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.

A friend of mine, a former policeman who now sits on the U.S. Court of Appeals for the Ninth Circuit, used to say that the easiest thing about being a cop was that most criminals are really, really stupid. Case in point: Doli Syarief Pulungan.

Mr. Pulungan, an Indonesian national, was indicted last week for attempting to export Leupold Mark 4 CQ/T rifle scopes to Indonesia without a license. Now comes the stupid:

Pulungan is accused of approaching Norwalk-Wilton Police Chief Steve Kaczik on Sept. 26, saying he wanted to buy 100 rifle scopes for $1,000 each, about $300 above list price, and then ship them overseas.

Another news report indicates that Pulungan requested Kaczik “not to tell the company the scopes were going to Indonesia.”

Going to a police chief to buy these scopes and then asking him not to tell the company what they were for is about as bad as reporting your stolen marijuana to the local constabulary. Or writing a robbery demand note on the back of your latest pay stub.

Kaczik, not surprisingly, notified the FBI and the rest, as they say, is history.

Yesterday the U.S. Court of Appeals for the Ninth Circuit upheld the dismissal of a lawsuit filed against Caterpillar by relatives who had been injured when Caterpillar D9 bulldozers were used to demolish homes in the Palestinian Territories. The court ruled that, because of the foreign policy issues implicated by the case, the complaint was subject to the political question doctrine and therefore not justiciable, i.e. not within any court’s jurisdiction.

This ruling was premised on the court’s finding that all the bulldozers had been sold to Israel under the Foreign Military Financing (FMF) program. According to the court:

[T]hese sales were financed by the executive branch pursuant to a congressionally enacted program calling for executive discretion as to what lies in the foreign policy and national security interests of the United States. See 22 U.S.C. § 2751 (stating that the purpose of the Arms Export Control Act, which authorizes the FMF program, is to support “effective and mutually beneficial defense relationships in order to maintain and foster the environment of international peace and security essential to social, economic, and political progress”).

Now this might make sense if Caterpillar manufactured an armored or military spec version of the D9 bulldozer. But it doesn’t. The Israeli Army customizes the civilian D9 to its own military specifications and then ironically renames these armored behemoths “Doobi” (Hebrew: דובי‎; lit. teddy bear). In fact, the U.S. Army has purchased armor kits from the IDF to convert D9s for use in Iraq.

The point of this is that Section 23 of the Arms Export Control Act, which authorizes the FMF program, only covers procurement of defense articles and services. If the D9 bulldozer is not a defense article, then the Ninth Circuit’s reliance on the AECA as a justification for finding that the law suit presents non-justiciable questions of foreign policy is misplaced. And if an unmodified D9 is now considered a defense article, it can’t be exported without a license under section 38 of the AECA, a conclusion that the folks at Caterpillar might find somewhat inconvenient. The Ninth Circuit, however, never looked behind the U.S. Government’s suspect decision to sell these items under the FMF program and, therefore, never saw this possible dilemma.

The Guardian had an interesting dispatch from this year’s Defense Systems and Equipment Show:

Two companies were ejected last night from Britain’s biggest arms fair for promoting leg irons for prisoners and battlefield captors. BCB International, a British-based firm, and Famous Glory Holding, a Chinese company, were thrown out of the biennial Defence Systems and Equipment show which opened in London’s Docklands yesterday.

Although the type of leg irons on offer appear to escape the government’s ban on the sale and export of equipment that can be used for repression and torture, their promotion is hugely embarrassing to the exhibition’s organisers.

I’m sorry but I just don’t get that. You can exhibit at the DSEI show equipment that can wreak havoc six ways to Sunday but you can’t display leg irons? Because its embarrassing? That’s like banning the exhibition of skimpy pajamas at an “adult” product show.

On another note, you have to admit that Famous Glory Holding is the best name — ever — for a Chinese defense company.