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20-1127 Friday ” Daily Bugle “

20-1127 Friday “Daily Bugle”

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(The Daily Bugle was not published yesterday, 26 Nov, a U.S. holiday.)
Friday, 27 November 2020

  1. (No items of interest posted)
  1. Items Scheduled for Future Federal Register Edition
  2. Commerce/BIS: (No new postings)
  3. State/DDTC: “DECCS Tips and Tricks Webinar”
  4. EU Commission: “Targeted Consultation on Draft EU Compliance Guidance for Research Involving Dual-Use Items”
  5. EU Council: “Alignment of Certain Countries Concerning Restrictive Measures In View of The Situation in Nicaragua”
  1. EUS: “OFAC Designates Libyan Militia & Its Leader”
  2. Forbes: “ByteDance Gets One More Week to Finalize TikTok U.S. Sale”
  3. Janes: “UK Issues Export Fines of Over GBP700,000”
  4. National Post: “China Rare Earth Prices Spike on Magnet Demand, Export Control Fears”
  1. Benesch: “China’s New Export Control Law: A Fact Sheet With Practical Applications”
  2. Husch Blackwell: “OFAC Issues Venezuela General License 8G Extending Authorization of Certain Transactions for U.S. Oil & Gas Companies”
  3. Kirkland: “New National Security and Investment Bill Will Usher in New Regime for UK”
  4. Pinsent Masons: “UK ‘Dual-Use’ Exporters Face Brexit Deadline for New Export Licence”
  5. Thompson Hine: “State Department Imposes Export and Other Restrictions on Chinese and Russian Entities for Transfers of Controlled Items to Iran, North Korea and Syria”
  1. FCC Academy Presents: 1 Dec: “U.S. Export Controls: ITAR/EAR” and 2 & 3 Dec “FMS”
  2. Friday List of Approaching Events: 201 Events Posted This Week, Including 12 New Events
  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

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OGS OTHER GOVERNMENT SOURCES

(Source: Federal Register)
 
* Treasury/OFAC; Rules; Publication of Web General Licenses Issued Pursuant to the Venezuela Sanctions; [Pub. Date: 30 Nov 2020] (PDF)
 
* State/DDTC; Notices; Agency Information Collection Activities; Proposals, Submissions, and Approvals:Request to Change End-User, End-Use and/or Destination of Hardware; [Pub. Date: 30 Nov 2020] (PDF)

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OGS_a23. Commerce/BIS: (No new postings)

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(Source: State/DDTC, 25 Nov 2020)
 
Please join DDTC’s CIO Karen Wrege and team to discuss the core topics facing DECCS users today. In this session, we will review how DECCS continues to help DDTC and our users meet mission during these challenging times. We will discuss the road ahead for DECCS and how you can get involved to help guide the next round of updates. We will demonstrate tools you can use to find the answers you need when working in the system. And as always, we will leave plenty of time for Q&A.
Topics to be discussed:
* State of the System: System stats and related outcomes
* DECCS Roadmap: Virtual Agent, DECCS User Group, and One Form
* Self-Service Tools demo
Login Details are below:
Date: December 9th, 2020
Time: 2:00 pm – 3:00 pm EST
URL
: here
Important – If password is required when entering WebEx, type ‘Census#01’.
Dial in for audio: 1-888-469-1342
Passcode: 2 1 9 8 4 8 6 #

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  • Policy field: Trade
  • Target group: All concerned stakeholders (e.g. academia, research institutions) making research involving dual-use items
  • Closing Date: 30/11/2020
 
Objective of the consultation
Nowadays Europe’s research landscape is ever more competitive. Research organisations have strong incentives to collaborate internationally. Industry-sponsored research and commercial collaborations are sought actively to develop meaningful scientific and technological advancement. As a result, the line between fundamental research and applied research becomes increasingly blurry in practice.

Awareness about dual-use export controls in the wider research community cannot be taken for granted. In the European Union, only few research organisations have a fully-fledged compliance structure established. Most research organisations are only starting to invest in export compliance measures, including the determination of potentially export-controlled research, and seek support from EU and national competent authorities.

At EU level, the need to take into consideration the global nature of science and the free flow of scientific information was recognised in 2016 in the context of the export control policy review (1).

The 2016 Commission proposal for a modernisation of EU export controls (2) explicitly recognises that researchers may be involved in the export of dual-use items and suggests clarification regarding the application of controls to natural persons, such as researchers.

