An indictment was returned on October 28, charging three men with conspiring to export carbon-fiber material to the China Academy of Space Technology (”CAST”). Certain types of carbon-fiber materials are covered by ECCNs 1A002, 1C010, 1C210, and 1C990. The DOJ press release announcing the indictment provides no further detail on the carbon-fiber material involved or the applicable ECCN.

Two of the indicted men are or were employed by a Singaporean import/export company known as FirmSpace, Pte Ltd. A reporter for Singapore-based news website TODAYonline visited FirmSpace and discovered some interesting things:

For over a year, the company, Firmspace …, appears to have not had any business. But it has not laid off any employees and was even able to pay its staff promptly, said its receptionist, who only wanted to be known as Ms Vera.

“I found it quite strange but I never thought of asking the bosses, as long as I still got my salary,” she told Today. …

None of the three employees working in Firmspace knew what was sustaining the business, Ms Vera said. But she stated that Firmspace had been “involved in a few projects” — she didn’t know the nature of these projects, though — since it stopped its import and export business, but none of them were successful.

Ms. Vera and her two co-workers had the perfect job where they got to show up at work, do absolutely nothing at all, and still get paid. Who were they to step off this gravy train?

Of course, it doesn’t take an especially clever sleuth to guess what was going on:

TODAY’s checks revealed that Chinese nationals Mr Hou Xinlu and Mr Gao Xiang are listed as Firmspace’s directors. It is believed they are based in China.

Ya think?

Not surprisingly, Firmspace appears to be simply a front company set up by CAST or some other agency of the Chinese government to obfuscate Chinese efforts to obtain export-controlled items from the United States. This time it didn’t work out so well, since the Chinese front company tried to order the carbon-fiber material from a U.S. front company set up by the U.S. government to catch people trying to engage in illegal exports. Still, you have to wonder how many people get paid by the Chinese to sit at desk in a front companies used by the Chinese in their attempts to obtain sensitive materials from the United States and other countries.

An article in today’s Miami Herald provides more details about the settlement agreement that we previously reported and under which freight forwarder Cargoland Air and Ocean Cargo, Inc. agreed to pay a fine of $36,000 to the Bureau of Industry and Security (”BIS”). The fine was paid in connection with an unlicensed shipment of police helmets to Venezuela. These new details, however, may raise more questions than they answer.

According to the article, Susan Olmo, the owner of Cargoland, had no idea a license was necessary:

Doral freight forwarder Susana Olmo shipped 210 riot helmets to Venezuela two years ago as a favor to a customer who had won a contract to outfit some of the country’s police.

It was only after the goods were on their way that Olmo learned that U.S. law required her to have a license to export the helmets. Olmo stopped the shipment and had the helmets returned to the United States, but that wasn’t enough to prevent her company from being fined $36,000 by the Commerce Department

Several things can be gleaned from this. First, it seems likely from this account that Olmo never bother to even consult the Commodity Control List before exporting the helmets. Accordingly, although our previous post on this complained that the ECCN involved might not give reasonable notice to a freight forwarder of what was covered, Olmo can’t claim that defense. Indeed, it is likely that BIS’s decision to whack her company even though she made every effort to get the helmets back was based on the absence of any evidence of an attempt to comply with BIS’s export rules.

I’m not quite sure what to make of Olmo’s claim that the export was “a favor to a customer.” Does Olmo export stuff with charge for customers she likes? And even if she did, I can’t find a personal favor defense in the Export Administration Regulations.

A settlement agreement with BIS doesn’t require that the exporter show remorse for the illegal shipment, and Olmo isn’t about to show any:

Olmo … is riled that she was fined $36,000. She said she lost about $20,000 shipping the helmets back to Miami. And she’s been stuck with about $15,500 worth of helmets she doesn’t know what to do with.

Uh, maybe she could send the helmets back to her customer. And what does she mean that she’s stuck with the helmets? Did she buy them? Was she the exporter of record or, in the current jargon, “U.S. principal party in interest”? Maybe what happened here is that her customer, knowing that a license to ship riot helmets to Venezuela would be difficult to obtain, duped her into buying and exporting the helmets, hence her claim that it was a favor.

‘They want to make an example of a small company,” Olmo said. “I don’t think it was fair. I didn’t make any money.”

She’s vowed she’ll never export anything again.

