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The Daily Bugle Weekly Highlights: Week 4 (20 – 24 Jan 2020)

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 7,500 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, and Alexander Witt.

We check the following sources daily: Federal Register, Congressional Record, Commerce/AES, Commerce/BIS, DHS/CBP, DOE/NRC, DOJ/ATF, DoD/DSS, DoD/DTSA, FAR/DFARS, State/DDTC, Treasury/OFAC, White House, and similar websites of Australia, Canada, U.K., and other countries and international organizations.  Due to space limitations, we do not post Arms Sales notifications, Denied Party listings, or Customs AD/CVD items. To subscribe, click here.

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

  1. Treasury/OFAC Issues Amended Venezuela-related General Licenses; The Daily Bugle; Tuesday, 21 January 2020; Item #4.
  2. Treasury/OFAC Settles Global Terrorism Sanctions Violations with Park Strategies, LLC; The Daily Bugle; Wednesday, 22 January 2020; Item #4.
  3. Commerce/BIS Amends EAR to Transfer Items from the USML to the CCL; The Daily Bugle; Thursday, 23 January 2020; Item #1.
  4. . State Amends ITAR to Revise Categories I, II, and II; The Daily Bugle; Thursday, 23 January 2020; Item #2.
  5. Commerce/BIS Denies Export Privileges to Companies Linked to Pakistan’s Nuclear Program; The Daily Bugle; Friday, 24 January 2020; Item #1.

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1. Treasury/OFAC Issues Amended Venezuela-related General Licenses

(Source: Treasury/OFAC, 18 Jan 2020.)

The Department of the Treasury’s Office of Foreign Assets Control (OFAC) is issuing amended Venezuela-related General License 5B “Authorizing Certain Transactions Related to the Petróleos de Venezuela, S.A. 2020 8.5 Percent Bond on or After April 22, 2020” and General License 8E “Authorizing Transactions Involving Petróleos de Venezuela, S.A. (PdVSA) Necessary for Maintenance of Operations for Certain Entities in Venezuela.”

For more information on this specific action, please visit our Recent Actions page.

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2. Treasury/OFAC Settles Global Terrorism Sanctions Violations with Park Strategies, LLC

(Source: Treasury/OFAC, 21 Jan 2020.)

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) today announced that Park Strategies, LLC (“Park Strategies”), a lobbying firm located in New York, New York, has paid $12,150 to settle its potential civil liability for apparent violations of the Global Terrorism Sanctions Regulations, 31 C.F.R. part 594 (GTSR).  Specifically, from on or about August 25, 2017 to on or about November 25, 2017, Park Strategies appears to have violated § 594.201 of the GTSR when it dealt in the property or interests in property of Al-Barakaat Group of Companies Somalia Limited (“Al-Barakaat”), a Specially Designated Global Terrorist (“SDGT”), when Park Strategies signed a contract with Al-Barakaat and subsequently received payment for its services from Al-Barakaat (the “Apparent Violations”).  The contract terms called for Park Strategies to provide lobbying services for Al-Barakaat, which were outside the scope of generally authorized activities under the GTSR, including the GTSR general license for legal services.  Park Strategies’ executives had actual knowledge of Al-Barakaat’s SDGT status and actively participated in the signing of the contract.  OFAC determined that Park Strategies voluntarily disclosed the Apparent Violations, and that the Apparent Violations constitute a non-egregious case.

For more information on this action, please visit the following web notice.

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3. Commerce/BIS Amends EAR to Transfer Items from the USML to the CCL

(Source: Federal Register, 23 Jan 2020.) [Excerpts.]

85 FR 4136-4188: Control of Firearms, Guns, Ammunition and Related Articles the President Determines No Longer Warrant Control Under the United States Munitions List (USML); Final Rule

* AGENCY: Bureau of Industry and Security, Department of Commerce.

* ACTION: Final rule.

