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18-0123 Tuesday “Daily Bugle”

18-0123 Tuesday “Daily Bugle”

Tuesday, 23 January 2018

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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. Justice: “Two Los Angeles-Area Men Charged with Conspiring to Illegally Obtain Technology and Computer Chips that Were Sent to China”
  4. State/DDTC Posts Notice on Operations, Announces System Outages on 25, 30 Jan
  5. EU Promotes Effective Controls on Arms Exports by Third Countries
  1. The Globe and the Mail: “Germany Halts Arms Exports to Saudis, Others at War in Yemen”
  2. Guns.com: “Supreme Court Says ‘No’ for Now to 3-D Printed Guns”
  3. Reuters: “Exclusive: U.S. Sanctions Curb Microsoft Sales to Hundreds of Russian Firms”
  4. ST&R Trade Report: “CBP Updates Trade Community on Operations During Government Shutdown”
  1. B. Cova & F. Cozzi: “Italy Introduces New Measures to Simplify Dual-Use Export Transactions and Sets the Sanctions Related to Trade Embargoes and Proliferating Materials”
  2. M. Volkov Releases New Podcast, “Testing and Evaluation of Your Compliance Program”
  3. R. Slack: “Going to Get Paid in Venezuelan Cryptocurrency? Not So Fast”
  4. T.B. McVey, P.R. Hanes & C.E. James, Jr.: “The DOJ’s Revised FCPA Corporate Enforcement Policy: A New Blueprint for Corporate Cooperation and Credit”
  1. Full Circle Compliance and the Netherlands Defense Academy Will Present “Winter School at the Castle”, 5-9 Feb 2018 in Breda, the Netherlands
  1. Bartlett’s Unfamiliar Quotations 
  2. Are Your Copies of Regulations Up to Date? Latest Amendments: ATF (15 Jan 2016), Customs (8 Dec 2017), DOD/NISPOM (18 May 2016), EAR (8 Jan 2018), FACR/OFAC (28 Dec 2017), FTR (20 Sep 2017), HTSUS (1 Jan 2018), ITAR (19 Jan 2018) 
  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

 

* State; NOTICES; Designations as a Specially Designated Global Terrorist: Abdelatif Gaini [Publication Date: 24 Jan 2018.]
 
* State; NOTICES; Designations as Global Terrorists:
  – Khalid Batarfi, aka Khaled Batarfi, aka Khaled Saeed Batarfi, aka Abu Miqdad, aka Abu al-Miqdad al-Kindi, aka Khalid bin Umar Batarfi, aka Khalid Saeed Batarfi [Publication Date: 24 Jan 2018.]
  – Siddhartha Dhar, aka Abu Rumaysah, aka Abu Dhar, aka Saiful Islam, aka Jihadi Sid, aka Abu Rumaysah al Britani, aka Siddartha Dhar [Publication Date: 24 Jan 2018.]
 
* Treasury/OFAC; NOTICES; Blocking or Unblocking of Persons and Properties [Publication Date: 24 Jan 2018.]

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OGS_a33.

Justice: “Two Los Angeles-Area Men Charged with Conspiring to Illegally Obtain Technology and Computer Chips that Were Sent to China”

(Source:
Justice, 19 Jan 2018.) [Excerpts.]
 
Federal authorities this morning arrested two local men on federal charges that allege a scheme to illegally obtain technology and integrated circuits with military applications that were exported to a Chinese company without the required export license.
 
Yi-Chi Shih, 62, an electrical engineer who is a part-time Los Angeles resident, and Kiet Ahn Mai, 63, of Pasadena, were arrested this morning without incident by federal agents.
 
Shih and Mai, who previously worked together at two different companies, are named in a criminal complaint unsealed this morning that charges them with conspiracy. Shih is also charged with violating the International Emergency Economic Powers Act (IEEPA), a federal law that makes illegal, among other things, certain unauthorized exports.
 
The complaint alleges that Shih and Mai conspired to illegally provide Shih with unauthorized access to a protected computer of a United States company that manufactured specialized, high-speed computer chips known as monolithic microwave integrated circuits (MMICs). The conspiracy count also alleges that the two men engaged in mail fraud, wire fraud and international money laundering to further the scheme.
 
According to the affidavit in support of the criminal complaint, Shih and Mai executed a scheme to defraud the U.S. company out of its proprietary, export-controlled items, including technology associated with its design services for MMICs. As part of the scheme, Shih and Mai accessed the victim company’s computer systems via its web portal after Mai obtained that access by posing as a domestic customer seeking to obtain custom-designed MMICs that would be used solely in the United States. Shih and Mail allegedly concealed Shih’s true intent to transfer the U.S. company’s technology and products to the People’s Republic of China.
 
