LATEST EXPORT CONTROLS AND COMPLIANCE UPDATE
This newsletter is a listing of the latest changes in export control regulations through July 31, 2022. 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 email@example.com 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.
President Biden To Sign Directives Regarding Investment In Hypersonic Weapon Industrial Base
July 12, 2022: President Joe Biden is poised to sign two directives that would allow the U.S. Department of Defense to invest in its hypersonic weapons industrial base as adversaries demonstrate advanced capabilities. China and Russia’s recent progress in developing hypersonic weapons, which are unique in their ability to maneuver at speeds higher than Mach 5, has the Pentagon addressing potential supply chain disruption in key technology areas. Michael White, principal director for hypersonics in the Office of the Undersecretary of Defense for Research and Engineering, said the presidential directives “about to be signed” would enable the Pentagon to invest Defense Production Act Title III funds to bolster hypersonic engine and guidance and control subsystem suppliers. Speaking during a virtual 12 Executive Mosaic forum on July 12, White said there are a number of different industrial base investment mechanisms being leveraged and enhanced for hypersonic activities. The DODs five-year spending plan for hypersonic programs is just under $25 billion for efforts ranging from early research to prototyping to fielding.
https://www.defensenews.com/2022/07/12/biden-to-sign-two-defense-production-act-directives-targeting-hypersonic-industrial-base/ and https://blog.executivebiz.com/government-contracting-event/event/ebiz-hypersonics-forum/
Department of State, Directorate of Defense Trade Controls (DDTC)
DDTC Name And Address Changes Posted To Website
July 8 through 12, 2022: The Directorate of Defense Trade Controls (DDTC) posted the following name and/or address changes on its website at
- Change in Address for BAE Systems Australia Limited from Taranaki Road, Edinburgh Parks, Edinburgh SA 5111, Australia to Level 2, 80 Flinders Street, Adelaide SA 5000, Australia;
- Change in Name from EDO MBM Technology Limited to L3Harris Release & Integrated Solutions Ltd. due to corporate rebranding; and
- Change in Name from RUAG Australia Pty Ltd to Rosebank Engineering Pty Ltd due to corporate rebranding.
The U.S. Department Of State Issued Two Temporary Open General Licenses
July 19, 2022: In an exciting development, DDTC has announced on July 19, 2022, the implementation of pilot program that will provide foreign companies in the United Kingdom, Australia and Canada relief from obtaining Retransfer and Reexport authorizations for the transfer of defense articles in their possession by issuing two Temporary Open General Licenses (“OGEL”) pursuant to the International Traffic in Arms Regulations (“ITAR”) and ITAR § 126.9(b). The OGELS will authorize the retransfer and reexport of previously authorized and exported defense articles and technical data to and within Australia, Canada and the UK. The Temporary OGELs go into effect on August 1, 2022 and expire one year later on July 31, 2023. DDTC is issuing these OGELs as part of a pilot program to assess the viability and appropriateness of the open general license concept.
OGEL 1 and OGEL 2 relate to ITAR-controlled defense articles and technical that were previously authorized for export from the U.S. pursuant to a valid license, agreement or other authorization and cannot be used as authorization for any exports from the U.S.
The U.S. Department Of State Will Accept Digital Signatures On TAAs, MLAs and WDAs
July 19, 2022: Based on a query from FD Associates, Inc., the U.S. Department of State, Office of Defense Trade Controls confirmed that signatories to a TAA, MLA, or WDA may use a digital signature, such as those provided by a third-party vendor (i.e., IdenTrust) who validates the identity of the individual to sign such documents.
U.S. Department of Defense
The U.S. Department Of Defense Held An Industry Engagement Day Event For The Rapid Defense Experimentation Reserve
July 14, 2022: The U.S. Department of Defense (DoD) held an Industry Engagement Day event for the Rapid Defense Experimentation Reserve (RDER) at Johns Hopkins Applied Physics Laboratory (JHU-APL) on July 26, 2022. RDER is an initiative to encourage prototyping and experimentation in pursuit of solutions to Joint problems. Components will propose experiments to be conducted in near-term Joint
exercises and compete for RDER funding. The Secretary will select among proposed experiments based on alignment to the Joint Warfighting Concept and the potential to yield demonstrable warfighting utility. The Industry Engagement Day was an opportunity for the industry to learn about the RDER effort’s vision, proposal cycle, technical priorities, capability challenges, and opportunities that require private-sector support. RDER will spearhead efforts to develop capabilities that support the joint warfighter, including, but not limited to, fires, command and control, logistics, and capabilities that will drive information advantage. These efforts will culminate with multi-competent experiments that combine multiple prototypes and capabilities to expeditiously explore new concepts and create new capabilities.
