18-1219 Wednesday “Daily Bugle'”

18-1219 Wednesday “Daily Bugle”

Wednesday, 19 December 2018

The Daily Bugle is a free daily newsletter from Full Circle Compliance, containing changes to export/import regulations (ATF, DOE/NRC, Customs, NISPOM, EAR, FACR/OFAC, FAR/DFARS, FTR/AES, HTSUS, and ITAR), plus news and events.  Subscribe 
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  1. USTR Modifies Section 301 Action: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation
  1. Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS Publishes Order Related to Former Florida CEO Who Pleaded Guilty to 166 U.S. Export Control Violations
  3. DHS/CBP Releases Harmonized System Update (HSU) 1820
  4. GAO Ex/Im Reports and Testimonies of Interest
  5. State/DDTC: (No new postings.)
  6. Treasury/OFAC Intends to Terminate Sanctions Imposed on En+, Rusal, and EuroSibEnergo
  7. EU Steps Up Fight Against Money Laundering and Terrorist Financing
  8. UK ECJU Releases Guidance on Exporting Controlled Goods If There’s a No Deal Brexit
  1. American Shipper: “BIS Renews Export Denial for Mahan Air, Slew of Others”
  2. Expeditors News: “CBP Publishes Modernized Drawback Final Rule”
  3. ST&R Trade Report: “Supply Chain Competitiveness Committee to Meet”
  4. SupChina: “China Lays Out Its Political Demands to the EU”
  1. International Trade Compliance Update: “U.S. Trade Sanctions and Export Controls Targeting Iran – Potential Risk Exposure for Companies and Senior Executives”
  2. M. Volkov: “OFAC Announces Russia Sanctions Settlement with Software Company”
  3. P. Lichtenbaum, D.W. Addis & D.O. Hindin: “Cyber-Surveillance Export Control Reform in the United States”
  1. ECTI Presents United States Export Control (ITAR/EAR/OFAC) Seminar Series in Las Vegas, NV
  1. Bartlett’s Unfamiliar Quotations 
  2. Are Your Copies of Regulations Up to Date? Latest Amendments: ATF (15 Jan 2016), Customs (18 Dec 2018), DOD/NISPOM (18 May 2016), EAR (2 Nov 2018), FACR/OFAC (15 Nov 2018), FTR (24 Apr 2018), HTSUS (19 Dec 2018), ITAR (4 Oct 2018) 
  3. Weekly Highlights of the Daily Bugle Top Stories 


USTR Modifies Section 301 Action: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation

Federal Register, 19 Dec 2018.) [Excerpts.] 
83 FR 65198-65199: Notice of Modification of Section 301 Action: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation
* AGENCY: Office of the United States Trade Representative.
* ACTION: Notice of modification of action.
* SUMMARY: In accordance with the direction of the President, the U.S. Trade Representative (Trade Representative) has determined to modify the action being taken in this Section 301 investigation by postponing the date on which the rate of the additional duties will increase to 25 percent for the products of China covered by the September 2018 action in this investigation. As set out in this notice, the rate of additional duty for the products covered by the September 2018 action will increase to 25 percent on March 2, 2019.
* DATES: On March 2, 2019 at 12:01 a.m. Eastern Standard Time, the rate of additional duty will increase to 25 percent with respect to products covered by the September 2018 action.
* FOR FURTHER INFORMATION CONTACT: For questions about this notice, contact Assistant General Counsels Arthur Tsao or Megan Grimball, or Director of Industrial Goods Justin Hoffmann at (202) 395-5725. For questions on customs classification or implementation of additional duties on products covered by the September 2018 action, contact 
A. September 2018 Action
  For background on the proceedings in this investigation, please see the prior notices issued in the investigation, including 82 FR 40213 (August 23, 2017), 83 FR 14906 (April 6, 2018), 83 FR 28710 (June 20, 2018), 83 FR 33608 (July 17, 2018), 83 FR 38760 (August 7, 2018), and 83 FR 40823 (August 16, 2018).
  In a notice published on September 21, 2018 (83 FR 47974), the Trade Representative, at the direction of the President, announced a determination to modify the action being taken in the investigation by imposing additional duties on products of China with an annual trade value of approximately $200 billion. The rate of additional duties initially was 10 percent. Those additional duties were effective starting on September 24, 2018, and currently are in effect. Under Annex B of the September 21 notice, the rate of additional duty was set to increase to 25 percent on January 1, 2019. In the September 21 notice, the Trade Representative stated that he would continue to consider the actions taken in this investigation, and if further modifications were appropriate, he would take into account the extensive public comments and testimony previously provided in response to the notices published on July 17, 2018 (83 FR 33608) and August 7, 2018 (83 FR 38760).
  On September 28, 2018 (83 FR 49153), the Trade Representative issued a conforming amendment and modification of the September 21 action. We refer to the September 21 action, as modified by the September 28 notice, as the `September 2018 action.’
B. Determination to Modify September 2018 Action
  The United States is engaging with China with the goal of obtaining the elimination of the acts, policies, and practices covered in the investigation. The leaders of the United States and China met on December 1, 2018, and agreed to hold negotiations on a range of issues, including those covered in this Section 301 investigation. See
here(the `December 1 Statement’). The December 1 Statement notes that the President “agreed that on January 1, 2019, he will leave the tariffs on $200 billion worth of product at the 10% rate, and not raise it to 25% at this time . . . Both parties agree that they will endeavor to have this transaction completed within the next 90 days. If at the end of this period of time, the parties are unable to reach an agreement, the 10% tariffs will be raised to 25%.” The end of the 90-day period mentioned in the December 1 Statement is March 1, 2019.
  Section 301(b) of the Trade Act of 1974, as amended (Trade Act), requires the Trade Representative to “take all appropriate and feasible action authorized under [Section 301(c)] to obtain the elimination of [the] act, policy, or practice [under investigation].” Section 307(a)(1) of the Trade Act provides, in relevant part, that the Trade Representative “may modify or terminate any action, subject to the specific direction, if any, of the President with respect to such action, that is being taken under Section 301 if . . . the burden or restriction on United States commerce . . . of the acts, policies, and practices, that are the subject of such action has increased or decreased, or such action is being taken under Section [301(b)] of this title and is no longer appropriate.” In light of the outcome of the December 1 meeting, and at the direction of the President, the Trade Representative has determined that it no longer is appropriate for the rate of duty under the September 2018 action to increase to 25 percent on January 1, 2019, and that the rate of duty under the September 2018 action instead should increase to 25 percent on March 2, 2019 (which is the day following the end of the 90-day period mentioned in the December 1 Statement).
  The Trade Representative’s decision to modify the September 2018 action takes into account the extensive public comments and testimony, as well as advice from advisory committees, concerning the actions proposed in the notices issued in advance of the September 2018 action (83 FR 33608 and 83 FR 38760). Those notices, among other things, requested comments on whether the rate of additional duties should be 10 percent or 25 percent. The Trade Representative’s decision also reflects the advice of the interagency Section 301 Committee.
  As noted above, Annex B to the September 21 notice increased the rate of additional duties for the September 2018 action to 25 percent on January 1, 2019. The Annex to this notice supersedes Annex B to the September 21 notice, and provides that the rate of additional duties for the September 2018 action will increase to 25 percent on March 2, 2019.
(Superseding Annex B of the Notice Published at 83 FR 47974)
  Effective with respect to goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. Eastern Standard Time on March 2, 2019, subchapter III of chapter 99 of the Harmonized Tariff Schedule of the United States is modified:
  (1) By deleting “10%” in the Rates of Duty 1-General column of headings 9903.88.03 and 9903.88.04, and inserting “25%” in lieu thereof; and
  (2) by deleting “10 percent” each place that it appears in U.S. Notes 20(e) and 20(g) to subchapter III of chapter 99 and inserting “25 percent” in lieu thereof.
Robert Lighthizer, United States Trade Representative.

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OGS_a12. Items Scheduled for Publication in Future Federal Register Editions
(Source: Federal Register)

* Commerce/BIS; 
  – RULES; Control of Military Electronic Equipment and Other Items the President Determines No Longer Warrant Control under the United States Munitions List; Correction [Pub. Date: 20 Dec 2018.]; and
  – NOTICES; Orders: Eric Baird [Pub. Date: 20 Dec. Published in today’s Daily Bugle, item #3.]
* Treasury/OFAC; NOTICES; Blocking or Unblocking of Persons and Properties [Pub. Date: 20 Dec 2018.] 

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Commerce/BIS Publishes Order Related to Former Florida CEO Who Pleaded Guilty to 166 U.S. Export Control Violations  

(Source: Commerce/BIS, 19 Dec 2018.) [Excerpts.] 
* Respondent: Eric Baird of Sarasota, FL
* Charges: 166 violations of the Regulations, specifically:
  – 15 C.F.R. Part 764.2(b) – Causing, Aiding or Abetting a Violation 
* Penalty: 
  – Civil penalty of $17 million
  – Denied export privileges for 5 years from the date of this order, of which one shall be suspended and thereafter be waved, provided Baird made full and timely payment of the penalty.
* Date of Order: 14 Dec 2018. 

[For further details concerning this enforcement case, see the 
Justice press release published in the Daily Bugle of Monday, 17 December, item #4.] 

