18-0919 Wednesday “Daily Bugle”

18-0919 Wednesday “Daily Bugle”

Wednesday, 19 September 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. DHS/CBP Amends Regulations, Extending Import Restrictions Imposed on Archaeological Material from Cambodia
  2. DHS/CBP Seeks Comments on Forms 214, 214A, 214B, 214C, and 216, Application for Foreign-Trade Zone Admission and/or Status Designation, and Application for Foreign-Trade Zone Activity Permit
  3. State/DDTC Seeks Comments Concerning Annual Brokering Report
  4. State Corrects Determinations Regarding Use of Chemical Weapons by Russia Under the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991
  1. Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.)
  3. Commerce/Census: “Tips on How to Resolve AES Fatal Errors”
  4. DHS/CBP Posts ACE Deployment Schedule
  5. State/DDTC: (No new postings.) 
  6. President Continues National Emergency with Respect to Persons Who Commit, Threaten to Commit, or Support Terrorism 
  7. EU Amends Restrictive Measures Concerning Situation in Libya 
  1. Multichannel: “Bipartisan Bill Would Backstop Trump ZTE Deal Enforcement”
  2. Reuters: “U.S. Seeking to Negotiate a Treaty with Iran: Special Envoy”
  3. ST&R Trade Report: “$200 Billion in Goods from China Hit with Higher Tariff; $267 Billion More Threatened”
  1. M. Miller, S. Murray & B. Murphy: “Implementation of Additional Section 301 Duties on Chinese Products (List 3)”
  2. M. Volkov: “United Technologies Pays $13.9 Million to Settle FCPA Charges (Part I of II)”
  3. Page-Fura, P.C.: “USTR Issues Section 301 List 2 Exclusion Request Procedure”
  1. ECTI Presents “United States Export Control (ITAR/EAR/OFAC) Seminar Series” in Miami, FL on 10-13 Dec
  1. Bartlett’s Unfamiliar Quotations 
  2. Are Your Copies of Regulations Up to Date? Latest Amendments: ATF (15 Jan 2016), Customs (19 Sep 2018), DOD/NISPOM (18 May 2016), EAR (13 Sep 2018), FACR/OFAC (29 Jun 2018), FTR (24 Apr 2018), HTSUS (14 Aug 2018), ITAR (30 Aug 2018) 
  3. Weekly Highlights of the Daily Bugle Top Stories 



. DHS/CBP Amends Regulations, Extending Import Restrictions Imposed on Archaeological Material from Cambodia

(Source: Federal Register, 19 Sep 2018.) [Excerpts.]
83 FR 47283-47284: Extension of Import Restrictions Imposed on Archaeological Material From Cambodia
* AGENCY: U.S. Customs and Border Protection; Department of Homeland Security; Department of the Treasury.
* ACTION: Final rule.
* SUMMARY: This document amends the U.S. Customs and Border Protection (CBP) regulations to reflect an extension of import restrictions on certain archaeological material from Cambodia. The restrictions, which were originally imposed by CBP Dec. 03-28, and last extended by CBP Dec. 13-15, are due to expire on September 19, 2018. The Acting Under Secretary for Public Diplomacy and Public Affairs, United States Department of State, has determined that conditions continue to warrant the imposition of import restrictions. Accordingly, these import restrictions will remain in effect for an additional five years, and the CBP regulations are being amended to reflect this further extension through September 19, 2023. These restrictions are being extended pursuant to determinations of the United States Department of State made under the terms of the Convention on Cultural Property Implementation Act. CBP Dec. 08-40 contains the amended Designated List of archaeological material from Cambodia to which the restrictions apply.
* DATES: Effective Date: September 19, 2018.
* FOR FURTHER INFORMATION CONTACT: For regulatory aspects, Lisa L. Burley, Branch Chief, Cargo Security, Carriers and Restricted Merchandise Branch, Regulations and Rulings, Office of Trade, (202) 325-0215, ot-otrrculturalproperty@cbp.dhs.gov. For operational aspects, William R. Scopa, Branch Chief, Partner Government Agency Branch, Trade Policy and Programs, Office of Trade, (202) 863-6554, William.R.Scopa@cbp.dhs.gov.
   On January 7, 2013, the United States Department of State proposed in the Federal Register (78 FR 977) to extend the MOU between the United States and Cambodia concerning the imposition of import restrictions on archaeological material from Cambodia. On June 10, 2013, the Assistant Secretary for Educational and Cultural Affairs, United States Department of State, made the determination to extend the import restrictions for an additional five years. On September 16, 2013, CBP published a final rule (CBP Dec. 13-15) in the Federal Register (78 FR 56832), which further extended the import restrictions for an additional five years. The import restrictions are due to expire on September 19, 2018.
   Import restrictions listed at 19 CFR 12.104g(a) are effective for no more than five years beginning on the date on which the agreement enters into force with respect to the United States. This period may be extended for additional periods of not more than five years if it is determined that the factors which justified the initial agreement still pertain and no cause for suspension of the agreement exists.
   On April 11, 2018, the Assistant Secretary for Educational and Cultural Affairs, United States Department of State, after consultation with and recommendations by the Cultural Property Advisory Committee, determined that the cultural heritage of Cambodia continues to be in jeopardy from pillage of certain archaeological material and that the import restrictions should be extended for an additional five years. Diplomatic notes have been exchanged reflecting the extension of those restrictions for an additional five-year period. Accordingly, CBP is amending 19 CFR 12.104g(a) to reflect the extension of the import restrictions. The amended Designated List of archaeological material from Cambodia covered by these import restrictions is set forth in CBP Dec. 08-40.
   The Designated List and additional information may also be found at the following website address by clicking on “Cambodia.” The restrictions on the importation of archaeological material from Cambodia are to continue in effect through September 19, 2023. Importation of such material from Cambodia continues to be restricted through that date unless the conditions set forth in 19 U.S.C. 2606 and 19 CFR 12.104c are met. …
Kevin K. McAleenan, Commissioner, U.S. Customs and Border Protection.
  Approved: September 13, 2018.
Timothy E. Skud, Deputy Assistant Secretary of the Treasury.

