Congress Adjourns Without Renewing GSP or Passing Miscellaneous Tariff Bills

The U.S. Congress adjourned today without renewing the Generalized System of Preferences (GSP) program, which expires on December 31, 2010, or passing the numerous miscellaneous tariff bills (MTBs) that eliminate customs duties on certain imported products.

While the Senate late today passed a scaled down version of the House-passed measure that included the GSP renewal (H.R. 6517) the final version of that bill which passed the Senate and was agreed to by the House did not contain the language renewing GSP or enacting the MTBs.

As a result, starting on January 1, 2011 U.S. importers of GSP-eligible merchandise will have to pay normal U.S. customs duties until further notice.

The last time that the GSP program expired Congress renewed the program retroactively, which allowed importers to obtain refunds of any customs duties paid. However, the refund process takes time and needs to be closely monitored by the importers.

In the meantime, importers should consult with their customs brokers to ensure that entries of GSP-eligible products are flagged with the GSP Special Program Indicator
indicator (SPI) "A". Using that SPI will help facilitate any refunds that may be authorized by Congress next year.

In the meantime, stay tuned for more information.

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News and Update on Export Controls Certification Requirement in New U.S. Immigration Form I-129

The following guest post, by Brian Graham, an experienced immigration attorney with the law firm of Strasburger & Price LLP in Austin, Texas, discusses the new export control certification requirements contained in the U.S. Citizenship and Immigration Services' (USCIS) new I-129 form that must be used starting tomorrow.

Note that because of concerns and other inquiries raised by immigration attorneys and the business community about this new export certification requirement, USCIS announced today that petitioners will not be required to complete the export control certification contained in the form until February 20, 2011.

IMMIGRATION FORM I-129 UPDATED TO REFERENCE EXPORT CONTROLS

Effective December 23, 2010, a new I-129 Petition for Nonimmigrant Worker form will be required by all employers filing visa petitions with U.S. Citizenship and Immigration Services (USCIS) for foreign workers in the H-1B, H-1B1, L-1 and O-1A categories. These visa categories cover professionals and workers in specialty occupations, intra-company transfers of company executives and people with "extraordinary ability".

Among the key revisions to the I-129 form is a new Part 6 requiring a certification regarding the release of controlled technology or technical data to foreign person in the U.S., which is commonly referred to as the "deemed export" rule. Under the Department of Commerce's Export Administration Regulations (EAR), an export of technology or source code (except encryption source code) is "deemed" to take place when it is released to a foreign national within the United States. A similar concept is contained in the International Traffic in Arms Regulations (ITAR) with respect to ITAR-controlled technical data.

Part 6 of the new I-129 form requires the petitioning employer to attest that it has reviewed the EAR and ITAR and has determined that either: (1) A license is not required from either U.S. Department of Commerce or the U.S. Department of State to release such technology or technical data to the foreign person; or, (2) a license is required from either the U.S. Department of Commerce's Bureau of Industry and Security (BIS) or the U.S. Department of State's Directorate of Defense Trade Controls (DDTC) to release such technology or technical data to the beneficiary and the petitioner will prevent access to the controlled technology or technical data by the beneficiary until and unless the petitioner has received the required license or other authorization to release it to the beneficiary.

Although the EAR and ITAR's export licensing requirements for controlled technical data are certainly not new, the inclusion of this certification requirement in the new I-129 form marks the first time USCIS has made these questions a part of the mainstream immigration process. It is widely believed that the employer's responses to Part 6 of the new I-129 form will be used for data collection and enforcement purposes. The new questions are not expected to change the process of obtaining an employment visa at U.S. consulates abroad, since the consular posts retain independent jurisdiction to investigate whether issuing a visa might trigger a deemed export violation.

Since the export certification is signed by the employer under penalty of perjury, it is imperative that employers filing I-129 petitions for H-1B, H-1B1, L-1, or O-1A workers undertake the review with the assistance of attorneys, consultants or in-house staff who have experience with the EAR and ITAR in order to determine whether an export license is required and, if so, to take the necessary precautions to avoid violating either the ITAR or the EAR prior to receipt of the license.

Editors Note: The "deemed export" rule appears in section 734.2(b)(2)(ii) of the Export Administration Regulations (EAR) and provides that:

"any release of technology or source code subject to the EAR to a foreign national . . . is deemed to be an export to the home country or countries of the foreign national. This deemed export rule does not apply to persons lawfully admitted for permanent residence in the United States and does not apply to persons who are protected individuals under the Immigration and Naturalization Act (8 U.S.C. 1324b(a)(3)). Note that the release of any item to any party with knowledge a violation is about to occur is prohibited by 736.2(b)(10) of the EAR."

A similar concept is contained in section 120.17(4) of the ITAR, which states that an export includes "disclosing (including oral or visual disclosure) or transferring technical data to a foreign person, whether in the United States or abroad." As a result, an export license or other authorization is required to be obtained from DDTC in order to permit the disclosure of ITAR controlled technical data to foreign persons in the U.S.

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OFAC Imposes Civil Penalties on Two Financial Institutions and One Individual

The Treasury Department's Office of Foreign Assets Control (OFAC) has issued its monthly enforcement report. The report indicates that OFAC assessed civil penalties on two financial institutions and one individual for alleged violations of OFAC's sanctions programs.

Discover Financial Services paid a civil penalty of $8,720.00 to settle allegations that it violated the Foreign Narcotics Kingpin Sanctions Regulations by processing 28 credit card transactions for a person that had been designated by OFAC as a Specially Designated Narcotics Trafficker (“SDNTK”). The value of the transactions processed over three years totaled $23,252.This matter was voluntarily disclosed to OFAC, which reduced the potential penalty by 50% and the penalty was further reduced due to Discover taking steps to strengthen its OFAC compliance program and procedures, assigning a new employee to review the credit card portfolio against SDN list updates, and providing extra training to its employees.

Wells Fargo Bank, N.A. paid a civil penalty of $67,500 to settle allegations that it violated OFAC's
Iranian Transactions Regulations by performing financial services in the U.S. on behalf of an account holder while the account holder was located in Iran. Wells Fargo did not voluntarily disclose this matter to OFAC. In addition, OFAC indicated that it had advised Wells Fargo about this account holder but the bank did not conduct an investigation until several years later. One of the remedial steps undertaken by Wells Fargo was to include the use of Internet Protocol (IP) addresses to identify registered users located in Iran. (Using an IP address tool is a useful, but not foolproof way, to determine the location of users of online banking or other Internet-based services.)

An individual (OFAC does not release the names of penalties imposed on individuals) agreed to pay  $30,000 to settle alleged violations of the Iranian Transactions Regulations for sending and attempting to send funds to Iran for investment in a catering business located there. The individual did not voluntarily disclose the violations to OFAC, however the violations were considered by OFAC to be non-egregious in nature.

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U.S. Export Controls Involving India: A Reality Check

Following the President's trip to India last month there has been a great deal of misinformation in the Indian press regarding the "lifting" and "relaxation" of dual-use export controls on India, including the removal of Indian entities from the Bureau of Industry and Security's Entity List (15 CFR Part 744, Supplement 4). (See previous post on importance of complying with Entity List.)

Although U.S. dual-use export controls affect less than one percent of U.S. trade with India trade, there has been a good deal of misunderstanding on the scope of U.S. export controls involving exports of goods, software and technology to India. An excellent report by the American Enterprise Institute noted that in in 1999 24 percent of total U.S. exports to India required a “dual-use” license from BIS.  That number is less than 0.2 percent today.

Here is a summary of the pending changes to U.S. export controls on India:

First, only the following India companies and organizations will be removed from the Entity List:

• Bharat Dynamics Limited
• Four remaining subordinates of the Defense Research and Development Organization (DRDO): 
• Armament Research and Development Establishment (ARDE)
• Defense Research and Development Lab (DRDL) 
• Missile Research and Development Complex
• Solid State Physics Laboratory
• Four remaining subordinates of the Indian Space Research Organization (ISRO): 
• Liquid Propulsion Systems Center,
• Solid Propellant Space Booster Plant (SPROB)
• Sriharikota Space Center (SHAR), and 
• Vikram Sarabhai Space Center (VSSC).

