Ohio Federal Court Upholds ICDR Arbitration Award in Favor of Chinese Party

Recently, the U.S. District Court for the Southern District of Ohio denied an Ohio company’s motion to vacate or modify a USD 1.3 million arbitration award from the International Centre for Dispute Resolution (“ICDR”) and confirmed the award in favor of the Chinese company claimant. The case illustrates the benefits of international arbitration and serves as a reminder of the limited grounds on which an award can be vacated under the U.N. Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) and the Federal Arbitration Act (the “FAA”), which adopts and implements the New York Convention under Chapter 2.

Petitioner, G&K Services LUG, LLC (“LUG”), a Minnesota company, sought to vacate or modify the ICDR award in favor of Talent Creation, Ltd. (“Talent”), a Chinese corporation. LUG alleged the arbitrator exceeded her authority under the FAA and New York Convention and “manifestly disregarded [Ohio] law in issuing the Award[,] by ruling on a claim that Talent “did not assert in its Demand for Arbitration, and in fact never asserted until after the evidentiary hearing[,]” and by refusing to enforce Ohio’s 4-year statute of limitations and “Ohio law on laches.”

Alternatively, LUG requested that the court modify the award “to remove $400,000 in liquidated damages awarded” on the claim it alleged was not asserted until post-hearing. The 15-page Final Award from the ICDR arbitration and the underlying International Supply Agreement, which contained the arbitration provision, were attached to the Petition as exhibits.

The motion to confirm the ICDR award was succinct and the memorandum offered no legal argument whatsoever, as the issues were reserved for briefing.

In the Order, the court found it had jurisdiction over the matter pursuant to 9 U.S.C. § 203 and 28 U.S.C. § 1332. The court noted the New York Convention governed the matter because the arbitration award involved a party domiciled or having its principal business outside of the United States. The court observed that the New York Convention provides seven (7) grounds for vacatur or modification of an international arbitration award and that the court also has authority to vacate or modify the award on any of the grounds set forth in the FAA, including where “arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award…was not made.” Recognizing the strong public policy favoring arbitration and enforcing awards, the court noted the narrow standard when reviewing awards.

The court rejected LUG’s argument that the arbitrator exceeded her powers by including an amount for liquidated damages in the award. LUG argued Talent’s Notice of Arbitration did not include a claim for liquidated damages based on a provision in the International Supply Agreement. LUG further asserted that because the claim was raised only in Talent’s post-hearing brief, “without obtaining LUG’s consent to arbitrate the issue and without amending or supplementing its initial arbitration notice[,]” Talent violated the ICDR rules.

LUG seems to have applied a civil procedure analysis in challenging the ICDR proceedings by arguing that without Talent obtaining leave or LUG’s consent to amend the Notice (as would be required if the case were being litigated in federal court), the arbitrator could not render an award on the liquidated damages claim. The court rejected that contention, holding the arbitration provision called for the parties to arbitrate any dispute under the International Supply Agreement. The court found the arbitrator did not exceed her powers because the dispute “fell squarely within the Agreement’s subject matter,” and it also deferred to the arbitrator on this procedural matter because the court “is not governed by, or even necessarily familiar with, ICDR rules.”

The court also rejected LUG’s arguments that the arbitrator exceeded her powers by rejecting its laches defense and that she manifestly disregarded the applicable Ohio statute of limitations. The court addressed these issues in-depth. It held the arbitrator’s rejection of the laches defense was not unreasonable, arbitrary, or unconscionable. Similarly, it found, in part, that in light of the “strong pro-enforcement biases of the Convention and FAA,” LUG failed to meet its burden that the arbitrator manifestly disregarded Ohio law in rejecting the status of limitations defense. Eight (8) days after the court confirmed the award, a Satisfaction of Judgment was filed, concluding the matter.