* SUMMARY: On May 24, 2018, the Department of Commerce published a proposed rule in conjunction with a Department of State proposed rule to revise Categories I (firearms, close assault weapons and combat shotguns), II (guns and armaments), and III (ammunition/ordnance) of the USML and transfer items that no longer warrant control on the USML to the Commerce Control List (CCL). This final rule responds to and adopts changes based on the comments received on the Commerce proposed rule and is being published simultaneously with a final rule by the Department of State that will revise Categories I, II, and III of the USML to describe more precisely the articles warranting continued control on that list. These revisions complete the initial review of the USML that the Department of State began in 2011 and the conforming changes made to the EAR to control these items not warranting control under the International Traffic in Arms Regulations (ITAR).

* DATES: This rule is effective March 9, 2020.

* FOR FURTHER INFORMATION CONTACT: Steven Clagett, Office of Nonproliferation Controls and Treaty Compliance, Nuclear and Missile Technology Controls Division, tel. (202) 482-1641 or email steven.clagett@bis.doc.gov.

* SUPPLEMENTARY INFORMATION:

Background

On May 24, 2018, the Department of Commerce (referred to henceforth as “the Department”) published the proposed rule, Control of Firearms, Guns, Ammunition and Related Articles the President Determines No Longer Warrant Control Under the United States Munitions List (USML) (83 FR 24166) (referred to henceforth as the “Commerce May 24 rule”) in conjunction with a Department of State proposed rule to revise Categories I, II, and III of the USML (referred to henceforth as the “State May 24 rule”). The Department of Commerce is issuing this final rule that describes how articles the President determines no longer warrant control under USML Category I–Firearms, Close Assault Weapons and Combat Shotguns; Category II–Guns and Armament; and Category III–Ammunition/Ordnance will be controlled on the CCL of the Export Administration Regulations (EAR) and is being published in conjunction with a final rule on Categories I, II, and III from the Department of State, Directorate of Defense Trade Controls (DDTC), completing the initial review of the USML that began in 2011 and making conforming changes to the EAR to control these items on the Commerce Control List (CCL).

    The changes described in this final rule and in the State Department’s companion final rule on Categories I, II, and III of the USML are based on a thorough interagency review of those categories, after which the Department of State concluded that the items added to the CCL in this final rule do not provide a critical military or intelligence advantage to the United States and, in the case of firearms, do not have an inherently military function. The Departments of Defense, State, and Commerce have, therefore, determined that the EAR is the appropriate source of authority to control these firearms, ammunition, and other articles previously controlled under Categories I-III of the USML. There is a significant worldwide market for items in connection with civil and recreational activities such as hunting, marksmanship, competitive shooting, and other non-military activities.

    This final rule does not deregulate the transferred items. BIS will require authorization to export or reexport to any country a firearm or other weapon that is being moved from the USML to the CCL by this final rule, including releases of related technology and software to foreign persons in the United States. Rather than decontrolling firearms and other items, in publishing this final rule, BIS, working with the Departments of Defense and State, is continuing to ensure that appropriate regulatory oversight will be exercised over exports, reexports, and transfers (in- country) of these items while reducing the procedural burdens and costs of export compliance on the U.S. firearms industry and allowing the U.S. Government to make better use of its export control resources.

    Certain software and technology capable of producing firearms when posted on the internet under specified circumstances is being controlled under this final rule in order to protect important U.S. national security and foreign policy interests; however, communication of ideas regarding such software or technology is freely permitted. Moreover, nothing in this final rule prohibits U.S. persons within the United States from acquiring firearms of any type–there are other laws and regulations that control the acquisition of firearms in the U.S.

Structure of 600 Series

BIS has created Export Control Classification Numbers (ECCNs), referred to as the “600 series,” to control items that will be removed from the USML and controlled under the CCL, or items from the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual Use Goods and Technologies Munitions List (Wassenaar Arrangement Munitions List or WAML) that are already controlled elsewhere on the CCL.

