As a special holiday treat for readers of ExportLawBlog, we are offering this heartwarming story which we found, oddly enough, tucked away in the GAO’s recent report on export law enforcement.

Once upon a time:

FBI and OEE agents disagreed as to whether certain dual-use items planned for export warranted an investigation

So, they did what any sensible law enforcement agents would do — they asked the Department of Commerce whether a license was required.

Commerce determined that the item did not require a license.

That should have been the end of the story, but that story would be too short to be a holiday gift to our readers. So, of course, that wasn’t the end of the story.

FBI asked for an opinion from the National Security Agency, which deemed the item high risk for national security.

The who? The NSA? When did they get invited to the export licensing party? Apparently soon enough to cause a lot of bad stuff to go down.

Without coordinating with OEE and ICE, FBI pursued the investigation, arrested the exporter, and held the shipment of items, valued at $500,000.

The FBI didn’t just visit the exporter and ask him questions about the export. No, the FBI arrested him. They snatched him from his warehouse, threw him in jail, took his merchandise, and then did high fives all around. Until . . .

Ultimately, criminal charges were not pursued because the items did not require a license.

Duh. Do you think they even apologized?

Anyway, ExportLawBlog wishes all of its readers the best for a safe and happy holiday season. Posting around here will be sporadic until right after the New Year so that we can catch up on consuming a few holiday spirits.

On Tuesday, with little fanfare and with no announcement that I could find, DDTC’s website was moved to a secret new address and went into hiding. Most export professionals had grown fond of DDTC’s unique URI: http://www.pmdtc.org. This was, until its disappearance, the only federal government website that I know of using the .org domain rather than a .gov domain, for reasons that no one has ever been able to explain (at least to me).

Typically when websites migrate to a new address they put a redirect on the old site for a while. You know, you’ve seen it before.

GenericWebsite.com has moved to GenericWebsite.us. Please update your bookmarks. Click here if you are not redirected in 10 seconds.

But DDTC didn’t do that. Nope, the old site just went poof. Since I have to imagine that the IT folks at DDTC knew how to do a redirect, this must be another effort by DDTC to go into hiding, as DDTC did when it declared that licensing officers won’t answer their phones until at least January.

Well, the gig is up! We found the new site. The new address is http://pmddtc.state.gov. Notice that sneaky extra ‘d’ that’s been inserted into ‘pmdtc’ just to make it harder to find and remember. At least, the new address isn’t pmodtc.state.gov. Now that would have been really confusing.

The BIS website recently listed an anti-boycott settlement agreement involving freight forwarder and customs broker International Specialist, Inc., located in Boston, Massachusetts. The charging letter provided this significant bit of information about the alleged violation:

In connection with the transaction described above, on or about August 29, 2003, you provided to a customer in Oman, AEA Technology commercial invoice #102075, Order #CO133795, which contained the following information:

“NO ISRAELI COMPONENTS USED.”

Note that this is not an allegation that the freight forwarded actively provided the proscribed information about Israeli components; rather the freight forwarder merely provided the information passively by delivering shipping documents that contained a statement from its customer that provided the proscribed information.

The freight forwarder was charged with a violation of EAR § 760.2(d) which prohibits any U.S. person from providing information about that person’s or a third party’s business relationships with a boycotted country. Significantly, however, EAR § 760.1(e)(3) makes clear that intent is required for each anti-boycott violation and not merely the intent to perform the act that constituted the violation but also the “intent to comply with, further, or support an unsanctioned foreign boycott.”

This high-standard of intent is inconsistent with what looks like an effort by BIS to impose absolute liability on freight forwarders for forwarding commercial documents with proscribed information. Perhaps International Freight actually read every word of the customer’s invoice to the recipient in Oman and therefore had the requisite intent. But BIS doesn’t allege that and, frankly, it seems unlikely that International Freight bothered to scour all the terms of AEA’s invoice before forwarding it along with the shipped goods.

Last month I wrote a post on the consent decree entered into by BIS and EP MedSystems where, among other things, BIS appeared to have fly-specked the differences between a preliminary disclosure and a final disclosure and argued that the differences constituted misrepresentations. That led me to comment that one should think long and hard about the possibility that an export violation will be otherwise discovered by BIS before filing a voluntary disclosure.

