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19-0625 Tuesday “Daily Bugle'”

19-0625 Tuesday “Daily Bugle”

Tuesday, 25 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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  1. Commerce/BIS Seeks Comments on Form BIS-999 
  1. Items Scheduled for Publication in Future Federal Register Editions 
  2. Commerce/BIS: (No new postings.)
  3. State/DDTC: (No new postings.)
  4. UK ECJU Informs on Court of Appeal Judgement on Military Exports to Saudi Arabia
  1. American Shipper: “US Tries to Dial Back China’s Supercomputer Development”
  2. RAPSI: “Putin Extends Counter Measures in Response to EU Sanctions Until Late 2020”
  3. Reuters: “U.S. Fines Firms Transhipping Via Cambodia to Dodge Trump’s China Tariffs”
  4. University World News: “US Export Controls Raise Research Collaboration Concerns”
  5. WSJ: “FedEx Sues Commerce Department Over Restrictions on Huawei”
  1. Iran Watch: “Extradition of Iranian Engineer, Suspected of Missile-Related Procurement, Moves Forward”
  2. J. Hungerford & P. Whitfield-Jones: “OFSI’s Penalty Against Travelex – More than Meets the Eye”
  3. K. Toomey: “Why the Deemed Export Rule Is So Critical: EAR and ITAR”
  1. ECS Presents “2nd Annual ECS ITAR/EAR Symposium and Boot Camp” on 17-19 Sep in Annapolis, MD
  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 (13 Jun 2019) 
  3. Weekly Highlights of the Daily Bugle Top Stories 

EXIMITEMS FROM TODAY’S FEDERAL REGISTER

EXIM_a11. Commerce/BIS Seeks Comments on Form BIS-999

(Source:
Federal Register, 25 June 2019.) [Excerpts.]
 
84 FR 29845: Submission for OMB Review; Comment Request
 
The Department of Commerce will submit to the Office of Management and Budget (OMB) for clearance the following proposal for collection of information under the provisions of the Paperwork Reduction Act (44 U.S.C. Chapter 35).
 
* AGENCY: Bureau of Industry and Security.
* TITLE: Special Priorities Assistance.
– OMB Control Number: 0694-0057.
– Form Number(s): BIS-999.
– Type of Review: Regular Submission. …
 
* Needs and Uses: The information collected from defense contractors and suppliers on Form BIS-999, Request for Special Priorities Assistance, is required for the enforcement and administration of special priorities assistance under the Defense Production Act, the Selective Service Act and the Defense Priorities and Allocation System regulation. Contractors may request Special Priorities Assistance (SPA) when placing rated orders with suppliers, to obtain timely delivery of products, materials or services from suppliers, or for any other reason under the DPAS, in support of approved national programs. The Form BIS-999 is used to apply for such assistance.
 
– Affected Public: Business or other for-profit organizations.
– Frequency: On occasion.
– Respondent’s Obligation: Voluntary.
 
This information collection request may be viewed at
reginfo.gov 
http://www.reginfo.gov/public/. Follow the instructions to view
Department of Commerce collections currently under review by OMB. Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to
OIRA_Submission@omb.eop.gov. ..

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OGSOTHER GOVERNMENT SOURCES

OGS_a12. Items Scheduled for Publication in Future Federal Register Editions
(Source: Federal Register, 25 June 2019.)

   
* DHS/CBP; NOTICES; Agency Information Collection Activities; Proposals, Submissions, and Approvals: Sector Outreach and Programs Online Meeting Registration Tool
[Pub. Date: 26 June 2019.]
 
* PRESIDENT; Executive Orders; Iran; Imposition of U.S. Sanctions (EO 13876)
[Pub. Date: 26 June 2019.]
 
* U.S.-China Economic and Security Review Commission; NOTICES; Meetings; U.S.-China Economic and Security Review Commission
[Pub. Date: 26 June 2019.]

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OGS_a23
.
Commerce/BIS (No new postings.)

