19-0226 Tuesday “Daily Bugle'”

19-0226 Tuesday “Daily Bugle”

Tuesday, 26 February 2019

  1. DHS/CBP Extends Information Collection Activities Concerning Holders or Containers Which Enter the U.S. Duty Free
  1. Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.)
  3. DHS/CBP Extends “Informed Compliance” Period Until 1 April 2019
  4. DoD/DSCA Policy Memos of Interest: LOA Revised Pricing Guidance, and Cancellation of Temporary NATO+ Status for Jordan
  5. DoD/DSS Publishes Notice Concerning PSI Requirements for Industry Data Collection Through NISS
  6. State/DDTC: (No new postings.)
  7. EU Amends Belarus Sanctions
  8. UK OFSI Imposes Monetary Penalty for Financial Sanctions Breach
  1. Bloomberg: “Shift in Small-Arms Export Approvals Opposed by a Top Democrat”
  2. Defense News: “European Dispute Over Arms Exports Tests Germany’s Stance Of ‘Nein!'”
  3. Expeditors News: “HMRC Announce Measures to Phase in the Requirement for Pre-arrival Entry Summary Declarations for Goods Exported from the EU Post-Brexit”
  4. Reuters: “Dutch Seize 90,000 Vodka Bottles Thought Bound for North Korea”
  5. Reuters: “Exclusive: HSBC Probe Helped Lead to U.S. Charges Against Huawei CFO”
  6. ST&R Trade Report: “China Tariff Increase to be Postponed Again”
  7. The Washington Times: “Lawmakers Seek ‘Urgent Briefing’ on U.S. Arms in Hands Of Al Qaeda”
  1. The Export Compliance Journal: “Working Next Door to Sanctions? You Don’t Need to Go Cold ‘Turkey'”
  2. J. Paner: “How Companies Should Address Increasingly Aggressive OFAC Sanctions Enforcement”
  3. R. Bickerstaff: “Post-Brexit Software Exports between the EU and the UK”
  1. FCC Presents “An Introduction to EU / Dutch Dual-Use and Military Export Controls”, 7 May in Bruchem, the Netherlands
  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 


DHS/CBP Extends Information Collection Activities Concerning Holders or Containers Which Enter the U.S. Duty Free

Federal Register, 26 Feb 2019.) [Excerpts.] 
84 FR 6156-6157: Agency Information Collection Activities: Holders or Containers Which Enter the United States Duty Free
* AGENCY: U.S. Customs and Border Protection (CBP), Department of Homeland Security.
* ACTION: 60-Day notice and request for comments; extension of an existing collection of information.
* SUMMARY: The Department of Homeland Security, U.S. Customs and Border Protection will be submitting the following information collection request to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995 (PRA). The information collection is published in the Federal Register to obtain comments from the public and affected agencies.
* DATES: Comments are encouraged and must be submitted (no later than April 29, 2019) to be assured of consideration.
* ADDRESSES: Written comments and/or suggestions regarding the item(s) contained in this notice must include the OMB Control Number 1651-0035 in the subject line and the agency name. To avoid duplicate submissions, please use only one of the following methods to submit comments:
  (1) Email. Submit comments to: 
  (2) Mail. Submit written comments to CBP Paperwork Reduction Act Officer, U.S. Customs and Border Protection, Office of Trade, Regulations and Rulings, Economic Impact Analysis Branch, 90 K Street NE, 10th Floor, Washington, DC 20229-1177.
* FOR FURTHER INFORMATION CONTACT: Requests for additional PRA information should be directed to Seth Renkema, Chief, Economic Impact Analysis Branch, U.S. Customs and Border Protection, Office of Trade, Regulations and Rulings, 90 K Street NE, 10th Floor, Washington, DC 20229-1177, Telephone number (202) 325-0056 or via email 
CBP_PRA@cbp.dhs.gov. Please note that the contact information provided here is solely for questions regarding this notice. Individuals seeking information about other CBP programs should contact the CBP National Customer Service Center at 877-227-5511, (TTY) 1-800-877-8339, or CBP website…
Overview of This Information Collection
  – Title: Holders or Containers Which Enter the United States Duty Free.
  – OMB Number: 1651-0035.
  – Current Action: CBP proposes to extend the expiration date of this information collection with no change to the burden hours or to the information collected.
  – Type of Review: Extension (with no change).
  – Affected Public: Businesses.
  – Abstract: Items 9801.00.10 and 9803.00.50 under the Harmonized Tariff Schedules of the United States (HTSUS), codified as 
19 U.S.C. 1202, provides for the duty-free entry of substantial holders or containers of foreign manufacture if duty had been paid upon a previous importation pursuant to the provisions of 
19 CFR 10.41b.
19 CFR 10.41b provides that substantial holders or containers are to have prescribed markings in clear and conspicuous letters of such a size that they will be easily discernable. Section 10.41b of the CBP regulations eliminates the need for an importer to file entry documents by instead requiring the marking of the containers or holders to indicate the HTSUS numbers that provide for duty free treatment of the containers or holders.
In order to comply with 
19 CFR 10.41b in the case of serially numbered holders or containers of United States manufacture for which free clearance under 9801.00.10 HTSUS is claimed, the owner of the holder or container is required to place the markings on a metal tag or plate containing the following information: 9801.00.10, HTSUS; the name of the owner; and the serial number assigned by the owner. In the case of serially numbered holders or containers of foreign manufacture for which free clearance under 9803.00.50 HTSUS is claimed, the owner must place markings containing the following information: 9803.00.50 HTSUS; the port code numbers of the port of entry; the entry number; the last two digits of the fiscal year of entry covering the importation of the holders and containers on which duty was paid; the name of the owner; and the serial number assigned by the owner.
  Dated: February 20, 2019.
Seth D. Renkema, Branch Chief, Economic Impact Analysis Branch, U.S. Customs and Border Protection.

