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18-0221 Wednesday “Daily Bugle”

18-0221 Wednesday “Daily Bugle”

Wednesday, 21 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. Commerce/BIS Seeks Comments on Investigation to Determine Effects of Imports of Specific Commodities on the National Security 
  2. Justice/ATF Seeks Comments on eForm Access Request 
  1. Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.)
  3. Commerce/Census: “Tips on How to Resolve AES Fatal Errors”
  4. State/DDTC: (No new postings.)
  5. EU Amends Restrictive Measures Concerning ISIL and Al-Qaida for the 281st Time and Corrects North Korea Restrictive Measures
  1. Defense News: “India Debars, Suspends, and Restricts Defense Firms in New Corruption Rule”
  2. Euractiv: “Eleven Member States Back EU Controls on Selling Spyware”
  3. The Guardian: “Britain Sold Spying Gear to Philippines Despite Duterte’s Brutal Drugs War”
  4. ST&R Trade Report: “Export Control Reform, Easier Trade Remedy Cases Among Legislative Initiatives”
  5. The Washington Times: “Art of the Defense Deal: Trump Aims to Dramatically Boost U.S. Arms Exports”
  1. K.J. Wolf & A.R. Schlossberg: “DDTC and BIS Solicit Comments Regarding Controls over Explosives, Personal Protective Equipment, and Military and Intelligence Electronics”
  2. M. Volkov: “Rabobank Coughs Up $368 Million and Pleads Guilty to Conspiracy to Money Launder and Obstruct Investigation”
  3. O. Torres: “2018 Trends for CFIUS Reviews”
  1. “17th Annual ‘Partnering for Compliance™’ EastExport/Import Control Conference” on 6-9 Marin Orlando, FL. UPDATE: Sharron Cook, BIS & NIST/Computer Security Division confirmed
  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 (16 Feb 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. Commerce/BIS Seeks Comments on Investigation to Determine Effects of Imports of Specific Commodities on the National Security
(Source: Federal Register, 21 Feb 2018.) [Excerpts.]
 
83 FR 7452-7453: Proposed Information Collection; Comment Request; Request for Investigation Under Section 232 of the Trade Expansion Act
* AGENCY: Bureau of Industry and Security, U.S. Department of Commerce.
* ACTION: Notice. …
* DATES: To ensure consideration, written comments must be submitted on or before April 23, 2018.
* ADDRESSES: Direct all written comments to Jennifer Jessup, Departmental Paperwork Clearance Officer, Department of Commerce, Room 6616, 14th and Constitution Avenue NW, Washington, DC 20230 (or via the internet at PRAcomments@doc.gov).
* FOR FURTHER INFORMATION CONTACT: Requests for additional information or copies of the information collection instrument and instructions should be directed to Mark Crace, BIS ICB Liaison, Regulatory Policy Division, (202) 482-8093 or at mark.crace@bis.doc.gov.
* SUPPLEMENTARY INFORMATION: …
   Upon request, BIS will initiate an investigation to determine the effects of imports of specific commodities on the national security, and within 270 days report to the President the findings and a recommendation for action or in-action. Within 90 days after receiving the report, the President shall determine whether to concur or not concur with the findings and recommendations. No later than 30 days after a decision, the determination will be published in the Federal Register and reported to Congress. The purpose of this collection is to account for the public burden associated with the surveys distributed to determine the effect of imports of specific commodities on the national security. …
   Comments are invited on: (a) Whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility; (b) the accuracy of the agency’s estimate of the burden (including hours and cost) of the proposed collection of information; (c) ways to enhance the quality, utility, and clarity of the information to be collected; and (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology.
   Comments submitted in response to this notice will be summarized and/or included in the request for OMB approval of this information collection; they also will become a matter of public record.
 
   Sheleen Dumas, Departmental Lead PRA Officer, Office of the Chief Information Officer.

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EXIM_a2

2. Justice/ATF Seeks Comments on eForm Access Request
(Source: Federal Register, 21 Feb 2018.) [Excerpts.]
 
83 FR 7492-7493: Agency Information Collection Activities; Proposed eCollection eComments Requested; Revision of a Currently Approved Collection; eForm Access Request
* AGENCY: Bureau of Alcohol, Tobacco, Firearms and Explosives, Department of Justice.
* ACTION: 60-Day notice.
* SUMMARY: The Department of Justice (DOJ), Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), will submit the following information collection request to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995.
* DATES: Comments are encouraged and will be accepted for 60 days until April 23, 2018.
* FOR FURTHER INFORMATION CONTACT: If you have additional comments, particularly with respect to the estimated public burden or associated response time, have suggestions, need a copy of the proposed information collection instrument with instructions, or desire any additional information, please contact Desiree Dickinson either by mail at 244 Needy Road, Martinsburg, WV 25405, by email at Desiree.Dickinson@atf.gov or by telephone at (304) 616-4584.
* SUPPLEMENTARY INFORMATION: …
  – The Title of the Form/Collection: eForm Access Request.
  – Form number (if applicable): None.
  – Component: Bureau of Alcohol, Tobacco, Firearms and Explosives, U.S. Department of Justice. …
  – Abstract: Respondents must complete the eForm Access Request form in order to receive a user ID and password to obtain access to ATF’s eForm System. The information is used by the Government to verify the identity of the end users, prior to issuing passwords. …
   If additional information is required contact: Melody Braswell, Department Clearance Officer, United States Department of Justice, Justice Management Division, Policy and Planning Staff, Two Constitution Square, 145 N Street NE, 3E.405A, Washington, DC 20530.
 
