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19-0307 Thursday “Daily Bugle'”

19-0307 Thursday “Daily Bugle”

Thursday, 7 March 2019

  1. President Continues National Emergency with Respect to Venezuela
  2. Commerce/BIS Seeks Industry Feedback Concerning License Exceptions and Exclusions
  1. Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.)
  3. DHS/CBP Releases Harmonized System Update 1903
  4. State/DDTC: (No new postings.)
  5. EU Repeals Implementing Regulation Concerning Combined Nomenclature
  1. Defense News: “Germany to Extend Saudi Weapons Embargo Until Month’s End”
  2. International Trade Compliance Update: “Swiss Government Announces Restriction on Licenses for War Materials Exported to Lebanon”
  3. Reuters: “Germany Risks Harming Industry with Unilateral Arms Embargoes: Minister”
  4. Roll Call: “House Democrats Press to Stop Gun Export Rule Change”
  5. ST&R Trade Report: “Tariffs, Quotas on Titanium Sponge Could Result from New Section 232 Investigation”
  1. G. Forwood, S. Nordin & J. Dimmock: “Sanctions After Brexit – The First UK Sanctions Regimes”
  2. M. Volkov: “OFAC Announces Yet Another Enforcement Action – Cement Clinker Company Settles for Violations of Iran Sanctions Program”
  3. J.E. Bartlett: “A New DDTC Consent Agreement Says: ‘Train Your Empowered Officials!'”
  1. ECTI Presents “How to Improve Export Compliance with Effective Audits” Webinar on 23 Apr
  2. ICPA Presents “2019 EU Conference”, 15-17 May in London
  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 (7 Mar 2019) 
  3. Weekly Highlights of the Daily Bugle Top Stories 

EXIMITEMS FROM TODAY’S FEDERAL REGISTER

EXIM_a1
1.

President Continues National Emergency with Respect to Venezuela


84 FR 8245-8246: Continuation of National Emergency with Respect to Venezuela

 
On March 8, 2015, the President issued Executive Order 13692, declaring a national emergency with respect to the situation in Venezuela based on the Government of Venezuela’s erosion of human rights guarantees; persecution of political opponents; curtailment of press freedoms; use of violence and human rights violations and abuses in response to antigovernment protests; and arbitrary arrest and detention of antigovernment protestors, as well as the exacerbating presence of significant government corruption.
 
On August 24, 2017, I issued Executive Order 13808 to take additional steps, with respect to the national emergency declared in Executive Order 13692, to address serious abuses of human rights and fundamental freedoms; the deepening humanitarian crisis in Venezuela; the establishment of an illegitimate Constituent Assembly, which usurped the power of the democratically elected National Assembly and other branches of the Government of Venezuela; rampant public corruption; and ongoing repression and persecution of, and violence toward, the political opposition.
 
On March 19, 2018, I issued Executive Order 13827 to take additional steps, with respect to the national emergency declared in Executive Order 13692, to address actions taken by the Maduro regime to attempt to circumvent United States sanctions by issuing a digital currency in a process that Venezuela’s democratically elected National Assembly denounced as unlawful.
 
On May 21, 2018, I issued Executive Order 13835 to take additional steps, with respect to the national emergency declared in Executive Order 13692, to address actions of the Maduro regime, including endemic economic mismanagement and public corruption at the expense of the Venezuelan people and their prosperity, and repression of the political opposition; attempts to undermine democratic order by holding snap elections that were neither free nor fair; and the deepening of the humanitarian and public health crisis in Venezuela.
 
On November 1, 2018, I issued Executive Order 13850 to take additional steps, with respect to the national emergency declared in Executive Order 13692, to address actions by the Maduro regime and associated persons to plunder Venezuela’s wealth for their own corrupt purposes; degrade Venezuela’s infrastructure and natural environment through economic mismanagement and confiscatory mining and industrial practices; and catalyze a regional migration crisis by neglecting the basic needs of the Venezuela people.
 
On January 25, 2019, I issued Executive Order 13857 to take additional steps, with respect to the national emergency declared in Executive Order 13692, to address actions by persons affiliated with the illegitimate Maduro regime, including human rights violations and abuses in response to anti-Maduro protests; arbitrary arrest and detention of anti-Maduro protestors; curtailment of press freedom; harassment of political opponents; and continued attempts to undermine the Interim President of Venezuela and undermine the National Assembly, the only legitimate branch of government duly elected by the Venezuelan people, and to prevent the Interim President and the National Assembly from exercising legitimate authority in Venezuela.
 
The circumstances described in Executive Order 13692, and subsequent Executive Orders issued with respect to Venezuela, have not improved and they continue to pose an unusual and extraordinary threat to the national security and foreign policy of the United States. Therefore, in accordance with section 202(d) of the National Emergencies Act (50 U.S.C. 1622(d)), I am continuing for 1 year the national emergency declared in Executive Order 13692.
 