The 2018 public consultation on the draft EU Internal Compliance Programme (ICP) guidance has sparked the attention of some actors in the European academic research community to respond and indicate the need to tailoring compliance guidance to increase its usefulness.

In order to support the research institutions and the national competent authorities in their effort to ensure compliance with EU and national export laws and regulations, the European Commission and EU Member States, represented in the Dual-Use Coordination Group (3), set up a Technical Expert Group which prepared the guidance submitted for targeted consultation as a non-binding instrument identifying the main elements that are essential to help researchers and research organisations to identify, manage and mitigate risks associated with dual-use export controls and to facilitate compliance with the relevant EU and national laws and regulations.

Before finalising the work on this non-binding guidance, which will take the form of a Commission Recommendation, the European Commission and the EU MS have decided to conduct a public survey to evaluate the usefulness of this draft guidance, providing the opportunity for relevant stakeholders to give their feedback and inputs.

The Commission will publish a document after the consultation summarising the findings and how it has taken comments into account.

The Commission will collect the data from the survey and make it available to the experts of the Member States in the Technical Expert Group, with a view to proceeding with the finalisation of the Compliance Guidance as swiftly as possible.

 
(1) COMMISSION STAFF WORKING DOCUMENT – IMPACT ASSESSMENT – Report on the EU Export Control Policy Review Accompanying the document Proposal for a Regulation of the European Parliament and of the Council setting up a Union regime for the control of exports, transfer, brokering, technical assistance and transit of dual-use item – (SWD(2016)315 final of 28.9.2016) – https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=SWD:2016:0315:FIN

(2) Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL setting up a Union regime for the control of exports, transfer, brokering, technical assistance and transit of dual-use items (recast) – https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM:2016:0616:FIN

(3) Established under Article 23 of Reg. (EC) No 428/2009. The Group is chaired by the Commission and composed by representatives appointed by each Member State.

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On 12 October 2020, the Council adopted Decision (CFSP) 2020/1467
The Council decided that the restrictive measures should be extended for a further period of 12 months, until 15 October 2021.
The Candidate Countries the Republic of North Macedonia, Montenegro and Albania, the country of the Stabilisation and Association Process and potential candidate Bosnia and Herzegovina, and the EFTA countries Iceland, Liechtenstein and Norway, members of the European Economic Area, as well as Ukraine, the Republic of Moldova and Georgia align themselves with this Council Decision.
They will ensure that their national policies conform to this Council Decision.

The European Union takes note of this commitment and welcomes it.

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COM NEWS

NWS_a17. EUS: “OFAC Designates Libyan Militia & Its Leader”

 
OFAC has listed the Kaniyat militia, under Executive Order 13818 (Global Magnitsky sanctions) for being responsible for or complicit in serious human rights abuses in Libya. Its leader, Mohamed al-Kani, has also been designated for being a leader or official of an entity that has engaged in serious human rights abuses related to his tenure.

The militia is said to be responsible for the “murder of civilians recently discovered in numerous mass graves in Tarhouna, as well as torture, forced disappearances, and displacement of civilians”. See Notice and press release 

(Source: Forbes, 26 Nov 2020) [Excerpts]
 
ByteDance’s deadline to divest TikTok’s U.S. operation has been extended for a second time, giving the company until December 4 to finalize a deal with a U.S. company to avoid a ban of the popular video-sharing app, CNN reported.
 
The impact of the incoming Biden administration on TikTok’s future is still unclear. Earlier this month, TikTok had told CNBC that it was still interested in completing its deal with Oracle even if the Biden administration doesn’t force them to do so. At the time a technology advisor to the president-elect’s transition team told CNBC it was “too early to say” Biden’s view on TikTok. However, earlier this year, the Biden campaign had asked all staffers to delete the app off their personal devices due to security concerns.

(Source: Janes, 26 Nov 2020)
 
The UK government has received GBP700,368.01 (USD935,723) in fines between March and September for export control violations, the Department of International Trade revealed in a notice to exporters on 24 November.
Fines of between GBP1,000 and GBP211,250 were issued to exporters across 19 settlement actions for unlicensed exports of dual use goods, military goods and related activity controlled by the Export Control Order 2008.
A spokesperson for Her Majesty’s Revenue and Customs (HMRC), which handles enforcement actions related to violations of the export regulations, declined to give further details of the fines.
 
