Treasury Identifies and Designates 21 Entities Determined to be Owned or Controlled by the Government of Iran

The U.S. Department of the Treasury today added 21 entities to the Specially Designated Nationals List that were determined by the U.S. to be owned or controlled by the Government of Iran.

These 21 entities, which included including banks, insurance firms, mining concerns, investment firms and technology companies, are located in Japan, Germany, Italy, Belarus, Luxembourg and Iran.

According to the Treasury Department, "today's identifications will mitigate the risk that such entities pose to legitimate transactions." This is because OFAC's Iranian Transactions Regulations (31 CFR Part 560) prohibit transactions between U.S. persons and the Government of Iran.

The complete list of entities identified today as owned or controlled by the Government of Iran can be found here.

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Today's News and Notes

The Government of Japan today enacted new sanctions on Iran. A summary of the new sanctions can be found here. 

Registration is now open for SIA's Fall ITAR Conference to be held in Washington, DC on November 15 and 16, 2010.

Danish and Japanese companies deny violating U.S. sanctions on Iran.

Reuters: Iran feels sanctions heat at UAE ports.

Texas resident arrested for attempting to export night vision sights to Russia. Further details on this unusual case can be found here and here.

Educational Testing Service (ETS) announced last week that resumed registrations in Iran for its TOEFL® and GRE® tests. The brief suspension was the indirect result of tighter U.N. Security Council restrictions on financial transactions involving Iran, which resulted in ETS's banking arrangements being discontinued. Students wishing to take the tests may register through Iran's National Organization of Educational Testing, or with credit/debit cards issued by banks that are not prohibited under U.N. or U.S. sanctions. ETS has permission from the Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury to conduct its testing business in Iran.

Bangkok Post: Thailand is in the process of implementing a dual-use export control regime. 

FCPA Professor: The FCPA's Long Tentacles (discusses impact of FCPA investigations on mergers and acquisitions).

The U,K.'s Financial Services Authority today fined members of the Royal Bank of Scotland Group £5.6m for failing to have adequate systems and controls in place to prevent breaches of UK financial sanctions.

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Interim Final Rule Intended to Clarify Purpose of BIS Commodity Classifications and Advisory Opinions Has Been Misinterpreted

The Bureau of Industry and Security published an interim final rule in today's Federal Register intended to clarify the purpose of the commodity classifications (commonly known as CCATS) and advisory opinions that it issues. Unfortunately, the purpose of this interim rule, which was to help educate exporters with export compliance, has been widely misinterpreted.

The interim final rule amends sections 734.3 and  748.3 of the Export Administration Regulations (EAR) by adding language noting that: 

• Commodity classifications and advisory opinions may not be relied upon as determinations that the items in question are "subject to the EAR" as described in section 748.3 of the EAR.
• Those who request commodity classifications and advisory opinions should have determined that the items at issue are not subject to the exclusive export control jurisdiction of one of the other U.S. Government export control agencies, such as the Directorate of Defense Trade Controls, OFAC, and Nuclear Regulatory Commission.
• Advisory opinions are limited to BIS's interpretation of EAR provisions and may not be relied upon or cited as evidence that the items in question are not subject to the to the export control jurisdiction of another U.S. Government agency.

The interim final rule also indicates that BIS will begin inserting the following reminder language on all future commodity classifications (CCATS):

This commodity classification sets forth the classification of the above-listed items if they are subject to the EAR. This commodity classification is not a determination by BIS as to whether the above-listed items are ‘‘subject to the EAR.’’ As defined and  described in sections 734.2 through 734.4 of the EAR, the term ‘‘subject to the EAR’’ means, among other things, that the item(s) are not exclusively controlled for export or reexport by another agency of the U.S.
Government. See 15 CFR 734.3(b)(1). Thus, this document is not, and may not be relied upon as, a U.S. Government determination that the above-listed items are not, for example, subject to the export control jurisdiction of the International Traffic in Arms Regulations (ITAR) (22 CFR Parts 120– 130), which are administered by the U.S. Department of State.

BIS's interim final rule was intended to remind exporters that the purpose of a commodity classifications, which is to provide the Export Control Classification Number (ECCN) of products, technology or software as described on the Commerce Control List (CCL), is only one part of the export analysis. Prior to seeking a commodity classification from BIS, an exporter should first determine the proper government agency that has jurisdiction over their item, technology or software. For example, products that are included on the U.S. Munitions List or are considered to be "defense articles" under the International Traffic in Arms Regulations (ITAR) are subject to the export licensing jurisdiction of the State Department's Directorate of Defense Trade Controls (DDTC).

Under the current U.S. export control regime, DDTC is the only agency that can issue commodity jurisdictions, commonly known as CJs, to advise an exporter whether an item or service is subject to the ITAR or not. Because of the intended purpose of CJs and commodity classifications, the information submitted to BIS to obtain a commodity classification (product specifications, etc.) is very different than the information submitted to DDTC to obtain a CJ (design intent, application, military versus commercial sales, etc.).

