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18-0719 Thursday “Daily Bugle”

18-0719 Thursday “Daily Bugle”

Thursday, 19 July 2018

TOP
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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[No items of interest noted today.]

  1. Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.)
  3. DoD/DSCA Releases Policy Memo Concerning Information on MIDS
  4. Justice: “Connecticut Business Owners Who Profited from Unlawful Exports to Pakistan Are Sentenced”
  5. OMB/OIRA Reviews of Proposed Ex/Im Regulations
  6. State/DDTC: (No new postings.)
  7. Treasury/OFAC Issues Venezuela General License 5, Publishes Venezuela-related FAQs
  8. U.S. and the Netherlands Sign Defense Agreement
  1. Bloomberg: “Trump’s Tariffs Spark Outcry from Companies Denied Relief”
  2. Financial Review: “Universities Label Defense Proposals ‘Extraordinary and Excessive'”
  3. The Guardian: “UK Stance on Arms Exports Protects Corrupt Practices, Experts Claim”
  4. Jane’s 360: “Australia Calls for Greater Powers to Control Defense Exports”
  5. Reuters: “Exclusive: U.S. Offers India Armed Version of Guardian Drone – Sources”
  1. J. Reeves & K. Heubert: Analysis of Settlement Agreement Reached In 3D Gun Printing Case
  2. M. Volkov: “The Risk of Employee Misconduct”
  3. R.C. Thomsen II, A.D. Paytas & M.M. Shomali: “Options for Addressing the new U.S. Tariffs on Chinese-Origin Items”
  1. Full Circle Compliance Presents “Awareness Course U.S. Export Controls: ITAR & EAR From a Non-U.S. Perspective”, 2 Oct in Bruchem, the Netherlands
  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 (29 Jun 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

[No items of interest noted today.]

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

OGSOTHER GOVERNMENT SOURCES

OGS_a11. Items Scheduled for Publication in Future Federal Register Editions
(Source: Federal Register)

* DHS/CBP; NOTICES; Agency Information Collection Activities; Proposals, Submissions, and Approvals: Customs Declaration [Publication Date: 20 Jul 2018.]

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

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OGS_a33. 
DoD/DSCA Releases Policy Memo Concerning Information on MIDS

(Source: 
DoD/DSCA, 19 Jul 2018.) 
 
* DSCA Policy Memo 18-13 
Information on Multifunctional Information Distribution System has been posted. 
 
DSCA Policy 18-13 – Supersedes DSCA 
Policy Memo 12-07 by providing updated information and guidance on the Multifunctional Information Distribution System (MIDS).

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

OGS_a44
Justice: “Connecticut Business Owners Who Profited from Unlawful Exports to Pakistan Are Sentenced”

(Source: 
Justice, 18 Jul 2018.) [Excerpts.]
 
John H. Durham, United States Attorney for the District of Connecticut, announced that a father and son were sentenced today in Bridgeport federal court for profiting from unlawful exports to Pakistan.  U.S. District Judge Stefan R. Underhill sentenced both MUHAMMAD ISMAIL, 67, of Meriden, and KAMRAN KHAN, 38, of Hamden, to 18 months imprisonment followed by three years of supervised release.
 
According to court documents and statements made in court, from at least 2012 to October 2013, Muhammad Ismail, and his two sons, Kamran and Imran Khan, were engaged in a scheme to purchase goods that were controlled under the Export Administration Regulations (“EAR”) and to export those goods without a license to Pakistan, in violation of the EAR.  Through companies conducting business as Brush Locker Tools, Kauser Enterprises-USA and Kauser Enterprises-Pakistan, the three defendants received orders from a Pakistani company that procured materials and equipment for the Pakistani military, requesting them to procure specific products that were subject to the EAR. When U.S. manufacturers asked about the end-user for a product, the defendants either informed the manufacturer that the product would remain in the U.S. or completed an end-user certification indicating that the product would not be exported.
 
After the products were purchased, they were shipped by the manufacturer to the defendants in Connecticut.  The products were then shipped to Pakistan on behalf of either the Pakistan Atomic Energy Commission (“PAEC”), the Pakistan Space & Upper Atmosphere Research Commission (“SUPARCO”), or the National Institute of Lasers & Optronics (“NILOP”), all of which were listed on the U.S. Department of Commerce Entity List. The defendants never obtained a license to export any item to the designated entities even though they knew that a license was required prior to export.  The defendants received the proceeds for the sale of export-controlled items through wire transactions from Value Additions’ Pakistan-based bank account to a U.S. bank account that the defendants controlled.
 