Generally, the benefits of arbitrating international commercial disputes are well-recognized. This case shows the importance of thoughtfully drafting the arbitration provision in an international commercial agreement. For instance, parties can agree that the arbitrator must be admitted to practice law in the jurisdiction of the law that will govern the arbitration or that the arbitrator(s) can only decide claims raised in the arbitration demand, which may avoid issues such as those raised by LUG. Parties to international commercial agreements may want to consider giving more attention to arbitration provisions in light of this decision.

For questions on and assistance with international commercial agreements and disputes, please contact Jon P. Yormick at jon@yormicklaw.com or 216.928.3474.

BIS Office of Antiboycott Compliance Settles Penalty Case for $162,000

The U.S. Department of Commerce, Bureau of Industry and Security, Office of Antiboycott Compliance (“OAC”) reached its first penalty settlement of the year last month. On February 17, 2017, the OAC settled with a California company, Pelco, Inc., regarding allegations of sixty-six (66) violations of the Export Administration Regulations (“EAR”) in the amount of $162,000.

The antiboycott regulations of the EAR impose two (2) separate obligations on companies and individuals that are subject to the jurisdiction of the BIS. Relevant to this case, first, U.S. parties are prohibited from agreeing to refuse or actually refusing to do business with or in Israel or with so-called blacklisted companies, in compliance with an unauthorized boycott under U.S. law. In addition, U.S. parties are required to report requests to engage in a restrictive trade practice of a foreign boycott against a country friendly to the United States. The primary boycott of concern is the Arab League boycott of Israel.

In the recent settlement, the OAC proposed charging that on thirty-two (32) occasions Pelco, Inc., with intent to comply with, further or support and unsanctioned foreign boycott, or knowingly agreeing to refuse to do business with another party according to an agreement, requirement, or a request from or on behalf of a boycotting country, in violation of EAR’s antiboycott compliance regulations. In addition, the OAC proposed charging Pelco, Inc., with failing to report receiving these requests on thirty-four (34) occasions. Parties receiving such requests are required to report them quarterly on form BIS 6051P, which can be accessed here or through the BIS website.

The limited facts contained in the Proposed Charging Letter, Settlement Agreement and BIS Order show that the alleged violations occurred over a nearly five (5) year period, between May 2011 through January 2016. The transactions involved the sale of goods from the U.S. to the UAE and Kuwait, both of which are generally considered to be countries friendly to the U.S.

Specifically, the alleged violations involved conditions in purchase orders that Pelco, Inc. received that required it to conform to Israeli boycott regulations or to comply with the Israeli boycott list. In the Proposed Charging Letter, BIS alleged that several purchase orders stated “PRODUCTS MUST CONFORM TO ‘ISRAELI BOYCOTT & UAE REGULATIONS’” and that purchase orders from Kuwait stated “PLEASE ENSURE THAT THE CONSIGNMENT DOES NOT CONTAIN ANY GOODS MANUFACTURED BY THOSE…ON THE ISRAELI BOYCOTT LIST.” Pelco, Inc. allegedly failed to delete, amend, or otherwise expressly take exception to these provisions.

The settlement agreement indicates that the company, at least in part, voluntarily disclosed the apparent violations. In reaching the settlement, the company did not admit the truth of the allegations in the Proposed Charging Letter or that it violated the antiboycott regulations under the EAR.

The Trump Administration’s public statements of strong support for Israel, coupled with its equally strong statements on trade enforcement and this significant penalty settlement, must serve as a stark reminder of a company’s dual compliance obligations under the antiboycott regulations of the EAR and that violations of them can be costly.

For questions on and assistance with antiboycott compliance and related export control matters, including representation in voluntary self-disclosures and investigations, please contact Jon P. Yormick, Esq., at jon@yormicklaw.com or toll free (Canada & U.S.) 866.967.6425.

