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20-0729 Wednesday “Daily Bugle”

20-0729 Wednesday “Daily Bugle”

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Wednesday, 29 July 2020

  1. Treasury/OFAC: “Blocking or Unblocking of Persons and Properties”
  2. State/DDTC: “Extension to Certain Temporary Suspensions, Modifications, and Exceptions for the Durations Described Herein to Certain Provisions of the ITAR”
  1. Items Scheduled for Future Federal Register Edition
  2. Commerce/BIS:(No new postings)
  3. State/DDTC: (No new postings)
  4. EU Council Expresses Grave Concern over National Security Law
  5. Australia DEC: “Defence Export Controls Hypersonic Technologies and Australia’s Export Controls Online Outreach”
  1. CGTN: “Why Has the U.S. Eased Restrictions on the Export of Drones?
  2. EU Sanctions: “OFAC Reaches $824k Settlement with Whitford Worldwide Co”
  3. Hellenic Shipping News: “China Opposes U.S. Move to Add 11 Chinese Entities to Export Control List”
  4. Janes: “UAE Reveals Export Controls List”
  1. Baker McKenzie: “US Department of State Updates its Guidance on CAATSA Section 232”
  2. Morgan Lewis: “Executive Order on Hong Kong Normalization: Extension and Expansion of the Hong Kong Autonomy Act”
  3. Winston: “Congress Seeks Oversight of CFIUS Reviews to Curb China National Security Threat”
  1. Howard Pfeifer Retires
  1. ECTI Presents: Import 101 for Aerospace Professionals Webinar: 26 Aug
  1. Bartlett’s Unfamiliar Quotations 
  2. New Edition of Bartlett’s Annotated ITAR (“BITAR”) is Available 
  3. Are Your Copies of Regulations Up to Date? Find the Latest Amendments Here. 
  4. Weekly Highlights of the Daily Bugle Top Stories 
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EXIM ITEMS FROM TODAY’S FEDERAL REGISTER

EXIM_a11. Treasury/OFAC: “Blocking or Unblocking of Persons and Properties”

(Source: Federal Register) [Excerpts]
 
85 FR
:
45733
Notice
 
*
AGENCY:
Office of Foreign Assets Control, Treasury.
*
ACTION:
Notice.
*
SUMMARY:
The Department of the Treasury’s Office of Foreign Assets Control (OFAC) is publishing the names of one or more persons that have been placed on OFAC’s Specially Designated Nationals and Blocked Persons List based on OFAC’s determination that one or more applicable legal criteria were satisfied. All property and interests in property subject to U.S. jurisdiction of these persons are blocked, and U.S. persons are generally prohibited from engaging in transactions with them.
*
DATES:
See SUPPLEMENTARY INFORMATION section for applicable date(s).

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

EXIM_a22. State/DDTC: “Extension to Certain Temporary Suspensions, Modifications, and Exceptions for the Durations Described Herein to Certain Provisions of the ITAR”

(Source: Federal Register) [Excerpts]
 
85 FR
:
45733
Notice
* AGENCY: Department of State. 
* ACTION: Extension of temporary suspensions, modifications, and exceptions. * SUMMARY: The Department of State is issuing this document to inform the public of an extension to certain temporary suspensions, modifications, and exceptions for the durations described herein to certain provisions of the International Traffic in Arms Regulations (ITAR) in order to provide for continued telework operations during the current SARS-COV2 public health emergency. These actions are taken in order to ensure continuity of operations within the Directorate of Defense Trade Controls (DDTC) and among members of the regulated community. 
* DATES: This document is issued July 29, 2020.
* FOR FURTHER INFORMATION CONTACT: Sarah Heidema, Office of Defense Trade Controls Policy, U.S. Department of State, (202) 663-1282, or DDTCResponseTeam@state.gov. ATTN: Extension of Suspension, Modification, and Exception. 
* SUPPLEMENTARY INFORMATION: On May 1, 2020, the Directorate of Defense Trade Controls (DDTC) published in the Federal Register a notification of certain temporary suspensions, modifications, and exceptions to the ITAR, necessary in order to ensure continuity of operations within DDTC and among entities registered with DDTC pursuant to part 122 of the ITAR (85 FR 25287). These actions were taken pursuant to ITAR § 126.2, which allows for the temporary suspension or modification of provisions of the ITAR, and ITAR § 126.3, which allows for exceptions to provisions of the ITAR. These actions were taken in the interest of the security and foreign policy of the United States and warranted as a result of the exceptional and undue hardships and risks to safety caused by the public health emergency related to the SARS- COV2 pandemic. The President declared a national emergency on March 13, 2020, as a result of this public health crisis.  
 . . . .