This notice shall be published in the Federal Register and transmitted to the Congress.
 
  [Presidential Signature.]
 
THE WHITE HOUSE, 
MARCH 5, 2019.

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EXIM_a2
2.

Commerce/BIS Seeks Industry Feedback Concerning License Exceptions and Exclusions


(Source: 
Federal Register, 7 Mar 2019.) [Excerpts.] 
 
84 FR 8302: Proposed Information Collection; Comment Request; License Exemptions and Exclusions
 
* AGENCY: Bureau of Industry and Security, Commerce.
* ACTION: Notice.
* SUMMARY: The Department of Commerce, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal agencies to take this opportunity to comment on proposed and/or continuing information collections, as required by the Paperwork Reduction Act of 1995.
* DATES: To ensure consideration, written comments must be submitted on or before May 6, 2019.
* ADDRESSES: Direct all written comments to Jennifer Jessup, Departmental Paperwork Clearance Officer, Department of Commerce, 1401 Constitution Avenue NW, Room 6616, Washington, DC 20230 (or via the internet at 
PRAcomments@doc.gov.)
*  FOR FURTHER INFORMATION CONTACT:
Requests for additional information or copies of the information collection instrument and instructions should be directed to Mark Crace, BIS ICB Liaison, (202) 482-8093 or at 
mark.crace@bis.doc.gov.
* SUPPLEMENTARY INFORMATION: … Over the years, BIS has worked with other Government agencies and the affected public to identify areas where export licensing requirements may be relaxed without jeopardizing U.S. national security or foreign policy. Many of these relaxations have taken the form of licensing exceptions and exclusions. Some of these license exceptions and exclusions have a reporting or recordkeeping requirement to enable the Government to continue to monitor exports of these items. Exporters may choose to utilize the license exception and accept the reporting or recordkeeping burden in lieu of submitting a license application. These exceptions and exclusions have allowed exporters to ship items quickly, without having to wait for license approval.
  These collections are designed to reduce export licensing burden. It is up to the individual company to decide whether it is most advantageous to continue to submit license applications or to comply with the reporting or recordkeeping requirements and take advantage of the licensing exception or exclusion. … 
 
  – OMB Control Number: 0694-0137.
  – Form Number: None.
  – Type of Review: Regular submission (extension of a current information collection).
  – Affected Public: Non-profit institutions; State, local, or tribal government; business or other for-profit organizations. … 
  – Respondent’s Obligation: Voluntary.
  – Legal Authority: Export Control Reform Act (ECRA) of 2018. … 
 
Sheleen Dumas, Departmental Lead PRA Officer, Office of the Chief Information Officer, Commerce Department.

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

OGSOTHER GOVERNMENT SOURCES

OGS_a13. Items Scheduled for Publication in Future Federal Register Editions
(Source: Federal Register)

 

* Commerce/BIS; 
  – PROPOSED RULES; Commerce Control List for Items Transferred from United States Munitions List Categories IV and XV; and
  – NOTICES; National Security Investigation of Imports of Titanium Sponge [Pub. Dates: 8 Mar 2019.]
 
* State; 
  – PROPOSED RULES; Review of United States Munitions List Categories IV and XV; and
  – NOTICES; Disclosure of Violations of the Arms Export Control Act [Pub. Dates: 8 Mar 2019.]

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

OGS_a2
4. 
Commerce/BIS: (No new postings.)

(Source: 
Commerce/BIS)

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OGS_a35.
DHS/CBP Releases Harmonized System Update 1903 
(Source: 
CSMS# 19-000108, 7 Mar 2019.)
 
Harmonized System Update (HSU) 1903 was created on March 6, 2019 and contains 67 ABI records and 13 harmonized tariff records.
 
Changes made include those mandated by a final rule, published by the Agricultural Marketing Service, terminating the raspberry assessment. These changes were effective beginning February 21, 2019, and the Federal Register Notice can be retrieved using the 
following link.
 
Modifications required by the verification of the 2019 Harmonized Tariff Schedule (HTS) are included as well.
 
The modified records are currently available to all ABI participants and can be retrieved electronically via the procedures indicated in the CATAIR. For further information about this process, please contact your client representative. For all other questions regarding this message, please contact Jennifer Keeling via email at 
Jennifer.L.Keeling@cbp.dhs.gov.

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Regulations

Commission Implementing Regulation (EU) 2019/368 of 4 March 2019 repealing Implementing Regulation (EU) No 444/2013 concerning the classification of certain goods in the Combined Nomenclature

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NWSNEWS

NWS_a18.
Defense News: “Germany to Extend Saudi Weapons Embargo Until Month’s End” 

(Source: 
Defense News, 6 Mar 2019.) 
 
The German government will extend an arms embargo against Saudi Arabia through the end of the month, risking escalation of a growing dispute with France and the United Kingdom over sales of jointly produced weapons.
 