U.S. Census Bureau
The U.S. Census Bureau Posted Guidance On Response Code 66Q Being Upgraded From A Compliance Alert To A Fatal Error
July 7, 2022: Effective July 13, 2022, Response Code 66Q will be upgraded from “Compliance Alert” to “Fatal” in the Automated Export System (AES). The Response Message 66Q was initially deployed on January 13, 2022 for exports filed under the license type “C33: No License Required (NLR)”. When a filer selects License Type C33, they are subject to the terms, provisions, and conditions described in the Export Administration Regulations (EAR) in 15 CFR Parts 730-774.
Under the EAR, an item may require a BIS export license or license exception and may not be exported under the License Type C33 NLR depending on the reason for control of the ECCN and Country of Destination. If a filer attempts to file Electronic Export Information (EEI) with an ECCN(s) and Country of Destination combination that is prohibited from being shipped under NLR, pursuant to the EAR, they will now receive the following AES generated Response Message:
Response Code: 66Q
Narrative Text: ECCN & CTRY OF DEST NOT ALLOWED FOR C33 (NLR)
How to Address this Response Code:
Please review the accuracy of the reported ECCN, Country of Destination, and License Type (15 CFR Parts 730-774). If inaccurate, please correct the appropriate fields and resubmit. If all three fields are reported correctly, and this response code is still occurring, please email BIS at ECDOEXS@bis.doc.gov and inquire about the ECCN and additional licensing authorization that may be required.
Editors Note: This AES response has been implemented with exports to China and Russia in mind.
New Harmonized Tariff Schedule (HTS), and HTS Codes Updated On July 1, 2022
July 11, 2022: The Harmonized Tariff Schedule (HTS) and HTS Codes that are not valid for AES tables have been updated to accept the changes made on July 1, 2022. AES will accept shipments with outdated codes during a grace period of 30 days beyond the expiration date of June 30th, 2022. Reporting an outdated code after the 30-day grace period will result in a fatal error. The ACE AESDirect program has been updated with the 2022 codes and will accept shipments with outdated codes during the grace period as well.
The 2022 Schedule B and HTS tables are available for downloading at:
The current list of HTS codes that are not valid for AES are available at:
Editors Note: All company shipping departments should audit and validate the Schedule B and HTS codes they are using for exports and imports.
The U.S. Census Bureau Issued Tips On How To Resolve AES Response Messages
July 18, 2022: The U.S. Census Bureau issued tips on how to resolve AES Response Messages. When a shipment is filed in AES, a system response message is generated and indicates whether the shipment has been accepted or rejected. If the shipment is accepted, the AES filer receives an Internal Transaction Number (ITN) as confirmation. Though the shipment is accepted, the filer may still receive a Verify Message, Compliance Alert, Informational Message, or Warning Message along with their ITN. However, if the shipment is rejected, a Fatal Error notification is received and must be corrected to receive a valid ITN.
To help exporters take the appropriate action for the different AES Response Messages, here are some tips on how to address the most frequent messages that were generated in AES for this month.
Fatal Error Response Code: 523
Narrative: Schedule B/HTS Number Not Allowed for HH Goods
Reason: When the Export Information Code is reported as HH for household goods, a Schedule B/HTS Number is not allowed.
Resolution: The Schedule B/HTS Number is not allowed to be reported when the Export Information Code is HH for household goods.
Verify the Export Information Code and Schedule B/HTS Number combination, correct the shipment and resubmit.
Response Code: 105
Narrative: Mode of Transportation Unknown
Reason: The Mode of Transportation Code reported is not valid in AES.
Resolution: The Mode of Transportation Code reported must be one recognized in AES and listed in the ‘Appendix T, Mode of Transportation Codes’.
Verify the Mode of Transportation Code, correct the shipment and resubmit.
It is important that AES filers correct Fatal Errors as soon as they are received in order to comply with the Foreign Trade Regulations. These errors must be corrected prior to export for shipments filed pre-departure and as soon as possible for shipments filed post departure but not later than five calendar days after departure.
U.S. Department of the Treasury, Office of Foreign Assets Control (OFAC)
OFAC Advised Holders Of Blocked Property To Provide OFAC With A List Of Blocked Property Held By September 30th
July 1, 2022: Pursuant to 31 C.F.R. § 501.603 the Office of Foreign Assets Control (OFAC) advises the Reporting, Procedures and Penalties Regulations (RPPR) requires holders of blocked property to provide the OFAC with a comprehensive list of all blocked property held as of June 30 of the current year by September 30. Persons that do not hold blocked property as of June 30 do not need to file an Annual Report of Blocked Property (ARBP). Please note that the term blocked property only applies to property that is blocked pursuant to OFAC regulations. Property that was unblocked by an OFAC general or specific license or was previously blocked pursuant to a sanctions program that was terminated on or before June 30, 2022, is not considered blocked property and should not be reported in the ARBP. Similarly, a restricted account of a person ordinarily resident in Iran is not blocked and should not be reported to OFAC in the ARBP unless there is an interest in the account of a person whose property and interests in property are blocked pursuant to an applicable sanctions authority.
