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19-1204 Wednesday “Daily Bugle”

19-1204 Wednesday “Daily Bugle”

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Wednesday, 4 December
2019

[No items of interest today.]
  1. Items Scheduled for Publication in Future Federal Register Editions 
  2. Commerce/BIS: (No new postings.) 
  3. State/DDTC: (No new postings.) 
  4. Australia DEC: Defense Export Controls Christmas Open Hours 
  1. CTP: “Sanctions Screening Software Isn’t Foolproof”
  2.  PBSP: DOE Proposes Procedures for The Imposition Of Civil Penalties For Violations Of Part 810″ 
  1. Full Circle Compliance Presents: Export Compliance Training Seminars in 2020 
  1. Bartlett’s Unfamiliar Quotations 
  2. Are Your Copies of Regulations Up to Date? Find the Latest Amendments Here! 
  3. Weekly Highlights of the Daily Bugle Top Stories 

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OGSOTHER GOVERNMENT SOURCES

OGS_a11
. Items Scheduled
for Publication in Future Federal Register Editions

(Source: Federal Register)
 

[No items of interest noted today.] 

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OGS_a22
. Commerce/BIS: (No new postings.)

(Source: Commerce/BIS)

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OGS_a53
.
State/DDTC: (No new postings.)
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OGS_a5

4

Australia DEC: “Export Controls – Open Hours Over Christmas 2019”

(Source: 
Australia DEC
)
 
 
Defence
 Export Controls (DEC) will be closed at 12:00 noon (AEDT) Friday 20 December 2019, reopening on Thursday 02 January 2020 as part of the 
Defence
-wide Christmas stand-down period. Please note that applications cannot be processed during this time.  Applications received from 02 December may not be completed prior to the Christmas stand-down period and processing of these applications will recommence from 02 January 2020. Please contact DEC as soon as possible should you urgently require a permit after 02 December 2019.
 

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COMNEWS

 
The Trump administration has announced plans to impose tariff increases on imports of various goods from the European Union and France as well as steel and aluminum products from Brazil and Argentina. It also appears increasingly likely that the tariff increase on List 4B goods from China will take effect Dec. 15 as scheduled.  …
 
 
European Union
 
The U.S. imposed additional tariffs of 25 percent on more than 150 goods imported from EU countries, as well as an additional 10 percent tariff on new aircraft from France, Germany, Spain, and the United Kingdom, effective Oct. 18 due to the EU’s failure to fully comply with a World Trade Organization ruling against subsidies it provided to aircraft manufacturer Airbus (
click here
 for more information on affected products).
 

The Office of the U.S. Trade Representative reports that on Dec. 2 a WTO compliance panel rejected EU claims that it complied with WTO rules by making minor changes to these subsidies and instead found that European governments had extended the subsidies in a way even more favorable to Airbus. In light of the panel report and what it called a lack of progress in efforts to resolve this dispute, USTR said it will issue later this week a 
Federal Register
notice initiating a process under which it will consider increasing the existing tariff rates and expanding the number of EU goods subject to those tariffs.


 

France
 
Earlier this year France enacted a three percent tax on total annual revenues generated by some companies from providing certain digital interface services (e.g., e-marketplaces for goods and services) and Internet advertising services to, or aimed at, French users. USTR said Dec. 2 that it has determined that this digital services tax discriminates against U.S. companies and is inconsistent with prevailing tax principles on account of its retroactivity (to Jan. 1, 2019), its application to revenue rather than income, its extraterritorial application, and its purpose of penalizing particular U.S. technology companies.
 
In response, USTR is proposing to impose additional tariffs of up to 100 percent on products from France that are drawn from a preliminary list (see attached) that contains 63 tariff subheadings with an estimated import trade value for 2018 of $2.4 billion. Affected products include yogurt, butter, cheese, cosmetics, soap, handbags, and porcelain and china dinnerware.
 
USTR is also considering whether to impose fees or restrictions on services of France. USTR will hold a hearing on these issues Jan. 7 and is accepting written comments on them through Jan. 6. It is unclear when the proposed tariffs or other measures might take effect.
. . .
 


