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19-0220 Wednesday “Daily Bugle'”

19-0220 Wednesday “Daily Bugle”

Wednesday, 20 February 2019

  1. Commerce/BIS Announces MPETAC Meeting on 5 Mar in Washington DC
  1. Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.)
  3. GAO Ex/Im Reports and Testimonies of Interest: Foreign Military Sales
  4. State/DDTC: (No new postings.)
  5. President Continues National Emergencies with Respect to Cuba and Libya
  6. EU Publishes Council Decision Concerning Release of EU Classified Information
  7. UK DIT Announces 1 Mar Webinar Concerning New EU Dual-Use OGEL
  8. UK Government Publishes Guidance Concerning Interception and Monitoring Prohibitions in Sanctions
  1. Bloomberg: “UK Nuclear and Military Exporters Told to Prepare for Hard Brexit”
  2. Deutsche Welle: “Heckler & Koch’s Illegal Arms Deal With Mexico”
  3. The Guardian: “No Guarantee Australian Weapons Aren’t Used in Yemen Conflict, Government Says”
  4. Reuters: “Norwegian Air Aims to Fly Stranded Plane Out of Iran In Next Few Days”
  5. ST&R Trade Report: “Hundreds of Customs Broker Licenses Revoked”
  1. G.R. Tuttle III: “Finally – What We’ve All Been Waiting for – the Exclusion Process for the 3rd Tranche!!”
  2. J. Alison Lee, A. Smith, P. Doris: “2018 Year-End Sanctions Update: U.S. Enforcement (Part II of IV)”
  3. M. Volkov: “Episode 77 – Implementing an Effective Trade Compliance Program”
  1. Full Circle Complince Presents “An Introduction to EU / Dutch Dual-Use and Military Export Controls
  1. Full Circle Compliance Announces New Website 
  2. Bartlett’s Unfamiliar Quotations 
  3. Are Your Copies of Regulations Up to Date? Latest Amendments: DHS/Customs (14 Jan 2019), 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 (12 Feb 2019) 
  4. Weekly Highlights of the Daily Bugle Top Stories 

EXIMITEMS FROM TODAY’S FEDERAL REGISTER

EXIM_a11. 
Commerce/BIS Announces MPETAC Meeting on 5 Mar in Washington DC

(Source: 
Federal Register, 20 Feb 2019.) 
 
84 FR 5050-5051: Materials Processing Equipment Technical Advisory Committee; Notice of Open Meeting
 
The Materials Processing Equipment Technical Advisory Committee (MPETAC) will meet on March 5, 2019, 9:00 a.m., Room 3884, in the Herbert C. Hoover Building, 14th Street between Pennsylvania and Constitution Avenues NW, Washington, DC. The Committee advises the Office of the Assistant Secretary for Export Administration with respect to technical questions that affect the level of export controls applicable to materials processing equipment and related technology.
 
Agenda
 
Open Session
 
(1) Opening remarks and introductions.
(2) Presentation of papers and comments by the Public.
(3) Discussions on results from last, and proposals from last Wassenaar meeting.
(4) Report on proposed and recently issued changes to the Export Administration Regulations.
(5) Other business. 
 
Closed Session
 
(6) Discussion of matters determined to be exempt from the provisions relating to public meetings found in 5 U.S.C. app. 2 §§10(a)(1) and 10(a)(3).
  
The open session will be accessible via teleconference to 20 participants on a first come, first serve basis. To join the conference, submit inquiries to Ms. Yvette Springer at 
Yvette.Springer@bis.doc.gov, no later than February 26, 2019.
  A limited number of seats will be available for the public session. Reservations are not accepted. To the extent that time permits, members of the public may present oral statements to the Committee. The public may submit written statements at any time before or after the meeting. However, to facilitate the distribution of public presentation materials to the Committee members, the Committee suggests that presenters forward the public presentation materials prior to the meeting to Ms. Springer via email.
  For more information, call Yvette Springer at (202) 482-2813.
 
Yvette Springer, Committee Liaison Officer.

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OGSOTHER GOVERNMENT SOURCES

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

  

* President; ADMINISTRATIVE ORDERS; 
  – Cuba; Continuation of National Emergency With Respect to the Regulation of Anchorage and Movement of Vessels (Notice of February 19, 2019); and
  – Libya; Continuation of National Emergency (Notice of February 19, 2019) [Pub. Date: 21 Feb 2019.  Both are included in today’s Daily Bugle, item #6.]
 
* Justice/ATF; NOTICES; Agency Information Collection Activities; Proposals, Submissions, and Approvals: Manufacturers of Ammunition, Records and Supporting Data of Ammunition Manufactured and Disposed of [Pub. Date: 21 Feb 2019.]

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OGS_a2
3. 
Commerce/BIS: (No new postings.)

(Source: 
Commerce/BIS)

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OGS_a45
State/DDTC: (No new postings.)

