Pay the Government on Time…or Pay Even Sooner

May 11th, 2017 by Danielle McClellan

By: Danielle McClellan

In September 2015, Streit USA Armoring, LLC entered into a Settlement Agreement with the Bureau of Industry and Security (BIS) that imposed a civil penalty of $1.6 million ($850 million in installment payments and $750,000 suspended). The company violated the regulations after it reexported armored vehicles to Iraq, Nigeria, and the Philippines. Full article available at http://learnexportcompliance.bluekeyblogs.com/2015/10/01/bis-nails-mid-and-high-level-company-officials-but-not-export-administrator-in-addition-to-company/.

During settlement negotiations Streit USA specifically sought for the ability to pay the $850,000 in installment payment of $170,000. Under this plan, the company was required to make all payments on time; it was found that their November 2016 payment was not made in a timely fashion so the Final Order has been amended to move the due date forward for the final two remaining payments. Streit USA will now owe its final payment son May 2017 and September 2017 compared to the original June 2017 and January 2018.

Amended Order: https://efoia.bis.doc.gov/index.php/documents/export-violations/export-violations-2015/1111-e2498/file

Rosoboronexport Added to Nonproliferation Act by State

May 11th, 2017 by Danielle McClellan

On March 21, 2017, the Department of State applied the measures authorized in Section 3 of the Iran, North Korea, and Syria Nonproliferation Act against Rosoboronexport (ROE) (Russia) and any successor, sub-unit, or subsidiary thereof. The measures below will remain in place for two years from the effective date unless the Secretary of State determines otherwise.

Rosoboronexport accounts for more than 90% of Russia’s annual arms sales and India is their major client, other leading clients include China, Algeria, Syria, Vietnam, Venezuela and recently Iraq.

Section 3 of the Act, imposes the following measures against Rosoboronexport:

  1. No department or agency of the United States Government may procure or enter into any contract for the procurement of any goods, technology, or services from this foreign person, except to the extent that the Secretary of State otherwise may determine. This measure shall not apply to subcontracts at any tier with ROE and any successor, sub-unit, or subsidiary thereof made on behalf of the United States Government for goods, technology, and services for the maintenance, repair, overhaul, or sustainment of Mi-17 helicopters for the purpose of providing assistance to the security forces of Afghanistan, as well as for the purpose of combating terrorism and violent extremism globally. Moreover, the ban on U.S. government procurement from the Russian entity Rosoboronexport (ROE) and any successor, sub-unit, or subsidiary thereof shall not apply to United States Government procurement of goods, technology, and services for the purchase, maintenance, or sustainment of the Digital Electro Optical Sensor OSDCAM4060 to improve the U.S. ability to monitor and verify Russia’s Open Skies Treaty compliance. Such subcontracts include the purchase of spare parts, supplies, and related services for these purposes;
  2. 2. No department or agency of the United States Government may provide any assistance to this foreign person, and this person shall not be eligible to participate in any assistance program of the United States Government, except to the extent that the Secretary of State otherwise may determine;
  3. No United States Government sales to this foreign person of any item on the United States Munitions List are permitted, and all sales to this person of any defense articles, defense services, or design and construction services under the Arms Export Control Act are terminated; and;
  4. No new individual licenses shall be granted for the transfer to this foreign person of items the export of which is controlled under the Export Administration Act of 1979 or the Export Administration Regulations, and any existing such licenses are suspended.

Federal Register: https://www.gpo.gov/fdsys/pkg/FR-2017-03-29/pdf/2017-06224.pdf

U.S. Administration Exempts DDTC from Limit on New Regulations

May 11th, 2017 by Danielle McClellan

Mr. Brian Nilsson, Deputy Assistant Secretary of State for Defense Trade Controls, stated at the public meeting of the Defense Trade Advisory Group (DTAG) today in Washington, DC, that DDTC is exempt from the Administration’s limit on new regulations, so plans are continuing to issue new or revised regulations this year for the following subjects:

  • Defense services
  • Public domain
  • Technical data
  • Fundamental research
  • ITAR 126.4 exemption
  • US persons abroad – registration and licensing requirements

DDTC welcomes public suggestions for amendments of the International Traffic in Arms Regulations, and for DDTC operations such as the website format, and agency training and outreach. Submit them to DDTCResponseTeam@state.gov.

Chinese National Pleads Guilty to Attempting to Export “Bananas”

May 11th, 2017 by Danielle McClellan

By: Danielle McClellan

For the past 6 years, 53 year old Fuyi Sun has attempted to purchase carbon fiber for the Chinese military (according to court records). A few years ago Sun contacted what he thought was a US company that distributed carbon fiber, but was, in fact, an undercover entity created by Homeland Security Investigations (HSI) and staffed by undercover agents. The company, “UC Company,” was asked by Sun to supply M60 Carbon Fiber which is a high-grade carbon fiber that is used in sophisticated aerospace and defense applications, specifically for drones and other government defense applications. M60 Carbon Fiber requires a license for export to China for nuclear non-proliferation and anti-terrorism reasons.

