The Bureau of Industry and Security (”BIS”) issued a non-standard 180-day denial order against various entities, including Iran Air and Ankair, in connection with what BIS believes to be the imminent sale of a Boeing 747 from Ankair to Iran Air. The non-standard denial order provides, in part, that no person may take any action to assist Iran Air in the acquisition of the aircraft in question or to service that aircraft. The denial order also prohibits Ankair from engaging in any transaction related to the aircraft.

Here’s a picture of the jet in question, which was once used by Martinair Cargo, parked at Schiphol in May 2008 prior to its delivery to ACT Airlines, a Turkish cargo airline based in Istanbul. How the 747 then wound up in the hands of Ankair, a charter passenger airline, is unclear.

But the involvement of Ankair in this transaction necessitates a completely off-topic digression into the history of Ankair and the story of its misconceived logo. Ankair was once World Focus Airways. An MD-83 which World Focus leased to and operated for AtlasJet crashed in November 2007 on its approach to an airport in Isparta, Turkey, killing all 57 people on board.

Because of the negative publicity generated by the crash, the company sought to re-brand itself as Ankair, short for Anka Air. Anka derives from the Turkish word for phoenix - anka kuşu. As if the image of resurrection from the ashes wasn’t sufficiently unfortunate in light of the crash that led to the re-branding, the airline’s logo (pictured below) has been the object of mirth given the striking similarity between the phoenix that precedes Ankair and the letter “W.”

If this little bit of history piques your interest in Ankair, rest assured that the non-standard denial order wouldn’t prohibit you from flying on one of Ankair’s charter flights.

The Bureau of Industry and Security (”BIS”) released yesterday a Settlement Agreement with Engineering Dynamics, Inc., a Louisiana-based company that writes and distributes computer-assisted design software used for the design of oil and gas drilling platforms and rigs. Under the Settlement Agreement, Engineering Dynamics admitted to a one-count charge that it had conspired with an individual in Brazil who would sell the company’s software to customers in Iran. Engineering Dynamics agreed to pay $132,791.39.

As we reported in a prior post, two officers of Engineering Dynamics are currently subject to criminal charges in connection with the same sales of the software to Iran. A copy of the criminal information filed against them can be found here, and it provides considerably more information on what happened than the BIS Settlement Agreement and related materials.

Upon my initial review of the criminal information, I expressed some skepticism in my earlier post that the two individual defendants — and, by extension, the company — should be held liable for the actions of their “distributor” in Brazil. Upon re-reading the criminal information, it seems to me that there is ample evidence here to support a conspiracy charge, at least if the facts alleged in the information are true.

To begin with, the company’s Brazilian distributor was really more a commissioned agent than a distributor, and that is significant. If a U.S. company sells its products to a distributor, who then resells those products without the U.S. company’s knowledge to a proscribed destination, it may be difficult to prove that the U.S. company was aware of the resale. However, in this case the Brazilian agent was paid a commission and then directly remitted the funds back to Engineering Dynamics. Additionally, the criminal information alleges a number of instances of communications between the U.S. company and the Brazilian agent about the customers in Iran.

This is also the second reported case subject to the new $250,000 penalty provision. Interestingly, BIS charged only one violation of the rules — a conspiracy count — even though multiple counts could have been charged for the various shipments to Iran through Brazil. Various BIS officials have said that under the new penalty scheme they will be less likely to pile on counts, and this provides some confirmation of that.

A recent settlement agreement between the Bureau of Industry and Security (”BIS”) with Miami-based Aviktor Trading Corporation involved both a charge of an unlicensed export of a thermal imaging camera and a charge of failure to file a Shipper’s Export Declaration. The latter charge is fairly rare. After all, how exactly do you manage to export something without filing an SED?

Although the charging documents don’t make this clear, it seems likely that Aviktor exported the thermal imaging camera in checked or carry-on baggage of an airline passenger. Normally an SED is not required for baggage but there is, of course, a significant exception. Section 758.1(b)(2) requires that an SED be filed for any export that requires a license, regardless of value or destination.

Obviously, the SED charge was just another case of piling on by BIS but this is a good opportunity to remind exporters that if you hand carry an licensed item to its destination, don’t forget to file the SED with Customs before departing.

