ABOVE: Shahrazad Mir Gholikhan

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In yet another strange turn of events in one of the stranger export prosecutions to wend it’s way through the federal courts, a federal district court in Fort Lauderdale declared a mistrial in the prosecution of Shahrazad Mir Gholikhan for her involvement in a plan to export 3,500 night vision goggles to the Iranian military. According to an article in the South Florida Sun-Sentinel, one juror held out for acquittal after eight hours of deliberations. The prosecution announced that it intended to retry Ms.Gholikhan in October.

The case started when Ms. Gholikhan and her ex-husband Mahmoud Seif traveled to Austria to pick up a pair of night vision goggles in order to re-export them to the Iranian military. She and Seif were arrested by the Austrian authorities, convicted, and sentenced to fifty days jail time in Austria, after which they were returned to Iran. In the meantime, a grand jury indicted Gholikhan and Seif for conspiring to export 3,500 Generation III night vision goggles to Iran.

Since the U.S. and Iran do not have extradition treaties, Ms. Gholikhan could have remained safely in Iran but instead came to the United States in December 2007 to enter a plea agreement under which she would plead guilty to one count and be sentenced to time served in the Austrian jail. After the plea was entered, prosecutors said that a mistake had been made in the sentencing guidelines calculation. As a result, Gholikhan was sentenced to 29 months in jail. Gholikhan then moved to withdraw the plea. Even though that motion was opposed by prosecutors, the judge granted the motion and the case was set for trial on all seven counts of the grand jury indictment.

The trial, which began on September 3, focused on the prosecution’s claims that Gholikhan sent faxes and made phone calls about the night vision goggles before the Vienna meeting under the alias Farideh Fahimi. This was to counter the defense’s claim that Gholikhan only acted as a translator for his husband and was not substantially involved in the planned exports. The Sun-Sentinel article described the thrust of the prosecution’s argument as follows:

Prosecutor Michael Walleisa said Gholikhan’s phone records corresponded to calls placed by Fahimi and faxes sent from Fahimi came from Gholikhan’s fax number.

In his closing argument, Walleisa repeated Fahimi’s words on one of the recorded phone calls: “In this line of work, everyone has two or three names, none of which is their real name.”

Gholikan’s new trial is set for October 14.

We’re back from vacation and we’re back with a grab bag of things:

• University of Tennessee Professor J. Reece Roth was convicted on eighteen counts, including violations of the Arms Export Control Act for permitting foreign graduate students to have access to information relating to an Air Force project on the use of plasma technologies for unmanned aerial vehicles. According to the report on the Knoxville News Sentinel’s website, a key piece of evidence proving that Roth had knowledge that his conduct was illegal was a set of notes that divided the work between an American graduate student and the Chinese graduate student in order to keep export-controlled technical data away from the graduate student. When this arrangement impeded progress on the project, the students were allowed to share data. Roth claimed that he didn’t believe the information was export-controlled until the project netted an actual military product, a claim that would appear inconsistent with his initial division of work on the project between the American and the Chinese graduate student.
• The Denver Business Journal supplies more information on the Platte River Associates prosecution for allegedly violating the Cuba embargo. The attorney for Platte River told the Denver Business Journal that the prosecution arises from training that the company gave to an employee of a Spanish company, Repsol, that had previously purchased geological modeling software used for oil exploration. The employee arrived with seismic data that appeared to relate to the western Caribbean and possibly to Cuba. There is apparently no allegation that Platte River dealt with any Cubans or the Cuban Government, nor any allegation that Repsol actually used the software in connection with a Cuban project. Instead, it now appears that the government’s case is based not on the sale of the software but the training of the Repsol employee. It’s still a tenuous connection without proof that Repsol used the software in connection with dealings with the Cuban government.
• Someone has made a broad-ranging Freedom of Information Act request at the Office of Foreign Assets Control (”OFAC”), apparently seeking copies of all applications for licenses to export agricultural and medical products to Iran. This has prompted OFAC to send letters to licensees requiring the licensees to assert in writing any claims that information in these licenses is proprietary or confidential to the licensee. Does anyone have any information on who may be seeking this information and why? Please let me know in the comments section.

