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20-0709 Thursday “Daily Bugle”

20-0709 Wednesday “Daily Bugle”

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Thursday, 9 July 2020

  1. USTR: “Product Exclusion Extensions: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation”
  1. Items Scheduled for Future Federal Register Edition
  2. Commerce/BIS: (No new postings)
  3. State/DDTC: (No new postings).
  4. Treasury/OFAC Settles with Amazon.com, Inc. for $134,523 with Respect to Potential Civil Liability for Apparent Violations of Multiple Sanctions Programs
  5. UK ECJU Announces Free Webinar- Strategic export controls and licences – An introduction
  1. Worldecr: “UK Adds Saudis to Magnitsky List – then Resumes Arms Sales to the Kingdom”
  1. ST&R Trade Report: “Low Penalty for Sanctions Violations Shows Importance of Self-Disclosure”
  2. Steptoe: “US Agencies Issue Xinjiang Business Advisory Targeting Tech and Other Industries Along with Supply Chains”
  3. Thompson Hine: “USTR Issues Section 301 Tariff Exclusion Extensions for Certain Imported Chinese Products on Tranche/List”
  4. Williams Mullen: “ITAR Compliance for Second and Third Tier Government Contractors and Suppliers”
  1. ECTI Presents: A Practical Guide to AES Filing Webinar; 9 Jul
  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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EXIM ITEMS FROM TODAY’S FEDERAL REGISTER

(Source:
Federal Register) [Excerpts]


 


85 FR 41267
: Notice
 
*
AGENCY:
Office of the United States Trade Representative.
*
ACTION:
Notice of product exclusion extensions.
*
SUMMARY:
Effective July 6, 2018, the U.S. Trade Representative imposed additional duties on goods of China with an annual trade value of approximately $34 billion as part of the action in the Section 301 investigation of China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation. The U.S. Trade Representative initiated the exclusion process in July 2018 and, to date, has granted 10 sets of exclusions under the $34 billion action. The sixth set of exclusions was published in July 2019 and will expire in July 2020. On April 30, 2020, the U.S. Trade Representative established a process for the public to comment on whether to extend particular exclusions granted in July 2019 for up to 12 months. This notice announces the U.S. Trade Representative’s determination to extend certain exclusions through December 31, 2020.
*
DATES:
The product exclusion extensions announced in this notice will apply as of July 9, 2020, and extend through December 31, 2020. U.S. Customs and Border Protection will issue instructions on entry guidance and implementation.

 
* * * * * * * * * * * * * * * * * * * *  

OGS OTHER GOVERNMENT SOURCES

(Source: Federal Register)
 

USTR; NOTICES;
Extension of Particular Exclusions:
China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation
; [Pub. Date: 10 Jul 2020]

 
* * * * * * * * * * * * * * * * * * * *  

OGS_a23. Commerce/BIS: (No new postings)

 
* * * * * * * * * * * * * * * * * * * *  

(Source:
State/DDTC)

* * * * * * * * * * * * * * * * * * * *  

(Source:
Civil Penalties and Enforcement Information
, 8 Jun 2020) [Excerpts]
 
Enforcement Release: July 8, 2020 OFAC Settles with Amazon.com, Inc. with Respect to Potential Civil Liability for Apparent Violations of Multiple Sanctions Programs Amazon.com, Inc. (“Amazon”), a Seattle, Washington-based company that provides retail, ecommerce, and digital services to millions of customers worldwide, has agreed to pay $134,523 to settle its potential civil liability for apparent violations of multiple OFAC sanctions programs. As a result of deficiencies related to Amazon’s sanctions screening processes, Amazon provided goods and services to persons sanctioned by OFAC; to persons located in the sanctioned region or countries of Crimea, Iran, and Syria; and to individuals located in or employed by the foreign missions of countries sanctioned by OFAC. 

Amazon also failed to timely report several hundred transactions conducted pursuant to a general license issued by OFAC that included a mandatory reporting requirement, thereby nullifying that authorization with respect to those transactions. 

The settlement amount reflects OFAC’s determination that Amazon’s apparent violations were non-egregious and voluntarily self-disclosed, and further reflects the significant remedial measures implemented by Amazon upon discovery of the apparent violations. Description of the Apparent Violations and the Conduct Leading to the Apparent Violations From on or about November 15, 2011, to on or about October 18, 2018, persons located in Crimea, Iran, and Syria placed orders or otherwise conducted business on Amazon’s websites for consumer and retail goods and services where the transaction details demonstrated that the goods or services would be provided to persons in Crimea, Iran, or Syria. 