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. DHS/CBP Seeks Comments on Forms 214, 214A, 214B, 214C, and 216, Application for Foreign-Trade Zone Admission and/or Status Designation, and Application for Foreign-Trade Zone Activity Permit

(Source: Federal Register, 19 Sep 2018.) [Excerpts.]
83 FR 47345-47346: Agency Information Collection Activities: Application for Foreign-Trade Zone Admission and/or Status Designation, and Application for Foreign-Trade Zone Activity Permit
* AGENCY: U.S. Customs and Border Protection (CBP), Department of Homeland Security.
* ACTION: 30-Day notice and request for comments; extension of an existing collection of information. …
* ADDRESSES: Interested persons are invited to submit written comments on this proposed information collection to the Office of Information and Regulatory Affairs, Office of Management and Budget. Comments should be addressed to the OMB Desk Officer for Customs and Border Protection, Department of Homeland Security, and sent via electronic mail to dhsdeskofficer@omb.eop.gov.
* FOR FURTHER INFORMATION CONTACT: Requests for additional PRA information should be directed to Seth Renkema, Chief, Economic Impact Analysis Branch, U.S. Customs and Border Protection, Office of Trade, Regulations and Rulings, 90 K Street NE, 10th Floor, Washington, DC 20229-1177, Telephone number (202) 325-0056 or via email CBP_PRA@cbp.dhs.gov. Please note that the contact information provided here is solely for questions regarding this notice. Individuals seeking information about other CBP programs should contact the CBP National Customer Service Center at 877-227-5511, (TTY) 1-800-877-8339, or CBP website.
  – Title: Application for Foreign-Trade Zone Admission and/or Status Designation, and Application for Foreign-Trade Zone Activity Permit.
  – OMB Number: 1651-0029.
  – Form Numbers: 214, 214A, 214B, 214C, and 216.
  – Type of Review: Extension (without change).
  – Action: CBP proposes to extend the expiration date of this information collection with no change to the burden hours or to CBP Forms 214, 214A, 214B, 214C, and 216. …
  – Abstract: Foreign trade zones (FTZs) are geographical enclaves located within the geographical limits of the United States but for tariff purposes are considered to be outside the United States. Imported merchandise may be brought into FTZs for storage, manipulation, manufacture or other processing and subsequent removal for exportation, consumption in the United States, or destruction. A company bringing goods into an FTZ has a choice of zone status (privileged/non-privileged foreign, domestic, or zone-restricted), which affects the way such goods are treated by Customs and Border Protection (CBP) and treated for tariff purposes upon entry into the customs territory of the U.S.
   CBP Forms 214, 214A, 214B, and 214C, which make up the Application for Foreign-Trade Zone Admission and/or Status Designation, are used by companies that bring merchandise into an FTZ to register the admission of such merchandise into FTZs and to apply for the appropriate zone status. CBP Form 216, Foreign-Trade Zone Activity Permit, is used by companies to request approval to manipulate, manufacture, exhibit, or destroy merchandise in an FTZ.
  These FTZ forms are authorized by 19 U.S.C. 81 and provided for by 19 CFR 146.22, 146.32, 146.39, 146.40, 146.41, 146.44, 146.52, 146.53, and 146.66. These forms are accessible here.
  Form 214, Application for Foreign-Trade Zone Admission and/or Status Designation …
  Dated: September 13, 2018.
Seth D. Renkema, Branch Chief, Economic Impact Analysis Branch, U.S. Customs and Border Protection.

