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18-0515 Tuesday “Daily Bugle”

18-0515 Tuesday “Daily Bugle”

Tuesday, 15 May 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. President Continues National Emergency with Respect to Yemen 
  2. Commerce Initiates Investigation under Section 232 of the Trade Expansion Act 
  1. Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS Publishes Proposed Rule Concerning Shift of USML Cats I, II, and III to EAR/CCL
  3. State/DDTC Publishes Notice Concerning Proposed Shift of ITAR/USML Cats I, II, and III to EAR/CCL 
  4. EU Amends Restrictive Measures Concerning Libya
  5. UK Government Posts Guidance Concerning Iran
  6. Singapore Customs Announces Joint-Customs-CA Seminar on 21 May 2018
  1. Deutsche Welle: “German Arms Firm H&K’s Ex-Staff on Trial over Mexico Gun Deal”
  2. Reuters: “U.S. Imposes Sanctions Against Iran Central Bank Governor, Iraq-Based Bank”
  3. The Washington Times: “Trump Administration Moves to Shift Small Arms Gun Export Approval from State Department to Commerce”
  1. D.M. Edelman: “Trump Cancels Iran Deal: Can Your Company Still Do Business?”
  2. G. Husisian: “The Twelve Compliance Steps Every Multinational Corporation Should Undertake in Light of Recent Trump Administration Enforcement Activity” (Part I of IV)
  3. O. Coulon, G. Kreijen & B. Gevers: “While EU Countries Reaffirm their Commitment to the JCPOA, EU Companies Brace for Impact”
  4. Gary Stanley’s EC Tip of the Day
  1. ECS Presents “ITAR/EAR Boot Camp (Seminar Level I)” on 10-11 Jul in Long Beach, CA
  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 (24 Apr 2018), HTSUS (4 May 2018), ITAR (14 Feb 2018) 
  3. Weekly Highlights of the Daily Bugle Top Stories 

EXIMITEMS FROM TODAY’S FEDERAL REGISTER

EXIM_a1

1.
President Continues National Emergency with Respect to Yemen

(Source: 
Federal Register, 15 May 2018.) 
 
83 FR 22582: Continuation of the National Emergency with Respect to Yemen
 
On May 16, 2012, by Executive Order 13611, the President declared a national emergency pursuant to the International Emergency Economic Pow- ers Act (50 U.S.C. 1701-1706) to deal with the unusual and extraordinary threat to the national security and foreign policy of the United States con- stituted by the actions and policies of certain former members of the Govern- ment of Yemen and others that threaten Yemen’s peace, security, and sta- bility. These actions include obstructing the political process in Yemen and blocking implementation of the agreement of November 23, 2011, be- tween the Government of Yemen and those in opposition to it, which provided for a peaceful transition of power that meets the legitimate demands and aspirations of the Yemeni people.
 
The actions and policies of certain former members of the Government of Yemen and others in threatening Yemen’s peace, security, and stability continue to pose an unusual and extraordinary threat to the national security and foreign policy of the United States. For this reason, the national emer- gency declared on May 16, 2012, to deal with that threat must continue in effect beyond May 16, 2018. Therefore, in accordance with section 202(d) of the National Emergencies Act (50 U.S.C. 1622(d)), I am continuing for 1 year the national emergency declared in Executive Order 13611.
 
This notice shall be published in the Federal Register and transmitted to the Congress.
 
  [Presidential Signature.]
 
THE WHITE HOUSE, May 14, 2018. 

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EXIM_a2

2.
Commerce Initiates Investigation under Section 232 of the Trade Expansion Act 

(Source: 
Federal Register, 15 May 2018.) [Excerpts.] 
 
83 FR 22441: Submission for OMB Review; Comment Request
 
The Department of Commerce will submit to the Office of Management and Budget (OMB) for clearance the following proposal for collection of information under the provisions of the Paperwork Reduction Act (44 U.S.C. Chapter 35).
  – Agency: Bureau of Industry and Security.
  – Title: Request for Investigation under Section 232 of the Trade Expansion Act.
  – Form Number(s): N/A.
  – OMB Control Number: 0694-0120.
  – Type of Review: Regular submission. … 
  – Needs and Uses: Upon request, BIS will initiate an investigation to determine the effects of imports of specific commodities on the national security, and within 270 days BIS will report to the President the findings and a recommendation for action or in-action. Within 90 days after receiving the report, the President shall determine whether to concur or not concur with the findings and recommendations. No later than 30 days after a decision, the determination will be published in the Federal Register and reported to Congress. The purpose of this collection is to account for the public burden associated with the surveys distributed to determine the effect of imports of specific commodities on the national security. … 
 
Sheleen Dumas, Departmental Lead PRA Officer, Office of the Chief Information Officer.

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

OGSOTHER GOVERNMENT SOURCES

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

* Treasury; NOTICES; List of Countries Requiring Cooperation with International Boycott [Publication Date: 16 May 2018.]

