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18-0227 Tuesday “Daily Bugle”

18-0227 Tuesday “Daily Bugle”

Tuesday, 27 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/DDTC Seeks Comments on “Maintenance of Records by Registrants” 
  2. State/DDTC Seeks Comments on “Request for Approval of Manufacturing License Agreements, Technical Assistance Agreements, and Other Agreements” 
  1. Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.)
  3. DHS/CBP Releases ACE Deployment G4 Issue Tracker Update
  4. DHS/CBP Releases Notice Concerning Harmonized System Update 1802
  5. State/DDTC: (No new postings.)
  6. EU Amends Sanctions Against North Korea, and Decision Concerning Non-Proliferation of WMD
  1. Reuters: “New U.S. Sanctions Aim to Block Libyan Oil Smuggling: Statement”
  2. ST&R Trade Report: “More Foreign Entities, Shipping Companies Hit with North Korea-Related Sanctions”
  1. K. Stakkestad: “Consider this Before Conducting Business Internationally”
  2. M. Volkov: “Three Important Points to Remember About Third-Party Risks”
  3. T. Murphy: “Customs Valuation Implications of Year-End Transfer Price Adjustments”
  4. W. Wysong: “The Export Control Reform Act of 2018: Risks and Opportunities in the Modernization of U.S. Export Controls”
  5. Gary Stanley’s ECR Tip of the Day
  1. ECS Presents “ITAR/EAR Boot Camp,” 10-11 Jul in Orlando, FL
  1. Bartlett’s Unfamiliar Quotations 
  2. Are Your Copies of Regulations Up to Date? Latest Amendments: ATF (15 Jan 2016), Customs (22 Feb 2018), DOD/NISPOM (18 May 2016), EAR (16 Feb 2018), FACR/OFAC (28 Dec 2017), FTR (20 Sep 2017), HTSUS (27 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/DDTC Seeks Comments on “Maintenance of Records by Registrants”

(Source:
Federal Register, 27 Feb 2018.) [Excerpts.]
 
83 FR 8563-8564: 60-Day Notice of Proposed Information Collection: Maintenance of Records by DDTC Registrants
 
* ACTION: Notice of request for public comment.
* SUMMARY: The Department of State is seeking Office of Management and Budget (OMB) approval for the information collection described below. We are requesting comments on this collection from all interested individuals and organizations in accordance with the Paperwork Reduction Act of 1995. The purpose of this notice is to allow 60 days for public comment preceding submission of this collection to OMB.
* DATES: The Department will accept comments from the public up to April 30, 2018.
* ADDRESSES: You may submit comments by any of the following methods:
  – Web: Persons with access to the internet may comment on this notice by going to
www.Regulations.gov. You can search for the document by entering the docket number, DOS-2018-0009, in the search field. Then, select “Comment Now” to complete the comment form.
  – Email: The public email comments to
DDTCPublicComments@state.gov. Include “ATTN: OMB Approval, Maintenance of Records by Registrants” in the subject of the email.
  – Mail: The public may mail comments to the Directorate of Defense Trade Controls, Department of State, 2401 E St. NW, Suite H1205, Washington, DC 20522.
    You must include the information collection title (Maintenance of Records by Registrants) and the OMB control number (1405-0111) in all correspondence. …
* SUPPLEMENTARY INFORMATION:
     Title of Information Collection: Maintenance of Records by Registrants.
     OMB Control Number: 1405-0111.
     Type of Request: Extension of a currently approved collection.
     Originating Office: Directorate of Defense Trade Controls (PM/DDTC).
     Form Number: No form.
     Respondents: Persons registered with DDTC who conduct business regulated by the International Traffic in Arms Regulations (ITAR, 22 CFR parts 120-130). …
 
Abstract of Proposed Collection
  The ITAR requires that persons registered with DDTC maintain records pertaining to defense trade-related transactions. This information collection approves the record-keeping requirements imposed on registrants by the ITAR. Respondents to this collection may submit their records to DDTC as supporting documentation for disclosures of potential violations of the AECA. The method by which respondents submit these records is approved under OMB Control No. 1405-0179. DDTC uses these records to analyze registrant compliance processes and procedures, and to help assess whether potential AECA or ITAR violations merit administrative sanctions or referral to the Department of Justice for possible criminal prosecution. …
 
  Dated: February 20, 2018.
Anthony M. Dearth, Managing Director (Acting), Directorate of Defense Trade Controls, Department of State.

