19-0723 Tuesday “Daily Bugle'”

19-0723 Tuesday “Daily Bugle”

Tuesday, 23 July 2019

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. President Continues National Emergency Concerning Transnational Criminal Organizations
  2. Treasury/OFAC Amends Global Terrorism Sanctions Regulations, Transnational Criminal Organizations Sanctions Regulations, and Hizballah Financial Sanctions Regulations
  1. Items Scheduled for Publication in Future Federal Register Editions 
  2. Commerce/BIS: (No new postings.)
  3. Justice: “Four Chinese Nationals and Chinese Company Indicted for Conspiracy to Defraud the United States and Evade Sanctions”
  4. State/DDTC: “The United States To Impose Sanctions on Chinese Firm Zhuhai Zhenrong Company Limited for Purchasing Oil From Iran”
  5. Treasury/OFAC: “Treasury Advisory Highlights Iranian Airlines’ Support of Destabilizing Activity”
  1. Reuters: “Trump Meets with Tech CEOs on Huawei”
  2. ST&R Trade Report: “Advance Data Requirements for E-Commerce Shipments to be Tested”
  1. A. Duhaney: “Do’s and Don’ts of Sanction Screening”
  2. D. Kyle & N. Aandahl: “Freight Forwarders and the EAR”
  3. G. Ratnam: “What Counts as ‘Foundational’ Tech?”
  1. 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 (27 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 (26 Jun 2019) 
  3. Weekly Highlights of the Daily Bugle Top Stories 


EXIM_a11President Continues National Emergency Concerning Transnational Criminal Organizations

Federal Register, 23 July 2019.)
84 FR 35513: Transnational Criminal Organizations; Continuation of National Emergency (Notice of July 22, 2019)
On July 24, 2011, by Executive Order 13581, the President declared a national emergency with respect to transnational criminal organizations pursuant to the International Emergency Economic Powers Act (50 U.S.C. 1701-1706) to deal with the unusual and extraordinary threat to the national security, foreign policy, and economy of the United States constituted by the activities of significant transnational criminal organizations.
The activities of significant transnational criminal organizations have reached such scope and gravity that they threaten the stability of international political and economic systems. Such organizations are becoming increasingly sophisticated and dangerous to the United States; they are increasingly entrenched in the operations of foreign governments and the international financial system, thereby weakening democratic institutions, degrading the rule of law, and undermining economic markets. These organizations facilitate and aggravate violent civil conflicts and increasingly facilitate the activities of other dangerous persons.
On March 15, 2019, by Executive Order 13863, I took additional steps to deal with the national emergency with respect to transnational criminal organizations in view of the evolution of these organizations as well as the increasing sophistication of their activities, which threaten international political and economic systems and pose a direct threat to the safety and welfare of the United States and its citizens, and given the ability of these organizations to derive revenue through widespread illegal conduct, including acts of violence and abuse that exhibit a wanton disregard for human life as well as many other crimes enriching and empowering these organizations.
The activities of significant transnational criminal organizations continue to pose an unusual and extraordinary threat to the national security, foreign policy, and economy of the United States. For these reasons, the national emergency declared in Executive Order 13581 of July 24, 2011, under which additional steps were taken in Executive Order 13863 of March 15, 2019, and the measures adopted to deal with that emergency, must continue in effect beyond July 24, 2019. Therefore, in accordance with section 202(d) of the National Emergencies Act (50 U.S.C. 1622(d)), I am continuing for 1 year the national emergency with respect to transnational criminal organizations declared in Executive Order 13581.

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EXIM_a22. Treasury/OFAC Amends Global Terrorism Sanctions Regulations , Transnational Criminal Organizations Sanctions Regulations, and Hizballah Financial Sanctions Regulations

(Source: Federal Register, 23 July 2019.) [Excerpts.]
84 FR 35307: Global Terrorism Sanctions Regulations; Transnational Criminal Organizations Sanctions Regulations; and Hizballah Financial Sanctions Regulations
* AGENCY: Office of Foreign Assets Control, Treasury.
* ACTION: Final rule.
* SUMMARY: The Department of the Treasury’s Office of Foreign Assets Control (OFAC) is amending the Global Terrorism Sanctions Regulations (GTSR), and the Transnational Criminal Organizations Sanctions Regulations (TCOSR), to implement and reference the Hizballah International Financing Prevention Amendments Act of 2018 (HIFPAA). OFAC is also amending the GTSR to implement and reference the Sanctioning the Use of Civilians as Defenseless Shields Act of 2018 (Shields Act). OFAC is further amending the TCOSR to implement Executive Order 13863 of March 15, 2019 (”Taking Additional Steps to Address the National Emergency with respect to Significant Transnational Criminal Organizations”). Finally, OFAC is amending the Hizballah Financial Sanctions Regulations (HFSR), to make certain technical and conforming changes and to update certain provisions.
Effective: July 23, 2019.
* FOR FURTHER INFORMATION CONTACT: OFAC: Assistant Director for Licensing, 202-622-2480; Assistant Director for Regulatory Affairs, 202-622-4855; or Assistant Director for Sanctions Compliance & Evaluation, 202-622- 2490.