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

OGS_abc24. 
Commerce/BIS Publishes Proposed Rule Concerning Shift of USML Categories I, II, and III to CCL 

(Source: 
Commerce/BIS, 15 May 2018.) [Excerpts.]
 
This proposed rule [available in PDF 
here] describes how articles the U.S. President determines no longer warrant control under United States Munitions List (USML) Category I – Firearms, Close Assault Weapons and Combat Shotguns; Category II – Guns and Armament; and Category III – Ammunition/Ordnance would be controlled under the Commerce Control List (CCL). This proposed rule is being published simultaneously with a proposed rule by the Department of State that would revise Categories I, II, and III of the USML to describe more precisely the articles warranting continued control on that list. … 
 
In this proposed rule, items that are currently controlled in Category II of the USML would be controlled on the CCL under four new “600 series” ECCNs. Placement of the items currently in USML Category II into the CCL’s 600 series would be consistent with existing BIS practice of using 600 series ECCNs to control items of a military nature.
 
Items currently controlled in Categories I and III of the USML would be controlled in new ECCNs in which the third character is a “5.” These items are not appropriate for 600 series control because, for the most part, they have civil, recreational, law enforcement, or other non-military applications. As with 600 series ECCNs, the first character would represent the CCL category, the second character would represent the product group, and the final two characters would represent the WAML category that covers items that are the same or similar to items in the ECCN.
 
This proposed rule does not de-regulate the transferred items. BIS would require licenses to export or reexport to any country a firearm or other weapon currently on the USML that would be added to the CCL by this proposed rule. BIS would also require licenses for the export or reexport of guns and armament that would be controlled under new ECCN 0A602, such as guns and armaments manufactured between 1890 and 1919 to all destinations except Canada.
 
As compared to decontrolling firearms and other items, in publishing this proposed rule, BIS, working with the Departments of Defense and State, is trying to reduce the procedural burdens and costs of export compliance on the U.S. firearms industry while allowing the U.S. Government to enforce export controls for firearms appropriately and to make better use of its export control resources. BIS encourages comments from the public on this aspect of the proposed rule. … 

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(Source: 
State/DDTC, 15 May 2018.) 
 
The Department of State proposes to amend the International Traffic in Arms Regulations to revise Categories I (firearms, close assault weapons and combat shotguns), II (guns and armament) and III (ammunition and ordnance) of the U.S. Munitions List (USML) to describe more precisely the articles warranting export and temporary import control on the USML. Items removed from the USML would become subject to the Export Administration Regulations (EAR). See 
Cat I-III Combined PR – FRN FINAL.PDF

The Department of Commerce proposes to amend the Export Administration Regulations to describe how the items that transfer to the EAR will be controlled. See 
05.4.18 Signed Commerce firearms proposed rule for sending to OFR for publication.

 
[Editor’s Note: this notice is published simultaneously with the BIS notice, included in today’s Daily Bugle, item #4 above.]

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

 
Regulations 
 

Commission Implementing Regulation (EU) 2018/711 of 14 May 2018 amending Council Regulation (EU) 2016/44 concerning restrictive measures in view of the situation in Libya
 
Decisions
 

Council Implementing Decision (CFSP) 2018/713 of 14 May 2018 implementing Decision (CFSP) 2015/1333 concerning restrictive measures in view of the situation in Libya

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(Source: 
UK DIT/EJCU, 15 May 2018.) [Excerpts.]
 
The Export Control Joint Unit (EJCU) of the UK Department of International Trade (DIT) has published the following guidance on its website:
 
On 8 May 2018 the President of the United States confirmed that the US will begin the process of re-imposing all US sanctions previously waived under the Joint Comprehensive Plan of Action (JCPoA). 
Read more about this development.
 
The UK government fully supports expanding our trade relationship with Iran and encourages UK businesses to take advantage of the commercial opportunities that will arise. Department for International Trade (DIT) is in Tehran to support bilateral trade and investment. However, some sanctions remain in place so UK businesses should continue to ensure they are compliant with all sanctions regimes.
 
On 14 July 2015, the E3+3 (UK, France, Germany, Russia, China and USA) the EU and Iran reached a comprehensive agreement on Iran’s nuclear program. This concluded over a decade of negotiations between the international community and Iran. Through the successful implementation of this deal, Iran can demonstrate its commitment to an exclusively peaceful nuclear program. Most financial and economic sanctions against Iran have now been lifted, following the International Atomic Energy Agency’s verification that Iran had completed all necessary steps to reach Implementation Day (16 January 2016). 
Read the full text of the agreement and annexes. … 
 
The UK government fully supports expanding our trade relationship with Iran. Iran has now received extensive economic and financial sanctions relief and will be able to trade more freely with the rest of the world. We want to help British businesses take advantage of the opportunities that economic re-engagement with Iran will bring.
 