According to the spokesperson, “there are several other options we can, and regularly do, exercise besides criminal prosecutions. These can include raising awareness through outreach, warning letters, compound settlements [fines], and seizure actions.”
“A compound settlement is the means whereby we can offer to settle out of court, through payment of a sum of money, any alleged offence committed under the Customs and Excise Acts. This saves time and money – both for the company and HMRC – by avoiding the need for legal proceedings. We will only offer a compound settlement where we believe we have sufficient evidence to prosecute.”

(Source: National Post, 26 Nov 2020) [Excerpts]
 
Prices of rare earth magnet raw materials have surged in China this week as analysts say a recovery in coronavirus-hit demand overseas and concerns over potential export controls have led to increased buying.
China is the world’s top producer of rare earth magnets, used in everything from wind turbines to military equipment.
 
One of the three key magnet raw materials, terbium oxide, rose to 6,130 yuan ($932) per kg on Thursday, the highest since June 2012, and is up 26% so far this month.
 
The spike was due to strong magnet demand and the looming introduction on Dec. 1 of China’s potential export controls on critical minerals, Dylan Kelly, an analyst at Sydney-based brokerage Ord Minnett, said in a note to clients.
The export-control law, passed last month, allows Beijing to prohibit or restrict shipments of some items to countries that threaten its interests.

COM COMMENTARY

(Source: Benesch, 25 Nov 2020)
 
* Principal Author: Lianzhong Pan, Esq., 86-21-3222-0388, Benesch
 
On October 17, 2020, the Export Control Law of the People’s Republic of China (“EC Law”) was finally promulgated after three rounds of deliberation by the 13th National People’s Congress. The new EC Law will take effect on December 1, 2020. The new EC Law unifies China’s regulatory system of export control in order to safeguard its national security and interests, fulfill international obligations such as non-proliferation, and strengthen and standardize export control requirements. 
The emergence of China’s EC Law is significant because it represents the first effort of its kind to launch a unified and comprehensive export control regime.  Unlike the United States, China’s approach to trade controls has historically involved merely scattered provisions on import and export controls across various laws and administrative rules.  The new EC Law is a strategic pivot for the country as it matures in its view of its own national security and its place in the world as a competitive producer of sensitive goods.  The EC Law is also a stark paradigm shift for those in the United States and elsewhere who have built production and other interest in the PRC on the expectation of relative freedom for the export and use of those items.
This article examines the fundamental elements of the new EC Law so that those readers with operations in China, or whose supply chains depend upon production in China, may better understand this change and its resulting compliance obligations.  We provide a basic fact sheet on key aspects of the law including: (1) the scope of controlled items; (2) those parties subject to the law; (3) those activities subject to the law; (4) the controlling authorities; (5) their controlling measures; (6) the “black list” targeting importers and end-users; (7) reciprocal measures against other nation-states; (8) the administrative consequences of violation; (9) the criminal consequences of violation; and (10) the extra-territorial effect.  We also explore key take-aways and compliance obligations for consideration while considering the practical impact on supply chains.
 
1. Controlled Items.  The EC Law applies to export of the following items (Article 2):
  • Dual-use items: items that have both civil and military uses or contribute to the enhancement of military potential, especially those goods, technology and services that can be used to design, develop, produce or use weapons of mass destruction and vehicles of their transportation;
  • Military products: equipment, special production facilities and other related goods, technologies and services used for military purposes;
  • Nuclear: nuclear materials, nuclear equipment, non-nuclear materials used in reactors, and related technologies and services;
  • Other goods, technologies, services and items related to safeguarding national security and interests, fulfilling international obligations such as non-proliferation; and
  • Technical materials and data related to the above mentioned items.
 
2. Controlled Parties.  The following parties are subject to the regulation of the EC Law (Articles 15, 16, 18 and 20):
  • Export operators;
  • Intermediary service providers for export transactions, including agency, freight forwarding, delivery, customs declaration, third-party e-commerce transaction platform and financial service providers; and
  • Importers and end users of controlled items.
 
3. Controlled Activities.  The EC Law not only regulates direct export activities, but also control deemed export, re-export and special export activities (Articles 2, 12 and 45), including:
  • Transferring of controlled items from the territory of China to overseas;
  • Citizens, legal entities and unincorporated entities of China (should covering wholly or jointly owned China subsidiaries invested by foreign entities) providing controlled items to foreign entities and individuals (the EC Law is silent on whether such activities need to be performed within or outside of the territory of China);
  • The transit, transshipment, transportation or re-export of controlled items; and
  • The export of controlled items, from bonded areas, export processing zones and other special customs supervision areas, and export supervision warehouses, bonded logistics centers and other bonded supervision places, to overseas.
 