   Dated: February 15, 2018.
Melody Braswell, Department Clearance Officer for PRA, U.S. Department of Justice.

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OGSOTHER GOVERNMENT SOURCES

OGS_a13. Items Scheduled for Publication in Future Federal Register Editions
(Source: Federal Register)

* U.S. Customs and Border Protection; RULES; Technical Amendment to List of User Fee Airports: Name Changes of Several Airports and the Addition of Five Airports [Publication Date: 22 February 2018.]  

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When a shipment is filed to the AES, a system response message is generated and indicates whether the shipment has been accepted or rejected. If the shipment is accepted, the AES filer receives an Internal Transaction Number (ITN) as confirmation. However, if the shipment is rejected, a Fatal Error notification is received.
 
To help you resolve AES Fatal Errors, here are some tips on how to correct the most frequent errors that were generated in AES for this month.
 
Fatal Error Response Code: 624
 
  – Narrative: Schedule B/ HTS Number Outdated – Cannot Be Used
  – Reason: The Schedule B/ HTS Number reported is no longer valid in AES.
  – Resolution: The Schedule B/ HTS Number reported on an EEI cannot be outdated (i.e., expired). Compare the Estimated Date of Export to the Begin and End date of the Schedule B/HTS Number reported. Verify the Schedule B/HTS Number, correct the shipment and resubmit. To view the Schedule B Search Engine please go here.
 
Fatal Error Response Code: 650
 
  – Narrative: Quantity 2 Cannot Exceed Shipping Weight
  – Reason: When the Unit of Measure 2 is KG (kilograms), Quantity 2 cannot exceed the Shipping Weight.
  – Resolution: Verify the Unit of Measure 2, the Quantity 2 and the Shipping Weight reported, correct the shipment and resubmit.
 
For a complete list of Fatal Error Response Codes, their reasons, and resolutions, see Appendix A – Commodity Filing Response Messages.
 
It is important that AES filers correct Fatal Errors as soon as they are received in order to comply with the Foreign Trade Regulations. These errors must be corrected prior to export for shipments filed predeparture and as soon as possible for shipments filed postdeparture but not later than five calendar days after departure.
 
For further information or questions, contact the U.S. Census Bureau’s Data Collection Branch.
 
  – Telephone: (800) 549-0595, select option 1 for AES
  – Email: askaes@census.gov
  – Online: www.census.gov/trade
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Regulations:
* Commission Implementing Regulation (EU) 2018/256 of 20 February 2018 amending for the 281st time Council Regulation (EC) No 881/2002 imposing certain specific restrictive measures directed against certain persons and entities associated with the ISIL (Da’esh) and Al-Qaida organisations.
 
Corrigenda:
* Corrigendum to Council Decision (CFSP) 2016/849 of 27 May 2016 concerning restrictive measures against the Democratic People’s Republic of Korea and repealing Decision 2013/183/CFSP (OJ L 141, 28.5.2016)
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NWSNEWS

NWS_a1
8. Defense News: “India Debars, Suspends, and Restricts Defense Firms in New Corruption Rule”
(Source: Defense News, 21 Feb 2018.)
 
India’s Ministry of Defence has created a categorization for defense companies caught up or alleged to be involved in corrupt practices.
 
Under the new organization approach, defense companies caught using corrupt practices to influence contracts are now put under debarred, suspended and restricted-procurement categories.
 
What does this change mean?
 
Debarred companies – those who have previously been found corrupt – will be unable to do business in India. Suspended firms include those caught up in is an ongoing inquiry. And restricted-procurement firms are those whose credentials have suffered due to allegations of corruption, but the systems and equipment provided is essential to sustain combat readiness of the armed forces.
 
While the military is happy about the procurement plan, there is a high degree of skepticism that the process will be as quick as the Indian military wants it to be.
 
Since 2012, overseas defense companies – Singapore Technologies Kinetics; Israel Military Industries; Rheinmetall Air Defence of Zurich, Switzerland; and Corporation Defense of Russia – and domestic private companies – T S Kisan & Company; and R. K. Machine Tools – have been banned from carrying out business deals in India until 2024.
 
Amit Cowshish, a former financial adviser on defense acquistion for the MoD, has doubts about the impact of the new categorization.
 
  “This is just a list of companies which have been debarred/suspended, etc. As I see it, the list is meant to sensitize the procurement personnel about these companies. Apparently, the companies have been classified as per the guidelines issued earlier. It is not a policy letter. So it does not change anything in so far as the policy on debarment, suspension of business or restricted dealings with companies facing … inquiry is concerned,” he said.
 