   “This case outlines a scheme to secure proprietary technology, some of which was allegedly sent to China, where it could be used to provide companies there with significant advantages that would compromise U.S. business interests,” said United States Attorney Nicola T. Hanna. “The very sensitive information would also benefit foreign adversaries who could use the technology to further or develop military applications that would be detrimental to our national security.”
 
The victim company’s proprietary semiconductor technology has a number of commercial and military applications, and its customers include the Air Force, Navy and the Defense Advanced Research Projects Agency. MMICs are used in electronic warfare, electronic warfare countermeasures and radar applications. …
 
The computer chips at the heart of this case allegedly were shipped to Chengdu GaStone Technology Company (CGTC), a Chinese company that established a MMIC manufacturing facility in Chengdu. Shih was the president of CGTC, which in 2014 was placed on the Commerce Department’s Entity List, according to the affidavit, “due to its involvement in activities contrary to the national security and foreign policy interest of the United States – specifically, that it had been involved in the illicit procurement of commodities and technologies for unauthorized military end use in China.” Because it was on the Entity List, a license from the Commerce Department was required to export U.S.-origin MMICs to CGTC, and there was a “presumption of denial” of a license.
 
The complaint outlines a scheme in which Shih used a Los Angeles-based company he controlled – Pullman Lane Productions, LLC – to funnel funds provided by Chinese entities to finance the manufacturing of MMICs by the victim company. The complaint affidavit alleges that Pullman Lane received financing from a Beijing-based company that was placed on the Entity List the same day as CGTC “on the basis of its involvement in activities contrary to the national security and foreign policy interests of the United States.”
 
Mai acted as the middleman by using his Los Angeles company – MicroEx Engineering – to pose as a legitimate domestic customer that ordered and paid for the manufacturing of MMICs that Shih illegally exported to CGTC in China, according to the complaint. It is the export of the MMICs that forms the basis of the IEEPA violation alleged against Shih. The specific exported MMICs also required a license from the Commerce Department before being exported to China, and a license was never sought or obtained for this export. …  
 
Shih and Mai are expected to make their first court appearances this afternoon in United States District Court in downtown Los Angeles.
 
A criminal complaint contains allegations that a defendant has committed a crime. Every defendant is presumed to be innocent until and unless proven guilty in court.
 
If they were to be convicted of the charges in the criminal complaint, Mai would face a statutory maximum sentence of five years in federal prison, and Shih could be sentenced to as much as 25 years in prison. … 

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OGS_a4
4.

State/DDTC Posts Notice on Operations, Announces System Outages on 25, 30 Jan

(Source:
State/DDTC, 23 Jan 2018.)
 
The Directorate of Defense Trade Controls is operational and all License, Agreement, Commodity Jurisdiction, Advisory Opinion, and any other request submitted to the Directorate are being accepted for review. If you are experiencing issues submitting requests, please contact the DDTC Service Desk by phone at 202-663-2838 or by email at
dtradehelpdesk@state.gov.
 
In addition, DDTC announced the following DTAS system outages:
 
  – from 4:00AM-6:00AM Thursday, January 25th, 2018 for scheduled routine maintenance. The DTAS systems will be available Thursday, January 25th, 2018 after 6:00AM.
  – from 4:00AM-8:00AM Tuesday, January 30th, 2018 for scheduled routine maintenance. The DTAS systems will be available Tuesday, January 30th, 2018 after 8:00AM.

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OGS_a5
5.

EU Promotes Effective Controls on Arms Exports by Third Countries

 
Decisions

*
Council Decision (CFSP) 2018/101 of 22 January 2018 on the promotion of effective arms export controls

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NWSNEWS

NWS_a1
6. The Globe and the Mail: “Germany Halts Arms Exports to Saudis, Others at War in Yemen”

(Source:
The Globe and the Mail, 22 Jan 2018.) [Excerpts.]
 
The German government has announced it is suspending arms exports to Saudi Arabia and other countries waging war in Yemen, a measure that sets a new bar for Western countries selling to Riyadh and puts pressure on Canada to follow suit.
 
Human rights advocates have accused Saudi Arabia of war crimes over its conduct in Yemen, where more than 5,200 civilians have been killed and 8,800 injured since Riyadh began a military campaign there in 2015 against Houthi rebels aligned with Iran. …
 

Germany announced on Jan. 19 that it would “immediately” stop approving arms exports to parties participating in the war in Yemen, a group that includes Saudi Arabia – a major buyer of German weapons, according to Deutsche Welle, the country’s public international broadcaster. This is a result of talks to form a coalition government. Chancellor Angela Merkel’s spokesman wrote on Twitter that Germany “isn’t taking any arms export decisions right now that aren’t in line with the results of the preliminary talks.” … 

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NWS_a27. Guns.com: “Supreme Court Says ‘No’ for Now to 3-D Printed Guns”

(Source:
Guns.com, 22 Jan 2018.) [Excerpts.]
 
