. . . is to gag your opponent. And that’s exactly how the prosecution is trying to win the public domain argument in the Chi Mak trial, which we’ve discussed here and here.

At least two of the three documents that Mak is charged with exporting in violation of the Arms Export Control Act were clearly public domain. They were co-authored by Mak and presented at seminars which were conducted by the American Society of Naval Engineers and which were open to the public. Accordingly, under section 120.11(a)(6) of the ITAR, these papers were public domain information and not export-restricted technical data.

The prosecution’s approach to this argument was to ask the trial court through a Motion in Limine to forbid Mak from introducing any evidence that these papers were presented at public conferences, which is rather like trying to suppress evidence that the victim is still alive at a murder trial.

The government’s basis for this outrageous claim is, well, outrageous. The government asserts that DDTC has certified that the two papers were technical data within the rule and then claims that this certification is immune from any judicial review.

The basis for this argument is § 2278(h) of the Arms Export Control Act, which states

The designation by [DDTC], in regulations issued under this section, of items as defense articles or defense services for purposes of this section shall not be subject to judicial review.

So, did DDTC issue regulations designating these documents as technical data? Of course not. So how could this provision apply at all?

The government tries to get around this problem by citing Karn v. United States Dep’t of State, 925 F. Supp 1 (D.D.C. 1996). That case did indeed hold that a DDTC determination that a particular diskette was a defense article was not subject to review. But the government doesn’t tell the whole story of why the Karn court held that this determination was unreviewable. The court made that determination because the determination was made by DDTC pursuant to the specific procedures for a commodity jurisdiction request set forth in section 120.4 of the ITAR:

It is far more reasonable to read [the Arms Export Control Act] to preclude judicial review for the designation of items as defense articles pursuant to the language of the munitions list and the procedures provided for interpreting the list, all set forth in the ITAR–in other words, if the defendants follow the procedures set forth in the ITAR and authorized by the AECA for designating an item as a defense article, such item is a part of the munitions list.

I’ve seen these certifications from DDTC in other criminal export cases but, dollars to doughnuts, the DDTC has not made a formal commodity jurisdiction determination under the procedures set forth in section 120.4 Instead, it is likely that it simply responded to an informal request from the prosecution with a letter or affidavit. Nothing, not one word, in Karn suggests that such an informal response from the DDTC is immune from judicial review.

Even if the informal determination is unreviewable, it is only unreviewable as to what the DDTC actually determined. Clearly the DDTC would have determined that the papers related to a defense article on the USML. If the papers also had possible non-military applications, the DDTC would have determined in addition that the papers primarily related to the defense article.

But did the DDTC determine that the papers were in the public domain? Of course not. How could it? How could the DDTC determine that the documents had never been released to the public? At most, the DDTC determination, even if you buy the government’s non-reviewability argument, forecloses the defendants from litigating whether the papers predominantly relate to defense articles.

If your name is Daniel Garcia, don’t even think of applying for apartment, a job, a mortgage or a car loan. Because you’ll be denied. Thanks, apparently, to increased use of OFAC’s SDN list to scan routine domestic transactions from used car sales to lease applications.

This is the conclusion of a report issued today by the Lawyers Committee for Civil Rights of the San Francisco Bay Area. The report trots out a half-dozen horror stories of OFAC screening gone wrong and finds:

• A couple whose mortgage application was denied simply because the husband’s middle name “Hassan” was listed on the SDN list as an alias for one of Saddam Hussein’s sons;
• A couple whose first home purchase couldn’t close because the first and last name of the husband, both common Hispanic names, matched a name on the SDN list;
• An individual who couldn’t purchase a car simply because his last name, Muhammad, caused a credit agency to report that he was a hit on the SDN list
• An individual that could not pick up $50 that had been sent to him by a money transfer service because his first and middle names were Mohammed Ali;
• A PayPal customer named Yusuf Mohammed who had his account closed; and
• A man who couldn’t buy a treadmill because his first name is Hussein.

The problem occurred in these instances for one of three reasons: (1) the company didn’t know how to properly identify a hit; (2) the company didn’t want to take time to determine if a proper hit was a false positive; or (3) even if the company was willing to take that time, the SDN entry lacked sufficient identifying information (e.g. no date or place of birth) to determine whether the hit was a false positive.

