OFAC Issues January 2009 Monthly Civil Penalties Report

Today the Treasury Department's Office of Foreign Assets Control (OFAC) released its monthly report (pdf) of civil penalties imposed on companies and individuals for allegedly violating the sanctions regimes administered by OFAC.

Companies - OFAC announced the following two settlements with companies:

• Stena Bulk LLC paid $426,486.00 to settle allegations that it violated the Sudanese Sanctions Regulations. OFAC alleged that Stena Bulk facilitated trade-related transactions with Sudan on behalf of foreign entities by providing transportation related services for the transportation of oil to Sudan and the exportation of Sudanese-origin oil without an OFAC license. Stena Bulk voluntarily disclosed the matter to OFAC.

• Vonberg Valve, Inc. remitted $11,049.50 to settle allegations that it violated the Iranian Transactions Regulations by exported goods to Iran without an OFAC license. Vonberg did not voluntarily disclose this matter but OFAC noted that the company instituted improvements to its U.S. sanctions compliance program.
  

Individuals - OFAC settled one case involving individuals (OFAC does not release the names of individuals involved in civil penalty cases):

• An individual paid a civil penalty of $4,206.00 to settle allegations that the person violated the Burmese Sanctions Regulations by wiring funds in payment for goods to Burma (Myanmar), without an OFAC license.

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Brazil Suspends Recently Announced Import Licensing Program

The Government of Brazil has announced that it has suspended its short-lived electronic import licensing program that was implemented earlier this week by Brazil's Ministry of Development, Industry and Foreign Trade.

Under the import licensing program, importers in Brazil were required to obtain an electronic import license prior to importing products included in 24 chapters of the Harmonized Tariff Schedule. Import licenses were supposed to be issued with 10 days from the application date, but Brazil's Secretariat of Foreign Trade (SECEX) had up to 60 days to approve or disapprove the application.

The stated purpose of the program was to monitor Brazilian import statistics, but the program was widely criticized as a protectionist non-tariff trade barrier.

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Parties File Amicus Brief in Florida Travel Act Case

The National Foreign Trade Council (NFTC) and USA*Engage have filed an amicus curiae brief with the U.S. Court of Appeals for the Eleventh Circuit in support of the plaintiffs in the case of Faculty Senate of Florida International University vs. the State of Florida.

The case involves the Florida Travel Act, a law passed by the Florida legislature in 2006 intended to restrict academic travel from Florida to Cuba and other countries designated by the U.S. State Department as sponsors of international terrorism.

In August 2008, a judge in the U.S. District Court for the Southern District of Florida overturned most of the Florida Travel Act on grounds that the "Travel Act's restrictions on the use of "nonstate" sourced funds . . . is an impermissible sanction on the designated countries and serves as an obstacle to the objectives of the federal government."

The brief states that federal actions including the Trading With the Enemy Act, the Cuban Democracy Act and the Cuban Assets Control Regulations preempt the Florida Travel Act, but also contends, “even beyond the preemptive effect of the existing federal statutory and regulatory regime, the Florida Travel Act represents an impermissible effort by Florida to adopt its own distinct foreign policy.”

“The Constitution leaves little doubt as to which level of government was to address issues of ingress and egress with respect to our national borders,” reads the NFTC brief. “While states have the authority to adopt policies with incidental effects on foreign travel, there is nothing indirect or incidental about the Florida Travel Ban. It is an avowed effort to do the federal government one better when it comes to travel to state sponsors of terrorism. Under the constitutional scheme, Florida’s rejection of the national policy is plainly impermissible.”

The NFTC and USA*Engage also argue that though the Florida Travel Act was intended to address Cuba-related foreign policy concerns, the law has a broader, more intrusive impact, as it applies to all state sponsors of terrorism, who are subject to varying federal regulatory and legal regimes.

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First U.S. Trade Remedy Case Brought in 2009

In what is likely to be the first of many trade remedy cases brought by U.S. industry against imported products in 2009, countervailing duty petitions were filed yesterday with the U.S. Department of Commerce and the U.S. International Trade Commission by Korff Holdings, LLC, dba Quaker City Castings, against Nickel-resist piston inserts for commercial grade diesel pistons from Argentina and South Korea.

This is the first antidumping or countervailing petition filed since October 29, 2008. Given the downturn in the U.S. economy it is likely that several other U.S. industries facing competition from imports will turn to the trade remedy laws to seek relief. In the past, for example, the U.S. steel industry has brought antidumping and countervailing duty against various imported steel products, including hot-rolled and cold-rolled steel, during economic downturns.

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DHS Confirms 10+2 Rule to Take Effect as Planned

It is now official. The Department of Homeland Security issued an announcement late today confirming that it will not extend the Importer Security Filing and Additional Carrier Requirements regulation (commonly known as 10+2) that was published in the Federal Register (pdf) on November 25, 2008 and was scheduled to take effect today.