4. Controlling Authorities.  The State Export Control Administrations include (Article 5):
  • The departments undertaking export control functions of the State Council and the Central Military Commission; and
  • The relevant departments of the people’s governments of provinces, autonomous regions and municipalities directly under the Central Government which are responsible for export control related work in accordance with laws and administrative regulations.
 
5. Controlling Measures.  The EL Law implements a variety of controlling measures to govern the export of restricted items:
  • Control List: a unified export control system with a formulated control lists, directories or catalogs of controlled export items; an export license is required to export items in the Control List (Article 4);
  • Temporary Control: imposed on goods, technologies and services not in the Control List; shall be announced before implementation; the implementation period shall not exceed two years, but could be cancelled or extended before expiration upon assessment; temporarily controlled items could also be adjusted upon assessment (Article 9);
  • Ban on export: the Controlling Authorities may prohibit certain controlled items to be exported or prohibit export to specific destination countries and regions, specific entities and individual (Article 12); and
  • Comprehensive control of existing risks: if export operators know or should know, or has been notified by Controlling Authorities, that the relevant export items not listed on the Control List or subject to Temporary Control have the risks of (i) endangering national security and interests, (ii) being used in the design, development, production or use of weapons of mass destruction and vehicles of their transportation, and (iii) being used for terrorist purposes (“Risk Situations”), they should apply for permission from Controlling Authorities or consult with Controlling Authorities for any uncertainty (Article 12).
 
6. Black List.  The EC Law imposes additional specific controls over importers and end users (Article 18):
  • Establishment of a Black List of importers and end users who have one of the Risk Situations;
  • Importers and end users in the Black List may be prohibited, restricted or suspended in transactions of related controlled items; and
  • If the Risk Situations no longer exist, listed importers and end users may apply with Controlling Authorities for remove from the Black List.
 
7. Reciprocal Measures.  The new EC Law creates reciprocal measures that the country may impose against any other nation or region that abuses its own export control measures to endanger the national security and interests of China (Article 48).  Those measures will be determined based on the actual conditions at the time.
 
8. Administrative Consequences of Violation.  The EC Law sets severe administrative penalties for export control violations of export operators and third-party intermediary service providers for export transactions, including (Articles 33 to 41):
  • Fines up to twenty times the amount involved in the illegal transaction or five million China Yuan;
  • Confiscation of illegal income;
  • Revocation of export permit;
  • Refusal to accept export permit application within five years;
  • Prohibition of the executives and other directly responsible personnel of violating entities from engaging in relevant export business activities within five years or even lifetime; and/or
  • Entering export control violations into credit records.
 
9. Criminal Consequences of Violation.  The EC law also expressly states that the following two types of violation may lead to criminal liabilities (Article 43):
  • Exporting prohibited controlled items; and
  • Exporting controlled items without an export permit.
 
10. Extra-Territorial Effect.  The EC Law also creates an extra-territorial effect by expressly stating that any entities and individuals from outside of China who are violating this law will be held accountable according to the law (Article 44).
 
Compliance Strategies.  Implementing regulations and guiding rules may issue soon.  Time will be well spent in the interim by assessing the need for export controls compliance programs for China-based goods and for items sourced from the country.  This assessment may include strategic considerations of global supply chain management including, as necessary, those production and procurement activities that may be impacted. 
For now, it can be expected that a China-specific export control compliance program in response to the new EC Law will likely align with the principles set forth in the law itself (Article 14):
  • Self-inspection on import and export items to make sure whether any of such items are fall into the Control List and consultation with the Controlling Authorities and professional advisors whenever there is a doubt;
  • Performing due diligence check on qualification of counterparties (e.g., suppliers, customers, end users and intermediary service providers) and transaction risks to avoid dealing with entities or individuals listed on the Black List or otherwise prohibited from relevant transactions (e.g., listed on the Unreliable Entity List by the Ministry of Commerce which may have broader restrictions on listed individuals and entities);
  • Revising template contracts as advised by experience legal counsel by adding export control compliance provisions (e.g., representations and warranties regarding end user and end use, and indemnifications by relevant counterparties);
  • Paying close attention to the change of laws and regulations related to export control and updating the internal export control compliance system accordingly; and
  • Providing routine training on export control related compliance requirements to employees, suppliers and customers.
 