On March 5, 2018, Muhammad Ismail and Kamran Khan each pleaded guilty to one count of international money laundering, for causing funds to be transferred from Pakistan to the U.S. in connection with the export control violations.  In pleading guilty, Ismail and Kamran Khan specifically admitted that, between January and July 2013, they procured, received and exported to SUPARCO, without a license to do so, certain bagging film that is used for advanced composite fabrication and other high temperature applications where dimensional stability, adherence to sealant tapes and uniform film gage are essential.  The proceeds for the sale of the bagging film was wired from Pakistan to the defendants in the U.S.
 
Ismail and Kamran Khan are both citizens of Pakistan and lawful permanent residents of the U.S.
 
On June 1, 2017, Imran Khan, of North Haven, pleaded guilty to one count of violating the International Emergency Economic Powers Act.  In pleading guilty, KHAN specifically admitted that, between August 2012 and January 2013, he procured, received and exported to PAEC an Alpha Duo Spectrometer without a license to do so.  He is released on a $100,000 bond pending sentencing. … 

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OGS_a55. 
OMB/OIRA Reviews of Proposed Ex/Im Regulations

(Source: 
OMB/OIRA, 19 Jul 2018.)
 
* Wassenaar Arrangement 2017 Plenary Agreements Implementation; India
– AGENCY: DOC-BIS
– STAGE: Final Rule
– RECEIVED DATE: 9 Jul 2018.
– RIN: 
0694-AH44
– STATUS: 
Pending Review  

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

OGS_a66. 
State/DDTC: (No new postings.)

(Source: 
State/DDTC)

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OGS_a77
Treasury/OFAC Issues Venezuela General License 5, Publishes Venezuela-related FAQs

(Source: 
Treasury/OFAC, 19 Jul 2018.) 


Today, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) is issuing 
Venezuela General License 5
. General License 5 authorizes U.S. persons to engage in all transactions related to, the provision of financing for, and other dealings in the Petroleos de Venezuela SA 2020 8.5 Percent Bond that would be prohibited by Subsection 1(a)(iii) of 
Executive Order 13835
 of May 21, 2018 (“Prohibiting Certain Additional Transactions With Respect to Venezuela”) (E.O. 13835). 
 
OFAC is also publishing 
two new Frequently Asked Questions (FAQs). One explains why OFAC is issuing General License 5. The other answers the question of whether E.O. 13835 prohibits a U.S. person with a legal judgment against the Government of Venezuela from attaching and executing against Venezuelan government assets.

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OGS_a88
U.S. and the Netherlands Sign Defense Agreement

 
Ambassadors Pete Hoekstra and Henne Schuwer signed a Chapeau Agreement Establishing a Framework for bilateral Defense Cooperation Activities. With this agreement, the Netherlands and the United States strengthen cooperation between the two countries on military equipment and operations.
 
The agreement involves exchanging military personnel, such as pilots, liaison officers, and technicians, as well as exchanging information about new technological systems. This is especially important in large-material projects, such as the replacement of helicopters (Chinook and Apache), the purchase of unmanned aircraft (Reaper), or the exchange of information during replacements of submarines and frigates. Both countries also agreed to cooperate further in missile defense.
 
The U.S. and the Netherlands already work intensively together in defense. With this new treaty, this cooperation is strengthened in these areas. The signing of the treaty coincides with Prime Minister Rutte’s meeting with President Donald Trump.

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NWSNEWS

NWS_a19. 
Bloomberg: “Trump’s Tariffs Spark Outcry from Companies Denied Relief”

(Source: 
Bloomberg, 17 Jul 2018.) [Excerpts.] 
 
Todd Adams won what he thought was a career-defining order last summer for his small, family-owned stainless steel manufacturer. Now, he’s paid “several hundred thousand dollars” from President Donald Trump’s tariffs that have cut deeply into that sale.
 
Adams is vice president of Stainless Imports Inc. and president of Sanitube LLC in Lakeland, Florida, one of the more than 40 initial U.S. companies whose requests for exemptions from tariffs on steel and aluminum imports were denied by the Trump administration. Adams was told his application was rejected for being incomplete, but he said he had to wait almost three weeks for an answer about what was wrong and still has questions about his denial.
 