(Source: 
State/DDTC)

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OGS_a56
President Continues National Emergencies with Respect to Cuba and Libya 

(Source: The White House, 20 Feb 2019.) 
 
Text of a Notice on the Continuation of the National Emergency with Respect to Cuba [and Continuing to Authorize the Regulation of the Anchorage and Movement of Vessels]
 
On February 22, 2018, by Proclamation 9699, the national emergency with respect to Cuba declared in Proclamation 6867 of March 1, 1996, expanded by Proclamation 7757 of February 26, 2004, and modified by Proclamation 9398 of February 24, 2016, was modified and continued based on a disturbance or threatened disturbance of the international relations of the United States related to Cuba.  The unauthorized entry of any United States-registered vessel into Cuban territorial waters and the situation in Cuba continue to pose an unusual and extraordinary threat to the national security and foreign policy of the United States. Therefore, in accordance with section 202(d) of the National Emergencies Act (50 U.S.C. 1622(d)) and section 1 of title II of Public Law 65-24, ch. 30, June 15, 1917, as amended (50 U.S.C. 191), I am continuing for 1 year the national emergency declared in Proclamations 6867, 7757, 9398, and 9699.
  
This notice shall be published in the Federal Register and transmitted to the Congress.
 
  DONALD J. TRUMP
THE WHITE HOUSE,
February 19, 2019.
 
 
On February 25, 2011, by Executive Order 13566, the President declared a national emergency pursuant to the International Emergency Economic Powers Act (50 U.S.C. 1701

1706) to deal with the unusual and extraordinary threat to the national security and foreign policy of the United States constituted by the actions of Colonel Muammar Qadhafi, his government, and close associates, which took extreme measures against the people of Libya, including by using weapons of war, mercenaries, and wanton violence against unarmed civilians.  In addition, there was a serious risk that Libyan state assets would be misappropriated by Qadhafi, members of his government, members of his family, or his close associates if those assets were not protected. The foregoing circumstances, the prolonged attacks against civilians, and the increased numbers of Libyans seeking refuge in other countries caused a deterioration in the security of Libya and posed a serious risk to its stability.
  
The situation in Libya continues to pose an unusual and extraordinary threat to the national security and foreign policy of the United States, and measures are needed to protect against the diversion of assets or other abuses by members of Qadhafi’s family, their associates, and other persons hindering Libyan national reconciliation.
 
For this reason, the national emergency declared on February 25, 2011, must continue in effect beyond February 25, 2019. Therefore, in accordance with section 202(d) of the National Emergencies Act (50 U.S.C. 1622(d)), I am continuing for 1 year the national emergency declared in Executive Order 13566.
  This notice shall be published in the Federal Register and transmitted to the Congress.
 
  DONALD J. TRUMP
THE WHITE HOUSE,
February 19, 2019.

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OGS_a67
EU Publishes Council Decision Concerning Release of EU Classified Information 

(Source: Official Journal of the European Union, 20 Feb 2019.)
 
Decisions
Council Decision (EU) 2019/292 of 12 February 2019 on the authorization to release EU classified information to third States and international organizations

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OGS_a78
UK DIT Announces 1 Mar Webinar Concerning New EU Dual-Use OGEL

(Source: UK Export Control Joint Unit, 
 
If the UK leaves the EU without a deal, dual-use items from the UK to the EU will need a license. An Open General Export License (OGEL) has been created for this purpose.

On 1 March, the Export Control Joint Unit (ECJU) will host a webinar to explain the issues around EU General Export Authorizations (EU GEAs) and the new OGEL.
 
The webinar will:
  – raise awareness of the terms of the OGEL
  – provide information on the policy landscape of EU-related legislation in a no-deal Brexit
  – include a Q&A session directly with policy makers
 
Register here for the webinar. Please note that places are limited, so early registration is advised. The webinar will be recorded so that people who miss it will be able to listen in. … 

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OGS_a89
UK Government Publishes Guidance Concerning Interception and Monitoring Prohibitions in Sanctions

(Source: Gov.UK, 20 Feb 2019.) 
 
UK sanctions on Burma, Iran, Syria, and Venezuela include prohibitions in relation to items that could be used to intercept communications, as well as related services.
 
This guidance (Interception and monitoring prohibitions in sanctions made under the Sanctions and Anti-Money Laundering Act 2018: technical guidance) provides further information on the meaning of specific terms used in the schedules to these regulations. If in doubt, exporters should ensure that they seek appropriate technical and legal advice on whether their activity is prohibited.

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NWSNEWS

NWS_a110
Bloomberg: “UK Nuclear and Military Exporters Told to Prepare for Hard Brexit”

(Source: Bloomberg, 20 Feb 2019.) [Excerpts.] 
 
UK makers of nuclear material, weapons, and sensitive technologies are being urged by the government to get new export licenses to prepare for a no-deal exit from the European Union.
 
