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Greetings!
Happy New Year! December's import/export news highlights include: Export Control Reforms proposed by the Commerce and State Department including proposed rules and request for public comments on revising both the CCL and the USML, as well as proposing a new STA license exception under the EAR, revising Category VII of the USML, and implementing changes to the Entity List based on an annual review. Also, several news items detail enforcement efforts by the government with regard to export, FCPA, and OFAC violations. As always, thank you for reading and we hope you have a prosperous 2011! Jennifer Kessinger, Tammie Krauskopf
& Ruta Riley
globaltradeexpertise
info@globaltradeexpertise.com
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President Reports on Progress of the New U.S. Export Control System Implementation
Export Control Reform Initiative Discussed
 On December 9, 2010, President's Export Council held a meeting at the White House where President Obama discussed progress made on the goal to double exports over the next five years.
The President announced at the meeting that the Administration released a series of regulations and requests for comment as part of the implementation of the new U.S. export system. The Administration also deployed its Export Control Reform Initiative webpage at www.export.gov, which includes a new tool to facilitate compliance with U.S. export control requirements by bringing together, for the first time, the various screening lists maintained by multiple Departments.
The announcement included introducing new proposed regulations published by the Department of State and by the Department of Commerce, both of which request public comments within 60 days:
"First, the Department of State published a proposed regulation to rewrite Category VII (Tanks and Military Vehicles) of the U.S. Munitions List (USML). The proposed Category is a "positive list" of those defense articles that an interagency technical working group has determined provide at least a significant military or intelligence advantage to the United States. The Department of State is soliciting public comment to ensure that the new Category clearly and concisely identifies the items that are controlled in this Category.
Second, the Department of State published a companion notice that provides details on the U.S. Government's methodology for generating the revised, positive Category VII as a model for other categories. The notice also solicits public input for virtually all the remaining categories on the USML (excluding the categories for classified defense articles and for miscellaneous articles), requesting input on:
1. Describing currently controlled defense articles in a "positive manner";
2. Recommending each defense article's proposed tier of control; and
3. Identifying any current defense article that does not meet any of the tiered control criteria, with an explanation of the analysis that resulted in that conclusion.
These inputs will be reviewed by the interagency technical working groups as the U.S. Government continues its work in revising the control lists. The Administration has an aggressive schedule to complete its rewrite of the entire USML in 2011.
Third, the Department of Commerce published a similar notice requesting public input on entries on the Commerce Control List as well as requesting foreign availability information on a wide range of controlled items outside a proposed set of countries who are allies and multilateral regime partners.
Fourth, the Department of Commerce published a proposed regulation that offers an initial set of new licensing policies. The proposed regulation would create a new license exception (STA) that would allow exports of controlled items (consistent with statutory and treaty requirements) to countries that are members of all four multilateral export control regimes or other regime members that also are members of NATO. It would also allow exports of items controlled on the Wassenaar Arrangement's Basic List to countries that are members of or adherents to all four multilateral export control regimes, members of NATO, or for civil end-uses in destinations that have not historically represented a significant diversion or proliferation risk for U.S.-origin items. The proposed exception would impose new requirements to provide safeguards against possible unauthorized re-exports, including notification, destination control statement and consignee statement requirements." |
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BIS Issues Advance Notice of Proposed Rulemaking re: Revising the Descriptions of Items on the CCL and Foreign Availability
Comments are due by February 7, 2011
 On December 9, 2010, the U.S. Commerce Department's Bureau of Industry and Security (BIS) issued an Advance Notice of Proposed Rulemaking in the Federal Register. As part of the President's export control reform initiative, BIS is seeking public comment on how the descriptions of items controlled on the Commerce Control List (CCL) of the Export Administration Regulations (EAR) could be more clear and positive and "tiered" in a manner consistent with the control criteria the Administration has developed as part of the reform effort. The request for comments on how items on the CCL could be tiered includes a request for comments on the degree to which a controlled item provides the United States with a critical, substantial, or significant military or intelligence advantage; and the availability of the item outside certain groups of countries.
