LATEST EXPORT CONTROLS AND COMPLIANCE UPDATEJune 2017
See also our “Latest Sanctions Fines & Penalties” section below for an update on companies and persons denied export privileges by the United States Government.
President Trump Announced Changes In U.S Policy On Trade With Cuba
June 16, 2017: President Trump announced several changes in the U.S. policy on trade with Cuba. The primary export-related effect of the new policy will be a prohibition of transactions involving Cuba’s Armed Forces Business Enterprises Group (GAESA), which has interests in many sectors of the Cuban economy. A list of the affected Cuban entities will be published by the Department of State. The changes will not become effective until the Departments of Treasury and Commerce adopt changes in the Cuban Assets Control Regulations (CACR, 31 CFR Part 515) and the Export Administration Regulations (EAR, 15 CFR Parts 730-774), respectively. A fact sheet on the new Cuba policy is on the White House website at https://www.whitehouse.gov/blog/2017/06/16/fact-sheet-cuba-policy. (See below for Commerce Department and Treasury Department FAQs on implementation of the new Cuba policy.)
U.S. Federal Courts
U.S. Court of Appeals For D.C. Circuit Ruling On Knowledge Or Reason To Know Related To Iran Transactions and Sanctions Regulations
May 26, 2017: In Epsilon Electronics, Inc. v U.S. Department of the Treasury, the U.S. Court of Appeals for the D.C. Circuit considered a penalty imposed by the Office of Foreign Assets Control (OFAC) on Epsilon Electronics, Inc., for 39 exports to a distributor in the United Arab Emirates (UAE) that OFAC claimed violated Sec. 560.204 of the Iran Transactions and Sanctions Regulations (ITSR, 31 CFR Part 560). Sec. 560.204, in pertinent part, prohibits U.S. persons from exporting an item to Iran or to a third country if the export is undertaken with knowledge or reason to know that the item exported is intended specifically for re-exportation to Iran. The Circuit Court affirmed determinations by OFAC and the D.C. Federal District Court that 34 of the exports violated Sec. 560.204 based on OFAC’s demonstration that Epsilon had reason to know these exports were intended to be re-exported to Iran. The court did not require OFAC to show that the goods actually ended up in Iran. However, it reversed the determination regarding the remaining 5 cases because there was evidence in those cases suggesting that they involved exports that were genuinely intended for the UAE market. Accordingly, the case was remanded to the district court and OFAC for further consideration of the 5 cases and the total monetary penalty.
Department of Commerce
BIS Reminder Of Annual Reporting Requirement For Offset Agreements
June 9, 2017 – 82 Fed. Reg. 26775: The Bureau of Industry and Security (BIS) posted a reminder of the annual requirement for U.S. companies to report information on contracts for the sale of defense articles or defense services to foreign countries or foreign companies that are subject to offsets agreements exceeding $5,000,000 in value. U.S. companies are also required to submit annual reports on offsets transactions completed in performance of existing offsets commitments for which an offsets credit of $250,000 or more has been claimed from the foreign representative. The reports were to be submitted to the Commerce Department Office of Strategic Industries and Economic Security by June 15, 2017.
Minor Edits To EAR
June 14, 2017 – 82 Fed. Reg. 27108: BIS amended the Export Administration Regulations (EAR, 15 CFR Parts 730-774) to correct citations, replace text that was inadvertently removed, and correct other errors in the Sep. 20, 2016 rule (82 Fed. Reg. 64656) that amended the EAR to implement changes adopted at the December 2015 Wassenaar Arrangement (WA) plenary. The changes affect EAR Sec. 740.13 (License Exception TSU, Technology and Software Unrestricted); Sec. 740.17 (License Exception ENC, Encryption Commodities, Software, and Technology); and Part 774, Supplement No. 3 (Statements of Understanding).
BIS Request For Comments On Utility, Clarity, And Burden Of Import, End-User, And Delivery Verification Certificates
June 16, 2017 -- 82 Fed. Reg. 27687: BIS published a request for comments from the public about the utility, clarity, and burden of Import, End-User, and Delivery Verification Certificates, and on ways to minimize the burden imposed by these forms. BIS also issued similar requests for comments on Additional Protocol to the U.S.-IAEA Safeguards Agreement Report Forms (82 Fed. Reg. 27686) and Procedures for Acceptance or Rejection of a Rated Order (82 Fed. Reg. 27687). Deadline for comments is Aug. 15, 2017.
