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Greetings!
This month's import/export news highlights include: DHL's $9.5M Penalty for BIS/OFAC Violations; an Australian bank's $5.75M OFAC Penalty; the sentencing of 28 months imprisonment for a colleague of Professor Roth for ITAR violations; an ITAR License Exemption for Body Armor Added;FTRs Eliminate the need for SSNs; CBP's Implementation of 10+2 Processing Changes; a Court Ruling on CBP's need to follow its regulations with regard to evaluating a broker's exercise of supervision; and the SEC imposes Corporate Officer Liability for FCPA violations in connection with Brazilian customs entries. As always, we would appreciate any comments or suggestions you may have to improve this newsletter either by email to info@globaltradeexpertise or via our feedback survey link in our left column.Thank you for reading! Jennifer Kessinger & Tammie Goldstein Krauskopf
globaltradeexpertise
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Australian Bank Pays $5.75M to Settle OFAC Alleged Violations
Mitigation allows reduced penalty of $5.75M
 On August 24, 2009, the Office of Foreign Assets Control of the U.S. Department of the Treasury (OFAC) announced that Australia and New Zealand Bank Group, Ltd., of Melbourne, Australia (ANZ), remitted $5.75 million to settle allegations of violating both Sudanese Sanctions Regulations and Cuban Assets Control Regulations.
OFAC alleged that from 2004 to 2006, ANZ processed international trade financing and foreign currency exchange transactions through U.S. correspondent accounts. In the process, ANZ concealed the identities of persons targeted by the U.S. sanctions by removing their names as well as references to Sudan, thus impeding the U.S. banks' ability to detect these violations.
The settlement agreement covers 16 transactions totaling $28 million that allegedly violated the Sudanese Sanctions Regulations, and 15 sanctions totaling $78 million that allegedly violated the Cuban Assets Control Regulations.
ANZ voluntarily disclosed violating the Cuban Assets Control Regulations but not the apparent Sudanese Sanctions Regulations violations. However, while conducting a review of the transactions, the company discovered additional violations of the Sudanese Sanctions of which OFAC was not aware.
OFAC stated that ANZ's prompt and substantial cooperation involving extensive review of transactions, as well as the fact the company had not been subject to an OFAC enforcement action in the five years preceding the transactions served as mitigating factors in determining the penalty amount. As part of the settlement agreement, ANZ also agreed to re-design its current operations and policies to implement procedures that establish more effective controls on potential OFAC violations.
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Exporter Agrees to $610,000 Penalty for EAR Violations
Oil and Gas Exporter Accused of 78 Unlicensed Exports
 On August 13, 2009, the Commerce Department's Bureau of Industry and Security (BIS) announced that FMC Technologies, Inc. has agreed to pay a $610,000 civil penalty to settle allegations that between 2003 and 2007 it exported oil and gas industry service parts in violation of the Export Administration Regulations (EAR).
The allegations against the Houston, Texas provider of specialty oil and gas products and services involved 78 unlicensed exports of butterfly and check valves classified under the ECCN 2B350 and controlled for reasons of chemical and biological weapons proliferation.
The company voluntarily disclosed the violations and cooperated with the investigation.
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Physicist Sentenced to 28 Months Imprisonment for ITAR Violations
Physicist Worked with Convicted Former Professor
On August 11, 2009, Knoxnews.com reported that Daniel Max Sherman, a 38-year old physicist, was sentenced to 28 months in federal prison for his involvement with a Knoxville company and former University of Tennessee professor, John Reece Roth, who violated the International Traffic in Arms Regulations (ITAR) by allowing foreign nationals to have access to military-related technical information.
Sherman faced a potential sentence of five years in prison and $250,000 fine, but received a lesser sentence because of his cooperation in the federal investigation. He already served 14 months of his sentence. Roth, 73-year old former professor, was sentenced to four years in prison.
Roth, an expert in plasma research, was a subcontractor on a U.S. Air Force project awarded to Atmospheric Glow Technologies Inc. (AGT), a plasma technology company based in Knoxville and Sherman's employer. The project developed advanced plasma actuators for Air Force drones, which are covered by U.S. governing munitions. Both Roth and Sherman were involved in the project for which they allowed foreign and Chinese graduate students to work. Additionally, Roth was convicted of taking protected information with him on a lecture trip to China, a felony regardless of the intent.
