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19-0611 Tuesday “Daily Bugle'”

19-0611 Tuesday “Daily Bugle”

Tuesday, 11 June 2019

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The Daily Bugle is a free daily newsletter from Full Circle Compliance, containing changes to export/import regulations (ATF, DOE/NRC, Customs, NISPOM, EAR, FACR/OFAC, FAR/DFARS, FTR/AES, HTSUS, and ITAR), plus news and events. Subscribe here. Contact us for advertising 

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[No items of interest noted today.] 

  1. Items Scheduled for Publication in Future Federal Register Editions 
  2. Commerce/BIS: (No new postings.)
  3. OMB/OIRA Reviews of Proposed Ex/Im Regulations: Modification of License Exception Additional Permissive Reexports (APR)
  4. State/DDTC: (No new postings.)
  5. Treasury/OFAC: “Specially Designated Nationals List Update”
  1. American Shipper: “Drewry: Trade War Reshaping Supply Chains”
  2. Defense News: “Raytheon Technologies Corporation: UTC, Raytheon Make Marriage Official”
  3. Reuters: “Top Japanese Chip Gear Firm to Honor U.S. Blacklist of Chinese Firms – Executive”
  1. J. Helder, C. Klaui & D. Lund: “EU Trade Update: Council Issues Negotiating Mandate for Recast Dual Use Regulation”
  2. M. Volkov: “Conducting a Sanctions Risk Assessment: A New Era for Analyzing Your Risks (Part II of IV)”
  3. R. Griffin & P. Mehta: “European Oil Majors Brave Sanctions Risk to Sign New Energy-Cooperation Deals with Russia”
  4. R. Liu & H. Jiang: “A Guide to China’s Exclusion Procedure for Additional Tariffs on the Import of U.S. Goods”
  5. T. Kassenova: “Challenges with Implementing Proliferation Financing Controls: How Export Controls Can Help”
  1. ECS Presents “ITAR/EAR Bootcamp: Achieving Compliance” on 8-9 Jul in Seattle, WA
  2. FCC Presents “Designing an ICP for Export Controls & Sanctions”, 1 Oct in Bruchem, the Netherlands
  1. Bartlett’s Unfamiliar Quotations 
  2. Are Your Copies of Regulations Up to Date? Latest Amendments: DHS/Customs (5 Apr 2019), DOC/EAR (5 June 2019), DOC/FTR (24 Apr 2018), DOD/NISPOM (18 May 2016), DOE/AFAEC (23 Feb 2015), DOE/EINEM (20 Nov 2018), DOJ/ATF (14 Mar 2018), DOS/ITAR (19 Apr 2018), DOT/FACR/OFAC (5 June 2018), HTSUS (4 Jun 2019) 
  3. Weekly Highlights of the Daily Bugle Top Stories 

EXIMITEMS FROM TODAY’S FEDERAL REGISTER

[No items of interest noted today.] 
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OGSOTHER GOVERNMENT SOURCES

OGS_a11. Items Scheduled for Publication in Future Federal Register Editions
(Source: Federal Register, 11 June 2019.)

 

* Commerce/BIS; NOTICES; Agency Information Collection Activities; Proposals, Submissions, and Approvals: License Exemptions and Exclusions [Pub. Date: 12 June 2019.]
 
* Commerce/BIS; NOTICES; Order Renewing Order Temporarily Denying Export Privileges [Pub. Date: 12 June 2019.]
 
* State/DDTC; NOTICES; Designation as a Foreign Terrorist Organization: Shining Path (and Other Aliases) [Pub. Date: 12 June 2019.]
 
* Treasury/OFAC; NOTICES; Blocking or Unblocking of Persons and Properties [Pub. Date: 12 June 2019.]

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

OGS_a22
.
Commerce/BIS (No new postings.)

(Source: Commerce/BIS)

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OGS_a33. OMB/OIRA Reviews of Proposed Ex/Im Regulations: Modification of License Exception Additional Permissive Reexports (APR)

(Source:
OMB/OIRA
, 11 June 2019.)     
 
Office of Management & Budget; Office of Information and Regulatory Affairs (OIRA) Report of Executive Order Submissions Under Review:
 
* TITLE: Modification of License Exception Additional Permissive Reexports (APR)
– AGENCY: Commerce/BIS
– STAGE: Proposed Rule
– RECEIVED DATE: 6 June 2019.
– RIN:
0694-AH65
– STATUS:
Pending Review

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OGS_a55. Treasury/OFAC: “Specially Designated Nationals List Update”

(Source:
Treasury/OFAC, 11 June 2019.)
 
The following individuals have been added to OFAC’s SDN List: 
 
FOZ, Amer (a.k.a. FOZ, Amer Zuhair); DOB 11 Mar 1976; POB Homs, Syria; Gender Male; Passport O6O1O274747 (Syria) (individual) [SYRIA] (Linked To: ASM INTERNATIONAL TRADING, LLC). 
 
