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18-0607 Thursday “Daily Bugle”

18-0607 Thursday “Daily Bugle”

Thursday, 7 June 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. Justice/ATF Seeks Comments on Form 5400.14/5400.15 Part III, Federal Explosives License/Permit (FEL) Renewal Application 
  2. Justice ATF Seeks Comments on Firearms Disabilities for Nonimmigrant Aliens 
  1. Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce Announces $1.4 Billion ZTE Settlement with Strictest BIS Compliance Requirements Ever
  3. Commerce/BIS: (No new postings.)
  4. DHS/CBP Posts Update on Upcoming MQ Trade Gateway Migration
  5. DoD/DSS Posts DISS Deployment Update and Guidance
  6. State/DDTC: (No new postings.)
  7. Treasury/OFAC: “Ericsson, Inc. and Ericsson AB Settle Potential Civil Liability for an Apparent Violation of the Sudanese Sanctions Regulations”
  8. EU Posts Regulations Concerning the Classification of Certain Goods in the Combined Nomenclature
  1. CNBC: “U.S. Hits China’s ZTE with $1 Billion Penalty in Deal to End Crippling Sanctions, Commerce Secretary Ross Says
  2. Reuters: “U.S. Lawmakers Plan Legislation to Block Trump Deal with ZTE” 
  3. ST&R Trade Report: “EU Retaliatory Tariffs Expected in July” 
  4. Stuff.co.nz: “Aircraft Maker Pacific Aerospace Fined $74,000 for Illegal North Korea Exports” 
  5. WorldECR News Alert 7 June 2018 
  1. J.E. Bartlett: “ZTE Settlement Announcement Announced Today, but Don’t Ship Yet!”
  2. L. Catrain, A. Doussin & L. Lamb: “The EU Seeks to Expand the Scope of the EU Blocking Regulation to Protect EU Interests against the U.S. Iran Sanctions”
  3. M. Volkov: “Compliance and Technology” 
  1. ECS Presents “ITAR/EAR Boot Camp (Seminar Level I)” on 12-13 Sep in Annapolis, MD 
  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 (6 Jun 2018), FACR/OFAC (19 Mar 2018), FTR (24 Apr 2018), HTSUS (1 Jun 2018), ITAR (14 Feb 2018) 
  3. Weekly Highlights of the Daily Bugle Top Stories 

EXIMITEMS FROM TODAY’S FEDERAL REGISTER

EXIM_a1

1. Justice/ATF Seeks Comments on Form 5400.14/5400.15 Part III, Federal Explosives License/Permit (FEL) Renewal Application
(Source: Federal Register, 7 June 2018.) [Excerpts.]
 
83 FR 26497-26498: Agency Information Collection Activities; Proposed eCollection eComments Requested; Federal Explosives License/Permit (FEL) Renewal Application–ATF Form 5400.14/5400.15 Part III
* AGENCY: Bureau of Alcohol, Tobacco, Firearms and Explosives, Department of Justice.
* ACTION: 30-Day notice. …
* DATES: Comments are encouraged and will be accepted for an additional 30 days until July 9, 2018.
* FOR FURTHER INFORMATION CONTACT: If you have additional comments, particularly with respect to the estimated public burden or associated response time, have suggestions, need a copy of the proposed information collection instrument with instructions, or desire any other additional information, please contact Shawn Stevens, Federal Explosives Licensing Center, either by mail at 244 Needy Road, Martinsburg, WV 25405, by email Shawn.Stevens@atf.gov, or by telephone at (304) 616-4421. Written comments and/or suggestions can also be directed to the Office of Management and Budget, Office of Information and Regulatory Affairs, Attention Department of Justice Desk Officer, Washington, DC 20503 or sent to OIRA_submissions@omb.eop.gov.
* SUPPLEMENTARY INFORMATION: …
  – The Title of the Form/Collection: Federal Explosives License/
Permit (FEL) Renewal Application.
  – Form number: ATF Form 5400.14/5400.15 Part III.
  – Component: Bureau of Alcohol, Tobacco, Firearms and Explosives, U.S. Department of Justice. …
  – Abstract: Licenses or permits are issued for a specific period of time and are renewable upon the same conditions as the original license or permit. In order to continue uninterruptedly in these activities, licenses and permits can be renewed by filing a short renewal application. …
  If additional information is required contact: Melody Braswell, Department Clearance Officer, United States Department of Justice, Justice Management Division, Policy and Planning Staff, Two Constitution Square, 145 N Street NE, 3E.405A, Washington, DC 20530.
 
   Dated: June 4, 2018.
Melody Braswell, Department Clearance Officer for PRA, U.S. Department of Justice.

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EXIM_a2

2. Justice ATF Seeks Comments on Firearms Disabilities for Nonimmigrant Aliens


(Source: Federal Register, 7 June 2018.) [Excerpts.]
 