The entities associated with India's Department of Atomic Energy, including India's nuclear reactors, will remain on the Entity List for the foreseeable future. As a result, an export license is required to export all items "subject to the EAR" to Department of Atomic Energy facilities. BIS has a case-by-case licensing approval policy for controlled items and a presumption of approval for EAR99 items.


Note that the entities listed above will remain on the Entity List until BIS issues a final rule in the Federal Register amending the Entity List, which is expected in the coming weeks.

Second, BIS will “realign” India in the Export Administration Regulations to reflect its status as a strategic partner and therefore treating India similarly to other close allies and partners. This realignment will remove India from categories within the EAR that connote it as a “country of concern”—with a focus on Country Groups A and D. In exchange, India has agreed to undertake to harmonize its national control list with the multilateral regimes and impose reexport controls on certain U.S.-origin items.

Third, the U.S. has agreed to support India’s membership in the four multilateral export control regimes—the Nuclear Suppliers Group, Missile Technology Control Regime, Australia Group, and Wassenaar Arrangement. India will undertake to adopt the multilateral regimes’ export control requirements to reflect its prospective membership. The U.S. has indicated that India should qualify for membership in the Australia Group and the Wassenaar Arrangement once India imposes export controls over all items on these regimes’ control lists.


Exports to India will not be eligible for the proposed Strategic Trade Authorization (STA) License Exception that was recently published by BIS in the Federal Register.

In general, exports to India of items classified as EAR99 (the designation for items not on the Commerce Control List) can take place without having to obtain an export license from BIS. As with all exports, no unlicensed exports can be made to prohibited parties or for prohibited end-uses. An export license is required to export most items to India included on the Commerce Control List.

No change has been made to U.S. exports of defense articles to India subject to the ITAR. An export license from the Directorate of Defense Trade Controls is required to export all items to India that are subject to the jurisdiction of the ITAR and the Arms Export Control Act.

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U.S. Company and Its Chinese Subsidiary Pay $3.75 Million in Criminal and Civil Fines for Export Control Violations Involving Pakistan Nuclear Facility

The Departments of Justice and Commerce announced today that PPG Paints Trading (Shanghai) Co., Ltd., a wholly-owned Chinese subsidiary of United States-based PPG Industries, Inc., pled guilty to conspiring to violate the International Emergency Economic Powers Act and the Export Administration Regulations and other related charges.

In addition to the guilty plea, PPG Paints Trading agreed to pay a $2 million criminal fine and forfeit the $32,319 in gross proceeds of the sale.

PPG Industries and PPG Paints Trading entered into a settlement agreement with BIS in which they agreed to pay civil penalties of $750,000 and $1 million respectively and undergo an audit of 2011 and 2012 export transactions.

The guilty plea resulted from actions allegedly taken by PPG Paints Trading to reexport PPG Industries' high-performance coatings from the U.S. to the Chashma 2 Nuclear Power Plant under construction in Pakistan via a third-party distributor in China without obtaining the required BIS export or reexport licenses from BIS.

A BIS export license is required to export the coatings to the Chasma 2 Nuclear Power Plant since the facility is owned by the Pakistan Atomic Energy Commission, which is included on BIS's Entity List. An export license issued by BIS is required to export or reexport all items "subject to the EAR" to PAEC nuclear facilities. (Note - this illustrates the importance of due diligence in screening end-users against the Entity List and other restricted party lists since this particular facility is not specifically named on the Entity List. Only the parent entity, Pakistan Atomic Energy Commission is named on the Entity List).

In this case, PPG Industries complied with the Entity List requirement by applying to BIS for a license to export their coatings to Chashma 2.  However, the export license was denied by BIS. Following that denial, PPG Paints Trading allegedly agreed to sell the high-performance coatings to a third-party distributor in China which, in turn, would deliver the coatings to the Chashma 2 facility. In its purchase orders for the shipments in question, PPG Paints Trading apparently stated that the coatings were to be used at a nuclear power plant in China that did not require a BIS license.

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Happy Holidays and Happy New Year From International Trade Law News

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U.S. Customs Seizes Thousands of Cuban Cigars

CNN reported today (see video below) on U.S. Customs and Border Protection's recent seizure of thousands of Cuban cigars at Chicago's O'Hare International Airport. The seized Cuban cigars were being shipped to customers (including law firms and other businesses) in the U.S. that had ordered the cigars from various stores in Switzerland.

While some people apparently think that Cuban cigars make great Christmas gifts they are still illegal in the U.S. The long-standing U.S. sanctions imposed on Cuba and administered by the Office of Foreign Assets Control (OFAC) prohibits U.S. citizens, wherever located, from purchasing Cuban-origin cigars and other Cuban-origin products (in addition to the prohibition on most exports to Cuba). In addition, no Cuban origin cigars may be imported into the U.S. either directly or through third countries. This prohibition includes the purchase of Cuban cigars bought from third countries over the Internet.


In addition to seizing the cigars, OFAC can impose civil penalties of up to $65,000 per violation of the U.S. embargo on Cuba.

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Today is International Anti-Corruption Day

Today, December 9th, marks International  Anti-Corruption Day.

In a statement marking International Corruption Day, Secretary of State Clinton said "The United States has made unprecedented strides over the past year to enforce our anticorruption laws and ensure our companies do not practice bribery or unfair practices in countries where they operate."

In order to promote the United Nations' anti-corruption campaign, the U.N.'s Office of Drugs and Crime (UNODC) has previously produced the following 60 second video that promotes the power to say no when confronted with bribery.

The 2010 International Corruption day messages by Secretary of State Clinton, the UN Secretary General and UNODC's Executive Director can be found below: here (Clinton),  here (UN) and here (UNODC).

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CNBC Running Series Called "Forbidden Zone: Investing in Iran"

CNBC is running a series entitled "Forbidden Zone: Investing in Iran" that discusses business in Iran.

Yesterday's first report discussed the wide availability of American products available in Iran's Kish Island, despite U.S. sanctions.

Today's report discusses some U.S. companies that are still operating legally in Iran via non-U.S. subsidiaries or through specific licenses issued by OFAC. The report includes an interview with Stuart Levey, Undersecretary of Treasury for Terrorism and Financial Intelligence, who oversees the Treasury Department's sanctions efforts.

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OFAC Issues Statement on Location of SDN List

As a follow-up to yesterday's post regarding the changes to OFAC's website, OFAC issued a statement today regarding the location of the Specially Designated National List (SDN) and the related files.

As the statement below indicates, OFAC has decided to leave in place the old links to the SDN list for the "foreseeable future." However, OFAC is encouraging users to begin using the new links. A list of the new and old links is included in OFAC's statement.

The New Treasury Website - Where to Find the SDN List

OFAC has received questions from the public regarding the location of Specially Designated Nationals (SDN) list data on the Treasury's new website.

While the physical location of OFAC's SDN data has changed, Treasury is redirecting traffic from its old SDN-related links to the new SDN list locations. This has been done to ensure that automatic/regular downloads of the SDN list are not disrupted.
Users that rely on the following old links will not need to change their bookmarks, favorites or automated download processes. 

www.treas.gov/offices/enforcement/ofac/sdn/t11sdn.pdf
www.treas.gov/offices/enforcement/ofac/sdn/sdnlist.txt
www.treas.gov/offices/enforcement/ofac/sdn/sdn.xml
www.treas.gov/offices/enforcement/ofac/sdn/sdall.exe
www.treas.gov/offices/enforcement/ofac/sdn/sdallw32.exe
www.treas.gov/offices/enforcement/ofac/sdn/sdall.zip

While OFAC intends to maintain these redirects for the foreseeable future, we do encourage users to begin to use the new links at their earliest convenience.  The new links are listed below.

www.treasury.gov/ofac/downloads/t11sdn.pdf
www.treasury.gov/ofac/downloads/sdnlist.txt
www.treasury.gov/ofac/downloads/sdn.xml
www.treasury.gov/ofac/downloads/sdall.exe
www.treasury.gov/ofac/downloads/sdallw32.exe
www.treasury.gov/ofac/downloads/sdall.zip

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U.S. Export Controls/Sanctions Programs to be Held in Frankfurt, Germany on January 17-18, 2011

The AWA Foreign Trade Academy is holding two one-day programs on U.S. export controls and sanctions on January 17 and 18, in Frankfurt, Germany.

