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19-0109 Wednesday “Daily Bugle'”

19-0109 Wednesday “Daily Bugle”

Wednesday, 9 January 2019

TOP
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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. CRS Posts Iran Sanctions Report
  4. DHS/CBP Announces ACE CERT Scheduled Maintenance for Tonight
  5. State/DDTC: (No new postings.)
  6. EU Posts Restrictive Measures to Combat Terrorism and Corrects Restrictive Measures Concerning Libya
  7. UK/OFSI Updates Three Sanctions Guidance Documents
  1. Expeditors News: “EU to Impose Definitive Safeguard Measures on Imports of Certain Steel Products” 
  2. Reuters: “New Documents Link Huawei to Suspected Front Companies in Iran, Syria” 
  3. ST&R Trade Report: “CBP to Expand Tests of Blockchain Uses” 
  4. Washington Post: “House Democrats Demand Treasury Explain Rollback of Sanctions on Russia Oligarch” 
  1. Export Compliance Journal: “OFAC Announces Intent to Terminate Sanctions on Rusal and Two Other Russian Companies”
  2. Global Trade News: “Weise Wednesday: What Is the Status of US Global Trade Conflicts?”
  3. J. Reeves & K. Heubert: “Export News: The Rules Are about to Change, What You Can Expect?”
  4. M. Volkov: “2019 Ethics and Compliance Predictions”
  1. ECTI Presents “Compliance Challenges with Canadian and US Export Controls” Webinar, 24 Jan
  1. Bartlett’s Unfamiliar Quotations 
  2. Are Your Copies of Regulations Up to Date? Latest Amendments: DHS/Customs (18 Dec 2018), DOC/EAR (20 Dec 2018), DOC/FTR (24 Apr 2018), DOD/NISPOM (18 May 2016), DOE/AFAEC (23 Feb 2015), DOE/EINEM (20 Nov 2018), DOJ/ATF (26 Dec 2018), DOS/ITAR (4 Oct 2018), DOT/FACR/OFAC (15 Nov 2018), HTSUS (19 Dec 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)

 

[No items of interest noted today.]  

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

(Source: 
Commerce/BIS)

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Summary
 
U.S. sanctions have been used extensively by successive Administrations to try to achieve change in Iran’s behavior. Sanctions had a substantial effect on Iran’s economy and on some major strategic decisions, but little or no effect on Iran’s regional malign activities. During 2012-2015, when the global community was relatively united in pressuring Iran, Iran’s economy shrank by 9% per year, crude oil exports fell from about 2.5 million barrels per day (mbd) to about 1.1 mbd, and Iran was unable to repatriate more than $120 billion in reserves held in banks abroad. The 2015 multilateral nuclear accord (Joint Comprehensive Plan of Action, or JCPOA) provided Iran broad relief from the international and U.S. secondary sanctions as the U.S. Administration waived relevant sanctions, revoked relevant executive orders (E.O.s), and corresponding U.N. and EU sanctions were lifted. Remaining in place were a general ban on U.S. trade with Iran and sanctions imposed on Iran’s support for regional governments and armed factions, its human rights abuses, its efforts to acquire missile and advanced conventional weapons capabilities, and the Islamic Revolutionary Guard Corps (IRGC).
 
Under U.N. Security Council Resolution 2231, nonbinding U.N. restrictions on Iran’s development of nuclear-capable ballistic missiles and a binding ban on its importation or exportation of arms remain in place for several years. However, Iran has continued to support regional armed factions and to develop ballistic missiles despite the U.N. restrictions, and did so even when strict international economic sanctions were in place during 2010-2015.
 
JCPOA sanctions relief enabled Iran to increase its oil exports to nearly pre-sanctions levels, regain access to foreign exchange reserve funds and reintegrate into the international financial system, achieve about 7% yearly economic growth, attract foreign investments in key sectors, and buy new passenger aircraft. The sanctions relief contributed to Iranian President Hassan Rouhani’s reelection in the May 19, 2017, vote. Yet, perceived economic grievances have sparked sporadic unrest since December 2017.
 
On May 8, 2018, President Trump announced that the United States would no longer participate in the JCPOA and that all U.S. secondary sanctions would be reimposed after a maximum “wind- down period” of 180 days (ending November 4, 2018). With that time period expired, all U.S. sanctions, including those on energy or banking transactions with Iran, went back into effect on November 5, 2018.
 