The U.S. Department Of Treasury Published The Current List Of Countries Which Require Or May Require Participation In, Or Cooperation With, An International Boycott
July 7, 2022: 87 Fed. Reg. 39931: In accordance with section 999(a)(3) of the Internal Revenue Code of 1986, the Department of the Treasury published the current list of countries that require or may require participation in, or cooperation with, an international boycott (within the meaning of section 999(b)(3) of the Internal Revenue Code of 1986). On the basis of the best information currently available to the Department of the Treasury, the following countries require or may require participation in, or cooperation with, an international boycott (within the meaning of section 999(b)(3) of the Internal Revenue Code of 1986):
- Saudi Arabia;
- Syria; and
Editors note: the list above does not reflect all boycotting countries. It is prudent for finance, contracts, and sales departments to be on the lookout for boycott requests.
|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 firstname.lastname@example.org.
The U.S. Department of State:
July 6, 2022: The Department of State is designating one Vietnam-based entity, Truong Phat Loc Shipping Trading JSC, for engaging in the shipment of petroleum products from Iran. Truong Phat Loc Shipping Trading JSC served as the commercial and technical manager for a vessel that transported Iranian petroleum products. The State Department is also designating one Singapore-based entity, Everwin Ship Management Pte. Ltd., which has engaged in the transport of Iranian petroleum products. Everwin Ship Management Pte. Ltd. served as the technical manager for a vessel that transported Iranian petroleum products. Additionally, the State Department is designating three Iran-based entities, Zagros Tarabaran-E Arya, Persian Gulf Star Oil Company, and East Ocean Rashin Shipping Co. Ltd., which have engaged in the sale and/or shipment of Iranian petroleum products. Zagros Tarabaran-E Arya is a shipper
of Iranian petroleum products, while Persian Gulf Star Oil Company is the largest producer of gas condensate in Iran, and as such, has directly engaged in the production of Iranian petroleum products. East Ocean Rashin Shipping Co. Ltd. is a port agent and freight forwarder of Iranian petroleum and petrochemical products. These actions are being taken pursuant to Executive Order 13846.
Department of Commerce, Bureau of Industry and Security (BIS)
July 8, 2022: The U.S. Department of Commerce, Bureau of Industry and Security (BIS) denied the export privileges of Amilkar Murillo of Mexico for ten (10) years. Mr. Murillo was convicted of knowingly and unlawfully concealing, buying, or facilitating the transportation and concealment of any merchandise, article, and object, prior to exportation, knowing the same to be intended for exportation from the United States, a Taurus 9mm handgun with two magazines, a Taurus 40 caliber handgun with two magazines, a Ruger 9mm handgun with two magazines, a Smith & Wesson 9mm handgun with two magazines, a Glock 380 handgun with two magazines, a Smith & Wesson 40 caliber handgun with two magazines, and a box of .380 ammunition (20 rounds), all in violation of 18 U.S.C. § 554.
July 8, 2022: The U.S. Department of Commerce, Bureau of Industry and Security (BIS) denied the export privileges of Jason Wayne Jarvis for five (5) years. Mr. Jarvis was convicted of attempting to sell and facilitate the transportation of firearms, silencers, a short-barreled rifle, and a destructive device prior to exportation, knowing them to be intended for exportation contrary to any law or regulation of the United States, all in violation of 18 U.S.C. § 554.
July 8, 2022: The U.S. Department of Commerce, Bureau of Industry and Security (BIS) denied the export privileges of Usama Darwich Hamade for ten (10) years. Mr. Hamade was convicted of conspiring to export parts and technology from the United States to Lebanon, and specifically to Hizballah, for among other purposes, inclusion in unmanned aerial vehicles, without obtaining the required export licenses under the Export Administration Regulations or under the International Traffic in Arms Regulations.
July 8, 2022: The U.S. Department of Commerce, Bureau of Industry and Security (BIS) denied the export privileges of Hassan Ali Moshir-Fatemi for ten (10) years. Mr. Moshir-Fatemi was convicted of knowingly and willfully conspiring and agreeing to export, reexport, and supply, and causing to be
exported, reexported, and supplied, directly and indirectly, goods and services from the United States to Iran; and engaging in transactions for the purpose of avoiding and evading the Iranian Transaction Sanctions Regulations, including financing and facilitating transactions by foreign persons where such transactions are prohibited by United States law, without having first obtained from the Department of the Treasury, Office of Foreign Assets Control, the required license or written authorization. As noted in his plea agreement, Mr. Moshir-Fatemi agreed to the imposition of a ten-year Denial Order in exchange for an agreement by BIS not to pursue administrative action against him.