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


* Treasury; Notices; Agency Information Collection Activities; Proposals, Submissions, and Approvals: Iranian Financial Sanctions Regulations Report on Closure by U.S. Financial Institutions of Correspondent Accounts and Payable-Through Accounts [Pub. Date: 27 Feb 2019.] 

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Commerce/BIS: (No new postings.)


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CSMS# 19-000085, 25 Feb 2019.) 

This CSMS updates CSMS # 18-000744, 583 and 531 (Information about NMFS SIM program updates)

This notice informs importers and filers that the “informed compliance” period has been extended until April 1, 2019. Entry filings for products using HTS codes identified in the link below will be required to submit SIM data on April 1, 2019. This list has recently been updated to incorporate revisions and additional HTS codes within the scope of SIM. NMFS has determined that this change and extension of the informed compliance period is appropriate to provide opportunity for more engagement with brokers and importers as a result of limitations to NMFS to conduct outreach in early 2019.

  The previously published rule mandating the addition of shrimp and abalone to the NMFS Seafood Import Monitoring (SIM) Program was effective as of December 31, 2018. As a result NMFS SIM data must now be provided with filings for certain Harmonized Tariff Schedule (HTS) codes for shrimp and abalone. In the interest of ensuring that filers importing shrimp and abalone to the United States are fully prepared to submit the required SIM data, NMFS notified filers via the CSMS system that they could begin to voluntarily file SIM data for shrimp and abalone earlier this fall (see CSMS # 18-000583).  

  NMFS through collaboration with CBP, implemented a period of “informed compliance” for submission of SIM data for shrimp and abalone, starting December 31, 2018 through March 1, 2019 (see CSMS # 18-000744) and is now extending this period to April 1, 2019.  

  The Harmonized Tariff Schedule (HTS) codes applicable to this mandate to file NMFS SIM program data will be updated with an NM8 flag for SIM. The list of 3 alpha codes will also be updated. These updates will be in CERT beginning February 26, 2019 and are expected to be completed by March 1, 2019. The updates will be in PROD beginning April 2, 2019 and will be completed no later than April 5, 2019.

  The list of HTS codes that will be flagged for shrimp and abalone and other SIM requirements can be found at the following web site: NMFS SIMP Web site: 

  Requests for technical assistance can be directed to Dale Jones, 
Dale.Jones@noaa.gov and 
SIMPsupport@noaa.gov, or to the SIMP Support Line: 833-440-6599 (toll free)

  Other questions or feedback regarding SIMP implementation can be directed to Celeste Leroux, 

NOTE: Trade should not expect any additional CSMS reminders on this topic.

  – Related CSMS No. 18-000744, 18-000583, 18-000531

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DoD/DSCA Policy Memos of Interest: LOA Revised Pricing Guidance, and Cancellation of Temporary NATO+ Status for Jordan

DoD/DSCA, 26 Feb 2019.) 
* DSCA Policy Memo 19-06 
Letter of Offer and Acceptance (LOA) Revised Pricing Guidance has been posted.
  This memo revises pricing guidance to enable time savings in the LOA document generation, review, and issuance process. This policy memo updates 
Section C5.4.13.2. of the SAMM.
  The United States-Jordan Defense Cooperation Act of 2015, Public Law (P.L.) 114-124, which became effective on February 18, 2016, required that during a three-year period beginning from the date of enactment, Jordan would be treated as if it were included with the NATO+ five countries with regard to a variety of requirements of the AECA. This authority expired February 18, 2019 and no longer applies unless renewed by the U.S. Congress.

