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18-0516 Wednesday “Daily Bugle”

18-0516 Wednesday “Daily Bugle”

Wednesday, 16 May 2018

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  1. Treasury Posts List of Countries Requiring Cooperation with an International Boycott
  1. Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.)
  3. DHS/CBP Announces ACE Certification Scheduled Maintenance for Tonight 
  4. DHS/CBP Posts Revised External ACE Entry Summary Business Process Document
  5. Justice: “Port St. Lucie Resident Pleads Guilty to International Firearms Trafficking”
  6. State/DDTC: (No new postings.)
  7. EU Amends Restrictive Measures Concerning North Korea
  1. Ammoland: “Trump State Department Looks to Streamline Firearms Exports & Open U.S. Markets”
  2. Fox6Now: “Milwaukee Man in U.S. on Non-Immigrant Visa Accused of Trying to Ship 26 Guns to People’s Republic of China”
  3. Reuters: “U.S. Lawmakers Push Back on Trump Talk of Helping China’s ZTE”
  4. ST&R Trade Report: “Export Ban on Chinese Telecom Company Could be Short-Lived”
  1. G. Husisian: “The Twelve Compliance Steps Every Multinational Corporation Should Undertake in Light of Recent Trump Administration Enforcement Activity” (Part II of IV)
  2. M. Volkov: “Dun and Bradstreet Pays $9 Million for FCPA Violations in China”
  3. Gary Stanley’s EC Tip of the Day
  4. R.C. Burns: “Export Control Reform Finally Announced for Guns and Ammo”
  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. Treasury Posts List of Countries Requiring Cooperation with an International Boycott


(Source: Federal Register, 16 May 2018.)
 
83 FR 22751-22752: List of Countries Requiring Cooperation with an International Boycott
   In accordance with section 999(a)(3) of the Internal Revenue Code of 1986, the Department of the Treasury is publishing a current list of countries which require or may require participation in, or cooperation with, an international boycott (within the meaning of section 999(b)(3) of the Internal Revenue Code of 1986).
 On the basis of the best information currently available to the Department of the Treasury, the following countries require or may require participation in, or cooperation with, an international boycott (within the meaning of section 999(b)(3) of the Internal Revenue Code of 1986).
 
  – Iraq
  – Kuwait
  – Lebanon
  – Libya
  – Qatar
  – Saudi Arabia
  – Syria
  – United Arab Emirates
  – Yemen
 
   Dated: May 4, 2018.
Douglas Poms, International Tax Counsel (Tax Policy).

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OGSOTHER GOVERNMENT SOURCES

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

* Commerce; Industry and Security Bureau; RULES; Revisions to the Unverified List [Publication Date: 17 May 2018.]

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(Source:
CSMS #18-000344, 16 May 2018.)
 
There will be ACE CERTIFICATION Scheduled Maintenance this evening, Wednesday, May 16, 2018 from 1700 ET to 2000 ET for ACE Infrastructure maintenance.
* * * * * * * * * * * * * * * * * * * *

OGS_a3
5. DHS/CBP Posts Revised External ACE Entry Summary Business Process Document

(Source:
CSMS #18-000345, 16 May 2018.)
 
A revised version of the External ACE Entry Summary Business Process document has been posted on cbp.gov and can be accessed here.
 
This version of the document was released Monday May 11, 2018, and includes numerous edits based on feedback from a working group that was primarily comprised of Trade Leadership Council members. The edits to the document include, but are not limited to, a completely rewritten section 6 (Single Transaction Bonds), a revised section 10 (Temporary Import Bonds) with a breach of bond subsection, a revised section 11 (Post Summary Corrections), an updated section 19 (ACE Reports), etc.
 
All ACE Entry Summary Business Process document related questions, comments, and suggestions should be emailed to acebusinessrules@cbp.dhs.gov.

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(Source:
Justice, 15 May 2018.) [Excerpts.]
 
