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17-1102 Thursday “Daily Bugle”

17-1102 Thursday “Daily Bugle”

Thursday, 2 November 2017

TOP
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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[No items of interest noted today.]

  1. Ex/Im Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS Posts Warning Letter for Phillips Specialty Products Inc. of Bartlesville, OK
  3. DHS/CBP Updates Air Import Manifest Appendix A
  4. State/DDTC: (No new postings.)
  5. Hong Kong TID Releases Strategic Trade Controls Circular Concerning Scheduled Chemicals and Unscheduled Discrete Organic Chemicals Requirements
  1. DDTC’s Arthur Schulman: “Protecting Technical Data is One of Industry’s Biggest ITAR Compliance Challenges”
  2. Fox Business: “Airbus Could Face Debarment, Fine Over U.S. Export Control Missteps – Lawyers”
  3. The Globe and Mail: “Liberal Bill Leaves Major Hole in Arms Trade Treaty Obligations, Study Says”
  4. The Hill: “Uranium One Deal Led to Some Exports to Europe, Memos Show”
  5. The Huffington Post: “Military-Grade Night Vision Gear Is Widely Available to Civilians – And That’s a Problem”
  6. Reuters: “Expanded U.S. Sanctions May Affect Russia’s Foreign Expansion in Oil and Gas”
  1. E. Regehr: “Why Debate in Canada Over Military Drone Use is Sorely Needed”
  2. M. Volkov: “HR and Compliance: Working Together to Hire Ethical Employees”
  3. P. Jeydel, B. Egan & M. Rathbone: “State Department Allows Certain Civilian Trade to Continue with Russia’s Defense Sector”
  4. Gary Stanley’s ECR Tip of the Day
  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 (1 Nov 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

 

[No items of interest noted today.]

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OGSOTHER GOVERNMENT SOURCES

OGS_a11. Ex/Im Items Scheduled for Publication in Future Federal Register Editions
(Source: Federal Register

* DHS/CBP; NOTICES; Meetings: 2017 East Coast Trade Symposium [Publication Date: 3 Nov 2017.]

* STATE/DDTC; NOTICES; Meetings: Defense Trade Advisory Group [Publication Date: 3 Nov 2017.]

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OGS_a22.

Commerce/BIS Posts Warning Letter for Phillips Specialty Products Inc. of Bartlesville, OK


(Source:
Commerce/BIS) [Excerpts.]
 
* Company: Phillips Specialty Products Inc. of Bartlesville, OK.
* Suspected Violation: On or about 14 March 2013, in connection with the sale and/or transfer of goods or services (including information) from the United States to Libya, Phillips Specialty Products Inc. furnished to Letter of Credit Advising Bank a Shipping Certificate, which had the following certification affixed thereon: WE HEREBY STATE THAT THE CARRYING VESSEL IS ALLOWED TO ENTER LIBYAN PORTS. Section 760.2(d) of the Export Administration Regulations (EAR) prohibits providing such information.
* Date: 29 Sep 2017.

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OGS_a33.

DHS/CBP Updates Air Import Manifest Appendix A

(Source:
CSMS# 17-000693, 2 Nov 2017.)
 
An updated Air Import Manifest Appendix A CAMIR has been posted to CBP.gov and can be accessed here.

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OGS_a55
.

Hong Kong TID Releases Strategic Trade Controls Circular Concerning Scheduled Chemicals and Unscheduled Discrete Organic Chemicals Requirements

 
The Trade and Industry Department (TID) of Hong Kong has released Strategic Trade Controls Circular No. 16/2017: Permit Requirement for 2018 and Report on Past Activities in 2017 for Scheduled Chemicals and Unscheduled Discrete Organic Chemicals under Chemical Weapons (Convention) Ordinance, Cap. 578.
 
The Circular is available here.  

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NWSNEWS

NWS_a1
6. DDTC’s Arthur Schulman: “Protecting Technical Data is One of Industry’s Biggest ITAR Compliance Challenges”

(Source: Editor, 2 Nov 2017.)
 