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

OGS OTHER GOVERNMENT SOURCES

(Source:
Federal Register)
 

* USTR; NOTICES;
Product Exclusion Extensions:
China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation
; [Pub. Date: 30 Jul 2020] (PDF)

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

OGS_a24. Commerce/BIS: (No new postings)

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

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

(Source: Council of the European Union, 28 Jul 2020)
 
Following an initial discussion in the Foreign Affairs Council on 13 July 2020, the Council today adopted conclusions expressing grave concern over the national security legislation for Hong Kong adopted by the Standing Committee of China’s National People’s Congress on 30 June 2020.
The conclusions restate the EU’s support for Hong Kong’s high degree of autonomy under the ‘One Country, Two Systems’ principle, and its solidarity with the people of Hong Kong, whilst setting out a coordinated response package of measures in various fields.
These include among others:
 
(1)
asylum, migration, visa and residence policy;
(2)
exports of specific sensitive equipment and technologies for end use in Hong Kong;
(3)
scholarships and academic exchanges involving Hong Kong students and universities;
(4)
support to civil society;
(5)
the operation of member states’ extradition arrangements and other relevant agreements with Hong Kong
 
Lastly the conclusions call for a review of the implementation of the national security law and of the impact of the EU response package before the end of the year.
 

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

(Source: Australia DEC, 29 Jul 2020)
 
Defence Export Controls (DEC) is presenting an online outreach event on Hypersonic Technologies and Australia’s Export Controls on Thursday 13 August 2020 from 9:30 – 10:30am (AEST).

DEC is developing online and virtual formats for outreach to continue to provide information and support to stakeholders amidst current COVID-19 restrictions. Outreach is aimed at industry, academia and research institutions that are involved in the export, supply, publication or other movement of military and dual-use goods and technology. The goal of this program is to raise awareness of export controls by looking at when controls may apply, what is required of exporters, what to expect when applying, and the export landscape.

This event is a sector specific presentation on Hypersonics and will be presented by Dr Michael West. Dr West has degrees in Aerospace Engineering and Science (majoring in Physics and Geophysics) from the University of Sydney and a PhD in Applied Physics from the Australian National University. Dr West has over a decade of experience with the Department of Defence and has worked in engineering analysis, policy and governance, and technical management roles that support the Defence capability development and acquisition process. Dr West is a Senior Member of the American Institute of Aeronautics & Astronautics (AIAA) and in 2018 received AIAA’s prestigious Lawrence Sperry Award for his contributions to the AIAA and the Australian aerospace sector.

Registration is via the Eventbrite site, which can be accessed here.
Event Details: Thursday 13 August 2020, 9:30am – 10:30am (AEST)
Registration Open: 10am Wednesday, 29 July 2020 to 5pm Monday, 10 August
If you have any further questions DEC can be reached 
at:
ExportControls@defence.gov.au

www.defence.gov.au/ExportControls.

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

COM NEWS

(Source: CGTN, 29 Jul 2020) 
 
U.S. President Donald Trump has signed a measure allowing U.S. weapons manufacturers to sell more military-grade drones to foreign countries. The new directive, announced by the White House on July 24, relaxes restrictions on the sale of large drones, according to reports. No doubt the U.S. move will once again be the focus of international discussion.

