Russia Sanctions: The U.S. today designated two key supporters of an extremist group called the Russian Imperial Movement (“RIM”) under the Specially Designated Global Terrorist program.  OFAC explained that “RIM and its supporters continue to exacerbate Russia’s war of aggression in Ukraine through their fundraising efforts.”  

The UK designated 12 individuals and entities under its Russian Sanctions regulations.  The individuals included Alexey Isaykin, the President of Volga-Dnepr Group; Vladimir Mikhailovich Gundyayev, the Primate of the Russian Orthodox Church; and several members of the “Salvation Committee for Peace and Order” in Kherson, Ukraine.

The UK also designated 4 individuals under its Chemical Weapons Sanctions regulations.  The individuals were involved in poisoning attacks directed at Alexei Navalny, a Russian opposition figure, and Sergei Skripal, a former Russian military officer.

The UK also made dozens of amendments to designated entities that revised dates of birth, addresses, AKAs, and descriptions.  The UK also published guidance explaining how the UK collects and collates data on designations

General Licenses: The U.S. issued general license (“GL”) 8C, which supersedes GL 8B.  The GL authorizes transactions related to energy prohibited by Executive Order (“EO”) 14024 that involve (1) State Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank; (2) Public Joint Stock Company Bank Financial Corporation Otkritie; (3) Sovcombank Open Joint Stock Company; (4) Public Joint Stock Company Sberbank of Russia; (5) VTB Bank Public Joint Stock Company; (6) Joint Stock Company Alfa-Bank; (7) any entity in which one or more of the previously listed entities own, directly or indirectly, individually or in the aggregate, a 50 percent or greater interest; or (8) the Central Bank of the Russian Federation.  The revisions in GL 8C extend the expiration date of the GL from June 24, 2022 to December 5, 2022.

The UK issued GL INT/2022/1919908, which allows individuals to use retail banking services with credit or financial institutions designated under Regulation 5 of the Russia Regulations.  The payments must be intended for personal use, and the total value of payments made by an individual must not exceed £50,000.  The license will expire on September 10, 2022.

Enforcement: The U.S. issued an order temporarily denying all export privileges for Belavia Belarusian Airlines due to ongoing violations of the comprehensive export controls imposed on Belarus.  The airline had been providing flight services for passengers and cargo on U.S.-origin aircraft in violation of U.S. export controls.  Separately, Erik Woodhouse, a senior sanctions official with the State Department, stated that U.S. sanctions and export controls are having a “severe” impact on Russia. Notably, BIS has begun releasing to the public Charging Letters in export enforcement cases – these letters provide real time insight into BIS enforcement activity; here is the latest: https://efoia.bis.doc.gov/index.php/documents/export-violations/export-violations-2022/1373-scott-charging-charging-letter-6-7-2022/file In the past Charging Letters like this were released to the public only after the cases were settled.

On June 13, 2022, US Customs and Border Protection (CBP) issued CBP Publication No. 1793-0522, its UFLPA Operational Guidance for Importers (Operational Guidance). The Operational Guidance was issued by CBP to assist the trade community with its preparation for the UFLPA rebuttable presumption, which is set to go into effect next week on June 21, 2022. The Operational Guidance is meant to provide transparency into CBP’s operational approach; however, it is not the forthcoming Forced Labor Enforcement Task Force’s (FLETF) Strategy to Prevent the Importation of Goods Mined, Produced, or Manufactured with Forced Labor in the People’s Republic of China (UFLPA Strategy) which is set to be published on the UFLPA’s effective date – June 21, 2022 and is required by the UFLPA. CBP has indicated that importers will need to consult the UFLPA Strategy for specific importer guidance as required by the UFLPA.

As previously discussed in this blog, the rebuttable presumption established by the UFLPA requires the CBP Commissioner to apply a presumption that imports of all goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region (XUAR) of the People’s Republic of China (PRC), or by entities identified by the U.S. government on the UFLPA Entity List, are presumed to be made with forced labor and are prohibited from entry into the United States. The Operational Guidance notes that to overcome the rebuttable presumption, importers will need to respond to all CBP requests for information regarding merchandise under review and demonstrate by clear and convincing evidence that the merchandise was not mined, produced, or manufactured wholly or in part by forced labor.

Enforcement Process of the UFLPA

Following June 21, 2022, the UFLPA will supersede all current Withhold Release Orders (WROs) related to the XUAR. CBP will enforce the UFLPA by identifying, detaining, and/or excluding, or seizing shipments that are subject to the Act’s rebuttable presumption. These shipments will be reviewed and acted upon on a case-by-case basis and will be identified by CBP through the UFLPA Entity List (required by the UFLPA) and published in the Federal Register.

Importers will be notified by CBP when any enforcement actions are taken. The Operational Guidance notes that importers will have the ability to provide information to CBP to request an exception to the rebuttable presumption as well as to “identify additional shipments that have identical supply chains to those that have been reviewed previously and determined to be admissible by CBP, to facilitate the faster release of identical shipments.” In circumstances where an importer believes that the merchandise is outside the scope of the UFLPA after an enforcement action has been taken, an importer may provide information to show that the merchandise and inputs are completely sourced outside of the XUAR and have no connection to entities on the UFLPA Entity List. Similarly, an importer may contend that the UFLPA does not apply to its imports and may provide documentation to show that the merchandise and inputs are completely sourced outside of the XUAR and have no connection to entities on the UFLPA Entity List.