In November 2016, the MoD released its modified blacklisting policy, “Guidelines of the Ministry of Defense for Penalties in Business Dealings with Entities,” meant to ensure scrutiny and transparency of defense deals.
 
Under these guidelines, past and current blacklisting cases, in which investigations are being carried out, will be examined and a new graded system of penalties will be determined.
 
“The current letter appears to be superseding the previous policy, which was not pursued to the logical conclusion and remains in a limbo,” said Rahul Bhonsle, a defense analyst and retired Indian Army brigadier.
 
Who is affected?
 
The MoD has placed Denel of South Africa, Leonardo of Italy and the latter’s U.K.-based subsidiary AgustaWestland under its suspended category.
 
In addition, Rolls-Royce of the U.K., Tatra Trucks of the Czech Republic, and Israeli defense companies Rafael Advanced Defense Systems and Israel Aerospace Industries have been placed under the restricted-procurements category.
 
However, they are permitted to carry out business dealings on account of operational urgency, national security and the lack of alternatives.
 
Regional tensions, historical grievances, superpower rivalries, and ongoing territorial and resource access disputes all motivate Asian air services to bolster their air power capabilities.
 
The MoD has suspended several companies on account of ongoing investigations into corruption. They include IDS Tunisia, Infotech Design Systems Mauritius, IDS Infotech Mohali, Aeromatrix Info Solution Private Limited (Chandigarh), Shanx Oceaneering Private Limited, Interspiro (India) Private Limited, Expert Systems, Unitech Enterprises, Kelvin Engineering, Atlas Group and Offset India Solutions.
 
What has been the reaction?

  “MoD should enforce one-time severe penalty on companies found in corruption practice,” said a CEO of a foreign defense company, who spoke on condition of anonymity. The executive added that debarring overseas defense firms will “limit acquisition of high-tech weapon systems to be used by Indian armed forces.”
 
The Indian government can suspend or ban business dealings with an overseas company if it violates a precontract integrity pact entered with the MoD at the time of signing the defense contract.
 
The government can also suspend or ban a company if it uses corrupt practices or unfair means to secure a bid or contract, of if it violates a standard clause relating to the use of defense agents, who are not permitted in India. The government can also take action in the interest of national security or if an overseas defense company does not meet contractual expectations.
 
Bhonsle, the retired Army officer, said the process is likely to lead to defensive actions by companies and decision-makers within the MoD, leading to delays in armament procurement.

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NWS_a29. Euractiv: “Eleven Member States Back EU Controls on Selling Spyware”
(Source: Euractiv, 21 Feb 2018.)
 
Eleven EU countries have signaled their support for draft rules that would place export restrictions on companies selling surveillance technologies, a leaked working paper shows.
 
The group is backing the European Commission’s proposal to introduce export controls on products that could harm human rights, according to a negotiating document that EURACTIV.com has obtained.
 
Germany led the initiative, and is supported by Croatia, the Czech Republic, France, Italy, Poland, Portugal, Romania, Slovakia, Slovenia and Spain.
 
Diplomats from the 11 countries signed off on a six-page document embracing the Commission’s plan to create “effective EU cyber-surveillance controls for the protection of human rights”. Their paper is dated 29 January.
 
Member states are negotiating their position on a Commission proposal from 2016 to overhaul EU export rules for dual use items, which face extra trade restrictions because they can be used for either civil or military purposes.
 
The Commission proposed the changes to export control restrictions after it was revealed that European companies sold software to governments that used it to spy on Arab Spring protesters.
 
Reports about governments that used European firms’ spyware have continued to add fuel to political talks over the bill. Last summer, the BBC reported that British weapons manufacturer BAE Systems sold surveillance software to the likes of Tunisia and Saudi Arabia.
 
Officials close to the legal negotiations described the 11-member states’ document as a breakthrough.
 
The countries’ support is a victory for the Commission. The EU executive has struggled to convince skeptical member states and tech firms that there is a need to update the bloc’s export control rules by adding on human rights safeguards and restrictions on how firms sell surveillance software to foreign countries.
 
The diplomats support new EU controls “dealing with the specific human rights dimension such as violations of the freedom of expression, right to privacy, and the freedom of association, directly linked to the misuse of cyber-surveillance items”.
 
With backing from some of the biggest member states, the Commission’s proposal is now more likely to secure approval from a majority of EU governments.
 
But there are still some member states that disagree. Some others are wary of introducing any new export restriction on products that could harm human rights. Technology companies have also criticized that part of the Commission proposal, arguing that it will be difficult to prove whether some everyday products could be misused.
 
The legislation can only go into effect after member states, the European Parliament and the Commission agree on a compromise in three-way negotiations. The Parliament approved an identical version of the bill last month, but talks with the other two institutions have not yet started.
 
A few member states that backed the new working document appear to have changed their views, having initially been hesitant when the Commission first announced the reforms in 2016.
 