This posting apparently created something of a stir over at BIS because Wendy Wysong, Deputy Assistant Secretary for Export Enforcement at BIS, singled out my post in an article (subscription required) written by her and appearing in this month’s issue of The Export Practitioner. You would think that no lawyer in the export bar had ever expressed the opinion that BIS seemed to treat voluntary disclosures more harshly than necessary and certainly more harshly than DDTC and OFAC. Perhaps no one has stood up and said that at the BIS Update Conference, but I’ve certainly heard a number of other lawyers and export professionals express that sentiment.

But the good news is that the figures that Ms. Wysong has released do provide some basis for concluding that BIS does give some more favorable treatment to voluntary disclosures — well, sort of. Here is the data BIS released:

Well, these figures might be encouraging, but it’s hard to tell. The percentages only apply to “VSDs resolved” and not to the larger number of “VSDs filed.” Indeed, the discrepancy in the two figures is somewhat disturbing. Out of a total of 367 voluntary disclosures filed since 2004, only 208, or only 56% have been resolved. Ms. Wysong doesn’t give any reason for this discrepancy, which one would suppose is indicative of a backlog of voluntary disclosures at BIS. That certainly leaves open the possibility that the percentages shown in the table might change substantially once this backlog makes it through the system at BIS.

Another problem with these figures is that they are inconsistent with the second set of figures given by Ms. Wysong in her article. These figures are shown in the table below:

Perhaps there is an explanation for this, but I don’t understand how Table 1 can say that there were 8, 2 and 0 cases with administrative sanctions in 2004, 2005, and 2006 and yet say in Table 2 that there 12, 18 and 28 voluntary disclosure cases that were administratively resolved in those same time periods.

Additionally, Ms. Wysong’s effort to make much of the small number of cases where less than 50% of the maximum penalty was imposed is slightly disingenuous. BIS’s tendency to multiply violations in charging letters is no secret. Each illegal export is seen as a violation of two or three overlapping rules. Indeed, in another article (subscription required) in the same issue of The Export Practitioner in which Ms. Wysong’s article appears, Mark Menefee, former director of BIS’s Office of Export Enforcement, boasts about this practice:

BIS has had a long-standing policy of charging multiple violations arising from a single transaction. I proudly did it, too, when I was director of the Office of Export Enforcement

Mr. Menefee justifies this practice on the ground that “multiple charges result in higher penalties, thereby increasing deterrence.”

That may well be the case outside of voluntary disclosures, but for Ms. Wysong to claim that voluntary disclosures lead to significant mitigations when they have no impact on BIS’s tendency to pile on violations in charging letters misses the point.

The December 2006 Wassenaar Plenary made a number of changes to the Waasenaar control lists, and as I noted on Friday, I’ve been going through the changes to find anything of interest. One change of interest (particularly to Lockheed Martin) is the addition of a new category 5.a.1.g. which controls:

Passive Coherent Location systems or equipment specially designed for detecting and tracking moving objects by measuring reflections of ambient radio frequency emissions, supplied by non-radar transmitters.

Passive coherent location systems are more commonly known as passive radar systems. Unlike conventional radar which relies on a radio signal transmitted by the radar system, a passive radar system uses radio signals by other existing transmission sources, typically television and radio stations. Lockheed Martin’s Silent Sentry is a passive radar system which Lockheed began to sell in 1999.

As receiving equipment and the necessary signal processing equipment have become smaller, cheaper and more powerful, passive radar represents a highly-mobile, extremely sensitive and almost completely covert method for tracking moving objects such as airplanes and helicopters. Moreover, passive radar systems can detect low-flying stealth aircraft.

Frankly, we are a little surprised that it took this long for such a technology to wind up on an export control list.

The changes adopted at the December 2006 Plenary of Wassenaar are now posted on the Wassenaar website, and we’ve started to go through them to look for things of interest. The first thing to catch our eye was to see that Wassenaar had moved into the 20th century and has discovered high temperature superconductors — materials which the scientific community discovered in the late 1980s.