ABOVE: U.S. Attorney Alice Martin

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The Alex Latifi saga continues. As we have reported in detail here on Export Law Blog, Mr. Latifi was acquitted on charges that emailing a drawing of a Blackhawk helicopter part to a Chinese supplier violated the Arms Export Control Act. The acquittal appears to have been based, at least in part, on the availability of that drawing on the Internet.

Latifi’s attorney, Henry Frohsin, indicated on Friday that he has filed a complaint with the Department of Justice’s Office of Professional Responsibility against Alice Martin, the U.S. Attorney involved in the prosecution. A copy of the complaint is not publicly available, but another attorney in Frohsin’s firm told the Birmingham News that the complaint alleges that the government had exculpatory evidence that it failed to provide to the defense team. The precise nature of that exculpatory evidence was not revealed to the newspaper.

Alice Martin told the Birmingham News that her office has been the unsuccessful target of earlier complaints and that she was certain that her side would prevail again.

ABOVE: Vibro-Meter Pressure
Indicators

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A story by Dan Browning in the Minneapolis Star-Tribune alerted me to an investigation of Global Engineering Associates (”GEA”), a company located in a Minneapolis suburb. According to a recently unsealed search warrant (which Dan Browning was kind enough to send to me), GEA is being investigated for alleged shipments of pressure indicators and radio mounts to Singapore.

A search warrant needs to show probable cause for all elements of the crime and, of course, the scienter element of the violation — i.e. evidence that the defendant knew that the exports were in violation of the law — is, as usual, the hardest part to establish. The affidavit supporting the search warrant places its main emphasis on a visit made to GEA by agents of Immigration and Customs Enforcement under “Project Shield America,” a national outreach program initiated by ICE to inform exporters of export licensing requirements. According to the affidavit:

Special Agent Cramsey and Leff [the CEO of GEA] discussed the Project Shield America program in detail and exchanged business cards. Leff was given copies of the Project Shield America brochures for his review. Leff stated that he would be happy to review the literature to ensure his company was in compliance with all US export laws and regulations.

I don’t think I’m being too much of a cynic to suggest that this is a thin reed upon which to base scienter, and it’s not the first time that ICE has tried to use Project Shield America as a basis for claiming that export violations were willful. There is no question that the project teaches exporters that licenses are required for military and dual-use items. The problem is it provides little guidance to exporters in how to determine whether items are military or dual-use items.

In this case, the items in question aren’t obviously military items. Vibro-Meter, the manufacturer of the pressure indicators in question, produces pressure indicators for both civil and military aircraft. Nor does a “radio mount” have anything about it that inherently suggests that it is a military item. Indeed, ICE needed to request a specific determination from the Directorate of Defense Trade Controls to get the information necessary to conclude that these were military items on the USML. So, a friendly visit from ICE agents and a short brochure aren’t going to establish that GEA knew that these items were military items and therefore subject to export licensing requirements.

There are two other facts alleged in the affidavit that might support probable cause on the scienter element. First, there is a claim that the invoice inside the shipping packages differed from descriptions of the items in the shipping documents. However, it appears from the affidavit that the enclosed invoice simply had more detail than the descriptions in the shipping document, not necessarily an indication of criminal intent by the exporter. Second, the affidavit indicates that GEA never inquired about the two shipments containing the allegedly export-controlled items, both of which were seized by customs. That is, admittedly, somewhat more suspect, but there could be a number of innocent explanations.

The important consideration here is an issue that increasingly needs to be addressed. Export prosecutions have begun to veer from prosecution for exports of items that reasonable people would clearly realize were export-controlled — guns, tanks, night vision and the like — to less obvious items such as involved in this case. Some procedure needs to be implemented to assist exporters in determining export classification, and the current commodity jurisdiction procedure, which can take a year or more, is broken and not the answer.