    These ECCNs are referred to as the “600 series” because the third character in each of the new ECCNs is “6.” The first two characters of the “600 series” ECCNs serve the same function as any other ECCN as described in Sec.  738.2 of the EAR. The first character is a digit in the range 0 through 9 that identifies the Category on the CCL in which the ECCN is located. The second character is a letter in the range A through E that identifies the product group within a CCL Category. With few exceptions, the final two characters identify the WAML category that covers items that are the same or similar to items in a particular “600 series” ECCN. Category II of the USML and category ML2 of the WAML cover large caliber guns and other military weapons such as: Howitzers, cannon, mortars, anti-tank weapons, projectile launchers, military flame throwers, and recoilless rifles.

    Items that are currently controlled in Category II of the USML will be controlled on the CCL under four new “600 series” ECCNs. Placement of the items currently in USML Category II into the CCL’s 600 series is consistent with existing BIS practice of using 600 series ECCNs to control items of a military nature.

    Items currently controlled in Categories I and III of the USML will be controlled in new ECCNs in which the third character is a “5.” These items are not appropriate for 600 series control because, for the most part, they havecivil, recreational, law enforcement, or other non-military applications. As with 600 series ECCNs, the first character represents the CCL category, the second character represents the product group, and the final two characters represent the WAML category that covers items that are the same or similar to items in the ECCN.

Relation to USMIL

Pursuant to section 38(a)(1) of the Arms Export Control Act (AECA), all defense articles controlled for export or import, or that are subject to brokering controls, are part of the USML under the AECA. All references to the USML in this final rule are to the list of defense articles that are controlled for purposes of export, temporary import, or brokering pursuant to the ITAR, 22 CFR parts 120 through 130, and not to the list of AECA defense articles on the United States Munitions Import List (USMIL) that are controlled by the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) for purposes of permanent import under its regulations at 27 CFR part 447. All defense articles described in the USMIL or the USML are subject to the brokering controls administered by the U.S. Department of State in part 129 of the ITAR. The transfer of defense articles from the ITAR’s USML to the EAR’s CCL for purposes of export controls does not affect the list of defense articles controlled on the USMIL under section 38 of the AECA, 22 U.S.C. 2778, for purposes of permanent import or brokering controls. …

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4. State Amends ITAR to Revise Categories I, II, and II

(Source: Federal Register, 23 Jan 2020.) [Excerpts.]

85 FR 3819-3833: International Traffic in Arms Regulations: U.S. Munitions List Categories I, II, and III

* AGENCY: Department of State.

* ACTION: Final rule.

* SUMMARY: The Department of State (the Department) amends the International Traffic in Arms Regulations (ITAR) to revise Categories I–firearms, close assault weapons and combat shotguns, II–guns and armament, and III-ammunition/ordnance of the U.S. Munitions List (USML) to describe more precisely the articles that provide a critical military or intelligence advantage or, in the case of weapons, perform an inherently military function and thus warrant export and temporary import control on the USML. These revisions complete the initial review of the USML that the Department began in 2011. Items not subject to the ITAR or to the exclusive licensing jurisdiction of any other set of regulations are subject to the Export Administration Regulations.

* DATES: This final rule is effective March 9, 2020.

* FOR FURTHER INFORMATION CONTACT: Sarah Heidema, Office of Defense Trade Controls Policy, Department of State, telephone (202) 663-2809; email DDTCPublicComments@state.gov. ATTN: Regulatory Change, USML Categories I, II, and III.

* SUPPLEMENTARY INFORMATION: The Directorate of Defense Trade Controls (DDTC), U.S. Department of State, administers the International Traffic in Arms Regulations (ITAR) (22 CFR parts 120 through 130). On May 24, 2018, DDTC published a proposed rule, 83 FR 24198, for public comment regarding proposed revisions to Categories I, II, and III of the ITAR’s U.S. Munitions List (USML) (22 CFR 121.1). After review of received comments and with the revisions to the proposed rule further described below, DDTC now publishes this final rule to amend the ITAR.