OFAC Issues Revised Guidance Amid Confusion Over Ukraine-Related Sanctions

In the wake of many questions and some confusion highlighted by the recent and ongoing Ukraine-Related Sanctions, this week the U.S. Department of Treasury, Office of Foreign Assets Control (OFAC) issued Revised Guidance on Entities Owned by Persons Whose Property and Interests in Property are Blocked. OFAC states that the Revised Guidance has been issued in response to inquiries it has received.

The Revised Guidance reaffirms that property blocked pursuant to Executive Orders or OFAC regulations is subject to a sweeping definition and includes “any property or interest in property, tangible or intangible, including present, future or contingent interests. A property interest subject to blocking includes interests of any nature whatsoever, direct or indirect.”

OFAC goes on to explain that a blocked person (both individuals and entities) is “considered to have an interest in all property and interests in property of an entity in which such blocked persons own, whether individually or in the aggregate, directly or indirectly, a 50 percent or greater interest.”

Therefore, OFAC considers an entity “owned in the aggregate,” whether directly or indirectly, 50% or more by one or more blocked persons to be a blocked person as well. In other words, an entity that is not identified on any of the U.S. Government’s “Lists” is a blocked (sanctioned) party if a blocked person (an individual or entity that appears on one of the Lists) owns 50% or more of the unlisted entity.

The practical difficulty in this coping with this broad definition is that it this rule covers aggregated and indirect ownership interests. It is not difficult to consider how even a rather simple ownership structure of a particular entity, say in Russia, might prohibit a U.S. company from accepting a recently received purchase order if that Russian entity is owned by 4 other entities in which a blocked person owns, through other entities or interests, a 50% stake of the Russian entity that submitted the purchase order.

Another unsettling statement in OFAC’s Revised Guidance is the warning to U.S. persons to proceed with “caution when considering a transaction with a non-blocked entity in which one or more blocked persons has a significant ownership interest that is less than 50 percent or which one or more blocked persons may control by means other than a majority ownership interest.” So if the non-blocked/unlisted entity is managed by a President/CEO who is a blocked person who also owns a 30% interest in the company, OFAC seems to be strongly suggesting that U.S. companies avoid transactions with such entities.

The OFAC Revised Guidance does not represent a significant new development regarding economic sanctions administered and enforced by OFAC, but it does publicly illustrate the need for U.S. persons (including non-U.S. persons and companies that are subject to U.S. laws) to engage in enhanced due diligence and documenting those efforts before proceeding with a transaction, whether with a customer or other business partner in Russia and other countries where there is a targeted U.S. economic sanctions regime in place.

For assistance with understanding and complying with Ukraine-related and other economic sanctions regulations and Executive Orders, as well as representation before OFAC in investigations, civil penalty, and voluntary self-disclosures, please contact Jon P. Yormick, Attorney and Counsellor at Law, jon@yormicklaw.com or by calling +1.866.967.6425 (Toll free in Canada & U.S.) or +1.216.269.5138 (mobile).

U.S. Imposes New Export Controls on Russia’s Energy Sector and Adds Russian Shipbuilder to Entity List

On 1 August, Under Secretary of Commerce for Industry and Security, Eric L. Hirschhorn, signed a rule amending the Export Administration Regulations (EAR) to “impose additional sanctions implementing U.S. policy toward Russia,” and address the ongoing developments in Ukraine.  Under the rule, the Bureau of Industry and Security (BIS) imposes export controls on items used in Russia’s energy sector, including exploration and production from deepwater, Artic offshore, and shale projects.  The rule also adds state-owned shipbuilder, United Shipbuilding Corporation, to the Entity List.  On 31 July, the Office of Foreign Assets Control (OFAC) added United Shipbuilding Corporation, to the Specially Designated Nationals and Blocked Persons (SDN) List.