Shortly before the Commission published its proposal, Sweden drafted a document rejecting the plan to create a legally binding list of products set to face extra approval procedures in order to be exported. That method would be “less effective” and “undermine the competitiveness of EU industry”, the paper said. Austria, Finland, France, Germany, Poland, Slovenia, Spain and the UK also signed off on the 2016 document.
 
The 11-member states favor extending EU export controls to apply to cyber-surveillance technologies, but they do not want the same restrictions to apply to a list of other kinds of tech products that the Commission identified in its original proposal.
 
One EU official said the member states’ exclusion of technologies like robotics or artificial intelligence systems that could be used as weapons is “too restrictive” and “not forward looking”.
 
But the official described the working paper as generally reassuring since it supports the broader plan to create new export controls on surveillance technologies.
 
The Commission proposal outlined types of technologies that should require extra licenses before companies are allowed to export them. That was the EU executive’s attempt to also apply the tougher rules to products that might increasingly be used as weapons at some point in the future.
 
The 11-member states also gave a mixed view of the tougher transparency requirements in the Commission’s proposal.
 
Their paper describes the legislation as “an opportunity for promoting transparency” because it will push them to make more data public about the licenses they approve and decline.
 
But national governments are sensitive about how much data they share with each other and the Commission about their export of dual use products.
 
Diplomats from the 11 countries criticised the Commission’s proposal to require member states to consult each other before approving a company’s export of any product that might damage human rights.
 
That would create “an unnecessary administrative burden” and step on national authorities’ toes. Member states have the right “to assess the case and exercise their export control authority”, the document said.

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NWS_a310. The Guardian: “Britain Sold Spying Gear to Philippines Despite Duterte’s Brutal Drugs War”
(Source: 
The Guardian
, 21 Feb 2018.) [Excerpts.]
 
Labour MP says sale of surveillance tools ‘makes UK complicit in deaths of thousands of Filipinos’.
 
The British government sold £150,000 of hi-tech spying equipment to the Philippines, giving President Rodrigo Duterte the tools to hunt down and kill dealers and addicts as part of his brutal war on drugs. 
 
The equipment purchased by Duterte’s government included IMSI-Catchers, which are used to eavesdrop on telephone conversations, and surveillance tools to monitor internet activity.

Duterte has admitted authorising the wiretapping of at least two mayors whom he accused of being “narcopoliticians”, including the Ozamiz city mayor, Reynaldo Parojinog. …
 
 
The exports to the Philippines appear to be a violation of UK law, which states that the government must not “issue an export licence if there is a clear risk that the proposed export might be used for internal repression”. …

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NWS_a411. ST&R Trade Report: “Export Control Reform, Easier Trade Remedy Cases Among Legislative Initiatives”

 
Trade Remedies
. The Self-Initiation Trade Enforcement Act (S. 2427, introduced Feb. 13 by Sen. Peters, D-Mich.) would create a permanent task force within the International Trade Administration to investigate dumping and subsidies on imported goods. According to Peters, this task force would be charged with independently researching trade data and subsequently referring identified trade abuses for further formal investigation by the ITA, with an emphasis on cases impacting small and medium-sized businesses. Peters explained that “smaller companies with limited resources may not have the ability to identify trade violations, or worse, they fear retaliation from governments in foreign markets where they sell their products.” A spokeswoman for Peters said some of the industries with smaller companies that are most impacted by dumping are specialty agricultural producers, parts manufacturers, and paper goods producers.
The Department of Commerce’s recently released strategic plan for 2018 through 2022 states that the department plans to self-initiate more AD and CV duty cases.
 
Export Controls
. The Export Control Reform Act (H.R. 5040, introduced Feb. 15 by Rep. Royce, R-Calif.) aims to modernize U.S. export controls on dual-use items. According to a press release from Royce’s office, this bill would (a) repeal the Export Administration Act that lapsed in 2001 and replace it with a modern, permanent statutory authority to better regulate U.S. dual-use and Department of Commerce-licensed military exports, (b) require that export controls ensure continued U.S. leadership in science, technology, engineering, manufacturing, and other sectors, (c) provide new authority to identify and appropriately control critical emerging technologies, and (d) support U.S. diplomatic efforts to promote greater international coordination and cooperation on export controls.
 
GSP
. The House of Representatives has passed legislation (H.R. 4979) that would retroactively renew the Generalized System of Preferences through Dec. 31, 2020. It is unclear when the Senate might take the measure up.
 
Nominations
. The Senate Finance Committee has approved the nominations of C.J. Mahoney and Dennis Shea to be deputy U.S. trade representatives. Shea would serve as USTR’s representative at the World Trade Organization while Mahoney would oversee efforts on investment, services, labor, environment, Africa, China, and the Western Hemisphere. It remains unclear when the full Senate may act on the nominations, which were first submitted to Congress last July. USTR Robert Lighthizer complained that “no administration has ever had to wait this long for its first Senate-confirmed deputy USTR.”

