|Tuesday, 14 November 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 here for free subscription. Contact us for advertising inquiries and rates.
- Justice/ATF Seeks Comments on ATF Form 5000.29, Environmental Information
- Ex/Im Items Scheduled for Publication in Future Federal Register Editions
- Commerce/BIS: (No new postings.)
- State/DDTC: (No new postings.)
- EU Amends Restrictive Measures Concerning North Korea, Venezuela, Removes the FARC from “Terrorists List”
- American Shipper: “Trade Trends: The Chinese Dilemma”
- Reuters: “EU Readies Sanctions on Venezuela, Approves Arms Embargo”
- J.A. Lee, R. Kirk & P. Alexiadis: “Proposed Changes to the CFIUS Review Process”
- M. O’Kane: “EU Imposes Arms Embargo and Targeted Sanctions on Venezuela”
- M. Volkov Releases New Podcast: “Episode 10 – How to Conduct a Risk and Compliance Program Assessment”
- R. Cook & M. Garson: “Risk Management: Balancing Needs in Non-Operated International Joint Ventures”
- Gary Stanley’s ECR Tip of the Day
- Bartlett’s Unfamiliar Quotations
- Are Your Copies of Regulations Up to Date? Latest Changes: ATF (15 Jan 2016), Customs (28 Sep 2017), DOD/NISPOM (18 May 2016), EAR (9 Nov 2017), FACR/OFAC (13 Nov 2017), FTR (20 Sep 2017), HTSUS (20 Oct 2017), ITAR (30 Aug 2017)
- Weekly Highlights of the Daily Bugle Top Stories
EX/IM ITEMS FROM TODAY’S FEDERAL REGISTER
1. Justice/ATF Seeks Comments on ATF Form 5000.29, Environmental Information
(Source: Federal Register, 14 Nov 2017.) [Excerpts.]
82 FR 52743-52744: Agency Information Collection Activities; Proposed eCollection eComments Requested; Environmental Information–ATF Form 5000.29
* AGENCY: Bureau of Alcohol, Tobacco, Firearms and Explosives, Department of Justice.
* ACTION: 30-Day notice. …
* DATES: Comments are encouraged and will be accepted for an additional 30 days until December 14, 2017.
* FOR FURTHER INFORMATION CONTACT: If you have additional comments, particularly with respect to the estimated public burden or associated response time, have suggestions, need a copy of the proposed information collection instrument with instructions, or desire any other additional information, please contact Shawn Stevens, ATF Industry Liaison, Federal Explosives Licensing Center, either by mail at 244 Needy Road, Martinsburg, WV 25405, by email at FELC@atf.gov, or by telephone at 1-877-283-3352. Written comments and/or suggestions can also be directed to the Office of Management and Budget, Office of Information and Regulatory Affairs, Attention Department of Justice Desk Officer, Washington, DC 20503 or sent to OIRA_submissions@omb.eop.gov.
* SUPPLEMENTARY INFORMATION: …
– The Title of the Form/Collection: Environmental Information.
– Form number: ATF F 5000.29.
– Component: Bureau of Alcohol, Tobacco, Firearms and Explosives,
U.S. Department of Justice. …
– Abstract: The data provided by the applicant on ATF F 5000.29, Environmental Information, allows ATF to identify any waste product(s) generated as a result of the operations by the applicant and the disposal of the products. The information is then reviewed in order to determine if there is any adverse impact on the environment. Information may be disclosed to other Federal, State and local law enforcement and regulatory personnel to verify information on the form and to aid in the enforcement of environmental laws. …
If additional information is required contact: Melody Braswell, Department Clearance Officer, United States Department of Justice, Justice Management Division, Policy and Planning Staff, Two Constitution Square, 145 N Street NE., 3E.405A, Washington, DC 20530.
Dated: November 8, 2017.
Melody Braswell, Department Clearance Officer for PRA, U.S. Department of Justice.
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OTHER GOVERNMENT SOURCES
|2. Ex/Im Items Scheduled for Publication in Future Federal Register Editions |
(Source: Federal Register)
[No items of interest noted today.]
