In this issue:

• Top Trade Developments:
  
  • Iran Negotiations Extended: Sanctions Suspensions Continued Until June 2015
  • Russia Sanctions – What to Expect in December
  • CBP Lays out Strict Guidelines for Defective NAFTA Certificates of Origin – Defines 'Valid' and 'Invalid' Certs
  • EU Court Awards Damages for First Time to a ‘De-Listed’ Iranian Company
  • BIS Reaffirms 2009 Cloud Computing Guidance: Provision of Services via Cloud-based Storefronts Not a Software Export
  • APEC Sparks Flickers of Life Into the Multilateral Trading System
  • Trade Agreements After the Mid-Terms – What to Expect from the New Congress
    
  • Next TTP Meeting Scheduled for December 7-12 in Washington
  • D.C. Circuit to Reconsider Conflict Minerals Reporting Decision
• Agency Enforcement Actions
• Other Agency Actions
• Crowell & Moring Speaks
  
  

TOP TRADE DEVELOPMENTS

Iran Negotiations Extended: Sanctions Suspensions Continued Until June 2015

The P5+1 group (the U.S., France, Britain, Russia, China, and Germany) and Iran agreed to extend the Joint Plan of Action (JPOA) for containing Iran's nuclear program for seven months in order to give negotiators more time to conclude a comprehensive agreement.

This second extension is being referred to as the 'JPOA Relief Period' (to contrast it with the earlier 'Extended JPOA Period,' which ran from July 20 to November 24, 2014) and has two deadlines: a high-level political agreement by March 1, 2015 and a corresponding technical agreement by July 1.

The limited sanctions relief Iran received during the original and extended JPOA periods will continue and Iran will gain access to $700 million of oil revenue frozen in third countries per month through June 2015. 

In return, Iran will provide the International Atomic Energy Agency (IAEA) access to additional workshops linked to the production of centrifuges and their rotors. This will give the P5+1 more insight into Iran's ability to produce advanced centrifuges and how quickly they can be used to enrich uranium. Tehran also agreed to continue not enriching uranium beyond five percent and not to move to the next stage of testing for its advanced centrifuges.

This second JPOA extension will provide the Obama Administration tough domestic challenges. Not only have Republicans in Congress called for increased sanctions on Iran, but they have also sought the opportunity to review any deal before implementation. Secretary of State Kerry has called for patience; whether resurgent Republicans will listen remains to be seen.

For more information, contact: Cari Stinebower, Dj Wolff, Edward Goetz

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Russia Sanctions – What to Expect in December

On November 29, the EU sanctioned the organizers and organizations behind the elections held earlier in the month by separatists in eastern Ukraine. 13 individuals and five entities were added to the EU's restricted list. The United States and the EU denounced the vote as "illegal and illegitimate," but Russia recognized the results, which saw rebel leaders winning in both Donetsk and Luhansk, the two largest regions in the east. 

On a somewhat positive note, there are reports of a new ceasefire in Luhansk beginning on December 6th and that similar talks are underway in Donetsk.

The new sanctions come as economic data is showing the strain sanctions are having on Russia's economy. Inflation has reached eight percent, the ruble has lost 40 percent of its value against the dollar this year, and analysts are predicting the economy contracting by almost one percent in 2015. The price of oil dropping to the $70 per barrel is range has only exacerbated Moscow's economic problems, as a large portion of Russia's exports are petroleum-related products.

Public reports indicate that three large Arctic oil exploration contracts between Exxon and Russian-oil major Rosneft have also been cancelled, victims of sectoral sanctions targeting the Russian energy sector. 

Separately, another Russian energy company, OAO Novatek, has spent almost $300,000 in lobbyist fees to fight a new Senate bill calling for more sanctions. Lobbying-disclosure records also show Gazprombank and the Russia Direct Investment Fund engaging lobbyists in Washington over sanctions-related issues.

