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18-0412 Thursday “Daily Bugle”

18-0412 Thursday “Daily Bugle”

Thursday, 12 April 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. DHS/CBP Amends Customs Regulations, Expands Definition of ISF Importer 
  2. Justice/AFT Revises Information Collection Activities Concerning ATF F 3310.4, “Report of Multiple Sale or Other Disposition of Pistols and Revolvers” 
  1. Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.)
  3. DHS/CBP Releases Notice Concerning ACS Drawback Claims Filings in ACE
  4. DHS/ICE: “Maine Resident Sentenced After Conviction in ICE HSI, Multiagency Firearms Trafficking Probe”
  5. Justice Arrests Bulgarian National for Conspiracy to Illegally Export Prohibited Articles to Syria”
  6. State/DDTC: (No new postings.)
  7. Germany BAFA Launches Electronic War Weapons Book Project
  8. UK Fines Company for Illegal Exports of Military Goods
  1. Deutsche Welle: “Germany’s Sig Sauer Accused of Illegally Sending Weapons to Colombia”
  2. Miami Patch: “Arrest in Miami ‘Conspiracy’ Involving Spare Parts for Syria”
  3. Reuters: “EU Extends Rights Sanctions on Iran, at Odds Over New Measures”
  4. ST&R Trade Report: “Savannah CBP Port of Entry Expanded”
  5. The Wall Street Journal: “How a Swiss Engineering Firm Became an Unexpected Casualty of Russian Sanctions”
  1. M. Volkov: “The New Test for CCOs”
  2. The Wire: “What India’s New Export Control Regime Means for its Software Industry”
  3. Gary Stanley’s EC Tip of the Day
  4. R.C. Burns: “Cuba Export Indictment Mangles U.S. Export Laws”
  1. Bartlett’s Unfamiliar Quotations 
  2. Are Your Copies of Regulations Up to Date? Latest Amendments: ATF (15 Jan 2016), Customs (12 Apr 2018), DOD/NISPOM (18 May 2016), EAR (5 Apr 2018), FACR/OFAC (19 Mar 2018), FTR (20 Sep 2017), HTSUS (30 Mar 2018), ITAR (14 Feb 2018) 
  3. Weekly Highlights of the Daily Bugle Top Stories 

EXIMITEMS FROM TODAY’S FEDERAL REGISTER

EXIM_a1

1. 
DHS/CBP Amends Customs Regulations, Expands Definition of ISF Importer 
(Source: 
Federal Register, 12 Apr 2018.) [Excerpts.] 
83 FR 15736-15740: CBP Decision No. 18-04; Definition of Importer Security Filing Importer 

 
* AGENCY: U.S. Customs and Border Protection, Department of Homeland Security (DHS).
* ACTION: Final rule.
* SUMMARY: This final rule adopts a proposed amendment to expand the definition of an Importer Security Filing (ISF) Importer, the party that is responsible for filing the ISF, for certain types of shipments. The changes are necessary to ensure that the definition of ISF Importer includes parties that have a commercial interest in the cargo and the best access to the required information.
* DATES: 
This rule is effective May 14, 2018. … 
* SUPPLEMENTARY INFORMATION:  … Under CBP regulations, Importer Security Filing (ISF) Importers, as defined in 19 CFR 149.1, are required to submit an ISF to CBP, which consists of information pertaining to certain cargo arriving by vessel. The ISF is required to be submitted before the cargo is loaded on a vessel that is destined to the United States. For cargo other than foreign cargo remaining on board (FROB), the transmission of the ISF is required no later than 24 hours before cargo is laden aboard a vessel destined to the United States. For FROB shipments, the transmission of the ISF is required any time prior to lading. See 19 CFR 149.2(b).
  For shipments consisting of goods intended to be entered into the United States and goods intended to be delivered to a foreign trade zone (FTZ), ISF Importers, or their agents, must submit 10 data elements to CBP. See 19 CFR 149.3(a). For shipments consisting entirely of FROB and shipments consisting entirely of goods intended to be transported as Immediate Exportation (IE) or Transportation and Exportation (T&E) in-bond shipments, ISF Importers, or their agents, must submit five data elements to CBP See 19 CFR 149.3(b).
  Currently, an ISF Importer is generally defined as the party causing goods to arrive within the limits of a port in the United States by vessel. See 19 CFR 149.1. The regulation provides that generally the ISF Importer is the goods’ owner, purchaser, consignee, or agent such as a licensed customs broker. However, the regulation limits the definition of ISF Importer to certain named parties for FROB, IE and T&E in-bond shipments, and for merchandise being entered into FTZ. For FROB cargo, the regulation provides that the ISF Importer is the carrier; for IE and T&E in-bond shipments, and goods to be delivered to an FTZ, the regulation provides that the ISF Importer is the party filing the IE, T&E, or FTZ documentation.
  Based on input from the trade as well as CBP’s analysis, CBP concluded that these limitations did not reflect commercial reality and, in some cases, designate a party as the ISF Importer even though the party has no commercial interest in the shipment and limited access to the ISF data. Therefore, in a notice of proposed rulemaking (NPRM) published in the Federal Register on July 6, 2016 (81 FR 43961), CBP proposed to expand the definition of ISF Importer for FROB cargo, for IE and T&E shipments and for goods to be delivered to an FTZ.
  For FROB shipments, CBP proposed to broaden the definition of an ISF Importer to include non-vessel operating common carriers (NVOCCs). For IE and T&E in-bond shipments, and for goods to be delivered to an FTZ, CBP proposed to broaden the definition of an ISF Importer to also include the goods’ owner, purchaser, consignee, or agent such as a licensed customs broker. This rule adopts these proposals as final. By broadening the definition to include these parties, the responsibility to file the ISF will be with the party causing the goods to enter the limits of a port in the United States and most likely to have access to the required ISF information.
  For a detailed discussion of the statutory and regulatory histories of the rule, and the factors governing the development of this rule, please refer to the NPRM. … 
 
