Limitations of 4th Amendment Border Exceptions: United States v. Kolsuz

The Federal Government has consistently maintained, and been upheld in, the assertion that the border search exception allows it to conduct searches and seizures at international borders without a wrrant or probable cause. While this assertion is generally accepted, the government's stance that electronic devices, such as computers and smartphones, also fall within this exception has been a point of contention. However, a recent 4th Circuit Court of Appeals case, United States v. Kolsuz, is being hailed as a significant victory by civil rights organizations such as the Electronic Frontier Foundation and the American Civil Liberties Union.

    United States v. Kolsuz, deals with the case of Hamza Kolsuz, a Turkish national charged with three counts of violating the Arms Export Control Act. According to court filings, Kolsuz had attempted to smuggle prohibited firearms parts from the U.S. to Turkey on three separate occasions. On the third and most recent attempt, Customs officials were prepared and intercepted Kolsuz at Washington Dulles International Airport. Importantly, after his arrest, Customs agents conducted an immediate manual search of his smartphone and an additional month-long, off-site forensic analysis of the phone. Kolsuz's appeal concerns the suppression of this forensic analysis, which he maintains does not fall under the border search exception. 

    In many ways, this was a case that many likely saw coming. Case law concerning the 4th Amendment and electronic devices has been frequent and in the public eye. The notion that electronic devices may not fall under the border exception first came to the forefront in 2013. United States v. Cotterman, a 9th Circuit decision, held that manual searches of computers at the border fell under the exception, but forensic searches required reasonable suspicion. Prior to this, the governing decision was United States v. Ickes which held that computers were ordinary searches. Then, in 2014, the Supreme Court ruled in Riley v. California. Riley held that a warrant is required to search a cell phone following an arrest. The Supreme Court essentially established differential treatment between digital and physical items due to the sheer amount and sensitivity of personal information that can be stored on cell phones.

    These two cases, among others, caused many to question if Riley might influence Cotterman and also apply to the border. More recently, the Fifth and Eleventh Circuits heard cases on forensic searches but failed to reach a substantive conclusion due to the scope of their cases.

    The Kolsuz decision, citing Riley, affirms that at least reasonable suspicion is required for forensic searches of cell phones seized at the border. Taking Riley into account, the 4th Circuit, using language similar to United States v. Flores-Montano, found that forensic searches of phones are clearly non-routine border searches, but did not challenge Ickes due to the scope of the appeal. Moreover, the court left open the possibility that a standard even higher than reasonable suspicion could be required, but that which standard made no difference to the Kolsuz case. In response to Kolsuz, the Department of Homeland Security now internally requires reasonable suspicion for forensic searches of electronic devices.

    While the outcome of Kolsuz may not have been positive for Kolsuz himself, who was convicted of his export violations, it is being hailed by many as a win. Moreover, it is likely just one of many upcoming cases concerning the Fourth Amendment's application to digital searches as the ACLU and EFF, among other organizations, push ahead with their own cases.

Deadlines for Objecting to Proposed Tariffs

According to the United States Trade Representative (USTR), U.S. companies and individuals will have until May 22nd to voice objections to President Trumps’ proposed 25% tariffs on some 1,300 foreign goods.  In general, products subject to this retaliation against China fall within the sectors of aerospace, information and communication technology, robotics and machinery.  (Left off the list are retail mainstays such a mobile phones and clothing, items that might provoke a U.S. consumer backlash.)  

Important dates are as follows:

  • April 23 - due date for filing all requests to appear and to submit a summary of testimony to be presented at the public hearing; it is also the date for filing pre-hearing submissions
  • May 11  - due date for submission of written comments
  • May 15 - date of the 10 a.m. public hearing to be held at US International Trade Commission, 500 E. Street SW, Washington, D.C., 20436.
  • May 22 -  due date for rebuttal comments following the May 15 hearing

Note: USTR strongly prefers electronic submissions made through the Federal eRulemaking Portal: http://www.regulations.gov. Instructions for submitting comments in sections F and G can be found at this link. The docket number is USTR-2018-0005. 