A Port St. Lucie resident pled guilty today to unlawfully exporting firearms, firearm accessories, and ammunition from South Florida to Rio de Janeiro, Brazil. …
 
Frederik Barbieri
, 46, of Port St. Lucie, Florida, pled guilty to one count of conspiracy to commit offenses against the United States, in violation of Title 18, United States Code, Section 371, and one count of unlicensed exportation of defense articles, in violation of Title 22, United States Code, Section 2778.  Barbieri faces a possible maximum statutory sentence of 25 years in prison.  Barbieri is scheduled to be sentenced on July 19, 2018, at 9:30 a.m., by United States District Court Judge Federico A Moreno.
 
According to stipulated facts filed in court, from May of 2013 through February of 2018, Barbieri conspired with others to: possess firearms with obliterated serial numbers; deliver packages containing those firearms to contract carriers for international shipment without providing notice that the packages contained firearms; and smuggle firearms, firearm accessories, and ammunition from the United States to Rio de Janeiro, Brazil.
During this period, a shipment sent by Barbieri was intercepted in Rio de Janeiro by Brazilian law enforcement and found to contain approximately thirty AR-15 and AK-47 rifles and firearm magazines, all concealed in four 38-gallon Rheem water heaters. The water heaters were hollowed out and loaded with the contraband, and the serial numbers on each of the firearms had been obliterated. The same day that Brazilian authorities intercepted his shipment, Barbieri called and requested that the freight forwarder destroy the related paperwork.
 
Documentation provided by the freight forwarder revealed Barbieri’s historical shipments. In addition to shipping the four Rheem water heaters in which he concealed approximately thirty rifles, Barbieri also shipped to Brazil an additional 120 Rheem water heaters, as well as 520 electric motors and 15 air conditioning units, from May of 2013 to May of 2017, using that freight forwarder. These items are all consistent with objects used to conceal the illegal international shipment of firearms and ammunition.
 
In February 2018, federal agents executed a warrant to search a storage unit rented by Barbieri in Vero Beach, Florida.  In the storage unit, law enforcement discovered 52 rifles, 49 of which were wrapped for shipment with obliterated serial numbers.  In addition, law enforcement discovered dozens of high capacity firearm magazines, over 2,000 rounds of ammunition, and packaging materials.  Barbieri was arrested the following day.
 
It is illegal for civilians to possess firearms in Brazil. According to Brazilian law enforcement, AK and AR rifles have a black-market value of approximately $15,000 to $20,000 in the black-market. The retail cost of those firearms in the United States is approximately $700 to $1,000.
 
Neither Barbeiri, nor any of his coconspirators, obtained a license or written approval from the United States Department of State to export any defense articles. Non-automatic firearms, firearm accessories, and ammunition are articles designated as “defense articles,” pursuant to federal regulations. …
 
Related court documents and information may be found on the website of the District Court for the Southern District of Florida at www.flsd.uscourts.gov or on http://pacer.flsd.uscourts.gov.
* * * * * * * * * * * * * * * * * * * * 

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Regulations:
* Council Implementing Regulation (EU) 2018/714 of 14 May 2018 implementing Regulation (EU) 2017/1509 concerning restrictive measures against the Democratic People’s Republic of Korea
 
Decisions:
* Council Decision (CFSP) 2018/715 of 14 May 2018 amending Decision (CFSP) 2016/849 concerning restrictive measures against the Democratic People’s Republic of Korea
* * * * * * * * * * * * * * * * * * * * 

NWSNEWS

(Source:
Ammoland
, 15 May 2018.) [Excerpts.]
 
The Trump state department is making headway to transfer authority from the State Department to the Commerce Department over the approval of U.S. small arms exports. All in an effort to open U.S. firearms manufacturing to international customers.
 
Currently, U.S. firearms and ammunition manufacturers faced a competitive disadvantage in the global marketplace due to inefficient Cold War-era export controls and held over Obama administration era directives. …

The proposed rules affect far-reaching changes in the way the U.S. Government controls the export of non-automatic and semi-automatic firearms, as well as their components and the ammunition they use.