The guidance outlines that CBP may detain and either release, exclude, or seize detained merchandise. The process for each is the following:

  • Detention: When merchandise is detained by CBP, an importer will receive a detention notice providing the reason (i.e. UFLPA) and anticipated length of detention. This detention will include instructions to the importer for submitting information to CBP to rebut the UFLPA presumption. CBP will have 5 days (excluding weekends and holidays) to determine whether to release the goods or not. If within the 5-day period CBP chooses to detain the merchandise or fails to release the merchandise, the merchandise is considered detained.
  • Release: Should there be clear and convincing evidence that the goods were not made with forced labor, the Commissioner will determine that an exception to the presumption is warranted and the merchandise will be released. Notably, when an exception is granted, CBP must submit to Congress and the public a report identifying the goods and the evidence considered to reach the determination.
  • Exclusion: CBP may determine to exclude shipments that it finds to be in violation of the UFLPA. Importers may protest this determination, which would need to be routed to the appropriate Center of Excellence and Expertise.
  • Seizure/Forfeiture: CBP may also seize importations determined to be in violation of the Act. Once CBP determines that the shipment will be seized, the case will be referred to the Fines, Penalties and Forfeitures (FPFO) officer at the appropriate port of entry.

Exception Requests to the Rebuttable Presumption

In order to to rebut the UFLPA presumption, importers will need to show that they have complied with specified conditions, and by clear and convincing evidence, that the goods, wares, articles, or merchandise were not mined, produced, or manufactured wholly or in part by forced labor. CBP’s guidance states that importers may request an exception to the rebuttable presumption “during detention, after an exclusion, or during the seizure process.” The process for each is as follows:

  • Detention Notice: Importers may respond to the detention notice within 30 days from the date the merchandise is presented for examination to CBP to request an exception to the rebuttable presumption.
  • Exclusion Notice: Importers who receive an exclusion notice may file an administrative protest to request an exception to the rebuttable presumption
  • Seizure Notice: Importers who receive a seizure notice may utilize the petition process outlined in 19 C.F.R 171 to request an exception to the rebuttable presumption

Additionally, as noted above, if CBP has already taken an enforcement action under the UFLPA, importers may also contend that the imported merchandise is outside the scope of the UFLPA. Importers in these specific circumstances will need to provide information showing that the merchandise and its inputs are sourced completely outside of the XUAR and have no connection to the UFLPA Entity List. CBP will need to present granted exceptions to the rebuttable presumption to Congress and the public, no later than 30 days after a decision is made.

Type and Nature of Information that May Be Required by CBP

The guidance presents a non-exhaustive list of the documentation and information CBP may require when an importer requests an exception to the UFLPA’s presumption. The list may apply when an importer contends that their importers are not within the purview of the UFLPA or is requesting an exception to the UFLPA’s presumption. It includes the following:

  • Due Diligence System Information: Documentation showing a due diligence system or process. This may include:
    • Engagement with suppliers to assess and address forced labor risk;
    • Supply chain mapping and forced labor risk assessment along the supply chain from raw material to final production;
    • Training on forced labor risks for employees and agents that interact with suppliers.
  • Supply Chain Tracing Information: Documentation tracing the supply chain from raw material to the imported merchandise. This may include:
    • Evidence for the overall supply chain
      • Description of the supply chain, including merchandise components and all stages of mining, production, or manufacture;
      • Role(s) of entities in the supply chain and a list of suppliers associated in each step of the production process
      • Affidavits regarding raw material or process from each company or entity involved in the supply chain.
    • Evidence pertaining to merchandise or components thereof
      • Purchase orders, suppliers’ and sub-suppliers’ invoices, packing lists, bill of materials, certificate of origin, and importer/export records.
    • Evidence pertaining to miner, producer, or manufacturer
      • Production orders, reports on factor production capacity for the merchandise, and reports on factory site visits by the importer.
  • Information on Supply Chain Management Measures: Documentation on supply chain management measures. This may include:
    • Internal controls to prevent or mitigate forced labor risk and remediate the identified use of forced labor.
    • Demonstration that documents provided are part of an operating system or an accounting system that includes audited financial statements
  • Evidence Goods Were Not Mined, Produced, or Manufactured in the XUAR: Documentation that traces the supply chain for the goods (refer to Supply Chain Tracing Information).
  • Evidence Goods Originating in China Were Not Mined, Produced, or Manufactured Wholly or In Part by Forced Labor: Documentation may include:
    • Supply chain map identifying all entities in the production process
    • Information on workers at each entity involved in the production of the goods in China, such as wage payments and production output per worker
    • Credible audits to identify forced labor indicators and remediation, if applicable

CBP’s UFLPA Operational Guidance for Importers can be found here. Additional CBP resources on the UFLPA can also be found here.

For more information on CBP and actions addressing human rights and forced labor abuses, contact our team and see previous posts below.