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. State/DDTC Seeks Comments Concerning Annual Brokering Report

(Source: Federal Register, 19 Sep 2018.) [Excerpts.]
83 FR 47390-47391: 60-Day Notice of Proposed Information Collection: Annual Brokering Report
* ACTION: Notice of request for public comment. …
* DATES: The Department will accept comments from the public up to November 19, 2018.
* ADDRESSES: You may submit comments by any of the following methods:
  – Web: Persons with access to the internet may comment on this notice by going to www.Regulations.gov. You can search for the document by entering “Docket Number: DOS-2018-0042” in the Search field. Then click the “Comment Now” button and complete the comment form.
  – Regular Mail: Send written comments to: Directorate of Defense Trade Controls, Attn: Andrea Battista, 2401 E St. NW, Suite H-1205, Washington, DC 20522-0112.
You must include the subject (PRA 60 Day Comment), information collection title (Annual Brokering Report), and OMB control number (1405-0141) in any correspondence.
* FOR FURTHER INFORMATION CONTACT: Direct requests for additional information regarding this collection to Andrea Battista, who may be reached at BattistaAL@state.gov or 202-663-3136.
  – Title of Information Collection: Annual Brokering Report.
  – OMB Control Number: 1405-0141.
  – Type of Request: Extension.
  – Originating Office: Directorate of Defense Trade Controls (DDTC).
  – Form Number: No form.
  – Abstract of Proposed Collection: In accordance with part 129 of the ITAR, U.S. and foreign persons required to register as a broker shall provide annually a report to DDTC enumerating and describing brokering activities by quantity, type, U.S. dollar value, purchaser/recipient, and license number for approved activities and any exemptions utilized for other covered activities. This information is currently used in the review of munitions export and brokering license applications and to ensure compliance with defense trade statutes and regulations. As appropriate, such information may be shared with other U.S. Government entities. …
  Anthony M. Dearth, Chief of Staff, Directorate of Defense Trade Controls, U.S. Department of State.

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. State Corrects Determinations Regarding Use of Chemical Weapons by Russia Under the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991

(Source: Federal Register, 19 Sep 2018.) [Excerpts.]
83 FR 47390: Determinations Regarding Use of Chemical Weapons by Russia Under the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991; Correction
* ACTION: Notice.
* SUMMARY: The Department of State published a document in the Federal Register of August 27, 2018, concerning sanctions and waivers under the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991. The waiver section of the document contained incomplete language.
* FOR FURTHER INFORMATION CONTACT: Pamela K. Durham, Office of Missile, Biological, and Chemical Nonproliferation, Bureau of International Security and Nonproliferation, Department of State, Telephone (202) 647-4930.
   In the Federal Register of August 27, 2018 in FR Doc. 2018-18503 on page 43724, in the first column, correct the “Wholly-Owned U.S. Subsidiaries” paragraph to read:
  “WHOLLY-OWNED U.S. AND OTHER FOREIGN SUBSIDIARIES: Exports and reexports of goods or technology pursuant to new licenses for exports and reexports to wholly-owned U.S. and other foreign subsidiaries in Russia, provided that such licenses shall be issued on a case-by-case basis, consistent with export licensing policy for Russia prior to enactment of these sanctions.”
  Dated: September 12, 2018.
Choo S Kang, Acting Assistant Secretary of State for International Security and Nonproliferation.

