18-1121 Wednesday “Daily Bugle”

18-1121 Wednesday “Daily Bugle”

Wednesday, 21 November 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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[The Daily Bugle will not be released tomorrow,Thursday, 22 November 2018, a U.S. Federal Holiday.]  

[No items of interest noted today.] 

  1. Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.)
  3. State/DDTC: (No new postings.)
  1. C4ISRNET: “To Maintain Tech Edge, US Seeks Export Controls on AI”
  2. Miami Herald: “French Bank Fined $1.34 Billion for Violating Cuban Embargo”
  3. ST&R Trade Report: “‘Big, Bold,’ WTO Case Against China Among Recommendations in New Report”
  1. Brexit Notes: “UK Government Publishes Explanatory Slides on the Withdrawal Agreement and the Outline Political Declaration on the Future UK-EU Relationship”
  2. M. O’Kane: “Germany Halts All Arms Sales to Saudi Arabia over Khashoggi Killing”
  3. M. Volkov: “Effective Compliance is More than the Sum of a Program’s Parts”
  1. ECS Presents “Web Meeting Series – Managing Foreign Nationals in the Workplace: Be Confident, Competent, and Compliant” on 11 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 (2 Nov 2018), FACR/OFAC (15 Nov 2018), FTR (24 Apr 2018), HTSUS (1 Nov 2018), ITAR (4 Oct 2018) 
  3. Weekly Highlights of the Daily Bugle Top Stories 



[No items of interest noted today.]

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

* Treasury; Foreign Assets Control Office; NOTICES; Blocking or Unblocking of Persons and Properties [Publication Date: 23 November 2018.]
* United States International Trade Commission; NOTICES; U.S.-EU Trade Agreement: Advice on the Probable Economic Effect of Providing Duty-free Treatment for Currently Dutiable Imports [Publication Date: 23 November 2018.]

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4. C4ISRNET: “To Maintain Tech Edge, US Seeks Export Controls on AI”
(Source: C4ISRNET, 20 Nov 2018.)
In just two words, the phrase “artificial intelligence” captures a deep techno-utopian promise, the notion that through craftsmanship humans can create learning and thinking machines outside the processes of organic life. AI is typically the realm of technologists and science fiction writers.
Now it is also in the world of export controls prohibitions and restrictions on technologies as overseen by the Department of Commerce.
In a proposed rule announced Nov. 19, the Bureau of Industry and Security wants to set out guidelines establishing “criteria for identifying emerging technologies that are essential to U.S. national security.” The stated goals of such controls are tied to both security and protectionism for existing American industry, especially the science, technology, engineering and manufacturing sectors.
The proposed rules encompass 14 technologies, covering brain-computer interfaces to advanced surveillance technology. Nestled in that list of technologies is “artificial intelligence (AI) and machine learning technology,” which is further broken into 11 related tools.
Here is a list of all the kinds of AI that the new rules seek to put under Commerce export controls:
  – Neural networks and deep learning (e.g., brain modelling, time series prediction, classification)
  – Evolution and genetic computation (e.g., genetic algorithms, genetic programming)
  – Reinforcement learning
  – Computer vision (e.g., object recognition, image understanding)
  – Expert systems (e.g., decision support systems, teaching systems)
  – Speech and audio processing (e.g., speech recognition and production)
  – Natural language processing (e.g., machine translation)
  – Planning (e.g., scheduling, game playing)
  – Audio and video manipulation technologies (e.g., voice cloning, deepfakes)
  – AI cloud technologies
  – AI chipsets
Several of these are as much mathematical concepts, or processes, as they are distinct, controllable technologies. Others, like AI cloud technologies, suggest always-online servers, which by the very nature of the internet, are difficult to control within borders.
Tackling an entire technological field, especially one with as low a barrier to entry as coding, is a tricky proposition, even in the instances where the technology is clearly defined.
Why might the White House go through all this trouble?
  “These revisions could compose an important element of a strategy of targeted countermeasures against the near-term threat posed by China’s tactics for tech transfer and the long-term challenge of China’s emergence as a powerhouse in innovation,” said Elsa B. Kania, adjunct fellow at the Center for New American Security.
  “However, the revision of this traditional mechanism for today’s challenges is inherently challenging, particularly when development is driven by commercial technologies.”
Unlike, say, controlling the components and designs of missiles in the Cold War, many of the technologies covered under these proposed rules have both commercial and military applications. We need not look abroad to find this. Project Maven, the tool Google created to process images collected from drones, was built on top of an open-source library. Identifying objects in images is hardly a military-specific task. Should companies within the United States be restricted in how they create, sell and share those same tools with researchers and commercial companies outside American borders?
  “China’s national strategy of military-civil fusion, which seeks to create and leverage synergies among defense, academic, and commercial technological developments in dual-use technologies, increases the ambiguity and uncertainty of tech transfer and collaboration,” Kania said.
  “That is, the boundaries between defense and commercial technologies can become quite blurred as a result of the nature of these technologies and the Chinese government’s strategy for their integrated development.”
Putting in place controls to hinder the free flow of AI between American companies and businesses abroad may mitigate that risk somewhat, but countries set on acquiring the tools can pursue research by other means, including technology transfers, espionage, theft through hacking, or even straightforward investment and acquisition. Staying ahead in artificial intelligence likely cannot be done through commerce restrictions alone.
  “The U.S. must recognize that such controls may slow and hinder China’s advances in these emerging technologies, but China’s emergence as a powerhouse and would-be superpower in such emerging technologies will remain a critical long-term challenge,” Kania said. “We must not only pursue such defensive countermeasures, but also undertake a more offensive approach to ensuring future American competitiveness through investing in our own innovation ecosystem.”