The new rule adds 15 CFR § 746.5 to the EAR, “Russian Industry Sector Sanctions,” and imposes export, reexport, and transfer controls on items classified under the following Export Control Commodity Numbers (ECCNs): 0A998 (Oil/gas exploration equipment, software, and data ), 1C992 (Commercial charges and devices containing energetic materials ), 3A229 (Firing sets and equivalent high-current generators), 3A231 (Neutron generator systems), 3A232 (Detonators and multipoint initiation systems), 6A991 (Marine or terrestrial acoustic equipment ), 8A992 (Vessels, marine systems or equipment, “specially designed” “parts” and “components” therefor), and 8D999 (“Software” “specially designed” for operation of unmanned submersible vehicles used in oil/gas industry).  These new controls apply “when the exporter, reexporter or transferor knows or is informed that the items will be used directly or indirectly in Russia’s energy sector” for exploration and production from deepwater (more than 500 feet depth), Artic offshore, and shale oil/gas projects.  The rule goes on to identify, without limitation, examples of items that are specifically covered by the new Russian Industry Sector Sanctions, as follows: drilling rigs, parts for horizontal drilling, drilling and completion equipment, subsea processing equipment, Artic-capable marine equipment, wireline and down hole motors and equipment, drill pipe and casing, software for hydraulic fracturing (“fracking”), high pressure pumps, seismic acquisition equipment, remotely operated vehicles, compressors, expanders, valves, and risers.  The rule makes clear that “[n]o license exceptions may overcome the licensing requirements under new § 746.5,” except for license exception GOV, and that the license review policy is a presumption of denial.

The rule also adds Supplement No. 2 to Part 746, Russian Industry Sector Sanctions List.  This new supplement includes the ECCNs referenced above, but also includes more than 50 “Schedule B” numbers.  Schedule B numbers are a commodity classification number used for exports, administered by the U.S. Census Bureau and used for reporting foreign trade data.  The following main Schedule B numbers and items are listed: 7304, 7305, and 7306 (line pipe, drill pipe, casing), 8207 (rock drilling or earth boring tools and bits), 8413 (oil well pumps and elevators), 8421 (industrial gas cleaning and separation equipment), 8430 (offshore drilling and production platforms and boring/sinking machinery), 8431 (oil/gas field machinery parts), 8479 (oil/gas field wire line and downhole equipment), 8705 (mobile drilling derricks), and 8905 (floating or submersible drilling or production platforms and floating docks).

For U.S. companies and foreign companies that are subject to U.S. export controls and the jurisdiction of BIS, these new Russian energy sector sanctions pose new compliance challenges and risks.  As with any economic sanctions and export controls, but particularly with the progressing multilateral Ukraine-related sanctions, companies are urged to exercise enhanced due diligence in their compliance efforts.  U.S. and foreign companies that currently export, reexport, or transfer commodities, technology, and software covered by the ECCNs and Schedule B, should be alerted to this new rule and its compliance requirements.  U.S. companies and foreign companies that are subject to U.S. export controls that might only sell or transfer such items domestically should also undertake additional due diligence and not “self-blind” on determining whether Russia is the ultimate destination of the items.

The new rule can be found at this link, http://1.usa.gov/1okGBSH.

For assistance with understanding and complying with this new BIS rule, Ukraine-related and other economic sanctions laws, regulations, and Executive Orders, as well as representation before BIS and OFAC in investigations, civil penalty, and voluntary self-disclosures, please contact Jon P. Yormick, Attorney and Counsellor at Law, jon@yormicklaw.com or by calling +1.866.967.6425 (Toll free in Canada & U.S.) or +1.216.269.5138 (mobile).

CMBA International Law Section CLE Conference Invitation

As Immediate Past Chair of the Cleveland Metropolitan Bar Association, International Law Section, and along with current Chair, Mark Sundahl, and Vice-Chair, Pingshan Li, I invite you, your colleagues, and clients to a dynamic and informative conference on May 9, International Law in the Age of the Internet.  The conference is open to attorneys in private practice and in-house counsel, as well as business executives and managers facing the many legal issues and challenges of doing business globally in the age of the Internet.

