Global Trader Newsletter

We apologize for the delay in getting February's new items to you as our attendance at BIS' Export Control Forum in Irvine, CA upset our newsletter schedule. At the Export Control Forum, officials from BIS, DDTC, DOD, and OFAC shared details of President Obama's Export Control Reform efforts and updated us on other export control matters. If any of you would like a copy of the presentations, please send us an email and we'll get it out to you in a PDF version.

As always, thank you for reading!

Jennifer Kessinger, Tammie Krauskopf
& Ruta Riley
globaltradeexpertise
info@globaltradeexpertise.com

Export News

President Obama Declares National Emergency with respect to Libya

Far-Reaching Prohibitions Instituted

Libya Flag

On February 25, 2011, President Obama issued an Executive Order declaring a National Emergency with respect to Libya. The Executive Order provides for wide-reaching prohibitions on transactions with the government of Libya and others associated with Colonel Muammar Qadhafi. While all trade with Libya is not restricted, due to the pervasiveness of the Libyan government in its commerce, OFAC officials cautioned the audience at the recent BIS Export Control Forum in Irvine, CA to scrutinize any transaction with Libya very carefully before proceeding.

In addition, President Obama sent a letter to Congress on the matter and issued the following statement:

The Libyan government's continued violation of human rights, brutalization of its people, and outrageous threats have rightly drawn the strong and broad condemnation of the international community. By any measure, Muammar el-Qaddafi's government has violated international norms and common decency and must be held accountable. These sanctions therefore target the Qaddafi government, while protecting the assets that belong to the people of Libya.

Going forward, the United States will continue to closely coordinate our actions with the international community, including our friends and allies, and the United Nations. We will stand steadfastly with the Libyan people in their demand for universal rights, and a government that is responsive to their aspirations. Their human dignity cannot be denied.

DDTC Posts Notice of Suspension of ITAR Licenses for Libya

The State Department's Directorate of Defense Trade Controls (DDTC) posted a notice on its website announcing the suspension of all export licenses issued pursuant to the authorities of the Arms Export Control Act and the International Traffic in Arms Regulations (22 CFR 120-130) until further notice. Additionally, no exemptions may be utilized for exports to Libya. Further guidance related to exports to Libya will be promulgated via a Federal Register Notice.

Export Control Forum Remarks of BIS Under Secretary Hirschhorn Posted

Export Control Reform Steps Outlined

On February 28, 2011, BIS posted to its website the opening remarks of Commerce Under Secretary for Industry and Security Eric L. Hirschhorn at BIS' Export Control Forum in Irvine, CA.

In his remarks, Under Secretary Hirschhorn detailed the export control initiative and addressed:

    ·    The U.S. Munitions List
    ·    The Commerce Control List
    ·    The Parallel-Tiered Control Lists
    ·    Licensing Policy
    ·    Related Export Control Issues
    ·    Compliance and Enforcement
    ·    Information Technology System

DDTC Proposes Electronic Payment of Registration Fees

Comments are due by April 25, 2011

State Department Seal

On February 24, 2011, the State Department's Directorate of Defense Trade Controls (DDTC) posted in the Federal Register a proposed amendment to the International Traffic in Arms Regulations (ITAR) to change the method of payment of registration fees to electronic submission.

Comments on the proposed amendment are due by April 25, 2011.

Commerce Announces Appointees to President's Export Council Subcommittee on Export Administration

Scope Narrowed for Items Subject to EAR

BIS

On February 23, 2011, Commerce Secretary Gary Locke announced the appointment of members to the President's Export Council Subcommittee on Export Administration (PECSEA), which will advise the Commerce Department on the administration's export control reform initiative.

"The PECSEA will provide invaluable advice as we continue to enhance our national security through the President's reform efforts," Locke said. "Export Control Reform requires a public-private partnership, and the business community's insight on how that effort impacts the industrial base is vital."

President's Export Council (PEC) member Raul Pedraza, Founder and President of Magno International L.P., will chair the PECSEA, which has scheduled its first meeting for March 10. Marion Blakey, President and Chief Executive Officer of the Aerospace Industries Association, will serve as the Vice Chair.

Additional PECSEA Members

Gregory Bourn, Finmeccanica North America, Inc.
Leslie Bowen, Material Systems, Inc.
Darrell Coleman, DynCorp International, LLC
Curtis Dombek, Sheppard, Mullin, Richter & Hampton, LLP
Nelson Dong, Dorsey & Whitney, LLP
Jefferson Hofgard, The Boeing Company
Beth Ann Johnson, Northrop Grumman Corporation
Dean Johnson, Systron Donner Inertial
Tino Oldani, Ingersoll Machine Tools, Inc.
Kathleen Lockard Palma, General Electric Company
Roy Paulson, Paulson Manufacturing Corporation
Kimberly Pritula, Sturm, Ruger & Company, Inc.
Gregory Robbins, Veeco Instruments, Inc.
Carlos Romero, University of New Mexico
Robert Schacht, Hyrdra-Electric Company
Michelle Schulz, Braumiller Schulz, LLP
Chiradeep Sengupta, Federal Express
Michael Slonim, Honeywell International, Inc.
Osval "Chip" Storie, MAG Industrial Automation Systems
Michael Swartz, Lake Shore Cryotronics, Inc.
Chuck Tabbert, Ultra Communications, Inc.
Song Volk, Hughes Network Systems, LLC

