An alert reader from the U.K. pointed this out:

BERR (“Department for Business, Enterprise & Regulatory Reform”) which houses the United Kingdom’s Export Control Office has changed its name to BIS (“Department for Business Innovations and Skills”). I can’t imagine that our own BIS (“Bureau of Industry and Security”) is very happy about this foreign incursion on its export control brand. Perhaps this will prompt the U.S. BIS to go back to its original name — BXA, or the Bureau of Export Administration. Or better yet: “CSI:Exports”

Then again tit-for-tat is always fun so we could rename BIS as the Export Control Office and the Department of Commerce could be come the Department of Business, Enterprise, Recovery and Reinvestment (“BERR”). Then 10 Downing Street could paint itself white and Pennsylvania Avenue could be renamed Downing Street. By the time it was all over, Parliament and Congress would shift names, and we could trade the Washington Monument for the Tower of London. Such fun, as long as we don’t have to trade anything for the Millennium Wheel.

A press release from Her Majesty’s Revenue and Customs (U.K.) supplied some further and very interesting details relating to the conviction of three UK residents (including two Iranians granted political asylum) for the attempted export to Iran of oxygen cylinders used in fighter jets. This story was first reported here on April 29 as the three men went to trial. All three men were convicted and sentenced to serve, respectively, five years, 30 months, and 30 months, in jail.

Of particular interest is the source of the oxygen cylinders: the defendants bought them on eBay. The decision by the three defendants to use eBay was quite canny and illustrates how the US export control system is vulnerable when military parts are sold by unsophisticated and inexperienced sellers using the auction site. While many established manufacturers and distributors have had the “know-your-customer” mantra drilled into their heads by now, such niceties are probably unheard of by, and unknown to, eBay sellers, often working out of their garages and basements. The only questions such sellers are likely to have about their buyers is how quickly they can pay. The eBay seller in this question didn’t pause long enough to realize that the purchase by an Iranian in the U.K of military parts might be problematic.

The press release also notes that in cases of prior exports of military goods to Iran by the trio, more sophisticated businesses which weren’t selling their good through eBay had indicated that they needed export licenses to ship the goods to the U.K. In those instances, the three men would pretend that their actual customer was in the United States and asked the businesses to ship the goods to an address in Florida where, of course, the three men would then have the goods transshipped to themselves in the UK. This wasn’t just a red flag, it was a red banner the size of a football field, and the U.S. businesses never should have shipped the items to the Florida address.

In all events, the eBay connection in this case should serve as a wake-up call to the Pentagon as to the many problems in its current program of military surplus sales to the general public. Sales to casual sellers who then plan on disposing of these goods over eBay is equivalent to the Pentagon selling them to a store with window signs saying “Iranians Welcome,” “Free Shipping to Tehran” and “Get Your F-14 Parts Here!”

Firth Rixson Monroe, a specialty metals forger, recently agreed to pay $85,000 to the Bureau of Industry and Security (“BIS”) to settle charges that the company exported, on three occasions, 1,055 pounds of 6-2-4-2 titanium alloy billets worth about $35,000 to the People’s Republic of China. The company voluntarily disclosed these three exports to BIS.

The 6-2-4-2 titanium alloy can be used in aerospace and missile applications requiring an alloy capable of resisting high temperatures and maintaining high tensile strength. The “6-2-4-2″ designation used here with titanium is shorthand for Ti-6Al-2Sn-4Zr-2Mo and signifies the other metals used in the alloy, specifically aluminum (6%), tin (2%), zirconium (4%) and molybdenum (2%). This alloy is classified under ECCN 1C202 because it exhibits an ultimate tensile strength of 900 MPa at 20° and because, apparently, the billets had an outside diameter in excess of 75 millimeters. (Tensile strength specifications for 6-2-4-2 titanium, and other titanium alloys, can be found here.)

The alloy designation for the titanium billets seemed to cause considerable confusion for the enforcement staff. The order interpreted it to mean that 6,242 billets had been exported. The charging letter turned 6-2-4-2 into 6,242 pounds of titanium. Only the settlement agreement got it right. The charging letter also stated that the exports went to Chile. The agency’s confusion over the destination of the exports in the charging letter somehow seems more understandable than the agency’s confusion about the standard practices by the engineering community for designating particular alloys of titanium. The 6-2-4-2 designation was, after all, what allows the conclusion that the alloy was indeed covered by ECCN 1C202.