July 18, 2022: The U.S. Department of Commerce, Bureau of Industry and Security (BIS) denied the export privileges of Ismael Gomez, Jr. for ten (10) years. The Office of Exporter Services has also decided to revoke any BIS-issued licenses in which Gomez had an interest at the time of his conviction. Mr. Gomez was convicted of fraudulently and knowingly exporting and sending or attempting to export and send from the United States to Mexico one thousand and ten (1,010) rounds of .223 caliber ammunition, in violation of 18 U.S.C. § 554.
July 18, 2022: The U.S. Department of Commerce, Bureau of Industry and Security (BIS) denied the export privileges of Scott Douglas Browning for seven (7) years. The Office of Exporter Services has also decided to revoke any BIS-issued licenses in which Mr. Browning had an interest at the time of his conviction. Mr. Browning was convicted of willfully exporting and causing to be exported from the United States to the Netherlands defense articles, specifically Image Intensifier Generation 3 MX-10130, Image Intensifier Generation 3 MX-10160, Image Intensifier Generation 3 MX-11769, and the BAE Systems OASYS SkeetIR Micro Thermal Imaging Monocular 640x480, which are all designated as defense articles on the United States Munitions List, without having first obtained from the Department of State a license for such export or written authorization for such export. Browning was also placed on the Department of State’s debarred list.
July 19, 2022: 87 Fed. Reg. 42997: The U.S. Department of Commerce, Bureau of Industry and Security (BIS) denied the export privileges of Joyce Marie Eliabachus (Eliabachus) for ten years based on her conviction of violating 18 U.S.C. 371. Specifically, Eliabachus was convicted of knowingly and intentionally conspiring and agreeing with others known and unknown to export, re-export, sell and supply and attempting to re-export, sell and supply aircraft components, directly or indirectly from the United States to Iran, including to Mahan Air, without first obtaining the authorization from the Office of Foreign Assets Control, in violation of 18 U.S.C. 371. The Office of Exporter Services has also decided to revoke any BIS-issued licenses in which Eliabachus had an interest at the time of her conviction.
Department of the Treasury, Office of Foreign Assets Control (OFAC)
July 6, 2022: The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned an international network of individuals and entities that has used a web of Gulf-based front companies to facilitate the delivery and sale of hundreds of millions of dollars worth of Iranian petroleum and petrochemical products from Iranian companies to East Asia. These actions are taken pursuant to Executive Order (E.O.) 13846 and follows OFAC’s June 16, 2022, designation of an international sanctions evasion network supporting Iranian petrochemical sales. Concurrently with OFAC’s designations, the Department of State imposed sanctions on five entities based in Iran, Vietnam, and Singapore and two vessels pursuant to E.O. 13846 in connection with significant transactions for the sale and transport of petroleum products from Iran, on or after November 5, 2018.
The following individuals have been added to OFAC's SDN List:
- Rajabieslami, Morteza of Iran, Saint Kitts and Nevis and the United Kingdom;
- Sanchuli, Mahdieh of Iran.
The following entities have been added to OFAC's SDN List:
- Ali Almutawa Petroleum And Petrochemical Trading L.L.C. of the United Arab Emirates;
- East Ocean Rashin Shipping Co of Iran;
- Edgar Commercial Solutions FZE of the United Arab Emirates;
- Emerald Global FZE of the United Arab Emirates;
- Everwin Shipmanagement PTE. LTD., of Singapore;
- Jam Petrochemical Company of Iran;
- Lustro Industry Limited of China;
- Oligei International Trading Co., Limited of China;
- Persian Gulf Star Oil Company of Iran;
- Petrogat FZE of the United Arab Emirates;
- Petrokick LLC of the United Arab Emirates;
- Truong Phat Loc Shipping Trading Joint Stock Company of Vietnam; and
- Zagros Tarabaran-E Arya of Iran.
The following vessels have been added to OFAC's SDN List:
- BS Bravo, Chemical/Oil Tanker Gabon flag (Truong Phat Loc Shipping Trading); Vessel Registration Identification IMO 9294795; and
- Summer 5, Chemical/Oil Tanker Panama flag; Vessel Registration Identification IMO 9204805.
https://home.treasury.gov/news/press-releases/jy0851 and https://home.treasury.gov/policy-issues/financial-sanctions/recent-actions/20220706
July 7, 2022: The Department of the Treasury's Office of Foreign Assets Control (OFAC) is issuing Venezuela-Related General License 40A, "Authorizing Certain Transactions Involving the Exportation or Reexportation of Liquefied Petroleum Gas to Venezuela."