The full text of the announcement is as follows:

DHS Will Not Postpone Requirements for Maritime Cargo Carriers and Importers

(Monday, January 26, 2009)

Washington – The U.S. Department of Homeland Security confirmed today that it will not extend the effective date for new information requirements on maritime cargo destined for the United States.

The Importer Security Filing and Additional Carrier Requirements interim final rule, scheduled to go into effect today, January 26, now requires maritime cargo carriers and importers to submit additional data to U.S. Customs and Border Protection before vessels are permitted entry into the country.

The determination not to postpone the January 26 effective date was made after consideration of the factors set forth in the memorandum from the director of the Office of Management and Budget, “Implementation of Memorandum Concerning Regulatory Review,” dated January 21.

The decision was based in large part on the fact that the rulemaking process was procedurally adequate; that a 75-day public comment period was already provided to respond to the Notice of Proposed Rulemaking; and, that this Interim Final Rule is now subject to an additional six-month public comment period. The January 26 effective date will also allow CBP to work with industry on testing and improving the systems of this important security initiative during the structured review and delayed enforcement period which ends a year later on January 26, 2010.

This additional information will be critical to enhancing the department’s ability to identify and stop dangerous goods from entering our nation, and CBP will continue to welcome input from the regulated industry.

For additional information, please visit the CBP Trade Web site. ( Trade ) Questions may be sent to Security_Filing_General@cbp.dhs.gov.

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Note to Importers: To assist the trade community in understanding the expectations of CBP concerning the Importer Security Filing and Additional Carrier Requirements rule, CBP just issued a very helpful Word document providing responses to the most frequently asked questions regarding 10+2.

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Iranian National in U.S. Pleads Guilty to Conspiring to Export Military Aircraft Parts to Irans

The Departments of Justice, Commerce, Defense and Homeland Security announced today that Hassan Saied Kehsari and his corporation, Kesh Air International, pleaded guilty this morning in Federal Court in Miami, Florida to charges of conspiring to illegally export military and commercial aircraft parts to Iran.

According to documents filed with the court during the plea hearing, Keshari, an Iranian national and naturalized United States citizen, by and through his Novato, California, corporation, Kesh Air International, purchased aircraft parts on behalf of purchasers in Iran and exported the aircraft parts to Iran via freight forwarders in the United Arab Emirates.

Among the aircraft parts allegedly exported to Iran were parts designed exclusively for the F-14 Fighter Jet, the Cobra AH-1 Attack Helicopter and the CH-53A Military Helicopter. All of these aircraft are used by Iranian military.

According to the Indictment and documents filed with the court during the plea hearing, Keshari received orders by email from buyers in Iran for specific aircraft parts. Keshari then requested quotes, usually by e-mail, from U.S. suppliers and made arrangements for the sale and shipment of the parts to a company in Dubai through the use of false or misleading shipping documents. From Dubai, the parts were then shipped on to the purchasers in Iran.

On the conspiracy count, Hassan Saied Keshari faces a maximum statutory term of five years' imprisonment and a maximum fine of $250,000. Kesh Air International faces a statutory maximum fine of $500,000. Sentencing is scheduled for April 8, 2009.

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U.S. Supreme Court Sides With Commerce Department in First Antidumping Decision Rendered by Court

The U.S. Supreme Court today released its opinion in the first ever antidumping case heard by the U.S. Supreme Court.

In United States v. Eurodif S.A., et al. (Docket No. 07-1059) and USEC, Inc., v. Eurodif S.A., Docket No. (Docket No. 07-1078), cases involving the imports of low enriched uranium (LEU) from France and other countries, the Supreme Court ruled 9-0 that LEU produced through "separative work unit" (SWU) enrichment contracts are goods and subject to U.S. antidumping duty laws.

In the unanimous opinion written by Justice Souter, the Court held:

Where a domestic buyer’s cash and an untracked, fungible commodity are exchanged with a foreign contractor for a substantially transformed version of the same commodity, the Commerce Department may reasonably treat the transaction as the sale of a good under §1673. We therefore reverse the judgment of the Federal Circuit and remand the cases for further proceedings consistent with this opinion.

While recognizing that "SWU contracts exemplify a class of transactions that the Federal Circuit recognized does 'not fall neatly’ either into the category of contracts for services or the category of contracts for the sale of goods,'" relying on the standard in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), the Court held that the Commerce Department reasonably determined that the enrichment contracts were sales of goods subject to the antidumping law and the Court of International Trade and Court of Appeals for the Federal Circuit overreached by overturning the Commerce Department’s original decision.

Specfically, the Court stated:

First, we think the Department reasonably concluded that §1673 is not limited by its terms to cash only sales. Otherwise, any sale of a manufactured product could be exempted from the operation of §1673 by a contractual term stating part of the purchase price in terms ofa commodity. Second, in applying §1673, the Commerce Department is not bound by the “legal fiction [created by SWU contracts]that the very feed uranium delivered by a utility to an enricher is enriched and then returned as LEU to the utility.”

