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18-0214 Wednesday “Daily Bugle”

18-0214 Wednesday “Daily Bugle”

Wednesday, 14 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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  1. State Amends ITAR Part 126, Includes References and Updates Defense Trade Policy Concerning South Sudan 
  1. Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.)
  3. State/DDTC Publishes DTAG Documents and Presentations
  1. Financier Worldwide: “Review of EU Export Controls of Dual-Use Items”
  1. D.R. Levy: “It’s a Brave New World: Protecting Trade Secrets When Traveling Abroad with Electronic Devices”
  2. M. Volkov: “The Long Road Back to Redemption: Wells Fargo’s Path to Remediation (Part II of II)”
  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 (8 Feb 2018), ITAR (14 Feb 2018) 
  3. Weekly Highlights of the Daily Bugle Top Stories 

EXIMITEMS FROM TODAY’S FEDERAL REGISTER

EXIM_a1

1. 
State Amends ITAR Part 126, Includes References and Updates Defense Trade Policy Concerning South Sudan  

(Source:
Federal Register, 14 Feb 2018.) [Excerpts.]
 
83 FR 6457-6458: Amendment to the International Traffic in Arms Regulations: Addition of South Sudan
 
* AGENCY: Department of State. ACTION: Final rule.
* SUMMARY: The Department of State is amending the International Traffic in Arms Regulations (ITAR) to include reference to South Sudan in its regulations on prohibited exports, imports, and sales to and from certain countries, and to update defense trade policy toward South Sudan by applying a policy of denial on the export of defense articles and defense services to South Sudan, except as otherwise provided. This amendment reflects a policy determination made by the Secretary of State.
DATES: The rule is effective on February 14, 2018. …
* SUPPLEMENTARY INFORMATION: In response to the escalating crisis in South Sudan, the Secretary of State has determined that it is in the best interests of U.S. foreign policy to restrict, with certain exceptions, the export of defense articles and defense services to South Sudan in order to reflect the U.S. government’s opposition to the trade of arms to South Sudan and its contribution to the conflict and humanitarian crisis, to promote the cessation of hostilities, and to reinforce international unity in addressing the South Sudan crisis by aligning the United States with existing restrictions on certain exports to South Sudan by the European Union. This action requires the Department to amend ITAR § 126.1(d)(2) to include South Sudan in the list of countries to which a policy of denial applies, and to add a new paragraph (w) to specify the exceptions to the policy of denial for which licenses and other approvals to South Sudan may be approved on a case-by- case basis. Further, in accordance with ITAR § 129.7, no broker, as described in ITAR § 129.2, may engage in or make a proposal to engage in brokering activities subject to the ITAR that involve South Sudan without first obtaining the approval of the Directorate of Defense Trade Controls. …
 
List of Subjects in 22 CFR Part 126
 
Accordingly, for the reasons set forth above, 22 CFR part 126 is amended as follows:
 
  …
South Sudan. It is the policy of the United States to deny licenses or other approvals for exports of defense articles and defense services destined for South Sudan, except that a license or other approval may be issued, on a case-by-case basis, for:
  (1) Defense articles and defense services for monitoring, verification, or peacekeeping support operations, including those authorized by the United Nations or operating with the consent of the relevant parties;
  (2) Defense articles and defense services intended solely for the support of, or use by, African Union Regional Task Force (AU-RTF) or United Nations entities operating in South Sudan, including but not limited to the United Nations Mission in the Republic of South Sudan (UNMISS), the United Nations Mine Action Service (UNMAS), the United Nations Police (UNPOL), or the United Nations Interim Security Force for Abyei (UNISFA);
  (3) Defense articles and defense services intended solely for the support of or use by non-governmental organizations in furtherance of conventional weapons destruction or humanitarian demining activities;
  (4) Non-lethal defense articles intended solely for humanitarian or protective use and related technical training and assistance;
  (5) Personal protective equipment including flak jackets and helmets, temporarily exported to South Sudan by
United Nations personnel, human rights monitors, representatives of the media, and humanitarian and development workers and associated personnel, for their personal use only; or
  (6) Any defense articles and defense services provided in support of implementation of the Comprehensive Peace Agreement, the Agreement on the Resolution of the Conflict in the Republic of South Sudan, or any successor agreement.
 
Michael Miller, Office Director, Office of Regional Security and Arms Transfers, Bureau of Political- Military Affairs, U.S. Department of State.
[Editor’s Note:  A revised edition of
Bartlett’s Annotated ITAR (“The BITAR”) containing this ITAR amendment
 is available for downloading by BITAR subscribers. Subscribe to the BITAR at
www.FullCircleCompliance.eu.]

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OGSOTHER GOVERNMENT SOURCES

OGS_a12. Items Scheduled for Publication in Future Federal Register Editions
(Source: Federal Register)

[No items of interest noted today.]

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NWSNEWS

NWS_a1
5. Financier Worldwide: “Review of EU Export Controls of Dual-Use Items”

(Source:
Financier Worldwide, Expert Briefing March 2018.)
 
