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
EEI Entries are Required for Shipments to Cuba Under License Exceptions, Including EAR99 Items, NLR May Not Be Used
July 7, 2016: The Bureau of Industry and Security (BIS) posted a notice reminding exporters and forwarding agents that ship to Cuba about the proper filing of electronic export information (EEI) in the Automated Export System (AES). In particular, BIS noted that the code for “No License Required” (NLR, Code C32/C33) may not be used for items shipped under a license exception. Rather, the AES entries for such items must identify the specific license exception (e.g., Code C62 for items eligible for License Exception SCP, Support for the Cuban People). The notice is on the BIS website at http://www.bis.doc.gov/index.php/regulations/1090 .
BIS Posts Guidelines to Exporters to Take Precautions Not to Export to Areas Under ISIL/ISIS Control
July 25, 2016: BIS posted guidance on license requirements for shipment of items subject to the Export Administration Regulations (EAR, 15 CFR Part 730-774) to areas under the control of the Islamic State of Iraq and the Levant (ISIL). The guidance notes that ISIL is designated as a Specially Designated Global Terrorist (SDGT) by the Treasury Department Office of Foreign Assets Control (OFAC) and as a Foreign Terrorist Organization (FTO) by the State Department, and that exports to areas controlled by ISIL carry a “red flag” under the EAR. Among other information, the guidance details the licensing jurisdiction of BIS and OFAC and describes BIS licensing policies. Find this guidance in an FAQ on the BIS website at http://www.bis.doc.gov/index.php/forms-documents/doc_view/1500-facilities-faq.
BIS Publishes Final ECR Rule Related to Toxicological Agents Formerly Controlled Under USML Category XIV and Directed Energy Weapons Under USML Category XVIII
July 28, 2016 – 81 Fed. Reg. 49517: As part of the President’s Export Control Reform effort, BIS amended the EAR to include in the Commerce Control List (CCL, 15 CFR Part 774, Supplement No. 1) articles that have been determined to no longer to warrant control under Category XIV (Toxicological Agents, Including Chemical Agents, Biological Agents, and Associated Equipment) or Category XVIII (Directed Energy Weapons) of the U.S. Munitions List (USML, 22 CFR Part 121). (See State Department section below for concurrent amendments to the USML.) The affected Category XIV articles consist primarily of dissemination, detection, and protection ‘‘equipment’’ and related articles, such as production and test ‘‘equipment,’’ that will now be controlled on the CCL under new Export Control Classification Numbers (ECCNs) 1A607, 1B607, 1C607, 1D607, and 1E607. The affected Category XVIII articles consist primarily of tooling, production ‘‘equipment,’’ test and evaluation ‘‘equipment,’’ test models, and related articles that will now be controlled under new ECCNs 6B619, 6D619 and 6E619. BIS believes that moving these items to control under the CCL will provide greater flexibility particularly for exports and reexports to NATO member countries and other multiple-regime member countries. These amendments, which were initially proposed on June 17, 2015 (80 Fed. Reg. 34562), will be effective December 31, 2016.
DEPARTMENT OF STATE
DDTC Posts Name/Address Changes to Its Website
July 7, 8, 11, 20, and 27, 2016: 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 SELEX Galileo Inc.;
- Change in Freight Forwarder, Logistics and Warehouse Service Provider of Wincanton Group Limited (Wincanton) from AgustaWestland Limited (AWL) to Kuehne + Nagel Ltd (K+N);
- Change in Name from Fokker Aerostructures B.V., Fokker Elmo B.V., Fokker Landing Gear B.V., and Fokker Services B.V to Fokker Technologies Holding B.V. due to internal corporate reorganization;
- Change in Name from Finmeccanica S.p.A. to Leonardo-Finmeccanica S.p.A., “dba” Leonardo S.p.A. due to internal corporate rebranding; and
- Change in Name from ESL Defence (Holdings) Limited and ESL Defence Limited to Textron Systems Electronic Systems UK (Holdings) Limited & Textron Systems UK Limited due to corporate rebranding.