Amazon also accepted and processed orders on its websites for persons located in or employed by the foreign missions of Cuba, Iran, North Korea, Sudan, and Syria. Additionally, Amazon accepted and processed orders from persons listed on OFAC’s List of Specially Designated Nationals and Blocked Persons (the “SDN List”) who were blocked pursuant to the Narcotics Trafficking Sanctions Regulations, the Weapons of Mass Destruction Proliferators Sanctions Regulations, the Transnational Criminal Organizations Sanctions Regulations, the Democratic Republic of the Congo Sanctions Regulations, the Venezuela Sanctions Regulations, the Zimbabwe Sanctions Regulations, the Global Terrorism Sanctions Regulations, and the Foreign Narcotics Kingpin Sanctions Regulations. 

Overall, the apparent violations consisted primarily of transactions involving low-value retail goods and services for which the total transaction value of the apparent violations was approximately $269,000. These apparent violations occurred primarily because Amazon’s automated sanctions screening processes failed to fully analyze all transaction and customer data relevant to compliance with OFAC’s sanctions regulations. In some instances, orders specifically referenced a sanctioned 2 jurisdiction, a city within a sanctioned jurisdiction, or a common alternative spelling of a sanctioned jurisdiction, yet Amazon’s screening processes did not flag the transactions for review. For example, Amazon’s screening processes did not flag orders with address fields containing an address in “Yalta, Krimea” for the term “Yalta,” a city in Crimea, nor for the variation of the spelling of Crimea. In another example, Amazon failed to interdict or otherwise flag orders shipped to the Embassy of Iran located in third countries. Moreover, in several hundred instances, Amazon’s automated sanctions screening processes failed to flag the correctly spelled names and addresses of persons on OFAC’s SDN List. 

Amazon previously identified and reported to OFAC 245 transactions involving Crimea undertaken pursuant to GL 5 on February 13, 2015 (within the required reporting period), but did not report an additional 362 such transactions until well after the required reporting period had expired. Because of this reporting failure, the authorization in GL 5 is nullified with respect to those 362 transactions.
 
Compliance Considerations
This case demonstrates the importance of implementing and maintaining effective, risk-based sanctions compliance controls, including sanctions screening measures appropriate for eCommerce and other internet-based businesses that operate on a global scale. Such large and sophisticated businesses should implement and employ compliance tools and programs that are commensurate with the speed and scale of their business operations. In particular, global companies that rely heavily on automated sanctions screening processes should take reasonable, risk-based steps to ensure that their processes are appropriately configured to screen relevant customer information and to capture data quality issues, such as common misspellings. 

Routine testing of these processes to ensure effectiveness and identify deficiencies may also be appropriate. Moreover, companies that learn of a weakness in their internal compliance controls may benefit by taking immediate and effective action, to the extent possible, to identify and implement compensating controls until the root cause of the weakness can be determined and remediated. 

This case also demonstrates the importance of compliance with all aspects of the terms of OFAC’s general licenses, including the timely fulfillment of any reporting obligations pursuant to those licenses. 5 OFAC Enforcement and Compliance Resources On May 2, 2019, OFAC published A Framework for OFAC Compliance Commitments in order to provide organizations subject to U.S. jurisdiction, as well as foreign entities that conduct business in or with the United States or U.S. persons, or that use U.S.-origin goods or services, with OFAC’s perspective on the essential components of a sanctions compliance program. 

The Framework also outlines how OFAC may incorporate these components into its evaluation of apparent violations and resolution of investigations resulting in settlements. The Framework includes an appendix that offers a brief analysis of some of the root causes of apparent violations of U.S. economic and trade sanctions programs OFAC has identified during its investigative process. Information concerning the civil penalties process can be found in the OFAC regulations governing each sanctions program; the Reporting, Procedures, and Penalties Regulations, 31 C.F.R. Part 501; and the Economic Sanctions Enforcement Guidelines, 31 C.F.R. Part 501, app. A. 

These references, as well as recent final civil penalties and enforcement information, can be found on OFAC’s website at www.treasury.gov/ofac/enforcement. For more information regarding OFAC regulations, please go to: www.treasury.gov/ofac.

 
* * * * * * * * * * * * * * * * * * * *  

(Source:
UK ECJU
, 9 Jul 2020)
 
This free 1 hour webinar on the 16 July at 3pm (BST) is ideal for exporters new to strategic export controls.  After providing an overview of the controls on the export and trade of military and certain Dual-Use items from the UK, it also introduces how exporters obtain licences.
This webinar will take attendees through:
– The controls
– Military and Dual Use lists
– What is meant by “technology” and how it can be exported
– Additional Trade Controls, Sanctions and End Use controls
– Compliance and enforcement 
– The types of licences available and how to apply
Adrian Bond, the Training Manager for the Export Control Joint Unit, will lead the webinar, with the overview of licences and licensing provided by Michelle Sullivan, an experienced licensing officer.
We are also pleased to announce that we currently have classroom based courses available for the Autumn/Winter, government guidelines and attendee demand allowing. These are due to re-start in Edinburgh on the 7 and 8 of September, then Aberdeen with an Oil, Gas and Renewables focused Intermediate course on the 9 September, followed by general Foundation and Licencing courses on the 10 September. Please see the latest Training Bulletin for more details.
For general export control queries please contact our Helpline on 020 7215 4594 or email: exportcontrol.help@trade.gov.uk

