics and compliance program oversight and performance.

Corporate culture is a valuable asset that must be maintained and promoted by the company’s board. The board must be accountable for managing and overseeing this asset as an important strategy to prevent possible misconduct, legal enforcement, and reputational damage.
Unfortunately, corporate boards are very slow to change. Historically, corporate boards resist change, despite shareholder demands and even activist investors. This narrow mindset has to be abandoned.  Corporate change requires leadership from the board, demanding attention to corporate culture as an important intangible asset. Corporate accountability is an important principle that begins in the boardroom.

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15. W. Berg & S.J. Mobley: “European Union to Tighten Control Over Foreign Investment”

Baker McKenzie, 25 Oct 2017.)
* Authors: Werner Berg, Esq.,
werner.berg@bakermckenzie.com; and Samantha J. Mobley, Esq.,
sam.mobley@bakermckenzie.com. Both of Baker McKenzie, Brussels and London, respectively.
Key Points
The European Union has proposed a new EU framework for screening foreign investment that raises security or public order concerns. The proposal does not go as far as obliging member states to adopt their own national screening systems, but it confirms that member states without such regimes must comply with the proposed EU requirements in order to ensure greater coordination and transparency. The European Commission will not have the power to block foreign investments.
In the State of the Union 2017
 Letter of Intent, President Juncker indicated that the commission intends to launch, and possibly complete, the proposed framework by the end of 2018. Several member states (including the Netherlands, Portugal and Spain) have opposed the proposed initiative and at this stage it remains unclear whether the proposal will be approved by the European Council.
Under the draft regulation, EU governments will be able to prohibit Chinese and other foreign investments that fall short of acquisitions of control, as the screening will apply to investments of any kind by a foreign investor aimed at creating or maintaining lasting and direct links between the foreign investor and the target, including investments which enable effective participation in the management of a business.
The implications are far-reaching, as security and public order concerns are widely interpreted, and cover the following:
  – effects on critical infrastructure (eg, energy, transport, communications, data storage, space, financial infrastructure and sensitive facilities);
  – effects on critical technologies (eg, artificial intelligence, robotics, semiconductors, dual use, cybersecurity, space and nuclear technology);
  – effects on the security of supply of critical inputs (eg, mining outputs); and
  – effects on access to or the ability to control sensitive information.
This is a non-exhaustive list, leaving it open to member states to broaden the scope of factors that they consider might affect security and public order.
EU governments will be required to share information on foreign investments with the commission and each other, and must state which investments they plan to screen. Individual member states will be able to raise concerns about foreign investment taking place in another member state. The commission will also have the power to give a non-binding opinion on such investments.
The commission will be able to carry out its own review of foreign investment that affects a project of EU interest. These are projects involving substantial EU funding or relating to critical infrastructure, critical technology or critical inputs. The draft regulation includes:
  – the Galileo and EGNOS satellite programmes;
  – the Copernicus earth observation programme;
  – research and development programmes under Horizon 2020 (including key enabling technologies such as artificial intelligence, robotics, semiconductors and cybersecurity); and
  – transport, energy and telecoms infrastructure under the EU Trans-European Network programmes.
Such vetting is unprecedented at EU level, in an area in which the commission has no previous experience and will need to build up relevant expertise – this will prove challenging. For example, the US foreign investment screening procedure -the Committee on Foreign Investment in the United States – requires intelligence reports and vulnerability assessments for each foreign investment screening case. The intelligence reports (focused on the buyer) are prepared by a dedicated office working for the director of national intelligence and drawing on the intelligence community within the US government. The vulnerability assessments are prepared by the relevant department with regulatory or policy equities. It is not known whether the European Commission would need to prepare similar reports and, if so, whether it would seek to obtain the necessary data from national intelligence agencies of EU countries.
Further, EU legislation would require the possibility for judicial review of commission decisions relating to foreign investments. If the commission is going to rely on information from national intelligence agencies, judicial review may not be viable, as such intelligence would not be disclosed in the courts.
Exceptionally, the proposed regulation is presented without an accompanying impact assessment in view of the rapidly changing economic reality and the growing concerns of EU citizens and countries. Instead, there will be an in-depth analysis of foreign investment into the European Union which will feed into the decision-making process.
New Screening Process
There are four main strands to the proposed regulation:
  – Where an EU country already has a national system of review of foreign investment which could raise security concerns, it will need to notify the commission of its review mechanisms and any amendments. It must provide annual reports on the application of its foreign investment reviews, including information on the sector concerned, origin and value of the investment, as well as information on review decisions either prohibiting an investment or subjecting such investment to conditions. Any review mechanisms must meet basic procedural requirements, such as the possibility of judicial review of decisions, non-discrimination between third countries and transparency.