The first day of the program will focus on what European companies need to know about ITAR and U.S. defense trade controls.

The second day of the program will feature information on U.S. dual-use export/reexport controls and economic sanctions programs and their impact on European companies, including information on recent export controls and sanctions developments from BIS and OFAC.

Further information on these programs, including the agenda for each day, speaker bios and registration information, can be found below.
AWA ITAR-Export Controls Programs

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Redesign of Treasury's Website Changes Links to SDN List and Other OFAC Sites

This weekend the Treasury Department unveiled a redesigned website. While that is not exactly news, the redesign process has changed the way that the website's files are structured, leading to some significant changes in the web address (URL) of commonly used websites, including the Office of Foreign Assets Control (OFAC) and the Specially Designated Nationals (SDN) List. As a result of these changes, it will be necessary for exporters, financial institutions and others that refer to the OFAC website to update their bookmarks and links to common OFAC resources.

Access to OFAC's main website and related information now appears in the "Resource Center" tab at the top of the page. After scrolling to "Resource Center" click "Financial Sanctions" on the drop down menu. This will take you the main OFAC website here:

Direct links to the SDN List and other OFAC resources can be accessed from this page.

Here is a list of the new URLs for common OFAC resources:


SDN List: http://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx

Information on OFAC's Sanctions Programs: http://www.treasury.gov/resource-center/sanctions/Programs/Pages/Programs.aspx

Civil Penalties and Enforcement Information: http://www.treasury.gov/resource-center/sanctions/CivPen/Pages/civpen-index2.aspx

As a result of these changes, it will be necessary for BIS to update the link to the SDN List that is included on the agency's "List to Check" page.

Note that the links to information on OFAC's Iran sanctions program are not correct and currently lead to information on sanctions imposed on the Democratic Republic of the Congo. Treasury's web development team should be updating the Iran-related links soon.

Update: OFAC has now corrected the links and other information on the Iran sanctions program page.

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Dealing with Boycott Requests in the Real World

By Douglas N. Jacobson, Esq.

You arrive at your office and check your e-mail. When reviewing your messages you notice that you have received the following message from the export compliance manager located in your company's Dutch subsidiary:
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From: Export Compliance Manager, XYZ America B.V.

To: Corporate Counsel, XYZ America Corp.

Subject: Boycott language in letter of credit for sale to Kuwait

Message: Today we received from our customer in Kuwait the final sales confirmation and shipping instructions for our pending export of electronic equipment. When reviewing the terms and conditions of the shipping instructions we noticed that it contained the following language: "Importation of goods from Israel is strictly prohibited by Kuwait import regulations; therefore, a certificate of origin stating that the goods did not originate in Israel must be provided." While it has been some time since our company received such a request, I reviewed our company's export compliance manual and found that it is against our company's policy to comply with such a request. The export manual also indicates that I am supposed to notify you anytime that we received document containing any boycott language. Please let me know what I should do next. Regards.
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What Should I do Now?

You recently heard about the renewed calls by certain foreign governments for boycotts of Israeli businesses and U.S. companies that do business with Israel. In addition, you recall hearing at the BIS Update conference that the maximum penalty for violating the antiboycott provisions of the Export Administration Regulations had increased to $250,000 per violation. However, it had been some time since your company had received such a request. While you are pleased that your Dutch subsidiary brought this boycott language to your attention, you are aware that you need further information to determine whether the receipt of this boycott request is reportable to the Bureau of Industry and Security's (BIS) Office of Antiboycott Compliance (OAC) and to the Internal Revenue Service (IRS).

Obtain Further Information and Documentation

Your first step is to request your Dutch subsidiary’s export compliance manager to provide you with copies of all documentation associated with this sales transaction. Such documents should include copies of the document containing the boycott language as well as correspondence with the customer, the customer's purchase order, pro forma invoice, sales contract and letter of credit. You should also obtain a complete description of the goods subject to the transaction, including the country of origin and manufacturer of the products.

It is important to obtain these documents to ensure that you have a complete understanding of the transaction at issue and to ensure that no other boycott related requests are contained in the correspondence with the customer. For example, if the language stating that a "certificate of origin covering goods originating in Israel is not acceptable" appears in the shipping instructions, a similar request may appear in the letter of credit. An additional reason for requesting copies of these documents is to make sure that you have a complete set of documents in your files, since the documents containing the boycott language will have to be submitted to OAC in the event that you must file a boycott report.

Is the Entity That Received the Boycott Request Covered by U.S. Antiboycott Laws?

While waiting to receive the documentation that you requested, you should consult Section 760 of the U.S. Export Administration Regulations ("EAR" or the "antiboycott regulations") to determine if the entity that received the boycott request is covered by the U.S. antiboycott laws. The antiboycott provisions of the EAR apply to all "U.S. persons." The EAR defines the term "U.S. persons" as individuals and companies located in the United States and their "controlled in fact" foreign subsidiaries and affiliates. Whether your company's foreign subsidiary is "controlled in fact" will depend on whether the U.S. parent has the authority or ability to establish the general policies or to control day-to-day operations of its foreign subsidiary.

In this case, you are aware that your company's subsidiary, while incorporated in the Netherlands is 80% owned by its U.S. parent. You are also aware that two-thirds of the board of directors of your Dutch subsidiary sit on the board of its U.S. parent. Based on these facts you determine that the antiboycott regulations apply to your company's foreign subsidiary.

Is the Sale Associated With an Activity in the Interstate or Foreign Commerce of the United States? 

Because you are aware that the antiboycott provisions of the EAR apply only to "activities in the interstate or foreign Commerce of the United States" you have asked your subsidiary to provide you with information about the electronic goods that will be sold to the customer in Kuwait. You know that your Dutch subsidiary does not manufacture electronic goods in the Netherlands, but serves as your company's European distributor of good manufactured in the U.S and elsewhere. The pro forma invoice that you receive from the export compliance manager confirms that the products that will be sold to the customer in Kuwait include products that were manufactured by your company in the U.S. and products manufactured by your company's subsidiary in Ireland. Because this sale to Kuwait will involve U.S.-origin goods that have not been substantially altered or modified you conclude that this transaction is "in U.S. commerce."

Is the Language Contained in the Shipping Instructions Received From the Customer Prohibited?

Now that you have determined that your subsidiary is covered by the antiboycott laws and the transaction is in U.S commerce, the next step is to determine whether the language contained in the shipping instructions issued by the customer in Kuwait is prohibited or not. The U.S. antiboycott laws prohibit the following conduct: agreements to refuse or actual refusal to do business with or in Israel or with blacklisted companies; agreements to discriminate or actual discrimination against other persons based on race, religion, sex, national origin or nationality; and agreements to furnish or actual furnishing of information about business relationships with or in Israel or with blacklisted companies. There is often a fine line between wording that can be interpreted as supporting a boycott or not. In fact, the EAR devotes numerous pages to "interpretations" as to whether a boycott request is permissible or not.

The antiboycott provisions of the EAR permit U.S. companies and their foreign subsidiaries to agree to comply with certain import and shipping document requirements relating to the country of origin of the goods. However, the EAR states that information relating to the country of origin of goods must be stated in positive, non-blacklisting and non-exclusionary terms. Therefore, while a certificate of origin stating that these products are "Made in U.S.A. and Ireland" is acceptable, you determine that a certificate of origin stating that the goods are "Not made in Israel" is not.

Advise Customer you Cannot Comply With Request

Once you have determined that the boycott language received from the customer is not permissible, you should ask your foreign subsidiary to send a letter or e-mail to the customer stating that it is not possible to comply with the request. The correspondence with the customer should request that they not include similar language in future documents and to explain that you are unable to comply with such a request. The message should be sent to the customer as soon as possible and before any report is filed with OAC.

This communication with the customer will serve several purposes. First, the letter serves to notify the customer that you are unable to comply with such unlawful request. Second, notifying the customer not to include similar language in the future will help reduce the number of boycott related requests and consequently, the number of boycott related reports that must be filed. Finally, the letter serves as documentary evidence that your company has not and will not take the action requested.