The Supreme Court turned down its chance to weigh-in on regulations for 3-D printed firearms – for now.
 
The high court announced its decision Jan. 8, sending Defense Distributed v. State back to the western district of Texas to be heard on its merits.
 
Cody Wilson, Defense Distributed’s founder, told Guns.com Friday he’s undeterred by the rejection.
 
  “I don’t know whats going to happen, but eventually the issue is going to get before a court that can really consider it, like the Fifth Circuit and the Fifth Circuit is looking pretty good,” he said. “But it still might take a year or two years to get it done.”
 

In 2013, the federal government demanded Wilson remove his computer-aided design file for “The Liberator” – a single-shot .380 caliber pistol – from Defense Distributed’s website as a violation of the International Traffic in Arms Regulations. … 

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NWS_a38. Reuters: “Exclusive: U.S. Sanctions Curb Microsoft Sales to Hundreds of Russian Firms”

(Source:
Reuters, 22 Jan 2018.) 
 
Two of Microsoft’s official distributors in Russia have imposed restrictions on sales of Microsoft software to more than 200 Russian companies following new U.S. sanctions, according to notifications circulated by the distributors.
 
While much of the focus around U.S. sanctions has been on ways they are being skirted, the moves by the Russian distributors show how tougher restrictions that came into force on Nov. 28 are starting to bite.
 
The new measures cut the duration of loans that can be offered to Russian financial firms subject to sanctions to 14 days from 30 days and to 60 days from 90 days for Russian energy companies on a U.S. sanctions list.
 
Previously, the restrictions had mainly affected Western banks lending to Russian firms but with such short financing periods, swathes of companies supplying goods and services to Russian clients fear they could fall foul of the rules too.
 
It is routine in Russia for suppliers to wait weeks or even months to get paid after submitting invoices for goods and services. …
 
Some Western firms have been advised by lawyers that the U.S. Treasury Department could, in theory, take the view this constituted financing in violation of the sanctions, according to several people involved in the discussions. … 
 
One of the two Microsoft distributors, a Russian company called Merlion, said in its notification to partners that all sanctioned buyers of Microsoft licenses must pay within tight deadlines, or even pay upfront in some cases.
 
The second distributor, RRC, said in its notification, seen by Reuters, that “serious restrictions are being introduced” on Microsoft orders from firms subject to U.S. sanctions.
 
Both Merlion and RRC cited rules stemming from the new package of U.S. sanctions – signed into law on Aug. 2 for Russia’s involvement in Ukraine and cyber attacks – as the reason for the additional restrictions.
 
Neither Merlion nor RRC responded to Reuters questions.
 
Microsoft said in a statement to Reuters: “Microsoft has a strong commitment to complying with legal requirements and has robust processes around the world to help ensure that our partners are in compliance as well.”
 
In response to Reuters questions, a spokesman for the U.S. Treasury Department, which oversees the enforcement of sanctions, referred to its published guidance.
 
The guidance from the Treasury’s Office of Foreign Assets Control (OFAC) states that U.S. firms can conduct transactions with companies on the sanctions list as long as the payment terms do not exceed the permitted loan duration.
 
  “In the event that a U.S. person believes that it may not receive payment in full by the end of the relevant payment period, the U.S. person should contact OFAC to determine whether a license or other authorization is required,” it said. …
 
‘SECTORAL SANCTIONS’
 
The United States can impose a civil penalty on violators of $250,000 or double the amount of the offending transaction if it is greater. If convicted of wilful violation, offenders face a fine up to $1 million, or 20 years in jail, or both.
 
Microsoft did not respond to Reuters questions about whether it had initiated the restrictions introduced by two of its Russian distributors.
 
Microsoft lists nine other official distributors of its main software products in Russia in the same category of partner companies as RRC and Merlion. One, Softline, declined to comment on whether it had introduced stricter payment rules. The others did not respond to Reuters requests for comment.
 
Reuters reported in October that software produced by Microsoft had been acquired by state organizations and firms in Russia and Crimea, despite sanctions barring U.S.-based companies from doing business with them.
 
That case, and several similar ones reported by Reuters, highlighted gaps between the sanctions and their enforcement.
 
The U.S. government operates two lists of firms subject to sanctions. U.S.-based entities are banned from doing almost all forms of business with firms on Washington’s Specially Designated Nationals (SDN) list.
 
A second list known as the Sectoral Sanctions Identifications (SSI) list covers 224 mostly Russian firms and their subsidiaries in the banking, energy and defense sectors which are subject to financial restrictions.
 
They include major Russian companies such as oil giant Rosneft, natural gas producer Novatek and Sberbank, Russia’s biggest lender.
 
While the lending rules for financial and energy firms have been tightened, restrictions on financing for Russian defense manufacturers were left unchanged at 30 days though the new sanctions toughened the penalties for any violations.
 
