The settlement resolved multiple violations including:

• Unauthorized exports of defense articles resulting from the failure to establish proper jurisdiction and classification
• Unauthorized exports of defense articles, including classified defense articles
• Unauthorized exports of defense articles by employees via hand-carry to proscribed destinations listed in 22 C.F.R. 126.1; and
• Violations of terms, conditions, and provisos of Directorate of Defense Trade Controls (DDTC) authorizations

RTX disclosed the violations voluntarily and cooperated with the State Department’s review.

Under the terms of the agreement, RTX will pay a penalty of $200M. $100 million will be suspended and used for remedial compliance measures to improve RTX’s compliance program. RTX must also engage an external Special Compliance Officer to ensure compliance with the agreement for at least 24 months.

This settlement demonstrates the State Department’s priorities in enforcing export controls and the importance of prioritizing compliance programs.

Diaz Trade Law can help create a new export compliance plan for your business or review and update an existing one. To learn more about how we can help, contact us at info@diaztradelaw.com or call us at 305-456-3830.

Read more:

• The Importance of Regular Export Compliance Training for your Business
• Building a Strong Export Compliance Plan
• Building & Maintaining an Effective Export Compliance Plan
• Introduction to Export Controls

Background on Export Administration Regulations

Over 95% of the world’s population is outside of the United States. Opportunities abound for U.S. companies that export. However, exporting is a privilege and not a right. U.S. exporters have an important responsibility to adhere to U.S. export control laws, including the Export Administration Regulations (“EAR”).

Administered by the U.S. Commerce Department, the EAR is a set of regulations which governs whether U.S. persons may export or transfer goods, software, and technology outside of the United States or to non-U.S. citizens. U.S. exporters have an important responsibility to adhere to the EAR. Violations of the EAR carry hefty civil and criminal penalties. Exporters can pay hundreds of thousands of dollars in penalties, lose export privileges, and even be imprisoned.

Encryption Controls

According to 15 CFR 742.15:

“Encryption items can be used to maintain the secrecy of information, and thereby may be used by persons abroad to harm U.S. national security, foreign policy and law enforcement interests. The United States has a critical interest in ensuring that important and sensitive information of the public and private sector is protected.”

Under the EAR, encrypted technology is generally classified under Category 5 Part 2 of the Commerce Control List. To classify encrypted technology of the CCL, like with classifying most articles, data, and services, it is essential to consult experts. Generally, engineers and subject matter experts on the specifications of the technology can serve as valuable resources to export compliance personnel in the classification process. Furthermore, for encrypted technology, resources such as encryption registration numbers, sales reports, marketing materials, technical specifications, and user manuals can be used to classify encrypted technologies.

Encrypted technology is everywhere. Daily household, commercial, and industrial goods are encrypted. Encrypted technology is often controlled for the following reasons:

• Anti-terrorism (AT)
• National Security (NS)
• Encryption Items (EI)

Encryption Licensing Exceptions

However, most encryption items may be exported under the provisions of License Exception ENC set forth in § 740.17 of the EAR. This license exception permits exportations of technology controlled for EI under any of the following circumstances:

• ‘Private sector end-users’ headquartered in a Supp. 3 country (Supplement No. 3 to Part 740) for internal use for the “development” or “production” of new products.
• Certain additional exports to ‘private sector end-users’ headquartered in a Supp. 3 country for uses other than the “development” or “production” of new products. To meet this requirement:
  • The item must not be U.S. origin and must have become subject to the EAR after production.
  • All parties to the transaction must be subsidiaries of the same Supp. 3 company;
  • The end-user must be a ‘private sector end-user’; and
  • The characteristics of the item must not be enhanced unless otherwise authorized
• Exports to “U.S. Subsidiaries”, wherever located, for internal use, including to foreign national employees and individual contractors or intern of the U.S. company
• Exports of foreign made encryption items developed with or incorporating U.S. origin encryption source code, components, or toolkits, provided the U.S. origin encryption item has been classified or reported under license exception ENC and the encryption functionality has not changed

What You Can Do

Exporters have significant responsibilities to ensure compliance, to avoid penalties and/or jail time (i.e., your compliance manager deserves a raise!). Proper adherence to EAR requirements ensures that your business contributes to safeguarding U.S. national security and avoiding costly penalties. Many U.S. businesses have paid hefty civil penalties for violating U.S. export control laws. L3Harris Technologies, for example, was fined $13 million for illicitly exporting defense technology and software. For more examples of costly civil and criminal penalties, check out BIS’ latest Don’t Let This Happen to You! Publication.

If you are exporting goods subject to EAR, we propose you should:

• Develop an effective export compliance plan.

A key foundation of proactive and effective export compliance requires the development of an export compliance plan. An export compliance plan establishes a set of procedures for your organization to ensure that everyone is on the same page about how standard processes work, who is responsible for what, how to identify violations, what to do when violations occur, etc. An export compliance plan helps build consciousness in your organization that compliance is critical – both to avoid costly penalties and also to protect national security. Diaz Trade Law helps exporters create export compliance manuals that help prove you have a process in place to classify your merchandise correctly, vet your customers and ensure you can prove you can take compliance seriously and implement all of the important great weight mitigating factors. Diaz Trade Law has significant experience in developing and enhancing export compliance plans for organizations. Additionally, Diaz Trade Law can assist your business in auditing and improving your current plan so that it is in its best shape.

• Engage in regular export compliance training.

