Archive for the ‘BIS’ Category


Feb

8

The Trials and Tribulations of Used Part Exporting – UPDATED


Posted by at 12:40 pm on February 8, 2018
Category: BISCCL

MHz HQ via https://mhzelectronics.com [Fair Use]Last month the Bureau of Industry and Security fined Phoenix-based used equipment and part dealer MHz Electronics $10,000 in connection with its exports of two pressure transducers classified as ECCN 2B230 to China and Taiwan. The fine was suspended contingent upon MHz behaving itself during a two-year “probationary period.”

Pressure transducers meeting the specifications in ECCN 2B230 can be used for blast measurement and are therefore controlled because of the role that they can allegedly play in nuclear testing and proliferation. The two items involved were sold for the eye-popping amounts of $280 and $1,100. Even though the fine imposed here was low, BIS’s miff factor was quite high, with the settlement documents noting that MHz did not have an “export compliance program.” In addition, MHz apparently brushed off a visit by FBI agents that had been trolling MHz’s (now-closed) eBay store and told them that one item (not either of these transducers) listed by them on eBay would require an export license if shipped internationally.

Under the circumstances, MHz got off lightly. But even so, this case raises some interesting questions and difficulties for export compliance for businesses like MHz. Like thousands of other small businesses, MHz bought and sold used electronic and testing equipment. With a 96,000 square foot warehouse, it no doubt had a staggering number of different kinds and types of parts and equipment.

How would it obtain ECCNs for all those items? Oh, you say, easy peasy: call the original manufacturer and ask. Uh-huh. Have you ever tried that before? Particularly if you’re selling used parts in an aftermarket competing with the original manufacturer. “You say you need the ECCN of our Model 2370C snarkle widget puffinator? Sure thing. Give me your phone number and someone will get right back to you by, say, April 1, 2032. Does that work?” Click.

And, I’m sure it should come as no surprise that many original manufacturers have no clue as to the ECCNs of their products, particularly if they are foreign. Try calling China and asking (in English or, even, Cantonese or Mandarin) for an ECCN.

Even if spec sheet for the product is published by the manufacturer, it rarely aligns with the control parameters in the relevant ECCN. I challenge you to figure out the classification of a CNC-machine, a computer, or almost anything else from published specification sheets.

The bottom line here is that compliance challenges effectively foreclose used parts companies (except, I suppose, companies exclusively devoted to selling used knitting supplies or antique fountain pens) from participating in the export market at all. And given that the parts that they sell are usually readily available outside the United States, there’s not much of a real justification for shutting this market down for them. BIS says that these bargain-basement priced items could be used for nuclear bomb testing. Does anyone really think that aspiring nuclear powers could not lay their hands on these (and probably better) items outside the United States?  And, if you can use a $280 sensor in nuclear testing, well, we’re in a lot more trouble than I imagined.

UPDATE:  An alert reader, who knows way more about nuclear bombs than I ever will, points out that pressure transducers covered by ECCN 2B230 are used for uranium enrichment in centrifuges, not for blast measurement.   Specifically, the reader notes:  “While 13 kiloPascal sounds like a big number, atmospheric pressure is 101 kPa, so 13 kPa is closer to a vacuum level.”    I’m going to point some finger of blame at BIS itself, which in the charging documents said: “Items classified under ECCN 2B230 … can be of significance for nuclear explosive purposes,” which suggests that the enforcement folks at BIS made the same mistake. Imagine that. In any event, if these small, readily available and inexpensive parts can be used for centrifuge uranium enrichment, we’re still in a whole lot of trouble.

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Feb

1

Leaving on a Jet Plane (for Masikryong)


Posted by at 9:32 am on February 1, 2018
Category: BISNorth Korea SanctionsOFAC

Joint Press Corps vihttp://koreajoongangdaily.joins.com/news/article/article.aspx?aid=3044038&cloc=joongangdaily%7Chome%7Ctop [Fair Use]The Olympics are, in theory, a time when foreign policy should be put aside and world athletes simply compete in the probably vain hope that peaceful athletic games might have a spill-over effect into the stormier regions of international relations.   That being said, UN and US sanctions have gotten tangled up in the upcoming Winter Games in South Korea.

First, the International Olympic Committee, following its checkered past, ignored UN sanctions by shipping recreational sports equipment to the Nork athletes for training.   If any of that equipment was U.S. origin, the IOC would have violated U.S. sanctions all well.  Both prohibit the export of “recreational sports equipment” to North Korea.

