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18-0530 Wednesday “Daily Bugle”

18-0530 Wednesday “Daily Bugle”

Wednesday, 30 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. Commerce Seeks Comments on Section 232 National Security Investigation of Imports of Automobiles, Including Cars, SUVs, Vans and Light Trucks, and Automotive Parts 
  1. Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: “Merit Aerospace and Yanghong Zhou of Pasadena, CA, Denied Export Privileges for 4 Years, to Pay Civil Penalty of $221,000”
  3. DHS/CBP Announces 2018 Trade Symposium, 14-15 Aug in Atlanta, GA
  4. DHS/CBP Releases Reminder on Deployment of New Cargo Release Statuses in Support of Absolute Quota
  5. State/DDTC Announces DTAS Outage on 3 Jun
  6. Canadian Government Amends Restrictive Measures Concerning Libya
  7. Dutch MIVD Concerned About Weapon Sales to “Risk Countries”
  8. UK ECJU Updates Guidance Concerning the Export of Controlled Items, Services, and Technology
  1. The Daily Beast: “He Said He Was Just a Plasma Scientist. They Said He Was a Chinese Spy” (Part 2 of 3)
  2. Global Trade News: “EAEU and China Sign Trade and Economic Cooperation Agreement”
  3. The Hill: “Air Force Secretary Advocates for Export Control Fixes Amid Concerns Over Turkey”
  4. Ex-CIA Agent On Trial in Virginia for Illegal Transfer of Classified Defense Documents to China
  5. Reuters: “Iran Says Total Has Two Months to Seek U.S. Sanctions Exemption”
  1. B. McKinney: “Sanctions Compliance: A Fresh Warning for the Air Cargo Industry”
  2. G. Husisian: “Recent Enforcement Actions Demonstrate Multinational Automotive Companies Should Conduct Risk Assessments” (Part 2 of 2)
  3. Gary Stanley’s EC Tip of the Day
  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 (17 May 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. Commerce Seeks Comments on Section 232 National Security Investigation of Imports of Automobiles, Including Cars, SUVs, Vans and Light Trucks, and Automotive Parts
(Source: Federal Register, 30 May 2018.)
 
83 FR 24735-24737: Notice of Request for Public Comments and Public Hearing on Section 232 National Security Investigation of Imports of Automobiles, Including Cars, SUVs, Vans and Light Trucks, and Automotive Parts
* AGENCY: U.S. Department of Commerce.
* ACTION: Notice of request for public comments and public hearing.
* SUMMARY: On May 23, 2018, the Secretary of Commerce initiated an investigation to determine the effects on the national security of imports of automobiles, including cars, SUVs, vans and light trucks, and automotive parts. This investigation has been initiated under section 232 of the Trade Expansion Act of 1962, as amended. Interested parties are invited to submit written comments, data, analyses, or other information pertinent to the investigation to the Department of Commerce by June 22, 2018. Rebuttal comments will be due by July 6, 2018. The Department of Commerce will also hold a public hearing on the investigation on July 19 and 20, 2018 in Washington, DC. This notice identifies the issues on which the Department is interested in obtaining the public’s views. It also sets forth the procedures for public participation in the hearing.
* DATES: The due date for filing comments, for requests to appear at the public hearing, and for submissions of a summary of expected testimony at the public hearing is June 22, 2018.
   The due date is July 6, 2018 for rebuttal comments submitted in response to any comments filed on or before June 22, 2018.
   The public hearings will be held on July 19 and 20, 2018. The hearings will begin at 8:30 a.m. local time and conclude at 5:00 p.m. local time, each day. …
* FOR FURTHER INFORMATION CONTACT: Sahra Park-Su, U.S. Department of Commerce (202) 482-2811. For more information about the section 232 program, including the regulations and the text of previous investigations, see www.bis.doc.gov/232.
* SUPPLEMENTARY INFORMATION: …
   On May 23, 2018, the Secretary of Commerce (“Secretary”) initiated an investigation under section 232 of the Trade Expansion Act of 1962, as amended (19 U.S.C. 1862), to determine the effects on the national security of imports of automobiles, including cars, SUVs, vans and light trucks, and automotive parts. If the Secretary finds that automobiles and/or automotive parts are being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security, the Secretary shall recommend actions and steps that should be taken to adjust automobile and/or automotive parts imports so that they will not threaten to impair the national security. … before June 22, 2018 may be filed no later than July 6, 2018.
   The Department is particularly interested in comments and information directed to the criteria listed in Sec. 705.4 of the NSIBR as they affect national security, including the following:
 
