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.
The U.S. Court of Appeals For The Second Circuit Affirmed November 25, 2015, Convictions
April 26, 2018: The U.S. Court of Appeals for the Second Circuit affirmed the Nov. 25, 2015 conviction of Mark Henry of Minersville, PA of conspiracy to violate, violating, attempting to violate, and aiding and abetting the violation of the Arms Export Control Act (AECA, 22 USC 2278 et seq.) based on his involvement in exports of ablative materials to Taiwan without the required authorization from the Department of State. In extensive discussions, the court rejected Henry’s contentions that (1) the AECA unconstitutionally delegates legislative authority to the executive; (2) the District Court erred in failing to instruct the jury that to establish “willfulness” the government had to prove not only that he knew that his conduct was illegal, but also that he knew why it was illegal, and (3) that the District Court erred in its instruction to the jury establishing the elements required to demonstrate “conscious avoidance” of knowledge that the unlicensed exports in question were unlawful. The full decision is available on the Internet at https://law.justia.com/cases/federal/appellate-courts/ca2/15-3814/15-3814-2018-04-26.html.
Department of Commerce – Bureau of Industry and Security
BIS Makes Conforming Changes To ECCN 1C350 Chemical warfare (CW) Precursors
June 4, 2018 – 83 Fed. Reg. 25559: The Bureau of Industry and Security (BIS) amended the Export Administration Regulations (EAR, 15 CFR Parts 730-774) to make several conforming changes based on the revisions to Export Control Classification Number (ECCN) 1C350 that were published April 2, 2018 (83 Fed. Reg. 13849 – see April 2018 Regulatory Update), which among other changes renumbered paragraphs 1C350.b through .d. The new rule corrects the references to these paragraphs in the description of eligible items for the following three validated end users: CSMC Technologies Corporation; Samsung China Semiconductor Co. Ltd.; and Shanghai Huahong Grace Semiconductor Manufacturing Corporation.
June 6, 2018 – 83 Fed. Reg. 26204: BIS revised the Unverified List (EAR Part 744, Supp. No. 6) to correct an address for the Russian person SIC Dipaul and to remove an extraneous name from the entry for the Estonia person Simms Marine Group OU.
Department of State
DDTC Announces System Issue With Registrations Expiring In May And June Of 2018
June 1, 2018: DDTC announced that a system issue had prevented the timely sending of registration reminder letters for Tier 1 registrants with expirations of May 31, 2018 and June 30, 2018. As a result, DDTC temporarily extended May 31, 2018 expirations to July 31, 2018 and June 30, 2018 expirations to August 31, 2018. The announcement appears on DDTC’s home page, https://www.pmddtc.state.gov. If your company registration expired in May or June, confirm that a renewal registration has been filed with DDTC.
DDTC Posts Comments On USML Categories V, X And XI
June 13, 2018: DDTC posted the comments it had received regarding the review of U.S. Military List (USML, 22 CFR Sec. 121.1) Categories V (Explosives and Energetic Materials, Propellants, Incendiary Agents, and Their Constituents), X (Personal Protective Equipment), and XI (Military Electronics) in response to the Notice of Inquiry published Feb. 12, 2018 (83 Fed. Reg. 5970 – See February 2018 Regulatory Review). A link to this 219-page PDF document is on the DDTC website at https://www.pmddtc.state.gov/?id=ddtc_public_portal_news_and_events.
Changes To Your Identrust Digital Certificate For Use of DTrade
Identrust has reported the following changes to the DTRADE ACES digital certificate. A summary of the changes follows:
- After July 12, 2018, DTRADE ACES digital certificates for DTrade will only be able to be purchased with a one-year validity; except
- If a DTRADE ACES digital certificate is set to expire in the next 90 days, it can be renewed before July 13, 2018 as a two-year ACES digital certificate;
- If a DTRADE ACES digital certificate holder has a ACES voucher that doesn’t expire for six months or longer, they can use the voucher to purchase a two-year digital certificate prior to July 13, 2018.
Department of the Treasury
OFAC Issues Ukraine-/Russia-Related General License 16
June 4, 2018: The Office of Foreign Assets Control (OFAC) issued Ukraine-/Russia-related General License 16, authorizing U.S. persons to engage in specified transactions related to winding down or maintaining business involving EN+ Group PLC, JSC EuroSibEnergo, or any entity in which EN+ Group PLC or JSC EuroSibEnergo owns, directly or indirectly, a 50 percent or greater interest, until October 23, 2018. General License 16 is on the Treasury Department website at https://www.treasury.gov/resource-center/sanctions/Programs/Documents/ukraine_gl16.pdf.