Venezuela-Related General License 40A: All transactions and activities related to the exportation or reexportation, directly or indirectly, of liquefied petroleum gas to Venezuela, involving the Government of Venezuela, Petróleos de Venezuela, S.A. (PdVSA), or any entity in which PdVSA owns, directly or indirectly, a 50 percent or greater interest, that are prohibited by E.O. 13850 of November 1, 2018, as amended by E.O. 13857 of January 25, 2019, or E.O. 13884 of August 5, 2019, each as incorporated into the Venezuela Sanctions Regulations, 31 CFR part 591 (the VSR), are authorized through 12:01 a.m. eastern daylight time, July 12, 2023.
July 11, 2022: The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated an individual engaged in trafficking high-caliber firearms from the United States to one of Mexico’s most powerful drug organizations. OFAC designated Obed Christian Sepulveda Portillo (Obed Sepulveda) pursuant to Executive Order (E.O.) 14059 for acting for or on behalf of the Cartel de Jalisco Nueva Generacion (CJNG), a violent drug trafficking organization based in Mexico responsible for a significant proportion of fentanyl and other deadly drugs trafficked into the United States. Obed Sepulveda, a Mexican national, was designated for being directed by, or acting or purporting to act for or on behalf of, directly or indirectly, CJNG. Obed Sepulveda coordinates the daily procurement of firearms and bulk ammunition from the U.S. southwest border into Mexico through a network of individuals working directly with CJNG. Obed Sepulveda was added to OFAC’s Specially Designated Nationals List.
https://home.treasury.gov/news/press-releases/jy0855 and https://home.treasury.gov/policy-issues/financial-sanctions/recent-actions/20220711
July 14, 2022: The Department of the Treasury's Office of Foreign Assets Control (OFAC) is issuing Russia-related General License 6B, General License 25C, General License 30A, General License 44, and is publishing three amended Russia-related Frequently Asked Questions (FAQs). See the following link for a description of the amended FAQs:
OFAC is also publishing a Food Security Fact Sheet on "Russia Sanctions and Agricultural Trade." OFAC is issuing this Fact Sheet to further clarify that the United States has not imposed sanctions on the production, manufacturing, sale, or transport of agricultural commodities (including fertilizer), agricultural equipment, or medicine relating to the Russian Federation (Russia). In addition, OFAC has issued a broad general license (GL) to authorize certain transactions related to agricultural commodities, agricultural equipment, medicine, and medical devices, as described in more detail below. The United States strongly supports efforts by the United Nations to bring both Ukrainian and Russian grain to world markets and to reduce the impact of Russia’s unprovoked war on Ukraine on global food supplies and prices. The fact sheet can be found at the following link:
General License 6B: All transactions prohibited by the Russian Harmful Foreign Activities Sanctions Regulations, 31 CFR part 587, (RuHSR), related to (1) the production, manufacturing, sale, or transport of agricultural commodities, agricultural equipment, medicine, medical devices, replacement parts and components for medical devices, or software updates for medical devices; (2) the prevention, diagnosis, or treatment of COVID19 (including research or clinical studies relating to COVID-19); or (3) ongoing clinical trials and other medical research activities are authorized. (b) For the purposes of this general license, agricultural commodities, medicine, and medical devices are defined as follows:
(1) Agricultural commodities. For the purposes of this general license, agricultural commodities are products that fall within the term “agricultural commodity” as defined in section 102 of the Agricultural Trade Act of 1978 (7 U.S.C. 5602) and are intended for use as: (i) Food for humans (including raw, processed, and packaged foods; live animals; vitamins and minerals; food additives or supplements; and bottled drinking water) or animals (including animal feeds); (ii) Seeds for food crops; (iii) Fertilizers or organic fertilizers; or (iv) Reproductive materials (such as live animals, fertilized eggs, embryos, and semen) for the production of food animals;
(2) Medicine. For the purposes of this general license, medicine is an item that falls within the definition of the term “drug” in section 201 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 321); and
(3) Medical devices. For the purposes of this general license, a medical device is an item that falls within the definition of “device” in section 201 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 321).
General License 25C: All transactions ordinarily incident and necessary to the receipt or transmission of telecommunications involving the RuHSR are authorized. The exportation or reexportation, sale, or supply, directly or indirectly, from the United States or by U.S. persons, wherever located, to the Russian Federation of services, software, hardware, or technology incident to the exchange of communications over the internet, such as instant messaging, videoconferencing, chat and email, social networking, sharing of photos, movies, and documents, web browsing, blogging, web hosting, and domain name registration services, that is prohibited by the RuHSR, is authorized.
