Archive for the ‘BIS’ Category

Aug

31

Update from BIS’s Update 2010

Posted by Clif Burns at 9:16 pm on August 31, 2010
Category: BIS • OFAC

Commerce DepartmentThe Bureau of Industry and Security’s Update 2010 conference started off this morning with free coffee and pastries, a military honor guard procession, and the Star Spangled Banner. At first, it was hard to tell whether I was attending a military parade or a sporting event. But, of course, I was in a stuffy ballroom in the Grand Hyatt Washington with about 3 million other people stuffed cheek-to-jowl like coach class on Aeroflot. This could only mean it wasn’t a parade or a ball game but instead BIS’s annual conference for exporters. Here are a few highlights.

Eric Hirschhorn, Under Secretary for Industry and Security, after summarizing parts of the ongoing (and welcome) export reform initiative, injected a more somber, and frankly somewhat disconcerting, note:

I ask that you carry a message back to your senior management and those who market your products. … [W]e are planning increased efforts against individuals who flout the rules and against companies whose inadequate internal compliance programs tell us that they are indifferent to whether they follow the rules.

Having a compliance program was always considered a mitigating factor in an enforcement action, but Under Secretary Hirschhorn’s statement goes far beyond that. Now, apparently, not having a compliance program can trigger an enforcement action.

What is disturbing about this is the Export Administration Regulations do not require an exporter to have a formal compliance program. Many small exporters, who are nonetheless otherwise in compliance with export regulations, can’t afford, and shouldn’t have to implement, a formal written program. Does a mom and pop exporter gain anything by adopting a sixty-page compliance program? More significantly, if BIS is going to effectively require a compliance program, it should adopt a rule saying so, with provisions detailing what is expected in a compliance program. It should not simply jawbone exporters with threats of huge fines and worse if they don’t do something that is not affirmatively required by the agency’s own regulations.

Assistant Secretary Kevin Wolf provided more detail on the export reform initiative in his speech (which I recommend you read in its entirety). Assistant Secretary Wolf’s speech included this interesting passage:

For example, the current plan is that revised USML categories must not contain any (a) catch-all controls for generic “parts,” “components,” “accessories,” “attachments,” or “end-items” or (b) other types of controls for specific types of defense articles because, for example, they were “specifically designed or modified” for a defense article.

Also, items are not to be listed on both the CCL and the USML unless there are specific technical or other objective criteria –- regardless of the reason why any particular item was designed or modified –- that distinguish between when an item is USML-controlled and when it is CCL-controlled.

“Specially designed” –- which is different than “specifically designed” — is to be used as a control criterion only when required by multilateral obligations or when no other reasonable option exists.

The distinction between “specially designed” and “specifically designed” prompted a chuckle from the audience. I’m not sure whether this was because most audience members understood that the difference between “specially” and “specifically” is that the Wassenaar Munitions List uses the former and the USML uses the latter. More likely it was because many members of the audience were sadly acquainted with the fine metaphysical arguments required in many commodity jurisdiction requests to determine whether an item was specifically designed for military use.

But notice the two exceptions: treaty obligations and no other reasonable option. I don’t think these exceptions will swallow the new rule, but I can’t help but wonder how broad these exceptions will turn out to be. The Wassenaar Munitions List is littered with references to items that are “specially designed” for military use.

Finally, in a breakout group on economic sanctions, Andrea Gacki, Assistant Director of Licensing at the Office of Foreign Assets Control (“OFAC”) announced that OFAC was about to debut an electronic licensing system for license applications for exports of agricultural products, medicine and medical devices under the Trade Sanctions Reform and Export Enhancement Act of 2000 (“TSRA”). Gacki wouldn’t say when this would occur, but she intimated that they were hoping to roll out the electronic system sooner rather than later. Exporters will certainly welcome an electronic system. One person in the licensing division who spoke to me at the end of the breakout was also looking forward to the new system because, apparently, some license applications filed by exporters are literally boxes of documents that have to be rolled into the licensing division.

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Aug

12

Titanium Rod Exports Result in $12k Fine

Posted by Clif Burns at 10:04 am on August 12, 2010
Category: BIS

Rods from GodTacoma-based Service Steel Aerospace Corp. recently agreed to pay a $12,000 fine to the Bureau of Industry and Security arising out of exports of titanium rods to Israel and Mexico. The company had voluntarily disclosed to BIS that it had made three exports of the titanium rods valued at $12,937

Titanium alloys are controlled under ECCN 1C202 if the alloy is capable of an ultimate tensile strength of 900 MPa or more at 293 K (20 °C) and is in the form of a tube or cylindrical solid forms with an outside diameter exceeding 75 millimeters. The high tensile strength at high temperatures makes titanium suitable for aerospace use including, especially, missiles.

Another use for titanium, probably unrelated to its reason for control, is in the spookily named “Rods from God,” a sort of space-edge Sword of Damocles that would hurl titanium rods at the earth from a space satellite. The rods would hit the earth at 7500 miles per hour. Allegedly this would be equivalent of a small nuclear weapon. I am in no position to judge that claim but it certainly seems that this device would be somewhat more destructive than a penny hurled from the observation deck of the Empire State Building.