Companies need to register and to obtain permission under the UK’s new “Open General Export License” to continue exporting so-called dual use goods to the EU from March 29, according to a statement from the Department for Business, Energy, and Industrial Strategy. Existing licenses will be void if the UK crashes out of the bloc without a deal.
 
BAE Systems Plc and Urenco Ltd. are among many UK companies that would be most directly affected by a no-deal Brexit. Thousands of items ranging from computer software and digital converters to fuel cells and robotic arms face trade restrictions without new paperwork. … 

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NWS_a211
Deutsche Welle: “Heckler & Koch’s Illegal Arms Deal With Mexico”

(Source: Deutsche Welle, 20 Feb 2019.) [Excerpts.] 
 
Five H&K employees who conspired in a sale of G36 assault rifles to Mexico await their sentences in Stuttgart. The trial has offered insights into the weakness of Germany’s arms export control laws.
 
The German judiciary will conclude a decade-long saga on Thursday, when a Stuttgart court passes judgment on five former employees of the country’s biggest gun-maker, Heckler & Koch, over the illegal sale of 4,686 G36 assault rifles to Mexico between 2006 and 2009.
 
Some of the rifles were almost certainly used in the murder of six Mexican students, and the probable murder of 43 others whose bodies have never been found, in the southern Mexican state of Iguala in September 2014.
 
Corrupt local police officers and mafia are thought to be responsible for the massacre, though human rights activists say that the responsibility should be shared: not only Heckler & Koch, but also German prosecutors, who took several years to investigate the illegal sale, and the German government, for failing to police its own export guidelines. … 

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NWS_a312
The Guardian: “No Guarantee Australian Weapons Aren’t Used in Yemen Conflict, Government Says”

(Source: The Guardian, 20 Feb 2019.) [Excerpts.] 
 
Defense department face grilling over export of 500 taxpayer-subsidized remote weapons systems to Saudi Arabia
 
The Australian defense department can’t guarantee that Canberra-made remote weapons systems, that attracted a taxpayer subsidy, won’t be used in the bloody Yemen conflict.
 
Officials faced a grilling over military exports to Saudi Arabia on Wednesday following revelations Electro Optic Systems is exporting 500 of the systems to the Saudi interior ministry.
 
 

The systems hold military cannons, machine guns and missile launchers which mount on the back of vehicles or ships, allowing weapons to be operated from inside. … 

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NWS_a413
Reuters: “Norwegian Air Aims to Fly Stranded Plane Out of Iran In Next Few Days”

(Source: Reuters, 20 Feb 2019.)  
 
Budget carrier Norwegian Air expects to fly a plane out of Iran in the next few days after it made an emergency landing there in December and became stranded, partly due to U.S. sanctions on Tehran.
 
The plane took off from Dubai on Dec. 14 bound for Oslo but had to land in Shiraz in Iran because of problems with one of its engines.
 
The 186 passengers and six crew were able to fly out of Shiraz the next day. But the plane was left behind as it needed spare parts from its manufacturer, U.S. manufacturer Boeing.
 
The Trump administration has reinstated U.S. sanctions on the Middle Eastern country which forbid civilian aircraft sales – including servicing and parts.
 
Any product that contains more than 10 percent of U.S.-origin goods or technology require a U.S. license in order to be sent to Iran.
 
  “We are in the process of having a new engine flown to Iran for our Boeing 737 MAX within the next few days,” said a company spokesman.
 
  “It is too early to say exactly when the aircraft will be airborne, but our goal is to fly the aircraft back to Scandinavia within the next week,” he added.
 
Norwegian Air has previously said that the paperwork needed to service the plane had taken longer than usual, partly because the company had to familiarize itself with regulations in Iran, where the firm does not operate.
 
Officials at Shiraz Airport and the Iranian Ministry of Roads and Urban Development could not immediately be reached for comment.

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NWS_a514
ST&R Trade Report: “Hundreds of Customs Broker Licenses Revoked” 

(Source: Sandler, Travis & Rosenberg Trade Report, 20 Feb 2019.) 
 
U.S. Customs and Border Protection has revoked hundreds of customs broker licenses for failure to file the required triennial status report.
 
Under 19 CFR 111.30 each customs broker must file a written status report every three years with the CBP port through which its license was issued. This report must state whether the broker is actively engaged in transacting business as a broker and, if so, must include (a) the name and address under which such business is conducted if the broker is the sole proprietor, (b) the name and address of the individual’s employer, if employed by another broker (unless that broker is a partnership, association, or corporation broker for which the individual is a qualifying member or officer), and (c) whether or not the individual still meets the applicable regulatory requirements and has not engaged in any conduct that could constitute grounds for license suspension or revocation.
 
Each corporation, partnership, or association broker must state the name under which its business as a broker is being transacted, its business address, the name and address of each licensed member of the partnership or licensed officer of the association or corporation who qualifies it for a license, and whether it is actively engaged in transacting business as a broker. … 
 
[See the entire list via the source link below the item title.] 
 

