International Trade Law News

While there have been many export control reform proposals issued in the past few months, very few of them have focused on the legal aspects of the U.S. export control regime.

Neena Shenai, an adjunct scholar at the American Enterprise Institute for Public Policy Research, has added an interesting perspective to the export control reform debate in her working paper entitled Export Control Reform 2010: Transforming the Legal Architecture of Dual-Use and Defense Trade Controls (available here in PDF format). Ms. Shenai, an attorney, is well-suited to provide this perspective given her experience in the private sector and in government, which includes serving as a law clerk to a judge at the U.S. Court of International Trade, practicing international trade law at a leading law firm and serving as an advisor to the Assistant Secretary for Export Administration at the Commerce Department's Bureau of Industry and Security.

The paper offers the thesis that improvements in the export control system’s legal architecture, including administrative procedural safeguards and limited judicial review while also protecting classified information and national security determinations, will improve the workings of the system in general.

Ms. Shenai reaches that conclusion by discussing the existing legal framework of dual-use and defense-related export controls, examining the various shortcomings of the existing export controls legal regime and discussing what can be learned from other U.S. international-related legal regimes that could serve as useful models for reform of the U.S. export control system. The regimes examined include the licensing of nuclear products by the Nuclear Regulatory Commission, the administration of trade remedy laws, the administration of U.S. customs laws and the treatment of national security information protected from disclosure under the Freedom of Information Act.

The paper then provides a number of general and specific recommendations to improve the legal framework of the export control system, including improvements to the commodity jurisdiction (CJ), commodity classification and licensing processes. For example, the paper advocates having agency decisions provide applicants with detailed information on why licenses were granted or denied, the grounds on how CJ determinations are made and allowing applicants the ability to appeal such decisions to a federal court, preferably the Court of International Trade, given its longstanding history of hearing cases under the U.S. trade laws.

Ms. Shenai concludes by noting that "the recommendations made in this paper, if implemented, would serve to ensure that the U.S. export control laws are administered in a fair, transparent, predictable, and accountable fashion, while simultaneously maintaining national security protections."

It should be noted that this working paper has not yet been finalized and Ms. Shenai welcomes comments and corrections. Information on how to contact Ms. Shenai can be found in the document.

Labels: BIS, Export Controls, ITAR

Finding a Willing Buyer Only One Part of the Export Process

Exporters Looking to Boost Business Need to Mind Rules and Regulations Too

The Obama administration is launching a government-wide effort to double U.S. exports over the next five years as part of a plan to increase domestic employment and boost the U.S. economy. However, companies looking to take advantage of the new National Export Initiative to break into new markets should be aware that shipping goods overseas comes with potential perils as well as opportunities.

As part of the NEI, the federal government plans to increase its trade advocacy efforts, including educating U.S. companies about opportunities overseas, directly connecting them with new customers and advocating more forcefully for their interests. The NEI will also include a focus on improving access to export financing and helping to remove barriers that prevent U.S. companies from getting access to foreign markets. Only a very small percentage of U.S. companies currently export their products, and of those that do, 58% export to only one country. The Obama administration is looking to increase these figures in the expectation that doing so will also increase employment.

However, warns Doug Jacobson, head of Sandler, Travis & Rosenberg’s export controls practice group, while increasing the number of U.S. companies that export and increasing trade promotion assistance are laudable goals, U.S. exporters must be aware that finding a willing buyer is only the first step in the exporting process.

“In addition to taking the necessary steps to ensure they are paid for their goods, U.S. exporters must be aware of the wide range of U.S. regulatory and legal issues applicable to exports,” Jacobson said. “The benefits of exporting can be great for U.S. companies, but the penalties for violating export laws and regulations can be severe. ST&R often represents exporters in enforcement actions that learn of their export compliance obligations only after they receive an administrative subpoena from the Bureau of Industry and Security or the Office of Foreign Assets Control. Many of those violations could have been avoided if the exporters understood their export compliance obligations in advance.”

Examples of the important compliance-related issues that U.S. exporters should be aware of when selling goods overseas include the following.

Ultimate Destination. U.S. export restrictions and licensing requirements vary by the country of destination. Some countries are subject to comprehensive embargoes, while others are subject to targeted sanctions directed at certain individuals and companies.

Jurisdiction and Classification of Goods. Proper jurisdiction and classification of goods under the Export Administration Regulations or the International Traffic in Arms Regulations is required to determine export licensing requirements and end-use and end-user restrictions for all products being exported from the U.S. In addition, the proper export classification is required to be declared in the Electronic Export Information filing that must be transmitted via the Automated Export System.

Know Your Customer. To avoid engaging in transactions with parties that have been denied export privileges or are subject to U.S. sanctions, exporters should screen all customers and parties involved in the export against the government’s various restricted party lists.

Anti-boycott Compliance. Boycott requests, which often contain the words “boycott” or “blacklist” or provisions prohibiting the importation of goods from certain countries, are often found in documents involving sales to the Middle East, including purchase orders, tenders, contracts, shipping requests and letters of credit. Certain boycott requests must be reported to the Bureau of Industry and Security.

Foreign Corrupt Practices Act. The FCPA prohibits U.S. persons and their agents from making prohibited payments to foreign government officials to obtain and keep business.

For more information on these issues, or how ST&R can help you increase your exports while remaining compliant with applicable laws and regulations, please contact Doug Jacobson at (202) 216-9307.

You can also stay up-to-date on the latest developments on this issue by subscribing to ST&R’s WorldTrade\INTERACTIVE daily e-newsletter.

Sandler, Travis & Rosenberg, P.A., is a customs and international trade law firm concentrating in assisting clients with the global movement of goods, ideas and personnel and the setting of global trade policy. Our affiliated consulting company, Sandler & Travis Trade Advisory Services Inc., is a leading provider of trade-related management and consulting services to government and industry. For more information about ST&R and STTAS, please visit our Web site.

Reprinted with permission of Sandler, Travis & Rosenberg, P.A.

Labels: Export Controls, Exports, Sanctions

The next meeting of the National Council on International Trade Development (NCITD) will take place on Wednesday, February 10, 2010 in Washington, DC and will feature the following speakers:

• Bill Reinsch, President, National Foreign Trade Council
  Topic: Export Control Reform Update

• Charles B. Shotwell, Director, Office of Defense Trade Controls Policy, Directorate of Defense Trade Controls, U.S. Department of State                                                                                                   Topic: Commodity Jurisdiction: Trends and Statistics; Automation Update  

For information on how to join NCITD or to attend the meeting, see www.ncitd.org or contact the NCITD Secretariat at 202-872-9280.

Labels: DDTC, Export Controls

The Justice Department announced today that Mr. Yi-Lan Chen, aka “Kevin Chen,” who holds a Taiwan passport, was arrested yesterday in Guam on charges of illegally exporting commodities for Iran’s missile program in violation of the International Emergency Economic Powers Act (IEEPA) and the Iranian Transactions Regulations administered by the Treasury Department's Office of Foreign Assets Controls

According to the affidavit filed in support of the criminal complaint filed in federal court in Miami, Florida, Mr. Chen allegedly facilitated the purchase and export of various dual-use products from the U.S. to Iran by way of Taiwan and Hong Kong, including P200 turbine engines and spare parts, sealing compound, glass to metal pin seals, and circular hermetic connectors.

Federal agents learned of Chen’s efforts to obtain and export U.S. goods and commodities after Chen apparently attempted to export detonators through a California company. An investigation allegedly revealed that Chen’s ultimate customers were located in Iran and included Electro SANAM Industries, which has been linked to Iran's ballistic missile program, and the owner of a company in Tehran linked to chemical research and development facilities in Iran.

After receiving orders from customers in Iran, Chen apparently requested quotes, usually by e-mail, from U.S. businesses and made arrangements for the sale and shipment of the goods to freight forwarders in Hong Kong and Taiwan. Once in Hong Kong or Taiwan, the goods were then shipped to Iran.

If convicted, Chen faces a statutory maximum sentence of up to 20 years in prison and fines of up to $1 million.

Labels: Export Controls, Sanctions; Iran

As mentioned in our previous post, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing today on the confirmation of two senior Bureau of Industry and Security officials, Kevin Wolf, nominated as Assistant Secretary of Commerce for Export Administration, and David Mills, nominated to serve as Assistant Secretary of Commerce for Export Enforcement. The webcast of the hearing, which also included nominees for other agencies, can be viewed here.  

The hearing was presided over by Senator Dodd (D-CT) and Senator Shelby (D-AL), the committee's chairman and ranking member.

While not a member of the Senate Banking Committee, Senator Blanche Lincoln (D-AR) gave a very nice introduction to Kevin Wolf. Unfortunately, due to audio problems, Kevin Wolfe's introductory remarks were inaudible, but in his prepared opening statement, which can be found here, he said note that "his background will also be helpful in crafting and implementing . . . the details of the significant export control reforms the President and the Secretary have announced . . . " He added that "if confirmed, [he will] be committed to the rule of law, transparency, and advancing the use of modem technology."

In his prepared remarks, David Mills discussed how his long time service at OFAC prepared him for this position and indicated that he believes that "the enforcement of those regimes must not only be fair and firm, but also as clear and transparent as possible, in order to advance both our national security and foreign policy interests and our economic potential through export promotion."

Several Senators asked questions to Messrs. Wolfe and Mills, including questions on a variety of export controls-related issues, including diversion-related issues, export control modernization, foreign availability, export enforcement penalties and whether BIS and its agents have the sufficient resources and powers to accomplish their goals. Senator Dodd's initial questions on export control issues start at the 71 minute mark of the webcast.

Labels: BIS, Export Controls

Today the Export Control Practitioners Group, composed of a diverse group of associations, businesses, practitioners and seasoned compliance experts, released a comprehensive set of specific recommendations for transparent and efficient reform of the U.S. export control system.

The recommendations were included in a letter sent to National Security Advisor General James Jones and National Economic Council Director Lawrence Summers, both of whom are actively involved in the Obama Administration's export control reform initiative that was announced by the White House in August 2009.

The Export Controls Practitioners Group, which has been active for the past decade, began preparing these recommendations following the Administration’s announcement.

In addition to outlining their guiding principles for export control reform, the Export Controls Practitioners Group provided specific and practical recommendations in the following areas:

• Structure of the export control agencies;
• Changes to the Commodity Jurisdiction process;
• Control list review and reduction;
• Accountability in the export control process, including an appeals process of classification or jurisdiction decisions or technical and definitional decisions made by the agencies;
• Recommendations involving the process for decontrolling items in light of their foreign availability;
• Specific recommendations on changes to the procedures for the issuance of export licenses, license agreements, license exemptions, and license exceptions;
• Reforms to the export control enforcement process, including a suggestion for a graduated penalty process that would ensure that violations resulting from mistake or inadvertent conduct would not be subject to the most severe penalties;
• Limiting deemed export licensing requirements to sensitive, multilaterally controlled technology only (e.g., the Wassenaar Arrangement Very Sensitive List and the multilateral proliferation lists).
• Providing Trusted Party License Exceptions for dual-use intra-company transfers to and among non-embargoed destinations.
• Urging Congress to adopt legislation restoring Executive Branch authority to determine licensing
  jurisdiction for commercial satellites and associated items and technologies;
• Modernize the treatment of products and software containing encryption algorithms;
• Modifying end-user and end-Use Screening Requirements, including consolidating the various end-user lists maintained by the various agencies into one centralized list that includes names and data in the end users’ native languages, to afford easier access by exporters and other interested parties.

Several members of the Group are a part of the business community’s Coalition for Security and Competitiveness, which released its recommendations for reform last week. While the recommendations issued by the two groups differ in terms of emphasis, the key message is the same: the U.S. business community is united in the effort to work with the Administration to effectuate reform of outdated U.S. export controls.

The associations that signed the Export Controls Practitioners Group letter included the following:

• American Association of Exporters and Importers
• American Council on International Personnel
• Association For Manufacturing Technology
• Coalition for Employment Through Exports
• Computer and Communications Industry Association
• Electronic Design Automation Consortium
• Emergency Committee for American
• National Council on International Trade Development
• National Defense Industrial Association
• National Foreign Trade Council
• Satellite Industry Association
• Semiconductor Equipment and Materials International
• Semiconductor Industry Association
• TechAmerica
• U.S. Chamber of Commerce

Labels: Export Controls

AP: Taiwan-based company assists Chinese firm in obtaining pressure transducers for Iran -- http://bit.ly/929Jcd

Follow-up from previous tweet: Certain pressure transducers are classified on U.S. Commerce Control List as ECCN 2B230 (NP and AT controls)

New Blog Post: Management Consultant Arrested and Charged With Violating Iran Embargo: http://bit.ly/79P0SX

It's official: DDTC Appoints Lisa Studtmann as Director of Office of Defense Trade Controls Compliance -- http://bit.ly/5Km9KX

Politico: Beth McCormick to be Deputy Ass't Secy at State Dept's Bureau of Political-Military Affairs (oversees DDTC) - http://bit.ly/7mo4lZ

RT @complianceweek: Poll says compliance budgets are faring better than you'd expect, considering economy . . . http://bit.ly/7ZVdOw

New Blog Post: Coalition for Security and Competitiveness Releases Detailed Export Control Recommendations: The Co... http://bit.ly/5q1FbK

House Foreign Affairs Committee to hold export controls hearing at Stanford University on January 15th. Details here: http://bit.ly/6ptLlb

New Blog Post: Philadelphia Area Chemical Engineer Sentenced to Four Years in Prison for Violating Iran Sanctions:... http://bit.ly/7Gnx11

Pakistan claims to be implementing "effective export controls in line with international obligations": http://bit.ly/61RuOX

The Hill's story on yesterday's CSC export control reform recommendations found here: http://is.gd/6bxHC

SEC Enforcement Division names Cheryl J. Scarboro as head of Foreign Corrupt Practices unit. Details at http://bit.ly/707aub

AP reports that North Korea will allow more American tourists -- http://bit.ly/6Y5Fk4

LA Times: 3 men charged in scheme to illegally export vacuum pumps and equipment to Iran via UAE -- http://is.gd/6fkmk

Politico: At meeting with defense company executives SecDef Gates pledges support for export control reforms - http://bit.ly/7S8u8z

DefenseNews reports on new Deputy Assistant Secretary of State who will oversee defense export control agency: http://bit.ly/6qRsfP

American Association of Exporters and Importers' export control reform recommendations to Congress can be found here: http://bit.ly/8abX2y

Op-Ed by Rep. Berman in San Jose Mercury News on today's export controls hearing being held at Stanford: http://bit.ly/8obtnz

Rep. Berman: You practically have to have a law degree or Ph.D. to keep from running afoul of increasingly complex export-controls regime.

BIS adds Chinese entity to list of parties eligible for Validated End-User (VEU) program: http://bit.ly/7Qp0v7

National Defense Magazine: Job Creation Argument May Prompt Congress to Move on Arms Export Controls Reform - http://bit.ly/8tlUlG

AP: North Korea plays sanctions card in nuclear standoff -- http://is.gd/6nvR6

Stanford president urges lawmakers to change export controls at export controls hearing (from Stanford News) http://bit.ly/4Kry4X

San Jose Mercury News' story on yesterday's export controls hearing at Stanford found here: http://bit.ly/5HIDYA

Labels: Export Controls, Miscellaneous, Sanctions; Iran, Twitter

The Coalition for Security and Competitiveness (CSC) today released detailed recommendations on the specific steps the Obama Administration and Congress can take to reform and modernize the U.S. export control system.

The document, entitled "Recommendations for a 21st Century Technology Control Regime", which was included with a letter sent to to President Obama and other key members of the Obama Administration, states that:

United States export control system has not been significantly revised in more than twenty years. The result is a system that no longer fully protects our national security, has not kept up with accelerating technological change, and does not function with the efficiency and transparency needed to keep the United States competitive in the global marketplace.

The Administration’s export control review, as well as impending legislative proposals, provides an opportunity to strengthen our security and give business the clarity and guidance it needs to comply with the rules and remain competitive.

In order to accomplish these reforms, the CSC indicated that these goals can best be accomplished in the near term by structuring export control reform around the following five themes:

Labels: BIS, BIS; EAR, DDTC, Export Controls, ITAR

The Philadelphia Inquirer reports on today's sentencing of an Iranian arms procurement agent who was extradited to the United States in 2008 and pled guilty to negotiating the purchase of a number of items on the USML that were destined to Iran:

Under heavy security, an Iranian engineer targeted by Philadelphia-based U.S. Homeland Security agents during an undercover sting in Eastern Europe was sentenced to five years in prison today for trying to buy radar and avionics technology for the Iranian military.

Amir Hossein Ardebili of Sharaz, Iraq had pleaded guilty in federal court in Wilmington to conspiracy, money laundering, munitions export laws and violating the American arms embargo that prohibits most trade with Iran.

Ardebili's arrest in Tbilisi, Georgia in October 2007, his extradition to the United States in January 2008 and his guilty plea in Wilmington in May 2008 were kept secret until early this month. The case remained sealed, U.S. officials said, so that U.S. agents could quietly pursue leads gleaned from Ardebili's laptop computer, which was seized following his arrest in Tbilisi.

Before the sentence was imposed today, Ardebili read a long statement aloud in court, crying often – once so hard that he needed to take a break. He admitted that he broke American law, but begged the judge to consider that he did so in Iran, where his actions where not illegal.

"I don't want to minimize the things I did," said Ardebili, 35. "I'm sorry and I'm looking for your mercy."

U.S. District Court Judge Gregory M. Sleet said that Ardebili "presents somewhat of a paradox" – "motivated by profit and you might say greed" to obtain weapons that may "pose a threat to the national security of the United States.".

Click here for more information on this case, including the indictment and sentencing memorandum.

Update: See Politico story on this case, which discusses some other interesting aspects of this case, here. 