Our not-so-hypothetical SDN Daniel Garcia (not one of the Lawyer’s Committee’s examples) has a common Hispanic name and his SDN entry has no place of birth or date of birth that would allow a simple ID check to verify that the hit was a false positive. See for yourself:

Needless to say as more and more companies with less and less screening experience screen customers against the SDN list, anyone named Daniel Garcia might consider changing his name.

The Lawyer’s Committee report raises two interesting issues. First, although the real SDN has the legal right to challenge his designation, the mistaken SDN has neither the right to challenge the designation nor to obtain an official determination that he or she isn’t the real SDN. OFAC’s refusal to provide such an avenue of relief is, indeed, hard to rationalize. OFAC is giving more rights to the alleged terrorist than to an ordinary American. (Would somebody get Lou Dobbs on this?)

Second, because of the abundance of common Hispanic and Middle Eastern names on the SDN list, careless use of the list may hide unlawful discrimination in the provision of housing, credit or employment. A company that simply refuses to provide service to a hit without taking steps to verify whether the hit really is an SDN will have a hard time justifying that the SDN list was the real reason for the denial rather than an intent to discriminate based upon national origin.

Yesterday we commented on the argument by the prosecutors in the Mak trial that export of public domain technical data to an embargoed country, such as China, violates the Arms Export Control Act. Josh Gerstein, the intrepid New York Sun reporter covering the case, read our post and sent a copy of the government’s brief in which it makes that claim.

The prosecution’s argument couldn’t be simpler and couldn’t be more wrong. The brief filed by the prosecution cites the portion of section 127.1 of the ITAR which states that the “exemptions” provided in the ITAR don’t apply to exports to embargoed countries:

These regulations make plain that the exemption in ITAR, including the public domain exception, do not apply to exports to the PRC because the PRC is subject to an arms embargo.

This argument thoroughly confounds exemptions — which exempt exports of defense articles and defense services from licensing requirements — and regulations which define the scope of the terms “defense article,” “defense service,” and “technical data.”

The reference to “exemption” in section 127.1 is clearly a reference to the various portions of the ITAR which are explicitly referred to as “exemptions” — such as the “Exemptions of General Applicability” for exports of defense articles provided in section 123.16, “Exemptions for training and military service” provided in section 124.2, the “Exemptions of General Applicability” for exports of technical data provided in section 125.4, and the “Exemptions for Plant Visits” provided in section 125.5.

“Exemption” does not refer to the provisions of section 120.10(a)(5) which state that the “definition” of technical data does not include:

information concerning general scientific, mathematical or engineering principles commonly taught in schools, colleges and universities or information in the public domain as defined in § 120.11. It also does not include basic marketing information on function or purpose or general system descriptions of defense articles.

The government’s claim that this is an “exemption” not only contradicts the plain meaning of the regulations but leads to results that could not possibly be intended by anyone. Under the government’s claim that section 120.10(a)(5) is an exemption, hundreds of universities with Chinese graduate students are in peril of criminal prosecution for providing to them “general scientific, mathematical or engineering principles commonly taught in schools, colleges and universities.”

The prosecution in the Mak case attempts to support its position by relying on the Ninth Circuit’s decision in U.S. v. Posey, 864 F.2d 1487 (9th Cir. 1989). This is odd, to say the least, because the trial court in that case dismissed charges under the Arms Export Control Act for export of technical data on the grounds that the technical data was in the public domain. The Ninth Circuit did hold that public domain data was restricted for export under a different statute — the Comprehensive Anti-Apartheid Act (”CAAA”), which is no longer in force — because that Act explicitly limited exceptions to those contained in the CAAA itself and the CAAA did not contain a public domain exception.

When the export community learns about the government’s argument in this case, I suspect there will be an uproar.

The trial of Chi Mak and other members of his family for export of ITAR-controlled technical data begins this week. An article on the upcoming trial by New York Sun reporter Josh Gerstein, who has been following this case with some care, has this interesting tidbit:

Mr. Kaye [Chi Mak’s defense attorney] said the government made little effort to safeguard the material. “As you can see in the pleadings … every document in this case was distributed at a public conference,” the attorney said.