A foundation of a strong export compliance program is export compliance training. Training is important because it (1) ensures that all employees understand the export regulations and reinforces internal policies and procedures, (2) demonstrates to federal government agencies that your business is proactive about export compliance, and (3) avoids your business from being subject to costly penalties and even criminal liability. Fortunately, export compliance training can be highly tailored to meet your company’s needs. All of your training events include assessments for comprehension, certificates for successful participation, and ample opportunities for Q&A. For your next export compliance training event, trust Diaz Trade Law to provide highly-effective, engaging training.

• Thoroughly vet your proposed export transactions

Unsure whether a proposed export transaction violates the EAR? Diaz Trade Law has significant experience vetting your potential transaction against U.S. export control laws. Through research and due diligence, Diaz Trade Law ensures that your transaction won’t get you in trouble later down the road.

• Request authorization when necessary

BIS export authorization is required for many export transactions of controlled goods. Diaz Trade Law has significant experience in vetting proposed transactions to determine whether BIS authorization is required. Furthermore, Diaz Trade Law assists clients by filing BIS export license applications on their behalf on BIS’ SNAP-R portal.

• Engage in mitigation and corrective actions.

If your business has violated U.S. export control laws, there is a lot you can do to mitigate penalties and prevent future violations. Diaz Trade Law has significant experience representing businesses in dealing with the U.S. Commerce Department’s Bureau of Industry & Security and the Census Bureau. Specifically, Diaz Trade Law has successfully assisted clients in (1) submitting voluntary self-disclosures to mitigate penalties, (2) negotiated agreements with BIS and Census, and (3) built corrective action systems to help ensure that your business does not make the same violation again.

Contact Us

Diaz Trade Law has significant experience in a broad range of export compliance matters. To learn more about the services we offer, contact us at info@diaztradelaw.com or call us at 305-456-3830.

Overview – Export Administration Regulations

In order to protect national security interests and promote foreign policy objectives, the United States imposes export controls and participates in various multilateral export control regimes to prevent the proliferation of weapons of mass destruction and prevent destabilizing accumulations of conventional weapons and related materials. To that end, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) governs the export and reexport of commodities, software, and technology falling under the jurisdiction of Export Administration Regulations. BIS promotes continued U.S. strategic technology leadership and is responsible for enforcing the regulation of export, reexport, and transfer of items with commercial uses that can also be used in conventional arms, weapons of mass destruction, terrorist activities, or human rights abuses, and less sensitive military items.

The Export Administration Regulations (EAR) regulates the export, reexport, and in-country transfer of some military items, commercial items that could be applied both commercially and militarily or with proliferation applications, and commercial items without any obvious military use. When you are sending anything that may be subject to EAR, you may be required to get a license from BIS before the shipment. License requirements depend on the technical characteristics of an item, its destination, the end user, and the end use. In order to determine if the item, whether it be a commodity, software, or technology, being exported needs a license, the sender must consider the following:

• What is being exported: BIS classifies items under Export Control Classification Numbers (ECCNs), which are all listed on the Commerce Control List (CCL) (15 CFR 774, Supplement 1). If the item falls under U.S. Department of Commerce jurisdiction but is not listed on the CCL, it is designated as EAR99. Even low-technology consumer goods may require a license if the proposed export of an EAR99 item is to an embargoed country, to an end user of concern, or in support of a prohibited end use.
• Where it is being exported: Country-specific license requirements are determined by comparing the ECCN with the Commerce Country Chart. The ECCN and the Commerce Country Chart, taken together, define the items subject to export controls based solely on the technical parameters of the item and the country of ultimate destination.
• Who receives the export also affects the requirement for a license. Certain individuals and entities are prohibited from receiving U.S. exports, and others may only receive goods if they have been licensed, even if those items do not normally require a license on the basis of the ECCN and country of destination. Proscribed parties can be found in the U.S. Government’s Consolidated Screening List.
• End use: Some end uses or applications are prohibited while others are restricted and may require a license (see EAR part 744).

What is Successor Liability?

Successor Liability is the assumption of burdens of an acquired entity by the surviving company in a sale, merger, or acquisition transaction. Regarding export controls, successor liability focuses more on which party of parties in the acquisition are liable, after the acquisition deal is closed, for any violations of export control laws committed by the acquired company before the deal was concluded. Successor liability does allow for the possibility of both the seller and buyer to be determined responsible for export violations incurred by the seller.

Currently, successor liability could be imposed for failure to comply with U.S. export laws and regulations, including the Export Administration Regulations that are implemented by the U.S. Commerce Department, BIS.

Some of the main threats that can negatively affect an organization include export items, operations, customers, and acquisitions, specifically successor liability. In terms of successor liability, one should have a Due Diligence Checklist and consider if it is the same employees, the same company name, and if it is a continuation of the same old company. Successor liability is not imposed on a purchase of assets unless the following exceptions are applied:

• The purchasing corporation expressly or impliedly agrees to assume the liability;
• The transaction amounts to a de facto consolidation or merger;
• The buyer is merely a continuation of the seller; or
• The transaction was fraudulently entered into to escape liability.

To determine whether the buyer is “merely a continuation of the seller” certain factors are examined to determine whether or not successor liability is applied, which is also known as “substantial continuity.” The factors considered are:

• Retention of the same personnel
• Continued operations at the same location under the same business name
• Production of the same products
• Maintenance of the same assets and general business operations
• Holding the company out to the public as a continuation of the previous corporation

In considering these factors, regulators are ensuring that past illegal practices will not continue and that the violators are held accountable for their actions. If the seller is dissolved and devoid of significant assets, the seller would generally not be pursued as a viable responsible target for violation penalties for legal and policy reasons and the buying company may be considered for liability.