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DoD/DSS Publishes Notice Concerning PSI Requirements for Industry Data Collection Through NISS

DoD/DSS, 26 Feb 2019.) 
The Defense Security Service (DSS) is responsible for projecting Personnel Security Investigations (PSI) requirements each year. The data collection for PSI projection requirements will be conducted March 11 through April 3, 2019, through the National Industrial Security System (NISS) Submission Site. Annual projections acquired from Industry through this collection are the key component in DoD program planning and budgeting for NISP security clearances.
In preparation for this upcoming data collection, our Industry partners are highly encouraged to register for their NISS accounts before March 11, in order to participate in the survey. Registration instructions are found on the NISS website under the Registration section (
We look forward to your participation. If you have any questions, please contact: 

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State/DDTC: (No new postings.)


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EU Amends Belarus Sanctions 

Official Journal of the European Union, 26 Feb 2019.)

Council Decision (CFSP) 2019/325 of 25 February 2019 amending Decision 2012/642/CFSP concerning restrictive measures against Belarus

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UK OFSI Imposes Monetary Penalty for Financial Sanctions Breach

UK OFSI, 21 Feb 2019.) 
The UK Office of Financial Sanctions Implementation (OFSI) has published the below 
report of penalty for breach of financial sanctions on its website:
Imposition of Monetary Penalty – Raphaels Bank 
Penalty imposed on: R. Raphael & Sons plc trading as Raphaels Bank (Raphaels Bank) 
On Monday, 21 January 2019 the Office of Financial Sanctions Implementation (OFSI), part of HM Treasury, issued a monetary penalty of £5,000.00 in accordance with s146 of the Policing and Crime Act 2017 against Raphaels Bank for a contravention of regulation 3 of the Egypt (Asset-Freezing) Regulations 2011 (S.I. 2011/887). 
  The value of the transaction was £200.00. Raphaels Bank dealt with funds belonging to a person designated under the above regime. 
  Raphaels Bank made a disclosure to OFSI when they became aware that a breach of financial sanctions had taken place. 
  OFSI reduced the penalty by 50% from £10,000.00 following our published guidance on case assessment, in consideration of Raphaels Banks’ disclosure and cooperation. 
  OFSI imposed the monetary penalty because it was satisfied, on the balance of probabilities, that Raphaels Bank breached a prohibition that is imposed by or under financial sanctions legislation, and knew, or had reasonable cause to suspect, that they were in breach of the prohibition. 
  Enquiries remain ongoing into other aspects of this breach which do not concern Raphaels Bank. A fuller summary of this breach may be published following the conclusion of these enquiries. 

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Bloomberg: “Shift in Small-Arms Export Approvals Opposed by a Top Democrat”

Bloomberg, 26 Feb 2019.) [Excerpts.] 
The top Democrat on the Senate Foreign Relations Committee says he’s intent on blocking the State Department from shifting regulation to the Commerce Department for exports of military-style firearms including certain pistols, semi-automatic rifles, and related ammunition.
Senator Robert Menendez said in letters to Secretary of State Michael Pompeo and Commerce Secretary Wilbur Ross that he’s placing a hold on the move under a provision in the Arms Export Control Act until his concerns are addressed.

Menendez said “combat rifles, including those commonly known as ‘sniper rifles,'” shouldn’t be removed from the State Department’s munitions list. He added that “firearms and ammunition — especially those derived from military models and widely used by military services — are uniquely dangerous.” … 

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Defense News: “European Dispute Over Arms Exports Tests Germany’s Stance Of ‘Nein!'”