While more than 30 companies have had their requests for relief from the duties granted so far, some businesses that were rejected say they weren’t given adequate consideration after other companies objected. … 

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NWS_a210

Financial Review: “Universities Label Defense Proposals ‘Extraordinary and Excessive'”

(Source: 
Financial Review, 19 Jul 2018.) [Excerpts.] 
 
[Australian] Universities have stepped up their criticism of 
Defense Department proposals that would give the government unprecedented control over international research partnerships, claiming they would destroy Australia’s reputation, threaten new investment and introduce onerous regulation for foreign-born researchers.
 
The proposals, which were announced in a last-minute submission from the department to a review of the Defence Trade Controls Act, blindsided universities and research institutes.
 
They would allow the department to control the supply of any technology – not just those deemed sensitive or strategic – to research partners and give it new powers to carry out search and seizure operations without a warrant. … 
 
The move to increase oversight of these research partnerships is the latest in a 
series of government initiatives to strengthen its national security controls and comes amid increasing concern over the sharing of research between Australian and Chinese universities on technology that could potentially be used for military purposes, such as super-computing or artificial intelligence. … 

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NWS_a3
11. 
The Guardian: “UK Stance on Arms Exports Protects Corrupt Practices, Experts Claim”
(Source: 
The Guardian, 19 Jul 2018.) [Excerpts.] 
 
Government accused of allowing arms industry to act with impunity, damaging development efforts and fueling conflict
 
The British government’s role in arms exports has come under scrutiny amid accusations that the trade’s corrupt practices are being deliberately protected to benefit the economy.
 
Andrew Feinstein, CEO of Corruption Watch, an arms control watchdog, said the government’s approach was not only deeply damaging to Britain’s global development efforts but also fuelled world conflicts.
 
At the launch of Corruption Watch’s latest 
report, entitled 
The Anglo-Italian Job, Labour MP Lloyd Russell-Moyles, a member of the committee on arms export control (CAEC), joined a panel of experts in calling for the government to reduce secrecy around its arms deals and promote transparency in policies geared towards reducing corruption and global conflict. … 
 
The report focuses on a number of cases involving alleged corrupt payments by UK arms manufacturers to intermediaries with the aim of securing contracts in the developing world. The countries involved include Yemen, Indonesia, Nigeria and India. … 

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NWS_a4
12. 
Jane’s 360: “Australia Calls for Greater Powers to Control Defense Exports”
(Source: 
Jane’s 360, 18 Jul 2018.) [Excerpts; subscription required.]
 
Key Points
 
  – Australia’s Department of Defense has said expanded export controls are required in the face of the country’s changing security landscape
  – A DoD submission to a review of the 2012 DCT Act calls for the introduction of a ‘risk-targeted approach’ to allow the government more flexibility in controlling transfers of technologies
 
The Australian Department of Defense (DoD) has called for greater powers to control the export of military and dual-use technologies.
 
In a recent submission to a review of the Australian Defense Trade Controls Act 2012 (DCT Act), the DoD said the legislation requires amendment in the face of the country’s changing security landscape. … 

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NWS_a5
13. 
Reuters: “Exclusive: U.S. Offers India Armed Version of Guardian Drone – Sources”
(Source: 
Reuters, 18 Jul 2018.) [Excerpts.]  
 
The United States has offered India the armed version of Guardian drones that were originally authorized for sale as unarmed for surveillance purposes, a senior US official and an industry source told Reuters.
 
If the deal comes to fruition, it would be the first time Washington has sold a large armed drone to a country outside the NATO alliance.
 
It would also be the first high-tech unmanned aircraft in the region, where tensions between India and Pakistan run high.
 
In April, President Donald Trump’s administration rolled out a long-awaited overhaul of U.S. arms-export policy aimed at expanding sales to allies, saying it would bolster the American defense industry and create jobs at home.
 
The plan included a new drone export policy that allowed lethal drones that can fire missiles, and surveillance drones of all sizes, to be more widely available to allies. … 
 
U.S. drone manufacturers, facing growing competition overseas, especially from Chinese and Israeli rivals which often sell under lighter restrictions, have lobbied hard for the changes in U.S export rules.
 
Among the changes will be a more lenient application by the U.S. government of an arms export principle known as “presumption of denial.” This has impeded many drone deals by automatically denying approval unless a compelling security reason is given together with strict buyer agreements to use the weapons in accordance with international law.
 
A second U.S. official said the new policy would “change our calculus” by easing those restrictions on whether to allow any given sale.
 
