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18-1129 Thursday “Daily Bugle”

18-1129 Thursday “Daily Bugle”

Thursday, 29 November 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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[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.)
  4. EU Amends Restrictive Measures Concerning Libya
  1. Reuters: “Three Siemens Employees Investigated over Turbines in Crimea”
  2. ST&R Trade Report: “Customs Agencies Should Look at Over-Invoicing as Well as Under-Invoicing, WCO Says”
  3. Washington Post: “Uganda Diverted Weapons to South Sudan despite Arms Embargo”
  1. H. Abdelhady: “Brain Drain: Emerging Technologies Export Controls Could Spur Tech Inversions”
  2. M. Volkov: “Your CEO Agrees the Company’s Culture is Important – Now What?”
  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 

EXIMITEMS FROM TODAY’S FEDERAL REGISTER

EXIM_a1

 
[No items of interest noted today.]

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OGSOTHER GOVERNMENT SOURCES

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: 30 November 2018.]  

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OGS_a2
2. 
Commerce/BIS: (No new postings.)

(Source: 
Commerce/BIS)

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(Source:
Official Journal of the European Union, 29 Nov 2018.)
 
Regulations:
* Council Implementing Regulation (EU) 2018/1863 of 28 November 2018 implementing Article 21(1) of Regulation (EU) 2016/44 concerning restrictive measures in view of the situation in Libya
 
Decisions:
* Council Implementing Decision (CFSP) 2018/1868 of 28 November 2018 implementing Decision (CFSP) 2015/1333 concerning restrictive measures in view of the situation in Libya

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NWSNEWS

NWS_a0
5. Reuters: “Three Siemens Employees Investigated over Turbines in Crimea”
(Source: Reuters, 29 Nov 2018.)
 
Prosecutors are investigating three German Siemens employees based in St. Petersburg over allegations they violated EU embargo rules, the Hamburg public prosecutor’s office said.
 
Siemens exported seven gas turbines to Russia in 2015 and 2016, but they were later installed in Russia-annexed Crimea, which is subject to sanctions from the European Union.
 
The bloc imposed sanctions after Russia annexed the Black Sea peninsula of Crimea from Kiev in March, 2014, and ratcheted them up as Moscow went on to back rebels fighting against government troops in east Ukraine.
 
Siemens said in its annual report published on Wednesday that it was fully cooperating with the authorities.
 
The turbines were worth 213 million euros and the investigation had been going on since May, a spokesman for the prosecutor said.
 
Siemens said that the turbines were ordered and delivered for a power plant project in Taman in southern Russia. But they were then transferred to Crimea by Siemens’ Russian customer OAO VO TechnoPromExport and installed in new gas-fired power plants in a breach of the sales contract.
 
Siemens sued OAO VO TechnoPromExport in Russia, aiming for a cancellation of the sales contract. But its case was dismissed by four consecutive courts, Siemens said.

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Trade mis-invoicing accounts for a substantial share of the world’s illicit financial flows and national customs agencies should take steps to address it, according to a new report from the World Customs Organization.
 
IFFs are generally described as cross-border transfers of funds that are illegally earned, transferred, or utilized. According to the report, the term encompasses practices such as trade mis-invoicing, cash smuggling, disguised or unreported bank transfers, informal transfer systems, and disguised foreign investment. The sources of IFFs include tax evasion, proceeds from criminal activities, and bribery of government officials.
 
The report adds that trade mis-invoicing can be defined as fraudulent cases where either the importer or exporter, or both, manipulate the value (e.g. price, quantity, or quality) of trading goods in their customs declarations. The motives for such actions include evading tariffs, taxes, or trade regulations; exploiting trade incentives; and disguising capital flight.
 
While customs agencies have tended to concentrate their attention on under-invoicing of imports in line with their traditional mandate of detecting possible revenue leakage, the report states, in response to the risk of IFFs/TM these agencies should have sufficient mandate and resources to tackle (1) over-invoiced imports intended to disguise capital flight as a form of trade payment, (2) under-invoiced exports intended to conceal trade profit abroad such as tax havens, and (3) over-invoiced exports or under-invoiced imports intended to bring illicit proceeds into the domestic legal financial system.
 
Other policy recommendations in the report include capacity building to provide sufficient financial and human resources for customs agencies to combat IFFs/TM and enhance integrity; enhancing customs partnerships with business, other government agencies (e.g., tax authorities), financial intelligence units, police, and customs administrations of trade partners; and exploring new technology such as blockchain that could potentially help prevent and detect any fraudulent manipulation of trade transactions and related financial transactions by sharing and analyzing relevant information in a trusted and secure manner.

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NWS_a3
7. Washington Post: “Uganda Diverted Weapons to South Sudan despite Arms Embargo”

(Source:
 
Washington Post
, 29 Nov 2018.) [Excerpts.]
 
A key broker of the latest deal to end South Sudan’s civil war diverted European weapons to South Sudan’s military despite an EU arms embargo, a new report says. It also asks how a U.S. military jet ended up deployed in South Sudan in possible violation of arms export controls.
 