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DHL to Pay $9.5 Million Civil Penalty
DHL agrees to conduct external audits of exports to Iran, Syria, and Sudan
 On August 6, 2009, the Commerce Department's Bureau of Industry and Security (BIS) and the Treasury Department's Office of Foreign Assets Control (OFAC) announced they have jointly entered into a settlement agreement with DPWN Holdings (USA), Inc. and DHL Express (USA), Inc. (collectively DHL) The settlement agreement has been reached following allegations that DHL unlawfully aided and abetted illegal exports of goods to Syria, Iran and Sudan and failed to comply with record keeping requirements of the Export Administration Regulations (EAR) and OFAC regulations.
Specifically, BIS charged that between June 2004 and September 2004, DHL transported articles subject to the EAR from the U.S. to Syria, and failed to retain air waybills and other export control documents, as required by the EAR. OFAC charged that between 2002 and 2006 DHL violated various OFAC regulations when it made thousands of shipments to Iran and Sudan, mainly failing to comply with applicable recordkeeping requirements.
Pursuant to the settlement agreement, DHL must pay a civil penalty of nearly $9.5 million and conduct external audits of exports to Iran, Syria and Sudan from March 2007 to December 2009, as well as conduct annual calendar year audits in 2010 and 2011.
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ITAR License Exemption for Temporary Export of Body Armor for Personal Use Added
 On August 6, 2009, the Department of State, Directorate of Defense Trade Controls (DDTC) issued a final rule in the Federal Register amending the International Traffic in Arms Regulations (ITAR). The new rule, effective immediately, adds an exemption for the temporary export of body armor covered by 22 CFR 121.1, Category X(a)(1). The new rule exempts U.S. individuals who wear body armor for personal safety when traveling to hazardous areas from obtaining a license.
To qualify for the exemption, the body armor must be used exclusively by the individual and must be returned to the U.S. The individual may not re-export the protective equipment to a foreign person or otherwise transfer the ownership. Upon departure, such exports must be declared by filing CBP Form 4457 and require inspection by a U.S. Customs and Border Protection (CBP) officer.
Such body armor may be exported to countries not subject to restrictions under ITAR §126.1 and also specifically to Iraq and Afghanistan. For temporary exports to Afghanistan, the rule requires that the general conditions of the rule be met. For temporary exports to Iraq, the U.S. person utilizing the license exemption must either be affiliated with the U.S. Government or, not affiliated with the U.S. Government but traveling to Iraq under direct authorization by the Government of Iraq and engaging in humanitarian activities on behalf of Government of Iraq.
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Exporter Agrees to $190,000 Penalty for EAR Violations
Alleged Violations include 14 Unlicensed Exports of Spread-Spectrum Modems to China
On August 14, 2009, the Commerce Department's Bureau of Industry and Security (BIS) announced that RF Micro Devices, Inc. (RFMD) of Greensboro, N.C. has agreed to pay a $190,000 civil penalty to settle allegations that it exported spread-spectrum modems in violation of the Export Administration Regulations (EAR) to China. In addition, Carol Wilkins, RFMD manager whose responsibilities, at the time of the violations, included export control compliance, has agreed to pay a civil penalty in the amount of $15,000 for making false and misleading statements to BIS Special Agents during the investigation.
The allegations involved fourteen unlicensed exports of spread-spectrum modems, classified under Export Control Classification Number 5A001 and controlled for national security reasons, to China with knowledge that a violation of the Regulations was occurring, was about to occur or was intended to occur in connection with the spread-spectrum modems. Additionally, BIS alleged that on thirteen occasions RFMD made false or misleading statements about the submission of Shipper's Export Declarations (SEDs).
RFMD voluntarily disclosed the violations that occurred in 2002 and 2003.
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Foreign Trade Regulations Eliminate Social Security Number as ID Number in AES
New rule is effective September 4, 2009 and Census will implement on December 3, 2009
On August 5, 2009, the United States Census Bureau issued an interim final rule with request for comment in the Federal Register amending the Foreign Trade Regulations (FTR) to eliminate the requirement to report a Social Security Number (SSN) as an identification number when registering to file and filing electronic export information in the Automated Export System (AES) or AES Direct. This new rule will ensure that a USPPI's or U.S. authorized agent's SSN is protected in accordance with the Privacy Act of 1974, Title 5, United States Code, Section 552a.
Under the current regulations, the U.S. Principal Party in Interest (USPPI) or U.S. authorized agent residing or having an office located in the United States is required to enter (1) SSN, (2) Dun and Bradstreet Number (DUNS) or (3) an Employer Identification Number (EIN), when reporting export transactions in the AES or AESDirect.