Case Study

An example of export control violation liability falling on a buyer because of successor liability is the case of Sigma-Aldrich Holdings Inc. This case holds that an acquirer of a company can be liable for the export violations of the target company for violations which occurred prior to the acquisition despite how the acquisition is structured. This case provided an expansion of the principle of successor liability to the international business compliance area and increased corporate risk.

The case entailed an enforcement action initiated by the BIS for violations of the EAR, alleging that the Research Biochemicals Limited Partnership (RBLP) exported tetrodotoxin citrate without obtaining the required export licenses. RBLP had sold its business to Sigma Aldrich Corporation after the alleged illegal action occurred. This transaction was structured as a sale of assets rather than a sale of stock. BIS then initiated an enforcement action against Sigma Aldrich after they concluded the acquisition. This enforcement action alleged violations of EAR for: exporting goods without obtaining required export licenses, making false or misleading statement, and violating export recordkeeping requirements. BIS claimed that Sigma Aldrich was liable for the RBLP’s export control violations as the successor in interest to RBLP in addition to violations which it had committed on their own.

The judge ruled that Sigma Aldrich was indeed liable for illegal actions previously committed by RBLP based on the principle of successor liability because under this principle the acquiring company is responsible for the liabilities of the target due to the “substantial continuity” of the target company’s people, products, and business. This case then shows how successor liability can be applied under export control regulations no matter the structure of the acquisition.

Implications for Companies Conducting Acquisitions

A target company involved in international business activities is subject to a broad range of federal laws that regulate the international business transactions. When an acquirer purchases a company, it is often stepping into the shoes of the target and is then subject to these laws. If this target has violated these laws, it is possible that the acquirer will take on these liabilities even when the structure is as a purchase of assets rather than stock. BIS has announced that they will prosecute companies for the export control violations of companies they acquire regardless of how a transaction is structured.

As a result of the case of Sigma-Aldrich Holdings Inc, buyers need to conduct a highly specialized due diligence review that focuses on past compliance of the selling company. This due diligence should be conducted by a member of the deal team that has specific expertise in export control law. In case the acquirer sees a pattern of sloppy compliance, the acquirer should consider having the seller file a voluntary disclosures PRIOR to the closing. Lastly, it is highly recommended that a buyer consider using strong warranties, representations, and indemnification clauses focused on violations of international business statues in their acquisition agreements.

What Should You Do

If you are either exporting goods or looking to purchase a company that is, it is essential to:

• Ensure an effective export compliance plan is in place
  • A key foundation of proactive and effective export compliance requires the development of an export compliance plan. An export compliance plan establishes a set of procedures for your organization to ensure that everyone is on the same page about how standard processes work, who is responsible for what, how to identify violations, what to do when violations occur, etc. An export compliance plan helps build consciousness in your organization that compliance is critical – both to avoid costly penalties and to protect national security. Diaz Trade Law helps exporters create export compliance manuals that help prove you have a process in place to classify your merchandise correctly, vet your customers and ensure you can prove you can take compliance seriously and implement all the important great weight mitigating factors. Diaz Trade Law has significant experience in developing and enhancing export compliance plans for organizations. Additionally, Diaz Trade Law can assist your business in auditing and improving your current plan so that it is in its best shape.
• Engage in regular export compliance training
  • A foundation of a strong export compliance program is export compliance training. Training is important because it (1) ensures that all employees understand the export regulations and reinforces internal policies and procedures, (2) demonstrates to federal government agencies that your business is proactive about export compliance, and (3) avoids your business from being subject to costly penalties and even criminal liability. Fortunately, export compliance training can be highly tailored to meet your company’s needs. All your training events include assessments for comprehension, certificates for successful participation, and ample opportunities for Q&A. For your next export compliance training event, trust Diaz Trade Law to provide highly-effective, engaging training.
• Thoroughly vet your proposed export transaction (Due Diligence is key!)
  • Unsure whether a proposed export transaction violates the Foreign Trade Regulations or other export control laws? Diaz Trade Law has significant experience vetting your potential transaction against U.S. export control laws and in assisting clients to properly file their EEI. Through research and due diligence, Diaz Trade Law ensures that your transaction won’t get you in trouble later down the road.
• Request authorization when necessary
  • BIS or DDTC export authorization is required for many export transactions of controlled goods. Diaz Trade Law has significant experience in vetting proposed transactions to determine whether BIS or DDTC authorization is required. Furthermore, Diaz Trade Law assists clients by filing export license applications on their behalf.
• Engage in mitigation and corrective actions
  • If your business has violated U.S. export control laws, there is a lot you can do to mitigate penalties and prevent future violations. Diaz Trade Law has significant experience representing businesses in dealing with the U.S. Commerce Department’s Bureau of Industry & Security and the Census Bureau. Specifically, Diaz Trade Law has successfully assisted clients in (1) submitting voluntary self-disclosures to mitigate penalties, (2) negotiated agreements with BIS and Census, and (3) built corrective action systems to help ensure that your business does not make the same violation again.

Check out our Bloomberg Law article on Submitting a Voluntary Self-Disclosure to the U.S. Census Bureau, Submitting a Voluntary Self-Disclosure to the BIS, and Export Licensing Under the EAR.

Contact us

Diaz Trade Law has significant experience in a broad range of export compliance matters. To learn more about the services we offer, contact us at info@diaztradelaw.com or call us at 305-456-3830.