UPDATE: BIS has removed the settlement documents to which I linked in this post, presumably to correct the errors that I pointed out or that they learned from other sources.

The United Kingdom’s Export Control Organization has launched a newsletter, pithily titled “Compliance Newsletter.” In its premier four-page issue, we learn that the ECO is big on warning letters, boasting that it has issued 50 of them since establishing procedures for warning letters a year ago.

The newsletter also notes that an unnamed company agreed to settle export charges for £575,000 ($880,000). The newsletter’s description of the settlement is a treasure trove of useful information:

In April 2009, a UK company paid a compound penalty of £575,000 for alleged offences in relation to the export of controlled goods to a number of sensitive destinations without licences between 2003 and 2006.
 
Compounding is the means by which HMRC can settle out of court a case which would normally be prosecuted to save both the tax payer and the company time and legal fees.

That’s it. Those 66 words are the entire entry on the settlement, or about £8,700 ($13,000) per word. There is no mention of the identity of the company, the goods exported, the number of exports, the destinations, or the value of the goods. This blog often complains about the paucity of information given by U.S. export agencies in announcements of export settlements, but in comparison to the ECO’s stingy announcement, the U.S agencies are releasing disclosures the length of a 17th century epistolary novel — OFAC, perhaps, excluded.

In fact, the monthly newsletter of the East Anglia Society for the Protection of Water Voles and Stoats is longer and packed with more information than the ECO’s new newsletter.

At 11:30 this morning, an unidentified caller rang me and said that he was responsible for the blog that I discussed yesterday that principally consisted of posts copied in their entirety from this blog. The man on the other end of the line told me that he meant no harm, that he thought this was a permissible use of this blog’s RSS feed, and that he would remove my posts from his site, which he has done.

Intrigued by why a steadfastly anonymous individual would be trying to run an export compliance blog in an obvious attempt to garner export compliance business, I asked him directly who he was, and he declined to identify himself. I asked him why he didn’t want to identify himself. “I’d rather not say,” was the response. He did indicate that the purpose of his blog was “to generate email leads” and that it had been successful in doing that. And he sent me an email from a gmail account using a misspelled pseudonym (“Herbert Bloomffield”), confirming that he had deleted my posts.

All of this faux cloak-and-dagger stuff — Ukrainian pornographers, anonymous phone calls, pseudonymous emails — suggests to me that Mr. “Bloomffield” was being far from straightforward in his proclamation of naive innocence. And the next time this fellow wants to put on his Maxwell Smart cap and make a call from his shoe phone, he might remember that there are these marvelous technologies called Caller ID and reverse lookups on the Internet. Throughout my conversation with Mr. “Bloomffield,” there was the name of his (large) export compliance company on my telephone display. A telephone number was displayed too. A reverse-lookup showed that number belonged to the company shown on the telephone Caller ID display.

Now that I know who the caller was and where he was calling from, it’s perfectly clear that Mr. “Bloomffield” knew what he was doing and knew that what he was doing was questionable, both legally and ethically. He just didn’t want his company — with more than 100 employees and well-known probably to most, if not all, of the readers of this blog — connected with Ukrainian pornography sites, RSS feed scraping, and the use of someone else’s work to generate business for his own company.

Oh, and just so Mr. “Bloomffield” knows that I’m not bluffing about knowing who he really is, I just filled out a contact form on his website asking to be sent information on his company.

UPDATE: The culpable employee has now identified himself in an email to me, indicating that his company was in no way involved in this purloined blog affair. He appears to have been an overzealous sales person looking for leads.

The United States Postal Service published in today’s Federal Register a notice of a proposed modification to its privacy regulations. One of the modifications relates to customs declarations that postal customers supply to the USPS in connection with exports made by those customers using the USPS. According to the notice, the USPS is proposing to give those declarations for “certain mailpieces” to the Office of Foreign Assets Control (“OFAC”), apparently pursuant to a specific request from OFAC.

Needless to say, the notice doesn’t explicitly describe those “certain mailpieces” for which OFAC has requested the Customs Declaration. But a tantalizing clue suggests that only mail to Iran is involved. The notice references three executive orders imposing sanctions: E.O 12957,
E.O.12959, and E.O 13059. Each of these orders promulgates sanctions on Iran. Beyond that, we have little indication of which postal shipments to Iran are subject to this disclosure proposal.

