Archive for the ‘Criminal Penalties’ Category


Aug

19

Chinese Hacker Nabbed on Export Charges


Posted by at 9:20 pm on August 19, 2014
Category: Arms ExportCriminal PenaltiesDDTCDeemed Exports

Stephen Su photo taken by CBP during U.S. transit in 2011 via http://www.cbc.ca/news/canada/british-columbia/su-bin-chinese-man-accused-by-fbi-of-hacking-in-custody-in-b-c-1.2705169 [Public Domain]
ABOVE: Stephen Su


Well, we all know, or should know, that hacking is a criminal violation of the Computer Fraud and Abuse Act, at least when it entails unauthorized access to another party’s computer. What you may not know is that if you’re a foreign national and if the data accessed is technical data controlled by the International Traffic in Arms Regulations, hacking can also be a violation of the Arms Export Control Act.

Back in June, Canadian authorities arrested, at the request of the FBI, a Chinese citizen and Canadian permanent resident named, variously, Su Bin, Stephen Su and Stephen Subin, who we’ll refer to simply as Su for convenience.  Su , the owner of Lode-Tech, a Chinese company with an office in Canada, was accused of conspiring with several Chinese nationals to hack into U.S. defense contractors’ computer systems and to exfiltrate data about military aircraft back to China.  Last Friday, Su was indicted by a federal grand jury in California.

One of the charges in the indictment is a violation of the Arms Export Control Act.  The theory behind this charge is that Su, with his PRC-based co-conspirators, conspired to break in the U.S. computer systems and to disclose ITAR-controlled technical data to foreign nationals among whom were, of course, themselves.

The criminal complaint filed back in June, which served as the basis for Su’s arrest, contains some fascinating details.  First, it appears that access was gained to the defense contractors’ systems by sending emails to employees of the contractors containing infected attachments or links to infected websites that installed malware on the systems which allowed the hackers to control the systems, to view files on the system, and to send the files back to themselves.   Interestingly, the files were then transferred to hop points or servers in Hong Kong and Macao and from there were physically carried back into the PRC.   Interestingly, it appears that as the Internet becomes easier for security agencies to surveil, modern spies have started to revert back to older methods of spycraft such as smuggling documents, document drops, and, conceivably, even encrypted Morse code shortwave radio transmissions.  One wonders if the NSA is training folks in Morse Code and invisible ink.  What’s next?  Microdots?

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Jul

23

Be Careful What You Like on Facebook


Posted by at 4:40 pm on July 23, 2014
Category: BISCriminal Penalties

Facebook Profile Photo of Viacheslav Zhukov https://www.facebook.com/viacheslav.zhukov.7[Fair Use]
ABOVE: Viacheslav Zhukov


A Savannah resident, Viacheslav Zhukov, has been charged in a superseding indictment with export violations and false statements in connection with rifle scopes that he mailed from Savannah, Georgia, to Russia without the required license from the Bureau of Industry and Security (“BIS”). He is being held without bond awaiting trial.

As this blog has often noted, a frequent challenge in export prosecutions is establishing that the defendant knew that his unlicensed export was illegal. U.S. export laws are, as we all know, complicated; and a Russian immigrant might not know that mailing rifle scopes to Russia without a license would be illegal.

As the false statement count suggests, there is some evidence that Zhukov may have known that the exports required a license from the U.S. government.  Zhukov allegedly filed a Customs Declaration with the U.S. Postal Service saying that the boxes contained a “cardboard box, a model battle tank, and men’s jeans.” Telling customs that you’re mailing a “cardboard box” to Russia probably is more or less an open invitation to having your shipment detained and inspected, which may well be how he was caught.

Of course, there may be other reasons that Zhukov fibbed about the contents of the box. Perhaps he was hoping to avoid Russian import license requirements or duties. At this point, we have no idea what his explanation will be for providing an incorrect description of the items being exported.

One interesting digression: Mr. Zhukov has a Facebook page (although he’s not able to update it at the moment), and the only thing at all that he says that he likes is an album by Murder Death Kill appealingly titled “F*** With Us And Find Out.”  (The asterisks are not part of the original album title.) That album features songs such as “Kill Yourself,” “People Will Die,” and “Hostility.” I’m sure he now wishes that he liked (at least on Facebook) something more innocuous like Tchaikovsky’s Greatest Hits or the Cole Porter Songbook.

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Jul

15

Who Sang First, Kraaipoel or Fokker?


Posted by at 6:36 pm on July 15, 2014
Category: Criminal PenaltiesIran SanctionsOFAC

Rob KraaipoelBack in the early days of this blog in 2007, we reported on the case of Robert Kraaipoel, a Dutch businessman who was indicted for selling U.S. origin items to Iran, even though Mr. Kraaipoel had never set foot in the United States and even though the sales were completely legal under Dutch law. We challenged the notion that under international law, the U.S. origin of the items was enough of a basis to assert criminal jurisdiction over Mr. Kraaipoel.