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EXIM_a2

2. 
State/DDTC Seeks Comments on “Request for Approval of Manufacturing License Agreements, Technical Assistance Agreements, and Other Agreements”

(Source:
Federal Register, 27 Feb 2018.) [Excerpts.]
 
83 FR 8563: 60-Day Notice of Proposed Information Collection: Request for Approval of Manufacturing License Agreements, Technical Assistance Agreements, and Other Agreements
 
* ACTION: Notice of request for public comment.
* SUMMARY: The Department of State is seeking Office of Management and Budget (OMB) approval for the information collection described below. In accordance with the Paperwork Reduction Act of 1995, we are requesting comments on this collection from all interested individuals and organizations. The purpose of this notice is to allow 60 days for public comment preceding submission of the collection to OMB.
* DATES: The Department will accept comments from the public up to April 30, 2018.
* ADDRESSES: You may submit comments by any of the following methods:
  – Web: Persons with access to the internet may comment on this notice by going to
www.Regulations.gov. You can search for the document by entering “Docket Number: DOS-2018-0011” in the Search field. Then click the “Comment Now” button and complete the comment form.
  – Regular Mail: Send written comments to: Directorate of Defense Trade Controls, Attn: Managing Director, 2401 E St. NW, Suite H-1205, Washington, DC 20522-0112.
  You must include the subject (PRA 60 Day Comment), information collection title (Statement of Political Contributions, Fees, and Commissions Relating to Sales of Defense Articles and Defense Services), and OMB control number (1405-0093) in any correspondence. …
 
* SUPPLEMENTARY INFORMATION:
     Title of Information Collection: Request for Approval of Manufacturing License Agreements, Technical Assistance Agreements, and Other Agreements.
     OMB Control Number: 1405-0093.
     Type of Request: Extension.
     Originating Office: Directorate of Defense Trade Controls (DDTC).
     Form Number: No Form.
     Respondents: Business, Nonprofit Organizations, or Persons who intend to furnish defense services or technical data to a foreign person.
 
Abstract of Proposed Collection
  DDTC regulates the export and temporary import of defense articles and services enumerated on the USML in accordance with the Arms Export Control Act (AECA) (22 U.S.C. 2751 et seq.) and the International Traffic in Arms Regulations (ITAR) (22 CFR parts 120-130). In accordance with ITAR Sec.  124.1, any person who intends to furnish defense services or technical data to a foreign person must submit a proposed technical assistance, manufacturing, or distribution license agreement and obtain prior authorization from DDTC for such agreement. Amendments to existing agreements must also be submitted for approval. The electronic mechanism utilized for submitting, reviewing, and approving agreement proposals is the Defense Trade Application Systems (DTAS). Specifically, this process utilizes the DSP-5 license application as the primary instrument or “vehicle” for transmitting agreements and their respective amendments from one phase of the adjudication process to the next. …
 
Anthony M. Dearth, Chief of Staff (Acting), Directorate of Defense Trade Controls, U.S. Department of State.

* * * * * * * * * * * * * * * * * * * * 

OGSOTHER GOVERNMENT SOURCES

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

* State; NOTICES; Designation as a Specially Designated Global Terrorist:
  – ISIS-Egypt, aka Islamic State in Egypt, aka Islamic State Egypt; and
  – ISIS-Somalia, aka Islamic State in Somalia, aka ISS, aka ISIS in East Africa, aka Abnaa ul-Calipha [Publication Dates: 28 Feb 2018.]
 
* State; NOTICES; Designations as Foreign Terrorist Organizations:
  – ISIS-Bangladesh (and Other Aliases);
  – ISIS-Philippines (and Other Aliases); and
  – ISIS-West Africa (ISIS-WA) also known as ISIS West Africa also known as ISIS West Africa Province also known as Islamic State of Iraq and Syria West Africa Province also known as Islamic State of Iraq and the Levant-West Africa (ISIL-WA) also known as Islamic State West Africa Province (ISWAP) [Publication Dates: 28 Feb 2018.]
 