You should notify your foreign affiliate that it should not be concerned that sending the letter will offend the customer or lead to lost sales in the future. Typically, such requests are included as boilerplate language on documents issued by companies located in boycotting companies. Many companies and banks will delete such language from their documents if requested to do so. In addition, even if certain documentation is "required" by the local customs authorities, customers are generally willing to forego such requirements in certain cases.

Is the Receipt of This Boycott Language Reportable to the Office of Antiboycott Compliance?

The EAR requires U.S. persons who receive a request to take any action which has the effect of furthering or supporting a restrictive trade practice or boycott fostered or imposed by a foreign country against a country friendly to the United States or against any United States person must report such request to the OAC. In addition, the EAR states that a request received by a controlled in fact foreign subsidiary is reportable if it is received in connection with a transaction or activity in the interstate or foreign commerce of the United States.

Given that you have previously determined your foreign subsidiary is controlled in fact and that the transaction at issue was received in connection with a transaction or activity in the interstate or foreign commerce of the United States you conclude that you must file a boycott report with OAC.

How and When do I File a Report?

The antiboycott regulations state that each United States person actually receiving a reportable request must report that request. However, the antiboycott regulations note that such persons may designate someone else to report on their behalf. Currently, all boycott reports must be submitted to BIS on Form BIS 621P for single requests or Form BIS 6051P for multiple requests. In the future, it will be possible to file boycott electronically with BIS. Because this is a single request, Form BIS 621P should be used. This form is a one page form that is available in a fillable PDF format from BIS’s website. Boycott reports, whether submitted on the single transaction form or on the multiple transaction form, must contain entries for every applicable item on the form, including whether the reporting person intends to take or has taken the action requested.

Two copies of the documents containing the boycott language must be submitted with the form. In addition, to ensure that no business proprietary information is released in the copy placed in the public file you should prepare a public version of the documents, by redacting customer names and any other business proprietary information included in the documents. In addition, the bottom portion of the form (block 11) should be removed to ensure that the description and value of the goods is not included in the public version.

Boycott requests must be filed with OAC within the time limits specified in the EAR. Normally, boycott reports must be filed by the last day of the month following the calendar quarter in which the request was received. However, in cases where the person receiving the request is located outside the United States, each report of requests must be postmarked by the last day of the second month following the calendar quarter in which the request was received. Given the delays associated with sending mail to the U.S. Government, it is a good idea to send boycott requests to OAC by FedEx or by another courier service. It is also recommended to include an extra copy of the submitted report and a self-addressed stamped envelope so that a copy can be date-stamped by OAC and returned to you.

Is the Receipt of This Boycott Language Reportable to the IRS?

Finally, in addition to filing the boycott form with OAC, you are aware that the Internal Revenue Service (IRS) requires corporations to report on IRS Form 5713 all "operations" in, with or related to a boycotting country or its nationals and requests received to participate in or cooperate with an international boycott. According to IRC § 999(a)(1), a "boycotting country" is any country included on a list maintained by the Secretary of Treasury Department or any other unlisted countries if the taxpayer "knows or has reason to know" that country requires boycott participation as a condition of doing business. Tax and other penalties may be imposed on corporations that fail to report boycott request on an annual basis.

You are also aware that your company obtains certain tax benefits that are associated with its overseas operations. After reviewing the Federal Register, you learn that Kuwait has consistently been named as a "boycotting country" on the Treasury Department's "List of Countries Requiring Cooperation With an International Boycott." After perusing the Treasury Department's Boycott Guidelines and discussing this issue with your company’s tax department or outside accountant you realize that a request from Kuwait to provide a negative certificate of origin is not the type of request that must be reported to the IRS on Form 5713. However, since your company makes sales to Kuwait, your company is deemed to have “operations” in a boycotting country and Form 5713 must be filed with your company's corporate tax return.

Final Steps

Because this boycott request was brought to your attention it appears that your company's export management system is working properly. Nevertheless, in order to ensure that your company continues to be vigilant you should send a message to the appropriate persons in your company's U.S. and overseas operations reminding them of their obligation to report any boycott-related language to you as soon as possible.

Note: To learn more about antiboycott compliance see my one-hour online presentation at Lawline.com. This program, which is intended for exporters, trade compliance professionals, in-house counsel and tax professionals, has been approved for Continuing Legal Education credit in Arizona, California, Hawaii, Illinois, Missouri, North Dakota, New York and Texas.

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International Trade Law News Marks 7th Anniversary

International Trade Law News recently marked its 7th anniversary.

I am grateful for the kind words and favorable comments received from clients, colleagues, government officials, law students and members of the international trade community. I very much appreciate all of your support, as well as the tips and other valuable information and ideas received from readers.

The number of readers of International Trade Law News has increased dramatically over the past seven years and the site has a large number of readers that subscribe to our e-mail service, RSS and Twitter feeds (regular readers and followers will note that the number of posts have declined in the past year and the number of tweets have increased - so be sure to follow us on Twitter if you are not already).

The readers of this blog are truly international in scope. In 2010 to date, International Trade Law News has had readers from 176 countries and territories (including all of the Country Group E countries, except North Korea) that used 79 languages. In addition, many of the posted articles are picked up and republished by other sources, including Northrop Grumman's Ex/Im Daily Update. I am pleased to approve requests to republish content that provide the appropriate attribution.

-- Doug Jacobson

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U.K. Issues Notice to Exporters on Implementation of US-UK Defense Trade Treaty

As a follow-up to our previous post on the U.S. Senate's ratification of the U.S.-United Kingdom and U.S.-Australia Defense Trade Cooperation Treaties, the U.K.'s Export Control Organisation issued the following notice to U.K. exporters reminding them that ". . . the ratification of the Treaty by Congress has no immediate impact on controls of exports from the UK to the US. If you needed an export licence before, you still need one now."

In addition, the notice indicates that the "UK will . . . proceed to implement the Treaty over the course of the coming year."

UK Export Control Organisation Notice re US-UK Defence Trade Cooperation Treaty

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Better Late Than Never: U.S. Senate Approves U.S.-U.K. and U.S.-Australia Defense Trade Treaties

More than three years after they were signed, yesterday the U.S. Senate ratified the U.S.-United Kingdom and U.S.-Australia Defense Trade Cooperation Treaties. While the Treaty Clause of the U.S. Constitution require two-thirds vote of Senators present to concur, both treaties were approved by an unrecorded division vote.

The two treaties allow for the export or transfer of certain defense articles and defense services controlled pursuant to the International Traffic in Arms Regulations (ITAR) between certain persons in the U.S. and the United Kingdom or between certain persons in the United States and Australia without the need for export licenses or other ITAR authorizations to be issued by the State Department's Directorate of Defense Trade Controls (DDTC).

Specifically, the treaties create Approved Communities of government and private sector entities that may receive defense articles and defense services under the treaties. To qualify for membership in these communities, private entities must meet specific requirements, which for U.K. and Australian private entities includes approved for inclusion by the USG and their respective governments.

Under the treaties, it will be possible for most U.S. defense articles to be exported into, and within, these communities without licenses or other authorizations pursuant to the ITAR as long as the exports are in support of:

• Certain combined military and counter-terrorism operations;
• Certain cooperative security and defense research, development, production, and support programs;
• Certain Mutually agreed security and defense projects where the end-user is the Government of the United Kingdom or the Government of Australia; or
• Certain U.S. Government end-uses.

The United States and the U.K., and the U.S. and Australia must jointly agree on which projects, programs and operations qualify for processing under the terms of the treaties. U.K. and Australian retransfer or re-exports of items originally exported pursuant to either treaty to a person outside the respective Approved Communities will require U.S. Government approval and U.K. or Australian authorization as appropriate.

The full text of the treaties, along with the implementing arrangements, list of exempted defense articles and definitions, can be found here.

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House Foreign Affairs Committee Indefinitely Postpones Markup of Cuba Travel Bill

House Foreign Affairs Committee Howard L. Berman (D-CA), chairman of the House Foreign Affairs Committee, today announced that the Committee's markup of H.R. 4645, the Travel Restriction Reform and Export Enhancement Act, a bill that would lift the ban on Americans traveling to Cuba, has been postponed indefinitely.