Recently, an obscure provision in Executive Order 13810 reared its ugly head. Section 2(a) prohibits foreign aircraft that have landed in North Korea from visiting the United States for 180 days after the aircraft has departed North Korea. When the Executive Order came out, it was hard to imagine that this would ever apply to anything.  Who flies into Nork airports that would want to later fly those planes to the United States?  But now, it turns out, the South Korean ski team had chartered an Asiana aircraft to fly to North Korea’s Masikryong Ski Resort for training with the North Korean team.  The plane would then to return to South Korea on the following day with the North Korean skiers who would remain in South Korea to participate in the Winter Games. Oops.

Apparently, according to this source, OFAC was initially reluctant to waive section 2(a) for the chartered Asiana flight, which would have pretty much put the kibosh on the flight to the joint training session. But minutes before the flight was to take off on 10:40 a.m. Wednesday time, Korea time, OFAC had a change of heart and the airplane left for North Korea.

The Bureau of Industry and Security (“BIS”) was not involved, even though BIS has said that the Airbus 321 is subject to the EAR as a result of havingU.S. origin engines which constitute more than 10 percent of the value of the aircraft. Presumably everyone felt that License Exception AVS would cover the temporary sojourn of the A321 in North Korea, even though the regulations are poorly written in this regard and do not clearly cover foreign manufactured aircraft subject to the EAR flying from a foreign country to North Korea.

License Exception AVS covers (1) foreign registered aircraft on temporary sojourn in the United States departing for foreign destinations, (2) U.S. registered aircraft departing for a temporary sojourn in a foreign destination, and (3) “[c]ivil aircraft legally exported from the United States.” Section 764.4(c)(6) says that AVS may be used for North Korea to the extent that it involves civil aircraft legally exported from the United States. Asiana’s A321 was not itself exported from the United States, although the U.S. origin engines that make the aircraft subject to the EAR were. To reach the result that AVS applies here, you have to interpret “civil aircraft legally exported from the United States” to cover aircraft where U.S. origin parts which make the aircraft subject to the EAR were legally exported, a plausible (if not certain) reading, I suppose, of that language.

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Jan

11

BIS Website Rolls Out Exciting New Feature


Posted by at 11:22 pm on January 11, 2018
Category: BIS

Richard Luthmann via https://twitter.com/LuthmannFirm/status/685863407157952512 [Fair Use]The Bureau of Industry and Security (“BIS”), apparently concerned that its website is not quite entertaining enough, has rolled out a new feature, which we can call “When Lawyers Go Bad.” The purpose of this new feature is, apparently, to highlight criminal activity by lawyers even if that criminal activity is wholly unrelated to export violations of any kind and wholly outside of BIS’s jurisdiction.

To roll out this new feature, BIS brings us, from the front page banner of its site, the case of Staten Island lawyer Richard Luthmann.   Mr. Luthmann is pictured at left with a sword and a shield,  He used this relatively bizarre image to illustrate a Tweet where he exhorts potential clients: “Don’t be a #WIMP! Hire a #LawWarrior that will #Vanquish your legal woes.” Sadly, Mr. Luthmann has had to hire his own “LawWarrior” to vanquish his own legal woes as he was indicted in December for, among other things, wire fraud, kidnapping, identity theft, access device fraud, and money laundering (but not, oddly, export violations).

The indictment alleges that Luthmann and a client cooked up a scheme where they would sell scrap metal to various customers but pack the shipments with a little bit of scrap metal and a bunch of worthless filler. If customers complained, they would say the shipment was full of scrap metal when it left the warehouse and that some nefarious type had obviously tampered with the shipment. If that didn’t work, they planned on using the supposed organized crime connections of another one of the co-conspirators to intimidate the disgruntled customers to shut up. (You know, with horse heads in beds, threats of sleeping with the fishes and all that).

The company engaged in this sales was set up by Luthmann. He then installed another client of his, who was blind and on disability, as the alleged president of the company. When the blind guy worried he’d get in trouble, Luthmann, according to the indictment, assured him that the government would never find out. Famous last words.

Oh, and there’s more. Luthmann allegedly demanded legal fees from one of his co-conspirators in the short-fill scheme in connection with un-invoiced legal services he was allegedly providing the client. The “client” borrowed the sums to pay these fees from another of the co-conspirators who later kidnapped the “client” and threatened him with a weapon to have the loan repaid. Fun times.

As I explained above, I can’t for the life of me see what this case, however entertaining, has to do with anything within the jurisdiction of BIS. The word “export” does not appear even once in the indictment. But, as this blog has a number of readers who are much smarter than I am, I propose a contest. I will award a prize of my choosing, worth at least $2.99, to the first person who can offer a credible explanation of why BIS has enough interest in this case to feature it on its website. This offer is void in any states where it might be illegal and in any states, including Alabama and Utah, where fun is prohibited.

