The Golden Rule

By Jenny Hahn

President, FD Associates, Inc.

Keysight Technologies, Inc., Enters Into a 3 Year Consent Agreement With DDTC

The U.S. Department of State's Directorate of Defense Trade Controls (DDTC), Office of Defense Trade Controls Compliance (DTCC) has announced that Keysight Technologies, Inc., of Santa Rosa, California ("Keysight"), has entered into a 3-year Consent Agreement to settle allegations that it violated the International Traffic in Arms Regulations (ITAR) in connection with unauthorized exports of technical data, to include software, to various countries, including a proscribed destination. According to the Proposed Charging Letter:

  • On November 9, 2017, the Office of Defense Trade Controls Policy ("DTCP") raised concern over Keysight's potential misclassification of its Signal Studio for Multi-Emitter Scenario Generation software ("MESG software"). It recommended Keysight submit a CJ to determine the jurisdiction of the software. The MESG software can be used with certain hardware equipment to model and simulate multi-emitter electronic warfare threat scenarios for testing radar equipment on fixed or mobile platforms.
  • Between December 5, 2015, and April 18, 2018, Keysight exported the MESG software as both trial and full versions of the software. Keysight exported full versions of the software installed on hardware or electronically. Further, Keysight exported trial versions of the software via downloads from their website.
  • In response to DTCP's recommendation, Keysight submitted CJ-0005-18 on January 4, 2018. On April 27, 2018, DDTC provided Keysight with a determination that the MESG software was controlled under USML Category XI(d) based on the software's direct relation to electronic warfare test sets described by USML Category XI(a)(11).
  • Between January 9, 2018, and April 18, 2018, while CJ-0005-18 was under review, Keysight exported without authorization the MESG software on eight separate occasions to the PRC, Russia, Japan, Israel, and Canada. Keysight claimed that these exports were based on good faith but misguided belief that the MESG software was not subject to ITAR controls, and once Keysight learned of DDTC's formal CJ determination, it stopped any further unlicensed exports of MESG software and treated MESG software as ITAR controlled.
  • On May 21, 2018, Keysight submitted an initial disclosure assigned DTCC case number 18-0000493. Subsequently, on July 24, 2018, Keysight submitted its full disclosure in which it disclosed unauthorized exports to multiple countries of its MESG software, as described above. Keysight's disclosure stated the exports of the MESG software were conducted pursuant to the Export Administration Regulations (EAR), under Export Control Classification Number (ECCN)EAR99.
  • Keysight believed the ITAR jurisdiction was in error, and on August 30, 2018, Keysight appealed CJ-0005-18 by submitting a reconsideration request in accordance with ITAR § 120.4(g), which was assigned CJ-0391-18. On February 13, 2019, DDTC provided Keysight with the determination of CJ-0391-18, reaffirming the determination of CJ-0005-18. DDTC maintained that the MESG software was controlled under USML Category XI(d) based on the software's direct relation to electronic warfare test sets described by USML Category XI(a)(11).

In accordance with the Consent Agreement and Order issued in this matter, Keysight has agreed to the following enforcement measures:

  • A civil penalty of $6,600,000, with $1,100,000 payable within ten days of signing the Order and $1 million payable each year on the anniversary of the Order for the next three years, the remaining $2.5 million suspended on the condition that Keysight applies the amount to Consent Agreement-authorized remedial compliance costs.
  • Appointment of an outside Special Compliance Officer in consultation with the Director, DTCC to serve for a minimum of two years, and thereafter Keysight may request that DTCC allow it to substitute an Internal Special Compliance Officer.
  • Conduct a review within 90 days of the appointment of the Special Compliance Officer to ensure adequate/sufficient resources are dedicated to ITAR Compliance throughout Keysight's ITAR regulated operating divisions, subsidiaries, and business units.
  • Strengthen compliance policies and procedures within 9 months of the implementation of the consent agreement, including  training for persons responsible for supervising Keysight employees and senior managers to ensure they are knowledgeable about the underlying principles of the AECA and ITAR.
  • Within 12 months, complete a classification review of all hardware and software pertaining to Keysight's ITAR-regulated business activities and any technical data or defense services directly related to such hardware and/or software.
  • Complete at least one third-party audit conducted within 12 months of the Order. DTCC has the option of requesting additional audits.
  • Permit on-site reviews by DTCC during the 36 month period.

What is the lesson learned?

Heed the call and follow the GOLDEN RULE.

What is the GOLDEN RULE?

When filing a Commodity Jurisdiction (CJ) request for a product, software, or technology, treat the product, software, or technology as ITAR controlled until the CJ is adjudicated.

When the Office of Defense Trade Controls Policy (DTCP) came knocking raising concerns over the potential misclassification of the Keysight  MESG software and recommending the filing of a Commodity Jurisdiction to validate the export jurisdiction and classification of the MESG software, Keysight missed a clear compliance signal regarding how they were and should be treating the export jurisdiction of the MESG software.

The product and software description, available on the Keysight website, describes a software used for signal generation for Electronic Warfare systems, which are sophisticated systems crucial to the U.S. natural security, with clear elaboration in the U.S.M.L. category XI(a)(4) and designated as Significant Military Equipment. Test sets for testing electronic warfare systems and radars are enumerated in USML XI(a)(11). The software which is treated as technical data under the ITAR is classified as USML XI(d).

When Keysight was instructed to file a Commodity Jurisdiction request to receive a formal USG ruling from the Department of State regarding the export jurisdiction and classification of the MESG software, Keysight acted promptly and filed the Commodity Jurisdiction request within 2 months of the DTCP request. But instead of following the GOLDEN RULE of compliance and treating the MESG software as ITAR until formally advised otherwise, they continued to make exports of the MESG software as EAR99.

In doing so, they made exports of an ITAR software to an ITAR 126.1 sanctioned country (China); exports to Russia, when Russia required export licenses and was deemed a very sensitive destination; and made exports to 3 other countries. The DTCC determined that the exports to China and Russia caused harm to the national security of the U.S.

In total, Keysight made unauthorized exports to 17 countries during the 2015 - 2018 period.

DTCC considered the exports as aggravating factors in weighing the 24 violations alleged in the proposed charging letter. Mitigating factors included Keysight's cooperation with DTCC, filing the voluntary disclosure that acknowledged the conduct, implementation of remedial measures, and agreement to toll the statutory time limitations of the review period. Accordingly, DTCC determined it was not appropriate to debar Keysight in addition to the financial and compliance measures required by the consent agreement.

This case highlights the critical and fundamental first step for all exports. Conducting the export jurisdiction and classification analysis. Both at the time of design but on a continued basis, as the export regulations are evolving. While the ITAR and DTCP do not require filing Commodity Jurisdiction requests for each item to be exported, self-classification must follow the Order of Review set out in the ITAR and EAR. If conducted with export control and technical input, the export classification determination should clearly detail the analysis performed and stand the test of a government inquiry.

Keysight is a publicly traded company and a spin-off from Agilent Technologies, which has many ITAR regulated and EAR regulated products. Therefore, it is expected that Keysight had conducted its due diligence in classification and reached a very different conclusion for export control.

Here are the key takeaways:

1) DTCP regularly reviews exporters' websites for products that might be ITAR regulated but not promoted by the exporter as such.

2) If contacted by DTCP and requested to file a CJ, immediately start treating the item as ITAR. Not all CJs result in an ITAR outcome. In fact, at least 60% provide an EAR determination. Voluntary Disclosures can be filed based on the outcome of the CJ if needed.

2) When performing self-classification, exporters should research the Department of State Commodity Jurisdiction (CJ) database (DDTC CJ database) to see if there have been any prior CJs for similar products that would give insight into how the government adjudicated a similar product.

3) When filing a CJ because you are unsure if your product is ITAR or EAR, ALWAYS treat the product as ITAR until the CJ is adjudicated.

4) Self Classification of company products should be periodically reevaluated by compliance personnel, as the ITAR USML and the EAR CCL have undergone an overhaul, thus changing export jurisdiction and export classification of many items.

5) Regular and periodic internal and external audits should review export jurisdiction and classification of products

6) Exporters should never presume that a product, software, or technology, if not ITAR controlled it is EAR99. If a product is truly not ITAR, there may be an applicable ECCN classification on the CCL before reaching EAR99 status.

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

Proposed Charging Letter

Consent Agreement 

Order

The Golden Rule Read More »

JULY 2021 EXPORT CONTROL REGULATION UPDATES

This newsletter is a listing of the latest changes in export control regulations through July 31, 2021.  The newsletter is provided as a complimentary service to assist exporters with their ITAR and EAR export compliance responsibilities. It provides a summary of recent changes to export control regulations or other regulatory matters of interest that may impact your company’s international trade and export compliance functions. Call us at 703-847-5801 or email info@fdassociates.net with questions or comments.

See also our “Latest Sanctions Fines & Penalties” section below for an update on companies and persons denied export privileges by the United States Government.

REGULATORY UPDATES

United Kingdom

UK Strategic Export Controls Annual Report 2020

July 27, 2021:  The Export Control Joint Unit (ECJU) of the U.K. Department for International Trade published the UK Strategic Export Controls Annual Report 2020.  The report, which includes a brief section on EU Exit and U.K. Legislation and other policy discussions as well as export licensing data and performance statistics, is at https://www.gov.uk/government/publications/uk-strategic-export-controls-annual-report-2020 .

U.S. Government Agencies

U.S. Government Updates the Xinjiang Supply Chain Business Advisory

July 13, 2021:  Six U.S. Government agencies released an updated “Xinjiang Supply Chain Business Advisory” detailing for U.S. industry the risks and considerations for U.S. business and individuals with exposure to entities engaged in forced labor and other human rights abuses linked to Xinjiang, China. The updated advisory describes the various activities that pose opportunities for violations of U.S. laws including export controls that are inherent in participating in the supply chain to the Xinjiang Uyghur Autonomous Region and other areas of China where the Chinese government engages in abuse of Uyghurs and other ethnic groups.  The Advisory focuses on topics including four primary risks of possible export control violations:

(1) Assisting in the development of surveillance tools for the Peoples Republic of China (“PRC”) government;

(2) Sourcing labor or goods from Xinjiang, or from entities outside of China that source labor from Xinjiang;

(3) Supplying U.S.-origin commodities, software, and technology to entities engaged in such surveillance and forced labor practices; and

(4) Aiding in the construction and operation of internment facilities used to detain Uyghurs and members of other Muslim minority groups, and/or in construction or operation of possibly related manufacturing facilities.