CBP Issues Minimal UFLPA Guidance: What We Know Based on WRO Detentions of Goods Alleged to be Made from Forced Labor in the XUAR Region. | International Trade Law (cmtradelaw.com)

CBP Announces Issuance of “Known Importer Letters” to Previous Importers of Goods Subject to Uyghur Forced Labor Prevention Act | International Trade Law (cmtradelaw.com)

Please join us for a Crowell & Moring webinar where attorneys will examine the myriad of challenges that companies face when balancing efforts to comply with the export regulations of both the United States and China. We will delve into both nations’ export control regulations and provide observations on areas to watch over the next year. Our areas of focus will include:

  • U.S. Export Controls: China-focused restrictions such as what is subject to U.S. export controls, U.S. export restricted party lists, deemed export risks for Chinese nationals abroad, and U.S. reputational risks;
  • Chinese Export Controls: An overview of China’s export control regime, the anti-foreign sanctions law, China’s blocking statute, and the unreliable entity list; 
  • Balancing the Two Regimes: Considerations for companies that are subject to both U.S. and Chinese export controls; and

Areas to Watch Going Forward: Controls on emerging technology, semiconductors, and rare earth minerals, legislation in Congress, and “What If?” scenarios.


CLE Credit Continuing Legal Education — We will provide a certificate of attendance and other materials to use in seeking continuing education credits.
Questions For questions about this event, please email MarketingEvents@crowell.com.

Jeffrey Snyder
Partner – Washington, DC jsnyder@crowell.com
+1.202.624.2790

Zhiewi Chen
Associate – Shanghai zchen@crowellmoring.asia +86.21.8030.1588

Jeremy Iloulian
Associate – Chicago jiloulian@crowell.com +1.312.830.3269

Chandler S. Leonard
Associate – Washington, DC cleonard@crowell.com +1.202.624.2905

Brian McGrath
Associate – New York bmcgrath@crowell.com
+1.212.895.4222

Laurel Saito
Associate – Washington, DC lsaito@crowell.com
+1.202.508.8871

In ruling N326004 (June 3, 2022), Customs and Border Protection (CBP) discussed the country of origin and tariff classification of a motorcycle. The merchandise was identified as the XR-150L Series Motorcycle, which has a gas-powered engine with a displacement of 149.16 cubic capacity (cc). The motorcycle’s manufacturing and processing operations take place in Mexico, which include direct manufacturing, complex assembly operations, and the substantial transformation of individual components that are sourced in China, Japan, Thailand, and the U.S. into the finished motorcycle. Per CBP’s ruling, the Mexican origin framing components of the motorcycle are what represent the essential character of the motorcycle.

CBP noted that, as defined under 19 CFR 134.1(b), the country of origin is the “country of manufacture, production, or growth of any article of foreign origin entering the United States.  Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the ‘country of origin.’ ” CBP also established that substantial transformation “occurs when an article emerges from a process with a new name, character or use different from that possessed by the article prior to processing.”

For its determination, CBP noted that it has continually been its opinion that the frame, which is a product of Mexico in this case, is the part that provides the motorcycle its “essence.” Customs ruled that the culmination of the production processes performed in Mexico on the imported parts of the frame did substantially transform the frame, and, as such, the country of origin would be Mexico.

In addition, CBP also ruled that the tariff classification of the motorcycle from Mexico would be 8711.20.0060, Harmonized Tariff Schedule of the United States (HTSUS), which provides for “Motorcycles (including mopeds) and cycles fitted with an auxiliary motor, with or without side-cars; side-cars: With internal combustion piston engine of a cylinder capacity exceeding 50 cc but not exceeding 250 cc:  Exceeding 90 cc but not exceeding 190 cc”.  The general rate of duty is free.

Sixth Round of EU Sanctions

As previewed in last week’s weekly highlights, the EU published a new round of sanctions on June 3, 2022, which includes a wide range of new restrictions.  Key provisions are summarized below.

The EU now prohibits the purchase, import, or transfer of Russian-origin crude oil and certain petroleum products.  Although the sanctions took effect immediately, for seaborne crude oil, the regulations permit spot market transactions and the execution of existing contracts for six months, while for petroleum products spot market transactions and the execution of existing contracts will be permitted for eight months.  Furthermore, the EU exempted from these prohibitions altogether certain Member States that have an oil pipeline dependency on Russia, an apparent concession for Hungary.  The prohibitions will “temporarily not apply” to those countries “until the Council decides otherwise.”  However, those exempted Member States are nevertheless prohibited from reselling Russian-origin crude oil and petroleum products to other Member States or third countries.  Separately, the EU exempted Bulgaria from these prohibitions until the end of 2024.  The EU also permitted Croatia to import Russian vacuum gas oil until the end of 2023.

The EU announced that Sberbank, Credit Bank of Moscow, Russian Agricultural Bank, and Belinvestbank (Belarusian Bank for Development and Reconstruction) will be removed from SWIFT, effective June 14, 2022.  The EU will also suspend broadcasting activities from three Russian state-owned outlets: Rossiya RTR/RTR Planeta, Rossiya 24 / Russia 24, and TV Centre International.

The EU also has imposed additional export restrictions that expand (i) the list of entities associated with the military-industrial complex in Russia and Belarus and which therefore are subject to export restrictions, (ii) the list of goods and technology subject to the restrictions.  Exports of dual-use goods and technologies, as well as goods and technology that could enhance or develop the security sector, to the identified entities must be authorized.  The new expansion captures 80 new chemicals that could be used in manufacturing chemical weapons. 