In addition, CBP has revoked customs broker license 32197, issued to Stars Design Group Inc. in St. Louis, for failure to employ at least one qualifying individual who holds a valid customs broker’s license. 

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COMMCOMMENTARY

COM_a115
G.R. Tuttle III: “Finally – What We’ve All Been Waiting for – the Exclusion Process for the 3rd Tranche!!”

(Source: Tuttle Law Newsletter, 19 Feb 2019.) [Available by subscription via 
info@tuttlelaw.com.] 
 
* Author: George R. Tuttle III, Esq., Law Offices of George R. Tuttle, 
geo@tuttlelaw.com, +1 415-986-8780.
 
February 15, 2019 was a busy day for the President. He instituted a national emergency to fund a wall, signed a bill to avoid another governmental shutdown 
AND more importantly signed a 
mini-Omnibus bill (H.J. Resolution 31), providing that the USTR establish an exclusion process for the over 6,000 tariff items on List/Tranche 3! 
 
When will the exclusion process start? When will instructions be published? The short answer to both questions is sometime between now and March 17, 2019. The USTR has 30 days from the signing of the bill to meet with various governmental committees to formulate the process. It is expected that the process will follow that of List 1 and 2. The wild card will be what additional information will need to be submitted to support the exclusion request. 
 
Time to start gathering data and preparing information – most importantly – why can the product only be produced in China? Be sure to research if there are U.S. or other country producers. The exclusion denials that have been issued are generic: “your request was denied because the request failed to show that this particular product is available only from China,” “your request was denied because the request did not contain a sufficient product identification or was determined to be non-administrable,” “your request was denied because the request failed to show that the imposition of additional duties on the particular product would cause severe economic harm to you or other U.S. interests.”
 
Approvals are equally as vague:
The scope of the exclusion is governed by the formal HTSUS language in the annex to the product exclusion notice, and not by the product descriptions set out in any particular request for exclusion. An exclusion responsive to your request has been granted by excluding from the additional tariffs the 10-digit HTSUS subheading under which your request was filed.
 
The exclusion process is expected to follow that of List 1 and 2. The information required for the exclusion request has yet to be determined.
 
The final list 3 was published in the Federal Register on September 21, 2018. Further information can be found on our 
website.

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COM_a216. 
J. Alison Lee, A. Smith, P. Doris: “2018 Year-End Sanctions Update: U.S. Enforcement (Part II of IV)”
(Source: 
Gibson Dunn), 11 Feb 2019.)
 
* Authors: Judith Alison Lee, Co-Chair, International Trade Practice, 
jalee@gibsondunn.com; Adam Smith, Esq., 
asmith@gibsondunn.com; and Patrick Doris, Esq., 
pdoris@gibsondunn.com. All of Gibson Dunn.
 
[Part I was published in yesterday’s Daily Bugle.]
 
(II) U.S. ENFORCEMENT
 
(A) Designations
 
(1) Designations of Iran-Based Persons With Digital Currency Addresses
 
On November 28, 2018, pursuant to its cyber-related sanctions program, OFAC designated Iranian residents Ali Khorashadizadeh and Mohammad Ghorbaniyan for facilitating the exchange of bitcoin payments into Iranian rial on behalf of cyber actors involved with the “SamSam” ransomware scheme, and depositing the rial into Iranian banks.  Perpetrators of this scheme gain control of a victim’s computer network by installing unauthorized malicious software, and then demand the victim pay a ransom to regain control.  There are at least 200 known victims of this scheme, including corporations, hospitals, universities, and government agencies.
 
In connection with these designations, OFAC listed identifying information that included two digital currency addresses associated with Khorashadizadeh and Ghorbaniyan.  Digital currency addresses are alphanumeric identifiers linked to online wallets, from which and to which bitcoins or other digital currency can be transferred.  According to OFAC, these two addresses were subject to over 7,000 bitcoin transactions (worth millions of U.S. dollars)-at least some of which were derivative of SamSam ransomware attacks.  In the past, OFAC has listed a designee’s date of birth, email address, and nicknames, but this marks the first time it has listed a digital currency address.  The Treasury Department had flagged this possibility earlier in 2018 when it published guidance stating that digital currency addresses may be listed “to alert the public” to specific property associated with a designated person.  Like funds stored in a traditional bank account, digital currency associated with a digital currency address must be blocked by U.S. financial institutions if they are the property of designated persons.
 
We fully expect OFAC to continue this practice of listing a designated person’s digital currency address, particularly where the person operates in the digital currency space.  Undersecretary of the Treasury for Terrorism and Financial Intelligence Sigal Mandelker has stressed that the administration is “aggressively pursuing Iran and other rogue regimes attempting to exploit digital currencies and weaknesses in cyber AML/CFT safeguards” and the importance of “publishing digital currency addresses to identify illicit actors” in this space.  Indeed, as former senior Treasury adviser David Murray has pointed out, these addresses may be the most reliable identifiers for these bad actors.
 