 
* * * * * * * * * * * * * * * * * * * *  

COM NEWS

(Source: Worldecr, 9 Jul 2020)
 
The UK Foreign and Commonwealth Office has announced its own ‘Magnitsky’ style sanctions – a ‘powerful new regime’ which means that the UK has ‘new powers to stop those involved in serious human rights abuses and violations from entering the country, channelling money through UK banks, or profiting from our economy.’

The government has also announced a first wave of designations under the initiative – which includes, it says, ‘Forty-nine individuals and organisations involved in some of the most notorious human rights violations and abuses in recent years.’

Amongst those listed are Saudi officials said to be associated with the killing of journalist Jamal Khashoggi, Russian officials allegedly associated with the death of the Russian lawyer Sergei Magnitsky, two ‘high-ranking Myanmar military generals involved in the systematic and brutal violence against the Rohingya people and other ethnic minorities,’ and two organisations ‘involved in the forced labour, torture and murder that takes place in North Korea’s gulags.’
‘The UK has pipped the EU to the post,’ one lawyer told WorldECR, referring to the oft-mooted potential for the European Union to establish its own regime.
UK Foreign Secretary Dominic Raab said: ‘A special unit will consider the use of future sanctions, with teams across the department monitoring human rights issues. They will ensure targets under the landmark regime will have to meet stringent legal tests before the UK decides to designate, ensuring the sanctions are robust and powerful.

‘The suite of measures can also apply to those who facilitate, incite, promote, or support these violations/abuses, as well as those who financially profit from human rights violations and abuses.’

However, on 7 July – a day after the announcement of the designations – Liz Truss, Secretary of State for International Trade, announced that previously suspended arms exports to Saudi could resume. According to Truss, whereas her predecessor had suspended export licences for the sale or transfer of arms to Saudi Arabia for use in the Yemen conflict as per a ruling from the Court of Appeal in 2019, the government had taken steps to address the court’s concerns, applying a revised methodology for the analysis of possible violations of International Humanitarian Law (‘IHL’) on the basis of which she had ‘assessed that there is not a clear risk that the export of arms and military equipment to Saudi Arabia might be used in the commission of a serious violation of IHL’.

Accordingly, Truss announced, ‘[I]t follows that the undertaking that my predecessor gave to the Court – that we would not grant any new licences for the export of arms or military equipment to Saudi Arabia for possible use in Yemen – falls away. The broader commitment that was given to Parliament, relating to licences for Saudi Arabia and its coalition partners, also no longer applies.’

COM COMMENTARY

 
* Contact: 
messages@strtrade.com, 1-305-894-1035
 
Voluntary self-disclosure of sanctions violations, along with significant remedial measures after those violations were discovered, were key factors in a recent Office of Foreign Assets Controls decision to impose a minor penalty for those violations.
 
Violations
According to an OFAC notice, a major U.S. company [Amazon.com] has agreed to pay $134,523 to settle its potential civil liability for apparent violations of multiple OFAC sanctions programs. Specifically, the company provided goods and services to persons sanctioned by OFAC, persons located in sanctioned regions and countries, and individuals located in or employed by the foreign missions of sanctioned countries. The company also failed to timely report several hundred transactions conducted pursuant to a general license issued by OFAC that included a mandatory reporting requirement, thereby nullifying that authorization with respect to those transactions.

OFAC states that these violations occurred primarily because the company’s automated sanctions screening processes failed to fully analyze all transaction and customer data relevant to sanctions compliance. In some instances, customer orders specifically referenced a sanctioned jurisdiction, a city within a sanctioned jurisdiction, or a common alternative spelling of a sanctioned jurisdiction, but the company’s screening processes did not flag the transactions for review. In several hundred other instances, these processes failed to flag the correctly spelled names and addresses of persons on OFAC’s Specially Designated Nationals List.
 
