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18-0201 Thursday “Daily Bugle”

18-0201 Thursday “Daily Bugle”

Thursday, 1 February 2018

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The Daily Bugle is a free daily newsletter from Full Circle Compliance, containing changes to export/import regulations (ATF, DOE/NRC, Customs, NISPOM, EAR, FACR/OFAC, FAR/DFARS, 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. DHS/CBP Posts Harmonized System Update 1801 
  4. DoD/DSS Announces PCL Inquiries Closure for the Day 
  5. State/DDTC Announces Address Change for Angst + Pfister 
  1. Reuters: “France to Finance Exports to Iran, Aims to Sidestep U.S. Sanctions” 
  2. ST&R Trade Report: “Trump Warns of Trade Action Against Europe”  
  1. R.C. Thomsen II, A.D. Paytas, & M.M. Shomali: “Changes to Export Controls in Jan 2018)” 
  2. S.A. Baker, B. Egan & A. Cohn: “CFIUS Reform: A Primer on the Key Changes Under Consideration” 
  3. R.C. Burns: “Leaving on a Jet Plane (for Masikryong)” 
  1. ECS Presents “ITAR/EAR Critical Compliance & Agreement Workshop” on 20-21 Mar in San Diego, CA 
  2. Full Circle Compliance and the Netherlands Defense Academy Present: “Winter School at the Castle: Compliance and Integrity in International Military Trade”, 5-9 Feb 2018 
  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 (26 Jan 2018), FACR/OFAC (28 Dec 2017), FTR (20 Sep 2017), HTSUS (1 Feb 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

 

* Commerce; Industry and Security Bureau; NOTICES; Export Privileges; Denials: Gulnihal Yegane, et al. [Publication Date: 2 February 2018.]
 
* State; NOTICES; Global Magntisky Human Rights Accountability Act Annual Report [Publication Date: 2 February 2018.]

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(Source:
CSMS #18-000106, 1 Feb 2018.)
 
Harmonized System Update (HSU) 1801 was created on January 31, 2018, and contains 7,864 ABI records and 1,329 harmonized tariff records.
 
This update contains modifications mandated by Presidential Proclamation 9693, To Facilitate Positive Adjustment to Competition From Imports of Certain Crystalline Silicon Photovoltaic Cells [Whether or Not Partially or Fully Assembled Into Other Products] and for Other Purposes. Changes included in Annex I will be effective on February 7, 2018 while adjustments contained in Annex II were effective on January 1,2018. The Proclamation can be accessed here.
 
Changes also include those made as a result of Presidential Proclamation 9694, To Facilitate Positive Adjustment to Competition From Imports of Large Residential Washers. Modifications will be effective on February 7, 2018, and the Proclamation can be accessed here.
 
Adjustments required by the verification of the 2018 Harmonized Tariff Schedule (HTS) are included also.
 
The modified records are currently available to all ABI participants and can be retrieved electronically via the procedures indicated in the CATAIR. For further information about this process, please contact your client representative. For all other questions regarding this message, please contact Jennifer Keeling via email at Jennifer.L.Keeling@cbp.dhs.gov.
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(Source:
DoD/DSS, 1 Feb 2018.)
 
Personnel Security (PCL) inquiries (option #2), to include e-QIP authentication resets, of the DSS Knowledge Center is experiencing intermittent disruptions in service and will be closed for the remainder of the day. We apologize for any inconvenience this may have caused.
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(Source:
State/DDTC, 1 Feb 2018.) [Excerpts.]
 
Effective immediately, Angst + Pfister, Boerhaavelaan 19 (2713 HA) Zoetermeer, the Netherlands will change as follows: Angst + Pfister, Afrikaweg 40 (2713 AW) Zoetermeer, the Netherlands. Due to the volume of authorizations requiring amendments to reflect this change, the Deputy Assistant Secretary for Defense Trade Controls is exercising the authority under 22 CFR 126.3 to waive the requirement for amendments to change currently approved license authorizations. The amendment waiver does not apply to approved or pending agreements. …
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NWSNEWS

NWS_a1
6. Reuters: “France to Finance Exports to Iran, Aims to Sidestep U.S. Sanctions”
(Source: Reuters, 1 Feb 2018.)
 
France will start offering euro-denominated credits to Iranian buyers of its goods later this year, a move to bolster trade while keeping it outside the reach of U.S. sanctions, the head of state-owned investment bank Bpifrance said.
 