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OGS_a15. Items Scheduled for Publication in Future Federal Register Editions
(Source: Federal Register )

[No items of interest noted today.]
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When a shipment is filed to the AES, a system response message is generated and indicates whether the shipment has been accepted or rejected. If the shipment is accepted, the AES filer receives an Internal Transaction Number (ITN) as confirmation. However, if the shipment is rejected, a Fatal Error notification is received.
To help you resolve AES Fatal Errors, here are some tips on how to correct the most frequent errors that were generated in AES for this month.
Fatal Error Response Code: 173
  – Narrative: Country of Ultimate Destination Outdated
  – Reason: The Country of Ultimate Destination is not an active country code in AES.
  – Resolution: The Country of Ultimate Destination Code must be an active ISO country code listed in the Appendix C, ISO Country Codes. Verify the Country of Ultimate Destination Code and the Estimated Date of Export, correct the shipment and resubmit.
Fatal Error Response Code: 627
  – Narrative: 1st Unit of Measure Code Unknown
  – Reason: The Schedule B/HTS Number reported requires a 1st Unit of Measure Code to be reported and the 1st Unit of Measure Code is not valid in the AES.
  – Resolution: The 1st Unit of Measure Code, based on the Schedule B/HTS reported, must be a valid code contained in Appendix K, Unit of Measure Codes. Verify the 1st Unit of Measure Code required for the Schedule B/HTS Number reported, correct the shipment and resubmit.  
For a complete list of Fatal Error Response Codes, their reasons, and resolutions, see Appendix A – Commodity Filing Response Messages.
It is important that AES filers correct Fatal Errors as soon as they are received in order to comply with the Foreign Trade Regulations. These errors must be corrected prior to export for shipments filed predeparture and as soon as possible for shipments filed postdeparture but not later than five calendar days after departure.
For further information or questions, contact the U.S. Census Bureau’s Data Collection Branch.
  – Telephone: (800) 549-0595, select option 1 for AES
  – Email: askaes@census.gov
  – Online: www.census.gov/trade

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CSMS #18-000550, 19 Sep 2018.)
An estimated development and deployment schedule for future Automated Commercial Environment (ACE) enhancements has been posted to www.cbp.gov/ace. Please note that this schedule is subject to change.
Visit www.cbp.gov/ace for the most up to date information.

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The White House, 19 Sep 2018.)
On September 23, 2001, by Executive Order 13224, the President declared a national emergency with respect to persons who commit, threaten to commit, or support terrorism, pursuant to the International Emergency Economic Powers Act (50 U.S.C. 1701-1706) to deal with the unusual and extraordinary threat to the national security, foreign policy, and economy of the United States constituted by grave acts of terrorism and threats of terrorism committed by foreign terrorists, including the terrorist attacks on September 11, 2001, in New York and Pennsylvania and against the Pentagon, and the continuing and immediate threat of further attacks against United States nationals or the United States.
The actions of persons who commit, threaten to commit, or support terrorism continue to pose an unusual and extraordinary threat to the national security, foreign policy, and economy of the United States. For this reason, the national emergency declared in Executive Order 13224 of September 23, 2001, and the measures adopted on that date to deal with that emergency, must continue in effect beyond September 23, 2018. Therefore, in accordance with section 202(d) of the National Emergencies Act (50 U.S.C. 1622(d)), I am continuing for 1 year the national emergency with respect to persons who commit, threaten to commit, or support terrorism declared in Executive Order 13224.
This notice shall be published in the Federal Register and transmitted to the Congress.

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Official Journal of the European Union, 19 Sep 2018.)
Council Implementing Regulation (EU) 2018/1245 of 18 September 2018 implementing Article 21(1) of Regulation (EU) 2016/44 concerning restrictive measures in view of the situation in Libya
Council Implementing Decision (CFSP) 2018/1250 of 18 September 2018 implementing Decision (CFSP) 2015/1333 concerning restrictive measures in view of the situation in Libya