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NWS_a512. The Washington Times: “Art of the Defense Deal: Trump Aims to Dramatically Boost U.S. Arms Exports”
(Source: The Washington Times, 20 Feb 2018.) [Excerpts.]
 
The Trump administration is putting the final touches on a plan to dramatically increase American military hardware sales around the world, paving the way for faster and bigger deals with a range of countries from Eastern Europe to Southeast Asia that have faced limits and barriers to buying from U.S. defense firms.
 
While administration officials have remained mum on the soon-to-be-released policy guidance, the impetus driving the new weapons export rules is twofold, said one U.S. official with direct knowledge of the administration’s plan.
 
Administration officials want to further expand America’s already significant share of the global arms trade while persuading longtime allies not to shift to Chinese, Russian or Israeli-made suppliers that don’t face the same barriers. …

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COMMCOMMENTARY

COMM_a01
13. K.J. Wolf & A.R. Schlossberg: “DDTC and BIS Solicit Comments Regarding Controls over Explosives, Personal Protective Equipment, and Military and Intelligence Electronics”
(Source:
Akin Gump, 14 Feb 2018.)
 
* Authors: Kevin J. Wolf, Esq.,
kwolf@akingump.com; and Andrew R. Schlossberg, Esq., aschlossberg@akingump.com. Both of Akin Gump, Washington DC.
 
Key Points
 
  – DDTC and BIS have published concurrent NOIs (available here and here, respectively) requesting public comments on the controls over the export and reexport of explosives, personal protective equipment, and military and intelligence electronics. (By volume and value, the electronics categories are, by far, the most significant.)
  – If you believe that there should be changes to these controls, you should prepare comments with your suggestions and submit them to BIS and/or DDTC by April 13, 2018. …
 
On February 12, 2018, the Directorate of Defense Trade Controls (DDTC) and the Bureau of Industry and Security (BIS) published Notices of Inquiry (NOI) (available here and here, respectively) requesting comments on Categories V, X and XI of the U.S. Munitions List (USML) under the International Traffic in Arms Regulations (ITAR) and the corresponding “600 series” controls on the Commerce Control List (CCL) of the Export Administration Regulations (EAR). These categories control (i) explosives and energetic materials, propellants, incendiary agents and their constituents; (ii) personal protective equipment; and (iii) military and intelligence electronics. BIS also seeks comments on its controls over cryogenic and superconducting equipment.
 
These NOIs continue the process of asking for suggestions about how to improve and update categories amended or created as a result of the Export Control Reform (ECR) effort. The information requested in these NOIs is essentially the same as that which the Obama administration sought in its NOIs. This means that, although you may comment on any aspect of the categories, you are particularly encouraged to do so if you can answer “yes” to any of the following questions:
 
  – Do you have suggestions for how the controls could be written more clearly?
  – Have you noticed errors in any of the categories?
  – Do any of the controls describe items that are now, or will in the next five years be, in normal commercial use?
  – Do you have suggestions for how to make the USML Category XI(b) control over equipment and software “specially designed for intelligence purposes” more clear and objective?
  – Are there emerging or other technologies in these areas that should be added to the categories for national security or foreign policy reasons?
 
Export control personnel read all public comments and take them into account when preparing proposed rules to revise the categories. Thus, if you have suggestions for how to improve the categories, now is the best time to make them. The higher the quality of the comments and supporting documentation, the more likely your suggestions are to be taken seriously as part of future revision efforts.

Background
 
U.S. controls over the export and reexport of military items are divided between the ITAR, administered by the DDTC, and the “600 series” entries of the EAR, administered by BIS. The “600 series” items were once subject to the ITAR, but were determined during the Obama administration’s ECR effort to not warrant ITAR control. The ITAR generally requires a license to export or reexport defense articles to all countries. The EAR also generally requires a license to export or reexport 600 series items to all countries (except Canada), although some license exceptions are available, particularly if the item is destined to, and for the ultimate end use by a government in, one of 36 allied countries. The ITAR and the EAR have identical and equally strict prohibitions with respect to exports and reexports of military items to countries subject to arms embargoes, such as China.
 
One of the ECR goals was to describe the controls more clearly in a more positive and objective way (i.e., without using broad catch-all or subjective descriptions). As described in the NOIs, a consequence of these revisions is that the lists need to “be regularly revised and updated to account for technological developments, practical application issues identified by exporters and reexporters, and changes in the military and commercial applications of items affected by the list.”
 
Notices of Inquiry
 
In its NOI, DDTC specifically requests comment on the following topics:
 
  – emerging and new technologies that are appropriately controlled by one of the referenced categories, but that are not currently described in subject categories or not described with sufficient clarity
  – defense articles that are described in subject categories, but that have entered into normal commercial use since the most recent revisions to the category at issue; DDTC asks commenters to include documentation to support claims that defense articles have entered into normal commercial use
  – defense articles for which commercial use is proposed, intended or anticipated in the next five years
  – drafting or other technical issues in the text of all of the referenced categories
  – potential cost savings to private entities from shifting control over commercial items to jurisdiction of the EAR from that of the ITAR; DDTC asks commenters to quantify the cost of compliance with USML control of commercial items, to include the time saved, the reduction in paperwork and any other cost savings for a particular change.
 