The London-based Conflict Armament Research report, released on Thursday, raises questions about Uganda’s support for neighboring South Sudan’s government even as it promotes itself as a neutral negotiator in one of Africa’s deadliest conflicts.
 
South Sudan’s warring sides signed the peace agreement in September to end a five-year civil war that has killed nearly 400,000 people. Previous deals have collapsed in gunfire. The new report is a “forensic picture of how prohibitions on arms transfers to the warring parties have failed,” said Conflict Armament Research’s executive director, James Bevan.
 
The report says Uganda bought arms and ammunition from at least three EU members – Bulgaria, Romania and Slovakia – that were diverted to South Sudan’s military and armed allies in Sudan. The transfers occurred before the United Nations Security Council imposed its own arms embargo on South Sudan earlier this year but well after the EU embargo.
 
With the Bulgarian weapons, “South Sudan arranged for Uganda to issue end-user certificates (the essential paperwork for an international arms transfer) … to make it look like these weapons were for the use of the Ugandan armed forces when in fact they were always destined for South Sudan,” said Mike Lewis, the head of regional operations for Conflict Armament Research.
 
It is less clear whether Uganda’s government, a key U.S. security ally in the region, was complicit in the diversion of ammunition shipped to it from Romania and Slovakia in 2015, Lewis said. Some of the ammunition was discovered with Sudan-based militias allied with South Sudan’s military. …

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COMMCOMMENTARY

 
* Author: Hdeel Abdelhady, Esq., MassPoint Legal and Strategy Advisory PLLC,
habdelhady@masspointpllc.com.
 
A few years ago, corporate inversions were big news, and controversial. According to the Treasury Department, a corporate inversion
occurs when a “U.S.-based multinational corporation restructures itself so that the U.S. parent is replaced by a foreign parent and the original U.S. company becomes a subsidiary of the foreign parent.” The objective of such an inversion is to reduce the corporation’s U.S. tax burden. Or, stated differently, to escape U.S. tax laws and regulations.
 
Just as certain tax obligations apply entirely or more stringently to U.S. corporations (and individuals), so do many other U.S. laws and regulations, including those governing U.S. technology transfers to foreign persons within or outside of U.S. territory (
e.g., by physical or electronic transmission outside of the United States or by “deemed export” to foreign persons within the United States).
 
Restrictions on transfers of emerging technologies, recently strengthened by law and now in further development by regulation may- depending on the content of regulations and the manner of their enforcement- give rise to another kind of inversion: technology inversions. A technology inversion (which is not (yet) a “thing,” to my knowledge) would not necessarily entail expatriation or restructurings of corporate entities. Rather, a technology inversion might involve the relocation of specific projects or loci of development to facilitate cross-border flows of technological information, services, and goods where international exchanges and other collaborations are needed to build emerging technologies within desired time, cost, and other resource parameters.
 
Regulation of Emerging Technology Transfers: Export Control Reform Act of 2018
 
2018 has been a big year in year in the regulation and control of transfers of emerging and foundational U.S. technologies to foreign parties. Two key laws enacted in August established stricter standards for transfers of cutting-edge U.S. technology within and outside of the United States, together capturing transfers accomplished by foreign investment, other commercial transactions, and by exports. The Foreign Investment Risk Review and Modernization Act (
FIRRMA) and the Export Control Reform Act of 2018 (
ECRA), both passed as part of the National Defense Authorization Act for Fiscal Year 2019 (
NDAA), respectively expanded the jurisdiction of the Committee on Foreign Investment in the United States (
CFIUS) to review foreign investments and ventures involving U.S. technology of national security significance and mandated the controls of exports of emerging and foundational technologies by the Department of Commerce. Examples of technologies having or potentially having national security significance for CFIUS review or export control purposes include artificial intelligence, robotics, nanotechnology, and semiconductors. A policy objective of these laws is to maintain the United States’ technological leadership. It remains to be seen whether forthcoming regulations of emerging technologies exports will advance or undermine this policy goal.
 
Department of Commerce Emerging Technologies Rulemaking: Statutory Requirements, Regulatory Discretion 
 
On November 19, the Department of Commerce took an early and important step in satisfying its obligations under ECRA to identify emerging technologies essential to national security and potentially requiring of export control (see this
MassPoint Regulatory Update for a detailed discussion of Commerce’s Advance Notice of Proposed Rulemaking (
ANPRM)). The ANPRM lists 14 categories (with sub-categories) of “representative” emerging technologies of interest to Commerce and invites public comment to help the agency establish criteria for identifying emerging technologies requiring export control regulation.
 
As the rulemaking process is in its early phases, it is not yet known how and to what extent Commerce might impose export controls on emerging technologies. Nor is it known how Commerce might enforce any such export controls generally or in specific cases. However, some of ECRA’s provisions suggest that any new export controls on emerging technologies would likely infuse the export licensing process with new complexity. For example, ECRA requires Commerce to consider, as part of an ECRA-mandated licensing procedure, the impact of a “proposed export . . . on the United States defense industrial base.” ECRA sets the outer criteria for defense industrial base impact assessments, such as whether an item’s export would result in a “reduction” in the United States of the availability of an item “likely to be acquired by the Department of Defense” or other federal department or agency. ECRA leaves the determination of specifics (such as what constitutes an actionable “reduction” and whether “likely to be acquired” means pursuant to procurement arrangement that predates an export licensing application) to Commerce in establishing and implementing licensing procedures.
 