Practical Observations.  At present the EC Law is very vague and lacks the precision required for implementability beyond the basic framework outlined in this fact sheet.  Despite the uncertainty, it will be apparent to many readers that the EC Law is similar in function to United States export controls regimes.  Each body of law includes the basic elements of: commodity lists, licensing requirements, deemed export and re-export restrictions, denied parties screening, military and non-proliferation protections, and extra-territoriality.  Each are also founded in large part on national security impetus, carry the opportunity for broad government discretion in application, and bear the risk of criminal penalties.  Stated simply, the final fully-implemented export controls regime and the compliance programs it necessitates may be conceptually familiar to United States enterprises.

COM_a212. Husch Blackwell: “OFAC Issues Venezuela General License 8G Extending Authorization of Certain Transactions for U.S. Oil & Gas Companies”   

(Source: Husch Blackwell, 25 Nov 2020)
 
* Principal Author: Cortney O’Toole Morgan, Esq., 1-202-378-2389, Husch Blackwell
 
The U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”) issued General License 8G (“GL 8G”), which authorizes five (5) U.S. oil and gas companies to engage in transactions “ordinarily incident and necessary to the limited maintenance of essential operations, contracts or other agreements”, as well as transactions necessary to the wind down of operations in Venezuela involving Petroleos de Venezuela, S.A. (“PdVSA”) or any entity which PdVSA owns a 50% or greater interest and that were in effect prior to July 26, 2019.  Effective November 17, 2020, GL 8G replaces and supersedes GL 8F which was set to expire on December 1, 2020, effectively extending its deadline through 12:01 eastern daylight time on June 3, 2021.  GL 8G applies specifically to the following entities and their subsidiaries: Chevron Corporation, Halliburton, Schlumberger Ltd., Baker Hughes (a GE company), and Weatherford International, PLC.
Notably, GL 8G does not authorize the drilling, lifting, processing of, purchase or sale of, or transport or shipping of any Venezuelan-origin petroleum or petroleum products. It does not authorize the provision or receipt of insurance for such transactions/activities, or any work on oil wells or other infrastructure for the provision of goods or services. The GL also does not authorize the payment of a dividend, the provision of any loans to PdVSA, or any other transaction/activity otherwise prohibited by the Venezuela Sanctions Regulations (“VSR”).

COM_a313. Kirkland: “New National Security and Investment Bill Will Usher in New Regime for UK”

(Source: Kirkland & Ellis, 25 Nov 2020)
 
* Principal Author: Michael S. Casey, Esq., +44 20 7469 2255, Kirkland & Ellis
 
On November 11, 2020, the UK government published the much-anticipated National Security and Investment Bill (the “Bill”). If passed, the Bill will require parties to notify the government of a variety of transactions involving sensitive industrial sectors. Consistent with existing frameworks implemented by other Five Eyes alliance members, the Bill also would establish a stand-alone mechanism for the UK government to vet – and in some instances impose mitigation measures on or even block – transactions subject to review.  
The Bill represents a major overhaul of the UK government’s approach to reviewing investments and incorporates concepts from the Committee on Foreign Investment in the United States (“CFIUS”) and the national security review mechanisms of certain EU member states. If passed in its current form, the Bill will be a sharp break from the UK government’s past practice with respect to screening investments and will create myriad new challenges for dealmakers seeking to complete transactions that occur within or involve the United Kingdom.  

The UK’s new approach is consistent with recent trends. The United States has recently strengthened CFIUS, and a number of EU member states have either adopted or updated their systems for reviewing transactions on national security grounds. In addition, the European Union finalized regulations in October to regulate foreign direct investment that occurs within the EU. Parties participating in cross-border deals increasingly will need to consider multiple national security review systems before completing transactions.