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 Announces Reinstatement of Company Visit Program; Visits Can Be Requested by Exporters Wanting Verification of Processes by DDTC
July 15, 2016: DDTC announced that it had relaunched its Company Visit Program, in which DDTC officials visit U.S. entities registered with DDTC as manufacturers, exporters, or brokers of defense articles and defense services and also foreign companies and governments. Visits can be made either for compliance purposes or for purposes of outreach, which DDTC identifies as understanding how companies implement ITAR compliance requirements, not evaluating compliance failures or violations. The announcement, including FAQs and information about how to request a company visit, is on the DDTC website at http://www.pmddtc.state.gov/compliance/cvp.html. An informative overview of the Company Visit Program is at http://www.pmddtc.state.gov/compliance/documents/CVP_Overview.pdf .
DDTC Publishes Public Comments Received on New Definitions to Streamline with EAR
July 21, 2016: DDTC posted the public comments it received on its interim final rule that revised the definitions of “export,” reexport," "release," and "retransfer" and expanded the exemption for the export of technical data to or for U.S. persons abroad (June 3, 2016 – 81 Fed. Reg. 35611 – see additional information in June 2016 Regulatory Update). The public comments are on the DDTC website at http://pmddtc.state.gov/regulations_laws/documents/proposed_rules/Definitions_Comments.pdf .
DDTC Posts Guidance on What it Means to Be a Manufacturer of an ITAR Firearm, Part, or Component
July 23, 2016: DDTC posted policy guidance to aid firearms manufacturers and gunsmiths in determining whether their activities constitute “manufacturing” for ITAR purposes, and therefore, whether they are required to register with DDTC as a manufacturer of defense articles. The guidance is on the DDTC website at http://www.pmddtc.state.gov/compliance/Applicability of the ITAR Registration Requirement to Firearms Manufacturers (Publish).pdf.
DDTC Publishes Final ECR Rule Related to Which Toxicological Agents and Related Items Will Remain Controlled Under USML Category XIV and Which Directed Energy Weapons and Related Items Will Remain Controlled Under USML Category XVIII
July 28, 2016 – 81 Fed. Reg. 49531: As part of the President’s Export Control Reform effort, the Department of State amended the ITAR to revise USML Categories XIV (Toxicological Agents, Including Chemical Agents, Biological Agents, and Associated Equipment) and XVIII (Directed Energy Weapons) to describe more precisely the articles warranting control under the ITAR, while moving other items currently covered under the USML to the CCL. (See Commerce Department section above for concurrent amendments to the CCL.) The amendments are slightly revised from the proposed amendments published June 17, 2015 (80 Fed. Reg. 31525 – see June 2015 Regulatory Update.) Effective date of these amendments is December 31, 2016.
DEPARTMENT OF THE TREASURY
OFAC Increases Maximum Civil Penalties for Violations of IEEPA and the Trading With the Enemy Act
July 1, 2016 – 81 Fed. Reg. 43070: Consistent with recent federal legislation, the Office of Foreign Assets Control (OFAC) increased the maximum civil monetary penalty (CMP) for a violation of the International Emergency Economic Powers Act (IEEPA, 50 USC 1705) from the greater of $250,000 or twice the amount of the underlying transaction to the greater of $284,582 or twice the amount of the underlying transaction. Also, OFAC increased the maximum CMP for a violation of the Trading With the Enemy Act (TWEA, 50 USC 4315) from the current $65,000 to $83,864 and the maximum CMP for a violation of the Kingpin Act (21 USC 1901-1908) from $1,075,000 to $1,414,020. The new penalties are effective Aug. 1, 2016, for violations that occurred after Nov. 2, 2015.
OFAC Issued Additional General Licenses to Permit Certain Export Transactions With 3 Named Companies in Kingpin Sanctions Regulations
July 1 and 21, 2016: OFAC issued General Licenses authorizing certain activities, including some exports, involving 3 Panamanian entities that would otherwise be prohibited by the Foreign Narcotics Kingpin Sanctions Regulations (31 CFR Part 598). General License 4C authorizes “Certain Transactions Involving Individuals or Entities Located in the Panamanian Mall and Associated Complex, Soho Panama, S.A. (a.k.a. Soho Mall Panama);” https://www.treasury.gov/resource-center/sanctions/Programs/Documents/kingpin_gl5b.pdf">General License 5B authorizes “Certain Transactions and Activities Related to the Panamanian Government Seizure of Balboa Bank & Trust;” and https://www.treasury.gov/resource-center/sanctions/Programs/Documents/kingpin_gl6b.pdf">General License 6B authorizes “Certain Transactions and Activities Related to the Intervention by the Superintendency of Securities Markets of Panama in Balboa Securities, Corp.” Links to the licenses and related FAQs are on the OFAC website at https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/OFAC-Recent-Actions.aspx .