AD/CVD & Trade Policy 

• On February 4, 2022, the House of Representatives passed the America Competes Act of 2022 containing provisions such as 102401 which limits protests against U.S. Customs decisions on claims of evasion of AD and CVD orders, a counterpart to the U.S. Senate bill passed in the late fall. The two bills will need to go to conference now to be reconciled. Both bills include provisions for the renewal of GSP and adopt MTB.

ITAR

• On February 2, 2022, the Department of State (DOS) proposes to amend the International Traffic in Arms Regulations (ITAR) to clarify the definitions of export and reexport. DOS proposes to replace the term “national” with “person” in the Canadian exemptions; revise the exemption for intra-company, intra-organization, and intra-governmental transfers to dual nationals or third country nationals; and correct administrative errors in the voluntary disclosures section.

USTR 

• On February 1, 2022. Deputy U.S. Trade Representative Sarah Bianchi announced China had failed to meet its commitments to increase purchases of U.S. farm and manufactured goods, energy and services by $200 billion under a two-year Phase 1 trade deal that expired at the end of 2021.
• On February 2, 2022, the U.S. – Brazil Protocol Relating to Trade Rules and Transparency enters into force after completion of internal procedures. The Protocol modernizes the 2011 Agreement on Trade and Economic Cooperation (ATEC) by adding new commitments on Trade Facilitation, Good Regulatory Practices, and Anti-Corruption based on the relevant chapter of the United States-Canada-Mexico Agreement.
• On February 4, 2022, the United States and European Union (EU) concluded negotiations to allow for resumption of bilateral trade in bivalve molluscan shellfish.  For the first time since 2011, U.S. producers, beginning in the states of Massachusetts and Washington, are eligible to export live, raw and processed bivalve molluscan shellfish to the EU, including oysters, clams, mussels, and whole or roe-on scallops.

If you have questions about these updates, contact our Customs and International trade law attorneys at info@diaztradelaw.com or call us at 305-456-3830.

To receive an email notification whenever a new post is published, please subscribe to our weekly blog here.

Foreign Trade Regulations

The U.S. Census Bureau’s mission is to serve as the nation’s leading provider of quality data about its people and economy. The Census Bureau’s Trade Regulations Branch in the Economic Management Division is chiefly responsible for enforcing the Foreign Trade Regulations. The Foreign Trade Regulations (15 CFR. Part 30) require certain exporters to file export information with the U.S. Census Bureau. They detail requirements for filing export information, explain filing procedures, and establish penalties for noncompliance. The regulations require export information to be filed on the Automated Export System (“AES”). The information submitted by exporters on to AES is known as EEI.

EEI filings are required for a wide variety of circumstances, including:

• Exports valued at more than $2,500 to any destination except Canada
• Exports that require an export license under the Export Administration Regulations (“EAR”)
• Exports on the EAR’s Commerce Control List (“CCL”) and destined for China, Russia, or Venezuela
• Exports subject to the EAR and destined for a country in Country Group E:1 or E:2 (currently, Cuba, Iran, North Korea, and Syria)
• Exports subject to the International Traffic in Arms Regulations (“ITAR”)
• Exports containing rough diamonds

Export Filing Requirements for Shipments to Puerto Rico & the U.S. Virgin Islands

The U.S. Foreign Trade Regulations include filing requirements for shipments from any of the 50 U.S. states to the “extended United States,” a region that comprises Puerto Rico and the U.S. Virgin Islands. Although you do not have to file EEI when sending products state to state, you do have to do so when shipping goods from the United to Puerto Rico and the U.S. Virgin Islands if the shipment at issue meets the $2,500 per Schedule B / HS code threshold or other Census Bureau filing requirement.

However, for shipments from the extended United States (United States, Puerto Rico, and U.S. Virgin Islands) to other U.S. territories, filings are not required. The following are the U.S. territories to which export filings are not required when shipped from the extended United States:

• American Samoa
• Baker Island
• Guam
• Howland Island
• Jarvis Island
• Johnston Atoll
• Kingman Reef
• Midway Islands
• Navassa Island
• Northern Mariana Islands
• Palmyra Atoll
• Wake Island

The policy reasons for requiring EEI filing requirements for shipments to Puerto Rico and the U.S. Virgin Islands include:

• Demand for data to analyze those economies
• Use data to compile Gross Domestic Product (“GDP”)

It should be noted that despite the requirement for EEI filing requirements for shipments from the United States’ 50 states to Puerto Rico and the U.S. Virgin Islands, these shipments are still classified as domestic shipments.

Below is a diagram that demonstrates the differing EEI filing requirements for shipments from the United States’ 50 states to 1) the extended United States, 2) other U.S. territories, 3) Canada, and 4) foreign countries. Shipments from the United States’ 50 states to the extended United States (Puerto Rico and the U.S. Virgin Islands) do require EEI filings; shipments from the United States’ 50 states to other U.S. territories do not require EEI filings; shipments from the United States’ 50 states to Canada generally do not require EEI filings; and, finally, shipments to foreign countries do require EEI filings.