This case is one of a very small number of international trade law cases heard by the U.S. Supreme Court. While the Court previously ruled on other aspects of international trade laws, such as the classification of imported merchandise under the customs laws (e.g., United States v. Mead, 533 U.S. 218 (2001) and United States v. Haggar Apparel Co., 526 U.S. 380 (1999)) and whether the harbor maintenance tax imposed on exports violated the Constitution’s export clause (United States v. United States Shoe Corp., 523 U.S. 360 (1998)), never in the long history of the United States antidumping laws had the Supreme Court ruled on a legal issue involving the interpretation of antidumping laws.

This case was closely watched by practitioners and parties involved on both sides in antidumping cases since the decision will affect the scope of products and types of processing arrangements subject to future antidumping investigations and antidumping duties.

UPDATE: The press release issued today by USEC, the U.S. petitioner in the original antidumping case can be found here. The press release issued by the Committee to Support U.S. Trade Laws (CSUSTL), which filed an amicus brief supporting the government's position in the case, can be found here.

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C-TPAT: 2008 - A Year in Review

U.S. Customs and Border Protection recently published the following Year in Review of the Customs-Trade Partnership Against Terrorism Program (C-TPAT) for 2008:

C-TPAT 2008 Year in Review

Publish at Scribd or explore others: Reports Periodicals & Report ctpat cbp

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FCPA News Round Up

Here are some useful articles published on various U.S. Foreign Corrupt Practices Act and anti-bribery issues in the past few weeks:

• Forbes.com: Do Honest Corporations Stand A Chance?

• Ethical Corporation: Transparency International UK, Shining a light on British bribery

• Bloomberg: Bribery Warrants Global War

• WSJ's China Journal: Bribes and Transparency on Chinese Holidays: A Primer (also, the interviewee, Alexandra Wrage, President of TRACE International, recently started writing the WrageBlog, an Anti-Bribery Compliance Blog)

• AmLaw Daily: Kroll Report: Fraud Will Rise as Economic Crisis Deepens

• Compliance Week: FCPA Enforcement Expected to Stay High in 2009

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International Customs Day 2009

Today, January 26th, is International Customs Day, which marks the inaugural session of the Customs Cooperation Council (CCC) that was held in Brussels, Belgium on January 26, 1953.

The CCC became known as the World Customs Organization (WCO) in 2004.

The theme of this year's International Customs day is "Customs and the environment: protecting our natural heritage."

The speech made by Kunio Mikuriya, WCO's new Secretary General, to mark International Customs Day can be found here.

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BIS Issues Temporary Denial Order in Effort to Prevent Powerboat From Being Reexported From South Africa to Iran

In an interesting and unusual development, last Thursday the U.S. Commerce Department’s Bureau of Industry and Security (BIS) issued a Temporary Denial Order (TDO) in an effort to prevent a powerboat containing U.S. engines and other components from being reexported from South Africa to Iran for possible use by the Iranian Revolutionary Guard Corps navy.

The parties named in the TDO included the Islamic Republic of Iran Shipping Lines (IRISL) and Tadbir Sanaat Sharif Technology Development Center (TSS), both based in Tehran, Iran, and Icarus Marine (Pty) Ltd. of Cape Town, South Africa.

According to the TDO, BIS obtained evidence that the denied parties were about to commit an imminent violation of the Export Administration Regulations (EAR) by re-exporting a Bladerunner 51 powerboat, containing U.S. origin engines and other components (classified as ECCN 8A992.f), to TSS for use by the Iranian Revolutionary Guard Corps navy. BIS also stated that an IRISL vessel, the M/V “Diplomat” (a/k/a the “Iran Diplomat”), is going to be used to transport the powerboat to Iran.

Because the powerboat can reportedly reach speeds of up to 65 knots BIS has concerns that the boat will be used by the IRGC navy as a fast-attack craft to mount surprise attacks. BIS noted that similar vessels have been armed with torpedoes, rocket launchers and anti-ship missiles.

As a result of BIS's actions, the denied parties are prohibited from engaging in this re-export transaction and from directly or indirectly participating or benefiting in any way in or from any other transaction subject to the EAR. In addition, no other person may participate in a transaction subject to the EAR with any of the denied parties. The TDO is effective for 180 days from issuance and is subject to possible renewal.

As we have reported, in September 2008the Department of the Treasury’s Office of Foreign Assets Control (OFAC) added IRISL’s entire fleet, including the Diplomat, to the List of Specially Designated Nationals (SDN List).

Interestingly, TSS's website, was was referred to in the TDO and was hosted by a Canadian hosting company, has been recently suspended. Google's cache of the site can be found here and here.