On April 3, 2018, the United States Trade Representative published a proposed tariff retaliation list.  This follows just a few weeks after the USTR’s March 22nd release of its Section 301 Report detailing findings regarding Chinese acts, policies, and practices related to technology transfer, innovation and intellectual property. The 301 Fact Sheet states that  “the United States is committed to rebalancing the U.S.-China trade relationship to achieve more fair and reciprocal trade. After years of U.S.-China dialogues that produced minimal results and commitments that China did not honor, the United States is taking action to confront China over its state-led, market-distorting forced technology transfers, intellectual property practices, and cyber intrusions of U.S. commercial networks.” 

The complete list of products that could be subject to a 25% tariff is included in the annex to the 301 Report

Since the April 3 USTR tariff list was published, China responded by publishing its own list of products it may subject to increased tariffs if President Trump moves forward.  These items include agricultural commodities such as soybeans as well as exports such as autos, aircraft, and chemicals.  In response, Trump has threatened to slap additional tariffs on more goods, stating that he might consider whether an additional “100 billion in tariffs might be appropriate.” 

Suzanne DeCuir

The GDPR: A Broad-Reaching Game Changer

Passed by the European Union on April 26, 2016, the General Data Protection Regulation (GDPR) is set to take effect on May 25, 2018. Replacing the 1995 Data Protection Directive, the GDPR contains key changes that affect businesses throughout the world, including U.S. companies. Understanding these new regulations is essential to maintaining compliance and avoiding harsh penalties.

The GDPR is an EU regulation concerning data privacy. In the United States, data privacy laws tend to be segmented to specific fields (FERPA, HIPPA, etc.). However, the European Union considers data privacy to be a fundamental human right and thus applies data privacy laws consistently across the board. The main purpose of this regulation is to protect “personal data” in European Union member countries or countries where “personal data” originating in the EU is stored, processed or retained. This is important as it greatly expands who is regulated in comparison to its predecessor directive. 

In this context, personal data is defined as “any information relating to an individual, whether it relates to his or her private, professional or public life. It can be anything from a name, a home address, a photo, an email address, bank details, posts on social networking websites, medical information, or a computer’s IP address”. Note that the inclusion of information as simple as email addresses, login-information, or computer IP addresses means that the GDPR can apply to many U.S. corporations simply through the course of normal business activities.

Companies are specifically required to comply with the GDPR if they fit any of three specific criteria. The GDPR applies to any company that maintains an “establishment” in an EU member nation, whether or not data collection or processing occurs there. Establishment generally means “any real and effective activity – even a minimal one” through “stable arrangements” in the EU. Secondly, the GDPR applies “where the processing activities are related to offering goods or services to data subjects in the Union.” This provision even includes goods and services that are free. Moreover, the bar to “offering goods” is low and can be as simple as the specific language, shipping options, or currencies being that of an EU member. Lastly, the GDPR applies to a company “if it processes the personal data of data subjects in the EU and that processing is related to the ‘monitoring’ in the EU of the ‘behavior’ of data subjects as their behavior takes place within the EU”. In this context, “monitoring” includes the use of cookies and other information frequently used by advertisers to track and recommend products to consumers.

The GDPR can alternatively come into force against U.S. corporations who do not collect data but instead import/export data from the EU. Under the GDPR, in language mostly unchanged from the 1995 directive, data can only be exported to countries that are deemed to have equivalent or stronger data protection laws than the EU. However, the U.S. is not considered one of these countries and U.S. corporations must be able provide adequate assurances that data will be handled in accordance with the GDPR. An exception to this is U.S. companies under the authority of the Federal Trade Commission or Department of Transportation that have signed on to the 2016 EU-U.S. Privacy Shield framework. The Privacy Shield, the successor of the Safe Harbor Program struck down in 2015 after the Edward Snowden leaks, allows companies that self-certify compliance to receive EU personal data as if they were in a country approved by the commission. Companies that are unable or do not wish to join the Privacy Shield program have alternatives. The European Commission allows companies to use pre-approved standard contractual clauses, binding corporate rules, or codes of conduct that have been approved by the European Commission or independent state supervisory authorities. Importantly, companies are not only responsible for their own exports and compliance but also for any “onward transfers” and the compliance of any company down the chain.While companies can share data protected by the GDPR, they must ensure that said company or their contract meets the criteria above.

Knowing these broad categories for which a U.S. company can be subject to the GDPR, examining what must be met for compliance is essential. Penalties for the GDPR are extreme, failure to comply can result in fines of up to 4% of global revenue or 20,000,000 euros, whichever is greater, and direct liability to anyone impacted by mishandled data.

