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.
EC Publishes Explanatory Memorandum Related to Dual-Use Export Control Regulation Changes
September, 2016: The European Commission (EC) published its proposed new dual-use export control regulation, including an Explanatory Memorandum, on its website at http://trade.ec.europa.eu/doclib/docs/2016/september/tradoc_154948.pdf). Separately, the EC published a Comprehensive Change Note Summary providing a detailed overview of all the changes to the 2015 EU Dual-Use Control List on its website at http://trade.ec.europa.eu/doclib/docs/2016/october/tradoc_155058.pdf[OG1] (10 pages).
Further information related to these new regulations can be found in our September Newsletter.
Department of Commerce
BIS Publishes Final Rule Implementing ECR Revision to USML Category XII for Fire Control, Laser, Night Vision, and Imaging Equipment
Oct. 12, 2016 – 81 Fed. Reg. 70320: As part of the President’s ongoing Export Control Reform (ECR) initiative, the Bureau of Industry and Security (BIS) amended the Export Administration Regulations (EAR, 15 CFR Parts 730-774) to add to the Commerce Control List (CCL, EAR Part 774, Supp. No. 1) articles that were previously controlled under Category XII (Fire Control, Laser, Imaging, and Guidance Equipment) of the U.S. Munitions List (USML, 22 CFR Part 121). The transitioned articles will now be controlled under revised Export Control Classification Number (ECCN) 7A611 and new ECCNs 7B611, 7D611, and 7E611. Also, for certain dual-use infrared detection items, the rule expands controls on certain related software and technology, eliminates the use of some License Exceptions, revises licensing policy, and expands license requirements for certain transactions involving military end users or foreign military commodities. Controls on certain quartz rate sensors are also revised. This final rule takes into consideration comments received on earlier proposed rules published on May 5, 2015 (80 Fed. Reg. 25798) and Feb. 19, 2016 (81 Fed. Reg. 8421). The effective date of the ECR revisions to the EAR is Dec. 31, 2016. (See related article below, in State Department section.)
Anti-boycott Reports Can Now Be Filed Electronically with BIS
Oct. 14, 2016 – 81 Fed. Reg. 70933: BIS amended EAR Section 760.5 to permit the electronic submission of reports that persons subject to the EAR are required to file when they receive requests to take actions in furtherance of or support of any boycott that violates the EAR. No substantive changes were made to the reporting requirement. BIS will continue to accept reports in hard copy, in addition to the new electronic reporting mechanism.
BIS and Treasury Publish Revision to Cuba Policies – BIS Allows Online Retailers to Sell Directly to Cuban Citizens If They Verify the Citizens are Not Prohibited
Oct. 17, 2016 – 81 Fed. Reg. 71365: As part of the continuing effort to foster permitted trade relations with Cuba, BIS amended License Exception AVS (Aircraft, Vessels and Spacecraft) to allow cargo aboard aircraft to transit Cuba when bound for destinations other than Cuba and liberalized some provisions of License Exceptions SCP (Support for the Cuban People), GFT (Gift Parcels and Humanitarian Donations), and CCD (Consumer Communications Devices). This BIS action was coordinated with new liberalizations of Cuba sanctions by the Treasury Department, Office of Foreign Assets Controls (OFAC). (See description in Treasury Department section below.) In particular, this rule makes exports or reexports of eligible items sold directly to eligible individuals in Cuba for their personal use or their immediate family's personal use eligible for License Exception SCP. To be eligible, the items must be designated as EAR99 or controlled on the Commerce Control List (CCL) (Supplement No. 1 to Part 774 of the EAR) only for anti-terrorism reasons. Additionally, the purchasers and end users must not be members of the Council of Ministers, flag officers of the Revolutionary Armed Forces, or members of the Politburo. This amendment to License Exception SCP facilitates direct sales to individuals in Cuba by online retailers and others that sell eligible consumer products directly to end users. The regulatory changes support the President’s effort to establish a new course in bilateral relations with Cuba; however, BIS stressed that the U.S. continues to maintain a comprehensive embargo on trade with Cuba, and all exports or reexports to Cuba continue to require a license unless authorized by a license exception specified in EAR Sec. 746.2(a)(1) or exempted from license requirements under Sec. 746.2(a)(2). A summary of the BIS amendments is on the BIS website at https://www.bis.doc.gov/index.php/policy-guidance/country-guidance/sanctioned-destinations/cuba[OG2] ; updated BIS FAQs are at https://www.bis.doc.gov/index.php/documents/pdfs/1568-bis-cuba-consolidated-faqs-2/file; and a joint Commerce Department and Treasury Department Fact Sheet is at https://www.treasury.gov/press-center/press-releases/Pages/jl0581.aspx[OG3] .
