Archive for the ‘BIS’ Category


Jun

28

ZTE Gets Last Minute Reprieve (Sort Of)


Posted by at 10:33 pm on June 28, 2016
Category: BISChinaEntity ListIran Sanctions

ZTE Stand 6 via http://www.zte.com.cn/cn/events/ces2013/show/201301/t20130110_381605.html [Fair Use]The Bureau of Industry and Security today announced that it was extending the Temporary General License which permitted exports to ZTE from June 30 all the way to August 30. ZTE, as this blog reported here, was placed on the Entity List because of elaborate shenanigans by the company by which it bought U.S. goods and resold them to Iran.

Two weeks after bringing the ban hammer down on ZTE, BIS issued a temporary general license which covered March 24 to June 30, more than three months. The new temporary license expires on August 30, one day short of two months from June 30. Why this temporary license is shorter than the previous one was not disclosed but one can only suspect that ZTE may not be minding its manners in the way that BIS would like to see.

The problem for U.S. exporters is that such a short license, with the real possibility, given its shortened length, that it may not be renewed beyond August 30, opens up the possibility that the exporter will sell items to ZTE that it may not later be able to service even though the warranty on those items is still in force. If the temporary general license is not renewed and ZTE stays on the list, the ability of the U.S. exporter to send replacement parts to ZTE or, alternatively, to repair the item in the United States and return it to ZTE will be in question. It would not surprise me if the temporary general license does not get much use.

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Copyright © 2016 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

Jun

21

Package Forwarder Coughs Up $60K For Export Violations


Posted by at 10:18 pm on June 21, 2016
Category: BISChina

Fulfill Your Packages HQ via Google Maps https://goo.gl/maps/gJ8z3G3j2gm [Fair Use]
ABOVE: Fulfill Your Packages HQ

The Bureau of Industry and Security (“BIS”) issued settlement documents last week indicating that a California company called Fulfill Your Packages agreed to pay a $250,000 fine, of which $190,000 was suspended if the company behaves itself for the next two years and commits no further export violations. At least from the facts recited by BIS, it’s a very odd case.

Fulfill Your Packages is apparently a company that agrees to serve as a local address for Chinese companies. Those companies order products from U.S. companies which Fulfill Your Packages dutiful re-packages and ships to China. Frankly, a better name for the company might be Ginormous Export Red Flag, Inc., but I suppose Fulfill Your Packages sounds better.

The violation arose from an unnamed Chinese company ordering an export controlled FLIR thermal imaging camera from an unnamed U.S. company which then shipped the camera to Fulfill Your Packages’ address in Portland, Oregon. The Google Street View of that address reveals a large warehouse. Google itself further reveals that the address is used by several logistics companies and, oddly, a liquor store.

When Fulfill Your Packages received the package, it dutifully repackaged the FLIR system and arranged for the USPS to pick up the package. For reasons that aren’t clear, Fulfill Your Packages described the item on shipping documents as “metal parts” even though its own order system described the item as an “infrared webcam/surveillance installation kit.” It also stated the value as $255 even though the distributor’s invoice for the camera received with the package listed the value at $2,617. It’s not clear at all why the company, for the small fee it was receiving, would falsify the export documents. It didn’t really have a dog in the race. Of course, it could be simple incompetence. Or perhaps it was some conspiracy with the Chinese purchaser for a large sum. There’s no way to tell.

But what about the distributor that shipped a FLIR system to a warehouse in Oregon for a Chinese customer? Don’t they bear some responsibility here? They didn’t ignore red flags, they ignored red banners the size of a skyscraper. Or maybe not. The BIS documents suggest that BIS thwarted the shipment before the USPS arrived to pick up the package. What likely happened here is that the distributor did do its job, did consult the all-knowing wizard of Google while evaluating the order, smelled a rat and called BIS.

The lesson here is that the Internet is your friend and that orders for export controlled items should not be fulfilled without doing the research that is now, literally, at your fingertips.

