17-1026 Thursday “Daily Bugle”

17-1026 Thursday “Daily Bugle”

Thursday, 26 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: COAC to Meet on 14 Nov in Wash DC
  1. Ex/Im Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.)
  3. DoD/DSS Announces Knowledge Center PCL Inquiries Closed, 27 Oct
  4. State/DDTC Announces DTAS Information Systems Unavailable Tonight
  5. EU Amends Restrictive Measures Concerning Sudan
  1. Expeditors News: “House of Representatives Passes C-TPAT Reauthorization Act”
  2. Reuters: “U.S. Sanctions North Koreans over Forced Labor, Other Alleged Abuses”
  3. ST&R Trade Report: “GSP Compliance is Focus of New USTR Enforcement Effort”
  1. The Export Compliance Journal: “BIS EAR Rule Changes to Several ECCNs: Update on Recent Changes to the CCL”
  2. J. Killick, J. MacLennan & R. Burke: “EU Expands Sanctions against North Korea, as Well as Russia and Libya”
  3. L. Rothberg, G. Cinelli & K. Nunnenkamp “Can the U.S. Government Criminally Prosecute Non-U.S. Persons for Activities That Constitute Secondary Iranian Sanctions Violations with No Alleged Nexus to the U.S.?: Pending Federal Court Criminal Case Poses Provocative Argument”
  4. M. Volkov Releases New Podcast: “The Perils of Compliance with the Russia Sanctions Program”
  5. T. Are & J.A. Joiner: “Avoiding the Risk of Forced Labor Abuses Through Supply Chain Due Diligence”
  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: COAC to Meet on 14 Nov in Wash DC

(Source: Federal Register) [Excerpts.]
82 FR 49642-49643: Commercial Customs Operations Advisory Committee (COAC)
* AGENCY: U.S. Customs and Border Protection (CBP), Department of Homeland Security (DHS).
* ACTION: Committee management; Notice of Federal Advisory Committee Meeting. …
* DATES: The COAC will meet on Tuesday, November 14, 2017, from 1:00 p.m. to 5:00 p.m. EST. Please note that the meeting may close early if the committee has completed its business.
* ADDRESSES: The meeting will be held at U.S. Customs & Border Protection, 1717 H Street NW., Room 700, Washington, DC 20006. …
* FOR FURTHER INFORMATION CONTACT: Ms. Florence Constant-Gibson, Office of Trade Relations, U.S. Customs and Border Protection, 1300 Pennsylvania Avenue NW., Room 3.5A, Washington, DC 20229; telephone (202) 344-1440; facsimile (202) 325-4290; or Mr. Bradley Hayes, Executive Director and Designated Federal Officer, can be reached at (202) 344-1440.
  The COAC will hear from the following subcommittees on the topics listed below and then will review, deliberate, provide observations, and formulate recommendations on how to proceed:
    (1) The Trade Enforcement & Revenue Collection (TERC) Subcommittee will discuss new TERC recommendations and provide any necessary updates from the Anti-Dumping and Countervailing Duty, Bond, Forced Labor, and Intellectual Property Rights Working Groups.
    (2) The Global Supply Chain Subcommittee will present the status of a pilot that will test the utilization of existing Automated Commercial Environment (ACE) automation in the pipeline mode of transportation. The committee will also discuss the progress of the Global Supply Chain Subcommittee’s new Emerging Technologies Working Group.
    (3) The One U.S. Government Subcommittee will continue discussions on the progress of the Fish & Wildlife Service Working Group and will present the final white paper on the Harmonized Tariff Schedule (HTS) project. The subcommittee will also discuss the progress of the newly created Technical and Operational Outages Working Group.
    (4) The Exports Subcommittee will discuss the Post Departure Filing (PDF) Working Group’s progress on the implementation plan of the PDF Proposal and will include steps to initiate a proof of concept. The subcommittee will also discuss the progress of the Manifest Working Group and progress on issues with the ongoing manifest pilots. The working group may present recommendations in the area of manifest timelines during the November meeting.
    (5) The Trusted Trader Subcommittee will continue the discussion for an enhanced Trusted Trader program that includes engagement with CBP to include relevant partner government agencies with a potential for international interoperability. A review of the pilot program status and benefits will also be undertaken in parallel to determine the optimum benefits that would be assigned to Trusted Trader participants.
    (6) The Trade Modernization Subcommittee will discuss its plans for the topics that will be addressed during the next quarter.
Meeting materials will be available by November 10, 2017, here.
  Dated: October 23, 2017.
Bradley F. Hayes, Executive Director, Office of Trade Relations.

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

[No items of interest noted today.] 

