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The Month in International Trade – March 2018

Client Alert | 20 min read | 04.11.18

In this issue:


This news bulletin is provided by the International Trade Group of Crowell & Moring. If you have questions or need assistance on trade law matters, please contact Jeff Snyder or any member of the International Trade Group.

TOP TRADE DEVELOPMENTS

KEEP UP WITH THE LATEST NEWS ON THE SECTION 232 AND SECTION 301 INVESTIGATIONS

To do so, please subscribe to Section 232 Investigations on Crowell & Moring’s International Trade Law blog.

For more information, contact: Dan Cannistra, Robert Holleyman, Bob LaFrankie, Ru Xiao-Graham, Cherie Walterman

VENEZUELA UPDATE: FLORIDA DIVESTMENT AND NEW MEASURES IN PANAMA AND SWITZERLAND

The last week of March has brought new measures against Maduro’s regime from the U.S., Europe, and Latin-America. While Switzerland has aligned with European Union (EU) sanctions, Panama has included Venezuelan government officials and several companies in their Politically Exposed Persons’ (PEPs) list. The State of Florida has also enacted divestment laws targeting Venezuela.

Florida Actions: On March 29, Governor Rick Scott of Florida signed into law HB 359, stating that the State Board of Administration shall divest any funds and is prohibited from investing in any institution or company (U.S. company or its subsidiary), doing business in or with the Government of Venezuela (GoV), or with any agency or instrumentality thereof, in violation of federal law. It is unclear how Florida will assess whether a company has undertaken an activity “in violation of Federal law” and, specifically, whether it will wait for Federal indictments, or whether it will be making an independent state-level assessment. 

Panama Actions: On March 27, Panama published a list of PEPs with ties to the GoV. Although the press has described this measure as “sanctions” against the Maduro regime, on its face, the measure only requires financial institutions to conduct enhanced due diligence (EDD) in certain persons considered as high risk due to its political exposure. This new resolution from the Panamanian National Anti-Money Laundering Commission (AML Commission) imposes for the first time in Panama the need to conduct EDD on specific Venezuelan government officials and related companies. Among the due diligence measures the AML Commission requires financial institutions and other regulated persons to investigate is whether any PEPs from Venezuela are directly or indirectly participating in a given transaction.

In a separate resolution, the AML Commission decided it will make the U.S., Canadian, and U.K. denied party lists available on the AML Commission’s webpage. This way financial institutions and other regulated persons can use them as a reference for enhanced due diligence when dealing with individuals on one or more of the lists.

Switzerland Actions: On March 28, Switzerland adopted restrictive measures which align with the measures adopted by the EU on November 13, 2017, and January 22, 2018, as a result of the human rights violations and the undermining of democracy in Venezuela. Swiss sanctions, which usually follow the respective EU sanctions regime, now do so in the case of Venezuela. Switzerland has also imposed an embargo on military equipment that could be used for internal repression, as well as equipment used for surveillance purposes. Swiss measures also include a travel ban, an asset freeze, and a prohibition to make funds available to certain individuals. Institutions or persons having or managing assets that are subject to the asset-freeze must report it to the State Secretariat for Economic Affairs (SECO) without delay. The list of individuals subject to the asset-freeze and the travel ban can be found here. These measures entered into force on March 28. 

These new Swiss sanctions may have an outsized impact because, while less broad than U.S. sanctions, Venezuelan officials are thought to have assets in Switzerland.

Venezuelan Response: The GoV condemned both the Swiss and Panamanian measures, identifying them as illegal coercive measures against Maduro’s regime.

Further, the GoV announced the suspension of its commercial relations with several Panamanian officials and companies, including Copa Airlines. The retaliatory measure forced Copa to suspend its flights into Venezuela, despite being one of the few airlines still operating in the country after most airlines canceled or reduced their services due to currency exchange restrictions combined with security concerns in the country. By virtue of these controls, Venezuela reportedly owes foreign airlines around $ 4 billion. Depending on how their investments are structured into the country, airlines – and other companies in the same situation - may have the ability to make claims against the GoV for their stranded funds under free transfer provisions found in numerous Bilateral Investment Treaties (BITs) with Venezuela. 

For more information on how BITs may aid in the recovery of monies owed by Venezuela, please click here for a short paper in English and Spanish.

For the latest news on Venezuela, please subscribe to Venezuela Sanctions on Crowell’s International Trade Law Blog.

