BIS Publishes New “Best Practices” for Industry to Guard Against Unlawful Diversion through Transshipment Trade
08/31/11 12:25 PM
On
August 31, 2011, the U.S. Department of Commerce’s
Bureau of Industry and Security (BIS) published a
new “best practices” guide for to help guard
against the diversion of dual-use items shipped to
a transshipment "hub," or to any intermediate
country before being shipped to the country of
ultimate destination. BIS states that these best
practices were developed in conjunction with U.S.
industry.
In the announcement, BIS stated:
Transshipment is a routine and growing part of legitimate world trade with logistical benefits, but also can be used illegally to disguise the actual country of ultimate destination. Transshipment practices may also create a risk that items are diverted to unauthorized end-users or end-uses.
“These new best practices provide a formidable tool to help secure trade through transshipment hubs,” said Assistant Secretary for Export Administration Kevin J. Wolf. "BIS is committed to working with industry to adopt best practices critical to safeguarding U.S. national security interests.”
The following new best practices will help exporters, re-exporters, freight forwarders and other parties to comply with US export control regulations and laws and augment BIS’s Export Management and Compliance Guidelines. BIS is encouraging industry to:
This set of best practices, aimed at U.S industry, supports one of ten best practices suggested by the State Department’s Bureau of International Security and Nonproliferation to foreign governments at the Global Transshipment Seminar in Dubai, United Arab Emirates, in March 2011. That best practice suggestion encouraged industry to develop stronger internal compliance programs, conduct focused outreach, and raise awareness of export control obligations.
The 2011 “Best Practices for Preventing Unlawful Diversion of U.S. Dual-Use Items Subject to the Export Administration Regulations, Particularly through Transshipment Trade” are posted on the BIS website.
In the announcement, BIS stated:
Transshipment is a routine and growing part of legitimate world trade with logistical benefits, but also can be used illegally to disguise the actual country of ultimate destination. Transshipment practices may also create a risk that items are diverted to unauthorized end-users or end-uses.
“These new best practices provide a formidable tool to help secure trade through transshipment hubs,” said Assistant Secretary for Export Administration Kevin J. Wolf. "BIS is committed to working with industry to adopt best practices critical to safeguarding U.S. national security interests.”
The following new best practices will help exporters, re-exporters, freight forwarders and other parties to comply with US export control regulations and laws and augment BIS’s Export Management and Compliance Guidelines. BIS is encouraging industry to:
- Pay heightened attention to BIS’s Red Flag Indicators and communicate red flag concerns internally.
- Seek to utilize only those trade facilitators and freight forwarders that administer sound export control management and compliance programs that include transshipment trade best practices.
- Obtain detailed information on the credentials of foreign customers to assess diversion risk.
- For routed transactions, establish and maintain a trusted relationship with parties to mitigate risks.
- Communicate export control classification and destination information to end-users and consignees on government and commercial export documentation.
- Provide the ECCN or the EAR99 classification to freight forwarders for all export transactions and report the classifications in the Automated Export System (AES), if applicable.
- Use information technology to the maximum extent feasible to augment "know your customer" and other due-diligence measures in combating the threats of diversion and increase confidence that shipments will reach authorized end-users for authorized end-uses.
This set of best practices, aimed at U.S industry, supports one of ten best practices suggested by the State Department’s Bureau of International Security and Nonproliferation to foreign governments at the Global Transshipment Seminar in Dubai, United Arab Emirates, in March 2011. That best practice suggestion encouraged industry to develop stronger internal compliance programs, conduct focused outreach, and raise awareness of export control obligations.
The 2011 “Best Practices for Preventing Unlawful Diversion of U.S. Dual-Use Items Subject to the Export Administration Regulations, Particularly through Transshipment Trade” are posted on the BIS website.
Notice of Open Meeting of PECSEA
08/24/11 12:33 PM
On
August 24, 2011, the U.S. Department of Commerce’s
Bureau of Industry and Security (BIS)
announced that the
President’s Export Council Subcommittee on
Export Administration (PECSEA) will meet on
September 19 and 20, 2011, 10 a.m., at the
Sofitel Hotel Miami, 5800 Blue Lagoon Drive,
Miami, Florida 33126.
The PECSEA provides advice on matters pertinent to those portions of the Export Administration Act, as amended, that deal with United States policies of encouraging trade with all countries with which the United States has diplomatic or trading relations and of controlling trade for national security and foreign policy reasons.
BIS states that, “A limited number of seats will be available for the public sessions on both days. Reservations are not accepted. To the extent time permits, members of the public may present oral statements to the PECSEA. Written statements may be submitted at any time before or after the meeting. However, to facilitate distribution of public presentation materials to PECSEA members, the PECSEA suggests that public presentation materials or comments be forwarded before the meeting to
Ms. Yvette Springer at Yvette.Springer@bis.doc.gov.”
The published agenda is as follows:
Monday, September 19
Open Session
1. Export Control Reform Field Hearing.
Tuesday, September 20
Open Session
1. Welcome and Remarks by the Chairman and Vice Chair.
2. Export Control Reform Update.
3. Presentation of Papers or Comments by the Public.
4. Review of Field Hearing.
5. Status of 2011 Workplan.
6. Discussion of 2012 Workplan.
7. Subcommittee Breakout Sessions.
The PECSEA provides advice on matters pertinent to those portions of the Export Administration Act, as amended, that deal with United States policies of encouraging trade with all countries with which the United States has diplomatic or trading relations and of controlling trade for national security and foreign policy reasons.
BIS states that, “A limited number of seats will be available for the public sessions on both days. Reservations are not accepted. To the extent time permits, members of the public may present oral statements to the PECSEA. Written statements may be submitted at any time before or after the meeting. However, to facilitate distribution of public presentation materials to PECSEA members, the PECSEA suggests that public presentation materials or comments be forwarded before the meeting to
Ms. Yvette Springer at Yvette.Springer@bis.doc.gov.”
The published agenda is as follows:
Monday, September 19
Open Session
1. Export Control Reform Field Hearing.
Tuesday, September 20
Open Session
1. Welcome and Remarks by the Chairman and Vice Chair.
2. Export Control Reform Update.
3. Presentation of Papers or Comments by the Public.
4. Review of Field Hearing.
5. Status of 2011 Workplan.
6. Discussion of 2012 Workplan.
7. Subcommittee Breakout Sessions.
Iranian National Sentenced to Four Years in Prison for Conspiracy to Illegally Export Prohibited Parts to Iran
08/15/11 12:22 PM
On
August 15, 2011, U.S. Department of Justice
(DOJ) announced that Davoud
Baniameri, 38, an Iranian national who
maintained a residence and business in
California was sentenced to 51 months in federal
prison after he pleaded guilty in May to one
count of conspiracy to export goods and
technology to Iran without a license from the
U.S. Department of Treasury in violation of the
International Emergency Economic Powers Act
(IEEPA) and one count of attempting to export
defense articles on the U.S. Munitions List from
the United States without a license or approval
from the U.S. Department of State in violation
of the Arms Export Control Act (AECA).
Baniameri was arrested on a criminal complaint on Sept. 9, 2009, and indicted in December 2009. A superseding indictment in July 2010 charged Baniameri and his two co-defendants Syed Majid Mousavi (Mousavi) and Andro Telemi (Telemi).
According to the plea agreement, sometime before October 10, 2008, Mousavi, based in Iran, contacted Baniameri in California and requested that he purchase and export radio test sets from the United States to Iran, through Dubai. Baniameri agreed and over the next few months negotiated the purchase of three Marconi radio test sets from a company in Illinois. Baniameri arranged for the radio test kits to be sent to him in California, where he shipped them to Dubai, for ultimate transshipment to Iran, without the required export license.
The plea agreement also states that, sometime before August 10, 2009, Mousavi contacted Baniameri and requested that he purchase and export to Iran via Dubai 10 connector adapters for the TOW and TOW2 missile systems. Baniameri agreed to purchase the items on behalf of Mousavi, and over the next few months, he admitted that he and his co-defendants attempted to purchase 10 connector adaptors from a company in Illinois, which unbeknownst to them, was in fact a company controlled by law enforcement. In September 2009, Baniameri admitted that he directed Telemi to take possession of the connector adaptors in California after having paid $9,450 to a representative of the Illinois company. To further facilitate the export of these items to Iran, Baniameri arranged to fly from the United States to Dubai and then from Dubai to Iran. Baniameri did not attempt to obtain a license from the U.S. government for the export of the connector adaptors. He was arrested before leaving the United States.
Baniameri was arrested on a criminal complaint on Sept. 9, 2009, and indicted in December 2009. A superseding indictment in July 2010 charged Baniameri and his two co-defendants Syed Majid Mousavi (Mousavi) and Andro Telemi (Telemi).
According to the plea agreement, sometime before October 10, 2008, Mousavi, based in Iran, contacted Baniameri in California and requested that he purchase and export radio test sets from the United States to Iran, through Dubai. Baniameri agreed and over the next few months negotiated the purchase of three Marconi radio test sets from a company in Illinois. Baniameri arranged for the radio test kits to be sent to him in California, where he shipped them to Dubai, for ultimate transshipment to Iran, without the required export license.
The plea agreement also states that, sometime before August 10, 2009, Mousavi contacted Baniameri and requested that he purchase and export to Iran via Dubai 10 connector adapters for the TOW and TOW2 missile systems. Baniameri agreed to purchase the items on behalf of Mousavi, and over the next few months, he admitted that he and his co-defendants attempted to purchase 10 connector adaptors from a company in Illinois, which unbeknownst to them, was in fact a company controlled by law enforcement. In September 2009, Baniameri admitted that he directed Telemi to take possession of the connector adaptors in California after having paid $9,450 to a representative of the Illinois company. To further facilitate the export of these items to Iran, Baniameri arranged to fly from the United States to Dubai and then from Dubai to Iran. Baniameri did not attempt to obtain a license from the U.S. government for the export of the connector adaptors. He was arrested before leaving the United States.
Singapore National Agrees to $100,000 Fine and 25-year Denial Order to Settle Export Conspiracy Charges
08/10/11 11:46 AM
On
August 10, 2011, Bureau of Industry and Security
(BIS) announced that Jianwei
Ding of Singapore has agreed to pay a $100,000
civil penalty and have his export privileges
denied for a period of 25 years, to settle
allegations that he conspired to violate the
Export Administration Regulations (EAR) by
knowingly and willfully attempting to export
carbon fiber to China for use by the China
Academy of Space Technology (CAST) without the
required export licenses.
The carbon fiber at issue is controlled by BIS for nuclear non-proliferation and national security reasons and was valued at approximately $315,000. According to BIS, from February 2007 through April 2008, Ding conspired with others to export two types of the carbon fiber to CAST in China, via Hong Kong and Singapore, without the required Department of Commerce license.
BIS alleges that BIS used his position as a manager of several Singapore-based companies to acquired items for CAST. In addition, He directed the activities of individuals and entities in the United States and Singapore to deceive U.S. suppliers and avoid detection by law enforcement, and provided the money used to obtain the controlled materials for export from the U.S. to China.
Ding received repeated warnings that an export license was required for the export of carbon fiber to China. After the material had been purchased and stored in New York as part of the scheme, Ding ultimately directed a co-conspirator by email to export some carbon fiber to Hong Kong and some to a company under Ding’s control in Singapore.
The items were stopped by Special Agents of BIS’s Office of Export Enforcement (OEE) before they could be exported. Ding subsequently was arrested when he attempted to enter the U.S. and is now incarcerated in a federal prison. Prior to settling BIS’s administrative charge, Ding entered a guilty plea to criminal charges of conspiracy to violate the EAR and was sentenced to a period of 46 months imprisonment.
The carbon fiber at issue is controlled by BIS for nuclear non-proliferation and national security reasons and was valued at approximately $315,000. According to BIS, from February 2007 through April 2008, Ding conspired with others to export two types of the carbon fiber to CAST in China, via Hong Kong and Singapore, without the required Department of Commerce license.
BIS alleges that BIS used his position as a manager of several Singapore-based companies to acquired items for CAST. In addition, He directed the activities of individuals and entities in the United States and Singapore to deceive U.S. suppliers and avoid detection by law enforcement, and provided the money used to obtain the controlled materials for export from the U.S. to China.
Ding received repeated warnings that an export license was required for the export of carbon fiber to China. After the material had been purchased and stored in New York as part of the scheme, Ding ultimately directed a co-conspirator by email to export some carbon fiber to Hong Kong and some to a company under Ding’s control in Singapore.
The items were stopped by Special Agents of BIS’s Office of Export Enforcement (OEE) before they could be exported. Ding subsequently was arrested when he attempted to enter the U.S. and is now incarcerated in a federal prison. Prior to settling BIS’s administrative charge, Ding entered a guilty plea to criminal charges of conspiracy to violate the EAR and was sentenced to a period of 46 months imprisonment.
Applicants Must Use the Newly Revised Commodity Jurisdiction Form (DS-4076)
08/05/11 12:20 PM
Department of
State Directorate of Defense Trade Controls posted
on its web site a notice that, effective
immediately, applicants must use the newly revised
DS-4076 Commodity Jurisdiction form, Version Number
1.2. All prior versions will be rejected at the
time of submission.
One significant change appears in Block 12 where a “none” check box has been added, which will allow applicants to indicate when there is no equivalent U.S. or foreign product. Another change in Block 19 gives the applicant the option of directing DDTC to correspond with the applicant by email, to include notification of the final determination, rather than by means of the U.S. Postal Service. The new guidelines have been posted here.
One significant change appears in Block 12 where a “none” check box has been added, which will allow applicants to indicate when there is no equivalent U.S. or foreign product. Another change in Block 19 gives the applicant the option of directing DDTC to correspond with the applicant by email, to include notification of the final determination, rather than by means of the U.S. Postal Service. The new guidelines have been posted here.
Effective September 26, 2011, ITAR Registration Fees to be Submitted Electronically
07/28/11 11:44 AM
On
July 28, 2011, Department of State issued a
final rule in the Federal
Register amending the International Traffic in
Arms Regulations (ITAR) to change the method of
payment of registration fees.
Effective September 26, 2011, registration fees must be submitted to the Directorate of Defense Trade Controls (DDTC) electronically.
Previously, registrants submitted registration fees to the DDTC by check or money order, and these payments were processed manually. According to the Department of State, electronic submission of registration fees will simplify the collection and verification of payments, eliminate the need to manually process and collect returned payments, and eliminated the possibility of lost payments.
Effective September 26, 2011, registration fees must be submitted to the Directorate of Defense Trade Controls (DDTC) electronically.
Previously, registrants submitted registration fees to the DDTC by check or money order, and these payments were processed manually. According to the Department of State, electronic submission of registration fees will simplify the collection and verification of payments, eliminate the need to manually process and collect returned payments, and eliminated the possibility of lost payments.
BIS Posts Session and Panel Presentations from Update 2011 Conference on Export Controls & Policy
07/21/11 01:07 PM
The
Bureau of Industry and Security (BIS) posted on
its website session and
panel presentations from Update 2011 Conference
on Export Control & Policy that detail the
status of Export Control Reform
implementation.
DDTC Now Posting the Status of Commodity Jurisdiction Cases
07/15/11 12:54 PM
The
U.S. Department of State’s Directorate of Defense
Trade Controls (DDTC) is now weekly posting the
processing status of commodity jurisdiction (CJ)
requests. Users can look up the status of their
case by the commodity jurisdiction case number via
the CJ Status
Spreadsheet.
Former Managing Director of PPG Paints Trading (Shanghai) Co., Ltd., Charged with IEEPA and EAR Violations
07/08/11 01:02 PM
On
July 8, 2011, the Bureau of Security and Security
(BIS) announced that Xun Wang,
a former Managing Director of PPG Paints Trading
(Shanghai) Co., Ltd., a wholly-owned Chinese
subsidiary of U.S.-based PPG Industries, Inc.,
has been charged with conspiring to violate the
International Emergency Economic Powers Act
(IEEPA) and the Export Administration
Regulations (EAR), and other related offenses.
Specifically, Wang, 51, is accused of conspiring to export and reexport, and exporting and reexporting specially designed, high-performance epoxy coatings to the Chashma 2 Nuclear Power Plant (Chashma II) in Pakistan, a nuclear reactor owned and/or operated by the Pakistan Atomic Energy Commission. This entity is on the list of prohibited end users under the EAR.
Wang was arrested on the indictment on June 16, 2011, at Atlanta Hartsfield-Jackson Airport and transferred to the District of Columbia. She is a Chinese national and lawful permanent resident of the United States. The United States is seeking to have her held without bond pending trial.
The indictment against Wang is related to the December 21, 2010, guilty plea of PPG Paints Trading (Shanghai) Co., Ltd. (PPG Paints Trading), to a four-count information in the U.S. District Court for the District of Columbia. Together, PPG Paints Trading and its parent company, PPG Industries, Inc., paid $3.75 million in criminal and administrative fines and over $32,000 in restitution. The combined amount of criminal and civil fines represented one of the largest monetary penalties for export violations in the BIS history.
According to the indictment against Wang, in January 2006, PPG Industries sought an export license for the shipments of coatings to Chashma II. In June 2006, the Department of Commerce (DOC) denied that license application. Following that denial, Wang and her co-conspirators agreed upon a scheme to export and reexport the high-performance epoxy coatings from the U.S. to Chashma II, via a third-party distributor in People’s Republic of China (PRC), without the required export license from the DOC.
The indictment further alleges that from June 2006 through March 2007, Wang and other co-conspirators intentionally concealed from PPG Industries that the paint would be delivered to Chashma II. Specifically, they falsely stated that the coatings were to be used at a nuclear power plant in China, the export of goods to which would not require a license from the DOC. The indictment alleges that, through these means, Wang and her co-conspirators took part in three shipments of coatings from the United States to Chashma 2 without the required license.
Specifically, Wang, 51, is accused of conspiring to export and reexport, and exporting and reexporting specially designed, high-performance epoxy coatings to the Chashma 2 Nuclear Power Plant (Chashma II) in Pakistan, a nuclear reactor owned and/or operated by the Pakistan Atomic Energy Commission. This entity is on the list of prohibited end users under the EAR.
Wang was arrested on the indictment on June 16, 2011, at Atlanta Hartsfield-Jackson Airport and transferred to the District of Columbia. She is a Chinese national and lawful permanent resident of the United States. The United States is seeking to have her held without bond pending trial.
The indictment against Wang is related to the December 21, 2010, guilty plea of PPG Paints Trading (Shanghai) Co., Ltd. (PPG Paints Trading), to a four-count information in the U.S. District Court for the District of Columbia. Together, PPG Paints Trading and its parent company, PPG Industries, Inc., paid $3.75 million in criminal and administrative fines and over $32,000 in restitution. The combined amount of criminal and civil fines represented one of the largest monetary penalties for export violations in the BIS history.
According to the indictment against Wang, in January 2006, PPG Industries sought an export license for the shipments of coatings to Chashma II. In June 2006, the Department of Commerce (DOC) denied that license application. Following that denial, Wang and her co-conspirators agreed upon a scheme to export and reexport the high-performance epoxy coatings from the U.S. to Chashma II, via a third-party distributor in People’s Republic of China (PRC), without the required export license from the DOC.
The indictment further alleges that from June 2006 through March 2007, Wang and other co-conspirators intentionally concealed from PPG Industries that the paint would be delivered to Chashma II. Specifically, they falsely stated that the coatings were to be used at a nuclear power plant in China, the export of goods to which would not require a license from the DOC. The indictment alleges that, through these means, Wang and her co-conspirators took part in three shipments of coatings from the United States to Chashma 2 without the required license.
North Carolina CEO Fined for Unauthorized Exports to Libya
07/01/11 12:41 PM
On
July 1, 2011, the Bureau of Industry and Security
(BIS) announced that Mohammed
El-Gamal, also known as Moe Zayed El-Gamal
(Gamal), President and CEO of Applied
Technology, Inc. (ATI) of Kenansville, NC, has
agreed to pay a civil penalty of $340,000 to
settle allegations that he violated the Export
Administration Regulations (EAR) by exporting
controlled networking equipment to Libya without
the required export licenses.
BIS alleged that on three occasions during June and July of 2006, Gamal sent networking equipment, controlled for Anti-Terrorism reasons, to the General Electric Company of Libya, without the required Department of Commerce licenses. In connection to one of these shipments, agents searched an ATI employee flying from Detroit, MI to Libya and found three computer cards hidden in his carry-on luggage.
To settle the administrative case, Gamal agreed to conduct a compliance audit of ATI covering the first year of exports following the settlement, put in place a compliance program, attend BIS export compliance training, and complete an audit for past exports.
On February 14, 2011, Gamal also pleaded guilty in the District Court for District of Columbia to one count of Material False Statements made to agents in the course of investigation. On May 16, 2011, he was sentenced by United States District Judge to pay a fine of $5,000, to perform 100 hours of community service, and to serve two years supervised probation. The judge also ordered Gamal to provide monthly reports to the Department of Commerce regarding his export activities during the probationary period.
BIS alleged that on three occasions during June and July of 2006, Gamal sent networking equipment, controlled for Anti-Terrorism reasons, to the General Electric Company of Libya, without the required Department of Commerce licenses. In connection to one of these shipments, agents searched an ATI employee flying from Detroit, MI to Libya and found three computer cards hidden in his carry-on luggage.
To settle the administrative case, Gamal agreed to conduct a compliance audit of ATI covering the first year of exports following the settlement, put in place a compliance program, attend BIS export compliance training, and complete an audit for past exports.
On February 14, 2011, Gamal also pleaded guilty in the District Court for District of Columbia to one count of Material False Statements made to agents in the course of investigation. On May 16, 2011, he was sentenced by United States District Judge to pay a fine of $5,000, to perform 100 hours of community service, and to serve two years supervised probation. The judge also ordered Gamal to provide monthly reports to the Department of Commerce regarding his export activities during the probationary period.
DDTC Seeks Comments on Export/Import Licenses, Agreements, Reports, and Record Maintenance Requirements
06/30/11 09:20 PM
On
June 30, 2011, the Department of State posted
a notice in the Federal
Register seeking Office of Management and Budget
(OMB) approval for the information collection
requirements for the following:
Comments are due to the Department of State within 60 days from June 30, 2011 or by August 29, 2011.
- DSP-5:
Application/License for Permanent Export of
Unclassified Defense Articles and Related
Unclassified Technical Data;
• DSP-61: Application/License for Temporary Import of Unclassified Defense Articles;
• DSP-73: Application/License for Temporary Export of Unclassified Defense Articles;
• DSP-83: Non-Transfer and Use Certificate
• DSP-85: Application/License for Permanent/Temporary Export or Temporary Import of Classified Defense Articles and Classified Technical Data;
• DSP-94: Authority to Export Defense Articles and Services Sold under the Foreign Military Sales (FMS) Program;
• DSP-6, DSP-62, DSP-74, DSP-84, DSP-119: Application for Amendment to License for Export or Import of Classified or Unclassified Defense Articles and Related Technical Data;
• Request for Approval of Manufacturing License Agreements, Technical Assistance Agreements, and Other Agreements;
• Statement of Political Contributions, Fees, or Commissions in Connection with the Sale of Defense Articles or Services; and
• Maintenance of Records by Registrant.
Comments are due to the Department of State within 60 days from June 30, 2011 or by August 29, 2011.
ITA Seeks Comments Regarding Cooperation between the US and EU
06/23/11 09:19 PM
On
June 23, 2011, U.S. Department of Commerce
International Trade Commission (ITA)
reopened the comment
period regarding regulatory cooperation
activities between the U.S. and the EU that
would help eliminate to reduce unnecessary
divergences in regulation and in standards that
impede U.S. exports.
ITA seeks comments on the following possible types of cooperative regulatory activities between the United States and the European Union: Information-sharing agreements; technical assistance; memoranda of understanding, mutual recognition agreements; collaboration between regulators before initiating rulemaking proceedings; agreements to align particular regulatory measures; equivalency arrangements; and accreditation of testing laboratories or other conformity assessment bodies.
These comments will serve as a basis for discussion with the European Union on regulatory cooperation activities to undertake which will support the President's National Export Initiative and serve as a basis for discussion within the U.S.— EU High-Level Regulatory Cooperation Forum.
Comments are due August 8, 2011.
ITA seeks comments on the following possible types of cooperative regulatory activities between the United States and the European Union: Information-sharing agreements; technical assistance; memoranda of understanding, mutual recognition agreements; collaboration between regulators before initiating rulemaking proceedings; agreements to align particular regulatory measures; equivalency arrangements; and accreditation of testing laboratories or other conformity assessment bodies.
These comments will serve as a basis for discussion with the European Union on regulatory cooperation activities to undertake which will support the President's National Export Initiative and serve as a basis for discussion within the U.S.— EU High-Level Regulatory Cooperation Forum.
Comments are due August 8, 2011.
Nationals of Four Countries Indicted for Supplying Iran with U.S. Military Aircraft Components
06/23/11 09:06 PM
On
June 23, 2011, the U.S. Department of
Justice announced that seven
individuals and five companies based in the
U.S., France, the UAE, and Iran have been
indicted in the Middle District of Georgia for
their alleged roles in a conspiracy to illegally
export military components for fighter jets and
attack helicopters from the U.S. to Iran.
Specifically, eight of the defendants were
charged with conspiring to violate and violating
the Arms Export Control Act (AECA), the
International Emergency Economic Powers Act
(IEEPA) and the Iranian Transactions
Regulations, as well as conspiracy to defraud
the United States, money laundering and false
statement violations.
One of the defendants and his company were sentenced on June 22, 2011, with the individual receiving almost five years in prison. Another defendant and his company have admitted their illegal conduct and also pleaded guilty in the investigation.
The indictment alleges that the defendants conspired to export components for attack helicopters and fighter jets to Iran without the required U.S. export licenses. These components included military parts for the Bell AH-1 attack helicopter, the UH-1 Huey attack helicopter, as well as the F-5 and F-4 fighter jets.
One of the defendants and his company in the U.A.E. are alleged to have placed orders and purchased military aircraft parts, including those for the Bell AH-1 attack helicopter, from a defendant and his company in the U.S., who then exported the aircraft parts to the U.A.E.
One defendant in Illinois is alleged to have placed orders and purchased U.S. aircraft parts from another defendant in Georgia on behalf of an Iranian national and his company in Iran. The charges specify that the defendant in Georgia and other defendants exported the aircraft parts to Iran via defendants in France.
A conspiracy charge carries a maximum penalty of five years in prison. A maximum penalty for an AECA violation is 20 years in prison, and an IEEPA violation carries a maximum penalty of 20 years. Money laundering carries a maximum 20 years in prison, while making false statements carries a maximum of five years in prison.
One of the defendants and his company were sentenced on June 22, 2011, with the individual receiving almost five years in prison. Another defendant and his company have admitted their illegal conduct and also pleaded guilty in the investigation.
The indictment alleges that the defendants conspired to export components for attack helicopters and fighter jets to Iran without the required U.S. export licenses. These components included military parts for the Bell AH-1 attack helicopter, the UH-1 Huey attack helicopter, as well as the F-5 and F-4 fighter jets.
One of the defendants and his company in the U.A.E. are alleged to have placed orders and purchased military aircraft parts, including those for the Bell AH-1 attack helicopter, from a defendant and his company in the U.S., who then exported the aircraft parts to the U.A.E.
One defendant in Illinois is alleged to have placed orders and purchased U.S. aircraft parts from another defendant in Georgia on behalf of an Iranian national and his company in Iran. The charges specify that the defendant in Georgia and other defendants exported the aircraft parts to Iran via defendants in France.
A conspiracy charge carries a maximum penalty of five years in prison. A maximum penalty for an AECA violation is 20 years in prison, and an IEEPA violation carries a maximum penalty of 20 years. Money laundering carries a maximum 20 years in prison, while making false statements carries a maximum of five years in prison.
BIS Implements Strategic Trade Authorization License Exception
06/16/11 09:03 PM
On
June 16, 2011, the Bureau of Industry and Security
(BIS) posted a final rule in the Federal
Register that adds the Strategic Trade
Authorization (STA) license exception to the
Export Administrations Regulations (EAR). STA
authorizes the export, reexport, and transfer
(in- country) of specified items to destinations
that pose relatively low risk that those items
will be used for a purpose that licensing
requirements were designed to prevent.
To use the STA license exception, parties to the transaction must exchange notifications and statements designed to provide assurance against diversion of such items to other destinations. The exception is only relevant to exports, reexports, and transfers for which a license is required under the EAR. Thus, if the EAR do not impose an obligation to apply for and receive a license before exporting, reexporting, or transferring an item subject to the EAR, STA is not relevant to the transaction.
STA license exception is expected to facilitate exports between the U.S. and partner countries while enhancing the competitiveness of U.S.’s key industrial base sectors.
The final rule is effective June 16, 2011.
To use the STA license exception, parties to the transaction must exchange notifications and statements designed to provide assurance against diversion of such items to other destinations. The exception is only relevant to exports, reexports, and transfers for which a license is required under the EAR. Thus, if the EAR do not impose an obligation to apply for and receive a license before exporting, reexporting, or transferring an item subject to the EAR, STA is not relevant to the transaction.
STA license exception is expected to facilitate exports between the U.S. and partner countries while enhancing the competitiveness of U.S.’s key industrial base sectors.
The final rule is effective June 16, 2011.
BIS Revokes the Suspension of a $2M Penalty and Accelerates Payment of Outstanding $5.2 Penalty for Balli Group
06/13/11 09:25 PM
On
June 13, 2011, the Bureau of Industry and Security
(BIS) announced that in
response to a May 20, 2011 order revoking the
suspension of a $2M civil penalty and invoking
the acceleration clause for the two remaining
$2.6M installment payments, Balli Group PLC and
Balli Aviation paid a total of $7.2M in civil
penalties.
BIS and the Treasury Department’s Office of Foreign Assets Control (OFAC) had entered into an agreement with Balli Group PLC and Balli Aviation Ltd. (collectively “Balli&rdquo
in February 2010, with civil
penalties totaling $15M, originally suspending
$2M, regarding allegations that Balli
conspired to export or reexport commercial
aircraft from the United States to Iran in
violation of the Export Administration
Regulations (EAR) and the Iranian Transactions
Regulations (ITR). This case represented the
largest civil penalty ever imposed by BIS.
In his revocation order, BIS Assistant Secretary Mills stated: "[Balli] failed in my judgment to arrange its business and financial affairs in such a manner as to ensure compliance with its civil penalty payment obligations – obligations that were imposed, moreover, as a result of Balli’s egregious conduct that violated U.S. export control laws and provided support to Iran and its proliferation efforts."
BIS previously had charged that between 2005 and 2008 Balli conspired with an Iranian airline to export or reexport U.S.-origin Boeing 747 aircraft to Iran without the required U.S. Government authorization. Specifically, three of the aircraft were flying on routes in and out of Iran using Iranian flight numbers while under the operational control of the Iranian airline. Balli allowed the aircraft to continue to be operated contrary to U.S. export control laws, despite warnings from BIS and the manufacturer. Additionally, Balli misled and concealed information from BIS regarding the role the Iranian airline played in the acquisition and financing of the aircraft via funds from the Iranian Foreign Exchange Reserve Fund.
BIS also had charged that from July 2008, through September 2008, Balli took actions prohibited by a BIS order temporarily denying its export privileges. Balli conducted negotiations with persons, including another person subject to the Temporary Denial Order, concerning financing, receiving and/or using three additional U.S.-origin aircraft that had been exported from the United States and are subject to the EAR.
BIS and the Treasury Department’s Office of Foreign Assets Control (OFAC) had entered into an agreement with Balli Group PLC and Balli Aviation Ltd. (collectively “Balli&rdquo
in February 2010, with civil
penalties totaling $15M, originally suspending
$2M, regarding allegations that Balli
conspired to export or reexport commercial
aircraft from the United States to Iran in
violation of the Export Administration
Regulations (EAR) and the Iranian Transactions
Regulations (ITR). This case represented the
largest civil penalty ever imposed by BIS.
In his revocation order, BIS Assistant Secretary Mills stated: "[Balli] failed in my judgment to arrange its business and financial affairs in such a manner as to ensure compliance with its civil penalty payment obligations – obligations that were imposed, moreover, as a result of Balli’s egregious conduct that violated U.S. export control laws and provided support to Iran and its proliferation efforts."
BIS previously had charged that between 2005 and 2008 Balli conspired with an Iranian airline to export or reexport U.S.-origin Boeing 747 aircraft to Iran without the required U.S. Government authorization. Specifically, three of the aircraft were flying on routes in and out of Iran using Iranian flight numbers while under the operational control of the Iranian airline. Balli allowed the aircraft to continue to be operated contrary to U.S. export control laws, despite warnings from BIS and the manufacturer. Additionally, Balli misled and concealed information from BIS regarding the role the Iranian airline played in the acquisition and financing of the aircraft via funds from the Iranian Foreign Exchange Reserve Fund.
BIS also had charged that from July 2008, through September 2008, Balli took actions prohibited by a BIS order temporarily denying its export privileges. Balli conducted negotiations with persons, including another person subject to the Temporary Denial Order, concerning financing, receiving and/or using three additional U.S.-origin aircraft that had been exported from the United States and are subject to the EAR.
Iranian National Pleads Guilty to Illegally Exporting Missile Components and Radio Test Sets to Iran
05/31/11 03:43 PM
On May
31, 2011, the Bureau of Industry and Security (BIS)
and the U.S. Department of Justice (DOJ)
announced that Davoud
Baniameri, 38, of Woodland Hills, CA, pleaded
guilty to one count of conspiring to export
goods and technology to Iran without a license
or approval from the U.S. Department of
Treasury, in violation of the International
Emergency Economic Powers Act (IEEPA) and one
count of attempting to export defense articles
on the U.S. Munitions List from the United
States without a license or approval from the
U.S. Department of State in violation of the
Arms Export Control Act (AECA).
U.S. District Judge Samuel Der-Yeghiayan set sentencing for Aug. 4. Baniameri, who remains in federal custody, faces a maximum penalty of 10 years in prison for violating IEEPA and a maximum of 20 years in prison for violating AECA and a maximum fine of $250,000 on each count. A written plea agreement contemplates a sentencing guideline range of 46 to 57 months imprisonment.
According to the plea agreement and other court records, sometime before Oct. 10, 2008, Mousavi, based in Iran, contacted Baniameri in California and requested that he purchase and export radio test sets from the United States to Iran, through Dubai. Baniameri agreed and over the next few months negotiated the purchase of three Marconi radio test sets from a company in Illinois. Ultimately, Baniameri arranged for the radio test kits to be sent to him in California, where he shipped them to Dubai, for ultimate transshipment to Iran. At no time did Baniameri obtain or attempt to obtain a license from the U.S. government for the export of the radio test sets.
The plea agreement also states that, sometime before Aug. 10, 2009, Mousavi contacted Baniameri and requested that he purchase and export to Iran via Dubai 10 connector adapters for the TOW and TOW2 missile systems. Baniameri agreed to purchase the items on behalf of Mousavi, and over the next few months, he admitted that he and his co-defendants attempted to purchase 10 connector adaptors from a company in Illinois, which unbeknownst to them, was in fact a company controlled by law enforcement. In September 2009, Baniameri admitted that he directed Telemi to take possession of the connector adaptors in California after having paid $9,450 to a representative of the Illinois company. To further facilitate the export of these items to Iran, Baniameri arranged to fly from the United States to Dubai and then from Dubai to Iran. At no time did Baniameri obtain or attempt to obtain a license from the U.S. government for the export of the connector adaptors. He was arrested before leaving the United States.
U.S. District Judge Samuel Der-Yeghiayan set sentencing for Aug. 4. Baniameri, who remains in federal custody, faces a maximum penalty of 10 years in prison for violating IEEPA and a maximum of 20 years in prison for violating AECA and a maximum fine of $250,000 on each count. A written plea agreement contemplates a sentencing guideline range of 46 to 57 months imprisonment.
According to the plea agreement and other court records, sometime before Oct. 10, 2008, Mousavi, based in Iran, contacted Baniameri in California and requested that he purchase and export radio test sets from the United States to Iran, through Dubai. Baniameri agreed and over the next few months negotiated the purchase of three Marconi radio test sets from a company in Illinois. Ultimately, Baniameri arranged for the radio test kits to be sent to him in California, where he shipped them to Dubai, for ultimate transshipment to Iran. At no time did Baniameri obtain or attempt to obtain a license from the U.S. government for the export of the radio test sets.
The plea agreement also states that, sometime before Aug. 10, 2009, Mousavi contacted Baniameri and requested that he purchase and export to Iran via Dubai 10 connector adapters for the TOW and TOW2 missile systems. Baniameri agreed to purchase the items on behalf of Mousavi, and over the next few months, he admitted that he and his co-defendants attempted to purchase 10 connector adaptors from a company in Illinois, which unbeknownst to them, was in fact a company controlled by law enforcement. In September 2009, Baniameri admitted that he directed Telemi to take possession of the connector adaptors in California after having paid $9,450 to a representative of the Illinois company. To further facilitate the export of these items to Iran, Baniameri arranged to fly from the United States to Dubai and then from Dubai to Iran. At no time did Baniameri obtain or attempt to obtain a license from the U.S. government for the export of the connector adaptors. He was arrested before leaving the United States.
BIS Issues Statement on Suspension of Export Licenses to Syria
05/18/11 03:40 PM
On May
18, 2011, BIS issued the following statement:
Effective May 18, 2011, the Department of Commerce's Bureau of Industry and Security (BIS) suspended certain licenses for the export and reexport to Syria of U.S. origin parts and components needed for the overhaul/refurbishment of certain long-range, high capacity commercial aircraft not currently in service. Due to the commission of human rights abuses related to political repression in Syria, export and reexport of these items is now deemed contrary to the foreign policy interests of the United States. BIS took this action under the authority of Section 750.8 of the Export Administration Regulations and all persons holding relevant licenses have been notified of this action.
DDTC Publishes Final Rule on Dual and Third-Country Nationals Employed by Foreign End Users
05/16/11 04:38 PM
On May
16, 2011, the Department of State published
a final rule amending the
International Traffic in Arms Regulations (ITAR)
to establish a policy to address those who are
unable to implement the exemption for
intra-company, intra-organization, and
intra-government transfers of defense articles
and defense services by approved end-users to
dual national and third-country nationals who
are employees of such approved end-users.
Prior to making transfers to certain dual national and third-country national employees under this policy, approved end-users must screen employees, make an affirmative decision to allow access, and maintain records of screening procedures to prevent diversion of ITAR-controlled technology for purposes other than those authorized by the applicable export license or other authorization.
The Department of State is amending parts 124 and 126 of the ITAR to reflect new policy regarding end-user employment of dual nationals and third-country nationals. As a part of the President’s Task Force on Export Control Reform, the previous policy regarding the treatment of dual nationals and third-country nationals employed by approved end users was re-evaluated. A proposed rule to eliminate the separate licensing requirement for dual nationals and third-country nationals employed by licensed end-users was presented for public comment. The proposed rule had a comment period ending September 10, 2010. Thirty-two parties filed comments recommending changes, which the DDTC analyzes and addresses in the publication.
The rule is effective August 15, 2011.
Prior to making transfers to certain dual national and third-country national employees under this policy, approved end-users must screen employees, make an affirmative decision to allow access, and maintain records of screening procedures to prevent diversion of ITAR-controlled technology for purposes other than those authorized by the applicable export license or other authorization.
