The Daily Bugle Weekly Highlights: Week 40 (2-6 Oct 2017)

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, and Vincent J.A. Goossen.

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

  1. Dutch Public Prosecution Service: “International Fight Against Corruption: Telia Company Agrees to $274 Million Fines to The Netherlands”, The Daily Bugle, Monday, 2 October 2017, ITEM #9;
  2. DoD/DSS Provides Guidance for NISP Contractors with DSS Authorized Information Systems, The Daily Bugle, Tuesday, 3 October 2017, ITEM #4;
  3. Commerce/BIS: Oxyde Chemicals, Inc., to Pay $59,600 to Settle Alleged Antiboycott Violations, The Daily Bugle, Wednesday, 4 October 2017, ITEM #3;
  4. EU Amends Dual-Use Control List, The Daily Bugle, Thursday, 5 October 2017, ITEM #5; and
  5. Commerce/Census Seeks Comments on Standard and Routed Export Transactions, The Daily Bugle, Friday, 6 October 2017, ITEM #1.

Highlight 1

Dutch Public Prosecution Service: “International Fight Against Corruption: Telia Company Agrees to $274 Million Fines to The Netherlands”

(Source: Openbaar Ministerie) [U.S. dollar amounts changed from EU to US notation style.]  

In the international fight against corruption, the Netherlands [Publication Prosecution Service (“Openbaar Ministerie”)] has punished three Rotterdam-based subsidiaries of the international telecom provider Telia Company AB. They have accepted a settlement offered by the Dutch Public Prosecution Service (DPPS) totaling $274,000,000 US dollars. The DPPS accuses these Dutch subsidiaries of the criminal offences of bribery of government officials and inaccurate books and records. It concerns the period around the time of gaining access to the Uzbek telecom market and thereafter, during which they paid bribes to the eldest daughter of the former president of Uzbekistan in the period from 2007 up to and including 2010.

Parallel to the Dutch out-of-court settlement, there are settlements with the United States Department of Justice (DoJ) and the United States Securities and Exchange Commission (SEC). Telia Company will pay a total of $965,000,000 US Dollars as a penalty and disgorgement in the U.S. and the Netherlands.

INTERNATIONAL FIGHT AGAINST CORRUPTION

Telia Company AB (formerly TeliaSonera AB) is an international telecom provider, with its main office in Stockholm. TeliaSonera AB has arisen from a merger between the Swedish telecom company Telia and the Finnish telecom company Sonera. The company is listed on NASDAQ Stockholm and at NASDAQ Helsinki. The company is active in Europe and Asia.

Sonera Holding BV, TeliaSonera UTA Holding BV and TeliaSonera Uzbek Telecom Holding BV (hereinafter: ‘TeliaSonera’) are Dutch subsidiaries of Telia Company and are based in Rotterdam. TeliaSonera has been found to have paid bribes to operate in the Uzbek telecom market via its Dutch subsidiaries. In doing so, services from the Dutch financial sector were utilized.

Corruption distorts competition and constitutes a serious violation of the integrity of governments, with great moral and political consequences.  Corruption affects the free and open markets and constitutes a threat to international stability. Corruption is combatted internationally. This international approach signifies that corruption is not tolerated and that high penalties will be imposed.

The criminal investigation was initiated in 2013. The Dutch criminal investigation was carried out by the Fiscal Intelligence and Investigation Service (FIOD) under supervision of the National Prosecutor’s Office for Serious Fraud, Environmental Crime and Asset Confiscation (“Functioneel Parket”). Parallel to the Dutch investigation, the DOJ, the SEC, and the Swedish Prosecution Service conducted investigations into suspected bribe payments by TeliaSonera. This parallel action shows that corruption is not tolerated internationally. The proceeds of corruption are confiscated and companies are imposed with severe fines.

CRIMINAL INVESTIGATION

In March 2014, the Rotterdam offices of the three Dutch subsidiaries of TeliaSonera were searched by the FIOD. Administrative records were seized.

The FIOD investigation shows, via its Dutch subsidiaries TeliaSonera paid bribes to the eldest daughter of the former president of Uzbekistan in the period from 2007 up to and including 2010. The criminal investigation has revealed that the eldest daughter of the former president of Uzbekistan, exercised control over the Uzbek telecom market. Bribe payments were required to operate in this market and for the acquisition of licenses, frequencies and number blocks. The DPPS holds that these payments constitute the criminal offences of bribery of  government officials (corruption) and books and records violations. The criminal investigation shows that from 2007 up to and including 2010 TeliaSonera paid bribes in connection with its entry into the Uzbek telecom market and in connection with obtaining telecommunication licenses for 3G and LTE frequencies and number blocks. In total, TeliaSonera paid approximately $314,200,000 US dollars in bribes to the daughter of the President. These payments were made through the offshore company Takilant Limited, based in Gibraltar.  Also, 6% of the shares in the Rotterdam subsidiary TeliaSonera Uzbek Holding company was transferred to Takilant Ltd. In addition to these bribe payments, over $27,300,000 US Dollars in ‘sponsorship’ and ‘charitable contributions’ were paid in Uzbekistan in the period from 2007 – 2013.  Some of these appear to be linked to Uzbek government officials. The DPPS holds that these payments constitute the criminal offences of bribery of government officials (corruption) and books and records violations.

