Archive for the ‘Criminal Penalties’ Category

Aug

13

Latifi Prosecution: The Happy Ending

Posted by Clif Burns at 12:56 pm on August 13, 2010
Category: Criminal Penalties
Alex Latifi
ABOVE: Alex Latifi

According to an online report posted today on the Birmingham News website, the Department of Justice agreed to pay Alex Latifi $290,000 in restitution arising out the government’s unsuccessful prosecution of Latifi on criminal export charges. Latifi was acquitted at a bench trial after the defense had demonstrated that the technical data about a military helicopter part that Latifi was accused of exporting was freely available on the Internet. The judge previously awarded attorneys’ fees and costs to Mr. Latifi.

Latifi’s case for restitution was based on the damage the prosecution had caused to his business. The prosecution effectively shut down Latifi’s business during the course of the prosecution. According to a complaint filed by Latifi with U.S. Office of Professional Responsibility, one of the prosecutors even said: “We don’t care if Latifi is innocent. Our goal is to put him out of business” In that context, $290,000 in restitution seems more than fair.

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Jul

9

Arms Export Charges Added to Mac Aviation Indictment

Posted by Clif Burns at 9:19 am on July 9, 2010
Category: Arms Export • Criminal Penalties • Iran Sanctions
Oyster Bay Pump Works
ABOVE: Thomas McGuinn

This blog previously reported on the indictment of three Irish residents — Tom McGuinn, his son Sean McGuinn, and Sean Byrne — and their company Mac Aviation for exports of helicopter engines from the United States to Iran. The defendants allegedly had the engines shipped from the United States to Mac Aviation in Ireland and then re-exported them to Iran.

Now comes news of a superseding indictment in that case with new charges against the defendants. Most significantly, the superseding indictment now alleges that the defendants bought F-5 canopy panels in the United States and then exported them to Iran. Based on these allegations, the superseding indictment adds for the first time counts for violating the Arms Export Control Act.

The significance here is that these charges may make it easier to extradite the defendants from Ireland because these exports violate current U.N. sanctions and would (at least presumably) violate Irish law, whereas the helicopter engine exports likely were legal under Irish law. The only problem here is that the F-5 canopy panel exports occurred in 2005. This was before U.N Security Council Resolution 1747 which imposed the international arms embargo on Iran in 2007.

The story told by the superseding indictment about how McGuinn and company got the canopy panels out of the U.S. is both interesting and a little unclear. McGuinn allegedly purchased the panels from a California company and told the company that the panels were going to the Nigerian Air Force. The California company naturally refused to sell the panels to McGuinn without an export license authorizing the panels to go to Nigeria. McGuinn then, according to the indictment, asked the California company to ship the panels to a representative of McGuinn’s freight forwarder in the United States, something the California company also declined to do without an export license. (Obviously, the California company had undergone good compliance training on export red flags!)

Now comes the interesting part. According to the indictment:

[D]efendant MAC AVIATION caused a representative of ABL freight, located in Compton, California, to remove all attached invoices from [the California company] from the F-5 forward canopy panels, and replace them with a Packing List and Proforma Invoice on defendant MAC AVIATION letterhead addressed to “Microset Systems Sdn Bhd,” Free Commercial Zone, Southern Zone, Kuala Lumpur, Malaysia for three (3) Plastic Panels, Part Number 3-13204-01, Serial Numbers 2146, 2149, and 2150.

The packages were then shipped by ABL to Malaysia and, thereafter, McGuinn allegedly had them shipped on to Tehran.

It’s not clear who ABL is. Probably they are the California company’s freight forwarder. How MacGuinn got ABL to change the packing information and then ship the panels is even more unclear, although if that happened, my guess would be that some improper financial incentives to some ABL employee was involved. The panels had either been consigned to an ABL facility pending the licenses or the ABL employee had access to the California company’s parts warehouse. This part of the export scenario, if true, would also increase the likelihood of extradition from Ireland by strengthening the claims of U.S. jurisdiction over McGuinn who, it would appear, engaged in substantial activities in the United States in order to avoid the U.S. requirement for an export license.