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Miami Herald, 20 Nov 2018.)
U.S. government agencies have imposed fines totaling $1.34 billion on the French bank Société Générale (SG) for transactions that violated sanctions on Cuba and other countries.
Federal prosecutors in New York also accused SG of conspiring to violate the Trading with the Enemy law and the embargo on Cuba for what they called “SG’s role in processing billions of transactions using the U.S. financial system, in connection with credit facilities involving Cuba.”
Under an agreement between the French bank and the U.S. government, SG will pay the fines and establish controls to avoid future violations. In exchange, the U.S. has agreed to drop the charges in three years.
SG will pay $717 million to federal authorities, $162.8 to the prosecutors’ office in New York and $54 million to the Treasury Department’s Office of Foreign Assets Controls (OFAC)
The bank also reached agreements with the U.S. Federal Reserve, the Justice Department and several state and county agencies in New York, where SG has a branch.
The Federal Reserve fined SG with $81.2 million for “the firm’s unsafe and unsound practices primarily related to violations of U.S. sanctions against Cuba,” the Reserve said in an announcement Monday.
SG processed 1,077 transactions totaling more than $5.56 billion in violation of U.S. sanctions on Cuba, Iran and Sudan, according to an OFAC announcement.
The agreement said the bank “processed certain transactions in a way that was not transparent, which eliminated, omitted, hid or excluded references to sections sanctioned by OFAC in the information sent to U.S. financial institutions that participated in the transactions.”
From 2007 to 2010, a branch of SG granted loans to a Dutch company for the export of Cuban nickel. Another Dutch company guaranteed a loan with oil stored in Cuba. Other transactions involved the payment of taxes by SG and a Cuban bank.
The U.S. Government said one mitigating factor was SG’s voluntary disclosure of the violations and cooperation in the investigation.
  “Today, Société Générale has admitted its willful violations of U.S. sanctions laws – and longtime concealment of those violations – which resulted in billions of dollars of illicit funds flowing through the U.S. financial system,” said a statement by Geoffrey S. Berman, U.S. Attorney for the Southern district of New York.
  “With today’s resolution, the bank has accepted responsibility for its criminal conduct and demonstrated its commitment to remedying these failures and enhancing its compliance programs and internal controls. Other banks should take heed: Enforcement of U.S. sanctions laws is, and will continue to be, a top priority of this Office and our partner agencies.” he added.
The fines imposed on SG are the second largest ever slapped on a financial institution for violating U.S. economic sanctions, and the second on a French bank in the past four years. In 2015, BNP Paribas agreed to pay $8.8 billion for violating sanctions on Cuba, Iran and Sudan.
Criminal charges against financial institutions that violate U.S. laws are not unusual, said John Kavulich, president of the U.S.-Cuba Trade and Economic Council.
  “A lot of times the government will throw everything it has as a deterrent effect and to push a settlement,” Kavulich said.
  “The more that the Trump Administration weaponizes the DOT (OFAC) and DOJ, the less likely will be governments to engage with Cuba as the risk of exposure will be greater than the benefit to engagement with Cuba,” he added.
Société Générale was the first bank to open offices in Cuba, starting in 1996.
The SG fines were announced the same day Cuban and European officials met in Belgium to discuss the U.S. sanctions, as part of the bilateral consultations launched after the European Union began to expand its relations with Havana.
Cuba expects that a special payment system being created by the EU to avoid U.S. sanctions on Iran will also help sidestep sanctions on Havana, according to a Cuban official quoted by the Agence France Presse news agency.