For a detailed account of the facts, please see the attachment here.

APPROPRIATE SETTLEMENT

According to the DPPS, the bribery committed throughout the years resulted in a dominant position in the telecommunication market in Uzbekistan and significant profits as a consequence. By its conduct, TeliaSonera has contributed to corruption in Uzbekistan. The DPPS considers corruption and related criminal offenses serious because of their undermining nature and the consequences for society.

In 2016, TeliaSonera’s sales amounted to approximately USD $11.4 billion.  The Netherlands considers the fine and disgorgement totaling $965,000,000 US Dollars as appropriate. It is a punishment that hurts, and it does justice to the significance of the acts committed as well as to the disruption these acts caused to the legal order. The parallel government action against corruption demonstrates that corruption is tackled internationally.

By imposing penalties and confiscating criminal proceeds, committed offences are redressed. It clearly shows that a company does not get away with committing criminal offenses and that criminally earned profits will be confiscated. In addition, there is a deterrent effect of this punishment on other companies. In addition, a large number of compliance measures has been taken within Telia Company, decreasing the risk of recurrence in the future.

Penalty Imposed by the Dutch Prosecution

The Company pays a total fine of $274,000,000 US Dollars of which 40.000.000 US Dollars forfeiture to the DOJ and the company pays 274.000.000 US Dollars to the Netherlands. The punishment imposed by the DPPS on TeliaSonera includes a fine of $100,000,000 US Dollars and a payment of $174,000,000 US Dollars.  The latter amount is the estimated value of items (in this case shares in the Dutch subsidiaries) that are eligible for confiscation.

In determining the Dutch fine it was taken into account that the payments to the government officials took place during a long time period and that the bribe payments were significant. As is the case when a sentence is formulated in court, the defendant’s attitude was taken into account as well.  TeliaSonera has cooperated with the investigation and has made its internal findings available.

Disgorgement

The DPPS holds that all earnings of TeliaSonera in Uzbekistan constitute illegally obtained profits. After all, access to Uzbekistan has been gained by paying bribes to (the company of) a government official. Without those payments, the entry to the Uzbek market would not have been successful.  Therefore, TeliaSonera’s gross earnings (profit before tax) in Uzbekistan from the time of entering the market until the beginning of 2014 constitute the starting point for calculating illegally obtained profits. The investigations in the Netherlands and the US have set the criminal proceeds at $457,000,000 US Dollars. This will be paid for disgorgement of criminal proceeds.

Telia pays 40.000.000 USDollars of this amount as forfeiture to the DoJ and $208,500,000 US Dollars will be paid to the SEC. The remaining disgorgement amount of $208,500,000 US Dollars will be paid to Sweden or the Netherlands at a later stage, depending on a legal disgorgement procedure against Telia Company AB in Sweden.

Compliance

Telia Company has taken action to put its compliance in order.  Executives who participated in the bribery, directly or indirectly, have left the company.  A completely new (top) management has been appointed, including a new CEO and CFO. In addition, Telia Company has launched a very comprehensive compliance program, implemented through the entire company. Among other things, an internal whistleblower scheme has been put into operation. Furthermore, Telia Company  has indicated that it intends to divest the entire EURASIA division of the company, including the Uzbek branch.

Highlight 2

DoD/DSS Provides Guidance for NISP Contractors with DSS Authorized Information Systems

(Source: DoD/DSS)

DSS provides guidance on the removal of Kaspersky Labs software/hardware from DSS authorized information systems in cleared industry. Effective immediately, all NISP contractor facilities possessing classified information systems (IS) under DSS cognizance and authorization are directed to remove all Kaspersky Labs software or hardware from the authorized IS. Click here to read the guidance.

Highlight 3

Commerce/BIS: Oxyde Chemicals, Inc., to Pay $59,600 to Settle Alleged Antiboycott Violations

(Source: Commerce/BIS)        

* Respondent: Oxyde Chemicals, Inc., Houston, TX.

* Case No: 14-05

* Charges: Seventeen Violations of the EAR:

– Two violations of 15 C.FR. §760.2(a) – Refusal to Do Business;

– Four violations of 15 C.FR. §760.2(d) – Furnishing Information about Business Relationships with Boycotted Countries or Blacklisted Persons; and

– Eleven violations of 15 CFR. §760.5 – Failing to Report the Receipt of a Request to Engage in a Restrictive Trade Practice or Foreign Boycott Against a Country Friendly to the United States.

