Archive for the ‘Saudi Arabia’ Category

Strict Export Regulations May Be Costing Us Industry Billions in Foreign Sales

2018/07/30

(Source: Defense News, 18 June 2018.)

A new RAND report (a source for research on policy ideas and analysis) studying the spread of unmanned aerial vehicles suggests that the current export controls for drones might be hurting the US more than helping.

US competitors like China and Russia are filling the void that has been left by the limitation on US drone exports in markets like the Middle East where the US historically dominated in sales. Over the past several years, Jordan, Saudi Arabia, and United Arab Emirates (UAE) were denied requests to buy American drones, and have since turned to China to purchase similar systems. The Trump administration recently revealed a new set of export policies concerning military technology in an attempt to facilitate the transfer of military technology, but the changes do not change the status of drones under the Missile Technology Control Regime.

How does the MTCR work?

The MTCR is a voluntary export control group of 35 nations who collaborate to prevent signatories from proliferating longer-range cruise and ballistic missile technology. The arms control regime was extended to UAVs because early iterations of drones were considered a subset of cruise missile technology due to their active guidance system.

The regime divides missiles into two categories. This article will cover Category I.

Category I:

  • Capable of delivering a 500 kg payload more than 300 km
  • Sale of category I systems is restricted by a “strong presumption of denial” (meaning they are only exported in rare circumstances)
  • MQ-9 Reaper, RQ-4 Global Hawk and MQ-4 Triton are well-known unmanned systems that fall under this category

Drone proliferation

RAND found that 10 nations use category I drones, and more than 15 use near-category I systems that register just below the MTCR’s payload and distance restrictions. The report states that these increased proliferation rates are due to countries like China, Israel, and the UAE who are not part of the MCTR. More countries are expected to follow suit which will cause a “growing threat to U.S. and allied military operations,” the report says.

While category I systems can deploy missiles, their main threat lies in “their ability to conduct intelligence, surveillance, and reconnaissance (ISR) operations against U.S. forces prior to hostilities,” according to RAND. “Adversaries that would otherwise have difficulty detecting U.S. force deployments, monitoring U.S. operations, and maintaining targeting data on U.S. units can employ UAVs to maintain situational awareness of U.S. capabilities.”

The report identifies Russia, China, and Iran as unfriendly nations that will try to utilize drones to complicate US military operations.

A US-sized hole

Due to restrictions on US drone exports, competitors have established themselves in a market Rand expects to “grow from about $6 billion in 2015 to about $12 billion in 2025.”

“What you are enabling the competition to do is not just to sell some hardware,” Linden Blue, General Atomic’s chief executive, told reporters during an Aug. 16, 2017 roundtable at the company’s headquarters in Poway, California. “You’re enabling it to build a customer base for at least 20 years, I would say. You’re enabling them to build a logistics system. It will take them many years to get to where we are right now, but you’re helping them start out. They should be very thankful.”

Details: https://www.defensenews.com/newsletters/unmanned-systems/2018/06/18/strict-export-regulations-may-be-costing-us-industry-billions-in-foreign-sales/


Treasury Fingers Countries Enforcing the Arab League Boycott of Israel

2017/10/16

Editorial By: John Black

Note:  I love this list.  It gives me a chance to say tertiary.   As my career winds down its things like this that I will miss.

N.B.:  I don’t remember ever seeing anybody write an editorial piece about Treasury publishing this list, probably for good reason.  If I don’t do this now, nobody ever will. 

Once again the Treasury Department has published its list of countries that more or less enforce certain aspects of the Arab League Boycott of Israel. Or, as Treasury clearly states, they are countries “which may require participation in, or cooperation with, an international boycott (within the meaning of section 999(b)(3) of the Internal Revenue Code of 1986).”

You see, way back whenever, the US Congress decided it doesn’t like US persons cooperating with the secondary and tertiary elements of the Arab Boycott of Israel so it told the Treasury Department to put something in the tax code so that US person who illegally cooperate can’t claim foreign tax credits. Congress also told the Commerce Department to put something in its export control regulations so the Commerce rules make such cooperation illegal without telling anybody which countries it applies to.

You see, Congress and the US Government don’t want to have actual rules that say Arab League Boycott of Israel to make it clear that US person can’t cooperate with the unmentionable boycott on the unmentionable close ally of the United States.  Because, what the wizards* in Washington figured out is, if they don’t write little known rules that ban cooperation with the “Arab Boycott of Israel,” nobody will know that US foreign policy in many ways has long favored Israel over the Arab League.