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NWS_a36. ST&R Trade Report: “‘Big, Bold’ WTO Case Against China Among Recommendations in New Report”
The U.S.-China Economic and Security Review Commission’s annual report to Congress documents numerous challenges in the bilateral trade relationship and concludes that U.S. steps to address those challenges in the past have been insufficient. The report recommends that Congress take a number of actions in response, including filing a new kind of case against China at the World Trade Organization.
Continuing a theme repeated frequently by the Trump administration, the report asserts that China’s state-led, market-distorting economic model presents a challenge to U.S. economic and national security interests. The report explains that the Chinese government continues to exercise direct and indirect control over key sectors of the economy and allocate resources based on the perceived strategic value of a given firm or industry, putting U.S. and other foreign firms at a disadvantage. Repeated pledges to permit greater market access for private domestic and foreign firms remain unfulfilled, the report states, and instead leaders have prioritized efforts to consolidate control over economic policymaking. Further, China continues to violate its WTO commitments, even reversing progress on some, and to thereby undermine the multilateral system.
The report finds that the unilateral, bilateral, and multilateral tools the U.S. has used have been successful at targeting some discrete aspects of China’s industrial policies, such as individual subsidy programs or tariffs. However, the report states, U.S. policy makers have expressed growing frustration that these tools, including antidumping and countervailing duties, Section 201 safeguards, Section 232 and 301 import restrictions, bilateral discussions and forums, and WTO litigation, have each “proven limited when set against a vast array of industrial policies viewed as a political and economic imperative by Chinese leadership.”
In an effort to devise a more effective approach to the economic challenges China presents, the report recommends that Congress examine whether the Office of the U.S. Trade Representative should bring a “non-violation nullification or impairment” case against China at the WTO under Article 23(b) of the General Agreement on Tariffs and Trade. Such claims allow WTO members to dispute measures that do not explicitly violate WTO agreements but are deemed to have nullified or impaired an expected benefit; e.g., that as a result of its accession to the WTO China would participate in the multilateral trading system on open, market-oriented terms. However, the report notes that such cases have been rare and narrow in scope, making it difficult to predict the outcome if the U.S. were to pursue one.
The report recommended that Congress take the following actions as well.
  – direct the Government Accountability Office to conduct an assessment of U.S.-China collaborative initiatives in technical cooperation that, among other things, considers whether the intellectual property rights of U.S. researchers and companies are being adequately protected and investigates if any U.S. companies, universities, or labs participating in U.S. government-led collaboration with China have been subject to cyber penetration originating in China
  – direct the U.S. Department of Agriculture to identify the extent to which China’s asynchronous biotech review and approval system for agricultural products adversely impacts U.S. industry and work with USTR to seek bilateral or multilateral measures to address these impacts
  – direct the USDA to prepare an annual report on its technical engagement with China on food safety, inspection, mechanisms for addressing sanitary and phytosanitary problems, and any technical assistance provided to China to improve its food safety inspection regime

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The UK Government released on 19 Nov explanatory slides on the Withdrawal Agreement and the outline political declaration on the future relationship between the UK and the EU following their publication last Wednesday.
The slides are available here.

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European Sanctions Blog, 20 Nov 2018.)
* Author: Michael O’Kane, Esq., Peters & Peters Solicitors LLP, mokane@petersandpeters.com.
Last month, Germany announced that it will not be approving any new arms exports to Saudi Arabia over the killing of journalist Jamal Khashoggi committed in the Saudi Consulate General, Istanbul (see previous blog).
On 19 November, Germany’s Minister of Foreign Affairs, Heiko Maas, announced that there will now be a complete ban on all arms sales to Saudi Arabia (including exports that had already been approved by the German government). Furthermore, that Germany has initiated proceedings to impose travel bans on 18 Saudi Arabian nationals allegedly linked to the killing.
Last week (15 November), the US added 17 Saudi Arabian individuals to its Global Magnitsky sanctions list (Executive Order 13818) over “serious human rights abuse resulting from their roles in the killing of Jamal Khashoggi” (see previous blog).