Labels: Export Controls, Sanctions; Iran

Labels: BIS; EAR;, Export Controls

• Crew of cargo plane from North Korea detained in Thailand denies knowledge that they were transporting Arms

• German authorities are investigating shipments of high technology to Iran to see if they may have violated export control laws
  

• Federal agents in Dallas have grounded a helicopter that they say Italian aircraft brokers were planning to ship from North Texas to Iran in violation of U.S. trade sanctions.
  
  
• Obama Administration intends to target 'dozens' of IRGC front companies in effort to squeeze Iran 

Labels: Export Controls, North Korea, Sanctions; Iran

The National Association of Manufacturers (NAM) yesterday sent a letter to National Security Advisor General James Jones and National Economic Advisor Lawrence Summers outlining the following eight recommendations for the President’s pending review of U.S. export controls:

1. Improving the Licensing System and Increasing Transparency
2. Providing Greater Assessments of Foreign Availability
3. Reviewing and Restructuring Encryption Rules and Policy
4. Conducting a Systematic Review of the Commerce Control List
5. Promoting Greater Multilateral Cooperation with our Friends and Allies
6. Enhancing the Commerce Department’s Role in the Commodity Jurisdiction Process
7. Improving Outreach Cooperation on Enforcement
8. Improving Outreach to and Resources for Small and Medium-sized Manufacturers

The detailed version of the NAM export control reform recommendations can be found here.

Labels: Export Controls

The Commerce Department's Bureau of Industry and Security (BIS) published a final rule in today's Federal Register modifying the Commerce Control List to implement the 2007 and 2008 changes made by the Wassenaar Arrangement Task Force on Editorial Issues (TFEI) that had not been made in any prior rule issued by BIS.

These changes, which are editorial and not substantive in nature, clarify, remove extraneous text or correct text that appears in the Wassenaar Dual-Use List and affect a large number of ECCNs.

Labels: BIS; EAR;, Export Controls

Last week the Wassenaar Arrangement (WA) on Export Controls for Conventional Arms and Dual-Use Goods and Technologies held its 15th annual Plenary session in Vienna, Austria.

During the Plenary the participating countries agreed to a number of changes to the WA's List of Dual-Use Goods and Technologies and the Munitions List. The changes to the List of Dual-Use Goods and Technologies included the modification of a number of entries on the control lists (including changes in parameters and specifications), the addition and changes to several notes, as well as other changes to the text that were intended to make the lists more "user-friendly" for exporters and licensing authorities.

Among the more significant changes is a new Note 4 to Category 5 - Part 2 of the Dual-Use List, the category that covers information security and encryption. The new note indicates that Category 5–Part 2 does not apply to items incorporating or using "cryptography" and meeting all of the following:

a. The primary function or set of functions is not any of the following:
1. "Information security";
2. A computer, including operating systems, parts and components therefor;
3. Sending, receiving or storing information (except in support of entertainment, mass commercial broadcasts, digital rights management or medical records management); or
4. Networking (includes operation, administration, management and provisioning);
b. The cryptographic functionality is limited to supporting their primary function or set of functions; and
c. When necessary, details of the items are accessible and will be provided, upon request, to the appropriate authority in the exporter’s country in order to ascertain compliance with conditions described in paragraphs a. and b. above.

Because the U.S. is a participating member of the WA, the U.S. must modify the Commerce Control List (CCL) in order to incorporate these changes. However, as indicated by our previous post regarding the changes made at the 2008 WA Plenary, the changes made at the 2009 Plenary will not take effect until the CCL is modified by the Bureau of Industry and Security (BIS) next year.

The next regular Wassenaar Arrangement Plenary meeting will take place in Vienna in December 2010.

A summary of changes adopted at the December 2009 Plenary can be found here.

The latest version of the List of Dual-Use Goods and Technologies and the Munitions List incorporating the made at last week's Plenary can be found here.

Labels: BIS; EAR, Export Controls

In a speech at the Practising Law Institute's annual "Coping with U.S. Export Controls" conference in Washington, DC, National Foreign Trade Council (NFTC) President Bill Reinsch today outlined the business community's principles for reforming the U.S. export control system to enhance national security and economic competitiveness. Reinsch, a former Under Secretary of Commerce for Export Administration in the Clinton Administration, also discussed current efforts by the Administration and Congress to reform the outdated system, noting, "for the first time in 20 years, prospects for reform are realistic."

"From a security point of view, knowledge and technology matter more than the box, because it is the key not only to our national security but also to our economic competitiveness. It should be clear from all these developments that controlling exports is harder than it ever was, and the burden on our policy makers and enforcement officials much greater. In fact, it forces them to radically rethink our policy," he continued.

After making the case for reform, Reinsch outlined the business community's key principles for reform, developed by the Coalition for Security and Competitiveness, a group of companies and associations representing aerospace and high tech companies, and the Export Control Working Group, composed of many of the same companies, practitioners and seasoned compliance experts. The principles recommend that any reform effort should draw clear lines of agency responsibility and ensure accountability; pursue controls and enforcement in partnership with the business community rather than as adversaries; keep pace with technology change and the development of global supply chains by revising and reducing control lists; enhance cooperation with our allies and rely on multilateral controls; and complete the transition to an end user based system by developing procedures for trusted end users and exporters.

In addition, Reinsch pointed out that the "higher fences around a smaller number of items" concept should play a key role in the development of the reforms, and that the reform "process needs to be based on a constantly updated understanding of technology changes here in the United States and overseas." While not advocating radical reorganization of the interagency process, Reinsch stated that the "process for making commodity jurisdiction decisions must be regularized," and that "in order to improve allied cooperation, we need to take the multilateral regimes seriously."

He also endorsed the prompt implementation of a number of thoughtful proposals made over the past year or two – the intracompany transfer, expansion of the Validated End User program, project licenses for munitions exports, Secretary Locke's proposal to eliminate licensing requirements for NATO and other allies, and proposals for expedited treatment for trusted end users.

Labels: Export Controls

On Friday, December 11, 2009, the Bureau of Industry and Security (BIS) will publish a final rule in the Federal Register amending the Export Administration Regulations (EAR)  to implement changes made to the Wassenaar Arrangement's List of Dual Use Goods and Technologies (Wassenaar List) agreed upon at the December 2008 Wassenaar Arrangement Plenary Meeting.

While the final rule adds only one new Export Control Classification Number (ECCN) to the Commerce Control List (CCL), ECCN 1A008, changes were made to a number of ECCNs, including ECCNs 1A001, 1A002, 1A003, 1A004, 1A007, 1A008, 1B001, 1B003, 1C008 1C010, 1D003, 1E001, 1E002, 2A983, 3A001, 3A002, 3B001, 4D001, 4D003, 4E001, 5A001, 5B001, 5D001, 5E001, 5A002, 5B002, 5D002, 5E002, 6A001, 6A004, 6A005, 6A006, 6A008, 6A996, 6D003, 6E993, 7A003, 8A001, 8A002 and 9A012.

The final rule also imposes new or expanded National Security (NS) Column 1 controls, NS Column 2 controls and anti-terrorism (AT) controls on certain ECCNs.

The final rule also revises certain definitions in the EAR, by adding the terms: “Bias (accelerometer)” and “Personalized smart card”, removing the term “Noise Level” and adding the terms “Explosives”, “Fusible” and “personal area network.”

The final rule also removes and adds some reporting requirements. 

BIS noted in the final rule that changes made by the Wassenaar Arrangement to ECCNs 6A002 and 6A003 will be implemented in a separate rule, "because of the sensitivity of the items and complexity of procedures and controls for these items."

A copy of the advance version of the final rule can be found here.

Because of the large number of changes to the CCL made by this final rule exporters should carefully review this notice to determine whether any of the export control requirements applicable to their products have changed.

Labels: BIS, Export Controls

In order to save the government time and money, the Bureau of Industry and Security (BIS) issued a proposed rule in today's Federal Register that would eliminate the use of most paper documents that it sends to parties having business before the agency. The documents that would be affected by this proposed rule include:

• export and reexport licenses,
• notices of denial of license applications, 
• notices of return of a license application without action, 
• classification results, 
• License Exception AGR notification results, and 
• encryption review request results.
  

This proposed rule also would make a number of changs to the Export Administration Regulations to implement these changes, including modifying the recordkeeping requirements associated with the elimination of paper documents. The proposed rule would also exempt parties who submit documents to BIS via the SNAP-R system from requirements to retain copies of documents submitted even though those documents are "export control documents'' as defined in part 772 of the EAR.

Comments on this proposed rule must be received by BIS by February 2, 2010.

Labels: BIS, Export Controls

In a letter sent yesterday to President Obama signed by more than 100 companies, members of the Aerospace Industries Association (AIA) praised the Obama Administration for undertaking the review of U.S. export controls and urged the administration to take action on a number of initiatives to modernize the export control system.

The letter identified the following five areas of reform to improve the export control system that do not require new legislation:

1. Establishment of transparent and specific criteria to identify those militarily critical and sensitive defense and space technologies that must be subject to the most rigorous controls.

2. Facilitation of timely technology flows between the U.S. and our closest allies and partners, particularly in support of defense and national security programs important to the U.S. Government.

3. Adoption of procedures to ensure any required Defense Department reviews associated with a proposed release of U.S. technology properly balance both policy and technical considerations, and are completed in a timely and consistent manner.

4. Update of the treatment of the next-generation of aerospace and defense technologies, such as Unmanned Aircraft Systems (UAS), under U.S. and multilateral export control regimes.

5. Review of export control compliance requirements to improve comprehension and implementation, particularly among small and medium-sized firms, as well as a review of resource requirements to raise confidence in the effectiveness of U.S. enforcement efforts.

The letter also reiterated the need to ratify the defense trade cooperation treaties with the United Kingdom and Australia that are currently pending in the Senate. 

The full text of the AIA's letter can be found here.

Labels: Export Controls, ITAR

The U.S. Attorney for the District of Delaware announced today that an Iranian arms procurement agent who was extradited to the United States in 2008 has pled guilty to negotiating the purchase and illegal export of a number of military components to Iran and will be sentenced on December 14, 2009.

According to the indictments, Amir Hossein Ardebili was charged with multiple violations of the Arms Export Control Act, International Emergency Economic Powers Act, smuggling, conspiracy, and money laundering. The charges resulted from a three year international undercover investigation regarding Ardebili’s role as an arms acquisitions agent for the government of Iran. Some of the items that Ardebeli allegedly attempted to procure included:

• QRS-11 Gyro Chip Sensors which are solid-state gyro chips that are used in aircraft, missile, space and commercial applications. The BEI GyroChip Model QRS11 Quartz Rate Sensor, Model No. QRS-11-00300-100, is listed on the United States Munitions List in Category XII(d), and therefore requires a license from the Department of State for export. [Note: certain types of QRS-11 chips are subject to the jurisdiction of the Commerce Department.]

• MAPCGM0003 Phase Shifters. Phase shifters perform a key function in the active radiating elements of electronically steered antennae. They enable an antenna to point a radiated beam in specific directions. Phase shifters have many applications including phased array radar, which is used in military target acquisition and missile guidance.

• Digital Air Data Computer (DADC-107). The DADC-107 is a fully computerized Form/Fit/Function (FFF) replacement for the Central Air Data Computer installed on F-4 fighter aircraft. It calculates flight parameters including altitude, air speed, static pressure, mach number, and true angle of attack. Its high accuracy enhances weapons delivery system performance. The DADC-107 is a United States Munitions List Article under category VIII(h) and therefore requires a United States State Department license for export.

Ardebili’s negotiations with undercover agents culminated in a face-to-face meeting in a Central Asian nation in October of 2007, after which Ardebili was arrested and extradited to the United States.

Documents from this case can be found at the following links:

• Indictment of Amir Hossein Ardebili, a/k/a Amir Akhami, a/k/a Alex Dave
• Government's Sentencing Memorandum 
• Defendant's Motion for Variance From Sentencing Guidelines
  

Update: Thursday's Washington Post contains an interesting story on this case entitled "Cat-and-Mouse Game Traps Arms Broker" with additional details on the scope of the undercover operation that led to Ardebeli's arrest in Tbilisi, Georgia.

Labels: Export Controls, ITAR

The Bureau of Industry and Security (BIS) has created a web portal with links to the video and written transcripts from several of the presentations made at BIS's Update 2009 Conference on Export Controls and Policy that was held September 30 through October 2, 2009 in Washington, DC.

Among the programs available are presentations on encryption, deemed exports, voluntary disclosures, AES, export enforcement and supply chain. Secretary of Commerce Gary Locke's keynote speech is also available to view or read.

This is a great service for exporters and trade compliance professionals that were unable to make this year's program and for those who attended but were unable to attend a particular presentation.

Labels: Export Controls

A U.S. citizen who served as a director of a Singapore-based importer and exporter of aircraft parts was sentenced today in federal court in Brooklyn to 46 months in prison for conspiring to export aircraft parts to Iran. The defendant was also ordered to forfeit $500,000 to the U.S. Treasury Department.

Laura Wang-Woodford, who served as a director of Singapore-based Monarch Aviation Pte., Ltd. and Jungda International Pte. Ltd., was arrested in December 2007, at San Francisco International Airport, pleaded guilty earlier this year to conspiring to export aircraft parts to Iran via Singapore and Malaysia. Wang-Woodford's co-conspirator, her husband Brian Woodford, remains a fugitive.

Ms. Wang-Woodford and her husband, who were originally indicted in 2003, were subsequently charged with:

• 1 count of conspiring to export aircraft parts to Iran;
  
• 15 counts of exporting aircraft parts to Iran in violation of the International Emergency Economic Powers Act;
  
• 1 count of conspiring to export defense articles without a license;
• 2 counts of exporting and attempting to export defense articles without a license, in violation of the Arms Export Control Act and the International Traffic in Arms Regulations; and
  
• 1 count of conspiring to launder the proceeds of the unlawful export of defense articles.

The Justice Department's press release in case can be found here.

Labels: Export Controls, ITAR, Sanctions; Iran

The often delayed sentencing of Atmospheric Glow Technologies, Inc. (AGT), the company alleged to be Professor John Reece Roth's co-conspirator in the criminal case involving unlawful exports of ITAR controlled technology, has now been set for November 23, 2009 before U.S. District Judge Varlan in Knoxville, Tennessee.

As has been widely reported, AGT plead guilty in August 2008 to 10 counts of unlawfully exporting defense articles to a citizen of the People’s Republic of China in violation of the Arms Export Control Act.

AGT, which filed for bankruptcy in 2008, was a privately held plasma technology company formed in 2000 as a spin-off of the University of Tennessee's Plasma Sciences Laboratory. Professor Roth, who was an original shareholder of AGT, was hired by AGT to work on the U.S. Air Force plasma technology contract that led to the violations of U.S. export control laws that resulted in criminal proceedings against AGT, Roth and Daniel Max Sherman, a physicist who formerly worked at AGT and was trained by Roth. In July of this year Roth was sentenced to serve 48 months in prison and Sherman received a prison sentence of 14 months in August.

Labels: Export Controls

The next meeting of the National Council on International Trade Development (NCITD) will take place on Wednesday, October 14, 2009 in Washington, DC and will feature the following speakers:

• Ryan Cathie, Jay P. Nash and Clarence Smith, Center for International Trade and Security, University of Georgia. Topic: Export Controls in China, Japan an Singapore

• Justin Friedman, Director, Office of Export Control Cooperation, U.S. Department of State. Topic: International Export Control Assistance

• Best Practices Roundtable: Expanding a U.S. Compliance Program as a Global Program, Moderators: Carol Fuchs and Felice Laird
  

For information on how to join NCITD or to attend the meeting, see www.ncitd.org or contact the NCITD Secretariat at 202-872-9280.

Labels: Export Controls

The Bureau of Industry and Security (BIS) recently released the third version of its Commodity Classification Information Table that contains information submitted by companies regarding where to locate commodity classification and export controls information on company websites.

The latest version of the table now contains information from nearly 40 companies, an increase from the 17 companies included in the first version of the table.

This table is the result of an initiative launched in September 2008 by BIS to establish a page on its website where manufacturers could voluntarily provide information on the export classification of their products to customers and other persons that intend to export their products. BIS explained that they commenced this initiative in an effort to aid exporters in the licensing process and to assist exporters in complying with U.S. export and reexport control laws.

Information on including your company's export control information on BIS's Commodity Classification Information Table can be found here.

Labels: BIS; EAR;, Export Controls

The Directorate of Defense Trade Controls (DDTC) published a Federal Register notice announcing that the 30 day comment period has begun for the revised DS-4076 Commodity Jurisdiction Determination Form. This form is in a fillable PDF format.

DDTC is encouraging manufacturers to review the form and to consider using it in connection with Commodity Jurisdiction requests.

Note that the estimate for completing this form is 10 hours per response, which includes time required for searching existing data sources, gathering the necessary data, providing the information required, and reviewing the final information to be submitted.

Comments on this form must be submitted to the Office of Management and Budget by October 28, 2009.

The purpose of a Commodity Jurisdiction request is to determine whether an item or service is covered by the U.S. Munitions List (USML) and therefore subject to the International Traffic in Arms Regulations (ITAR) or if the item or service is subject to the jurisdiction of the Commerce Department's Export Administration Regulations (EAR).

Labels: DDTC, Export Controls

While there have been a large number of export control events scheduled lately, here is another good one to add to your calendar.

The American Enterprise Institute is holding a program during the afternoon of Monday, October 5, 2009 in Washington, DC entitled "Export Control Reform 2009: Enhancing National Security and Economic Competitiveness."

Here is a summary of the program's two panels on dual-use and defense export control reforms, which will feature many of the major players in the current export control reform process:

Panel I: Dual-Use Controls: Walking the Tight Rope

Panelists: Matthew Borman, Department of Commerce
Bill Reinsch, National Foreign Trade Council
Ed Rice, U.S. House of Representatives
Moderator: Neena Shenai, AEI

Panel II: Defense Trade Controls: Protecting U.S. National Security, Enhancing Business Opportunities Abroad

Panelists: Richard Aboulafia, Teal Group Corporation
Marion Blakey, Aerospace Industries Association
Thomas Donnelly, AEI
Moderator: Dan Blumenthal, AEI

Click here for more information and to register for this free program.

