Today, a final rule, opening U.S. trade with Cuba, was published in the Federal Register by the U.S. Treasury Department, Office of Foreign Assets Control (OFAC) and the U.S. Department of Commerce’s, Bureau of Industry and Security (BIS). Through this Federal Register notice, OFAC has amended its Cuban Assets Control Regulations and the BIS has amended the Export Administration Regulations with a “Support for the Cuban People” license exception. This final rule is effective today, with proposed rulemaking, opportunity for public participation, and delay in effective date deemed inapplicable because this regulation involves a foreign affairs function of the U.S.
Cuban cigars will not be readily available for U.S. consumers to purchase as a result of these changes.
Aramex Emirates, LLC, located in Dubai, United Arab Emirates (U.A.E.), agreed to pay a $125,000 civil penalty to the U.S. Department of Commerce’s (DOC) Bureau of Industry and Security (BIS) for the unlicensed export and reexport to Syria, via the U.A.E., of network devices and software without the required BIS licenses.
The Under Secretary of Commerce Eric L. Hirschhorn commented:
Today’s settlement shows the importance of compliance with U.S. law by foreign freight forwarders handling items subject to U.S. export controls.
The items in question could be used by the Syrian government to monitor Internet activity and block pro-democracy websites as part of its brutal crackdown against the Syrian people.
Export Penalties Already Total $184 MILLION in 2014 – Want to Learn Who, What, Why & How to Stay Compliant?
Co Authored by Omar Franco
Last night Congress voted to end the first federal government shutdown in seventeen years and avert a default on U.S. debt. The deal brokered between Senate Majority Leader Harry Reid (D-NV) and Minority Leader Mitch McConnell (R-KY) provides government funding through Jan. 15, 2014, at almost the same rate as in FY-2013 after automatic spending cuts. The debt limit would be extended through Feb. 7, 2014, if requested by President Obama. The legislation includes a mechanism to allow Congress to block the suspension through action on a resolution of disapproval. The Health and Human Services Department would be required to ensure that health-insurance exchanges verify the eligibility of all individuals applying for tax credits and cost sharing under the Affordable Care Act. Federal employees would be paid for furlough days resulting from the shutdown and members of Congress would be denied their cost-of-living increase in FY-2014.
The Senate passed the bill first with 81 senators voting in favor and 18 voting against the compromise. The House then passed the legislation 285-144, relying mostly on Democratic votes to pass the bill. Alongside the bill, the Senate agreed to a provision that House and Senate leaders would appoint a conference committee to negotiate a budget agreement by Dec. 13.
Co Authored by Omar Franco
The impact of the federal government shutdown, which began October 1, 2013, will be deeply felt by importers and exporters alike. Most government services deemed "essential" by the federal agencies will continue, but “non-essential” services will be discontinued until funding is restored.
This early on, there is no obvious resolution of the budget dispute to tie the FY-2014 government funding to Affordable Care Act (ACA) reforms. Both the House and Senate are entrenched in their positions and they are not scheduled to negotiate any time soon. One side will have to capitulate or bipartisan negotiations will have to lead to a resolution. We feel that negotiations will probably not occur this week as both sides need to assess how the markets and voters will respond to the federal government shutdown. Depending on the public response, we will see movement by one side, probably by Republicans, if the reaction is seen as damaging. As of today, the Dow was up, so the market reaction has been subdued. The reaction from voters is still unknown, but if it is subdued as well, the shutdown will be prolonged. We anticipate the shutdown will last through this week at a minimum.
Some lawmakers are considering broadening the debate by including the debt ceiling. Pressure from resolving the government shutdown could also resolve the debt ceiling issue. The longer the shutdown continues, the more likely the resolution will be tied to the debt ceiling. We do foresee a resolution emerging, however, we do not have any real idea as to what the time frame will be.
To get a glimpse of the impact on the importing and exporting community, we’ve included updates from the BIS and ITC below.