Foreign Minister Heiko Maas made the announcement during a news conference with his Danish counterpart, Anders Samuelsen, in Berlin on Wednesday. The ban was previously set to expire March 9.
 
Germany’s objections against arming Riyadh have taken center stage here in the negotiations over boosting the European Union’s defense capabilities. Industry advocates fear that Germany’s restrictive stance on arms exports undermines the newfound unity in producing joint military gear, including a sixth-generation fighter aircraft, a battle tank and a high-flying drone.
 
Officials in France and the U.K. have accused Germany of holding up weapons sales to Saudi Arabia, the world’s third-largest spender on defense, even when only a relatively small percentage of the overall product is made in Germany. These governments claim this has led to financial losses for their domestic defense industries.
 
The Merkel government placed a ban on weapons sales to Saudi Arabia following the death of Saudi journalist and Washington Post contributor Jamal Khashoggi, a U.S. permanent resident. It’s alleged he was killed at the Saudi consulate in Istanbul, Turkey, last fall. Western officials believe Crown Prince Mohammed bin Salman was involved in orchestrating the killing. The regime has denied any knowledge of it, instead describing the crime as a rogue operation gone wrong.
 
Maas on Wednesday tied the future of the arms ban to developments in the Yemen civil war, where Saudi Arabia is an active combatant. Government officials are expected to assess the way ahead during this month, Maas was quoted as saying by the German wire service DPA.
 
Extension of the ban covers new export licenses. In cases where the government has previously approved a company’s export petition, the equipment would not reach the delivery stage, Maas said.
 
Angela Merkel’s CDU party has advocated for loosening export restrictions in the interest of European unity. The junior party, SPD, to which Maas belongs, has defined the issue as an ethical question, with the main objective of denying Germany’s weapons to human rights abusers.
 
Florian Post, a key voice in the SPD on arms exports policy, said in an interview with the Deutschlandfunk radio station earlier this month that Germany had “morally superior arguments” over France and Britain.
 
German industry officials have quietly lobbied the government to ease its restrictions, especially in cases of previously approved licenses. So far, few defense companies have openly challenged Berlin’s stance for fear of angering their main client.
 
  “The unilateral extension of the ban on arms exports primarily affects European partners,” Matthias Wachter, a defense analyst with the German industry association BDI, wrote on Twitter. “Berlin threatens future joint projects and its own ambitions to foster a common European defense policy. Germany isolates itself in Europe even further.”
 
Berlin’s skirmishes with Paris and London aside, some experts here believe the issue can only be settled through a multilateral approach. “You can’t solve this problem bilaterally,” Wolfgang Rudischhauser, vice president of the Berlin-based Federal Academy for Security Policy, told Defense News. “What we need is a European solution.”
 
He noted that the EU already has an approved common position for weapons exports, dated 2008 and crafted under French leadership of the European Council at the time.
 
But the rules lack an enforcement mechanism, leaving great leeway to EU members in the interpretation and overall adherence. The policy does speak to the question of exporting weapons to areas of conflict, however, and their application today would mean “the prospect of exports to Saudi Arabia at this point would have to be seriously scrutinized,” Rudischhauser told Defense News.
 
Widening the arms exports debate to a wider European level would mean “both sides will have to move,” he added, referring to Germany on one side and France and the U.K. on the other. That is because other member countries, like Sweden, also have restrictive policies.

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NWS_a29.
International Trade Compliance Update: “Swiss Government Announces Restriction on Licenses for War Materials Exported to Lebanon” 

(Source: 
International Trade Compliance Update, 6 Mar 2019.)
 
The Swiss Government recently announced that licenses will no longer be permitted for war materials (”
Kreigsmaterial“) exported to end users in Lebanon. Previously, a license could be obtained for war materials supplied to groups responsible for the protection of Politically Exposed Persons, subject to a declaration of no re-export without written Swiss permission and on-site checks. The change in approach resulted from a post-shipment verification in 2018, which allowed only for the physical verification of 9 out of 40 military rifles and pistols, despite an export license having been granted in 2016. Moving forward, Swiss licenses will no longer be available for war materials being exported to Lebanon, regardless of their end-use.

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NWS_a310. 
Reuters: “Germany Risks Harming Industry with Unilateral Arms Embargoes: Minister” 

(Source: 
Reuters, 7 Mar 2019.) [Excerpts.] 
 
Germany risks harming its defense industry with unilateral arms embargoes, such as the one imposed on weapons sales to Saudi Arabia, Economy Minister Peter Altmaier said on Thursday, underscoring the need for a common European policy.
 
Speaking at a conference on export controls, Altmaier said Germany had extended through the end of March a freeze in shipments of already approved arms to Riyadh after the killing of journalist Jamal Khashoggi by Saudi operatives last October.
 
He declined to predict whether any of those deals would be allowed to proceed, noting Germany’s coalition government parties were wrestling with the issue.
 
