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.
Department of Commerce – Census Bureau
Census Posts HTS Codes No Longer Usable in ACE/AES
July 3, 2018: The Census Bureau published a list of Harmonized Tariff Schedule (HTS) codes that are no longer usable in the Automated Export System (AES) within the Automated Commercial Environment (ACE). Outdated codes will not be accepted after July 30, 2018. Only select HTS codes specified on the list are outdated. No Schedule B numbers have been changed. The 2018 Schedule B and HTS tables are at http://www.census.gov/foreign-trade/aes/documentlibrary/#concordance; the updated list of HTS codes that are not valid for AES is at http://www.census.gov/foreign-trade/aes/documentlibrary/concordance/hts-not-for-aes.html.
Census Publishes Differences Between HTS Numbers And Schedule B Numbers
July 9, 2018: The Census Bureau published a description of the differences between HTS numbers and Schedule B numbers, and the reasons why HTS codes can usually – but not always – be used for exporting. This information is in the Census Bureau’s Global Reach Blog at https://www.census.gov/newsroom/blogs/global-reach/2018/07/exporting-with-import-class-numbers.html. The list of HTS codes that are not valid for AES (see item above) is on the Census Bureau’s Foreign Trade website at http://www.census.gov/foreign-trade/aes/documentlibrary/concordance/hts-not-for-aes.html; a list of Schedule B numbers needed for export in place of HTS numbers is on the U.S. International Trade Commission website in the Notice to Exporters on the HTS (2018 HTSA Revision 7) at https://hts.usitc.gov/current.
Census Reports Name Change Of Swaziland To Eswatini
July 26, 2018: The Census Bureau reported that the country name “Swaziland” has been updated in the AES to “Eswatini,” effective Aug. 1, 2018. The ISO Country Code SZ is unchanged.
Department of Defense
The DOD, GSA And NASA Issue Interim Rule Amending FAR To Exclude Kaspersky Lab
June 15, 2018 – 83 Fed. Reg. 28141: The Department of Defense, General Services Administration, and National Aeronautics and Space Administration issued an interim rule amending the Federal Acquisition Regulation (FAR) to exclude products of Kaspersky Lab from government contracts. The prohibition takes the form of a new required clause ,52.204-23, prohibiting contractors and subcontractors from providing any hardware, software, or services developed or provided by Kaspersky Lab or its related entities, or using any such hardware, software, or services in the development of data or deliverables first produced in the performance of the contract. There are no exceptions for items at or below the Simplified Acquisition Threshold (SAT) and Commercial Off-The-Shelf (COTS) items, and the clause also includes a requirement to report any Kaspersky hardware, software or services that are discovered during performance of the contract. This interim rule is required by the National Defense Authorization Act for FY 2018. It is effective for solicitations issued on or after July 16, 2018 and resultant contracts, as well as for solicitations issued before July 16, 2018, for contracts awarded on or after that date, and covers hardware, software, or services that the Federal Government will use on or after October 1, 2018. Comments on this interim rule must be submitted by Aug. 14, 2018.