FOZ, Husen (a.k.a. FOZ, Hasan; a.k.a. FOZ, Hosn Zuhair; a.k.a. FOZ, Hoson; a.k.a. FOZ, Housen; a.k.a. FOZ, Hussen), Meadows 1, Street 13, Villa 38, Dubai, United Arab Emirates; Adawai Area Rawdet Aleman Bld, 1st Floor, Damascus City, Syria; DOB 25 May 1981; POB Lattakia, Syria; nationality Syria; alt. nationality Saint Kitts and Nevis; citizen Turkey; alt. citizen Syria; Gender Female; Passport U08527769 (Turkey); alt. Passport RE0027450 (Syria); National ID No. 06010274768 (Syria) (individual) [SYRIA] (Linked To: ASM INTERNATIONAL TRADING, LLC). 
 
FOZ, Samer (a.k.a. AL-FOUZ, Samer; a.k.a. FAWAZ, Samer; a.k.a. FAWZ, Samir; a.k.a. FOUZ, Samer; a.k.a. FOZ, Samer Zuhair; a.k.a. FOZ, Samir), Meadows 2, Street 3, Villa 5, Dubai, United Arab Emirates; DOB 20 May 1973; POB Latakia, Syria; nationality Syria; alt. nationality Turkey; alt. nationality Saint Kitts and Nevis; citizen Saint Kitts and Nevis; Gender Male; National ID No. 784197341865828 (Syria) (individual) [SYRIA]. 
 
The following entities have been added to OFAC’s SDN List: 
 
AL-MOHAIMEN FOR TRANSPORTING & CONTRACTING (a.k.a. AL MOHAIMEN FOR TRANSPORTATION AND CONTRACTING; a.k.a. AL-MOHAIMEN FOR TRANSPORTING AND CONTRACTING), Lattakia, Syria [SYRIA] (Linked To: AMAN HOLDING COMPANY). 
 
AMAN DAMASCUS JOINT STOCK COMPANY (a.k.a. AMAN DAMASCUS JSC), Damascus, Syria [SYRIA] (Linked To: AMAN HOLDING COMPANY). 
 
AMAN HOLDING COMPANY (a.k.a. AMAN GROUP; a.k.a. AMAN HOLDING GROUP; a.k.a. AMAN HOLDING PRIVATE JSC), Al Shurafa Building Aman Group, Al Moutanabi Street, Lattika, Syria [SYRIA] (Linked To: FOZ, Samer). 
 
ASM INTERNATIONAL TRADING, LLC (a.k.a. ASM INTERNATIONAL GENERAL TRADING COMPANY; a.k.a. ASM INTERNATIONAL GENERAL TRADING LLC), Jumeirah Lake Tower, Cluster 1, Platinum Tower, Office 2405, P.O. Box 36102, Dubai, United Arab Emirates [SYRIA] (Linked To: FOZ, Samer). 
 
BS COMPANY OFFSHORE (a.k.a. B S COMPANY; a.k.a. B.S. COMPANY OFFSHORE; a.k.a. BS COMPANY SAL OFFSHORE), Salame Building, Beit Mery, Lebanon [SYRIA]. 
 
FOUR SEASONS DAMASCUS (a.k.a. DAMASCUS FOUR SEASONS; a.k.a. FOUR SEASONS HOTEL DAMASCUS), Shukri Al Quatli Street, P.O. Box 6311, Damascus, Syria [SYRIA] (Linked To: FOZ, Samer). 
 
FOZ FOR TRADING (a.k.a. FOZ TRADING), Syria [SYRIA] (Linked To: AMAN HOLDING COMPANY). 
 
LANA TV, Beirut, Lebanon [SYRIA] (Linked To: FOZ, Samer). 
 
MAINPHARMA (a.k.a. MEENPHARMA), Syria [SYRIA] (Linked To: AMAN HOLDING COMPANY). 
 
MENA CRYSTAL SUGAR COMPANY LIMITED (a.k.a. M.E.N.A. CRYSTAL SUGAR COMPANY; a.k.a. M.E.N.A. SUGAR COMPANY; a.k.a. MENA SUGAR COMPANY), Homs, Syria [SYRIA] (Linked To: AMAN HOLDING COMPANY). 
 
ORIENT CLUB, Al Najmeh Square – Abou Romaaneh 6737, Damascus, Syria [SYRIA] (Linked To: FOZ, Samer). 
 
SILVER PINE (a.k.a. SILVER PINE DMCC), Jumeirah Lake Tower, Cluster 1, Platinum Tower, Office 2405, P.O. Box 36102, Dubai, United Arab Emirates [SYRIA] (Linked To: FOZ, Husen). 
 
SYNERGY SAL OFFSHORE, Azarieh street – Azarieh building, Beirut, Lebanon [SYRIA].