  – The quantity and nature of imports of automobiles, including cars, SUVs, vans and light trucks, and automotive parts and other circumstances related to the importation of automobiles and automotive parts;
  – Domestic production needed for projected national defense requirements;
  – Domestic production and productive capacity needed for automobiles and automotive parts to meet projected national defense requirements;
  – The existing and anticipated availability of human resources, products, raw materials, production equipment, and facilities to produce automobiles and automotive parts;
  – The growth requirements of the automobiles and automotive parts industry to meet national defense requirements and/or requirements to assure such growth, particularly with respect to investment and research and development;
  – The impact of foreign competition on the economic welfare of the U.S. automobiles and automotive parts industry;
  – The displacement of any domestic automobiles and automotive parts causing substantial unemployment, decrease in the revenues of government, loss of investment or specialized skills and productive capacity, or other serious effects;
  – Relevant factors that are causing or will cause a weakening of our national economy;
  – The extent to which innovation in new automotive technologies is necessary to meet projected national defense requirements;
  – Whether and, if so, how the analysis of the above factors changes when U.S. production by majority U.S.-owned firms is considered separately from U.S. production by majority foreign-owned firms; and
  – Any other relevant factors. …
 
  Dated: May 24, 2018.
Wilbur L. Ross, Secretary of Commerce.

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OGSOTHER GOVERNMENT SOURCES

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

* Commerce/BIS; NOTICES; Meetings: Regulations and Procedures Technical Advisory Committee [Publication Date: 31 May 2018.] 
 
* State; NOTICES; Charter Renewals: Defense Trade Advisory Group [Publication Date: 31 May 2018.]
 
* Treasury/OFAC; NOTICES; Blocking or Unblocking of Persons and Properties [Publication Date: 31 May 2018.]
* * * * * * * * * * * * * * * * * * * *

OGS_abc23.

Commerce/BIS:


“Merit Aerospace and Yanghong Zhou of Pasadena, CA, Denied Export Privileges for 4 Years, to Pay Civil Penalty of $221,000”  

(Source: 
Commerce/BIS, 30 May 2018.) [Excerpts.] 
 
* Respondent: Merit Aerospace and Yanghong Zhou of Pasadena, CA.
* Charges:
  – 15 CFR Part 764.2(g) – Mispresentation and concealment of facts 
* Penalty: 
  – Civil penalty in the amount of $221,000
  – Completion of two external audits
* Debarred: 4 years from the date of this order.
* Date of Order: 25 May 2018.

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

(Source: 
CSMS# 18-000367, 30 May 2018.) 
 
U.S. Customs and Border Protection is proud to announce that the 2018 Trade Symposium will be held on August 14-15, 2018 at the Marriott Marquis in Atlanta, GA. 
 
Registration is now open! More information 
here.

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OGS_a35
DHS/CBP Releases Reminder on Deployment of New Cargo Release Statuses in Support of Absolute Quota 

(Source: 
CSMS# 18-000370, 30 May 2018.)
 
On May 31, 2018 ACE will be updated with new Cargo Release Status Messages to support the integration of Absolute Quota.
 
More information can be found in the Absolute Quota Information Notice posted to CBP.gov/ACE or 
here
Information related to Quota policy, including Quota Bulletins, can be found on the Quota page of CBP.gov or 
here
.
 
  – Related CSMS No. 18-000337

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(Source: 
State/DDTC, 29 May 2018.) 
 
The DTAS information systems will be unavailable from 6:00 PM June 1st, 2018 through 1:00 PM June 3rd, 2018 for a scheduled power outage. The DTAS systems will be available June 3rd, 2018 after 12:00 PM.
 
The PMDDTC.state.gov homepage and CJ application will remain available throughout the outage. DTrade, MARY and EFS will be unavailable during the outage.  

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OGS_a5
7. 
Canadian Government Amends Restrictive Measures Concerning Libya 

(Source: 
Canada Gazette, 30 May 2018.)
 
Regulations

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OGS_a68. 
Dutch MIVD Concerned About Weapon Sales to “Risk Countries” 
(Source: 
Dutch DoD, 26 Apr 2018.) [Excerpts; unofficial translation by Editor.]
 
The Military Intelligence and Security Service (MIVD) is concerned about the sale of highly advanced weapon systems to high-risk countries by Russia and China. In recent years, large numbers of modern systems have gone to the Middle East, Africa and Latin America. “The Dutch armed forces can be confronted with this during missions”, concludes director Onno Eichelsheim of the MIVD. 
 
The annual report of the MIVD for 2017 (available in Dutch
here) was sent to the House of Representatives today. “Information about weapon systems and military-technological developments are of great importance because the armed forces and Dutch military personnel can anticipate current and future threats”, emphasizes Eichelsheim.
 
The Russian defense industry is working on the development of new generations of weapon systems and strategic intercontinental ballistic missiles, according to the annual report. … 
 
The service also paid attention to China. This country also supplies weapon systems (potential) risk countries and deployment areas, such as Venezuela and Sudan.
 