Her company is a freight forwarder and a non-vessel owning common carrier (”NVOCC”) that ships container loads to foreign countries. Is she saying that she’s shutting down her company? Or again, maybe this is consistent with my speculation that perhaps she was duped by her customer to be the exporter of record here. Even so, someone ought to tell Olmo that even where she is just the freight forwarder she is still involved in an export and required to comply with U.S. export laws.

The winner of today’s breathlessly exaggerated headline contest goes to the Bureau of Industry and Security (”BIS”) for this:

COMMERCE DEPARTMENT, GOVERNMENT PARTNERS, BREAK UP IRANIAN RING CHARGED WITH PROCURING IED COMPONENTS

Although this headline conjures up a Eliot Ness raid with the culprits being led off in shackles and at gunpoint never to export again, the reality is a bit more mundane. In fact, the headline refers, in part, to a federal grand jury indictment unsealed in Miami today against eight individuals and eight corporations, all allegedly part of the Mayrow General Trading Company network. The defendants were charged in connection with dual-use exports that wound up in Iran, including exported items which could be used in the manufacture of IEDs deployed against U.S. troops in Iraq.

None of the eight individuals or corporations are located in the United States. Whether Britain, Germany, Iran and Malaysia, where the defendants are located, will permit the extradition and prosecution of the individual defendants is a close question, particularly if the defendants’ only contacts with the United States were the purchase of U.S.-origin goods and if the exports to Iran did not break the laws of their countries of residence. (For those individuals located in Iran, of course, it’s not even a close question, and these individuals will be subject to prosecution only if they decide to visit, say, Disneyland or the Grand Canyon or travel to a country that will allow rendition or extradition.)

In addition, the Commerce Department release indicated that 75 companies and individuals had been added to the Entity List in connection with the Mayrow network exports. (The State Department release on the indictment, however, states that there were 100 additions to the Entity List). All exports of U.S.-origin goods to companies and individuals on the Entity List will require a license from the Department of Commerce. Naturally such licenses will generally be denied.

As of this writing, however, the BIS website doesn’t indicate any additions to the Entity List, but it can reasonably be assumed that these additions will appear sooner rather than later. Unlike indictments of foreigners over which the U.S. has precarious criminal jurisdiction, putting members of the network involved in these exports on the Entity List is much more likely to be effective in shutting down the troublesome exports. Once these additions are made, I’ll post a link identifying the companies and individuals involved.

ABOVE: Shahrazad Mir Gholikhan

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In yet another strange turn of events in one of the stranger export prosecutions to wend it’s way through the federal courts, a federal district court in Fort Lauderdale declared a mistrial in the prosecution of Shahrazad Mir Gholikhan for her involvement in a plan to export 3,500 night vision goggles to the Iranian military. According to an article in the South Florida Sun-Sentinel, one juror held out for acquittal after eight hours of deliberations. The prosecution announced that it intended to retry Ms.Gholikhan in October.

The case started when Ms. Gholikhan and her ex-husband Mahmoud Seif traveled to Austria to pick up a pair of night vision goggles in order to re-export them to the Iranian military. She and Seif were arrested by the Austrian authorities, convicted, and sentenced to fifty days jail time in Austria, after which they were returned to Iran. In the meantime, a grand jury indicted Gholikhan and Seif for conspiring to export 3,500 Generation III night vision goggles to Iran.

Since the U.S. and Iran do not have extradition treaties, Ms. Gholikhan could have remained safely in Iran but instead came to the United States in December 2007 to enter a plea agreement under which she would plead guilty to one count and be sentenced to time served in the Austrian jail. After the plea was entered, prosecutors said that a mistake had been made in the sentencing guidelines calculation. As a result, Gholikhan was sentenced to 29 months in jail. Gholikhan then moved to withdraw the plea. Even though that motion was opposed by prosecutors, the judge granted the motion and the case was set for trial on all seven counts of the grand jury indictment.

The trial, which began on September 3, focused on the prosecution’s claims that Gholikhan sent faxes and made phone calls about the night vision goggles before the Vienna meeting under the alias Farideh Fahimi. This was to counter the defense’s claim that Gholikhan only acted as a translator for his husband and was not substantially involved in the planned exports. The Sun-Sentinel article described the thrust of the prosecution’s argument as follows:

Prosecutor Michael Walleisa said Gholikhan’s phone records corresponded to calls placed by Fahimi and faxes sent from Fahimi came from Gholikhan’s fax number.

In his closing argument, Walleisa repeated Fahimi’s words on one of the recorded phone calls: “In this line of work, everyone has two or three names, none of which is their real name.”

Gholikan’s new trial is set for October 14.

