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20-0721 Tuesday “Daily Bugle”

20-0721 Tuesday “Daily Bugle”

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Tuesday, 21 July 2020

(No items of interest posted) 

  1. Items Scheduled for Future Federal Register Edition
  2. Commerce/BIS:(No new postings)
  3. Commerce/Census: “Exports Between the United States and Puerto Rico: When to File Electronic Export Information”
  4. DOJ: “California-Based Company, Company President and Employee Indicted in Alleged Scheme to Violate the Export Control Reform Act”
  5. DOJ: “Lebanese National Sentenced to 42 Months in Prison for Illegally Exporting Drone Parts and Technology”
  6. State/DDTC: (No new postings)
  7. Treasury/OFAC: “Issuance of Executive Order 13936 ‘The President’s Executive Order on Hong Kong Normalization’ “
  1. EU Sanctions: “Germany, France & Italy Warn Foreign Actors of Libya Sanctions”
  2. Reuters: “U.S. Commerce Official, Who Left Last Week, Joins Lam Research”
  1. Arent Fox: “US Says Goodbye to Hong Kong’s Separate Customs Territory Status – What Is the Impact on Importers?”
  2. DLA Piper: “The Hong Kong Autonomy Act – A Significant Sanctions Escalation in the US-China Relationship”
  3. Nicholas Turner: “Sanctions Top-5 for the Week Ending 17 July”
  1. ECS Presents: 15-17 Sep; Annapolis, MD, USA; “3nd Annual ITAR/EAR Symposium and Managing ITAR/EAR Complexities”
  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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  5. Submit Your Event and View All Approaching Events 

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OGS OTHER GOVERNMENT SOURCES

(Source: Federal Register)
 
* Commerce/BIS: RULES; Addition of Certain Entities to the Entity List; Revision of Existing Entries on the Entity List [Pub. Date: 22 Jul 2020] (PDF)
 

* Justice/ATF: NOTICES; Agency Information Collection Activities; Proposals, Submissions, and Approvals: Annual Firearms Manufacturing and Exportation Report [Pub. Date: 22 Jul 2020] (PDF)
 
* Justice/ATF: NOTICES; Agency Information Collection Activities; Proposals, Submissions, and Approvals: Inventories; Licensed Explosives Importers, Manufacturers, Dealers, and Permittees [Pub. Date: 22 Jul 2020] (PDF)
 
* State/DDTC: RULES; International Traffic in Arms Regulations: Central African Republic [Pub. Date: 22 Jul 2020] (PDF)
 
* Treasury/OFAC: NOTICES; Blocking or Unblocking of Persons and Properties [Pub. Date: 22 Jul 2020] (PDF), (PDF), (PDF)

 
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(Source:
Commerce/BIS, 20 Jul 2020)
 
  The Department of Commerce’s Bureau of Industry and Security (BIS) added to the Entity List 11 Chinese companies implicated in human rights violations and abuses in the implementation of the People’s Republic of China’s (PRC) campaign of repression, mass arbitrary detention, forced labor, involuntary collection of biometric data, and genetic analyses targeted at Muslim minority groups from the Xinjiang Uyghur Autonomous Region (XUAR). Today’s action will result in these companies facing new restrictions on access to U.S.-origin items, including commodities and technology.  This action will supplement BIS’s two tranches of Entity List designations in October 2019 and June 2020, actions that together added 37 parties engaged in or enabling PRC’s repression in Xinjiang.
  “Beijing actively promotes the reprehensible practice of forced labor and abusive DNA collection and analysis schemes to repress its citizens,” said Secretary of Commerce Wilbur Ross. “This action will ensure that our goods and technologies are not used in the Chinese Communist Party’s despicable offensive against defenseless Muslim minority populations.”
  The Entity List is a tool utilized by BIS to restrict the export, reexport, and transfer (in-country) of items subject to the Export Administration Regulations (EAR) to persons (individuals, organizations, companies) reasonably believed to be involved, or to pose a significant risk of becoming involved, in activities contrary to the national security or foreign policy interests of the United States.  Additional license requirements apply to exports, re-exports, and transfers (in-country) of items subject to the EAR to listed entities, and the availability of most license exceptions is limited. 
  The entities to be added to the Entity List in connection with the practice of forced labor involving Uyghurs and other Muslim minority groups in the XUAR are:
  • Changji Esquel Textile Co. Ltd.
  • Hefei Bitland Information Technology Co. Ltd.
  • Hefei Meiling Co. Ltd.
  • Hetian Haolin Hair Accessories Co. Ltd.
  • Hetian Taida Apparel Co., Ltd.
  • KTK Group
  • Nanjing Synergy Textiles Co. Ltd.
  • Nanchang O-Film Tech
  • Tanyuan Technology Co. Ltd. 
  The entities to be added to the Entity List in connection with conducting genetic analyses used to further the repression of Uyghurs and other Muslim minorities in XUAR are:
  • Xinjiang Silk Road BGI
  • Beijing Liuhe BGI