The saga of the government’s ill-fated prosecution of Alex Latifi and his company Axion Corporation continues. The federal district court judge delivered yet another forceful gavel whack to the hands of the prosecutors and awarded the acquitted defendants legal fees, filing costs and expert witness fees and costs incurred in defending the prosecution. Latifi and Axion were accused of violating the Arms Export Control Act by emailing to a Chinese company technical drawings of a part used in the Black Hawk helicopter. The defense successfully argued that the drawing was available on the Internet and subject to the public domain exception under the International Traffic in Arms Regulations.

This is the first time, at least that I am aware of, where the U.S. government has been ordered to reimburse legal fees and costs incurred by defendant during an unsuccessful prosecution for export violations. Sources close to the case cited statements by prosecutors that they didn’t care whether the prosecution was successful and that their only goal was to put Latifi and Axion out of business.

There’s an interesting angle to the award aside from its uniqueness. We had previously noted that the defense team filed a motion under the Hyde Amendment (18 U.S.C. § 3006A Note) for recovery of attorneys’ fees, but in fact the court awarded the fees under the Civil Asset Forfeiture Reform Act (”CAFRA”) which provides for larger recoveries by acquitted defendants and a looser standard for recovery. Under the Hyde Amendment the acquitted defendant must prove that the prosecution was “vexatious, frivolous, or in bad faith.” Additionally, legal fees recovered under the Hyde Amendment are subject to the $125 per hour fee cap provided in 28 U.S.C. § 2412(d)(2)(A). CAFRA, on the other hand, imposes no such fee limit and provides for recovery in a forfeiture proceeding in which the defendant “substantially prevails.”

The reason that CAFRA was deemed applicable in this case was because the prosecutors included civil forfeiture counts in the indictment. This has been an increasing practice where prosecutors seek forfeiture of all profits related to the illegal exports. The decision of the district court in the Axion case to use the forfeiture claims as a basis for awarding all costs incurred by the defendant as a result of the forfeiture claim may cause prosecutors to rethink including such claims in the indictment.

(Full disclosure: I was interviewed and quoted in the linked article about the award of attorneys’ fees to the defendants in the Axion case)

ABOVE: Endevco 7270A-200K accelerometer

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We’ve posted here previously about the indictment of Qing Li for allegedly attempting to export Endevco 7270A-200K accelerometers without a license to China. That case is proceeding to trial, and the trial court rejected* Qing Li’s claim that the United States Munitions List, as applied in her case, was unconstitutionally vague.

The court characterized defendant Qing Li’s argument as follows:

Defendant argues that the court should dismiss the indictment because the [Arms Export Control Act] and its implementing regulations are unconstitutionally vague as applied to her. Specifically, Defendant argues that a person of ordinary intelligence could not determine that the Endevco accelerometer device is a “military accelerometer” requiring an export license. In support of this argument, she attaches to her motion two pages of manufacturer-provided “public information” regarding the Endevco accelerometer. She argues that “[a] person of ordinary intelligence would likely deem that data sheet incomprehensible,” and that the sheet does not indicate whether the device is for military or weapons use. (Mot. at 3.) She also emphasizes the allegation that even prosecutors must request information from the State Department to determine if an item is on the list.

I haven’t looked at the trial court record but the Endevco “public information” regarding the accelerometer is presumably this data sheet which, admittedly, doesn’t state that the item is on the USML or is export-controlled. And, of course, I’m sure that the argument that even the prosecution had to ask the State Department whether this accelerometer was USML or not elicited some sympathetic nods.