Arthur Shulman, Acting Director, Office of Defense Trade Controls Compliance, Dep’t of State, told attendees yesterday (1 Nov 2017) at Sheppard Mullin law firm’s “Trends and Directions in the Aerospace & Defense Market” conference in Washington DC that protecting technical data is one of industry’s most challenging tasks in complying with the International Traffic in Arms Regulations (ITAR). Shulman’s presentation included:
 
(1) To help protect ITAR-controlled data, you should:
  – Know what you have (proper USML classification);
  – Know where you have it (storage and transfers); and
  – Know who has access to it.
  – Use best practices to prevent ITAR technical data violations, which can include:
    (i) Automatic electronic tagging.
    (ii) Automatic electronic monitoring of access.
    (iii) Controls over unauthorized access and transfer, such as software that prevents attachments to email unless sender confirms it contains no technical data or transfer is authorized.
 
(2) Voluntary Disclosures.  To help merit mitigation credit, VDs should include all the elements listed in ITAR 127.12, but many VDs are missing some of the following key elements:
  – Evidence that you conducted a thorough investigation into the root cause of the violation before your final VD submission.
  – Remedial corrective actions.  Have you taken actions that would have prevented the violation if they had been in place before the violation? 
  – Confirmation that a search has been made for similar incidents in all parts of the company, and identification of other suspected violations.
 
(3) DDTC has seen an increase in the number of violations of the ITAR 122.4(b) requirement to notify DDTC at least 60 days before an intended sale or transfer of ownership or control of the registrant’s company to a foreign person.
 
(4) Does your company have adequate resources – staffing and software – to prevent violations? Export Control Reform has resulted in fast-changing requirements. Your company needs a dynamic system of constant education and reviews (internal self-assessments and external audits) to ensure compliance.
 
(5) Hacking. DDTC wants to be notified if hacking has resulted in unauthorized access to your technical data. Even if you did not intentionally transfer data to an unauthorized person, evidence of hacking may indicate that you need to improve your security systems. Also, if the hacked files contained data related to government contracts, you may have a DFARS obligation to report that event to your government contract officer, and DDTC may be notified by that agency of the possible compromise of ITAR-controlled data. DDTC should hear it from you first.

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NWS_a2
7. Fox Business: “Airbus Could Face Debarment, Fine Over U.S. Export Control Missteps – Lawyers”

(Source: Fox Business, 2 Nov 2017.) [Excerpts.]
 
Airbus SE could be barred from receiving U.S. export licenses for military equipment over misstatements that the company says it made on certain arms deals, some legal experts said, though they see a monetary fine as a more likely outcome.
 
The European plane maker said this week that it had notified U.S. authorities of misstatements in its export license requests.
 
The misstatements were related to Airbus’s failure to inform authorities about the use of sales agents on certain sales of defense goods and services, though the use of middlemen is not itself a violation.
 
The company didn’t say on which contracts the errors occurred.
 
  “There are likely to be civil penalties levied,” said Joseph Gustavus, an export licensing attorney at Miller Canfield.
 
Airbus first notified U.S. authorities about a potential problem late in 2016. That triggered an in-depth internal Airbus review and, in July, led the company to formally inform U.S. authorities rules were broken. … 

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NWS_a3
8. The Globe and Mail: “Liberal Bill Leaves Major Hole in Arms Trade Treaty Obligations, Study Says”

(Source: The Globe and Mail, 1 Nov 2017.) [Excerpts.]
 
A new study says the [Canadian] Trudeau government’s effort to comply with a global arms trade treaty is fundamentally flawed because legislation drafted by the Liberals is written in such a way that it allows Ottawa to export military goods to human rights abusers or foreign conflicts without hard constraints.
 
The Trudeau government has made a great deal of the fact it’s acceding to the United Nations’ Arms Trade Treaty, holding this up as an example of how it’s taking a “new, ethical approach to foreign affairs.” …
 
The court’s ruling exposed a gap between the public claims Ottawa makes about Canadian arms-export controls and the actual constraints these rules place on a minister. Successive federal governments have boasted that Canada’s controls on weapons exports are among the “strongest in the world.”