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| | 5. EU Amends Restrictive Measures Concerning North Korea, Venezuela, Removes the FARC from “Terrorists List”
– Council Regulation (EU) 2017/2061 of 13 November 2017 amending Regulation (EC) No 2580/2001 on specific restrictive measures directed against certain persons and entities with a view to combating terrorism – Council Implementing Regulation (EU) 2017/2064 of 13 November 2017 implementing Article 2(3) of Regulation (EC) No 2580/2001 on specific restrictive measures directed against certain persons and entities with a view to combating terrorism, and amending Implementing Regulation (EU) 2017/1420 – Council Regulation (EU) 2017/2062 of 13 November 2017 amending Regulation (EU) 2017/1509 concerning restrictive measures against the Democratic People’s Republic of Korea – Council Regulation (EU) 2017/2063 of 13 November 2017 concerning restrictive measures in view of the situation in Venezuela
– Council Decision (CFSP) 2017/2072 of 13 November 2017 updating and amending the list of persons, groups and entities subject to Articles 2, 3 and 4 of Common Position 2001/931/CFSP on the application of specific measures to combat terrorism, and amending Decision (CFSP) 2017/1426 – Council Decision (CFSP) 2017/2073 of 13 November 2017 amending Common Position 2001/931/CFSP on the application of specific measures to combat terrorism – Council Decision (CFSP) 2017/2074 of 13 November 2017 concerning restrictive measures in view of the situation in Venezuela
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| | 6. American Shipper: “Trade Trends: The Chinese Dilemma” (Source: American Shipper, 13 Nov 2017.) [Excerpts.]
China’s increasing prominence on the global trade stage is creating a dilemma for multi-national companies: How does a large enterprise balance reacting to short-term changes with planning for the long term? …
[T]here are other pending examples of China’s increasing standing, namely the country’s proposed export reform measures and its role in the proposed Regional Comprehensive Economic Partnership (RCEP). China’s Ministry of Commerce on June 16 released a draft of China’s Export Control Law, which would be the first law in the country to address export controls while demonstrating a tangible commitment to non-proliferation.
“Based on the wording of the draft, exporters and their customers may face additional burdens, such as on-site inspections of end-users, as well as strict licensing review processes,” if they export certain items or technologies, the law firm Covington & Burling said in a recent client note. The firm expects the law to be introduced in 2018. …
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| | 7. Reuters: “EU Readies Sanctions on Venezuela, Approves Arms Embargo” (Source: Reuters, 13 Nov 2017.) [Excerpts.]
European Union foreign ministers approved economic sanctions, including an arms embargo, on Venezuela on Monday, saying regional elections last month marred by reported irregularities had deepened the country’s crisis.
Anxious not to push Caracas any closer to economic and political collapse as debt restructuring talks begin, EU governments held back from targeting any individuals.
The bloc instead left names for a later stage to try to persuade President Nicholas Maduro to calm the situation.
“Everything we do is aimed at seeking dialogue between the government and the opposition to find a democratic and peaceful solution,” Spain’s Foreign Minister Alfonso Dastis told reporters at a meeting with his counterparts where the sanctions decision was made.
Venezuelan opposition leaders said last week they would resume efforts to hold a dialogue with Maduro, even though they say he previously used such talks to stall for time instead of implementing serious reform.
Over the weekend, Maduro had termed imminent sanctions by the bloc as “stupid.”
On Monday, his government said the “illegal” and “absurd” EU measures were a violation of international norms. …
The arms embargo adds Venezuela to an EU list that includes North Korea and Syria, where European defense companies can no longer do business and to which the sale of any goods deemed as being used for repression are also banned.
Britain sold 1.4 million pounds ($1.83 million) worth of arms to Venezuela between May 2010 and March 2017, according to The Campaign Against Arms Trade (CAAT), which lobbies to end arms sales to repressive governments.
“GRADUAL AND FLEXIBLE” SANCTIONS
In a joint statement, all 28 EU ministers said the legal basis for individual travel bans to the EU and the freezing of any Venezuelan assets in the bloc “will be used in a gradual and flexible manner and can be expanded.” …
EU ministers will decide whom to target with sanctions at a later stage, but said they would focus on security forces and government ministers and institutions accused of human rights violations and the non-respect of democratic principles or the rule of law.
Experts say individual U.S. sanctions spearheaded by U.S. President Donald Trump, while providing strong symbolism, have had little or no impact on Maduro’s policies and that oil-sector and financial sanctions may be the only way to force the Venezuelan government to change.
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| | 8. J.A. Lee, R. Kirk & P. Alexiadis: “Proposed Changes to the CFIUS Review Process”
* Authors: Judith A. Lee, Esq., email@example.com, +1 202-887-3591; Ronald Kirk, Esq., firstname.lastname@example.org, +1 214-698-3295; and Peter Alexiadis, Esq., email@example.com, +32 2 554 72 00. All of Gibson, Dunn & Crutcher LLP.