The reimposition of U.S. sanctions has begun to harm Iran’s economy as major companies exit the Iranian economy rather than risk being penalized by the United States. Iran’s oil exports are decreasing and difficulties paying Iran for oil with hard currency are evident. The value of Iran’s currency has sharply declined and economic-based unrest has continued, although not to the point where the regime is threatened. But it remains uncertain how extensively Iran’s economy will be damaged, because the European Union and other countries are trying to keep the economic benefits of the JCPOA flowing to Iran in order to persuade Iran to remain in the JCPOA. And, on November 5, 2018, the Administration granted exceptions to eight countries that the Administration asserts significantly reduced oil imports from Iran. Exceptions were provided to China and India even though the two countries combined continued to import over 1 million barrels per day of Iranian crude oil in October, thwarting the Administration’s goal of reducing Iranian oil exports “as close to zero as possible.”
 
The entire Iran Sanctions report from the Congressional Research Service (“CRS”) can be read here.
 
See also CRS Report R43333, Iran Nuclear Agreement and U.S. Exit, by Paul K. Kerr and Kenneth Katzman; and CRS Report R43311, Iran: U.S. Economic Sanctions and the Authority to Lift Restrictions, by Dianne E. Rennack.

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(Source:
CSMS #19-000008, 9 Jan 2018.)
 
There will be ACE CERT Scheduled Maintenance Wednesday evening January 9, 2019 from 1700 ET to 2000 ET.

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OGS_a66. EU Posts Restrictive Measures to Combat Terrorism and Corrects Restrictive Measures Concerning Libya

 
Regulations:
* Council Implementing Regulation (EU) 2019/24 of 8 January 2019 implementing Article 2(3) of Regulation (EC) No 2580/2001 on specific restrictive measures directed against certain persons and entities with a view to combating terrorism, and repealing Implementing Regulation (EU) 2018/1071
 
Decisions:
* Council Decision (CFSP) 2019/25 of 8 January 2019 amending and updating the list of persons, groups and entities subject to Articles 2, 3 and 4 of Common Position 2001/931/CFSP on the application of specific measures to combat terrorism, and repealing Decision (CFSP) 2018/1084
 
Corrigenda:
* Corrigendum to Council Regulation (EU) 2016/44 of 18 January 2016 concerning restrictive measures in view of the situation in Libya and repealing Regulation (EU) No 204/2011 ( OJ L 12, 19.1.2016 )

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OGS_a77. UK/OFSI Updates Three Sanctions Guidance Documents

(Source: UK OFSI, 9 Jan 2019.)
 
The UK Office of Financial Sanctions Implementation (OFSI) has updated several of its guidance documents:
 

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NWSNEWS

NWS_a18. Expeditors News: “EU to Impose Definitive Safeguard Measures on Imports of Certain Steel Products”
(Source: Expeditors News, 8 Jan 2019.)
 
The European Union (EU) Commission issued a press release on January 4, 2019, making known that the World Trade Organization (WTO) has been notified of its intention to replace current provisional measures, which have been in place since July 2018, with definitive safeguard measures.
 
This action comes as a result of an investigation launched as part of the EU’s response to the decision by the United States to impose tariffs on steel products and is intended to deter the diversion of steel products to the EU. As is the case at present, the measures will be based on a quota system, which will allow for the imposition of a 25% duty on imports of certain steel products once the level of traditional trade flows is reached.
 
It is expected that the definitive measures will enter into force in February 2019.
 
The press release can be found
here.

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NWS_a29. Reuters: “New Documents Link Huawei to Suspected Front Companies in Iran, Syria”
(Source: Reuters) [Excerpts.]
 
The U.S. case against the chief financial officer of China’s Huawei Technologies, who was arrested in Canada last month, centers on the company’s suspected ties to two obscure companies. One is a telecom equipment seller that operated in Tehran; the other is that firm’s owner, a holding company registered in Mauritius.
 
U.S. authorities allege CFO Meng Wanzhou deceived international banks into clearing transactions with Iran by claiming the two companies were independent of Huawei, when in fact Huawei controlled them. Huawei has maintained the two are independent: equipment seller Skycom Tech Co Ltd and shell company Canicula Holdings Ltd.
 
But corporate filings and other documents found by Reuters in Iran and Syria show that Huawei, the world’s largest supplier of telecommunications network equipment, is more closely linked to both firms than previously known.
 
The documents reveal that a high-level Huawei executive appears to have been appointed Skycom’s Iran manager. They also show that at least three Chinese-named individuals had signing rights for both Huawei and Skycom bank accounts in Iran. Reuters also discovered that a Middle Eastern lawyer said Huawei conducted operations in Syria through Canicula.
 
The previously unreported ties between Huawei and the two companies could bear on the U.S. case against Meng, who is the daughter of Huawei founder Ren Zhengfei, by further undermining Huawei’s claims that Skycom was merely an arms-length business partner.
 
