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18-1023 Tuesday “Daily Bugle”

18-1023 Tuesday “Daily Bugle”

Tuesday, 23 October 2018

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The Daily Bugle is a free daily newsletter from Full Circle Compliance, containing changes to export/import regulations (ATF, DOE/NRC, Customs, NISPOM, EAR, FACR/OFAC, FAR/DFARS, FTR/AES, HTSUS, and ITAR), plus news and events.  Subscribe 
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  1. Commerce/BIS Welcomes Comments Regarding Regulation of Electronic Waste Exports 
  2. Commerce/BIS Announces MTAC Meeting on 15 Nov in Washington DC 
  3. Commerce/BIS Announces RPTAC Meeting on 11 Dec in Washington DC
  1. Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.)
  3. DHS/CBP Holds ACE Customer Satisfaction Survey
  4. State/DDTC Announces In-House Seminars on 20 Mar and 18 Sep 2019
  5. Australia DEC Welcomes Registration for Outreach Programs in Adelaide (6 Nov) and Sydney (13 Nov)
  1. American Shipper: “BIS Considers Regulating Electronic Waste Exports”
  2. Expeditors News: “CBP Releases Trade Strategy 2020”
  3. The Globe and Mail: “Canada Willing to Freeze Armored Vehicle Exports to Saudi Arabia, Trudeau Says”
  4. Reuters: “Russian Oligarch Under U.S. Sanctions Files Suit Against Nordic Banks”
  1. M. Volkov: “Managing Your Supply Chain: Turning ‘Do No Harm’ Into ‘Doing Good'”
  2. W.R. Vigdor: “CFIUS Creates Pilot Programs Requiring the Filing of Declarations 45 Days Prior To Closing ‘Pilot Program Covered Transactions'”
  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 (26 Sep 2018), FACR/OFAC (29 Jun 2018), FTR (24 Apr 2018), HTSUS (22 Oct 2018), ITAR (4 Oct 2018) 
  3. Weekly Highlights of the Daily Bugle Top Stories 

EXIMITEMS FROM TODAY’S FEDERAL REGISTER

EXIM_a1

1. 
Commerce/BIS Welcomes Comments Regarding Regulation of Electronic Waste Exports
(Source: 
Federal Register
, 23 Oct 2018.) [Excerpts.] 
 
83 FR 53411-53412: Request for Public Comments Regarding Foreign Disposition of Certain Commodities
 
* AGENCY: Bureau of Industry and Security, Commerce.
* ACTION: Notice of inquiry; request for comments.
* SUMMARY: The Bureau of Industry and Security (BIS) is seeking public comments on the effects and costs that would result if BIS were to amend its regulations to reflect new export authorization requirements regarding electronic waste, including new recordkeeping requirements, reporting requirements, and data elements in the Automated Export System, maintained by the U.S. Census Bureau, to track electronic waste that is exported. Comments from all interested persons are welcome and will help BIS determine the feasibility and cost of implementing a mechanism for tracking and controlling electronic waste exports.
* DATES: Comments must be received by BIS no later than December 24, 2018.
* ADDRESSES: Comments on this rule may be submitted to the Federal rulemaking portal (
www.regulations.gov). The regulations.gov ID for this rule is: BIS-2018-0022. All relevant comments (including any personally identifying information) will be made available for public inspection and copying.
* FOR FURTHER INFORMATION CONTACT: Eileen Albanese, Director, Office of National Security and Technology Transfer Controls, Bureau of Industry and Security, Department of Commerce, by phone at (202) 482-0092, or by email at 
eileen.albanese@bis.doc.gov
* SUPPLEMENTARY INFORMATION: … In recent years, a number of Congressional studies and actions, including the “Inquiry into Counterfeit Electronic Parts in the Department of Defense Supply Chain” published by the Committee on Armed Services in the United States Senate (Armed Services Report), as well as the “Secure E-Waste Export and Recycling Act” (H.R. 917), have raised concerns regarding counterfeit goods that may enter the United States’ military and civilian electronics supply chain. One of the potential sources for these counterfeit goods identified in the Armed Services Report is the unregulated recycling of discarded electronic equipment that has typically been shipped overseas from the United States for disposal.
  Although no specific legislation has yet been passed mandating export controls related to electronic waste, prior Congressional studies and actions have prompted the Bureau of Industry and Security (BIS) to seek comments on potential regulatory changes that would limit the export of discarded electronic equipment (electronic waste) by defining the term “electronic waste” and prohibiting its export from the United States unless certain conditions are met. If electronic waste does not meet these contemplated conditions, persons could be prohibited from exporting the electronic waste and would need to identify a means of disposal within the United States. If electronic waste meets the contemplated conditions, it would be exempt from the prohibition, potentially eligible to export under a new license exception or other reporting requirement, and the export of these items could require new recordkeeping and tracking requirements.
  BIS is seeking public comments on a contemplated new definition of electronic waste, on this potential prohibition on electronic waste exports, and on the basis for an exemption from that prohibition (through criteria for electronic waste exemptions). BIS is also seeking comments on potential regulatory changes, in the form of two reporting approaches identified by BIS that could be used to track the export of electronic waste that is exempt from the prohibition as well as new recordkeeping requirements. In addition, BIS is seeking comments on the potential cost of the regulatory and policy changes associated with a prohibition on the export of electronic waste and the expected effectiveness, if any, of a prohibition to address the issue of counterfeit goods. BIS is also interested in observations from members of the public regarding counterfeit goods and electronic waste exports in the electronics supply chain. Relevant comments from all interested persons are welcome and may help BIS assess the prevalence of counterfeit goods in military and civilian electronic supply chains, the estimated cost to industry to implement these potential regulatory changes, and the effectiveness of the potential strategy to reduce counterfeit goods that enter the military and civilian electronics supply chains.
 