For example, on the export side, the Department of Commerce’s Bureau of Industry and Security (BIS) has this note on its website — they are completely SHUT DOWN, and not accepting licenses – except for emergencies. See more here:
The Federal Government is currently shut down due to a funding lapse. As a result, the Department of Commerce’s Bureau of Industry and Security (BIS) is no longer accepting export license applications, classification requests (CCATS), encryption reviews, encryption registrations, or advisory opinion requests. Similarly, BIS will not be issuing any final determinations. The SNAP-R application on BIS’s Website is not available and will not reopen until the Federal Government shutdown ends. All pending export license applications, commodity classification requests, encryption reviews, encryption registrations, and advisory opinion requests will be held without action by BIS until the shutdown ends.
Applicants may request emergency processing of export license applications for national security reasons by submitting email requests to Deputy Assistant for Export Administration Matthew Borman.
The subject line of the email should read "Request for Emergency License" and the email must identify the applicant (including point of contact), intermediate and ultimate consignees, and end user(s), items, end use, and national security justification for the emergency processing.
On the import side, the impacts are distinctly felt with the U.S. International Trade Commission (ITC). The interactive HTS that I love is not active – and ADD/CVD investigations are tolled. CUSTOMS Info Global Data Mining has taken the opportunity to present a PDF copy of the HTSUS during the ITC’s hiatus here (note you will have to provide your contact information).
See the latest from the ITC’s website:
The U.S. International Trade Commission will shut down its investigative activities for the duration of the absence of appropriation. These activities include, but are not limited to, proceedings conducted under the authority of Title VII of the Tariff Act of 1930, including antidumping and countervailing duty investigations and reviews; investigations and ancillary proceedings conducted under the authority of section 337 of the Tariff Act of 1930; and investigations conducted under the authority of section 332 of the Tariff Act of 1930.
During shutdown, the schedules and deadlines for all investigative and pre-institution activities will be tolled. All hearings and conferences will be postponed, subject to the exceptions described below. Once the Commission receives funding and the period of the shutdown ends, all schedules will resume starting with the day on which the Commission recommences operations. For example, if the shutdown lasts four days (e.g., October 1-4), then the deadline for the filing of any document on October 4 would be extended four days to October 8. If a rescheduled deadline falls on a nonbusiness day, the deadline will be extended to the next business day. The agency may reconsider schedules after resuming operations.
Notwithstanding the general tolling of schedules:
The staff conferences in preliminary phase antidumping and countervailing duty investigations scheduled to take place on October 7, 2013 and October 9, 2013 will take place as scheduled if the Commission resumes operations by October 3, 2013. Should the shutdown not end before October 3, 2013, all conferences will be rescheduled pursuant to the general tolling provisions described above.
The hearing in the Hot-Rolled Steel five-year reviews scheduled for October 3, 2013 will take place as scheduled if the Commission resumes operations by October 2, 2013. Otherwise, this hearing will be rescheduled upon further notice.
The hearing for Investigation No. 332-541, Trade Barriers that U.S. Small and Medium-Sized Enterprises Perceive as Affecting Exports to the European Union, scheduled to take place on October 8, 2013 will take place as scheduled if the Commission resumes operations by October 3, 2013. Otherwise, this hearing will be rescheduled upon further notice.
During shutdown, the online services provided on the Commission’s World Wide Web site, at www.usitc.gov, will be unavailable. This includes:
- USITC website
- HTS Online Reference Tool
- All phone communication with USITC staff
- Restoration of service is expected as quickly as possible after appropriations become available.
Co Authored by Perry Sofferman
Forrester Research predicts that the global market for cloud computing services will have increased from $40.7 billion dollars in 2011 to approximately $241 billion dollars by 2020. You can see the ZDNet article here. This figure includes the Platforms as a Service, Infrastructure as a Service and Business Process as a Service delivery models. What this information reveals is that while cloud computing is already a significant part of operational strategy for many businesses (as well as governmental agencies), we should expect it to not only grow as a market but to become even more intertwined with the way we conduct business and store data on a daily basis. Consequently, businesses in general and export compliance officers in particular need to be vigilant and make sure that their use of this important technology is consistent with US export regulations.
When using cloud services, the user is uploading data to available servers in the cloud provider’s server facility(ies). The type of data uploaded and the location of the server where that data is stored can potentially trigger export compliance issues for the user. In fact, the ultimate location of the particular server used to hold the user’s data may be unknown to either the user or the cloud provider. Data can be redirected to various servers in different countries in order to properly allocate server space based on fluctuations of usage in different time zones. It should be noted that this is only one example of several possible scenarios where the actual export of restricted data could occur inadvertently by the user.
