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19-0221 Thursday “Daily Bugle'”

19-0221 Thursday “Daily Bugle”

Thursday, 21 February 2019

  1. Justice/ATF Seeks Comments on Information Collection, Manufacturers of Ammunition, Records and Supporting Data of Ammunition Manufactured and Disposed of
  1. Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.)
  3. State/DDTC: (No new postings.)
  4. Treasury/OFAC Posts Settlement with ZAG IP, LLC for Five Apparent Iranian Sanctions Violations
  5. Singapore Customs Updates of Interest
  1. Deutsche Welle: “UK: Germany’s Saudi Arms Export Ban Jeopardizes European Defense”
  2. ST&R Trade Report: “GSP for India in Danger as Trade Irritants Fester”
  1. B.B. Goodsell: “So You Violated Sanctions, Now What? OFAC Offers a Tutorial on Remediating Violations”
  2. J. Alison Lee, A. Smith, P. Doris: “2018 Year-End Sanctions Update: European Union Developments and Enforcement (Part III of IV)”
  3. M. Mancuso, S. Mullick & A. Rapa: “Insight: Economic Sanctions and Export Controls Review Q4 2018”
  1. ECTI Presents “United States Export Control (ITAR/EAR/OFAC)” Seminar in London on 29 Apr-2 May
  1. Bartlett’s Unfamiliar Quotations 
  2. 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) 
  3. Weekly Highlights of the Daily Bugle Top Stories 

EXIMITEMS FROM TODAY’S FEDERAL REGISTER

(Source:
Federal Register, 21 Feb 2019.) [Excepts.]
 
83 FR 5466: Agency Information Collection Activities; Proposed eCollection eComments Requested; Revision of a Currently Approved Collection; Manufacturers of Ammunition, Records and Supporting Data of Ammunition Manufactured and Disposed of
* AGENCY: Bureau of Alcohol, Tobacco, Firearms and Explosives, Department of Justice
* ACTION: 60-Day notice. …
* DATES: Comments are encouraged and will be accepted for 60 days until April 22, 2019.
* FOR FURTHER INFORMATION CONTACT: If you have additional comments, regarding the estimated public burden or associated response time, suggestions, or need a copy of the proposed information collection instrument with instructions, or additional information, please contact: Jason Gluck, ATF Firearms Industry Programs Branch, either by mail at 99 New York Ave. NE, Washington, DC 20226, by email at Fipb-informationcollection@atf.gov, or by telephone at 202-648-7190.
* SUPPLEMENTARY INFORMATION: …
  – The Title of the Form/Collection: Manufacturers of Ammunition,
Records and Supporting Data of Ammunition Manufactured and Disposed of.
  – Form number (if applicable): None.
  – Component: Bureau of Alcohol, Tobacco, Firearms and Explosives,
U.S. Department of Justice.
  – Abstract: The manufacturer’s records are used by ATF in criminal investigations and compliance inspections, to fulfill the Bureau’s mission to enforce the Gun Control Law. …
  If additional information is required contact: Melody Braswell, Department Clearance Officer, United States Department of Justice, Justice Management Division, Policy and Planning Staff, Two Constitution Square, 145 N Street NE, 3E.405A, Washington, DC 20530.
 
   Dated: February 15, 2019.
Melody Braswell, Department Clearance Officer for PRA, U.S. Department of Justice.
* * * * * * * * * * * * * * * * * * * *

OGSOTHER GOVERNMENT SOURCES

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

 
* State; NOTICES; Agency Information Collection Activities; Proposals, Submissions, and Approvals: United States Munitions List, Categories I, II and III; Correction [Publication Date: 22 February 2019.]  

* * * * * * * * * * * * * * * * * * * *

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

(Source: 
Commerce/BIS)

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(Source:
Treasury/OFAC, 21 Feb 2019.)    
 
Today OFAC announced a $506,250 settlement with ZAG IP, LLC (formerly known as ZAG International, LLC) (“ZAG”), a U.S. company with its business address in Newtown, Connecticut, for five apparent violations of § 560.206 of the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (ITSR). Specifically, between on or about July 11, 2014 and on or about January 15, 2015, through five separate transactions, ZAG purchased a total of 263,563 metric tons of Iranian-origin clinker from a company located in the United Arab Emirates, with knowledge that the cement clinker was sourced from Iran, and then resold and transported it to a company in Tanzania. OFAC determined that ZAG voluntarily self-disclosed the apparent violations to OFAC, and that the apparent violations constitute a non-egregious case.
 
