ZTE Barred by U.S. Government & ZTE Fights Back!

Background

China-based Zhongxing Telecommunications Equipment Corporation and ZTE Kangxun Telecommunications Ltd (collectively “ZTE”) entered a guilty plea and agreed to pay a combined penalty up to $1.19 billion to settle criminal and civil allegations that ZTE violated U.S. export control laws and U.S. sanctions by illegally shipping U.S.-origin items to Iran.

The record-breaking settlement agreement was with the U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”), the U.S. Department of Justice (“DOJ”), and the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”). The penalty assessed against ZTE included a $100,871,266 civil monetary penalty imposed by OFAC; a $430,488,798 in combined criminal fines and forfeitures; and a $661,000,000 penalty payable to BIS, of which $300,000,000 were suspended for a seven-year probationary period.

OFAC Increases Civil Monetary Penalties

On March 19, 2018, the Office of Foreign Assets Control (OFAC) adjusted its maximum civil monetary penalties for inflation (per the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015). The rationale for this increase is to maintain and improve the effectiveness and deterrent effect of civil monetary penalties. Any increase applies to penalties assessed after the effective date regardless of whether the violation occurred prior to such date. 

How much did civil monetary penalties increase?

Increases to penalties were assessed as follows:

• Violations of the Terrorism Risk Insurance Program will be assessed a maximum penalty of $1,360,525 up from $1,333,312.
• As codified at 31 C.F.R. § 598.701, any violation of the Foreign Narcotics Kingpin Designation Act and the Foreign Narcotics Kingpin Sanctions Regulations will be assessed a maximum penalty of $1,466,485 – increasing from its previous maximum penalty of $1,437,153.

• A penalty amounting to the greater of $295,141 or twice the amount of the underlying transaction will be assessed for a violation of the International Emergency Economic Powers Act and any of the following:
  • Iranian Assets Control Regulations
  • Narcotics Trafficking Sanctions Regulations
  • Sudanese Sanctions Regulations
  • Weapons of Mass Destruction Trade Control Regulations
  • Zimbabwe Sanctions Regulations
  • Syrian Sanctions Regulations
  • Cote d’Ivoire Sanctions Regulations
  • Weapons of Mass Destruction Proliferators Sanctions Regulations
  • Darfur Sanctions Regulations
  • Democratic Republic of the Congo Sanctions Regulations
  • Belarus Sanctions Regulations
  • Lebanon Sanctions Regulations
  • Hizballah Financial Sanctions Regulations
  • Iraq Stabilization and insurgency Sanctions Regulations
  • Magnitsky Act Sanctions Regulations
  • Western Balkans Stabilization Regulations
  • Global Terrorism Sanctions Regulations
  • Terrorism Sanctions Regulations.

• Violations of the Foreign Terrorist Organizations Sanctions Regulations will be assessed a penalty amounting to the greater of $77,909 or twice the amount of which a financial institution was required to retain possession or control pursuant to 31 C.F.R. § 597.701(b).
• A penalty of $86,976 per violation on any person violating any license, order, or regulation issued under the Trading with the Enemy Act (TWEA), as codified at 31 C.F.R. § 501.701.
• Finally, any violation of the Clean Diamond Trade Act and the Rough Diamonds Control Regulations will be assessed a penalty of $13,333, up from $13,066.

To read the final rule, click here: OFAC Final Rule on Inflation Adjustment of Civil Monetary Penalties.  For more information about this announcement please contact us at 305-456-3830 or via email at info@diaztradelaw.com.

Trump Administration Tightens Cuba’s Sanctions Program

Since June 2017, we have been anxiously awaiting changes to the Cuba sanctions program since President Trump signed an executive order and emphatically stated that his administration would tighten loose regulations established under the Obama Administration.

On November 8, 2017, the U.S. Department of the Treasury stated,

• “We have strengthened our Cuba policies to channel economic activity away from the Cuban military and to encourage the government to move toward greater political and economic freedom for the Cuban people”

Travel to the U.S. with an Unlimited Number of Cuban Cigars and Rum - Courtesy of New Revised OFAC and BIS Regulations

On October 14, 2016, President Obama issued a Presidential Policy Directive on United States-Cuba Normalization to further ease travel and trade restrictions with Cuba. As a result, Monday, October 17, 2016, amendments to both OFAC and BIS regulations will take effect.

Below are the top changes from both OFAC and BIS:

OFAC is making additional amendments to the Regulations with respect to health, trade and commerce, civil aviation safety, travel and related transactions, humanitarian-related activities, and certain other activities. Below is a recap:

• Health
  • Persons subject to U.S. jurisdiction are now permitted to engage in commercial and non-commercial joint medical research projects with Cuban nationals. (Section 515.547).