BIS states that:
A core task of the Administration's Export Control Reform Initiative is to enhance national security by reviewing and revising, as necessary and to the extent permitted by law and regime obligations, the lists of items (i.e., commodities, software, and technology) controlled for export and reexport so that they (1) are clearer and more "positive" in nature and (2) can more easily be screened into three tiers based upon a set of criteria. The Administration has developed a three- tiered set of criteria to help determine whether a license should be required or a license exception should be available to allow license-free export, reexport, or transfer (in-country) of a given item, with appropriate conditions, to various destinations. The three-tiered set of criteria has two primary elements-(a) the degree to which an item provides the United States with a military or intelligence advantage and (b) the availability of the item outside the United States, its close allies and multilateral export control regime partners.
Accordingly, BIS seeks public comments on how certain export control classification numbers (ECCNs) that do not contain "positive" descriptions or that are unclear can be made more clear and more specific. In addition, BIS also seeks public comments on whether items with the capabilities and characteristics described on the CCL, and controlled for other than solely anti- terrorism (AT) reasons or Crime Control (CC) reasons, are indigenously developed, produced, or enhanced (a) almost exclusively in the United States or (b) in destinations other than Argentina, Australia, Austria, Belgium, Bulgaria, Canada, Croatia, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, Turkey, Ukraine, or the United Kingdom. |
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BIS Announces Weekly Wednesday Teleconferences to Discuss BIS' Proposed Rules Related to Export Control Reform
With Kevin Wolf, Assistant Secretary for Export Administration
On December 20, 2010, the U.S. Commerce Department's Bureau of Industry and Security (BIS) announced the availability of Kevin Wolf, Assistant Secretary for Export Administration, via a weekly Wednesday teleconference from 2pm - 4pm EST to answer the public's questions related to Export Control reform, particularly the two Commerce notices published on December 9th (see news articles below).
Questions to be discussed in the conference call must be submitted in advance to oesdseminar@bis.doc.gov with the subject line "Teleconference Questions".
To participate in the free conference calls, which are limited to the first 100 people per session, you may dial in at 866-917-2731, participant code 4136642. Callers should dial in 10 minutes early. No reservations are required.
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BIS Proposes a New Strategic Trade Authorization (STA) License Exception
Comments must be received by BIS no later than Feb. 7, 2011
On December 9, 2010, the U.S. Commerce Department's Bureau of Industry and Security (BIS) issued a proposed rule adding a new license exception to the Export Administration Regulations (EAR). The new Strategic Trade Authorization (STA) license exception would allow exports, reexports and transfers (in-country) of specified items to destinations that pose little risk of unauthorized use of those items. To provide assurance against diversion to unauthorized destinations, transactions under this license exception would be subject to notification, destination control statement and consignee statement requirements. This proposed rule is part of the Administration's Export Control Reform Initiative undertaken as a result of the fundamental review of the U.S. export control system announced by the President in August 2009.
This license exception would encompass three different authorizations, based on the reason(s) for control underlying the license requirements that would apply to the item in the particular transaction at issue, the destination, the sensitivity of the item and the end-use. One authorization would allow items subject to any (or all) of seven reasons for control to go to 37 destinations. Another authorization would allow less sensitive items subject to only national security reasons for control to go to two additional destinations. The third authorization would allow less sensitive items subject to only national security reasons for control to go to 125 additional destinations for civil end- uses. National security-controlled items that are ineligible for the last two authorizations would be identified by the new ''STA exclusion paragraphs'' in the ''License Exceptions'' sections of 50 ECCN entries on the Commerce Control List. Thus, the STA exclusion serves the opposite function of a typical list-based license exception paragraph, such as those setting forth license exceptions LVS (§ 740.3) and GBS (§ 740.4), which identifies items that are eligible for a license exception.
Comments on the proposed rule must be received by BIS no later than February 7, 2011. |
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DDTC Seeks Public Comments on Revising the USML to a "Positive" List
Comments are due by February 8, 2011
 On December 10, 2010, the State Department's Directorate of Defense Trade Controls (DDTC) issued an advance notice of proposed rulemaking (ANPRM) and is seeking public comment on revisions to the to the United States Munitions List (USML) that would make it a ''positive list'' of controlled defense articles, requests that the public ''tier'' defense articles based on the Administration's three-tier control criteria, and identify those current defense articles that the public believes do not fall within the scope of any of the criteria's tiers. A ''positive list'' is a list that describes controlled items using objective criteria rather than broad, open-ended, subjective, or design intent-based criteria.