Huawei, U.S. authorities assert, retained control of Skycom, using it to sell telecom equipment to Iran and move money out via the international banking system. As a result of the deception, U.S. authorities say, banks unwittingly cleared hundreds of millions of dollars of transactions that potentially violated economic sanctions Washington had in place at the time against doing business with Iran. …
 
Meng was released on C$10 million ($7.5 million) bail on Dec. 11 and remains in Vancouver while Washington tries to extradite her. In the United States, Meng would face charges in connection with an alleged conspiracy to defraud multiple financial institutions, with a maximum sentence of 30 years for each charge. The exact charges have not been made public. …

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NWS_a310. ST&R Trade Report: “CBP to Expand Tests of Blockchain Uses”
 
U.S. Customs and Border Protection recently completed one test of a potential use of blockchain technology and is looking to conduct additional tests this year.
 
A blockchain essentially functions as a distributed ledger that records transactions in a verifiable and permanent way. Blockchain records are transparent to all who have access to the network (though specific documents in those records, such as certificates of origin, are not) but are decentralized across that network, making them virtually incorruptible. This security has made blockchain a promising technology for recording a wide range of activities, including customs and trade-related transactions. Companies and organizations around the world are testing how blockchain may aid international trade flows, including tracking cargo containers, transferring shipping documents, and confirming cross-border payments.
 
For several months in 2018 CBP tested the use of blockchain for the certifications of origin used to qualify goods for preferential treatment under NAFTA and CAFTA-DR, and a report on the agency’s conclusions is expected in the near future. According to press reports, CBP is now preparing to launch tests of several additional uses, including verifying the origin of raw materials, tracking oil imports, and dealing with intellectual property rights and e-commerce.
 
A CBP press release cites Vincent Annunziato, who directs CBP’s relatively new Business Transformation and Innovation Division, as saying these tests constitute a different approach for the agency. “What we are looking to do is invest a small amount of money to see how we can progress,” he said. “If we find something that doesn’t work, we don’t invest anymore. If we find that it does work, then we move forward with confidence. This is new ground for us.”
 
According to an American Shipper article, Annunziato also said recently that while CBP’s tests are currently focusing on trade facilitation, “blockchain will become an enforcement tool at some point.”
 
CBP’s Commercial Customs Operations Advisory Committee has been monitoring the agency’s blockchain tests and had been expected to submit related recommendations at its quarterly meeting in December, but that session was canceled when the federal government closed to mark the death of former President George H.W. Bush. The issue will likely be discussed at COAC’s next meeting in February.
 
In related news, the Department of Homeland Security is seeking from the private sector solutions that use blockchain to digitally issue and verify licenses, certifications, and other documents related to supply chain security and other issues. According to the DHS solicitation, the government believes blockchain “holds the potential for enhanced transparency and auditing of public service operations, greater visibility into multi-party business operations, and automation of paper-based processes to improve delivery of services to organizations and citizens.” Applications from those wishing to participate in this initiative are due by May 23.

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NWS_a411. Washington Post: “House Democrats Demand Treasury Explain Rollback of Sanctions on Russia Oligarch”

(Source: Washington Post, 8 Jan 2019.) [Excerpts.]
 
The Democratic leaders of seven House panels are demanding Treasury Secretary Steven Mnuchin delay implementing a planned easing of sanctions on businesses tied to a prominent Russian oligarch until the Treasury Department briefs committee members on the matter.
 
The committee chairs told Mnuchin they want the briefing to take place before Friday, as they are working against the clock if they want to stop the administration from acting on its mid-December announcement that it would roll back sanctions.
 
“There are a number of additional questions that we and other Members of Congress must pursue to fully assess whether the U.S. agreement and the sanctions terminations are justified,” the panel chairs wrote, complaining that the administration had intentionally announced the change in policy right before a holiday and a government shutdown, making it difficult for members to exercise their right to challenge the decision. …

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COMMCOMMENTARY

(Source:
Export Compliance Journal, 9 Jan 2019.)
 
On December 19, 2018, the United States Treasury’s Office of Foreign Assets Control (OFAC)
notified Congress of its intent remove sanctions on three Russian-based companies-En+ Group plc, UC Rusal plc, and EuroSibEnergo (ESE).
 
Sanctions are expected to wind down 30 days from the date of the announcement.
 
The companies’ sanctions came as a result of
OFAC sanctions against seven Russian oligarchs for “worldwide malign activity” in the spring of 2018. Among the individuals was Oleg Deripaska, whose companies-En+, Rusal, and ESE-took steps to substantially decreases his ownership interest and sever his control in an effort to see sanctions lifted.
 
Significant restructuring measures taken

New, independent boards were instituted, with half the members of the board coming from the U.S. or U.K. Additionally, the three corporations agreed to open themselves up to ongoing certification and audits, which will help OFAC monitor compliance moving forward. Should OFAC find them to be in violation they may find themselves sanctioned again. This includes ensuring that Deripaska, who remains on OFAC’s Specially Designated Nationals (SDN) list-does not regain stakes that cumulatively reach or exceed a 50% controlling interest.
 
