The Customs-Trade Partnership Against Terrorism (C-TPAT) certification program is a voluntary government program through which importers and exporters can agree to implement and maintain a set of predetermined supply chain security measures and submit to government site visits in exchange for benefits such as expedited review of shipment documentation at the border. The program is designed to streamline import/export procedures, increase shipment security, and save the C-TPAT partner company time and money. Nearly a year ago, U.S. Customs and Border Protection’s (CBP) expanded the previously importers-only C-TPAT to include exporters, releasing a fact sheet outlining eligibility requirements and the  benefits available to participants that I discussed in this September 2014 post.  Then in May 2015, CBP deployed “Phase II of Portal 2.0” – an update to the C-TPAT web portal that includes the addition of the exporter application to the site, effectively implementing the September 2014 policy change.

Bottom line:  U.S. exporters can now review the requirements and benefits of the program to see if submitting a C-TPAT exporter application would be worthwhile for their business. Although there are undeniable benefits to becoming a C-TPAT partner company there are also significant costs associated with implementation of the program’s security requirements. As a result, participation in C-TPAT is an individual decisions that should be made based on your company’s unique circumstances and business goals.

Have a great week.

 

Doreen

 

On August 7, 2015, the U.S. Government issued a revised Guidance regarding Iran and also issued a Third Amended Statement of Licensing Policy on Activities Related to the Safety of Iran’s Civil Aviation Industry.  The bottom line is that the U.S. Government will continue to temporarily suspend certain sanctions listed below.  However, most of these suspensions involve non-U.S. Persons. If you are a U.S. Person you can continue to use the AG/Med exception to sell agricultural and medical products and devices to Iran.  Or, you can apply for a special license to potentially export to Iran. The revised regulations open up  licensing for U.S. Persons in the aviation industry.

The new policy allows:

  • Iran’s purchase and sale of gold and precious metals, and associated services, by non-U.S. persons not otherwise subject to the Iranian Transactions and Sanctions Regulations (ITSR);
  • Iran’s export of petrochemical products, and any associated services, by non-U.S. persons not otherwise subject to the ITSR;
  • The sale, supply or transfer to Iran of goods and services used in connection with Iran’s automotive industry, and certain associated services, by non-U.S. persons not otherwise subject to the ITSR;
  • Iran’s Export of Crude Oil.  The USG will not seek further reductions in Iran’s crude oil sales, enabling Iran’s current customers – China, India, Japan, the Republic of Korea, Taiwan, and Turkey – to purchase their current average amounts of crude oil, and will enable Iran to access an agreed amount of Restricted Funds.
  • Humanitarian and Certain Other Transactions.  The USG will continue to coordinate with Iran regarding the establishment of financial channels to facilitate Iran’s import of certain humanitarian goods, including food, agricultural products, medicine, and medical devices, the payment of medical expenses incurred by Iranians abroad, payments of Iran’s UN obligations, and payments of $400 million in governmental tuition assistance for Iranian students studying abroad.
  • Iran Civil Aviation.  The USG will also continue its favorable licensing policy under which U.S. persons, U.S.-owned or -controlled foreign entities, and non-U.S. persons involved in the export of U.S.-origin goods can request specific licensing authorization from OFAC to engage in transactions to ensure the safe operation of Iranian commercial passenger aircraft, including transactions involving Iran Air.  These activities include, but are not limited to, the exportation and reexportation of: services related to the inspection of commercial aircraft and parts in Iran or a third country; services related to the repair or servicing of commercial aircraft in Iran or a third country; and goods or technology, including spare parts, to Iran or a third country.

As always, unless otherwise noted, these relief measures do not include transactions with persons on the U.S. Treasury Department’s Office of Foreign Assets Control’s (OFAC) List of Specially Designated Nationals and Blocked Persons (the SDN List).  Individuals interested in providing parts and services relating to Iran’s Civil Aviation should carefully review the Third Amended SLP to determine if their contemplated transaction is consistent with its provisions.  Note that all specific licenses that: (1) were issued pursuant to OFAC’s Second Amended Statement of Licensing Policy on Activities Related to the Safety of Iran’s Civil Aviation Industry, and (2) have an expiration date on or before July 14, 2015, are authorized to remain in effect according to their terms until Implementation Day.