 
Most significant changes that will be affected by the new rules include:

  • Non-automatic and semi-automatic firearms that are currently controlled under Categories I or II of the ITAR will be controlled under the Export Administration Regulations (EAR). The same will apply to components for these firearms and the ammunition they use.
  • Automatic firearms and their principal components will remain in ITAR Category I, as well as firearms designed to fire caseless ammunition and certain other firearms and firearms systems.
  • Ammunition that is belted or linked (i.e., for automatic firearms) will remain in USML Category III. Ammunition for non-automatic and semi-automatic will move to the EAR.
  • All the items moving from the ITAR to the EAR will continue to be subject to licensing requirements but under the EAR, not the ITAR. The EAR rules will contain “license exceptions” that will permit certain components and other items to be exported without a license, but there will be a “worldwide licensing requirement” for complete firearms.
  • Services (known as “defense services” under the ITAR) relating to non-automatic and semi-automatic firearms and the other items that move to the EAR will no longer be export-controlled.
  • Silencers and components will still be under ITAR.
  • Manufacturers, exporters, gunsmiths, and others who are 
    currently required to register under the ITAR 
     and pay a $2,250 registration fee but who have no involvement with the items that remain on the U.S.M.L. will no longer be required to register with DDTC or pay an annual fee. There is no registration fee under the EAR and no fee for an export license (in contrast to the $250/license fee under the ITAR.  . . . .

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(Source:
Fox6Now, 15 May 2018.)
 
A Milwaukee man, admitted to the United States under a non-immigrant visa, has been federally indicted, accused of attempting to ship guns to the People’s Republic of China.
 
Zimo Sheng faces two counts – violation of the “Arms Export Control Act” and “possession of a firearm by an alien in the United States under a non-immigrant visa.”
 
Federal court documents accused Sheng of “knowingly and willfully attempting to export from the U.S. to the People’s Republic of China a defense article (the complete upper assembly for a Glock 43 pistol), designated as a defense article on the US Munitions List, without having first obtained from the State Department a license for such export or written authorization for such export,” and “knowingly possessing 26 firearms and approximately 16,553 rounds of ammunition transported in interstate commerce.”

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(Source:
Reuters, 15 May 2018.) [Excerpts.]
 
U.S. lawmakers on Tuesday rejected any plan by President Donald Trump to ease restrictions on China’s ZTE Corp, calling the telecommunications firm a security threat and vowing not to abandon legislation clamping down on the company.
 
Trump on Monday had defended his decision to revisit penalties on ZTE for flouting U.S. sanctions on trade with Iran, in part by saying it was reflective of the larger trade deal the United States is negotiating with China. …

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NWS_a412. ST&R Trade Report: “Export Ban on Chinese Telecom Company Could be Short-Lived”
 
In an unusual move that elicited bipartisan criticism, President Trump said he is directing the Commerce Department to help a Chinese company recently hit with a seven-year export ban “get back into business, fast.” The DOC imposed the ban against Zhongxing Telecommunications Equipment Corporation April 16 after determining that ZTE had made false statements regarding the steps it took to discipline employees involved in a scheme to illicitly reexport controlled items to Iran. Commerce Secretary Wilbur Ross said the DOC will now consider “alternative remedies to the one that we had originally put forward.”
 
After the ban was imposed ZTE announced that it would cease major operations and subsequently asked the DOC to suspend the ban. That was also one of the requests China reportedly made of the U.S. during recent bilateral trade talks in Beijing.
 
In separate tweets Trump indicated that the ban would cause the loss of “too many jobs in China” and would also negatively affect the U.S. suppliers from which ZTE purchases a “big percentage of individual parts” for its products. He also indicated that easing the ban could be used as leverage in “the larger trade deal we are negotiating with China.” Those negotiations will continue this week when Vice Premier Liu He visits Washington.
 
According to press reports, however, any deal could be modest in nature. The White House is said to be pursuing an agreement that would ease the ZTE ban in return for China lowering import duties on U.S. farm goods that were increased in response to U.S. tariff increases on steel and aluminum. It does not appear that any of the demands on an extensive list the U.S. submitted to China a few weeks ago would be resolved by this agreement. On the other hand, a Politico article noted that Treasury Secretary Steve Mnuchin, “who has become Trump’s point person in the talks, may view a cumulative number of smaller deals that accomplish some of the bigger asks the U.S. laid out … as representing systemic reform.”
 