For more information, contact: Cari Stinebower, Carlton Greene, Mariana Pendás, Ian Laird, Eduardo Mathison

PODCAST: VENEZUELA AND CROSS-BORDER ISSUES

Venezuela has frequently been in the news lately, not only because of domestic politics but also because of sanctions and bribery enforcement actions brought by U.S. authorities. In this podcast, Crowell & Moring’s Cari Stinebower, Dalal Hasan, Eduardo Mathison, and Mariana Pendás provide an overview of recent political and enforcement developments in Venezuela and explain what U.S. companies need to know about how these developments could impact business and trade ties with Venezuela.

Discussed in this 23-minute podcast:

  • An overview of the political situation in Venezuela.
  • Implications of U.S. and EU current sanctions targeting Venezuela and the potential for new sanctions.
  • FinCEN guidance on identifying corruption and money laundering red flags from Venezuela transactions.
  • Legal protections and International Dispute Resolution options for companies provided in Bilateral Investment Treaties (BITs) signed by Venezuela.
  • Takeaways for companies with business ties to Venezuela.

Click the link below to listen:
SoundCloud

For more information, contact: Cari Stinebower, Dalal Hasan, Eduardo Mathison, Mariana Pendás

OFAC DESIGNATES SEVEN RUSSIAN OLIGARCHS, 12 RELATED COMPANIES, AND RUSSIAN GOVERNMENT OFFICIALS

Per a press release, on April 6, “the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), in consultation with the Department of State, [ ] designated seven Russian oligarchs and 12 companies they own or control, 17 senior Russian government officials, and a state-owned Russian weapons trading company and its subsidiary, a Russian bank.”

In addition to new Ukraine/Russia-related designations, two persons were also designated pursuant to the Government of Syria authorities.

OFAC also issued the following two Ukraine-/Russia-related general licenses in connection with these designations: General License 12 “Authorizing Certain Activities Necessary to Maintenance or Wind down of Operations or Existing Contracts;” and General License 13 “Authorizing Certain Transactions Necessary to Divest or Transfer Debt, Equity, or other Holdings in Certain Blocked Persons.”

Finally, OFAC published eight new FAQs related to its April 6 action and published one updated FAQ related to the Countering America’s Adversaries Through Sanctions Act (CAATSA).

For more information, contact: Cari Stinebower, Dj Wolff

U.S. AND EU EXTEND RUSSIA SANCTIONS IN MARCH

Within the last month, both the United States and European Union have decided to extend the authorities underpinning some or all of their Russia-related sanctions programs.

For the United States, this involved renewing the “national emergency” finding that provides the basis for each of the Russia-related Executive Orders while in the European Union this involved renewing several of the authorities that are only implemented for six or 12 months at a time.

The tables at the links below identify the relevant authority, most recent extension, and next extension deadline by jurisdiction.

For U.S. Russia-related Sanctions information, please click here.

For EU Russia-related Sanctions information, please click here.

For more information, contact: Dj Wolff, Charles De Jager, Edward Goetz

OFAC ISSUES NEW RUSSIA SANCTIONS TIED TO MUELLER INDICTMENT

On March 15, the Office of Foreign Assets Control (OFAC) designated as Specially Designated Nationals (SDNs) 2 new persons under an existing Obama-era cyber Executive Order, and 13 new persons under new authority granted by the Countering America’s Adversaries Through Sanctions Act (CAATSA). This was the first time OFAC has utilized any of the multitude of CAATSA authorities to designate new SDNs.

The agency also updated nine previously sanctioned persons, adding the Cyber and/or CAATSA designations.

As background, CAATSA Section 224 requires the imposition of asset blocking sanctions on a person the President determines “knowingly engages in significant activities undermining cybersecurity” on behalf of the Government of Russia.

These actions are closely linked to the recent Mueller indictment of Russian persons for allegedly interfering with U.S. elections. All 15 defendants in that indictment have now been designated as SDNs: three of them were previously designated (but have now been re-designated under a second authority) and the 12 others were newly designated as part of this action. Specifically, the Internet Research Agency LLC is named in the indictment, as are 11 individuals linked to the company.

OFAC amended Cyber General License No. 1, “Authorizing Certain Transactions with the Federal Security Service” (GL 1) and reissued it as Cyber General License No. 1A (GL 1A). GL1A has the same net effect as GL1 insofar as it authorizes transactions, subject to certain conditions, with the Federal Security Service (a.k.a. Federalnaya Sluzhba Bezopasnosti) (a.k.a. FSB) related to certain licensing and authorization functions that the FSB performs. The only change under GL1A was to clarify that the authorization continues to apply despite the FSB’s new designation under CAATSA Section 224 (i.e., GL1A authorizes transactions otherwise prohibited by both the Cyber sanctions and Section 224).

