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18-0614 Thursday “Daily Bugle”

18-0614 Thursday “Daily Bugle”

Thursday, 14 June 2018

TOP
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  1. Justice/ATF Seeks Comments on Form ATF F 3310.4, Report of Multiple Sale or Other Disposition of Pistols and Revolvers 
  1. Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.)
  3. State/DDTC: (No new postings.)
  4. EU Adopts Comprehensive Approach to Scourge of Illicit Weapons
  1. Daily Mail: “British Former Rolls-Royce Engineer is Arrested under the Official Secrets Act after ‘Chinese Plot to Steal Secrets of RAF’s £100m F-35b Stealth Fighter Jet'”
  2. Expeditors News: “DHS Announces Updated ‘Northern Border Strategy'”
  3. Global Trade News: “U.S. to Publish List of Chinese Goods under Section 301 Investigation”
  4. Reuters: “Senate, White House Gear up for Battle over China’s ZTE”
  5. WorldECR News Alert, 14 June 2018
  1. J.C. Poling, T.R. Savio & C.C. Davis: “Commerce Department Signs New Agreement with ZTE Lifting Denial Order in Exchange for Unprecedented Additional Penalties and Compliance Measures”
  2. J. Reeves & K. Heubert: “U.S. Departments of State and Commerce Propose Rules to Transition Firearms and Ammunition from U.S. Munitions List to Commerce Control List” (Part 4 of 4)
  3. M. Volkov: “Hallelujah: OFAC Announces First Enforcement Action in 2018 Against Ericsson, Inc.”
  1. Bartlett’s Unfamiliar Quotations 
  2. Are Your Copies of Regulations Up to Date? Latest Amendments: ATF (15 Jan 2016), Customs (12 Jun 2018), DOD/NISPOM (18 May 2016), EAR (6 Jun 2018), FACR/OFAC (19 Mar 2018), FTR (24 Apr 2018), HTSUS (8 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 ATF F 3310.4, Report of Multiple Sale or Other Disposition of Pistols and Revolvers
(Source: Federal Register, 14 June 2018.) [Excerpts.]
 
83 FR 27799: Agency Information Collection Activities; Proposed eCollection eComments Requested; Report of Multiple Sale or Other Disposition of Pistols and Revolvers–ATF F 3310.4
* AGENCY: Bureau of Alcohol, Tobacco, Firearms and Explosives, Department of Justice.
* ACTION: 30-Day notice. …
* DATES: Comments are encouraged and will be accepted for an additional 30 days until July 16, 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 Ed Stely, Branch Chief, Tracing Operations and Records Management Branch, National Tracing Center Division either by mail at 244 Needy Road, Martinsburg, WV 25405, by email at Edward.Stely@atf.gov, or by telephone at 304-260-1515. 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: Report of Multiple Sale or Other Disposition of Pistols and Revolvers.
   – Form number: ATF F 3310.4.
   – Component: Bureau of Alcohol, Tobacco, Firearms and Explosives, U.S. Department of Justice. …
   – Abstract: This information collection documents certain sales or other dispositions of handguns for law enforcement purposes, and determines if the buyer is involved in an unlawful activity, or is a person prohibited by law from obtaining firearms. …
   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 11, 2018.
Melody Braswell, Department Clearance Officer for PRA, U.S. Department of Justice.

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

OGSOTHER GOVERNMENT SOURCES

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

* Defense; RULES; Federal Acquisition Regulations: Violations of Arms Control Treaties or Agreements with the United States [Publication Date: 15 June 2018.]

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

OGS_abc23
Commerce/BIS: (No new postings.)

(Source: 
Commerce/BIS)

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

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

(Source:
EU External Action, 13 June 2018.)
 
Illicit weapons are a threat to us all. They contribute to terrorism and organised crime within the EU. They also undermine the EU’s development and humanitarian efforts in parts of our neighbourhood and Africa. EU High Representative Federica Mogherini and the European Commission today adopted a joint proposal for a comprehensive EU Strategy against illicit firearms, small arms and light weapons (SALW).
 
Powerful, military-grade firearms in the hands of terrorists, criminals and other unauthorised actors pose a serious threat to our security. Illicit firearms have been used in several terrorist attacks in Europe. In the EU’s neighbourhood many conflicts are fuelled by the proliferation of illicit weapons. These conflicts cause significant suffering for the populations concerned. A total of almost 800 million people are estimated to be deprived of sufficient food due to armed conflict.   
 
The proposal, or “Joint Communication“, tabled today sets out clear objectives and concrete measures to tackle the problem. It recognises the many actors, issues and cross-border dimensions that play a role in the context of illicit arms trade and therefore recommends a full set of action points to tackle the issue from all sides in a comprehensive way. 
 