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NWS_a4
9. The Hill: “Uranium One Deal Led to Exports to Europe, Memos Show”

(Source: The Hill, 2 Nov 2017.) [Excerpts.]
 
After the Obama administration approved the sale of a Canadian mining company with significant U.S. uranium reserves to a firm owned by Russia’s government, the Nuclear Regulatory Commission assured Congress and the public the new owners couldn’t export any raw nuclear fuel from America’s shores.
 
  “No uranium produced at either facility may be exported,” the NRC declared in a November 2010 press release that announced that ARMZ, a subsidiary of the Russian-owned Rosatom, had been approved to take ownership of the Uranium One mining firm and its American assets. …
 

Yet NRC memos reviewed by The Hill shows that it did approve the shipment of yellowcake uranium – the raw material used to make nuclear fuel and weapons – from the Russian-owned mines in the United States to Canada in 2012 through a third party. Later, the Obama administration approved some of that uranium going all the way to Europe, government documents show. … 

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NWS_a5
10. The Huffington Post: “Military-Grade Night Vision Gear Is Widely Available to Civilians – And That’s a Problem”

(Source: The Huffington Post, 31 Oct 2017.) [Excerpts.]
 
Experts worry that the growing market for high-tech night vision gear is a national security concern.
 
In July 2015, a North Korean native named Song Il Kim walked into a Honolulu hotel room to hand over $16,000 cash for three pairs of night vision goggles that he was planning to mail overseas.
 
Kim, 42, lives in China and was traveling on a Cambodian passport. He planned to ship the goggles from Hawaii to China in a box labeled “toys.”
 
The sale turned out to be a sting operation, and Homeland Security agents arrested Kim a short time later. Federal prosecutors charged him with violating the Arms Export Control Act, which regulates the sale of military equipment, and a judge sentenced him to 40 months in prison after he pled guilty in 2016. A separate smuggling charge was dropped as part of a plea deal.
 

But Kim’s crime wasn’t buying military-grade technology – it was his attempt to export the equipment without a license. Prosecutors argued that the high-tech military equipment could have ended up in the hands of the North Korean government. …  

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NWS_a6
11Reuters: “Expanded U.S. Sanctions May Affect Russia’s Foreign Expansion in Oil and Gas”

(Source: Reuters, 1 Nov 2017.) [Excerpts.]
 
Key Points:
  * U.S. discloses amended sanctions against Russian energy firms
  * Analysts say sanctions mainly aimed at potential projects
  * U.S. sanctions have not yet impeded Russian oil production
 
Newly updated sanctions introduced by the United States against Moscow for its role in the Ukraine crisis may put a brake on Russia’s future efforts to increase its exposure to the global oil and gas industry, analysts said on Wednesday.
 
However, the punitive measures will have little immediate effect on the operations of Russian energy companies abroad, they said.
 
The U.S. Treasury’s Office of Foreign Assets Control on Tuesday published an amendment to sanctions against exploration or production for deepwater, Arctic offshore, or shale projects implemented by Russian companies, including abroad.
 
In particular, the document prohibits helping Russian oil companies that already face sanctions in exploration or production for deepwater, Arctic offshore, or shale projects abroad which are to be initiated after Jan. 29, 2018 and where Russian holdings are 33 percent or more. …
 
Analysts pointed to grey areas over what constitutes shale oil. A lack of clarity over its definition has allowed foreign companies to produce something similar to shale oil in Russia.
 
Moscow-based producers have not yet outlined plans to produce shale oil abroad. The sanctions may still jeopardise any such future projects, analysts said.
 
  “The issue is one of interpretation. There are some risks now for Russian producers if they want to start drilling for shale oil in China or Argentina,” said Alexei Kokin of Moscow-based brokerage Uralsib.
 