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NWSNEWS

NWS_a16
. American Shipper: “Drewry: Trade War Reshaping Supply Chains”
(Source:
American Shipper, 10 June 2019.)
 
U.S. tariffs are resulting in redesigned global supply chains as companies look for alternative, lower-cost suppliers, says Drewry. But it noted relocating production “is a costly endeavor with no safety assurances.”
 
In its Container Insight Weekly, Drewry said this year there has been an upsurge in U.S. imports from other parts of the world as imports from China have continued to fall. Since President Donald Trump entered office, Drewry said the ratio of U.S. imports covered by some form of trade protection rose from 2.3% to 14.9%.
 
Last year, China accounted for $539.5 billion of the $2.6 trillion goods the U.S. imported. Currently $250 billion worth of Chinese goods are subject to tariff. That would rise if the president follows through on his threat to slap tariffs on the remaining imports from China not subject to duties. …

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NWS_a27
. Defense News: “Raytheon Technologies Corporation: UTC, Raytheon Make Marriage Official”
(Source: Defense News, 10 June 2019.) [Excerpts.]
 
Raytheon and United Technologies Corporation will officially merge into a new entity called Raytheon Technologies Corporation, with the deal taking place in first half of 2020.
 
Following Saturday reports that a merger was imminent, the two firms made the news official Sunday, launching a website about the planned all-stock deal. On Monday, Raytheon CEO Thomas Kennedy and UTC CEO Greg Hayes held a conference call, where the two revealed that discussions about a potential merger started in summer 2018, before taking off in earnest this January. …
 
The new company will be roughly 50-50 defense and commercial, with plans to spend $8 billion on R&D after combining. Much of that funding will go towards high-end defense programs, including, per a news release, “hypersonics and future missile systems; directed energy weapons; intelligence, surveillance, and reconnaissance (ISR) in contested environments; cyber protection for connected aircraft; next generation connected airspace; and advanced analytics and artificial intelligence for commercial aviation.” …


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NWS_a38
. Reuters: “Top Japanese Chip Gear Firm to Honor U.S. Blacklist of Chinese Firms – Executive”
(Source: Reuters, 10 June 2019.)
 
Japan’s Tokyo Electron, the world’s No.3 supplier of semiconductor manufacturing equipment, will not supply to Chinese clients blacklisted by Washington, a senior company executive told Reuters.
 
The decision shows how Washington’s effort to bar sales of technology to Chinese firms, including Huawei Technologies, is ensnaring non-American firms that are not obliged to follow U.S. law.
 
China, which is locked in a crippling trade war with the United States, is pushing to build its semiconductor industry to reduce its reliance on U.S., Japanese and European suppliers for chip-making machinery. …

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COMMCOMMENTARY

COM_a19.
J. Helder, C. Klaui & D. Lund: “EU Trade Update: Council Issues Negotiating Mandate for Recast Dual Use Regulation”
* Authors: Jasper Helder, Esq., jasper.helder@akingump.com, +44 20 7661 5308; Chiara Klaui, Esq., chiara.klaui@akingump.com, +44 20 7661 5342; and Daniel Lund, Esq., daniel.lund@akingump.com, +44 20 7012 9653, all of Akin Gump Strauss Hauer & Feld LLP.
 
Key Points
 
– On June 5, 2019, the European Union (EU) took a step forward with respect to modernizing its existing dual use legislation under Council Regulation (EC) No 428/2009 (the “EU Dual Use Regulation”), with the European Council (the “Council”) issuing its mandate for negotiations with the European Parliament (the “Council Mandate”).
 
– When compared to the proposal first issued by the European Commission (the “Commission”) in 2016 (the “Commission Proposal”), the Council Mandate appears to reflect a desire from EU Member States for a more limited update to the EU Dual Use Regulation. In particular, the Council Mandate seeks to remove the substantive provisions relating to cyber surveillance and human rights, which have proved controversial both with EU decision-makers and in industry.
 
– The Council will now proceed to negotiate with the European Parliament (the “Parliament”) within the perimeters of its Council Mandate and in accordance with the ordinary legislative procedure, with a view to reaching an agreement.
 
Background
 
EU Member States are obligated under international commitments to have national controls in place to preclude the proliferation of nuclear, chemical, or biological weapons and their means of delivery. This includes controls over dual-use items, as well as related materials, equipment, and technology for export. In 2000, the EU therefore adopted Council Regulation (EC) No 1334/2000, which created a substantive legislative framework for the control of dual-use items, applicable throughout the EU. The current EU Dual Use Regulation recast the same regulation in 2009.
 