Labels: Export Controls

Secretary of Commerce Gary Locke met yesterday with Secretary of Defense Robert Gates at the Pentagon to discuss export controls and business visa reform. (Photo courtesy of Department of Commerce).

Locke and Gates met for approximately one hour and agreed to continue to work together with their counterparts at other cabinet agencies toward these reforms.

They plan to meet again in the next few weeks with fellow administration officials to address their progress.

On July 22nd Secretary Gary Locke said that "undertaking a review of export controls" is one of his top five priorities and that he has already instructed the Bureau of Industry and Security to initiate a review of the entire U.S. export control system. The White House subsequently announced that the Obama Administration would conduct a review of the U.S. export control system.

Secretary Locke will be the keynote speaker at next week's Update Conference on Export Controls and Policy presented by the Commerce Department's Bureau of Industry and Security.

We hope to see many of our readers at Update.

Labels: BIS, BIS Update Conference, Export Controls

The State Department's Directorate of Defense Trade Controls (DDTC) issued an announcement (doc) today that could impact many exporters of products and technical data subject to the International Traffic in Arms Regulations (ITAR).

As noted below, DDTC will all require all license submissions for exports of items identified as USML Category XXI, the category that covers "miscellaneous articles" (and related technical data), to include either a copy of a DDTC Commodity Jurisdiction (CJ) determination letter identifying the commodity as controlled under Category XXI or a letter from the Director of the Office of Defense Trade Controls Policy granting permission to use Category XXI.

DDTC made this change since there has been an "increase" in the improper use of Category XXI to describe defense articles that should be properly categorized under another USML category.

Exporters that are not sure about which USML Category covers their product, or whether their product is subject to the jurisdiction of the ITAR or Exprot Administration Regulations, should seek a CJ from DDTC.

The complete text of DDTC's announcement is as follows:

Effective immediately, all license submissions which identify USML Category XXI – Miscellaneous Articles must include an attached copy of one of the following two documents authorizing use of Cat XXI or the application will be subject to Return Without Action:

• A copy of a DDTC Commodity Jurisdiction determination letter identifying the commodity as controlled under the USML at Cat XXI;
• Or an official letter from the Director, Office of Defense Trade Controls Policy granting permission to use Cat XXI.

This policy is necessary to enforce the requirement of 22 CFR Part 121.1 Category XXI(a). DDTC has observed a recent increase in the use of Cat XXI for items which should be properly categorized under a well defined USML category. The incorrect use of Cat XXI results in the license application being directed to the incorrect licensing team at DDTC and DTSA, which significantly slows down the adjudication of the request. Additionally, if a properly categorized commodity is designated as SME, the incorrect use of Cat XXI also incorrectly identifies the commodity as non-SME.

If you are unsure if your commodity is controlled by the USML, you should seek a Commodity Jurisdiction determination (see 22 CFR 120.4). Please follow the guidelines at http://www.pmddtc.state.gov/commodity_jurisdiction/index.html. If you have determined your commodity is USML but are unsure of the correct category, contact the DDTC Response Team at 202-663-1282 or PM-DDTC-Response-Team-DL@state.gov.

Any other questions or concerns regarding the use of Category XXI should be directed to the DDTC Response Team at 202-663-1282 or PM-DDTC-Response-Team-DL@state.gov.

Labels: DDTC, Export Controls, ITAR

The Bureau of Industry (BIS) published a final rule (PDF) in today's Federal Register amending several sections of Part 744 of the Export Administration Regulations (EAR) to specify that in-country transfers of items subject to the EAR to parties on the Entity List are now subject to the Entity's List's licensing requirements.

BIS stated that the rationale for making these changes was as follows:

Regardless of the form of the transaction (export, reexport, or transfer (incountry)), the United States Government believes it is important to review all transactions involving persons listed on the Entity List prior to the initiation of a transaction with a listed person and/or receipt by the listed person of an item in a transaction.

The Entity List (PDF), set forth in Supplement No. 4 to Part 744 of the EAR, provides notice to the public that certain exports, reexports, and transfers (in-country) to parties identified on the Entity List require a license from the Bureau of Industry and Security (BIS) and that availability of License Exceptions in such transactions is limited.

Labels: BIS; EAR, Export Controls

Today the Treasury Department's Office of Foreign Assets Control (OFAC) issued the long-awaited final rule to amend the Cuban Assets Control Regulations to implement changes to the U.S. embargo on Cuba passed by Congress in March of this year.

The advance version of the final rule that will be published in the Federal Register on Tuesday, September 8, 2009 can be found here (pdf). These regulations are effective today. OFAC’s fact sheet providing an overview of these changes is reprinted below.

While these regulations expand the ability of Americans to visit “close relatives” in Cuba and send remittances to family members in Cuba, from the perspective of U.S. exporters the regulations make two important changes:

1. The amended regulations authorize a greatly expanded range of commercial telecommunications transactions with Cuba, such as cellular and satellite communications. In addition, the amended regulations contains a general license authorizing travel to Cuba related to the commercial export of telecommunications-related items that have been authorized by the Department of Commerce. Individuals traveling under this general license must be employed by a telecommunications services provider that is a person subject to U.S. jurisdiction or by an entity duly appointed to represent such a provider. In addition, the traveler’s schedule of activities cannot include free time, travel, or recreation in excess of that consistent with a full work schedule (i.e., no long weekends on the beach); and

2. The amended regulations also authorize a general license to authorize, with certain conditions, employees of producers or distributors of medical or agricultural products (including food) to travel to Cuba to engage in the marketing, sales negotiation, accompanied delivery, or servicing in Cuba of agricultural commodities, medicine, or medical devices eligible under the Department of Commerce's export or reexport licensing policy to Cuba. Note that persons traveling to Cuba under this general license must submit pre and post-departure reports to Cuba identifying
the traveler and the producer/distributor and describing the purpose and scope of such travel and describing the business activities conducted, the persons with whom the traveler met in the course of such activities, and the expenses incurred. The same limitations on free time describe above also apply. This is a major change for U.S. exporters of humanitarian products since all previous travel to Cuba had to take place pursuant to a specific license issued by OFAC.

Important Note: All travel to Cuba pursuant to these general licenses must be arranged and provided by OFAC authorized providers of air and travel services.

Fact Sheet: Treasury Amends Cuban Assets Control Regulations
To Implement the President’s Initiative on
Family Visits, Remittances, and Telecommunications

The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) today issued a final rule amending the Cuban Assets Control Regulations, 31 C.F.R. Part 515 (CACR), to implement the President's initiative of April 13, 2009, to reach out to the Cuban people in support of their desire to freely determine their country's future, promote greater contact between separated family members in the United States and Cuba, and increase the flow of remittances and information to the Cuban people.

Today's amendments to the CACR change the rules in three major areas: (1) family visits; (2) family remittances; and (3) telecommunications. These amendments also make certain technical and conforming changes to the CACR.

Family visits. OFAC has eased restrictions on travel-related transactions for visits to "close relatives" who are nationals of Cuba by issuing a general license.

• Travelers may visit "close relatives" (including, for example, aunts, uncles, cousins, and second cousins) who are nationals of Cuba.
• There is no limit on the duration of a visit to these "close relatives."
• There is no limit on the frequency of visits to these "close relatives."
• Authorized expenditure limits for travel within Cuba have been increased to match the expenditures allowed for all other authorized categories of travel to Cuba -- specifically, the current State Department "per diem rate" for Havana (for use anywhere in Cuba) plus amounts for additional transactions directly incident to visiting close relatives in Cuba. The current "maximum per diem rate" is $179. For future updates to this rate, travelers may check the Department of State's Office of Allowances web site (http://aoprals.state.gov).
• Travelers may be accompanied by persons who share a common dwelling as a family with them.

Remittances. OFAC has also eased restrictions on remittances (including from inherited blocked accounts) to "close relatives" who are nationals of Cuba by issuing a general license.

• Persons subject to the jurisdiction of the United States may send remittances to "close relatives" (including, as noted above, aunts, uncles, cousins, and second cousins) who are nationals of Cuba. These amendments do not affect the prohibition on remittances to a "prohibited official of the Government of Cuba" or a "prohibited member of the Cuban Communist Party," as defined in the CACR.
• There is no limit on the amount of such a remittance.
• There is no limit on the frequency with which persons subject to the jurisdiction of the United States may send such remittances.
• Authorized family travelers may carry up to $3,000 of such remittances to Cuba.
• Remittances for emigration-related purposes continue to be subject to separate restrictions.
• Remittances may be made from depository institutions. To facilitate this, depository institutions are permitted to set up testing arrangements and exchange authenticator keys with Cuban financial institutions.

Telecommunications. Certain telecommunications services, contracts, related payments, and travel-related transactions are authorized by general licenses. The CACR amendments ease the telecommunications rules in three broad areas, as well as allow travel-related transactions for the specific purpose of conducting business in all three areas.

• Persons subject to U.S. jurisdiction may contract with and pay non-Cuban telecommunications services providers to provide services to particular individuals in Cuba (other than prohibited officials of the Government of Cuba or prohibited members of the Cuban Communist Party, as defined in the CACR). For example, an individual in the United States may contract with and pay a U.S. or third-country telecommunications company to provide cellular telephone service for a phone owned and used by that individual's friend in Cuba. Moreover, a U.S. telecommunications services provider may enter into a contract with a particular individual in Cuba to provide telecommunications services to that individual.
• Telecommunications services providers that are persons subject to U.S. jurisdiction are generally licensed (1) to make payments incident to the provision of telecommunications services between the United States and Cuba and the provision of satellite radio or satellite television services to Cuba and (2) to enter into and perform (including making payments) under roaming services agreements with telecommunications services providers in Cuba.
• Transactions incident to establishing facilities to provide telecommunications services linking the United States and Cuba, including fiber-optic cable and satellite facilities, are authorized by general license. The Bureau of Industry and Security of the U.S. Department of Commerce licenses the exportation and re-exportation of goods and technology for the establishment of telecommunications facilities linking the United States and Cuba.
• Two general licenses have been added authorizing, with certain conditions, travel-related transactions incident to authorized telecommunications transactions. One of these licenses authorizes, with certain conditions, travel transactions incident to the commercial export of telecommunications-related items that have been authorized by the Department of Commerce. The second license authorizes travel transactions incident to participation in telecommunications-related professional meetings.

New general license for TSRA travel-related transactions. The new amendments to the CACR also implement provisions of the Omnibus Appropriations Act, 2009. Pursuant to section 620 of the Omnibus Appropriations Act, 2009, which amended the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA), there is a new general license for travel-related transactions incident to agricultural and medical sales under TSRA.

• This new general license authorizes, with certain conditions, travel-related transactions that are directly incident to the commercial marketing, sales negotiation, accompanied delivery, or servicing in Cuba of agricultural commodities, medicine, or medical devices that appear consistent with the Department of Commerce's export or reexport licensing policy.
• A traveler may rely on this general license if he or she is regularly employed by a producer or distributor of the agricultural or medical items or by an entity duly appointed to represent such a producer or distributor, and if that traveler's schedule of activities is consistent with a full work schedule.
• Under the new general license, written reports must be submitted to OFAC at least 14 days before departure for Cuba and within 14 days of return.

Labels: Cuba, Export Controls

The Bureau of Industry and Security (BIS) announced today that the next session of the U.S.-China High Technology Working Group (HTWG), which will be held in Washington, DC at the end of September 2009 will include a public-private dialogue on Tuesday, September 29, 2009 (the day before Update 2009 begins) in cooperation with the National Association of Manufacturers (NAM).

Participants in the public-private HTWG event will focus on identifying barriers to U.S.-China high technology trade, particularly in two of the largest categories of bilateral advanced technology trade: civil aviation-aerospace and information technology. The principal goals of this dialogue are to offer an opportunity for U.S. and Chinese companies to interact with each other and with government officials directly on these issues, and to learn from individual U.S. and Chinese companies about the ways in which the two governments can further support high technology trade for civilian end-uses in China.

The HTWG, which was established in 2005, meets twice a year to discuss ways to facilitate secure, civilian high technology trade between the U.S. and China.

Labels: China, Export Controls

American Metal Market (www.amm.com) recently ran the following story containing additional details on our recent post describing the recent Bureau of Industry and Security (BIS) enforcement case involving Eastways Shipping Corporation, a New York City-based freight forwarder. As noted below, it appears that the penalty will force the freight forwarder to shut down their business (disclaimer: the editor of International Trade Law News is quoted in the article):

Export of Tinplate Brings Freight Firm $70,000 Fine

By: Paul Schaffer
Published: Aug. 26, 2009
(Reprinted with permission of American Metal Market)

New York -- A freight forwarder who arranged to deliver $95,335 worth of tinplate scrap to Pakistan in 2006 has been hit with a $70,000 penalty because the Karachi buyer was on a U.S. Commerce Department blacklist.

Although New York-based Eastways Shipping Corp. has been given six months to pay the penalty in installments, owner and president Nigel Storey told AMM that the business can't survive such a hit and that he will shut it once he settles with his landlord. The order issued by the Bureau of Industry and Security said Eastways failed to obtain a license for the shipment. The violation didn't pertain to the contents of the shipment, but rather that Allied Trading Co. is on the bureau's "entity list." The Commerce Department roster shows Allied as one of many buyers of technologically sensitive goods that ended up in Pakistan's nuclear weapons program.

Storey said that his client, Fairfield, Conn.-based Tinplex Corp., was listed as the exporter and was willing to explain Eastways' limited role to the Commerce Department. "They wanted no part of that," he said. The forwarder is held responsible for knowing export control subtleties if the commodity itself isn't on any restricted list. "I still felt that the actual exporter was really the responsible party," he said.

Douglas Jacobson, a Washington-based trade lawyer not involved with the forwarder or Allied, said that Eastways would have been cleared for the shipment if it had dealt with Commerce ahead of time. However, any transactions with Allied Trading require pre-clearance because of the Pakistani company's past activities, he said.

Note that the article's reference to "pre-clearance" refers to the Export Administration Regulation's requirement that exports and reexports to parties identified on the Entity List require a license to be obtained from BIS prior to shipment. In this case, the Entity List states that the license review policy for Allied Trading Company is "case-by-case for all items listed on the CCL" and that there is a "presumption of approval for EAR99 items." Because the scrap metal was classified as EAR99, it appears that BIS may have approved the export license application submitted by the exporter in this case.

It is not yet clear whether BIS has or will bring an enforcement case against the exporter of the scrap metal to Pakistan. While each case is evaluated by BIS independently, BIS will typically allege that both the freight forwarder and exporter engaged in prohibited activity in connection with the export to the party on the Entity List.

Labels: BIS; EAR, Export Controls

The sentencing of Atmospheric Glow Technologies, Inc. (AGT), the company alleged to be Professor John Reece Roth's co-conspirator in the criminal case involving unlawful exports of ITAR controlled technology, has been moved to 10 a.m. on October 28, 2009 in Knoxville, Tennessee.

AGT plead guilty in August 2008 to 10 counts of unlawfully exporting defense articles to a citizen of the People’s Republic of China in violation of the Arms Export Control Act.

AGT, which filed for bankruptcy in 2008, was a privately held plasma technology company located in Knoxville, Tennessee. Professor Roth, who was an original shareholder of AGT, was hired by AGT to work on the U.S. Air Force plasma technology contract that led to the violations of U.S. export control laws that resulted in criminal proceedings against AGT, Roth and Daniel Max Sherman, a physicist who formerly worked at AGT and was trained by Roth.

Labels: DDTC, Export Controls

Yet another company has been fined by the Bureau of Industry and Security (BIS) for an export-related violation involving a party on the Entity List.

Today BIS posted the settlement documents involving Eastways Shipping Corporation, a New York City-based freight forwarder. Eastways agreed to pay a $70,000 civil penalty ($23,333 per violation) for allegedly arranging for the export of scrap metal worth $95,335 to Allied Trading Company, a company in Karachi, Pakistan that is included on the Entity List. The scrap metal involved in these transactions was classified as EAR99.

As a result of its actions, BIS charged Eastways with three counts of aiding and abetting an act prohibited by the Export Administration Regulations (EAR) since the scrap metal was apparently exported to Pakistan without the required export licenses.

The Entity List, established in 1997 and modified periodically, is found in Supplement No. 4 to Part 744 (pdf) of the EAR. The Entity List includes non-U.S. businesses, research institutions, government and private organizations, individuals, and other types of entities whose activities are contrary to U.S. national security and/or foreign policy interests.

The inclusion of a party on the Entity List notifies exporters that certain exports and reexports to parties identified on the Entity List require an export license from BIS and that the availability of License Exceptions in such transactions is limited. The Entity List also includes the license review policy for each part listed. In some cases, there is a presumption that an export license will not be granted.

In this case, the Entity List states that for Allied Trading Company the license review policy is "case-by-case for all items listed on the CCL" and that there is a "presumption of approval for EAR99 items." Because the scrap metal was classified as EAR99, it appears likely that BIS would have approved the export license application submitted by the exporter in this case. BIS has yet to post the civil penalty against the exporter that attempted to sell the scrap metal to Pakistan.

This case once again demonstrates the need for all parties in U.S. export transactions to screen all of the customers and end-users against the Entity List and the other restricted party lists maintained by the U.S. Government.

Labels: BIS; EAR, Export Controls

The Bureau of Industry and Security (BIS) recently posted an updated version of it guidance and frequently asked questions involving U.S. exports to Syria. The bottom line: Despite many news reports to the contrary, U.S. export controls involving Syria remains unchanged.

As we previously reported several weeks ago, various news reports, including an article in the New York Times, indicated that the U.S. Government was easing or lifting sanctions on Syria. While the Obama Administration has indicated that it will "process all eligible applications for export licenses to Syria as quickly as possible," the current export licensing requirements to Syria remain unchanged.

