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17-1031 Tuesday “Daily Bugle”

17-1031 Tuesday “Daily Bugle”

Tuesday, 31 October 2017

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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. Treasury/OFAC Amends Global Terrorism Sanctions Regulations, Imposes Sanctions against the Islamic Revolutionary Guard Corps
  1. Ex/Im Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.)
  3. State/DDTC: (No new postings.)
  4. Treasury/OFAC Posts Ukraine-/Russia-related CAATSA Guidance
  5. President Continues National Emergency with Respect to Sudan
  6. EU Amends Restrictive Measures Concerning Libya
  7. EU Posts Classification of Certain Goods in the Combined Nomenclature, and Amends Annex I related to the Common Customs Tariff
  8. EU Posts Correction Concerning Union Customs Code
  1. Reuters: “Airbus’s Legal Troubles Grow amid Inaccurate U.S. Arms Trade Filings” 
  2. ST&R Trade Report: “E-Commerce Facilitation, Enforcement is Aim of DOC/DHS Agreement” 
  1. M. Volkov: “Compliance and Technology – Rational Actors Need to Adopt Technology”
  2. W. Segall, J. Poling & J. Helder: “U.S. State Department Issues Belated List and Guidance on Extraterritorial Sanctions Affecting Russian Defense and Intelligence Sector Entities”
  3. R.C. Burns: “OFAC and Zimbabwe Bank Negotiating over Penalties”
  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 (31 Oct 2017), FTR (20 Sep 2017), HTSUS (20 Oct 2017), ITAR (30 Aug 2017) 
  3. Weekly Highlights of the Daily Bugle Top Stories 

EXIMEX/IM ITEMS FROM TODAY’S FEDERAL REGISTER

EXIM_a1

1. Treasury/OFAC Amends Global Terrorism Sanctions Regulations, Imposes Sanctions against the Islamic Revolutionary Guard Corps

(Source: Federal Register) [Excerpts.]
 
82 FR 50313-50315: Global Terrorism Sanctions Regulations
* AGENCY: Office of Foreign Assets Control, Treasury.
* ACTION: Final rule.
* SUMMARY: The Department of the Treasury’s Office of Foreign Assets Control (OFAC) is amending the Global Terrorism Sanctions Regulations pursuant to a provision of the Countering America’s Adversaries Through Sanctions Act of 2017. This provision requires the imposition of certain terrorism-related sanctions with respect to foreign persons that are officials, agents, or affiliates of Iran’s Islamic Revolutionary Guard Corps.
* DATES: Effective: October 31, 2017.
* FOR FURTHER INFORMATION CONTACT: The Department of the Treasury’s Office of Foreign Assets Control: Assistant Director for Licensing, tel.: 202-622-2480, Assistant Director for Regulatory Affairs, tel.: 202-622-4855, Assistant Director for Sanctions Compliance & Evaluation, tel.: 202-622-2490; or the Department of the Treasury’s Office of the Chief Counsel (Foreign Assets Control), Office of the General Counsel, tel.: 202-622-2410.
* SUPPLEMENTARY INFORMATION: …
   Regulatory action. OFAC is taking this regulatory action pursuant to section 105(b) of CAATSA to extend the sanctions applicable pursuant to E.O. 13224 to foreign persons that are officials, agents, or affiliates of the IRGC. Subpart B of the Regulations currently implements the prohibitions contained in E.O. 13224. See, e.g., Sec. Sec. 594.201 and 594.204. With this rule, OFAC is adding Sec. 594.201(a)(5) to Subpart B of the Regulations to include the following as persons whose property and interests in property are blocked pursuant to the Regulations: Foreign persons that are identified on the Specially Designated Nationals and Blocked Persons List (SDN List) maintained by OFAC as officials, agents, or affiliates of the IRGC.
   The names of persons whose property and interests in property are blocked pursuant to Sec. 594.201(a) are published in the Federal Register and incorporated into OFAC’s SDN List with the identifier “[SDGT].” Persons who have been identified by OFAC as officials, agents, or affiliates of the IRGC are identified by a special reference to the “IRGC” at the end of their entries on the SDN List, in addition to the reference to this part. For example, an affiliate of the IRGC whose property and interests in property are blocked pursuant to this part will have the program tags “[SDGT][IRGC]” at the end of its entry on the SDN List. In addition, OFAC is amending the delegation provision in Sec. 594.802. …
 
   Dated: October 23, 2017.
John E. Smith, Director, Office of Foreign Assets Control.
 
   Dated: October 24, 2017.
Sigal P. Mandelker, Under Secretary, Office of Terrorism and Financial Intelligence, Department of the Treasury.