Department of State
DDTC Name and Address Changes Posted To Website
July 3, 11, 19, 20, 23, and 24, 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 Remington Outdoor Company, Inc. to Remington Arms Company, LLC due to reorganization as a result of bankruptcy filing;
- Change in name from Energia Logistics Limited to S7 Sea Launch Limited due to acquisition of Energia Logistics’ Sea Launch assets by S7 Group;
- Change in address for MHI Oceanics Co., Ltd.;
- Change in address for WorldVu Development LLC (OneWeb);
- Change in name from Orbital ATK Inc. to Northrop Grumman Innovation Systems, Inc., due to Northrop Grumman’s acquisition of Orbital ATK;
- Change in name from Eaton US Holdings Inc. to Eaton Industrial Corporation due to corporate reorganization;
- Change in name from Thales Communications & Security SAS to Thales SIX GTS France SAS due to corporate reorganization; and
- Huntington Ingalls Industries, Inc. changes in name due to corporate restructuring:
- from AMSEC LLC to HII Fleet Support Group LLC; and
- from Camber Corporation to HII Mission Driven Innovative Solutions 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 Settles Law Suit With Defense Distributed
June 29, 2018: DDTC agreed to settle a lawsuit brought against it in 2015 by Defense Distributed ("DD"), a Texas-based 3D-gun manufacturer, and two other plaintiffs after DDTC warned DD that it had violated theInternational Traffic in Arms Regulations (ITAR, 22 CFR Parts 120-130) by publishing blueprints for a 3D-printed handgun on the Internet. The settlement states that the files in question - which are described in the agreement -- may be publicly released in any form and are exempt from the export licensing requirements the ITAR. DDTC also agreed to modify USML I to exclude the specific DD Files as technical data in addition to an agreement to draft and pursue to the extent authorized by law a formal amendment to the ITAR that would remove the technical data that was the subject of the lawsuit. (This action was already in process as part of the propsed revisions to USML I published May 24, 2018). DDTC also promised to make a one time payment to the plaintiffs the sum of $39,581 which covered part of the legal fees and a refund of registration fees for the preceding years. The Settlement Agreement is available via a link on the DDTC home page, www.pmddtc.state.gov.
Actions by several states and other plaintiffs seeking to bar the government from lifting export controls for these items and to prevent DD from posting the downloadable guns online have been filed. (See July 27 and Aug. 2 items below for subsequent developments regarding these commitments.)
DDTC Posts Notice To Temporarily Exclude USML Category I Data Per Defense Distributed Settlement
July 27, 2018: (N.B.: The following notice was withdrawn Aug. 2, 2018. See additional information below.) DDTC posted a notice temporarily excluding from coverage under USML Category I (Firearms, Close Assault Weapons and Combat Shotguns) several types of technical data that are specifically identified in the Settlement Agreement with Defense Distributed and other plaintiffs that was executed on June 29, 2018. (See information about this agreement above.) The items that are excluded are defined not by their parameters, but rather by references to the Settlement Agreement and the lawsuit’s Second Amended Complaint. For details see the DDTC notice on the DDTC home page (www.pmddtc.state.gov), which includes links to the Settlement Agreement and the Second Amended Complaint.
DDTC Announces It Will Not Implement Or Enforce Temporary Modification To USML Category I
Aug. 2, 2018: DDTC announced that it will not implement or enforce the temporary modification of USML Category I that it had announced July 27, 2018 (see item above), and that it had removed the July 27 notice from its website. DDTC took this action after the U.S. District Court in Seattle, WA issued a Temporary Restraining Order (TRO) blocking the publication of the affected technical data. A hearing will be held August 10, 2018 to determine whether the TRO, which was requested in a lawsuit filed by 8 states and Washington, DC, should be converted to a preliminary injunction. A link to the TRO is on the DDTC home page at www.pmddtc.state.gov.
DDTC Posts FAQ Clarifying The Scope Of Control Over Published Information
July 17, 2018: DDTC posted a Frequently Asked Question (FAQ) clarifying the scope of control over published information. DDTC stated that information that is available in printed books, newspapers, journals, and magazines that can be purchased in a physical bookstore or newsstand, checked out from a public library, or received in the mail through a subscription or 2nd class U.S. mail does not need any approval from DDTC for republication. This FAQ is on the DDTC website at https://www.pmddtc.state.gov/?id=ddtc_public_portal_faq_detail&sys_id=76664ae2db9b57003b1272131f9619aa.
DDTC Publishes Link To Public Comments On Proposed Revisions To USML Categories I, II And III
July 25, 2018: DDTC published a link to the public comments it received on the proposed revisions to USML Categories I, II, and III on its home page, www.pmddtc.state.gov (192 pages).
Department of the Treasury
Treasury And DHS Issue Advisory Titled “Risks for Businesses with Supply Chain Links to North Korea”
July 23, 2018: The Departments of Treasury, State, and Homeland Security issued a North Korea Sanctions & Enforcement Actions Advisory titled “Risks for Businesses with Supply Chain Links to North Korea” highlighting the sanctions evasion tactics used by North Korea that could expose manufacturers, buyers, and service providers to potential risks of noncompliance with U.S. or United Nations sanctions or withrespect to the North Korea Act, Title III of the Countering America's Adversaries Through Sanctions Act (CAATSA). This 17-page advisory is on the Treasury Department website at https://www.treasury.gov/resource-center/sanctions/Programs/Documents/dprk_supplychain_advisory_07232018.pdf.