A multitude of different stakeholders need to be considered and involved such as police, customs, border guards, armed forces, export control bodies, manufacturers or judicial authorities. Addressing the trade of illicit arms effectively means that all of these need to exchange information and cooperate closely. Also, the issues do not just concern individual countries but all relevant countries as a group. Trade in illicit arms is indeed often transnational in nature with national, regional and global dimensions. It needs to be tackled at all of these levels. In addition, it is crucial that measures address all phases in the life cycle of firearms: manufacture, trade, export, stockpiling and disposal.
 
Against this background, the Joint Communication constitutes an important step forward. It proposes a set of objectives and actions for an EU Strategy against illicit firearms, small arms, light weapons and their ammunition. Once adopted by the EU Member States, the new strategy will replace an earlier but in many aspects by now outdated EU Strategy of 2005. The EU Strategy will be closely connected with the United Nations Programme of Action against the illicit trade in small arms and light weapons that will be discussed in New York in the last two weeks of June 2018.
 
The initiative to counter illicit arms is one element in the EU’s toolbox to tackle today’s complex security challenges. High Representative Mogherini presented in 2016 an overarching EU Global Strategy for Foreign and Security Policy that foresees an integrated and joined-up approach across internal and external policy dimensions, between Member States and EU Institutions as well as with regional and international institutions. Since then, a multitude of different initiatives in the areas of security and defence have been launched, including enhanced cooperation with NATO and the beefing-up of EU autonomous security and defence capabilities.

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

NWSNEWS

NWS_a16
. Daily Mail: “British Former Rolls-Royce Engineer is Arrested under the Official Secrets Act after ‘Chinese Plot to Steal Secrets of RAF’s £100m F-35b Stealth Fighter Jet'”

(Source:
Daily Mail, 14 Jun 2018.) [Excerpts.]
 
A former Rolls-Royce engineer has been arrested in connection with a suspected Chinese plot to steal the secrets of the new £100million RAF stealth fighter jet, it was claimed last night.
 
Ex-Chief Combustion Technologist Bryn Jones was held after MI5 was informed classified defense information may have been passed to Beijing.
 
Counter-terror police swooped in on the 73-year-old’s Derbyshire home in an ‘ultra-discreet’ operation on Tuesday.
 
Mr. Jones was questioned and held on suspicion of breaching the Official Secrets Act, according to The Sun.
 
Crimes relating to national security can carry a maximum sentence of 14 years.
 
Mr. Jones, a married father-of-five, describes himself as a ‘visiting professor’ in ‘gas turbine combustion’ at the Aeronautical University of Xian, central China.
 
It is understood the Met probe centers on fears over Rolls-Royce’s top-secret work on the state-of-the-art F-35B.  O
ffices at a West Midlands firm linked to Mr. Jones were also searched by forensics.
 
It is understood that he denies any wrongdoing. …

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

NWS_27
. Expeditors News: “DHS Announces Updated ‘Northern Border Strategy'”

(Source:
Expeditors News, 13 June 2018.)
 
On 12 June 2018, the U.S. Department of Homeland Security (DHS) published an updated “Northern Border Strategy,” designed to establish a “clear vision and concrete actions” to improve DHS’s efforts in safeguarding the U.S.-Canada border.
 
The Northern Border Strategy is intended to:
 
  – “Enhance border security operations through better information sharing, improved domain awareness, and integrated operations”;
  – “Facilitate and safeguard lawful trade and travel by enhancing rapid inspection and screening, enforcing a fair-trade environment, and bolstering border infrastructure”; and
  – “Promote cross-border resilience by supporting response and recovery capabilities between federal, state, local, tribal, and Canadian partners.”
 
The DHS press release may be found
here.
 
The Northern Border Strategy may be found
here.

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

(Source:
Integration Point Blog, 14 June 2018.)
 
This Friday on June 15, the United States is expected to release the final list of Chinese products that will be affected by a 25% tariff increase. It will most likely reflect the
original announcement by the USTR with some tailoring and modifications. At that point, the tariffs would be ready for activation, but ultimately, President Trump will decide whether to impose them.
 