• Travel and Related Transactions
  • Importation of Cuban merchandise: Not too long ago we alerted our readers that CBP was targeting Cuban Cigars at American Ports. We haveBIG news for cigar and rum lovers… As of Monday, October 17, 2016, persons subject to U.S. jurisdiction are now able to return home from Cuba (or any other country where Cuban rum and cigars can legally be purchased) with an unlimited amount of rum and cigars. However, the number of cigars and amount rum must be for personal use and such merchandise must be imported as accompanied baggage and are subject to the normal limits on duty and tax exemptions. This is a huge step forward from OFAC’s initial limit of $400 or less (with no more than $100 of such merchandise consisting of alcohol or tobacco products). (Section 515.560(c)(3)).

Cuban Cigars Seized by CBP

Mark Twain once said, “I never smoke to excess - that is, I smoke in moderation, only one cigar at a time.”

With the loosening of restrictions on travel and trade with Cuba, including the authorization to import Cuban Cigars (for personal use only, under a certain value), persons under “U.S. jurisdiction” are getting caught right and left trying to take advantage and import more than their share of Cuban cigars to the US. In May of this year, Maxim magazine declared Cuban Cigars are still the worlds best. However, as relations thaw, will the Cuban cigar be able to take back the market share it lost in the past half century when countries like Dominican Republic and Nicaragua have served the US? That is a question recently posed by Will Yakwowicz in an article for Inc. earlier this year.

Although you are allowed to bring Cuban cigars back to the U.S. (if you are on an “authorized trip” to Cuba) there is a limit and the United States Customs and Border Protection (CBP) can, and will, seize any amount over the allowed limit.

What is the scope and limit on how many cigars I can bring in?

• Persons authorized to travel to Cuba (see our previous post regarding authorized travel to Cuba) may purchase alcohol and tobacco products while in Cuba for personal consumption. Also, as an authorized traveler you may return to the United States with up to $400 worth of Cuban goods, but only $100 worth of alcohol or tobacco or a combination of both.

Will Customs and Border Protection seize as little as 1 cigar?

• YES! CBP can and will seize even one cigar. Since 2013, CBP posts seizure notices online, so the world can see what CBP seized. Here’s the proof that CBP has been seizing Cuban cigars. An example of U.S. CBP seizing JUST one cigar was as recent as 06/20/2016 at the port of JAMAICA, NY.

• During August of 2016, CBP has seized cigars from Ports of entry such as San Diego, California; Anacortes, Wa.; Jamaica, NY; Phoenix, Ar.; Washington, DC with the most being seized at the Port of Jamaica, NY, with a total of over 300 Cigars seized from different individuals.

U.S.’s normalization of ties with Cuba is progressing, and our office is well positioned to help you take advantage of these changes and ensure you stay compliant. Be sure you know the rules and don’t enter the U.S. with more than your $400 worth of Cuban goods, $100 of which of alcohol and tobacco. If you are faced with a seizure notice, or want to ensure you stay compliant, contact us at info@diaztradelaw.com with any questions.

This is no longer applicable due to new revised OFAC and BIS Regulations. What's new? Click here.

First Commercial flight to Cuba Scheduled to Depart August 31, 2016!

Co-Authored by Jennifer Diaz and Kristina Hernandez-Tilson, an attorney in Miami, Florida, practices in state and federal court, litigating matters of civil and administrative law. 

The novelist Graham Greene once said that Havana was a city to visit, not a city to live in – well, now visiting just became far simpler.

On Thursday, July 6, 2016, eight airlines were granted a tentative approval from the U.S. government for flights between certain U.S. cities and Cuba’s capital, Havana.

The U.S. cities are

Build Your Own 'People to People' Mission & More Cuba Changes

If you have been following our Cuba updates, you'll note we've been busy. A full listing of all of our posts to get you caught up are all the way at the bottom. Here's the Cliff Notes version:

• On December 17, 2014, President Obama made a historic announcement: “Today, the United States is taking historic steps to chart a new course in our relations with Cuba and to further engage and empower the Cuban people.”
• By January 16, 2015, both the U.S. Treasury Department, Office of Foreign Assets Control (OFAC) amended its Cuban Assets Control Regulations, and the U.S. Department of Commerce’s, Bureau of Industry and Security (BIS) amended the Export Administration Regulations with a “Support for the Cuban People” license exception. Both OFAC and BIS’s new rules were effective as of January 16, 2015.
• OFAC and BIS issued additional new rules on June 15, 2015, September 21, 2015, January 27, 2016 and again today!

