The Daily Bugle Weekly Highlights: Week 30 (22 – 26 July 2019)

Every Monday we post the highlights out of last week’s FCC Export/Import Daily Update (“The Daily Bugle”). Send out every business day to approximately 6,500 readers of changes to defense and high-tech trade laws and regulations, The Daily Bugle is a free daily newsletter from Full Circle Compliance, edited by James E. Bartlett III, Sven Goor, and Alex Witt.

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Last week’s highlights of The Daily Bugle included in this edition are:

  1. Treasury/OFAC Amends Global Terrorism Sanctions Regulations, Transnational Criminal Organizations Sanctions Regulations,and Hizballah Financial Sanctions Regulations; The Daily Bugle; Tuesday 23 July 2019, Item #2;
  2. Justice: “Four Chinese Nationals and Chinese Company Indicted for Conspiracy to Defraud the United States and Evade Sanctions”; The Daily Bugle; Tuesday 23 July 2019, Item #5;
  3. UK Amends the Export Control Order 2008, Adds New Dual-Use Control in Respect of Submersible Vehicles and Equipment Destined for Russia; The Daily Bugle; Wednesday 24 July 2019, Item #7;
  4. UK OFSI Updates Guidance Documents on Guinea Sanctions, Burundi Sanctions, and Sanctions in the Case of No-Deal Brexit; The Daily Bugle; Wednesday 24 July 2019, Item #8;
  5. State Updates Cuba Restricted List; The Daily Bugle; Friday, 26 July 2019, Item #2;

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1. Treasury/OFAC Amends Global Terrorism Sanctions Regulations, Transnational Criminal Organizations Sanctions Regulations, and Hizballah Financial Sanctions Regulations

(Source: Federal Register, 23 July 2019.) [Excerpts.]

84 FR 35307: Global Terrorism Sanctions Regulations; Transnational Criminal Organizations Sanctions Regulations; and Hizballah Financial Sanctions Regulations

* AGENCY: Office of Foreign Assets Control, Treasury.

* ACTION: Final rule.

* SUMMARY: The Department of the Treasury’s Office of Foreign Assets Control (OFAC) is amending the Global Terrorism Sanctions Regulations (GTSR), and the Transnational Criminal Organizations Sanctions Regulations (TCOSR), to implement and reference the Hizballah International Financing Prevention Amendments Act of 2018 (HIFPAA). OFAC is also amending the GTSR to implement and reference the Sanctioning the Use of Civilians as Defenseless Shields Act of 2018 (Shields Act). OFAC is further amending the TCOSR to implement Executive Order 13863 of March 15, 2019 (‘‘Taking Additional Steps to Address the National Emergency with respect to Significant Transnational Criminal Organizations’’). Finally, OFAC is amending the Hizballah Financial Sanctions Regulations (HFSR), to make certain technical and conforming changes and to update certain provisions.

* DATES:Effective: July 23, 2019.

* FOR FURTHER INFORMATION CONTACT: OFAC: Assistant Director for Licensing, 202–622–2480; Assistant Director for Regulatory Affairs, 202–622–4855; or Assistant Director for Sanctions Compliance & Evaluation, 202–622– 2490.

*SUPPLEMENTARY INFORMATION: …

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2. Justice: “Four Chinese Nationals and Chinese Company Indicted for Conspiracy to Defraud the United States and Evade Sanctions”

(Source: Justice, 23 July 2019.)

A federal grand jury has charged four Chinese nationals and a Chinese company with violating the International Emergency Economic Powers Act (IEEPA), conspiracy to violate IEEPA and defraud the United States; conspiracy to violate, evade and avoid restrictions imposed under the Weapons of Mass Destruction Proliferators Sanctions Regulations (WMDPSR); and conspiracy to launder monetary instruments.

The announcement was made by Assistant Attorney General for National Security John C. Demers, Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, and U.S. Attorney Craig Carpenito for the District of New Jersey.

The indictment returned yesterday by a federal grand jury in Newark, New Jersey charges Ma Xiaohong (Ma); her company, Dandong Hongxiang Industrial Development Co. Ltd. (DHID); and three of DHID’s top executives – general manager Zhou Jianshu (Zhou), deputy general manager Hong Jinhua (Hong) and financial manager Luo Chuanxu (Luo) – with violating IEEPA, conspiracy to violate IEEPA and to defraud the United States and conspiracy to launder monetary instruments.

“Through the use of more than 20 front companies, the defendants are alleged to have sought to obscure illicit financial dealings on behalf of sanctioned North Korean entities that were involved in the proliferation of weapons of mass destruction,” said Assistant Attorney General John Demers.  “But through the tireless efforts of federal law enforcement, we were able to shine a light on their lawless conduct and take the first step in bringing them to justice.”

“Any Chinese company conspiring to do business with sanctioned WMD proliferators through the U.S. banking system should think twice,” said Assistant Attorney General Benczkowski. “This indictment shows the Department’s resolve to use every tool of criminal prosecution to detect illicit financial transactions and enforce U.S. sanctions.”

“Ma, her company, and her employees tried to defraud the United States by evading sanctions restrictions and doing business with proliferators of weapons of mass destruction,” said U.S. Attorney Carpenito.  “We will continue to work closely with our partners in the National Security and Criminal Divisions in order to identify and prosecute defendants like these, in order to preserve a safer and more fair environment for all.”