Here is the summary of the current restrictions on Syria that was recently posted by BIS:

BIS requires a license for the export or reexport to Syria of all items subject to the Export Administration Regulations (EAR), except food and medicines not on the Commerce Control List (CCL). Pursuant to the waiver authority exercised by the President in Executive Order 13338, BIS may consider several categories of items on a case-by-case basis including medicines on the CCL and medical devices; parts and components intended to ensure the safety of civil aviation and the safe operation of commercial passenger aircraft; and telecommunications equipment and associated computers, technology, and software. License applications for other exports and reexports to Syria are subject to a general policy of denial.

In our experience, BIS and the other U.S. government reviewing agencies involved in the export licensing process have consistently approved licenses to export controlled medicines and medical devices to Syria on a regular basis and in a fairly timely manner (much faster than OFAC's processing of TSRA licenses for Iran and Sudan). The only question is whether the U.S. will begin issuing licenses for the export of aircraft components, telecommunication products and other types of eligible products faster than it has in the past.

Labels: Export Controls, Sanctions; Syria

Yesterday's blog posts on the BIS export control enforcement cases involving RFMD and FMC have been updated to include additional information contained in the proposed charging letter and settlement agreements that were posted yesterday afternoon (see posts below).

Labels: BIS, Export Controls

The Commerce Department's Bureau of Industry and Security (BIS) has imposed a civil penalty on a U.S. manufacturer and an employee with export control compliance responsibilities for unlicensed exports of high performance semiconductor components to China.

RF Micro Devices, Inc. (RFMD), a Greensboro, N.C.-based manufacturer of high-performance semiconductor components, has agreed to pay a $190,000 civil penalty to settle allegations that it exported spread-spectrum modems in violation of the Export Administration Regulations (EAR) to the People's Republic of China. The unique aspect of this case, which was voluntarily disclosed by RFMD, is that BIS also imposed a $15,000 civil penalty on a RFMD manager with export compliance responsibilities for making false and misleading statements to BIS Special Agents during the investigation of RFMD.

BIS alleged that during 2002 and 2003 RFMD made 14 unlicensed exports of spread-spectrum modems, classified under Export Control Classification Number (ECCN) 5A001, to the People’s Republic of China with knowledge that a violation of the Regulations was occurring, was about to occur or was intended to occur in connection with the spread-spectrum modems. In addition, BIS alleged that on 13 occasions RFMD made false or misleading statements in connection with the submission of Shipper’s Export Declarations (SEDs). ECCN 5A001 covers controlled telecommunications systems, equipment, components and accessories. Certain products classified in ECCN 5A001 are controlled for National Security reasons and require an export license to China.

BIS also alleged that, in 2004, a RFMD manager with export control compliance responsibilities told a BIS investigator that an outside export control consultant had confirmed that RFMD’s products were not export-controlled to any region where the company was marketing or selling its products. However, BIS alleged that the RFMD manager "had been repeatedly advised that certain RFMD products may have been classified under the Commerce Control List and that these products may have required an export license."

In announcing this case, Kevin Delli-Colli, the Acting Assistant Secretary of Commerce for Export Enforcement said that "unlawful shipment of state-of-the-art micro devices is a serious national security concern.” Delli-Colli also added that "companies that voluntarily disclose violations must provide truthful and complete information to investigators. Self-serving, false or misleading statements only serve to further undermine corporate credibility.”

This is one of the very few cases in which a company's export compliance manager has been assessed civil penalties in an export enforcement case.

Update: The proposed charging letter and settlement documents in this case can be found here (employee) and here (RFMD).

The proposed charging letter issued to RFMD indicates that the controlled products exported to China were RF3000 and RF3002 spread-spectrum modems, classified under ECCN 5A001, despite being advised by an export controls consultant that a review of the classification and export control requirements of such products were "a priority issue for the company". BIS also charged the company with "acting with knowledge" of violations since the company had been advised of the possible licensing requirements. RFMD was also charged with 14 counts of making a false statement on a SED (now EEI) by indicating that no license was required (NLR) to export the products from the U.S.

The proposed charging letter issued to the RFMD manager with "export control compliance" responsibilities indicated that the employee advised a BIS special agent that "she had been advised . . . by an outside export controls consultant that had been hired by RFMD, that all of RFMD's products were classified as EAR99 and were not export-controlled to any region in which RFMD was marketing or selling its products." The employee also had been advised by the outside export controls consultant "on multiple occasions . . . that RFMD's export control classification review was incomplete."As a result, the employee was charged with one count of making a false statement to BIS in the course of an investigation and agreed to pay a $15,000 penalty to settle the matter.

Labels: BIS; EAR, Export Controls

In yet another export enforcement case involving controlled valves, the Commerce Department's Bureau of Industry and Security (BIS) announced late last week that FMC Technologies, Inc., a Houston-based provider of specialty products and services to the oil and gas sector, agreed to pay a $610,000 civil penalty to settle allegations that it exported controlled valves in violation of the Export Administration Regulations (EAR).

BIS said that FMC voluntarily disclosed the violations and cooperated fully with the investigation.

BIS alleged that between 2003 and 2007 FMC made 78 unlicensed exports of butterfly and check valves classified under Export Control Classification Number (ECCN) 2B350.

ECCN 2B350, which covers many valves and other type of equipment used in the chemical industry, is one of the most common ECCNs subject to BIS enforcement actions.

In its press release, BIS quoted Kevin Delli-Colli, Acting Assistant Secretary of Commerce for Export Enforcement, as saying that an "effective compliance program is only as good as its last revision" and "not staying up to date with regulatory changes can lead to violations of the export regulations." This statement apparently refers to the final rule issued by BIS on April 14, 2005 that amended the EAR to significantly increase the country scope of chemical/biological (CB) controls on chemical and biological equipment and related technology included on the Australia Group control lists.

As a result of the 2005 change, exports of products classified as ECCN 2B350 require an export license to all countries, except the 40 members of the Australia Group. Export licenses are required to export products classified in ECCN 2B350 to such common destinations as China, India, Israel, Russia, Taiwan and the United Arab Emirates. Many exporters, however, did not update their export compliance programs and internal controls to implement the 2005 changes to determine whether an export license was needed prior to exporting valves and other products controlled by ECCN 2B350. This breakdown in compliance has led to numerous BIS enforcement cases. Additional enforcement cases involving products covered by ECCN 2B350 are expected.

ECCN 2B350 was most recently amended by BIS on July 6, 2009 to implement recent changes made by the Australia Group.

Update: The proposed charging letter and settlement documents in this case, which can be found here, indicates that FMC was charged with six counts of making unlicensed exports of ECCN 2B350 check and butterfly valves to China, Mexico, Tunisia and Venezuela following the issuance of the April 2005 final rule noted above. FMC was also charged with making 72 unlicensed reexports of 2B350 butterfly valves from the company's warehouses in Singapore, UAE and the UK to 18 countries.

Labels: 2B350, BIS; EAR, Export Controls

Be sure to follow the International Trade Law News Twitter feed at http://twitter.com/tradelawnews for more regular news updates, including yesterday's announcement that President Obama has directed the National Economic Council and National Security Council to conduct a broad review of the U.S. export control system.

House Foreign Affairs Committee Chairman Howard Berman's statement on the White House announcement is reprinted below. Representative Berman plans to introduce a new Export Administration Act in 2010.

New Export Control Review Will Help Improve U.S. Security, Berman Says

Van Nuys, CA – Congressman Howard L. Berman (D-CA), chairman of the House Foreign Affairs Committee, today welcomed the Administration’s new initiative to review the U.S. export control system.

“I am very pleased to see the Obama Administration will undertake this thorough review,” Berman said. “It is years overdue. A modernized export control system is needed to deal more effectively with the security threats posed by global diffusion of dual-use technologies and to maintain continued U.S. technological leadership.

“Effective export controls are critical to U.S. national security, but they must be responsive to the challenges of the modern globalized world," Berman added. "That is why I have launched a congressional review of U.S. export controls on U.S. goods that have both commercial and military applications – so-called ‘dual-use’ items. I hope to introduce a new Export Administration Act in the beginning of next year that will overhaul the dual-use export control system.”

Dual-use items are those that can be used for both commercial and military purposes, and are therefore unlawful for export to certain countries without a U.S. license.

The fundamental basis for U.S. dual-use export controls, the Export Administration Act of 1979, expired in 1994. It was extended briefly in 2000, and has been kept in force only through the extraordinary authority of the International Emergency Economic Powers Act (IEEPA). Today the White House also announced that it was extending the Export Administration Act by a year.

Labels: Export Controls

Here is the latest update on the criminal export controls case involving Professor John Reece Roth and his alleged co-conspirators.

Dr. Roth Released on Bond Pending Appeal

Following Professor Roth's sentencing to 48 months in prison for violating the Arms Export Control Act (AECA) and being found guilty of one count of wire fraud, Professor Roth's defense counsel filed a Motion for Release Pending Appeal. On July 28, 2009, U.S. District Judge Thomas Varlan granted Professor Roth's motion and he will remain released on bond pending the outcome of the appeal to the Sixth Circuit Court of Appeals.

During the hearing on the motion, the U.S. Attorney's office conceded that Professor Roth is not likely to flee if released, he did not pose a risk to the community and did not contend that the appeal was for the purpose of delay. As a result, under the Bail Reform Act of 1984 the remaining question for Judge Varlan to consider was whether the appeal raises a substantial question of law or fact likely to likely to result in reversal, a new trial, a sentence that does not include a term of imprisonment, or a reduced sentence to a term of imprisonment less than the total of the time already served plus the expected duration of the appeal process.

In Professor Roth's motion, the defense argues that this appeal raised four substantial questions of law or fact, including:

1. Whether the items covered by the Indictment were defense services or technical data directly related to a defense article as those terms are defined in the United States Munitions List (“USML”);
   
2. Whether or not there was sufficient evidence to prove that the defendant willfully violated the AECA;
   
3. Whether the Court erred in refusing to instruct the jury on ignorance of the law as the defendant requested; and
   
4. Whether the Court was in error in denying the defendant’s motion to strike references in the Indictment to the national security interest of the United States.
   

Judge Varlan only addressed the second issue. After reviewing the various case law Judge Varlan found that that "there is a substantial question regarding the definition of willfully applicable to the AECA and the related issue of the extent to which ignorance of the law is a defense because there is a circuit split and the Sixth Circuit has not decided the substantial question of law." Specifically, Judge Varlan indicated that he reviewed the "available case law and determines that the level of knowledge defendant must have regarding the illegality of his action is an undecided issue and that there is not a clear trend such that the question could not be answered either way."*

As a result, Judge Varlan granted Roth's motion for release pending appeal since there is a substantial question of law that if resolved in Roth's favor would lead to a new trial and/or a reduction in Roth's sentence.

Dr. Roth's Release Order can be found here. Thanks to a loyal reader for providing this document to International Trade Law News.

Sentencing of Sherman and Atmospheric Glow Technologies

Two additional defendants in the case involving Dr. Roth have pleaded guilty and are awaiting sentencing.

Daniel Daniel Max Sherman, a physicist who was trained by Dr. Roth and was an employee, director and one of the original founders of Atmospheric Glow Technologies, Inc. , pleaded guilty to one count of conspiracy to violate the Arms Export Control Act. Sherman, who has been free on bond, will be sentenced on August 10th.

Atmospheric Glow Technologies, Inc. (AGT) will be sentenced by Judge Varlan on August 27th. AGT pleaded guilty in August 2008 to 10 counts of unlawfully exporting defense articles to a citizen of the People’s Republic of China in violation of the Arms Export Control Act. AGT, which for bankruptcy in 2008, was a plasma technology company located in Knoxville, Tennessee.

Thanks to another loyal reader for providing the updated information on the Sherman and Atmospheric Glow sentencing dates.

*Interestingly, in his review of the applicable case law Judge Varlan did not mention the recent Seventh Circuit decision in United States v. Pulungan, in which the court reversed the conviction on grounds that the evidence presented at trial was insufficient to show that the defendant knew that certain rifle scopes were "defense articles" that required export licenses since the rifle scopes were not included on the U.S. Munitions List and the Commodity Jurisdiction obtained by the manufacturer was not known to the defendant or the public.

Labels: Export Controls

Today marked the conclusion of the first U.S.-China Strategic and Economic Dialogue held in Washington, DC. At the conclusion of the meetings, the U.S. and China issued a Joint Fact Sheet summarizing the issues and action items agreed to during the two days of discussions.

The fact sheet contained several items of note on U.S. trade-regulatory issues.

Regarding foreign direct investment in the U.S., the fact sheet indicates that the U.S. "confirms that the Committee on Foreign Investment in the United States (CFIUS) process ensures the consistent and fair treatment of all foreign investment without prejudice to the place of origin."

On antidumping issues, the United States recognized "the continued progress China has made in its market reforms and will earnestly consider China's concerns, and will consult through the JCCT [US-China Joint Commission on Commerce and Trade] in a cooperative manner to work toward China's Market Economy Status in an expeditious manner." This has been an important issue for China, since for antidumping purposes China is treated as a non-market economy, a designation that typically leads to higher antidumping duty margins.

With respect to export controls, the U.S. and China agreed "to accelerate the implementation of "Guidelines for China-U.S. High Technology and Strategic Trade Development" and expeditiously formulate the Action Plan on Expansion of China-U.S. High Technology and Strategic Trade Cooperation in Priority Sectors.

The Guidelines referred to in the fact sheet were signed in December 2007 by former Under Secretary of Commerce Mario Mancuso and MOFCOM Vice Minister Wei Jiangguo. Under the Guidelines, the Commerce Department and MOFCOM agreed to jointly identify and carry out steps to enhance secure high technology and strategic trade. For example, the Commerce Department and MOFCOM will continue to review U.S. dual-use policy to identity and implement appropriate processes to streamline the licensing process for legitimate civilian trade. The Guidelines also recognized the critical role of end-use visits conducted by BIS in ensuring the protection of U.S. national security interests in the enhancement of high technology trade.

Labels: Antidumping, CFIUS, China;, Export Controls

Labels: Customs, Export Controls

In a speech presented this evening to the Washington International Trade Association, Commerce Secretary Gary Locke said that "undertaking a review of export controls" is one of his top five priorities and that he has already instructed the Bureau of Industry and Security to initiate a review of the entire U.S. export control system.

Below is the export controls portion of Secretary Locke's speech. The full text of the speech, including the list of his other four priorities, can be found here.

Yet another area where red tape is challenging American businesses, and American security, is our export control regime.

Earlier this year, former National Security Adviser Brent Scowcroft, chaired a distinguish panel* to look into this issue, and he flatly declared:

“The national security controls on science and technology are broken.”

The panel concluded that our Cold War era export control system has constrained both U.S. commercial and military capabilities from expanding into new fields and from applying new scientific developments.

Our export control system must adapt to America's changing security needs without inhibiting the competitiveness of U.S. companies and institutions. That competitiveness is critical to our economic and national security.

Commerce has already begun to implement programs that will reduce the export licensing burden on U.S. companies. For example, earlier this year, I announced the first Validated End User in India. The VEU program was designed to facilitate high technology trade in India and China by enabling certain items to be transferred without an individual export licenses. But much more needs to be done.

I have instructed Commerce’s Bureau of Industry and Security to initiate a review of the entire export control system. The review will focus on improving the system by targeting our controls at those state and non-state actors who would seek to do us harm, while ensuring that the traditional control lists keep pace with technological developments.

*The panel referred to produced the National Academies' January 2009 report on export controls entitled Beyond 'Fortress America: National Security Controls on Science and Technology in a Globalized World.

Labels: BIS, Commerce Department, Export Controls

Five axis grinding machines are controlled by the Export Administration Regulations (EAR) under ECCNs 2B001.b.2 (mills) and 2B001.c.2 (grinders). Exports of five axis machine tools from the U.S. are controlled for NS, NP, and AT reasons and there are no license exceptions.

The following is a summary of the key findings of the critical technology assessment:

• Foreign availability of certain five axis simultaneous control mills, mill/turns, and machining centers controlled by ECCN 2B001.b.2 exists in China and Taiwan, both having an indigenous capability to produce five axis simultaneous control machine tools with parameters comparable to those produced in the U.S.;

• U.S. export license processing times, especially to China, are longer than those of other Wassenaar Arrangement members, placing U.S. exporters at a competitive disadvantage;

• The U.S. is losing market share to its European and Asian competitors, particularly South Korea;

• U.S. producers of five axis simultaneous control machine tools, while currently profitable, face an uncertain future for their five axis machine tool product lines with imports outpacing domestic sales and increasing customer demand for foreign machine tools;

• A potential vulnerability exists with regard to sensitive data stored in the computerized numerical controllers of machine tools connected to the Internet.

As a result of the assessment, the following recommendations were made:

• The EAR should be amended to facilitate the export of five axis simultaneous control mills, mill/turns, and machining centers of certain precision accuracies controlled by ECCN 2B001.b.2 with foreign availability to controlled countries under license exception or similar-type authorization, and work with international partners to modify the existing multilateral export control of five axis simultaneous control machine tools;

• Producers and distributors of these machine tools are encouraged to identify or develop anti-tampering and anti-diversion features that can be utilized to mitigate concerns of machine tool misuse or diversion after export to facilitate interagency review of license applications to sensitive destinations;

• Improve communication between U.S. companies and U.S. export licensing officials to decrease processing times of license applications for exports destined to China;

The complete report can be found here (pdf).

Labels: BIS, Export Controls

The Bureau of Industry and Security (BIS) yesterday published a final rule in the Federal Register to amend the Export Administration Regulations (EAR) to implement the 2008 Australia Group (AG) intersessional decisions.

Among other things, this final rule makes an important change to Export Control Classification Number (ECCN) 2B350, the ECCN that covers many valves used in the chemical industry. ECCN 2B350 is one of the most common ECCNs subject to BIS enforcement actions.