UK Export Finance (UKEF), the UK’s export credit agency, has reintroduced cover in to support UK companies competing for business in Iran. Cover is now available on a case-by-case basis in Pounds Sterling and Euros. Within this, and in recognition of the UK’s place as a global center of excellence for financial and professional services, UKEF will make available an initial £50 million facility guaranteeing payments to UK professional advisory service providers advising the Government of Iran. UKEF will also consider applications for direct lending from purchasers of British exports to Iran. Find out more about 
UKEF’s cover for Iran here.
 
DIT will be engaging with UK businesses to provide support and assistance to help ensure UK business benefits from opportunities as they arise. UKTI based both in the UK and in the British Embassy in Tehran will play an important role in supporting trade and investment between our 2 countries.
 
Although most economic and financial sanctions have now been lifted, some sanctions will remain in place and are not affected by the deal. In particular sanctions related to human rights, proliferation and Iran’s support for terrorism remain in place. You will wish to consider in particular, if you are dealing with a designated person or entity, whether a certain trade product or material is restricted, and how and to whom payments will be made. UK companies will also want to consider whether their proposed activity is subject to US sanctions. It is important to ensure appropriate due diligence measures are undertaken before engaging in any activity. Iran will remain a difficult place to do business so if in doubt you should seek legal advice.
 
More Information on Doing Business with Iran
 
  – For more information on Doing Business with Iran 
see our Guide to Doing Business with Iran and FAQs
  – Find out more about 
UKEF’s country cover for Iran here.
  – The EU has published an information note on the EU Sanctions to be lifted under the JCPoA and it is available on the 
Europa website.
  – The US Office of Financial Asset Control has issued guidance on Iran and it is available on the 
US Department of the Treasury website.
  – The Export Control Organization has issued 
Notice to Exporters 2016/05 on this development.
 
Prohibited Activities
 
The following activities remain banned under the proliferation-related sanctions:
 
  – sale, supply, transfer or export to Iran, of all military goods and technology as listed in the UK Military List
  – sale, supply, transfer or export of missile-related goods and technology as listed in Annex III of 
Council Regulation (EU) 267/2012
  – provision of technical assistance, brokering services and financial assistance related to the above
  – import from Iran of military and missile-related goods and technology
  – investment in Iranian enterprises engaged in manufacture of military goods, and a ban on investment by an Iranian person in a commercial activity related to production or use of missile-related goods
 
The following is prohibited under the sanctions imposed in view of the human rights situation in Iran as set out in 
Council Regulation (EU) 264/2012
 
  – sale, supply, transfer or export of equipment which might be used for internal repression as listed in Annex III of Council Regulation (EU) 264/2012 
  – provision of technical assistance, brokering services and financial assistance related to the above.
 
In addition, restrictive measures remain in place against individuals and entities who remain listed in 
Council Regulation 267/2012 and in 
Council Regulation 264/2012, as well as under EU terrorism and other EU sanctions regimes.
UK businesses should ensure they are compliant with all remaining sanctions regimes. It is important to conduct due diligence and ensure compliance with sanctions regimes before signing business contracts, as with any market.
 
Activities that Require a License
 
The following activities require a license under the proliferation-related sanctions:
 
  – sale, supply, transfer or export of nuclear-related items as listed in Annex I of the Regulation
  – provision of technical assistance, brokering services and financial assistance related to items listed in Annex I of the Regulation
  – investment by an Iranian person, entity or body in a commercial activity related to uranium mining or the manufacture of items listed in Annex I of the Regulation
 
These nuclear-related activities can only be authorized if they have been approved in advance by the UN Security Council through the newly-established Procurement Channel. UK persons wishing to supply these goods or services to Iran, or to accept an investment by an Iranian person, must seek a license from the Export Control Organization (ECO) in the Department of DIT. The ECO will consider the application and where appropriate seek the required authorization from the UN. The ECO has published 
detailed guidance on the Procurement Channel.
 
A license is also required for:
 
  – sale, supply, transfer or export of nuclear-related items as listed in Annex II of the Regulation
  – provision of technical assistance, brokering services and financial assistance related to items listed in Annex II of the Regulation
  – investment by an Iranian person, entity or body in a commercial activity related to the items listed in Annex II of the Regulation
 
These items are not subject to the Procurement Channel process.
Sanctions imposed in view of the human rights situation in Iran are set out in 
Council Regulation (EU) 264/2012. The following requires a license:
 
  – sale, supply, transfer or export of equipment which might be used for the monitoring or interception of internet or telephone communications as listed in Annex IV of the Regulation
  – provision of technical assistance, brokering services and financial assistance related to items listed in Annex IV of the Regulation
  – provision of telecommunication or internet monitoring or interception services of any kind to, or for the direct or indirect benefit of, Iran’s government, public bodies, corporations and agencies or any person or entity acting on their behalf or at their direction
 
Financial sanctions may still be relevant to your transaction, including interaction with those persons and entities that remain designated. It is your responsibility to ensure you comply with financial sanctions. For more information see the HM Treasury guidance relating to 
nuclear proliferation and 
human rights violations and please refer to the Treasury’s consolidated list which includes all Iranian individuals and entities listed under EU and UK sanctions regimes (including those listed for Counter Terrorism purposes or under the Syria regime).
 
