Seasons Greetings and Happy New Year From International Trade Law News and Letter to Santa Regarding Possible Compliance Violations

Season's Greetings and Happy New Year to all of our loyal readers and clients around the world. See you in 2013. 

In the spirit of the holiday season, and back by popular demand, below a letter to Santa regarding a number of alleged violations of import, export and other laws and regulations. 

—Doug Jacobson 

Letter to Mr. Claus from Scrooge McGrinch

 

By Dennis Salvey, Trade Compliance Manager of iDirect Inc. (reprinted with permission)

Dear Mr. Claus,

We regret to inform you that your annual distribution of toys and gifts will not be permitted to proceed this year due to multiple Trade Compliance violations. Each of the below listed “alleged” violations are under review and until each is resolved, your gift-giving enterprise is suspended from its normal course of surreptitiously sliding up and down chimneys.

1.  The Office of Export Enforcement (OEE) has opened an investigation regarding the potentially illegal exports of toys and gifts from the U.S. without the proper export licenses, customs declarations or documentation. The Export Administration Regulations (EAR) clearly defines an export as being the movement of goods, services, toys, gifts or technology from the U.S. to any other country by any means including reindeer powered sleighs. There is no exception for Magic, as your voluntary disclosure alludes to.

2.   OEE is also considering placing 2 of your cohorts on the Denied Parties List. Donder and Blitzen are suspected of diverting toys and gifts into embargoed countries for the nefarious purpose of bringing joy to the world. Vixen may also be named as an accomplice. Dancer, Prancer and Comet’s alibi of being contestants on Dancing with the Stars during the time of the alleged incident is holding up for now. Incidentally, Interpol has some questions for you concerning two of your known alias’ Father Christmas and Kris Kringle.”

3.   Incorrect application of Incoterm© DDP (Delivery Duty Paid) has resulted in millions of gifts held by Customs agencies around the world as you are not a registered importer in any country in which you do business.  Although all of your customers (recipients) wanted to receive those gifts, not one of them was willing to act as the Importer of Record. The exception was little Billy Johnson of Des Moines Iowa who attempted bribing a customs official with a box of candy canes and now faces 5 years hard labor in Santa’s workshop on an FCPA charge. The total fines for storage by the respective Customs agencies are in the gazillions of dollars and must be paid before the gifts can be returned to the North Pole at your expense. Be advised that when paying fines in the currency of board games, only Monopoly and the Christmas Game currencies are acceptable.

4.   The Airwaybills used on your last 400 delivery episodes issued by “Fairy Land Airlines” is very questionable. It turns out that the dimensional weight versus the actual weight is impossible to calculate. In addition, the North Pole is not recognized as a valid Country of Origin.

5.  Speaking of Country of Origin, you claim that all of the material used in the making of every gift as well as all of the labor is a direct product of the North Pole. The World Customs Organization cannot verify that the materials needed to make all of these gifts could conceivably come from the North Pole. The criteria of “Grown, Produced or Manufactured in a specific country” used to determine origin is an absolute, international law does not recognize “Magic” as part of these criteria. They are also looking into unfair labor practices brought before the world court, by a group known as the International Little Brotherhood of Elves.”

6.   The entered value you have reported on these toys and gifts is too low to have been manufactured in the North Pole. Your financial records will be subpoenaed unless you can otherwise validate the low value claim before your next distribution season. If North Pole currency, “The Saint Nickel”, was used in your valuation methodology, be prepared to show its value against the U.S. dollar, the Euro and the Yen at the time the determination was made as North Pole currency (the Saint Nickel) is not listed by any of the world’s financial markets.  

7.   We are astonished at the number of paternity suits filing in from all over the world. These suits all start the same way; “I saw Mommy kissing Santa Clause underneath the mistletoe last night.” World courts will act with discretion in determining the validity of these claims; BUT we cannot guarantee that Mrs. Clause will not become aware of them at some point.

8.   The EPA and equivalent agencies around the world are investigating complaints of excessive reindeer emissions (droppings). The fact that some farmers welcome this will not be considered a mitigating factor when and if the case goes to court.