83 FR 26498: Agency Information Collection Activities; Proposed eCollection eComments Requested; Revision of a Currently Approved Collection; Firearms Disabilities for Nonimmigrant Aliens
* AGENCY: Bureau of Alcohol, Tobacco, Firearms and Explosives, Department of Justice.
* ACTION: 30-day notice. …
* DATES: Comments are encouraged and will be accepted for an additional 30 days until July 9, 2018.
* FOR FURTHER INFORMATION CONTACT: If you have additional comments, particularly with respect to the estimated public burden or associated response time, have suggestions, need a copy of the proposed information collection instrument with instructions, or desire any other additional information, please contact L. William Babbie, ATF Firearms & Explosives Industry Division either by mail at 99 New York Avenue NE, Washington, DC 20226, by email at fipb-informationcollection@atf.gov, or by telephone at 202-648-7252.
* SUPPLEMENTARY INFORMATION: …
  – The Title of the Form/Collection: Firearms Disabilities for Nonimmigrant Aliens.
  – Form number: None.
  – Component: Bureau of Alcohol, Tobacco, Firearms and Explosives, U.S. Department of Justice. …
  – Abstract: The nonimmigrant alien information is used to determine if a nonimmigrant alien is eligible to obtain a Federal firearms license and purchase, obtain, possess, or import a firearm. Nonimmigrant aliens also must maintain the documents while in possession of firearms or ammunition in the United States for verification purposes. …
  If additional information is required contact: Melody Braswell, Department Clearance Officer, United States Department of Justice, Justice Management Division, Policy and Planning Staff, Two Constitution Square, 145 N Street NE, 3E.405A, Washington, DC 20530.
 
   Dated: June 4, 2018.
Melody Braswell, Department Clearance Officer for PRA, U.S. Department of Justice.

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OGSOTHER GOVERNMENT SOURCES

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

* Energy; Nuclear Regulatory Commission; PROPOSED RULES; Clarification of Export Reporting Requirements for Nuclear Facilities, Equipment, and Non-Nuclear Materials [Publication Date: 8 June 2018.]  
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(Source:
Commerce, 7 June 2018.)
 
Secretary of Commerce Wilbur Ross today announced that Zhongxing Telecommunications Equipment Corporation, of Shenzhen, China (“ZTE Corporation”) and ZTE Kangxun Telecommunications Ltd. of Hi-New Shenzhen, China (“ZTE Kangxun”) (collectively, “ZTE”) has agreed to severe additional penalties and compliance measures to replace the U.S. Commerce Department’s Bureau of Industry and Security (BIS) denial order imposed as a result of ZTE’s violations of its March 2017 settlement agreement. Under the new agreement, ZTE must pay $1 billion and place an additional $400 million in suspended penalty money in escrow before BIS will remove ZTE from the Denied Persons List. These penalties are in addition to the $892 million in penalties ZTE has already paid to the U.S government under the March 2017 settlement agreement.  
 
ZTE will also be required by the new agreement to retain a team of special compliance coordinators selected by and answerable to BIS for a period of 10 years. Their function will be to monitor on a real-time basis ZTE’s compliance with U.S. export control laws. This is the first time BIS has achieved such stringent compliance measures in any case. ZTE is also required under the new agreement to replace the entire board of directors and senior leadership for both entities. Finally, the new agreement once again imposes a denial order that is suspended, this time for 10 years, which BIS can activate in the event of additional violations during the ten-year probationary period. These collectively are the most severe penalty BIS has ever imposed on a company.
 
  “Today, BIS is imposing the largest penalty it has ever levied and requiring that ZTE adopt unprecedented compliance measures,” said Secretary Ross. “We will closely monitor ZTE’s behavior. If they commit any further violations, we would again be able to deny them access to U.S. technology as well as collect the additional $400 million in escrow. The first settlement with ZTE set a record for civil and criminal penalties in an export control case. This new settlement agreement sets another record, and brings the total penalties assessed on ZTE to $2.29 billion.”
 
The purpose of this settlement is to modify ZTE’s behavior while setting a new precedent for monitoring to assure compliance with U.S. law. Embedding compliance officers into the company vastly improves the speed with which the Department of Commerce can detect and deal with any violations.
 
BACKGROUND:
 
On April 15, 2018, BIS activated the suspended denial order against ZTE in response to ZTE falsely informing the U.S. Government that it would or had disciplined numerous employees responsible for the violations that led to the March 2017 settlement agreement. ZTE instead rewarded that illegal activity with bonuses. This action followed the March 2017 settlement agreement, in which ZTE agreed to a then record-high BIS civil penalty of $661 million, after engaging in a multi-year conspiracy to supply, build, and operate telecommunications networks in Iran using U.S.-origin equipment in violation of the U.S. trade embargo, and committing hundreds of U.S. sanctions violations involving the shipment of telecommunications equipment to North Korea. They also made false statements and obstructed justice by creating an elaborate scheme to prevent disclosures to and affirmatively mislead the U.S. Government. In addition to monetary penalties, ZTE had agreed to a seven-year suspended denial of export privileges, which could be activated if any aspect of the agreement was not met and/or if the company committed additional violations of the Export Administration Regulations.  
 
The Commerce Department’s BIS is the principal agency involved in the implementation and enforcement of export controls for commercial technologies and many military items. The BIS Office of Export Enforcement detects, prevents, investigates and assists in the sanctioning of illegal exports of such items. For more information, please visit us at www.bis.doc.gov

 

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(Source:
Commerce/BIS)

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(Source:
CSMS #18-000380, 7 June 2018.)
 
As announced in CSMS# 18-000375, in accordance with CBP’s mandate to retire and relocate applications housed on the Mainframe to an IBM MQ Appliance platform, it is imperative that trading partners who transmit electronic messages to CBP’s ACE system in an ANSI X.12 format test to ensure they are able to receive CBP’s response messages.
 