The Department of State is amending parts 124 and 126 of the ITAR to reflect new policy regarding end-user employment of dual nationals and third-country nationals. As a part of the President’s Task Force on Export Control Reform, the previous policy regarding the treatment of dual nationals and third-country nationals employed by approved end users was re-evaluated. A proposed rule to eliminate the separate licensing requirement for dual nationals and third-country nationals employed by licensed end-users was presented for public comment. The proposed rule had a comment period ending September 10, 2010. Thirty-two parties filed comments recommending changes, which the DDTC analyzes and addresses in the publication.
The rule is effective August 15, 2011.
DDTC Posts Testimony of Under Secretary Ellen Tauscher on Export Controls Reform
05/12/11 04:33 PM
On May
12, 2011, Department of State posted testimony of
Under Secretary for Arms Control and
International Security Ellen Tauscher on export
controls reform before the House Foreign Affairs
Committee.
The Under Secretary testified that the task force created to develop the new export controls regime is currently implementing Phase II. This includes working to revise the U.S. Munitions List (USML) and the Commerce Control List (CCL) so that they use common technologies and structures.
The Under Secretary said that, “State, Commerce, and Treasury are also in the process of adopting the Department of Defense’s export licensing computer system, which will be part of a unified, cross-government computer system for export control purposes. As part of this effort, exporters eventually will use a single form for applications to State, Commerce and Treasury. Exporters also will be able to submit those applications through a single electronic portal. This isn’t rocket science; we are simply adopting modern business practices.”
To address commodity jurisdiction determination issues, the State Department is working with the Departments of Defense and Commerce to create a “bright line” between munitions and dual-use items, which will finally provide clear guidance to exporters on commodity jurisdiction issues. Ellen Tauscher stated that, “this is necessary to update our system that is still designed with the assumption that technologies are developed for the military and only later find their way into the commercial sector, whereas, today, that is often the exception rather than the rule.”
As part of the USML review, agencies are developing a process for transferring items from the USML to the CCL which includes deciding on the appropriate licensing requirements on items that are moved to the CCL.
The Under Secretary also noted the Obama Administration also wants to improve the process for notifying Congress about arms sales and the transfer of items from the United USML as over the years the “process has become lengthy and unpredictable.”
The Under Secretary concluded that Phase III will complete the reform process by creating the “four singularities” – a single control list, a single information technology system, a single enforcement coordination agency, and a single licensing agency.
The Under Secretary testified that the task force created to develop the new export controls regime is currently implementing Phase II. This includes working to revise the U.S. Munitions List (USML) and the Commerce Control List (CCL) so that they use common technologies and structures.
The Under Secretary said that, “State, Commerce, and Treasury are also in the process of adopting the Department of Defense’s export licensing computer system, which will be part of a unified, cross-government computer system for export control purposes. As part of this effort, exporters eventually will use a single form for applications to State, Commerce and Treasury. Exporters also will be able to submit those applications through a single electronic portal. This isn’t rocket science; we are simply adopting modern business practices.”
To address commodity jurisdiction determination issues, the State Department is working with the Departments of Defense and Commerce to create a “bright line” between munitions and dual-use items, which will finally provide clear guidance to exporters on commodity jurisdiction issues. Ellen Tauscher stated that, “this is necessary to update our system that is still designed with the assumption that technologies are developed for the military and only later find their way into the commercial sector, whereas, today, that is often the exception rather than the rule.”
As part of the USML review, agencies are developing a process for transferring items from the USML to the CCL which includes deciding on the appropriate licensing requirements on items that are moved to the CCL.
The Under Secretary also noted the Obama Administration also wants to improve the process for notifying Congress about arms sales and the transfer of items from the United USML as over the years the “process has become lengthy and unpredictable.”
The Under Secretary concluded that Phase III will complete the reform process by creating the “four singularities” – a single control list, a single information technology system, a single enforcement coordination agency, and a single licensing agency.
BIS Publishes Final Rule Amending CCL
05/12/11 03:58 PM
On May
20, 2011, the Bureau of Industry and Security (BIS)
published a final rule in the Federal
Register amending the Commerce Control List
(CCL) to conform with the Wassenaar Arrangement
2010 Plenary Agreements Implementation.
This final rule revises the CCL to implement changes made to the Wassenaar Arrangement’s List of Dual-Use Goods and Technologies (Wassenaar List) maintained and agreed to by governments participating in the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies (Wassenaar Arrangement, or WA) at the December 2010 WA Plenary Meeting (the Plenary). The Wassenaar Arrangement advocates implementation of effective export controls on strategic items with the objective of improving regional and international security and stability. To harmonize the CCL with the changes made to the Wassenaar List at the Plenary, this rule amends entries on the CCL that are controlled for national security reasons in Categories 1, 2, 3, 4, 5 Parts I & II, 6, 7, 8, and 9, revises reporting requirements, and adds and amends definitions in the EAR.
This final rule revises the CCL to implement changes made to the Wassenaar Arrangement’s List of Dual-Use Goods and Technologies (Wassenaar List) maintained and agreed to by governments participating in the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies (Wassenaar Arrangement, or WA) at the December 2010 WA Plenary Meeting (the Plenary). The Wassenaar Arrangement advocates implementation of effective export controls on strategic items with the objective of improving regional and international security and stability. To harmonize the CCL with the changes made to the Wassenaar List at the Plenary, this rule amends entries on the CCL that are controlled for national security reasons in Categories 1, 2, 3, 4, 5 Parts I & II, 6, 7, 8, and 9, revises reporting requirements, and adds and amends definitions in the EAR.
BIS Publishes Testimony of Under Secretary Hirschhorn on the President's Export Control Reform Initiative
05/12/11 03:36 PM
On May
12, 2011, Under Secretary of Commerce Bureau of
Industry and Security (BIS), Eric
Hirschhorn, testified before the U.S.
House of Representatives’ Committee on Foreign
Affairs in its Hearing on “Export Controls, Arm
Sales, and Reform: Balancing U.S. Interests,
Part I.”
Hirschhorn testified regarding:
Hirschhorn testified regarding:
- The Current Export Control Role of the Department of Commerce
- Changes at the Department of Commerce
-
- List Review & Licensing Policy
-
- Outreach
-
- Compliance and Enforcement
- The Export Enforcement Coordination Center
- The Role of Congress in Export Controls
All Registered SNAP-R Companies Must Designate an Administrator by June 9, 2011
04/30/11 01:08 PM
The
Bureau of Industry and Security (BIS) posted a
reminder on its website that all
registered Simplified Network Application
Process Redesign (SNAP-R) companies must designate
an administrator by June 9, 2011.
After this date, all active SNAP-R user accounts associated to the company’s company identification number (CIN) without a designated company administrator will become inactive until at least one company administrator is designated.
After this date, all active SNAP-R user accounts associated to the company’s company identification number (CIN) without a designated company administrator will become inactive until at least one company administrator is designated.
Syria Licenses Revoked
04/29/11 01:49 PM
Effective April
29, 2011 the Department of Commerce's Bureau of
Industry and Security (BIS) has revoked certain
licenses for the export and reexport to Syria of
items relating to VIP aircraft used to transport
senior officials of the Syrian government. Due to
the commission of human rights abuses related to
political repression in Syria, export and reexport
of these items is deemed contrary to the foreign
policy interests of the United States. BIS took
this action under the authority of Section 750.8 of
the Export Administration Regulations and all
persons holding relevant licenses have been
notified of this action.
Individuals Indicted for Conspiracy to Export Computer-related Equipment to Iran
04/21/11 01:40 PM
On
April 21, 2011, U.S. Department of Justice
(DOJ) reported that Jeng “Jay”
Shih, a U.S. citizen, and his Queens, N.Y.
company, Sunrise Technologies and Trading
Company, were indicted in the District of
Columbia on 27 counts relating to the illegal
export of computer-related equipment to Iran
without first having obtained the required
Department of Treasury license.
According to the indictment, Commerce Department agents visited Shih’s business in New York in 2006 where they informed Shih about U.S. laws governing the export of goods from the U.S. to other countries, particularly embargoed countries like Iran. In April 2010, ICE-Homeland Security Investigations (HSI) agents seized hundreds of laptop computers that originated from Sunrise and were destined for Dubai, UAE. Communications related to these shipments indicated that the purchasers were located in Iran.
The indictment further alleges that agents subsequently identified a company in Dubai that was purchasing millions of dollars of computers from U.S. companies for export to Iran, through Dubai. ICE-HIS agents arrested one of company’s agents, who pleaded guilty in December 2010 and began cooperating with the government. In interviews with agents, the agent indicated that he and his company in Dubai had purchased million worth of laptops from Shih in recent years for shipment to Iran. The agents determined that more than 1,000 computers had been shipped by Shih’s company to Dubai and later to Iran, between April 2010, and May 2010, alone.
In February 2011, the cooperating agent met with Shih in New York. In recorded conversations, Shih allegedly told the agent he was aware of the U.S. embargo against Iran and U.S. export control laws. According to the indictment, Shih also told the cooperating individual how to avoid detection when shipping goods to Iran by using fake invoices and indicated that he treated the seizure of some of his shipments as a “loss” when reporting business income and loses on his U.S. taxes.
If Shih is convicted, he will face a maximum sentence of 20 years in prison and a $1 million fine for each of the IEEPA counts and five years for each false statement count, all related to this illegal exports case.
DOJ also reported that Massoud Habibion, 48, aka “Matt Habibion” or “Matt Habi, and Mohsen Motamedian, 43, aka “Max Motamedian” or “Max Ehsan,” both U.S. citizens, and their Costa Mesa, California, company, Online Micro LLC, were indicted in the District of Columbia on 32 counts relating to the illegal export of computer-related equipment to Iran without the required Department of Treasury license.
The indictment against Habibion and Motamedian alleges that a company in Dubai, referenced above in Shih’s case, purchased millions of dollars worth of laptop computers from Online Micro and that these computers were subsequently shipped to Iran. According to the affidavit, the cooperating agent for the Dubai company told federal agents that Habibion and Motamedian sold roughly $300,000 worth of computers to the Dubai company each month and that Habibion and Motamedian fully understood that the computers were destined for Iran.
In December 2010, the cooperating individual met with Habibion and Motamedian. Allegedly, they instructed the cooperating individual to make fake invoices to conceal that Iran was the destination of the shipments and to indicate that the end-users were in Dubai. In addition, the indictment alleges that in a Jan. 5, 2011, meeting, Habibion told the cooperating individual to lie to federal agents about conducting business in Iran, stating, “If they ask you, for instance, ‘Do you do business in Tehran?’ ‘No, I don't have any business in Tehran. I go there to visit my family, but I have no business there.’ They will ask such questions, it is part of their routine.”
If Habibion or Motamedian are convicted, they will face a maximum sentence of 20 years in prison and a $1 million fine for each of the IEEPA counts and five years for each false statement count relating to this illegal exports case. In addition, they also face 20 years for each obstruction of justice count.
According to the indictment, Commerce Department agents visited Shih’s business in New York in 2006 where they informed Shih about U.S. laws governing the export of goods from the U.S. to other countries, particularly embargoed countries like Iran. In April 2010, ICE-Homeland Security Investigations (HSI) agents seized hundreds of laptop computers that originated from Sunrise and were destined for Dubai, UAE. Communications related to these shipments indicated that the purchasers were located in Iran.
The indictment further alleges that agents subsequently identified a company in Dubai that was purchasing millions of dollars of computers from U.S. companies for export to Iran, through Dubai. ICE-HIS agents arrested one of company’s agents, who pleaded guilty in December 2010 and began cooperating with the government. In interviews with agents, the agent indicated that he and his company in Dubai had purchased million worth of laptops from Shih in recent years for shipment to Iran. The agents determined that more than 1,000 computers had been shipped by Shih’s company to Dubai and later to Iran, between April 2010, and May 2010, alone.
In February 2011, the cooperating agent met with Shih in New York. In recorded conversations, Shih allegedly told the agent he was aware of the U.S. embargo against Iran and U.S. export control laws. According to the indictment, Shih also told the cooperating individual how to avoid detection when shipping goods to Iran by using fake invoices and indicated that he treated the seizure of some of his shipments as a “loss” when reporting business income and loses on his U.S. taxes.
If Shih is convicted, he will face a maximum sentence of 20 years in prison and a $1 million fine for each of the IEEPA counts and five years for each false statement count, all related to this illegal exports case.
DOJ also reported that Massoud Habibion, 48, aka “Matt Habibion” or “Matt Habi, and Mohsen Motamedian, 43, aka “Max Motamedian” or “Max Ehsan,” both U.S. citizens, and their Costa Mesa, California, company, Online Micro LLC, were indicted in the District of Columbia on 32 counts relating to the illegal export of computer-related equipment to Iran without the required Department of Treasury license.
The indictment against Habibion and Motamedian alleges that a company in Dubai, referenced above in Shih’s case, purchased millions of dollars worth of laptop computers from Online Micro and that these computers were subsequently shipped to Iran. According to the affidavit, the cooperating agent for the Dubai company told federal agents that Habibion and Motamedian sold roughly $300,000 worth of computers to the Dubai company each month and that Habibion and Motamedian fully understood that the computers were destined for Iran.
In December 2010, the cooperating individual met with Habibion and Motamedian. Allegedly, they instructed the cooperating individual to make fake invoices to conceal that Iran was the destination of the shipments and to indicate that the end-users were in Dubai. In addition, the indictment alleges that in a Jan. 5, 2011, meeting, Habibion told the cooperating individual to lie to federal agents about conducting business in Iran, stating, “If they ask you, for instance, ‘Do you do business in Tehran?’ ‘No, I don't have any business in Tehran. I go there to visit my family, but I have no business there.’ They will ask such questions, it is part of their routine.”
If Habibion or Motamedian are convicted, they will face a maximum sentence of 20 years in prison and a $1 million fine for each of the IEEPA counts and five years for each false statement count relating to this illegal exports case. In addition, they also face 20 years for each obstruction of justice count.
State Seeks Comments on Proposed Changes to ITAR re: Defense Services
04/14/11 12:54 PM
On
April 13, 2011, the Department of State
(DOS) proposed to amend parts
120 and 124 of the International Traffic in Arms
Regulations (ITAR) to update the policy
regarding defense services, to clarify the scope
of activities that are considered a defense
service, and to provide definitions of
“Organizational-Level Maintenance,”
“Intermediate-Level Maintenance,” and
“Depot-level Maintenance,” and to make other
conforming changes.
After review of the ITAR, DOS determined that the current definition of defense services in §120.9 is overly broad, capturing certain forms of assistance or services that do not warrant ITAR control. The proposed change in subpart (a) of the definition of “defense services” narrows the focus of services to furnishing of assistance (including training) using “other than public domain data”, integrating of items into defense articles, or training of foreign forces in the employment of defense articles. The proposed definition also includes a new provision that would control the “integration” of items, whether controlled by the U.S. Munitions List (USML) or the Commerce Control List (CCL), into USML controlled defense articles even if ITAR-controlled “technical data” is not provided to a foreign person during the provision of such services.
Under the new rule, training for foreign “units or forces” of §120.9(a)(3) will be considered a defense service only if the training involves the employment of a defense article, regardless of whether technical data is involved. In §120.9(b), the proposed rule specifies examples of activities that do not constitute defense services.
A new §120.38 proposes to provide definitions for “Organizational-Level Maintenance” (or basic level maintenance), “Intermediate-Level Maintenance,” and “Depot-Level Maintenance,” terms used in the proposed revision of §120.9.
DOS proposed to make several other conforming changes to the ITAR. The proposed rule modifies §124.1(a) which describes the approval requirements of manufacturing license agreements and technical assistance agreements. The proposed change removes the requirement in §124.1(a) to seek the Directorate of Defense Trade Controls' (DDTC) approval if the defense service that is being rendered uses public domain data or data otherwise exempt from ITAR licensing requirements.
Comments to the DOS are due by June 13, 2011.
After review of the ITAR, DOS determined that the current definition of defense services in §120.9 is overly broad, capturing certain forms of assistance or services that do not warrant ITAR control. The proposed change in subpart (a) of the definition of “defense services” narrows the focus of services to furnishing of assistance (including training) using “other than public domain data”, integrating of items into defense articles, or training of foreign forces in the employment of defense articles. The proposed definition also includes a new provision that would control the “integration” of items, whether controlled by the U.S. Munitions List (USML) or the Commerce Control List (CCL), into USML controlled defense articles even if ITAR-controlled “technical data” is not provided to a foreign person during the provision of such services.
Under the new rule, training for foreign “units or forces” of §120.9(a)(3) will be considered a defense service only if the training involves the employment of a defense article, regardless of whether technical data is involved. In §120.9(b), the proposed rule specifies examples of activities that do not constitute defense services.
A new §120.38 proposes to provide definitions for “Organizational-Level Maintenance” (or basic level maintenance), “Intermediate-Level Maintenance,” and “Depot-Level Maintenance,” terms used in the proposed revision of §120.9.
DOS proposed to make several other conforming changes to the ITAR. The proposed rule modifies §124.1(a) which describes the approval requirements of manufacturing license agreements and technical assistance agreements. The proposed change removes the requirement in §124.1(a) to seek the Directorate of Defense Trade Controls' (DDTC) approval if the defense service that is being rendered uses public domain data or data otherwise exempt from ITAR licensing requirements.
Comments to the DOS are due by June 13, 2011.
Census Seeks Comments on Proposed New Data Elements in AES Reports
04/11/11 12:43 PM
On
April 11, 2011, the U.S. Census Bureau posted
a notice in the Federal
Register seeking comments on proposal to collect
additional data elements in the Automated Export
System (AES) as well as modifications to current
data elements.
The fields that will be added or modified are conditional data elements required only if that element applies to the specific shipment being exported. In addition, AES filings will be mandatory for shipments of all used self-propelled vehicles and household goods regardless of value or country of destination.
The additional data elements include name and address of the end user, and ultimate consignee type. The addition of these new fields is expected to help detect and prevent export of items by unauthorized parties or to unauthorized destinations or end users. Entering information for the end user and consignee type will be based on the knowledge the exporter has at the time of export. If that information is not known at the time of export, the filer will not be required to report it.
Additional data elements will also include license applicant address, license value, and country of origin. The equipment number field will be revised to require the container number for all containerized cargo. For shipments where a license is required (currently, only 6% of records filed require a license), the address of the license applicant will be required to be reported. The license value per commodity classification will be required to be reported in addition to the value that is currently captured in the AES.
For shipments where the origin of the commodity is foreign (currently, 17% of records filed contain goods of foreign origin), the country of origin will be required to be reported. For shipments where the method of transportation (MOT) is containerized vessel cargo (currently, 19% of records filed are reported as containerized), the container number will be required to be reported in the equipment number field.
Comments and recommendations for the proposed information collection are due to Office of Management and Budget within 30 days of this notice.
The fields that will be added or modified are conditional data elements required only if that element applies to the specific shipment being exported. In addition, AES filings will be mandatory for shipments of all used self-propelled vehicles and household goods regardless of value or country of destination.
The additional data elements include name and address of the end user, and ultimate consignee type. The addition of these new fields is expected to help detect and prevent export of items by unauthorized parties or to unauthorized destinations or end users. Entering information for the end user and consignee type will be based on the knowledge the exporter has at the time of export. If that information is not known at the time of export, the filer will not be required to report it.
Additional data elements will also include license applicant address, license value, and country of origin. The equipment number field will be revised to require the container number for all containerized cargo. For shipments where a license is required (currently, only 6% of records filed require a license), the address of the license applicant will be required to be reported. The license value per commodity classification will be required to be reported in addition to the value that is currently captured in the AES.
For shipments where the origin of the commodity is foreign (currently, 17% of records filed contain goods of foreign origin), the country of origin will be required to be reported. For shipments where the method of transportation (MOT) is containerized vessel cargo (currently, 19% of records filed are reported as containerized), the container number will be required to be reported in the equipment number field.
Comments and recommendations for the proposed information collection are due to Office of Management and Budget within 30 days of this notice.
BIS Posts Comments Received in Response to Proposed Regulations
03/21/11 12:10 AM
The
Bureau of Industry and Security (BIS) posted public
comments in response to: (1) the proposed rule regarding
Strategic Trade Authorization (STA) license
exception, and
(2) the proposed rule regarding
revising descriptions of items and foreign
availability.
BIS issued the proposed rule on the Strategic Trade Authorization license exception on December 9, 2010. It adds a new license exception to the Export Administration Regulations (EAR). The exception allows exports, reexports and transfer (in-country) of specified items to destinations that pose little risk of unauthorized use of those items. To prevent diversion to unauthorized destinations, transactions under this license exception would be subject to notification, destination control statement and consignee statement requirements.
With regard to amending the EAR, BIS sought public comments on how descriptions of items controlled on the Commerce Control List (CCL) of the EAR could be more clear and positive and “tiered” in a manner consistent with the control criteria the Administration has developed as part of the export control reform effort.
BIS issued the proposed rule on the Strategic Trade Authorization license exception on December 9, 2010. It adds a new license exception to the Export Administration Regulations (EAR). The exception allows exports, reexports and transfer (in-country) of specified items to destinations that pose little risk of unauthorized use of those items. To prevent diversion to unauthorized destinations, transactions under this license exception would be subject to notification, destination control statement and consignee statement requirements.
With regard to amending the EAR, BIS sought public comments on how descriptions of items controlled on the Commerce Control List (CCL) of the EAR could be more clear and positive and “tiered” in a manner consistent with the control criteria the Administration has developed as part of the export control reform effort.
President Obama Initiates Reform for More Effective Government
03/15/11 12:09 PM
President Obama
issued a Memorandum for the Heads of Executive
Departments and Agencies regarding government
reform (the Memorandum) on March 11, 2011.
In the Memorandum, President Obama stated that the Federal Government has not kept pace with the development of the information age, with government agencies growing without overall strategic planning and duplicative programs springing up. “My current budget proposes more than 200 terminations, reductions, and savings in agency programs totaling approximately $30 billion in fiscal year 2012. But we must go further. Winning the future will take a government that judiciously allocates scarce government resources to maximize its efficiency and effectiveness so that it can best support American competitiveness and innovation. Now is the time to act to consolidate and reorganize the executive branch of the Federal Government in a way that best serves this goal.”
The President assigned the U.S. Chief Performance Officer (CPO) who also serves as the Deputy Director for Management of the Office of Management and Budget to lead the effort to create a plan for the restructuring and streamlining of the executive branch of the Federal Government. The first focus of this effort will be increasing trade, exports, and overall competitiveness of the U.S.
The President directed that the CPO establish a Government Reform for Competitiveness and Innovation Initiative led by an Executive Director to conduct a comprehensive review of the Federal agencies and programs involved in trade and competitiveness, including analyzing their scope and effectiveness, areas of overlap and duplication, unmet needs, and possible cost savings. As part of the review, the CPO and Executive Director will confer with the heads and staff of executive departments and agencies, including the offices and agencies within the Office of the President.
Recommendations on how to restructure and streamline Federal Government programs focused on trade and competitiveness are due to the President within 90 days from March 11, 2011.
In the Memorandum, President Obama stated that the Federal Government has not kept pace with the development of the information age, with government agencies growing without overall strategic planning and duplicative programs springing up. “My current budget proposes more than 200 terminations, reductions, and savings in agency programs totaling approximately $30 billion in fiscal year 2012. But we must go further. Winning the future will take a government that judiciously allocates scarce government resources to maximize its efficiency and effectiveness so that it can best support American competitiveness and innovation. Now is the time to act to consolidate and reorganize the executive branch of the Federal Government in a way that best serves this goal.”
The President assigned the U.S. Chief Performance Officer (CPO) who also serves as the Deputy Director for Management of the Office of Management and Budget to lead the effort to create a plan for the restructuring and streamlining of the executive branch of the Federal Government. The first focus of this effort will be increasing trade, exports, and overall competitiveness of the U.S.
The President directed that the CPO establish a Government Reform for Competitiveness and Innovation Initiative led by an Executive Director to conduct a comprehensive review of the Federal agencies and programs involved in trade and competitiveness, including analyzing their scope and effectiveness, areas of overlap and duplication, unmet needs, and possible cost savings. As part of the review, the CPO and Executive Director will confer with the heads and staff of executive departments and agencies, including the offices and agencies within the Office of the President.
Recommendations on how to restructure and streamline Federal Government programs focused on trade and competitiveness are due to the President within 90 days from March 11, 2011.
PA Company Fined for Export Violations
03/15/11 12:42 AM
On
March 15, 2011, the Bureau of Industry and Security
(BIS) reported that TW Metals,
Inc. of Exton, PA, has agreed to pay a $575,000
civil penalty to settle allegations that it
violated the Export Administration Regulations
(EAR) by exporting on numerous occasions
titanium alloy and aluminum bar to China and
Israel without the required export licenses.
Specifically, BIS alleged that from April 2004 to August 2007, TW Metals made 48 exports of titanium alloy to China through Canada without the required Department of Commerce licenses. Titanium alloy is controlled for reasons of nonproliferation. In addition, TW Metals violated the EAR in 2007 by exporting aluminum bar, also controlled for reasons of nuclear nonproliferation, from the U.S. to Israel via Canada without the required Department of Commerce license.
TW Metals voluntarily disclosed the violations and cooperated fully with the investigation.
Specifically, BIS alleged that from April 2004 to August 2007, TW Metals made 48 exports of titanium alloy to China through Canada without the required Department of Commerce licenses. Titanium alloy is controlled for reasons of nonproliferation. In addition, TW Metals violated the EAR in 2007 by exporting aluminum bar, also controlled for reasons of nuclear nonproliferation, from the U.S. to Israel via Canada without the required Department of Commerce license.
TW Metals voluntarily disclosed the violations and cooperated fully with the investigation.
President’s Export Council Urges Establishment of Automated Single Shipment Information Window
03/11/11 12:46 AM
On
March 11, 2011, the President’s Export Council
(PEC) posted a letter to
President Obama in which it urges “to fully
establish an automated single shipment
information window, that works with equal
efficiency for both imports into and exports
from the United States and is aligned with
international data standards.” The goal of this
process automation is to “comply with essential
National Security controls, but expedite the
clearance of all other goods so the U.S. can
compete in the competitive, global environment.”
The PEC predicts that a single system that allows traders to lodge information with a single body to fulfill all import or export related regulatory requirements would reduce a major barrier to U.S. exports and deliver immediate benefits. Based on the World Bank estimate that it takes an average of six days to move goods to or from the U.S., the PEC predicts that a one day improvement in time, by means of a single system, could increase U.S. trade by almost $29 billion and would help create thousands of new U.S. jobs.
Some progress on the development and implementation of a single system has already been made. In 2001, Customs and Border Protection (CBP) began a process to modernize their customs information systems, and created the Automated Commercial Environment (ACE) as the single online access point that connects CBP, the trade community, and other government agencies.
A key feature of the ACE project is the International Trade Data Systems (ITDS) program. ITDS will allow traders to provide electronic international trade and transportation data to all Federal agencies that have import/export responsibilities. Ultimately, the goal is “a single window into the Federal government that will facilitate commerce and increase compliance with trade laws.”
Until recently, the ACE/ITDS program has focused primarily on U.S. import data. However, in 2010, ITDS Report to Congress recommends that export functionality be given priority: export agencies should work the ITDS Board of Directors to quickly identify ways to provide an export single window. According to the PEC, the absence of a single, automated system for export clearance increases costs for U.S. exporters, unnecessarily adding expense and time-in-transit to business transactions.
Accordingly, the PEC recommends that Obama’s Administration work with the various stakeholders, including the DHS/CBP, USTR, Treasury, ISDA/FAS, and DoC/ITA to enable the creation of a single window to streamline the export process.
The PEC predicts that a single system that allows traders to lodge information with a single body to fulfill all import or export related regulatory requirements would reduce a major barrier to U.S. exports and deliver immediate benefits. Based on the World Bank estimate that it takes an average of six days to move goods to or from the U.S., the PEC predicts that a one day improvement in time, by means of a single system, could increase U.S. trade by almost $29 billion and would help create thousands of new U.S. jobs.
Some progress on the development and implementation of a single system has already been made. In 2001, Customs and Border Protection (CBP) began a process to modernize their customs information systems, and created the Automated Commercial Environment (ACE) as the single online access point that connects CBP, the trade community, and other government agencies.
A key feature of the ACE project is the International Trade Data Systems (ITDS) program. ITDS will allow traders to provide electronic international trade and transportation data to all Federal agencies that have import/export responsibilities. Ultimately, the goal is “a single window into the Federal government that will facilitate commerce and increase compliance with trade laws.”
Until recently, the ACE/ITDS program has focused primarily on U.S. import data. However, in 2010, ITDS Report to Congress recommends that export functionality be given priority: export agencies should work the ITDS Board of Directors to quickly identify ways to provide an export single window. According to the PEC, the absence of a single, automated system for export clearance increases costs for U.S. exporters, unnecessarily adding expense and time-in-transit to business transactions.
Accordingly, the PEC recommends that Obama’s Administration work with the various stakeholders, including the DHS/CBP, USTR, Treasury, ISDA/FAS, and DoC/ITA to enable the creation of a single window to streamline the export process.
Man Charged with Illegal Exports of Goods and Technologies to Pakistan
03/09/11 12:40 AM
On
March 9, 2011, U.S. Department of Justice
(DOJ) reported that a federal
grand jury has indicted Nadeem Akhtar of Silver
Spring, Maryland, on charges that he illegally
exported items used in activities related to
nuclear reactors and the processing and
production of nuclear-related materials.
Akhtar, a Pakistani national and a lawful permanent resident of the U.S., owns Computer Communication USA (CCUSA). According to the indictment, from October 2005 through March 11, 2010, Akhtar conspired wit others to illegally export radiation detection devices, resins for coolant water purification, calibration and switching equipment, and surface refinishing abrasives to Pakistan without the necessary licenses. In addition, the indictment alleges that Akhtar attempted to conceal the ultimate end-use and/or end –users of the commodities that he sought to export, as well as their true value by providing false, misleading and incomplete information on sales documents such as invoices, purchase orders, air bills, and end-user statements.
Akhtar faces a maximum prison sentence of five years for conspiracy to commit export violations and to defraud the United States; a maximum prison sentence of twenty years for the unlawful export of the restricted goods; and a maximum of twenty years for conspiracy to commit money laundering.
Akhtar, a Pakistani national and a lawful permanent resident of the U.S., owns Computer Communication USA (CCUSA). According to the indictment, from October 2005 through March 11, 2010, Akhtar conspired wit others to illegally export radiation detection devices, resins for coolant water purification, calibration and switching equipment, and surface refinishing abrasives to Pakistan without the necessary licenses. In addition, the indictment alleges that Akhtar attempted to conceal the ultimate end-use and/or end –users of the commodities that he sought to export, as well as their true value by providing false, misleading and incomplete information on sales documents such as invoices, purchase orders, air bills, and end-user statements.
Akhtar faces a maximum prison sentence of five years for conspiracy to commit export violations and to defraud the United States; a maximum prison sentence of twenty years for the unlawful export of the restricted goods; and a maximum of twenty years for conspiracy to commit money laundering.
BIS Clarifies Its Authority to Revise, Suspend and Revoke Licenses
03/07/11 12:38 AM
On
March 7, 2011, the Bureau of Industry and Security
(BIS) amended the Export
Administration Regulations (EAR) to clarify the
Application Processing, Issuance, and Denial
provisions regarding BIS’s authority to revise,
suspend or revoke licenses.
Part 750 of the EAR provides for the revision, suspension or revocation of licenses whenever it is known that the violation of the EAR has or is about to occur. The final rule revises revocation or suspension of licenses at §750.8 by removing the phrase “whenever it is known that the EAR have been violated or that a violation is about to occur.”
This change will clarify BIS's authority to revise, suspend, or revoke licenses and will harmonize §750.8(a) of the EAR, concerning licenses, with an analogous provision in §740.2(b) regarding the revision, suspension or revocation of license exceptions under the EAR.
The change in Part 750 is expected to make it clear that the United States’ ability to revoke or suspend a license is not limited to those cases where the EAR have been violated or where a violation is about to occur. The authority to revoke or suspend a license also extends to cases where BIS seeks to prevent licensed export transactions in which the U.S. may subsequently have an interest, including a foreign policy interest.
Part 750 of the EAR provides for the revision, suspension or revocation of licenses whenever it is known that the violation of the EAR has or is about to occur. The final rule revises revocation or suspension of licenses at §750.8 by removing the phrase “whenever it is known that the EAR have been violated or that a violation is about to occur.”
This change will clarify BIS's authority to revise, suspend, or revoke licenses and will harmonize §750.8(a) of the EAR, concerning licenses, with an analogous provision in §740.2(b) regarding the revision, suspension or revocation of license exceptions under the EAR.
The change in Part 750 is expected to make it clear that the United States’ ability to revoke or suspend a license is not limited to those cases where the EAR have been violated or where a violation is about to occur. The authority to revoke or suspend a license also extends to cases where BIS seeks to prevent licensed export transactions in which the U.S. may subsequently have an interest, including a foreign policy interest.
Defense Contractor Charged with ITAR Violations
03/04/11 12:43 AM
On
March 4, 2011, Sixing “Steve” Liu was
indicted with illegally
exporting technical data in violation of the
International Traffic in Arms Regulations (ITAR)
without the required Department of State,
Directorate of Defense Trade Controls (DDTC)
license.
The complaint alleges that Liu, a 47-year-old Chinese national who is a permanent resident of the U.S, was detained by the U.S. Customs officials on November 29, 2010, at Newark Liberty International Airport when he was returning from China.
At the time Liu was detained, he worked as a senior staff engineer for a New Jersey-based division of a technology company (Company) that develops precision navigation devices and other innovative components for the U.S. Department of Defense (DoD). Due to highly sensitive nature of the technology projects developed at the Company where Liu worked, most employees, including Liu, were forbidden from removing work product from the Company’s corporate facility.
On November 29, 2010, Liu arrived at Newark Liberty International Airport on a commercial airline flight from Shanghai and was selected for secondary inspection by Customs officers. When asked, Liu stated that the only purpose of his visit to China was to visit his family. An inspection of Liu’s baggage revealed an access card that had “ICMAN 2010, The 4th Annual International Workshop on Innovative and Commercialization of Micro & Nano Technologies, November 22-24, 2010” inscribed on it. Liu explained that it was a small conference that was not formal.
Investigation of ICMAN by the FBI revealed that the annual conference is organized and sponsored by various Chinese government entities. Its stated goal is to “gather people related with micro and nanotechnologies from all over the world, including the renowned researchers in the field, chief administrators and senior engineers from industries, research agencies and inventors, as well as venture capital and government representatives.”
The FBI also discovered that the schedule of events for the ICMAN 2010 forum included presentations and remarks given by China’s government entities. Liu was one of the presenters as well as the co-chair for ICMAN 2010.
Upon inspection of Liu’s belongings on November 29, 2010, Customs officers found a folder containing multiple pages of technical language, pictures of military weapons systems, and documents written in Chinese. Liu also had a non-Company issued laptop computer and other electronic storage devices and media, which contained hundreds of documents belonging to the Company he worked for, including internal communications, analyses, data, test results, schematics, images, and security protocols.
Numerous documents on Liu’s computer included prominent markings indicating that the contents contain export-controlled technical data under the Arms Export Control Act (AECA) and ITAR. One such documents is titled “Summary of Simulation Analysis for [Technology Program No. 1]” and pertains to a precision navigation/positioning system that the company where Liu worked, developed for the DoD. Each page of the documents is prominently marked “ITAR Controlled.”
On February 10, 2011, the DDTC certified that the document contains technical data that is covered by the USML Category XII. Accordingly, export of that document from the U.S. to China is prohibited by any person who is unlicensed to do so.
The complaint alleges that Liu, a 47-year-old Chinese national who is a permanent resident of the U.S, was detained by the U.S. Customs officials on November 29, 2010, at Newark Liberty International Airport when he was returning from China.
At the time Liu was detained, he worked as a senior staff engineer for a New Jersey-based division of a technology company (Company) that develops precision navigation devices and other innovative components for the U.S. Department of Defense (DoD). Due to highly sensitive nature of the technology projects developed at the Company where Liu worked, most employees, including Liu, were forbidden from removing work product from the Company’s corporate facility.
On November 29, 2010, Liu arrived at Newark Liberty International Airport on a commercial airline flight from Shanghai and was selected for secondary inspection by Customs officers. When asked, Liu stated that the only purpose of his visit to China was to visit his family. An inspection of Liu’s baggage revealed an access card that had “ICMAN 2010, The 4th Annual International Workshop on Innovative and Commercialization of Micro & Nano Technologies, November 22-24, 2010” inscribed on it. Liu explained that it was a small conference that was not formal.
Investigation of ICMAN by the FBI revealed that the annual conference is organized and sponsored by various Chinese government entities. Its stated goal is to “gather people related with micro and nanotechnologies from all over the world, including the renowned researchers in the field, chief administrators and senior engineers from industries, research agencies and inventors, as well as venture capital and government representatives.”
The FBI also discovered that the schedule of events for the ICMAN 2010 forum included presentations and remarks given by China’s government entities. Liu was one of the presenters as well as the co-chair for ICMAN 2010.
Upon inspection of Liu’s belongings on November 29, 2010, Customs officers found a folder containing multiple pages of technical language, pictures of military weapons systems, and documents written in Chinese. Liu also had a non-Company issued laptop computer and other electronic storage devices and media, which contained hundreds of documents belonging to the Company he worked for, including internal communications, analyses, data, test results, schematics, images, and security protocols.
Numerous documents on Liu’s computer included prominent markings indicating that the contents contain export-controlled technical data under the Arms Export Control Act (AECA) and ITAR. One such documents is titled “Summary of Simulation Analysis for [Technology Program No. 1]” and pertains to a precision navigation/positioning system that the company where Liu worked, developed for the DoD. Each page of the documents is prominently marked “ITAR Controlled.”
On February 10, 2011, the DDTC certified that the document contains technical data that is covered by the USML Category XII. Accordingly, export of that document from the U.S. to China is prohibited by any person who is unlicensed to do so.
DDTC Posts Notice of Suspension of ITAR Licenses for Libya
02/28/11 10:05 PM
The
State Department’s Directorate of Defense Trade
Controls (DDTC) posted a notice on its website
announcing the suspension of all export licenses
issued pursuant to the authorities of the Arms
Export Control Act and the International Traffic
in Arms Regulations (22 CFR 120-130) until
further notice. Additionally, no exemptions may
be utilized for exports to Libya. Further
guidance related to exports to Libya will be
promulgated via a Federal Register
Notice.
President Obama Declares National Emergency with respect to Libya
02/28/11 06:32 PM
On
February 25, 2011, President Obama issued an
Executive Order
declaring a
National Emergency with respect to Libya. The
Executive Order provides for wide-reaching
prohibitions on transactions with the government
of Libya and others associated with Colonel
Muammar Qadhafi. While all trade with Libya is
not restricted, due to the pervasiveness of the
Libyan government in its commerce, OFAC
officials cautioned the audience at the recent
BIS Export Control Forum in Irvine, CA to
scrutinize any transaction with Libya very
carefully before proceeding.