Objectively speaking, the U.S. military does lead the way in the field of drones. As the first country to use military Unmanned Aerial Vehicles (UAVs) in a battlefield environment, the United States now has the largest number of drone researchers in the world and the largest producer and user of UAVs.
The U.S. is equipped with advanced military UAV technology and a wide variety of aircraft, including RQ-11 Raven, RQ-12A Wasp, RQ-20 Puma, RQ-6A Guard, MQ-1C Grey Eagle, MQ-9 Reaper, RQ-7 Shadow and RQ-4 Global Eagle.
For example, in the early morning of January 3, 2020, the U.S. army used a drone to kill the commander of Iran’s Quds Force, Suleimani, which caused uproar around the world.

But for a long time, as a major arms seller, the United States has not had a high presence in the international arms market. An important reason for this is the missile Technology Control Treaty (MTCR).

In the 1980s, India, Brazil, Egypt and other countries initially established the missile industry, and more than a dozen other countries also formulated missile development plans. The U.S. and others believe that if the proliferation of missile technology is not stopped in time, the security interests of the U.S. and its allies are bound to be endangered.

In order to prevent the proliferation of missiles and UVAs capable of carrying weapons of mass destruction (WMD) and related technologies, the United States began to negotiate with the United Kingdom in May 1982 to establish the relevant export control system. Two months later, the U.S., Britain, France, Germany, Italy, Japan and Canada held their first meeting.

In July 1985, the seven countries held a resumed meeting and reached consensus on the formulation of the treaty on the control of missiles and their technologies. As a result of the treaty, the United States tightly controls the export of drones and their technology, including well-known advanced long-endurance drones like predator, Reaper and Global Hawk, which only a handful of U.S. Allies have acquired.
 
It can be seen that the U.S. and other countries formulated the missile technology control treaty in order to monopolize such high technology. But what the U.S. didn’t expect was that as China and other countries developed UVA technology, the Missile Technology Control Regime (MTCR) gradually created its own trap for us.

As China and other countries gain fame and fortune in the international UVA market, the U.S. starts to lose its seat, and its domestic voice for the modification of MTCR is also incessant. The move comes after earlier reports that the Trump administration is seeking to ease restrictions on drone exports in an effort to regain its dominance of the market.

Referring to the reasons for the revised drone export policy, the White House said in a statement that the MTCR was outdated, hurting the U.S. defense industry and “hindering the ability of our partners and allies to deter abroad due to poor technology.” The White House also stressed expanding the U.S. drone market and “strengthening economic security.”

A relaxation of U.S. restrictions on the export of large drones could have predictable consequences. From an economic point of view, the outstanding performance of the U.S. military UVA and the strong political influence of the U.S. government in the international community are bound to cut a large slice of the international UAV export market.

More importantly, it offers an opportunity for the U.S. to use drone technology to influence the situation in other countries and regions. If certain countries or regions have access to high-powered U.S. military UVAs, the balance of forces may be upset, thus worsening the regional security situation.

Take India as an example. The role of UAV is very conspicuous in the disputed mountainous plateau areas. But India’s own UAV technology is still unable to meet the requirements, and its need for advanced drones has been exacerbated by recent tensions between China and India.

India is reportedly planning to acquire armed MQ-9 Reaper (Predator B) drones from the U.S. due to the latter’s relaxation of restrictions. Manufacturer General Atomics claims the Predator B is equipped with advanced flight control and avionics systems, has a range of more than 27 hours, and a maximum speed of 444.5 km/h, can operate at an altitude of 15,240 meters, and has a payload of 1,746 kg, including 1,361 kg of external equipment.

Predator B is capable of carrying a variety of equipment, including: electro-optical/infrared (EO/IR) equipment, Doppler radar, maritime surveillance radar, electronic support measures (ESM), laser designators and a variety of weapons and ammunition. What is clear is that once India is equipped with this type of UAV, it will greatly enhance India’s capability in this area.

(Source: EU Sanctions, 28 Jul 2020)
 
OFAC has announced that Whitford Worldwide Company, a cookware coating manufacturer, has agreed to pay $824,314 to settle civil liability for 74 violations of the Iranian Transactions and Sanctions Regulations (ITSR), which took place between 2012 and 2015.