The GDPR has two different sets of requirements depending on a company’s classification as either a data “controller” or data “processor”. A data controller “acting alone or together with others, determines the purposes and means of the processing of personal data.” A data processor “processes personal data on behalf of the controller”. While not all encompassing, important requirements for data controllers include:  establishing when privacy notices are required, including insufficiency of pre-checked boxes which are common practice in the U.S; placing restrictions on choosing data processor; establishing data breach notification timelines and individual rights; recordkeeping; and appointing a data protection officer. This differs slightly for data processors who have regulations on issues such as data breach notification, data security, recordkeeping, and subprocessing, but not many of the restrictions concerning privacy and the actual notices themselves.

The GDPR updates EU data protection laws to provide a far-reaching jurisdictional range. The data protected includes many data types commonly used by US businesses. Act now, before May 25th, and review the specific controller or data processor regulatory requirements if you believe that your business falls under the GDPR’s authority.

Max Krauskopf

A Hard Lesson Learned: What Capella v. United States Teaches Us

On January 4th, 2018, the United States Court of Appeals for the Federal Circuit reaffirmed the decision of the United States Court of International Trade in regard to Capella Sales & Services LTD v. United States, Aluminum Extrusions Fair Trade Committee. In its affirmation, the court decision highlighted the importance of importers staying current with countervailing duty (CVD) legislation and Timken notices.

Background: The United States Department of Commerce is empowered to impose CVD’s on imported goods when they find a country is directly or indirectly subsidizing a given good. Under this authority, a 2010 investigation by the Department of Commerce found the People’s Republic of China (PRC) guilty of said subsidies for aluminum extrusions and assessed an all-others rate CVD of 374.15%. Numerous aluminum importers challenged this CVD in the Court of International Trade (“CIT”) in MacLean-Fogg Co. v. United States. The CIT ruled in favor of the importers, which resulted in a new all-others rate of 7.37% for imports of aluminum extrusions from the PRC. However, Capella was not a party to this legislation.

Following the CIT’s decision, the Department of Commerce issued a Timken notice notifying the public that the court’s decision differed from its original final determination. As a result of this notice, some importers requested and received an administrative review of 2011 and 2012 entries subject to Commerce’s original determination. However, Capella never requested administrative review for its entries.

Considering that Capella’s entries were not enjoined by the court due to legislation and they did not request an administrative view within the appropriate period, Capella was charged the original CVD of 374.15%. This case was the final failure in their attempt to avoid payment.

The Court of Appeals reaffirmation of the Capella decision upholds the status quo in regard to CVD’s. Importers must stay up to date on current legislation. If they do not join legislation, they must file for an administrative review within the proper time period. Simply attempting to benefit retroactively without said actions will not fly, as Capella roughly discovered. Importers have plenty of time to join legislation and request administrative reviews. They should be considered with the utmost priority as they can often result in significant savings.

France To Sidestep Sanctions by Setting up New Trade Financing Vehicles

Ever since France, the U.S., and other world powers agreed in 2015 to lift certain economic sanctions in exchange for controls on Iran’s nuclear program, European countries have been searching for a way to step up trade with Iran. France plans to structure financing in such a way as to increase trade with Iran while avoiding the long reach of U.S. sanctions. By offering euro-denominated credits to buyers in Iran, the French will be able to increase sales of its goods.

According to Nicolas Dufoursq, the head of France’s state-owned investment bank, Bpifrance, a lot of preparation has gone into this plan to provide new loans. “This is a completely separate flow (of money),” he explained. “There is no (U.S) dollar in this scheme.” He added that there is as much as 1.5 billion euros in potential contracts from French exporters alone.

The French have maintained trade ties with Iran for decades and still have large factories there, including a Renault plant. Other European countries such as Belgium, Italy, Germany, and Austria are working on their own financial mechanisms to enable them to bolster trade while not running afoul of U.S. sanctions.

As recently as October of 2017, Trump criticized such efforts to sidestep nuclear agreements, but has since told French President Emmanuel Macron and German Chancellor Angela Merkel they could "keep making money" in Iran.

February TFTEA Implementation

The U.S. Department of Customs and Border Protection (CBP) is preparing for the implementation of new changes to duty drawback specified in the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA). Passed in 2015, the law gave CBP a two-year implementation period which expires on February 24, 2018.