 
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OGS_a3
3. Commerce/Census: “Exports Between the United States and Puerto Rico: When to File Electronic Export Information”

(Source:
Global Reach Blog
, 21 Jul 2020)
 
 
Shipments From Puerto Rico to Mainland U.S. – and Beyond
  What happens when a company in the mainland United States buys a product from a Puerto Rican company and sells it abroad?
   Let’s imagine a Miami-based company called Kangaroo Kokonut purchases coconuts from the Captain Loco Coconuts Company in Puerto Rico. Captain Loco sends the products by air to Miami, where -Kangaroo Kokonut receives, processes, and ships them to its customer in Spain.
  Is EEI required?
  In this case, two EEI filings are required:
One listing Captain Loco as the U.S. Principal Party in Interest (USPPI), Kangaroo Kokonut as the Ultimate Consignee and the port of export located in Puerto Rico.
  Another for the export from Kangaroo Kokonut to the final destination (Spain) listing Kangaroo Kokonut as the USPPI and the port of export located in the United States.
 
 
What happens when a foreign company buys a product from a Puerto Rican company, which sends it to a company in the U.S. mainland to ship abroad?
   That is, say a foreign company located in Spain buys coconuts directly from Puerto Rico’s Captain Loco, and asks Captain Loco to ship them to a company like Kangaroo Kokonut in the United States. Captain Loco sends them by air to Miami, where Kangaroo Kokonut processes them before sending them on their way to Spain.
 
Is EEI required?
  In this case, two EEI filings are required – one representing the trip from Puerto Rico to Florida, and the other movement from the U.S. to the foreign destination.
 
 
How should you handle shipments from a Puerto Rican company to a foreign destination that transit through the U.S.?
   Modifying the previous scenario: Captain Loco Coconuts Company sells coconuts to a company in Spain. This time, Spain is the intended destination but the products’ travels take them through the U.S. via Miami International Airport. In this case, you need to file one EEI with Captain Loco as the USPPI.  And what is the port of export?
   If the goods are not unloaded in Miami, the Puerto Rican port remains the port of export
  If the goods change conveyances (even if the aircraft or vessel belongs to the same carrier) in Miami, then Miami becomes the new port of export.
For more info, read our blog post about ports of export. In addition, make sure to revise the EEI so it complies with Foreign Trade Regulations (FTR).
 
 
What about shipments from a Puerto Rican company to Canada, transiting through the U.S.?
   You do not need to file EEI if goods originate in Puerto Rico and travel to Canada through the United States if the shipment qualifies for the exemption outlined in Section 30.36 of the FTR. In this case, you must annotate the commercial loading documents with NOEEI 30.36. This is only valid as long as the transit is not interrupted (i.e., taken in by a U.S. company, etc.). However, changes in the method of transportation do not affect whether this exemption applies.
 
 
How should you handle shipments from a U.S. company to a foreign destination that transit through Puerto Rico?
   The same guidance applies as in the scenario describing shipments from Puerto Rico to foreign destinations via the U.S. but revising the roles involved. Again, make sure that the EEI reflects the correct FTR roles and information (such as the correct USPPI, port of export, etc.).

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OGS_a4
4. DOJ: “California-Based Company, Company President, and Employee Indicted in Alleged Scheme to Violate the Export Control Reform Act”

(Source: Dept of Justice, 20 Jul 2020) [Excerpts]
 
   Chemicals manufactured or distributed in Rhode Island were earmarked to be exported to a company with ties to the Chinese military.
PROVIDENCE – The president of a California-based electronics distribution company, his company and an employee have been indicted by a federal grand jury in Providence, Rhode Island, on charges they participated in a conspiracy to conceal information from the U.S. Department of Commerce and U.S. Customs and Border Protection as part of a scheme to illegally export chemicals manufactured and/or distributed by a Rhode Island-based company to a technology company in China. The company is on a U.S. government list of businesses not permitted to receive products manufactured in the United States.
   According to an indictment unsealed today in U.S. District Court in Providence, there is reasonable cause to believe that the Chinese entity is involved in the illicit procurement of commodities and technologies for unauthorized military end-use. Export Administration Regulations restrict the export of items that could make a significant contribution to the military potential of other nations or that could be detrimental to the foreign policy or national security of the United States.
   It is alleged in the indictment that Broad Tech System Inc., located in Ontario, California, the company’s CEO, CFO, and President Tao Jiang, aka “Jason Jiang” and Bohr Winn-Shih, an equipment engineer for Broad Tech Systems, conspired to order the chemicals HiPR 6517 Photoresist (Photoresist) and HPRD 441 Developer (Developer) from a Rhode Island-based manufacturer, then knowingly submitted false and misleading documentation to the U.S. Government and shipping companies in an effort to have the product illegally shipped to a company in China, in violation of the Export Control Reform Act. Photoresist and HPRD are essential in the chip manufacturing process.
   It is alleged the defendants knowingly provided false information in an attempt to ship the chemicals to China Electronics Technology Group Corporation 55th Research Institute, a/k/a Nanjing Electronic Devices Institute, CETC Research Institute 55, NEDI, and NEDTEK, located in Nanjing, China. The company is a state-owned Chinese entity that mainly engages in the manufacturing of electronic components and the research, development and production of core chips and key components in China’s military strategic early warning systems, air defense systems, airborne fire control systems, manned space systems, and other national large-scale projects. …
   The indictment charges Broad Tech Systems, Inc., Tao Jiang, 50, of Riverside, CA, and Bohr Winn-Shih, 63, of Ontario, CA, with conspiracy, violation of the Export Control Reform Act, and money laundering conspiracy, announced Aaron L. Weisman, United States Attorney for the District of Rhode Island and Department of Commerce Office of Export Enforcement Boston Field Office Special Agent in Charge William Higgins.  . . .