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OGS_a13. Items Scheduled for Publication in Future Federal Register Editions
(Source: Federal Register, 16 July 2019.)

[No Items of Interest Noted Today]

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Commerce/BIS (No new postings.)

(Source: Commerce/BIS)

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OGS_a35Justice: “Four Chinese Nationals and Chinese Company Indicted for Conspiracy to Defraud the United States and Evade Sanctions”

(Source: Justice, 23 July 2019.)
A federal grand jury has charged four Chinese nationals and a Chinese company with violating the International Emergency Economic Powers Act (IEEPA), conspiracy to violate IEEPA and defraud the United States; conspiracy to violate, evade and avoid restrictions imposed under the Weapons of Mass Destruction Proliferators Sanctions Regulations (WMDPSR); and conspiracy to launder monetary instruments. …
The indictment returned yesterday by a federal grand jury in Newark, New Jersey charges Ma Xiaohong (Ma); her company, Dandong Hongxiang Industrial Development Co. Ltd. (DHID); and three of DHID’s top executives – general manager Zhou Jianshu (Zhou), deputy general manager Hong Jinhua (Hong) and financial manager Luo Chuanxu (Luo) – with violating IEEPA, conspiracy to violate IEEPA and to defraud the United States and conspiracy to launder monetary instruments. …
According to the indictment, DHID was a Chinese company whose core business was trade with North Korea.  DHID allegedly openly worked with North Korea-based Korea Kwangson Banking Corporation (KKBC) prior to Aug. 11, 2009, when the Office of Foreign Assets Control (OFAC) designated KKBC as a Specially Designated National (SDN) for providing U.S. dollar financial services for two other North Korean entities, Tanchon Commercial Bank (Tanchon) and Korea Hyoksin Trading Corporation (Hyoksin).  President Bush identified Tanchon as a weapons of mass destruction proliferator in June 2005, and OFAC designated Hyoksin as an SDN under the WMDPSR in July 2009.  Tanchon and Hyoksin were identified and designated because of their ties to Korea Mining Development Trading Company (KOMID), which OFAC has described as North Korea’s premier arms dealer and main exporter of goods and equipment related to ballistic missiles and conventional weapons.
Beginning after the designation of KKBC as an SDN in August 2009, Ma allegedly conspired with Zhou, Hong and Luo to create or acquire numerous front companies to conduct U.S. dollar transactions designed to evade U.S. sanctions. The indictment alleges that from December 2009 to September 2015, the defendants established front companies in offshore jurisdictions such as the British Virgin Islands, the Seychelles, Hong Kong, Wales, England, and Anguilla, and opened Chinese bank accounts held in the names of the front companies at banks in China that maintained correspondent accounts in the United States.  The defendants used these accounts to conduct U.S. dollar financial transactions through the U.S. banking system when completing sales to North Korea. These sales transactions were allegedly financed or guaranteed by KKBC.  These front companies facilitated the financial transactions to hide KKBC’s presence from correspondent banks in the United States, including a bank processing center in Newark, New Jersey, according to the allegations in the indictment.  As a result of the defendants’ alleged scheme, KKBC was able to cause financial transactions in U.S. dollars to transit through the U.S. correspondent banks without being detected by the banks and, thus, were not blocked under the WMDPSR program.
Ma, Zhou, Hong and Luo face a statutory maximum sentence of 20 years in prison and a $1 million fine on the charge of violating IEEPA, a maximum of five years in prison and a $250,000 fine on conspiracy to violate IEEPA and to defraud the United States, and a maximum of 20 years in prison and a $500,000 fine on the charge of conspiracy to launder monetary instruments.  The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendants will be determined by a judge. 
The charges in the indictment are merely allegations, and all defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.
The FBI is handling the case. The Criminal Division’s Office of International Affairs provided significant assistance in the investigation. Trial Attorney Jennifer Wallis of the Criminal Division’s Money Laundering and Asset Recovery  Section; Trial Attorney Christian E. Ford of the National Security Division’s Counterintelligence and Export Control Section; and Assistant U.S. Attorney Joyce M. Malliet of the National Security Unit, Sarah Devlin, Chief of the Asset Recovery and Money Laundering Unit (ARMLU), and Assistant U.S. Attorney Barbara Ward of ARMLU in the U.S. Attorney’s Office for the District of New Jersey are prosecuting the case. …

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OGS_a46. State/DDTC: “The United States To Impose Sanctions on Chinese Firm Zhuhai Zhenrong Company Limited for Purchasing Oil From Iran”   