(Source: Commerce/BIS)

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OGS_a45UK ECJU Informs on Court of Appeal Judgement Concerning Military Exports to Saudi Arabia

(Source:
UK ECJU, 25 June 2019.) [Excerpts.]
 
On 20 June the Court of Appeal handed down its judgment of Campaign Against Arms Trade’s appeal against the dismissal by the Divisional Court, in July 2017, of its claim for judicial review of licensing decisions about military exports to Saudi Arabia which might be used in the conflict in Yemen.
 
The judgment is not about whether the decisions themselves were right or wrong but whether the process used to reach these decisions was correct. The government disagrees with part of the judgment and is seeking permission to appeal. The Secretary of State for International Trade has made a 
statement to Parliament about this matter.
 
The government is now carefully considering the implications of the judgment for decision-making.
 
While we do this, we will not grant any new licences for exports to Saudi Arabia and its coalition partners (UAE, Kuwait, Bahrain and Egypt) which might be used in the conflict in Yemen.
 
Extant licences – those granted before this judgment – are not immediately affected by the Court Order. Exporters may continue to export under extant licences. But we are required by the Court to reconsider the decisions we made about those licences.
 
We have also stopped new registrations for 6 open general export licences (OGELs):
 
Exporters who have already registered for these OGELs may continue to use them to export to Saudi Arabia and its coalition partners, subject to the terms and conditions of the licences. Arrangements will be put in place for future registrations for other destinations permitted by these OGELs.
 
We will provide further information for exporters as soon as we are able to do so. …

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NWSNEWS

NWS_a16
American Shipper: “U.S. Tries to Dial Back China’s Supercomputer Development”

(Source:
American Shipper, 24 June 2019.) [Excerpts.]
 
The Commerce Department has taken aim at China’s burgeoning supercomputer research and development efforts, which it sees as intricately tied to the country’s military buildup, by adding five of the country’s leading companies and research institutions to the Bureau of Industry and Security’s Entity List. …
 
The End-User Review Committee (ERC), which is composed of members from the Commerce, State, Defense, Energy and Treasury departments, stated in a Federal Register notice that, for the five newly listed Chinese entities, “there is reasonable cause to believe, based on specific and articulable facts, have been involved, are involved or pose a significant risk of being or becoming involved in activities that are contrary to the national security or foreign policy interests of the United States and those acting on behalf of such persons.”
 
The five Chinese entities to be added to the Entity List are Chengdu Haiguang Integrated Circuit, Chengdu Haiguang Microelectronics Technology, Higon, Sugon and Wuxi Jiangnan Institute of Computing Technology. …

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NWS_a27
RAPSI: “Putin Extends Counter Measures in Response to EU Sanctions Until Late 2020

(Source:
Russian Legal Information Agency, 24 June 2019.)
 
Russian President Vladimir Putin has signed a decree extending special economic measures for security reasons until December 31,2020.
 
The document’s text has been published by the presidential press office.
 
Putin has ordered the government to ensure administration of policies required to implement the order. The document takes effect from the day of its signing.
 
The economic sanctions targeting the financial, energy, and defense sectors, as well as the sector of dual-use goods, were first introduced on July 31, 2014, for a one-year period and toughened in September 2014. Later, the Council of the European Union repeatedly prolonged the restrictions.


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NWS_a38
. Reuters: “U.S. Fines Firms Transhipping Via Cambodia to Dodge Trump’s China Tariffs”

(Source:
Reuters, 19 June 2019.) [Excerpts.]


 
The United States has fined several companies for exporting goods via a Chinese-owned special economic zone in Cambodia in a bid to dodge President Donald Trump’s tariffs on Chinese imports, a U.S. Embassy official told Reuters on Wednesday.
 
Earlier this month, Vietnam’s customs department said it had also found scores of cases of exporters illegally relabelling Chinese goods as “Made in Vietnam” in order to avoid tariffs imposed as a result of the ongoing U.S.-China trade war.
 