Defense News, 25 Feb 2019.) 
A diplomatic kerfuffle with France and the United Kingdom over exports of jointly developed weapons is forcing Germany to rethink its restrictive stance.
A draft memorandum between Paris and Berlin, which started making the rounds in German defense policy circles last week, is poised to become a key vehicle toward that end. Initially described in media reports as a near-complete concession to France’s export-oriented defense industry, the document’s finer points – and shortcomings, depending on who is asked – are beginning to come into focus.
The short text will become an annex to the so-called Aachen Treaty, signed in January by French President Emmanuel Macron and German Chancellor Angela Merkel. German government officials stress that negotiations over details are ongoing, but the broader objectives are these: For one, the two countries put in place a policy for their two major joint programs, a new tank and a new fighter aircraft, that leans toward export approvals by each partner, while recognizing a veto option only when one party’s “direct interests or national security are compromised.”
In addition, it sets up a new rule that takes effect when one country’s vendors have contributed only a relatively small share in a larger weapon program. In that situation, the respective government effectively forfeits its right to block the overall system’s export.
Such has been the case with German components in the Meteor missile, for example, which France and others are reportedly blocked from transferring to Saudi Arabia.
Berlin placed an export embargo on Saudi Arabia last fall, after the death of Jamal Khashoggi, a journalist and known critic of the regime. It’s alleged the crown prince of Saudi Arabia was involved in Khoshoggi’s death. The embargo came on top of Germany’s reluctance to transfer arms to any party involved in the Yemen war, a key pledge holding together the governing coalition of the Christian Democratic Union and the Social Democrats here.
The British, meanwhile, have demanded Germany exempt multinational programs like the Eurofighter from the blockade. “I am very concerned about the impact of the German government’s decision on the British and European defense industry and the consequences for Europe’s ability to fulfill its NATO commitments,” British Foreign Secretary Jeremy Hunt wrote to his German counterpart Heiko Maas earlier this month, according to a letter first reported by Der Spiegel.
Maas rebuffed his colleague last week, however, saying at a joint news conference that his government would uphold the embargo, contingent on the progress of Yemen peace talks.
Saudi Arabia had the world’s third-largest defense budget in 2018, at $83 billion, following only top spenders the United States and China, according to a report released earlier this month by the London-based International Institute for Strategic Studies.
Social Democrats on Monday announced they would push to extend the arms embargo for Saudi Arabia, which also affects licenses already granted by the government. “We will push for an extension of the moratorium past March 9 because the reasons for instituting it have not changed,” the Social Democratic party’s deputy Rolf Mützenich wrote in the party newspaper Vorwärts.
In addition, he argued, that fact that Germany’s European allies have less restrictive export guidelines should not be taken as a forcing function for the government here to strive for the same.
The stance has alarmed some industry executives, with Airbus CEO Tom Enders telling Reuters on Monday that the Social Democrats’ “view on foreign and security policy is totally inconsistent, torpedoes Franco-German defense cooperation and isolates Germany in Europe.”
Matthias Wachter, a defense analyst with the German industry association BDI, told Defense News the German government’s handling of the situation “leaves everyone unsatisfied,” even if companies are sympathetic to human rights concerns.
That could be because Berlin has asked vendors to hold back on executing their approved export licenses, as opposed to declaring them invalid. All affected companies have complied so far, but as a result, they have little legal standing to claim compensation for damages, Wachter said.
Wachter argued the emerging Franco-German agreement does little to provide clarity on the thorny subject. “It’s a very weak document because it leaves a lot of room for interpretation,” he said.

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Expeditors News: “HMRC Announce Measures to Phase in the Requirement for Pre-arrival Entry Summary Declarations for Goods Exported from the EU Post-Brexit” 

Expeditors News, 25 Feb 2019.) 
On February 19, 2019, the United Kingdom’s (UK’s) HM Revenue & Customs (HMRC) published a notification indicating they will phase in the requirement for carriers to file pre-arrival entry summary declarations (ENS declarations) for six months. According to a HMRC announcement, the phase in will allow carriers the opportunity to prepare in the event of the UK leaving the European Union (EU) without an agreed Withdrawal Agreement on March 29, 2019.
This measure will not apply to imports from third-party countries. The status quo regarding the requirement to file the pre-arrival entry summary declaration for these imports will remain unchanged.
The EU Commission has not provided any indication as to whether or not they are considering a reciprocal arrangement for shipments arriving from the UK after March 29, 2019.
The HMRC notice may be found 

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Reuters: “Dutch Seize 90,000 Vodka Bottles Thought Bound for North Korea”

Reuters, 26 Feb 2019.)        
Dutch authorities on Tuesday said they had confiscated some 90,000 bottles of Russian vodka believed to be destined for North Korea in violation of international sanctions.
The container holding 3,000 boxes with 30 bottles each was taken in the port of Rotterdam from a Chinese-owned ship traveling from Hamburg to China, officials said.
They suspected its final destination was North Korea – where international sanctions are in place against the government of Kim Jong Un – but provided no proof.
  “The United Nations’ Security Council has issued clear sanctions against North Korea and it’s important that these are implemented,” International Trade Minister Sigrid Kaag told local media.
  “The sanctions include the import of luxury goods, so it’s entirely justified that this container was taken off the ship.”
It was unclear whether the Dutch had reported the shipment to the U.N. sanctions committee.