Important changes of note concern ACE (Automated Commercial Environment) and how drawback, the refund of duties, taxes, and other fees, are handled. Starting on February 24th, drawback, as defined under current statue, will begin to be filed through ACE. Furthermore, TFTEA greatly changed many aspects of drawback law. These new TFTEA claims will also become effective starting on February 24th. This distinction is important because core drawback claims, under the current legislation, will continue to be accepted via ACE until February 24th, 2019, as specified under TFTEA. During this transition, claimants will be able to choose whether they would prefer to submit under the current legislation or under TFTEA.

Other important changes under TFTEA include:

  • Redefining the concept of “substitution” of exported goods for imports. This change
    uses the Eight-digit Harmonized Tariff Schedule of the United States (HTSUS)
    classification or Export Schedule B numbers instead of part number-based criteria.
  • The timeline for filing a drawback claim related to a given import has been expanded
    from three years to five years from the date of importation.
  • Certificates of delivery are no longer required. Claimants must only be able to produce
    “normal business records.”

Final touches are still being put on the exact specifics for how ACE and TFTEA will function. No new or revised regulations relating to TFTEA have been issued. However, regulations are currently being reviewed by the Treasury and must still be reviewed by other agencies as well. CBP is planning to release a guidance document for policies that will be applied to TFTEA claims while these regulations are still being reviewed. Keep your eye out for these finalized documents, as understanding the regulations and differences between regulations will be especially important for this transition year.

Max Krauskopf

DHS/CBP Amends Customs Regulations to Include Civil Monetary Penalty Adjustments

On December 8, 2017, U.S. Customs and Border Protection (CBP) amended its regulations to adjust for inflation the amounts that CBP can assess as civil monetary penalties for the following three violations:

  • The penalty for transporting passengers between coastwise points in the United States by a non-coastwise qualified vessel has been increased from $750 to $762.
  • The penalty for towing a vessel between coastwise points in the United States by a non-coastwise qualified vessel has been increased from $875-$2,750 plus $150 per ton to a new amount of $889-$2,795 plus $152 per ton.
  • The penalty for dealing in or using an empty stamped imported liquor container after it has already been used once has been increased from $500 to $508. 

These changes are being made in accordance with the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 which was enacted on November 2, 2015. In addition, a number of other CBP civil penalty amounts were adjusted pursuant to this 2015 Act in previously published documents published in the Federal Register on July 1, 2016, and January 27, 2017; however, the adjustments for these three civil penalties were omitted from those documents inadvertently and so are being published now.   The rule went into effect on December 8, 2017.  The adjusted penalty amounts will be applicable for penalties assessed after December 8, 2017 if the associated violations occurred after November 2, 2015.

Suzanne DeCuir, Global Trade Expertise

DOC Announces New Civil Monetary Penalties Adjusted for Inflation

The Department of Commerce has announced new civil monetary penalty amounts adjusted for inflation that may be assessed for the following regulatory violations after January 15, 2017, including in instances when the associated violation took place before that date. 

  • failure to file export reports or information required by 13 USC 304 within prescribed period – maximum for each day’s delinquency has been increased from $1,333 to $1,360, maximum per violation has been increased from $13,333 to $13,605
  • other unlawful export information activities under 13 USC 305 – the maximum has been increased from $13,333 to $13,605
  • failure to provide the information required under 22 USC Chapter 46 (international investment and trade in services survey) – minimum increased from $4,527 to $4,619, maximum increased from $45,268 to $46,192
  • foreign-trade zone violations (19 USC 81s) –  maximum increased from $2,795 to $2,852; false or fraudulent claims under the Program Fraud Civil Remedies Act (31 USC 3802(a)(1) and (2)) – maximum increased from $10,957 to $11,181
  • prohibited acts relating to inspections or recordkeeping violations under the Chemical Weapons Convention Implementation Act (22 USC 6761(a)(1)(A) and (B)) – maximum increased from $36,849 to $37,601
  • violations of the International Emergency Economic Powers Act (50 USC 1705(b)) – maximum increased from $289,238 to $295,141

Several other adjustments were also made pertaining to the use of false records to pay or transmit money or property to the federal government (31 USC 3729(a)(1)(G)) and to Fastener Quality Act violations (15 USC 5408(b)(1)).  To see the full list of adjustments, see the Federal Register.