The following is the text of his statement explaining the delay:

For a very long time, I have either led or supported efforts to repeal restrictions on the freedom of Americans to travel. The current prohibition on Americans traveling to Cuba is the last obstacle to the full enjoyment of this right. I strongly support H.R.4645, the Travel Restriction Reform and Export Enhancement Act, which would eliminate the Cuba travel restrictions.

The Committee had been scheduled to consider this legislation tomorrow, but it now appears that Wednesday will be the last day that Congress is in session before an extended district work period. That makes it increasingly likely that our discussion of the bill will be disrupted or cut short by votes or other activity on the House floor. Accordingly, I am postponing consideration of H.R. 4645 until a time when the Committee will be able to hold the robust and uninterrupted debate this important issue deserves. I firmly believe that when we debate and vote on the merits of this legislation, and I intend for it to be soon, the right to travel will be restored to all Americans.

In July, the House Agricultural Committee voted 25-20 to report H.R. 4645 to the full House, but the House Foreign Affairs Committee has asserted primary jurisdiction over the bill bill due to the foreign policy-related aspects of sanctions on Cuba.

The agriculture-related provisions in H.R. 4645 include restoring the ability of U.S. exporters to receive payment of licensed agricultural products to Cuba by cash in advance. In addition, the bill would authorize Cuban banks to transfer funds directly to U.S. banks for sales of products authorized for sale under the Trade Sanctions Reform and Export Enhancement Act of 2000 (includes medical and agricultural products).

Given the political sensitivity of this issue in some jurisdictions, it appears that there were not enough votes on either side of the aisle to get this bill passed by the House Foreign Affairs Committee during this session of Congress.  

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Today's Import and Export News and Notes

Today's import and export news and notes:

Miscellaneous

An interesting trade-related cartoon in the op-ed section of yesterday's New York Times shows importance of U.S. National Export Initiative.

Export Controls and Sanctions

House Foreign Affairs Committee to markup bill (HR 4645) on September 29th that would end Cuba travel restrictions.

Politico: Retired generals urge U.S. to lift Cuba travel ban.

Washington Times: India continues to press US to remove govt organizations from BIS Entity List (see our comment on this issue here).

Under Secretary of Treasury for Terrorism and Financial Intelligence Stuart A. Levey spoke last week at the Center for Strategic and International Studies on the effectiveness of sanction on Iran.  The transcript and video of his testimony can be found here.

New GAO Report: Defense Exports: Reporting on Exported Articles and Services Needs to Be Improved.

VOA: Targeted U.S. sanctions on Zimbabwe to stay until human rights situation improves. 

Next meeting of Defense Trade Advisory Group (DTAG) will take place in Washington, DC on October 20, 2010. 

Foreign Policy: How U.S. Sanctions Made Haystack (discussing anti-censorship software intended for Iran). 

Customs

U.S. Customs and Border Protection (CBP) publishes quarterly interest rates applied to overpayments and underpayments of customs duties. 

CBP announces that Customs-Trade Partnership Against Terrorism program (C-TPAT) reaches 10,000 members.

CBP issues 2010 C-TPAT Partner Survey (information on costs and benefits of C-TPAT program).

Upcoming Programs of Note

The North Texas District Export Council is holding a full day FCPA conference in Dallas on Oct. 13, 2010. Program will include experienced practitioners, including in-house and outside counsel. Details of the FCPA program can be found here.

NACM Oregon to present Incoterms® 2010 program in Portland on November 9, 2010 (Doug Jacobson is speaker). Program details and registration can be found here. A similar Incoterms 2010 program will be presented in Seattle (near SEATAC) on November 11, 2010.

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OFAC Issues Final Rule Prohibiting Importation into U.S. of Iranian Origin Food and Carpets

The Department of the Treasury's Office of Foreign Assets Control (OFAC) published a final rule in today's Federal Register amending the Iranian Transactions Regulations (ITR) to prohibit the importation into the U.S. of foodstuffs and carpets of Iranian origin starting tomorrow, September 29, 2010.

As we previously reported, this final rule is required to implement the import prohibitions contained in section 103 of the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 that was enacted by Congress on July 1, 2010.

Prior U.S. law authorized the importation into the U.S. of foodstuffs from Iran that are classified under chapters 2-23 of the Harmonized Tariff Schedule of the United States (HTS) (such as pistachios and non-beluga caviar). In addition, the importation of carpets and other textile floor coverings of Iranian origin that are classified under chapter 57 or heading 9706.00.0060 of the HTS were also authorized.

However, as a result of the change to the ITRs issued today any Iranian food or carpets must be entered by U.S. Customs and Border Protection by midnight tonight. OFAC has stated that the agency will not issue any specific licenses authorizing any imports after that date, even if the goods were in transit or were at the port.

Efforts to import Iranian origin foodstuffs and carpets on or after September 29, 2010 can lead to significant civil and criminal penalties. For example, civil penalties of up to $250,000 or twice the amount of the transaction that is the basis of the violation can be imposed administratively. Criminal penalties of up to $1,000,000 in fines and imprisonment for up to 20 years can be imposed for willful violations of the Iranian Transaction Regulations.

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Summary of Xe Services LLC's Settlement Agreement with State Department for Alleged ITAR Violations

Below is a detailed summary of the recent $42 million settlement entered into between the State Department's Directorate of Defense Trade Controls and Xe Service LLC, formerly known as Blackwater Worldwide, for numerous alleged violations of the ITAR and the Arms Export Control Act. This document, prepared and provided by John Priecko, summarizes the 288 counts contained in DDTC's Proposed Charging Letter and Consent Agreement.Xe Services 081810 Settlement Summary 090610



Mr. Priecko is the President of Trade Compliance Solutions, a network of experienced compliance-related professionals. He is a trade compliance veteran with more than 15 years of experience in government and in the private sector.

The Proposed Charging Letter, Consent Agreement and Order in this case can be found here.

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President's Export Council to Meet Today/Export Promotion Cabinet Releases Plan to Double Exports

The President's Export Council (PEC) will meet at 9:30 a.m. today in Washington to discuss topics related to the National Export Initiative (NEI). President Obama is scheduled to deliver remarks to PEC at 9:45 a.m. The meeting will be shown via live webcast on the White House's website.

In advance of today's PEC meeting, this morning the Trade Promotion Coordinating Committee (TPCC) issued a report to the President that presents the Export Promotion Cabinet’s recommendations for doubling exports in five years. This report will be followed by the National Export Strategy which will detail the implementation of these recommendations and measure progress.

The TPCC consists of the Export Promotion Cabinet, which includes the Secretaries of Commerce, State, Treasury, Agriculture and Labor and the heads of all the trade-related government agencies.
In preparing the report, the TPCC Secretariat reviewed over 175 responses to a Federal Register notice requesting input to the National Export Initiative from small, medium, and large businesses; trade associations; academia; labor unions; and state and local governments.

The report notes that the administration’s efforts, through the NEI, are focused on five areas including: access to credit, especially for small and midsize firms; more trade advocacy and export promotion efforts; removing barriers to the sale of U.S. goods and services abroad; enforcement of trade rules; and pursuing policies that will increase global economic growth so that there’s a strong worldwide market for U.S. goods and services.

The report outlines ways the U.S. government can expand efforts to help U.S. businesses win more foreign government contracts, find buyers worldwide, participate in more trade missions and trade shows, receive more export financing, and learn new ways to sell products and services overseas. A central focus of the plan is providing additional assistance to small and medium-sized businesses.

Part I of the report, titled “The NEI in Context,” sets out eleven key factors and assumptions that form the basis of a plan to double exports, ranging from assessments of the U.S. and global economies and identification of priority markets, to determining the most promising and appropriate roles for the Federal Government in increasing exports.

Part II of the report, titled “Recommendations,” examines each of the eight NEI Priorities, describes the rationale underlying each Priority, and presents short- and long-term recommendations for the Federal Government to implement, consistent with the Executive Order that mandated the Report.

Finally, Part III presents conclusions, discusses the National Export Strategy that will be published later this year, and highlights suggestions for further advancing the NEI goals.

Key recommendations in the report include:

• Small and Medium-Sized Enterprises (SMEs): a National Outreach Campaign led by the SBA and other Trade Promotion Coordinating Committee (TPCC) agencies to raise awareness of export opportunities and government export assistance for U.S. small and midsize companies; a re-launch of export.gov, the Government’s export internet portal, with new export training opportunities to help companies learn how they can begin selling their products overseas or break into new markets if they’re already exporting.

