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.
UK Publishes Revision of Export Control Order to Reflect Waasenaar Arrangement Changes
Feb. 15, 2017: The United Kingdom Export Control Organisation (ECO) amended Export Control Order 2008, the primary U.K. rule controlling exports of military and dual-use goods. The changes include a restatement of Schedule 2, the U.K. military list, to reflect amendments made in the European Union Common Military List in accordance with changes made in the Wassenaar Arrangement. Export Control (Amendment) Order 2017 is on the ECO website at http://www.legislation.gov.uk/uksi/2017/85/contents/made.
UK Publishes Revised Version of Consolidated List of Export Controlled Items
Feb. 23, 2017: The U.K. ECO published a consolidated list of the strategic military and dual-use items requiring U.K. export authorization. The list is at https://www.gov.uk/government/publications/uk-strategic-export-control-lists-the-consolidated-list-of-strategic-military-and-dual-use-items-that-require-export-authorisation.
DEPARTMENT OF COMMERCE
BIS Pushes Effective Date to March 21, 2017 for EAR Revisions to Remove Nuclear Proliferation Controls on Certain Equipment Usable in Nuclear Reactors
Feb. 1, 2017 – 82 Fed. Reg. 8893: The Bureau of Industry and Security (BIS) delayed until March 21, 2017, the implementation of portions of an amendment of Nov. 25, 2016 (81 Fed. Reg. 85138 -- see November 2016 Regulatory Update), removing ECCNs 2A292, 2A293, 2B290, and 3A292 from the CCL and taking other actions that were scheduled to become effective Jan. 1, 2017. Specifically, "software" "specially designed" for the "development," "production," or "use" of items previously controlled under ECCN 3A292 will continue to be classified and licensed by BIS under the designation EAR99 through a delayed date of March 21, 2017. As of March 22, 2017, such "software" will be classified and licensed by BIS under ECCN 3D991. The postponement resulted from a Jan. 20, 2017, Presidential Memorandum requiring a 60-day postponement of rules that had been published in the Federal Register, but had not yet taken effect.
BIS Publishes Revised Export Compliance Guidelines on Its Website
Feb. 10, 2017: BIS made available a new export reference, “Export Compliance Guidelines: The Elements of an Effective Export Compliance Program.” The new guide, which includes detailed guidance for an Export Compliance Program (ECP) and an Audit Module, revises and combines earlier guidance. It is on the website of the BIS Export Management and Compliance Division at https://www.bis.doc.gov/index.php/forms-documents/pdfs/1641-ecp/file.
DEPARTMENT OF JUSTICE
DOJ Issues a Summary of Major US Export Enforcement Actions Between January 2014 and February 2017
Feb. 23, 2017: The U.S. Department of Justice (DOJ) published a Summary of Major U.S. Export Enforcement, Economic Espionage, Trade Secret, and Embargo-Related Criminal Cases, (January 2014 to the present: updated February 17, 2017) on its website at https://www.justice.gov/nsd/page/file/940591/download.
DEPARTMENT OF STATE
DDTC Name Changes
Feb. 1, 3, 6, 13, 17, 21, and 22, 2017: The Directorate of Defense Trade Controls (DDTC) posted the following name and/or address changes on its website at http://www.pmddtc.state.gov/licensing/name_change.html:
- Change in Address of Hitachi Kokusai Electric;
- Change in Name of Ultra Electronics, Precision Air and Land Systems to Ultra Electronics, Precision Control Systems due to corporate rebranding;
- Change in Address of Thales Avionics S.A.S.;
- Change in Name from Triumph Actuation Systems - UK to Triumph Aerospace Operations UK, Ltd. due to corporate reorganization;
- Change in Name from Vectronix AG to Safran Vectronix AG due to Vectronix merger with Safran subsidiary;
- Change in Ownership of Airbus DS Electronics and Border Security GmbH, due to acquisition by Kohlberg Kravis Roberts & Co., L.P. and name change to EBS Germany;
- Change in Name of OEI Opto AG to Thales Alenia Space Switzerland Ltd or Thales Alenia Space Schweiz AG due to acquisition of OEI Opto AG by Thales Alenia Space SAS;
- Change in Name of Cranfield Aerospace Limited to Cranfield Aerospace Solutions Limited due to corporate reorganization;
- Change in Name of Night Vision Depot, Inc. to Night Vision Devices, Inc. due to corporate rebranding; and
- Change in Address of BAE Systems Surface Ships Limited.
Each announcement includes a link to a notice specifying the effects of the change on pending and currently approved authorizations involving the listed entity.
CARC Export Licenses Do Not Require DSP-83s, as DDTC Determined that CARC is Not SME
Feb. 22, 2017: DDTC announced that DSP-5 license applications for Chemical Agent Resistant Coatings (CARC) Paint do not require a DSP-83 Non transfer and Use Certificate, as CARC paint has been determined not to be Significant Military Equipment and was reassigned as category XIV(f)(7) on the United States Munitions List (USML). The announcement provides instructions for submission of a DSP-5 for CARC paint and how to address the DSP-83 issues, as the D-Trade System indicates that a DSP-83 is required. The full text is set forth on the DDTC website at http://www.pmddtc.state.gov/licensing/documents/DSP-83%20Exception%20CARC%20Paint%20Web%20Notice.pdf.