Two minor things are of additional interest regarding the USPS notice. First, the USPS refers to OFAC throughout as “the OFAC,” which, however quaint, suggests that “the” USPS doesn’t have much dealing with OFAC which, for whatever reason, normally doesn’t have the definite article prepended to its acronym in the same way it precedes USPS. Also the contact point for the notice is a USPS employee with a literary name: Jane Eyre. That’s pretty cool, but a contact named Clarissa Harlowe would have been even cooler on a USPS notice.

Last Friday President Obama renewed the national emergency with respect to Syria. This action allows the current sanctions against Syria to continue for another year. The previous declaration of emergency was scheduled to expire on Sunday. Current sanctions, among other things, prohibit all exports to Syria other than food and medicine.

During Friday’s daily press briefing at the Department of State, acting spokesman Robert Wood explained the President’s logic in renewing the sanctions:

[T]he President felt it was necessary to take these measures. These are not new sanctions, and there is still – I think this shows you that we still have some very serious concerns about Syrian behavior and activity in the world. We’ve said to you before our concerns about what Syria is doing in Iraq, its support for terrorist groups.

When questioned about how to square the extension of the emergency and the attendant sanctions with talks between White House envoy Jeffrey Feltman and the Syrian government currently taking place, Wood had this to say:

We have very serious concerns about Syrian behavior. I think you all understand that very clearly, and those haven’t gone away. But what we’re saying is instead of isolating Syria, we’re willing to engage them.

Syria, for its part, declined to read any special significance into the renewal of the sanctions, describing it as “routine.”

A 68-year-old New Jersey man, Juwhan Yun, was arrested last month and pleaded not guilty to charges that he illegally brokered the sales of rocket engines and related technology from Russia to South Korea in violation of Part 129 of the International Traffic in Arms Regulations. Under Part 129, a license from the Department of State is required before any U.S. person can broker the sale of Category I Missile Technology Control Regime Annex items regardless of value and regardless of destination. (License requirements for other defense articles and defense services depend upon, among other thing, the value of the brokered items and the destination of those items). The defendant, who had previously been convicted for attempting to export sarin nerve gas to Iran, had not obtained such a license.

I’ve reviewed the criminal complaint filed against Juwhan Yun and can only say that the government doesn’t appear to have a slam-dunk case here. The complaint details a number of emails and face-to-face meetings between Yun and a confidential government informant which explored the possibility of the informant obtaining RD-180 rocket engines and technology from Russia for the South Korean government. Since the engines and technology were to be transported from Russia, and not the United States, to South Korea, no illegal export would be involved and the only possible charges would be under the brokering regulations in Part 129.

The prosecutors, however, appear to have completely misunderstood the definition of brokering set forth in Part 129. Section 129.2(a) defines brokering as acting as an agent for others in the transfer of defense articles or services in exchange for a commission or other consideration. Allegations from the criminal complaint indicate that Yun wasn’t acting as an agent for the South Korean government in exchange for a commission or other consideration from the government. Rather he was acting in an individual capacity and was intending to purchase the items for his own account for later resale to South Korean government.

Here’s the relevant passage from the criminal complaint:

On February 25, 2009, JW Yun sent an email to the [Confidential Informant] and asked the [Confidential Informant] how much commission the [Confidential Informant] and the people in Moscow wanted as he would include that in the sale price to Korea.

If Part 129 is read to cover Yun’s activities, then every person or company that distributes defense articles is a broker and required to register under Part 129, a position that the DDTC has so far not taken.

The criminal complaint also reveals that the Confidential Informant requested that Yun provide him with a letter from the South Korean government indicating that Yun was authorized to act on their behalf. Yun responded by stating that he didn’t have such a letter and that the South Koreans would never give him such a letter.

Even supposing that a person selling defense items that he owns can ever be considered a broker under the definition set forth in Part 129, a questionable proposition at best, the prosecution still has to prove a scienter element, i.e., present some evidence that Yun knew that his actions were unlawful. Leaving aside the issue that a reasonable person might not read the definition of brokering to cover what Yun was doing, Yun went to considerable pains to stress to the Confidential Informant that everything in the transaction must be legal because he wanted this to be a long-term relationship, not simply a one-shot sale of rocket engines.