“The Department of Homeland Security has inspected and fined a number of companies for evading tariffs in the United States by routing goods through Cambodia,” U.S. Embassy spokesman Arend Zwartjes told Reuters in an emailed statement. …

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NWS_a49
University World News: “U.S. Export Controls Raise Research Collaboration Concerns”

(Source:
University World News, 25 June 2019.) [Excerpts.]


 
As more and more Chinese universities and institutions are added to United States government lists to control exports and other exchanges, including research, universities are becoming more nervous about falling foul of the rules.
 
The move by the Bureau of Industry and Security of the US Department of Commerce to add Chinese institutions to its ‘Entity List’ is seen as a way for the US to protect the transfer of ‘sensitive’ technologies. For some universities it means extra paperwork, while others could be deterred from collaborating with listed Chinese universities or from university-industry collaborations for fear of inadvertently breaking the rules.
 
Dozens of Chinese firms and universities have been added to the US Entity List, which also included telecoms giant Huawei and some 68 non-US affiliates of the company in 26 countries for the first time in May – though subject to a 90-day waiver. Inclusion on the list requires US universities to seek permission for certain types of research collaboration as it applies to “controlled US-origin content”. …

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NWS_a510
WSJ: “FedEx Sues Commerce Department Over Restrictions on Huawei”

(Source:
Wall Street Journal, 25 June 2019.) [Excerpts.]
 
FedEx Corp. , after botching some deliveries for Huawei Technologies Co., filed a lawsuit Monday to stop the U.S. government from requiring the package giant to enforce a crackdown on the Chinese telecommunications-gear maker.
 
The lawsuit, filed in a federal court in Washington, D.C., claims the U.S. Commerce Department’s latest restrictions are essentially forcing FedEx to police millions of packages it ships daily to ensure prohibited items aren’t being exported to Huawei. It is a task, FedEx claims, that is legally and logistically impossible. …
 
The Commerce Department, citing national-security concerns, said in May it was adding Huawei and its affiliates to its “entity list,” preventing companies from supplying U.S.-origin technology to Huawei without U.S. government approval.
 
Huawei has warned the U.S. restrictions could knock as much as $30 billion from its revenue this year and next. Several U.S. suppliers, including chip maker Broadcom Inc., have warned of a hit to their own sales from the escalating trade dispute. …

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COMMCOMMENTARY

COM_a111.
Iran Watch: “Extradition of Iranian Engineer, Suspected of Missile-Related Procurement, Moves Forward” 

(Source:
Iran Watch
, 21 June 2019.)
 
An Iranian engineer alleged by the United States to be supporting Iran’s military may soon be extradited from France to the United States. Late last month, a court of appeals in Aix-en-Provence ruled that the extradition of Jalal Rohollahnejad could proceed, although he may still make a final legal appeal of the decision to the Court of Cassation in Paris. Charges against Rohollahnejad in U.S. federal court relate to his alleged involvement in an attempt to procure U.S.-origin items with potential military applications for Iran.
 
While U.S. court documents related to this case have not been released, the extradition procedure in France took place publicly and was reported on in the French media. [FN/1] According to these reports, between April 2016 and June 2018, Rohollahnejad allegedly sought industrial microwave and anti-drone systems from several U.S. firms for
Rayan Roshd Afszar
, an entity connected to the Islamic Revolutionary Guard Corps (IRGC). Rayan Roshd produces components for the IRGC’s drone program, according to the U.S. Department of the Treasury [FN/2]. Rohollahnejad allegedly aimed to disguise the Iranian end-user and destination for these items by using a Chinese pseudonym and declaring the United Arab Emirates (UAE) as the ultimate destination. Payments related to the scheme allegedly totaled about $1 million and involved transfers through several shell companies.
 