France and other European countries have been looking to increase trade with Iran since Paris, Washington and other world powers agreed in 2015 to lift many economic sanctions in exchange for controls on Iran’s nuclear program.
 
The plan is to offer dedicated, euro-denominated export guarantees to Iranian buyers of French goods and services. By structuring the financing through vehicles without any U.S. link, whether to the currency or otherwise, the aim is to avoid the extraterritorial reach of U.S. legislation.
 
The move could anger U.S. President Donald Trump, who has threatened to pull out of the Iran nuclear agreement reached by his predecessor Barack Obama. Washington has maintained some financial restrictions, leaving private banks – even those based outside the United States – wary of financing deals.
 
  “We put a lot of preparation into this in 2017 and we keep on working, every single day, on the conditions of our entrance into Iran,” Bpifrance’s chief executive Nicolas Dufourcq said on Wednesday, referring to the new loans.
 
  “This is a completely separate flow (of money),” he added. “There is no (U.S.) dollar in this scheme… no one holding a U.S. passport.”
 
There is a pipeline of about 1.5 billion euros in potential contracts from interested French exporters, Dufourcq told lawmakers on Wednesday.
 
RISKING TRUMP’S IRE
 
France, which has had close business ties with Iran since before the fall of the Shah in 1979 and still operates several large factories there including Renault and PSA plants, is not alone in Europe in seeking to deepen trade ties.
 
A French banking source said Italy, Germany, Austria and Belgium were also working on mechanisms that would shield their companies from the risk of U.S. sanctions. It was not immediately clear how closely coordinated the efforts are.
 
Earlier this month, Italy and Iran agreed a framework credit agreement to fund investments in Iran worth up to 5 billion euros. The accord was signed by Iran’s government-owned Bank of Industry and Mine and Middle East Bank, and the investment arm of Italian state-owned holding Invitalia.
 
The Rome government chose Invitalia over state lender Cassa Depositi And Prestiti (CDP) because, unlike CDP, it has no exposure to U.S. investors and no U.S. footprint.
 
In October, Trump accused some signatories to the nuclear deal of profiteering from the accord. He later rowed back, saying he had told French President Emmanuel Macron and German Chancellor Angela Merkel they could “keep making money” in Iran.
 
French banks have been severely penalized by U.S. financial authorities for their dealings with Iran before.
 
BNP Paribas received a $9-billion fine in 2014 for violating U.S. financial sanctions – even though it was imposed before the nuclear agreement was reached.
 
European aerospace giant Airbus has complained about the banks’ wariness, which has cast a shadow over deals linked to rival Boeing.
 
Dufourcq said French export credits could be offered as soon as May or June.
 
Bpifrance’s total export credits jumped to 186 million euros ($231 million) in 2017 from 30 million euros a year earlier. It plans to more than double the amount to 400 million euros in 2018.

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NWS_a27. ST&R Trade Report: “Trump Warns of Trade Action Against Europe”
 
President Trump suggested recently that the U.S. could take some sort of trade action against the European Union, but EU officials said they are prepared to respond in kind.
 
In a TV interview Trump said he has “had a lot of problems with the European Union,” stating in particular that “it’s very, very tough” for U.S. products to access the EU market. However, press reports note that in 2016 the 28-member bloc took in nearly 19 percent of U.S. exports, including $304 billion in goods. It is thus possible that Trump was not speaking of any particular EU policies but instead alluding to the U.S. goods trade deficit with the EU, which totaled $143 billion in 2016.
 
Trump said this “very unfair situation” could “morph into something very big from … a trade standpoint,” though he offered no further details and it was not immediately clear what potential measures he might be referencing. EU spokesman Margaritis Schinas responded that “the EU stands ready to react swiftly and appropriately in case our exports are affected by any restrictive trade measure from the United States.” The EU believes trade “has to be open and fair,” Schinas said, but “it also has to be rules-based.”

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COMMCOMMENTARY

(Source:
alerts@t-b.com, 31 Jan 2018.) [Excerpts.]
* Authors: Roszel C. Thomsen II, Esq., roz@t-b.com; Antoinette D. Paytas, Esq., toni@t-b.com; and Maher M. Shomali, Esq., maher@t-b.com. All of Thomsen & Burke LLP.
 
This memo summarizes the regulatory, legislative, and enforcement developments with respect to U.S. and multilateral export controls during the month of January 2018. Changes to the regulations published in the Federal Register are explained at greater length in the Regulatory Summary, as is our custom.
 