Elaine C. Duke, Deputy Secretary.

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EXIM_a2

2. 
Justice/AFT Revises Information Collection Activities Concerning ATF F 3310.4, “Report of Multiple Sale or Other Disposition of Pistols and Revolvers”

(Source: 
Federal Register, 12 Apr 2018.) [Excerpts.]
83 FR 15868-15869: Agency Information Collection Activities; Proposed eCollection eComments Requested; Revision of a Currently Approved Collection Report of Multiple Sale or Other Disposition of Pistols and Revolvers-ATF F 3310.4

* AGENCY: Bureau of Alcohol, Tobacco, Firearms and Explosives, Department of Justice.
* ACTION: 60-Day notice.
* SUMMARY: … The proposed collection OMB 1140-0067 (Report of Multiple Sale or Other Disposition of Pistols and Revolvers-ATF F 3310.4) is being revised due to a change in burden, since there is an increase in the number of respondents, responses, and total burden hours. The proposed information collection is also being published to obtain comments from the public and affected agencies.
* DATES: Comments are encouraged and will be accepted for 60 days until June 11, 2018. … 
* SUPPLEMENTARY INFORMATION: … 
Overview of This Information Collection
  – Information Collection (check justification or form 83): Revision of a currently approved collection.
  – The Title of the Form/Collection: Report of Multiple Sale or Other Disposition of Pistols and Revolvers. …
  – Form/Collection number (if applicable): ATF F 3310.4. … 
  – Abstract: This information collection documents certain sales or other dispositions of handguns for law enforcement purposes, and determines if the buyer is involved in an unlawful activity, or is a person prohibited by law from obtaining firearms. … 
  Dated: April 9, 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)

[No items of interest noted today.]

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(Source: 
CSMS# 18-000278, 12 Apr 2018.) 
 
Filers that filed ABI drawback claims in ACS prior to the Deployment G, Release 4 cutover on 2/24/18, must submit a new drawback claim in ACE with a new claim number if:
  – The required documentation to complete the claim was not provided to the Drawback Office until after 2/24/18, or
  – The drawback claim was successfully accepted in ACS, but shows cancelled in ACE.
 
When filing a new claim, if any of the underlying imports designated on a complete ACS drawback claim will exceed the statutory timeframe for filing a drawback claim, filer must remove these imports from the drawback claim to get the claim accepted into the system. After the claim is accepted, please contact the Drawback Office to backdate the claim date and put the claim into trade control status. Once the claim is back in trade control, the filer may add the underlying imports that previously exceeded the timeframe limitations back onto the drawback claim and resubmit. Filer must ensure that the transmission date in the A-Record is the backdated date to preserve the original claim filing date.

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(Source: 
DHS/ICE, 10 Apr 2018.) [Excerpts.] 
 