In addition, President Obama sent a letter to Congress on the matter and issued the following statement:
In addition, President Obama sent a letter to Congress on the matter and issued the following statement:
The Libyan government’s continued violation of human rights, brutalization of its people, and outrageous threats have rightly drawn the strong and broad condemnation of the international community. By any measure, Muammar el-Qaddafi’s government has violated international norms and common decency and must be held accountable. These sanctions therefore target the Qaddafi government, while protecting the assets that belong to the people of Libya.Going forward, the United States will continue to closely coordinate our actions with the international community, including our friends and allies, and the United Nations. We will stand steadfastly with the Libyan people in their demand for universal rights, and a government that is responsive to their aspirations. Their human dignity cannot be denied.
Export Control Forum Remarks of BIS Under Secretary Hirschhorn Posted
02/28/11 12:53 PM
On
February 28, 2011, BIS posted to its website
the opening remarks
of
Commerce Under Secretary for Industry and
Security Eric L. Hirschhorn at BIS’ Export
Control Forum in Irvine, CA.
In his remarks, Under Secretary Hirschhorn detailed the export control initiative and addressed:
In his remarks, Under Secretary Hirschhorn detailed the export control initiative and addressed:
- The U.S. Munitions List
- The Commerce Control List
- The Parallel-Tiered Control Lists
- Licensing Policy
- Related Export Control Issues
- Compliance and Enforcement
- Information Technology System
DDTC Proposes Electronic Payment of Registration Fees
02/24/11 05:26 PM
On
February 24, 2011, the State Department’s
Directorate of Defense Trade Controls (DDTC) posted
in the Federal Register a proposed amendment
to
the International Traffic in Arms Regulations
(ITAR) to change the method of payment of
registration fees to electronic submission.
Comments on the proposed amendment are due by April 25, 2011.
Comments on the proposed amendment are due by April 25, 2011.
Commerce Announces Appointees to President’s Export Council Subcommittee on Export Administration
02/23/11 06:32 PM
On
February 23, 2011, Commerce Secretary Gary
Locke announced the
appointment
of
members to the President’s Export Council
Subcommittee on Export Administration (PECSEA),
which will advise the Commerce Department on the
administration’s export control reform
initiative.
“The PECSEA will provide invaluable advice as we continue to enhance our national security through the President’s reform efforts,” Locke said. “Export Control Reform requires a public-private partnership, and the business community’s insight on how that effort impacts the industrial base is vital.”
President’s Export Council (PEC) member Raul Pedraza, Founder and President of Magno International L.P., will chair the PECSEA, which has scheduled its first meeting for March 10. Marion Blakey, President and Chief Executive Officer of the Aerospace Industries Association, will serve as the Vice Chair.
Additional PECSEA Members
Gregory Bourn, Finmeccanica North America, Inc.
Leslie Bowen, Material Systems, Inc.
Darrell Coleman, DynCorp International, LLC
Curtis Dombek, Sheppard, Mullin, Richter & Hampton, LLP
Nelson Dong, Dorsey & Whitney, LLP
Jefferson Hofgard, The Boeing Company
Beth Ann Johnson, Northrop Grumman Corporation
Dean Johnson, Systron Donner Inertial
Tino Oldani, Ingersoll Machine Tools, Inc.
Kathleen Lockard Palma, General Electric Company
Roy Paulson, Paulson Manufacturing Corporation
Kimberly Pritula, Sturm, Ruger & Company, Inc.
Gregory Robbins, Veeco Instruments, Inc.
Carlos Romero, University of New Mexico
Robert Schacht, Hyrdra-Electric Company
Michelle Schulz, Braumiller Schulz, LLP
Chiradeep Sengupta, Federal Express
Michael Slonim, Honeywell International, Inc.
Osval “Chip” Storie, MAG Industrial Automation Systems
Michael Swartz, Lake Shore Cryotronics, Inc.
Chuck Tabbert, Ultra Communications, Inc.
Song Volk, Hughes Network Systems, LLC
“The PECSEA will provide invaluable advice as we continue to enhance our national security through the President’s reform efforts,” Locke said. “Export Control Reform requires a public-private partnership, and the business community’s insight on how that effort impacts the industrial base is vital.”
President’s Export Council (PEC) member Raul Pedraza, Founder and President of Magno International L.P., will chair the PECSEA, which has scheduled its first meeting for March 10. Marion Blakey, President and Chief Executive Officer of the Aerospace Industries Association, will serve as the Vice Chair.
Additional PECSEA Members
Gregory Bourn, Finmeccanica North America, Inc.
Leslie Bowen, Material Systems, Inc.
Darrell Coleman, DynCorp International, LLC
Curtis Dombek, Sheppard, Mullin, Richter & Hampton, LLP
Nelson Dong, Dorsey & Whitney, LLP
Jefferson Hofgard, The Boeing Company
Beth Ann Johnson, Northrop Grumman Corporation
Dean Johnson, Systron Donner Inertial
Tino Oldani, Ingersoll Machine Tools, Inc.
Kathleen Lockard Palma, General Electric Company
Roy Paulson, Paulson Manufacturing Corporation
Kimberly Pritula, Sturm, Ruger & Company, Inc.
Gregory Robbins, Veeco Instruments, Inc.
Carlos Romero, University of New Mexico
Robert Schacht, Hyrdra-Electric Company
Michelle Schulz, Braumiller Schulz, LLP
Chiradeep Sengupta, Federal Express
Michael Slonim, Honeywell International, Inc.
Osval “Chip” Storie, MAG Industrial Automation Systems
Michael Swartz, Lake Shore Cryotronics, Inc.
Chuck Tabbert, Ultra Communications, Inc.
Song Volk, Hughes Network Systems, LLC
DDTC Posts the “Blue Lantern” Report on End-Use of Defense Articles and Services
02/23/11 05:21 PM
On
February 23, 2011, the State Department’s
Directorate of Defense Trade Controls (DDTC) has
posted the End-Use Monitoring of Defense
Articles and Defense Services Commercial Exports
FY2009 Report.
The report describes actions taken by the DDTC during fiscal 2009 to implement the “Blue Lantern” end-use monitoring program.
The “Blue Lantern” program monitors the end-use of defense articles and services exported through commercial channels and subject to Department of State licenses or certain other approvals under the AECA. The end-use monitoring includes pre-license, post-license, or post-shipment inquiries undertaken to verify the bona fides of proposed foreign consignees and end-users, to confirm the legitimacy of proposed transaction, and to verify that the recipient is complying with the requirements imposed by the U.S. Government with respect defense articles and services and that those items are being used for the purposes for which they are provided.
For FY2009, the Blue Lantern program initiated 774 inquiries in 104 countries. Of 649 cases closed in FY2009, 87 or 13% were determined to be “unfavorable,” meaning that the fact findings were not consistent with the information contained in the application or license. Problems identified during a pre and post-license check may result in denial or revocation of the license, removal of a party, or the license being returned without action. FY2009 Blue Lantern checks resulted in 10 directed disclosures and three referrals for possible criminal investigation.
The reasons for unfavourable check in FY2009 were refusal to cooperate (36%); derogatory information/foreign party deemed unreliable recipient of USM (30%); indications of diversion or unauthorized retransfer or re-export (13%); inability to confirm order or receipt of goods by end use (10%); party violating terms of license agreement (9%); warehousing or stockpiling (8%); foreign party (and-user and/or consignee) involved in transaction but not listed on license/application (6%); unauthorized brokering (6%); and inability to confirm existence of foreign party listed on license (1%).
Detailed explanations of findings are available in the full version of the report.
The report describes actions taken by the DDTC during fiscal 2009 to implement the “Blue Lantern” end-use monitoring program.
The “Blue Lantern” program monitors the end-use of defense articles and services exported through commercial channels and subject to Department of State licenses or certain other approvals under the AECA. The end-use monitoring includes pre-license, post-license, or post-shipment inquiries undertaken to verify the bona fides of proposed foreign consignees and end-users, to confirm the legitimacy of proposed transaction, and to verify that the recipient is complying with the requirements imposed by the U.S. Government with respect defense articles and services and that those items are being used for the purposes for which they are provided.
For FY2009, the Blue Lantern program initiated 774 inquiries in 104 countries. Of 649 cases closed in FY2009, 87 or 13% were determined to be “unfavorable,” meaning that the fact findings were not consistent with the information contained in the application or license. Problems identified during a pre and post-license check may result in denial or revocation of the license, removal of a party, or the license being returned without action. FY2009 Blue Lantern checks resulted in 10 directed disclosures and three referrals for possible criminal investigation.
The reasons for unfavourable check in FY2009 were refusal to cooperate (36%); derogatory information/foreign party deemed unreliable recipient of USM (30%); indications of diversion or unauthorized retransfer or re-export (13%); inability to confirm order or receipt of goods by end use (10%); party violating terms of license agreement (9%); warehousing or stockpiling (8%); foreign party (and-user and/or consignee) involved in transaction but not listed on license/application (6%); unauthorized brokering (6%); and inability to confirm existence of foreign party listed on license (1%).
Detailed explanations of findings are available in the full version of the report.
Reports on Offsets Related to Foreign Sales of Defense Articles and Services Due June 15
02/23/11 01:02 PM
On
February 23, 2011, U.S. Bureau of Industry and
Security (BIS) posted a notice in the Federal
Register reminding that U.S. firms are required
to report annually to the Department of Commerce
on contracts for the sale of defense articles
and defense services to foreign countries or
foreign firms that are subject to offsets
agreements exceeding $5 million in value.
U.S. firms are also required to report annually to Department of Commerce on offsets transactions completed in performance of existing offsets commitments for which offsets credit of $250,000 or more has been claimed form the foreign representative. This year, such report must include relevant information from calendar year 2010 and must be submitted to Commerce no later than June 15, 2011.
U.S. firms are also required to report annually to Department of Commerce on offsets transactions completed in performance of existing offsets commitments for which offsets credit of $250,000 or more has been claimed form the foreign representative. This year, such report must include relevant information from calendar year 2010 and must be submitted to Commerce no later than June 15, 2011.
Revised Form I-129 Form Requires Petitioners to Certify Compliance with Export Controls
02/20/11 01:13 PM
Effective February
20, 2011, the revised Form
I-129, Petition for
a Nonimmigrant Worker, requires a petitioner
seeking H-1B, H-1B1, L-1 or O-1A visas to
certify that it has reviewed U.S. export control
regulations and determined that:
(a) a license is not required to release technology to the foreign worker; or
(b) if an export license is required, it will not release controlled technology to the foreign worker until it has received a license or other authorization to do so.
For additional information about the revised form and petitions for nonimmigrant worker visas, see http://www.uscis.gov.
(a) a license is not required to release technology to the foreign worker; or
(b) if an export license is required, it will not release controlled technology to the foreign worker until it has received a license or other authorization to do so.
For additional information about the revised form and petitions for nonimmigrant worker visas, see http://www.uscis.gov.
BIS Implements Mandatory Electronic Registration for SNAP-R
02/09/11 02:12 PM
On
February 9, 2011, the Bureau of Industry and
Security (BIS) posted a final rule in the Federal
Register that amends the Export Administration
Regulations (EAR) implementing mandatory on-line
registration process for obtaining an account to
submit license applications and similar
documents electronically through Simplified
Network Application Processing (SNAP-R) system.
The final rule sets forth the information that parties registering online are required to provide to BIS and other duties that registered parties have with respect to keeping information in their accounts current. In the past, BIS required filing entities to register for a SNAP-R account through a paper and facsimile process.
The rule is effective March 11, 2011. Beginning on April 11, 2011, all new SNAP-R registrations must be made in accordance with this rule.
The rule also provides that, beginning on June 10, 2011, SNAP-R accounts of filing entities that do not have account administrators will not be accessible until an existing individual user for that entity logs-on to SNAP-R and registers as account administrator. Beginning September 8, 2011, any accounts that do not have an account administrator will be inactivated. Filing entities will be able to register again but will have to go through entire registration process that applies to new entities.
The final rule sets forth the information that parties registering online are required to provide to BIS and other duties that registered parties have with respect to keeping information in their accounts current. In the past, BIS required filing entities to register for a SNAP-R account through a paper and facsimile process.
The rule is effective March 11, 2011. Beginning on April 11, 2011, all new SNAP-R registrations must be made in accordance with this rule.
The rule also provides that, beginning on June 10, 2011, SNAP-R accounts of filing entities that do not have account administrators will not be accessible until an existing individual user for that entity logs-on to SNAP-R and registers as account administrator. Beginning September 8, 2011, any accounts that do not have an account administrator will be inactivated. Filing entities will be able to register again but will have to go through entire registration process that applies to new entities.
BIS Reviews Progress of U.S. Export Controls Reform in the C5 European Forum
02/07/11 05:17 PM
On
February 7, 2011, Daniel O. Hill, Deputy Under
Secretary for Industry and Security, spoke at the
C5 European Forum on Export Controls in Brussels,
Belgium, commenting on the U.S.
export controls system reform.
Mr. Hill also spoke of improving the export controls regime by reforming the United States Munitions List (USML), changing the export controls structure, and establishing a licensing policy that ensures an appropriate agency review.
As for the USML, the “goal is to create one list that will include every item or technology that requires control; have one agency that will administer these controls; have one enforcement coordination agency that handles every investigation of criminal violations; and run everything using one IT platform.” The Department of Defense and the Department of State are working on harmonizing the way the USML and the Commerce Control List (CCL) control items, software and technology. USML is being converted into a positive list of controls. Mr. Hill also stated that a three-tiered licensing system is being created that will apply in the same manner to items on both the USML and the CCL.
When the two control lists are updated, the plan is to implement common criteria for classifying items on both lists. This will be achieved by dividing each of the two lists into a three-tiered structure, which will distinguish between the most sensitive items available only in the U.S., items in the middle tier that provide a substantial military or intelligence advantage, and items in the lowest tier reserved for items that provide a significant military or intelligence advantage and which are more broadly availably.
These tiers are expected to improve the U.S. national security and competitiveness by permitting the government to adjust controls in a timely manner over a product’s life cycle.
A corresponding licensing policy will be implemented to ensure appropriate agency review. Top tier items will generally require a license for all destinations, many of the items in the middle tier will be eligible to be exported to allies and most multilateral partners under a license exception or general authorization, and licenses for the lowest tier items not considered proliferation concerns will typically not be required.
In the final phase of export controls reform, U.S. government plans to merge the USML and the CCL into one list.
The upcoming changes will be documented in the Federal Register.
Mr. Hill emphasized the need to reform the U.S. export controls to keep pace with geopolitical changes and innovations in industries: Our current system operates under two different control lists with distinctly different approaches to identifying and controlling products. The Department of State administers the Munitions List, which generally includes items specifically designed for military applications, a concept as opaque as it is outdated. And the Commerce Department administers the Commerce Control List, or CCL, which is a far more specific list of mostly “dual use items” – that is commercial items that could have military applications – items like truck parts, electronic components and even computers. There are three primary U.S. licensing agencies – each with different procedures and different information technology systems – and scores of different regulatory definitions. It would be hard for anyone to argue that this existing system is maximizing our security or is a model of efficiency. The Munitions List was created during the Cold War. Most of the items used by the military were developed by, or solely for the military. But times have changed. The commercial sector alone now develops nearly two-thirds of the technologies our military uses. For exporters and companies with production lines spread across the globe, time they could be spending creating innovative, game-changing products to sell in different countries is instead spent navigating a confusing and time-consuming export control bureaucracy. An equally disturbing phenomenon is that U.S. companies are sometimes being “engineered out” of collaborative foreign projects due to U.S. export control requirements. We have heard of examples of sales contracts including provisions that explicitly bar the use of U.S.-manufactured articles because companies don’t want to have to deal with our export control system.America puts our exporters in an untenable position when we forbid or delay them from selling a widely available item to an overseas market even when comparable foreign items face no similar restrictions from their home country.”
Mr. Hill also spoke of improving the export controls regime by reforming the United States Munitions List (USML), changing the export controls structure, and establishing a licensing policy that ensures an appropriate agency review.
As for the USML, the “goal is to create one list that will include every item or technology that requires control; have one agency that will administer these controls; have one enforcement coordination agency that handles every investigation of criminal violations; and run everything using one IT platform.” The Department of Defense and the Department of State are working on harmonizing the way the USML and the Commerce Control List (CCL) control items, software and technology. USML is being converted into a positive list of controls. Mr. Hill also stated that a three-tiered licensing system is being created that will apply in the same manner to items on both the USML and the CCL.
When the two control lists are updated, the plan is to implement common criteria for classifying items on both lists. This will be achieved by dividing each of the two lists into a three-tiered structure, which will distinguish between the most sensitive items available only in the U.S., items in the middle tier that provide a substantial military or intelligence advantage, and items in the lowest tier reserved for items that provide a significant military or intelligence advantage and which are more broadly availably.
These tiers are expected to improve the U.S. national security and competitiveness by permitting the government to adjust controls in a timely manner over a product’s life cycle.
A corresponding licensing policy will be implemented to ensure appropriate agency review. Top tier items will generally require a license for all destinations, many of the items in the middle tier will be eligible to be exported to allies and most multilateral partners under a license exception or general authorization, and licenses for the lowest tier items not considered proliferation concerns will typically not be required.
In the final phase of export controls reform, U.S. government plans to merge the USML and the CCL into one list.
The upcoming changes will be documented in the Federal Register.
Iranian Man Charged with Illegally Exporting Specialized Metals
02/01/11 02:04 PM
On
February 1, 2011, the U.S. Department of Justice
(DOJ) issued a press release
reporting that
Milad Jafari, (Jafari), a 36-year old citizen
and resident of Iran, has been indicted for
conspiracy, smuggling and illegally exporting
specialized metals and other materials from the
U.S. through companies in Turkey to several
entities in Iran, including some that have been
sanctioned for involvement in ballistic missile
activities.
Specifically, the indictment alleges that from about February 2004 through about August 2007 Jafari engaged in conspiracy and exported goods to Iran in violation of the U.S. embargo and without the required U.S. government licenses. Jafari and his conspirators allegedly solicited orders from customers in Iran and purchased goods from U.S. companies on behalf of these Iranian customers. Jafari and others allegedly wired money to the U.S. companies as payment, concealed from the U.S. companies the end-use and end-users of the goods, and caused the goods to be shipped to Turkey and later to Iran.
Jafari and his associates are thought to operate a procurement network that provides direct support to Iran's missile program by securing metal products, including steel and aluminum alloys, for subordinates of Iran's Aerospace Industries Organization (AIO). On February 1, 2011, the U.S. Department of the Treasury designated Jafari, his associates and several corporate entities in Iran and Turkey under Executive Order 13382, which targets for sanctions proliferators of weapons of mass destruction and their supporters. This is expected to block Jafari and his associates from the U.S. financial and commercial systems.
The indictment seeks forfeiture of $177,868 in connection with these offenses. Jafari remains at large and is believed to be in Iran. He faces a maximum potential sentence of five years in prison for the conspiracy count, 20 years in prison for each count of illegal exports to Iran, and 10 years in prison for each smuggling count.
Specifically, the indictment alleges that from about February 2004 through about August 2007 Jafari engaged in conspiracy and exported goods to Iran in violation of the U.S. embargo and without the required U.S. government licenses. Jafari and his conspirators allegedly solicited orders from customers in Iran and purchased goods from U.S. companies on behalf of these Iranian customers. Jafari and others allegedly wired money to the U.S. companies as payment, concealed from the U.S. companies the end-use and end-users of the goods, and caused the goods to be shipped to Turkey and later to Iran.
Jafari and his associates are thought to operate a procurement network that provides direct support to Iran's missile program by securing metal products, including steel and aluminum alloys, for subordinates of Iran's Aerospace Industries Organization (AIO). On February 1, 2011, the U.S. Department of the Treasury designated Jafari, his associates and several corporate entities in Iran and Turkey under Executive Order 13382, which targets for sanctions proliferators of weapons of mass destruction and their supporters. This is expected to block Jafari and his associates from the U.S. financial and commercial systems.
The indictment seeks forfeiture of $177,868 in connection with these offenses. Jafari remains at large and is believed to be in Iran. He faces a maximum potential sentence of five years in prison for the conspiracy count, 20 years in prison for each count of illegal exports to Iran, and 10 years in prison for each smuggling count.
Chinese National Sentenced to 97 Months Imprisonment for ITAR Violations
01/26/11 12:03 PM
On
January 26, 2011, the U.S. Department of
Justice announced that Zhen Zhou
Wu, 46, a Chinese national who traveled to the
United States on an annual basis using business
visas, was sentenced to 97 months imprisonment
for conspiring to illegally export U.S.
Munitions List (USML) parts and export
restricted sensitive technology to the PRC over
a period of ten years, illegally exporting
electronics to the PRC on 14 occasions between
2004 and 2007, and conspiring to file, and
filing, false shipping documents with the U.S.
Department of Commerce from 2005 through 2007.
Wu was also ordered to pay a fine of $15,000, a
special assessment of $1,700 and forfeit
$65,881.71.
On May 17, 2010, Wu was convicted of conspiring from 1997 to 2007 to unlawfully export to the PRC military electronics and export restricted electronics components and illegally exporting such parts to the PRC on numerous occasions between 2004 and 2007. At trial, the government proved that the defendants’ illegal enterprise involved the use of Chitron Electronics, Inc. (“Chitron-US&rdquo, a Waltham Massachusetts company
Wu owned and controlled. Wu used Chitron-US to
procure export restricted equipment from U.S.
suppliers and then export the goods to China,
through Hong Kong. The exported equipment is
used in electronic warfare, military radar,
fire control, military guidance and control
equipment, missile systems, and satellite
communications.
Wu founded and controlled Chitron, including its headquarters in Shenzhen, China, Chitron-Shenzen, and its U.S. office located in Waltham, Massachusetts. Using Chitron, Wu targeted Chinese military factories and military research institutes as customers of Chitron, including numerous institutes of the China Electronics Technology Group Corporation (“CETC&rdquo, which is responsible for the
procurement, development, and manufacture of
electronics for the Chinese military,
including the People’s Liberation Army.
Indeed, Wu referred to Chinese military
entities as Chitron’s major customer since as
early as 2002.
The Department of Defense’s Defense Technology Security Administration has concluded in a report filed with the Court that the defendants’ activities seriously threatened “U.S. national and regional security interests.” According to the Department of Defense, the parts the defendants were convicted of illegally exporting are “vital for Chinese military electronic warfare, military radar, fire control, military guidance and control equipment, and satellite communications.” Further, the illegally exported parts are “precisely the [types of] items ... that the People’s Liberation Army actively seeks to acquire.”
United States Attorney Carmen M. Ortiz said, “This defendant violated U.S. export laws and compromised our national security for more than a decade. He conspired to procure U.S. military products and other controlled electronic components for use in mainland China – for military radar, satellite communications, and guidance systems. Today’s sentence acknowledges the seriousness of those crimes and should send a strong message to anyone considering violating our export laws.”
“This case demonstrates the importance of safeguarding America’s sensitive technology against illicit foreign procurement efforts and should serve as a warning to others who seek to covertly obtain or provide such materials to advance foreign military systems. I applaud the many agents, analysts and prosecutors who helped bring about this successful outcome,” said David Kris, Assistant Attorney General for National Security.
“This sentence reflects the seriousness of the crime and sends a strong message that we will pursue, arrest and prosecute others who flout our laws by diverting sensitive U.S.-origin items through third countries,” said John McKenna, Special Agent in Charge of the Commerce Department’s Office of Export Enforcement Boston Field Office.
On May 17, 2010, Wu was convicted of conspiring from 1997 to 2007 to unlawfully export to the PRC military electronics and export restricted electronics components and illegally exporting such parts to the PRC on numerous occasions between 2004 and 2007. At trial, the government proved that the defendants’ illegal enterprise involved the use of Chitron Electronics, Inc. (“Chitron-US&rdquo
, a Waltham Massachusetts company
Wu owned and controlled. Wu used Chitron-US to
procure export restricted equipment from U.S.
suppliers and then export the goods to China,
through Hong Kong. The exported equipment is
used in electronic warfare, military radar,
fire control, military guidance and control
equipment, missile systems, and satellite
communications.
Wu founded and controlled Chitron, including its headquarters in Shenzhen, China, Chitron-Shenzen, and its U.S. office located in Waltham, Massachusetts. Using Chitron, Wu targeted Chinese military factories and military research institutes as customers of Chitron, including numerous institutes of the China Electronics Technology Group Corporation (“CETC&rdquo
, which is responsible for the
procurement, development, and manufacture of
electronics for the Chinese military,
including the People’s Liberation Army.
Indeed, Wu referred to Chinese military
entities as Chitron’s major customer since as
early as 2002.
The Department of Defense’s Defense Technology Security Administration has concluded in a report filed with the Court that the defendants’ activities seriously threatened “U.S. national and regional security interests.” According to the Department of Defense, the parts the defendants were convicted of illegally exporting are “vital for Chinese military electronic warfare, military radar, fire control, military guidance and control equipment, and satellite communications.” Further, the illegally exported parts are “precisely the [types of] items ... that the People’s Liberation Army actively seeks to acquire.”
United States Attorney Carmen M. Ortiz said, “This defendant violated U.S. export laws and compromised our national security for more than a decade. He conspired to procure U.S. military products and other controlled electronic components for use in mainland China – for military radar, satellite communications, and guidance systems. Today’s sentence acknowledges the seriousness of those crimes and should send a strong message to anyone considering violating our export laws.”
“This case demonstrates the importance of safeguarding America’s sensitive technology against illicit foreign procurement efforts and should serve as a warning to others who seek to covertly obtain or provide such materials to advance foreign military systems. I applaud the many agents, analysts and prosecutors who helped bring about this successful outcome,” said David Kris, Assistant Attorney General for National Security.
“This sentence reflects the seriousness of the crime and sends a strong message that we will pursue, arrest and prosecute others who flout our laws by diverting sensitive U.S.-origin items through third countries,” said John McKenna, Special Agent in Charge of the Commerce Department’s Office of Export Enforcement Boston Field Office.
BIS Implements US-India Bilateral Understanding Regarding Export Controls
01/25/11 11:07 AM
On
January 25, 2011, the Bureau of Industry and
Security (BIS) issued a final rule in the Federal
Register amending the Export Administration
Regulations (EAR). The rule implements parts of
understanding between the U.S. and India
regarding nonproliferation and export controls
reform program.
Specifically, BIS began implementation of the U.S.-India agreement by revising certain export and reexport controls for India, including removal of nine Indian entities from the Entity List. In addition, BIS amended the EAR to remove India from Country Groups D:2, D:3, and D:4 and instead add India to Country Group A:2.
These changes in the EAR are also a part of the initial steps to implement the export control reform program outlined in the November 8, 2010 U.S.-India bilateral understanding.
The rule is effective January 25, 2011.
Specifically, BIS began implementation of the U.S.-India agreement by revising certain export and reexport controls for India, including removal of nine Indian entities from the Entity List. In addition, BIS amended the EAR to remove India from Country Groups D:2, D:3, and D:4 and instead add India to Country Group A:2.
These changes in the EAR are also a part of the initial steps to implement the export control reform program outlined in the November 8, 2010 U.S.-India bilateral understanding.
The rule is effective January 25, 2011.
Census Seeks Comments on Proposal for Additional Data in the AES
01/24/11 10:58 AM
On
January 24, 2011, the U.S. Census Bureau posted
a notice in the Federal
Register seeking comments on proposed changes in
data collection in the Automated Export System
(AES).
Specifically, Census proposes addition of new and modification of some existing data elements in the AES. The elements that will be added or modified are conditional, meaning they will be required only if applicable to the specific shipment being exported. According to Census, this data will support the export control initiative of enforcement agencies by helping to detect and prevent unauthorized exports and to collect complete and accurate export statistics. In addition, Census proposes that AES filing be mandatory for shipments of all used self-propelled vehicles and household goods regardless of value or country of destination.
The additional data elements include name and address of the end user, and ultimate consignee type. It is expected that these conditional data elements will have limited impact on burden response time since entering information for the end user and consignee type is based on the knowledge the exporter has at the time of export. If that information is not known, the filer will not be required to report the information.
Census proposes that license applicant address, license value, and country of origin be other additional required elements. The equipment number field will be revised to require the container number for all containerized cargo. For shipments that require an export license (currently, 6% or records filed require a license), the address of the license applicant will be required. In addition to the value that is currently captured in the AES, the license value per commodity classification will be required to be reported.
For shipments with a foreign country of origin (currently, 17% of records), the country of origin will be required to be reported. For shipments where method of transportation is containerized vessel cargo (currently, 19% of records), the container number will be required to be reported in the equipment number field.
Census expects that individually, completing these conditional fields will not affect exporter burden significantly. Each additional field affects only a percentage of the shipments that are required to be reported in the AES.
Comments to Departmental Paperwork Clearance Office are due on or before March 25, 2011.
Specifically, Census proposes addition of new and modification of some existing data elements in the AES. The elements that will be added or modified are conditional, meaning they will be required only if applicable to the specific shipment being exported. According to Census, this data will support the export control initiative of enforcement agencies by helping to detect and prevent unauthorized exports and to collect complete and accurate export statistics. In addition, Census proposes that AES filing be mandatory for shipments of all used self-propelled vehicles and household goods regardless of value or country of destination.
The additional data elements include name and address of the end user, and ultimate consignee type. It is expected that these conditional data elements will have limited impact on burden response time since entering information for the end user and consignee type is based on the knowledge the exporter has at the time of export. If that information is not known, the filer will not be required to report the information.
Census proposes that license applicant address, license value, and country of origin be other additional required elements. The equipment number field will be revised to require the container number for all containerized cargo. For shipments that require an export license (currently, 6% or records filed require a license), the address of the license applicant will be required. In addition to the value that is currently captured in the AES, the license value per commodity classification will be required to be reported.
For shipments with a foreign country of origin (currently, 17% of records), the country of origin will be required to be reported. For shipments where method of transportation is containerized vessel cargo (currently, 19% of records), the container number will be required to be reported in the equipment number field.
Census expects that individually, completing these conditional fields will not affect exporter burden significantly. Each additional field affects only a percentage of the shipments that are required to be reported in the AES.
Comments to Departmental Paperwork Clearance Office are due on or before March 25, 2011.
BIS Publishes 3 New Government Reports
01/14/11 02:37 PM
On
January 14, 2011, the Bureau of Industry and
Security (BIS) published the following reports:
Retired University Professor Loses Appeal of Criminal Export Conviction
01/10/11 03:19 PM
On
January 5, 2011, Court of Appeals for the 6th
Circuit upheld the conviction
of John Roth (Roth), a retired electrical
engineering professor at the University of
Tennessee at Knoxville (UT), found guilty of the
Arms Export Control Act (AECA) violations in
2008.
Case Facts
On September 3, 2008, the Eastern District court of Tennessee at Knoxville, Roth was found to have violated the AECA when he exported data from a defense research project on a trip to China and allowed two foreign nationals in Knoxville to access certain data and equipment in violation of the AECA.
Roth is a published author in the field of plasma technology and a minority owner at Atmospheric Glow Technologies, Inc. (Atmospheric), a Knoxville, TN corporation. In May 2004, Atmospheric was awarded a U.S. Air Force military-purpose contract to develop plasma actuators that could be used to control the flight of small, subsonic, unmanned, military drone aircraft. The project was broken down into Phase I, which entailed developing the design of the actuators, and Phase II, which involved testing the actuators in a wind tunnel and on a non-military aircraft. Roth was told at the beginning of the project, on which he was to work as a consultant, that it was to be paid with “6.2” funds, which Roth knew meant that the research would be subject to export control laws that prohibited access to the research outside the U.S. or to foreign persons unless a license had been obtained.
When Phase I was completed, Roth signed a subcontract between him and Atmospheric acknowledging that Phase II work was subject to export controls. During the project, Roth had two UT graduate students, Xin Dai, a Chinese national and Sirous Nourgostar, an Iranian national, work on the project. The work scope included access to project’s technical data and to a device called Force Stand, which was designed specifically to collect data and to test the plasma actuators.
After meeting with opposition from Daniel Sherman, the principal of Atmospheric, regarding foreign nationals working on the project, Roth sought advice from an the UT and was directed to Robin Witherspoon, UT’s officer in charge of export controls, who notified Roth that the project data was export controlled. After the notification, Dai was removed from the project. In addition, knowing of Roth’s upcoming lecture trip to China, Witherspoon warned Roth not to take any information related to Phase II abroad. Atmospheric also obtained agreement from Roth not to take any project information to China.
When on May 16, 2006, Roth traveled to China to lecture at universities regarding his work, he took with him a paper copy of a Phase II Weekly Report, a flash drive with electronic copies of Phase II reports, and a laptop computer that stored a copy of the Department of Defense Advance Research Projects Agency’s project proposal (Agency Proposal). Roth also told Dai to send to him a copy of a paper containing Phase II data via a Chinese professor’s e-mail address.
On September 3, 2008, the U.S. District Court for the Eastern District of Tennessee convicted Roth with one count of conspiracy to export defense articles in violation of the AECA, fifteen counts of exporting defense articles in violation of the Act, and one count of wire fraud.
Court of Appeals Holding
On appeal, Roth argued that: (1) the Phase II data and the data included in the Agency Proposal were not defense articles or services as a matter of law because they were not developed to put plasma actuators on items identified on the Munitions List; (2) the district court incorrectly instructed the jury as to willfulness and improperly failed to deliver his proposed instruction regarding ignorance of the law; and (3) there was insufficient evidence to support the jury’s conclusion that he willfully exported the Agency Proposal because he never opened the electronic file and could not have known its contents until after he returned to China.
With regard to Roth’s first contention, the Court of Appeals held that “the federal regulations extend export controls to all stages of defense projects that are covered by the [AECA], not just the final stages when military devices are directly involved.” Accordingly, the Court explained, in deciding whether AECA applies to information, articles or services, project stages must not be considered in isolation but, rather, in context of other project stages. The Court stated that it was incorrect to think that “barriers exist between the stages of the project that prevent the defense article qualification from being imputed from one stage to another.” As Phase II involved incorporating plasma actuators on military drone aircraft, all of the project work was correctly held by the district court to be defense articles and services.
With regard to Roth’s second contention as to whether the instruction on “willfulness” issued by the district court was correct, the Court decided that the instruction was proper. Roth had argued in its appeal that the “willfulness” required the defendant to intentionally export defense articles that he specifically knew were on the Munitions List. The Court held that the section 2778 of the AECA does not require a defendant to know that the items being exported are on the Munitions List. Rather, it only requires knowledge that the underlying action is unlawful. Accordingly, the Court held that the instruction given by the district court defining willfulness as doing something intentionally that the defendant knew was unlawful, was proper.
The Court also held that ignorance of the law as a defense instruction, as proposed by Roth, was not a correct statement of the law, and the portion that was correct was substantially covered by another instruction.The Court noted that no circuit court cases have decided whether ignorance of the law was a separate defense to charges under the Act, and in the two Fifth Circuit cases that addressed the issue, neither held that juries must be instructed about ignorance as a separate, affirmative defense. Moreover, in this case the ignorance element was substantially covered by the district court’s instruction regarding willfulness in the “[n]egligent conduct, or conduct by mistake or accident, or with a good faith belief that the conduct was lawful, is not sufficient to constitute willfulness” language. In addition, the Court found that because the district court addressed much of the proposed instruction in the willfulness instruction, failing to deliver Roth’s proposed ignorance of the law instruction to the jury impaired his case only slightly, if at all. As such, the Court held that the district court did not abuse its discretion in declining to deliver Roth’s proposed instruction on ignorance of the law as a separate defense.
On Roth’s final contention, the Court held that the purpose of the Agency Proposal was to build military munitions, and it was premised upon the Phase II technology that UT had told Roth was export controlled and instructed him to not take anything relating to Phase II on his trip to China. In addition, both Roth and the Atmospheric’s principal Sherman had discussed the project information and Roth knew that it was export controlled as the discussions were conducted with Phase II or the Proposal background. Finally, Roth knew that the research he was conducting in Phase II was export controlled, and that it was essentially the same technology used in the Agency Proposal. The Court stated that, “Roth’s conviction could be sufficiently supported by nothing more than circumstantial evidence.” Thus, a rational jury could find beyond a reasonable doubt that Roth knew that the Proposal contained export controlled information and could not be exported out of the U.S. without a license.
Absent a review by the U.S. Supreme Court, Roth must now report to prison to serve the four-year prison sentence imposed by the district court in 2010.
Case Facts
On September 3, 2008, the Eastern District court of Tennessee at Knoxville, Roth was found to have violated the AECA when he exported data from a defense research project on a trip to China and allowed two foreign nationals in Knoxville to access certain data and equipment in violation of the AECA.
Roth is a published author in the field of plasma technology and a minority owner at Atmospheric Glow Technologies, Inc. (Atmospheric), a Knoxville, TN corporation. In May 2004, Atmospheric was awarded a U.S. Air Force military-purpose contract to develop plasma actuators that could be used to control the flight of small, subsonic, unmanned, military drone aircraft. The project was broken down into Phase I, which entailed developing the design of the actuators, and Phase II, which involved testing the actuators in a wind tunnel and on a non-military aircraft. Roth was told at the beginning of the project, on which he was to work as a consultant, that it was to be paid with “6.2” funds, which Roth knew meant that the research would be subject to export control laws that prohibited access to the research outside the U.S. or to foreign persons unless a license had been obtained.
When Phase I was completed, Roth signed a subcontract between him and Atmospheric acknowledging that Phase II work was subject to export controls. During the project, Roth had two UT graduate students, Xin Dai, a Chinese national and Sirous Nourgostar, an Iranian national, work on the project. The work scope included access to project’s technical data and to a device called Force Stand, which was designed specifically to collect data and to test the plasma actuators.
After meeting with opposition from Daniel Sherman, the principal of Atmospheric, regarding foreign nationals working on the project, Roth sought advice from an the UT and was directed to Robin Witherspoon, UT’s officer in charge of export controls, who notified Roth that the project data was export controlled. After the notification, Dai was removed from the project. In addition, knowing of Roth’s upcoming lecture trip to China, Witherspoon warned Roth not to take any information related to Phase II abroad. Atmospheric also obtained agreement from Roth not to take any project information to China.
When on May 16, 2006, Roth traveled to China to lecture at universities regarding his work, he took with him a paper copy of a Phase II Weekly Report, a flash drive with electronic copies of Phase II reports, and a laptop computer that stored a copy of the Department of Defense Advance Research Projects Agency’s project proposal (Agency Proposal). Roth also told Dai to send to him a copy of a paper containing Phase II data via a Chinese professor’s e-mail address.
On September 3, 2008, the U.S. District Court for the Eastern District of Tennessee convicted Roth with one count of conspiracy to export defense articles in violation of the AECA, fifteen counts of exporting defense articles in violation of the Act, and one count of wire fraud.
Court of Appeals Holding
On appeal, Roth argued that: (1) the Phase II data and the data included in the Agency Proposal were not defense articles or services as a matter of law because they were not developed to put plasma actuators on items identified on the Munitions List; (2) the district court incorrectly instructed the jury as to willfulness and improperly failed to deliver his proposed instruction regarding ignorance of the law; and (3) there was insufficient evidence to support the jury’s conclusion that he willfully exported the Agency Proposal because he never opened the electronic file and could not have known its contents until after he returned to China.
