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20-0211 Tuesday “Daily Bugle'”

20-0211 Tuesday “Daily Bugle”

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Tuesday, 11 February 2020

  1. Items Scheduled for Publication in Future Federal Register Editions 
  2. Commerce/BIS: (No new postings.) 
  3. Commerce/Census: “HTS Updated in the AES to Accept Changes from PP9980”
  4. State/DDTC: (No new postings.)
  5. UK DIT Publishes Step-by-Step Guide on How Export Goods from the UK
  1. CNBC: “Russia Proposes Banning Foreign IT for Critical Infrastructure”
  2. Nextgov: “Encryption and a New Paradigm for Security’s Data-Centric Future”
  1. Shipping Solutions: “Export Invoice vs. Accounting Invoice: What’s the Difference?”
  2. Volkov Law: “Airbus Agrees to Pay $4 Billion in Global Settlement of Foreign Bribery and ITAR Violations (Part I of IV)”
  3. White & Case: “BIS Issues First “Emerging Technology” Control on Artificial Intelligence-Based Geospatial Imagery Software”
  1. ECS Presents “Managing ITAR/EAR Complexities Seminar” on 25-26 Mar in Park City, UT
  2. FCC Academy Presents “Designing & Implementing an ICP for Export Controls and Sanctions”
  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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EXIMITEMS FROM TODAY’S FEDERAL REGISTER

EXIM_a1
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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 today.]

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

(Source: Commerce/BIS)

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OGS_a33
.
Commerce/Census: “HTS Updated in the AES to Accept Changes from PP9980”

(Source: U.S.Census Bureau, 10 Feb 2020)
 
Effective immediately, the Harmonized Tariff Schedule (HTS) table has been updated in the AES to include the recent changes from Presidential Proclamation 9980 published January 29, and effective February 8.
 
AES will accept shipments with outdated codes during a grace period for 30 days beyond the expiration date. Reporting an outdated code after the 30-day grace period will result in a fatal error.
 
The ACE AESDirect program has been updated and will accept shipments with outdated codes during the grace period.
 
The current list of HTS codes that are not valid for AES is available here.

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OGS_a55.
UK DIT Publishes Step-by-Step Guide on How to Export Goods from the UK
(Source:
UK DIT, 11 Feb 2020)
 
The UK Export Control Joint Unit (ECJU) within the Department of International Trade (TID) has published the following update on its website: “Step by step guide to check duties and customs procedures for exporting goods”
 
(Please note that you need to be in the UK to use this service)
 
Start the Guide here.

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COMNEWS

NWS_a16.
CNBC: “Russia Proposes Banning Foreign IT for Critical Infrastructure”

(Source: CNBC, 11 Feb 2020) [Excerpts]
 
A Russian government agency has proposed banning the use of foreign information technology for critical national infrastructure, a draft government order shows, as Moscow moves to step up its control over the internet within its borders.
 
The Federal Service for Technical and Export Control (FSTEC) has proposed increasing the technological sovereignty of critical infrastructure, systems and networks that are crucial to the functioning of the economy, the document said.
 
The draft order proposes adding to legislation passed in January 2018 that requires the owners of such infrastructure to report cyber security incidents to the Federal Security Service.
 
It suggests also prohibiting these facilities from using foreign “means of information protection” or technical support from foreign organizations, leaving them only free to use Russian-made programs.
 
The industries affected by the proposed changes include defence, transport, communications, credit and finance, energy, fuel, nuclear, space, mining, metals and chemical, as well as the information systems of state departments. . . .

NWS_a27.
Nextgov: “Encryption and a New Paradigm for Security’s Data-Centric Future”
(Source: Nextgov, 10 Feb 2020) [Excerpts.]
 