A brief timeline
 
  –
August 2017. Under Section 301 of the Trade Act of 1974, President Trump asked the United States Trade Representative (USTR) to investigate China’s unfair trade practices, focusing on intellectual property rights.
  –
March 2018. The USTR released its report on China, stating that the country was conducting unfair trade practices related to technology transfer, intellectual property, and innovation. The U.S. responded by announcing new rules on investment and initiating a case at the World Trade Organization (WTO) against China’s licensing practices, now case DS542.
  –
April 2018. There was a flurry of escalating activity regarding tariff increases. After the U.S. announced additional tariffs on steel and aluminum (separately under the Section 232 investigation), China imposed tariffs on $3 billion in U.S. imports. The USTR immediately returned the action with a proposed 25% tariff increase on $50 billion in Chinese goods. The next day, China announced the same. China also initiated a case with the WTO over U.S. Section 301 tariffs, now case DS542.
  –
May 2018. Both sides agreed to temporarily put the trade war “on hold.” China agreed to significantly increase purchases of U.S. goods and services, thereby reducing the trade deficit. Later in the month, the U.S. surprised international groups by announcing that it would move ahead with the 25% tariffs on $50 billion in Chinese goods.
China responded that if the U.S. launched the tariffs or other sanctions, “then all the economic and trade benefits negotiated by both sides [would] not take effect.”
  –
June 2018. The U.S. announced that it would impose tariffs on $50 billion in Chinese goods once the final list of covered imports was published on June 15.
 
Preparing for change
 
As import tariffs rise around the world, many companies are pursuing new technology to optimize savings and gain efficiency in their global operations, all while achieving complete visibility into the impact of tariff changes. Implementing a global trade management (GTM) solution can help companies improve compliance, increase supply chain speed, and protect their bottom line.
 
You can read more about the Section 301 investigation and U.S.-China trade relations on
CNN,
South China Morning Post,
Global Trade Magazine, and the
Peterson Institute for International Economics.

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

(Source:
Reuters, 13 June 2018.) [Excerpts.]
 
Legislation to block the Trump administration’s agreement allowing China’s ZTE Corp to resume business with American suppliers could be killed in the U.S. Congress in the coming weeks, lawmakers and aides said on Wednesday.
 
The U.S. Senate is due to vote within days on the measure as part of the National Defense Authorization Act, or NDAA, a defense policy bill Congress passes every year. The White House strongly opposes the ZTE measure.
 
If it passes, the House of Representatives and Senate must negotiate a final version of the NDAA. The ZTE provision, which is not included in the House version of the defense bill, could be stripped out during those negotiations.
 
Mac Thornberry, the Republican chairman of the House Armed Services Committee, said he would oppose anything in the NDAA not germane to the Defense Department if it threatened to delay swift passage of the $716 billion bill, which governs everything from military pay raises to aircraft and ship purchases, military aid and other national security policies.
 
He said that process could be completed by the end of July. …

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

(Source:
WorldECR, 14 June 2018.)
 
  (1) Trump and Kim Jong-un sign historic commitment to denuclearisation
  (2) Penalty! Nike refuses to supply Iranian football team on eve of World Cup
  (3) EU Member States push back on human rights-related tech export controls
  (4) OFAC reaches settlement with Ericsson for breach of Sudan sanctions
  (5) UK issues Notice to Exporters on new national security-related M&A rules
 

[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
11. J.C. Poling, T.R. Savio & C.C. Davis: “Commerce Department Signs New Agreement with ZTE Lifting Denial Order in Exchange for Unprecedented Additional Penalties and Compliance Measures”
(Source:
Akin Gump Strauss Hauer & Feld, 12 Jun 2018.)
 
* Authors: Jonathan C. Poling, Esq.,
jpoling@akingump.com; Tatman R. Savio, Esq.,
tatman.savio@akingump.com; and Christian C. Davis, Esq.
chdavis@akingump.com. All of Akin Gump Strauss Hauer & Feld, Washington DC and Hong Kong, respectively.
 
Key Points
 
  – Yesterday [11 May], BIS published a superseding settlement agreement with ZTE, levying the largest-ever monetary penalty by BIS against a non- U.S. company and imposing significant additional compliance measures in exchange for lifting the Denial Order previously activated by BIS on April 15, 2018.
  – The earlier Denial Order prohibited ZTE from directly or indirectly participating in any way in any transaction involving any commodity, software or technology subject to the EAR or exported from the United States in response to false statements that ZTE made to BIS in the course of settlement negotiations in 2016 for prior violations of U.S. export control and sanctions laws.
  – The superseding settlement agreement with ZTE is conditioned on ZTE’s payment of an additional $1 billion in fines and placement of $400 million in an escrow account in a U.S. bank approved by BIS. ZTE must also implement additional compliance measures, including retaining a team of special compliance officers answerable to BIS and replacing its entire board of directors and senior leadership for both ZTE companies designated in the April 15 Denial Order.
  – Per the FAQs issued by BIS in connection with the superseding settlement agreement, the Denial Order will not be lifted until ZTE has paid the fines required by the agreement; BIS will make an announcement when ZTE has been removed from the Denied Persons List and the April 15 Denial Order has been lifted.
 
