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 8,000 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, Alexander P. Bosch, Vincent J.A. Goossen, and Alex Witt.
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Last week’s highlights of The Daily Bugle included in this edition are:
- Justice: “Pomona Woman Sentenced to Federal Prison in Scheme to Smuggle Restricted Space Communications Technology to China”; The Daily Bugle; Tuesday, 02 Oct 2018, Item #5;
- DHS/CBP Amends an Unliquidated ACS Drawback Claim in ACE; The Daily Bugle; Wednesday, 03 Sep 2018, Item #5.
- State Amends ITAR, Revises Several Entries on USML and Part 123; The Daily Bugle; Thursday, 04 Oct 2018, Item #1;
- State Issues Notice Concerning Sanctions Pursuant to CAATSA and Executive Order 13489, Makes Additions to CAATSA Section 231(d) Guidance; The Daily Bugle; Friday, 05 Oct 2018, Item#3; and
- Treasury/OFAC Publishes Settlement Agreement with JPMorgan Chase Bank, N.A. (JPMC), Issues Finding of Violation; The Daily Bugle; Friday, 05 Oct 2018, Item#8.
Justice: “Pomona Woman Sentenced to Federal Prison in Scheme to Smuggle Restricted Space Communications Technology to China”
(Source: Justice, 1 Oct 2018.) [Excerpts.]
A Chinese national who pleaded guilty to participating in a scheme that illegally exported sensitive space communications technology to China was sentenced today to serve 46 months in federal prison.
Si Chen, 33, a Pomona resident who has been in custody since her arrest in May 2017, was sentenced by United States District Judge Cormac J. Carney.
Chen, who used various aliases, included “Cathy Chen,” pleaded guilty in July to conspiracy to violate the International Emergency Economic Powers Act (IEEPA), which controls and restricts the export of certain goods and technology from the United States to foreign nations. Chen also pleaded guilty to money laundering and using a forged passport with her photo but a different name that appeared to have been issued by the People’s Republic of China.
“This defendant knowingly participated in a plot to secretly send items with military applications to China,” said United States Attorney Nick Hanna. “The smuggled items could be used in a number of damaging ways, including in equipment that could jam our satellite communications. We will aggressively target all persons who provide foreign agents with technology in violation of U.S. law.”
According to court documents, from March 2013 through the end of 2015, Chen purchased and smuggled sensitive items to China without obtaining licenses from the U.S. Department of Commerce that are required under IEEPA. Those items included components commonly used in military communications “jammers.” Additionally, Chen smuggled communications devices worth more than $100,000 that are commonly used in space communications applications. Chen falsely under-valued the items on the shipping paperwork to avoid arousing suspicion. Chen received payments for the illegally exported products through an account held at a bank in China by a family member.
Under IEEPA, it is crime to willfully export or attempt to export items that appear on the Commerce Control List without a license from the U.S. Department of Commerce. These are items authorities have determined could be detrimental to regional stability and national security.
“The export of sensitive technology items to China or anywhere else in the world is tightly regulated for good reason,” said Joseph Macias, Special Agent in Charge for Homeland Security Investigations (HSI) Los Angeles. “One of HSI’s top enforcement priorities is preventing U.S. military products and sensitive technology from falling into the hands of those who might seek to harm America or its interests. We will continue to work closely with its law enforcement partners to aggressively target and investigate those who jeopardize our nation’s security – or the welfare of those devoted to protecting it.”
In addition to participating in the scheme to violate IEEPA, Chen used several aliases and a forged Chinese passport to conceal her smuggling activities. Chen used a Chinese passport bearing her photo and a false name – “Chunping Ji” – to rent an office in Pomona where she took delivery of the export-controlled items. After receiving the goods, Chen shipped the devices to Hong Kong, and from there the items were transshipped to China. The parcels shipped to Hong Kong bore her false name, along with false product descriptions and monetary values, all done in an effort to avoid attracting law enforcement scrutiny. …
DHS/CBP Amends an Unliquidated ACS Drawback Claim in ACE
(Source: CSMS #18-000585, 3 Oct 2018.)
