LATEST EXPORT CONTROLS AND COMPLIANCE UPDATE
See also our “Latest Sanctions Fines & Penalties” section below for an update on companies and persons denied export privileges by the United States Government.
DEPARTMENT OF COMMERCE
BIS Publishes Interim Final Rule with EAR Definitions Conformed to ITAR Definitions
June 3, 2016 – 81 Fed. Reg. 35586: The Bureau of Industry and Security (BIS) amended the Export Administration Regulations (EAR, 15 CFR Parts 730-774) by adding definitions of "access information," "technology," "required," "foreign person," "proscribed person," "published," results of "fundamental research," "export," "reexport," "release," "transfer," and "transfer (in-country)." Other amendments made in the same action included updating and clarifying the application of controls to electronically transmitted and stored technology and software, including cloud computing. Transfers of encrypted EAR-controlled technical data will not be considered an export or reexportas long as the data has been encrypted to specified standards before crossing any national boundary and remains encrypted at all times while in transmission. A similar rule applies to transmissions within a cloud service infrastructure. These new provisions are part of a larger effort to enhance clarity and consistency with terms that are also used in the International Traffic in Arms Regulations (ITAR, 22 CFR Parts 120-130). (See item about new ITAR amendments below.) The effective date of these amendments is Sep. 1, 2016; BIS will welcome comments on a continuing basis. To learn more about the revised definitions under the EAR, attend one of our upcoming FD Associates export compliance workshops.
BIS Amends EAR to Change Three ECCNs Related to Chemical Weapon Convention Agreements
June 7, 2016 – 81 Fed. Reg. 36458: BIS amended the EAR to reflect changes in Export Control Classification Numbers (ECCNs) 1C350, 1C351, and 2B352 that were adopted by the Australia Group during 2015. Also, BIS amended the EAR and the Chemical Weapons Convention Regulations (CWCR) to reflect the addition of Angola and Burma as states party to the Chemical Weapons Convention.
BIS Proposes the Removal of Special Iraq Reconstruction License Under the EAR
June 7, 2016 – 81 Fed. Reg. 36481: BIS proposed amending the EAR to remove the Special Iraq Reconstruction License (SIRL) on the basis that this license is outdated and no longer required, as exporters now have more efficient options for exports and reexports to Iraq and in-country transfers in Iraq. Comments are due by July 7, 2016.
36 Parties Added to the EAR’s Unverified List (UVL); License Exceptions Not Permitted to Any Party on the UVL
June 21, 2016 – 81 Fed. Reg. 40169: BIS added 36 persons in Finland, Hong Kong, India, Latvia, Singapore, Switzerland, and the United Arab Emirates (UAE) to the Unverified List (UVL, Supplement No. 6 to EAR Part 744) on the basis that BIS could not verify their bona fides through an end-use check. License exceptions may not be used for exports to a party on the UVL, and persons exporting items that do not require an export license to a party on the UVL must first obtain a UVL statement from the listed party. To view the UVL, go to: http://www.bis.doc.gov/index.php/policy-guidance/lists-of-parties-of-concern/unverified-list.
BIS Adds Parties to the Entity List; Such Persons Are Prohibited from Receiving Exports from the US or Otherwise Participating in Export Transactions Involving US-Origin Items
June 21, 2016 – 81 Fed. Reg. 40174: BIS added 28 persons in Afghanistan, Austria, China, Hong Kong, Iran, Israel, Panama, Taiwan and the UAE to the Entity List (Supplement No. 4 to EAR Part 744). Twenty of these entities were involved in unlawfully transshipping U.S.-origin parts and components to Iran, and the other 8 were involved in procuring and/or retransferring U.S.-origin items to Israel and Iran without the proper authorization. For all these entities, BIS imposed a license requirement for all items subject to the EAR and a license review policy of presumption of denial. In addition, no license exceptions will be available for exports or other transfers to or within these countries. Three entities in Finland, Pakistan, and Turkey were also removed from the Entity List. To view the Entity List, go to: http://www.bis.doc.gov/index.php/policy-guidance/lists-of-parties-of-concern/entity-list.
