In upgrading to WordPress 2.9.1 today, I had a bit of a problem and lost some of the files that control how this blog looks. I’ve recreated most of them, but the blog is still looking a little odd and behaving a bit strangely. I should have time to get everything back in working order over the next few days and while I’m doing that I’ll try to add some new features like a search box.

After seeing that CNN was doing a feature on the top ten YouTube videos of 2009, the staff at Export Law Blog decided that we no longer had an excuse not to recount the top 10 export stories of 2009. However, we can’t guarantee anything quite as awesome as the YouTube video of the toddler dancing to Beyoncé’s Single Ladies (Put A Ring On It). But here goes anyway, in reverse order:

10. Nobody really knows what Part 129’s definition of arms broker includes but it certainly included a website from a Portland yacht broker trying to find customers for an armed hovercraft being sold by somebody in Eastern Europe for $60 million. Several days after the web page appeared, it was yanked.

9. BIS amended its rules to control the export of tonfas and sjamboks. And, no, these are not menu items found in Asian restaurants.

8. Canada actually prosecuted someone for an export violation.

7. Iran used eBay to buy military aircraft parts from eBay dealers who, apparently, thought that DDTC stands for Dauphin Dog Training Club.

6. OFAC and BIS amended the rules implementing the Cuba sanctions to allow more exports of cellphones, computers, peripherals and digital devices to Cuba. Three months later Cuba arrested a U.S. citizen distributing laptops and cellphones in Cuba to Cuban citizens.

5. French export control officer for Luxembourg-based Qioptiq SARL urged company employees not to consult U.S. export lawyers because they “play by the book” and will “push you to” disclose export violations. DDTC briefly abandoned its distaste for export lawyers and fined Qioptiq $25 million dollars.

4. DDTC finally released its amended brokering regulations. The entire world wished it hadn’t.

3. OFAC and the State Department finally discovered the Internet and realized that letting ordinary people in sanctioned countries use Twitter, Facebook and YouTube might actually be good for world democracy.

2. The United States Court of Appeals for the Seventh Circuit smacked down the DOJ’s outrageous (and routine) assertion that courts can’t review DDTC’s determination that a particular item fits in a particular USML category. The money quote:

A designation by an unnamed official, using unspecified criteria, that is put in a desk drawer, taken out only for use at a criminal trial, and immune from any evaluation by the judiciary, is the sort of tactic usually associated with totalitarian régimes.

1. U.S. authorities liberated $536 million from Swiss bank vaults after Credit Suisse was caught lying to U.S. banks in order to clear U.S. dollar transactions for Iran. “Neutrality,” the Swiss learned yet again, isn’t free.

The previous post, dated November 25, quoted an article in Crain’s Chicago Business in which an export attorney was quoted as saying:

“At the very least, you should have your freight forwarder check compliance, so if they identify a problem, they can stop the order before it ships.”

I said in that post that, knowing what I did about the law firm in question, I was “absolutely certain” that the lawyer was misquoted or the statement was taken completely out of context. The attorney involved has since spoken with me and confirmed that I was right and that the article misquoted the lawyer.

Significantly, during the interview the lawyer had become concerned that the reporter was not understanding what was being said and asked to review any attributed quotations prior to publication, a request that the reporter did not honor. Another reason, of course, not to believe everything you read in a newspaper or magazine. Blogs, on the other hand, can always be trusted completely.

The title of this post is not really meant to be hyperbole. The advice given in Crain’s Chicago Business in an article titled “Liars and terrorists and drug traffickers, oh my!” is without doubt the single worst piece of advice on export law that I’ve ever seen dispensed by anyone:

Further complicating matters, export control laws are regularly updated, and it’s up to business owners to stay current. That isn’t always easy. But a good place to start, experts say, is with … a freight forwarder who is regularly dealing with shipping and tariff restrictions.

To begin with, as regular readers know, the defense of “my freight forwarder did it” is the export law equivalent of “the dog ate my homework.” It’s not going to keep you from doing detention. Worse, many freight forwarders have no working knowledge of export laws and little interest in complying because DDTC and BIS usually whack the exporter not the freight forwarder in these matters.