Trump’s reversal on ZTE was explained as “part of a very complex relationship the U.S. has with China” by a White House spokesman but was met with opposition by members of Congress on both sides of the aisle. Rep. Adam Schiff, D-Calif., said Trump “should care more about national security than Chinese jobs.” Senate Minority Leader Chuck Schumer, D-N.Y., said the U.S. should be “taking tough action against actors like ZTE” but that “before it’s even implemented, the president backs off.” Sen. Marco Rubio, R-Fla., said he hoped Trump’s decision does not signal the beginning of a trend. Responding via Twitter, Trump said, “Be cool, it will all work out!”

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COMMCOMMENTARY

COMM_a0
13. G. Husisian: “The Twelve Compliance Steps Every Multinational Corporation Should Undertake in Light of Recent Trump Administration Enforcement Activity” (Part II 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 every day, from Tuesday, 15 May until Friday, 18 May 2018.]
 
Step 2: Perform a Risk Assessment
 
The second step for most organizations is to perform a risk assessment. A risk assessment is a survey of the company’s operations to determine the exposure of the organization to various forms of regulatory risk, considering both the likelihood and the severity of possible violations and the current enforcement priorities of the relevant authority.
 
The importance of the risk assessment lies in the recognition that it is not possible to eliminate all regulatory risk. Since organizations need to minimize the risk of violations, while coping with the reality that they have limited resources to put into risk mitigation, they need guidelines for allocating their scarce compliance resources. The risk assessment provides this guidance by assembling data needed to create an organization-wide risk profile.
 
Compliance at international organizations should be tailored to the organization, taking into account all factors that bear on the risk profile of the organization. Items to consider include U.S. government enforcement priorities, prior compliance issues within the organization, risks and trends in the industry (including whether the U.S. government seems to be targeting the industry for a given legal regime), and recent changes in the scope of operations of the organization. Such changes are frequent sources of weakness if they are not mirrored by changes in compliance oversight.
 
A typical way for companies to proceed with a risk assessment is to survey business units that represent areas of high regulatory risk. Questions for an anti-corruption survey, for example, might examine whether the relevant stakeholders often deal with state-owned enterprises, whether they have frequent interactions with government regulators, whether there is significant entertaining of non-U.S. persons, whether the organization does significant business in countries known to have a reputation for corruption, and whether the company does significant business in the United Kingdom (which can draw the UK Bribery Act into play). For export controls, the relevant topics to explore would include whether the organization deals with controlled items or controlled technologies; whether the company deals with items on the U.S. Munitions List (USML) or modifies commercial items for military use or to meet military specifications; whether the company has recently conducted a classification review; the degree to which non-U.S. nationals potentially have access to controlled technical data; whether the organization sells products that rely on encryption; and whether there are sales to known diversion points (the Middle East, Mexico, Russia, Pakistan, and so forth). For economic sanctions, relevant topics to cover would include whether there are sales by non-U.S. subsidiaries to sanctioned countries or specially designated nationals, whether there are sales to known diversion points, and whether the organization as a whole maintains adequate screening for SDNs (Specially Designated Nationals, or persons who have been sanctioned under U.S. law as being off-limits for business transactions and financial dealings). Finally, an anti-boycott risk assessment would examine the extent of dealings with Middle Eastern countries and with firms operating out of that region.
 
One thing to remember is that the conduct of a risk assessment can lead to the discovery of potential regulatory violations. The company accordingly should have the risk assessment process conducted in a way that stresses confidentiality. If possible, it also is preferable that the risk assessment be overseen by an attorney. This is so the exercise can be conducted under the rubric of attorney-client privilege. Doing so could be important if the investigation uncovers evidence of apparent violations.
 