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OGSOTHER GOVERNMENT SOURCES

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

* Commerce; Industry and Security Bureau; RULES; Export Administration Regulations for Use of License Exceptions; Clarifications [Publication Date: 1 November 2017.]
* Commerce; Industry and Security Bureau; NOTICES; Meetings: Materials Technical Advisory Committee [Publication Date: 1 November 2017.]

* State; NOTICES; Designations as Foreign Terrorist Organizations [Publication Date: 1 November 2017.]:
  – Haqqani Network
  – Islamic Jihad Union
  – Jaish-e-Mohammed

* U.S. Customs and Border Protection; NOTICES; National Customs Automation Program Tests: Post-Summary Corrections and Periodic Monthly Statements; Modification and Clarification [Publication Date: 1 November 2017.]

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OGS_a45. Treasury/OFAC Posts Ukraine-/Russia-related CAATSA Guidance

(Source: Treasury/OFAC)    
 
Today, in accordance with section 223(d) of Title II of the Countering America’s Adversaries Through Sanctions Act (CAATSA), the Department of the Treasury’s Office of Foreign Assets Control (OFAC) is issuing amended Ukraine-/Russia-Related Directive 4.  Certain CAATSA-related prohibitions in amended Directive 4 have a delayed effective date of January 29, 2018.  OFAC is also publishing new and updated FAQs relating to the amended Directive.
 
Additionally, OFAC is publishing new FAQs related to CAATSA sections 223(a), 226, 228, and 233.  These FAQs are the latest OFAC actions to implement the responsibilities assigned and delegated to it under CAATSA.  They reflect close interagency consultation and coordination, as well as careful consideration of issues raised by Congress, industry, and international allies and partners.


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OGS_a56. President Continues National Emergency with Respect to Sudan

(Source: The White House)
 
On November 3, 1997, by Executive Order 13067, the President declared a national emergency with respect to Sudan pursuant to the International Emergency Economic Powers Act (50 U.S.C. 1701-1706) and took related steps to deal with the unusual and extraordinary threat to the national security and foreign policy of the United States posed by the actions and policies of the Government of Sudan. On April 26, 2006, by Executive Order 13400, the President determined that the conflict in Sudan’s Darfur region posed an unusual and extraordinary threat to the national security and foreign policy of the United States, expanded the scope of the national emergency declared in Executive Order 13067, and ordered the blocking of property of certain persons connected to the Darfur region. On October 13, 2006, by Executive Order 13412, the President took additional steps with respect to the national emergency declared in Executive Order 13067 and expanded in Executive Order 13400. In Executive Order 13412, the President also took steps to implement the Darfur Peace and Accountability Act of 2006 (Public Law 109-344).
 
On January 13, 2017, by Executive Order 13761, the President found that positive efforts by the Government of Sudan between July 2016 and January 2017 improved certain conditions that Executive Orders 13067 and 13412 were intended to address. Given these developments, and in order to encourage the Government of Sudan to sustain and enhance these efforts, section 1 of Executive Order 13761 provided that sections 1 and 2 of Executive Order 13067 and the entirety of Executive Order 13412 would be revoked as of July 12, 2017, provided that the criteria in section 12(b) of Executive Order 13761 had been met.
 
On July 11, 2017, by Executive Order 13804, I amended Executive Order 13761, extending until October 12, 2017, the effective date in section 1 of Executive Order 13761.
 
Despite recent positive developments, the crisis constituted by the actions and policies of the Government of Sudan that led to the declaration of a national emergency in Executive Order 13067 of November 3, 1997; the expansion of that emergency in Executive Order 13400 of April 26, 2006; and with respect to which additional steps were taken in Executive Order 13412 of October 13, 2006, Executive Order 13761 of January 13, 2017, and Executive Order 13804 of July 11, 2017, has not been resolved. These actions and policies continue to pose an unusual and extraordinary threat to the national security and foreign policy of the United States. I have, therefore, determined that it is necessary to continue the national emergency declared in Executive Order 13067, as expanded by Executive Order 13400, with respect to Sudan.
 
This notice shall be published in the Federal Register and transmitted to the Congress.
 
DONALD J. TRUMP
THE WHITE HOUSE,
October 31, 2017.