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DHS/CBP Releases Harmonized System Update (HSU) 1820

(Source: CSMS# 18-000748, 19 Dec 2018.) 
Harmonized System Update (HSU) 1820 was created on December 18, 2018 and contains 19,061 ABI records and 3,393 harmonized tariff records.
Changes include the annual special program staged rate reductions mandated by the individual Free Trade Agreements. 
This update also contains modifications mandated by the 484 F Committee, the Committee for Statistical Annotation of Tariff Schedules. These adjustments are effective on January 1, 2019 and will be published within the change record, and chapters, of the 2019 USHTS. However, until they are available, please contact your assigned client representative for assistance with discontinued records. 
In addition, adjustments include those made as a result of the USTR’s Notice of Modification to Section 301 Action: China’s Acts Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation. The Notice can be found in the Federal Register dated December 19, 2018, Vol. 83 No. 243, page 61598. It can be retrieved using the following this link.
Modifications required by the verification of the 2018 Harmonized Tariff Schedule (HTS) are included as well.
The amended records are currently available to all ABI participants and can be retrieved electronically via the procedures indicated in the CATAIR. For further information about this process, please contact your client representative. For all other questions regarding this message, please contact Jennifer Keeling via email at Jennifer.L.Keeling@cbp.dhs.gov.

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GAO Ex/Im Reports and Testimonies of Interest

(Source: GAO Reports and Testimonies, 18 Dec 2018.) 
* BUY AMERICAN ACT: Actions Needed to Improve Exception and Waiver Reporting and Selected Agency Guidance. GAO-19-17: Published: Dec 18, 2018. Publicly Released: Dec 18, 2018.
The law requires federal agencies to buy domestic products. But federal agencies can buy foreign products sometimes, e.g., when domestic items are not available at a reasonable cost or when international trade agreements waive the Buy American Act restrictions.
According to the federal procurement database, foreign products comprised less than 5% of what the government bought in fiscal year 2017. The real amount could be higher than that, in part, because of data errors. For example, some agencies had inaccurately recorded waiver information.
The U.S. Government Accountability Office (GAO) recommended ways to improve reporting and compliance with the act.

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State/DDTC: (No new postings.)


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Treasury/OFAC Intends to Terminate Sanctions Imposed on En+, Rusal, and EuroSibEnergo

(Source: Treasury/OFAC, 19 Dec 2018.) 
The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) today notified Congress of its intention to terminate the sanctions imposed on En+ Group plc (“En+”), UC Rusal plc (“Rusal”), and JSC EuroSibEnergo (“ESE”) in 30 days.  OFAC has determined that the significant restructuring and corporate governance changes will enable them to meet the criteria for delisting.  Russian oligarch Oleg Deripaska will remain sanctioned, and his property will remain blocked.
  “Treasury sanctioned these companies because of their ownership and control by sanctioned Russian oligarch Oleg Deripaska, not for the conduct of the companies themselves. These companies have committed to significantly diminish Deripaska’s ownership and sever his control.  The companies will be subject to ongoing compliance and will face severe consequences if they fail to comply,” said Treasury Secretary Steven T. Mnuchin. “OFAC maintains the ability under the terms of the agreement to have unprecedented levels of transparency into operations.”
On April 6, 2018, OFAC designated En+ for being owned or controlled by, directly or indirectly, Oleg Deripaska and other entities he owns or controls.  In that same action, OFAC designated Rusal for being owned or controlled by, directly or indirectly, En+.  ESE, a wholly owned subsidiary of En+, was also designated.
En+, Rusal, and ESE have agreed to a framework to undertake significant restructuring and corporate governance changes to address the circumstances that led to their designation, including, among other commitments:  (i) reducing Deripaska’s direct and indirect shareholding stake; (ii) overhauling the composition of the En+ and Rusal boards of directors; (iii) taking other restrictive steps related to their corporate governance; and (iv) committing to full transparency with Treasury by undertaking extensive, ongoing auditing, certification, and reporting requirements.  This framework has been documented in a “Terms of Removal,” which, when executed, will be a binding agreement between these companies and OFAC.
OFAC will continue to aggressively enforce its sanctions on Deripaska, including by closely monitoring these companies’ compliance with the terms of their removal from OFAC’s List of Specially Designated Nationals and Blocked Persons (“SDN List”).  OFAC reserves the right to relist one or all of these companies should they fail to comply with the agreement. 
Deripaska will remain on the SDN List.  All of Deripaska’s property and interests in property, including entities in which he holds a fifty percent or greater interest, will remain blocked.  Deripaska’s investment in these companies is effectively frozen and Deripaska cannot obtain cash either in return for his shares or from future dividends issued by En+, Rusal, or ESE.  Foreign persons will continue to be subject to secondary sanctions should they knowingly facilitate a significant transaction for or on behalf of Deripaska. U.S. persons will continue to be prohibited from dealing, directly or indirectly, with Deripaska or any other designated person.  OFAC’s civil enforcement authorities and processes are described in detail in OFAC’s Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A.  