ACE has been updated to allow for amendments of unliquidated drawback claims previously filed and accepted in ACS. To amend a claim, filers must contact the Drawback Specialist at the port of filing and request the claim be returned to trade control. Amended claims must be refiled utilizing a CORE provision and must satisfy current CORE data requirements and business rules. The filing timeframes defined in Part 191 will be enforced.
For Programming Guidance see CSMS #18-000569.
Questions regarding this update may be directed to OTDRAWBACK@cbp.dhs.gov.
– Related CSMS No. 18-000569
State Amends ITAR, Revises Several Entries on USML and Part 123
(Source: Federal Register, 4 Oct 2018.) [Excerpts.]
83 FR 50003-50007: Regulatory Reform Revisions to the International Traffic in Arms Regulations
* AGENCY: Department of State.
* ACTION: Interim final rule; request for comments.
* SUMMARY: In response to public comments, the Department of State removes certain notification requirements from the International Traffic in Arms Regulations and revises several entries on the United States Munitions List to remove items that do not warrant continued inclusion. Specifically, this rule adds notes to USML Category IV and V, revises control text in USML Categories VIII, XI and XV, and revises a section of the regulations.
– Effective date: This rule is effective on October 4, 2018.
– Comments due date: Interested parties may submit comments by November 19, 2018.
* ADDRESSES: Interested parties may submit comments by one of the following methods:
– Email: DDTCPublicComments@state.gov with the subject line, “Regulatory Reform Revisions”
– Internet: At www.regulations.gov, search for this notice using Docket DOS-2018-0020. …
* SUPPLEMENTARY INFORMATION:
Responses to Regulatory Reform Comments and Other Feedback
On January 30, 2017, the President issued Executive Order 13771, Reducing Regulation and Controlling Regulatory Costs. On February 24, 2017, the President issued Executive Order 13777, Enforcing the Regulatory Reform Agenda.
On July 14, 2017, the Department published a Request for Comments in the Federal Register (82 FR 32493) to get feedback from the public on how it could achieve meaningful burden reduction while continuing to achieve the Department’s statutory obligations. The Department sought comments on the Department regulations, guidance documents, and collections of information that members of the public believe should be removed or modified to alleviate unnecessary burdens. The Department also requested economic data to support any proposed changes.
In response to the July 14, 2017 request for comments, the Department received several comments related to the International Traffic in Arms Regulations (ITAR). The Department has concluded its review of two of the comments and has accepted one of the changes suggested. The Department received several additional comments, which we are beginning to review. Any response to these additional comments, none of which are relevant to this rulemaking, will be done via a separate rule. These comments and the Department’s responses are set forth below. The Department has also received feedback from the public, the regulated industry, and other government and private sector experts, through a variety of formal and informal channels, that several entries on the United States Munitions List (USML) are controlling items that are, or soon will be, in normal commercial use. The Department has determined that it can revise certain entries in a manner consistent with the objectives set forth in Executive Order 13777 to remove the controls on these items, while maintaining control on those items that warrant continued control on the USML.
One commenter requested that the Department eliminate the requirement to return licenses for tech data, in § 123.22(b)(3)(i) and (c)(2) (all citations are to 22 CFR). Exporters are required to return licenses for the export of technical data to the Department after the initial export of all of the approved technical data. Exporters are also required to return all licenses that are exported against, but not electronically decremented. The Department has reviewed the comments and the use of the returned licenses and has determined that it can garner the necessary information via other means. The Department accepts these changes and will remove the relevant language in § 123.22(b)(3)(i) and (c)(2).
Two commenters requested that the Department eliminate the Initial Export Notification in § 123.22(b)(3)(ii). The Department does not accept these changes. Section 123.22(b)(3)(ii) requires that prior to the initial export of any technical data or defense services under an Agreement, the Agreement holder inform DDTC that exports are beginning. These notifications are for exports of defense articles and defense services that are generally not reported to the U.S. government through the Automated Export System and as such, these notifications are often the only way that the Department knows that the export has occurred.