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Personnel Security (PCL) inquiries (Option #2) to include e-QIP Authentication Resets of the DSS Knowledge Center will be closed on Friday, October 27. This closure is to conduct internal training to deliver the highest quality customer service to Industry and Government callers. Normal operations for PCL and e-QIP inquiries will resume on Monday, Oct. 30. Also as a reminder, the PCL portion of the DSS Knowledge Center typically closes on the last Friday of each month.
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The DTAS information systems will be unavailable from 6:00PM-9:00PM Thursday, October 26th, 2017 for scheduled routine maintenance. The DTAS systems will be available Thursday, October 26th, 2017 after 9:00PM.


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. EU Amends Restrictive Measures Concerning Sudan

  – Council Implementing Regulation (EU) 2017/1942 of 25 October 2017 implementing Article 15(3) of Regulation (EU) No 747/2014 concerning restrictive measures in view of the situation in Sudan
  – Council Implementing Decision (CFSP) 2017/1948 of 25 October 2017 implementing Decision 2014/450/CFSP concerning restrictive measures in view of the situation in Sudan

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NWS_a17. Expeditors News: “House of Representatives Passes C-TPAT Reauthorization Act”
(Source: Expeditors News, 26 Oct 2017.)
On October 24, 2017, the US House of Representatives passed the Customs-Trade Partnership Against Terrorism (C-TPAT) Reauthorization Act of 2017. The stated purpose of C-TPAT is to strengthen security, facilitate cargo, ensure compliance with the law, and to serve as the Authorized Economic Operator program for the US.
With the passing of the C-TPAT Reauthorization Act in the House, the bill will now go to the Senate for consideration. Rep. Barragan, in addressing the Speaker of the House of Representatives, said, “This bill incorporates Democratic amendments, including one of my own that establishes a standard system for C-TPAT partners to report suspicious activity instead of the patchwork system that exists now. Another important amendment offered by my colleague, Mr. Correa, was adopted in committee to ensure that when CBP changes up the rules and security criteria for C-TPAT, stakeholders are given adequate notice to comply.”
There are more than 11,400 C-TPAT members in trade today.
  – The text of the bill may be found here.
  – The Congressional Record may be found here.

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. Reuters: “U.S. Sanctions North Koreans over Forced Labor, Other Alleged Abuses”

(Source: Reuters, 26 Oct 2017.) [Excerpts.]
The United States on Thursday imposed sanctions on seven North Korean individuals and three entities over what it called serious human rights abuses, including forced labor and hunting down of asylum seekers.
  “Today’s sanctions target the North Korean military and regime officials engaged in flagrant abuses of human rights,” U.S. Treasury Secretary Steven Mnuchin said in a statement. “We also are targeting North Korean financial facilitators who attempt to keep the regime afloat with foreign currency earned through forced labor operations.”
Among those targeted by the sanctions were the director and the deputy director of the Military Security Command, the first vice minister of the Ministry of People’s Security and the labor minister. The United States also sanctioned North Korea’s consul general in Shenyang, China, and a diplomat at North Korea’s embassy in Vietnam. …
The U.S. administration has sought to restrict the income North Korea receives from its export of labor as part of efforts to choke off funds helping to finance the country’s nuclear and missile programs, which Pyongyang says are aimed at developing weapons capable of hitting the United States.
North Korea routinely denies widespread allegations of rights abuses.

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. ST&R Trade Report: “GSP Compliance is Focus of New USTR Enforcement Effort”

Countries benefiting from the Generalized System of Preferences will be subject to heightened scrutiny under a new initiative announced Oct. 24 by the Office of the U.S. Trade Representative. USTR Robert Lighthizer said this “more proactive process” aims to help “ensure that countries that are not playing by the rules do not receive U.S. trade preferences.”
A major component of the new effort will be for USTR and other relevant federal agencies to review each BDC’s compliance with the 15 GSP eligibility criteria every three years. If a review raises compliance concerns for a particular BDC the White House may self-initiate a full country practice review. The first assessment period will focus on BDCs in Asia, with beneficiaries in other parts of the world to be evaluated in the second and third years of this process. USTR states that these eligibility reviews will complement the existing petition receipt and public input process for country practice reviews, which will remain unchanged.
Also part of USTR’s new enforcement plan is a heightened focus on concluding outstanding GSP cases.
GSP provides duty-free treatment to thousands of products from 120 BDCs, and in 2016 the total value of imports that entered the U.S. under GSP was $18.9 billion. To qualify for GSP preferences BDCs must meet statutorily-established eligibility criteria, including respecting arbitral awards in favor of U.S. citizens or corporations, combating child labor, respecting internationally recognized worker rights, providing adequate and effective intellectual property rights protection, and providing the U.S. with equitable and reasonable market access.
GSP is currently scheduled to expire Dec. 31, 2017. House Ways and Means Committee Chairman Kevin Brady, R-Texas, said this week that a GSP reauthorization bill could be approved by Congress before then.