The Iraqi oilfields Badra and West Qurna-2, as well as projects in Venezuela’s Orinoco belt, are the largest for Russian companies globally but are not targeted by sanctions.

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COMMCOMMENTARY

COMM_a01
12. E. Regehr: “Why Debate in Canada Over Military Drone Use is Sorely Needed”

(Source: Open Canada, 1 Nov 2017.) [Excerpts.]
 
* Author: Ernie Regehr, Senior Fellow in Arctic Security with The Simons Foundation, and Research Fellow at the Centre for Peace Advancement at Conrad Grebel College, University of Waterloo.
 
Canada can expect more drone sales from the US to Canada under the Trump administration, writes Ernie Regehr, making a debate over regulations even more urgent.
 
That is certainly good to know, but it will take more than personal pledges to mitigate concerns about the uses and abuses of armed, remotely piloted aerial vehicles.
 
A clear national policy framework to guide and restrain Canada’s entry into the armed drone world is an obvious requirement, but so too is Canadian engagement with the international community in elaborating global standards for drone operations and transfers.
 
The Canadian Department of National Defence (DND) likes to say that armed drones are just another weapon system, but, in fact, they have particular characteristics that involve unique risks. Long-distance drones, for example, can be both remote from and constantly present in theatres of combat. With pilots that are remote and out of harm’s way, while the aircraft themselves hover indefinitely over potential targets, drone operations tilt towards the order to fire, and, inevitably, the resort-to-force threshold is lowered.

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COMM_a2
13. M. Volkov: “HR and Compliance: Working Together to Hire Ethical Employees”

(Source: Volkov Law Group Blog, 1 Nov 2017.) Reprinted by permission.)
 
* Author: Michael Volkov, Esq., Volkov Law Group, mvolkov@volkovlaw.com, 240-505-1992.
 
Human resources and compliance professionals share many common objectives and interests. They need to coordinate and operationalize their joint interests in a variety of ways.
 
One area that demands more focus is the hiring of ethical employees. The ISO 37001 Anti-Bribery Management System includes important requirements for the hiring (or transfer) of employees to functions that involve bribery risks.
 
So much attention has been paid to engaging third parties. Companies have to revisit their own hiring practices because of the serious risks that an employee may create if he/she is willing to jettison ethical principles in favor of short-term financial benefits.
 
Hiring managers need to focus on ethics-related character traits – integrity and accountability – when screening job candidates. In some cases, character traits may outrank the importance of a specific job skill. I would argue that integrity is the most important trait that a potential employee must have in order to survive the job application and screening process.
 
If a hiring manager has concerns about the applicant’s honesty, accuracy of the candidate’s resume or possible misconduct or untruthfulness in the past, the candidate should be excluded from consideration. Assuming that a candidate passes the integrity screen, the hiring manager should then focus on work ethic, self-motivation and accountability.
 
A hiring manager has to conduct interviews that focus directly on the candidate’ integrity. An interview must confirm the integrity and overall honesty of the candidate. A candidate that honestly reports an accomplishment with a group or a team is a strong indicator of integrity and a cooperative and confident perspective.
 
The company’s job announcement should include a specific notice that prior positions, references and a background check (if permitted under state law) will be conducted. This sends an important message to an applicant – the company demands honesty and integrity and will verify these traits during the employment screening process.
 
Unfortunately, the rate of misrepresentations in resumes continues to hover around 20 percent. If a job candidate’s prior history is inaccurate, that should be a disqualifying factor. Even executive candidates lie in approximately 10 to 20 percent of submitted resumes.
 
When speaking to references or prior supervisors, hiring managers should focus on behavioral indicators of a candidate’s ethics and integrity, including the applicant’s attendance, willingness to follow instructions, assistance to co-workers, timeliness and disciplinary record.
 
To the extent a company can employ pre-employment testing, the hiring manager should ensure that integrity is a tested attribute for a candidate. This is usually accomplished through scenarios that focus on the candidate’s attitude towards risky workplace behavior, theft, lying and unethical behavior. In addition, the test can include questions on the candidate’s attitude toward misuse of company resources, email and Internet abuse, trust with confidential information and personal responsibility.
 