Open for business

As noted, it is expected that within 30 days of OFAC’s announcement, En+, Rusal, and ESE will no longer be debarred, and they will once again be legally open for business (though one must continue to pay heed to sanctions and embargoes related to Russia itself). This is substantial news for many companies around the globe, especially those reliant on aluminum. Case in point, aluminum prices
“sank to a 16-month low” shortly after Treasury’s announcement. With Rusal the second largest manufacturer of aluminum in the world, one would not be going out on a limb by assuming the two events are related.
 
For those not affected by the removal of sanctions against these organization, it reinforces a message we discuss often on the Export Compliance Journal-that restricted, denied and debarred parties lists are constantly in flux. But rarely are additions or removals so widely publicized, so it simply highlights
the importance of rescreening all your records on an ongoing basis just to be sure.

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(Source:
Integration Point Blog, 9 Jan 2019.)
 
Welcome to Weise Wednesday! Twice a month we will share a brief Q&A with the former U.S. Commissioner of Customs, Mr. George Weise. If you have questions, we encourage you to send them to
AskGeorge@IntegrationPoint.com.
 
Q. What are the prospects for resolving outstanding trade conflicts between the United States and its global trading partners in 2019?
 
A. Over the past year, I addressed U.S. initiatives that have put a strain on our relationships with many of our trading partners. U.S. initiatives included section 232 actions to impose significant additional tariffs on imported steel and aluminum from around world and a section 301 action alleging intellectual property violations by China, resulting in punitive additional U.S. tariffs on a wide range of Chinese products exported to the U.S. and retaliatory Chinese tariffs on U.S. goods exported to China.
 
I also discussed the U.S. demand that Canada and Mexico agree to renegotiate the terms of the North American Free Trade Agreement (NAFTA). Although there have been some positive recent developments on several fronts, it is still way too early to predict how these issues will be resolved.
 
Steel and aluminum tariffs
 
Regarding the U.S. imposition of tariffs on steel and aluminum imports from many countries, virtually every country impacted by the tariffs has imposed retaliatory tariffs on U.S. exports and filed complaints at the World Trade Organization (WTO).
 
There is nothing new to report here. While bilateral discussions between the U.S. and impacted countries are said to be continuing, little progress appears to have been made to resolve the underlying issues. Further, the cumbersome dispute settlement process at the WTO is in the very early stages of addressing these issues, and no decisions are expected in the near term.
 
NAFTA renegotiations
 
As previously discussed, an agreement was reached between the U.S., Mexico, and Canada on October 1, 2018, to replace NAFTA with a new but similar agreement called the U.S.-Mexico-Canada Agreement (USMCA). The agreement was signed by the leaders of the three countries on November 30 and must be approved by the legislature in all three countries before coming into effect.
 
There have been some rumblings in the U.S. that it is not certain that the U.S. Congress, with Democrats now in charge of the House of Representatives, will approve the new deal. Perhaps to put more pressure on the Congress to approve it, President Trump recently threatened to terminate NAFTA very soon and before the Congress completes the approval process. If the President follows through on his threat, more uncertainty would be created for companies moving goods across borders in North America until the ratification process is complete in all three countries.
 
China trade relations
 
The trade relationship between the U.S. and China continued to deteriorate through 2018, with several rounds of retaliation and counter-retaliation imposing significant additional tariffs on a wide range of each other’s products. In September, President Trump announced that he would be imposing an additional 10% tariff on about $200 billion of Chinese imports, effective September 24, and that the additional tariff on those goods would be increased to 25% on January 1. In the announcement, the President also threatened to impose tariffs on $267 billion of additional Chinese imports if China retaliated.
 
As expected, China immediately announced it was imposing additional tariffs of up to 10% on $60 billion of U.S. imports. This is in addition to the 25% tariff both parties had imposed on roughly $50 billion of each other’s goods earlier in 2018.
 
The U.S. had hoped that these additional tariffs would lead to bilateral negotiations to resolve the underlying U.S. complaints in the 301 action about numerous unfair trade policies and practices relating to U.S. technology and intellectual property rights. Unfortunately, no serious bilateral negotiations resulted, as both parties appeared to dig in for a long fight.
 
The good news is that a major breakthrough was made at a dinner meeting in late November between President Trump and Chinese President Xi Jinping while both were in Buenos Aires for the Group 20 Summit. Under an agreement reached between the two parties, President Trump agreed to postpone for 90 days the planned January 1 tariff increase on Chinese products in return for a Chinese commitment to purchase a significant amount of U.S. farm, energy. and industrial goods. The parties also agreed to immediately begin talks on Chinese industrial policies, including coercive licensing of U.S. technology, trade secret theft. and non-tariff barriers.
 