The final rule amends ECCN 2B350 by revising the controls on valves included in ECCN 2B350.g to include any valves (including casings or preformed casing liners designed for such valves) that are made from any of the following ceramic materials:

(1) Silicon carbide with a purity of 80% or more by weight;

(2) aluminum oxide (alumina) with a purity of 99.9% or more by weight; or

(3) zirconium oxide (zirconia).

In addition, this final rule adds a new ECCN 2D351 to control dedicated software for toxic gas monitoring systems and their dedicated detecting components controlled under ECCN 2B351.

Finally, this rule amends the list of countries that are States Parties to the Convention on the Prohibition of the Development, Production, Stockpiling, and Use of Chemical Weapons and on Their Destruction (known as the Chemical Weapons Convention or CWC) by adding the Bahamas, Dominican Republic, Iraq and Lebanon, all of which recently became States Parties to that Convention.

Labels: BIS; EAR, Export Controls

The House Foreign Affairs Committee's Subcommittee on Terrorism, Nonproliferation and Trade will hold a hearing on various policy considerations associated with the lapsed Export Administration Act this Thursday at 10 a.m. on July 9th in room 2172 of the Rayburn House Office Building. This hearing was originally scheduled to be held on June 18th and was postponed due to pending House business.

The witnesses scheduled to appear at the hearing are:

• The Honorable John Engler, President and Chief Executive Officer of the National Association of Manufacturers
  

• Arthur Shulman, Esq., Senior Research Associate at the Wisconsin Project on Nuclear Arms Control

• Owen Herrnstadt, Esq., Director of Trade and Globalization Policy at the International Association of Machinists and Aerospace Workers

The Export Administration Act of 1979 lapsed in August 2001 and has not been renewed by Congress. The Export Administration Regulations have remained in effect pursuant to Executive Order 13222 issued on August 17, 2001 pursuant to the International Emergency Economic Powers Act and extended annually by the President.

Labels: BIS; EAR, Congress, Export Controls

Today U.S. District Judge Thomas sentenced former University of Tennessee Professor John Reece Roth to 48 months in prison for violating the Arms Export Control Act. Following his release from prison, Roth, who is 72 years old, must serve two years of supervised release. Although he faced potential fines of more than $15 million, Judge Varlan did not impose any monetary penalties on Dr. Roth. The sentence was 15 months below the minimum suggested 63 month sentence contained in the Federal Sentencing Guidelines.

The press release issued by the Justice Department announcing Dr. Roth's sentence can be found here.

Following the sentencing hearing, there was a bond hearing at 2 p.m. today to determine whether Dr. Roth should remain free on bond pending an appeal. The U.S. Attorney's office opposes Dr. Roth's defense counsel's request that he remain free on bond. At the bond hearing Judge Varlan indicated that he would consider Dr. Roth's motion for bond pending appeal and will render a decision in the coming weeks.

There are still two more sentences to be handed out in this case. Daniel Max Sherman, a University of Tennessee-trained physicist who was an employee, director and one of the original founders of Atmospheric Glow Technologies, Inc. , pleaded guilty to conspiracy to violate the Arms Export Control Act. Sherman, who has been free on bond, will be sentenced in on July 17th. Sherman was a graduate student under Dr. Roth's supervision at the University of Tennessee and served as the lead scientist in the Air Force projects contracts at issue in this case.

One of Dr. Roth's alleged co-conspirators, Atmospheric Glow Technologies, Inc. (AGT) will be sentenced on August 27th. AGT, which filed last year for bankruptcy, was a plasma technology company located in Knoxville, Tennessee. AGT pleaded guilty in August 2008 to 10 counts of unlawfully exporting defense articles to a citizen of the People’s Republic of China in violation of the Arms Export Control Act.

More details to follow as soon as they are available.

Labels: Export Controls

After nearly ten months following his conviction of numerous export control violations, retired University of Tennessee professor John Reece Roth will be sentenced tomorrow, July 1, 2009, at 10 a.m. EDT by U.S. District Judge Thomas Varlan in Knoxville, Tennessee.

Information on Dr. Roth's sentence will be posted here as soon as it is available.

As we have previously reported, on September 3, 2008 Dr. Roth was convicted by a federal jury of one count of conspiring with Atmospheric Glow Technology, Inc. to unlawfully export in 2005 and 2006 "defense articles" to a citizen of the People’s Republic of China in violation of the Arms Export Control Act.

Dr. Roth was also convicted of 15 counts of violating the Arms Export Control Act and one count of wire fraud relating to defrauding the University of Tennessee of the honest services by illegally exporting controlled technical data relating to a U.S. Air Force contract.

Dr. Roth faces a maximum prison sentence of 175 years and more than $15,500,000 in fines. While the maximum prison sentence for each of the 15 Arms Export Control Act violations (22 USC § 2278) is 120 months in prison, the Federal Sentencing Guidelines provide for a prison sentence in the range of 63-78 months. The Federal Sentencing Guidelines note that in determining the sentence within the applicable guideline range, the judge may consider the "degree to which the violation threatened a security or foreign policy interest of the United States, the volume of commerce involved, the extent of planning or sophistication, and whether there were multiple occurrences." Where such factors are present in an extreme form, the judge may depart from the guidelines.

The sentencing date of Atmospheric Glow Technology, Inc. has not yet been set.

Labels: Export Controls, ITAR

While the specific dates and location have not been finalized, this year's Bureau of Industry and Security's annual update Update Conference on Export Controls and Policy should be held during the week of September 28, 2009 (end of September and beginning of October). Details on registration will follow once BIS has finalized the dates.

Labels: BIS Update Conference, Export Controls

There are two good export controls-related programs scheduled for next week. It is not too late to sign up for these programs.

June 24, 2009 - Import/Export Classification Boot Camp: Cross-Training for International Trade Professionals, Philadelphia, Pennsylvania

This one-day seminar presented by Sandler, Travis & Rosenberg, P.A. breaks the traditional barriers between imports and exports. This seminar will give attendees a comprehensive understanding of the principles of both import and export classification, including:
• Overview of the U.S. export classification regimes
• Principles of import classification (Harmonized Tariff Schedule of the United States)
• Principles of export classification (Schedule B, Export Administration Regulations, International Traffic in Arms Regulations)
• Consequences of import and export misclassification
• Import/Export Classification "Best Practices"

The program will be held from 8:30 am to 4:30 pm at the Sofitel Philadelphia located at 120 South 17th Street Philadelphia, PA 19103. For more information and to register see the following link.

June 25-26, 2009 - Defense Export Controls, Alexandria, Virginia

This two-day seminar presented by Technology Training Corporation and sponsored by the American Institute of Engineers will feature a wide-range of speakers on defense and other export control topics. Included among the government speakers are current and former officials with DDTC, BIS, OFAC, DTSA, NASA, DOJ, GAO, DSCA, NRC as well as representatives from the private sector.

This two-day program will be held at the Holiday Inn Hotel & Suites in Alexandria, Virginia. For more information and to register see the following link.

Labels: Export Controls

The hearing hearing on policy considerations associated with the Export Administration Act that was to be held at 2 p.m. today by House Foreign Affairs Committee's Subcommittee on Terrorism, Nonproliferation and Trade has been postponed. The new hearing date has not yet been set.

The witnesses scheduled to appear at the hearing were:

• The Honorable John Engler, President and Chief Executive Officer of the National Association of Manufacturers
  

• Arthur Shulman, Esq., Senior Research Associate at the Wisconsin Project on Nuclear Arms Control

• Owen Herrnstadt, Esq., Director of Trade and Globalization Policy at the International Association of Machinists and Aerospace Workers

The Export Administration Act of 1979, which lapsed in August 2001, has not been renewed by Congress. The Export Administration Regulations have remained in effect pursuant to Executive Order 13222 issued on August 17, 2001 pursuant to the International Emergency Economic Powers Act and extended annually by the President.

Labels: EAA, Export Controls

The owner of a Florida company that pleaded guilty earlier this year to illegally exporting military and commercial aircraft parts to Iran was sentenced yesterday to 35 months in federal prison.

As part of his plea, Mr. Train Bujduveanu, a Romanian national and naturalized U.S. citizen, admitted that he used his company, Orion Aviation, to sell aircraft parts to Iran from Mr. Hassan Keshari, owner of Kesh Air International, a California-based company.

According to the indictment and statements and documents contained in court filings, Bujduveanu received orders by email from Keshari requesting specific aircraft parts for buyers in Iran. Bujduveanu then provided quotes, usually by e-mail, to Keshari. After the receipt of payment for the parts from Keshari, Bujduveanu then shipped the parts to a company in Dubai through the use of false or misleading shipping documents. From Dubai, the parts were then shipped on to the purchasers in Iran.

Among the aircraft parts illegally exported to Iran through the conspiracy were parts designed exclusively for the F-14 fighter jet, the Cobra AH-1 attack helicopter, and the CH-53A military helicopter.

Mr. Bujduveanu's co-conspirator, Hassan Keshari, pleaded guilty to one-count of conspiracy to violate export control laws and was sentenced in May 2009 to 17 months in federal prison.

Labels: Export Controls

The Knoxville News Sentinel reports that no decision was made today during the sentencing hearing of University of Tennessee professor Emeritus J. Reece Roth who was convicted in September of various export control violations.

The article states that U.S. District Judge Tom Varlan spent the afternoon hearing testimony from the prosecutors and defense about the nature of the controlled technical data that was provided to foreign nationals. The article notes that Judge Varlan "said he'll decide on a sentence after considering the evidence and letting Roth speak for himself if he wants to." The date of the next sentencing hearing is likely to be set tomorrow.

Today's sentencing of Atmospheric Glow Technologies Inc., who was alleged to be Dr. Roth's coconspirator and which plead guilty to violating U.S. export control laws, has been rescheduled to a future date.

Labels: Export Controls, ITAR

Today's guest post is by Rick Miller, director of trade compliance recruitment at Tyler Search Consultants. Rick is a licensed customs broker and served as director of trade compliance for several large companies before joining Tyler Search. Rick can be reached at rmiller@tylersearch.com.

Companies of all sizes in all industries struggle with trade compliance programs and the trade compliance role. There are many reasons why a compliance program is controversial. Here are the top 10 reasons why a trade compliance program is truly an unnecessary waste of resources:

1. Trade compliance is a cost center with no financial benefit to the company.
Except for avoiding audits, penalties and border delays. Except for avoiding duty under special programs such as the North American Free Trade Agreement, the Central America Free Trade Agreement, the Generalized System of Preferences. Except for tariff engineering, broker management, supplier management.

2. Classification is easy.
Anyone can do it - just pick the lowest duty rate and let Customs tell us if we're wrong. Until Customs catches you and sends you a bill for the duty (plus interest) for all entries made over the last five years. And don't forget the penalty that's sure to follow.

3. Shipments to and from Canada and Mexico are not really imports/exports.
Tell that to U.S. Customs. Canada and Mexico may be our biggest trading partners, but they have their own customs services to deal with. And, oh yeah, those folks at Commerce may require an export license.

4. Any product purchased in the U.S. is U.S.-origin.
The trade deficit must come from somewhere ... make sure you ask before you assume. Get it in writing and then ask again.

5. Any U.S.-origin product is NAFTA-eligible.
Unless you are audited, of course. The NAFTA rules of origin are complex and vary tremendously depending on the item. The value of U.S. components may or may not have anything to do with eligibility - even with 99 percent U.S. components. When importing under NAFTA, every compliance professional needs to verify the supplier's certificate of origin. Ask and ask again.

6. We have been doing business for years without worrying about Customs.
Ever notice that all the big penalty cases in the news are for companies that have been around for a while?

7. Our customs brokers and freight forwarders are responsible for compliance.
Importers of record for imports and U.S. principal parties of interest for exports are on the hook not the broker or forwarder - period! Ever look at the liability limitations on your broker and/or forwarder agreements?

8. We need to make exceptions for big customers or we'll lose the business.
So if I walk past the bank every day on my way to work and only rob it once, the judge will let me off the hook because I was good most of the time? Where is my duffle bag?

9. C-TPAT is not mandatory, so we aren't spending any money or dedicating any resources to it.
Sure it is not mandatory, but don't come crying to trade compliance when the borders tighten up and your non-C-TPAT shipments are delayed while all C-TPAT importers are given a priority.

10. Compliance slows deliveries.
Noncompliant importers will face many more inspections and delays, especially after Customs finds the first problem. Due to limited resources, Customs targets the bad guys. Even compliant importers face delays, but if Customs already knows your company has a trade compliance program, they are more likely to work with you.

While failure to maintain a viable trade compliance program may sound funny, border delays, inspections, audits and penalties are not. Trade compliance and supply chain security is more then a fact of business life today. Our world has changed. It's here to stay. Work closely with your trade compliance team. Top down support is the critical component for a successful trade compliance program.

Labels: Customs, Export Controls

After numerous delays, the sentencing of University of Tennessee professor Emeritus J. Reece Roth for violating U.S. export control laws has been set for 10 a.m. on Wednesday, May 13, 2009 in federal court in Knoxville, Tennessee.

Atmospheric Glow Technologies Inc., who was alleged to be Dr. Roth's coconspirator and which plead guilty to violating U.S. export control laws, will be sentenced immediately before Dr. Roth.

By way of background, on September 3, 2008, professor Roth was convicted by a federal jury of one count of conspiring with Atmospheric Glow Technology to violate the Arms Export Control Act (AECA) and 15 counts of violating the AECA for exporting controlled technical data associated with an Air Force Research Laboratory contract to a Chinese national. Dr. Roth was also convicted of one count of wire fraud relating to defrauding the University of Tennessee of honest services by illegally exporting controlled technology associated with the Air Force contract.

Atmospheric Glow Technologies, a privately held plasma technology company located in Knoxville, Tennessee, plead guilty in August 2008 to 10 counts of a federal indictment charging the company with unlawfully exporting controlled technology to a Chinese citizen.

Dr. Roth faces a maximum penalty of five years in prison and a $250,000 fine for the conspiracy and fraud convictions. The 15 convictions for violating the AECA each carry a maximum penalty of 10 years in prison and a $1 million fine.

Atmospheric Glow Technologies faces a maximum criminal fine of $1,000,000 and a maximum term of five years of probation for each of the 10 counts.

This case has generated a great deal of interest and concern in the academic and research communities.

Labels: DDTC, Export Controls

While most U.S. companies are familiar with U.S. import and export requirements, it is often difficult for U.S. companies to obtain information on the import and export requirements in other countries in which they do business.

If your company has non-U.S. operations or conducts business around the globe you are in luck because the North Texas District Export Council is holding a program entitled "Non–U.S. Trade Controls: A Deeper Dive" on May 18, 2009 in Dallas, Texas.

This program, which will feature experienced speakers on customs and export control issues from Japan, the European Union, Canada, China and other countries, will cover the following topics:

• What are the differing trade controls regimes?
• What are the differences from U.S. trade controls?
• What types of operations will subject U.S. companies and their affiliates to these controls?
• What about conflicts between U.S. trade controls and controls in these countries?

The program will also feature panels on technology transfers in a global economy and managing global trade compliance, both from an outside counsel/consultant perspective and from an in-house point of view.

The cost of the full day program is only $95, which is a bargain. For more information and to register for the conference, click here or call the North Texas Export Assistance Center at (817) 310-3744.

Labels: Customs, Export Controls

The U.S. Attorney for the Northern District of California today announced that a grand jury in San Jose, California indicted Mr. Fu-Tain Lu as well as two companies Mr. Lu founded, Fushine Technology, Inc., located in the San Jose area and Shenzen, China-based Everjet Science and Technology Corporation, conspired to export microwave amplifier products to China without obtaining the required licenses or other approvals from the U.S. Department of Commerce. Mr. Lu was also charged with two counts of making false statements to a government agency. Mr. Lu was arrested earlier this week at San Francisco International Airport after disembarking a flight.

According to Everjet's website, the company specializes in "providing RF and Microwave components, test instrumentations, and Satellite communication systems for markets in HongKong and China."

Microwave amplifers and microwave assemblies/modules with certain specifications are classified in ECCN 3A001.b.4 on the Commerce Control List and are controlled for National Security (NS Column 2) and Anti-Terrorism (AT) reasons. Products subject to NS-2 controls require an export license from the Bureau of Industry and Security prior to be exported to China.

The indictment alleges that the items Fushine shipped and attempted to ship products controlled for national security reasons to China without the required export licenses. The indictment quotes an internal company e-mail in which an Everjet employee told a Fushine employee, “Since these products are a little bit sensitive, in case the maker ask [sic] you where the location of the end user is, please do not mention it is in China.” The indictment also quotes from another e-mail in which Lu advises a subordinate to pretend that the intended end-user for an item is in Singapore rather than China.

Labels: China;, Export Controls

In yet another criminal case involving the prohibited exports of military aircraft to Iran, the Justice Department announced today that an Iranian national has been arrested and charged, along with ten other defendants, with participating in a conspiracy to military aircraft parts from the U.S. to Iran.

Mr. Baktash Fattahi, an Iranian national and legal U.S. resident, was arrested in California, on April 3, 2009, on charges of conspiring to export military aircraft parts to Iran. Fattahi and ten other defendants were indicted on April 2, 2009, by a federal grand jury in Miami on charges of conspiring to violate U.S. export controls and sanctions laws for their participation in a conspiracy to export U.S.-made military aircraft parts to Iran.

The other defendants charged in the indictment were persons and companies located in Iran and Dubai.

According to the indictment, the defendants conspired to and exported 13 different types of ITAR-controlled aircraft parts from the U.S. to Iran via Dubai, UAE. Among the aircraft parts the defendants are alleged to have obtained and illegally shipped to buyers in Iran are parts for the F-5 Tiger fighter jet, the Bell AH-1 Cobra attack helicopter, the CH-53 helicopter, the F-14 Tomcat fighter jet, and the UH-1 Huey military helicopter.