On top of everything else, a lawyer was misquoted by the reporter.

“It’s a labor-intensive process,” says … [the] managing partner of … [a] law firm specializing in international trade law. “At the very least, you should have your freight forwarder check compliance, so if they identify a problem, they can stop the order before it ships.”

I know attorneys at the law firm in question. They are all smart people. They have people just as knowledgeable about export law as anyone else in the export bar. I am absolutely certain that the partner in question was misquoted or the statement was taken completely out of context by the reporter. (11/30 UPDATE: The attorney in question has contacted me to confirm that the quotation was inaccurate and that the reporter, although she promised to allow the attorney to review the article in question before it went to print, did not do so. Again, I absolutely believe that the attorney was misquoted and never would have said what the reporter claimed.)

Here’s some better advice: ask a Ouija Board your export compliance questions before submitting them to your freight forwarder.

Happy Thanksgiving everyone! Export Law Blog will be back to a regular schedule on Monday.

UPDATE (Early Thanksgiving Morning): I should add one qualification, based on a few comments this post has received from esteemed readers who work for freight forwarders. There is, of course, an irrebuttable presumption that any freight forwarder who is a reader of this blog would be an excellent source of export compliance information.

The Bureau of Industry and Security (“BIS”) posted yesterday the details of its settlement with Eastways Shipping, a small New-York based freight forwarder. Under the settlement agreement Eastways agreed to pay $70,000 to settle charges that it handled three export shipment of EAR99 scrap metal to Allied Trading Company, a company on BIS’s Entity List. The settlement suspends $10,000 of the penalty provided that the other $60,000 is paid when due and that Eastways commits no further export violations for a one-year period. The value of the shipments was $95,335.

Eastways appears to be a very small company with estimated annual revenues of $930,000 and five employees. It’s quite possible that a company of that size was unaware of the need to check the Entity List or even knew how to do so. That doesn’t excuse the violation, particularly where checking the Entity List and other lists isn’t terribly burdensome, but it does suggest that a fine equal to more than seven percent of the company’s annual revenues and more than 70 percent of the value of the shipment is perhaps overly punitive in this situation.

As I’ve said before, BIS would do more to promote small business compliance by specific outreach efforts targeted at small businesses rather than periodic, and severe, spankings of small businesses that commit minor export violations such as this one. Under the listing for Allied Trading Company there is a presumption of license approval for exports of EAR99 items, so Eastway’s sin was not really exporting the scrap metal, but was for handling an export where the shipper failed to seek a required license that would have been routinely granted.

Last week a federal district court in Ohio ruled that OFAC violated the Fourth Amendment rights of KindHearts for Charitable Humanitarian Development, Inc. when it blocked the charity’s assets after a provisional finding that the charity was providing material support to Hamas. Under the court’s ruling, the Fourth Amendment required that OFAC obtain a judicial warrant prior to blocking the charity’s assets. That may have you wondering whether this decision will have an impact on other OFAC designations of blocked entities, including final, and not just provisional, designations. Although the court’s reasoning applies equally to final and provisional designations, the short answer is that this decision may not have much impact on OFAC designations in general.

First, application of a Fourth Amendment rationale is limited to U.S. persons and entities and would not be an argument that could be raised by a foreign person or entity subject to an OFAC blocking order. An overwhelming number of OFAC designations are of foreign persons and entities. On the contrary, as the court noted:

KindHearts is an American corporation based in Toledo, Ohio. Its assets, presumably, came from persons resident in this country. Those assets were in this country when the government seized them.

Second, not all courts looking at OFAC designations have agreed that blocking an entity’s assets constitutes a seizure of those assets, in large part because the government doesn’t take possession of the blocked assets. See Islamic Am. Relief Agency v. Unidentified FBI Agents, 394 F. Supp. 2d 34, 47-48 (D.D.C. 2005); Holy Land Foundation for Relief and Development v. Ashcroft, 219 F. Supp. 2d 57, 79 (D.D.C. 2002). Accordingly, even in cases where OFAC blocks the assets of a U.S. person or entity, other courts may be unwilling to require that OFAC obtain a judicial seizure order prior to blocking assets.