BIS Issues Revised Guidance with regard to Charging and Penalty Determinations in Administrative Enforcement Cases
June 22, 2016 – 81 Fed. Reg. 40499: BIS amended the EAR by rewriting its Guidance on Charging and Penalty Determinations in Settlement of Administrative Enforcement Cases (Supplement No. 1 to EAR Part 766) to make administrative penalties for violations of the EAR more predictable and to align them with the penalties imposed by the Treasury Department Office of Foreign Assets Control (OFAC). The base penalty will now depend upon whether the violation is egregious or non-egregious and whether or not the case resulted from a Voluntary Self-Disclosure (VSD), according a 50 percent mitigation for VSDs. The penalty will then be adjusted based on specified aggravating, general, mitigating, and other factors. These new guidelines will not apply to cases brought under the antiboycott provisions of the EAR. While there is no data related to how the new guidance will be interpreted and used by BIS’s Office of Export Enforcement (“OEE”), the guidance establishes an actual system for OEE to use to render fines, rather than the existing system which is amorphous and without underlying principles. As a result, we can foresee a scenario where more fines are issued by BIS.
BIS Amends PRC Validated End-User (VEU) Authorization List
June 23, 2016 – 81 Fed. Reg. 40783: BIS amended the Validated End-User Authorization (VEU) list for People’s Republic of China (Supplement No. 7 to EAR Part 748) by revising details in the listing for VEU Advanced Micro Devices, Inc.
DEPARTMENT OF STATE
DDTC Posts Name and Address Changes to Website
June 1, 7, 27, and 28, 2016: The Directorate of Defense Trade Controls (DDTC) posted the following name and/or address changes on its website at http://www.pmddtc.state.gov/licensing/name_change.html:
- Change in Address for DRS Technologies Canada Ltd.;
- Change in Name from Sterling Operations, Inc. to Janus Global Operations LLC due to corporate rebranding;
- Change in Address for General Dynamics Installation Services, LLC and General Dynamics SATCOM Technologies, Inc.;
- Change in Name from Messier-Dowty Inc. to Safran Landing Systems Canada, Inc. due to corporate rebranding;
- Change in Name from LightSquared Corp. to Ligado Networks Corp. due to corporate rebranding;
- Change in Name from SkyTerra (Canada) Inc. to Ligado Networks (Canada) Inc. due to corporate rebranding; and
- Change in Name from Labinal de Mexico S.A. de C.V. to Safran Electrical & Power Mexico S.A. de C.V. due to corporate rebranding
Each announcement includes a link to a notice specifying the effects of the change on pending and currently approved authorizations involving the listed entity.
DDTC Publishes Interim Final Rule with A Small Number of ITAR Definitions Conformed to EAR Definitions
June 3, 2016 – 81 Fed. Reg. 35611: As part of the continuing effort to harmonize provisions of the ITAR with those in the EAR, DDTC published an interim final rule providing a few revised definitions of terms. In particular, the terms "export," "reexport," "release," and "retransfer" have received revised definitions under the ITAR in the interim final rule. This rule also expands the personal use exemption for temporary transfers of technology and deemed reexports. DDTC anticipates publishing provisions pertaining to cloud computing and the definitions of "technical data," "directly related," "public domain," and the results of "fundamental research" in a separate proposed rule. The effective date of this amendment is Sep. 1, 2016; the deadline for comments was July 5, 2016. (See item about new EAR amendments above.)
To learn more about the revised definitions under the ITAR, attend one of our upcoming FD Associates export compliance workshops.
DDTC Publishes Rule to Update the Maximum Amount for Penalties for Civil Violations of the ITAR to Adjust for Inflation
June 8, 2016 – 81 Fed. Reg. 36791: Consistent with legislation passed by Congress in 2015, the Department of State increased the maximum civil monetary penalty (CMP) for a violation of the ITAR to account for inflation since the current CMP of $500,000 was established. The new CMP per violation will be $1,094,010. The new CMP will apply to all penalties imposed on or after August 1, 2016, regardless of the date on which the violations occurred. Annual inflation adjustments will henceforth be published by January 15 of every year. DDTC continues to have discretion to assess penalties below the CMP should circumstances warrant. A notice about the new CMP is on the DDTC website at http://www.pmddtc.state.gov/documents/webnotice_CivilPenalty.pdf .
DDTC Reverses Ground on Accepting Both Old and New Versions of the DSP-83 Form
June 8, 2016: DDTC announced that it will continue to process expired DSP-83 forms, effective immediately. In the announcement DDTC rescinded its announcement of May 5, 2016, stating that it would no longer accept expired forms. Any provisos that directed upload of a new DSP-83 form may be disregarded by citing the revised notice.