The Chinese defense industry develops and produces weapons systems to a large extent independently, according to the MIVD. China is now making aircraft carriers. “Partly due to the strong industrial development and increasing knowledge this trend continues in the coming years,” Eichelsheim expects. “We will therefore continue to closely monitor these developments in Russia and China in the coming years.” … 

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OGS_a89. 
UK ECJU Updates Guidance Concerning the Export of Controlled Items, Services, and Technology
(Source: UK DIT/ECJU, 29 May 2018.)
 
The Export Control Joint Unit (ECJU) of the UK Department of International Trade (DIT) has updated its guidance concerning the export of controlled Items, services, and technology. Specifically, it has updated the list of embargoed countries and clarified information about the Economic Community of West African States.
 
The guidance is available 
here.

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NWSNEWS

NWS_a210. 
The Daily Beast: “He Said He Was Just a Plasma Scientist. They Said He Was a Chinese Spy” (Part 2 of 3)
(Source: The Daily Beast, 27 May 2018.) [Excerpts.] 
 
[Part 1 of this article was published yesterday.]
 
… As the Trump administration threatens to impose what could turn out to be the most prohibitive restrictions on foreign students’ access to U.S. universities in modern history, exclusive new interviews with figures from the Roth case shed additional light on just how serious the government is about keeping American defense technology out of the wrong hands.
 
Roth was born in 1938 in Chartiers, Pennsylvania, near Pittsburgh. He got his bachelor’s at MIT before going on to Cornell for his doctorate. Roth then worked at NASA until 1978, when he left to teach at the University of Tennessee at Knoxville. Formal and a bit stiff, yet quite friendly and accessible, Roth speaks in a rich baritone and chooses his words carefully.
 
Although he rarely gets away much anymore, Roth traveled to China extensively in years past. Two of his books had been translated into Chinese, and he always got a steady stream of applications from students there who were eager to study with him. Roth speaks extremely highly of the Chinese scientists he has met, and was made an honorary professor at the renowned University of Electronic Science and Technology of China in Chengdu and Beijing’s elite Tsinghua University in 1992 and 2006.
 
China is as much of an espionage threat, if not even more so, than Russia, a former intelligence operative from a country in Eastern Europe told The Daily Beast.
 
  “They are extremely effective in using their former citizens, or Americans with Chinese roots or relatives in China,” the ex-spy said. “They have no limits with money, and the Chinese government can guarantee resettlement to China and financial support if the person they recruited is captured or busted by local authorities. And of course, there is no extradition from China.”
 
The Chinese government has also established Confucius Institutes, which trace a direct link to China’s Communist Party, at more than 100 universities across the U.S. counterintelligence officials have warned that the Confucius Institutes can be used for espionage, and as former intelligence analyst Peter Mattis recently told The 
Washington Post, they are part and parcel of the Chinese Communist Party’s “united front” propaganda efforts against the party’s detractors.
 
In fact, Chinese influence is of such concern to U.S. counterintelligence officials, they reportedly 
warned Donald Trump son-in-law and senior adviser Jared Kushner last year that Wendi Deng Murdoch, ex-wife of News Corp CEO and founder Rupert Murdoch, could be working for China’s intelligence services.
 
Surely aware that Chinese espionage does exist, Roth insists the intentions of his Chinese counterparts, by and large, were pure.
 
“The contacts I had were normal scholarly contacts with colleagues at universities in other countries who simply wanted to exchange information,” Roth told The Daily Beast in his first interview since being released from prison in 2015. “With the possible exception of my trips to China, the information transfer was pretty much two-way and I don’t think it was motivated by any desire to spy on, or take, U.S. technology.”
 
Needless to say, people targeted by foreign intelligence sometimes don’t know that they’ve been compromised. And spies often don’t look like “spies.” In the post-Roth era at UT, the administration 
advises students and faculty working on export-controlled projects not to even send documents to campus copy centers where foreign nationals might be working.
 
Universities have a challenge in blending a culture of academic freedom with restrictions on intellectual property, said Will Mackie, one of the two government attorneys who prosecuted Roth. Mackie emphasizes the importance of academic research to the U.S. economy, and says export control laws are not meant to restrict research, but to protect it.
 
Roth’s situation “was totally preventable,” his onetime prosecutor explained. “He never stated that he was totally ignorant of the rules, so that was not a defense… The concept is that he thought that these rules were unnecessary and he also tried to say that he knew this technology better than the regulators and it was something that he didn’t think should be controlled.”
 