Once the risk assessment is complete, the results should be carefully evaluated to determine where the areas of greatest compliance concern lie. The results can be distilled down to a company-wide risk profile, which can guide the allocation of compliance resources. The results can then be used for such useful exercises as determining which areas merit the greatest attention, which areas likely need additional internal controls, whether there are patterns of deficient compliance (based on geography, product lines, subsidiaries/divisions, etc.), and whether the basic knowledge of the relevant legal requirements appears to be in place. By formalizing the results in a risk profile, the corporation can determine the appropriate way to manage the identified risk.
 
Step 3: Survey Current Controls
 
Step 3 involves surveying current compliance procedures and internal controls. Most larger multinational corporations already have some kind of compliance procedures in place, whether in a formal compliance program or at least ethics provisions in the code of conduct. In determining how to proceed, these procedures are the best starting point. The company should assess the current compliance program to see if its compliance measures and internal controls line up with its risk profile.
 
The evaluation should consider whether the plan properly covers the following aspects of the company’s risk model:
 
  – Does the plan reflect all of the circumstances that may put the organization at risk of a violation? Is it based upon a realistic risk assessment that is up to date and consistent with the company’s current circumstances?
  – Does the program cover all aspects of the business that operate or sell overseas?
  – Does the plan extend to any business units that might have dealings with non-U.S. officials, whether in a procurement, regulatory, or other role?
  – Does the plan include model procedures and training for non-U.S. consultants and business partners with whom the organization does business?
  – Does the compliance program reflect the nature of the firm’s foreign business operations and the extent to which they are subject to government control or influence?
  – Does the compliance program contain adequate procedures to ensure that the firm can monitor disbursements and reimbursements?
  – Does the plan contain adequate internal controls to help buttress the compliance procedures?
  – Does the plan compare well with codes of ethics and compliance policies used by comparable businesses in the industry and in the countries where the firm operates?
 
In making these determinations, the company should consider the company’s general risk profile, not just those related to the specific legal regime. Problems in multiple areas may indicate a careless corporate culture toward compliance issues.
 
Another key issue that should be covered in the compliance survey is whether the program covers the identified outside actors who can expose the organization to the risk of a regulatory violation. The U.S. government considers all affiliates, joint ventures, agents, distributors, suppliers, subcontractors, and other third parties to be extensions of the organization. [FN/1] The organization should evaluate whether the controls and compliance procedures extend appropriately to any person or entity with which it is affiliated and whether that entity may cause third-party liability.
 
Where anti-corruption is concerned, organizations operating abroad need to assess whether the current plan adequately covers the regulatory risk posed by resellers, vendors, consultants/agents, sales representatives, joint venture partners, freight companies, customs brokers, and any other third party that could be viewed as being a source of bribes while representing the interests or carrying on the business of the U.S.-based company. Where exports and sanctions are concerned, the organization must consider not only its own affiliates (joint ventures, agents, distributors, and so forth), but also the risk profile raised by its own customers who might be diversion risk points. Where anti-boycott is concerned, the organization should consider whether it has agents who might be viewed as providing information on behalf of the organization, and therefore might provide boycott-related information to countries cooperating with the Arab League boycott of Israel.
 
Step 4: Identify Available Resources
 
Compliance is an exercise in identifying and managing risk. Appropriate risk management requires matching compliance promises and expectations to the available resources, and vice versa.
 
After the compliance procedures have been identified and catalogued, a key next step is to ensure that the organization has not fallen into the classic compliance trap of over-promising and under-delivering. It is a classic mistake, from a risk-management standpoint, to impose compliance requirements and then fail to implement them. Yet this is often what many organizations do, either due to institutional drift or a lack of resources to implement the promised compliance tasks.
 
No compliance initiatives will work without adequate support. This issue is covered in the McNulty Memorandum. As the McNulty Memorandum states:
 
Prosecutors should … attempt to determine whether a corporation’s compliance program is merely a “paper program” or whether it was designed and implemented in an effective manner. In addition, prosecutors should determine whether the corporation has provided for a staff sufficient to audit, document, analyze, and utilize the results of the corporation’s compliance efforts.
 