Penalty and Mitigation
The statutory maximum civil monetary penalty amount for the violations was more than $1 billion. However, OFAC determined that the company voluntarily self-disclosed the violations and that they constitute a non-egregious case. Accordingly, under OFAC’s Economic Sanctions Enforcement Guidelines the base civil monetary penalty amount for the violations equals the sum of half the transaction value for each violation, which in this case is $134,523.
OFAC considered the following to be aggravating factors: (1) the company failed to exercise due caution or care when it implemented sanctions screening processes that failed to properly flag transactions involving blocked persons and sanctioned jurisdictions, (2) while the violations primarily involved low-value retail and consumer goods and services, some related to orders for personal security products on behalf of persons at the Iranian embassies in Tokyo and Brussels, and (3) the company processes billions of global transactions annually and is one of the largest and most commercially sophisticated companies in the world.

On the other hand, mitigating factors included that the company (1) voluntarily self-disclosed the violations and cooperated with OFAC’s investigation by providing data analysis and submitting detailed information in a well-organized manner, (2) conducted an internal investigation without receiving an administrative subpoena and identified and disclosed the circumstances of the transactions that led to the violations, (3) undertook significant remedial measures to address its sanctions screening deficiencies, and (4) agreed to undertake various additional sanctions compliance commitments, including (a) investing substantial resources to improve its overall sanctions compliance program, (b) employing internal and third-party sources to conduct a thorough review of its sanctions compliance program and automated screening systems, (c) developing custom internal screening lists, (d) bolstering its compliance training programs, and (e) expanding the use of specific export control and sanctions provisions and the language of those provisions in its agreements.
 
Compliance Considerations
OFAC states that this case demonstrates the importance of implementing and maintaining effective, risk-based sanctions compliance controls, including sanctions screening measures appropriate for e-commerce and other Internet-based businesses that operate on a global scale.
In particular, global companies that rely heavily on automated sanctions screening processes should take reasonable, risk-based steps to ensure that their processes are appropriately configured to screen relevant customer information and to capture data quality issues such as common misspellings. Routine testing of these processes to ensure effectiveness and identify deficiencies may also be appropriate. Moreover, companies that learn of a weakness in their internal compliance controls may benefit by taking immediate and effective action to identify and implement compensating controls until the root cause of the weakness can be determined and remediated.

(Source: International Compliance Blog, 9 Jul 2020)
 
* Principal Author: Edward J. Krauland, Esq., 1-202-429-8083, Steptoe
 
On July 1, 2020, the US Departments of State, Treasury, Commerce, and Homeland Security jointly issued an advisory, “Risks and Considerations for Businesses with Supply Chain Exposure to Entities Engaged in Forced Labor and other Human Rights Abuses in Xinjiang” (the “Advisory“). Although this Advisory does not set out any new laws, it was published shortly after the Uyghur Human Rights Policy Act of 2020 (the “Act“) was signed into law on June 17, 2020. These developments suggest a shift in enforcement focus on the Xinjiang Uyghur Autonomous Region (“XUAR“), including imports from XUAR, exports and technology transfers to XUAR, and other business activity in China that may implicate XUAR.

The Advisory urges US and non-US businesses, academic institutions, research service providers, and investors with connections to XUAR to implement appropriate human rights due diligence policies, procedures, and internal controls to mitigate reputational, economic, and legal risks. The Advisory suggests that the failure to take appropriate due diligence steps may increase the risk of sanctions or law enforcement activity by the US government.
 
Types of Exposure – Supply Chain (Procurement), Technology (Sales/Partnerships), and Construction-Related Activity
The Advisory highlights three potential areas of supply chain exposure to human rights abuses in XUAR: (1) assisting in developing surveillance tools for the Chinese government that would be used in XUAR; (2) relying on labor or goods sourced in XUAR, or from factories elsewhere in China using forced labor from XUAR; and (3) aiding in the construction of internment facilities in XUAR or manufacturing facilities that are in close proximity to such facilities.
Surveillance
: The Advisory warns that businesses, academic institutions and others providing goods, services and technology “with a nexus” to XUAR surveillance “may face reputational risks and/or trigger US law enforcement or other actions.” This includes, among others:
 
(1)
Exports to China or development in China of products or technologies relating to biometrics, cameras, computers, microchips or microprocessors (which are specifically listed in the Advisory), or other products or technology with surveillance capabilities; and
 
(2)
Joint ventures with the Chinese government or Chinese companies “whose intellectual property has been known to aid the development or deployment of a surveillance system used arbitrarily against members of minority groups or others.” This may include granting access to genetic databases or assisting with the involuntary collection of genetic data; facial recognition research related to Chinese minorities; partnerships with Chinese technology facial recognition firms involved with enabling China’s surveillance activities; or inviting such parties to conferences (or participating in conferences organized or sponsored by such parties) where technical issues on surveillance-related activities will be discussed.
Forced labor
: The Advisory identifies a number of industries with heightened supply chain risks related to forced labor in internment camps, prisons, and elsewhere in XUAR:
 
(3)
Cotton
: The Advisory indicates that XUAR is responsible for most of China’s domestic cotton production, and that forced labor may be used throughout the vertical supply chain, including in producing apparel. The Advisory warns that US companies that export cotton to China “face potential reputational and other risks” if their cotton is used in manufacturing that employs forced labor from XUAR.
 