LATEST SANCTIONS FINES & PENALTIES
Department of Commerce
July 2, 2018: BIS issued a temporary authorization, valid only until August 1, 2018, permitting all persons except those located in Country Group E countries to engage in limited activities involving Zhongxing Telecommunications Equipment Corporation of Shenzhen, China, and ZTE Kangxun Telecommunications Ltd. of Hi-New Shenzhen, China (collectively, "ZTE"), subject to all other obligations under the EAR. The authorized activities involved maintenance and support of continued operation of existing networks and equipment; service and support of ZTE phones that were available to the public on or before April 15, 2018; under limited conditions, disclosure to ZTE of information regarding security vulnerabilities in items owned, possessed, or controlled by ZTE; and payment to or from ZTE for transactions and activities covered by this authorization. This temporary authorization is on the BIS website at https://www.bis.doc.gov/index.php/forms-documents/federal-register-notices-1/2244-zte-limited-service-authorization-1/file.
July 13, 2018 (published in Federal Register July 23, 2018 – 83 Fed. Reg. 34825): BIS issued an order terminating its April 15, 2018 denial order against ZTE after determining that ZTE had made full and timely payment of the $1 billion civil penalty specified in the June 7, 2018 settlement and that it had complied with the requirement to place $400 million in escrow relating to the suspended portion of the civil penalty provided in the June 7, 2018 settlement. The order further states that during the 10-year probationary period specified in the settlement, BIS will retain discretion to modify or revoke the suspended 10-year denial order and declare all or a portion of the $400 million suspended penalty due and payable if it determines that ZTE has failed to comply with the terms of the June settlement agreement. (See March 2017, April 2018, and June 2018 Regulatory Updates for information on earlier BIS actions involving ZTE.)
Fines and Penalties
July 18, 2018: Muhammad Ismail of Meriden, CT and his son Kamran Khan of Hamden, CT were both sentenced in federal court in Bridgeport, CT to 18 months imprisonment followed by 3 years of supervised release based on their pleas of guilty of international money laundering involving their unauthorized exports of items controlled under the International Emergency Economic Powers Act (IEEPA, 50 USC Sec. 1701 -1707) to three Pakistani government agencies that were listed on the Entity List (EAR Part 744, Supp. No. 4). Ismail, Khan, and Imran Khan, another son of Muhammad Ismail, informed the U.S. manufacturers of the items and/or completed end-user certifications stating that the items would not be exported. Imran Khan is currently released on a $100,000 bond pending sentencing after pleading guilty in June 2017 of the unauthorized export of an item controlled under the IEEPA to an entity in Pakistan that was listed on the Entity List. (See additional information in June 2017 and March 2018 Regulatory Updates.)
Alexander Brazhnikov Sr., of Moscow, Russia was indicted by a federal grand jury in Newark, NJ for conspiracy to violate the IEEPA, conspiracy to smuggle goods from the U.S., and conspiracy to commit money laundering for his involvement in exporting electronics valued at over $65 million to Russia without the required authorization. Operating through his Moscow microelectronics import/export company, ABN Universal, Brazhnikov allegedly ordered U.S. electronic components from four New Jersey-based microelectronics export companies owned by his son, Alexander Brazhnikov, Jr., and from other U.S. sources for eventual delivery to the Russian Ministry of Defense, Federal Security Service, and other Russian entities involved in the design of nuclear warheads and other weapons, falsifying the true end users and value of the exported items and running payments for the items through a network of shell companies in several countries. Alexander Brazhnikov, Sr. is currently at large; Alexander Brazhnikov, Jr. pleaded guilty to conspiracy charges related to these transactions in 2016 and was sentenced to 70 months in prison and forfeiture of $65 million. (See additional information in June 2015 and June 2016 Regulatory Updates.)