LATEST SANCTIONS FINES & PENALTIES
This section of our newsletter provides information on the latest sanctions, fines and penalties for export
violations or matters of non-compliance with the ITAR or EAR issued by the US government enforcement
DEPARTMENT OF COMMERCE
July 7, 2016 – 81 Fed. Reg. 45276: BIS renewed for an additional 180 days the Temporary Denial Order (TDO) against the following parties, based on evidence that they continued to be involved in unlawful re-exports of aircraft to Iran:
- Mahan Airways,
- Pejman Mahmood Kosarayanifard,
- Mahmoud Amini,
- Kerman Aviation,
- Sirjanco Trading LLC,
- Ali Eslamian,
- Mahan Air General Trading LLC,
- Skyco (UK) Ltd.,
- Equipco (UK) Ltd.,
- Mehdi Bahrami,
- Al Naser Airlines,
- Ali Abdullah Alhay,
- Bahar Safwa General Trading,
- Sky Blue Bird Group, and
- Issam Shammout.
July 19, 2016 – 81 Fed. Reg. 46898: BIS denied the export privileges of Fang Liwu of Beijing, China for 10 years based on his conviction in federal court in Philadelphia in 2015 of violating the IEEPA by engaging in transactions to export, attempting to export, and aiding and abetting the export of three CC-10 vacuum gauges from the U.S. to Iran without the required authorization. In the criminal case, Fang was sentenced to 24 months in prison, 3 years of supervised release, and a special assessment of $400.
DEPARTMENT OF STATE
July 5, 2016 – 81 Fed. Reg. 43694: The Bureau of International Security and Nonproliferation (ISN) determined that 38 persons had engaged in activities that warrant the imposition of sanctions pursuant to the Iran, North Korea, and Syria Nonproliferation Act, which provides for penalties on persons that transfer certain types of sensitive items to, or acquire such items from, these countries after certain dates. Accordingly, it imposed sanctions on these persons prohibiting U.S. Government (USG) sales to them of any items on the U.S. Munitions List (USML, 22 CFR Part 121), terminating sales to them of any item controlled under the Arms Export Control Act (AECA, 22 USC Sec. 2778), prohibiting individual licenses for transfer to them of any item controlled under the EAR, and suspending any existing such licenses. The 38 persons are located in Belarus, China, Iran, Iraq, Malaysia, North Korea, Russia, Sudan, Syria, and Uganda.
The parties are:
- Belvneshpromservice (BVPS) (Belarus) and any successor, sub-unit, or subsidiary thereof;
- Composite International (China) and any successor, sub-unit, or subsidiary thereof;
- Cosailing Business Trading Company (China) and any successor, sub-unit, or subsidiary thereof;
- Do Best Industry Co., Ltd (China) and any successor, sub-unit, or subsidiary thereof;
- Global Holding Group Company (China) and any successor, sub-unit, or subsidiary thereof;
- Jack Qin (China);
- Li Fangwei (aka Karl Lee) (China);
- Ningbo Jiahe Trading Co., Ltd (China) and any successor, sub-unit, or subsidiary thereof;
- Ningbo New Century (China) and any successor, sub-unit, or subsidiary thereof;
- Richard Yue (China);
- Sinotech (Dalian) Carbon and Graphite Corporation (SCGC) (China) and any successor, sub-unit, or subsidiary thereof;
- Shanghai Electric International Economic & Trading Company (SEIC) (China) and any successor, sub-unit, or subsidiary thereof:
- Xi'an Jiate Titanium Industry Company (China) and any successor, sub-unit, or subsidiary thereof;
- Asaib ahl Haq (AAH) (Iraq) and any successor, sub-unit, or subsidiary thereof;
- Khata'ib Hezbollah (KH) (Iraq) and any successor, sub-unit, or subsidiary thereof;
- Islamic Revolutionary Guard Corps Qods Force (IRGC QF) (Iran) and any successor, sub-unit, or subsidiary thereof;
- Shahid Moghadam-Yazd Marine Industries (SMYM) (Iran) and any successor, sub-unit, or subsidiary thereof;
- Shiraz Electronic Industries (SEI) Company (Iran) and any successor, sub-unit, or subsidiary thereof;
- Budaya Kita Sdn Bhd (BK) (Malaysia) and any successor, sub-unit, or subsidiary thereof;
- Mohammad Rafie Ab Malek (Malaysia);