For more information on this action, please visit the following web notice.
 

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Singapore Customs has released the following updates on its website:

Circulars
* Circular No: 03/2019: Notification of Tariff Changes
 
Notices
* Notice No: 01/2019: TradeNet Extended Downtime

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NWSNEWS

NWS_a17. Deutsche Welle: “UK: Germany’s Saudi Arms Export Ban Jeopardizes European Defense”
(Source: Deutsche Welle, 20 Feb 2019.) [Excerpts.]
 
Germany manufactures key components of European defense projects, amplifying the effect of its export bans. Britain’s foreign minister has warned that the Saudi arms export ban damages common European defense policy.
 
Britain has warned Germany that an arms sales ban on Saudi Arabia undermines common European defense projects and the ability of NATO allies to fulfill commitments, German magazine Der Spiegel reported.
 
Germany decided in November to stop arms exports to Saudi Arabia  – one of the world’s largest weapons markets – after the assassination of Saudi journalist Jamal Khashoggi at the kingdom’s consulate in Istanbul.
 
The move came after Berlin had already put restrictions on future arms deals with Saudi Arabia due to the country’s involvement in the war in Yemen. The arms sales restrictions do not impact previously approved deals, but the government has urged the industry to refrain from shipments for now. …
 
Chancellor Angela Merkel indicated that Germany ought to compromise on the issue during her speech at the Munich Security Conference on Saturday, when she said that a common European defense policy would necessarily mean a common arms export policy.
 
In the ensuing Q&A, a French politician’s question drew a suggestion from Merkel that she finds Germany’s arms export controls a hindrance.
 
  “We have, because of our history, very good reasons to have very strict arms export guidelines, but we have just as good reasons in our defense community to stand together in a joint defense policy,” she said. “And if we want … to develop joint fighter planes, joint tanks, then there’s no other way but to move step-by-step towards common export controls guidelines.” …  
 

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NWS_a28. ST&R Trade Report: “GSP for India in Danger as Trade Irritants Fester”
 
A growing list of trade irritants has stalled U.S.-India trade talks and could prompt the White House to narrow or suspend India’s eligibility for duty-free exports to the U.S., according to press reports.
 
The Office of the U.S. Trade Representative is nearing the completion of a review of India’s eligibility for the Generalized System of Preferences, which reduces or suspends tariffs on thousands of goods imported from developing countries. Indian exports to the U.S. of about 2,000 different products with a value of about $5.6 billion currently qualify for duty-free treatment under GSP.
 
Press reports indicate that there is growing speculation that USTR could call for a change to India’s GSP benefits as part of an effort to convince New Delhi to reverse course on a number of trade issues. These include tougher rules on e-commerce marketplaces, efforts to force foreign companies to store data in India, and higher import tariffs on electronic products in apparent violation of India’s commitments under the World Trade Organization’s Information Technology Agreement. Most recently, the U.S. joined Canada in asserting that India has exceeded WTO-allowable subsidies for producers of chickpeas, pigeon peas, black matpe, mung beans, and lentils.
 
However, India has concerns of its own. Officials have expressed opposition to U.S. national security-related tariff increases on steel and aluminum and threatened to impose retaliatory duties on $240 million worth of U.S. exports, though they have delayed such action several times. Other problematic issues include tighter U.S. rules for granting visas to foreign workers and a U.S. proposal that would make it harder for India, China, and others to classify themselves as developing countries and thus obtain more flexible terms in WTO agreements.
 
The two sides had reportedly been working on a bilateral agreement to resolve these issues, but The Washington Post reports that talks have stalled because with key elections on the horizon “neither country is in the mood to compromise.”
 
In the meantime, Secretary of Commerce Wilbur Ross is seeking help from the business community, calling on attendees at a recent meeting of the U.S.-India CEO Forum to address India’s “new barriers to American business … with the goal of expanding our bilateral trade and investment ties.” Ross also urged the Indian government to “work with us to achieve reciprocity in trade, and to develop an equitable and level playing field for all businesses.”
 

