18-0801 Wednesday “Daily Bugle”

18-0801 Wednesday “Daily Bugle”

Wednesday, 1 August 2018

The Daily Bugle is a free daily newsletter from Full Circle Compliance, containing changes to export/import regulations (ATF, DOE/NRC, Customs, NISPOM, EAR, FACR/OFAC, FAR/DFARS, FTR/AES, HTSUS, and ITAR), plus news and events.  Subscribe 
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  1. President Continues National Emergency with Respect to Lebanon 
  2. Justice/ATF Seeks Comments on National Firearms Act Division and Firearms and Explosives Services Division Customer Service Survey 
  3. DHS/CBP Adjusts COBRA Fees for Inflation in FY 2019 
  1. Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS Activates Denial Order Concerning Narender Sharma and Hydel Engineering Products of Middle Bazzar, Rampur Bushahr, India
  3. DHS/CBP Releases Notice Concerning In-Bond Enforcement Discretion
  4. DoD/DSS Releases Notice for Entities Cleared by DoD under the National Industrial Security Program
  5. GAO Ex/Im Reports and Testimonies of Interest
  6. State/DDTC Withdraws Temporary Modification of USML Category I that Would Have Permitted Internet Posting of 3D-printed Firearm Plans
  7. Treasury/OFAC Issues Ukraine-/Russia-related General License
  8. U.S. District Court Issues Temporary Restraining Order in 3-D Printer Gun Case
  9. EU Adds 6 Entities to Russia Sanctions List
  10. UK OFSI Publishes Guide Concerning Financial Sanctions
  1. CTech: “Israeli and U.S. Defense Robotics Companies Quarrel Over China Ties”
  2. Seattle Times: “Federal Judge in Seattle Blocks Release of Blueprints for 3D-Printed Guns”
  1. M. Volkov: “White Collar Criminals and Sending a Message to Deter Misconduct (Part II of III)”
  2. R.C. Thomsen II, A.D. Paytas & M.M. Shomali: “Changes to Export Controls in July 2018”
  3. R.C. Burns: “Federal Court Incorrectly Says DDTC Jumped the Gun on Gun Printing Plans”
  1. ECTI Presents “Understanding the Tariff Wars: Developing Strategies to Overcome International Supply Chain Disruptions” Webinar, 12 Sep
  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 (1 Aug 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 



Commerce/BIS Amends EAR, Adds 44 Entities in China to Entity List, Modifies 1 Entry 
Federal Register, 1 Aug 2018.) [Excerpts.] 
83 FR 37423-37433: Addition of Certain Entities; and Modification of Entry on the Entity List
* AGENCY: Bureau of Industry and Security, Commerce.
* ACTION: Final rule.
* SUMMARY: This rule amends the Export Administration Regulations (EAR) by adding forty-four entities (eight entities and thirty-six subordinate institutions) to the Entity List. The entities that are being added to the Entity List have been determined by the U.S. Government to be acting contrary to the national security or foreign policy interests of the United States. These entities will be listed on the Entity List under the destination of China. This rule also modifies one entry under China to provide additional addresses and names for the entity at issue.
This rule is effective August 1, 2018. … 
* SUPPLEMENTARY INFORMATION: The Entity List (Supplement No. 4 to part 744) identifies entities reasonably believed to be involved, or to pose a significant risk of being or becoming involved, in activities contrary to the national security or foreign policy interests of the United States. The EAR imposes additional license requirements on, and limits the availability of most license exceptions for, exports, reexports, and transfers (in-country) to listed entities. The “license review policy” for each listed entity is identified in the License Review Policy column on the Entity List and the impact on the availability of license exceptions is described in the Federal Register notice adding entities to the Entity List. BIS places entities on the Entity List pursuant to sections of part 744 (Control Policy: End-User and End-Use Based) and part 746 (Embargoes and Other Special Controls) of the EAR.
  The End-User Review Committee (ERC), composed of representatives of the Departments of Commerce (Chair), State, Defense, Energy and, where appropriate, the Treasury, makes all decisions regarding additions to, removals from, or other modifications to the Entity List. The ERC makes all decisions to add an entry to the Entity List by majority vote and 
all decisions to remove or modify an entry by unanimous vote.
ERC Entity List Decisions
Additions to the Entity List
  This rule implements the decision of the ERC to add forty-four entities (eight entities and thirty-six of their subordinate institutions) to the Entity List. These entities are being added on the basis of Sec. 744.11 (License requirements that apply to entities acting contrary to the national security or foreign policy interests of the United States) of the EAR. All of the entities added as part of this rule are located in China.
  The ERC reviewed Sec.  744.11(b) (Criteria for revising the Entity List) in making the determination to add these entities to the Entity List. Under that paragraph, entities for which there is reasonable cause to believe, based on specific and articulable facts, that the entity has been involved, is involved, or poses a significant risk of being or becoming involved in, activities that are contrary to the national security or foreign policy interests of the United States, and those acting on behalf of such entity, may be added to the Entity List. Paragraphs (b)(1) through (5) of Sec.  744.11 provide an illustrative list of activities that could be contrary to the national security or foreign policy interests of the United States.
  The ERC determined that seventeen entities, China Electronic Technology Group Corporation (CETC) 13, and twelve of its subordinate institutions; CETC-55, and two of its subordinate institutions; and Hebei Far East Communication System Engineering, all located in China, be added to the Entity List for actions contrary to the national security or foreign policy interests of the United States. These seventeen entities are being added to the Entity List on the basis of their involvement in the procurement of U.S.-origin items for activities contrary to the national security and foreign policy interests of the United States. Specifically, the ERC determined that there is reasonable cause to believe, based on specific and articulable facts, that all of these entities are involved in the illicit procurement of commodities and technologies for unauthorized military end-use in China.
  The ERC determined that twenty-seven entities, China Aerospace Science and Industry Corporation Second Academy, and thirteen of its subordinate institutions; China Electronics Technology Group Corporation 14th Research Institute, and two of its subordinate institutions; China Electronics Technology Group Corporation 38th Research Institute, and seven of its subordinate institutions; China Tech Hi Industry Import and Export Corporation; and China Volant Industry, all located in China, be added to the Entity List for actions contrary to the national security or foreign policy interests of the United States. The ERC determined that for these twenty-seven entities there is reasonable cause to believe, based on specific and articulable facts, that there is an unacceptable risk of use in (or diversion of U.S.-origin items to) military end-use activities in China.
  Pursuant to Sec.  744.11(b) of the EAR, the ERC determined that the conduct of all forty-four of these entities raises sufficient concern that prior review of exports, reexports or transfers (in-country) of all items subject to the EAR involving these entities, and the possible imposition of license conditions or license denials on shipments to the entities, will enhance BIS’s ability to prevent violations of the EAR.
  For all forty-four entities added to the Entity List in this final rule, BIS imposes a license requirement for all items subject to the EAR, and a license review policy of presumption of denial. The license requirements apply to any transaction in which items are to be exported, reexported or transferred (in-country) to any of the entities or in which such entities act as purchaser, intermediate consignee, ultimate consignee, or end-user. In addition, no license exceptions are available for exports, reexports or transfers (in-country) to the entities being added to the Entity List in this rule. The acronym “a.k.a.” (also known as) is used in entries on the Entity List to identify aliases and help exporters, reexporters and transferors to better identify entities on the Entity List.
  This rule adds the following entities to the Entity List: [see 
here.] … 
  Dated: July 27, 2018.
Richard E. Ashooh, Assistant Secretary for Export Administration.

