19-1121 Thursday “Daily Bugle'”

19-1121 Thursday “Daily Bugle”

Thursday, 21 November

[No items of interest today.]
  1. Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.)
  3. State/DDTC: AeroVironment Inc, of Simi Valley, CA, Agrees to $1 Million Fine and Corrective Actions to Settle AECA and ITAR Charges
  4. Singapore Customs Announces TradeNet Extended Downtime on 8 Dec 2019 from 4am to 4pm
  1. Bloomberg: “U.S. Investigating If Swedbank Breached Sanctions Against Russia – SVT”
  2. Defense News: “Rostec Exec: American Sanctions Create Unfair Advantage for Weapons Sales”
  3. Reuters: “U.S. House Passes Hong Kong Rights Bills, Trump Expected to Sign”
  4. WSJ: “BNP Paribas Revamps Compliance After Sanctions Violations Settlement”
  5. Business Wire: “AeroVironment Settles with Department of State for Vountarily Reported Alleged Export Violations”
  1. Baker McKenzie: “European Commission Proposes Updates to the EU Dual-Use List and Published its Latest Annual Report”
  2. Kirkland & Ellis: “Economic Sanctions and Export Controls Update Q3 2019”
  1. Commerce Appoints Cordell Hull and Joe Sensor as Deputy Under Secretaries
  1. ECTI Presents United States Export Controls (ITAR/EAR/OFAC) Seminar Series in San Diego, CA: January 20-23, 2020
  2. Full Circle Compliance Presents: Export Compliance Training Seminars
  1. Bartlett’s Unfamiliar Quotations
  2. Are Your Copies of Regulations Up to Date? Latest Amendments: DHS/Customs (5 Apr 2019), DOC/EAR (13 Nov 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 2019), DOS/ITAR (30 Aug 2019), DOT/FACR/OFAC (9 Sep 2019), HTSUS (3 Sep 2019) 
  3. Weekly Highlights of the Daily Bugle Top Stories 

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[No items of interest noted today.]
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. Items Scheduled
for Publication in Future Federal Register Editions

(Source: Federal Register)

* Commerce/BIS; NOTICES; Agency Information Collection Activities; Proposals, Submissions, and Approvals: Licensing Responsibilities and Enforcement [Pub. date: 22 Nov 2019.]
* Treasury/OFAC; RULES; Venezuela Sanctions Regulations [Pub. date: 22 Nov 2019.]

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. Commerce/BIS: (No new postings.)

(Source: Commerce/BIS)


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State/DDTC: AeroVironment Inc, of Simi Valley, CA, Agrees to $1 Million Fine and Corrective Actions to Settle AECA and ITAR Charges

(Source: DDTC 
Penalties & Oversight Agreements
) [Excerpts.]

* Respondent: AeroVironment, 900 Innovators Way, Simi Valley, CA 
* Charges:  Ten violations of the AECA and ITAR, consisting of unauthorized export of defense articles, to include technical data; failure to properly maintain records involving ITAR-controlled transactions; and violations of the provisos, terms, and conditions of export authorizations.
* Civil Settlement: $1 million fine ($500,000 suspended if spent on corrective actions)
* Debarred or Suspended from Export Transactions: Not if penalty is paid and corrective actions are completed as agreed.
* Result of Voluntary Self-Disclosure: Yes (14 VDs)
* Date of Order:  19 Nov 2019
* Available documents:
– Proposed Charging Letter:
– Consent Agreement:
– Order:
* Mitigating Factors:
– Voluntary disclosure of violations.
– Waiver of Statute of Limitations
– Respondent’s self-initiated comprehensive remedial compliance measures before and during the course of government review.
– Respondent’s responsiveness and cooperation with DDTC.
– No indication that Respondent’s violations caused harm to U.S. national security.
* Aggravating Factors: 
(a) A systemic lack of authorization management and attention to provisos, terms & conditions of export authorizations;
(b) an unknown number of instances where Respondent failed to properly maintain records as required by the ITAR; and
(c) the involvement of Significant Military Equipment (SME).
* Required Corrective Actions (CAs): (Excerpts.)
– Retain a Special Compliance Officers who will report directly to DDTC:  SCO for 1 year, followed by Internal SCO for 1 year
– Perform a comprehensive jurisdiction/classification review of products and services.
– Incorporate CAs upon acquisition of any new business entity engaged in ITAR-regulated activities.
– Notify DDTC 60 days before sale of any entity engaged in ITAR-regulated activities and inform purchaser of CA requirements.
– Ensure adequate resources are dedicated to ITAR compliance, including l
ines of authority, staffing increases, performance evaluations, career paths, promotions, and compensation.
– VP/General Counsel to brief Board annually re findings and recommendations of ISCO.
– Retain independent consultant to conduct comprehensive audit of ITAR-regulated business operations.