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COMMCOMMENTARY

 
* Author: Blake B. Goodsell, Esq.,
bgoodsell@bradley.com
. Bradley Arant Boult Cummings LLP.
 
Two recent civil penalty actions by OFAC supply guidance for how entities should address sanctions violations after they are discovered.
 
In the first case, Kollmorgen Corporation settled civil liability for violations of Iranian sanctions for a mere $13,381. For perspective, the maximum statutory civil monetary penalty available for the violations was $1,500,000. So why the leniency from OFAC? The answer is swift and comprehensive remedial action. Specifically, Kollmorgen, an American company, acquired a Turkish company, Elsim. After the acquisition, Kollmorgen discovered that Elsim made sales to customers in Iran and continued to service the contracts on at least six different occasions. To make matters worse, Elsim employees actively concealed the Iranian transactions from Kollmorgen’s management. Elsim also falsified records to conceal the
transactions.
 
Having uncovered the violations through a robust due diligence program, Kollmorgen took swift, strong, and effective remedial steps that fall into four broad categories:
 
  – Review
 – Kollmorgen’s due diligence program detected the violations (notwithstanding Elsim’s active suppression) in the first place. Then, having discovered the violations, Elsim implemented manual reviews of Elsim’s database to detect any other violations. Kollmorgen also implemented an ethics hotline for reporting future violations.
  – Control
 – In addition to firing the offending manager, Kollmorgen also required Elsim’s senior management to certify on a quarterly basis that no Elsim services or products were provided to Iran. Kollmorgen also hired outside counsel to investigate the matter.
  – Education
 – Kollmorgen conducted written and in-person training for Elsim employee’s on Kollmorgen’s trade compliance policies.
  – Blocking
 – Kollmorgen took steps to block the Iranian customers from future orders.
 
Contrast the Kollmorgen case against a $5,512,564 penalty against AppliChem, a German company acquired by Illinois Tool Works, Inc. There, AppliChem behaved in a similar manner to Elsim in that it actively masked blocked transactions, this time with Cuba, through an intermediary company. Although Illinois Tool Works self-reported, its response lacked the same sort of extensive preventative and remedial steps taken by Kollmorgen. AppliChem apparently lacked the robust due diligence program of Kollmorgen because it missed several red flags indicating that blocked transactions were ongoing. AppliChem also apparently failed to implement the same sort of strong remedial programs exemplified by Kollmorgen’s response. OFAC’s opinion of the two responses is exhibited by the divergence in the two penalties-AppliChem’s penalty represents 27% of the maximum civil penalty versus the penalty against Kollmorgen, which represents less than 1% of the possible penalty.
 
The message is clear-organizations that act proactively, swiftly, and decisively in response to discovery of likely sanctions will be granted greater lenience than those organizations that do not.

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(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 II was published in yesterday’s Daily Bugle.]
 
(III) EUROPEAN UNION DEVELOPMENTS AND ENFORCEMENT
 
In 2018, the European Union (“EU”) broadly stayed the course it set in 2017 and modestly extended the scope of its sanctions programs on Iran and Russia.  Additional sanctions were adopted, namely with respect to Venezuela and Mali.
 
The most significant sanctions-related development this year at the EU level has been that, following the unilateral withdrawal of the United States from the JCPOA, the so-called “EU Blocking Statute” was expanded, prohibiting EU nationals from complying with requirements or prohibitions contained in those sanctions or applied by means of rulings under those sanctions.  While there has not been enforcement action to date, the first lawsuits and judgments making reference to the EU Blocking Statute have begun to emerge.  This divergence between U.S. and EU policy on Iran sanctions has caused and is likely to cause in the future significant compliance hurdles for multinational companies.
 
(A) Legislative Developments
 
 (1) Iran
 
In response to the U.S. decision to abandon the JCPOA, on August 6, 2018 the European Union enacted Commission Delegated Regulation (EU) 2018/1100 (the “Re-imposed Iran Sanctions Blocking Regulation”), which amended the EU Blocking Statute.  The EU Blocking Statute is a 1996 European Commission Regulation (EC) No 2271/96 that was designed as a countermeasure to what the EU considers to be the unlawful effects of third-country (primarily U.S.) extra-territorial sanctions on “EU operators.”  The combined effect of the EU Blocking Statute and the Re-imposed Iran Sanctions Blocking Regulation is to prohibit compliance by EU entities with U.S. sanctions which have been re-imposed following the U.S. withdrawal from the JCPOA.
 