While everyone in the export community is enjoying a little schadenfreude over the Department of Defense’s inadvertent export of nuclear missile fuses to Taiwan, we shouldn’t lose sight that there are still plenty of civilian exporters that might want to tighten up their own compliance programs, assuming that they even have them. Case in point a California-based microwave electronics company profiled in this article in its local newspaper the El Dorado Hills Telegraph. The company, Genesis Microwave, has every reason to have a good export compliance program not only because it produces dual-use goods subject to the Export Administration Regulations, but also because one of its employees recently pleaded guilty to providing dual-use microwave technology to foreign companies without a license.

Here is what the company’s CEO Santiago Cutia, Jr., had to say about the application of U.S. export laws to his products:

“It’s really hard,” Cutia said. “When I see a request for quotation from a country on the National Security List, I know we would need to acquire an export license. For example, take a company from Iran. First, you need an end-user statement, who’s going to be using the product. Then, you have to submit it to the federal Bureau of Industry and Security.”

This must be done not just company by company that a U.S. firm might want to deal with, but rather contract by contract. The same government-approved Irani company that a U.S. firm sold to six months ago can call, and the entire licensing work must be repeated for each new contract, Cutia said.

I’m sure it will come as something of a surprise to BIS that it is approving exports of dual-use technology to companies in Iran. Note to export control compliance officers: make sure your CEO does more than sign the first page of the compliance program and actually reads it before talking to reporters about export regulations.

The article has one other gem, presumably also conveyed by the CEO to the reporter:

Federal tech-export regulations run to 61 pages, double-column.

In our dreams.

The Bureau of Industry and Security (”BIS”) issued a Temporary Denial Order on March 17, 2008, against Balli Group PLC and other related U.K. companies, the Armenian air carrier Blue Airways (a/k/a Blue Sky), and Iranian air carrier Mahan Air (which BIS erroneously calls “Mahan Airways”). The TDO arises out of the apparent lease (or sub-lease) of Boeing 747s to Mahan. These aircraft, which had once been in the United Airlines fleet, had been leased by Balli Group subsidiaries initially to Blue Airways and then sometime in 2006 had been leased by the Balli subsidiaries (or subleased by Blue Airways) to Mahan.

The TDO states that Balli had told BIS that the aircraft were not going to be leased or subleased to Mahan, although “open sources” showed that the aircraft, “identifiable by serial number and tail number were under the control of Mahan Air. The TDO also noted that Balli had refused to comply with an order to return the aircraft to the United States pursuant to section 758.8(b) of the Export Administration Regulations. (I can imagine the bemusement of the British companies when a U.S. agency demanded that they should return aircraft owned by them without compensation to the United States. I don’t think they said “no,” rather they probably said “not bloody likely.”)

Although the TDO doesn’t describe the “open sources” that it refers to, it appears that the arrival of the Blue Sky 747s in Tehran was first noted by Iranian “plane spotting” website www.iraviation.com, and then picked up on a large U.S. aviation-enthusiast forum www.airliners.net. The website www.airfleets.net also picked up the transfer of the aircraft. All this goes to show what should be fairly obvious: it’s really hard to hide a 747.

ABOVE: Berkut 360 kit plane

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The Bureau of Industry and Security (”BIS”) released a final order today denying export privileges to Ali Asghar Manzarpour for twenty years. The denial order is premised on allegations by BIS that Manzarpour attempted to export a single-engine aircraft to Iran on April 28, 2004, by exporting it to the U.K. and then ordering a freight forwarding company to re-export it to Iran.

Manzarpour never responded to BIS’s Charging Letter, and so a default order was entered by the BIS Administrative Law Judge. Most of the ALJ’s decision dealt with which one of the various attempts by BIS to serve the charging letter was sufficient to support a default order. Ultimately the ALJ relied on a registered letter sent to an alternate address for Manzarpour in Brighton, England, that was returned as “refused.”

The BIS documents don’t tell much about the considerably more interesting story of Mr. Manzapour’s export of the single-engine aircraft, but at least part of that story can be found in other sources, including a BBC radio interview with Mr. Manzarpour. The saga began when Polish authorities detained Mr. Manzarpour on February 17, 2005, based on the export of the aircraft from the U.S and at the request of Immigration and Customs Enforcement. Mr. Manzarpour was immediately placed in Polish custody pending an extradition motion from the U.S. On February 24, 2005, a grand jury in the District of Columbia indicted Manzarpour for violating the U.S. sanctions imposed on Iran.

According to the BBC interview with Manzarpour, the aircraft involved was a Berkut 360 kit plane — i.e., a small aircraft sold unassembled to aviation enthusiasts. (The U.S. asserts that these planes can be easily converted to military unmanned aircraft). Manzarpour also says that he obtained a license from the U.K. Export Control Organisation authorizing the export.