Material in the public domain is usually exempt from export controls, but the government argued that an embargo imposed on China after the Tiananmen Square massacre in [1989] made it illegal to share even widely disseminated defense materials with Beijing.

Say what? Is the government claiming that it is a felony to provide to the Chinese public domain data that the Chinese could have obtained on their own?

According to Section 120.11(a)(6) of the ITAR, technical data doesn’t include material distributed at a public conference. And if the information wasn’t technical data, it’s export would not, as charged by the Second Superseding Indictment, violate the provisions Section 127.1 of the ITAR which forbid export of technical data. Furthermore, nothing in the original order imposing the arms embargo on China or the subsequent amendment to the ITAR to reflect the embargo changes this in any respect.

But Section 127.1 of the ITAR also forbids providing defense services to foreign person. Defense services are defined in Section 120.9(a)(1) as the

furnishing of assistance . . . to foreign persons in the design, development, engineering, manufacture, production, assembly, testing, repair, maintenance, modification, operation, demilitarization, destruction, processing or use of
defense articles

The government’s contention can only make sense if it is claiming that provision of public domain technical data to a foreign person is a provision of a defense service in violation of section 127.1. But if this is the government’s claim, then there is no reason for the public domain exception to the definition of technical data. Every provision of technical data, whether or not it is in the public domain, is by definition a defense service. And activity once thought to be permitted under the ITAR would be a felony.

We will certainly be following this trial with great interest.

(Hat tip to reader Creighton Chin at CPII who brought the Gerstein article to my attention.)

UPDATE: Josh Gerstein read this post and then kindly sent me a copy of the prosecutors’ brief on the public domain issue. Their argument is even worse than I imagined. I’ll post it, along with my comments, later today.

SECOND UPDATE: My comments on the prosecution’s brief on the public domain issue are here.

For a moment yesterday, it looked like the tide had started to turn on the embargo on Cuba. A press release from the Center for Democracy in the Americas announced that Rep. Dan Burton had agreed to support the Cuban-American Family Rights Restoration Act. According to that release, he made that assurance to Sgt. Carlos Lazo, an Iraq war veteran who won a Bronze Star for valor during the Battle of Fallujah and had been denied a license to visit his teenage sons in Cuba after he finished his tour of duty.

For Burton, the co-author of the Helms-Burton Act, to sign on to loosening the Cuba sanctions would be monumental news — both as unexpected and as newsworthy as, say, an announcement that Donald Trump and Rosie O’Donnell had become engaged to be married. To each other. One South Florida newspaper ran a story headlined “Hard Liner Backs Easing Travel Ban.”

But before anyone could break out the mojitos and Cohibas, it was all over. Burton’s office quickly denied that he’d gone soft on Fidel and called the report in the CDA press release a “rumor.” Sgt. Lazo is sticking by his story and says that Burton told him he was “on board.”

An article in the March 19 edition of the Jerusalem Post reports that Iraqi firms appear to be stepping up their participation in the Arab League Boycott of Israel. The article bases its report on figures contained in the 2006 Annual Report of the Bureau of Industry and Security:

In its recently released annual report for 2006, the US Commerce Department’s Bureau of Industry and Security noted that there had been 31 cases in which the Iraqi government had engaged in restrictive trade practices last year.

In 2005, according to the previous year’s report, there were a total of just eight such cases involving Iraq.

. . .

It was unclear why Iraq began enforcing the Arab boycott of Israel more energetically last year. However, the Iraqi government sent an official representative to take part in the annual meeting of international liaison officers of the Arab League boycott Office in Damascus last May.

The aim of the meeting was to discuss ways of intensifying the trade embargo against the Jewish state.

When the Jerusalem Post contacted the U.S. Embassy in Tel Aviv about this increase, the Embassy only said that it was “disappointed” in this and anticipated that it would raise the issue again with Iraqi officials.