Germany’s unilateral decision on Saudi arms sales has exacerbated long-standing differences over arms controls between Berlin and its European partners. Berlin is under pressure from industry and European allies to ease the embargo.
 
The move has called into question billions of euros of military orders, including a 10 billion pound ($13 billion) deal to sell 48 Eurofighter Typhoon jets to Riyadh.
 
Germany’s ruling coalition is deeply divided on the issue, with the Social Democrats, junior partners to Chancellor Angela Merkel’s conservatives, reluctant to alienate voters who are generally skeptical about arms sales and military spending.
 
Altmaier, a conservative, said it was important to stick to language on arms export controls agreed by the coalition parties last year, including a strict approach on exports of small arms.
 
But he said there was some room for maneuver in interpreting other parts of the coalition accord, including a clause that offers protections for previously agreed deals and another that bans arms sales to any parties to the war in Yemen.
 
The SPD argues the ban should apply to Saudi Arabia, which is leading a coalition fighting the Iran-backed Houthis in Yemen, but others say some of the weapons now held up are purely defensive in nature or are not relevant to the Yemen war.
 
Altmaier said he had argued unsuccessfully after Khashoggi’s death for Germany to push for a joint European position on arms sales to Saudi Arabia.
 
He said France and Germany were now working on a bilateral agreement on future arms exports, but some aspects of that effort were proving difficult to finalize.
 
He said a joint export policy was essential to ensure the economic success of joint development programs such as a new combat jet.

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NWS_a411. 
Roll Call: “House Democrats Press to Stop Gun Export Rule Change” 

(Source: 
Roll Call, 7 Mar 2019.) [Excerpts.] 
 
Democrats hope to block a change that could make it easier to export firearms abroad, but time is running out
 
House Democrats are working to block a proposed Trump administration regulatory change that is expected to make it easier to export firearms abroad, but it’s unclear if there’s enough time to stop the change from taking effect.
 
Legislation introduced last month by Rep. Norma J. Torres of California would effectively take away the president’s ability to shift export control of firearms from the State Department to the Commerce Department.
 
But the measure is running up against a deadline: Congress’ formal window to review the proposed rule change ends this week.
 
Torres told reporters this week that House Foreign Affairs Chairman Eliot L. Engel of New York, who is an original co-sponsor of the measure, is working with her to schedule committee action on the bill soon. … 

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NWS_a512. 
ST&R Trade Report: “Tariffs, Quotas on Titanium Sponge Could Result from New Section 232 Investigation” 

(Source: 
Sandler, Travis & Rosenberg Trade Report, 7 Mar 2019.)
 
The Department of Commerce initiated March 4 an investigation under section 232 of the Trade Expansion Act of 1962 to determine whether the present quantity or circumstances of titanium sponge imports threaten to impair U.S. national security. An affirmative determination could result in import restrictions such as tariffs or quotas. Press sources note that nearly all U.S. imports of titanium sponge come from Japan and Kazakhstan.
 
According to a DOC press release, titanium sponge is the primary form of titanium metal from which almost all other titanium products are made. Titanium is used in the production of strategic articles such as military aircraft, space vehicles, satellites, naval vessels, missiles, and munitions. It is also widely used in critical infrastructure and commercial applications such as civilian aircraft, chemical plants, oil and gas plants, electric power and desalination plants, building structures, automobile products, and biomedical devices. The DOC adds that imports account for more than 60 percent of U.S. titanium sponge consumption and that currently only one facility in the U.S. has the capacity to process titanium ore into the sponge used in manufacturing.
 
If the DOC (which must consult with the Department of Defense) concludes that titanium sponge is being imported in such quantities or under such circumstances as to threaten to impair U.S. national security, and the president concurs (a decision he would have up to 90 days after the DOC’s report to make), the president would have broad authority to adjust imports, including through the use of tariffs and quotas. Any import adjustments, or any other non-trade-related actions the president may elect to take, would be imposed within 15 days of the president’s determination to act.
 
The DOC has up to 270 days to conclude this investigation and submit its report and recommendations to the president. A hearing date and request for public comments are expected to be published shortly in the 
Federal Register.
 
It is worth noting that in October 2017 the International Trade Commission terminated investigations that could have led to antidumping and countervailing duties on titanium sponge from Japan and Kazakhstan after determining that there is no reasonable indication that a U.S. industry is materially injured or threatened with material injury by reason of imports of such goods. Those investigations were reportedly initiated at the request of the same companies that requested the Section 232 investigation.

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COMMCOMMENTARY

(Source: 
White & Case LLP, 07 March 2019.) 
* Authors: Genevra Forwood, Esq., 
genevra.forwood@whitecase.com;  Sara Nordin, Esq., 
snordin@whitecase.com; and Joanna Dimmock, Esq., 
joanna.dimmock@whitecase.com. All of White & Case LLP. 
With Brexit looming, the UK’s autonomous sanctions policy is slowly taking shape. This month saw the publication of regulations setting out the post-Brexit UK sanctions regimes for Iran, Burma and Venezuela, which will come into force in the event of a ‘no deal’ Brexit. However, the more difficult aspects of the UK’s post-Brexit sanctions regimes are still to be determined.
 