TOUGHER RULES
 
The notification from Microsoft distributor Merlion dated Nov. 29, the day after the new lending rules come into force, said orders would only be fulfilled for financial sector buyers once it had confirmation full payment had been received.
 
For the defense sector, it said orders would be fulfilled only if partners confirmed payment would be made within 30 days of the software license being activated. For energy sector clients, confirmation of payment within 60 days was required.
 
  “If we do not receive from you documents confirming payment on orders from the defense and energy sectors, the order could be viewed by the vendor as not complying with the processing procedure and rejected,” Merlion’s notification said.
 
RRC did not spell out the new restrictions in its notification, sent by email last month to its partners.
 
  “In the event that you have buyers from the following sectors of the economy (financial, defense, energy) and they are in the sanctions list, you are requested IN ADVANCE to contact your RRC manager for further instructions.”
 
  “In connection with this, serious restrictions are being introduced on the placing of, and payment for, orders for Microsoft products … placed by these buyers (and also their subsidiaries and affiliated companies),” the notification said.
 
BLACKLISTED BY ASSOCIATION
 
Besides the tighter lending rules and other new restrictions, a change of wording in the U.S. sanctions package is also sending ripples through the Russian economy.
 
The previous wording was the U.S. president “may impose” penalties if rules are violated. That has now changed to “shall impose” penalties, unless it is not in the national interest.
 
Lawyers who advise clients on U.S. sanctions compliance said this meant it was more likely Washington would impose penalties on foreign entities doing prohibited business with a company on the sanctions list.
 
In response, companies are trying to put as much distance as possible between themselves and Russian entities on the U.S. blacklist, fearing they could end up on it too by association, bankers, lawyers, officials, and business executives said.
 
Some companies are conducting audits to find out if their partners deal with any sanctioned entities and are, in some cases, halting those relationships, according to a sanctions lawyer and an executive with a large industrial firm.
 
  “Even Chinese companies started to ask,” said a senior source close to the Kremlin and the Russian government, alluding to the fact some Chinese companies have until now continued to do deals even where many Western firms have pulled back.
 
At the same time, companies that are on the sanctions list, or believe they may be added, are looking for intermediary firms that would allow their partners to keep working with them, albeit at arm’s length.
 
A person who works closely with a billionaire Russian oligarch said he assessed the risk the oligarch’s business would be put under U.S. sanctions was only 10 percent. Even so, he said, the business was taking precautions so it can keep operating if Washington does blacklist it.
   
  “We are establishing non-affiliated business units. Or deal with large local partners,” said the source, who declined to be identified to avoid attracting attention to his boss’s business.
 
A Russian finance ministry source said he expected an uptick in the number of shell companies being set up as a mechanism to bypass the expanded sanctions.
 

Two executives from two top-20 Russian banks said they viewed the fact their clients included Rosneft as a risk. One said many of the bank’s clients had started to ask whether the Rosneft ties exposed the lender to sanctions risk.  

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NWS_a49ST&R Trade Report: “CBP Updates Trade Community on Operations During Government Shutdown”

 
U.S. Customs and Border Protection officials said Jan. 22 that the agency will continue to process cargo, collect revenue, and engage in its national security and trade enforcement activities with minimum disruptions during the federal government shutdown that began Jan. 20. (At press time Congress appeared to be moving to end the shutdown by approving a measure to fund the federal government through Feb. 8; however, should that measure not be approved, or should another shutdown occur in the future, the following information will likely still be accurate).
 
Officials said a majority of CBP employees responsible for cargo will continue working, including (a) Centers of Excellence and Expertise directors, import specialists, entry specialists, and liquidation specialists, (b) international trade specialists, (c) fines, penalties, and forfeitures specialists, (d) agriculture specialists, (e) CBP officers, and (f) the leadership of the offices of Trade and Field Operations at CBP headquarters. With respect to other government agencies with trade-related functions, CBP has provided the attached list of points of contact for shutdown-related questions.
 
During a shutdown CBP will not engage in the following activities: (a) issuing customs broker licenses, permits, and filer codes, (b) reviewing and responding to Enforce and Protect Act allegations and electronic allegations of trade fraud, (c) responding to all trade data requests, including commercial requests for ITRAC information, and (d) issuing prospective rulings and monitoring import quotas (though quota entries will be accepted). In addition, additional trade enforcement policy guidance to the field will be significantly delayed.
 
Officials said CBP’s information technology team will be available and supporting operations. Automated Commercial Environment issues should be addressed to the CBP technology services desk because there are limited ACE client representatives available.
 

CBP will use CSMS messaging to keep the trade community updated and will conduct a call with the trade community at 2 p.m. each day, but the CBP website will not be updated during a shutdown. Questions about operations or issues at a specific port or with an agency other than CBP should be directed to that port or agency. 