The court quite properly declined to make this a case about whether the USML description of military accelerometers is unconstitutionally vague, stating:

The court notes that not only does Defendant fail to cite a single case in which the court found the AECA unconstitutionally vague, her argument emphasizes the premature and misdirected nature of her challenge. Because the charging statute contains a scienter requirement (willful violation), innocent, accidental, or unknowing exportation of a proscribed device cannot support a conviction. Therefore, the relevant inquiry consists not of an abstract analysis of constitutional vagueness, but what Defendant knew. Such an inquiry will be undertaken by a jury and based on the evidence adduced at trial. See Lee, 183 F.3d at 1032-33 . Here, the factual record has yet to be developed. Until an evidentiary record is created, the court cannot determine whether Defendant “in fact had fair notice that the statute and regulations proscribed [her] conduct.” Hsu, 364 F.3d at 196. Application of these cited controlling authorities, in essence, renders Defendant’s constitutional challenge moot at this juncture.

Readers of this blog with sharp memories may recall, as we discussed here, that the indictment alleged some facts that suggest that Qing Li might indeed have known that the accelerometer was indeed covered by the USML. The undercover agent from whom Ms. Li was trying to purchase the accelerometer allegedly told her that the export required a license and he didn’t think one could be obtained. And although she appeared to walk away from the transaction at that point, citing the “risk” involved, the indictment alleged that she continued to direct the negotiations between the undercover agent and a contact in China.

*Westlaw subscription required

Of course, you didn’t expect that this blog would let a story about an arms company run by a 22-year-old kid and a 25-year-old “professional masseur” escape without comment, did you? The story, which the New York Times broke on Thursday, revealed how AEY, Inc., the company run by 22-year-old Efraim Diveroli and his massage therapist friend, was paid hundreds of millions of dollars by the United States Government to supply sub-standard ammunition to Afghan forces. Some of the ammo supplied by AEY is alleged to have been up to 40-years-old, i.e., manufactured before the AEY executives were even born.

There is at least one export law angle to the story. It arises from the discovery that some of the ammunition delivered by AEY had been procured from China. The Times story noted:

Tens of millions of the rifle and machine-gun cartridges were manufactured in China, making their procurement a possible violation of American law.

I’d say that’s more than a “possible” violation. When AEY arranged the export of ammunition from China to Afghanistan it would have been acting as a broker under Part 129 of the International Traffic in Arms Regulations (the “ITAR”). Section 129.5 of the ITAR notes that “no brokering proposals involving any country referred to in § 126.1,” e.g. China, “may be carried out by any person without first obtaining the written approval of” the Department of State’s Directorate of Defense Trade Controls. And we know that AEY would not have had such written approval because section 126.1 says that it is the policy of DDTC to deny licenses involving China.

Seyed Mostafa Maghloubi, an American citizen of Iranian origin, was sentenced today to three years and five months in connection with his attempt to export night vision goggles and up to 10,000 Uzis to Iranian government officials opposed to the current regime of current President Mahmoud Ahmadinejad. Maghloubi previously pleaded guilty to this offense in August 2007. Maghloubi had been apprehended in a sting operation during which a Los Angeles detective pretended to be an arms dealer.

The sentence may seem light, and it might be easy to attribute this to the fact that the weapons were destined to opposition groups in Iran. U.S. District Court Judge George King, who sentenced Maghloubi, dismissed any notion that the sentence should have been, or was, mitigated based on the intended recipients of the weapons. According to Judge King, Maghloubi’s actions might have resulted in “actually destabilizing an area of the world that has suffered enough from continuing upheaval.” King said while Maghloubi’s motivations were not anti-American, it was the job of the government, not U.S. citizens, to pursue foreign policy.

[Thanks, Linda, for the tip!]

Canadian Foreign Minister
Maxime Bernier

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An article in today’s Toronto-based Globe and Mail uses the occasion of the recent visit of Canadian Foreign Minister Maxime Bernier to Washington to see his U.S. counterpart, Secretary of State Condoleezza Rice, as an opportunity to comment on disagreements between the two countries on defense trade and export controls. As reported previously on this blog, a major bone of contention between the U.S. and Canada is over Canada’s legal prohibition against nationality-based discrimination and the U.S. refusal to permit transfer of defense technology to Canadians who are dual-nationals of countries subject to U.S. arms embargo, such as China and Syria.