Potential Criteria Regarding Prohibition and Exemption of Electronic Waste Exports
 
  (1) Definition of “Electronic Waste”
The definition for electronic waste being considered by BIS would include any of the following used items containing electronic components or fragments thereof, including parts or subcomponents of such items:
    (i) Computers and related equipment;
    (ii) Data center equipment (including servers, network equipment, firewalls, battery backup systems, and power distribution units);
    (iii) Mobile computers (including notebooks, netbooks, tablets, and e-book readers);
    (iv) Televisions (including portable televisions and portable DVD players);
    (v) Video display devices (including monitors, digital picture frames, and portable video devices);
    (vi) Digital imaging devices (including printers, copiers, facsimile machines, image scanners, and multifunction machines);
    (vii) Consumer electronics, including digital cameras, projectors, digital audio players, cellular phones and wireless internet communication devices, audio equipment, video cassette recorders, DVD players, video game systems (including portable systems), video game controllers, signal converter boxes, and cable and satellite receivers; and
    (viii) Portable global positioning system navigation.
BIS welcomes comments from the public on the definition, or any alternative construct for a definition of electronic waste.
 
  (2) Electronic Waste Exemptions
Electronic waste that would be exempted from the prohibition on export could include consumer appliances that have electronic features, electronic parts of a motor vehicle, tested working used electronics, and recalled electronics. Tested working used electronics would be determined, through testing methodologies, to be fully functional for the purpose for which they were designed or, in the case of multifunction devices, fully functional for at least one of the primary purposes for which the items were designed. This exemption from the potential export prohibition would include refurbished items or items exported for reuse for the purpose for which they were designed. Recalled electronics include items that have been recalled by the manufacturer or are subject to a recall notice issued by the U.S. Consumer Product Safety Commission or other pertinent Federal authority.
  Also exempt from the prohibition would be items that are unusable that are exported as feedstock, with no additional mechanical or hand separation required, in a reclamation process to render the electronic components or items recycled consistent with the laws of the foreign country performing the reclamation process. Feedstock means any raw material constituting the principal input for an industrial process.
  BIS welcomes comments from the public on criteria regarding exempted electronic waste items. Items that do not meet the criteria for exemption could be subject to a prohibition on export. Persons would need to determine a means of disposal or destruction of non-exempted electronic waste within the United States.
  BIS recognizes that other organizations and government agencies may have different criteria or definitions for electronic waste and other relevant terms. BIS seeks comment from the public regarding these terms and any discrepancies and uncertainties that may arise from the definition used in this notice of inquiry.
 
Potential Changes to the Regulations
 
 
 (1) Reporting Requirements for the Export of Exempted Electronic Waste
  BIS is seeking public comments on two approaches that could be used to track the export of electronic waste that is exempt from the prohibition. The first approach would be to allow electronic waste that is exempt from the prohibition to be exported under a potential new license exception in the Export Administration Regulations (EAR) (15 CFR, subchapter C, parts 730-774). A second approach would be to track and record exempted electronic waste exports through a new data element in the Automated Export System (AES), maintained by the U.S. Census Bureau (Census). BIS recognizes that Census proposed the introduction of a similar data element in the Federal Register on March 9, 2016 (81 FR 12423), and ultimately removed the proposed requirement in their final rule published on April 19, 2017 (82 FR 18385), because of public comments and concerns. BIS is nevertheless considering re-introducing an electronic waste indicator in AES as an alternate means to track the export of electronic waste that qualifies for an exemption from the prohibition. BIS welcomes comments and suggestions on other possible approaches and mechanisms that would help the public comply with requirements for the export of electronic waste.
 