It has been determined that ONLY ACE TRUCK Manifest users will be impacted by this migration. This is due to a difference in the EDI segment delimiter between the mainframe EBCDIC character set and the non-mainframe ASCII character set. Specifically the ACE Truck Manifest application’s 350 (Customs Status Notifications) and 355 (Customs Manifest Acceptance/Rejection) response messages were developed to send a hex ’85’ segment delimiter to handle mainframe conversions from EBCDIC to ASCII. With the migration to an IBM MQ Appliance, a hex ’85’ character is no longer portable to all message-receiving platforms and therefore, it will be necessary to use the hex ’15’ character instead. Please note that the ACE Truck 997 (Functional Acknowledgement) message does not have the segment delimiter issue; it already uses the hex ’15’ character for a segment delimiter.
 
Trade partners must test to make certain that they can consume the new delimiters and may need to make accommodations in their process in the event they experience issues consuming the new delimitation.
 
The ACE Truck 350 and 355 message segment delimiters will change to the hex ’15’ character in the ACE Certification environment and available for trade testing on Thursday, JUNE 28th, with a targeted PRODUCTION date of Saturday, JULY 28th. Upon testing in the ACE CERT environment, if a trade partner discovers manifest response messages to be missing, please check your error queues and error logs for errors in receiving the messages.
 
If you need further assistance with this testing, please contact your assigned CBP Client Representative.
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(Source:
DoD/DSS, 6 June 2018.)
 
On June 25, 2018, the Defense Information System for Security (DISS) will officially deploy to Industry. In preparation for DISS deployment, the Defense Manpower and Data Center (DMDC) will complete a mass provisioning of eligible Industry hierarchy managers on June 7, 2018, and then begin provisioning the remaining hierarchy managers on June 8, 2018. Please review the DISS Deployment Update and Guidance for further details to the deployment and account provisioning.
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(Source:
Treasury/OFAC, 6 June 2018.)
 
Ericsson AB (“EAB”), located in Sweden, and Ericsson, Inc. (“EUS”), located in Texas, both of which are subsidiaries of Telefonaktiebolaget LM Ericsson (“Ericsson”), have agreed to pay $145,893 to settle potential civil liability for an apparent violation of the International Emergency Economic Powers Act (IEEPA) and the Sudanese Sanctions Regulations, 31 C.F.R. part 538 (SSR).
OFAC determined that Ericsson voluntarily self-disclosed the apparent violation to OFAC and that the apparent violation constitutes an egregious case. The statutory maximum civil monetary penalty amount for the apparent violation was $360,230, and the base civil monetary penalty amount was $180,115.
 
On or around September 22, 2011, EAB signed a letter of intent with the Sudanese subsidiary of a third-country telecommunications company in order to provide equipment and services to upgrade and expand telecommunications network coverage in Sudan starting with a test network. Ericsson opted to connect its test network in Sudan via satellite, as it had done in other underdeveloped areas. Ericsson hired BCom Offshore SAL (“BCom”) to assist with installing, configuring, and servicing the satellite equipment destined for Sudan.
 
In late 2011, the high temperatures in Sudan caused some of Ericsson’s equipment to malfunction. In response, two now former EAB employees – a radio systems expert and project manager (“EAB Employee #1”), and a senior engagement director within EAB’s business unit responsible for managing the implementation of the Sudanese project (“EAB Employee #2”)
– contacted an EUS subject matter specialist and director of business development with EUS’s Hosted Satellite Group (“EUS Employee”) to request assistance. The EUS Employee initially responded in a January 2, 2012 email to EAB Employee #1 and his manager (“EAB Manager”) among other EAB employees: “Please do not address any emails relating to this country [Sudan] to me. It is a serious matter and Ericsson can get fined and I can get fired.”
 
Notwithstanding the email cited above, the EAB personnel continued to discuss how to repair the damaged equipment with the EUS Employee while no longer referencing Sudan by name. For example, on January 27, 2012, EAB Employee #1 sent an email referencing Sudan by name to the EAB Manager and EUS Employee, to which the EAB Manager responded in Swedish “do not use that word ;).” Additionally, on February 22, 2012, the EUS Employee sent an email with “East Africa” in the subject line advising EAB Employee #1 and EAB Employee #2 on how to move forward with the Sudan project given the heat constraints.
 
On or about February 28, 2012, the EUS Employee met with EAB Employee #2 and the Chief Operating Officer (COO) of Ericsson’s principal subcontractor, BCom, in Barcelona, Spain at a sales conference to specifically discuss the overheating problem in Sudan. The group decided to solve the issue by purchasing an export-controlled U.S.-origin satellite hub capable of withstanding the heat.
 
On March 22, 2012, at the direction of Employee #1, EAB purchased a satellite hub from a U.S.- based company for delivery to BCom’s office in Geneva, Switzerland. On or about March 28, 2012, EAB Employee #1 exchanged emails with Ericsson’s compliance department explaining what the satellite hub was for and why its purchase was necessary. Ericsson’s compliance department informed EAB Employee #1 that the supply of such a satellite hub to Sudan would violate Ericsson’s internal policy regarding sanctions compliance.
 
Despite the information from Ericsson’s compliance department, the EUS Employee, EAB Employee #1, and BCom’s COO agreed to provide the location of the customer purchasing the satellite hub as “Botswana” if future questions arose. Subsequently, on or about April 2, 2012, EAB Employee #1 structured Ericsson’s purchase of the satellite hub into a multistage transaction between EAB and BCom. The multistage transaction involved transshipping the hub through Switzerland and Lebanon, and ultimately to Sudan. Every stage of the transaction except the last was invoiced. BCom did not issue an invoice to EAB for the final stage of the transaction taking the satellite hub from Lebanon to Sudan. Ericsson has since terminated its relationship with BCom.
 