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OGS_a67
. EU Amends Restrictive Measures Concerning Libya

 
Regulations:
  – Commission Implementing Regulation (EU) 2017/1974 of 30 October 2017 amending Council Regulation (EU) 2016/44 concerning restrictive measures in view of the situation in Libya
 
Decisions:
  – Council Implementing Decision (CFSP) 2017/1976 of 30 October 2017 implementing Decision (CFSP) 2015/1333 concerning restrictive measures in view of the situation in Libya

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OGS_a78
. EU Posts Classification of Certain Goods in the Combined Nomenclature, and Amends Annex I related to the Common Customs Tariff

 
Regulations:
  – Commission Implementing Regulation (EU) 2017/1971 of 26 October 2017 concerning the classification of certain goods in the Combined Nomenclature
  – Commission Implementing Regulation (EU) 2017/1925 of 12 October 2017 amending Annex I to Council Regulation (EEC) No 2658/87 on the tariff and statistical nomenclature and on the Common Customs Tariff 

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OGS_a89
. EU Posts Correction Concerning Union Customs Code

 
Corrigenda:
  – Corrigendum to Commission Delegated Regulation (EU) 2016/341 of 17 December 2015 supplementing Regulation (EU) No 952/2013 of the European Parliament and of the Council as regards transitional rules for certain provisions of the Union Customs Code where the relevant electronic systems are not yet operational and amending Delegated Regulation (EU) 2015/2446 (OJ L 69, 15.3.2016)

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NWSNEWS

NWS_a1
10. Reuters: “Airbus’s Legal Troubles Grow amid Inaccurate U.S. Arms Trade Filings”

(Source: Reuters, 31 Oct 2017.) [Excerpts.] 
 
Airbus said on Tuesday it had uncovered inaccuracies in its filings to U.S. regulators over arms technology sales, drawing the United States for the first time into a scandal over alleged misconduct at Europe’s largest aerospace firm.
 
Airbus also warned about potentially significant fines resulting from existing bribery investigations in Britain and France over the use of middlemen in jetliner sales, which have triggered a sweeping internal investigation.
 
But it said it was too early to guess the size or timing of any European penalties, or the outcome of the new U.S. findings.
 
Airbus shares rose 3.6 percent after a smaller than expected drop in third-quarter profits despite delays in some aircraft deliveries.
 
However, the gains were overshadowed by news that Airbus had itself unearthed inaccuracies in past filings to the State Department on defence technology exports.
 
These involved inaccurate statements under a section of the U.S. International Traffic in Arms Regulations (ITAR) that governs the use of commissions and agents.
 
Airbus said the flaws were first discovered in November 2016 and confirmed in an internal review completed in late July.
 
Finance Director Harald Wilhelm said the European company had not disclosed any secrets about U.S. technology and that the issue was restricted to the use of sales agents and commissions, governed under part of the ITAR rules.
 
It is separate from investigations into the use of agents in commercial airplane sales, which are not subject to the same U.S. controls as weapons exports, but do have some U.S. restrictions over the use of advanced navigation technology.
 
  “This is about defence equipment and services related to it,” Wilhelm told reporters. …
 
Wilhelm declined to say whether the latest disclosure could lead to an investigation by the U.S. Department of Justice, which has so far stayed out of the European bribery probes.
 
The DOJ shares jurisdiction for ITAR rules with the State Department where criminal activity is suspected. The DOJ and the State Department declined comment.
 
A person familiar with the latest case said it involved inaccuracies over both names of agents and amounts paid.
 
That echoes inaccuracies in applications for UK export aid which triggered the separate UK and French probes, but the now-disbanded headquarters team at the centre of those accusations was not involved in the U.S. ITAR process, sources familiar with the matter said.
 
Airbus hopes that by self-reporting and co-operating fully with the European probes it can qualify for a deal similar to a $680 million settlement granted to Rolls-Royce this year.
 
Legal experts estimate Airbus faces fines in the billions because of the scale of suspect paperwork dating back years. …

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NWS_a2
11. ST&R Trade Report: “E-Commerce Facilitation, Enforcement is Aim of DOC/DHS Agreement”

 
Under a recently-signed memorandum of agreement the departments of Commerce and Homeland Security will collaborate to help U.S. businesses expand their international e-commerce operations and better understand policies and procedures that impact e-commerce. They will also work to identify and eliminate tariff and non-tariff barriers to e-commerce, especially those that impede the ability of small and medium-sized enterprises to comply with customs laws and regulations. Commerce Secretary Wilbur Ross noted that with worldwide retail e-commerce sales expected to top $2.4 trillion by 2018, up 26 percent from 2016, “having the infrastructure in place to help U.S. companies compete for these e-commerce sales is crucial to our nation’s position in the global marketplace.”
 
