Earlier this month, BIS’ Office of Boycott Compliance announced a Settlement Agreement with Mitsui Plastics, Inc., a domestic concern doing business in New York, to settle its potential civil liability for nine alleged violations of the Export Administration Regulations (EAR).

Charges Details Summary Enforcement Action
§ 760.2(d) Furnishing Information about Business Relationships with Boycotted Countries or Blacklisted Persons In connection with the sale and/or transfer of goods from the U.S. to Bahrain, Mitsui, on two occasions “furnished information concerning another person’s business relationships with another person who is known or believed to be restricted from having any business relationship with or in a boycotting country.” Civil Monetary Penalty of $28,600
§ 760.5 Failing to Report the Receipt of a Request to Engage in a Restrictive Trade Practice or Foreign Boycott Against a Country Friendly to the United States Also in connection with the sale and/or transfer of goods from the U.S. to Bahrain, Mitsui, on seven occasions “received a request to take an action which would have the effect of furthering or supporting a restrictive trade practice or unsanctioned foreign boycott. Mitsui failed to report its receipt of these requests to the Department…”

On February 5, the U.K.’s Chancellor of the Exchequer was asked the following:

“How many suspected breaches of financial sanctions were reported to the Treasury’s Office of Financial Sanctions Implementation (OFSI) in 2017; what the value was of those breaches; and how many investigations into breaches, by sanctions regime, have (a) been opened and (b) are ongoing since new powers to impose penalties under the Policing and Crime Act entered into force.”

Initially, the government reported 118 suspected breach cases worth £117 million had been reported to OFSI.

Now less than two weeks later they have revised the answer to 133 breach cases worth £1.4 billion.

Regarding the last question, the government said “as of April 2017, a total of 103 suspected breaches have been reported to OFSI since OFSI gained the ability to impose monetary penalties under the Policing and Crime Act 2017…”

The trade and investment environment in the Asia-Pacific is one of the most dynamic, growth-oriented, and consequential to global companies, but also one of the most rapidly evolving. This week, eleven nations released the full text of the new Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). This successor to the Trans-Pacific Partnership (TPP), will be signed in Santiago, Chile on March 8, by the trade ministers from Canada, Mexico, Chile, Peru, Japan, Singapore, Viet Nam, Malaysia, Brunei, Australia and New Zealand.

A review of the completed text of the CPTPP agreement provides a lens into how the landmark deal will reshape the regional trading and commercial landscape. Companies doing business in the region – or with competitors there – and those contemplating growth in these markets will want to pay close attention to the CPTPP. Close analysis will help guide investment choices, inform where companies base regional operations, and drive decisions about global supply chain management and preferential market access.

Crowell & Moring International helps shape and navigate this evolving policy landscape from both the public and private perspective. We help companies assess how to move forward in the Asia-Pacific, and counsel governments in the region as they implement domestic legal, regulatory, and policy changes to implement the provisions in the CPTPP. Here are some key dynamics to watch, as the CPTPP countries move toward ratification and implementation.

For more, please see Crowell’s Client Alert.

On February 16, U.S. Secretary of Commerce Wilbur Ross released the findings of the Department of Commerce (Commerce) investigations on the effects of steel and aluminum imports on U.S. national security pursuant to Section 232 of the Trade Expansion Act of 1962.

Commerce concluded the present quantities of steel imports are “weakening [the U.S.] internal economy” and threaten to impact the national security of the United States. The same was said of aluminum imports, with the report noting that “recent import trends have left the U.S. almost totally reliant on foreign producers of primary aluminum … that is essential for key military and commercial systems.”

Steel Remedies

In terms of specific remedies, Commerce recommends the President adjust the level of steel imports through quotas and/or tariffs imposed on a broad range of all major categories of steel currently produced in the United States. The relief is intended to ensure that U.S. domestic steel producers maintain a capacity utilization rate of 80 percent or better. The report does not mention the duration of any proposed remedies.