For more information regarding this matter, please see the Settlement Agreement between OFAC and EAB and EUS here.
 
The settlement amount reflects OFAC’s consideration of the following facts and circumstances, pursuant to the General Factors under OFAC’s Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A. OFAC considered the following to be aggravating:
 
  (1) several EAB employees and an employee of EUS willfully violated the SSR by forming a conspiracy with the employees of a third-country company with the specific purpose of evading the U.S. embargo on Sudan;
  (2) at least one of the EAB employees involved was a manager;
  (3) those employees ignored warnings from Ericsson’s compliance department that the transaction at issue was prohibited;
  (4) EAB’s actions caused harm to the sanctions program objectives with respect to Sudan; and
  (5) Ericsson is a large and commercially sophisticated entity.
 
OFAC considered the following to be mitigating:
 
  (1) Ericsson cooperated with OFAC by filing a voluntary self-disclosure, performing a thorough internal investigation, and signing a tolling agreement;
  (2) neither Ericsson, EUS, nor EAB have received a penalty notice or finding of violation from OFAC in the five years preceding the date of the transaction giving rise to the apparent violation;
  (3) Ericsson’s remedial response to the apparent violation and adoption of additional compliance controls and procedures; and
  (4) the low likelihood of recurrence given the individual characteristics of the apparent violation.
 
This enforcement action highlights the importance of empowering compliance personnel to prevent transactions prohibited by U.S. economic and trade sanctions. Entities should ensure their sanctions compliance teams are adequately staffed, receive sufficient technology and other resources, and are delegated appropriate authority to ensure compliance efforts meet an entity’s risk profile. Sanctions compliance personnel should be equipped with the tools necessary to review, assess, and proactively address sanctions-related issues that arise with ongoing or prospective transactions, customers, or counter-parties.
 
For more information regarding OFAC regulations, please go to: www.treasury.gov/ofac.
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(Source:
Official Journal of the European Union, 7 June 2018.)
 
Regulations:
* Commission Implementing Regulation (EU) 2018/837 of 31 May 2018 concerning the classification of certain goods in the Combined Nomenclature
* Commission Implementing Regulation (EU) 2018/838 of 31 May 2018 concerning the classification of certain goods in the Combined Nomenclature
 
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NWSNEWS

(Source:
CNBC, 7 June 2018.)
 
The U.S. has struck a deal with Chinese telecom giant ZTE to end crippling American sanctions, Commerce Secretary Wilbur Ross told CNBC on Thursday.
 
The department said the deal includes a $1 billion penalty against ZTE and a U.S.-chosen compliance team.
 
  “We are literally embedding a compliance department of our choosing into the company to monitor it going forward. They will pay for those people, but the people will report to the new chairman,” Ross said in a “Squawk Box” interview.
 
ZTE’s latest brush with U.S. regulators came after the company’s business dealings with Iran and North Korea violated U.S. trade agreements. ZTE paid $1.19 billion in fines for those violations, but the dispute didn’t end there. The Commerce Department then alleged that ZTE misled regulators and failed to discipline the employees responsible for the sanction breach.
 
The settlement deal includes $400 million in escrow to cover any future violations as well as requiring ZTE to change its board of directors and executive team in 30 days.
 
  “If they do violate it again, in addition to the billion dollars they are paying us up front, we had them put $400 million in escrow. The total deal is $1.4 billion. That money will be forfeited if they violate anything … and we still retain the power to shut them down again,” Ross said.
 
  “This is a pretty strict settlement,” he added. “The strictest and largest settlement fine that has ever been brought by the Commerce Department against any violator of export controls.”
 
  “This should serve as a very good deterrent not only for them but for other potential bad actors,” he added.
 
In response to the announced deal, Senate Minority Leader Chuck Schumer said Thursday in a statement, “When it comes to China, despite [Trump’s] tough talk, this deal with ZTE proves the president just shoots blanks.”
 
Last month, Ross told CNBC the U.S. was looking at alternatives to the crippling sanctions threatening the survival of ZTE. In April, Washington banned ZTE from purchasing parts from U.S. companies, including Qualcomm, Corning and Google.
 
Treasury Secretary Steven Mnuchin has said that the enforcement of the ban wasn’t meant to put the company out of business, and that any changes being considered would support U.S. national security. But skeptics worried that ZTE’s destruction could mar an already delicate relationship between the U.S. and China.
 
ZTE, in addition to smartphones, has been a large manufacturer of telecommunications equipment that allows large carriers to operate their wireless and data networks. It was China’s first state-owned telecom equipment maker to go public. It is listed on the Shenzhen and Hong Kong stock exchanges.
 
Despite decades of prominence, ZTE has since fallen from its 2012 spot as the world’s fourth-largest smartphone maker, struggling amid new competition.
 
Under President Donald Trump‘s administration, ZTE’s status as a Chinese multinational has also put it in the fray of a larger trade dispute between the U.S. and China. Trump has vowed to rebalance the power in America’s trade relationship with China, and both nations have proposed tit-for-tat trade taxes.
Ross was in Beijing over the weekend for high-level trade talks with China. The White House has been insisting on fundamental changes in ties between the world’s two biggest economic powers.
 