DDTC is not seeking with this advance notice of proposed rulemaking (ANPRM) input on whether particular defense articles should or should not be controlled on the USML or whether any defense articles should be controlled differently. Rather, it is only seeking with this ANPRM input on how the USML can be revised so that it clearly describes what is subject to the jurisdiction of the International Traffic in Arms Regulations (ITAR), how defense articles are identified by tier, and what current defense articles do not fall within the scope of any of the tiers.
Comments must be received by the DDTC no later than February 8, 2011.
The ANPRM states in part that:
A key part of the Administration's Export Control Reform effort is to review and revise both the ITAR and the CCL to enhance national security so that they: (1) Are ''tiered'' consistent with the criteria the U.S. Government has established to distinguish the types of items that should be controlled at different levels for different types of destinations, end-uses, and end-users; (2) create a ''bright line'' between the two lists to clarify jurisdictional determinations and reduce government and industry uncertainty about whether a particular item is subject to the jurisdiction of the ITAR or the EAR; and (3) are structurally ''aligned'' so that they can eventually be combined into a single control list.
The Administration has determined that these changes are necessary to better focus its resources on protecting those items that need to be protected, to end jurisdictional confusion between the ITAR and EAR, and to provide clarity to make it easier for exporters to comply with the regulations and for the U.S. Government to administer and enforce them.
In order to accomplish the three above-referenced tasks simultaneously, the USML and, to a lesser degree, the CCL must be revised so that they are aligned into ''positive lists.'' A ''positive list'' is one that describes controlled items using objective criteria such as horsepower, microns, wavelength, speed, accuracy, hertz or other precise descriptions rather than broad, open- ended, subjective, or design intent- based criteria.
As the U.S. Government continues its work on preparing proposed revisions to the USML, it seeks public input on how best to describe the USML in a positive manner. U.S. companies, trade associations, and individuals that produce, market, or export USML- controlled defense articles are generally well positioned to describe their articles positively and to provide comments on what are and are not clear descriptions of controls over the articles. Public comment at this stage of the USML review process also ensures that affected industry sectors have the opportunity to contribute and comment on a key element of Export Control Reform.
The following is a summary of the specific requests for public comment described in this notice:
· Public comments should be provided on a category-by-category basis.
· Within each category, public input should be further identified by groups A thru E as further described below.
· Public input should describe defense articles in a ''positive'' way:
1. Use objective criteria or thresholds, such as precise descriptions or technical parameters, that do not lend themselves to multiple interpretations by reasonable people.
2. Descriptions should not contain any (a) controls that use generic labels for ''parts,'' ''components,'' ''accessories,'' ''attachments,'' or ''end-items'' or (b) other types of controls for specific types of defense articles because, for example, they were ''specifically designed or modified'' for a defense article, but should contain identification of those ''parts,'' ''components,'' ''accessories,'' ''attachments,'' or ''end-items'' that do warrant enumerated control on the USML. Separately, the use of ''specially designed'' as a control criterion for the other ''parts,'' ''components,'' ''accessories,'' ''attachments,'' or ''end- items'' should only be applied when required by multilateral obligations or when no other reasonable option exists.
3. Items are not to be listed on both the CCL and the USML unless there are specific technical or other objective criteria-regardless of the reason why any particular item was designed or modified-that distinguish between when an item is USML-controlled or when it is CCL-controlled.
4. In cases where technical characteristics are classified and need to be protected, the objective descriptions of the products controlled should be set at an unclassified level below the classified level.
5. Public input should include the recommended tier of control for the defense articles described using the tiering criteria in Part IV, Step 4 of the Guidelines in this notice.
6. The public is also requested to identify any current defense articles that do not fall within the scope of any of the criteria's tiers, and provide an explanation why they believe that such items are not within the scope of the criteria. |
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DDTC Issues Proposes Revising USML Category VII
Comments are due by February 8, 2011
As part of the President's Export Control Reform effort, the Department of State issued a proposed rule on December 10, 2010 to amend the International Traffic in Arms Regulations (ITAR) to revise Category VII of the U.S. Munitions List. The proposed rule would revise Category VII (tanks and military vehicles) to describe more precisely the defense articles described therein.