Roth had a way about him that didn’t make people want to go to bat for him when he was hauled into court, others said. Daniel Max Sherman, who studied under Roth before going on to work alongside him, recalled Roth’s tendency to take credit for everything developed in his lab whether it was his idea or not, generating “numerous instances, even legal consequences, over whether or not he owned a certain piece of intellectual property.”
 
  “Roth had this attitude that basically he had created something special and great,” Sherman told The Daily Beast. “He would go to these national conferences and tell people they were stealing his ideas, or that he had already thought of it and if they’d just read Chapter 7, Section 2 of his book…”
 
In Roth’s case, authorities had been tracking at least one of his two foreign-born graduate assistants from virtually the moment he first set foot on American soil.
 
Born in Tehran in 1976, physicist Sirous Nourgostar had always admired Roth’s work from afar. A graduate of Tehran’s Alborz High School, which was founded by American missionaries in 1873, Nourgostar arrived in the United States in August 2005 to study under Roth’s tutelage. Ultra-hardline Iranian President Mahmoud Ahmadinejad had taken office a few days earlier, and U.S.-Iranian relations were particularly tense.
 
Nourgostar told The Daily Beast he was questioned and fingerprinted by immigration officials upon arrival at Los Angeles International Airport. Although he had a valid F1 student visa, Nourgostar claims officers threatened to turn him away and send him back to Iran. For reasons he never makes fully clear, Nourgostar was eventually cleared for entry and made his way to Tennessee for the fall semester.
 
In the meantime, the FBI paid Roth a visit and asked about, among other things, the kinds of chemicals and instruments Nourgostar would have access to in his lab. A few days after Nourgostar got to town, he says he was also questioned by the FBI. Before they could get started, Nourgostar preemptively assured them that he wasn’t religious or observant. The agents cut him off right away, saying they weren’t allowed to talk about that sort of thing.
 
Eight months later, while Roth was off lecturing in China, the FBI raided his lab. Nourgostar watched a team of armed agents label, photograph, and cart away everything from computers to lab notebooks as evidence. He says he had no idea why the FBI was there, and they wouldn’t give him any details.
 
  “I thought maybe I did something wrong, I was very scared,” Nourgostar recalled. “Then the head of the FBI team told me, ‘Look, I know who you are. All I can tell you at this moment is that this is not about you.'”
 
When Roth flew back to the States from China a few days later, customs agents in Detroit pulled him out of line and copied the contents of his laptop’s hard drive. Nourgostar said Roth called him before catching his connecting flight home to Tennessee, explaining that he had been stopped and questioned. He asked how things were back at the lab, and Nourgostar broke the news to him that the FBI had confiscated most of its contents.
 
When Roth’s connecting flight landed in Knoxville, agents from the FBI, Customs & Border Protection, and the Department of Commerce seized the laptop itself and a thumb drive. After a two-hour interrogation, Roth said he was allowed to go home; he was not arrested at that time.
 
Months went by while the FBI interviewed everyone in Roth’s orbit. According to an as-yet unpublished memoir by Daniel Max Sherman, a friend of his who worked at the Pentagon sent an email encouraging him to try not to worry too much.
 
“It’s uncomfortable, but you did nothing wrong; Roth did… The authorities will figure it out. Unfortunately, it will cause you some distress for a period of time and your work will be on a watch list,” the friend wrote.
 
Roth wound down whatever research he had left, reviewing papers for scientific journals, and getting ready to retire. He vowed to fight and beat this thing. But Nourgostar had been called to testify before a grand jury and knew that Roth was actually in very deep shit.
 
  “I wasn’t supposed to talk or give any feedback about participating in the grand jury, so I could not tell him anything,” Nourgostar said. “The way he was talking to us, that they don’t have anything, well, all of a sudden there was an indictment.”
 
Roth was given a time and date to turn himself at the FBI’s Knoxville Field Office to be formally arrested. Roth was handcuffed and fingerprinted; agents took a DNA sample.
 
  “It was more like an office appointment with a physician than anything else,” Roth said. “I showed up at the stated place and time; there weren’t any sirens, I wasn’t dragged out of my house or anything like that.”
 
Nourgostar claims the FBI told him during questioning that they viewed this case as one that would send a “strong message to other universities that we are serious about this kind of thing.”
 
The drone project “from the beginning had a component in it that I knew, something was not right,” Nourgostar said, “but at the time, I was a fresh student,” and felt that it would be better to not make any waves.
 
Nourgostar wound up taking the stand against Roth, calls his former mentor “an amazing professor I had in my life,” and described his short stint in Roth’s lab largely as “an extraordinary experience.”
 
  “He was a true true teacher who wanted to have some sort of legacy left behind,” said Nourgostar. “I haven’t been able to find anyone else like that man.”
 
Nourgostar and others describe Roth as somewhat stunted emotionally, possessing almost childlike social skills.
 
