The Daily Bugle Weekly Highlights: Week 48 (26-30 Nov 2018)

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.

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. Commerce/BIS Publishes Denial Order Concerning Gregory Allen Justice of Safford, AZ; The Daily Bugle; Monday, 26 Nov 2018, Item #1;
  2. State/DDTC Publishes DTAG Plenary Session Documents; The Daily Bugle; Monday, 26 Dec 2018, Item #6;
  3. UK/ECJU Updates Guidance on the Export of Medical Devices; The Daily Bugle; Tuesday, 27 Nov 2018, Item #5;
  4. Treasury/OFAC: “Cobham Holdings, Inc. Settles Potential Civil Liability for Apparent Violations of the Ukraine Related Sanctions Regulations”; The Daily Bugle; Wednesday, 28 Nov 2018, Item #6.
  5. EU Amends Restrictive Measures Concerning Libya; The Daily Bugle; Thursday, 29 Nov 2018, Item #4.

Highlight 1

Commerce/BIS Publishes Denial Order Concerning Gregory Allen Justice of Safford, AZ

(Source: Federal Register, 26 Nov 2018.) [Excerpts.]

83 FR 60395-60396: Order Denying Export Privileges

In the Matter of: Gregory Allen Justice, Inmate Number: 73792-112, FCI Safford, P.O. Box 9000, Safford, AZ 85548.

On September 19, 2017, in the U.S. District Court for the Central District of California, Gregory Allen Justice (“Justice”) was convicted of violating Section 38 of the Arms Export Control Act (22 U.S.C. 2778 (2012)) (“AECA”), among other crimes. Justice was convicted of violating Section 38 of the AECA by knowingly and willfully attempting to export, cause others to export, and aid and abet the export to Russia, for the intended benefit of the Russian Government, of defense articles designated on the United States Munitions List (“USML”), without the required U.S. Department of State licenses. Justice, an engineer who worked for a defense contractor, knowingly and willfully sold and provided USML-controlled technical data relating to U.S. military satellite programs to a person he believed to be an agent of a Russian intelligence service, but who was in fact an undercover Federal Bureau of Investigation employee. Justice was sentenced to 60 months in prison, three years of supervised release, and a $200 special assessment. …

Based upon my review and consultations with BIS’s Office of Export Enforcement, including its Director, and the facts available to BIS, I have decided to deny Justice’s export privileges under the Regulations for a period of 10 years from the date of Justice’s conviction. I have also decided to revoke all BIS-issued licenses in which Justice had an interest at the time of his conviction. …

[T]his Order is effective immediately and shall remain in effect until September 19, 2027.

Issued this 15th day of November, 2018.

Karen H. Nies-Vogel, Director, Office of Exporter Services.

Highlight 2

State/DDTC Publishes DTAG Plenary Session Documents

(Source: State/DDTC, 26 Nov 2018.)

Plenary Session (25 October 2018) Documents:

Oversight of Unclassified Technical Data

Reporting Changes in Ownership or Control

Ranking of USML Categories for Future Ongoing Licensee

Common Carrier Definition

Five Eyes Defense Trade

 

N.B. The Defense Trade Advisory Group (DTAG) is established under the general authority of the Secretary and Department of State as set forth in Title 22 of United States Code.

 

The purpose of the DTAG is to provide a formal channel for regular consultation and coordination with U.S. private sector defense exporters and defense trade specialists on issues involving U.S. laws, policies, and regulations for exports of defense articles, services, and related technical data. The DTAG serves the Department in solely an advisory capacity.

 

Membership of the DTAG is appointed by the Assistant Secretary. The DTAG consists of up to 50 members, who are designated as representatives for the purpose of Federal ethics rules. Members must be U.S. citizens.

Highlight 3

UK/ECJU Updates Guidance on the Export of Medical Devices

(Source: UK ECJU, 27 Nov 2018.)

Check if you need a certificate of free sale to export medical devices outside the EU.

You don’t need a certificate of free sale to move medical devices within the EU.

Outside the EU, you may need a Certificate of Free Sale (CFS) to export medical devices.

Check with the destination country to find out if you need a certificate. You can also talk to your importer or get help researching your export market.

Before you apply

The manufacturer, legal manufacturer, or authorised representative must be based in the UK and the medical devices you’re exporting must be CE marked to show compliance with the Medical Device Regulations.

How to apply

Apply for an account.  Once your account has been approved we will email you instructions on how to use the system to purchase certificates of free sale for the medical devices you intend to export.

Already have an account?

If your account was activated before 01 November 2018 please log in to apply for a CFS.

If your account was activated after 01 November 2018 please log in to apply for a CFS.

Fees

Certificates cost £75 per order for the first 10 certificates.

Additional certificates on the same order cost £10 each.

How long will my order take?

We will try to post your order within 10 working days from date of receipt. During busy periods orders may take longer. Please order as far in advance as possible. All orders are posted by First Class Royal Mail.

Getting help

Contact the Medicines and Healthcare products Regulatory Agency (MHRA) if you need help.