Two commenters requested that the Department eliminate the notification of termination in § 124.6. The Department does not accept these changes. Section 124.6 requires that an Agreement holder inform DDTC of the impending termination of the agreement not less than 30 days prior to the expiration date of such agreement. The Department uses this notification as part of its compliance assessment practices. However, the Department is undertaking a modernization of its IT systems for export licensing and will review whether an IT solution can be put in place to allow the elimination of this notification requirement.
Two commenters requested that the Department eliminate the annual status letter on agreements in § 124.4(a). The Department does not accept these changes. Section 124.4(a) requires that if the agreement is not concluded within one year of the date of approval, the applicant notify DDTC in writing and provide the status of the agreement, unless and until the agreement is concluded, or a decision is made not to conclude the agreement. The Department uses this notification as part of its compliance assessment practices.
Two commenters requested that the Department eliminate the requirement in § 123.1(c)(4) that purchase documents be submitted with licenses in furtherance of agreements. The Department does not accept these changes. Submitting purchase documentation with a license application is an important tool to ensure only bona fide transactions are approved and to minimize the risk of diversion of approved exports.
One commenter requested that the Department eliminate the requirement that defense articles be U.S. origin to use the temporary import exemption in § 123.4(a)(1). The Department does not accept this change. Non-U.S.-origin defense articles sent to the United States for repair and maintenance do not require approval from the U.S. government for future reexports and retransfers, the way that U.S.-origin defense articles do. Therefore, the Department does not allow non-U.S. origin defense articles to be sent to the United States for servicing without individually approving the end-use and end-user.
One commenter requested that the Department create an exemption for temporary exports of defense articles for repair/replacement by foreign Original Equipment Manufacturer (“OEM”). The Department believes that it may be possible to implement such an exemption in a way that maintains U.S. foreign policy and national security interests. The Department is working on this effort and any change to the ITAR to this effect will be published separately.
One commenter requested that the Department streamline the Canadian Exemption in § 126.5 by integrating the excluded technologies list (ETL), currently in Supplement No. 1 to part 126, into § 126.5. The Department does not accept this change. The ETL applies to the Canadian Exemption, as well as the Defense Trade Cooperation Treaties with Australia and the United Kingdom; therefore, the utility of the ETL would be reduced if it were moved out of Supplement No. 1 to part 126 and the Department were required to recreate it in the sections for the treaties as well.
One commenter requested that the Department implement certain definitions that were proposed in the Department’s June 6, 2015 Federal Register proposed rule (80 FR 31525). The Department continues to work on the definitions that were not included in the June 3, 2016 interim final rule (81 FR 35611) or the September 8, 2016 final rule (81 FR 62004). Any change to the ITAR to this effect will be published separately.
One commenter requested that the Department establish a definition of manufacturing. The Department believes that the implementation of a definition for manufacturing is a matter that should be subject to public review and comment. Any change to the ITAR to this effect will be published separately.
One commenter asserted that the definition of U.S. person in the ITAR does not include U.S. citizens. This is incorrect. Section 120.15 defines U.S. persons to include protected individuals as defined by 8 U.S.C. 1324b(a)(3). This provision includes all U.S. citizens within the scope of protected individuals.
One commenter asserted that there is an inconsistency between the definition of defense service in § 120.9 and the definition of export in § 120.17 and requested that the Department revise them. The Department does not accept this change. The definition of defense service defines when a defense service occurs. The definition of export, in part, describes when the performance of a defense service constitutes an export and requires approval from the Department prior to performance.
One commenter noted that there is an inconsistency between the text in USML Category IV(i) and XV(f) related to mission integration and launch failure analysis, as the text in Category IV(i) includes the limiter “to a foreign person,” which the text in Category XV(f) does not. The commenter suggested resolving this inconsistency. The Department accepts this change, and revises USML Category XV(f) to achieve consistency between the provisions. However, the Department notes that this does not change the scope of the controls. The definition of export, as detailed above, provides that an export of a defense service occurs when it is performed for, or on behalf of, a foreign person.