General License 30A: All transactions involving SEFE Securing Energy for Europe GmbH (formerly known as Gazprom Germania GmbH), or any entity in which SEFE Securing Energy for Europe GmbH owns, directly or indirectly, a 50 percent or greater interest that are prohibited by Directive 3 under Executive Order 14024, Prohibitions Related to New Debt and Equity of Certain Russia-related Entities, are authorized through 12:01 a.m. eastern standard time, December 16, 2022.
General License 44: All transactions ordinarily incident and necessary to the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of tax preparation or filing services to any individual who is a United States person located in the Russian Federation, which are prohibited by section 1(a)(ii) of Executive Order 14071, are authorized.
The following deletions have been made to OFAC's SDN List:
- Subsidiary Bank Alfa-Bank JSC of Russia; and
- JSC SB Alfa Bank of Russia.
Bottom of Form
July 21, 2022: The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has issued a Finding of Violation (FOV) to MidFirst Bank (MidFirst) for violations of the Weapons of Mass Destruction Proliferators Sanctions Regulations (WMDPSR). The violations related to MidFirst’s maintaining accounts for and processing of 34 payments on behalf of two individuals added to OFAC’s List of Specially Designated Nationals and Blocked Persons (the “SDN List”) for 14 days post-designation. The violations stemmed from MidFirst’s misunderstanding of the frequency of its vendor’s screening of new names added to the SDN List against its existing customer base. OFAC determined that the appropriate administrative action in this matter was a FOV in lieu of a civil monetary penalty. This FOV reaffirms that financial institutions should take a risk-based approach to sanctions compliance, including when implementing sanctions screening tools, and demonstrates the importance of ensuring the scope and capabilities of outsourced sanctions compliance services are consistent with the financial institution’s assessment of its exposure to sanctions risks.
July 22, 2022: The Department of the Treasury's Office of Foreign Assets Control (OFAC) issued Russia-related General License 45 and General License 46. OFAC is also publishing two new Frequently Asked Questions and two amended Frequently Asked Questions.
General License 45: All transactions prohibited by section (1)(a)(i) of Executive Order (E.O.) 14071 that are ordinarily incident and necessary to the wind down of financial contracts or other agreements that were entered into on or before June 6, 2022, and involve, or are linked to, debt or equity issued by an entity in the Russian Federation (“covered contracts”), are authorized through 12:01 a.m. eastern daylight time, October 20, 2022. The transactions authorized by this general license include:
(1) the purchase by U.S. persons of debt or equity issued by an entity in the Russian Federation where that purchase is ordinarily incident and necessary to the wind down of covered contracts; and
(2) the facilitating, clearing, and settling of purchase by U.S. persons of debt or equity issued by an entity in the Russian Federation, where that purchase is ordinarily incident and necessary to the wind-down of covered contracts.
This general license does not authorize any transactions otherwise prohibited by the Russian Harmful Foreign Activities Sanctions Regulations, 31 CFR part 587 (RuHSR), including transactions involving any person blocked pursuant to the RuHSR, unless separately authorized.
General License 46: All transactions related to the establishment, administration, participation in, and execution of an auction process as announced by the EMEA Credit Derivatives Determination Committee (“the auction”) to settle credit derivative transactions with a reference entity of “the Russian Federation” and prohibited by section 1(a)(i) of Executive Order (E.O.) 14071 is authorized. Except as provided above, the purchase or receipt of debt obligations of the Russian Federation by U.S. persons prohibited by section 1(a)(i) of E.O. 14071 is authorized for the period beginning two business days prior to the announced date of the auction and ending eight business days after the conclusion of the auction. All transactions ordinarily incident and necessary to facilitating, clearing, and settling transactions authorized above that are prohibited by section 1(a)(i) of E.O. 14071 are authorized. This general license does not authorize any transactions otherwise prohibited by the RuHSR, including transactions involving any person blocked pursuant to the RuHSR, unless separately authorized.
New Frequently Asked Questions:
Question 1072: What does Russia-related General License (GL) 46 authorize with respect to credit derivative transactions referencing “the Russian Federation”?
Answer: Russia-related GL 46 authorizes transactions otherwise prohibited by section (1)(a)(i) of Executive Order (E.O.) 14071 related to the establishment, administration, participation in, and execution of an auction process, as announced by the EMEA Credit Derivatives Determination Committee, to settle credit derivative transactions with a reference entity of “the Russian Federation” (“the auction”).