Department of Justice
DOJ Implements New Policy to Encourage Business Organizations to File VSDs for Criminal Conduct Related to Export Law Violations to DOJ
Oct. 2, 2016: The National Security Division of the Department of Justice published Guidance on a new policy to strongly encourage business organizations to voluntary self-disclosure criminal violations of the export control and sanctions provisions of the Arms Export Control Act (AECA, 22 U.S.C. § 2778), and the International Emergency Economic Powers Act (IEEPA, 50 U.S.C. § 1705) to the Counterintelligence and Export Control Section (“CES”) of the Department of Justice. The Guidance describes the requirements that must be met for a CES Voluntary Self-Disclosure (“VSD”) to receive full credit, provides examples of aggravating factors that could limit the credit, and provides sample VSD scenarios. It also notes that the VSD to the CES supplements, and does not replace a disclosure to the appropriate regulatory agency (e.g., BIS, DDTC, or Census). The Guidance is on the DOJ website at http://files.constantcontact.com/4545a8d7301/6536ffe2-60e6-451c-991a-6c6f6c1cdb17.pdf?ver=1476300088000[OG4] . [Note: Do we really want to direct them to our site for the file??]
Department of State
DDTC Posts Name Changes to DDTC Website
Oct. 5, 17, 24, 25, and 28, 2016: 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 Broadspectrum Limited to Broadspectrum Pty Ltd due to corporate rebranding;
- Change in Name of Kyocera America Inc. and Kyocera Industrial Ceramics Corporation to Kyocera International, Inc. due to corporate restructure;
- Acquisition of Airbus DS Electronics and Border Security GmbH by Kohlberg Kravis Roberts & Co., L.P.;
- BAE Systems Global Combat Systems Limited and BAE Systems Global Combat Systems Munitions Limited to jointly operate as BAE Systems Plc Line of Business within Programmes & Support called BAE Systems Land (UK);
- Change in Address of PM-Surface BV;
- Change in Name of Aerospace Industrial Maintenance Norway SF to Aerospace Industrial Maintenance Norway AS due to conversion to a private limited company;
- Change in Name of Express Engineering (Thompson) Limited to Express Engineering (Group) Limited due to corporate restructure;
- Change in Name of Pratt & Whitney Belgium Engine Center SPRL to Belgium Engine Center SPRL due to acquisition by AIM Norway; and
- Change in Name of Selex ES (UK) to Leonardo MW Ltd (UK) due to corporate restructure.
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 Publishes Final Rule Implementing ECR Revision to USML Category XII for Fire Control, Laser, Night Vision, and Imaging Equipment
Oct. 12, 2016 – 81 Fed. Reg. 70340: DDTC amended the International Traffic in Arms Regulations (ITAR, 22 CFR Parts 120-130) by revising Category XII (Fire Control, Laser Imaging, and Guidance Equipment) of the U.S. Munitions List (USML, ITAR Sec. 121.1) to transition certain items that no longer required control under the USML to the CCL. Categories VIII, XIII, and XV were also amended to reflect that some items formerly controlled under those categories have now been transferred to Category XII or transitioned to the CCL. Category XI was also revised to transition items to the CCL, consistent with changes to related controls in Category XII. This final rule takes into consideration comments received on earlier proposals to revise Category XII published on May 5, 2015 (80 Fed. Reg. 25821) and Feb. 19, 2016 (81 Fed. Reg. 8438). It will become effective on Dec. 31, 2016. (See related item above, in Commerce Department section.)
DDTC’s Agreement Guidelines Revised to Reflect Changes to ITAR Section 126.1 and Address Other Clarifications
Oct. 20, 2016: DDTC posted new Revision 4.4b of the Agreement Guidelines on its website at http://www.pmddtc.state.gov/licensing/documents/AgreementGuidelinesRev44b.pdf[OG5] . Revision 4.4b reflects recent amendments to ITAR Secs. 126.1 (prohibitions regarding specified countries) and 123.9 (Destination Control Statement) and makes many other conforming and clarifying changes, including changes in provisions required in Manufacturing License Agreements and Technical Assistance Agreements. It also includes separate summaries of the changes made in Revisions 4.4, 4.4a, and 4.4b.
No More Paper CJ Submissions After November 16, 2016
Oct. 25, 2016: DDTC announced that after Nov. 16, 2016, it will no longer accept Commodity Jurisdiction (CJ) applications on Form DS-4076 using the Electronic Form Submission (EFS) application. Effective Nov. 21, 2016, CJ applications will be required to be submitted via the Defense Export Control and Compliance (DECCS) CJ application.
