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

U.S. Customs and Border Protection (CBP)

• U.S. Customs and Border Protection (CBP) is offering both a remote proctored exam delivery option and an in-person testing option for the October 26, 2022 Customs Broker License Exam (CBLE).
• The Commercial Customs Operations Advisory Committee (COAC) will hold its quarterly meeting on Wednesday, September 14, 2022, in Chicago, Illinois. The meeting will be open for the public to attend in person or via webinar. Due to COVID-19 restrictions, the in-person capacity is limited to 75 persons for public attendees.

U.S. Department of State (DOS)

• On March 23, 2022, the Directorate of Defense Trade Controls (DDTC) announced an International Traffic in Arms Regulation (ITAR) interim final rule (87 FR 16396, effective Sept. 6, 2022). This rule is the first of a project dedicated to better organizing ITAR and serves to consolidate and co-locate the authorities, general guidance, and definitions that have become dispersed throughout the ITAR.
• On August 26, 2022, the U.S. Department of State (DOS) has concluded administrative settlements with Ryan Adams, Marc Baier, and Daniel Gericke, respectively, to resolve alleged violations of the Arms Export Control Act (AECA), 22 U.S.C. § 2751 et seq., and the International Traffic in Arms Regulations (ITAR), 22 C.F.R. Parts 120-130.

U.S Department of the Treasury’s Office of Foreign Assets Control (OFAC)

• The U.S. Department of the Treasury (USDT) and the Ministry of Finance of the State of Israel (MOF) announced the finalization of a bilateral Memorandum of Understanding (“MoU”) on Cybersecurity Cooperation.
• The Department of the Treasury’s Office of Foreign Assets Control (OFAC) is issuing Iran General License M-2, “Authorizing the Exportation of Certain Graduate Level Educational Services and Software”.

U.S. Department of Commerce (DOC)

• As a result of the determinations by the U.S. Department of Commerce (DOC) and the U.S. International Trade Commission (USITC) that revocation of the antidumping duty and countervailing duty orders on certain cold-rolled steel flat products  from the People’s Republic of China, India, Japan, the Republic of Korea, and the United Kingdom would likely lead to continuation or recurrence of dumping, net countervailable subsidies, and material injury to an industry in the United States, DOC is publishing a notice of continuation of the AD and CVD orders.
• DOC is amending the final results of the administrative review of the countervailing duty (CVD) order on truck and bus tires from the People’s Republic of China, covering the period of review January 1, 2020, through December 31, 2020, to correct ministerial errors.
• DOC hereby publishes a list of scope rulings and anti-circumvention determinations made during the period April 1, 2022-June 30, 2022.

U.S. Department of Homeland Security (DHS)

• According to the U.S. Department of Homeland Security (DHS), in Consolidated Case Number 7474; Certain Steel Grating from the People’s Republic of China, based upon de novo review of the administrative record in this case, including the timely and properly filed requests for administrative review and response, the June 21 Determination of evasion under 19 USC § 1517(c) is AFFIRMED.
• According to DHS, in Case Number 7250; Diamond Sawblades and Parts from the People’s Republic of China and the Republic of Korea, based upon their de novo review of the administrative record in this case, including the timely and properly filed request for administrative review submitted by Lyke on September 22, 2021, and DSMC’s Response submitted on October 6, 2021, the August 10 Determination of evasion under 19 U.S.C. § 1517(c) is AFFIRMED.
• According to DHS, in Consolidated Case Number 7586; Certain Quartz Surface Products from the People’s Republic of China, based upon their de novo review of the administrative record in this case, including the timely and properly filed request for administrative review and response, the December 6 Determination of evasion under 19 USC § 1517(c) is AFFIRMED.
• According to DHS, in Consolidated Case Number 7603; Wooden Cabinets and Vanities and Components from the People’s Republic of China, based upon their de novo review of the administrative record in this case, including the administrative record, the request for administrative review and response, the January 27th Determination of evasion under 19 U.S.C. § 1517(c) is REVERSED.
• According to DHS, in Consolidated Case Number 7501; Steel Wire Garment Hangers from the People’s Republic of China, based upon their de novo review of the administrative record in this case, including the timely and properly filed request for administrative review submitted by CEK on October 29, 2021, and M&B’s Response submitted on November 16, 2021, the September 16 Determination of evasion under 19 U.S.C. § 1517(c) is AFFIRMED.
• According to DHS, in Case Number 7523; Lightweight Thermal Paper from the People’s Republic of China, based upon their de novo review of the administrative record in this case, including the timely and properly filed request for administrative review submitted by Amlink on September 23, 2021, the August 23 Determination of evasion under 19 U.S.C. § 1517(c) is AFFIRMED.
• According to DHS, in Consolidated Case Number 7553; Wooden Cabinets and Vanities and Components from the People’s Republic of China, based upon their de novo review of the administrative record in this case, including the requests for administrative review and response, the September 16th Determination of evasion under 19 U.S.C. § 1517(c) is AFFIRMED.
• According to DHS, in Consolidated Case Number 7583; Wooden Cabinets and Vanities and Components from the People’s Republic of China, based upon their de novo review of the administrative record in this case, including the timely and properly filed request for administrative review and response, the January 31 Determination of evasion under 19 USC § 1517(c) is REVERSED.

