Archive for the ‘Criminal Penalties’ Category


Jun

23

Delay in Filing Voluntary Disclosure Costs Company $100k


Posted by at 9:00 am on June 23, 2016
Category: Criminal PenaltiesDDTCVoluntary Disclosures

Microwave Engineering CorporationFour years ago, this blog last reported on Microwave Equipment Corporation (“MEC”) in North Andover, Massachusetts, when its President, Rudolf Cheung, pleaded guilty to exporting a military antenna to Singapore without a license. MEC is back in the spotlight again having just agreed to pay the Directorate of Defense Trade Controls (“DDTC”) $100,000 in connection with MEC’s unlicensed provision of ITAR-controlled technical data to a Chinese national employee without a license. According to the Proposed Charging Letter, Cheung “repeatedly provided Employee with ITAR-controlled … technical data … between December 2009 and June 2010 … in relation to five discrete research and manufacturing projects.”

The charging letter specifically noted MEC’s “exceptional cooperation” during the investigation, but still decided to whack the company with a large fine, citing the fact that the employee was Chinese and, apparently more significantly, the delay by MEC in filing the voluntary disclosure after discovering the violation:

Respondent’s Export Compliance Officer became aware that specific projects were being discussed with Employee in or around May 2010, and took steps to limit such conversations. Respondent did not, however, submit a disclosure to DDTC reporting the unauthorized transfer of ITAR-controlled information to Employee until January 20, 2012. The disclosure was submitted by the company on the same day that Dr. Cheung pleaded guilty to an unrelated criminal violation of the AECA.

This seems harsh, to say the least. It is obviously not a coincidence that the voluntary disclosure was not filed until Cheung, the president of the company, pleaded guilty to his own export charges. Clearly, Cheung, no doubt for his own reasons, was blocking the disclosure, and it seems unfair to penalize those left behind for these additional violations by Cheung because he delayed their disclosure. Still, this underlines the conventional wisdom that voluntary disclosures should be filed promptly after the discovery of the violation.

As an interesting footnote, Cheung has still not been sentenced, almost four years after his guilty plea. A sentencing hearing was scheduled for April 24, 2015, but it did not take place. Since that time, various deadlines and hearings were reset by the court. The last docket entry is a call for a joint status report which was due to be filed on January 29, 2016, but appears to have never been filed.

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Copyright © 2016 Clif Burns. All Rights Reserved.
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Jun

15

DOJ Issues Misleading Press Release in Connection with Export Guilty Plea


Posted by at 11:47 pm on June 15, 2016
Category: BISCriminal PenaltiesIran SanctionsOFAC

All in a Day's Work by Damian Gadal via Flickr https://flic.kr/p/5xQkWj [Fair Use]
ABOVE: Erdal Kuyumcu

This blog reported earlier on the case against Erdal Kuyumcu in connection with exports of an EAR99 Cobalt Nickel powder (CoNiCrAIY) to Iran. In that initial post, I questioned the government’s evidence that Mr. Kuyumcu knew that his sales of this powder to a customer in Turkey were destined to Iran, noting that the criminal complaint based its allegations on the “training and experience” of an investigating agent who felt that unrelated emails discussing Iran covered these shipments. (I also mocked the agent’s claim that a “[b]ased on my training and experience … [a] colon followed by a close parenthesis … represents a smiley face.”)

Yesterday the Department of Justice issued a press release stating that Mr. Kuyumcu had pleaded guilty to the charges against him. Of course, the DoJ, as usual, could not restrain itself from misleading hyperbole in the process of patting itself on its own back:

Kuyumcu, a United States citizen, conspired to export from the United States to Iran a metallic powder composed of cobalt and nickel without having obtained the required license from the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC). The metallic powder can be used to coat gas turbine components, such as turbine blades, and can also be used in aerospace, missile production, and nuclear applications. Such specialized metals are closely regulated by the U.S. Department of Commerce to combat nuclear proliferation and protect national security, and exporting them without an OFAC license is illegal.