In all events, after Mr. Manzapour spent 22 months in a Polish prison, the Polish appeals court denied the U.S. request for extradition, apparently on the basis that the export of the Berkut 360 wasn’t a crime under Polish law. As a result, Mr. Manzarpour was, in December 2006, returned to the U.K.

Thereafter, in July 2007, after the U.S failed in its effort to bring Manzarpour to the U.S. for criminal prosecution, BIS issued the charging letter that led to the denial of Manzarpour’s export privileges. That’s what should have been done in the first place rather than wasting U.S. resources in a futile attempt to prosecute a foreign national for violation of unilateral U.S. sanctions on foreign soil.

The Bureau of Industry and Security (”BIS”) released today an order changing the address of Mohammad Fazeli on the Denied Persons List. Mr. Fazeli had been convicted of an attempt to export pressure sensors to Iran and was sentenced to one year and a day in jail. He was released in July 2007

Normally such an order wouldn’t merit a blog post, but something about it caught my attention. One of the addresses being corrected was this: “1439 Saltair Fazeli Ave., Los Angeles.” Hmmm. That’s cool. Mr. Fazeli was living on a street in Los Angeles that bore his surname. What a lucky guy. Or not.

If you put that address into Google Maps, you’ll find it doesn’t exist. There is a 1439 South Saltair Ave., but that’s as close as it gets. So, when the BIS order says that the 1439 Saltair Fazeli Avenue address is “no longer correct,” that’s a bit of a stretch. It was never correct.

So where in the world is Mohammad Fazeli now? According to the order he’s at 545 South Atlantic Blvd, #C, Los Angeles. Of course, since the “Saltair Fazeli” address was wrong, I couldn’t help but go back to Google Maps and check out 545 South Atlantic Boulevard. And what did we find? This:

Yep, a used car dealership called Bingo Motors. Is apartment # C perhaps one of the cars on the lot? Or maybe Mr. Fazeli is living in St. Alphonsus Catholic Church directly across the street at 532 South Atlantic Boulevard.

I suspect we’ll see Mr. Fazeli staying one step ahead of BIS, even after the next address correction for him. And, as a compliance note, be very careful if you’re doing business with anyone named Mohammad Fazeli at any address in Los Angeles or elsewhere.

UPDATE: Not surprisingly, this post (like any other post critical of something BIS has done) attracted our resident BIS troll. He stopped by to fuss about the practice on this blog of referring to “BIS ALJs.” He seems somewhat fixated on this, due apparently to an idiosyncratic notion that because these ALJs are not paid by BIS (but rather by the Coast Guard), they can’t be BIS ALJs, even though they are assigned to BIS cases. It’s rather like complaining about calling someone Joe Smith’s attorney when Mr. Smith is court appointed and paid by the Court and not by Smith. Oh well.

Needless to say, the troll stomps his foot loudly and spews lots of smoke and exclamation points when his comments don’t make it through moderation. Well, here’s an offer to our cowardly troll: leave a real work email address in the comment form (as opposed to your ususal “whocares@whocares.com”) and your comments will sail through moderation in a heartbeat. Then you can complain about my referring to “BIS ALJs” to your heart’s content. I’m not holding my breath.

UPDATE 2: The troll took the bait left in the first update and returned to continue his/her rant about “BIS ALJs.” But, as predicted, the troll is still too much of a coward to identify himself/herself, so, sadly, I won’t be able to share with you the troll’s further gems of wisdom on this issue.

Yesterday the Bureau of Industry and Security (”BIS”) released a Settlement Agreement it had entered into with Selex Sistemi Integrati, Inc. According to the charging papers, Selex had exported an instrument landing system classified under ECCN 7A994 and then re-exported it without a license to Iran. The export and re-export in question occurred in November 2002. Selex agreed to a fine of $12,300. The violation was not voluntarily disclosed by Selex to BIS.

Interestingly, this is the first reported enforcement action commenced after the effective date of Public Law 110-96 which increased the penalties for export violations (under the International Emergency Economic Powers Act, or “IEEPA”) to the greater of $250,000 or twice the value of the transaction. Amended section 206(b) states that the higher penalty is applicable in any enforcement action which is “pending or commenced on or after the date of the enactment of this Act.” Because of BIS’s annoying habit of not dating much of its correspondence, it is impossible in this case to tell from the documents posted whether the enforcement action was commenced after after October 16, 2007, the date of enactment. Assuming, however, that this was the case, the $250,000 penalty would be, under the terms of the amendment, retroactively applicable.