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Copyright © 2016 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

Jun

15

DOJ Issues Misleading Press Release in Connection with Export Guilty Plea


Posted by at 11:47 pm on June 15, 2016
Category: BISCriminal PenaltiesIran SanctionsOFAC

All in a Day's Work by Damian Gadal via Flickr https://flic.kr/p/5xQkWj [Fair Use]
ABOVE: Erdal Kuyumcu

This blog reported earlier on the case against Erdal Kuyumcu in connection with exports of an EAR99 Cobalt Nickel powder (CoNiCrAIY) to Iran. In that initial post, I questioned the government’s evidence that Mr. Kuyumcu knew that his sales of this powder to a customer in Turkey were destined to Iran, noting that the criminal complaint based its allegations on the “training and experience” of an investigating agent who felt that unrelated emails discussing Iran covered these shipments. (I also mocked the agent’s claim that a “[b]ased on my training and experience … [a] colon followed by a close parenthesis … represents a smiley face.”)

Yesterday the Department of Justice issued a press release stating that Mr. Kuyumcu had pleaded guilty to the charges against him. Of course, the DoJ, as usual, could not restrain itself from misleading hyperbole in the process of patting itself on its own back:

Kuyumcu, a United States citizen, conspired to export from the United States to Iran a metallic powder composed of cobalt and nickel without having obtained the required license from the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC). The metallic powder can be used to coat gas turbine components, such as turbine blades, and can also be used in aerospace, missile production, and nuclear applications. Such specialized metals are closely regulated by the U.S. Department of Commerce to combat nuclear proliferation and protect national security, and exporting them without an OFAC license is illegal.

Why, you ask, if CoNiCrAIY powder is “closely regulated” by the U.S. Department of Commerce was its export a violation of OFAC rules? Good question. CoNiCrAIY powder is EAR99 and its export is not regulated, either “closely” or otherwise, by the Department of Commerce. Perhaps the DoJ has gotten confused, innocently or otherwise, by ECCN 2E003.f which controls certain “technology” for application of certain specified inorganic compounds, including CoNiCrAIY and similar compounds, on non-electronic substrates. But even this is not tantamount to close regulation of the powder because other inorganic compounds covered within these controls of deposition technology include tungsten and oxides like, er, carbon dioxide. By this logic, if Kuyumcu exported a carbonated soft drink to Iran, the DoJ could claim that he exported a product to Iran “closely regulated” by the Department of Commerce.

Once again, we see that the government can misinterpret export laws and regulations with immunity while everyone else does so at their peril.

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Copyright © 2016 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

Jun

1

Russian Export Case Larded with Bogus Spying Charges: Part 3


Posted by at 8:02 am on June 1, 2016
Category: BISCriminal PenaltiesGeneral

Alexander Fishenko
ABOVE: Alexander Fishenko


This blog has been covering the export prosecution of Alexander Fishenko for quite some time. Previous posts on this case can be found here and here. Most of my interest has been in the trumped-up Foreign Agents Registration Act charge brought by the government to allow Fishenko to be characterized, inaccurately, as a Russian “spy.”

Fishenko, who pleaded guilty to all counts in the indictment, is scheduled to be sentenced on June 3. The sentencing memorandum prepared by his lawyers provides more insight into the “spy” nonsense and the government’s motivations in bringing these charges. (I am not linking to the memorandum, even though it is publicly available through PACER, because it contains detailed information on some unrelated private matters relating to Fishenko’s medical history.)

As was detailed in the preceding posts, it was undisputed that Fishenko was buying things at the request of the Russian government. But that alone does not make him a foreign agent required to register under FARA. Section 3(d) exempts “private and nonpolitical activities in furtherance of the bona fide trade or commerce of such foreign principal.” There was no allegation or evidence that Fishenko acted for the Russian government in any other capacity, meaning that he was not a “foreign agent” under FARA and, therefore, was under no obligation to register as one.

Apparently, Fishenko was anxious to plead guilty after the indictment, but the government was not willing to take his plea. The hold-up was that Fishenko, although he was willing to plead guilty to all the other charges, did not want to plead guilty to the bogus FARA charge for precisely the reason the government included it: namely, that those charges had been widely, indeed universally, interpreted as charges that he was a Russian spy, something the government well knew and was intentionally using to poison the well.  Fishenko thought that such a plea would permanently damage the reputation of his family members.