He put himself at a disadvantage from the start, antagonizing the feds from the very beginning of the investigation, according to defense attorney Thomas Dundon, who represented Roth in court and received permission from Roth to speak openly to The Daily Beast about the case.
 
Immediately after he was stopped at the airport, but before he had hired Dundon, Roth began calling and emailing federal investigators to defend his position. That is, that academic researchers should be able to use the best and the brightest students as they wish, no matter where they’re from. The investigation would continue for the next three years.
 
  “We started off with Dr. Roth having presented his perspective in the matter more than one time, and in writing on at least one occasion, to a variety of people,” said Dundon, explaining the enormity of the task he faced after Roth retained him. “I would not recommend any client do that.”
 
Roth, who said he had in fact submitted debriefing reports to the CIA after past trips to China, was personally outraged by the insinuation that he couldn’t be trusted to protect the integrity of his research, Dundon recalled. Using foreign nationals on a restricted military contract was bad, but Roth taking sensitive information on his laptop to China and having restricted material sent to him via email there was what really stuck in the government’s craw, said Dundon.
 
Roth lacked a full understanding of the internet, and didn’t appreciate the fact that his data could have been intercepted by the Chinese government, something we now know is standard operating procedure, Dundon said. Whether or not Chinese agents or any of Roth’s Chinese university colleagues actually got access to this material, Dundon doesn’t know.
 
  “I don’t recall there being any proof, but I do recall that the government expressed concern about that,” he said.
 
  “I admired Dr. Roth for being willing to stand up for his principles,” Dundon said. “I don’t see that very often in my business. A lot of people would perhaps say it was misplaced. Nevertheless, there are a few people willing to risk prison for their principles. He’s one of them.” … 
 
[Part 1 of this article was published yesterday. Part 3 will be posted in tomorrow’s Daily Bugle.]

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NWS_a311. 
Global Trade News: “EAEU and China Sign Trade and Economic Cooperation Agreement” 
(Source: 
Integration Point Blog, 22 May 2018.)
 
Last Thursday China and the Eurasian Economic Union (EAEU) inked a trade and economic cooperation agreement, which is expected to take effect as early as 2019. Negotiations between both parties started in May 2015.
 
According to Kazakhstan’s Minister of National Economy Timur Suleimenov, “The agreement is non-preferential by nature and does not imply cancellation of duties or automatic reduction of non-tariff barriers. At the same time, the agreement will make [it] possible to improve conditions for access of goods to the China market, through norms for simplification of trade procedures present in the document, [and] increase the transparency level and improve the level of interaction across all spheres of trade cooperation.”
 
Once the agreement takes effect, it will be possible to transport goods from China via train through Kazakhstan, Russia, and Belarus directly to the borders of the EU under one common agreement. Of course, this means better access to the China market for EAEU members. But it also means that the EU will have better, and more cost-efficient, access to the Chinese-consumer market. The agreement covers 13 aspects such as customs cooperation, trade facilitation, intellectual property rights, sectoral cooperation, and government procurement, as well as new topics like e-commerce and competition.  

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NWS_a712. 
The Hill: “Air Force Secretary Advocates for Export Control Fixes Amid Concerns Over Turkey”
(Source: 
The Hill, 29 May 2018.) [Excerpts.] 
 
Air Force Secretary Heather Wilson on Tuesday hinted that it may be the United States’ own fault that NATO ally Turkey has agreed to buy a Russian air defense system, pointing to strict American export controls. … 
 
“Sometimes it’s the United States that’s part of the problem.”  Wilson was
responding to a question on Turkey’s agreement in December to buy the Russian-made S-400 long-range air and anti-missile defense system. … 
 
When asked whether the sale was an indication of an alliance problem with Turkey, Wilson replied, “no,” and hinted that it was U.S. export controls that were to blame for the sale. 
 
“We’ve got some of our allies who are trying to purchase unmanned aerial vehicles, for example, or remotely piloted aircraft. We won’t sell them ours because of export controls, and so we force them into a situation where they want to buy unmanned aircraft or even intelligence, surveillance and reconnaissance aircraft that are built by China,” she said. … 

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(Source: James E. Bartlett III, Editor)  
 
 

The trial of Kevin Patrick Mallory, 60, of Leesburg, Virginia, began today in U.S. District Court in Alexandria, Virginia (CASE No. 1:17-MJ-288). Mallory, a self-employed consultant with GlobalEx LLC, is a U.S. citizen who speaks fluent Mandarin Chinese.  He has held several positions with defense contractors and government agencies, including the Defense Intelligence Agency and the Central Intelligence Agency, where he held top security clearances, and had access to highly classified information. 

Mallory is charged under 18 USC 794 with unlawfully transmitting Top Secret and Secret documents to an agent of the People’s Republic of China, and under 18 USC 1001 with making false statements to the FBI. Mallory plead not guilty to all charges and is presumed innocent unless found guilty by the court.
 