With regard to Roth’s first contention, the Court of Appeals held that “the federal regulations extend export controls to all stages of defense projects that are covered by the [AECA], not just the final stages when military devices are directly involved.” Accordingly, the Court explained, in deciding whether AECA applies to information, articles or services, project stages must not be considered in isolation but, rather, in context of other project stages. The Court stated that it was incorrect to think that “barriers exist between the stages of the project that prevent the defense article qualification from being imputed from one stage to another.” As Phase II involved incorporating plasma actuators on military drone aircraft, all of the project work was correctly held by the district court to be defense articles and services.
With regard to Roth’s second contention as to whether the instruction on “willfulness” issued by the district court was correct, the Court decided that the instruction was proper. Roth had argued in its appeal that the “willfulness” required the defendant to intentionally export defense articles that he specifically knew were on the Munitions List. The Court held that the section 2778 of the AECA does not require a defendant to know that the items being exported are on the Munitions List. Rather, it only requires knowledge that the underlying action is unlawful. Accordingly, the Court held that the instruction given by the district court defining willfulness as doing something intentionally that the defendant knew was unlawful, was proper.
The Court also held that ignorance of the law as a defense instruction, as proposed by Roth, was not a correct statement of the law, and the portion that was correct was substantially covered by another instruction.The Court noted that no circuit court cases have decided whether ignorance of the law was a separate defense to charges under the Act, and in the two Fifth Circuit cases that addressed the issue, neither held that juries must be instructed about ignorance as a separate, affirmative defense. Moreover, in this case the ignorance element was substantially covered by the district court’s instruction regarding willfulness in the “[n]egligent conduct, or conduct by mistake or accident, or with a good faith belief that the conduct was lawful, is not sufficient to constitute willfulness” language. In addition, the Court found that because the district court addressed much of the proposed instruction in the willfulness instruction, failing to deliver Roth’s proposed ignorance of the law instruction to the jury impaired his case only slightly, if at all. As such, the Court held that the district court did not abuse its discretion in declining to deliver Roth’s proposed instruction on ignorance of the law as a separate defense.
On Roth’s final contention, the Court held that the purpose of the Agency Proposal was to build military munitions, and it was premised upon the Phase II technology that UT had told Roth was export controlled and instructed him to not take anything relating to Phase II on his trip to China. In addition, both Roth and the Atmospheric’s principal Sherman had discussed the project information and Roth knew that it was export controlled as the discussions were conducted with Phase II or the Proposal background. Finally, Roth knew that the research he was conducting in Phase II was export controlled, and that it was essentially the same technology used in the Agency Proposal. The Court stated that, “Roth’s conviction could be sufficiently supported by nothing more than circumstantial evidence.” Thus, a rational jury could find beyond a reasonable doubt that Roth knew that the Proposal contained export controlled information and could not be exported out of the U.S. without a license.
Absent a review by the U.S. Supreme Court, Roth must now report to prison to serve the four-year prison sentence imposed by the district court in 2010.
Man Charged with Illegally Exporting Military Technology to South Korea
01/10/11 11:09 AM
On
January 10, 2011, U.S. Department of Justice
announced that Kue San
Chun, 66, of Avon Lake, Ohio, was charged with
illegally exporting defense articles on the U.S.
Munitions List (USML), and with knowingly making
and subscribing a false U.S. individual income
tax return.
Chun, 66, was a longtime employee at the NASA Glenn Research Center although he is not accused of taking technology or related materials from his work.
Count one of the criminal information specifies that Chun, from March 2000 and November 2005, knowingly exported from the U.S. to the Republic of Korea Infra Red Focal Place Array detectors and Infra Red camera engines which were designated as defense articles on the USML without first obtaining the required export license or authorization from the U.S. Department of State.
Chun is also accused of knowingly making and subscribing a false U.S. individual income tax return for the year 2005, which failed to report over $80,000 of taxable income he earned in 1995.
Chun, 66, was a longtime employee at the NASA Glenn Research Center although he is not accused of taking technology or related materials from his work.
Count one of the criminal information specifies that Chun, from March 2000 and November 2005, knowingly exported from the U.S. to the Republic of Korea Infra Red Focal Place Array detectors and Infra Red camera engines which were designated as defense articles on the USML without first obtaining the required export license or authorization from the U.S. Department of State.
Chun is also accused of knowingly making and subscribing a false U.S. individual income tax return for the year 2005, which failed to report over $80,000 of taxable income he earned in 1995.
BIS Publishes Final Rule on Mass Market Encryption
01/07/11 02:32 PM
On
January 7, 2011, the Bureau of Industry and
Security (BIS) published a final rule on publicly
available mass market encryption software and
other specified publicly available encryption
software in object code.
Through this Final Rule, BIS is removing from the scope of items subject to the Export Administration Regulations (EAR) ‘‘publicly available’’ mass market encryption object code software with a symmetric key length greater than 64- bits, and ‘‘publicly available’’ encryption object code classified under Export Control Classification Number (ECCN) 5D002 on the Commerce Control List when the corresponding source code meets the criteria specified under License Exception TSU. This change is being made pursuant to a determination by BIS that, because there are no regulatory restrictions on making such software ‘‘publicly available,’’ and because, once it is ‘‘publicly available,’’ by definition it is available for download by any end user without restriction, removing it from the jurisdiction of the EAR will have no effect on export control policy. This action will not result in the decontrol of source code classified under ECCN 5D002, but it will result in a simplification of the regulatory provisions for publicly available mass market software and specified encryption software in object code.
Through this Final Rule, BIS is removing from the scope of items subject to the Export Administration Regulations (EAR) ‘‘publicly available’’ mass market encryption object code software with a symmetric key length greater than 64- bits, and ‘‘publicly available’’ encryption object code classified under Export Control Classification Number (ECCN) 5D002 on the Commerce Control List when the corresponding source code meets the criteria specified under License Exception TSU. This change is being made pursuant to a determination by BIS that, because there are no regulatory restrictions on making such software ‘‘publicly available,’’ and because, once it is ‘‘publicly available,’’ by definition it is available for download by any end user without restriction, removing it from the jurisdiction of the EAR will have no effect on export control policy. This action will not result in the decontrol of source code classified under ECCN 5D002, but it will result in a simplification of the regulatory provisions for publicly available mass market software and specified encryption software in object code.
Former Probation Officer Sentenced to Prison for Export Violations
01/03/11 10:30 AM
On
January 3, 2011, U.S. Department of Justice
(DOJ) reported that District
Court in Greenbelt, Maryland, sentenced Emenike
Charles Nwankwoala, of Laurel, Maryland, to 37
months in prison followed by two years of
supervised release for exporting arms and
controlled goods without a license and delivery
of a package containing a gun to a carrier
without notifying the carrier of the gun as part
of a scheme to export guns and ammunition to
Nigeria.
According to the plea agreement, Nwankwoala worked as a state probation officer. In February 2008, Nwankwoala was granted a license to export a 12 gauge shotgun to Nigeria for personal use. In February 2009, Nwankwoala applied for an export license to export shotguns to Nigeria, stating that these weapons were to be used in the operation of a newly-opened shooting range in Nigeria. The U.S. Department of Commerce denied the license because Nwankwoala did not provide evidence of that the shooting range existed.
From December 2008 to May 2009, Nwankwoala purchased at least 37 shotguns from a gun shop in Washington, D.C. metro area and ordered 25 more shotguns over the internet from a licensed company in Ogden, Utah, falsely advising the company that he had an export license.
On May 13, 2009, Nwankwoala told an undercover ICE agent that he had made a large profit over 10 years from purchasing shotguns and shipping them to Nigeria in shipping containers with vehicles and hospital beds. Nwankwoala said he knew he needed a license to ship the guns, but had not obtained one because he could not identify the end user as required by federal law. The end user was not licensed to receive the weapons.
In July or August 2009, Nwankwoala prepared a shipping container with 24 shotguns, six pistols and ammunition, all concealed in suitcases and a car. Nwankwoala did not disclose that je was shipping firearms or ammunition. The container was delivered to a ship in Port Elizabeth, in Newark, New Jersey for shipment to Nigeria.
The ship left Porit Elizabeth and arrived in Nigeria on September 15, 2009, but the container was not unloaded based upon a request from law enforcement to have the container returned for inspection. On October 6, 2009, U.S. and Spanish law enforcement inspected the container in Algeciras, Spain, and seized the firearms, ammunition and automobile. Further investigation showed that Nwankwoala had bought five of the pistols and 12 of the shotguns.
From August 2006 through August 2009, eight other shipments were made to Nigeria in an identical manner. Nwankwoala did not have the licenses or authorizations from the Department of State or the DOC to export the firearms and ammunition to Nigeria, nor did he possess a federal license to engage in the business of dealing in firearms.
According to the plea agreement, Nwankwoala worked as a state probation officer. In February 2008, Nwankwoala was granted a license to export a 12 gauge shotgun to Nigeria for personal use. In February 2009, Nwankwoala applied for an export license to export shotguns to Nigeria, stating that these weapons were to be used in the operation of a newly-opened shooting range in Nigeria. The U.S. Department of Commerce denied the license because Nwankwoala did not provide evidence of that the shooting range existed.
From December 2008 to May 2009, Nwankwoala purchased at least 37 shotguns from a gun shop in Washington, D.C. metro area and ordered 25 more shotguns over the internet from a licensed company in Ogden, Utah, falsely advising the company that he had an export license.
On May 13, 2009, Nwankwoala told an undercover ICE agent that he had made a large profit over 10 years from purchasing shotguns and shipping them to Nigeria in shipping containers with vehicles and hospital beds. Nwankwoala said he knew he needed a license to ship the guns, but had not obtained one because he could not identify the end user as required by federal law. The end user was not licensed to receive the weapons.
In July or August 2009, Nwankwoala prepared a shipping container with 24 shotguns, six pistols and ammunition, all concealed in suitcases and a car. Nwankwoala did not disclose that je was shipping firearms or ammunition. The container was delivered to a ship in Port Elizabeth, in Newark, New Jersey for shipment to Nigeria.
The ship left Porit Elizabeth and arrived in Nigeria on September 15, 2009, but the container was not unloaded based upon a request from law enforcement to have the container returned for inspection. On October 6, 2009, U.S. and Spanish law enforcement inspected the container in Algeciras, Spain, and seized the firearms, ammunition and automobile. Further investigation showed that Nwankwoala had bought five of the pistols and 12 of the shotguns.
From August 2006 through August 2009, eight other shipments were made to Nigeria in an identical manner. Nwankwoala did not have the licenses or authorizations from the Department of State or the DOC to export the firearms and ammunition to Nigeria, nor did he possess a federal license to engage in the business of dealing in firearms.
Exporter Fined $92M to Settle FCPA Allegations
12/27/10 02:10 PM
On
December 27, 2010, Department of Justice
(DOJ) reported that
Alcatel-Lucent S.A. and three of its
subsidiaries have agreed to pay a $92 million
penalty to resolve a Foreign Corrupt Practices
Act (FCPA) investigation into the sales
practices of Alcatel S.A. prior to its merger
with Lucent Technologies Inc. in 2006.
Alcatel-Lucent and DOJ agreed to resolve the FCPA charges by entering into a deferred prosecution agreement for a term of three years. According to court documents, Alcatel-Lucent was formed in 2006 after Lucent Technologies merged with Alcatel, a French telecommunications equipment and services company. Beginning in the 1990s and through 2006, Alcatel pursued many of its business opportunities around the globe through subsidiaries using third-party agents and consultants who were retained by Alcatel Standard. This business model was shown to be prone to corruption, as consultants were repeatedly used as conduits to bribe foreign officials and business executives of private customers to obtain or retain business in many countries.
Court documents allege that Alcatel-Lucent’s three subsidiaries paid millions of dollars to bribe foreign officials in order to obtain and retain business. Alcatel-Lucent also admitted that it violated the internal controls and books and records provisions of the FCPA related to the hiring of third-party agents. Overall, the company admitted that it earned approximately $48.1 million in profits as a result of these payments.
In a related case, two former Alcatel executives were charged in March 2007 with conspiracy to violate the FCPA, making corrupt payments in violation of the FCPA, and laundering bribe payments through a third-party.
Alcatel-Lucent and DOJ agreed to resolve the FCPA charges by entering into a deferred prosecution agreement for a term of three years. According to court documents, Alcatel-Lucent was formed in 2006 after Lucent Technologies merged with Alcatel, a French telecommunications equipment and services company. Beginning in the 1990s and through 2006, Alcatel pursued many of its business opportunities around the globe through subsidiaries using third-party agents and consultants who were retained by Alcatel Standard. This business model was shown to be prone to corruption, as consultants were repeatedly used as conduits to bribe foreign officials and business executives of private customers to obtain or retain business in many countries.
Court documents allege that Alcatel-Lucent’s three subsidiaries paid millions of dollars to bribe foreign officials in order to obtain and retain business. Alcatel-Lucent also admitted that it violated the internal controls and books and records provisions of the FCPA related to the hiring of third-party agents. Overall, the company admitted that it earned approximately $48.1 million in profits as a result of these payments.
In a related case, two former Alcatel executives were charged in March 2007 with conspiracy to violate the FCPA, making corrupt payments in violation of the FCPA, and laundering bribe payments through a third-party.
PPG Subsidiary Settles Export Charges with Forfeiture & $3.75 Million Fine
12/21/10 02:05 PM
On
December 21, 2010, U.S. Department of Justice
(DOJ) reported that PPG Paints
Trading (Shanghai) Co., Ltd., a wholly-owned
Chinese subsidiary of U.S.-based PPG Industries,
Inc. (PPG Industries), pled guilty to conspiring
to violate the International Emergency Economic
Powers Act (IEEPA) and the Export Administration
Regulations (EAR).
According to the charges, PPG Paints Trading actions illegally exported, reexported and/or transshipped high-performance coatings from the U.S. to the Chashma 2 Nuclear Power Plant in Pakistan via a third party distribution in the People’s Republic of China. Chashma 2 is a Pakistan Atomic Energy Commission (PAEC) power plant under construction near Kundian, Punjab province, Pakistan.
The PAEC is the science and technology organization in Pakistan responsible for Pakistan’s nuclear program including the development and operation of nuclear power plants in Pakistan. In November 1998, following Pakistan’s first successful detonation of a nuclear device, BIS added the PAEC, as well as its subordinate nuclear reactors and power plants, to the list of prohibited end users under the EAR. As such, exports, reexports, or transshipment of any items subject to the EAR to the PAEC require a Department of Commerce license.
According to count one of the information, in January 2006, PPG Industries sought such an export license for the shipments of coatings to Chashma 2, which was denied by the Commerce Department in June 2006. Following that denial, PPG Paints Trading agreed upon an arrangement whereby it sold the high-performance coatings to a third-party distributor in China which, in turn, delivered the coatings for application at Chashma 2. In its purchase orders for the shipments in question, PPG Paints Trading falsely stated that the coatings were to be used at a nuclear power plant in China, the export of goods to which would not require a license from the Department of Commerce.
As part of its plea agreement, PPG Paints Trading agreed to pay the maximum criminal fine of $2 million, and serve five years of corporate probation. The gross proceeds received by PPG Paints Trading for these three illegal exports was $32,319, which it forfeited as part of the plea agreement. In addition to the forfeiture and the fine, the Bureau of Industry and Security (BIS) also required an audit of 2011 and 2012 export transactions of PPG and its relevant business units in the U.S. and China, including transactions related to restricted end users on the agency’s Entity List and nuclear end uses and end users.
According to the charges, PPG Paints Trading actions illegally exported, reexported and/or transshipped high-performance coatings from the U.S. to the Chashma 2 Nuclear Power Plant in Pakistan via a third party distribution in the People’s Republic of China. Chashma 2 is a Pakistan Atomic Energy Commission (PAEC) power plant under construction near Kundian, Punjab province, Pakistan.
The PAEC is the science and technology organization in Pakistan responsible for Pakistan’s nuclear program including the development and operation of nuclear power plants in Pakistan. In November 1998, following Pakistan’s first successful detonation of a nuclear device, BIS added the PAEC, as well as its subordinate nuclear reactors and power plants, to the list of prohibited end users under the EAR. As such, exports, reexports, or transshipment of any items subject to the EAR to the PAEC require a Department of Commerce license.
According to count one of the information, in January 2006, PPG Industries sought such an export license for the shipments of coatings to Chashma 2, which was denied by the Commerce Department in June 2006. Following that denial, PPG Paints Trading agreed upon an arrangement whereby it sold the high-performance coatings to a third-party distributor in China which, in turn, delivered the coatings for application at Chashma 2. In its purchase orders for the shipments in question, PPG Paints Trading falsely stated that the coatings were to be used at a nuclear power plant in China, the export of goods to which would not require a license from the Department of Commerce.
As part of its plea agreement, PPG Paints Trading agreed to pay the maximum criminal fine of $2 million, and serve five years of corporate probation. The gross proceeds received by PPG Paints Trading for these three illegal exports was $32,319, which it forfeited as part of the plea agreement. In addition to the forfeiture and the fine, the Bureau of Industry and Security (BIS) also required an audit of 2011 and 2012 export transactions of PPG and its relevant business units in the U.S. and China, including transactions related to restricted end users on the agency’s Entity List and nuclear end uses and end users.
BIS Announces Weekly Wednesday Teleconferences to Discuss Export Control Reform Efforts
12/20/10 05:26 PM
On
December 20, 2010, the U.S. Commerce Department's
Bureau of Industry and Security (BIS)
announced the
availability of Kevin Wolf, Assistant Secretary
for Export Administration, via a weekly
Wednesday teleconference from 2pm - 4pm EST to
answer the public's questions related to Export
Control reform, particularly the two Commerce
notices published on December 9th (see news
articles below).
Questions to be discussed in the conference call must be submitted in advance to oesdseminar@bis.doc.gov with the subject line "Teleconference Questions".
To participate in the free conference calls, which are limited to the first 100 people per session, you may dial in at 866-917-2731, participant code 4136642. Callers should dial in 10 minutes early. No reservations are required.
Questions to be discussed in the conference call must be submitted in advance to oesdseminar@bis.doc.gov with the subject line "Teleconference Questions".
To participate in the free conference calls, which are limited to the first 100 people per session, you may dial in at 866-917-2731, participant code 4136642. Callers should dial in 10 minutes early. No reservations are required.
CA Man Charged with Export Violations
12/16/10 01:52 PM
On
December 16, 2010, Newswire reported that Marc Knapp
(Knapp) of Simi Valley, CA, has been charged
with violating the International Emergency
Economic Powers Act (IEEPA) and the Arms Export
Control Act (AECA). Knapp illegally exported to
Hungary and attempted to export to the Islamic
Republic of Iran and Russia a number of items,
which triggered IEEPA and AECA jurisdiction.
Specifically, Knapp is charged with illegally exporting and attempting to export an F-5B Tiger II fighter jet; CSU-13 anti-gravity flight suits, which are worn by pilots to counteract the forces of gravity and acceleration; an F-14 NATOPS emergency procedures manual, which is designed for use by pilots during in-flight emergencies in fighter jets; electronic versions of the NATOPS emergency procedures manual; AN/PRC-149 survival radios, which are hand-held search and rescue radios used primarily by U.S. Navy pilots as an emergency locator beacon; and F-14 ejection seats.
According to court documents, a cooperating defendant introduced Knapp to an undercover U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI) special agent who met with Knapp on several occasions. During the meetings, Knapp informed the ICE agent that he had various defense items for sale. He also admitted procuring an F-14 ejection seat, which was sold to the agent by another source. Over the course of their interaction, Knapp provided the agent with various lists containing items for sale, including photographs and descriptions.
Knapp faces a maximum statutory sentence of 40 years imprisonment, a $2 million fine and a forfeiture of profits.
Specifically, Knapp is charged with illegally exporting and attempting to export an F-5B Tiger II fighter jet; CSU-13 anti-gravity flight suits, which are worn by pilots to counteract the forces of gravity and acceleration; an F-14 NATOPS emergency procedures manual, which is designed for use by pilots during in-flight emergencies in fighter jets; electronic versions of the NATOPS emergency procedures manual; AN/PRC-149 survival radios, which are hand-held search and rescue radios used primarily by U.S. Navy pilots as an emergency locator beacon; and F-14 ejection seats.
According to court documents, a cooperating defendant introduced Knapp to an undercover U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI) special agent who met with Knapp on several occasions. During the meetings, Knapp informed the ICE agent that he had various defense items for sale. He also admitted procuring an F-14 ejection seat, which was sold to the agent by another source. Over the course of their interaction, Knapp provided the agent with various lists containing items for sale, including photographs and descriptions.
Knapp faces a maximum statutory sentence of 40 years imprisonment, a $2 million fine and a forfeiture of profits.
DDTC Seeks Public Comments on Revising the USML to a "Positive" List
12/10/10 01:55 PM
On
December 10, 2010, the State Department’s
Directorate of Defense Trade Controls (DDTC) issued
an advance notice of proposed
rulemaking (ANPRM) and is
seeking public comment on revisions to the to
the United States Munitions List (USML) that
would make it a ‘‘positive list’’ of controlled
defense articles, requests that the public
‘‘tier’’ defense articles based on the
Administration’s three-tier control criteria,
and identify those current defense articles that
the public believes do not fall within the scope
of any of the criteria’s tiers. A ‘‘positive
list’’ is a list that describes controlled items
using objective criteria rather than broad,
open-ended, subjective, or design intent-based
criteria.
DDTC is not seeking with this advance notice of proposed rulemaking (ANPRM) input on whether particular defense articles should or should not be controlled on the USML or whether any defense articles should be controlled differently. Rather, it is only seeking with this ANPRM input on how the USML can be revised so that it clearly describes what is subject to the jurisdiction of the International Traffic in Arms Regulations (ITAR), how defense articles are identified by tier, and what current defense articles do not fall within the scope of any of the tiers.
Comments must be received by the DDTC no later than February 8, 2011.
The ANPRM states in part that:
A key part of the Administration’s Export Control Reform effort is to review and revise both the ITAR and the CCL to enhance national security so that they: (1) Are ‘‘tiered’’ consistent with the criteria the U.S. Government has established to distinguish the types of items that should be controlled at different levels for different types of destinations, end-uses, and end-users; (2) create a ‘‘bright line’’ between the two lists to clarify jurisdictional determinations and reduce government and industry uncertainty about whether a particular item is subject to the jurisdiction of the ITAR or the EAR; and (3) are structurally ‘‘aligned’’ so that they can eventually be combined into a single control list.
The Administration has determined that these changes are necessary to better focus its resources on protecting those items that need to be protected, to end jurisdictional confusion between the ITAR and EAR, and to provide clarity to make it easier for exporters to comply with the regulations and for the U.S. Government to administer and enforce them.
In order to accomplish the three above-referenced tasks simultaneously, the USML and, to a lesser degree, the CCL must be revised so that they are aligned into ‘‘positive lists.’’ A ‘‘positive list’’ is one that describes controlled items using objective criteria such as horsepower, microns, wavelength, speed, accuracy, hertz or other precise descriptions rather than broad, open- ended, subjective, or design intent- based criteria.
As the U.S. Government continues its work on preparing proposed revisions to the USML, it seeks public input on how best to describe the USML in a positive manner. U.S. companies, trade associations, and individuals that produce, market, or export USML- controlled defense articles are generally well positioned to describe their articles positively and to provide comments on what are and are not clear descriptions of controls over the articles. Public comment at this stage of the USML review process also ensures that affected industry sectors have the opportunity to contribute and comment on a key element of Export Control Reform.
The following is a summary of the specific requests for public comment described in this notice:
1. Use objective criteria or thresholds, such as precise descriptions or technical parameters, that do not lend themselves to multiple interpretations by reasonable people.
2. Descriptions should not contain any (a) controls that use generic labels for ‘‘parts,’’ ‘‘components,’’ ‘‘accessories,’’ ‘‘attachments,’’ or ‘‘end-items’’ or (b) other types of controls for specific types of defense articles because, for example, they were ‘‘specifically designed or modified’’ for a defense article, but should contain identification of those ‘‘parts,’’ ‘‘components,’’ ‘‘accessories,’’ ‘‘attachments,’’ or ‘‘end-items’’ that do warrant enumerated control on the USML. Separately, the use of ‘‘specially designed’’ as a control criterion for the other ‘‘parts,’’ ‘‘components,’’ ‘‘accessories,’’ ‘‘attachments,’’ or ‘‘end- items’’ should only be applied when required by multilateral obligations or when no other reasonable option exists.
3. Items are not to be listed on both the CCL and the USML unless there are specific technical or other objective criteria—regardless of the reason why any particular item was designed or modified—that distinguish between when an item is USML-controlled or when it is CCL-controlled.
4. In cases where technical characteristics are classified and need to be protected, the objective descriptions of the products controlled should be set at an unclassified level below the classified level.
5. Public input should include the recommended tier of control for the defense articles described using the tiering criteria in Part IV, Step 4 of the Guidelines in this notice.
6. The public is also requested to identify any current defense articles that do not fall within the scope of any of the criteria’s tiers, and provide an explanation why they believe that such items are not within the scope of the criteria.
DDTC is not seeking with this advance notice of proposed rulemaking (ANPRM) input on whether particular defense articles should or should not be controlled on the USML or whether any defense articles should be controlled differently. Rather, it is only seeking with this ANPRM input on how the USML can be revised so that it clearly describes what is subject to the jurisdiction of the International Traffic in Arms Regulations (ITAR), how defense articles are identified by tier, and what current defense articles do not fall within the scope of any of the tiers.
Comments must be received by the DDTC no later than February 8, 2011.
The ANPRM states in part that:
A key part of the Administration’s Export Control Reform effort is to review and revise both the ITAR and the CCL to enhance national security so that they: (1) Are ‘‘tiered’’ consistent with the criteria the U.S. Government has established to distinguish the types of items that should be controlled at different levels for different types of destinations, end-uses, and end-users; (2) create a ‘‘bright line’’ between the two lists to clarify jurisdictional determinations and reduce government and industry uncertainty about whether a particular item is subject to the jurisdiction of the ITAR or the EAR; and (3) are structurally ‘‘aligned’’ so that they can eventually be combined into a single control list.
The Administration has determined that these changes are necessary to better focus its resources on protecting those items that need to be protected, to end jurisdictional confusion between the ITAR and EAR, and to provide clarity to make it easier for exporters to comply with the regulations and for the U.S. Government to administer and enforce them.
In order to accomplish the three above-referenced tasks simultaneously, the USML and, to a lesser degree, the CCL must be revised so that they are aligned into ‘‘positive lists.’’ A ‘‘positive list’’ is one that describes controlled items using objective criteria such as horsepower, microns, wavelength, speed, accuracy, hertz or other precise descriptions rather than broad, open- ended, subjective, or design intent- based criteria.
As the U.S. Government continues its work on preparing proposed revisions to the USML, it seeks public input on how best to describe the USML in a positive manner. U.S. companies, trade associations, and individuals that produce, market, or export USML- controlled defense articles are generally well positioned to describe their articles positively and to provide comments on what are and are not clear descriptions of controls over the articles. Public comment at this stage of the USML review process also ensures that affected industry sectors have the opportunity to contribute and comment on a key element of Export Control Reform.
The following is a summary of the specific requests for public comment described in this notice:
- Public comments should be provided on a category-by-category basis.
- Within each category, public input should be further identified by groups A thru E as further described below.
- Public input should describe defense articles in a ‘‘positive’’ way:
1. Use objective criteria or thresholds, such as precise descriptions or technical parameters, that do not lend themselves to multiple interpretations by reasonable people.
2. Descriptions should not contain any (a) controls that use generic labels for ‘‘parts,’’ ‘‘components,’’ ‘‘accessories,’’ ‘‘attachments,’’ or ‘‘end-items’’ or (b) other types of controls for specific types of defense articles because, for example, they were ‘‘specifically designed or modified’’ for a defense article, but should contain identification of those ‘‘parts,’’ ‘‘components,’’ ‘‘accessories,’’ ‘‘attachments,’’ or ‘‘end-items’’ that do warrant enumerated control on the USML. Separately, the use of ‘‘specially designed’’ as a control criterion for the other ‘‘parts,’’ ‘‘components,’’ ‘‘accessories,’’ ‘‘attachments,’’ or ‘‘end- items’’ should only be applied when required by multilateral obligations or when no other reasonable option exists.
3. Items are not to be listed on both the CCL and the USML unless there are specific technical or other objective criteria—regardless of the reason why any particular item was designed or modified—that distinguish between when an item is USML-controlled or when it is CCL-controlled.
4. In cases where technical characteristics are classified and need to be protected, the objective descriptions of the products controlled should be set at an unclassified level below the classified level.
5. Public input should include the recommended tier of control for the defense articles described using the tiering criteria in Part IV, Step 4 of the Guidelines in this notice.
6. The public is also requested to identify any current defense articles that do not fall within the scope of any of the criteria’s tiers, and provide an explanation why they believe that such items are not within the scope of the criteria.
California Company Settles Criminal and Civil FCPA Allegations for $1.7 MillionOn December 10, 2010, Department of Justice (DOJ) reported that RAE Systems, Inc. (RAE), a San Jose, CA, corporation, has agreed to pay $1.7 million to resolve charges of violating the Foreign Corrupt Practices Act (FCPA). The information included in the non-prosecution agreement which resulted after RAE voluntarily disclosed the violations, RAE is an equipment manufacturer who is engaged in the development and manufacture of rapidly deployable, multi-sensor chemical and radiation detection monitors and networks. From 2005 to 2008, the company had significant operations in the People’s Republic of China (China), and sold its products and services primarily through two subsidiaries organized as joint ventures with local Chinese entities: RAE-KLH (Beijing) Co. Limited (RAE-KLH) and RAE Coal Mine Safety Instruments (Fushun) Co. Ltd. (RAE Fushun). The information further provides that a significant number of RAE-KLH’s and RAE Fushun’s customers were Chinese government departments and bureaus, and large state-owned agencies and instrumentalities, including regional fire departments, emergency response departments and entities under the supervision of the provincial environmental agency. The agreement describes that RAE used RAE-KLH and RAE Fushun employees to pay bribes to foreign officials in China. As a result of due diligence conducted by RAE before acquiring the majority of the joint venture that became known as RAE-KLH, RAE became aware of improper commissions, kickbacks and “under table greasing to get deals” by employees. The information contained in the agreement provides, however, that RAE elected to implement internal controls only “halfway” so as not to “choke the sales engine and cause a distraction for the sales guys.” As a result, improper payments continued at RAE-KLH. When acquiring the majority of RAE Fushun, RAE did not conduct any pre-acquisition corruption due diligence in spite of a number of red flags. It was later confirmed that RAE Fushun also gave bribes to Chinese officials. According to the settlement agreement, RAE Systems voluntarily disclosed this conduct to the department, conducted a thorough and credible internal investigation, and undertook extensive remediation. RAE agreed to fully cooperate with investigations by law enforcement authorities, to adhere to a set of enhanced corporate compliance and reporting obligations, and to submit periodic reports to the department regarding RAE’s compliance with its obligations under the agreement. In a related matter, RAE reached a settlement with the U.S. Securities and Exchange Commission (SEC) in which RAE consented to the entry of a permanent injunction against FCPA violations and agreed to pay $1,147,800 in disgorgement and $109,212 in prejudgment interest. RAE also agreed to comply with certain undertakings regarding its FCPA compliance program.
12/10/10 01:43 PM
On
December 10, 2010, Department of Justice
(DOJ) reported that RAE
Systems, Inc. (RAE), a San Jose, CA,
corporation, has agreed to pay $1.7 million to
resolve charges of violating the Foreign Corrupt
Practices Act (FCPA).
The information included in the non-prosecution agreement which resulted after RAE voluntarily disclosed the violations, RAE is an equipment manufacturer who is engaged in the development and manufacture of rapidly deployable, multi-sensor chemical and radiation detection monitors and networks. From 2005 to 2008, the company had significant operations in the People’s Republic of China (China), and sold its products and services primarily through two subsidiaries organized as joint ventures with local Chinese entities: RAE-KLH (Beijing) Co. Limited (RAE-KLH) and RAE Coal Mine Safety Instruments (Fushun) Co. Ltd. (RAE Fushun). The information further provides that a significant number of RAE-KLH’s and RAE Fushun’s customers were Chinese government departments and bureaus, and large state-owned agencies and instrumentalities, including regional fire departments, emergency response departments and entities under the supervision of the provincial environmental agency.
The agreement describes that RAE used RAE-KLH and RAE Fushun employees to pay bribes to foreign officials in China. As a result of due diligence conducted by RAE before acquiring the majority of the joint venture that became known as RAE-KLH, RAE became aware of improper commissions, kickbacks and “under table greasing to get deals” by employees. The information contained in the agreement provides, however, that RAE elected to implement internal controls only “halfway” so as not to “choke the sales engine and cause a distraction for the sales guys.” As a result, improper payments continued at RAE-KLH. When acquiring the majority of RAE Fushun, RAE did not conduct any pre-acquisition corruption due diligence in spite of a number of red flags. It was later confirmed that RAE Fushun also gave bribes to Chinese officials.
According to the settlement agreement, RAE Systems voluntarily disclosed this conduct to the department, conducted a thorough and credible internal investigation, and undertook extensive remediation. RAE agreed to fully cooperate with investigations by law enforcement authorities, to adhere to a set of enhanced corporate compliance and reporting obligations, and to submit periodic reports to the department regarding RAE’s compliance with its obligations under the agreement.
In a related matter, RAE reached a settlement with the U.S. Securities and Exchange Commission (SEC) in which RAE consented to the entry of a permanent injunction against FCPA violations and agreed to pay $1,147,800 in disgorgement and $109,212 in prejudgment interest. RAE also agreed to comply with certain undertakings regarding its FCPA compliance program.
The information included in the non-prosecution agreement which resulted after RAE voluntarily disclosed the violations, RAE is an equipment manufacturer who is engaged in the development and manufacture of rapidly deployable, multi-sensor chemical and radiation detection monitors and networks. From 2005 to 2008, the company had significant operations in the People’s Republic of China (China), and sold its products and services primarily through two subsidiaries organized as joint ventures with local Chinese entities: RAE-KLH (Beijing) Co. Limited (RAE-KLH) and RAE Coal Mine Safety Instruments (Fushun) Co. Ltd. (RAE Fushun). The information further provides that a significant number of RAE-KLH’s and RAE Fushun’s customers were Chinese government departments and bureaus, and large state-owned agencies and instrumentalities, including regional fire departments, emergency response departments and entities under the supervision of the provincial environmental agency.
The agreement describes that RAE used RAE-KLH and RAE Fushun employees to pay bribes to foreign officials in China. As a result of due diligence conducted by RAE before acquiring the majority of the joint venture that became known as RAE-KLH, RAE became aware of improper commissions, kickbacks and “under table greasing to get deals” by employees. The information contained in the agreement provides, however, that RAE elected to implement internal controls only “halfway” so as not to “choke the sales engine and cause a distraction for the sales guys.” As a result, improper payments continued at RAE-KLH. When acquiring the majority of RAE Fushun, RAE did not conduct any pre-acquisition corruption due diligence in spite of a number of red flags. It was later confirmed that RAE Fushun also gave bribes to Chinese officials.
According to the settlement agreement, RAE Systems voluntarily disclosed this conduct to the department, conducted a thorough and credible internal investigation, and undertook extensive remediation. RAE agreed to fully cooperate with investigations by law enforcement authorities, to adhere to a set of enhanced corporate compliance and reporting obligations, and to submit periodic reports to the department regarding RAE’s compliance with its obligations under the agreement.
In a related matter, RAE reached a settlement with the U.S. Securities and Exchange Commission (SEC) in which RAE consented to the entry of a permanent injunction against FCPA violations and agreed to pay $1,147,800 in disgorgement and $109,212 in prejudgment interest. RAE also agreed to comply with certain undertakings regarding its FCPA compliance program.
BIS Issues Advance Notice of Proposed Rulemaking re: Revising the Descriptions of Items on the CCL and Foreign Availability
12/09/10 05:48 PM
On
December 9, 2010, the U.S. Commerce Department's
Bureau of Industry and Security (BIS)
issued an Advance
Notice of Proposed Rulemaking in the Federal
Register. As part of the President's export
control reform initiative, BIS is seeking public
comment on how the descriptions of items
controlled on the Commerce Control List (CCL) of
the Export Administration Regulations (EAR)
could be more clear and positive and "tiered" in
a manner consistent with the control criteria
the Administration has developed as part of the
reform effort. The request for comments on how
items on the CCL could be tiered includes a
request for comments on the degree to which a
controlled item provides the United States with
a critical, substantial, or significant military
or intelligence advantage; and the availability
of the item outside certain groups of countries.
BIS states that:
Accordingly, BIS seeks public comments on how certain export control classification numbers (ECCNs) that do not contain "positive" descriptions or that are unclear can be made more clear and more specific. In addition, BIS also seeks public comments on whether items with the capabilities and characteristics described on the CCL, and controlled for other than solely anti- terrorism (AT) reasons or Crime Control (CC) reasons, are indigenously developed, produced, or enhanced (a) almost exclusively in the United States or (b) in destinations other than Argentina, Australia, Austria, Belgium, Bulgaria, Canada, Croatia, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, Turkey, Ukraine, or the United Kingdom.
BIS states that:
A core task of the Administration’s Export Control Reform Initiative is to enhance national security by reviewing and revising, as necessary and to the extent permitted by law and regime obligations, the lists of items (i.e., commodities, software, and technology) controlled for export and reexport so that they (1) are clearer and more "positive" in nature and (2) can more easily be screened into three tiers based upon a set of criteria. The Administration has developed a three- tiered set of criteria to help determine whether a license should be required or a license exception should be available to allow license-free export, reexport, or transfer (in-country) of a given item, with appropriate conditions, to various destinations. The three-tiered set of criteria has two primary elements-(a) the degree to which an item provides the United States with a military or intelligence advantage and (b) the availability of the item outside the United States, its close allies and multilateral export control regime partners.
Accordingly, BIS seeks public comments on how certain export control classification numbers (ECCNs) that do not contain "positive" descriptions or that are unclear can be made more clear and more specific. In addition, BIS also seeks public comments on whether items with the capabilities and characteristics described on the CCL, and controlled for other than solely anti- terrorism (AT) reasons or Crime Control (CC) reasons, are indigenously developed, produced, or enhanced (a) almost exclusively in the United States or (b) in destinations other than Argentina, Australia, Austria, Belgium, Bulgaria, Canada, Croatia, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, Turkey, Ukraine, or the United Kingdom.
BIS Proposes New License Exception STA
12/09/10 01:46 PM
On
December 9, 2010, the U.S. Commerce Department’s
Bureau of Industry and Security (BIS) issued
a proposed rule
adding a new
license exception to the Export Administration
Regulations (EAR). The new Strategic Trade
Authorization (STA) license exception would
allow exports, reexports and transfers
(in-country) of specified items to destinations
that pose little risk of unauthorized use of
those items. To provide assurance against
diversion to unauthorized destinations,
transactions under this license exception would
be subject to notification, destination control
statement and consignee statement requirements.
This proposed rule is part of the
Administration’s Export Control Reform
Initiative undertaken as a result of the
fundamental review of the U.S. export control
system announced by the President in August
2009.