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Multichannel, 18 Sep 2018.)
A bipartisan bill has been introduced to make sure that Chinese telecom ZTE complies with all the conditions of the Trump Administration’s deal to lift its previously imposed seven-year ban on export of U.S. components to the company.
ZTE tech includes everything from phones, tablets and smartwatches to mobile hot spots, broadband routers, switchers and servers. 
The ZTE Enforcement Review and Oversight (ZERO) Act would also mandate that “if the Commerce Secretary cannot regularly certify ZTE’s full compliance with the deal and with relevant U.S. export controls and sanctions laws, the denial order’s crippling punishments will be reinstated against ZTE.”
The conditions for lifting the ban included what the President characterized as “high level security guarantees, change of management and board, an actual requirement to purchase U.S. parts, and a $1.3 billion fine.”
The initial ban was issued when ZTE was found not to have complied with a U.S. sanction agreement. 
Commerce Department officials had concluded ZTE violated the terms of its settlement agreement with the U.S. over illegally shipping telecom equipment to Iran and North Korea and declared that U.S. companies would be prohibited from exporting technology to ZTE. That move resulted in ZTE essentially shuttering and calling the U.S. move unfair.
The Chinese government then tried to get the President to help ZTE, saying it could cost Chinese Jobs. The President agreed to lift the ban, but said it was with strong conditions, which are the ones the senators want to make sure are complied with this time around. 
Spearheading the legislative effort are Sens. Marco Rubio (R-Fla.) and Chris Van Hollen (D-Md.), joined by Sens. Susan Collins (R-Me.), Mark Warner (D-Va.), James Lankford (R-Okla.) and Elizabeth Warren (D-Mass.).
Rubio was an early and frequent critic of the decision to lift the ban. “With China’s communist government posing the greatest, long-term threat to the United States, we must continue to confront ZTE’s real risks to our economy and national security,” he said. “While it was a mistake to reach a ‘deal’ with ZTE in the first place, this bill will ensure ZTE is finally put out of business if it does not hold up its end of the bargain.”
Sen. Warner was no fan either of what he called the Trump Administration’s “cave” to China.
“ZTE has a history of violating U.S. sanctions and misleading the U.S. government,” said Warner. “Unfortunately this Administration has shown that it cannot be trusted to defend American interests and punish companies like ZTE that pose a threat to our security. This bipartisan legislation would ensure that if ZTE once again violates trade restrictions or its agreement with the U.S. it will be held accountable in a significant, painful way.” Warner is vice chair of the Senate Select Committee on Intelligence.

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Reuters, 19 Sep 2018.)
The United States is seeking to negotiate a treaty with Iran that will cover both its ballistic missile and nuclear programs, the U.S. special envoy for Iran said on Wednesday ahead of U.N. meetings in New York next week.
  “The new deal that we hope to be able to sign with Iran, and it will not be a personal agreement between two governments like the last one, we seek a treaty,” envoy Brian Hook told an audience at the Hudson Institute think tank.
But Hook said Iranian leaders have not been interested in talking despite statements by President Donald Trump and Secretary of State Mike Pompeo this year that the administration was willing to meet.
Trump announced in May that he was pulling the United States out of an Obama-era nuclear deal signed between Iran and six world powers.
The 2015 deal was an executive agreement that was not ratified by the U.S. Senate. A treaty would require approval by the Senate.
Opponents of the nuclear agreement have argued that Obama’s failure to seek ratification of the deal allowed Trump to unilaterally scrap the deal in May.
  “They did not have the votes in the U.S. Senate so they found the votes in the U.N. Security Council. That is insufficient in our system of government if you want to have something enduring and sustainable,” Hook said, without elaborating on how the administration would negotiate.
Trump will chair a session on Iran during the U.N. General Assembly meetings in New York next week. In July, Trump said he was willing to meet Iran’s leaders “anytime they want” prompting speculation that a meeting could occur at the U.N. meetings next week.
  “The ayatollah, the president and foreign minister have all indicated they are not interested in talking,” Hook said, referring to Iran’s Supreme Leader Ali Khamenei, President Hassan Rouhani and Foreign Minister Mohammad Javad Zarif.
  “We respect that though that does not change our plans. We have a sanctions regime that is underway, stronger measures are yet to come,” he added.
Hook said the administration was expanding its diplomatic efforts to ensure that purchases of Iranian oil were “close to zero” by Nov. 4 when Washington reimposed oil sanctions against Tehran.

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President Trump has announced that beginning Sept. 24 an additional ten percent tariff will be imposed on 5,745 tariff lines from China with an import value of approximately $200 billion. This tariff is scheduled to increase to 25 percent as of Jan. 1, 2019.
The president added that if China “takes retaliatory action against our farmers or other industries” he will initiate a process aimed at increasing tariffs on another $267 billion worth of goods from China. Beijing subsequently announced that as of Sept. 24 it will impose retaliatory tariff increases of five or ten percent on more than 5,000 types of U.S. goods with an import value of about $60 billion.
The full list of products affected by the Trump administration’s new ten percent tariff
is available here. All but 11 of the listed subheadings are covered by the additional tariff in their entirety, while those 11 are only “partially covered.”
In addition, this final list reflects the full or partial removal of 297 subheadings from the proposed list. According to the Office of the U.S. Trade Representative, these include consumer electronics products such as smart watches and Bluetooth devices; chemical inputs for manufactured goods, textiles, and agriculture; health and safety products such as bicycle helmets; and child safety furniture such as car seats and playpens. 
The additional 10 percent tariff will be the latest action in response to a Section 301 investigation determining that China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation are unreasonable and discriminatory. Previously the administration levied an additional 25 percent tariff on $34 billion worth of Chinese goods effective July 6 and another $16 billion worth as of Aug. 23.