Ross said Thursday that “for the first time” the U.S. is pushing back on all fronts, including intellectual property rights and technology transfers.
 
  “Prior administrations had been real patsies for the Chinese and other countries. They’ve never really pushed back,” he said.

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(Source:
Reuters, 7 June 2018.)
 
U.S. senators planned legislation on Thursday that would roll back an agreement President Donald Trump’s administration announced to ease sanctions on Chinese telecommunications company ZTE Corp.
 
Commerce Secretary Wilbur Ross said on Thursday the U.S. government had reached a deal with ZTE that reverses a ban on it buying parts from U.S. suppliers, allowing China’s No. 2 telecommunications equipment maker to get back into business.
 
The measure planned in the Senate would retroactively impose sanctions originally levied against ZTE, reversing the consent agreement signed on Thursday, Senate Democratic Leader Chuck Schumer said.
 
The legislation has bipartisan support. It was introduced by Republican Senator Tom Cotton and Democrat Chris Van Hollen as an amendment to the National Defense Authorization Act (“NDAA”), a defense policy bill Congress passes every year.
 
However, its prospects were not immediately clear. The NDAA typically passes Congress – and becomes law – later in the year, but there was no indication that any such amendment would even be allowed to come up for a vote.
 
Congressional Republicans have generally been strong supporters of Trump’s legislative agenda, with only a handful of members voting only very rarely against the White House.

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NWS_a313. ST&R Trade Report: “EU Retaliatory Tariffs Expected in July”
(Source:
 
Sandler, Travis & Rosenberg Trade Report
 
, 7 June 2018.)
 
The European Commission approved June 6 a decision to impose higher duties on U.S. products as part of the European Union’s response to a June 1 increase in U.S. tariffs on steel and aluminum from EU and other countries. The Commission anticipates completing the relevant procedures with EU member states later this month “so that the new duties start applying in July.”
 
The additional 25 percent tariffs will be imposed on €2.8 billion worth of imports from the U.S., including textile, apparel, and footwear items, orange juice, bourbon whiskey, tobacco products, cosmetic products, steel and aluminum products, playing cards, sailboats, and motorcycles. Tariffs on €3.6 billion worth of other U.S. goods could be increased by 10 to 50 percent in March 2021 (or sooner, if a World Trade Organization case the EU filed June 1 is decided against the U.S. before then) if the U.S. has not rescinded its steel and aluminum tariffs by that time.

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NWS_a414. Stuff.co.nz: “Aircraft Maker Pacific Aerospace Fined $74,000 for Illegal North Korea Exports”
(Source: Stuff.co.nz, 7 June 2018.)
 
Hamilton-based Pacific Aerospace has been fined $74,000 for breaking United Nations sanctions by exporting aircraft parts to North Korea.
 
The aircraft manufacturer sent $6700 worth of warranty parts to the hermit state in 2016.
 
Judge John Bergseng declined to issue the maximum penalty, describing the breach of sanctions as “reckless”.
 
Pacific Aerospace is thought to be the first company in the world to be prosecuted for such actions, with the Crown citing only one largely incomparable example from abroad.
 
In a reserved judgment dated May 29, Bergseng fined Pacific Aerospace $74,805 for three charges of indirectly exporting a specified good to the Democratic People’s Republic of Korea, and one charge of making an erroneous export entry.
 
  “[Pacific Aerospace’s] breach of the Sanctions Regulations was best described as reckless. [Pacific Aerospace] was aware of the Sanctions Regulations but had chosen not to fully inform itself of its detail.”
 
Customs laid the charges after a Pacific Aerospace P-750 XSTOL plane was spotted at the Wonsan Air Festival in North Korea in September 2016.
 
The direct or indirect supply of luxury goods to North Korea, including aircraft and related parts, is a violation of UN Security Council Resolution 1718.
 
Under New Zealand law, a company can be fined up to $100,000 for breaching an UN-mandated ban, and fined up to $5000 for making an erroneous declaration under the Customs and Excise Act.
 
Pacific Aerospace provided aircraft parts – a banned luxury good under UN sanctions – to repair the aircraft in North Korea in three instances.
 
The parts were a flap actuator used in take-off and landing, two cockpit indicators that display propeller speed and a fuel ejector.

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NWS_a515. WorldECR News Alert 7 June 2018
(Source: WorldECR, 7 June 2018.)
 
  (1) U.S. considers easing of certain arms and ammunition export controls
  (2) President Putin signs Russian counter-sanctions into law
  (3) UN considers further sanctions including arms embargo against South Sudan
  (4) OFAC issues licences to aid ‘wind down’ of business caught by Russia sanctions
  (5) UK sanctions bill receives royal assent
 

[Editor’s Note:
Click here to find information on how to subscribe to WorldECR, the journal of export controls and sanctions.]

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COMMCOMMENTARY

COMM_a0
16. J.E. Bartlett: “ZTE Settlement Announcement Announced Today, But Don’t Ship Yet!”
(Source: Author) [This item is related to Items 4, 11, and 12 above.]
 
* Author: James E. Bartlett III, Principal, Law Office of James E. Bartlett III, PLLC, JEBartlett@JEBartlett.com, 202-802-0646.
 
Companies that were trading with Zhongxing Telecommunications Equipment Corporation, of Shenzhen, China and ZTE Kangxun Telecommunications Ltd. of Hi-New Shenzhen, China (“ZTE”) before The Commerce Department’s Bureau of Industry & Security (“BIS”) imposed a Denial Order on April 15, 2018, were pleased to see today’s announcement that BIS and ZTE have agreed to a revised denial order relaxing the prohibitions of the April order, and permitting ZTE to resume trading with U.S. products and services subject to U.S. export regulations.  
 