MHRA CFS team
– Email: device.cfs@mhra.gov.uk
– Telephone: 020 3080 7171

– Monday to Friday, 9am to 5pm

Find out about call charges

Highlight 4

Treasury/OFAC: “Cobham Holdings, Inc. Settles Potential Civil Liability for Apparent Violations of the Ukraine Related Sanctions Regulations”

(Source: Treasury/OFAC, 27 Nov 2018.)

Cobham Holdings, Inc. (“Cobham”), a company based in Arlington, Virginia, on behalf of its former subsidiary, Aeroflex/Metelics, Inc. (“Metelics”), has agreed to pay $87,507 to settle potential civil liability for three apparent violations of the Ukraine Related Sanctions Regulations, 31 C.F.R. part 589 (the URSR). Specifically, between July 31, 2014 and January 15, 2015, Metelics appears to have violated § 589.201 of the URSR when it sold 3,400 LM 102202-Q-C-301 switch limiters, 6,900 MSW 2061-206 switches, and 20 silicon diode switch limiter samples through distributors in Canada and Russia to a person whose property and interests in property are blocked pursuant to Executive Order 13661 of March 17, 2014, “Blocking Property of Additional Persons Contributing to the Situation in Ukraine” (collectively referred to hereafter as the “Apparent Violations”).

Prior to December 14, 2015, Metelics was a subsidiary of Cobham, a global provider of technology and services in aviation, electronics, communications, and defense. During negotiations to sell Metelics, the purchaser identified a July 31, 2014 shipment of silicon diode switches and switch limiters to a Metelics distributor in Canada for end-use by Almaz Antey Telecommunications LLC (“AAT”) in Russia. Cobham investigated the shipment and discovered that in December 2014 and January 2015, Metelics made two additional shipments through a Russian distributor for end-use by AAT. At all relevant times, although AAT was not explicitly identified on OFAC’s List of Specially Designated Nationals and Blocked Persons (the “SDN List”), it was 51 percent owned by Joint-Stock Company Concern Almaz-Antey (“JSC Almaz-Antey”), which OFAC had blocked and added to the SDN List on July 16, 2014, two weeks before the July 31, 2014 shipment. As a result, AAT was blocked pursuant to §§ 589.201 and 589.406 of the URSR at the time Metelics engaged in the three shipments described below. These shipments arose out of two separate transactions – one taking place between June and July 2014, and the other taking place between October 2014 and January 2015.

On June 18, 2014, Metelics agreed to ship an order of 6,900 switches and 6,900 switch limiters through a Canadian distributor to AAT. The total value of the order was $1,123,182. On June 19, 2014, Metelics performed a denied party screening for the order that returned warnings for Russia generally but not AAT specifically, as JSC Almaz-Antey had not yet been added to the SDN List. Metelics did not have sufficient stock to fill the order, so it arranged to split the order into two shipments.

Metelics prepared the first shipment associated with the June 18, 2014 order for June 27, 2014 and performed another denied party screening that day with similar results to the first screening. Knowing the shipment was destined for Russia, Metelics forwarded the end-use certificates to its Director of Global Trade Compliance to confirm that required compliance procedures had been followed and for final approval. After completing its global trade compliance review, Metelics shipped the first part of the order on June 27, 2014. The value of the shipment was $377,860.

On July 16, 2014, OFAC designated JSC Almaz-Antey and added it to the SDN List.

Metelics prepared the second shipment on July 31, 2014 and again performed a denied party screening. Although OFAC had designated JSC Almaz-Antey and added it to the SDN List approximately two weeks before, and despite the inclusion of two uncommon terms in the names of both the SDN and the specific end-user for the subject transaction (“Almaz” and “Antey”), Metelics’ denied party screening produced no warnings or alerts for AAT. After the Director of Global Trade Compliance, in reliance on the results of the screening software, approved the transaction, Metelics shipped the second part of the order on July 31, 2014. The total value of the second shipment was $745,322.

In October 2014, Metelics received an order for 10 samples of two different silicon diode switch limiters from a Russian distributor for end-use by AAT. On October 27, 2014, Metelics performed a denied party screening for the parties involved in the transaction (including AAT) which did not return any matches. Metelics subsequently shipped the samples in two separate shipments following the same procedures of performing a denied party search just prior to shipment and seeking approval from its Director of Global Trade Compliance (similar to the July 2014 transaction). The first shipment occurred on December 19, 2015 and the second on January 15, 2015. The value for each of these two shipments listed on the commercial invoices was $10.

Cobham determined that its screening software failed to generate an alert because JSC Almaz- Antey (the entity identified on the SDN List) did not include the word “telecom.” The third- party screening software relied on by Cobham used an all word match criteria that would only return matches containing all of the searched words, even though Cobham had set the search criteria to “fuzzy” to detect partial matches. This meant that the software failed to match “Almaz Antey” when Cobham searched for “Almaz Antey Telecom.”