In today’s opening statements, U.S. Justice Department trial attorney Jennifer Kennedy Gellie stated that the evidence will prove that Mallory, who was undergoing personal financial difficulties bordering on bankruptcy, traveled to Shanghai in March and April 2017, met with a Chinese national whom he believed was working for the People’s Republic of China Intelligence Service, and later transferred classified U.S. defense information to the Chinese contact.
 
Mallory’s defense counsel, Public Defender Geremy Kamens, stated that the evidence will show that Mallory is not guilty of any of the charged offenses, but instead will reveal that Mallory’s meeting and email conversations with the Chinese, started with what Mallory thought was a legitimate employment offer from the Chinese. Mallory then attempted
to expose the Chinese collection efforts and assist U.S. counterintelligence authorities.
 
If convicted, Mallory could face a maximum sentence of life in prison, as further limited by Federal sentencing guidelines. The trial is expected to take up to 10 days to complete.

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(Source: 
Reuters, 30 May 2018.) 
 
French oil major Total has two months to seek exemption from U.S. sanctions after Washington’s withdrawal from the international nuclear deal, Iran’s oil minister told state news agency SHANA on Wednesday.
 
The minister, Bijan Zanganeh, added that failure to secure an exemption would mean that China’s state-owned CNPC could take over Total’s stake in the South Pars gas project, lifting its own interest from 30 percent to more than 80 percent.
 
The United States this month said it would impose new sanctions against oil and gas producer Iran after abandoning the 2015 agreement that limited Tehran’s nuclear ambitions in exchange for sanctions relief.
 
“Total has 60 days to negotiate with the U.S. government,” Zanganeh said, adding that the French government could also lobby Washington.
 
Total signed a contract in 2017 to develop phase 11 of the South Pars field with an initial investment of $1 billion – a contract Tehran repeatedly hailed as a symbol of the nuclear deal’s success.
 
A spokesman for Total told Reuters: “On May 16, we said that in accordance with our contractual commitments vis-a-vis the Iranian authorities, Total was engaging with the French and U.S. authorities to examine the possibility of a project waiver.”
 
“It is the process and timing that was agreed upon in the SP 11 contract in case there would be sanctions. We activated the process planned in the contract,” he added.  
He did not give any further details.
 
Total’s CEO Patrick Pouyanne said last week that the only way for the company to continue their project in Iran would be to have a special waiver, but added that “it’s quite unlikely.”
 
European powers still see the nuclear accord as the best chance of stopping Tehran from acquiring a nuclear weapon and have intensified efforts to save the pact.
 
Zanganeh also said on state television that an agreement with Europe would inspire other potential buyers of Iranian oil.  
“Europe is buying only one third of Iranian oil, but an agreement with Europe is important to guarantee our sales, and find insurance for the ships ferrying the crude. Other buyers would also be inspired by this,” he said.
 
Lukoil, Russia’s second-biggest oil producer, said on Tuesday that it had decided not to go ahead with plans to develop projects in Iran because of the threat of U.S. sanctions.
 
Iran’s crude oil exports declined slightly in May, according to estimates from a leading tanker-tracking company, in the first sign that the threat of U.S. sanctions may be deterring buyers.

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COMMCOMMENTARY

COMM_a0
15. 
B. McKinney: “Sanctions Compliance: A Fresh Warning for the Air Cargo Industry”

(Source: 
Bobsguide, 29 May 2018.)    
 
* Byron McKinney, Product Manager – Trade Compliance, Accuity.
 
Recent 
news that a Maersk company carried arms components from North Korea to Egypt – in violation of international sanctions – acts as a fresh warning for those facilitating global trade to be diligent in monitoring and reporting suspicious activity. The transportation of electrical components by a Maersk subsidiary, which had the potential to be used for military purposes, highlights the growing need for vigilance across the cargo industry.
 
The Maersk example highlights what appears to be a lack of due diligence, as screening should have taken place to verify the legitimacy of the parties involved in the transaction, the goods being transported, and their destination. With regulation on the increase in 2018 and fines and penalties continuing to grow at pace, this is a stark reminder for cargo firms to ensure they have robust compliance solutions in place, to avoid any involvement in enabling illegal trade.
 
Since air cargo is the fastest way to transport goods around the world, the industry is increasingly relied upon to facilitate global trade at speed. It accounts for 35% of trade value and last year demand for air cargo, measured in freight tonne kilometers, grew by 9.0%. This was more than double the 3.6% annual growth recorded in 2016. The industry’s unique selling point is a clear differentiator to competitors within the shipping industry. However, with a series of high profile sanctions breaches hitting the news and regulations ever-increasing, can the industry fulfil its compliance obligations whilst maintaining speed as a competitive advantage?
 
