Long awaited rules for “Customer Due Diligence Requirements for Financial Institutions” (the CDD Rules) went into effect on May 11, 2018. FinCEN has taken steps to clarify and refine implementation of the CDD Rules, issuing (1) FAQs on April 3, 2018 and (2) a ruling on May 16, 2018 providing covered financial institutions with a limited 90-day exceptive relief from the obligations for financial products and services that are subject to automatic renewals, provided such products were established before May 11, 2018.
Yesterday, President Trump issued a memorandum (“Memorandum”) directing his Administration to take several actions related to the investigation by the Office of U.S. Trade Representative (“USTR”) into China’s acts, policies, and practices (“APPs”) related to technology transfer, intellectual property, and innovation under Section 301 of the Trade Act of 1974 (“Section 301”). The actions include restrictions on Chinese investment in the United States and the imposition of higher customs duties on imports from China. At the signing ceremony, President Trump called this action “the first of many” against Chinese practices. USTR Ambassador Lighthizer echoed the President at a hearing before the Senate Finance Committee today, noting that the Administration “expects to bring additional [actions] in other areas where the [United States does not] have reciprocal response.”
Below we describe these actions and USTR’s findings in the Section 301 investigation.
Pursuant to President’s Trump’s March 8, 2018 proclamations issued under authority of Section 232 of the Trade Expansion Act of 1962, added customs tariffs on imports of a wide variety of steel and aluminum imports from all countries except Canada and Mexico will enter into effect on March 23. On March 16, 2018, the Department of Commerce’s (“DOC”) Bureau of Industry and Security (“BIS”) issued an interim rule that specifies the requirements and process for parties to submit product-exclusion requests from the Section 232 tariffs. Under the new rule, DOC is authorized to exclude from the tariffs aluminum and steel articles that are determined to lack sufficient U.S. production capacity of comparable products, or for which there are “specific national security-based considerations.”
BIS determined that it has good cause to waive the prior notice and opportunity for comment procedures due to impracticability and public interest considerations, and therefore the new rule is immediately effective, although subject to being amended. Comments on the interim rule are due by May 18. BIS specifically advised that commenters “may submit comments regarding how and whether or not the country of origin of a proposed product should be considered … as part of the process for reviewing product-based exclusion requests,” therefore implying that it is considering whether imports from certain countries will be given more favorable treatment than imports from others.
In short, the process provides for parties that use steel or aluminum in business activities in the United States to submit company-specific exclusion requests, and for domestic industry participants to object to such requests. Parties filing exclusion requests and objections must fill out the applicable forms provided on BIS’s website. The forms for steel are available here and forms for aluminum are available here. If an exclusion is granted, it will take effect five days after approval and will be valid for one year.
Below we outline the key aspects of the product-exclusion information collection procedure set forth in the interim rule.
On March 8, 2018, President Trump signed proclamations authorizing the imposition of a 25 percent customs duty on certain steel products and a 10 percent customs duty on certain aluminum products. The duties were imposed pursuant to Section 232 (“Section 232”) of the Trade Expansion Act of 1962, a rarely-used national security provision that authorizes the Department of Commerce (DOC) to investigate the effect of imports on national security. The new customs duties are scheduled to enter into effect on March 23, 2018. Below we discuss the Presidential Proclamations and reactions from Capitol Hill and other countries.
On December 5, 2017, the Securities and Exchange Commission (SEC) awarded more than $4.1 million to a whistleblower for alerting the SEC to a multi-year securities fraud engaged in by his employer. The award is significant in that the recipient, a company insider who alerted the SEC to the securities fraud, is a non-U.S. national working overseas. This is not the first time that the SEC has awarded a large sum to a foreign whistleblower. The distinction for the largest award ever awarded goes to an award of $30 million awarded in 2014 to a whistleblower living in a foreign country. In that case the whistleblower provided the SEC with information about an on-going fraud that the SEC claimed was hard to detect.