The Advisory is on the State Department website at https://www.state.gov/wp-content/uploads/2021/07/Xinjiang-Business-Advisory-13July2021-1.pdf ;  the participating agencies are the Departments of Labor, State, Treasury, Commerce, and Homeland Security and the Office of the U.S. Trade Representative.

Department of Commerce – Bureau of Industry and Security

BIS Adds Four Entities In Burma To The Entity List

July 6, 2021 – 86 Fed. Reg. 35389:  The Bureau of Industry and Security (BIS) amended the Export Administration Regulations (EAR, 15 CFR Parts 730-774) by adding 4 entities in Burma to the Entity List (EAR Part 744, Supp. No. 4) based on a determination that each of these entities had acted contrary to the national security or foreign policy interests of the U.S.  A license requirement with a license review policy of presumption of denial and no license exceptions will now apply to exports, reexports, or in-country transfers to these persons of all items subject to the EAR.  The 4 entities are:

  • King Royal Technologies Co.,, Ltd.;
  • Myanmar Wanbao Mining Copper, Ltd.;
  • Myanmar Yang Tse Copper, Ltd.; and
  • Wanbao Mining, Ltd.

In the same rule, BIS also corrected the address of one already-listed entity, Myanmar Economic Corporation.

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BIS Adds 34 Entities To The Entity List

July 12, 2021 – 86 Fed. Reg. 36496:  BIS amended the EAR by adding 34 entities to the Entity List under 43 entries.  U.S. companies are prohibited from exporting or transferring any item subject to the EAR to any listed entity without an export license, and no license exceptions are available.  The entities are:

Additions to Entity List:

  • Canada

Karim Daadaa; and Modern Agropharmaceuticals & Trade Establishment

  • China, People’s Republic of

Armyfly;

Beijing E-science Co., Ltd.;

Beijing Geling Shentong Information Technology Co., Ltd.;

Beijing Hileed Solutions Co., Ltd.;

Beijing Sinonet Science & Technology Co., Ltd.;

Chengdu Xiwu Security System Alliance Co., Ltd.;

China Academy of Electronics and Information Technology;

Hangzhou Hualan Microelectronics Co., Ltd.;

Info Rank Technologies;

Kindroid;

Kyland Technology Co., Ltd.;

Leon Technology Co., Ltd.;

Shenzhen Cobber Information Technology Co., Ltd.;

Shenzhen Hua’antai Intelligent Technology Co., Ltd.;

Suzhou Keda Technology Co., Ltd.;

Tongfang R.I.A. Co., Ltd.;

Urumqi Tianyao Weiye Information Technology Service Co., Ltd.;

Wingel Zhang;

Wuhan Raycus Fiber Laser Technologies Co., Ltd.;

Xinjiang Beidou Tongchuang Information Technology Co., Ltd.;

Xinjiang Lianhai Chuangzhi Information Technology Co., Ltd.;

Xinjiang Sailing Information Technology Co., Ltd.; and

             Xinjiang Tangli Technology Co., Ltd.

  • Iran

     Payam Nabavi; and Sina Biomedical Chemistry Company

  • Lebanon

Karim Daadaa; and Modern Agropharmaceuticals & Trade Establishment

  • Netherlands

Suzhou Keda Technology Co., Ltd.

  • Pakistan

 Suzhou Keda Technology Co., Ltd.

  • Russia

Andrey Leonidovich Kuznetsov;

Dmitry Alexandrovich Kravchenko

Margarita Vasilyevna Kuznetsova;

OOO Teson;

OOO Trade-Component; and Radiant Group of Companies

  • Singapore

            Suzhou Keda Technology Co., Ltd

  • South Korea

  Suzhou Keda Technology Co., Ltd.

  • Taiwan

 Hangzhou Hualan Microelectronics Co., Ltd.

  • Turkey

 Suzhou Keda Technology Co., Ltd.

  • United Arab Emirates

  TEM International FZC

  • United Kingdom

  China Academy of Electronics and Information Technology

Removal from Entity List:

  • Germany:

Maintenance Services International (MSI) GmbH

Revision of Entry in Entity List:

  • China

Remove Guangqi Science Co., Ltd. as an alias for Kuang-Chi Group

Removal from Unverified List (Supp. No 6 to EAR Part 744)]:

  • United Arab Emirates:

   TEM International FZC

Addition to Military End User List (Supp. No. 7 to EAR Part 744):

  • Russia:

JSC Kazan Helicopter Plant Repair Service

 

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BIS Adds Six Entities In Russia To The Entity List

 

July 7, 2019 – 86 Fed. Reg. 37901:  BIS added six entities in Russia to the Entity List based on the determination that that they had acted contrary to U.S. national security or foreign policy interests.  A license with a review policy of presumption of denial will be required for exports, reexports, and transfers (in-country) to these entities of all items subject to the EAR, and no license exceptions will be available.  The six added entries are:

  • Aktsionernoe Obshchestvo AST;
  • Aktsionernoe Obshchestvo Pasit;
  • Aktsionernoe Obshchestvo Pozitiv Teknolodzhiz;
  • Federal State Autonomous Institution Military Innovative Technopolis Era;
  • Federal State Autonomous Scientific Establishment Scientific Research Institute Specialized Security Computing Devices and Automation; and
  • Obshchestvo S Ogranichennoi Otvetstvennostyu NEOBIT

 

The action also corrected the Entity List entry for the Federal Security Service (FSB) by changing the License Requirement column to recognize Office of Foreign Assets Control (OFAC) General License 1B and amending the effective date from February 2, 2017, to the current effective date of March 2, 2021.

 

 

Department of State

 

DDTC Name And Address Changes Posted To Website

July 2 12, 14, 16, 22, and 30, 2021:  The Directorate of Defense Trade Controls (DDTC) posted the following name and/or address changes on its website at https://www.pmddtc.state.gov/ddtc_public?id=ddtc_kb_article_page&sys_id=bd72ca0adbf8d30044f9ff621f961981:

 

  • Change in Address for Castalia Systems, LLC;
  • Change in Name from SCISYS Group PLC to CGI IT UK Limited due to acquisition of SCYSYS by CGI;
  • Change in Address for Tecnilogica Ecosistemas, S.A.;
  • Change in Address for Wescam Inc.;
  • Change in Name from FLIR Systems Inc. to Teledyne FLIR, LLC due to acquisition of FLIR by Teledyne;
  • Change in Name of FLIR entities due to acquisition of FLIR by Teledyne as follows:
  • FLIR Detection, Inc. to Teledyne FLIR Detection, Inc. (Incorp. in DE);
  • FLIR EOC, LLC to Teledyne FLIR EOC, LLC (Incorp. in CA);
  • FLIR Government Systems, Inc. to Teledyne FLIR Government Systems, Inc. (Incorp. in DE);
  • FLIR Surveillance, Inc. to Teledyne FLIR Surveillance, Inc. (Incorp. in DE); and
  • FLIR Unmanned Ground Systems, Inc. to Teledyne FLIR Unmanned Ground Systems, Inc. (Incorp. in DE)
  • Change in Name from Saudi Prerogative Company to Vision 30 Systems for Military Equipment.

Each announcement includes a link to a notice detailing the change and its effects on pending and currently approved authorizations involving the listed entity.

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DDTC Posts Its Golden Sentry Report And Blue Lantern Report

 

July 6, 2021:  DDTC posted on its website and provided to Congress two End Use Monitoring (EUM) reports: 1) the Golden Sentry Report – End Use Monitoring of Defense Articles and Services – Government-to-Government Services; and 2) the Blue Lantern Report – End Use Monitoring of Defense Articles.  The Golden Sentry Report, on the DDTC website at https://www.pmddtc.state.gov/sys_attachment.do?sysparm_referring_url=tear_off&view=true&sys_id=5c52d53f1b01b8502b6ca932f54bcbd0, covers actions taken in FY 2020 by the Department of Defense to comply with EUM requirements of the Foreign Assistance Act (FAA) of 1961 or the Arms Export Control Act (AECA, 22 USC 2778 et seq.), Sec. 40A, for defense articles and defense services transferred through the Foreign Military Sales (FMS) program.  The Blue Lantern Report, on the DDTC website at  https://www.pmddtc.state.gov/sys_attachment.do?sysparm_referring_url=tear_off&view=true&sys_id=1852993f1b01b8502b6ca932f54bcb66, covers actions taken in FY 2020 by the Department of State to monitor the end-use of defense articles, technical data, defense services, and brokering activities exported through commercial channels and subject to Department of State licenses or other approvals under AECA Sec. 38.

 

Department of the Treasury

 

OFAC issues Venezuela-related General License (GL) 40 Regarding Liquefied Petroleum Gas

July 12, 2021:  OFAC issued Venezuela-related General License (GL) 40, “Authorizing Certain Transactions Involving the Exportation or Reexportation of Liquefied Petroleum Gas to Venezuela,” and related new Frequently Asked Questions (FAQs) 914 and 915.  GL 40 is limited to certain transactions related to the exportation or reexportation of liquefied petroleum gas to Venezuela, involving the Government of Venezuela or Petróleos de Venezuela, S.A. (PdVSA).  GL 40 is valid until July 8, 2022.

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OFAC Publishes Ukraine-Related General License (GL) 15J

 

July 28, 2021 – 86 Fed. Reg. 40310:  OFAC published Ukraine-related GL 15J, which authorizes certain transactions and activities otherwise prohibited by the Ukraine-Related Sanctions Regulations, 31 CFR part 589 (URSR), that are ordinarily incident and necessary to the manufacture and sale of existing and new models of vehicles, components, and spare parts, including automobiles, light commercial vehicles, trucks, buses, engines/powertrains, produced by GAZ Group, or any entity in which GAZ Group owns, directly or indirectly, a 50 percent or greater interest.  GL 15J, which was originally issued on OFAC’s website on Dec. 23, 2020, expires on Jan. 26, 2022.  In the same announcement, OFAC published earlier versions of GL 15, which were previously issued on the OFAC website and subsequently expired.  Note:  In a similar action on July 28, 2021 (86 Fed. Reg. 40316), OFAC published Ukraine-related GL 13P, covering certain financial transactions relating to GAZ Group, and earlier, since-expired versions of GL 13.  GL 13P will expire Jan. 26, 2022.