This license exception would encompass three different authorizations, based on the reason(s) for control underlying the license requirements that would apply to the item in the particular transaction at issue, the destination, the sensitivity of the item and the end-use. One authorization would allow items subject to any (or all) of seven reasons for control to go to 37 destinations. Another authorization would allow less sensitive items subject to only national security reasons for control to go to two additional destinations. The third authorization would allow less sensitive items subject to only national security reasons for control to go to 125 additional destinations for civil end- uses. National security-controlled items that are ineligible for the last two authorizations would be identified by the new ‘‘STA exclusion paragraphs’’ in the ‘‘License Exceptions’’ sections of 50 ECCN entries on the Commerce Control List. Thus, the STA exclusion serves the opposite function of a typical list-based license exception paragraph, such as those setting forth license exceptions LVS (§ 740.3) and GBS (§ 740.4), which identifies items that are eligible for a license exception.
Comments on the proposed rule must be received by BIS no later than February 7, 2011.
This license exception would encompass three different authorizations, based on the reason(s) for control underlying the license requirements that would apply to the item in the particular transaction at issue, the destination, the sensitivity of the item and the end-use. One authorization would allow items subject to any (or all) of seven reasons for control to go to 37 destinations. Another authorization would allow less sensitive items subject to only national security reasons for control to go to two additional destinations. The third authorization would allow less sensitive items subject to only national security reasons for control to go to 125 additional destinations for civil end- uses. National security-controlled items that are ineligible for the last two authorizations would be identified by the new ‘‘STA exclusion paragraphs’’ in the ‘‘License Exceptions’’ sections of 50 ECCN entries on the Commerce Control List. Thus, the STA exclusion serves the opposite function of a typical list-based license exception paragraph, such as those setting forth license exceptions LVS (§ 740.3) and GBS (§ 740.4), which identifies items that are eligible for a license exception.
Comments on the proposed rule must be received by BIS no later than February 7, 2011.
President Reports on Progress of the New U.S. Export Control System Implementation
12/09/10 01:29 PM
On
December 9, 2010, President’s Export Council held a
meeting at the White House where President Obama
discussed progress made on the goal to double
exports over the next five years.
The President announced at the meeting that the Administration released a series of regulations and requests for comment as part of the implementation of the new U.S. export system. The Administration also deployed its Export Control Reform Initiative webpage at www.export.gov, which includes a new tool to facilitate compliance with U.S. export control requirements by bringing together, for the first time, the various screening lists maintained by multiple Departments.
The announcement included introducing new proposed regulations published by the Department of State and by the Department of Commerce, both of which request public comments within 60 days:
“First, the Department of State published a proposed regulation to rewrite Category VII (Tanks and Military Vehicles) of the U.S. Munitions List (USML). The proposed Category is a “positive list” of those defense articles that an interagency technical working group has determined provide at least a significant military or intelligence advantage to the United States. The Department of State is soliciting public comment to ensure that the new Category clearly and concisely identifies the items that are controlled in this Category.
Second, the Department of State published a companion notice that provides details on the U.S. Government’s methodology for generating the revised, positive Category VII as a model for other categories. The notice also solicits public input for virtually all the remaining categories on the USML (excluding the categories for classified defense articles and for miscellaneous articles), requesting input on:
1. Describing currently controlled defense articles in a “positive manner;” 2. Recommending each defense article’s proposed tier of control; and 3. Identifying any current defense article that does not meet any of the tiered control criteria, with an explanation of the analysis that resulted in that conclusion.
These inputs will be reviewed by the interagency technical working groups as the U.S. Government continues its work in revising the control lists. The Administration has an aggressive schedule to complete its rewrite of the entire USML in 2011.
Third, the Department of Commerce published a similar notice requesting public input on entries on the Commerce Control List as well as requesting foreign availability information on a wide range of controlled items outside a proposed set of countries who are allies and multilateral regime partners.
Fourth, the Department of Commerce published a proposed regulation that offers an initial set of new licensing policies. The proposed regulation would create a new license exception that would allow exports of controlled items (consistent with statutory and treaty requirements) to countries that are members of all four multilateral export control regimes or other regime members that also are members of NATO. It would also allow exports of items controlled on the Wassenaar Arrangement’s Basic List to countries that are members of or adherents to all four multilateral export control regimes, members of NATO, or for civil end-uses in destinations that have not historically represented a significant diversion or proliferation risk for U.S.-origin items. The proposed exception would impose new requirements to provide safeguards against possible unauthorized re-exports, including notification, destination control statement and consignee statement requirements.”
The President announced at the meeting that the Administration released a series of regulations and requests for comment as part of the implementation of the new U.S. export system. The Administration also deployed its Export Control Reform Initiative webpage at www.export.gov, which includes a new tool to facilitate compliance with U.S. export control requirements by bringing together, for the first time, the various screening lists maintained by multiple Departments.
The announcement included introducing new proposed regulations published by the Department of State and by the Department of Commerce, both of which request public comments within 60 days:
“First, the Department of State published a proposed regulation to rewrite Category VII (Tanks and Military Vehicles) of the U.S. Munitions List (USML). The proposed Category is a “positive list” of those defense articles that an interagency technical working group has determined provide at least a significant military or intelligence advantage to the United States. The Department of State is soliciting public comment to ensure that the new Category clearly and concisely identifies the items that are controlled in this Category.
Second, the Department of State published a companion notice that provides details on the U.S. Government’s methodology for generating the revised, positive Category VII as a model for other categories. The notice also solicits public input for virtually all the remaining categories on the USML (excluding the categories for classified defense articles and for miscellaneous articles), requesting input on:
1. Describing currently controlled defense articles in a “positive manner;” 2. Recommending each defense article’s proposed tier of control; and 3. Identifying any current defense article that does not meet any of the tiered control criteria, with an explanation of the analysis that resulted in that conclusion.
These inputs will be reviewed by the interagency technical working groups as the U.S. Government continues its work in revising the control lists. The Administration has an aggressive schedule to complete its rewrite of the entire USML in 2011.
Third, the Department of Commerce published a similar notice requesting public input on entries on the Commerce Control List as well as requesting foreign availability information on a wide range of controlled items outside a proposed set of countries who are allies and multilateral regime partners.
Fourth, the Department of Commerce published a proposed regulation that offers an initial set of new licensing policies. The proposed regulation would create a new license exception that would allow exports of controlled items (consistent with statutory and treaty requirements) to countries that are members of all four multilateral export control regimes or other regime members that also are members of NATO. It would also allow exports of items controlled on the Wassenaar Arrangement’s Basic List to countries that are members of or adherents to all four multilateral export control regimes, members of NATO, or for civil end-uses in destinations that have not historically represented a significant diversion or proliferation risk for U.S.-origin items. The proposed exception would impose new requirements to provide safeguards against possible unauthorized re-exports, including notification, destination control statement and consignee statement requirements.”
Washington Man Charged with AECA Violations
12/06/10 12:18 PM
On
December 6, 2010, the Associated Press
reported that Lian Yang,
a resident of Wodinville, WA, was arrested
accused of conspiring to smuggle restricted
satellite parts to the People’s Republic of
China.
The U.S. Attorney’s office states that Yang tried to recruit people to help him export 300 radiation-hardened semiconductor devices. The U.S. Attorney claims that Yang knew that these parts required a State Department authorization as they are covered by the Arms Export Control Act (AECA). The complaint against Yang provides that in a series of meetings with undercover agents this year, Yang agreed to pay $620,000 for the parts and also planned to create a U.S. shell company that would appear to be purchasing the parts concealing the fact that the were destined for China. Yang planned to falsify purchase orders indicating that parts purchased were not restricted.
Yang faces up to five years imprisonment for the AECA violations.
The U.S. Attorney’s office states that Yang tried to recruit people to help him export 300 radiation-hardened semiconductor devices. The U.S. Attorney claims that Yang knew that these parts required a State Department authorization as they are covered by the Arms Export Control Act (AECA). The complaint against Yang provides that in a series of meetings with undercover agents this year, Yang agreed to pay $620,000 for the parts and also planned to create a U.S. shell company that would appear to be purchasing the parts concealing the fact that the were destined for China. Yang planned to falsify purchase orders indicating that parts purchased were not restricted.
Yang faces up to five years imprisonment for the AECA violations.
President Signs Executive Order Establishing Export Enforcement Coordination Center
11/09/10 04:44 PM
On
November 9, 2010, President Obama
signed an Executive
Order establishing the Export Enforcement
Coordination Center (EECC). EECC is one of the
key elements in the Export Control Initiative.
The primary function of the EECC will be to
coordinate control enforcement matters among the
Departments of State, Treasury, Energy,
Commerce, Homeland Security, Defense, Justice,
Office of Director of National Intelligence, and
other departments, agencies, and offices
handling the violations of U.S. export control
laws.
In addition to serving as the primary forum within the Federal Government executive departments and agencies to cooperate their export control enforcement efforts, EECC’s responsibilities will also include:
In addition to serving as the primary forum within the Federal Government executive departments and agencies to cooperate their export control enforcement efforts, EECC’s responsibilities will also include:
- Serving as a
conduit between Federal law enforcement agencies
and the U.S. Intelligence Community for the
exchange of information related to potential U.S.
export control violations;
• Serving as a primary point of contact between enforcement authorities and agencies engaged in export licensing;
• Coordinating law enforcement public outreach activities related to U.S. export controls; and
• Establishing Government wide statistical tracking capabilities for U.S. criminal and administrative export control enforcement activities, to be conducted by the Department of Homeland Security with information provided by and shared with all relevant departments and agencies participating in the Center.
U.S. Partners with India Regarding Export Controls and Non-Proliferation
11/08/10 04:42 PM
On
November 8, 2010, the White House
issued the U.S.-India
Partnership factsheet that contains details of
the United States’ and India’s commitment to
work together on many issues and programs,
including export controls, trade and economic
cooperation, counterterrorism and defense
cooperation, and the National Export Initiative.
The Factsheets provide that India’s Prime Minister (PM) Singh and President Obama are committed to work together to strengthen the global non-proliferation and export control framework and continue to transform bilateral export control cooperation. PM Singh and President Obama agreed to take mutual steps to implement a four-part export control reform program, including: support for India’s membership in the multilateral export control regimes, removing India’s Defense and Space-Related Entities from the U.S. “Entity List;” export licensing policy realignment, and export control cooperation.
With respect to defense cooperation, factsheet notes that the U.S.-India defense relationship has evolved from solely military-to-military links into a mature partnership that encompasses dialogues, exercises, defense sales, professional military education exchanges, and practical cooperation. The leaders reaffirmed the importance of maritime security, unimpeded commerce, and freedom of navigation, in accordance with relevant universally agreed principles of international law.
As part of the National Export Initiative, the factsheet notes that President Obama recognizes that India, with its high economic growth and its large and growing middle class, is a key market for U.S. exports. During the President’s trip to India when the partnership agreement was established, trade transactions were announced or showcased, exceeding $14.9 billion in total value with $9.5 billion in U.S. export content, supporting an estimated 53,670 U.S. jobs.
Regarding the nuclear safety aspect, the factsheet states that U.S. and India signed a memorandum of understanding that provides a general framework for cooperative activities in working with India’s Global Centre for Nuclear Energy Partnership, which India announced at the 2010 Nuclear Security Summit. “In working with India’s Centre, the U.S. will give priority to discussion of best practices on the security of nuclear material and facilities, development of international nuclear security training curricula and programs, joint outreach on security issues to their respective nuclear industries, and cooperation on other nuclear security activities as mutually determined.”
The Factsheets provide that India’s Prime Minister (PM) Singh and President Obama are committed to work together to strengthen the global non-proliferation and export control framework and continue to transform bilateral export control cooperation. PM Singh and President Obama agreed to take mutual steps to implement a four-part export control reform program, including: support for India’s membership in the multilateral export control regimes, removing India’s Defense and Space-Related Entities from the U.S. “Entity List;” export licensing policy realignment, and export control cooperation.
With respect to defense cooperation, factsheet notes that the U.S.-India defense relationship has evolved from solely military-to-military links into a mature partnership that encompasses dialogues, exercises, defense sales, professional military education exchanges, and practical cooperation. The leaders reaffirmed the importance of maritime security, unimpeded commerce, and freedom of navigation, in accordance with relevant universally agreed principles of international law.
As part of the National Export Initiative, the factsheet notes that President Obama recognizes that India, with its high economic growth and its large and growing middle class, is a key market for U.S. exports. During the President’s trip to India when the partnership agreement was established, trade transactions were announced or showcased, exceeding $14.9 billion in total value with $9.5 billion in U.S. export content, supporting an estimated 53,670 U.S. jobs.
Regarding the nuclear safety aspect, the factsheet states that U.S. and India signed a memorandum of understanding that provides a general framework for cooperative activities in working with India’s Global Centre for Nuclear Energy Partnership, which India announced at the 2010 Nuclear Security Summit. “In working with India’s Centre, the U.S. will give priority to discussion of best practices on the security of nuclear material and facilities, development of international nuclear security training curricula and programs, joint outreach on security issues to their respective nuclear industries, and cooperation on other nuclear security activities as mutually determined.”
Exporter Fined $1 Million for Export Violations
11/01/10 04:36 PM
On
October 29, 2010, U.S. Politics Today
reported that Rocky
Mountain Instrument Co. (Rocky Mountain) has
agreed to pay a $1 million penalty to settle
civil charges related to illegal exports of
sensitive military information.
This case represents the first time that the False Claims Act (FCA) has been used in relation to violations of International Traffic in Arms Regulations (ITAR) and the Arms Export Control Act (AECA). Rocky Mountain pleaded guilty to a related criminal charge in June of 2010 and was sentenced to forfeit $1 million and five years probation.The criminal plea agreement detailed that from 2005 to 2007 Rocky Mountain exported prisms and technical data related to various optics used in the military applications in Turkey, China, Russia, and South Korea without a required U.S. Department of State license.
The civil settlement covered a related allegation that Rocky Mountain caused defense contractors to submit false claims for payment to the Pentagon in violation of the FCA by illegally exporting technical data overseas that was later used to manufacture parts used in certain military equipment the contractors sold to the Pentagon.
The FCA prohibits companies from submitting claims for payment to the government that are false or fraudulent and is the government's primary law enforcement tool for combating fraud against the government.
This case represents the first time that the False Claims Act (FCA) has been used in relation to violations of International Traffic in Arms Regulations (ITAR) and the Arms Export Control Act (AECA). Rocky Mountain pleaded guilty to a related criminal charge in June of 2010 and was sentenced to forfeit $1 million and five years probation.The criminal plea agreement detailed that from 2005 to 2007 Rocky Mountain exported prisms and technical data related to various optics used in the military applications in Turkey, China, Russia, and South Korea without a required U.S. Department of State license.
The civil settlement covered a related allegation that Rocky Mountain caused defense contractors to submit false claims for payment to the Pentagon in violation of the FCA by illegally exporting technical data overseas that was later used to manufacture parts used in certain military equipment the contractors sold to the Pentagon.
The FCA prohibits companies from submitting claims for payment to the government that are false or fraudulent and is the government's primary law enforcement tool for combating fraud against the government.
OFAC Posts Recent Civil Penalties Cases
10/29/10 03:23 PM
On
October 29, 2010, Office of Foreign Assets Controls
(OFAC) published recent civil
penalties cases:
- Garlock Sealing
Tech, LLC (Garlock), a subsidiary of Enpro
Industries (Enpro) of Charlotte, NC, has remitted
$16,875 to settle allegations of violations of
Executive Order 13405, “Blocking Property of
Certain Persons Undermining Democratic Processes
or Institutions in Belarus” occurring on June 23,
2008. OFAC alleged that Garlock attempted to
send, without authorization from OFAC, a funds
transfer in the amount of $14,308 to the account
of an entity blocked pursuant to Executive Order
13405. Garlock did not voluntarily disclose this
matter to OFAC. The base penalty for the apparent
violation was $25,000. The settlement amount
reflects OFAC’s consideration of the following
General Factors: Garlock was a sophisticated
entity with global operations; Garlock has not
been subject to an OFAC enforcement action in the
five years preceding the date of the apparent
violation; and Garlock has taken remedial steps
to prevent the recurrence of such a payment.
- OFAC issued a
Finding of Violation Letter to Christ for all
Nations (CfaN) of Orlando, FL, for violations of
the Sudanese Sanctions Regulations. CfaN exported
goods and services to Sudan in support of a
non-commercial event in Sudan during 2006. CfaN
has implemented steps to ensure that it does not
perform any activities in violation of OFAC
regulations and has not been subject to other
OFAC enforcement action. The transactions in
question appear to have been licensable had CfaN
timely submitted a license application. A Finding
of Violation was deemed appropriate given the
clear violation of OFAC regulations on the one
hand, and the licensable, non-commercial nature
of the conduct and the non-profit nature of the
violator on the other hand.
- Yokozuna Pearls
& Gems, Inc. (Yokozuna) of Monrovia, CA, has
been assessed a penalty of $25,000 for its
violation of the Burmese Sanctions Regulations
(BSR) that occurred in March 2006. Yokozuna
initiated a $220,465 funds transfer to Myanmar
Foreign Trade Bank, an entity blocked pursuant to
the BSR, in furtherance of a contract to purchase
and import pearls from Myanmar Pearl Enterprise,
Yangoon, Burma. The funds transfer was blocked by
a U.S. financial institution and the contract was
not completed. The exportation of financial
services (defined to include direct and indirect
transfers of funds from the U.S. or by a U.S.
person, wherever located, to Burma) is prohibited
by the BSR. Yokozuna did not voluntarily disclose
this matter to OFAC. The base penalty for the
violation was $250,000. The final penalty amount
reflects OFAC's consideration of the following
General Factors: this was Yokozuna's first OFAC
violation; Yokozuna received inaccurate legal
guidance before engaging in the prohibited
transaction; Yokozuna cooperated with OFAC and
terminated its business transactions with Burma;
and the documented financial condition of
Yokozuna's owner.
- Hydra-Tech
Pumps, Inc. (Hydra-Tech), Nesquehoning, PA, has
been assessed a penalty of $1,961 for its
violation of the Sudanese Sanctions Regulations
that occurred in September 2007. Hydra-Tech
exported a hydraulic hose to Khartoum State Water
Corporation, Khartoum, Sudan. Hydra-Tech did not
voluntarily disclose this matter to OFAC but has
implemented enhanced export compliance
procedures. This matter was resolved according to
the prior enforcement guidelines published by
OFAC at 68 Fed. Reg. 4422.
- Sumitomo Mitsui Banking Corporation (SMBC), a Japanese corporation, has agreed to pay $229,380 to settle allegations that SMBC’s New York Branch Office (SMBCNY) violated the Sudanese Sanctions Regulations (the SSR). OFAC alleged that, from December 9, 2005, until about December 1, 2006, SMBCNY appears to have violated the SSR when it exported services to Sudan through its processing of the payments for SMBC’s purchase of six export bills, in an aggregate amount of $1,037,988, relating to letters of credit (LC) issued by Sudanese banks and by its receipt of two USD payments, in the aggregate amount of $15,357,720, related to approximately forty LCs issued by a Sudanese bank.
- OFAC determined that SMBC voluntarily self disclosed the matter to OFAC and that the alleged violations constituted a non-egregious case. The base penalty amount for the apparent violations was $655,373. The settlement amount reflects OFAC’s consideration of the following General Factors: SMBCNY was part of a commercially sophisticated international bank and had reason to know its conduct may have violated the SSR; SMBC had no violations of this nature on record with OFAC; SMBC substantially cooperated with OFAC’s investigation of the alleged violations; and SMBC promptly responded to all requests for additional information and agreed to a statute of limitations tolling agreement when requested by OFAC.
BIS Issues Corrections to Wassenaar Arrangement 2009 Plenary Agreements Implementation
10/13/10 03:19 PM
On
October 13, 2010, the Bureau of Industry and
Security (BIS) published correcting amendments
to
the final rule issued in the Federal Register on
September 7, 2010 that revised the Export
Administration Regulations (EAR) by amending
entries for certain items that are controlled
for national security reasons in Categories 1,
2, 3, 4, 5 Part I (telecommunications), 6, 7,
and 9; adding new entries to the Commerce
Control List (CCL); revising reporting
requirements; and adding and amending EAR
Definitions.
According to the correcting amendments, the final rule of September 7, 2010 contained errors that affect Export Control Classification Numbers (ECCNs) 6A005, 6A006, and 9A001, as well as the definition of “energetic materials.” In addition, the final rule’s preamble erroneously identified ECCN 6E993 as one of the ECCNs that was revised in the rule’s text.
The rule, as corrected, removes the note after 6A008.f. Also, the rule of September 8 listed an incorrect citation of “6.A.5.d.1.d” instead of “6A005.d.1.d” in 6A005.d.1.e, which is corrected by the amendment of October 13. The current rule also replaced two incomplete citations in the introductory text of ECCN 9A001.a; this rule replaces the citations “.a or .h” with “9E003.a or 9E003.h”.
Amendments are effective October 13, 2010.
According to the correcting amendments, the final rule of September 7, 2010 contained errors that affect Export Control Classification Numbers (ECCNs) 6A005, 6A006, and 9A001, as well as the definition of “energetic materials.” In addition, the final rule’s preamble erroneously identified ECCN 6E993 as one of the ECCNs that was revised in the rule’s text.
The rule, as corrected, removes the note after 6A008.f. Also, the rule of September 8 listed an incorrect citation of “6.A.5.d.1.d” instead of “6A005.d.1.d” in 6A005.d.1.e, which is corrected by the amendment of October 13. The current rule also replaced two incomplete citations in the introductory text of ECCN 9A001.a; this rule replaces the citations “.a or .h” with “9E003.a or 9E003.h”.
Amendments are effective October 13, 2010.
BIS Seeks Comments Regarding Small and Medium Enterprises’ Understanding of the EAR
10/06/10 03:16 PM
On
October 6, 2010, the Bureau of Industry and
Security (BIS) published a notice in the Federal
Register seeking comments regarding small and
medium enterprises’ understanding of and
compliance with export controls under the Export
Administration Regulations (EAR). Specifically,
BIS is seeking comments that identify issues and
make recommendations regarding small and medium
enterprises’ awareness and understanding of the
EAR, as well as their experiences complying with
the EAR.
In addition, BIS invites the public to submit comments on the following:
(1) The principal challenges small and medium enterprises face in trying to comply with the EAR, including any challenges that small and medium enterprises uniquely face and approaches to overcoming these challenges;
(2) The value of current BIS outreach, education and counseling to small and medium enterprises in understanding and complying with the EAR;
(3) Ways to improve or expand small and medium enterprises' awareness, knowledge and understanding of the EAR and increase their capacity to comply with them; and
(4) Data, including comparative international data, that support comments and recommendations related to items (1) through (3) above; and that provide examples of effective methods of administering and enforcing export controls with special attention to small and medium enterprises.
Comments are due by December 6, 2010.
In addition, BIS invites the public to submit comments on the following:
(1) The principal challenges small and medium enterprises face in trying to comply with the EAR, including any challenges that small and medium enterprises uniquely face and approaches to overcoming these challenges;
(2) The value of current BIS outreach, education and counseling to small and medium enterprises in understanding and complying with the EAR;
(3) Ways to improve or expand small and medium enterprises' awareness, knowledge and understanding of the EAR and increase their capacity to comply with them; and
(4) Data, including comparative international data, that support comments and recommendations related to items (1) through (3) above; and that provide examples of effective methods of administering and enforcing export controls with special attention to small and medium enterprises.
Comments are due by December 6, 2010.
White House Releases Report on the National Export Initiative
09/16/10 04:21 PM
On
September 16, 2010, the White House released a
report to the President on the National Export
Initiative (NEI). The report, developed by the
Export Promotion Cabinet which includes the
Secretaries of Commerce, State, Treasury,
Agriculture and Labor and the heads of all
trade-related government agencies, details the
progress of NEI, presents a plan for achieving
President’s goals to double U.S. exports in five
years, and provides recommendations addressing the
priorities established in the NEI Executive Order.
“As American consumers spend a little less and save a little more, it has never been more important to connect U.S. businesses to the 95 percent of the world's consumers who live outside our borders,” U.S. Commerce Secretary Gary Locke said. “Helping American companies sell more abroad will create jobs and boost our economy. This report is a blueprint for doing just that.”
The administration’s efforts, through the NEI, are focused on five areas that include access to credit, especially for small and midsize firms; increased trade advocacy and export promotion efforts; removal of barriers to the sale of U.S. goods and services abroad; enforcement of trade rules; and pursuing policies that will increase global economic growth so that there’s a strong worldwide market for U.S. goods and services.
The report outlines ways the U.S. government can expand efforts to help U.S. businesses win more foreign government contracts, find buyers worldwide, participate in more trade missions and trade shows, receive more export financing, and learn new ways to sell products and services overseas. A central focus of the plan is providing additional assistance to small and medium-sized businesses, which are major drivers of new job creation.
According to the report, nine months into a five-year plan, progress is already evident: “Exports in the first six months of this year were 18 percent higher than exports in the first six months of 2009. Furthermore, exports have contributed more than one percentage point to GDP growth (at an annual rate) in each of the four quarters of recovery and have contributed over 1.5 percentage points to growth in the last year. This was a larger contribution than either consumption or fixed investment.”
In the report, the Export Promotion Cabinet provides recommendations to help achieve the priorities established in the NEI Executive Order:
Small and Medium-Sized Enterprises (SMEs): a National Outreach Campaign to raise awareness of export opportunities and government export assistance for U.S. small and midsize companies; a re-launch of export.gov, the Government’s export internet portal, with new export training opportunities to educate companies on how they can begin selling their products overseas or break into new markets if they are already exporting.
Federal Export Assistance: bring more international buyers to U.S. trade shows and encourage more U.S. companies to participate in major international trade shows. In addition, implement a government-wide export promotion strategy for six newly designated “next tier” markets (Colombia, Indonesia, Saudi Arabia, South Africa, Turkey and Vietnam).
Trade Missions: substantially increase the number of trade missions abroad, particularly those led by senior U.S. Government officials, and foreign buyer trade missions to the United States.
Commercial Advocacy: level the playing field for companies bidding on projects abroad through improved coordination among government export promotion programs; formalize a path to escalate, for the first time ever, critical advocacy projects for direct White House and National Economic Council involvement where necessary.
Increasing Export Credit: extend more export credit through existing trade finance agencies, increase awareness of credit products, focus on SMEs and companies from underserved sectors of the U.S. economy, expand the eligibility criteria for SME export finance lending, and streamline the application and review process for SME exporters.
The NEI provides more funding, more focus and more cabinet-level coordination to grow U.S. exports. According to the report, since the President announced the NEI, the Department of Commerce’s Advocacy Center has assisted American companies competing for export opportunities, supporting $11.8 billion in U.S. exports and an estimated 70,000 jobs.
The NEI Report will be followed by the National Export Strategy, prepared by the Trade Promotion Coordinating Committee (TPCC) and delivered to Congress annually, which will detail the implementation of these recommendations and measure progress.
Full NEI report can be accessed here and the executive summary of the report is attached here.
“As American consumers spend a little less and save a little more, it has never been more important to connect U.S. businesses to the 95 percent of the world's consumers who live outside our borders,” U.S. Commerce Secretary Gary Locke said. “Helping American companies sell more abroad will create jobs and boost our economy. This report is a blueprint for doing just that.”
The administration’s efforts, through the NEI, are focused on five areas that include access to credit, especially for small and midsize firms; increased trade advocacy and export promotion efforts; removal of barriers to the sale of U.S. goods and services abroad; enforcement of trade rules; and pursuing policies that will increase global economic growth so that there’s a strong worldwide market for U.S. goods and services.
The report outlines ways the U.S. government can expand efforts to help U.S. businesses win more foreign government contracts, find buyers worldwide, participate in more trade missions and trade shows, receive more export financing, and learn new ways to sell products and services overseas. A central focus of the plan is providing additional assistance to small and medium-sized businesses, which are major drivers of new job creation.
According to the report, nine months into a five-year plan, progress is already evident: “Exports in the first six months of this year were 18 percent higher than exports in the first six months of 2009. Furthermore, exports have contributed more than one percentage point to GDP growth (at an annual rate) in each of the four quarters of recovery and have contributed over 1.5 percentage points to growth in the last year. This was a larger contribution than either consumption or fixed investment.”
In the report, the Export Promotion Cabinet provides recommendations to help achieve the priorities established in the NEI Executive Order:
Small and Medium-Sized Enterprises (SMEs): a National Outreach Campaign to raise awareness of export opportunities and government export assistance for U.S. small and midsize companies; a re-launch of export.gov, the Government’s export internet portal, with new export training opportunities to educate companies on how they can begin selling their products overseas or break into new markets if they are already exporting.
Federal Export Assistance: bring more international buyers to U.S. trade shows and encourage more U.S. companies to participate in major international trade shows. In addition, implement a government-wide export promotion strategy for six newly designated “next tier” markets (Colombia, Indonesia, Saudi Arabia, South Africa, Turkey and Vietnam).
Trade Missions: substantially increase the number of trade missions abroad, particularly those led by senior U.S. Government officials, and foreign buyer trade missions to the United States.
Commercial Advocacy: level the playing field for companies bidding on projects abroad through improved coordination among government export promotion programs; formalize a path to escalate, for the first time ever, critical advocacy projects for direct White House and National Economic Council involvement where necessary.
Increasing Export Credit: extend more export credit through existing trade finance agencies, increase awareness of credit products, focus on SMEs and companies from underserved sectors of the U.S. economy, expand the eligibility criteria for SME export finance lending, and streamline the application and review process for SME exporters.
The NEI provides more funding, more focus and more cabinet-level coordination to grow U.S. exports. According to the report, since the President announced the NEI, the Department of Commerce’s Advocacy Center has assisted American companies competing for export opportunities, supporting $11.8 billion in U.S. exports and an estimated 70,000 jobs.
The NEI Report will be followed by the National Export Strategy, prepared by the Trade Promotion Coordinating Committee (TPCC) and delivered to Congress annually, which will detail the implementation of these recommendations and measure progress.
Full NEI report can be accessed here and the executive summary of the report is attached here.
BIS Seeks Comments on the Effectiveness of Licensing Procedures for Agricultural Commodities Exported to Cuba
09/08/10 02:58 PM
On
September 8, 2010, the Bureau of Industry and
Security (BIS) published a notice in the
Federal
Register requesting
public comments on the effectiveness of its
licensing procedures as defined in the Export
Administration Regulations for the export of
agricultural commodities to Cuba. BIS will
include a description of these comments in its
biennial report to the Congress, as required by
the Trade Sanctions Reform and Export
Enhancement Act of 2000 (22 U.S.C. 7201 et
seq.), as amended.
Comments must be received by October 8, 2010.
Comments must be received by October 8, 2010.
BIS Seeks Comments on Effects of Foreign Policy-Based Export Controls
09/08/10 02:51 PM
On
September 8, 2010, the Bureau of Industry and
Security (BIS) published a request for comments
on
the effects of foreign policy-based export
controls. In the notice, BIS stated that it “is
reviewing the foreign policy-based export
controls in the Export Administration
Regulations to determine whether they should be
modified, rescinded or extended. To help make
these determinations, BIS is seeking public
comments on how existing foreign policy-based
export controls have affected exporters and the
general public.”
The notice also provided:
In January 2010, the Secretary of Commerce, on the recommendation of the Secretary of State, extended for one year all foreign policy-based export controls then in effect. BIS is now soliciting public comment on the effects of extending or modifying the existing foreign policy-based export controls for another year. Among the criteria considered in determining whether to continue or revise U.S. foreign policy-based export controls are the following:
1. The likelihood that such controls will achieve their intended foreign policy purposes, in light of other factors, including the availability from other countries of the goods, software or technology proposed for such controls;
2. Whether the foreign policy objective of such controls can be achieved through negotiations or other alternative means;
3. The compatibility of the controls with the foreign policy objectives of the United States and with overall U.S. policy toward the country subject to the controls;
4. Whether the reaction of other countries to the extension of such controls is not likely to render the controls ineffective in achieving the intended foreign policy objective or be counterproductive to U.S. foreign policy interests;
5. The comparative benefits to U.S. foreign policy objectives versus the effect of the controls on the export performance of the United States, the competitive position of the United States in the international economy, the international reputation of the United States as a supplier of goods and technology; and
6. The ability of the United States to effectively enforce the controls.
BIS is particularly interested in receiving comments on the economic impact of proliferation controls. BIS is also interested in industry information relating to the following:
1. Information on the effect of foreign policy-based export controls on sales of U.S. products to third countries (i.e., those countries not targeted by sanctions), including the views of foreign purchasers or prospective customers regarding U.S. foreign policy- based export controls.
2. Information on controls maintained by U.S. trade partners. For example, to what extent do U.S. trade partners have similar controls on goods and technology on a worldwide basis or to specific destinations?
3. Information on licensing policies or practices by our foreign trade partners that are similar to U.S. foreign policy- based export controls, including license review criteria, use of conditions, and requirements for pre- and post-shipment verifications (preferably supported by examples of approvals, denials and foreign regulations).
4. Suggestions for revisions to foreign policy-based export controls that would bring them more into line with multilateral practice.
5. Comments or suggestions as to actions that would make multilateral controls more effective.
6. Information that illustrates the effect of foreign policy-based export controls on trade or acquisitions by intended targets of the controls.
7. Data or other information on the effect of foreign policy-based export controls on overall trade at the level of individual industrial sectors.
8. Suggestions as to how to measure the effect of foreign policy-based export controls on trade.
9. Information on the use of foreign policy-based export controls on targeted countries, entities, or individuals.
BIS is also interested in comments relating generally to the extension or revision of existing foreign policy-based export controls.
Comments are due by October 8, 2010.
The notice also provided:
In January 2010, the Secretary of Commerce, on the recommendation of the Secretary of State, extended for one year all foreign policy-based export controls then in effect. BIS is now soliciting public comment on the effects of extending or modifying the existing foreign policy-based export controls for another year. Among the criteria considered in determining whether to continue or revise U.S. foreign policy-based export controls are the following:
1. The likelihood that such controls will achieve their intended foreign policy purposes, in light of other factors, including the availability from other countries of the goods, software or technology proposed for such controls;
2. Whether the foreign policy objective of such controls can be achieved through negotiations or other alternative means;
3. The compatibility of the controls with the foreign policy objectives of the United States and with overall U.S. policy toward the country subject to the controls;
4. Whether the reaction of other countries to the extension of such controls is not likely to render the controls ineffective in achieving the intended foreign policy objective or be counterproductive to U.S. foreign policy interests;
5. The comparative benefits to U.S. foreign policy objectives versus the effect of the controls on the export performance of the United States, the competitive position of the United States in the international economy, the international reputation of the United States as a supplier of goods and technology; and
6. The ability of the United States to effectively enforce the controls.
BIS is particularly interested in receiving comments on the economic impact of proliferation controls. BIS is also interested in industry information relating to the following:
1. Information on the effect of foreign policy-based export controls on sales of U.S. products to third countries (i.e., those countries not targeted by sanctions), including the views of foreign purchasers or prospective customers regarding U.S. foreign policy- based export controls.
2. Information on controls maintained by U.S. trade partners. For example, to what extent do U.S. trade partners have similar controls on goods and technology on a worldwide basis or to specific destinations?
3. Information on licensing policies or practices by our foreign trade partners that are similar to U.S. foreign policy- based export controls, including license review criteria, use of conditions, and requirements for pre- and post-shipment verifications (preferably supported by examples of approvals, denials and foreign regulations).
4. Suggestions for revisions to foreign policy-based export controls that would bring them more into line with multilateral practice.
5. Comments or suggestions as to actions that would make multilateral controls more effective.
6. Information that illustrates the effect of foreign policy-based export controls on trade or acquisitions by intended targets of the controls.
7. Data or other information on the effect of foreign policy-based export controls on overall trade at the level of individual industrial sectors.
8. Suggestions as to how to measure the effect of foreign policy-based export controls on trade.
9. Information on the use of foreign policy-based export controls on targeted countries, entities, or individuals.
BIS is also interested in comments relating generally to the extension or revision of existing foreign policy-based export controls.
Comments are due by October 8, 2010.
DDTC No Longer Accepts Paper Submissions of Agreements and Commodity Jurisdiction Requests
09/01/10 04:13 PM
The
U.S. Department of State Directorate of Defense
Trade Controls posted a reminder on its website
that:
Effective September 1, 2010, DDTC-Licensing no longer accepts unclassified paper submissions of Technical Assistance Agreements, Manufacturing License Agreements, and Warehouse Distribution Agreements (to include major amendments). All submissions must now be made electronically via D-Trade 2 utilizing the DSP-5 form. Guidelines for Preparing Electronic Agreements can be accessed here.
Effective September 3, 2010, DDTC-Policy no longer accepts paper submissions of Commodity Jurisdiction (CJ) requests. All CJ requests must now be made electronically via EFS utilizing the DS-4076 Commodity Jurisdiction Request Form. Instructions for CJ requests can be found here.
Effective September 1, 2010, DDTC-Licensing no longer accepts unclassified paper submissions of Technical Assistance Agreements, Manufacturing License Agreements, and Warehouse Distribution Agreements (to include major amendments). All submissions must now be made electronically via D-Trade 2 utilizing the DSP-5 form. Guidelines for Preparing Electronic Agreements can be accessed here.
Effective September 3, 2010, DDTC-Policy no longer accepts paper submissions of Commodity Jurisdiction (CJ) requests. All CJ requests must now be made electronically via EFS utilizing the DS-4076 Commodity Jurisdiction Request Form. Instructions for CJ requests can be found here.
BIS Seeks Comments on Best Practices for Transit, Transshipment and Reexport of EAR Items
09/01/10 12:23 PM
On
September 1, 2010, the Bureau of Industry and
Security (BIS) published a notice in the
Federal
Register on an updated
set of proposed “Best Practices for Transit,
Transshipment, and Reexport of Items Subject to
the Export Administration Regulations.” The
previous list of best practices was posted by
BIS on its website on November 24, 2003.
BIS is updating the “best practices” list, which was developed following the solicitation of public comments, in light of the U.S. Government’s current export control reform efforts and the increased attention that reexport, transit, and transshipment trade has generated in recent years, both within the U.S. and globally.
BIS states that, “The best practices identified herein include the types of practices that industry has adopted to guard against diversion risk. Both government and industry recognize that implementing effective export compliance programs is an important component of responsible corporate citizenship and good business practices. BIS seeks information to refine and revise this proposed list of best practices to help ensure that industry and the government continue to prevent diversion of controlled items subject to the Export Administration Regulations (EAR) through transshipment points.”
In the notice, BIS stated:
The following reflect existing and emerging transshipment best practices that guard against diversion risk. BIS seeks comment on these and additional practices from the public based on experience.
Best Practice #1. Pay heightened attention to the Red Flag Indicators on the BIS Web site (see http://www.bis. doc.gov/Enforcement/redflags.htm) with respect to transactions to, from, or through transshipment hubs. When a company encounters a suspicious transaction, such as those outlined in the ‘‘Know Your Customer’’ Guidance and Red Flags (Supplement No. 3 to Part 732 of the EAR), it should inquire further and attempt to resolve any questions raised by the transaction.
Best Practice #2. An Exporter/ Reexporter should seek to utilize only those Trade Facilitators/Freight Forwarders that also observe these best practices and possess their own export management and compliance program.