The MTCR – a 1987 missile-control pact signed by the United States and 34 other countries – will still require strict export controls on Predator-type drones, which it classifies as Category 1, those with a payload of over 1,100 pounds (500 kg).
 
However, the Trump administration is seeking to renegotiate the MTCR accord to eventually make it easier to export the larger armed drones. … 

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COMMCOMMENTARY

COMM_a0
14. 
J. Reeves & K. Heubert: Analysis of Settlement Agreement Reached In 3D Gun Printing Case

(Source: Reeves & Dola LLP Alert, 18 Jul 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.
 
Last week, news broke that a settlement agreement had been reached in the 
Defense Distributed v. United States Department of State case. Several news articles reported the outcome as a major victory to First and Second Amendment advocates, as well as a “stunning shift” in State Department policy in how it applies export controls to information available on the Internet. This is an important case, and we examine the potential implications of the Settlement Agreement, especially in how the State Department treats certain information made openly available on the Internet.
 
Background
 
In December 2012, Defense Distributed posted certain three-dimensional (“3D”) printing files on its website, 
DEFCAD.org, for a number of firearm-related items, including “Ghost Gunner” files, and certain CAD files (the “Published Files”). Some of the Published Files included downloadable instructions to produce a fully functional firearm on a 3D printer. In May 2013, Defense Distributed received a letter from the U.S. Department of State, Directorate of Defense Trade Controls (DDTC), directing the company remove the Published Files from its website. DDTC is the federal agency responsible for compliance and enforcement of the Arms Export Control Act (22 USC 2778) and the implementing regulations known as the 
International Traffic in Arms Regulations (ITAR), published in 22 C.F.R. Pts. 120-130. In its letter, DDTC explained the Published Files may constitute ITAR-controlled “technical data” related to firearms and if so, the act of making the Published Files widely available on the Internet constituted an export of technical data without the required prior authorization from DDTC.
 
For those unfamiliar with the ITAR, controlled “technical data” includes information required for the design, development, production, manufacture, assembly, operation, repair, testing, maintenance or modification of “defense articles,” and includes information in the form of blueprints, drawings, photographs, plans, instructions or documentation (ITAR section 120.10). Currently, almost all firearms up to and including .50, as well as parts, components, attachments and accessories for said firearms are captured by the ITAR’s U.S. Munitions List (USML) under Category I. The only exceptions to this broad coverage are so-called “noncombat shotguns” with barrels 18 inches or longer, BB, pellet, and muzzle loading firearms, as well as attachments or accessories that do not enhance the usefulness, effectiveness, or capabilities of the firearm, component and parts. Such items are controlled under the Department of Commerce export controls, known as the 
Export Administration Regulations (EAR).
 
DDTC explained in its letter to Defense Distributed, “[p]ursuant to 127.1 of the ITAR, it is unlawful to export any defense article or technical data for which a license or written approval is required without first obtaining the required authorization from the DDTC. Please note that disclosing (including oral or visual disclosure) or transferring technical data to a foreign person, whether in the United States or abroad, is considered an export under 120.17 of the ITAR.”  To resolve the matter “officially,” DDTC requested Defense Distributed submit a Commodity Jurisdiction (CJ) request for the following data files: 
 
  – Defense Distributed Liberator pistol
  – .22 electric
  – 125mm BK-14M high-explosive anti-tank warhead
  – 5.56/.223 muzzle brake
  – Springfield XD-40 tactical slide assembly
  – Sound Moderator – slip on
  – “The Dirty Diane” 1/2-28 to 3/4-16 STP S3600 oil filter silencer adapter
  – 12 gauge to .22 CB sub-caliber insert
  – Voltlock electronic black powder system
  – VZ-58 sight
 
A copy of the DDTC letter is available in a  
2013 Forbes article (ast visited on Jul. 18, 2018).
 
In compliance with the DDTC letter, Defense Distributed removed the Published Files from its website and in June 2013, submitted a CJ request. Almost two years later, with no response to the CJ request and an unsuccessful attempt to obtain public release approval from the Department of Defense Office of Prepublication Review and Security for the subject files, Defense Distributed along with the Second Amendment Foundation (“SAF”), sued DDTC in the Western District of Texas, alleging the ITAR prior approval requirement for posting technical data on the Internet was an unconstitutional prior restraint on protected First Amendment speech, along with other constitutional violations under the Second and Fifth Amendments.
 