Background
 
On Thursday, June 7, 2018, U.S. Secretary of Commerce Wilbur Ross announced that the administration had reached a “definitive agreement” with Chinese telecommunications and information technology company Zhongxing Telecommunications Equipment Corporation, of Shenzhen, China (“ZTE Corporation”), to modify and replace the U.S. Department of Commerce (DOC) current Denial Order. The current Denial Order activated by the DOC’s Bureau of Industry and Security (BIS) on April 15, 2018 (the “April 15 Denial Order”), against ZTE Corporation and ZTE Kangxun Telecommunications Ltd. (“ZTE Kangxun”) (collectively, “ZTE”) broadly barred ZTE from the U.S. supply chain for a period of seven years in response to ZTE’s failure to comply with agreed terms related to ZTE’s prior illegal sales to Iran and North Korea.
 
As we recently reported, Secretary Ross activated the previously suspended Denial Order on April 15, 2018, based on a determination that ZTE made false statements to BIS in the course of settlement negotiations in 2016 and during its probationary period in 2017. At the time of the settlement, ZTE paid $892 million in penalties, and committed to dismissing four senior employees and disciplining 35 others for their conduct related to the prior sanctions violations. Instead, ZTE rewarded staff and senior management involved in the illicit conduct with bonuses. Upon identification of this breach of agreed terms, BIS activated the Denial Order that was initially suspended as a part of the 2017 settlement and that in turn, placed ZTE on the BIS Denied Persons List, broadly prohibiting any person from engaging with ZTE in export-related functions and transactions.
 
June 7, 2018, Superseding Settlement Agreement
 
The new agreement described by Secretary Ross and formally entered into by BIS and ZTE on June 7, 2018 (and published on June 11, 2018), confirms that BIS will levy its largest-ever monetary penalty against a non-U.S. company and will impose unprecedented compliance requirements. Under the new agreement, ZTE must pay an additional $1 billion in fines and separately place $400 million in an escrow account before BIS will remove ZTE from its Denied Persons List and lift the April 15 Denial Order. These penalties are separate and in addition to the $892 million that ZTE paid under the March 2017 settlement, bringing the already record penalties to a new record of $2.29 billion.
 
In addition, once payment is received, BIS will lift the Denial Order under the condition that ZTE completes certain additional requirements, including the following key actions:
 
  – retain a team of special compliance officers, selected by and answerable to BIS, for a period of 10 years, and implement a comprehensive export control compliance program
  – complete and submit nine audit reports of its compliance with U.S. export control laws, with respect to all exports, reexports or transfers (in-country) that are subject to the Export Administration Regulations (EAR)
  – replace the entire board of directors and senior leadership at or above the senior vice president level for both ZTE entities and prohibit the rehire of those employees by ZTE and any of its subsidiaries and affiliates
  – publish on its website the EAR classification and all Export Control Classification Numbers (ECCN) of all items that ZTE or its affiliates sell, supply, produce, manufacture, assemble, export, reexport or transfer (in-country), including
de minimis calculations relating to items that include U.S.-origin content cooperate fully with U.S. government investigations pertaining to ZTE’s historical conduct or potential violations of U.S. export control laws during the probationary period.

 
In the course of the past several weeks, ZTE has already replaced several top executives-signaling that the company is eager to take the steps necessary to lift the current ban as quickly as possible.
 
June 11, 2018, Frequently Asked Questions (FAQs)
 
On June 11, 2018, BIS published several
FAQs clarifying that ZTE remains on the Denied Persons List and that the April 15 Denial Order remains in effect until such time as ZTE pays the aforementioned civil penalty and places the $400 million into escrow. BIS also confirmed that the agency will make an announcement when the April 15 Denial Order is lifted.  
 
The FAQs also reiterate that the lifting of the April 15 Denial Order will not relieve persons of obligations under part 744 of the EAR. In addition, the FAQs note that BIS continues to review §764.3(a)(2) waiver requests relative to the April 15 Denial Order and that, while the lifting of the Denial Order will render such requests moot, “any violations of the April 15, 2018 Order while it remains in effect would not be mooted or absolved even if that Order is later lifted.”
 
Congressional Action
 
The U.S. Congress is currently reviewing how and whether to respond to the Trump administration’s deal with ZTE including legislation to block the lifting of the current Denial Order. Specifically, on June 7, the U.S. Senate announced a bipartisan amendment to the National Defense Authorization Act (NDAA) that would retroactively prohibit the executive branch from modifying existing civil penalties (including Denial Orders). We will continue to monitor and report on these and related developments as they emerge.
 
Conclusion
 
The nature of the most recent ZTE penalties continues to demonstrate the robust use of administrative authorities, such as the Denial Order, as powerful tools to drive compliance with U.S. export controls, economic sanctions and settlements with regulatory authorities. The superseding settlement further shows the significant consequences that can occur to companies that violate the terms of settlement agreement with civil agencies, including for the most senior management and boards of companies.