 
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OGS_a5
5. DOJ: “Lebanese National Sentenced to 42 Months in Prison for Illegally Exporting Drone Parts and Technology”

(Source: 
Dept of Justice, 20 Jul 2020) [Excerpts]
 
  Assistant Attorney General for National Security John C. Demers and U.S. Attorney Erica H. MacDonald for the District of Minnesota today announced the sentencing of Usama Darwich Hamade, 55, to 42 months in prison, for conspiring to illegally export goods and technology in violation of the International Emergency Economic Powers Act (IEEPA), the Export Administration Regulations, the Arms Export Control Act, and the International Traffic in Arms Regulations. The sentence was handed down by Chief Judge John R. Tunheim in U.S. District Court in Minneapolis, Minn. 
 
  According to the defendant’s guilty plea and documents filed in court, from 2009 through 2011, Hamade conspired with others to export U.S. origin goods and technology including inertial measurement units suitable for use in un-crewed aerial vehicles, or “UAVs,” digital compasses suitable for UAV use, a jet engine, piston engines, and recording binoculars, without obtaining the required export licenses from the U.S. Department of Commerce and the U.S. Department of State, in violation of IEEPA, the Export Administration Regulations, the Arms Export Control Act, and the International Traffic in Arms Regulations. According to evidence presented by the government, the ultimate beneficiary of Hamade’s actions was the designated foreign terrorist organization Hizballah.  . . .

 
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OGS_a7
7. Treasury/OFAC: “Issuance of Executive Order 13936 ‘The President’s Executive Order on Hong Kong Normalization’ “

(Source:
Treasury/OFAC, 20 Jul 2020)

   Last week, the President issued new Executive Order 13936, “The President’s Executive Order on Hong Kong Normalization.”
   For more information on today’s action, please visit this page.

 
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COM NEWS

(Source:
EU Sanctions, 20 Jul 2020) [Excerpts]
 
   German Chancellor Angela Merkel, Prime Minister of Italy Giuseppe Conte, and French President Emmanuel Macron have released a
 
joint statement
 which urges “all Libyan parties and their foreign supporters” to immediately cease fighting, and requests foreign actors end their “increasing interference”, and respect the arms embargo imposed by the UN Security Council. The statement says the 3 countries are “ready to consider the possible use of sanctions should breaches to the embargo at sea, on land or in the air continue and look forward to the proposals the EU [High Representative/Vice President] will make to this end”.

(Source: 
Reuters Regulatory News, 20 Jul 2020) [Excerpts]
 
   A Commerce Department official closely involved in changes to U.S. policy on exports to China that shook up the semiconductor industry has joined chip equipment maker Lam Research Corp.
  Richard Ashooh, who resigned last week after three years as Commerce’s U.S. assistant secretary for export administration, started on Monday as Lam’s global head of government affairs.  His move highlights the chipmaking industry’s increasing vulnerability to the administration’s policies on China and in particular Huawei Technologies, the world’s largest communications equipment maker.  Ashooh’s “track record of solving complex problems and engaging diverse stakeholders makes him an ideal partner to advocate on behalf of Lam Research,” the company said in a statement.  
  In his last official act, Ashooh signed an entity listing posted on Monday restricting 11 Chinese companies from buying from U.S. suppliers over China’s treatment of its Uighur population.  Ashooh also was involved with Huawei’s addition to the entity list last year, a move that limited the flagship Chinese company’s U.S. suppliers. More recently, the department also restricted overseas companies from supplying certain chips to Huawei if they use U.S. chipmaking equipment.
  This spring, the Commerce Department also adopted other rules that could hurt the semiconductor industry, including several aimed at keeping semiconductor production equipment and other technology away from Beijing’s military.  In an April filing, in fact, Lam said its international sales could be materially affected by new requirements to obtain license requirements and other regulatory changes.  Ashooh is banned by the government from work on companies he placed on the entity list, but the restrictions are less stringent on broader rules instituted during his years in export control.  . . .