The EU Blocking Statute applies to a wide range of actors including:
 

  – any natural person being a resident in the EU and a national of an EU Member State;

  – any legal person incorporated within the EU;

  – any national of an EU Member State established outside the EU and any shipping company established outside the EU and controlled by nationals of an EU Member State, if their vessels are registered in that EU Member State in accordance with its legislation;

  – any other natural person being a resident in the EU, unless that person is in the country of which he or she is a national; and

  – any other natural person within the EU, including its territorial waters and air space and in any aircraft or on any vessel under the jurisdiction or control of an EU Member State, acting in a professional capacity.

 
Accompanying the Blocking Statute, the EU issued a Guidance Note: Questions and Answers: adoption of update of the Blocking Statute, which notes that subsidiaries of U.S. companies formed in accordance with the law of an EU Member State and having their registered office, central administration or principal place of business within the EU are subject to the EU Blocking Statute; although mere branch offices of U.S. companies, without separate legal personality, are not.
 
The EU Blocking Statute requires (Article 2) parties to which it applies whose economic and/or financial interests are affected, directly or indirectly, by certain extra-territorial U.S. sanctions laws (including those re-imposed in 2018) or by actions based thereon or resulting therefrom, to inform the European Commission accordingly within 30 days from the date on which it obtained such information.  With respect to companies, this obligation applies to the directors, managers and other persons with management responsibilities.  We refer to this as the “Notification Obligation.”
 
The EU Blocking Statute also prohibits (Article 5) EU operators from complying, whether directly or through a subsidiary or intermediary, and whether actively or by omission, with any prohibition or requirement contained in a set of specific extra-territorial laws or any decisions, rulings, or awards based on those laws.  However, the EU Blocking Statute does also provide for authorization to engage in such activities.
The U.S. sanctions laws to which the EU Blocking Statute applies are explicitly listed, and include six U.S. sanctions laws and one set of U.S. regulations (OFAC’s Iranian Transactions and Sanctions Regulations).
 
The Blocking Statute entered into effect on August 7, 2018 and does not allow for any grandfathering of pre-existing contracts or agreements.  The EU Guidance noted above indicates that EU operators are prohibited from even requesting a license from the United States to maintain compliance with U.S. sanctions.  Requesting such permission-without first seeking authorization from the European Commission or a competent authority in a Member State to apply for it-is tantamount to complying with U.S. sanctions.
 
The Blocking Statute also provides that decisions rendered in the United States or elsewhere made due to the extraterritorial measures blocked by the EU Blocking Statute cannot be implemented in the EU.  This means, for instance, that any court decision made in light of the extraterritorial measures cannot be executed in the EU, even under existing mutual recognition agreements.
 
Finally, the EU Blocking Statute allows EU operators to recover damages arising from the application of the extraterritorial measures.  Though it is unspecified how this would work under the various laws of the EU member states, it appears to allow an EU operator suffering damages because of a company’s compliance with the U.S. sanctions to assert monetary damage claims.  For instance, if a European company has a contract to provide certain goods to Iran, non-fulfillment of that contract to comply with U.S. sanctions would be a violation of the Blocking Statute.  However, if some of the European company’s goods are supplied from companies that decided to comply with U.S. sanctions and, therefore, refuse to further supply these goods, this may result in the European company not being able to meets its obligations vis-à-vis its Iranian customer.  In such a case, the Iranian company could sue the European company for breach of contract, and the European operator could in turn sue its supplier for the damages caused due to the supplier’s compliance with the extraterritorial U.S. sanctions.
 
We have described the generally available possible options for affected companies 
here.
 