Once the company has identified the risk and necessary controls relating to those risks, it should develop a realistic sense of the cost of a program and the resources needed to run it. Senior management should sign off on the budgeting, with the understanding that the company will need to invest time and resources to maintain the program on an ongoing basis.
 
Without proper resources, a corporation risks certain failure. Compliance can be expensive, so a company should decide at the outset that it will budget adequate funds and employ sufficient resources to follow through on its compliance initiatives. In determining whether sufficient resources are available, the company needs to consider that success in compliance efforts takes a commitment of both tangible company resources (hiring people and spending money on due diligence) and intangible ones (setting aside employee time for training). The resource identification should take a candid look at whether the company is adequately funding current compliance efforts. If the company has put in place a program that demands substantial due diligence of every foreign agent hired, for example, but has not adequately funded such activities, then the company should view this as a compliance failure. Viewed in an enforcement context, the corporation would look like it has failed to meet its own compliance standards. [FN/2]
 
In the international realm, some of the most common areas where compliance resources tend to lag include:
 
  – Anti-corruption. Promises of systematic due diligence for vetting agents, distributors, joint ventures, and other third-party entities; adequate oversight of the activities of third-party intermediaries; resources to conduct compliance audits; adequate training of overseas actors.
  – Economic Sanctions. Resources for systematically checking the SDN and other blocked lists; allocating adequate resources for “know your customer” diligence; adequate training of overseas actors; failure to reflect new rules regarding what subsidiaries of U.S. companies can and cannot do.
  – Export Controls. Inadequate classification of controlled items and technical data; failure to implement “know your customer” guidelines for end-use and end-user controls; failure to take into account potential diversion risks; failure to check the SDN and other blocked lists.
  – Anti-boycott. Resources for reviewing contracts, purchase orders, letters of credit, certificates of origin, bills of lading, and other commercial documents.
 
To avoid these and other promise-resource mismatches, the organization should, with a clear and open mind, compare its identified risk profile with the inventory of current policies and internal controls, to determine whether there are any gaps between the two. Once such gaps are identified, the organization can, using normal risk-based principles, determine the best order and way to remedy the resource misallocation, whether by reallocating existing compliance resources, finding new sources of funding, or readjusting the compliance procedures.
 
Another key funding mistake in the international realm is failing to allocate sufficient resources to local compliance oversight. This topic is covered in Step number 5.
 
———–

  [FN/1] For example, in the settlement of the ENI FCPA investigation, the SEC premised its claims, in part, on its view that ENI had “failed to ensure that Snamprogetti [a subsidiary] conducted due diligence on agents hired through joint ventures in which Snamprogetti participated.” Securities and Exchange Commission v. ENI, Civ. Action No. 4:10-cv-2414 (Jul. 7, 2010), available
here. It is true that in this particular case, the subsidiary was covered by ENI’s FCPA compliance procedures. Nonetheless, this case underscores the view of the U.S. government that it is the responsibility of companies to ensure that close affiliates, including joint venture partners, are taking actions to ensure there is reasonable due diligence for anyone acting on behalf of the affiliated companies.

  [FN/2] In the Siemens case, the DOJ alleged that Siemens provided only limited internal audit resources to support its compliance efforts in comparison to the breadth of the company’s operations. See United States v. Siemens Aktiengesellschaft, No. 08-CR-367 (D.D.C., Dec. 12, 2008) (information at paragraph 135), available here.
 

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COMM_a01
14. M. Volkov: “Dun and Bradstreet Pays $9 Million for FCPA Violations in China”
(Source: Volkov Law Group Blog, 9 May 2018. Reprinted by permission.)
 
* Author: Michael Volkov, Esq., Volkov Law Group, mvolkov@volkovlaw.com, 240-505-1992.
 
After a lengthy investigation, Dun and Bradstreet (D&B) settled an FCPA enforcement action with the Securities and Exchange Commission for $9 million (available here).  At the same time, the Justice Department issued a declination letter, representing the first written declination under its new Corporate FCPA Enforcement Policy (available here).
 