* State; NOTICES; Designations as Global Terrorists:
  – Abu Musab al-Barnawi aka Habib Yusuf; and
  – ISIS-Philippines, aka ISIS in the Philippines, aka ISIL Philippines, aka ISIL in the Philippines, aka IS Philippines, aka ISP, aka Islamic State in the Philippines, aka Islamic State in Iraq and Syria in South-east Asia, aka Dawlatul Islamiyah Waliyatul Masrik , DIWM, aka Dawlatul Islamiyyah Waliyatul Mashriq, aka IS East Asia Division, aka ISIS branch in the Philippines, aka ISIS’ “Philippines province” [Publication Dates: 28 Feb 2018.]
 
* State; NOTICES; Specially Designated Global Terrorists:
  – ISIS-Bangladesh; aka Caliphate in Bangladesh; aka Caliphate’s Soldiers in Bangladesh; et al.;
  – ISIS-West Africa (ISIS-WA); aka ISIS West Africa; aka ISIS West Africa Province; aka Islamic State of Iraq and Syria West Africa Province; et al.;
  – Mahad Moalim; and
  – Maute Group, aka IS-Ranao, aka Islamic State of Lanao [Publication Dates: 28 Feb 2018.]

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OGS_a35.

DHS/CBP Releases ACE Deployment G4 Issue Tracker Update

(Source:
CSMS# 18-000172, 27 Feb 2018.)
 
Following the February 24th ACE Deployment G, Release 4, please find an update on all deployment-related issues in the attached document.
 
For more information on the February 24th deployment, please go
here.
 
  – Attachment(s): click
here.

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OGS_a4
6.

DHS/CBP Releases Notice Concerning Harmonized System Update 1802

(Source:
CSMS# 18-000169, 27 Feb 2018.)
 
Harmonized System Update (HSU) 1802 was created on February 26, 2018 and contains 164 ABI records and 38 harmonized tariff records.
 
This update includes changes mandated to help support the implementation of Presidential Proclamation 9693, regarding the reporting of certain crystalline silicon photovoltaic (CSPV) cells. The modifications will take effect on March 1, 2018, and can be found on the USITC’s website, using this
link.
 
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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OGS_a6
8. 

      
Regulations
 
*
Council Regulation (EU) 2018/285 of 26 February 2018 amending Council Regulation (EU) 2017/1509 concerning restrictive measures against the Democratic People’s Republic of Korea
*
Council Implementing Regulation (EU) 2018/286 of 26 February 2018 implementing Regulation (EU) 2017/1509 concerning restrictive measures against the Democratic People’s Republic of Korea
 
Decisions
 
*
Council Decision (CFSP) 2018/293 of 26 February 2018 amending Decision (CFSP) 2016/849 concerning restrictive measures against the Democratic People’s Republic of Korea
*
Council Decision (CFSP) 2018/294 of 26 February 2018 amending Decision (CFSP) 2015/259 in support of activities of the Organisation for the Prohibition of Chemical Weapons (OPCW) in the framework of the implementation of the EU Strategy against Proliferation of Weapons of Mass Destruction (WMD)

* * * * * * * * * * * * * * * * * * * * 

NWSNEWS

NWS_a1
9. Reuters: “New U.S. Sanctions Aim to Block Libyan Oil Smuggling: Statement”

(Source:
Reuters, 27 Feb 2018.) [Excerpts.]
 
he United States has issued a new round of sanctions targeting oil smugglers in Libya aimed at blocking exploitation of natural resources that is driving instability, the U.S. Treasury Department said on Monday.
 
In a statement, Treasury’s Office of Foreign Assets Control (OFAC) said it was sanctioning six people, 24 companies and seven vessels in a move that prohibits Americans from engaging with those targeted and freezes any related property under U.S. jurisdictions.
 
The sanctions target people from Libya, Malta and Egypt, according to the statement. Issued under the authority of a 2016 executive order by then U.S. President Barack Obama, companies based in Italy, Libya and Malta are also targets, the statement said.
 