In 2009, we reported that Mr. Kraaipoel had voluntarily flown to the United States to face the music. We expressed some surprise that he had done this and expressed even more surprise that the court let him fly back to the Netherlands after a guilty plea. At the time we noted that this was likely because he had agreed to cooperate with the government in indicting other bigger fish.  Indeed, the sentencing memorandum filed by the U.S. Attorney in 2012 cited substantial and extensive cooperation by Mr. Kraaipoel dating back to 2007.  The court ultimately sentenced Mr. Kraaipoel to sixty months of probation and no prison time, no doubt because of Mr. Kraaipoel’s cooperation with U.S. authorities vis-à-vis his dealings with Iran.

Now it appears that one of the companies that got snared by Kraaipoel’s cooperation may have been the Dutch company Fokker Services BV, about which we reported last month.  Fokker agreed to pay $21 million to OFAC and to the DOJ under a deferred prosecution agreement.  Interestingly, Kraaipoel’s role in the Fokker case may derail the deferred prosecution agreement itself.

The federal court judge charged with approving the deferred prosecution agreement was concerned that the agreement for lenient treatment was premised on Fokker’s voluntary disclosure in 2010.  Because Kraaipoel began talking with prosecutors back in 2007, there was some concern, and some sources who told Bloomberg News, that the government knew about Fokker’s misconduct well before the voluntary disclosure, which would, of course, substantially detract from the credit that Fokker should receive for having voluntarily disclosed the matter.

A hearing on the deferred prosecution agreement to resolve these issues is scheduled for July 24.

 

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Jun

26

How Not To Smuggle Guns To Nigeria


Posted by at 8:38 pm on June 26, 2014
Category: Arms ExportCriminal Penalties

Mugshot of Sheriff Olaleran Mohammed [Fair Use]
ABOVE: Sheriff Mohammed


A federal jury in Minnesota, on June 16, convicted a naturalized U.S. citizen on charges that he illegally exported guns to Nigeria without a license. At issue were eight handguns that Sheriff Olaleran Mohammed stuffed into brown paper bag and placed between the seats of a 1998 Mercury that was being shipped via a cargo ship container to Nigeria. Spanish police discovered the guns when the ship called in Valencia, Spain, on its way to Lagos.

The trial brief filed by Mr. Mohammed’s lawyers before the jury trial gives a pretty clear idea why he was ultimately convicted. First, the brief tries to rely on the exemption in section 123.17(c) of the ITAR for temporary exports of not more than three nonautomatic weapons for personal use. Since there were eight guns in the paper bag in the Mercury, I guess the idea here was that the defendant could invoke the exemption three times to cover his eight guns, or something like that.

The other argument forwarded by the defendant’s trial brief on the export charge is that Mr. Mohammed had no idea whatsoever that it was illegal to export firearms for personal use to Nigeria without a license. Which is, of course, why he stuffed them in a paper bag and hid them in a 1998 Mercury he was sending to Nigeria.

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Jun

5

Beat the Fokkers


Posted by at 9:32 pm on June 5, 2014
Category: Criminal PenaltiesIran SanctionsOFAC

Fokker Services Building in Hoofddorp via http://www.fokker.com/sites/default/files/styles/carousel_innovations/public/media/Images/Services/Contact_Fokker_Services_Location_Hoofddorp_637x286.jpg?itok=NYP0cc2k [Fair Use]The Office of Foreign Assets Control (“OFAC”) announced today that a $21 million fine had been extracted from the Dutch company Fokker Services BV in connection with its export of U.S. origin spare aircraft parts from the Netherlands to Iran and Sudan. The re-exports to Iran and Sudan by a Dutch company were prohibited under section 560.205 of the Iran regulations and section 538.507(b) of the Sudan regulations because the aircraft parts were presumably ECCN 9A991, although this fact is not expressly stated.

Half of the $21 million dollars is being paid in connection with a deferred prosecution agreement with the U.S. Attorney for the District of Columbia. This is disturbing because the OFAC announcement makes clear that the exports were voluntarily disclosed by Fokker to OFAC. One of the major incentives for a voluntary disclosure is to avoid criminal prosecution. After the Fokker case, people are certainly going to think twice about making a voluntary disclosure.

Nothing in OFAC’s description of the reasons for the penalty justify turning a voluntary disclosure into a criminal prosecution. OFAC describes the violation as “wilful and reckless” because Fokker knew that these were U.S. origin parts. Note that there is no claim that Fokker knew that its export of these parts from the Netherlands to the embargoed countries was a violation of U.S. law, only that it knew that the parts were U.S. origin. Foreign persons might well not understand that exports of U.S. origin parts from their own country and in compliance with their own laws would be illegal, so OFAC is making an unjustifiable leap from knowledge of the parts’ origin to a “wilful and reckless” violation of law. Another aggravating factor was the absence of a U.S. sanctions compliance program at the Dutch company, again hardly a sound reason for turning a voluntary disclosure into a criminal prosecution.

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