9.   Your “naughty / nice” list has raised more than a few eyebrows. Servicing those on the nice list while refusing to do business with those on the naughty list is a direct violation of the U.S. Antiboycott rules as well as violating the discrimination laws in countries in which you do business. The leagues of “Nice Polar Bears” in the North Pole don’t seem to mind too much but the league of “Naughty Penguins” in the South Pole is especially outraged.

10. Investigations into privacy laws have also been opened concerning the allegation that; “you see them when their sleeping and know when their awake”. However, all of these investigations will be dropped if you surrender the Intellectual Property rights to these methods to the CIA, FBI, Mussed, M5, and the KGB.

11. Finally; the red blinking light on Rudolf’s nose interferes with air traffic control and UFO sightings. The FCC, the FAA and the History Channel are investigating. You and Rudolf will be summoned to Roswell for a hearing on this issue. My advice; do not arrive at these hearings in the company sled.

Until each of the above issues is resolved you are hereby ordered to cease and desist your annual toys and gifts distribution or holiday cheer-spreading, as you refer to it. 

As an aside (not a Trade Compliance issue) the World Health Organization will be rescinding your status as a role model due to your weight and poor diet of milk and cookies at every house. This is not the type of example they expect from a person that children look up to.

Respectfully, 

Scrooge McGrinch

Bah Humbug Division, office of BIS (Big Important Stuff)

Enclosure: My Christmas list
                                      

p.s. Should the Mayan end of the world date of December 21, 2012 be accurate, please ignore all of the above.

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Finding a Willing Buyer Is Only the First Step of the Export Process

U.S. Exporters Looking to Boost Business Overseas Need to Understand the Rules and Regulations That Apply to International Trade Transactions

By Douglas N. Jacobson, Esq.*

In 2010, President Obama announced the National Export Initiative (NEI), a U.S. government-wide effort to double U.S. exports by the end of 2014. As part of the NEI, the federal  government plans to increase its trade advocacy efforts, including educating U.S. companies about opportunities overseas, directly connecting them with new customers and advocating more forcefully for their interests. The NEI will also include a focus on improving access to export financing and helping to remove barriers that prevent U.S. companies from getting access to foreign markets. Only a very small percentage of U.S. companies currently export their products, and of those that do, the majority export to only one country.

While increasing the number of U.S. companies that export and increasing trade promotion assistance are laudable goals, U.S. exporters must be aware that finding a willing buyer is only the first step in the exporting process.

In addition to taking the necessary steps to ensure they are paid for their goods, U.S. exporters need to understand the wide range of U.S. regulatory and legal issues applicable to exports. The increasing exports is beneficial for U.S. companies, the penalties for violating export controls, sanctions, customs and other laws and regulations can be severe. Many U.S. exporters learn of their export and sanctions compliance obligations only after they receive an administrative subpoena from the Commerce Department’s Bureau of Industry and Security (BIS), the Treasury Department’s Office of Foreign Assets Control (OFAC) or another U.S. enforcement agency. Many of those violations could have been avoided if the exporters understood their export compliance obligations prior to making the sale and shipping their goods abroad.

Examples of the types of export compliance-related rules and regulations that U.S. exporters should be aware of when selling goods overseas include the following:

Jurisdiction and Classification of Goods – Proper jurisdiction and classification of goods and technology under the Export Administration Regulations (EAR) (for commercial and so-called “dual-use” goods) and International Traffic in Arms Regulations (ITAR) (for defense articles) is required to determine the appropriate export licensing requirements and end-use and end-user restrictions for all products, software and technology exported from the U.S. U.S. Customs and Border Protection (CBP) often seizes goods at U.S. ports, airports and border crossings that are being exported without the appropriate license or other export authorization.

Ultimate Destination – U.S. export controls and licensing requirements vary by the country of destination. Some countries are subject to comprehensive U.S. sanctions and embargoes, while others are subject to targeted sanctions directed at certain individuals and companies. In addition, defense articles and technical data subject to the ITAR cannot be shipped to a number of “proscribed” countries.

Electronic Export Information Filings – The Foreign Trade Regulations (FTR) administered by the Census Bureau require exporters or their agents, such as freight forwarders, to submit certain information before the export takes place in an Electronic Export Information (EEI) filing. The information that must be provided in connection with most exports includes the quantity and value of the goods, the Schedule B number and a description of the goods, as well as the name of the foreign buyer. Penalties can be imposed on U.S. exporters for inaccurate or late filings.