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Copyright © 2018 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

Dec

7

BIS, For One, Does Not Welcome Our New Robot Overlords


Posted by at 6:28 pm on December 7, 2017
Category: BISCivil PenaltiesEntity List

Pilot Truck via http://www.pilotdelivers.com/images/photo-library/PFS011-web.jpg [Fair Use]The Bureau of Industry and Security (“BIS”) recently announced that Pilot Air Freight had agreed to a $175,000 fine ($75,000 of which was suspended) to settle charges that it had aided and abetted an attempted unlicensed export by one of its customers (against whom there is no record of any enforcement action) to IKAN Engineering Services, a company on the BIS Entity List. This seems rather high for what was essentially a software glitch.

According to the charging documents, Pilot had multiple interfaces for entering shipping data.  Its main interface, called “Navigator,” was linked to proprietary screening software that would screen shipment recipients against the Entity List and other relevant screening lists.   A second interface, called “Co-Pilot,” allowed customers to enter shipment data.   Apparently, entries made in “Co-Pilot” weren’t linked back to the Navigator screening software, so when a customer entered a shipment to IKAN, the shipment was not flagged.   It was apparently intercepted by Customs when it reached the Port of Long Beach.

There is nothing in the charging documents to suggest that Pilot knew of this glitch in its automated screening system.  It apparently thought that shipments were being screened.  This is unlike those cases where the exporter did not know of its obligation to screen shipments or knew of its obligation but decided not to screen certain shipments.   Certainly BIS has every right to penalize Pilot here, but the penalty should have taken into account what appear to have been the innocent and unintentional origins of the problem.   Almost everyone uses automated screening and would now appear to be at the mercy of the robots they employ to do the screening and the techies they hire to program the robots.

There’s another interesting wrinkle in the charging documents that BIS more or less glosses over.

Pilot failed to flag this transaction even though the name and address in its possession closely matched the Entity List listing for IKAN.   As Pilot has acknowledged to BIS during this matter, properly configured screening software would have identified the attempted export as involving a listed entity and flagged it for review.

Even though BIS acknowledges that this was not an exact match, we have no idea how inexact the match was.  Even though Pilot agreed that it was not so inexact that it would have been missed by its screening software , it is hard to tell whether they really believed that or felt compelled to say it to keep BIS happy.  The failure of BIS to reveal the name used by the shipper suggests that the match might not have been as close as BIS would now have us believe.

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Copyright © 2017 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

Nov

17

Proposed CFIUS Legislation: Good News for Cattle Prod Makers, Bad News for Cows


Posted by at 3:09 pm on November 17, 2017
Category: BISCFIUSDDTC

Cow by Kabsik Park [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/5xQkWj [cropped]On November 8, 2017, the House and Senate introduced the Foreign Investment Risk Review Modernization Act of 2017 (FIRRMA) proposing the first amendments to the CFIUS process since the Foreign Investment and National Security Act was passed in 2007. Although the bill has bi-partisan support and a good chance of passage, there are no guaranties on anything these days where Congress is concerned.

Of interest to export geeks is the proposed new definition of critical technologies to be considered by CFIUS during the review process. Section 3(a)(8) of the proposed legislation defines critical technologies to include:

(i) Defense articles or defense services included on the United States Munitions List set forth in the International Traffic in Arms Regulations under subchapter M of chapter I of title 22, Code of Federal Regulations.

(ii) Items included on the Commerce Control List set forth in Supplement No. 1 to part 774 of the Export Administration Regulations under subchapter C of chapter VII of title 15, Code of Federal Regulations, and controlled—

(I) pursuant to multilateral regimes, including for reasons relating to national security, chemical and biological weapons proliferation, nuclear nonproliferation, or missile technology; or

(II) for reasons relating to regional stability or surreptitious listening.

What that means is that items controlled solely for Crime Control or AT reasons won’t be critical technologies and that CFIUS will not get worked up if a Chinese company seeks to buy the Cowpoke Cattle Prod (ECCN 0A985) Company in Wyoming. Nor should it care much if a foreign purchaser makes a bid for Missouri-based Ferguson Sjamboks and Tonfas (ECCN 0A9678) R US, Inc.

It is, of course, unlikely that CFIUS would have, either before or after any potential passage of the proposed legislation, considered the fact that the target made cattle prods (or tonfas) even though it has routinely examined transactions where other export-controlled goods were involved. But the proposed legislation, if it becomes law, would provide a statutory basis for CFIUS to ignore issues arising from the U.S. business producing AT- or CC-controlled items.

Photo Credit: Cow by Kabsik Park [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/5xQkWj [cropped]. Copyright 2004 Kabsik Park

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Copyright © 2017 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)