But don’t ship yet! The press release is not the official revision of the denial order, so the prohibitions of the April 15, 2018, denial order remain in effect until the new revised order is posted on the BIS website, which will be followed by posting in the Federal Register. Trade with ZTE can’t lawfully resume until a signed and dated revised order has been posted by BIS.  And another monkey wrench may be thrown in the works by the Senate, as several senators have said the BIS settlement with ZTE was too lenient.  They could propose legislation that would retroactively reimpose the sanctions originally levied against ZTE, reversing the administrative consent agreement signed today.  

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COMM_a01
17. L. Catrain, A. Doussin & L. Lamb: “The EU Seeks to Expand the Scope of the EU Blocking Regulation to Protect EU Interests against the U.S. Iran Sanctions”
(Source: Hogan Lovells, 7 June 2018.)
 
* Authors: Lourdes Catrain, Esq., Lourdes.Catrain@hoganlovells.com; Aline Doussin, Esq., Aline.Doussin@hoganlovells.com; and Louise Lamb, Esq., Louise.Lamb@hoganlovells.com. All of Hogan Lovells.
 
On 6 June 2018, the European Commission (“Commission“) adopted a draft Delegated Regulation expanding the scope of Council Regulation (EC) No 2271/96 (“EU Blocking Regulation“) to include the extra-territorial aspects of the U.S. Iran sanctions (please see our dedicated alert on this topic). The objective of the amended EU Blocking Regulation will be to protect EU companies against the extra-territorial effects of the U.S. Iran sanctions that “unduly affect the interests of natural and legal persons established in the [EU] and engaging in trade and/or the movement of capital and related commercial activities between the [EU] and Iran” (please see draft Delegated Regulation).
  
To whom does it apply?

The amended EU Blocking Regulation will apply to all EU nationals, non-EU nationals residing/doing business in the EU and EU-incorporated companies (including EU subsidiaries of U.S. companies) (together referred to as “EU Persons“) that are potentially concerned by the following U.S. Iran sanctions (“covered U.S. Iran sanctions“):

 
  – The “Iran Sanctions Act of 1996” to the extent that it, inter alia, prohibits: (1) certain investments in Iran; (2) the provision of certain goods and services to Iran; (3) participation in certain joint-ventures outside Iran in which Iran or its Government has particular interests; and (4) involvement in the transport of crude oil from Iran.    
  – The “Iran Freedom and Counter-Proliferation Act of 2012” to the extent that it, inter alia, prohibits: (1) the provision of significant support to certain persons in Iran or designated/blocked Iranian individuals; (2) trade in certain goods and services with Iran; (3) purchases of petroleum/petroleum products from Iran; (4) transactions related to trade in natural gas with Iran; and (5) the provision of certain underwriting, insurance and reinsurance services.   
  – The “National Defense Authorization Act for Fiscal Year 2012” to the extent that it, inter alia, prohibits significant financial transactions with the Central Bank of Iran or any other designated Iranian financial institution.   
  – The “Iran Threat Reduction and Syria Human Rights Act of 2012” to the extent that it, inter alia, prohibits: (1) the provision of underwriting, insurance or reinsurance services to certain Iranian persons; (2) involvement in the issuance of Iranian sovereign debt; (3) transactions with the Government of Iran or any person subject to the jurisdiction of the Government of Iran prohibited by U.S. law; and (4) the provision of specialised financial messaging services to the Central Bank of Iran or a financial institution whose interests in property are blocked in connection to Iran’s proliferation activities.   
  – The “Iranian Transactions and Sanctions Regulations” to the extent that it, inter alia, prohibits: the re-export of any goods, technology or services intended for Iran or its Government that (1) have been exported from the U.S., and (2) are subject to export controls rules in the U.S.   
 
The covered U.S. Iran sanctions (a full list of which is included in the Annex to the draft Delegated Regulation) restrict the potential business operations of EU persons in almost every key Iranian industry sector (e.g., energy and petrochemicals, banking and finance, insurance and reinsurance, shipping or automotive).

Why does it matter?

The amended EU Blocking Regulation will: (1) prohibit compliance with the covered U.S. Iran sanctions unless formally authorised by the Commission; (2) prohibit recognition or enforcement of U.S. court/administrative decisions giving effect to the covered U.S. Iran sanctions; and (3) provide for the possibility to recover any damages (including legal costs) caused by the application of the covered U.S. Iran sanctions. In practice:   

 
  – EU Persons could seek to comply with both the covered U.S. Iran sanctions and the amended EU Blocking Regulation by either requesting specific licences/waivers from the U.S. authorities that would allow them to maintain their business operations in Iran, or requesting an authorisation from the Commission to comply with the covered U.S. Iran sanctions on the basis that non-compliance would seriously damage their interests or those of the EU.  
  – EU Persons could choose to comply with the covered U.S. Iran sanctions by winding down their business operations in Iran, thereby taking the risk of violating the amended EU Blocking Regulation. It is worth noting that, to date, certain Member States do not have legislation to enforce the EU Blocking Regulation (e.g., Belgium, France, Greece, Luxembourg) and that most of the Member States that have legislation to enforce the EU Blocking Regulation provide either for administrative penalties (e.g., the maximum fines in Germany, Italy and Spain amount to respectively EUR 500,000, EUR 92,962 and EUR 601,012) and/or criminal offences (e.g., Ireland, the Netherlands and Sweden where maximum prison sentences amount to respectively 12 months, two years and 6 months).   
  – EU Persons could choose to comply with the EU Blocking Regulation by maintaining their business operations in Iran, thereby taking the risk of violating, or creating legal exposure to adverse action under, the covered U.S. Iran sanctions. Non-compliance with the covered U.S. Iran sanctions could result – depending on the provision at issue – in
 