The DDTC administers the International Traffic in Arms Regulations (ITAR) (22 CFR parts 120-130). The items subject to the jurisdiction of the ITAR, i.e., ''defense articles,'' are identified on the ITAR's U.S. Munitions List (USML) (22 CFR 121.1). The descriptions in many USML categories are general and include design intent as an element of causing an item to be controlled. The descriptions in most CCL categories are specific and generally include technical parameters as an element for causing an item to be controlled.
Both the ITAR and the EAR impose license requirements on exports and re- exports. Items not subject to the ITAR or to the exclusive licensing jurisdiction of any other set of regulations are subject to the EAR. A key part of the Administration's Export Control Reform effort is to review and revise these two lists of controlled items to enhance national security so that they: (1) Are "tiered" consistent with the criteria the U.S. Government is establishing to distinguish the types of items that should be controlled at different levels for different types of destinations, end-uses, and end-users ("Criteria"); (2) create a "bright line" between the two lists to clarify jurisdictional determinations and reduce government and industry uncertainty about whether particular items are subject to the jurisdiction of the ITAR or the EAR; and (3) are structurally "aligned" so that they later can be combined into a single list of controlled items.
In the process of revising the USML, articles will be screened to determine which items that are currently USML-controlled defense articles should remain on the USML, which items that are currently USML controlled defense articles could be controlled under the CCL, and which items should be subject to the EAR without a specific Export Control Classification Number (ECCN) on the CCL. This proposed rule addresses both the need for "tiering" Category VII and the need for establishing a "bright line" between the USML and the CCL so that, after application of this process to the remaining categories of the USML and meeting the statutory and other requirements of Export Control Reform, the two lists can be combined into a single list of controlled items. Prior to the completion of a single U.S. Government control list, DDTC plans to publish in the existing ITAR a final rule amending Category VII after it has reviewed and considered all comments received on this proposed rule, received interagency input and approval, and satisfied its obligations under section 38(f) of the Arms Export Control Act.
The DDTC has revised Category VII to assign all controlled defense articles under this category one of the three control Criteria, that is Tier 1 (T1), Tier 2 (T2), or Tier 3 (T3). These tier designations were made upon a government-wide assessment of the appropriate level of export control for each item based upon different types of destinations, end-uses, and end-users. As other USML categories are reviewed and revised, the same "tiering" structure is planned to be applied to the remaining USML categories. |
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BIS Implements Additional Changes from Annual Review of Entity List for Entities in China and Russia
On December 17, 2010, the Commerce Department's Bureau of Industry and Security (BIS) issued a final rule implementing additional changes to the Entity List based on the annual review of the list conducted by the End-User Review Committee (ERC).
The changes to the Entity List from the annual review is being implemented in three rules. The first rule published on May 28, 2010 (75 FR 29884) implemented the results of the annual review for listed entities located in Canada, Egypt, Germany, Hong Kong, Israel, Kuwait, Lebanon, Malaysia, South Korea, Singapore, and the United Kingdom.
The second rule, published on 12/17/10, implements the results of the annual review for entities located in China and Russia. This rule removes five entities from the Entity List under Russia and makes twenty-one modifications to the Entity List (consisting of modifications to eighteen Chinese entries and three Russian entries currently on the Entity List) by adding additional addresses, aliases and/or clarifying the names for these twenty-one entities.
The third rule, which will likely be published in early 2011, will implement the remaining results of the annual review.
The Entity List provides notice to the public that certain exports, reexports, and transfers (in-country) to entities identified on the Entity List require a license from the Bureau of Industry and Security and that availability of license exceptions in such transactions is |
California Company Settles Criminal and Civil FCPA Allegations for $1.7 Million
 On December 10, 2010, Department of Justice (DOJ) reported that RAE Systems, Inc. (RAE), a San Jose, CA, corporation, has agreed to pay $1.7 million to resolve charges of violating the Foreign Corrupt Practices Act (FCPA).