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Justice/ATF Seeks Comments on National Firearms Act Division and Firearms and Explosives Services Division Customer Service Survey
Federal Register, 1 Aug 2018.) [Excerpts.] 
83 FR 37520: Agency Information Collection Activities; Proposed eCollection eComments Requested; National Firearms Act Division and Firearms and Explosives Services Division Customer Service Survey
* AGENCY: Bureau of Alcohol, Tobacco, Firearms and Explosives, Department of Justice.
* ACTION: 30-day notice.
* SUMMARY: The Department of Justice (DOJ), Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), will submit the following information collection request to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995. A minor change is being made to the proposed collection OMB 1140-0101 (Firearms and Explosives Services Division (FESD) Customer Service Survey), to include references to the recently established National Firearms Act Division (NFA Division); which was previously a branch in FESD. All survey questions directly relate to customer experience in FESD, NFA Division and their branches. The proposed collection is being published to obtain comments from the public and affected agencies. The proposed information collection was previously published in the Federal Register, on May 30, 2018, allowing for a 60-day comment period.
* DATES: Comments are encouraged and will be accepted for an additional 30 days until August 31, 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 Erica Payne, National Firearms Act Division, either by mail at 244 Needy Road, Martinsburg, WV 25405, by email at 
Erica.payne@atf.gov or by telephone at 304-616-4582. 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 
Overview of This Information Collection
  – Type of Information Collection: Extension, with change, of a currently approved collection.
  – The Title of the Form/Collection: National Firearms Act Division and Firearms and Explosives Services Division Customer Service Survey. … 
  – Form number: None. … 
  – Abstract: The purpose of this survey is to gather information about customer service provided to the firearms and explosives industry and government agencies, in order to improve service delivery and customer satisfaction. … 
  Date: July 27, 2018.
Melody Braswell, Department Clearance Officer for PRA, U.S. Department of Justice. 

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DHS/CBP Adjusts COBRA Fees for Inflation in FY 2019 
Federal Register, 1 Aug 2018.) [Excerpts.] 
83 FR 37509-37511: COBRA Fees To Be Adjusted for Inflation in Fiscal Year 2019
* AGENCY: U.S. Customs and Border Protection, Department of Homeland Security.
* ACTION: General notice.
* SUMMARY: This document announces that U.S. Customs and Border Protection (CBP) is adjusting certain customs user fees and limitations established by the Consolidated Omnibus Budget Reconciliation Act (COBRA) for Fiscal Year (FY) 2019 in accordance with the Fixing America’s Surface Transportation Act (FAST Act) as implemented by CBP regulations.
* DATES: The adjusted amounts of customs COBRA user fees and their corresponding limitations set forth in this notice for Fiscal Year 2019 are required as of October 1, 2018. … 
* SUPPLEMENTARY INFORMATION: … On December 4, 2015, the Fixing America’s Surface Transportation Act (FAST Act, Pub. L. 114-94) was signed into law. Section 32201 of the FAST Act amended section 13031 of the Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 (19 U.S.C. 58c) by requiring certain customs COBRA user fees and corresponding limitations to be adjusted by the Secretary of the Treasury (Secretary) to reflect certain increases in inflation.
  Sections 24.22 and 24.23 of title 19 of the Code of Federal Regulations (19 CFR 24.22 and 24.23) describe the procedures that implement the requirements of the FAST Act. Specifically, paragraph (k) in section 24.22 (19 CFR 24.22(k)) sets forth the methodology to determine the change in inflation as well as the factor by which the fees and limitations will be adjusted, if necessary. The fees and limitations subject to adjustment, which are set forth in Appendix A and Appendix B of part 24, include the commercial vessel arrival fees, commercial truck arrival fees, railroad car arrival fees, private vessel arrival fees, private aircraft arrival fees, commercial aircraft and vessel passenger arrival fees, dutiable mail fees, customs broker permit user fees, barges and other bulk carriers arrival fees, and merchandise processing fees, as well as the corresponding limitations. … 
Announcement of New Fees and Limitations
  The adjusted amounts of customs COBRA user fees and their corresponding limitations for Fiscal Year 2019 as adjusted by 4.886 percent set forth below are required as of October 1, 2018. Table 1 provides the fees and limitations found in 19 CFR 24.22 as adjusted for Fiscal Year 2019 and Table 2 provides the fees and limitations found in 19 CFR 24.23 as adjusted for Fiscal Year 2019. 

Tables 1 and 2 setting forth the adjusted fees and limitations for 
Fiscal Year 2019 will also be maintained for the public’s convenience on the CBP website at 
    Dated: July 27, 2018.
Kevin K. McAleenan, Commissioner, U.S. Customs and Border Protection.
   [FN/2] The Commercial Truck Arrival fee is the CBP fee only, it 
does not include the United States Department of Agriculture (USDA) Animal and Plant Health Inspection Services agricultural quarantine and inspection (APHIS/AQI) fee that is collected by CBP on behalf of USDA. See 7 CFR 354.3(c) and 19 CFR 24.22(c)(1). Once 19 Single Crossing Fees have been paid and used for a vehicle identification number (VIN)/vehicle in a Decal and Transponder Online Procurement System (DTOPS) account within a calendar year, the payment required for the 20th (and subsequent) single-crossing is only the APHIS/AQI fee and no longer includes the CBP Commercial Truck Arrival fee (for the remainder of that calendar year).
  [FN/3] The Commercial Truck Arrival fee is adjusted down from 5.77 to the nearest lower nickel. See 82 FR 50523 (November 1, 2017).
  [FN/4] See footnote 2 above.
  [FN/5] Although the minimum limitation is published, the fee 
charged is the fee required by 19 U.S.C. 58c(b)(9)(A)(ii).
  [FN/6] Only the limitation is increasing; the ad valorem rate of 
0.3464% remains the same. See 82 FR 32661 (July 17, 2017).
  [FN/7] Id.
  [FN/8] For monthly pipeline entries, see: 

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OGS_a14. Items Scheduled for Publication in Future Federal Register Editions
(Source: Federal Register)

* DHS/CBP; PROPOSED RULES; Modernized Drawback [Publication Date: 2 August 2018.]