As you know there are ongoing changes to the Cuba export regulations.  President Obama announced the reopening of the U.S. embassy in Havana and a Cuban embassy in Washington. The Commerce Department will remove Cuba from list of countries subject to anti-terrorism (AT) controls, and Cuba has been removed from the list of state sponsors of terrorism (SSOT).  Our January blog is still the state of play for permissible business.

However, the Commerce Department issued a Final Rule on  July 22, 2015 to implement regulator changes consistent with the above changes. Here are the highlights:

  • Foreign made items with up to 25% U.S. content can now be re-exported to Cuba without the need for a re-export license from the Commerce Department.
  • Replacement parts can be exported for items legally exported to Cuba.
  • General Aviation flights, such as corporate jets, may now apply for and use license exceptions for trips to Cuba.
  • AVS limitations that operated on Cuba no longer apply.  This means that more options are available for aircraft to use the AVS exception for temporary sojourn for aircraft leaving the U.S.
  • Airlines can engage in transactions incident to approved travel to Cuba without obtaining specific licenses from Treasury’s Office of Foreign Assets Control   (“OFAC”). Note that no other OFAC prohibition has been altered.
  • The scope of sanctions against Cuba is now limited so that U.S. owned or controlled entities in third countries will be allowed to transact with Cuban individuals in third countries.

So far these changes do not alter the longstanding comprehensive trade embargo.  Consistent with the embargo, a license will still be required to export or reexport to Cuba any item subject to Export Administration Regulations unless a license exception is available.

Doreen

 

Iran entered into a historic nuclear agreement with the U.S. and other world powers on July 14th 2015. The agreement will allow the licensing of the export, re-export, sale, lease or transfer to Iran of commercial passenger aircraft for commercial and civil aviation use. The deal also grants the export of spare parts and components for commercial passenger aircraft.  It is reported that Iran is looking to replace hundreds of commercial aircraft.

 

Although this is potentially fabulous news for the commercial airline supply chain the lifting of such sanctions against Iran is not immediate.  The sanctions will be lifted and ultimately terminated in accordance with the deal’s “Implementation Plan,” As part of the plan, Iran will implement various nuclear-related measures and then the U.S. will then cease the application of various sanctions including those relating to “the sale of commercial passenger aircraft and related parts and services to Iran by licensing the export, re-export, sale, lease or transfer to Iran of commercial passenger aircraft for exclusively civil aviation end-use and the export of spare parts and components for commercial passenger aircraft.”  OFAC will be the agency in charge of drafting the new regulations.  No timeline is yet available concerning the export of civilian aircraft to Iran. With the UN Security Council vote behind us, there is now a 90 day time period before Implementation Day which will begin Iran’s implementation. During this period Congress will vote on the deal as well. Buckle your seat belts for the Congressional debate  and also start considering potential market opportunities for your company in the future.

 

Remember, it is a large market of more than 70 million people and the population is young. REMEMBER  Food, agricultural commodities, and medical suppliers already have a free pass to export.  Just remember to do your diligence and ensure compliance with the OFAC requirements.

Doreen

The Idea Behind TPA

On September 24 a rare alliance between Republicans and the Obama Administration led to passage of the ‘fast-track’ bill granting the President a 6-year renewal of Trade Promotion Authority (TPA). As a result, for the first time since 2007, the President has the power to negotiate trade deals with foreign governments and present them to Congress to be approved or rejected with no amendments. The bill also requires the President to notify and consult with Congress throughout the negotiation process and prohibits Senators from filibustering to prevent passage of finalized free trade agreements (FTAs). TPA is indispensable to successfully negotiating FTAs because it prevents Congress from dragging its feet or altering final agreements reached by the President. (more…)

The Bureau of Industry and Security (BIS) is currently accepting comments on methods of improving the Export Administration Regulations (EAR) as well as harmonizing these regulations with the clearance requirements under the International Traffic in Arms Regulations (ITAR). This notice and comment period is open until July 6. (more…)

On March 8 President Obama signed Executive Order 13692 Executive Order 13692, which initially adds seven former or current Venezuelan government officials to OFAC’s Specially Designated Nationals (SDN) List. Once they have been added to the SDN list, the law prohibits any U.S. entity from doing business with them (or entities owned or controlled by them) in addition to freezing their assets and suspending their U.S. entry visas. The move comes months after Congress granted President Obama the power to impose sanctions by passing “The Venezuela Defense of Human Rights and Civil Society Act of 2014” late last year in response to the Venezuelan government’s violent crackdown on anti-government protests that began in February 2014, when 43 people were killed and more than 3,000 arrested. The additions to the SDN list come amid continually worsening economic and social conditions within the country that have been exacerbated by falling oil prices and food shortages. The individuals targeted by the sanctions are said to have committed human rights violations and participated in corruption.