We’re back from vacation and we’re back with a grab bag of things:

• University of Tennessee Professor J. Reece Roth was convicted on eighteen counts, including violations of the Arms Export Control Act for permitting foreign graduate students to have access to information relating to an Air Force project on the use of plasma technologies for unmanned aerial vehicles. According to the report on the Knoxville News Sentinel’s website, a key piece of evidence proving that Roth had knowledge that his conduct was illegal was a set of notes that divided the work between an American graduate student and the Chinese graduate student in order to keep export-controlled technical data away from the graduate student. When this arrangement impeded progress on the project, the students were allowed to share data. Roth claimed that he didn’t believe the information was export-controlled until the project netted an actual military product, a claim that would appear inconsistent with his initial division of work on the project between the American and the Chinese graduate student.
• The Denver Business Journal supplies more information on the Platte River Associates prosecution for allegedly violating the Cuba embargo. The attorney for Platte River told the Denver Business Journal that the prosecution arises from training that the company gave to an employee of a Spanish company, Repsol, that had previously purchased geological modeling software used for oil exploration. The employee arrived with seismic data that appeared to relate to the western Caribbean and possibly to Cuba. There is apparently no allegation that Platte River dealt with any Cubans or the Cuban Government, nor any allegation that Repsol actually used the software in connection with a Cuban project. Instead, it now appears that the government’s case is based not on the sale of the software but the training of the Repsol employee. It’s still a tenuous connection without proof that Repsol used the software in connection with dealings with the Cuban government.
• Someone has made a broad-ranging Freedom of Information Act request at the Office of Foreign Assets Control (”OFAC”), apparently seeking copies of all applications for licenses to export agricultural and medical products to Iran. This has prompted OFAC to send letters to licensees requiring the licensees to assert in writing any claims that information in these licenses is proprietary or confidential to the licensee. Does anyone have any information on who may be seeking this information and why? Please let me know in the comments section.

An article in today’s Washington Post provides some interesting insights into the April 2007 conviction of Pennsylvania-based Electro-Glass Products for violations of the Arms Export Control Act arising from the company’s unlicensed exports of 23,000 solder-glass preforms to India. The preforms are allegedly components of military night vision goggles.

As a result of the 2007 conviction, Electro-Glass was debarred from exporting by the Directorate of Defense Trade Controls (”DDTC”). Electro-Glass has now prevailed upon Representative John Murtha to write a letter to DDTC seeking to have the agency set aside the debarment. According to the article, Murtha wrote the letter as a favor to a constituent — the company is located in Murtha’s congressional district.

More interesting than this congressional intervention is the defense proffered by Electro-Glass for its unlicensed exports:

“We want to stay legal, we want to stay aboveboard. It was an accident what happened in the first place,” [James K.] Schmidt [Electro-Glass's President] said in a telephone interview.

Schmidt said he called the FBI and “they told me that India was a democracy and they should not be denied.” The company later consulted U.S. customs officials and got the impression that it should not stop the shipments, he said.

But officials from both the FBI and U.S. Customs and Border Protection have denied that they gave approval.

Although I don’t doubt that the FBI may have said something like that to Schmidt, you have to wonder why Schmidt was using the Bureau as the company’s export compliance department. Moreover, given that it wouldn’t be clear to either the FBI or Customs that “solder glass preforms” were components of military night vision, it’s hard to see that the okay from either agency, even if given, would be much of a defense.

Admittedly it is self-serving for me to say so, but this case just illustrates why inexperienced companies ought to call an export lawyer before exporting any item that could conceivably have a military use. But don’t be too hard on me for this little bit of self-promotion: it’s the middle of August, everybody is on vacation, and probably only three people will read this post.

Last week we reported that charges had been filed against a U.S. Army Captain for exporting EoTech holographic rifle sights to Japan without the required export license from the Department of State’s Directorate of Defense Trade Controls. Of particular interest was that the government charged Captain Iishiba for violating the overseas smuggling provisions contained in 18 U.S.C. § 555, rather than under 22 U.S.C. § 2778(c), the criminal provisions of the Arms Export Control Act. We speculated that this might be because the government believed that 18 U.S.C. § 555 had a relaxed scienter requirement such that the government would only have to prove that the export was knowing but not that it was a knowing violation of law.

On Monday, a plea agreement between Iishiba and the government was entered with the court. Iishiba pleaded guilty to violation of the federal conspiracy statute, 18 U.S.C. § 371 for conspiring to violate the overseas smuggling statute. The plea agreement, however, did not simply indicate that the exports were intentional, but also stated that Iishiba knew that the exports were in violation of law. Specifically, the plea agreement noted that Iishiba was aware that the exports were illegal because he “misidentified the contents of the packages on the export declaration forms.”