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Commerce/BIS Activates Denial Order Concerning Narender Sharma and Hydel Engineering Products of Middle Bazzar, Rampur Bushahr, India
(Source: Commerce/BIS, 1 Aug 2018.) [Summary.]
* Respondent: Narender Sharma and Hydel Engineering Products of Rampur Bushahr, India
* Charges: Violation of one of the probationary conditions relating to the $70,000 suspended portion of the civil penalty and the suspension of the 31 Aug 2017 denial order of Sharma’s and Hydel’s export privileges. Specifically, Hydel and Sharma did not pay $30,000 that was due by 15 Dec 2017. 
* Penalty: Activation of the $70,000 suspended portion of the civil penalty and activation of denial order including a five-year denial period. The now-activated $70,000 civil penalty amount shall be paid to the U.S. Commerce Department within 15 days of the order. 
* Debarred: 5 years. 
* Date of Order: 30 Jul 2018.

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CSMS# 18-000466, 1 Aug 2018.) 

Due to issues identified with electronic communication for intermodal movement of cargo and other operational issues identified by trade partners, OFO will defer enforcement as identified above for a 6-month period until February 6, 2019.

  – In-bond shipments that arrive into the United States on a mode of transport other than air and are subsequently transferred to air for exportation from the U.S. or movement to a U.S. port of entry may continue to be arrived and exported by CBP.  
  – In-bonds that originate in the United States from either bonded warehouses or Foreign Trade Zones and are subsequently exported by air may continue to be arrived and exported by CBP. 
  – The use of FIRMS codes at arrival will not be enforced for those reporting electronically. 
  – No automated edits in ACE will be implemented avoiding system reject messaging.
  – CBP Officers at the port will assist traders with in-bond arrival and export reporting as needed.
  – Timeframe enforcement for arrival and export reporting beyond the 2 business days specified in the regulations for those reporting electronically will be extended to 4 days. 

Ports have been instructed to maintain an evaluation of the Trade’s progress in compliance during this period, and a reevaluation will be made within the 6-month period. While ports are instructed to issue warnings rather than penalties during this time, ports will maintain the discretion to fully enforce for egregious or continued violations or a lack of demonstration of good faith efforts. Allowing for an extension until February 6, 2019, will also allow other government agencies an opportunity to further enhance and align their electronic systems with ACE. 

Additionally until further notice, CBP will:
  – Provide a stamp or perforation on a CBP Form 7512 verifying exportation upon request of the carrier. The carrier, in order for CBP to stamp or perforate an in-bond document, must provide proof of exportation (or physical verification). 

  – CBP will continue to defer enforcement of the submission of the 6 digit HTSUS number indefinitely.

Please direct any questions to CSCWAREHOUSING@CBP.DHS.GOV

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DoD/DSS, 1 Aug 2018.)

In early June 2018, the Director of National Intelligence, in his capacity as the Security Executive Agent, and the Director of the Office of Personnel Management, in his capacity as the Suitability & Credentialing Executive Agent (Executive Agents), jointly issued a memorandum directing the implementation of interim measures intended to mitigate the existing backlog of personnel security investigations at the National Background Investigations Bureau (NBIB). These measures include the deferment of reinvestigations when screening results are favorable and mitigation activities are in place, as directed.

In accordance with the guidance and direction received from the Executive Agents, Defense Security Service (DSS) will adopt procedures to defer the submission of Tier 3 Reinvestigations (T3Rs) and Tier 5 Reinvestigations (T5Rs) for entities cleared under the National Industrial Security Program. Facility Security Officers should continue to submit completed Standard Form 86 and the reinvestigation request, six years from the date of last investigation for the T5Rs and 10 years from the date of the last reinvestigation for the T3Rs. New reinvestigation requests will be screened by DSS using a risk management approach that permits deferment of reinvestigations according to policy. If the determination is made to defer reinvestigations, individuals will be immediately enrolled into the DoD Continuous Evaluation (CE)/Continuous Vetting (CV) capabilities, as required.

The Executive Agents have directed all Federal departments and agencies to reciprocally accept the prior favorable adjudication for deferred reinvestigations that are out of scope (overdue). Existing eligibility remains valid until the individual is removed from CE, no longer has any DoD affiliation, or has their eligibility revoked or suspended. 

The Office of the Under Secretary of Defense for Intelligence signed a memorandum on December 7, 2016, reminding DoD Components that personnel security clearances do not expire. Individuals with current eligibility in the Joint Personnel Adjudication System (JPAS), or its successor, should not be denied access based on an out-of-scope investigation. That memorandum is provided here for ease of reference. If you encounter any challenges with this process, please email dss.ncr.dss-isfo.mbx.psmoi@mail.mil for assistance.

These procedures will remain in effect until further notice.  More information is available in the linked frequently asked questions.

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GAO Ex/Im Reports and Testimonies of Interest

(Source: GAO Reports and Testimonies, 1 Aug 2018.)

Improved Information Sharing Could Help DOD Determine Whether Items Are Commercial and Reasonably Priced.
GAO-18-530: Published: Jul 31, 2018. Publicly Released: Jul 31, 2018.

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State/DDTC Withdraws Temporary Modification of USML Category I that Would Have Permitted Internet Posting of 3D-printed Firearm Plans

(Source: Editor, 1 Aug 2018.)
The Directorate of Defense Trade Controls (DDTC) has removed from its website the notice titled “Temporary Modification of Category I of the United States Munitions List,” dated July 27, 2018. The notice stated that the Acting Deputy Assistant Secretary for Defense Trade Controls, under authority of 22 C.F.R. § 126.2, had temporarily modified United States Munitions List (USML) Category One to exclude the technical data identified in the Settlement Agreement for the matter of Defense Distributed v. U.S. Department of State.  The DDTC website notice was removed on July 31, 2018, after a Federal court’s temporary restraining order blocking the release of downloadable blueprints for 3D-printed firearms that had been agreed to in a settlement between Defense Distributed and the Department of State.
State Department’s spokeswoman, Heather Nauert, defended the decision to settle the case, saying that move was based on legal advice from the Justice Department. “The reason that the State Department got involved … is because of our role in controlling foreign access to U.S. defense technology,” she said. “The State Department wants to prevent the wrong people from acquiring weapons overseas.” 
But, she said, “we were informed that we would have lost this case in court … based on First Amendment grounds … The Department of Justice suggested that the State Department and the U.S. government settle this case, and so that is what was done.”