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COMMCOMMENTARY

COMM_a01
10. B. Cova & F. Cozzi: “Italy Introduces New Measures to Simplify Dual-Use Export Transactions and Sets the Sanctions Related to Trade Embargoes and Proliferating Materials”

(Source:
Paul Hastings LLP, 22 Jan 2018.)
 
* Authors: Bruno Cova, Esq.,
brunocova@paulhastings.com; and Fabio Cozzi, Esq.,
fabiocozzi@paulhastings.com. Both of Paul Hastings LLP, Milan, Italy.
 
(I) Overview
 
Legislative Decree No. 221 (“Decree”) entered into force on 17 January 2018 and aimed to organize and simplify the authorization procedures for the export of dual-use items and technologies. The Decree definitively adapts the Italian legal framework to applicable European regulations, i.e., the Council Regulation (EC) No 428/2009 of 5 May 2009 setting up a Community regime for the control of exports and transfer, brokering, and transit of dual-use items (currently under recasting procedure; “Regulation 428/2009”); Council Regulation (EC) No 1236/2005 of 27 June 2005 concerning trade in certain goods which could be used for capital punishment, torture, or other cruel, inhumane, or degrading treatment or punishment (“Regulation 1236/2005”); Regulations disposed by Council, according to article 215 of TFUE concerning restrictive financial and economic measures to certain third countries (all of the above-mentioned regulations will be hereinafter referred to as the “EC Regulations”).
 
The Decree also establishes the sanctions applicable to infringements of the rules governing dual-use and not listed items transactions, and transactions involving items covered by anti-torture measures or listed under the EC Regulations. [FN/1]
 
The Decree becomes the only national source governing dual-use items/technologies transactions, replacing previous obsolete and fragmented rules, with the aim of providing companies with a more friendly and clear legal framework. Considering that the Ministry of Economic Development (“MISE”) is granting, every year, 1500 to 1800 authorizations for dual-use and strategic items with an overall value of 1 billion Euros, the new legal framework will have a significant impact in supporting a key area of the Italian economy (Italy is the eighth biggest exporter of dual-use items and technologies). The final goal is to create, at a national and European level, a satisfying balance between, on one side, commercial policies (and thus to support exports) and, on the other side, foreign and security policies, in a context in which the fight against terrorism is at the top of the agenda of the EU, the U.S.A., and their allies. Actually, ensuring an effective control on dual-use technologies exports is an essential tool to prevent terrorist organizations and dangerous regimes from manufacturing weapons of mass destruction or even nuclear weapons. For instance, investigations recently made known found that most of the components used to design and manufacture the weapons used by the Islamic State are suitable to be classified as dual-use items and technologies. Therefore, besides the economic and criminal sanctions that may apply, the breach of the export control measures may cause enormous reputational damages to corporations and financial institutions, which actually have key roles in ensuring an effective enforcement of the measures preventing the proliferation of weapons of mass destruction and human rights violations.
 
Below is a preliminary overview of the main provisions of the Decree.
 
(II) Intangible Transfer of Data
 
The intangible transfer by telematics means (including the access to a server for information sharing) to natural or legal persons outside the European Union, a project, design, formula, software, and technology connected with the planning, development, production, or use of items subject to control under the Decree requires a prior authorization. [FN/2] The authorization is not required for the publishing of advertising material (for commercial purposes) not involving the disclosure of the technical details of the item.
 
With respect to access to a server for information sharing, exporters, brokers, and providers of technical assistance using such a data transfer mode have to adopt safe and traceable access procedures as well as an access reporting system, in order to allow appropriate controls by the competent authority.
 
(III) The Available Authorizations, the Zero License, and the “Catch All” Clause
 
The Decree sets out four types of authorizations applicable to the different categories of items (dual-use products, “not listed” dual-use items, and goods subject to the anti-torture Regulation or restrictive measures, adopted in accordance with article 215 TFUE).
 
  – Specific Individual Export Authorization: issued to a single exporter, broker, or provider of technical assistance; [FN/3]
  – it applies to one or more products for a specific end user. The authorization is valid from six months to two years (if EC Regulations do not provide different terms), but the recipient may request an extension at least thirty days before its expiry. The extension may be issued only once.
  – Global Individual Authorization: addressed to one specific and “not occasional” exporter (i.e., it has already been granted with other similar authorizations for dual-use items or other items subject to the Decree); it lasts for a maximum of three years, is suitable to be extended upon request, and it applies exclusively for the products and countries mentioned thereto. [FN/4]
  – Community General Export Authorization: exports of dual-use and “not listed” items, as well as goods subject to anti-torture measures, can be carried out on the basis of a Community General Export Authorization; this authorization is limited to the materials, the purposes, and the countries of destination specified by dual-use products and anti-torture regulations. [FN/5]
  – National General Export Authorization: applicable to certain categories of transactions involving dual-use and not listed items, and to certain destination Countries, both previously determined by the Ministry of Economic Development. In short, a single authorization (released according to Annex III (c) of the dual-use Regulation 428/2009) will cover certain groups of transactions (selected on the basis of the type of items involved and their final destinations), with the aim to simplify the procedures and reduce the costs for enterprises. [FN/6]
 
The competent authority has to conclude the administrative proceedings for the issuance of an authorization within 180 days from the receipt of the application. [FN/7] The duration of the relevant procedure can be (and often is) even shorter.
 