Currently, many of the UK’s sanctions regimes implement sanctions agreed by the EU, within a legal framework largely derived from EU sources. When the UK leaves the EU, it will need to translate its current sanctions regimes into autonomous UK sanctions. The new regulations [FN/1] (the “Regulations”) are the first examples of these post-Brexit sanctions regimes, building on the framework set out in the Sanctions and Anti-Money Laundering Act 2018 (“SAMLA”) and updated draft guidance from the Office of Financial Sanctions Implementation (“OFSI”) [FN/2].
 
The UK’s stated policy is to remain aligned with EU sanctions, and the Regulations are intended to have substantially the same effect as the existing EU-derived sanctions regimes that they would replace in the event of a ‘no deal’ Brexit. However, the Regulations include a number of differences in their technical implementation. Businesses will need to be aware of these changes, which – together with changing political considerations after Brexit – could lead to divergence between the EU and UK sanctions regimes. We look at some of these changes below, along with one change – to reporting obligations – that has not yet materialized. We also take a broader look at the UK’s approach to sanctions, and how it is likely to be affected by Brexit.
 
Changes U
nder the Regulations
 
Ownership and Control Under the Asset Freeze
 
Almost all EU and UK sanctions programs involve an asset freeze, which prohibits dealings with funds or economic resources owned, held or controlled by designated persons, or making available funds or economic resources to, or for the benefit of, designated persons.
 
The asset freeze provisions in the Regulations reflect those in the existing regimes, and enable asset freezing measures to apply to entities that are directly or indirectly ‘owned or controlled’ by a designated person. However, the definition of ‘ownership or control’ in the Regulations is not precisely the same as the definition set out in the EU regimes and associated guidance, and the Regulations’ definition includes much more detail, such as a detailed explanation of when someone will be considered to hold shares or voting rights ‘indirectly’.
 
It is unclear how likely this is to lead to differences in practice between the EU and UK regimes. However, the level of detail should help businesses to more easily identify whether entities are caught by asset freezing measures, and the prospect of greater clarity should be welcomed.
 
General Licenses
 
A general license allows multiple parties to carry out specified activities (otherwise prohibited by sanctions) without having to obtain a specific license. The EU sanctions regimes do not provide for general licenses, but the UK government indicated in 2018 that its post-Brexit approach to sanctions would involve wider use of such licenses (perhaps inspired by the US, where such licenses are commonly used). This is reflected in the Regulations, which provide for the issuing of general licenses [FN/3]. OFSI’s draft guidance indicates that such licenses are likely to be used in relation to unforeseeable circumstances in order to support the UK government’s policy priorities – for example, where otherwise prohibited financial activity is required to facilitate the provision of aid in response to a humanitarian crisis.
 
It is hoped that OFSI would expand the use of general licenses over time to cover common situations that did not threaten the purpose of the relevant sanctions. This would allow UK sanctions regimes to be more flexible than was possible under the EU regimes, and would reduce the burden on OFSI and on businesses that would otherwise have to apply for individual licenses.
 
New Licensing Grounds for Asset Freezing
 
The Regulations also include new licensing grounds for asset freezing, one of which permits OFSI to issue a license to ”
enable anything to be done to deal with an extraordinary situation“. OFSI’s draft guidance indicates that this will cover situations that are extraordinary in nature but do not necessarily involve a designated person incurring an expense (which would be covered under the pre-existing ‘extraordinary expenses’ ground) – for example, funds being released to support disaster relief or provide aid in extraordinary situations. This ground cannot be used where other grounds are more suitable or to avoid the clear limitations of other grounds, but its potential breadth offers further flexibility for the new UK regimes.
 
Interestingly, another new ground – to ”
enable anything to be done in connection with the performance of any humanitarian assistance activity” – is included in the Iran Regulations only. Its inclusion there is unsurprising, given the UK and EU’s concerns around the impact of re-imposed US sanctions on humanitarian supplies to Iran following the US’s withdrawal from the Iranian nuclear deal. However, it is unclear why the ground is not included in the other Regulations, particularly given the current situation in Venezuela.
 
Information Sharing
 
The Regulations expand the bases for disclosure of information by the Secretary of State, Treasury and HMRC to third parties, including for the purpose of “facilitating the exercise by an authority outside the United Kingdom or by an international organization of functions which correspond to functions under these Regulations”. The Regulations also specifically permit disclosure to “any other regulatory body (whether or not in the United Kingdom)”, expanding on the equivalent previous wording that referred to regulatory bodies “including those of Member States”. This is likely to be primarily intended to enable disclosure of information to OFAC where the UK’s sanctions policy aligns with that of the US.
 