Although the EU's new sanctions only affected Ukrainian individuals and entities, the possibility for another round of sanctions in December against Russia is possible. In addition to the West believing Russia is still aiding separatists in Ukraine, there has been an increase in military tensions centered on the Baltic nations of Latvia, Lithuania, and Estonia, all NATO members. Worse than further economic turmoil is the possibility of Russian intervention in one of the Baltic States, which would test how far the NATO allies were willing to go; under Article V of the NATO treaty, an attack on one NATO nation is an attack on all.

For more information, contact: Cari Stinebower, Dj Wolff, Edward Goetz

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CBP Lays out Strict Guidelines for Defective NAFTA Certificates of Origin - Defines 'Valid' and 'Invalid' Certs

A November 17 CBP message was posted clarifying what causes NAFTA Certificate of Origin to be "defective." It also defined the meaning of the terms "valid NAFTA Certificate of Origin" and "invalid NAFTA Certificate of Origin."

A defective NAFTA Certificate of Origin may meet the conditions of a "Valid NAFTA Certificate of Origin," but will not be accepted if it contains other errors or omissions. Examples include, but are not limited to:

• Illegibility;
• Misclassification;
• Incorrect or missing preference criteria;
• Signature by an individual who cannot legally bind the company;
• Typed or stamped signature;
• 3rd-country goods (in addition to NAFTA goods);
• Net Cost field error;
• Single entry Certificate without an invoice or other unique reference numbers; or
• Other similar errors or omissions.

A NAFTA Certificate of Origin is valid if it:

• Lists the good in question;
• Covers the period in question;
• Includes the exporter's or agent's signature in block 11a "Authorized Signature;"
• Was in the importer's possession at the time of the claim, as demonstrated by:
  • Block 11e "Authorized Signature" is dated prior to the date of the preference claim; and is
  • Submitted upon request of a CBP official.

A NAFTA Certificate of Origin is invalid if it does not meet the above requirements.

In addition to defining the aforementioned terms, the posting reminds importers that a NAFTA preference will be denied if the importer does not possess a valid NAFTA Certificate of Origin at the time of the preference claim.

For assistance navigating these strict guidelines, contact one of Crowell's experienced Customs attorneys.

For more information, contact: John Brew, Edward Goetz

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EU Court Awards Damages for First Time to a 'De-Listed' Iranian Company

On November 25, the EU General Court annulled sanctions against an Iranian entity named Safa Nicu Sepahan Co. (Safa Nicu) and awarded non-material compensation due to damage to the company's reputation. The Court annulling sanctions has been fairly common recently; however, this was the first time the Court allowed any part of an applicant's damages claim.

The EU Council placed the company on its restricted list in 2011 because it was a "communications firm that supplied equipment for the Fordow [Uranium Enrichment] facility built without being declared to the IAEA [International Atomic Energy Agency]."  

The Court found no evidence of the Council's claim and found the error "sufficiently serious" to have damaged the firm's reputation, awarding Safa Nicu 50,000 euros plus default interest. The company had been seeking 2 million euros. The court did reject Safa Nicu's claim for material damage in its entirety.

The ease with which companies have been able to successfully challenge their listing is a key difference between the U.S. and EU; delisting petitions are permitted in the United States but are less frequent and are reviewed, in the first instance, by the sanctioning agency and not the courts. With a precedent now set for the awarding of even partial damages, it remains to be seen if this will impact the EU Council's decision making when considering restricting entities or individuals in the future.

For more information, contact: Cari Stinebower, Salomé Cisnal De Ugarte, Dj Wolff, Lorenzo Di Masi

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BIS Reaffirms 2009 Cloud Computing Guidance: Provision of Services via Cloud-Based Storefronts Not a Software Export

On November 13, BIS issued an Advisory Opinion on the application of the Export Administration Regulations (EAR) to cloud-based storefronts where, rather than downloading a software application from the storefront to a local server, users access all features and functions of the software application in the cloud.

BIS confirmed that, consistent with its stating that the provision of computational capacity through grid or cloud computing is not subject to the EAR because the provider is not transmitting EAR-controlled commodities, software, or technology, the provision of computational services via cloud-based storefronts does not constitute an export of software. BIS noted that an export of technology may occur if a foreign user uploads data to the cloud for processing and downloads the processed data, if a U.S.-based server is used. This suggests that foreign users may unwittingly commit export controls violations by simply using cloud-based storefronts to process controlled data, if the cloud service provider has servers located in the U.S.