The information included in the non-prosecution agreement which resulted after RAE voluntarily disclosed the violations, RAE is an equipment manufacturer who is engaged in the development and manufacture of rapidly deployable, multi-sensor chemical and radiation detection monitors and networks. From 2005 to 2008, the company had significant operations in the People's Republic of China (China), and sold its products and services primarily through two subsidiaries organized as joint ventures with local Chinese entities: RAE-KLH (Beijing) Co. Limited (RAE-KLH) and RAE Coal Mine Safety Instruments (Fushun) Co. Ltd. (RAE Fushun). The information further provides that a significant number of RAE-KLH's and RAE Fushun's customers were Chinese government departments and bureaus, and large state-owned agencies and instrumentalities, including regional fire departments, emergency response departments and entities under the supervision of the provincial environmental agency.
The agreement describes that RAE used RAE-KLH and RAE Fushun employees to pay bribes to foreign officials in China. As a result of due diligence conducted by RAE before acquiring the majority of the joint venture that became known as RAE-KLH, RAE became aware of improper commissions, kickbacks and "under table greasing to get deals" by employees. The information contained in the agreement provides, however, that RAE elected to implement internal controls only "halfway" so as not to "choke the sales engine and cause a distraction for the sales guys." As a result, improper payments continued at RAE-KLH. When acquiring the majority of RAE Fushun, RAE did not conduct any pre-acquisition corruption due diligence in spite of a number of red flags. It was later confirmed that RAE Fushun also gave bribes to Chinese officials.
According to the settlement agreement, RAE Systems voluntarily disclosed this conduct to the department, conducted a thorough and credible internal investigation, and undertook extensive remediation. RAE agreed to fully cooperate with investigations by law enforcement authorities, to adhere to a set of enhanced corporate compliance and reporting obligations, and to submit periodic reports to the department regarding RAE's compliance with its obligations under the agreement.
In a related matter, RAE reached a settlement with the U.S. Securities and Exchange Commission (SEC) in which RAE consented to the entry of a permanent injunction against FCPA violations and agreed to pay $1,147,800 in disgorgement and $109,212 in prejudgment interest. RAE also agreed to comply with certain undertakings regarding its FCPA compliance program. |
Washington Man Charged with AECA Violations
Up to Five Years Imprisonment Faced
On December 6, 2010, the Associated Press reported that Lian Yang, a resident of Wodinville, WA, was arrested accused of conspiring to smuggle restricted satellite parts to the People's Republic of China.
The U.S. Attorney's office states that Yang tried to recruit people to help him export 300 radiation-hardened semiconductor devices. The U.S. Attorney claims that Yang knew that these parts required a State Department authorization as they are covered by the Arms Export Control Act (AECA). The complaint against Yang provides that in a series of meetings with undercover agents this year, Yang agreed to pay $620,000 for the parts and also planned to create a U.S. shell company that would appear to be purchasing the parts concealing the fact that the were destined for China. Yang planned to falsify purchase orders indicating that parts purchased were not restricted.
Yang faces up to five years imprisonment for the AECA violations. |
CA Man Charged with Export Violations
Up to 40 Years Imprisonment and $2 Million Fine Faced
On December 16, 2010, Newswire reported that Marc Knapp (Knapp) of Simi Valley, CA, has been charged with violating the International Emergency Economic Powers Act (IEEPA) and the Arms Export Control Act (AECA). Knapp illegally exported to Hungary and attempted to export to the Islamic Republic of Iran and Russia a number of items, which triggered IEEPA and AECA jurisdiction.
Specifically, Knapp is charged with illegally exporting and attempting to export an F-5B Tiger II fighter jet; CSU-13 anti-gravity flight suits, which are worn by pilots to counteract the forces of gravity and acceleration; an F-14 NATOPS emergency procedures manual, which is designed for use by pilots during in-flight emergencies in fighter jets; electronic versions of the NATOPS emergency procedures manual; AN/PRC-149 survival radios, which are hand-held search and rescue radios used primarily by U.S. Navy pilots as an emergency locator beacon; and F-14 ejection seats.