If you have questions about these updates, contact our Diaz 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.

Trade News

• On June 10, 2022, President Biden called on Congress to “crack down” on ocean carriers, stating that a primary contributor to rising shipping costs is the price increases indulged by nine ocean carriers that “control the trans-Pacific market” and have “raised their prices by as much as 1,000%.”
• On June 14, 2022, the U.S. Office of Management and Budget approved a new EPA Form 3540-1, providing clarity for some of the data elements and the instruction section of the form. EPA will continue receiving submissions of the old form through Friday, June 17, 2022.

• On June 13, 2022, the U.S. Customs and Border Protection released their “Operational Guidance for Importers” with a focus on the Uyghur Forced Labor Prevention Act. The guidance document reflects CBP’s interpretation of the UFLPA and other applicable laws and regulations enforced by CBP as of the date of publication of this guidance.

DOC

• On June 16, 2022, the U.S. Department of Commerce continued to determine that the mandatory respondents, Riverside Plywood Corporation and Jiangsu Senmao Bamboo and Wood Industry Co., Ltd., and 66 other producers and/or exporters of multilayered wood flooring from China, received countervailable subsidies during the period of review January 1, 2019, through December 31, 2019.

USITC

• On June 16, 2022, the U.S. International Trade Commission gave notice of the scheduling of full reviews pursuant to the Tariff Act of 1930 to determine whether revocation of the antidumping duty orders on hot-rolled steel flat products and revocation of the countervailing duty orders would be likely to lead to continuation or recurrence of material injury within a reasonable time.

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.

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.

Sanctions on DNR and LNR regions of Ukraine 

On February 21, 2022, the Office of Foreign Assets Control (OFAC) issued an executive order (E.O.) blocking property of certain persons and prohibiting certain transactions with respect to continued Russian efforts to undermine the sovereignty and territorial integrity of Ukraine in addition to an issuance of Ukraine related general licenses. More specifically, this E.O. prevents any U.S. persons from engaging the Donetsk People’s Republic (DNR) or Luhansk People’s Republic (LNR) (collectively named the “Covered Regions”) in most, if not all activities, including the following:

• new investment in the Covered Regions
• the importation into the United States, directly or indirectly, of any goods, services, or technology from the Covered Regions
• the exportation, re-exportation, sale, or supply, from the United States or by a U.S. person, directly or indirectly, of any goods, services, or technology to the Covered Regions
• any approval, financing, facilitation, or guarantee by a foreign person that would also be prohibited for a U.S. person. 

This E.O. also gives OFAC the authority to impose further sanctions on persons and entities determined to be:

• operating in the Covered Regions
• a leader, official, senior executive officer, or member of the board of directors of an entity operating in the Covered Regions
• owned or controlled by any person whose property and interests in property are blocked pursuant to this order
• materially assisting, sponsoring, or providing financial, material, or technological support for, or goods or services to or in support of, any person and property blocked under this E.O. 

Sanctions on Russia 

On February 24, 2022, the United States took significant and unprecedented action to respond to Russia’s further invasion of Ukraine by imposing severe economic costs that will have both immediate and long-term effects on the Russian economy and financial system.