A Maine resident was sentenced April 5 to two years in prison and three years of supervised release in U.S. District Court for illegally receiving and shipping firearms, following a joint investigation by U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI) offices in Bangor and Portland, Department of Commerce, and Alcohol, Tobacco Firearms and Explosives (ATF).                                                             
 

Iulian Petre aka “Julian Petre,” 51, of Waterville, Maine, was sentenced following an August 2017 jury trial conviction on nine federal criminal charges including six counts of Receipt of a Firearm in Interstate Commerce and three counts of Shipment of a Firearm in Foreign Commerce. Petre, a naturalized U.S. citizen originally from Romania, purchased and received firearms from out-of-state sellers intending to unlawfully export them. …

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(Source: 
Justice, 11 Apr 2018.) [Excerpts.] 
 
Bulgarian National Arrested for Conspiracy to Defraud the United States and Illegally Export Prohibited Articles to Syria in Violation of U.S. Export Control Laws
 
Zhelyaz Andreev, 29, a Bulgarian national, was arrested pursuant to an Interpol Red Notice based on an Indictment charging him with: conspiracy to defraud the U.S. Government and substantive violations of the Syria Trade Embargo as enforced through the International Emergency Economic Powers Act (IEEPA); and the U.S. Department of Treasury Office of Foreign Assets Control’s (OFAC) designation of Syrian Arab Airlines, aka Syrian Air, as a Specially Designated National (SDN) whose assets are blocked and with whom U.S. nationals are prohibited from transacting business. … 
 
Andreev was charged with conspiracy to violate IEEPA and the OFAC regulations by exporting dual-use goods, that is, articles that have both civilian and military application, to Syrian Arab Airlines, the Syrian government’s airline, which is an entity designated and blocked by OFAC for transporting weapons and ammunition to Syria in conjunction with Hizballah, a terrorist organization, and the Iranian Revolutionary Guard Corps. 
 
According to court documents, Andreev worked in the Bulgaria office of AW-Tronics, a Miami export company, which shipped and exported various aircraft parts and equipment to Syrian Arab Airlines.  Andreev dealt directly with the Syrian Air principals who procured the parts. … 

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OGS_a7
9.

Germany BAFA Launches Electronic War Weapons Book

Project
(Source: 
German BAFA, not dated.) [In German; Non-official translation by Alexander Witt of Full Circle Compliance.]
 
The German Federal Office for Economic Affairs and Export Control (BAFA) has published the following information on its website:
 
The War Weapons Control Act (KrWaffKontrG) requires companies to report biannually to BAFA on their stocks of war weapons and the changes to them. Currently, a paper-based procedure allows companies to upload photocopies of their war weapons textbooks to BAFA.
 
BAFA actively pursues the Federal Government’s goal to establish an effective electronic communication channel for companies by 2020.
 
Therefore, BAFA has developed the Electronic War Weapons Book project. In the future, a semi-annual report on a company’s data on the stocks of their war weapons can be communicated to BAFA in electronic form. In addition, a fast and secure communication line through the EFA-K2 Communication Portal will be provided by BAFA to report on war weapons control.
 
The project digitizes and facilitates the delivery of reports through an electronic platform. BAFA will soon provide more information on the project. 

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OGS_a8
10. UK Fines Company for Illegal Exports of Military Goods

(Source: 
UK DIT/EJCU, Notice to Exporters 2018/09, 12 Apr 2018.) 
 
Her Majesty’s Revenue & Customs (HMRC) recently issued a compound penalty of £109,312.50 to a UK exporter. This related to unlicensed exports of military goods controlled by The Export Control Order 2008.
 

Export control legislation is enforced by HMRC, working with the Crown Prosecution Service. Where appropriate, HMRC can use their powers to offer a compound penalty in lieu of prosecution.
 

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NWSNEWS

NWS_a111. 
Deutsche Welle: “Germany’s Sig Sauer Accused of Illegally Sending Weapons to Colombia”

(Source: 
Deutsche Welle, 12 Apr 2018.) 
 
German weapons manufacturer Sig Sauer has been accused of illegally exporting tens of thousands of pistols to Colombia. Authorities have charged managers with violating Germany’s foreign trade regulations.
 
The public prosecutor’s office in Kiel, northern Germany, on Thursday confirmed it had charged five managers of arms producer Sig Sauer for delivering guns to Colombia without authorization.
 