 (2) New Recordkeeping Requirements
BIS is seeking comments on new recordkeeping requirements that would apply to exports of exempted electronic waste under a potential new license exception and exports of electronic waste tracked under a potential new AES data element. Exporters would be required to keep documentation on all electronic waste that is exported, including how the electronic waste met the criteria for exemption, and including but not limited to the methodology used to test the items and the test results for each item.
  Cost to Industry for Potential Changes to the Regulations and the Prevalence of Counterfeit Items in Electronic Supply Chains
BIS seeks public comments on the costs to exporters of determining eligibility for exemption of items that fall under the definition of electronic waste (including the workability of the testing of used electronics), new recordkeeping requirements for exempted electronic waste, updates to filing systems to reflect regulatory changes (either in the form of a new license exception or an electronic waste indicator in AES), and costs or effects that may arise from the potential changes described in this notice. In addition, BIS seeks comments on the prevalence of counterfeit commodities in the electronic supply chains and whether the changes contemplated in this notice of inquiry would alleviate this problem.
 
  Dated: October 17, 2018.
 
Richard E. Ashooh, Assistant Secretary for Export Administration.

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

EXIM_a2

2. 
Commerce/BIS Announces MTAC Meeting on 15 Nov in Washington DC
(Source: 
Federal Register, 23 Oct 2018.) [Excerpts.] 
 
83 FR 53447: Materials Technical Advisory Committee; Notice of Partially Closed Meeting
 
The Materials Technical Advisory Committee (MTAC) will meet on November 15, 2018, 10 a.m., Herbert C. Hoover Building, Room 3884, 14th Street between Constitution & Pennsylvania Avenues NW, Washington, DC. The Committee advises the Office of the Assistant Secretary for Export Administration with respect to technical questions that affect the level of export controls applicable to materials and related technology.
 
Agenda – Open Session
 
  (1) Introductions and opening remarks by senior management.
  (2) Report from working groups.
  (3) Report by regime representatives.
  (4) Public Comments.
 
Agenda – Closed Session

  (5) Discussion of matters determined to be exempt from the provisions relating to public meetings found in 5 U.S.C. app. 2 §§l0(a)(1) and 10(a)(3).
 
The open session will be accessible via teleconference to 20 participants on a first come, first serve basis. To join the conference, submit inquiries to Ms. Joanna Lewis at 
Joanna.Lewis@bis.doc.gov, no later than November 8, 2018.
  A limited number of seats will be available during the public session of the meeting. Reservations are not accepted. To the extent time permits, members of the public may present oral statements to the Committee. Written statements may be submitted at any time before or after the meeting. However, to facilitate distribution of public presentation materials to Committee members, the materials should be forwarded prior to the meeting to Ms. Lewis via email. … 
 
For more information, call Joanna Lewis at (202) 482-6440.
 
Joanna Lewis, Committee Liaison Officer.

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

EXIM_a3

3. 
Commerce/BIS Announces RPTAC Meeting on 11 Dec in Washington DC
(Source: 
Federal Register, 23 Oct 2018.) [Excerpts.] 
 
83 FR 53447-53448: Regulations and Procedures Technical Advisory Committee; Notice of Partially Closed Meeting 
 
The Regulations and Procedures Technical Advisory Committee (RPTAC) will meet December 11, 2018, 9:00 a.m., Room 3884, in the Herbert C. Hoover Building, 14th Street between Constitution and Pennsylvania Avenues NW, Washington, DC. The Committee advises the Office of the Assistant Secretary for Export Administration on implementation of the Export Administration Regulations (EAR) and provides for continuing review to update the EAR as needed.
Start Printed Page 53448
 
Agenda – Public Session
 
  (1) Opening remarks by the Chairman
  (2) Opening remarks by the Bureau of Industry and Security
  (3) Presentation of papers or comments by the Public
  (4) Export Enforcement update
  (5) Regulations update
  (6) Working group reports
  (7) Automated Export System update
 
Agenda – Closed Session
 
  (8) Discussion of matters determined to be exempt from the provisions relating to public meetings found in 5 U.S.C. app. 2 §§10(a)(1) and 10(a)(3).
 
The open session will be accessible via teleconference to 20 participants on a first come, first serve basis. To join the conference, submit inquiries to Ms. Joanna Lewis at 
Joanna.Lewis@bis.doc.gov, no later than December 4, 2018.
  A limited number of seats will be available for the public session. Reservations are not accepted. To the extent that time permits, members of the public may present oral statements to the Committee. The public may submit written statements at any time before or after the meeting. However, to facilitate the distribution of public presentation materials to the Committee members, the Committee suggests that presenters forward the public presentation materials prior to the meeting to Ms. Lewis via email. … 
 
For more information, call Joanna Lewis at (202) 482-6440.
 