Regulatory Updates
 
Encryption Reporting Deadline – February 1, 2018 (Today!)
 
A reminder to exporters that reports for encryption exports, including self-classification reports and License Exception ENC reports, are due to the Commerce Department’s Bureau of Industry and Security (BIS) and the National Security Agency (NSA) no later than February 1, 2018.
 
Your self-classification report for applicable encryption commodities, software and components, including ECCNs 5×002 and 5×992.c items classified in accordance with Section 740.17( b)(1) of the EAR, exported or reexported during 2017 must be received by BIS and the ENC Encryption Request Coordinator no later than February 1, 2018.
 
We have clarified with BIS that the self-classification report only needs to be filed once per product, in the year it is first self-classified. This means that if you self-classified an encryption item and included it on any previous year’s report, it does not need to be part of this report, even if it was exported in 2017.
 
BIS also notes that if no information has changed since the previous report, an email must be sent to BIS and NSA stating that nothing has changed, or a copy of the previously submitted report must be submitted.
 
We also recommend filing a new self-classification report if the encryption features have changed in items that were previously reported to BIS and NSA.
 
Your License Exception ENC Report for applicable encryption commodities, software and components, including items classified in accordance with Sections 740.17(b)(2) and 740.17(b)(3)(iii) of the EAR, exported or reexported between July 1 and December 31, 2017 must be received by BIS and the ENC Encryption Request Coordinator no later than February 1, 2018.
BIS has published some high-level information on encryption reporting on its website:
 
 
New BIS Entity List Additions
 
BIS published a final rule this month of newly sanctioned entities in various countries. The twenty-one persons who are added to the Entity List have been determined by the U.S. Government to be acting contrary to the national security or foreign policy interests of the United States. These twenty-one persons will be listed on the Entity List under the destinations of Bulgaria, China, Kazakhstan, Russia, Syria, and the United Arab Emirates (U.A.E.).
 
We do not typically comment on new Entity List additions, but there were two additions that list themselves as distributors of many U.S. products: Abtronics and Eurotech DMCC:
 
  – Abtronics (http://abtronics.ru/manufacturers/) – with offices in Russia and Kazakhstan was added to the Entity List on the basis of their procurement of U.S.-origin items for activities contrary to the national security or foreign policy interests of the United States. Specifically, this entity procured U.S.-origin items and transferred them to entities of the Russian military and parties on the Entity List without the necessary licenses.
 
  – Eurotech (http://www.eurotech.ae/manufacturers-list/) – located in the UAE was added to the Entity List for actions contrary to the national security or foreign policy interests of the United States. The ERC determined that there is reasonable cause to believe, based on specific and articulable facts, that this entity have been involved in the procurement of items for an entity on the Entity List, in circumvention of the licensing requirements set forth in §744.11 of the EAR.
 
It may be worth checking if your company does any business with these distributors, so that you can take the appropriate steps to prevent any future unlicensed transactions.
 
A complete list of the entities added under this rule can be found in the Regulatory Summary.
 
OFAC CAATSA FAQ
 
OFAC published a Frequently Asked Question regarding the Treasury Department report on oligarchs and parastatal entities of the Russian Federation as required by section 241 of the Counter America’s Adversaries Through Sanctions Act (CAATSA). Among other things, CAATSA imposed new sanctions on Iran, Russia, and North Korea. Under CAATSA Section 241, Congress required Treasury, in consultation with the Department of State and the Director of National Intelligence, to provide a report regarding senior political figures and oligarchs in the Russian Federation and Russian parastatal entities.
 
The FAQ confirmed that this report, provided to Congress, does not equate to a new sanctions list against Russian entities:
 
552. Has the Treasury Department now sanctioned the individuals and entities included in its January 29, 2018 report on senior political figures, oligarchs, and parastatal entities of the Russian Federation?  
 
No. Pursuant to section 241 of Countering America’s Adversaries Through Sanctions Act of 2017 (Pub. L. 115-44), the Treasury Department, in consultation with Secretary of State and the Director of National Intelligence, delivered a report on January 29, 2018 to the specified congressional committees regarding significant senior political figures and oligarchs in the Russian Federation and Russian parastatal entities.  
 