The aims of the five-year MOA include the following:
  – develop and implement systemic policies in support of a viable, integrated, legitimate e-commerce-based supply chain infrastructure
  – promote public-private dialogue and consensus on e-commerce-related priorities, policies, and programs
  – leverage relationships with industry stakeholders to promote compliance with U.S. trade laws in the e-commerce environment
  – identify and seek to address international cross-border capacity and operating constraints and other factors relating to e-commerce
  – attempt to measure e-commerce-based supply chain and goods movement that can be used in economic analyses to inform regulatory and policy decisions
  – explore opportunities to share relevant statistical trade data through existing mechanisms to facilitate analysis of cross-border flows of goods and services
 
To achieve these objectives the two departments plan to take a number of actions to the extent that funding and other resources permit. They will meet with U.S. and foreign government officials to discuss ways to improve and streamline cross-border processes as they pertain to e-commerce; e.g., regulatory and programmatic changes, information exchange, and enforcement collaboration. They will also host outreach events for e-commerce platforms and businesses that rely on them to highlight e-commerce best practices and promote compliance with U.S. trade laws in the e-commerce environment. In addition, there will be efforts to jointly develop and support provisions in U.S. free trade agreement negotiations that facilitate and promote a legitimate e-commerce supply chain; e.g., automated customs clearance processes, enhanced customs-to-customs cooperation, intellectual property rights protection and enforcement, and support for e-commerce services.
 
Click here for more information on global growth in e-commerce and here for a recent article on efforts to facilitate and regulate e-commerce.

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COMMCOMMENTARY

COMM_a01
12. M. Volkov: “Compliance and Technology – Rational Actors Need to Adopt Technology”

(Source: Volkov Law Group Blog
, 30 Oct 2017.
Reprinted by permission.)
 
* Author: Michael Volkov, Esq., Volkov Law Group, mvolkov@volkovlaw.com, 240-505-1992.
 
I always enjoyed the assumption underlying economic models – assuming people are rational actors, then . . . Sometime people do not act rationally, and sometimes people react out of fear or make unrealistic assumptions.
 
The compliance profession faces many challenges including unrealistic or unfounded assumptions. In many cases, compliance professionals have to reassure their constituencies about the specific implications of a compliance function, initiative or strategy.
 
Compliance has some significant hurdles to overcome as the profession grows and its influence increases in the corporate governance landscape.
 
The future of compliance will depend on technology. That is not a controversial statement.  
 
Three areas in particular are ripe for technological advances.
 
First, and most significant, is the need for companies to embrace automation for managing third-party risk. Companies have been inundated by vendors with white papers, webinars and information needed to demonstrate the real and tangible benefits of automated third-party solutions. Despite these evident benefits, surveys continue to show that less than 50 percent of responding companies have implemented an automated solution for third-party risk management.
 
Second, chief compliance officers need to embrace data analytics as a valuable tool to measure and monitor the performance of their compliance programs. CCOs have to recognize that their own credibility and utility to an organization has to be demonstrated through tangible metrics. Feel good statements about corporate culture and overall compliance performance cannot substitute for accurate measurement and reporting of such data.
 
CCOs are not data professionals but they need to learn how to design data collection and analysis programs. CCOs should start small in this area by developing projects that demonstrate the benefits of data collection and analysis. For example, culture surveys are an important first step in understanding a company’s mood. A targeted survey in a high risk area would be a good starting point. From this baseline, a CCO could then develop other measures to influence culture and performance, such as reporting of violations, focused communications, interviews and focus groups, and other measures designed to improve the company’s culture in a specific operation or area.
 
Based on these efforts, the CCO can then follow-up to examine data such as employee turnover, reporting levels, follow-up survey results, and other possible indicators of improved culture. In other words, a CCO should design a test initiative and measure for results to identify and measure a company’s culture, strategies to improve the culture and measurements of results.
 
All of this sounds like a lot of work but such an initiative can have big results – it can help the CCO to target resources, collect and analyze data, and gain insights into strategies that work. Building on this model, there are many other areas where such focused initiatives can work as well – third-party risk management, training, and gifts and hospitality expenditures.
 
Finally, when it comes to technology, CCOs have to monitor and examine blockchain technology developments. The promise of blockchain is significant and applicable to all aspects of compliance. Blockchain technology is not yet widely accepted and cost-effective but is rapidly developing into a real solution for numerous compliance functions, including supply chain management, third party due diligence, and financial operations.
 
These are only a few of the more significant technological solutions available for compliance. More solutions are on the horizon and CCOs have to embrace such solutions or the profession will be left behind.

