Regulatory Updates and Guidance
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State Department Defines “Activities That Are Not Exports, Reexports, Retransfers, or Temporary Imports,” Harmonizes With 2016 EAR Changes
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On December 26, 2019, the Department of State
published
an interim final rule amending the International Traffic in Arms Regulations (ITAR) to include a new definition of “Activities that are not exports, reexports, retransfers, or temporary imports.” By combining new text with existing regulations, the updated definition seeks to provide guidance on secured unclassified technical data and to harmonize language with the Export Administration Regulations (EAR), which was implemented by the Bureau of Industry and Security (BIS) in 2016.
In regards to technical data, the interim rule specifically states that the “electronic transmission and storage of properly secured unclassified technical data via foreign communications infrastructure” is not considered an export, reexport, retransfer, or temporary import, and as such, does not require government authorization. In order for unclassified technical data to be “properly secured,” specific standards regarding encryption must be met, as discussed in the new ITAR Section 120.54. For example, the technical data in question must be effectively encrypted using end-to-end encryption, where the data has been encrypted prior to leaving a sender’s facilities and continues to be encrypted until an eventual decryption by the intended recipient or retrieval by the sender occurs. Additionally, technical data cannot be intentionally sent to or from an individual or stored in a country listed in ITAR Section 126.1, such as China, or the Russian Federation. This new rule is an important policy change that will now permit companies to store and send ITAR-controlled technical data using cloud computing solutions with global platforms
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USMCA Signed Into Law; Lengthy Implementation Steps to Come
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On January 29, 2020, the President signed the U.S.-Mexico-Canada Agreement (USMCA) into law, initiating a likely long and potentially complicated period of implementation. Prior to the USMCA coming into effect, all three member countries must update their current regulations to mirror the new trade deal and subsequently verify each other’s changes, which may take several months to complete. Canada must also ratify the agreement through its legislature, a process that recently concluded for both Mexico and the United States. In addition, the three countries will undertake the task of drafting rules set to include changes like new labor provisions and rules of origin for automobiles. Following these steps, all parties plan to submit a final notification of approval, and approximately sixty days after this, the USMCA will go into official implementation.
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Initial Export Control Reform Review of USML Concludes With Final Rules for the Transition of USML Categories I, II, and III
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On January 23, 2020, the State and Commerce Departments issued
companion rules
amending U.S. Munitions List (USML) Categories I, II, and III (firearms; guns and armaments; and ammunition/ordnance) to more precisely describe items that warrant control on the USML and to transfer items that no longer warrant control on the USML to the Commerce Control List. With the publication of these rules, the State Department noted that: “These final rules significantly reduce the regulatory burden on the U.S. commercial firearms and ammunition industry, promote American exports, and clarify the regulatory requirements for independent gunsmiths, while at the same time prioritizing national security controls and continuing our ability to restrict exports where human rights, illicit trafficking, and related issues may be of concern.” The State Department also published a
Fact Sheet
outlining myths and facts about the final rules.
These revisions complete the initial review of the USML that the Department of State began in 2011 and the conforming changes made to the International Traffic in Arms Regulations (ITAR) and Export Administration Regulations (EAR). Both rules become effective on March 9, 2020.
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Treasury Department Implements Final Regulations Broadening CFIUS’s Jurisdiction
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The Treasury Department on January 13 released two
final regulations
implementing changes that the 2018 Foreign Investment Risk Review Modernization Act (FIRRMA) made to the jurisdiction and processes of the Committee on Foreign Investment in the United States (CFIUS). The new regulations, which became effective on February 13, broaden CFIUS’s authority to review and to take action to address national security concerns arising from certain non-controlling investments and real estate transactions that were previously outside CFIUS’s jurisdiction. Each of the two regulations also includes a definition of “principal place of business” as an interim rule.
The types of non-controlling investments covered by the new regulations are those that afford a foreign person certain access to information in the possession of, rights in, or involvement in the substantive decision making of certain U.S. businesses related to critical technologies, critical infrastructure, or sensitive personal data. The regulations regarding real estate apply to transactions affording a foreign person at least three of the following property rights: to physically access; to exclude; to improve or develop; or, to affix structures or objects. Covered sites are areas in and around specific airports, maritime ports, and military installations. The regulations are similar to the proposed rules the Treasury Department published in September.