This report is not a “sanctions list.” While some persons mentioned in the report may have been sanctioned pursuant to other authorities, the inclusion of individuals or entities in this report, its appendices, or its classified annex does not and in no way should be interpreted to impose sanctions on those individuals or entities. Inclusion in this report also does not constitute a determination by any agency that any of those individuals or entities meet the criteria for designation under any sanctions program. Moreover, the inclusion of individuals or entities in this report, its appendices, or its classified annex does not, in and of itself, imply, give rise to, or create any restrictions, prohibitions, or limitations on dealings with such persons by either U.S. or foreign persons. Neither does inclusion in the unclassified report indicate that the U.S. Government has information about the individual’s involvement in malign activities.
 
Additional information can be found on OFAC’s website.
 
Enforcement Actions
 
 
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 month 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.
 
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.
 
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.
 
 
Mehmet Hakan Atilla, a resident of Turkey, was found guilty this month of conspiring with others, including Reza Zarrab, a/k/a “Riza Sarraf,” who previously pled guilty to evading U.S. sanctions among other offenses, to use the U.S. financial system to conduct transactions on behalf of the Government of Iran and other Iranian entities, which were barred by U.S. sanctions, and to defraud U.S. financial institutions by concealing these transactions’ true nature.
 
According to the evidence introduced at trial, other proceedings in this case, and documents previously filed in Manhattan federal court:, Atilla, Zarrab, and others used deceptive measures to provide access to international financial networks, including U.S. financial institutions, to the Government of Iran, Iranian entities, and entities identified by the Department of the Treasury Office of Foreign Assets Control as Specially Designated Nationals (“SDNs”). They did so by, among other things, using Halk Bank, at which Atilla acted as Deputy General Manager of International Banking, to engage in transactions that violated U.S. sanctions against Iran. In particular, they took steps to protect and hide Zarrab’s supply of currency and gold to the Government of Iran, Iranian entities, and SDNs using Halk Bank, and in doing so, shielded the bank from U.S. sanctions. Atilla, Zarrab, and others conspired to create and use false and fraudulent documents to disguise prohibited transactions for Iran and make those transactions falsely appear as transactions involving food, thus falling within humanitarian exceptions to the sanctions regime. As a result of this scheme, the co-conspirators induced U.S. banks to unknowingly process international financial transactions in violation of the IEEPA.
 
 
A North Texas man was sentenced this month to 46 months in federal prison for conspiring to smuggle and illegally export from the U.S. radiation-hardened integrated circuits (RHICs) for use in the space programs of China and Russia.
 
According to the plea agreement, between about June 2015 and March 2016, Peter Zuccarelli, 62, of Plano, Texas, and his co-conspirators agreed to illegally export RHICs to China and Russia in violation of the International Emergency Economic Powers Act (IEEPA). RHICs have military and space applications, and their export is strictly controlled. In furtherance of the conspiracy, Zuccarelli’s co-conspirator received purchase orders from customers seeking to purchase RHICs for use in China’s and Russia’s space programs. Zuccarelli received these orders from his co-conspirator, as well as payment of about $1.5 million to purchase the RHICs for the Chinese and Russian customers. Zuccarelli placed orders with U.S. suppliers, and used the money received from his co-conspirator to pay the U.S. suppliers. In communications with the U.S. suppliers, Zuccarelli certified that his company, American Coating Technologies, was the end user of the RHICs, knowing that this was false. Zuccarelli received the RHICs he ordered from U.S. suppliers, removed them from their original packaging, repackaged them, falsely declared them as “touch screen parts,” and shipped them out of the U.S. without the required licenses. He also attempted to export what he believed to be RHICs. In an attempt to hide the conspiracy from the U.S. government, he created false paperwork and made false statements. …

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* Authors: Stewart A. Baker, Esq., sbaker@steptoe.com, +1 202 429 6402; Brian Egan, Esq., began@steptoe.com, +1 202 429-8009; and Alan Cohn, Esq., acohn@steptoe.com, +1 202 429 6283.  All of Steptoe & Johnson LLP.
 
Key committees in the Senate and House have concluded initial hearings on the Foreign Investment Risk Review Modernization Act of 2017 (FIRRMA), the CFIUS reform bill introduced in the Senate and House by Senator Cornyn and Representative Pittenger with bipartisan cosponsors on November 9, 2017.  CFIUS, the Committee on Foreign Investment in the United States, is the interagency US government body originally created by President Ford in 1975 to review the national security implications of foreign investment activity in the United States. CFIUS reviews foreign acquisitions, mergers, and takeovers of existing businesses in the United States for US national security concerns. 
 
