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17-1214 Thursday “Daily Bugle”

17-1214 Thursday “Daily Bugle”

Thursday, 14 December 2017

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The Daily Bugle is a free daily newsletter from Full Circle Compliance, containing changes to export/import regulations (ATF, Customs, NISPOM, EAR, FACR/OFAC, FTR/AES, HTSUS, and ITAR), plus news and events.  Subscribe 
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[No items of interest noted today.] 

  1. Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.)
  3. State/DDTC: (No new postings.)
  4. Canada Adds Ukraine to Automatic Firearms Country Control List
  5. UK Amends Guide Concerning EU General Export Authorizations
  1. ABC News: “Australian Universities Accused of Sharing Military Technology with China”
  2. Ukrinform: “Canada Lifts Restrictions on Arms Sale to Ukraine”
  3. WorldECR News Alert of 14 Dec 2017
  1. M. Volkov: “Calculating the New Balance Between Disclosure and Non-Disclosure of Potential FCPA Violations”
  2. R.C. Burns: “Do Due Diligence or Penalties May Be Due”
  1. Bartlett’s Unfamiliar Quotations 
  2. Are Your Copies of Regulations Up to Date? Latest Changes: ATF (15 Jan 2016), Customs (8 Dec 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) 
  3. Weekly Highlights of the Daily Bugle Top Stories 

EXIMITEMS FROM TODAY’S FEDERAL REGISTER

EXIM_a1

[No items of interest noted today.] 

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OGSOTHER GOVERNMENT SOURCES

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

[No items of interest noted today.]

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OGS_a22
. Commerce/BIS: (No new postings.)
 

(Source: Commerce/BIS)

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OGS_a44.

Canada Adds Ukraine to Automatic Firearms Country Control List

(Source:
Canada TID, 13 Dec 2017.)
 
The Export and Import Permits Act places very strict controls on the export of firearms, weapons and devices defined as prohibited in the Criminal Code of Canada. Export permit applications for these items are only considered to countries on the Automatic Firearms Country Control List (AFCCL).
 
On November 23, 2017, the Government of Canada concluded the regulatory process to amend the AFCCL to expand the AFCCL to include Ukraine. This brought the number of countries on the AFCCL to 40.
 
Inclusion in the AFCCL does not guarantee that exports of prohibited firearms, weapons and devices to a country will be approved. An export permit issued by Global Affairs Canada must also be obtained in order to lawfully export these items from Canada. All applications to export controlled items are rigorously evaluated on a case-by-case basis and exportation of these items is limited.
 
The full text of this regulation, as well as its Regulatory Impact Analysis Statement, is available in the December 13, 2017, edition of the Canada Gazette, Part II (available here).

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OGS_a55.

UK Amends Guide Concerning EU General Export Authorizations

(Source:
UK/DIT ECO
, 14 Dec 2017.)
 
The Export Control Organization (ECO) of the UK Department of International Trade (DIT) has amended a guide concerning EU
General Export Authorizations (EU GEAs).  

Specifically, ECO deleted a reference to schedule 5 of the Export Control Order 2008 (SI 2008/3231), as this schedule has itself been deleted from the order.
 
  N.B.
EU GEAs are the European equivalent of the national system of Open General Licenses (OGLs) issued under UK export control law and are designed to license dual-use exports.
 
Dual-use Items are goods, software or technology that can be used for either civil or military purposes. The EU is responsible for issuing legislation in this area which is applicable on an EU-wide basis.
 
EU GEAs are just one of several licensing categories issued by the UK’s Export Control Joint Unit (ECJU), the UK’s national export licensing authority. EU GEAs permit the export of certain specified dual-use Items to certain specified non-EU destinations.
 
As with OGLs, EU GEAs are legal documents. In order to legally use the authorizations, UK exporters need to ensure that they meet all the licensing terms and conditions including registering before use with the ECJU.

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NWSNEWS

NWS_a1
6ABC News: “Australian Universities Accused of Sharing Military Technology with China”

(Source: ABC News, 14 Dec 2017.) [Excerpts.]
 
The [Australian] Defense Department has been accused of turning a blind eye to universities illegally sharing military technology with China.
 
Former senior defence official Peter Jennings has told AM there was a “likelihood” universities were breaking strict export controls on technology that could be used for military purposes.
 
He said the time had come for the Defense Department to conduct a deep and immediate investigation.
 
There are strict rules banning the sharing of research that could be used for military purposes by Australia’s potential foes, including China.
 
Australian universities conduct world-leading research in areas such as artificial intelligence, super computing and driverless car technology that could be adapted for military purposes.
 
The Defense Department said it relied on self-assessment from universities to police their academics’ interactions with overseas academics.
 
