The charging documents for the consent decree between Aeroflex and the Directorate of Defense Trade Controls, which I wrote about last week, have now been released, and they tell an interesting, and somewhat alarming, story. It’s an alarming story because it suggests that DDTC thinks that Category XV of the USML means something other than what it actually says.
The bottom line of the story is that Aeroflex and the Department of Commerce’s Bureau of Industry and Security (“BIS”) classified certain microelectronic circuits as EAR99 which DDTC thought were appropriately classified as Category XV items on the USML. The problem started because Aeroflex assumed that subsection (d) of Article XV actually meant what it said. That article says that microelectronic circuits are covered by Article XV if they meet “all five” of the characteristics described in sections (d)(1) through (d)(5). Because the microelectronic circuits in question met only one of those characteristics, Aeroflex concluded that the items were not Category XV. The company then filed classification requests with BIS which, it appears, concluded that the items were EAR99. And the rest, as they say, is history — $8 million of history, to be precise.
DDTC says correctly that an item meeting one of the five characteristics might still be Category XV if the item was otherwise “specifically designed or modified” for use with spacecraft. But, with only a few exceptions, it’s not clear that the exported items at issue were “specifically designed or modified” in that fashion. In a number of instances in the Charging Letter, DDTC simply asserts that the items were in fact used on satellites, suggesting that as far as the agency is concerned, an item is Category XV if it meets one of the criteria in Category XV(d) and then is in fact used on a satellite. That, of course, doesn’t mean that something was “specifically designed or modified” for use in space.
In one instance, it does seem that the item was more than simply a radiation hardened item that was used on a satellite. In that instance, DDTC pointed to items that were radiation hardened and “specifically … programmed for use on the Spacebus 4000 satellite.” On those items, DDTC has a point, but on most of the others it is completely unclear what evidence there was that the items were designed for space use other than that they were in fact used on spacecraft.
Another thing that caught my attention in the initial press release on the settlement was that DDTC was charging Aeroflex with causing illegal exports by “causing” illegal exports by domestic purchasers. In the charging letter, it seems clear that DDTC is claiming that Aeroflex “caused” the illegal exports by affirmatively supplying domestic purchasers with the allegedly incorrect EAR99 classification for certain items. That certainly is a very broad notion of causation but it indicates that an incorrect classification might have a number of previously unforseen consequences.
Finally, I am quoting without further comment my favorite part of the Charging Letter:
[Aeroflex] incorrectly understood that exports of U.S. defense articles to Canada intended for end-use in Canada by Canadian or American citizens should be the subject of EAR license exception “no license required” or “NLR.” According to [Aeroflex], this misunderstanding was relied upon from 1999 through 2006.
The 51st State indeed.