  – Where foreign investment is being reviewed by an EU country for security or public order purposes, it must give the commission and other EU countries information regarding that investment and allow them to offer their views. This will have timing implications – the draft regulation suggests that member states will have 25 working days to provide comments, and the commission will have an additional 25 working days to decide whether to issue an EU opinion to the country in which the investment is taking place.
  – In the case of foreign investment which could affect a project of EU interest, the commission can conduct a security review of the investment and give an opinion to the relevant EU country. The European Union’s opinion will be non-binding, but the EU country concerned must “take utmost account of the Commission’s opinion and provide an explanation to the Commission in case its opinion is not followed”. This is the case even if the country in question has no national foreign investment review system. If it chooses not to follow EU opinion, it must explain its reasons to the commission.
  – All EU countries must report to the commission on foreign investment taking place in their country, irrespective of whether they have national review systems. Relevant information includes ownership structure of the foreign investor, financing of the investment and information about subsidies granted by third countries.
Other jurisdictions have well-established foreign investment review regimes (eg, the United States, Canada and Australia). The vetting of foreign direct investment has been subject to debate across Europe in recent years. Many EU countries already have their own national regimes to screen deals that raise national security concerns. The debate has centred around reciprocal investment conditions – in 2017 Germany, France and Italy called for EU-level intervention and proposed that foreign investors should face restrictions in Europe if their home country provides for similar restrictions on foreign investment (eg, a requirement to establish joint ventures with a local partner).
While the draft EU regulation does not go as far as expressly making reciprocity a factor in deciding whether a foreign investment raises security concerns, the recitals and accompanying communication state the need for vigorous and effective policies to open up other economies and to ensure that everyone plays by the same rules. Further, in deciding whether foreign investment raises security concerns, the commission and EU countries may take into account whether the foreign investor is controlled by a government of a third country, including through significant funding. France, Germany and Italy have issued a joint statement welcoming the European Union’s proposals as an important step towards a level playing field in Europe.
This latest move by the European Union is in line with steps taken by European governments to tighten control over foreign acquisitions of critical national assets. For example, in the wake of a series of acquisitions of key technology and assets by Chinese investors, Germany recently expanded its mandatory filing requirements for foreign acquisitions relating to the defence sector, and introduced notification requirements for foreign acquisitions relating to critical infrastructure. In addition, the government continues to be entitled to intervene in transactions in any other industry sector if the transaction constitutes a threat to the public order or security of Germany.
In France, President Macron has been actively lobbying the European Union to introduce a regime for screening foreign investment in strategic sectors in Europe. France already has national legislation in place to vet these deals in such sectors as telecoms and energy. The UK government has also recently stated that it is planning to increase scrutiny of foreign investment in the United Kingdom which affects national security. The United Kingdom already has the ability under its competition law regime to intervene in deals that raise public interest issues (not limited to foreign investors), but the proposals appear to go wider as they may capture deals irrespective of whether they fall within the scope of the existing competition regime. At present, deals that do not meet the UK merger control jurisdictional criteria are subject to review only if they fall within a limited category of special public interest mergers.
The proposal will not affect the commission’s ‘one-stop shop’ under the EU Merger Regulation. If a foreign investment is notifiable to the commission under the regulation, any decision by a member state to intervene on the grounds of protecting its legitimate interests must be approved by the commission, unless the legitimate interest relates to public security, plurality of the media or prudential rules. This position will not change, though in practice member states have rarely invoked this procedure.
The new framework will apply to EU member states only. According to the United Kingdom’s EU Withdrawal Bill as presently drafted, all existing EU regulations will be retained in UK law on the day that the United Kingdom leaves the European Union, which means that this new regulation, provided that it has entered into force pre-Brexit, will form part of UK law post-Brexit. It is uncertain how the regulation would be applied in practice post-Brexit when the United Kingdom is no longer a member of the European Union. It may be that the United Kingdom would in due course seek to repeal the regulation from domestic law. Post-Brexit, UK investors would be ‘foreign investors’ for the purpose of the new regulation, unless otherwise agreed between the European Union and United Kingdom as part of their new trade relationship. This means that post-Brexit, for example, direct investments by a UK entity into an EU country could be subject to review on security or public order grounds by that country or the commission under the new regulation.
While protection of national interests is a legitimate objective, this must be properly balanced against encouraging foreign investment, which is ultimately an opportunity for many EU countries and necessary to increase economic growth and productivity. The proliferation of foreign investment rules in EU member states creates an additional administrative burden for investors and the proposed EU rules may further incentivise member state governments to expand their national regimes. Businesses that are considering investing in the European Union may increasingly need to assess whether their investments raise security or public order concerns and, if so, carefully consider their notification strategies in the relevant EU countries.

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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.

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