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Importer Security Filing Regulation Scheduled to Take Effect Monday As Planned

The well-publicized memorandum from Chief of Staff Rahm Emanual to the heads of executive branch departments and agencies regarding review of pending regulations will be published in Monday's Federal Register. Among other things, the regulatory review memo suggested that agencies "consider extending for 60 days the effective date of regulations that have been published in the Federal Register but not yet taken effect." The memo also notes there are exceptions for national security and other significant circumstances.

The Office of Management and Budget issued a follow-up memo containing a number of factors agencies should use in determining whether to extend the implementation date of pending regulations, including whether the rulemaking process was procedurally adequate, whether the rule reflected proper consideration of all relevant facts, whether the rule reflected due consideration of the agency’s statutory or other legal obligations and several other factors.

Despite rumors to the contrary, neither U.S. Customs and Border Protection (CBP) nor the Bureau of Industry and Security have announced any plans to delay the implementation date of any pending regulations.

The most well known of CBP and BIS's pending regulations is CBP's Importer Security Filing and Additional Carrier Requirements regulation (commonly known as 10+2) that was published in the Federal Register (pdf) on November 25, 2008 and is scheduled to take effect tomorrow, January 26th. Therefore, it appears that the 10+2 regulation will go into effect tomorrow as planned.

However, as most importers are aware, the 10+2 regulation already contained a "structured review and flexible enforcement period" that will give the trade 12 months, or until January 26, 2010, to adjust to the new reporting requirements. Nevertheless, importers are still required to "make a good faith effort to comply with the rule to the extent of their current ability."

Given that regulatory and policy issues will be in a state of flux for the near term, importers and exporters should closely monitor announcements from CBP, BIS and other agencies governing the import and export of goods.

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New Secretary of Homeland Security Sworn In Today

The Department of Homeland Security (DHS) has announced that former Arizona governor Janet Napolitano was sworn in today as the third Secretary of DHS. Announcements on other nominees for DHS leadership posts, including Commissioner of U.S. Customs and Border Protection, are expected in the coming weeks.

Announcements on leadership changes at State, Commerce and Treasury won't take place, of course, until the various cabinet secretaries are confirmed by the Senate (or renominated by the President in Commerce's case).

For news and information on new nominees and appointees in the foreign policy, national security and intelligence communities, see Laura Rozen's blog at ForeignPolicy.com.

Update: The Senate just confirmed Senator Hillary Clinton to be the 67th Secretary of State by a vote of 94-2.

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Exporting Fundamentals Webinar Presented by U.S. Export Assistance Center

It is not too late to register for the remaining programs in the U.S. Export Assistance Center of Missouri's Export Fundamentals webinar series that will be presented in January through March.

The remaining dates and topics are as follows:

• January 28, 2009: Export Documentation Fundamentals
• February 11, 2009: Incoterms 2000 –Transportation Obligations, Costs and Risks
• February 18, 2009: Ensuring Payment for International Sales
• March 4, 2009: Increasing Your Global Sales Using the Internet
• March 18, 2009: Exporter Obligations/Export Control Update
  

Doug Jacobson of Strasburger & Price, LLP (editor of this blog) and Scott Sullivan, who oversees Flowserve Corporation's export compliance program, will be presenting the export controls program on March 18, 2009.

For more information and to register, see this page on the U.S. Export Assistance Center of Missouri's website.

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Siemens FCPA Cases Teach FCPA Dos & Don'ts

A story in today's Compliance Week discusses the lessons learned from the FCPA enforcement cases brought against Siemens AG and several of its foreign subsidiaries by the Justice Department and Securities and Exchange Commission.

The article notes:

Siemens’ new management is practically doing a road show of self-confession, speaking at conferences and holding Webcasts to discuss how the company managed the investigations and pieced its compliance function back together again. Experts say large companies everywhere can take away lessons of what to do, and what not to do.

In addition, the article contains some staggering statistics on the scope and cost of the investigation. Joel Kirsch, head of Siemens’ U.S. compliance activities, said:

Siemens footed the bill for more than 200 outside lawyers and support staff from the law firm Debevoise & Plimpton, plus another 1,300 forensic investigators from Deloitte; the two firms racked up a total of 1,531,000 man-hours on the project. Siemens itself had 16 employees working on the probe full-time.

In all, investigators conducted more than 1,150 interviews, reviewed more than 14 million documents, and analyzed 38 million separate financial transactions, Kirsch said. Total cost of the investigation: $850 million.

The story also contains other useful information on how Siemens has upgraded its compliance functions and how other companies can learn from this case.

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ICPA's Annual Trade Compliance Conference to be Held March 8-12, 2009

Registration is still open for the International Compliance Professionals Association's (ICPA) 2009 compliance conference that will be held March 8-12, 2009 in Anaheim, California.

ICPAs annual compliance conference is unlike any offered in the international trade compliance community and is geared to a wide range of international trade compliance professionals.

The 2009 conference will feature four tracks: imports, exports, boot camp and general topics.