Joanna Lewis, Committee Liaison Officer.

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

OGSOTHER GOVERNMENT SOURCES

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

* Commerce/BIS; RULES; Wassenaar Arrangement 2017 Plenary Agreements Implementation [Publication Date: 24 Oct 2018.]

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

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

OGS_a36. 
DHS/CBP Holds ACE Customer Satisfaction Survey 

(Source: 
CSMS# 18-000620, 18 Oct 2018.) 
 
The 2018 ACE Customer Satisfaction Survey is now OPEN! 
CBP encourages all importers, brokers, carriers and other trade community users of ACE to take the 5-10 minute survey. The survey is voluntary and anonymous. Your response will help CBP understand users’ satisfaction with and impact of ACE capabilities, as well as identify areas where improvements are needed. A large number of responses will ensure more accurate representation across the import and export industries. The survey will remain open through midnight, November 9, 2018.
 
To access the survey, please click on the following link: 
here.

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

OGS_a47. 
State/DDTC Announces In-House Seminars on 20 Mar and 18 Sep 2019
(Source: 
State/DDTC, 23 Oct 2018.) 
 
Registration for The Directorate of Defense Trade Controls (DDTC) In-House Seminar for Wednesday, March 20th, 2019 opens February 8th and closes March 1st. Registration for the DDTC In-House Seminar for Wednesday, September 18th, 2019 opens August 9th and closes August 30th.  
 
Attendees will be identified on a first-come, first-serve basis. Preference will be given to new registrants and small-businesses. A completed registration form must be sent to the DDTC In-House Seminar email, as an attachment, 
DDTCInHouseSeminars@state.gov.
 
For more information, please visit the
DDTC Outreach Programs page and click the “In-House Seminars” tab.

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

OGS_a58. 
Australia DEC Welcomes Registration for Outreach Programs in Adelaide (6 Nov) and Sydney (13 Nov)

(Source: 
Australia DoD/DEC, 22 Oct 2018.)
 
Australia Defense Export Controls (DEC), within the Department of Defense (DoD), is commencing another year of outreach programs. 

Its next outreach event for 2018 will be held in 
Adelaide on Tuesday, 6 November 2018, and its final outreach event will be held in Sydney on Tuesday, 13 November 2018. 

The outreach program will cover the requirements exporters must meet when exporting controlled goods and technologies. These include military or commercial items that may have potential military end use or could be used in developing chemical, biological or nuclear weapons systems. 

The program is aimed at small to medium enterprises who export and want to learn more about: 

 
  – Basics on Australian export control regulations (please note the training does not cover US ITAR or Commerce controls), 
  – The whole-of-government approach to Australia’s export landscape, and
  – More detailed information relevant to the defense/dual-use industry sector and academic/research organisations.
 
You can attend an outreach event in: 
  – Brisbane 05 June 2018
Closed
  – Perth 24 July 2018
Closed
  – Melbourne 12 September 2018
Closed
  – Adelaide 06 November 2018, 
registration open
  – Sydney 13 November 2018, 
registration open

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

NWSNEWS

NWS_a1
9. 
American Shipper: “BIS Considers Regulating Electronic Waste Exports”
(Source: 
American Shipper, 23 Oct 2018.) [Excerpts.] 
 
As much as 55 million tons of computers, TVs, air conditioners, refrigerators and more are discarded annually worldwide.
 
The Commerce Department’s Bureau of Industry and Security (BIS) has proposed regulations that would strengthen U.S. government oversight of discarded electronic waste exports due to national security concerns.   The agency’s proposed rule could restrict certain electronic waste exports altogether, requiring those items to be disposed of domestically.
 
Permissible electronic waste exports under the proposed rule would be subject to a new license exception or other reporting requirements, as well as new recordkeeping and tracking requirements, BIS said.
 
BIS’ proposed definition for electronic waste covers a broad range of products, including discarded desktop and mobile computers, data center equipment, televisions, digital imaging devices, consumer electronics and GPS systems. … 

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

NWS_a2
10. 
Expeditors News: “CBP Releases Trade Strategy 2020”

(Source: 
Expeditors News, 19 Oct 2018.) 
 
On October 11, 2018, U.S. Customs and Border Protection (CBP) released their Trade Strategy 2020, building on the tools and authorities in the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA).
 
The Trade Strategy covers Commissioner McAleenan’s vision for CBP’s trade mission by providing a framework of priorities. 
 