Commerce presented two recommendations:

  • A global quota of 63 percent or global tariff of 24 percent on imports from all countries.
    • Commerce proposes that under this option the President could exempt specific countries by granting them a quota of 100 percent of their 2017 import volumes. Such exemption would be based on an overriding U.S. economic or security interest.
  • A higher overall tariff of 53 percent, but only on a subset of countries (Brazil, South Korea, Russia, Turkey, India, Vietnam, China, Thailand, South Africa, Egypt, Malaysia, and Costa Rica

Under either alternative, quotas and/or tariffs would be imposed on imports of all steel products that fall into one of the following five broad product categories:

Carbon and alloy flat products produced by rolling semi-finished steel through varying sets of rolls, including sheets, strips, and plates;
Carbon and alloy long products that fall outside the flat products category, including bars, rails, rods, and beams;
Carbon and alloy pipe and tube products either seamless or welded pipes and tubes, some of which may include stainless and alloys other than stainless;
Carbon and alloy semi-finished products consisting of initial, intermediate solid forms of molten steel, to be re-heated and further forged, rolled, shaped, or otherwise worked into finished steel products, including blooms, billets, slabs, ingots, and steel for castings; and
Stainless steel products in flat-rolled, long, pipe and tube, and semi-finished forms, containing at minimum 10.5 percent chromium and, by weight, 1.2 percent or less of carbon, offering better corrosion resistance than other steel.

Steel Exclusions

The Secretary also proposes a separate exclusion process through which affected U.S. parties may seek exclusions from the quota or tariff for specific products based on the following: (1) lack of sufficient U.S. production capacity of comparable products; or (2) specific national security-based considerations. Commerce will lead the exclusion appeal process, providing for public comment on exclusion requests and decisions within 90 days of the requests’ filing. Commerce will also consider whether the quota or tariff for remaining products must be adjusted to ensure the domestic industry achieves projected production levels.

Aluminum Remedies

The Secretary determined it necessary to reduce imports to a level that will allow the domestic industry to restart idled capacity of primary aluminum in order to remove the threat of impairment. The Secretary recommends the President impose quotas and/or tariffs on a wide range of aluminum products to ensure that U.S. aluminum producers operate profitably and maintain an average capacity utilization rate of 80 percent. The remedies’ duration is fairly open-ended, as the Secretary recommends that the action taken remain in effect long enough to “stabilize the U.S. industry” by building cash flow to reduce debt and raising capital for plant modernization. (The report mentions that it can take up to nine months to restart idled smelting capacity.)

Commerce presented two recommendations:

  • A global quota of 86.7 percent or global tariff of 7.7 percent on imports from all countries.
  • A higher overall tariff of 23.6 percent, but only on a subset of countries (China, Hong Kong, Russia, Venezuela, and Vietnam).

Under either alternative, quotas and/or tariffs would be imposed on imports of:

Unwrought aluminum (HTS code 7601)
Aluminum castings and forgings (HTS codes 7616.99.5160 and 7616.99.5170)
Aluminum plate, sheet, strip, and foil (HTS codes 7606 and 7607)
Aluminum wire (HTS code 7605)
Aluminum bars, rods and profiles (HTS code 7604)
Aluminum tubes and prices (HTS code 7608)
Aluminum tube and pipe fittings (HTS code 7609)

Aluminum Exemptions/Exclusions

Importantly, Commerce further proposes that under either alternative the President could exempt specific countries either entirely or by granting them a quota of 100 percent of their 2017 import volumes. Such exemption would be based on an overriding U.S. economic or security interest, including the exempted countries’ willingness to help address “global excess capacity and other challenges facing the U.S. aluminum industry.” (Any exemption would require a corresponding adjustment to the final quota or tariff imposed on the other countries.)

The Secretary also proposes a separate exclusion process through which affected U.S. parties may seek exclusions from the quota or tariff for specific products based on the following: (1) lack of sufficient U.S. production capacity of comparable products; or (2) specific national security-based considerations. Commerce will lead the exclusion appeal process, providing for public comment on exclusion requests and decisions within 90 days of the requests’ filing. Commerce will also consider whether the quota or tariff for remaining products must be adjusted to ensure the domestic industry achieves projected production levels.

Deadline for President Trump

President Trump has until April 11, 2018 to determine whether he agrees with the Secretary’s recommendations on steel, and until April 20, 2018 on aluminum.

On February 15, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), in coordination with the Office of the Comptroller of the Currency (OCC), and the U.S. Department of Justice (DOJ), announced the assessment of a $185 million civil money penalty against U.S. Bank for willful violations of several provisions of the Bank Secrecy Act (BSA).

According to FinCEN’s press release, since 2011, U.S. Bank willfully violated the BSA’s program and reporting requirements by failing to establish and implement an adequate anti-money laundering program (AML), failing to report suspicious activity, and failing to adequately report currency transactions.