BIS Posts Questions & Answers Regarding The President’s Cuba Policy Announcement
June 16, 2017: BIS posted Questions & Answers Regarding the President’s 06/16/17 Cuba Policy Announcement on its website at https://www.bis.doc.gov/index.php/forms-documents/policy-guidance/1931-2017-commerce-cuba-qs-as-fnl/file.
BIS Adds 10 Russian and Crimean Region of the Ukraine Entities To The Entity List
June 22, 2017 – 82 Fed. Reg. 28405: BIS added 10 entities in Russia and the Crimea region of Ukraine to the Entity List (EAR Part 744, Supp. No. 4) to ensure the efficacy of existing sanctions on Russia for violating international law and fueling the conflict in eastern Ukraine. There will be a license requirement with a policy of denial for all exports, reexports, or transfers (in-country) of all items subject to the EAR involving these entities as parties. The 10 entities are:
Crimea Region of Ukraine:
(1) Riviera Sunrise Resort & Spa, a.k.a Riviera Sunrise Resort and Spa, Alushta; and
(2) KPSK, OOO, a.k.a. Obshchestvo S Ogranichennoi Otvetstvennostyu ‘Krymskaya Pervaya Strakhovaya Kompaniya’ and OOO ‘Krymskaya Pervaya Strakhovaya Kompaniya’, Simferopol.
(1) Bike Center, a.k.a. Baik. V. Tsentr, Baik V Tsentr, OOO, and Bike V. Center, Moscow;
(2) Concord Catering, St. Petersburg and Moscow;
(3) IFDK, ZAO, a.k.a. Closed Joint Stock Company ‘IFD Kapital’, IFD Kapital, IFD Kapital Group, IFD-Capital, IFD-Kapital, and Zakrytoe Aktsionernoe Obshchestvo ‘IFD Kapital’ (f.k.a. Zakrytoe Aktsionernoe Obshchestvo IFD Karital), Moscow;
(4) Limited Liability Company Concord Management and Consulting, a.k.a. Konkord Menedzhment I Konsalting, OOO; LLC Concord Management and Consulting, and Obshchestvo S Ogrannichennoi Otvetstvennostyu Konkord Menedzhment I Konsalting, St Petersburg;
(5) Molot-Oruzhie, OOO, a.k.a. Obshchestvo S Ogranichennoi Otvetstvennostyu ‘Molot-Oruzhie’ (f.k.a. Obshchestvo S Ogranichennoi Otvetstvennostyu Proizvodstvenno Instrument Kachestvo), Kirov;
(6) Oboronlogistika, OOO, a.k.a. Oboronlogistics Limited Liability Company, Oboronlogistics LLC, Oboronlogistika LLC, and Obshchestvo S Ogranichennoi Otvetstvennostyu ‘Oboronlogistika’, Moscow;
(7) Private Military Company ‘Wagner’, a.k.a. Chastnaya Voennaya Kompaniya ‘Vagner’, Chvk Vagner, and PMC Wagner; and
(8) ‘Wolf’ Holding of Security Structures, a.k.a. Defense Holding Structure ‘‘Wolf’’, Holding Security Structure Wolf, Kholding Okhrannykh Struktur Volk, and Wolf Holding Company, Moscow.
Department of State
DDTC Name and Address Changes Posted To Website
June 23, 28, 29, and 30, 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 Name of IGATE Global Solutions Limited to Capgemini Technology Services India Limited due to acquisition;
- Change in Name of Toshiba Corporation to Toshiba Infrastructure Systems & Solutions Corporation due to corporate reorganization;
- Change in Name of BAE Systems Electronics Limited to BAE Systems Marine Limited due to corporate reorganization;
- Change in Name of Airbus Safran Launchers GmbH to ArianeGroup GmbH due to corporate reorganization;
- Change in Name of Airbus Safran Launchers SAS to ArianeGroup SAS due to corporate reorganization;
- Change in Name and Address of Titan Engineering & Automation Limited in Tamilnadu, India to Titan Company Limited at Precision Engineering Division in Karnataka, India as part of corporate reorganization; and
- Change in Name of Toshiba Defense & Electronics Systems to Toshiba Infrastructure Systems and Solutions due to corporate reorganization.
Each announcement includes a link to a notice specifying the effects of the change on pending and currently approved authorizations involving the listed entity.
Department of the Treasury
Treasury Seeks Public Comments On Regulations That Can Be Eliminated, Modified, Or Streamlined In Order To Reduce Burdens
June 14, 2017 – 82 Fed. Reg. 27217: In furtherance of Executive Order 13771 of Jan. 30, 2017, which directed agencies to eliminate two regulations for each new regulation issued, the Treasury Department invited public comments on regulations, forms, and guidance documents issued by several Treasury Department agencies including OFAC. The Department particularly desires views and recommendations regarding regulations that can be eliminated, modified, or streamlined in order to reduce burdens. Responses should explain how a regulation can be modified or explain why it should be eliminated and should provide available data and an explanation of regulatory costs and burdens. Deadline for comments is July 31, 2017.