As an EU Regulation, the EU Blocking Statute is directly applicable in the courts of any Member State without the need for domestic implementing legislation.  However, it is the competent domestic authorities of the EU Member States (not the European Commission) that are responsible for the enforcement of the EU Blocking Statute, including implementation of penalties for possible breaches.  Such penalties are laid down in national legislation and vary by Member State.  Some EU member states have in place, or have introduced, criminal offences applicable to violations of the EU Blocking Statute (notably the UK, Ireland and Germany); others maintain administrative penalties, but not criminal offences (notably Spain and Italy).  Certain member states, notably France and Belgium, appear not to have introduced legislation to implement the EU Blocking Statute.
 
 (2) Russia
 
Since March 2014, the EU has progressively imposed EU Economic and EU Financial Sanctions against Russia.  The EU Russia Sanctions were adopted in response to deliberate destabilization of (particularly Eastern) Ukraine and the annexation of Crimea.
 
EU Russia Economic Sanctions include an arms embargo, an export ban for dual-use goods for military use or military end users in Russia, limited access to EU primary and secondary capital markets for major Russian majority state-owned financial institutions and major Russian energy companies, and limited Russian access to certain sensitive technologies and services that can be used for oil production and exploration.
 
In particular, in broad alignment with U.S. sanctions, EU Russia Economic Sanctions prohibit the sale, supply, transfer, or export of products to any person in Russia for oil and natural gas exploration and production in waters deeper than 150 meters, in the offshore area north of the Arctic Circle and for projects that have the potential to produce oil from resources located in shale formations by way of hydraulic fracturing.  The provision of associated services (such as drilling or well testing) is also prohibited, while authorization must be sought for the provision of technical assistance, brokering services, and financing relating to the above.
 
However, there are certain noteworthy differences in the nuances.  The above-detailed latest round of U.S. Russia Sectoral Sanctions due to CAATSA have created some disparities between the U.S. and the EU regimes.  The EU Russia Economic Sanctions are currently in place until July 31, 2019.  Also, the EU Russia Financial Sanctions were further extended in September 2018 until March 15, 2019.  As of now, 164 people and 44 entities are subject to a respective asset freeze and travel ban.
 
For those subject to EU Financial Sanctions, EU member states may authorize the release of certain frozen funds or economic resources to satisfy the persons and their dependents’ basic needs, for payment of reasonable professional fees, for payment for contracts concluded before the sanction and for claims secured to an arbitral decision rendered prior to the sanction.
 
In a recent development, the EU on January 21, 2018 targeted with EU Financial Sanctions two senior Russian military intelligence officials and two of their officers accused of the poisoning of a former Russian double agent in Britain, Mr. Skripal, and his daughter.
 
The EU still does not recognize the annexation of Crimea and Sevastopol by Russia, and the EU imposed broad sanctions against these territories in 2014.  The EU Crimea Sanctions included an import ban on goods from Crimea and Sevastopol, broad restrictions on trade and investment related to economic sectors and infrastructure projects in Crimea and Sevastapol, an export ban for certain goods and technologies to Crimea and Sevastapol and a prohibition to supply tourism services in Crimea or Sevastopol.  On June 18, 2018, the EU Council extended the EU Crimea Sanctions until June 23, 2019.  These restrictions are similar to those in place in the United States.
 
 (3) Venezuela
 
Following the U.S. lead on Venezuela sanctions, on November 13, 2017, the EU had decided to impose an arms embargo on Venezuela, and also to introduce a legal framework for travel bans and asset freezes against those involved in human rights violations and non-respect for democracy or the rule of law.  Subsequently, on January 22, 2018, the EU published an initial list of seven individuals subject to these sanctions.
On June 25, 2018, the EU added an additional eleven individuals holding official positions to the EU Venezuela Financial Sanctions for human rights violations and for undermining democracy and the rule of law in Venezuela.
 
Though these measures are not yet as severe as U.S. measures on Venezuela-and the EU stated that the sanctions can be reversed if Venezuela makes progress on these issues- the Council was also explicit previously in its warning that the sanctions may be expanded if the situation worsens.
 
On November 11, 2018, the EU Venezuela Sanctions were prolonged until November 14, 2019.
 
 (4) North Korea
 
As noted in last year’s sanction update and above with respect to U.S. measures, the events on the Korean Peninsula in 2017 also gave rise to significant new EU measures against North Korea.  While the first half saw a further increase in EU North Korea Financial and Economic Sanctions, the second half of 2018 eased some of the tension due to, inter alia, high-level meetings between South and North Korean, the United States, and China, without however (yet) changing the EU North Korea Sanctions Framework.
 