EU Persons are now prohibited from providing, directly or indirectly, to the Government of Russia or legal persons, entities, or bodies established in Russia, (i) accounting, auditing, including statutory audit, bookkeeping or tax consulting services, or (ii) business and management consulting or public relations services.  The prohibitions do not apply to services that are “strictly necessary” for the termination, by July 5, 2022, of contracts that were concluded prior to June 4, 2022 (or of associated ancillary contracts necessary for the execution of such contracts).

Finally, the EU sanctioned additional individuals and entities, including highly-ranked members of Russia’s military, Russians who are heads of businesses, family members of listed oligarchs and Kremlin officials, and Russian companies in the defense and financial sectors.

U.S. Clarification of Prohibitions Contained in Certain Executive Orders (“EOs”)

OFAC released several new “Frequently Asked Questions” (“FAQs”) clarifying the “new investment” prohibitions in EOs 14066 (related to new investment in energy), 14068 (related to new investment in any sector of the Russian Federation economy)14071 (related to new investment generally).  Among other clarifications, OFAC said in FAQ 1051 that EOs 14066, 14068 and 14071 do not prohibit the export of goods, services, or technology, or related sales to Russia, provided that the transaction is made pursuant to ordinary commercial sales terms.  The guidance provides that these EOs do not prohibit entering into new contracts or agreements for such transactions.

In separate guidance, OFAC explained that EOs 14066, 14068 and 14071 prohibit U.S. persons from purchasing both new and existing debt and equity securities issued by an entity in the Russian Federation, apparently prohibiting secondary market transactions, except for divestment to non-U.S. persons. 

Other FAQs released this week addressed OFAC prohibitions on the export of accounting, trust and corporate formation, and management consulting services to persons located in the Russian Federation, prohibited by OFAC pursuant to EO 14071, including the scope of the restriction and types of services captured by the restrictions, and geographic scope of restrictions.  A brief summary is below, with many subject to additional provisions.

  • Prohibited: (i) Tax preparation and filing, (ii) serving as a voting trustee, (iii) executive search and vetting service.
  • Not prohibited: (i) Providing software, (ii) providing services associated with the export of such software (e.g. software design and engineering), (iii) educational services, such as online university courses, on the subjects of accounting, management consulting, or trust and corporate formation.
  • Geographic scope:  OFAC “interprets ‘person located in the Russian Federation’ to include persons in the Russian Federation, individuals ordinarily resident in the Russian Federation, and entities incorporated or organized under the laws of the Russian Federation or any jurisdiction within the Russian Federation.”

UK Sanctions Enforcement

As reported by the Wall Street Journal, “[s]tarting June 15, the UK’s Office of Financial Sanctions Implementation won’t have to prove that companies or individuals who violate the country’s sanctions measures knew or should have known they were violating the rules.”  The bill was passed in March and will allow the UK to enforce sanctions.

U.S. Seizure of Airplanes

On June 6, 2022, The U.S. Department of Justice (“DOJ”) announced it had obtained seizure warrants to seize two aircraft owned by Russian oligarch Roman Abramovich, alleging the aircraft were flown to Russia in violation of U.S. export controls.  DOJ claims the combined value of the two aircraft exceeds $400 million.  Also, on June 6, 2022, Commerce’s Bureau of Industry and Security (BIS), issued an Administrative Charging Letter against Abramovich, alleging violations of the Export Administration Regulations (EAR) involving flights of two U.S. origin aircraft—the same aircraft DOJ is seeking to seize—to Russia without a license from BIS.

With just over two weeks until the Uyghur Forced Labor Prevention Act (UFLPA) goes into effect on June 21, 2022, U.S. Customs and Border Protection (CBP) has issued very minimal guidance to the importing community on how it will enforce the legislation. In webinars and meetings conducted by CBP last week, CBP stated that it will nonetheless begin enforcement of the UFLPA on the effective date and importers should prepare for the law’s implementation.  CBP has already indicated that it will not employ a de mininis rule in enforcing the UFLPA – that is, all inputs used to produce an imported good, no matter of their tier/value/significance, must not have been made with forced labor.

UFLPA’s effective date is also the date that the Department of Homeland Security’s Forced Labor Enforcement Task Force is expected to publish its forced labor guidance.

CBP Guidance to Importers so Far

On May 20, 2022  CBP issued  CBP Publication No. 1790-0522  that compared the enforcement provisions of the UFLPA with those implemented under Withhold Release Order (WRO) actions. Notably, while WRO’s detention authority is determined under 19 CFR § 12.42(e), the UFLPA’s detention authority is governed by 19 CFR § 151.16. This difference in detention authority results in a much more abbreviated timeline for shipments subject to the UFLPA.

Under 19 CFR § 12.43(a), an importer that has had its merchandise detained under a WRO generally has 90 days (3 months) to provide proof of admissibility of the merchandise to CBP. It has been our experience with WRO detentions that CBP often will grant the importer a 30-day extension of time to produce additional evidence validating the product’s origin. This additional time is usually essential for the importer to obtain all required supply chain records to confirm origin.