According to the article:

[Canadian] officials have said recently that a solution is not imminent, although they insist they want a deal. And Public Works Minister Michael Fortier, who met U.S. procurement officials in Washington last week and is now the designated point man in negotiations with Washington, won’t discuss the status of the file. Nor did he meet anyone at the State Department, which administers the contentious U.S. export controls.

The article posits two reasons that an agreement over this issue with Canada languishes while the United States has entered into agreements with the United Kingdom and Australia which would ease transfer of technical data to individuals and entities in those countries. First, the article quotes a Virginia-based “trade consultant” who said that

Canada doesn’t have a deal yet because it’s resisting concessions made by the British and the Australians. She pointed out that both those countries agreed to aggressively prosecute violators of the technology-sharing deals, most notably by applying domestic Official Secrets laws.

The second reason cited by the article is this:

Unlike the Aussies and the Brits, Canada buys relatively little of what U.S. military suppliers produce.

I’m not entirely convinced that these are reasons that the U.S. and Canada can’t see eye to eye over the dual national issue. The U.S.-U.K. Defense Trade Cooperation Treaty leaves open the criteria for determining what companies will be within the approved “community” of companies eligible for transfers with export licenses. It would not be surprising if those criteria require agreements by such companies not to transfer defense technologies to dual-nationals of countries subject to an arms embargo. If that’s the case, Canada can’t expect different treatment of dual nationals even if it increases its defense spending in the U.S. or agrees to cover re-exports of non-classified technical data under Canadian laws relating to official secrets or classified data.

U.S. District Court Judge Inge P. Johnson, after a seven day bench trial, recently dismissed six felony charges against Alexander Latifi, a defense contractor from Huntsville, Alabama. The judge ruled that the prosecution failed to carry its burden of proof. Based on news accounts of the decision, it is likely that the judge’s decision was swayed by the revelation that the prosecution’s chief witness, a former employee of Latifi named Elizabeth Lemay, pleaded guilty to embezzling money from Latifi and admitted on the stand that before she left Latifi’s company she sabotaged company computers and destroyed the purchase order system.

Latifi’s company Axion had been awarded a contract by Sikorsky to produce a bifilar weight assembly which is used in a rotor in the steering system of the UH-60 Blackhawk helicopter. According to a report in the Huntsville News, Lemay testified that Lafiti needed to find a supplier for tungsten used in the weight assembly.

Eventually, Latifi contacted a man in California named Ming Hwong, the representative of a Chinese tungsten supplier, ECO-Tungsten, Lemay testified. Latifi and Ming Hwong traded numerous correspondence by e-mail and telephone, she said.

Then, an ECO-Tungsten representative named Ding Dong, entered the picture via e-mail and by telephone, Lemay testified. Eventually, Latifi ordered her to send technical drawings of the bifilar weight assembly to Ding Dong at ECO-Tungsten in China.

The defense claimed that Latifi never directed Lemay to send the drawings at issue and sought to impeach her testimony:

Latifi’s lawyer, Henry Froshin of Birmingham, engaged Lemay in a heated cross-examination about why she was lying about his client.

“Were you trying to cover up your own forgery and theft?” he asked.

“No,” she said.

According to Froshin and court records, Lemay pleaded guilty in 2005 to forging 15 Axion company checks totaling $12,730. Latifi fired Lemay on February 2004. A Madison County judge suspended a three-year prison sentence and placed her on probation for four years.

While she was stealing Axion’s money, Lemay was feeding information to federal agents, Froshin said.

She admitted that she did not tell federal agents about the theft. She also said she neglected to tell the grand jury.

And with those admissions I think we can safely say that Lemay and the prosecution’s case crashed and burned.

Defense counsel also told the Huntsville News that they opted for a bench trial rather than a jury trial because Latifi was born in Iran and, given the current state of relations between the United States and Iran, might not be favorably viewed by a jury.