Archive for the ‘ITAR’ Category


Jun

24

It’s Good To Be The King


Posted by at 11:15 pm on June 24, 2014
Category: DDTCITARUSML

Intersil Low Dose Irradiator via http://www.intersil.com/en/applications/rad-hard/eldrs.html [Fair Use]Last week the Directorate of Defense Trade Controls (“DDTC”) announced that it had fined Intersil Corporation, a California-based manufacturer and developer of semiconductors and integrated circuits, $10,000,000 of which $6,000,000 goes to Uncle Sam and the remaining $4,000,000 goes to Intersil’s compliance program and remedial measures. Along with the fines, DDTC has required Intersil to jump through a number of now-typical compliance and re-education hoops, including appointing an ombudsman, hiring a special compliance officer, rewriting its compliance programs, engaging in audits, making frequent reports to DDTC and writing “I will not violate the ITAR” three million times on a blackboard after school. Well, of course, only the last item was not actually required.

According to the Proposed Charging Letter, Intersil incurred the ire of DDTC by classifying certain of its products as ECCN 3A001.a.1, 3A001.a.2, and EAR99 even though the items were radiation hardened and space qualified and, therefore, covered instead by USML Category XV(e). Why Intersil made this mistake is not revealed in the documents but since Intersil was applying for BIS licenses for the goods when required, it is hard to imagine that it was anything other than a good faith mistake (which is, probably, the reason why this information is omitted.) As a result, there were 3,152 unauthorized exports of Intersil’s products, although, due to the statute of limitations, only 339 exports were actually charged, with DDTC swearing left and right that although it couldn’t help mentioning the 3,152 exports it was paying absolutely no attention whatsoever to those in formulating the $10 million penalty.

But here is the most interesting part of the charging documents:

Several of the unauthorized exports were subsequently re-exported or retransferred without authorization due in part to the misclassification of the ICs.On August 20, 2010, a DDTC official misinformed Intersil that for any ICs that “HAVE already been exported under EAR jurisdiction, these [ICs] ARE NOT retroactively subject to the retransfer provisions of 22 CFR 123.9.: Intersil was further misadvised that Intersil did not need to inform its foreign customers to submit ITAR re-export authorization for these items and that this “decision to not retroactively aply USML controls for these already exported [ICs] will continue to be applicable even if a future formal CJ determination asserts USML controls apply.”

Interestingly, notwithstanding this bad advice, Intersil is charged with causing various unauthorized re-exports from, and retransfers in, foreign countries due to its misclassification of the integrated circuits. Whether or not any of these were the result, at least in part, of DDTC’s admittedly bad advice that the retransfer provisions would not apply to items exported under the EAR is not clear, but let’s give DDTC the benefit of the doubt and assume that these were all unrelated.

Even so, there is still an interesting moral to this story. Exporters who make mistakes have to pay large fines and engage in burdensome remediation activities. DDTC officials who make mistakes have to do, er, well, nothing at all because, well, you know, mistakes happen. As they say, it’s good to be the king.

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Mar

5

Ignorance Is Indeed a Defense: NASA Ames Edition


Posted by at 6:06 pm on March 5, 2014
Category: DDTCDeemed ExportsITAR

Aerial View of NASA Ames Research Center https://www.facebook.com/photo.php?fbid=10151655073516394&set=pb.338122981393.-2207520000.1394054211.&type=3&theater [Public Domain]The NASA Office of Inspector General completed its investigation of unlicensed releases of ITAR-controlled technology to foreign nationals working at the Ames Research Center and — surprise! surprise! — it found no evidence of any violations of law. According to a summary of the OIG report, ITAR-controlled information was released without proper authorization to foreign nationals working at Ames. However, this was not a violation of law, just “poor judgment,” which is a nice way of saying that ignorance of the law can be a defense if you work at NASA and are being investigated by the NASA OIG. The full report was withheld because of privacy concerns, i.e., it mentioned the names, I would presume, of all the people running around at Ames and exercising poor judgment.