  – Treasury’s Notice to Congress and information on today’s action. 

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EU Steps Up Fight Against Money Laundering and Terrorist Financing

(Source: Council of the European Union, 19 Dec 2018.) [Excerpts.] 

The EU is stepping up the fight against illegal cash by enhancing monitoring of money laundering and terrorist financing threats at EU level.
EU ambassadors today agreed the Council’s negotiating position on a proposal reinforcing the role of the European Banking Authority (EBA) as regards risks posed to the financial sector by money laundering activities. … 
Recent cases involving money laundering in some EU banks have raised concerns that anti money laundering (AML) rules are not always supervised and enforced effectively across the EU, creating risks for the integrity and reputation of the European financial sector, as well as for the financial stability of those banks.
Strengthening the role and powers of the EBA as regards anti-money laundering supervision for financial institutions would ensure that anti-money laundering rules are effectively applied in all member states and all authorities involved (in particular prudential and anti-money laundering supervisors) cooperate closely with each other.
According to the agreed text, the EBA would be given, in particular, the following tasks:
  • collecting information from national competent authorities relating to weaknesses identified in the context of their action to prevent or fight money laundering and terrorist financing;
  • enhancing the quality of supervision through the development of common standards and coordination among national supervisory authorities.
  • performing risk assessments on competent authorities to evaluate their strategies and resources to address the most important emerging AML risks at EU level.
  • facilitating cooperation with non-EU countries on cross-border case.
  • as a last resort if national authorities do not act, the EBA would be able to address decisions directly to individual banks.
In parallel, the EU and its member states have engaged in a thorough review of existing practices for cooperation between anti-money laundering and prudential supervisors. On 4 December 2018, the Council adopted an action plan setting out short term non-legislative actions to better tackle AML challenges. In particular, the Council recommended that a “post-mortem” analysis of recent money laundering cases in EU banks would be carried out to understand how they came about and to help shape possible additional actions.
The European rules on anti-money laundering and terrorist financing have been considerably strengthened in recent years, with two consecutive reforms being adopted since 2015. The latest revision of the AML directive, the fifth AMLD, was adopted in April 2018 and is due to be transposed at national level by January 2020.
The presidency of the Council will need to negotiate with the European Parliament to reach a final agreement before the new rules can be adopted and applied.

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UK ECJU Releases Guidance on Exporting Controlled Goods If There’s a No Deal Brexit

(Source: UK ECJU, 19 Dec 2018.) 
The UK Export Control Joint Unit (ECJU) has published guidance explaining what will change for exporters of controlled goods if the UK leaves the EU without a deal.
Exporting Military Items
There would be no changes to controls on the export of military items from the UK other than minor legislative fixes. You would need to continue to apply for licenses as you do now.
Exporting Firearms to the EU
The European Firearms Pass would no longer be available for UK persons taking their personal firearms to the EU, if there’s a ‘no deal’ Brexit.
The exemption that currently applies to the temporary export of firearms as personal effects to the rest of the world would be extended to exports to the EU. If you want to take firearms as personal effects to an EU country you would need to ensure that the destination country would also permit the re-export of the firearm.
Dealers and other exporters of firearms would need to continue to apply for licenses as they do now.
Exporting Dual-Use Items to the EU
The overall framework of controls for dual-use exports would not change, but there would be changes to some licensing requirements.
You would need:
  – an export license, in the same way as you currently do for non-EU destinations, if you are moving dual-use items from the UK to the EU
  – a new license, issued by an EU member state, for exporting dual-use items from EU member states to a non-EU country. An export license issued in the UK would no longer be valid to export dual-use items from an EU member state
  – a new license, issued by the UK, if you already have a license from an EU member state to export dual-use items from the UK. An export license issued by one of the 27 EU countries would no longer be valid for export from the UK
Most exporters of dual-use items would be able to register to use an Open General Export License (OGEL) designed specifically for exports to EU countries. This license will remove the need for you to apply for individual licenses and could be used immediately following a straightforward registration process. The Export Control Joint Unit (ECJU) will publish the new OGEL in advance of the UK leaving the EU, along with further information on how to register to use it.
Exporters requiring individual licenses would also be able to apply for these licenses in advance of the exit date. Further guidance on individual licenses will be issued in advance of the UK leaving the EU.
Exporting Civil Nuclear Material
Department for Business, Energy & Industrial Strategy (BEIS) technical notices explain what other conditions would apply besides export controls to exporting nuclear material.
They include:
Exporting Goods That Could Be Used for Torture Or Capital Punishment
Strict controls apply to the export of goods that could be used for torture or capital punishment. The overall framework of the strict controls on these goods would not change, except that exports to EU countries will be treated in the same way as exports to non-EU destinations are treated now.
This means that you would be:
  – prohibited from exporting items in Annex II of Council Regulation 2016/2134 to EU member states
  – prohibited from providing brokering, training or advertising services relating to items in Annex II of Regulation 2016/2134 to any person or entity in an EU member state
  – need a license to export items in Annexes III and IIIA of Regulation 2016/2134 to EU member states
What You Can Do Now
You should:
  (1) check if you need an export license for exports to EU countries on Welcome to the Checker Tools, using as a guide the licensing provisions in current legislation for a ‘third country’ (a non-EU country) to understand what controls would apply for exports to EU countries
  (2) refer to guidance links on Welcome to the Checker Tools to apply for a license
  (3) remember, it’s your responsibility to comply with the export control regulations, and breaching export controls is a criminal offence
Further Information
For further details read:
Contact the ECJU
 if you still have a question about exporting controlled goods after Brexit.