State/DDTC, 22 July 2019.)
Today, the United States is taking further action as part of our maximum economic pressure campaign against the Iranian regime by imposing sanctions on the Chinese firm Zhuhai Zhenrong Company Limited and its chief executive for knowingly purchasing or acquiring oil from Iran, contrary to U.S. sanctions. We said we would fully enforce our sanctions, and we are backing this up with real action. The announcement today will help deny the regime critical income to fund terror around the world, engage in foreign conflicts, and advance its ballistic missile development. The Iranian regime must cease these destabilizing activities.
Zhuhai Zhenrong Company Limited knowingly engaged in a significant transaction for the purchase or acquisition of crude oil from Iran. The transaction in question took place after the expiration of China’s Significant Reduction Exception (SRE) on May 2, 2019, and was not covered by that SRE. Among other things, the imposition of these sanctions blocks all property and interests in property of Zhuhai Zhenrong Company Limited that are in the United States or within the possession or control of a U.S. person, and provides that such property and interests in property may not be transferred, paid, exported, withdrawn, or otherwise dealt in. Additionally, the United States is imposing several restrictions as well as a ban on entry into the United States on Youmin Li, a corporate officer and principal executive officer of Zhuhai Zhenrong Company Limited. To implement my action today, the Department of the Treasury is adding Zhuhai Zhenrong Company Limited and Youmin Li to its List of Specially Designated Nationals and Blocked Persons.
Any entity considering evading our sanctions should take notice of this action today. It underscores our commitment to enforcement and to holding the Iranian regime accountable. The United States will continue to deny funding to this regime, which uses its wealth and tremendous resources to enrich itself, deprive the Iranian people of opportunity, and fuel its destructive foreign policy. All entities must do their diligence and stay well clear of sanctioned Iranian entities and sectors. No company or nation should be willing to expose itself to the possibility of supporting Iran’s Islamic Revolutionary Guard Corps or the regime’s regional proxies.

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OGS_a57Treasury/OFAC: “Treasury Advisory Highlights Iranian Airlines’ Support of Destabilizing Activity”

(Source: Treasury/OFAC, 23 July 2019.)
Today, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued an Iran-related Advisory to inform the civil aviation industry of potential exposure to U.S. Government enforcement actions and economic sanctions for engaging in or supporting unauthorized transfers of aircraft or related goods, technology, or services to Iran or to designated Iranian airlines.
“The Iranian regime uses commercial airlines to further the destabilizing agenda of terror groups like the Islamic Revolutionary Guards Corps (IRGC) and its Qods Force (IRGC-QF), and to fly fighters from their proxy militias across the region.  The international civil aviation industry, including service providers like general sales agents, brokers, and title companies, need to be on high alert to ensure they are not complicit in Iran’s malign activities,” said Sigal Mandelker, Under Secretary of the Treasury for Terrorism and Financial Intelligence.  “Lack of adequate compliance controls could expose those operating in the civil aviation industry to significant risks, including civil or criminal enforcement actions or economic sanctions.”
The advisory provides information on the role many Iranian commercial airlines play in supporting the Iranian regime’s efforts to foment regional violence through terrorism, supplying weapons to its proxy militias and the Assad regime, and other destabilizing activity.  Iran has routinely relied upon certain Iranian commercial airlines to fly fighters and materiel to international locations in furtherance of Iranian state-sponsored terror operations.  In conducting these flights, these Iranian commercial airlines enable Iran’s military support for the Assad regime by delivering lethal materiel including weapons shipments, prolonging the brutal conflict and the suffering of millions of Syrians.
For example, the advisory highlights Mahan Air, which plays an integral role supporting the IRGC-QF and its regional proxies by transporting foreign fighters, weapons, and funds.  Mahan Air has also transported IRGC-QF Commander Qasem Soleimani, who is sanctioned under United Nations Security Council Resolution 2231 and subject to a United Nations travel ban.  Since 2018, the United States has imposed economic sanctions on 11 entities and individuals that have provided support to, or acted for or on behalf of, Mahan Air, including a bank providing financial services, front companies procuring spare aircraft parts, and general sales agents providing services in Malaysia, Thailand, and Armenia.  The United States also designated Qeshm Fars Air, a commercial cargo airline controlled by Mahan Air and a key facilitator of the IRGC-QF’s malign activities in Syria, in early 2019 under terrorism authorities.
In addition to transporting weapons and fighters for the IRGC-QF, Mahan Air has been used by the IRGC as recently as March 2019 to transport bodies of fighters who are killed fighting in Syria back to several airports in Iran (Photo: Iran’s Mashregh News and Javan Daily).
General sales agents and other entities that continue to provide services to U.S.-designated Iranian airlines like Mahan Air remain at risk of sanctions actions.  Potentially sanctionable activities – when conducted for or on behalf of a designated person – could include:
– Financial services
– Reservations and ticketing
– Freight booking and handling
– Procurement of aircraft parts and equipment
– Maintenance
– Airline ground services
– Catering
– Interline transfer and codeshare agreements
– Refueling contracts
The advisory also describes various deceptive practices employed by the Iranian regime to evade sanctions and illicitly procure aircraft and aircraft parts ranging from the use of front companies and unrelated general trading companies to falsifying or fabricating documentation relating to end-use or OFAC licenses.  Intermediaries should be on heightened alert to the practices highlighted in this advisory.