The United Nations Security Council has condemned illicit exploitation of oil from Libya, which has been mired in conflict since an uprising in 2011 that overthrew Muammar Gaddafi, who led the country for more than 40 years. … 

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NWS_a210. ST&R Trade Report: “More Foreign Entities, Shipping Companies Hit with North Korea-Related Sanctions”

 
The Department of the Treasury’s Office of Foreign Assets Control has imposed sanctions against one individual, 27 entities, and 28 vessels for conducting certain trade with, and providing certain shipping- and vessel-related services to, North Korea. These 56 parties are located, registered, or flagged in North Korea, China, Singapore, Taiwan, Hong Kong, Marshall Islands, Tanzania, Panama, and Comoros. Any property or interests in property of the designated parties in the possession or control of U.S. persons or within the U.S. may not be transferred, paid, exported, withdrawn, or otherwise dealt in, and U.S. persons are prohibited from dealing with any of the designated parties.
 
Many of these actions are being taken under executive order 13810, which was issued in September 2017 and significantly expanded Treasury’s authorities to target those who enable the North Korean regime’s activity wherever they are located. This includes (a) targeting those conducting significant trade in goods, services, or technology with North Korea and banning them from interacting with the U.S. financial system, (b) blocking and freezing the assets of actors supporting North Korea’s textiles, manufacturing, information technology, fishing, and other industries, and (c) suspending U.S. correspondent account access to any foreign bank that knowingly conducts or facilitates significant transactions tied to trade with North Korea or certain designated persons.
 
OFAC’s designations include (a) nine international shipping companies and nine of their vessels that have been used to export coal from North Korea or to engage in prohibited ship-to-ship transfers of refined petroleum products, (b) a Taiwan citizen and two companies he owned or controlled for coordinating North Korean coal exports, and (c) 16 North Korean shipping companies and 19 of their vessels.
 
In addition, Treasury, the State Department, and the Coast Guard have issued an advisory alerting the public to the significant sanctions risks to those continuing to enable shipments of goods to and from North Korea. This advisory also alerts industries to North Korea’s deceptive shipping practices, such as falsifying cargo and vessel documents, physically altering vessel identification, and conducting ship-to-ship transfers, and lists a number of measures that can be used to guard against the use of such practices.

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COMMCOMMENTARY

COMM_a01
11. 
K. Stakkestad: “Consider this Before Conducting Business Internationally”

(Source:
Phoenix Business Journal, 26 Feb 2018.)
 
* Author: Kjell Stakkestad, Guest Blogger Phoenix Business Journal, President and CEO of KinetX Aerospace.
 
Government export regulations can easily be overlooked when companies decide to conduct business with foreign organizations or companies.  But these regulations can hamper or even deter businesses from exporting overseas. Complying with export regulations can be a long and expensive process, making it critical for businesses to understand what they are and how they work before signing contracts with international organizations.
 
For some businesses, this process can be relatively painless, based on the products or services a company is exporting. However, the regulations become increasingly complex when businesses look to export technology that can be considered sensitive, such as certain software, space hardware and even information associated with these products. As Arizona becomes a larger player in the global business landscape, businesses must allocate time and resources to understanding these regulations and how each regulation applies to them. … 
 
[Editor’s Note: Due to copyright restrictions, we are not authorized to include the entire item. To read the remaining sections, please click on the source link below the item title.]

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(Source:
Volkov Law Group Blog, 26 Feb 2018. Reprinted by permission.)
 
* Author: Michael Volkov, Esq., Volkov Law Group,
mvolkov@volkovlaw.com, 240-505-1992.
 
If you want to learn and read about managing third-party risks, you will have no trouble finding articles, white papers, webinars and more available to you on the Internet.  And for good reason.
 
Third-parties create significant risks, and these risks are not just limited to bribery but extend into sanctions, money laundering, privacy and cybersecurity, human trafficking, child labor and reputational damage.  The compliance marketplace offers lots of solutions, including automation, due diligence, risk ranking and a host of alternative solutions.
 
Before you leap into the due diligence world, however, it is important to understand exactly what you are trying to accomplish and why you need to tailor your solutions to your specific needs.
 
When assessing the issue, there are three important points to understand about due diligence:
 
What is the legal standard?  The term “due diligence” is defined to mean “reasonable inquiries.”  I know that sounds like mumbo jumbo but it is important to recognize what “reasonable inquiries” does not mean.  As an attorney, and a former prosecutor, I know the importance of focusing on burdens of proof – “reasonable inquiries” does not mean “beyond a reasonable doubt,” nor does it mean by a “preponderance of evidence.”  In fact, the standard of “reasonable inquiries” means reasonable questions and follow up.  It does not mean boil the ocean.
 