This advisory identifies the main problems with the existing CFIUS process that have led to calls for reform, the mechanisms that FIRRMA would create to address those problems, and some of the key criticisms of FIRRMA that have been registered by congressional witnesses and others thus far.
 
Substantive Expansion of CFIUS Jurisdiction
 
As explained in the attached chart (FIRRMA: What Transactions Are Covered?), FIRRMA would create several new categories of transactions that would be subject to CFIUS’s jurisdiction. Under current law, CFIUS’s jurisdiction is triggered only when a foreign investor acquires “control” over a US business.  Critics of CFIUS suggest that some transactions – particularly in the high-tech sector – do not result in foreign “control,” but nonetheless should be subject to CFIUS review because of the type of technology that may be shared with the foreign person, or because of other national security sensitivities. 
 
New categories of deals subject to CFIUS review
: To address this and others concerns, FIRRMA would extend CFIUS to cover three new substantive categories of transactions:
 
  – First, and most significantly, for US “critical technology” companies, CFIUS review would be required for transfers of “intellectual property and associated support” to a foreign person through a joint venture or any other arrangement other than an “ordinary customer relationship.”
  – Second, for both US “critical technology” and “critical infrastructure” companies, CFIUS review would be required for “non-passive” investments of any type. “Passive” investments not subject to CFIUS review would mean no access to non-public technical information, no access to financial data not available to other shareholders, no board or other advisory positions, and no substantive decision-making role for the investor.
  – Third, CFIUS review would be required for the purchase or lease of real estate in proximity to military installations or other facilities that have US national security sensitivities.
 
FIRRMA would provide the Department of the Treasury (Treasury) with substantial regulatory authority to modify the scope and application of these three categories by defining “critical technology,” and by further describing the types of critical infrastructure and real estate transactions that would trigger CFIUS review.
 
Most criticisms of the proposed expansion of CFIUS’s jurisdiction have focused on the first new category, which would authorize CFIUS review of any transfers of “intellectual property and associated support” by a critical technology company. A witness from IBM stated that this proposed change is a “serious flaw in the bill” that is “a principal reason the bill is controversial in the business community,” and predicted that it would result in CFIUS review of “many thousands of non-sensitive IP and technology licensing transactions.” Other witnesses described this change as unnecessary in light of the existing US export control regime, which already broadly regulates US technology exports. 
 
On the other hand, Senator Cornyn and other proponents of the new “intellectual property and associated support” category justify it as necessary, particularly to address emerging technologies that are not easily susceptible to regulation through export controls. Proponents also note that FIRRMA would allow Treasury to exempt subcategories of transactions from review upon a finding that other provisions of law are adequate to address any national security concerns. We expect a continued, vigorous debate on the merits of using preexisting regulatory tools to address technology transfer versus creating new authorities to do so under CFIUS.
 
Exception for investors from “white list” countries
: Several of FIRRMA’s sponsors and other critics of the current CFIUS process make no secret of the fact that they view China and its foreign investment strategy as one of the largest national security challenges to foreign investments in the United States. For example, Senator Cornyn indicated that “the context for [FIRRMA] is important and relatively straightforward, and it’s China.”
 
FIRRMA does not explicitly impose additional requirements on China or any other named country. However, it would give CFIUS the authority to create a “white list” of countries whose investors could be exempted from CFIUS review for the three new categories of transactions identified above. FIRRMA indicates that decisions related to placement on the “white list” should include considerations related to treaty alliances and the relevant country’s laws for screening foreign investments. Treasury would have significant discretion in deciding how to design the list.
 
While there appears to be broad consensus that CFIUS reform legislation should not explicitly call out problematic countries by name, some critics have suggested that authorizing the executive branch to create a “black list” would be a more effective and efficient approach. Under this approach, any new categories of transactions subject to CFIUS review would apply only to investors from countries that have been found by US national security agencies to be particularly problematic for US foreign direct investment from a national security perspective. Defenders of the bill as drafted point out that creating a black list could create serious diplomatic difficulties that a white list largely avoids. Moreover, FIRRMA does include a number of provisions that would encourage increased vigilance over transactions from “countries of special concern,” without identifying any such countries by name. We expect debate on country-specific mechanisms to continue over the coming months.
 