The Advisory Opinion also confirmed that, because no export of software occurs through the use of a cloud-based storefront, a license is not required to provide services using "ENC restricted" software described in 15 C.F.R. Part 740.17(b)(2) to government end-users in countries not listed in Supplement 3 to Part 740.

If you have any questions about cloud computing or other software and encryption issues please contact one of the attorneys in Crowell's Export Controls practice.

For more information, contact: Lindsay Denault

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APEC Sparks Flickers of Life Into the Multilateral Trading System

From November 7-11, 2014, ministers, heads of state, and economic leaders from 21 Asia-Pacific economies met in Beijing, alongside CEOs and senior executives from hundreds of companies operating in the region, as part of the annual Asia-Pacific Economic Cooperation Forum (APEC) Leaders meeting. 

As a non-treaty based organization, APEC is a unique international forum which enables governments and industry from the world's most economically dynamic region to meet in a voluntary setting and seek to spur regional trade and investment and promote economic growth by reducing unnecessary barriers to trade. The concluding 2014 APEC Leaders' Declaration highlights a wide range of industry priorities and recognizes the necessity of close collaboration between industry and government to address today's challenges. While commitments are made on a voluntary basis, they are binding once incorporated into national laws. 

Throughout the meeting, APEC repeatedly demonstrated its long-standing role as both an incubator of multilateral trade policy (the World Trade Organization's (WTO) Trade Facilitation Agreement (TFA) and Information Technology Agreement (ITA) were both originally conceived in APEC), an innovator of concrete ideas to drive regional growth (for example, the APEC Business Travel Card, which expedites entrance procedures to APEC countries and waives visa requirements for some of them), and a forum, which, by its voluntary nature, helps yield compromise on issues that had previously seemed globally intractable.

During the APEC meetings, the United States and China reached a series of landmark bilateral deals including: an agreement to reciprocally extend visa validity periods from one year to ten years for short-term tourist and business visas and from one to five years for student and exchange visas as of November 12, 2014; and, a seminal U.S.-China Joint Announcement on Climate Change which represents the first agreement between the world's two largest emitters in which both agreed to emissions cuts.

The United States and China also announced a "breakthrough" in the ongoing negotiations to expand the list of products covered by the Information Technology Agreement (ITA). Talks had broken down in late 2013 based upon a disagreement about the scope of products to be covered. The breakthrough in Beijing sparked new hope that an expanded ITA could be quickly concluded.  Industry estimates indicate that an expanded ITA with broader coverage could expand global Gross Domestic Product (GDP) by $190 billion and eliminate tariffs on $1 trillion in global IT sales.

For more information about the meeting, or regarding how to become involved in future APEC events, please contact one of Crowell's seasoned international trade attorneys.

For more information, contact: Kate Clemans, Jonathan (Josh) Kallmer, Dj Wolff

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Trade Agreements After the Mid-Terms – What to Expect from the New Congress

We expect that the outcome of the U.S. mid-term elections, and specifically the change of the Senate to Republican control, will add momentum to the Administration's efforts next year to conclude negotiations on a Trans-Pacific Partnership (TPP) with 11 Pacific Rim countries and make meaningful progress on a Transatlantic Trade and Investment Partnership (T-TIP) with the European Union. 

As of the time of this writing, it appears that Senator Orrin Hatch (R-UT) will become chairman of the Senate Finance Committee, while Representative Paul Ryan (R-WI) has the inside track on the House Ways & Means Committee chairmanship. Sen. Hatch has a strong record of supporting trade agreements and can be expected to champion these potential deals. While Rep. Ryan has had less significant involvement in trade policy matters, one can expect him to carry on the support shown by outgoing Chairman Representative Dave Camp (R-MI).