Click here for the conference registration website and be sure to check out the unique brochure for the 2009 ICPA conference here.

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Webcast: FCPA Enforcement — The Paradigm Shift of 2008

On January 28, 2009, the Securities Docket blog is holding a free one-hour webcast that will shed light on the significant developments in 2008 in the enforcement of the Foreign Corrupt Practices Act (FCPA). Some of the trends that will be discussed during the webcast include:

• increasingly aggressive enforcement against individuals;
• ramped up international coordination; and
• the joining of FCPA prosecutions with prosecutions for distinct federal crimes.

The panelists include Bruce Carton, editor of Securities Docket and the author of Compliance Week’s “Enforcement Action”, attorney F. Joseph Warin of Gibson, Dunn & Crutcher LLP and Elliott Leary of KPMG Forensic.

To attend this webcast scheduled for January 28, at 2 pm Eastern, please click here.

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U.S.-Peru Free Trade Agreement to Take Effect on February 1, 2009

The U.S.-Peru Free Trade Agreement (officially known as the U.S.-Peru Trade Promotion Agreement) will go into effect on February 1, 2009.

In Washington, DC, President Bush yesterday issued a proclamation to implement the free trade agreement and in Lima, Peruvian President Alan Garcia and Mercedes Aráoz Fernandez, Peru's Minister of Trade and Tourism, also signed the required proclamation to formally implement the free trade agreement.

In order to receive preferential treatment under the U.S.-Peru Trade Promotion Agreement, U.S. and Peruvian goods must qualify as originating as prescribed under the Rules of Origin section of the Agreement (Annex 4.1). The Rules of Origin for the U.S.-Peru Trade Promotion Agreement are similar, but not identical, to rules of origin found in the North American Free Trade Agreement (NAFTA), the U.S.-Chile Free Trade Agreement and the Central American-Dominican Republic-United States Free Trade Agreement (CAFTA-DR).

The Rules of Origin for the U.S.-Peru Free Trade Agreement can be found here (pdf) and will soon be published in the General Notes of the Harmonized Tariff Schedule of the United States Annotated and the appropriate changes will be made to the HTSUS in order to reflect the preferential duty rates for qualifying Peruvian products.

The U.S.-Peru Free Trade Agreement was signed on April 12, 2006. It was approved by the U.S. House of Representatives on November 8, 2007 and by the U.S. Senate on December 4, 2007. President Bush signed the legislation implementing the Agreement on December 14, 2007.

Peru’s Congress passed this week modifications to earlier legislation on trade, health and the environment, in order to conform to and implement the terms of the free trade agreement.

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WSJ: Fresh Clues of Iranian Nuclear Intrigue

Today's Wall Street Journal contains a detailed report describing Iran's efforts to evade U.S. and U.N. sanctions by acquiring various metals from China that could be used in weapons, including long-range missiles.

Records obtained by the WSJ show that an Iranian company, ABAN Commercial & Industrial Ltd., contracted through an intermediary for more than 30,000 kilograms (about 66,000 pounds) of tungsten copper -- which can be used in missile guidance systems -- from Advanced Technology & Materials Co. Ltd. of Beijing. The article notes that "the high-performance metals Iran has been acquiring also have industrial uses such as commercial aviation and manufacturing, making it difficult for intelligence agencies to be absolutely certain how the materials are being used."

The article also describes the United Arab Emirates efforts to interdict shipments of materials bound for Iran (see previous post regarding U.S.-UAE nuclear agreement). For example, the article states that:

The United Arab Emirates has informed the U.S. that in September it intercepted a Chinese shipment headed to Iran of specialized aluminum sheets that can be used to make ballistic missiles. A month earlier, UAE officials also intercepted an Iran-bound shipment of titanium sheets that can be used in long-range missiles, according to a recent letter to the U.S. Commerce Department from the UAE's Washington ambassador.

The article also indicates that "documents detailing Iran's metals acquisition efforts are being reviewed by U.S. law-enforcement and intelligence officials" and that Manhattan District Attorney Robert Morgenthau is conducting a broad inquiry into illegal transactions by Iran.

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U.S. and UAE Sign Civilian Nuclear Cooperation Agreement

The U.S. and United Arab Emirates (UAE) today signed an Agreement for Cooperation Concerning Peaceful Uses of Nuclear Energy pursuant to section 123 of the Atomic Energy Act of 1954 (42 U.S.C. 2153). The remarks from today's signing ceremony can be found here.