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Reuters: “Exclusive: HSBC Probe Helped Lead to U.S. Charges Against Huawei CFO”

Reuters, 26 Feb 2019.) [Excerpts.] 
An internal investigation by HSBC Holdings PLC into Huawei Technologies’ connections to a suspected front company in Iran found that the Chinese telecommunications equipment maker maintained close financial ties to the firm years after purportedly selling the unit, documents reviewed by Reuters show.
The HSBC probe of Huawei came in late 2016 and 2017 as the bank was trying to get the U.S. Department of Justice (DOJ) to dismiss criminal charges for the bank’s own misconduct involving U.S. sanctions.
The bank’s findings, which have not been made public, were given in a series of presentations in 2017 to the DOJ. The department used them to help bring its current criminal case against Huawei’s chief financial officer, Meng Wanzhou. 
She is accused of conspiring to defraud HSBC and other banks by misrepresenting Huawei’s relationship with the suspected front company, Skycom Tech Co Ltd. Huawei has said Skycom was a local business partner in Iran, while the United States maintains it was an unofficial subsidiary used to conceal Huawei’s Iran business. Huawei and Skycom are also defendants in the U.S. case, accused of bank and wire fraud, as well as violating U.S. sanctions on Iran. … 

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ST&R Trade Report: “China Tariff Increase to be Postponed Again” 

Sandler, Travis & Rosenberg Trade Report, 26 Feb 2019.)
President Trump said Feb. 24 that he will postpone the scheduled March 2 increase in tariffs on $200 billion worth of imports from China in light of what he called “substantial progress … on important structural issues” in bilateral trade talks. Once this change is formalized, the Section 301 additional tariff on the so-called List 3 products will remain at ten percent for the foreseeable future, as no other deadline for increasing the tariff to 25 percent has yet been announced.
Press sources report that during talks in Washington last week the two sides began outlining the commitments to be included in a final agreement on issues such as forced technology transfer, intellectual property rights, currency, and agriculture. Trump said that if the two sides continue making progress he could meet with Chinese President Xi Jinping in March to resolve remaining issues.
In the meantime, the Office of the U.S. Trade Representative has been directed to report to Congress by March 17 on the establishment of a process for requesting exclusions from the existing ten percent tariff on these goods. 
Click here to read more about this issue and what your company should do in response.

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The Washington Times: “Lawmakers Seek ‘Urgent Briefing’ on U.S. Arms in Hands Of Al Qaeda”

The Washington Times, 26 Feb 2019.) [Excerpts.] 
A bipartisan group of lawmakers is demanding answers from the Trump administration about reports that Saudi Arabia and the United Arab Emirates may have transferred American-made weapons to al Qaeda-linked extremist groups in Yemen.
Led by House Foreign Affairs Committee Chairman Eliot Engel, New York Democrat, the lawmakers called on Secretary of State Mike Pompeo and acting Defense Secretary Patrick Shanahan to hold an “urgent briefing” on details of the suspected arms transfer, first reported by CNN.
  “These unauthorized transfers of U.S. equipment and weapons by the Saudi and UAE governments represent a clear national security risk to the U.S. and our interests and a serious violation of existing bilateral agreements pursuant to the Arms Export Control Act,” the lawmakers wrote. … 

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The Export Compliance Journal: “Working Next Door to Sanctions? You Don’t Need to Go Cold ‘Turkey'”

The Export Compliance Journal
, 21 Feb 2019.) 
Working with individuals and organizations outside the United States can often lead to complications when it comes to maintaining compliance.
However, certain regions pose a unique risk, and Turkey is certainly among them. 
While the country isn’t specifically sanctioned, it does have deep ties to other countries that do-most notably, Turkey’s energy sector has a number of deals with Iran. In fact, the connections are so complex that they are 
one of eight countries that were granted a six-month exemption
 to sanctions re-imposed by the U.S. in November of 2018 as a result of Washington’s withdrawal from the Joint Comprehensive Plan of Action (JCPOA)-more commonly known as the Iran nuclear deal.
Erdogan Defiant

However, even with the grace period in place, Turkey’s President Recep Tayyip Erdogan has made it clear he intends for the country to maintain their relationship with Iran, stating 
“We will absolutely not abide by such sanctions. We buy 10 billion cubic meters of natural gas. We cannot freeze our people in the cold.”
Erdogan’s position reflects a long-standing belief of some members of the Turkish business community. Even before the JCPOA was agreed to-and subsequently withdrawn from-by the U.S., there were several cases of sanctions evasion that involved Turkish nationals.
Evading Sanctions Against Iran