While we do not expect any legislative breakthroughs during the lame duck session of Congress, there are positive signs that a Congress controlled by Republicans – who tend to be more supportive of trade agreements – may be able to pass Trade Promotion Authority (TPA) legislation in the first half of 2015. By preventing Congress from (formally) amending proposed legislation to implement trade agreements, TPA gives U.S. negotiating partners' confidence that the deals they conclude with the United States will not be subsequently altered by Congress, thereby incentivizing them to put their best offers on the table. 

A potential positive byproduct of enhanced momentum on TPA is that Congress may also deal in early 2015 with many outstanding trade issues, namely renewal of the Generalized System of Preferences (GSP) program, passage of a Miscellaneous Tariff Bill (MTB), and conclusion of Customs reauthorization legislation.

Crowell is closely monitoring and assessing developments in Congress to keep our clients one step ahead of important developments.  For questions on TPP, T-TIP, TPA, or other issues, please contact one of Crowell's experienced attorneys. 

For more information, contact: John Brew, Jonathan (Josh) Kallmer, Brian Gatta

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Next TTP Meeting Scheduled for December 7-12 in Washington

The U.S. will be hosting the next informal round of Trans-Pacific Partnership (TPP) talks in Washington December 7-12. An informed source said the week-long meeting will likely include chief negotiators, as well as some working groups. 

For more information, contact:  John Brew, Jonathan (Josh) Kallmer, Brian Gatta

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D.C. Circuit Set to Reconsider Conflict Minerals Reporting Decision

The D.C. Circuit has agreed to rehear its April decision on SEC Conflict Minerals Reporting requirements in light of a July ruling it made in a separate case that raises questions with the Court's earlier decision. 

The Conflict Minerals reporting requirement is mandated by the Dodd-Frank Act and requires companies to disclosure whether certain minerals originated from the Democratic Republic of the Congo (DRC). The D.C. Circuit had previously ruled certain provisions as unconstitutional under First Amendment rights. 

The D.C. Circuit's July decision upheld the U.S. Department of Agriculture's country of origin labeling (COOL) rules, expanding the right of the government to require certain disclosures by companies in the interest of informing consumers. That is, the Court did not find the government-mandated disclosures under the COOL rules to violate free speech. Thus, the rehearing granted in the conflict minerals case is limited to the same issue of the permissible boundaries of government-mandated disclosures.

Clients that have questions regarding this case, or the implications of being compelled to disclose more information to consumers than before, should contact one of Crowell's knowledgeable attorneys.

For more information, contact: John Brew, Jini Koh, Edward Goetz

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AGENCY ENFORCEMENT ACTIONS

Office of Foreign Assets Control (OFAC)

• ESCO Corporation (ESCO) of Portland, Oregon agreed to pay $2,057,540 to settle potential civil liability for apparent violations of the Cuban Assets Control Regulations (CACR). OFAC alleged that ESCO violated the CACR because a subsidiary in Canada purchased nickel briquettes made or derived from Cuban-origin nickel between on or about November 7, 2007, and on or about June 11, 2011. OFAC determined that ESCO voluntarily self-disclosed the apparent violations and that the apparent violations constituted a non-egregious case. The total transaction value for the apparent violations was $6,188,149, and the base penalty amount for the apparent violations was $3,048,208.

Customs and Border Protection (CBP)

• CBP at the Port of Savannah, Georgia announced its third multimillion-dollar seizure of counterfeit goods this year, adding 198 counterfeit Hermes Birkin handbags to its list of intercepted goods.  According to Customs, the handbags were shipped from China and destined for an address in Atlanta. The agency added that the bags, which would have had an estimated value of $1.86 million had they been authentic, will be destroyed.

Bureau of Industry and Security (BIS)

• BIS denied export privileges for a period of ten years to one individual who willfully attempted to export from the United States to China one or more spools of Toray type T-800-HB12000-50B carbon fiber, without first having obtained the required license.
• BIS denied export privileges for a period of two years to one individual who unlawfully, willfully, and knowingly exported and attempted to export to Russia items on the Commerce Control List (an EO-Tech 552 holographic weapons scope and other items), without first obtaining a license.
• BIS denied export privileges for a period of five years to one individual who knowingly and willfully engaged in a transaction involving the attempted export, sale, brokering and financing of an A-300 Airbus aircraft from China to Iran.