EEI filings are generally required for the following shipments:

EEI filings are generally not required for the following shipments:

What You Can Do

If you are exporting goods subject to filing requirements under the Foreign Trade Regulations, we propose you should:

• Develop an effective export compliance plan
  • A key foundation of proactive and effective export compliance requires the development of an export compliance plan. An export compliance plan establishes a set of procedures for your organization to ensure that everyone is on the same page about how standard processes work, who is responsible for what, how to identify violations, what to do when violations occur, etc. An export compliance plan helps build consciousness in your organization that compliance is critical – both to avoid costly penalties and to protect national security. Diaz Trade Law helps exporters create export compliance manuals that help prove you have a process in place to classify your merchandise correctly, vet your customers and ensure you can prove you can take compliance seriously and implement all the important great weight mitigating factors. Diaz Trade Law has significant experience in developing and enhancing export compliance plans for organizations. Additionally, Diaz Trade Law can assist your business in auditing and improving your current plan so that it is in its best shape.
• Engage in regular export compliance training
  • A foundation of a strong export compliance program is export compliance training. Training is important because it (1) ensures that all employees understand the export regulations and reinforces internal policies and procedures, (2) demonstrates to federal government agencies that your business is proactive about export compliance, and (3) avoids your business from being subject to costly penalties and even criminal liability. Fortunately, export compliance training can be highly tailored to meet your company’s needs. All your training events include assessments for comprehension, certificates for successful participation, and ample opportunities for Q&A. For your next export compliance training event, trust Diaz Trade Law to provide highly-effective, engaging training.
• Thoroughly vet your proposed export transaction
  • Unsure whether a proposed export transaction violates the Foreign Trade Regulations or other export control laws? Diaz Trade Law has significant experience vetting your potential transaction against U.S. export control laws and in assisting clients to properly file their EEI. Through research and due diligence, Diaz Trade Law ensures that your transaction won’t get you in trouble later down the road.
• Request authorization when necessary
  • BIS or DDTC export authorization is required for many export transactions of controlled goods. Diaz Trade Law has significant experience in vetting proposed transactions to determine whether BIS or DDTC authorization is required. Furthermore, Diaz Trade Law assists clients by filing export license applications on their behalf.
• Engage in mitigation and corrective actions
  • If your business has violated U.S. export control laws, there is a lot you can do to mitigate penalties and prevent future violations. Diaz Trade Law has significant experience representing businesses in dealing with the U.S. Commerce Department’s Bureau of Industry & Security and the Census Bureau. Specifically, Diaz Trade Law has successfully assisted clients in (1) submitting voluntary self-disclosures to mitigate penalties, (2) negotiated agreements with BIS and Census, and (3) built corrective action systems to help ensure that your business does not make the same violation again.

Check out our Bloomberg Law article on Submitting a Voluntary Self-Disclosure to the U.S. Census Bureau.

 Contact Us

Diaz Trade Law has significant experience in a broad range of export compliance matters. To learn more about the services we offer, contact us at info@diaztradelaw.com or call us at 305-456-3830.

Diaz Trade Law is enthusiastic to announce Bloomberg Law published another one of our articles, “Export Licensing Under EAR“! Below is the article reproduced with permission for your reading pleasure. You can read the article here (where you’ll have the ability to access all of the great hyperlinks). Please note you cannot click on the hyperlinks below.

We’d love to hear your feedback!

Diaz Trade Law is enthusiastic to announce Bloomberg Law published another one of our articles, “Introduction to US Export Controls Part 2“! Below is the article reproduced with permission for your reading pleasure. You can read the article here (where you’ll have the ability to access all of the great hyperlinks). Please note you cannot click on the hyperlinks below.

We’d love to hear your feedback!

CBP 

• In Fiscal Year 2021, CBP at the LA/Long Beach Seaport seized More Than $760 Million in Counterfeit and Prohibited Products, a 652% increase over the previous year.
• CBP issues guidance regarding the extension of product exclusions from additional Section 301 China duties on certain medical-care products to address COVID-19.
• With changes to the HTSUS classification systems possibly coming as early as January 1, 2021, U.S. importers should review their classifications and ensure compliance with U.S. regulations

BIS

• The Bureau of Industry and Security (BIS) requests public comment regarding areas and priorities for U.S. and EU export control cooperation under the Trade and Technology Council.
  • Comments are due by January 14, 2022
• On November 26, 2021, the Department of Commerce’s Bureau of Industry and Security (BIS) published a final rule adding 27 foreign entities and individuals to the Entity List for engaging in activities that are contrary to the national security or foreign policy interests of the United States.

China

• In their most substantial talk since President Biden took office, Chinese President Xi Jinping has warned that encouraging Taiwanese independence would be “playing with fire”.
• On November 12, 2020, the President declared a national emergency to deal with the extraordinary threat to the national security, foreign policy, and economy of the United States constituted by certain companies of the People’s Republic of China.
• Airbnb subject to regulatory risk under U.S. law with more than a dozen homes available for rent in China’s Xinjiang region on land owned by an organization sanctioned by the U.S. government for complicity in genocide and forced labor.
• On December 6, 2021, President Biden announced a U.S. diplomatic boycott of the 2022 Beijing Winter Olympic Games over concerns about China’s human rights record.

Commerce Department

• The Department of Commerce invites the general public to comment on proposed, and continuing information collections to allow for submission of exclusions requests from the remedies adjusting imports of steel and aluminum into the United States.
• Comments are due by January 24, 2022.
• On December 1, 2021, the Department of Commerce announced the opportunity to request an annual administrative review for products that are currently subject to antidumping and countervailing duties.