The trade strategy focuses on four major areas:
  – Secure trade lanes;
  – Next generation facilitation;
  – Intelligent enforcement;
  – Resource optimization.
 
CBP’s Trade Strategy 2020 may be found 
here.

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

NWS_a3
11. 
The Globe and Mail: “Canada Willing to Freeze Armored Vehicle Exports to Saudi Arabia, Trudeau Says”

(Source: 
The Globe and Mail, 22 Oct 2018.) [Excerpts.] 
 
Prime Minister Justin Trudeau says he’s willing to freeze exports of armored vehicles to Saudi Arabia, as the opposition presses the federal government to follow Germany’s lead in suspending military shipments to the kingdom over the alleged murder of journalist Jamal Khashoggi.
 
Saudi Arabia is the second-biggest arms market for both Canada and Germany, purchasing about half a billion dollars in military goods from each annually. Berlin froze all exports Sunday until the Khashoggi investigation is concluded, but Ottawa has not matched that action.
 
But in Question Period on Monday, Mr. Trudeau noted his government has committed to strengthening arms export controls in Bill C-47.
 
He then added, “We have frozen export permits before, when we had concerns about their potential misuse, and we will not hesitate to do so again.” … 

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

NWS_a4
12. 
Reuters: “Russian Oligarch Under U.S. Sanctions Files Suit Against Nordic Banks”

(Source: 
Reuters, 22 Oct 2018.) [Excerpts.] 
 
A Russian businessman under U.S. sanctions over the Ukraine conflict due to his close ties with President Vladimir Putin has filed suit against four Nordic banks, accusing them of discrimination, a court said on Monday. 
 
The lawsuit presented by Boris Rotenberg accuses Nordea, Danske Bank, Handelsbanken and OP Bank of refusing to let him make payments and of violating his right to equal treatment as an EU citizen. 
 
Rotenberg also holds a Finnish passport and is not subject to European sanctions over Russia’s role in Ukraine, but European banks must comply with the U.S. sanctions in order to do business with American banks.
 
  “A systematic choice was made in drafting the EU sanctions lists that no EU citizens would be included in the lists, even if they had been flagged by the U.S. presidential administration on their (…) list,” Rotenberg wrote in the complaint, which was filed at Helsinki district court on Oct. 4.
 
Rotenberg asked the court to oblige Handelsbanken to accept money transfers for 210,000 euros (about $240,000) that he has made to his own account at the bank.
 
He also sought an order forcing Nordea, Danske Bank and OP Bank to let him make payment transactions, demanding 10,000 euros in damages from Handelsbanken and 20,000 euros each from Nordea, Danske Bank and OP Bank.
 
The banks declined to comment beyond confirming the lawsuit. A spokeswoman for Rotenberg declined to comment.
 
  “Danske Bank is aware of Mr Rotenberg’s claims but cannot comment on this individual ongoing matter due to corporate policy,” a Danske spokesman said in an email.
 
He added that Danske – which has recently been hit by a money-laundering scandal at its Estonian branch – “takes money-laundering prevention and sanctions very seriously and has made significant efforts to ensure that all regulations are complied with.”

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

COMMCOMMENTARY

COMM_a0
13. 
M. Volkov: “Managing Your Supply Chain: Turning ‘Do No Harm’ Into ‘Doing Good'”
(Source: 
Volkov Law Group Blog, 22 Oct 2018. Reprinted by permission.) 
 
* Author: Michael Volkov, Esq., Volkov Law Group, 
mvolkov@volkovlaw.com, 240-505-1992. 
 
I am definitely an optimist. Frankly, there is no alternative. Pessimists, by definition, ensure that the result they fear will occur.  Another way of saying the same thing – karma is destiny.
 
Chief compliance officers see the world in terms of risks – they share a worldview with lawyers who are always asked to examine the worst-case scenario.  For some reason, worst case scenarios make my skin crawl – they are very unlikely to occur, but if they do, they result in serious consequences.
 
When I look at a company’s operations, I see legal and reputational risks.  Of course, there is some overlap here – a legal risk can cause reputational harms.  I understand that phenomena.
 
To illustrate my pointy, let’s focus on supply chain management.  I like to divide the risks here into three categories – operational, legal and reputational risks.  A company’s vendors and suppliers create a large body of risks.
 
From an operational standpoint, we have a number of basic risks.  A critical supplier who is unable to supply us with critical goods or services can result in serious harm to a company’s operations.  As a result, companies have to develop contingency plans and build a supply chain that can withstand such disruptions.
 
On the legal front, vendors and suppliers create potential risks from anti-bribery, sanctions, AML and other legal risks.
 