OFAC also published four updated FAQs relating to GL 1A and one updated CAATSA-related FAQ related to this action.

For more information, contact: Dj Wolff

COURT TOSSES $4.5 MILLION CUSTOMS PENALTY CLAIM AGAINST CANADIAN TEXTILE IMPORTER

On March 26, 2018, the U.S. Court of International Trade (CIT) dismissed U.S. Customs and Border Protection’s (CBP) attempt to collect $4.5 million in penalties against a Canadian textile company, Tricots Liesse 1983, Inc. (Tricots). U.S. v. Aegis Security Insurance Co. and Tricots Liesse 1983 Inc., Slip. Op. 18-29.

Tricots produces quality knit fabrics and sells its fabrics to high-end U.S. swim and activewear producers. Fabric imports made from NAFTA yarn are duty-free under the rules of origin (ROO) and fabric imports made from non-NATA yarn are duty-free if the Canadian government issues Tariff Preference Level (TPL) certifications under the TPL quota program. Tricots attempted to correct certain past NAFTA ROO claims by filing a disclosure with CBP and submitting TPL certificates issued by Canada. However, CBP rejected Tricots’ disclosure and corrections saying the TPL certifications were untimely. CBP issued Tricots an administrative penalty and duty demand but did not provide Tricots an opportunity for an oral hearing during the administrative proceedings as required by statute. After CBP filed suit against Tricots in the CIT to collect the $4.5 penalty and duties, Tricots filed a motion to dismiss the penalty claims because CBP failed to exhaust administrative remedies.

The CIT held that “[t]he facts demonstrate that, despite Tricots’ efforts, Customs did not follow the statutory injunction to provide the company with a ‘reasonable opportunity’ to make oral representations ‘seeking remission or mitigation of the monetary penalty’ following issuance of the notice of penalty, and thus did not provide Tricots with the statutorily required opportunity to be heard.”  The court added, “Accordingly, Customs failed to perfect its penalty claim and thus is barred from bringing it.” The CIT found that the hearing was necessary before the government could bring its penalty claims in the CIT. The court rejected CBP’s arguments that Tricots failed to show it suffered “substantial prejudice” because of the government’s failure to hold a meeting where Tricots could make its arguments in person.  Now the court must decide if it should also dismiss CBP’s claims for duties.

This decision should help importers by ensuring that they receive a full and fair administrative hearing before CBP imposes a penalty.

Tricots is represented by Crowell & Moring attorneys John Brew, Frances Hadfield and Ade Johnson.

For more information, contact: John Brew, Frances Hadfield, Ade Johnson, Wing Cheung

FED CIRCUIT REVERSES CIT APPLICATION OF ANTIDUMPING DUTIES ON GERMAN STEEL

On March 30, 2018, the U.S. Court of Appeals for the Federal Circuit reversed a U.S. Court of International Trade (CIT) determination against ThyssenKrupp Steel North America Inc. (ThyssenKrupp). The CIT had previously prevented ThyssenKrupp from challenging the 10 percent antidumping duty imposed on its German steel after the U.S. International Trade Commission (ITC) revoked it.

ThyssenKrupp imported corrosion-resistant carbon steel flat products known as CORE from Germany, and made eight entries between Feb. 14 and July 14, 2012. In October 2012, the U.S. Department of Commerce (Commerce) instructed U.S. Customs and Border Protection (CBP) to liquidate and keep the deposits that ThyssenKrupp had made for the 10 percent antidumping duties on those products.

The ITC in January 2012 started a sunset review of the steel rule that had applied to Germany since 1993 and concluded in March 2013 that Germany’s steel did not harm the U.S. market. Commerce then removed Germany from the antidumping duty requirement effective Feb. 14, 2012. The U.S. Government had argued that ThyssenKrupp owed the duties even though the ITC had retroactively revoked the duties.

ThyssenKrupp appealed the liquidation of its deposits and was refunded for six of its eight entries of steel, but the government refused to return its final two duty payments. The company filed protests and appealed CBP’s decision to the CIT under the court’s 28 U.S.C. §1581(a) jurisdiction. However, the CIT concluded that CBP had simply carried out Commerce’s instructions to liquidate the deposits. Therefore, the CIT concluded that it lacked jurisdiction to hear the case because CBP’s decision to impose the anti-dumping duties was little more than ministerial.