Targeting Russia’s Two Largest Financial Institutions

• The U.S. Treasury is taking “unprecedented action” against Russia’s two largest financial institutions, Public Joint Stock Company Sberbank of Russia (Sberbank)and VTB Bank Public Joint Stock Company (VTB Bank), drastically disrupting their ability to operate in U.S. dollars and process payments through the U.S. financial system.

Correspondent and Payable-Through Account Sanctions on Sberbank

• As part of the sanctions on Sberbank, the Treasury is requiring all U.S. financial institutions to close any Sberbank correspondent or payable-through accounts and to reject any future transactions involving Sberbank or its foreign financial institution subsidiaries within 30 days.
  • To implement these sanctions on Sberbank, OFAC issued Directive 2 under E.O. 14024, prohibiting U.S. financial institutions from:
    • the opening or maintaining of a correspondent account or payable-through account for or on behalf of any entity determined to be subject to the prohibitions of the Russia-related CAPTA Directive, or their property or interests in property
    • the processing of transactions involving any such entities determined to be subject to the Russia-related CAPTA Directive, or their property or interests in property. 
• Sberbank and other affiliated entities determined to be subject to the Russia-related CAPTA Directive have been added to OFAC’s CAPTA List.
  • The prohibitions of the Russia-related CAPTA Directive take effect beginning on March 26, 2022. Accordingly, by March 26, 2022, U.S. financial institutions must have closed any correspondent or payable-through account maintained for Sberbank all other entities listed in Annex 1 to the Russia-related CAPTA Directive, and all foreign financial institutions owned 50 percent or more by the foregoing. 

Full Blocking Sanctions on VTB

• OFAC has imposed full blocking sanctions on VTB Bank and 20 of its subsidiaries, for being owned, controlled by, or acting on behalf of (either directly or indirectly) the Government of Russia the GoR, and having operated in the financial services sector of the Russian Federation economy. Further, all entities owned 50 percent or more, directly or indirectly, by VTB Bank are subject to blocking, even if not identified by OFAC.

Blocking Other Major Russian Financial Institutions 

OFAC has also imposed blocking sanctions on three additional major Russian financial institutions – Otkritie, Novikom, and Sovcom and their identified subsidiaries – for either being controlled by, or acting on behalf of, the Russian Government as well as for operating having operated in the financial services sector of the Russian economy.

• The Treasury also notes that all entities owned 50 percent or more by the above financial institutions are subject to blocking, even if not identified by OFAC.

Debt and Equity Prohibitions Against Major State-Owned and Private Entities 

OFAC also issued Directive 3 under E.O. 14024, implementing new debt and equity restrictions on 13 major firms critical to the Russian economy.

• These restrictions “prohibit transactions and dealings by U.S. persons in new debt of longer than 14 days maturity and new equity of Russian state-owned enterprises, entities that operate in the financial services sector of the Russian Federation economy, and other entities determined to be subject to the prohibitions in this directive”.

The 13 identified firms are as follows

Pursuant to E.O. 14024, OFAC identified the following 11 Russian entities as being owned or controlled by, or having acted or purposed to act for or on behalf of, directly or indirectly, the GoR:

• Sberbank is Russia’s largest financial institution. Today, Sberbank was also identified as subject to the Russia-related CAPTA Directive.
• Gazprombank Joint Stock Company is Russia’s third-largest financial institution and is closely affiliated with the energy sector.
• Joint Stock Company Russian Agricultural Bank is Russia’s fifth-largest financial institution and closely affiliated with the agricultural sector.
• Public Joint Stock Company Gazprom is the world’s largest natural gas company.
• Public Joint Stock Company Gazprom Neft is one of Russia’s largest oil producers and refiners.
• Public Joint Stock Company Transneft (Transneft) manages Russia’s network of petroleum-related pipelines.
• Public Joint Stock Company Rostelecom is Russia’s largest telecommunications company.
• Public Joint Stock Company RusHydro is a hydroelectricity company and one of Russia’s largest power companies.
• Public Joint Stock Company Alrosa is the world’s largest diamond mining company, responsible for 90 percent of Russia’s diamond mining capacity, which accounts for 28 percent globally.
• Joint Stock Company Sovcomflot is Russia’s largest maritime and freight shipping company.
• Open Joint Stock Company Russian Railways is one of the world’s largest railroad companies.