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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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Jun

29

Former Air Force Colonel Charged With Illegal Arms Brokering

Posted by Clif Burns at 10:44 pm on June 29, 2010
Category: Criminal Penalties • Part 129

AK47sA retired Air Force colonel, John O’Toole, and an Israeli aeronautics engineer, Chanoch Miller, are the subjects of a recently unsealed indictment in connection with an alleged plan to ship 700 AK-47s to Somalia. What is most interesting about the indictment is that O’Toole is not only charged with illegal exports but also is charged with brokering violations — namely brokering the sale of defense articles to Somalia in violation of the arms embargo against Somalia and brokering the sale of these defense articles without first obtaining a brokering license from the State Department’s Directorate of Defense Trade Controls.

From the indictment it appears that O’Toole was mostly involved in arranging transportation of the rifles to Sudan, whereas Miller was in charge of procuring and selling the AK-47s. In exchange for O’Toole’s services, Miller was going to pay him a commission. This, of course, if true, appears to fit within the definition of brokering under section 129.2 of the ITAR. In particular, the definition of brokering in section 129.2(b) includes arranging for the transportation of defense articles.

What’s interesting here is that because of the brokering offenses, O’Toole is being charged with more counts than Miller, even though it’s not clear that a broker should be more culpable than an exporter. Both O’Toole and Miller are charged with an attempted export and a conspiracy to export. Miller can’t be charged with brokering on top of that because brokering requires an action taken “as an agent for others,” which is not the case for Miller because he bought the rifles himself and was acting on his own behalf in selling them. But what sensible policy would make O’Toole more culpable than Miller when Miller was selling the rifles and was just paying O’Toole to help him transport them?

[Hat tip to Laura Rozen for bringing the indictment to my attention]

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Jun

23

Export Issues Arise in Shot Show FCPA Prosecution

Posted by Clif Burns at 7:55 pm on June 23, 2010
Category: BIS • Criminal Penalties
Richard Bistrong
ABOVE: Richard Bistrong

Well, it now seems that some export issues may be arising in the much-publicized “Shot Show” Foreign Corrupt Practices Act (“FCPA”) prosecution. In that case, law enforcement officials perp-marched owners and officials of gun and law enforcement supply businesses from the Las Vegas Shot Show and then charged them with violating the FCPA.

This is the first and only FCPA prosecution that has arisen from a sting operation. The prosecution alleges that the defendants had agreed to make kickbacks to African officials in connection with the potential award by those officials of a $15 million contract. The transactions were fictional and cooked up by investigators. The African officials were imposters played by FBI agents with thespian inclinations.

The chief cooperating witness, who undertook a major role in setting up the sting, is Richard Bistrong, a former official of a body armor company who is himself now charged with paying actual bribes to actual officials in actual transactions. Specifically, Bistrong is the subject of a criminal information filed in a federal district court charging Bistrong with bribing UN officials to rig bids which resulted in awards of large body armor contracts to his company. In the Shot Show prosecutions, Mr. Bistrong pretended to be the broker in the phony African transactions and introduced the defendants to the FBI undercover agents who were playing various roles in the sting.

The defendants have argued that they were entrapped by the FBI through Bistrong’s inducement and that they had no predisposition to commit the crimes charged. In effect, Bistrong dangled $15 million contracts in front of the defendants, many or some of whom were store-front businesses and had never had such large contracts offered to them before. Key to the defense in this case is to discredit Bistrong above and beyond the issues raised by his own FCPA prosecution. According to this recent post at the blawg Main Justice, the defendants have asked for copies of Mr. Bistrong’s tax returns, alleging that they will reveal tax violations by Bistrong. The judge hearing the trial has indicated that if the government doesn’t turn over the tax returns voluntarily, then he will grant an order forcing them to do so.

The defense has also asked for “any export licenses [Bistrong] had been given by the federal government.” (And you thought I would never get to the export angle, didn’t you?). This request did not just come out of the blue. The criminal information filed against Bistrong alleges export violations in addition to the FCPA violations. Specifically it alleges that Bistrong shipped vests and helmets with level IIIa ballistic protection to the Kurdistan Regional Government in Iraq without the required licenses from the Department of Commerce’s Bureau of Industry and Security (“BIS”). It looks like the defendants here are gathering impeaching evidence to support the government’s charges against Bistrong, evidence which the government certainly won’t introduce on its own in the Shot Show FCPA prosecution.

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