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10. The Export Compliance Journal: “BIS EAR Rule Changes to Several ECCNs: Update on Recent Changes to the CCL”

Sometimes getting through export compliance can feel like wading through a kind of alphabet soup, or something even more incomprehensible.
Case in point? Recently, the DOC’s BIS issued more rules related to revising the CCL, as well as parts of the EAR addressing ECCNs and the WA’s List of Dual-Use Goods and Technologies. For those keeping up, that’s the Department of Commerce, Bureau of Industry and Security, Commerce Control List, Export Administration Rules, and Wassenaar Arrangement, respectively.
So what’s changed? There are changes in almost every category-Electronics (Category 3), Computers (Category 4), Telecommunications (Category 5 Part 1), and Information Security (Category 5 Part 2), to name just a few. [FN/1]
One such change is in Category 4, Computers, where BIS has raised high-performance computer control Adjusted Peak Performance (APP) level from 12.5 to “16 Weighted TeraFLOPS” (“WT”-yet another acronym to keep track of!) which went into effect on September 25; a change that one could assume is in response to advancements in processing speed recently revealed by Intel and others. [FN/2]
Other changes involve controls such as those in Category 5 Part 2, “Information Security,” which reads “an exclusion made in Note 4 for entertainment, mass commercial broadcasts, digital rights management, or medical records management is moved to Technical Note 1 to clarify the encryption used in these functions is not considered ‘cryptography for data confidentiality.'”[FN/3] This classification means that the encryption is not primarily for “information security,” which affects their handling.[FN/4]
Additional revisions have to do with license exceptions, such as those for Low Value Shipments (LVS) to ECCN 3A991.b.12, and Group B Country (GBS) eligibility to ECCN 2A001.b.14. The list goes on. Among one of the more interesting license-related changes occurred in support of the Cuban people, whereby license exemptions are now in place for “certain exports and re-exports to Cuba that are intended to support the Cuban people by improving their living conditions and supporting independent economic activity; strengthening civil society in Cuba; and improving the free flow of information to, from, and among the Cuban people.”[FN/5] Other license exceptions for humanitarian reasons are also on the books.
What does it mean for exporters?
While these changes may seem minor in nature, they’re reflective of the true nature of the world we live in. One witnessing ever-constant technological innovation and a world political situation that is always in flux. The takeaway here is the importance of keeping abreast of the changes-and ensuring you’re applying those changes applicable to you. Only then can you be truly export compliant.
Export Administration Regulation Downloadable Files. Bureau of industry and Security. https://www.bis.doc.gov/index.php/regulations/export-administration-regulations-ear. Accessed October 24, 2017
FN/2] Intel reveals its most powerful PC chip yet: The 18-core, teraflop-speed Core. Tech Republic. May 30, 2017. i9. http://www.techrepublic.com/article/intel-reveals-its-biggest-desktop-chip-yet-the-18-core-teraflop-speed-i9/. Accessed October 24, 2017
FN/3] Commerce Control List, Category 5 – Telecommunications and “Information Security.” Bureau of Industry and Security. August 2017. https://www.bis.doc.gov/index.php/documents/regulations-docs/federal-register-notices/federal-register-2014/951-ccl5-pt2/file. Accessed October 24, 2017
FN/4] Commerce Control List, Category 5 – Telecommunications and “Information Security.” Bureau of Industry and Security. August 2017. https://www.bis.doc.gov/index.php/documents/regulations-docs/federal-register-notices/federal-register-2014/951-ccl5-pt2/file. Accessed October 24, 2017
FN/5] License Exceptions. Bureau of Industry and Security. June 2017. https://www.bis.doc.gov/index.php/documents/regulation-docs/415-part-740-license-exceptions/file. Page 64. Accessed October 24, 2017. Accessed October 24, 2017

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11. J. Killick, J. MacLennan & R. Burke: “EU Expands Sanctions against North Korea, as Well as Russia and Libya”