 

LATEST SANCTIONS FINES & PENALTIES

 

This section of our newsletter provides information on the latest sanctions, fines and penalties for export violations or matters of non-compliance with the ITAR or EAR issued by the US government enforcement agencies. It is provided as a service to exporters and associates of FD Associates to remind them of the importance of extreme due diligence in all international trade and export compliance matters, particularly those involving exports subject to the ITAR or the EAR. Don't let this happen to you or your company! Call us with questions or concerns at 703-847-5801 or email info@fdassociates.net.

 

Fines and Penalties

 

July 19, 2021:  Ge Songtao of Nanjing, China was sentenced to 3 years and 6 months in federal prison and ordered to forfeit $114,834.27 for conspiring to submit false export information through the Automated Export System (AES) and to export maritime raiding craft and engines to China fraudulently.  Ge, the chairman of Shanghai Breeze Technology Co. Ltd. of Shanghai, China, wanted to find a source of supply for U.S.-manufactured combat rubber raiding craft equipped with multi-fuel engines that are used by the U.S. military and can be operated after being launched from a submerged submarine or dropped into the ocean by an aircraft.  No comparable engine is manufactured in China.  A U.S.-based employee of Ge’s identified a supplier and having been told that a U.S. manufacturer would be more likely to be willing to sell to a customer in Hong Kong than to a customer in mainland China, told the supplier that the purchaser was an entity called United Vision Limited in Hong Kong, thereby causing false information to be entered into the AES.  Ge arranged for payment through a Hong Kong entity.  However, the plot failed, and Ge and his co-defendant employees were arrested before the raiding craft and engines were exported.

 

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July 19, 2021:  BIS announced an administrative settlement with Alfa Laval US (AL-US) of Richmond, VA and Alfa Laval Middle East Ltd. (AL-ME) of Dubai, United Arab Emirates (UAE) whereby AL-US operations, Alfa Laval Tank, Inc. located in Exton, PA (AL-Tank) and AL-ME will pay a civil penalty of $215,000 to resolve allegations that Alfa operations in the U.S. exported two Alfa Laval Gamajet 10 automated tank cleaning machines used to clean underground storage tanks, valued at approximately $18,585 and designated under the EAR as EAR99, falsely listing a UAE company  as the ultimate consignee although they had been informed of the U.S. embargo on Iran and they knew and had reason to know that the items were destined for Iran and would ultimately be shipped there.

The apparent violations were committed between May 2015 and March 2016 when AL Tank, which manufactures and sells storage tank cleaning equipment, referred a known Iranian business opportunity to its foreign affiliate in Dubai, UAE. The foreign affiliate then orchestrated a scheme to export goods from the United States to Iran and did so by using AL Tank to export its Gamajet brand cleaning units to Iran via the “UAE end user”.

The unlicensed shipment was discovered when BIS conducted a post-shipment verification at AL’s distributor in the UAE.  Settlement of related charges by OFAC was a condition of this settlement with BIS.  (See next item.)

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July 19, 2021:  OFAC announced that AL-ME had agreed to pay $415,695 to settle its potential civil liability for apparent violations of the Iranian Transactions and Sanctions Regulations (ITSR, 31 CFR Part 560) committed when AL-ME conspired with Dubai- and Iran-based companies to have exported Gamajet storage tank cleaning units from the U.S. to Iran, thereby causing its US.-based affiliate to falsely list a UAE-based company as the end-user on its export documentation.

Separately, OFAC also announced a $16,875 settlement with AL-US to cover AL-US’ potential liability for apparent violations committed by AL-Tank when it referred an Iranian business opportunity to its foreign affiliate in Dubai, and the affiliate then orchestrated a scheme for an illegal export to Iran.

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July 22, 2021:  Arash Yousefi Jam, an Iranian national living in Ontario, Canada, pleaded guilty to charges of conspiring to export U.S. goods to Iran in violation of the International Emergency Economic Powers Act (IEEPA, 50 USC Sec. 1701-1707) and the ITSR. The conspiracy included actual shipments of at least nine electrical discharge boards, one CPU board, two servo motors and two railroad crankshafts to Iran via the UAE. Jam and co-conspirators allegedly also hid the ultimate destination of the shipments by ensuring that payment for the goods came from banks outside Iran.

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July 23, 2021:  Yi-Chi Shih, an electrical engineer of Hollywood Hills, CA, was sentenced in U.S. District Court in Los Angeles, CA to 63 months in federal prison and ordered to pay $362,698 in restitution to the Internal Revenue Service and a $300,000 fine based on his conviction of conspiracy to violate the IEEPA, the EAR, and several other federal laws.  The conspiracy involved a complex scheme to illegally obtain broadband, high-powered semiconductor chips known as monolithic microwave integrated circuits (MMICs) and export them to AVIC 607, a state-owned entity in China.  To accomplish this, he defrauded a U.S. company that manufactured MMICs out of the confidential and proprietary business information that was part of its MMIC manufacturing services, gaining access to the victim company’s web portal through an associate who posed as a domestic customer seeking to obtain custom-designed MMICs that would be used solely in the United States. Shih financed the manufacturing of the MMICs by the victim U.S. company by funneling funds provided by Chinese entities through a U.S. company that he controlled.  Shih was convicted in July 2019 after a seven-week jury trial.  (See July 2019 Regulatory Update.)  An associate, Kiet Mai, pleaded guilty in December 2018 to one felony count of smuggling and was sentenced to 18 months’ probation and a $5,000 fine.

JULY 2021 EXPORT CONTROL REGULATION UPDATES Read More »

Should You Be The ITAR Empowered Official?

Jenny Hahn, President

Your company manufactures defense articles and has been told that in order to conduct any international business such as marketing the defense articles or actually making a sale and selling hardware, software or services, you must first be registered with the Department of State as a precursor to applying for any ITAR export license. Then you learn that the company must have someone sign the ITAR license application and that person is called the “ITAR Empowered Official”.

Sounds simple and administrative. Anyone in the company should be able to fulfill this function, right?

Actually, who the company designates as the ITAR Empowered Official is a very important first step in the company trade compliance program. The ITAR Empowered Official is responsible to meet the conditions set forth in the ITAR for this position and in many small companies the ITAR Empowered Official is also responsible for the company trade compliance program.

If you have been “selected” or “volunteered” for the role of ITAR Empowered Official, it is important to first know what the ITAR states your qualifications should be. The Department of State often asks about the qualifications of the persons in your company designated as the trade compliance personnel including the ITAR Empowered Official. Selection is key.

Lets review the ITAR regulation at ITAR 120.25:

§ 120.25 Empowered Official

(a)  Empowered Official means a U.S. person who:

(1) Is directly employed by the applicant or a subsidiary in a position having authority for policy or management within the applicant organization; and

(2) Is legally empowered in writing by the applicant to sign license applications or other requests for approval on behalf of the applicant; and

(3) Understands the provisions and requirements of the various export control statutes and regulations, and the criminal liability, civil liability and administrative penalties for violating the Arms Export Control Act and the International Traffic in Arms Regulations; and

(4) Has the independent authority to:

(i) Inquire into any aspect of a proposed export, temporary import, or brokering activity by the applicant;

(ii) Verify the legality of the transaction and the accuracy of the information to be submitted; and

(iii) Refuse to sign any license application or other request for approval without prejudice or other adverse recourse.

Lets analyze each element of the requirements.

U.S. Person – The ITAR defines “Person” as a natural person or a corporation, business association, partnership, society, trust, or any other entity, organization or group, including governmental entities. A U.S. person meets the “Person” definition, and is a citizen of the United States, a lawful permanent resident a.k.a. green card holder or a person here in the US on a protected status (religious or political asylum).

Directly employed by the applicant or a subsidiary – other than stating the obvious, this means that external resources such as your outside counsel, consultant, or past ITAR Empowered official who retires and consults back to the company part time on a 1099, cannot fulfill this role.

In a position having authority for policy or management within the applicant organization - Typically Directors, Managers, Vice Presidents and Presidents are some of the titles associated with the person fulfilling this role. If your title is contracts administrator, shipping clerk, administrative assistant, it suggests that the role you play in the company does not carry the level of responsibility or authority for policy or management to meet the threshold to be designated as the ITAR Empowered Official.

Is legally empowered in writing by the applicant to sign license applications or other requests for approval on behalf of the applicant - A letter is required from the Key Senior Officer (the person who signed the registration statement with the Department of State) to you designating you formally as the company ITAR empowered official. If you are at a subsidiary location, the letter should specify that you are limited to signing authority for your location only. Corporate empowerment letters can simply restate the ITAR definition at §120.25 or they can be more expansive articulating the responsibilities of the ITAR Empowered Official for the company trade compliance program or responsibilities that person may also hold. Each ITAR Empowered Official should maintain this letter in their files, Human Resources should also maintain it in the personnel file and the corporate books should maintain a copy.

Understands the provisions and requirements of the various export control statutes and regulations-

This means the ITAR Empowered Official should be able to do more than spell ITAR! It is expected that you will have had training in the International Traffic In Arms Regulations so that you can assert that you understand the regulations. But that is not enough. The ITAR references various export control statutes and regulations. Related regulations include the Foreign Trade Regulations, which every ITAR hardware export transaction interfaces with; the Office of Foreign Assets Controls, which maintains a list of persons and companies and countries that require separate approvals to make exports to from what the ITAR or EAR may impose; the Foreign Corrupt Practices Act, that prohibits the making of payments or other gifts to influence a sale to a government (bribe); and the Export Administration Regulations that regulates the items that were once ITAR but moved over the last few years as a result of Export Control Reform, along with truly commercial or dual use items. That’s a lot of regulations you should be familiar with!

And the criminal liability, civil liability and administrative penalties for violating the Arms Export Control Act and the International Traffic in Arms Regulations- It is critically important that as the ITAR Empowered Official, you know what the fines and penalties are for willful a.k.a. criminal violations and those unwitting inadvertent mistakes made by the company. The ITAR Empowered Official and the company should understand what the possible outcomes could be for the company and responsible individuals in terms of jail time, denial of export privileges and fines as well as understanding the overall financial costs the company could have as a result of export violations not to mention the potential to lead to repercussions in government contracts including suspension or debarment.