(4)
Other industries using forced labor in XUAR
: The Advisory lists other “illustrative” industry sectors that “have been identified as using forced labor” in XUAR, including food production, agriculture, cell phones and electronic assembly, mining, and, notably, hair products.
 
Human Rights Due Diligence
The Advisory encourages businesses with supply chain links to XUAR to implement human rights due diligence in line with international best practices.
 
Due Diligence Recommendations
The Advisory identifies a number of sources for human rights due diligence best practices, including the United Nations Guiding Principles on Business and Human Rights, the Organization for Economic Co-operation and Development Guidelines on Multinational Enterprises, and the International Labor Organization Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy.
In addition, the Advisory includes the following due diligence recommendations for businesses and individuals:
 
(i)
Review end users of products, technology, research, and services to reduce the likelihood that supplied goods or services are being used to build, maintain, or support: (i) internment camps; (ii) the broader surveillance apparatus of the Chinese government; (iii) companies that employ forced labor; or (iv) activities that enable human rights abuses, including forced collection of biometric data and coercive transfer of ethnic minority groups.
 
(ii)
Conduct due diligence if providing goods or materials that can be used to construct internment facilities (such as concrete, steel, rebar, chain-link fencing, paving materials, and glass) to reduce the likelihood that internment camps are the ultimate beneficiaries;
(iii)
Conduct appropriate due diligence to determine if Chinese entity customers operating in XUAR may employ forced labor or using laborers from XUAR.
The Advisory notes that well-documented and implemented due diligence policies and procedures may be considered “mitigating factors” by US authorities in the event businesses inadvertently engage in sanctionable activity or cross other legal red lines discussed below.
 
Risks to Financial Institutions
The Advisory recommends that financial institutions assess “their potential exposure to the risk of handling the proceeds of forced labor on behalf of their clients,” in line with the risk-based approach of their existing anti-money laundering, counterterrorist financing, and counterproliferation financing programs, and to implement a mitigation process in line with the risk.
 
Unreliability of Third-Party Audits
In assessing potential exposure to entities “involved in” the use of forced labor, surveillance or other targeted practices in XUAR, the Advisory cautions that third-party audits alone may not be a credible source of information, because, among other reasons, auditor interviews with workers may not be reliable. Instead, the Advisory suggests collaboration with industry groups to research potential indicators of forced labor in Chinese languages, and to build relationships with Chinese suppliers and recipients of US goods and services, to understand their possible relationships in XUAR under the mutual pairing assistance program (which partners companies in more developed parts of China with activities in XUAR).
The Advisory does not provide any guidance on what nexus to targeted activity in XUAR is sufficient for the company to be “involved in” such targeted activity. While companies using forced labor or surveillance in XUAR would clearly be covered, it is unclear if companies providing ancillary support (e.g., transport, logistics, or management) to targeted activities would also be covered.
 
Compliance Tools
The Advisory identifies several US government resources for compliance and due diligence, including:
 
(a)
The US Department of Labor’s Comply Chain, which provides information on due diligence measures specific to forced labor and child labor in supply chains;
 
(b)
The US Department of State’s Responsible Sourcing Tool, which includes an in-depth examination of 11 key sectors and 43 commodities at risk for human trafficking or trafficking-related practices, as well as 10 comprehensive risk-management tools; and
 
It also lists the following “potential indicators of forced labor or labor abuses” in XUAR:
 
(d)
Lack of Transparency
: Firms operating in XUAR using shell companies to hide the origin of their goods, write contracts with opaque terms, and conduct financial transactions where it is difficult to determine where the goods were produced, or by whom.
 
(e)
Social Insurance Programs
: Companies operating in XUAR disclosing high revenue but having very few employees paying into the government’s social security insurance program.
 
(f)
Terminology
: Any mention of internment terminology (e.g., Education Training Centers (
职业
教育培

中心
) or Legal Education Centers) coupled with poverty alleviation efforts, ethnic minority graduates, or involvement in reskilling.

(g)
Government Incentives
: Companies operating in XUAR receiving government development assistance as part of the government’s poverty alleviation efforts or vocational training programs; companies involved in the mutual pairing assistance program.
 
(h)
Government Recruiters
: Companies operating in XUAR implementing nonstandard hiring practices and/or hiring workers through government recruiters.
 
(i)
Factory Location
: Companies operating in XUAR located within or near internment camps, or within or near industrial parks involved in poverty alleviation efforts.
 