The Decree also introduces an innovative tool, the so-called Licenza Zero (already existing in other EU Countries): [FN/8] the competent authority can issue a statement, upon a specific request from the applicant, stating that the export of a certain item is not subject to prior authorization, and thus such an item can circulate without restrictions. Such a declaration can be used as a “clearance letter” to obtain financial assistance. [FN/9]
 
Another new provision is the so-called “catch all” clause, concerning the export of items not subject to any restriction under applicable law. The competent authority is entitled to subject to authorization the export (as well as related brokering services) of a certain item where it has obtained notice of the fact that such an item is, or could be, used in order to develop, manufacture, preserve, or spread weapons of mass destruction, as described in Article 4 of Regulation 428/2009. The same authorization can be imposed for those items that could threaten public security and the protection of human rights. [FN/10]
 
(IV) Inspections
 
The Decree provides for inspection measures that can be carried out at different stages of the transaction and may consist of a mere document review or inspections at the exporter, broker, or provider’s premises. [FN/11] The competent authority can request documents which prove the effective arrival of authorized items in the designated country.
 
(V) Sanctions Regarding Dual-use and Not Listed Items
 
Different sanctions apply depending on the type of item exported (dual-use items and not listed items, goods regulated under the anti-torture regulation, and listed items as an effect of restrictive measures under article 215 TFUE). The main provisions are the following: [FN/12]
 
  (1) Export transactions, intangible transmission of dual-use and not listed items, as well as brokering services carried out without a preventive authorization or with one obtained through false declarations and documents, are sanctioned with imprisonment from two to six years or with a fine from Euro 25,000 to Euro 250,000.
  (2) The transactions and services in paragraph 1 above made in breach of the terms of an existing authorization are sanctioned with imprisonment from one to four years or with a fine from Euro 15,000 to Euro 150,000.
  (3) The failure to communicate any changes of information and data occurring after submitting the application for the authorization, as well as the omission of indications concerning elements on documents or records, or the failure to present documents requested by the competent authority, imply an administrative sanction from Euro 15,000 to Euro 19,000.
 
Mandatory confiscation applies to the items used or aimed at committing the offense. When this measure is not possible, a confiscation is ordered on other goods of the offender for a value corresponding to the price or profit of the offense.
 
Similar sanctions apply in the case of a breach of the provisions applying to items listed under Regulation 1236/2005 (the anti-torture regulation).
 
(VI) Sanctions Regarding Items Listed Under EU Restrictive Measures
 
The Decree also sets the sanctions applicable to breaches of EU restrictive measures: [FN/13]
 
  (1) Export transactions, brokering, or technical assistance services of products listed under EU restrictive measures, in breach of the prohibitions set forth thereto, implies the sanction of imprisonment from two to six years.
  (2) The transactions and services in paragraph 1 above made without a preventive authorization or on the basis of an authorization obtained through false declarations or documents, are sanctioned with imprisonment from two to six years or with a fine from Euro 25,000 to Euro 250,000.
  (3) The transactions and services in paragraph 1 above made in breach of the provisions of an existing authorization are sanctioned with imprisonment from one to four years or with a fine from Euro 15,000 to Euro 150,000.
 
Mandatory confiscation also applies to offenses concerning products listed under EU restrictive measures.
 
(VII) Conclusive Remarks
 
The Decree is a welcome effort from the Italian Government to simplify and complete the legal framework applicable to dual-use items exports, as well as to items and products relevant in light of anti-torture measures and of EU restrictive measures. Italian companies and multinational companies delivering their products from an Italian subsidiary (especially to risky areas in Africa, the Middle East, and China, sometimes involved in triangulations with Iran and North Korea) need to take the new set of rules into account.
 
The overall legal framework is complex, especially for companies dealing with different jurisdictions and for the financial institutions providing support. Different levels of control apply, and what is legal for the subsidiary may not be legal for the controlling company based abroad and vice versa. The relevant monitoring is not always easy: complex transactions, structured to hide the real final destination of the items, as well as forged documents and false authorizations may be difficult to be detected at a first sight. The consequences of a breach are serious, both from an economic and a reputational perspective. This sometimes leads to tensions between exporters and financial institutions called to monitor the relevant documentation before processing a transaction or providing financing, due to the different approaches and experience in dealing with dual-use item trades. 
An in-depth risk analysis, a careful monitoring of any change in the legal framework, the implementation of a robust compliance structure, and-especially for financial institutions-an efficient management of suspicious transactions can ensure a satisfying result, both from a business and risk prevention perspective.
 