The revised list includes a new category 1.C.5.c which covers composite conductors consisting of one or more “superconductive” filaments which remain “superconductive” above 115 K (-158.16oC). Materials that exhibit superconductivity at temperatures over 90 K (-183°C) are traditionally considered high-temperature superconductors. This, of course, leads to the joke that no physicist can resist when writing about high-temperature superconductors that “high temperatures are relative.” Now you know why MIT is not a hotbed of stand-up comedy.

This is all very interesting, you say, but where’s the dual-use? Normally superconductivity is considered useful for magnetic effects (MRIs and floating trains and the like) and efficient energy transmission, none of which seem to have significant military application. However, this interesting article from RF Design Magazine describes at least one significant military application of HTS materials in military surveillance electronics. Short version: superconductors allow filters that will reject side-band frequencies without reducing frequency strength thereby vastly extending the range of surveillance receivers. Which is one of the reason why even high-temperature superconductors are cool.

(Rimshot. “Thank You. You’ve been great. Be sure to try the veal.”)

The UAE was apparently as surprised as I was by the veiled threats of action delivered at WITA yesterday by BIS Assistant Secretary Chris Padilla. During his speech, Padilla indicated that unspecified sanctions against the UAE were imminent because of diversion of U.S. origin goods from the Emirates to Iran and Syria.

Abdulla Bin Ahmed Al-Saleh, undersecretary of the Ministry of the Economy of the UAE, had this to say:

This is truly a surprising claim and I am sure it will raise many reservations. Actually our cooperation and coordination with several U.S. government departments over this issue is very close and effective. . . .We are very happy with this cooperation and consistently working to make it even stronger.

Not to be overly cynical here but since the UAE trades regularly with Iran and Syria, the occasional diversion of U.S. goods to both those countries really doesn’t ruin anyone’s day in Dubai. So of course they are happy with the current state of affairs.

Illya Antonenko, one of our intrepid associate editors, attended a presentation today at the Washington International Trade Association by Chris Padilla, Assistant Secretary of Commerce for Export Administration. As expected, Mr. Padilla continued to tout BIS’s plans to expand the Validated End User (VEU) concept to China and beyond, with India being the next country on BIS’s radar screen. We have previously expressed our view here at ExportLawBlog that national sovereignty issues may complicate, if not prevent, the kind of in-country inspections by USG officials that the VEU process contemplates.

Of more interest, in our view at least, was the appearance by Mr. Padilla of stepping up the rhetoric about BIS’s concerns with the UAE. Avid readers of BIS consent orders — and there must be some of you out there other than me — have no doubt noticed that Dubai seems to be the current transshipment point of choice for exporters hoping to sneak things into Iran or other sanctioned destinations.

The Assistant Secretary repeated several times his concerns over the UAE’s “alarming lack of oversight” that has led to repeated diversions of shipments at the ports in Dubai and Abu Dhabi to Iran and Syria. He said that if the UAE does not adopt and implement an export control regime within months, then the US will take some steps, although he did not specify what steps might be taken. According to Mr. Padilla, the US has talked to the UAE for years about this issue and provided technical assistance to the Emirates to assist its export control program. Nevertheless, Mr. Padilla made it clear that “the time is running short” on this issue for the UAE.

Hong Kong was singled out by Mr. Padilla as a country having a good program of export controls to prevent diversion. This seems an odd time to be patting Hong Kong on the back in this regard since it was just last month that BIS issued an order denying export privileges to an exporter who had been transshipping items to the PRC through Hong Kong.

UPDATE: The prepared text of Assistant Secretary Padilla’s remarks to WITA can be found here.

“Bad cases make bad law.” The truth of that law school axiom has rarely been on better display than in yesterday’s decision by the European Court of First Instance to remove the People’s Mujahideen of Iran (Mujahideen-e-Khalq) from the EU’s list of blocked entities. The PMOI had been added to that list by the E.U. Council in May 2002.

The European court reversed the designation because the PMOI had not been accorded an adequate hearing, because no reasons had been supplied by the Council to justify the decision, and because the procedures used by the Council to designate the PMOI lacked effective mechanisms for judicial review.