(2) Designations Related to Jamal Khashoggi
 
On October 10, 2018, a bipartisan group of 22 U.S. senators sent a letter to President Trump demanding that he investigate Saudi journalist Jamal Khashoggi’s disappearance and determine whether to impose sanctions on any culpable foreign government officials pursuant to the Global Magnitsky Act.  President Trump was statutorily required to respond to the demand within 120 days.  His response came a little over a month later, on November 15, 2018, when OFAC imposed Magnitsky sanctions on certain individuals it found were involved in the killing of Khashoggi.  These individuals included senior Saudi government official Saud al-Qahtani; his subordinate, Maher Mutreb; Saudi Consul General Mohammed Alotaibi; and 14 other Saudi government officials.
 
The Global Magnitsky Act gives the President the authority to sanction individual perpetrators of serious human rights abuse and corruption.  Trump’s use of Magnitsky sanctions with respect to the Khashoggi disappearance is not surprising.  
As we noted last year, President Trump issued an executive order in December 2017 effectively broadening his authority under the statute.  Since then, more than one hundred individuals and entities have been sanctioned under this executive order.  Moreover, President Trump has shown a willingness to act fast when imposing Magnitsky sanctions.  As Senator Robert Menendez (D-NJ) put it, “When President Trump wants to move quickly on human rights sanctions he does.”  For example, in early 2018, the Trump administration swiftly sanctioned two government ministers in Turkey over the imprisonment of American pastor Andrew Brunson.
 
While President Trump has been applauded for previous Magnitsky sanctions, a recurring critique of the Khashoggi-related sanctions is that they do not go far enough.  Some in Congress have called for much tougher action against the Saudi government, such as curtailing arms sales or forcing a wind-down of Saudi involvement in Yemen’s destructive civil war.  Indeed, although the United States has imposed Magnitsky sanctions on certain Saudi government officials, the government itself has escaped any direct punishment.  Setting aside the merits of this critique, it appears the United States’ approach has been mirrored by its Western allies:  Canada, France, and Germany have all imposed sanctions on individuals culpable in the killing of Khashoggi, but not on the Saudi government.
 
(B) Enforcement Actions
 
2018 was a deceptively quiet year for OFAC sanctions enforcement.  The agency netted U.S. $71,510,561 in penalties through seven enforcement actions in 2018, compared to 16 enforcement actions and over U.S. $119,527,845 in penalties in the prior year.  But the numbers belie a more aggressive approach to enforcement, masked in certain circumstances by OFAC’s relatively small stake of large global settlements with other regulators.  Moreover, in December 2018 Treasury Undersecretary Sigal Mandelker announced significant changes already underway in sanctions enforcement with a goal of “better enforcement through compliance.”  Mandelker explained that OFAC would be outlining the hallmarks of an effective sanctions compliance program in an effort to aid the compliance community in strengthening defenses against sanctions violations.  Foreshadowing a more aggressive approach to enforcement, she noted that compliance commitments would become an essential element in settlement agreements between OFAC and apparent violators.
 
As we were going to press, OFAC settlement with the 
Kollmorgen Corporation provided a clear indication of the new frontiers in OFAC enforcement.  The case concerned the company’s Turkish affiliate’s alleged violations of Iran sanctions.  Especially noteworthy was that this was the first time OFAC concurrently concluded a settlement action while also designating an individual who allegedly managed the Iranian operations for evading sanctions.
 
Undersecretary Mandelker noted that the action was “a clear warning that anyone in supervisory or managerial positions who directs staff to provide services, falsify records, commit fraud, or obstruct an investigation into sanctions violations exposes themselves to serious personal risk.”
 
(1) Zhongxing Telecommunications Equipment Corporation
 
On April 15, 2018, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) activated a denial order against Chinese telecommunications company 
Zhongxing Telecommunications Equipment Corporation (“ZTE”) for its alleged failure to abide by terms of a March 2017 settlement agreement.  As we described in our 
2017 Sanctions Year-End Update, ZTE previously agreed to settle its potential civil liability for alleged violations of OFAC’s Iran sanctions for U.S. $100,871,266, part of a combined U.S. $1.19 billion civil and criminal settlement with BIS and the U.S. Department of Justice (“DOJ”).  As part of the settlement, ZTE agreed to a seven-year suspended denial of export privileges, which could be activated if any aspect of the agreement was not met.
 
BIS decided to impose the order based on information suggesting that ZTE made false statements regarding the disciplinary measures imposed on employees responsible for the illegal activity.  Specifically, ZTE informed U.S. authorities that the company had taken or would take action against 39 employees and officials that ZTE identified as having a role in the violations.  But letters of reprimand were not issued until after BlS requested further information in February 2018, and all but one of the individuals involved in the underlying misconduct received his or her 2016 bonus.
 