The China Connection
 
Rohollahnejad appears to have strong connections to China, where he reportedly lived for about ten years. He earned a PhD in optical engineering in 2017 from the Huazhong University of Science and Technology in Wuhan, China. [FN/3] His research areas include fiber optic sensors, adaptive optics, high power fiber lasers, and ultra-fast measurement and temporal imaging. And he has published a number of scholarly journal articles on these topics since 2009, listing Huazhong University as his affiliation. [FN/4]
 
The alleged Iranian end-user, Rayan Roshd, is also connected to China. The company is part of the Beijing-based Rayan Group, which shares personnel with Rayan Roshd and helped the Iranian firm obtain items with military applications from China. Rayan Roshd, along with related persons and companies, was sanctioned by the Treasury Department in July 2017 for supporting the IRGC’s drone program. [Fn/5] In addition, according to Treasury, the firm produced software for the IRGC’s aerospace program and has supported the IRGC’s efforts to restrict social media and telecommunications in Iran.
 
Ballistic missiles?
While the precise nature of Rohollahnejad’s connection to Rayan Roshd is unclear, he did acknowledge in French court that he worked with Iran’s
Aerospace Industries Organization (AIO)
for about ten years “on research projects that were 100% scientific.”[FN/6] AIO is a subsidiary of Iran’s
Ministry of Defense and Armed Forces Logistics (MODAFL)
, overseeing ballistic missile development and production through dozens of subordinate entities. Over a dozen people or firms associated with AIO remain subject to U.N. Security Council sanctions because of their support for Iran’s ballistic missile program. [FN/7]
 
Rohollahnejad is also connected to AIO through his publishing history. He is listed as a co-author on a Persian-language paper titled “Using Infrared to Detect Missiles” that was submitted to a defense conference held in Tehran sometime after 2001. In this paper, Rohollahnejad lists
Shahid Alamolhoda Industries
as his affiliation.[FN/8] This firm is involved in the development of missile components and is owned or controlled by the
Naval Defense Missile Industry Group (SAIG),
itself controlled by AIO.
 
Status and Next Steps
 
French authorities arrested Rohollahnejad on February 2, 2019 after he flew from Tehran to Nice by way of Moscow. He had obtained a French visa in order to travel to southeastern France for meetings with a company related to a project on underground water in the Persian Gulf. Rohollahnejad denies the U.S. allegations, and his lawyers claim that the United States is pursuing “a strategy of smoke and mirrors” as part of a “cold war” between the United States and Iran. [FN/9]
 
Rohollahnejad is reportedly planning to appeal the May 22 decision on his extradition. He and his lawyers disagree with the court’s prosecutors who argued that Rohollahnejad’s alleged actions would also be illegal under French law – a requirement for extradition from France. This appeal will go to the Court of Cassation in Paris. If the lower court ruling is confirmed, the Prime Minister would then need to issue a decree confirming Rohollahnejad’s extradition to the United States. This step would itself be subject to administrative appeal to the Conseil d’Etat, which acts as the country’s equivalent of the Supreme Court for administrative affairs.
 
In the meantime, Rohollahnejad is being held in French prison. Officials from the Iranian embassy were present in court during extradition proceedings and have sought – four times – to have Rohollahnejad freed pending the result of his appeal. The court considers Rohollahnejad to be a flight risk and has rejected these requests.
 
Footnotes:
 
[FN/1] See in particular: Luc Leroux, “Le sort d’un Iranien entre justices francaise et americaine,” Le Monde, April 30, 2019; and “Avis favorable à l’extradition d’un ingénieur iranien vers les USA,” Le Figaro, May 22, 2019.
 
[FN/2] “Treasury Targets Persons Supporting Iranian Military and Iran’s Islamic Revolutionary Guard Corps,” Press Release, U.S. Department of the Treasury, July 18, 2017, available at https://www.iranwatch.org/library/governments/united-states/executive-branch/department-treasury/treasury-targets-persons-supporting-iranian-military-irans-islamic.
 