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OGS_a710. Treasury/OFAC Issues Ukraine-/Russia-related General License

(Source: Treasury/OFAC, 31 Jul 2018.) 
The Department of the Treasury’s Office of Foreign Assets Control (OFAC) is issuing Ukraine-/Russia-related General License 13C, which replaces and supersedes General License 13B in its entirety.  General License 13C extends the expiration date of the general license to 12:01 a.m. October 23, 2018. OFAC is also replacing references to GL 13B in these FAQs with references to GL 13C.

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OGS_a811U.S. District Court Issues Temporary Restraining Order in 3-D Printer Gun Case

(Source: Editor, 1 Aug 2018.) [Docket numbers and administrative references removed. Copy of original available HERE.]
  Case No. C18-1115RSL
This matter comes before the Court on plaintiffs’ “Emergency Motion for Temporary Restraining Order (with Notice to Adverse Party)” … and defendants’ oppositions thereto …. On or about June 29, 2018, defendants entered into an agreement whereby the federal government agreed to publish a notice of proposed rulemaking and final rule revising the United States Munitions List (“USML”) to allow the distribution of computer aided design (“CAD”) files for the automated production of 3-D printed weapons, to announce a temporary modification of the USML to allow such distribution while the final rule is in development, and to issue a letter to Defense Distributed and other defendants advising that the CAD files are approved for public release and unlimited distribution. The agreement was made public on July 10, 2018, and Defense Distributed is currently allowing individuals to sign up to download specific CAD files on August 1, 2018. DEFCAD, https://defcad.com (visited Jul. 31, 2018).
Prior to the June 29, 2018, agreement, the federal government had taken the position that restrictions on the export of technical data that is indispensable to the creation of guns and their components through a 3-D printing process was an essential part of its efforts to ensure that articles useful for warfare or terrorism do not proliferate and threaten United States interests and security. Under the Arms Export Control Act (“AECA”), the President of the United States is authorized “to control the import and the export of defense articles and defense services” “[i]n furtherance of world peace and the security and foreign policy of the United States.” 22 U.S.C. § 2778(a)(1). “Defense articles and defense services” includes all firearms up to .50 caliber and all technical data related to such firearms, including information that “is required for the design, development, production, manufacture, assembly, operation, repair, testing, maintenance or modification of” the firearms. 22 C.F.R. § 121.1(I)(a) and § 121.10(a). 
When defendant Defense Distributed posted CAD files for various weapons on its website in December 2012, the federal government requested that they be immediately removed from public access. The government advised Defense Distributed that it could request a determination from the Directorate of Defense Trade Controls (“DDTC”) within the United States Department of State regarding whether the files were subject to export control under the International Traffic in Arms Regulations (“ITAR”). [FN/ 1]  Defense Distributed filed a number of determination requests. It also filed a lawsuit in the United States District Court for the Western District of Texas in which it argued that the export restrictions constituted a prior restraint on and censorship of expression in violation of the First, Second, and Fifth Amendments to the United States Constitution. Defense Distributed v. U.S. Dep’t of State, C15-0372RP (W.D. Tex). Defense Distributed sought a preliminary injunction precluding the imposition of any prepublication approval requirement for its CAD files. The federal government opposed the motion, arguing that:
  – “export of Defense Distributed’s CAD files could cause serious harm to U.S. national security and foreign policy interests” and “warrant subjecting [the files] to ITAR’s export licensing of technical data;”
  – Defense Distributed’s “CAD files constitute the functional equivalent of defense articles: capable, in the hands of anyone who possesses commercially available 3D printing equipment, of ‘automatically’ generating a lethal firearm that can be easily modified to be virtually undetectable in metal detectors and other security equipment;” 
  – “The State Department is particularly concerned that [Defense Distributed’s] proposed export of undetectable firearms technology could be used in an assassination, for the manufacture of spare parts by embargoed nations, terrorist groups, or guerrilla groups, or to compromise aviation security overseas in a manner specifically directed at U.S. persons;” and
  – both the government and the public “have a strong interest in curbing violent regional conflicts elsewhere in the world, especially when such conflict implicates the security of the United States and the world as a whole.” 
Id., Dkt. # 32 at 19-20 (internal quotation marks and citations omitted).
The then-Director of the Office of Defense Trade Controls Management, Lisa V. Aguirre, concluded that the unrestricted export of Defense Distributed’s CAD files would result in the production of plastic firearms that are fully operable and virtually undetectable by conventional security measures, that their use to commit terrorism, piracy, assassinations, or other serious crimes would cause serious and long-lasting harm to the foreign policy and national security interests of the United States, that efforts to restrict the availability of defense articles to enemies of the United States would fail, that the proliferation of weapons and related technologies would contribute to a more dangerous international environment, and that the export would undercut the domestic laws of nations that have more restrictive firearm controls and the United States’ foreign relations with those nations would suffer.  …
The district court denied the motion for preliminary injunction, noting that Defense Distributed’s avowed purpose is to facilitate “global access to, and the collaborative production of, information and knowledge related to the three-dimensional (‘3D’) printing of arms,” and that such activities “undoubtedly increase[] the possibility of outbreak or escalation of conflict” and are of the type Congress authorized the President to regulate through the AECA. … The Fifth Circuit affirmed, finding that “the State Department’s stated interest in preventing foreign nationals – including all manner of enemies of this country – from obtaining technical data on how to produce weapons and weapons parts” constitutes “a very strong public interest in national defense and national security.” Defense Distributed v. U.S. Dep’t of State, 838 F.3d 451, 458 (5th Cir. 2016).
In April 2018, the federal government moved to dismiss Defense Distributed’s lawsuit, reiterating that what was at stake was “the United States’ ability to control the export of weapons – a system of law and regulations that seeks to ensure that articles useful for warfare or terrorism are not shipped from the United States to other countries (or otherwise provided to foreigners) without authorization, where, beyond the reach of U.S. law, they could be used to threaten U.S. national security, U.S. foreign policy interests, or international peace and stability.” Defense Distributed v. U.S. Dep’t of State …. Later that month, the parties reached a tentative settlement agreement which, as described in the first paragraph of this order, will allow Defense Distributed to place downloadable CAD files for automated weapons printing on its website. No findings of fact or other statements are provided in the agreement that could explain the federal government’s dramatic change of position or that alter its prior analysis regarding the likely impacts of publication on the United States’ national security interests.
On July 30, 2018, two days before Defense Distributed plans to place downloadable CAD files on its website, eight states and the District of Columbia filed this lawsuit seeking a declaration that the “temporary modification” of the USML is invalid and an injunction requiring the federal defendants to rescind the procedurally defective modification and refrain from acting on it. Having reviewed the papers submitted by the parties along with the record before the Honorable Robert L. Pitman in the United States District Court for the Western District of Texas, and having heard the arguments of counsel, the Court finds as follows:
The procedure for obtaining a temporary restraining order differs from that which is applicable in the preliminary injunction context, but the factors considered by the Court are the same. In order to obtain preliminary injunctive relief, plaintiffs must establish that “(1) they are likely to succeed on the merits; (2) they are likely to suffer irreparable harm in the absence of preliminary relief; (3) the balance of equities tips in their favor, and (4) an injunction is in the public interest.” Short v. Brown, 893 F.3d 671, 675 (9th Cir. 2018) (2008). In the Ninth Circuit, “if a plaintiff can only show that there are serious questions going to the merits – a lesser showing than likelihood of success on the merits – then a preliminary injunction may still issue if the balance of hardships tips sharply in the plaintiff’s favor, and the other two Winter factors are satisfied.” …
Plaintiffs have shown a likelihood of success on the merits of their Administrative Procedure Act claim insofar as the “temporary modification” has resulted in the removal of one or more items from the USML.2 The federal government represents that its settlement was the result of a multi-year review process which was completed in May 2018 and resulted in a determination that the type of firearms and related technical data at issue here would not provide a military advantage to adversaries and therefore no longer warrant export control under the AECA and should be removed from the USML. In such circumstances, the governing statute, 22 U.S.C. §2778(f)(1), requires that the results of such reviews be reported to Congress and precludes the removal of any item from the USML until thirty days after such notice is given. When the President delegated his authority under the AECA to the Secretary of State, he also imposed a requirement that any changes in designations of defense articles and defense services subject to export control had to have the concurrence of the Secretary of Defense. There is no indication that the federal government followed the prescribed procedures.
Plaintiffs have also shown a likelihood of irreparable injury if the downloadable CAD files are posted tomorrow as promised. A side effect of the USML has been to make it more difficult to locate and download instructions for the manufacture of plastic firearms. If an injunction is not issued and the status quo alters at midnight tonight, the proliferation of these firearms will have many of the negative impacts on a state level that the federal government once feared on the international stage. Against this hardship is a delay in lifting regulatory restrictions to which Defense Distributed has been subject for over five years: the balance of hardships and the public interest tip sharply in plaintiffs’ favor.
For all of the foregoing reasons, plaintiffs’ motion for temporary restraining order is GRANTED.
The federal government defendants and all of their respective officers, agents, and employees are hereby enjoined from implementing or enforcing the “Temporary Modification of Category I of the United States Munitions List” and the letter to Cody R. Wilson, Defense Distributed, and Second Amendment Foundation issued by the U.S. Department of State on July 27, 2018, and shall preserve the status quo ex ante as if the modification had not occurred and the letter had not been issued.
Pursuant to the limitations set forth in Fed. R. Civ. P. 65, this matter is hereby set for hearing on Friday, August 10, 2018, at 9:00 a.m. in Courtroom 15106 to determine whether this temporary restraining order should be converted to a preliminary injunction. No bond shall be required. 
  DATED this 31st day of July, 2018, at 4:35 p.m. 