On November 8, 2017, a bipartisan group of lawmakers introduced a long-awaited bill that could significantly alter the process by which the Committee on Foreign Investment in the United States (“CFIUS” or the “Committee”) reviews foreign investment in the United States. [FN/1]
The proposed Foreign Investment Risk Review Modernization Act of 2017 (“FIRRMA”) would modernize the CFIUS review and approval process, which has struggled to keep pace with a surge of foreign investment in the United States over the last several years. If passed, the bill would revamp the CFIUS review process and update the regulations to address the national security concerns implicated in the transfer of sensitive U.S. technology to countries of “special concern,” most notably China. FIRRMA would also expand the Committee’s mandate to include certain joint ventures, minority position investments and real estate transactions near military bases or other sensitive government facilities. The legislation, introduced as President Donald Trump was in Beijing for talks with Chinese President Xi Jinping, would increase the number of foreign investments in the U.S. that would be required to win CFIUS approval.
CFIUS is an inter-agency committee authorized to review the national security implications of transactions that could result in control of a U.S. business by a foreign person (“covered transactions”). [FN/2] CFIUS is authorized to block covered transactions or impose measures to mitigate any threats to U.S. national security. Established in 1975 and last reformed in 2007, observers have pointed to an antiquated regulatory framework that hinders the Committee’s ability to review an increasing number of Chinese investments targeting sensitive technologies in the United States.
These concerns predate the administration of Donald Trump, who campaigned on a promise to stem foreign-particularly Chinese-investment in the United States. In January 2017, a council of advisors formed under the Obama Administration pointed to a “concerted push” by China to distort the domestic semiconductor market in ways that “undermine innovation, subtract from U.S. market share, and put U.S. national security at risk.”[FN/3] A confidential Department of Defense report given to policymakers earlier this year reportedly concluded that the U.S. must ramp up its screening of Chinese investments in U.S. technology companies to protect economic and national security. [FN/4] On September 13, 2017, President Trump blocked a private equity firm backed by Chinese investors from acquiring U.S. Lattice Semiconductor Corporation. [FN/5] This one high-profile case notwithstanding, numerous other recent deals involving Chinese acquirers and the U.S. technology sector have been approved.
CFIUS Covered Transactions, Withdrawals, and Presidential Decisions (2009-2015)
Source: CFIUS Annual Report to Congress for CY 2015 (September 2017).
EXPANDED SCOPE OF COVERED TRANSACTIONS
The proposed bill would broaden the scope of transactions subject to CFIUS review to include:
– any non-passive (even non-controlling) investment by a foreign person in any U.S. “critical technology” or “critical infrastructure” company;
– any change in the rights that a foreign investor has with respect to a U.S. business if that change could result in foreign control of the U.S. business or a non-passive investment in a U.S. critical technology or critical infrastructure company;
– any contribution (other than through an ordinary customer relationship) by a U.S. critical technology company of both intellectual property and associated support to a foreign person through any type of arrangement, such as a joint venture;
– the purchase or lease by a foreign person of real estate that is in close proximity to a U.S. military installation or other sensitive U.S. government facility or property; and
– any transaction or agreement designed or intended to evade or circumvent CFIUS review. [FN/6]
FIRRMA updates the CFIUS definition of “critical technologies” to include emerging technologies that “could be essential for maintaining or increasing the technological advantage of the United States over countries of special concern with respect to national defense, intelligence, or other areas of national security, or gaining such advantage over such countries in areas where such an advantage may not currently exist.” [FN/7]
Notably, FIRRMA would not expand the Committee’s mandate with regard to “greenfield” or start-up investments. The current CFIUS regulations explicitly exclude transactions in which a foreign person “makes a start-up, or ‘greenfield’ investment in the United States [and that] investment involves such activities as separately arranging for the financing of and the construction of a plant to make a new product, buying supplies and inputs, hiring personnel, and purchasing the necessary technology.” [FN/8] The scope of the current “greenfield” exception is ambiguous and generally interpreted narrowly. Prior to FIRRMA’s introduction, Members of Congress had expressed particular concerns about greenfield transactions involving real estate acquisitions close to military installations, an issue that is addressed in FIRRMA by expanding the scope of covered transactions to include the purchase or lease by a foreign person of private or public real estate in close proximity to a U.S. military installation or other sensitive government facility. [FN/9]
In its current form, the CFIUS review process commences when the parties to a transaction submit a voluntary notice or CFIUS otherwise becomes aware of a covered transaction. [FN/10] The voluntary notice is a lengthy filing that must include detailed information about the transaction, the acquiring and target entities, the nature of the target entity’s products, and the acquiring entity’s plans to alter or change the target’s business moving forward. [FN/11]
In practice, parties are expected to submit a “draft” notice to CFIUS prior to the commencement of the official 30-day review period, which provides the Committee and the parties with an opportunity to identify and resolve concerns before the official clock starts ticking. In recent years, this informal review process has added a degree of unpredictability in terms of timing, as the “pre-filing” phase can consume several weeks.