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American Shipper: “BIS Renews Export Denial for Mahan Air, Slew of Others”

(Source: American Shipper, 18 Dec 2018.) [Excerpts.] 
The order took effect Monday and will remain in effect through June of next year.
The Bureau of Industry and Security (BIS) on Monday renewed an export denial order for Al Naser Airlines, Ali Abdullah Alhay, Ali Eslamian, Bahar Safwa General Trading, Equipco, Issam Shammout, Kerman Aviation, Mahan Air General Trading, Mahan Airways, Mahan Air General Trading, Mahmoud Amini, Pejman Mahmood Kosarayanifard, Mehdi Bahrami, Sirjanco Trading, Sky Blue Bird Group and Skyco (U.K.). 

This order took effect Monday and will remain in effect through June 15, 2019.

Mahan Air has been subject to a temporary denial order since 2008 that has been repeatedly renewed, most recently in June 2018, for its continued efforts to evade U.S. export law. … 

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Expeditors News: “CBP Publishes Modernized Drawback Final Rule” 

(Source: Expeditors News, 18 Dec 2018.) 
On December 18, 2018, U.S. Customs and Border Protection (CBP) published a Federal Register Notice (FRN) finalizing the modernized drawback rules, as directed by the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA).
According to the FRN, the changes to drawback will, “liberalize the merchandise substitution standard, simplify recordkeeping requirements, extend and standardize timelines for filing drawback claims, and require the electronic filing of drawback claims.”
Some of the key topics covered in the FRN include:

  • Transition period and interim guidance;
  • Filing requirements – deadlines, recordkeeping, protests, and proof of export;
  • Refunds – methodology, valuation, and first filed and mixed claims;
  • Bonds – types and joint and several liability;
  • Federal excise tax and substitution drawback claims.
The final rule is effective on December 17, 2018. The effective date for the amendments regarding the drawback of excise taxes is February 19, 2019.
The FRN may be found here.

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ST&R Trade Report: “Supply Chain Competitiveness Committee to Meet” 

(Source: Sandler, Travis & Rosenberg Trade Report, 19 Dec 2018.)
The International Trade Administration’s Advisory Committee on Supply Chain Competitiveness will hold public meetings Jan. 16-17 in Washington, D.C.
This committee advises the ITA on the necessary elements of a comprehensive policy approach to supply chain competitiveness and on regulatory policies and programs and investment priorities that affect the competitiveness of U.S. supply chains. At the upcoming meetings committee members are expected to continue to discuss the major competitiveness-related topics raised at the previous meetings, including trade and competitiveness, freight movement and policy, trade innovation, regulatory issues, finance and infrastructure, and workforce development.

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SupChina: “China Lays Out Its Political Demands to The EU”

(Source: SupChina, 18 Dec 2018.)  
The South China Morning Post reports that “China has called on the European Union to stick with Beijing to weather trade protectionism and reduce hurdles to Chinese investment” in a policy paper issued today
Much of the paper is “win-win” blather about strengthening cooperation, but there are a few clear demands (reproduced verbatim):  
  – The EU should not endorse Taiwan’s membership
 in any international organization where statehood is required, not sell Taiwan any weapons or any equipment, materials or technologies that can be used for military purposes, and not carry out military exchanges or cooperation in any form.
  – Given that Hong Kong and Macao
 are China’s special administrative regions, their affairs are part of China’s internal affairs and should not be interfered in by the EU side.
  – The EU should not allow leaders of the Dalai group
 to visit the EU or its member states in any capacity or under any name to carry out separatist activities, not arrange any form of contact with officials from the EU and its member states, and not support or facilitate any anti-China separatist activities for “Tibet independence”. It is also imperative that the EU side not support or facilitate the East Turkestan Islamic Movement and any other activity of anti-China separatism, violent terrorism and religious extremism.
  – The EU and its member states should lift 
its arms embargo on China at an early date.
  – China will expand
 the import of high-quality goods from the EU through existing channels and new platforms such as the China International Import Expo. The EU should ease its high-tech export control on China.