Best Practice #3. Exporters/ Reexporters should have information regarding their foreign customers. In particular, a company should know if the customer is a trading company or distributor, and inquire whether the customer resells to or has guidelines to resell to third parties.
Best Practice #4. With respect to transactions to, from, or through transshipment hubs, Exporters/ Reexporters should take appropriate steps to inquire about the end-user and to determine whether the item will be reexported or incorporated in an item to be reexported.
Best Practice #5. Freight Forwarders should inquire about the details of a routed transaction when asked by a foreign principal party in interest to ship to a country or countries of destination or ultimate consignees that are different from those provided by the U.S. principal party in interest.
Best Practice #6. An Exporter/ Reexporter should communicate the appropriate Export Control Classification Number (ECCN) or other classification information (EAR99) for each export/reexport to the end-user and, where relevant, to the ultimate consignee.
Best Practice #7. An Exporter/ Reexporter should report such ECCN or the EAR99 classifications for all export transactions, including ‘‘No License Required’’ designations to the Trade Facilitator/Freight Forwarder or enter them in the Automated Export System (AES).
Comments must be received before October 18, 2010.
BIS is updating the “best practices” list, which was developed following the solicitation of public comments, in light of the U.S. Government’s current export control reform efforts and the increased attention that reexport, transit, and transshipment trade has generated in recent years, both within the U.S. and globally.
BIS states that, “The best practices identified herein include the types of practices that industry has adopted to guard against diversion risk. Both government and industry recognize that implementing effective export compliance programs is an important component of responsible corporate citizenship and good business practices. BIS seeks information to refine and revise this proposed list of best practices to help ensure that industry and the government continue to prevent diversion of controlled items subject to the Export Administration Regulations (EAR) through transshipment points.”
In the notice, BIS stated:
The following reflect existing and emerging transshipment best practices that guard against diversion risk. BIS seeks comment on these and additional practices from the public based on experience.
Best Practice #1. Pay heightened attention to the Red Flag Indicators on the BIS Web site (see http://www.bis. doc.gov/Enforcement/redflags.htm) with respect to transactions to, from, or through transshipment hubs. When a company encounters a suspicious transaction, such as those outlined in the ‘‘Know Your Customer’’ Guidance and Red Flags (Supplement No. 3 to Part 732 of the EAR), it should inquire further and attempt to resolve any questions raised by the transaction.
Best Practice #2. An Exporter/ Reexporter should seek to utilize only those Trade Facilitators/Freight Forwarders that also observe these best practices and possess their own export management and compliance program.
Best Practice #3. Exporters/ Reexporters should have information regarding their foreign customers. In particular, a company should know if the customer is a trading company or distributor, and inquire whether the customer resells to or has guidelines to resell to third parties.
Best Practice #4. With respect to transactions to, from, or through transshipment hubs, Exporters/ Reexporters should take appropriate steps to inquire about the end-user and to determine whether the item will be reexported or incorporated in an item to be reexported.
Best Practice #5. Freight Forwarders should inquire about the details of a routed transaction when asked by a foreign principal party in interest to ship to a country or countries of destination or ultimate consignees that are different from those provided by the U.S. principal party in interest.
Best Practice #6. An Exporter/ Reexporter should communicate the appropriate Export Control Classification Number (ECCN) or other classification information (EAR99) for each export/reexport to the end-user and, where relevant, to the ultimate consignee.
Best Practice #7. An Exporter/ Reexporter should report such ECCN or the EAR99 classifications for all export transactions, including ‘‘No License Required’’ designations to the Trade Facilitator/Freight Forwarder or enter them in the Automated Export System (AES).
Comments must be received before October 18, 2010.
Video Remarks by President at BIS' Export Controls Update Conference Published
08/30/10 11:53 PM
On
August 30, 2010, the White House
published the video
remarks by President Obama that will be
presented at the U.S. Department of Commerce’s
Bureau of Industry and Security’s (BIS) Export
Controls Update Conference on August 31, 2010.
The full remarks are as follows:
Hello everyone. I’m sorry I’m not able to be with you in person today, but I’m pleased to have the chance to join you by video to talk about our export control reform initiative.
About a year ago, we launched a comprehensive review of our export controls and determined that we need fundamental reform in all four areas of our current system – in what we control, how we control it, how we enforce those controls, and how we manage our controls. I want to thank Secretary Locke, Secretary Gates, Secretary Clinton and many others for their work on this initiative. And today I want to highlight the key elements of our new approach and the first steps toward its implementation.
For too long, we’ve had two very different control lists, with agencies fighting over who has jurisdiction. Decisions were delayed, sometimes for years, and industries lost their edge or moved abroad. Going forward, we will have a single, tiered, positive list – one which will allow us to build higher walls around the export of our most sensitive items while allowing the export of less critical ones under less restrictive conditions.
In the past, there was a lot of confusion about when a license was required. It depended on which agency you asked. Now, we will have a single set of licensing policies that will apply to each tier of control, bringing clarity and consistency across our system.
In addition, I plan to sign an Executive Order that creates an Export Enforcement Coordination Center to coordinate and strengthen our enforcement efforts – and eliminate gaps and duplication – across all relevant departments and agencies.
Finally, right now, export control licenses are managed by multiple, different IT systems or, in some cases, even on paper. Going forward, all agencies will transition to a single IT system, making it easier for exporters to seek licenses and ensuring that the government has the full information needed to make informed decisions.
While there is still more work to be done, taken together, these reforms will focus our resources on the threats that matter most, and help us work more effectively with our allies in the field. They’ll bring transparency and coherence to a field of regulation which has long been lacking both. And by enhancing the competitiveness of our manufacturing and technology sectors, they’ll help us not just increase exports and create jobs, but strengthen our national security as well.
All of this represents significant progress. And as we implement these reforms and take further steps – including working to create a single licensing agency – I look forward to working with both Congress and the export control community to ensure their success. Thank you.
Hello everyone. I’m sorry I’m not able to be with you in person today, but I’m pleased to have the chance to join you by video to talk about our export control reform initiative.
About a year ago, we launched a comprehensive review of our export controls and determined that we need fundamental reform in all four areas of our current system – in what we control, how we control it, how we enforce those controls, and how we manage our controls. I want to thank Secretary Locke, Secretary Gates, Secretary Clinton and many others for their work on this initiative. And today I want to highlight the key elements of our new approach and the first steps toward its implementation.
For too long, we’ve had two very different control lists, with agencies fighting over who has jurisdiction. Decisions were delayed, sometimes for years, and industries lost their edge or moved abroad. Going forward, we will have a single, tiered, positive list – one which will allow us to build higher walls around the export of our most sensitive items while allowing the export of less critical ones under less restrictive conditions.
In the past, there was a lot of confusion about when a license was required. It depended on which agency you asked. Now, we will have a single set of licensing policies that will apply to each tier of control, bringing clarity and consistency across our system.
In addition, I plan to sign an Executive Order that creates an Export Enforcement Coordination Center to coordinate and strengthen our enforcement efforts – and eliminate gaps and duplication – across all relevant departments and agencies.
Finally, right now, export control licenses are managed by multiple, different IT systems or, in some cases, even on paper. Going forward, all agencies will transition to a single IT system, making it easier for exporters to seek licenses and ensuring that the government has the full information needed to make informed decisions.
While there is still more work to be done, taken together, these reforms will focus our resources on the threats that matter most, and help us work more effectively with our allies in the field. They’ll bring transparency and coherence to a field of regulation which has long been lacking both. And by enhancing the competitiveness of our manufacturing and technology sectors, they’ll help us not just increase exports and create jobs, but strengthen our national security as well.
All of this represents significant progress. And as we implement these reforms and take further steps – including working to create a single licensing agency – I look forward to working with both Congress and the export control community to ensure their success. Thank you.
Commerce Secretary Locke's Remarks at BIS' Update Conference Published
08/30/10 11:52 PM
On
August 30, 2010, the Commerce Department
published the prepared
remarks of Commerce Secretary Gary Locke for the
Bureau of Industry and Security’s (BIS) 23rd
Annual BIS Update Conference to be delivered on
August 31, 2010.
In his remarks, Secretary Locke stated that, “We are taking important steps towards streamlining and simplifying our export control system to make it more transparent, and to enable exporters to quickly know exactly what can and cannot be exported, and where products can and cannot go. The first step to make this happen is to ensure that the Commerce and State Department control lists clearly lay out which products are controlled, and by which agency.”
“To do this, we are working to make both the Commerce Control List and the Munitions List ‘positive lists.’ What this means is that we’ll have two lists that classify and control items based upon specific characteristics, such as by size or by wavelength, or by the ability to operate under extreme atmospheric conditions.”
“And, when this process is done – creating a ‘bright line’ between the two lists – exporters will be able to know which agency has jurisdiction over their products.”
“An additional step will be to divide each control list into a three-tiered structure. Think of the tiers as shelves in a cabinet:
“Once all of the items are placed into a tier, a corresponding licensing policy will be assigned to ensure appropriate agency review.
“O[f] course we will continue to maintain robust and comprehensive sanctions against countries like Iran, North Korea and Cuba.”
“In the final stage of export reform, we plan to merge the two lists into one – and we will continue to work with our colleagues on Capitol Hill to try to make this happen.”
In his remarks, Secretary Locke stated that, “We are taking important steps towards streamlining and simplifying our export control system to make it more transparent, and to enable exporters to quickly know exactly what can and cannot be exported, and where products can and cannot go. The first step to make this happen is to ensure that the Commerce and State Department control lists clearly lay out which products are controlled, and by which agency.”
“To do this, we are working to make both the Commerce Control List and the Munitions List ‘positive lists.’ What this means is that we’ll have two lists that classify and control items based upon specific characteristics, such as by size or by wavelength, or by the ability to operate under extreme atmospheric conditions.”
“And, when this process is done – creating a ‘bright line’ between the two lists – exporters will be able to know which agency has jurisdiction over their products.”
“An additional step will be to divide each control list into a three-tiered structure. Think of the tiers as shelves in a cabinet:
- The top tier – or the highest shelf – will be reserved for our most sensitive items, ones made in the U.S. which have high value military or intelligence capabilities;
- The middle tier – or a more accessible shelf – will hold somewhat less sensitive items, and will be products that are available almost exclusively from our multilateral partners and allies;
- The lowest tier will be reserved for items that are less sensitive, and which are more broadly available.”
“Once all of the items are placed into a tier, a corresponding licensing policy will be assigned to ensure appropriate agency review.
- For the top tier, a license will generally be required for all destinations;
- Many of the items in the middle tier will be eligible to be exported to allies and most multilateral partners under a license exception or general authorization;
- And for items
placed in the lowest tier, licenses will
typically not be required.”
“O[f] course we will continue to maintain robust and comprehensive sanctions against countries like Iran, North Korea and Cuba.”
“In the final stage of export reform, we plan to merge the two lists into one – and we will continue to work with our colleagues on Capitol Hill to try to make this happen.”
Remarks of Under Secretary Eric Hirschhorn at BIS Update Conference Published
08/30/10 11:24 AM
On
August 30, 2010, the Bureau of Industry and
Security (BIS) published the remarks of
Under Secretary Eric Hirschhorn to be made at
BIS’ Update Conference on August 31, 2010.
In his remarks, Under Secretary Hirschhorn states that President’s Obama’s export control reform initiative has been overseen by the White House on a daily basis and its champions include the three key cabinet secretaries principally responsible for reviewing export license applications -- Secretary Locke, Secretary Clinton, and Secretary Gates.
Once the government has implemented “a reformed export control mechanism,” Under Secretary Hirschhorn states that he expects to see a system based on 3 overarching principles -- three “E”s, i.e., efficiency, education, and enforcement.
With regard to Efficiency, Hirschhorn stated that the government’s approach rests on two fundamental principles: (1) the rules should be transparent and predictable, and (2) we must have streamlined processes and higher fences to control sensitive items appropriately while facilitating exports of less sensitive items to destinations and end users that don’t pose substantial national security, proliferation, or similar concerns.
Hirschhorn states that the Commerce Control List (CCL) generally controls items based on technical parameters. Items not meeting a specified threshold are not subject to control. Hirschhorn states that, “There typically is no corresponding technical basis, though, for determining when an item is subject to the U.S. Munitions List. Instead, the USML relies heavily on the concept of ‘design intent,’ even where the function of an item may not be uniquely military.”
Hirschhorn continues to state, “Our system should make clear when an item, regardless of the intent of its designers, is subject to control. As Secretary
Locke has indicated, we are restructuring the USML and, where necessary, the CCL, to create ‘positive lists’ of controlled items.” Hirschhorn states that they are beginning by turning Category VII of the USML into a positive list of tanks, military vehicles, and elements of such goods that warrant control as defense articles. Additionally, the government will divide each control list into a three-tiered structure with licensing policies corresponding to specific tiers.
Hirschhorn stated that other initiatives that will lead to a more streamlined system will be implemented, including: (1) harmonizing definitions across all the export control regulations; (2) rationalization (e.g., the new encryption regulations); and (3) merging export control IT systems. With regard to merging export control IT systems, Hirschhorn stated that EAR license applications are reviewed by the Departments of State, Energy, Defense, and Commerce. Currently these 4 departments each use different IT systems, have access to different data, and can’t directly communicate with one another. Commerce and the other agencies are developing a single IT system that will allow free and immediate data sharing. Hirschhorn stated that Defense is currently using this system, State will begin doing so early next year, Commerce should be on board later in 2011, and other agencies will follow.
For now, export license applications will continue to be processed through either D-Trade for USML items or SNAP-R for CCL items. When the control lists are merged in Phase III of the export control reform initiative, Hirschhorn stated that he expects to have a single application form that is linked to the common IT system.
The second efficiency principle is to establish streamlined processes and higher control fences. Hirschhorn stated that, “As the new control lists are created, we will tailor our licensing policies to focus on the most sensitive items and on destinations and end-users of concern. We are preparing a regulatory proposal that would provide more flexible licensing authorizations as we move down the tiers.” Hirschhorn also stated that, “BIS will closely scrutinize Automated Export System transactions to ensure that exporters are complying with the EAR. We may require foreign consignees to provide end-use assurances against diversion and similar undertakings from, or at least notification to, subsequent purchasers. We will be stepping up outreach, domestically and abroad.” Hirschhorn continued to state, “Finally, the Administration is preparing legislation that would combine the administrative enforcement and licensing activities of BIS, the State Department’s Directorate of Defense Trade Controls, and the Treasury Department’s Office of Foreign Assets Control into an independent licensing agency. We will seek action on this legislation in the near future.”
With regard to Education, Hirschhorn stated that, “In addition to outreach publications, seminars, and one-on-one counseling, the Bureau in recent years has expanded its effort to include such cutting edge strategies as on-line training and webinars. Yet we need to spread the word even further—particularly to those who may not even realize they’re subject to controls.”
Hirschhorn stated, “Every exporter must classify its exports and should screen its customers against such lists as the Denied Persons List and the Entity List. BIS has a responsibility to assist exporters, particularly small and medium-sized businesses, to do this. To that end, we are mining Automated Export System data to identify exporters of interest. We are working with other bureaus and agencies, and with such private sector entities as freight forwarders, to educate exporters. We are employing such outreach techniques as foreign language seminars and CommerceConnect. Moreover, we continue to work with the Census Bureau and Customs and Border Protection on new electronic tools to help exporters make timely and accurate submissions to AES. This will expedite the clearance of exports and facilitate our compliance reviews.” [Emphasis added.]
With regard to Enforcement, Hirschhorn stated that concurrently with efficiencies and education efforts, enforcement will become an even higher priority. Hirschhorn stated that, “The new Comprehensive Iran Sanctions, Accountability, and Divestment Act confers permanent law enforcement authorities on our export enforcement agents for the first time. This enhances our ability to deter and prosecute violators of the EAR.”
Hirschhorn stated that BIS will ensure coordination with other enforcement agencies, BIS will participate in the National Export Enforcement Coordination Network. BIS will share information and leverage resources by working with colleagues from the Federal Bureau of Investigation (FBI), military security agencies, Immigration and Customs Enforcement (ICE), and the intelligence community. President Obama will soon sign an Executive Order making this coordination center permanent. The order will mandate participation by all relevant law enforcement agencies and the intelligence community.
Hirschhorn stated, “I ask that you carry a message back to your senior management and those who market your products: We are working to create a more efficient export control system and to ensure that those subject to it are aware of that fact. Also, where appropriate, we will seek to minimize penalties for companies that have good internal compliance programs and make demonstrably unintentional errors. But—and this is an important but—we are planning increased efforts against individuals who flout the rules and against companies whose inadequate internal compliance programs tell us that they are indifferent to whether they follow the rules.” [Emphasis added.]
Finally, Hirschhorn stated that the proposed single licensing agency would include the administrative enforcement functions of BIS, State, and Treasury. The Administration also plans to seek legislation to transfer BIS’s criminal enforcement functions to Immigration and Customs Enforcement, which would have a separate unit dedicated to enforcement of the export control and embargo laws.
In his remarks, Under Secretary Hirschhorn states that President’s Obama’s export control reform initiative has been overseen by the White House on a daily basis and its champions include the three key cabinet secretaries principally responsible for reviewing export license applications -- Secretary Locke, Secretary Clinton, and Secretary Gates.
Once the government has implemented “a reformed export control mechanism,” Under Secretary Hirschhorn states that he expects to see a system based on 3 overarching principles -- three “E”s, i.e., efficiency, education, and enforcement.
With regard to Efficiency, Hirschhorn stated that the government’s approach rests on two fundamental principles: (1) the rules should be transparent and predictable, and (2) we must have streamlined processes and higher fences to control sensitive items appropriately while facilitating exports of less sensitive items to destinations and end users that don’t pose substantial national security, proliferation, or similar concerns.
Hirschhorn states that the Commerce Control List (CCL) generally controls items based on technical parameters. Items not meeting a specified threshold are not subject to control. Hirschhorn states that, “There typically is no corresponding technical basis, though, for determining when an item is subject to the U.S. Munitions List. Instead, the USML relies heavily on the concept of ‘design intent,’ even where the function of an item may not be uniquely military.”
Hirschhorn continues to state, “Our system should make clear when an item, regardless of the intent of its designers, is subject to control. As Secretary
Locke has indicated, we are restructuring the USML and, where necessary, the CCL, to create ‘positive lists’ of controlled items.” Hirschhorn states that they are beginning by turning Category VII of the USML into a positive list of tanks, military vehicles, and elements of such goods that warrant control as defense articles. Additionally, the government will divide each control list into a three-tiered structure with licensing policies corresponding to specific tiers.
Hirschhorn stated that other initiatives that will lead to a more streamlined system will be implemented, including: (1) harmonizing definitions across all the export control regulations; (2) rationalization (e.g., the new encryption regulations); and (3) merging export control IT systems. With regard to merging export control IT systems, Hirschhorn stated that EAR license applications are reviewed by the Departments of State, Energy, Defense, and Commerce. Currently these 4 departments each use different IT systems, have access to different data, and can’t directly communicate with one another. Commerce and the other agencies are developing a single IT system that will allow free and immediate data sharing. Hirschhorn stated that Defense is currently using this system, State will begin doing so early next year, Commerce should be on board later in 2011, and other agencies will follow.
For now, export license applications will continue to be processed through either D-Trade for USML items or SNAP-R for CCL items. When the control lists are merged in Phase III of the export control reform initiative, Hirschhorn stated that he expects to have a single application form that is linked to the common IT system.
The second efficiency principle is to establish streamlined processes and higher control fences. Hirschhorn stated that, “As the new control lists are created, we will tailor our licensing policies to focus on the most sensitive items and on destinations and end-users of concern. We are preparing a regulatory proposal that would provide more flexible licensing authorizations as we move down the tiers.” Hirschhorn also stated that, “BIS will closely scrutinize Automated Export System transactions to ensure that exporters are complying with the EAR. We may require foreign consignees to provide end-use assurances against diversion and similar undertakings from, or at least notification to, subsequent purchasers. We will be stepping up outreach, domestically and abroad.” Hirschhorn continued to state, “Finally, the Administration is preparing legislation that would combine the administrative enforcement and licensing activities of BIS, the State Department’s Directorate of Defense Trade Controls, and the Treasury Department’s Office of Foreign Assets Control into an independent licensing agency. We will seek action on this legislation in the near future.”
With regard to Education, Hirschhorn stated that, “In addition to outreach publications, seminars, and one-on-one counseling, the Bureau in recent years has expanded its effort to include such cutting edge strategies as on-line training and webinars. Yet we need to spread the word even further—particularly to those who may not even realize they’re subject to controls.”
Hirschhorn stated, “Every exporter must classify its exports and should screen its customers against such lists as the Denied Persons List and the Entity List. BIS has a responsibility to assist exporters, particularly small and medium-sized businesses, to do this. To that end, we are mining Automated Export System data to identify exporters of interest. We are working with other bureaus and agencies, and with such private sector entities as freight forwarders, to educate exporters. We are employing such outreach techniques as foreign language seminars and CommerceConnect. Moreover, we continue to work with the Census Bureau and Customs and Border Protection on new electronic tools to help exporters make timely and accurate submissions to AES. This will expedite the clearance of exports and facilitate our compliance reviews.” [Emphasis added.]
With regard to Enforcement, Hirschhorn stated that concurrently with efficiencies and education efforts, enforcement will become an even higher priority. Hirschhorn stated that, “The new Comprehensive Iran Sanctions, Accountability, and Divestment Act confers permanent law enforcement authorities on our export enforcement agents for the first time. This enhances our ability to deter and prosecute violators of the EAR.”
Hirschhorn stated that BIS will ensure coordination with other enforcement agencies, BIS will participate in the National Export Enforcement Coordination Network. BIS will share information and leverage resources by working with colleagues from the Federal Bureau of Investigation (FBI), military security agencies, Immigration and Customs Enforcement (ICE), and the intelligence community. President Obama will soon sign an Executive Order making this coordination center permanent. The order will mandate participation by all relevant law enforcement agencies and the intelligence community.
Hirschhorn stated, “I ask that you carry a message back to your senior management and those who market your products: We are working to create a more efficient export control system and to ensure that those subject to it are aware of that fact. Also, where appropriate, we will seek to minimize penalties for companies that have good internal compliance programs and make demonstrably unintentional errors. But—and this is an important but—we are planning increased efforts against individuals who flout the rules and against companies whose inadequate internal compliance programs tell us that they are indifferent to whether they follow the rules.” [Emphasis added.]
Finally, Hirschhorn stated that the proposed single licensing agency would include the administrative enforcement functions of BIS, State, and Treasury. The Administration also plans to seek legislation to transfer BIS’s criminal enforcement functions to Immigration and Customs Enforcement, which would have a separate unit dedicated to enforcement of the export control and embargo laws.
State Department Clarifies Exemption for Technical Data under ITAR
08/27/10 11:16 PM
On
August 27, 2010, the U.S. State Department’s
Directorate of Defense Trade Controls (DDTC) issued
a final rule in the Federal
Register that clarifies an exemption for
technical data under International Traffic in
Arms Regulations (ITAR), 22 C.F.R. §125.4(b)(9).
The exemption as amended covers technical data, regardless of media or format, sent or taken by a U.S. person who is an employee of a U.S. corporation or a U.S. Government agency to a U.S. person employed by that U.S. corporation or to a U.S. Government agency outside the U.S.
The change is effective August 27, 2010.
The exemption as amended covers technical data, regardless of media or format, sent or taken by a U.S. person who is an employee of a U.S. corporation or a U.S. Government agency to a U.S. person employed by that U.S. corporation or to a U.S. Government agency outside the U.S.
The change is effective August 27, 2010.
Blackwater to Pay $42 Million to Settle Allegations of Violating U.S. Export Controls Regulations
08/23/10 10:53 PM
On
August 23, 2010, the U.S. State Department’s
Directorate of Defense Trade Controls (DDTC)
announced that Blackwater
Worldwide, a private security company now called
Xe Services (Blackwater), has entered into
a consent agreement
to
settle 288 violations of the Arms Export Control
Act (AECA) and International Traffic in Arms
Regulations (ITAR) in connection with
unauthorized export of defense articles,
including technical data, unauthorized provision
of defense services, violating the terms of
license authorizations, unauthorized sales
activity involving a proscribed country, failure
to maintain records involving ITAR-controlled
transactions and false statements,
misrepresentations, and omissions of material
facts.
According to the State Department, Blackwater sought training contracts from foreign governments and other foreign organizations without adhering closely to U.S. export regulations. Blackwater also shipped automatic weapons and other military equipment for use by its personnel in Iraq and Afghanistan in violation of export controls and in some cases sought to hide its actions. In one incident, Blackwater shipped weapons to Iraq hidden inside containers of dog food.
To settle the alleged violations, Blackwater must pay a civil penalty of $42 million, a portion of which will be suspended on the condition that Blackwater spends the funds on self-initiated or consent agreement-authorized remedial compliance measures.
According to the State Department, Blackwater sought training contracts from foreign governments and other foreign organizations without adhering closely to U.S. export regulations. Blackwater also shipped automatic weapons and other military equipment for use by its personnel in Iraq and Afghanistan in violation of export controls and in some cases sought to hide its actions. In one incident, Blackwater shipped weapons to Iraq hidden inside containers of dog food.
To settle the alleged violations, Blackwater must pay a civil penalty of $42 million, a portion of which will be suspended on the condition that Blackwater spends the funds on self-initiated or consent agreement-authorized remedial compliance measures.
BIS Issues Report on Impact of U.S. Export Controls on Green Technology Items
08/16/10 12:48 PM
On
August 16, 2010, the Bureau of Industry and
Security issued its latest Office of Technology
Evaluation Report: Technology Assessment on Impact
of U.S. Export Controls on Green Technology
Items.
In the report, BIS found:
Accordingly, BIS states that it will:
In addition, BIS will work with other U.S. Government (USG) agencies to develop a license exception, fast-track license review, and/or a one-time product/end-user review procedure for the export of items for civilian (i.e., non-military) green-related end-uses only.
In the report, BIS found:
- Most green technology-related items do not require a BIS export license. Licensed green technology-related exports represented 0.05% of total U.S. exports and a mere 0.004% of all energy sector exports in 2008. Of the $1,300.5 billion in total U.S. exports in 2008, BIS identified 5.8% ($75.0 billion) as green technology-related exports, and only 0.9% ($697.4 million) of these required an export license.
- Some of the high-technology parts, materials, and equipment used to produce green technology items in the following areas would likely require an export license: wind power, solar power, alternative fuel vehicles, water purification, and energy efficiency.
- Exporters have expressed concern with the lengthy processing times and difficulty in obtaining export licenses for carbon fiber and machine tools, the material and equipment needed for the production of wind turbines and lighter weight (i.e., energy efficient) commercial composite aircraft structures and engine components. Two companies with production facilities in the United States that are industry leaders for tape laying and tow/fiber placement machines used to manufacture windmill turbine blades are considering moving production of these machines overseas, especially because of the increased demand for wind turbines.
- The export of Metal-Organic Chemical Vapor Deposition (MOCVD) equipment requires an export license in most cases, and is used to produce the solar cells used in solar panels and LED lighting products. One of the main MOCVD producers in Germany has sold this equipment to a customer that was denied an export license for the same equipment from a U.S. producer.
- There are several green technology items in the areas of water purification (e.g., chemicals, pumps, valves) and energy efficiency (i.e., industrial gas turbine components and thermal imaging cameras) that are subject to an export license requirement, but the licensing and export statistics do not show that this license requirement is having an adverse affect on the competitiveness of these industries.
- In most cases, BIS has determined that export licenses are not required for items in the following green technology areas: alternative fuel vehicles, commercial airlines noise reduction, biodegradable/bio-resins for composite materials, and green coating processes. However, research and emerging technologies in these fields could lead to the creation of new high-technology products that would be subject to export license requirements.
Accordingly, BIS states that it will:
- Issue guidance to exporters clarifying which tape laying and tow/fiber placement machines would be controlled under ECCNs 1B001 or 1B101 for MT or NS reasons.
- Monitor the volume of export license applications received for chemicals, chemical equipment, industrial gas turbines and components, and thermal imaging cameras and adjust export licensing policy and regulations where possible to ensure that export controls do not hinder trade in these items, especially when intended for civilian (i.e., non-military) green- related end-uses, consistent with national security interests.
- Develop a green technology working group comprised of existing TAC members to identify emerging technologies that can support green technology initiatives that may be subject to an export license requirement in the future.
- Work with the Department of Commerce’s International Trade Administration on harmonization with export promotion efforts for the energy sector.
In addition, BIS will work with other U.S. Government (USG) agencies to develop a license exception, fast-track license review, and/or a one-time product/end-user review procedure for the export of items for civilian (i.e., non-military) green-related end-uses only.
BIS Publishes Final Rule on Direct Products of U.S. Technology
07/30/10 10:17 PM
On
July 30, 2010, the U.S. Department of Commerce’s
Bureau of Industry and Security (BIS) published
a final rule on foreign
direct products of U.S. technology.
BIS clarifies the scope of the ‘‘direct product rule’’ set forth in the Export Administration Regulations (EAR). Under the EAR’s ‘‘direct product rule,’’ foreign-made items that are located outside of the United States; subject to national security controls under the EAR; the direct product of U.S.-origin software or technology that requires a written assurance as a supporting document for a license or as a pre-condition for use of License Exception Technology and Software, Restricted (TSR); and are being reexported to a destination in a country of national security concern or a terrorist supporting country, are subject to the EAR and require an export license or license exception. This rule also makes parallel revisions or clarifications to written assurances required under License Exception TSR (Technology and Software Restricted), information required on the license application for national security controlled technology, and the instructional steps in the EAR that provide guidance on how to apply the direct product rule.
BIS clarifies the scope of the ‘‘direct product rule’’ set forth in the Export Administration Regulations (EAR). Under the EAR’s ‘‘direct product rule,’’ foreign-made items that are located outside of the United States; subject to national security controls under the EAR; the direct product of U.S.-origin software or technology that requires a written assurance as a supporting document for a license or as a pre-condition for use of License Exception Technology and Software, Restricted (TSR); and are being reexported to a destination in a country of national security concern or a terrorist supporting country, are subject to the EAR and require an export license or license exception. This rule also makes parallel revisions or clarifications to written assurances required under License Exception TSR (Technology and Software Restricted), information required on the license application for national security controlled technology, and the instructional steps in the EAR that provide guidance on how to apply the direct product rule.
BIS Publishes Clarification of Grace Period for New Encryption Registration Requirement
07/27/10 03:08 PM
On
July 27, 2010, the U.S. Department of Commerce’s
Bureau of Industry and Security (BIS) published
a final rule in the Federal
Register to clarify the intent of the encryption
registration requirement that appeared in the
new encryption rules published on June 25, 2010.
The June 25, 2010 final rule established, inter alia, an encryption registration requirement for authorization under provisions of License Exception ENC, as codified in § 740.17(b)(1), (b)(2) and (b)(3) of the EAR, and for transactions in connection with mass market encryption transaction, as codified in §§ 742.15(b)(1) and (b)(3) of the EAR. In § 740.17(d)(1)(i)(A) and (d)(1)(i)(B), the rule specified that an encryption registration was required to be filed the first time that a party submits an encryption classification request under § 740.17(b)(2) and (b)(3) or performs an encryption self-classification under § 740.17(b)(1) on or after August 24, 2010. The rule also stated that an encryption registration was required to be submitted in support of an encryption classification or in circumstances where a party is making a mass market encryption item eligible for export and reexport (including the definition at § 734.2(b)(9) for encryption software) under § 742.15(b)(1) for the first time on or after August 24, 2010. Although the rule was issued in final form on June 25, the rule intended to establish a grace period permitting parties to wait until August 24 to submit their registration requirements.
In the clarification, BIS states:
The June 25, 2010 final rule established, inter alia, an encryption registration requirement for authorization under provisions of License Exception ENC, as codified in § 740.17(b)(1), (b)(2) and (b)(3) of the EAR, and for transactions in connection with mass market encryption transaction, as codified in §§ 742.15(b)(1) and (b)(3) of the EAR. In § 740.17(d)(1)(i)(A) and (d)(1)(i)(B), the rule specified that an encryption registration was required to be filed the first time that a party submits an encryption classification request under § 740.17(b)(2) and (b)(3) or performs an encryption self-classification under § 740.17(b)(1) on or after August 24, 2010. The rule also stated that an encryption registration was required to be submitted in support of an encryption classification or in circumstances where a party is making a mass market encryption item eligible for export and reexport (including the definition at § 734.2(b)(9) for encryption software) under § 742.15(b)(1) for the first time on or after August 24, 2010. Although the rule was issued in final form on June 25, the rule intended to establish a grace period permitting parties to wait until August 24 to submit their registration requirements.
In the clarification, BIS states:
The intent of this grace period was to allow industry time to gather information necessary to accurately submit the information required in the encryption registration (Supplement No. 5 to part 742), to change internal procedures, and to train personnel before submitting the encryption registration. However, the rule inadvertently omitted language that clarifies that parties may self-classify or seek classifications between June 25, 2010 and August 24, 2010 without first submitting a registration. It also inadvertently omitted language that clarifies the post-classification registration requirement for parties that self-classified or sought classifications between June 25, 2010 and August 24, 2010, but did not self-classify or seek a classification again on or after August 24, 2010. This rule corrects the regulations to include language that clarifies the intent of the grace period.
OFAC Posts Recent Enforcement Actions
07/26/10 02:48 PM
On
July 28, 2010, Treasury Department’s Office of
Foreign Assets Control (OFAC) published
information
on
recent enforcement actions:
Maersk Line, Ltd., a Delaware corporation, and its wholly owned U.S. subsidiaries, Farrell Lines Incorporated, and E-Ships, Inc. (collectively, MLL), have remitted $3,088,400 to settle allegations of violations of the Sudanese Sanctions Regulations (SSR) and of the Iranian Transactions Regulations (ITR).
OFAC alleged that MLL violated the SSR and the ITR by providing unlicensed shipping services for 4,714 shipments of cargo originating in or bound for Sudan and Iran, including the transportation of such cargo on vessels owned, operated and/or chartered by MLL, but also chartered by MLL's parent, A.P. Moller-Maersk A/S, on at least one leg of the cargo's journey to or from Sudan and Iran.
MLL did not voluntarily self-disclose the matter to OFAC. OFAC concluded that the alleged violations constituted a non-egregious case. The base penalty amount for the apparent violations - which was calculated based on gross freight charges from origination to destination - was $61,768,000. OFAC stated that the settlement amount reflected OFAC's consideration of the General Factors, such as that MLL is part of a commercially sophisticated world-wide shipping conglomerate with significant experience operating under licenses issued by OFAC and other U.S. Government agencies; the activities conducted by MLL resulted in actual harm to sanctions program objectives by conferring an economic benefit on Sudan and Iran; MLL has not been found to have violated OFAC sanctions in the past five years; MLL substantially and fully cooperated with OFAC's investigation of the alleged violations; and MLL and its parent have undertaken substantial remediation to ensure that such alleged violations do not recur.
3M Imtec Corporation of Ardmore, OK (3M Imtec), successor in interest to Imtec Corporation (Imtec), has remitted $125,000 to settle allegations of violations of the Iranian Transactions Regulations (ITR), and the Export Administration Regulations (EAR). This settlement agreement was reached between 3M Imtec, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS), and the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC).
Imtec voluntary disclosed information to OFAC detailing that it had engaged in unlicensed transactions that appeared to have violated the ITR and the EAR. Imtec was acquired by another company in July 2008 and its name was changed to 3M Imtec Corporation. In connection with the acquisition, a due diligence review was conducted which disclosed that, prior to its acquisition, Imtec engaged in unlicensed transactions with Iran. A full investigation of the apparent Iran violations was conducted and a disclosure of those findings was made to OFAC and BIS.
During the period of June 2004 to April 2007, Imtec appears to have violated the ITR by selling and shipping implants and related dental equipment to purchasers in a third country for delivery to Iran. ITR authorizes OFAC to issue licenses for the sale of agricultural commodities, medicines, and medical devices for use in Iran, provided that those agricultural commodities, medicines, and medical devices are not listed on the Commerce Control List (CCL). A proposed charging letter issued by BIS to 3M Imtec states that the items sold were classified as EAR99.
Although Imtec had previously requested and obtained separate licenses from OFAC authorizing the sale of dental equipment to Iran, the sales that are the subject of the settlement agreement were made outside of the effective dates of those licenses. Imtec did not have a trade compliance program in place at the time that the apparent violations occurred. Although Imtec management was aware of the need to obtain OFAC licenses authorizing sales to Iran as evidenced by its prior OFAC licenses, Imtec’s apparent lack of a comprehensive trade compliance program resulted in the lapse of those licenses.
Maersk Line, Ltd., a Delaware corporation, and its wholly owned U.S. subsidiaries, Farrell Lines Incorporated, and E-Ships, Inc. (collectively, MLL), have remitted $3,088,400 to settle allegations of violations of the Sudanese Sanctions Regulations (SSR) and of the Iranian Transactions Regulations (ITR).
OFAC alleged that MLL violated the SSR and the ITR by providing unlicensed shipping services for 4,714 shipments of cargo originating in or bound for Sudan and Iran, including the transportation of such cargo on vessels owned, operated and/or chartered by MLL, but also chartered by MLL's parent, A.P. Moller-Maersk A/S, on at least one leg of the cargo's journey to or from Sudan and Iran.
MLL did not voluntarily self-disclose the matter to OFAC. OFAC concluded that the alleged violations constituted a non-egregious case. The base penalty amount for the apparent violations - which was calculated based on gross freight charges from origination to destination - was $61,768,000. OFAC stated that the settlement amount reflected OFAC's consideration of the General Factors, such as that MLL is part of a commercially sophisticated world-wide shipping conglomerate with significant experience operating under licenses issued by OFAC and other U.S. Government agencies; the activities conducted by MLL resulted in actual harm to sanctions program objectives by conferring an economic benefit on Sudan and Iran; MLL has not been found to have violated OFAC sanctions in the past five years; MLL substantially and fully cooperated with OFAC's investigation of the alleged violations; and MLL and its parent have undertaken substantial remediation to ensure that such alleged violations do not recur.
3M Imtec Corporation of Ardmore, OK (3M Imtec), successor in interest to Imtec Corporation (Imtec), has remitted $125,000 to settle allegations of violations of the Iranian Transactions Regulations (ITR), and the Export Administration Regulations (EAR). This settlement agreement was reached between 3M Imtec, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS), and the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC).
Imtec voluntary disclosed information to OFAC detailing that it had engaged in unlicensed transactions that appeared to have violated the ITR and the EAR. Imtec was acquired by another company in July 2008 and its name was changed to 3M Imtec Corporation. In connection with the acquisition, a due diligence review was conducted which disclosed that, prior to its acquisition, Imtec engaged in unlicensed transactions with Iran. A full investigation of the apparent Iran violations was conducted and a disclosure of those findings was made to OFAC and BIS.
During the period of June 2004 to April 2007, Imtec appears to have violated the ITR by selling and shipping implants and related dental equipment to purchasers in a third country for delivery to Iran. ITR authorizes OFAC to issue licenses for the sale of agricultural commodities, medicines, and medical devices for use in Iran, provided that those agricultural commodities, medicines, and medical devices are not listed on the Commerce Control List (CCL). A proposed charging letter issued by BIS to 3M Imtec states that the items sold were classified as EAR99.