Life always depends on context and so does due diligence.  What is a reasonable inquiry in one circumstance may not be in another.  Everything has to be assessed through the eyes of relevant risks.  Adjusting your due diligence review of a third-party to the specific risk profile is imperative.
 
Agents/Distributors v. Vendors/Suppliers: The FCPA expressly prohibits corrupt payments made through third parties or intermediaries. Specifically, it covers payments made to “any person, while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly,” to a foreign official.  The “knowing” requirement includes a representational component, meaning that a person who receives payment, i.e. a third-party, must be acting on behalf of the payor of the money.  If I make a payment to someone, who is representing me, and I know that the person will be paying a foreign official on my behalf, I am liable for that bribe.
 
On the other hand, if I pay a vendor, who is not representing me or acting on my behalf for a good or service, and that vendor pays a bribe to further its business (not necessarily just mine but for his overall business operations) then I am not liable for the bribe paid by the vendor.
 
As an example, if my company buys potato chips from a vendor (along with thousands of other companies in a specific country), and the vendor ends up paying a bribe to customs officials in that country to favor its shipments, as a customer of the vendor, I am not liable for the vendor’s bribery payments because the vendor is not acting on my behalf.
 
That does not mean you can ignore the risks created by your vendors and suppliers.  To the contrary, vendors and suppliers pose many risks, and are often involved in bribery or fraud schemes.  My point is that vendors and suppliers, in the absence of a specific representational function, do not create classic bribery risks, and they should be screened in accordance with this risk profile.
 
Third-Party Professionals:  The third-party universe includes professionals.  As we have seen in the anti-corruption world, bribes can be paid by lawyers, tax professionals, lobbyists and consultants.  These representatives act on behalf of their client companies and therefore create potential corruption risks.
 
A foreign law firm should be screened like any other third-party candidate based on the specific risks involved.  Moreover, law firms should be subject to the same controls, invoicing requirements and description of services, and fees that are commensurate with the specific project and the market.
 
History is replete with instances where lobbyists have been used (and continue to be used) to funnel illegal payments to government officials.  (e.g. Abscam, Abramoff, just to name a few).  For that reason, lobbyists in foreign countries may create significant corruption risks and should be subjected to a commensurate el of controls. 

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COMM_a3
13. T
. Murphy: “Customs Valuation Implications of Year-End Transfer Price Adjustments”

(Source: Author, 27 Feb 2018.)
 
* Author: Ted Murphy, Esq., Baker McKenzie,
ted.murphy@bakermckenzie.com.
 
Just a quick reminder for those of you working at multinational companies which operate on a calendar year basis – do not forget to ask your tax colleagues whether any retroactive transfer pricing adjustments were made at, or before, year end (assuming they do not send this information to you on their own). 
 

If such adjustments were made (whether upward or downward), please be sure to consider the customs valuation implications here in the United States and elsewhere.  The failure to declare upward transfer pricing adjustments is a very common enforcement issue in many jurisdictions (largely because the issue is so easy to identify and often involves significant amounts/penalties); whereas downward adjustments could lead to a refund of customs duties, taxes and fees in some jurisdictions (including the US, Canada, etc.).  A quick note to your tax colleagues now could save a potential headache down the line, or put some money back in the company’s pocket.

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COMM_a4
14
W. Wysong: “The Export Control Reform Act of 2018: Risks and Opportunities in the Modernization of U.S. Export Controls”

(Source: Clifford Chance U.S. LLP, 26 Feb 2018.) [Excerpts.]
 
* Author: Wendy Wysong, Esq., wendy.wysong@cliffordchance.com, Clifford Chance U.S. LLP
 
Perhaps as a treat for Chinese New Year, House Foreign Affairs Committee Chairman Ed Royce (R – CA) introduced a bill on Thursday, February 15, to renew the legislative basis for U.S. dual use export controls for the first time in nearly twenty years. The bill, entitled the “Export Control Reform Act of 2018” (ECRA), seeks to repeal the long – expired Export Administration Act of 1979 (EAA) and replace it with a legislative framework intended to modernize the U.S. dual use export control regime while addressing perceived threats to U.S. interests from non – U.S. competitors. The ECRA can be seen in some ways as a counterpoint to export control provisions contained in the “Foreign Investment Risk Review Modernization Act of 2017” (FIRRMA) currently working its way through Congress. …
 