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International Trade Compliance Update: “U.S. Trade Sanctions and Export Controls Targeting Iran – Potential Risk Exposure for Companies and Senior Executives” 

International Trade Compliance Update, 17 Dec 2018.) 
U.S. trade sanctions and export controls targeting Iran have attracted increasing attention from Chinese companies doing business in Iran or with Iran counterparties. This client alert aims to provide a high-level overview on US trade sanctions and export controls targeting Iran, their implications (particularly in terms of their extraterritorial application), and the potential penalties that can be imposed on companies and their executives and employees in the event of violations.
US Trade Sanctions
The US Government currently maintains comprehensive sanctions against Iran enforced and administered by the US Treasury Department’s Office of Foreign Assets Control (“OFAC”) under the Iranian Transactions and Sanctions Regulations, 31 C.F.R. Part 560 (“ITSR”).  With limited exceptions, “US Persons” and their owned or controlled non-US entities (together “ITSR Parties”) are generally prohibited from engaging directly or indirectly in virtually all transactions involving Iran, the Government of Iran (including entities owned or controlled by or acting for the Government of Iran), Iranian financial institutions, and any Iranian Specially Designated National (“SDN,” including any entity 50% or more owned by one or more SDNs).  “US Persons” include (i) entities organized under US laws and their non-US branches, (ii) individuals and entities physically located in the United States, and (iii) US citizens and permanent resident aliens (“Green Card” holders) wherever located or employed.  In addition to direct dealings with Iran, ITSR Parties are prohibited from facilitating or participating in any transaction by non-US parties involving Iran that would otherwise be prohibited if engaged in directly by an ITSR Party.
Non-US parties can face primary sanction liability under the ITSR if they “cause” unauthorized (i.e., prohibited) Iran-related transactions to occur in whole or in part in the United States or elsewhere by ITSR Parties. Non-US parties acting completely outside US jurisdiction (e.g., no ITSR Parties, no US-dollar payments, etc.) may also face potential risks under US secondary sanctions. The risk of secondary sanctions being imposed has increased since the US Government’s withdrawal from the 
Joint Comprehensive Plan of Action (“JCPOA”) was completed on November 4, 2018.  Most of the lifted or waived sanctions pursuant to the JCPOA’s terms were US secondary sanctions.
US Export Controls
Iran is also subject to a US comprehensive export/reexport ban under the Export Administration Regulations, 15 C.F.R. Part 730 et seq. (“EAR”), with respect to items (i.e., goods, software, technology) “subject to the EAR.”  With regard to Iran, an item is “subject to the EAR” if it is (i) of US-origin (i.e., manufactured or created in the United States), (ii) exported from the United States, (iii) a non-US-made item that incorporates more than 
de minimis US content (which is 10% or more controlled (i.e., non-EAR99) US content by value for Iran), or (iv) certain foreign direct products of US technology controlled for national security reasons.  Both ITSR Parties and non-US parties are subject to the EAR to the extent they export, reexport, or transfer items subject to the EAR, wherever such items are located.
Potential Penalties
US Primary Sanctions and Export Controls
In case of violation of primary sanctions and export controls, entities and individuals may be subject to civil liabilities, criminal liabilities, and/or administrative penalties (e.g., the denial of export privileges and debarment, or revocation of US licenses or other authorizations).  Civil penalties are applied on a strict liability basis, meaning that even inadvertent violations of these US regulations, can lead to significant penalties being imposed.
The current potential penalties for US sanctions and export control violations are as follows:
  (1) Criminal: Up to $1 million in fines and/or 20 years in prison, per violation;
  (2) Civil (imposed on a strict liability basis and adjusted annually for inflation):
  – Trade sanctions: Up to $295,141 or twice the value of the transaction, per violation
  – Export controls: Up to $300,000 or twice the value of the transaction, per violation
US Secondary Sanctions
US secondary sanctions do not involve civil or criminal penalties, but rather are retaliatory sanctions that may be imposed on parties that engage in certain activities contrary to US policy, including certain Iran-related transactions. These can be imposed by the US Government even for otherwise lawful activities conducted wholly outside US jurisdiction.  The possible secondary sanctions that the US Government could impose varies depending on the sanctionable activity, and include collateral designation as an SDN (e.g., for engaging in transactions with other SDNs), designation as a Foreign Sanctions Evader, restrictions on access to US correspondent banking accounts, a ban on US Government contracting, a ban on the ability to receive US export licenses, a prohibition on receiving Export-Import Bank financing, and a prohibition on principal corporate officers entering the United States.
The fallout from US secondary sanctions being imposed cannot be understated. Such actions typically have a significant impact on a company’s business (both current and future), effect a company’s ability to engage with the US financial system (e.g., loans, operating US correspondent accounts), and have a detrimental effect on a company’s reputation and relationships with US and non-US third parties (e.g., suppliers, customers or joint venture partners).
Risk-mitigating Measures
The US Government regularly enforces US trade sanctions and export controls targeting Iran with criminal and civil enforcement as well as secondary sanctions. Chinese companies with Iranian business could be implicated in those enforcement actions should they run afoul of US sanctions or export controls targeting Iran. However, such US regulations do not necessarily mean that US trade sanctions and export controls prohibit Chinese companies from engaging in all Iran-related transactions. The key is to identify and properly manage potential risks.  We suggest Chinese companies that engage in Iranian business consider the following risk assessment measures:
  (1) Conduct a thorough risk assessment of a company’s Iran-related business to determine (i) whether the company is at risk of implicating primary US sanctions or export control jurisdiction and, if not, (ii) whether any such activities may present US secondary sanctions risks; and
  (2) Implement a trade compliance program that puts in place safeguards based on the risk assessment results, e.g., restricting or withdrawing from the high-risk business; screening business partners for trade sanction and export control risks; updating contract templates; and conducting trade compliance training and auditing.