Suzanne DeCuir, Global Trade Expertise

Airbus Faces Probe into Compliance Irregularities

It has been reported that Airbus of Toulouse, France, faces legal difficulties regarding its failure to notify U.S. authorities about the use of outside sales agents to broker defense equipment and services deals; this presents a compliance lapse and could lead to financial penalties and perhaps a criminal investigation.

According to The Guardian of London, the problems stem from the use of so-called “commercial agents” who act as intermediaries in “difficult” territories where they sometimes assist large companies in securing contracts. In some cases these intermediaries act as legitimate consultants on technical matters, while in other cases they are really nothing more than individuals who know whom to bribe for a government contract. This kind of action is contrary to Part 130 of U.S. International Traffic in Arms Regulations (ITAR) concerning political contributions, fees, and commissions involved in the export of military equipment.

Airbus’ Chief Financial Officer Harald Wilhelm briefed reporters on October 31 regarding these legal issues. He would not speculate on the company’s potential financial or criminal exposure. Both the U.S. State Department and the Justice Department are looking into the matter.

Failure to comply with regulations can lead to large penalties. Airbus engine manufacturer, Rolls-Royce Holdings PLC , recently agreed to settle allegations of corruption to the tune of an $800 million dollar penalty. Because Rolls-Royce agreed to the settlement, the company avoided prosecution.

The compliance lapses at Airbus came to light during an internal review and were first reported at the end of 2016. After discovering irregularities in certain foreign transactions, Airbus came forward to report the problems it had found. The company’s hope is that by self-reporting, the penalties might be less punitive.

Suzanne DeCuir, Global Trade Expertise

U.S. Based Paper Company Settles with OFAC on Sanctions Violations

White Birch Investment, LLC, a paper company headquartered in Greenwich, CT, recently reached an agreement settling a case brought by the Office of Foreign Asset Control (OFAC). White Birch’s Canadian subsidiary was facing possible civil liability for three alleged violations of the Sudanese Sanctions Regulations, 31 C.F.R. part 538 (SSR). White Birch USA was accused of facilitating the sale and shipment of 543 metric tons of paper of Canadian origin valued at approximately $354,000. According to OFAC, White Birch USA and its Canadian subsidiary were “actively involved in discussing, arranging, and executing the export transactions to Sudan.” OFAC concluded that White Birch USA did not voluntarily self-disclose these apparent violations; however, it was determined that these violations constituted a non-egregious case. These transactions date back to between April and December of 2013.

This settlement underscores how critical it is that U.S. companies put processes in place to effectively wall off their U.S. operations and staff interactions to prevent violation of OFAC’s regulations. This is especially important for U.S. companies with overseas affiliates who may be transacting business involving sanctioned territories; such territories currently include Iran, North Korea, Cuba, Syrian and the Crimea area of Ukraine.

Suzanne DeCuir, Global Trade Expertise, October 23, 2017

Update: H.R. 3551: C-TPAT Reauthorization Bill

On September 25, 2017, the House Homeland Security Committee favorably reported a bill concerning C-TPAT to the House of Representatives. This bill, H.R. 3551, would reauthorize the Customs Trade Partnership Against Terrorism program (C -TPAT) which has not been reauthorized in its 11-year history. The bill was introduced by Rep. Martha McSally of Arizona. If passed, a number of changes will be put in place reflecting current global security concerns and trade conditions.

Some of the changes that the bill calls for are as follows:

1. Each C-TPAT participant must designate a company employee (not a contractor or third-party) to hold the participant accountable for managing participation in the program.

2. The bill would require CBP (in consultation with industry) to review the C-TPAT minimum security criteria at least every two years, making updates as needed.

3. CBP would be required to put in place additional security procedures for certain categories of participants, individual participants, and specific entities in order to focus closely on security vulnerabilities.

4. The bill would extend eligibility to participate in C-TPAT to exporters, importers, freight forwarders, customs brokers, air carriers, ocean carriers, land carriers, and contract logistics providers.

5. The bill establishes C-TPAT as the authorized economic operator program to grant CBP the latitude and flexibility to improve and expand its trusted trader program as needed.

Suzanne DeCuir, Global Trade Expertise

Transition to New ACE System Begins July 8, 2017

U.S. Customs and Border Protection (CBP) announced that July 8, 2017 is the effective date for the transition to the new electronic CBP authorized system for entry filings.  This transition had been delay repeatedly, but it is finally ready for implementation, and all electronic drawback, duty deferral entries and entry summary filings will need to be processed using this system.  ACE will be used for all flagging of entries as well. The old system, ACS, will no longer be a CBP-authorized EDI (Electronic Data Interchange) system after the transition.