The case relates to over 36,000 pistols, manufactured by the company in the Baltic coast town of Eckernförde, that ended up in the hands of Colombian police via a subsidiary in the United States, a spokesman for the prosecutor said. 
 
If convicted, the suspects face up to five years in prison. The prosecution is also demanding the company pay a €12-million ($14.8 million) fine.
 
Sig Sauer said in a statement it was aware of the charges “for violating the Foreign Trade Act,” but added that it remained firmly convinced its “exports to the United States have always complied with the law.”  
 
No permit for trade with Colombia
 
The prosecutor in Kiel began investigating Sig Sauer in 2014 when the allegations first came to light. According to authorities, the arms manufacturer delivered around 70,000 SP2022 pistols to its US sister company, Sig Sauer Inc., between 2009 and 2012.
 
The weapons were supposedly destined for the American market. But more than half of them allegedly ended up in the hands of Colombian police as part of an initiative by the administration of former President Barack Obama to support the country’s fight against drug-related crime. 
 
German weapons exports must be approved by the Federal Office of Economics and Export Control [“BAFA”]. Authorities said Germany would never have authorized such a transfer to Colombia at the time because of the then-ongoing civil war – something the prosecution in Kiel alleges Sig Sauer’s management would have been aware of.
 
Sig Sauer, Germany’s oldest arms manufacturer, builds rifles and pistols for hunting, the military and police.

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NWS_a1
12.
Miami Patch: “Arrest in Miami ‘Conspiracy’ Involving Spare Parts for Syria”

(Source: 
Miami Patch, 11 Apr 2018.) [Excerpts.] 
 
The arrest was announced the same day that President Trump took to Twitter to telegraph a planned missile strike against the Syrian regime.
 
A Bulgarian national was arrested by federal agents in connection with an alleged conspiracy by a Miami export company to violate an export ban to war-torn Syria. U.S. officials charged 29-year-old Zhelyaz Andreev in a conspiracy to export so-called “dual-use goods” to Syrian Arab Airlines in violation of the International Emergency Economic Powers Act, the Export Administration Regulations and Global Terrorism Sanctions Regulations.
 
The arrest was announced on Wednesday, the same day that President Trump took to Twitter to telegraph a planned missile strike against the Syrian regime of Bashar al-Assad in retaliation for Syria’s suspected chemical attack that killed at least 40 people. 
 
Federal officials define dual-use goods as articles that have both civilian and military applications. Syrian Arab Airlines is Syria’s official government airline. … 
 
  “According to court documents, Andreev worked in the Bulgaria office of AW-Tronics, a Miami export company, which shipped and exported various aircraft parts and equipment to Syrian Arab Airlines,” federal prosecutors said. “Andreev dealt directly with the Syrian Air principals who procured the parts.” … 
 

Andreev was arrested under an Interpol Red Notice based on a February 2017 indictment, which named numerous others.

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NWS_a3
13
Reuters: “EU Extends Rights Sanctions on Iran, at Odds Over New Measures”

(Source: 
Reuters, 12 Apr 2018.) [Excerpts.] 
 
The European Union extended sanctions on Iran over human rights violations on Thursday, as the bloc prepared for a clash over whether to impose a new set of penalties in the hope of safeguarding a nuclear deal with the Islamic republic. … 
 
The EU is eager to safeguard the pact, under which Tehran agreed to curb its nuclear ambitions for at least a decade, but divided over how to achieve that. … 
 
[France, Italy, and the UK] are concerned about transfers of Iranian “missiles and missile technology” to Syria and Tehran allies including Houthi rebels in Yemen and Lebanon’s Iran-backed Hezbollah.
 
On Thursday, the EU extended the only remaining sanctions it has against Iran, related to human rights violations, by a year until April 2019. 
 

They include asset freezes and travel bans against 82 people and one entity, as well as a prohibition of exports of equipment that could be used for internal repression and monitoring telecommunications, the bloc said in a statement. … 

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NWS_a4
14
ST&R Trade Report: “Savannah CBP Port of Entry Expanded”

 
U.S. Customs and Border Protection has issued a final rule that, effective May 11, will extend the geographical limits of the port of entry of Savannah, Ga.
 
Ports of entry are locations where CBP officers and employees are assigned to accept entries of merchandise, clear passengers, collect duties, and enforce the various provisions of customs, immigration, agriculture, and related U.S. laws. However, much of the Savannah-Hilton Head International Airport, distribution centers and cold storage agricultural facilities that support the Savannah seaport, and almost all of the region’s remaining undeveloped properties that could be used for trade-related facilities (e.g., a new ship terminal with two berths for container ships and bonded warehouses) are outside the existing boundaries of the Savannah port of entry.
 