End-use Controls
 
If your items are not listed specifically as a result of specific sanctions regulations, you may still need a license under so-called ‘end-use controls’. This aspect of export controls covers licensing of items that might potentially be used in a Weapons of Mass Destruction (WMD) program or military goods.
These controls are outlined in Article 4 of 
Council Regulation 428/2009 (the EU Dual-Use Regulation) and in the 
Export Control Order 2008.
 
For more information on end-use controls, see the guide on 
WMD End-Use Control and 
Military End-Use Control.
If you have any concerns about exporting to an end-user in Iran, you should consider seeking advice from the 
ECO End-User Advice Service. … 

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

(Source: 
Singapore Customs, Notice No. 07/2018, 9 May 2018.) 
 
As part of its ongoing efforts to share Customs requirements with the business community, Singapore Customs together with some Competent Authorities (CA) will be organizing a Joint Customs-CA Seminar on 21 May 2018. 
 

The details of the program are available here.

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

NWSNEWS

(Source: 
Deutsche Welle, 15 May 2018.) [Excerpts.] 
 
Six ex-employees of Heckler & Koch have gone on trial in Stuttgart for selling assault rifles to Mexico. Activists held a vigil for victims of those believed to be killed by the German gun-maker’s arms outside the court.
 
It took eight years for the proceedings to make it this far, but on Tuesday the German state’s case against the country’s most infamous gun-maker – which also supplies small arms to many NATO countries – was finally brought to trial.
 
Six former employees of Heckler & Koch stood accused of violating Germany’s War Weapons Control Act and its Foreign Trade Act by selling thousands of G36 assault rifles to Mexico – while knowing full well that they would be used in four violence-ridden Mexican states. … 
 

  “This is the biggest small arms trial this country has ever seen – this is a huge success, because this shadowy arms export approval system will be made public,” [
attorney Holger

Rothbauer said. “But pawn sacrifices are being made – and why? Because the system only wants one part to be put in the dock: namely the representatives of the arms industry, and not the political representatives, and not the representatives of the export control authorities.” … 

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(Source: 
Reuters, 15 May 2018.) [Excerpts.] 
 
The United States on Tuesday imposed sanctions on Iran’s central bank governor, Valiollah Seif, and Iraq-based Al-Bilad Islamic Bank for “moving millions of dollars” for Iran’s elite Revolutionary Guard Corps, as Washington seeks to cut off funding for what it says is Iran’s malign activities in the Middle East. … 
 
The United States classifies Lebanon’s Shi’ite Muslim movement Hezbollah, which is backed by Iran, as a terrorist group. … 
 
The U.S. Treasury also blacklisted Ali Tarzali, assistant director of the international department of Iran’s central bank, and the chairman of Al-Bilad Islamic Bank, Aras Habib.
 
The department said the sanctions against Seif and Tarzali would not immediately affect central bank transactions. It said, however, sanctions being reimposed under the nuclear deal would affect certain U.S. dollar transactions by the central bank starting on Aug. 7, 2018.
 
Last week, two days after U.S. President Donald Trump withdrew from the 2015 Iran nuclear deal, the U.S. Treasury imposed sanctions against six individuals and three companies it said were funneling millions of dollars to the IRGC-QF.
 
The IRGC is by far Iran’s most powerful security entity and has control over large stakes in Iran’s economy and huge influence in its political system. The Quds Force is an elite unit in charge of the IRGC’ overseas operations.

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(Source: 
The Washington Times, 14 May 2018.) [Excerpts.]
 
The Trump administration took a major formal step Monday toward officially shifting authority from the State Department to the Commerce Department over the approval of U.S. small arms exports, including semiautomatic rifles and weapons ranging in size up to .50 caliber.
 
In a closed-door briefing for lawmakers, State and Commerce officials outlined specifics of the shift long sought by small arms manufacturers as a way to cut red tape and boost exports – but decried by pro-regulation Democrats who warn the policy change could dissolve barriers designed to keep U.S.-made firearms from criminals and terrorists overseas.
 
While Congress could still block the initiative – Monday’s briefing on Capitol Hill sets in motion a public comment period that lasts for 45 days – administration officials are touting the policy as breakthrough for U.S. manufacturing and stress that key restrictions on exports to unsavory international buyers will remain in place. … 

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COMMCOMMENTARY

COMM_a0
12. D.M. Edelman: “Trump Cancels Iran Deal: Can Your Company Still Do Business?”