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Aug

2

What One Hand Giveth, the Other Taketh Away

Posted by Clif Burns at 9:51 pm on August 2, 2010
Category: BIS • Export Reform
Kevin Wolf
ABOVE: Kevin Wolf

Today’s edition of the Washington Tariff & Trade Letter has an article (paid subscription required) reporting on the July 27 meeting of the Sensors and Instrumentation Technical Advisory Committee of the Bureau of Industry and Security (“BIS”). At that meeting, Assistant Secretary of BIS, Kevin Wolf had this to say to the committee members:

To the extent that something today, tomorrow or after the reforms no longer requires authorization for export when it did previously, that will come with a price associated with it

That price, according to Wolf, could be “reexport controls or notification.” Obviously BIS has legitimate concerns about diversion of a product from a country on its “nice” list to a country on the agency’s “naughty” list.

However, the ability of the agency to exercise control over U.S.-origin items that can be legally exported without a license is open to some question. Certainly a foreign court would raise those jurisdictional questions in any effort to extradite a defendant accused of an unlicensed re-export that was in full compliance with local laws. And whether a U.S. court would be inclined to exercise criminal jurisdiction over a foreign defendant in such a case is also an open question. The whole notion that the United States has what amounts to universal jurisdiction over U.S. origin products and the people who touch them, wherever located, is built on a shaky foundation that more or less crumbles when the U.S. permits unlicensed exports of those products.

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Jul

20

BIS Adopts Final Rule on Crime Control Devices

Posted by Clif Burns at 10:04 pm on July 20, 2010
Category: BIS

Electric ChairLast week the Bureau of Industry and Security (“BIS”) adopted, with a few minor revisions, a rule that it had proposed in August 2009 imposing new controls on execution equipment, torture devices, law enforcement restraint devices and law enforcement striking weapons. This blog reported on the proposed rules here.

One of the most significant changes between the proposed rule and the final rule is its treatment of shock sleeves, stun cuffs, and shock belts. The proposed rule would have added shock sleeves to ECCN 0A983, which covers torture implements, stun cuffs to ECCN 0A985, which covers discharge devices, and did not address shock belts at all. In the final rule, all three devices are classified as ECCN 0A982, which covers law enforcement restraint devices. BIS apparently decided that shock sleeves have some legitimate law enforcement use and therefore should be classified under ECCN 0A982, which under EAR § 742.7, has a licensing policy under which license applications are “generally … considered favorably on a case-by-case basis unless there is civil disorder in the country.” Torture implements under ECCN 0A983, on the other hand, are subject to a general policy of denial under EAR § 742.11.

The final rule also added a clarifying note to ECCN 0A982 which covers law enforcement restraint devices. The note points out that the ECCN doesn’t cover child automobile safety seats or seat belts. Although an unobjectionable clarification, somebody was really thinking outside the box when thinking that child seats might be seen as law enforcement restraint devices. Frankly, at least if 4-year-olds are to be believed, those seats would be more adequately classified as specially designed implements of torture.

One commenter on the proposed rule stated that ECCN 0A981, which covers equipment designed for the execution of human beings, should also cover parts for such equipment. BIS wisely decided to reject this suggestion stating,

Identifying parts that may be appropriate for an export license requirement without imposing an export license requirement on general parts that, although usable in equipment
designed for the execution of human beings, have many other uses as well would require both research by BIS and public comment.

That seems just a long way of saying that BIS isn’t interested in getting involved in licensing the export of ropes.

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Jul

7

Mr. Gaillard Not So Gaillard Now

Posted by Clif Burns at 10:19 pm on July 7, 2010
Category: BIS • Criminal Penalties • Cuba Sanctions • Iran Sanctions
Oyster Bay Pump Works
ABOVE: Oyster Bay Pump Works

Patrick Gaillard, president of Oyster Bay Pump Works, a producer of automated liquid dispensing laboratory equipment, recently signed a consent agreement with the Bureau of Industry and Security (“BIS”) under which he agreed to a three-year denial order and a $300,000 fine, $275,000 of which was suspended for one year provided that he commits no further export violations. According to the charging documents, Gaillard shipped laboratory equipment made by his company to Cuba and Iran by transshipping the equipment through Germany and the U.A.E.

Back in 2007. Gaillard pleaded guilty to criminal charges arising out of one of these exports and was sentenced to 30 days in prison, a $25,000 criminal fine, three years of probation, and a $300 special assessment. And, apparently, as Mr. Gaillard walked out of prison after serving his time, there were his friends from BIS, who participated no doubt in the criminal investigation, waiting at the prison gate for a second bite at Mr. Gaillard’s apple. BIS is free to waive about the Supreme Court’s decision in Hudson v. United States, 522 U.S. 93 (1997), which held that subsequent administrative fines almost never violate the Double Jeopardy Clause, but that doesn’t make the double whammy fair or decent, particularly where BIS is knee deep in the criminal trial.

The charging documents also accuse Gaillard of “acting with knowledge,” but the facts supporting these charges don’t seem altogether consistent with that.

Gaillard had knowledge that violations of the regulations were occurring or were about and intended to occur because Gaillard knew of the U.S. embargo of Iran and that the items could not be exported to Iran without U.S. Government authorization. In or around November 2005, a sales representative from an Iranian company approached Gaillard for the sale and export of the items described above to Iran. When Gaillard declined, citing the U.S. embargo of exports to Iran, the sales representative arranged with Gaillard to have the items exported to the Iranian company’s trading arm in the U.A.E., from where the items would be transshipped to Iran.

This suggests that Gaillard may have held the common, but incorrect, belief that the Iran sanctions would not block an export to a country other than Iran. Once the item is in the foreign country, so the belief goes, it is the law of that foreign country which governs whether or not the item can be exported to Iran. If that is what Gaillard believed, it is hard to assert that Gaillard acted with knowledge that his actions were illegal even if his belief were incorrect.

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