A Robert S. Lasnik, United States District Judge
  [FN/1] The President delegated his authority to regulate under the AECA to the State Department, which promulgated the ITAR. The DDTC administers the ITAR
  [FN/2] For purposes of this temporary order, the Court finds that plaintiffs have standing to pursue their claims. Although the restriction of access to technical data within the United States is not the focus or goal of the USML, there is no separation of the internet between domestic and international audiences. Thus, the listing has effectively limited access to the CAD files within the jurisdictions governed by plaintiffs. The States and the District of Columbia have a clear and reasonable fear that the proliferation of untraceable, undetectable weapons will enable convicted felons, domestic abusers, the mentally ill, and others who should not have access to firearms to acquire and use them.]

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OGS_a912EU Adds 6 Entities to Russia Sanctions List

(Source: Council of the European Union, 31 Jul 2018.)
The Council added six entities to the list of those subject to restrictive measures over actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine. They are listed because of their involvement in the construction of the Kerch Bridge, connecting Russia to the illegally annexed Crimean peninsula. Through their actions they supported the consolidation of Russia’s control over the illegally annexed Crimean peninsula, which in turn further undermines the territorial integrity, sovereignty and independence of Ukraine.
The measures consist of an asset freeze, meaning that all of the assets in the EU belonging to these entities are frozen and EU persons and entities cannot make any funds available to them.
The decision brings the total number of entities listed by the EU to 44. In addition, the EU imposed a travel ban and an asset freeze on 155 individuals under this sanctions regime.
The legal acts, including the names of the persons concerned, are available in the EU Official Journal of 31 July 2018. They were adopted by the Council by written procedure.
Other EU measures in place in response to the Ukraine crisis include:
  – economic sanctions targeting specific sectors of the Russian economy, currently in place until 31 January 2019;
  – restrictive measures in response to the illegal annexation of Crimea and Sevastopol, limited to the territory of Crimea and Sevastopol, currently in place until 23 June 2019.

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OGS_a1013UK OFSI Publishes Guide Concerning Financial Sanctions

(Source: UK OFSI, 31 Jul 2018.) 
The UK Office of Financial Sanctions Implementation (OFSI) has published a guide to the current consolidated list of asset freeze targets, and a list of persons subject to restrictive measures in view of Russia’s actions destabilizing the situation in the Ukraine.
The guide is available here.