On December 26, after more than four years of deliberation, the U.S. government issued a final ruling modernizing and unifying the role of end-to-end encryption in securing sensitive data and enabling cloud modernization. …
 
Having recognized where the center of control needs to be (encryption and key management), the State Department has freed ITAR-compliant organizations from an antiquated approach to security. Where the sharing of ITAR technical data was previously a roadblock, it is now an opportunity to unlock innovation within the heavy manufacturing, aerospace and defense, defense contracting and telecommunications industries. …
 
It is our hope that ITAR’s encryption carve-out represents both an intersection of security and privacy and a digital transformation that will inspire other organizations, across all industries, to shake their legacy approach to cybersecurity, and begin to realize the benefits of a secure digital workplace. …

COMCOMMENTARY

COM_a18.
Shipping Solutions: “Export Invoice vs. Accounting Invoice: What’s the Difference?”
(Source: Shipping Solutions, 10 Feb 2020) [Excerpts]
 
 
Too many exporters-particularly new exporters-don’t understand how the invoices they prepare for their exports often require more information than they may include on the invoices they use for their domestic sales. I get too many calls from exporters whose shipments are stuck in customs, or they’re having trouble getting paid because their invoice is incomplete. …
 
The difference is, our customers are comparing standard export invoices to their own accounting invoices-the invoices they use for their domestic sales. They don’t realize these two versions of the invoice different purposes. Accounting invoices are used to get paid and often don’t work well for exporting purposes, because these invoices may not include certain information export invoices must have.
 
An export invoice will typically include the following information:
 
(1) Product Classification …
(2) Country of Origin …
(3) Incoterms 2020 Rules …
(4) The Proper Value of Goods …
(5) Destination Control Statement …
(6) Other details …

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COM_a29.
Volkov Law: “Airbus Agrees to Pay $4 Billion in Global Settlement of Foreign Bribery and ITAR Violations (Part I of IV)”
(Source:  
Volkov Law Group Blog
, 3 Feb 2020. Reprinted by permission.) [Part II will be published tomorrow]
 
* Author: Michael Volkov,
Volkov Law Group Blog.
 
In a blockbuster case, the Justice Department announced a global settlement with Airbus SE, a manufacturer of civilian and military aircraft, under which Airbus agreed to pay over $4 billion (yes, with a “B”) to resolve charges with the United States, France, and the United Kingdom for its role in a bribery scheme, and to resolve Airbus’ violation of the International Trade in Arms Regulations (“ITAR”).
 
Airbus entered into a deferred prosecution agreement (“DPA”) and the filing of a criminal information charging Airbus with a conspiracy to violate the anti-bribery provision of the FCPA and conspiracy to violate ITAR. (
HERE).
 
Under the settlement, Airbus agreed to pay the United States approximately $582 million for FCPA and ITAR violations, consisting of approximately of $294 million for FCPA violations and $232 million, and transfer of a 50 million Euro bond for forfeiture. The Justice Department credited a portion of Airbus’ payment to the Parquet National Financier (“PNF”) in France, which totaled approximately $2.29 billion, as part of a separate settlement for bribery violations.
 
Airbus also entered into a DPQ with the U.K.’s Serious Fraud Office (“SFO”) for bribes paid in Malaysia, Sri Lanka, Taiwan, Indonesia and China, and agreed to pay approximately $1.09 billion.
 
The PNF and the SFO jointly investigated Airbus’ global bribery scheme.
 
Starting in 2008 and continuing to 2015, Airbus engaged in a scheme to pay bribes to decision makers and influencers, including foreign officials to obtain business contracts for purchase of civilian and military airplanes, as well as helicopters. The Justice Department’s factual proffer focuses on Airbus’ corrupt schemes in China.
 
Airbus is based in France. Interestingly, the Justice Department was able to assert jurisdiction over Airbus for FCPA violations was based on email communications that occurred inside the United States (apparently when present in the United States) and luxury travel arrangements with foreign officials in the United States.
 
