OCR Global Trade Brief – May 2023

BIS issued an order today imposing an administrative penalty of $624,013 on Microsoft. As part of the BIS settlement, Microsoft admitted to the conduct set forth in a Proposed Charging Letter (“PCL”) involving Microsoft’s subsidiary Microsoft Rus LLC (“Microsoft Russia”). In addition to the BIS penalty, Microsoft entered into a corresponding settlement with OFAC whereby Microsoft agreed to a $2,980,265.86 civil penalty to resolve 1,339 apparent violations of OFAC sanctions regulations involving Ukraine/Russia, Cuba, Iran, and Syria. In light of the related OFAC action, Microsoft was given a $276,382 credit by BIS contingent upon Microsoft fulfilling its requirements under the OFAC settlement agreement, resulting in a combined overall penalty amount of $3,327,896.86.


Source: https://www.bis.doc.gov/index.php/documents/about-bis/newsroom/press-releases/3259-2023-04-06-bis-press-release-bis-ofac-microsoft-settlement/file




EU wins World Trade Organization case on India’s tariffs on information and communication technology products


The World Trade Organization (WTO) has today ruled in favour of the EU in a major case challenging India’s tariff on key information and communication technology (ICT) products. In its panel ruling, the WTO upheld all EU claims against India and found that India’s tariffs of up to 20% on certain ICT products, such as mobile phones, were not in line with its WTO commitments, and thus are illegal. The amount of EU exports of such technology affected by India’s violations is up to €600 million annually. While this is already significant, the real impact on European companies, which also export from other countries to India, is considerably higher.


The panel confirmed that India’s tariffs could not be justified by any of the reasons India brought forward in this case. India could not invoke the Information and Technology Agreement (ITA) to escape the commitments made in its WTO schedule, nor limit its zero-duty commitment to products that existed at the time of this commitment and exclude more recent technological products falling under the same tariff line. The panel also confirmed that no mistake was committed when determining India’s tariff commitments, including when the tariff lines nomenclatures were updated, and refused to examine India’s request to rectify its tariff commitments. Such changes would need to be negotiated among WTO Members.




BIS Imposes $300 Million penalty against SEAGATE TECHNOLOGY LLC related to shipment to Huawei


Facts: As described and alleged in greater detail in the Proposed Charging Letter (PCL), between approximately August 17, 2020, and September 29, 2021, Seagate US and Seagate Singapore, working with other Seagate entities, engaged in conduct prohibited by the EAR on 429 occasions. As alleged in the PCL, Seagate ordered or caused the reexport, export from abroad, or transfer (in-country) of approximately 7,420,496 foreign-produced HDDs, valued at approximately $1,104,732,205, to Huawei entities listed on the BIS Entity List or where such entities were a party to a transaction without authorization from BIS. The two other companies capable of making HDDs promptly—and publicly—indicated that they had ceased sales to Huawei. Of the three, only Seagate refused to stop sales and transactions involving Huawei. BIS’s $300 million monetary penalty is more than twice what BIS estimates to be the company’s net profits for the alleged illegal exports to or involving Huawei. As the transactions progressed, Seagate US repeatedly authorized extending lines of credit to Huawei totaling more than $1 billion dollars between January and September 2021 resulting in an increasing volume of HDD exports to Huawei that the entity was otherwise unable to obtain. In March 2021, Seagate and Huawei even entered into a Long-Term Agreement involving a purchase agreement of over 5 million HDDs and naming Seagate a “key strategic supplier.” All the while, Seagate’s competitors declined similar exports.


Department of Commerce’s Bureau of Industry and Security (BIS) imposed a $300 million civil penalty against Seagate Technology LLC of Fremont, California (Seagate US) and Seagate Singapore International Headquarters Pte. Ltd., of Singapore (Seagate Singapore) (collectively, Seagate) to resolve alleged violations of U.S. export controls related to selling hard disk drives (HDDs) to Huawei Technologies Co. Ltd. (Huawei) in violation of the foreign direct product (FDP) rule. This historic foreign direct product enforcement case and settlement represents the largest standalone administrative penalty in BIS history. Today’s resolution also includes a multi-year audit requirement and a five-year suspended Denial Order.


Source: https://www.bis.doc.gov/index.php/documents/about-bis/newsroom/press-releases/3264-2023-04-19-bis-press-release-seagate-settlement/file



OFAC Settles with British American Tobacco p.l.c. for $508,612,492 Related to Apparent Violations of the North Korea and Weapons of Mass Destruction Proliferators Sanctions Regulations



British American Tobacco p.l.c. (“BAT”), a tobacco and cigarette manufacturer headquartered in London, England, has agreed to pay $508,612,492 to settle its potential civil liability for apparent violations of OFAC’s sanctions against the Democratic People’s Republic of Korea (DPRK or “North Korea”) and weapons of mass destruction proliferators. BAT’s apparent violations arose from its formation of a conspiracy to export tobacco and related products to North Korea and receive payment for those exports through the U.S. financial system and from its subsidiary’s use of U.S. financial institutions to receive or otherwise process U.S. dollar-denominated (USD) payments for its sale of cigarettes to the DPRK Embassy in Singapore. In doing so, BAT caused U.S. financial institutions to process wire transfers that contained the blocked property interests of sanctioned North Korean banks and to export financial services and facilitate the exportation of tobacco to North Korea. The settlement amount, which is equal to the statutory maximum civil monetary penalty, reflects OFAC’s determination that these apparent violations were egregious, and not voluntarily self-disclosed.


Source: https://ofac.treasury.gov/media/931666/download?inline



U.S. interim final rule amends ITAR to remove certain high-energy storage capacitors from Munitions List


The Department of State (the Department) amends the International Traffic in Arms Regulations (ITAR) to remove from U.S. Munitions List (USML) Category XI certain high-energy storage capacitors and to clearly identify the high-energy storage capacitors that remain in USML Category XI.


With this rulemaking, the Department is removing from USML Category XI certain high-energy storage capacitors that it assesses have broad commercial application, are available internationally, and do not provide a critical military or intelligence advantage. The Department assesses that adding a 125-volt (125 V) voltage criterion for the high-energy capacitors described on the USML ensures the capacitors that remain warrant control on the USML. While adding the 125 V criterion to paragraph (c)(5), the Department is simultaneously reorganizing the paragraph to delineate each element of the control criteria more clearly and adding a note to explain those criteria.


These changes are warranted because the Department found that certain low-voltage high-energy storage capacitor technology has progressed such that many models that exceed the existing USML control criteria no longer provide a critical military or intelligence advantage. Although these lower-voltage capacitors meet the energy density and full energy life criteria, the technology for these lower-voltage capacitors is well understood, and the capacitors have been extensively integrated into commercial applications, such as Wi-Fi routers and civil aviation aircraft transponders. Further, comparable capacitors manufactured in other countries are widely available internationally without multilateral export restrictions placed on them.


Source: https://public-inspection.federalregister.gov/2023-08825.pdf


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