This week a U.S. delegation, led by Deputy U.S. Trade Representative Jeffrey Gerrish, is in Beijing for two days of negotiations in an effort to resolve the underlying issues that resulted in the U.S. complaint. If the talks go well, China is expected to send its Trade Minister to Washington in the coming weeks to meet with U.S. Trade Representative Robert Lighthizer in an effort to reach an agreement.
 
There is no guarantee that these talks will be successful, but it is the first glimmer of hope that the parties are committed to working to resolve the issues. If the talks break down, President Trump has vowed to implement the scheduled additional tariff increases after 90 days. Meanwhile, global traders should stay tuned and stay engaged and hope for the best.

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(Source:
R/D Report, 9 Jan 2018.)
 
* Authors: Johanna Reeves, Esq., jreeves@reevesdola.com, +1 202-715-9941; and Katherine Heubert, Esq., kheubert@reevesdola.com, +1 202-715-9940. Both of Reeves & Dola, LLP.
 
Earlier this year, the U.S. Department of State, Directorate of Defense Trade Controls (DDTC) published a proposed rule in the Federal Register to amend the International Traffic in Arms Regulations (ITAR) and revise U.S. Munitions List (USML) Categories I, II, and III to better identify the articles the U.S. government believes warrants export and temporary import control on the USML. Those items deemed not to require control under the ITAR are proposed to be removed from the USML and would become subject to the U.S. Department of Commerce, Bureau of Industry and Security’s (BIS) Export Administration Regulations (EAR). BIS published a companion proposed rule at the same time to identify where those items removed from the USML will be controlled on the Commerce Control List (CCL). We covered the proposed transition rules in our alerts, dated May 23, June 1, June 8, and June 13, 2018, all of which can be accessed at reevesdola.com.
 
Soon the highly anticipated rules containing the final rewrites of U.S. Munitions List Categories I, II, and III should be published. In advance of their publication, companies should begin to prepare now in order to be best positioned to take advantage of the change in regulations as soon as they become effective. In this alert we seek to answer some basic questions about the transition and walk through the review process that companies will need to undertake to determine which set of controls will now apply to their goods and services.
 
What Will the Rewrites Do?
 
As many of you already know, USML Categories I, II, and III are the last USML categories to go through the revision process. All other USML Categories have been revised, some multiple times already as part of the previous Administration’s Export Control Reform (ECR) effort. What the upcoming final rules will do is to remove from the USML those items the U.S. government has determined to be of less military significance or of a more commercial nature. As explained in the proposed rule, DDTC’s intent is to revise these categories so that the scope of the respective USML Category is limited to those defense articles that provide the United States with a “critical military or intelligence advantage or are inherently for military end use.” (83 FR 24198). DDTC further explains in the proposed rule that the articles that would be removed from the USML do not meet this standard, and notes that many items are widely available in retail outlets in the United States and abroad. Those items removed from the USML will be subject to the EAR in new Export Control Classification Numbers (ECCNs) on the CCL.
 
Despite what many have claimed, this is not a decontrol of the items identified for removal from the USML. Rather, it is a right-sizing of U.S. export controls. Items that have historically required a license from DDTC will now be subject to the export licensing requirements of the EAR. However, this does not mean that companies will be able to ship firearms and ammunition throughout the world without a license. To the contrary, many items moving to the CCL will require an export license from BIS, even to Canada. It is also important to remember that the revisions to the USML have no impact on how the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) controls firearms and ammunition for permanent import into the United States under its regulations at 27 C.F.R. Part 447.
 
Has the Transition Already Taken Effect?
 
No! As of today, the revisions have not yet been published as a final rule and the USML currently remains unchanged for Categories I, II, and III. When the final rules are published in the Federal Register, they will provide an effective date for the implementation of the changes. If the previous USML Category rewrites are any indication, the rules will likely become effective 180 days after the final rule publishes, though the agencies could decide to provide a shorter implementation period. A delayed effective date, which has been provided in all the previous USML Category revisions, is intended to give impacted industry members the time to implement the revisions by reclassifying their inventory, making changes to internal processes and procedures, train employees on the new controls, update databases, notify customers, and other necessary compliance actions.
 
Is There Anything to do to Prepare for this?
 