Brazil and Argentina

 

In March 2018 President Trump suspended a 25 percent additional tariff on steel products and a 10 percent additional tariff on aluminum products with respect to Brazil and Argentina after they agreed to be subject to U.S. quotas. Trump said Dec. 2 that “effective immediately” he would “restore” these tariffs on “all steel and aluminum that is shipped into the U.S.” from Brazil and Argentina because they “have been presiding over a massive devaluation of their currencies” that has harmed U.S. farmers. However, at press time no official order making this change had been issued.
 

 
China
 
The U.S. is slated to impose an additional 15 percent tariff on 
List 4B goods
 
from China as of Dec. 15. Press reports indicate that Beijing has been pushing for this increase to be canceled as part of the phase 1 trade agreement the two sides are currently negotiating. However, President Trump said this week that agreement could be delayed until after the U.S. presidential election in November 2020, suggesting that the List 4B tariff increase will take effect as scheduled.
 
View Documents:
USTR notice on France
 

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COMCOMMENTARY

COM_a2
6. CTP: “Sanctions Screening Software Isn’t Foolproof” 
(Source: 
CTP
, 4 Dec 2019) [Excerpts.] 

 
* Principal Author: 
Chalinee
 
Tinaves
, Export Control Specialist, CTP, 
ctinaves@ctp-inc.com

 

   

Last week the Treasury Department’s Office of Foreign Assets Control (OFAC) 
announced
 that it had reached an agreement with Apple, Inc., to resolve apparent violations of the Foreign Narcotics Kingpin Sanctions Regulations (“FNKSR”). Apple allegedly violated the FNKSR by hosting, selling, and facilitating the transfer of software applications developed by SIS, d.o.o. (“SIS”), a Slovenian software company. While the $470,000 settlement is the equivalent of a rounding error for the trillion-dollar company, the interesting part of the settlement agreement was the level of detail regarding Apple’s sanctions screening missteps and their resulting commitments to improve. The settlement highlights the importance of detailed screening procedures for the use of sanctions screening software and adequate employee training to resolve potential red flags.
 
 
Apple entered into an app development agreement with SIS in 2008. On February 24, 2015, OFAC added SIS and its director/majority owner, Savo Stjepanovic, to its List of Specially Designated Nationals and Blocked Persons (the SDN List) for their role in an international steroid trafficking ring led by a Mihael Karner. As part of the announcement, OFAC provided SIS’s address, registration number, tax ID number, Mr. Stjepanovic’s date of birth and passport number as well as a diagram titled “KARNER Steroid Trafficking Network” linking SIS and Mr. Stjepanovic. Apple used its sanctions screening tool to screen app developer account holder names, but the tool failed to identify SIS as a blocked entity. According to Apple, the tool failed to match the upper case “SIS DOO” in Apple’s system with the SDN List’s lower-case version of “SIS d.o.o.” even though the system did match an address for SIS. Note that the term “d.o.o.” is a standard corporate suffix in Slovenia to identify limited liability corporations.
 
 
In addition to missing SIS, ties to Mr. Stjepanovic went undetected by Apple’s screening software tool. Mr. Stjepanovic was listed as an “account administrator” in SIS’s App Store developer account and not as a “developer.” According to Apple, the company’s compliance procedures in place at the time did not screen all individual users identified in an App Store account but limited its search to those identified as “developers.” As a result, Apple continued to host SIS’s apps in the App store, allowed downloads and sales, received payments from App Store users downloading the app, permitted SIS to transfer and sell its apps to two other developers, and remitted funds on a monthly basis. It was not until February 2017 that Apple identified SIS as a potential hit following enhancements to its sanctions screening tool. In that two-year period, Apple had made 47 payments associated with the blocked apps and collected a little over $1.1 million from App Store customers who had downloaded SIS apps.
 