Banks are required to conduct risk-based monitoring to sift through transactions and to alert staff to potentially suspicious activity. Instead of this, U.S. Bank:

  • Capped the number of alerts its automated transaction monitoring system would generate to identify only a predetermined number of transactions for further investigation, without regard for the legitimate alerts that would be lost due to the cap.
  • Systemically and continually devoted an inadequate amount of resources to its AML program.
    • Internal testing by U.S. Bank showed that alert capping caused it to fail to investigate and report thousands of suspicious transactions.
    • It also allowed, and failed to monitor, non-customers conducting millions of dollars of risky currency transfers at its branches through a large money transmitter.
    • In addition, the bank filed over 5,000 Currency Transaction Reports (CTRs) with incomplete or inaccurate information, impeding law enforcement’s ability to identify and track potentially unlawful behavior.

U.S. Bank also had an inadequate process to handle high-risk customers. As a result:

  • Customers whom the bank identified or should have identified as high-risk were free to conduct transactions through the bank, with little or no bank oversight.
  • By not having an adequate process in place to address high-risk customers, U.S. Bank failed to appropriately analyze or report the illicit financial risks of its customer base.

FinCEN noted these failures precluded the bank from addressing the risks that such customers posed, which included not filing timely suspicious activity reports (SAR) used by law enforcement investigators to recognize and to pursue financial criminals.

On Valentine’s Day, two subcommittees of the House Committee on Science, Space, and Technology held a joint hearing on the potential application of blockchain technology beyond cryptocurrency and financial technology. This hearing highlights the U.S. Government’s growing interest in blockchain, a Distributed Ledger Technology (DLT) that has powered platforms for secure and decentralized transactions. While its most visible exponent, Bitcoin, has been a hot topic, blockchain is gaining traction among some federal agencies as a tool of the future.

Given the sheer data demands on modern government, blockchain, which would enable what some call “democratized trust,” shows promise to cut red tape without compromising the security and integrity of government transactions. The potential use cases for blockchain are many—just to name a few: identity management, supply chain management, smart contracts, patents, and foreign aid delivery. Federal government agencies are making their own forays into this area:

  • Department of Homeland Security: prove the integrity of captured data from border devices to help secure the Internet of Things (IoT);
  • GSA: automating the FASt Lane process for IT Schedule 70 contracts to give end-user agencies quicker access to innovative suppliers;
  • Navy: secure sharing of data within the Naval Additive Manufacturing process.

But, the government is still cautious. With a view towards cybersecurity vulnerabilities, Section 1646 of the 2018 National Defense Authorization Act requires DoD to brief on the offensive and defensive cyber applications of blockchain by the early half of this year. In practice, the government has been experimenting mostly through vehicles such as proofs of concepts and Small Business Innovation Research (SBIR) projects. These initiatives, while distinct from traditional procurements, provide low-cost opportunities for entry. Industry should be on the lookout for ways to engage the government and articulate viable uses of blockchain for particular mission requirements.

On 13 February, the EU published an Information Note to EU business operating and/or investing in Crimea/Sevastopol.

The new version of this note includes updates about relevant regulations as well as more information about precautions to take when doing business in the region.

On the last page, it provides links to further information on the implementation of restrictive measures in the following documents:

  • Guidelines on implementation and evaluation of restrictive measures, see here
  • Best Practices for effective implementation of restrictive measures, see here
  • Guidelines on the implementation of the prohibition on making indirectly available of funds and economic resources and the notions of ownership and control, see here
  • Frequently Asked Questions (FAQ), click here
  • EU sanctions map, see here

On February 13, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a finding pursuant to Section 311 of the USA PATRIOT Act identifying ABLV Bank of Latvia as a “primary money laundering concern.” FinCEN also issued a notice of proposed rulemaking (NPRM) under that section which, if adopted, would prohibit financial institutions from opening or maintaining a correspondent account in the United States for, or on behalf of, ABLV. In practice, financial institutions (both U.S. and non-U.S. headquartered) often do not wait for such a rule to be finalized but instead move immediately to close out banking relationships with the designated foreign financial institution as soon as the finding and NPRM are announced.

Under Section 311, if FinCEN’s Director finds that a foreign financial institution qualifies as a “primary money laundering concern,” they may propose a rule that would impose one or more of five different “special measures” against it. The most serious special measure, and the one typically imposed, is the fifth, which prohibits U.S. banks from maintaining correspondent relationships with the named foreign financial institution. Proposed rules to impose special measures are made available for public comment and become effective once the rule is finalized.

FinCEN is proposing this action based on its finding set out in the NPRM that ABLV is a foreign bank of primary money laundering concern. In particular, the FinCEN NPRM reports that ABLV has institutionalized money laundering as a business practice and has been involved in the provision of banking services to entities designated by the United Nations – including North Korean entities.  FinCEN also found that ABLV has assisted North Korea in the procurement or export of ballistic missiles.