The following is the text of the UAE's position on nuclear and other export controls from the Policy of the United Arab Emirates on the Evaluation and Potential Development of Peaceful Nuclear Energy:

With regard to control of trade, the UAE will continue to strengthen its export control regime to block and respond effectively to illicit trade of nuclear material or equipment. To this end, the UAE will implement commitments under the NPT, the IAEA Convention on the Physical Protection of Nuclear Material and the IAEA
Joint Convention on the Safety of Spent Fuel Management and on the Safety of Radioactive Waste Management. As a means of ensuring the establishment and maintenance of the most comprehensive and up-to-date export control regime, the UAE will seek to participate in the Nuclear Suppliers Group (NSG) and implement import and export control rules for nuclear and nuclear-related equipment and technology in strict accordance with NSG Guidelines for Nuclear Transfers. In connection with the broader need to regulate trade, the UAE has recently established, under Federal Law No. 13 of 2007, a legal regime for commodities that are subject to import and export control procedures. Included within the scope of the law is a list of export-controlled technologies addressing nuclear materials, technologies and equipment.

Representative Ileana Ros-Lehtinen (R-FL), the ranking member of the House Foreign Affairs Committee, which must approve the 123 Agreement, last week introduced the Limitation on Nuclear Cooperation with the United Arab Emirates Act of 2009 (H.R. 364) that would impose a number of restrictions on the export of nuclear material, equipment or technology to the UAE until the UAE Government takes action to prohibit and prevent the transfer of goods, services, or technology to the Government of Iran.

In order for the U.S. to engage in civilian nuclear cooperation with other nations, it must conclude a framework agreement that meets specific requirements under section 123 of the Atomic Energy Act. Congressional review is required for section 123 agreements.

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Contraband Found by CBP in Entry Involving C-TPAT Participants

U.S. Customs and Border Protection (CBP) sent a notice yesterday to all participants in the Customs Trade Partnership Against Terrorism (C-TPAT) program advising that CBP officers recently discovered 2,822 pounds of marijuana in a shipment from Mexico involving participants in the C-TPAT program.

According to CBP, officers at the Nogales, Arizona port of entry became suspicious of a truck carrying wiring harnesses from Mexico as it attempted to make entry into the U.S. and decided to send the shipment for an X-ray inspection to determine if contraband was hidden in the trailer. Before the tractor and trailer could even make it to the X-ray unit for inspection, one of the CBP narcotics detection dogs alerted to the presence of narcotics in the trailer.

The image from the X-ray inspection confirmed the presence of narcotics hidden in the shipment. Upon further examination, 110 packages of marijuana with a street value of over $4.5 million were discovered. The driver was arrested and turned over to Immigration and Customs Enforcement for further investigation and the narcotics, tractor and trailer were seized by CBP.

In its notice, CBP stated that "trust was betrayed" since the companies transporting and receiving this shipment were trusted participants in the C-TPAT program, which is intended to lead to a reduction in the number of random examinations of low risk shipments.

As a result of this seizure, the companies' C-TPAT privileges have been suspended until CBP can further investigate the events that transpired.

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U.S. and China Reach Agreement on VEU Program

As a follow-up to our previous post on negotiations involving the China Validated End-User (VEU) program, the Bureau of Industry and Security and China's Ministry of Commerce last night concluded an agreement that would fully implement the China VEU program. Among other things, the agreement permits BIS officials to conduct on-site inspections of the companies in China that have been designated as VEUs.

BIS announced the agreement in the following press release:

BIS Announces Full Implementation of the Validated End-User Program for China

WASHINGTON, D.C. – The Bureau of Industry and Security (BIS) today announced the full implementation of the Validated End-User (VEU) program for the People’s Republic of China. With agreement on procedures to ensure the program’s secure and efficient operation, civilian U.S.-China high-technology trade will benefit from the continued export of certain products to VEU-approved companies without individual licenses. The VEU program facilitates civilian trade by reducing administrative and logistical hurdles for certain exports to pre-screened companies in China.

“We are pleased to have reached this milestone agreement with China, one of our nation’s most important trading partners,” Under Secretary of Commerce Mario Mancuso said. “This agreement will maximize the security and trade-enhancing benefits of the VEU program, and continue a promising chapter in civilian U.S.-China high technology trade. U.S. exporters now have a more streamlined way to export to companies in China who have a record of using U.S. technology responsibly.”

Established in 2007, the VEU program uses a market-based approach to facilitate civilian high-technology trade with China. The program permits civilian companies in China, who pass a rigorous national security review and agree to strict follow-on compliance obligations, to receive under a VEU-specific authorization the same U.S.-controlled items they could previously receive under individual Commerce Department licenses.

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BIS Working to Finalize China VEU Inspection Agreement

Bloomberg reported this afternoon that the Commerce Department's Bureau of Industry and Security (BIS) and the Government of the People's Republic of China are making a last ditch effort to finalize an agreement that would allow the China Validated End-User (VEU) program to continue by permitting BIS officials to conduct on-site inspections in China.

The Washington Times reported last month that BIS was close to issuing a new regulation that would suspend the China VEU program until China agrees to on-site inspections of the five Chinese companies that have been granted VEU status. That regulation has not yet been issued.