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COMM_a01
12. J. Reeves & K. Heubert: “U.S. Departments of State and Commerce Propose Rules to Transition Firearms and Ammunition from U.S. Munitions List to Commerce Control List” (Part 4 of 4)

(Source: Reeves & Dola LLP Alert, 13 June 2018. Available via jreeves@reevesdola.com.)
 
* Authors: Johanna Reeves, Esq., jreeves@reevesdola.com, 202-715-994; and Katherine Heubert, Esq., 202-715-9940, kheubert@reevesdola.com. Both of Reeves & Dola LLP.
 
[Editor’s Note: Part 1 was included in the Daily Bugle of 24 May 2018; Part 2 was included in the Daily Bugle of 4 June 2018; Part 3 was included in the Daily Bugle of 8 June 2018.]
 
This alert is our final installment in our four-part series dedicated to the proposed State and Commerce rules to revise U.S. export controls over firearms and ammunition. The proposed rules, published simultaneously in the Federal Register on May 24, 2018, describe in detail the transition of most firearms and ammunition from the license requirements of the U.S. Department of State’s International Traffic in Arms Regulations (ITAR) to the U.S. Department of Commerce’s Export Administration Regulations (EAR). The Department of State proposed rule, along with instructions on how to submit comments, is accessible here. The Department of Commerce’s companion publication is accessible here, and includes comment instructions as well.  
 
In our previous alert, we reviewed the State Department, Directorate of Defense Trade Controls’ (DDTC’s) proposed revisions to U.S. Munitions List (USML) Category II (Guns and Armament) and the Commerce Department, Bureau of Industry and Security’s (BIS’s) companion proposed rules to revise the EAR. 
 
In today’s alert, we review the proposed revisions to USML Category III (Ammunition/Ordnance) and BIS’s companion proposed revisions.
 
Proposed Transitions from USML Cat. III to CCL
 
As we have seen with the other USML categories, DDTC proposes to revise USML Cat. III to establish a clear distinction between the USML and the Commerce Control List (CCL). Currently, Category III is written very broadly to include ammunition and ordnance for the articles in Categories I and II, plus production and tooling equipment and components, parts, accessories, attachments and associated equipment specifically designed or modified for the articles in Category III. The rewrite would eliminate the broad catch-all entries and list only the specific ammunition controlled, consistent with the changes to Category I. All articles currently captured in Category III not listed in the rewrite will be subject to the EAR. Notably, this will include the production equipment and tooling.
 
Items removed from the USML Cat. III to the CCL would be transitioned to one of the new “500 series” Export Control Classification Numbers (ECCNs) below. We include the reasons for control and list-based exceptions for each new ECCN.
 
0A505 – Ammunition as follows:
a. Ammunition for firearms controlled by ECCN 0A501 and not enumerated in paragraph .b, .c or .d of this entry or in USML Category III.
 
b. Buckshot (No. 4 .24” diameter and larger) shotgun shells.
 
c. Shotgun shells (including less than lethal rounds) that do not contain buckshot; and ”specially designed” ”parts” and ”components” of shotgun shells.
 
Note 1 to 0A505.c:
 Shotgun shells that contain only chemical irritants are controlled under ECCN 1A984. 
 
d. Blank ammunition for firearms controlled by ECCN 0A501 and not enumerated in USML Category III.
 
e. through w. [Reserved]
 
x. ”Parts” and ”components” that are ”specially designed” for a commodity subject to control in this ECCN or a defense article in USML Category III and not elsewhere specified on the USML, the CCL or paragraph .d of this entry. 
 
Note 2 to 0A505.x:
 The controls on ”parts” and ”components” in this entry include Berdan and boxer primers, metallic cartridge cases, and standard metallic projectiles such as full metal jacket, lead core, and copper projectiles.
 
Note 3 to 0A505.x:
 The controls on ”parts” and ”components” in this entry include those ”parts” and ”components” that are common to ammunition and ordnance described in this entry and to those enumerated in USML Category III.
 
Reasons for control:
 National Security (NS), Regional Security (RS), Crime Control (CC), Firearms Convention (FC), United Nations (UN), and Anti-Terrorism (AT). How each is applied to the items controlled is listed in the ECCN.
 