Air cargo has become a target for money laundering as well as the transportation of goods for terrorist purposes and, as a result, it has become subject to new levels of compliance regulation. Air cargo companies are currently required to check Airway Bills (AWBs) against sanctions and dual-use goods watch lists. If found to be non-compliant, organizations can receive large fines and also lose their export/import rights. If caught, non-compliant companies will also experience reputational damage with the prospect of guilty parties facing possible imprisonment.
 
Before the Maersk issue emerged, air cargo screening lapses had already been in the spotlight. In November 2017, a Dutch court fined U-Freight Holland BV, a transporting company, €50,000 for transiting military items to Russia. The managing director of the company was also prosecuted and faced two months in jail, but was later acquitted.
 
The Transportation Security Administration (TSA) announced in August 2017 that it was reviewing its screening procedures for cargo flown into and within the United States, in order to identify any potential security vulnerabilities that could be exploited by terrorists. This initiative stemmed in part from a terror plot that was foiled in Australia in July 2017, which involved a senior ISIS commander shipping partially assembled components of a bomb on a commercial cargo plane from Turkey to Australia.
 
Further, in August 2017, US Shipping firm Blue Sky Blue Sea reached a settlement with the Office of Foreign Assets Control (OFAC) of the US Department of the Treasury for violating Iran sanctions after it was caught transporting used and junked cars from the United States via Iran to Afghanistan on 140 separate occasions. Blue Sky Blue Sea was fined $518,063 USD and suffered damage to its reputation. The company received the fine despite having some OFAC compliance processes in place, which suggests its processes may have been manual and ineffective.
OFAC has wide-ranging powers at its disposal. As a US regulatory body, it is able to impose fines and penalties on companies including those which are not owned or registered in the US. In the past, penalties have been issued to non-US companies which traded sanctioned goods in dollars or exported goods manufactured with US components.
 
The air cargo industry faces the risk of losing its speed advantage due to the burden of compliance regulation and because most compliance processes in the industry are manual and antiquated. The International Air Transport Association (IATA) announced in its July 2017 Air Cargo Strategy Report that one of its top ten industry priorities is ‘facilitating trade’. IATA believes that if increased regulations are not managed efficiently then costs will increase and transit will slow down, damaging the air cargo industry’s unique selling point.
 
In addition to this, new threats from agile market entrants such as Amazon Prime provide evidence that the industry is facing disruption. So how can the air cargo industry evolve?
 
Automated and digital screening solutions where airway bills (AWBs) are checked against comprehensive sanctions and dual-use goods watch lists with speed and accuracy must be the way forward. Currently, around 50% of AWBs globally are still processed on paper rather than electronically (e-AWBs). IATA is pushing to change this towards a state of digital sophistication, but much of the industry is still reliant on old processes that have been used for years. When it comes to screening AWBs, companies that still use paper-based processes are immediately at a disadvantage and the compliance process will take longer than those on the e-AWB scheme. A great first step forward is to transition to an e-AWB system, particularly if companies are still having to perform manual checks.
 
Some air cargo companies try to get around this by outsourcing compliance responsibilities to third parties, to perform the checks on their behalf. However, they too often use manual processes, so it can take them days to perform all necessary checks before transit. Together with time inefficiencies, ultimate liability for non-compliance against regulations sits with the carrier, whether or not any outsourcing arrangements have been agreed with third parties. With the aforementioned recent news and a brighter regulator spotlight now shining on cargo companies, many are now realizing they face significant risks as they cannot rely on third parties to complete their checks with speed and accuracy.
 
One example of an air cargo business blazing a trail for best practice in compliance is Lufthansa Cargo. Realizing the increasing importance of complying with international sanctions regulations, and understanding the consequences of non-compliance, over the past few years Lufthansa Cargo has taken steps to overhaul its compliance vetting capability.
 
Since one Lufthansa Cargo aircraft can easily carry 150 shipments from 150 consignees and involve 150 types of goods, manually checking the paperwork in a reasonable timeframe is practically impossible. The business has therefore implemented a digital sanctions and dual-use goods screening engine that automatically checks cargo documentation to detect any irregularities that could pose a risk. For example, the technology scans goods descriptions to detect whether they could potentially have a military purpose, and checks origin and destination locations to ensure the cargo is not moving to or from a sanctioned territory. 
 
This compliance solution, which is more commonly used by banks to uncover sanctions risks in trade finance transactions, now enables Lufthansa Cargo to check over 47 million records in real time, and is entirely invisible to its customers and shipping staff. In modernizing its process, Lufthansa Cargo has effectively mitigated risk and increased efficiency, as well as improving the speed of its service to customers.
 