Denial orders are among the most powerful weapons BIS has in its civil enforcement tool box, and would have imposed strict penalties and licensing requirements on U.S. and non-U.S. persons involved, directly or indirectly, in any transaction related to the export or reexport of U.S. origin items to ZTE.  However, in July 2018, after initial trade negotiations with Chinese President Xi Jinping, President Trump instructed BIS to work out an arrangement that would ultimately lift the restrictions.  BIS subsequently terminated the order after ZTE paid a U.S. $1 billion penalty, replaced its board, and placed U.S. $400 million in escrow pursuant to the superseding settlement agreement, in addition to the U.S. $361 million in penalties ZTE had already paid to BIS under the original March 2017 settlement.  ZTE was also required to retain an external compliance coordinator for a period of ten years to monitor and report on ZTE’s compliance.
 
(2) DOJ Charges Russian And Syrian Nationals For Syrian Sanctions Violations
 
In June 2018, eight businessmen, including five Russian nationals and three Syrian nationals, were indicted on federal charges alleging that they conspired to violate U.S. economic sanctions against Syria and Crimea by sending jet fuel to Syria and making U.S. wire transfers to Syria and to sanctioned entities in Syria absent a license from the U.S. Treasury Department.
 
According to the indictment, beginning in 2011, the alleged conspirators started using front companies and falsifying information in shipping records and the related U.S. dollar wires in order to circumvent sanctions.  From 2011 to 2017, the alleged conspirators engaged in business with various blocked entities and used front companies to do so.
 
(C) Select OFAC Enforcement Actions
 
(1) Ericsson
 
In June 2018, two subsidiaries of 
Ericsson agreed to pay U.S. $145,893 in a settlement with OFAC for an apparent violation of U.S. sanctions on Sudan, scarcely three weeks before OFAC announced that it would be removing the Sudan sanctions from the CFR.  The Sudan sanctions were revoked in October 2017, and the Ericsson enforcement action provides a warning regarding OFAC’s willingness to pursue historical violations, even in the face of changing U.S. policies.
 
In late 2011, some of Ericsson’s telecom equipment located in Sudan malfunctioned.  Consequently, two Ericsson employees and a senior director requested assistance from an EUS specialist in an attempt to repair the damaged equipment.  The specialist informed them that Ericsson could be fined for engaging in such business activities in Sudan.  Despite this, Ericsson’s subsidiary and personnel continued to discuss repairing the damaged equipment, but removed any references to Sudan from the correspondence.  Despite being warned on another occasion by Ericsson’s compliance department that replacing the equipment in Sudan would violate U.S. sanctions, Ericsson personnel continued to plan the replacement of the equipment and also engaged a third party in doing so.  Ultimately, Ericsson personnel decided to solve the issue by purchasing an export-controlled U.S.-origin satellite hub capable of withstanding the heat in Sudan, and then engaged in a multistage transaction involving transshipping the hub through Switzerland and Lebanon en route to its final destination in Sudan.
 
Notably, this enforcement action involved alleged violations that took place as far back as 2012 and earlier, prior to the revocation of certain Sudan sanctions.  While the statute of limitations for violations of U.S. sanctions is generally five years from the offending conduct, Ericsson entered into a tolling agreement with OFAC in order to fully cooperate with the investigation.
 
(2) Epsilon
 
In September 2018, 
Epsilon Electronics Inc. (“Epsilon”) agreed to pay U.S. $1,500,000 to settle liability for alleged violations of OFAC’s Iran sanctions.  OFAC issued Epsilon a penalty notice in 2014, alleging that, from August 2008 to May 2012, Epsilon had committed 39 violations for its sales to a company that Epsilon knew or had reason to know distributed most, if not all, of its products to Iran.
 
The settlement followed a decision by a split panel of the D.C. Circuit Court of Appeals in 2017 to set aside OFAC’s initial $4.07 million penalty.  The case considered OFAC’s prohibition of the transshipment of U.S. goods to Iran through third countries, or the “general inventory rule,” which sets forth a standard of liability based on an exporter’s “knowledge or reason to know” that such goods are ultimately intended specifically for Iran.  The D.C. Court of Appeals upheld OFAC’s determination that an exporter could be liable where substantial evidence supported a conclusion that all of the relevant third-country customer’s sales were to Iran during one set period of time.  However, it also held that OFAC’s determination of a violation was arbitrary and capricious with respect to alleged violations that took place during another period of time because the agency failed to adequately consider all evidence presented by the company regarding sales it reasonably believed to have been made outside of Iran.
 
OFAC considered the following in determining a penalty: (1) the violations constituted a systematic pattern of conduct; (2) Epsilon exported goods valued at U.S. $2,823,000 or more; (3) Epsilon had no compliance program at the time of the violations; (4) Epsilon had not received a penalty notice in the five years preceding the transactions at issue; (5) Epsilon is a small business; and (6) Epsilon provided some cooperation to OFAC in addition to taking independent remedial action.
 