However, owing to changing technological, economic, and geo-political circumstances, in June 2011 the EU began considering reforms to the EU Dual Use Regulation with the Commission’s publication of a Green Paper and the holding of a public consultation. Feedback from the consultation included a desire from industry for a wider range of EU General Export Authorisations (UGEAs), as well as for a greater convergence of ‘catch-all’ controls. There was significant push back against the Commission’s suggestion for export controls to be used as a tool to protect and support human rights (referred to as the ‘human security’ approach). This (and other) preparatory work resulted in the Commission adopting its Proposal in September 2016. The Commission Proposal seeks to recast the EU Dual Use Regulation with the introduction of both a ‘system upgrade’ as well as a ‘system modernisation’ to the existing legislation. Among other elements, the Commission Proposal includes several contentious ‘human security’ aspects aimed at preventing the abuse of cyber-surveillance technologies by governments with a dubious approach to (and record with) human rights.
 
The Parliament adopted its first report (the “Report”) on the Commission Proposal in November 2017. The Report was positive and called on the Commission to go further by introducing (amongst other things) similar penalties for noncompliance across all Member States. The Report also recommended that the proposed legislation contain provisions to capture the new risks posed by emerging technologies. In January 2018, the Parliament voted in favour of the negotiating position set out in the Report and the starting of inter-institutional negotiations with the Council. As cited above, on June 5, 2019 the Council finally issued its own perimeters for negotiating with the Parliament.
 
Proposed Changes
 
The Council Mandate supports several changes to the existing EU Dual Use Regulation as envisaged under the Commission Proposal. However, it also either rejects or materially alters a number of the substantive provisions. We set out below some of the key changes proposed under the Council Mandate, as compared to the Commission Proposal.
 
1. Human Security
 
The Council Mandate removes the suggested (unilateral) Category 10 to Annex I covering surveillance systems, equipment, and components for Information and Communication Technology. This reflects (at least in part) substantive concerns certain EU Member States have raised with respect to the introduction of unilateral dual use controls at an EU level. From these discussions, it appears as though the certain Member States would prefer, at first instance, for: (i) national governments to introduce unilateral measures themselves through the existing mechanisms under the EU Dual Use Regulation relating to human rights concerns (i.e. Article 8 of the EU Dual Use Regulation); (ii) the EU to put forward a common position in relation to listing such technologies as part of the Wassenaar Arrangement; and (iii) EU restrictive measures on third countries to continue including export restrictions on such items (such as in the EU Venezuela sanctions).
 
In addition, the Council Mandate removes the ‘serious violations of human rights or international law’ and ‘acts of terrorism’ from the end use ‘catch all’ provisions that the Commission Proposal wishes to add to the existing ‘catch alls’ contained within Article 4 to the EU Dual Use Regulation. The Council Mandate also drops from the definition of ‘dual use items’ the term ‘cyber surveillance technology’. By explicitly including the term ‘cyber surveillance technology’ in the definition of ‘dual use item’, the Commission Proposal would see any such item, if not included in Annex I, be covered by the aforementioned end use catch all controls.
 
2. EU Licensing Architecture
 
The Commission Proposal introduces four new UGEAs to help further facilitate trade while ensuring a sufficient level of security through robust control measures (e.g. through registration, notification and reporting, and auditing). The four UGEAs are (i) ‘Low Value Shipments’; (ii) ‘Intra-company Transmission of Software and Technology’; (iii) ‘Encryption’; and (iv) ‘Other Dual Use Items’. The Council Mandate proposes to drop the UGEAs for ‘Low Value Shipments’ and ‘Other Dual Use Items’. Moreover, the Council Mandate seeks to introduce tighter licensing conditions with respect to the Encryption UGEA. It also reduces the number of permitted countries under the ‘Intra-company’ UGEA, and maintains that users must put in place an internal compliance programme as a condition of use.
 
The Council Mandate keeps the concept of a ‘Large Project Authorisation’ (LPA). The Council Mandate states that an LPA could be either a global or an individual licence (the Commission Proposal only suggests an LPA as being a ‘global’ licence). Member State authorities would be able to grant an LPA to one specific exporter, in respect of a type or category of dual use items, which may be valid for exports to one, or more specified end users in one or more specified third countries. The Commission Proposal suggests that the project duration should exceed one year, whereas the Council Mandate is silent on a minimum length but places an upper limit of four years (unless there is a circumstantial justification for a longer period). Finally, neither the Council Mandate nor the Commission Proposal offer a definition of ‘Large Project’, and so Member States would likely be left to determine its scope (the Commission has previously put forward the construction of a nuclear power plant as an example).
 
3. Circumvention Clause
 
To counter illicit trafficking and bring the EU Dual Use Regulation in line with other EU trade security instruments (e.g. EU restrictive measures), the Commission Proposal introduces a circumvention clause. The clause creates a prohibition on knowingly and intentionally participating in activities the object or effect of which is to circumvent the: (i) export licence requirement for Annex I items; and (ii) catch all controls for non-Annex I items in respect of export, brokering services, transit, and technical assistance. The Council Mandate removes this clause in its entirety.
 
4. Technical Assistance
 
Under the EU Dual Use Regulation, ‘technical assistance’ is an aspect of the defined term ‘technology’ and thus controlled when captured by an Export Control Classification Number (ECCN). Both the Commission Proposal and the Council Mandate agree on defining ‘technical assistance’ separately from the definition of ‘technology’.
 
