LATEST EXPORT CONTROLS AND COMPLIANCE UPDATE
See also our “Latest Sanctions Fines & Penalties” section below for an update on companies and persons denied export privileges by the United States Government.
U.K. Publishes Guidance On Latest Version Of The Cryptography Note
April 3, 2018: The Export Control Joint Unit (ECJU) of the U.K. Department for International Trade published detailed guidance on interpreting the latest version of the “Cryptography Note” (Note 3 to Category 5 Part 2, Information Security) as it appears in Annex I to Council Regulation (EC) No. 428/2009 (as last amended by Regulation (EU) No. 2268/2017). The guidance is at https://www.gov.uk/government/publications/notice-to-exporters-201807-guidance-on-the-cryptography-note/notice-to-exporters-201807-guidance-on-the-cryptography-note.
U. S. Congress
The House Of Representatives Foreign Affairs (FA) Committee Passes The Export Control Reform Act Of 2018
April 17, 2018: The House of Representatives Foreign Affairs (FA) Committee passed H.R. 5040, the Export Control Reform Act of 2018, in a version that was a substitute for the bill initially introduced in February 2018. (See February 2018 Regulatory Update.) This bill must now be scheduled for considerations by the House of Representatives. The biggest difference between the current bill and the bill initially introduced in February is that this bill does not define U.S. companies with foreign ownership as foreign persons.
The bill as passed is on the FA Committee website at https://docs.house.gov/meetings/FA/FA00/20180417/108181/BILLS-115-HR5040-R000487-Amdt-101.PDF.
The White House Releases The National Security Presidential Memorandum Regarding U.S. Conventional Arms Transfer Policy
April 19, 2018: The White House released a National Security Presidential Memorandum (NSPM) Regarding U.S. Conventional Arms Transfer Policy aimed at better aligning government actions regarding arms transfers with U.S. national and economic security interests. Noting that the policy will be implemented in compliance with the Arms Export Control Act of 1976 (AECA, 22 USC 2751 et seq.), the document lays out broad policy goals and the considerations to be accounted for in arms transfer decisions and directs the Secretary of State, in coordination with the Secretaries of Defense, Commerce, and Energy, to submit a proposed action plan within 60 days. This NSPM is on the White House website at https://www.whitehouse.gov/presidential-actions/national-security-presidential-memorandum-regarding-u-s-conventional-arms-transfer-policy/. (See below for related State Department memorandum.)
Department of Commerce – Bureau of Industry and Security
BIS Amends Various Parts Of The Export Administration Regulations
April 2, 2018 – 83 Fed. Reg. 13849: The Bureau of Industry and Security (BIS) amended Parts 738, 740, 745, and 774 of the Export Administration Regulations (EAR, 15 CFR Parts 730-774) to implement decisions adopted by the Australia Group (AG) in 2017. The amendments include additions and clarifications to Export Control Classification Numbers (ECCNs) 2B350, 2B351, 2B352, 1C353, 1C350, and 1C351 and the addition of India as a participating country in the AG. BIS notes that the rule “only marginally” affects the scope of the EAR controls on chemical weapons precursors, human and animal pathogens/toxins, chemical manufacturing equipment, and equipment capable of use in handling biological materials, and that it is not expected to result in more than 15 additional license applications per year.
BIS Amends EAR Regarding Production of Tritium
April 5, 2018 – 83 Fed. Reg. 14580: BIS amended the EAR to impose a license requirement on exports and reexports of specified target assemblies for the production of tritium and their specially designed components under new ECCN 1A231. Also, the related “production” technology for 1A231 commodities will be added to existing ECCNs 1E001 and 1E201. These items, which were formerly classified under the OY521 series, were agreed to by the Nuclear Suppliers Group (NSG) in 2017 in response to a proposal by the U.S. Government. They are controlled for nuclear nonproliferation (NP) Column 1 and anti-terrorism (AT) Column 1 reasons. Licenses will be required in most instances.