FDA

• The FDA is sharing a grant opportunity to cover COVID-19-related expenses for eligible FDA-regulated food producers, processors and growers.
  • Applications are due November 22
    • How to Apply – USDA’s Pandemic Response and Safety Grant Program – YouTube
    • Eligibility – USDA’s Pandemic Response and Safety Grant Program – YouTube
    • DUNS Number Registration – USDA’s Pandemic Response and Safety Grant Program – YouTube

Export Controls/Sanctions

• On November 18, 2021, the U.S. Department of the Treasury’s Office of Foreign Assets Control sanctioned senior Houthi military officer Saleh Mesfer Alshaer, for the seizure of property in Yemen valued at greater than 100 million dollars, using a variety of unlawful tactics, including extortion.
• On November 18, 2021, the U.S. Department of the Treasury’s Office of Foreign Assets Control sanctioned six Iranian individuals and one Iranian entity for attempting to influence the 2020 U.S. presidential election.
• On November 24, 2021, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) amended the Syrian Sanctions Regulations to expand the authorizations for nongovernmental organizations (NGO) to engage in certain transactions and activities that ensure the continued provision of humanitarian assistance, including certain early-recovery activities, that benefit the Syrian people.
• On November 24, 2021, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued Venezuela-related General License 8I, authorizing  limited transactions with Petróleos de Venezuela, S.A. or the wind down of operations in Venezuela for certain entities.
• On December 2, 2021, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced the expansion of sanctions against Belarus to include 35 new designations to the Specially Designated Nationals and Blocked Entities List and the issuance of a related wind-down license, General License 5.
• On November 8, 2021, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned 57 cryptocurrency addresses and one exchange for facilitating ransomware and money laundering

DST and Section 301 Investigations

• As part of the to address tax challenges arising from the digitalization of the world economy, the U.S. Trade Representative has determined to terminate the Section 301 Digital Services Tax Investigations of Austria, France, Italy, Spain, and the United Kingdom.
• U.S. and India reach agreement regarding the treatment of Digital Services Taxes prior to full implementation of Pillar 1 of the Organization for Economic Co-operation and Development (OECD) agreement.  As part of the agreement the United States will terminate the currently suspended additional duties on goods of India that had been adopted in the DST Section 301 investigation.
• On November 22, 2021, the U.S. Department of the Treasury (Treasury) issued a joint statement with Turkey regarding a transitional approach to Turkey’s Digital Service Tax (DST) prior to entry into force of Pillar 1. The joint statement reflects a political agreement in which the U.S. Trade Representative has determined to terminate the section 301 action taken in the investigation of Turkey’s DST.

USTR/Trade Policy

• On November 17, 2021, the United States and Japan announced the formation of the “U.S.-Japan Partnership on Trade” to deepen cooperation between the two countries and reaffirm their alliance through regular engagement on trade-related matters.
• United States Trade Representative Katherine Tai and United States Secretary of Commerce Gina Raimondo published an op-ed touting the agreement reached with the European Union that preserves the long-term viability of our steel and aluminum industries by tackling global excess capacity and creates a framework for reducing the carbon intensity of those sectors.

To receive an email notification whenever a new post is published, please subscribe to our weekly blog here.

The U.S. Census Bureau’s mission is to serve as the nation’s leading provider of quality data about its people and economy. The Census Bureau’s Trade Regulations Branch in the Economic Management Division is chiefly responsible for enforcing the Foreign Trade Regulations. The Foreign Trade Regulations (15 CFR. Part 30) require certain exporters to file export information with the U.S. Census Bureau. They detail requirements for filing export information, explain filing procedures, and establish penalties for noncompliance. The regulations require export information to be filed on the Automated Export System (“AES”). The information submitted by exporters on to AES is known as EEI.

EEI filings are required for a wide variety of circumstances, including:

• Exports valued at more than $2,500 to any destination except Canada
• Exports that require an export license under the Export Administration Regulations (“EAR”)
• Exports on the EAR’s Commerce Control List (“CCL”) and destined for China, Russia, or Venezuela
• Exports subject to the EAR and destined for a country in Country Group E:1 or E:2 (currently, Cuba, Iran, North Korea, and Syria)
• Exports subject to the International Traffic in Arms Regulations (“ITAR”)
• Exports containing rough diamonds

Routed Export Transactions

Routed Export Transactions (“RETs”) are a particular kind of export transaction that must be reported in EEI filings. RETs are export transactions in which a Foreign Principal Party in Interest (“FPPI”) authorizes a U.S. agent to facilitate export of items from the United States on its behalf and prepare to file the EEI. In other words, if the foreign party who purchases the goods for export and has the primary foreign financial interest in the export transaction authorizes a U.S. agent to facilitate the export and file EEI, then the transaction would be a RET.

RETs differ from standard export arrangements in which the U.S. Principal Party in Interest (“USPPI”) (i.e., the U.S. person or entity that receives the primary benefit from the export transaction) arranges for export and EEI filings.

In a RET arrangement, the USPPI has unique responsibilities. The FPPI may authorize or agree to allow the USPPI to prepare and file the EEI. If the FPPI agrees to allow the USPPI to file the EEI, the FPPI must provide a written authorization to the USPPI assuming the responsibility for filing. The USPPI may then authorize an agent to file the EEI on its behalf. Alternatively, the FPPI can authorize an agent to prepare and file the EEI itself. A typical RET transaction in which the FPPI authorizes the USPPI to prepare and file the EEI via its agent is depicted in the Census graphic below.

According to 15 CFR 30.6, if an export transaction is a RET and an EEI filing is required, the EEI filing must include a Routed Export Transaction filing indicator that identifies that the shipment is a RET. An affirmative RET filing indicator comprises of a simple “Y” (yes) checkmark in the EEI filing. A failure to declare a RET can result in substantial penalties.

What Should You Do?

Exporters have significant responsibilities to ensure compliance, to avoid penalties and/or jail time (i.e., your compliance manager deserves a raise!). Proper adherence to Foreign Trade Regulations and other export control requirements ensures that your business contributes to safeguarding U.S. national security and avoiding costly penalties.