The appeals process for merchandise detained under the UFLPA is on a much shorter timeline than the typical detained goods timeline. Per 19 CFR § 151.16, CBP will have 5 days (excluding weekends and holidays) from when the merchandise is presented for examination to determine if it will detain or release the goods. If CBP affirmatively decides to detain the merchandise or fails to release the merchandise within the 5-day period, the merchandise will be considered detained. Once the merchandise is officially detained CBP will issue a notice of detention to the importer no later than 5 days after the decision to detain or failure to release.

The detention notice must advise the importer of the:

  1. Initiation of the detention;
  2. Specific reason for the detention;
  3. Anticipated length of the detention;
  4. Nature of the tests or inquiries to be conducted; and
  5. Any information which may be provided to CBP to accelerate the disposition of the detention.

During the detention period, an importer has the right to request from CBP copies of the results of any testing procedures or methodologies used, as well as the testing results. For example, we understand that CBP has been exploring the use of forensic science to test and trace a product’s intrinsic properties to verify origin, and presumably these test results will be subject to disclosure.

For goods detained pursuant to UFLPA, within 30 days from the date the merchandise is presented to CBP for examination, CBP will decide the admissibility of the detained merchandise. There is as of yet no indication of whether CBP will grant an extension of time to produce records. Should CBP fail to decide with respect to the detained merchandise’s admissibility within the 30-day period, the merchandise shall be considered excluded. This means that unlike the WRO process that gives importers at least 90 days to provide proof of admissibility, importers will only have 30 days to rebut the presumption that the merchandise was produced using forced labor, as established by the UFLPA.

Pursuant to 19 C.F.R. § 12.43, an importer may produce records to contend that the goods were not produced with forced labor. The CBP guidance notes that similar to the WRO process, the importer may file a protest 180 days after CBP makes its final determination regarding the exclusion.  

Projected Supply Chain Documents Needed

Our experience with WRO detentions from the XUAR region is that the importer has to provide sufficient documentation to show the entire supply chain from the origin of the raw materials through the final production of the finished product and identify the parties involved in the production process. Specifically, the following documents and materials were required to be produced in order to substantiate the supply chain:

  1. A list of suppliers at all tiers of the supply chain, with their associated production process. The supplier list and information will likely require names, addresses, a flow chart of the production process, and maps of the region where the production processes occurred. 
  2. Each step of the production processes for the article and the supporting documents associated with each step. This may include a bill of materials or specification.
  3. Affidavits from the origin of raw materials for farming, smelting, mining, or other raw material sourcing evidence. If forced labor is alleged at a specific tier, then documents showing compliance with the eleven (11) International Labour Organization standards will be necessary.
  4. Evidence of worker production at the first stage of production (e.g., a smelter, the factory which ginned the raw cotton, etc.). And evidence of worker production at subsequent tiers if that is where forced labor is alleged.
  5. Supporting documents for each stage of the production process will likely need to include transportation records (e.g., bills of lading), purchase orders, invoices, and proofs of payment.

Additionally, a Certificate of Origin signed by the foreign seller may be required and a detailed statement from the importer.

If an importer is unable to produce the necessary records to support the lack of forced labor in the supply chain, it has the option of exporting the goods to any location outside the United States (under CBP supervision) pursuant to 19 C.F.R. § 12.44(a).

It has been our experience with WRO modifications for clients and WRO detention responses that CBP does not allow a product to incorporate a de minimis amount of inputs made with forced labor. As noted above, we also see no indication that there will be a de minimis content allowed under the UFLPA. If the contribution of forced labor to the whole product is insignificant (e.g., cotton thread from the XUAR region), CBP will assume the product to have been made with forced labor.

UFLPA Burden of Proof is Similar to CAATSA

Last week, CBP issued another Fact Sheet via Publication No. 1791-0522, a one page document stating that beginning June 21, 2022, CBP will apply UFLPA’s rebuttable presumption that goods produced wholly or in part in the region or by entities identified in the enforcement strategy are not allowed to enter into the United States. The importer has the option of requesting CBP permit it to overcome the burden of the presumption. The importer then must provide clear and convincing evidence that its imported merchandise was not mined, produced, or manufactured wholly or in part by forced labor.

There is no reason to believe that a lesser level of detail will be required under UFLPA than the already burdensome document requirements of a forced labor WRO action under 19 U.S.C. 1307.  This is because unlike under a WRO, which is based on a reasonable suspicion, an importer must show by clear and convincing evidence and overcome the presumption that the goods, wares, articles, or merchandise were not produced using forced labor.

The UFLPA standard appears to be most analogous to the evidence required under Countering America’s Adversaries Through Sanctions Act-Related Sanctions (CAATSA) when North Koreas labor is alleged. Similar to UFLPA, CAATSA also requires that importers establish by “clear and convincing evidence” that their supply chains are free from involvement by North Korean nationals, wherever located. This high burden of proof (greater than a “preponderance of the evidence”) means that importers need to have extremely thorough supply chain documentation. CBP has publicly referenced as a comparison its ruling HQ H317249 (Mar. 5, 2021), which pertained to a CAATSA detention of apparel and discussed what constituted insufficient evidence.