According to court documents, a cooperating defendant introduced Knapp to an undercover U.S. Immigration and Customs Enforcement's (ICE) Homeland Security Investigations (HSI) special agent who met with Knapp on several occasions. During the meetings, Knapp informed the ICE agent that he had various defense items for sale. He also admitted procuring an F-14 ejection seat, which was sold to the agent by another source. Over the course of their interaction, Knapp provided the agent with various lists containing items for sale, including photographs and descriptions.
Knapp faces a maximum statutory sentence of 40 years imprisonment, a $2 million fine and a forfeiture of profits.
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PPG Foreign Subsidiary Settles Export Charges with Forfeiture and $3.75 Million Fine
On December 21, 2010, U.S. Department of Justice (DOJ) reported that PPG Paints Trading (Shanghai) Co., Ltd., a wholly-owned Chinese subsidiary of U.S.-based PPG Industries, Inc. (PPG Industries), pled guilty to conspiring to violate the International Emergency Economic Powers Act (IEEPA) and the Export Administration Regulations (EAR).
According to the charges, PPG Paints Trading actions illegally exported, reexported and/or transshipped high-performance coatings from the U.S. to the Chashma 2 Nuclear Power Plant in Pakistan via a third party distribution in the People's Republic of China. Chashma 2 is a Pakistan Atomic Energy Commission (PAEC) power plant under construction near Kundian, Punjab province, Pakistan.
The PAEC is the science and technology organization in Pakistan responsible for Pakistan's nuclear program including the development and operation of nuclear power plants in Pakistan. In November 1998, following Pakistan's first successful detonation of a nuclear device, BIS added the PAEC, as well as its subordinate nuclear reactors and power plants, to the list of prohibited end users under the EAR. As such, exports, reexports, or transshipment of any items subject to the EAR to the PAEC require a Department of Commerce license.
According to count one of the information, in January 2006, PPG Industries sought such an export license for the shipments of coatings to Chashma 2, which was denied by the Commerce Department in June 2006. Following that denial, PPG Paints Trading agreed upon an arrangement whereby it sold the high-performance coatings to a third-party distributor in China which, in turn, delivered the coatings for application at Chashma 2. In its purchase orders for the shipments in question, PPG Paints Trading falsely stated that the coatings were to be used at a nuclear power plant in China, the export of goods to which would not require a license from the Department of Commerce.
As part of its plea agreement, PPG Paints Trading agreed to pay the maximum criminal fine of $2 million, and serve five years of corporate probation. The gross proceeds received by PPG Paints Trading for these three illegal exports was $32,319, which it forfeited as part of the plea agreement. In addition to the forfeiture and the fine, the Bureau of Industry and Security (BIS) also required an audit of 2011 and 2012 export transactions of PPG and its relevant business units in the U.S. and China, including transactions related to restricted end users on the agency's Entity List and nuclear end uses and end users.
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Exporter Fined $92M to Settle FCPA Violations
3 Year Deferred Prosecution Agreement Reached
 On December 27, 2010, Department of Justice (DOJ) reported that Alcatel-Lucent S.A. and three of its subsidiaries have agreed to pay a $92 million penalty to resolve a Foreign Corrupt Practices Act (FCPA) investigation into the sales practices of Alcatel S.A. prior to its merger with Lucent Technologies Inc. in 2006.
Alcatel-Lucent and DOJ agreed to resolve the FCPA charges by entering into a deferred prosecution agreement for a term of three years. According to court documents, Alcatel-Lucent was formed in 2006 after Lucent Technologies merged with Alcatel, a French telecommunications equipment and services company. Beginning in the 1990s and through 2006, Alcatel pursued many of its business opportunities around the globe through subsidiaries using third-party agents and consultants who were retained by Alcatel Standard. This business model was shown to be prone to corruption, as consultants were repeatedly used as conduits to bribe foreign officials and business executives of private customers to obtain or retain business in many countries.
Court documents allege that Alcatel-Lucent's three subsidiaries paid millions of dollars to bribe foreign officials in order to obtain and retain business. Alcatel-Lucent also admitted that it violated the internal controls and books and records provisions of the FCPA related to the hiring of third-party agents. Overall, the company admitted that it earned approximately $48.1 million in profits as a result of these payments.
In a related case, two former Alcatel executives were charged in March 2007 with conspiracy to violate the FCPA, making corrupt payments in violation of the FCPA, and laundering bribe payments through a third-party.