Additional information about the Automated Commercial Environment (ACE) is available on the CBP website and includes the types of entries that will be supported by ACE, along with details related to filing protests, drawbacks, duty deferrals, reconciliations, liquidations, and other filings. 

In December of 2016, CBP described in detail that changes that will affect reconciliation; these can be found on the first CBP site listed under sources, below.  Two important changes pertain to flagging of entries and the filing of reconciliation entries.  Under the new system, blanket flagging will be eliminated. Where filing of reconciliation entries is concerned, importers and their brokers will no long be able to submit entries using CD/ROMs or paper.  The type 09 reconciliation entry using ACE is to be used even though the entries being reconciled were not initially filed using ACE.  “Entry by entry” or “aggregate” reconciliation entries will still be accepted. 

NAFTA Renegotiation

On May 18, 2017, Robert Lighthizer, the recently confirmed United States Trade Representative (USTR), notified Congress of the Administration’s intentions to renegotiate the North American Free Trade Agreement (NAFTA). This notification, required by section 105(a)(1)(A) of the Bipartisan Congressional Trade Priorities and Accountability Act of 2015, started the 90-day period in which the Administration must wait before beginning the renegotiation. This period ends on August 16, 2017, after which the Administration may begin negotiations. During this period, the USTR shall conduct both Congressional and public hearings in order to better clarify the intentions of the renegotiation. Notification from the public to testify and written testimony must be submitted by June 12, 2017.

No changes shall take effect until after the 90-day period, so importers and exporters should continue with business as usual. However, they should also note that significant changes might occur after that time period. The Office Of The United States Trade Representative has released a preliminary list of objectives about which they are seeking public comments. These objectives are presented with the goal of modernizing the NAFTA to better reflect a modern U.S. economy. These objectives include, among others, a reexamination of remaining tariffs and non- tariff barriers, changes in the treatment of digital goods, and changes to rules of origin procedures. A full list of objectives can be found here.

GTE will continue to monitor the specific objectives and changes of the renegotiation. If you have any questions or desire a consultation as to how these changes may affect your organization please contact us.

Recent U.S/China Trade Agreements and Upcoming Infrastructure Projects

On May 11, 2017, the New York Times reported that China and the United States have come to an agreement on a set of trade deals covering such areas as beef and poultry, electronic payment services, and natural gas. Some of the positions the U.S. has agreed to are said to be compromises to positions taken by the Obama administration. There remain, however, large issues to grapple with, and these may complicate relations between the two trading partners.

Some of the agreements are primarily updates to previous agreements reached under the Obama administration. For instance, for a decade, China has not accepted U.S. imports of beef due to concerns about mad cow disease. Beginning July 16th, China will allow these imports. Similarly, the U.S. has for years refused to accept Chinese imports of certain poultry products due to fears of Salmonella and bird flu, but following the recent trade agreement, the U.S. will began accepting cooked poultry imports. Other deadlines and agreements include plans to streamline the U.S.’s application to ship bioengineered seeds to China, and to allow U.S. financial institutions to offer electronic payment services in China, and for China to accept natural gas from the United States. The terms of the deals were announced on Thursday, May 11, 2017.

The Trump administration also decided to send a representative to participate in a May 14th forum in Beijing regarding President Xi Jinping’s international investment initiative called “One Belt, One Road.” Sending a top U.S. official, Matthew Pottinger, to participate signifies a step toward a more conciliatory approach following President Trump’s pre-election hardline stance toward trade relations with China.

During the May 14 forum, China’s large global infrastructure plans were discussed. China currently has projects underway in a number of countries with struggling economies and poor infrastructure, including Pakistan, Afghanistan, Kazakhstan, Uzbekistan, Kenya, and Laos. China is aggressively moving forward building roads, ports, and power plants. They are ramping up to spend as much as a trillion dollars, with the stated goal of keeping the Chinese economy going now that large domestic projects are behind them and they remain on pace to produce significantly more steel and cement than they can use in China.

There is a concern in the international community that a vast network of infrastructure projects and the debts created in participating countries will serve to tie these nations more closely to China politically as well as economically. There is a secondary concern that China will not be increasing its imports significantly.