While the case was pending, the Plaintiffs filed a motion with the court seeking a preliminary injunction against DDTC, wherein the court would suspend enforcement of the ITAR prepublication approval requirement pending final resolution of the underlying case. The District Court denied the motion, holding the national security interests of the United States outweighed the potential harm to Defense Distributed. Defense Distributed and SAF appealed the decision to the U.S. Court of Appeals for the Fifth Circuit, which affirmed the District Court decision, noting, however, that its decision was limited and did not address the merits:
 
  ”
This case presents a number of novel legal questions, including whether the 3D printing and/or CNC milling files at issue here may constitute protected speech under the First Amendment, the level of scrutiny applicable to the statutory and regulatory scheme here, whether posting files online for unrestricted download may constitute “export,” and whether ITAR regulations establish an impermissible prior restraint scheme. These are difficult questions, and we take no position on the ultimate outcome other than to agree with the district court that it is not yet time to address the merits. On remand, the district court will eventually have to address the merits, and it will be able to do so with the benefit of a more fully developed record.” 
Defense Distributed v. U.S. Department of State, 838 F.3d 451, 464 (5th Cir. 2016).
 
Defense Distributed then petitioned the U.S. Supreme Court for writ of certiorari, which the Court denied on January 8, 2018. On June 29, 2018, the parties executed the Settlement Agreement, resolving all claims in the case. We reviewed the text of the Settlement Agreement circulated in 
The Daily Bugle, a free export/import daily newsletter from Full Circle Compliance, on July 12, 2018.
 
The Settlement Agreement 
 
In the Settlement Agreement, the parties agree to resolve all issues, including any issues “that could have been asserted” by Defense Distributed without further litigation, and without any admission of liability on either side. The Settlement Agreement goes on to stipulate in Paragraph 4 that it shall not be construed as an admission by DDTC of the veracity or validity of any of Defense Distributed’s allegations. Further, the Settlement Agreement does not hold any precedent, as the parties are explicitly prohibited from using it as evidence and from referring to the Settlement Agreement in any way in proceedings that may be needed to enforce it.

In consideration of Plaintiffs’ agreement to dismiss its claims against DDTC with prejudice, DDTC agreed to five requirements:
 
(1) DDTC’s commitment to draft and fully pursue, to the extent authorized by law, a proposed and final rule revising U.S. Munitions List (USML) Category I to exclude “the technical data that is the subject of the Action.” (Settlement Ag., para. 1(a)).
 
It should be noted that by the time the Settlement Agreement was signed on June 29, 2018, DDTC had already published more than a month prior in 
83 Fed. Reg. 24198 (May 24, 2018) its proposed rule to transition most firearms and ammunition, along with certain parts, components, attachments, and accessories, away from ITAR controls over to EAR controls. For more information on the State and Commerce companion proposed rules, please refer to our 
alerts of June 1, 8, and 13.
 
(2) While the above-referenced final rule is in development, DDTC will publish on its website an announcement by July 27, 2018, of a temporary modification, consistent with ITAR section 126.2, to exclude “the technical data that is the subject of the Action.” (Settlement Ag., para. 1(b)). 
 
Section 126.2 permits the Deputy Assistant Secretary for Defense Trade Controls to order the temporary suspension or modification of any or all regulations in the ITAR in the interest of the security and foreign policy of the United States.
 
(3) DDTC will issue a letter a letter to Defense Distributed by July 27, 2018, advising that the Published Files are approved for public release in any form and are exempt from export licensing requirements of the ITAR because the files satisfy the criteria of ITAR section 125.4(b)(13). (Settlement Ag., para. 1(c)).
 
Section 125.4 in the ITAR lists various exports of technical data that do not require approval from DDTC. Paragraph (b)(13), cited in this particular consideration, covers “[t]echnical data approved for public release (i.e. unlimited distribution) by the cognizant U.S. Government department or agency or Office of Freedom of Information and Security Review. This exemption is applicable to information approved by the cognizant U.S. Government department or agency for public release in any form. It does not require that the information be published in order to qualify for the exemption.”
 
(4) DDTC acknowledges and agrees that the temporary modification of USML Category I [per Consideration #2 above] permits any U.S. person, including Defense Distributed customers and SAF members, to access, discuss, use, reproduce, or otherwise benefit from the “technical data that is the subject of the Action.”… (Settlement Ag., para. 1(d)).
 