DDTC Requests Comments on New Form DS-7787 for Disclosing Violations of the ITAR Electronically
June 20, 2016 – 81 Fed. Reg. 39994: DDTC requested public comments on a proposed new electronic Form DS-7787, Disclosure of Violations of the AECA. DDTC subsequently released instructions for the new form on its website at https://www.pmddtc.state.gov/FR/2016/81FR39994-Draft-DS7787-form.pdf. The new form is part of a larger IT modernization effort by DDTC. Deadline for comments is August 19, 2016.**
DDTC Requests Comments on New Form DS-7788 for All Non-Classified Hardware Exports Under the ITAR; Form Would Replace Existing DSP-5, DSP-6, DSP-61, DSP-62, DSP-73, and DSP-74 Forms and Also Be Used for Agreements and General Correspondence Requests.
June 20, 2016 – 81 Fed. Reg. 39994: DDTC requested public comments on a proposed new electronic Form DS-7788 Application for the Permanent Export, Temporary Export, or Temporary Import of Defense Munitions, Defense Services, and Related Technical Data. This form would supersede Forms DSP-5, DSP-6, DSP-61, DSP-62, DSP-73, and DSP-74. DDTC believes that this electronic system will allow both industry users and DDTC staff to smoothly and securely navigate the submission and review process. DDTC subsequently released instructions for the new form on its website at https://www.pmddtc.state.gov/FR/2016/81FR3994-Draft-DS7788-Instructions.pdf. Deadline for comments is August 19, 2016.**
DDTC Requests Comments on New Form DS-7789 for Notifying DDTC of Material Changes in DDTC Registration Information, Mergers and Acquisitions, and Divestments
June 20, 2016 – 81 Fed. Reg. 39992: DDTC requested public comments on a proposed new electronic Form DS-7789, Statement of Material Change, Merger, Acquisition, or Divestment of a Registered Party. DDTC subsequently released instructions for the new form on its website at http://www.pmddtc.state.gov/FR/2016/81FR3992-Draft-DS7789-form.PDF. Deadline for comments is August 19, 2016.**
** NOTE: The links for the proposed new DDTC forms (DS-7787, DS-7788, and DS-7789) embedded herein may not work when clicking the hyperlinks provided. To ensure the ability to review the form, please copy the web address into your browser and access directly on the DDTC website.
DDTC Posts Guidance Instructing Applicants to Submit DSP-5s to D-Trade Instead of Advisory Opinion Requests When Requesting A Determination on Approval for a Proposed Export Transaction
June 22, 2016: DDTC posted guidance regarding Advisory Opinions (“AOs”) -- ITAR Section 126.9 -- for potential export transactions. The guidance strongly encourages applicants who are able to submit D-Trade applications to submit a technical data DSP-5 license application for the marketing of a defense article in lieu of a General Correspondence (“GC”) AO request when the request involves whether DDTC would be likely to grant a license or other approval for the export of a particular defense article or defense service to a particular country. This guidance is on the DDTC website at http://www.pmddtc.state.gov/licensing/documents/AO.pdf. This guidance was subsequently updated on July 8, 2016, with DDTC bolding the word, “strongly”. The benefit of filing a DSP-5 is that the DSP-5 authorizes the release technical data, the DSP-5 is a legally binding authorization, and the DSP-5 eliminated the paper handling of the GC AO request, which directly results in reduced processing time for the request.
DEPARTMENT OF THE TREASURY
OFAC Issues General Licenses for Balboa Bank & Trust and Balboa Securities Corp. in Panama Authorizing Certain Activities
June 8, 2016: The Office of Foreign Assets Control (OFAC) published general licenses authorizing certain transactions and activities, including exports, involving Panamanian entities that would otherwise be prohibited under the Kingpin Act. The Panamanian entities are Balboa Bank & Trust (General License 5A) and Balboa Securities Corp. (General License 6A). The licenses and relevant FAQs are accessible on the OFAC website at https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20160610_33.aspx.
LATEST SANCTIONS FINES & PENALTIES
Department of Commerce
June 22, 2016 – 81 Fed. Reg. 40654: BIS denied the export privileges of Jose Orence Cocchiola for 3 years based on his conviction in U.S. District Court for the Southern District of Florida of violating the Arms Export Control Act (AECA, 22 USC Sec. 2778) by exporting 9mm pistols to Venezuela without the required authorization from the Department of State. Cocchiola was sentenced to 36 months of imprisonment, one year of supervised release, and a $200 assessment.
June 22, 2016 – 81 Fed. Reg. 40655: BIS amended a Temporary Denial Order (TDO) that was originally signed on January 19, 2016, to remove two parties, moreJet Ltd. and Stefan Piotr Kondak. The TDO remains in force until July 17, 2016 for the remaining parties, Ribway Airlines Company Limited, John Edward Meadows, Jeffrey John James Ashfield, and AC AVIATIE UK Limited.