Overview of the New Regime

 
The new regime will utilize a hybrid notification system for so-called “trigger events.” The trigger events are specifically defined in the Bill, but generally involve situations where a party acquires control of a qualifying entity or a qualifying asset. For certain trigger events involving high-risk sectors, acquirers will be required to submit pre-closing notifications and obtain approval from the Department for Business, Energy & Industrial Strategy (“BEIS”). Other parties participating in trigger events have the option of notifying BEIS if they believe that the trigger event could implicate national security concerns.
Following notification, BEIS will have 30 working days to assess whether the trigger event should be “called in” for a national security review assessment. [FN/1]If BEIS determines that a full assessment is not necessary, then it will notify the parties that it has cleared the transaction.  
By contrast, if BEIS elects to call in a trigger event, an assessment period will follow. The first phase of the assessment will be an initial period of 30 working days. At the conclusion of the initial period, BEIS can clear the trigger event, issue a final order imposing remedies or extend the assessment period for an additional period of 45 working days. At the conclusion of the additional period, BEIS can clear the trigger event, issue a final order imposing remedies or the parties can mutually agree to an extension of the assessment period. When analyzing risks associated with trigger events, BEIS will consider target risk, trigger event risk and acquirer risk to determine whether the trigger event poses a risk to UK national security.
A new unit within BEIS, the Investment Security Unit, will screen all trigger events that are notified by mandatory or voluntary filings, or that they unilaterally elect to call in. The Secretary of State for BEIS, currently Alok Sharma, will have ultimate responsibility for all decisions. The proposed regime will replace the government’s historical mechanism for reviewing transactions under the Enterprise Act 2002. Until Parliament enacts the legislation, the current, and far more limited, regime under the Enterprise Act will continue to operate in relation to transactions raising national security concerns.
 
The National Security and Investment Bill
The Bill contains a number of interesting features that in some instances represent a break from previous consultations as well as a series of open issues regarding how the new regime will be administered.     
Key Provisions
  • Parties to certain trigger events will be subject to mandatory notification requirements: The Bill will require mandatory notifications for certain trigger events that involve the acquisition of qualifying entities in certain high-risk sectors. [FN/2] The government has identified an initial list of 17 high-risk sectors, which are broad in scope (e.g., “defence,” “energy,” “data infrastructure”). [FN/3] BEIS has published a public consultation to seek input regarding what types of transactions that occur in these sectors should be subject to mandatory reviews. The consultation will then lead to the publication of regulations under the new act that will further define the scope of the transactions that require notification. In addition, transactions in which an acquirer acquires 15% or more of the votes or shares in an entity in a high-risk sector are considered to be “notifiable acquisitions” that are subject to mandatory notifications so the government can assess whether they reasonably suspect a trigger event will take place. For trigger events that require notification, the duty to alert BEIS will rest solely with the acquiring party.    
  • Transactions that require mandatory notification will be void if not notified and cleared: If the parties close a transaction that requires mandatory notification and the parties do not notify BEIS and obtain clearance prior to closing, the transaction will be legally void. This aspect of the Bill likely will lead to parties electing to report any transactions that potentially could be subject to mandatory reporting requirements. The criminal penalties for failing to make a mandatory notification likewise will provide a powerful incentive for parties to take a proactive approach to filing notifications. The Bill does allow the Secretary of State to retrospectively validate notifiable acquisitions that were not reported to BEIS.
  • Parties may submit voluntary notifications: Parties participating in trigger events that do not require mandatory notification can elect to submit voluntarily notifications. BEIS will have the right to call-in non-notified transactions that it deems might present a national security risk, so it is expected that parties may elect to file precautionary notifications to avoid the risk of BEIS later calling in the transactions.   
  • BEIS will have broad powers to retrospectively review trigger events: The Bill authorizes the government to call in trigger events that were not notified and those not subject to mandatory reporting requirements for up to six months after the Secretary of State becomes aware of the trigger event, so long as the call in occurs within five years of the trigger event. Other EU member states have adopted similar five-year look back periods (e.g., France, Italy and Germany). The Secretary of State will be able to call in a transaction subject to mandatory notification at any point (i.e., the five-year-long stop date does not apply in these circumstances). In addition, the Bill would grant the Secretary of State the authority to call in transactions that take place between November 12, 2020, and the commencement date of the legislation. It is expected that acquirers will be subject to mandatory notification requirements for trigger events that occur in high-risk sectors and have not completed prior to the commencement date of the legislation.          
  • The UK nexus test is expansive: BEIS will have the authority to review trigger events that could potentially raise national security concerns, even if the entities involved do not have a direct link to the UK. The regime allows the government to call in trigger events that involve entities or assets outside of the UK, provided that: (1) the entities carry on activities or supply goods/services in the UK; or (2) the assets are used in connection with activities taking place in the UK. Accordingly, this regime is potentially applicable even when the relevant parties do not include a UK subsidiary, which is a departure from many foreign investment review regimes. With that said, the government has advised that it will “legislate for a tighter nexus test for mandatory transactions.”
  • The Bill specifies transactions that do not give rise to trigger events: Transactions in which a party acquires less than (i) a 15% interest in a qualifying entity in a high-risk sector or (ii) a 25% interest in a qualifying entity in a non-high-risk sector will not be a trigger event provided that the acquiring party does not obtain material influence over the policy of the qualifying entity. These provisions will provide comfort to minority investors in some types of acquisitions.    
  • The Bill does not envision BEIS adopting “black lists” or “white lists”: The new regime “will apply to investors from any country,” and BEIS apparently will not put particular foreign countries on “black lists” or “white lists.” In addition, the government has expressly advised that it does not consider state-owned entities, sovereign wealth funds or other entities associated with foreign states to be “inherently more likely to pose a national security risk” than other parties from a national security perspective.
  • The Bill includes sanctions for non-compliance: The Bill grants the government authority to impose stringent civil fines and criminal penalties on parties that violate the new legislation by not complying with mandatory notification obligations, breaching mitigation conditions or supplying false or misleading information to BEIS.  
  • Judicial review: Parties will have the ability to challenge the Secretary of State’s decisions made during national security reviews through the standard judicial review process.   
 