During the course of the relationship between UC Company and Sun, he often suggested various security measures they should take to make sure they would both remain protected from the “U.S. Intelligence.” He instructed the undercover agents to use the word “banana” instead of “carbon fiber” in all communications…he inquired about purchasing 450 kilograms of banana in one email. He also instructed agents to remove identifying barcodes for the carbon fiber, prior to transshipment,  and instructed them to identify it as “acrylic fiber” in customs documentation.

On April 11, 2016, Sun traveled from China to New York to purchase the M60 Carbon Fiber from UC Company. On April 11th and 12th Sun met with undercover agents and suggested to them that the Chinese military was the ultimate end-user for the carbon fiber, he also explained that he personally worked in the Chinese missile program. He further asserted that he had a close relationship with the Chinese military, and would be supplying the M60 Carbon Fiber to the Chinese military or to institutions closely associated with it. He agreed to purchase two cases of the carbon fiber on the 12th from UC Company and provided them with $23,000 in cash for the carbon fiber and then provided an additional $2,000 as compensation for the risk that he believed they were taking to illegally export the carbon fiber to China without a license. Sun was arrested the next day.

Sun pled guilty to attempting to violate the International Emergency Economic Powers Act (IEEPA), which carries a maximum sentence of 20 years in prison. The maximum sentence in this case will be prescribed by Congress. Sun will be sentenced on July 26, 2017.

Details: https://www.justice.gov/opa/pr/chinese-national-pleads-guilty-attempting-illegally-export-high-grade-carbon-fiber-china

Exporting to Hong Kong? Don’t Forget Your Written Proof for Hong Kong!

May 11th, 2017 by Danielle McClellan

By: John Black

Effective April 19, 2017, the Bureau of Industry and Security (BIS) has new documentation requirements for export and reexports under licenses and license exceptions to and from Hong Kong.

BIS will  require persons planning on exporting and reexporting to Hong Kong any items subject to the Export Administration Regulations (EAR) and controlled on the Commerce Control List (CCL) for national security (NS), missile technology (MT), nuclear nonproliferation (NP column 1), or chemical and biological weapons (CB) reasons to obtain, prior to the export or reexport, a copy of a Hong Kong import license or a written statement from the Hong Kong Government that such a license is not required. The purpose of this change is to require that the Hong Kong Government issue an import license as an acknowledgement that sensitive EAR-controlled items are entering Hong Kong and as an agreement to prevent unauthorized reexport or transfer of those items to prohibited destinations. Interestingly, the prohibited destination that most concerns the US is the People’s Republic of China (PRC). The EAR treats Hong Kong as a separate “country” from the PRC even though the PRC, the United Nations, and nearly everybody else in the world considers Hong Kong to be part of the PRC because Hong Kong is part of the PRC.

Leaving behind the interesting point that the EAR treats Hong Kong as if it is not part of the PRC, there are a lot of details in this new rule. In addition what was described above, this rule will also require persons planning on reexporting from Hong Kong any item subject to the EAR and controlled for NS, MT, NP column 1, or CB reasons to obtain a Hong Kong export license or a statement from Hong Kong government that such a license is not required.

View full details of the rule at http://www.learnexportcompliance.com/News/The-Export-Control-Update-February-2017.aspx#EAR

BIS FAQs Related to Rule: https://bis.doc.gov/index.php/policy-guidance/foreign-import-export-license-requirements/hong-kong

Federal Register: https://www.gpo.gov/fdsys/pkg/FR-2017-01-19/pdf/2017-00446.pdf

Company Fined $162K for Antiboycott Violations

March 30th, 2017 by Danielle McClellan

By: Danielle McClellan

The Office of Antiboycott Compliance, Bureau of Industry and Security (BIS) has charged Pelco Inc. (Pelco) with 66 violations. Between May 2011 and January 2016 it was found that on 32 occasions Pelco was engaged in transactions involving the sale/transfer of goods and services from the US to the United Arab Emirates and Kuwait, activities in the interstate or foreign commerce of the US (Section 760.1(d)). In connection with these transactions, Pelco, with intent to comply with, further supported an unsanctioned foreign boycott by agreeing to refuse to do business with another person (prohibited by Section 760.2(a)).

In addition to those 32 charges, Pelco was charged with 34 violations of “Failing to Report the Receipt of a Request to Engage in a Restrictive Trade Practice or Foreign Boycott Against a Country Friendly to the US” (Section 760.5). This is not surprising, a company who agrees to an illegal boycott is not likely to report said boycott.