On January 8, 2018, the EU Council added 16 persons and one entity to the EU North Korea Financial Sanctions, making them subject to an asset freeze and travel restrictions.  This decision implemented a part of the sanctions imposed by the UN Security Council on December 22, 2017 with resolution 2397 (2017).
 
On January 22, 2018, the EU Council autonomously added 17 citizens of the DPRK to the EU North Korea Financial Sanctions, due to their involvement in illegal trade activities and activities aimed at facilitating the evasion of sanctions imposed by the UN.
 
On February 26, 2018, the EU implemented further UN Security Council resolution 2397 (2017) and accordingly expanded its EU North Korea Economic Sanctions regime and strengthened the export ban on North Korean refined petroleum products by reducing the amount of barrels that North Korea may export from two million barrels to 500,000 barrels per year; banned imports of North Korean food and agricultural products, machinery, electrical equipment, earth, stone, and wood; banned exports to North Korea of all industrial machinery, transportation vehicles as well as iron, steel, and other metals; introduced further sanctions against vessels where there are reasonable grounds to believe that the vessel has been involved in the breach of UN sanctions; and demanded the repatriation of all North Korean workers abroad within 24 months.
 
On April 6, 2018, the EU added one person and 21 entities to the EU North Korea Financial Sanctions, implementing a decision of March 30, 2018 by the UN Security Council Committee.  Also, the EU has implemented the asset freeze targeting 15 vessels, the port entry ban on 25 vessels and the de-flagging of 12 vessels.
 
On April 19, 2018, the EU-in yet another round of autonomous EU North Korea Sanctions-added four persons to the EU North Korean Financial Sanctions.  The four individuals were targeted due to their involvement in financial practices suspected of contributing to the nuclear-related, ballistic-missile-related or other weapons of mass destruction-related programs of North Korean.
 
By the end of 2018, accordingly, 59 individuals and 9 entities were designated autonomous by EU North Korea Financial Sanctions; and in addition, 80 individuals and 75 entities are subject to EU Financial Sanctions due to the implementation of respective sanctions of the UN.
 
 (5) Mali
 
On September 28, 2017, the European Union Council Decision (CFSP) 2017/1775 implemented UN Resolution 2374 (2017), which imposes travel bans and assets freezes on persons who are engaged in activities that threaten Mali’s peace, security, or stability.  Interestingly, the imposition of this regime was requested by the Malian Government, due to repeated ceasefire violations by militias in the north of the country.  Affected persons will be determined by a new Security Council committee, which has been set up to implement and monitor the operation of this new regime, and will be assisted by a panel of five experts appointed for an initial 13-month period.  For a long time no individuals were actually designated.
 
On December 20, 2018, the Security Council Committee added three individuals to its Mali sanctions list: Ahmoudou Ag Asriw, Mahamadou Ag Rhissa, and Mohamed Ousmane Ag Mohamedoune.  Each of them were targeted with a travel ban.
 
On January 10, 2019, the EU implemented these UN listings in respective EU Mali sanctions by Council Implementing Decision (CFSP) 2019/29. As a result of this implementation, the above-mentioned individuals will now be subject to EU-wide travel bans.
 
(B) Judgments
 
 (1) Mamancochet Mining V Aegis
 
On October 12, 2018, the High Court handed down a judgment making reference to the EU Blocking Statute.  The case, which involved a non-U.S. subsidiary of a U.S. insurance entity, could provide importance guidance for U.S. companies and their EU, or at least UK, subsidiaries.
The case arose from a dispute between UK-based insurers that are owned or controlled by U.S. persons and their customer, regarding the scope of contractual provisions excusing the parties from performance if transactions pursuant to the contract created sanctions exposure.  The insured had submitted a claim under its marine insurance contract to recover the cost of goods stolen in Iran.  The insurance underwriters asserted they were not required to pay that Iran-related claim pursuant to a provision in the insurance contract excusing performance if “payment…would expose that insurer to any sanction, prohibition or restriction” under applicable sanctions.
 