(Source: White & Case LLP, 19 Oct 2017.)
* Authors: James Killick, Esq., jkillick@whitecase.com, +32 2 239 25 52; Jacquelyn MacLennan, Esq., jmaclennan@whitecase.com, +32 2 239 25 63; and Richard Burke, Esq., rburke@whitecase.com, 202-626-3687. All of White & Case LLP.
The EU has adopted a wide range of new sanctions measures against North Korea including a broad investment ban applicable across all sectors. In addition, the EU has designated certain Russian persons involved in a transfer of gas turbines to Crimea, deemed to have undermined EU sanctions. The EU has also implemented recent UN sanctions against Libya.
North Korea further expansion of sanctions
On 16 October, the EU Council adopted autonomous sanctions measures against North Korea (going beyond current UN sanctions). These new measures include:
  – Expanding the investment ban to prohibit establishing, maintaining or operating a joint venture or cooperative entity with any natural or legal person domiciled in North Korea, or taking, maintaining or extending an ownership interest in, all entities domiciled in North Korea, or in activities or assets in North Korea; [FN/1]
  – Further broadening the ban introduced on 10 October 2017 on exports of crude oil to North Korea; [FN/2]
  – Extending the existing ban on the transfer of funds to and from North Korea to include personal remittances above EUR 5 000. [FN/3]
These measures supplement the EU sanctions adopted on 10 October, which transposed UNSC Resolution 2375 (2017) and included:
  – a ban on the sale, supply, transfer or export, directly or indirectly of condensates and natural gas liquids, [FN/4] refined petroleum products, [FN/5] and crude oil, [FN/6] to North Korea, with possible exemptions for humanitarian purposes for the latter two product categories being subject to specific authorisation by the competent authorities; [FN/7]
  – a ban on the importation, purchase, or transfer, directly or indirectly, of textiles from North Korea, whether or not originating from North Korea, [FN/8] subject to derogations subject to an authorisation being granted on a case-by-case basis, or pursuant to a prior contract; [FN/9]
  – a prohibition for EU member states to provide work authorisations to North Korean nationals, subject to derogations on a case-by-case basis or for which there is a written contract pre-dating 11 September 2017. [FN/10]
These measures build on the EU sanctions already in place against North Korea, [FN/11] including restrictions on the import and export of certain goods, services and technology which could contribute to North Korea’s nuclear-related, ballistic missile-related or other weapons of mass destruction-related programmes, an import ban on numerous items including certain metals and minerals, coal, iron, iron ore, petroleum products, lead and lead ore, seafood and statues from North Korea (whether or not originating from North Korea), a luxury goods embargo, restrictions targeting the transport sector, including inspections of cargo and prohibitions pertaining to North Korean vessels and aircraft, the financial sector, such as the provision of certain financial services and the transfer of funds to and from North Korea, and the diplomatic sphere, to prevent abuse of privileges and immunities. [FN/12]
In addition, the EU has updated the asset freeze list as regards North Korea, adding more persons and entities (including the state-owned Foreign Trade Bank and individuals in North Korea’s financial sector). The EU also amended the listing of two existing entries. [FN/13] Under the EU asset freeze, all funds and economic resources belonging to, or controlled by, the listed parties and that fall under EU jurisdiction (e.g. are held by EU banks) are frozen. Furthermore, no funds or economic resources (in the broad sense) may be made available – directly or indirectly – to or for the benefit of the listed persons by parties falling under EU jurisdiction.
Russia/Ukraine – EU tough line on undermining of EU sanctions
The EU has taken a tough line on situations which strictly speaking were not covered by EU sanctions (based on a lack of EU nexus), but which the EU considered undermined its sanctions policy in relation to Crimea and Sevastopol. After it came to light that a Russian entity had transferred Siemens gas turbines from Russia to Crimea (in breach of the contract under which such turbines were originally sold by an EU company to Russia), the EU decided to add three Russian nationals, including Russia’s deputy energy minister, and the three Russian entities involved (OAO and OOO VO Technopromexport, and ZAO Interavtomatika) to the EU asset freeze list. [FN/14] The EU considered that the gas turbines “contribute[d] to establishing an independent power supply for Crimea and Sevastopol as a means of supporting their separation from Ukraine, and undermines the territorial integrity, sovereignty and independence of Ukraine”. Going forward, it can be expected that the EU may take a tougher line in listing parties involved in the diversion of restricted items.
The EU has also extended the asset freeze related to Ukraine for six more months until 15 March 2018, and updated the listing information for several parties and deleted the entries for four deceased persons. [FN/15] Crimean Sea Ports was also added to the asset freeze list, but the EU included a derogation for payments to Crimean Sea Ports for certain services. [FN/16]
Libya restrictions on vessels and petroleum products from Libya
The EU implemented new UN sanctions against Libya by extending to (refined) petroleum products the restrictions on vessels loading, transporting or discharging crude oil from Libya without authorisation. [FN/17] The EU also added two additional vessels (Capricorn and Lynn S) to the list of vessels subject to these prohibitions. [FN/18]
   [FN/1] See Article 17(2)(a) of Council Regulation (EU) 2017/1509, as amended by Council Regulation (EU) 2017/1858 of 16 October 2017.
   [FN/2] The derogation previously contained in Article 16g inserted by Council Regulation (EU) 2017/1836 of 10 October 2017 has been narrowed to where there are humanitarian justifications.
   [FN/3] See Article 21(5) of Council Regulation (EU) 2017/1509, inserted by Council Regulation (EU) 2017/1858 of 16 October 2017, in conjunction with the removal of personal remittances in the amended version of Article 21(4).
   [FN/4] See Article 16c and Annex XIc of Council Regulation (EU) 2017/1509, inserted by Council Regulation (EU) 2017/1836 of 10 October 2017.
  [FN/5] See Article 16d and Annex XId of Council Regulation (EU) 2017/1509, inserted by Council Regulation (EU) 2017/1836 of 10 October 2017.
  [FN/6] See Article 16f and Annex XIe of Council Regulation (EU) 2017/1509, inserted by Council Regulation (EU) 2017/1836 of 10 October 2017.
  [FN/7] See Articles 16e and 16g of Council Regulation (EU) 2017/1509, inserted by Council Regulation (EU) 2017/1836 of 10 October 2017 and amended by Council Regulation (EU) 2017/1858 of 16 October 2017.
  [FN/8] See Article 16h and Annex XIf of Council Regulation (EU) 2017/1509, inserted by Council Regulation (EU) 2017/1836 of 10 October 2017.
  [FN/9] See Article 16i of Council Regulation (EU) 2017/1509, inserted by Council Regulation (EU) 2017/1836 of 10 October 2017.
  [FN/10] See Article 26a of Council Decision (CFSP) 2016/849, amended by Council Decision (CFSP) 2017/1838 of 10 October 2017.
  [FN/11] Contained in Council Regulation (EU) 2017/1509 of 30 August 2017 (which replaced Council Regulation (EC) No 329/2007), as amended by Council Regulation (EU) 2017/1548 of 14 September 2017.
  [FN/12] Council Decision (CFSP) 2016/849 of 27 May 2016, as amended.
  [FN/14] See Council Implementing Regulation (EU) 2017/1417 of 4 August 2017.
  [FN/16] See Article 6a of Regulation (EU) No 269/2014, added by
Council Regulation (EU) 2017/1547 of 14 September 2017
  [FN/17] See Council Implementing Regulation (EU) 2017/1419 of 4 August 2017, amending Council Regulation (EU) 2016/44.
  [FN/18] See Commission Implementing Regulation (EU) 2017/1423 and Commission Implementing Regulation (EU) 2017/1456
, amending Council Regulation (EU) 2016/44.