 
As part of the enforcement announcement, OFAC highlighted various measures that Apple has undertaken to minimize risks in the future, including:
 
  – An increased role for the Global Export and Sanctions Compliance Senior Manager in the escalation and review process;
 
  – Reconfiguration of its primary sanctions screening tool to fully capture spelling and capitalization variations and to account for country-specific business suffixes;
 
  – Annual review of the tool’s logic and configuration;
 
  – Expanded sanctions screening to include app developers as well as their designated payment beneficiaries and associated banks;
 
  – Updated employee instructions to review potential SDN matches flagged by the primary sanctions tools; and
 
  – Mandatory training for all employees on export and sanctions regulations.
 
 
Apple isn’t the only company to have software screening issues come to light before OFAC. 
 
 
Each of these cases provides a snapshot as to how minor breakdowns in the sanctions screening software and/or accompanying employee procedures can result in potential violations going undetected. As described in its 
Framework for OFAC Compliance Commitments
 published on May 2, 2019, root causes of screening software deficiencies arise when organizations fail to update their screening software to incorporate updates to the SDN List or the Sectoral Sanctions Identifications List, fail to include pertinent identifiers like SWIFT Business Identifier Codes for financial institutions, or did not account for alternative spellings of prohibited parties or countries (i.e., Habana instead of Havana). When selecting a screening software solution, it’s important to ensure that the solution is capable of recognizing each data element and is able to conduct fuzzy logic searches to identify potential matches.
 
 
However, even with these features added, a screening software tool will only be as effective as the accompanying procedures used to implement the software. Companies should screen customers, intermediaries, or other parties involved in the transaction, including those mentioned in commercial and financial documents in order to identify sanctioned destinations, parties, or dealings. Further, procedures should detail a process for employees to escalate a hit for further review to resolve potential matches. This requires training employees on the importance of sanctions screening as well as the company’s specific policies and procedures to vet information and react to potential red flags.
 
 
In short, while most screening software tools are comprehensive, the human element is key. Operators have to be adept at operating the screens, analyzing the results, and following up with additional scrutiny when warranted.  Otherwise, the right tool may produce the wrong outcome.
 

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COM_a2 
7.

PBSP: DOE Proposes Procedures for Imposing Civil Penalties For Violations of Part 810″


(Source: 
Pillsbury Winthrop Shaw Pittman, LLP
) [Excerpts.]


 

*Principal Author: Elina Teplinsky, Esq.,
Email, 1-202-663-9009

 
The proposed rule issued on October 3, 2019 would update 10 CFR Part 810 to include procedures to implement the Department of Energy’s civil penalty authority. The maximum proposed penalty is $102,522 per violation, per day.
 
 
Takeaways
 
Under the proposed enforcement policy, the person requesting a hearing will bear the burden of going forward and demonstrating that the decision to impose a civil penalty is not supported by substantial evidence.
 
The difference in civil penalties under DOE’s proposed and alternate penalty calculation methodologies could quickly total millions of dollars, given that DOE could impose the maximum penalty for each day a violation is continuing.
 
 
Comments on the proposed rulemaking are due on November 4, 2019.
 

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TEEX/IM TRAINING EVENTS & CONFERENCES

TE_a28. 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

ENEDITOR’S NOTES

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EN_a210. 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 are listed below.
 
Agency 
Regulations 
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. 
25 Nov 2019: 84 FR 64740-64754: Rules of Practice in Explosives License and Permit Proceedings; Revisions Reflecting Changes Consistent With the Homeland Security Act of 2002
DOJ ATF ARMS IMPORT REGULATIONS: 27 CFR Part 447-Importation of Arms, Ammunition, and Implements of War. 

25 Nov 2019: 
84 FR 64740-64754
: Rules of Practice in Explosives License and Permit Proceedings; Revisions Reflecting Changes Consistent With the Homeland Security Act of 2002
 

  

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.
22 Nov 2019:

84 FR 64415-64417: Venezuela Sanctions Regulations

USITC HARMONIZED TARIFF SCHEDULE OF THE UNITED STATES (HTS, HTSA or HTSUSA),

1 Jan 2019: 19 USC 1202 Annex. 

 

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

  

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