Why, you ask, if CoNiCrAIY powder is “closely regulated” by the U.S. Department of Commerce was its export a violation of OFAC rules? Good question. CoNiCrAIY powder is EAR99 and its export is not regulated, either “closely” or otherwise, by the Department of Commerce. Perhaps the DoJ has gotten confused, innocently or otherwise, by ECCN 2E003.f which controls certain “technology” for application of certain specified inorganic compounds, including CoNiCrAIY and similar compounds, on non-electronic substrates. But even this is not tantamount to close regulation of the powder because other inorganic compounds covered within these controls of deposition technology include tungsten and oxides like, er, carbon dioxide. By this logic, if Kuyumcu exported a carbonated soft drink to Iran, the DoJ could claim that he exported a product to Iran “closely regulated” by the Department of Commerce.

Once again, we see that the government can misinterpret export laws and regulations with immunity while everyone else does so at their peril.

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Copyright © 2016 Clif Burns. All Rights Reserved.
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Jun

1

Russian Export Case Larded with Bogus Spying Charges: Part 3


Posted by at 8:02 am on June 1, 2016
Category: BISCriminal PenaltiesGeneral

Alexander Fishenko
ABOVE: Alexander Fishenko


This blog has been covering the export prosecution of Alexander Fishenko for quite some time. Previous posts on this case can be found here and here. Most of my interest has been in the trumped-up Foreign Agents Registration Act charge brought by the government to allow Fishenko to be characterized, inaccurately, as a Russian “spy.”

Fishenko, who pleaded guilty to all counts in the indictment, is scheduled to be sentenced on June 3. The sentencing memorandum prepared by his lawyers provides more insight into the “spy” nonsense and the government’s motivations in bringing these charges. (I am not linking to the memorandum, even though it is publicly available through PACER, because it contains detailed information on some unrelated private matters relating to Fishenko’s medical history.)

As was detailed in the preceding posts, it was undisputed that Fishenko was buying things at the request of the Russian government. But that alone does not make him a foreign agent required to register under FARA. Section 3(d) exempts “private and nonpolitical activities in furtherance of the bona fide trade or commerce of such foreign principal.” There was no allegation or evidence that Fishenko acted for the Russian government in any other capacity, meaning that he was not a “foreign agent” under FARA and, therefore, was under no obligation to register as one.

Apparently, Fishenko was anxious to plead guilty after the indictment, but the government was not willing to take his plea. The hold-up was that Fishenko, although he was willing to plead guilty to all the other charges, did not want to plead guilty to the bogus FARA charge for precisely the reason the government included it: namely, that those charges had been widely, indeed universally, interpreted as charges that he was a Russian spy, something the government well knew and was intentionally using to poison the well.  Fishenko thought that such a plea would permanently damage the reputation of his family members.

Leaving aside for the moment that Fishenko’s activities were exempt under section 3(d) of FARA, it is also undeniable that there is a significant difference between being an “unregistered foreign agent” and being a Russian spy. You can be an unregistered foreign agent in violation of FARA even if you run around wearing a banner saying you work for the Russian government, behavior essentially incompatible with being a spy. Nor was Fishenko charged with espionage under the relevant provisions in 18 U.S.C. §§ 793 – 798, something that certainly would have happened if Fishenko was really a Russian spy.

The only conclusion behind the government’s intransigence on the fake FARA charges is that it wants to keep this weapon in its arsenal for future, and equally illegitimate, use. It’s much easier to convict export defendants once they have been branded in the press as spies. Sadly, such behavior — intentionally bringing unfounded charges for their negative publicity value — turns the word “Justice” in the Department of Justice to Orwellian double-speak.