Although it seems likely that Iraqi boycott activity has increased, the BIS reports don’t fully support the figures cited by the Jerusalem Post. First, the BIS tables on Iraqi boycott activity are inconsistent. One table (Appendix E-3) cites 31 reports of boycott activity by Iraq between October 2005 and September 2006 while another (Appendix E-4) shows 26 reports during the same period. The tables do not explain the reason for this inconsistency.

Second, the figures given by BIS are reports of boycott requests, and there may be multiple reports of the same boycott request, e.g., by both the exporter and the freight forwarder. In the 2005 Annual Report, footnote 1 to both Appendix E-3 and Appendix E-4 stated:

All figures are enhanced to the extent that an exporter and one or more other organizations reports on the same transaction.

The 2006 Annual Report contains the footnote number but the footnote text has, inexplicably, gone missing. (Does anyone edit documents at BIS before they are released?) Presumably, however, the footnote was intended to reference the same text as in 2005.

According to an article by Guy Dinmore in today’s Financial Times, the UAE has escaped the ignominy of being listed on the Bureau of Industry and Security’s forthcoming list of countries “of diversionary concern.” When BIS issued an Advance Notice last month announcing its intent to fill in Country Group C of Supplement 1 to Part 740 with such countries of diversionary concern, we speculated that the UAE was BIS’s prime target.

While the UAE may have been an initial target, they aren’t anymore according to Dinmore:

Late last week Christopher Padilla, assistant secretary for export administration, told US officials the UAE would not be included in a new “country group C” designation that would require tighter US export controls to “destinations of diversion concern”.

The apparent change is an indication of the UAE’s close co-operation with Washington a year after the Dubai Ports World controversy, in which the state-owned UAE company resold its newly purchased American ports operations following staunch congressional opposition.

. . .

The decision followed talks in Washington with Sheikha Lubna al-Qassimi, the UAE economy minister, and the approval by the UAE cabinet this month of a draft law on export control.

For the conspiratorially-minded, there may be another explanation — aside from recent talks and a new export control law drafted by the UAE — of what led to BIS’s change of heart. Perhaps it was Halliburton’s recent announcement of its intention to move its offices to Dubai. Anyone think that a phone call from the office of the VPOTUS to BIS might have played a role in BIS’s decision?

Export Law Blog previously reported that Iran was attempting to buy parts for F-14 Tomcats in their fleet from U.S. government military surplus sales. A recent article in the San Diego Union-Tribune, which I didn’t see until this morning, provides another aspect of the story — namely, that investigations of F-14 part sales to Iran turned up four F-14s in private hands that hadn’t been properly demilitarized. Yes, that was four and, yes, that was four entire jets, not just parts.

But the story of the Tomcat jets gone wild, however amusing that might be, is not why I mention the Union-Tribune story. It’s this:

Federal officials got wind of the planes during an investigation that began with a probe of illegal arms sales to Iran by [Multicore Ltd], a Bakersfield company.

Company paperwork indicated that a former California parts dealer, Greg Forbes, had sold an F-14 canopy to Multicore, said Clark Settles, a U.S. customs agent who handled the case.

During a sting operation, Forbes agreed to get another F-14 canopy to a federal agent and obtained it from the Yanks museum, which led eventually to discovery that the four jets were improperly released by the Navy and that there was no documentation that they were properly demilitarized.

Meanwhile, the deal with Forbes fell through when he contacted the FBI to report his belief that the undercover agent was an Iranian official, court records indicated.

Forbes said he became suspicious when the agent uttered the word “Iran.”

“I said, ‘You can’t sell it to Iran. You have to have an export license,’” Forbes told the Los Angeles Times Wednesday. “Then that’s when I called the FBI and DCIS. I called Customs, even.”

The modus operandi of ICE here is interesting. They found the names of everyone who had sold anything to Multicore and then sent undercovers to try to see if they could induce them to sell parts directly to Iran. There is nothing to suggest here that the government had any reason to believe that Forbes was inclined to sell parts to Iran before ICE cooked up its sting operation.