In the last few years, at least three prominent Turkish businessmen have faced punishment from the U.S. for willful evasion of Iranian sanctions. In 2016, 
Reza Zarrab was arrested in relation to allegations of helping to facilitate deals between Turkey and Iran to trade gold for gas
. He subsequently pled guilty and became a 
key witness against fellow Turkish citizen-and co-conspirator-Hakan Atilla.
 Atilla was found guilty of conspiring to violate US sanctions law, and 
sentenced to 32 months in prison
More recently, the Department of Treasury’s Office of Foreign Assets Control (OFAC) announced 
they had sanctioned Turkish businessman Evren Kayakiran
 for violations that occurred between the years 2013 and 2015. Kayakiran willfully violated Iranian sanctions and falsified records to make it appear as though his company remained compliant. His case is especially notable, as it represents the 
“first time OFAC has named an individual a Foreign Sanctions Evader in relation to a civil enforcement action.”
Proceed With Caution

As always, when doing business with anyone in areas with strong ties to sanctioned countries, you should proceed with caution. In addition to screening your business partners, you need to be on the lookout for risk country alerts, and make sure you’re working with an extra layer of due diligence so that you can be sure you’ve done your best to know your customer, vendor, or supplier.
While finding yourself doing business with those who are willfully violating U.S. sanction programs may be rare, when partnering with organizations in regions where the relationships with sanctioned countries run deep-like with Turkey and Iran-it never hurts to make sure you dig a little deeper, just in case.

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* Author: Jeremy Paner, Esq., 
jppaner@hollandhart.com, Holland & Hart.
The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) is significantly increasing its enforcement actions against companies that violate U.S. sanctions.  After only issuing seven civil monetary penalties in 2018, OFAC has already issued four penalties in 2019, which were all voluntarily self-disclosed.  This trend likely signals a dramatic shift in OFAC’s enforcement philosophy.  U.S. and non-U.S. companies should evaluate their compliance programs in light of this increasingly aggressive posture. 
Enforcement Responses
OFAC has historically closed the vast majority of its enforcement cases without issuing a penalty.  For example, in Fiscal year 2016, OFAC issued 17 penalties [FN/1] and closed nearly 1,000 enforcement cases with either a “No Action Letter” or a “Cautionary Letter.”  The graph 
here provided by OFAC at its 2016 symposium provides a clear visual representation of this disparity. 
During its past outreach events, OFAC frequently highlighted the low percentage of its enforcement cases that lead to penalties.  This was done in part to encourage companies to submit voluntary self-disclosures of apparent sanctions violations.  OFAC has generally favored increased insight of transactions it otherwise would not have learned over punishment for those violations.  
The first four OFAC enforcement actions of 2019 arise from apparent violations that were all voluntarily self-disclosed.  This continues the trend from 2018 in which five of the seven penalties were disclosed and represents a significant change to historical norms in sanctions enforcement. 
Red Flags
The 2019 enforcement actions to date have several commonalities that reflect OFAC’s enforcement prioritization.  For example, the 
e.l.f. Cosmetics, Inc. and 
ZAG IP, LLC settlements involve transactions with goods or materials from sanctioned countries.  The 
Kollmorgen Corporation and 
AppliChem GmbH penalties both arise from transactions by non-U.S. affiliates that occurred after their acquisitions by U.S. companies.  
There is one principle similarity in these violations that reveals OFAC’s highest enforcement prioritization.  In all four cases, the violating companies ignored warning signs which clearly indicated increased risk of sanctions violations.  The Kollmorgen Corporation and AppliChem GmbH violations occurred after the identification of pre-acquisition transactions that would be prohibited if conducted by a U.S. company.  ZAG IP, LLC relied on statements from a UAE-based supplier that certain material from Iran was not subject to sanctions, while e.l.f. Cosmetics, Inc. sourced products from a high-risk region of China (presumably the southeastern area of the Liaoning province) without using enhanced due diligence procedures to ensure compliance with the North Korea sanctions program.  
Fully Functioning Compliance Program
OFAC expects companies to have compliance programs commensurate with their overall risk.  This expectation is not fixed, as the agency continues to increase its demands on sophisticated international companies.  As OFAC seeks to more aggressively enforce sanctions, companies should at a minimum be able to demonstrate a fully functioning compliance program.  The following three steps will help avoid the common compliance failures that OFAC is increasingly more likely to penalize. 
  (1) Acknowledge warning signs and act on the derogatory information;
  (2) Use appropriate risk mitigation measures to decrease sanctions compliance risk; and 
  (3) Fully document the detection of all red flags and the corresponding risk mitigation measures.  
] This figure includes both Findings of Violations and civil monetary penalties