(5) Payment of $39,581.00 to Plaintiffs. “This figure is inclusive of any interest and is the only payment that will be made to Plaintiffs or their counsel by Defendants under this Settlement Agreement.” (Settlement Ag., para. 1(e)).
 
Analysis of Settlement
 
What impact will the Settlement Agreement have on industry, if any? Strikingly, the Settlement Agreement does very little to advance the argument that the ITAR’s prior restraints on publication are a violation of the First Amendment or any other constitutional rights. Indeed, as the Settlement Agreement makes very clear, the parties stipulate that DDTC’s entering into the agreement is in no way an acknowledgment of the validity or veracity of those arguments. Further, all conditions are silent on the constitutional rights issues raised in the case – the Settlement Agreement addresses only the manner in which DDTC will authorize Defense Distributed to release just the Published Files, nothing more.
 
While DDTC agreed to “draft and fully pursue” the proposed rulemaking to revise USML Category I, in the interim, the temporary amendment to USML Category I will exclude ONLY the “technical data that is subject of the Action.” The “technical data that is subject of the Action” is not a limitless bucket containing all ITAR-controlled technical data pertaining to firearms. Rather, the Settlement Agreement defines the words, “technical data that is subject of the Action” specifically to mean only the following: “(1) the Published Files; (2) the Ghost Gunner files; (3) the CAD Files; and (4) the Other Files insofar as those files regard items exclusively: (a) in Category I(a) of the [USML], as well as barrels and receivers covered by Category I(g) of the USML that are components of such items, or (b) items covered by Category I(h) of the USML solely by reference to Category I(a), excluding Military Equipment [as defined in the Settlement Agreement].”
 
DDTC did not agree to amend the USML to exclude all similar technical data or related hardware, or make any other revisions to Category I, much less any other USML Category. In fact, DDTC agreed to revise the USML Category I “to the extent authorized by law (including the Administrative procedures Act)” to exclude only “technical data that is subject of the action.” A cynic could say that’s quite a caveat.
 
It is also important to note that nowhere in the Settlement Agreement does DDTC indicate the Published Files are not considered ITAR-controlled technical data. In fact, the agreement to utilize the powers of § 126.2 to exclude the Published Files from the ITAR by using the §125.4(b)(13) public release process clearly supports the argument that DDTC still considers the files to be technical data. If the information was not technical data, then there would be no need to go through these regulatory hoops to authorize its release. Simply put, DDTC did not ever move from its position that the Published Files were technical data, and the Settlement Agreement does more to underscore this position than to prove otherwise.
 
This, coupled with the clear language of the Settlement Agreement that this document cannot be used as precedent in further cases, means the release from ITAR controls applies 
only to the “technical data that is subject of the Action,” as defined in the Settlement Agreement. Other individuals or companies with similar Technical Data should not rely on the fact that Defense Distributed was authorized to release the Published Files as a blanket permission to do the same. To be sure, it seems one must still seek authorization from DDTC or public release approval from another cognizant U.S. Government agency before publishing similar Technical Data to the Internet.
 
As for the arguable coincidence of this Settlement Agreement and the timing of the publication of the proposed revisions to USML Category I, II, and III, one could speculate the Settlement Agreement was the catalyst for DDTC finally publishing the revisions – the case forced DDTC’s hand as it were. However, one could also argue that DDTC simply agreed to do what it was already planning to do as the revisions were, by then, drafted and through the internal review process, thereby losing nothing yet gaining a great deal by settling a lawsuit that could have ultimately decided the interplay between the First Amendment and the ITAR. And, as a result, the ITAR prior approval requirements remain in place and intact, and persons seeking to publish technical data to the Internet must first obtain DDTC approval to do so.
 
Closing Thoughts
 
The only guaranty in court is that there are no guarantees. There was a lot riding on this case, for both sides. This was apparent in the number of amicus (“friend of the court”) briefs weighing in on the potential implications for the constitutional freedoms guaranteed under the First and Second Amendments, gun rights, gun control, world peace and national security interests. Arguably, neither side could afford a negative court decision on the merits of the case. However, with the Settlement Agreement, it appears that both sides won. Defense Distributed is able to reinstate its 
DEFCAD.org website at the end of this month without having to wait until 2019 when the proposed transition rules will become final, presumably, and DDTC has not done anything to change its approach to ITAR licensing controls over technical data, including the requirement for approval for public release prior to posting such information on the Internet.