Yes! Companies now can begin reviewing their inventory and internal procedures to identify those items and functions that may be impacted. While the proposed rules aren’t set in stone, they do provide a good roadmap of what is likely going to move off the USML and onto the CCL. Companies can use that to redline processes and procedures and identify any necessary changes to databases and systems that house jurisdictional determinations for products. The proposed rules can also help companies start walking through the jurisdictional review analysis to determine what export control regime will likely apply to their products after the revisions become effective. For a refresher on the proposed rules, please review our previous alerts.
The process for walking through this jurisdictional review is called the Order of Review. The Order of Review is the process by which one makes a jurisdiction and classification decision with respect to the export control regulation applicable to any piece of hardware, software, technology, or service. The Order of Review is completed by first reviewing the USML, followed by the CCL, and essentially asking a series of yes/no questions. The following outline is designed to walk you through the basic decision process for an Order of Review analysis.
Step 1: Review the ITAR
 
* If your item is enumerated by name or capability in a USML control paragraph, your review has ended. The item is ITAR controlled.
 
* If your item is described in a control paragraph that contains the “specially designed” modifier, you must perform the specially designed analysis in 22 C.F.R. §120.41 to determine whether your item is captured.
  – If after performing the “specially designed” analysis the item is determined to be “specially designed,” then the item is controlled in that subparagraph of the USML. Your review has ended.
  – If after performing the “specially designed” analysis the item is released (i.e., determined not to meet the “specially designed” criteria), then the item is not controlled on the USML and a review of the EAR is required. Proceed to Step 2 below.
 
* If the item is not described in any control paragraph on the USML, then the item is not captured by the ITAR and a review of the EAR is required. Proceed to Step 2 below.
 
Note: if an item appears to be listed in multiple paragraphs, any paragraph that is designated Significant Military Equipment (SME) takes precedence over a non-SME paragraph. In other words, always follow the highest applicable level of control.
 
Step 2: Review the EAR
 
Note: the EAR does not have a “see through” rule like the ITAR, so do not consider the individual parts inside of an item when classifying it. Instead, consider overall functions and characteristics to classify the item under review. Compare the characteristics of the item to the 10 CCL categories and then determine the applicable product group A-E.
 
* Start your CCL review with the “500-series” and “600-series” ECCNs. If your item is enumerated by name or capability in a “500-series” or “600-series” ECCN on the CCL, your review has ended. The item is controlled in that control paragraph of the CCL.
 
* If your item is described in a control paragraph that contain the “specially designed” modifier, then perform the “specially designed” analysis, described in Part 772 of the EAR.
  – If after performing the “specially designed” analysis the item is determined to be “specially designed” then the item is controlled in that control paragraph of the CCL. Your review has ended.
  – If after performing the “specially designed” analysis the item is released, then a review of the rest of the CCL is required.
 
* If you have reviewed the “500-series” and “600-series” ECCNs and your item is not captured, then proceed to review the rest of the CCL. If your item is enumerated by name or capability in a “non-600/500 series” ECCN on the CCL, then your item is controlled in that paragraph of the CCL. Your review has ended.
 
* If your item is described in a control paragraph that contains the “specially designed” modifier, then perform the “specially designed” analysis, described in Part 772 of the EAR.
  – If after performing the “specially designed” analysis the item is determined to be “specially designed” then the item is controlled by the that paragraph of the CCL. Your review has ended.
  – If after performing the “specially designed” analysis the item is released, proceed to Step 3.
 
* If your item is not described in any ECCN on the CCL, then proceed to Step 3 below.
 
Step 3: Item Not Captured by Specific ECCN
 
If the Order of Review is performed and the item is not captured by the USML and is not captured by any ECCN on the CCL, then the item is classified as ECCN EAR99. The Order of Review analysis has ended.
 
If, after performing the Order of Review, questions remain as to the proper jurisdiction and classification of an item, consider submitting a Commodity Jurisdiction (CJ) request to DDTC for an official jurisdictional determination for a product. When submitting a CJ request to DDTC, it is recommended to include a description of the Order of Review analysis that was conducted and a clear explanation as to why confusion remains. Also, indicate the USML Category(ies) or ECCN(s) that you believe is/are most likely applicable to the item under review. DDTC provides step-by-step instructions for preparing and submitting Commodity Jurisdiction requests on its website.
Additionally, both DDTC and BIS have developed Order of Review tools to aid industry in making a jurisdiction and classification analysis.
 
DDTC’s web-based decision tools:
 
* Order of Review: Use this tool to help you figure out where your item(s) is controlled on the USML.
 
* Specially Designed: Use this tool to help you determine if a particular item is “specially designed” or meets one of the five carve-outs. This tool applies ONLY to commodities and software related to USML Categories that have been revised in accordance with the President’s Export Control Reform initiative. DO NOT USE if your USML category has not yet been revised.
 
BIS web-based decision tools:
 
* CCL Order of Review: This tool will assist in understanding the steps to follow in reviewing the Commerce Control List when determining the classification of their item. (See Supplement No. 4 to part 774 of the EAR).
 