One commenter requested that the Department remove the record-keeping requirement in § 125.6(a) and (b), asserting that they are duplicative of the record keeping requirement in § 123.22(b)(3)(ii). The Department does not accept this change. The requirement in § 123.22(b)(3)(ii) is only to maintain records that exist. The requirement in § 125.6 is to create documents that provide the necessary assurance against diversion and information about the transaction to allow these exports to occur under exemptions, without individual licenses for each export.
One commenter requested that the Department implement an IT system that includes a single input and single output, to reduce compliance burdens. The Department is undertaking to modernize its IT systems for export licensing and will review whether an IT solution can be put in place to allow a single output document that sufficiently protects U.S. foreign policy and national security interests.
The Department received feedback from industry that industry is not certain as to the jurisdiction of certain satellites and spacecraft thrusters. Some manufacturers reclassified satellites and spacecraft thrusters, formerly controlled under USML Category XV, as rocket engines under USML Category IV(d), following the revisions to USML Category XV in 2014 and 2017. Some manufacturers reclassified these same, or similar, thrusters as subject to the Export Administration Regulations (EAR) under ECCN 9A515. Thrusters for satellites and spacecraft may meet certain USML Category IV(d) controls, such as based on total impulse, but such thrusters are not rocket or missile power plants per se. Therefore, the Department is adding Note 2 to USML Category IV(d) to clarify that it does not control such thrusters. For controls on satellite and spacecraft thrusters, exporters should review USML Category XV(e)(12) and ECCN 9A515.
The Department received feedback from industry that, as currently structured, USML Category V maintains control over the items described in the EAR on the Commerce Control List (CCL) in Export Control Classification Number (ECCN) 1C608, if they include a material described in USML Category V. The Department added a new Note 3 to USML Category V to clarify that for materials described in USML Category V, except for the materials described in paragraph (c)(6), (h), or (i), approval from the Department is not required for any export, reexport, or retransfer when the defense articles are incorporated into an item subject to the EAR and classified under ECCN 1C608.
The Department received feedback from industry that commercial drone technologies have progressed to the state where the industry is developing flight control systems for cooperative operations, and there is concern that the control text in USML Category VIII(h)(12), for unmanned aerial vehicle (UAV) flight control systems and vehicle management systems with swarming capability, will capture these commercial drone flight control systems and vehicle management systems. The Department believes that swarming is a military capability that continues to warrant control on the USML. However, the current text describes swarming capabilities as UAVs interacting with each other to avoid collisions and stay together, or, if weaponized, coordinate targeting. The Department believes that this control could be more precise.
Swarming is not simply the ability to avoid collisions, maintain formation, and work cooperatively. Swarming requires the ability to adapt in real-time to changes in operational/threat environment or to deliver munitions on a target. Therefore, the Department updated USML Category VIII(h)(12).
The Department received feedback from industry that commercial drones will make use of airborne radars that are currently described by the control text in USML Category XI(a)(3)(i) and XI(a)(3)(xii). The Department recognizes the importance of commercial drones to the U.S. economy and the importance that those drones have effective detect-and-avoid radar to minimize collisions. Therefore, the Department has added a note to USML Category XI(a)(3)(i), to allow commodity jurisdiction reviews for radars, such as those meeting the criteria of the forthcoming Federal Aviation Administration (FAA) Minimum Operational Performance Standards (MOPS) to support sense and avoid operations of UAVs, and revised the Note to USML Category XI(a)(3)(xii) to increase the power threshold of articles that are not controlled by the paragraph.
The Department received feedback from industry that the control text in USML Category XI(c)(4) will capture electronic components required for 5G wireless technology. The Department does not intend the USML to include civil communications systems. Therefore, the Department revised USML Category XI(c)(4) to implement power thresholds that will exclude those components necessary for 5G wireless technology, but maintain control on those items that do provide the United States a critical military or intelligence advantage.