Department of the Treasury
OFAC Issues Updated FAQs related to Iran Sanctions
Oct. 7, 2016: OFAC updated its FAQs relating to the sanctions against Iran under the Joint Comprehensive Plan of Action (JCPOA). The updated FAQS are on the Treasury Department website at https://www.treasury.gov/resource-center/sanctions/Programs/Documents/jcpoa_faqs.pdf[OG6] .
OFAC Lifts Sanctions on Burma
Oct. 12, 2016: OFAC terminated its economic and financial sanctions against Burma. However, exports of military items remain under a policy of denial under ITAR Sec. 126.1(a), and export requirements under the EAR also remain unchanged. A fact sheet on the OFAC action is on the Treasury Department website at https://www.treasury.gov/resource-center/sanctions/Programs/Documents/burma_fact_sheet_20161007.pdf[OG7] .
OFAC Revises Cuban Sanctions in Parallel with BIS Revisions
Oct.17, 2016 – 81 Fed. Reg. 71372: OFAC amended the Cuban Assets Control Regulations (CACR, 31 CFR Part 515) to further expand opportunities for interaction with Cuba under existing statutory restrictions. Changes include authorizations to engage in joint medical research projects, to provide services related to developing and enhancing certain Cuban infrastructure, and to provide civil safety-related services, as well as some related modifications of banking rules. OFAC also added a new general license (CACR Sec. 515.534) authorizing U.S. persons to enter into contingent contracts for transactions currently prohibited by the CACR, if performance is made contingent on receipt of any required authorizations. Updated OFAC Cuba FAQs are on the Treasury Department website at https://www.treasury.gov/resource-center/sanctions/Programs/Documents/cuba_faqs_new.pdf[OG8] ; a fact sheet detailing the updated and current amendments to Cuba sanctions is at https://www.treasury.gov/resource-center/sanctions/Programs/Documents/cuba_fact_sheet_10142016.pdf[OG9] . The amendments were effective upon publication. (See description of coordinated EAR amendments in Commerce Department section above.)
LATEST SANCTIONS FINES & PENALTIES
Department of Commerce
Oct. 6, 2016 – 81 Fed. Reg. 69510: BIS denied the export privileges of Russell Henderson Marshall of North Loxahachee, FL, currently an inmate at McCrae Correctional Institution, McCrae Helena, GA, for 10 years based on his conviction of violating the IEEPA and a Commerce Department denial order by engaging in negotiations involving the export of airplane parts to Thailand and Pakistan. In the criminal case Marshall was sentenced to 41 months of imprisonment, 2 years of supervised release, and a $200 assessment and was ordered to surrender to U.S. Immigration and Customs Enforcement for removal from the U.S. upon completion of incarceration.
Oct. 26, 2016 – 81 Fed. Reg. 74392: BIS denied the export privileges of Junaid Peerani of Plantation, FL, for 5 years, based on his conviction of violating the IEEPA by knowingly and willfully attempting to export and causing to be exported from the U.S. to Turkey two Inertial Navigation Unit LTN-72s without the required authorization from the Commerce Department.
Fines and Penalties
Sep. 28, 2016: Westlake Vinyls Company LP of Houston, TX, agreed to pay $12,000 to settle charges by BIS of one violation involving furnishing information about business relationships with boycotted countries or blacklisted persons and 3 violations involving failure to report the receipt of a boycott request.
Sep. 29, 2016: Coty Middle East FZCO (UAE) of Dubai, United Arab Emirates (UAE) agreed to pay $238,000 to settle charges by BIS of violating the EAR on 70 occasions by furnishing information about business relationships with boycotted countries or blacklisted persons. The violations occurred in transactions involving exports from the U.S. to Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Oman, Pakistan, Qatar, Saudi Arabia, the UAE, and Yemen.
Oct. 5, 2016: Marc Turi and Turi Defense Group of Las Vegas, NV, agreed to pay $200,000 (suspended for the 4-year term of the consent agreement) to settle charges by DDTC of unauthorized brokering and proposing to sell and transfer defense articles via Qatar to Libya, a prohibited destination. The respondents were not administratively barred, but agreed to refrain from activities subject to ITAR control for the 4-year period of the consent agreement. The unauthorized activities occurred after DDTC had denied Turi DG’s prior application; however, Turi cooperated with DTCC in its review, and the defense articles were not actually shipped to Libya. DOJ dropped a related criminal case in light of the resolution of the administrative case.