(*Sorry, I did not mean to disparage indirectly the Washington Wizards NBA basketball team but this raises an important issue.  Years ago the Washington Bullets NBA team decided to change their name to the Washington Wizards. I always knew that they dropped the Bullets name to reduce violent crime in the capital city (how is that working?)  But, after wondering for years why the Washington team chose “Wizards,” I just now realized it is because most of the people in Congress and the US Government are wizards—either, if you are old like me, the type of wizards who wear pointy hats and robes with stars on them and have a magic wand or, if you are not old, those in Harry Potter movies; or, if you ask Congress, the type of wizards who are generally highly adept at what they do.  Now that’s another life knowledge breakthrough thanks to export regs.)

Treasury noted that this list is “based on currently available information,” which, I personally found to be a great relief because if the list had been based on only information available prior to 1975, it would have looked quite different.  And who knows what the list would have looked like if it were based on information that is not currently available—We could have ended up with Mexico and China on the list, seriously.

FYI, this paragraph contains information that is important:  Treasury listed these countries:

  • Iraq
  • Kuwait
  • Lebanon
  • Libya
  • Qatar
  • Saudi Arabia
  • Syria
  • United Arab Emirates
  • Yemen

The Commerce Department traditionally does not publish a similar list of countries for its antiboycott rules in Part 760 of the Export Administration Regulations (“EAR”).  EAR 760 prohibits a US person from cooperating with (or agreeing to do so) the secondary and tertiary elements of the Arab League boycott of Israel.  Instead of ever mentioning the Arab League or Israel, Commerce and the EAR brandish the terms “boycotting countries” and “boycotted countries” to adeptly hide the US pro-Israel foreign policy bias.

A reasonable person might assume that since the Commerce and Treasury rules have the same objective and are implemented by the same US Government, the Commerce Department considers its rules are applicable to the same countries as Treasury.

Editorial Note: I am not saying that the EAR rules are limited to the list of countries Treasury published. I am merely pointing out what a reasonable person might assume.

Useful Information:  In any event, when you do a risk based assessment of your EAR compliance issues and, based on that, decide how to allocate your limited compliance resources, it may be cost-effective to focus your EAR antiboycott rules compliance on the countries on the Treasury list.  And while you are doing risk assessments and deciding how to cost-effectively allocate your limited resources for EAR compliance, you may decide to allocate only a small portion of your total EAR compliance resources to compliance with the EAR antiboycott rules.  That is because antiboycott EAR fines are frequently well under $100k.  I recommend you allocate most of your EAR compliance resources to focus on compliance with the standard EAR export controls where it is not unusual for Commerce (along with OFAC) to impose fines of hundreds of millions of dollars, or in the case of ZTE, $1 billion and membership on an export denial list.

Federal Register: https://www.gpo.gov/fdsys/pkg/FR-2017-08-02/pdf/2017-16290.pdf


U.S. Antiboycott Compliance: New Federal List Published

2017/01/31

By: Melissa Proctor, Polsinelli PC

Companies doing business in the Middle East take note: The Treasury Department recently published its quarterly list of countries that currently require participation or cooperation with an international boycott, such as the Arab League‘s boycott of Israel.

Even though many of these countries are WTO members and were required to shut down their Arab League offices as a condition of membership, many boycott-related requests are still being issued by government agencies and companies in these countries. The countries that are designated on this list, which by the way are the very same countries that were listed in the Third Quarter list, are:

  • Iraq
  • Kuwait
  • Lebanon
  • Libya
  • Qatar
  • Saudi Arabia
  • Syria
  • United Arab Emirates
  • Yemen

To view the list, click here.

If you are not familiar with U.S. antiboycott requirements, Part 750 of the Export Administration Regulations (EAR) prohibits U.S. companies and their foreign affiliates from complying with requests related to a foreign boycott that is not sanctioned by the U.S. Government. Specifically, U.S. companies and their overseas affiliates are prohibited from agreeing to:

  1. Refuse to do business with or in Israel or with blacklisted companies
  2. Discriminate against other persons based on race, religion, sex, national origin or nationality
  3. Furnish information about business relationships with or in Israel or with blacklisted companies, or
  4. Furnish information about the race, religion, sex, or national origin of another person

Foreign boycott-related requests can take many forms, and can be either verbal or written. They can appear in bid invitations, purchase agreements, letters of credit and can even be seen in emails, telephone conversations and in-person meetings. Some recent examples of boycott-related requests include:

  • “Provide a certificate of origin stating that your goods are not products of Israel.”
  • “Provide the religion and nationality of your officers and board members.” 
  • “Suppliers cannot be on the Israel boycott list published by the central Arab League.”  
  • “Provide a signed statement from the shipping company or its agent containing the name, flag and nationality of the carrying vessel and its eligibility to enter Arab ports “

In addition, implementing letters of credit that contain foreign boycott terms or conditions is also prohibited under the EAR.