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COMM_a2
13. W. Segall, J. Poling & J. Helder: “U.S. State Department Issues Belated List and Guidance on Extraterritorial Sanctions Affecting Russian Defense and Intelligence Sector Entities”

(Source:
Akin Gump Strauss Hauer & Feld LLP
, 30 Oct 2017.)
 
* Authors: Wynn Segall, Esq.,
wsegall@akingump.com
, 202-887-4573; Jonathan Poling, Esq.,
jpoling@akingump.com
, 202-887-4029; and Jasper Helder, Esq.,
jasper.helder@akingump.com
, +44 20-7661-5308. All of Akin Gump Strauss Hauer & Feld LLP.
 
Key Points:
  – On October 27, 2017, the U.S. State Department issued guidance identifying 39 entities related to the defense and intelligence sectors of the Government of the Russian Federation and issued related guidance on criteria to be used in identifying sanctionable “significant transactions.”
  – Under Section 231 of the Countering America’s Adversaries Through Sanctions Act of 2017 (CAATSA or the “Act”), by January 29, 2018, President Trump is required to impose sanctions (or waive the application of sanctions) on those U.S. and non-U.S. persons who engage, or have engaged, in “significant transactions” with these entities since CAATSA was enacted on August 2, 2017.
  – Punitive sanctions under these provisions of CAATSA include prohibitions on financing and financial services by certain public financial institutions, restrictions on debt and extensions of credit by other U.S. financial institutions, restrictions on other financial and property transactions, restrictions on investments in a sanctioned entity and restrictions on U.S. export licensing.
  – In light of these new U.S. sanctions measures, companies with potentially affected interests in Russia should review their commercial relationships and commitments for possible risk exposure associated with the Russian entities identified by the State Department.
 
On October 27, 2017, three weeks after the congressionally mandated deadline of October 1, the U.S. State Department issued guidance to Congress identifying 33 entities that are part of, or operating for or on behalf of, the defense sector of the government of the Russian Federation, as well as six entities that are part of, or operating for or on behalf of the intelligence sector of the government of the Russian Federation. This list provides the basis for U.S. sanctions action against companies found to engage in a “significant transaction” with the listed entities, which the Trump administration is required to implement by January 29, 2018.
 
Background
 
President Trump signed the CAATSA legislation into law on August 2, 2017. Section 231 of this law requires the imposition of sanctions on anyone “that the President determines knowingly . . . engages in a significant transaction with a person that is part of, or operates for or on behalf of, the defense or intelligence sectors of the Government of the Russian Federation, including the Main Intelligence Agency of the General Staff of the Armed Forces of the Russian Federation or the Federal Security Service of the Russian Federation.”
 
Although Section 231(a) provides for a delay in implementation and imposition of specific sanctions measures for 180 days after August 2, 2017, Section 231(d) requires that “[n]ot later than 60 days after the date of the enactment of this Act, the President shall issue regulations or other guidance to specify the persons that are part of, or operate for or on behalf of, the defense and intelligence sectors of the government of the Russian Federation.” This 60-day deadline expired on October 1, 2017.
 
Several members of Congress, on both sides of the aisle, publicly voiced concerns about the Trump administration’s commitment to implement these measures on a timely basis. In particular, Sen. John McCain, Chairman of the Senate Armed Services Committee, and Sen. Ben Cardin, Ranking Member of the Senate Foreign Relations Committee, wrote a letter to President Trump two days before the October 1 deadline reminding him of its imminence, and both senators were highly critical when the deadline passed with neither action nor explanation. More recently, Sen. Bob Corker, Chairman of the Senate Foreign Relations Committee, also voiced concern about the delay.
 
Summary of Section 231 Provisions
 
Two days before the October 1 deadline, on September 29, 2017, President Trump delegated the authority to implement Section 231(d) of CAATSA, requiring the issuance of regulations or other guidance to specify persons that are part of, or operating for or on behalf of, the Russian defense and intelligence sectors to the Secretary of State in consultation with the Secretary of Treasury. As a first step in implementing these provisions, on October 27, 2017, the State Department issued a list of 39 entities that it identifies as part of, or operating for or on behalf of, the defense and intelligence arms of the Russian government.
 
Targeted Russian Entities
 
Among other significant Russian companies on this list, it includes Rostec (Russian Technologies State Corporation), a Russian holding company active in the defense sector; Rosoboronexport JSC, Russia’s largest arms exporting company; and Kalashnikov Concern, a combat weapons producer. Certain entities listed, such as Sukhoi Aviation JSC, engage in both civilian as well as defense-related businesses. The list includes both state-owned enterprises as well as privately held companies (or subsidiaries of public companies). Additionally, some of the listed entities are subsidiaries of other entities that are included in the list. Some, but not all, of the entities listed are subject to U.S. sanctions imposed under other authorities. The full list may be viewed here.
 