DDTC also specifically requested comments on USML Category XI(b), which is a category that became broader in scope as a result of ECR, but not more positive or objective. Specifically, it controls:
 
Electronic systems, equipment or software, not elsewhere enumerated in this subchapter, specially designed for intelligence purposes that collect, survey, monitor, or exploit, or analyze and produce information from, the electromagnetic spectrum (regardless of transmission medium), or for counteracting such activities.
 
The words in bold were added during the last revision to the category.
 
In its NOI, BIS independently solicits comments on the clarity, usability and any other matters related to implementation of the corresponding “600 series” Export Control Classification Numbers (ECCNs), which are:
 
  – Energetic Materials (ECCNs 1B608, 1C608, 1D608, and 1E608)
  – Armored and Protective “Equipment” (ECCNs 1A613, 1B613, 1D613 and 1E613)
  – Military Electronics (ECCNs 3A611, 3B611, 3D611 and 3E611)
  – Cryogenic and Superconducting Equipment (ECCNs 9A620, 9B620, 9D620 and 9E620).
 
BIS is also seeking comments on the potential cost savings to private entities from shifting control of commercial items to the jurisdiction of the EAR from that of the ITAR. BIS will make any changes to the CCL that it determines are necessary to complement revisions to the USML. …

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(Source:
Volkov Law Group Blog, 19 Feb 2018. Reprinted by permission.)
 
* Author: Michael Volkov, Esq., Volkov Law Group, mvolkov@volkovlaw.com, 240-505-1992.
 
The Justice Department announced a guilty plea by a subsidiary of Rabobank, a Dutch global bank, to a conspiracy to violate money laundering laws and obstruct a regulatory investigation of Rabobank’s activities in California. (Copy of Plea Agreement available here). Rabobank agreed to pay $368 million in forfeited funds. Rabobank’s settlement follows the deferred prosecution agreement with George Martin, a Rabobank manager in Southern California, who agreed to cooperate with the ongoing criminal investigation.
 
In a brazen conspiracy committed by Rabobank and top executives of its California operations, Rabobank laundered hundreds of million dollars in untraceable cash from Mexico through its rural bank branches in Imperial County in Southern California. Rabobank then transferred the money via wire transfers, checks and cash transactions without notifying federal regulators of the suspicious nature of the transactions.
 
Rabobank executives conspired to obstruct and mislead the Office of Comptroller of the Currency during a 2012 examination by hiding deficiencies in its AML program, and specifically withholding a consultant’s assessment of its AML program.
 
Rabobank had a long history of deficient AML compliance. The OCC had imposed deficiency findings and consent orders regarding Rabobank’s AML program. Notwithstanding Rabobank’s failure to improve its AML program, the OCC eventually closed the enforcement action in 2012.
 
Rabobank continued to engage in laundering activities. The factual statement contains numerous examples of efforts that Rabobank took to continue its laundering activities.
 
Rabobank maintained a Monitoring and Investigations Unit to monitor and manage thousands of monthly high-risk alerts. A total of three people were assigned to the Unit to review and investigate approximately 2,300 alerts and two people were tasked with conducting more than 100 investigations per month, including approximately 75 customers per month for whom SAR determinations had to be made.
 
In June 2010, the Mexican government announced money laundering restrictions on cash transactions involving US dollars at Mexican banks. In reaction to this announcement, Rabobank observed large increases in cash deposits at its Southern California branches. Rabobank’s branch located two blocks from the Mexican border was the highest performing branch in California. Rabobank continued to market its services to Mexican nationals with cash-intensive activities.
 
To avoid investigation of suspicious accounts, Rabobank developed a process to add customers to a Verified List, notwithstanding the presence of numerous red flags and suspicious indications of money laundering. In one case, a customer at a specific branch engaged in $100 million of cash deposits and related transactions before Rabobank closed the account. In another case, a customer made withdrawals in increments of $9500, totaling $1 million over a year, before Rabobank closed the account.
 
In November 2012, the OCC began an examination of Rabobank’s. The next month, Rabobank hired a consultant to review its AML compliance program. At the same time, an executive at the company raised serious concerns with the executive management team (several of whom were well aware of the laundering activities and actively promoting the scheme).
 
The consultant’s report identified numerous deficiencies in Rabobank’s compliance program and recommended numerous actions to enhance its program. The consultant shared the report with individual members of the executive management team. The executive who previously told the executive management team about deficiencies in Rabobank’s program provided similar information to the OCC examiners.
 
In February 2013, the OCC sent a letter to Rabobank concerning its AML program and requested any reports or recommendations from the consultant’s report. Several executives then conspired among themselves to withhold the bulk of the report except for a summary and then provided false responses to the OCC concerning its AML program.
 