———
  [FN/1] According to the Regulation, dual-use items consist of products, including software and technology, which can be used for both civil and military purposes and may be or not listed in Annex I of the Regulation. Other “not listed” items can be subject to authorization for reasons of public security or human rights considerations. Finally, the Decree deals with those items that are the object of some restrictions under the anti-torture Regulation and restrictive measures, adopted in accordance with article 215 of the Treaty on the Functioning of European Union (“TFUE”).
  [FN/2] See Article 6 of the Decree.
  [FN/3] See Article 10 of the Decree.
  [FN/4] See Article 11 of the Decree.
  [FN/5] See Article 12 of the Decree.
  [FN/6] See Article 13 of the Decree. This authorization cannot be applied to items, listed in the Annex II octies of the Regulation.
  [FN/7] See Article 8 par. 6.
  [FN/8] See Article 8 par. 5 of the Decree.
  [FN/9] See also Paolucci P.M.,
Dual Use – Ostacolo o potenzialità per l’export, 2017, p. IX.
  [FN/10] See Article 9 of the Decree.
  [FN/11] See Article 17 of the Decree.
  [FN/12] See Articles 18-19 of the Decree.
  [FN/13] See Article 20 of the Decree.

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COMM_a2
11. M. Volkov Releases New Podcast, “Testing and Evaluation of Your Compliance Program”

(Source:
Volkov Law Group Blog, 21 Jan 2018. Reprinted by permission.)
 
* Author: Michael Volkov, Esq., Volkov Law Group,
mvolkov@volkovlaw.com, 240-505-1992.
 
As more companies implement ethics and compliance programs, chief compliance officers are increasingly focusing on the need to test and evaluate their compliance program.  An effective testing program provides important information that compliance officers can use to improve their respective compliance programs.
 
In
this episode, Michael Volkov and Jacqui Merrill, Senior Counsel at the Volkov Law Group, discuss how to test and evaluate your compliance program, how to implement a testing program, and current methodologies to test your compliance program.

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COMM_a3
12. R. Slack: “Going to Get Paid in Venezuelan Cryptocurrency? Not So Fast”

(Source:
Trade and Manufacturing Monitor, 19 Jan 2018.)
 
* Author: Robert Slack, Esq.,
rslack@kelleydrye.com, Kelley Drye & Warren LLP.
 
In December last year, Venezuelan President
Nicolas Maduro announced that Venezuela would launch a cryptocurrency called “Petro” in an effort to ease the country’s serious economic woes and avoid U.S. sanctions.  Maduro said the government would issue 100 million Petros, with each Petro backed by one barrel of Venezuelan oil.  So will U.S. companies finally get paid amid Venezuela’s cash crunch?  
 
Probably not, according to new guidance from OFAC.  As we posted about
before, the United States currently maintains
financial sanctions on Venezuela that bar persons subject to U.S. jurisdiction from dealing in “new debt” of the Government of Venezuela with a maturity of 30 days or more.  In today’s guidance, OFAC
confirmed that dealings denominated in Petros would expose U.S. persons to sanctions risk:
 
A currency with these characteristics would appear to be an extension of credit to the Venezuelan government.   Executive Order 13808 prohibits U.S. persons from extending or otherwise dealing in new debt with a maturity of greater than 30 days of the Government of Venezuela.
 

U.S. persons and individuals within the United States should carefully consider this guidance before engaging in transactions involving Mr. Maduro’s new cryptocurrency. 

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COMM_a4
13. T.B. McVey, P.R. Hanes & C.E. James, Jr.: “The DOJ’s Revised FCPA Corporate Enforcement Policy: A New Blueprint for Corporate Cooperation and Credit”

(Source:
Williams Mullen, 15 Dec 2017.)
 
* Authors: Thomas B. McVey, Esq.,
tmcvey@williamsmullen.com; Patrick R. Hanes, Esq.
phanes@williamsmullen.com; and Charles E. “Chuck” James, Jr., Esq.,
cjames@williamsmullen.com. All of Williams Mullen
 
On November 29, 2017, Deputy Attorney General Rod Rosenstein announced the issuance of a revised FCPA Corporate Enforcement Policy (the “Policy”).  Rosenstein announced that the “new policy enables the Department [of Justice] to efficiently identify and punish criminal conduct, and it provides guidance and greater certainty for companies struggling with the question of whether to make voluntary disclosures of wrongdoing.”  The new Policy grew out of the Department’s year-long experience implementing its so-called “Pilot Project,” the heart of which was to provide companies with significant and measurable incentives to voluntarily disclose and remediate corporate misconduct involving corrupt foreign payments.  The Policy now will be incorporated into the United States Attorneys’ Manual and applied throughout the Department as well as in the ninety-four (94) separate U.S. Attorneys’ offices around the country.
 