  (1) civil and criminal penalties;  
  (2) measures to limit imports into the U.S. or procurement to the U.S.;  
  (3) prohibition of designation as primary dealer or as repository of U.S. Government funds;  
  (4) denial of access to loans from U.S. financial institutions or transfers through such institutions;  
  (5) prohibition of transactions in foreign exchange subject to the jurisdiction of the U.S. (including all USD trade);  
  (6) export restrictions by the U.S.;  
  (7) prohibition of property transactions subject to the jurisdiction of the U.S. including the designation of a foreign person as a Specially Designated National (“SDN“), which would result not just in asset freezes involving property interests subject to U.S. jurisdiction but also secondary sanctions exposure for anyone who engages in a significant transaction with the SDN;  
  (8) refusal or assistance by EXIM-Bank;  
  (9) landing and port-calling restrictions for vessels and visa/entry restrictions into the U.S. for individuals; and/or  
  (10) prohibitions and limitations to the opening and maintenance of correspondent accounts in the U.S. 
 
Separately, the Commission announced that it would pursue the removal of existing obstacles for the European Investment Bank (“EIB“) to finance activities in Iran, which could allow the EIB to support EU investment in Iran and could be useful in particular for small and medium-sized companies.

When does it become effective?

The European Parliament and the Council have until 6 August 2018 to express objections against the inclusion of the covered U.S. Iran sanctions within the scope of the EU Blocking Regulation. Absent any objections during this period – which is likely given the strong and vocal support of both institutions for the Commission’s initiative – the amended EU Blocking Regulation will enter into force on 6 August 2018, i.e., on the day of the actual reinstatement of the U.S. Iran sanctions following the expiry of the first wind-down period. The amended EU Blocking Regulation could also enter into force before that date if the European Parliament and the Council inform the Commission of their intention not to express any objection.

How should EU companies prepare?

EU companies doing business in Iran should consider their potential exposure to both the amended EU Blocking Regulation and the covered U.S. Iran sanctions. This includes:  

 
  (1) reviewing whether their activities in Iran are subject to the covered U.S. Iran sanctions;  
  (2) determining whether their contractual obligations with Iranian counterparties and financial institutions contain representations and warranties relating to U.S. sanctions compliance; and  
  (3) assessing potentially applicable penalties under the amended EU Blocking Regulation and the covered U.S. Iran sanctions.
 
Depending on the extent of their exposure to either regimes, EU companies should also consider: (1) engaging with the Commission and the Member States to determine whether they could be granted an authorisation to comply with the covered U.S. Iran sanctions, and/or (2) engaging with the U.S. authorities to determine whether they could be granted a specific licence or waiver that would allow them to maintain their operations in Iran.

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COMM_a3
18. M. Volkov: “Compliance and Technology”
(Source: Volkov Law Group Blog, 6 June 2018. Reprinted by permission.)
 
* Author: Michael Volkov, Esq., Volkov Law Group,
mvolkov@volkovlaw.com, 240-505-1992.
 
We need to start giving compliance a better foundation of basic knowledge, strategies and practical approaches. The compliance profession can adopt common solutions to problems for different companies. The fact that companies have their own distinct risk profiles and operations does not mean that they have to rely on distinct compliance solutions. No two companies are alike – that does not mean that the same number of different compliance solutions are needed.
 
We all hear about the need for compliance to embrace “technology.” But what do we mean by “technology”?
 
Let’s start to put some meat on the bones of this concept. I would divide compliance technology into three concepts:
 
  – Intelligent Automation
  – Data Analytics and Monitoring
  – Reporting and Communications Systems
 
As I discuss each of these ideas, you may think that my description is basic and even elementary. But bear with me as we build some minimum standards and eventually take technology to some new and interesting areas, where block chain, artificial intelligence and other cutting-edge approaches can be embraced.
 
So, back to the basics.
 
Companies need to embrace intelligent automation as a first step. Three examples of basic technology are:
  (1) Governance Risk and Compliance solutions;
  (2) Third-Party Risk Management; and
  (3) Policy and Procedures Management. A GRC dashboard is a basic tool that creates a foundation from which a CCO can manage, monitor and collect information for analytical purposes.
 
Equally important is an automated tool to manage third-party risks – due diligence, sanctions screening, beneficial ownership and monitoring – are critical functions in managing third-party risks and an automated solution is a basic requirement for companies. As supply chain risks increase and compliance focuses more on reputational risks, a company has to have a single tool to mitigate risks from agents, distributors, professionals, vendors and suppliers.
 
Technology tools are able to collect data and apply analytics to the data to identify anomalies and potential red flags. These same tools provide for continuous monitoring functions.
 