[FN/3] Profile: Jalal Rohollahnejad, Science HR, https://www.science.hr/profile/jalal-rohollahne-ytpshmp6/, accessed June 19, 2019.
 
[FN/4] Rohollahnejad, Jalal, Author details, Scopus, accessed June 19, 2019.
 
[FN/5] “Treasury Targets Persons Supporting Iranian Military and Iran’s Islamic Revolutionary Guard Corps,” Press Release, U.S. Department of the Treasury, July 18, 2017, available at https://www.iranwatch.org/library/governments/united-states/executive-branch/department-treasury/treasury-targets-persons-supporting-iranian-military-irans-islamic.
 
[FN/6] Luc Leroux, “Le sort d’un Iranien entre justices francaise et americaine,” Le Monde, April 30, 2019.
 
[FN/7] The List established and maintained pursuant to Security Council res. 2231 (2015), U.N. Security Council, June 20, 2019, available at https://scsanctions.un.org/fop/fop?xml=htdocs/resources/xml/en/consolidated.xml&xslt=htdocs/resources/xsl/en/iran-r.xsl.
 
[FN/8] “Using Infrared to Detect Missiles,” 2006 (in Farsi), accessed on November 1, 2017.
 
[FN/9] Luc Leroux, “Le sort d’un Iranien entre justices francaise et americaine,” Le Monde, April 30, 2019.

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COM_a2
12
.
J. Hungerford & P. Whitfield-Jones: “OFSI’s Penalty Against Travelex – More than Meets the Eye”

(Source:
Mayer Brown
, 25 June 2019.)
 
* Authors: Jason Hungerford, Esq.,
hungerford@mayerbrown.com
, +44 20 3130 3084; and Paul Whitfield-Jones, Esq.,
pwhitfield-jones@mayerbrown.com
, +44 20 3130 3204, both of Mayer Brown.
 
The UK’s Office of Financial Sanctions Implementation (OFSI) announced on 24 May that it had levied its second-ever civil monetary penalty, against Travelex (UK) Ltd. in the amount of £10,000. This enforcement action is related to OFSI’s previous (and first) civil monetary penalty of £5,000 against Raphaels Bank in January of this year, which we previously reported on. Whilst the amounts involved are not large and the facts are relatively straightforward, like a Magic Eye picture these cases yield useful insights, if you stare at them hard enough.
 
The facts
 
OFSI found that Raphaels Bank violated asset freeze restrictions by dealing in £200 belonging to an individual designated under sanctions relating to Egypt. OFSI determined that £10,000 was an appropriate penalty but discounted this by 50% because Raphaels Bank disclosed the violation and co-operated with the investigation. 50% is the maximum discount for “serious” cases, dropping to 30% for “most serious” cases (OFSI will not issue a civil monetary penalty if it regards a case as less than “serious”).
 
The action against Travelex appears to relate to the same individual and transaction as the Raphaels Bank matter. Both Travelex and Raphaels Bank had access to the passport of the individual, and Travelex also met them in person. However, in Travelex’s case no discount was applied for voluntary disclosure, and it was hit with the full £10,000.
 
Keeping your disclosure “voluntary”
 
It is not a requirement that OFSI receive a disclosure before it learns about the matter from another source for it to be “voluntary”. Whilst OFSI considers the facts and timing of each investigation, “The mere fact that another party has disclosed first will not necessarily lead to the conclusion that later disclosure has any lesser value”[FN/1]. Furthermore, a disclosing party will have “automatic access” to a reduction once they affirm that their disclosure is materially complete [FN/2]. That said, OFSI does “expect breaches to be disclosed in a timely fashion, as soon as reasonably practicable after discovery of the breach” [FN/3].
 
We do not know whether Travelex failed to disclose at all, or whether it made a disclosure that was somehow deficient. It may be that OFSI mandated disclosure by Travelex using its statutory powers, as a result of learning about the breach from Raphaels Bank.
 