- Kay Marine Sdn. Bhd. (Malaysia) and any successor, sub-unit, or subsidiary thereof;
- Kang Mun-kil (North Korea);
- Korea Namhung Trading Corporation (North Korean entity operating in China) and any successor, sub-unit, or subsidiary thereof;
- Saeng Pil Trading Corporation (STC) (North Korea) and any successor, sub-unit, or subsidiary thereof;
- General Department of Military Cooperation (North Korea) and any successor, sub-unit, or subsidiary thereof;
- 150th Aircraft Repair Plant (ARZ) (Kaliningrad) (Russia) and any successor, sub-unit, or subsidiary thereof;
- Instrument Building Design Bureau (KBP) Tula (Russia) and any successor, sub-unit, or subsidiary thereof;
- Kolomna Design Bureau of Machine-Building (KBM) (Russia) and any successor, sub-unit, or subsidiary thereof;
- Kuntsevo Design Bureau (Russia) and any successor, sub-unit, or subsidiary thereof;
- NPO Mashinostroyeniya (NPOM) (Russia) and any successor, sub-unit, or subsidiary thereof;
- Military Industrial Corporation (MIC) (Sudan) and any successor, sub-unit, or subsidiary thereof;
- Khartoum Industrial Complex (Giad) (Sudan) and any successor, sub-unit, or subsidiary thereof;
- Khartoum Military Industrial Complex (Yarmouk) (Sudan) and any successor, sub-unit, or subsidiary thereof;
- Vega Aeronautics and Engineering Company Ltd (Sudan) and any successor, sub-unit, or subsidiary thereof;
- Scientific Studies and Research Center (SSRC) (Syria) and any successor, sub-unit, or subsidiary thereof;
- Lebanese Hizballah (Syria) and any successor, sub-unit, or subsidiary thereof; and
- Luwero Industries Ltd (Uganda) and any successor, sub-unit, or subsidiary thereof.
July 5, 2016 – 81 Fed. Reg. 43696: ISN imposed sanctions similar to those in the item above on Rosoboronexport (ROE) (Russia); however, it excluded from the sanctions contracts and subcontracts with ROE – including subcontracts for the purchase of spare parts, supplies, and related services -- made on behalf of the USG for goods, technology, and services for the maintenance, repair, overhaul or sustainment of Mi-17 helicopters for the purpose of providing assistance to the security forces of Afghanistan or for combating terrorism and violent extremism globally.
Fines and Penalties
June 30, 2016: Alcon Pharmaceuticals Ltd of Fribourg, Switzerland (Alcon Ltd.) and Alcon Laboratories, Inc. of Fort Worth, TX (Alcon Labs) agreed jointly to pay $8,100,000 to settle 188 charges by BIS of violations of the EAR involving unauthorized exports and reexports of U.S.-origin medical devices and equipment to Syria and Iran. The charging documents alleged unauthorized transshipments by Alcon Labs to Iran valued at approximately $3,652,378 and unauthorized transshipments by Alcon Ltd. to Iran valued at approximately $8,106,260 and to Syria valued at approximately $72,927. A link to the charging letter, settlement agreement, and order is on the BIS website at https://efoia.bis.doc.gov/index.php/electronic-foia/index-of-documents/7-electronic-foia/227-export-violations .
July 5, 2016: In a settlement with OFAC related to the settlement with BIS described above, Alcon Ltd., Alcon Labs, and Alcon Management, SA of Geneva, Switzerland agreed to settle potential civil liability to OFAC of $7,617,150 for apparent violations of the Iranian Transactions and Sanctions Regulations (ITSR, 31 CFR Part 560) and the Sudanese Sanctions Regulations (SSR, 31 CFR Part 538) involving 513 occasions when they allegedly made unauthorized sales and exports of medical end-use surgical and pharmaceutical products from the U.S. to distributors in Iran and Sudan. The obligation to OFAC will be satisfied by the payment of $1,317,150 to the U.S. Treasury Department, the full payment of the BIS settlement amount, and compliance with the other terms of the settlement agreement with BIS. Additional information is on the OFAC website at https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20160705_alcon.pdf .