Despite changes to the US Iran sanctions programme in 2012, Whitford’s Turkish and Italian subsidiaries continued to sell coatings intended for Iranian customers. In 2013, having realised that these sales may be problematic, Whitford’s US employees devised and facilitated a plan to continue sales from the 2 foreign subsidiaries by using third-party distributers, and avoiding referencing Iran on documentation.

OFAC determined that it was a non-egregious case and the violations were voluntarily disclosed. Mitigating factors included Whitford’s substantial cooperation, and remedial measures, which comprised appointing compliance monitors and external counsel, making changes to its leadership, and adopting compliance and training policies. OFAC Notice and web notice.

(Source: Hellenic Shipping News, 29 Jul 2020)
 
China is firmly opposed to the United States adding 11 Chinese entities to its “entity list” of export controls, a Ministry of Commerce spokesperson said in response to media requests Tuesday.
By utilizing economy and trade as a tool of political oppression, repeatedly abusing export controls and other measures, and using state power to suppress companies in other countries, the United States has severely disrupted the international economic and trade order and poses serious threat to the security of global industrial and supply chains, said the spokesperson.
“This is not conducive to China, the United States or the international community,” said the spokesperson. “China urges the United States to immediately stop the wrong practice, and will take all necessary measures to safeguard Chinese companies’ legitimate rights and interests.”

(Source: Janes, 28 Jul 2020)
 
The United Arab Emirates’ (UAE’s) export control authority, the Committee for Goods and Materials Subject to Import and Export Control, has released a list approved by the UAE Cabinet of equipment subject to export control restrictions.

Published on the authority’s website on 22 July, the list was approved through the Cabinet Resolution 50 of 2020; and is an annex to the existing Federal Law number 13 of 2007 that introduced export controls on goods entering and leaving the country.

The schedule of goods implements controls on a number of dual-use goods and equipment as agreed through multilateral export control regimes including those developed by the Australia Group, the Nuclear Suppliers Group, the Missile Technology Control Regime, the Wassenaar Arrangement, the Chemical Weapons Convention, and the Organisation for the Prohibition of Chemical Weapons.

The 11 categories cover a range of technologies, including nuclear materials, sensors, avionics and navigation systems, and telecommunications systems.
Notably, Category 11 of the list covers specific ‘National Controlled Commodities’, which includes a range of military ground vehicles and marine systems. These include vehicles, trailers, armour, and shock absorbers. Additionally, unmanned conversion kits and systems are also included in the category, including equipment for remote or autonomous steering, acceleration and braking, and control or navigation systems, as well as test and evaluation equipment.  
Both military and civil security vehicles are included in Category 11, with cash-in-transit and riot control vehicles mentioned.

COM COMMENTARY

(Source: Baker McKenzie, 28 Jul 2020)
 
* Principal Author:
Nicholas F. Coward
, Esq., 1-202-452-7021, Baker McKenzie
 
On July 15, 2020, the US Department of State (“State Department”) updated its guidance (“Updated Guidance“) regarding the implementation of Section 232 of Title II of the Countering America’s Adversaries Through Sanctions Act (“CAATSA” see our previous blog post on CAATSA here and our previous blog post on the 2017 State Department guidance on CAATSA Section 232 here). The Updated Guidance expands the scope of CAATSA Section 232 to target certain investments or other activities related to the Nord Stream 2 and TurkStream pipelines.
By way of background, CAATSA Section 232 authorizes the State Department to impose discretionary sanctions on persons who knowingly, on or after August 2, 2017 (1) made an investment that directly and significantly enhances the ability of Russia to construct energy export pipeline projects initiated on or after August 2, 2017; or (2) sold, leased, or provided goods or services that directly and significantly facilitate the expansion, construction, or modernization of such energy export pipelines by Russia, and where the investment or transaction has a fair market value of $1,000,000 or more, or that, during a 12-month period, has an aggregate fair market value of $5,000,000 or more.  To date, the State Department has not imposed sanctions on any parties pursuant to CAATSA Section 232.  
In the 2017 guidance, the State Department had previously stated that the focus of implementation of CAATSA Section 232 was limited to Russian energy export pipeline projects for which a contract was signed on or after August 2, 2017, effectively exempting the Nord Stream 2 and the second line of TurkStream because the contracts for the projects were signed before August 2, 2017.  However, the Updated Guidance deleted this portion of the 2017 guidance and clarified that “the focus of implementation [of CAATSA Section 232] will include Russian energy export pipelines such as Nord Stream 2 and the second line of TurkStream.”   
 