* Specially Designed: This tool will assist users in determining if an item is “specially designed” under the Export Administration Regulations. (See § 772.1 of the EAR).
 
Closing Thoughts
 
Of course, each jurisdictional determination is unique, with some being more complex than others. Additionally, the “specially designed” review is its own separate catch-and-release analysis. We will address the “specially designed” review in an upcoming alert. Please note that the “specially designed” analysis is slightly different between the two regulations, so do not assume that if an item is released from the ITAR, it is automatically classified as EAR99.
 
Even though the transition is not a decontrol of firearms and ammunition exports, the process will be radically different from what many are already accustomed. The rules of the game are about to change, and so it is vitally important that companies get ready. Many will need to learn a new set of export controls regulations (the EAR) that may never have applied to their products before. Whether it’s reclassifying products or retooling corporate policies and procedures, businesses must be prepared to adapt to the new rules to ensure export transactions remain compliant.

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(Source:
Volkov Law Group Blog, 8 Jan 2019. Reprinted by permission.)
 
* Author: Michael Volkov, Esq., Volkov Law Group,
mvolkov@volkovlaw.com, 240-505-1992.
 
This is my favorite topic. New trends come and go in the compliance field, while effective solutions and strategies slowly but surely take hold. Eventually, an effective compliance practice or strategy becomes a “best practice,” or an “industry standard.”
 
To those who complain that ethics and compliance is a profession riddled with amorphous standards or vague “guidance” that lacks discipline, my response is that such critics fail to understand how compliance works in the real world, and the ongoing development and implementation of effective compliance strategies among a profession committed to ethical cultures and building compliance programs that detect and prevent code and legal violations.
 
The compliance profession has a broad mandate and eventually will transform business operations by embedding ethics and compliance as a key business function that promotes sustainable growth and contributes to the productive use and value of corporate assets. That is the profession’s mantra and code.
 
Now, let’s look at some of the strategies, tools and trends for 2019.
 
Ethical Culture: Compliance has embraced and renewed its commitment to promoting a company’s ethical culture. As a pure economic matter, an ethical culture is the most cost-effective control that a company can implement. It is a compliance win-win because senior management easily understands the importance of an ethical culture to the success of a company. The challenge for CCOs has been – and will continue to be – educating the board and senior management on how to promote, measure and monitor an ethical culture. New and cutting-edge innovation is needed here to advance the ethical culture issue. CCOs have to embrace creative solutions and argue in favor of additional resources and new approaches.
 
Board Partnership and Oversight: CCOs have been frustrated for years by the failure of corporate boards to support the compliance mission and understand how to conduct oversight and monitoring of the compliance function. This is slowly starting to change. The first evidence of this evolution is the increase in board training (always a good first step). CCOs have to devote attention to engaging board members, developing positive commitments to compliance and ensuring that board members understand the critical function and benefits of compliance.
 
Automation and Technology: We have seen the beginning of the compliance technology revolution in 2018. Third-party risk management is driving some of this change but more importantly regtech demand and solutions are increasing capabilities for artificial intelligence, machine learning and explosion of computer processing capabilities. Even in non-regulated companies, CCOs are demanding automated (paperless) solutions that allow CCOs to leverage resources and improve auditing and monitoring capabilities. This trend will continue to increase in 2019, new solutions will be developed or expand, and rapid innovation will continue to enhance compliance functions.
 
Compliance Data: As part of the automation and technology demand, CCOs are embracing compliance program data. A new one-stop compliance dashboard will evolve and replace the hodgepodge of compliance solutions used by compliance professionals. Compliance programs generate a large volume of data. Some of the data is more relevant than other types of data. The key is to quickly cull the relevant and prioritize its use in a compliance program. Data should not be used just for data’s sake – the cost of collection in time and money has to provide useful and relevant insights and inferences relating to a compliance program. More work is needed in this area to make sure that compliance data is valuable and relevant.
 
Regular Assessments: A compliance program has to be measured, assessed and improved. CCOs are embracing more assessments – of the company’s culture and of its compliance program. This is a positive trend and reflects the maturing transformation of compliance programs into a stable and necessary part of the company’s operations.
 
Proactive Auditing: If there was one major trend that needs to occur (and is slowly growing), it is the need for CCOs to embrace and implement proactive auditing programs that are separate from or conducted in addition to the internal audit responsibilities. Compliance has to monitor its activities and can no longer rely on others to provide such insights. Compliance professionals have to design and implement proactive audits of their operations using their own “independent” auditing staff contained in the compliance department. At the same time, CCOs have to use creative tools for such audits, including sampling, desk audits and financial monitoring of non-material transactions. This is the real issue for CCOs for the next year, and CCOs have started to recognize the value of this strategy.