Reporting Obligations
 
UK sanctions reporting requirements currently only apply to certain ‘relevant’ professions and businesses (including legal professionals, estate agents and financial institutions), in contrast to EU reporting requirements to facilitate compliance, which cover all natural and legal persons. Failing to comply with the UK sanctions reporting requirements is a criminal offence. The UK government signaled last year that it planned to extend the UK requirements to reflect the EU position on covered persons [FN/4], and SAMLA included a provision to enable sanctions regulations to include such reporting requirements.
 
However, the Regulations do not include any such reporting requirements following the EU scope of covered persons, and instead maintain the standard UK position of applying such requirements only to specified ‘relevant firms’ in particular sectors. OFSI’s post-Brexit guidance similarly focuses solely on these limited reporting requirements, and makes no reference to the possibility of broader scope requirements arising.
 
The reason for this is unclear, but it is possible that the government plans to extend the reporting requirements in the Regulations at a later date by way of supplementary regulations, as provided for in SAMLA. This would avoid newly covered businesses (of which there would potentially be a very large number) becoming subject to the reporting requirements, and having to put appropriate reporting measures in place, at the same time as dealing with the effects of a ‘no deal’ Brexit.
 
UK 
EU Alignment Against 
US Sanctions on 
Iran
 
Following the US’s withdrawal from the Joint Comprehensive Plan of Action (“JCPOA”) and re-imposition of extraterritorial sanctions on Iran, the EU responded by updating Council Regulation (EC) No. 2271/96 (the “Blocking Regulation”) in an effort to reduce the impact on Iran [FN/5]. The updated Blocking Regulation forbids EU natural and legal persons from complying with the re-imposed US sanctions to the extent they are listed in the Blocking Regulation and apply extraterritorially, unless exceptionally authorized to do so by the European Commission.
 
Despite Brexit, the UK is not only standing with the EU on this issue, but is taking a leading role in European efforts to preserve the JCPOA. The UK has implemented the updated Blocking Regulation by updating existing law, making it a criminal offence for UK nationals and entities to comply with the reintroduced US sanctions [FN/6]. The Blocking Regulation itself will be incorporated into domestic UK law on Brexit by virtue of section 3 of the European Union (Withdrawal) Act 2018 (albeit various amendments will be needed to make it UK-specific), and the UK government has confirmed that it intends to uphold the policy intent of the Blocking Regulation post-Brexit [FN/7]. In addition, the UK – together with France and Germany – has established a special purpose vehicle, the Instrument in Support of Trade Exchanges (INSTEX), to facilitate trade between European businesses and Iran, although further steps are needed before it becomes operational [FN/8].
 
These measures should not be taken as indicating that the UK will move in lockstep with the EU on all sanctions issues post-Brexit – there will undoubtedly be instances where the UK lines up with the US (e.g. on Russia, as covered below) or charts a separate path. However, the UK’s close alignment with the EU on this issue reflects a fundamental point – whether you are imposing or opposing sanctions, coordination increases effectiveness. London’s prevalence as a financial center will give UK sanctions greater influence, but the UK will need to win the support of the EU, US or other major players if its post-Brexit sanctions are to have maximum impact.
 
Other Regulations Still i
t
he Pipeline
 
Regulations for most post-Brexit sanctions regimes are still to come, although the UK government has acknowledged that it will not be possible to prepare regulations for all regimes before exit day [FN/9]. Perhaps the most interesting will be those for Russia. Although the EU has now imposed asset freezes and travel bans on four Russian intelligence officers following the Salisbury poisonings, the UK has made clear that it intends to go further, and we are likely to see the first use of SAMLA’s ‘Magnitsky clause’ to impose sanctions for ‘gross violations of human rights’. In doing so, the UK would be following in the footsteps of the US, which has previously imposed asset freezes and visa bans on Russian officials under the Magnitsky Act, and which has introduced broad additional sanctions on Russia post-Salisbury.
 
Conclusion
 
The Regulations show that, in the event of a ‘no deal’ Brexit, the UK’s new sanctions regimes would include material changes. Businesses would need to pay attention to avoid being caught out by reliance on their understanding of the old regimes, particularly as OFSI appears to be willing to act on even minor breaches – last month it imposed its first monetary penalty (of £5,000) for a breach of financial sanctions regulations, which involved a sum of only £200 [FN/10].
 
More broadly, the UK’s alignment with the EU on Iran, and the expected alignment with the US on Russia, demonstrate both the existence and the limits of the UK’s independence on sanctions post-Brexit. Brexit (and SAMLA) will give the UK the freedom to take the same ‘transatlantic’ approach to sanctions as it has often done for foreign policy, aligning itself with the US or the EU as it sees fit. However, the UK will no longer have the same ability to influence EU sanctions, and if it acts alone – without the support of the US or EU – it may well find that its sanctions lack force. In theory, Brexit means the UK will be free to go its own way on sanctions. In practice, that freedom will be limited.
 