Understanding of the Rebuttable Presumption

Clear and convincing evidence is evidence that tells CBP or the U.S. Court of International Trade (CIT) that it is highly probable that a fact is true. In other words, CBP or the Court must be able to use the evidence presented to determine that it is highly and substantially more likely that a particular fact is true rather than untrue. If CBP determines that an importer has failed to provide clear and convincing evidence that imported goods were not made with forced labor and denies a UFLPA protest, the importer may file a case at the CIT under the court’s 28 U.S.C. 1581(a) jurisdiction because it has exclusive jurisdiction of any civil action commenced to contest the denial of a protest, in whole or in part.

While CBP actions against a specific importer are confidential, actions before the CIT are public. While there have been very few cases at the CIT dealing with forced labor allegations and denied protests (often because of concerns about damage to a brand’s reputation) in April of 2021, an importer filed a challenge to CBP’s enforcement of a WRO against products containing Malaysian palm oil from Sime Darby Plantation Bhd (Sime Darby). In Virtus Nutrition LLC v. United States, Ct. No. 21- 00165 (CIT 2021), the importer submitted evidence allegedly showing that the detained products were not produced with forced labor.  CBP found the importer’s forced labor submission insufficient and excluded the merchandise from entry into the United States because of the WRO against Sime Darby. CBP had denied the importer’s protest because the importer reportedly was unable to trace production back to the harvesting of the palm fruit as required by the WRO.

The case is still pending and briefs in the matter have not yet been filed as of May 2022. This type of lengthy process exemplifies why challenging UFLPA at the CIT may in many cases be impractical given the lengthy time and costs involved.

Penalties and Importer Reasonable Care

It is clear from CBP’s webinars and meetings with the trade community that importers should be prepared for CBP to detain any goods sourced from the XUAR region effective June 21, 2022. CBP has issued over 2200 Known Importer Letters to importers that the agency has reason to believe previously imported goods subject to UFLPA.  In the letters it sent, CBP indicates that any future imports of such goods will be subject to enforcement actions, including seizure and penalties. For C-TPAT participants, CBP warns in the letters that importers could have their tier level reduced as a consequence of being found to violate forced labor laws.  See https://www.cbp.gov/sites/default/files/documents/ctpat_enforce_appeal_3.pdf

For importers violating UFLPA, CBP could impose penalties under 19 U.S.C. 1592, with the following maximum penalties:

(1) Fraud: A fraudulent violation of subsection (a) is punishable by a civil penalty in an amount not to exceed the domestic value of the merchandise.

(2) Gross negligence: A grossly negligent violation of subsection (a) is punishable by a civil penalty in an amount not to exceed—(A)the lesser of—(i)the domestic value of the merchandise, or (ii) four times the lawful duties, taxes, and fees of which the United States is or may be deprived, or (B) if the violation did not affect the assessment of duties, 40 percent of the dutiable value of the merchandise.

(3) Negligence: A negligent violation of subsection (a) is punishable by a civil penalty in an amount not to exceed—(A)the lesser of—(i) the domestic value of the merchandise, or (ii) two times the lawful duties, taxes, and fees of which the United States is or may be deprived, or (B) if the violation did not affect the assessment of duties, 20 percent of the dutiable value of the merchandise.

Upcoming CBP UFLPA Webinars

There are still two webinars that CBP is going to hold prior to the UFLPA implementation date. Accordingly, more information may be forthcoming, but based on the prior information provided – it may not be substantive.

Tuesday, June 7, 2022, 1:00 – 2:00 p.m. EDT – Registration

Thursday, June 16, 2022, 2:00 – 3:00 p.m. EDT – Registration      

Conclusion

Importers should review their sourcing and supply chain in advance of the UFLPA effective date. In a letter issued today (June 6, 2022) to The President, the bipartisan authors of the UFLPA bill indicated that “[w]e stand ready to assist you in taking this important step to protect U.S. workers and consumers and to help end the egregious human rights crimes being committed against Uyghurs, Kazakhs, and other predominantly Muslim ethnic groups in the XUAR. We look forward to the Forced Labor Enforcement Task Force’s report on the implementation of the law and will monitor its progress to stop those entities from sending forced labor-made goods into our country.”

If you have questions regarding the process, our team has extensive experience responding to WRO detentions and WRO modification requests for clients. For more information on forced labor, UFLPA compliance, detentions, WROs, CBP and actions addressing human rights abuses, contact our team and see previous posts below.

CBP Announces Issuance of “Known Importer Letters” to Previous Importers of Goods Subject to Uyghur Forced Labor Prevention Act | International Trade Law (cmtradelaw.com)

UPDATE: Uyghur Forced Labor Prevention Act Signed into Law | International Trade Law (cmtradelaw.com)

In ruling NY N324883 (April 15, 2022), Customs and Border Protection (CBP) discussed the tariff classification of a wireless intercom headset system from China. The item, referred to as the “Solidcom C1 full-duplex wireless intercom headset system,” is compromised of up to 8 wireless headsets and a HUB station. The audio communication between the headsets is achieved by wirelessly sending voice data from one headset to the HUB station, which then forwards said voice data to the rest of the headsets that are also paired to the HUB station. The voice communication within the system uses a closed network that allows only the paired headsets to transmit voice signals. This is accomplished through the HUB station which encrypts the voice data using AES 128-bit encryption. The system uses radio frequency bands between 1,880 MHz and 1,900 MHz – depending on the country or region – with up to 1,000 feet of transmission range.