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12. L. Rothberg, G. Cinelli & K. Nunnenkamp “Can the U.S. Government Criminally Prosecute Non-U.S. Persons for Activities That Constitute Secondary Iranian Sanctions Violations with No Alleged Nexus to the U.S.?: Pending Federal Court Criminal Case Poses Provocative Argument”

(Source: Morgan Lewis & Bockius LLP, 26 Oct 2017.)
* Authors: Louis K. Rothberg, Esq., louis.rothberg@morganlewis.com; Giovanna M. Cinelli, Esq., giovanna.cinelli@morganlewis.com; and Kenneth Nunnenkamp, Esq., kenneth.nunnenkamp@morganlewis.com. All of Morgan Lewis & Bockius LLP.
The Office of Foreign Assets Control (OFAC) has continued enforcement activity demonstrating an interest in advancing U.S. foreign policy interests covered by its regulations.  This activity includes not only civil enforcement actions, but criminal indictments or prosecutions that address a number of potentially open issues when interpreting the extent to which the OFAC sanctions apply to activities or individuals outside the United States.  In a recent case involving multiple defendants, U.S. v. Reza Zarrab, et al., S4-15-CR-867 (RMB), the U.S. District Court for the Southern District of New York is considering the extent to which IEEPA authorizes OFAC and other enforcement authorities to criminalize and prosecute in federal district court a non-U.S. person’s activities occurring outside the U.S. which may be sufficient to result in civil or administrative secondary sanctions penalties such as designation of SDN status – but where no U.S. nexus is alleged in connection with the non-U.S. person’s behavior.
One of the defendants in the Zarrab case, Mehmet Hakan Atilla, has challenged the Government’s actions through a motion to dismiss and the matter is currently under consideration.  The court’s decision – whether in support of the defendant or the Government – is likely to affect the manner in which entities and individuals decide how to comply with OFAC secondary sanctions and represents a critical interpretive question.
Mehmet Hakan Atilla (Atilla), a deputy chief executive officer at Turkiye Halk Bankasi AS, a Turkish bank, is accused of conspiring with Reza Zarrab, an Iranian-Turkish gold trader and others, to launder millions of dollars through the U.S. financial system on behalf of the Government of Iran and Iranian parties.  Atilla was taken into physical custody in the U.S. in March 2017 and the Government issued Superseding Indictment No. 4 on Sept. 6, 2017.  Atilla filed a Motion to Dismiss on Oct. 9, 2017 and the Government responded on Oct. 16, 2017.  On October 23, Atilla filed a “Reply Memorandum of Law in Support of Defendant Atilla’s Motion to Dismiss Superseding Indictment S4, or Alternatively for Severance [Reply Memorandum].”  This Reply Memorandum raises nuanced arguments about the manner in which U.S. jurisdiction may extend to criminally prosecute a non-U.S. person under the International Emergency Economic Powers Act [IEEPA, 50 USC §§ 1701 – 1706] for prohibited Iran-related economic secondary sanctions activities which Atilla alleges do not have a U.S. nexus sufficient to allow criminal prosecution but which could permit civil enforcement for Iran secondary sanctions violations.
Atilla argues that there is a difference between conduct that can be civilly or administratively sanctioned by the U.S., such as placing him [based on the particular facts alleged in Superseding Indictment No. 4] on the Specially Designated Nationals [SDN] List and conduct that can be criminally prosecuted under IEEPA – i.e., as if Atilla were a “U.S. Person” facing primary sanctions criminal charges. 
Atilla asserts that there must be a U.S. nexus (e.g. use of the U.S. banking system) for the U.S. to criminally prosecute him, arguing that U.S. v. Yousef, 327 F.3d 56 (2d Cir. 2003) incorrectly suggested that 31 CFR 560.204 dispensed with the presumption against extraterritoriality explained inMorrison v. National Australia Bank, 561 U.S. 247 (2010).  Atilla argues that an indictment, as opposed to a civil action, must assert a violation of 31 CFR 560.205 which the indictment does not.  Atilla emphasizes that, in his view, the indictment does not allege facts about the U.S. nexus of his activities and therefore the U.S. has overstepped its jurisdiction.  Atilla acknowledges that the Government alleged that he conducted discussions related to assisting a specific bank to evade the sanctions and transfer money to Iran, but he dismisses these statements as either inadequate or inaccurate.  In other words, given the facts he claims Superseding Indictment No. 4 contains, a criminal prosecution against him, based on IEEPA is beyond the judicial power of the U.S.  