Courts have held that the government is not required, of course, to have probable cause before initiating a sting operation. But a persuasive and definitive opinion by Judge Posner in United States v. Hollingsworth on another ICE sting operation makes clear that where the government lacks at least some prior indication that the sting victim may be interested in committing a crime, a defense of entrapment may be available:

There is no evidence that before [the ICE agent] began his campaign to inveigle [the defendants] into a money-laundering scheme either [of the defendants] Pickard or Hollingsworth had contemplated engaging in such behavior, beyond what little can be inferred from Pickard’s evident familiarity with the requirement of reporting large cash deposits and his suspicion of government informers. . . . A reasonable jury could have found Pickard and Hollingsworth “predisposed” if the term refers merely to a psychological state of willingness to break the law. But if the concept of predisposition is to serve the purpose of the doctrine of entrapment, it must mean more–must connote opportunity (what we are calling “readiness”) as well as willingness.

Just because someone sold parts to Multicore which later sold them to Iran is no indication that the parts dealer is likely to, or ready to, sell parts to Iran. ICE would probably do itself (and law enforcement in general) a favor by trying to catch illegal exporters rather than trying to turn ordinary merchants into criminals.

News accounts of the circumstances surrounding the agreement of Chiquita Brands to pay a $25 million criminal fine for payments made to a rebel group in Columbia don’t really tell the whole story. That story can be found in the information filed by the U.S. Attorney with the District Court in the District of Columbia. The information — a legal document that is serving as the predicate for Chiquita’s plea agreement — shows the struggle of the company, generally unreported by the media, to deal with the predicament in which it found itself: it could protect its employees from physical harm and violence threatened by the rebels only by making payments that might be illegal under U.S. law. Nor do the news reports reveal at least one significant deficiency in the government’s case against Chiquita.

The basic story is this. In 1997, Carlos Castaňo, the head of Autodefensas Unidas de Colombia (”AUC”) met with officials of C.I. Bananos de Exportación, S.A. (”Banadex”), Chiquita’s wholly-owned Colombian subsidiary. During that meeting, Castaňo indicated to the General Manager of Banadex that it should make certain payments in order to avoid physical harm to Banadex employees. As a result, Banadex began to make the requested payments to AUC. At the time that Banadex began to make the payments to AUC, AUC had not been declared by the United States as a “Foreign Terrorist Organization” (”FTO”) or a “Specially Designated Global Terrorist” (”SDGT”) meaning that the payments to AUC did not violate U.S. law. Senior executives of Chiquita (unnamed by the information) were aware of and approved the payments to AUC.

In September 2001, the Department of State designated AUC as an FTO. Thereafter in October 2001, AUC was designated an SDGT by the Office of Foreign Assets Control (”OFAC”). After both of those designations, payments by a U.S. person to AUC would be illegal.

It was not, however, until February 2003 that management of Chiquita learned that AUC had been designated as an FTO and an SDGT. At that point, Chiquita consulted with legal counsel which advised Chiquita that the payments were illegal. In April 2003, the Board of Chiquita was first advised of the payments by Banadex to AUC. The Board instructed the company to disclose the matter immediately to the DOJ. Additionally one member of the Board proposed that the company should sell its operations Columbia.

Pursuant to the Board’s directive, officials of Chiquita met with the DOJ in April 2003. After the meeting, those officials believed that DOJ had indicated that it wouldn’t pursue Chiquita for prior payments. According to the information, Department of Justice officials stated that “the issue of continuing payments was complicated.” Employees of Banadex, however, continued to make these payments. These continued payments were revealed to the Chiquita Board in December 2003. One member of the Board reiterated his opinion that the company should sell its operations in Columbia.

Banadex made three more payments to AUC after that meeting, the last being paid in February 2004. In June 2004 Chiquita sold Banadex to a third-party.

The central difficulty with the government’s case here is that the U.S. law forbids payments by U.S. persons. Section 594.315 of the SDGT regulations make clear that a U.S. person is a U.S. citizen or a company organized under the laws of the United States. Banadex, which made the payments, was not a U.S. person under that definition and its payments were not a violation of U.S. law. Individual employees of Chiquita were aware of and facilitated the payments and were arguably guilty as individuals. It is not clear, however, that their behavior could be attributed to Chiquita or result in criminal liability for Chiquita. Nonetheless, the criminal information asserts charges only against Chiquita and not against the individual executives who were aware of and facilitated the payments by Banadex.