The Council Mandate also maintains the new definition of ‘supplier of technical assistance’, which would cover: (i) any natural or legal person or partnership resident or established in a Member State of the EU; (ii) a legal person or partnership owned or controlled by such person; or (iii) another person which supplies technical assistance from the EU into the territory of a third country.
 
Taken together, both the Commission Proposal and the Council Mandate agree that an authorisation should be required where ‘technical assistance’ relates to dual use items or their provision, manufacture, maintenance or use, and the ‘supplier of technical assistance’ is aware that assistance is for, or told by authorities that assistance is or may be for a prohibited end-use. That said, the Commission Proposal includes ‘serious violations of human rights or international law’ and ‘acts of terrorism’ as prohibited end-uses. However, the Council Mandate removes both inclusions such that it will only apply where the ‘technical assistance’ is for: (i) weapons of mass destruction end use; (ii) military end use in an arms embargoed country; or (iii) use as parts or components of military items exported without license or in violation thereof.
 
5. Other Points to Note
 
Enforcement mechanism:
The Commission Proposal and the Council Mandate align on the need to introduce provisions to support information exchange and cooperation on enforcement between Member States, in particular with the setting up of an ‘enforcement coordination mechanism’ under the Dual-Use Coordination Group. Both, however, stop short of introducing concrete measures to promote the harmonization of enforcement and monitoring of export controls compliance.
 
Exporter definition:
The Commission Proposal and the Council Mandate extend the concept of ‘exporter’ to include reference to ‘any natural person carrying the goods to be exported where these goods are contained in the person’s personal baggage’.  
Licensing for exporters based outside of the EU: The Commission Proposal states that where an exporter is not resident or established within the EU, then the Member State authority responsible for issuing authorisations is the one where the dual use items are located. The Commission Proposal indicates that both global and individual licences should be available in such instances. The Council Mandate, however, restricts this provision to individual authorisations only.
 
Broker definition:
The Commission Proposal extends the concept of broker to non-EU companies, which are owned or controlled by an EU resident, or an EU company, as well as to persons carrying out brokering services from the EU into the territory of a third country. The Council Mandate removes this suggestion.
 
Due diligence:
The Commission Proposal and subsequent amendments by the Parliament requires exporters to implement a due diligence process to confirm the absence of any circumstances triggering ‘catch all’ end use controls (including serious violations of human rights and acts of terrorism). The Council Mandate removes this requirement.
 
Union general transfer authorisation:
the Commission Proposal seeks to introduce a Union general transfer authorisation, which would permit (subject to conditions) the intra-EU transfer of Annex IV items. The Council Mandate appears to remove this concept in its entirety.
 
Public security includes ‘acts of terrorism’ under Article 8:
The Council Mandate explicitly confirms that Member States may prohibit or impose an authorisation requirement on dual use items not listed in Annex I for public security reasons, which includes ‘the prevention of acts of terrorism’. This is an addition to the existing wording under Article 8 of the EU Dual Use Regulation and appears to reflect the Council’s desire for Member States to be more proactive in the use of national lists where appropriate.
 
Next Steps
 
Taken as a whole, the Council Mandate reflects the Member States’ wish to implement a more modest update to the EU Dual Use Regulation, as compared to both the Commission Proposal and the documented wishes of the previous European Parliament. At this point, it is difficult to say whether the new incoming Parliament will be receptive to the Council’s watered down approach, or if it will stick to its previous position. If, however, distance remains between both the Council and Parliament, then it is difficult to see the EU adopting any recast to the EU Dual Use Regulation in the near future.
 
As a wider point, the Council Mandate reveals a reluctance on the part of Member States to introduce new measures at an EU level to tackle the perceived risks from emerging technologies through export controls. The Parliament made the introduction of such measures a key recommendation in its November 2017 Report, and may well continue to raise the issue in the forthcoming negotiations with the Council. Whilst there are existing mechanisms in place for Member States to introduce unilateral controls, any national government contemplating any such measures would likely face considerable pressure from industry to desist. It therefore raises the question, especially in light of recent developments in the United States and elsewhere, as to how the EU will seek to address similar concerns across Europe regarding the control of emerging technologies (if not through the EU Dual Use Regulation).

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COM_a2
10
.
M. Volkov: “Conducting a Sanctions Risk Assessment: A New Era for Analyzing Your Risks (Part II of IV)”
(Source: Volkov Law Group Blog, 5 June 2019. Reprinted by permission.)
 
* Author: Michael Volkov, Esq., Volkov Law Group, mvolkov@volkovlaw.com, 240-505-1992.
 
The term “internal controls” is a loaded one – it morphs in various ways depending on the context. Sometimes it is a shorthand for financial accounting controls; other times it encompasses a company’s compliance controls (i.e. policies and procedures).
 