    The articles and related technical data subject to the jurisdiction of the ITAR, i.e., “defense articles,” are identified on the USML. With few exceptions, items not subject to the export control jurisdiction of the ITAR are subject to the jurisdiction of the Export Administration Regulations (EAR, 15 CFR parts 730 through 774, which includes the Commerce Control List (CCL) in Supplement No. 1 to part 774), administered by the Bureau of Industry and Security (BIS), U.S. Department of Commerce. Both the ITAR and the EAR impose license requirements on exports and reexports. Items not subject to the ITAR or to the exclusive licensing jurisdiction of any other set of regulations are subject to the EAR. The Department of Commerce is publishing a companion rule in this edition of the Federal Register.

    Pursuant to section 38(a)(1) of the Arms Export Control Act (AECA), all defense articles controlled for export or import are part of the USML under the AECA. All references to the USML in this rule, however, are to the list of AECA defense articles that are controlled for purposes of export or temporary import pursuant to the ITAR, and not to the list of AECA defense articles on the United States Munitions Import List (USMIL) that are controlled by the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) for purposes of permanent import under its regulations at 27 CFR part 447. References to the USMIL are to the list of AECA defense articles controlled by ATF for purposes of permanent import.

    Section 38(b)(1)(A)(ii) of the AECA, requires, with limited exceptions, registration of persons who engage in the business of brokering activities with respect to the manufacture, export, import, or transfer of any defense article or defense service designated by the President as such under section 38(a)(1) and licensing for such activities. Through Executive Order 13637, the President delegated the responsibility for registration and licensing of brokering activities to the Department of State with respect to defense articles or defense services controlled either for purposes of export by the Department of State or for purposes of permanent import by ATF. Section 129.1 of the ITAR states this requirement. As such, all defense articles described in the USMIL or the USML are subject to the brokering controls administered by the U.S. Department of State in part 129 of the ITAR. The transfer of jurisdiction from the ITAR’s USML to the EAR’s CCL for purposes of export controls does not affect the list of defense articles controlled on the USMIL under the AECA for purposes of permanent import or brokering controls for any brokering activity, including facilitation in their manufacture, export, permanent import, transfer, reexport, or retransfer. This rule adds two new paragraphs, (b)(2)(vii) and (viii), to Sec.  129.2 to update the enumerated list of actions that are not brokering. This change is a conforming change and is needed to address the transfer from the USML to the CCL of USMIL defense articles that remain subject to the brokering controls, and to ensure that the U.S. government does not impose a double licensing requirement on the export, reexport, or retransfer of such items subject to the EAR or continue to require registration with the Department solely based on activities related to the manufacture of these items.

    The Department of State is engaged in an effort, described more fully below, to revise the USML so that its scope is limited to those defense articles that provide the United States with a critical military or intelligence advantage or, in the case of weapons, have an inherently military function. The Department has undertaken these revisions pursuant to the President’s delegated discretionary statutory authority in section 38(a)(1) of the AECA to control the import and export of defense articles and defense services in furtherance of world peace and the security and foreign policy of the United States and to designate those items which constitute the USML. The Department determined that the articles in USML Categories I, II, and III that are removed from the USML under this final rule do not meet this standard, including many articles that are widely available in retail outlets in the United States and abroad (such as many firearms previously described in Category I, paragraph (a), including, for example, a .22 caliber rifle).

    The descriptions below describe the status of the subject categories of the USML and CCL as of the effective date of this rule and the companion rule published by the Department of Commerce in this Federal Register issue. Any reference in the preamble to this final rule to transfer from the USML to the CCL reflects the combined effects of removal of the defense article from the controls of the ITAR by virtue of the removal of an item (i.e., enumerated control text) from the USML by this rule and the corresponding adoption of the former defense article as an item subject to the EAR by action of the companion rule. Comments regarding the overall rule are addressed immediately below, while comments specific to a Category or amended section of the ITAR are addressed in the relevant discussion of revisions to Categories I, II, or III, or in the discussion under the title of “Conforming ITAR Changes.” …

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5. Commerce/BIS Denies Export Privileges to Companies Linked to Pakistan’s Nuclear Program

(Source: Federal Register, 24 Jan 2020.) [Excerpts.]

