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20-0303 Tuesday “Daily Bugle”

20-0303 Tuesday “Daily Bugle”

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Tuesday, 3 March 2020

[No items of interest today]
  1. Items Scheduled for Future Federal Register Edition (No New postings)
  2. Commerce/BIS: (No new postings.) 
  3. State/DDTC Announces DECCS Environment Outage Tomorrow (4 Mar) from 6AM to 8AM (EST) 
  4. UK ECJU Announces Webinar on Recent Changes to OGELs on 16 March
  1. Baker McKenzie: “Reconciling US Export Control Law and Swedish Privacy Law”
  2. Steptoe: “Financial Quarantine: Understanding FATF’s Call for Action on Iran”
  1. FD Associates Presents “The ITAR, The EAR and the transition of USML I, II and III to the EAR” Seminar, 10 March in Tysons Corner, VA
  2. FCC Academy: U.S. Export Controls: ITAR, EAR, and FMS on 7-9 April in Amsterdam
  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 
  4. Submit Your Job Opening and View All Job Openings
  5. Submit Your Event and View All Approaching Events

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EXIMITEMS FROM TODAY’S FEDERAL REGISTER

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OGSOTHER GOVERNMENT SOURCES

OGS_a1
1.
Items Scheduled for Future Federal Register Editions
(Source: Federal Register)
[No items of interest today]

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OGS_a2
2.
Commerce/BIS: (No new postings.)
(Source: Commerce/BIS)

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OGS_a3
3.
State/DDTC Announces DECCS Environment Outage on 4 March from 6AM to 8AM (EST)
(Source: State/DDTC, 3 Mar 2020)
 
The Registration and Licensing applications within the Defense Export Control and Compliance (DECCS) environment will be unavailable to industry for 2 hours on Wednesday, March 4th from 6:00AM to 8:00AM (EST) for scheduled system maintenance. Please ensure work in progress is saved prior to the scheduled downtime.

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OGS_a4
4.
UK ECJU Announces Webinar on Recent Changes to OGELs on 16 March
(Source: UK ECJU, 3 Mar 2020)
 
Register now for:
 
 
This webinar on 16 March at 11am is for exporters of military and dual use items who need more information on recent amendments and the new open general licences.
 
The webinar will explain:
 
– why we made these changes
– which licences have been changed
– what action you need to take to remain compliant with export control legislation
 
Dean Gallacher, Head of UK and EU Policy in the Export Control Joint Unit will lead the webinar and answer questions.

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COMCOMMENTARY

COM_a15. 
Baker McKenzie: “Reconciling US Export Control Law and Swedish Privacy Law”

(Source:
IAPP, 20 Feb 2020)
 
* Principal Author: Helena J. Engfeldt, Esq., 1-415-984-3842, Baker McKenzie.
 
Multinational organizations subject to privacy laws, such as the EU General Data Protection Regulation, are sometimes also subject to seemingly conflicting trade law.
 
One area of U.S. trade law requires that before exporting certain products or technologies, companies screen against U.S. sanctions lists to prevent the goods from being available to states or individuals deemed bad actors. The lists often contain sensitive information, including personal data relating to suspected or confirmed criminal liability.
 
It can be challenging to justify the screenings under the GDPR, which furthers a historical tension between EU privacy law and U.S. export control law. This tension has received little attention in practice, but a decision by the Swedish data protection authority (link in Swedish) offers a path to complying with both the U.S. screening requirements and Swedish privacy law.
 
Key GDPR provisions relevant to screenings and supplemental Swedish law
Under Article 10 of the GDPR, processing personal data relating to criminal convictions and offenses or related security measures based on Article 6(1) of the GDPR shall be carried out only under the control of official authority or when the processing is authorized by EU or EU member state law providing for appropriate safeguards for the rights and freedoms of data subjects. This is one example of where the GDPR contains a so-called opener clause, allowing for supplemental national legislation by authorizing processing of personal data when authorized by member state law. And under Swedish law, it is possible for private companies to apply to the Swedish data protection authority, the Datainspektionen, for a permit to process personal data relating to criminal convictions and offenses – a key type of personal data processed in connection with sanctions screenings. For private companies to process such personal data (if not required to do so under EU or Swedish law), they must have a permit to not be in breach of the GDPR and Swedish supplementary Data Protection Act.
 
