Jamie Joiner Returns to McGinnis Lochridge After Sabbatical
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We are excited to announce that Special Counsel,
Jamie Joiner
, has returned to McGinnis Lochridge after taking a year-long sabbatical. Jamie spent the past year traveling and completing a study of policies and practices to combat the use of forced labor in international trade. Her travels took her to several countries, including Cambodia, Vietnam, Thailand, South Africa, Botswana, Namibia, and Zimbabwe.
Jamie has been passionate about human rights issues and human trafficking for more than a decade and finally being able to take a sabbatical and focus on her research has been a dream come true. She looks forward to helping clients incorporate supply chain due diligence for compliance with modern slavery laws into their international trade compliance programs.
Jamie’s legal practice focuses on international trade law. She represents U.S. and foreign clients in matters relating to international trade compliance and enforcement, including export controls, economic and trade sanctions, import and customs law, anti-boycott restrictions, and requirements related to free trade agreements.
Please join us in welcoming Jamie back to the firm.
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Out with NAFTA, In with the USMCA… Are You Ready?
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The USMCA, formally known as the Agreement between the United States of America, the United Mexican States, and Canada, officially entered into force on July 1, 2020. The same day, U.S. Customs and Border Protection (CBP) published an
interim final rule
amending the CBP regulations to add a new Part 182 containing the framework for the new USMCA regulations. The USMCA supersedes the North American Free Trade Agreement (NAFTA). For goods entered for consumption or withdrawn from warehouse for consumption on or after July 1, 2020, the NAFTA provisions no longer apply, and the USMCA provisions must be followed. However, the NAFTA regulations found in Part 181 remain in the CBP regulations for now given they continue to apply to goods entered for consumption or withdrawn from warehouse for consumption prior to July 1, 2020.
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U.S. Tightens Export Controls on Hong Kong
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In connection with China’s new Hong Kong national security law, the U.S. Government is taking steps to revoke the differential treatment afforded to Hong Kong in relation to China. On June 29, 2020, the Department of State
announced
that it would end exports of U.S.-origin defense equipment to Hong Kong and will take steps toward imposing the same restrictions on U.S. defense and dual-use technologies to Hong Kong as it does to China. In announcing the changes, the State Department said that “the United States is reviewing other authorities and will take additional measures to reflect the reality on the ground in Hong Kong.” The State Department has not yet announced any regulatory updates, but it is likely that Hong Kong will be added to the list of proscribed countries in Section 126.1 of the International Traffic in Arms Regulations (ITAR). Additionally, on June 29, 2020, the Department of Commerce
announced
the suspension of License Exceptions under the Export Administration Regulations (EAR) for exports to, reexports to, and transfers within Hong Kong. In announcing the change, the Secretary of Commerce
stated
that the Commerce Department was suspending regulations affording preferential treatment to Hong Kong over China, and that “[f]urther actions to eliminate differential treatment are also being evaluated.”
These actions were followed by the issuance of an
Executive Order
on July 14, 2020, wherein President Trump declared a national emergency with respect to China’s actions and suspended the preferential treatment of Hong Kong pursuant to several statutes, including the Arms Export Control Act and the Export Control Reform Act of 2019. The Executive Order directs applicable agencies to, among other things, amend regulations and revoke export license exceptions. Revisions to the ITAR and EAR are expected in the coming days.
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BIS
Issues New Military End Use and End User FAQs
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On June 29, 2020, the new military end use/end user rule for China, Russia, and Venezuela in Section 744.21 of the Export Administration Regulations (EAR) went into effect. (Please see
here
for our prior post detailing changes to Section 744.21.) In connection with this new rule, the Department of Commerce’s Bureau of Industry and Security,
published 32 Frequently Asked Questions
that detail the changes to Section 744.21, give interpretations of key terms, and provide guidance on various scenarios. These FAQs provide helpful guidance for companies involved in exports to China, Russia, and Venezuela of items that are classified under an Export Control Classification Number that is subject to Section 744.21.
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U.S. Government Focuses in on Human Rights Abuses in the Xinjiang Uyghur Autonomous Region
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On July 1, 2020, the U.S. Departments of State, Treasury, Commerce, and Homeland Security jointly issued an
advisory
, “Risks and Considerations for Businesses with Supply Chain Exposure to Entities Engaged in Forced Labor and Other Human Rights Abuses in Xinjiang” (the “Advisory”). The Advisory highlights the risks for businesses with potential exposure in their supply chain to the Xinjiang Uyghur Autonomous Region of China (XUAR) or to facilities outside the XUAR that use labor or goods from Xinjiang and notes that these businesses should be aware of the reputational, economic, and legal risks of involvement with entities that engage in human rights abuses, including but not limited to forced labor in the manufacture of goods intended for domestic and international distribution. The Advisory encourages businesses to apply industry human rights due diligence policies and procedures to address risks, including reputational, economic, legal, and other risks. The Advisory was published not long after the Uyghur Human Rights Policy Act (the “Act”) was signed into law on June 17, 2020. The Act, which directs U.S. resources to address human rights abuses in XUAR, and the Advisory suggest a possible shift in enforcement focus on activities involving the XUAR, including imports from and exports to the region.