ThyssenKrupp appealed the CIT’s decision to the Federal Circuit. The appellate court reversed after concluding that CBP’s decision was much more than ministerial – in part because it issued a six-page opinion letter and analysis in order to reach its decision not to refund the duties that ThyssenKrupp had paid under the retroactively revoked rule.

The appellate court found that there was no support for its view that revoked anti-dumping duties would continue to apply to entries after the revocation date. Further, it stated that logically the decision did not make sense. The court said, “Nor does the government’s view make sense in terms of the basic policy: Commerce has determined that entries made on or after the revocation date do not warrant anti-dumping duties, yet the government’s view would apply such duties to those entries.”

The court determined that CBP had analyzed how the new instructions would apply to the two entries, making its decision more than simple instruction-following. The case was remanded back to the U.S. Court of International Trade with instructions to remand the case for consideration of the merits of ThyssenKrupp’s claim in accordance with the decision that the entries in question were “unliquidated” within the meaning of the instructions implementing the results of the sunset review.

For more information, contact: Alexander Schaefer, Robert LaFrankie

BIS ENTITY LIST: LICENSE REQUIREMENT FOR 12 RUSSIAN COMPANIES CORRECTED; 23 PERSONS ADDED; TWO REMOVED

On March 22, the Bureau of Industry and Security (BIS) issued a final rule (“March Rule”) that (1) added 23 persons to its Entity List, (2) removed one person from the Entity List, and (3) corrected a licensing requirement inaccurately described in a previous rule related to twelve previously designated Russian entities.

  1. New Designees: The March Rule also adds twenty-three persons to the Entity List. These include: (a) 15 persons added in South Sudan for being government, parastatal, or private entities acting contrary to U.S. foreign policy interests; (b) two persons in Singapore and Pakistan added for seeking to procure U.S.-origin items for nuclear-related entities in Pakistan; and (c) five entities in Pakistan for being involved in the proliferation of unsafeguarded nuclear activities and/or assisting others in evading Entity List restrictions. For all 23 persons, BIS imposed a licensing requirement for all items subject to the Export Administration Regulations (EAR) with a presumption of denial.
  2. Removed Designees: BIS also chose to remove one designee in the UAE and one in Ecuador based on “information received by BIS” from those entities and a review undertaken by the End-User Review Committee (ERC).
  3. Correction of Licensing Requirement: Finally, BIS corrected an error in a final rule published on February 16 (“February Rule”), which had added 21 entities to the Entity List.

Specifically, the February Rule had added 12 entities to the Entity List to support a parallel designation of these entities by the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) pursuant to Executive Order 13662 on its Sectoral Sanctions Identification (SSI) list. The February Rule had, however, inconsistently described the licensing requirements applicable to these 12 entities (the other 9 entities were designated by OFAC as Specially Designated Nationals (SDN) and the BIS Entity List licensing requirement was correctly described).

Specifically, the preamble to the February Rule correctly stated that a “license is required for exports, re-exports, or transfers (in-country) of all items subject to the [Export Administration Regulations] EAR, when the exporter, re-exporter or transferor knows that the item will be used directly or indirectly in exploration for, or production of, oil or gas in Russian deep water (greater than 500 feet) or Arctic offshore locations or shale formations in Russia, or is unable to determine whether the item will be used in such projects.” That tailored requirement is consistent with the tailored licensing requirements BIS had previously imposed on entities designated by OFAC as subject to its sectoral sanctions program.

However, the February Rule also included a more general, and conflicting, entry for each of the 12 entities. Specifically, BIS had stated in its conclusion that a license was required for all items subject to the EAR for all end uses for all entities identified in the February Rule; this was a correct description of the requirements applicable to the nine designees who had been designated by OFAC as SDNs, but was too broad of a statement for the 12 designees designated by OFAC as SSIs.

The March Rule clarifies the February Rule and removes the conflict. Specifically, the March Rule confirms that the 12 entities subject to OFAC’s sectoral sanctions program (i.e., designated as SSIs) are subject only to the more limited licensing requirements related to all items subject to the EAR when used in projects specified in § 746.5 of the EAR. The broader restriction on the nine SDNs remains in place and was not modified in the March Rule.