This year, ILS is pleased to present luncheon keynote speaker, Gavin A. Corn, U.S. Department of Justice, Computer Crime & Intellectual Property Section, who will discuss Prosecuting Cybercrime.  The conference schedule includes four panels covering:

  • Intellectual Property, Cybersquatting, and Internet Technology
  • Export Controls, Contracting and eDiscovery: Three Examples of How the Internet Creates New Legal Issues
  • Cyber-Security and Privacy in the Information Age
  • Immigration Law and the Internet

The conference is approved for 5.25 CLE hours. For more information and registration, please visithttp://bit.ly/1k8tEjy.

If you are not able to attend or know others who will benefit from attending, please feel free to forward this information to them.

Thank you for your support.

Mexico’s Tax Administration Service is Accepting Requests to Obtain VAT and STPS Certification

Mexico’s 2013 Tax Reform eliminated the exemptions for Value Added Tax (VAT) and Special Tax on Production and Services (STPS) on the temporary import of goods by the maquila industry. It also increased the VAT on border states from 11% to 16%. Payment of VAT and STPS on temporary imports will begin on January 1, 2015.

To compensate the effects of this reform, certain companies that are up to date in the payment of their tax and customs obligations will be able to obtain VAT and STPS certification under the A, AA and AAA modes.

The benefits of obtaining the certification include, among others, a VAT and STPS tax credit of the amounts that should be paid for the temporary import of goods. AA and AAA modes have additional benefits, such as a longer certification term. Certified companies may also obtain a return of any additional VAT payment.

From April 1 through April 30, the Tax Administration Service will be accepting certification requests from certified Authorized Economic Operators under the New Scheme for Authorized Companies and from companies in the automotive industry.

All other maquila companies may file their requests within a period that varies according to their tax domicile:

– For companies located in the North Pacific area, within the jurisdiction of the Baja California office, the period will be from April 15 through May 15;

– For companies in the Northeast, within the jurisdiction of the Nuevo Leon office, from June 3 through July 3;

– For companies in the North Central area, within the jurisdiction of the Coahuila office, from July 7 through August 7;

– For companies in Central area, within the jurisdiction of the Federal District office, from August 7 through September 8; and

– For companies in the West and South area, within the jurisdiction of the Jalisco and Veracruz offices, from September 22 through October 22.

Should any maquila company fail to file its request within the established period, they may file it at any time, but will risk delays in obtaining the certification and tax credit.

For questions and assistance with the VAT and STPS certification process, IMMEX, and related issues and planning strategies for a maquila operation in Mexico, please contact Counsel, Brenda Cisneros Vilchis at bcisneros@yormicklaw.com or Managing Attorney, Jon P. Yormick, at jon@yormicklaw.comor by calling +1.866.967.6425 (Toll free in Canada & U.S.), Office: +1.216.928.3474, or Mobile: +1.216.269.5138.

Navigating Economic Sanctions Successfully: Yormick will Present Upcoming FCIB Webinar

On April 23, international trade and business attorney, Jon Yormick, will present a webinar on Navigating Economic Sanctions Successfully for The Finance, Credit & International Business Association (FCIB). The 1-hour webinar begins at 11:00 am EST and is open to FCIB members and non-members.

In his presentation, Yormick will provide an update on the recent economic sanctions relating to events in Ukraine, discuss key U.S. economic sanctions regimes, discuss recent OFAC General Licenses and TSRA licenses that give companies certain business opportunities within the U.S. sanctions regimes for Iran and other countries subject to U.S. sanctions, and emphasize economic sanctions compliance, including lessons learned from recent OFAC and BIS civil penalty cases.