Although Imtec had previously requested and obtained separate licenses from OFAC authorizing the sale of dental equipment to Iran, the sales that are the subject of the settlement agreement were made outside of the effective dates of those licenses. Imtec did not have a trade compliance program in place at the time that the apparent violations occurred. Although Imtec management was aware of the need to obtain OFAC licenses authorizing sales to Iran as evidenced by its prior OFAC licenses, Imtec’s apparent lack of a comprehensive trade compliance program resulted in the lapse of those licenses.
BIS Seeks Comments on Special Comprehensive License Forms BIS-752P and BIS-752P-A
07/25/10 02:47 PM
On
July 25, 2010, Bureau of Industry and Security
(BIS) published a notice in Federal
Register requesting comments on Special
Comprehensive License forms BIS-752P and
BIS-752P-A.
The Special Comprehensive License (SCL) procedure authorizes multiple shipments of items from the U.S. or from approved consignees abroad who are approved in advance by the BIS to conduct servicing, support services, stocking spare parts, maintenance, capital expansion, manufacturing, support scientific data acquisition, reselling and reexporting in the form received, and other activities as approved on a case-by-case basis.
An application for an SCL requires submission of additional supporting documentation, such as the company’s internal control program.
Comments are due on September 24, 2010.
The Special Comprehensive License (SCL) procedure authorizes multiple shipments of items from the U.S. or from approved consignees abroad who are approved in advance by the BIS to conduct servicing, support services, stocking spare parts, maintenance, capital expansion, manufacturing, support scientific data acquisition, reselling and reexporting in the form received, and other activities as approved on a case-by-case basis.
An application for an SCL requires submission of additional supporting documentation, such as the company’s internal control program.
Comments are due on September 24, 2010.
BIS Revises the CCL to Update and Clarify Crime Control License Requirements
07/15/10 02:59 PM
On
July 15, 2010, the U.S. Department of Commerce’s
Bureau of Industry and Security published a
final rule in the Federal
Register to revise the Commerce Control List
(CCL) to update and clarify crime control
license requirements under the Export
Administration Regulations (EAR). The rule
updates and clarifies export and reexport
license requirements on striking weapons,
restraint devices, shotguns and parts, optical
sighting devices, and electric shock devices. It
also adds equipment designed for the execution
of humans to the Commerce Control List. This
rule makes no changes to the longstanding policy
of denial of applications to export or reexport
specially designed implements of torture. The
rule provides additional illustrative examples
of such items and adopts a definition of torture
used in a U.S. statute that implements the
United Nations Convention against Torture and
Other Cruel, Inhuman or Degrading Treatment or
Punishment.
BIS published the rule as part of an ongoing review of crime control license requirements and policy. As part of the ongoing review, BIS received public comments on whether the scope of the items and destinations that are subject to crime control license requirements should be changed. After reviewing the comments and conducting its own internal deliberations, BIS decided to proceed in stages. This final rule is the culmination of the first stage that addresses relatively simple extensions, modifications or removals of items currently on the CCL or additions to the CCL of items that have an easily identified crime control or law enforcement nexus.
BIS plans to publish a subsequent proposed rule that will identify potential expansion of certain Export Control Classification Numbers (ECCNs) as suggested in the comments to the proposed rule; whether, and if so, the extent to which biometric measuring devices, integrated data systems, simulators, and communications equipment should be added to the Commerce Control List; the degree to which software and technology related to commodities on the Commerce Control List should be listed and how such software and technology should be described; and general policy issues such as whether the range of destinations to which crime control license requirements apply should be modified.
BIS published the rule as part of an ongoing review of crime control license requirements and policy. As part of the ongoing review, BIS received public comments on whether the scope of the items and destinations that are subject to crime control license requirements should be changed. After reviewing the comments and conducting its own internal deliberations, BIS decided to proceed in stages. This final rule is the culmination of the first stage that addresses relatively simple extensions, modifications or removals of items currently on the CCL or additions to the CCL of items that have an easily identified crime control or law enforcement nexus.
BIS plans to publish a subsequent proposed rule that will identify potential expansion of certain Export Control Classification Numbers (ECCNs) as suggested in the comments to the proposed rule; whether, and if so, the extent to which biometric measuring devices, integrated data systems, simulators, and communications equipment should be added to the Commerce Control List; the degree to which software and technology related to commodities on the Commerce Control List should be listed and how such software and technology should be described; and general policy issues such as whether the range of destinations to which crime control license requirements apply should be modified.
Commerce Department and USPS Launch New Initiative to Increase U.S. Exports
07/12/10 02:38 PM
In
response to President Obama’s plan to double U.S.
exports in the next five years, U.S. Commerce
Department and the United States Postal Service
(USPS) announced launch of a new
initiative on July 12, 2010. The New Market
Exporter Initiative (NMEI) will help increase
U.S. exports by identifying small and
medium-sized businesses that export their goods
and services via USPS and notifying those
customers of government sources that can help
them in finding new overseas markets.
Commerce and USPS intend to work with such businesses to identify key markets, build market entry strategies and provide guidance to the U.S. exporters searching to expand their markets. Free resources and tools will be made available through a nationwide network of international trade experts and global shipping specialists. U.S. Commerce Department has trade specialists posted in 109 U.S. cities and U.S. embassies and consulates in 77 countries, and will make those resources available to the companies, connecting them with potential international buyers.
President Obama announced the National Export Initiative (NEI) earlier this year, during his State of the Union address. The goal of the NEI is to double U.S. exports in the next five years, which would support several million jobs in the U.S. The NEI will provide more funding and more centralized, cabinet-level coordination to increase U.S. exports. The initiative represents a first government-wide export promotion strategy with focused attention from the President and his cabinet.
Commerce and USPS intend to work with such businesses to identify key markets, build market entry strategies and provide guidance to the U.S. exporters searching to expand their markets. Free resources and tools will be made available through a nationwide network of international trade experts and global shipping specialists. U.S. Commerce Department has trade specialists posted in 109 U.S. cities and U.S. embassies and consulates in 77 countries, and will make those resources available to the companies, connecting them with potential international buyers.
President Obama announced the National Export Initiative (NEI) earlier this year, during his State of the Union address. The goal of the NEI is to double U.S. exports in the next five years, which would support several million jobs in the U.S. The NEI will provide more funding and more centralized, cabinet-level coordination to increase U.S. exports. The initiative represents a first government-wide export promotion strategy with focused attention from the President and his cabinet.
New Charges Filed Against Irish Firm for Exporting Military Aircraft Parts to Iran
07/07/10 12:06 PM
On
July 7, 2010, a federal grand jury in Washington,
D.C., has charged Mac Aviation
Group, an Irish trading company, and its
officers Thomas and Sean McGuinn of Ireland, in
a superseding indictment with purchasing F-5
fighter aircraft parts, helicopter engines and
other aircraft components from U.S. firms and
illegally exporting them to Iran.
Originally, defendants were changed in July 2008 with 2 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.
The superseding indictment added two additional counts that pertain to Mac Aviation and Tom McGuinn’s procurement of military items, specifically F-5 fighter aircraft parts, from a U.S. company and export of those parts to Iran, in violation of the Arms Export Control Act (AECA).
The indictment alleges that from August 2005 to 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. Among those parts were helicopter engines, aircraft bolts and vanes, and canopy panels for the F-5 fighter aircraft. 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 then exported these parts from the U.S. to Iran by transshipping them through third countries like Malaysia.
In addition, the superseding indictment alleges that from 2005 to 2006, the defendants exported canopy panels designed for the F-5 fighter aircraft from the U.S. to Iran. The defendants falsely claimed that the end user for the F-5 parts was the Republic of Nigeria. Instead, the parts were sold by the defendants to customers in Iran. The transaction was arranged through the Iran Aircraft Manufacturing Industrial Company, also known by its acronym HESA. HESA was one of several entities that U.S. Treasury Department designated as proliferator of weapons of mass destruction in September 2008.
If convicted, the defendants face a maximum sentence of 10-20 years in prison for each of the IEEPA counts, 10 years for the AECA charge, 5-20 years in prison for each of the conspiracy counts, and 5 years in prison for each of the false statement counts.
Originally, defendants were changed in July 2008 with 2 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.
The superseding indictment added two additional counts that pertain to Mac Aviation and Tom McGuinn’s procurement of military items, specifically F-5 fighter aircraft parts, from a U.S. company and export of those parts to Iran, in violation of the Arms Export Control Act (AECA).
The indictment alleges that from August 2005 to 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. Among those parts were helicopter engines, aircraft bolts and vanes, and canopy panels for the F-5 fighter aircraft. 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 then exported these parts from the U.S. to Iran by transshipping them through third countries like Malaysia.
In addition, the superseding indictment alleges that from 2005 to 2006, the defendants exported canopy panels designed for the F-5 fighter aircraft from the U.S. to Iran. The defendants falsely claimed that the end user for the F-5 parts was the Republic of Nigeria. Instead, the parts were sold by the defendants to customers in Iran. The transaction was arranged through the Iran Aircraft Manufacturing Industrial Company, also known by its acronym HESA. HESA was one of several entities that U.S. Treasury Department designated as proliferator of weapons of mass destruction in September 2008.
If convicted, the defendants face a maximum sentence of 10-20 years in prison for each of the IEEPA counts, 10 years for the AECA charge, 5-20 years in prison for each of the conspiracy counts, and 5 years in prison for each of the false statement counts.
BIS Publishes Rule Based Upon a Systematic Review of the Commerce Control List
06/28/10 10:22 PM
On
June 28, 2010, the Bureau of Industry and Security
(BIS) published a final rule revising the
Export Administration Regulations (EAR) based
upon a systematic review of the Commerce Control
List (CCL).
The rule is the third phase of the regulatory implementation of the results of a review of the CCL that was conducted by BIS starting in 2007. The BIS review was aided by input received from BIS’s Technical Advisory Committees (TACs) and comments received from the interested public.
The revisions in this rule include clarifications to existing controls; eliminating redundant or outdated controls; and establishing more focused and rationalized controls. This rule also makes CCL related changes to other parts of the EAR, including CCL related definitions and license exceptions.
The rule is effective upon publication and while no formal comment period, BIS welcomes comments from the public on this rule on a continuing basis.
The rule is the third phase of the regulatory implementation of the results of a review of the CCL that was conducted by BIS starting in 2007. The BIS review was aided by input received from BIS’s Technical Advisory Committees (TACs) and comments received from the interested public.
The revisions in this rule include clarifications to existing controls; eliminating redundant or outdated controls; and establishing more focused and rationalized controls. This rule also makes CCL related changes to other parts of the EAR, including CCL related definitions and license exceptions.
The rule is effective upon publication and while no formal comment period, BIS welcomes comments from the public on this rule on a continuing basis.
Freight Forwarder Settles Allegation Of Antiboycott Violation
06/25/10 04:26 PM
On
June 25, 2010, the U.S. Department of Commerce’s
Bureau of Industry and Security (BIS)
announced that Plane
Cargo Inc. (PCI), a freight forwarder located in
Houston, TX, has agreed to pay a $5,200 civil
penalty to settle allegations that it violated
the antiboycott provisions of the Export
Administration Regulations (EAR).
The announcement provided that:
The announcement provided that:
BIS, through its Office of Antiboycott Compliance, alleged that on one occasion in 2003, PCI, in connection with a transaction involving the sale and transfer of goods from the United States to Syria, furnished an invoice to a company in Syria that certified that the goods were not of Israeli origin in violation of the antiboycott provisions of the EAR. PCI cooperated fully with the investigation.
BIS Seeks Comments on Revising Encryption Export Controls
06/25/10 12:27 PM
On
June 25, 2010, the Bureau of Industry and Security
(BIS) issued an interim final rule
that amends the
Export Administration Regulations (EAR) to
modify the requirements of License Exception
ENC, “Encryption Commodities, Software and
Technology,” and the requirements for qualifying
an encryption item as mass market. In addition,
the rule also amends specific license
requirements for encryption items. EAR sections
affected are 15 CFR Parts 730, 734, 738, 740,
742, 748, 772 and 774. BIS also posted on its
website a press
release, a
summary of the rule,
and additional information
to
assist exporters.
BIS believes that the rule will streamline procedures for (1) less sensitive encryption items eligible for export under License Exception ENC and (2) most mass market encryption products. The interim final rule also implements the Wassenaar Arrangement’s decontrol of items that perform “ancillary cryptography” in the Commerce Control List.
The rule includes several significant changes to encryption export controls by modifying the way information about encryption products is collected an analyzed. The rule, as amended:
Comments on the suggested changes are due by August 24, 2010.
BIS believes that the rule will streamline procedures for (1) less sensitive encryption items eligible for export under License Exception ENC and (2) most mass market encryption products. The interim final rule also implements the Wassenaar Arrangement’s decontrol of items that perform “ancillary cryptography” in the Commerce Control List.
The rule includes several significant changes to encryption export controls by modifying the way information about encryption products is collected an analyzed. The rule, as amended:
- Removes review requirements for less sensitive encryption items;
- Establishes a company registration requirement for encryption items under License Exception ENC or as mass market encryption items. Under the new rule, authorization for License Exception ENC and mass market treatment is based on company authorizations that operate like a bulk license for the company’s products rather than product-by-product authorizations;
- Creates an annual self-classification report requirement for such items pursuant to an encryption registration. Under the new rule, the self-classification report would be required to be submitted annually to BIS and the ENC Encryption Request Coordinator in February for items exported and reexported the previous calendar year;
- Makes encryption technology eligible for export and reexport under License Exception ENC, except to countries of highest concern;
- Lifts the semi-annual sales reporting for less sensitive encryption items under License Exception ENC. When sales reporting is not required under License Exception ENC, companies need only maintain records as required by the EAR that can be reviewed by appropriate agencies of the U.S. Government upon request;
- Removes the 30-day delay to export and reexport less sensitive encryption items under License Exception ENC; and
- Removes the
30-day delay to make most mass market encryption
items eligible for mass market treatment.
Comments on the suggested changes are due by August 24, 2010.
Census Foreign Trade Division Updates HTS Codes and Schedule B Database
06/23/10 12:08 PM
The
U.S. Census Bureau’s Foreign Trade Division (FTD)
has posted a warning to
the trade community that some freight forwarders
and Customs brokers may need to update their
current commodity number classifications as
updated/new Harmonized Tariff Schedule (HTS)
numbers go into effect on July 1, 2010.
HTS commodity classification codes are generally revised twice annually, in January and July by the U.S. International Trade Commission. The codes are usually revised because members in the trade community are looking for more detailed statistical data. Recommendations for revisions to existing classifications or for the establishment of new classifications should be submitted to the Chairman of the Committee for Statistical Annotation of Tariff Schedules.
In addition, the FTD posted a link to an improved Schedule B database of export commodity codes. According to FTD, “the new improved search tool will interpret common commercial product information and interact intelligently and intuitively with users to help alleviate the complex nature of finding the correct code in the Schedule B book.”
HTS commodity classification codes are generally revised twice annually, in January and July by the U.S. International Trade Commission. The codes are usually revised because members in the trade community are looking for more detailed statistical data. Recommendations for revisions to existing classifications or for the establishment of new classifications should be submitted to the Chairman of the Committee for Statistical Annotation of Tariff Schedules.
In addition, the FTD posted a link to an improved Schedule B database of export commodity codes. According to FTD, “the new improved search tool will interpret common commercial product information and interact intelligently and intuitively with users to help alleviate the complex nature of finding the correct code in the Schedule B book.”
Iranian National Convicted of Export Violations
06/17/10 11:49 AM
On
June 17, 2010, the U.S. Department of
Justice announced that Omid
Khalili, an Iranian national, pleaded guilty in
U.S. District Court for the Southern District of
Alabama to attempting to illegally export
fighter jet or military aircraft parts from the
U.S. to Iran.
Khalili and other defendant were charged in a nine-count indictment returned on January 28, 2010, with conspiracy, money laundering, smuggling, and violations of the Arms Export Control Act (AECA), and the International Emergency Economic Powers Act (IEEPA).
According to court documents, Khalili and his co-conspirator have been working with the Iranian government to procure military items for the Iranian government. In November 2009, Khalili contacted an undercover agent seeking parts for the military aircraft for export to Iran.
The parts requested by Khalili are designated as defense articles on the U.S. Munitions List and require a U.S. State Department export license. In addition, these items may not be exported to Iran without a license from the U.S. Treasury Department due to the U.S. trade embargo on Iran. Neither Khalili nor his co-conspirator obtained the required export licenses.
On November 20, 2009, Khalili send an e-mail to the undercover agent containing a list of aircraft parts for the military aircraft and inquiring about their prices. In December 2009, Khalili and his co-conspirator talked with the agent and informed him that the parts were to be sent to Iran and that, because of the U.S. embargo, they would need to be re-routed through an intermediate country. When the undercover agent agreed to send the requested parts to the defendants, Khalili and his other co-conspirators sent four separate cash deposits totaling in excess of $70,000 from a bank in U.A.E. to a bank in Alabama as down-payment for the aircraft parts.
Khalili faces a maximum penalty of ten years in prison and a $1 million fine.
Khalili and other defendant were charged in a nine-count indictment returned on January 28, 2010, with conspiracy, money laundering, smuggling, and violations of the Arms Export Control Act (AECA), and the International Emergency Economic Powers Act (IEEPA).
According to court documents, Khalili and his co-conspirator have been working with the Iranian government to procure military items for the Iranian government. In November 2009, Khalili contacted an undercover agent seeking parts for the military aircraft for export to Iran.
The parts requested by Khalili are designated as defense articles on the U.S. Munitions List and require a U.S. State Department export license. In addition, these items may not be exported to Iran without a license from the U.S. Treasury Department due to the U.S. trade embargo on Iran. Neither Khalili nor his co-conspirator obtained the required export licenses.
On November 20, 2009, Khalili send an e-mail to the undercover agent containing a list of aircraft parts for the military aircraft and inquiring about their prices. In December 2009, Khalili and his co-conspirator talked with the agent and informed him that the parts were to be sent to Iran and that, because of the U.S. embargo, they would need to be re-routed through an intermediate country. When the undercover agent agreed to send the requested parts to the defendants, Khalili and his other co-conspirators sent four separate cash deposits totaling in excess of $70,000 from a bank in U.A.E. to a bank in Alabama as down-payment for the aircraft parts.
Khalili faces a maximum penalty of ten years in prison and a $1 million fine.
BIS Publishes Update 2010 Dates & Instructions
06/15/10 10:45 PM
The
Bureau of Industry and Security’s (BIS)
announced that its annual
Update Conference on Export Controls and Policy
will be held on August 31- September 2, 2010 in
Washington, DC.
To attend this year’s conference, you must follow a two-step process: (1) you must submit the online “Interest Form” between June 15 and June 28. If there are more potential participants than there is space available, BIS will grant registration through a random selection from the entire list of respondents, regardless of when received during the period. Those selected will be notified and given registration instructions in early July. They must register and submit payment by a designated date indicated in the instructions or their spot will be forfeited and given to someone on the wait list. Those not selected will be notified that they have been placed on a wait list.
More detailed program information will be posted in the coming weeks.
Registration transfers within companies or organizations may be permitted with prior approval from BIS. Registration transfers will not be permitted between different organizations or companies. Registrations may not be resold.
BIS will make every effort to ensure broad company representation at this event. Due to the limited capacity of the Update Conference, BIS reserves the right to limit, restrict or decline registrations to this event. Registrations are not confirmed until accepted and verified by BIS and the registration fee has been paid.
To attend this year’s conference, you must follow a two-step process: (1) you must submit the online “Interest Form” between June 15 and June 28. If there are more potential participants than there is space available, BIS will grant registration through a random selection from the entire list of respondents, regardless of when received during the period. Those selected will be notified and given registration instructions in early July. They must register and submit payment by a designated date indicated in the instructions or their spot will be forfeited and given to someone on the wait list. Those not selected will be notified that they have been placed on a wait list.
More detailed program information will be posted in the coming weeks.
Registration transfers within companies or organizations may be permitted with prior approval from BIS. Registration transfers will not be permitted between different organizations or companies. Registrations may not be resold.
BIS will make every effort to ensure broad company representation at this event. Due to the limited capacity of the Update Conference, BIS reserves the right to limit, restrict or decline registrations to this event. Registrations are not confirmed until accepted and verified by BIS and the registration fee has been paid.
Texas Company Settles Allegations Of Antiboycott Violations
06/14/10 04:21 PM
On
June 14, 2010, the U.S. Department of Commerce’s
Bureau of Industry and Security (BIS)
announced that Messina,
Inc. (Messina) of Dallas, TX, has agreed to pay
a $10,800 civil penalty to settle allegations
that it violated the antiboycott provisions of
the Export Administration Regulations (EAR) on
two occasions.
The announcement provided that:
The announcement provided that:
BIS, through its Office of Antiboycott Compliance, alleged that in 2004, in connection with two letter of credit transactions involving the sale and transfer of goods destined for Iraq that were shipped through the UAE, Messina furnished to a U.S. bank two certificates signed by the agent for a vessel that attested to the vessel’s eligibility to call at the port of a boycotting country. In doing so, Messina furnished information concerning other persons known or believed to be restricted from having any business relationship with or in a boycotting country, in violation of the antiboycott provisions of the EAR.
BIS Clarifies De Minimis Content Requirements in the EAR
06/04/10 10:33 AM
On
June 4, 2010, Bureau of Industry and Security (BIS)
issued a final rule in Federal
Register that clarifies language concerning
the de
minimis provisions in
the Export Administration Regulations (EAR).
The EAR generally do not apply to items that were made and are located outside the U.S. and that contain only a “de minimis” level of U.S-origin content. The procedures for calculating whether an item exceeds the de minimis threshold note that the calculation is appropriate only for items that are made outside the U.S. and are not currently in the U.S.
Effective June 4, 2010, the rule removes EAR provision in §734.3(b)(4), which outlines a category of items not subject to the EAR (“foreign made items that have less than the de minimis percentage of controlled U.S. content&rdquo, because the provision could be
erroneously read as applying the de minimis
exclusion to foreign made items that are
located in the U.S.
In addition, the final rule provides technical corrections to the EAR involving certain performance criteria of turning machines and the rule also removes obsolete cross references, removes and reserves two regulatory provisions,
corrects a typographical error, and removes an unnecessary reporting
requirement.
The EAR generally do not apply to items that were made and are located outside the U.S. and that contain only a “de minimis” level of U.S-origin content. The procedures for calculating whether an item exceeds the de minimis threshold note that the calculation is appropriate only for items that are made outside the U.S. and are not currently in the U.S.
Effective June 4, 2010, the rule removes EAR provision in §734.3(b)(4), which outlines a category of items not subject to the EAR (“foreign made items that have less than the de minimis percentage of controlled U.S. content&rdquo
, because the provision could be
erroneously read as applying the de minimis
exclusion to foreign made items that are
located in the U.S.
In addition, the final rule provides technical corrections to the EAR involving certain performance criteria of turning machines and the rule also removes obsolete cross references, removes and reserves two regulatory provisions,
corrects a typographical error, and removes an unnecessary reporting
requirement.
DDTC Updates Guidelines
05/26/10 09:20 AM
DDTC
has updated its website to state that:
In addition, DDTC updated its Guidelines Regarding Company Names on License Documentation on May 3, 2010 and its Guidelines for Preparing Electronic Agreements, addition concerning electronic agreements submitted as Re-Baselined agreements on May 26, 2010.
Effective September 1, 2010 DDTC-Licensing will no longer accept unclassified paper submissions of Technical Assistance Agreements, Manufacturing License Agreements, and Warehouse Distribution Agreements (to include major amendments). After this date all submissions must be made electronically via D-Trade 2 utilizing the DSP-5 form. For information on submitting agreements electronically please reference the "Guidelines for Preparing Electronic Agreements" located on this website.
In addition, DDTC updated its Guidelines Regarding Company Names on License Documentation on May 3, 2010 and its Guidelines for Preparing Electronic Agreements, addition concerning electronic agreements submitted as Re-Baselined agreements on May 26, 2010.
Chinese Nationals Convicted of Illegally Exporting ITAR-Controlled Items to China
05/17/10 12:28 PM
On May
17, 2010, Bureau of Industry and Security
(BIS) announced that a federal
jury in Massachusetts convicted Chinese
nationals Zhen Zhou Wu (Wu) and Yufeng Wei (Wei)
of conspiracy to violate U.S. export laws and
illegally exporting electronic equipment from
the U.S. to China on numerous occasions from
2004 to 2007.
Evidence presented at trial showed that between April 2004 and June 2006 Wu and Wei illegally exported military electronic components, designated on the U.S. Munitions List (USML), to mainland China via Hong Kong. The defense articles that defendants exported are primarily used in military phased array radar, electronic warfare, military guidance systems, and military satellite communications.
Also indicted was Chitron Electronics, Inc. (Chitron), a company created by Wu. Using Chitron, Wu targeted Chinese military factories and research institutes as customers of Chitron, including numerous institutes of the China Electronics Technology Group Corporation, which is responsible for the procurement, development, and manufacture of electronics for the Chinese military.
Based on the correspondence, Wu, Wei and other Chitron employees knew that exports of restricted parts were being shipped to Chinese customers without required export licenses. Wu instructed Wei and Chitron employees to never tell U.S. companies that parts were being exported overseas. Instead, U.S. companies were told to ship all ordered products to the Chitron office located in Waltham, Massachusetts. Upon receiving the products, Chitron employees forwarded them to Chitron’s Shenzhen office using freight forwarders in Hong Kong. The shipments were done without the requisite Department of State and Department of Commerce export licenses.
Wu and Wei both face up to 20 years imprisonment to be followed by three years supervised release and a $1 million fine. After serving their sentence, both will face deportation to China.
Chitron faces up to a $1 million fine for each count in the indictment charging them with illegal export of U.S. Munitions List items and $500,000 for each count in the indictment charging them with illegal export of Commerce controlled electronics. Sentencing is scheduled for August 17, 2010.
Evidence presented at trial showed that between April 2004 and June 2006 Wu and Wei illegally exported military electronic components, designated on the U.S. Munitions List (USML), to mainland China via Hong Kong. The defense articles that defendants exported are primarily used in military phased array radar, electronic warfare, military guidance systems, and military satellite communications.
Also indicted was Chitron Electronics, Inc. (Chitron), a company created by Wu. Using Chitron, Wu targeted Chinese military factories and research institutes as customers of Chitron, including numerous institutes of the China Electronics Technology Group Corporation, which is responsible for the procurement, development, and manufacture of electronics for the Chinese military.
Based on the correspondence, Wu, Wei and other Chitron employees knew that exports of restricted parts were being shipped to Chinese customers without required export licenses. Wu instructed Wei and Chitron employees to never tell U.S. companies that parts were being exported overseas. Instead, U.S. companies were told to ship all ordered products to the Chitron office located in Waltham, Massachusetts. Upon receiving the products, Chitron employees forwarded them to Chitron’s Shenzhen office using freight forwarders in Hong Kong. The shipments were done without the requisite Department of State and Department of Commerce export licenses.
Wu and Wei both face up to 20 years imprisonment to be followed by three years supervised release and a $1 million fine. After serving their sentence, both will face deportation to China.
Chitron faces up to a $1 million fine for each count in the indictment charging them with illegal export of U.S. Munitions List items and $500,000 for each count in the indictment charging them with illegal export of Commerce controlled electronics. Sentencing is scheduled for August 17, 2010.
BIS Adds AMD China, Inc. as an Authorized Validated End-User
05/14/10 12:01 PM
On May
10, 2010, the Bureau of Industry and Security
(BIS) amended the Export
Administration Regulations (EAR) to add Advanced
Micro Devices China, Inc., as an end-user to the
list of validated end-users in the People's
Republic of China. Exports, reexports and
transfers of certain items to this end-user are
now authorized under Authorization Validated
End-User (VEU).
BIS further revised the EAR with additional AMD China information on May 14, 2010.
BIS further revised the EAR with additional AMD China information on May 14, 2010.
UK Firm Fined $2M for Exporting Boeing 747 Aircraft to Iran
05/11/10 12:10 PM
On May
11, 2010, the Department of Justice (DOJ)
announced that Balli
Aviation Ltd., a subsidiary of the United
Kingdom-based Balli Group PLC, was sentenced
that day in the U.S. District Court for the
District of Columbia to pay a $2 million fine
and to serve a five-year corporate period of
probation after pleading guilty on Feb. 5, 2010,
to a two-count criminal information in
connection with its illegal export of commercial
Boeing 747 aircraft from the United States to
Iran.
DOJ stated that:
The court imposed the maximum $2 million fine and a corporate probation of five years. The $2 million fine combined with a related $15 million civil settlement among Balli Group PLC, Balli Aviation Ltd., the U.S. Department of Commerce’s Bureau of Industry and Security (BIS), and the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), is one of the largest fines for an export violation in BIS history.
DOJ stated that:
According to count one of the criminal information filed with the court, beginning in at least October 2007, through July 2008, Balli Aviation Ltd. conspired to export three Boeing 747 aircraft from the United States to Iran without first having obtained the required export license from BIS or authorization from OFAC, in violation of the Export Administration Regulations (EAR) and the Iranian Transactions Regulations. Specifically, the information states that Balli Aviation Ltd., through its subsidiaries, the Blue Sky Companies, purchased U.S.-origin aircraft with financing obtained from an Iranian airline and caused these aircraft to be exported to Iran without obtaining the required U.S. government licenses. Further, Balli Aviation Ltd. entered into lease arrangements that permitted the Iranian airline to use the U.S.-origin aircraft for flights in and out of Iran.Count two of the criminal information states that Balli Aviation Ltd. violated a Temporary Denial Order (TDO) issued by BIS on March 17, 2008, that prohibited the company from conducting any transaction involving any item subject to the EAR. Starting in or about March 2008 and continuing through about August 2008, Balli Aviation Ltd. willfully violated the TDO by carrying on negotiations with others concerning buying, receiving, using, selling and delivering U.S.-origin aircraft which went to the Export Administration Regulations.
The court imposed the maximum $2 million fine and a corporate probation of five years. The $2 million fine combined with a related $15 million civil settlement among Balli Group PLC, Balli Aviation Ltd., the U.S. Department of Commerce’s Bureau of Industry and Security (BIS), and the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), is one of the largest fines for an export violation in BIS history.
French Court Refuses U.S. Request to Extradite Iranian Engineer
05/05/10 09:44 AM
The
New York Times reported that on May 5,
2010, French court rejected a U.S. request to
extradite Majid Kakavand (Kakavand), an Iranian
engineer and businessman accused of buying
equipment for a front company in Malaysia and
then rerouting it to Iranian military firms, in
violation an American embargo on exports to
Iran.
Specifically, the indictment against Kakavand alleged that from January 2006 to December 2008 he purchased online dual-use equipment intended for military purposes and had it shipped to Iran via Malaysia. The equipment included capacitors, resistors, connectors, reflectometers and pressure sensors that have a military application.
Iran Electronics Industry, one of the Iranian companies Kakavand bought the equipment for, was put on the European Union blacklist in June 2008. The last transaction between him and the company took place in April 2008. The other company, Iran Communications Industry, manufactures military and civilian communication equipment and now too is on the European blacklist.
The French government prosecutor opposed the request to extradite Kakavand on the grounds that he had not violated French law and that equipment at issue was not necessarily military in nature. In addition, he emphasized that, in contrast to the U.S., neither France nor the European Union has a general trade embargo on Iran.
The court ordered Kakavand set free, and his passport and bail returned. The U.S. Justice Department spokesman said efforts to apprehend Kakavand would continue, and that he would stand trial for his alleged crimes if he came into U.S. custody.
Specifically, the indictment against Kakavand alleged that from January 2006 to December 2008 he purchased online dual-use equipment intended for military purposes and had it shipped to Iran via Malaysia. The equipment included capacitors, resistors, connectors, reflectometers and pressure sensors that have a military application.
Iran Electronics Industry, one of the Iranian companies Kakavand bought the equipment for, was put on the European Union blacklist in June 2008. The last transaction between him and the company took place in April 2008. The other company, Iran Communications Industry, manufactures military and civilian communication equipment and now too is on the European blacklist.
The French government prosecutor opposed the request to extradite Kakavand on the grounds that he had not violated French law and that equipment at issue was not necessarily military in nature. In addition, he emphasized that, in contrast to the U.S., neither France nor the European Union has a general trade embargo on Iran.
The court ordered Kakavand set free, and his passport and bail returned. The U.S. Justice Department spokesman said efforts to apprehend Kakavand would continue, and that he would stand trial for his alleged crimes if he came into U.S. custody.
Former Probation Officer Convicted For Illegally Exporting Guns and Ammunition To Nigeria
04/28/10 12:24 AM
On
April 28, 2010, the Department of Justice (DOJ)
announced that Emenike Charles Nwankwoala, age 49,
of Laurel, Maryland, pleaded guilty today to
exporting arms without a license, exporting
controlled goods without a license and willful
delivery of a firearm to a common carrier without
written notice, in connection with a scheme to
export firearms and ammunition to Nigeria.
DOJ states that:
DOJ states that:
Nwankwoala faces a maximum sentence of 10 years in prison for exporting arms without a license; 20 years in prison for exporting controlled goods without a license; and five years in prison for willful delivery of a firearm to a common carrier without written notice. U.S. District Judge Peter J. Messitte has scheduled sentencing for July 21, 2010 at 9:30 a.m.According to Nwankwoala’s plea agreement, he was employed by the State of Maryland as a Probation Officer. Investigation showed that during a six-month period beginning in December 2008, Nwankwoala purchased at least 37 Maverick Model 88 shotguns from a Federal Firearms Licensee located in Kensington, Maryland. On April 21, 2009, Nwankwoala ordered an additional 25 shotguns over the internet from Impact Guns in Ogden, Utah, a Federal Firearms Licensee. Nwankwoala stated that he was purchasing these shotguns for hunting in Nigeria. The licensee asked Nwankwoala if he had an export license, and Nwankwoala falsely indicated that he did. Nwankwoala never obtained guns through this gun store.
DDTC Revises Guidelines for Preparing Electronic Agreements
04/26/10 12:15 AM
On
April 26, 2010, the Directorate of Defense Trade
Controls (DDTC) posted revised Guidelines for Preparing
Electronic Agreements.
White House Issues Fact Sheet on the Export Control Reform Initiative
04/20/10 11:32 PM
On
April 20, 2010, the White House issued a fact sheet
on President Obama’s Export Control Reform
initiative. The initiative started in August 2009
with a comprehensive assessment of the U.S. export
control system to identify possible reforms.
The assessment, created at the direction of the President, was conducted by an interagency task force that included all departments and agencies with roles in export controls. The assessment found that the current U.S. export control system does not sufficiently reduce national security risk based on the fact that its structure is “overly complicated, contains too many redundancies, and tries to protect too much.”
Based on the review, the Administration has determined that fundamental reform of the U.S. export control system is needed in each of its four component areas, with transformation to a:
For the implementation of the proposed reforms, the Administration has prepared a comprehensive, three-phase approach and is currently moving forward to make specific reforms which can be initiated immediately and implemented without legislation:
Phase I makes significant and immediate improvements to the existing system and establishes the framework necessary to create the new system, including making preparations for any legislative proposals. This phase includes implementing specific reform actions already in process and initiating review of new ones.
Phase II results in a fundamentally new U.S. export control system based on the current structure later this year. This phase completes deployment of specific Phase I reforms and initiates new actions contingent upon completion of Phase I items. Congressional notification will be required to remove munitions list controls or transfer items from the munitions list to the dual-use list, and additional funding will be required both for enhanced enforcement and the IT infrastructure.
Phase III completes the transition to the new U.S. export control system. Legislation would be required for this phase:
The assessment, created at the direction of the President, was conducted by an interagency task force that included all departments and agencies with roles in export controls. The assessment found that the current U.S. export control system does not sufficiently reduce national security risk based on the fact that its structure is “overly complicated, contains too many redundancies, and tries to protect too much.”
Based on the review, the Administration has determined that fundamental reform of the U.S. export control system is needed in each of its four component areas, with transformation to a:
- Single Control
List,
• Single Primary Enforcement Coordination Agency,
• Single IT System, and
• Single Licensing Agency.
For the implementation of the proposed reforms, the Administration has prepared a comprehensive, three-phase approach and is currently moving forward to make specific reforms which can be initiated immediately and implemented without legislation:
Phase I makes significant and immediate improvements to the existing system and establishes the framework necessary to create the new system, including making preparations for any legislative proposals. This phase includes implementing specific reform actions already in process and initiating review of new ones.
-
Control List – refine,
understand, and harmonize definitions to end
jurisdiction confusion between the two lists;
establish new independent control criteria to be
used to screen items for control into new tiered
control list structure.
• Licensing – implement regulatory-based improvements to streamline licensing processes and standardize policy and processes to increase efficiencies.
• Enforcement – synchronize and de-conflict enforcement by creation of an Enforcement Fusion Center.
• IT – determine enterprise-wide needs and begin the process to reduce confusion by creating a single U.S. Government (USG) point of entry for exporters.
Phase II results in a fundamentally new U.S. export control system based on the current structure later this year. This phase completes deployment of specific Phase I reforms and initiates new actions contingent upon completion of Phase I items. Congressional notification will be required to remove munitions list controls or transfer items from the munitions list to the dual-use list, and additional funding will be required both for enhanced enforcement and the IT infrastructure.
-
Control List – restructure
the two lists into identical tiered structures,
apply criteria, remove unilateral controls as
appropriate, and submit proposals multilaterally
to add or remove controls.
• Licensing – complete transition to mirrored control list system and fully implement licensing harmonization to allow export authorizations within each control tier to achieve a significant license requirement reduction which is compatible with national security equities.
• Enforcement – expand outreach and compliance.
• IT – transition toward a single electronic licensing system.
Phase III completes the transition to the new U.S. export control system. Legislation would be required for this phase:
-
Control List – merge the two
lists into a single list, and implement
systematic process to keep current.
• Licensing – implement single licensing agency.
• Enforcement – consolidate certain enforcement activities into a Primary Enforcement Coordination Agency.
• IT – implement a single, enterprise-wide IT system (both licensing and enforcement).
Secretary of Defense Discusses Reform of the U.S. Export Controls
04/19/10 11:10 PM
On
April 19, 2010, the U.S. Secretary of Defense
Robert Gates discussed the
administration’s interagency review of the U.S.
export control system. Gates stated that the
consensus among the Secretaries of State,
Commerce, Defense, Energy, and Homeland Security
is that the current export control system poses
a potential threat to national security. Gates
identified as part of the problem export control
processes that were designed 50 years ago that
he claims are unfit for solving modern issues.
The fundamental reform of the export control system, according to Gates, needs to take place in four dimensions, also referred as the “four singles”:
Gates also mentioned that among the changes to the export controls system are treaties between the U.S. and each of the key allies that contain special arrangements under which an export license would not be required for export of goods that are not on a list of very sensitive items, to pre-determined communities of companies that have been vetted by the foreign government. This legislation is currently pending ratification in the Senate.
The fundamental reform of the export control system, according to Gates, needs to take place in four dimensions, also referred as the “four singles”:
- A single export
control list. The United States Munitions List
(USML) and Commerce Control List (CCL) would be
replaced by a single list, which would prevent
forum shopping where exporters may try
classification under one list versus another,
duplication, where an item is covered by both
USML and CCL, and also aid companies in
understanding applicable restrictions.