The Reply Memorandum states IEEPA’s penalties section (50 USC  §§1705(a) and (c)) only criminalizes conduct that violates prohibitions, orders, regulations and licenses issued under IEEPA’s grant of authority (50 USC 1702(a)(1)), which is qualified by the phrase “subject to the jurisdiction of the United States.”  Atilla argues that because his activities had no U.S. nexus, they were not “subject to the jurisdiction of the United States” thereby depriving the U.S. Government of criminal jurisdiction to prosecute him.
Atilla’s arguments raise several provocative questions concerning the limits, if any, to U.S. jurisdiction, if the court confirms the Government’s interpretation.  Not only does Atilla’s argument seek to limit the penalties available for certain violations to civil remedies only, it suggests that its logic applies to the entire “sanctions regime” and could impact a number of programs and cases in the Government’s pipeline.
Atilla’s interpretation is equally interesting because the current Export Administration Regulations (EAR), in force under the President’s IEEPA authority, permit civil, administrative and criminal prosecution for violative behavior 
Indeed, the EAR states: “Conduct that violates the EAA, the EAR, or any order, license or authorization issued thereunder, and other conduct specified in the EAA may be subject to sanctions or other measures in addition to criminal and administrative sanctions under the EAA or EAR.”  See 15 CFR § 764.3(c).  
However, the EAR ties violations to transactions involving items “subject to the EAR” the meaning of which is clearly defined in 15 CFR Part 734.  Thus, for EAR purposes, all such violations involving items “subject to the EAR” are encompassed in the provision “subject to the jurisdiction of the United States” as provided in IEEPA – presumably because the items “subject to the EAR” in question have been exported from the U.S. or contain 10 percent or more U.S.-origin controlled content, thus presenting an adequate basis for a U.S. nexus.  
On the other hand, Attila essentially argues that the OFAC Iran-related secondary sanctions do not contain any OFAC-enunciated criteria equivalent to the EAR’s jurisdictional trigger “subject to the EAR” for purposes of meeting the IEEPA “subject to the jurisdiction of the United States” test.  Thus, Atilla asserts, the U.S. has no jurisdiction under the facts pleaded in the indictment against him to criminally prosecute him.
It will be critical to see how the Court rules on the arguments made by Atilla , in light of the Supreme Court’s expressed and consistent views regarding the extraterritorial reach of U.S. laws.  See, e.g.RJR Nabisco v. European Community, 136 S. Ct. 2090 (2016) (“Absent clearly expressed Congressional intent to the contrary, federal laws will be construed to have only domestic application”); see also Morrison v. National Australia Bank, 561 U.S. 247 (“It is a long standing principle of American law that legislation of Congress, unless a contrary intent appears, is mean to apply only within the territorial jurisdiction of the United States.”)
The implications raised in this case by Atilla are very significant for foreign persons currently engaged in dealings with Iran under the U.S. relaxation of secondary sanctions permitted by the Iran nuclear deal’s JCPOA (or North Korea), because U.S. Iran secondary sanctions may be revived or expanded as suggested by President Trump’s recent withholding of certification of the JCPOA as being in the U.S. national interest.
If the Court rejects Atilla’s arguments finding the U.S. does have judicial power to criminally prosecute him under IEEPA, then any foreign person engaging in activities prohibited by renewed U.S. Iran secondary sanctions, (or other secondary sanctions) might face criminal prosecution in the U.S. as well as other administrative penalties, such as landing on the SDN List.

