Another Circuit Weighs in on Border Search Authority Creating Circuit Split

On May 23, 2018, the Eleventh Circuit, in United States v. Touset, held that reasonable suspicion is not required to perform a forensic search of an electronic device at a U.S. border. Appellant, who was convicted of numerous counts based on evidence recovered from a search of his electronic devices, relied on the U.S. Supreme Court’s decision in Riley v. California – which held that a warrantless search and seizure of contents of a cellphone during an arrest violates the Fourth Amendment – to argue that reasonable suspicion was required for the forensic searches of his laptop and external hard drives at the Atlanta airport following an international flight. The Eleventh Circuit disagreed.

Splitting from the Fourth and Ninth Circuits, which have held that the Fourth Amendment requires at least reasonable suspicion for forensic searches of electronic devices at a U.S. Border or equivalent (i.e., an international airport), the Eleventh Circuit distinguished Riley as a case proscribing the scope of the search-incident-to-arrest exception to the Fourth Amendment warrant requirement, which does not apply to searches at the Border. The Eleventh Circuit reasoned that the rationale for Riley’s limitation on the search-incident-to-arrest exception—searching electronic devices did not advance the exception’s purpose of protecting the arresting officers from harm—did not apply to border searches, where searching electronic devices in fact advances the purposes of identifying contraband. The Eleventh Circuit also relied on its precedent holding that searches at the Border never require probable cause or a warrant and “saw no reason why the Fourth Amendment would require suspicion for a forensic search of an electronic device when it imposes no such requirement for a search of other personal property.” The Court also explained that “it does not make sense to say that electronic devices should receive special treatment because so many people now own them or because they can store vast quantities of records or effects.”

This decision comes months after the U.S. Customs and Border Protection, a component of the Department of Homeland Security, released the fiscal year 2017 statistics showing an increase in warrantless border searches of electronic devices. The Eleventh Circuit’s holding in Touset sets up a potential Supreme Court resolution on what standard of proof is necessary for a border search. Until it does, the standard of proof the government must meet to conduct warrantless forensic searches at the border will differ based on where a person crosses the border.

According to a May 23 U.S. Department of Commerce (Commerce) press release, “U.S. Secretary of Commerce Wilbur Ross initiated an investigation under Section 232 of the Trade Expansion Act of 1962, as amended. The investigation will determine whether imports of automobiles, including SUVs, vans and light trucks, and automotive parts into the United States threaten to impair the national security as defined in Section 232.”

The results of the Section 232 national security investigations into imports of aluminum and steel should give the auto and automotive parts industry pause. Steel was assigned a 25 percent tariff and aluminum 10 percent. There are opportunities for country exemptions and product exclusions. Country exemptions are handled by the Trump administration, but product exclusions must be submitted by U.S. companies to Commerce. To date, more than 10,000 comments have been filed with Commerce related to steel product exclusions, as well as 1,500 related to aluminum product exclusions.

Commerce is also considering a Section 232 investigation into uranium, though no decision on that has been made.

Commerce now has 270 days to conduct an investigation and prepare a report on its findings for submission to the President.

The Secretary of Commerce must consult with the Secretary of Defense during the investigation and may request of his counterpart an assessment of the defense requirements for autos and automotive parts. The communications Commerce receives from other U.S. Government agencies, such as the Department of Defense, is not available for public inspection. In the course of its investigation, Commerce may also solicit additional information from other sources through the use of questionnaires or other means.

In the event action against auto and automotive imports is found to be necessary based on Commerce’s report, the President has authority to take action to “adjust imports” of autos and/or automotive parts. The potential remedies available to the President in this context include changing the rate and form of import duties on autos and/or automotive parts without apparent limitation, as well as limiting or restricting autos and/or automotive parts imports, including through the negotiation of an agreement to that effect.

Commerce stated in the press release that a notice will be published shortly in the Federal Register announcing a hearing date and inviting comment from industry and the public to assist in the investigation. This is the only time interested parties will be afforded an opportunity to present information and advice relevant and material to the investigation (e.g., written comments, opinions, data, information or advice). The public hearing will also allow interested parties the opportunity to submit oral or written information.

Using the Section 232 investigation into imports of steel as a guide, below is an approximate timeline for the auto and automotive parts investigation.