On November 8, 2017, the Department of Treasury’s Office of Foreign Assets Control (“OFAC”) and the Department of Commerce’s Bureau of Industry and Security (“BIS”) announced amendments to the Cuban Assets Control Regulations (“CACR”) and Export Administration Regulations (“EAR”). In addition, the State Department published a list of entities and subentities deemed to be under the control or to act on behalf of the Cuban military, intelligence, or security services or personnel. These steps implement the changes to the Cuba sanctions program announced by the President in his June “National Security Presidential Memorandum on Strengthening the Policy of the United States Toward Cuba” (“NSPM”). The changes reflect adjustments to the broader Cuba reform initiated by former President Obama in January 2015. A majority of the general license and guidance issued since that time remain in effect.
The key changes to the Cuba sanctions program are as follows:
On November 1, 2017, the Department of Commerce’s Bureau of Industry and Security (BIS) introduced clarifications to the Export Administrative Regulations (EAR) for the use of license exception “Governments, International Organizations, International Inspections under Chemical Weapons Convention, and the International Space Station” (GOV), and license exception “Strategic Trade Authorization” (STA). BIS explained that the agency is not changing the requirements for the use of these exceptions, instead it is only providing guidance to answer questions frequently received from the public.
On June 16, 2017, President Trump issued a National Security Presidential Memorandum on Strengthening the Policy of the United States Toward Cuba, which began the process to alter some aspects of U.S. policy toward Cuba. [See prior blog post here]. On July 25, 2017, OFAC updated its Cuba FAQs to address upcoming changes to its Cuba sanctions rules as they relate to pre-existing contracts, licenses, and travel arrangements.
Some of the more important points in the new OFAC guidance include the following:
- Treatment of existing contracts and companies engaged in the Cuban market
OFAC states that companies already engaged in the Cuban market with entities related to the Cuban military, intelligence, or security services that may be affected by the new Cuba sanctions regime will be allowed to continue after issuance of the new regulations. In the updated FAQs, OFAC further clarifies that “businesses will be permitted to continue with transactions outlined in contingent or other types of contractual arrangements agreed to prior to the issuance of the new regulations, consistent with other [Cuban Assets Control Regulations] authorization.”
- Addition of “subentities”
OFAC indicated that the State Department will be publishing a list not only of “entities with which direct transactions generally will not be permitted,” but also a list of “subentities.” This suggests that the Administration plans to assemble its own list of entities that are considered to be owned or controlled by the Cuban military, intelligence, and security services, which may be useful to U.S. companies by lessening their burdens to investigate the ownership of some Cuban entities.
OFAC explains that for travel after issuance of the forthcoming regulations, as long as a traveler has already completed at least one travel-related transaction prior to June 16, 2017, such as purchasing a flight, the trip and any meetings with listed entities/subentities will be permitted.
- People-to-People Travel. The latest FAQs reiterate that the general license allowing individual people-to-people travel will end once Treasury issues the upcoming regulations. Nevertheless, group people-to-people travel will remain available subject to the rules in 31 CFR § 515.565(b).
- Persons Organizing or Sponsoring people-to-people or educational travel. OFAC clarifies in new FAQs that such parties are covered by the general licenses and do not need to apply for a specific license.
The latest Cuba FAQs explain that remittances to Cuba will still be permitted under the new regulations. However, “changes will be made to the definition of prohibited members of Government of Cuba that may exclude certain persons from receipt of such remittances.”
The June 16, 2017 Cuba FAQs may be found here.
The July 25, 2017 Cuba FAQs may be found here.
On April 19, 2017, the Department of Commerce (DOC), through its Bureau of Industry and Security, self-initiated an investigation into the effects that steel imports may be having on U.S. national security interests. The investigation was initiated under a rarely-used statutory authority, Section 232 of the Trade Expansion Act 1962 (19 U.S.C. § 1862).
On 16 March 2017, the European Parliament approved a draft EU regulation intended to ensure that trade in certain minerals and metals from high-risk or warn-torn areas does not fund conflict and human rights abuses. The regulation would apply to trade in tin, tantalum, tungsten and gold which are used in a variety of industries ranging from electronics, automotive, jewelry, aerospace, packaging, construction, lighting, industrial machinery and tooling.
The regulation is expected to come into effect as of 1 January 2021, at which time it would apply to up to 95% of EU imports. Although this presents a substantial delay in implementation, the scope of impact means that this regulation bears watching and merits advance compliance consideration. Continue reading →