On February 11, 2009, JW Yun sent an email . . . advising the [Confidential Informant] that “all of our business should be legitimate and lawful because our business should be continued one after another in the future.”

Nor is their any indication in the criminal complaint that Yun tried to conceal his activities or otherwise indicated that he thought they were illegal. Yun discussed the proposed sale of the rocket engines with the Confidential Informant in front of third parties that Yun did not know. He indicated that he was seeking to enlist the services of a rocket engineer from the University of Central Florida to assist him in the transaction. He even sent the confidential informant a signed and notarized written agreement authorizing the informant to act on Yun’s behalf in obtaining the engines and technology from Russia for export to South Korea. That certainly doesn’t seem to be something that would be done by someone who thought that he was breaking U.S. law by attempting to buy Russian rocket engines for resale to South Korea.

Today’s edition of London’s The Guardian reports on a trial in London of three men accused of shipping military aircraft parts to Iran. These parts are used to maintain its aging fleet of U.S. military aircraft sold by the U.S. to the Shah prior to the revolution. The scheme was uncovered when oxygen cylinders used by fighter pilots to breathe at high altitudes were intercepted at Heathrow with bogus paperwork claiming that the oxygen cylinders were for medical use. According to the prosecution, the three men had engaged in parts trade with Iran well in excess of £1.2 million (or almost US$ 1.8 million)

According to the article, the three men maintained U.S. business addresses so that they could acquire the aircraft parts from U.S. suppliers without having to obtain export licenses. The parts were then shipped by the trio back to London using misleading and innocent descriptions of the parts in the export documents.

This once again underscores that U.S. suppliers need to exercise caution even with respect to domestic shipments of export-controlled goods. The Iranian supply network is utilizing every available technique to disguise the ultimate destination of the military parts that it acquires, including setting-up front companies and front addresses in the United States, hoping to diminish scrutiny of the transactions in military-related goods. Although no penalty proceedings have yet been instituted against domestic parts suppliers for ignoring red flags that suggest that a domestic sale might in reality be intended for export, that day may not be far off. Sooner or later, a U.S. parts dealer who supplies a Tomcat part to a U.S. customer without any due diligence on the customer or that customer’s need for the product may find itself looking at the same fines as it would have confronted if it had simply shipped the parts directly to Iran.

According to an article today in the Abu Dhabi daily The National, more than 20 states in the United States have passed laws, or have legislation pending, to require state pension funds to divest stocks of companies doing business in Iran. Although the laws appear to be modeled after similar divestment laws directed at apartheid-era South Africa, they also appear to fly in the face of Crosby v. National Foreign Trade Council, the U.S. Supreme Court opinion, issued in 2000, which struck down similar sanctions that Massachusetts attempted to impose on Burma.

Although I’ve heard some suggest that state divestment laws may be distinguishable from the Massachusetts law thrown out in Crosby, I don’t think that a valid distinction is possible. The Massachusetts law prohibited the state from contracting with companies that did business with Burma. Justice Souter’s opinion, which held that the Massachusetts law was pre-empted by the federal sanctions against Burma, emphasized that “state statute penalizes some private action that the federal Act (as administered by the President) may allow.” In particular, the Massachusetts act penalized past investments whereas the federal law reached only new investments made after the passage of the law. Additionally, the Massachusetts law penalized foreign companies with investments in Burma, whereas the federal sanctions were only directed at U.S. companies.

State divestment statutes are indirect in the same sense that the invalidated Massachusetts statute was. In other words, although they don’t forbid trade with the sanctioned country, they impose penalties on those that do. And the state Iranian divestment statutes are similarly broader than the federal sanctions by targeting foreign subsidiaries of U.S. companies, and foreign companies, which may in certain instances do business in Iran under the federal sanctions.

The only hope for the survival of some of these state-level economic sanctions is the Iran Sanctions Enabling Act of 2009 introduced by Rep. Barney Frank (D – Mass). The law would require the federal government to publish a list of all companies, domestic and foreign, with investments of more than $20 million in the Iranian energy sector. The law would also authorize, but not require, divestment by state and local governments and educational institutions in companies on the list. The likelihood of the proposed bill passing, however, may be limited given the Obama administration’s reported offer to freeze additional sanctions on Iran if Iran suspends nuclear development work and joins talks over the future of its program.