Airbus’ ITAR violations occurred during the period between December 2011 and December 2016. Airbus filed numerous applications for export of defense articles and defense service to foreign armed forces. As part of this application process, Airbus failed to provide information concerning political contributions, fees or commissions paid to third-party brokers in the sale of defense articles and defense services.
 
Applying DOJ’s Corporate Enforcement Policy factors, for its FCPA violations: (1) Airbus did not receive credit for voluntary disclosure because the SFO initiated the case in response to a U.K. whistleblower who provided information to the SFO about the bribery scheme; (2) Airbus received credit for full cooperation with prosecutions and law enforcement; (3) Airbus received credit for its remediation effort, including separation and disciplinary measures taken against individuals involved in the misconduct; termination of third-parties engaged in misconduct; applying new enhanced due diligence procedures; providing additional compliance training; and making enhancements to internal controls and its compliance program.
 
Based on Airbus settlement with PNF and its agreement to oversight by PNF authorities, and Airbus’ agreement to submit regular compliance reports, DOJ decided not to appoint an independent monitor.
 
DOJ also noted that the PNF and SFO have stronger jurisdictional authority over Airbus in comparison to the United States.
 
For the ITAR violations, Airbus received credit for voluntarily disclosing the conduct; was awarded full credit for its cooperation; the company implemented a number of remedial measures to its compliance program.
 
In light of all of these factors, DOJ awarded Airbus a 25 percent discount from the bottom of the sentencing fine range.

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COM_a310. 
White & Case: “BIS Issues First ‘Emerging Technology’ Control on Artificial Intelligence-Based Geospatial Imagery Software”
* Principal author: Richard Burke, Esq., rburke@whitecase.com, 1-202-626-3687, White & Case LLP.
 
On January 6, 2020, the US Department of Commerce’s Bureau of Industry and Security (BIS) issued the first “emerging technology” rule to control artificial intelligence-based software specially designed to automate the analysis of geospatial imagery and point clouds [F/N1] Effective January 6, 2020, this software requires a license for export or reexport to all destinations except Canada
.
 
This interim final rule follows the publication of an Advance Notice of Proposed Rulemaking (ANPRM) by BIS in November 2018 asking for public comments on criteria for identifying emerging technologies that are essential to US national security. The ANPRM listed 14 categories including artificial intelligence (AI) and position, navigation, and timing (PNT) technology, such as the software addressed by the January 6, 2020 rule [F/N2]
BIS published the ANPRM pursuant to the Export Control Reform Act of 2018 (ECRA), which mandates an interagency process to identify and establish appropriate controls on the export, re-export, or transfer (in country) of (1) emerging and (2) foundational technologies.
 
As described further below, items controlled as emerging and foundational technologies under ECRA also qualify as “critical technologies” under the Foreign Investment Risk Review Modernization Act (FIRRMA). Under FIRRMA, the Committee on Foreign Investment in the United States (CFIUS) has expanded jurisdiction to review a broader range of foreign investment transactions involving critical technologies, and requires mandatory filings under some circumstances. [F/N3]
 
The interim final rule classifies geospatial imagery software specially designed for training a Deep Convolutional Neural Network, an AI-based technology, to automate the analysis of geospatial imagery and point clouds4 under the Export Control Classification Number (ECCN) for regional stability (RS) reasons.
 
Interim Final Rule
 
BIS added certain software specially designed to automate the analysis of geospatial imagery to ECCN 0D521. A license is required for the export and reexport of these items to all destinations, except Canada. Items under the “0Y521” series, including 05D21, remain in that ECCN for up to a year while the US Government determines whether classification under a revised or new ECCN, or an EAR99 designation, is appropriate.
 