———– 
  [FN/2] The updated draft guidance is available here, but note that it will only come into force if and when the Regulations come into force, i.e. in the event of a ‘no deal’ Brexit.
  [FN/6] Specifically, the Extraterritorial US Legislation (Sanctions against Cuba, Iran and Libya) (Protection of Trading Interests) Order 1996 (the “1996 Order”) made it a criminal offence to breach the Blocking Regulation. The Extraterritorial US Legislation (Sanctions against Cuba, Iran and Libya) (Protection of Trading Interests) (Amendment) Order 2018 (the “2018 Order”) updated the 1996 Order, extending the offence to cover conduct within the scope of the updated Blocking Regulation. 10 See the penalty notice here.
  [FN/7] See paragraph 7.5 of the explanatory memorandum to the 2018 Order, available here.
  [FN/8] As set out in our February 2019 alert, UK, France, Germany create INSTEX SPV to support trade with Iran.
  [FN/9] See paragraph 42 of the Foreign and Commonwealth Of f ice’s written evidence to the Foreign Affairs Select Committee, available here.
  [FN/10] See the penalty notice here.

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(Source: 
Volkov Law Group Blog, 6 Mar 2019. Reprinted by permission.) 
 
* Author: Michael Volkov, Esq., Volkov Law Group, 
mvolkov@volkovlaw.com, 240-505-1992. 
 
OFAC is definitely off to a fast start this year – it recently announced its fourth enforcement action for 2019.  So far, OFAC has collected over $7 million in civil penalties. 
 
While this may not appear to be a lot of money in civil penalties, it is important to remember the consequences of an OFAC settlement and scrutiny for future violations, restrictions on exports, and damage to a company’s reputation.  Perhaps it is not the civil penalty that hurts a company but the overall damage to a company’s reputation and its relationship with its customers, vendors and suppliers, its shareholders (if publicly-owned), and its stakeholders.
 
OFAC reached a settlement with ZAG IP, LLC, a US-based company, in which ZAG agreed to pay a penalty of $506,250 for five apparent violations of the Iran Sanctions Program. (Copy
Here).  Between July 2014 and January 2015, ZAG purchased in five separate transactions 263 thousand metric tons of Iranian-origin clinker from a company based in the United Arab Emirates and then resold it to a company in Tanzania. 
 
OFAC alleges that ZAP knew that the clinker was sources from Iran.  The value of the shipments was almost $15 million.
 
For our own education, clinker is a binder powder used in many cement products.  Clinker is traded internationally  in large quantities.  Cement manufacturers use it to make various cement-based products.
 
ZAP voluntarily disclosed the apparent violations.  In April 2014, ZAP signed a contract with the Tanzania country in which ZAP agreed to supply approximately 400,000 metric tons of clinker manufactured by a company in India. 
 
In June 2014, the Indian supplier sent an email to ZAG’s Managing Director of Asia Pacific, Middle East and East Africa Regions notifying ZAG that it would not be able to supply ZAG with sufficient cement clinker by a July 5, 2014 shipping date. ZAG attempted to reschedule the date for its first shipment but the Tanzanian company objected to any delay and threatened to cancel the contract.
 
The ZAG Managing Director found a business contact and trading company in the UAE capable of providing Iranian-origin cement clinker.  ZAG’s Managing Director agreed to purchase the cement clinker and mistakenly relied on the UAE company’s representation that the cement clinker was not subject to the Iran Sanctions Program.  The ZAG Managing Director also knew that the cement clinker was being shipped from an Iranian port.
 
OFAC specifically cited ZAG’s deficient due diligence process for review and approval of the transactions; the fact that ZAG;s senior management knew that ZAG was purchasing and reselling goods of Iranian origin; ZAG is a commercially sophisticated company; and ZAG did not have an effective OFAC compliance program in place that was commensurate with the level of risk.  As part of its remediation effort, ZAG developed and implemented a U.S. Export Controls and Economic Compliance Manual and appointed a sanctions compliance officer.
 
OFAC underscored that the enforcement case: “demonstrates the importance for companies operating in high-risk industries (e.g., international trading) to implement risk-based compliance measures, especially when engaging in transactions involving exposure to jurisdictions or persons implicated by U.S. sanctions. It is essential that companies engaging in international transactions consider and respond to sanctions-related warning signs, such as information that goods originating from, being loaded or unloaded at ports located in, or trans-shipping through, countries or regions subject to comprehensive U.S. economic and trade sanctions.”

 
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COM_a3
15. 
J.E. Bartlett: “A New DDTC Consent Agreement Says: ‘Train Your Empowered Officials!'”
(Source: Author)

* Author: James E. Bartlett III, Principal, Full Circle Trade Law, PLLC, Washington, DC. 202-802-0646, JEBartlett@JEBartlett.com.
 