(Source: 
Export Compliance Matters, 14 May 2018.) 
       
* Author: Doreen M. Edelman, Esq., Baker Donelson LLP, 202-508-3460, 
dedelman@bakerdonelson.com
 
On May 8, President Trump announced that the U.S. will withdraw from the Iran nuclear deal, formally known as the Joint Comprehensive Plan of Action (JCPOA), and reimpose the strict economic sanctions program that was in place prior to the landmark 2015 agreement. The U.S. Treasury Department’s Office of Foreign Assets Control issued a 
Frequently Asked Questions document in coordination with the announcement to assist with the implementation of the Iran sanctions program. Here is the bottom line so far.
 
Following a wind-down period, all U.S. nuclear-related sanctions that were lifted to effectuate JCPOA sanctions relief will be reimposed. Certain sanctions are subject to a 90-day wind-down period that will be formally reimposed on August 6, and the rest are subject to a 180-day wind-down period ending on November 4. On November 5, General License H, which allows U.S.-owned or U.S.-controlled foreign companies to do business in Iran, will be gone. The most significant sanctions to be reimposed are “secondary sanctions,” which place strict limits on foreign companies doing business with Iran.
 
As a result of the reimposition of secondary sanctions, foreign entities, even those not owned or controlled by U.S. parties, will have to decide whether they want to do business with Iran or the U.S. Specifically, foreign entities will not be able to do business in Iranian rials and do business with or through the U.S. banking system. Such businesses could also be added to the Specially Designated Nationals and Blocked Persons lists.
 
Other specific provisions that will be rolled back and directly affect U.S. entities concern the sale of airplanes and parts, Iranian carpets and foodstuffs, and certain financial transactions that were permitted under the Iranian Transactions and Sanctions Regulations (ITSR). These provisions are subject to the 90-day wind-down period. As an ongoing reminder, none of these changes affect the ITSR’s general prohibition against U.S. persons doing business with Iran. This means the prohibitions on sales to Iran that existed before the JCPOA still exist. No U.S. parties can sell any products to Iran unless specifically authorized. This means no paperclips, coffee mugs, etc., can be sent to Iran unless the transaction is covered by a license. The President also reimposed sanctions on Iranian government trade in gold and precious metals, the purchase of U.S. dollar banknotes, and the direct and indirect sale of certain metals and software, as well as sanctions involving Iran’s automotive, port, shipbuilding, petroleum, banking and energy sectors, and the issuance of Iranian sovereign debt.
 

U.S. and foreign entities must quickly evaluate all current and future business and investments in and with Iranian entities and determine if there are any exceptions to divesting of all Iranian business activities. Moreover, any facilitation of Iranian activities must also be considered. These changes are new, and there may be additional guidance provided for foreign entities to apply for additional exemptions or waivers. European Union (E.U.) leaders have already said they plan to press the U.S. government for potential carve-outs to the sanctions for European companies. However, as of today, the Administration wants all global businesses to decide whether they will do business with the U.S. or do business with Iran. Regulatory compliance obligations may become even trickier if the E.U. implements a protected harbor or blocking regulation for European companies doing business with Iran. It will be critical to follow the implementation of the Iranian sanctions program as well as the E.U.’s diplomatic efforts and response during the wind-down period over the course of the coming months.

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COMM_a01
13.
G. Husisian: “The Twelve Compliance Steps Every Multinational Corporation Should Undertake in Light of Recent Trump Administration Enforcement Activity” (Part I of IV)

(Source: 
Foley & Lardner LLP, 14 May 2018.) 
 
* Gregory Husisian, Esq., 
ghusisian@foley.com, Foley & Lardner LLP, Washington DC.
 
[Editor’s Note: due to space limitations, this article has been divided into four parts. We will post one part each day, from Tuesday, 15 May until Friday, 18 May 2018.] 
 
Over the last month, regulators with the Trump administration sent a loud message to companies subject to U.S. jurisdiction: Enforcement of laws governing international activities is alive and well and the laws will continue to be enforced with vigor. Companies that are subject to U.S. jurisdiction – whether because they are located within the United States or otherwise subject to U.S. jurisdiction (such as through the use of U.S.-origin goods or the use of the U.S. financial system) – need to evaluate whether their compliance measures are sufficient to detect and halt potential violations of U.S. international regulations, including the Foreign Corrupt Practices Act (FCPA), U.S. export control regulations (the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations (EAR), the economic sanctions regulations maintained by the Office of Foreign Assets Control (OFAC), and the various anti-money laundering laws.
 
As recent enforcement activity under the Trump administration illustrates, enforcement of this suite of international regulatory laws is alive and well. In light of these developments, this Client Alert summarizes the most recent enforcement activity, as well as the steps that companies subject to U.S. jurisdiction can take to identify and mitigate the risk of costly enforcement actions under these regulatory regimes.
 