ECRA offers both risks and rewards for U.S. and non – U.S. companies with an interest in U.S. technology exports. U.S. subsidiaries of non – U.S. companies will need to watch the bill closely, as the current legislative text treats them as “foreign persons” and could restrict their ability to exchange technology with other U.S. companies. U.S. and non – U.S. companies involved in emerging technologies such as artificial intelligence, cyber, robotics, advanced aerospace, and similar fields could also be impacted by the bill’s expanded controls on technology development in those sectors. On the other hand, ECRA promises to enhance both the stability and predictability of the U.S. export control system, to the benefit of U.S. exporters and their customers overseas, and provides an opportunity for interested parties to suggest improvement to U.S. dual use export controls. [FN/1]
 
Existing U.S. Export Controls in a Nutshell
 
Like many other governments around the world, the United States has laws and regulations intended to restrict the export of hardware, software, information, and services that could pose a risk to U.S. national security or foreign policy interests.  These export controls apply to a wide range of products, including both military items and so-called “dual use” items that, while they may have civil applications, could nonetheless pose a threat to U.S. national security in adverse hands.  Dual use items controlled by the U.S. government include everything from uranium enrichment technologies to encryption software to communications satellites. 
 
In the United States, commercial exports of sensitive military products are controlled primarily by the U.S. Department of State under the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR).  Dual use exports are controlled primarily by the U.S. Department of Commerce under the Export Administration Regulations (EAR).
 
U.S. export control laws regulate tangible exports from the United States, but they also control almost any other form of transfer from the United States to other countries, or from a U.S. person to a non-U.S. person.  Postal shipments, email or phone calls, visual inspections, oral communications, and release of sensitive material or information are all controlled if they cross the U.S. border or involve a transfer of controlled information or services to a non-U.S. person, even within the United States.  In addition, U.S. export controls can apply anywhere in the world to restrict transfers of U.S.-origin materials even after they have left the United States, and even after they have been incorporated into non-U.S. items overseas.  Companies that fail to comply with applicable U.S. export control rules can be subject to severe penalties-exceeding $800 million in one case in 2017 involving a Chinese technology firm-and individuals can be imprisoned for up to 20 years for criminal violations.
 
The legislative underpinnings for U.S. export controls have been in need of modernization for some time.  Historically, the Commerce Department relied on the Export Administration Act for legal authority to regulate dual use exports, but the EAA lapsed in 2001 and has not been renewed by Congress.  Since that date, the Commerce Department has relied on authority delegated by the President under the International Emergency Economic Powers Act (IEEPA) to continue to apply the substantive provisions of the EAA.  Moreover, while existing processes for identifying what needs to be controlled have been improved dramatically in recent years, they still do not easily capture emerging technologies such as cyber tools and artificial intelligence.  Equally important, some aspects of current export control law impose significant compliance obligations and associated cost on industry without actually enhancing U.S. national security, and may restrict the U.S. export control system’s ability to adapt to the new world of global supply chains and changing threats.  Empowering the relevant government agencies to address these issues could both strengthen U.S. national security and improve industry’s ability to focus compliance resources where they are most needed.
 
ECRA: Modernizing and Expanding U.S. Dual Use Controls
 
The ECRA proposed by Chairman Royce attempts to address the failings noted above in a number of ways.  Most fundamentally, it permanently sunsets the EAA and replaces it with legislation that does not require regular re-approval by Congress.  That simple act should win enthusiasm from industry, relevant federal agencies, and Congress.  In place of the EAA, ECRA authorizes the President to permanently control the “export, reexport, and transfer of items” by U.S. and non-U.S. persons anywhere in the world. [FN/2]
 
The bill also seeks to modernize the legislative basis for U.S. export controls in ways that could have significant implications for both U.S. and non-U.S. business.  Probably the most substantive of these changes are aimed at countering the perceived threat-also reflected in the FIRRMA legislation-of countries such as China getting access to emergent critical technologies in the United States through acquisitions and collaborations with U.S. companies.  The bill attempts to address this threat in a number of ways.
 