A hiring manager has to ensure that a candidate fits the company’s ethical culture. For example, the candidate’s attitude should be tested by questions relating to the company’s compliance program, ethical code of conduct and sustainability programs, as well as the company’s reputation for trust and integrity.
 
Candidates should be asked about prior instances in which they acted ethically – such as reporting misconduct by others, and involvement in compliance and ethics events. If the candidate is applying for a financial position, the candidate should be asked about ethical issues that may have come up in prior positions and how the candidate resolved the specific issue.

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COMM_a3
14. P. Jeydel, B. Egan & M. Rathbone: “State Department Allows Certain Civilian Trade to Continue with Russia’s Defense Sector”

(Source: Steptoe & Johnson LLP, 1 Nov 2017.)
 
* Authors: Peter Jeydel, Esq., pjeydel@steptoe.com; Brian Egan, Esq., began@steptoe.com; and Meredith Rathbone, Esq., mrathbone@steptoe.com. All of Steptoe & Johnson LLP, Washington DC and London, respectively.
 
On October 27, 2017, pursuant to Section 231 of the Countering America’s Adversaries Through Sanctions Act (CAATSA), the US Department of State published the list of entities that are part of, or operate for or on behalf of, the Russian defense or intelligence sectors, along with Guidance that sets out indicators of how the Trump Administration intends to implement Section 231. President Trump reluctantly signed the CAATSA on August 2, 2017, and Section 231 of CAATSA requires the imposition of sanctions on any person (US or otherwise) that, on or after that date, “knowingly…engages in a significant transaction with a person that is part of, or operates for or on behalf of, the [Russian] defense or intelligence sectors.” See our previous advisory on CAATSA here. When Section 231 sanctions are triggered, the State Department (to which the authority to implement Section 231 was delegated) must impose five or more measures from a menu of sanctions. The measures range in severity from a restriction on financing by the US Export-Import Bank for exports to the sanctioned person, to more severe measures such as prohibiting US persons from conducting any transactions or dealings with the person that engages in sanctionable conduct. These measures are to be applied, beginning on January 29, 2018, to any person that engages in a significant transaction with a listed entity on or after August 2, 2017.
 
This provision appears to be an attempt to cut off the Russian defense sector from the global market, a remarkably bold ambition given that Russia is the world’s number two arms exporter. (The largest markets for Russian defense items, in descending order, are India (which is by far the largest), Vietnam, China, Algeria, Venezuela, Azerbaijan, and Iraq.)  Senior officials from the State Department, in an October 27 telephone briefing on Section 231, confirmed that its targets “could include the sale of advanced Russian weaponry around the world.” However, this provision is not limited to trade in arms per se. The legislation refers to any “significant transaction” with the Russian defense or intelligence sectors. A “transaction” could involve goods or services; military or civilian parts and components used in the production or delivery of defense or intelligence goods or services; or even purely civilian items traded as such.
 
All but ten of the entities on the Section 231 List published by the State Department are currently designated on the Specially Designated Nationals (SDN) List or the Sectoral Sanctions Identifications (SSI) List, both of which are maintained by the US Department of the Treasury’s Office of Foreign Assets Control (OFAC). Of course, these three sanctions programs all have different ramifications. US persons are prohibited from dealing with persons on the SDN List and are restricted from engaging in a more limited set of activities with persons on the SSI List.  Under CAATSA, a so-called “secondary sanctions” authority that is not limited in application to US persons, the US government must apply sanctions to anyone, regardless of nationality, who engages in significant transactions with an entity on the Section 231 List. In this sense, Section 231 is a potential game-changer.
 
It is noteworthy that the Section 231 List includes names of additional entities in the Russian defense and intelligence sectors.  Because the SDN and SSI restrictions also apply to non-listed entities owned 50% or more by persons on the SDN and SSI Lists, it would be prudent for any business partners of these newly-named Section 231 entities to conduct additional due diligence to determine whether they are 50% or more owned by any SDN or SSI entities.
 