According to the indictment, DHID was a Chinese company whose core business was trade with North Korea.  DHID allegedly openly worked with North Korea-based Korea Kwangson Banking Corporation (KKBC) prior to Aug. 11, 2009, when the Office of Foreign Assets Control (OFAC) designated KKBC as a Specially Designated National (SDN) for providing U.S. dollar financial services for two other North Korean entities, Tanchon Commercial Bank (Tanchon) and Korea Hyoksin Trading Corporation (Hyoksin).  President Bush identified Tanchon as a weapons of mass destruction proliferator in June 2005, and OFAC designated Hyoksin as an SDN under the WMDPSR in July 2009.  Tanchon and Hyoksin were identified and designated because of their ties to Korea Mining Development Trading Company (KOMID), which OFAC has described as North Korea’s premier arms dealer and main exporter of goods and equipment related to ballistic missiles and conventional weapons.

Beginning after the designation of KKBC as an SDN in August 2009, Ma allegedly conspired with Zhou, Hong and Luo to create or acquire numerous front companies to conduct U.S. dollar transactions designed to evade U.S. sanctions. The indictment alleges that from December 2009 to September 2015, the defendants established front companies in offshore jurisdictions such as the British Virgin Islands, the Seychelles, Hong Kong, Wales, England, and Anguilla, and opened Chinese bank accounts held in the names of the front companies at banks in China that maintained correspondent accounts in the United States.  The defendants used these accounts to conduct U.S. dollar financial transactions through the U.S. banking system when completing sales to North Korea. These sales transactions were allegedly financed or guaranteed by KKBC.  These front companies facilitated the financial transactions to hide KKBC’s presence from correspondent banks in the United States, including a bank processing center in Newark, New Jersey, according to the allegations in the indictment.  As a result of the defendants’ alleged scheme, KKBC was able to cause financial transactions in U.S. dollars to transit through the U.S. correspondent banks without being detected by the banks and, thus, were not blocked under the WMDPSR program.

Ma, Zhou, Hong and Luo face a statutory maximum sentence of 20 years in prison and a $1 million fine on the charge of violating IEEPA, a maximum of five years in prison and a $250,000 fine on conspiracy to violate IEEPA and to defraud the United States, and a maximum of 20 years in prison and a $500,000 fine on the charge of conspiracy to launder monetary instruments.  The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendants will be determined by a judge. …

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3. UK Amends the Export Control Order 2008, Adds New Dual-Use Control in Respect of Submersible Vehicles and Equipment Destined for Russia

(Source: UK GOV, 22 Jul 2019.) [Summary written by Ray Todd on raytodd.blog.]

The Export Control (Amendment) (No. 2) Order 2019 (SI 2019/1159) amends the principle instrument of UK export control, the Export Control Order 2008, to insert a new dual-use control in respect of submersible vehicles prohibiting the export and transfer of such goods and software or technology for the development, production or use of such goods where they are destined for Russia.  This is national control measure, said to be a direct consequence of Russia’s development of unconventional warfare equipment and capabilities.  Russia has been active in tracking undersea communication cables, which carry the bulk of the world’s telecommunications data, and this activity could pose a potential threat to UK national security and prosperity given its dependence on this infrastructure.  A new entry on the control lists includes the equipment that would help Russia develop, operate and maintain its capability, thereby posing a risk to national security, in particular subsea communication cables. This new control means all exports of this equipment to Russia are prohibited unless a licence is granted. It therefore allows the UK to control the export and transfer of such goods, software and technology where it is for the development, production or use of such goods, where they are destined for Russia.

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4. UK OFSI Updates Guidance Documents on Guinea Sanctions, Burundi Sanctions, and Sanctions in the Case of No-Deal Brexit

(Source: UK OFSI, 23 Jul 2019.)

The UK Office of Financial Sanctions Implementation (OFSI) has published the following updated guidance documents on its website:

 – UK sanctions on Burundi

 – UK sanctions on Guinea

 – UK sanctions regimes if there’s no Brexit deal

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5. State Updates Cuba Restricted List

(Source, Federal Register, 26 July 2019.) [Excerpts.]

84 FR 36154-16156: Updating the State Department’s List of Entities and Subentities Associated With Cuba (Cuba Restricted List)

* AGENCY: Department of State

* ACTION: Updated publication of list of entities and subentities; notice.

* SUMMARY: The Department of State is publishing an update to its List of Restricted Entities and Subentities Associated with Cuba (Cuba Restricted List) with which direct financial transactions are generally prohibited under the Cuban Assets Control Regulations (CACR). This Cuba Restricted List is also considered during review of license  applications submitted to the Department of Commerce’s Bureau of Industry and Security (BIS) pursuant to the Export Administration Regulations (EAR).

* DATES: The Cuba Restricted List is updated as of July 26, 2019.

* FOR FURTHER INFORMATION CONTACT: Robert Haas, Office of Economic Sanctions Policy and Implementation, 202-647-7489; Office of the Coordinator for Cuban Affairs, tel.: 202-453-8456, Department of State, Washington, DC 20520.

* SUPPLEMENTARY INFORMATION: Below is the U.S. Department of State’s list of entities and subentities under the control of, or acting for or on behalf of, the Cuban military, intelligence, or security services or personnel with which direct financial transactions would disproportionately benefit such services or personnel at the expense of the Cuban people or private enterprise in Cuba. For information regarding the prohibition on direct financial transactions with these entities, please see 31 CFR 515.209. All entities and subentities were listed effective November 9, 2017, unless otherwise indicated. …

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