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Singapore Customs has released the following document(s) on its website:

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NWS_a15. Bloomberg: “U.S. Investigating If Swedbank Breached Sanctions Against Russia – SVT”

Bloomberg, 21 Nov 2019.) [Excerpts.]
U.S. authorities are investigating whetheSwedbank AB‘s Baltic unit allowed money transfers that violated U.S. sanctions against Russia, Sweden’s SVT television said.
SVT’s investigative program Uppdrag Granskning said in a report aired Wednesday that it had uncovered transactions between sanctioned Russian weapons maker Concern Kalashnikov JSC and Kalashnikov USA, a company based in Florida that produces guns based on its namesake’s designs.
The state broadcaster said the “business network” of Russian billionaire Iskander Makhmudov transferred more than 1 million euros ($1.1 million) to Kalashnikov USA while he was both a shareholder of Concern Kalashnikov and the biggest client of Swedbank’s Estonian branch.
SVT said the transfers occurred after the U.S. Treasury Department blacklisted Concern Kalashnikov in 2014 as part of its response to Russia’s annexation of Crimea from Ukraine, with one of the transactions taking place in February 2017. The broadcaster said U.S. authorities are now investigating, after SVT inquired about the transactions. ..

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Defense News: “Rostec Exec: American Sanctions Create Unfair Advantage for Weapons Sales”

(Source: Defense News, 19 Nov 2019.) [Excerpt.]
While sanctions have blocked Russian aircraft from appearing at high-profile European air shows like those in Paris and Farnborough in recent years, the Dubai Airshow has revealed itself as more laissez-faire, with both Russian and NATO jets parked on the ramp.
Therefore, the presence of Russian aerospace giant Rostec at the 2019 Dubai Airshow was no surprise. A Yak-130 trainer aircraft conducted flying demonstrations and Rostec executives met with military leaders from around the world.
Defense News spoke with Victor Kladov, Rostec’s director for international cooperation and regional policy, on Nov. 18 about aircraft sales, the impact of U.S. sanctions and the ongoing S-400 air defense deal with Turkey. …

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NWS_a37. Reuters: “U.S. House Passes Hong Kong Rights Bills, Trump Expected to Sign”

(Source: Reuters, 21 Nov 2019.) [Excerpts.]
The U.S. House of Representatives on Wednesday passed two bills to back protesters in Hong Kong and send a warning to China about human rights, with President Donald Trump expected to sign them into law, despite delicate trade talks with Beijing. …
The House passed, by 417 to zero, a second bill, which the Senate also approved unanimously on Tuesday, to ban the export of certain crowd-control munitions to Hong Kong police forces. That measure bans the export of items such as tear gas, pepper spray, rubber bullets and stun guns. …

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WSJ: “BNP Paribas Revamps Compliance After Sanctions Violations Settlement”