The Swedish Security and Defence Industry Association decision
The Datainspektionen granted such a permit to the Swedish Security and Defence Industry Association, which applied for it on behalf of its member companies. The decision identifies which of the sanction lists – such as the Specially Designated Nationals and Blocked Persons List and the Consolidated Sanctions List – the permit covers and which members are free to screen against without breaching the GDPR, which was in line with the application.
 
In its decision, the Swedish DPA considered the sizable fines Swedish companies would face in case of noncompliance with U.S. requirements, the risk of losing export licenses and risk of the company itself becoming listed on a sanctions list. If a company loses its export licenses and consequently, the right to buy American products and technology, it may not be able to fulfill its contractual obligations, which, in the long-term, could result in a lack of supply to the Swedish military, and the Swedish government can no longer secure access to certain products.
 
Against this background, the companies were considered to have a legitimate interest under Article 6(1)(f) of the GDPR to conduct the processing necessary in connection with the screenings. The privacy concerns of the individuals were deemed limited because the lists are published by U.S. authorities and publicly accessible on the internet, and the companies were considered to have methods in place to prevent conflating individuals with the same or similar name as a name appearing on a list. The decision presumes the companies will otherwise comply with applicable data protection law and, for example, provide advance notice to the data subject that their personal data will be processed in connection with the screenings and could be recalled if it turns out the companies are not otherwise processing the personal data in accordance with the GDPR.
 
There is no prescribed form for applying for this kind of permit from the Swedish DPA, but it is safe to say it should be thoroughly elaborated and motivated. It should also be noted that under Swedish law public documents, which the application materials would constitute, can generally be accessed by anyone who requests them unless they are subject to secrecy, which is decided on a case-by-case basis by the authority at hand.
 
It remains to be seen if the tension between U.S. export control law and EU privacy law will receive the same attention in the way that it has in Sweden in other EU member states and if more companies in Sweden will use this path of applying for a permit for screening practices.

COM_a26. 
Steptoe: “Financial Quarantine: Understanding FATF’s Call for Action on Iran”

(Source:
Regulation Asia, 2 March 2020)
 
* Author: Nicholas Turner, Esq., 852-2158-8445, Steptoe & Johnson LLP
 
The Financial Action Task Force (FATF) decision to return Iran to its so-called ‘blacklist’ may provide the US additional justification to take punitive action against non-US financial institutions that engage in certain Iran-related transactions, says Nick Turner at Steptoe & Johnson.
 
On 21 February 2020, the FATF announced that Iran would join North Korea on the group’s list of “high-risk jurisdictions subject to a call for action.” Popularly known as the “blacklist”, the call for action identifies jurisdictions with severe anti-money laundering and counter-terrorism financing (AML/CTF) deficiencies, as assessed against the FATF’s 40 Recommendations.
 
Like a quarantine, the FATF is now urging its members to adopt “effective counter-measures” to prevent the spread of illicit finance and proliferation risks from Iran. Meanwhile, the United States has gained an additional justification for restricting access to the US financial system for non-US banks that engage in certain Iranian transactions.
 
Iran’s Failure to Act
 
As described in the FATF’s public statement following its most recent plenary meeting, the decision to add Iran to the call for action was based on the Iranian government’s failure to implement legal and regulatory changes agreed to in June 2016, when the FATF removed Iran from the blacklist and suspended then-existing counter-measures after the adoption of the Joint Comprehensive Plan of Action (JCPOA).
 
For a helpful run-down of the FATF’s recent history with Iran, read Tom Keatinge’s February 2020 article Between a Rock and a Hard Place: FATF Faces an Iranian Crunch.
 
Since June 2016, the FATF has monitored Iran’s progress against an “Action Plan” of steps required to keep the country from returning to the list of high-risk jurisdictions.
 
Chief among Iran’s AML/CTF shortcomings was its failure to manage terrorism-financing risks by ratifying and implementing the UN Convention against Transnational Organized Crime (the Palermo Convention) and the International Convention for the Suppression of the Financing of Terrorism (the Terrorist Financing Convention).
 