As they say on the car commercials: “Professional government workers exporting on closed course. Do not attempt this yourself.” In other words, “poor judgment” will not be enough to exonerate deemed exports in the private sector.

The reason for this all being just a lapse of judgment and not an export violation is this:

We … found significant disagreement between scientists and engineers at Ames and export control personnel at the Center and NASA Headquarters as to whether the work the foreign nationals were performing at Ames involved ITAR-controlled technology.

For you and me, such confusion means you need to file a Commodity Jurisdiction request with the State Department to clear things up. For NASA workers it means that export controls are hard and engineers can’t be blamed for getting hard questions wrong. This statement is somewhat incredible in the context of this finding in the report:

In addition, on two occasions a senior Ames manager inappropriately shared documents with unlicensed foreign nationals that contained ITAR markings or had been identified as containing ITAR-restricted information by NASA export control personnel.

But, yeah, everybody was still confused and disagreeing over whether this stuff was ITAR-controlled or not.

Then we have the part of the report which suggests that Professor Roth probably wishes he worked at NASA and not the University of Tennessee.

We also found that a foreign national working at Ames inappropriately traveled overseas with a NASA-issued laptop containing ITAR-restricted information. Even though the foreign national had an ITAR license at the time, the regulations forbid taking such export-controlled information out of the country. However, we were unable to substantiate concerns that the foreign national shared ITAR-protected information while overseas.

Professor Roth is sitting in a federal correctional facility in part because he carried a laptop with ITAR-controlled data to China without any evidence whatsoever that he even opened those files on his computer while in China. I think this is what some people might call a double standard.

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Jan

13

California Man Sentenced to Three Years for Export Violations


Posted by at 6:14 pm on January 13, 2014
Category: Criminal PenaltiesDDTCITAR

Philip He Family Photo via http://news.yahoo.com/special-report-china-39-weapon-snatchers-penetrating-u-150652962.html [Fair Use]
ABOVE: Philip Chaohui He


Last February, this blog reported on the indictment of Philip Chaohui He, who had been indicted on charges that he attempted to export to China $549,654 worth of ITAR-controlled, radiation hardened, space qualified memory chips to China without the required export license. On December 19, Mr. He, who had entered a guilty plea to the charges, was sentenced to three years in prison.

Since our original post, several interesting details have emerged with respect to Mr. He and his attempted export to China. The first relates to the potential involvement of the Chinese government in these exports. The San Francisco Chronicle tells an interesting story as to the ship on which He tried to load the memory chips. The ship was owned by ZPMC, a Chinese state-owned enterprise that was fabricating steel towers for the San Francisco Bay Bridge renovation, a project on which Mr. He was working as an engineer. Mr. He told Jim Yang an employee of ZPMC that one of their employees had left behind in San Francisco a package of personal effects and that he would like to return the package to the employee via a ZPMC ship that was soon departing from the port in Long Beach, California.

Yang said he wondered why He would want to drive seven hours to make the delivery, but he had replied, “Fine.”

“So he drove down by himself with a couple of boxes in his vehicle,” Yang said. “And we had dinner together because he was doing us a favor.”

The next morning, Yang said, He followed him in his car to the Port of Long Beach, where they entered the ZPMC dock site using Yang’s security badge.

Mr. He was immediately arrested on the dock. Yang denies that he knew what was in the package or that ZPMC was in cahoots with He. The red flag here is not just the one flying over Beijing. Why was He driving seven hours with a package of personal effects as a favor to a ZPMC employee he met on the Bay Bridge Project? He couldn’t figure out any other easier way to return the box? Then Yang uses his badge and let’s He on the dock with a package of completely unknown contents that could have been a dirty bomb for all Yang knew. Uh huh. Sure. And if you believe that I’ve got a Bay Bridge to sell you.