The modifications made to the EAR, as well as the new language included on commodity classifications, is also intended to eliminate, to the extent possible, those cases where a person or company exporting a defense article can avoid criminal prosecution under the Arms Export Control Act by claiming that they had obtained a CCATS from BIS for an item when the item was actually subject to the jurisdiction of the ITAR.

The interim final rule also sought to educate those in law enforcement who prosecute export control violations by helping to distinguish commodity classifications from commodity jurisdictions.

Despite the clear purpose of this rule, there have been headlines in various publications indicating that this interim final rule is confusing as it seems to indicate that BIS will not accept responsibility for its decisions, that such classification are not dependable or that exporters can not rely on commodity classifications or advisory opinions issued by BIS.

These interpretations are incorrect. BIS classifications and advisory opinions can certainly be relied upon for issues relating to the EAR. However, under the current export control regime, which provides that different agencies have jurisdiction over dual-use and defense articles, exporters must be certain that their item is "subject to the EAR" before relying on a commodity classification or advisory opinion issued by BIS. While this confusion may be eventually eliminated by the creation of a single export control list and single licensing agency, the clarification in this interim final rule is useful and is long overdue.

October 1, 2010 is the deadline for submission of public comments to BIS on the interim final rule.

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House Foreign Affairs Subcommittee Holds Hearing on Transshipment and Diversion Issues

The House Foreign Affairs Committee's Subcommittee on Terrorism, Nonproliferation and Trade held a hearing today on transhipment issues. The witnesses at the hearing, entitled "Transshipment and Diversion: Are U.S. Trading Partners Doing Enough to Prevent the Spread of Dangerous Technologies?" included Assistant Secretary for Export Administration Kevin Wolf and Vann H. Van Diepen, Acting Assistant Secretary at the State Department's Bureau of International Security and Nonproliferation.

The following are some highlights included in the prepared testimony of the witnesses:

• In Fiscal Year 2009, the Bureau of Industry and Security (BIS) processed 20,351 export license applications valued at approximately $62.4 billion for items subject to the EAR.
• In Fiscal Year 2009, BIS conducted 42 domestic export control outreach seminars in 18 states to provide new and experienced exporters about the requirements of the EAR and how they should deal with “Red Flags”.
• BIS led or participated with the Department of State in 28 meetings with foreign governments in Fiscal Year 2009.
• State Department recognizes diversion "as a major weakness in trade security and therefore have been working for many years--and on many fronts--to properly address this problem and minimize the risk. We have had some success, but more work is necessary."
• "Part of the challenge is a lack of political will to implement and enforce export and transshipment controls. This is due to the misperception that such controls are bad for legitimate business and this is particularly common in countries reliant on revenue from port operations."

The complete written testimony of Messrs. Wolf and Van Diepen can be found here and here.

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Today's News and Notes

Miscellaneous Tariff Bill - The House of Representatives is expected to consider the Miscellaneous Tariff Bill (now known as the U.S. Manufacturing Enhancement Act) (HR 4380) today. The bill will be considered under the suspension of the rules provision, which means that the bill may not be amended and requires a two-thirds vote for passage. The National Association of Manufacturers has sent a Key Vote letter to House members urging passage of the bill.

AM Update: After 40 minutes of debate this morning, the final vote on HR 4380 was postponed due to request for recorded vote. Under the suspension rules, any request for the yeas and nays results in a postponement of the final vote.

PM Update: In a surprise move the House passed the Miscellaneous Tariff Bill (HR 4380) this afternoon by a vote of 378 to 43. AP story here. NAM statement on passage here.

Iran Sanctions - The Washington Post reports that Iran's ability to ship vital goods has been significantly curtailed due to the insurance and other sanctions contained in the recently enacted Comprehensive Iran Sanctions, Accountability, and Divestment Act (CISADA) of 2010 (H.R. 2194).

North Korea Sanctions - While no details have been released, Secretary Gates and Secretary Clinton announced today that the U.S. will impose additional sanctions on North Korea. The sanctions are likely aimed at disrupting North Korea's weapons and contraband trade and targeting the finances of the Pyongyang regime.

Update: The State Department announced that the additional sanctions will include:

• Further State and Treasury designations of North Korean entities and individuals supporting proliferation, subjecting them to an asset freeze; 
• New efforts with key governments to stop North Korean trading companies engaged in illicit activities from operating in those countries and prevent their banks from facilitating these companies’ illicit transactions; 
• Expanding cooperation to prevent the travel of individuals designated under the Security Council resolutions, as well as other key North Korea proliferators; 
• Greater emphasis on North Korea’s repeated abuse of its diplomatic privileges in order to engage in activities banned by the Security Council, and expanding cooperation with countries so that they will not choose to purchase banned items from North Korea or to sell North Korea proliferation-related goods.

Export Controls/Diversion Hearing - The House Foreign Affairs Committee's Subcommittee on Terrorism, Nonproliferation and Trade will hold a hearing tomorrow on "Transshipment and Diversion: Are U.S. Trading Partners Doing Enough to Prevent the Spread of Dangerous Technologies?"  The witnesses include Assistant Secretary for Export Administration Kevin Wolf and Vann H. Van Diepen, Acting Assistant Secretary at the State Department's Bureau of International Security and Nonproliferation.
  