OFAC determined that Cobham voluntarily self-disclosed the Apparent Violations on behalf of Metelics, and that the Apparent Violations constituted a non-egregious case. The statutory maximum civil monetary penalty applicable in this matter is $1,990,644. The base civil monetary penalty amount for the Apparent Violations is $125,010.

The settlement amount reflects OFAC’s consideration of the following facts and circumstances, pursuant to the General Factors under OFAC’s Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A. OFAC determined the following to be aggravating factors: (1) Metelics failed to recognize warning signs when exporting goods on multiple occasions through distributors to the subsidiary of a blocked person with nearly the same name as the blocked person; (2) the Director of Global Trade Compliance reviewed and approved the transactions constituting the apparent violations; (3) the apparent violations resulted in harm to the sanctions program objectives of the URSR by conferring an economic benefit to a blocked person tied to Russia’s defense industry; (4) Metelics and Cobham are large and sophisticated entities operating in a sensitive industry; and (5) Cobham and its compliance personnel were involved in prior apparent violations of the Iranian Transactions and Sanctions Regulations administered by OFAC and Metelics was subject to a consent agreement for violations of the International Traffic in Arms Regulations administered by the U.S. Department of State resulting from recurring compliance failures.

OFAC determined the following to be mitigating factors:

(1) Metelics has not received a penalty notice or finding of violation from OFAC in the five years preceding the earliest date of the transactions giving rise to the Apparent Violations;

(2) Cobham cooperated with OFAC by submitting a detailed disclosure;

(3) Cobham implemented certain remedial measures, including those described in more detail below; and

(4) that the primary transaction underlying the Apparent Violations straddled changes in the URSR such that a portion of the transaction occurred prior to it being prohibited.

Additionally, Cobham has confirmed to OFAC that it has terminated the violative conduct and taken the following steps to minimize the risk of recurrence of similar conduct in the future:

– Cobham acquired and implemented new and enhanced sanctions screening software which, according to Cobham, does not possess the same deficiency as its prior sanctions screening software and that is capable of identifying and flagging potential matches to persons with close name variations to parties identified on the SDN List;

– Cobham acquired and implemented a screening and business intelligence tool with the capability of identifying and flagging persons known to be owned by parties identified on the SDN List, and has developed a process for employing the business intelligence tool to conduct enhanced due diligence on high-risk transactions from an OFAC sanctions perspective, to include any transaction involving a Cobham U.S. entity and any party in either Russia or Ukraine; and

– Cobham circulated a lessons learned bulletin to all U.S.-based international trade compliance personnel that described the apparent violations, reiterated that U.S. law may prohibit transactions with unlisted entities owned or controlled by listed parties, and urged personnel to alert Cobham’s compliance team whenever a proposed transaction involves an entity who they have reason to believe may be owned or controlled by a prohibited party.

This case demonstrates the importance of companies operating in high-risk industries (i.e., defense) to implement effective, risk-based compliance measures, especially when engaging in transactions involving high-risk jurisdictions. Persons employing sanctions screening software should take steps to ensure it is sufficiently robust and that appropriate personnel are trained on its functionality. Furthermore, it is essential that companies engaging in international transactions maintain a culture of compliance where front line staff are encouraged to follow up on sanctions issues, including by promptly reporting to compliance personnel transactions suspected to involve sanctioned parties.

OFAC expects companies settling apparent violations of its regulations to ensure their compliance units receive adequate resources, including in the form of human capital, information technology, and other resources, as appropriate.

For more information regarding OFAC regulations, please go to: www.treasury.gov/ofac.

Highlight 5

EU Amends Restrictive Measures Concerning Libya

(Source: Official Journal of the European Union, 29 Nov 2018.)

Regulations:

* Council Implementing Regulation (EU) 2018/1863 of 28 November 2018 implementing Article 21(1) of Regulation (EU) 2016/44 concerning restrictive measures in view of the situation in Libya

Decisions:

* Council Implementing Decision (CFSP) 2018/1868 of 28 November 2018 implementing Decision (CFSP) 2015/1333 concerning restrictive measures in view of the situation in Libya

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About the Author

Alexander Bosch

Alexander P. Bosch, Program Manager. Alexander Bosch has, due to his multidisciplinary academic background, a good overview of how the world of trade compliance is constructed. He is responsible for the drafting of engagement proposals, writing policies and procedures and designing an Internal Compliance Program, performing compliance assessments, audits, investigations related to (potential) export control violations, and is assistant editor of FCC’s daily newsletter, The Export/Import Daily Update (“The Daily Bugle”). In addition, Alexander plays a key role in the development and teaching of FCC’s training programs, and the Executive Masters in International Trade Compliance (EMITC) program, which FCC has set up in cooperation with the University of Liverpool London Campus. Alexander previously was responsible for a project for the Dutch government in which he assessed the effects of the U.S. Export Control Reform (ECR) upon the Dutch government and industry. He has earned his Master’s degree in International Relations from the University of Groningen and has written his master-thesis on the subject of European defense cooperation.

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