Revised Form I-129 Form Requires Petitioners to Certify Compliance with Export Controls

Effective February 20, 2011, the revised Form I-129, Petition for a Nonimmigrant Worker, requires a petitioner seeking H-1B, H-1B1, L-1 or O-1A visas to certify that it has reviewed U.S. export control regulations and determined that:

(a) a license is not required to release technology to the foreign worker; or
(b) if an export license is required, it will not release controlled technology to the foreign worker until it has received a license or other authorization to do so.

For additional information about the revised form and petitions for nonimmigrant worker visas, see http://www.uscis.gov.

BIS Implements Mandatory Electronic Registration for SNAP-R

On February 9, 2011, the Bureau of Industry and Security (BIS) posted a final rule in the Federal Register that amends the Export Administration Regulations (EAR) implementing mandatory on-line registration process for obtaining an account to submit license applications and similar documents electronically through Simplified Network Application Processing (SNAP-R) system.

The final rule sets forth the information that parties registering online are required to provide to BIS and other duties that registered parties have with respect to keeping information in their accounts current. In the past, BIS required filing entities to register for a SNAP-R account through a paper and facsimile process.

The rule is effective March 11, 2011. Beginning on April 11, 2011, all new SNAP-R registrations must be made in accordance with this rule.

The rule also provides that, beginning on June 10, 2011, SNAP-R accounts of filing entities that do not have account administrators will not be accessible until an existing individual user for that entity logs-on to SNAP-R and registers as account administrator. Beginning September 8, 2011, any accounts that do not have an account administrator will be inactivated. Filing entities will be able to register again but will have to go through entire registration process that applies to new entities.

BIS Reviews Progress of U.S. Export Controls Reform at the C5 European Forum

On February 7, 2011, Daniel O. Hill, Deputy Under Secretary for Industry and Security, spoke at the C5 European Forum on Export Controls in Brussels, Belgium, commenting on the U.S. export controls system reform.

Mr. Hill emphasized the need to reform the U.S. export controls to keep pace with geopolitical changes and innovations in industries:

Our current system operates under two different control lists with distinctly different approaches to identifying and controlling products. The Department of State administers the Munitions List, which generally includes items specifically designed for military applications, a concept as opaque as it is outdated. And the Commerce Department administers the Commerce Control List, or CCL, which is a far more specific list of mostly "dual use items" - that is commercial items that could have military applications - items like truck parts, electronic components and even computers.

There are three primary U.S. licensing agencies - each with different procedures and different information technology systems - and scores of different regulatory definitions. It would be hard for anyone to argue that this existing system is maximizing our security or is a model of efficiency.

The Munitions List was created during the Cold War. Most of the items used by the military were developed by, or solely for the military. But times have changed. The commercial sector alone now develops nearly two-thirds of the technologies our military uses.

For exporters and companies with production lines spread across the globe, time they could be spending creating innovative, game-changing products to sell in different countries is instead spent navigating a confusing and time-consuming export control bureaucracy.

An equally disturbing phenomenon is that U.S. companies are sometimes being "engineered out" of collaborative foreign projects due to U.S. export control requirements. We have heard of examples of sales contracts including provisions that explicitly bar the use of U.S.-manufactured articles because companies don't want to have to deal with our export control system.
America puts our exporters in an untenable position when we forbid or delay them from selling a widely available item to an overseas market even when comparable foreign items face no similar restrictions from their home country."

Mr. Hill also spoke of improving the export controls regime by reforming the United States Munitions List (USML), changing the export controls structure, and establishing a licensing policy that ensures an appropriate agency review.

As for the USML, the "goal is to create one list that will include every item or technology that requires control; have one agency that will administer these controls; have one enforcement coordination agency that handles every investigation of criminal violations; and run everything using one IT platform." The Department of Defense and the Department of State are working on harmonizing the way the USML and the Commerce Control List (CCL) control items, software and technology. USML is being converted into a positive list of controls. Mr. Hill also stated that a three-tiered licensing system is being created that will apply in the same manner to items on both the USML and the CCL.

When the two control lists are updated, the plan is to implement common criteria for classifying items on both lists. This will be achieved by dividing each of the two lists into a three-tiered structure, which will distinguish between the most sensitive items available only in the U.S., items in the middle tier that provide a substantial military or intelligence advantage, and items in the lowest tier reserved for items that provide a significant military or intelligence advantage and which are more broadly availably.