Foreign Manufacturers Legal Accountability Act of 2010 - The House Committee on Energy and Commerce reported favorably an amended version of H.R. 4678 by a vote of 31 to 22. The bill requires foreign manufacturers of certain products imported into the U.S. to establish registered agents to accept service of process. While the amendments passed today addressed a number of industry concerns with the bill, the bill is likely to be opposed by a number of trade associations. The full text of the amended version of the bill can be found here.

Conflict Minerals Disclosure and Certification - Section 1502 of the the financial reform bill (H.R. 4173) signed into law by President Obama today included a provision aimed at trying to reduce the use of conflict minerals mined in the Democratic Republic of the Congo. The provision states that the SEC must issue regulations requiring publicly traded companies to disclose annually whether conflict minerals are necessary to the functionality or production of their product and to certify that the measures taken by the company to verify the source of those minerals is not the Democratic Republic of the Congo or adjoining countries. The provision defines "conflict minerals" as columbite-tantalite (coltan), cassiterite, gold, wolframite, or their derivatives. This provision will impact a wide range of publicly traded manufacturing companies, including those using Congolese tantulum to produce electronics products, and those using tin and gold.

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ITC Issues Report on Export Barriers Encountered by U.S. Small and Medium Sized Businesses

At the request of the U.S. Trade Representative, the U.S. International Trade Commission has published a report entitled "Small and Medium Sized Enterprises: U.S. and EU Export Activities, and Barriers and Opportunities Experienced by U.S. Firms".

The 300 plus page report summarizing the results of the ITC's investigation compares the exporting activities of SMEs in the United States with those of SMEs in the EU. The report also describes the barriers and trade costs associated with exporting, including strategies to reduce these barriers and costs. The ITC's report identifies the benefits to U.S. SMEs from improvements to the exporting environment resulting from free trade agreements and other trade arrangements.
Some of the ITC's major findings included:

*The share of SMEs in U.S. manufacturing activity—and total U.S. exports—is smaller than the share of SMEs in EU manufacturing activity and exports.

*According to U.S. SMEs, the top barriers to exporting include: insufficient access to finance, complex and sometimes nontransparent domestic and foreign regulations, rising and unpredictable transportation costs, the small scale of SME production, tariff and nontariff barriers, time consuming foreign customs procedures, language and cultural differences, and lack of knowledge of foreign markets.

*With respect to U.S. government regulations, SMEs reported that domestic regulations maintained by the U.S. federal and state governments—particularly export controls and visas for foreign nationals to visit the United States—also serve as barriers to exporting.

*Regarding export controls, although U.S. companies generally agree that such controls are necessary, they consider the paperwork and logistics associated with such controls to be cumbersome, and many companies are concerned about accidentally violating the regulations. Companies also expressed concern that too many
federal government agencies are involved and that the lines of authority between them are not clear. In addition, they stated that the U.S. practice of requiring licenses for particular components, rather than for integrated weapons systems or other final products, makes U.S. producers less competitive vis-à-vis foreign companies subject to export. SMEs noted that the cumbersome nature of the process and the list of products subject to export control regulations are poorly adapted to changing technologies, so that it takes too long for items to be removed from the lists when they no longer pose a threat. Some companies also reported losing sales to foreign competitors due to export licensing delays.

*Regarding foreign government regulations SME representatives reported that the costs of understanding and complying with foreign government regulations can be significant barriers to exporting. Factors that raise costs include the lack of standardized regulations across countries and the administrative costs of compliance.

* U.S. SMEs have developed a number of strategies to overcome some of the domestic and foreign barriers to exporting they identified. These include combining resources with other firms in the same industry, working with larger companies, brokers, or agents, and taking advantage of U.S. federal and state government support programs.

*Suggested policy changes to enhance the ability of SMEs to export include: (1) increase focus on free trade agreements and other trade agreements; (2) assist more with market access, particularly in India and China; and (3) offer more information, outreach, and educational opportunities related to exporting.

The PDF version of the ITC's report can be found here.

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U.K. Postpones Implementation of Bribery Act for Six Months

In order to provide businesses with more time to prepare for the implementation of the recently passed Bribery Act, the U.K. Ministry of Justice announced today that implementation of the Bribery Act will be postponed for six months and will now go into effect in April 2011.

The Ministry of Justice also announced that in September 2010 it will launch a consultation exercise to draft guidance regarding the procedures that companies can put in place to prevent bribery. The guidance will be published in early 2011 and will be followed by a series of awareness-raising events to ensure affected companies are prepared for the changes to current law.

The Bribery Act, which received Royal Assent on April 8, 2010, will make the following changes to U.K. law:

• Introduce a corporate offense of failure to prevent bribery by persons working on behalf of a business. A business can avoid conviction if it can show that it has adequate procedures in place to prevent bribery.

• Make it a criminal offense to give, promise or offer a bribe and to request, agree to receive or accept a bribe either at home or abroad. The measures cover bribery of a foreign public official.

• Increase the maximum penalty for bribery from seven to 10 years imprisonment, with an unlimited fine.

The full text of the U.K. Bribery Act can be found here.

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