June 22, 2016 – 81 Fed. Reg. 40657: BIS denied the export privileges of Dennis Haag for 3 years based on his conviction in U.S. District Court for the Eastern District of Michigan of violating the AECA by exporting rifle barrels and other parts to South Africa without the required authorization from the Department of State. Haag was sentenced to 3 years of probation, a $200 assessment, and a criminal fine of $39,000.
June 22, 2016 – 81 Fed. Reg. 40658: BIS denied the export privileges of Ismael Reta for 10 years based on his conviction in U.S. District Court for the Southern District of Texas of violating the AECA by conspiring to export, attempting to export, and causing to be exported several rifles and pistols and 312 rounds of ammunition to Mexico without the required authorization from the Department of State. Reta was sentenced to 37 months of imprisonment, 3 years of supervised release, and a $100 assessment.
June 28, 2016 – 81 Fed. Reg. 41799: BIS extended until Aug. 30, 2016 the temporary general license for exports, reexports, and transfers to Zhongxing Telecommunications Equipment (ZTE) Corporation, and ZTE Kangxun Telecommunications Ltd. that was originally scheduled to end on June 30, 2016. (See March 2016 Regulatory Update for additional details.)
Fines and Penalties
June 2, 2016: Fokker Services B.V. of Hoofddorp, The Netherlands agreed to pay a civil fine of $10,500,000 to settle charges by BIS of 253 violations of the EAR committed over a period of 5 years involving acting with knowledge of a violation in connection with exports or reexports to Iran of items controlled under the EAR on grounds of national security, missile technology, and anti-terrorism; acting with knowledge of a violation in connection with exports to Iranian military end users; acting contrary to the terms of a Denial Order; and exporting and reexporting items controlled on national security and anti-terrorism grounds to Sudan without the required licenses. Fokker originally agreed to this penalty in June 2014 to settle cases brought by BIS, OFAC, and the Department of Justice. However, a judge in Federal District Court for the District of Columbia rejected the settlement as too lenient. The agreement was finally concluded after a higher court ruled that the judge had overstepped his authority when he rejected the settlement. (See additional information about this case in June 2014 and February 2015 Regulatory Updates.)
June 3, 2016: Weiss Envirotronics, Inc. of Grand Rapids, MI agreed to pay a civil penalty of $575,000 (of which $400,000 will be suspended for 2 years and thereafter waived if the company commits no further violations) to settle charges by BIS of 20 unauthorized exports of items controlled for missile technology reasons to China. Weiss also agreed to complete two audits of its export controls compliance program. The items exported were environmental test chambers.
June 10, 2016: Wenxia Man, aka Wency Man, of San Diego, CA was convicted by a jury in federal court in the Southern District of Florida of violating the AECA by conspiring to export and causing the export of fighter jet engines, a drone, and related technical data to China without obtaining the required authorization from the State Department. The items involved included an unmanned aerial vehicle capable of firing Hellfire missiles and engines used in the F-35 Joint Strike Fighter, the F-22 Raptor fighter jet, and the F-16 fighter jet, as well as technical data for each of these articles.
June 14, 2016: Amin al-Baroudi, a Syrian-born naturalized U.S. citizen formerly of Irvine, CA, was sentenced in U.S. District Court for the Eastern District of Virginia to 32 months in prison based on his plea of guilty of conspiracy to violate U.S. sanctions by exporting U.S.-origin goods to Syria without the required authorization. According to court documents, Baroudi and his co-conspirators purchased goods including sniper rifle scopes, night vision rifle scopes, night vision goggles, laser bore sighters, speed loaders, and bullet-proof vests in the U.S., traveled with them on commercial flights to Turkey, and then transported them or provided them to others to transport to Syria for the purpose of supplying them to insurgent groups.
June 14, 2016: Asim Fareed of North Brunswick, NJ pleaded guilty in U.S. District Court in Wilkes-Barre, PA to conspiracy to provide false statements regarding the illegal exports of goods to Iran. As part of a conspiracy to transship items through the United Arab Emirates (UAE) to Iran, Fareed prepared invoices which included false information as to the identity and geographic location of the purchasers of the goods. The items were then to be shipped from the U.S. to the UAE, and thereafter transshipped to customers in Iran. None of these shipments were actually delivered to Iran.
June 15, 2016: Erdal Kuyumcu of Woodside, NY, the chief executive officer of Global Metallurgy LLC, a company based in Woodside, pleaded guilty in U.S. District Court in Brooklyn, NY, to violating the International Emergency Economic Powers Act (IEEPA, 50 USC Parts 1701-1708) by conspiring to export specialty metals to Iran without the required authorization from OFAC. The product involved was a metallic powder composed of cobalt and nickel that can be used to coat gas turbine components and can be used in aerospace, missile production, and nuclear applications. Kuyumcu and a co-conspirator arranged to hide the true destination of the powder by transshipping it through Turkey.