The court held that, prior to the revocation of General License H on November 4, payment of a valid claim by the insured did not “expose” the insurers to sanctions because it would not breach applicable sanctions.  While General License H was in effect, non-U.S. subsidiaries of U.S. entities would not be prohibited from engaging in such transactions.  These transactions would have only breached sanctions-and therefore created sanctions exposure-after November 4, when non-U.S. subsidiaries of U.S. persons were no longer generally authorized to engage in transactions involving Iran.  For the UK Commercial Court, conduct creating the risk of sanctions exposure-rather than actual exposure through breach of applicable restrictions-did not excuse the insurers’ performance.  Had the insurers wanted to suspend performance when faced only with risk of sanctions exposure, the court suggests they could have expressly indicated that performance would be excused if “payment…would expose that insurer to any risk of being sanctioned.”
 
The case suggests that insurance providers and brokerages, should be precise and comprehensive when describing the sanctions-related circumstances that trigger suspension or excuse-of-performance clauses and must describe clearly the effect of such provisions when triggered.
These clauses must also clearly describe the effect of their invocation.  In this case, the contract provided that “no (re)insurer shall be liable to pay any claim . . . to the extent that the provision of such . . . claim . . . would expose that (re)insurer” to applicable sanctions.  The court found this provision would only suspended the insurers’ payment obligations, rather than terminate them.  This suggests that, just as insurers should be precise in describing the circumstances that trigger these excuse-of-performance clauses, they must also be precise in describing the effect of those provisions when they are triggered.
 
In this case, the insured also sought to rely upon the EU Blocking Regulation in the event that the insurance underwriters were otherwise entitled to rely upon the sanctions clause to resist payment.   While this issue did not arise for determination, the court noted, rather than held, that considerable force was inherit in the argument that the EU Blocking Regulation is not engaged where the insurer’s liability to pay a claim is suspended under a sanctions clause such as the one in the policy at hand.  In such a case, the court noted, the insurer is not “complying” with a third country’s prohibition but is simply relying upon the terms of the policy to resist payment.
 
 (2) EU Blocking Statute Challenge by Rotenberg
 
In October, Russian oligarch Boris Rotenberg filed a law suit with the Helsinki District Court against Nordea, Danske Bank and Svenska Handelsbanken. Rotenberg claims that the banks refused to provide certain services in order to comply with secondary U.S. sanctions.  The case is pending.
 
(C) Enforcement
 
 (1) France
 
In France, “l’affaire Lafarge” remains the most prominent enforcement action.  In June 2018, the French judiciary initiated a formal investigation to examine whether LafargeHolcim had paid nearly $13 million to the Islamic State to protect one of its cement plants in Syria.  The corporation as a legal entity has been charged by a panel of three French judges appointed by the Paris High Court with violating the European embargo on oil purchases.  In addition, the charges also include financing a terrorist organization, endangering the lives of former employees and complicity in crimes against humanity.
 
 (2) Belgium
 
Belgian authorities started prosecution of three Belgian companies AAE ChemieAnex Customs and Danmar Logistics and two of their managers. Allegedly, the firms exported chemicals used to produce sarin gas to Syria without applying for the necessary export licenses.  Prior to the proceedings, the Belgian Finance Ministry had offered a financial settlement but the companies refused. The trial started in Antwerp in May 2018, a verdict is expected for January 2019.
 
 (3) Germany
 
The German government is facing resistance against its recent decision to halt arms exports to Saudi Arabia.  While not based on EU sanctions, but rather based on a political decision, the result for German defense suppliers remains the same.  German defense suppliers recently announced a plan to sue for damages resulting from the ban of all arms exports to Saudi Arabia.
The ban was established in November 2018 after details about the murder of journalist Jamal Khashoggi surfaced.  The restrictions apply to exports that had previously been approved by the German government.
 
 (4) The United Kingdom
 
There have been a number of enforcement actions in respect of sanctions and export control violations completed in 2018, the two most significant of which are:
 
  (i) terms of imprisonment ranging from six months suspended (on a married couple associated with a small UK company Pairs Aviation) to 2½ years in respect of UK businessman, Alexander George, convicted of exporting certain military aircraft items to Iran, through  companies in a number of jurisdictions, including Malaysia and Dubai; and
  (ii) the imposition by the Financial Conduct Authority in June 2018 of a financial penalty of almost £900,000 (reduced by 30 percent on account of early settlement) on Canara Bank for systems and controls inadequacies relating, inter alia, to sanctions.  This matter related to that institution’s trade finance operations.
 