Yormick is an experienced international business and trade attorney practicing in the areas Export Controls & Economic Sanctions, Customs & International Trade, and FCPA/Anticorruption. He represents U.S. and foreign clients before the U.S. Department of Commerce, Bureau of Industry and Security (BIS), the U.S. Customs and Border Protection (CBP), the U.S. Department of Homeland Security, Immigration and Customs Enforcement (ICE), the U.S. Department of State, Directorate of Defense Trade Controls (DDTC), the U.S. Department of Treasury, Office of Foreign Assets Control (OFAC), and the U.S. International Trade Commission (ITC) on import and export laws and regulations, including the Export Administration Regulations (EAR), and the International Traffic in Arms Regulations (ITAR).  His clients include those in the advanced manufacturing, advanced materials, aerospace and defense, distribution, electronics, energy, medical device, oil/gas, pharmaceuticals, professional services, steel, textiles and apparel, and transportation/logistics sectors.

For more information about FCIB visit, www.fcibglobal.com, or use this link to register for the webinar, http://bit.ly/1kWK9Q4

WTO Rules Retroactive U.S. Countervailing Duty Law is Lawful, but that Commerce did not Properly Investigate Possible “Double Remedies” in Cases against Products from China and Vietnam

On March 27, 2014, the World Trade Organization (WTO) issued a Panel Report regarding “United States—Countervailing and Anti-Dumping Measures on Certain Products from China.”  The Panel upheld the validity of Section 1 of Public Law (P.L.) 112-99, a statute passed by the U.S. Congress with no debate and signed almost immediately by the President on March 13, 2012.  The WTO Panel, however, held unlawful certain investigations and reviews conducted by the U.S. Department of Commerce in relation to countervailing duties (CVD) against non-market economy (NME) countries, namely China and Vietnam.  Earlier this week, the Panel Report was appealed to the WTO Appellate Body which is reviewing the decision

Section 1 of P.L. 112-99 amended the United States Tariff Act of 1930 by adding a provision that provides a legal basis for the U.S. to impose CVD against imports from NME countries. The law was enacted to overturn a 2011 decision from the U.S. Court of Appeals for the Federal Circuit that ruled imposing CVD in addition to antidumping duties (ADD) on the same products from NME countries was contrary to U.S. trade law.  The amended law requires relevant U.S. administrative agencies and federal courts to apply CVD, if any, in all proceedings, resulting U.S. Customs and Border Protection (CBP) actions, and judicial proceedings initiated on or after November 20, 2006, involving products from NME countries.  In September, 2012, China submitted a Request for Consultations to the WTO.

China requested that the WTO Panel find that: (1) Section 1 of P.L. 112-99 is inconsistent with certain Articles of the General Agreement on Tariffs and Trade (the “GATT”) relating to transparency and notice; and (2) the U.S. failed to investigate and avoid double remedies in certain investigations and reviews initiated between November 20, 2006 and March 13, 2012, with the resulting CVD measures being inconsistent with certain Articles of the Agreement on Subsidies and Countervailing Measures (the “SCM Agreement”).  The WTO Panel rejected China’s challenges to Section 1 as being inconsistent with GATT requirements regarding the passage of legislation. 

In response to China’s “double remedies” claim, however, the Panel held that in 25 CVD  proceedings parallel to ADD investigations, initiated between November 20, 2006 and March 13, 2012, the U.S. has acted inconsistently with the SCM Agreement.  Specifically, the Panel found that the U.S. Commerce Department’s concurrent imposition of ADD and CVD calculated on the basis of an NME methodology on the same products, without investigating, in either the CVD investigations and reviews or in the parallel ADD investigations and reviews, whether double remedies arose from such concurrent duties.

The Panel concluded that to the extent that the measures at issue were inconsistent with the SCM Agreement, those measures had nullified or impaired benefits accruing to China under that Agreement.  Accordingly, the Panel recommended that the U.S. bring the investigations and reviews in 25 cases into conformity with its obligations under the SCM Agreement. 

The 25 cases include a broad range of products imported from China, including: Raw Flexible Magnets; Welded Austenitic Stainless Pressure Pipe; Oil Country Tubular Goods; Drill Pipe; and Aluminum Extrusions, which has an extremely broad Scope and captures components and finished goods in products used in the construction, medical device, and manufacturing sectors.