ECRA also allows Commerce to require prospective exporters to provide information about foreign parties having a “significant ownership interest” in foreign parties with whom a U.S. export license applicant has a “collaborative arrangement” in relation to or on behalf of which the proposed export is to be made (see more on this
here). The provision vests Commerce with discretion, on a case-by-case basis, to seek foreign ownership information from U.S. parties to “collaborative arrangements” (which are not defined with certainty). It is not clear if Commerce’s forthcoming rulemaking (interim or final) on emerging technologies will set forth parameters as to how Commerce might exercise this discretion.
 
Overly Burdensome Regulation May Have Unintended Consequences
 
At this early stage of rulemaking, it is not clear whether and to what extent Commerce will impose export controls on emerging technologies. Nor is it known how Commerce will exercise its discretion with respect to those technologies. Given the scope of the regulatory process, new export controls on emerging technologies could be burdensome, depending on the content of regulations and the manner of their enforcement. If the new regulatory regime is burdensome to the point that it prohibits (legally or practically) some emerging technology transfers to foreign parties, companies and others involved in emerging technologies- particularly their development-may seek arrangements, without evading or otherwise violating ECRA or applicable regulations, to ease collaborations and other engagement with foreign parties, including by some form of technology inversion.

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(Source:
Volkov Law Group Blog, 28 Nov 2018. Reprinted by permission.)
 
* Author: Michael Volkov, Esq., Volkov Law Group,
mvolkov@volkovlaw.com, 240-505-1992.
 
“The secret of getting ahead is getting started.” – Mark Twain
 
“To succeed in life, you need two things: ignorance and confidence.” – Mark Twain
 
Mark Twain would have been a great Chief Compliance Officer – he had an extraordinary ability to capture human behavior and motivation. He would have known how to use the right phrase at the right time.
 
I can just imagine CCO Mark Twain meeting with the CEO. Here is the conversation snippet:
 
CCO Twain: Well, I am concerned about our culture and cracks that I see that may portend problems down the road, especially as we seek to expand our business into emerging economies.
 
CEO: I agree completely. Our culture is critical. Without our culture, our business plan, and perhaps our company, will fail.
 
CCO Twain: As you know, we need to monitor, measure, and enhance our culture through action and affirmative steps.
 
CEO: Really? How do we do that? Are you sure we need to do that?
 
CCO Twain: [Deafening Silence and perhaps a pithy quote].
 
My point here is simple but telling in today’s business world. We all know what to say and how to say it, but we do not necessarily know what to do. To boil it down, words are cheap and CEOs are in the business of “words,” and often ignore the need for action.
 
Corporate boards, CEOs and senior managers know what to say. They are book smart and know what the right answer is. But when you dig a little deeper that is when you encounter an absence of knowledge – you have exposed the shallow thinker.
 
Here is where the work for a CCO begins. The challenge is how to educate CEOs, boards and senior managers without letting them know that is what you are doing. I can always spot such a conversation when a professional speaking to a leader will begin a sentence with “As you know . . . .”
 
CCOs have shied away from facing the stark reality of their work – very few, if any, corporate boards, CEOs and senior managers understand the importance of an ethics and compliance program, and how to implement and monitor an ethics and compliance program. This is a significant challenge.
 
It is distressing that corporate boards, CEOs and senior managers receive adequate training. Many CCOs are reluctant to face this issue and recommend (or insist) on appearing before their corporate boards to ccondyct such training.
 
Even assuming that a CCO is able to secure adequate time before the corporate board and the CEO, a CCO has to engage in a delicate dance – how does the CCO explain to the board how the board needs to monitor and conduct meaningful oversight of the company’s compliance program? A CCO has to get this message across without patronizing the board, which usually consists of significant business leaders with robust egos and personalities.
 
This is a challenge and a difficult one for every CCO. Most that I observe and speak to about this issue have avoided the issue. It is an important issue and, if handled correctly, can have a dramatic impact on the company’s ethics and compliance program.

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TEEX/IM TRAINING EVENTS & CONFERENCES

 
* 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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ENEDITOR’S NOTES

* C. S. Lewis (Clive Staples Lewis; 29 Nov 1898 – 22 Nov 1963; was a British writer and lay theologian. Lewis wrote more than 30 books. He is best known for his works of fiction, especially The Screwtape Letters, The Chronicles of Narnia, and The Space Trilogy.)
  – “Education without values, as useful as it is, seems rather to make man a more clever devil.”
  – “Literature adds to reality, it does not simply describe it. It enriches the necessary competencies that daily life requires and provides; and in this respect, it irrigates the deserts that our lives have already become.”

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EN_a312
. 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: 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.]

 
*
FOREIGN ASSETS CONTROL REGULATIONS (OFAC FACR)
: 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

 
*
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: 1 Nov 2018: 
Harmonized System Update 1819, containing 1,200 ABI records and 245 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_a0313
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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