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The Chinese Communist Party’s decision to eviscerate Hong Kong’s freedoms has forced the Trump Administration to re-evaluate its policies toward the territory.  As Beijing moves forward with passing the national security law, the United States will today end exports of U.S.-origin defense equipment and will take steps toward imposing the same restrictions on U.S. defense and dual-use technologies to Hong Kong as it does for China.

The United States is forced to take this action to protect U.S. national security. We can no longer distinguish between the export of controlled items to Hong Kong or to mainland China. We cannot risk these items falling into the hands of the People’s Liberation Army, whose primary purpose is to uphold the dictatorship of the CCP by any means necessary.

It gives us no pleasure to take this action, which is a direct consequence of Beijing’s decision to violate its own commitments under the U.N.-registered Sino-British Joint Declaration.  Our actions target the regime, not the Chinese people.  But given Beijing now treats Hong Kong as “One Country, One System,” so must we.  The United States is reviewing other authorities and will take additional measures to reflect the reality on the ground in Hong Kong.

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DoJ ANNOUNCES ITALIAN NATIONAL SENTENCED TO FEDERAL PRISON FOR ATTEMPTING TO EVADE U.S. NATIONAL SECURITY TRADE SANCTIONS

Investigation continues against Russian, U.S. defendants

SAVANNAH, GA:  An Italian national has been sentenced to federal prison after his conviction for violating national security laws.

Gabriele Villone of Italy was sentenced to 28 months in prison for conspiring to violate the International Emergency Economic Powers Act (IEEPA) and the Export Control Reform Act of 2018 (ECRA), said Bobby L. Christine, U.S. Attorney for the Southern District of Georgia.

“The defendant tried to obtain industrial equipment from the United States on behalf of a Russian energy company in violation of U.S. sanctions,” said U.S. Attorney Christine. “We will prosecute to the fullest extent of the law those who threaten our national security.”

As described in court documents and testimony, Villone, along with two Russian nationals, an Italian national, a U.S. citizen and various companies, conspired to obtain a power turbine from the United States without a license on behalf of a Russian energy company based in St. Petersburg. Villone and some of his co-defendants were arrested in Savannah, Ga., while attempting to complete the illegal transaction.

According to the indictment, the conspiracy began when an unnamed Russian government-controlled business contracted with Oleg Nikitin, a Russian national, and KS Engineering (“KSE”), the Russian-based energy company, to purchase a power turbine from a U.S.-based manufacturer for approximately $17.3 million. Evidence in the case established the intent of the Russian company to use the turbine on a Russian Arctic deepwater drilling platform. For reasons of national security, the U.S. Department of Commerce expressly prohibited any unlicensed shipment or transfer of the turbine to the Russian company for that purpose.

The indictment further alleged that Nikitin, KSE, and another KSE employee, Anton Cheremukhin, hired Villone, Bruno Caparini and GVA International to obtain the turbine on their behalf. Villone, Caprini and GVA then employed the services of Dali Bagrou and World Mining and Oil Supply (“WMO”) of Dacula, Ga., to procure the turbine from a U.S.-based manufacturer and to have the turbine shipped overseas. The parties conspired to conceal the true end user of the turbine from both the U.S. manufacturer and the U.S. government by submitting false documentation that stated it would be used by a U.S. company in and around Atlanta.

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EU COMMISSION CONFIRMS THAT UNLISTED ENTITIES THAT ARE CONTROLLED BY A LISTED PERSON OR PERSONS MAY BE SUBJECT TO SANCTIONS 

On 19 June 2020 the EU Commission issued an opinion confirming that entities controlled by listed persons are also subject to sanctions measures, even if such entities are not listed.

To quote the opinion, “In the Commission’s view, if the designated person is determined to have control over the Entity, it can be presumed that the control extends to all assets nominally owned by the latter. Such assets must be frozen pursuant to Article 2(1) of the Regulation. Otherwise, designated persons could circumvent the asset freeze imposed on them by continuing to have access to funds or economic resources through the non-designated third parties that they control.”