As far as travel goes, the NY Times posted their travel tips, but, here are MY travel tips to you:

Top 10 Changes with Cuba as a Result of NEW Revised OFAC and BIS Regulations

As of January 27^th, 2016, both OFAC and the BIS have amended their regulations again, and below details the top 10 changes as a result.  The last update was on September 21, 2015, and can be found here.  While the United States maintains its broad embargo on trade with Cuba, OFAC and BIS have released amendments to the Cuban Assets Control Regulations designed to advance President Obama’s policy to engage and empower the Cuban people.  The new changes, which can be found here and here, expand the scope of authorized business and travel by U.S. person and companies inside of Cuba. These changes were put into place to help facilitate engagement between the U.S. and Cuba.  Click here to read FAQ’s related to Cuba from the OFAC. Below we’ve providing you with a detailed summary of the top 10 significant changes:

1. Export Trade Financing
   • OFAC has amended sections of the regulations removing former restrictions on payment and financing terms for all exports from the U.S. or re-exports of 100% U.S. origin items authorized by the Department of Commerce, other than exports of agricultural items or commodities. - 515.533(a)
   • The amended rules will allow for financing of export trading through U.S. banks. Prior to the amendments, financing was required to be cash in advance or third country financing. - 515.584, and §515.421
2. Travel from the United States to Cuba
   • OFAC has amended the regulations to authorize entry of U.S. Nationals into blocked space, code-sharing, and leasing arrangements. This is an effort to facilitate the provision of air carriers authorized by section 515.572(a)(2), which includes entry into arrangements with a national of Cuba. - 515.572
   • The amended regulations have expanded upon authorized temporary trips to Cuba by explicitly authorizing travel-related transactions directly incident to the facilitation of temporary sojourn aircraft and vessels. - 515.533
3. Informational materials related to artistic and media productions
   • OFAC has expanded the general license authorizing travel-related and other transactions that are directly incident to the export, import, or transmission of informational materials to include professional media or artistic productions in Cuba. Artistic productions include movies, television programs, music recordings, and artworks. - 515.545
   • These amendments include the employment of Cuban nationals and the remittance of royalties or other payments. -515.206
4. Organization of professional meetings, conferences, and workshops
   • Travel related and other transactions to organize professional meetings or conferences in Cuba are now authorized by OFAC. - 515.564
5. Sports competitions, workshops, and performances
   • Amateur and semi-professional international sports federation competitions and public performances, clinics, workshops, other athletic or non-athletic competitions, and exhibitions are also now authorized in Cuba under the amendments. - 515.567
6. Requirements that profits be donated
   • The previously existing requirements for certain events that all U.S. profits be donated to an independent nongovernmental organization in Cuba, or a U.S. based charity, and that workshops and clinics be run by an authorized traveler are now lifted. - 515.567
7. Disaster Preparedness and Response
   • The list of authorized humanitarian projects has been expanded by OFAC to include projects that focus upon disaster preparedness, relief, and response. - 515.575
   • Authorized humanitarian projects include the following projects:
     1. Medical and health-related projects;
     2. Construction projects intended to benefit legitimately independent civil society groups;disaster preparedness, relief, and response;
     3. historical preservation;
     4. environmental projects;
     5. projects involving educational training on the following topics: entrepreneurship and business; civil education; journalism; advocacy and organizing; adult literacy; vocational skills;
     6. community based grassroots projects;
     7. projects suitable to the development of small-scale private enterprise;
     8. projects that are related to agricultural and rural development that promote independent activity;
     9. microfinancing projects (except for financing prohibited by §515.208); and
     10. projects to meet basic human needs. - §515.575(b)
8. Loosening of the licensing policy for the export and re-export of certain items to Cuba through case-by-case review
   • BIS has also adopted a case-by-case review policy for exports and re-exports of certain items that meet the needs of the Cuban people. This includes exports and re-exports for such purposes made to state-owned enterprises, agencies, and organizations of the Cuban government that provide goods and services for the use and benefit of the Cuban people.
   • The following items will be reviewed on a case-by-case basis:
     1. agricultural production; artistic endeavors (including the creation of public content, historic and cultural works and preservation); education; food processing; disaster preparedness, relief and response; public health and sanitation; residential construction and renovation; public transportation;
     2. construction of facilities for treating public water supplies; facilities for supplying electricity or other energy to the Cuban people; sports and recreation facilities; and other infrastructure that directly benefits the Cuban people; and
     3. wholesale and retail distribution for domestic consumption by the Cuban people.
9. Switch of licensing policy from case-by-case review to general policy of approval for certain items
   • BIS has revised its licensing policy from possible approval on a case-by-case basis to a general policy of approval for exports/re-exports for commodities that involve telecommunications, civil society, news gathering, agricultural items, and civil aviation safety.
10. A general policy of denial will still apply to applications to export or re-export certain other items
    • Items for use by state-owned enterprises, agencies, or other organizations of the Cuban government that primarily generate revenue for the state, including those in the tourism industry and those engaged in the extraction or production of minerals or other raw materials; or items that are destined to the Cuban military, police, intelligence, and security services, will still remain subject to a general policy of denial.