CBP is therefore extending the boundaries of this port of entry to include the majority of Chatham County, Ga., as well as small portions of Jasper County, S.C., and Effingham County, Ga., which will allow CBP to provide uniform and continuous service to the extended area and respond to the needs of the trade and travel communities. CBP notes that this expansion will not result in a change in the service provided to the public by the port and will not require a change in the port’s staffing or workload.

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NWS_a5
15
The Wall Street Journal: “How a Swiss Engineering Firm Became an Unexpected Casualty of Russian Sanctions”

(Source: 
The Wall Street Journal, 11 Apr 2018.) [Excerpts; subscription required.]
 
Scramble at Sulzer shows the unusual fallout sanctions have triggered at Western companies with ties to Moscow.
 
Late last Friday, hours after the U.S. slapped sanctions on a handful of wealthy Russians and the companies they own, executives at Swiss engineering firm Sulzer AG SULZF -1.12% started getting calls from the company’s American bankers. 
 
They said they couldn’t allow the firm to conduct any more dollar-based transactions. Sulzer, which services turbines for power plants across the U.S. and sells pumping equipment, wasn’t on the sanctions list. 
 
But Renova Holdings, a Russian conglomerate that holds a majority stake in Sulzer, was-as was Viktor Vekselberg, Renova’s owner. The phone call plunged Sulzer into crisis mode-setting in motion a weekend of calls to Washington seeking sanctions relief, as well as an effort to put some distance between itself and its Russian owners. The company can’t accept new U.S. orders until it clears things up with the banks. Its corporate credit cards have been blocked. 
 

The scramble at Sulzer illustrates the unusual fallout the most recent round of sanctions targeting Moscow has triggered at Western companies with ties to Russia. Many observers have been surprised by Washington’s latest list of targets-including businessmen, like Mr. Vekselberg, who weren’t seen as particularly close to Russian President Vladimir Putin. …. 

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COMMCOMMENTARY

COMM_a01
16. M
. Volkov: “The New Test for CCOs”

(Source: 
Volkov Law Group Blog, 10 Apr 2018.) Reprinted by permission.) 
 
* Author: Michael Volkov, Esq., Volkov Law Group, 
mvolkov@volkovlaw.com, 240-505-1992. 
 
These are inspiring times for the compliance profession.  Looking back on the last ten years, it is amazing to observe the growth and influence of the compliance profession.  Many of the original advocates for the compliance profession must be impressed.  Corporate leaders are now embracing a new mantra – ethics and compliance.
 
Business ethics is a new focus and language all to itself. At the same time, Chief Compliance Officers (CCOs) are rising in stature within the corporate governance world. Government prosecutors continue to focus on corporate compliance programs as a natural ally in the fight against corporate misconduct.
 
It is at this precise time, however, that CCOs face a new test and a new challenge.  I am not suggesting that CCOs should not enjoy their position today, but I am urging CCOs to use their new influence to embed ethics and compliance into the fabric of every company where they work.
 
CCOs are not naïve nor do they suffer from tunnel vision.  To the contrary, CCOs have an organizational view that is comparable to many senior executives.  CCOs are able to see across the organization how the company operates, how the company is performing and most importantly, how the CCOs culture is evolving.
 
CCOs have to become political actors.  CCOs cannot rely on their status by itself to gain influence and authority.  CCOs have to bring their own unique value to the table. Not just an ethics and compliance perspective on every issue – but a business savvy, coupled with advancing the company’s culture and adherence to compliance.  This sounds like more than a mouthful, and perhaps my expectation is idealistic or unreasonable, but I have high expectations for the compliance profession, given the caliber of actors, the long struggle behind the profession, and the talented professionals who are attracted to the profession.
 
CCOs can gain even more stature within the organization by relying on one skill they uniquely possess – interpersonal skills.  CCOs are influencers, by definition, and they are often able to lead, persuade, and encourage corporate actors to embrace the ethics and compliance message. Forward-thinking corporations quickly understand the importance of an ethical culture, and any CEO who has any shred of brains knows that a culture of ethics is an important economic driver for a company’s financial performance.
 