Department of Homeland Security – Customs and Border Protection
CBP Phases-Out U.S.-Israel Free Trade Agreement Certificate Of Origin
April 6, 2018: U.S. Customs and Border Protection (CBP) announced that the phase-out of the U.S.-Israel Free Trade Agreement certificate of origin after June 30, 2018. Israel will accept only a signed statement on the commercial invoice. The agreement eliminating the certificate of origin is on the website of the U.S. Trade Representative (USTR) at https://ustr.gov/sites/default/files/files/agreements/FTA/israel/US%20IS%20JC%20ED.pdf.
Department of State
DDTC Name and Address Changes Posted To Website
April 2, 3, and 11, 2018: The Directorate of Defense Trade Controls (DDTC) posted the following name and/or address changes on its website at https://www.pmddtc.state.gov/?id=ddtc_kb_article_page&sys_id=bd72ca0adbf8d30044f9ff621f961981:
- · Change in Name from BAE Systems Protection Systems Inc. to BAE Systems Land & Armaments L.P. due to corporate reorganization;
- · Change in Name from Hanwha Techwin Co., Ltd. to Hanwha Aerospace Co., Ltd. and changed address due to divestment of security business into new subsidiary;
- · Change in Name from Airbus Group Australia Pacific Limited to Airbus Australia Pacific Limited due to corporate reorganization;
- · Change in Name from T&M Systems B.V. to C.N. Rood B.V. due to acquisition of T&M Systems by C.N. Rood;
- · Change in Address for Korade B.V.; and
- · Change in Address for Expeditors International of Washington, Inc.
Each announcement includes a link to a notice specifying the effects of the change on pending and currently approved authorizations involving the listed entity.
DDTC Releases Fact Sheet On New Policy Regarding Export Of U.S. Origin Unmanned Aerial Systems
April 20, 2018: DDTC released a Fact Sheet describing a new policy on the export of all U.S.-origin unmanned aerial systems (UAS), including those controlled under both the U.S. Munitions List (USML, 22 CFR Sec. 121.1) and the Commerce Control List (CCL, EAR Part 774, Supp. No. 1). The primary objectives of the policy are to increase trade opportunities for U.S. companies; to bolster partner security and counterterrorism capabilities; to strengthen bilateral relationships; to preserve U.S. military advantage; and to prevent the proliferation of weapons of mass destruction (WMD) delivery systems. The Fact Sheet lays out transfer conditions for armed, unarmed, and civil UAS; end-use assurances and monitoring and additional security conditions; and principles of proper use. This Fact Sheet is on the State Department website at https://www.state.gov/r/pa/prs/ps/2018/04/280619.htm.
DDTC Statutory Debarments
April 25, 2018 – 83 Fed. Reg. 18112: DDTC imposed statutory debarment on 168 individuals who had been convicted of criminal violations of the AECA. During the term of their debarment, these individuals are prohibited from participating directly or indirectly in exporting, brokering, or participating in any other way in transactions involving items controlled under the International Traffic in Arms Regulations (ITAR, 22 CFR Parts 120-130). The standard term of a debarment is three years; however, export privileges may be reinstated only at the request of the debarred person.
DDTC Releases Fact Sheet Citing The President’s NSPM On Conventional Arms Transfer Policy
Department of the Treasury
OFAC Designates Additional Russians, Russian Companies And Banks To Its Specially Designated Nationals List
April 6 and 23, 2018: On April 6, the Office of Foreign Assets Control (OFAC) designated 7 Russian oligarchs and 12 companies they own or control – including RUSAL PLC, one of the world’s largest aluminum producers, and Rosoboronoeksport, Russia’s state-owned weapons trading company -- as well as 17 senior Russian government officials and a state-owned Russian weapons trading company and its banking subsidiary as Specially Designated Nationals. Concurrently, OFAC issued Ukraine-/Russia-related General License (GL) 12 (replaced on April 23 by GL 12A) and GL 13 temporarily authorizing some transactions to help mitigate the immediate impact of the designations. OFAC also published 8 new FAQs related to these actions, including one stating that U.S. persons are prohibited from continuing their employment or board membership in a designated entity without a specific authorization from OFAC.
On April 23, OFAC issued GL 12A and new GL 14, regarding transactions related to business with RUSAL and its subsidiaries, along with additional FAQs.