The proposed bill would authorize parties to submit a voluntary “declaration” in lieu of the notice, which would be a streamlined filing with basic information about the transaction that would be required at least 45 days prior to the completion of a transaction. [FN/12] Such declarations would be mandatory for covered transactions involving the acquisition of a 25 percent or greater voting interest in a U.S. business by any foreign person in which a foreign government holds a voting interest of 25 percent or more. The bill requires CFIUS to issue regulations that make mandatory declarations for additional transactions based on factors such as the U.S. technology or industry at issue, the difficulty for CFIUS of obtaining information through other means, and the difficulty associated with remedying any harm done to national security were the transaction to be completed. Upon receipt of the declaration, CFIUS may either clear the transaction, request that the parties submit a written notice, initiate a unilateral review of the transaction, or inform the parties that it is unable to complete action with respect to the transaction based on the declaration alone. The bill authorizes CFIUS to impose civil penalties on parties who fail to comply with these requirements. The current CFIUS regulations do not contemplate mandatory filings.
FIRRMA would also permit CFIUS to assess and collect filing fees for any covered transaction, capped at one percent of the value of the transaction or $300,000, whichever is less. Currently there is no filing fee for CFIUS notifications.
Notably, the bill establishes a “Committee on Foreign Investment in the United States Fund,” authorizing Congressional appropriations to cover the newly expanded operations of CFIUS. Such moneys could be used to receive the filing fees collected by the Committee, and to increase the resources at the Committee’s disposal.
As it stands, the CFIUS review process includes a 30-day initial review of a notified transaction, potentially followed by a 45-day investigation period, for a possible total of 75 days. In certain circumstances, CFIUS may also refer a transaction to the President for decision, which must be made within 15 days. [FN/13] The initial 30-day phase begins one business day after the Committee determines that a notice is complete and satisfies regulatory requirements. During this initial review period, CFIUS members examine the transaction in order to identify and address any national security concerns, which may involve seeking additional information from the parties. If the review is not complete at the end of the initial 30-day review period, CFIUS may initiate a subsequent 45-day investigation. As the volume of transactions before the Committee has increased, it has become more common for CFIUS to ask parties to refile notices at the end of the official 75-day review period, thereby restarting the clock. This has added a significant degree of uncertainty to the CFIUS review, compelling some parties to abandon deals that languish in the review and investigation phases, or not to file at all.
FIRRMA would extend the initial review period from 30 to 45 days and authorize CFIUS to extend the 45-day investigation phase by 30 days in “extraordinary circumstances.” [FN/14] This measure effectively increases the maximum review period to 120 days, which is expected to reduce the need for parties to withdraw and refile notices at the end of the current, cumulative 75-day period if the Committee requires additional time to complete its review.
NATIONAL SECURITY CONSIDERTATIONS
FIRRMA would update the list of factors used to determine whether a transaction poses a national security risk to include whether a country of “special concern”-meaning one that “poses a significant threat to the national security interests of the United States”-is seeking to acquire certain critical technologies; whether a transaction could reduce the United States’ technological and industrial advantage relative to such countries, and whether transactions could expose personally identifiable information, genetic information, or other sensitive data of U.S. citizens. [FN/15] This could have a profound impact on foreign transactions in the U.S. technology market, which is increasingly dependent on such data.
In a departure from past U.S. practice, which did not explicitly take into account U.S. strategic aspirations, the bill expands the definition of “critical technologies” to include those “that could be essential” for maintaining or gaining technological advantage over countries of “special concern” with respect to national defense, intelligence, or other areas of national security, or “gaining such an advantage over such countries in areas where such an advantage may not currently exist.” [FN/16]
CFIUS would also be required to examine whether any covered transaction creates or exacerbates domestic cybersecurity vulnerabilities or allows a foreign government to gain a “significant new capability to engage in malicious cyber-enabled activities against the United States, including such activities designed to affect the outcome of any election for Federal office.” [FN/17] The term “malicious cyber-enabled activities” is defined in the bill to include any act, “primarily accomplished through or facilitated by computers or other electronic devices” that is “reasonably likely to result in, or materially contribute to, a significant threat to the national security of the United States” and that has the purpose or effect of:
(i) significantly compromising the provision of services by one or more entities in a critical infrastructure sector;
(ii) harming, or otherwise significantly compromising the provision of services by, a computer or network of computers that support one or more such entities;
(iii) causing a significant disruption to the availability of a computer or network of computers; or
(iv) causing a significant misappropriation of funds or economic resources, trade secrets, personally identifiable information, or financial information. [FN/18]
Other national security factors to be considered include the extent to which the transaction could increase the cost to the U.S. government of acquiring or maintaining equipment and systems necessary for defense, intelligence, or other national security functions and whether the transaction could increase U.S. reliance on foreign suppliers to meet national defense requirements.