Examples of transactions that may be related to the auction include the submission and acceptance of bids and offers and physical settlement requests by auction participants and their customers, or the delivery and acceptance of the Russian Federation debt obligations and corresponding settlement amounts.
To promote the proper functioning of such an auction, GL 46 also authorizes U.S. persons to purchase or receive Russian Federation debt obligations for the period beginning two business days prior to the announced date of the auction and ending eight business days after the conclusion of the auction.
GL 46 also authorizes financial institutions, among others, to facilitate, clear, and settle transactions authorized by GL 46, including the transfer to, or purchase or receipt by U.S. persons of Russian Federation debt obligations. GL 46 does not require the clearance and settlement of such transactions to be completed within eight business days after the conclusion of the auction. For example, a purchase by a U.S. person of Russian Federation debt obligations made on the seventh business day after the conclusion of the auction does not have to be settled or cleared by the eighth business day. Accordingly, U.S. financial institutions may continue settling or clearing such transactions after the eighth business day following the conclusion of the auction.
Financial institutions processing transactions pursuant to GL 46 may reasonably rely upon the information available to them in the ordinary course of business for the purposes of assessing whether a transaction is authorized by GL 46, provided that the financial institution does not know or have reason to know that a transaction is not in compliance with GL 46.
Question 1071: Can I wind down financial contracts that may involve transactions prohibited pursuant to section (1)(a)(i) of Executive Order (E.O.) 14071 related to the purchase or receipt of debt or equity securities issued by an entity in the Russian Federation?
Answer: Through 12:01 a.m. eastern daylight time, October 20, 2022, Russia-related General License (GL) 45 authorizes all transactions prohibited by section (1)(a)(i) of E.O. 14071 that are ordinarily incident and necessary to the wind-down of financial contracts or other agreements that were entered into on or before June 6, 2022, and involve, or are linked to, debt or equity securities issued by an entity in the Russian Federation.
The authorized transactions include the purchase, or facilitating the purchase, by U.S. persons of debt or equity securities issued by an entity in the Russian Federation if that purchase is ordinarily incident and necessary to the wind-down of a financial contract or agreement entered into on or before June 6, 2022. For example, U.S. persons may purchase securities issued by an entity in the Russian Federation in order to cover or close out a short position, per a securities lending agreement, if such agreement was entered into on or before June 6, 2022. Please see FAQ 1054 for additional information on the scope of the prohibition in section 1(a)(i) of E.O. 14071, including permissible transactions related to the divestment or transfer of debt or equity securities to a non-U.S. person.
Note that Russia-related GL 46 separately authorizes transactions related to the settlement of credit derivative transactions referencing “the Russian Federation” via an auction process. For further information, please see FAQ 1072. GL 45 does not authorize any transactions involving blocked persons unless separately authorized.
See the following link for the amended FAQs:
July 29, 2022: The Department of the Treasury's Office of Foreign Assets Control (OFAC) added the following individuals its Specially Designated Nationals (SDN) list:
- Burlinova, Natalya Valeryevna of Russia; and
- Ionov, Aleksandr Viktorovich of Russia.
The following entities have been added to OFAC's SDN List:
- Anti-Globalization Movement Of Russia;
- Center For Support And Development Of Public Initiative Creative Diplomacy of Russia;
- Ionov Transkontinental, OOO of Russia; and
- Stop-Imperialism Global Information Agency of Russia.
Fines and Penalties
July 1, 2022: Kristopher Sean Matthews, aka Ali Jibreel, 36, of South Carolina, was sentenced to 20 years in prison, and Jaylyn Christopher Molina, aka Abdur Rahim, 24, of Cost, Texas, was sentenced to 18 years in prison for conspiring to provide material support to the designated foreign terrorist organization the Islamic State of Iraq and al-Sham/Syria (ISIS). According to court documents, since May 2019, Matthews conspired with Molina to provide services to ISIS by administering an encrypted, members-only chat group for persons who supported ISIS ideology; by collecting, generating, and disseminating pro-ISIS propaganda; and by disseminating firearms training materials and bomb-making instructions to each other and to other members of the chat group and others.
July 8, 2022: Aerojet Rocketdyne Inc., headquartered in El Segundo, California, has agreed to pay $9 million to resolve allegations that it violated the False Claims Act by misrepresenting its compliance with cybersecurity requirements in certain federal government contracts, the Justice Department announced. Aerojet provides propulsion and power systems for launch vehicles, missiles and satellites, and other space vehicles to the Department of Defense, NASA, and other federal agencies. The settlement resolves a lawsuit filed and litigated by former Aerojet employee Brian Markus against Aerojet under the qui tam or whistleblower provisions of the False Claims Act, which permit a private party (known as a relator) to file a lawsuit on behalf of the United States and receive a portion of any recovery. Mr. Markus and Aerojet reached a settlement of the case on the second day of trial. Mr. Markus will receive $2.61 million as his share of the False Claims Act recovery.