COM COMMENTARY

(Source:
Arent Fox, 20 Jul 2020)
 
 
   In view of the recent action taken by President Trump in an Executive Order regarding Hong Kong’s status, US importers should prepare for increased risk exposure in US-Hong Kong trade.
   Although Hong Kong technically continues to be treated as its own separate customs territory by multilateral agreements, the commitments undertaken by the United States with regards to the original 2047 timeline for Hong Kong’s full reintegration into the PRC are being rapidly accelerated. This raises additional compliance issues and could have the effect of significantly increasing the duty liability on many goods produced in Hong Kong when imported into the US.
Will Hong Kong Lose Its Special Customs Territory Treatment by the US?
One key question for importers is whether Hong Kong will retain its separate customs territory from the People’s Republic of China for purposes of importing from Hong Kong into the United States, or will the US terminate that special treatment?
   On July 14, 2020, the President issued an Executive Order on Hong  Kong Normalization. This Executive Order has direct impacts on imports from Hong Kong. The Order at Section 2(f) suspends application of section 201(a) of the Hong Kong Policy Act of 1992, as amended, to section 1304 of title 19, United States Code. In plain English, this means that every article of Hong Kong origin that is imported into the US will now be subject to the same marking requirements of goods from the PRC. Although the Order does not specify an effective date for these new marking requirements, based on Section 3 of the Order, it is likely that additional actions will be taken by Customs and Border Protection in furtherance of the Order within 15 days.
One aspect of the Order is when goods exported from Hong Kong could face the full array of antidumping duties, countervailing duties and Section 301 tariffs that apply to country-of-origin goods from China in the very near future. At present there are more than 200 antidumping and countervailing duty orders on various products from China, with duty rates ranging from several percent to over 1700%. There are also approximately $550 billion in Chinese products that are subject Section 301 safeguard tariffs. Such Section 301 duties could apply to these same products are produced in Hong Kong and exported to the US. It appears that additional action is needed to be taken by the Administration before products from Hong Kong will be assessed duties in the same manner as when from China. However, the expectation is that such action will be taken in the near future.
   Given the impact of the Executive Order on US-Hong Kong trade, it is important for importers of goods made in Hong Kong to ensure compliance with actions taken by the Administration, the Congress that affect the status of such imports.
   Since 1992, US policy toward China has been based on several guiding policy positions including that “the United States should respect Hong Kong’s status as a separate customs territory and as a contracting party to the General Agreement on Tariffs and Trade.” However, the Executive Order on US-Hong Kong trade represents a significant shift in terms of the marking requirement for products from Hong Kong, and a potential seismic shift in terms of duty liability for companies exporting goods from Hong Kong
Provided below is further discussion of that companies doing business in Hong Kong’s may face even if the city retains separate customs territory treatment.
 
Legislative Background
   Prior to the return of Hong Kong to China in 1997 under the “one country, two systems”, the United States-Hong Kong Policy Act of 1992 (USHKPA) came into force. This statute assured that US laws and treaty obligations with respect to Hong Kong would continue despite the change in sovereignty, unless the President determines that Hong Kong becomes insufficiently autonomous to merit that treatment and issues an Executive Order terminating such treatment.
   In November 2019, Congress passed and President Trump enacted the Hong Kong Human Rights and Democracy Act (HKHRD), which amends the USHKPA by requiring the Secretary of State to annually certify as to Hong Kong’s autonomy.  Section 7 of the HKHRD included a sanctions provision requiring the President to submit by May 26, 2020, and annually thereafter a report identifying foreign persons determined to be responsible for certain “extrajudicial rendition, arbitrary detention, torture . . . or other gross violations of internationally recognized human rights in Hong Kong” and to place blocking sanctions on those persons and prohibit their entry into the United States.
   Following China’s actions to pass a national security law that erodes liberties in Hong Kong, Secretary of State Pompeo reported to Congress on May 27 that Hong Kong no longer has a high degree of autonomy.  On May 29, President Trump announced that recent developments made clear that “Hong Kong is no longer sufficiently autonomous to warrant the special treatment that [the United States has] afforded the territory since the handover.” The President also announced that he was directing the Administration “to begin the process of eliminating policy exemptions that give Hong Kong different and preferential treatment.”
   The HKHRD provides for limited exceptions to sanctions for imported goods. As defined by the HKHRD, goods is defined as “article, natural or manmade substance, material, supply, or manufactured product, including inspection and test equipment, and excluding technical data. However, at the end of June 2020, Congress passed the Hong Kong Autonomy Act (HKAA), which the President signed into law on July 14, 2020. Under the HKAA the “President may prescribe, prohibit any person from:
  • acquiring, holding, withholding, using, transferring, withdrawing, transporting, importing, or exporting any property that is subject to the jurisdiction of the United States and with respect to which the foreign financial institution has any interest;
  • dealing in or exercising any right, power, or privilege with respect to such property; or
  • conducting any transaction involving such property.
   Thus, the HKAA presents a significant new risk for importers despite the exception previously provided for imported goods under the HKHRD.