The bill would allow CFIUS to exempt transactions involving parties from certain countries based on criteria such as whether the country has a mutual defense treaty in place with the United States, a mutual arrangement to safeguard national security with respect to foreign investment, or a parallel process to review the national security implications of foreign investment. FIRRMA would also enhance collaboration with U.S. allies and partners by allowing for the disclosure of information regarding a transaction to any domestic or foreign government for national security purposes or to any third parties where the parties have consented to the disclosure.
Notably, parallel measures to review foreign investment have been proposed in a number of other countries. In August, citing similar concerns with China’s technological investments, the European Union called for more rigorous screening of foreign acquisitions involving European companies. [FN/19] Germany increased the authority of its Ministry for Economic Affairs and Energy (“BMWi”) to review foreign investments. On October 17, 2017, the United Kingdom published several legislative proposals that would increase its ability to review and intervene in transactions that raise national security considerations or involve national infrastructure.
Currently, if CFIUS finds that a covered transaction presents national security risks, it may enter into an agreement with, or impose conditions on, parties to mitigate such risks. [FN/20] FIRRMA would prohibit CFIUS from entering into any mitigation agreement or imposing any condition on a transaction unless the Committee first determines that the agreement or condition resolves any national security concerns raised by the transaction.
The bill would also require the Committee to formulate and follow a plan for monitoring compliance with any mitigation agreement or condition. If any party fails to comply with such agreements or conditions, CFIUS could negotiate remedial measures, require the parties to submit future covered transactions to CFIUS review for a five-year period, or seek injunctive relief.
FIRRMA would provide the Committee with authority to negotiate or impose interim agreements or conditions on already-completed transactions while CFIUS conducts its review. The bill would also authorize CFIUS to negotiate or impose agreements or conditions in order to mitigate any related national security risks, in cases where parties have voluntarily chosen to abandon the transaction (in practice CFIUS already sometimes imposes these conditions upon withdrawal).
Although the current CFIUS statute already exempts actions and findings of the President from judicial review, FIRRMA would extend this exemption to most actions and findings of the Committee. Petitions regarding Committee actions would be permitted only in cases where one or more parties to a covered transaction allege that the action is contrary to a constitutional right, power, privilege, or immunity. Notably, only parties who initiated the review by filing a notice or declaration would be permitted to file such a petition, and only after the Committee has completed all action with respect to the transaction. The U.S. Court of Appeals for the District of Columbia Circuit would have exclusive jurisdiction over such claims only to affirm the Committee action or remand the case to the Committee for further consideration. Discovery in such cases would be limited to the administrative record.
These provisions are designed to clarify parties’ rights in the wake of the only case in which a CFIUS decision was challenged in the courts, the D.C. Circuit’s 2014 decision in Ralls Corp. v. Committee on Foreign Investment in the United States. After CFIUS and President Obama ordered the Chinese-owned Ralls Corporation to divest a wind-farm project in close proximity to a Department of Defense facility, the D.C. Circuit held that the Committee had violated Ralls’ due process rights by failing, prior to the order to divest, to provide Ralls with access to the unclassified information that the government had relied on, and to give Ralls the opportunity to rebut that unclassified information.
In a combative political season, FIRRMA has a rare amount of bipartisan support. The Senate bill is backed by Republicans Marco Rubio of Florida, John Barrasso of Wyoming, James Lankford of Oklahoma and Tim Scott of South Carolina, along with Democrats Amy Klobuchar of Minnesota, Gary Peters of Michigan and Joe Manchin of West Virginia. Companion legislation was introduced in the House of Representatives by North Carolina Republican representative Robert Pittenger, along with Republicans Devin Nunes of California, Chris Smith of New Jersey, and Sam Johnson and John Culberson of Texas, and Democrats Dave Loebsack of Iowa and Denny Heck of Washington. Several administration officials have voiced support for reforming the CFIUS review process, including Treasury Secretary Steven Mnuchin, Defense Secretary James Mattis, and Commerce Secretary Wilbur Ross.
But despite its widespread support, FIRRMA’s progress through the legislative process could be hobbled by the volume of contentious issues on the legislative agenda for the remainder of the year, including tax and immigration reform, government funding and the debt limit.
FIRRMA is not the only legislative effort to overhaul the CFIUS review process. On October 18, 2017, U.S. Senators Chuck Grassley (R-IA) and Sherrod Brown (D-OH) introduced the United States Foreign Investment Review Act, a legislative proposal to review the economic impact of any proposed foreign acquisition alongside the CFIUS national security review. The Grassley/Brown measure would authorize the U.S. Department of Commerce to review transactions potentially resulting in the foreign control of a U.S. business based on a number of “economic factors.” Despite the support of influential and bipartisan sponsors, it is less likely that the more protectionist Grassley-Brown measure will progress this year.