Regular training of the ITAR Empowered Official to understand the civil and criminal penalties is necessary. Penalties are updated on a periodic basis and adjusted for inflation.

Has the independent authority to:

  1. Inquire into any aspect of a proposed export, temporary import, or brokering activity by the applicant -The ITAR Empowered Official should be able to question any functional department personnel about the transaction, including business development, finance, contracts, sales, legal, shipping.
  2. Verify the legality of the transaction and the accuracy of the information to be submitted- The tools and resources should be readily available to the Empowered Official to conduct due diligence and confirm the proposed transaction is a legitimate business dealing with qualified eligible parties.
  3. Refuse to sign any license application or other request for approval without prejudice or other adverse recourse – This means the boss can’t fire the ITAR Empowered Official if the ITAR Empowered Official says I am not comfortable with proceeding based on what I know about this transaction.

Based on the criteria enumerated in the ITAR to fulfill this role, the ITAR Empowered Official should be a person within the company that has knowledge about the regulations, understand the scope of the regulations, the penalties if not abided by, the respect of company employees to follow the ITAR Empowered Official lead and understanding and buy-in by management that no one can override any unfavorable decision made by the ITAR Empowered Official concerning a pending export transaction.

This role is often entered into by employees who are volunteered for the position because they are available or because they heard about the ITAR on their last job. The requirements to fulfill the ITAR Empowered Official position is much more demanding and carries with it significant expectations by the Department of State regarding this responsibility and how the company ensures that it selects qualified candidates. The company is expected to ensure that the ITAR Empowered Official receive regular training regarding the export regulations and criminal and civil penalties.

If you read this article and questioned your qualifications, or thought you might need more training, join us for our ITAR Empowered Official classes in April and November!  We discuss in detail the compliance roles ITAR Empowered Officials take on..

Should You Be The ITAR Empowered Official? Read More »

Does Your Export Compliance Program Pass Muster?

By: Jenny Hahn, President

Small companies may suddenly find their export compliance programs aren’t up to the expectations of the Departments of State, Directorate of Defense Trade Controls (DDTC) or Commerce, Bureau of Industry and Security (BIS). This is particularly true when you consider the complexity of the Export Control Reform (ECR) initiative, and the significant changes to the US Munitions List (USML) that have occurred or will occur as a result of ECR. Items once controlled under the International Traffic in Arms Regulations (ITAR), may now be controlled under the Export Administration Regulations (EAR), under the so-called “600 Series” ECCNs (Export Control Classification Number), with a totally different set of rules to comply with. Added to that, technical services or assistance related to these now EAR controlled articles may remain controlled under the ITAR, and unknowing For unprepared companies may find their export compliance program woefully deficient.

One of the most common issues small companies face is that the company budget doesn’t provide for dedicated internal export compliance resources and personnel assigned to export compliance may be multi-hatted, and don’t have the time or the right level of training to develop a comprehensive company-wide export compliance program. Often companies only learn that their compliance program is lacking during a US government investigation of matters related to a voluntary disclosure as a result of a violation of the ITAR or the EAR. Below are some examples of things that may require a company to submit a voluntary disclosure:

  • The company learns the parts it has been exporting without a license for 10 years are regulated by the ITAR and would have required an ITAR license to ship. The company needs to complete the export of the remainder of the hardware on the purchase order and needs an ITAR authorization to do so;
  • The company has a foreign national employee assigned to perform a manufacturing or engineering related task on an ITAR or EAR 600 series hardware and the company does not have the required authorization from State or Commerce:
  • The company learns that its domestic supplier of ITAR or 600 series hardware has had the part produced offshore in China or another destination without a ITAR/EAR authorization;
  • The company learns that the foreign program it has been providing design assistance on involves a platform on the USML or Commerce Control List (CCL) in a 600 series ECCN;
  • The company is using the cloud for its IT storage and email requirements and learns that its service provider is hosting the data on servers located offshore;
  • The company learns that its foreign partners on an ITAR TAA (Technical Assistance Agreement) are transferring technical data received from your company to subcontractors that are not listed on the TAA;
  • The company failed to renew its State Department ITAR registration in a timely manner but continued to make technical data and defense service exports against existing State Department licenses;
  • The company is notified that it is a named party in another companies voluntary disclosure

How the government agency (State or Commerce) handles that disclosure and determines if it will levy a penalty or whether it will require monitoring or oversight of the company’s activities, can be based in large part, on how the company compliance program is setup and what steps the company undertakes to fix the cause of the violation(s) and prevent future occurrences.

The DDTC and BIS generally require companies to provide their export compliance manuals, policies and procedures as support documents to the corrective actions cited in a voluntary disclosure. Government enforcement and compliance personnel reviewing the disclosure will want information pertaining to training provided to key staff including senior management & compliance personnel as well as relevant departments/persons involved in the violation . Both DDTC and BIS will want to know the specific details on the company’s audit program including internal and external audits, when and where they were last performed and how frequently they are performed.

Where does your company stand with respect to a documented compliance program with processes and procedures, training and internal/external audits? Don’t let your compliance program be implemented via a voluntary disclosure! Taking a proactive stance in establishing all necessary steps to ensure export compliance will help prevent costly mistakes that could lead to fines and sanctions.

Questions and steps to consider:

  •  Does your company have sufficient resources allocated to export compliance?
  •  Are your resources adequately trained in the ITAR and the EAR?
  •  Do you have a good process to determine the correct jurisdiction and classification of your products and technology for export purposes?
  •  Do you have a documented export compliance plan?
  • Is your compliance plan implemented in the day-to-day processes of the company operations?

Instead of spending dollars on government mandated programs as a result of a voluntary disclosure, why not engage one of our export compliance experts to assist your company with establishing a meaningful export compliance program. We offer customized training programs for all levels within the company. We have baseline export compliance manuals and procedures, ready to be tailored to your company’s specific requirements. We offer one or two day onsite procedure reviews to identify weaknesses in your compliance program and make recommendations for improvement. Call us to find out how FD Associates may assist you.

You can learn more about FD Associates by visiting our website https://fdassociates.net or contacting me at jhahn@fdassociates.net or at 703-847-5801.

Does Your Export Compliance Program Pass Muster? Read More »

JUNE 2021 EXPORT CONTROL REGULATION UPDATES

This newsletter is a listing of the latest changes in export control regulations through June 30, 2021.  The newsletter is provided as a complimentary service to assist exporters with their ITAR and EAR export compliance responsibilities. It provides a summary of recent changes to export control regulations or other regulatory matters of interest that may impact your company’s international trade and export compliance functions. Call us at 703-847-5801 or email info@fdassociates.net with questions or comments.

 See also our “Latest Sanctions Fines & Penalties” section below for an update on companies and persons denied export privileges by the United States Government.

REGULATORY UPDATES

European Union

EU Published New EU Dual-Use Regulation

June 11, 2021:  The European Union (EU) published the official version of the new EU Dual-Use Regulation, which will go into effect Sep. 9, 2021.  (See background in May 2021 and November 2020 Regulatory Updates.)  “Regulation (EU) 2021/821 of the European Parliament and of the Council of 20 May 2021 setting up a Union regime for the control of exports, brokering, technical assistance, transit and transfer of dual-use items (recast)” is in the EU Official Journal at https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32021R0821.

Department of Commerce – Bureau of Industry and Security

BIS Issued A Public Notice Regarding The Reinstatement Of EAR Control Of “Technology” and “Software” Regarding 3D Printing Of EAR Controlled Firearms To BIS

June 1, 2021 -- 86 Fed. Reg. 29189:  The Bureau of Industry and Security (BIS) issued a public notice of a decision by the U.S. Court of Appeals for the Ninth Circuit (Washington v. U.S.  Dep’t of State, 2021 U.S. App.LEXIS 12448, Apr 27, 2021) that had the effect of reinstating the validity of a State Department Directorate of Trade Controls (DDTC) rule that transferred control of “technology” and “software” that fall

under U.S. Department of Commerce regulations, 15 CFR 732.2(b) and 734.7(c) from the U.S. Munitions List (USML, 22 CFR Sec. 121.1) to the Commerce Control List (CCL, EAR Part 774, Supp. No. 1).  (Prior to the Circuit Court decision, the transfer of control of these items from the USML to the CCL had been vacated by the decision of a lower federal court – see April 2021 Regulatory Update.)  BIS has posted 12 FAQs about the transfer at

https://www.bis.doc.gov/index.php/documents/policy-guidance/2572-faqs-for-the-commerce-category-i-iii-firearms-rule-posted-on-bis-website-7-7-20/file.  This rule affects technical data and software directly related to the production of firearms and firearm parts using a 3-D printer or similar equipment and is complicated.  Contact us if you believe that your products may be affected.

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BIS Added 8 Pakistan and UAE Entities To The Entity List

June 1, 2021 – 86 Fed. Reg. 29190:  BIS amended the EAR by adding 8 entities in Pakistan and the United Arab Emirates (UAE) to the Entity List (EAR Part 744, Supp. No. 4) based on a determination that each of these entities was involved in proliferation of unsafeguarded nuclear activities that are contrary to the national security and/or foreign policy of the United States. A license requirement with license review policy of presumption of denial, and no license exceptions will now apply to exports, re-exports, or in-country transfers to these persons for all items subject to the EAR.  The 8 entities are:

Pakistan

  • Hassan Scientific Corporation;
  • Mecatech (Private) Limited;
  • Middle East Automation & Controls Services;
  • Mirza and Co;
  • Techno-Commercial; and
  • TELEC Electronics & Machinery (Pvt) Ltd.

UAE

  • Delta Engineering Concern FZE; and
  • Future Trends International, FZE LLC.

In the same notice, BIS revised the entries for DJI and Seajet Company Limited in China; corrected the entry for China State Shipbuilding Corporation, Limited (CSSC) 750th Test Center in China; and removed the entry for IKAN Engineering Services in Pakistan.