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13. M. Volkov Releases New Podcast: “The Perils of Compliance with the Russia Sanctions Program”

(Source: Volkov Law Group Blog, 22 Oct 2017. Reprinted by permission.)
* Author: Michael Volkov, Esq., Volkov Law Group, mvolkov@volkovlaw.com, 240-505-1992.
The Ukraine-Russia Sanctions program is a complex set of executives orders, statutes and regulations defining prohibited business transactions with Russian entities and individuals. The sanctions program was instituted in 2014 in response to Russia’s invasion of the Ukraine and annexation of Crimea. In August 2017, Congress enacted statues and directed OFAC to implement additional regulations. Congress acted in response to fears that the Trump Administration would relax the Russia Sanctions Program.
In this episode, Michael Volkov reviews the Russian Sanctions Program and discusses some practical concerns and warnings for compliance professionals for business interactions with Russian entities and individuals.

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14. T. Are & J.A. Joiner: “Avoiding the Risk of Forced Labor Abuses Through Supply Chain Due Diligence”

(Source: Ashley Moore, amoore@joinertradelaw.com, 26 Oct 2017.)
* Authors: Tope Are, Esq., tare@joinertradelaw.com, 713-395-2210; and Jamie A. Joiner, Esq., jjoiner@joinertradelaw.com, 713-395-2200. Both of Joiner Law Firm.
According to the most recent figures released by the International Labour Organization, a specialized agency of the United Nations, nearly 21 million people around the world, including millions of children, are victims of forced labor.  Forced labor generates approximately $150 billion in annual illegal profits globally and is most prevalent in the agricultural, construction, and manufacturing industries, among others. For any company that provides goods to the public, a reliable and ethical supply chain is paramount.  Thus, ensuring the company’s supply chain does not contain goods produced by forced labor should be a priority for any responsible business.  Moreover, aside from a company’s ethical standards, various legal requirements and pressure from consumers are forcing companies to take a long hard look at each level of their supply chain and provide more transparency to consumers about their due diligence efforts.

Prohibition on the Importation into the U.S. of Goods Produced by Forced Labor   

Since 1930, the U.S. government has made an effort to prevent merchandise produced by forced labor from entering the domestic economy. Under the Tariff Act of 1930, the U.S. government prohibits the importation of goods mined, produced, or manufactured wholly or in part by forced labor.  Section 307 of the Tariff Act of 1930 (codified at 19 U.S.C. § 1307) defines forced labor as “all work or service which is exacted from any person under the menace of any penalty for its nonperformance and for which the worker does not offer himself voluntarily.”  The Tariff Act of 1930 also prohibits goods produced by convict or indentured labor and notes that forced labor also includes forced child labor.  U.S. Customs and Border Protection (“CBP”) makes it clear that goods produced through such means are subject to exclusion and/or seizure by CBP, and may lead to criminal investigation of the importer.  CBP’s regulations implementing this statutory prohibition are contained in 19 C.F.R. § 12.42 – 12.45. 

Although the importation into the U.S. of goods produced by or from forced labor has been clearly prohibited for decades, until recently, the statute and implementing regulations did little to protect against the importation of goods produced by these types of abuses largely because of a gaping loophole. The so-called “consumptive demand” exception permitted imports into the U.S. of goods produced by forced labor if the U.S. domestic production of the goods was insufficient to meet U.S. domestic demand for those goods.  The consumptive demand exception provided a strong defense for importers making it difficult for U.S. authorities to enforce the prohibition.  

However, in February 2016, President Obama signed the Trade Facilitation and Trade Enforcement Act (TFTEA), a bi-partisan piece of legislation that contains a provision that effectively repealed the “consumptive demand” exception.  On June 8, 2017 CBP amended its regulations to remove the “consumptive demand” clause from the regulations concerning the prohibition on the importation of merchandise produced by convict, forced, or indentured labor. 

CBP Enforcement of Forced Labor Statute and Other Considerations   

Within a short period of time since the repeal of the exception, it has become clear how significant the removal was to enforcement efforts.  Prior to the closure of the loophole, CBP had only taken action to enforce the legal prohibition on the import of goods produced by forced labor 39 times within the 86 years the statute had been in effect.  By contrast, since the repeal of the consumptive demand exception in 2016, CBP has already taken action four times, issuing withhold release orders (“WROs”) for certain items effectively prohibiting their entry into the U.S.  Along with the repeal of the exception, CBP has released new guidance on forced labor enforcement specifically noting that the repeal of the exception, “provides CBP with a more robust ability to consider information and petitions alleging violations of 19 U.S.C. § 1307.”

To initiate an enforcement action under Section 307 of the Tariff Act of 1930,  a report must be filed with CBP alleging that merchandise produced using forced labor has been or is likely to be imported into the U.S.  Interested parties typically petition CBP to investigate whether merchandise imported or to be imported was produced using forced or slave labor in another country.  After CBP has received petitions from customs officers or third parties, CBP can initiate an investigation.  If the investigation concludes that the goods were made with forced labor in another country, CBP can seize the goods and commence forfeiture proceedings. 