There were also three prosecutions of UK companies in 2018 in respect of unlicensed exports of military or dual-use goods, including chemicals and metals, with relatively modest fines imposed.
 
[Part IV will be published in tomorrow’s Daily Bugle.]

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(Source:
Bloomberg Law, 15 Feb 2019.) [Excerpts.]
 
* Author: Mario Mancuso, Esq.,
mario.mancuso@kirkland.com; Sanjay Mullick, Esq.,
sanjay.mullick@kirkland.com; and Anthony Rapa, Esq.,
anthony.rapa@kirkland.com. All of Kirkland & Ellis.
 
Several important legislative, regulatory, and enforcement updates took place related to economic sanctions and export controls for the fourth quarter of 2018. These actions, and what they may indicate about trends and takeaways heading into 2019, are discussed below.
 
The View from Washington: Eye on Trends, Compliance Takeaways
 
  – As 2019 unfolds, both U.S. and non-U.S. companies can expect greater scrutiny from the U.S. Department of the Treasury Office of Foreign Assets Control (OFAC) and the U.S. Department of Commerce Bureau of Industry and Security (BIS), including U.S. companies with foreign subsidiaries that may have activities with a sanctioned country nexus and non-U.S. companies that may be sourcing goods from U.S. supply chains.
  – OFAC continues to prioritize safeguarding the U.S. financial system from deceptive practices such as misleading payment instructions, underscoring the importance that all communications with these institutions be accurate, complete, and transparent.
  – BIS is initiating a revamping of hi-tech export controls mandated by Congress, making it important for companies to understand the export control status of their products and technologies before engaging in market opportunities with international customers and co-developing with foreign partners.
  – Effective sanctions compliance programs must address risks that arise not only from dealings with listed parties, but from those subject to sanctions by virtue of their ownership or location in sanctioned geographies.
  – Given successor liability, sanctions and export controls violations and risk factors identified in the course of acquisition due diligence can trigger negotiation between buyer and seller and lead to risk mitigation measures such as voluntary self-disclosures in connection with the transaction. …  
 

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TEEX/IM TRAINING EVENTS & CONFERENCES

TE_a112. ECTI Presents “United States Export Control (ITAR/EAR/OFAC)” Seminar in London on 29 Apr-2 May

(Source: Jill Kincaid, jill@learnexportcompliance.com)
 
* What: United States Export Control (ITAR/EAR/OFAC) Seminar Series in London (for EU, UK and other non-US Companies)
* When: ITAR Seminar: April 29-April 30, 2019; EAR/OFAC Seminar: May 1-2, 2019
* Where: London, Hilton London Olympia, 380 Kensington High Street, London
* Sponsor: Export Compliance Training Institute (ECTI)
* ECTI Speaker Panel: Scott Gearity, Greg Creeser, Marc Binder, Melissa Proctor and Stephan Müller
* Register: Here, or Jessica Lemon, 540-433-3977, jessica@learnexportcompliance.com

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ENEDITOR’S NOTES

* W. H. Auden (Wystan Hugh Auden; 21 Feb 1907 – 29 Sep 1973; was an English-American poet. Auden’s poetry was noted for its stylistic and technical achievement, its engagement with politics, morals, love, and religion, and its variety in tone, form and content.)
  – “You owe it to all of us all get on with what you’re good at.”
  – “In times of joy, all of us wished we possessed a tail we could wag.”
  – “Among those whom I like or admire, I can find no common denominator, but among those whom I love, I can: all of them make me laugh.”
 
* John Henry Newman (21 Feb 1801 – 11 Aug 1890; was a theologian and poet, first an Anglican priest and later a Catholic priest and cardinal, who was an important and controversial figure in the religious history of England in the 19th century.)
  – “Nothing would be done at all if one waited until one could do it so well that no one could find fault with it.”

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EN_a314
. 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_a0315
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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