In light of this WTO Panel Report, producers and exporters in China and other NME countries, as well as U.S. importers, whose products are subject to ADD/CVD may consider taking steps to protect their legal rights.   

We would like to thank Ms. Yang Luan, Legal Intern, for contributing to this Client Alert.  Ms. Luan is from China and earned her LL.M. from Case Western Reserve University School of Law and is awaiting admission to the New York State Bar.  

For questions and assistance with issues involving antidumping and countervailing duty cases, including scope rulings, administrative reviews, and other proceedings, compliance with ADD/CVD orders, responding to CBP requests for information, demands for duties, investigations, penalties, preparing prior disclosures, as well as for assistance with other issues relating to international trade laws and regulations, please contact Managing Attorney, Jon P. Yormick, at jon@yormicklaw.com or by calling +1.866.967.6425 (Toll free in Canada & U.S.), Office: +1.216.928.3474, or Mobile: +1.216.269.5138.

President Issues Executive Order Concerning Ukraine

This morning the White House issued an Executive Order blocking property, suspending immigrant and non-immigrant entry into the U.S., and prohibiting donations to those responsible for or complicit in threatening the sovereignty of Ukraine.  The Executive Order is broad in its scope and does not identify any particular individuals or entities that are subject to the sanctions.  The Executive Order was issued pursuant to the International Emergency Economic Powers Act (IEEPA) and other federal laws.

According to the Executive Order, all property and interest in property that are in the U.S. currently or come within the U.S. or possession or control of a U.S. person (including foreign branches) are blocked for any person determined to be “responsible for or complicit in, or have engaged in, directly or indirectly” actions or policies that undermine the democratic processes or institutions in Ukraine; actions or policies that threaten peace, security, stability, sovereignty and the territory of Ukraine; or misappropriate Ukraine state assets.  In addition, property is blocked for those determined to be a “leader of an entity that has, or whose members have” engaged in or materially assisted, sponsored, or provided financial, material, or technological support, or goods or services in support of such activities.

An entity is broadly defined as “partnership, association, trust, joint venture, corporation group, sub-group, or other organization.”

The Executive Order also suspends immigrant and non-immigrant entry into the U.S. of those determined to have participated in such activities.

Additionally, donations and other contributions of support to those determined to be involved in such activities are prohibited.

Lastly, the Executive Order prohibits any transaction that evades or attempts to evade or avoid the prohibitions, as well as any conspiracy to evade or avoid the prohibitions.

Noting that the transfer of funds and assets can be done instantaneously, the Executive Order also states that “no prior notice of a listing or determination made” pursuant to Executive Order shall be provided.

In light of this just released Executive Order, companies are urged to immediately review their business relationships in and with Russian and Ukrainian parties and take necessary actions to avoid possible violations of the Executive Order. Clearly, this is a developing situation and companies will need to actively monitor whether further sanctions will be imposed and their business relationships with individuals and entities that are or may be affected by this Executive Order.

For assistance with understanding and complying with this Executive Order, other economic sanctions laws, regulations, and Executive Orders, as well as representation before BIS and OFAC in investigations, civil penalty, and voluntary self-disclosures, please contact Jon P. Yormick, Attorney and Counsellor at Law, jon@yormicklaw.com or by calling +1.866.967.6425 (Toll free in Canada & U.S.), +1.216.928.3474, or Skype at jon.yormick.

Got Export Controlled Technology? Do not overlook Compliance with the Deemed Export Rule

The “deemed export” rule under the Export Administration Regulations (EAR) presents unique compliance challenges for universities, R&D centers, and any number of companies and organizations involved in high-tech fields.