(3) JPMorgan Chase
 
In October 2018, 
JP Morgan Chase Bank, N.A. (“JP Morgan”) agreed to remit U.S. $5,263,171 to OFAC to settle its potential civil liability for apparent violations of U.S. sanctions.  This action demonstrates the culpability that U.S. financial institutions may face for processing transactions involving sanctioned targets-in this case, JP Morgan operated a net settlement mechanism that resolved billings by and among various airlines and airline industry participants, including several parties that were at various times on the SDN List.  Between January 2008 and February 2012, JP Morgan processed 87 transactions with a total value of over U.S. $1 billion, U.S. $1,500,000 (0.15%) of which were attributable to the interests of designated entities.
 
Separately, OFAC issued a Finding of Violation to JP Morgan-with no concomitant penalty-for violations relating to deficiencies in its sanctions screening mechanism.  Between August 2011 and April 2014, the bank’s screening system failed to identify six customers as SDNs, resulting in the processing of 85 transactions totaling $46,127.04 in violation of U.S. sanctions.  JP Morgan’s screening logic capabilities purportedly failed to identify customer names with hyphens, initials, or additional middle or last names as potential matches to similar or identical names on the SDN List.  Despite strong similarities between the accountholder’s names, addresses, and dates of birth in JP Morgan’s account documentation and on the SDN List, JP Morgan maintained accounts for, and/or processed transactions on behalf of, the six customers.
 
Notably, JP Morgan identified weaknesses in the screening tool’s capabilities as early as September 2010 and implemented a series of enhancements during the period 2010 to 2012.  After transitioning to a new screening system in 2013, the bank re-screened 188 million clients’ records through the new system and identified the suspect transactions.  JP Morgan voluntarily self-disclosed the matter to OFAC.
 
(4) Société Générale
 
In November 2018, OFAC joined regulators from the Federal Reserve, DOJ, New York County District Attorney’s Office, U.S. Attorney for the Southern District of New York, and New York State Department of Financial Services (“DFS”) in a combined settlement agreement with 
Société Générale (“SocGen”) for apparent violations of U.S. sanctions, among other matters.  SocGen agreed to pay U.S. $53,966,916 to OFAC as part of a $1.34 billion global settlement agreement.  Unlike in any other major banking case of which we are aware-and in line with the increasing aggressiveness of enforcement that Undersecretary Mandelker would make public a month later-OFAC did not credit the penalties assessed by other regulators or agencies.  The OFAC penalty was to be paid on top of the other penalties assessed.
 
The settlement documents alleged that SocGen processed transactions involving countries and persons subject to U.S. sanctions programs through U.S. financial institutions for five years up to and including 2012.  OFAC alleged that SocGen processed such transactions after removing, omitting, obscuring, or failing to include references to sanctioned parties in the information submitted to U.S. financial institutions and ignored warning signs that its conduct was in violation of U.S. sanctions regulations.
 
In addition to enforcement actions by federal regulators, DFS entered into two consent orders with SocGen and its New York branch under which SocGen will pay fines totaling $420 million for violations under U.S. sanctions programs and New York anti-money laundering laws.
 
The DFS investigation found that from 2003 to 2013 SocGen failed to take sufficient steps to ensure compliance with U.S. sanctions laws and regulations.  Namely, individuals responsible for originating U.S. dollar transactions outside of the United States had a minimal understanding of U.S. sanctions laws as they pertained to Sudan, Iran, Cuba, North Korea, and other sanctions targets.
 
(5) Mashreqbank
 
In addition to the SocGen matter, in October 2018 DFS fined United Arab Emirates-based bank, 
Mashreqbank PSC (“Mashreqbank”) and its New York branch in the amount of U.S. $40 million for deficiencies in its compliance programs, including its compliance policy regarding U.S. sanctions, and for violations to the U.S. Bank Secrecy Act and anti-money laundering (“AML”) laws in its U.S. dollar clearing operations.  Under the consent order announced by DFS and the Federal Reserve Bank of New York, Mashreqbank must immediately hire a third-party compliance consultant to oversee and address deficiencies in the branch’s compliance function, including compliance with AML requirements, federal sanctions laws, and New York law and regulations.  In addition, Mashreqbank must hire a third-party “lookback consultant” to conduct a review of the branch’s transaction clearing activity for April 2016 to September 2016, along with other remedial actions.
 