[FN/1] Press Release, U.S. Senator John Cornyn, Cornyn, Feinstein, Burr Introduce Bill to Strengthen the CFIUS Review Process, Safeguard National Security (Nov. 8, 2017), available here.
[FN/2] CFIUS operates pursuant to section 721 of the Defense Production Act of 1950, as amended by the Foreign Investment and National Security Act of 2007 (FINSA) (section 721) and as implemented by Executive Order 11858, as amended, and regulations at 31 C.F.R. Part 800.
[FN/3] President’s Council of Advisors on Science and Technology, Ensuring Long-Term U.S. Leadership in Semiconductors (January 2017), available here (“Our core finding is this: the United States will only succeed in mitigating the dangers posed by Chinese industrial policy if it innovates faster. Policy can, in principle, slow the diffusion of technology, but it cannot stop the spread. And, as U.S. innovators face technological headwinds, other countries’ quest to catch up will only become easier. The only way to retain leadership is to outpace the competition.”) [FN/4] Doug Palmer, Cornyn debuts bill to reform CFIUS and stem tech transfers to China. Politico (November 8, 2017), available here .
[FN/5] Press Release, The White House, Statement from the Press Secretary on President Donald J. Trump’s Decision Regarding Lattice Semiconductor Corporation (Sept. 13, 2017),
[FN/6] FIRRMA Section 3 (a)(5)(B)(i) – (vi).
[FN/7] FIRRMA Section (8)(B).
[FN/8] 31 C.F.R. § 800.301(c), Example 3.
[FN/9] FIRRMA Section 3 (5) (B)(ii).
[FN/10] 31 C.F.R. § 800.401(a), (b).
[FN/11] § 800.402(c).
[FN/12] FIRRMA Section (5).
[FN/13] 31 C.F.R. § 800.506.
[FN/14] FIRRMA Section 8
[FN/15] FIRRMA Section 3 (a) (4) (defining country of “special concern”).
[FN/16] FIRRMA Section 3 (8). The current CFIUS regulations define “critical technologies” as “critical technology, critical components, or critical technology items essential to national defense, identified pursuant to this section, subject to regulations issued at the direction of the President …” 50 U.S.C. § 4565 (a) (7).
[FN/17] FIRRMA Section 15
[FN/18] FIRRMA Section 3.
[FN/19] Jim Brunsden, Brussels seeks tighter vetting of foreign takeovers, Fin. Times, available here. [FN/20] U.S. Department of the Treasury, CFIUS Process Overview, available here (last visited November 9, 2017).
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| | 9. M. O’Kane: “EU Imposes Arms Embargo and Targeted Sanctions on Venezuela” (Source: European Sanctions Blog, 13 Nov 2017.)
The EU Council has published its conclusions on the situation in Venezuela, where the it says democratic institutions have been eroded by the establishment of “an all-powerful Constituent Assembly” and the UN believes “extensive human rights violations and abuses” have taken place (UN report available here).
As foreshadowed last week (see previous blog), the EU Council has decided to impose an arms embargo on Venezuela, and also to introduce a legal framework for travel bans and asset freezes against those involved in human rights violations and non-respect for democracy or the rule of law.
The Council says that the measures will be used “in a gradual and flexible manner” alongside its diplomatic and political efforts, and called on the Venezuelan government to hold credible and meaningful negotiations, respect democratic institutions, adopt a full electoral calendar, and liberate all political prisoners. Although the Council said that the sanctions can be reversed if Venezuela makes progress on these issues, it also warned that the sanctions may be expanded if the situation warrants.
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| | 10. M. Volkov Releases New Podcast: “Episode 10 – How to Conduct a Risk and Compliance Program Assessment” (Source: Volkov Law Group Blog, 12 Nov 2017. Reprinted by permission.)
* Author: Michael Volkov, Esq., Volkov Law Group, firstname.lastname@example.org, 240-505-1992.
An effective ethics and compliance program requires a careful assessment of risks and existing controls. In order to design and implement an effective program, a chief compliance officer has to identify and prioritize company risks. In addition, a CCO has to review and understand how existing compliance controls mitigate existing risks.
A risk assessment is the foundation of a compliance program, but has to incorporate a review of existing controls. A CCO has to address both of these subjects to develop an effective strategy for risk mitigation and overall compliance program operations.
In this episode, Michael Volkov discusses how to conduct a risk and compliance program assessment.