OFAC embraced the term to equate with a company’s policies and procedures for sanctions compliance. OFAC recognized that OFAC compliance functions have to begin with the business, and that from this point on sanctions compliance depends on clear rules for identifying, elevating and resolving potential red flags. This may not sound like a big deal for ethics and compliance programs, given the myriad risks that companies face, but in the sanctions context it is important because companies tend to relegate sanctions compliance to a lower priority than required. OFAC’s aggressive enforcement record and its compliance framework should change this landscape.
 
Under general requirements, OFAC’s internal controls element, lists the following:
 
– An effective SCP should include internal controls, including policies and procedures, in order to identify, interdict, escalate, report (as appropriate), and document SCP compliance activity.
 
– The purpose of internal controls is to define procedures and processes pertaining to OFAC compliance (including reporting and escalation chains), and minimize the risks identified by the organization’s risk assessments.
 
– Policies and procedures should reflect the organization’s day-to-day operations and procedures, and should be enforced;
 
– Internal and/or external audits and assessments of the program should be conducted on a periodic basis.
 
– Again, OFAC’s general requirements are probably covered by existing compliance programs, especially in the trade compliance area.
 
On the more specific level, however, there are two interesting items that will require revision of an SCP.
 
– To the extent information technology solutions factor into the organization’s internal controls, the organization has selected and calibrated the solutions in a manner that is appropriate to address the organization’s risk profile and compliance needs, and the organization routinely tests the solutions to ensure effectiveness.
 
– The organization ensures that its OFAC-related recordkeeping policies and procedures adequately document its SCP.
 
The new focus on an organization’s technology solution reflects OFAC’s unwillingness to ignore any potential screening error as mitigation for a sanction’s violation. This reflects OFAC’s important enforcement action in the Cobham case in which the company was found liable despite a clear screening error.
 
Under this new and important requirement, a company has to document why it selected an information technology; how it calibrated the system to conform to its risk profile; and whether it tested the accuracy of the technology (at least annually). This is a new and important compliance requirement.
 

[Part IV of this series will be published tomorrow.]

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COM_a3
11
. R. Griffin & P. Mehta: “European Oil Majors Brave Sanctions Risk to Sign New Energy-Cooperation Deals with Russia”
(Source: S&P Global, 7 June 2019.)
 
* Author: Rosemary Griffin, rosemary.griffin@spglobal.com, Nadia Rodova, nadia.rodova@spglobal.com, Pankti Mehta, pankti.mehta@spglobal.com, both of S&P Global.
 
European oil majors including Shell and OMV signed new cooperation deals with Russian energy companies during the St. Petersburg International Economic Forum this week, in a sign that they were willing to make new investments despite risks of potential new sanctions.
 
Since 2014 when the US and other Western countries introduced sanctions against Russia, Russian energy companies have operated with limited access to Western financing and some type of oil production technology.
This had made Western majors more cautious about signing up to new investments, with some companies winding down cooperation that could be in breach of sanctions.
 
Cooperation on conventional hydrocarbons projects continues to grow, however. Deals signed this week included Shell, Gazprom Neft and Spain’s Repsol agreeing to jointly develop hydrocarbons projects in the Russian Arctic. This followed an agreement Thursday between Shell and Gazprom Neft to set up a West Siberian oil joint venture to develop fields with combined estimated reserves of more than 8 billion barrels.
 
Other deals included Austria’s OMV agreeing to purchase terms for a stake in a gas project in northern Russia, as well as a preliminary LNG deal with Russian gas giant Gazprom.
 
There are also signs that Russian and Western companies are considering to increase cooperation in other countries.
 
Gazprom Neft CEO Alexander Dyukov said the company may work with Shell on projects abroad.
 
Meanwhile, Total and Siemens agreed to cooperate on an LNG project in Vietnam with Russia’s Novatek and Zarubezhneft.
 
The CEOs of ExxonMobil and BP also took part in the forum, meeting with Russian officials and discussing cooperation with existing partners.
 
Reduced Sanctions Risk
 
The deals come at a time when some analysts believe that the risk of new sanctions being introduced against Russia has receded.
 
“Targeted US sanctions against Russia remain possible, from issues ranging from Sergei Skripal, to Ukraine, to US election interference. However, the lack of major new revelations regarding Russia in the Mueller report reduces the odds of major sectoral sanctions targeting Russia’s upstream energy production,” Platts Analytics’ Paul Sheldon said.
 
In the past, Russia’s close relationship with Iran and Venezuela sparked speculation that the US administration’s sanctions targeting those two countries could include secondary sanctions against Russian energy projects.
 
“Secondary sanctions related to Russian dealings with PDVSA or Iran, if announced or implemented, would be unlikely to target Russian upstream oil production at this point,” Sheldon said.
 
Russian officials also used the forum as a platform to warn of the impact of sanctions. Energy minister Alexander Novak said that sanctions are leading to increased interest in establishing alternative payment systems and switching to trading in national currency.
 