If convicted, each of the defendants face statutory maximum sentences ranging from ten years' imprisonment to twenty years' imprisonment, and face fines of up to $1 million.

Labels: Export Controls, Sanctions; Iran

Sandler, Travis & Rosenberg is presenting a webinar on how to create effective and efficient export compliance programs from 1 p.m. to 3 p.m. EDT on April 16, 2009.

This webinar, which is presented by experienced export attorneys, will present information on how to create and implement an Export Management System to ensure that nothing “falls through the cracks” leaving your company subject to delays, penalties or other export enforcement actions. This program is geared to export personnel that have a basic understanding of export controls, but need to establish an export compliance program for their company or organization.

Click here for more information and to register for the webinar.

Labels: Export Controls

Japan's Yomiuri Shimbun newspaper reports how North Korea acquired the controlled technology and products from Japan that was likely used in developing the missile launched on Sunday.

The article notes that at "a U.S. Senate hearing in May 2003, an engineer who had defected from North Korea testified that about 90 percent of the parts used for one type of North Korean missile originated in Japan, adding the components were brought into the country by a ferry every two to three weeks."

Labels: Export Controls, North Korea, Sanctions

Last week two defendants in unrelated cases pleaded guilty to violations involving the unlicensed export of military aircraft parts from the United States.

In Hartford, Connecticut, Stuart Wax, pleaded guilty today to one count of making a false statement in an export control document. Mr. Wax entered the plea both for himself and on behalf of his company, M.M.M. Wheels, Inc. According to the Justice Department, in 2003, Mr. Wax exported parts used in the F-4 fighter jet to be sent to a company in Israel without the required license from the Directorate of Defense Trade Controls. Mr. Wax indicated on the shipping documents that the box contained “plumbing parts for repair”, although the government alleged that Wax knew that the contents actually were parts for military aircraft.

When Mr. Wax is sentenced in September, he faces a maximum term of imprisonment of five years and a fine of up to $250,000. Wax's company, M.M.M. Wheels, Inc. faces a maximum penalty of five years of probation and a fine of $500,000.

In a separate case, Mr. Traian Bujduveanu pleaded guilty in the Southern District of Florida to one count of conspiring to illegally export military and dual-use aircraft parts to Iran through his company, Orion Aviation. Bujduveanu's co-defendant, Mr. Hassan Keshari, and his corporation, Kesh Air International, pleaded guilty in January 2009, and are awaiting sentencing.

According to the Indictment, Bujduveanu sold aircraft parts to Keshari for purchasers in Iran and exported the aircraft parts to Iran by way of freight forwarders in Dubai, United Arab Emirates. Bujduveanu allegedly received orders by email from Keshari requesting specific aircraft parts for buyers in Iran. Bujduveanu then provided quotes, usually by e-mail, to Keshari. After the receipt of payment for the parts from Keshari, Bujduveanu then shipped the parts to a company in Dubai through the use of false or misleading shipping documents. From Dubai, the parts were then shipped on to the purchasers in Iran.

The Justice Department claims that the aircraft parts exported to Iran included parts designed exclusively for the F-14 fighter, the Cobra AH-1 Attack Helicopter, and the CH-53A Military Helicopter. All of these aircraft are part of the Iranian military fleet, while the F-14 is known to be used exclusively by the Iranian military.

Mr. Bujduveanu faces a maximum sentence of five years imprisonment and a maximum fine of $250,000 when he is sentenced in June.

Labels: Export Controls

The Emirates News Agency reported today that the United Arab Emirates Government approved the formation a "committee on the commodities subject to import-export control" to "cooperate and coordinate with the relevant authorities on the regulations relating to import and export, to study proposals by such authorities on prohibiting, excluding or restricting any commodity."

The Committee will also be responsible for preparing "a set of proposals on the procedure, provisions and fees for import or export licenses for such commodities."

In August 2007, the UAE enacted a new import and export control law. The law, known as Federal Law No. 13 of 2007, authorizes the UAE "to ban or restrict the importing, exporting or re-exporting of any commodity for reasons related to safety, public health, environment, natural resources, national security or for reasons related to the UAE's foreign policy."

During the past few years the U.S. has placed pressure on the UAE to strengthen its export control regime and there have been efforts underway in Congress to include the UAE as a "Destination of Possible Diversion Concern."

Labels: Export Controls, UAE

U.S. exporters of defense articles and technical data should be aware that the Directorate of Defense Trade Controls will be launching DTrade2, its new electronic license submission and internal case management system, on April 16, 2009.

Starting on April 16, 2009, all new license submissions must be submitted DTrade2 and any new submissions to DTrade1 will be Returned Without Action with a request to resubmit using the DTrade2 application. While the DTrade1 application will no longer accept new cases, it will be available to track status and to attach additional data to pre-existing cases as required.

DTrade2 will require the use of new versions of all licensing forms, which can be found here on DDTC's D-Trade site. For more information on the changes that will be occurring in DTrade2, click here.

Labels: DDTC, Export Controls

Thursday's Wall Street Journal contains an extensive story entitled "Oil-Rich Arab State Pushes Nuclear Bid With U.S. Help" on the United Arab Emirate's (UAE) efforts to build a commercial nuclear power facility and the upcoming debate in Congress on the Agreement for Cooperation Concerning Peaceful Uses of Nuclear Energy (123 Agreement) that the U.S. and the UAE signed in January of this year.

The article also discusses concerns over the UAE's involvement in Iran's nuclear program and its reputation as a diversion risk. For example, the article notes that:

Most critics of the program, including some U.S. lawmakers and nonproliferation experts, believe the U.A.E. is unlikely to turn to nuclear weapons. But they have reservations about the country's past role in the flow of sensitive military technologies. The rogue Pakistani scientist Abdul Qadeer Khan used the port of Dubai to transfer centrifuge technologies to countries like Libya, according to American and U.N. officials. Mr. Khan's network grew to include nuclear sales to North Korea and Iran, before American and international investigators shut him down in 2003.

Iran has allegedly obtained materials for its missile program from front companies based in Dubai. Iran and the U.A.E. are trading partners, exchanging more than $5.5 billion in goods in 2007, according to the European Union.

With respect to export controls, the article indicates that UA.E. officials have admitted that they have been "lax in monitoring the flow of sensitive technologies" through its ports but that "enforcement of U.N. sanctions against Iran and tightened business-license regulations for Iranian nationals" has occurred. The article also indicates that during the past three years "U.A.E. officials say, they have shut down 40 Iranian companies operating in Dubai over either export-control violations or lack of proper licenses. In the past six months, Emirati authorities have also blocked more then 10 shipments of goods for potential military use heading to Iran through Dubai, largely from Asia."

Labels: Export Controls, UAE

In anticipation of tomorrow's House International Relations Subcommittee hearing on possible reforms to export controls on commercial satellites, today's New York Times contained a good article entitled "For U.S. Satellite Makers, a Bid for a Bailout That Wouldn’t Cost Billions". The article, which examines the history of and debate over export controls on commercial satellites, notes that:

Proponents of change are optimistic, pointing to a campaign pledge by President Obama and the support of respected figures like Brent Scowcroft, national security adviser to Presidents Gerald R. Ford and George Bush.

But the export revision is by no means a sure thing. The national security arguments cited in imposing the limits still resonate with conservatives who believe strict regulation is needed to keep China and other countries from stealing secret technology.

The article discusses the National Academies' "Beyond Fortress America" report on export control reforms that was issued in January of this year. The report, which was written by a committee co-chaired by Stanford University president John Hennessy and Brent Scowcroft, found that many current U.S. export controls "aimed at protecting national security, in fact weaken U.S. innovation and competitiveness in global markets, thereby reducing economic prosperity, which is an essential element of U.S. national security."

Labels: Export Controls, ITAR

Representative Brad Sherman (D-CA), Chairman of the House Foreign Affair's Committee's Subcommittee on Terrorism, Nonproliferation and Trade Brad Sherman (D-CA) has announced that the subcommittee will hold a hearing next week on U.S. export controls on satellite technology.

The hearing, which will be held at 1 p.m. on April 2, 2009 in the room 2175 of the Rayburn House Office Building, will feature the following witnesses:

Labels: China, Export Controls, ITAR

The Justice Department announced yesterday that Mac Aviation Group, an Irish trading company, and three of its officers were charged in Federal Court in Washington, DC with purchasing helicopter engines and other aircraft components from U.S. firms and illegally exporting them to Iran using companies in Malaysia and the United Arab Emirates.

Among the alleged recipients of these U.S. goods was an Iranian military firm that has since been designated by the United States for being owned or controlled by entities involved in Iran’s nuclear and ballistic missile program.

The 25-count indictment, which was filed under seal in federal court in the District of Columbia in July 2008 and unsealed yesterday, charges Mac Aviation Group, doing business as Mac Aviation Limited and Mac Aviation Nigeria, which is a company registered in Ireland that brokers aircraft parts and related goods for foreign customers.

The remaining defendants are Thomas McGuinn, a 72-year-old citizen and resident of Ireland who is the owner, director and principal officer of Mac Aviation; his son, Sean McGuinn, a 40-year-old citizen and resident of Ireland, who serves as sales/procurement director of Mac Aviation; and Sean Byrne, who serves as the commercial manager of Mac Aviation.

The indictment charges each of the defendants with two counts of conspiracy, 19 counts of violating the International Emergency Economic Powers Act (IEEPA) and Iranian Transactions Regulations, four counts of false statements and forfeiture allegations.

According to the indictment, beginning as early as August 2005 and continuing through July 2008, the defendants solicited purchase orders from customers in Iran for U.S.-origin aircraft engines and parts and then sent requests for aircraft components to U.S. companies. The defendants wired money to banks in the U.S. as payment for these parts and concealed from U.S. sellers the ultimate end-use and end-users of the purchased parts. The defendants caused these parts to be exported from the U.S. to third countries before causing them to be transshipped to Iran.

According to the indictment, the defendants purchased 17 model 250 turbo-shaft helicopter engines from Rolls-Royce Corp. in Indiana for $4.27 million on behalf of an Iranian trading company. The model 250 engine was originally designed for a U.S. Army light observation helicopter and has since been installed in numerous civil and military helicopters. The defendants concealed from Rolls-Royce the ultimate end-use and end-user of the helicopters engines. In one exchange, one defendant declared that Mac Aviation was not selling the engines to any military organization or government.

The indictment alleges that the engines were exported from the United States to third countries, including Malaysia, and later shipped to Iran. Among the recipients in Iran was the Iran Aircraft Manufacturing Industrial Company, known by its Iranian acronym as HESA. On Sept. 17, 2008, the Treasury Department's Office of Foreign Assets Control designated several Iranian weapons of mass destruction proliferators and members of their support networks pursuant to Executive Order 13382. Among the entities designated was HESA, which the Treasury Department determined was controlled by Iran’s Ministry of Defense and Armed Forces Logistics and has provided support to the Iranian Revolutionary Guard Corps.

The defendants are also alleged to have caused aircraft engine components, known as vanes, to be exported from the United States to Iran. According to the indictment, the defendants caused Pratt & Whitney to export 50 "5^th stage vanes" valued at approximately $141,750 from its Connecticut facility to Mac Aviation. The defendants falsely stated that final destination of the components was Belgium. Instead, these components were routed to Iran Aircraft Industries, known by its Iranian acronym as IACI, in Tehran.

The indictment alleges that the defendants also caused aircraft bolts valued at approximately $2,261 to be exported from the United States to Iran. According to the indictment, the defendants caused Uniflight LLC, a company in Texas, to ship 32 aircraft bolts to a representative of a trading company in Dubai, United Arab Emirates. Invoices referenced in the indictment indicate that the final destination of the aircraft bolts was Kish Island, Iran.

If convicted, the defendants face a maximum sentence of 10-20 years in prison for each of the IEEPA counts, 5-20 years in prison for each of the conspiracy counts, and five years in prison for each of the false statement counts.

Labels: Export Controls, Sanctions; Iran

Are you new to exporting? It is not too late to register for the introduction to export controls webinar that is being presented by the U.S. Export Assistance Center of Missouri on March 18, 2009 at 11 a.m. CDT. This program is the final program in the U.S Export Assistance Center's Export Fundamentals series.

Doug Jacobson of Sandler, Travis & Rosenberg, P.A. (editor of this blog) and Scott Sullivan, the in-house attorney that oversees Flowserve's Corporation's export compliance program, will be co-presenting this webinar.

To register, see this page on the U.S. Export Assistance Center of Missouri's website.

Labels: Export Controls

Some new details have emerged in the recent story regarding Joseph Piquet's conviction on seven counts of attempting to export ITAR-controlled power amplifiers to China. Piquet faces a maximum penalty of 30 years in prison and more than $4 million in fines when he is sentenced in May.

• The defendant is the owner of Alphatronx, whose website says the company is "leading, stocking distributor of military, industrial and commercial electronic components."
• The Palm Beach Post reports that Piquet's attorney said he is "a great guy who got caught up in this really technical stuff nobody can figure out"and that "the one guy who could have exonerated" him died in 2005.
• The U.S. Attorney for the Southern District of Florida commended Northrop Grumman Corporation for its outstanding cooperation from the inception of this investigation through the conclusion of the trial. Piquet bought the controlled products from Northrop Grumman's subsidiary, Velocium Products.
  

Labels: Export Controls, ITAR

A federal court jury in Fort Pierce, Florida last week convicted a defendant of seven counts of conspiring to violate U.S. export control laws.

Mr. Joseph Piquet, who will be sentenced on May 14, 2009, was convicted of attempting to purchase military use electronic components from Northrop Grumman Corporation and to ship the items to Hong Kong and the People's Republic of China without first obtaining required export licenses under the Arms Export Control Act and the International Emergency Economic Powers Act.

The products that Piquet attempted to export included power amplifiers designed for use by the U.S. military in early warning radar and missile target acquisition systems and low noise amplifiers that have both a commercial and military use.

According to the Justice Department, on five separate occasions spanning from March 2004 through February 2005, Piquet bought the electronic components and submitted false End-Use Certificates to the manufacturer to conceal the intended final destination of the parts, which he then forwarded through conspirators in Texas and Hong Kong.

Labels: Export Controls

Various Japanese newspapers have reports that four employees of Japanese machine tools producer Horkos Corp were arrested this week for allegedly violating Japan's export control laws by exporting more than 1,000 sophisticated five-axis machining centers to 16 countries without the required export licenses and falsifying export documents.

The arrests follow a raid conducted by Japanese police on Horkos' headquarters and factory in July 2008 on suspicion that the company had illegally exported dual-use machine tools.

Although Horkos' machining centers exported machines can be used to manufacture automotive components and other commercial items, they can also be used to produce components for centrifuge separation devices for uranium enrichment and are controlled for nonproliferation reasons. As a result, Japan's Foreign Exchange and Foreign Trade Law requires Horkos and other exporters of five-axis grinding machines to obtain an export license from the Ministry of Economy, Trade and Industry (METI). (Similar products are classified on the U.S. Commerce Control List under ECCNs 2B001 and 2B201).

The Horkos employees that were arrested were allegedly involved in an effort to evade METI's licensing requirements by declaring on export declarations that Horkos machines did not require export licenses.

Labels: Export Controls, Japan

The Bureau of Industry and Security (BIS) has released the first version of its Commodity Classification Information Table.

In September 2008, BIS announced that it intended to establish a page on its website where manufacturers could voluntarily provide information to customers and other persons that intend to export their products the Commerce Control List commodity classifications of their products. BIS explained that they commenced this initiative in an effort to aid exporters in the licensing process and to assist exporters in complying with U.S. export and reexport control laws.

The first version of the Commodity Classification Information Table, which is in PDF format, contains information submitted by 17 companies. The information that was submitted by companies varies widely and includes links to very detailed CCATS tables to general websites. In many cases, companies chose to simply list their export controls contact person, which at least gives customers a person to contact with questions regarding a product's ECCN, Schedule B number and other licensing requirements.

If your company currently has, or plans to have, Commodity Classification information available on your company’s website, or an export control point of contact, and you would like this information to be accessible via the BIS website, send an e-mail to CommodityClassifications@bis.doc.gov. In your e-mail, provide any of the following information you would like to be posted on the BIS website:

1) Company name
2) General description of the products/services
3) Commodity classification information website address
4) Export control point of contact (may be a general telephone number or email address)

We encourage companies planning to include their commodity classification information on the BIS website to contact their in-house legal counsel or outside export controls attorney before submitting the information to BIS.

UPDATE: Thanks to our readers for pointing out that the need to include the actual link on the BIS website where updated versions of the Commodity Classification Information Table will be posted in the future. The link is as follows: www.bis.doc.gov/commodityclassificationpage.htm.

Labels: BIS; EAR, Export Controls

Elena McGovern, a Research Associate with the Southwest Asia/Gulf Program at the non-profit Henry L. Stimson Center, recently wrote an excellent analysis of the United Arab Emirate's export control system in light of the recently signed U.S. -UAE civilian nuclear cooperation agreement. The article, entitled "Export Controls in the United Arab Emirates: A Practical Manifestation of a Strategic Dilemma," appeared in the most recent edition of WMD Insights, sponsored by the U.S. Defense Threat Reduction Agency (DTRA).

McGovern's article naturally focuses on the UAE's close proximity to and relationship with Iran. For example, the article notes:

While much of the continued laxity in UAE export controls and border security is due to a lack of capacity, allegedly opaque UN sanctions, and overdue attempts at course correction in an environment where skilled smugglers have been operating for decades, another major element in the equation is the absence of political will. Implementing export controls and border security measures is bad for business, especially for a country that relies so heavily on laissez-faire economic policies. Tightening the spigot on re-exports risks driving business elsewhere – not only to other developing ports in the Gulf, but to other locations, including China and Singapore – and stifling the UAE’s booming economic growth. With regard to direct UAE-Iran business, it has been difficult preventing these stricter policies from negatively affecting legitimate bilateral trade, a mainstay of the economies of both the Emirates and Iran.