Under Secretary of Commerce Mario Mancuso responded to the Washington Times report by saying that "the lack of an agreement diminishes VEU’s trade enhancing benefits, and Commerce is evaluating all options related to the program for China, including suspension."

In October 2008, the Government Accountability Office recommended that the Secretary of Commerce suspend the VEU program until BIS was permitted to conduct on-site reviews in China to ensure that the items shipped to the VEUs in China are used as intended.

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CBP Announces Decrease in Interest Rates Applicable to Overpayments and Underpayments of Customs Duties

As a result of falling short-term interest rates, U.S. Customs and Border Protection announced in today's Federal Register a decrease in the interest rates used to calculate interest on overdue accounts (underpayments) and refunds (overpayments) of customs duties.

For the calendar quarter beginning January 1, 2009, the interest rates for overpayments will be 4% (decrease from 5%) for corporations and 5% (down from 6%) for non-corporations. The interest rate for underpayments will be 5% (decrease from 6%) .

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Export Control Reform Study Finds U.S. Export Control System is Broken and Should be Restructured

In the latest study of the U.S. export controls system, the National Research Council of the National Academies last week released a report entitled "Beyond Fortress America: National Security Controls on Science and Technology in a Globalized World."

The report, which was written by a committee co-chaired by Stanford University president John Hennessy and retired general Brent Scowcroft, not surprisingly found that the current U.S. export controls system is broken and should be restructured.

The report made the following three broad recommendations:

1. The President should restructure the export control process within the federal government so that the balancing of interests can be achieved more efficiently and harm can be prevented to the nation’s security and technology base; in addition to promoting U.S. economic competitiveness. Among other things, the report recommends the creation of two new entities to make the export control process run more smoothly and to resolve disputes when they occur: (1) Coordinating Center for Export Controls to coordinate interactions with businesses or universities seeking export licenses and manage agency processes with respect to granting or denying export licenses; and (2) An Export License Appeals Panel, comprised of active or retired federal judges, would hear disputes on licensing decisions and "sunset" requirements. The report suggests placing both entities within the National Security Council structure, with the director of the Coordinating Center reporting to the national security adviser.
2. The President should direct that executive authorities under the Arms Export Control Act and the Export Administration Act be administered to assure the scientific and technological competitiveness of the United States, which is a prerequisite for both national security and economic prosperity.
   
3. The President should maintain and enhance access to the reservoir of human talent from foreign sources to strengthen the U.S. science and technology base. Recommended actions include streamlining the visa process for credentialed short-term visitors in science and technology fields and extending the duration of stay for science and engineering graduates with advanced degrees.
   

The committee recommends that the President should issue an Executive Order to implements these recommendations as one of the first orders of business in January 2009.

While the National Academies charges a fee to download the entire report, the individual chapters of the report can be read free of charge here and the PDF version of the Executive Summary can be found here.

Earlier this year, an analyst at a Washington, DC think tank said that there were 18 separate export control reform studies currently underway.

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OFAC Issues December 2008 Monthly Civil Penalties Report

On December 31, 2008, the Treasury Department's Office of Foreign Assets Control (OFAC) issued its monthly report (pdf) of civil penalties imposed on companies and individuals for allegedly violating the sanctions regimes administered by OFAC.

Companies - OFAC announced the following three settlements with companies:

• Fidelity National Information Services of Maitland, Florida, the successor to Certegy Card Services, remitted $12,260.86 to settle allegations of violations of the Foreign Narcotics Kingpin Sanctions Regulations. OFAC alleged that on or about June through July, 2004, and prior to the February 2006 acquisition of Certegy by Fidelity, Certegy processed transactions on behalf of an individual whose property was blocked pending investigation, pursuant to the Foreign Narcotics Kingpin Designation Act, without an OFAC license. As a remedial measure, upon learning of that failure, Fidelity deployed its OFAC compliance program in order to prevent future violations. Certegy did not voluntarily disclose this matter to OFAC.

• Eni Petroleum Co. Inc. of Houston, TX remitted $6,562.79 to settle allegations of violations of the Iranian Transactions Regulations occurring in 2003. OFAC alleged that Eni engaged in a trade-related transaction with Iran by facilitating the exportation of goods or services, directly or indirectly, to Iran without an OFAC license. Eni did not voluntarily disclose the matter to OFAC but cooperated with OFAC’s investigation.
  

• OFAC imposed a $7,500 civil penalty on Premier Agency Inc. of Queens, New York for allegedly violating the Burmese Sanctions Regulations related to a funds transfer. As indicated by OFAC's penalty notice, Premier failed to respond to OFAC's requests for information regarding the funds transfer.
  

Individuals - OFAC settled one case involving individuals (OFAC does not release the names of individuals involved in civil penalty cases):

• One individual was assessed a penalty totaling $7,500.00 for violating the Burmese Sanctions Regulations after OFAC received no response to two letters requesting information regarding the funds transfer involving Burma. [the individual appears to be the president of Premier Agency Inc., who is named in the penalty notice cited above].
  