If you are exporting goods subject to filing requirements under the Foreign Trade Regulations, we propose you should:

• Develop an effective export compliance plan.

A key foundation of proactive and effective export compliance requires the development of an export compliance plan. An export compliance plan establishes a set of procedures for your organization to ensure that everyone is on the same page about how standard processes work, who is responsible for what, how to identify violations, what to do when violations occur, etc. An export compliance plan helps build consciousness in your organization that compliance is critical – both to avoid costly penalties and to protect national security. Diaz Trade Law helps exporters create export compliance manuals that help prove you have a process in place to classify your merchandise correctly, vet your customers and ensure you can prove you can take compliance seriously and implement all the important great weight mitigating factors. Diaz Trade Law has significant experience in developing and enhancing export compliance plans for organizations. Additionally, Diaz Trade Law can assist your business in auditing and improving your current plan so that it is in its best shape.

• Engage in regular export compliance training.

A foundation of a strong export compliance program is export compliance training. Training is important because it (1) ensures that all employees understand the export regulations and reinforces internal policies and procedures, (2) demonstrates to federal government agencies that your business is proactive about export compliance, and (3) avoids your business from being subject to costly penalties and even criminal liability. Fortunately, export compliance training can be highly tailored to meet your company’s needs. All your training events include assessments for comprehension, certificates for successful participation, and ample opportunities for Q&A. For your next export compliance training event, trust Diaz Trade Law to provide highly-effective, engaging training.

• Thoroughly vet your proposed export transactions

Unsure whether a proposed export transaction violates the Foreign Trade Regulations or other export control laws? Diaz Trade Law has significant experience vetting your potential transaction against U.S. export control laws and in assisting clients to properly file their EEI. Through research and due diligence, Diaz Trade Law ensures that your transaction won’t get you in trouble later down the road.

• Request authorization when necessary

BIS or DDTC export authorization is required for many export transactions of controlled goods. Diaz Trade Law has significant experience in vetting proposed transactions to determine whether BIS or DDTC authorization is required. Furthermore, Diaz Trade Law assists clients by filing export license applications on their behalf.

• Engage in mitigation and corrective actions.

If your business has violated U.S. export control laws, there is a lot you can do to mitigate penalties and prevent future violations. Diaz Trade Law has significant experience representing businesses in dealing with the U.S. Commerce Department’s Bureau of Industry & Security and the Census Bureau. Specifically, Diaz Trade Law has successfully assisted clients in (1) submitting voluntary self-disclosures to mitigate penalties, (2) negotiated agreements with BIS and Census, and (3) built corrective action systems to help ensure that your business does not make the same violation again.

Check out our Bloomberg article on Submitting a Voluntary Self-Disclosure to the U.S. Census Bureau.

Diaz Trade Law’s Upcoming Webinar: Building & Maintaining an Effective Export Compliance Plan

Diaz Trade Law has available an on-demand webinar on Building & Maintaining an Effective Export Compliance Plan. This one-hour webinar will discuss the elements of an effective export compliance plan, best practices, how to train your employees, and an overview of both how to build and effectively maintain a robust export compliance plan.

In the webinar, you will learn:

• Why you Should Have an Export Compliance Plan in Place
• Elements of an Effective Export Compliance Plan
• How to Build and Effective Export Compliance Plan
• Common Risks Associated with the Export Process that Should be Addressed in Your Plan
• What to do When BIS/OFAC/Census/DDTC Come Knocking on Your Door
• How to Maintain an Effective Export Compliance Plan Through Training
• What to Do When All Goes Wrong
• What NOT to Do – Examples from “Don’t Let This Happen to You”

Contact Us

Diaz Trade Law has significant experience in a broad range of export compliance matters. To learn more about the services we offer, contact us at info@diaztradelaw.com or call us at 305-456-3830.

The DDTC first flagged Keysight’s misclassification and advised Keysight to obtain a proper classification for its software, which later led to the discovery of the violation. The case focuses on the company’s exports from December 2015 to April 2018, in which the software was exported in 24 instances to 17 countries. The software is known as multiemitter scenario generation. By not receiving proper authorization from the federal government, Keysight violated both the AECA and the ITAR.

According to the State Department, Keysight cooperated in the investigation by submitting a voluntary disclosure that acknowledged the charged conduct, implemented remedial compliance measures, and signed a statute of limitations agreement tolling the statutory period. As a result, the Department decided that it would not be appropriate to administratively debar Keysight at this time.

The Department stated that, “The settlement demonstrates the department’s role in strengthening U.S. industry by protecting technical data from unauthorized exports.” It also stated that, “The settlement also highlights the importance of obtaining appropriate authorization from the department for exporting software as well as determining proper export jurisdiction.”

Per the agreement, the Department agreed to suspend $2.5 million of the penalty for Keysight to implement compliance measures; specifically, the company must hire a special compliance officer for two years and conduct an external audit to ensure new safeguards are in place.

Background on Arms Export Control Act (AECA) and International Traffic in Arms Regulation (ITAR)

Export controls are regulated by several federal regulations that are designed to further national security, the economic intertest of the United States, and foreign policy. The Arms Export Control Act (AECA) gives the President of the United States the authority and provides the general rules for the conduct of foreign military sales and commercial sales of defense articles, defense services, and training. The International Traffic in Arms Regulations (ITAR) regulations govern whether defense or military-related technologies may be exported or transferred to non-U.S. citizens. The purpose is to safeguard U.S. national security interest by ensuring that critical technology does not fall into the wrong hands.