In addition to CBP’s enforcement under Section 307 of the Tariff Act of 1930, companies and other importers should also be aware of potential liability through state laws that specifically target forced labor abuses within the supply chain.  For example, in January 2012 the state of California enacted the California Transparency in Supply Chains Act that requires companies that do business in California to investigate and publicize where and how their products are produced in an effort to make corporations accountable for their purchases.  Companies can also find themselves facing the threat of litigation from consumers and shareholders for not identifying, disclosing, and/or protecting against labor abuses within their supply chains.

What are the Best Practices to Avoid Labor Abuses within the Supply Chain? 
With the ever present risk of violating federal or state laws and pressure from consumers for supply chain transparency, there are some best practices that can assist companies in their efforts to prevent forced labor abuses within their supply chain.

  (1) Avoid importing products identified by CBP and the DOL as products of forced/child labor and review CBP’s guidance documents on supply chain due diligence.
One of the simplest ways to avoid potential seizure by CBP is to avoid importing goods identified by CBP as being subject to a WRO.  CBP publishes on their website a list of all WROs and findings which identify products that CBP has concluded are produced using forced labor.  CBP also notes that they generally do not target entire product lines or industries in problematic countries or regions, rather, CBP acts on information concerning specific manufacturers/exporters and specific merchandise. Thus, utilizing the list provided by CBP will help target specific items to avoid. 

Additionally, the U.S. Department of Labor (“DOL”) publishes two lists relevant to enforcement of the forced labor statute that can also help identify items that are more likely to be the product of forced labor and thus subject to a WRO from CBP.  One list, required under the Trafficking Victims Protection Reauthorization Act (“TVPRA”) of 2005, contains 139 products from 75 countries that the DOL believes are being made or harvested by child or forced labor. The TVPRA list includes a wide variety of commodities such as footwear, furniture, bricks, surgical instruments, toys, rubber, and a variety of foodstuffs.  The other list published by the DOL identifies products and their source countries which the DOL has a reasonable basis to believe are produced by forced or indentured child labor. This second list is created pursuant to the Prohibition of Acquisition of Products Produced by Forced or Indentured Child Labor, Executive Order 13126 of 1999, which is intended to ensure that U.S. federal agencies do not procure goods made by forced or indentured child labor. The most recent list published in 2016 contains 35 products from 26 countries, including items such as garments, electronics, textiles, tobacco, and a variety of foodstuffs.  CBP uses these lists, along with reporting from sources, to prioritize countries, sectors, and facilities for investigation and enforcement of the statutory prohibition on the import of merchandise made by or with forced labor.

  (2) Create and implement company policies and procedures for supply chain standards and work with suppliers to set expectations.
Establishing clear company policies and procedures which outline the expectations of personnel and suppliers is an important foundation to ensure compliance with the statute and mitigate risks. However, it is not enough to just have a set of policies and procedures if they are not implemented.  To prevent issues arising from forced labor within the supply chain, companies have to diligently implement these policies and procedures consistently throughout all relevant departments.  All stakeholders must be aware of their responsibilities regarding the company’s efforts to prevent these issues.  In addition to the company’s personnel, it is critical to establish and communicate the company’s expectations to the company’s suppliers. Companies can request to review their suppliers’ policies on forced labor and should consider requiring their suppliers certify that they do not use forced labor within their supply chain.
  (3) Institute a robust supply chain auditing program.
Avoiding risks associated with the presence of forced labor within the supply chain also requires periodic supply chain audits. A robust audit program focusing on abuses within the supply chain allows companies to identify weaknesses in the company’s policies and procedures or their implementation before they become widespread issues resulting in negative publicity, an enforcement case or other legal action.  Supply chain audits have become more common as companies identify the cost of ignoring potential abuses within the supply chain. Aside from any legal action a company may face, the biggest cost could come from negative publicity and displeased customers and shareholders.  A company’s long-standing positive reputation can easily be tarnished by the discovery of human rights abuses resulting from a lack of supply chain due diligence.  

The Future of Enforcement Under the Trump Administration  

With the Trump Administration’s spotlight on trade enforcement, and the closure of the loophole in the forced labor statute, it is clear that companies must protect against the risks of forced labor within their supply chain.  The U.S. Secretary of Commerce, Wilbur Ross, emphasized the Trump Administration’s policy on trade enforcement explicitly stating that “[u]nder President Trump’s leadership, we will be aggressively enforcing strong trade policies.”  Specifically, the President’s strong critiques of China’s trade policies may result in an increased focus on issues with forced labor involving China.  It is worth noting that the recent WRO orders issued under the forced labor statute have all involved manufacturers in China.   Although these occurred in 2016 before the start of the new Administration, the President’s stated position towards trade with China may lead to an additional spotlight on enforcement regarding forced labor abuses within China.  It remains to be seen how the Administration will prioritize enforcement actions against those importing goods produced or potentially produced by forced labor.  It is clear, however, that the changes in U.S. law have made it easier for U.S. authorities to pursue suspected violators. 

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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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