In 2008, OFAC concluded 99 civil enforcement actions and imposed a total of $3,504,533 in civil penalties.

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CBP Announces 10+2 Outreach Schedule

U.S. Customs and Border Protection (CBP) is hosting trade outreach events in various locations around the country to provide the trade community with an opportunity to learn more about the new Importer Security Filing and Additional Carrier Requirements (a.k.a. "10+2") that will go into effect on January 26, 2009.

Programs will be held in the following cities in January 2009:

Oakland/Burlingame, CA - Wednesday January 14, 2009
( Oakland/Burlingame, CA Registration )
Baltimore, MD - Thursday January 22, 2009
( Baltimore, MD Registration )
Philadelphia, PA - Friday January 23,2009
( Philadelphia, PA Registration )
Charleston, SC - Wednesday January 28, 2009
( Charleston, SC Registration )
Savannah, GA - Thursday January 29, 2009
( Savannah, GA Registration )

Programs will be held in the following cities in February 2009:

Houston, TX - Wednesday,February 4th, 2009
( Houston, TX Registration )
JFK Area, NY - Thursday, February 5th, 2009
( JFK Area, NY Registration )

Specific event information with location details and further instructions will be emailed to registrants after completion of the on-line registration process.

Dates for the following cities will be announced in the near future:

Boston, MA
Miami/Port Everglades, FL
Long Beach, CA
Chicago, IL
Norfolk, VA

CBP has stated that it will show restraint in enforcing the rule as long as importers are making satisfactory progress toward compliance and are making a good faith effort to comply with the rule to the extent of their current ability. This "flexible enforcement period" will last for 12 months after the effective date.

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2009 Version of U.S. Harmonized Tariff Schedule and Schedule B Numbers Now Available

The 2009 version of the Harmonized Tariff Schedule of the United States Annotated (HTUSA) is now available and can be found here on the U.S. International Trade Commission's website.

Among other things, the 2009 HTSUSA contains the rules of origin for the U.S.-Oman Free Trade Agreement that went into effect on January 1, 2009 and other changes made to the HTSUSA during 2008.

The 2009 version of the Schedule B codes for use in filing Electronic Export Information via the Automated Export System can be found here. AES will accept shipments with outdated 2008 codes during a grace period for 30 days beyond the expiration date of December 31, 2008. Reporting an outdated 2008 code after the 30 day grace period will result in a fatal error.

Current HTSUSA numbers that are invalid for use in AES as of January 1, 2009 can be found here.

Export codes (which the U.S. calls Schedule B) are administered by the U.S. Census Bureau. Import codes are administered by the U.S. International Trade Commission (USITC).

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Lethal Technology Making Way From U.S. to Iran Via Front Companies

In connection with a series of export control case studies issued by the Washington, DC-based Institute for Science and International Security (ISIS), today's Washington Post reports on the various networks used by Iran and Pakistan to obtain U.S. and European products via front companies.

The article notes that "many of the schemes unknowingly involve U.S. companies that typically have no clue where their products are actually going." "The schemes are so elaborate, even the most scrupulous companies can be deceived," said David Albright, president of ISIS and co-author of the case studies.

The ISIS case studies, some of which are based on information contained in the September 2008 grand jury indictment against a number of foreign individuals and companies involved in procuring items for Iranian entities through Dubai and Malaysia-based trade networks, include copies of invoices, contents of e-mails from companies looking to buy U.S. and European products and detailed diagrams. These case studies are very useful for export compliance training purposes.

The PDF versions of the ISIS case studies by David Albright, Paul Brannan and Andrea Scheel can be found at the following links:

• Iranian Entities' Illicit Military Procurement Networks

• Detecting the Barrage Approach to Illicit Procurement

• How Cooperation between a Company and Government Authorities Disrupted a Sophisticated Illicit Iranian Procurement

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U.S. Revokes Antidumping Order on Rebar From Turkey

After being in effect for nearly 12 years, on January 5, 2009 the Commerce Department revoked the antidumping order on steel concrete reinforcing bars (rebar) from Turkey.

This action was taken after the U.S. International Trade Commission determined in a sunset review that revocation of the antidumping order would not be likely to lead to continuation or recurrence of material injury to an industry in the U.S. within a reasonably foreseeable time.

As a result of the revocation of the antidumping order, U.S. Customs and Border Protection will discontinue suspension of liquidation and collection of cash deposits on entries of the subject merchandise entered or withdrawn from warehouse on or after March 26, 2008, the effective date of revocation of the antidumping duty order.

The goods covered by this antidumping order included all stock deformed steel concrete reinforcing bars sold in straight lengths and coils (classifiable under subheadings 7213.10.000 and 7214.20.000 of the Harmonized Tariff Schedule of the U.S.). Plain round rebar, further worked or fabricated rebar and coated rebar were excluded from the scope of the antidumping order.

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