Recent Enforcement Activity Shows U.S. Government Willingness to Impose Record Penalties for Violations of International Regulations
 
Under the Obama administration, enforcement of the FCPA, export controls, economic sanctions, AML, and FCPA regulations was steady and strong. Although the numbers varied year by year – mostly due to timing issues related to when large matters were settled – it was not uncommon to see large enforcement settlement that surpassed the $100 million level.
 
Any thought that the Trump administration might take a more lenient approach toward these international regulations has been laid to rest by the strong record of enforcement under the current administration, as underscored by two recent enforcement actions.
 
First, Panasonic agreed to pay $280 million to resolve FCPA offenses for payments to consultants of its U.S. inflight entertainment unit in the Middle East and Asia, including the payment of $143 million in disgorgement to the Securities and Exchange Commission. In both cases, the resolutions were related to activities of Panasonic’s U.S.-based subsidiary, Panasonic Avionics Corporation. According to the U.S. government, senior management of Panasonic Avionics established a bribery scheme to pay a Middle Eastern government official more than $900,000 for a “purported consulting position, which required little to no work,” allowing Panasonic Avionics to help gain over $700 million in business from a state-owned airline. The U.S. government further stated that Panasonic Avionics concealed the payment “through a third-party vendor that provided unrelated services” to Panasonic Avionics and then allegedly falsely recorded these (and other) payments in its books and records. Other payments related to Asian sales.
 
The Department of Justice (DOJ) gave Panasonic Avionics a 20 percent discount off the low end of the U.S. Sentencing Guidelines fine range because of the cooperation of the company and what the DOJ characterized as strong remediation efforts, including the severing of several senior executives who were either involved in or aware of the misconduct by Panasonic Avionics or Panasonic. Nonetheless, because the remediation efforts only recently had been instated, the deferred prosecution agreement provides for a two-year independent monitor, followed by an additional year of self-reporting.
 
Independently, the Department of Commerce’s Bureau of Industry and Security (BIS) took the unusual step of suspending an export control settlement deal with Chinese telecom equipment maker ZTE Corporation, while at the same time revoking the export privileges of the company. ZTE Corporation was operating under a settlement of claims that it had violated U.S. export control and economic sanctions regulations by engaging in 251 transactions with persons in Iran or with the Iranian government. These transactions had last year resulted in the largest-ever export controls penalty – nearly $1.2 billion, with $300 million of it being suspended during a seven-year probationary period. As a result of the export ban, the ability of ZTE to export any goods or technical data from its 14 offices and six research centers in the United States will be virtually eliminated until March 13, 2025, thereby endangering the ability of ZTE to take a leading role in the rollout of next-generation 5G wireless technology.
 
These settlement actions illustrate the ability of U.S. regulators to discover and punish violations of U.S. international regulations, as well as the willingness of the Trump administration to impose groundbreaking penalties. In light of the aggressive enforcement mentality of the U.S. government, this Client Alert presents a series of steps that companies subject to U.S. jurisdiction can take to help identify and manage their international regulatory risk. Careful consideration of each step will take the company from identifying the risks, through examining any deficiencies in dealing with those risks, to the goal of compliance as informed by appropriate procedures, internal controls, and training. For any company that has not gone through such an exercise in the last few years, systematically working through the 12 steps is likely to lead to a significant payoff for ameliorating the organization’s risk profile through an effective compliance system.
 
A Twelve-Step Program for International Compliance
 
As illustrated by the record export controls penalty against ZTE (almost $1.2 billion, followed by a denial of export privileges) and the Panasonic FCPA settlements, the risk of severe enforcement actions under the Trump administration for violations of international regulations continues to be high. Yet many multinational companies find themselves in a quandary regarding how best to implement their international regulatory risk management. They may well know they face heightened risk but are not clear regarding the best way to proceed. This section of the Client Alert summarizes the typical steps that most multinational companies should consider when evaluating their international regulatory risk management procedures and internal controls. Through careful implementation of these measures, most multinational organizations should be able to implement the kinds of compliance that U.S. regulators would consider to be industry best practices.
 
Step 1: Secure Buy-In at the Top
 
Many companies looking to implement an international regulatory compliance program start by drafting a written compliance policy. But long before it comes time to draft the policy, a well-thought-out compliance strategy will look to put in place the underpinnings of the compliance program. Chief among these is the need for consistent management support for compliance initiatives.
 
Although the phrase “tone at the top” encapsulates management support, the concept requires more than just support from the CEO and other top management officials. When properly executed, the idea of tone at the top is a pyramid, with the concept of “doing the right thing” and respect for compliance flowing down from the CEO to personnel at all levels. Senior management ensures it is known that compliance has full support at the top, and that compliance has the resources to function properly, while also trying to ensure that respect for compliance with legal and company mandates flows through the company.
 