While the amendments to the Cuban Assets Control Regulations are significant in opening up relations with Cuba, many significant limitations still exist, which is why compliance is essential.  Diaz Trade Law can assure compliance with these regulatory provisions for businesses and individuals willing to pursue potential opportunities in Cuba. Contact us at info@diaztradelaw.com  today to schedule a consultation.

Update on U.S. Laws Regarding Commerce with Cuba

Join NEI for an insightful conversation about rapidly evolving business opportunities in Cuba, brought to you by yours truly. The Webinar will highlight particular areas of interest, including: a current overview of the current rules and regulations governing transactions with Cuba, learning what travel to Cuba is authorized, what the latest regulations by BIS and OFAC cover, and future opportunities for growth in telecommunication, construction, and finance.

The audience will be provided with the latest exceptions as they relate to business transactions with Cuba. U.S. companies with a desire to learn the new business opportunities as they relate to Cuba should attend.

TOP 11 NEW Business Opportunities with Cuba as a Result of NEW OFAC and BIS Laws

In December, 2014, we updated you on the president’s historic announcement in regards to doing business in Cuba, and in January we updated you on both the Office of Foreign Assets Control (“OFAC”) amendments to the Cuban Assets Controls Regulations (“CACR”) and the amendments to the Export Administration Regulations (“EAR”) administered by the United States Department of Commerce. As of September 21, 2015, both OFAC and the BIS have amended their regulations again, and below details the top 11 changes as a result of the new laws.

We'll be discussing these new changes on October 8th, at our Export Compliance Seminar at the Miami Free Zone. Blog subscribers get to take advantage of the discount code! Email me at jdiaz@bplegal.com for it. You can RSVP here. 

Embassies and Island Wide Wi-Fi by July in Cuba

President Barack Obama announced Wednesday that the U.S. and Cuba will now reestablish diplomatic ties and reopen embassies in their respective capitals. The announcement comes just one month after the Secretary of State removed Cuba from the State Sponsor of Terrorism list. Although it would take an act of Congress to lift the trade embargo, reopening embassies is another brick in the foundation of normalizing trade relations. With the new embassies opening in July, there will be greater contact between the US and the Cuban people which will ultimately lead to a change in the US’s attitude towards the trade embargo.

OFAC Publishes NEW FAQ on Cuba

Today, the Office of Foreign Assets Control published a new updated Frequently Asked Questions Related To Cuba. The last FAQ from OFAC was on January 15, 2015, discussed in this previous post "Revised Cuba Regulations Officially Released". There are 12 new questions discussed in OFAC's new FAQ - made easy for your review - as all NEW questions are posted below, with some commentary in italics above the question. 

Revised Cuba Regulations Officially Released

Today, a final rule, opening U.S. trade with Cuba, was published in the Federal Register by the U.S. Treasury Department, Office of Foreign Assets Control (OFAC) and the U.S. Department of Commerce’s, Bureau of Industry and Security (BIS). Through this Federal Register notice, OFAC has amended its Cuban Assets Control Regulations and the BIS has amended the Export Administration Regulations with a “Support for the Cuban People” license exception. This final rule is effective today, with proposed rulemaking, opportunity for public participation, and delay in effective date deemed inapplicable because this regulation involves a foreign affairs function of the U.S.

Cuban cigars will not be readily available for U.S. consumers to purchase as a result of these changes.

TOMORROW Updated Cuban Assets Control Regulations Take Effect

Today, the Department of the Treasury's Office of Foreign Assets Control (OFAC) announced it is amending the Cuban Assets Control Regulations, 31 C.F.R. part 515 (the "CACR"), which will be published in the Federal Register tomorrow, January 16, 2015, at which time the changes will take effect. 

How the OFAC Stole Christmas

Reprinted with permission from Clif Burns of the Export Law Blog.

A spokesman for the Treasury Department’s Office of Foreign Assets Control (“OFAC”) told Export Law Blog this morning that discussions between OFAC and the North Pole over Santa Claus’s Christmas Eve itinerary had once again broken down and were not expected to be resumed before Santa’s scheduled departure on December 24 at 10 pm EST.