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CTech, 1 Aug 2018.) [Excerpts.] 
Israeli Roboteam sued Massachusetts-based competitor Endeavor Robotics over alleged defamation connecting Roboteam to Chinese attempts to obtain U.S. military technologies
Israeli defense robotics company Robo-Team Ltd. (Roboteam) has sued Massachusetts-based competitor Endeavor Robotics Inc. over alleged defamation connecting Roboteam to the Chinese government. The lawsuit was filed by Roboteam’s U.S. subsidiary Robo-Team NA Inc. to a Colombia district court in June 2017. … 
The lawsuit alleges that Endeavor hired defense-focused lobbying firm Sachem Strategies to spread false rumors that Roboteam is controlled by the Chinese government, which uses it to obtain U.S. military technologies. Roboteam alleges that Endeavor’s actions were part of the latter’s attempt to secure two U.S. military contracts worth hundreds of millions of dollars each. In April, Judge Trevor N. McFadden issued a memorandum opinion dismissing Roboteam’s case for lack of personal jurisdiction over the two Massachusetts-based companies. The judge also dismissed Anti-SLAPP (strategic lawsuit against public participation) motions filed by Endeavor and Sachem for the same reason. If granted, the motions would have awarded Endeavor and Sachem all legal costs, pursuant to the District of Columbia’s Anti-SLAPP statute, meant to protect defendant’s against intimidation suits. … 
Israel’s technology trade with China is a sensitive issue for the U.S. administration. In 2000, the U.S. prevented a deal that would grant China an advanced Israeli airborne warning system called Phalcon. The cancelation of the deal led to a diplomatic crisis between Israel and China. Four years later the Pentagon attempted to stop Israel from returning several Israeli-made drones which China had sent to Israel for maintenance. In 2005, Israel agreed to a request by the U.S. to enhance its export control mechanisms, to cease all military trade with China, and to submit nonmilitary tech deals with China for review by the U.S. Department of Defense.

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Seattle Times, 31 Jul 2018.) [Excerpts.]
A federal judge in Seattle has granted a temporary restraining order blocking a Texas man from releasing downloadable blueprints for 3D-printed plastic firearms.
U.S. District Court Judge Robert Lasnik’s ruling Tuesday comes a day after Washington State Attorney General Bob Ferguson filed a suit challenging the Trump administration’s decision last month to allow Texas gun-rights advocate Cody Wilson to post the blueprints, saying the move would provide broad unregulated access to dangerous weapons.
Ferguson is the lead attorney general in the multistate lawsuit that was filed in federal courts in seven other states, including New York and Oregon, along with the District of Columbia.
The lawsuit challenges the outcome of a 2015 case that began in 2013 when Wilson, head of the nonprofit Defense Distributed, was found to have violated a federal law known as International Traffic in Arms Regulations (ITAR), after publishing downloadable plans for 3D-printed guns online. The files were downloaded more than 100,000 times.  …

The lawsuit was settled this June with the Trump administration, despite opposition from gun-control organizations such as the Brady Center to Prevent Gun Violence, Everytown for Gun Safety and the Giffords Law Center to Prevent Gun Violence, and Wilson was given permission to make his creations available publicly again. He intended to do so Wednesday.  
The restraining order issued Tuesday by Lasnik puts that plan on hold for now.
During the Tuesday hearing in Seattle, Eric Soskin, a lawyer for the U.S. Justice Department, said they reached the settlement to allow Defense Distributed to post the material online because the regulations were designed to restrict weapons that could be used in war, and the online guns were no different from the weapons that could be bought in a store.
Since the weapons “did not create a military advantage,” he told Lasnik, “how could the government justify regulating the data?”  
But the judge countered, “There is a possibility of irreparable harm because of the way these guns can be made.”
Afterward, Ferguson issued the following statement: “I am thankful and relieved Judge Lasnik put a nationwide stop to the Trump Administration’s dangerous decision to allow downloadable, 3D-printed ghost guns to be distributed online. These ghost guns are untraceable, virtually undetectable and, without today’s victory, available to any felon, domestic abuser or terrorist.”
According to reporting from The Washington Post, Fred Guttenberg, whose 14-year-old daughter was one of the 17 victims killed at Stoneman Douglas High School in Parkland, Florida, earlier this year, complained that federal lawmakers were “clueless” and unaware a settlement had been signed in June.
Guttenberg and others worry easy access to plastic guns is a public-safety issue and would sidestep current regulations, providing criminals and terrorists with “guns that can’t be flagged by metal detectors, don’t have serial numbers to trace and don’t require the usual background checks.”
The settlement agreement allowed Defense Distributed to freely publish its gun designs, but according to Ferguson’s office, the agreement, which wasn’t made public until July 10, was done “in an arbitrary and capricious” fashion by the Trump administration and violates the Administrative Procedure Act.
  “There is no indication in the settlement agreement or elsewhere that any analysis, study, or determination was made by the government defendants in consultation with other agencies,” says the release from the Attorney General’s Office.
The multistate lawsuit alleges that the settlement between Wilson, his company and the Trump administration did not get the approval of the Department of Defense, and didn’t give Congress 30 days notice before agreeing to allow Defense Distributed to begin publishing 3D gun files, by creating a special exemption for Wilson’s company in the ITAR.
The lawsuit also says the settlement infringes on states’ rights to regulate firearms, therefore violating the 10th Amendment. 
In a tweet Tuesday morning, Trump said he is “looking into” his administration’s decision to clear the way for Wilson’s actions. “Already spoke to NRA, doesn’t seem to make much sense!” he tweeted.
However, it was not immediately clear what Trump is prepared to do. He has been a staunch supporter of gun rights and has repeatedly said that he is the best friend of the National Rifle Association, which contributed about $30 million to his presidential campaign.
On Capitol Hill Tuesday morning, Senate Democrats declared that Trump would be responsible for any injuries or deaths resulting from untraceable 3-D plastic guns, and called on him to reverse the policy immediately.
“It’s his doing, it’s his responsibility and the blood is going to be on his hands,” said Sen. Richard Blumenthal, D-Connecticut. “He can tweet from now until the end of his administration but the hard reality is that he can stop needless death and injury in America.”
Wilson has maintained that this is a First Amendment case, claiming that the government’s attempts to block the publication of the information on the web amounts to prior restraint barred by Supreme Court precedent. Wilson’s attorney, Josh Blackman, compared the state government’s attempts to block his client’s website to the Pentagon Papers case, in which the Nixon administration unsuccessfully tried to stop the New York Times and The Washington Post from publishing the contents of a leaked Vietnam War report.