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* Authors: Marshall Miller, Esq., mmiller@millerco.com; Sean Murray, Esq., smurray@millerco.com; and Brian Murphy, Esq., bmurphy@millerco.com. All of Miller & Company P.C.
President Trump announced on Monday evening September 17 the imposition of 10% tariffs on $200 billion imports of Chinese products effective Monday, September 24.  On January 1, the rate will rise to 25%.  
President Trump also indicated that if China takes retaliatory action he would immediately pursue phase four which would add tariffs on approximately $267 billion worth of additional imports from China.  This morning China initiated retaliation on $60 billion of U.S. products so it is anticipated that the Trump Administration will announce additional China 301 Tariffs.
The U.S. Trade Representative (USTR) statement includes the final China Section List 3 applying 10% tariffs to 5,745 full or partial tariff items of the original 6,031 tariff provisions on the original, proposed List 3 of Chinese products announced on July 10.  The final List 3 of the 5,745 tariff items is available here. Part 2 of List 3 limits the scope of products covered under 11 8-digit tariff provisions in order to remove smart watches, Bluetooth devices, and other products from the additional tariffs.   

Clients using FTZs should examine their current operations carefully and identify the financial impact.  Privileged Foreign (PF) status will likely be required for subject foreign-trade zone (FTZ)admissions beginning September 24, and clients should be taking action to minimize or avoid liability by using PF status on on-hand inventory, filing entry on inventory, etc., prior to that date.  The precise actions are very fact-specific.