Closing CFIUS “Loopholes”
 
As a technical matter, the current CFIUS review process is voluntary. Companies choose to seek CFIUS’s preapproval of covered transactions because of the significant economic downside to an after-the-fact CFIUS review that may result in mandated changes to a transaction. In addition, under current rules companies have the discretion to construct transactions in a manner that avoids foreign control (and, thus, CFIUS jurisdiction). Some critics of CFIUS have characterized these features of CFIUS as “loopholes” that allow for evasion of the Committee’s review.
 
FIRRMA would address these perceived loopholes in a number of ways:
 
  – For the first time, FIRRMA would mandate that parties to certain categories of covered transactions (including where a foreign government-owned entity would acquire a 25% or greater share in a US business) file with CFIUS. Parties would have the option to conduct these filings through an abbreviated “declaration” process or through submission of a typical written notice. (FIRRMA would also give parties to other covered transactions the option to file with CFIUS through the same declaration process).
  – FIRRMA would also formally extend CFIUS jurisdiction to transactions “intended or designed to evade or circumvent” the CFIUS review process.
  – CFIUS jurisdiction would also be extended to any transaction involving “any change in the rights” of a foreign person in a US business that could result in foreign control of a US business or a non-passive investment in a critical technology or critical infrastructure business.
 
Other Notable Aspects of FIRRMA
 
CFIUS resource needs
: Data and anecdotal evidence indicate a significant increase in CFIUS filings in 2017, bringing filings to an all-time high. Simultaneous with this filing increase (and perhaps as a result of this increase) repeat participants in the CFIUS process have reportedly observed delays in the CFIUS process that harm investment prospects. In addition, some of the key CFIUS agencies have gone for months without political appointees in key senior-level positions with CFIUS responsibilities. Representative Kildee referred to “an underfunded and understaffed US government” as the second greatest threat, behind China, to US national security with respect to foreign investment. 
 
Senator Cornyn and others have acknowledged that FIRRMA would increase CFIUS’s workload, and that CFIUS needs additional resources. Senator Cornyn testified that “for the price of a single B-21 bomber, we can fund an updated CFIUS process and protect our key capabilities for several years.” FIRRMA also includes a number of provisions designed to make it easier for CFIUS to maintain resources, from a new authority for CFIUS to fund its work through filing fees, to clear authorization for appropriations and a unified US government-wide CFIUS budget request, to specialized hiring authorities.
 
FIRRMA would not change the “national security” focus of CFIUS:
 
A number of other countries with foreign investment review procedures do not limit their review to national security concerns. For example, Canada’s foreign direct investment review process under the Investment Canada Act is governed by a variety of (primarily) economic factors related to whether the investment “is likely to be of net benefit to Canada.”
 
FIRRMA retains national security as CFIUS’s only mandate. However, it does identify a number of additional factors for CFIUS to consider in conducting its national security analysis, including some that may seem relatively far afield of traditional national security decision making. For example, one new factor to be considered under FIRRMA would be the extent to which the transaction would expose “personally identifiable information, genetic information, or other sensitive data of United States citizens to a foreign government or foreign person that may exploit that information in a manner that threatens national security.”
 
Next Steps
 
FIRRMA represents a serious, bipartisan attempt to address shortcomings in the current CFIUS review process, and it has been endorsed by the White House as well as Secretary Mnuchin and other key senior officials in the Trump Administration. However, as summarized above, it is not without its critics. On Capitol Hill, some, including Senator Crapo, have expressed concern that any reforms to CFIUS should not deter from longstanding US policy of maintaining a free, fair, and open foreign direct investment climate. Others, including Senator Schumer, have called for additional review through a CFIUS-like process to consider whether foreign direct investments are economically harmful to the United States. We expect continued additional deliberations in Congress on CFIUS reform in the coming months.  

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COMM_a3
10. R.C. Burns: “Leaving on a Jet Plane (for Masikryong)”
(Source:
Export Law Blog
, 1 Feb 2018. Reprinted by permission.)
 
* Author: R. Clifton Burns, Esq., Bryan Cave LLP, Wash DC,
Clif.Burns@bryancave.com
, 202-508-6067).
 
The Olympics are, in theory, a time when foreign policy should be put aside and world athletes simply compete in the probably vain hope that peaceful athletic games might have a spill-over effect into the stormier regions of international relations.   That being said, UN and US sanctions have gotten tangled up in the upcoming Winter Games in South Korea.
 
First, the International Olympic Committee, following its checkered past, ignored UN sanctions by shipping recreational sports equipment to the Nork athletes for training.   If any of that equipment was U.S. origin, the IOC would have violated U.S. sanctions all well.  Both prohibit the export of “recreational sports equipment” to North Korea.
 