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M. Volkov: “White Collar Criminals and Sending a Message to Deter Misconduct (Part II of III)”

Volkov Law Group Blog, 1 Aug 2018. Reprinted by permission.) 
* Author: Michael Volkov, Esq., Volkov Law Group, 
mvolkov@volkovlaw.com, 240-505-1992. 
[Editor’s Note: Part I in this series was included in yesterday’s, 31 July 2018, Daily Bugle.  Part III in this series will be included as soon as it is available.]
When Judge Denny Chin sentenced Bernie Madoff, perhaps the most notorious white-collar criminal, Judge Chin imposed a sentence of 150 years, the maximum possible under the law. Madoff was 71 years old.  His Ponzi scheme resulted in the loss of $64.8 billion.
While Judge Chin may have imposed a lesser sentence without altering the fact that Madoff will die while incarcerated, Judge Chin specifically cited the need to send a message and deter future white-collar criminals. Judge Chin called Madoff’s fraud “extraordinary evil,” “unprecedented”, and  “staggering.” Judge Chin also noted that he had not received one letter from family or friends attesting to Madoff’s good deeds or positive contributions to society.
Judges face real challenges when sentencing white-collar criminals.  In most cases, there is some evidence of positive behavior by a white-collar defendant that may justify mercy.  As a general matter, however, deterrence has value in the sentencing process because it ensures that a judge does not give into a claim of rehabilitation or that the defendant “has seen the light,” and is contrite.
White collar criminals are typically older and better educated with a higher percentage of white males than the overall federal prison population.  While the offenses are non-violent, the impact on victims can be devastating.  For the offenders themselves, a criminal conviction can also have significant collateral consequences due to loss of employment and professional licenses.  In truth, however, white-collar offenses are nothing more than varieties of theft.  In many cases, the offenders understand they have violated the law (although they may rationalize their own intent and understanding of the law and their conduct) and the impact of their criminal conduct on victims.  Fraudsters, however, can easily repeat their criminal activities and carry out their crimes using different fraud schemes.  The old adage usually applies – “once a fraudster, always a fraudster.”
Some also claim that recidivism rates understate the actual rate at which white-collar criminals engage in fraud.  White collar crimes are hard to detect, investigate and prosecute because they involve analysis of financial records and regulatory schemes.
There is a common view that white-collar crime is increasing while the rate of prosecution is decreasing. The number of federal fraud case has declined in recent years.  Moreover, there appears to be a real lack of prosecution of senior executives who may have been involved in serious criminal activity.
In this context, deterrence is an important objective to benefit law-abiding society by preventing future misconduct.  Economists often translate the world into a cost-benefit analysis to predict future decision-making and conduct.  From this perspective, deterrence occurs when the benefits of criminal conduct exceed the possible sanction – in other words, if the likelihood of detection and punishment increases, the amount of criminal conduct will decrease.  If there is a low probability of being caught, deterrence has little value.
An interesting question is whether stiff corporate punishment through large fines actually deters misconduct.  At a minimum, however, large fines probably incentivize companies to invest in corporate compliance programs as a means to avoid significant criminal and/or civil penalties.
In other words, companies that invest millions in corporate compliance may avoid multi-million dollar fines by implementing an effective ethics and compliance program.  Such a linkage depends on whether corporate leaders at one company take note of penalties imposed against other companies and view themselves as comparable to the offending company.  The connection is even more remote when one acknowledges that directors and officers do not pay criminal or civil penalties; rather current shareholders bear the brunt of the punishment, and such misconduct usually occurred years in the corporate past.

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R.C. Thomsen II, A.D. Paytas & M.M. Shomali: “Changes to Export Controls in July 2018”

(Source: Thomsen and Burke LLP, 31 Jul 2018. Available by subscription via 
maher@t-b.com.) [Excerpts.]
* 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.
This memo summarizes the regulatory and enforcement developments with respect to U.S. and multilateral export controls during the month of July 2018. Changes to the regulations published in the Federal Register are explained at greater length in the Regulatory Summary, as is our custom.   We have also included a reminder to exporters that License Exception ENC reports are due to the Commerce Department’s Bureau of Industry and Security (BIS) and the National Security Agency (NSA) no later than August 1, 2018. 
BIS has lifted the Denial Order placed on ZTE
On July 13, 2018, the Bureau of Industry and Security (BIS) lifted its Denial Order on ZTE Corporation and ZTE Kangxun. Effective immediately, these parties are now eligible to receive US-origin goods and services.
ZTE Parsian (Iran) and Beijing 8-Star International Co. (China) remain restricted parties.
This Denial Order lifting is pursuant to a settlement agreement reached by BIS and ZTE, where ZTE agreed, among other things, to pay a $1 billion civil penalty for export control-related violations, deposit $400,000 in escrow, retain a team of special compliance coordinators, and completely replace its Board of Directors and senior leadership.
Web Links:
License Exception ENC Encryption Reporting Deadline – August 1, 2018
A reminder to exporters that License Exception ENC reports are due to the Commerce Department’s Bureau of Industry and Security (BIS) and the National Security Agency (NSA) no later than 
August 1, 2018.  
Your License Exception ENC Report for applicable encryption commodities, software, components and technology includes encryption items classified in accordance with Sections 740.17(b)(2) and 740.17(b)(3)(iii) of the EAR, exported between January 1 and June 30, 2018 .
This semi-annual report must be received by BIS and the ENC Encryption Request Coordinator at NSA no later than August 1, 2018 . 
Example Reportable Activity:
  – Exports of “Restricted” network infrastructure equipment
  – Sharing source code classified under ECCN 5D002 with foreign parties
  – Sharing ECCN 5E002 technology with foreign development or manufacturing partners
BIS Online Information:
BIS has published some information on its 
website on how to file the semi-annual encryption report. They also highlighted some common reporting exclusions, such as:
  – Encryption commodities or software with a symmetric key length not exceeding 64 bits.
  – Encryption items exported (or reexported from Canada) via free and anonymous download.
  – Encryption items from or to a U.S. bank, financial institution or its subsidiaries, affiliates, customers or contractors for banking or financial operations.
  – Foreign products developed by bundling or compiling of source code.
Additional reporting information can also be found in 
Section 740.17(e) of the EAR.
Please let us know if you need assistance with preparing the reports.
The U.S. Department of State, with the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) and the U.S. Department of Homeland Security’s (DHS) Customs and Border Protection (CBP) and Immigration and Customs Enforcement (ICE), is issuing this advisory to highlight sanctions evasions tactics used by North Korea that could expose businesses – including manufacturers, buyers, and service providers – to sanctions compliance risks under U.S. and/or United Nations sanctions authorities. This advisory also assists businesses in complying with the requirements under Title III, the Korean Interdiction and Modernization of Sanctions Act of the Countering America’s Adversaries Through Sanctions Act (CAATSA). Businesses should be aware of deceptive practices employed by North Korea in order to implement effective due diligence policies, procedures, and internal controls to ensure compliance with applicable legal requirements across their entire supply chains.
The Guidance:
  (1) Clarifies that the US is not seeking to disrupt the efforts of North Korean refugees and asylum seekers and says that if North Koreans gain another citizenship they are no longer considered North Korean for purposes of US sanctions, in particular, Title III, the Korean Interdiction and Modernization of Sanctions Act of the Countering America’s Adversaries through Sanctions Act;
  (2) Provides a list of industries and countries in which North Korean laborers working on behalf of the North Korean Government were present in 2017-18 (at page 3). While the list of countries is long, it at least narrows somewhat the supply chain sourcing concerns to certain parts of Asia, Africa, and the Middle East;
   (3) Provides in Annex 3 a sectoral breakdown of where North Korean laborers are working on behalf of the North Korean Government overseas by sector. While Annex 3 states that it is NOT a comprehensive list of all countries, jurisdictions and industries, it is helpful in highlighting some higher risk jurisdictions by sector. For example, the Information Technology sector is warned about Angola, Bangladesh, China, Laos, Nigeria, Uganda, and Vietnam; and
  (4) Provides in Annex 2 a list of joint ventures that have operated or are currently operating in North Korea established prior to 2016, organized by industry sector. Again, this is not a comprehensive list, nor is it an SDN or blocked parties list, but it is a list that companies evaluating suppliers in Asia and China in particular may wish to check as they evaluate potential suppliers.
The full document can be found on 
OFAC’s website
Options for Addressing the new US Tariffs on Chinese-Origin Items
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
Round 3
  – 10% ad valorem duty
  – Impacted items in 83 FR 55608
  – Proposed tariffs to become effective ~ September 2018
  – 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 3 proposed tariffs, submit comments to the USTR requesting that particular HTS codes be removed from the final list. The deadline is August 17th.
  – For products that are imported into the United States for future export, utilize a bonded warehouse or a drawback program.
Father and son, Muhammad and Ismail and Kamran Khan were sentenced this month 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 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.