DEPARTMENT OF THE TREASURY
OFAC Publishes Revised List of Medical Devices Permitted for Export to Iran
Feb. 2, 2017: The Office of Foreign Assets Control (OFAC) published a list updating and clarifying the scope of medical devices that are not authorized for export to Iran under the general license for medical devices appearing at Sec. 560.530(a)(3)(ii) of the Iranian Transactions and Sanctions Regulations (ITSR, 31 CFR Part 560). The List of Medical Devices Requiring Specific Authorization is on the Treasury Department website at https://www.treasury.gov/resource-center/sanctions/Programs/Documents/iran_gl_med_supplies.pdf.
OFAC Publishes General Licenses Permitting Certain Transactions in Support of the Panamanian Government in Relation to Its Action Against Balboa Bank & Trust
Feb. 2, 2017: OFAC published two General Licenses relating to activities in Panama: https://auth.treasury.gov/resource-center/sanctions/Programs/Documents/kingpin_gl5c.pdf">General License 5C, “Authorizing Certain Transactions and Activities Related to the Panamanian Government Seizure of Balboa Bank & Trust," and https://auth.treasury.gov/resource-center/sanctions/Programs/Documents/kingpin_gl6c.pdf">General License 6C, "Authorizing Certain Transactions and Activities Related to the Intervention by the Superintendency of Securities Markets of Panama in Balboa Securities, Corp." Both licenses extend existing authorizations and expire on April 7, 2017 unless extended or revoked. Updated FAQs related to these actions are on the Treasury Department website at https://www.treasury.gov/resource-center/faqs/Sanctions/Pages/faq_other.aspx#panama[OG1] (FAQs 473 and 474).
OFAC Issues General Rule Permitting Interaction with Russia’s FSS/FSB Related to FSS’s/FSB’s Review of Encryption Imports into Russia that Are Intended for Parties Otherwise Eligible to Receive Encryption Commodities from the US
Feb. 2, 2017: OFAC published a General License authorizing certain transactions with the Federal Security Service (a/k/a FSB) of Russia that would otherwise be prohibited by sanctions imposed on FSB under Executive Orders issued April 1, 2015 (EO 13694) and December 29, 2019 (EO 13757). General License 1 corrected an unintended effect of the sanction against FSB: The sanction in effect prohibited exports of encryption-enabled products to Russia, since Russian law requires approval by, or notification of, FSB for the importation of information technology products into Russia. General License 1 is on the Treasury Department website at https://www.treasury.gov/resource-center/sanctions/Programs/Documents/cyber_gl1.pdf. This OFAC General License does not affect any limitations on exports to FSB that are imposed by the Export Administration Regulations (EAR, 15 CFR Parts 730-774).
OFAC Publishes FAQs Related to Permissible Contacts with FSS/FSB
Feb. 8, 2017: OFAC published 4 FAQs relating to the sanctions imposed on FSB in the Dec. 29, 2016 Executive Order and General License 1 of Feb. 2, 2017. The FAQs are on the Treasury Department website at https://www.treasury.gov/resource-center/faqs/Sanctions/Pages/faq_other.aspx#cyber_gl (FAQs 501-504).
Treasury Adjusts Maximum Civil Monetary Penalty Standard for Federal Cases Based on Inflation
Feb. 10, 2017 – 82 Fed. Reg. 10434: The Treasury Department adjusted its Maximum Civil Monetary Penalties (MCPs) for inflation, as required under the Federal Civil Penalties Inflation Adjustment Act of 1990. The MCP for violations of the Trading with the Enemy Act (currently only the Cuban Assets Control Regulations, 31 CFR Part 315) will be $85,236; the MCP for violations of the Foreign Narcotics Kingpin Sanctions Regulations (31 CFR Part 598) will be $1,437,153; and the MCP for violations of other sanctions programs administered by OFAC will be the greater of $289,238 or twice the amount of the underlying transaction. The new MCPs will be effective for all penalties assessed after Jan. 15, 2017, regardless of the date of the violation.
LATEST SANCTIONS FINES & PENALTIES
DEPARTMENT OF COMMERCE
Temporary General License Permitting Exports to ZTE and ZTE Kangxun Extended Until March 29, 2017
Feb. 24, 2017 – 82 Fed. Reg. 11505: BIS extended until March 29, 2017, the temporary general license (TGL) for exports, reexports, and transfers to Zhongxing Telecommunications Equipment (ZTE) Corporation and ZTE Kangxun Telecommunications Ltd. that was originally scheduled to end on June 30, 2016, and subsequently extended until Aug. 30, 2016, Nov. 28, 2016, and Feb. 27, 2017. (See March 2016 Regulatory Update for details of the initial issuance of this TGL.) This TGL applies only to the two named entities. It does not apply to exports to two other ZTE entities, Beijing 8-Star International Co., (Beijing, China) and ZTE Parsian (Tehran, Iran).