Corporates in particular should bear in mind that banks and other regulated entities have express obligations under UK financial sanctions regulations to report suspected violations of asset freezes. Banks tend to have streamlined reporting processes due to the frequency with which they make regulatory reports, and so banks often report to OFSI long before their corporate client has investigated the matter.
 
It is possible then that a party could get a discount even if OFSI is aware of the issue before they disclose to OFSI. This is somewhat different to the position of the US Office of Foreign Assets Control (OFAC). OFAC’s guidance specifically defines a voluntary disclosure as a “…self-initiated notification to OFAC of an apparent violation…prior to or at the same time that OFAC, or any other federal, state, or local government agency or official, discovers the apparent violation or another substantially similar apparent violation” [FN/4].
 
That said, a company does not want to be waiting for OFSI to knock on its door. OFSI recognises that a party may need some time to assess a potential violation and possibly take legal advice, and does not believe there should be any conflict between timeliness and making sure that a disclosure is materially complete. Therefore, where full disclosure is not possible in the first instance, OFSI recommends making an early disclosure with partial information, subject to making a full disclosure as soon as possible.
 
Root causes
 
The moral that OFSI draws from these cases is that “Companies should take care to make sure they carry out appropriate financial sanctions screening or checks, and act on the results in the correct way.” This will not be news to any company that takes its responsibilities under financial sanctions seriously. What OFSI have not made clear, however, is the root cause of these violations.
 
For any party investigating a potential violation with a view to making a disclosure, it is essential to find out why the violation occurred. Only then will it be possible to devise corrective actions that effectively remediate the problem and prevent the same violation from occurring again in future. It is all too easy, especially under time pressure, to conduct a shallow analysis that only looks at the immediate cause of the violation, and not the underlying causes. In particular, attributing a violation to “human error” often (though not always) indicates a superficial analysis. If a human made an error, why did they make an error: insufficient training, an unclear procedure, a poorly designed tool?
 
In the case of Travelex and Raphaels Bank, the problem appears to have been that they had access to information about the designated person, which ought to have led them to freeze the funds at issue, but failed to do so. It is not clear whether they failed to screen the passport information, or whether they did screen it but then failed to take appropriate action. But even if they failed to screen it, and so did not know that they were dealing with a designated person this sort of ignorance is not an excuse as far as OFSI is concerned. OFSI takes the view [FN/5] that the list of sanctioned persons is publically available, and therefore if a company fails to conduct appropriate screening and deals with a designated person, it effectively has “reasonable cause to suspect” that it is in possession of or dealing with the assets of a designated person.
 
Travelex and Raphaels Bank should have asked themselves (not to say that they haven’t) why either the individual was not screened or appropriate action was not taken. Was there some deficiency in the screening or escalation procedures, perhaps in relation to individuals physically located in the UK? Or if the procedures were sufficient, why were they not followed by the relevant employees? Was there a lack of training? Was it unclear who was responsible for what under the procedures? Was there a lack of attention because of the small value of the transaction? It is imperative to conduct a searching analysis of what has gone wrong.
 
OFAC typically provides more illumination about the root causes of the violation in its published information about enforcement actions. It has also provided a typology of root causes in its recently published “A Framework for OFAC Compliance Commitments”, which is recommended reading for everyone concerned with sanctions compliance. This sort of information is extremely helpful for businesses (and their legal advisors!) and it is hoped that OFSI includes more of it in its published enforcement information going forwards.
 
A clear message
 
Notwithstanding the relatively low level of penalties in the Travelex and Raphaels Bank cases, these cases communicate OFSI’s readiness to exercise its civil monetary penalty powers wherever this is appropriate, and not just on large cases. Moreover, the fact pattern they involve – compliance failures as opposed to deliberate breaches – will undoubtedly re-emerge, and may well be the dominant theme, in future OFSI enforcement actions, especially those involving banks and payment service providers, which have to deal with large volumes of transactions on a daily basis.
 