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R.C. Burns: “Federal Court Incorrectly Says DDTC Jumped the Gun on Gun Printing Plans”

(Source: Export Law Blog, 1 Aug 2018. Reprinted by permission.)
* Author: R. Clifton Burns, Esq., Bryan Cave LLP, Wash DC, Clif.Burns@bryancave.com, 202-508-6067).
Just hours before Defense Distributed, pursuant to a Settlement Agreement with the Department of State’s Directorate of Defense Trade Controls, planned to upload plans to allow all who can afford a 3-D printer to make their own plastic guns, a federal district court in Seattle entered a preliminary injunction prohibiting the uploading of those plans.   The preliminary injunction was entered at the request of attorneys general from eight states and the District of Columbia.   In entering the preliminary injunction, the court stated that the plaintiffs were likely to prevail on the merits for two reasons – both, frankly, fairly questionable.
The first reason the court thought that plaintiffs would likely prevail is that, in the court’s view, the Settlement Agreement effectively removed items from the United States Munitions List (“USML”) without the prior thirty-day notice to Congress as required by section 38(f) of the Arms Export Control Act, 22 U.S.C. § 2278(f).  As you probably recall, DDTC and BIS so far have only issued proposed rules.   As noted early on in the export control process, State and Commerce indicated that they would provide the section 38(f) notices to Congress 30 days prior to publishing the final rule.  At this point, only the proposed rules have been issued and the comment period ended on July 9, so it is likely that no section 38(f) notices have been sent to Congress as the court states. Certainly they would not have been sent thirty days before the execution of the Settlement Agreement on June 29 as the Court said should have been done.
The problem with this argument is that the Settlement Agreement did not remove Category I (or any other) items from the USML.  The Settlement Agreement is quite clear that DDTC was not removing anything from the list but, rather, was granting an exemption under ITAR  section 125.4(b)(13).  Under that section, an export of technical data does not require a license if that data has been “approved for public release” by DDTC.  All that DDTC did in the Settlement Agreement was approve public release of specified Defense Distributed plans making their export eligible for the exemption in section 125.4(b)(13).  Nothing has been removed from the USML by the Settlement Agreement, and, thus, no section 38(f) notice was required as a result of the Settlement Agreement.
The other reason relied on by the district court in temporarily blocking the Settlement Agreement was the requirement in Executive Order 11958 that any removal of any item from the USML by DDTC would need the concurrence of the Department of Defense.  The court stated:
When the President delegated his authority under the AECA to the Secretary of State, he also imposed a requirement that any changes in designations of defense articles and defense services subject to export control had to have the concurrence of the Secretary of Defense. There is no indication that the federal government followed the prescribed procedures.
Apparently, the district court had not bothered to read the initial notice from the Department of Commerce on the proposed removal of Category I firearms from the United States Munitions List to the Commerce Control List.   That notice clearly states:
The changes described in this proposed rule and in the State Department’s companion proposed rule on Categories I, II, and III of the USML are based on a review of those categories by the Department of Defense, which worked with the Departments of State and Commerce in preparing the amendments.
Oops.  So even if the Settlement Agreement effectively removed certain Article I items from the USML, which it did not, the DOD had already agreed to that prior to the publication of the initial notices proposing removal of those items.

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TEC_a119. ECTI Presents “Understanding the Tariff Wars: Developing Strategies to Overcome International Supply Chain Disruptions” Webinar, 12 Sep
(Source: Danielle Hatch, danielle@learnexportcompliance.com)
* What: Understanding the Tariff Wars: Developing Strategies to Overcome International Supply Chain Disruptions
* When: September 12, 2018; 1:00 p.m. (EDT)
* Where: Webinar
* Sponsor: Export Compliance Training Institute (ECTI)
* ECTI Speaker: Melissa Proctor
* Register: Here or Danielle Hatch, 540-433-3977, danielle@learnexportcompliance.com.

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. 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.
: 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. 
: 19 CFR, Ch. 1, Pts. 0-199
  – Last Amendment: 12 Jun 2018: 83 FR 27380-27407: Air Cargo Advance Screening (ACAS)

  – 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 

: 15 CFR Subtit. B, Ch. VII, Pts. 730-774

  – Last Amendment: 1 Aug 2018: 83 FR 37423-37433: Addition of Certain Entities; and Modification of Entry on the Entity List [Addition of 44 Entities in China to Entity List, Modification of 1 Entry in China.]

: 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 

: 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
  – 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.  
, 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 
  – HTS codes that are not valid for AES are available 

  – 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 

, 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
. BAFTR subscribers receive a 25% discount on subscriptions to the BITAR, please
contact us

to receive your discount code.  

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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 

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* 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.

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