The article concludes by observing that:

any sweeping attempt at course correction runs the risk of upsetting fragile regional security dynamics. This is undesirable due to the UAE government’s wish to preserve the strategic balance between the United States and Iran and the belief that it neither has the ability to affect political change in Iran today nor the stomach to be in open opposition to a potentially nuclear-armed Iran in the future. Given these realities, it is therefore possible to understand why, when explaining the limits to the UAE’s willingness to restrict trade with Iran, Sheikh Lubna al Qasimi, the Minister for Economy and Planning, said: “At the end of the day, Iran is still a neighbor.”

Labels: Export Controls, Sanctions; Iran

Labels: Export Controls, Japan

Earlier this week, a federal jury in Los Angeles, California convicted Zhi Yong Guo, a resident of China, of conspiracy and exporting and/or attempting to export thermal-imaging cameras to China without the required Commerce Department export licenses.

Guo's accomplice, Tah Wei Chao, also a Chinese national, previously pleaded guilty to one count of conspiracy and two counts of exporting and/or attempting to export restricted items.

According to the Justice Department, in March 2008 Chao ordered 10 thermal-imaging cameras (classified as ECCN 6A003 on the Commerce Control List) from FLIR Systems, Inc. for $53,000. Representatives from FLIR Systems repeatedly warned Chao that the cameras could not be moved outside of the United States without an export license issued by the Department of Commerce. Both Chao and Guo were arrested at Los Angeles International Airport in April 2008 after authorities recovered the 10 cameras that had been hidden in their suitcases, stuffed in shoes and concealed in clothing. Each of the cameras had a warning sticker stating: “This product is an export controlled item. Authorization by the U.S. Government must be obtained prior to any shipment outside of the United States.”

In addition to the 10 cameras intercepted by federal authorities at LAX, Chao admitted that, acting on Guo's behalf, he shipped three cameras to China in October 2007. The evidence presented during the at trial showed that Guo, an engineer and a managing director of a technology development company in Beijing, directed Chao to obtain the cameras for Guo’s clients, the Chinese Special Police and the Special Armed Police.

Guo is scheduled to be sentenced by Judge Walter on May 11. Chao, who faces a statutory maximum penalty of 60 years in prison, is scheduled to be sentenced on March 16.

Labels: China;, Export Controls

Today the House Committee on Science and Technology held a hearing to review the impact of current export control policies on U.S. science and technology activities and competitiveness. Witnesses and Members of the Committee also discussed the findings and recommendations of the National Academies’ study, Beyond “Fortress America”: National Security Controls on Science and Technology in a Globalized World.

During the hearing, the panel of witnesses unanimously agreed that the current system of U.S. export control policies, under the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations are outdated and must be reformed.

In his opening statement, Committee Chairman Bart Gordon (D-TN) said that the "nation’s export controls system . . . were put into place to help protect America’s sensitive technologies from falling into the hands of those who might do harm to this nation. In short, export controls were supposed to help strengthen our national security. However, in recent years there has been a growing chorus of concern about some of the unintended consequences of the current system of export controls for both the nation’s competitiveness in the global economy and for the nation’s science and technology enterprise."

Ranking Member Ralph Hall (R-TX) said that "export controls are crucial and necessary to prevent the proliferation of militarily-useful technologies from falling into the wrong hands, and it’s critically important that we continue, to the best of our abilities, to deny the transfer of these technologies to our adversaries.” He noted, however, that "in today’s global marketplace, it’s equally important that export control regulations recognize technologies that are no longer ours alone to control, and to permit the rapid sharing of emerging R&D technologies with our friends and allies. It is clear to me that the current export control regime fails to meet these standards.”

Representative Dana Rohrabacher (R-CA) noted that "everyone agrees ITAR reform needs to happen. We need to make sure that our hi tech exports aren't strangled by regulations. On the other hand, we need to remain vigilant that our advanced technology doesn't end up in the hands of nations who proliferate weapons of mass destruction. We know exactly who these nations are, and we must make absolutely sure that whatever changes we enact to ITAR and other export regulations, that these scofflaw and rogue nations are barred from receiving our high tech systems." He added that "we can make sensible changes to ITAR and other export regulations, but we must not go so far as to make them at the expense of our national security. Let us reward our friends with openness in trade; and conversely let us be as single-minded as possible in stopping items from the United States Munitions List . . . from falling into the hands of the Peoples Republic of China and other proliferators.

In his testimony, Lt. General Brent Scowcroft, USAF (Ret.), who served as Co-Chair of the Beyond “Fortress America” report, said:

Because science and technology research, development and production have become a global enterprise, the “Fortress America” approach of current controls cuts us off from information and technologies that we need for our national security. If we sustain these export control and visa barriers, we will increasingly lose touch with the cutting edge of science and technology, and we risk missing emerging national security threats.

He also noted that if the reforms proposed in Beyond “Fortress America” are not implemented then:

the [current export controls] system will continue to bog down, with multiplying negative effects to our national security and competitiveness. There will be nothing to prevent the continued erosion of our defense industrial base; the loss of market-share globally in advanced technologies; the off-shoring of knowledge intensive jobs; the bureaucratic wrangling among the agencies to name a few.

In his testimony, Major General Robert Dickman, USAF (Ret.), the Executive Director of the American Institute of Aeronautics and Astronautics (AIAA), said that current U.S. trade and visa policies are adversely affecting America's national security and economic security, by stifling innovation, reducing core sector competencies, weakening the space industrial base and diminishing American competitiveness in the global marketplace.

Dickman also said that "U.S. trade and visa policies put in place to provide additional layers of national security are having severe and long-term effects on advanced systems technology sectors and the professional workforce that serves them." He pointed out that the current trade rules have made the U.S. space research sector more risk adverse, due to the cumbersome certification protocols mandated by current law.

While the House International Relations Committee has primary jurisdiction over export control matters, the House Science and Technology Committee will play an important role in shaping future U.S. export controls policy.

The complete written testimony of all the witnesses at today's hearing can be found here.

Labels: Congress, Export Controls

The University of Georgia's well-respected Center for International Trade and Security (CITS) will be celebrating its 20th Anniversary on March 18, 2009.

The event, which will be held in Athens, Georgia, will consist of panels regarding strategic trade control issues, the status of global nonproliferation, and the importance of continued work in the field. Dr. Mohamed ElBaradei, Director General of the International Atomic Energy Agency (IAEA) and other experts will participate. The celebration will also include friends, colleagues and stake-holders of CITS. For more information, contact CITS at 706-542-298

The CITS also announced that the Spring 2009 session of the Export Control Academy will take place from April 13-24, 2009. The Export Control Academy consists of two week-long topical sessions on international export control issues. Click the following links for the Export Control Academy's agenda and course curriculum.

Labels: Export Controls

The House Science and Technology Committee will hold an export controls hearing on February 25, 2009. The hearing, entitled "Impacts of U.S. Export Control Policies on Science and Technology Activities and Competitiveness" will feature the following witnesses:

• Lt. General Brent Scowcroft (USAF, Ret.), President, The Scowcroft Group
  

• Mr. A. Thomas Young, Lockheed Martin Corporation (Ret.)
  

• Professor Claude Canizares, Vice President for Research and Associate Provost, Massachusetts Institute of Technology

The hearing will be held from 10 a.m to noon in room 2318 of the Rayburn House Office Building.

Labels: Export Controls

The Associated Press reports (story below) that a Silver Spring, Maryland woman has been charged with exporting Canadian manufactured miniature autopilots for unmanned aerial vehicles (UAV) and micro aerial vehicles (MAV) from the U.S. to China. The miniature autopilots were produced by Manitoba-based MicroPilot and exported to the U.S.

While we have not yet seen the indictment, guidance or control systems specially designed for integration into non-military UAVs that are capable of a maximum range of at least 300 kilometers are classified on the Commerce Control List as ECCN 9A012.b. and controlled for export from the U.S. for National Security, Missile Technology and Anti-Terrorism reasons.

Exports of products "subject to" the U.S. Export Administration Regulations (EAR) and that are classified as ECCN 9A012.b. require an export license from the Commerce Department's Bureau of Industry and Security before they can be exported from the U.S. to China. Canadian products located in the U.S. are "subject to" the U.S. Export Administration Regulations.

Labels: Export Controls

The February edition of the American Machinist magazine contains an opinion piece on the challenges the Obama Administration faces in the area of export controls and international technology transfers. The article was written by Paul Freedenberg, Vice President of Government Relations of the Association of Manufacturing Technology. Mr. Freedenberg served as the Commerce Department's first Under Secretary for Export Administration.

Freedenberg writes:

Study after study over the past two decades has called for reform of the U.S. export control structure. Yet it still remains the slowest, the least predictable, and the most restrictive export control system in the world.

But many in our industry, particularly those who make items such as five-axis machine tools and carbon fiber manufacturing equipment, will say that the U.S. policy is one of unilateral control, denying or delaying for inordinate amounts of time, export licenses for their products.

This has seriously undermined our reputation for reliability, not only with regard to controlled products. It has hurt our reputation in non-controlled industrial products as well.

He concludes by noting that:

With a new Administration, it is time for a re-evaluation of the costs and benefits of our export control policy. It is apparent that we are setting an example of self restraint that none of allies are willing to follow.

A new Commerce Department “foreign availability” study of five-axis machine tools is due to be released soon. It is likely to make the points that I am making here. The Obama Administration ought to use it as a guide for redesigning the export control structure to fit the 21st Century.

Labels: Export Controls

The Knoxville News Sentinel reported today that convicted University of Tennessee Professor J. Reece Roth, who was found guilty of violating the Arms Export Control Act in September 2008, has filed a motion requesting a new trial on grounds that the judge hearing the case refused to allow jurors to consider the "ignorance of the law" defense.

The article quotes that motion as stating:

"The evidence showed that (Roth) had a fundamental misunderstanding of the Arms Export Control Act and its regulatory scheme." * * * "(Roth's) belief although mistaken that he understood the law was used by the government to show (Roth) disregarded the law. Had the jury been instructed on the ignorance of the law (defense), the jury would have likely returned a verdict of not guilty."

The Assistant U.S. Attorneys handling the case countered the defendant's argument by noting that the "majority view (of courts weighing in on the issue) is that a willful violation occurs where a defendant knows his or her conduct violates the law."

Roth's sentencing hearing, which was originally set for January 7, 2009, is now scheduled for February 18th.

[February 10, 2009 Update: A loyal and well informed reader advised that Roth's defense team filed the Rule 29 Motion for Acquittal and new trial several months ago, but the story was just picked by the Knoxville News Sentinel. It also appears that Roth's sentencing will be postponed until March.]

Labels: Export Controls

The next meeting of the National Council on International Trade Development (NCITD) will take place on Wednesday, February 11, 2009 in Washington, DC and will feature the following speakers:

• Michael Laychak, Licensing Director,Defense Technology Security Administration (DTSA)
  Topic: ITAR Exemptions and Department of Defense Initiatives

• John Jurgutis, Chief Program Manager, Secure Freight Initiative (SFI), Customs and Border Protection, Department of Homeland Security
  Topic: Importer Security Filing Requirements ("10 +2")

• Patricia Wrightson, Ph.D., Director, Committee on Scientific Communication and National Security, Policy and Global Affairs Division, National Academies National Research Council
  Topic: "Beyond Fortress America: National Security Controls on Science and Technology in a Globalized World" (recent report and recommended changes to U.S. export control laws)
  

For information on how to join NCITD or to attend the meeting, see www.ncitd.org or contact the NCITD Secretariat at 202-872-9280.

Labels: Export Controls

In a series of four related cases involving the unlicensed exports of chemicals, metals and electronic components from the U.S. to Taiwan, the Bureau of Industry and Security has imposed civil penalties and denial orders on two companies and two individuals involved in the transactions.

The settlement agreements and related documents associated with these case were recently posted BIS's electronic reading room site and three of the four orders will be published in tomorrow's Federal Register.

The cases involved Taiwan-based, Well Being Enterprise Co. Ltd., Elecmat, Inc., Well Being's San Francisco-based affiliate, Theresa Chang, a U.S.-based employee of Elecmat and Hui-Fen Chen, a.ka., Angela Chen, an employee of Well Being Enterprise in Taiwan.

According to BIS, the two companies and two individuals participated in a scheme in which Well Being requested Elecmat to procure a number of controlled chemicals, metals and electronic components classified under Export Control Classification Numbers (ECCNs) 1C227, 1C299, 1C230, 1C231, 1C234, 1C240, 1C350 and 3A201. BIS alleged that Well Being instructed Elecmat not to tell the U.S. suppliers that Elecmat would export the items. Elecmat subsequently procured the items and exported them to Taiwan without the required export licenses.

BIS charged Well Being with 25 counts, Elecmat with 39 counts, Ms. Chen with one count and Ms. Chang with three of violating the EAR and settled the cases as follows:

• Well Being Enterprise Co., Ltd. was ordered to pay a $250,000 civil penalty, of which $220,000 will be suspended if the company commits no further violations for the next five years. BIS also imposed a 20 year denial order against Well Being that prohibits the company and its employees from involvement in transactions involving export from the U.S.
  

• Electmat Inc. received a 20 year denial order.

• Ms. Chen received a 20 year denial order.

• Ms. Chang received a two year denial order. In 2007, Ms. Chang pleaded guilty in a related criminal proceeding to one count of making false statements related to the export of nickel powder to Taiwan without an export license was sentenced to pay a $5,000 fine and three years of probation.

Labels: BIS, Export Controls

The Departments of Justice, Commerce, Defense and Homeland Security announced today that Hassan Saied Kehsari and his corporation, Kesh Air International, pleaded guilty this morning in Federal Court in Miami, Florida to charges of conspiring to illegally export military and commercial aircraft parts to Iran.

According to documents filed with the court during the plea hearing, Keshari, an Iranian national and naturalized United States citizen, by and through his Novato, California, corporation, Kesh Air International, purchased aircraft parts on behalf of purchasers in Iran and exported the aircraft parts to Iran via freight forwarders in the United Arab Emirates.

Among the aircraft parts allegedly exported to Iran were parts designed exclusively for the F-14 Fighter Jet, the Cobra AH-1 Attack Helicopter and the CH-53A Military Helicopter. All of these aircraft are used by Iranian military.

According to the Indictment and documents filed with the court during the plea hearing, Keshari received orders by email from buyers in Iran for specific aircraft parts. Keshari then requested quotes, usually by e-mail, from U.S. suppliers and made arrangements for the sale and shipment of the parts to a company in Dubai through the use of false or misleading shipping documents. From Dubai, the parts were then shipped on to the purchasers in Iran.

On the conspiracy count, Hassan Saied Keshari faces a maximum statutory term of five years' imprisonment and a maximum fine of $250,000. Kesh Air International faces a statutory maximum fine of $500,000. Sentencing is scheduled for April 8, 2009.

Labels: Export Controls, Sanctions; Iran

It is not too late to register for the remaining programs in the U.S. Export Assistance Center of Missouri's Export Fundamentals webinar series that will be presented in January through March.

The remaining dates and topics are as follows:

• January 28, 2009: Export Documentation Fundamentals
• February 11, 2009: Incoterms 2000 –Transportation Obligations, Costs and Risks
• February 18, 2009: Ensuring Payment for International Sales
• March 4, 2009: Increasing Your Global Sales Using the Internet
• March 18, 2009: Exporter Obligations/Export Control Update
  

Doug Jacobson of Strasburger & Price, LLP (editor of this blog) and Scott Sullivan, who oversees Flowserve Corporation's export compliance program, will be presenting the export controls program on March 18, 2009.

For more information and to register, see this page on the U.S. Export Assistance Center of Missouri's website.

Labels: Export Controls

The U.S. and United Arab Emirates (UAE) today signed an Agreement for Cooperation Concerning Peaceful Uses of Nuclear Energy pursuant to section 123 of the Atomic Energy Act of 1954 (42 U.S.C. 2153). The remarks from today's signing ceremony can be found here.

The following is the text of the UAE's position on nuclear and other export controls from the Policy of the United Arab Emirates on the Evaluation and Potential Development of Peaceful Nuclear Energy:

With regard to control of trade, the UAE will continue to strengthen its export control regime to block and respond effectively to illicit trade of nuclear material or equipment. To this end, the UAE will implement commitments under the NPT, the IAEA Convention on the Physical Protection of Nuclear Material and the IAEA
Joint Convention on the Safety of Spent Fuel Management and on the Safety of Radioactive Waste Management. As a means of ensuring the establishment and maintenance of the most comprehensive and up-to-date export control regime, the UAE will seek to participate in the Nuclear Suppliers Group (NSG) and implement import and export control rules for nuclear and nuclear-related equipment and technology in strict accordance with NSG Guidelines for Nuclear Transfers. In connection with the broader need to regulate trade, the UAE has recently established, under Federal Law No. 13 of 2007, a legal regime for commodities that are subject to import and export control procedures. Included within the scope of the law is a list of export-controlled technologies addressing nuclear materials, technologies and equipment.

Representative Ileana Ros-Lehtinen (R-FL), the ranking member of the House Foreign Affairs Committee, which must approve the 123 Agreement, last week introduced the Limitation on Nuclear Cooperation with the United Arab Emirates Act of 2009 (H.R. 364) that would impose a number of restrictions on the export of nuclear material, equipment or technology to the UAE until the UAE Government takes action to prohibit and prevent the transfer of goods, services, or technology to the Government of Iran.

In order for the U.S. to engage in civilian nuclear cooperation with other nations, it must conclude a framework agreement that meets specific requirements under section 123 of the Atomic Energy Act. Congressional review is required for section 123 agreements.

Labels: Export Controls, UAE

In the latest study of the U.S. export controls system, the National Research Council of the National Academies last week released a report entitled "Beyond Fortress America: National Security Controls on Science and Technology in a Globalized World."

The report, which was written by a committee co-chaired by Stanford University president John Hennessy and retired general Brent Scowcroft, not surprisingly found that the current U.S. export controls system is broken and should be restructured.