Enforcement Tools
The Advisory identifies a number of US legal tools that could result in negative consequences for individuals and entities that engage in the types of activity described in the Advisory.

The BIS Entity List
Section 744.11 and related provisions of the US Export Administration Regulations (“EAR“) authorize BIS to add companies to the Entity List and thereby impose licensing requirements on the export, reexport, or transfer (in-country) of “items subject to the EAR,” based on a finding that such entities are “acting contrary to the national security or foreign policy interests of the United States.” BIS has previously added Chinese technology companies and government entities to the Entity List for their alleged involvement in human rights abuses in XUAR, including the provision of surveillance technology to law enforcement in XUAR.
 
Economic Sanctions
OFAC can sanction individuals and entities that are viewed as engaging in human rights abuses in XUAR, such as with entities that use forced labor from Xinjiang. Executive Order (“E.O.“) 13818, which implements the Global Magnitsky Human Rights Accountability Act, is one such authority. In addition, the Uyghur Human Rights Policy Act of 2020 requires reporting, and the imposition of sanctions, on persons involved in human rights abuses in XUAR.
 
Customs and Importation Risk
19 U.S.C. Section 1307 prohibits the importation of merchandise mined, manufactured, or produced, wholly or in part, by forced labor, including convict labor, forced child labor, and indentured labor. The Advisory states that:
Where evidence indicates that goods from Xinjiang are produced with forced, indentured, or convict labor, CBP will deny entry to those goods, which could lead to the goods being seized and forfeited, or even to the issuance of civil penalties against the importer and other parties, as appropriate. ICE’s Homeland Security Investigations (HSI) may initiate criminal investigations relating to the importation of forced labor-made goods in violation of US law.
 
Federal Acquisition Regulations (“FAR“)
The Advisory states that the FAR prohibits federal contractors, sub-contractors, and their agents from engaging in a range of human trafficking related activities. Any violations of the FAR can result in suspension or debarment from US government contracting.

Other Legislation
Under the Trafficking Victims Protection Act (“TVPA“), the US government can bring criminal charges against any person benefitting from forced labor, if the person knew of or recklessly disregarded evidence of such forced labor. In addition, the Advisory points out that there is also a civil right of action under the TVPA.
 
Observations
The Advisory could be a precursor to increased sanctions and enforcement actions by US agencies related to activities in XUAR. In the past, multi-agency due diligence advisories such as the recent 
maritime advisory
 have been followed by increased enforcement and sanctions activity.
For example, the US government may continue to use the Entity List to target technology companies and universities and research institutions connected to XUAR surveillance that may be reliant on US-origin components or technologies. To date OFAC has not targeted any persons for alleged human rights violations in XUAR, although this may change with the passage of the Uyghur Human Rights Policy Act of 2020. In addition, US Customs 
recently seized
 a shipment of human hair products believed to have been made from individuals in labor camps in XUAR.


Companies with direct or indirect business connections to XUAR (or companies operating in XUAR) will need to consider developing risk-based supply chain due diligence procedures that can stand up to scrutiny by US enforcement agencies, sometimes operating with 20/20 hindsight. Given the difficulties in conducting on the ground due diligence, we expect that many companies will face difficulties similar to those faced by companies trying to build due diligence procedures to comply with the Conflict Mineral Rule. One potential solution would be a public-private partnership similar to the Customs Trade Partnership Against Terrorism (CTPAT) which allows companies to submit “security profiles” for testing and verification by a CTPAT Supply Chain Security Specialist. In the likely case that the US government will not certify compliance programs, companies with supply chain risk should consider independent testing and auditing of their supply chain due diligence procedures. 


(Source: Trump and Trade, 8 Jul 2020)
 
* Principal Author:
Principal Author: Brent Connor, Esq., 1-202-263-4188, Thompson Hine
 
The Office of the U.S. Trade Representative (USTR) has published a Federal Register notice granting a limited number of product exclusion extensions from the Section 301 tariff for four imported Chinese products appearing on the first list/tranche of goods valued at $34 billion. In July 2019, the USTR granted 110 specially-prepared exclusion requests with an expiration date of July 9, 2020. See Trump and Trade Update of July 9, 2019.  In April 2020, interested parties were invited to comment on whether to extend by up to 12 months any of these exclusions that had been granted. See Trump and Trade Update of April 29, 2020.
For the July 2019 exclusions, USTR has granted only twelve (12) extensions.  The product descriptions are: certain direct acting and spring return pneumatic actuators; certain pump casings and bodies; certain pump covers and parts; certain compressors; structural components for industrial furnaces; certain aluminum electrolytic capacitors; certain rotary switches; zinc anodes for use with machines and apparatus for electroplating, electrolysis or electrophoresis; certain weather station sets; and multi-leaf collimators of radiotherapy systems based on the use of X-ray.  All other product exclusions granted in July 2019 will expire as of July 9, 2020.
These product exclusion extensions will apply as of July 9, 2020, and extend through December 31, 2020. U.S. Customs and Border Protection will soon issue instructions on entry guidance and implementation.
Each exclusion continues to be governed by the scope of the HTS heading and the product description appearing in the annex of the exclusion extension notice; it is not governed by the product description set out in any particular exclusion request. U.S. Customs and Border Protection will soon issue instructions on entry guidance and implementation.