(Source: Wall Street Journal, 19 Nov 2019.) [Excerpt.]
Five years after agreeing to pay a record fine for sanctions violations, BNP Paribas S.A. has made structural changes to its compliance division-an effort to strengthen the independence of the bank’s compliance function and improve ethical culture.
The efforts have included setting compliance as an independent function that reports directly to the chief executive, as well as moving part of the bank’s head office for sanctions compliance-the unit that sets the global sanctions compliance standards for the bank-to New York from Paris in 2014, according to Eric Young, chief compliance officer for BNP Paribas Americas, who spoke Tuesday at a panel hosted by The Wall Street Journal and Dow Jones Risk & Compliance.
“Other banks are looking at our model because they see benefits,” Mr. Young said on the sidelines of the event, referring to the move of the head office for sanctions compliance.
The French bank in 2014 agreed to enter a guilty plea and pay nearly $9 billion to U.S. federal and state authorities for violating the International Emergency Economic Powers Act and the Trading with the Enemy Act. It was the first time a global bank had agreed to plead guilty to violating U.S. economic sanctions.
The penalties included the largest-ever settlement-more than $963 million-with U.S. Treasury Department’s Office of Foreign Assets Control, which enforces U.S. economic sanctions. …

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Business Wire, 21 Nov 2019) [Excerpts.]
AeroVironment, Inc. (AVAV), a global leader in unmanned aircraft systems (UAS), today announced it has reached a settlement with the United States Department of State for alleged export violations the company reported voluntarily for the period June 5, 2014 to December 22, 2016. AeroVironment has agreed to pay $1,000,000 over a two-year period, $500,000 of which is suspended and can be credited against investments already made or to be made to enhance export controls. AeroVironment will also hire an outside Special Compliance Officer (SCO) for a term of one year and conduct an external audit to assess and improve its compliance program during the Consent Agreement term.
“AeroVironment’s unmanned aircraft systems provide meaningful operational advantages to frontline troops of the United States and more than 45 allied nations,” said Melissa Brown, AeroVironment’s VP and general counsel. “We understand the importance of protecting our technology while making it available to help protect our allies, and therefore take United States export regulations very seriously. We will continue to enhance our export controls and appreciate the Department of State’s acknowledgement of the corrective actions we have already taken.”
In reaching this settlement, the Department of State considered certain mitigation factors with respect to the alleged violations. An announcement from the Department of State included the following statement:

“AeroVironment voluntarily disclosed to the Department the alleged AECA (Arms Export Control Act) and ITAR (International Traffic in Arms Regulations) violations, which are resolved under this settlement. AeroVironment also acknowledged the serious nature of the alleged violations, cooperated with the Department’s review, and instituted a number of compliance program improvements during the course of the Department’s review. For these reasons, the Department has determined that it is not appropriate to administratively debar AeroVironment at this time.”

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Baker McKenzie: “European Commission Proposes Updates to the EU Dual-Use List and Published its Latest Annual Report”

(Source: International Trade Compliance Blog, 20 Nov 2019.)
In approximately one month, the next round of changes to the EU Dual-Use list will take effect.  
On 17 October 2019, the European Commission adopted a 
delegated Regulation
 updating Annex I to Regulation 428/2009 (the “Dual-Use List”). The update is not yet in force, but is currently halfway through a two month period during which the European Parliament or Council can raise any objections to the proposed changes. Once this two month period has lapsed in mid-December, or earlier if the Parliament and Council confirm to the Commission that they have no objections, the Regulation will be published in the Official Journal and will take effect the following day.
An overview of the proposed changes is provided in the comprehensive change note summary, which can be accessed here, and the full text can be accessed here.  
Of particular interest from these changes are the amendments to Category 5 part 2. These amendments are aimed at making the associated control entries more user friendly. The key changes to note are as follows:
  • There is a new decontrol note for ‘information security’ items that are specially designed for a “connected civil industry application“, covering certain network-capable endpoint devices limited to network connected consumer or civil industry applications other than “information security”, digital communication, general purpose networking or computing, and also covering certain networking equipment specially designed to communicate with such devices. Additional parameters also apply governing the cryptographic functionality and the standards implemented, which items must satisfy in order to quality for this decontrol.
  • The defined term “described security algorithm” replaces the references to key length strength thresholds in the main control text. The existing strength thresholds for symmetric and asymmetric algorithms are kept in the new definition, along with alternative new criteria for certain quantum-resistant asymmetric algorithms.
  • The new threshold for quantum-resistant cryptography includes algorithms where the security is based on:
  • Shortest vector or closest vector problems associated with lattices (e.g., NewHope, Frodo, NTRUEncrypt, Kyber, Titanium);
  • Finding isogenies between Supersingular elliptic curves (e.g., Supersingular Isogeny Key Encapsulation); or
  • Decoding random codes (e.g., McEliece, Niederreiter).
  • The definition of cryptographic activation remains unchanged but the controls for software and technology converting or enabling controlled cryptographic functionality has been rewritten using a local definition of a “cryptographic activation token“, to make it clearer what kinds of software and technology are liable to be caught by these controls.
Limited substantive changes are also made to Categories 1, 2, 3, 6, 8 and 9 (although minor and editorial changes are made to other Categories).
This month the European Commission also published its latest annual report covering the implementation of the Dual-Use regime in 2018, and including aggregated export data for 2017. This notes changes to national implementing export control legislation – chiefly the measures introduced in Italy in 2017 and in Luxembourg in 2018, as well as referencing guidance on cloud exports issued by the Netherlands authority in 2018.
Other key statistics and trends from the report include:
  • There were 120 breaches of export control regulations recorded in 2017, with 130 administrative penalties and 2 criminal penalties applied by national law enforcement authorities.
  • Around 25600 single export licenses were issued in 2017, with approximately 631 denials during the same period.
  • Within these licence applications, an increasing trend is observed since 2014 in licensing applications for cyber-surveillance items (including 5A001.f 5A001.j 4A005, 4D004, 4E001). In 2017, the most recent year for which aggregate figures are reported, 285 of these licenses were awarded, whilst 34 were denied.
The full annual report can be accessed here. Author: Ross Denton