Violations of the AECA and ITAR carry hefty civil and criminal penalties. Exporters can pay hundreds of thousands of dollars to millions in penalties, lose export privileges, and even be imprisoned.

Join Our Export 201 Webinar

Do you know if your company is meeting export regulations and obligations? Obtaining counsel who is an expert in export compliance is the first step. Are your employees/staff trained in all exporting issues? Our one-hour webinar is a must attend to help provide you with a foundation of tools and key elements that must be included in your export compliance program. Register today to hear from the following experts: 

• President and Founder of Diaz Trade Law, Jennifer (Jen) Diaz is a Chambers ranked, Board Certified International Attorney specializing in customs and international trade; and 
• Associate Attorney of Diaz Trade Law, Sharath Patil, assists U.S. manufacturers, distributors, and importers with a range of export compliance and enforcement matters pertaining to the U.S. Department of Commerce; the U.S. Treasury Department; the U.S. State Department; and more. 

This Webinar will discuss the benefits an export compliance program, how to reinforce senior management commitment to compliance with U.S. export laws, policies and specific step-by-step procedures that should be integrated and  provide personnel with tools to help ensure they are performing their export control obligations.  

In this webinar you will learn: 

• The Establishment of a Written Compliance Program 
• Management Commitment 
• Continuous Risk Assessment of Export Program 
• Ongoing Compliance Training and Awareness 
• Compliance Monitoring and Periodic Audits 
• Internal Program for Handling Compliance Problems 

Who Should Attend: 

• Exporters 
• Customs Brokers 
• Regulatory Affair Professionals 
• In-House Legal Counsel 
• Project Development Managers  
• Others Interested in Exporting 

This webinar is eligible for continuing education credit from the NCBFAA Educational Institute. Space is limited, registration required! Access instructions will be provided after your registration is complete. Don’t just take our word for how awesome Diaz Trade Law webinars are. Click here to see what our past attendees had to say. Be sure to join us on September 22, 2021! To register, click here. 

What You Can Do

To stay compliant with AECA and ITAR, the U.S. State Department’s Directorate of Defense Trade Controls (DDTC) strongly encourages registered exporters, manufacturers, brokers, and others engaged in defense trade to maintain a compliance program to assist in monitoring and controlling exports. At Diaz Trade Law, we provide the following services:

• Developing an Effective Export Compliance Program – The development of an effective export compliance plan ensures that your organization remains vigilant and your staff knows the standard procedures to follow to prevent and identify violations. An export compliance plan will help your organization avoid hefty civil and criminal penalties. Diaz Trade Law has significant experience in developing and enhancing export compliance plans for organizations. Additionally, Diaz Trade Law can assist your business in auditing and improving your current plan so that it is in its best shape.
• Conduct Export Compliance Training – The key to an effective export compliance program is compliance training. Training is important because it (1) ensures that all employees understand the export regulations and reinforces internal policies; (2) demonstrates to federal government agencies that your business is proactive about export compliance, and (3) avoids your business from being subject to costly penalties and even criminal liability. Fortunately, export compliance training can be highly tailored to meet your company’s needs. All of your training events include assessments for comprehension, certificates for successful participation, and ample opportunities for Q&A. For your next export compliance training event, trust Diaz Trade Law to provide highly-effective, engaging training.
• Export Transaction Vetting – Unsure whether a proposed export transaction violates the ITAR? Diaz Trade Law has significant experience vetting your potential transaction against U.S. export control laws. Through research and due diligence, Diaz Trade Law ensures that your transaction won’t get you in trouble later down the road.
• Voluntary Self-Disclosures – If your business believes it may have violated the ITAR, it can be in your business’ strategic interest to submit a voluntary self-disclosure (VSD). According to the Directorate of Defense Trade Controls (DDTC), ITAR violations should be disclosed promptly and VSDs can be a significant mitigating factor in DDTC’s analysis of such violations and is strongly recommended. DDTC encourages the submission of VSDs for common violations such as exporting without authorization, unauthorized access to technical data, failure to comply with license provisos, failure to maintain required records, failure to register or maintain registration, or misuse of the ITAR exemptions. Diaz Trade Law has significant experience filing VSDs and mitigating penalties.
• Requesting Authorization / Submitting License or Agreement Applications – Generally, any person or company who intends to export or to temporarily import a defense article, defense service, or technical data must obtain prior approval from DDTC. A license is required when a U.S. company seeks authorization for the permanent export, temporary export, or temporary import of a defense article, defense service, or technical data. Meanwhile, an agreement is generally required when a U.S. person provides a defense service to a foreign person, a U.S. person requires authorization to manufacture defense articles abroad, or a U.S. person seeks to establish a distribution point abroad for defense articles of U.S. origin for subsequent distribution to foreign persons. Diaz Trade Law has significant experience requesting authorization from DDTC on behalf of clients in the form of license applications and agreement requests.
• Mitigation and corrective action – If your business has violated U.S. export control laws, there is a lot you can do to mitigate penalties and prevent future violations. Diaz Trade Law has significant experience representing businesses in dealing with the U.S. State Department’s Directorate of Defense Trade Controls. Specifically, Diaz Trade Law has successfully assisted clients in (1) submitting voluntary self-disclosures to mitigate penalties, (2) negotiated agreements with DDTC, and (3) built corrective action systems to help ensure that your business does not make the same violation again.

Contact Us

If you have questions about export compliance, reach out to us at info@diaztradelaw.com or call us at 305-456-3830.