The second detail relates to the participation of the memory chip manufacturer, Aeroflex, in the apprehension of Mr. He. We speculated in the original post that He’s large order of stuff he had little demonstrated need for set off alarm bells in Aeroflex and that they set the law on him. This lengthy investigative report on the case by Reuters confirms that this was the case.

People and companies who buy these kinds of rad-chips are usually well-established, repeat customers – more multinational corporation than mom & pop. Aeroflex salesmen had never heard of “Philip Hope” or his company, “Sierra Electronic Instruments.”

Most suspicious of all, just days after placing the order, Hope sent Aeroflex a certified check for the full amount, $549,654. That was rare. Buyers were expected to make a deposit, but nobody paid up front.

Of course, being alert to red flags and lending a helping hand to the government did not result in any expression of gratitude from the Government which, not long after, fined Aeroflex $8 million for export violations that Aeroflex voluntarily disclosed to the Government. My guess is that in the future Aeroflex will simply decline to make sales like this one that are suspicious and won’t feel particularly motivated to pick up the phone and tell the feds about it.

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Dec

20

Back in the U.S.S.R.? Pleading Guilty to U.S. Export Violations May Get You Home


Posted by at 12:53 am on December 20, 2013
Category: Criminal PenaltiesDDTCGeneralITARUSML

By  Sgt. Scott M. Biscuiti [Public domain], via Wikimedia Commons http://commons.wikimedia.org/wiki/File%3ADefense.gov_photo_essay_090329-M-7747B-015.jpg

On Tuesday, Russian Roman Kvinikadze pleaded guilty in federal court in Wyoming to charges that he attempted to export thermal imaging weapon sights to Russia without a required license from the U.S. State Department.  Last month, we reported on Kvinikadze’s arrest and the charges brought against him as well as the Russian government’s criticism of the entire matter.  Kvinikadze’s plea is not a surprising development since, as we alluded to last month, an entrapment defense even under the most favorable circumstances is difficult to prove.

What is surprising, however, is how soon Kvinikadze may be leaving U.S. federal prison.  The Associated Press reported on Tuesday that the federal judge in Kvinikadze’s case said “immigration authorities intend to send Kivinikadze back to Russia.”  As we said last month, Kvinikadze’s best defense was not going to be in the courtroom but through diplomatic channels plied with the Russian government’s support.  Unlike a month ago, when the Russian human rights commissioner publicly decried Kvinikadze’s arrest, the Russian government has been quiet since Kvinikadze entered his guilty plea.

If Kvinikadze in fact returns shortly to Russia, the Department of Homeland Security, the agency which conducted the investigation into Kvinikadze, may be reconsidering the effectiveness of operations, like the one used against Kvinikadze, that engage foreign persons online to arrange for unlawful export transactions and entice them into travel to the United States to be arrested.  At a minimum, would-be U.S. export control violators abroad ought to think twice about meeting a potential business partner for the first time in the United States.  But more importantly, foreign governments may begin to join Russia in denouncing such U.S. policing of its laws around the world.  One of the aspects that have made U.S. investigations and law enforcement activities abroad of FCPA violations so successful in recent years is the U.S. cooperation with foreign law enforcement. Without such cooperation, the United States may see more guilty foreign criminals going home.

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Dec

6

DIY Licensing Results in DDTC Debarrment


Posted by at 5:36 pm on December 6, 2013
Category: CustomsDDTCITAR

By Ncollida1106 (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons http://commons.wikimedia.org/wiki/File%3AMTW_Picture.jpg

The State Department announced last week that it debarred LeAnne Lesmeister, a former export compliance officer for Honeywell International, Inc., from ITAR-related activities because she “used her position to circumvent Honeywell’s export compliance program in the fabrication of various export control documents that Ms. Lesmeister presented as Department of State authorizations.”  Honeywell had voluntarily disclosed Lesmeister’s activity to the State Department.

