Archive for the ‘DDTC’ Category


Aug

12

Friday Round-Up


Posted by at 4:28 pm on August 12, 2016
Category: BISDDTCOFACSDN List

Bumper Cars on the Boardwalk

Here are a few recent odds and ends that are worth a mention (and to catch up on a few things I missed while on vacation):

  • The Directorate of Defense Trade Controls (“DDTC”) issued guidance as to which activities are “gunsmithing” that do not require registration under part 122 and which are “manufacturing” and do require registration. This guidance defines “gunsmithing” and “manufacturing” completely differently from the definitions used by the Bureau of Alcohol, Tobacco and Firearms (“ATF”). For example, assembling kits into guns is “manufacturing” according to ATF but not according to DDTC. On behalf of lawyers everywhere: Thanks, DDTC, for keeping us busy!
  • More revisions to the TAA Guidelines, which are longer and less interesting than all six volumes of Proust, were announced. These mostly take into account the new definitions of export, re-export and retransfer that were recently adopted as an interim final rule by DDTC. I’ve said it before, and I’ll say it again, true export reform would get rid of the ridiculous TAA process entirely and make it similar to the  process used by the Bureau of Industry and Security (“BIS”) for licensing technology exports.
  • The United States Marshals Service (“USMS”) is auctioning off 2,719.32669068 bitcoins. You will be, I’m sure, relieved to know that the auction notice explicitly states that the USMS won’t accept any bids from anyone on OFAC’s SDN List. I wouldn’t want Eliot Ness going after Rooster Cogburn, even if it would make a better movie than Batman v. Superman.

Photo Credit: Bumper Cars on the Boardwalk by Clif Burns, via Flickr https://flic.kr/p/JXGCgz. Copyright 2016 Clif Burns

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Jul

12

Catfish Row


Posted by at 9:47 pm on July 12, 2016
Category: Criminal PenaltiesDDTCITAR

Jason Bourne [Fair Use]The affidavit in support of the criminal complaint filed against Gregory Allen Justice for passing allegedly export-controlled data to an undercover FBI agent is a lurid potboiler, a train wreck that you can’t stop watching, a bizarre mashup of David Lynch and Austin Powers. Worse, you don’t know whether to laugh at the defendant, feel sorry for him or recoil in horror.

The tawdry affair starts with Justice, with an extremely ill, housebound wife, getting “catfished” by a woman who aroused his interests by sending him pictures, allegedly of herself, but in fact pictures of an Eastern European model. Justice, in hopes of replacing his sickly wife with a trophy wife, started sending “Chay” (the catfisher’s nom de doom or screen name) boxes of cash and gifts from Amazon including a $900 iPhone, a flat panel television, a charcoal grill and other goodies. Soon Justice was short of cash and, apparently enamored with James Bond, Jason Bourne and the be-wigged Russian spies on the television series The Americans (honestly, I’m not making that up) decided to become a Russian spy and sell everything he could lay his hands on about the satellites made by his employer.

Being a real-life spy is much harder than being one on TV or in the movies, and Justice screwed things up before he even got started. In November 2015, he stuck a thumb drive in his computer. Game over. This set off alarm bells at his employer and everything he did on his computer after that was monitored, recorded, saved, analyzed and handed over to the feds in a neat box with a pretty bow on top. As a result, the closest Justice ever got to a real Russian was when he stood in line at Starbucks behind a guy (from Kansas) reading Tolstoy.

In January his car was surreptitiously searched, and a handwritten note with the address of the Russian Embassy in Washington, DC, was found. One month later an undercover agent, pretending to be a Russian spy, called Justice and negotiated the purchase of documents and information from Justice. For the next three months, there were numerous phone calls and five in-person meetings between Justice and the undercover agent posing as a Russian spy. You can’t help but wonder if the sting stretched out so long because the FBI was having fun with this guy. He was low hanging fruit who liked to discuss recent episodes of The Americans and express his admiration of James Bond and Jason Bourne.

None of this was necessary because he signed a receipt for the money he was given by the undercover agent for the first drop of documents. Yes, you read that right. He signed a receipt for the money. Seriously. I’m not even a spy, nor have I pretended to be one, in my spare time, on TV, or otherwise, and even I know that you don’t sign receipts for the money that the Russkies pay you for spying.