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BIS updates the List of Countries Participating In The Arab League Boycott Of Israel by removing the UAE

June 9, 2021 – 86 Fed. Reg. 30535:  BIS recognizes the formal termination by the UAE of its participation in the Arab League Boycott of Israel by adding new Supplement No. 17 to the Anti-Boycott provisions of EAR Part 760.  Supplement No. 17 is an Interpretation stating that certain requests for information, action or agreement from the UAE, which were presumed to be boycott-related prior to August 16, 2020, the date of issuance of the UAE decree terminating participation in the Arab League Boycott of Israel, would not be presumed to be boycott-related if issued after August 16, 2020, and thus would not be subject to the prohibitions or reporting requirements of Part 760 of the EAR.  The Interpretation warns U.S. persons, however, that requests that are on their face boycott-related or that are for action obviously in furtherance or support of an unsanctioned foreign boycott are subject to the rules of EAR Part 760, irrespective of the country of origination.  (See April 2021 Regulatory Update for comparable action by the Treasury Department Office of Foreign Assets Control (OFAC).)

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BIS Removed Satori Corporation Of France And The UAE From The Entity List

June 16, 2021 – 86 Fed. Reg. 31909:  BIS amended the EAR by removing one entity, Satori Corporation, under destinations for France and the UAE, from the Entity List.  This action was based on a review of information provided in a request for removal.

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BIS Added Five Chinese Entities To The Entity List

 

June 24, 2021 – 86 Fed. Reg. 33119:  BIS amended the EAR by adding the following 5 entities to the Entity List under the destination of the People’s Republic of China, based on a determination that they have engaged in or enabled activities contrary to U.S. foreign policy interests, i.e., human rights and other violations against Uyghurs, Kazakhs, and other members of Muslim minority groups in the Xinjiang Uyghur Autonomous Region of China:

  • Hoshine Silicon Industry (Shanshan) Co., Ltd.;
  • Xinjiang Daqo New Energy, Co. Ltd.;
  • Xinjiang East Hope Nonferrous Metals Co. Ltd.;
  • Xinjiang GCL New Energy Material Technology, Co. Ltd.; and
  • Xinjiang Production and Construction Corps.

For these entities, a license requirement with a license review policy of presumption of denial will apply for all items subject to the EAR except several specific items for which there will be a case-by-case license review policy.  No license exceptions will be available.

Department of State

DDTC Name And Address Changes Posted To Website

June 7, 10, 14, 16, 22, 24, 28, and 29, 2021:  The Directorate of Defense Trade Controls (DDTC) posted the following name and/or address changes on its website at    

https://www.pmddtc.state.gov/ddtc_public?id=ddtc_kb_article_page&sys_id=bd72ca0adbf8d30044f9ff621f961981. The following are included changes to the list:

  • Change in name for Fights on Logistics Sp. zoo to Alioth Logistics Sp. zoo
  • Change in name and address for Leonardo MW Ltd to Leonardo UK Ltd.
  • Change in name from KPN Security B.V. to KPN B.V.
  • Change in name from CMI Defence Poland Spolka z organiczona odpowiedzialnoscia to John Cockerill Defense Spolka z organiczona odpowiedzialnoscia  due to corporate rebranding.
  • Change in name from ST Engineering Aerospace Supplies Pte Ltd, Aviation Division to ST Engineering Synthesis Pte Ltd due to corporate reorganization.
  • Change in name from ST Engineering Aerospace Supplies Pte Ltd to ST Engineering Aerospace Systems Pte Ltd due to corporate reorganization.
  • Change in Name and Address from General Electric International Inc. (Australia Branch) to GE Aviation Systems Australia Pty Ltd due to corporate restructuring.
  • Change in Name from MTU do Brasil Ltda to Rolls-Royce Solutions Brasil Ltda due to corporate rebranding.
  • Change in Name from MTU Middle East FZE to Rolls-Royce Solutions Middle East FZE due to corporate rebranding.
  • Change in Name from MTU France SAS to Rolls-Royce Solutions France SAS due to corporate rebranding.
  • Change in Name from MTU Reman Technologies GmbH to Rolls-Royce Solutions Magdeburg GmbH due to corporate rebranding.
  • Change in Name from MTU Israel Ltd to Rolls-Royce Solutions Israel Ltd due to corporate rebranding.
  • Change in Name from MTU Korea Ltd to Rolls-Royce Solutions Korea Ltd due to corporate rebranding.
  • Change in Name from MTU Benelux BV to Rolls-Royce Solutions Benelux BV due to corporate rebranding.
  • Change in Name from MTU Rus LLC to Rolls-Royce Solutions RUS LLC due to corporate rebranding.
  • Change in Name from MTU Africa Pty Ltd to Rolls-Royce Solutions Africa (Pty) Ltd due to corporate rebranding.
  • Change in Name from MTU South Africa (Pty) Ltd to Rolls-Royce Solutions South Africa (Pty) Ltd due to corporate rebranding.
  • Change in Name from MTU Iberica Propulsion y Energia SL to Rolls-Royce Solutions Iberica SLU due to corporate rebranding.
  • Change in Name from MTU UK Limited to Rolls-Royce Solutions UK Ltd due to corporate rebranding.
  • Change in Name from MTU Hong Kong Limited to Rolls-Royce Solutions Hong Kong Ltd due to corporate rebranding.
  • Change in Name from MTU Engineering (Suzhou) Company Limited to Rolls-Royce Solutions China Co. Ltd due to corporate rebranding.
  • Change in Name from PT MTU Indonesia to PT Rolls-Royce Solutions Indonesia due to corporate rebranding.
  • Change in Name from MTU Italia SRL to Rolls-Royce Solutions Italia SRL due to corporate rebranding.
  • Change in Name from MTU Motor Turbin Sanayi ve Ticaret AS to Rolls-Royce Solutions Motor San. Ve Tic. A.S. due to corporate rebranding.
  • Change in address for Gromelski & Associates.
  • Change in address for Presagis Europe SAS.
  • Change in address for Yulista holding LLC and subsidiaries.
  • Change in address for Presagis Canada Inc.
  • Change in name from Trelleborg Offshore Norway AS to Vipo AS due to new ownership and rebranding.
  • Changes in name due to corporate restructuring: Saab AB is dissolving and integrating two-businesses, Support & Services (S&S) and Industrial Products and Services (IPS) into multiple business areas: Aeronautics, Surveillance, and Dynamics. The changes are as follows:
  • The S&S branch’s Communication and Tactical Solutions will change to BU Tactical Support Solutions.
  • IPS BU Aerosturctures will change to BU Aerospace Systems.
  • IPS BU Avionics Systems and Surveillance BU Electronic Warfare will change to BU Electronic Warfare and Aircraft Systems.
  • BU Airborne ISR will combine into Surveillance BU Radar Solutions.

Each announcement includes a link to a notice detailing the change and its effects on pending and currently approved authorizations involving the listed entity.

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DDTC Issues A Public Notice Regarding Reinstatement Of The Transfer to the EAR, Control Of “Technology” and “Software” Regarding 3D Printing Of EAR Controlled Firearms

June 1, 2021 – 86 Fed. Reg. 29196:  The State Department informed the public of the Circuit Court decision that invalidated a lower court order and thereby restored the effectiveness of the Department of State’s Jan. 23, 2020, rule transferring exclusive control over software and technical data related to 3-D printing of firearms or components to the EAR, administered by the Department of Commerce, effective May 26, 2021.  See additional information in Commerce Department section above.

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DDTC Extends Ability Of “Regular Employees” To Work At A Remote Location

June 10, 2021 – 86 Fed. Reg. 30778:  The State Department extended until further notice the temporary suspensions, modifications, and exceptions that –

  1. allow persons who are “regular employees” for purposes of International Traffic in Arms Regulations (ITAR, 22 CFR Parts 120-130) Sec. 120.39(a)(2) to work at a remote work location, and
  2. authorize regular employees who work remotely in a country not currently authorized by a technical assistance agreement (TAA), manufacturing license agreement (MLA), or exemption to send, receive, or access any technical data authorized for export, reexport, or retransfer to their employer via a TAA, MLA, or exemption – provided that the individual is not located in a country listed in ITAR Sec. 126.1, which now includes Russia (see March 2021 Regulatory Update).

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DDTC Posted Its 2020 “Section 655 Report”

June 14, 2021:  DDTC posted its 2020 “Section 655 report,” which lists the defense articles and defense services licensed for permanent export to every foreign country and international organization during FY 2020.  This 30-page report lists every country and organization separately, showing for each a list of authorized value and shipped value, by USML categories.  An introduction to the report is on the DDTC

website at https://www.pmddtc.state.gov/sys_attachment.do?sysparm_referring_url=tear_off&view=true&sys_id=06f22f571be4bc90c6c3866ae54bcb3c; the full report is at

https://www.pmddtc.state.gov/sys_attachment.do?sysparm_referring_url=tear_off&view=true&sys_id=06f22f571be4bc90c6c3866ae54bcb3e.  (This annual report is required by Sec. 655 of the Foreign Assistance Act of 1961 as amended.)

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Department of the Treasury

OFAC Issues The Burma Sanctions Regulations, 31 CFR § 525

June 1, 2021 – 86 Fed. Reg. 29197:  OFAC issued the Burma Sanctions Regulations, 31 CFR § 525, to implement President Biden’s Executive Order (EO) 14014, “Blocking Property With Respect to the Situation in Burma,” in response to the Feb. 1, 2021, military coup in that country.  (See February 2021 Regulatory Update.)  OFAC stated that these regulations are being published in abbreviated form to provide immediate guidance to the public; it intends to publish a more comprehensive set of regulations in the future.

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OFAC Issued GL 8H, "Authorizing Transactions Involving Petróleos De Venezuela, S.A. (Pdvsa) Necessary For The Limited Maintenance Of Essential Operations In Venezuela Or The Wind Down Of Operations In Venezuela For Certain Entities”

June 1, 2021:  OFAC issued GL 8H, "Authorizing Transactions Involving Petróleos de Venezuela, S.A. (PdVSA) Necessary for the Limited Maintenance of Essential Operations in Venezuela or the Wind Down of Operations in Venezuela for Certain Entities,” extending the authorization for certain limited activities until December 1, 2021.  GL 8H is on the OFAC website at https://home.treasury.gov/system/files/126/venezuela_gl8h_0.pdf.

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OFAC Issued Covid-19-Related General Licenses Authorizing Transactions And Activities Involving Iran, Syria, And Venezuela

June 17, 2021:  The Treasury Department announced that it had issued Covid-19-related General Licenses (GLs) authorizing transactions and activities involving Iran, Syria, and Venezuela to support the work of governments, international organizations, non-governmental organizations, and private sector actors in providing COVID-19-related assistance to the people in these sanctioned jurisdictions.  The Treasury Department announcement also states that OFAC prioritizes applications, compliance questions, and other requests related to COVID-19 relief and other humanitarian support and stands ready to provide guidance and respond to sanctions-related questions.