 

 

Event

 

 Allotted Time Approximate Date
 

Initiation of DOC investigation

  

–

  

May 23, 2018
Federal Register Notice announcing public hearing and soliciting comments  

approx. 7 days

  

May 30, 2018
Request to participate in public hearing with summary of oral presentation  

approx. 21 days

  

June 20, 2018
 

Participation in public hearing

  

approx. 35-42 days

  

July 11, 2018
 

Submission of post-hearing comments

  

approx. 7 days

  

 

July 18, 2018

 
 

Overall conduct of DOC investigation

  

270 days

  

February 17, 2019
 

Presidential determination whether to act

  

90 days

  

May 18, 2019
 

Delay within which action must be taken

  

15 days from President’s determination

  

June 2, 2019
 

President must inform Congress

  

30 days from President’s determination

  

July 2, 2019

On May 18, 2018, CBP issued a Withhold Release Order (WRO) banning the importation of all Turkmenistan cotton or products produced in whole or in part with Turkmenistan cotton. The Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA) was signed into law P.L. 114-125 on February 24, 2016. It was created to ensure a fair and competitive trade environment. TFTEA prohibits all products made by forced labor, including child labor, from being imported into the United States.

On April 6, 2016, members of the U.S. Cotton Campaign, Alternative Turkmenistan News, and International Labor Rights Forum had submitted a petition to CBP requesting the agency ban the importation of all goods made with Turkmen cotton produced with forced labor under 19 U.S.C. § 1307.  Merchandise made with forced labor is subject to exclusion and/or seizure, and may lead to criminal investigation of the importer(s).

These three groups alleged that the Turkmen government forces public sector employees under threat of punishment, including loss of wages and termination of employment, to pick cotton. Further, the groups claimed that “[i]n the 2017 cotton harvest, in addition to forced mobilization of adults, the government of Turkmenistan forced children 10-15 years old to pick cotton in violation of international and domestic laws,” he added. When information reasonably but not conclusively indicates that merchandise made with forced labor is being imported, CBP may issue a WRO pursuant to 19 C.F.R. § 12.42(e).

CBP’s ban means retailers and brands need to move quickly to identify and eliminate Turkmen cotton from their supply chains.

On May 21, President Trump issued a new Executive Order (E.O.) “Prohibiting Certain Additional Transactions with Respect to Venezuela.” The new E.O. targets the Venezuelan Government’s ability to factor receivables and liquidate equity interest in exchange for cash.

The E.O. prohibits U.S. persons or persons within the United States from all transactions related to, or providing financing for, and other dealings—including evading, avoiding or conspiracy transactions—in:

  • The purchase of any debt owed to the GoV, including accounts receivable;
  • Any debt owed to the GoV that is pledged as collateral after the effective date of the E.O. (i.e., May 21, 2018); and
  • The sale, transfer, assignment, or pledging as collateral by the GoV of any equity interest in an entity in which the GoV has at least 50% interest.

Consistent with previous sanctions, the E.O. also defines the term “Government of Venezuela” (GoV) as any political subdivision, agency, or instrumentality thereof, including the Central Bank of Venezuela, and Petróleos de Venezuela (PDVSA), as well as any person owned or controlled by, or acting for or on behalf of, the GoV.

The new measure further tightens already existing financial sanctions against the GoV in effect since August 2017. In particular, the new E.O. is expected to directly restrict PDVSA’s ability to engage in accounts receivable financing, which may accelerate the oil company’s liquidity struggles.

For more details on the E.O. issued on August 24, 2017, see Crowell & Moring’s Client Alert.

On Friday, the EU Commission announced plans to protect EU companies doing business in Iran. This announcement comes in response to President Trump’s decision to withdraw from the Joint Comprehensive Plan of Action (JCPOA), known as the Iran nuclear deal, and re-impose U.S. sanctions on Iran. The EU Commission plans to mitigate the extraterritorial effect of U.S. sanctions on EU companies in four ways:

  1. Blocking Statute: revive and update a 1996 “blocking statute” to forbid EU companies from complying with U.S. sanctions against Iran and make foreign court judgements based on these sanctions ineffective in the EU. The blocking statute was originally proposed to counter the effects on EU companies of the U.S. embargo on Cuba. It will be necessary to update the list of U.S. sanctions on Iran that fall within its scope. The Commission hopes to have this measure in place by August 6, 2018, when the first set of U.S. sanctions takes effect.
  2. EIB Investment: remove obstacles to allow the European Investment Bank (EIB) to support EU investment in Iran.
  3. Sectoral Cooperation: strengthen sectoral cooperation with Iran, including “in the energy sector and with regard to small and medium-sized companies.” To facilitate this, Commissioner for Climate Action and Energy, Miguel Arias Cañete, plans to travel to Tehran this weekend. Additionally, the Development Cooperation or Partnership Instruments will provide financial assistance.
  4. Central Bank of Iran Transfers: encourage Member States to “explore the possibility of one-off bank transfers” to the Central Bank of Iran. The U.S. sanctions could target EU entities active in oil transactions with Iran, so this would help Iranian authorities receive their oil-related revenues.

After the first two measures are formally proposed, the European Parliament and the Council will have two months to object to them. If neither institution objects, however, this period can be shortened.

EU leaders gave unanimous backing to the above proposals when they were presented to them at an informal meeting in Sofia, Bulgaria, by European Commission President Jean-Claude Juncker on 16 May 2018.

On May 8, 2018, President Trump announced the United States’ withdrawal from the Joint Comprehensive Plan of Action (JCPOA) pursuant to which the United States had provided relief from certain direct sanctions and even more secondary sanctions. Following his remarks, the president signed a National Security Presidential Memorandum directing the Departments of State and the Treasury to “begin reinstating” U.S. nuclear sanctions that had been lifted in connection with JCPOA implementation.

Immediately following the president’s announcement, the Treasury Department’s Office of Foreign Assets Control (OFAC) issued guidance regarding the re-imposition of sanctions in the form of Frequently Asked Questions. The FAQs make clear that all sanctions measures that have been lifted pursuant to the JCPOA will be re-imposed following 90- or 180-day wind-down periods, on August 6, 2018 and November 4, 2018, respectively. Key elements of the re-imposed U.S. sanctions, their impact, and the FAQ guidance are summarized below.

Wind-Down Periods

Sanctions targeting the following areas will be reinstated following the 90-day wind-down period (ending on August 6, 2018):

  • The purchase or acquisition of U.S. dollar banknotes by the Government of Iran.
  • Iran’s trade in gold or precious metals.
  • The direct or indirect sale, supply, or transfer to or from Iran of graphite, raw, or semi-finished metals such as aluminum and steel, coal, and software for integrating industrial processes.
  • Significant transactions related to the purchase or sale of Iranian rials, or the maintenance of significant funds or accounts outside the territory of Iran denominated in the Iranian rial.
  • Purchase, subscription to, or facilitation of the issuance of Iranian sovereign debt.
  • Iran’s automotive sector.

Sanctions targeting the following areas will be reinstated following the 180-day wind-down period (ending on November 4, 2018):

  • Iran’s port operators, and shipping and shipbuilding sectors, including on the Islamic Republic of Iran Shipping Lines, South Shipping Line Iran, or their affiliates.
  • Petroleum-related transactions with, among others, the National Iranian Oil Company, Naftiran Intertrade Company, and National Iranian Tanker Company, including the purchase of petroleum, petroleum products, or petrochemical products from Iran.
  • Transactions by foreign financial institutions with the Central Bank of Iran and designated Iranian financial institutions under Section 1245 of the 2012 National Defense Authorization Act for FiscalYear 2012 (NDAA).
  • The provision of specialized financial messaging services to the Central Bank of Iran and Iranian financial institutions described in Section 104(c)(2)(E)(ii) of CISADA.
  • The provision of underwriting services, insurance, or reinsurance.
  • Iran’s energy sector.