(1) An SSN is used as an identification number principally by individual filers
(2) DUNS are available only to business entities, and
(3) EINs are available to both businesses and individuals.
Under the interim final rule, if the USPPI or the U.S. authorized agent who resides or has an office located in the United States does not have an EIN, that USPPI, or U.S. authorized agent must obtain an EIN through the Internal Revenue Service's website, or by calling (800) 829-4933. Former SSN filers who are business entities and want to use a DUNS rather than an EIN for identification purposes, must first obtain an EIN from the IRS and apply to Dun & Bradstreet for a DUNS.
The new rule is effective on September 4, 2009 and the Census Bureau will implement its provisions on December 3, 2009. Comments on the interim rule should be submitted in writing to the address shown below on or before October 5, 2009 to be considered in the formation of the final rule.
You may submit your comments to: William G. Bostic, Jr., Chief, Foreign Trade Division, U.S. Census Bureau, 4600 Silver Hill Road, Room 6K032, Washington, DC 20233-6700; by telephone at (301) 763-2255; by fax at (301) 763-6638; or by e-mail: william.g.bostic.jr@census.gov.
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CBP Implements Changes to 10+2 Processing
Changes are effective August 15, 2009
 On July 12, 2009, the U.S. Customs and Border Protection (CBP) implemented a number of changes to the processing of the Importer Security Filing (ISF), also known as 10+2. Accordingly, the transaction sets on the Security Filing page were updated to reflect these changes.
CBP issued a reminder that beginning August 15, 2009, the following data edits in ISF were switched from "ISF ACCEPTED WITH WARNINGS" to "ISF REJECTED:"
1. Edit for missing Importer of Record
a. CATAIR / CAMIR - Error Code 302, Error Message 'Importer Required"
b. X.12 - Error Message "485 NM1 Missing Importer"
2. Edit for incorrect Action Reason Code
a. CATAIR / CAMIR - Error Code 132, Error Message "Invalid Action Reason Code"
b. X.12 - Error Message "470 M1016 Invalid Value"
On August 12, 2009 CBP added an additional data element to the list of fatal errors. Effective August 15, 2009, reporting a party using an identification number (IRS number or Social Security Number) that is not currently on file with CBP will be rejected.
Questions should be directed to your assigned Client Representative or by calling (703) 650-3500.
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Court Rules CBP Must Follow Regulations in Determining Broker's Exercise of Supervision
CBP must at least consider 10 listed factors
 On August 11, 2009, the U.S. Court of Appeals for the Federal Circuit (CAFC) issued a decision in U.S. v. UPS Customhouse Brokerage, Inc., remanding the case to the U.S. Court of International Trade (CIT) for further proceedings. The case involved the Bureau of Customs and Border Protection's (Customs) action against UPS Customhouse Brokerage, Inc. (UPS).
In 2000, Customs initiated eight penalty actions against UPS for misclassifying the goods on customs entry documents on behalf of its clients. The pre-penalty notices in all eight cases alleged that UPS failed to exercise responsible supervision and control required by 19 USC §1641 by repeatedly misclassifying parts under subheading HTSUS 8473.30.9000.
In 2004, Customs brought suit against UPS in the CIT seeking the unpaid portion of the penalties totaling $75,000. The CIT ruled in favor of Customs and ordered payment of penalties.
On appeal, CAFC affirmed CIT's holding that UPS misclassified certain parts under subheading HTSUS 8473.30.9000.
On the issue of whether the broker exercised responsible supervision and control under 19 CFR §111.1, CAFC agreed with Customs that an agency has discretion in interpreting its own regulations, but pointed out that in this case, the Customs' interpretation of 19 CFR §111.1 was inconsistent with the regulation itself. The Court stated:
Customs, of course, has discretion in how it weighs each of the factors listed in §111.1. Additionally, the regulation makes clear that Customs is free to consider other factors in addition to those listed. However, this discretion does not absolve Customs of its obligation under the regulation to consider at the least the ten listed factors.
As a result of Customs' failure to consider all ten factors listed in 19 CFR §111.1 in evaluating the exercise of reasonable supervision and control, the Court vacated that portion of the CIT's judgment and remanded the case for further proceedings.