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Reuters: “Trump Meets with Tech CEOs on Huawei”

Reuters, 23 July 2019.) [Excerpts.]
U.S. President Donald Trump met on Monday with the chief executives of seven technology companies and he agreed with their request for timely licensing decisions from the Commerce Department on blacklisted Chinese firm Huawei Technologies, the White House said. 
“The CEOs expressed strong support of the President’s policies, including national security restrictions on United States telecom equipment purchases and sales to Huawei,” a White House statement said. “They requested timely licensing decisions from the Department of Commerce, and the President agreed,” it said. …

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ST&R Trade Report: “Advance Data Requirements for E-Commerce Shipments to be Tested”

Sandler, Travis & Rosenberg Trade Report, 23 July 2019.)
U.S. Customs and Border Protection has announced that starting Aug. 22 it will conduct an approximately one-year test under which additional data elements for Section 321 goods will be transmitted in advance of their arrival. CBP states that it is conducting this voluntary test to determine the feasibility of requiring advance data from different types of parties and requiring additional data that is generally not required under current regulations in order to effectively identify and target high-risk shipments in the e-commerce environment.
Section 321 of the Tariff Act of 1930 provides for an administrative exemption from duty and taxes for shipments of goods (other than bona-fide gifts and certain personal and household goods) imported by one person on one day having an aggregate fair retail value in the country of shipment of not more than $800.
CBP states that about 1.8 million shipments qualifying for the Section 321 exemption are currently arriving each day, primarily by air and truck, but that the agency is not receiving adequate advance information to assess the security risk of these shipments while still maintaining the clearance speeds the private sector has come to expect. This is particularly true in the e-commerce environment, where traditionally-regulated entities such as carriers are increasingly unlikely to possess all the information on a shipment’s supply chain.
With the expectation that Section 321 shipments will continue to grow exponentially, CBP is initiating the Section 321 Data Pilot to test the feasibility of (a) obtaining advance information from regulated and non-regulated entities, such as online marketplaces, and (b) requiring additional advance data elements that identify the entity causing the shipment to cross the border, the product in the package, the listed marketplace price, and the final recipient (specific data elements will vary somewhat depending on the transmitting entity). CBP states that it will use this advance information to improve its ability to identify and target high-risk shipments, including for narcotics, counter-proliferation, and health and safety risks, but will not use it for entry or release purposes.
The pilot will apply to each Section 321 shipment destined for the U.S. and arriving by air, truck, or rail for which the participant has information. It will operate in all ports of entry utilized by the participants for Section 321 shipments. It will not apply to any mail shipments covered by 19 CFR 145, shipments arriving by ocean, or shipments designed for a foreign-trade zone.
Pilot participants will be selected from eligible applicants engaged in e-commerce, including carriers, customs brokers, and freight forwarders, as well as online marketplaces, regardless of whether they offer delivery logistic services.
After the end of the pilot CBP will determine whether to (a) extend and/or expand the pilot or (b) make additional advance reporting requirements mandatory in the e-commerce environment.

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A. Duhaney: “Do’s and Don’ts of Sanction Screening” 