While the FATF gave Iran credit for implementing a cash declaration regime, enacting amendments to the country’s Counter-Terrorist Financing Act and Anti-Money Laundering Act, and adopting an AML by-law, six big-ticket items remained from the 2016 Action Plan:
 
(1) Adequately criminalising terrorist financing and removing an exemption for groups “attempting to end foreign occupation, colonialism and racism”;
 
(2) Identifying and freezing terrorist assets in line with relevant UN sanctions resolutions;
 
(3) Ensuring an adequate and enforceable customer due diligence regime;
 
(4) Demonstrating how authorities are identifying and sanctioning unlicensed money/value transfer service providers;
 
(5) Ratifying and implementing the Palermo Convention and the Terrorist Financing Convention and clarifying Iran’s capability to provide mutual legal assistance to other governments; and
 
(6) Ensuring that financial institutions verify that wire transfers contain complete originator and beneficiary information.
 
The FATF’s public statement emphasises that Iran will remain subject to scrutiny until the country “implements the measures required to address the deficiencies identified with respect to countering terrorism-financing in the Action Plan.”
 
Effective Counter-Measures
 
In light of the above deficiencies, between June and October 2019, the FATF took the preliminary step of urging world governments to adopt enhanced reporting requirements and increase scrutiny of Iranian financial institutions, their overseas branches and subsidiaries, and non-Iranian banks operating in Iran.
 
With its most recent decision, the FATF re-imposed the remaining counter-measures suspending in June 2016 and called “on its members and urges all jurisdictions to apply effective counter-measures, in line with Recommendation 19 [of the FATF Recommendations].”
 
The full text of Recommendation 19 (“Higher-risk countries”) states:
 
“Financial institutions should be required to apply enhanced due diligence measures to business relationships and transactions with natural and legal persons, and financial institutions, from countries for which this is called for by the FATF. The type of enhanced due diligence measures applied should be effective and proportionate to the risks.
 
Countries should be able to apply appropriate countermeasures when called upon to do so by the FATF. Countries should also be able to apply countermeasures independently of any call by the FATF to do so. Such countermeasures should be effective and proportionate to the risks.”
 
The interpretive notes to Recommendation 19 list nine examples of counter-measures to be adopted by governments through their national AML/CTF regimes in respect of higher-risk countries (i.e., Iran and North Korea). These are:
 
(1) Requiring financial institutions to apply enhanced due diligence measures such as those described in FATF Recommendation 10 in respect of the higher-risk country;
 
(2) Introducing enhanced reporting measures for financial transactions involving the higher-risk country;
 
(3) Refusing the establishment of subsidiaries or branches or representative offices of financial institutions from a higher-risk country (or otherwise considering the state of the country’s AML/CTF systems);
 
(4) Prohibiting financial institutions from establishing branches or representative offices in the higher-risk country;
 
(5) Limiting business relationships or financial transactions with the higher-risk country or persons therein;
 
(6) Prohibiting financial institutions from relying on third parties located in the higher-risk country to conduct customer due diligence;
 
(7)Requiring financial institutions to review and possibly terminate correspondent relationships;
 
(8) Requiring increased supervisory examination and/or external audit requirements for branches and subsidiaries of financial institutions based in the higher-risk country; and
 
(9) Requiring increased external audit requirements for financial groups with respect to any of their branches and subsidiaries located in the higher-risk country.
 
As noted above, three of the counter-measures (2, 8, 9) were reintroduced against Iran between June and October 2019. Additionally, the interpretive notes state that governments should take steps “to ensure that financial institutions are advised of concerns about weaknesses in the AML/CTF systems of other countries.”
 
The FATF is not a regulator, and, apart from promoting AML/CTF standards and the issuance of public reports, it has few means of enforcing its call for action against countries that choose not to adopt some or all of the above counter-measures. Indeed, Recommendation 19’s interpretive notes merely provide “examples” of counter-measures and state that counter-measures should be “proportionate to the risks,” a determination made at the national level.
 
A Win for the Trump Administration
 
As far as the United States is concerned, Iran is already subject to strict counter-measures, including having been designated as a “jurisdiction of primary money laundering concern” by the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) under Section 311 of the USA PATRIOT Act.
 
Meanwhile, the Treasury Department’s Office of Foreign Assets Control (OFAC) and the US State Department administer economic sanctions restricting almost all trade between US persons and Iran and secondary sanctions designed to discourage non-US persons from engaging in a broad range of Iranian transactions.
 