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Kirkland & Ellis: “Economic Sanctions and Export Controls Update Q3 2019”

(Source: Bloomberg Law, 21 Nov 2019.) [Excerpt.]
* Principal Author: Mario Mancuso, Esq., mario.mancuso@kirkland.com; Kirkland & Ellis.
Several important regulatory and enforcement updates took place related to economic sanctions and export controls for the third quarter of 2019. Kirkland & Ellis attorneys discuss these actions, and what they may indicate about trends and takeaways for the rest of 2019.
The View From Washington: Key Takeaways
– The Department of the Treasury Office of Foreign Assets Control (OFAC) continues to assert an expansive view of U.S. sanctions jurisdiction over the activities of non-U.S. persons, even in cases where traditional ties to a U.S. parent company or the U.S. financial system are attenuated.
– Increased sanctions on Venezuela effectively render it an embargoed country, as restricting U.S. persons from dealing with the Venezuelan government and state-owned entities constricts the aperture of permissible trade in a state-controlled economy.
– The Department of Justice’s prosecution of non-U.S. citizens for conspiracy to violate the export control provisions of U.S. sanctions, even in cases that require extradition and other forms of multilateral cooperation, exemplifies the U.S. Government’s commitment to enforcement of those laws.
– The Trump administration’s readiness to impose secondary sanctions-including on parties from China-makes it increasingly necessary for U.S. companies to diligence their counterparties, as even an indirect nexus to sanctioned parties or countries can increase a U.S. company’s own risk exposure. …

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MS_a112. Commerce Appoints Cordell Hull and Joe Sensor as Deputy Under Secretaries

The following statement was released by a Commerce Department spokesman:
On November 12th, Secretary of Commerce Wilbur Ross named Cordell Hull as Deputy Under Secretary at the Bureau of Industry and Security and Joe Semsar as the Deputy Under Secretary at the International Trade Administration.
Through much of his career, Cordell Hull has served in or worked directly with the Department of Commerce – overseeing a wide-ranging portfolio – while spending nearly half a decade in a variety of positions on Capitol Hill related to national security, including as General Counsel to the House Permanent Select Committee on Intelligence and as a lawyer for the House Committee on Oversight and Government Reform. Before entering government service, he was in private law practice in Washington, D.C. for almost a decade.
During his tenure at the Department of Commerce, Joe Semsar served as the Chief of Staff to the Deputy Secretary. In this role, he was actively engaged in all aspects of running the 47,000 employee Department, including both interagency and intra-agency management, oversight, and policy initiatives. Joe served as the Deputy Secretary’s primary advisor on the Administration’s trade agenda, encouraging free and fair trade, addressing trade barriers, ensuring trade enforcement, as well as advising on export controls, Entity List filings, CFIUS actions, and Section 232 cases. Joe also engaged in high-level commercial bilateral dialogues, and served as a senior manager on the Administration’s Prosper Africa trade and investment initiative. Before joining the Administration, Joe worked at the Deloitte LLP, serving a diverse client base and their varied interests.
Secretary Ross has the utmost confidence in these individuals and looks forward to continuing to work closely with them in their new capacities. Moreover, under the guidance of Secretary Ross, the Department has and will continue in its mission of promoting the conditions for economic growth and opportunity in the United States by ensuring fair and reciprocal trade in addition to safeguarding national security.