Compliance officers also need to use technology for monitoring of employees and business partners. New programs facilitate monitoring of employees for cybersecurity, fraud, social media, gifts and entertainment, insider training, and conflicts of interest. These tools are invaluable for monitoring employee conduct, including computer use, emails, texting and messaging (if capable) and other communications systems. To implement these systems, compliance has to coordinate with IT, human resources, finance, security, supply chain, accounts payable and procurement departments. If data and monitoring capabilities exist, a compliance officer can develop data collection systems, build a compliance dashboard, and leverage data from these sources to build a larger picture of corporate employee conduct.
 
Another important area for technology is the management of policies and procedures. We all know that policy management is an important function of a compliance program. In this area, companies have to maintain a current code of conduct, policies and procedures, and make them accessible across the company. GRC technology tools often include sophisticated policy and procedures management functions. A unitary policy management framework is needed to ensure that each policy is regularly reviewed, updated to provide current guidance and management, and then communicated throughout the company. It is easier for employees to understand and follow policies and procedures that are current, regularly updated and accessible through the company intranet site.
 
As part of this effort, companies have to commit to measuring the effectiveness of their policies and procedures system. In this area, companies often rely on culture assessments, internal audit reviews, compliance audits, transaction testing, spot checks on specific issues, and number of violations and corrective actions.
 
Companies need to embrace technology to advance training programs and internal communications. With the advent of new technologies for training, companies have developed innovative programs relying on live, web-based and real-time video communications to implement engaging topics and testing programs.
 
All of this requires money and personnel. Compliance professional have to build the business case for these investments and, of course, the return on investment. This is where the rubber meets the road – silence in the face of resistance from senior management is not acceptable. Honest delivery of a measured justification to senior management is a must.

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TEEX/IM TRAINING EVENTS & CONFERENCES

(Source: Suzanne Palmer,
spalmer@exportcompliancesolutions.com.)
 
* What: Seminar Level I: ITAR/EAR Boot Camp, Annapolis, MD
* When: September 12-13, 2018
* Sponsor: Export Compliance Solutions (ECS)
* ECS Speaker Panel:  Suzanne Palmer, Mal Zerden
* Register: Here or by calling 866-238-4018 or e-mail spalmer@exportcompliancesolutions.com
.
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ENEDITOR’S NOTES

 
Paul Gauguin (Eugène Henri Paul Gauguin; 7 Jun 1848 – 8 May 1903; was a French post-Impressionist artist. Unappreciated until after his death, Gauguin is now recognized for his experimental use of color and Synthetist style that were distinctly different from Impressionism. Towards the end of his life he spent ten years in French Polynesia, and most of his paintings from this time depict people or landscapes from that region.)
  – “Art is either plagiarism or revolution.”

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EN_a321
. Are Your Copies of Regulations Up to Date?
(Source: Editor)

The official versions of the following regulations are published annually in the U.S. Code of Federal Regulations (C.F.R.), but are updated as amended in the Federal Register.  The latest amendments to applicable regulations are listed below.
 
*
ATF ARMS IMPORT REGULATIONS
: 27 CFR Part 447-Importation of Arms, Ammunition, and Implements of War
  – Last Amendment: 15 Jan 2016: 81 FR 2657-2723: Machineguns, Destructive Devices and Certain Other Firearms; Background Checks for Responsible Persons of a Trust or Legal Entity With Respect To Making or Transferring a Firearm. 
 
*
CUSTOMS REGULATIONS
: 19 CFR, Ch. 1, Pts. 0-199
  – Last Amendment: 12 Apr 2018: 83 FR 15736-15740: CBP Decision No. 18-04; Definition of Importer Security Filing Importer (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: 6 June 2018: 83 FR 26204-26205: Unverified List (UVL); Correction

  
*
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:
1 Jun 2018: Harmonized System Update 1808, containing 11,876 ABI records and 2,228 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_a0322
Weekly Highlights of the Daily Bugle Top Stories

(Source: Editor) 

Review last week’s top Ex/Im stories in “Weekly Highlights of the Daily Bugle Top Stories” published 
here

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EPEDITORIAL POLICY

* The Ex/Im Daily Update is a publication of FCC Advisory B.V., compiled by: Editor, James E. Bartlett III; Assistant Editors, Alexander P. Bosch and Vincent J.A. Goossen; and Events & Jobs Editor, John Bartlett. The Ex/Im Daily Update is emailed every business day to approximately 8,000 readers of changes to defense and high-tech trade laws and regulations. We check the following sources daily: Federal Register, Congressional Record, Commerce/AES, Commerce/BIS, DHS/CBP, DOE/NRC, DOJ/ATF, DoD/DSS, DoD/DTSA, FAR/DFARS, State/DDTC, Treasury/OFAC, White House, and similar websites of Australia, Canada, U.K., and other countries and international organizations.  Due to space limitations, we do not post Arms Sales notifications, Denied Party listings, or Customs AD/CVD items.

* RIGHTS & RESTRICTIONS: This email contains no proprietary, classified, or export-controlled information. All items are obtained from public sources or are published with permission of private contributors, and may be freely circulated without further permission, provided attribution is given to “The Export/Import Daily Bugle of (date)”. Any further use of contributors’ material, however, must comply with applicable copyright laws.

* CAVEAT: The contents of this newsletter cannot be relied upon as legal or expert advice.  Consult your own legal counsel or compliance specialists before taking actions based upon news items or opinions from this or other unofficial sources.  If any U.S. federal tax issue is discussed in this communication, it was not intended or written by the author or sender for tax or legal advice, and cannot be used for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing, or recommending to another party any transaction or tax-related matter.


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