In that light, the $12,600 fine is relatively low. There are several possible explanations for this. I do not think that one explanation was any concern about the legality of increasing the civil penalty retroactively. The black letter law is that the constitutional provision against ex post facto laws applies to criminal penalties but not to civil penalties. See Collins v. Youngblood, 497 U.S. 37 (1990). Granted there is some support for the proposition that a civil penalty that is essentially punitive and not remedial might be covered under the ex post facto clause. But it can’t be easily concluded that IEEPA’s $250,000 penalty is essentially punitive rather than remedial, although that might well be the case.

Another, and more likely possibility, is that the item exported, an instrument landing system, is a key component of aviation safety. The Iranian sanctions have been severely criticized for their detrimental impact on aviation safety and have been argued to have played a role in a recent civilian air disaster in Iran.

Finally, and probably the most likely possibility, is that the increase in maximum penalty available has not altered BIS’s perception of what a fair settlement is in a particular case. With most penalties in the past being in the five-figure range and only the rare penalty in the six- or seven-figure range, it may well be that BIS is not inclined to ratchet up penalties in the average case just because of the IEEPA amendment, but will reserve the maximum penalty for the most egregious cases.

A recent story in the New York Times reveals that the Bureau of Industry and Security is drafting new rules relative to exports of crime control equipment to China. The revision has been prompted by the desire of U.S. companies to sell face-recognition software and hardware to China as anti-terrorism measures in advance of the Olympics in Beijing.

E. Richard Mills, speaking for BIS, said it was unclear whether the regulations would have the overall effect of tightening or loosening export controls. He noted that BIS’s review of the relevant export regulations reflected a general effort at the agency to make sure that all export controls were up to date. Finally he noted that the agency would take into account availability of similar crime control products from non-U.S. sources.

As aficionados of crime control items will no doubt already know, the Commodity Control List includes under the crime control category, and regulates the export of, such whimsical items as straight-jackets, thumbscrews, thumb-cuffs, cattle prods and mind-reading, er, polygraph devices. Needless to say all such items are readily available from many sources outside the United States, leading one to wonder whether perhaps they will be dropped from the CCL in this round of revisions.

The Bureau of Industry and Security (”BIS”) released Settlement Agreements that the agency entered into with AR-AM Medical Services LLC and DMA Med-Chem Corporation, two related medical device distributors located in Great Neck, NY. According to the charging papers, the companies supplied commercial invoices to the New York branch of the Bank of Egypt containing the following language:

The goods are neither of Israeli materials nor [sic] they contain any Israeli materials nor are they exported from Israel.

We declare that no raw material of Israeli origin has been used for production or preparation of the goods mentioned in this invoice.

AR-AM was alleged to have included this language in three invoices and agreed to a fine of $7,200. DMA was alleged to have included this language in one invoice and agreed to a proportionate fine of $2,400. Both companies agreed to a “non-standard” two-year denial order forbidding them from engaging in exports to Bahrain, Iraq, Kuwait, Lebanon, Libya, Oman, Qatar, Saudi Arabia, Syria, the United Arab Emirates and the Republic of Yemen. Both fines were suspended for two-years contingent upon compliance with the non-standard denial order and no further export violations by the companies.

Since the language was contained in the invoices generated by both companies, this is not a case where the company simply missed the boycott language in terms and conditions or other documents supplied by the purchaser. As a result, neither company was in very good position to claim that it was an oversight or a failure to read all documents thoroughly. This probably explains the two-year denial order.

However, the “non-standard” denial order is hard to defend even in this circumstance. Section 764.3(a)(2) of the EAR permits a “non-standard” denial order which is described as “narrower in scope” than a “standard” denial order. The order at issue is non-standard because it is restricted to specific Arab countries. Since only four instances of anti-boycott compliance were alleged, and three of those for Syria and the fourth was for an unspecified country, these aren’t the countries that were involved in the transactions in dispute. Nor or these all the countries in the Arab League.

Instead, the list seems to be derived from the list of countries reported in the 2007 BIS report to have been involved in anti-boycott requests, excluding Egypt and Jordan which were involved in only a handful of such requests. That being said, it seems more than a little ironic that a boycott would be punished not be a general denial order but by an order that in effect was itself a boycott of specific countries.