Apr

22

Houston CEO Indicted For Not Having an Export License That He Didn’t Need


Posted by at 7:23 pm on April 22, 2015
Category: BISCriminal PenaltiesIran SanctionsOFAC

Smart Power Systems and Bahram Mechanic via http://www.smartpowersystems.com/content/main/corporateinformation.html [Fair Use]Houston-based Smart Power Systems and its CEO Bahram Mechanic (as well as various other individuals) were indicted last week on charges that they exported certain export-controlled items to Iran without a license. The indictment alleges that certain uninterruptible power supplies, microcontrollers and digital signal processing chips, all allegedly classified as ECCNs 3A991,  were transshipped through third countries to a company in Tehran, allegedly controlled by Mechanic.

Not surprisingly, the indictment tries to make the case that these run-of-the-mill electronic items are critical military goods that Iran can use to launch missiles and build nuclear bombs. Of course, the government’s credibility in its assessment of the alleged capabilities of these items is rather diminished by its claim that these items are classified as ECCN 3A991, one of the least stringent export controls under the Export Administration Regulations. At best, however, the microcontrollers are 3A991.a, which covers microprocessors meeting certain computational benchmarks. The uninterruptible power supplies are not covered at all by 3A991 and are almost certainly EAR99.

Worse, for the government, if the uninterruptible power supplies are EAR99,  then the government’s theory of what laws were broken by their exports to Iran completely collapses. The indictment alleges that the defendants violated the International Emergency Economic Powers Act because no license was obtained from the Bureau of Industry and Security (“BIS”). Apparently, no one at the DOJ looked at EAR Section 746.7, which indicates that a BIS license is required only for certain items. EAR99 items are not among them.

Of course, a license from the Office of Foreign Assets Control (“OFAC”) is required to export EAR99 items from the United States to Iran. But the government is not alleging Mechanic and Smart Power needed an OFAC license; instead, it is saying they  didn’t have a BIS license even though they did not need that license. If the government can’t get the law it is enforcing right, it should not try to send people to jail for violating it.

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Copyright © 2015 Clif Burns. All Rights Reserved.
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3 Comments:


Hmmm. Third posting in your last five dealing with enforcement matters in Texas. Is there something that those of us living here should know?

Comment by kmorrell on April 23rd, 2015 @ 8:24 am

“..AT Column 1 or AT Column 2 in the Country Chart Column of the License Requirements section of an ECCN or classified under ECCNs..” (emphasis on “or”)

Comment by A Reader on April 23rd, 2015 @ 9:24 am

    There is no License Requirements section of the EAR99 ECCN and EAR99 is not one of the ECCNs listed in the “classified under ECCNs” part of the disjunctive.” The only way BIS gets in this game is through 746.7(e) which makes it a violation of BIS Rules to export something that requires an OFAC license without an OFAC license. But the indictment says nothing of any OFAC license requirement here and does not allege that he did not have one. For the EAR99 UPSs there is a non-frivolous (but not necessarily an ultimately winning) argument that they are covered by General License D-1 as computer peripherals.

    The 3A991 microcontrollers required BIS licenses, and I didn’t say anything to the contrary.

    Comment by Clif Burns on April 23rd, 2015 @ 1:04 pm