Remember that vendors and suppliers only create FCPA risks when they act “on behalf of” or in a representational role.  Most vendors and suppliers, therefore, do not create legal risks.  However, every vendor and supplier creates reputational risks.
 
What do I mean?  A company does not want to learn that a vendor or supplier engages in human trafficking or relies on child labor to produce materials purchased to manufacture goods.  This is fairly obvious and companies have to understand their supply chains to avoid reputational harm.
 
The last thing a company wants to deal with is a vendor which suffers a horrific event or is identified for improper labor practices or similar types of misconduct.  These tragedies can quickly become a public relations nightmare with serious potential harm to a company’s reputational integrity.
 
In the face of this set of risks, I want to take a moment to advocate for something a little more positive. What if a company can transform its supply chain from a set of risks and worst case scenarios, to a positive asset that reinforces a message of ethics and compliance?  In other words, I am suggesting that a company dedicate time and resources to converting its supply chain into a positive example of its commitment to ethics and integrity.
 
In this way, a company can tout its supply chain with a message of “doing good,” instead of a message of “do no harm.”  Maybe this is a little too subtle but consider the benefits of such a strategy.  A commitment to a positive supply chain will have a positive impact on a company’s workforce and ensure that its vendors meet exacting standards for ethical conduct and operations.
 
A company has to consider the need to establish its role in the corporate community and a positive force for responsibility.  A supply chain management initiative is an effective way to gain positive benefits and promote a company’s image as a responsible corporate citizen.

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

COMM_a01
14. 
W.R. Vigdor: “CFIUS Creates Pilot Programs Requiring the Filing of Declarations 45 Days Prior To Closing ‘Pilot Program Covered Transactions'”
(Source: 
Vinson & Elkins, 16 Oct 2018.) [Excerpts.] 
 
* Author: William R. Vigdor, Esq., 
wvigdor@velaw.com. Vinson & Elkins.
 
On October 11, 2018, the Committee on Foreign Investment in the United States (CFIUS) announced a pilot program under the Foreign Investment Risk Review Modernization Act (FIRRMA) that, for the first time in the history of CFIUS, sets out specific transactions that require parties to specified transactions to file a declaration (Declaration) to the Committee and to do so 45 days prior to closing. This is a significant departure from prior CFIUS practice in two respects: (1) rather than having all “control” transactions be subject to a voluntary filing regime, it mandates filings prior to closing for certain transactions; and (2) it expands CFIUS review to cover specified non-controlling minority investments. While this may be a significant departure from prior practice, it was all anticipated by FIRRMA.  Further expansions of the CFIUS jurisdiction are expected when CFIUS implements regulations required under FIRRMA.
 
The critical elements of the Pilot Program are: (1) a foreign person (2) obtains control or makes a non-controlling investment carrying specified rights (3) in a U.S. business that is involved with or manufactures critical technologies in specifically identified industries (“Pilot Program U.S. Businesses” or “PPUSBs”).
The Pilot Program comes into effect on November 10, 2018 and applies to all “Pilot Program Covered Transactions” (defined below), except for transactions:
 
  (1) Closing prior to November 10, 2018; or 
  (2) In which any of the following has occurred before October 11, 2018: 
      i. The parties to the transaction have executed a binding written agreement or other document establishing the material terms of the transaction; 
    ii. A party has made a public offer to shareholders to buy shares of a Pilot Program U.S. Business; or 
    iii. A shareholder has solicited proxies in connection with an election of the board of directors of a Pilot Program U.S. Business or has requested the conversion of convertible voting securities.
 
Thus, any of your current transactions that do not currently have a binding agreement and do not expect to close prior to November 10, are potentially subject to the Pilot Program.
 
Foreign Person
 
Foreign person includes any individual that is not a U.S. citizen and does not owe permanent allegiance to the U.S. Foreign person also includes any foreign entity or foreign government or any entity over which control is exercised by a foreign person, foreign entity or foreign government. Thus, a Delaware limited liability company is foreign if it has a managing member that is foreign.
 
Control Transactions and Non-controlling Investment Carrying Specified Rights
 
The Pilot Program covers mergers, acquisitions, takeovers, equity investments and joint ventures, that result in a foreign person obtaining control of a U.S. business. “Control” is a key aspect of CFIUS jurisprudence. It includes the ability to affirmatively determine the direction of a U.S. business or investment fund and, for minority investors, the right to veto “important matters” of the U.S. business, such as budgets, liquidation events, issuances of equity, and other matters routinely considered to be standard minority protections. 
The Pilot Program expands CFIUS jurisdiction to cover equity investments (including contingent equity investments, direct and indirect investments and non-controlling investments), that afford certain rights to a foreign person, even if the minority investor does not obtain control. This can apply to limited partners.
 