* Fine or Civil Settlement: Civil penalty of $59,600.

* Debarred or Suspended from Export Transactions: Not if penalty is paid as agreed.

* Date of Order: 28 September 2017

Highlight 4

EU Amends Dual-Use Control List

(Source: European Commission) [Excerpts.]

The current EU dual-use control list was last updated by Commission Delegated Regulation (EU) No 2016/1969 of 12 September 2016, taking account of the control list changes adopted by the international non-proliferation regimes and export control arrangements until the end of 2015. The changes to the control lists adopted by the international non-proliferation regimes and export control arrangements in 2016 now require another amendment of Annex I to Council Regulation (EC) No 428/2009. The delegated act therefore presents a variety of amendments to the Union dual-use control list concerning the control parameters, the technical definitions and descriptions and the removal or addition of dual-use items. The amendments to the Union dual-use control list in Annex I also necessitate consequential amendments to Annexes IIa to IIg and Annex IV. …

The entire text can be found here.

Highlight 5

Commerce/Census Seeks Comments on Standard and Routed Export Transactions

(Source: Federal Register) [Excerpts.]

82 FR 46739-46740: Foreign Trade Regulations (FTR): Request for Public Comments Regarding Standard and Routed Export Transactions

* AGENCY: Bureau of the Census, Commerce Department.

* ACTION: Advance notice of proposed rulemaking.

* SUMMARY: The Bureau of the Census (U.S. Census Bureau) is seeking public comments to perform a review of the requirements governing routed export transactions. In particular, the Census Bureau is interested in comments regarding the definition of a routed export transaction as well as the responsibilities of parties in routed export transactions. Routed export transactions are transactions in which the Foreign Principal Party in Interest (FPPI) controls the movement of the goods out of the country. There are a variety of reasons why the FPPI assumes this responsibility such as the use of a preferred carrier and the desire to not disclose the ultimate consignee to the U.S. Principal Party in Interest (USPPI), although the ultimate consignee is properly identified to the U.S. Government. Because the FPPI controls the movement of the goods in a routed transaction and cannot file Electronic Export Information (EEI), the Census Bureau requires the FPPI to authorize a U.S. authorized agent or the USPPI to file the EEI on its behalf. This ensures that the Census Bureau collects the statistical information.

* DATES: Written comments must be received on or before December 5, 2017. …

* FOR FURTHER INFORMATION CONTACT: Dale C. Kelly, Chief, International Trade Management Division, U.S. Census Bureau, Room 5K158, Washington, DC 20233-6010, by phone (301) 763-6937, by fax (301) 763-8835, or by email dale.c.kelly@census.gov.

* SUPPLEMENTARY INFORMATION: …

The Census Bureau is soliciting comments on the clarity, usability, and any other matters related to the regulatory requirements for routed transactions. This will include the definition of a routed export transaction found in 15 CFR 30.1 as well as the general responsibilities of parties in routed export transactions as detailed in 15 CFR 30.3. Suggested questions are below; however, any pertinent feedback not captured by these questions is also welcome:

(1) If you do not think that the definition of a routed export transaction in 15 CFR 30.1 is clearly stated, then what definition of routed export transaction would you suggest?

(2) Should the Census Bureau modify the list of data elements at 15 CFR 30.3(e)(2) that the U.S. authorized agent is required to provide when filing the electronic export information? If so, what changes would you suggest?

(3) Should the Census Bureau modify the list of data elements at 15 CFR 30.3(e)(1) that the U.S. Principal Party in Interest is required to provide to the U.S. Authorized agent? If so, what changes would you suggest?

(4) The carrier’s responsibilities under the FTR are the same in both standard and routed transactions. Does the FTR clearly communicate these responsibilities? If not, what clarification would you suggest?

(5) The data elements that the USPPI and U.S authorized agent are required to provide are currently located in Section 30.3(e) of the FTR. However, additional data elements are needed to complete the AES filing. Here is a list of data elements that are required to be reported but for which a responsible party is not listed. Please provide comments on which party, the USPPI or the U.S. authorized agent, should report these data elements. …

(6) Are the responsibilities of parties in a routed export transaction clearly stated? If not, what improvements would you suggest?

(7) How could we improve the process to authorize filing in a routed export transaction?

(8) How could the FTR be revised to align with the Bureau of Industry and Security’s Export Administration Regulations on routed export transactions?

(9) What changes would you suggest in Section 30.3 of the FTR that might improve the parties’ understanding of the requirements of a routed export transaction?

(10) What changes would you suggest in Section 30.3 of the FTR that might improve the parties’ understanding of their roles in a routed or standard export transaction?

Dated: September 29, 2017.

Ron S. Jarmin, Associate Director for Economic Programs, Performing the Non-Exclusive Functions and Duties of the Director, Bureau of the Census.

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