For more information, contact: Jeff Snyder, Dj Wolff

BIS UPDATES EAR WITH LATEST AUSTRALIA GROUP (AG) DECISIONS; INDIA NEW AG PARTICIPATING COUNTRY

On April 2, the Bureau of Industry and Security (BIS) published a final rule in the Federal Register amending the Export Administration Regulations (EAR) to implement the recommendations presented at the February 2017 Australia Group (AG) Intersessional Implementation Meeting, and later adopted pursuant to the AG silent approval procedure, and the recommendations made at the June 2017 AG Plenary Implementation Meeting and adopted by the AG Plenary.

The Australia Group (AG) is “an informal forum of countries which, through the harmonization of export controls, seeks to ensure that exports do not contribute to the development of chemical or biological weapons. Coordination of national export control measures assists Australia Group participants to fulfill their obligations under the Chemical Weapons Convention and the Biological and Toxin Weapons Convention to the fullest extent possible.”

The following Export Control Classification Numbers (ECCNs) on the Commerce Control List (CCL) have been updated to reflect the February 2017 Intersessional Implementation Meeting recommendations that were adopted by the AG:

  • ECCN 2B350 (by adding certain prefabricated repair assemblies, and specially designed components therefor, that are designed for attachment to glass-lined reaction vessels, reactors, storage tanks, containers or receivers controlled by this entry);
  • ECCN 2B351 (by clarifying that toxic gas monitoring equipment includes toxic gas monitors and monitoring systems, as well as their dedicated detecting components); and
  • ECCN 2B352 (by adding certain nucleic acid assemblers and synthesizers to this entry and clarifying how the capacity of certain fermenters should be measured for purposes of determining whether they are controlled under this entry).

Consistent with the June 2017 AG Plenary Implementation Meeting recommendations that were adopted by the AG, this rule amends the following ECCNs on the CCL:

  • ECCN 1C350 (by adding N,N-Diisopropylamino­ethanethiol hydrochloride).
  • ECCN 1C353 (to clarify that genetically modified organisms include organisms in which the nucleic acid sequences have been created or altered by deliberate molecular manipulation and that inactivated organisms containing recoverable nucleic acids are considered to be genetic elements).
  • This rule also corrects several typographical errors in a note to ECCN 1C351 and updates the advance notification requirements in the EAR that apply to certain exports of saxitoxin.

Finally, the EAR has been amended to reflect the addition of India as a participating country in the AG.

Because of this, this rule makes “conforming amendments to the EAR to reflect the addition of India to the AG, as of January 19, 2018. Specifically, this rule amends the entry for India in the Commerce Country Chart (Supplement No. 1 to part 738 of the EAR) by removing the ‘‘X’’ from this entry under the column CB 2. In addition, this rule amends the Country Groups chart (Supplement No. 1 to part 740 of the EAR) by adding an ‘‘X’’ to the entry for India under column A:3, Australia Group.”

For more information, contact: Jeff Snyder, Edward Goetz

CROWELL & MORING SPEAKS

On March 12-13, Chris Monahan and Jennifer Giblin spoke at the International Compliance Professionals (ICPA) 2018 Conference in San Diego, CA. Chris’ talked about “2017 Export Year in Review,” while Jennifer discussed “Understanding IATA Hazardous Materials.”

Robert Holleyman spoke at the Biennial IBA Latin American Regional Forum Conference in Mexico City on March 15. He was a panelist discussing “Free trade or protectionism: are we going local? The renegotiation of Brexit, NAFTA, and others – what are the challenges and opportunities.”

Jeff Snyder moderated panels and spoke on “BEPS & Tax and Customs Efficient Supply Chain Management," including the Customs law impact of international supply chain optimization in the light of the OECD BEPS initiative, on 15 March 2018, at the Inter-Pacific Bar Association Annual Conference in Manila.

Contacts

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JUST RELEASED: EPA’s Bold New Strategic Civil-Criminal Enforcement Collaboration Policy

The Environmental Protection Agency’s (EPA’s) Office of Enforcement and Compliance Assurance (OECA) just issued its new Strategic Civil-Criminal Enforcement Policy, setting the stage for the new manner in which the agency manages its pollution investigations. David M. Uhlmann, the head of OECA, signed the Policy memorandum on April 17, 2024, in order to ensure that EPA’s civil and criminal enforcement offices collaborate efficiently and consistently in cases across the nation. The Policy states, “EPA must exercise enforcement discretion reasonably when deciding whether a particular matter warrants criminal, civil, or administrative enforcement. Criminal enforcement should be reserved for the most egregious violations.” Uhlmann repeated this statement during a luncheon on April 23, 2024, while also emphasizing the new level of energy this collaborative effort has brought to the enforcement programs....

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