Export Screening – To avoid engaging in transactions with parties that have been denied export privileges or are subject to U.S. sanctions, exporters should screen all customers and parties involved in the export against the government’s various restricted part lists, including the Denied Persons List, Entity List and Specially Designated Nationals List.

Know Your Customer and Export Red Flags – It is important for U.S. companies to be aware of the various “know your customer” guidelines issued by the Bureau of Industry  to make sure that the goods will not be diverted to a prohibited country or person. In addition, exporters should be on the lookout for export “red flags” that could be a sign that a customer may be attempting to obtain the goods for a prohibited purpose or end-user.

Antiboycott Compliance – Boycott requests, which often contain the words “boycott” or “blacklist” or provisions prohibiting the importation of goods from certain countries, are often found in documents involving sales to the Middle East, including purchase orders, tenders, contracts, shipping requests and letters of credit. Providing prohibited information in furtherance of an unsanctioned boycott is prohibited by the Antiboycott provisions of the Export Administration Regulations. Certain boycott requests must be reported to the Bureau of Industry and Security’s Office of Antiboycott Compliance on a quarterly basis.

Foreign Corrupt Practices Act – The U.S. Foreign Corrupt Practices Act (FCPA) prohibits U.S. persons and their agents from paying bribes and making other prohibited payments to foreign government officials in order to obtain or retain business. Significant civil and criminal penalties can be imposed on individuals and companies that violate the FCPA.

Incoterms 2010© – International Commercial Terms (Incoterms), such as FCA, CIF, DAP and DDP, are a set of internationally recognized terms published by the International Chamber of Commerce. Incoterms establish the responsibilities, risks and costs associated with international shipments. It is important for U.S. exporters to have a clear understanding of the correct Incoterm to use for a particular transaction in order to determine which party will be responsible for various aspects of the export transaction, including transportation costs and import duties in the country of destination. Once the appropriate Incoterm has been established it should be clearly indicated on the sales documents, including the purchase order and commercial invoice.

Customs Requirements, Import Duties and Taxes – Many countries impose customs duties, value added tax and other charges on imported goods. It important for U.S. exporters to understand who will be responsible for paying for the customs duties and other taxes imposed on the goods. It is also important for the U.S. exporter to know the proper customs classification of the product under the Harmonized System (known as the Harmonized Tariff Schedule number) they are exporting so they can advise their customer.

Free Trade Agreements– The growing number of U.S. Free Trade Agreements (FTAs), including NAFTA (Mexico and Canada), KORUS (U.S.-South Korea) have leveled the playing field for U.S. exporters by greatly reducing or eliminating the customs duties on U.S. goods exported to many countries. However, for U.S. goods to qualify for preferential duty treatment under the FTAs when imported into the customer’s country the goods must “originate” in the U.S. Each of the FTAs has specific “rules of origin” that specify whether a product qualifies for duty free treatment or not. In some FTAS, such as NAFTA, the exporter must prepare a specific Certificate of Origin certifying that the goods qualify for the FTA. It is important for U.S. companies to understand the rules of origin of the applicable FTA to make sure that the goods being exported qualify for the FTA and that the Certificate of Origin is properly completed.  

There are a number of other regulatory requirements that may be applicable to goods exported from the U.S. For example, certain countries require labels, user manuals and instructions to be printed in a particular language. Other countries impose registration and licensing requirements. Some countries require certificates of origin. Working with reputable customers, experienced counsel and other international trade resources will greatly enhance the chances that an export transaction will be problem free.

*Doug Jacobson is a Washington, DC-based international trade attorney. He can be reached at (202) 431-2407 or at info@djacobsonlaw.com.

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U.S. Securities and Exchange Commission Issues Answers to FAQs on Iran Reporting Requirements

The U.S. Securities and Exchange Commission (SEC) yesterday issued some answers to frequently asked questions on the new reporting requirement contained in section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (TRA) (H.R. 1905, enacted as Public Law 112-158) that was signed into law on August 10, 2012 and requires ''issuers" to disclose certain activities in Iran starting on February 6, 2013.

As expected, the guidance is broad in nature and does not shed too much light on important terms, such as the definition of “affiliate.” As noted below, the SEC has stated that they will use the definition of that term that is currently contained in section 12b-2of the SEC’s regulations, which states:

Affiliate. An “affiliate” of, or a person “affiliated” with, a specified person, is a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified.