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Volkov Law Group Blog, 19 Sep 2018. Reprinted by permission.)
* Author: Michael Volkov, Esq., Volkov Law Group,
mvolkov@volkovlaw.com, 240-505-1992.
The SEC’s FCPA Unit had a good week last week – they announced a second FCPA settlement along with the Sanofi case. The latest to fall was United Technologies that agreed to pay $13.9 million for bribes paid by its elevator and aircraft engine businesses.
The SEC FCPA settlement focused on Azerbaijan and China relating to third-party bribery payments. In addition to these two bribery schemes, UT was cited for improper trips and gifts paid by Otis and its Pratt & Whitney division to foreign officials in China, Kuwait, South Korea, Pakistan, Thailand and Indonesia.
In today’s post, I am focusing on the third-party bribery schemes used by UT companies to secure business in China and Azerbaijan. Tomorrow’s post will focus on the use of gifts, meals and entertainment to funnel bribery money to pay bribes
UT disclosed the investigation to DOJ and the SEC in late 2013 or early 2014. DOJ declined to prosecute in March 2018.
UT’s subsidiary, Otis Elevator, bribed government officials in Azerbaijan for public housing elevator sales in Baku. In China, UT’s subsidiary, through a joint venture, paid Chinese officials to obtain pre-bid confidential information help win engine sales to Air China, a state-owned airline.
UT agreed to disgorge $9 million, plus interest of about $919,000 and to pay a penalty of $4 million.
Third Party Bribery Schemes
In Azerbiajan, Otis Elevator hired third-party agents without conducting any due diligence. They hired agents who had no local experience or history in the elevator industry. One of the agents was not even registered until after participating in the transactions.
Otis also paid bribes with a kickback scheme to sell elevators in China in 2012.
In China, from 2009 to 2013, an agent working on behalf of a Pratt & Whitney joint venture (Pratt & Whitney is a majority owner) received a $2 million commission advance purportedly for an office expansion, and failed to provide any documentation to support the request in advance. The joint venture paid the agent $55 million in commissions from 2009 to 2013.
UTC self-reported the conduct and fully cooperated with the investigation. UTC terminated employees and third parties responsible for misconduct and enhanced its accounting controls and compliance organization.
In Azerbaijan, Otis Elevator used various bribery schemes to sell its elevators to a public housing municipal entity in Baku. Otis Elevator used sham subcontractors and third-party intermediaries to carry out some of the schemes.
In 2012, Otis Elevator hired two subcontractors to make payments to Baku Liftremont, a municipal entity. Otis Elevator did not conduct due diligence of the two subcontractors and they were paid over $790,000 (44% of the contract value), and there was no documentation that the subcontractors provided any services.
Between February 2013 and December 2014, Otis sought to win additional contracts. Otis Elevator retained four third-party intermediaries to pay bribes to secure nine contracts, as directed by a Liftremont senior official. Otis Elevator sold the equipment to the intermediaries, knowing that a portion of the payments would go to the Liftremont officials. The bribe payments totaled at least $11.8 million. The intermediaries were located in Russia and had no local experience in Azerbaijan or in the elevator business.
The contracts and the transactions were not approved through Otis Elevator’s internal controls. Legal, finance and business employees reviewed the transaction but failed to prevent the improper transactions. Legal approved the contracts since they contained the standard terms but did not question if the intermediaries had been through due diligence. Further, no one in finance reviewed the financial terms to make sure the pricing differentials were acceptable.
In another scheme, Otis Elevator hired Liftremont as a distributor of its elevators to other areas outside Baku as a way to funnel bribes, notwithstanding the fact that Liftremont was the government entity responsible for municipal projects in Baky. Otis Elevator’s regional president, as well as legal, finance and business employees approved the engagement.
Otis Elevator in Azerbiajan had a joint venture with a local partner but instead chose to work through Russian intermediaries. Otis’ JV partner raised concerns about the transactions. Specifically, the Managing Director of the joint venture emailed the regional president eight separate times to seek a confidential meeting about the Liftremont contracts, but no one took any steps to address the concerns.
In September 2014, an Otis Elevator lawyer in Russia refused to approve the contract and requested information about the ownership of a new intermediary and a written explanation as to why they needed to hire the new intermediary. One month later, the lawyer contacted the CFO and discussed who was conducting due diligence of the intermediaries. The lawyer eventually was provided with a perfunctory explanation to justify hiring the new intermediary, and the lawyer approved the contract. Unfortunately, the contract was executed four months before the lawyer approved it.
Otis Elevator entered into ten contracts with Liftremont totaling approximately $14.6 million.
In China, starting in 2006, Pratt & Whitney’s joint venture, IAE retained a Chinese sales agent to increase IAE’s sales in China. The agent had no background or experience in the airline industry, and had been involved in the toll road business. IAE and Pratt conducted minimal due diligence before retained the sales agent. IAE entered into a sales agent agreement with a commission of between 1.75 and 4 percent of sales to Chinese airlines. In October 2009, Pratt hired the same Chinese agent. From 2009 to 2013, the agent was paid approximately $55 million in commissions.
In one case, in 2009, the agent requested a commission advance of $2 million supposedly for an office expansion. The agent provided no documentation for the advance. The agent’s sole responsibility and involvement in Pratt and IAE projects was to arrange introductions and meetings. The following month, a Chinese official sent the agent confidential information concerning a tender. IAE compared the confidential information to IAE’s bid, and IAE subsequently modified its bid. No one asked the agent how he obtained the confidential information. IAE won the contract. The agent paid a total over $160,000 in six separate payments to the Chinese airline official, who was eventually arrested by Chinese law enforcement in a corruption investigation. Over a four year period, the agent was paid $4.3 million in success fee payments.
In 2012, Otis Elevator secured a contract to install four elevator units to a Chinese state-owned bank. The Chinese bank official requested a bribe if Otis won the contract. The Otis Elevator supervisor agreed to make such a payment using a distributor to carry out the scheme.
The supervisor retained a distributor to bid for the contract and based it on a false justification which was not questioned. The payment was made by inflating the cost of the project. The distributor retained a sub-distributor for the project. The distributor paid $98,000 to the Otis sales supervisor, who kept a portion and then paid the bank official the bribe.
Otis Elevator learned of the scheme after its sales supervisor, a Chinese national, was charged with bribery in China.