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COMM_a01
15. 
M. Volkov: “The Risk of Employee Misconduct”

(Source: 
Volkov Law Group Blog, 18 Jul 2018. Reprinted by permission.) 
 
* Author: Michael Volkov, Esq., Volkov Law Group, 
mvolkov@volkovlaw.com, 240-505-1992. 
 
Companies are hyper-focused on third-party risks, especially when it comes to anti-corruption risks. And for good reason – a large percentage of FCPA enforcement actions involve illegal use of third parties to carry out illegal bribery schemes.  In this era of third-party risk management, however, companies may be missing a more significant risk – employee misconduct.
 
In the global economy, companies face a number of serious risks – cybersecurity threats, foreign bribes, conflicts of interest, employee fraud and other employee risks of illegal conduct.  Interestingly, when it comes to cyber-security risks, including theft of intellectual property, customer data, financial information and other valuable corporate data, companies face a significant threat from “insiders,” or to put it another way, from their employees.  Nearly half of all cybersecurity incidents involve an internal actor, half of whom intentionally gain access to valuable corporate information, and half of whom unintentionally compromise valuable corporate information.
 
Overall, employee misconduct continues to hover around one-in-three or 33 percent of employees observe misconduct each year.  The rates of observed employee misconduct is highest in Brazil, India, and Russia.
 
In stark contrast to third parties, companies exercise control and responsibility for their employees. If a company suffers significant employee misconduct, there is a reason – a company has to maintain a culture of trust and integrity, filter that culture throughout the organization, and make it clear that employees should not cut corners or engage in misconduct to improve the bottom line.  A company that is a slave to its quarterly reporting is bound to encourage, at least implicitly, employee misconduct and shady activities to advance the company’s all might quarterly financial results.
 
Once you recognize the control and responsibility a company has to minimize employee misconduct, the company has to mitigate such risks through a robust code of conduct, compliance communications and conduct from top level officials, and a consistent reporting and internal investigation function that includes positive incentives and strict disciplinary actions against violators.
 
A key to employee risk mitigation is to understand the risk of an employee group and tailor communications and training to that risk.  An example illustrates how such an approach should work.  A foreign-based sales staff is under pressure to meet target incentive requirements.  In carrying out their jobs, they face significant anti-corruption risks when interacting with foreign officials, bidding on foreign government tenders, and acting to meet their incentive targets.  A basic risk assessment of these employees will confirm that they pose serious and significant risks of misconduct.
 
Sales incentives, while a significant factor, cannot be the sole explanation for an employee to engage in foreign bribery.  Of course, structuring sales incentives to reward group performance rather than individual performance may mitigate such risks and increase cooperation and joint sales efforts.
 
There is more to the equation – an employee’s supervisor, if committed to anti-corruption compliance, can exercise significant oversight of the employee’s activities and observe signs of misconduct – inexplicable or unjustified expense reports, unusual financial transactions, changes in tendering activities, including access to government tender specifications.
 
A tailored training message to these high-risk employees is important as well to emphasize the risks they face, the controls that are in place to detect and investigate potential misconduct, and the company’s overall commitment to ethical behavior rather than short-term financial gain.  A bland, legal FCPA discussion will have little to no impact on employee behavior and conduct – instead a fulsome message capturing all of the elements of risk mitigation – culture, discipline, positive incentives, and promoting sustainable growth – will reduce misconduct and promote ethical behavior by sales employees operating in high-risk markets.

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COMM_a3
16. 
R.C. Thomsen II, A.D. Paytas & M.M. Shomali: “Options for Addressing the new U.S. Tariffs on Chinese-Origin Items”

(Source: Thomsen and Burke LLP, 18 Jul 2018. Available by subscription via 
maher@t-b.com.)
 
* Authors: Roszel C. Thomsen II, Esq., 
roz@t-b.com; Antoinette D. Paytas, Esq., 
toni@t-b.com; and Maher M. Shomali, Esq., 
maher@t-b.com. All of Thomsen & Burke LLP. 
 
Over the last several months, the Office of the United States Trade Representative (USTR) has announced multiple rounds of new import tariffs on Chinese-origin items pursuant to a Section 301 action. These tariffs impact a wide range of goods and are at different places in their implementation. We have provided below a summary of the different tariff actions and some potential options available to reduce the impact.
 