OFAC Posts FAQs Regarding The President’s Announcement On Changes To U.S. Policy With Cuba
June 16, 2017: OFAC posted 12 new FAQs in connection with the President’s announcement on changes to U.S. policy with respect to Cuba. The FAQs are on the OFAC website at https://www.treasury.gov/resource-center/sanctions/Programs/Documents/cuba_faqs_20170616.pdf.
LATEST SANCTIONS FINES & PENALTIES
Department of Commerce
June 8, 2017 – 82 Fed. Reg. 28473: BIS denied the export privileges of Ali Reza Parsa of Waterloo, Ontario, currently of Moshannon Valley Federal Correctional Institution. Phillipsburg, PA, for 10 years based on his conviction in May 2016 of violating the International Emergency Economic Powers Act (IEEPA, 50 U.S.C. § 1701, et seq.) by conspiring to export electronic components from the U.S. to customers of a company he owned in Iran. In the criminal case, Parsa was sentenced to 36 months of imprisonment and ordered to pay a $100 assessment. (See details in May 2016 Regulatory Update.)
Fines and Penalties
June 2, 2017: Imran Khan, of North Haven, CT, pleaded guilty in federal court in the District of Connecticut to violating IEEPA by exporting an Alpha Duo Spectrometer to the Pakistan Atomic Energy Commission (PAEC), an entity listed on the Entity List, without the required export license. Khan allegedly also participated in a scheme to export other items controlled under the EAR to Pakistani end users including two additional entities on the Entity List. When asked by U.S. suppliers about the end users of these products, he allegedly stated that the products would remain in the U.S., including providing end-user certifications stating that the product would not be exported.
June 9, 2017: Axis Communications, Inc., of Chelmsford, MA, agreed to pay a civil penalty of $700,000 and to have an unaffiliated expert consultant complete an external audit of its export controls compliance program to settle 13 charges by BIS of exporting thermal imaging cameras to Mexico without the required export licenses and two charges of failing to comply with recordkeeping requirements. The cameras were classified under Export Control Classification Number (ECCN) 6A003.b.4 and were valued at $391,819.
June 9, 2017: Cryomech, Inc., of Syracuse, NY, agreed to pay a civil penalty of $28,000 and undergo a third-party audit of its export controls compliance program to settle charges by BIS that it violated the EAR by exporting an LNP-20 Liquid Nitrogen Plant, an item designated EAR99 and valued at $33,587, from the U.S. to the All-Russian Scientific Research Institute of Experimental Physics (VNIIEF), a.k.a. Russian Federal Nuclear Center – VNIIEF (RFNC-VNIIEF), an entity listed on Entity List, without the required authorization from BIS.
June 16, 2017: Marlou Mendoza of Long Beach, CA, was sentenced in federal court in Los Angeles, CA, to 6 months of home confinement based on her plea of guilty to 3 counts of failing to provide the required written notice to freight forwarders that she was shipping ammunition to a foreign country. According to the indictment, Mendoza shipped tens of thousands of rounds of .22-caliber ammunition and bullets to her son, Mark Mendoza, in the Philippines. (See additional information in February 2017 Regulatory Update.) Mark Mendoza was indicted separately for eight counts of conspiracy, unlawful export of munitions, smuggling, and money laundering. At last report, Mark Mendoza remained a fugitive.
June 28, 2017: Hassan Zafari of Brentwood, CA, agreed to pay a civil penalty of $52,500 (of which $45,000 will be suspended for two years and thereafter waived if Zafari has committed no further violations) and accept a two-year denial of export privileges (suspended for two years and thereafter waived if Zafari has committed no further violations) to settle a charge by BIS that he caused, aided, or abetted the export from the U.S. to Iran of a used EAR99 industrial laser system valued at approximately $12,000 without obtaining the required export authorization. Zafari’s alleged actions facilitating this export included hiring a freight forwarding company to ship the system to a company in Dubai, United Arab Emirates (UAE) with instructions to list the UAE company as the consignee with knowledge that the item was actually intended for transshipment to Iran, providing the UAE company with shipping documentation facilitating the transshipment to Iran, and suggesting to the Iranian purchaser that it create a revised bill of lading to the UAE transhipper to facilitate the transshipment.