  – ECRA expands the reach of U.S. export control law to cover transfers of controlled technology to U.S.-organized but foreign-owned companies within the United States.  Under current law, transfers of EAR-controlled technology between U.S. companies in the United States are not subject to EAR restrictions, even if the receiving company is owned or controlled by non-U.S. persons. [FN/3] Because ECRA currently redefines “U.S. Person” to exclude U.S. entities owned or controlled by non-U.S. persons, transfers of controlled technology or source code to such entities would now be considered a “deemed export” and therefore would be subject to licensing requirements under the EAR.  Were this provision to become law, many well-established U.S. companies ultimately owned by non-U.S. parents could find themselves needing export authorizations in order to receive EAR-controlled technical information or source code from other companies in the United States.
  – ECRA broadens the definition of “technology” controlled by the EAR to include “foundational information” and “know-how”, thereby pushing EAR control further into developmental activities which may not currently trigger control.  Companies engaged in such activities may require licensing for their exports and non-U.S. employees earlier in product development, and for a broader scope of information than previously.
  – ECRA requires the President to establish an ongoing inter-agency process for identifying emergent critical technologies not yet subject to U.S. export control, and to establish controls over those technologies expeditiously through unilateral and multilateral means.  The bill also establishes a legal requirement for regular updating of the lists of technologies subject to U.S. export controls. These provisions attempt to improve the U.S. export control regime’s ability to identify and control emergent technologies before they are acquired by potential U.S. competitors.
 
In addition to increased controls on U.S. technology exports, ECRA includes a number of provisions intended to modernize the U.S. dual use export control regime more generally.  These provisions:
  – Establish additional factors to be considered in granting authorizations for exports, including the likely impact of those exports on human rights, military interoperability, and the need to promote U.S. technological leadership;
  – Update the criminal and civil penalties applied to dual use violations;
  – Require U.S. and non-U.S. license applicants and other certifying parties for an EAR license to notify Commerce of any change in material facts affecting their applications;
  – Encourage continued simplification and harmonization of the overall export control framework, including the EAR, ITAR, and government-to-government exports under the U.S. Foreign Military Sales (FMS) program;
  – Require the President to notify Congress in advance of seeking any revisions to the EAR, and to submit an annual report to Congress on the implementation of EAR controls; and
  – Expand controls on brokering (i.e., facilitating others’ sales) of dual use items to include maritime nuclear propulsion and activities related to “specific… foreign intelligence services.” [FN/4] Brokering of most dual use items would remain non-controlled under the proposed legislation. [FN/5]
 
It is not yet clear how ECRA’s proposed reforms relate to the FIRRMA bill. … FIRRMA proposes to create a “second line of defense” against outbound transfers of critical technologies by establishing jurisdiction to review such transactions within the Committee on Foreign Investment in the United States (CFIUS).  By contrast, ECRA seeks to bolster export controls themselves, potentially undermining the argument for secondary jurisdiction in CFIUS.  It is possible the ECRA and FIRRMA bills will be consolidated into another piece of legislation such as the National Defense Authorization Act likely up for consideration later in 2018.  Whether such consolidation would result in removal of the “second line of defense” (CFIUS review) in favor of improvement to the first line of defense (export controls) remains to be seen.
 
Conclusions
 
The Export Control Reform Act reflects an interest by Congress to put dual use export controls back on a solid statutory footing and improve the focus of U.S. export control law on emergent technologies.  However, many U.S. companies owned by non-U.S. parents may be disadvantaged by the bill’s provisions treating them as foreign persons for export control purposes, and potentially subjecting them to licensing requirements in order to receive controlled technology or source code from other U.S. companies.  Likewise, companies, academic institutions and others involved in early stage technology development not previously captured by U.S. export controls could potentially find themselves needing to apply for licenses to hire foreign person engineers or collaborate with non-U.S. companies.   

Time will tell whether ECRA becomes law, and, if so, whether its provisions on emergent technologies become complementary to, or replacements for, the CFIUS-based “second line of defense” reflected in the FIRRMA bill.  U.S. and non-U.S. companies contemplating technical collaboration with non-U.S. entities should assess both bills and existing law to understand how best to manage the export control risk and the potential impact on their commercial activities.  Companies impacted by the bill’s provisions or interested in improving U.S. dual use export controls generally should consider making their views known in the legislative process.  An opportunity such as this may not present itself again for many years.
 