DDTC’s charging letter to Lesmeister in July of this year provides details of egregious export control violations alleged against her to support the 21 violations with which she was charged.  Just samples from the charging letter are stunning.  In connection with her work as a senior export compliance officer for a Honeywell aerospace facility in Florida, DDTC alleged the following:

  • Licenses Lesmeister “fabricated” used DSP-5 license numbers that, in some cases, had appeared on previously approved licenses to Honeywell for unrelated products or, in other cases, had appeared on previously approved licenses to unrelated applicants where a Honeywell entity sometimes appeared as a party or often not.
  • With respect to an approved technical assistance agreement that Lesmeister “falsified,” she wrote  a Honeywell employee that “we are expecting to see approval within about a week at max, all staffed agencies have responded so it is just a matter of getting the licensing office to finalize.”
  • For a “fabricated” DSP-5 license and an falsely approved technical assistance agreement, Lesmeister wrote to two Honeywell employees, “[t]hey ended up sending it to me – it ain’t pretty but it is official.”
  • In one case, Lesmeister “fabricated” a letter “supposedly issued by the Office of Defense Trade Controls Licensing” that purported to approve a temporary change in end-use to a previously exported item.

In one instance, Honeywell relied on a false DSP-5 license created by Lesmeister and, in turn, attempted to export a product to Argentina and submitted the false license to U.S. Customs.  Customs rejected the transaction because the false license number was not registered in the Automated Export System.

This case is noteworthy not just for its alleged activity, but it was also a first for the State Department.  Lesmeister failed to answer her charging letter.  As a result, and for the first time according to the State Department, it referred an unanswered charging letter alleging ITAR violations to an Administrative Law Judge for default consideration.  The Administrative Law Judge issued a default order against Lesmeister, and DDTC then issued its debarment order last week.

Admist all of this, it is important to note that DDTC charged Lesmeister with violations only between 2008 and 2012 although she had worked in export compliance at Honeywell for 27 years.  With the applicable statute of limitations likely running in connection with Honeywell’s voluntary disclosure, there is nothing in State Department documents made public to date that refer to any alleged violations that occurred prior to 2008.

At the moment, the fact that no penalties, civil or criminal, have been imposed against anyone is stunning.  Honeywell, however, appears to have done several things right.  Honeywell terminated Lesmeister in June 2012 upon discovery of the violations and, sometime thereafter, voluntarily disclosed the matter to the State Department.

On the other hand, Honeywell may not be out of the woods.  The violations as alleged are significant to say the least and appear to have been discovered by Honeywell only in 2012 after Lesmeister had been with the company for over a quarter-century.  The DDTC charging letter also describes Lesmeister’s activities in ways that suggest impermissibility could have been suspected or detected.  For example, her “fabricated” DSP-5 licenses were described in different instances as “low-quality scan[s],” included “page numbers [that] were not sequential” and, perhaps worst, “the country of ultimate destination was inconsistent with the end-users listed.”

There has been no mention of any parallel proceedings being conducted by the Justice Department, or any other U.S. agency like Customs, for alleged activities that violate more than just ITAR.  One has to wonder what else may be happening, however, when the only penalty is a single person’s debarment from ITAR-related activity after that person for years was running a counterfeit government licensing department from her office for one of the largest U.S. companies.

Until more information is made public, the debarment of LeAnne Lesmeister is, at a minimum, an exceptional case for ITAR enforcement.  If there is a preliminary moral to the story, it should be that routine audits of compliance programs do serve a purpose and, if properly calibrated, should detect issues like those in this case.

Clif adds:  One explanation for Ms. Lesmeister’s failure to respond to DDTC is concern over possible criminal prosecution and a desire to avoid providing either incriminatory information admitting the violations or information denying the violations that could serve as a basis for a prosecution for lying to federal agents.   There is no evidence on PACER that Ms. Lesmeister has been indicted yet, but that doesn’t mean there isn’t an on-going parallel criminal investigation

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