 
* Principal Author: Richard Newcomb, Esq., 1-202-799-4434, DLA Piper
 
SUMMARY
   The Hong Kong Autonomy Act, Pub. L. 116-149 (the HKAA), was signed into law by the President on July 14, 2020, a mere 13 days after the bill was first introduced in the House.  The measure received overwhelming bipartisan support and was passed unanimously by both the House and Senate.  The HKAA authorizes and mandates the imposition of sanctions on foreign individuals and entities (persons) that materially contribute to China’s failure to preserve Hong Kong’s autonomy and on foreign financial institutions that knowingly conduct significant transactions with such persons.
   The HKAA responds to the new national security law that China’s National People’s Congress imposed on Hong Kong on June 30, 2020.  The President signed the HKAA on the same day that he issued his Executive Order on Hong Kong Normalization, in which he determined that Hong Kong is no longer sufficiently autonomous to justify differential treatment from the People’s Republic of China. 
 
   The President issued a statement when he signed the HKAA.  The statement dealt with the requirements for a waiver or termination of sanctions under section 8 of the HKAA and will be discussed below following the description of those provisions.
 
KEY PROVISIONS OF THE HKAA
   Section 5
 
of the HKAA sets forth the criteria for the imposition of sanctions, both discretionary and mandatory, while
 
section 2
 
contains definitions of certain terms.
   Section 5(a) requires the Secretary of State, not later than 90 days after the date of enactment of the HKAA (
ie
, not later than October 12, 2020), to submit to Congress a report identifying foreign persons that the Secretary of State, in consultation with the Secretary of the Treasury, determines are materially contributing to, have materially contributed to, or attempt to materially contribute to the failure of the Government of China to meet its obligations under the Joint Declaration or the Basic Law.  In addition to identifying the foreign person, the report must include a clear explanation for why the foreign person was identified and a description of the activity that resulted in the identification.  Section 5(g) provides that “a foreign person materially contributes to the failure of the Government of China to meet its obligations under the Joint Declaration or the Basic Law if the person-
   (1) took action that resulted in the inability of the people of Hong Kong-
      a) to enjoy freedom of assembly, speech, press, or independent rule of law; or
      b) to participate in democratic outcomes; or
   (2) otherwise took action that reduces the high degree of autonomy of Hong Kong.”[FN/1]
  The term “Joint Declaration” is defined in section 2 of the HKAA to mean the Joint Declaration of the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the People’s Republic of China on the Question of Hong Kong, done at Beijing on December 19, 1984, which set forth the terms for the 1997 return to China of sovereignty over Hong Kong and clarified the obligations of the Government of China with respect to Hong Kong’s future autonomy and the rights and freedoms of its people.  Section 2 also defines the term “Basic Law” to mean the Basic Law of the Hong Kong Special Administrative Region of the PRC. 
 
   Section 5(b)
 
requires the Secretary of the Treasury, in consultation with the Secretary of State, not earlier than 30 days and not later than 60 days after the Secretary of State submits the report under section 5(a), to submit to Congress a report identifying any foreign financial institution that knowingly conducts a significant transaction with a foreign person identified in the report under section 5(a).  Section 2 defines the term “knowingly,” with respect to conduct, a circumstance, or a result, to mean that a person has actual knowledge of the conduct, the circumstance, or the result.[FN/2] 
 
   Section 5(d) provides that the President may exclude a foreign person or foreign financial institution from the reports under subsections (a) and (b), or any update under subsection (e) (
see
 
below), or remove a foreign person or foreign financial institution from the reports or updates before sanctions are imposed under section 6 or 7, if the material contribution for which the person was included in the report or update-
   (A) does not have a significant and lasting negative effect that contravenes the obligations of China under the Joint Declaration and the Basic Law;
   (B) is not likely to be repeated in the future; and
   (C) has been reversed or otherwise mitigated through positive countermeasures taken by the foreign person or foreign financial institution, as the case may be.
   The President must notify the “appropriate congressional committees and leadership” (a term defined in section 2) of any determination to exclude or remove a foreign person or foreign financial institution from a report under subsection (a) or (b), respectively, and the reasons for the determination.[FN/3]
   Sections 6 and 7
 
describe the sanctions to be imposed on foreign persons and foreign financial institutions and specify when those sanctions become mandatory.
   Section 6 provides that the sanctions to be imposed on a foreign person included in the report under section 5(a) or an update under section 5(e) are (1) blocking sanctions, and (2) in the case of a foreign person that is an individual, visa denial and exclusion from the United States.  Section 6 does not mention blocking per se; however, the sanction described in section 6(b)(1) under the heading “Property transactions” specifies the prohibitions with respect to property in which the foreign person has any interest that are included in a blocking of such person’s property and interests in property that are subject to the jurisdiction of the United States.
   Beginning on the date on which a foreign person is included in the report under section 5(a), or first included in an update under section 5(e), and for one year thereafter, the sanctions specified in section 6 are discretionary sanctions that the President
 