Round 1
·    25% ad valorem duty
·    Impacted items in Annex B to 
83 FR 28710
·    Became effective July 6, 2018
·    Stakeholders can now request that specific products be exempted.  
See 
83 FR 32181
 
 
Round 2
  – 25% ad valorem duty
  – Impacted items in Annex C to 
83 FR 28710
  – Proposed tariffs to become effective ~ August 2018
  – Jul. 23: Due date to submit written comments
 
Round 3
  – 10% ad valorem duty
  – Impacted items in 
83 FR 55608
  – Proposed tariffs to become effective ~ September 2018
  – Jul. 27: Due date to request to appear at a public hearing and provide comments
  – Aug. 17: Due date to submit written comments
 
Companies impacted by these new tariffs have several options to help reduce the impact, including:
 
  – Adjust supply chain operations such that the items are substantially transformed in a country other than China, prior to their import into the United States.
  – Import sub-assemblies, rather than finished products, if those sub-assemblies have an HTS classification not impacted by the new tariffs. Perform final assembly in the United States after importation.
  – For Round 1 tariffs that are already in effect, submit a request to the USTR that particular products be excluded from the tariffs. The deadline to submit an exclusion request is October 9, 2018. In making its determination, the USTR may consider: (1) Whether the product is available from a source outside of China, (2) Whether additional duties would cause severe economic harm to requester or other U.S. sources, and (3) Whether the particular product is important or related to Chinese industrial programs, including “Made in China 2025.”
  – For Round 2 and Round 3 proposed tariffs, submit comments to the USTR requesting that particular HTS codes be removed from the final list. The deadlines are July 23 and August 17, respectively.
   – For products that are imported into the United States for future export, utilize a bonded warehouse or a drawback program. 

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TECEX/IM TRAINING EVENTS & CONFERENCES

(Source: Full Circle Compliance,
events@fullcirclecompliance.eu.)
 
Our next academy course is specifically designed for beginning compliance officers and professionals who want to enhance their knowledge on the latest ITAR/EAR requirements and best practices. The course will cover multiple topics regarding U.S. export controls that apply to organisations outside the U.S., such as: the regulatory framework, including the latest and anticipated regulatory amendments, key concepts and definitions, classification and licensing requirements, handling (potential) non-compliance issues, and practice tips to ensure compliance with the ITAR and EAR.
 
* What: Awareness Course U.S. Export Controls: ITAR & EAR from a Non-U.S. Perspective
* When: Tuesday, 2 Oct 2018, 9 AM – 5 PM (CEST)
* Where: Landgoed Groenhoven, Bruchem, the Netherlands
* Sponsor: Full Circle Compliance (FCC)
* Instructors: Ghislaine Gillessen, Mike Farrell, and Alexander P. Bosch
* Information & Registration: HERE or via events@fullcirclecompliance.eu  
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ENEDITOR’S NOTES

 


Edgar Degas (born Hilaire-Germain-Edgar De Gas; 19 Jul 1834 – 27 Sep 1917; was a French artist famous for his paintings, sculptures, prints, and drawings. He is especially identified with the subject of dance; more than half of his works depict dancers. He is regarded as one of the founders of Impressionism, although he rejected the term, preferring to be called a realist.)
 – “Everyone has talent at twenty-five. The difficulty is to have it at fifty.”

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EN_a319
. Are Your Copies of Regulations Up to Date?
(Source: Editor)

The official versions of the following regulations are published annually in the U.S. Code of Federal Regulations (C.F.R.), but are updated as amended in the Federal Register.  The latest amendments to applicable regulations are listed below.
 
*
ATF ARMS IMPORT REGULATIONS
: 27 CFR Part 447-Importation of Arms, Ammunition, and Implements of War
  – Last Amendment: 15 Jan 2016: 81 FR 2657-2723: Machineguns, Destructive Devices and Certain Other Firearms; Background Checks for Responsible Persons of a Trust or Legal Entity With Respect To Making or Transferring a Firearm. 
 
*
CUSTOMS REGULATIONS
: 19 CFR, Ch. 1, Pts. 0-199
  – Last Amendment: 12 Jun 2018: 83 FR 27380-27407: Air Cargo Advance Screening (ACAS)
 
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: 29 June 2018: 83 FR 30541-30548: Global Magnitsky Sanctions Regulations; and 83 FR 30539-30541: Removal of the Sudanese Sanctions Regulations and Amendment of the Terrorism List Government Sanctions Regulations 

 
*
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_a0320
Weekly Highlights of the Daily Bugle Top Stories

(Source: Editor) 

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

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EPEDITORIAL POLICY

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

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

* 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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