The State Department’s Guidance is silent on a number of key questions.  For example, it is not clear if Section 231 applies only to entities that are specifically named on that list, or if it also applies to entities that are not named on the Section 231 list, but that are owned 50% or more by, or otherwise affiliated with, listed entities. Many of the identified Section 231 List companies have subsidiaries, some of which are in the defense or intelligence sectors (and others of which may operate in other sectors). Companies may conclude that unnamed subsidiaries and other affiliates are also the target of these sanctions, at least in cases in which the nature of that affiliation is public. The State Department Guidance, however, does not address this issue.  
 
Section 231 only applies to transactions conducted “knowingly” with entities in the Russian defense or intelligence sectors, but the statutory definition of “knowingly” includes situations in which the person “should have known” of the relevant facts. This presumably means that there is a due diligence expectation – for example, to look into the affiliations of one’s counterparties, the provenance of goods or services, etc., and determine whether sanctions may apply. The bottom line is that simply screening the names of your direct business partners against the Section 231 List may not be enough if the transaction could be considered “significant.”
 
The Guidance also fails to address whether any existing transactions will be grandfathered. Section 231 requires the imposition of secondary sanctions on persons that engage in significant transactions with identified Russian defense and intelligence sector entities on or after August 2, 2017.  But the State Department did not publish the list of entities that trigger Section 231 sanctions until October 27. How will it treat transactions that occurred in the interim period? And what about arrangements concluded before August 2, 2017 that may have options, milestones, or longer-term supply commitments, or are the subject of negotiated modifications? All of these questions call for further clarification from the State Department.
 
What is a “significant” transaction that could trigger sanctions under Section 231? Not surprisingly, the State Department Guidance makes clear that this is a case-by-case inquiry that looks at all of the facts and circumstances of a particular case, including diplomatic and other broader considerations. It is not simply a technical, quantitative analysis, and there are no monetary thresholds or other objective criteria that could provide any sort of “safe haven.” Any transaction with these sectors gives rise to some level of risk. The Guidance provides some insight on this issue, noting that if “a transaction for goods or services has purely civilian end-uses and/or civilian end-users, and does not involve entities in the intelligence sector, these factors will generally weigh heavily against a determination that such a transaction is significant for purposes of Section 231.” That raises some interesting questions: for example, if a civilian firearms supplier buys Kalashnikovs from an entity on the Section 231 List to sell to sporting goods stores, would that trigger sanctions? It would seem to fall squarely within the cited language from the Guidance, but any significant business with one of these entities could draw scrutiny. What about supplying listed Russian defense or intelligence sector entities with commercial items that might be used to support defense activities, such as commercial electronics used in building defense items? Or purchasing civilian goods that are produced by a defense company or its affiliate?  The Guidance states: “In this initial implementation stage, our focus is expected to be on significant transactions of a defense or intelligence nature with persons named in the Guidance.” Supplying beer or plywood to the Russian military may not be a transaction “of a defense or intelligence nature” in most people’s view, but the Guidance does not rule out the possibility of sanctions for these types of transactions. The Russian military is a sprawling organization, much like the US military, that buys a wide range of goods from suppliers around the world, so it will be important for the State Department to make clear whether it intends to impose restrictions on purely commercial suppliers, or, for that matter, commercial customers of defense sector business units.
 
Addressing a situation that companies face if they import encryption-enabled items into Russia, the Guidance states that, if “a transaction is necessary to comply with rules and regulations administered by the [FSB],” or FSB investigations or enforcement actions, including rules and regulations “for the importation, distribution, or use of” IT products into Russia and any associated fees for licenses, permits, certifications, or notifications, this will again “weigh heavily against a determination that that such transaction is significant for purposes of this section.” This is helpful guidance for IT importers that have to work with the FSB as a technology regulator.  (There is also a related OFAC General License authorizing certain transactions with the FSB, which is on the SDN List.)
 