The report made the following three broad recommendations:

1. The President should restructure the export control process within the federal government so that the balancing of interests can be achieved more efficiently and harm can be prevented to the nation’s security and technology base; in addition to promoting U.S. economic competitiveness. Among other things, the report recommends the creation of two new entities to make the export control process run more smoothly and to resolve disputes when they occur: (1) Coordinating Center for Export Controls to coordinate interactions with businesses or universities seeking export licenses and manage agency processes with respect to granting or denying export licenses; and (2) An Export License Appeals Panel, comprised of active or retired federal judges, would hear disputes on licensing decisions and "sunset" requirements. The report suggests placing both entities within the National Security Council structure, with the director of the Coordinating Center reporting to the national security adviser.
2. The President should direct that executive authorities under the Arms Export Control Act and the Export Administration Act be administered to assure the scientific and technological competitiveness of the United States, which is a prerequisite for both national security and economic prosperity.
   
3. The President should maintain and enhance access to the reservoir of human talent from foreign sources to strengthen the U.S. science and technology base. Recommended actions include streamlining the visa process for credentialed short-term visitors in science and technology fields and extending the duration of stay for science and engineering graduates with advanced degrees.
   

The committee recommends that the President should issue an Executive Order to implements these recommendations as one of the first orders of business in January 2009.

While the National Academies charges a fee to download the entire report, the individual chapters of the report can be read free of charge here and the PDF version of the Executive Summary can be found here.

Earlier this year, an analyst at a Washington, DC think tank said that there were 18 separate export control reform studies currently underway.

Labels: Export Controls

In connection with a series of export control case studies issued by the Washington, DC-based Institute for Science and International Security (ISIS), today's Washington Post reports on the various networks used by Iran and Pakistan to obtain U.S. and European products via front companies.

The article notes that "many of the schemes unknowingly involve U.S. companies that typically have no clue where their products are actually going." "The schemes are so elaborate, even the most scrupulous companies can be deceived," said David Albright, president of ISIS and co-author of the case studies.

The ISIS case studies, some of which are based on information contained in the September 2008 grand jury indictment against a number of foreign individuals and companies involved in procuring items for Iranian entities through Dubai and Malaysia-based trade networks, include copies of invoices, contents of e-mails from companies looking to buy U.S. and European products and detailed diagrams. These case studies are very useful for export compliance training purposes.

The PDF versions of the ISIS case studies by David Albright, Paul Brannan and Andrea Scheel can be found at the following links:

• Iranian Entities' Illicit Military Procurement Networks

• Detecting the Barrage Approach to Illicit Procurement

• How Cooperation between a Company and Government Authorities Disrupted a Sophisticated Illicit Iranian Procurement

Labels: Export Controls

A jury in federal court in Fort Lauderdale Florida today convicted Sharhazad Mir Gholikhan, the Iranian woman accused of violating U.S. law in connection with the attempted sale of 3,500 Generation III night-vision goggles to Iran.

According to the South Florida Sun-Sentinel, Ms. Gholikhan was "found guilty on three counts of export violations and not guilty on three related conspiracy charges." Ms. Gholikhan, who has already served time in prison in this very unusual case, faces additional prison time when sentenced in March 2009.

Ms. Gholikhan represented herself during the trial. Here is a synopsis of this case from this evening's Sun-Sentinel article:

Labels: Export Controls

On December 9th, Representative Ileana Ros-Lehtinen (R-FL), the Ranking Member of the House Committee on Foreign Affairs, introduced the Limitation on Nuclear Cooperation with the United Arab Emirates Act of 2008 (H.R. 7316), a bill that would impose conditions on the proposed agreement between the U.S. and the United Arab Emirates (UAE) for the Cooperation on Peaceful Uses of Nuclear Energy (commonly known as a "123 Agreement").

Section 3(c) of H.R. 7316 requires the President to certify to Congress that the UAE has met a number of stringent conditions before the 123 agreement could be enacted or before any licenses are issued for the export of nuclear material, equipment or technology to the UAE.

Among other things, the President would have to certify that the UAE Government has:

• Taken effective actions to prohibit, terminate, and prevent the transfer of goods, services, or technology to the Government of Iran, including fully implementing United Nations Security Council sanctions against Iran.

• Developed and fully implemented an export control regime in accordance with international standards.

• Developed and implemented the appropriate or necessary legislative and functional actions to target the logistical and financial networks that support terrorist organizations.

• Not violated the Iran Sanctions Act of 1996, the Iran, North Korea, and Syria Nonproliferation Act and other provisions of applicable U.S. law.

This bill will not be considered during the remaining days of the 100th Congress, but will certainly be reintroduced when the next session of Congress convenes on January 6, 2009. As indicated in the excellent report on this bill at the Global Security Newswire, this bill was introduced now since the U.S.-UAE 123 Agreement appears very close to being signed.

Labels: Export Controls, UAE

The U.S. Export Assistance Center of Missouri is presenting a series of six webinars on the fundamentals of exporting in January through March 2009.

The topics covered in each program are listed below. Doug Jacobson of Strasburger & Price, LLP (editor of this blog) and Scott Sullivan, who oversees Flowserve Corporation's export compliance program, will be presenting the export controls program on March 18, 2009.

Sign up by December 31st to received an early bird discount for all six sessions. For more information and to register, see this page on the U.S. Export Assistance Center of Missouri's website.
Export Fundamentals - Webinar Announcement

Labels: Export Controls

The Boston Business Journal reported today that the U.S. Attorney for Massachusetts has charged three employees of Chitron Electronics Inc., a Waltham, Massachusetts affiliate of China-based Chitron Electronics Co. Ltd., with conspiracy to violate U.S. export control laws.

The story states that the three were charged with making false statements on export declarations by indicating the the products were being shipped to Hong Kong, when in fact the products were destined for mainland China.

According to the company's website, Chitron Electronics Co. Ltd. is one of the largest independent distributors of electronic components in China.

UPDATE: The U.S. Attorney's office has issued a press release containing more details on this case. The release states that Chitron's "Hong Kong office was merely a transshipment point or shipping office; it was set up to act as a freight forwarder -- to receive shipments from Chitron-US and re-ship or transship them to Mainland China thereby circumventing U.S. export laws and license requirements."

Labels: China;, Export Controls

Here are some recent articles of interest on various export control issues:

• Shipping Digest, December 8, 2008 "Exporters must read between the lines to avoid running afoul of export-control regulations"

• Boston Globe, December 7, 2008: "Oil firm sidesteps sanctions on Iran"

• Compliance Week, December 2, 2008, "How to Avoid Export Controls Violations"

• Space Review, December 1, 2008, "The uphill battle for export control reform"

Labels: Export Controls

The Bureau of Industry and Security (BIS) published a notice in today's Federal Register announcing that it is seeking public comment on the prospect of removing from de minimis eligibility commodities controlled for missile technology (MT) reasons under Category 7-Product Group A on the Commerce Control List (CCL), except when the items are incorporated as standard equipment in Federal Aviation Administration (FAA) (or national equivalent) certified civilian transport aircraft.

Commodities controlled by Category 7-Product Group A in the CCL are certain equipment and components related to navigation and avionics. According to BIS, several agencies have raised concerns that such commodities, when controlled for MT reasons, have the potential to provide a foreign product with unique military capabilities, even if the value of the commodity is below normal de minimis levels.

If such a policy were implemented, foreign made items that incorporate U.S.-origin 7A commodities would be subject to the Export Administration Regulations, except when the 7A commodities are incorporated as standard equipment in FAA (or national equivalent) certified civilian transport aircraft.

BIS is seeking public input on the impact such a change would have on U.S. manufacturers of category 7A commodities, as well as the impact such a change would have on foreign manufacturers that incorporate U.S.-origin 7A commodities into their foreign-made products.

Comments must be submitted to BIS by January 20, 2009.

Labels: BIS, Export Controls

In an unusual move, private security firm Blackwater Worldwide issued a press release on Friday containing detailed information on its export activities to "clarify misinformation stemming from several inaccurate media reports" regarding Blackwater's exports to Iraq and other export-related issues.

Blackwater stated that "these reports -- which contain plainly false allegations -- cite only anonymous government sources, anonymous former employees, and former employees who were fired by Blackwater for stealing weapons from the company."

The press release contains specific and detailed information to rebut "some of the more egregious errors" included in the reports. For example, Blackwater states that it has "never shipped so much as one automatic weapon to Iraq". In addition, Blackwater stated that recent reports about unlicensed exports to Iraq were not accurate since:

"Blackwater obtained export licenses in excess of the number of weapons actually sent to Iraq - and the U.S. government authorized the export of each of these weapons. The investigations referenced by the media do not allege that the company failed to obtain licenses or failed to ensure the government was aware of its actions; rather, the investigations concern Blackwater's not properly annotating the licenses, not timely submitting required reports, and not retaining required records."

The press release contains some interesting information on Blackwater's shipping practices, including packing "shipping pallets with valuable and pilferable items, including weapons, interior to bags of dog food or other low-theft items [in order to] prevent corrupt foreign customs agents and shipping workers from stealing the valuables."

The press release also states that:

"We acknowledge that we have made numerous mistakes in complex and demanding area of export compliance over the years. However, the majority of those violations have been failures of paperwork and timeliness while supporting the United States and its allies, not nefarious smuggling or aid to enemies. This is in no way meant to diminish the seriousness of U.S. export control laws, but rather to clearly state: Blackwater has not committed any of the sensational violations that have been reported recently."

Because of the weaknesses that have been uncovered concerning its export processes, Blackwater announced [on October 8, 2008] a comprehensive initiative to enhance export compliance throughout its global operations. The initiative, under development for several months, includes the creation of an independent committee of experienced outside experts to oversee export compliance and the addition of a Vice President of Export Compliance. These efforts are supported by a global training initiative, proposed enhanced business controls and an increased compliance staff.

Labels: Export Controls

The Justice Department issued a press release yesterday announcing that multi-agency National Export Enforcement Initiative to combat illegal exports of restricted military and dual-use technology from the U.S. has resulted in criminal charges against more than 145 defendants in fiscal year 2008. Approximately 43% of the criminal cases involved munitions or other restricted technology bound for Iran or China.

The Justice Department also issued a fact sheet describing some of the major U.S. Export enforcement prosecutions during the past two years. In addition to describing some past cases, the fact sheet provided information on the Justice Department's most recent export controls indictment, in which the U.S. Attorney in Minnesota charged three individuals with conspiring to illegally export to the China controlled carbon-fiber material. According to the indictment, the intended destination for some of the materials was the China Academy of Space Technology, which oversees research institutes working on spacecraft systems for the PRC government. The U.S. Attorney's press release containing further details on this case can be found here.

Unveiled in October 2007, the National Export Enforcement Initiative is a cooperative effort by the Justice Department’s National Security Division, the Department of Homeland Security’s U.S. Immigration and Customs Enforcement, the Federal Bureau of Investigation, the Department of Commerce’s Bureau of Industry and Security, the Pentagon’s Defense Criminal Investigative Service, the State Department’s Directorate of Defense Trade Controls, the Treasury Department’s Office of Foreign Assets Control and other agencies.

Labels: Export Controls

The era of filing paper license and commodity classification requests with the Commerce Department's Bureau of Industry and Security (BIS) is soon coming to an end.

As a result of the final rule issued by BIS in August, starting next Monday, October 20, 2008, the following types of submissions must be submitted via the web-based Simplified Network Application Process Redesign (SNAP-R) system:

• Export license applications (other than Special Comprehensive License and Special Iraq Reconstruction License applications);
• Reexport license application;
  
• Commodity classification requests;
• Encryption review requests;
• License Exception AGR notifications;
  
• All documents submitted in support of or related to the above submissions.

The final rule states that BIS will authorize paper submissions in only a few limited situations, such as when:

1. BIS has received no more than one submission from the party in the twelve months immediately preceding the current submission, i.e., the combined total of the party's license applications (other than Special Comprehensive Licenses), encryption review requests, License Exception AGR notifications, and classification requests could not exceed one;
2. The submitter does not have access to the Internet;
3. BIS has rejected the party's electronic filing registration or revoked its eligibility to file electronically;
4. BIS has requested that the party submit on paper for a particular transaction; or
5. BIS has determined that urgency, a need to implement government policy or a circumstance outside the submitting party's control justifies allowing paper submissions on a particular instance.

Labels: BIS; EAR, Export Controls

Government contractor Blackwater Worldwide, which has been the subject of government investigations on export controls and other issues, announced (pdf) that the company has undertaken a "comprehensive initiative to enhance export compliance throughout its global operations."

The initiative includes the creation of a three-person independent committee of outside experts to oversee export compliance and the addition of a Vice President of Export Compliance. These efforts will be supported by a global training initiative, proposed enhanced business controls and an increased compliance staff.

Blackwater's Export Compliance Committee will consist of:

• Robert C. Bonner - Former U.S. Attorney; U.S. District Court Judge; Commissioner of U.S. Customs; first Commissioner of U.S. Customs and Border Protection; and Administrator of the U.S. Drug Enforcement Administration.
  

• Asa Hutchinson - Former U.S. Attorney; Administrator of the DEA; U.S. Congressman; and first Under Secretary of Homeland Security.

• Carol R. Marshall - Former Vice President of Ethics and Business Conduct at Lockheed Martin; Senior Vice President, Ethics and Business Conduct at MCI; Chair of the Ethics Resource Center Fellows Program; and Chair and Working Group Liaison to the Defense Industry Initiative on Business Ethics.
  

Blackwater's new Vice President of Export Compliance will be Karen Jones, who most recently served as Director, Import Export Operations, Raytheon Missile Systems Division.

Labels: Export Controls

U.S. manufacturers and exporters of products classified under Export Control Classification Number (ECCN) 2B350 should be aware that the final rule issued by BIS on October 6, 2008 making changes to the Commerce Control List contained several changes to ECCN 2B350.

ECCN 2B350 covers valves, pumps, reaction vessels and other types of equipment used in chemical manufacturing facilities.

While the rule did not make any substantive changes to the list of items that are controlled under 2B350, the rule made a number of changes to the text of ECCN 2B350 that should be reviewed:

• Reordered the "Items" paragraph in the List of Items Controlled Section.
• Redesignated the "Technical Note" at the end of the ‘‘Items’’ paragraph in the List of Items Controlled section, as ‘‘Technical Note 1".
• Added a ‘‘Technical Note 2’’ to define the term ‘‘alloy’’. This new definition of ‘‘alloy’’ states that the metal alloys in 2B350 are those containing a higher percentage by weight of the stated metal than any other element.
• Moved the text of the ‘‘Related Controls’’ paragraph to a new ‘‘License Requirement Note’’ to clarify the intended scope of the control.

Labels: BIS; EAR, Export Controls

Today's guest post on BIS's recently issued encryption regulation was written by Felice Laird, a consultant on encryption and other export control issues and founder of Export Strategies, LLC.
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In response to industry pressure and a Presidential Directive issued earlier this year, the Bureau of Industry and Security (BIS) published an interim final rule on October 3, 2008 modifying the Export Administration Regulations (EAR) governing the export of hardware, software and technical data using encryption technology. The rule makes some marginal changes to the regulations but falls short of any significant restructuring of the regulatory regime which as been in place for almost a decade. Despite the limited nature of the changes, many U.S. companies will need to tweak their compliance practices immediately in order to comply with the new rules –– there is no “grace period” for implementation.

The new rule, ironically entitled “Encryption Simplification” takes up eighteen pages in the Federal Register. BIS plans on developing additional guidance to be posted on its website as questions will inevitably be raised regarding the correct interpretation of certain provisions contained in the final rule.

Good News for Some

Companies in the business of making products for the consumer market will benefit from the regulatory changes. For example, companies that make mass-market products using weak cryptography (now defined as using key lengths not exceeding 80 bits; for asymmetric algorithms with key lengths not exceeding 1024 bits; and for elliptic curve algorithms with key lengths not exceeding 160 bits) no longer have to submit a notification of self-classification prior to export. These products can be classified as 5X992 and exported under “NLR”.

The new regulation introduces a category of products performing “ancillary cryptography” and exempt them from review and reporting requirements. Examples provided by BIS in its definition of ancillary cryptography in section 772.1 of the EAR include “business process modeling and automation (e.g., supply chain management, inventory, scheduling and delivery); industrial, manufacturing or mechanical systems (including robotics, other factory or heavy equipment, facilities systems controllers including fire alarms and HVAC); automotive, aviation and other transportation systems. Relief from the review and reporting requirements is also given to companies making products using short-range wireless technology.

BIS has also raised the thresholds that allow some network infrastructure equipment to be exported under the unrestricted provisions of ENC. As a consequence, low-end virtual private network (VPN) hardware and other wide area networking products can now potentially qualify for license-free shipment to both commercial government end-users worldwide.

All exporters will benefit by the inclusion of Bulgaria, Canada, Iceland, Romania and Turkey to the “License Free Zone” (also known as the “Supplement 3 countries”). Both government and commercial entities in these countries may receive product under ENC once a review request is submitted.

Bad News for Others

BIS has made a change affecting the classification of mass-market products that could present a compliance challenge for companies who may conduct a limited international release of product coincident with the submission of a technical review. Companies had previously been allowed to self-classify mass-market products as 5x992 and export under NLR (no license required) pending a 30 day BIS review. The new rules require that future products be temporarily classified as 5x002 pending a final BIS determination and export be made according to the provisions of ENC. This change is viewed as a roll-back of an existing liberalization and will undoubtedly be cited in comment letters to BIS. Companies will likely claim that expensive system change requirements in their order processing, export documentation and ERP systems will be required to comply with the new rule.

BIS is actively working on a long range plan to further modify the encryption regulations. However, given the fact that this is an election year and that fundamental changes to U.S. encryption export rules will require Wassenaar Arrangement approval there will likely be no further changes for at least a year to eighteen months.

Labels: BIS, Export Controls