Even if Chiquita can be held liable for the Banadex payments, the $25 million payment seems excessive. After all, even though the laws at issue don’t provide an exception for protection or ransom payments, Chiquita’s decision to act to protect the safety of its employees is understandable. Perhaps the prosecutors didn’t really believe the AUC threats, but that seems inconsistent with the demonstrated record of murder and violence that landed the AUC on the Specially Designated Nationals (”SDN”) list in the first place.

Additionally when the company began to make the payments, they were perfectly legal. After the company learned in 2003 of the designation of the AUC, it promptly turned itself in. The information tries to suggest that Chiquita didn’t act promptly by noting that the “AUC’s designation was first reported in the national press . . . on September 11, 2001.” My guess is that given the other events of that date, many people (including the federal prosecutors in DC who filed the information) might have missed that story.

On March 14 the Bureau of Industry and Security (”BIS”) added Maurice Subilia, Walter Lachman and Fiber Materials, Inc. to the Denied Persons List and deprived them of export privileges until November 2015. Fiber Materials hasn’t apparently gotten that news since its web page still lists an “International Sales Office” in Biddleford, Maine.

Subilia, Lachman and Fiber Materials were sentenced on November 21, 2005 for criminal export violations. Even though BIS participated in the investigation and prosecution of the case, it apparently forgot about the three defendants, which explains the seventeen month delay in adding them to the Denied Parties List.

The story behind the convictions of Subilia, Lachman and Fiber Materials is interesting. The two individuals and the company were convicted of shipping a control panel for a hot isostatic press to India without a BIS license in 1988. At that time, hot isostatic presses were classified under ECCN 1312A. BIS and the Department of Justice argued that the “control panel” was covered because it was a “specially designed . . . component” for a hot isostatic press controlled under ECCN 1312A.

After the defendants were convicted in a jury trial, the judge granted a motion to set aside the verdict on the ground that the language “specially designed” was unconstitutionally vague. The government appealed to the First Circuit Court of Appeals, which reversed holding that the “specially designed” standard was not unconstitutionally vague.

The opinion of the Court of Appeals finding that the phrase “specially designed” was not unconstitutionally vague does so by providing a definition of “specially designed” which arguably is itself overly vague. The court noted that “specially designed” had two possible and separate meanings — either (1) a component that could be exclusively used for the controlled item or (2) a component designed with properties that make it capable of working with the controlled item but also capable of working with items that are not controlled. Because of the broad legislative goal behind the Export Administration Act, the Court held that the second definition, which is both broader and vaguer, applied.

The defendants had shipped the control panel as a part of a hot isostatic press that was of a size that was not controlled by ECCN 1312A and that therefore did not require a license. The prosecution occurred because the control panel could also be used with a larger hot isostatic press that would be covered by the ECCN thereby making it, allegedly, a “specially designed” component for a larger controlled hot isostatic press. The Court of Appeals, by applying the broader definition, affirmed that view; and, as a result, Messrs. Subilia and Lachman are currently wearing ankle bracelets, and Fiber Materials has lost its export privileges.

If that scares you, it should. If that rule is followed, a decision to export an item requires an analysis of whether every component of that item is capable of being used as part of a controlled item. Can the power supply of an uncontrolled item be used for the controlled version? Does it require a license even if the item with which it is being exported does not?

The Court of Appeals vaguely sensed this conundrum and so it tweaked its broader definition somewhat to add an intention requirement:

A device is “specially designed” for use with an embargoed commodity if it is intentionally created for use, and in fact capable of being used, with the embargoed commodity. At the same time, this definition does not extend the embargo to devices simply because they could in theory be used with embargoed commodities, thus ensuring that legitimate exports are not prohibited.

This distinction might have some force in the case of the control panel since there was evidence presented that it had been designed with capabilities that exceeded the requirements of the smaller press. But in many other instances, how is it to be determined whether the device is intended to work with the controlled item or just happens to work with the controlled item? That will be a difficult line to draw and one which the exporter draws at its own peril.