Punitive Sanctions Measures Applicable under Section 231
 
Beginning on or after January 29, 2018, CAATSA requires the imposition of five or more of the following sanctions on companies determined to have engaged in a “significant transaction” in violation of Section 231 since August 2, 2017, unless the President waives or delays the initial imposition of these measures:
 
* restrictions on the provision of loans or providing credit totaling more than $10 million in any 12-month period to a targeted entity by U.S. financial institutions
* a requirement that the United States oppose any loan from international financial institutions that would benefit a sanctioned person
* if the person is a financial institution, sanctions include:
  – prohibition by the Federal Reserve from being designated as a primary dealer in U.S. government debt instruments
  – prohibition from serving as an agent of the U.S. government or from serving as repository for U.S. government funds
* a prohibition on engaging in any transactions in a foreign exchange that is subject to U.S. jurisdiction
* restrictions on banking transactions by the sanctioned person, including transfers of credit or payments between, by, through or to any financial institution
* denial of approval for extensions of credit to a targeted entity by the U.S. Export-Import Bank
* denial of licenses to receive exports of controlled goods or technology from the United States
* a prohibition from engaging in U.S. government contracting
* a prohibition on transactions involving the property of the sanctioned person that is subject to U.S. jurisdiction
* a ban on investment by any U.S. person in the equity or debt of the sanctioned person
* denial of entry visas to the United States for foreign officers, principals and controlling shareholders of the sanctioned person
* the application of any of the above sanctions on the principal executive officer(s) of the sanctioned person.
 
Imposition of sanctions under the Section 231 provisions is due to begin on or after January 29, 2018. The State Department has stated that it will make such sanctions determinations and publish a related notice of such actions when this occurs. However, it has not otherwise indicated what the procedure will be or how such determinations will be made in practice.
 
Guidance and Criteria for Identifying Sanctionable “Significant Transactions”
 
The State Department has also provided FAQs explaining what kinds of transactions might trigger sanctions under CAATSA in the coming months. In determining whether a transaction with a listed entity is “significant” for purposes of Section 231 of CAATSA, the State Department will consider “the totality of the facts and circumstances surrounding the transaction and weigh various factors on a case-by-case basis.” Factors considered may include (i) the significance of the transaction to the U.S. national security and foreign policy interest and, in particular, whether it has a significant adverse impact on such interests; (ii) the nature and magnitude of the transaction; and (iii) the relation and significance of the transaction to the defense or intelligence sector of the Russian government.
 
Initially, the State Department has indicated that it expects to focus on “significant transactions of a defense or intelligence nature” with those named on the list. However, not all transactions with the named entities will necessarily be subject to sanctions, particularly those transactions that have “purely civilian end-uses and/or civilian end-users, and do not involve entities in the intelligence sectors.” This FAQ suggests that sanctions may be aimed at specific activities or transactions undertaken by or with such entities. Importantly, the FAQs explain that the guidance is not a determination regarding imposition of sanctions, as no asset freezes or other sanctions are being imposed on any entity on the list, nor does inclusion on the list necessarily mean that such persons will be added to any one of the U.S. Department of the Treasury, Office of Foreign Asset Control’s (OFAC) sanctions lists.
 
The FAQs expressly state that if a transaction is necessary to comply with rules and regulations administered by the Federal Security Service (FSS) (including for the importation, distribution or use of information technology products in Russia, and the payment of any related fees to FSS) these factors will weigh “heavily” against a determination that such a transaction is “significant.” Moreover, on February 2, 2017, OFAC issued Cyber-related General License No. 1, a general license that authorizes U.S. persons to engage in the aforementioned activities with the FSS.
 
The FAQs also address the issue of an allied or partner state that purchases Russian-origin military equipment, spare parts and related supplies, noting that the State Department intends to work with our allies and partners “to help them identify and avoid engaging in potentially sanctionable activity while strengthening military capabilities used for cooperative defense efforts.” During a press briefing on this guidance on October 27, 2017, in response to questions about the impact on allies who have Russian military equipment and may need to buy spare parts, a senior State Department official further emphasized the significance threshold that “would presumably exclude certain things that are less than significant” and added that the State Department would “consider the totality of circumstances in any individual case when making a decision, but I think that smaller-scale things, lesser things, would cut against making a decision that those are significant, particularly in cases where you have an ally that we want to have strong military capabilities to continue to partner with them across a range of scenarios.”
 