A key concern among Russian officials is that future US sanctions against the country could restrict Russian companies’ access to the US dollar. Since they first started testing the viability of using alternative currencies in the wake of sanctions in 2014, rising global trade tensions, most notably between the US and China, have made some of its major partners more receptive to non-dollar trade.
 
The importance of the US dollar in oil trading and the considerable additional forex risks associated with alternative currencies have lead most analysts to forecast that a major switch away from the dollar is unlikely in the near future.

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COM_a4
12
.
R. Liu & H. Jiang: “A Guide to China’s Exclusion Procedure for Additional Tariffs on the Import of U.S. Goods”
(Source:
Dorsey & Whitney LLP, 7 June 2019.) [Excerpts.]
 
* Authors: Ray Liu, Esq., liu.ray@dorsey.com, (86-10) 8513 5988; and Helen Jiang, Esq., jiang.helen@dorsey.com, +1 (212) 415 9384, both of Dorsey & Whitney LLP.
 
As the countermeasure tariffs imposed on the U.S. – and China-origin imports between the two countries continue, Chinese authorities for the first time have established an exclusion procedure for Chinese imports of U.S.-origin goods (the “Procedure”). On May 13, 2019, the Customs Tariff Commission of the State Council announced the Procedure in a notice. The Procedure provides a relatively narrow window of time for affected entities to apply for their goods to be excluded from countermeasure tariffs on a case-by-case basis.
 
The Procedure is unquestionably a lifeline for companies in the protracted U.S.- China trade war (for background, please see our earlier updates here and here). It potentially protects companies that lack viable non-U.S. substitutes for their products, and domestic industries that may be significantly damaged by the increased tariffs. It also may spare Chinese customers and producers from increased costs.
 
Goods that are successfully excluded under the Procedure will not be levied with countermeasure tariffs for one year beginning from the implementation date of the Procedure. Furthermore, importing entities whose goods bear the 8-digit tariff HS code that fall within the scope of exclusion can also apply for tariff refund for the countermeasure tariffs already imposed.
 
According to the three-page bare-bones implementation measure issued by the Customs Tariff Commission of the State Council of China (the “Tariff Commission”) on May 13, 2019, not only domestic Chinese importers, manufacturers or companies that use the goods, but all entities that have an interest in the affected products – including foreign invested entities registered in China – are eligible to apply for exclusions. Such entities can be companies, industrial associations or chambers of commerce. It is encouraged that industrial associations or chambers of commerce apply on behalf of their members to avoid duplicative applications.
 
In light of the benefits and short window for application, affected entities in China should therefore take full advantage of this opportunity to mitigate the adverse impact felt from the protracted trade war.
 
Scope of Exclusion
 
Two batches of U.S.-origin imports are eligible to apply for exclusions:
 
– First batch:
       – List of goods subject to countermeasure tariffs per the Notice on Imposing Tariffs to Imports of U.S. $50 Billion U.S.-Origin Imports (Tariff Commission Bulletin [2018] No.5), effective from July 6, 2018
 
       – List of goods subject to countermeasure tariffs per the Notice on Imposing Tariffs to Imports of U.S. $16 Billion U.S.-Origin Imports (Tariff Commission Bulletin [2018] No.7), effective from August 23, 2018
 
Second batch:
goods listed in Annex 1 to 4 of the Notice on Increasing Tariff Rate for Certain U.S.-Origin Imports (Second Batch) (Tariff Commission Bulletin [2018] No.6)
 
However, imports whose tariffs are lifted or suspended do not fall within this scope, such as automobiles and parts of automobiles. (Tariff Commission Bulletin [2018] No.10 and No.11, issued in December 2018 and March 2019 respectively, have suspended the tariffs levied on automobiles and parts.)
 
Grounds for Exclusion
 
The Procedure requires on-line submission of information explaining the grounds for the application, and addressing the following three issues:
 
– Difficulties in obtaining substitutes for the U.S.-origin imports
– Severe economic damage to the applicant incurred by the increased tariffs, and
– Analysis of the major structural repercussions on the relevant industry (including the impact on industry-wide development, technological progress, environmental protection, among others), or analysis of major social consequences of the tariffs.
 
Applications should include facts substantiated with evidence and quantitative data.
 
Time and Method of Application
 
An applicant (entity, industry association or chamber of commerce) should submit the application through the website of the Tariff Policy Research Center of the Ministry of Finance (http://gszx.mof.gov.cn). Goods with different tariff HS codes should be filed via separate applications. The applicant should register as a user in the system and submit basic information about the goods for which the exclusion is sought, import history and data for three years, detailed impact on the entities being affected, and specific grounds for exclusion.
 