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OFAC Posts Information on Recent Civil Penalties
 On December 16, 2010, Office of Foreign Assets Controls(OFAC) published recent civil penalty information:
· Discover Financial Services of Riverwoods, IL (Discover) has remitted $8,720 to settle allegations of the Foreign Narcotics Kingpin Sanctions Regulations (FNKSR) violations occurring from December 2005 to November 2007. OFAC alleged that Discover dealt in property in the United States in which a Specially Designated Narcotics Trafficker had an interest by maintaining a personal credit card account on his behalf. Discover processed twenty-eight transactions through this personal credit card account. The value of the transactions processed over three years totaled $23,252. The base penalty amount was adjustment to account for several General Factors: Discover voluntarily disclosed this matter to OFAC, took steps to strengthen its OFAC compliance program and its existing OFAC procedures, assigned a new employee to review the credit card portfolio against SDN list updates, and provided extra training to its employees. In addition, Discover had no other known violations on record with OFAC prior to these allegations.
· Wells Fargo Bank, N.A. (Wells Fargo) has remitted $67,500 to settle allegations of violations of the Iranian Transactions Regulations (ITR) from March 2005 to July 2006. OFAC alleged that Wells Fargo exported financial services to Iran by performing financial services in the United States on behalf of an account holder while the account holder was located in Iran. The value of the transactions totaled $55,959.62. Wells Fargo did not voluntarily disclose this matter to OFAC. The base penalty amount for the apparent violations was $90,000. The settlement amount reflects OFAC's consideration of the following General Factors: OFAC expressed to Wells Fargo an interest in this account holder as early as April 2002 but Wells Fargo failed to conduct an investigation until September 2006. There were three prior penalty cases against Wells Fargo for violations of the ITR. In addition, Wells Fargo created and implemented a risk-based OFAC compliance program, which includes the use of Internet Protocol addresses to identify registered users located in Iran. Finally, Wells Fargo established open and timely communications with OFAC, and entered into two tolling agreements with OFAC.
· One unnamed individual was assessed a penalty totaling $30,000 for violating the Iranian Transactions Regulations (ITR). Specifically, the individual engaged in prohibited transactions in 2006 when he sent and/or attempted to send funds to Iran for investment in a catering business located in Iran. The individual did not voluntarily disclose the violations to OFAC, however the violations were considered nonegregious in nature. The assessment amount reflected OFAC's consideration pursuant to its Enforcement Guidelines this being the first individual's violation of an OFAC sanctions program. |
Foreign Trade Zones Board Proposes Changes to FTZ Regulations
Comments are due by April 8, 2011
 On December 30, 2010, the Foreign-Trade Zones Board (FTZ Board) issued a proposed rule in the Federal Register to amend the substantive and procedural rules for the authorization of Foreign Trade Zones (FTZs) and the regulation of zone activity.
The revisions encompass changes related to manufacturing and value-added activities, as well as new rules designed to address compliance with the Foreign Trade Zones Act's (FTZ Act) requirement for a grantee to provide uniform treatment for the users of a zone.
Specifically, the proposed changes are as follows:
The proposed regulations would eliminate the general requirement for advance approval from the FTZ Board for all manufacturing (i.e., substantial transformation) activity. As proposed, advanced approval for production activity would only be required under specific circumstances (e.g., if a lower U.S. duty rate will be applied to the component through its incorporation into a downstream product in the FTZ) (see 15 C.F.R. Sec. 400.14(a)).
In circumstances where advance approval is required for specific production activity, the proposed rule would delegate authority to the Commerce Department's Assistant Secretary for Import Administration to approve the activity on an interim basis pending completion of the full
FTZ Board's review of the request, which would significantly decrease the time a company must wait for approval (see 15 C.F.R. Sec. 400.14(d)(3)). This new provision would replace and will be significantly more flexible than the temporary/interim manufacturing (T/IM) procedure, which had not yet been the subject of specific regulations. The T/IM procedure was limited to activity similar to that approved by the FTZ Board in the preceding five years. The new provision for interim approvals contains no requirement for similarity to recently approved activity.