This is where compliance and business overlap, and this is precisely where CCOs need to develop their talents and influence.  When a CCO understands and commits to a company’s business, the CCO can bring ethics and compliance to the equation as another important investment for financial performance.
 
The next CCO test is very simple – to transform the message of compliance from “complying with the laws” to “promoting a sustained culture of ethics.”
 
CCOs have to understand their unique position – no one else will advocate for business ethics, no one else will push corporate leaders to embrace ethical culture as the protector of sustainable growth.  CCOs have to help redefine the message of corporate success by offering senior leadership a new mantra, a new contributor to a company’s success – an ethical culture. But CCOs have to accomplish this task by using the language of business and by learning the ins and outs of the company’s business.  Once they are able to learn this language, CCOs have to bring the message of ethics and compliance to the specifics of business operations.  In doing so, CCOs have to explain precisely and with examples (and data) how an ethical culture improved employee morale, employee productivity, and ultimately contributed to the bottom line.  CCOs have to partner with marketing and sales staff to educate them on the value of a culture of ethics and using the company’s culture as a competitive edge in the marketplace.
 
CCOs should be proud of their accomplishments.  No one in the corporate governance world has experienced such a success story in the last ten years.  CCOs now stand at a new point, ready to take on new challenges.

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(Source: 
The Wire
, 11 Apr 2018.) 

 
* Author: Sairam Sanath Kumar is an IT lawyer, currently based in Gurgaon.
 
Companies that engage in the business of building intrusion software and certain surveillance systems need to be on guard.
 
In a seminal elevation of her nuclear non-proliferation status globally, India 
was admitted to the Wassenaar Arrangement in December 2017, one of the four multilateral non-proliferation and export control regimes that govern and regulate the international transfer of conventional arms and dual-use goods and technologies.
 
The arrangement was conceived in 1995 in the Dutch town of Wassenaar, on principles (among others) of contribution to regional and international security, transparency and greater accountability in such transfers, and using export control to ensure nuclear technologies do not fall into terrorist hands.
India’s stepping stone to entry into this elite regime was the significant revamp of the ‘Special Chemicals, Organisms, Materials, Equipment and Technologies’ (SCOMET) list that itemizes goods, services and technologies used for civilian and military applications, under the Indian Trade Classification for Export and Import Items.
 
The Directorate General of Foreign Trade (DGFT) updated the SCOMET list by way of 
a notification in April last year, which came into effect from May 1, 2017.
 
Export of items in the SCOMET list is regulated either by way of prohibition or an appropriate authorization. The new SCOMET list has nine categories, most of which require authorization from DGFT. The exceptions include export of category 0 items (nuclear and related material, technology etc.) which requires authorization from the Department of Atomic Energy, and category 6 (munitions) is governed by the Standard Operating Procedure issued by the Department of Defense Production.
Perhaps the most critical addition to the SCOMET list, however, is ‘category 8’ titled ‘Special Materials and Related Equipment, Material, Processing, Electronics, Computers, Telecommunications, Information Security, Sensors and Lasers, Navigation and Avionics, Marine, Aerospace and Propulsion’. It was this category that harmonized India’s export control list with the Wassenaar Arrangement and made the entry possible.
 
Surveillance and interception software
 
Expectedly, there is and will be considerable amount of confusion in the software and information technology industry (particularly with companies that export intrusion software and certain surveillance systems) on the impact that the new SCOMET list has on their software and hardware product lines, and service offerings to foreign entities.
 
Indian IT companies (both India-headquartered as well as Indian subsidiaries of foreign companies) sell and license out everything from mobile phone monitoring, internet monitoring, telecom operator interception systems, intrusion detection systems, data mining, data analytics software etc. The United States market accounts for more than 57% of India’s total export of software and related services, with the United Kingdom in the second spot at 18%. The Electronics and Computer Software Export Promotion Council pegs India’s software and services exports at $121 billion in 2016-17. A staggering 83% of that total production is exported, with the remaining consumed domestically.
 
Several IT companies in India are either headquartered in the US or have subsidiaries in US and UK. For example, the US-headquartered Verint Systems, which is a market leader in surveillance technologies, or Polaris Wireless that provides high-accuracy wireless location solutions. Both these companies have entities in India. Such companies routinely engage in intra-company transfers of intangible technology (through non-physical means such as internet) and assignment of intellectual property. Intra-company means a transaction between two or more subsidiaries within the same corporate group. The reasons for this could be many, from monetizing their offerings worldwide to decentralizing information management.
 