July 8, 2022: The United States Court of Appeals for the District of Columbia upheld a lower court’s ruling dismissing a complaint from Federal Express Corporation (FedEx) and holding it liable for violating the Export Control Reform Act of 2018 (ECRA) even though the common carrier had been completely unaware of its violation. On appeal, FedEx unsuccessfully argued the Department of Commerce’s strict liability interpretation of 15 C.F.R. § 764.2(b) is ultra vires – a clear overstep of statutory authority. The Appeals Court strongly held that Commerce’s strict liability regime was permissible pursuant to the statutory text, circuit precedent, and judicial deference to the executive branch on national security and foreign policy matters.
https://www.jdsupra.com/legalnews/fedex-held-liable-for-act-done-3316874/ and https://www.cadc.uscourts.gov/internet/opinions.nsf/D120DC56392651728525887900595C97/$file/20-5337-1954068.pdf
July 11, 2022: Intertech Trading Corporation, an Atkinson, New Hampshire-based laboratory equipment distributor, plead guilty in federal court to 14 felony counts of failure to file export information on shipments to Russia and Ukraine. According to court documents and statements made in court, between 2015 and 2019, Intertech exported laboratory equipment to Russia, Ukraine, and elsewhere, falsely describing the nature and value of the exported items on the commercial invoices and shipping forms. In its plea agreement, Intertech admitted that it used false, innocuous descriptions such as “lamp for aquarium” or “spares for welding system,” rather than accurately identifying the sophisticated scientific equipment actually contained in the shipments. Intertech admitted that it drastically undervalued the shipments, thereby evading the requirement to file Electronic Export Information, which would have been reported to the
Departments of Commerce and Homeland Security. Intertech is scheduled to be sentenced on October 17, 2022.
July 14, 2022: John “Mark” Leveritt, 62, a Texas military contractor, pleaded guilty to rigging bids on government contracts from at least May 2013 through April 2018. According to court documents, Leveritt conspired with others to rig bids on certain government contracts in order to give the false impression of competition and to secure government payments in excess of $17.5 million. The plea agreement detailed seven contracting bids that Leveritt and his co-conspirator rigged, which included work performed for the Red River Army Depot in Texarkana and the U.S. Contracting Command in Warren, Michigan. Leveritt also admitted to falsely representing himself to be an employee of one business so that he could obtain government contracts that were set aside for qualifying businesses that were required to be owned and operated by certain categories of minority, disadvantaged or disabled persons. In fact, the work for some of the contracts was performed by businesses that had not placed any bids. Leveritt also admitted to providing a government employee with: tickets to a 2011 World Series game; tickets to two college football games; two expense-paid family vacations to Las Vegas; donations to youth sports teams coached by the government employee; and approximately 100 meals at restaurants.
July 15, 2022: American Express National Bank (Amex), a subsidiary of American Express Company, which provides charge and credit card products and travel-related services to consumers and businesses, has agreed to a settlement with the Department of the Treasury's Office of Foreign Assets Control (OFAC) and agreed to remit $430,500 to settle its potential civil liability for 214 apparent violations of OFAC’s Kingpin sanctions. Over the course of two months, Amex processed transactions for an account whose supplemental card holder was designated in connection with illegal drug distribution and money laundering. A combination of human error and sanctions compliance program deficiencies enabled the account to engage in $155,189.42 worth of transactions. The settlement amount reflects OFAC’s determination that the apparent violations were not voluntarily self-disclosed and were non-egregious.
July 26, 2022: Federal law enforcement officials announced that three indictments were unsealed in federal court, detailing charges against three men, two formerly of Northeast Ohio, who are believed to be currently residing in Lebanon. Named in the indictments are George Nakhle Ajaltouni, 47, formerly of North Olmsted; Jean Youssef Issa, 48, of Batroun, Lebanon; and Nakhle “Mike” Nader, 51, formerly of Cleveland. Ajaltouni and Issa are charged for their roles in a scheme to smuggle and illegally ship firearms from Cleveland to Lebanon. Nader is charged in a separate indictment with income tax evasion.
Jean Youssef Issa was recently arrested pursuant to a Red Notice issued by Interpol. The three indictments describe separate schemes, one involving Ajaltouni and Issa; one involving Ajaltouni alone; and the other solely concerning Nader. While the schemes are separate, it is believed that Ajaltouni and Nader are acquaintances and that the two men are currently residing near Batroun, Lebanon. The indictments were originally filed between 2016 - 2019, and efforts to apprehend Ajaltouni and Nader remain ongoing.