D&B’s FCPA violations in China represent the perfect trifecta of risks and violations facing companies in China.  The D&B case provides important reminders on the risks of joint ventures in China; the dangers of third parties; and the importance of pre-acquisition due diligence.  In the end, D&B agreed to books and records and internal controls violations.
 
D&B operated two subsidiaries in China: Shanghai Huaxia Dun & Bradstreet Business Information Consulting Co. (“HDBC”); and Shanghai Roadway D&B Marketing Services (“Roadway”).  HDBC was a joint venture, owned 51 percent by D&B’s Chinese subsidiary and 49 percent by Huaxia International Credit Consulting Co.  HDBC and Roadway made improper payments to Chinese government officials.  These unlawful payments were inaccurately maintained in D&B’s books and records.
 
The HDBC joint venture was created in 2006.  D&B joined with Huaxia because of Huaxia’s “government connections.”  D&B’s due diligence review of Huaxia prior to the joint venture confirmed that Huaxia obtained critical business information from the Chinese government by directly bribing government officials.  Despite knowing this information, D&B failed to impose appropriate controls and mitigation strategies to prevent these illegal payments.
 
After the joint venture was created, D&B managers forced Huaxia to cease making direct payments to government officials for access to important information.  Eventually, D&B permitted the HDBC joint venture to make improper payments through third-party representatives.
 
In 2009, D&B acquired 90 percent of Roadway, a leading provider of direct marketing services.  Roadway’s operations raised significant risks of violating Chinese data privacy laws that restricted acquisition of personal information from government officials.  After the acquisition, Roadway violated this privacy law.
 
In pre-acquisition due diligence, D&B learned that Roadway awarded rebates/commissions to sales representatives that were partially shared with customers of Roadway’s services.  D&B made no attempt to confirm these arrangements and to learn whether some of the customers were state-owned entities.
 
After the acquisition, Roadway continued to rely on agents to acquire business data which was used to market its marketing of direct sales services.  D&B never audited these sources of information to determine whether bribes were paid to acquire this information.
 
In September 2012, the Chinese government charged Roadway and five individuals with data privacy criminal violations.  Roadway eventually paid a fine of $160,000 and five individuals were convicted of criminal violations.
 
D&B eventually learned that Roadway made illegal payments, directly and through third parties, to business decision makers, some of which were state-owned businesses, to purchase Roadway services.  These payments were inaccurately recorded in Roadway’s books and records as promotional expenses.
 
D&B’s initial disclosure to the SEC and DOJ occurred after Chinese authorities raided Roadway in 2012.
 
D&B’s remedial efforts were extensive, including closing the Roadway subsidiary and discontinuing HDBC’s illegal activities.  D&B terminated a number of employees and disciplined senior executives responsible for oversight of the Chinese operations.  D&B also doubled the size of its compliance and audit staffs; hired legal and compliance employees in China; and enhanced its anti-corruption policies and related procedures.

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* Author: Gary Stanley, Esq., Global Legal Services, PC, (202) 352-3059,
gstanley@glstrade.com
.
 
For DSP licenses, a license holder seeking a reconsideration and/or clarification of a proviso must submit a replacement (new) DSP authorization. In the purpose block, the applicant should identify the submission as a “Proviso Reconsideration of [license number]”. There must be no other changes to the license application and this must be stated in the purpose block. The applicant must also restate the original purpose description as this is a replacement authorization. As support documentation, the applicant must submit a letter explaining the request as noted below under Letter of Explanation and a copy of the associated DSP license and provisos. The application must include the original support documentation. If the subject provisos will remain as written, the applicant will receive a Return Without Action (RWA) of the replacement authorization. If the subject provisos are deleted and/or modified, the precedent authorization will be revoked and replaced by the replacement submission.

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(Source:
Export Law Blog
, 15 May 2018. Reprinted by permission.)
 
* Author: R. Clifton Burns, Esq., Bryan Cave LLP, Wash DC,
Clif.Burns@bryancave.com
, 202-508-6067).
 