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Bird & Bird, 22 Feb 2019.)
* Author: Roger Bickerstaff, Esq., 
roger.bickerstaff@twobirds.com. Of Bird & Bird. 
The export of certain categories of software, and particularly encryption software, is controlled by export control regulations in the UK and the EU. Following Brexit, exporters of software (including where software is embedded in physical products) will have to consider the added dimension of export and import of controlled software between the EU and UK and vice versa.
This issue is relevant to software companies which distribute software between the UK and the EU (and vice versa). These companies will need to ensure that their software distribution arrangements are compliant with the export regulations. It is also relevant to software licensees. A great many software licenses require the software licensee to comply with applicable software licensing law. A breach of the export regulations may result in a breach of the terms of a software license.
Post Brexit, both software suppliers and user companies that have operations in both the UK and EU-27 countries may need to obtain export licenses or to take administration steps in order to achieve compliance.
Non-compliance with the export controls regulatory regime can result in fines being levied and individuals can be given prison sentences in some circumstances.
The Current EU Situation
Export controls generally apply to items that are specially designed or modified for military use and to all items designed for civilian use which have potential military uses (‘dual-use’ items). This Note focuses on the regime applicable to dual use items, which is the export control regime most likely to be relevant to the export commercial software.
The categories of software that are subject to EU export control on dual use products are listed in Annex 1 of 
Council Regulation (EC) 428/2009 (EU Dual Use Regulation) (as amended, including by 
Council Regulation (EU) No 1232/2011
). These include cryptography for data confidentiality having in excess of 56 bits of symmetric key length and the use of an asymmetric algorithm where the factorization of integers is in excess of 512 bits. Most commonly used encryption protocols use key lengths which exceed these levels (e.g. AES 128, 1024 RSA and 1024 DH).
Certain product categories are excluded from export control including smart cards and smart card reader/writers, cryptography equipment specially designed and limited for banking use or money transactions, portable or mobile telephones for civil usage, and cordless telephones (with a range of less than 400 meters).
There is also an exclusion from export control for certain products that are generally available to the public by being sold, without restriction, from stock at retail selling points by means of:
  a. Over-the-counter transactions;
  b. Mail order transactions;
  c. Electronic transactions; or
  d. Telephone call transactions.
The EU Commission has also introduced a number of 
General Export Authorizations
 (“GEA”), including a GEA for the export of all dual use items (including encryption software) to Australia, Canada, Japan, New Zealand, Norway, Switzerland and the USA (EU001). There is also a GEA to a wider range of countries for some but not all dual use items (including some but not all encryption software protocols) (EU002). For details of other GEAs, including a conditional GEA specifically relating to certain telecommunications products, including encryption software protocols (EU005), see UK government 
“Dual use” products (such as encryption software) which circulate solely within the EU are not subject to any export controls between EU Member States, except for a small number of sensitive items.
In relation to the export of products outside the EU there are some complications due to differences in the approach to export control between the US and the EU. The US export controls include an exemption for “mass market” items (see 
US “Mass Market” guidance). This is less restrictive than the EU exemption for products that are generally available to the public (see 
EU Guidance note 1/2016). This can mean that products can be covered by the US “mass market” exemption but still be regarded as being subject to EU export control.
Following Brexit (No Deal)
Following Brexit the EU rules will continue unchanged. In the event the UK exits the EU without having agreed a withdrawal agreement with the EU (a ‘no deal’ Brexit), the UK will immediately be regarded as being a third country for the purposes of EU export control.
In the event of a no deal Brexit, the EU Dual Use Regulation will be incorporated into UK law under with 
European Union (Withdrawal) Act 2018. The draft 
Trade etc. in Dual-Use Items, Firearms and Torture etc. Goods (Amendment) (EU Exit) Regulations 2019 (once law) will make amendments to the retained EU Dual Use Regulation so that they operate in a UK context post-Brexit. Other amendments to legislation in the field of customs and in particular in relation to export and other trade controls on military and dual-use goods are made by the Export Control (Amendment) (EU Exit) Regulations 2019, SI 2019/137.
In order to deal with the need for export approvals for exports of dual use items (including encryption software) from the EU to the UK, the European Commission has issued a 
Proposal for an amendment to the GEA for the export of all dual use items (including encryption software) to include exports from the EU the UK. The Commission has commented that the UK should be added to the list of countries that dual use items can be exported to under the GEA “in order to ensure a uniform and consistent application of controls throughout the Union, to promote a level playing field for Union exporters and to avoid an unnecessary administrative burden while protecting Union and international security”. Exporters must notify the relevant national competent authorities of the first use of the GEA and EU Member States are entitled to require registration prior to first use of the GEA.
In order to deal with the export of dual use items from the UK to the EU, the UK has already issued an 
Open General Export License (OGEL) which will cover the export of all dual use items (including encryption software) from the UK to the EU following Brexit. The OGEL has conditions and does not apply if the exporter is aware that the dual use item is intended to be use in certain weapons systems.
In order to obtain the benefit of the OGEL, companies need to pre-register with the Department of International Trade for each OGEL that is relied on and must comply with the terms of the OGEL. A requirement has been introduced to include a note on official export documentation for the items exported that: (a) “These items are being exported under the OGEL (X)”; or (b) the SPIRE reference (in the form ‘GBOGE 20XX/XXXXX’) of the exporter’s registration in respect of the OGEL (SPIRE is the UK’s online export licensing system
). This requirement does not apply to items that are exported by telephone, fax or other electronic media. Once companies are registered as OGEL users, they will be subject to regular Compliance Audits. See the UK Government’s guidance 
Exporting controlled goods if there’s no Brexit deal.
Where specific export approvals have been granted pre-Brexit for the export of software subject to export controls outside the EU care will need to be taken post-Brexit that the approvals that have been granted have been given by the correct export authority. Post-Brexit, export licenses issued by the UK will no longer be valid for exports from the EU. A new license will be required issued by an EU member state. Similarly, an export license issued by an EU member state will no longer be valid for exports from the UK. A new license will be required issued by the UK.
If a Withdrawal Agreement is agreed
The draft Withdrawal Agreement agreed between the UK government and the EU (but voted against by the UK Parliament) provides for a transition period until the end of 2020. That transition period may subsequently be extended for up to two further years.
The continued application of EU law during this period will give time to national administrations and businesses to prepare for the new relationship. During the transition period, the entire EU acquis will continue to apply to and in the UK as if it were an EU Member State. This means that the UK will continue to participate in the EU Customs Union and the Single Market (with all four freedoms) and all EU policies. Any changes to the EU acquis will automatically apply to and in the UK. The direct effect and primacy of EU law will be preserved. All existing EU regulatory, budgetary, supervisory, judiciary and enforcement instruments and structures will apply, including the competence of the Court of Justice of the European Union.
The effect of the Withdrawal Agreement would appear to mean that if it were to come into force as agreed between the UK government and the EU the current situation on export licensing of dual use items (including encryption software) would continue to apply until the end of the transition period.
Practical Implications
Companies which license and companies which use software on a pan-European basis post Brexit will need to ensure that they comply with the regulatory regime for the export of software in both the UK and the EU. In particular:
  – companies that export encryption software from the UK to the EU will need to comply with the terms of the UK to EU OGEL which requires registration with the Department of International Trade, compliance with certain notice obligations and the possibility of regular audits;
  – companies that export encryption software from the EU to the UK will need to comply with the terms of the GEA for the export of all dual use items from the EU the UK, including notifying the relevant national competent authorities of the first use of the GEA and, if required by the member state, registration prior to first use of the GEA.
Companies that export encryption software from either the UK or the EU to non-EU locations on the basis of pre-Brexit specific export licenses will need to take care be taken post-Brexit that approvals have been given by the correct export authority. Post-Brexit, export licenses issued by the UK will no longer be valid for exports from the EU and, similarly, an export license issued by an EU member state will no longer be valid for exports from the UK.