General Licenses 12A, 13, and 14 are on the Treasury Department website at https://www.treasury.gov/resource-center/sanctions/Programs/Documents/ukraine_gl12A.pdf, https://www.treasury.gov/resource-center/sanctions/Programs/Documents/ukraine_gl13.pdf, and https://www.treasury.gov/resource-center/sanctions/Programs/Documents/ukraine_gl14.pdf, respectively. The new FAQs are at https://www.treasury.gov/resource-center/faqs/Sanctions/Pages/faq_other.aspx#567 , ## 567-582.
OFAC Issued General License 2E Related to Belarus
April 27, 2018: OFAC issued GL 2E authorizing until Oct. 30, 2018, transactions involving 9 Belarusian entities that are blocked pursuant to Executive Order (E.O.) 13405. This GL does not authorize the release of property blocked pursuant to E.O. 13405.
LATEST SANCTIONS FINES & PENALTIES
Department of Commerce
April 16, 2018 – 83 Fed. Reg. 16286: BIS issued a 10-year denial order against Stephen Edward Smith of Federal Correctional Institution (FCI) LA Tuna, Anthony, NM, based on his conviction in U.S. District Court, in Arizona, of violating the AECA and other laws by exporting and causing to be exported, from the U.S. to Hong Kong, a Tikka Sporter .223 Rem Semi-automatic rifle and two silencers, without the required license from the State Department. Smith was sentenced to 102 months in prison, 3 years of supervised release, a criminal fine of $150,050, and a $300 special assessment and ordered to forfeit $59,550. (See additional information in April 2017 Regulatory Update.)
April 16, 2018 – 83 Fed. Reg. 16287: BIS issued a 10-year denial order against Peter Steve Plesinger of FCI Terminal Island, San Pedro, CA, based on his conviction in U.S. District Court in Arizona of violating the AECA and other laws by exporting and causing to be exported, from the U.S. to Hong Kong, ammunition and firearms. Including, .22 and .223 caliber ammunition and a Ruger 10/20 rifle, without the required license from the State Department. Plesinger was sentenced to 87 months in prison, 3 years of supervised release, and a $300 special assessment and ordered to forfeit $64,500. (See additional information in April 2017 Regulatory Update.)
April 16, 2018 – 83 Fed. Reg. 16288: BIS issued a 10-year denial order against Earl Henry Richmond of Green Valley, AZ, based on his conviction in U.S. District Court, in Arizona, of violating the AECA by conspiring to export from the U.S. to Hong Kong two Ruger SR22 semi-automatic pistols, two silencers, and 1000 rounds of ammunition, without the required license from the State Department. Richmond was sentenced to 3 years of probation, a fine of $2,000, and a $100 special assessment.
April 18, 2018 – 83 Fed. Reg. 17145: BIS issued a 10-year denial order against Erdal Kuyumcu of FCI Fort Dix, NJ, based on his conviction in U.S. District Court, in New York City, of violating the International Emergency Economic Powers Act (IEEPA, 50 USC Sec. 1701 -1707) by conspiring to export from the U.S. to Iran, a metallic powder composed of cobalt and nickel without obtaining the required U.S. Government authorization. Kuyumcu was sentenced to 57 months in prison, 3 years of supervised release, a fine of $7,000, and an assessment of $100. (See additional information in June 2016 Regulatory Update.)
April 23, 2018 – 83 Fed. Reg. 17644: BIS activated a suspended 7-year denial order against Zhongxing Telecommunications Equipment Corporation and ZTE Kangxun Telecommunications Ltd., both of Shenzhen, China (together, “ZTE”) that had been imposed upon them pursuant to a Settlement Agreement entered into on March 23, 2017. (See March 2017 Regulatory Update.) In the Settlement Agreement, ZTE had agreed to pay a civil penalty of $661 million (including $300,000,000 suspended for 7 years) and to adhere to numerous conditions including, among others, submitting audit reports and making truthful disclosures of any factual information requested by BIS. BIS activated the suspended 7-year denial order after determining that ZTE had made false statements to the U.S. Government during the probationary period.
Fines and Penalties
April 5, 2018: Iulian Petre, a/k/a/ Julian Petre, of Waterville, ME was sentenced in U.S. District Court, in Bangor, ME, to 2 years in prison and 3 years of supervised release for purchasing and receiving firearms from out-of-state sellers, intending to unlawfully export them, and actually shipping them to Romania without the required authorization from the Department of State.