If sometime mid-morning you heard a loud cheer followed by exclamations of “It’s about time!”, what you heard was small to middle-market exporters cheering the announcement of a settlement agreement between DHL and two federal export agencies, the Bureau of Industry and Security (“BIS”) and the Office of Foreign Assets Control (“OFAC’). Under the Settlement Agreement, DHL agreed to pay to the two agencies $9.44 million in penalties for allegations that DHL unlawfully aided and abetted the illegal exportation of goods to Syria, Iran and Sudan and failed to comply with record keeping requirements of the Export Administration Regulations and OFAC regulations. OFAC specifically alleged “thousands” of shipments by DHL to Iran and Sudan.

The reason for this sudden eruption of schadenfreude among some sectors of the export community is that many exporters have relied on companies like DHL to assist them through the regulatory thickets of exporting from the U.S only to find that these companies failed to comply with all the requirements. The results of this non-compliance are voluntary disclosures made, and fines paid, by the exporters while the freight forwarders like DHL get off scot free. Too many exporters, particularly those without a large number of export transactions, are forced to rely on DHL and others to lodge licenses, make AES entries, handle endorsements of the license to decrement the value of the license, and so forth. And when that isn’t properly done, it’s often the exporters that pay the price.

Another interesting part of the DHL settlement is that, according to the OFAC press release,

Many of the shipments were intercepted and reported to OFAC by the U.S. Department of Homeland Security’s Customs and Border Protection (CBP)

Say what? This means that DHL was sending packages out of the country where the destination on the air waybill was Iran or Sudan or another sanctioned country. How on earth could that have happened? I think the only reasonable conclusion is that DHL’s employees only used the company’s compliance program when they tore out pages to make paper airplanes to throw down the hall. I’m kidding, of course, but you do have to wonder how DHL could show up at the border with packages headed to Iran, Syria and Sudan.

In better news for DHL, the Jamaica Exporter’s Association today awarded DHL its annual prize as the “best-in-class transportation company that enables and supports the growth of Jamaica’s export industry.” Have a Red Stripe, fellows. You not only deserve it, you probably need it too!

UPDATE: Here is the link to settlement documents.

[NOTE: the photograph illustrating this post is not an actual photo taken in Tehran but a humorous illustration created through the magic of image-editing software.]

No big news today, so it’s time for another Export Law Blog grab bag, this time with an emphasis on some Middle East stories:

• Saudi Arabia: This news report discloses that immigration officials in Saudi Arabia are scanning incoming electronic devices in search of pornography and pirated software. Before moving this to the “this won’t be a problem for me” column, remember that the Saudis have a more expansive view of pornography than you or I might and that it could include pictures that the puritanical Wahabbi inspector finds provocative. Electronic devices are said to include laptops, mp3 players, cell phone memory cards, flash drives, external hard drives and any other device that could harbor morally pernicious images. If such material is found, the device will be confiscated. You might try to claim that a genie put the images there, but I can’t guarantee that will be a successful defense. (UPDATE: A reader emails me to tell me that he knows of instances where Saudi immigration/customs seized Disney films on the grounds that talking animals were offensive.)
• UAE: A software update pushed to Blackberry users in the UAE apparently contained spyware from California-based SS8. The spyware was a java application designed to intercept emails and text messages sent and received by the Blackberry user and then forward them to a central server where they could be examined more closely by UAE authorities. We assume that SS8 had a license for this since such software is classified under ECCN 5D980, which requires licenses to all destinations. The licensing policy set forth in section 742.13(b) indicates that licenses will ordinarily be given to telcom companies and their contractors. Of course, one wishes that the UAE spent as much time enforcing its own export controls as it does worrying about what its subjects are texting one another.
• Syria: This blog reported last week on the sad fortunes of Orionair as a result of a Temporary Denial Order (“TDO”) issued by the Bureau of Industry and Security (“BIS”) once it learned that the company had entered into a wet lease with Syrian Pearl airlines of two BAE aircraft with U.S. engines. The report was based on a story in Madrid’s Spanish-language daily CincoDías, which reported that BAE informed Orionair that it couldn’t return the aircraft that it was servicing to Orianair even before the TDO had been published. Apparently the CincoDías story was inaccurate in two minor respects. First, BAE didn’t take any action until it received a signed copy of the TDO. Second, BAE’s only communication was with Flybe, the maintenance provider, and not directly with Orionair. BAE, further did not advise Flybe that the aircraft had to remain in the United Kingdom, although the terms of the TDO clearly required that the aircraft not be exported back to Orionair in Spain. One other thing bears mention. In the TDO, BIS claimed that Orionair agreed not to export the BAE aircraft to Syria, although Orionair’s account seems to differ from this, particularly inasmuch as Orionair says it told BIS, in the words of Dorothy Gale, that it “had no power here.”