• Federal Export Assistance: bring more international buyers to U.S. trade shows and encourage more U.S. companies to participate in major international trade shows. For the first time, implement a government-wide export promotion strategy for six newly designated “next tier” markets (Colombia, Indonesia, Saudi Arabia, South Africa, Turkey and Vietnam).

• Trade Missions: substantially increase the number of trade missions abroad, particularly those led by senior U.S. Government officials, and foreign buyer trade missions to the United States.

• Commercial Advocacy: level the playing field for companies bidding on projects abroad through improved coordination among government export promotion programs; formalize a path to escalate, for the first time ever, critical advocacy projects for direct White House and National Economic Council involvement where necessary.

• Increasing Export Credit: extend more export credit through existing trade finance agencies, increase awareness of credit products, focus on SMEs and companies from underserved sectors of the U.S. economy, expand the eligibility criteria for SME export finance lending, and streamline the application and review process for SME exporters.

The report notes that the Administration’s plans for export control reform are completely separate from the National Export Initiative, but that a by-product of this important reform process will allow for exporters in some of the most competitive industries to export products consistent with the new export control process.

The entire Report to the President on the National Export Initiative: The Export Promotion Cabinet’s Plan for Doubling U.S. Exports in Five Years can be found here.

Update: The text of the President's remarks made at the opening of today's President's Export Council meeting can be found here.

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Commerce Department's Proposed Changes to AD/CVD Policy and Procedures Likely to be Criticized by U.S. Trading Partners

The U.S. Department of Commerce announced today a number of proposed changes to U.S. antidumping (AD) and countervailing duty (CVD) policy and procedures intended to "strengthen trade enforcement and help keep U.S companies competitive." These measures, which are certain to be controversial and provoke criticism from China and other U.S. trading partners, will be reviewed by the Commerce Department during the next few months through a "transparent review" that will include an opportunity for public comments.

Most of the proposed changes are targeted at countries designated as non-market economies, which currently include China and Vietnam.

U.S. importers of products subject to AD/CVD investigations are likely to oppose the proposed change that would require importers to post cash deposits rather than bonds to secure entry of their products into the U.S. once a preliminary affirmative determination is made in an AD/CVD case.

A number of the proposed changes to current AD/CVD law and practice are also likely to generate a strong reaction by attorneys that handle AD and CVD cases on a regular basis. There will also be questions as to whether these changes are in compliance with the WTO Anti-dumping Agreement and the WTO Agreement on Subsidies and Countervailing Measures.

Another controversial aspect of this proposal is that the press release announcing these proposed changes claimed that these changes were being made in support of the President's National Export Initiative, which aims to double U.S. exports during the next five years. If implemented, these measures are likely to increase the AD and CVD duties paid by importers and the cost of certain imported products subject to such duties. However, it is unlikely that these measures will have any positive impact on the ability of the U.S. manufacturing sector to export their products.

If the Commerce Department chooses to go forward with these changes, revisions to the AD/CVD regulations (19 CFR Part 351) will be required in most cases.

The following is a summary of the 14 proposed changes:

1. Expanded use of random sampling to select companies as individual respondents in AD investigations and reviews rather than choosing the largest exporters;
2. Strengthening Commerce’s current practice regarding the issuance of company-specific AD rates in NME cases;
3. Clarification of Commerce’s current NME practice that when the Department uses import prices for valuing a production factor, such prices should include all applicable freight and handling costs;
4. Clarification of Commerce’s current NME practice to require companies to report production inputs for all products produced at each of their facilities – not just those facilities that produced merchandise destined for the United States – for use in the Department’s NME dumping calculations;
5. Clarification of Commerce’s current CVD practice to reiterate that Commerce considers state-owned enterprises (SOEs) as constituting a “specific” group when they are alleged to be receiving countervailable subsidies from the government;
6. Reconsidering the treatment of export taxes and value-added taxes (VAT) in Commerce’s NME AD methodology; and
7. Strengthening the treatment of resellers and other non-reviewed parties in NME cases to ensure that such parties pay the full amount of AD duties.
8. Adoption of a new methodology for valuing wage (labor) rates in NME cases by using surrogate wage rates that fully capture all labor costs (including benefits and taxes paid to workers by their employers) in the NME country;
9. Eliminating the practice of allowing individual companies to seek removal from an antidumping (AD) or countervailing duty (CVD) order based on their ability to show zero dumping margins or subsidy rates for three (AD) or five (CVD) consecutive years;
10. Tightening the rules in non-market economy (NME) cases for determining when the price of production inputs purchased from market economy countries will be substituted for the Department’s standard valuation for such inputs;
11. Considering whether importers will be required to post cash deposits rather than bonds for imports that fall within the scope of an AD/CVD investigation starting with the issuance of Commerce’s preliminary determination (rather than following the imposition of an AD/CVD order);
12. Strengthening the certification process for the submission of factual information to the Department;
13. Strengthening the accountability of attorneys and non-attorneys practicing before Commerce; and
14. Tightening the deadlines for submitting new factual information in AD/CVD cases.

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U.S. Representatives Send Letter Asking President to Enforce Iran Sanctions Act

Citing news reports outlining apparent violations of the recently enacted Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA), U.S. Reps. Mark Kirk (R-Ill.) and Ron Klein (D-Fla.) recently sent a letter to President Obama asking the Administration to immediately enforce the law.

The letter noted that "Although we are encouraged by recent reports of international companies voluntarily exiting the Iranian energy market, it appears that a number of firms -- such as Russia's LUKOIL -- continue to supply Tehran with refined petroleum products." The letter indicates that LUKOIL has a significant business presence in the U.S. and concludes by stating that no "company should be allowed to skirt the Iran Sanctions Act. Therefore, we ask you to enforce the law and hold companies like LUKOIL accountable without delay."

A copy of the Kirk/Klein letter to President Obama can be found here.

Representative Kirk is the Republican nominee for President Obama's former Senate seat in Illinois.

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Date of First Meeting and Structure of President's Export Council Announced

President's Export Council Chairman Jim McNerney and Vice Chairman Ursula Burns have announced that they plan to structure the group into the following five subcommittees:

1. Small and Medium Sized Business Engagement
2. Export Promotion and Advocacy
3. Global Competitiveness
4. Manufacturing, Services and Agriculture
5. Workforce Readiness

The first meeting of the President's Export Council is scheduled for September 16th.

The President's Export Council is the principal national advisory committee on international trade. The council advises the president of government policies and programs that affect U.S. trade performance; promotes export expansion; and provides a forum for discussing and resolving trade-related problems among the business, industrial, agricultural, labor, and government sectors.

The President's Export Council is comprised of 20 private-sector members; five U.S. senators; five U.S. representatives; the Secretaries of Commerce, Agriculture, Energy, Homeland Security, Labor, State, and Treasury; the Chairman of the Export-Import Bank of the United States; the U.S. Trade Representative; and the Administrator of the Small Business Administration.

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State Department Imposes $42 Million in Civil Penalties on Xe Services for Numerous ITAR Violations

The U.S. Department of State announced today that on August 18, 2010, Xe Services LLC (formerly Blackwater Worldwide) entered into a civil penalty agreement with the State Department's Directorate of Defense Trade Controls (DDTC) to settle numerous alleged violations of the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR).
The 41 page Proposed Charging Letter issued by DDTC indicates that Xe allegedly committed 288 violations of the ITAR involving the unauthorized export of defense articles and provision of defense services to foreign end-users in multiple countries between 2003 and 2009.

While the charging letter noted that Xe had taken efforts to implement compliance measures and to cooperate with DDTC during the "latter part of the investigation", the Proposed Charging Letter stated:

At the same time, the Department considered aggravating factors in determining what charges to pursue, including that Respondent's historic inability to comply with ITAR controls were system failings; the frequency and nature of Respondent's violations; that Respondent did not fully cooperate with the Department during the initial 18 months of this multi-year investigation; Respondent failed to comply with record-keeping requirements, further impeding the investigation; many of the violations by Respondent were disclosed only after the Department issued a directed disclosure; several of the Respondent's statements were false and some disclosures contained misrepresentations or omissions of material fact that had to be revised as prior reports were determined to be inaccurate or incomplete; and implications for national security.