Based on Advisory Opinions issued by the Bureau of Information and Security (“BIS”), there is guidance indicating that in scenarios where exports take place through means of cloud computing:
- (i) the cloud computing provider is not the exporter (the user is) and
- (ii) if foreign nationals employed by the provider access restricted data there may well be a deemed export of such data to such foreign national on the part of the user.
If, however, a cloud computing service provider is aware that the service will be used to support certain proscribed activities, then the provider will be obligated to properly acquire the necessary license. Neither the Directorate of Defense Trade Controls (DDTC) nor the Office of Foreign Asset Controls (OFAC) have yet provided substantive guidance on the subject of export regulations in relation to cloud computing, although OFAC has provided some limited guidance related to exports to Iran involving software and services incidental to personal communications. “Cloud Computing” remains an undefined term in the EAR, ITAR and OFAC regulations.
Top 5 Tips for Export Compliance Professionals in Regard to Cloud Computing
- It is critical for compliance officers and others involved in export control management, including providers of cloud computing services, to take steps to better familiarize themselves with the many complex issues at play in this area. A good start would be a detailed review of the BIS advisory opinions, which can be found here.
- In addition, users of cloud services should think about how to approach this issue with their providers. Users might consider gaining a good understanding of where their provider’s servers are located and whether the providers have instituted any safeguards to address export compliance issues. Likewise, providers may want to delve more deeply into the ITAR regulations with particular emphasis placed on the relation between cloud computing services and “brokering” activities.
- Compliance officers should make sure that members of their organizations are aware that export regulations are applicable to cloud services and that while the storage of data in the cloud might feel virtual, the penalties for export regulation violations remain brick and mortar.
- While exporters remain liable for violations of export regulations, compliance officers should work with their IT departments when negotiating terms to agreements with cloud services providers. For example, require the service provider to notify you in the event servers are added in geographic locations that might be problematic for you. See if it is possible to obtain a right to terminate in such instance. In addition, try to get the provider to indemnify you in the event there is an export violation as a result of a provider’s action or inaction.
- Make sure a review of how your organization uses cloud services is part of your standard compliance self-audit so as to identify any possible problems or lapses before they become significant.
In a speech in 2012, Under Secretary of Industry and Security, Eric Hirschorn, noted that a future project for the Bureau might be a review of “for clarification’s sake – the rules regulating cloud computing.” For both users and providers, such a review should be anxiously awaited.
Sometimes it is beneficial for an exporter to voluntarily self-disclose its export violations to the U.S. Government. Maybe an exportation of an item occurred without first obtaining the necessary license, or maybe the item was shipped to a company overseas other than allowed in a license. Both situations are violations of the Export Administration Regulations, and both violations could result in $250,000 penalties against the exporter. By voluntarily self-disclosing the violation, the exporter would reduce, and might even eliminate, such a penalty.
For a suspected violation of 15 CFR 764.2 of the Export Administration Regulations (EAR) enforced by the Bureau of Industry and Security (BIS) of the U.S. Department of Commerce, an exporter may submit a voluntary self-disclosure (popularly known as a "VSD") to the Office of Export Enforcement of BIS at its Washington, D.C. headquarters office. The contents of what must be included in a VSD are established in 15 CFR 764.5.
Procedurally, once a properly filed VSD is received by the BIS, it is investigated by a Special Agent from the Office of Export Enforcement. If a penalty or other sanction is contemplated, the case is referred to an attorney with the Office of Chief Counsel of BIS. The BIS attorney will contact the exporter’s attorney, eventually resulting in a written Settlement Agreement between the exporter and the BIS. Negotiating the terms of the Settlement Agreement is critical.
The Obama Administration is actively pursuing export control reforms. Importantly, Kevin Wolf, Assistant Secretary of Commerce for Export Administration, on November 9, 2010, at the Global Trade Controls Conference in London, England, stated:
Enforcement will become an even higher priority…We have long promoted the submission of voluntary self-disclosures (VSDs). We view VSDs, along with internal compliance programs, as important mitigating factors.