Congressional Reaction
 
Members of Congress have reacted to this action by the administration by describing it as progress in implementing U.S. sanctions. At the same time, it is clear that Congress will continue to monitor closely, and press the administration to further enforce, the sanctions going forward. In a joint statement on October 26, 2017, Sens. McCain and Cardin commented that Congress “will continue to conduct oversight of each step [of the statute’s implementation] to ensure that the administration is following both the letter and the spirit of the law – including persuading entities to stop doing business with those on the list, coordinating with European allies and other key partners, and briefing and consulting Congress on a regular basis.” In a separate statement, Sen. Corker added that the guidance “is a good first step in responsibly implementing a very complex piece of legislation” and that “Congress will expect thorough and timely consultation until full implementation is complete.”
 
Review and Consideration of Potential Risk Exposure
 
It remains to be seen what practical impact the new measures will have on companies. In Europe, it is important to note that member countries of the European Union maintain defense-related restrictions that target exports of dual-use items and related technical and financial assistance to Russia and particular companies in the Russian defense sector. Moreover, many EU countries generally will not issue licenses for exports of dual-use items to entities in the Russian intelligence sector. Accordingly, this may limit the practical impact of the new U.S. measures on European companies. It is less clear how this will affect companies elsewhere.
 
At this time, it is important for companies that may be affected by these new U.S. sanctions measures to conduct careful diligence to identify any business that they may have with any of the 39 listed Russian defense and intelligence-related entities and determine implications for their interests and steps they may be required to take to comply with new U.S. sanctions restrictions expected to be imposed in January 2018. Companies should promptly assess transactions and interactions with such entities in light of this guidance to determine whether those transactions and interactions could be viewed as “significant,” potentially exposing such companies (including U.S. persons) to sanctions. Where risks are identified, it will be important to further evaluate practical options to address related concerns and obtain further guidance, including potential options to seek further guidance and consultation with U.S. officials on how the Section 231 provisions may apply, whether in direct communications or on a blind-basis, in consultation with U.S. Counsel.

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COMM_a3
14. R.C. Burns: “OFAC and Zimbabwe Bank Negotiating over Penalties”
(Source:
Export Law Blog
, 30 Oct 2017. Reprinted by permission.)
 
* Author: R. Clifton Burns, Esq., Bryan Cave LLP, Wash DC,
Clif.Burns@bryancave.com
, 202-508-6067).
 
African media is reporting that the Office of Foreign Assets Control (“OFAC”) and CBZ Bank are in the process of negotiating over a jaw-dropping proposed penalty.  The penalty negotiations arise from CBZ’s allegedly having cleared U.S. dollar transactions for ZB Bank, a bank in Zimbabwe that appears on OFAC’s List of Specially Designated Nationals and Blocked Persons.
 
The charges by OFAC involve 15,127 violations, which led OFAC to write this in its initial penalty notice sent to CBZ in March:
 
Accordingly, the base penalty for the apparent violations equals the applicable schedule amount for each apparent violation, capped at US$250 000 per apparent violation, which in this case totals US$3,856,505,460.
 
The math here is a little whacked out for some reason since 15,127 times $250,000 is $3,781,750,000.  But what’s several hundred thousand dollars, more or less, when you’re talking Dr. Evil sized billion dollar amounts?  According to the press accounts, OFAC has already been bargained down to $385 million.  Of course, that is still a good chunk of the banks current total assets of $2.1 billion.
 
The transactions involved were allegedly all denominated in U.S. dollars.  Even so, the bank is trying to argue with OFAC that the transactions were “in-country” and therefore not subject to U.S. sanctions.  It’s not quite clear whether this is an argument that only transactions by CBZ with SDNs not in Zimbabwe may be sanctioned, an argument not likely to get much traction.  Or, alternatively whether this is an argument that no correspondent accounts in New York were used to clear the transactions, something that might have been possible for a few small transactions but not very likely for all 15,127 violations.
 
The better argument here, it seems, is that a $385 million dollar penalty against a bank with $2 billion in assets could cause a run on the bank and could harm ordinary people in Zimbabwe with accounts at the bank.  That, of course, assumes that the U.S. government cares about ordinary people in Zimbabwe.

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ENEDITOR’S NOTES

 

* Natalie Clifford Barney (31 Oct 1876 –  2 Feb 1972; was an American playwright, poet and novelist who lived as an expatriate in Paris.)
  – “The advantage of love at first sight is that it delays a second sight.”
  – “Most virtue is a demand for greater seduction.”
 