FinTech Futures, 23 July 2019.)
* Author: Andrea Duhaney, CaseWare RCM.
Recently, Standard Chartered Bank (SCB) was ordered to pay $1.1 billion for conspiring to violate the International Emergency Economic Powers Act (IEEPA) and other international money laundering controls. It included a criminal conspiracy involving some 9,500 transactions worth a quarter of a billion dollars to the benefit of sanctioned Iranian entities.
More than half of the transactions were the result of deficiencies in SCB’s compliance program which allowed customers to request U.S. dollar transactions from within sanctioned countries.
Less than two weeks later, U.S. officials fined one of Europe’s largest banks, UniCredit Bank AG (UCB AG), more than $1.3 billion for processing nearly $400 million for sanctioned entities and countries, including Iran, Libya and Cuba.
UCB AG not only did business with sanctioned entities, they even altered their screening to strip sanctioned countries from transaction information in a conspiracy run by compliance staffers.
Prosecutors said the bank “engaged in this criminal conduct through a scheme, formalised in its own bank policies, designed to conceal from U.S. regulators the involvement of sanctioned entities in certain transactions.” In one instance, the bank actually used its sanctions screening software to find and release, illegal transactions to blacklisted regimes.
These and other financial institutions (FIs) have been scrutinised as regulators seek to send a strong message that FIs will be heavily fined if they drop the ball on sanctions screening. At the same time, U.S. regulators are warning individuals they may also be held responsible for letting dirty money get through the system. In my opinion, this is a clear wakeup call for anyone in the financial industry.
“You’ll pay a steep price.”
In the words of Assistant Attorney General Benczkowski on the Standard Chartered case: “Today’s resolution sends a clear message to financial institutions and their employees: if you circumvent U.S. sanctions against rogue states like Iran – or assist those who do – you will pay a steep price.”
FIs will be heavily fined if they drop the ball on sanctions screening
He went on to warn financial institutions that doing business with the U.S. means carefully screening customers and transactions.  
“When a global bank processes transactions through the U.S. financial system, its compliance program must be up to the task of detecting and preventing sanctions violations-and when it is not, banks have an obligation to identify, report, and remediate any shortcomings.”
In recent years, Manhattan District Attorney investigations alone have resulted in 11 banks that were fined or forfeited more than $14 billion U.S. in settlements. 
The resulting legal cases have been costly in terms of financial penalties and perhaps more important, the reputations of these major banking corporations.  
Meanwhile, the banks are responding by working to develop their own frameworks and guides to ensure they have comprehensive compliance programs.
The Wolfsberg Group, an association of 13 global banks, issued its own guidance for sanctions screening earlier this year. They wrote that sanctions screening is a key control in the prevention of financial crime risk which FIs may otherwise be exposed, urging companies to include it as part of a wider set of financial crime fighting measures.
Guidance for Developing an Effective Sanctions Screening Program
According to the Wolfsberg Group, the fundamental pillars of a Financial Crime Compliance (FCC) program should include:
Policies and procedures – defining requirements for what must be screened and how alerts should be handled and judged.
Responsible person – ensuring appropriate skills and experience in understanding sanctions requirements and how these might influence screening outcomes and decisions.
Risk assessment – applying risk based decisions to determine what to screen, when to screen, what lists to use and how exact or “fuzzy” to set the screening filter.
Internal controls – FIs are expected to document how their screening systems are configured and demonstrate that it is reasonably expected to detect and manage the specific sanctions risks.
Testing – validate that the screening system is performing as expected and assess its effectiveness in managing specific risks.
The Wolfsberg report points out a risk-based approach means understanding sanctions screening can never detect every possible risk. That means the effectiveness of screening will vary among FIs, even when they are using the same screening protocols and solutions.
Legal cases have been costly in terms of financial penalties.  
While designing and configuring the screening process, Wolfsberg recommends the following:
– Articulate the specific sanctions risk that the FI is trying to prevent or detect.
– Identify and evaluate potential exposure to sanctions risks through an FI’s products and services and its relationships with customers.
– Ensure the screening tool includes a well-documented understanding of the risks and how they are managed.
Regulators Issue Their Own Best Practice Guide
While the Wolfsberg Group have developed these guidelines for sanctions screening, regulators have also issued their own best practice guides that should help FIs enhance their processes and procedures.
In May, the U.S. Office of Foreign Asset Control (OFAC) broke with tradition by issuing a new framework to help financial institutions develop a comprehensive risk-based sanctions compliance program (SCP).
“OFAC will consider using its enforcement not only against the violating entities, but against the individuals as well,” the framework concludes.
Legal analysts also point to another quote as a possible shift in OFAC’s standard: “OFAC may, in appropriate cases, consider the existence of an effective SCP at the time of an apparent violation as a factor in its analysis as to whether a case is deemed “egregious.”
Erich Ferrari, an attorney for Ferrari & Associates, P.C. who specialises in OFAC matters, wrote about the OFAC framework in a blog, spelling out its common causes for sanctions violations in easy to understand dos and don’ts:
Dos and Don’ts to avoid sanctions
Have an OFAC sanctions compliance program.
 Consult legal counsel or OFAC sanctions expertise to understand the scope and applicability of OFAC-administered regulations.
 Refer business opportunities to, or otherwise approve or facilitate those opportunities of, your company’s foreign based operations and subsidiaries.
As a non-U.S. person, re-export U.S.-origin goods, services, or technology to sanctioned jurisdictions or sanctioned persons, particularly if you have signed a contract or received other documentation that has informed you that you cannot do so.
As a non-U.S. person, cause U.S. dollar payments to be remitted through the U.S. or by U.S. persons for transactions that in any way involve sanctioned persons or jurisdictions, and definitely do not in any way try to hide that a cross border U.S. Dollar payment is related in some way to a sanctioned person or jurisdiction.
Make sure that your sanctions screening software and filters are adequate, continuously tested, and calibrated to ensure that sanctions risk is being appropriately mitigated.
The Wolfsberg Group developed guidelines for sanctions screening.
 Good due diligence. Don’t slack on the quality of your due diligence, and if you don’t have the knowledge or resources to do it appropriately outsource it until you can devote adequate resources and processes to conduct it. Account for ultimate beneficial ownership, geographic risk, and all counter-parties. Also, conduct transactional due diligence and monitoring.
Follow OFAC’s Framework and ensure that your sanctions compliance program is addressing sanctions-risk globally and is consistently applied and tested across operations and business lines.
 Engage in strange payment practices. This is particularly true when it comes to receipt or remittance of payments from or to third parties. If the manner of payment requested by a counter-party appears unusual or novel, ensure that the payment can be made through normal channels.
 Be the person at your company that comes up with a novel way to “get around” the sanctions. If you’re looking for loopholes, you’re looking for trouble. OFAC and other law enforcement agencies are becoming bullish on going after individuals for facilitating sanctions violations of the companies they work for. Don’t get the horns – promote compliance before OFAC promotes enforcement.
“OFAC’s Framework is a welcome development for many in the sanctions compliance world,” Ferrari wrote.
But he cautions that the clarity from the regulator means more responsibility for FIs.
“That said, it does signal that expectations are being elevated and that organisations need to make sure they have their compliance practices in order now that OFAC has made clear what good practices look like.”
Expectations and Realities of Screening Technology
Screening goes well beyond a simple name matching process and requires examining data from widely disparate technologies and sanctions lists. This often means using matching algorithms and risk-based alert creation rules to ensure FIs comply with regulators.
OFAC has made clear what good practices look like. 
Depending on the size of the FI, screening programs will require the use of technology to generate alerts, provide metrics and reporting, protect the data and allow for independent testing and validation.
Such programs require all departments from IT to Operations and Financial Crime Compliance (FCC) to work together to ensure quality alerts by including screening lists for relevant data, ensuring exclusions are maintained through suppression rules or “Good Guys” lists and the removal of reference data from the screening process once it is determined not to be a risk.  
To successfully implement a sanctions screening application requires a financial institution to either build a screening application on its own, or source a solution from a vendor.
Factors such as an FI’s size, global business footprint and its own technology environment need to be included in the decision making.  
Wolfsberg suggests analyzing sanction risks and functional requirements to include availability of screening rules to ensure alert creation or suppression; the ability to manually screen in one-off situations; and, the ability to configure workflows and the availability of metrics and reporting.
In a recent webinarAndrew Simpson, Chief Operating Officer of CaseWare RCM, said goals should be clear.  
“The big objective is to prevent your institution doing transactions with any sanctioned organisation or individual. You also want to be able to undertake some enhanced due diligence on high risk customers and third parties,” said Simpson, whose company developed its Alessa software to combat financial crimes.
“You need to understand what your sanction risks are, where there are risks and how are you managing those risks. In any compliance program in any financial institution or corporation, everything has to be pivoted on having strong controls,” Simpson said.
Cast a Wide Net
Screening must cast a wide net, meaning a wide range of lists, companies and individuals must be included to reduce the risk for an FI to an acceptable level. These may include screening against the following lists:
You need to understand what your sanction risks are.
– [US] Non-OFAC sanctions
– [EU] European Union sanctions
– [UK] HM Treasury United Kingdom sanctions
– [UN] United Nations sanctions
– [AUSSANC] Australia’s Department of Foreign Affairs & Trade sanctions
– [CANS] Canadian sanctions
– [HKSANC] Hong Kong Gazette & Hong Kong Monetary Authority sanctions
– [SECO] Switzerland’s State Secretariat for Economic Affairs sanctions
– S. SAM which includes entities that are either restricted or prohibited from doing business with the U.S. government
– Country Risk Ranking data
– IHS Maritime Vessel data
– Adverse media data
– Internal intelligence lists
Depending on your organisation’s risk appetite, it is important to remember that just screening for OFAC alone doesn’t get the job done.

