Archive for the ‘Part 129’ Category

Jun

29

Former Air Force Colonel Charged With Illegal Arms Brokering

Posted by Clif Burns at 10:44 pm on June 29, 2010
Category: Criminal Penalties • Part 129

AK47sA retired Air Force colonel, John O’Toole, and an Israeli aeronautics engineer, Chanoch Miller, are the subjects of a recently unsealed indictment in connection with an alleged plan to ship 700 AK-47s to Somalia. What is most interesting about the indictment is that O’Toole is not only charged with illegal exports but also is charged with brokering violations — namely brokering the sale of defense articles to Somalia in violation of the arms embargo against Somalia and brokering the sale of these defense articles without first obtaining a brokering license from the State Department’s Directorate of Defense Trade Controls.

From the indictment it appears that O’Toole was mostly involved in arranging transportation of the rifles to Sudan, whereas Miller was in charge of procuring and selling the AK-47s. In exchange for O’Toole’s services, Miller was going to pay him a commission. This, of course, if true, appears to fit within the definition of brokering under section 129.2 of the ITAR. In particular, the definition of brokering in section 129.2(b) includes arranging for the transportation of defense articles.

What’s interesting here is that because of the brokering offenses, O’Toole is being charged with more counts than Miller, even though it’s not clear that a broker should be more culpable than an exporter. Both O’Toole and Miller are charged with an attempted export and a conspiracy to export. Miller can’t be charged with brokering on top of that because brokering requires an action taken “as an agent for others,” which is not the case for Miller because he bought the rifles himself and was acting on his own behalf in selling them. But what sensible policy would make O’Toole more culpable than Miller when Miller was selling the rifles and was just paying O’Toole to help him transport them?

[Hat tip to Laura Rozen for bringing the indictment to my attention]

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Jan

25

BIS Is from Mars and DDTC Is from Venus

Posted by Clif Burns at 8:40 pm on January 25, 2010
Category: Arms Export • BIS • DDTC • Part 129

Locked HornsThere has never been a seriously-advocated rational reason for the U.S., unlike most other countries, to have one export agency regulating exports of weapons and a separate export agency regulating exports of dual use items. A new regulation adopted by the Bureau of Industry and Security (“BIS”) last May, and which I hadn’t noticed at the time but which was pointed out today by an astute reader, is a perfect example of the confusion sown by this split personality approach to export regulation.

The regulation created a new, and frankly obtuse, ECCN designated as 0A919 which, to the extent any sense can be made of it, covers military items produced outside the United States which incorporate certain thermal imaging devices and which are “not subject to the International Traffic in Arms Regulations.” Don’t go rushing now to your copy of the ITAR to find a definition of items “subject to the ITAR,” because you won’t find it. The Export Administration Regulations (“EAR”) administered by BIS talks about “items subject to the EAR” but the ITAR at times focuses instead on what people are subject to its jurisdiction, particularly in respect to Part 129′s brokering regulations which intersect uncomfortably with the new ECCN.

Let’s now look at a specific example and see what happens. Consider a military vehicle which incorporates a thermal imaging camera controlled by BIS and which was manufactured outside the United States. If a U.S. person sought to export that vehicle from its country of manufacture to another country, that person (depending on the value of the vehicle and its export destinations) could be required to get permission from the Directorate of Defense Controls (“DDTC”) which regulates brokering in Part 129 of the ITAR. And given the new ECCN, that person might also require an export license from BIS (depending, of course, on the destination of the exported vehicle).

BIS tries unsuccessfully to avoid this overlapping jurisdiction with an awkwardly worded note to the new ECCN:

Brokering activities (as defined in 22 CFR 129.9) of military commodities that are subject to the ITAR are under the licensing jurisdiction of the Department of State.

That note doesn’t work because under part 129 all defense articles, irrespective of U.S. content, “are subject to the ITAR.” The brokering regulations in part 129 cover U.S. persons and foreign persons in the United States or otherwise subject to U.S. jurisdiction if they engage in brokering a defense article even if not one single component of that article was produced in the United States.

The note, and indeed the entire ECCN, only makes sense if whether something was subject to the ITAR depended on U.S. content in the same way that “subject to the EAR” under the EAR’s definition depends on the amount of U.S. content. And that’s apparently what somebody at BIS was thinking. If we had one export agency handling both dual use items and military items, this kind of basic confusion would be much less likely to occur.

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Jan

14

Virginia Company Pleads Guilty to Arms Brokering Charges

Posted by Clif Burns at 10:14 pm on January 14, 2010
Category: Criminal Penalties • Part 129

E.D. Va. CourthouseVirginia-based Taipan Enterprises Ltd. pleaded guilty to, and paid a $15,000 fine for, charges that it illegally engaged in arms-brokering without registering with, and obtaining licenses from, the Directorate of Defense Trade Controls (“DDTC”). The Statement of Facts that supported the guilty plea revealed that Taipan’s woes began when its President, Ioannis Papathanassiou, was questioned by U.S. Customs upon returning from Brazil and told the customs agents that he was in Brazil selling farm equipment. An inspection of his luggage revealed product brochures from Agrale for military vehicles which Papathanassiou allegedly falsely stated were for farming purposes.

The Statement of Facts detailed subsequent transactions that involved the attempted sale of night vision goggles, machine pistols, M4 rifles and gas grenades among other items. Significantly, however, there is no allegation in the Statement of Facts that any of the sales ever occurred. Instead, in each instance, the Statement of Facts said that Papathanassiou “attempted” to sell the items. Notwithstanding that the only charges against Papathanassiou related to transactions that were attempted but uncompleted, he was charged with arms brokering without registering with DDTC as an arms-broker or obtaining necessary licenses for arms-brokering. Apparently just discussing a potential transaction requires registration.