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FCC Presents “An Introduction to EU / Dutch Dual-Use and Military Export Controls”, 7 May in Bruchem, the Netherlands

(Source: Full Circle Compliance, 
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 – 9.30 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.eu or 31 (0)23 – 844 – 9046. 

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Christopher Marlowe (26 Feb 1564 – 30 May 1593; was an English playwright, poet and translator of the Elizabethan era. Marlowe was the foremost Elizabethan tragedian of his day. He greatly influenced William Shakespeare, who was born in the same year as Marlowe and who rose to become the pre-eminent Elizabethan playwright after Marlowe’s mysterious early death.)
– “Money can’t buy love, but it improves your bargaining position.” 

Victor Hugo (Victor Marie Hugo; 26 Feb 1802 – 22 May 1885; was a French poet, novelist, and dramatist of the Romantic movement. Hugo is considered to be one of the greatest and best-known French writers. Outside France, his most famous works are the novels 
Les Misérables and 
The Hunchback of Notre-Dame.)
 – “Initiative is doing the right thing without being told.”

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. 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.   


  – 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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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 

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* The Ex/Im Daily Update is a publication of FCC Advisory B.V., compiled by: Editor, James E. Bartlett III; Assistant Editors, Alexander P. Bosch and Vincent J.A. Goossen; and Events & Jobs Editor, Alex Witt. The Ex/Im Daily Update is emailed every business day to approximately 6,500 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

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