General and Specific Licenses

Certain general and specific licenses, and related materials, issued pursuant to the JCPOA will be revoked subject to the wind-down periods:

  • The “Statement of Licensing Policy for Activities Related to the Export or Re-export to Iran of Commercial Passenger Aircraft and Related Parts and Services” (the “Aircraft Policy”) was revoked on May 8, 2018, and OFAC will no longer consider applications under this Policy, other than applications under the pre-existing “safety of flight statement licensing policy,” at 31 C.F.R. § 560.528.
  • Specific licenses issued pursuant to the Aircraft Policy will be revoked and replaced with authorizations providing a wind-down period ending on August 6, 2018.
  • General License I, which authorized transactions ordinarily incident to negotiating contingent contracts for activities eligible to be licensed under the Aircraft Policy, will be revoked and replaced with wind-down authorization ending on August 6, 2018.
  • General License H, which authorized non-U.S. entities owned or controlled by U.S. persons to engage in a range of activities involving Iran, will be revoked and replaced with wind-down authorization ending on November 4, 2018.

General licenses at 31 C.F.R. §560.534 (authorizing the importation into the U.S. of, and dealings in, certain Iranian-origin carpets and foodstuffs) and §560.535 (authorizing certain related letters of credit and brokering services) will be amended to authorize a wind-down period ending August 6, 2018.

Re-Listing of Individuals and Entities

No later than November 5, 2018, OFAC will re-impose “the sanctions that applied to persons removed from the SDN List and/or other lists maintained by OFAC on January 16, 2016.” OFAC emphasizes that “[d]epending on the authority or authorities pursuant to which these actions to re-list are taken, there may be secondary sanctions” associated with these persons. (Secondary sanctions in this case are sanctions imposed on non-U.S. persons who engage in specified business in or with Iran). Importantly, this will include re-designating all Government of Iran (GOI) entities as SDNs, by removing them from the Executive Order 13599 list and moving those persons back to the SDN list. The net effect is to expose non-U.S. persons transacting with GOI entities to U.S. secondary sanctions. This would include, but not be limited to, transactions with: (a) the Islamic Republic of Iran Shipping Lines (IRISL), (b) the National Iranian Oil Company (NIOC), (c) Naftiran Intertrade Company (NICO), (d) National Iranian Tanker Company (NITC), (e) the South Shipping Line Iran, (f) Tidewater Middle East Co., and numerous others.

Crude Oil Purchases

The reinstatement of sanctions on transactions by foreign financial institutions with the Central Bank of Iran and designated Iranian financial institutions – critical financial intermediaries for Iran’s petroleum-related transactions – will have a significant impact on the Iranian government’s ability to export oil. The FY2012 NDAA provides that the president “shall prohibit” or strictly limit U.S. correspondent or payable-through accounts for a foreign financial institution that “has knowingly conducted or facilitated any significant financial transaction with the Central Bank of Iran or another [sanctioned] Iranian financial institution,” unless (1) the transaction is for the sale of food, medicine, or medical devices to Iran, or (2) the president determines and reports to Congress every 180 days that the country with primary jurisdiction over the foreign financial institution has significantly reduced its volume of crude oil purchases from Iran.”

Foreign financial institutions operating in countries that “significantly reduce[]” imports of crude oil from Iran will not face the risk of these secondary sanctions. Foreign entities with exposure to Iran’s oil sector should watch closely for U.S. government determinations of which countries qualify for this exemption.

Implications for U.S. Persons

The impact of the U.S.’s withdrawal from the JCPOA on U.S. persons is limited because, with two exceptions, the JCPOA did not lift sanctions prohibiting U.S. persons from conducting business in or with Iran. Those two limited exceptions were: (a) authorization for U.S. Persons to import Iranian-origin carpets and food stuffs; and (b) a specific licensing policy in support of licenses for the sale of civil commercial passenger aircraft and related goods and services. These exceptions will be repealed following the 90-day wind-down period (expiring August 6, 2018). OFAC will no longer consider applications for licenses under the commercial aircraft policy, and existing licenses will be revoked and replaced with authorizations for wind-down activities through August 6, 2018. General License I will be similarly revoked.

Implications for Non-U.S. Entities “Owned or Controlled” by U.S. Persons

The impact on non-U.S. entities owned or controlled by U.S. persons will be significant. As part of the JCPOA, General License H authorized such entities to engage in all activities that would be otherwise prohibited for U.S. persons, subject to certain conditions. General License H will be revoked and replaced with an authorization for wind-down activities through November 4, 2018.