DFS conducted a safety and soundness examination of the New York branch’s operations in 2016, finding that the branch had been unable to meet its compliance commitments.  DFS identified defects in the bank’s OFAC compliance program and found that its OFAC policies lacked detail, nuance or complexity.  The examination also found that each transaction monitoring alert would be reviewed only once by a single reviewer, who would then determine whether the alert should be closed or escalated, but without adequate quality assurance reviews.  The branch’s OFAC program also suffered from certain deficiencies in important aspects of its recordkeeping.  Specifically, Mashreqbank maintained inadequate documentation concerning its dispositions of OFAC alerts and cases, with branch compliance staff failing to properly record its rationales for waiving specific alerts.
 
[Part III will be published in tomorrow’s Daily Bugle.]

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COM_a0317. 
M. Volkov: “Episode 77 – Implementing an Effective Trade Compliance Program”
(Source: 
Volkov Law Group Blog, 17 Feb 2019. Reprinted by permission.) 
 
* Author: Michael Volkov, Esq., Volkov Law Group, 
mvolkov@volkovlaw.com, 240-505-1992. 
 
Companies involved in export and import activities face a variety of risks from sanctions and export controls created by a complex maze of regulations and oversight from the Department of State, Department of Treasury and the Department of Commerce. With the increasing complexity of sanctions regimes, companies have to devote significant attention and resources to implement an effective trade compliance program.
 
In 
this episode, Michael Volkov discusses strategies and requirements for trade compliance programs.

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TEEX/IM TRAINING EVENTS & CONFERENCES

TE_a118. Full Circle Compliance Presents “An Introduction to EU / Dutch Dual-Use and Military Export Controls”, 7 May in Bruchem, the Netherlands
(Source: Full Circle Compliance, events@fullcirclecompliance.eu.)

This 1-day training course is ideally suited for compliance professionals and those in a similar role who aim to gain a better understanding of EU and Dutch export control laws and regulations and industry’s best practices to ensure compliance.
  The course will cover multiple topics relevant for organizations subject to EU and Dutch dual-use and/or military export controls, including: the EU and Dutch regulatory framework; key concepts and definitions; practical tips regarding classification and licensing, and for ensuring a compliant shipment; identifying red flag situations and handling (potential) non-compliance issues; and the latest developments regarding Internal Compliance Program requirements in the EU an the Netherlands.
* Training Event: “An Introduction to EU / Dutch Dual-Use and Military Export Controls”
* Date: Tuesday, 7 May 2019
* Location:  Full Circle Compliance, Landgoed Groenhoven, Dorpsstraat 6, Bruchem, The Netherlands
* Times:
  – Registration and welcome: 9.00 am 
  – Training course hours: 9.30 am – 4.00 pm
* Level: Awareness / Beginner.
* Target Audience: Compliance professionals or those in a similar role in any industry affected by EU/Dutch export controls (e.g., manufacturing, logistics, research & development, aerospace & defense, government, etc.).
* Instructors: Marco F.N. Crombach MSc (Senior Manager) & Vincent J.A. Goossen MA (Program Manager). 
* Information & Registration: visit the 
event page or contact us at
events@fullcirclecompliance or 
31 (0)23 – 844 – 9046. 

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ENEDITOR’S NOTES

EN_a019

Full Circle Compliance Announces New Website!
(Source: Editors, 20 Feb 2019.) 
 
We are pleased to launch our new website!  You can find it here:  http://www.fullcirclecompliance.eu/.  
 
Our new website makes it easier for you to navigate our compliance tools, resources, and other ways Full Circle Compliance (FCC) helps you comply with U.S. and EU trade laws and regulations.  We will continue updating our content with helpful information, articles, news, and company announcements in the News & Updates section.
 
To celebrate our new website, we are offering a 10% discount to new subscribers to Bartlett’s Annotated ITAR (“BITAR”) and Bartlett’s Annotated FTR (“BAFTR”).  To get your discounts, enter the code “website2019” in the discount code block.  Please hurry, because this offer ends 1 March 2019.  (This discount can’t be used in addition to other discounts, including our regular “bulk” and site license discounts or out 50% discounts for government and university employees.)
 
We hope you also like the new website.  For any questions, suggestions, feedback or comments, please e-mail us at: Info@FullCircleCompliance.eu.
 
Thank You!
The FCC Team

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Ansel Adams (Ansel Easton Adams; 20 Feb 1902 – 22 Apr 1984; was an American landscape photographer and environmentalist known for his black-and-white images of the American West.)
  – “A good photograph is knowing where to stand.” 

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EN_a321
. 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: 14 Jan 2019: 84 FR 112-116: Extension of Import Restrictions Imposed on Certain Archaeological and Ecclesiastical Ethnological Material from Bulgaria; and 84 FR 107-112: Extension of Import Restrictions Imposed on Certain Archaeological Material From China 
 

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 2019: 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: 
12 Feb 2019: 
Harmonized System Update 1901
 [contains 397 ABI records and 89 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_a0322
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.


* SUBSCRIPTIONS: Subscriptions are free.  Subscribe by completing the request form on the Full Circle Compliance website

* BACK ISSUES: An archive of Daily Bugle publications from 2005 to present is available HERE.

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