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D. Kyle & N. Aandahl: “Freight Forwarders and the EAR” 

Torres Law, 17 July 2019.)
* Authors: Derrick Kyle, Esq., Nicole Aandahl, Esq., both of Torres Trade Law, http://www.torrestradelaw.com
Historically, the U.S. Government has pursued civil and criminal actions against exporters for violating the Export Administration Regulations (“EAR”) and International Traffic in Arms Regulations (“ITAR”), which govern exports of sensitive products and technologies from the U.S. All parties to an export transaction, including freight forwarders, are subject to the same rules, and as such must be cognizant of their requirements including destination controls, license exceptions or exemptions, and export classifications and licensing. 
That may be changing. FedEx Corporation (“FedEx”) has openly challenged the Bureau of Industry and Security’s (“BIS”) jurisdiction to enforce the EAR with respect to actions taken by freight forwarders.
On June 24, 2019, FedEx filed for injunctive relief from BIS’s enforcement of the EAR, specifically from the license requirements under the Commerce Control List (“CCL”), prohibitions related to the Entity List, and other obligations under the EAR. 
The foundation of FedEx’s claim is that BIS’s enforcement of the EAR violates the company’s constitutional due process rights under the Fifth Amendment. Equally important, FedEx asserts that in enforcing the regulations, BIS exceeds its authority under the Export Control Reform Act.[FN/1]
The suit claims that “the BIS Entity List imposes an overbroad, disproportionate burden on FedEx” and that the requirements of the EAR and the CCL “effectively force FedEx to police the contents of its packages on an almost infinitely broad scale.”[FN/2] In support of its claim, FedEx cites safe harbor protections from criminal liability under similar U.S. statutes for controlled substances and its inability to know what is in the packages it forwards due to both lack of resources and privacy statutes.[FN/3]
For freight forwarders, it is particularly challenging to comply with the EAR’s classification provisions since shipping companies tend not to be the original classifier of the products, but this difficulty has not slowed enforcement. For example, in 2014, carrier Kintetsu World Express (“KWE”) settled for $30,000 with BIS for acting as a freight forwarder for unauthorized shipments to China and Iran.[FN/4]  KWE failed to adequately screen end users and destinations, and failed to review the export classifications for the products. 
In spite of ongoing enforcement actions, FedEx argues that privacy concerns and cargo integrity prevent them from screening packages to determine whether a tendered package contains an “item subject to the EAR” for which it requires a license.[FN/5]
For routed transactions where the forwarder has been granted authority to file in the Automated Export System on behalf of the Foreign Principal Party in Interest, the forwarder faces additional risk and responsibility. In fact, several forwarders have been subject to enforcement actions for routed transactions and inadequate export compliance, including General Logistics International which in 2015 received a civil penalty of $90,000 for enabling the unlicensed export of scrap steel to a party in Pakistan listed on the BIS Entity List.[FN/6]
The lawsuit is not FedEx’s first adversarial encounter with BIS. FedEx is currently subject to a 2018 settlement agreement for facilitating unauthorized exports in violation of the EAR.[FN/7] BIS enforced a civil penalty of over $500,000 against FedEx for the export of “items subject to the EAR valued in total at approximately $58,091 from the United States to France and Pakistan without the required BIS licenses.”[FN/8]
The U.S. Government is traditionally granted broad latitude by the courts for the enforcement and application of laws and regulations promulgated in the interest of national security, like the EAR. Nevertheless, we are watching this case closely for any indication of a change in BIS authority.
[FN/1] Complaint at 11, FedEx Corporation v. U.S. Department of Commerce, No. 1:19-cv-01840 (D.D.C June 24, 2019), https://f.datasrvr.com/fr1/519/97413/FedEx_v_Dept._of_Commerce_Complaint.pdf.
[FN/2] Id. at 43-51.
[FN/3] Id. at 7.
[FN/4] Julio Fernandez, Freight Forwarders Often Targets of Export Control Enforcement Actions, Global Trade (Oct. 30, 2015), http://www.globaltrademag.com/global-trade-daily/commentary/freight-forwarders-often-targets-of-export-control-enforcement-actions/.
[FN/5] Complaint, supra note 1, at 6.
[FN/6] Julio Fernandez, supra note 4.
[FN/7] Id. at 52-54.
[FN/8] Id.

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G. Ratnam: “What Counts as ‘Foundational’ Tech?” 

RollCall, 23 July 2019.) [Excerpts.]
* Author: Gopal Ratnam.

n the coming weeks, the Commerce Department plans to announce a notice seeking comments on how it should draw up export control rules for so-called foundational technologies, similar to an effort the agency launched in November 2018 for a category called “emerging” technologies.
The rules were mandated after Congress passed the 2019 defense authorization act calling on the Commerce Department to establish export controls on “emerging and foundational technologies” that are critical to U.S. national security. But tech companies, universities, and research labs across the country continue to be alarmed that overly broad export restrictions could ultimately hurt American technological superiority.
At a recent event held by the Bureau of Industry and Security, the agency within the Commerce Department that is responsible for export controls, U.S. officials told a large group of industry executives to be ready with their comments and concerns once the proposed rule making is announced.
During a question-and-answer session, a technology executive asked how the department intended to make sure that export controls on emerging and foundational technologies don’t end up including what’s freely available on open-source platforms online, which tech companies routinely use as building blocks to create new applications.
“You’ve just summed up our challenges,” Richard Ashooh, assistant secretary for export administration at BIS, told the questioner. For both categories of technologies, the agency has examined controls already in place for other technologies, and “we have learned that in our operating environment, circumstances can drive the change.”
The department is not going to make precise definitions of emerging and foundational technologies leading up to categorical controls, Ashooh said. “That’s not what’s going to happen … controls will be iterative” or imposed in incremental steps, he said.