Oct. 5, 2016: Six U.S. Army soldiers at Fort Campbell, KY, and two civilians, John Roberts and Cory Wilson, a/k/a Jason Cory Wilson, both of Clarksville, TN, were indicted in federal court in Nashville, TN on charges involving the theft from the U.S. Army installation in Fort Campbell of property including night vision helmet mounts, grenade launcher sights, flight helmets, communication headsets, body armor and medical supplies valued at more than $1 million and the resale of the property on eBay to customers located in foreign nations including Russia, China, Hong Kong, Kazakhstan, Ukraine, Lithuania, Moldova, Malaysia, Romania and Mexico. The charges against the 8 defendants included violating the AECA and other offenses including conspiring to steal or receive U.S. Army property and to sell or convey U.S. Army property without authority, wire fraud, money laundering, and selling or conveying U.S. Army property without authority.
Oct. 6, 2016: Alexey Barysheff of Brooklyn, NY, a naturalized U.S. citizen, was arrested in Brooklyn and two Russian nationals, Dmitrii Aleksandrovich Karpenko and Alexey Krutilin, were arrested in Denver, CO, on charges of conspiracy to transship export-controlled microelectronics including digital-to-analog converters and integrated circuits through Finland to Russia without the required Commerce Department authorizations. Barysheff, Karpenko, and Krutilin allegedly used U.S.-based front companies to induce suppliers to sell them the controlled items, concealing the fact that the items were intended for export, and provided false classifications and destinations on shipping documents.
Oct. 14 and 31, 2016: Ali Al Herz of Cedar Rapids, IA, was sentenced in federal court in Cedar Rapids to 27 years in prison followed by 3 years of supervised release after prison and a $150,000 fine for violations of the AECA and other laws involving exports of 252 firearms, parts, and more than 6,800 rounds of ammunition to Lebanon without the required State Department authorization. Al Herz’ son Adam Al Herz was sentenced to 20 years in prison; another son, Bassem Herz, still awaits sentencing; and Bassem’s wife, Sarah Zeaiter, was sentenced to 7 years in prison for their roles in the criminal enterprise. The unlicensed items were concealed within Bobcat construction equipment and other items in shipping containers. (See additional information in March 2016 Regulatory Update.)
Oct. 26, 2016: Ahmad Feras Diri of London, United Kingdom, was sentenced in federal court in Scranton, PA, to 37 months in prison and a $100 special assessment and ordered to forfeit $45,698 and Harold Rinko of Hallstead, PA, was sentenced to time served, 12 months of home confinement, supervised release of 2 years, and a fine of $2,600 and ordered to forfeit $45,698 based on their convictions of conspiring to export to Syria items including a scanner for the detection of chemical warfare agents without the required authorization from the Commerce Department. A third defendant, Maowea Deri, a citizen of Syria, remains at large. Ahmad Diri was arrested in London on March 14, 2013, and extradited to the U.S. on November 12, 2015; Rinko pleaded guilty in September 2014. (See additional information on this case in November 2015 Regulatory Update.)
Oct. 26, 2016: Zavik Zargarian of Glendale, CA, and Vache Nayirian of Lakeview Terrace, CA, were arrested and pleaded not guilty to charges of conspiracy to violate the IEEPA and the Iranian Transactions and Sanctions Regulations (ITSR, 31 CFR Part 560) by exporting jet fighter aircraft parts and other items valued at more than $3 million to Iran without the required authorization. Zargarian’s company, ZNC Engineering, of Glendale, CA, and two Iranian nationals believed to be in Iran were also named in the indictment. On behalf of the conspiracy, Zargarian allegedly negotiated with an undercover Homeland Security Investigations (HSI) agent who posed as an aircraft parts supplier. On behalf of the conspiracy, Nayirian allegedly exported the items to Kuwait and the UAE for subsequent transfer to Iran, undervaluing them and falsifying their ultimate destination on the shipping documents.
Oct. 27, 2016: Mansour Moghtaderi Zadeh, an Iranian national, pleaded guilty in federal court in Washington, DC, to conspiracy to defraud the U.S. and to unlawfully export goods, technology and services to Iran without the required authorization. According to documents filed with the guilty plea, beginning in 2005, Zadeh and his company, Barsan Aero Chemicals Ltd., procured products to be exported to Iran without the required authorization from OFAC. In March 2007, Zadeh (using an alias) and unnamed co-conspirators, working through a new company, Lavantia Ltd., attempted to export metal sheets and rods used in manufacturing aircraft to Iran without authorization from OFAC. BIS issued a Temporary Denial Order (TDO) against Zadeh (under his alias) and Lavantia in October 2007; however, Zadeh and his co-conspirators subsequently exported and attempted to export various materials valued at more than $69,000.