The headsets and the HUB station are designed to be used together and are regarded as a functional unit. CBP noted in its ruling that classification of these two items is governed by Note 4 of Section XVI of the Harmonized Tariff Schedule of the United States (HTSUS), which states that “where a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cables or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in chapter 84 or chapter 85, then the whole falls to be classified in the heading appropriate to that function.” Based on the above description, the wireless headsets and the HUB station work together to the clearly defined function of transmitting encrypted voice signals in a closed network. As such, CBP determined that the applicable subheading for the wireless intercom headset system was 8517.62.0090, HTSUS, which provides for “Telephone sets, including smartphones and other telephones for cellular networks or for other wireless networks; other apparatus for the transmission or reception of voice, images or other data…: Other apparatus for transmission or reception of voice, images or other data, including apparatus for communication in a wired or wireless network (such as a local or wide area network): Machines for the reception, conversion and transmission or regeneration of voice, images or other data, including switching and routing apparatus: Other”. The general rate of duty is free.

Additionally, pursuant to U.S. Note 20 to Subchapter III, Chapter 99, HTSUS, Chinese products under subheadings 8517.62.0090, HTSUS, unless specifically excluded, are subject to an additional 7.5% ad valorem duty rate. As such, the chapter subheading 9903.88.15 must be reported in addition to subheading 8517.62.0090, HTSUS.  

Russia Sanctions:  The EU and UK each made several amendments regarding previously-designated individuals and entities.  The amendments included corrections to names and dates of birth.

General Licenses:  The U.S. made two announcements related to general licenses (“GLs”).  The U.S. announced that it will not renew GL 9C.  The specific provisions that expired are:

  • (a)(1) – authorizing “all transactions” prohibited by the Russian Sanctions (31 CFR part 587), that are “ordinarily incident and necessary to dealings in debt or equity of” VEB, Otkritie, Sovcombank, Sberbank, and VTB (and any entity 50% or more owned, directly or indirectly, by the foregoing entities) issued prior to February 24, 2022, (“Russian financial institution debt or equity”) provided that such transactions are divestment or transfer of Russian financial institution debt or equity to a non-U.S. person, or the facilitation thereof;
  • (b)(1)(i) – authorizing U.S. persons to facilitate, clear, and settle trades of Russian financial institution debt or equity where such trades were placed prior to Feb. 24, 2022 (4 PM ET); and
  • (c) – authorizing all transactions “ordinarily incident and necessary to the receipt of interest, dividend, or maturity payments in connection with debt or equity of the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation issued before March 1, 2022.”

As a result of the expiration of GL9C(c), U.S. persons, including U.S. person banks involved in the processing of in-scope interest, dividend, or maturity payments in any currency, are now prohibited from processing those payments, and instead must start to reject and report those payments to OFAC.  OFAC’s decision not to renew this provision may cause a default on Russian sovereign debt.

The U.S. also issued GL 13A, superseding GL 13.  GL 13A authorizes payment of taxes, fees, or import duties to the Central Bank of Russia and other Directive 4 entities by U.S. persons, and also by non-U.S. entities “owned or controlled, directly or indirectly” by U.S. persons, so long as the payments relate to the day-to-day operations in Russia of the paying entity, to the extent prohibited by Directive 4 under Executive Order 14024.  GL13A is valid until September 30, 2022, and clarifies that it does not authorize transactions otherwise prohibited by the Russian Harmful Foreign Activities Sanctions Regulations.

EU Standardization of Sanctions Violations:  The EU announced that it is seeking to standardize penalties for violations of EU sanctions regulations across the Union.  Currently, penalties for violating EU sanctions vary by Member State.  The Commission called for sanctions violations to be included in the EU’s official unionwide crime list.  The Commission explained that this would make it easier to investigate, prosecute, and punish violations in all Member States.

Aviation:  The U.S. issued an order denying export privileges of a fifth Russian airline, Rossiya Airlines, due to ongoing export violations.  The Temporary Denial Order terminates the right of the airline to participate in transactions subject to the Export Administration Regulations.

On May 23rd, President Biden, accompanied by Japanese Prime Minister Kishida and Indian Prime Minister Narendra Modi, formally unveiled the Indo-Pacific Economic Framework for Prosperity (IPEF). The agreement is significant as the participating economies represent over 40% of global gross domestic product, and include five countries not included in the original Trans-Pacific Partnership negotiations. They also include seven of the ten ASEAN member countries representing significant U.S. engagement in the region.

Negotiations are expected to advance through the next 12-18 months on each of the IPEF’s four pillars. The trade elements represent the most significant U.S. economic engagement in Asia since its withdrawal from the Trans-Pacific Partnership, and the framework will seek to lay the basis for numerous areas of economic standardization and integration.

On Monday, May 23rd, the centerpiece of the U.S.’ economic strategy in the Indo-Pacific region was announced as the President announced the launch of the Indo-Pacific Economic Framework for Prosperity (or IPEF). The announcement was accompanied by a formal list of participants, including India, Vietnam, Indonesia, Thailand, Brunei, the Philippines, Japan, South Korea, Australia, New Zealand, Singapore, and Malaysia, and a joint statement.