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| | 11. R. Cook & M. Garson: “Risk Management: Balancing Needs in Non-Operated International Joint Ventures”
(Source: Ankura Consulting Group LLC, 14 Nov 2017.)
* Authors: Randy Cook, Esq., email@example.com, 646-291-8545; and Michael Garson, Esq., firstname.lastname@example.org, 202-449-7957. Both of Ankura Consulting Group LLC.
[Authors’ Note: This article was originally published in the Q4 2017 issue of Ethisphere Magazine.]
Enterprises seeking to expand their brand or their access in previously untapped foreign markets or industries often take a non-controlling, non-majority position in a joint venture that will operate in the foreign locale. The strategy is to engage with other business partners with more localized expertise, and contribute capital and some assets in exchange for equity (and profits) in the joint venture-a separate legal entity with primarily its own management and employees. The benefits can be alluring to companies seeking to gradually test foreign waters, including the lack of responsibility for managing the joint venture’s operations and potential limited liability as a result of not operating or controlling the joint venture (known as a “non-operated joint venture” or “NOJV”).
Due to the lack of operational responsibility for a NOJV (particularly one that may exist in a remote location away from normal business operations), joint venture non-operators often adopt a hands-off, arm’s-length approach to the NOJV and may not pay enough attention to the risk and compliance issues facing the joint venture itself. Risk and compliance issues, from bribes to foreign officials, to export control violations, to flawed structural plans (as in the Deepwater Horizon oil spill disaster), can devastate the joint venture’s business and expose even nonoperating parties to financial losses, reputational harm, and potential regulatory fines and sanctions. The reality is that customers, regulators, and prosecutors are not overly concerned with non-operating status when they are looking for accountability. This article provides best practices for parties contemplating an international NOJV, focusing on how best to obtain the benefits of being a “nonoperator” while also protecting your own company’s interests through engagement with the NOJV’s compliance and enterprise risk management programs.
Best practice 1: Get to know your co-venturers and joint venture operators
A non-operator contemplating a NOJV first should become familiar with the compliance and risk management posture of its co-venture partners and any entity responsible for the day-to-day management and operations of the joint venture, otherwise called the “operator.” In particular, you should:
– Conduct due diligence on each co-venturer and operator, looking specifically for issues that demonstrate a lack of business integrity.
– Examine co-venturer and operator core values and culture, ensuring that they promote organizational compliance, transparency, and speaking up about problems. This is important for all stakeholders that may have voting rights, positions on the joint venture board or management team, or contributions of personnel, processes, or systems.
– Obtain written commitments from each co-venturer and the operator that they will be committed to compliant and ethical conduct in the operation of the joint venture.
Best practice 2: Conduct a preliminary risk assessment of the NOJV’s legal and operational risks
If contemplating a NOJV, you next should independently assess the NOJV’s legal and operational risks. By conducting such a risk assessment, you can help all stakeholders prioritize risks and agree on the controls needed to adequately mitigate them. At a high level, an effective process should involve:
– Evaluation of the inherent risks of the NOJV. Considerations include observations from the due diligence described above; the nature and sensitivity of the business that
the NOJV will engage in; and the geographic, political, and legal context that the NOJV will operate in (e.g., a country’s Corruption Perceptions Index score).
– Analysis of what will be reasonably needed to mitigate inherent risks by the NOJV, and the existing tools that the co-venturers and operator may lend to the NJOV’s compliance and risk management programs.
– Assessment of the NOJV’s residual risk after implementation of controls, both in terms of direct risk to the NOJV and potential impacts to your business. This process should result in a set of issues, prioritized by likelihood of occurrence and anticipated severity, that become the initial focus for the NOJV’s compliance and risk management programs.
Best practice 3: Require detailed compliance and risk management programs in the NOJV documentation
Once you have a good understanding of its co-venturers, joint venture operators, and the legal and operational risks facing the NOJV, the next step is to require detailed compliance and risk management program frameworks as part of the joint venture’s bylaws, operating agreement, or other foundational documents. In particular, non-operators should require:
– Adoption and implementation of a compliance and ethics program consistent with applicable standards (i.e., ISO 19600 and 37001; Section 8B2.1 of the U.S. Sentencing Guidelines). Although these programs may already exist within a co-venturer’s or operator’s own organization, it is important for the NOJV to have its own dedicated compliance resources.
– Periodic risk assessments conducted by the joint venture to address legal and operational risks that may arise or change over the course of the joint venture.
– Reporting and escalation processes to ensure the NOJV periodically informs the non-operator about compliance and risk issues and trends, and also immediately reports on any matters pre-defined by you.