may
 
impose on such foreign person.  However, not later than one year after the date on which a foreign person is included in the report under section 5(a), or first included in an update, these sanctions become mandatory,
 
ie
, the President
 
shall
 
impose the blocking and visa denial/exclusion sanctions on the foreign person.
   Section 7 contains a menu of sanctions that may be imposed with respect to a foreign financial institution included in a report under section 5(b) or an update under section 5(e).  Section 7(b) describes the following 10 sanctions that the President may impose with respect to a foreign financial institution:
   1) LOANS FROM UNITED STATES FINANCIAL INSTITUTIONS.- The United States Government may prohibit any United States financial institution from making loans or providing credits to the foreign financial institution.
   2) PROHIBITION ON DESIGNATION AS PRIMARY DEALER.- Neither the Board of Governors of the Federal Reserve System nor the Federal Reserve Bank of New York may designate, or permit the continuation of any prior designation of, the foreign financial institution as a primary dealer in United States Government debt instruments.
   3) PROHIBITION ON SERVICE AS A REPOSITORY OF GOVERNMENT FUNDS.-The foreign financial institution may not serve as agent of the United States Government or serve as repository for United States Government funds.
   4) FOREIGN EXCHANGE.-The President may prohibit any transactions in foreign exchange that are subject to the jurisdiction of the United States and involve the foreign financial institution.
   5) BANKING TRANSACTIONS.-The President may prohibit any transfers of credit or payments between financial institutions or by, through, or to any financial institution, to the extent that such transfers or payments are subject to the jurisdiction of the United States and involve the foreign financial institution.
   6) PROPERTY TRANSACTIONS.-The President may prohibit any person from-
     (a) acquiring, holding, withholding, using, transferring, withdrawing, transporting, importing, or exporting any property that is subject to the jurisdiction of the United States and with respect to which the foreign financial institution has any interest;
     (b) dealing in or exercising any right, power, or privilege with respect to such property; or
     (c)  conducting any transaction involving such property.[FN/4]
   7) RESTRICTION ON EXPORTS, REEXPORTS, AND TRANSFERS.- The President may restrict or prohibit exports, reexports, and transfers (in-country) of commodities, software, and technology subject to the jurisdiction of the United States directly or indirectly to the foreign financial institution.
   8) BAN ON INVESTMENT IN EQUITY OR DEBT.-The President may prohibit any United States person from investing in or purchasing significant amounts of equity or debt instruments of the foreign financial institution.
   9) EXCLUSION OF CORPORATE OFFICERS.-The President may direct the Secretary of State, in consultation with the Secretary of the Treasury and the Secretary of Homeland Security, to exclude from the United States any alien that is determined to be a corporate officer or principal of, or a shareholder with a controlling interest in, the foreign financial institution, subject to regulatory exceptions to permit the United States to comply with the United Nations Headquarters Agreement or other applicable international obligations.
   10) SANCTIONS ON PRINCIPAL EXECUTIVE OFFICERS.-The President may impose on the principal executive officer or officers of the foreign financial institution any of the sanctions described in paragraphs (1) through (8) that are applicable.
  Beginning on the date on which a foreign financial institution is included in the report under section 5(b), or first included in an update under section 5(e), and for one year thereafter, the sanctions specified in section 7 are discretionary sanctions that the President
 
may
 
impose on such foreign financial institution.  However, not later than one year after the date on which a foreign financial institution is included in the report under section 5(b), or first included in an update under section 5(e), the President must impose at least five of the sanctions described above with respect to that foreign financial institution.  Not later than two years after the date on which a foreign financial institution is included in the report under section 5(b), or first included in an update under section 5(e), the President must impose each of the sanctions described above with respect to that foreign financial institution. 
 
   The impact of the sanctions specified in section 7, in effect, is to deny the foreign financial institution access to the US financial system.  Note that the blocking sanction,
 
ie
, the sanction on property transactions – number 6 in the list above – in effect includes most or all of the first eight sanctions described above.  Of course, the benefit of having a menu of sanctions is that it gives the President the choice of imposing less severe, more narrowly targeted sanctions.  The problem with this benefit is that it seems to be totally hypothetical.  Based on previous experience with menu-based sanctions, the US government generally chooses to impose the blocking sanction every time and then adds the other lesser included sanctions in order to reach the required number of sanctions to be imposed on the target under the applicable sanctions authority.
   Section 8
 
authorizes the President to waive the application of sanctions for national security reasons and to terminate the application of sanctions upon the Secretary of State’s making of certain determinations, subject in both cases to disapproval by a joint resolution of either House of Congress; otherwise, the sanctions
 