When companies do face compliance failures that may lead to voluntary disclosures, it is critical that they think through both the timing but also the completeness of their disclosure, to preserve their entitlement to a discount from any penalty, and that they devote sufficient attention to what went wrong, so that it does not happen again in future.
 
[FN/1] Monetary Penalties for Breaches of Financial Sanctions, OFSI, paragraph 3.36.
[FN/2] Ibid. paragraph 4.11.
[FN/3] Ibid. paragraph 3.33.
[FN/4] Appendix A to 31 C.F.R. Part 501.
[FN/5] See for example, Financial Sanctions – Guidance, OFSI, FAQ 3.1.

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COM_a3
13K. Toomey: “Why the Deemed Export Rule Is So Critical: EAR and ITAR”

(Source:
Shipping Solutions, 24 June 2019.)
 
* Author:
Kathryn Toomey, Director, Regulatory Affairs, Trade Compliance & Supply Chain Operations, Independent.
 
As a former defense company employee, I remember when our company would schedule a guided tour for many of our client visitors or foreign national contract employees.
 
Most employees would not mind being the babysitter tour guide, as we were referred to, but occasionally there were those who felt it wasn’t their job to escort others and that the current security procedures in place were sufficient enough to keep visitors from going into unauthorized areas.
 
After briefing those skeptical employees on the security and deemed export rules, they still refused to acknowledge the importance of protecting our technology and continued to believe that the deemed export rules were nothing more than someone at our firm trying to hype their position to justify their existence at the company. I’m sure many of you out there know people like this at your companies or have run across those who think this way.
 
Today, employers must understand that even the slightest exposure of technology or information by a company to any foreign national can trigger the deemed export rule and cause the company to violate U.S. export regulations. Such a release could cause criminal and civil penalties as well as incarceration for employees involved in the violation.
 
The Deemed Export Rule Defined
 
To understand why deemed exports are so critical, let’s explore the deemed export rule. The deemed export rule is the release of controlled technology and information to a non-U.S. person regardless of where the export takes place. A non-U.S. person can be a foreign national, a foreign government entity, a foreign company, a foreign military, or anyone who is not legally considered a U.S. person under the terms of the Export Administration Regulations (EAR) and the International Traffic in Arms Regulations (ITAR).
 
Once the technology is released to the foreign national, the U.S. government considers it “deemed” to be an export to the individual’s home country. Most often, deemed exports occur in your U.S. office, over the phone, through email, or during meetings.
 
For those of you out there who think the deemed export rule is unimportant or unenforceable, consider the Suntek Microwave, Lattice Semiconductor, Ingersoll Machine Tools cases.
 
Suntek’s president was imprisoned for nearly 12 months and assessed a $339,000 criminal fine. The violation occurred when the company had Chinese national employees trained in their controlled manufacturing technology without Suntek obtaining a deemed export license.
 
Lattice Semiconductor was fined nearly $560,000 for unlicensed deemed exports. Ingersoll paid a $126,000 civil penalty for seven unlicensed deemed exports of production and development technology to Indian and Italian nationals.
 
You’ll find many more examples of deemed export violations-and the hefty fines and penalties assessed-on the Bureau of Industry and Security (BIS) website.
 
To ensure your company’s compliance with the deemed export rule, it is imperative that companies take it seriously, obtain as much knowledge and education on the export rules as possible, and be proactive in maintaining ongoing compliance. Every company should have deemed export policies and procedures in place and make them a part of all employees’ regular and ongoing compliance training.
 
EAR and ITAR
 
Both the EAR and the ITAR govern exports to foreign nationals. Under the EAR, BIS controls the release of dual-use items and technology to foreign nationals. Under the ITAR, the Directorate of Defense Trade Controls (DDTC) regulates goods and services designed for military purposes including the release of technology, training, weapons, satellites, munitions and all other items covered under the
United States Munitions List (USML). 
 