Classification under ECCN 0D521
 
This interim final rule controls geospatial imagery software specially designed for training a Deep Convolutional Neural Network to automate the analysis of geospatial imagery and point clouds, and satisfying all of the following criteria:
 
(1) Provides a graphical user interface that enables the user to identify objects, such as vehicles and houses, from within geospatial imagery and point clouds in order to extract positive and negative samples of an object of interest;
 
(2) Reduces pixel variation by performing scale, color, and rotational normalization on the positive samples;
 
(3) Trains a Deep Convolutional Neural Network to detect the object of interest from the positive and negative samples; and
 
(4) Identifies objects in geospatial imagery using the trained Deep Convolutional Neural Network by matching the rotational pattern from the positive samples with the rotational pattern of objects in the geospatial imagery.
 
Licensing Policy
 
BIS will review license applications for these items on a case-by-case basis to determine whether the export or reexport could contribute directly or indirectly to any country’s military capabilities to alter or destabilize a region’s military balance contrary to the US foreign policy interests.
 
The only ECCN-specific license exception available for these items provided for in the interim final rule is for exports, reexports, and transfers (in-country) made by or consigned to a department or agency of the US Government (License Exception GOV).
 
Public Comments
 
The interested public will have until March 6, 2020 to submit comments to BIS on the interim final rule.
 
CFIUS Impact
 
Items, software, and technologies controlled as emerging or foundational technologies by BIS are included in FIRRMA’s definition of “critical technologies.” Under FIRRMA, CFIUS has expanded jurisdiction to review, among others, certain controlling and certain non-passive, non-controlling foreign investments in US companies that produce, design, test, manufacture, fabricate, or develop critical technologies (even if such technologies are not exported); and mandatory filings with CFIUS are required in certain circumstances. Accordingly, as a result of the issuance of this interim final rule, CFIUS has jurisdiction to review, and mandatory CFIUS filings may be required for, certain controlling and certain non-passive, non-controlling foreign investments in US companies that produce, design, test, manufacture, fabricate, or develop the software covered by the new controls.
 
Conclusion
 
Companies engaging in exporting or reexporting items designed to automate the analysis of geospatial imagery and point clouds should monitor the implementation and any determinations under this rule very closely. Interested companies may provide comments on the rule as BIS encourages before the final rule is released. Additionally, companies contemplating transactions involving foreign investment in US businesses involved with these technologies should carefully consider the CFIUS issues early in the transaction process.
 
[F/N1] Dep’t of Commerce, Interim Final Rule (January 6, 2020), available here.
[F/N2] For more details, see White & Case’s client alert, available here.
[F/N3] For more details, see White & Case’s client alert, available here. New FIRRMA regulations take effect on February 13, 2020.
[F/N4] The interim final rule defines “point cloud” as follows: “A point cloud is a collection of data points defined by a given coordinate system. A point cloud is also known as a digital surface model.”

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TEEX/IM TRAINING EVENTS & CONFERENCES

TE_a111.
ECS Presents “Managing ITAR/EAR Complexities Seminar” on 25-26 Mar in Park City, UT

(Source:
ECS
)
 
*What:  Managing ITAR/EAR Complexities Seminar
*When:  March 25-26, 2020
*Sponsor:  Export Compliance Solutions & Consulting (ECS)
*ECS Instructors:  Suzanne Palmer, Lisa Bencivenga
*Register 

here
 or by calling 866-238-4018 or
email
.  

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TE_a212. FCC Academy Training Courses

Designing an ICP for  
Export Controls & Sanctions

Tuesday, 3 March 2020 in Amsterdam, The Netherlands

Implementing an ICP for Export Controls & Sanctions
Wednesday, 4 March 2020 in Amsterdam, The Netherlands

ENEDITOR’S NOTES

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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.

23 Jan 2020: 85 FR 4136-4188: Control of Firearms, Guns, Ammunition and Related Articles the President Determines No Longer Warrant Control Under the United States Munitions List (USML) 
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. 
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.

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.  23 Jan 2020: 85 FR 3819:

Department of State final rule amending § 121.1, USML Categories I, II, and III, and numerous related sections (effective Mar. 9, 2020).
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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