Above and beyond all this, the affidavit says that Justice asked the fake spy to help him buy drugs that, it appeared, he planned on using to get his wife out of the way and close the deal with “Chay.” And he was also apparently supplementing his spy payments by dealing GHB, a controlled substance, on the side.

The real question, of course, in this: how much time and money was spent in building the case against a guy who makes Austin Powers look like Albert Einstein and who, apparently, never sold any documents to anyone other than the FBI? I’m sure that the FBI relished all the giggling over war stories that this case would yield but, frankly, I would imagine there are better uses of investigative time, money and resources. The minute he signed that first receipt, it was time to break out the cuffs.

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Copyright © 2016 Clif Burns. All Rights Reserved.
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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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Jun

22

DDTC Solicits Public Comment on New Application System Sight Unseen


Posted by at 8:03 am on June 22, 2016
Category: DDTC

Cockers for the Nationals by Clif Burns [All Rights Reserved], via Flickr https://flic.kr/p/F2FiEi

So, I’ve decided to give you the contents of this box over here. Of course, the deal is you must keep the contents whatever they are. So, please tell me what you think about what’s in the box and whether you will like whatever it is. Nope, no peeking. You tell me whether you like what’s in the box and then I’ll give it to you. That way if the box contains an 80-foot Burmese python, you can’t say I didn’t give you a chance to object before saddling you with your new pet.

On Monday, the Directorate of Defense Trade Controls did just that when it announced that it is overhauling its export licensing system. No more DSP-5s. No more DSP-83s. Instead, according to the agency

licensing operations will move from the current, largely form-based submissions to an intuitive system which will allow both industry users and DDTC staff to smoothly and securely navigate the submission and review process.

DDTC is giving the public 60-days to comment on this new system. No details on the system have been provided beyond what’s quoted above. So the box that DDTC is proposing to drop on your doorstep may have a cute puppy inside. Or maybe a hungry python. So, speak up now. Tell us what you think!

Of course, if DDTC revises the utterly ridiculous mess surrounding agreement submissions (where, among other things the transmittal letter is longer than the agreement and where the submission process is described in a constantly changing 223-page document that rivals War and Peace for prolixity and Finnegan’s Wake for obscurity) there will be general rejoicing all around. But there isn’t a scintilla of a suggestion in the notice that this monstrosity is going away.

So, which will it be? Puppy or python?

Photo Credit: Cockers for the Nationals by Clif Burns [All Rights Reserved], via Flickr https://flic.kr/p/F2FiEi. Copyright 2016 Clif Burns

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Jun

8

Cost of Sinning Adjusted for Inflation


Posted by at 7:27 pm on June 8, 2016
Category: Civil PenaltiesDDTC

Money by Nick Ares [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/55FLSR [cropped and processed]Of course, when it comes to adjusting benefits, the government could care less about the effects of inflation. However, when it comes to putting money in its pocket (as opposed to taking it out of the government till and putting it in yours), well, inflation is, all of a sudden, a huge issue. Just in case you were thinking of committing any export violations, the Directorate of Defense Trade Controls (“DDTC”) wants you to know that your penalty will be adjusted upward, as of August 1, 2016, to reflect inflation since 1985, the year in which the $500,000 per violation penalty was set. This adjustment will apply to all penalties assessed after that date even if the export occurred prior to that date.

So how much is an export violation going to cost now? Well, DDTC consulted the Office of Management and Budget (“OMB”) which told it, based on price increases, that the multiplier for penalties set in 1985 is 2.1182. This means the new penalty is a whopping $1,094,010 per violation. Evidently, Christmas occurs in August for DDTC this year. Although I’m not clear exactly how OMB computed that multiplier, I can verify that the difference in the Consumer Price Index between 1985 and 2016 is a multiple of around 2.23, so apparently the OMB was in a good mood and cut violators a little slack here.

Of course, for all of you who were checking your cash reserves and contemplating leaving the export business entirely, DDTC was quick to point out, in a statement on its website, that the increase “does not impede the discretion of [DDTC] to assess [penalties] lower than the maximum amount should circumstances warrant.” That’s cold comfort when lower means something lower than a million dollars.

Photo Credit: Money by Nick Ares [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/55FLSR [cropped and processed]. Copyright 2008 by Nick Ares

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