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Page-Fura, P.C., 18 Sep 2018.)
In a Federal Register Notice published this morning (yesterday, ed.),
USTR has issued guidance on the procedures for the submission of exclusion requests from the Section 301 tariffs imposed on the 279 8-digit tariff items comprising “List 2” of products of Chinese origin.  That list reflects approximately $16 Billion in Chinese imports that have been subject to the imposition of a 25% tariff as of August 23, 2018.  Items captured in that grouping are principally concentrated in Chapter 39 (articles of plastic), while also targeting a range of further provisions within Chapters 84, 85, 86, 87, 89 and 90 as well as other select eight-digit classifications.
Product exclusion requests may be made up to and including December 18, 2018, with the public having 14 days from the date the request is posted within which to submit rebuttal comments.  A final round of additional comments will then be offered for up to 7 days thereafter.
As with other comments/requests, USTR has stated its preference that any exclusions that are filed be submitted on the form to be posted on their website as uploaded under docket number USTR-2018-0032 found on www.regulations.gov.  Again consistent with the exclusion process for List 1 products, any request that is submitted must address a number of key considerations including:
  – Identification of the particular product in terms of the physical characteristics (e.g., dimensions, material composition, or other characteristics) that distinguish it from other products within the covered 8-digit subheading.  This is information that will be shared publicly and cannot be based solely on trademarks, tradenames or use;
  – The 10 digit subheading under which the product is classified;
  – The ability of CBP to administer the exclusion;
  – The annual quantity and value (if known) of the Chinese-origin product that the requester purchased in each of the last three years.  If that information is not available, an estimate (with an explanation of the basis for that estimation) may instead be provided;
  – Whether the particular product is available only from China or may also be obtained from either the United States or a third country;
  – Whether the imposition of additional duties on the particular product would cause severe economic harm to the requester or other U.S. interests; and
  – Whether the particular product is strategically important or related to “Made in China 2025 Plan” or other Chinese industrial programs.
Different from the List 1 process, USTR is also seeking input on:
  – For imports sold as final products, the percentage of total gross sales in 2017 that sales of the Chinese-origin product accounted for; and
  – For imports used in the production of final products, the percentage of the total cost of producing the final product(s) that the Chinese-origin input accounts for and the percentage of total gross sales in 2017 that sales of the final product(s) accounted for.
Any exclusion request that is accepted will once again apply retroactively to the tariff imposition date, or August 23rd.  Exclusions will apply for one year, after which a new request for exclusion would need to be filed.  In addition, although not referenced in the Federal Register notice, presumably any exclusion that is granted will apply to all imports of the product.  That consideration remains to be confirmed, however.

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* What: United States Export Controls (ITAR/EAR/OFAC) Seminar Series in Miami, FL
* When: ITAR Seminar: December 10-11, 2018; EAR/OFAC Seminar: December 12-13, 2018
* Where: Miami, FL: Doubletree Ocean Point Resort and Spa by Hilton
* Sponsor: Export Compliance Training Institute (ECTI)
* ECTI Speaker Panel: Scott Gearity, Greg Creeser, Marc Binder, and Melissa Proctor
* Register: Here, or Jessica Lemon, 540-433-3977, jessica@learnexportcompliance.com

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* Rachel Field (Rachel Lyman Field; 1894-1942; was an American novelist, poet, and children’s fiction writer. She is best known for the Newbery Award-winning Hitty, Her First Hundred Years. Field also won a National Book Award, Newbery Honor award and two of her books are on the Lewis Carroll Shelf Award list.)
  – “Too much good fortune can make you smug and unaware. Happiness should be like an oasis, the greener for the desert that surrounds it.”
September 19th is International “Talk like a pirate” day:
* Q: Why couldn’t the nine-year-old go see the pirate movie?
A: Because it was rated ARRRR!  
        – Taed Heydinger, Bayfield, CO

Q: Why did the pirate have trouble sleeping? 
A:  He had restless peg syndrome.  
         – Joe Remillard, Aurora, Ny
 Q:  What are a pirate’s favorite musical instruments?
A:  The sitarrrr and the guitarrrr.  
         – Marty Bolte, Carollton, TX

Q:  What are the pirate vowels?
A:  A, E, I, O, U, and ARRRR!  
         – Santo Giustiniano, New Orleans, LA
* Q: How much money does a pirate pay for corn?
   A: A buccaneer.

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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: 19 Sep 2018: 83 FR 47283-47284: Extension of Import Restrictions Imposed on Archaeological Material From Cambodia 

  – 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: 13 Sep 2018: 83 FR 46391-46392: Addition of Certain Entities to the Entity List, Revision of Entries on the Entity List and Removal of Certain Entities From the Entity List; Correction

: 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: 14 Aug 2018: Harmonized System Update 1812, containing 27 ABI records and 6 harmonized tariff records.

  – HTS codes for AES are available 
  – HTS codes that are not valid for AES are available 
  – Last Amendment: 30 Aug 2018:
83 FR 44228-44229
, USML Chapter XI(c).

  – The only available fully updated copy (latest edition: 30 Aug 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
. 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, Alex Witt. 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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