Interested parties may submit comments within 45 days of the date of publication. Comments received after that date may be considered if feasible, but consideration cannot be assured. Those submitting comments should not include any personally identifying information they do not desire to be made public or information for which a claim of confidentiality is asserted because those comments and/or transmittal emails will be made available for public inspection and copying after the close of the comment period via the Directorate of Defense Trade Controls website at www.pmddtc.state.gov. Parties who wish to comment anonymously may do so by submitting their comments via www.regulations.gov, leaving the fields that would identify the commenter blank and including no identifying information in the comment itself. …
Andrea Thompson, Under Secretary for Arms Control and International Security, U.S. Department of State.
State Issues Notice Concerning Sanctions Pursuant to CAATSA and Executive Order 13489, Makes Additions to CAATSA Section 231(d) Guidance
(Source: Federal Register, 5 Oct 2018.) [Excerpts.]
83 FR 50433-50434: Notice of Department of State Sanctions Actions Pursuant To Section 231(a) of the Countering America’s Adversaries Through Sanctions Act of 2017 (CAATSA) and Executive Order 13849 of September 20, 2018, and Notice of Additions To the CAATSA Section 231(d) Guidance
* ACTION: Notice.
* SUMMARY: The Secretary of State has determined, pursuant to CAATSA
Section 231(a), that the Chinese entity Equipment Development Department of the Central Military Commission (EDD), formerly known as the General Armaments Department (GAD), has knowingly, on or after August 2, 2017, engaged in a significant transaction with a person that is part of, or operates for or on behalf of, the defense or intelligence sectors of the Government of the Russian Federation. The Secretary of State has selected certain sanctions to be imposed upon EDD and Li Shangfu, EDD’s Director, who has been determined to be a principal executive officer of EDD, or to perform similar functions with similar authorities as such an officer.
The Secretary of State is also updating previously issued guidance pursuant to CAATSA Section 231(d) to specify additional persons that are part of, or operate for or on behalf of, the defense and intelligence sectors of the Government of the Russian Federation.
* DATES: The Secretary of State’s determination that EDD has knowingly, on or after August 2, 2017, engaged in a significant transaction with a person that is part of, or operates for or on behalf of, the defense or intelligence sectors of the Government of the Russian Federation, and the Secretary of State’s selection of certain sanctions to be imposed upon EDD and Li Shangfu, are effective on September 20, 2018. The Secretary of State’s updates to previously issued guidance pursuant to CAATSA Section 231(d) to specify additional persons that are part of, or operate for or on behalf of, the defense and intelligence sectors of the Government of the Russian Federation are effective on September 20, 2018. …
* SUPPLEMENTARY INFORMATION: Pursuant to Section 231(a) of CAATSA and Executive Order 13849 the Secretary of State has selected the following sanctions to be imposed upon EDD:
– United States Government departments and agencies shall not issue any specific license or grant any other specific permission or authority under any statute that requires the prior review or approval of the United States Government as a condition for the export or re-export of goods or technology to EDD;
– A prohibition on any transactions in foreign exchange that are subject to the jurisdiction of the United States and in which EDD has any interest;
– A prohibition on any transfers of credit or payments between financial institutions, or by, through, or to any financial institution, to the extent that such transfers or payments are subject to the jurisdiction of the United States and involve any interest of EDD;
– All property and interests in property of EDD that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of any United States person are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in; and
– Imposition on the principal executive officer or officers of EDD, or on persons performing similar functions and with similar authorities as such officer or officers, certain sanctions, as selected by the Secretary of State and described below.
The Secretary of State has selected the following sanctions to be imposed upon Li Shangfu, EDD’s Director, who has been determined to be a principal executive officer of EDD, or to perform similar functions with similar authorities as such an officer:
– A prohibition on any transactions in foreign exchange that are subject to the jurisdiction of the United States and in which Li Shangfu has any interest;
– A prohibition on any transfers of credit or payments between financial institutions, or by, through, or to any financial institution, to the extent that such transfers or payments are subject to the jurisdiction of the United States and involve any interest of Li Shangfu;
– All property and interests in property of Li Shangfu that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of any United States person are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in; and
– The Secretary of State shall deny a visa to Li Shangfu, and the Secretary of Homeland Security shall exclude Li Shangfu from the United States, by treating Li Shangfu as a person covered by section 1 of Proclamation 8693 of July 24, 2011 (Suspension of Entry of Aliens Subject to United Nations Security Council Travel Bans and International Emergency Economic Powers Act Sanctions).