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M. Volkov: “OFAC Announces Russia Sanctions Settlement with Software Company”

Volkov Law Group Blog, 18 Dec 2018. Reprinted by permission.) 
* Author: Michael Volkov, Esq., Volkov Law Group, 
mvolkov@volkovlaw.com, 240-505-1992. 
he Department of Treasury’s Office of Foreign Asset Control (“OFAC”) recently announced a settlement against Cobham Holdings (and its former subsidiary Aeroflex/Metelics, Inc. (“Metelics”, a software company) for $87,507 for violations of OFAC’s Ukraine-Russia sanctions program.  (OFAC announcement here).
Metelics violated the Ukraine-Russia sanctions program on three occasions between July 31, 2014 and January 15, 2015,  by selling telecommunications and computer software (3,400 switch limiters; 6,900 switches; and 20 silicon diode switch limiter samples) through distributors in Canada to a prohibited (“SDN”).
Prior to December 14, 2015, Metelics was a subsidiary of Cobham, a global provider of technology and services in aviation, electronics, communications and defense.  While negotiating for the sale of Metelics, the prospective purchaser identified a July 31, 2014 shipment of silicon diode switches and switch limiters to a Metelics distributor in Canada for end-use by Almaz Antey (“AAT”) in Russia.  Cobham investigated the shipment and discovered that in December 2014 and January 2015, Metelics made two additional shipments through a Russian distributor for end-use by AAT.
Interestingly, AAT was not specifically listed on OFAC’s SDN list, but was 51 percent owned by Joint-Stock Company Concern Almaz-Antey (“JSC Almaz-Antey”), which was added by OFAC to the SDN list on July 16, 2014, two weeks before the first July 31, 2014 shipment. Accordingly, AAT was blocked at the time Metelics engaged in the two transactions and three specific shipments to AAT through the Canadian and Russian distributors.
On June 18, 2014, Metelics agreed to ship an order of 6,900 switches and 6,900 switch limiters through the Canadian distributor to AAT.  The value of the order was approximately $1.1 million.
The next day, Metelics performed a sanctions and denied party screening for the order that returned red flags for Russia generally but not AAT specifically since JSC Almaz-Antey had not yet been added to the SDN List.  Metelics did not have sufficient stock to fill the order and therefore split the order into two separate shipments.
The first shipment occurred on June 27, 2014. Metelics performed another screening with similar results to the first screening.  Metelics forwarded the end use certificates to its Director of Trade Compliance, who approved the transaction, and Metelics shipped the first part of the order on June 27, 2014.  The shipment value was worth approximately $377k.
On July 16, 2014, OFAC designated JSC Almaz-Antey and added it to the SDN List.
Metelics prepared the second shipment on July 31, 2014 and again performed a screening.  Despite searching using the terms “Almaz” and “Antey,” Metelics’ search produced no warnings or red flags for AAT.  Again, the Director of Trade Compliance approved the transaction, and Metelics shipped the second part of the order on July 31, 2014. The value of the second shipment was $745k.
In October 2014, Metelics received an order for 10 samples of two different silicon diode switch limiters from a Russian distributor for end-use by AAT.  On October 27, 2014, Metelics performed another screening and did not return any matches or red flags.  After being approved by the Director Trade Compliance, Metelics subsequently shipped the samples on December 19, 2015 and January 15, 2016, respectively.  The value of the transaction was $10.
Cobham later determined that its screening software failed to generate an alert because the entry of the information omitted the term “Telecom,” and Metelics’ software required an “all word match,” even though Metelics had set the search criteria to “fuzzy” to detect partial matches.  As a result, the software failed to flag “Almaz Antey” when Cobham searched for “Almaz Antey Telecom.”
Cobham voluntarily disclosed the apparent violations, and OFAC determined the violations were non-egregious. In balancing the enforcement factors, OFAC determined that Metelics failed to recognize red flags when screening the proposed transactions; the Director of Global Trade should not have approved the transactions; the violations resulted in harm to the objectives of the Ukraine-Russia sanctions program; Metelics and Cobham are sophisticated entities operating in a sensitive industry; and Cobham and its compliance personnel were involved in prior violations of the Iran sanctions program and had entered into a consent decree for prior ITAR violations.
On the positive side, Cobham acquired and implemented new and enhanced sanctions screening software, which remedied the earlier screening deficiency.  Additionally, Cobham acquired and implemented a screening and business intelligence tool with the capability of identifying and flagging persons known to be owned by persons on the SDN List.  Cobham developed a process for employing the business intelligence tool to conduct enhanced due diligence on high-risk transactions from an OFAC sanctions perspective.
Finally, Cobham circulated a lessons learned bulletin to all US-based international trade compliance personnel that reiterated the importance of compliance and avoiding transactions with unlisted entities and persons associated with a prohibited party on the SDN List.
As an important lesson learned, OFAC reiterated that companies should take steps to ensure that its screening software is sufficiently robust and that appropriate personnel are trained on its functionality.  Furthermore, OFAC stated that “it is essential that companies in international transactions maintain a culture of compliance where front line staff are encouraged to follow up on sanctions issues, including by promptly reporting to compliance personnel transactions suspected to involve sanctioned parties.”