Iran GL N is at https://home.treasury.gov/system/files/126/iran_gln.pdf; Syria GL 21 is at https://home.treasury.gov/system/files/126/syria_gl21.pdf; and Venezuela GL 39 is at https://home.treasury.gov/system/files/126/venezuela_gl39.pdf.  The Treasury Department announcement is at https://home.treasury.gov/news/press-releases/jy0234.

At the same time, OFAC issued six FAQs that provide further clarity on what the COVID-19-related GLs authorize, OFAC’s due diligence expectations for U.S. financial institutions facilitating activity authorized by the COVID-19-related GLs, and guidance for non-U.S. persons engaging in activities authorized for U.S. persons under the COVID-19-related GLs.  The six FAQs are on the Treasury Department website at 906, 907, 908, 909, 910, and 911.

LATEST SANCTIONS FINES & PENALTIES

This section of our newsletter provides information on the latest sanctions, fines and penalties for export violations or matters of non-compliance with the ITAR or EAR issued by the US government enforcement agencies. It is provided as a service to exporters and associates of FD Associates to remind them of the importance of extreme due diligence in all international trade and export compliance matters, particularly those involving exports subject to the ITAR or the EAR. Don't let this happen to you or your company! Call us with questions or concerns at 703-847-5801 or email info@fdassociates.net.

Sanctions

 

Department of Commerce

June 1, 2021 – 86 Fed. Reg. 29236:  BIS denied the export privileges of Behzad Pourghannad, of Tehran, Iran until Nov. 13, 2029, based on his conviction of violating the International Emergency Economic Powers Act (IEEPA, 50 USC Sec. 1701-1707) by conspiring to export carbon fiber from the U.S. to Iran without having obtained the required U.S. Government authorization.  In the criminal case, Pourghannad was sentenced to 20 months in prison and a special assessment of $100.  (See additional information in September 2019 and November 2019 Regulatory Updates.)

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June 3, 2021 – 86 Fed. Reg. 29741:  BIS denied the export privileges of Chris Rodriguez of Thomasville, NC until Oct. 18, 2026, based on his conviction of violating Section 38 of the AECA by willfully attempting to export, exporting, and causing to be exported from the U.S. to Honduras two firearms and hundreds of rounds of ammunition without having obtained the required authorization from the Department of State.  In the criminal case, Rodriguez was sentenced to 18 months in prison and a special assessment of $100.

Department of State

June 4, 2021 – 86 Fed. Reg. 30074:  The Bureau of Political-Military Affairs gave notice of the statutory debarment of seven persons convicted in U.S. District Courts of violating, or conspiring to violate, the AECA.  The debarred persons are (Name, Date of Judgment; Judicial District; and Year of Birth):

(1) Danso, Ronald Adjei; September 15, 2020; District of Utah; November 1968;

(2) Higuera, Julian Alonso; September 24, 2020; District of Arizona; October 1990;

(3) Li, Qingshan; June 12, 2020; Southern District of California; February 1985;

(4) Park, Si Mong; September 14, 2020; District of the District of Columbia; September 1970;

(5) Rubio, Maritza; June 6, 2019; District of Arizona; February 1979;

(6) Sun, Wei; November 18, 2020; District of Arizona; December 1971; and

(7) Williams, Randy Lew; March 3, 2021; Western District of Oklahoma; August 1963.

These persons will remain debarred unless, after at least three years following the date of conviction, a request for reinstatement from statutory debarment is approved by the Department of State. An updated List of Statutorily Barred Parties is on the DDTC website at https://www.pmddtc.state.gov/ddtc_public?id=ddtc_kb_article_page&sys_id=7188dac6db3cd30044f9ff621f961914.

 

Fines and Penalties

May 28, 2021:  Photonics Industries International, Inc., of Ronkonkoma, NY, agreed to pay a civil penalty of $350,000 (with $50,000 payable within 30 days and payment of the remaining $300,000 suspended for

two years and then waived if Photonics has not committed any further violations) to settle charges by BIS of three violations of 15 CFR 764.2(a) by exporting laser systems to China without the required BIS license; one violation of 15 CFR 764.2(c) by attempting to export laser systems to China without the required BIS license; and one violation of 15 CFR 764.2(a) by exporting a laser system to Sichuan University, Chengdu, China, an entity listed on the  Entity List (EAR Part 744, Supp. No. 4), without the required BIS license.  The settlement agreement also provided that failure to make full and timely payment of the civil penalty could result in a one-year denial of all Photonic’s export privileges under the EAR.

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May 28, 2021:  Alsima Middle East General Trading LLC, a/k/a Al Sima  Middle East General Trading LLC, of Dubai, UAE, agreed to pay a civil penalty of $25,000 (with $12,500 payable within 30 days and the remaining $12,500 suspended for two years and thereafter waived if the company commits no further violations) to settle charges by BIS that it had violated EAR Sec. 764.2(g) (Misrepresentation and Concealment of Facts) in connection with the submission to BIS of a license application for the export of powder grade nickel to the UAE when it falsely and misleadingly represented that the nickel powder was to be used to manufacture self-lubricating seal rings in the UAE for distribution in the UAE, and that it would not be reexported without further authorization from BIS.  The falsity of this representation came to light when, in a Post Shipment Verification (PSV) at Alsima, conducted by BIS, the company’s director stated that the manufactured rings had actually been intended for export to an Azerbaijani company.  The settlement agreement also provides that if Alsima fails to comply fully with the terms of the agreement, BIS can deny its export privileges for two years.

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June 16, 2021:  USGoBuy, LLC, a packaging company based in Portland, OR, agreed to pay a civil penalty of $20,000 (with $5,000 payable within 30 days and the remaining $15,000 suspended for three years and thereafter waived if the company commits no further violations) and complete an external audit to settle charges by BIS that it had committed two violations of the EAR by exporting riflescopes controlled under Export Control Classification Number (ECCN) 0A987 and associated items valued in total at approximately   $1,299.96 to the UAE, Iran, and China without the required authorizations.  USGoBuy will also be subject to a 3-year debarment, suspended for 3 years and thereafter waived if it pays the fine, completes the audit, and commits no further violations.

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June 23, 2021:  Skyline USA, Inc., of Sanford, FL agreed to pay a civil penalty of $140,000 (the first $10,000 payable in monthly installments of $1,000 each and the remaining $130,000 suspended for two years and thereafter waived if Skyline commits no further violations) to settle charges by BIS that it had committed 15 violations of EAR Sec. 764.2(a) (Engaging in Prohibited Conduct) and one violation of EAR Sec. 764.2(i) (Failure to Comply with Recordkeeping Requirements) when on at least 15 occasions it had

exported stun guns, police batons, handcuffs, and/or pepper spray (the “items”) to Colombia, Guatemala, Mexico, Nigeria, Pakistan, Panama, Trinidad and Tobago, or Uruguay without the required licenses from BIS. The exported items were controlled for crime control reasons under ECCNs 0A978, 0A982, 0A985, and 0A984 and valued at a total of approximately $50,644.  If Skyline fails to pay the civil penalty or otherwise fails to comply in full with the terms of the agreement, BIS can issue an order denying its export privileges for two years from the date of issuance of any such denial order.

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June 27, 2021:  Patriot 3, Inc., of Fredericksburg, VA agreed to pay a civil penalty of $200,000 (payable in quarterly installments of $50,000 each, with none suspended or waived) to settle a charge of one violation of EAR Sec. 764.2(c), Acting with Knowledge of a Violation, for selling and/or transferring one pair of maritime jet boots with underwater propulsion systems (“JetBoots”) controlled under ECCN 8A992 when at the time of the transfer, Patriot 3 was aware that the JetBoots were intended to be sold and transferred to the Russian Government’s Federal Guard Service (the “FSO”), a  military end user in Russia, and that  EAR Sec. 744.21 required an export license for exports of items controlled under ECCN 8A992 to military end users or military end uses in Russia.  The JetBoots were valued at approximately $329,760.  If Patriot 3 fails to comply fully with the terms of the agreement, BIS can issue an order denying its export privileges for two years.

JUNE 2021 EXPORT CONTROL REGULATION UPDATES Read More »

ITAR For The Empowered Official – Live Stream Webinar

Enroll now for the three half-day live stream webinar/workshop focusing on requirements of the International Traffic in Arms Regulations (ITAR) for Empowered Officials and those personnel responsible for establishing and administering company export compliance plans and procedures.

This will be a top-down look at the ITAR from a compliance perspective, focused on compliance requirements for exporting defense articles, technical data, and defense services.

We will begin with an in-depth look at the role and responsibilities of Empowered Officials/compliance persons, including eligibility, brokering, record keeping, and reporting. We will discuss the key elements of a compliance program meeting Department of State expectations, including audit plans, training programs, voluntary disclosures, and exporting against specific ITAR license authorization types.

ITAR FUNdamentals or basics course recommended as a prerequisite to this training.

What our attendees are saying ...

“This was great, very informative and knowledgeable presenter.”
“ I would recommend FD’s training to my coworkers.”

“Very clear and effective. Knowledge of the subject clearly extensive:

“FD Associates plays a key role in my company’s export compliance success.”

Agenda and Registration via Check Payment

Workshop Date - August 23-25,2021

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U.S. Canada Joint Certification Program (JCP) Webinar

This webinar will provide an overview of the U.S. Canada Joint Certification Program (JCP), recent changes, and trends.

Topics to be discussed:

  • The process for registration (DD2345) and supporting documentation
  • The responsibilities of the Data Custodian
  • DoD clauses and contractor obligations
  • When must the DD2345 be updated?
  • ITAR/EAR responsibilities

Trade compliance, contracts, and IT personnel will gain insightful information pertinent to their company’s compliance with JCP requirements, DFARS clauses, and U.S. export controls.

A 15 minute Q&A session will be available at the end of the program.

This webinar is presented by FD Associates’ Jenny Hahn, President, and Keil Ritterpusch, Senior Compliance Associate.