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TE_113. ECTI Presents United States Export Controls (ITAR/EAR/OFAC) Seminar Series in San Diego, CA: January 20-23, 2020    

* What: United States Export Controls (ITAR/EAR/OFAC) Seminar Series in San Diego, CA
* When: ITAR Seminar: January 20-21, 2020; EAR/OFAC Seminar: January 22-23, 2020
* Where: San Diego, CA: Doubletree Hotel San Diego Downtown 
* Sponsor: Export Compliance Training Institute (ECTI)
* ECTI Speaker Panel: Scott Gearity, John Black, Greg Creeser, Marc Binder, and Maarten Sengers
* Register here or Jessica Lemon, 540-433-3977.

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TE_a214. Full Circle Compliance Presents: Export Compliance Training Seminars
(Source: Full Circle Compliance)

U.S. and EU Sanctions & Embargoes

Tuesday, 4 February 2020 in Amsterdam

Designing an ICP for Export Controls & Sanctions

Tuesday, 3 March 2020 in Amsterdam

Implementing an ICP for Export Controls & Sanctions

Wednesday, 4 March 2020 in Amsterdam


EN_a115. Bartlett’s Unfamiliar Quotations

(Source: Editor)

* Voltaire
(François-Marie Arouet; 21 Nov 1694 – 30 May 1778; known by his nom de plume Voltaire, was a French Enlightenment writer, historian, and philosopher famous for his wit, and his advocacy of freedom of speech, freedom of religion, and separation of church and state. Voltaire was a versatile and prolific writer, producing works in almost every literary form, including plays, poems, novels, essays, and historical and scientific works. He wrote more than 20,000 letters and more than 2,000 books and pamphlets.)
– “God gave us the gift of life; it is up to us to give ourselves the gift of living well.”
– “Judge a man by his questions rather than his answers.”

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EN_a216. Are Your Copies of Regulations Up to Date?

(Source: Editor)

The official versions of the following regulations are published annually in the U.S. Code of Federal Regulations (C.F.R.), but are updated as amended in the Federal Register.  The latest amendments to applicable regulations are listed below.
Latest Update 
DHS CUSTOMS REGULATIONS: 19 CFR, Ch. 1, Pts. 0-199.  5 Apr 2019:  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.  13 Nov 2019: 84 FR 61674-61676Addition of Entities to the Entity List, Revision of an Entry on the Entity List, and Removal of Entities from the Entity List.
DOC FOREIGN TRADE REGULATIONS (FTR): 15 CFR Part 30.   Last Amendment: 24 Apr 2018: 83 FR 17749-17751: Foreign Trade Regulations (FTR): Clarification on the Collection and Confidentiality of Kimberley Process Certificates 
DOD NATIONAL INDUSTRIAL SECURITY PROGRAM OPERATING MANUAL (NISPOM): DoD 5220.22-M. Implemented by Dep’t of Defense.  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.   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.  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.  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.  30 Aug 2019: 84 FR 45652-45654, Adjustment of Controls for Lower Performing Radar and Continued Temporary Modification of Category XI of the United States Munitions List.

DOT FOREIGN ASSETS CONTROL REGULATIONS (OFAC FACR): 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders.
 9 Sep 2019: 84 FR 47121-47123: Cuban Assets Control Regulations
  – HTS codes for AES are available here.
  – HTS codes that are not valid for AES are available here.


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