* John Keats (31 Oct 1795 – 23 Feb 1821) was an English Romantic poet. He was one of the main figures of the second generation of Romantic poets, along with Lord Byron and Percy Bysshe Shelley, despite his works having been in publication for only four years before his death at age 25.  Although his poems were not generally well received by critics during his lifetime, his reputation grew after his death, and by the end of the 19th century, he had become one of the most beloved of all English poets.)
  – “I would sooner fail than not be among the greatest.”
 
More Halloween humor:
 
Q: Why don’t ghosts like rain on Halloween?
A: It dampens their spirits!
  — Jess W., Spartanburg, S.C.
 
Q. What kind of music do mummies like listening to?
A: Wrap music!
 — Brent J., Upper Arlington, OH
 
Q: What the best plant to decorate with on Halloween?
A: Bam-BOO!
  — Tanner S., Tampa, FL
 
Q: Why was the ghost arrested on Halloween?
A: It didn’t have a haunting license.
  — Howard H., Newark, Calif.
 
Q: Why did the young monster’s grandmother knit him three socks to wear on Halloween?
A: She heard he had grown another foot!
  — Matthew C., Gladstone, Mo.

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EN_a316
. 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.
 
*
ATF ARMS IMPORT REGULATIONS
: 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. 
 
*
CUSTOMS REGULATIONS
: 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.]
 
DOD NATIONAL INDUSTRIAL SECURITY PROGRAM OPERATING MANUAL (NISPOM): DoD 5220.22-M

  – Last Amendment: 18 May 2016: Change 2
: Implement an insider threat program; reporting requirements for Cleared Defense Contractors; alignment with Federal standards for classified information systems; incorporated and cancelled Supp. 1 to the NISPOM (Summary 
here
.)


EXPORT ADMINISTRATION REGULATIONS (EAR)
: 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

  
*
FOREIGN ASSETS CONTROL REGULATIONS (OFAC FACR)
: 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders
  – Last Amendment: 31 Oct 2017: 82 FR 50313-50315: Global Terrorism Sanctions Regulations 
 
*
FOREIGN TRADE REGULATIONS (FTR)
: 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
here.
  – 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.
 
*
HARMONIZED TARIFF SCHEDULE OF THE UNITED STATES (HTS, HTSA or HTSUSA)
, 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.

 
INTERNATIONAL TRAFFIC IN ARMS REGULATIONS (ITAR): 22 C.F.R. Ch. I, Subch. M, Pts. 120-130.
  – 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 

ITAR
(“BITAR”)
, by James E. Bartlett III. The BITAR contains all ITAR amendments to date, plus a large Index, over 800 footnotes containing amendment histories, case annotations, practice tips, DDTC guidance, and explanations of errors in the official ITAR text. Subscribers receive updated copies of the BITAR in Word by email, usually revised within 24 hours after every ITAR amendment.
 The BITAR is available by annual subscription from the Full Circle Compliance
 
website
. BAFTR subscribers receive a 25% discount on subscriptions to the BITAR, please
contact us
to receive your discount code.
 

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EN_a0317. 
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 
here

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EPEDITORIAL POLICY

* The Ex/Im Daily Update is a publication of FCC Advisory B.V., compiled by: Editor, James E. Bartlett III; Assistant Editors, Alexander P. Bosch and Vincent J.A. Goossen; and Events & Jobs Editor, John Bartlett. The Ex/Im Daily Update is emailed every business day to approximately 8,000 readers of changes to defense and high-tech trade laws and regulations. We check the following sources daily: Federal Register, Congressional Record, Commerce/AES, Commerce/BIS, DHS/CBP, DOJ/ATF, DoD/DSS, DoD/DTSA, State/DDTC, Treasury/OFAC, White House, and similar websites of Australia, Canada, U.K., and other countries and international organizations.  Due to space limitations, we do not post Arms Sales notifications, Denied Party listings, or Customs AD/CVD items.

* RIGHTS & RESTRICTIONS: This email contains no proprietary, classified, or export-controlled information. All items are obtained from public sources or are published with permission of private contributors, and may be freely circulated without further permission. Any further use of contributors’ material, however, must comply with applicable copyright laws.

* CAVEAT: The contents of this newsletter cannot be relied upon as legal or expert advice.  Consult your own legal counsel or compliance specialists before taking actions based upon news items or opinions from this or other unofficial sources.  If any U.S. federal tax issue is discussed in this communication, it was not intended or written by the author or sender for tax or legal advice, and cannot be used for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing, or recommending to another party any transaction or tax-related matter.

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