List-based exceptions:
Limited Value Shipments (LVS) – $100 for items in 0A505.x
Shipments to Country Group B (GBS) – N/A
Civil End-Users (CIV) – N/A
 
0B505 – Test, inspection, and production ”equipment” and related commodities ”specially designed” for the ”development” or ”production” of commodities enumerated or otherwise described in ECCN 0A505 or USML Category III, except equipment for the hand loading of cartridges and shotgun shells, as follows:
a. Tooling, templates, jigs, mandrels, molds, dies, fixtures, alignment mechanisms, and test equipment, not enumerated in USML Category III that are ”specially designed” for the ”production” of commodities controlled by ECCN 0A505.a or .x or USML Category III.
 
b. Equipment ”specially designed” for the ”production” of commodities in ECCN 0A505.b.
 
c. Equipment ”specially designed” for the ”production” of commodities in ECCN 0A505.c. d. Equipment ”specially designed” for the ”production” of commodities in ECCN 0A505.d.
 
e. through .w [Reserved]
 
x. ”Parts” and ”components” ”specially designed” for a commodity subject to control in paragraph .a of this entry.
 
Reasons for control: 
NS, RS, UN, and AT (please see the ECCN for how the controls are applied).
 
List-based exceptions:
LVS – $3,000
GBS – N/A
CIV – N/A
 
0D505 – ”Software” ”specially designed” for the ”development,” ”production,” operation or maintenance of commodities controlled by 0A505 or 0B505.
Items: The list of items controlled is contained in the ECCN heading.
 
Reasons for control: 
NS, RS, UN, and AT (please see the ECCN for how the controls are applied).
 
List-based exceptions:
CIV – N/A
Technology & Software under Restriction (TSR) – N/A
 
0E505 – ”Technology” ”required” for the ”development,” ”production,” operation, installation, maintenance, repair, overhaul or refurbishing of commodities controlled by 0A505.
Items:
 The list of items controlled is contained in the ECCN heading.
 
Reasons for control: 
NS, RS, UN, CC, and AT (please see the ECCN for how the controls are applied).
 
List-based exceptions:
CIV – N/A
TSR – N/A
 
In addition to the above, the ability to use the license exception, Strategic Trade Authorization (STA), is limited. Please also see Part 740 in the EAR (15 C.F.R. Pt. 740) for more information on license exceptions and restrictions.
 
Items to be Removed From USML Cat. III
 – 
below is a table showing the items that would be transitioned from USML Cat. III to the new ECCNs described above.
 
 
Item
Current Classification
Proposed

Classification
Ammunition for firearms transitioning from USML Cat. I
USML Cat. III(a)
ECCN 0A505
Tooling & equipment for production
USML Cat. III(c)
ECCN 0B505
Parts and components
USML Cat. III(d)
USML Cat. III (d) – specially designed list, or ECCN 0A505
 
Articles Still Controlled Under USML Cat. III
 
– items that would remain under USML Cat. III would be positively listed as follows, including the corresponding paragraph (Significant Military Equipment (SME) is designated with an asterisk (*)). For ease of review, we have highlighted the main paragraphs in bold and blue.
 
*(a) Ammunition, as follows:
 
(1) Ammunition that incorporates a projectile controlled in paragraph (d)(1) or (3) of this category;
 
(2) Ammunition preassembled into links or belts;
 
(3) Shotgun ammunition that incorporates a projectile controlled in paragraph (d)(2) of this category;
 
(4) Caseless ammunition manufactured with smokeless powder; 
 
Note to paragraph (a)(4):
 Caseless ammunition is ammunition without a cartridge case that holds the primer, propellant, and projectile together as a unit. 
 
(5) Ammunition, except shotgun ammunition, based on non-metallic cases, or non-metallic cases that have only a metallic base, which result in a total cartridge mass 80% or less than the mass of a brass- or steel-cased cartridge that provides comparable ballistic performance;
 
(6) Ammunition employing pyrotechnic material in the projectile base and any ammunition employing a projectile that incorporates tracer materials of any type having peak radiance above 710 nm and designed to be observed primarily with night vision optical systems;
 
(7) Ammunition for fully automatic firearms or guns that fire superposed or stacked projectiles;
 
(8) Electromagnetic armament projectiles or billets for weapons with a design muzzle energy exceeding 5 MJ;
 
(9) Ammunition, not specified above, for the guns and armaments controlled in Category II; or
 
(10) Developmental ammunition funded by the Department of Defense and specially designed parts and components therefor. 
 
Note 1 to paragraph (a)(10):
 This paragraph does not control ammunition (a) in production, (b) determined to be subject to the EAR via a commodity jurisdiction determination (see § 120.4 of this subchapter), or (c) identified in the relevant Department of Defense contract or other funding authorization as being developed for both civil and military applications. 
 
Note 2 to paragraph (a)(10):
 Note 1 does not apply to defense articles enumerated on the U.S. Munitions List, whether in production or development. 
 
Note 3 to paragraph (a)(10):
 This provision is applicable to those contracts or other funding authorizations that are dated (one year after publication of the final rule), or later. 
 
(b) Ammunition/ordnance handling equipment specially designed for the articles controlled in this category, as follows:
 
(1) Belting, linking, and de-linking equipment; or
 
(2) Fuze setting devices. 
 
