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
- 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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