After strongly condemning the United States’ decision to impose sanctions on his country’s government, Venezuelan President Nicolas Maduro sought the power to rule the country by decree. On March 15, Venezuela’s parliament approved the President’s request – a development that, along with President Maduro’s consistent and fiery anti-American rhetoric, suggests US-Venezuela relations will likely get worse before they get better.

The Bottom Line: These initial sanctions are limited to the seven individuals added to the SDN list. They do not include any type of overarching sanctions that would prohibit U.S. entities from exporting to the country or receiving imports from Venezuelan businesses (such as the broader programs in force against Iran and Cuba). Nevertheless, those that are doing business with Venezuela must run the names of their business partners against the SDN list to ensure that they are not one of the seven prohibited parties. Additionally, the ban on doing business imposed on individuals on the SDN list also applies to entities that are owned or controlled by those individuals, so U.S. companies must also ensure that a prohibited party is not involved in ownership or management of the entity they seek to do business with. Finally, it is important to keep in mind that such programs are in constant flux, so additions to the list may be made at any time or a new Executive Order could expand the sanctions program more substantially. I will bring future changes to the Venezuela-related sanctions program to your attention via this blog. I also recommend you consult OFAC’s newly-created webpage devoted to the topic.

Have a great day,

Doreen

On February 24 the SEC charged Ohio-based Goodyear Tire and Rubber Company with violating the books and records provisions of the Foreign Corrupt Practices Act (FCPA). Goodyear agreed to  pay $16.2 million to settle the charges, which stemmed from allegations that the company failed to prevent or detect bribes amounting to more than $3.2 million distributed by local executives at two of its Sub-Saharan subsidiaries in order to obtain tire sales. Most of the illicit payments were made prior to Goodyear’s acquisition of the Kenyan company in 2007. The SEC’s enforcement order suggests that the pre-acquisition due diligence Goodyear conducted was insufficient to uncover the illicit behavior. Furthermore, the SEC found Goodyear’s post-acquisition compliance efforts insufficient as well.

Evidence of improper payments in Kenya first came to light five years after Goodyear’s acquisition through an employee tip submitted via Goodyear’s ethics hotline. The company later disclosed its findings to the SEC and increased compliance trainings and audits. Goodyear’s cooperation and compliance efforts helped it avoid additional criminal fines. However, the dollar amount of the settlement doesn’t quite capture the extent to which this lapse in due diligence cost the company. Goodyear is also required to unwind its operations in Sub-Saharan Africa and stomach the loss of  investment funds, time, and future opportunity in the region.

Takeaway:

Ignorance of foreign subsidiaries’ illicit behavior does not shield a parent company from liability under the FCPA. In this case, Goodyear’s Kenyan subsidiary had independently initiated the illegal practices prior to the acquisition and continued to be managed locally even after Goodyear acquired a majority stake in the company. The U.S. government was able to establish jurisdiction and charge Goodyear with FCPA violations because it had incorporated misleading records of the illicit payments into its accounting records. However, the company could have avoided the violations if it had conducted better pre-acquisition due diligence and implemented anti-corruption training with the subsidiaries right off the bat.

Pre-acquisition due diligence should include:

  • A complete audit of all books and records
  • An assessment of risks based on the location of the business and the nature of the particular industry
  • A review of internal control measures and the compliance culture
  • Risk assessments of political activities and third-party relationships (customers, contractors, vendors, agents, distributors, investors and partners)
  • A violations inquiry to assess target’s relationship with the DOJ and SEC as well as local agencies
  • Pre-acquisition actions to address red flags before the deal goes through
  • Thorough documentation of all due diligence efforts (to present in the event of a government investigation)
  • Immediate implementation of a compliance education and training program including manuals, policies, certifications and management support of the overall compliance program assessing the likelihood of violations, ability to provide mitigation, and the need for restructuring to provide effective protection against future violations.

If you would like assistance in formulating a compliance program tailored to the specific size, location, and industry of your company or have any other compliance-related questions please feel free to contact my office.

Have a great day,

Doreen