Antiboycott compliance is a key issue for U.S. companies doing business in the Middle East, and personnel on the front lines with customers and supply chain partners in these countries should be trained to identify potential foreign boycott-related requests and escalate them to senior compliance personnel or in-house counsel to determine the applicable OAC and IRS reporting requirements.

Companies that receive boycott-related requests must submit quarterly reports to the Office of Antiboycott Compliance (OAC) unless an exemption applies. Failing to timely report a boycott request or complying with the request itself can lead to the imposition of civil penalties by the OAC. The IRS also requires U.S. taxpayers to report their operations in countries that require participation or cooperation with an international boycott on IRS Form 5713 (International Boycott Report) – the forms are submitted annually with U.S. tax returns.  Failure to comply with the Internal Revenue Code’s antiboycott requirements can lead to the revocation of certain international tax credits and benefits.

© Polsinelli PC, Polsinelli LLP in California


Antiboycott Violation Nets $238,000 Fine for Furnishing Prohibited Business Information

2016/11/15

By: Danielle McClellan

Coty Middle East FZCO (UAE) has agreed to pay $238,000 to settle 70 violations of 15 CFR §760.2(d) – Furnishing Information about Business Relationships with Boycotted Countries or Blacklisted Persons.

Coty Middle East FZCO is a foreign affiliate of Coty Inc., a US company located in Delaware thus are they are defined as a US person under 760.1(b) of the Export Administration Regulations (EAR). From 2009-2013 Coty Middle East engaged in transactions involving the sale and/or transfer of goods or services from the US to Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Oman, Pakistan, Qatar, Saudi Arabia, Syria, UAE, and Yemen, activities in the interstate or foreign commerce of the United States. In connection with these activities Coty Middle East furnished the following statement 70 times:  “WE HEREBY CERTIFY…. THAT ABOVE MENTIONED GOODS DO NOT CONTAIN ANY MATERIAL OF ISRAEL ORIGIN…”

View Order: https://efoia.bis.doc.gov/index.php/documents/antiboycott/alleged-antiboycott-violations-2015/1083-a748/file


US Exporters, Don’t Try This: German Gun Maker Sues Government for Export Approval

2015/12/04

By: Danielle McClellan

Heckler & Koch is suing the German Government for failing to approve the export of parts needed to produce its G36 gun in Saudi Arabia. In 2008, Chancellor Angela Merkel’s government approved the controversial (and lucrative) deal for Heckler & Koch to allow Saudi Arabia to produce the G36 itself.

The German government stopped authorizing the export of five key components that are required to make the gun in the middle of last year. Economy Minister Sigmar Gabriel made the decision to stop approving the export after vowing to be more cautious when licensing exports.

Last month, Germany was forced to defend a decision to allow the export of tanks and artillery to Qatar, which was reported to have sent troops to fight in Yemen.

More Information: http://www.reuters.com/article/2015/10/29/germany-hecklerkoch-idUSL8N12T65920151029


Treasury Identifies Countries Requiring Cooperation With an International Boycott

2013/01/17

By: John Black

Once again the Treasury Department has identified the countries cooperating with an international boycott that raises issues related to claiming foreign tax credits under the Internal Revenue Service (IRS), specifically section 999(a)(3) of the IRS Code of 1986. The countries are:

  • Iraq
  • Kuwait
  • Lebanon
  • Libya
  • Qatar
  • Saudi Arabia
  • Syria
  • United Arab Emirates
  • Yemen

The IRS antiboycott rules come into play in many of the same situations in which the antiboycott provisions in Part 760 of the Export Administration Regulations (EAR) come into play. While the Commerce Department does not publish a list of countries for its EAR Part 760 antiboycott rules, as a practical matter the IRS list certainly represents many of the highest risk countries for EAR purposes so it is a good starting point for the focus of your EAR antiboycott compliance program. For EAR compliance purposes, US persons should also be aware that certain other Moslem countries cooperate with the Arab League boycott of Israel and present antiboycott compliance issues. These other countries include Bangladesh, Malaysia, Indonesia and Pakistan.