Implications for Other Non-U.S. Persons

Non-U.S. Persons will be most affected by the United States withdrawal from the JCPOA. The JCPOA included a commitment by the United States to lift a range of secondary sanctions associated with specified activities, as identified above. The United States will now re-instate those sanctions following the wind-down periods identified above, meaning that non-U.S. persons engaged in activities subject to those sanctions that do not wind down business with Iran will risk restrictions on their ability to do business in and with the United States. Additionally, non-U.S. persons will need to ensure that their activities involving Iran do not inadvertently also involve U.S. persons or other touch points that could trigger U.S. jurisdiction.

Impact on Other Parties to the JCPOA

The United States’ repudiation of the JCPOA does not technically terminate the agreement. At least for now, sanctions relief provided by the European Union, United Kingdom, France, Germany, Russia, and China, as well by the United Nations, remains intact.

Thus far, there has been no indication that European or UN sanctions will be re-imposed in light of the U.S. withdrawal. The leaders of the U.K., Germany, and France swiftly issued a joint statement reiterating their commitment to upholding the agreement. The EU did the same. UN Secretary-General Antonio Guturresalso issued a statement calling on the remaining parties to the JCPOA to abide by their commitments. The U.S. government triggered the “snap back” dispute resolution mechanism that could have resulted in re-imposing suspended UN sanctions, and its repudiation may preclude it from doing so in the future.

This course, if it continues, would set up a difficult dynamic between the U.S. and its partners around the world, because U.S. primary sanctions would apply to any transactions clearing through the U.S. or U.S. banks, and U.S. secondary sanctions could be applied to foreign firms continuing to do business in Iran pursuant to the JCPOA. In particular, to the extent the United States’ European partners remain committed to the JCPOA, imposing secondary sanctions penalties on European companies will be an increasing source of friction across the Atlantic, along with presenting companies with complex compliance decisions.

What is Next for the JCPOA?

U.S. withdrawal from the JCPOA takes global business into uncharted territory. As other nations develop new paths forward, businesses will have to be on alert and develop agility in managing complex and evolving requirements, exiting relationships, and seeking different opportunities. Many steps required to implement the changes described above have yet to be taken, and should provide additional clarity. In the meantime, all persons engaging in activities with Iran under the JCPOA sanctions relief should immediately begin assessing and implementing steps to wind-down those activities by the August 6, 2018 and November 4, 2018 deadlines, as necessary.

In late February 2018, a two-day jury trial in London’s Southwark Crown Court resulted in the first successful contested prosecution of a corporation for failure to prevent bribery. This offence is contained in Section 7 of the Bribery Act 2010 (the Act).

The particulars of the case may lead one to question the extent to which a prosecution was, in fact, justified, and whether the ramifications are likely to be universally positive.

The Facts

The Defendant was a London-based interior design company, Skansen Interior Limited (SIL). In January 2014, a new CEO of SIL, Ian Pigden-Bennett, was appointed. Upon his arrival, Mr Pigden-Bennett was informed of two payments totaling £10,000 made to a Manchester-based property company. Mr Pigden-Bennett discussed these payments with SIL’s managing director, Stephen Banks, who was seemingly unable to justify them to Mr Pigden-Bennett’s satisfaction. After their discussion, Mr Pigden-Bennett commenced an internal investigation, and put in place an anti-bribery and corruption policy.

Despite this increased scrutiny, Mr Banks attempted to make a third payment of some £29,000 to the same company, which, in the event, was discovered and prevented. It emerged Mr Banks had authorized these payments as bribes to a project manager at the company in order to secure contracts worth £6 million for refurbishing offices in London.

Once this came to light, Mr Pigden-Bennett fired Mr Banks, along with SIL’s commercial director (who, unlike Mr Banks, was not subsequently charged by the police). He also informed the relevant authorities; in this case by contacting the City of London Police and by filing a suspicious activity report with the National Crime Agency. Thereafter, it is understood SIL assisted with the ensuing investigation.

The Offence

SIL was found guilty of breaching Section 7 of the Bribery Act 2010, which provides that:

  1. “A relevant commercial organisation (C) is guilty of an offence under this section if a person (A) associated with C bribes another person intending—
    1. To obtain or retain business for C.
    2. To obtain or retain an advantage in the conduct of business for C.
  2. But it is a defence for C to prove that C had in place adequate procedures designed to prevent persons associated with C from undertaking such conduct.”