Both BIS and DDTC use broad brushstrokes when they refer to the release of technology, which includes the “visual inspection or view” of technology, manufacturing operations, emails, staff meetings, and drawings. Even oral conversations can be considered deemed exports.
 
This makes the deemed export rule difficult for U.S. employers, especially those who hire foreign nationals, conduct plant tours for visitors, or entertain prospective foreign buyers. Even foreign national students enrolled in U.S. universities working on controlled technology are subject to the deemed export rules. Typically, companies involved in aerospace, defense contracting, electronics, semiconductors, software, energy, telecommunications, manufacturing industries, and even universities are most susceptible to deemed export issues.
 
All companies involved in any controlled technology, whether EAR or ITAR, must make it a priority to determine whether a license is required long before any activity takes place. Under the ITAR, a deemed export would require a DSP-5 license, Technical Assistance Agreement (TAA), or Manufacturing License Agreement (MLA) as applicable. If you are uncertain as to whether you need a deemed export license or an ITAR license, you should seek appropriate assistance from a compliance professional or direction from DDTC before beginning any activity.
 
In addition to determining licensing requirements, companies should carefully screen all foreign nationals, visitors, potential employees, international buyers and even vendors. While the regulations do not specifically require extensive background checks and screening, implementing robust compliance procedures can help minimize risk exposures and potential violations.
 
Companies should also integrate regular self-assessments into their compliance plan as an added measure to minimize liabilities. A robust compliance policy will cover when and how to apply for a deemed export license long before any deemed export activity takes place.
 
Learn how to create and implement an
Export Management and Compliance Program (EMCP).
Download the free white paper.
 
Companies also must have adequate, regular and consistent deemed export training in place for all employees. Companies and employees must understand that a physical export does not have to take place for a deemed export to occur. Remember that by merely discussing controlled technology or by jotting down information on a cocktail napkin in the presence of a foreign national that a deemed export violation could occur, whether intentional or not. The export of controlled technology to a foreign national is a deemed export regardless of where or how the export takes place.
 
While it is impossible for us to review everything about deemed exports in this article, I hope that the information provided has helped you to understand what a deemed export is and that enforcement actions are severe for those who do not comply.
 
I recommend that every company include deemed export procedures into their compliance policy and provide regular and consistent training to their employees. Proactive compliance is one of the best preventative measures and is a mitigating factor should an issue arise.

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TEEX/IM TRAINING EVENTS & CONFERENCES

TE_a114. ECS Presents “2nd Annual ECS ITAR/EAR Symposium and Boot Camp” on 17-19 Sep in Annapolis, MD

(Source: S. Palmer,
spalmer@exportcompliancesolutions.com
.)
 
* What: The 2nd Annual ECS ITAR/EAR Symposium and Boot Camp; Annapolis, MD
* When: 17-19 September 2019
* Where: 
Chart House 
* Sponsor: Export Compliance Solutions & Consulting (ECS)
* ECS Speaker Panel: Suzanne Palmer, Mal Zerden, Lisa Bencivenga, Timothy Mooney, Matthew McGrath, Matt Doyle
* Register 
here
 or by calling 866-238-4018 or e-mail
spalmer@exportcompliancesolutions.com 

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

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

 
 * George Orwell (Eric Arthur Blair; 25 Jun 1903 – 21 Jan 1950; better known by his pen name George Orwell, was an English novelist and essayist, journalist, and critic. Orwell is best known for the allegorical novella Animal Farm (1945) and the dystopian novel Nineteen Eighty-Four (1949). In 1980, The London Times ranked George Orwell second among “The 50 greatest British writers since 1945.”
 – “In our age there is no such thing as ‘keeping out of politics.’ All issues are political issues, and politics itself is a mass of lies, evasions, folly, hatred and schizophrenia.”
 – “If liberty means anything at all, it means the right to tell people what they do not want to hear.”
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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: 13 June 2019: 
Harmonized System Update (HSU) 1911 


  – 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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