At the same time, in response to specific warnings about deficiencies in Rabobank’s Southern California bank operations, the executives informed the reporting executive that she would no longer be permitted to report to the executive management team and eventually she was placed on leave and then fired from the bank.

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COMM_a3
15. O. Torres: “2018 Trends for CFIUS Reviews”
(Source: Torres Law, 20 Feb 2018.)
 
The Committee on Foreign Investment in the United States (“CFIUS”) is an interagency body which has the authority to assess the national security implications of transactions that could result in control of U.S. businesses by a foreign person. The CFIUS is chaired by the U.S. Secretary of Treasury and includes representatives from 16 U.S. departments and agencies. [FN/1] Over the last thirty years, the CFIUS has advised the president concerning foreign investment, particularly with respect to transactions that, for one reason or another, the CFIUS believes the president should review in the interest of national security. Under the CFIUS’s guidance, U.S. presidents have only blocked a total of five transactions, two of which have happened in the last six months under President Trump. This article provides a brief summary regarding recent cases and proposed legislation that will impact foreign investment in the United States.
 
The Cases of Canyon Bridge Capital Partners and MoneyGram
 
On September 13, 2017, President Trump blocked Canyon Bridge Capital Partners Inc., an investment firm backed by Chinese investors, from acquiring Lattice Semiconductor Corporation, a publicly traded semiconductor company based in Oregon. Typically, the CFIUS review process begins when the parties to a transaction make a voluntary filing to CFIUS. Frequently, parties will submit a joint voluntary notice to CFIUS, which will be updated and resubmitted as a final voluntary notice upon receipt of feedback from CFIUS. In this case, the parties updated their voluntary notice two separate times based on feedback from CFIUS. Ultimately the case was blocked. In blocking the transaction, the U.S. government cited national security risks including: the potential for the transfer of intellectual property to a foreign party; the Chinese government’s role in the transaction; the importance of the semi-conductors in the U.S. government; and the use of Lattice products by the U.S. government.
 
Similarly, on January 2, 2018, Ant Financial, a Chinese company owned by Alibaba, announced its proposed acquisition of MoneyGram International was being blocked by the CFIUS. MoneyGram provides financial services around the world. The fact that this transaction was blocked was surprising because Alibaba and Ant Financial had received CFIUS clearance in previous transactions and MoneyGram arguably does not deal with particularly sensitive information from a national security perspective. Unlike the Canyon Bridge case, MoneyGram does not operate in the defense sector nor does it deal with critical infrastructure, such as semiconductors. Additionally, both MoneyGram and Ant Financial offered several amended proposals to help mitigate the concerns of CFIUS. Ultimately, the proposed transaction was denied because the Chinese government holds a 15% stake in Ant Financial, and it was feared the data held by MoneyGram could be used by the Chinese government to target activists, journalists, and others.
 
New Developments in CFIUS Legislation
 
On November 8, 2017, Congress introduced the Foreign Investment Risk Review Modernization Act of 2017 (“FIRRMA”). The FIRRMA is designed to modernize and strengthen the CFIUS to more effectively guard against the risk to national security of the United States posed by certain types of foreign investment. The FIRRMA will allow CFIUS to more closely vet foreign acquisitions; grant a broader definition of “national security”; and expand CFIUS investigations to include minority investments in “critical technology,” “critical infrastructure,” and joint ventures. Additionally, while CFIUS reviews are usually voluntary, the legislation would require foreign investors that are 25% or more owned or controlled by foreign governments to go through CFIUS review when acquiring a 25% or more stake in a U.S. business. While a 25% stake in a U.S. business could result in “control,” if that stake were to be the largest single stake, it could be a minority interest also, which represents an important expansion of CFIUS’s influence. The CFIUS would also block the deal if the transaction would give foreign governments the capability to engage in cyber-attacks against the U.S. Additionally, the legislation focuses on CFIUS’s ability to review investments in “emerging technologies,” which along with other developments, would drastically impact Chinese investment.
 
On January 18, 2018, in the latest development, FIRRMA hearings were held by the Committee on Banking, Housing, and Urban Affairs. These hearings took a broader look at CFIUS. These hearings focused on: (1) CFIUS’s role in the U.S. national security structure; (2) the changing nature of national security threats to the U.S.; and (3) opportunities for CFIUS to address those threats. Additionally, these hearings touched on China’s efforts to compete with the U.S. economically, militarily, and politically. Finally, there was also a focus on Chinese policies in key sectors, including semiconductors, and the challenges these policies pose to U.S. national security. FIRRMA currently has a low probability [FN/2] of being enacted in its entirety; however, it is possible that certain provisions could be enacted by themselves. [FN/3]
 
Impact on Future Investment
 
Following the blocking of the Lattice and MoneyGram acquisitions and subsequent proposed legislative reforms, industry experts expect foreign investment deals to be more closely scrutinized by the CFIUS. While CFIUS does not release data related to its filings until more than a year after the covered period, it is expected that CFIUS reviewed more than 200 transactions in 2017, surpassing the 172-benchmark set in 2016. [FN/4] The mark set in 2016 was a 20% increase from the 143 notices submitted to the Committee in 2013. [FN/5] Similar to 2016, most of the 2017 transactions likely involved Chinese investment. However, historically CFIUS has also been concerned with investments from other countries such as France, Canada, the United Kingdom, and the Netherlands. While most of the problematic transactions have historically occurred in the manufacturing sector, the CFIUS will also continue to focus its attention on any transaction potentially impacting national security and involving businesses that maintain or have access to potentially sensitive data. Other industries, such as artificial intelligence, innovative military technology, semiconductors, and anything that could help a foreign government cyber-attack the U.S., will continue to face higher scrutiny when reviewed by the CFIUS in 2018.
 