The problem with this theory is, of course, the definition of “broker” in Part 129 of the International Traffic in Arms Regulations under which Taipan was charged. Under that definition, found in section 129.2(a), “broker” is defined as:

any person who acts as an agent for others in negotiating or arranging contracts, purchases, sales or transfers of defense articles or defense services in return for a fee, commission, or other consideration.

It’s probably safe to say that Taipan didn’t receive a fee or commission from the manufacturers of the defense articles for proposed sales that never occurred. Even if Taipan did receive a fee or commission for these attempted sales, the receipt of the fee or commission from the manufacturers is a necessary element of the charged criminal violation and needed to be alleged in the Statement of Facts in order to support the plea.

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Dec

3

Answered Prayers (Part 2)

Posted by Clif Burns at 9:33 pm on December 3, 2009
Category: DDTC • Part 129

We Are The Champions of the WorldIn addition to changing the definition of “broker,” the proposed new rules under Part 129 of the International Traffic in Arms Regulations expand the jurisdictional reach of those rules over foreign persons. Part 129 currently covers brokering activities by U.S. persons wherever located, foreign persons in the United States and foreign persons “otherwise subject to the jurisdiction of the United States.”

The controversy over these rules has centered on the meaning of “otherwise subject to the jurisdiction of the United States.” Most exporters and export lawyers interpret this to be a reference to traditional concepts of jurisdiction, so that foreign brokers with pervasive contacts with United States would be covered but foreign brokers with few or no contacts with the United States would be excluded.

DDTC had claimed, however, that this language also referred to foreign brokers involved in transactions involving U.S.-origin defense articles. The proposed rules now explicitly state that the rules cover:

any foreign person located outside the United States who engages in brokering activities involving a U.S.-origin defense article or defense service, by any foreign person located outside the United States who engages in brokering activities involving the import into the United States of any defense article or defense service, or by any foreign person located outside the United States who on behalf of a U.S. person engages in brokering activities involving any defense article or defense service.

One of the objections to such an expanded jurisdictional scope of Part 129 was that it departed from the intent of Congress in passing the Brokering Amendment to the Arms Export Control Act in the first place. The House Report on the Brokering Amendment made clear that the intent of Congress was to close a loophole that allowed brokers in the United States to be engaged in the export of defense articles from one foreign country to another in ways that might be inimical to the foreign policy interests of the United States but which could not be prevented because no export license was required. Brokering activities by foreign persons with respect to U.S.-origin defense articles, however, aren’t subject to that loophole because the export of the U.S.-origin defense article will ultimately require an export license.

The new rules attempt, sort of, to address this issue by providing an exemption from the requirement for brokers to obtain a license where the transaction involves activities by a registered broker involving U.S.-origin defense articles as long as the registered U.S. manufacturer

has obtained a license or other approval to authorize the broker to participate in the export of such defense articles or defense services associated with the brokering activities, and the brokering activities are carried out in accordance with the license or other approval

This is presumably a reference to the exporter having obtained an export license where the broker is listed as an intermediate foreign consignee on the license application. The problem here is, of course, that, as a practical matter, the foreign broker often begins its activities prior to the license being granted. Another problem is that not all brokers are foreign consignees of the exported articles and won’t be listed on the license application. In both of those cases, exporters are back in the position of having to get two separate authorizations for one export transaction where a foreign broker is involved.

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Oct

23

ITAR? What’s An ITAR? Is It Like an iPod?

Posted by Clif Burns at 1:33 pm on October 23, 2009
Category: DDTC • ITAR • Part 129

Military Hovercraft

Psst. Have I got a deal for you. For only $65 million you can be the owner of a military landing hovercraft — complete with guns, compartments for three tanks, space for 170 troops and nuclear and CBW shelters. It can be yours in just 4-5 months and will ship from Eastern Europe. And it’s for sale on the website of Portland Yacht Sales, which bills itself on the site as engaged in “International Yacht and Ship Brokerage.”

To be clear, of course, I’m not really trying to promote the sale of this landing vehicle to any of my readers. In fact, you’ve probably guessed that my reason for bringing up this unusual web offer would be to wonder whether the State Department’s Directorate of Defense Trade Controls (“DDTC”) has thrown the book — or rather thrown Part 129 of the International Traffic in Arms Regulations (“ITAR”) — at Portland Yacht yet.

Part 129 requires that companies acting as brokers of defense articles — and this is pretty clearly a defense article under USML Category VI(a) — must register with DDTC, and I have a sneaking suspicion that Portland might not have done that. But there’s more. There is that pesky requirement that you have to obtain a license from DDTC before you can broker “significant military equipment” (“SME”) valued at more than $1 million. Category VI(a) naval vessels are clearly defined as SME and $65 million is more than a few dollars north of $1 million. And I’m guessing that Portland doesn’t have the brokerage license either.

I’m sure that Portland Yacht will say it never even heard of this ITAR-thingy and never dreamed in its wildest dreams that selling a $65 million dollar vessel with anti-aircraft artillery, nuclear shelters, and room for 3 tanks and 170 troops to foreign governments would be, er, subject to some silly regulations. I mean, really, it’s not that different from selling an SUV to the French Embassy, right?

[Hat tip to reader Garrett Steele for pointing this sale out to me.]

UPDATE: Portland Yacht took down the webpage offering the military hovercraft for sale. We took a pdf snapshot of the page before it disappeared, which you can see by clicking here.

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