———
  [FN/1] The bill that contains ECRA, H.R. 5040, also has sections modernizing U.S. laws intended to counter third country boycotts of Israel and updating U.S. sanctions against missile and weapons of mass destruction (WMD) proliferation.  The sanctions provisions require the President to deny export privileges to U.S. and non-U.S. persons determined to have engaged in proliferation of missile technologies, and to prohibit U.S. government procurement from any non-U.S. entity determined to be knowingly assisting any country of concern in the use, development, production, or acquisition of chemical or biological weapons.
  [FN/2] The EAR currently applies to items that are either of U.S. origin or contain a certain percentage of U.S.-origin content.  Items with no connection to the United States are not subject to the EAR’s rules.  ECRA has no similar jurisdictional restriction, and could be read to apply to all transfers of “items” anywhere in the world.  However, one would hope a narrow statutory construction would apply, suggesting that because Congress has not clearly indicated an intent to control all trade worldwide, ECRA should be read to cover only items that are of U.S. origin or have some other relevant U.S. connection.
  [FN/3] Transfers of controlled material by the U.S. subsidiary to its non-U.S. employees or to its foreign parent are controlled under current rules.
  [FN/4] The ECRA does not elaborate on what types of activities are intended for the Commerce Department to control under this provision.  It may be intended as an alternative means for controlling U.S. persons assisting certain non-U.S. countries in cyber activities harmful to the United States.
  [FN/5] It may be worth noting that, with the apparently imminent shift of firearms and ammunition less than .50 caliber from ITAR to EAR control, brokering of such weapons will no longer be subject to ITAR control.  If Congress is interested in continuing to control the brokering of AK-47s by U.S. persons, ECRA’s proposed revisions to dual use brokering would be a good place to do it.

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COMM_a5
15
Gary Stanley’s ECR Tip of the Day

(Source: Defense and Export-Import Update, 26 Feb 2018. Available by subscription from
gstanley@glstrade.com.)
 
* Author: Gary Stanley, Esq., Global Legal Services, PC, (202) 352-3059,
gstanley@glstrade.com.
 
Pursuant to 22 C.F.R. § 123.25(b), changes can be approved under a DSP amendment for obvious typographical errors. Although an erroneously entered unit price or quantity may be an obvious typographical error when supported by the provided purchase documentation, the approved amendments are not provided to U.S. Customs and Border Protection (CBP) nor the information updated in CBP’s Automated Export System (AES). Thus, the original value or quantity of the DSP license remains unchanged in AES. As such, amendments for DSP licenses (DSP-6, 62, 74 and 119) must be limited to administrative changes only that do not impact AES filings. Based on written guidance it issued in September 2009, DDTC will not process DSP amendments for value or quantity changes. These changes must be the subject of a replacement license. The applicant must explicitly state in Block 20 that the replacement license is to correct erroneously entered value or quantity and cite the original license number.

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MSEX/IM TRAINING EVENTS & CONFERENCES

MS_a216. ECS Presents “ITAR/EAR Boot Camp,” 10-11 Jul in Orlando, FL

(Source: Suzanne Palmer, 
spalmer@exportcompliancesolutions.com.)
 
* What: ITAR/EAR Boot Camp, Orlando, FL
* When: July
10-11, 2018
* Sponsor: Export Compliance Solutions (ECS)
* ECS Speaker Panel:  Suzanne Palmer, Mal Zerden
* Register: 
Here 
or by calling
 866-238-4018 or e-mail
spalmer@exportcompliancesolutions.com
* Discount: Daily Bugle subscribers get a 10% discount when they use the coupon code: ECS10PERBUGLE when registering for this event.

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ENEDITOR’S NOTES

 
Henry Wadsworth Longfellow (27 Feb 1807 – 24 Mar 1882, was an American poet and educator whose works include “Paul Revere’s Ride”, The Song of Hiawatha, and Evangeline. He was also the first American to translate Dante Alighieri’s Divine Comedy, and was one of the five “Fireside Poets”.)
  – “The heights by great men reached and kept were not attained by sudden flight, but they, while their companions slept, were toiling upward in the night.”

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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: 22 Feb 2018: 83 FR 7608-7610: Technical Amendment to List of User Fee Airports: Name Changes of Several Airports and the Addition of Five Airports
 
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: 27 Feb 2018: Harmonized System Update 1802, containing 164 ABI records and 38 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: 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.

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