Keeping the U.S. Advantage

But the department’s effort is aimed at making sure that other countries don’t gain an advantage over the United States, said Nazak Nikakhtar, acting undersecretary for industry and security. Acting quickly to place controls is essential because the United States is “neck and neck” with competitors and must assess “what can we do now to make sure that we have the tools to basically stay ahead without giving our adversaries a competitive advantage,” she said.  …
Several questioners at the event held in Washington asked the department to consider allowing 90 days for companies and others to comment on the proposed rules, but Nikakhtar said extending the comments period is likely to leave the government “inundated with comments.”  …
Basic Research Could be Harmed
When it comes to foundational technologies that in turn drive others, where and how the government draws the line for export control could determine how basic research is conducted in labs and universities around the country, how patents are filed and how the findings are transferred from a lab to industry, the executive and other commenters at the conference said.
When the agency issued a notice late last year intending to issue rules on emerging technologies, the department said the starting point for inclusion would be dozens of categories of technologies whose exports already are prohibited to countries that support terrorism and other nations with whom the United States has foreign policy disputes.
The proposed list included areas such as nano-biology and synthetic biology; artificial intelligence, including machine learning technologies; neural networks; computer vision; 3D printing used in manufacturing; self-assembling robots; and quantum computing. …
“Many of the categories and their specific emerging technologies identified by BIS have been under research and development for decades and have mass-market applications, rendering them far from ’emerging’ technologies,” the Center for Democracy and Technology, an advocacy group that promotes human rights and safe use of technology, wrote in response to the proposal. “Further, mass-market applications in many of these areas would be stymied if burdened with export control obligations and numerous markets would be negatively impacted given the broad-reaching applicability of such technologies.”
Automaker Toyota said that not only are many of the technologies already in use, but if the United States were to impose export controls unilaterally, companies may shift their research and development efforts outside the United States and thereby hurt – not strengthen – U.S. technological foundations.  
To avoid the peril, Toyota said, the agency should craft “the narrowest and most precise technical criteria in these areas of emerging and foundational technologies.”
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TE_a113. 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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Anthony Kennedy (Anthony McLeod Kennedy; born July 23, 1936; is an American lawyer and jurist who served as the 93rd Associate Justice of the Supreme Court of the United States from 1988 until his retirement in 2018.)
– “The remedy for speech that is false is speech that is true. This is the ordinary course in a free society. The response to the unreasoned is the rational; to the uninformed, the enlightened; to the straight-out lie, the simple truth.”
Simeon Strunsky (23 Jul 1879 – 5 Feb 1948; was a Russian-born American essayist and editorialist. He is best remembered as a prominent editorialist for the New York Times for more than two decades.)
 – “Famous remarks are very seldom quoted correctly.

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. Are Your Copies of Regulations Up to Date?
(Source: Editor)


DHS CUSTOMS REGULATIONS: 19 CFR, Ch. 1, Pts. 0-199.  Implemented by Dep’t of Homeland Security, U.S. Customs & Border Protection.

  – Last Amendment: 5 Apr 2019:
84 FR 13499-13513: Civil Monetary Penalty Adjustments for Inflation

: 15 CFR Subtit. B, Ch. VII, Pts. 730-774. Implemented by Dep’t of Commerce, Bureau of Industry & Security.

  – Last Amendment: 27 June 2019: 84 FR 30593-30595: Revisions to the Unverified List

* 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 (4 July 2019) of Bartlett’s Annotated FTR (“BAFTR”), by James E. Bartlett III, is available for downloading in Word format. The BAFTR is a 152-page Word document containing all FTR amendments, FTR Letters and Notices, a large Index, and approximately 250 footnotes containing case annotations, practice tips, Census/AES guidance, and explanations of the numerous errors contained in the official text. Subscribers receive revised copies in Microsoft Word every time the FTR is amended. The BAFTR is available by annual subscription from the Full Circle Compliance website.  BITAR subscribers are entitled to a 25% discount on subscriptions to the BAFTR. Government employees (including military) and employees of universities are eligible for a 50% discount on both publications at www.FullCircleCompiance.eu.   


  – Last Amendment: 18 May 2016: Change 2: Implement an insider threat program; reporting requirements for Cleared Defense Contractors; alignment with Federal standards for classified information systems; incorporated and cancelled Supp. 1 to the NISPOM (Summary here.)
DOE ASSISTANCE TO FOREIGN ATOMIC ENERGY ACTIVITIES: 10 CFR Part 810; Implemented by Dep’t of Energy, National Nuclear Security Administration, under Atomic Energy Act of 1954.
  – Last Amendment: 23 Feb 2015: 80 FR 9359, comprehensive updating of regulations, updates the activities and technologies subject to specific authorization and DOE reporting requirements. This rule also identifies destinations with respect to which most assistance would be generally authorized and destinations that would require a specific authorization by the Secretary of Energy.
DOE EXPORT AND IMPORT OF NUCLEAR EQUIPMENT AND MATERIAL; 10 CFR Part 110; Implemented by Dep’t of Energy, U.S. Nuclear Regulatory Commission, under Atomic Energy Act of 1954.
  – Last Amendment: 20 Nov 2018, 10 CFR 110.6, Re-transfers.

* DOJ ATF ARMS IMPORT REGULATIONS: 27 CFR Part 447-Importation of Arms, Ammunition, and Implements of War.  Implemented by Dep’t of Justice, Bureau of Alcohol, Tobacco, Firearms & Explosives.
  – Last Amendment: 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: 4 July 2019) of the ITAR with all amendments is contained in Bartlett’s Annotated ITAR (“BITAR”), by James E. Bartlett III. The BITAR is a 371-page Word document containing all ITAR amendments to date, plus a large Index, over 800 footnotes containing amendment histories, case annotations, practice tips, DDTC guidance, and explanations of errors in the official ITAR text. Subscribers receive updated copies of the BITAR in Word by 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] 


, 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: 22 July 2019: Harmonized System Update 1913

  – HTS codes for AES are available here.

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

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Weekly Highlights of the Daily Bugle Top Stories

(Source: Editor) 

Review last week’s top Ex/Im stories in “Weekly Highlights of the Daily Bugle Top Stories” published  

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* The Ex/Im Daily Update is a publication of FCC Advisory B.V., compiled by: Editor, James E. Bartlett III; 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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