The opinion may be viewed at:

https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/documents/200619-opinion-financial-sanctions_en.pdf

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UK UPDATES POST-BREXIT RUSSIAN SANCTIONS

The Russia (Sanctions) (EU Exit) Regulations 2019 are intended to ensure that certain sanctions relating to Russia, which are currently in force in the UK under EU legislation and related UK regulations, continue to operate effectively after the UK leaves the EU.

You should also review The Sanctions (EU Exit) (Miscellaneous Amendments) (No. 2) Regulations 2020 to find out any amendments made to the Regulations.

This sanctions regime is aimed encouraging Russia to cease actions destabilising Ukraine or undermining or threatening the territorial integrity, sovereignty or independence of Ukraine. When these regulations come into force they will replace, with substantially the same effect, relevant existing EU legislation and related UK regulations.

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FOUNDER AND CEO OF IRANIAN FINANCIAL SERVICES FIRM EXTRADITED FROM UK ON MONEY LAUNDERING, WIRE FRAUD, AND CONSPIRACY CHARGES

Assistant Attorney General for National Security John C. Demers and U.S. Attorney Erica H. MacDonald today (18 May 2020) announced the unsealing of a six-count federal indictment against SEYED SAJJAD SHAHIDIAN, 33, VAHID VALI, 33, and PAYMENT24 for conducting financial transactions in violation of U.S. sanctions against Iran. The defendants were charged with conspiracy to commit offenses against and to defraud the United States, wire fraud, money laundering, and identity theft. SHAHIDIAN, who was arrested and extradited from the United Kingdom, made his initial appearance earlier today before Magistrate Judge David T. Schultz in U.S. District Court in Minneapolis, Minnesota. VALI remains at large.

According to the allegations in the indictment, PAYMENT24 was an internet-based financial services company with approximately 40 employees and offices in Tehran, Shiraz, and Isfahan, Iran. The primary business of PAYMENT24 was helping Iranian citizens conduct prohibited financial transactions with businesses based in the United States, including the unlawful purchase and exportation of computer software, software licenses, and computer servers from United States companies. According to PAYMENT24’s website, the company charged a fee to circumvent “American sanctions,” and claimed to have brought in millions of dollars of foreign currency into Iran.

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ARE YOU A DISTRIBUTOR OF CIVIL AIRCRAFT PARTS AND/OR ELECTRONICS TO CHINA?

If so, the United States Department of Commerce has published a rule change, effective from 27 June 2020, which will have a significant impact.

In addition to the license requirements for items specified on the Commerce Control List (CCL), you may not export, reexport, or transfer (in-country) any item subject to the Export Administration Regulations (EAR) listed in Supplement No. 2 to part 744 to the People’s Republic of China (China), Russia, or Venezuela without a license if, at the time of the export, reexport, or transfer (in-country), you have “knowledge,” as defined in § 772.1 of the EAR, that the item is intended, entirely or in part, for a ‘military end use,’ in China, Russia, or Venezuela, or for a ‘military end user’ in Russia or Venezuela.

The rule change does not amend the definition of ‘military end user’ but adds ‘military end user’ controls for China.

The new rule broadens the definition of “military end use” beyond any item for the “use,” “development,” or “production” to include any item that supports or contributes to the operation, installation, maintenance, repair, overhaul, refurbishing, “development,” or “production,” of military items.

As amended, the definition of “military end use” in § 744.21(f) will include any item that supports or contributes to the operation, installation, maintenance, repair, overhaul, refurbishing, “development,” or “production,” of military items described on the United States Munitions List (International Traffic in Arms Regulations (22 CFR 126.1)), or items classified under ECCNs ending in “A018” or under “600 series” ECCNs.

In terms of additional product scope, the new rule will add to Supplement 2 to Part 744 ECCNs electronics in 3A991; 3A992 (currently only 3A992.g); and 9A991 aerospace parts and components (currently only aircraft and engines. 

 These are items that generally do not require export licences in the UK/EU and are often, incorrectly, regarded as posing little or no risk to the exporter.

This expansion will require increased diligence with respect to the evaluation of end-users in China, particularly in view of China’s widespread civil-military integration.  A particular area of risk will be MROs who support both civil and military aircraft.

Remember, EAR applies extraterritorially and you can be prosecuted by US authorities for breaches of these rules.