OFAC Amends The Iranian Transactions and Sanctions Regulations
June 28, 2018 – 83 Fed. Reg. 30335: OFAC amended the Iranian Transactions and Sanctions Regulations (ITSR, 31 CFR Part 560) to implement the President's May 8, 2018, decision to end the United States' participation in the Joint Comprehensive Plan of Action (JCPOA) on Iran's nuclear program and, following a wind-down period, to re-impose the sanctions that had been lifted to effectuate the JCPOA. (See May 2018 Regulatory Update.) The amendments authorized the following wind-down deadlines:
- Aug. 6, 2018: activities necessary to wind down the importation of certain Iranian-origin foodstuffs and carpets, as well as related letters of credit and brokering services (ITSR Sec. 560.534 and Sec. 560.535);
- Aug. 6, 2018: transactions related to the negotiation of contingent contracts for activities permitted by the now-rescinded Statement of Licensing Policy for Activities Related to the Export or Re-export to Iran of Commercial Passenger Aircraft and Related Parts and Services (new Sec. 560.536); and
- Nov. 4, 2018: certain Iran-related transactions involving foreign entities owned or controlled by a U.S. person (new Sec. 560.537).
Updated OFAC FAQs regarding these amendments are on the Treasury Department website at https://www.treasury.gov/resource-center/sanctions/Programs/Documents/jcpoa_winddown_faqs.pdf.
OFAC Removes The Sudanese Sanctions Regulations
June 29, 2018 – 83 Fed. Reg. 30539: OFAC removed the Sudanese Sanctions Regulations (SSR, 31 CFR Part 538) from the Code of Federal Regulations as a result of the revocation of certain provisions in Executive Order (E.O. 13067, Blocking Sudanese Government Property and Prohibiting Transactions With Sudan, 62 Fed. Reg. 59989, Nov. 5, 1997) and the revocation of the entirety of another Executive Order (E.O. 13412, Blocking Property and Prohibiting Transactions With the Government of Sudan, 71 Fed. Reg. 61369, Oct. 17, 2006) upon which the SSR were based. In the same action, OFAC also amended the Terrorism List Government Sanctions Regulations (TLGSR, 31 CFR part 596) to add a new Sec. 596.506 authorizing exports and reexports to Sudan of agricultural commodities, medicine, and medical devices whose export to Sudan would otherwise be prohibited as a result of Sudan’s inclusion on the State Sponsors of Terrorism List. This provision replaced a general license issued under the TLGSR which had appeared only on OFAC’s website. (See January 2017 and October 2017 Regulatory Updates for related earlier actions.)
OFAC Issues Global Magnitsky Sanctions Regulations
June 29, 2018 – 83 Fed. Reg. 30541: OFAC issued the Global Magnitsky Sanctions Regulations (GMSR, 31 CFR Part 583), implementing the Global Magnitsky Human Rights Accountability Act (GMHRA, Pub. L. 114-328, Title XII, Subtitle F, signed Dec. 23, 2016) and Executive Order 13818, Blocking the Property of Persons Involved in Serious Human Rights Abuse or Corruption (82 Fed. Reg. 60839, December 26, 2017). The GMSR blocks the property of foreign persons determined by the president to be responsible for gross violations of internationally recognized human rights and/or involved in acts of significant corruption and the property of entities in which such persons own a 50 percent or greater interest. Blocked persons will be added to the Specially Designated Nationals list (www.treasury.gov/sdn) with the identifier GLOMAG. OFAC noted that this version of the GMSR is being published in abbreviated form to provide immediate guidance. OFAC intends to add additional guidance, general licenses, and statements of licensing policy.
LATEST SANCTIONS FINES & PENALTIES
Department of Commerce
June 7, 2018: BIS and Zhongxing Telecommunications Equipment Corporation, of Shenzhen, China and ZTE Kangxun Telecommunications Ltd. of Hi-New Shenzhen, China (collectively, “ZTE”) reached agreement on a settlement to replace the suspended 7-year denial order that BIS had activated on April 15, 2018, after determining that ZTE had made false statements to the U.S. Government during the probationary period. (See April 2018 Regulatory Update.) Under the replacement settlement, ZTE will, among other requirements –
- pay a civil penalty of $1,761,000,000 of which $400,000 will be suspended for 10 years and thereafter waived if certain conditions have been met;
- be placed on the Denied Persons List (DPL) until it pays the civil penalty in the manner provided in the agreement;
- retain a Special Compliance Coordinator selected by BIS to coordinate, monitor, assess, and report on compliance by all its companies worldwide;
- ensure adherence to recordkeeping requirements;
- provide training on the requirements of the EAR and publish on its website all ECCNs necessary to determine applicable requirements;
- permit end-use verifications by the U.S. Government;
- replace its Board of Directors;
- cooperate fully with BIS, the Department of Justice, and OFAC;
- provide and implement a comprehensive export control compliance program; and
- be subject to a 10-year suspended denial order, suspended for 10 years and thereafter waived if ZTE has satisfied specified requirements.
This superseding order is on the BIS website at https://www.bis.doc.gov/index.php/forms-documents/regulations-docs/federal-register-notices/federal-register-2018/2235-zte-superseding-order-6-8-18-final/file. FAQs about the order are at https://www.bis.doc.gov/index.php/forms-documents/regulations-docs/federal-register-notices/federal-register-2018/2236-zte-frequently-asked-questions/file.