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TEEX/IM TRAINING EVENTS & CONFERENCES

TE_a116. ECTI Presents “Compliance Challenges with Canadian and US Export Controls” Webinar, 24 Jan

(Source: Danielle Hatch, danielle@learnexportcompliance.com)
 
* What: Compliance Challenges with Canadian and US Export Controls
* When: January 24, 2019 1:00 p.m. (EST)
* Where: Webinar
* Sponsor: Export Compliance Training Institute (ECTI)
* ECTI Speaker: John Boscariol
* Register: Here or Danielle Hatch, 540-433-3977, danielle@learnexportcompliance.com.
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ENEDITOR’S NOTES

 
Lady Randolph Churchill (Jennie Spencer-Churchill; 9 Jan 1854 – 29 Jun 1921; known as Lady Randolph Churchill, was an American-born British socialite, the wife of Lord Randolph Churchill and the mother of British prime minister Sir Winston Churchill.)
  – “Treat your friends as you do your best pictures, and place them in their best light.”
  – “We owe something to extravagance, for thrift and adventure seldom go hand in hand.”
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EN_a318
. Are Your Copies of Regulations Up to Date?
(Source: Editor)

 
* DHS CUSTOMS REGULATIONS: 19 CFR, Ch. 1, Pts. 0-199.  Implemented by Dep’t of Homeland Security, U.S. Customs & Border Protection.
  – Last Amendment: 18 Dec 2018: 83 FR 64942-65067: Modernized Drawback  
 

DOC EXPORT ADMINISTRATION REGULATIONS (EAR): 15 CFR Subtit. B, Ch. VII, Pts. 730-774. Implemented by Dep’t of Commerce, Bureau of Industry & Security.
  – Last Amendment: 20 Dec 2018: 83 FR 65292-65294: Control of Military Electronic Equipment and Other Items the President Determines No Longer Warrant Control Under the United States Munitions List (USML); Correction [Concerning ECCN 7A005 and ECCN 7A105.]
 
* DOC FOREIGN TRADE REGULATIONS (FTR): 15 CFR Part 30.  Implemented by Dep’t of Commerce, U.S. Census Bureau.
  – Last Amendment: 24 Apr 2018: 83 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 (1 Jan 2019) 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 website.  BITAR 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.   

 

DOD NATIONAL INDUSTRIAL SECURITY PROGRAM OPERATING MANUAL (NISPOM): DoD 5220.22-M. Implemented by Dep’t of Defense.
  – 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.)
 
 
DOE ASSISTANCE TO FOREIGN ATOMIC ENERGY ACTIVITIES: 10 CFR Part 810; Implemented by Dep’t of Energy, National Nuclear Security Administration, under Atomic Energy Act of 1954.
  – Last Amendment: 23 Feb 2015: 80 FR 9359, comprehensive updating of regulations, updates the activities and technologies subject to specific authorization and DOE reporting requirements. This rule also identifies destinations with respect to which most assistance would be generally authorized and destinations that would require a specific authorization by the Secretary of Energy.
 
DOE EXPORT AND IMPORT OF NUCLEAR EQUIPMENT AND MATERIAL; 10 CFR Part 110; Implemented by Dep’t of Energy, U.S. Nuclear Regulatory Commission, under Atomic Energy Act of 1954.
  – Last Amendment: 20 Nov 2018, 10 CFR 110.6, Re-transfers.
 

* DOJ ATF ARMS IMPORT REGULATIONS: 27 CFR Part 447-Importation of Arms, Ammunition, and Implements of War.  Implemented by Dep’t of Justice, Bureau of Alcohol, Tobacco, Firearms & Explosives.
  – 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.  

 

DOS INTERNATIONAL TRAFFIC IN ARMS REGULATIONS (ITAR): 22 C.F.R. Ch. I, Subch. M, Pts. 120-130. Implemented by Dep’t of State, Directorate of Defense Trade Controls.
  – 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: 1 Jan 2019) 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.
 
* DOT FOREIGN ASSETS CONTROL REGULATIONS (OFAC FACR): 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders. 

Implemented by Dep’t of Treasury, Office of Foreign Assets Control.

  – Last Amendment: 15 Nov 2018: 83 FR 57308-57318: Democratic Republic of the Congo Sanctions Regulations
  
* USITC HARMONIZED TARIFF SCHEDULE OF THE UNITED STATES (HTS, HTSA or HTSUSA), 1 Jan 2018: 19 USC 1202 Annex. Implemented by U.S. International Trade Commission. (“HTS” and “HTSA” are often seen as abbreviations for the Harmonized Tariff Schedule of the United States Annotated, shortened versions of “HTSUSA”.)
  – 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 here.
  – HTS codes that are not valid for AES are available here.

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EN_a0319
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 6,500 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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