Colorado-based Rocky Mountain Instruments, a manufacturer and distributor of optical components for lasers and imaging devices, filed for reorganization under Chapter 11 of the Bankruptcy Code. An affidavit by a company executive that is part of the filing also blames a 2007 raid by the Defense Criminal Investigative Service (“DCIS”) for at least part of the company’s financial woes, even though the raid has not yet resulted in any formal charges being filed against the company.

The affidavit went on to claim that the raid was triggered by an employee whistle-blower who reported that the company exported product specifications without a necessary export license. The product involved was not specified by the affidavit. As a result of the tip, DCIS, Immigration and Customs Enforcement (“ICE”) and the local constabulary surrounded the business on October 11, 2007, with fifty cars. Yes, you read that correctly: not five, but fifty, “five-zero,” five times ten, or, for any latinists out there, “L” cars. The company claims that the raid triggered a 15 percent decline in business, although it’s not quite clear how it derived that figure. In all events, it’s hard to imagine that a convoy of fifty police cars didn’t have at least some temporary impact on business.

Two compliance lessons can be learned here. First, there’s always a disgruntled employee who will happily turn your company in for export violations. Second, the ensuing theatrics from law enforcement might have a negative impact on a company’s future sales.

. . . to the tune of $6,600. In the civil penalties information released today by the Treasury Department’s Office of Foreign Assets Control (“OFAC”), the agency reported that Willbros, a Texas-based oil and gas drilling services company, paid $6,600 to settle charges that the company

through a former Senior Vice President, willfully violated the Sudanese Sanctions Regulations (the “Regulations”) when it entered into a contract to bid on an oil development project in Sudan, despite its knowledge that such activities violated the Regulations, by facilitating the export of goods, technology or services to Sudan and evading the prohibitions set forth in the Regulations.

A Willbros SEC filing provides a little more detail on the alleged violation:

Acts carried out by Mr. [James] Tillery and others acting under his direction with respect to a bid for work in Sudan may constitute facilitation efforts prohibited by U.S. law, a violation of U.S. trade sanctions and the unauthorized export of technical information.

In December 2008, Tillery was indicted for violations of the Foreign Corrupt Practices Act in connection with bribes paid to officials of Ecuador and Nigeria to retain business with the state-owned oil companies in those countries. Tillery remains at large. Willbros itself paid $22 million dollars to settle criminal charges in connection with these bribes.

The OFAC description of the violation is that Tillery “entered into a contract to bid” on the Sudanese oil project. There is no claim that Willbros actually bid on, or even worked on, the Sudanese oil project, which makes it somewhat unclear as to how the regulations were violated. If I agree with a friend to take a trip to Cuba, I haven’t violated the Cuba sanctions until I actually take the trip.

But, of course, there’s always the issue of facilitation, and OFAC claims that this contract somehow facilitated a violation whether or not a bid was ever made. If I don’t go to Cuba but my friend later does, then the facilitation argument, in its broadest since, is that I facilitated that violation by proposing the trip. (Hemingway might also, if he were still around, be guilty of facilitation by writing books that indirectly encourage his fans to visit his home and drinking haunts in Havana.)

And although this may all seem a stretch, it is consistent with OFAC’s broad concept of facilitation in which the butterfly that flaps its wings in Western Africa arguably facilitates the hurricane that a month later slams into the Atlantic coast of Florida.