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BIS Identifies and Controls First “Emerging Technologies”
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On June 17, 2020, the Bureau of Industry & Security (BIS)
published
a Final Rule identifying a narrow group of products as “emerging technologies” pursuant to the Export Control Reform Act of 2018 (ECRA). This is the first group of emerging technologies that has been identified pursuant to the ECRA, which required BIS to lead an interagency effort to determine “emerging” and “foundational” technologies considered “essential to the national security of the United States.” The EAR’s Commerce Control List (CCL) has now been revised to include updates to (1) certain precursor chemicals (ECCN 1C350), (2) the Middle East respiratory syndrome-related coronavirus (ECCN 1C351), and (3) single-use cultivation chambers with rigid walls (ECCN 2B352). BIS is expected to make several additional determinations in the near future that will classify more prevalent items as “emerging technologies” and control those items on the CCL. This Final Rule also reflects decisions made in the February 2020 meeting held by the Australia Group, an organization comprised of 42 countries focused on the coordination and streamlining of international export controls between nations.
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EU’s Top Court Issues Decision Complicating EU-U.S. Data Transfers
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On July 16, 2020, the European Court of Justice
struck down
the popular EU-U.S. Privacy Shield tool, a cross-border data transfer mechanism, due to a determination that the United States fails to adequately uphold EU privacy laws. The court found that the Privacy Shield does not provide sufficient protections on EU residents’ data from government surveillance when transferred to the United States; however, the court will continue to allow standard contractual clauses as an alternative means of transatlantic data transfer, albeit with stringent conditions in place.
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Proposed CFIUS Rule Uses Export Controls to Trigger Mandatory Declaration Requirement
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On May 21, 2020, the U.S. Treasury Department
published
a proposed rule to modify the regulations of the Committee on Foreign Investment of the United States (CFIUS). The proposed rule would modify the mandatory declaration provision for certain foreign investment transactions involving critical technologies to base it on export controls. Under the current rule, determining whether a declaration is required is based on North American Industry Classification System (NAICS) codes. The proposed rule eliminates the requirements based on NAICS codes and instead bases the declaration requirement on “whether certain U.S. government authorizations would be required to export, re-export, transfer (in country), or retransfer the critical technologies to certain transaction parties and foreign persons in the ownership chain.” The proposed rule also makes clarifying amendments to the definition for the term “substantial interest” in the provision that establishes how to calculate the percentage interest held indirectly by one entity in another.
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UK Announces First Wave of Sanctions under New Human Rights Regime
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The United Kingdom on July 6, 2020,
designated
49 individuals and organizations under a new human rights sanctions regime established on the same day. The UK’s Global Human Rights Sanctions Regulations 2020 target human rights violations “carried out by or on behalf of a State.” This is the first time that the UK has sanctioned people or entities for human rights violations and abuses under a UK-only regime. The first to be designated under the new regime are: 25 Russians “involved in the mistreatment and death of auditor Sergei Magnitsky;” 20 Saudis “involved in the death of journalist Jamal Khashoggi;" two Myanmar generals “involved in the systematic and brutal violence against the Rohingya people and other ethnic minorities;" and two organizations “involved in the forced labour, torture and murder that takes place in North Korea’s gulags.” The new UK sanctions regime provides the UK with new powers to stop those involved in serious human rights abuses and violations from entering the country, channeling money through UK banks, and profiting from the UK economy. The new measures will target individuals and organizations, rather than nations.
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Government Guidance and Enforcement Actions
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DOJ and SEC Release Updated Guidance on FCPA Compliance and Enforcement
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In recent weeks the U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC) issued new guidance applicable to corporate anti-corruption compliance programs. Unfortunately, this guidance manifests a continued use by the government of ambiguous and broad language, and serves mostly to emphasize yet again the broad discretion claimed by those in charge of enforcing the Foreign Corrupt Practices Act (FCPA) and the government’s reluctance to draw clear boundaries around its interpretations of the relevant statutory language.
Under current federal law and sentencing guidelines, a company can be held criminally liable for the misdeeds of any employee, no matter what lengths the company has gone to in order to prevent those misdeeds; however, prosecuting and sentencing are to give some consideration to the organization’s overall level of culpability in assessing penalties. Criminal liability under the FCPA
per violation
is as high as $25 million for a public company and $2 million for a private company, and it’s a rare circumstance when a rogue employee engages in a single bribery violation. Thus, the amount of discretion left to DOJ and SEC prosecutors is tremendous, with unelected and largely unaccountable officials making decisions worth hundreds of millions of dollars in some cases —a circumstance that has drawn considerable criticism toward those enforcing the FCPA.
The DOJ and SEC have attempted to respond to this criticism by issuing guidance as to how this extraordinary discretion is to be exercised by the relevant officials. Unfortunately, this guidance does more to preserve than to limit that exercise of discretion.
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Amazon Settles Potential Sanctions Liability for E-Commerce Transactions
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On July 7, 2020, the Office of Foreign Assets Control (OFAC)
announced
that Seattle-based e-commerce retailer Amazon would pay a $134,523 penalty for alleged violations of multiple OFAC sanctions programs and the failure to timely report hundreds of transactions pursuant to an OFAC general license. Between 2011 and 2018, Amazon accepted and processed orders for shipments to persons in Crimea, Iran, and Syria, as well as to persons listed on OFAC’s Specially Designated Nationals and Blocked Persons (SDN) List, in apparent violation of OFAC sanctions programs. Through its website, Amazon also facilitated orders for individuals located in or employed by foreign missions of Cuba, North Korea, Sudan, and Syria. The total value of the goods involved in the apparent violations was approximately $269,000. These apparent violations occurred primarily due to the company’s automated sanctions screenings software, which did not properly analyze all relevant transaction and customer data and, as a result, did not flag transactions involving blocked persons and sanctioned jurisdictions.
Amazon’s case highlights the importance of ensuring the effectiveness of risk-based compliance controls, including sanctions screening measures appropriate for e-commerce and other internet-based businesses that operate on a global scale.
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For more information on how these could impact your business, contact:
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