Also, pursuant to the authority in CAATSA Section 231(d), the Secretary of State is issuing updated guidance specifying the following additional persons that are part of, or operate for or on behalf of, the defense and intelligence sectors of the Government of the Russian Federation:
Section 231(d) List Regarding the Defense Sector of the Government of the Russian Federation
– Komsomolsk-na-Amur Aviation Production Organization (KNAAPO)
– Oboronlogistika, OOO
– PMC Wagner
Section 231(d) List Regarding the Russian Intelligence Sector of the Government of the Russian Federation
– Antonov, Boris Alekseyevich
– Aslanov, Dzheykhun Nasimi Ogly
– Badin, Dmitriy Sergeyevich
– Bogacheva, Anna Vladislavovna
– Bovda, Maria Anatolyevna
– Bovda, Robert Sergeyevich
– Burchik, Mikhail Leonidovich
– Bystrov, Mikhail Ivanovich
– Concord Catering
– Concord Management and Consulting LLC
– Gizunov, Sergey Aleksandrovich
– Internet Research Agency LLC
– Kaverzina, Irina Viktorovna
– Korobov, Igor Valentinovich
– Kovalev, Anatoliy Sergeyevich
– Kozachek, Nikolay Yuryevich
– Krylova, Aleksandra Yuryevna
– Lukashev, Aleksey Viktorovich
– Malyshev, Artem Andreyevich
– Morgachev, Sergey Aleksandrovich
– Netyksho, Viktor Borisovich
– Osadchuk, Aleksandr Vladimirovich
– Podkopaev, Vadim Vladimirovich
– Polozov, Sergey Pavlovich
– Potemkin, Aleksey Aleksandrovich
– Prigozhin, Yevgeniy Viktorovich
– Vasilchenko, Gleb Igorevich
– Venkov, Vladimir
– Yermakov, Ivan Sergeyevich
– Yershov, Pavel Vyacheslavovich
Christopher A. Ford, Assistant Secretary of State.
Treasury/OFAC Publishes Settlement Agreement with JPMorgan Chase Bank, N.A. (JPMC), Issues Finding of Violation
(Source: Treasury/OFAC, 5 Oct 2018.)
The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) today announced a $5,263,171 settlement with JPMorgan Chase (JPMC) Bank, N.A., to settle potential civil liability for 87 apparent violations of the Cuban Assets Control Regulations, 31 C.F.R. Part 515 (CACR); the Iranian Transactions and Sanctions Regulations, 31 C.F.R. Part 560 (ITSR); and the Weapons of Mass Destruction Proliferators Sanctions Regulations, 31 C.F.R. Part 544 (WMDPSR). Specifically, the transactions were net settlement payments, of which a very small portion appears to have been attributable to interests of airlines that were at various times on OFAC’s List of Specially Designated Nationals and Blocked Persons (the “SDN List”), blocked pursuant to OFAC sanctions, or located in countries subject to the sanctions programs administered by OFAC. These apparent violations do not include transactions that were exempt from the prohibitions of the International Emergency Economic Powers Act (IEEPA); for example, the apparent violations include transactions such as airline freight charges, which are not exempt. OFAC has determined that JPMC voluntarily self-disclosed the apparent violations, and that the apparent violations constitute a non-egregious case.
Separately, OFAC has issued a Finding of Violation to JPMC regarding violations of the Foreign Narcotics Kingpin Sanctions Regulations, 31 C.F.R. part 598 (FNKSR), and the Syrian Sanctions Regulations, 31 C.F.R. part 542. Specifically, OFAC determined that from approximately 2007 to October 2013, JPMC processed 85 transactions totaling $46,127.04 and maintained eight accounts on behalf of six customers who were contemporaneously identified on the SDN List. OFAC determined that JPMC voluntarily disclosed the violations, and that the violations constitute a non-egregious case.
For more information on these actions, please visit this web notice.