The new FAQs included in the Updated Guidance provide some parameters about which activities could be targeted under CAATSA Section 232:
 
(1)
Persons that are involved in activities on or after July 15, 2020 that are ordinarily incident and necessary to the maintenance of operations or contracts for Nord Stream 2 or the second line of TurkStream (e.g., persons facilitating the construction or deployment of the pipelines such as financing partners, pipe-laying vessel operators, and related engineering service providers) would be exposed to the risk of being sanctioned under CAATSA Section 232.
 
(2)
Sanctions will not be imposed for activities that qualify as “wind down” activities or which are undertaken prior to July 15, 2020, provided such activities were consistent with the public guidance in effect prior to July 15, 2020.
 
(3)
Consistent with the 2017 guidance, implementation of CAATSA Section 232 will not target investments or other activities related to the standard repair and maintenance of pipelines in existence on, and capable of transporting commercial quantities of hydrocarbons, as of August 2, 2017. 
 
(4)
CAATSA Section 232 could be used to target activities where a company is providing financing or goods/services to the Nord Stream 2 or the TurkStream pipelines pursuant to a new contract signed on or after July 15, 2020, or it is continuing to provide goods/services on a consistent, ongoing basis to such projects pursuant to an existing contract.  However, to the extent financing or goods/services have been provided prior to July 15, 2020 (and such activities were consistent with guidance in effect at the time), this would not appear to be covered by CAATSA Section 232.

(Source: Morgan Lewis, 28 Jul 2020)
 
* Principal Author:
Giovanna M. Cinelli
, Esq., 1-202-739-5619, Morgan Lewis
 
President Donald Trump issued Executive Order 13936 on July 14 titled “The President’s Executive Order on Hong Kong Normalization” (the Executive Order or EO 13936). On the same day, the Hong Kong Autonomy Act (HR 7440) was signed into law (the Act). Together, the Executive Order and the Act represent the US government’s response to the recently enacted Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong Administrative Region (the National Security Law) in China, which outlined China’s jurisdiction over Hong Kong.

The Act allows the Secretary of State, in consultation with the Secretary of the Treasury, to sanction any foreign individual or entity that is “materially contributing” or “attempts to materially contribute” to Chinese government actions taken pursuant to the National Security Law. The Act also outlines an extensive list of mandatory sanctions against foreign financial institutions (FFIs) that “knowingly conduct[] a significant transaction” with an individual or entity sanctioned under the Act. The Executive Order both implements essential authorities under the Act and arguably extends further by declaring a national emergency with respect to the “unusual and extraordinary threat” to US national security posed by China’s passage of the National Security Law.

EO 13936 includes two significant components:
  • It directs all agencies with relevant authorities (i.e., the Department of Commerce, the Immigration and Customs Enforcement agency, etc.) to take all necessary steps to eliminate Hong Kong’s special and preferential treatment under specific US law and regulations, including, for example, the elimination of trade, export, and customs preferences; and
  • It empowers the Secretaries of State and Treasury to block US property and interests in property of individuals or entities integrally involved in implementing the new National Security Law
 