June 21, 2018 – 83 Fed. Reg. 28801: BIS renewed for 180 days the Temporary Denial Order against Mahan Airways, Tehran, Iran; Pejman Mahmood Kosarayanifard, Dubai, United Arab Emirates (UAE); Mahmoud Amini, Dubai, UAE; Kerman Aviation, Paris, France; Sirjanco Trading LLC, Dubai, UAE; Mahan Air General Trading LLC, Dubai, UAE; Mehdi Bahrami, Istanbul, Turkey; Al Naser Airlines, Baghdad, Iraq, Dubai, UAE, and Amman, Jordan; Ali Abdullah Alhay, Gabhdad, Iraq and Qatif, Saudi Arabia; Bahar Safwa General Trading, Dubai, UAE; Sky Blue Bird Group, Ras Al Khaimah Trade Zone, UAE; and Issarn Shammout, Damascus, Syria, Beirut, Lebanon, London, United Kingdom, and Istanbul, Turkey.
June 25, 2018 – 83 Fed. Reg. 29542: BIS denied until Aug. 31, 2027, the export privileges of Fuyi Sun, a/k/a/ Frank Sun, of Phillipsburg, PA, and Moshannon Valley Federal Correctional Institution, based on his Aug. 31, 2017, conviction of violating the International Emergency Economic Powers Act (IEEPA, 50 USC 1701 et seq.) by knowingly and willfully attempting to export and cause to be exported Toray type M60JB-3000-50B carbon fiber from the U.S. to China without the required license from the U.S. Department of Commerce. In his criminal case, Sun was sentenced to 36 months in prison and a $100 assessment. (See additional information about this case in April 2017 and September 2017 Regulatory Updates.)
Fines and Penalties
June 4, 2018: Vladimir Nevidomy of Hallandale, FL, was sentenced to 26 months in prison, followed by 3 years of supervised release, for violating the AECA by conspiring to illegally export three night vision rifle scopes, a thermal multi-purpose monocular, and 1,000 ammunition primers to Russia without the required authorization from the Department of State. Some of the items were concealed in household goods shipments sent through a freight forwarding company or using a private Russian postal service that operated in South Florida. (See information about Nevidomy’s guilty plea in March 2018 Regulatory Update.)
June 6, 2018: Ericsson, Inc. of Plano, TX (EUS), and Ericsson, AB of Stockholm, Sweden (EAB) agreed to pay a civil fine of $145,893 to settle charges by OFAC that they had violated the Sudanese Sanctions Regulations by conspiring to export and reexport a satellite hub from the United States to Sudan, and, to export and reexport satellite-related services from the United States to Sudan. The violation arose in the context of the malfunction of an EAB project in Sudan in which EUS employees became involved in providing a solution.
June 11, 2018: BIS issued a warning letter to Lockheed Martin Corporation of Arlington, VA, in response to a voluntary self-disclosure by Lockheed that it had violated the U.S. antiboycott regulations (EAR Part 760) by certifying that goods for export did not contain Israeli parts or components, and, by failing to report to BIS that it had received a request for such a certification. The transaction involved the sale and/or transfer of goods to South Korea for sale to third-country customers.
June 12, 2018: Naum Morgovsky and Irina Morgovsky, both of Hillsborough, CA, pleaded guilty to violating the AECA by conspiring to export numerous scope components, including image intensifier tubes and lenses, to Russia, without the required authorization from the State Department. In their pleas, they admitted that they received lists of components needed to manufacture certain night vision devices from a co-conspirator in Russia, used their U.S. business, Hitek International, to purchase the components, misrepresenting to the sellers that the items would not be exported, and then shipped the items to Russia and to other countries in Europe for reexport to Russia. (See additional information about this case in April 2017 Regulatory Update.)
June 21, 2018: Shuren Qin of Wellesley, MA, a Chinese national who operated several companies in China, was arrested and charged with conspiracy to violate the EAR by illegally exporting hydrophones, remotely-operated side scan sonar systems, unmanned underwater vehicles, unmanned surface vehicles, and robotic boats to China without the required authorization. Some of the Chinese entities with which Qin dealt, including the Northwestern Polytechnical University, which is on the BIS Entity List, were allegedly affiliated with the Chinese People’s Liberation Army (PLA). Qin was also charged with visa fraud.
June 21, 2018: The U.S. Department of Justice announced the unsealing of an indictment against Saeed Valadbaigi, a/k/a Saeed Valad and Saeed Baigi, of Iran. Valadbaigi, who is currently considered a fugitive, allegedly plotted in 2011 to illegally export 7075 T6 aluminum tubing, an item used in the missile and aerospace industry and controlled for nuclear nonproliferation purposes, from Illinois to Iran via Belgium and Malaysia. In addition, Valadbaigi allegedly illegally exported titanium sheets from Illinois to Iran via the Republic of Georgia, the UAE, and Malaysia, and, acrylic sheets from Connecticut to Iran via Hong Kong. Nicholas Kaiga, the manager and owner of the Belgian company that allegedly did business with Valadbaigi, was arrested in New York in 2013 after arranging an illegal sale with an undercover agent and subsequently pleaded guilty and was sentenced to 2 years and 3 months in a U.S. prison. (See October 2013 Regulatory Review.)