These tiers are expected to improve the U.S. national security and competitiveness by permitting the government to adjust controls in a timely manner over a product's life cycle.

A corresponding licensing policy will be implemented to ensure appropriate agency review. Top tier items will generally require a license for all destinations, many of the items in the middle tier will be eligible to be exported to allies and most multilateral partners under a license exception or general authorization, and licenses for the lowest tier items not considered proliferation concerns will typically not be required.

In the final phase of export controls reform, U.S. government plans to merge the USML and the CCL into one list.

The upcoming changes will be documented in the Federal Register.

OFAC Posts Information on Recent Civil Penalties

On February 1, 2011, Office of Foreign Assets Controls (OFAC) published recent civil penalty information:

· Trans Pacific National Bank of San Francisco, CA (Trans Pacific) paid $12,500 to settle allegations of violating the Iranian Transactions Regulations (ITR) from September 18, 2007 to March 19, 2008. OFAC alleged that Trans Pacific engaged in transactions related to goods of Iranian origin and services for exportation to Iran, and facilitated transactions by a foreign person by initiating two separate wire transfers on behalf of an account holder for an underlying commercial transaction prohibited by the ITR, which is prohibited by the ITR if performed by a U.S. person. In one instance, the wire transfer instructions referenced "Iranian material" and in the other instance the instructions referenced "Iran material." The value of the transactions totaled $35,600. Trans Pacific did not voluntarily disclose this matter to OFAC. The settlement amount reflected the fact that at the time of the transactions, Trans Pacific's filtering system was not designed to detect references to sanctions targets in the "Originator to Beneficiary Information" field leading to both of these apparent violations; and Trans Pacific has enhanced its compliance program in response to the violations by requiring that the memorandum information of each wire transfer also be reviewed for OFAC sanctions references.

· Aon International Energy, Inc. of Houston, TX (Aon Energy), a subsidiary of Aon Corporation, paid $36,000 to settle allegations of violations of the Iranian Transactions Regulations (ITR) that occurred in October 2005. OFAC alleged that Aon Energy had facilitated the placement of coverage and the payment of premiums for facultative retrocession reinsurance that reinsured construction risks associated with a petroleum project on Kharg Island in Iran. Specifically, Aon Energy brokered and placed facultative retrocession reinsurance on behalf of a European reinsurer with two European retrocessionaires. The combined premium for the two retrocession reinsurance placements was $62,883. Aon Energy did not voluntarily disclose this matter to OFAC. The settlement amount reflected OFAC's consideration of the fact that AON Energy provides specialized insurance services resulting in transactions that were particularly harmful to the sanctions program; OFAC viewed the apparent violations as part of a pattern of reckless, but not egregious, conduct by Aon Energy in connection with these policies; Aon Energy, under the direction of its parent, Aon, took several steps to strengthen its OFAC compliance program and its existing OFAC procedures after the apparent violations; Aon Energy has not been the subject of prior OFAC penalties or other OFAC administrative actions; and Aon Energy cooperated with OFAC and also entered into a tolling agreement with OFAC which was undertaken by Aon on behalf of Aon Energy.

Iranian Man Charged with Illegally Exporting Specialized Metals

On February 1, 2011, the U.S. Department of Justice (DOJ) issued a press release reporting that Milad Jafari, a 36-year old citizen and resident of Iran, has been indicted for conspiracy, smuggling and illegally exporting specialized metals and other materials from the U.S. through companies in Turkey to several entities in Iran, including some that have been sanctioned for involvement in ballistic missile activities.

Specifically, the indictment alleges that from about February 2004 through about August 2007 Jafari engaged in conspiracy and exported goods to Iran in violation of the U.S. embargo and without the required U.S. government licenses. Jafari and his conspirators allegedly solicited orders from customers in Iran and purchased goods from U.S. companies on behalf of these Iranian customers. Jafari and others allegedly wired money to the U.S. companies as payment, concealed from the U.S. companies the end-use and end-users of the goods, and caused the goods to be shipped to Turkey and later to Iran.
Jafari and his associates are thought to operate a procurement network that provides direct support to Iran's missile program by securing metal products, including steel and aluminum alloys, for subordinates of Iran's Aerospace Industries Organization (AIO). On February 1, 2011, the U.S. Department of the Treasury designated Jafari, his associates and several corporate entities in Iran and Turkey under Executive Order 13382, which targets for sanctions proliferators of weapons of mass destruction and their supporters. This is expected to block Jafari and his associates from the U.S. financial and commercial systems.

The indictment seeks forfeiture of $177,868 in connection with these offenses. Jafari remains at large and is believed to be in Iran. He faces a maximum potential sentence of five years in prison for the conspiracy count, 20 years in prison for each count of illegal exports to Iran, and 10 years in prison for each smuggling count.

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Sincerely,

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

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