Notable Changes From Previous Consultations and Unresolved Issues
  • The Bill does not contain turnover or share of supply thresholds: Unlike the Enterprise Act regime, the Bill does not contain minimum turnover or share of supply thresholds. A trigger event will not necessarily be excluded from review because it involves a small qualifying entity or qualifying asset of limited value.
  • The government expects a large number of notifications: The government anticipates that each year parties will file between 1,000 and 1,830 notifications and that BEIS will call in between 75 and 90 trigger events. The government expects BEIS to impose conditions upon approximately eight to 10 transactions per year. These numbers would represent a massive uptick in filings and reviews. Since 2002, parties have not been subject to mandatory reporting requirements, and the UK government has reviewed a total of 12 transactions on national security grounds under the Enterprise Act regime.
  • The Bill removes national security reviews from the remit of the Competition and Markets Authority (“CMA”): The Bill bifurcates merger control reviews from national security reviews. On a going forward basis, the CMA will no longer play a role in reviewing transactions on national security grounds. The government has advised that antitrust and national security reviews will proceed concurrently. In the relatively rare situation where a proposed CMA remedy presents national security concerns, the Secretary of State will have the authority to intervene and overrule the CMA.  
  • BEIS review process could be time consuming: The Bill sets forth a proscribed schedule for reviewing trigger events and carrying out national security risk assessments.However, in practice, the timeline for BEIS’s reviews may be less certain. The “clocks” for each of the relevant time periods (i.e., preliminary review, initial period, etc.) will stop running when the Secretary of State issues an information or attendance notice to a party and will only re-start after the Secretary of State subsequently issues a compliance notice. In addition, BEIS and the parties can mutually agree to indefinite extensions. These features ultimately could result in lengthy and uncertain review periods.       
  • Defining scope of high-risk sectors will be important: The government has stated that it expects that a subset of transactions within 17 specified sectors will require mandatory notifications.  BEIS has published a consultation document that sets forth proposed definitions for the type of entities within each of the high-risk sectors that would require mandatory notifications. The government’s ongoing consultation process regarding the areas that will require notification and pre-approval will be important in defining the nature of transactions that give rise to mandatory notifications.[FN/4]
 
Conclusion
The Bill represents the dawn of a new era in the vetting of UK transactions on national security grounds. Assuming the Bill survives largely intact in its passage through Parliament, the new regime will require dealmakers to approach UK transactions that might involve national security considerations with much greater care.
 
[FN/1] BEIS has the authority to call in both notified trigger events and trigger events that were not notified.
[FN/2] Earlier government proposals had indicated that the new law would set forth a purely voluntary notification regime.
[FN/3] The Bill identifies 17 high-risk sectors: civil nuclear; communications; data infrastructure; defence; energy; transport; artificial intelligence; autonomous robotics; computing hardware; cryptographic authentication; advanced materials; quantum technologies; engineering biology; critical suppliers to the emergency services; critical suppliers to government; military or dual-use technologies; and satellite and space technologies.
[FN/4]

The consultation process will remain open for a period of eight weeks, closing on January 6, 2021.  