Applications can be submitted from June 2, 2019 to July 5, 2019 for goods listed in the first batch. For goods belonging to the second batch, the application period is from September 2, 2019 to October 18, 2019. The Tariff Commission of the State Council will review applications on a case-by-case basis, together with internal investigation, research, consultation with relevant experts, associations and departments. No public hearing with interested parties will be held. The exclusion list will be published in due course.  
 

Applications for tariff refunds should be submitted to the Chinese customs authorities within six months from the date of publication of the exclusion list (May 13, 2019). …

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COM_a5
13
.
T. Kassenova: “Challenges with Implementing Proliferation Financing Controls: How Export Controls Can Help”
(Source: Carnegie Endowment, 30 May 2019.) [Excerpts.]
 
* Author: Togzhan Kassenova, Nonresident Fellow Nuclear Policy Program, TKassenova@ceip.org, Carnegie Endowment.
 
“We only catch the dumb ones,” – that is what the risk manager of a major bank tells me when I ask about banks’ ability to detect illicit financial transactions. Detecting proliferation-relevant illicit financing is even harder than detecting money laundering or terrorism financing. Governments and financial institutions around the world have been dealing with money laundering and terrorism financing for decades. They have developed typologies, “red flags,” and standard operating procedures to minimize exposure to money laundering or terrorism financing. Compared to money laundering and terrorism financing, proliferation financing is a relatively recent and less understood challenge.1
 
The risks posed by weapons of mass destruction (WMD) stem not only from ready-made bombs, nuclear, chemical, or radiological material, but from dual-use goods and technology that are traded, shipped, and used globally. Laptops, transistors, instant coffee – almost every single moment, no matter where you find yourself in the world, you are surrounded by products that rely on the same technology and material as weapons of mass destruction. Semi-conductor material that is indispensable for laptops and transistors can be used in military equipment. Production of instant coffee, as well as of dry ice-cream for astronauts, relies on freeze-drying technology that can be used in bio-warfare research. Components for nuclear power reactors that generate electricity rely on dual-use components and technology that can be used in a nuclear weapons program. …

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TEEX/IM TRAINING EVENTS & CONFERENCES

TE_a114. ECS Presents “ITAR/EAR Bootcamp: Achieving Compliance” on 8-9 Jul in Seattle, WA

(Source: ECS)
 
* What: ITAR/EAR Bootcamp: Achieving Compliance; Seattle, WA
* When: July 8-9, 2019
* Where: 
Sheraton Grande
* Sponsor: Export Compliance Solutions & Consulting (ECS)
* ECS Speaker Panel: Suzanne Palmer, Mal Zerden
* Register 
here
 
or by calling 866-238-4018 or email

 

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TE_a215. FCC Presents “Designing an ICP for Export Controls & Sanctions”, 1 Oct in Bruchem, the Netherlands

 
This training course is designed for compliance officers, managers, and other professionals who aim to enhance their organization’s compliance efforts. The course will cover multiple topics and tackle various key questions, including but not limited to:
– Setting the Scene: ensuring compliance in the export control and sanctions arena
– What is expected from your organization? A closer look at the official frameworks and guidelines from U.S. and European government agencies
– Key elements of an ICP
– Best practice tips for enhancing your current compliance efforts  
– Internal controls samples (policies, procedures, instructions)
– Strategic benefits of having an ICP.
 
* What: Designing an Internal Compliance Program (ICP) for Export Controls & Sanctions
* Date: Tuesday, 1 Oct 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 – 4.30 pm
* Level: Intermediate
* Target Audience:  the course provides valuable insights for both compliance professionals, employees and (senior / middle) management working in any industry subject to U.S. and/or EU (member state) export control laws and sanctions regulations.
* Instructors: Drs. Ghislaine C.Y. Gillessen RA and Marco M. Crombach MSc.
* Information & Registration: click
here or contact us at 
events@fullcirclecompliance.eu or 31 (0)23 – 844 – 9046.  

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ENEDITOR’S NOTES

 
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EN_a317
. 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: 5 Apr 2019:
84 FR 13499-13513: Civil Monetary Penalty Adjustments for Inflation
 


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: 5 June 2019: 
84 FR 25986-25989
: Restricting the Temporary Sojourn of Aircraft and Vessels to Cuba


 
* 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: 14 Mar 2019: 84 FR 9239-9240: Bump-Stock-Type Devices 

 

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: 19 Apr 2019: 84 FR 16398-16402: International Traffic in Arms Regulations: Transfers Made by or for a Department or Agency of the U.S. Government   
  – The only available fully updated copy (latest edition: 19 Apr 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: 5 June 2019: 84 FR 25992 – June 2019 Amendments to the Cuban Assets Control Regulations [amendment of 31 CFR Part 515] 

  
* 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: 4 June 2019:
Harmonized System Update (HSU) 1910  

  – HTS codes for AES are available here.

  – HTS codes that are not valid for AES are available here.

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EN_a0318
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; and Assistant Editors, Alexander Witt and Sven Goor. The Ex/Im Daily Update is emailed every business day to approximately 7,000 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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