If your U.S. company employs a Licensed Customs Broker and an Empowered Official under the International Traffic in Arms Regulations (ITAR), you have comfort in knowing that at least your Customs broker had to study for months to pass a difficult government examination to get that broker’s license.  But what about your ITAR Empowered Official?  There is no EO examination, and no specific study or DDTC certification is required.  To become an EO, ITAR § 120.25(a) requires only that the EO be a U.S. person (ITAR § 120.15), and that that person:
  (1) is directly employed by the applicant or a subsidiary in a position having authority for policy or management within the applicant organization;
  (2) has been empowered in writing by the applicant to sign license applications or other requests for approval on behalf of the applicant;
  (3) understands the provisions and requirements of the various export control statutes and regulations, and the criminal liability, civil liability and administrative penalties for violating the Arms Export Control Act and the ITAR; and
  (4) has the independent authority to:
     (i) inquire into any aspect of a proposed export, temporary import, or brokering activity by the applicant;
     (ii) verify the legality of the transaction and the accuracy of the information to be submitted; and
    (iii) refuse to sign any license application or other request for approval without prejudice or other adverse recourse.
 
So a company might get away with pointing at a company salesman, a shipping clerk, an office admin, or even the company plumber who has no export control training, and say, “Our former ITAR Empowered Official retired yesterday, and we haven’t hired a replacement yet, so congratulations!  Here is your written empowerment designation letter. You are our new ITAR Empowered Official. Now sit down and sign all these export license applications.” 
 
For compliance trainers, there’s nothing better than a bad example.  My favorite is former University of Tennessee professor John Reese Roth, PhD, who was sentenced to 4 years in prison for ITAR violations, or that snazzy slide created years ago by Mark Menefee of BIS/OEE containing dozens of corporate logos of companies fined for export violations.  But until a few weeks ago, we did not have an example of a company being punished for not appointing an Empowered Official who was well trained in export control regulations. 
 
Now we have a new bad example to point to: R.E. Darling Industries settled DDTC charges that the ITAR-registered company failed to appoint a qualified EO.  Specifically, DDTC charged that R.E. Darling’s EO “was not in a position of having authority for policy or management within R.E. Darling’s organization … [and] did not understand the provisions and requirements of the various export statutes and regulations.”  It appears that the EO “prepared, signed, and submitted license applications that reflected a deficient understanding of the licensing process and the regulations.”  DDTC charged Darling Industries with six ITAR violations, including appointing an EO who did not meet the ITAR § 120.25(a) requirements.  Under the Consent Agreement, the company settled for a fine of $400,000 (with $200,000 permitted to be used for remedial compliance measures) and other remedies, including appointing a Special Compliance Officer, undergoing a mandatory external compliance audit, and ensuring “that adequate resources are dedicated to ITAR compliance.”
 
Even though DDTC does not require specific training or a certification process for the EO position, companies must take the appointment of an EO seriously.  That person must have the qualifications listed ITAR § 120.25(a) before acting as the company’s EO.  Companies must also spend the time and money necessary to keep that EO trained and knowledgeable about these requirements.  The R.E. Darling consent agreement should serve as a timely warning to all ITAR registered companies.

 
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TEEX/IM TRAINING EVENTS & CONFERENCES

TE_a216. ECTI Presents “How to Improve Export Compliance with Effective Audits” Webinar on 23 Apr 

(Source: D. Hatch, 
danielle@learnexportcompliance.com.)
 
* What: How to Improve Export Compliance with Effective Audits
* When: April 23, 2019 1:00 p.m. (EDT)
* Where: Webinar
* Sponsor: Export Compliance Training Institute (ECTI)
* ECTI Speaker: Felice Laird
* Register: 
here or contact Danielle Hatch, 540-433-3977, 
danielle@learnexportcompliance.com.

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TE_a117. ICPA Presents “2019 EU Conference”, 15-17 May in London

(Source: 
ICPA)
 
* What: 2019 EU Conference
  – Import and Export Track (click 
here for the agenda)
  – Professional Speakers 
  – Hot Industry Topics
* When: 15-17 May 2019
* Where: 
The Tower Hotel, London, United Kingdom
* Sponsor: International Compliance Professionals Association (ICPA) 
* Information & Registration: Click 
here.

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ENEDITOR’S NOTES


Daniel D. Palmer (7 Mar 1845 – 20 Oct 1913; was the founder of chiropractic. He was an avid proponent of various forms of pseudoscientific alternative medicine such as magnetic healing. He was an opponent of vaccination.)
 – “The best physicians are Dr. Diet, Dr. Quiet, and Dr. Merryman.”
 – “The mill cannot grind with the water that is past.”

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EN_a319
. 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: 5 March 2019) of the ITAR with all amendments is contained in Bartlett’s Annotated ITAR (“BITAR”), by James E. Bartlett III. The BITAR is a 361-page Word document containing 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 download, 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: 7 Mar 2019: Harmonized System Update (HSU) 1903 [contains 67 ABI records and 13 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_a0320
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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