The State Department noted that many of the alleged ITAR violations occurred while Xe was providing services in support of U.S. Government programs and military operations abroad between 2003 and 2009 and they did not involve sensitive technologies or cause a known harm to national security.
Under the four-year term Consent Agreement, Xe will pay in fines and in remedial compliance measures an aggregate civil penalty of $42 million to complete settlement of civil violations. $12 million of this amount will be suspended for pre-and post-Consent Agreement remedial compliance measures.

In announcing the settlement agreement, the State Department stated that it will not impose an administrative debarment of Xe in this case. The State Department is also rescinding the general policy of denial on export license applications with respect to Xe because the Department is satisfied that the company has taken the necessary steps to address the causes of its ITAR violations, identify compliance problems, and resolve these violations.

The remedial measures included:

• Replacement of senior management; 
• Established an independent Export Compliance Committee to oversee its remedial compliance efforts;
• Improved ITAR compliance procedures; 
• Conducted various ITAR training; and 
• Conducted a targeted ITAR audit to confirm the effectiveness of its compliance measures. 

DDTC stated that:

. . . had the Department not taken into consideration Respondent's Voluntary Disclosures, remedial compliance measures, cooperation in the latter part of the investigation, change in management, support of U.S. Government programs, and the absence of disclosure of sensitive technologies or actual harm to national security as significant mitigating factors, the proposed charges against and penalties imposed upon Respondent would likely have been more significant. 

The Consent Agreement also provides that Xe will take a number of additional compliance steps, including external compliance oversight and to continue and improve compliance measures.

The Proposed Charging Letter, Consent Agreement and Order can be found here.

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September NCITD Meeting to Focus on Export Controls and Sanctions Enforcement

The next meeting of the National Council on International Trade Development (NCITD) will take place on September 8, 2010 in Washington, DC. The program will focus on export controls and sanctions enforcement and will feature the following speakers:

• John Sonderman, Acting Director, Office of Export Enforcement, Bureau of Industry and Security, U.S. Department of Commerce

• Michael Geffroy, Assistant Director for Enforcement, Office of Foreign Assets Control, U.S. Department of the Treasury

• Lisa Studtmann, Director, Office of Defense Trade Controls Compliance, U.S. Department of State

For information on how to join NCITD and attend the meeting, see www.ncitd.org or contact the NCITD Secretariat at 202-872-9280.

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Trade Compliance Certificates vs. Certification: Buyer Beware!

Trade compliance professionals need to understand the difference between a certificate program and a certification program before paying for import and export compliance education, training and testing courses according to an article in the August 2010 edition of The Export Practitioner.

Written by trade compliance educator/consultant John Priecko and certification consultant Betty Fishman, the article discusses the recent proliferation of providers claiming to offer certifications for trade compliance professionals.

In addition to discussing the key differences between certificate and certifications, the article provides some "red flags" to look for in claimed certification programs.

The article concludes by advocating an independent standards organization to oversee trade-related education/training and states that such an organization can serve as a clearing house for trade compliance best practices benchmarking.

Access to The Export Practitioner's website requires a subscription. However, readers can obtain a one-day free pass by clicking the "One Day Pass" tab at the top left hand page of the website. You can also receive a free copy and trial subscription to the print edition at no cost or obligation by contacting the Export Practitioner at 202-463-1250, Extension 193.

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Census Bureau Reports That AESDirect Export Filing System Back On-line

As previously advised, the AESDirect http://www.aesdirect.gov/ electronic export information filing system was down yesterday due to a power outage resulting from severe weather conditions in the DC area. AESDirect service was restored last night.

The Census Bureau's advisory issued this morning is reprinted below. As indicated in the advisory further information on the AES Downtime policy can be found on the blog of the Census Bureau's Foreign Trade Division Census.  

AES Broadcast 08/13/2010 Broadcast # 2010043

**********************************************************************

AESDirect Program Back On-line

**********************************************************************

This message is intended for AESDirect program users only.

The power has been restored to the primary datacenter for the AESDirect program and AESDirect is back on-line.

All AESDirect program transactions for shipments that moved under the AES Downtime Policy must now be filed along with any new AES transactions.

For further information or questions, contact the U.S. Census Bureau's AES Branch.

Telephone: (800) 549-0595, select option 1 for AES Email: askaes@census.gov
Online: www.census.gov/trade.
Blog: blogs.census.gov/globalreach/2010/07/a-look-into-the-aes-downtime-policy.html

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OFAC Issues Guidance on Implementation of Restrictions on Iranian Origin Food and Carpets

U.S. persons and companies that currently import food and carpets from Iran should be aware of the guidance reprinted below that was issued today by the Office of Foreign Assets Control (OFAC) concerning a change in U.S. law made by the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 ("CISADA").

OFAC's Iranian Transactions Regulations currently contain a general license authorizing the importation into the U.S. of foodstuffs from Iran that are classified under chapters 2-23 of the Harmonized Tariff Schedule of the United States (HTS) (such as pistachios and non-beluga caviar (which is prohibited by other aspects of law). In addition, the importation of carpets and other textile floor coverings of Iranian origin that are classified under chapter 57 or heading 9706.00.0060 of the HTS are also authorized.

However, due to the additional Iran sanctions recently passed by Congress, OFAC will soon issued a regulation amending the Iranian Transaction Regulations to eliminate the general license and such imports will be no longer permitted starting on September 29, 2010. OFAC has also indicated that any authorized Iranian products must be imported by September 28, 2010 and it will not issue any specific licenses authorizing any imports after that date. As a result, importers must move quickly to ensure that any pending orders are entered for consumption by their customs brokers by September 28, 2010.

Attempts to import Iranian origin foodstuffs and carpets after September 28th can lead to significant civil and criminal penalties. For example, civil penalties of up to $250,000 or twice the amount of the transaction that is the basis of the violation can be imposed administratively. Criminal penalties of up to $1,000,000 in fines and imprisonment for up to 20 years can be imposed for willful violations of the Iranian Transaction Regulations.

Guidance Regarding Import Prohibitions Imposed by the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010

On July 1, 2010, the President signed into law the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (the “Act”), which, among other things, prohibits the importation of Iranian-origin goods and services into the United States, effective 90 days after the Act’s date of enactment. No exception to this prohibition may be made for the commercial importation of Iranian-origin goods described in section 560.534(a) of the Iranian Transactions Regulations (31 C.F.R. Part 560). The Office of Foreign Assets Control cannot authorize by general or specific license the commercial importation of such Iranian-origin goods (which include certain foodstuffs and carpets) on or after September 29, 2010. Consequently, the general license in section 560.534 of the ITR will be eliminated by September 29, 2010, and any such goods for commercial importation into the United States must be entered for consumption before that date.

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State Department's Proposed Policy Change on Foreign National Employees May Not Resolve All Concerns

The State Department's Directorate of Defense Trade Controls (DDTC) published a proposed rule in the August 11, 2010 Federal Register that would amend the International Traffic in Arms Regulations (ITAR) to modify U.S. policy regarding end-user employment of dual national and third country nationals. This policy change, which is billed as part of the President's export control efforts, if implemented would eliminate the need for end-users of defense article or controlled technical data located outside of the U.S. to obtain an export license (DSP-5) from DDTC prior to the transfer of defense articles within a foreign business entity or organization or providing access to that information to company employees with the approved destination country.

However, this license free treatment comes with several additional requirements, including employee screening for "substantive contacts" with restricted or prohibited countries listed in section 126.1 of the ITAR (such as China, Venezuela and other countries subject to U.S. sanctions), non-disclosure agreements and technology security/clearance plans.

While this policy change is intended to minimize the human rights concerns that have arisen in several countries, this proposed policy change may not be enough to overcome all of these concerns. Of particular concern will be how to screen employees "for substantive contacts with restricted or prohibited countries" without violating local law.

A summary of these issues from the Canadian perspective is provided below. This article was written by Toronto-based attorney John Boscarial, who serves as the head of McCarthy Tétrault's International Trade and Investment Law Group, and is reprinted by permission.