(c) [Reserved] 
 
(d) Parts and components for the articles in this category, as follows:
 
(1) Projectiles that use pyrotechnic tracer materials that incorporate any material having peak radiance above 710 nm or are incendiary, explosive, steel tipped, or contain a core or solid projectile produced from one or a combination of the following: tungsten, steel, or beryllium copper alloys;
 
(2) Shotgun projectiles that are flechettes, incendiary, tracer, or explosive; Note to paragraph (d)(2): This paragraph does not include explosive projectiles specially designed to produce noise for scaring birds or other pests (e.g., bird bombs, whistlers, crackers). 
(3) Projectiles of any caliber produced from depleted uranium;
 
(4) Projectiles not specified above, guided or unguided, for the items controlled in USML Category II, and specially designed parts and components therefor (e.g., fuzes, rotating bands, cases, liners, fins, boosters);
 
(5) Canisters or sub-munitions (e.g., bomblets or minelets), and specially designed parts and components therefor, for the guns or armament controlled in USML Category II;
 
(6) Hardened cores, regardless of caliber, produced from one or a combination of the following: tungsten, steel, or beryllium copper alloy;
 
(7) Cartridge cases, powder bags, or combustible cases for the items controlled in USML Category II;
 
(8) Non-metallic cases, including cases that have only a metallic base, for the ammunition controlled in paragraph (a)(5) of this category;
 
(9) Cartridge links and belts for fully automatic firearms and guns controlled in USML Categories I or II;
 
(10) Primers other than Boxer, Berdan, or shotshell types; Note to paragraph (d)(10): This paragraph does not control caps or primers of any type in use prior to 1890.
 
(11) Safing, arming, and fuzing components (to include target detection and proximity sensing devices) for the ammunition in this category and specially designed parts therefor;
 
(12) Guidance and control components for the ammunition in this category and specially designed parts therefor;
 
(13) Terminal seeker assemblies for the ammunition in this category and specially designed parts and components therefor;
 
(14) Illuminating flares or target practice projectiles for the ammunition controlled in paragraph (a)(9) of this category; or 
 
*
(15) Any part, component, accessory, attachment, equipment, or system that: (i) Is classified; (ii) Contains classified software; or (iii) Is being developed using classified information. 
 
”Classified” means classified pursuant to Executive Order 13526, or predecessor order, and a security classification guide developed pursuant thereto or equivalent, or to the corresponding classification rules of another government or intergovernmental organization. 
 
(e) Technical data (see § 120.10 of this subchapter) and defense services (see § 120.9 of this subchapter) directly related to the defense articles enumerated in paragraphs (a), (b), and (d) of this category and classified technical data directly related to items controlled in ECCNs 0A505, 0B505, 0D505, and 0E505 and defense services using the classified technical data. (See § 125.4 of this subchapter for exemptions.). 
 
(f)-(w) [Reserved] 
 
(x) Commodities, software, and technology subject to the EAR (see § 120.42 of this subchapter) used in or with defense articles. 
 
Note to paragraph (x):
 Use of this paragraph is limited to license applications for defense articles where the purchase documentation includes commodities, software, or technology subject to the EAR (see § 123.1(b) of this subchapter). 
 
Notes to Category III:
 
  (1) This category does not control ammunition crimped without a projectile (blank star) and dummy ammunition with a pierced powder chamber. 
  (2) This category does not control cartridge and shell casings that, prior to export, have been rendered useless beyond the possibility of restoration for use as a cartridge or shell casing by means of heating, flame treatment, mangling, crushing, cutting, or popping. 
  (3) Grenades containing non-lethal or less lethal projectiles are under the jurisdiction of the Department of Commerce.
 
Closing Thoughts
 
The rewrite of USML Categories I, II, and III is long overdue, though its implementation will not come without challenges for industry.  While there are many positives that will come out of this effort, including the lack of registration or licensing fees at the Department of Commerce and arguably a more flexible licensing structure, there will be a learning curve as companies begin to operate under a largely new set of regulations (the EAR). 
 
When the revised USML Categories become final, industry will need to undergo a review and reclassification of all inventory, including software and technical data, and will need to update internal processes, procedures, and systems to implement the changes.  Training of both employees and customers (both foreign and domestic) will need to occur to ensure that the new requirements are understood and followed.  While the Department of Commerce may have more flexible licensing requirements, you will need to understand the constraints of those requirements in order to take advantage of the new licensing structure.
 
As we have noted previously, both the State and Commerce Departments will be accepting written comments on the revised Categories until July 9, 2018.  We strongly encourage industry to take time to carefully review the revised categories and provide actionable commentary to the proposed rules. This is a critical opportunity for industry to provide comments that would assist the government in reducing jurisdictional ambiguities and clarifying the articles that will remain subject to the ITAR. The specific instructions for submitting comments are included in each proposed rule.
 