2018 may witness an important overhaul of the EU’s export control regime on dual-use items. This regime aims to control exports of items that could be used for purposes other than their legitimate civilian applications.
 
On 17 January 2018, the European Parliament cast its vote on a proposal of the European Commission to change certain aspects of the EU’s export control system on dual-use items. The Council Working Party on Dual-Use Goods is also looking into the Commission’s proposal. The outcome of the legislative process will depend in large part on the interinstitutional negotiations that will take place between the Parliament and the Council.
 

The ongoing discussions in the Parliament and the Council follow a lengthy process which started with a Green Paper published by the Commission in 2011. The EU export control system was set up in the 1990s and strengthened in 2000. …  

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COMMCOMMENTARY

COMM_a01
6D.R. Levy: “It’s a Brave New World: Protecting Trade Secrets When Traveling Abroad with Electronic Devices”

(Source:
Epstein Becker & Green PC, 13 Feb 2018.)
 
* Author: Daniel R. Levy, Esq. 
dlevy@ebglaw.com, Epstein Becker & Green PC.
 
Consider the following scenario: your organization holds an annual meeting with all Research & Development employees for the purpose of having an open discussion between thought leaders and R&D regarding product-development capabilities. This year’s meeting is scheduled outside the United States and next year’s will be within the U.S. with all non-U.S. R&D employees traveling into the U.S. to attend. For each meeting, your employees may be subject to a search of their electronic devices, including any laptop that may contain your company’s trade secrets. Pursuant to a new directive issued in January 2018 by the U.S. Custom and Border Protection (“CBP”), the electronic devices of all individuals, including U.S. citizens and U.S. residents, may be subject to search upon entry into (or leaving) the U.S. by the CBP. (See
CBP Directive No. 3340-049A, Jan. 4, 2018).
 
The directive allows for the warrantless border search of electronic devices without a showing of reasonable suspicion. It differentiates between a basic search and an advanced search. A basic search allows officers, with or without suspicion, to examine an electronic device, including an examination of the information that is resident and accessible on the device. Information that is solely stored remotely may not be accessed. An advanced search is one in which the officer connects external equipment, through a wired or wireless connection, to an electronic device in order to “review, copy, and/or analyze” the contents of the electronic device. Advanced searches are permitted where there is a “reasonable suspicion” of criminal activity or for national security concerns. While the directive states that “[m]any factors” may create a reasonable suspicion or a national security concern warranting an advanced search, it articulates examples particularly aimed at national security concerns but does not provide much color as to what may constitute reasonable suspicion of criminal activity.
 
By issuing the directive, the CBP appears to align its position with that of the majority of federal courts that held reasonable suspicion is not required for border searches of electronic devices. See, e.g.,
United States v. Ickes, 393 F.3d 501, 506-07 (4th Cir. 2005) (rejecting reasonable suspicion requirement for laptop computer searches at the border);
United States v. Linarez-Delgado, 259 Fed. Appx. 506, 508 (3d Cir. 2007) (rejecting reasonable suspicion requirement for border search of electronic data). Thus, the CBP may have also sought to reject the statements by at least one other court suggesting a requirement for a showing of reasonable suspicion before search of an electronic device. See, e.g.,
United States v. Cotterman, 709 F.3d 952 (9th Cir. 2013) (implying that officers need reasonable suspicion to conduct a border search of complex personal computing devices).
 
Can’t your employees just encrypt everything before international travel? Under the directive, travelers are required to present the electronic device (and the information contained within the device) in a condition that allows for the inspection of the device and its contents. Therefore, under the directive, officers may request an individual’s assistance in accessing the device if it is encrypted or password protected, and officers are authorized to detain a device pending a determination as to its admissibility in to the U.S.; they may also exclude a device if access to it is prevented by encryption or password protection.
 
The directive provides officers with instructions regarding the handling of certain sensitive materials, including business information, medical records, and information protected under the attorney-client privilege. Upon encountering business or commercial information resulting from a search, such as confidential business information, officers are required to “protect that information from unauthorized disclosure[.]” Such confidential business information may only be shared with agencies or entities that have mechanisms in place to protect the information.
 
Companies should alert employees of the requirements under the new directive. Certain preventative steps should be considered to minimize the potential for disclosure of confidential information at the border, including: (1) minimizing the number of electronic devices with trade secret or confidential information; (2) minimizing the amount of confidential information on a device; (3) to the extent possible, using electronic devices that do not contain confidential information when international travel is required; and (4) considering whether confidential information on the device should be encrypted but with the knowledge that CBP may request that the device be unlocked. Companies should also be cognizant of other issues relating to encrypted devices, including U.S. export control requirements for traveling to certain countries and licenses that may be required for individuals traveling into certain countries with an encrypted device.
 
In the event of an inspection request by an officer, your employees should be prepared to alert the officer that the device contains confidential business information in order to protect against its disclosure. Employees should also carry company business cards to show officers requesting an inspection that they are an employee of your company.