In today’s cargo industry, automation and digitization of processes are not goals to strive towards – they’re expected and indeed necessary for meeting compliance obligations. With the series of high profile scandals hitting the headlines in recent months, it is clear that cargo organizations must evolve to meet the progressively complicated regulatory requirements and ultimately, to play their part in enforcing global security.

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16. 
G. Husisian: “Recent Enforcement Actions Demonstrate Multinational Automotive Companies Should Conduct Risk Assessments” (Part 2 of 2) 

(Source: 
Foley & Lardner LLP, 24 May 2018.) 
 
* Gregory Husisian, Esq., 
ghusisian@foley.com, Foley & Lardner LLP, Washington DC. 
 
[This article has been divided into two parts. Part 1 was included in yesterday’s Daily Bugle.]
 
Regulators within the Trump administration have sent a loud message that should concern all multinational automotive companies: laws governing international activities continue to be the subject of intense enforcement activity, leading to record fines in such areas as U.S. economic sanctions administered by the Office of Foreign Assets Control (OFAC), export controls (the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations (EAR)), and the Foreign Corrupt Practices Act (FCPA).
 
Many multinational companies maintain operations in China and Mexico, and these countries present issues under the FCPA (frequent bribery requests), OFAC sanctions (limitations on dealings with Iran, Syria, Russia), and export controls (controls on shipments of U.S.-origin goods to embargoed countries as well as restrictions on products that have dual-use capabilities, such as being useful in chemical and biological weapons production). Further, now that President Trump has withdrawn from the Joint Comprehensive Plan of Action, which eased the sanctions on Iran, the specialty sanctions that targeted the Iranian automotive industry have “snapped back” and now once again pose compliance challenges for the automotive industry.
 
In light of these developments, this blog entry summarizes the most recent enforcement activity of concern to automotive-sector companies, as well as the steps that these companies can take to identify and mitigate the risk of costly enforcement actions under these international regulatory regimes. … 
 
Step 3: Survey Current Controls
 
Step 3 involves surveying current compliance procedures and internal controls and to determine whether these measures match with the identified risks. 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. 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
 
It does little good to identify regulatory risk if the organization is not putting resources into managing that risk.  Appropriate risk management requires matching compliance promises and expectations to the available resources, and vice versa.
 
No compliance initiatives will work without adequate support. 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 compliance 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.
 
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.
 
With the Trump administration continuing to impose hefty penalties for violations of U.S. regulations of exports and international conduct, regulatory risk management continues to be essential for all multinational companies.  This is especially true for automotive-sector companies that operate abroad.  Any multinational automotive company that has not conducted a risk assessment in the last two years should take the compliance lessons of the Trump administration to heart and make a fresh evaluation of its international regulatory risk.

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COMM_a3
17. 
Gary Stanley’s EC Tip of the Day

(Source: Defense and Export-Import Update; 24 May 2018.  Available by subscription from gstanley@glstrade.com.)
 
* Author: Gary Stanley, Esq., Global Legal Services, PC, (202) 352-3059, gstanley@glstrade.com.
 
ITAR § 123.26 provides that any person engaging in any export, reexport, transfer, or retransfer of a defense article or defense service pursuant to an exemption must maintain records of each such export, reexport, transfer, or retransfer. The records shall, to the extent applicable to the transaction and consistent with the requirements of IAR § 123.22 of this subchapter, include the following information: A description of the defense article, including technical data, or defense service; the name and address of the end-user and other available contact information (e.g., telephone number and electronic mail address); the name of the natural person responsible for the transaction; the stated end-use of the defense article or defense service; the date of the transaction; the Electronic Export Information (EEI) Internal Transaction Number (ITN); and the method of transmission. The person using or acting in reliance upon the exemption shall also comply with any additional recordkeeping requirements enumerated in the text of the regulations concerning such exemption (e.g., requirements specific to the Defense Trade Cooperation Treaties in ITAR § 126.16 and §126.17.

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ENEDITOR’S NOTES

 
* Theodor Herzl (2 May 1860 – 3 July 1904), was an Austro-Hungarian journalist, playwright, political activist, and writer who was the father of modern political Zionism. Though he died before its establishment, he is known as the Father of the State of Israel.
  – “The character of a people may be ruined by charity.”
 
* Stephen P. H. Butler Leacock, FRSC (1869 – 1944, was a Canadian teacher, political scientist, writer, and humorist. Between the years 1915 and 1925, he was the best-known English-speaking humorist in the world.)
  – “The harder I work, the luckier I get.”
  – “Reciprocity is the fundamental law of social life.”

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EN_a319
. 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: 17 May 2018: 83 FR 22842-22846: Revisions to the Unverified List (UVL)

  
*
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_a0320
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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