Although this alert is the final installment of this particular series, we doubt it will be our last word on the topic! Stay tuned. …

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COMM_a3
13. M. Volkov: “Hallelujah: OFAC Announces First Enforcement Action in 2018 Against Ericsson, Inc.”
(Source: Volkov Law Group Blog, 14 June 2018. Reprinted by permission.)
 
* Author: Michael Volkov, Esq., Volkov Law Group,
mvolkov@volkovlaw.com, 240-505-1992.
 
I will admit it – I changed this posting from its original draft.  I intended to write about the absence of any OFAC enforcement actions for 2018.  I went to double-check the OFAC enforcement website (
here), and lo and behold, OFAC snuck its first enforcement action of 2018 – dated June 6, 2018 against Ericsson, Inc. for $145,983.
 
Before the Ericsson enforcement action, OFAC had been surprisingly silent in 2018.  If you look back at prior years, OFAC has not been as inactive as 2018.
 
Maybe there is a logical explanation for OFAC’s enforcement silence.  OFAC has been issuing a flurry of new sanctions rules and changes to existing programs.
 
Let’s look at OFAC’s To-Do List:
  (1) Iran Sanctions: On May 8, 2018, the President announced his decision to cease the United States’ participation in the Joint Comprehensive Plan of Action (JCPOA), and to begin re-imposing the U.S. nuclear-related sanctions that were lifted to effectuate the JCPOA sanctions relief, following a wind-down period.
  (2) Ukraine-Russia Sanctions: On April 6, 2018, OFAC added seven Russian oligarchs and 12 companies they own or control, 17 senior Russian government officials, and a state-owned Russian weapons trading company and its subsidiary, a Russian bank, to the SDN list.
  (3) Countering America’s Adversaries Through Sanctions Act (“CAATSA”): On August 2, 2017, the President signed CAATSA requiring OFAC to implement changes to its Iran, Russia and North Korea Sanctions Programs.
 
In light of these activities, OFAC’s delay in enforcement actions appears to be more than justified.
 
In its first enforcement action announced on June 6, 2018, Ericsson agreed to pay $145,893 for violations of the Sudan Sanctions Program. The Sudan Sanctions Program was relaxed significantly in 2017. Nonetheless, Ericsson’s conduct occurred in 2011 and 2012 when the Sudan Sanctions Program was restrictive.
 
On September 22, 2011, Ericsson signed a letter of intent with a subsidiary of a Sudanese telecommunications company to provide equipment and services to upgrade and expand telecommunications coverage in Sudan. Ericsson enlisted the assistance of a third-party contractor to assist in the installation of a satellite hub. Two Ericsson employees and the contractor agreed among themselves to avoid writing in any emails that the contract involved Sudan. To remedy an overheating problem with the equipment, the Ericsson employees consulted with another Ericsson official, who requested that they avoid using any emails disclosing the connection of the project to Sudan for fear of violating the law and Ericsson’s sanctions compliance policy.
 
The two Ericsson employees and the subcontractor agreed to purchase a new satellite facility from a US supplier. The Ericsson employees discussed the proposed transaction with Ericsson’s compliance department and were informed that such a purchase and delivery would violate Ericsson’s sanctions compliance policy and was prohibited. Despite being told not to conduct the transaction, the employees moved forward with the transaction and listed the delivery point as Botswana. The employees arranged for transshipment of the satellite to Sudan through Switzerland and Lebanon.
 
Interestingly, OFAC added a significant paragraph at the end of the enforcement action:
 
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.
 
These words are an important reminder to everyone about the obligation to design and implement an effective sanctions compliance program with an independent and empowered CCO and supported with adequate resources.
 

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ENEDITOR’S NOTES

(Source: Editor)
 
Harriet Beecher Stowe (Harriet Elisabeth Beecher Stowe; 14 Jun 1811 – 1 Jul 1896; was an American abolitionist and author. She is best known for her novel, Uncle Tom’s Cabin (1852), which depicts the harsh conditions for enslaved African Americans. Stowe wrote 30 books, including novels, three travel memoirs, and collections of articles and letters.)
  – “When you get into a tight place and everything goes against you, till it seems as though you could not hang on a minute longer, never give up then, for that is just the place and time that the tide will turn.”
  – “So much has been said and sung of beautiful young girls, why doesn’t somebody wake up to the beauty of old women?”

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EN_a315
. 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 Jun 2018: 
83 FR 27380-27407
: Air Cargo Advance Screening (ACAS); Final Rule
 
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:
8 Jun 2018: Harmonized System Update 1809, containing 901 ABI records and 192 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_a0316
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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