Pursuant to E.O. 14024, OFAC identified the following three Russian entities for operating or having operated in the financial services sector of the Russian Federation economy:

• Joint Stock Company Alfa-Bank is Russia’s largest privately owned financial institution, and Russia’s fourth-largest financial institution overall.
• Credit Bank of Moscow Public Joint Stock Company is Russia’s largest non-state public bank and Russia’s sixth-largest financial institution.
• Sberbank, which is described above.

General Licenses 

To ensure that these sanctions and prohibitions have an impact on the intended targets and to minimize unintended consequences on third parties, OFAC has also issued the following general licenses in connection with these actions.

• General License 5: authorizes transactions for the conduct of the official business of certain international organizations and entities
• General License 6: “Transactions Related to the Exportation or Re-exportation of Agricultural Commodities, Medicine, Medical Devices, Replacement Parts and Components, or Software Updates, or the Coronavirus Disease 2019 (COVID-19) Pandemic” authorizes transactions ordinarily incident and necessary for the trade of agricultural commodities, medicine and medical devices.
• General License 7: “Authorizing Overflight Payments, Emergency Landings, and Air Ambulance Services” authorizes transactions ordinarily incident and necessary to:
  • the receipt of, and payment for, services rendered in connection with overflights of or emergency landings in the Russian Federation by aircraft registered in the United States or owned by U.S.
  • provide air ambulance and related medical services to individuals in the Russian Federation
• General License 8: “Authorizing Transactions Related to Energy” authorizes until June 24, 2022, transactions related to energy involving 5 specified entities and their subsidiaries of which they own a 50 percent or greater interest.
  • “For the purposes of this general license, the term “related to energy” means the extraction, production, refinement, liquefaction, gasification, regasification, conversion, enrichment, fabrication, transport, or purchase of petroleum, including crude oil, lease condensates, unfinished oils, natural gas liquids, petroleum products, natural gas, or other products capable of producing energy, such as coal, wood, or agricultural products used to manufacture biofuels, or uranium in any form, as well as the development, production, generation, transmission, or exchange of power, through any means, including nuclear, thermal, and renewable energy sources.”
• General License 9: “Authorizing Transactions Related to Dealings in Certain Debt or Equity” authorizes until May 25, 2022, dealings in debt and equity issued prior to February 24, 2022, with 5 specified Russian entities and their subsidiaries. Any divestment or transfer of covered debt or equity must be to a non-U.S. person.
• General License 10: “Authorizing Certain Transactions Related to Derivative Contracts” authorizes until May 25, 2022 all transactions ordinarily incident and necessary to the wind down of derivative contracts entered into prior to 4:00 p.m. EST, February 24, 2022. Any payments to a blocked person must be made into a blocked account.
• General License 11: “Authorizing the Wind Down of Transactions Involving Certain Blocked Persons” authorizes until March 26, 2022, all transactions ordinarily incident and necessary to the wind down of transactions involving Otkritie, Sovcombank, VTB, and any entity in which they one 50% or greater interest.
• General License 12: “Authorizing U.S. Persons to Reject Certain Transactions” authorizes until March 26, 2022, U.S. persons to reject all transactions prohibited by Executive Order (E.O.) 14024 involving one or more of Otkritie, Sovcombank, VTB, and any entity in which they one 50% or greater interest.

Actions Targeting Russian Elites 

On February 25, 2022, the United States continued to impose sanctions on President of the Russian Federation Vladimir Putin and the Minister of Foreign Affairs Sergei Lavrov, along with other members of Russia’s Security Council. These sanctions, along with previous sanctions on Russia’s economic continue to impose unprecedented diplomatic and economic costs on Russia and isolate it from the global financial system and international community.

Sanctions on Belarus 

On February 24, 2022, OFAC sanctioned 24 Belarusian individuals and entities due to Belarus’s support for, and facilitation of, the invasion. Among the sanctioned entities are two significant state-owned banks, as well as multiple entities and individuals associated with the Belarusian defense and security industries.