The relevant rights are:
  (1) Access to any material non-public technical information in the possession of the PPUSB;
  (2) Membership or observer rights on or the right to nominate a person to the board of directors or equivalent governing body of the PPUSB; or
  (3) Any involvement, other than through voting of shares, in substantive decision-making of the PPUSB regarding the use, development, acquisition, or release of critical technology.
 
Regardless of the foregoing, the Pilot Program does not include non-controlling investments if all of the following apply:
  (1) The fund is managed exclusively by a general partner or managing member (or equivalent), which is not the foreign person that is the party to the transaction;
  (2) The advisory board or committee does not have the ability to approve, disapprove, or otherwise control:
     (a) investment decisions of the investment fund; or
     (b) decisions made by the general partner or managing member related to entities in which the investment fund is invested; 
  (3) The foreign person does not otherwise have the ability to control the investment fund, including the authority: 
     (a) To approve, disapprove, or otherwise control investment decisions of the investment fund; 
     (b) To approve, disapprove, or otherwise control decisions made by the general partner or managing member to entities in which the investment fund is invested; or 
     (c) To unilaterally dismiss, prevent the dismissal of, select, or determine the compensation of the general partner, managing member, or equivalent; 
  (4) The foreign person does not have access to material non-public technical information as a result of its participation on the advisory board or committee; and 
  (5) The investment otherwise meets the requirements of FIRRMA.
 
The Pilot Program also does not apply to a transaction in which the foreign person holds more than 50% of the voting interest of a PPUSB or the right to designate more than 50% of the directors or members of the governing body of the PPUSB.
Notably, any change in such rights can be a Pilot Program Covered Transaction. For example, a foreign person with observer rights that contributes additional capital and obtains involvement in the decision-making regarding critical technology is likely to be a Pilot Program Covered Transaction and subject to the mandatory Declaration process.
 
Material non-public technical information is not financial information but includes non-public information that “is necessary to design, fabricate, develop, test, produce, or manufacture critical technologies, including processes, techniques, or methods.”
 
Critical technologies are:
  (1) military technologies subject to the International Traffic in Arms Regulations (ITAR);
  (2) technologies subject to the export controls regulations that are regulated for export pursuant to multilateral regimes relating to national security, chemical and biological proliferation, nuclear nonproliferation or missile technology or otherwise regulated for export for reasons relating to regional stability or surreptitious listening;
  (3) nuclear technologies subject to specified nuclear and atomic energy regulations;
  (4) select agents and toxins subject to regulation; and
  (5) emerging technologies that will be subject to export control.
 
Pilot Program U.S. Business
 
A PPUSB
  (1) “produces, designs, tests, manufactures, fabricates, or develops a critical technology” that is either:
  (2) (a) used in connection with the PPUSB in one or more pilot program industries or (b) designed by the PPUSB specifically for the use in one or more pilot program industries. 
The Pilot Program industries are listed below.
 
Timing
 
CFIUS requires the parties to a Pilot Program Covered Transaction to submit a Declaration:
  (1) no later than 45 days prior to closing for transactions closing on or after December 25, 2018; or
  (2) on (or shortly after) November 10, 2018 for transactions closing between November 10, 2018 and December 25, 2018. 
The review period is 30 days. CFIUS can clear the transaction, request the parties to submit a formal CFIUS notice or initiate a review.
 
A Declaration contains about 18 questions covering the parties, the transaction, the relevant technologies, and contracts the PPUSB has with the U.S. government and a statement as to whether any party to the transaction or its parents have been convicted of any crime.
 
Careful consideration must be made to ensure that your transaction is a Pilot Program Covered Transaction and whether to submit a Declaration. … 

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ENEDITOR’S NOTES


George Saintsbury 
(George Edward Bateman Saintsbury, 23 Oct 1845 – 28 Jan 1933; was an English writer, literary historian, scholar, critic and wine connoisseur.)

  – “It is the unbroken testimony of all history that alcoholic liquors have been used by the strongest, wisest, handsomest, and in every way best races of all times.”

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EN_a316
. Are Your Copies of Regulations Up to Date?
(Source: Editor)

The official versions of the following regulations are published annually in the U.S. Code of Federal Regulations (C.F.R.), but are updated as amended in the Federal Register.  The latest amendments to applicable regulations are listed below.
 
*
ATF ARMS IMPORT REGULATIONS
: 27 CFR Part 447-Importation of Arms, Ammunition, and Implements of War
  – Last Amendment: 15 Jan 2016: 81 FR 2657-2723: Machineguns, Destructive Devices and Certain Other Firearms; Background Checks for Responsible Persons of a Trust or Legal Entity With Respect To Making or Transferring a Firearm. 
 