While the Administration initially hoped for all participants to agree to increasing minimum levels of standards, this requirement was tempered in order to ensure the participation of a wider range of countries, particularly India and Indonesia. However, there is enthusiasm for the agreement and for robust standards to be set in a number of issue areas, such as cross-border data flows and artificial intelligence as well as cooperation on supply chains, and green infrastructure investment.

Negotiations on the provisions contained within the four pillars of the IPEF began immediately. As covered in the previous Crowell IPEF client alert, the IPEF consists of four main pillars: a trade pillar headed up by the Office of the U.S. Trade Representative (USTR), and pillars on supply chain resilience, the green infrastructure and energy, and on tax and anticorruption to be led by the Commerce Department. Participants may join any number of the four pillars, but are expected to join all provisions of the pillars they do join.

Countries are expected to select which pillars they want to join in the next few months, and the negotiators are seeking to meet by mid-summer to assess progress. Within twelve to eighteen months, they hope to have negotiations concluded. The APEC Leaders’ Meeting in November 2023 is seen as the informal deadline.

Building off of Crowell’s previous client alert, updates regarding what is known about the four pillars are below:

1. Connected Economy (formerly the Trade Pillar)

This pillar will focus on the digital economy, AI, labor and environmental standards, and corporate accountability among other issues. However, digital issues are expected to dominate this pillar with the White House stating that “We will pursue high-standard rules of the road in the digital economy, including standards on cross-border data flows and data localization. We will work with our partners…to address issues such as online privacy and discriminatory and unethical use of Artificial Intelligence.”

The digital economy provisions of IPEF may be the most lasting impact of the agreement: despite having over 440 million online individuals and a digital economy expected to surpass $1 trillion soon, the Indo-Pacific region is a patchwork of different cyber regulations and regimes harming economic growth, regional integration, and foreign investment. There is strong appetite from leaders in the region to reach standardized rules for cross-border data flows and data localization, and the inclusion of eleven APEC economies likely indicates that the APEC Cross-Border Privacy Rules (CBPRs) will feature prominently in negotiations for this trade pillar.

Despite calls by some, the administration has decided against making the digital economy its own pillar, possibly seeing the issue as a carrot to convince countries to join the trade pillar.

2. Resilient Economy (formerly the Supply Chains Pillar)

This pillar prioritizes supply chain commitments to better foresee and prevent issues in supply chains for vital goods. It will attempt to do this via improved collaboration with critical mineral supply chains, an early warning system, and diversification of sourcing.

This pillar is one of the central areas of interest for India, with Commerce Minister Piyush Goyal stated that India is eager to contribute and collaborate on supply chain resilience and sourcing.

3. Clean Economy (formerly the Clean Energy, Decarbonization, and Infrastructure Pillar)

This pillar will prioritize on setting commitments for clean energy and decarbonization in the region. It will also prioritize the adoption of renewable energy, carbon removal, energy efficiency standards, and methane emissions reductions, by deepening cooperation on green technologies, mobilizing finance for their adoption, and providing technical assistance for the adoption of green infrastructure.

4. Fair Economy (formerly the Tax and Anti-Corruption Pillar)

This pillar is oriented around promoting fair competition via the enactment and enforcement of effective and robust tax, anti-money laundering, and anti-bribery regimes to curb tax evasion and corruption in the region. Expertise and cooperation will be provided on building capacity to do so, such as the exchange of tax information, the implementation of beneficial ownership recommendations, and other reforms to crack down on corruption.

Russia Sanctions:  This week the UK designated 12 individuals and three Russian airlines, JSC Rossiya Airlines, JSC Ural Airlines, and PJSC Aeroflot.  The individuals include: (i) the chair of the board of directors of Russia’s National Media Group; (ii) a member of the board of directors of JSC SOGAZ (an EU- and UK-designated entity); (iii) a general director of Gelendzhik Seaport LLC; (iv) the president of Gazfond; and (v) Vladimir Putin’s ex-wife and relatives, among others.

The sixth round of EU sanctions is subject to negotiations over the proposed oil embargo, and has not been announced.

UK General Licenses:  The UK published a general license that permits transactions with Amsterdam Trade Bank NV (“ATB”), a majority-owned subsidiary of Alfa-Bank JSC, for: (i) basic needs; (ii) payments related to insolvency proceedings; and (iii) winding down transactions with ATB or any entity it owns or controls.  ATB filed for bankruptcy in the Netherlands on April 22, 2022.

The UK also extended the wind-down license for Sovcomflot, which is now set to expire at the end of June, instead of May 15.  

U.S. Treasury Meeting with Financial Institutions:  Last Friday, Deputy Secretary of the Treasury Wally Adeyemo met with representatives of foreign financial institutions to discuss Treasury’s “unprecedented sanctions imposed on Russia for its war against Ukraine.”  Deputy Secretary Adeyemo highlighted the importance of financial institutions in implementing U.S. sanctions, and said that Treasury remained focused on stopping sanctions evasion.  According to press reports, he explained at the meeting the consequences for facilitating sanctions evasion, including providing material support to sanctioned entities, which could include being cut off from the U.S. and/or EU financial systems.