It should be noted that the last two instances of FinCEN’s use of its Section 311 authority were ultimately resolved in FinCEN’s favor.

  • On May 23, 2017, the United States Court of Appeals for the District of Columbia affirmed the dismissal of a challenge to the U.S. Treasury’s use of Section 311 of the USA PATRIOT Act against Andorran bank Banca Privada d’Andorra (BPA) by the bank’s majority shareholders. Please click here for Crowell’s Client Alert on the BPA case.
  • In April of 2017, the U.S. District Court for the District of Columbia upheld the Treasury Department’s use of Section 311 of the USA PATRIOT Act to impose “special measures” with respect to Tanzanian Bank FBME, Ltd. Please click here for Crowell’s Client Alert on the FBME case.

Written comments on the NPRM may be submitted within 60 days of publication.

On February 12, the State Department’s Directorate of Defense Trade Controls (DDTC) published a Federal Register Notice seeking comments to inform its review of controls implemented in recent revisions to the following United States Munitions List (USML) Categories:

V – Explosives and Energetic Materials, Propellants, Incendiary Agents, and Their Constituents;

X – Personal Protective Equipment; and

XI – Military Electronics

Commerce’s Bureau of Industry and Security (BIS) also published a notice on February 12. The agency is seeking public comments to perform a complementary review of items on the Commerce Control List (CCL) concurrent with DDTC’s review to ensure that the descriptions of these items on the CCL are clear, items for normal commercial use are not inadvertently controlled as military items on the USML, technological developments are accounted for on the control lists, and controls properly implement the national security and foreign policy objectives of the United States.

This is part of DDTC and BIS’ periodic post-Export Control Review (ECR) of the USML/CCL.

Comments for both notices are due on April 13.

During the long-anticipated sixth round of talks in Montreal to update NAFTA, from January 23-29, negotiators made progress in some issue areas while avoiding any major clashes that might have led to U.S. withdrawal from the existing agreement. Officials advanced discussions on digital trade, sanitary and phytosanitary measures, and technical barriers to trade to near completion while closing a chapter on anti-corruption measures.

Following the round, U.S. Trade Representative (USTR) Robert Lighthizer acknowledged progress in these areas, while highlighting the importance of the need to make progress on the “core issues” of greatest interest to the United States. These core issues, which could include the rules of origin for automobiles as well as other difficult issues (i.e., investment, procurement, dispute settlement and the U.S. proposal for a five-year “sunset clause” in the agreement), are ultimately what the U.S. will judge as determining the success or failure of the talks.

Despite some initial constructive engagement, however, negotiators remain far from resolving these issues. Canada responded to a few U.S. proposals during the round:

  • On the rule of origin for autos, Canada reportedly proposed expanding the formula for calculating regional and national content values to include intellectual property and new technologies. Lighthizer rejected this approach in his closing remarks, finding it to be the “opposite” of U.S. interests because it would lead to less regional content than the status quo. The initial U.S. proposal would increase the regional value content for automobiles from the current 62.5 percent to 85 percent, with 50 percent reserved for U.S.-origin content.
  • On investor-state dispute settlement (ISDS), Canada proposed a mechanism that would exclude the U.S., while maintaining mutual protections only for Canada and Mexico. While it is unclear whether USTR will favor this approach, U.S. industry groups will likely be opposed.
  • On the “sunset clause,” Canada made a counterproposal of a five-year review process for the agreement, without the threat of automatic termination.

Canada also proposed departing from a proposed rule that would require the NAFTA parties to automatically extend to one another the same level of market access for services as each commits to in future trade agreements—the so-called “MFN-forward” rule that Canada had already agreed to in TPP. Lighthizer said in his closing remarks that the proposal was “unacceptable” and referred to it as a “poison pill.”

The Trump Administration overall appears to be signaling that negotiations are likely to proceed without disruption at least through the next round, which will take place in Mexico City from February 26-March 6.

While officials initially set a target date of concluding talks by March 31, there are hints that negotiations could last beyond that date, even perhaps after Mexico’s general election on July 1. President Trump said on January 11 that he could be flexible on the timetable, and U.S. Secretary of Agriculture Sonny Purdue testified to the House Agriculture Committee on February 6 that he expects talks to be extended beyond March but completed before the end of the year.

Members of Congress representing agricultural interests continue to press the Trump administration to conclude an agreement that will “do no harm” to the U.S. agricultural sector, which has benefitted from expanded access to Canada and Mexico under NAFTA. These Members would prefer to see the negotiations extended beyond March, provided that the overall result remains favorable for U.S. agribusiness.