TE EX/IM TRAINING EVENTS & CONFERENCES

U.S. Export Controls: ITAR & EAR from a non-U.S. Perspective [Tues, 1 Dec; 15:00 pm – 17:15 pm (CET) /09:00 am – 11:15 am (EST) / 06:00 am – 08:15 am (PST)] 
Presenters: Jim Bartlett & Marco Crombach
Register or find more information here
The ABC of Foreign Military Sales (FMS)

[Wed, 2 Dec; 18:00 pm – 20:00 pm (CET) / 09:00 am – 11:00 am (PST) /12:00 pm – 14:00 pm (EST)] 
& 
[Thur, 3 Dec; 15:00 pm – 17:00 pm (CET) /09:00 am – 11:00 am (EST) /06:00 am – 08:00 am (PST)]
Presenters: Mike Farrell & Jim Bartlett
Register or find more information for the 2nd of Dec here
Register or find more information for the 3rd of Dec here
* Register for both ITAR/EAR and FMS courses and take advantage of our discounted price!
 * * * * * * * * * * * * * * * * * * * *

(Sources: Event sponsors)  
 

Submit your event in the Submission section at the end of this newsletter.  
 
[Editor’s note:  This Daily Bugle Event List has grown so large that we have run out of space to display it, so we are displaying here only the new events in the Daily Bugle, while maintaining a LINK HERE to the full list.]
 

Published every Friday or last publication day of the week. Send events to events@fullcirclecompliance.eu, composed in the below format:
 
# * Date: (Location;) “Event Title”; <Weblink>” Event Sponsor;
 

On-Line:

 

* (NEW) 2 Dec: “The ABC of Foreign Military Sales (FMS)“; Full Circle Compliance (FCC) Academy
* 3 Dec: “The ABC of Foreign Military Sales (FMS) “; Full Circle Compliance (FCC) Academy
* 10 Dec: “Brexit is Here, Now What?“; Commerce Department
 
On Demand:
 
* Permanent: “Export Controls on Encryption: The Basics“; Export Control Webinars
* Permanent: “DIY Encryption Classification“; Export Control Webinars

* Permanent: “Advanced Encryption Classification“; Export Control Webinars

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EN EDITOR’S NOTES

EN_a118. Bartlett’s Unfamiliar Quotations

(Source: Editor)
 

* L. Sprague de Camp (Lyon Sprague de Camp; 27 Nov 1907 – 6 Nov 2000; was an American writer of science fiction, fantasy and non-fiction. In a career spanning 60 years, he wrote over 100 books, including novels and works of non-fiction, including biographies of other fantasy authors.)
  – “It does not pay a prophet to be too specific.”
 
Friday funnies (well, these are actually supposed to be true):
Q. Why do men’s clothes have buttons on the right while women’s clothes have buttons on the left?
A. When buttons were invented, they were very expensive and worn primarily by the rich. Since most people are right-handed, it is easier to push buttons on the right through holes on the left. But because wealthy women were dressed by maids, dressmakers put the buttons on the maid’s right! And that’s where women’s buttons have remained since.

Q. Why do X’s at the end of a letter signify kisses?
A. Because in the Middle Ages, when many people were unable to read or write, documents were often signed using an X. Kissing the X represented an oath to fulfill obligations specified in the document. The X and the kiss eventually became synonymous.

Q. Why do people clink their glasses before drinking a toast?
A. In earlier times it was common to try to kill an enemy by offering him a poisoned drink.  To prove to a guest that a drink was safe, it became customary for a host to pour a small amount of his drink into the glass of the guest. Both would then drink simultaneously. If a guest trusted his host, he would only touch or clink the host’s glass with his own.

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The official versions of the following regulations are published annually in the U.S. Code of Federal Regulations (C.F.R.), but are updated as amended in the Federal Register.  The latest amendments are listed below.
 
Agency 
Regulations 
Latest Update 
DHS CUSTOMS REGULATIONS: 19 CFR, Ch. 1, Pts. 0-199.

 

5 Apr 2019: 84 FR 13499:

Civil Monetary Penalty Adjustments for Inflation. 
DOC EXPORT ADMINISTRATION REGULATIONS (EAR): 15 CFR Subtit. B, Ch. VII, Pts. 730-774. 

18 Nov 2020: 
85 FR 73411:  Revisions to Export Enforcement Provisions. 

DOC FOREIGN TRADE REGULATIONS (FTR): 15 CFR Part 30.  
24 Apr 2018: 83 FR 17749: Foreign Trade Regulations (FTR): Kimberley Process Certificates.  The latest edition of the BAFTR is 
9 Nov 2020.
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 Sep 2020: 85 FR 60874: Temporary Amendment for Republic of Cyprus. The latest edition of the BITAR is 28 Sep 2020. 

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