  “It is ultimately the responsibility of each institution to ensure they comply with the law,” the Department told the ABC in response to questions about links between Australian and Chinese researchers. … 

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NWS_a3
7Ukrinform: “Canada Lifts Restrictions on Arms Sale to Ukraine”

(Source: Ukrinform, 14 Dec 2017.)
 
Canada has added Ukraine to the list of countries on the Automatic Firearms Country Control List (AFCCL). 
The corresponding decision has been published in the Canada Gazette, the official newspaper of the Government of Canada.
 
  “Once approved, this regulatory amendment of the AFCCL will add Ukraine to the list of countries that the Governor in Council deems appropriate to export certain prohibited firearms, prohibited weapons and prohibited devices, and their components or parts,” the report reads.
 
The corresponding decision comes into force on the day it is published.
 
The AFCCL is an additional export control measure that is unique to Canada. Export of “automatic firearms” is prohibited from Canada unless the country of end-use is listed on the AFCCL. For the purposes of the AFCCL automatic firearms are certain prohibited firearms, prohibited weapons and prohibited devices, and components or parts of such items as defined in the Criminal Code. Examples of these items include fully automatic firearms, electric stun guns and large-capacity magazines.

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NWS_a4
8WorldECR News Alert of 14 Dec 2017

(Source: WorldECR, 14 Dec 2017.)
 
  – Wassenaar Arrangement admits India as a member
  – U.S. House of Representatives calls for Burma sanctions
  – UK government revokes 18 OGELs
  – Ukraine to pass IMF-backed anti-corruption law
  – EU publishes list of non co-operative tax jurisdictions
 
[Editor’s Note: Visit
http://worldecr.com/ to subscribe to WorldECR, the journal of export controls and sanctions.]

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COMMCOMMENTARY

COMM_a01
9. M. Volkov: “Calculating the New Balance Between Disclosure and Non-Disclosure of Potential FCPA Violations”

(Source: Volkov Law Group Blog, 12 Dec 2017. Reprinted by permission.)
 
* Author: Michael Volkov, Esq., Volkov Law Group, mvolkov@volkovlaw.com, 240-505-1992.
 
The Justice Department’s new FCPA Corporate Enforcement Policy has altered the balance between disclosure and non-disclosure of FCPA violations. How is that for a profound grasp of the obvious?
 
All kidding aside, the question is how much has the balance been changed?  I am not sure there will be a significant increase in the number of companies deciding to seek the benefits under the new policy by voluntarily disclosing FCPA violations, but I am convinced there will be an increase.
 
At the outset, the new policy’s adoption of a declination presumption is a significant new policy. Instead of the promise of up to a 50 percent reduction from the lower end of the US Sentencing Guideline range, the new policy gives FCPA practitioners a strong argument for a declination.  But, the declination still comes with costs for disgorgement, restitution and forfeiture.
 
In contrast, the Antitrust Division’s leniency policy gives the first-in leniency applicant a complete pass, along with the company’s officers, directors and employees. Notwithstanding this complete pass to the first-in applicant, the company earning leniency is still subject to an antitrust class action for damages that are inevitably filed by customers, vendors and suppliers of a cartel.
 
Going back to the FCPA Corporate Enforcement Policy, a declination-disgorgement result requires the absence of aggravating factors.  The Justice Department’s illustrative list of such factors is understandable – involvement of senior executives, large profits earned from bribery, systemic violations and recidivism. A company with a prior FCPA settlement will not be entitled to the benefits of a declination-disgorgement settlement. No one can argue with such a result.  Nor should a company that engaged in systemic bribery – such as Rolls Royce, Telia, Teva, Odebrecht, VimpelCom, Siemens, or Daimler – be eligible for a declination -disgorgement resolution. As with any government prosecution policy, there will be close cases where the resolution of a case may turn on specific facts and circumstances.
 
Even when a company is disqualified from a declination-disgorgement resolution, the company can still earn a 50 percent reduction and a probable avoidance of a corporate monitor under the new policy by voluntarily disclosing the conduct, fully cooperating with the investigation, and remediating its corporate ethics and compliance program.
 
It is important to put this new policy in context. It is extraordinary for U.S. prosecutors to issue such guidance to the business community in order to explain its exercise of prosecutorial discretion. As with every policy issuance by federal prosecutors, the new policy does not create enforceable legal rights.  But the new policy statement is an extraordinary effort at increasing transparency and providing clear rules on how DOJ will handle such cases.
 
Given the new policy, companies have to recalibrate the disclosure versus non-disclosure decision tree. If a company chooses not to disclose its conduct to the Justice Department, the company has to conduct an in-depth internal investigation, follow all leads, terminate those actors responsible for the conduct, including supervisory personnel who knew or should have known about the conduct, and then remediate its compliance program. The entire process has to be documented. In the event that the Justice Department learns of the conduct and launches an investigation, the company can then present prosecutors with a full report and presentation on how it handled the matter. If the company fully cooperates and remediates its compliance program, it will still be entitled to a 25 percent reduction from the lower end of the U.S. Sentencing Guideline range.
 