July 8, 2016: Gregory Allen Justice of Culver City, CA, an engineer who worked on military and commercial satellites for a cleared defense contractor, was jailed in Los Angeles, CA, without bail, on charges of economic espionage and violating the AECA. Justice allegedly provided proprietary and ITAR-controlled satellite information to a person who he believed was a representative of a foreign intelligence service, but was actually an FBI undercover agent. Justice allegedly sought and received cash payments in exchange for the information.
July 8, 2016: Daofu Zhang of Shenzen, China was sentenced in federal court in Hartford, CT to a prison term of 15 months and forfeiture of $63,000 based on his plea of guilty to conspiracy to traffic in counterfeit goods. Zhang and two co-conspirators, Xianfeng Zuo and Jiang Yan, operated businesses in China that sold electronic components. When they sought to purchase several advanced Xilinx integrated circuits (ICs) that had military applications including radiation tolerance for uses in space, their U.S. contact informed them that the export would require a license, and also that the ICs would need to be stolen from U.S. military inventory. A co-conspirator shipped 8 counterfeit Xilinx ICs to the U.S. contact to replace the ones that would be stolen. All 3 conspirators flew to the U.S. in December, 2015, to complete the purchase and were arrested when they arrived at the agreed meeting location. Zuo and Yan have entered guilty pleas and are awaiting sentencing.
July 13, 2016: Su Bin (a/k/a Stephen Su and Stephen Subin), a citizen and resident of China, was sentenced in federal court in Los Angeles, CA, to 46 months in federal prison based on his plea of guilty of conspiracy to violate the AECA by exporting ITAR-controlled defense articles and to gain unauthorized access to a protected computer. Su admitted that he identified data relating to the C-17 strategic transport aircraft and U.S. military fighter jets and other military technical data on computer networks of U.S. targets (including Boeing Company) to be hacked by co-conspirators in China. He then translated the stolen data into Chinese and sent reports to the Chinese People’s Liberation Army. (See additional information on this case in March 2016 Regulatory Update.)
July 21, 2016: Alexander Fishenko, a dual U.S. and Russian citizen, was sentenced in federal court in Brooklyn, NY to 10 years in prison and forfeiture of more than $500,000 based on his plea of guilty of conspiring to export and actually exporting microelectronics to Russia without the required authorization, conspiring to launder money, and other charges. Fishenko headed a conspiracy involving two corporations and 10 additional individuals that shipped approximately $50 million worth of microelectronics and other technologies to Russia without the required authorizations. The illegally shipped goods included cutting-edge microelectronics that are used in military systems including radar and surveillance systems, missile guidance systems, and detonation triggers, many of which are not produced in Russia, and the largest Russian purchasers were certified suppliers of military equipment to the Russian Ministry of Defense. Methods used by the conspiracy to evade applicable export controls included providing false end-user information and falsely classifying the goods. (See additional information on this conspiracy in October 2012, September 2015, and October 2015 Regulatory Updates.)
July 22, 2016: R&A International Trading Inc., doing business as R&A International Logistics, of Jamaica, NY, and Rukhsana Kadri, also known as Roxanne Kadri, of Davie, FL, the owner & president of R&A, agreed jointly and severally to pay a civil penalty of $500,000 to settle charges by BIS that they had violated the EAR by misrepresenting the identity of an exporter on export control documents in hundreds of export transactions valued at about $22 million and making false statements to BIS investigators. By concealing the true name of the exporter, Kadri and R&A made the exports possible, as the exporter was not authorized by the manufacturer to export the product. The settlement provides that $350,000 of the penalty will be suspended for 5 years and then waived if Kadri and R&A pay $150,000 on an agreed schedule, commit no further violations, and comply with any sentences imposed pursuant to a guilty plea they have entered in a related criminal case in federal court in Brooklyn, NY. A 5-year denial of export privileges will be suspended under the same conditions.