The FAQs can be found on the SEC's website here and include questions 147.01 through 147.07. 

The text of each of the FAQs are reprinted below:

Question 147.01

Question: Section 219(b) of the Iran Threat Reduction and Syria Human Rights Act of 2012, signed into law on August 10, 2012, specifies that new Section 13(r) of the Exchange Act “shall take effect with respect to reports required to be filed with the Securities and Exchange Commission after the date that is 180 days after the date of the enactment of this Act,” which would be February 6, 2013. If an issuer’s periodic report is required to be filed on a date after February 6, 2013 — such as, for example, the 2012 Form 10-K for calendar year filers — is the issuer required to disclose Iran-related business activities pursuant to Section 13(r) if it files the periodic report on or before February 6, 2013?

Answer: Yes. We interpret “reports required to be filed” to include any periodic report with a due date after February 6, 2013, regardless of when the report is actually filed. [Dec. 4, 2012]

Question 147.02

Question: If an issuer’s annual report is required to be filed after February 6, 2013, must it include disclosure of activities specified in Section 13(r)(1) that occurred during the fiscal year but prior to enactment of the Iran Threat Reduction and Syria Human Rights Act of 2012 on August 10, 2012?
Answer: Yes. An issuer is required to disclose activities specified in Section 13(r)(1) that occurred during the period covered by the report, which, for a Form 10-K, is the entire fiscal year. For example, an issuer that files an annual report for the fiscal year ending December 31, 2012 is required to disclose any activities specified in Section 13(r)(1) that took place between January 1, 2012 and December 31, 2012. [Dec. 4, 2012]

Question 147.03

Question: Section 13(r) covers activities by an issuer “or any affiliate of the issuer.” How is the term “affiliate” defined for purposes of Section 13(r)?
Answer: The term “affiliate” in Section 13(r) is as defined in Exchange Act Rule 12b-2. [Dec. 4, 2012]

Question 147.04

Question: If an issuer and its affiliates have not engaged in any of the activities specified in Section 13(r)(1) during the period covered by the report, must the issuer include a statement to that effect in its periodic report?
Answer: No. Disclosure is required only if the issuer or any of its affiliates engaged in any of the activities specified in Section 13(r)(1) during the period covered by the report. [Dec. 4, 2012]

Question 147.05

Question: Section 13(r)(1)(D)(iii) requires disclosure if an issuer or any of its affiliates knowingly conducts any transaction or dealing with “any person or entity identified under section 560.304 of title 31, Code of Federal Regulations (relating to the definition of the Government of Iran) without the specific authorization of a Federal department or agency.” Would this provision allow issuers to omit disclosure of transactions or dealings that have been specifically authorized by foreign governmental authorities, but not any U.S. federal department or agency?
Answer: No. A transaction or dealing with any person or entity identified under 31 CFR § 560.304 must be disclosed unless it was specifically authorized by a U.S. federal department or agency. If a disclosable transaction was specifically authorized by a foreign governmental authority, an issuer could disclose that fact in addition to the other information required by Section 13(r)(2) to provide the appropriate context for the disclosure. [Dec. 4, 2012]

Question 147.06

Question: The Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury issues both general and specific licenses. A general license authorizes a particular type of transaction for a class of persons without the need to apply for a specific license. A specific license is a document issued by OFAC to a particular person or entity, authorizing a particular transaction in response to a written license application. See OFAC’s Frequently Asked Questions and Answers #74, available at http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/answer.aspx#60(explaining the difference between a general license and a specific license). Does a general license issued by OFAC count as a “specific authorization of a Federal department or agency” for purposes of Section 13(r)(1)(D)(iii)?
Answer: Yes. Both general and specific licenses constitute specific authorization by OFAC to engage in a transaction, provided all conditions of the applicable license are strictly observed. [Dec. 4, 2012]

Question 147.07

Question: If an issuer includes disclosure responsive to Section 13(r) in a periodic report filed with the Commission, will the disclosure become public?
Answer: Yes. All periodic reports filed with the Commission are made public automatically upon filing through the Commission’s EDGAR system. [Dec. 4, 2012]

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