There will always be occasional errors by exporters. Exporters should consult with knowledgeable and experienced international trade attorneys before submitting a VSD. With more enforcement, there are sure to be more investigations and more penalties assessed by the Government against exporters, and likely more VSDs submitted to the Government by exporters.
In the next few weeks, I am giving lectures and doing a webinar on the general topic of export compliance. In my legal practice over the past 20 years as a Customs and International Trade attorney, I am increasingly involved with clients on export compliance and penalty matters. The laws and regulations have changed dramatically over the past few years, as has the name and number of Federal agencies enforcing them, plus the penalties for non-compliance are much higher now.
Please call (305) 260-1053 with any questions regarding the below seminar/webinar (or compliance generally).
(1) On Wednesday, November 18, from 9 to 12 noon at the Doubletree Miami Mart, on behalf of the Florida Customs Brokers and Forwarders Association, I am lecturing on complying with the Bureau of Industry and Security (BIS) requirements. The seminar is entitled “Export Controls Compliance and Best Business Practices,” and it will cover everything from identifying the correct ECCN (Export Commodity Classification Number) in the Export Administration Regulations (EAR), to submitting an export license, to the decrementing of the license by U.S. Customs and Border Protection, to interacting with Special Agents of the BIS’s Office of Export Enforcement conducting an investigation, to negotiating a favorable resolution after a Notice of Proposed Penalty has been issued against the company for an export violation. I will also cover the various trade embargoes and sanctions with countries and foreign nationals and foreign organizations enforced by the Office of Foreign Assets Control (OFAC). That means everything from Cuba to Zimbabwe and from Specially Designated Nationals (SDN) to narco-traffickers. Violations of BIS and OFAC regulations may result in severe criminal punishment or monetary penalties in the millions of dollars, plus individuals have personal liability.
(2) This Thursday, November 19, from 6:30-8:15 p.m, at the University of Phoenix, 11410 NW 20th Street, Miami, on behalf of the South Florida Chapter of the National Association of Purchasing Management (NAPM), I will discuss “Export Controls Compliance and Penalties”.
(3) On December 3, 2009, I will be a speaker in an “AES Compliance Webinar” from 12 noon to 1:30 p.m. It is sponsored by the National Customs Brokers and Forwarders Association of America (NCBFAA) Educational Institute. To participate, simply go to www.ncbfaa.org and select “AES Compliance Webinar” under “Upcoming Events.” The webinar answers the questions of how, when, and why to file the required Electronic Export Information (EEI) using AESDirect. U.S. Customs is now regularly issuing penalties against exporters or freight forwarders for not properly filing the EEI. If you are wondering what happened to the old Shipper’s Export Declaration (SED) form, you should participate in this webinar that I am doing in cooperation with the U.S. Census Bureau.
Lesson of the day – Don’t make an intentionally false or misleading statement to the U.S. Commerce Department’s Bureau of Industry and Security (BIS)! Carol Wilkins apparently did, and will now pay $15,000 to the BIS. Important to note is that this export manager was fined individually. RF Micro Devices, Inc., the company Carol worked for, was fined $190,000 separate and apart from Carol.
From at least 2002-2003, a responsibility of Carol’s was export control compliance for RF Micro Devices, Inc. The company had exported spread-spectrum modems which are properly classified as ECCN 5A001 to China. Yet, the company did not obtain the required license from the BIS.
The BIS Charging Letter discussed Ms. Wilkins’ false or misleading statement to the BIS. During the course of a BIS investigation, she allegedly told a BIS Special Agent that all product classifications were confirmed by an outside consultant to be EAR99 (no export license required). Apparently the consultant disagreed, and even kept the documentation in which the consultant had specifically advised Carol that the items were not EAR99. Carol might not have realized how resourceful the BIS Agents could be as she may not have realized that BIS Agents would confirm her statements to them by doublechecking with the consultant. Even I was always taught "trust but verify". BIS is no different in this case.
Whenever you are going to be interviewed by a Special Agent of BIS or any other Federal law enforcement agency, always remember two things: (1) tell the truth, and (2) seek the advice of legal counsel.