ELIMINATING HONG KONG’S PREFERENTIAL STATUS
Within 15 days of the date of the Executive Order (or before July 29, 2020), the relevant US government agencies must commence “all appropriate actions” to terminate Hong Kong’s preferential treatment under various US laws, including the following:
  • Amending regulations implementing the order to eliminate or suspend preferential treatment of Hong Kong under laws related to immigration, export controls, national security, foreign investment and customs and under the International Emergency Economic Powers Act (IEEPA);
  • Revoking license exceptions that provide different treatment of Hong Kong compared to China for exports and reexports to Hong Kong and in-country transfers within Hong Kong of controlled items;
  • Terminating export licensing suspensions under the Foreign Relations Authorization Act that apply to exports of defense articles to Hong Kong individuals or entities physically located outside of Hong Kong and China and who are authorized to receive defense articles before the date of the Executive Order;
  • Ending training to members of the Hong Kong police or other Hong Kong security services at the State Department’s International Law Enforcement Academies;
  • Terminating the Fulbright exchange program with respect to future exchanges for participants traveling both from and to China or Hong Kong;
  • Eliminating the preference for Hong Kong passport holders as compared to Chinese passport holders and reallocating admissions within the refugee ceiling to Hong Kong residents based on humanitarian concerns;
  • Issuing required notices of the intent to suspend or terminate specific agreements between the US and Hong Kong related to law enforcement, including extradition, reciprocal tax exemption, and scientific and technical cooperation; and
  • Proposing any further actions deemed necessary and prudent to end special conditions and preferential treatment of Hong Kong under US law. §2, the Executive Order.

The Executive Order thus implements the policy announced in June to continue the process of recasting the US relationship with Hong Kong. These steps are designed to extend to Hong Kong the same policies and regulations that currently apply to China. While this is expected to significantly impact certain aspects of trade with and in Hong Kong, it is not designed to sever all ties with Hong Kong, except to the extent that parties relied on technology transfers in their dealings with specific Hong Kong entities. It is also expected to impact individuals operating in Hong Kong, to the extent that they were provided preferential immigration and related statuses. In short, the EO accelerates the US policy shifts by 25 years that recognize the turnover of Hong Kong to China.

SANCTIONS RELATING TO HONG KONG
Potentially more significant than the change in trading status is the section of EO 13936 that authorizes broad sanctions against various persons and entities relating to actions taken under the National Security Law. Section 4 of the Executive Order authorizes the president to impose sanctions against any person who:
  • Has been involved, directly or indirectly, in coercing, arresting, detaining, or imprisoning of individuals under the authority of, or to be or have been responsible for or involved in developing, adopting, or implementing, China’s new National Security Law;
  • Is responsible for or complicit in, or to have engaged in, directly or indirectly, in one or more of the following:
    • actions or policies that undermine democratic processes or institutions in Hong Kong;
    • actions or policies that threaten the peace, security, stability, or autonomy of Hong Kong;
    • censorship or other activities with respect to Hong Kong that prohibit, limit, or penalize the exercise of freedom of expression or assembly by citizens of Hong Kong, or that limit access to free and independent print, online or broadcast media; or
    • the extrajudicial rendition, arbitrary detention, or torture of any person in Hong Kong or other gross violations of internationally recognized human rights or serious human rights abuse in Hong Kong;
  • Is or has been a leader or official of an entity, including any government entity, that has engaged in, or whose members have engaged in, the above activities, or an entity sanctioned under the Executive Order;
  • Has materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, any person sanctioned under the Executive Order.

The Executive Order also allows the US government to sanction persons “owned or controlled by,” or who “acted or purported to act for or on behalf of,” any sanctioned person, as well as directors and senior executive officers of a sanctioned entity.

Persons sanctioned under EO 13936 will become Specially Designated Nationals (SDNs), or the equivalent. This designation generally prohibits US persons and entities from any dealings with these persons without authorization from Treasury’s Office of Foreign Assets Control (OFAC). As with other SDNs, Treasury rarely grants licenses and authorizations for most activities. Although OFAC may allow for “wind down” licenses, which provide individuals and companies the opportunity to withdraw from or terminate transactions with sanctioned individuals or entities or divest ownership of the blocked asset, absent compelling US interests for such wind downs, such licenses are not guaranteed and may not be available.

Persons subject to the EO also are likely to be prohibited from entering the US, including having existing visas revoked. The EO also allows such entry restrictions to be applied to “immediate family members,” which generally includes spouses and children of any age. For sanctioned entities, entry may also be restricted for any foreign citizens and nationals employed by, or acting as an agent of, the sanctioned entity.

Consistent with other sanctions-related executive orders, EO 13936 does not require prior notice of any determination to impose sanctions under the Executive Order. In this respect, the EO fills an important gap in the requirements and processes envisioned by the Act, which requires first the identification of entities and foreign financial institutions in reports to Congress. Although the Act allows for sanctions immediately following the submission of the reports to Congress, EO 13936 authorizes action while those reports are still in progress. Moreover, the EO allows for a more traditional approach to sanctions.