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Copyright © 2016 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

May

25

More Border Search Shenanigans by Customs in Sanctions Case


Posted by at 8:51 pm on May 25, 2016
Category: Border SearchesCriminal PenaltiesCustomsIran SanctionsOFAC

Los Angeles International Airport by Daniel Betts [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://www.flickr.com/photos/redlegsfan21/13789084574 [cropped]Here we go again. Another case has surfaced where U.S. Customs seized computers and other electronic media from a U.S. traveler at the border, shipped them off to be imaged, rifled through the imaged contents looking for evidence and then weeks later, based on emails they found while going through the computer images, finally sought a search warrant arguing that there is probable cause that the Iran sanctions had been violated.

This almost identical scenario recently led a federal district court in Washington, DC, to toss out evidence gathered in this fashion. And neither of these cases is particularly tough: if you have the time to haul the computer from the airport after the passenger has departed, you have time to get a warrant before snooping through the computer. This is not like the typical border search where Customs looks at a suitcase before the traveler takes it with him to a foreign country.

The latest case involves a search of Idin Rafiee, a San Diego resident and U.S. citizen, who, on October 5, 2012, was traveling to London through LAX. He had a computer, an external hard drive, a smart phone and a tablet with him. A Customs agent told Mr. Rafiee that Customs was detaining his electronic media on the ground that there was reason to believe that there was child pornography on it. The media was imaged on October 9 and returned to Rafiee on  October 13. The government did not seek a search warrant until November 1, 2012, and based the warrant on emails that it obtained from the seized media before it had obtained a warrant. Subsequently, Rafiee was charged with violating the U.S. sanctions on Iran.

The child pornography claim was a complete fabrication. There was never any evidence supporting such a belief and no such pornography, or any pornography for that matter, was alleged by the government to have been found. Instead, the only evidence the government had before it searched Rafiee’s devices was an alleged statement by a disgruntled employee that the defendant was doing business in Iran, even though the notes of the conversation with the employee produced by the Government did not mention Iran.

Of course, even if the Government had some valid reason to grab Rafiee’s stuff, there was no exigency once they had it to justify searching it before getting a warrant. They had all the time in the world, as their one month delay in applying for a warrant amply demonstrates. Beyond that, the notion that you can bootstrap a warrant request with evidence from the same computer you are asking to be permitted to search is, at best, ludicrous.

Not surprisingly, the Government finally dropped all charges against Rafiee on May 13, 2016, before the Court even had an opportunity to rule on Rafiee’s motion to suppress.

 

Photo Credit: Los Angeles International Airport by Daniel Betts [CC-BY-SA-2.0 (http://creativecommons.org/ licenses/by-sa/2.0)], via Flickr https://flic.kr/p/n1uEru [cropped]. Copyright 2014 Daniel Betts

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Copyright © 2016 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

May

20

Company Sues Former Exec Over Iran Sanctions Scheme


Posted by at 10:39 am on May 20, 2016
Category: Criminal PenaltiesIran Sanctions

Delfin Production Facilities via http://www.delfinusa.com/photos/ [Fair Use]
ABOVE: Delfin Production Facility


Well, this had to happen sooner or later and I’m surprised it hasn’t happened sooner or more often. Delfin Group USA, a motor oil company, sued Markos Baghdasarian, its former president, for damages it incurred as a result of a scheme concocted by Baghdasarian to ship Delfin products to Iran. (Link – subscription required.) Delfin pleaded guilty to a federal indictment arising from these shipments and was sentenced to three years in federal prison. He was released in 2015.

The complaint seeks damages in the amount of $2.41 million for product seizures, $1.63 million for legal fees, and $200,000 in freight and shipping costs. You have to wonder where Baghdasarian is going to come up with all this cash after three years in Club Fed.

Best irrelevant factoid: the criminal complaint alleged that Baghdasarian put false contact information on one of the barrels of motor oil additives destined for Iran, specifically, a telephone number associated with Victoria’s Secret. This is particularly ironic given that Iran has just recently arrested eight people for posting Instagram photos of women without headscarves.

Photo Credit: Delfin Production Facility via http://www.delfinusa.com/photos/# [Fair Use]

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Copyright © 2016 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)