*
CUSTOMS REGULATIONS
: 19 CFR, Ch. 1, Pts. 0-199
  – Last Amendment: 19 Sep 2018: 83 FR 47283-47284: Extension of Import Restrictions Imposed on Archaeological Material From Cambodia  

 
DOD NATIONAL INDUSTRIAL SECURITY PROGRAM OPERATING MANUAL (NISPOM): DoD 5220.22-M

  – Last Amendment: 18 May 2016: Change 2
: Implement an insider threat program; reporting requirements for Cleared Defense Contractors; alignment with Federal standards for classified information systems; incorporated and cancelled Supp. 1 to the NISPOM (Summary 
here
.)


EXPORT ADMINISTRATION REGULATIONS (EAR)
: 15 CFR Subtit. B, Ch. VII, Pts. 730-774

  – Last Amendment: 26 Sep 2018: 83 FR 48532-48537: Addition of Certain Entities to the Entity List, Revision of an Entry on the Entity List and Removal of an Entity From the Entity List

  
*
FOREIGN ASSETS CONTROL REGULATIONS (OFAC FACR)
: 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders

  – Last Amendment: 29 June 2018: 83 FR 30541-30548: Global Magnitsky Sanctions Regulations; and 83 FR 30539-30541: Removal of the Sudanese Sanctions Regulations and Amendment of the Terrorism List Government Sanctions Regulations 

 
*
FOREIGN TRADE REGULATIONS (FTR)
: 15 CFR Part 30
  – Last Amendment: 24 Apr 2018: 3 FR 17749-17751: Foreign Trade Regulations (FTR): Clarification on the Collection and Confidentiality of Kimberley Process Certificates
  – HTS codes that are not valid for AES are available
here.
  – The latest edition (30 Apr 2018) of Bartlett’s Annotated FTR (“BAFTR”), by James E. Bartlett III, is available for downloading in Word format. The BAFTR contains all FTR amendments, FTR Letters and Notices, a large Index, and approximately 250 footnotes containing case annotations, practice tips, Census/AES guidance, and explanations of the numerous errors contained in the official text. Subscribers receive revised copies in Microsoft Word every time the FTR is amended. The BAFTR is available by annual subscription from the Full Circle Compliance websiteBITAR subscribers are entitled to a 25% discount on subscriptions to the BAFTR. Government employees (including military) and employees of universities are eligible for a 50% discount on both publications at www.FullCircleCompiance.eu.  
 
*
HARMONIZED TARIFF SCHEDULE OF THE UNITED STATES (HTS, HTSA or HTSUSA)
, 1 Jan 2018: 19 USC 1202 Annex. (“HTS” and “HTSA” are often seen as abbreviations for the Harmonized Tariff Schedule of the United States Annotated, shortened versions of “HTSUSA”.)

  – Last Amendment: 22 Oct 2018: Harmonized System Update 1818

containing 1,544 ABI records and 286 harmonized tariff records.

  – HTS codes for AES are available 
here.
  – HTS codes that are not valid for AES are available 
here.
 
INTERNATIONAL TRAFFIC IN ARMS REGULATIONS (ITAR): 22 C.F.R. Ch. I, Subch. M, Pts. 120-130.
  – Last Amendment:
4 Oct 2018: 83 FR 50003-50007: Regulatory Reform Revisions to the International Traffic in Arms Regulations.

  – The only available fully updated copy (latest edition: 4 Oct 2018) of the ITAR with all amendments is contained in Bartlett’s Annotated ITAR (“BITAR”), by James E. Bartlett III. The BITAR contains all ITAR amendments to date, plus a large Index, over 800 footnotes containing amendment histories, case annotations, practice tips, DDTC guidance, and explanations of errors in the official ITAR text. Subscribers receive updated copies of the BITAR in Word by email, usually revised within 24 hours after every ITAR amendment.
The BITAR is available by annual subscription from the Full Circle Compliance
 
website
. BAFTR subscribers receive a $25 discount on subscriptions to the BITAR, please
contact us
to receive your discount code.

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EN_a0317
Weekly Highlights of the Daily Bugle Top Stories

(Source: Editor) 

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

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EPEDITORIAL POLICY

* The Ex/Im Daily Update is a publication of FCC Advisory B.V., compiled by: Editor, James E. Bartlett III; Assistant Editors, Alexander P. Bosch and Vincent J.A. Goossen; and Events & Jobs Editor, Alex Witt. The Ex/Im Daily Update is emailed every business day to approximately 6,000 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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