Given that the plea agreement seemingly acknowledges that 18 U.S.C. § 555 requires that the export be in knowing violation of law, the question remains as to why Iishiba wasn’t charged under the Arms Export Control Act as opposed to the anti-smuggling provision. The penalties under the two statutes appear to be the same, so that’s not the reason. Any ideas? Let us know your thoughts in the comments section.

ABOVE: Cuban oil well

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Last week we reported on criminal charges filed against a Colorado software company for violating the Cuba embargo. We had hoped to see the criminal information when it became public because the charges seemed, well, a little bit fishy. Now it appears, according to this article in Boulder’s Daily Camera, that the criminal information won’t be made public until a “change of plea” hearing takes place in October. The company had previously pleaded not guilty to the charges.

That article also gives a fair amount of detail about the facts leading to the indictment including claims by the defense attorneys that the company had no direct dealings with the Cuban government:

Foreman, an attorney with Denver-based Haddon Morgan Mueller Jordan Mackey & Foreman, said Thursday that the allegations stem from Platte River’s work in 2000 with Repsol, a Spanish oil and gas company.

He said the Boulder company sold its software program, which analyzes seismic and other ground data to assist in determining potential places to drill for oil, to Repsol in 2000.

A couple of months later, a Repsol employee came to Boulder for further training on using the software, Foreman said. At that time, a Platte River representative recognized that the seismic data looked as if it related to the Caribbean and Cuba, he said.

“I have no idea whether or not Repsol ultimately did anything with Cuba utilizing that software,” Foreman said.

This is all pretty attenuated as a basis for a criminal indictment. Platte River sold software to a Spanish company that then fed data into the program relating to areas around Cuba. Is Microsoft going to go to jail for selling Excel to a Canadian company that then uses the program to analyze its sales figures, including sales to Cuba? It strikes me that you don’t have criminal activity unless it can be demonstrated that Platte River knew that the software was going to be used to aid drilling in Cuba and was in fact later used to aid drilling in Cuba. Short of that, “no cigar,” as they say.

That being said, the mystery about this case only deepens. The change of plea hearing suggests that the defendants are now going to plead guilty and that some sort of plea agreement has been reached. But why would anyone plead guilty on the facts as they appear so far?

The U.S. Attorney for the District of Columbia issued a press release today on charges filed against Platte River Associates in Boulder, Colorado, for violating the U.S. embargo on trade with Cuba. A copy of the criminal information detailing the charges is not yet available, and the press release raises as many questions as it answers.

According to the press release:

[Platte River] provided specialized technical computer software and computer training, which was then used to create a model for the potential exploration and development of oil and gas within the territorial waters of Cuba, without first having obtained a license from the Secretary of the Treasury.

No further information is provided relating to the substance of the charges, but the description provided here doesn’t really state all the elements of a violation. It seems unlikely, based on the language in the press release, that the training was provided to Cuban nationals or the Cuban government. Likely it was provided to nationals of other countries such as China, which is indeed involved in efforts to exploit Cuba’s offshore oil reserves. Even then, providing that software so that potential exploration can be modeled doesn’t violate the embargo until the software is used for actual exploration and then only if Platte had knowledge that the software would be used for those purposes.

The criminal information, when available, will likely provide enough information to evaluate the charges more fully, but, at the moment, not everything adds up. Once the criminal information is available, we will update this post.

ABOVE: U.S. Attorney Alice Martin

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The Alex Latifi saga continues. As we have reported in detail here on Export Law Blog, Mr. Latifi was acquitted on charges that emailing a drawing of a Blackhawk helicopter part to a Chinese supplier violated the Arms Export Control Act. The acquittal appears to have been based, at least in part, on the availability of that drawing on the Internet.

Latifi’s attorney, Henry Frohsin, indicated on Friday that he has filed a complaint with the Department of Justice’s Office of Professional Responsibility against Alice Martin, the U.S. Attorney involved in the prosecution. A copy of the complaint is not publicly available, but another attorney in Frohsin’s firm told the Birmingham News that the complaint alleges that the government had exculpatory evidence that it failed to provide to the defense team. The precise nature of that exculpatory evidence was not revealed to the newspaper.

Alice Martin told the Birmingham News that her office has been the unsuccessful target of earlier complaints and that she was certain that her side would prevail again.