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P. Lichtenbaum, D.W. Addis & D.O. Hindin: “Cyber-Surveillance Export Control Reform in the United States”

Covington & Burling LLP. Article published in December edition of 
WorldECR.) [Excerpts.]  
* Authors: Peter Lichtenbaum, Esq., 
plichtenbaum@cov.com; David W. Addis, Esq., 
daddis@cov.com; and Doron O. Hindin, Esq., 
hindind@cov.com. All of Covington & Burling LLP. 
Various factors suggest the US government may soon update US export controls on intrusion software, network surveillance systems, and intelligence collection tools. Peter Lichtenbaum, David W. Addis and Doron O. Hindin consider what may be forthcoming.
Based on recent US agency actions and statements, the US government is likely to update soon its export controls on intrusion software (including exploit research), network surveillance systems, and intelligence collection tools. 
Collectively, these items consist of equipment, software, and technologies designed to gain access to, surveil, and control third-party electronic devices. These highly effective tools are increasingly being used for nefarious purposes, such as by ‘black hat’ hackers to steal sensitive information and extort corporations and private individuals, and by authoritarian government regimes to repress dissidents. However, such products are also routinely used by ‘white hat’ cybersecurity specialists to protect systems and data as well as by legitimate government intelligence and law enforcement agencies to achieve critical national security objectives. … 

[Editor’s Note: to read the entire article, click on the source link below the item title. To subscribe to WorldECR, go 

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TE_a117ECTI Presents United States Export Control (ITAR/EAR/OFAC) Seminar Series in Las Vegas, NV 

(Source: J. Kincaid, jill@learnexportcompliance.com
* What: United States Export Controls (ITAR/EAR/OFAC) Seminar Series in Las Vegas, NV
* When: ITAR Seminar: March 18-19, 2019; EAR/OFAC Seminar: March 20-21, 2019
* Where: Las Vegas, NV: Westin Las Vegas
* Sponsor: Export Compliance Training Institute (ECTI)
* ECTI Speaker Panel: Scott Gearity, Greg Creeser, Marc Binder, and Melissa Proctor
* Register: here, or contact Jessica Lemon at 540-433-3977 or

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“Write a wise saying, and your name will live forever.”
  – Anonymous

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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: 18 Dec 2018: 
83 FR 64942-65067: Modernized Drawback


  – 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:

  – Last Amendment: 19 Dec 2018: Harmonized System Update (HSU) 1820, containing 19,061 ABI records and 3,393 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

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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