must
 
remain in effect unless a joint resolution of either House of Congress is enacted after July 1, 2047, terminating the HKAA.
   Unless a “disapproval resolution” is enacted under subsection (e), section 8(a) authorizes the President to waive the application of sanctions under section 6 or 7 with respect to a foreign person or foreign financial institution if the President (1) determines that the waiver is in the national security interest of the United States, and (2) submits to the appropriate congressional committees and leadership a report on the determination and the reasons for it.  Similarly, unless a “disapproval resolution” is enacted under subsection (e), section 8(b) authorizes the President to terminate the application of sanctions under section 6 or 7 with respect to a foreign person or foreign financial institution and remove the foreign person from the report required under section 5(a) or the foreign financial institution from the report required under section 5(b), if “the Secretary of State, in consultation with the Secretary of the Treasury, determines that the actions taken by the foreign person or foreign financial institution that led to the imposition of sanctions-
  • do not have a significant and lasting negative effect that contravenes the obligations of China under the Joint Declaration and the Basic Law;
  • are not likely to be repeated in the future; and
  • have been reversed or otherwise mitigated through positive countermeasures taken by that foreign person or foreign financial institution.”
   Section 8(c)(1) provides that, not later than July 1, 2046, the President shall submit to Congress a report evaluating the implementation of the HKAA and including an assessment of whether the HKAA and the sanctions imposed pursuant to the HKAA should be terminated.  Section 8(c)(2) provides that the HKAA and the sanctions imposed pursuant to the HKAA are to remain in effect unless a “termination resolution” is enacted under subsection (e) after July 1, 2047.  That the HKAA is to remain in effect at least until 2047 – and longer, if no termination resolution is enacted – is highly unusual in that most sanctions legislation contains far shorter sunset periods.
   Section 8(e) defines the term “disapproval resolution” to mean only a joint resolution of either House of Congress that has a specified title and that solely resolves that Congress disapproves of the action under section 8 of the HKAA relating to the application of sanctions imposed with respect to a foreign person or foreign financial institution, with the addition of the date and a short description of the proposed action under section 8.  Section 8(e) similarly defines the term “termination resolution” to mean only a joint resolution of either House of Congress that has a specified title and that solely resolves that the HKAA and any sanctions imposed pursuant to the HKAA shall terminate on the proposed termination date.
 
PRESIDENTIAL SIGNING STATEMENT
   In his signing statement issued on July 14, 2020, the President noted that the requirements for a waiver or termination of sanctions under section 8 could limit his discretion under Article II of the Constitution to conduct the Nation’s foreign affairs.  He stated that, in such circumstances, his administration “will treat these limitations as advisory and non-binding.”  This statement is especially significant in light of recent reports that the President has already ruled out the imposition of sanctions on senior Hong Kong leaders.  The President further stated that his administration will treat the requirement in section 8 to report to the Congress on the advisability of terminating the HKAA and the sanctions imposed pursuant thereto “consistent with the President’s authority under Article II, Section 3 of the Constitution to recommend to the Congress only such measures as the President shall judge necessary and expedient.”
 
CONCLUSION
   While the effects of the HKAA remain to be seen, the mere listing of a foreign person or foreign financial institution in the report under, respectively, section 5(a) or 5(b) could cause US financial institutions, and possibly non-Chinese foreign financial institutions as well, to close any accounts of the listed person or financial institution as a preemptive compliance measure, even before the sanctions set forth in sections 6 and 7 are imposed.  We anticipate that the Departments of State and the Treasury will be issuing guidance or regulations on the interpretation and implementation of the statute.

  
The enactment of the HKAA is one of numerous sanctions-related measures that have been taken against China in recent months, from various export control and sanctions actions against Huawei to the Global Magnitsky sanctions OFAC imposed on July 9, 2020, on a Chinese government entity and four current or former government officials in connection with serious human rights abuses against ethnic minorities in Xinjiang and the President’s Executive Order on Hong Kong Normalization issued on July 14, 2020.  Additional actions reportedly are in the works, such as unspecified visa restrictions the Secretary of State reportedly said will be placed on US-based employees of Huawei and the possible banning of Chinese social network video apps in the United States. 


(Source: 
Medium, 21 Jul 2020)

 
* Author: 
Nicholas Turner
, Esq., 852-5998-7559, 
Steptoe & Johnson HK 
 
  Here are five things that happened this week in the world of economic sanctions that I think you should know about:
   (1) Donald Trump signed the
 
Hong Kong Autonomy Act
 
(HKAA) into law. At the same time, he issued
 
Executive Order 13936
 
which: (i) directs US agencies to take steps to revoke Hong Kong’s differential treatment from mainland China under US laws per the
 
Hong Kong Policy Act of 1992; and (ii) authorizes blocking sanctions (i.e. asset freezes) under the
 
International Emergency Economic Powers Act (IEEPA) on individuals and entities in relation to Hong Kong. (More on this below.) (To read more about Executive Order 13936,
 
see my team’s client alert here.)
   (2) The US Office of Foreign Assets Control (OFAC)
 
announced a USD $665,112 settlement
 
with a UAE-based cigarette filter maker for violations of the North Korea Sanctions Regulations.
 