With the addition of ‘category 8’ in the SCOMET list, such a transfer or assignment from an Indian entity to its own US or UK subsidiary too can qualify as export. It becomes crucial for such companies to not only assess the new SCOMET list but also understand the standard of protection afforded in the recipient country.
 
In fact, one of the criteria for DGFT to grant authorization is export control measures of the recipient country. If anything, and rest assured, US and UK being members of all the four major export control regimes should serve to expedite the authorization procedure for companies with operations there.
 
The DGFT, on its part, doesn’t believe that the IT industry is impacted much, going by the FAQs section on its website. One of the reasons is, software and technology in the public domain are excluded from the regulations. “Public domain” is defined as “domain that has no restrictions upon dissemination of information within or from it”. Any intellectual property rights over that information does not disqualify it from being in public domain. Some of the new items in Category 8 are software performing local area network functions, software for detection systems identifying biological agents, radioactive materials etc., multifunctional robots, mobile telecommunication interception equipment etc.
 
Additionally, DGFT’s handbook of procedures that was amended along with the SCOMET list in April last year, brings non-SCOMET items as well within the SCOMET ambit. If the DGFT notifies an exporter in writing or if such exporter believes that a non-SCOMET item has a potential risk of use on or diversion to weapons of mass destruction or in their missile system or military end-use (including by terrorists and non-state actors), the same process and authorization mandated for SCOMET items would apply.
 
There are penal provisions in the Foreign Trade (Development and Regulation) Act, 1992 and its amendment of 2010 (FTDR Act), and the Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Act, 2005 (WMD Act), for violation of export laws, including civil or criminal prosecution or both. Apart from suspension or cancellation of the importer exporter code under the FTDR Act, the WMD Act stipulates fines ranging from Rs. 3 lakhs to Rs. 20 lakhs for unauthorized export. Each repeated offence carries punishments of imprisonment between six months to five years along with a fine.
 
The WMD Act also defines when an offence is committed by a company. Every person, who oversaw and was responsible to the company for the conduct of its business as well as the company itself, can be liable and punished. If such person can prove that the offence was committed without his knowledge, he/she can be off the hook. But proof of connivance or consent of any director, manager, secretary or other officer of the company is a ground for punishment.
 
There can be no degree of over-emphasis on the need for companies to thoroughly assess the new SCOMET list and its applicability on their business, considering the multiple exceptions, definitions, cross-references and qualifiers. The newly added General Technology Note and General Software Note give only a partial direction in deciphering the categories. Strict adherence to export laws should be made an integral part of regulatory/statutory compliance frameworks and business codes of multinational companies.
 
The DGFT, along with industry bodies, has been conducting outreach and open-house programs for the IT industry specifically. The need of the hour is procedural expediency. The procedure should include within its timeline, to-and-fro communication between companies/traders and DGFT office (or the concerned authorizing body) on preliminary queries and doubts the former may have. Per the amended handbook of procedures, an inter-ministerial working group (IMWG) in the DGFT will consider export applications and “endeavor” to furnish their written comments to DGFT within 30 days of the latter forwarding the applications (earlier, this was 45 days). If the IMWG cannot arrive at a decision, the application will be placed before the DGFT “for appropriate decision”.
 
The 30-day period, by itself, does not assure much, considering the track record of delays by the DGFT in processing applications. Secondly, there is no clarity whether the 30-day period includes the time taken by DGFT to decide an application after the IMWG has referred it to them.
 
Last year in May, Malaysia’s Ministry of International Trade and Industry launched a mobile app that companies and traders can use to search for any item on the Malaysia national dual-use control list, using a key word or category name. Note that Malaysia is not part of any of the four, elite multilateral export control regimes. The DGFT could well take a leaf out of this, as the first step in simplifying the process. The only DGFT app currently available is quite pointless – a repository of documents that is already on its website.

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COMM_a3
18. 
Gary Stanley’s EC Tip of the Day

(Source: Defense and Export-Import Update; 11 Apr 2018. Available by subscription from 
gstanley@glstrade.com.)
 
* Author: Gary Stanley, Esq., Global Legal Services, PC, (202) 352-3059, 
gstanley@glstrade.com.
 

DDTC suggests identifying the foreign person employee’s annual salary and/or value of the technical data/defense services transferred/received as the value for a DSP-5 employment license.