The right to a hearing, according to the court, arose because the order designating PMOI blocked PMOI funds. The court acknowledged that the Council had a legitimate interest in countering terrorism and that this could justify a preliminary order without a hearing; it could not, however, justify a decision to deny a hearing by the Council altogether.

The ruling of the court on the Council’s refusal to state reasons for the designation is why I say that this a bad case making bad law. It is difficult to fathom why the Council never stated any reasons to support the designation of the PMOI since the PMOI’s terrorist activities were known to the entire world and admitted openly by PMOI. These activities, many of which risked civilian casualties by targeting buildings in large urban areas, included the following:

Given the PMOI’s demonstrated and public record of terrorism, it is hard to understand why the Council decided to be cagey about supplying any reason at all for the designation. Any one of the above reasons could justify the designation. And even though the PMOI was urging that it had reformed and was no longer a terrorist group, the Council could legitimately insist that more time needed to pass before the Council could be certain that the PMOI had renounced terrorism. The Court of First Instance indicated that there might be a national security basis for not disclosing particular reasons, but since no specific reasons were given by the Council, the court had no occasion to determine whether that exception might apply to any possible justifications for the Council’s action in this case.

Finally, the court held that the designation procedure lacked adequate provisions for judicial review. Decisions of the Council to designate a terrorist group could only be appealed on the following limited grounds: “lack of competence, infringement of an essential procedural requirement, infringement of the EC Treaty or of any rule of law relating to its application or misuse of powers.” The court found that in order to ensure the right to a fair hearing and to a statement of reasons the reviewing court would necessarily have the right to a fuller review of the record and actions of the Council.

The Council, it seems to me, made a critical mistake in its decision not to hold a hearing or to provide reasons for the designation, particularly where the case for designating the PMOI was so strong. This mistake led to directly to a decision by the Court of First Instance that was broader than it might have been and which may haunt the Council in its efforts to designate terrorist groups and individuals in the future.

Last week the GAO released an unusually critical report which chided both DDTC and BIS over the way both agencies handled deemed export issues posed by university research programs. The report was prompted by an inquiry from Representative James Sensenbrenner, an outspoken critic of immigration. Sensenbrenner asked the agency to review the procedures used by DDTC and BIS to keep sensitive technology out of the hands of foreign students.

The report noted that most universities that it contacted attempted to avoid deemed export issues by relying on the “fundamental research” exception. In order to do that, universities in many instances try to reject research projects where limitations are imposed on the ability of the university to publish the results of the research. On the other hand, the universities complained that in cases where the fundamental research exception was unavailable, it was difficult to determine whether or not particular research was export controlled or not. Although ITAR-controlled technology may be relatively easy to identify, there is certainly some force to the argument that it is difficult for universities to identify dual-use technologies controlled by the EAR.

Compounding this difficulty were the admissions by DDTC that the U.S. export control regulations are “designed for ’self-compliance,’” which is export bureaucrat-ese for “proceed at your own risk.” Both agencies were candid in stating that their top priority were to consider license applications and not to provide education or outreach to parties subject to the regulations.

University officials complained that agency seminars provided no guidance to the issues confronted by universities:

Several university officials indicated that the agency training and guidance have limited utility for academic institutions. For example, according to some university officials, training provided by Commerce and State does not discuss how export regulations apply to universities that have fundamental research exclusions. One university official characterized the Commerce-sponsored session that he attended as being “entry level” training directed at the corporate community. Commerce officials have acknowledged that about 95 percent of the attendees at their seminars are repeat attendees, primarily from industry. Some university officials stated that the training was too narrowly focused on topics that do not pertain to universities.

Although BIS’s response to the report generally indicated agreement, DDTC had this to say:

We disagree with the GAO’s assertion that we are not presently assesing the risk of unauthorized data exports. While State’s DDTC may not have concretely quantified the potential risk, there is a recognition that a risk exists. We estimate that it would take from one-half to one full man year to conduct an assessment and are presently determining if we can conduct the study, along with the planned outreach to universities in FY 2007, within the limits of existing resources.

Or, we know that there’s a problem, but we don’t know how big it is and may not have the resources to do anything about it.