Proposed US Defence Control Changes Aim to Resolve Conflicts with Canadian Human Rights Law

          By John Boscariol, McCarthy Tétrault

Canadian companies dealing in aerospace and military goods and technology have long struggled with requirements under the US International Traffic in Arms Regulations (ITARs) that prohibit employees of certain nationalities or born in certain proscribed countries from accessing US-controlled defence services and technology in Canada. In order to comply with these restrictions, Canadian companies have had to risk violating provincial and federal anti-discrimination laws, as well as exposure to human rights complaints, when denying employees access to projects involving US-controlled defence items because of their nationality or country of birth.

There may now be some light at the end of the tunnel for companies subject to these conflicts between Canadian and US law. Today, the US State Department released its proposal to amend the ITARs to address the conflicts with human rights policies in Canada and other countries and the administrative burden associated with compliance with these restrictions — see Amendment to the International Traffic in Arms Regulations: Dual Nationals and Third-Country Nationals Employed by End-Users. Comments on the proposed amendments may be submitted until September 10, 2010.

The proposal provides that no approval from the US State Department Directorate of Defense Trade Controls (DDTC) will be required for the transfer of defence articles within a foreign business entity that is an approved end-user or consignee for those items, “including the transfer to dual nationals or third-country nationals who are bona fide, regular employees, directly employed by the foreign business entity.” Further, the transfer must take place completely within the territories where the end-user is located or where the consignee operates, and must be within the scope of an approved export licence, other export authorization, or licence exemption.

There are significant conditions, however, that Canadian companies will have to satisfy in order to take advantage of this exemption. They include:

1. obtaining security clearances for their employees from the Canadian government or having a process in place to screen employees and execute Non-Disclosure Agreements ensuring that the employee will not transfer any information to unauthorized parties; and
2. screening employees for substantive contacts with the prohibited or restricted countries, and establishing and maintaining a technology security/clearance plan for such screening and related record-keeping (such plan to be available to the DDTC upon request).

The proposed amendments set out those considered to be “substantive contacts” with the restricted countries, and include recent or regular travel, recent or regular contact with agents or nationals of such countries, continued allegiance to such countries, or acts otherwise indicating a risk of diversion. An employee with substantive contacts with persons from restricted countries “shall be presumed to raise a risk of diversion, unless DDTC determines otherwise.”

Canadian companies dealing with aerospace and defence products, technology or services should review these proposals carefully to assess their potential impact on current and future operations. In particular, the amendments appear to impose on Canadian companies a significant due diligence burden with regard to the gathering of information on employee activities outside of the workplace.

Even if these amendments are finalized, Canadian aerospace and defence companies will continue to face challenges in ensuring they are compliant with a patchwork of applicable US and Canadian law in this area, including the ITARs, Canadian privacy and human rights law, as well as Canadian defence controls under Canada's Defence Production Act and Export and Import Permits Act.

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AESDirect Outage Notice and AES Downtime Policy

Exporters and Freight Forwarders Using AESDirect to file Electronic Export Information in connection with exports from the U.S. should see the following notice issued by Census. Note the reference to ITAR-controlled shipments.


AES Broadcast 08/12/2010 Broadcast # 2010042

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AESDirect Program Outage

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This message is intended for AESDirect program users only. Due to
severe weather conditions, the power at the AESDirect program site is
down. If you are not an AESDirect program filer, you will not be
affected by this outage.

During this outage all AESDirect program filers may submit shipments
under the AES Downtime Policy. State Department licensable shipments
cannot be exported under the AES Downtime Policy and must be held
until the connection is restored and an Internal Transaction Number (ITN)
is received. Once the connection is restored, all AESDirect program
transactions for shipments that were exported under the AES Downtime
Policy must be filed along with any new AES transactions.

AES PcLink users are encouraged to continue creating and storing
shipments in a queue on their local computer for transmission when
AESDirect is brought back on-line.

If you utilize the AES Downtime Policy for export, please contact the
port where you will export from. In lieu of the AES Proof of Filing
citation, please use the AES Downtime citation which consists of the
phrase AESDOWN, your individual company's Filer ID, followed by the
date.

For example: AESDOWN 123456789 05/10/2010

Please see the U.S. Customs and Border Protection web site
for further information on the AES Downtime Policy:

http://cbp.gov/xp/cgov/trade/automated/aes/tech_docs/aestir/june04_intro/

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Overview and Summary of DDTC Consent Agreement with AAR International Involving Presidential Airways

By John Priecko*

Below is a detailed summary of the the State Department's Directorate of Defense Trade Controls (DDTC) July 2010 Consent Agreement with AAR International, Inc (AAR).  This is a unique successor liability case in several respects. Unlike some previous cases involving alleged violations of the Arms Export Control Act and the International Traffic in Arms Regulations (ITAR) DDTC did not impose any monetary penalty on AAR, the successor in interest to Presidential Airways.

In addition, DDTC did not mention in the Proposed Charging Letter, Consent Agreement or Order that AAR acquired Presidential from Xe Services LLC (formerly Blackwater Worldwide). That omission raises a number of interesting questions and expectations regarding a related settlement involving Xe Services and/or Blackwater for these alleged violations.

Thoroughly reading settlements and monitoring various U.S. Government enforcement and compliance resources on an ongoing basis should be a integral part of any trade compliance professional’s reading and an essential element in any comprehensive Trade Compliance Program. One-page summaries like these will help get the word out and more quickly and allow readers to digest and compare individual cases.

*Mr. Priecko is the President of Trade Compliance Solutions, a network of experienced compliance-related professionals. He is a trade compliance veteran with more than 15 years of experience. He can be reached at 703-895-1110 or jpriecko@comcast.net.

AAR 071510 Settlement Summary 081210

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House Members Form Bipartisan Working Group on Iran Sanction Implementation

Congressman Howard L. Berman (D-CA), Chairman of the House Foreign Affairs Committee, and Congresswoman Ileana Ros-Lehtinen (R-FL), the Ranking Republican Member of the Committee, today announced that they have initiated a bipartisan Working Group on Iran Sanction Implementation.

The purpose of the working group is to help ensure that U.S. and international sanctions on Iran are fully implemented, effectively enforced and, ultimately, have the intended effect of bringing about Iran’s termination of all activities contributing to its pursuit of a nuclear weapons capability.

The bipartisan Working Group on Iran Sanctions Implementation will meet on a regular basis with Obama Administration officials, foreign ambassadors and outside experts to oversee and verify enforcement of Iran sanctions implementation.

The House Foreign Affairs Committee will hold a hearing this fall on Iran sanctions implementation. Last Thursday, July 29, 2010, the House Committee on Oversight and Government Reform held a similar hearing entitled, "Implementation of Iran Sanctions" The hearing examined the implementation of Iran sanctions, including efforts to discourage companies from doing business with Iran as long as Iran continues to work on developing nuclear weapons and supports terrorism.
 

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DDTC Publishes Final Rule Requiring CJs to be Submitted Electronically Using DS-4076 Form

The State Department's Directorate of Defense Trade Controls (DDTC) published a final rule in today's Federal Register amending the International Traffic in Arms Regulation (ITAR) that will require commodity jurisdiction (CJ) determinations to be submitted electronically using the DS-4076 CJ Determination Request Form that was introduced by DDTC last year.

The regulation specifies that paper CJs may be submitted for 29 days after the effective date, which means that  September 2, 2010 will be the last day to submit CJs the old fashioned way. Starting on September 3, however, CJs will have to be submitted electronically via DTrade2, DDTC's defense export electronic licensing system.

DDTC has yet to make any changes to the DS-4076 CJ form to incorporate the suggestions submitted by industry during the public comment period.

Determining the proper government agency that has jurisdiction over products, technology or software to be exported is an important first step in the U.S. export controls system.

The purpose of submitting a CJ to DDTC is to obtain a determination whether a product, technical data or service is covered by the U.S. Munitions List (USML) and is subject to the ITAR's export licensing requirements or not.
 A commodity classification (commonly known as a CCATS) can be obtained from the Commerce Department's Bureau of Industry and Security (BIS) to determine the proper Export Control Classification Number (ECCN) if the CJ determination states that the article is subject to the Commerce Department's jurisdiction. 

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