Workshop Date – November 4, 2021

U.S. Canada Joint Certification Program (JCP) Webinar Read More »

ITAR Fundamentals – Live Stream Webinar

This is a hands-on workshop for beginners or companies newly exposed to the ITAR conducted over 4 days in 4-hour segments via live stream/webinar. It is also a useful refresher for anyone needing to get up to speed with the latest changes to the ITAR or State Department requirements for licensing defense articles or defense services. The program will provide licensing and compliance personnel with practical insights into the requirements of the ITAR. It will include interactive discussions and exercises designed to assist attendees in understanding the day-to-day application of the ITAR.

The Powerpoint presentation, handouts, and current ITAR will be provided.

What our attendees are saying …

“It has been a very informative session. I really enjoyed and feel like a lot of knowledge was acquired.”

“I really liked the small group and interaction with everyone. Everything was laid out well along with the notes to relook at everything. Will come back for more training.”

 “This seminar was very effective for me and I will recommend having my coworkers attend.”

“Course is well designed and presented. Intimate knowledge of the student businesses allows for more pointed information transfer which I found helpful.”

Agenda and Registration via Check Payment

Workshop Date – October 19-22, 2021

ITAR Fundamentals – Live Stream Webinar Read More »

US Export Controls From A Foreign Perspective

Join us for a 4-day live stream webinar explaining foreign companies’ requirements to receive US-origin technical data, hardware, and technology. The program will address the responsibilities for foreign companies dealing with both ITAR and EAR controlled commodities, explaining new terms in the ITAR, what is not export or reexport/retransfer, licensing reexports and retransfers under the ITAR or EAR, the De Minimis rule, the Direct Product rule and compliance obligations with ITAR and EAR licenses and exports under ITAR exemptions or EAR exceptions.

Presentation materials, handouts, and a new ITAR will be provided before the start of the course.

This webinar is developed specifically for foreign company attendees. The webinar will broadcast from 7:30 AM – 11:30 AM Eastern Daylight Savings time.

Agenda and Registration via Check Payment

Workshop Date – November 2-5, 2021

US Export Controls From A Foreign Perspective Read More »

MAY 2021 EXPORT CONTROL REGULATION UPDATES

This newsletter is a listing of the latest changes in export control regulations through May 31, 2021.  The newsletter is provided as a complimentary service to assist exporters with their ITAR and EAR export compliance responsibilities. It provides a summary of recent changes to export control regulations or other regulatory matters of interest that may impact your company’s international trade and export compliance functions. Call us at 703-847-5801 or email info@fdassociates.net with questions or comments.

See also our “Latest Sanctions Fines & Penalties” section below for an update on companies and persons denied export privileges by the United States Government.

REGULATORY UPDATES

European Union

EU Revises Its Dual-Use Regulation

May 10, 2021:  The Council of the European Union (EU) formally adopted a revised version of the EU’s Dual-Use Regulation.  This new Regulation – the first major structural reform since 2009 in the EU regime controlling exports, brokering, technical assistance, transit, and transfer of dual-use items – was approved by the European Parliament on March 26, 2021 and will enter into force 90 days after it is published in the EU Official Journal.  Prominent among the goals of the new rules are promotion of human rights compliance (including the addition of new controls on cyber-surveillance) and fostering of cooperation between member states.  (See additional information in November 2020 Regulatory Update.)  The full text of the new Regulation is at https://data.consilium.europa.eu/doc/document/PE-54-2020-INIT/en/pdf .

Department of Commerce – Bureau of Industry and Security

BIS Released Updated FAQs Regarding Transition Of USML Categories I, II and III To The EAR

May 13, 2021:  The Bureau of Industry and Security (BIS) released an updated version of “FAQs for the Commerce Categories I-III (final rule) Control of Firearms, Guns, Ammunition and Related Articles the President Determines No Longer Warrant Control Under the United States Munitions List (USML, 22 CFR Sec. 121.1) (85 FR 4136)”. The original FAQs were originally published Jan. 23, 2020, effective March 9, 2020, after BIS amended the Export Administration Regulations (EAR, 15 CFR Parts 730-774) to add 17 new ECCNs to the Commerce Control List (CCL, EAR Part 774, Supp. No. 1) to facilitate the transfer from the ITAR U.S. Munitions List of commercially available firearms and ammunition items that had been determined no longer to require control under USML Categories I, II, and III.  (See January 2020 Regulatory Update.)

This detailed 69-page updated document, including 119 FAQs (including 13 FAQs on “3D Printing of Firearms”) and definitions of 14 key terms, is on the BIS website at https://www.bis.doc.gov/index.php/documents/policy-guidance/2572-faqs-for-the-commerce-category-i-iii-firearms-rule-posted-on-bis-website-7-7-20/file.

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BIS Posted FAQs Regarding Exports Of Items Normally Regulated By The EAR Become Not “Subject To The Export Administration Regulations (EAR)” Solely Because They Are Authorized For Export Under The Foreign Military Sales (FMS) Program

May 12, 2021:  BIS posted FAQs regarding exports of items that are not “subject to the Export Administration Regulations (EAR)” solely because they are authorized under the Foreign Military Sales (FMS) Program of the Arms Export Control Act (AECA, 22 USC 2778 et seq.) pursuant to a Letter of Offer and Acceptance (LOA).  The FAQs were developed jointly by BIS and the U.S. Census Bureau at the Department of Commerce; the Directorate of Defense Trade Controls (DDTC) and the Office of Regional Security and Arms Transfers (RSAT) at the Department of State; the Defense Security Cooperation Agency (DSCA) at the Department of Defense; and U.S. Customs and Border Protection (CBP) at the Department of Homeland Security and relate specifically to the export under FMS authority of items whose control was moved from the USML to the CCL.

See these FAQs on the BIS website at https://www.bis.doc.gov/index.php/documents/pdfs/2756-fms-faqs-dated-5-12-21/file.

Department of State

DDTC Name and Address Changes Posted To Website

May 3, 7, 12, 21, 27, and 28, 2021:  DDTC posted the following name and/or address changes on its website at    

https://www.pmddtc.state.gov/ddtc_public?id=ddtc_kb_article_page&sys_id=bd72ca0adbf8d30044f9ff621f961981:

  • Change in Name from Hockley Pattern & Tool Co Ltd to NEOS Technologies Limited due to corporate reorganization/rebranding of subsidiary by NEOS Technologies;
  • Change in Name from FLIR Systems ATS SAS and FLIR Systems Holding France SAS to FLIR Systems France due to corporate reorganization;
  • Change of Address for KYB Corporation;
  • Change in Name of the following MTU entities to listed Rolls Royce entities due to corporate reorganization of subsidiaries by Rolls Royce Power Systems:

- MTU Friedrichshafen GmbH to Rolls-Royce Solutions GmbH;

- MTU Onsite Energy GmbH to Rolls-Royce Solutions Augsburg GmbH;

- MTU Onsite Energy Systems GmbH to Rolls-Royce Solutions Ruhstorf GmbH;

- MTU Asia Pte Ltd to Rolls-Royce Solutions Asia Pte Ltd; and

- MTU America Inc Rolls-Royce Solutions America Inc;

  • Change in Name of Ausy Engineering GmbH to Ylipson GmbH due to acquisition of AUSY Engineering GmbH by Ylipson;
  • Change in Name from 3SDL Ltd to Meta Mission Data Ltd. due to acquisition by Meta Mission Data; and
  • Change in Name from Andoya Space Center AS to Andoya Space AS due to corporate rebranding.

Each announcement includes a link to a notice detailing the change and its effects on pending and currently approved authorizations involving the listed entity.

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DDTC Proposed Changes To The ITAR’s Definition Of “Regular Employee”

May 27, 2021 – 86 Fed. Reg. 28503:  DDTC proposed to amend the definition of “regular employee” in Sec. 120.39 of the International Traffic in Arms Regulations (ITAR, 22 CFR Parts 120-130) to recognize and take account of the evolving workplace environment.  The proposed changes would replace the requirement that a “regular employee” must work at a company’s facilities with clear criteria intended to allow for remote work.  The proposal also offers clear criteria that will allow regulated entities to treat certain contractual staff as regular employees for the purposes of the ITAR, provided that the individual remains sufficiently under the employer’s control such that the Department can hold the regulated employer responsible for the individual’s actions.  A codification of the meaning of “long term contractual relationship” is also included.  Comments on this proposal will be accepted until July 26, 2021.

Editor’s Note: The proposed changes would significantly expand the company obligations when using contractual staff to treat the personnel as regular employee to include validating U.S. person status to ensure ITAR compliance instead of relying on certifications or representations made by the contractor.

LATEST SANCTIONS FINES & PENALTIES

 This section of our newsletter provides information on the latest sanctions, fines and penalties for export violations or matters of non-compliance with the ITAR or EAR issued by the US government enforcement agencies. It is provided as a service to exporters and associates of FD Associates to remind them of the importance of extreme due diligence in all international trade and export compliance matters, particularly those involving exports subject to the ITAR or the EAR. Don't let this happen to you or your company! Call us with questions or concerns at 703-847-5801 or email info@fdassociates.net.

 

Sanctions

Department of Commerce

May 5, 2021 – 86 Fed. Reg. 23920:  BIS denied the export privileges of Abel Hernandez, Jr. of Pharr, TX until Aug. 29, 2029, based on his conviction of violating 18 U.S.C. 554(a) (Smuggling goods from the United States) by fraudulently and knowingly exporting and sending. or attempting to export and send. from the U.S. to Mexico 2,080 rounds of 7.62X39mm caliber ammunition.  In the criminal case, Hernandez was sentenced to 27 months in prison and a special assessment of $100.

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May 5, 2021 – 86 Fed. Reg. 23921:  BIS denied the export privileges of Sergio Daniel Serrano-Lopez of Big Spring Correctional Institution, Big Spring, TX, until Aug. 30, 2029 based on his conviction of violating 18 USC 554(a) by fraudulently and knowingly exporting and sending, or attempting to export and send, ammunition and magazines from the U.S. to Mexico.  In the criminal case, Serrano-Lopez was sentenced to 40 months in prison and a special assessment of $100.