The Guidance also addresses situations of companies conducting business with the Russian defense or intelligence sectors in ways that are encouraged (or at least not discouraged) by their own governments. In a question and answer (Q&A) format, the Guidance states “Q: Are you required to sanction allied or partner states that purchase Russian-origin military equipment, spare parts, and related supplies? A: In implementing Section 231, the Department of State is mindful of the importance of unity and coordination with our allies and partners on these issues…Where possible, the United States 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.” This underscores that diplomatic engagement will be an important piece of the Section 231 program, but industry should not rely on the protective umbrella of their home governments.
 
State Department officials said in the October 27 telephone briefing that “certainly we’re not looking at this particular sanctions legislation as some sort of competitive tool [i.e., to seek to block Russian suppliers from the global market in favor of US suppliers]. That’s not the intent of Congress and certainly not the administration’s intent in enforcing it.” But, at the same time, the officials stated that Section 231 is “supportive and reflective of” the “longstanding policy not only in the United States, but among our NATO allies,” to “reduc[e] reliance on old Soviet and Russian military equipment.” Practically speaking, it could be inevitable that industrial competition considerations creep into the administration of these sanctions, and will likely be an unintended side effect, at the very least.  
 
The Guidance states: “Where possible, the United States intends to work with persons considering transactions with persons named in this Guidance to help them identify and avoid engaging in potentially sanctionable activity.” And, State Department officials said in the telephone briefing: “Our next steps, I think we are going to take a close look around the world at transactions and dealings that we think may fall within the scope of this sanctions provision, and we’re going to look at really robust engagement with our partners, allies around the world based on our analysis. So we’re right now in the beginning stages of that, but it’s going to look – once we have a good analysis, we’re going to start that robust engagement and talk to partners and allies about where we find transactions that may be problematic.” This again suggests that there will be time for engagement with relevant government agencies, but should not be read as any sort of guarantee that there will be warnings or other leeway offered in the initial phases of implementing Section 231.
 
In considering what steps to take now, industry should not underestimate how challenging it can be to comply with wind-down orders from the US government. It would be prudent to prepare for this possibility as soon as possible. Unlike most secondary sanctions authorities, Section 231 allows the president to “delay” the implementation of sanctions in a particular case, with continuing certifications to Congress every 180 days that the party at risk of being sanctioned is “substantially reducing the number of significant transactions” in which it engages that would be sanctionable.  hat delay authority points to the possibility of the US government creating a “grey list” – whether public or not – of entities that are on deck for sanctions unless they wind down the business that is in the crosshairs.  Using this authority could make it easier for the US Government to take action, without necessarily imposing sanctions, but in a way that could still have a significant impact for the companies involved, from pressure to wind down the activity, to “naming and shaming” through a public grey list, congressional hearings, or other fora.
 
It is likely that Congress will closely monitor the implementation of Section 231. As one illustration, Senators John McCain (R-AZ), Chairman of the Senate Armed Services Committee, and Ben Cardin (D-MD), Ranking Member of the Senate Foreign Relations Committee, have already issued a press release pressuring the Trump Administration to ensure that the Section 231 List is “comprehensive,” and to “dedicate robust staffing and resources to the implementation effort,” warning that they “will conduct focused oversight” of how the administration implements this program.
 
There has been some inaccurate reporting suggesting that the US government will no longer have the resources to implement Section 231, in light of recent reports that the State Department has dissolved its sanctions Coordinator’s office. Several other offices at the State Department remain in place that will be responsible for implementing Section 231, including the Office of Sanctions Policy and Implementation in the Bureau of Economic and Business Affairs’ Office of Counter Threat Finance and Sanctions. According to the president’s delegation of authority memorandum, the State Department is to implement Section 231 in coordination with the Treasury Department, meaning that OFAC will also play a role. The State Department has published a specific email address for those with questions about this new sanctions program (RussiaSection231Sanctions@state.gov) but one should not expect robust engagement through a public email address, and caution is always warranted in contacting the government.
 