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Volkov Law Group Blog, 20 Nov 2018. Reprinted by permission.)
* Author: Michael Volkov, Esq., Volkov Law Group,
mvolkov@volkovlaw.com, 240-505-1992.
The beauty of an effective ethics and compliance program is captured in the well-known phrase that it is worth much more than the sum of its parts.
I am reminded of the Beatles refrain, “All Together Now,” (
HERE) which is an apt reminder of the importance of operationalizing an ethics and compliance program.  Frankly, the life of an ethics and compliance program depends on the extent to which it is operationalized.
A compliance program lives or dies depending on the cooperation and coordination of every element of a corporation, starting with the C-Suite and stretching from the business, to human resources, finance, security, internal audit, procurement, and on and on.  Together, each of these disparate functions has a contribution and important role to play in the overall operation of the compliance program.
When one player fails to participate or resists cooperation, the compliance program is unlikely to succeed since each function houses important aspects of a compliance program.  I am reminded of a chief compliance officer who had to cut a meeting off because he/she had to meet with HR in an attempt to persuade HR to cooperate with the company’s compliance program.  Unfortunately, these days I hear such candid comments often from a CCO about the lack of cooperation from key functions in a compliance program.
Perhaps the most important cooperator in this process is the business itself.  I often hear about how business leaders continue to view compliance as a “pain” or something that has to be done but only done as a way to progress to the next step in a business process.  Business managers have to be educated and enlisted to adopt compliance procedures as a “way of doing business.”  Compliance is critical to business success and is fast becoming an important aspect of every business relationship, between the business and customers, business and vendors/suppliers, and business and key stakeholders.  Forward-thinking or enlightened business managers understand this critical link.  Luddites do not.
The same can be said for corporate financial executives.  As keepers of the cash, and managers of money, financial executives are one of the last bastions of resistance to the need to cooperate and coordinate their operations with the support and assistance of CCOs.  They can resist now but they will ultimately have to lower their defenses and begin to cooperate and coordinate.
As a first step, financial and compliance controls overlap figuratively and literally.  As a pure technical matter, financial controls, if properly crafted, include various compliance functions (e.g. gifts, meals, entertainment).  More broadly, financial controls operate in an environment in which a compliance program operates – a company’s culture.
If the company’s culture is one of cutting corners, and evading requirements to focus exclusively on profits, you can bet that the company will have difficulty in enforcing its accounting controls.  This is just common sense, but for some reason, CFOs and other financial professionals somehow believe they are members of an exclusive club that does not need to embrace the compliance function.  In this narrow-minded approach, financial executives are doing a disservice to the overall corporate mission.
Eventually, a CEO and his/her senior management team can break down this wall between finance and compliance by mandating cooperation and coordination.   But of course that depends on whether the CEO and the senior management team understand the importance of ethics and compliance, and the need for everyone to contribute and cooperate to the program’s success.

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TE_a210. ECS Presents “Web Meeting Series – Managing Foreign Nationals in the Workplace: Be Confident, Competent, and Compliant” on 11 Dec
(Source: Suzanne Palmer, spalmer@exportcompliancesolutions.com)
* What: Web Meeting Series – Managing Foreign Nationals in the Workplace: Be Confident, Competent, and Compliant
* When: December 11, 2018; 1:00-2:30 p.m. EST
* Where: Online
* Sponsor:  Export Compliance Solutions & Consulting (ECS)
* ECS Instructors: Suzanne Palmer, Melva Exner
* Register here or by calling 866-238-4018 or by emailing spalmer@exportcompliancesolutions.com

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* Voltaire (François-Marie Arouet; 21 Nov 1694 – 30 May 1778; known by his nom de plume Voltaire, was a French Enlightenment writer, historian and philosopher famous for his wit, his attacks on the established Catholic Church, and his advocacy of freedom of religion, freedom of speech and separation of church and state.)
  – “In general, the art of government consists of taking as much money as possible from one class of citizens to give to another.”
 – “Ice-cream is exquisite – what a pity it isn’t illegal.”
* Isaac Bashevis Singer (21 Nov 1902 – 24 Jul 1991; was a Polish-born writer in Yiddish, awarded the Nobel Prize in Literature in 1978. He was a leading figure in the Yiddish literary movement, writing and publishing only in Yiddish.)
– “We must believe in free will. We have no choice!”
Abigail Adams (née Smith; 22 Nov 1744 – 28 Oct 1818; was the wife and closest advisor of John Adams, as well as the mother of John Quincy Adams.)
  – “I’ve always felt that a person’s intelligence is directly reflected by the number of conflicting points of view he can entertain simultaneously on the same topic.”

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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: 2 Nov 2018: 
83 FR 55099: Wassenaar Arrangement 2017 Plenary Agreements Implementation [Correction to 24 Oct EAR Amendment Concerning Supplement No. 1 to Part 774, Category 3.]

: 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders

  – Last Amendment: 15 Nov 2018: 83 FR 57308-57318: Democratic Republic of the Congo 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: 1 Nov 2018: 
Harmonized System Update 1819, containing 1,200 ABI records and 245 harmonized tariff records.

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