June 17, 2016: Fulfill Your Packages Inc. of Portland, OR, agreed to pay a civil fine of $250,000 (of which $190,000 was suspended for 2 years and thereafter waived if the company commits no further violations) to settle charges by BIS that it evaded the EAR in the process of preparing an export of a FLIR thermal imaging camera valued at approximately $2,617 and controlled for export under ECCN 6A003.b.4. The export was destined for China and required an export license from BIS. However, FYP prepared shipping documentation that falsely described the item as “metal parts” and its value as $255. The export was thwarted by BIS’s Office of Export Enforcement.
June 17, 2016: Worthington Products Inc. (“WPI”) of Canton, OH and Paul Meeks of Canton, OH and Massillon, OH were both held responsible for the payment of a civil fine of $250,000 to settle charges by BIS of conspiracy to export a waterway barrier debris system designated as EAR99 and valued at $420,256 to an Iranian Government entity via the UAE, without the required authorization. WPI and Meeks agreed to complete EAR compliance training annually for 5 years. Both were also debarred for 5 years, but the debarment will be suspended for 5 years and thereafter waived if they fulfill the requirements of the agreement.
June 20, 2016: Microwave Engineering Corporation of North Andover, MA agreed to pay an administrative fine of $100,000 to settle charges by DDTC that it had violated the AECA and the ITAR by providing technical data controlled under the ITAR to a national of China without the required authorization from DDTC. The Chinese national was a research scientist who was employee of MEC. The U.S. maintains an embargo on military exports to China. The unauthorized disclosures were made in 2010. MEC voluntarily disclosed the violation and subsequently implemented extensive remedial measures.
June 23, 2016: HyperBranch Medical Technology, Inc. of Durham, NC agreed to pay $107,691.30 to settle charges by OFAC that it violated the Iranian Transactions and Sanctions Regulations (ITSR, 31 CFR Part 560) by shipping medical sealant to its UAE distributor with knowledge and reason to know that the goods were ultimately destined for Iran. HyperBranch voluntarily disclosed the violation.
June 30, 2016: Kan Chen of Ningbo, Zhejiang Province, China was sentenced to 30 months in prison and 3 years of supervised release for conspiring and attempting to violate the AECA and ITAR and violating the IEEPA. Using a complex web of intermediary addressees, Chen caused the export from the U.S. to China of many products, including rifle scopes and night vision equipment controlled for export under the ITAR. Chen was arrested by U.S. Customs Enforcement’s Homeland Security Investigation agents on Saipan, Northern Mariana Island in June 2015 and has been in U.S. custody since that time.
June 30, 2016: Alexander Brazhnikov, Jr. of Mountainside, NJ was sentenced to 70 months in prison and forfeiture of $65 million based on his plea of guilty of conspiracy to commit money laundering, conspiracy to smuggle electronics from the U.S., and conspiracy to violate the IEEPA. Through four New Jersey microelectronics export companies that he owned, Brazhnikov conspired with his father, who owned a procurement firm in Moscow, Russia, and shipped large quantities of license-controlled electronic components to Russia using many different routes and falsifying the names of the end users and values of the items. The conspiracy utilized dozens of overseas bank accounts and foreign shell companies to conceal the proceeds of the illegal sales. (See additional information on this case in June 2015 Regulatory Update.)
July 27, 2016
The ITAR, EAR & ECR
Come join our one day workshop,July 27, 2016if self-classification after ECR has got you down. Trying to figure out how to include your EAR items on a DDTC authorization? Join FD Associates for a one-day review of key aspects of the ITAR and EAR, including 500-600 series controls. We will do a comparison of the similarities and differences between the ITAR and EAR, including self-classification. The program will then focus on the requirement for licensing of ITAR articles, technical data and defense services on the US Munitions List. We will also review EAR controls on exports of "dual use" commodities and technology and military commodities, including how to determine Export Control Classifications Numbers and when a license is required. The day will finish up with a discussion regarding Export Control Reform and recent changes to the ITAR as a result of Export Control Reform.
Head to our website for the agenda and details on how to sign up for the workshop. If the July 27th workshop isn’t what you are looking for, we have three more workshops during 2016.
September 14-15, 2016 ITAR Fundamentals
October 21, 2016 ITAR for the Empowered Official
November 16, 2016 Export Control Reform Changes