Management support is especially important for companies with international operations. The connection between the sales and operational activities of international subsidiaries, on the one hand, and regulatory risk management and adhering to the requirements of U.S. law, on the other, can appear tenuous when viewed by far-flung actors. The reality, however, is these far-off operations often represent the highest regulatory risk. This may mean that the organization must pay special attention to these foreign subsidiaries so it can reinforce the compliance message and its importance to the overall organization.
 
In establishing the tone at the top, senior management must understand the importance of a consistent and reinforced message. Too often, the role of senior management seems confined to issuing “the compliance letter” (i.e., a letter from the CEO stating that compliance is important). Thereafter, the topic is put on the back burner and left to the legal or compliance department to implement, often with inadequate resources to back up the compliance mission.
 
While there is nothing wrong with issuing such a letter, the compliance message should be reinforced so it becomes part of the internal DNA of the corporation. The importance of compliance to the company cannot be communicated by a one-time effort; rather, it should be a part of the day-to-day management of the organization.
 
With that goal in mind, senior management should take advantage of “non-training” training opportunities, such as integrating mentions of compliance missteps or accomplishments into quarterly calls, including compliance topics in sales meetings, and mentioning the topic frequently in company newsletters. Further, when teachable moments occur, such as compliance missteps by competitors, it is a good idea to bring this to the attention of relevant personnel, such as through a mass email from a senior manager or the general counsel’s office.
 

Senior management must set a strong example. It should be common knowledge that compliance rules apply across the entire organization, including for senior personnel; that the company promptly follows up on credible red flags; and that the company is willing to walk away from business that requires stepping too close to the risk threshold. People throughout the organization, whether in the United States or elsewhere, should realize there are consequences for compliance missteps. Through these means, senior management can communicate its respect for compliance throughout the organization.

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COMM_a214
.
O. Coulon, G. Kreijen & B. Gevers: “While EU Countries Reaffirm their Commitment to the JCPOA, EU Companies Brace for Impact”
(Source: 
World Trade Controls, 15 May 2018.)
 
* Authors: Olivier Coulon, Esq., 
Olivier.Coulon@loyensloeff.com; Gerard Kreijen, Esq., 
Gerard.Kreijen@loyensloeff.com; and Bert Gevers, Esq., 
bert.gevers@loyensloeff.com. All of Loyens & Loeff, Brussels, Amsterdam, and Brussels, respectively. 
 
Although expected, President Trump’s decision to pull the US out of the JCPOA has triggered swift and concerned reactions from Europe. Despite the EU’s reaffirmed commitment to the JCPOA, it is yet unclear whether – and how – the Agreement will survive.
 
In a joint statement released on 8 May, France, the UK, and Germany expressed regret and concern about President Trump’s decision, and urged “all sides to remain committed to [the JCPOA] full implementation.” They called on the US “to ensure that the structures of the Joint Comprehensive Plan of Action (JCPOA) can remain intact, and to avoid taking action which obstructs its full implementation by all other parties to the deal.”
 
Impact in the EU
 
Since the lifting of the US secondary sanctions following Implementation Day, EU companies have invested significantly in Iran. Close to €11 billion of goods were exported to Iran in 2017 – a 66% increase compared to 2015 -, and many contracts and deals were signed, notably by French and German entities.
 
The transport sector made a giant leap between 2015 and 2017. Iran became Renault’s 8th market with more than 160 000 cars sold in 2017, while PSA’s sales in Iran grew to 443 000 units. IranAir has also placed an order for €17.5 billion with Airbus, while Siemens was due to deliver locomotives.
 
The re-imposition of the sanctions is expected – and indeed seems designed –  to have a deterring impact on European companies, as maintaining business relationships with Iran – especially with SDN (re-)listed persons and entities – may well lead to being targeted by secondary sanctions.
 
Re-Imposition of the Secondary Sanctions
 
Secondary sanctions are designed to deter non-US companies from doing business with sanctioned persons, by isolating them from the US financial system and making them unpalatable as business partners for US companies.
 
The secondary sanctions, for which waivers were lifted on 8 May, will be progressively re-instated, as President Trump’s decision provides for two wind-down periods:
 
  – A 90-day period, ending on 6 August 2018, encompassing sanctions which are not covered by the 180-day period. These notably include transactions in the automotive sector, precious metals and raw materials.
  – A 180-day period, ending on 4 November 2018, relating inter alia to sanctions in the financial and insurance industries, but particularly in the energy and shipping sectors.
 
It should however be noted that some secondary sanctions remained in place since JCPOA’s Implementation in 2016. These sanctions prohibit for example EU companies to engage in significant transactions on behalf of, or for the benefit of any SDN or any company 50% by such person. They also prohibit transacting with the Iran Revolutionary Guard Corps (IRGC) or any of its officials, agents or affiliates. The past few years have taught us that this prohibition can be challenging as the IRGC is sometimes heavily involved in certain industry sectors.
 
What Can the EU Do About This?
 