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DUTCH SUPREME COURT UPHOLDS EXTRADITION TO UNITED STATES FOR BREACH OF US SANCTIONS LEGISLATION

The Dutch Supreme Court has ruled that a Dutch national accused of breaching US sanctions relating to exports to Iran may be extradited to the United States.  Further appeal to the European Court of Justice was refused.

Part of the defence case relied on the so-called “blocking statute”  – Council Regulation (EC) No 2271/96, as amended by Delegated Regulation 2018/1100.

The Supreme Court ruled that the blocking statute had no applicability, stating, “The court has also ruled that, since the export of “dual-use” goods to Iran is also punishable in the Netherlands, the Regulation, referred to by the court as the “blocking statute”, cannot be invoked. To this end, the court has considered, among other things, that the Regulation does not protect persons and companies that trade that may contribute to Iran’s military capabilities on the grounds that such trade has also been criminalized in the European Union, namely in the Iran Sanctions Scheme 2012″.

The ruling (in English) may be found at: https://uitspraken.rechtspraak.nl/inziendocument?id=ECLI:NL:HR:2020:623

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ECJU PROCESSING OF LICENCE APPLICATIONS DURING CORONAVIRUS

On 9 April 2020, the Department for International Trade issued Notice to Exporters (NTE) 2020/10.

The main changes are:

Interim arrangements by ECJU

The following arrangements will stay in place until further notice:

  • the response time for RFIs has been increased from 20 to 40 working days
  • ECJU do not require exporters to obtain original copies of end user and stockist undertakings – and will accept digital/electronic signatures on supporting documentation (including pdf versions of end user undertakings and stockist undertakings)
  • for exporting firearms and ammunition to EU member states, ECJU is amending the EC3 and EC4 forms on GOV.UK to an ‘unlocked’ Word document to enable them to add the details in box 9 and 10 electronically – ECJU will email the completed signed/stamped EC3, but you will not receive a hard copy by post
  • Applicants should upload Word versions of EC3 and EC4 forms into SPIRE, not PDFs
  • For dual use goods located in another EU member state, and for which ECJU are required to consult those licensing authorities, ECJU will no longer be issuing a hard copy of the licence for presentation to EU member state’s customs – exporters should print a copy of the licence from SPIRE (with the green tick) for presentation

ECJU will accept the following types of electronic signatures:

  • simple electronic signatures – these include scanned signatures and tick box, plus declarations
  • advanced electronic signatures – these are uniquely linked to the signatory, are capable of identifying the signatory, and are linked to data within the signature that can detect any changes made
  • qualified electronic signatures – an advanced electronic signature created by a qualified electronic signature creation device, based on a qualified certificate for electronic signatures

Please also see notice to exporters 2020/08 for further information on export licence handling and notice to exporters 2020/07 about temporary closure of the classroom based training courses.

The full NTE can be found at: https://www.gov.uk/government/publications/notice-to-exporters-202010-processing-licence-applications-during-coronavirus-covid-19/notice-to-exporters-202010-processing-licence-applications-during-coronavirus-covid-19

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CHANGES TO ECJU INSPECTION PROCEDURES

On 6 February 2020, the Department for International Trade issued Notice to Exporters (NTE) 2020/04.

The main change is that “businesses will now be informed of the exact date when an inspection of their records will take place. Please note that this means we are no longer able to offer alternative dates. We will still try to give businesses between 4 and 6 weeks’ notice of the inspection date.”

The full NTE can be found at: https://www.gov.uk/government/publications/notice-to-exporters-202004-changes-to-inspection-procedures/notice-to-exporters-202004-changes-to-inspection-procedures

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EU DUAL-USE LIST UPDATED – EFFECTIVE 31 DECEMBER 2019

On 17 October 2019, the European Commission adopted the annual Delegated Regulation that updates the EU dual-use export control list in Annex I to Regulation (EC) No 428/2009.

The new Regulation, Commission Delegated Regulation 2019/2199, was published in the Official Journal on 30 December and comes into force on 31 December 2019.

The Regulation can be found at: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L:2019:338:FULL&from=EN

 

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