While the United States has lobbied heavily for Iran’s inclusion on the FATF blacklist, the FATF, currently led by Xiangmin Liu of the People’s Republic of China, is nonetheless regarded as reasonably neutral as far as intergovernmental bodies go, making it hard to pin Iran’s failure to implement its own Action Plan on the United States.
 
Naturally, the US government is likely to use FATF’s call for action as a basis for haranguing countries that fail to impose strict counter measures. Whereas many governments, including the European Union, have resisted upholding US secondary sanctions, all FATF members have agreed to uphold the call for action in principle by virtue of their membership in the body.
 
Indeed, both the US State and Treasury Departments have issued statements in favor of the FATF’s decision, urging countries to adopt effective counter-measures.
 
Risks for Banks
 
As demonstrated by numerous US Treasury Department actions, the United States expects foreign financial institutions to implement AML/CTF controls with regard to terrorism-financing risks in addition to guidance from international organisations. Banks that fail to do so risk losing access to the US financial system, regardless of how their home governments implement the FATF counter-measures.
 
In July 2012, the US Treasury Department sanctioned China’s Bank of Kunlun for engaging in significant transactions with sanctioned Iranian banks. The bank now appears on OFAC’s List of Foreign Financial Institutions Subject to Correspondent Account or Payable-Through Account Sanctions (the CAPTA List).
 
In February 2018, FinCEN issued a Notice of Proposed Rulemaking naming Latvia’s defunct ABLV Bank as a financial institution of primary money laundering concern under Section 311 of the USA PATRIOT Act. Among a litany of compliance deficiencies, ABLV Bank failed to consider typologies highlighted by the UN Panel of Experts on North Korea with regard to North Korean front companies.
 
More recently, in August 2019, OFAC added Lebanon-based Jammal Trust Bank to the List of Specially Designated Nationals and Blocked Persons (the SDN List) for engaging in transactions with entities associated with Hizballah, a group designated as a terrorist organisation, like the Central Bank of Iran.
 

With the FATF call for action, the US government has an additional justification for taking punitive action against non-US financial institutions that engage in transactions involving Iran. The risk is especially high for transactions involving entities named by OFAC as Specially Designated Global Terrorists (SDGT) and banks with weak AML/CTF controls. 

TEEX/IM TRAINING EVENTS & CONFERENCES

TE_a17.
FD Associates Presents “The ITAR, The EAR, and the transition of USML I, II, and III to the EAR” Seminar,
10 March
in Tysons Corner, VA
 
* What:  Seminar, “The ITAR, The EAR and the transition of USML I, II and III to the EAR 
Agenda
* When:  Tuesday 10 Mar, 2020
* Where:  
The Tower Club
, 8000 Towers Crescent Dr Suite 1700, Vienna, VA 22182
* Sponsor:  
FD Associates
* Presenters: Jenny Hahn, President, FD Associates. Presenter will also be available for private counseling session after the workshop
* Register 
HERE, call 1-703-847-5801, or email info@fdassociates.net.

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TE_a28. FCC Academy: U.S. Export Controls: ITAR, EAR, and FMS

U.S. Export Controls: ITAR

Tuesday, 7 April 2020, Amsterdam
More Info

U.S. Export Controls: EAR

Wednesday, 8 April 2020, Amsterdam
More Info

The ABC of Foreign Military Sales (FMS)

Tuesday, 9 April 2020, Amsterdam

ENEDITOR’S NOTES

* Edmund Waller
(3 Mar 1606 – 21 Oct 1687; was an English poet and politician who sat in the House of Commons at various times between 1624 and 1679.)
– “Vexed sailors cursed the rain, for which poor shepherds prayed in vain.”
 
* Alexander Graham Bell
(3 Mar 1847 – 2 Aug 1922; was a Scottish-born American inventor, scientist, and engineer who is credited with inventing and patenting the first practical telephone. He also co-founded the American Telephone and Telegraph Company (AT&T) in 1885.)
  – “Before anything else, preparation is the key to success.”
  – “Concentrate all your thoughts upon the work at hand. The sun’s rays do not burn until brought to a focus.”

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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.

24 Feb 2020:
85 FR 10274-10278
: Amendments to Country Groups for Russia and Yemen Under the Export Administration Regulations
 

 

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.

15 Nov 2017, 82 FR 52823: miscellaneous corrections include correcting references, an address and a misspelling

 

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.
 

7 Feb 2020:
85 FR 7223-7230
:
Mali 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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