Fines and Penalties
Jan. 31, 2017: A federal grand jury in Buffalo, NY, indicted Agha Muhammad Khan Durrani, of Pakistan, for violations of the Arms Export Control Act (AECA, 22 USC 2778 et seq.) and the International Emergency Economic Powers Act (IEEPA, 50 USC chap. 35, Sec. 1701 et seq.) and making false statements in connection with an attempt to export assault weapons accessories to Canada for subsequent unauthorized export to Pakistan. Durrani allegedly also transferred weapons via Thailand.
Feb. 3, 2017: OFAC issued a Finding of Violation to B Whale Corporation (BWC) of Taipei, Taiwan, a member of the TMT Group of shipping companies, for violating the Iranian Transactions and Sanctions Regulations (“ITSR”) when its vessel conducted a ship-to-ship transfer during which it received 2,086,486 barrels of condensate crude oil from a vessel owned by the National Iranian Tanker Company, which was identified on OFAC’s List of Specially Designated Nationals and Blocked Persons (the SDN List) at the time. OFAC found that BWC was a U.S. person because at the time of the transfer it was present through bankruptcy proceedings in the U.S. Bankruptcy Court in the Southern District of Texas. Also, the oil transferred to the vessel was an importation into the U.S. under the ITSR because the vessel was property under the jurisdiction of the bankruptcy court.
Feb. 15. 2017: Marlou Mendoza of Long Beach, CA, pleaded guilty in federal court in Los Angeles, CA, to three counts of failing to provide the required written notice to freight forwarders that she was shipping ammunition to a foreign country. The charges involved three shipments of ammunition and bullets totaling 131,300 rounds of .22-caliber ammunition and bullets that Mendoza admitted that she had sent to the Philippines. Mendoza will be sentenced on April 20, 2017. In a related case unsealed last year Mendoza’s son, Mark Louie Mendoza, was indicted for violations of the AECA and money laundering in connection with unauthorized exports of firearms parts and ammunition to Philippines that were falsely declared as household goods. Marlou Mendoza remains free on bond pending sentencing on April 20, 2017. Mark Mendoza remains a fugitive.
Feb. 17, 2017: Pelco Inc. of Clovis, CA, agreed to pay a civil penalty of $162,000 to settle charges by BIS that it had violated U.S. antiboycott regulations (EAR Part 762) by knowingly agreeing to refuse to do business with another person with intent to comply with a foreign boycott against a country friendly to the U.S. and failing to report the receipt of requests to engage in such a boycott. The violations occurred in connection with the sale or transfer of goods from the U.S. to the United Arab Emirates (UAE) and Kuwait.
Feb. 24, 2017: Ali Caby, a/k/a “Alex Caby,” a U.S. permanent resident currently residing in Bulgaria; Arash Caby, a/k/a “Axel Caby,” of Miami, Florida; and Marjan Caby, of Miami, Florida, were arrested and charged with violating IEEPA and the EAR (specifically EAR Sec. 746.9, which sanctions exports to Syria); conspiracy to violate IEEPA, defraud the U.S. Government, and commit money laundering; submitting false or misleading electronic export information; and false statements. They were accused of exporting dual-use parts and equipment to Syrian Arab Airlines (SAA), a Specially Designated Global Terrorist. SAA and 8 other individuals were also indicted. The exports were made through AW-Tronics, a Florida export company with offices in Miami and Bulgaria. Ali Caby, Arash Caby, and Marjan Caby allegedly managed the offices of AW-Tronics and closely supervised and encouraged subordinate employees in the willful exports to SAA.
Feb. 28, 2017: United Medical Instruments Inc., a California company, agreed to pay a civil fine of $515,400 to settle allegations by OFAC of 56 violations of the ITSR. The alleged violations involved at least 56 sales of medical imaging equipment with knowledge or reason to know that the goods were intended for ultimate delivery to purchasers in Iran and facilitating their sale to Iran by a company located in the UAE. The total value of the equipment was approximately $2,493,597. The obligation to pay the settlement will be satisfied by UMI’s compliance with the terms of its Sep. 24, 2013 settlement with BIS and its payment of $15,400 to the U.S. Treasury Department. (See September 2013 Regulatory Update for details of the settlement with BIS.)
Feb. 28, 2017: Alexander Posobilov, of Houston, TX, was sentenced in Brooklyn, NY, federal court to 135 months in prison for conspiring to export and illegally exporting controlled microelectronics to Russia and conspiring to launder money. As procurement manager at ARC Electronics, Inc., a now-defunct Texas company, Posobilov managed a team that obtained technologically cutting-edge microelectronics used in military systems including radar and surveillance systems, missile guidance systems, and detonation triggers with a total value of approximately $50 million and exported them to Russia without the required authorization. Posobilov and his co-conspirators provided false end user information to U.S. suppliers and falsely classified the goods on export records submitted to the U.S. Government. In committing these violations, Posobilov was part of a conspiracy involving 10 other individuals, ARC, and Apex System, L.L.C., a Russian company. (See information about the sentencing of co-conspirator Alexander Fishenko in July 2016 Regulatory Update.)