And so a commercial organization is strictly liable where an individual associated with that organization has paid a bribe. If the entity in question can demonstrate that, on the balance of probabilities, it had put “adequate procedures” in place to prevent that kind of behavior, it can avoid liability.

The Act gives no consideration to what “adequate procedures” may be. To address this, shortly before the Act came into force in March 2011, the Ministry of Justice published guidance to assist companies. However, given the wide application of the Act, there can be no one-size-fits-all approach and so a degree of uncertainty remained about the practical application of Section 7.

The Prosecution

SIL was able to point to swift action once the offence was discovered: a new anti-bribery and corruption policy, the firing of the relevant individuals, and, perhaps most significantly, the immediate self-reporting and subsequent cooperation with the authorities.

However, this was insufficient for the Crown Prosecution Service (CPS). It has been reported that, at trial, the judge queried why the CPS was pursuing a case against a company which had been dormant for several years. The CPS is understood to have responded that there was a public interest in signaling the seriousness of the requirements of the Act, and the rigorous enforcement regime.

Here, the CPS made a vice of SIL’s virtue: arguing that SIL’s implementation of a new policy, and the fact that the final attempted payment was stopped, revealed the previous procedures were inadequate. It further justified the prosecution on the basis that SIL had seemingly failed to train its staff, and there was no evidence employees had been informed of any existing anti-bribery policies. It was unconvinced by SIL’s protestations that, as the employees were aware bribery was a crime, there was no need for a detailed company policy.

Ultimately, the CPS prevailed, and the jury found SIL failed to enact specific procedures to ensure compliance with the Bribery Act. The judge gave an absolute discharge, meaning, pursuant to the Rehabilitation of Offenders Act 1974, no finding of guilt was registered on the company’s record and there was no financial penalty.

Commentary

In this instance, the CPS appears to have pursued prosecution with a particular zeal.

It has been reported that the CPS considered offering SIL a deferred prosecution agreement. DPAs are a form of settlement agreement which can be offered by the UK Serious Fraud Office (SFO) or the Office of Financial Sanctions Implementation to companies which self-report wrong-doing. The terms are reached between the parties under the supervision of a judge, and permit a company to make reparations for illicit behavior, while avoiding a criminal conviction. It seems, ultimately, SIL was not offered a DPA, ostensibly on the ground that, having been dormant since 2014, and having no assets, it would have been unable to satisfy the financial component of any DPA. One might wonder whether that logic would also hold for the election to prosecute the company.

There is of course some danger that in circumstances where a company does uncover bribery, the temptation would now exist to avoid self-reporting, or worse, take no action at all to avoid arousing suspicion from the authorities. This is perhaps particularly so where such bribery would be unlikely to come to light absent any intervention from the company.

It goes without saying that this temptation should be avoided. Self-reporting remains the best method of securing leniency, however, as the SFO’s own guidance states, this is no guarantee that a prosecution will not follow. The real takeaway is not that reporting crime never pays. Rather, when considering their prevention strategies, companies should be guided by SIL’s failings by, for example, ensuring an appropriate anti-bribery and compliance policy is in place, monitored, and updated as necessary. Internal audit procedures to ensure that accounts payable/receivable are legitimate and supporting a real business purpose also go hand-in-glove with an anti-bribery policy. Nonetheless, a policy is unlikely per se to be sufficient; staff should be made aware of it and trained as necessary. There should also be a designated compliance officer available for staff to report concerns. What constitutes adequate procedures will vary between companies, but these appear to be minima of wide application.

The U.S. Court of International Trade (CIT) in U.S. Auto Parts Network, Inc. v. United States, Slip. Op. 18-38 (Apr. 6, 2018) recently granted a Temporary Restraining Order (TRO) and found in favor of an importer who alleged an impermissibly high single entry bond amount was imposed against the company.

U.S. Auto Parts Network (U.S. Auto), a company that imports and sells vehicle grilles and parts, was alleged to have imported 30 shipments of grills that contained counterfeit merchandise. U.S. Auto then received notice of the enhanced bond requirement in an email from U.S. Customs and Border Protection (CBP or Customs) on March 7, 2018. CBP indicated it was requiring single entry bonds valued at three times the value of the shipment. Because of the exceedingly high bond amount, on April 2, 2018, Auto Parts went to the CIT and sought a TRO preventing CBP from imposing such single entry bond requirements.