Along with this action OFAC also issued two general licenses related to the Belarus Sanctions Program:

• General License 6: “Official Business of the United States Government” authorizes transactions for the conduct of the U.S. Government’s official business.
• General License 7: “Official Business of Certain International Organizations and Entities” authorizes transactions for the conduct of the official business of certain international organizations and entities

Looking Ahead 

As these sanctions may only represent the initial stage of an ongoing and volatile economic landscape, we encourage the trade community to stay informed on all latest sanctions and how they may impact YOU. Should you need any assistance navigating OFAC sanctions please contact us at info@diaztradelaw.com.

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

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.

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Building and maintaining a strong export compliance program is essential if you don’t want your company to become a headline. The Bureau of Industry and Security (BIS) announced an administrative settlement with a penalty amount of $432,570, for Alfa Laval US of Richmond, VA and Alfa Laval Middle East Ltd. of the United Emirates for alleged violations of the Export Administration Regulations. 

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. 

Our article discusses China’s new export control regime. The new framework is similar in many ways to U.S. export licensing mechanisms. The framework is seen by many as a mechanism to counter increasing U.S. export controls towards China as part of escalating U.S.-China tensions.

Below is the article 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 your feedback!

An Introduction to Export Controls

Over 95% of the world’s consumers are 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”), and the International Traffic in Arms Regulations (“ITAR”). Violations of export control laws carry hefty civil and criminal penalties. Exporters can pay hundreds of thousands of dollars in penalties, lose export privileges, and even be imprisoned for violations of U.S. export control laws.

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. The ITAR, on the other hand, is a set of regulations which governs whether defense or military-related technologies may be exported or transferred to non-U.S. citizens. The purpose of both the EAR and the ITAR is to safeguard U.S. national security interests by ensuring that critical technology does not fall into the wrong hands. The EAR is administered by the Commerce Department’s Bureau of Industry & Security (“BIS”) while the ITAR is administered by the State Department’s Directorate of Defense Trade Controls (“DDTC”).

Filing a Commodity Jurisdiction Request

The purpose of a Commodity Jurisdiction (“CJ”) request is to determine whether a commodity or service is under the licensing authority of the U.S. State Department (under ITAR) or the U.S. Commerce Department (under EAR). If, after reviewing the EAR and ITAR, you are unsure of the appropriate jurisdiction for your proposed export, you should request a CJ determination. Items subject to export controls are often under the jurisdiction of either the ITAR or the EAR, but not both.

Advantages of Filing a Commodity Jurisdiction Request

Filing a CJ request can be a proactive and straightforward mechanism to ascertain the jurisdiction of your proposed export. A CJ determination provides written confirmation from the federal government about which agency has jurisdiction over your proposed export. If an exporter has doubts about which agency has licensing authority but proceeds with filing an export license at the incorrect agency, the exporter can wait a significant period of time only to receive a notice from the agency that it does not have jurisdiction over the proposed export. Alternatively, an incorrect assumption on the part of the exporter about what jurisdiction applies may lead a party to export product in violation of U.S. export control laws. Such a mistake could result in heavy penalties and even criminal liability. In short, a CJ request can save time and money and mitigate risks. The federal government usually responds to a CJ request within 60 days.

Know Before You File: Cautionary Notes

Although a CJ request can save time and money, filing a CJ request comes with the important obligation and responsibility to be knowledgeable about the proposed export and sufficiently transparent in the request. A CJ request includes important technical specifications and details about the proposed export. The filer should have access to and provide all necessary information. Key information to be provided includes a product description, source of the product, understanding the product’s capabilities, understanding the product’s end-uses, product specifications and drawings, real and anticipated customers for the product, any past jurisdiction or export history, and details on comparable products.

BIS has recently increased enforcement against problematic CJ requests. On April 30, 2021, BIS announced that it has fined Flir Systems, Inc. (“Flir”), an Oregon-based producer of thermal imaging and night vision equipment, $307,922 for allegedly making misrepresentations and concealing material facts in its CJ request. According to BIS, when Flir filed its CJ request regarding proposed exports, it was not transparent about its exports to higher-risk markets such as military and drone applications. The key lesson from the Flir case is that filing parties should be careful to be honest, transparent, and sufficiently comprehensive in describing the proposed export.