“Tell us what we [the West] are going to get out of this,” said the past chairman of the American Chamber of Commerce in China, lawyer James Zimmerman. “It’s a nonstarter if it’s all about bringing Chinese goods to Europe, or if it’s all one way.” Matthew Pottinger, the Trump administration’s senior director for Asia at the National Security Council, said at the May 14th conference that China should provide transparency regarding the bidding for contracts, so that non-state owned companies have a fair chance to earn contracts.

United States-based companies such as General Electric and Honeywell are already talking about measures they might take to earn some of this future business. This would mean moving some manufacturing over to China; both companies said they are investigating this. Such a move is not in line with the stated goals of the Trump administration, however.

Trump Signs Two New Executive Orders on Trade

The New York Times and the Wall Street Journal reported that on March 31, 2017, President Donald Trump signed two executive orders aimed at reducing the trade deficit.

The first order directs the Commerce Department to put together a report within 90 days that will examine the factors contributing to the trade deficit. The second aims to increase the collection of duties by ensuring a more aggressive collection process.

Commenting on the first order, Commerce Secretary Wilbur Ross said the report will seek to identify “every form of trade abuse and every non-reciprocal practice that now contributes to the U.S. trade deficit.” The report will take a close look at countries with which the U.S. runs a substantial trade deficit, such as China, Germany, Mexico, and Japan. Factors such as currency misalignment, flouting of trade rules, ineffective trade agreements, and lax enforcement will be given special scrutiny.

Regarding the second order, the White House National Trade Council Director Peter Navarro explained that it is aimed at rectifying a longstanding problem of insufficient collection of anti- dumping and countervailing duties at U.S. ports of entries. There is concern that, since 2000, as much as $3 billion in duties have gone unpaid. Trump’s order will compel the Department of Homeland Security to take the necessary legal steps to ensure those tariffs are paid.

ZTE Agrees to $892 Million Fine and Plead Guilty for Violating US Sanctions

ZTE, a Chinese telecommunications giant, reached a settlement with the U.S. Justice Department, which comes at the end of a 5-year investigation into a series of shipments ZTE has made to Iran in violation of US sanctions. Per the settlement, ZTE will plead guilty and pay the DOJ $430 million, with a fine of $287 million and a criminal forfeiture of $143.5 million. The total dollar figure may ultimately rise to as much as 1.19 billion depending upon whether or not the firm violates the terms of the settlement agreement with BIS (US Department of Commerce’s Bureau of Industry and Security).

According to the Justice Department, ZTE obtained components manufactured in the U.S. that are on the Department of Commerce’s Commerce Control List, incorporated those items into its own equipment, and subsequently shipped the finished products to customers in Iran. In addition, the Justice Department charges that the company continued to ship these items while the investigation was ongoing. Apparently the items were used to fulfill contract projects ZTE had in Iran to install cellular and landline network infrastructure. (The Commerce Department also reports that ZTE shipped controlled items to North Korea as well.)

U.S. Attorney John R. Parker for the Northern District of Texas stated that, “ZTE Corporation then went to great lengths to devise elaborate, corporate-wide schemes to hide its illegal conduct, including lying to its own lawyers.” As much as $32 million dollar’s worth of equipment was shipped to Iran between January 2010 and January 2016; the company was also able to obtain hundreds of millions of dollars in contracts with Iran, the Commerce Department said in a recent press release.

The plea agreement still requires court approval, but if approved, it would subject ZTE to a probationary period of three years during which the firm would be under the eye of an independent compliance monitor as well as a seven-year suspended denial of export privileges, which could be activated if there are further violations. The Justice Department reported that the criminal fine in this case is the largest ever levied in an IEEPA (International Emergency Economic Powers Act) prosecution.

Google Ordered to Turn Over Foreign Emails

Reuters reported that on February 3, 2017, Federal Magistrate Judge Thomas J. Rueter in Philadelphia handed down an opinion ordering Google to comply with a search warrant to provide emails stored outside the United States. Judge Rueter’s decision is at odds with the U.S. Court of Appeals for the 2nd Circuit’s Microsoft Ireland Warrant case which was recently turned down for a rehearing.

According to Judge Rueter’s decision, electronically transferring data from a server in a foreign country to Google’s data center in California did not constitute a “seizure” because there was no meaningful interference with the account holder’s possessory interest in the user data.