According to the OFAC settlement notice, the company exported products to North Korea using front companies and accepted payment into its account at a foreign branch of a US financial institution. The settlement
 
was accompanied by a three-year Deferred Prosecution Agreement (DPA) with the US Department of Justice (DOJ).
   (3) OFAC
 
named three individuals and five entities located in Hong Kong, Russia, Sudan, and Thailand as Specially Designated Nationals
 
(SDNs) under the Ukraine-/Russia-related, Cyber-related, and Election Interference programs for their connections to Yevgeniy Prigozhin, a Russian financier (known as “Putin’s chef”) sanctioned by OFAC in
 
September 2019,
 
March 2018, and
 
December 2016.
   (4) The US State Department
 
updated its public guidance on Section 232 of the Countering America’s Adversaries Through Sanctions Act (CAATSA) to state that secondary sanctions could apply to investments and loans related to “
Russian energy export pipelines such as Nord Stream 2 and the second line of TurkStream
” after 15 July 2020.
   (5) OFAC
 
named four individuals in China and one entity in the British Virgin Islands as SDNs
 
under the Foreign Narcotics Kingpin Designation Act for their connections to a
 
synthetic opioid trafficking network sanctioned by OFAC in August 2019.
 
Comments
  I’ve been saying since early June
 
that the President could use IEEPA to add to the sanctions in the HKAA. Indeed, last week’s executive order appears to supplement the potentially narrow restrictions on “property transactions” in Section 6(a) of the HKAA with SDN-style blocking sanctions.
 
As I told the Financial Times last week, the White House could have taken a surgical approach, but instead opted for a stronger one. For the record, this is not the first time the Trump White House has used IEEPA to “amplify” sanctions given by Congress. (It did so under CAATSA in September 2018.)
   What’s the big deal? For starters, sanctions under Section 4 of Executive Order 13936 (which combine elements of the HKAA with the
 
Hong Kong Human Rights and Democracy Act of 2019) can be applied immediately, rather than following the 90-day timeline given in the HKAA. One reason this matters is that the State Department
 
has said on numerous occasions that it is monitoring Hong Kong’s Legislative Council elections scheduled for 6 September 2020. The HKAA sanctions would not kick in until at least 12 October 2020, more than a month later. The new executive order makes up the difference.
   Interestingly, sanctions on foreign financial institutions are not mentioned in Executive Order 13936. Those would kick under the HKAA around 11 November 2020, one week after the US presidential election. Will we see another executive order before then?
  What’s the takeaway from OFAC  and the DOJ’s
 
latest North Korea settlement? Some of the violations involved payments made in AED to a bank account held by a branch of a US financial institution in the UAE. Remember: OFAC’s enforcement jurisdiction is not based on currency. It’s about the banks involved.


TE EX/IM TRAINING EVENTS & CONFERENCES

 
* What: 3nd Annual ITAR/EAR Symposium and Managing ITAR/EAR Complexities
* When: 15-17 Sep
* Where: Annapolis, MD
* Sponsor: Export Compliance Solutions & Consulting (ECS)
* ECS and Guest Speakers: Suzanne Palmer, Mal Zerden, Lisa Bencivenga, Debi Davis, Scott Jackson, Matt McGrath, Matt Doyle
* Register: 
here
 or write to 
liz@exportcompliancesolutions.com
 or call 1-866-238-4018

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

EN EDITOR’S NOTES

EN_a114. Bartlett’s Unfamiliar Quotations

(Source: Editor)
 

* Ernest Hemingway
 (Ernest Miller Hemingway; 21 Jul 1899 – 2 July 1961; was an American journalist, novelist, short-story writer, and sportsman. Hemingway produced most of his work between the mid-1920s and the mid-1950s, and he won the Nobel Prize in Literature in 1954. He published seven novels, including The Sun Also Rises, A Farewell to Arms, To Have and Have Not,  For Whom the Bell Tolls, and The Old Man and the Sea.  Hemingway’s death was by suicide, and 35 years to the day after Hemingway’s death, his granddaughter, actress Margaux Hemingway, also died by suicide, making her the fifth person in four generations of her family to commit suicide.)
  – “There is nothing noble in being superior to your fellow men. True nobility lies in being superior to your former self.”
  – “Always do sober what you said you’d do drunk. That will teach you to keep your mouth shut.”
 – “All modern American literature comes from one book by Mark Twain called Huckleberry Finn.”
  – “Once we have a war there is only one thing to do. It must be won. For defeat brings worse things than any that can ever happen in war.”

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

 

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
, reducing the registration fee schedule in ITAR 122.3.  The latest edition of the 
BITAR
 
is 20 July 2020.

 
DOT FOREIGN ASSETS CONTROL REGULATIONS (OFAC FACR): 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders

17 Jul 2020:
85 FR 43436:
Nicaragua 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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