TOP Questions and Answers on Obama's Cuba Announcement

Top Questions and Answers in regards to the December 17, 2014 announcement by President Obama stating the U.S. will lay out “a new course in our relations with Cuba.”

Congressional Response to President Obama's Announcement on Future Relations with Cuba

In a Miami Herald article published today, Congressional opposition to President Obama's announcement that the U.S. will lay out “a new course in our relations with Cuba” was discussed.

Business with Cuba - What's Legal and What's Not?

By now, you've likely seen the many news stories about the BIG announcement made today by our President. The news release starts by stating... "Today, the United States is taking historic steps to chart a new course in our relations with Cuba and to further engage and empower the Cuban people." Whatever your personal and/or political beliefs are, this is big news and potentially big opportunity for those who heed it. The legality of importing Cuban cigars is one of the many changes discussed below. Read on for the full details.

Export Regulations and Cloud Computing...Beware!

Co Authored by Perry Sofferman

Forrester Research predicts that the global market for cloud computing services will have increased from $40.7 billion dollars in 2011 to approximately $241 billion dollars by 2020. You can see the ZDNet article here. This figure includes the Platforms as a Service, Infrastructure as a Service and Business Process as a Service delivery models. What this information reveals is that while cloud computing is already a significant part of operational strategy for many businesses (as well as governmental agencies), we should expect it to not only grow as a market but to become even more intertwined with the way we conduct business and store data on a daily basis. Consequently, businesses in general and export compliance officers in particular need to be vigilant and make sure that their use of this important technology is consistent with US export regulations. 

When using cloud services, the user is uploading data to available servers in the cloud provider’s server facility(ies). The type of data uploaded and the location of the server where that data is stored can potentially trigger export compliance issues for the user. In fact, the ultimate location of the particular server used to hold the user’s data may be unknown to either the user or the cloud provider. Data can be redirected to various servers in different countries in order to properly allocate server space based on fluctuations of usage in different time zones. It should be noted that this is only one example of several possible scenarios where the actual export of restricted data could occur inadvertently by the user.

Based on Advisory Opinions issued by the Bureau of Information and Security (“BIS”), there is guidance indicating that in scenarios where exports take place through means of cloud computing:

• (i) the cloud computing provider is not the exporter (the user is) and
• (ii) if foreign nationals employed by the provider access restricted data there may well be a deemed export of such data to such foreign national on the part of the user.

If, however, a cloud computing service provider is aware that the service will be used to support certain proscribed activities, then the provider will be obligated to properly acquire the necessary license. Neither the Directorate of Defense Trade Controls (DDTC) nor the Office of Foreign Asset Controls (OFAC) have yet provided substantive guidance on the subject of export regulations in relation to cloud computing, although OFAC has provided some limited guidance related to exports to Iran involving software and services incidental to personal communications. “Cloud Computing” remains an undefined term in the EAR, ITAR and OFAC regulations.

Top 5 Tips for Export Compliance Professionals in Regard to Cloud Computing  

1. It is critical for compliance officers and others involved in export control management, including providers of cloud computing services, to take steps to better familiarize themselves with the many complex issues at play in this area. A good start would be a detailed review of the BIS advisory opinions, which can be found here.
2. In addition, users of cloud services should think about how to approach this issue with their providers. Users might consider gaining a good understanding of where their provider’s servers are located and whether the providers have instituted any safeguards to address export compliance issues. Likewise, providers may want to delve more deeply into the ITAR regulations with particular emphasis placed on the relation between cloud computing services and “brokering” activities.
3. Compliance officers should make sure that members of their organizations are aware that export regulations are applicable to cloud services and that while the storage of data in the cloud might feel virtual, the penalties for export regulation violations remain brick and mortar.
4. While exporters remain liable for violations of export regulations, compliance officers should work with their IT departments when negotiating terms to agreements with cloud services providers. For example, require the service provider to notify you in the event servers are added in geographic locations that might be problematic for you. See if it is possible to obtain a right to terminate in such instance. In addition, try to get the provider to indemnify you in the event there is an export violation as a result of a provider’s action or inaction.
5. Make sure a review of how your organization uses cloud services is part of your standard compliance self-audit so as to identify any possible problems or lapses before they become significant.

In a speech in 2012, Under Secretary of Industry and Security, Eric Hirschorn, noted that a future project for the Bureau might be a review of “for clarification’s sake – the rules regulating cloud computing.” For both users and providers, such a review should be anxiously awaited.