The proposed regulations also provide improved flexibility to accommodate changes in production at previously approved FTZ operations through retrospective notifications to the FTZ Board (see Sec. Sec. 400.14(e)(1) and 400.37). The current regulations allow grantees or zone operators to notify the FTZ Board of new components but require advance approval for any new finished products. The proposed regulations would allow grantees or zone operators to notify the Board of new finished products as well as new components. However, in order to preserve the public process long associated with FTZ Board evaluation of new "manufacturing'' activity, the proposed regulations would also require that a production operation obtain advance FTZ Board approval - after a public comment period on the proposal - for the list of broad categories of components or finished products within which specific new components or finished products would be identified. In addition, the proposed regulations would provide for a public comment period on all notifications submitted to the FTZ Board, as well as procedures to review any such notifications and to impose restrictions on notified changes when warranted.
Two other areas of change in the proposed regulations pertain to the statutory requirements that each zone be operated as a public utility and provide uniform treatment to all that apply to use the zone. The current regulations do not provide grantees guidance on the practical implementation of these requirements. The proposed regulations would provide such guidance and would establish specific standards for compliance with those requirements (see Secs. 400.42 and 400.43). FTZ Board plans that explicit standards regarding uniform treatment would help to ensure that the broadest range of U.S.-based operations can use zones to maximize their global competitiveness.
Additionally, the proposed regulations would implement the statutory authority to issue fines for violations of the FTZ Act or the Board's regulations through specific provisions targeting certain types of violations (see Sec. 400.62). The current regulations contain no provisions pertaining to the statutory fining authority. The fining provisions are supplemented by provisions through which the Board or the Commerce Department's Assistant Secretary for Import Administration may order the suspension of the activated status of a zone operation in response to a violation. The proposed regulations' fining and suspension-of-activation provisions would help to ensure compliance with the statutory or regulatory requirements that zones submit annual reports to the FTZ Board, obtain advance approval (or submit notification) for certain production activity, and avoid certain conflicts of interest inconsistent with the statutory uniform treatment requirement.
Finally, the proposed regulations contain a new provision allowing for the ``prior disclosure'' of violations of the FTZ Act or the Board's regulations (see Sec. 400.63). Disclosure of a violation to the FTZ Board prior to its discovery by the Board would generally result in the potential total fine for the violation (or series of offenses stemming from a continuing violation) being reduced to $1,000.
In addition to the overview of changes above, the rule contains a detailed explanation of proposed changes by section. Comments on the proposed rule are due on April 8, 2011.
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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:
Incoterms® 2010 Seminar - United States Council for International Business (USCIB)
January 6, 2011 - New York, NY- $350/$380
Incoterms® 2010 Seminar - United States Council for International Business (USCIB)
January 7, 2011 - Pittsburgh, PA - $350/$380
Basics of Encryption Exportation - Bureau of Industry and Security
January 19, 2011 - Santa Clara, CA - $260
Incoterms® 2010 Seminar - United States Council for International Business (USCIB)
January 24, 2011 - Seattle, WA - $350/$380
Complying with U.S. Export Controls - Bureau of Industry and Security
January 25 - 26, 2011 - Scottsdale, AZ - $450
Incoterms® 2010 Seminar - United States Council for International Business (USCIB)
January 27, 2011 - Houston, TX - $350/$380
Incoterms® 2010 Seminar - United States Council for International Business (USCIB)
January 28, 2011 - Witchita, KS - $350/$380
Incoterms® 2010 Seminar - United States Council for International Business (USCIB)
February 7, 2011 - Rochester, NY- $350/$380
Complying with U.S. Export Controls - Bureau of Industry and Security
February 16 - 17, 2011 - Savannah, GA - $370
Export Control Forum - Bureau of Industry and Security
February 28 - March 1, 2011 - Irvine, CA - $525
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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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Thanks again for your interest in our newsletter!
Sincerely,
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Jennifer Kessinger, Tammie Krauskopf & Ruta Riley
Attorneys & Consultants
jk@globaltradeexpertise.com
Tel. 925.876.1381 (Jennifer Kessinger)
tk@globaltradeexpertise.com
Tel. 708.707.4087 (Tammie Krauskopf)
rr@globaltradexpertise.com
Tel. (630) 862-8123
www.globaltradeexpertise.com
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