The case pertains to two Stored Communication Act (SCA) warrants served on Google regarding the contents of emails. Google did submit emails that it knows were stored in the United States, but refused to provide emails that could be stored outside the country. Apparently, Google routinely breaks up emails and stores them within a network of servers outside the U.S. The company maintains it does not always know where certain emails might be located, and so declined to provide them under the Second Circuit’s Microsoft case.

Back in July of 2016, advocates such as the ACLU and the U.S. Chamber of Commerce had been pleased with the ruling in the Microsoft case (which said the company could not be forced to turn over documents stored on a server in Dublin, Ireland.) Now, eight months later, Rueter’s ruling orders Google to comply with the search warrant it received.

Many technology companies now consider the Stored Communication Act (SCA), a federal law dating to 1986, to be outdated.

Attorney General Sally Q. Yates Discusses New DOJ Individual Accountability Website

On November 30, 2016, Attorney General Sally Q. Yates spoke at the Annual International Conference on Foreign Corrupt Practices Act.  In her remarks, she clarified the goals of the Justice Department in holding individuals and corporations accountable for their actions.

During her address, she discussed the so-called Yates Memo of September 2015 and reiterated the fact that it was never the intention of the Justice Department to merely increase the number of prosecutions each year by some arbitrary percentage.  Rather, Yates explained, “our goal was to develop and institutionalize mechanisms to ensure that, across the department, we consistently investigate and prosecute corporate cases as effectively as possible.”  To this end, she outlined three areas of focus:  1) corporations will only receive credit for cooperating if they willingly provide information regarding the individuals who have made the decision to knowingly violate the law; 2) department lawyers will pursue civil penalties as well as criminal penalties against wrongdoers, whether or not these individuals have the means to pay penalties; and 3) the Justice Department is going to treat companies who voluntarily self-disclose differently from those companies who only begin cooperating once their wrongdoing has been discovered by the Justice Department.

She acknowledged that,until recently, companies have lacked incentive to self-disclose because of the perception, which Yates admitted was based somewhat in fact, that there was little to be gained by self-disclosing.  Now, however, due to changes made last year to the Filip Factors, the question of whether self-disclosure occurred will make a key difference in how companies are treated.

Yates also announced the creation of a new website pertaining to these issues at https://www.justice.gov/dag/individual-accountability.

A full transcript of Yates’ remarks can be found here:  https://www.justice.gov/opa/speech/deputy-attorney-general-sally-q-yates-delivers-remarks-33rd-annual-international

 

Suzanne DeCuir, Global Trade Expertise

December 16, 2016

DEVELOPMENTS IN COMPLIANCE ENFORCEMENT

On August 15, 2016, the GAO (US Government Accountability Office) released a report that was critical of CBP’s handling of antidumping and countervailing duty orders, detailing the failure of CBP to collect roughly 2.3 billion in duties between 2001 and 2014.  In the report, the GAO stated the CBP “missed opportunities to identify and mitigate nonpayment risk.”  The trade community expects to see enforcement efforts increase in light of the fact that this report has a high profile and was delivered to the Senate Finance Committee.

Also released recently were CBP’s interim regulations, called “Investigation of Claims of Evasion of Antidumping and Countervailing Duties.”  These regulations took effect on Monday, August 22 and outline the process for CBP’s investigation of claims of AD/CVD order evasion. The new regulations were mandated by section 421 of the Trade Facilitation and Trade Enforcement Act of 2015 which became law earlier in 2016.  The current e-allegation system will continue to be in place, but the new system is designed to have advantages over that system; the procedures laid out include detailed steps for initiating, carrying out, and completing investigations.  This comprehensive process for investigating can be used by other government agencies as well as private parties.

CPB Announces One-Day Grace Period This Month

CPB has been working to make a transition to all electronic filing of protests to ACT, the Automated Commercial Environment.  A series of notices lays out some of the guidelines and deadlines, and on August 8th, CBP announced the addition of a one-day grace period; CBP stated that it will accept protests filed in the ACE Portal past the required due date.  Beginning on August 27th, all Protests must be filed in the ACE Portal.  The transition from ACS to ACE will occur on August 29th, 2016, and since the ACS will be down on August 28th for the cutover, CBP will allow any protest due on August 28th to be filed in the ACE Portal on August 29th. 

A complete summary of the transition dates and necessary steps for using the new system is available at CBP at: https://www.cbp.gov/trade/automated/news/protest