85 FR 4271-4276: Order Temporarily Denying Export Privileges

 – Muhammad Kamran Wali, 1st Floor, Jahanzeb Center, Bank Road, Saddar, Rawalpindi, Pakistan

 – Muhammad Ahsan Wali, 4453 Weeping Willow Drive, Mississauga, Ontario, Canada

 – Haji Wali Muhammad Sheikh, 4453 Weeping Willow Drive, Mississauga, Ontario, Canada

 – Ahmed Waheed, 143 Wards Road, Ilford, Essex, United Kingdom

 – Ashraf Khan Muhammad, M/F 20 Pei Ho Street, Sham Shui Po, Kowloon, Hong Kong

 – Business World, 1st Floor, Jahanzeb Center, Bank Road, Saddar, Rawalpindi, Pakistan

 – Buziness World, 4453 Weeping Willow Drive, Mississauga, Ontario, Canada

 – Business World, 2nd Floor, Kau On Building, 251-253 Cheung Shaw Wan Road, Kowloon, Hong Kong

 – Industria Hong Kong Ltd, d/b/a Transcool Auto Air Conditioning Products, d/b/a Electro-Power Solutions, 2nd Floor, Kau On Building, 251-253 Cheung Shaw Wan Road, Kowloon, Hong Kong

 – Product Engineering, Unit 10, Chowk Gowalmandi, Daryabad, Gowalmandi, Rawalpindi, Punjab, Pakistan

  1. Introduction and Background on the Parties

Pursuant to Section 766.24 of the Export Administration Regulations (the “Regulations” or “EAR”),\1\ the Bureau of Industry and Security (“BIS”), U.S. Department of Commerce, through its Office of Export Enforcement (“OEE”), has requested that I issue an order temporarily denying, for a period of 180 days, the export privileges of Muhammad Kamran Wali, Muhammad Ahsan Wali, Haji Wali Muhammad Sheikh, Ahmed Waheed, Ashraf Khan Muhammad, Business World (of Pakistan), Buziness World (of Canada), Business World (of Hong Kong), and Industria Hong Kong Ltd, d/b/a Transcool Auto Air Conditioning Products, d/b/a Electro-Power Solutions (collectively, “Respondents” and when only referring to natural persons “individual Respondents”). OEE also has requested, pursuant to Sections 766.23 and 766.24 of the Regulations, that this order (“the TDO”) be applied to Product Engineering as a related person. . . .

OEE has presented evidence that the Respondents have been operating an international procurement scheme to illegally obtain U.S.-origin items on behalf of two entities involved in nuclear and missile proliferation activities, the Pakistan Atomic Energy Commission (“PAEC”) and Pakistan’s Advanced Engineering Research Organization (“AERO”), without the required BIS licenses. The PAEC and AERO have been on BIS’s Entity List since November 1998, and September 2014, respectively, and a license is required for all items subject to the EAR for export, reexport or in-country transfer to the PAEC or AERO.\2\ . . .

  1. Recent Transactions

Through its investigation, OEE has developed reasonable cause to believe that the Respondents and other members of the procurement network continue to obtain U.S.-origin items from U.S. companies in violation of U.S. law. Further, because the procurement channels change to avoid detection, a PAEC or AERO order may take several months for the procurement network to fulfill from a given U.S. company and even longer to ultimately reach the prohibited end users. Accordingly, the issuance of this TDO is necessary to stop transactions-in-progress and prevent U.S.-origin items from reaching prohibited end users. Moreover, the scheme is ongoing as OEE’s investigation has uncovered that the Respondents continued to obtain items in 2018 as detailed below and have initiated the process to obtain additional U.S.-origin items in late 2019.  . . .

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