Section 231 adds to a web of increasingly complex, and overlapping, sanctions provisions that implicate the Russian defense and intelligence sectors. As noted above, several Russian defense industry entities are on OFAC’s SSI List under “Directive 3,” which restricts US person dealings in their “new debt” of greater than 30 days’ maturity. Other Russian defense industry entities are designated on OFAC’s SDN List, which prohibits US persons from conducting any transactions or dealings with them and imposes an asset freeze. (And, several Russian intelligence sector entities are listed as SDNs under a separate authority related to cyberattacks.) Beyond these “primary sanctions,” an array of secondary sanctions – not limited to Section 231 – target activity involving the Russian defense and intelligence sectors that is outside US jurisdiction. For example, Section 224 of CAATSA provides for secondary sanctions on persons that “knowingly” engage in “significant activities” on behalf of the Russian government “undermining cybersecurity.” There are also CAATSA provisions targeting foreign persons involved in (including providing goods or services in support of) serious human rights abuses “in any territory forcibly occupied or otherwise controlled” by Russia, and those that transfer to Syria “significant financial, material, or technological support that contributes materially to the ability of the Government of Syria to” acquire or develop destabilizing weapons. In addition, there are several very broad secondary sanctions provisions in CAATSA, described in some detail in our previous advisory, which could implicate the Russian defense and intelligence sectors.
 
Given the bipartisan interest among members of Congress in this issue, and the Trump Administration’s need to work closely with Congress to accomplish its priorities in tax reform, healthcare, and other areas, we may anticipate significant efforts by the administration to implement Section 231, primarily (but perhaps not exclusively) through diplomatic efforts to persuade governments and companies to retrench involvement with the Russian defense and intelligence sectors.  

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COMM_a4
15. Gary Stanley’s ECR Tip of the Day

(Source: Defense and Export-Import Update; available by subscription from
gstanley@glstrade.com
)
 
* Author: Gary Stanley, Esq., Global Legal Services, PC, (202) 352-3059,
gstanley@glstrade.com
.
 
Unlike under the ITAR, there are no temporary import licensing requirements under the EAR. No license is required, for example, for an item to come back to the United States for servicing. To return the serviced item to your customer overseas, consult License Exceptions under EAR Part 740 to see if any are available for your transaction. Section 740.2 sets forth restrictions on license exceptions in general, with section 740.2 (a)(13) providing a list of license exceptions available for “600 series” items. You may, for example, meet the terms and conditions of License Exception Servicing and Replacement of Parts and Equipment (RPL) in section 740.10 and be able to use that authorization to return the serviced item. If no license exceptions are available, apply to BIS for a license.

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ENEDITOR’S NOTES

 

Marie Antoinette (born Maria Antonia Josepha Johanna; 2 Nov 1755 – 16 Oct 1793; was the last Queen of France before the French Revolution. She was born an Archduchess of Austria, one of the children of Empress Maria Theresa and Francis I, Holy Roman Emperor.  Marie Antoinette was convicted by the Revolutionary Tribunal of high treason and executed by guillotine on 16 Oct 1793.)
  – “I was a queen, and you took away my crown; a wife, and you killed my husband; a mother, and you deprived me of my children. My blood alone remains: take it, but do not make me suffer long.”
  – “I have seen all, I have heard all, I have forgotten all.”
 
* Daniel Boone (2 Nov 1734 – 26 Sep 1820; was an American pioneer, explorer, woodsman, and frontiersman, whose “frontier exploits” made him one of the first folk heroes of the United States. Boone is most famous for his exploration and settlement of what is now Kentucky, which was then part of Virginia but on the other side of the mountains from the settled areas. 
  – “All you need for happiness is a good gun, a good horse, and a good wife.”
  – “I have never been lost, but I will admit to being confused for several weeks.”

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EN_a317
. 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: 1 Nov 2017: 82 FR 50511-50517: Export Administration Regulations for Use of License Exceptions; Clarifications 

  
*
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: 1 Nov 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_a0318. 
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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