The CIT considered four factors when evaluating whether to grant a TRO to U.S. Auto. The company had to show the court that:

  1. It would suffer irreparable harm absent the restraining order.
  2. It was likely to succeed on the merits of the action.
  3. The balance of hardships favored the imposition of the temporary restraining order.
  4. It was in the public interest.

As to the first requirement, U.S. Auto indicated to the court it was not able to find a surety to post a bond in the amount because the potential risk was approximately $5 million per week. Irreparable harm includes “a viable threat of serious harm which cannot be undone.” U.S. Auto claimed without the restraining order it could not import and its business would effectively wind down. The Government characterized this as speculative harm; however, the Court found it to be sufficient to show irreparable harm.

The court next weighed the third requirement regarding the balance of hardships. The CIT weighed the closing of U.S. Auto’s business against CBP’s expense in resources. CBP alleged that it had conducted these inspections for months requiring “substantial diversion of resources” and “more than 1,100 man hours.” Still, the Court found that a company that is facing the closing of its business, loss of reputation, loss of customers, and other potentially permanent consequences due to the enhanced bond requirements had the balance of hardships tipped in its favor.

When evaluating the likelihood of success on the merits, the court examined U.S. Auto’s four claims against the Government in its Complaint. The first two claims alleged that Customs’ imposition of the higher bond requirement violated various provisions of the Administrative Procedure Act (APA). U.S. Auto’s third claim contended that the new bond requirement constitutes a punitive action and was unconstitutional under the Eighth Amendment’s Excessive Fines Clause. Plaintiff’s fourth claim asserted that Customs did not provide U.S. Auto with the opportunity to challenge the increased bond requirement, which amounted to a violation of Plaintiff’s right to due process under the Fifth Amendment.

Under the APA, a final agency action will be overturned if the action is arbitrary, capricious, an abuse of discretion, or not in accordance with law. According to the Court, and a fact that was confirmed by Customs, ninety-nine percent (99 percent) of U.S. Auto’s imports were not suspected of being counterfeit. Slip. In other words, U.S. Auto was being put out of business as a consequence of 1 percent of its imports. That, according to the CIT was contrary to Customs’ mandate to set bond amounts to ensure compliance. This was sufficient to show a likelihood of success on the merits of the APA claims.

U.S. Auto’s third claim was Customs’ process did not permit the importer an opportunity to challenge the bond amount. If true, this would be a violation of the Fifth Amendment requirement that no person is to be deprived of life, liberty, or property without due process of law. Due process is notice and a meaningful opportunity to be heard. The CIT did not find for the plaintiff because of the longstanding position that there is no “right” to import products into the United States.

Turning to the public interest, U.S. Auto contended allowing it to continue to operate while the case is being decided on the merits was in the public interest. Specifically, it prevented the likely loss of over 350 jobs and provides the public with a source of cheaper replacement parts. The Government contends that the public is best served through the enforcement of the intellectual property laws and by allowing CBP to better allocate resources. The Court found the public interest rose above enforcement of the trade laws.

Because only one of the four factors weighed in favor of the Government, the Court granted the TRO. Under the terms of the TRO, CBP may continue to require a single entry bond at three times the value of the portion of the shipment believed to be counterfeit merchandise. In other words, CBP may impose the enhanced bond requirement on the 1 percent, not the 99 percent of U.S. Auto’s imports. The TRO expired on April 20, 2018, so there is likely to be further litigation in this matter.

On April 1, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) amended two of its pre-existing Ukraine-Russia-related General Licenses.

First, General License 12B (GL12B) replaces and supersedes General License 12A in its entirety. GL12B authorizes the listed entities to access blocked accounts for purposes of “maintenance or wind-down activities.” Previously, while GL12/GL12A had permitted maintenance or wind-down activities, it had required all payments to or for the benefit of the 12 designated entities to be made to a blocked account (this requirement was relaxed for RUSAL only in General License 14); in practice, therefore, the listed entities found it very difficult to engage in even licensed activity because most of their funds were blocked.

GL12B aims to remedy this by continuing to require U.S. Persons to make payments into blocked accounts, but authorizing the designated entities to now access those funds for “maintenance or wind down activities.” All of the other conditions on GL12/GL12A—including the 12:01 AM (East Coast) on June 5 expiration date—remain in place.