If you are concerned about how a future investment will be affected by the new CFIUS proposals, or simply seek more information about CFIUS filings, we encourage you to contact us. We will continue to report on CFIUS developments in future articles.
———-
  [FN/1] The members of CFIUS include the heads of: the Department of Treasury, the Department of Justice, the Department of Homeland Security, the Department of Commerce, the Department of Defense, the Department of State, the Department of Energy, the Office of the U.S. Trade Representative, and the Office of Science and Technology Policy.
  [FN/2] According to Skopos Labs, FIRRMA has a 26 percent chance of being enacted. GovTrack, Foreign Investment Risk Review Modernization Act of 2017, available here (last visited February 15, 2018).
  [FN/3] In the most recent development, the scope of the bill was under review due to concerns the changes would be too expansive.
  [FN/5] U.S. Department of Treasury, Resource Center, Committee on Foreign Investments in the United States: Annual Report to Congress, available here (last visited January 22, 2018).

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TEEX/IM TRAINING EVENTS & CONFERENCES

 
* What: The 17th Annual “Partnering for Compliance™” East will focus intensely on a broad spectrum of export/import regulatory and compliance matters of current relevance to companies and individuals involved in global trading. Senior-level government officials and trade experts will provide first-class training.
* Where: Holiday Inn Orlando International Airport Hotel (completely renovated)
* When:
  – Tue – Thurs, 6-8 Mar: “17th Annual ‘Partnering for Compliance™’ East Export Control Program
  – Fri, 9 Mar: 1-Day Program “Customs/Import Boot Camp”
* Speakers confirmed: DoS/DDTL: Alisa Forby & Pete Walker; DoS/DDTC: Daniel Cook; DoC/BIS: Sharron Cook & OEE Jonathan Barnes; DoD/DTSA: Ken Oukrop; OFAC: Alex Augustine; NIST: Kelley L. Dempsey; Census Bureau: Omari Wooden; DHS/CBP: Todd Mahaun & Nils Borregaard; ICE: Timothy Dwyer; UK/EU Export Controls -Strategic Shipping Company: Bernadette Peers, M.B.E. & Jo-Anne Stewart; Braumiller Law Group PLLC: Adrienne Braumiller & Bruce Leeds (Imports); and U.S. trade.
* Opening Keynote Address: TBA (Invited)
* Cost: Export 3-day program: $700. Customs/Import 1-day program: $300. Both programs: $1,000.
* Remarks: Maximum capacity is 200 participants to maintain informal and collaborative environment.
* As time permits, all Government and trade speakers will informally hold short “one-to-one” meetings with participants on a “first-come, first-served” basis.
* Certificates of Completion granting: 4.5 IIEI CEUs and 20
CES NCBFAA Credits for 3-day Exports program, and 6.5 CCS NCBFAA Credits for 1-day Customs/Import Boot Camp will be awarded for each program.
* More information: Here.

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ENEDITOR’S NOTES

* Ronnie Shakes (born Ronald Michael Sakele; 21 Feb 1947-16 May 1987; was a stand-up comedian who made seven appearances on the Tonight Show from 1984 to 1987. Shakes died at age 40 of a heart attack while jogging.)
  – “I was going to buy a copy of The Power of Positive Thinking, and then I thought: What the hell good would that do?”
 
Raymond Queneau (Raymond Queneau; 21 Feb 1903 – 25 Oct 1976; was a French novelist, poet, critic, editor and co-founder and president of Oulipo (Ouvroir de Littérature Potentielle), notable for his wit and cynical humor.)
  – “One can easily classify all works of fiction either as descendants of the Iliad or of the Odyssey. Fiction has consisted either of placing imaginary characters in a true story, which is the Iliad, or of presenting the story of an individual as having a general historical value, which is the Odyssey.”
 
Anne Grant (Anne Macvicar Grant; 21 Feb 1755 – 7 Nov 1838; was a Scottish poet and author best known for her collection of mostly biographical poems, Memoirs of an American Lady and Letters from the Mountains.)
  – “Grief is a normal and natural response to loss. It is originally an unlearned feeling process. Keeping grief inside increases your pain.”

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EN_a318
. 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: 
16 Feb 2018:
83 FR 6949-6956
: Russian Sanctions: Addition of Certain Entities to the Entity List [Addition of 21 Entities to 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 [Amends 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_a0319
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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