(Source: Williams Mullen, 7 Jul 2020)
 
* Principal Author: Thomas B. McVey, Esq., 1-202-293-8118, Williams Mullen
 
Companies in the defense industry increasingly are being asked by their customers whether they are “ITAR Compliant” and if they can document this.  Many small and mid-sized contractors and suppliers do not know how to respond to these requests, and how to respond can have important consequences for these companies.
By way of background, the International Traffic In Arms Regulations (ITAR) are the State Department regulations that apply to the manufacture and transfer of defense products, defense services and technical data.  There is a major concern within the U.S. Government that, while large prime contractors have strong ITAR compliance, many mid-sized and small companies in the defense supply chain do not, and that this gap creates significant national security risks for the U.S.
These issues apply both to companies with direct contracts on defense projects as well as independent upstream suppliers of parts, components, services and software that are ultimately used in the defense sector.
The agencies have taken a number of steps to address this risk including: (i) adopting specialized clauses in DOD contracts mandating that contractors comply with ITAR requirements and flow this requirement down to their subcontractors (see for example DFARS §225.79 and 252.225.7048); and (ii) initiating ITAR enforcement cases targeted specifically at small/mid-sized companies.  (See for example our article: “
Recent ITAR Case Sends Important Message to Small/Midsized Government Contractors
“).  These steps are intended to force ITAR compliance throughout the entire defense supply chain.
Many prime contractors are now worried that if their subcontractors commit ITAR violations, the prime contractor can have liability.  As a result, prime contractors are establishing requirements that their subcontractors become ITAR-compliant, and requiring the subcontractors to impose similar requirements on the subcontractors’ suppliers and subcontractors.  The prime contractor will often ask for documentation from the subcontractors providing evidence that they have done this. 
Failure to be “ITAR Compliant” can create significant problems for small and mid-sized contractors, including loss or termination of their contracts, potential civil and criminal liability for ITAR violations, and reputational damage, especially in the eyes of prime contractors and other downstream customers.
ITAR sets forth a number of requirements that apply to companies in the defense sector, including:
  • The prohibition against disclosing ITAR-controlled technical data to foreign nationals overseas and in the U.S. (including to foreign nationals who are employees of your company) unless a license is obtained or an exemption applies;
  • The requirement to register with the State Department under ITAR Part 122;
  • The requirement to obtain State Department authorization (called a Technical Assistance Agreement) to perform “defense services;”
  • The requirement to obtain export and import licenses for certain transactions;
  • The requirement to adopt controls to protect ITAR-controlled technical data within the company’s data system to prohibit foreign nationals from obtaining access to such data (including foreign employees of your company);
  • Restrictions on “brokering” or assisting others in the sale/transfer of defense articles and defense services;
  • Restrictions on entering transactions with parties from the list of countries subject to U.S. arms embargoes set forth in ITAR §126.1 (called the “§126.1 Proscribed Countries”); and
  • Reporting and recordkeeping requirements.

A more detailed discussion of ITAR requirements applicable to government contracts firms is available in our 

Whitepaper: ITAR For Government Contractors
.”
Penalties for ITAR violations include financial fines of up to $1,000,000 per violation and up to twenty years imprisonment.  If you discover that you have a violation there are steps you can take to deal properly with these and minimize your liability – for additional information see our articles:  “
Dealing with Violations In Export Transactions
“, “
Seven Steps To Protect Your Company From Export Violations,
” and “
Voluntary Self-Disclosures – An Important Tool For Dealing With Export Violations
.” 
The Commerce Department also administers a companion set of regulations entitled the Export Administration Regulations (which apply to commercial products and certain limited defense products) which must be read in conjunction with ITAR.
ITAR requirements can apply even if your company does not engage in any international activities and even if your only customer is the U.S. Department of Defense.
What should mid-sized companies do to deal with these requirements?  There is no formal process or certification for a company to become “ITAR Compliant” or “ITAR Certified.”  However, there are a number of important steps that small/mid-sized contractors can take to come into compliance with the law and address these requests from prime contractors:
 
(1)
ITAR Registration
 – Many companies in the defense supply chain are required to register with the State Department under ITAR Part 122.  Companies should assess if they are required to register and if so do so as quickly as possible.  For additional information regarding the requirement to register see our
 
(2)
ITAR Compliance Program
 – Another important step is to learn about the general requirements under ITAR and the EAR and adopt internal written policies and procedures to comply with these – this is called an ITAR Compliance Program.  The State Department recommends that companies involved in ITAR-controlled activities adopt ITAR Compliance Programs – and if a company has an ITAR violation the State Department frequently reduces penalties or assesses no penalties for companies that have compliance programs.  Compliance Programs demonstrate to prime contractors (and government agencies if there is an ITAR violation) that your company has a formal process for ITAR compliance and project a sophisticated approach to managing these issues.
 