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Notable Enforcement Actions
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Court Throws Out Exxon OFAC Penalty Citing Unclear Regulations
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On December 31, 2019, the U.S. District Court for the Northern District of Texas vacated a $2 million penalty issued to Exxon by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) for alleged violations of OFAC’s Ukraine-Related Sanctions Regulations (URSR). This
ruling
has been highly anticipated since Exxon challenged a
Penalty Notice
issued by OFAC in 2017 for prohibited dealings in the services of a blocked person. In the Penalty Notice, OFAC alleged that Exxon had dealt in prohibited services by executing documents signed by a blocked person on behalf of a non-sanctioned company. When issuing the 2017 penalty, OFAC relied heavily on a 2013 FAQ issued under the now-terminated Burmese Sanctions Regulations, which stated that U.S. parties should "be cautious in dealings with [a non-designated] entity to ensure that they are not providing funds, goods, or services to the SDN, for example, by entering into any contracts that are signed by the SDN."
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Airbus to Pay Over $3.9 Billion to Resolve Global Bribery and ITAR Cases
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On January 31, 2020, the Department of Justice (DOJ)
announced
that France-based Airbus SE agreed to pay approximately $3.9 billion to resolve foreign bribery charges with authorities from the United States, the United Kingdom, and France and to resolve the Company’s violations of the International Traffic in Arms Regulations (ITAR).
In the United States, Airbus was charged with conspiracy to violate the anti-bribery provision of the Foreign Corrupt Practices Act (FCPA) and conspiracy to violate the Arms Export Control Act (AECA) and its implementing regulations, the ITAR. The FCPA charge arose out of Airbus’s scheme to offer and pay bribes to foreign officials, including Chinese officials, in order to obtain and retain business, including contracts to sell aircraft. The AECA charge stems from Airbus’s willful failure to disclose political contributions, commissions or fees to the U.S. government, as required under the ITAR, in connection with the sale or export of defense articles and defense services to the Armed Forces of a foreign country or international organization.
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DOJ Cracking Down on Universities Exporting Research and Technology to China
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On January 28, 2020, the Department of Justice (DOJ)
announced
that the Chair of Harvard University’s Chemistry and Chemical Biology Department, Dr. Charles Lieber, has been criminally charged with one count of making a materially false, fictitious, and fraudulent statement in relation to his connections to China’s Wuhan University of Technology (WUT) and China’s Thousand Talents Plan. Due to receiving over $15 million in grants from the National Institutes of Health and the Department of Defense, Dr. Lieber was required to disclose all relevant foreign financial conflicts of interest. Despite working as a “Strategic Scientist” for WUT since 2011, and serving as a contractual participant in the Thousand Talents Plan (one of China’s recruitment programs that look to overseas professionals and students to provide research and technology from other countries to the Chinese government) from 2012 to 2017, Lieber allegedly minimized his involvement with these organizations and, in turn, caused Harvard University to falsely report his involvement in these programs to U.S. Government investigators.
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Trade and Anticorruption Compliance Vendor Survey
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We are conducting a brief benchmarking survey of vendors used for various trade and anti-corruption compliance-related tasks in order to gain a better understanding of preferred vendors and methods for accomplishing these tasks. We are hoping that compliance professionals might be willing to participate and share their thoughts. The results of the survey are completely confidential, and if you agree to participate, we would be more than happy to share any relevant conclusions or findings that emerge.
Please click
here
to complete this confidential survey.
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February 27, 2020
The 7th Annual International Law Seminar and Networking Lunch Theme: Trade Law and Regulations
11:30 a.m.—3:45 p.m.
Great Hall at Ventana By Buckner
8301 N. Central Expressway, Dallas, TX 75225
3 hours of MCLE Credit - Approval Pending
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McGinnis Lochridge Presenters:
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McGinnis Lochridge Luncheon Seminar
Ethical Considerations for In-House Counsel
Thursday, April 30, 2020
11:15 a.m—4:30 p.m.
McGinnis Lochridge Houston Office
Second Floor Conference Center
609 Main Street, Houston, TX 77002
Lunch will be served. Complimentary parking.
This complimentary seminar will cover an array of topics, including protection of third-party confidential information, ethics in eDiscovery, and ethics in negotiations. In addition, Martin Lutz and Lindsey Roskopf will discuss legal ethics issues involved in international transactions.
3 hours of MCLE Ethics Credit - Approval Pending
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McGinnis Lochridge Presenters:
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McGinnis Lochridge International Trade and Transactions Practice Group
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Click
here
to download our brochure and learn more about some of the key areas of representation we provide to our clients.
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