Under the new Policy, the incentives available for companies and the conditions for obtaining them are now, for want of a better term, “codified” in the following four rules:
 
  (1) When a company satisfies the DOJ’s standards of voluntary self-disclosure, full cooperation, and timely and appropriate remediation, there will be a presumption that the Department will resolve the company’s case through a declination, i.e. a public announcement that the Department is declining to prosecute the case.
  (2) That presumption may be overcome only if there are aggravating circumstances related to the nature and seriousness of the offense, or if the offender is a criminal recidivist.
  (3) If that presumption is overcome, the Department will recommend to the sentencing court a reduction of 50% off the low end of the applicable fine range and generally will not require appointment of an independent corporate monitor.
  (4) If a company has not voluntarily self-disclosed the violation but does thereafter provide full cooperation and engage in timely and appropriate remediation, the Department will recommend to the sentencing court a reduction of 25% off the low end of the applicable fine range.
 
The Policy also provides some explanation regarding how the Department evaluates a company’s compliance program, which will vary depending on the size and resources of a business, in judging whether the company has sufficiently remediated the violation.  While new ground is not broken here-these principles were set out in somewhat greater detail in the Department’s FCPA Resource Guide (published jointly with the Securities and Exchange Commission in November 2012)-the existence of formal Department policy confirming the “one size does not fit all” approach to evaluating compliance programs is beneficial.
 
Among other notable aspects of the DOJ announcement is the potential for future expansion of the Policy to corporate conduct outside the scope of the FCPA.  In announcing the Policy, Deputy Attorney General Rosenstein noted that the incentives in the Policy are designed to promote “ethical corporate behavior.”  His announcement suggests that the Department views the goals and incentives promoted under the Policy more broadly than simply to suppress corruption, but also to other forms of “corporate misconduct” and “wrongdoing.”  While the Policy will only have immediate application in dealing with potential FCPA violations, companies and their counsel will no doubt identify how steps outlined in the Policy may serve as possible road maps to argue for declination and leniency in a variety of other types of investigated matters including financial fraud, securities disclosure, international sanctions and environmental policy.

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TEEX/IM TRAINING EVENTS & CONFERENCES

TE_a114.

Full Circle Compliance and the Netherlands Defense Academy Will Present “Winter School at the Castle”, 5-9 Feb 2018 in Breda, the Netherlands

 
The Netherlands Defense Academy presents a winter seminar, “Compliance and Integrity in International Military Trade,” 5-9 February 2018, in the charming town of Breda, the Netherlands, an hour’s drive south of Amsterdam. Many hotels and restaurants are within walking distance of the Defense Academy, which is the Dutch equivalent of the U.S. military academies. The course is designed for NATO+ military officers, government employees, and employees of NATO+ defense contractors. Participants will receive certificates of completion from the Academy.

*
Registration & Information: please, complete the seminar registration form and send a copy to events@fullcirclecompliance.eu. More information is available 
at the Full Circle Compliance website or via events@fullcirclecompliance.eu

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ENEDITOR’S NOTES


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EN_a316
. Are Your Copies of Regulations Up to Date?
(Source: Editor)

The official versions of the following regulations are published annually in the U.S. Code of Federal Regulations (C.F.R.), but are updated as amended in the Federal Register.  The latest amendments 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 Amendments: 8 Jan 2018: 83 FR 709-711: Revisions, Clarifications, and Technical Corrections to the Export Administration Regulations; Correction; and 83 FR 706-709: Civil Monetary Penalty Adjustments for Inflation

  
*
FOREIGN ASSETS CONTROL REGULATIONS (OFAC FACR)
: 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders
  – Last Amendment: 28 Dec 2017: 
82 FR 61450-61451: Iraq Stabilization and Insurgency 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 (1 Jan 2018) 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 2018: 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: 1 Jan 2018: Updated HTS for 2018

  – 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: 19 Jan 2018: 83 FR 2738: Department of State 2018 Civil Monetary Penalties Inflationary Adjustment; Correction
  – The only available fully updated copy (latest edition: 19 Jan 2018) of the ITAR with all amendments is contained in Bartlett’s Annotated 

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

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EN_a0317
Weekly Highlights of the Daily Bugle Top Stories

(Source: Editor) 

Review last week’s top Ex/Im stories in “Weekly Highlights of the Daily Bugle Top Stories” published 
here

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EPEDITORIAL POLICY

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

* RIGHTS & RESTRICTIONS: This email contains no proprietary, classified, or export-controlled information. All items are obtained from public sources or are published with permission of private contributors, and may be freely circulated without further permission, provided attribution is given to “The Export/Import Daily Bugle of (date)”. 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.

* TO UNSUBSCRIBE: Use the Safe Unsubscribe link below.

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