Leaving aside for the moment that Fishenko’s activities were exempt under section 3(d) of FARA, it is also undeniable that there is a significant difference between being an “unregistered foreign agent” and being a Russian spy. You can be an unregistered foreign agent in violation of FARA even if you run around wearing a banner saying you work for the Russian government, behavior essentially incompatible with being a spy. Nor was Fishenko charged with espionage under the relevant provisions in 18 U.S.C. §§ 793 – 798, something that certainly would have happened if Fishenko was really a Russian spy.

The only conclusion behind the government’s intransigence on the fake FARA charges is that it wants to keep this weapon in its arsenal for future, and equally illegitimate, use. It’s much easier to convict export defendants once they have been branded in the press as spies. Sadly, such behavior — intentionally bringing unfounded charges for their negative publicity value — turns the word “Justice” in the Department of Justice to Orwellian double-speak.

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Copyright © 2016 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

Apr

28

Two Heads Are Not Always Better Than One


Posted by at 9:22 am on April 28, 2016
Category: BISCuba SanctionsOFAC

Havana by Bryan Ledgard [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/nwFDPh [cropped and processed]

The Office of Foreign Assets Control (“OFAC”) last week updated its Cuba FAQs with this perplexing little blurb that can only charitably actually be called an “answer” or the “A” in FAQ.

68. May a person subject to U.S. jurisdiction export or reexport to Cuba items that include U.S.-origin content, but are not 100 percent U.S.-origin?

Persons subject to U.S. jurisdiction may engage in all transactions ordinarily incident to the exportation or reexportation of 100 percent U.S.-origin items from a third country to Cuba, consistent with the export licensing policy of the Department of Commerce. Items that are not 100 percent U.S.-origin would require OFAC authorization, which would be subject to certain statutory restrictions.

This is nothing more than a paraphrase of section 515.533(a)(1) of the Cuban Assets Control Regulations. In fact, the FAQ might have been more clearly stated and just as useful if it was written this way:

68. Do you really mean what you say in section 515.533(a)(1)?

Yes.

Of course, the FAQ neatly dodges the ugly truth that if the item is 99 percent U.S.-content, then you will need a license from both BIS and OFAC to reexport that item from a foreign country to Cuba. You want real export reform? Here’s where you start. There is no need in this instance, or ever in any other instance, for two federal agencies to decide whether something can be exported. Of course, you could avoid the double license requirement by shipping the item from the third country to the U.S. before exporting it to Cuba in which case you will only need the BIS license. This workaround further illustrates how absurd the double licensing requirement is here.

There is a second ugly truth that the FAQ dodges. Both the FAQ and section 515.533(a)(1) imagine that the phrase “100 percent U.S.-origin items” actually means something and can be determined to be true or false with respect to any given product. Nowhere in OFAC’s rules, or FAQs, or website, or presumably even on scraps of paper on the floor of OFAC’s basement is there any guidance as to how to determine U.S. content. Anyone who has ever struggled with this issue in its many contexts (including customs country of origin rules) will realize that there are a number of ways to analyze such a question, based on tariff shift rules, substantial transformation rules or the FTC’s “substantially produced in” rule. And often, if not almost always, each of these rules will result in a different country of origin for a product.

Take this example: apples grown and packaged in the United States are packaged in boxes made in the United States with cardboard imported from Canada. A substantial transformation rule might say that the box was U.S. origin; a tariff shift rule might say that it was not; and the substantially produced test would also probably say that it was not. Under the tariff shift rule, BIS licenses the reexport; using the others then both may have to license the re-export.

Here’s a harder case: take the same example above but with the box made in the United States with U.S. cardboard made from U.S. trees and printed with ink made in the United States, although one of the chemicals in the ink is imported from China. Probably under all the tests described above, the packaged apples would be 100 percent origin. Still, there is a Chinese chemical in the ink on the box. Without BIS or OFAC committing to any of the three tests described above, this is not a 100 percent origin U.S. product.

That being said, there are probably no 100 percent origin U.S. products (short of unpackaged agricultural produce without foreign-produced pesticide residue). In that case, you always need both licenses for re-exports and there was really no need at all — unless there was some desire to confuse — for Cuba FAQ 68.

Photo Credit: Havana by Bryan Ledgard [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/nwFDPh [cropped and processed]

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Copyright © 2016 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)