The EU countries’ commitment to keeping the JCPOA alive is likely not to be enough, considering the significant chilling effect of the US secondary sanctions. Measures will have to be taken to give the EU companies a certain level of comfort and certainty in their relationship with Iran – if possible.
 
Amongst the available measures, the European Union could adopt a blocking statute, as it has already done in the past through the adoption of Council Regulation (EC) n°2271/96 of 22 November 1996 protecting against the effects of the extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom, to address both the Helms-Burton and d’Amato-Kennedy provisions. It may be questionable, however, whether adopting new blocking regulations would be an effective tool, as EU companies will still be fully exposed to the enforcement of secondary sanctions in the US.
 
France and Italy have also reportedly been working on providing all-euro denominated transaction systems, allowing one to by-pass the US financial system.
 
The EU may likewise try to negotiate with the US specific exemptions covering targeted sectors (such as the energy or automotive industry), allowing EU companies to maintain business relationships with Iran.
 
Yet, these instruments take time to design and implement. Considering the 90-day deadline, one can question whether any sort of solution will be reached before 6 August. This circumstance is only likely to reinforce the deterring effect of the revamped US sanctions.
 
One option for the EU to preserve its interests may be to rely on the US desire to reach a stricter and more global deal, covering not only the nuclear aspects, but also other topics such as the development of ballistic missiles. The negotiation of such a new agreement, which would necessarily require the EU as a signing party and which, reportedly was within reach before President Trump decided to walk out, may now well constitute the EU’s best bargaining tool for avoiding the imposition of secondary sanctions or obtaining an exemption those sanctions.
 
It remains to be seen, however, whether it would be realistic for the EU to pursue such an option. Various US sources have made it quite clear that the re-institution of US sanctions is also aimed at ‘encouraging’ non-US companies to stay out of Iran and to get out if they are already there. It is difficult to see how the US could reconcile this with providing EU companies leeway to do business with Iran. The question for the US, it seems, is whether the economic isolation of Iran outweighs hammering out a more encompassing and stricter sanctions regime.
 

Meanwhile ‘non-US’ companies in active in Iran trade should start their assessment whether their activities will become subject to the newly reinstated secondary sanctions. If this is the case, they should carefully evaluate their risks and liabilities and where necessary start with the wind down process.

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COMM_a315

Gary Stanley’s EC Tip of the Day
(Source: Defense and Export-Import Update, 14 May 2018.  Available by subscription from 
gstanley@glstrade.com.)
 
* Author: Gary Stanley, Esq., Global Legal Services, PC, (202) 352-3059, 
gstanley@glstrade.com.
 

ITAR § 124.1(A) provides that its requirements apply whether or not technical data is to be disclosed or used in the performance of the defense services described in ITAR § 120.9(a) (e.g., all the information relied upon by the U.S. person in performing the defense service is in the public domain or is otherwise exempt from ITAR licensing requirements pursuant to ITAR §125.4.

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TECEX/IM TRAINING EVENTS & CONFERENCES

TEC_a116. 
ECS Presents “ITAR/EAR Boot Camp (Seminar Level I)” on 10-11 Jul in Long Beach, CA

(Source: S. Palmer, 
spalmer@exportcompliancesolutions.com.)  
 
* What: ITAR/EAR Boot Camp (Seminar Level I), Long Beach, CA
* When: July 
10-11, 2018
* Where: 
Hilton Long Beach
* Sponsor: Export Compliance Solutions (ECS)
* ECS Speaker Panel:  Suzanne Palmer, Mal Zerden
* Register:
Here 
or by calling 866-238-4018 or e-mail

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ENEDITOR’S NOTES

 


Clifton Paul “Kip” Fadiman (15 May 1904 – 20 Jun 1999; was an American intellectual, author, editor, radio and television personality. He began his work with the radio, and switched to television later in his career.)
  – “For most men life is a search for the proper manila envelope in which to get themselves filed.”
 
*
L
. Frank Baum (Lyman Frank Baum; 15 May 15, 1856 – 6 May 1919; was an American author chiefly famous for his children’s books, particularly The Wonderful Wizard of Oz and its sequels. He wrote a total of 14 novels in the Oz series, plus 41 other novels, 83 short stories, over 200 poems, and at least 42 scripts.
  – “I can’t give you a brain, but I can give you a diploma.”

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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: 12 Apr 2018: 83 FR 15736-15740: CBP Decision No. 18-04; Definition of Importer Security Filing Importer (ISF 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: 
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: 24 Apr 2018: 3 FR 17749-17751: Foreign Trade Regulations (FTR): Clarification on the Collection and Confidentiality of Kimberley Process Certificates
  – HTS codes that are not valid for AES are available
here.
  – The latest edition (30 Apr 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: 4 May 2018: Harmonized System Update 1807, containing 289 ABI records and 60 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: 25 Apr 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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