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May 5, 2021 – 86 Fed. Reg. 23922:  BIS denied the export privileges of Mehmet Hakan Atilla of Istanbul, Turkey until May 16, 2028 based on his conviction of violating the International Emergency Economic Powers Act (‘‘IEEPA,”, 50 U.S.C § 1701, et seq.) by knowingly and willfully conspiring with others known and unknown to provide financial services to Iran and to the Government of Iran without obtaining the required approval from the Office of Foreign Assets Control.  In the criminal case, Atilla was sentenced to 32 months in prison and a special assessment of $500.

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May 27, 2021 – 86 Fed. Reg. 28540:  BIS renewed for an additional 180 days the Temporary Denial Order (TDO) issued on Nov. 24, 2020 against the following persons:

  • Mahan Airways, Tehran, Iran;
  • Pejman Mahmood Kosarayanifard A/K/ A Kosarian Fard, Dubai, United Arab Emirates (UAE);
  • Mahmoud Amini, Dubai, UAE;
  • Kerman Aviation A/K/A Gie Kerman Aviation, Paris, France;
  • Sirjanco Trading LLC, Dubai, UAE;
  • Mahan Air General Trading LLC, Dubai, UAE;
  • Mehdi Bahrami, Istanbul, Turkey;
  • Al Naser Airlines A/K/A Al-Naser Airlines A/K/A Al Naser Wings Airline A/K/A Alnaser Airlines And Air Freight Ltd., Baghdad, Iraq, Dubai, UAE, and Amman, Jordan;
  • Ali Abdullah Alhay A/K/A Ali Alhay A/K/A Ali Abdullah Ahmed Alhay, Baghdad, Iraq, and Qatif, Saudi Arabia;
  • Bahar Safwa General Trading, Dubai, UAE;
  • Sky Blue Bird Group A/K/A Sky Blue Bird Aviation A/K/A Sky Blue Bird Ltd A/K/A Sky Blue Bird FZC Ras Al Khaimah Trade Zone, UAE; and
  • Issam Shammout A/K/A Muhammad Isam Muhammad Anwar Nur Shammout A/K/A Issam Anwar, Damascus, Syria, Beirut, Lebanon, London, United Kingdom, and Istanbul, Turkey.

Fines and Penalties

April 30, 2021:  MDA Precisions LLC of Gilroy, CA agreed to pay $60,000 (of which $25,000 is payable within 30 days and the remaining $35,000 will be suspended for two years and thereafter waived if MDA has not committed any further violations) and complete an export compliance training course within one year to resolve charges by BIS that it had violated EAR Sec. 764.2(e) by exporting a five-axis drilling machine that was controlled under the EAR for nuclear nonproliferation and anti-terrorism reasons to the United Arab Emirates (UAE) without a license when it had reason to know that an export license was required.

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May 3, 2021: Honeywell International, Inc. of Charlotte, NC agreed to pay a civil penalty of $13 million (of which $5 million will be suspended if Honeywell uses the funds for specified compliance measures) and take specified compliance measures to settle 34 charges by DDTC of unauthorized exports and retransfers of technical data for parts and components controlled under USML Categories VIII(i), XI(d), and XIX(g)  to the People’s Republic of China (PRC) and unauthorized exports of technical data related to aircraft parts and components controlled under USML Categories VIII(i) and XIX(g) to Taiwan, Canada, Ireland, and Mexico.  The unauthorized transactions primarily involved exports to affiliated and unaffiliated foreign suppliers of engineering prints – some of which contained technical data designated as Significant Military Equipment (SME) -- showing layouts, dimensions, and geometries for manufacturing castings and finished parts for multiple aircraft, military electronics, and gas turbine engines.

The compliance measures in the settlement – all specified in detail -- require Honeywell to appoint an external Special Compliance Officer for at least 18 months, conduct an external audit of its compliance program, implement additional compliance measures, and facilitate on-site reviews by DDTC with minimum advance notice.  The State Department determined not to administratively debar Honeywell because Honeywell voluntarily disclosed the alleged violations, acknowledged their serious nature, cooperated with the Department’s review, and instituted a number of compliance program improvements during the course of the review.

The State Department noted that the settlement demonstrated its role in strengthening U.S. industry by protecting U.S.-origin defense articles, including technical data, from unauthorized exports and that it highlighted the importance of obtaining appropriate authorization for exporting controlled articles.

See our article for more details.

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May 3, 2021:  Kleiss & Co. BV of Zwijndrecht, The Netherlands, agreed to pay a civil penalty of $60,000 and have its export privileges denied for two years (suspended for two years and thereafter waived if it pays the $60,000 and has not committed any further violations) to settle charges by BIS that it had twice violated EAR Sec. 764.2(e) (Acting with Knowledge of a Violation) by ordering, buying, and concealing details of a shipment of EAR99 U.S.-origin extruded butyl sealants to Iran in violation of the Iranian Transactions and Sanctions Regulations (ITSR, 31 CFR Part 560).  After a U.S. freight forwarder stopped an initial shipment of the sealants by Kleiss to a customer in Iran and returned it to Kleiss because of the U.S. sanctions, Kleiss on subsequent occasions in September 2016 and March 2017 ordered the sealants from its U.S. supplier, but provided a new addressee in Dubai, UAE and removed all references to Iran from the invoices and packing list.  The 2017 attempted export was discovered and stopped by BIS.

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May 17, 2021:  TeleDynamics LLC of Austin, TX agreed to pay a civil penalty of $55,000 to settle 10 charges by BIS of violating EAR Sec. 764.2(b) (Causing, Aiding, or Abetting a Violation) by forwarding rifle scopes classified under Export Control Classification Number (ECCN) 0A987, valued at $1,047, for export from the U.S. to Russia and Ukraine without the required authorization.  TeleDynamics had previously been notified by U.S. Customs and Border Protection (CBP) that rifle scopes forwarded by TeleDynamics had been detained because they lacked the required export licenses.

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May 18, 2021:  Aerojet Rocketdyne Inc., a rocket and missile propulsion manufacturer, agreed to pay a civil penalty of $37,008 and take actions including training its employees who conduct hiring in its Jupiter, FL location to resolve a charge by the U.S. Department of Justice (DOJ) that it violated the anti-discrimination provision of the Immigration and Nationality Act (INA) by not allowing non-U.S. citizens to apply for 12 mechanic positions, based on their citizenship status.  The DOJ investigation found that the violation resulted from a misunderstanding by Rocketdyne of its obligations under federal regulations, including the ITAR, in mistakenly believing that they imposed restrictions on the company’s ability to hire non-U.S. citizens, which the DOJ announcement said they do not.  The announcement also noted, however, that while the INA protects U.S. citizens, non-citizen nationals, refugees, asylees, and recent lawful permanent residents from hiring discrimination based on citizenship status, it also includes an exception if an employer or recruiter is required to limit jobs due to a law, regulation, executive order, or government contract.

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May 21, 2021:  Tsvetan Kanev of Sofia, Bulgaria, was sentenced in federal court in Denver, CO to 24 months in prison based on his March 2021 plea of guilty of violating the IEEPA by seeking to export export-controlled electronic equipment that is commonly used in satellites from the U.S. to the Russian military and space program without the required export license.  Kanev told the U.S. manufacturer that the circuits were sought by the Bulgarian Academy of Science, but the manufacturer was suspicious of this claim and referred the matter to the U.S. Department of Homeland Security, Homeland Security Investigations (HSI) Counter-Proliferation Investigations Center (CPIC).  Undercover HSI agents then engaged with Kanev, offered to sell the controlled parts, and learned that Kanev intended to transship the parts from Bulgaria to Finland, and then to reexport them to Russia in a suitcase, which would avoid documenting the ultimate destination.  Kanev ultimately confirmed to the HIS agents that the end-users were the Russian military and space program and that he was aware that the transactions were illegal.  In transactions in October 2015 and December 2015 Kanev transferred $357,261 to the agents to purchase the items that he planned to export, including clock driver and random-access memory programmable multi-chip modules and a multiple analog-to-digital converter designed for aerospace applications that are controlled for national security reasons.  (The money was subsequently seized and forfeited to the U.S.)  Kanev was arrested in Germany in January 2020 and then extradited to Colorado.

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May 26, 2021:  GVA International Oil and Gas Services, an Italian company, pled guilty in U.S. District Court in Savannah, GA to violating the Export Control Reform Act (ECRA, 50 USC Chapter 58) in a conspiracy to purchase a power turbine from a U.S.-based manufacturer for use by a Russian government-controlled business on a Russian Arctic deepwater drilling platform without first obtaining the export license required by U.S. law.  The conspiracy, which included concealing the true end user from the U.S. manufacturer and the U.S. Government by submitting false documentation stating that the turbine would be used by a U.S. company in and around Atlanta, began when a Russian government-controlled business contracted with Oleg Vladislavovich Nikitin, general director of KS Engineering (KSE), a Russia-based energy company, to purchase the turbine.  Nikitin then conspired with GVA, GVA’s owner, Gabrielle Villone, and another GVA employee to obtain the turbine.  Nikitin and Villone were arrested in Savannah, GA while attempting to complete the illegal transaction.   Villone is currently serving a 28-month prison sentence after pleading guilty to conspiracy in the case in 2020 (see June 2020 Regulatory Update); Nikitin and KSE pled guilty to conspiracy to evade U.S. export regulations and to defraud the U.S. on March 30, 2021, and await sentencing (see March 2021 Regulatory Update).

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May 28, 2021:   Lionel Chan of Brighton, MA and Muhammad Mohd Radzi of Brooklyn, NY, both Malaysian nationals, were sentenced in federal court in Boston, MA for conspiring to violate the AECA by exporting firearm parts from the U.S. to Hong Kong without the required export licenses, based on guilty pleas they had made Jan. 22, 2021 (see January 2021 Regulatory Update).  Both men purchased export-controlled U.S.-origin firearm parts, including parts used to assemble AR-15 assault rifles and 9MM semi-automatic handguns, for a buyer located in Hong Kong and then sent them to Hong Kong via Federal Express, concealing the contents of the shipments by providing Federal Express with false information about the shipments and concealing the parts inside each package.  The violations were discovered when Hong Kong authorities intercepted two of these packages and found that they contained numerous export-controlled firearms parts.  Chan, who shipped at least 12 of these packages, was sentenced to 8 months in prison, three years of supervised release, and a fine of $10,000.  Radzi, who shipped 21 packages, was sentenced to five years of probation with the condition that he leave the United States on or before June 15, 2021 and not return for five years or without a valid visa, and a fine of $10,000.

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