(3)
Risk Assessment – Unique Requirements That Apply To Your Company
 – A third important step is identifying the specific ITAR requirements that apply to your company based upon your business activity, customer base and countries of operation and adopting focused strategies for dealing with these.  For example, a company providing electronic components for the F-35 to a customer in Chicago will most likely have different ITAR requirements than a company providing program services to support the U.S. Navy in Japan.  This is sometimes called a “Risk Assessment” – this can help you identify the greatest legal risks/exposures for your company and strategically concentrate efforts to eliminate these. 

Other steps that you can take to protect your company include:
  • Conduct due diligence reviews of your subcontractors and upstream suppliers to verify that they are taking appropriate steps to comply with ITAR/export control requirements, and if required flow down the ITAR compliance clauses to these parties.
  • When you receive documents from prime contractors such as mechanical drawings or technical specifications, see if they are marked as containing ITAR/EAR-controlled technical data and if so take appropriate steps to protect such materials from improper transfer and disclosure.
  • When you are sending products that are ITAR/EAR-controlled and documents that contain ITAR/EAR-controlled technical data to other parties in the U.S., mark such items as subject to export controls to provide a warning to the recipients for handling, storing and transferring such items.  (Of course, if you will be transferring ITAR-controlled items out of the U.S. or disclosing ITAR-controlled technical data to foreign persons in the U.S. you will be required to obtain an export license unless a license exemption applies.)
  • Conduct ITAR compliance training for your company employees to assure that they understand the requirements under ITAR and comply with them on a regular basis.

Once you have taken these steps, you can advise your prime contractors of the actions you have taken to come into compliance with ITAR.  In addition, you will be ready to respond to future inquiries from prime contractors regarding your company’s ITAR readiness for new contracts.  This will provide your company a competitive advantage over other subcontractors in competing for new business and help in reducing your legal liability on an ongoing basis.


TE EX/IM TRAINING EVENTS & CONFERENCES

(Source: ECS)
 
*What:  ITAR/EAR Controls for Non-U.S. Companies
*When:  15-16 Oct
*Where:  Toronto, CA
*Sponsor: Export Compliance Solutions & Consulting (ECS)
*ECS Speakers:  Suzanne Palmer, Mal Zerden
*Register: here or write to liz@exportcompliancesolutions.com or call 1-866-238-4018

* * * * * * * * * * * * * * * * * * * *

EN EDITOR’S NOTES

EN_a115. Bartlett’s Unfamiliar Quotations

(Source: Editor)
  

* Don Herold
 (9 Jul 1889 – 1 Jun 1966; was an American humorist, writer, illustrator, and cartoonist who wrote and illustrated many books and was a contributor to national magazines.)
  – “There is nobody so irritating as somebody with less intelligence and more sense than we have.”
  – “It takes a lot of things to prove you are smart, but only one thing to prove you are ignorant.”
  – “Don’t ever slam a door, you might want to go back.”

* * * * * * * * * * * * * * * * * * * *

 

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: 84 FR 13499:

Civil Monetary Penalty Adjustments for Inflation. 
DOC EXPORT ADMINISTRATION REGULATIONS (EAR): 15 CFR Subtit. B, Ch. VII, Pts. 730-774. 
DOC FOREIGN TRADE REGULATIONS (FTR): 15 CFR Part 30.   24 Apr 2018: 83 FR 17749: 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: Bump-Stock-Type Devices.

DOS INTERNATIONAL TRAFFIC IN ARMS REGULATIONS (ITAR): 22 C.F.R. Ch. I, Subch. M, Pts. 120-130. 
6 May 2020: 85 FR 26847: Notice (not an amendment) temporarily reducing the registration fee schedule in ITAR 122.3 until April 30, 2021. 
 
DOT FOREIGN ASSETS CONTROL REGULATIONS (OFAC FACR): 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders

5 Jun 2020:
85 FR 84510:

Syria Sanctions Regulations. 

 
 
 
USITC HARMONIZED TARIFF SCHEDULE OF THE UNITED STATES (HTS, HTSA or HTSUSA), Revision 8.

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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