Second, OFAC issued General License 13A, which replaces and supersedes General License 13 in its entirety. General License 13A makes four general changes to General License 13:

(1) extends the authorization to three subsidiaries of the listed entities—Irkutskenergo, GAZ Auto Plant, and Rusal Capital Designated Activity Company—(previously, the divestment authorization applied only to (a) EN+ Group PLC, (b) GAZ Group, and (c) United Company RUSAL PLC and not to their subsidiaries);

(2) clarifies that U.S. persons can undertake certain “intermediate” purchases of debt/equity if those are necessary to divestment (i.e., purchases of securities to close out a short     position);

(3) clarifies the authorization extends to purchases of securities by designated persons made prior to April 6, but which have not settled due to sanctions; and

(4) extends the authorization through 12:01 AM (East Coast) on June 6, 2018 (previously it was the same time on May 6, 2018).

OFAC issued three new Frequently Asked Questions (FAQs) to explain the changes. The first two FAQs (#583-584) simply reiterate the changes summarized above. The only relevant new FAQ (No. 585) reiterates the bright line 50 percent rule, noting that U.S. Persons are “generally” not prohibited from engaging in a transaction with a non-U.S. company if one or more SDNs hold less than 50 percent aggregate interest.

This interpretation is consistent with existing guidance, but was likely re-issued to affirm the existing position as a result of the number of non-U.S. companies in which the new SDNs hold a minority interest (e.g., Renova Group’s 48 percent interest in Sulzer Group and its smaller interests in dozens of other entities).

On April 30th, the President issued two proclamations extending country exemptions for certain U.S. allies on the steel and aluminum tariffs pursuant to Section 232(b) of the Trade Expansion Act of 1962.

The President extended temporary exemptions for Canada, Mexico, and the European Union, granted a permanent exemption on steel tariffs for South Korea, and is considering permanent exemptions for Australia, Argentina, and Brazil. Trump’s administration unveiled its decision to extend the country exemptions just prior to the May 1st deadline, leaving the countries unaware whether the tariffs would go into effect by midnight.

In addition, the proclamation creates new limitations by eliminating the ability of manufacturers to receive a refund on steel/aluminum duties when exporting from the United States. Specifically, the new proclamation eliminates drawback claims on steel and aluminum. The elimination of drawback claims follows the elimination of foreign trade zone benefits for steel/aluminum imports in the earlier revisions to the steel/aluminum proclamations.

The United States temporarily extended the country exemptions for Canada, Mexico, and the European Union until June 1st, 2018. Trump originally stated that a successful NAFTA renegotiation between the three countries would result in a permanent exemption for Canada and Mexico. However, Canada and Mexico said that there is no connection between the NAFTA renegotiations and the Section 232 tariffs.

The United States determined to permanently exempt South Korea after the two countries concluded discussions to reduce steel overcapacity. South Korea agreed to limit its exports of steel products to 70 percent of its current volume, or 2.86 million tons of steel, to the U.S. each year. However, South Korea is no longer exempted from the aluminum tariffs as of May 1, 2018.

The proclamations also indefinitely extended temporary exemptions for Australia, Argentina, and Brazil. Although the agreements with Australia, Argentina, and Brazil will be finalized shortly, the President threatened to re-impose the tariffs if the deals are not finalized quickly. “Because the United States has agreed in principle with these countries, in my judgment, it is unnecessary to set an expiration date for the exemptions. Nevertheless, if the satisfactory alternative means are not finalized shortly, I will consider re-imposing the tariff,” the President said in the steel and aluminum presidential proclamations.

What’s Next?

China, India, and Turkey have requested WTO consultations with the United States over the Section 232 tariffs on imported steel and aluminum products. If the European Union does not receive a permanent exemption, then it is also likely that the EU will request WTO consultations with the U.S.

Countries argue that the tariffs violate the WTO’s Agreement on Safeguards and Article XXI’s National Security Exception pursuant to the 1994 GATT Agreement. If the U.S. successfully sets a precedent of Article XXI for national security reasons, then other members of the WTO could invoke the never-before-used Article to apply tariffs or sanctions as retaliation against U.S. exports.