A CJ determination also comes with limitations. A CJ determination will only identify the proper licensing authority for a proposed export. A CJ request is not the mechanism for applying for a license or otherwise requesting authorization to export. Furthermore, it should be noted that ITAR results will include classification information, but EAR results may not always provide classification information. In other words, if a CJ determination states that the proposed export falls under ITAR jurisdiction, the specific classification on the U.S. Munitions List (“USML”) will be provided. However, if the CJ determination finds that the proposed export falls under EAR jurisdiction, the specific classification on the Commerce Control List (“CCL”) may be provided, but not necessarily so.

What You Can Do

There is a lot you can do to be proactive about your export compliance. These include:

• Develop an effective export compliance program – 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 businesses create export compliance manuals that help prove you have a process in place to vet proposed transactions 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 export compliance plans for organizations without plans. Additionally, Diaz Trade Law can assist your business in auditing and improving your current plan so that it is in its best shape.
• 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 control laws 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.
• Transaction vetting – Unsure whether a proposed transaction violates export control laws? Diaz Trade Law has significant experience vetting your potential transaction against export controls and sanctions. Through research and due diligence, Diaz Trade Law ensures that your transaction won’t get you in trouble later down the road. In particular, it is important to vet end-uses (how is your product going to be used?), end-users (who will be using your product?), and destinations (where will your product be used?).
• Voluntary self disclosures – If your business believes it may have violated the EAR, ITAR, or other export control laws, it can be in your business’ strategic interest to submit a voluntary self disclosure (VSD). According to the Bureau of Industry & Security, VSDs are “an excellent indicator of a party’s intent to comply with U.S. export control requirements and may provide BIS important information on other ongoing violations.” Diaz Trade Law has significant experience filing VSDs with and mitigating penalties with a range of federal agencies. Check out our articles published by Bloomberg Law on Submitting a Voluntary Self Disclosure to OFAC and Submitting a Voluntary Self Disclosure to the U.S. Census.
• Requesting authorization / export license applications – 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.
• Mitigation and corrective action – If your business has violated U.S. export control or sanctions laws, there is a lot you should do to get back into compliance, ensuring you work to prevent future violations, training your employees, updating your manuals, and this work can assist in mitigating potential penalties. Diaz Trade Law has significant experience representing businesses in dealing with DDTC, BIS, Census, OFAC, and a range of other export-related agencies. Specifically, Diaz Trade Law has successfully assisted clients in (1) submitting voluntary self disclosures to mitigate penalties, (2) negotiated agreements, (3) built corrective action systems to help ensure that your business does not make the same violation again, and (4) updating and enhancing your current export compliance plan.

Contact Us

If you have questions about Commodity Jurisdiction requests or any other export matter, contact us today at info@diaztradelaw.com or 305-456-3830.

Co-Authored by Sharath Patil

If a company or individual believes they have violated export control regulations and the U.S. government is unaware of this violation, proactively and voluntarily disclosing the potential wrongdoing can substantially reduce penalties. A key component of filing a successful voluntary self-disclosure (“VSD”) is uncovering and providing the correct data. Diaz Trade Law has significant experience analyzing ACE export data to evaluate your export compliance and submit successful VSDs that substantially mitigate penalties.

Whether you are new to exporting or a seasoned professional, this one-hour webinar is a must attend. Register today to hear directly from an expert duo with real case studies:

• President and Founder of Diaz Trade Law, Jennifer (Jen) Diaz is a Chambers ranked, Board Certified International Attorney specializing in customs and international trade
• 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 one-hour webinar describes the benefits of Automated Commercial Environment (“ACE”) export history audits and shows the audience how to analyze data. ACE is a U.S. Customs and Border Protection (“CBP”) system designed to facilitate legitimate trade while enhancing border security. ACE provides a single, centralized access point for the trade community to connect with CBP and its Partner Government Agencies (“PGAs”). It is the primary system through which the trade community reports imports and exports and the government determines admissibility. The presentation will discuss services offered by Diaz Trade Law including the export report card.

In This Webinar You Will Learn:

• How to Setup an ACE Account
• What is ACE and Why is It Important?
• Learn What You Export
• Learn Where You Export
• Learn How Much You Export
• Determine Issues with Your Exporting Processes Based on The Data

Who Should Attend:

• Exporters
• Customs Brokers
• Regulatory Affairs Professionals
• In-House Legal Counsel
• Product 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 May 26, 2021! To register, click here.