Securities and Exchange Commission (SEC) and Department of Justice (DOJ)

• The SEC charged Bio-Rad Laboratories, a clinical diagnostic and life science research company based in California with violating the Foreign Corrupt Practices Act (FCPA) when its subsidiaries made improper payments to foreign officials in Russia, Vietnam, and Thailand in order to win business. The company agreed to pay $40.7 million in disgorgement and prejudgment interest to the SEC. In a parallel action, the Department of Justice announced the company will pay $14.35 million in criminal fines for falsifying its books and records and failing to implement adequate internal controls in connection with sales it made in Russia.
• The SEC sanctioned two former employees in the Dubai office of a U.S.-based defense contractor for violating the FCPA by taking government officials in Saudi Arabia on a "world tour" to help secure business for the company. The two employees later falsified records in an attempt to hide their misconduct.

New York Department of Financial Services (DFS)

• The New York Department of Financial Services (DFS) levied an additional $315 million monetary penalty, and disciplinary action for individual Bank employees – against Bank of Tokyo Mitsubishi UFJ (BTMU) for misleading regulators regarding its transactions with Iran, Sudan, Myanmar, and other sanctioned entities. In June 2013 BTMU was fined $250 million by DFS for violations of New York Banking Law in connection with transactions involving countries and entities subject to international sanctions, including the regimes of Iran, Sudan, and Myanmar. In what was viewed as a first in the industry, as part of the settlement, DFS required that BTMU centralize its entire compliance operations in New York City, rendering it both subject to U.S. jurisdiction and under the supervision of the DFS.

For more information, contact: Edward Goetz

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OTHER AGENCY ACTIONS

Office of Foreign Assets Control (OFAC)

• OFAC added a new FAQ defining the term "shale projects" as they relate to Executive Order (EO) 13662, the EO providing the legal basis for U.S. "sectoral" sanctions against the Russian economy. The term "shale projects" applies to projects that have the potential to produce oil from resources located in shale formations. Therefore, as long as the projects in question are neither deep water, nor Arctic offshore projects, the prohibitions in Directive 4 of EO 13662 do not apply to exploration or production through shale to locate or extract crude oil (or gas) in reservoirs.

Bureau of Industry and Security (BIS)

• BIS updated Question 11 of its Russia Sanctions FAQ to define "shale projects" in the same manner as OFAC. A license is required for the exploration for, or production of, oil or gas from a shale formation. The license requirement does not apply to exploration or production through shale to locate or extract crude oil or gas in reservoirs.
• BIS amended the Export Administration Regulations (EAR) to impose license requirements on the export, re-export, or transfer (in-country) of certain items to or within Venezuela when intended for a military end use or end user.

State Department

• The State Department amended the International Traffic in Arms Regulations (ITAR) to allow exports of lethal defense articles and defense services to Vietnam on a case-by-case basis when in support of maritime security and domain awareness.

Office of the U.S. Trade Representative (USTR)

• On November 27, the World Trade Organization (WTO) adopted decisions enabling full implementation of the Trade Facilitation Agreement (TFA), the first multilateral trade agreement in the WTO's 20-year history.

For more information, contact: Edward Goetz

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CROWELL & MORING SPEAKS

Cameron Prell will be speaking at an international business forum side event to the multilateral climate negotiations being held in Lima, Peru (December 1 – December 12) under the United Nations Framework Convention on Climate Change. Cameron will be speaking about the Green Climate Fund and the role of private sector capital to finance clean energy and infrastructure projects in emerging economies. 

Cari N. Stinebower will be speaking at the American Conference Institute's 5th Annual Forum on Anti-Money Laundering (AML) and Office of Foreign Assets Control (OFAC) Compliance for the Insurance Industry on January 20, 2015. Her session will focus on "Ensuring Compliance and Avoiding Sanctions in an Uncertain and Shifting Landscape: Critical Insights and Best Practices for Insurance and Reinsurance Companies Regarding Russia, Iran, and Other Known and Potential Hotspots."

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