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COMM_a4
19. 
R.C. Burns: “Cuba Export Indictment Mangles U.S. Export Laws”

(Source: 
Export Law Blog, 11 Apr 2018. Reprinted by permission.)
 
* Author: R. Clifton Burns, Esq., Bryan Cave LLP, Wash DC, 
Clif.Burns@bryancave.com, 202-508-6067).
 
Last week Bryan Singer, a Texas resident, was 
indicted for attempting to export to Cuba certain items that U.S. Customs found on his boat in a harbor in the Florida keys. The items are involved are Ubiquiti Nanostation M2 modems classified as 5A002, TP Link modems classified as 5A992 and cable box circuit boards classified as EAR99. The brief indictment states that Singer did not obtain a license from “DOC or OFAC” to export these items to Cuba. It also notes that he failed to file an Electronic Export Information covering the export of these items.
 
There is supposed to be an adult at the Export Enforcement Coordination Center who reviews these export indictments, but that would appear not to be the case. To begin with, two of the items mentioned in the indictment, the TP Link Modems and the cable box circuit boards, were eligible for license exceptions and would not have needed licenses. The TP Link modems are a no brainer and are clearly covered by BIS 
License Exception CCD. The EAR99 cable circuit boards if they went to private companies or private individuals probably were eligible for export under License Exception SCP. Mr. Singer says in 
press reports that he was relying on that exemption, and nothing in the indictment alleges that the intended export did not qualify for License Exception SCP.
 
So that leaves the 5A002 Ubiquiti modems, which would not have been eligible under either License Exception CCD or License Exception SCP. Of course, when the government itself does not understand the export laws (witness including the TP Link modem in the indictment), it is hard for it to establish that Singer had criminal intent when he apparently thought, albeit incorrectly, that he could send the Ubiquiti modem to private individuals in Cuba.
 

The indictment’s efforts to cobble together a violation due to the failure to file an EEI are equally unavailing. No allegation is made, or proof offered, that items with the same Schedule B number in the shipment had a total value of $2500 or more. Under section 30.37(a) of the Foreign Trade Regulations (FTR) no EEI was required if that were not the case. And it seems clear that these values weren’t met. The Ubiquiti and TP Link modems share the same schedule B number (8517.62), but given that the Ubiquiti modem retails for 50 bucks and the TP Modems were probably close to that, we would be talking about 50 or more of them needed before an EEI was required. And it’s hard to imagine that the cable circuit boards, which would have a different Schedule B number, were worth more than $2500. So, once again, if the AUSA who signed this indictment can’t figure out the law, how can he criminally prosecute Mr. Singer for not understanding it?

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ENEDITOR’S NOTES

 
 
– “
Courtesies of a small and trivial character are the ones which strike deepest in the grateful and appreciating heart.”

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EN_a321
. 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: 12 Apr 2018: 83 FR 15736-15740: CBP Decision No. 18-04; Definition of Importer Security Filing Importer
 
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(s): 
2 Apr 2018:
83 FR 13849-13862
: Implementation of the February 2017 Australia Group (AG) Intersessional Decisions and the June 2017 AG Plenary Understandings; Addition of India to the AG [Amendment of EAR Parts 738, 740, 745, and 774.]; and 5 Apr 2018: 83 FR 14580-14583: Reclassification of Targets for the Production of Tritium and Related Development and Production Technology Initially Classified Under the 0Y521 Series [Imposes License Requirements on Transfers of Specified Target Assemblies and Components for the Production of Tritium, and Related “Development” and “Production” Technology.]

  
*
FOREIGN ASSETS CONTROL REGULATIONS (OFAC FACR)
: 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders

  – Last Amendment: 19 Mar 2018:
83 FR 11876-11881: Inflation Adjustment of Civil Monetary Penalties 

 
*
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 (16 March 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 approximately 250 footnotes containing case annotations, practice tips, Census/AES guidance, and explanations of the numerous errors contained in the official text. Subscribers receive revised copies in Microsoft Word every time the FTR is amended. The BAFTR is available by annual subscription from the Full Circle Compliance websiteBITAR subscribers are entitled to a 25% discount on subscriptions to the BAFTR. Government employees (including military) and employees of universities are eligible for a 50% discount on both publications at www.FullCircleCompiance.eu.  
 
*
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: 30 Mar 2018:
Harmonized System Update 1804, containing 710 ABI records and 166 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_a0322
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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