In the non-disclosure case, the company has to take into account the likelihood of detection, which in most cases should be fairly low, against the increase in the fine, which could be declination-disgorgement or 50 percent (and disgorgement) from the lower end of the US Sentencing Guideline range versus only a 25 percent reduction from the lower end of the US Sentencing Guideline range.
 
This calculation appears to be difficult but given the FCPA track record there are plenty of data points to use for comparison to a company’s potential choice.
 
Aside from the question of voluntary disclosure versus non-disclosure, a company has to take into account its culture and the impact that the matter has had on its overall corporate operations. There is nothing that requires or mandates that company disclose to the government FCPA violations. If a company chooses the non-disclosure route, the company has to demonstrate its full commitment to integrity by conducting an aggressive and robust internal investigation, terminate all executives and employees connected to the misconduct, and invest in enhanced ethics and compliance program improvements.

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COMM_a210.

R.C. Burns: “Do Due Diligence or Penalties May Be Due”

(Source: 
Export Law Blog
, 13 Dec 2017. Reprinted by permission.)
 
* Author: R. Clifton Burns, Esq., Bryan Cave LLP, Wash DC,
Clif.Burns@bryancave.com
, 202-508-6067).
 
Dentsply Sirona agreed to pay the Office of Foreign Assets Control (“OFAC”) $1,220,400 to settle charges in connection with 37 unlicensed exports of dental equipment to Iran. The value of the shipments was not stated but it would have been close to the $1,695,500 that OFAC asserted was the base penalty amount.

The significant issue is that these were not exports of Dentsply Sirona, but rather of two subsidiaries of Dentsply before it merged into Sirona in February 2016. OFAC, and the other export agencies, apply a rule of successor liability and although that rule is more defensible in a merger case, such as this one, it also has been applied in asset deals. And there is some chance in this case that Sirona may not have known about this sanctions liability until OFAC came knocking on the merged company’s doors given that the matter was not voluntarily disclosed by the parties.
 
According to the charging documents, the Dentsply subs sold dental products from the United States to foreign distributors with knowledge that they would be re-exported to Iran. In addition, they continued to do so even after receiving confirmation that the items had, in fact, been re-exported to Iran.
 
One of the aggravating factors cited by OFAC was that personnel of the subsidiaries deliberately concealed from the parent company their knowledge of and participation in sales to distributors that were going to be re-exported to Iran. Although this case, on the one hand, emphasizes the need for due diligence on sanctions violations as part of the mergers and acquisitions process, it also raises the question here as to how due diligence would have caught these violations. The company’s export records would only show exports to the distributors outside Iran and would not reveal the subsequent re-exports to Iran. And the employees who had been busy lying to the parent company could not be expected to come clean about the scheme when presented with a due diligence questionnaire or in a due diligence interview.
 
That raises a larger question. Why on earth is it an aggravating factor for a parent company (and a successor entity) that it had rogue employees in its subsidiaries? If the parent had a reasonable compliance program, exercised reasonable review over the sub’s hiring practices with background checks, and had no knowledge of the con game going on, why should the penalty be increased? That hardly seems fair. Rather, the appropriate response should be referring the employees’ violation to the DOJ for criminal prosecution of those employees themselves. After all, the aggravating factor here is itself fairly conclusive proof of criminal intent by the sub’s employees.

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ENEDITOR’S NOTES

Nostradamus (Michel de Nostredame; 14 Dec 1503 – 2 Jul 1566; was a French physician and reputed seer who published collections of prophecies that have since become widely famous. He is best known for his book Les Propheties. Since the publication of this book, which has rarely been out of print since his death, Nostradamus has attracted a following that, along with much of the popular press, credits him with predicting many major world events.)
  – “That which neither weapon nor flame could accomplish will be achieved by a sweet speaking tongue in council.”

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EN_a312
. 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: 8 Dec 2017: 82 FR 57821-57825: Civil Monetary Penalty Adjustments for Inflation
 
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: 9 Nov 2017: 82 FR 51983-51986: Amendments to Implement United States Policy Toward Cuba

  
*
FOREIGN ASSETS CONTROL REGULATIONS (OFAC FACR)
: 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders
  – Last Amendment: 13 Nov 2017: 82 FR 52209-52210: Removal of Côte d’Ivoire 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: 19 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_a0313
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.

* SUBSCRIPTIONS: Subscriptions are free.  Subscribe by completing the request form on the Full Circle Compliance website.

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