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Previous Versions of CBP Form 7501 to be Discontinued After 11/3/09
Beginning November 3, 2009, the U.S. Customs and Border Protection (CBP) will no longer accept versions of CBP Form 7501 dated before June 2009. While the June 2009 CBP Form 7501 does not contain any substantial changes from the previous versions, CBP seeks to ensure in particular that forms dated before April 2005 are no longer used.
CBP forms and their instructions can be accessed here.
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SEC Imposes Control Person Liability on Corporate Officers of Public Companies for Foreign Corrupt Practices
$600,000 Settled Enforcement Filed
On Jul 31, 2009 the U.S. Securities and Exchange Commission (SEC) filed a settled enforcement of $600,000 against Nature's Sunshine Products Inc. (NSP) and $25,000 against NSP Chief Executive Officer Douglas Faggioli and former Chief Financial Officer Craig D. Huff. NSP's Brazilian subsidiary allegedly paid the Brazilian custom officials to import unregistered products into Brazil and subsequently falsified its books and records to conceal the payments.
The SEC based its charge on NSP's violations of the anti-bribery provision of the Foreign Corrupt Practices Act (FCPA). But, according to Philip Urofsky, a former federal prosecutor of FCPA claims, the SEC also invoked, for the first time, Section 20(a) of the Securities Exchange Act of 1934 to hold NSP's officers liable.
In an interview with the National Law Journal on Control Person Liability theory, Mr. Urofsky, who now is a partner in the Washington office of New York's Shearman & Sterling, described this theory as an easy way to hold corporate individuals: the executives, directors, and accountants liable for the corporation's books, records and internal controls violations "without pleading any knowledge or culpable involvement in the underlying bribes or accounting issues."
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Who's Hiring?
A Summary of Current Trade Job Opportunities
 As a service to the international trade community, Global Trade Expertise compiles links to trade job opportunities from many different sources. New trade job listings are posted frequently on our website.
To sort the job opportunities by region, fields, or levels, click on the appropriate category or tag in the right column on our Trade Jobs webpage. |
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Calendar of Events
Upcoming Trade Events & Seminars
 Our website has a comprehensive listing of import and export conferences held throughout the country, as well as Customs training, EAR training, ITAR training, and other training. Below is a small sampling of what's available in the coming months:
Update 2009 - U.S. Bureau of Industry and Security (BIS)
September 30 - October 2, 2009 - Washington, D.C.
Complying with U.S. Export Controls - BIS
September 10 - 11, 2009 - Del Mar, CA - $350
Complying with U.S. Export Controls - BIS & Oklahoma District Export Council
September 15 - 16, 2009 - Oklahoma City, OK - $350
Complying with ITAR - Defense Articles and Services - BIS & Oklahoma District Export Council
September 17, 2009 - Oklahoma City, OK - $195
Complying with U.S. Export Controls - BIS & Professional Association of Exporters and Importers (PAEI)
September 23 - 24, 2009 - Santa Clara, CA - $350
Complying with Export Controls on International Tech Transfers - American Conference Institute
September 23 - 24, 2009 - San Francisco, CA - $1995 - $2795
Complying with ITAR - Defense Articles and Services - BIS & Oklahoma District Export Council
September 17, 2009 - Oklahoma City, OK - $195
Advanced ITAR Workshop - Federal Publications Seminar
September 30 - October 1, 2009 - Seattle, WA - $995
Satellite and Space Export Controls - American Conference Institute
October 1 - 2, 2009 - Orlando, FL - $2695
Export Control of Equipment, Technology, and Services - Federal Publication Seminars
October 14-15, 2009 - Las Vegas, NV - $995
Export Control of Equipment, Technology and Services - Federal Publications Seminar
October 14 - 15, 2009 - Las Vegas, NV - $995
Basic ITAR Workshop - Federal Publications Seminar
October 16, 2009 - Chicago, IL - $595
ITAR Boot Camp - American Conference Institute
October 20 - 21, 2009 - Orlando, FL - $2195
ITAR Compliance and Audits - Federal Publications Seminar
October 21 - 22, 2009 - Washington, DC - $995
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Basic ITAR Workshop - Federal Publications Seminar
October 27, 2009 - Arlington, VA - $595
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Thanks again for your interest in our newsletter!
Sincerely,
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Jennifer Kessinger & Tammie Krauskopf
Attorneys & Consultants
jk@globaltradeexpertise.com
Tel. 925.876.1381 (Jennifer Kessinger)
tk@globaltradeexpertise.com
Tel. 708.707.4087 (Tammie Krauskopf)
www.globaltradeexpertise.com
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