For the actual Federal Register notice go to http://www.gpo.gov/fdsys/pkg/FR-2012-11-16/html/2012-27737.htm


Treasury Department Announces Countries Requiring Compliance with Arab Boycott of Israel

2012/09/04

By: John Black

In the August 13, 2012 Federal Register the Treasury Department announces, that for purposes of compliance with the antiboycott provisions of the IRS code, the list of countries which “require or may require participation in, or cooperation with, an international boycott.   This notice refers to the countries that require cooperation with the Arab League’s secondary and tertiary boycotts of Israel.  Under  the IRS rules a company may not claim foreign tax credits if it cooperates with such boycotts.

Part 760 of the Export Administration Regulations (EAR) also prohibits US persons from complying with certain aspects of unsanctioned foreign boycotts.  It has been a long time since the Commerce Department announced which countries require cooperation with boycotts for EAR purposes.  Even though the IRS list is not officially endorsed by the Commerce Department, it certainly makes a good list to use as a basis for deciding how to spend your antiboycott compliance resources.

The countries are:

  • Iraq
  • Kuwait
  • Lebanon
  • Libya
  • Qatar
  • Saudi Arabia
  • Syria
  • United Arab Emirates
  • Yemen

http://www.gpo.gov/fdsys/pkg/FR-2012-08-17/html/2012-20182.htm


Treasury Lists Countries Requiring Cooperation With an International Boycott

2012/01/03

By: Holly Thorne

The Department of the Treasury published a current list of countries which require or may require participation in, or cooperation with, an international boycott (within the meaning of section 999(b)(3) of the Internal Revenue Code of 1986).  The purpose of this list is to provide guidance regarding compliance with the antiboycott compliance aspects of the US tax code.  While this advice is not technically specific to the antiboycott provisions in Part 760 of the Export Administration Regulations (EAR), it certainly is a reasonable basis for a company to use when it decides how to allocate its compliance resources for compliance with the EAR antiboycott rules.

Treasury identified the following countries that “require or may require participation in, or cooperation with, an international boycott (within the meaning of section 999(b)(3) of the Internal Revenue Code of 1986),” e.g., the Arab boycott of Israel:

– Kuwait

– Lebanon

– Libya

– Qatar

– Saudi Arabia

– Syria

– United Arab Emirates

– Yemen

Iraq is not included in this list, but its status with respect to future lists remains under review by the Department of the Treasury.


Treasury Lists – Countries Requiring Cooperation with an International Boycott

2011/10/05

By: Holly Thorne

The Department of the Treasury has published a current list of countries which require or may require participation in, or cooperation with, an international boycott (within the meaning of section 999(b)(3) of the Internal Revenue Code of 1986).

The countries are:

  • Kuwait
  • Lebanon
  • Libya
  • Qatar
  • Saudi Arabia
  • Syria
  • United Arab Emirates
  • Yemen

Republic of Iraq is not included in this list, but its status with respect to future lists remains under review by the Department of the Treasury.

While this list officially applies to the Internal Revenue Service (IRS) antiboycott rules, it is a reasonable indicator of the high risk countries for the EAR antiboycott regulations.


Treasury Identifies Countries Participating in the Secondary and Tertiary Arab League Boycotts of Israel

2011/06/27

By: Anna Barone

In accordance with section 999(a)(3) of the Internal Revenue Code of 1986, the Department of the Treasury is publishing the following list of countries which require or may require participation in, or cooperation with, an international boycott:

Kuwait, Lebanon, Libya, Qatar, Saudi Arabia, Syria, United Arab Emirates, and Yemen

Iraq is not included in this list, but its status with respect to future lists remains under review by the Department of the Treasury.

What the Treasury notice does not specifically mention is that these are Arab League countries enforcing the secondary and tertiary boycotts against Israel.  As a practical matter, US persons should exercise extra diligence to comply with US antiboycott regulations when dealing with these countries.

US person should also be diligent when dealing with entities other Arab League countries and countries with significant Moslem populations (e.g., Bangladesh, Indonesia, Pakistan) because US antiboycott issues occasionally arise in these and other countries.

More information available: http://www.gpo.gov/fdsys/pkg/FR-2011-05-11/html/2011-11307.htm