Pelco will pay $162K to settle the violations and will not be debarred as long as the settlement amount it paid.

Charging Letter: https://efoia.bis.doc.gov/index.php/documents/antiboycott/alleged-antiboycott-violations-2015/1100-a749/file

BIS Extends Temporary General License for ZTE Corporations & ZTE Kangxun

March 30th, 2017 by Danielle McClellan

On February 21, 2017 the Bureau of Industry and Security (BIS) extended a temporary general license that restored, for a specified time period, the licensing requirements and policies under the EAR for exports, reexports, and transfers (in-country) to ZTE Corporation and ZTE Kangxun that were added to the Entity List on March 8, 2016. The rule extends the general license to March 29, 2017.

Federal Register: https://www.gpo.gov/fdsys/search/pagedetails.action?granuleId=2017-03664&packageId=FR-2017-02-24&acCode=FR&collectionCode=FR

Florida Company Fined $27 Million for 150 Intentional EAR Violations

March 30th, 2017 by Danielle McClellan

By: Danielle McClellan

Access USA Shipping, LLC (Access) of Sarasota, Florida was charged with 150 violations beginning in April 2011 and spanning to February 2013. The company went out of its way to conceal the fact that foreign customers were purchasing products through them without their US merchants knowing who the end users of their items were. Access mis-described, undervalued, and destroyed and/or altered export control documents to conceal the illegal exports. They also made sure that their foreign customers had a direct employee to order through to avoid any export scrutiny. They went as far as allowing foreign customers to send “wish lists” to Access employees who would then purchase the products from their US merchants with US credit cards and PayPal accounts in the name of Eric Baird, Access’s founder and then-owner and CEO or cards opened in the name of the employee making the order. The foreign customer would then reimburse Access or the employee; there were even situations when the shipments were delivered to the homes of Access employees to ensure that the US merchants would not become suspicious of the order and the end user.

Access also exported (or attempted to) items classified as ECCN 0A987 which are controlled for Crime Control reasons to Argentina, Austria, Hong Kong, Indonesia, Libya, South Africa, and Sweden without a BIS export license. It was also found that the company exported (or attempted to) items classified as ECCN 5A990 and controlled for anti-terrorism reasons as well as EAR99 items to Transsphere Oy, a company on the Entity List.

The company is ordered to pay $10 million right away and the other $17 million will be suspended for two years and waived if the company does not commit any violations during the two year probationary period.

Charging Letter: https://efoia.bis.doc.gov/index.php/documents/export-violations/export-violations-2015/1102-e2490/file

DHS/CBP Posts Clarification on DDTC Implementation Guide V1.5

March 30th, 2017 by Danielle McClellan

(Source: CSMS# 17-000091, 22 February 2017.)

New ACE Programming

[Reference CSMS# 16-000993 Updated DDTC Implementation Guide V1.6, October 2016]

“Updated DDTC Implementation Guide V1.6, October 2016” was issued on December 5, 2016 announcing the posting of DDTC Implementation Guide V1.6, dated October 2016. However, V1.6 included the PG25 line value which was determined to be Post Core work and is not yet implemented. The schedule for this implementation has not yet been determined. Therefore the current and accurate version of the DDTC Implementation Guide is V1.5, dated May 2016. It can be found at here.

Related CSMS No. 16-000993

Company Fined $500K for 56 ITSR Violations by OFAC

March 30th, 2017 by Danielle McClellan

By: Danielle McClellan

United Medical Instruments, Inc. (UMI) agreed to a settlement of $515,400 with the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) based on 56 alleged violations of the Iranian Transactions and Sanctions Regulations (31 C.F.R. Part 560). Between 2007 and 2009 it was found that UMI sold medical imaging equipment with knowledge that the goods were going to be reexported from the United Arab Emirates to Iran. The total value of the goods associated with the transactions was approximately $2,493,597.

OFAC considered the following to be mitigating factors:

  1. The alleged violations occurred due to the actions of a single UMI employee rather than a systemic pattern of company-wide conduct;
  2. UMI took remedial action in response to the alleged violations, including by voluntarily ceasing transactions involving Iran and by implementing new procedures and updating its compliance program to prevent the recurrence of similar sanctions violations;
  3. UMI 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 alleged violations;
  4. UMI cooperated with OFAC’s investigation by providing timely responses to OFAC’s correspondence and by entering into multiple statute of limitations tolling agreements; (5) UMI is a small business, as determined by the size standards set forth by the Small Business Administration; and (6) based on the financial condition of UMI, including significant financial difficulties experienced by the company in recent years, additional mitigation is warranted.

Settlement: https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20170228.aspx