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COMM_a2
7. M. Volkov: “The Long Road Back to Redemption: Wells Fargo’s Path to Remediation (Part II of II)”

(Source:
Volkov Law Group Blog, 13 Feb. Reprinted by permission.)
 
* Author: Michael Volkov, Esq., Volkov Law Group,
mvolkov@volkovlaw.com, 240-505-1992.
 
Wells Fargo’s ability to grow its business is on hold for a year while it designs and implements a remediation program to address deficiencies in its board governance, risk management and compliance program.  The Federal Reserve’s action blocking Wells Fargo’s growth is perhaps the strongest condemnation of a company’s overall leadership and direction that the government can impose.  There is clearly a complete lack of trust right now between the government and Wells Fargo.
 
The Federal Reserve’s action now puts into place a remediation program that reads like many others with basic requirements that the ethics and compliance community is well familiar with and which are intended to bring appropriate controls and oversight into place.  The one piece missing is something that may be the hardest – creating a culture of ethics and compliance.
 
Nonetheless, the Federal Reserve’s written plans provide a basic outline for Wells Fargo to improve its board governance and its risk management.
 
For example, Wells Fargo has to design and implement a plan  to enhance the Board of Directors effectiveness to ensure that:
 
  – the Bank’s strategy and risk tolerance are aligned with the Bank’s risk management capacity;
  – the Board’s composition, governance structure and practices support its strategy and aligned with its risk tolerance;
  – the Board’s roles and responsibilities are not unfilled for an undue period of time following departure of any Board member.
 
In addition, Wells Fargo has to:
 
  – Improve the Board’s oversight of senior management, including holding senior management accountable for implementing and maintaining the bank’s strategy in accordance with Board direction and the Bank’s risk tolerance and capacity, and the Bank’s management and control framework.
  – Ensure senior management’s ongoing effectiveness in managing the Bank’s activities and related risks
  – Ensure that senior management establishes and maintains an effective and independent firm wide risk management function that covers all material risks facing the Bank, that has the requisite stature, authority and resources with clearly defined roles and responsibilities and provides for staffing Wells Fargo’s risk management function with the appropriate level of expertise and with respect to compliance and operational risk management, and maintains a management structure that promotes effective oversight and control of compliance and operational risks that is independent of the related line of business and has separate and independent reporting lines to the Chief Risk Officer and to the Board or an appropriate Committee of the Board.
  – Ensure that the Bank has an effective risk tolerance program, including an effective risk identification and escalation framework that identifies, aggregates, evaluates and reports material risk issues, plans to address risks and progress with respect to those plans; and a comprehensive and effective risk data governance and management framework.
  – Ensure that the Bank has a compensation and incentive system that is consistent with risk management objectives and measurement standards, including consequences for violation of its policies, laws and regulations and adverse risk outcomes.
  – Comprehensive reporting that will enable the Board to oversee management’s execution of its risk management responsibilities, including measures taken to comply with the Federal Reserve’s Order and provide the Board with sufficient information to evaluate the operational and compliance risks management functions.
 
The Federal Reserve’s Order also requires that the Bank submit a written plan to improve its compliance and risk management process to include (a) effective testing and validation measures for compliance and operational risk management to ensure compliance with applicable laws, regulations, policies and procedures (including consumer compliance laws, regulations and supervisory guidance) and testing of design and execution of operational and compliance risk controls; and (b) specific measures management will take to integrate all applicable compliance and operational risk requirements into business process and control designs and change management initiatives.

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ENEDITOR’S NOTES

 
* Jack Benny (born Benjamin Kubelsky; 14 Feb 1894 – 26 Dec 1974) was an American comedian, vaudevillian, radio, television and film actor, and violinist.
  – “It’s not so much knowing when to speak as when to pause.”
  – “Modesty is my best quality.”
 
* Frederick Douglass (born Frederick Augustus Washington Bailey; 14 Feb 1818 – 20 Feb 1895, was an African-American social reformer, abolitionist, orator, writer, and statesman. After escaping from slavery in Maryland, he became a national leader of the abolitionist movement in Massachusetts and New York, gaining note for his dazzling oratory and incisive antislavery writings.  Northerners at the time found it hard to believe that such a great orator had once been a slave. At the 1888 Republican National Convention, Douglass became the first African American to receive a vote for President of the United States in a major party’s roll call vote.)
  – “To suppress free speech is a double wrong. It violates the rights of the hearer as well as those of the speaker.”
  – “I am a Republican, a black, dyed in the wool Republican, and I never intend to belong to any other party than the Republican party, the party of freedom and progress.”

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EN_a39
. 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: 8 Feb 2018: 83 FR 5674: Technical Corrections to the Harmonized Tariff Schedule of the United States [Concerns HTSUS Chapter 99, Subchapter III]

  – 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: 14 Feb 2018:
83 FR 6457-6458: Amendment to the International Traffic in Arms Regulations: Addition of South Sudan [Amendment of ITAR Part 126.]

  – The only available fully updated copy (latest edition: 14 Feb 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_a0310
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.

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