– Access to all NOJV personnel, records, information, databases, and systems needed for you to conduct your own independent compliance program effectiveness investigation or risk assessment evaluations of the NOJV.
Best practice 4: Engage internal compliance and risk management functions
You should include NOJV assets in any periodic compliance and ethics program and enterprise risk management reviews to ensure that internal compliance and risk management teams remain mindful of NOJV issues and are able to provide feedback and guidance to the NOJV as appropriate. Any of your company’s personnel involved in management of the NOJV or seconded to its operations also need to be alert to legal and operational risk issues and should be trained specifically on when to engage with your company’s core risk management and compliance functions.
Best practice 5: Review NOJV reporting and conduct audits of the NOJV
Throughout the course of the NOJV, you should exercise diligence in reviewing the compliance and risk management reporting from the NOJV and:
– Exercise audit rights periodically, particularly to validate the operation of the NOJV’s infrastructure in risk mitigation and detection and prevention of non-compliant conduct.
– Consider the conditions under which greater involvement or additional assurances from the NOJV or co-venturing parties may be prudent, such as participating in internal investigations involving issues central to the viability and continuation of the NOJV.
Best practice 6: Have an exit plan and strategy
In the event that you are aggrieved by the risk management or compliance posture of the NOJV and are unable to force action or measures to remediate concerns, it is important to ensure that there are appropriate terms and conditions in the joint venture agreement and NOJV operating documents allowing you to withdraw from participation in the NOJV without permission of the other co-venturers. While such a withdrawal may have a number of ancillary impacts and consequences, non-operators should preserve the ability to walk away from a relationship where the risk and compliance issues are considered too great and harmful to their own business.
The reality is that customers, regulators, and prosecutors are not overly concerned with non-operating status when they are looking for accountability.
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| | 12. Gary Stanley’s ECR Tip of the Day (Source: Defense and Export-Import Update; available by subscription from email@example.com )
* Author: Gary Stanley, Esq., Global Legal Services, PC, (202) 352-3059, firstname.lastname@example.org .
Even though foreign broker operating exclusively outside the United States do not have to register, obtain licenses, or file annual reports under ITAR Part 129, applicants for export licenses, temporary import licenses, and ITAR agreements, as well as ITAR § 123.9(c) requests for reexport approvals, must still report commissions paid to non-U.S. brokers in certain circumstances under ITAR Part 130.
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|EDITOR’S NOTES |
* Jawaharlal Nehru (14 Nov 1889 – 27 May 1964; was the first Prime Minister of India and a central figure in Indian politics before and after independence. He emerged as the paramount leader of the Indian independence movement under the tutelage of Mahatma Gandhi and ruled India from its establishment as an independent nation in 1947 until his death in 1964.)
– “You don’t change the course of history by turning the faces of portraits to the wall.”
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| | 14 . 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.
– 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.
– Last Amendment: 28 Sep 2017: 82 FR 45366-45408: Changes to the In-Bond Process [Effective Date: 27 Nov 2017.]
– Last Amendment: 13 Nov 2017: 82 FR 52209-52210: Removal of Côte d’Ivoire Sanctions Regulations
– 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.
– 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: 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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| | 15. Weekly Highlights of the Daily Bugle Top Stories
Review last week’s top Ex/Im stories in “Weekly Highlights of the Daily Bugle Top Stories” published here
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|* The Ex/Im Daily Update is a publication of FCC Advisory B.V., compiled by: Editor, James E. Bartlett III; Assistant Editors, Alexander P. Bosch and Vincent J.A. Goossen; and Events & Jobs Editor, John Bartlett. The Ex/Im Daily Update is emailed every business day to approximately 8,000 readers of changes to defense and high-tech trade laws and regulations. We check the following sources daily: Federal Register, Congressional Record, Commerce/AES, Commerce/BIS, DHS/CBP, DOJ/ATF, DoD/DSS, DoD/DTSA, State/DDTC, Treasury/OFAC, White House, and similar websites of Australia, Canada, U.K., and other countries and international organizations. Due to space limitations, we do not post Arms Sales notifications, Denied Party listings, or Customs AD/CVD items. |
* RIGHTS & RESTRICTIONS: This email contains no proprietary, classified, or export-controlled information. All items are obtained from public sources or are published with permission of private contributors, and may be freely circulated without further permission. Any further use of contributors’ material, however, must comply with applicable copyright laws.
* CAVEAT: The contents of this newsletter cannot be relied upon as legal or expert advice. Consult your own legal counsel or compliance specialists before taking actions based upon news items or opinions from this or other unofficial sources. If any U.S. federal tax issue is discussed in this communication, it was not intended or written by the author or sender for tax or legal advice, and cannot be used for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing, or recommending to another party any transaction or tax-related matter.
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