In short, under the EAR, the release of export controlled technology to a foreign national is deemed to be an export to the country of which the foreign national is a citizen. A “release” includes giving a foreign national access to the controlled technology. The deemed export rule applies to foreign national employees who may be authorized to work in the U.S. under an H1-B, O, L-1 or other visa, as well as foreign national visitors, those employed by business partners, graduate assistants and other researchers and student interns. The deemed export rule does not apply, however, to foreign nationals who have become naturalized U.S. citizens; those who are legal permanent residents of the U.S. (have “green cards”). The rule applies equally to organizations with overseas operations, such as subsidiaries, JVs, affiliates, and other partners.

The sharing of or giving access to controlled technology, blue prints, formulations and the like with a foreign national during a meeting in a conference room, in an email or text message, in a Skype or phone call, are all considered to be a release under the deemed export rule. Therefore, just as an exporter of a commodity must determine whether its export controlled item is subject to licensing requirements or if it chooses to rely on an applicable export license exception, organizations that have controlled technology must similarly analyze whether a release of that technology, in whatever format and via whatever media, must also carefully analyze whether a deemed export license may be required before the release to the foreign national colleague can occur.

This week, a civil penalty settlement announcement made by the U.S. Department of Commerce, Bureau of Industry and Security (BIS), Office of Export Enforcement (OEE) gave organizations with controlled technology another reminder (perhaps a jolt for some) that violations of the deemed export rule are detectable and costly. In a press release, BIS announced that it reached a $115,000 civil settlement with a Santa Clara, California company resulting from five violations of the EAR’s deemed export rule.

The company’s violations included the unauthorized release of export controlled manufacturing technology to a Russian national engineer working at its U.S. headquarters. This occurred in 2007. The unauthorized release involved drawings and blueprints for parts, identification numbers for parts, and development and production technology. The information is used for a product in hard disk drive manufacturing. The controlled technology was stored on a server at the company’s headquarters. (Best Practice Tip: store controlled technology on U.S. servers only, not abroad and not in the cloud). The company “released” the controlled technology to its Russian national engineer by providing the employee with a login ID and password “that enabled him to view, print, and create attachments.” After that occurred, the company applied for a deemed export license from BIS, but continued to store controlled technology on its server and failed to take steps to deny access of the technology to its Russian national while the license application was pending.  This resulted in charges of knowingly violating the EAR on three occasions. Apparently, those applying for the license failed to inform the IT department to disable the engineer’s login or otherwise deny access to the controlled technology. In 2010, a similar release violation occurred when a Chinese national working in the company’s Shenzhen, China subsidiary accessed similar controlled technology on the company’s server in California using a login ID and password to open an attachment containing the technology.

The company voluntarily disclosed its violations to BIS. But it should be recalled that for many visa categories used to employee foreign nationals in the U.S. Part 6 of the I-129 requires the applicant to certify compliance with the EAR (and ITAR), including obtaining an export license when necessary and not releasing or giving access to the controlled technology to the foreign national employee. In other words, BIS and U.S. Citizenship and Immigration Services (USCIS) have information available to help detect and penalize deemed export violations in addition to information provided to BIS through a voluntary self-disclosure (VSD).

In announcing the penalty, BIS stated that the company’s failure to prevent access while the deemed export license was pending was considered to be an aggravating factor in determining the penalty. There can be no doubt that BIS is serious about protecting U.S. technology that is subject to export controls, enforcing the deemed export rule, and penalizing violators. “Deemed export compliance is a top priority for the Bureau of Industry and Security,” said David W. Mills, Assistant Secretary of Commerce for Export Enforcement. “Today’s settlement highlights the need for companies to be vigilant to prevent the unauthorized release of U.S. technology and data.”

The BIS case documents can be accessed here,http://1.usa.gov/1jCWCEk.

For assistance with understanding and complying with the deemed export rule, sections of the Export Administration Regulations (EAR) or other export controls and economic sanctions, as well as representation before BIS in investigations, civil penalty, and voluntary self-disclosure matters, please contact Jon P. Yormick, Esq., jon@yormicklaw.com or by calling +1.866.967.6425 (Toll free in Canada & U.S.) or +1.216.928.3474.

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