The EO also adds important levels of flexibility to the policy determinations available to OFAC and/or the Department of State because it does not require that an individual or entity be “materially contributing” to or “attempt[ing] to materially contribute” to the Chinese government’s actions in the same manner as the Act does. On the other hand, EO 13936 does not single out FFIs for specific sanctions like the Act. In combination, however, the Act and the EO continue the Administration’s trend toward a more holistic approach to actions in certain foreign policy realms, and particularly with respect to those relating to China.

Together, the Act and the EO present new compliance challenges for investors, multinational companies, financial institutions and others with business dealings and interests in Hong Kong. These developments counsel that those operating in this new environment exercise caution in their transactions and investments. For example, dealings with persons or entities in Hong Kong will require enhanced due diligence and more detailed examination of individuals and entities (including those associated with investment funds, portfolio companies, shareholders, directors, officers, managers and advisors), and of assets (including securities, commodities and currencies, and derivatives instruments related thereto) involved in transactions. This additional analytical rigor can help entities or individuals identify information gaps that can raise concerns under the Act or EO as well as highlight circumstances where enhanced risks merit discussions with the US government or the need for authorizations.

The more detailed diligence can also be instrumental in the development of commercial documentation, decisions on transaction structure, financing requirements, and future engagement with parties subject to either sanctions or other limitations under the Act or EO. Given the depth and complexity of financial dealings in Hong Kong, parties operating in the city will need to understand even more than previously whether their dealings involve parties who are or could be subject to these sanctions, which can impact virtually all transactions, including securities trades, equity or debt investments, loans and financing, foreign exchange, and other banking activities. Deal or fund structure and the terms and conditions of the transaction or investment will also need to consider these sanctions. Some deal terms, such as withdrawal and termination rights, may now carry greater weight in the negotiation process.
 
THE BIGGER PICTURE
Continuing engagement with Hong Kong now requires consideration of the likelihood that these sanctions will be aggressively implemented, and the likely targets for these actions. As the geopolitical situation changes, exit strategies will likely be viewed as key elements of the overall business engagement with entities or individuals from Hong Kong. Among the factors parties may need to consider is the likelihood that China will take its own actions in response to any sanctions or, in some instances, as part of its own initiative to address what it may see as changed political or economic circumstances. China’s policy options include but are not limited to, its own sanctions, blocking actions or more affirmative steps. This is expected to contribute to the complexity and uncertainties related to commercial dealings in Hong Kong.
Questions regarding the US government’s resolve to pursue these actions should consider at least two important factors: bipartisan support and the importance of human rights. In particular:
  • The US actions have unusual bipartisan support. The Act passed both houses of Congress unanimously and with consistent focus on the challenges both political parties outlined as reasons for the Act. Thus, Congress is expected to remain supportive of, and may seek to press, definitive actions under the Executive Order.
  • The sanctions imposed against Chinese officials and companies based on the situation in the Xinjiang Uyghur Autonomous Region demonstrate the administration’s willingness to use sanctions, especially where human rights are involved. In addition to sanctioning 37 persons and entities previously in October 2019 and June 2020, the Commerce Department recently sanctioned 11 Chinese companies after accusing them of human rights violations against the Uighur people in China. More recently, the US sanctioned three senior officials of the Communist Party, including a high-ranking member of the politburo for actions related to the Uighurs.
 
CONCLUSION
Based on the bipartisan actions taken by the administration and Congress, the passage of the Hong Kong Autonomy Act and the issuance of EO 13963 highlight the need for additional focus on due diligence and risk assessments related to continuing business in Hong Kong. While manageable at this point, the likelihood of additional US government or congressional action would not be unexpected and parties should consider evaluating their current commercial and deal documentation to ensure that relative risks are adequately addressed. This can assist with both deal certainty and risk management.