April 19, 2018: Sadr Emad-Vaez and Pouran Aazad, of Los Altos Hills, CA, and Hassan Ali Moshir-Fatemi, of Tehran, Iran, were indicted and arrested in San Francisco on charges of conspiracy to violate the IEEPA, violating the Iranian Transactions and Sanctions Regulations (ITSR, 31 CFR Part 560), and smuggling. The three defendants allegedly participated in the operation of the Ghare Sabz Company, a/k/a GHS Technology, a large manufacturing corporation in Tehran, and acquired and attempted to acquire automotive parts from manufacturers worldwide, including in the U.S., in order to funnel them to GHS in Tehran.
April 24, 2018: Joyce Eliabachus, a/k/a/ Joyce Marie Gundran Manangan, of Morristown, NJ, was arrested and charged with conspiracy to violate the ITSR, conspiracy to commit money laundering, and conspiracy to smuggle goods from the U.S. for her alleged role in a network that smuggled over $2 million worth of aircraft components from the U.S. to Iran. Operating through Edsun Equipments LLC, a trading company run out of her residence, and conspiring with an Iranian-based procurement firm, Eliabachus allegedly obtained requested components from U.S. distributors, then re-packaged them and shipped them to shipping companies in the United Arab Emirates (UAE) and Turkey, from where her co-conspirators transshipped them to Iran. In addition to falsifying the true destination and end-users of the components, she allegedly falsified the true value of the components being exported in order to evade the necessity of filing export control forms. Payments for the components were allegedly funneled through Turkish bank accounts and ultimately transferred into Edsun’s U.S.-based accounts.
April 25, 2018: FLIR Systems, Inc., of Wilsonville, OR, entered into a 4-year consent agreement with the U.S. State Department and agreed to pay $30 million (of which half can instead be used on export control compliance) to settle charges that it committed 347 violations of the AECA and ITAR. The alleged violations included allowing foreign employees from countries such as Iran, Iraq, Lebanon, and Cuba to access sensitive information, issues with export license management and the reporting of political contributions, fees, and commissions on license applications. Compliance measures that FLIR agreed to undertake include appointing a compliance officer who will have access to all records related to regulated activities and will be authorized to take any findings directly to the CEO or the U.S. Government; an annual briefing of the board by the CEO on the findings and recommendations of the compliance officer; strengthening internal policies, procedures, and training; and undergoing 2 independent audits of agreement compliance. The Charging Letter, Agreement, and Order in this case are on the DDTC website at https://www.pmddtc.state.gov/?id=ddtc_kb_article_page&sys_id=384b968adb3cd30044f9ff621f961941.
April 26, 2018: Federal Express Corporation, d/b/a FedEx Express, of Memphis, TN, agreed to pay a civil penalty of $500,000 and complete external audits of its export control compliance program, from 2017 through 2020, to settle charges by BIS that it violated EAR Sec. 764.2 on 53 occasions when it facilitated the unauthorized export of civil aircraft parts, and equipment used to manufacture electron microscopes to persons in France and Pakistan that were listed on the Entity List (EAR Part 744, Supp. No. 4). The illegally exported items were classified under ECCN 9A991, ECCN 7A994, and EAR99 and were valued at approximately $58,091.
April 26, 2018: Weiming Zhang, a.k.a. John Zhang, of Beijing, China, Englewood, NJ, and Huntington, NY, and Seasia Enterprises (USA), Inc. of Huntington, NY, agreed to pay a civil penalty of $100,000 (of which $50,000 will be suspended for 5 years and thereafter waived if the parties commit no further violations of the Order or the EAR) and denial of their export privileges for 5 years (suspended for 5 years and thereafter waived if they commit no further violations) to settle charges by BIS that they violated EAR Sec. 764.2(d) by conspiring to export items controlled for national security reasons to China without the required authorization from BIS. BIS alleged that Zhang and Seasia obtained electronic equipment from U.S. manufacturers in what they made to appear as domestic transactions and then exported the items taking various actions designed to avoid export control scrutiny by U.S. law enforcement, e.g., concealing the type of equipment involved, its value, and/or its ultimate destination, and in some cases transshipping it through a Hong Kong company that Seasia / Zhang owned and controlled.