Recently, an obscure provision in Executive Order 13810 reared its ugly head. Section 2(a) prohibits foreign aircraft that have landed in North Korea from visiting the United States for 180 days after the aircraft has departed North Korea. When the Executive Order came out, it was hard to imagine that this would ever apply to anything.  Who flies into Nork airports that would want to later fly those planes to the United States?  But now, it turns out, the South Korean ski team had chartered an Asiana aircraft to fly to North Korea’s Masikryong Ski Resort for training with the North Korean team.  The plane would then to return to South Korea on the following day with the North Korean skiers who would remain in South Korea to participate in the Winter Games. Oops.
 
Apparently, according to this source, OFAC was initially reluctant to waive section 2(a) for the chartered Asiana flight, which would have pretty much put the kibosh on the flight to the joint training session. But minutes before the flight was to take off on 10:40 a.m. Wednesday time, Korea time, OFAC had a change of heart and the airplane left for North Korea.
 
The Bureau of Industry and Security (“BIS”) was not involved, even though BIS has said that the Airbus 321 is subject to the EAR as a result of having U.S. origin engines which constitute more than 10 percent of the value of the aircraft. Presumably everyone felt that License Exception AVS would cover the temporary sojourn of the A321 in North Korea, even though the regulations are poorly written in this regard and do not clearly cover foreign manufactured aircraft subject to the EAR flying from a foreign country to North Korea.
 
License Exception AVS covers (1) foreign registered aircraft on temporary sojourn in the United States departing for foreign destinations, (2) U.S. registered aircraft departing for a temporary sojourn in a foreign destination, and (3) “[c]ivil aircraft legally exported from the United States.” Section 764.4(c)(6) says that AVS may be used for North Korea to the extent that it involves civil aircraft legally exported from the United States. Asiana’s A321 was not itself exported from the United States, although the U.S. origin engines that make the aircraft subject to the EAR were. To reach the result that AVS applies here, you have to interpret “civil aircraft legally exported from the United States” to cover aircraft where U.S. origin parts which make the aircraft subject to the EAR were legally exported, a plausible (if not certain) reading, I suppose, of that language.

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TEEX/IM TRAINING EVENTS & CONFERENCES

 
* What: ECS Presents ITAR/EAR Critical Compliance & Agreement Workshop
* When: March 21-22, 2018
* Sponsor: Export Compliance Solutions (ECS)
* ECS Speaker Panel: Suzanne Palmer, Lisa Bencivenga
* Register HERE or by calling 866-238-4018 or e-mail spalmer@exportcompliancesolutions.com.

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Full Circle Compliance and Netherlands Defense Academy (“NLDA”) will present 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.
* Course contents:
  – Day 1: International Trade in Defense Markets and Relevance of Trade Compliance.
  – Day 2: U.S. Export Control Regulations (International Traffic in Arms Regulations), and the EU Perspective.
  – Day 3: U.S. Export Control Regulations (Export Administration Regulations), and EU Export Control Regulations (Military and Dual-Use).
  – Day 4: Compliance & Integrity / Ethics, and Setting up an Internal Compliance Program.
  – Day 5: Setting up an Internal Compliance Program & Panel Discussion
* When: 5-9 February 2018.
* Where: the Netherlands Defense Academy (“The Castle”), Kraanstraat 4, Breda, the Netherlands.
* Event Sponsors: Full Circle Compliance & the Netherlands Defense Academy, Faculty of Military Sciences.
* Speakers include: Col. Dr. Robert M.M. Bertrand, RA RC RO; Dr. Job Timmermans; Drs. Ghislaine C.Y. Gillessen, RA; James E. Bartlett III, JD, LL.M; Michael E. Farrell; and Drs. Alexander P. Bosch.
* Information: a complete overview (incl. course schedule, location, topics) is available here and at the Full Circle Compliance website.

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ENEDITOR’S NOTES

 
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EN_a314
. 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 Amendment: 26 Jan 2018: 83 FR 3577-3583: Addition of Certain Entities; Removal of Certain Entities; and Revisions of Entries on the Entity List

  
*
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 Feb 2018: Harmonized System Update 1801, containing 7,864 ABI records and 1,329 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: 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_a0315
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, DOE/NRC, DOJ/ATF, DoD/DSS, DoD/DTSA, FAR/DFARS, 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.

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