(Source: Winston & Strawn, 24 Jul 2020) [Excerpts]
 
* Principal Author:
Christopher B. Monahan
, Esq.,
1 202-282-5778
, Winston & Strawn
 
On July 14, 2020, Congressmen Van Taylor (R-TX) and Jim Himes (D-CT) introduced a bill in the House of Representatives (H.R. 7603) seeking to expand Congressional oversight of the Committee on Foreign Investment in the United States (CFIUS or the Committee). The bill would amend the Defense Production Act of 1950 to require congressional notice when CFIUS has completed its expedited review of foreign investment transactions.

CFIUS is an interagency committee tasked with reviewing the national security implications of foreign investment in the U.S. economy. The Committee has the authority to block proposed foreign investment transactions if determined that they pose a threat to national security. On February 13, 2020, pursuant to the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), the U.S. Department of the Treasury issued regulations significantly expanding CFIUS authority including the ability to review non-passive investments in certain U.S. businesses. FIRRMA further created a new declaration process where parties to foreign investment transactions can seek to expedite CFIUS consideration. H.R. 7603 would require Congressional notification when CFIUS has completed its expedited review of foreign investment transactions as required for reviews of other transactions.

The bill targets recent efforts by China and other foreign adversaries to acquire sensitive U.S. capabilities, including through increased acquisitions and mergers with U.S. entities. A press release accompanying the bill stated “[a]s the People’s Republic of China continues to aggressively focus on acquiring sensitive American military and national security technologies, Congress must improve oversight of CFIUS’ actions to safeguard our nation.” Accordingly, the bill represents Congress’ ongoing concerns with China’s growing investment in the United States, particularly in the technology sector. 

A Congressional report published on February 14, 2020, demonstrated that China investment transactions accounted for more than a quarter of all transactions reviewed by CFIUS between 2015 and 2017.

Given the escalating trade tensions between the U.S. and China, represented by a recent uptick in the addition of Chinese entities to various U.S. restricted parties lists and the revocation of Hong Kong’s special trade status, it is likely that the U.S. government will continue to consider additional measures specifically targeting foreign investment.


TE EX/IM MOVERS & SHAKERS

(Source: Editor)
 
Howard Pfeifer retired from Collins Aerospace, Raytheon Technologies Corporation, on July 24, 2020, and also resigned from membership on the Commerce/BIS TransTAC.  Howard can be reached 1-860-529-4568 and pfeifer.howard@gmail.com.

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TE EX/IM TRAINING EVENTS & CONFERENCES

(Source:
Ashleigh Foor
)
 
* What: 
Import 101 for Aerospace Professionals
* When: 26 Aug; 1:00 p.m. (EDT)
* Where: Webinar
* Sponsor: Export Compliance Training Institute (ECTI)
* ECTI Speaker: 
Marc Binder
* Register:
here
or Ashleigh Foor, 1-540-433-3977,

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EN EDITOR’S NOTES

EN_a117. Bartlett’s Unfamiliar Quotations

(Source: Editor)
 

* Alexis de Tocqueville
(Alexis Charles Henri Clérel, comte de Tocqueville; 29 Jul 1805 – 16 Apr 1859), was a French aristocrat, diplomat, political scientist, and historian. He is best known for his works Democracy in America and The Old Regime and the Revolution. In both, he analyzed the improved living standards and social conditions of individuals as well as their relationship to the market and state in Western societies. Democracy in America was published after Tocqueville’s travels in the United States and is today considered a key early work of sociology and political science.)
  – “A democratic government is the only one in which those who vote for a tax can escape the obligation to pay it.”
  – “Americans are so enamored of equality that they would rather be equal in slavery than unequal in freedom.”

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EN_a118. New 29 July 2020 Edition of Bartlett’s Annotated ITAR (“BITAR”) is Available

(Source: Editor)
 


A new edition of the BITAR includes today’s Federal Register Notice. To download your 29 July 2020 edition of the BITAR in Word, please login to your account on our website If you do not yet have a subscription to the BITAR, click HERE to subscribe.

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

 

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. 

28 Jul 2020: 
85 FR 45513 
Extension to Certain Temporary Suspensions, Modifications, and Exceptions due to Corona Virus.  The latest edition of the 
BITAR
 
is 29 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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