2 A single licensing agency. Currently, two different authorities – the State Department’s Director of Defense Trade Controls (DDTC) and the Commerce Department’s Bureau of Industry and Security (BIS) – often make independent, unilateral decisions, which sometimes cause for confusion and delay in decision making.
3 A single agency to coordinate enforcement, which would strengthen the ability to identify, investigate and prosecute violations. Currently, multiple enforcement agencies exist, including Immigration and Customs Enforcement (ICE), State enforcement, Commerce Export Enforcement Office, FBI, and many others. It is expected that in the future there will still be multiple enforcement institutions, but their efforts will be coordinated to avoid overlapping jurisdiction and, in some cases, confused authorities.
4 A single unified IT system. Gates stressed that a single IT system instead of the current three would review license application process across the U.S. government and also make this process more efficient.
Gates also mentioned that among the changes to the export controls system are treaties between the U.S. and each of the key allies that contain special arrangements under which an export license would not be required for export of goods that are not on a list of very sensitive items, to pre-determined communities of companies that have been vetted by the foreign government. This legislation is currently pending ratification in the Senate.
BIS Eliminates Paper Versions of Most Export Submissions
04/05/10 12:33 AM
On
April 5, 2010, Bureau of Industry and Security
(BIS) issued a final rule in Federal
Register that eliminates the paper version of
most of export submissions to BIS. The rule also
changes certain recordkeeping requirements
associated with the elimination of paper
documents.
Specifically, the rule revises the EAR to state that BIS may issue export and reexport licenses either electronically or on paper and that each license will bear a license number. This language enables BIS to exercise discretion in deciding whether to issue a license electronically in SNAP-R or on paper. However, BIS expects that it will issue nearly all licenses electronically. Unless some exceptional circumstances exist, only licenses for which the applicant was authorized to file the application on paper and licenses that BIS cannot issue electronically (currently, only reopened licenses) will be issued on paper. BIS made the change to reduce the costs of generating and mailing paper copies of licenses.
Currently, BIS issues license related documents in two ways: electronically in BIS’s Simplified Network Application Processing Redesign system (SNAP-R) and on paper. Most license related documents are issued in both electronic and paper form. Only a few such documents are issued only on paper.
The EAR require that export license applications, reexport license application, License Exception AGR notification, encryption review requests, and classification requests be submitted to BIS electronically using SNAP-R, except in individual instances where BIS authorizes a paper submission. The license related documents associated with a SNAP-R submissions are issued on line in SNAP-R where the submitter may view, save, or print a copy. In addition, a paper version of each of those documents is mailed to the submitter.
In two situations, BIS issues only a paper version of a license related document: when BIS authorizes a paper submission, and when BIS must reissue the license related document because it reopened a matter previously considered to be completed. BIS does not intend to stop issuing paper license related documents in those two situations. It also does not intend to change its practices regarding issuance of Special Comprehensive Licenses or Special Iraq Reconstruction Licenses, both of which are paper-based.
BIS intends to discontinue issuing paper documents in the situations where it currently issues both paper and electronic versions of license related documents.
Recordkeeping Requirements
The final rule also made changes to recordkeeping requirements associated with the elimination of paper documents:
The new rule also provides that parties who receive documents issued by BIS in SNAP-R may store the documents in two ways, either of which meet the requirements that original documents be retained: electronically in a format readable by software possessed by the recipient party, or storage of a complete printed paper copy of the document.
The new rule is effective May 5, 2010.
Specifically, the rule revises the EAR to state that BIS may issue export and reexport licenses either electronically or on paper and that each license will bear a license number. This language enables BIS to exercise discretion in deciding whether to issue a license electronically in SNAP-R or on paper. However, BIS expects that it will issue nearly all licenses electronically. Unless some exceptional circumstances exist, only licenses for which the applicant was authorized to file the application on paper and licenses that BIS cannot issue electronically (currently, only reopened licenses) will be issued on paper. BIS made the change to reduce the costs of generating and mailing paper copies of licenses.
Currently, BIS issues license related documents in two ways: electronically in BIS’s Simplified Network Application Processing Redesign system (SNAP-R) and on paper. Most license related documents are issued in both electronic and paper form. Only a few such documents are issued only on paper.
The EAR require that export license applications, reexport license application, License Exception AGR notification, encryption review requests, and classification requests be submitted to BIS electronically using SNAP-R, except in individual instances where BIS authorizes a paper submission. The license related documents associated with a SNAP-R submissions are issued on line in SNAP-R where the submitter may view, save, or print a copy. In addition, a paper version of each of those documents is mailed to the submitter.
In two situations, BIS issues only a paper version of a license related document: when BIS authorizes a paper submission, and when BIS must reissue the license related document because it reopened a matter previously considered to be completed. BIS does not intend to stop issuing paper license related documents in those two situations. It also does not intend to change its practices regarding issuance of Special Comprehensive Licenses or Special Iraq Reconstruction Licenses, both of which are paper-based.
BIS intends to discontinue issuing paper documents in the situations where it currently issues both paper and electronic versions of license related documents.
Recordkeeping Requirements
The final rule also made changes to recordkeeping requirements associated with the elimination of paper documents:
- The rule removes
a requirement that the license holder attach a
replacement license issued by BIS to the original
license that it replaces. However, the rule
retains the requirement that the license holder
keep both the original and the replacement
licenses.
• The rule exempts parties who submit documents to BIS via SNAP-R from requirements to retain copies of documents so submitted even thought those documents are “export control documents” under the EAR.
• The new rule requires that the following documents are kept: (1) notification from BIS that an application is being returned without action; (2) notification from BIS that an application is being denied; and (3) notification from BIS of the results of a commodity classification or encryption review request conducted by BIS.
The new rule also provides that parties who receive documents issued by BIS in SNAP-R may store the documents in two ways, either of which meet the requirements that original documents be retained: electronically in a format readable by software possessed by the recipient party, or storage of a complete printed paper copy of the document.
The new rule is effective May 5, 2010.
Exporter Assessed $100,000 Penalty for Unauthorized Exports to Iran
04/02/10 11:18 PM
On
April 2, 2010, Aqua-Loop Cooling Towers Co.
(Aqua-Loop) of Folsom, CA, settled with Bureau of
Industry and Security (BIS) charges of violating
the Export Administrations Regulations (EAR).
According to the settlement agreement, from June 2004 to April 2005, Aqua-Loop exported items subject to the EAR from the U.S. to Iran, via the United Arab Emirates, without the required authorization from the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC).
Specifically, Aqua-Loop searched for and obtained items from U.S. distributors and then exported them to an Iranian customer and co-conspirator, Parto Abgardan Cooling Towers Co. (Parto). On one occasion, Parto asked Aqua-Loop to purchase a filament winding machine in the U.S. on its behalf and forward it on to Dubai and then to Iran.
According to the settlement agreement, Aqua-Loop was assessed a civil penalty of $100, 000 that was suspended for 10 years. The company is also prohibited from dealing in any transaction that is subject to the EAR for ten years
According to the settlement agreement, from June 2004 to April 2005, Aqua-Loop exported items subject to the EAR from the U.S. to Iran, via the United Arab Emirates, without the required authorization from the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC).
Specifically, Aqua-Loop searched for and obtained items from U.S. distributors and then exported them to an Iranian customer and co-conspirator, Parto Abgardan Cooling Towers Co. (Parto). On one occasion, Parto asked Aqua-Loop to purchase a filament winding machine in the U.S. on its behalf and forward it on to Dubai and then to Iran.
According to the settlement agreement, Aqua-Loop was assessed a civil penalty of $100, 000 that was suspended for 10 years. The company is also prohibited from dealing in any transaction that is subject to the EAR for ten years
BIS Amends the EAR to Enhance U.S. Homeland Security
03/25/10 11:14 PM
On
March 25, 2010, the Bureau of Industry and Security
(BIS) issued a final rule amending the
Export Administration Regulations (EAR) by
revising controls to advance U.S. homeland
security and foreign policy interests. The
revisions include language that should
facilitate public understanding of how concealed
object detection equipment is treated for
purposes of U.S. Government export controls, in
particular by detailing the technical parameters
of concealed object detection equipment that is
subject to the Export Administration
Regulations.
These amendments reflect issues identified by an interagency working group that is reviewing export control issues related to homeland security. The interagency working group is made up of representatives from the Departments of Commerce, Defense, Homeland Security and State. The purpose of the interagency working group is to ensure that appropriate export controls are in place to protect U.S. export control interests for homeland security related items, while at the same time facilitating the development, production and use of items that will enhance U.S. homeland security and the homeland security of key U.S. allies.
To help accomplish these objectives, this rule adds three new entries to the Commerce Control List (CCL) to control certain concealed object detection equipment operating in the frequency range from 30 GHz to 3000 GHz and related software and technology. In addition, to facilitate the export and reexport of these items to certain trusted destinations and end-users, this rule adds new license review criteria to the EAR to create a presumption of approval for certain cooperating countries provided the items are being made to a government end-user or to a person designated by the government end-user pursuant to contract.
These amendments reflect issues identified by an interagency working group that is reviewing export control issues related to homeland security. The interagency working group is made up of representatives from the Departments of Commerce, Defense, Homeland Security and State. The purpose of the interagency working group is to ensure that appropriate export controls are in place to protect U.S. export control interests for homeland security related items, while at the same time facilitating the development, production and use of items that will enhance U.S. homeland security and the homeland security of key U.S. allies.
To help accomplish these objectives, this rule adds three new entries to the Commerce Control List (CCL) to control certain concealed object detection equipment operating in the frequency range from 30 GHz to 3000 GHz and related software and technology. In addition, to facilitate the export and reexport of these items to certain trusted destinations and end-users, this rule adds new license review criteria to the EAR to create a presumption of approval for certain cooperating countries provided the items are being made to a government end-user or to a person designated by the government end-user pursuant to contract.
Virginia Man Convicted of Theft of DuPont Trade Secrets
03/18/10 10:33 PM
On
March 18, 2010, the Department of Justice (DOJ)
issued a press release
regarding the
sentencing of Michael David Mitchell, a Virginia
man, to 18 months imprisonment for theft of
trade secrets and obstruction of justice.
Mitchell was employed as an engineer and
salesperson for DuPont for over 25 years. During
his last two years of employment, Mitchell
worked in the sales and marketing of Kevlar,®
DuPont's registered trademark for a very light,
very strong synthetic fiber that is spun into
ropes or fabric sheets that can be used as such,
or as an ingredient in composite material
components.
After DuPont terminated his employment, Mitchell began work as a consultant for Kolon Industries, Inc. (Kolon), a DuPont competitor. In 2007, DuPont officials became aware that Mitchell had been contacting current and former employees of DuPont seeking technical information on behalf of Kolon. DuPont officials raised their concerns with FBI and Department of Commerce (DoC) investigators, who launched a joint investigation. On March 12, 2008, FBI and DoC special agents executed a federal search warrant on Mitchell's house, seizing documents and multiple computers. Forensic analysis of the defendant's computers revealed hundreds of pages of DuPont proprietary documents, along with the evidence of the above-referenced Denier Economics email.
Following the execution of the search warrant, Mitchell agreed to become a cooperator for the government during its ongoing investigation relating to possible attempted theft of trade secrets and violations of export control laws. Under the direction and supervision of federal investigators, Mitchell made numerous recorded telephone conversations and exchanged emails with Kolon employees.
After DuPont terminated his employment, Mitchell began work as a consultant for Kolon Industries, Inc. (Kolon), a DuPont competitor. In 2007, DuPont officials became aware that Mitchell had been contacting current and former employees of DuPont seeking technical information on behalf of Kolon. DuPont officials raised their concerns with FBI and Department of Commerce (DoC) investigators, who launched a joint investigation. On March 12, 2008, FBI and DoC special agents executed a federal search warrant on Mitchell's house, seizing documents and multiple computers. Forensic analysis of the defendant's computers revealed hundreds of pages of DuPont proprietary documents, along with the evidence of the above-referenced Denier Economics email.
Following the execution of the search warrant, Mitchell agreed to become a cooperator for the government during its ongoing investigation relating to possible attempted theft of trade secrets and violations of export control laws. Under the direction and supervision of federal investigators, Mitchell made numerous recorded telephone conversations and exchanged emails with Kolon employees.
President Obama Signs Executive Order on National Export Initiative
03/11/10 05:38 PM
On
March 11, 2010, President Obama signed an
executive order
launching a
single, comprehensive strategy to promote
American exports called National Export
Initiative (NEI). That same day, President
Obama spoke about NEI at
the Export-Import Bank’s (Ex-Im) Annual
Conference in Washington, DC.
In the executive order, Obama states that the NEI will help meet his Administration’s goal of doubling exports over the next 5 years by working to remove trade barriers abroad, by helping firms to overcome obstacles to enter new export markets, by increasing trade financing, and by pursuing a general, Government-wide approach to promote U.S. exports abroad.
Particular focus of NEI will fall on the following areas:
a) Exports by small and medium-sized corporations (SMEs). EPC members will develop programs designed to enhance export assistance to SMEs, including developing programs to improve technical assistance to first-time exporters and assisting current exporters in identifying new export opportunities in international markets;
b) Federal Export Assistance. Members of the EPC will promote Federal resources currently available to assist U.S. exports;
c) Trade Missions and Commercial Advocacy. U.S. Government-led trade missions will effectively promote exports by U.S. companies;
d) Increasing Trade Financing. The President of Ex-Im will work on increasing the availability of credits to SMEs. In his speech, the President noted that in 2009, Ex-Im authorized $21 billion in loans in support of U.S. exports, almost a 50% increase from the previous year. Under the NEI, the amount of trade financing available to SMEs is expected to increase further;
e) Macroeconomic Rebalancing. A balanced and strong growth in the global economy will be promoted through the G20 or other appropriate mechanisms;
f) Reducing Barriers to Trade. The U.S. Trade Representative together with members of EPC will take steps to improve market access overseas for U.S. manufacturers, farmers, and service providers. To ensure that that U.S. companies have free and fair access to the overseas markets, in his speech at Ex-Im President Obama called for enforcement of trade agreements that U.S. already has on books; and
g) Export Promotion of Services. Pursuant to NEI, a framework for promoting services trade, including the necessary policy and export promotion tools, will be developed.
President Obama also stated that one of the major goals of NEI is aggressive protection of intellectual property in the U.S., achieved by negotiating proper protections with foreign countries and enforcing existing U.S. agreements overseas.
With regard to export controls, President Obama stated:
Finally, we’re working to reform our Export Control System for our strategic, high-tech industries, which will strengthen our national security. What we want to do is concentrate our efforts on enforcing controls on the export of our most critical technologies, making America safer while enhancing the competitiveness of key American industries. We’ve conducted a broad review of the Export Control System, and Secretary Gates will outline our reform proposal within the next couple of weeks. But today, I’d like to announce two steps that we’re prepared to take.
First, we’re going to streamline the process certain companies need to go through to get their products to market -– products with encryption capabilities like cell phone and network storage devices. Right now, they endure a technical review that can take between 30 and 60 days, and that puts that company at a distinct disadvantage to foreign competitors who don’t face those same delays. So a new one-time online process will shorten that review time from 30 days to 30 minutes, and that makes it quicker and easier for our businesses to compete while meeting our national security requirements.
And second, we’re going to eliminate unnecessary obstacles for exporting products to companies with dual-national and third-country-national employees. Currently, our exporters and foreign consumers of these goods have to comply with two different, conflicting set of standards. They’re running on two tracks, when they could be running just on one. So we’re moving towards harmonizing those standards and making it easier for American and foreign companies to comply with our requirements without diminishing our security. And I look forward to consulting with Congress on these reforms, as well as broader export control reform efforts.
In the executive order, Obama states that the NEI will help meet his Administration’s goal of doubling exports over the next 5 years by working to remove trade barriers abroad, by helping firms to overcome obstacles to enter new export markets, by increasing trade financing, and by pursuing a general, Government-wide approach to promote U.S. exports abroad.
Particular focus of NEI will fall on the following areas:
a) Exports by small and medium-sized corporations (SMEs). EPC members will develop programs designed to enhance export assistance to SMEs, including developing programs to improve technical assistance to first-time exporters and assisting current exporters in identifying new export opportunities in international markets;
b) Federal Export Assistance. Members of the EPC will promote Federal resources currently available to assist U.S. exports;
c) Trade Missions and Commercial Advocacy. U.S. Government-led trade missions will effectively promote exports by U.S. companies;
d) Increasing Trade Financing. The President of Ex-Im will work on increasing the availability of credits to SMEs. In his speech, the President noted that in 2009, Ex-Im authorized $21 billion in loans in support of U.S. exports, almost a 50% increase from the previous year. Under the NEI, the amount of trade financing available to SMEs is expected to increase further;
e) Macroeconomic Rebalancing. A balanced and strong growth in the global economy will be promoted through the G20 or other appropriate mechanisms;
f) Reducing Barriers to Trade. The U.S. Trade Representative together with members of EPC will take steps to improve market access overseas for U.S. manufacturers, farmers, and service providers. To ensure that that U.S. companies have free and fair access to the overseas markets, in his speech at Ex-Im President Obama called for enforcement of trade agreements that U.S. already has on books; and
g) Export Promotion of Services. Pursuant to NEI, a framework for promoting services trade, including the necessary policy and export promotion tools, will be developed.
President Obama also stated that one of the major goals of NEI is aggressive protection of intellectual property in the U.S., achieved by negotiating proper protections with foreign countries and enforcing existing U.S. agreements overseas.
With regard to export controls, President Obama stated:
Finally, we’re working to reform our Export Control System for our strategic, high-tech industries, which will strengthen our national security. What we want to do is concentrate our efforts on enforcing controls on the export of our most critical technologies, making America safer while enhancing the competitiveness of key American industries. We’ve conducted a broad review of the Export Control System, and Secretary Gates will outline our reform proposal within the next couple of weeks. But today, I’d like to announce two steps that we’re prepared to take.
First, we’re going to streamline the process certain companies need to go through to get their products to market -– products with encryption capabilities like cell phone and network storage devices. Right now, they endure a technical review that can take between 30 and 60 days, and that puts that company at a distinct disadvantage to foreign competitors who don’t face those same delays. So a new one-time online process will shorten that review time from 30 days to 30 minutes, and that makes it quicker and easier for our businesses to compete while meeting our national security requirements.
And second, we’re going to eliminate unnecessary obstacles for exporting products to companies with dual-national and third-country-national employees. Currently, our exporters and foreign consumers of these goods have to comply with two different, conflicting set of standards. They’re running on two tracks, when they could be running just on one. So we’re moving towards harmonizing those standards and making it easier for American and foreign companies to comply with our requirements without diminishing our security. And I look forward to consulting with Congress on these reforms, as well as broader export control reform efforts.
U.K. Co. Pleads Guilty to Conspiracy to Defraud U.S. Government Agencies
03/02/10 05:32 PM
On
March 1, 2010, Department of Justice (DOJ)
issued a press release
announcing that
BAE Systems plc (BAES) pleaded guilty in U.S.
District Court in the District of Columbia to
conspiracy to defraud the U.S. by impairing and
impeding its lawful functions, to make false
statements about its Foreign Corrupt Practices
Act (FCPA) compliance program, and to violate
the Arms Export Control Act (AECA) and
International Traffic in Arms Regulations
(ITAR). BAES was sentenced to pay $400 million
criminal fine.
Headquartered in the U.K., BAES is a multinational defense contractor. The company also has a U.S. subsidiary, BAE Systems, Inc., headquartered in Rockville, Maryland. None of the criminal conduct described in the case is attributable to the American company.
According to court documents, from approximately 2000 to 2002, despite its promises to create mechanisms to ensure compliance with the legal prohibitions on foreign bribery stemming from FCPA, as well as foreign laws implementing the Organization for Economic Cooperation and Development (OECD) Anti-Bribery Convention, BAES knowingly and willfully failed to do so.
Instead, BAES made a series of substantial payments to shell companies and third party intermediaries that were not subject to the degree of scrutiny and review to which BAES told the U.S. government the payments would be subjected. BAES admitted it regularly retained what it referred to as “marketing advisors” to assist in securing sales of defense items without scrutinizing those relationships.
BAES also encouraged the advisors to establish their own offshore shell companies to receive payments from BAES while disguising the origins and recipients of these payments. BAES set up a company in the British Virgin Islands (BVI) to conceal its marketing advisor relationships and to circumvent laws in countries that did not allow such relationships, to create obstacles for investigators to penetrate the arrangements, and to assist advisors in avoiding tax liability for payment from BAES.
BAES used this BVI entity to make payments totaling more than £135 million in addition to $14 million, although being aware, in some cases, that there was a high probability that part of the payment would be used to ensure that BAES was favored in foreign government contracts regarding purchase of defense articles.
BAES also served as the prime contractor to the U.K. government in the mid-1980s, after the U.K. and the Kingdom of Saudi Arabia (KSA) entered into a formal understanding. There, BAES provided “support services” resulting in substantial benefits to a foreign public official of KSA, who was in position to influence sales of fighter jets, and other defense materials and related support services. BAES did not review or verify benefits provided to the KSA official, including it did not perform adequate review of more than $5 million in invoices submitted by a BAES employees from May 2001 to early 2002 to establish whether the listed expenses were in compliance with previous statements made by BAES to the U.S. government regarding its anti-corruption compliance measures.
As part of its guilty plea, BAES has agreed to maintain a compliance program designed to detect and deter violations of the FCPA, other foreign laws implementing the OECD Anti-bribery Convention, and any other applicable anti-corruption laws, and that is designed to detect and deter violations of the AECA and ITAR, as well as similar export control laws.
Headquartered in the U.K., BAES is a multinational defense contractor. The company also has a U.S. subsidiary, BAE Systems, Inc., headquartered in Rockville, Maryland. None of the criminal conduct described in the case is attributable to the American company.
According to court documents, from approximately 2000 to 2002, despite its promises to create mechanisms to ensure compliance with the legal prohibitions on foreign bribery stemming from FCPA, as well as foreign laws implementing the Organization for Economic Cooperation and Development (OECD) Anti-Bribery Convention, BAES knowingly and willfully failed to do so.
Instead, BAES made a series of substantial payments to shell companies and third party intermediaries that were not subject to the degree of scrutiny and review to which BAES told the U.S. government the payments would be subjected. BAES admitted it regularly retained what it referred to as “marketing advisors” to assist in securing sales of defense items without scrutinizing those relationships.
BAES also encouraged the advisors to establish their own offshore shell companies to receive payments from BAES while disguising the origins and recipients of these payments. BAES set up a company in the British Virgin Islands (BVI) to conceal its marketing advisor relationships and to circumvent laws in countries that did not allow such relationships, to create obstacles for investigators to penetrate the arrangements, and to assist advisors in avoiding tax liability for payment from BAES.
BAES used this BVI entity to make payments totaling more than £135 million in addition to $14 million, although being aware, in some cases, that there was a high probability that part of the payment would be used to ensure that BAES was favored in foreign government contracts regarding purchase of defense articles.
BAES also served as the prime contractor to the U.K. government in the mid-1980s, after the U.K. and the Kingdom of Saudi Arabia (KSA) entered into a formal understanding. There, BAES provided “support services” resulting in substantial benefits to a foreign public official of KSA, who was in position to influence sales of fighter jets, and other defense materials and related support services. BAES did not review or verify benefits provided to the KSA official, including it did not perform adequate review of more than $5 million in invoices submitted by a BAES employees from May 2001 to early 2002 to establish whether the listed expenses were in compliance with previous statements made by BAES to the U.S. government regarding its anti-corruption compliance measures.
As part of its guilty plea, BAES has agreed to maintain a compliance program designed to detect and deter violations of the FCPA, other foreign laws implementing the OECD Anti-bribery Convention, and any other applicable anti-corruption laws, and that is designed to detect and deter violations of the AECA and ITAR, as well as similar export control laws.
BIS Posts Updated EMCP Compliance Guidelines
02/22/10 03:13 PM
On
February 22, 2010, the U.S. Bureau of Industry and
Security (BIS) posted online updated
“Compliance Guidelines: How to Develop
an Effective Export Management and Compliance
Program and Manual.”
U.S. Seeks Extradition of Iranian Engineer Who Purchased Sensitive Items Online
02/17/10 10:12 PM
The
Associated Press reported that on
February 17, 2010, a French court postponed a
decision on whether to extradite an Iranian
Engineer to the U.S., where he is accused of
exporting goods to an embargoed country, money
laundering, smuggling goods, and other charges.
Majid Kakavand (Kakavand) was arrested in Paris
on March 20, 2009 and held in prison until
August 26, 2009, until his release on condition
that he stays in Paris.
U.S. government claims that Kakavand went online to purchase U.S. electronics, including capacitors, inductors, resistors, sensors and connectors, and had them shipped to Malaysia, from where they were forwarded to two Iranian military entities.
The French court must decide whether Kakavand is to be extradited based on whether his actions were illegal in France as well as the United States. U.S. government claims that Kakavand needed export licenses to send the items to Iran. Kakavand’s attorneys argue that he did not violate French or European Union laws which have no general trade embargo on Iran like the U.S, and that documents in all sales transactions were stamped NLR, for “No License Required.”
The main argument in this case is whether items that Kakavand purchased have sensitive defense uses. The accused firefengineer contends that the electronics that he bought online are ordinary and commonplace; however, the U.S. in its extradition request argue that many items at issue meet military standards.
In February’s hearing, the judge handling the case asked for additional information on the matter, including France’s military armament body studies, before making the extradition decision. The new hearing has been set for March 31, 2010.
U.S. government claims that Kakavand went online to purchase U.S. electronics, including capacitors, inductors, resistors, sensors and connectors, and had them shipped to Malaysia, from where they were forwarded to two Iranian military entities.
The French court must decide whether Kakavand is to be extradited based on whether his actions were illegal in France as well as the United States. U.S. government claims that Kakavand needed export licenses to send the items to Iran. Kakavand’s attorneys argue that he did not violate French or European Union laws which have no general trade embargo on Iran like the U.S, and that documents in all sales transactions were stamped NLR, for “No License Required.”
The main argument in this case is whether items that Kakavand purchased have sensitive defense uses. The accused firefengineer contends that the electronics that he bought online are ordinary and commonplace; however, the U.S. in its extradition request argue that many items at issue meet military standards.
In February’s hearing, the judge handling the case asked for additional information on the matter, including France’s military armament body studies, before making the extradition decision. The new hearing has been set for March 31, 2010.
DDTC Makes Announcement re: Commodity Jurisdiction Requests
02/17/10 03:22 PM
On
February 17, 2010, the Directorate of Defense Trade
Controls (DDTC) announced that until further notice
and effective immediately: “All CJ requests must be
mailed (FedEx, DRL, UPS, USPS, etc.) to DDTC.
Requests must include eight complete copies of a
fully executed DS-4076 CJ Form and all supporting
documentation. This statement is to temporarily
update the CJ Guidelines included
below.”
Proposed Form I-129 Revision Requires Employers to Obtain BIS Deemed Export License before Filing for H-1B
02/08/10 11:33 PM
On
February 8, 2010, the Department of Homeland
Security, U.S. Citizenship and Immigration Services
(USCIS) issued a notice requesting
comments on the proposed changes of Form
I-129, Petition for
a Nonimmigrant Worker. If revised, Form I-129,
used to apply for H-1B visas for skilled
technical workers, will require employers to
obtaine a deemed export license from the Bureau
of Industry and Security (BIS) before applying
for the H-1B visa itself. Before, an employer
could file for H-1B visa and the deemed export
licensed simultaneously.
As provided by the instructions to Form I-129 on p. 4, if a deemed export license is required, “the petitioner must submit evidence that a review of the deemed export license requirements has been completed, as set forth by Title 15, Code of Federal Regulations (CFR), Export Administration Regulations (EAR) Part 734.2 the Deemed Export Rule as regulated by the U.S. Department of Commerce.”
Comments on the proposed changes are due by April 9, 2010.
As provided by the instructions to Form I-129 on p. 4, if a deemed export license is required, “the petitioner must submit evidence that a review of the deemed export license requirements has been completed, as set forth by Title 15, Code of Federal Regulations (CFR), Export Administration Regulations (EAR) Part 734.2 the Deemed Export Rule as regulated by the U.S. Department of Commerce.”
Comments on the proposed changes are due by April 9, 2010.
Ex-Boeing Engineer Sentenced for Stealing Aerospace Secrets for China
02/08/10 11:22 PM
The
Wall Street Journal reported that on
February 8, 2010, Dongfan “Greg” Chung, a
Chinese-born former Boeing engineer was
sentenced to 15 years and 8 months in prison for
acquiring sensitive U.S. space shuttle
information and other documents for China.
The case against Chung was the first U.S. trial on economic espionage charges. The government charged that Chung began spying for the Chinese in the late 1970s, after he became a naturalized U.S. citizen and was hired by Rockwell International, where he worked until it was acquired by Boeing in 1996. Chung stayed with Boeing until he was laid off in 2002, but a year later he was brought back as a consultant. Boeing fired Chung when FBI began its investigation in 2006.
The government accused Chung, a stress analyst with high-level clearance, of stealing documents related to aerospace technology development while working for Rockwell and Boeing. When FBI agents searched Chung’s house in 2006, they found more than 300,000 pages of documents on Boeing-developed aerospace and defense technologies. Specifically, the technologies involved an antenna developed for radar and communications on the U.S. shuttle and a fueling mechanism for a booster rocket used to launch manned space vehicles.
During trial, Chung claimed that he had brought the documents home to write a book. Chung’s lawyers argued that he may have violated Boeing policy by bringing the papers home, but he did not break any laws by doing so, and U.S. government could not prove that he had given away any sensitive information to China.
Assistant U.S. Attorney noted in sentencing papers that Chung acquired a personal wealth of more than $3 million during his cooperation with China.
Chung’s activities were discovered while investigating Chi Mak, another suspected Chinese spy living in Southern California. In 2007, Mak was convicted of conspiracy to export U.S. defense technology to China and sentenced to 24 years in prison.
The case against Chung was the first U.S. trial on economic espionage charges. The government charged that Chung began spying for the Chinese in the late 1970s, after he became a naturalized U.S. citizen and was hired by Rockwell International, where he worked until it was acquired by Boeing in 1996. Chung stayed with Boeing until he was laid off in 2002, but a year later he was brought back as a consultant. Boeing fired Chung when FBI began its investigation in 2006.
The government accused Chung, a stress analyst with high-level clearance, of stealing documents related to aerospace technology development while working for Rockwell and Boeing. When FBI agents searched Chung’s house in 2006, they found more than 300,000 pages of documents on Boeing-developed aerospace and defense technologies. Specifically, the technologies involved an antenna developed for radar and communications on the U.S. shuttle and a fueling mechanism for a booster rocket used to launch manned space vehicles.
During trial, Chung claimed that he had brought the documents home to write a book. Chung’s lawyers argued that he may have violated Boeing policy by bringing the papers home, but he did not break any laws by doing so, and U.S. government could not prove that he had given away any sensitive information to China.
Assistant U.S. Attorney noted in sentencing papers that Chung acquired a personal wealth of more than $3 million during his cooperation with China.
Chung’s activities were discovered while investigating Chi Mak, another suspected Chinese spy living in Southern California. In 2007, Mak was convicted of conspiracy to export U.S. defense technology to China and sentenced to 24 years in prison.
UK Firm Pleads Guilty to Exporting Boeing 747 Aircraft to Iran; Pays $15 Million in Fines
02/06/10 02:58 PM
On
February 5, 2010, the Department of Justice
(DOJ) announced that Balli
Aviation Ltd., a subsidiary of United
Kingdom-based Balli Group PLC, pleaded guilty in
the U.S. District Court for the District of
Columbia to a two-count criminal information in
connection with its illegal export of commercial
Boeing 747 aircraft from the United States to
Iran. (BIS’ press release can be found
here.)
The DOJ announced:
Under the plea agreement, Balli Aviation Ltd. agreed to pay a $2 million criminal fine and be placed on corporate probation for five years. The $2 million fine, combined with a related $15 million civil settlement among Balli Group PLC, Balli Aviation Ltd., the U.S. Department of Commerce's Bureau of Industry and Security (BIS), and the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC), that was also announced today, represents one of the largest fines for an export violation in BIS history.
Under the terms of the related civil settlement, Balli Group PLC and Balli Aviation Ltd. have agreed to pay a civil penalty of $15 million of which $2 million will be suspended if there are no further export control violations. In addition, Balli Aviation Ltd. and Balli Group PLC are denied export privileges for five years, although this penalty will be suspended provided that neither Balli Aviation nor Balli Group commits any export violations and pays the civil penalty. Under the terms of the settlement, Balli Group PLC and Balli Aviation, Ltd. will also have to submit the results of an independent audit of its export compliance program to BIS and OFAC for each of the next five years.
According to count one of the information filed with the court, beginning in at least October 2005, through October 2008, Balli Aviation Ltd. conspired to export three Boeing 747 aircraft from the United States to Iran without first having obtained the required export license from BIS or authorization from OFAC, in violation of the Export Administration Regulations (EAR) and the Iranian Transactions Regulations. More particularly, the information states that Balli Aviation Ltd., through its subsidiaries, the Blue Sky Companies, purchased U.S.-origin aircraft with financing obtained from an Iranian airline and caused these aircraft to be exported to Iran without obtaining the required U.S. government licenses. Further, Balli Aviation Ltd. entered into lease arrangements that permitted the Iranian airline to use the U.S.-origin aircraft for flights in and out of Iran.
Count two of the information states that Balli Aviation Ltd. violated a Temporary Denial Order (TDO) issued by BIS on March 17, 2008, that prohibited the company from conducting any transaction involving any item subject to the EAR. Starting in or about March 2008 and continuing through about August 2008, Balli Aviation Ltd. willfully violated the TDO by carrying on negotiations with others concerning buying, receiving, using, selling and delivering U.S.-origin aircraft which went to the Export Administration Regulations.
"Today's case should serve as further warning of Iran's continued efforts to circumvent sanctions and obtain U.S. technology. Together with our colleagues from the Justice and Commerce departments, OFAC will continue to aggressively pursue both domestic and foreign entities that seek to violate U.S. sanctions programs by exporting goods to Iran from the United States." said Adam J. Szubin, Director, Office of Foreign Assets Control.
The DOJ announced:
Under the plea agreement, Balli Aviation Ltd. agreed to pay a $2 million criminal fine and be placed on corporate probation for five years. The $2 million fine, combined with a related $15 million civil settlement among Balli Group PLC, Balli Aviation Ltd., the U.S. Department of Commerce's Bureau of Industry and Security (BIS), and the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC), that was also announced today, represents one of the largest fines for an export violation in BIS history.
Under the terms of the related civil settlement, Balli Group PLC and Balli Aviation Ltd. have agreed to pay a civil penalty of $15 million of which $2 million will be suspended if there are no further export control violations. In addition, Balli Aviation Ltd. and Balli Group PLC are denied export privileges for five years, although this penalty will be suspended provided that neither Balli Aviation nor Balli Group commits any export violations and pays the civil penalty. Under the terms of the settlement, Balli Group PLC and Balli Aviation, Ltd. will also have to submit the results of an independent audit of its export compliance program to BIS and OFAC for each of the next five years.
According to count one of the information filed with the court, beginning in at least October 2005, through October 2008, Balli Aviation Ltd. conspired to export three Boeing 747 aircraft from the United States to Iran without first having obtained the required export license from BIS or authorization from OFAC, in violation of the Export Administration Regulations (EAR) and the Iranian Transactions Regulations. More particularly, the information states that Balli Aviation Ltd., through its subsidiaries, the Blue Sky Companies, purchased U.S.-origin aircraft with financing obtained from an Iranian airline and caused these aircraft to be exported to Iran without obtaining the required U.S. government licenses. Further, Balli Aviation Ltd. entered into lease arrangements that permitted the Iranian airline to use the U.S.-origin aircraft for flights in and out of Iran.
Count two of the information states that Balli Aviation Ltd. violated a Temporary Denial Order (TDO) issued by BIS on March 17, 2008, that prohibited the company from conducting any transaction involving any item subject to the EAR. Starting in or about March 2008 and continuing through about August 2008, Balli Aviation Ltd. willfully violated the TDO by carrying on negotiations with others concerning buying, receiving, using, selling and delivering U.S.-origin aircraft which went to the Export Administration Regulations.
"Today's case should serve as further warning of Iran's continued efforts to circumvent sanctions and obtain U.S. technology. Together with our colleagues from the Justice and Commerce departments, OFAC will continue to aggressively pursue both domestic and foreign entities that seek to violate U.S. sanctions programs by exporting goods to Iran from the United States." said Adam J. Szubin, Director, Office of Foreign Assets Control.
White House Launches National Export Initiative
02/04/10 10:44 PM
On
February 4, 2010, U.S. Commerce Secretary Gary
Locke (Locke) announced the details of
President Obama’s National Export Initiative
(NEI) that seeks to double U.S. exports to $3
trillion within then next 5 years. The new
export levels are expected to support 2 million
U.S. jobs.
According to Locke’s entry on the White House blog, NEI seeks primarily to expand U.S. government’s export promotion efforts, increase government’s focus on eliminating obstacles that prevent U.S. exporters from getting open and fair access to foreign access, and improve access to credit, especially for small- and medium-sized businesses that would like to become exporters.
To increase exports, the Commerce Department and several other federal agencies will collaborate in combining trade advocacy with export control reform. According to Locke, the White House is asking Congress to increase trade promotion funding by apportioning an additional $70 million for the International Trade Administration (ITA) and $50 million for the Department of Agriculture in the 2011 budget.
ITA plans to hire an additional 300 trade exports to promote U.S. companies overseas and assist a client base of more that 23,000 to begin or increase their exports in 2011.
As part of the initiative, the Export-Import Bank will increase financing available to small businesses by $2 billion to $6 billion over the next year. Over the past three months, the bank authorized $1 billion in small business loans to increase exports.
NEI will also focus on existing trade laws, including enforcement of intellectual property rights.
According to Locke’s entry on the White House blog, NEI seeks primarily to expand U.S. government’s export promotion efforts, increase government’s focus on eliminating obstacles that prevent U.S. exporters from getting open and fair access to foreign access, and improve access to credit, especially for small- and medium-sized businesses that would like to become exporters.
To increase exports, the Commerce Department and several other federal agencies will collaborate in combining trade advocacy with export control reform. According to Locke, the White House is asking Congress to increase trade promotion funding by apportioning an additional $70 million for the International Trade Administration (ITA) and $50 million for the Department of Agriculture in the 2011 budget.
ITA plans to hire an additional 300 trade exports to promote U.S. companies overseas and assist a client base of more that 23,000 to begin or increase their exports in 2011.
As part of the initiative, the Export-Import Bank will increase financing available to small businesses by $2 billion to $6 billion over the next year. Over the past three months, the bank authorized $1 billion in small business loans to increase exports.
NEI will also focus on existing trade laws, including enforcement of intellectual property rights.
BIS Publishes Final Rule Adding a Validated End-User for the PRC
01/15/10 01:09 AM
On
January 15, 2010, the Bureau of Industry and
Security (BIS) published a final rule to
add an entity to the list of validated end-users
for the Peoples' Republic of China (PRC)
approved to receive exports, reexports, and
transfers of certain items under Authorization
Validated End-User (VEU). Sp