The Directorate of Defense Trade Controls and the Bureau of Industry and Security today [ed. yesterday] announced the proposed rules for the long-awaited export control reform of Categories I, II and III of the United States Munitions List.  The proposed rules for DDTC are here; the proposed rules for BIS are here.
 
Under the proposed rules, the only items remaining in Category I will be firearms that fire caseless ammunition, are fully automatic, or are specially designed to integrate fire control, automatic tracking, or automatic firing.  Other small arms that were once in Category I will be moved to 0A501 and 0A502.  Small arms that are on Category I of the USMIL will still be subject to the brokering rules of the ITAR even if they have been moved to 0A501 or oA502.
 
These new proposed ECCNs will be controlled by, among others, RS1 and FC meaning that licenses will be required for all destinations.  (RS1 captures every country but Canada and FC captures Canada).  The BIS proposed rules also exclude the use of most license exceptions so that the new regime will closely parallel the available exemptions that were available under the ITAR.  So the result of the transition of these items from the USML to the CCL will mostly be a change in the agency with licensing authority.
 
There are a few significant changes, however, worth noting.  First, the proposed rules would eliminate a particular bugbear of mine relating to the classification of rifle scopes.  Currently, rifle scopes are ITAR if they are “manufactured to military specifications,” whatever that means.   Foreign manufacturers of rifle scopes routinely decline to state whether their scopes are Category I(f) or 0A987 and do not provide enough information to decide whether a particular scope is manufactured to military specifications.  Under the proposed rules, a scope is on the USML only if it has night vision or infrared capabilities that would cause it to be captured under Category XII.  Everything else is now 0A987.
 
Second, these new rules will reverse the questionable position that DDTC has taken in the Defense Distributed case.   In that case, DDTC argued that posting 3D gun plans on the Internet is an export of controlled technical date on Category I firearms to every foreign person with access to the Internet.  BIS has a somewhat different take on posting things to the Internet.   Here’s what the proposed BIS rules say:
 
The EAR also includes well-established and well understood criteria for excluding certain information from the scope of what is “subject to the EAR.” (See part 734 of the EAR.) Items that would move to the CCL would be subject to existing EAR concepts of jurisdiction and controls related to “development” and “production,” as well operation, installation, and maintenance “technology.” While controlling such “technology,” as well as other “technology” is important, the EAR includes criteria in part 734 that would exclude certain information and software from control. For example, if a gun manufacturer posts a firearm’s operation and maintenance manual on the Internet, making it publicly available to anyone interested in accessing it and without restrictions on further dissemination (i.e., unlimited distribution), the operation and maintenance information included in that published operation and maintenance manual would no longer be “subject to the EAR.”
 
Part 734 makes clear that publication of technology on the Internet is not an export of that technology to the rest of the world; rather it is a release of that technology from export controls.
 
Third, the new rules will eliminate the issue as to whether firearms training is a defense service that cannot be provided by a U.S. person to a foreign individual without a license.  Both the existing and latest proposed DDTC rule defining defense services would require a license to provide basic firearms training to a foreign individual.  (The latest proposed rule permits basic training but only if there is an approved license to export the firearm to that individual.)  The BIS analysis of this is somewhat different.  The BIS notice of proposed rulemaking somewhat wryly states:
 
The EAR does not include a concept of “defense services,” and the “technology” related controls are more narrowly focused and apply in limited contexts as compared to the ITAR.
 
In fact, of course, under the proposed rules training a foreign individual in firearms use would require a license only if it involved a control of technology covered by proposed ECCNs 0E501 or 0E502.  However, neither ECCN covers information related to the use of 0A501 or 0A502 firearms.   As a result, firearms training that would have required a license under the old rules will not require a license if the new rules are adopted.

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ENEDITOR’S NOTES

 

Douglas Southall Freeman (16 May 1886 – 13 June 1953; was an American historian, biographer, newspaper editor, and author. He is best known for his multi-volume biographies of Robert E. Lee and George Washington, for which he was awarded two Pulitzer Prizes.)
  – Time alone is irreplaceable. Waste it not.”

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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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