The Washington Times attempted to practice export control journalism a few days ago and did not quite cover itself with glory. In an article titled “Legitimate charities snared in terror net,” reporter Cajsa Collin attempts to argue that OFAC improperly seized monies from European charities that were transiting through U.S. banks:

On three separate occasions, the two charitable groups had funds seized under U.S. anti-terrorism laws even though neither is accused of any terrorist connections. While most of the money was returned, some is still being held without explanation.

Yikes. That sounds terrible. Bad OFAC! Shame on you, OFAC! Except when you look at the cases, as reported by Collin, the seizures had zip, zero, nada to do with terrorism and the reasons the funds were blocked are, well, blindingly obvious.

The poster child for the Times’s fright piece is Norwegian Church Aid. According to the story, Norwegian Church Aid “denied any connection to terrorism and a careful examination of the OFAC lists, which are publicly available on the Treasury Department’s Web site, showed that [Norwegian Church Aid] was [never] listed.” Even so, Collins claims, transfers from the group were seized without cause. Collins two allegedly problematic cases of funds transferred by the group being blocked.

Here’s the first:

The first transaction was going to sponsor an American professor for an AIDS conference in Cuba. The money was confiscated in early 2003 but not returned until late 2005,” said Eigil Schander-Larsen, the financial director of Norwegian Church Aid.

Gee, I wonder why that transaction might have been blocked? Hint: it’s not because the Norwegian Church Aid group was thought to be a terrorist group. No, it’s because it looks like the wire must have referenced Cuba and neglected to reference a specific or general OFAC license.

And here’s the second:

“The second transaction [intended for a YMCA branch in Burma] was confiscated in 2004 and, even though we have sent in the paperwork OFAC requires both by fax and PDF file, we still haven’t heard anything. I sent the last reminder in January 2007,” he said.

Apparently, neither Norwegian Church Aid or the Washington Times reporter has ever heard of the Burma sanctions. Section 537.202 of the Burmese Sanctions Regulations forbids the exportation of financial services to Burma. Financial services are broadly defined so that any transfer of funds from a U.S. Bank to Burma — even a YMCA in Burma — is forbidden and must be blocked.

So, the reason that funds in both cases were blocked had absolutely nothing to do with anti-terrorism laws, as claimed by Collins, but by country-specific OFAC sanctions. The fact that Norwegian Church Aid wasn’t on the SDN list didn’t make blocking the transfers improper.

Hint to Washington Times: next time you do a story on OFAC, call an OFAC lawyer before you go to press and say something silly. There are, after all, more than a few OFAC lawyers here in Washington.

In his address to the United Nations today, President Bush announced the administration’s intentions to impose new sanctions on Burma and its military regime:

The United States will tighten economic sanctions on the leaders of the regime and their financial backers. We will impose an expanded visa ban on those responsible for the most egregious violations of human rights, as well as their family members.

Aside from telling additional and as yet unnamed Burmese officials and their families that a trip to Disneyland won’t be in the picture for them any time soon, the President’s statement was not altogether clear about the precise sanctions that would be imposed.

Tom Casey, a State Department spokesperson, seemed to be caught up short in today’s daily press briefing by the State Department when reporters pressed for more details on the proposed new sanctions:

To the extent that we have specific names to add or new measures to announce, we’ll let you know.

Translation: “I have no earthly idea.” Elsewhere, Casey seemed to suggest that the list of individuals that would be subject to blocking orders might be expanded.

So what are the possibilities here for tightening the current economic sanctions on Burma. To be sure, as noted, the list of government officials subject to travel bans and subject to blocking orders could be expanded and that seems to be likely to be at least the minimum that will occur. But since the current sanctions aren’t comprehensive, there are other possibilities.

One possibility would be expanding export sanctions. The current sanctions only forbid exports of financial services to Burma. Accordingly, that export ban could be expanded to cover all goods and service subject only to the limits of the Berman amendment, 50 U.S.C. § 1702(b)(3), and the Trade Sanctions Reform Act of 2000 (TSRA). The Berman Amendment prohibits export controls on “informational materials” and TSRA forbids a unilateral sanction against a foreign country covering agricultural products, medicine or medical devices without express Congressional approval.

Another possibility includes prohibition in dealing in Burmese-origin goods and services. That would prohibit dealing in such goods and services even though they had not been imported into, or exported from, the United States. A similar provision is included in the Iranian Transaction Regulations.

If I look into my somewhat cloudy crystal ball, my guess is that the White House will simply expand the lists of Burmese officials subject to blocking and visa bans. But if the White House gets serious about the matter, we could well see an expansion of export bans and a prohibition in dealings in Burmese-origin goods and services.

This morning we laid our hands on the criminal complaint, unsealed earlier this week, charging a Dutch aviation parts firm and its owner Rob Kraaipoel with export violations. The underlying violations charged by the criminal complaint are fairly simple. The complaint alleges that Aviation Services International B.V. and it’s owner Rob Kraaipoel purchased various aviation items from U.S. companies and then sold them to customers in Iran without the necessary OFAC license. Additionally the complaint alleges that Aviation Services caused other to make fraudulent statements on Shippers’ Export Declarations (SEDs) as to the end users of items purchased by the company from vendors in the United States.

The story told by the criminal complaint starts with purchases in 2005 and 2006 of audio and video equipment by Aviation Services from New Hampshire-based DTC, Inc. When DTC requested that Aviation Services identify the end user for the equipment, Kraaipoel is alleged to have sent an email to DTC indicating that the Polish Border Control was the end user. This information was then used by DTC’s freight forwarder when it filled out the Shipper’s Export Declarations for these exports. According to the complaint, the Polish Border Control denies having purchased anything from Aviation Services. Subsequently when Aviation Services requested spare parts for these items, it sent an email to DTC that the end user was a company in Cyprus.

Based on these facts, the complaint charges Kraaipoel with two counts of false statements in violation of 18 U.S.C. § 1001(a). These charges are asserted even though Kraaipoel made no representations to any U.S. government official and even though there is no allegation that Kraaipoel knew that his representations as to the end-user would even be provided to the U.S. government. Nor is there any allegation that these items were ultimately exported to Iran or other embargoed country. Indeed, it appears that they ended up in Cyprus instead.

Felony charges under 18 U.S.C. § 1001(a) seem questionable under the facts alleged. A Dutch citizen sends an email to a private individual in the United States and then faces criminal charges in the United States because inaccurate information in that email is provided, without the Dutch citizen’s knowledge, to the U.S. government. Consider also that a reseller of aircraft parts has a legitimate commercial interest in not providing the end-user’s name to his vendor in order to prevent the vendor from cutting him out as the middleman in future transactions. Because of that Aviation Services misidentification of the end user isn’t necessarily suspicious. And since there is no evidence that the equipment wound up in an embargoed country, it’s even more difficult to assert that there was any criminal intent on the part of the Dutch company.

There’s much more to discuss about the complaint. Tomorrow we will look at the remaining counts of the complaint relating to items that were purchased from other vendors and that were allegedly transshipped by Aviation Services to Iran.

Bethesda-based USAID contractor Development Alternatives, Inc (DAI) recently agreed to pay the Bureau of Industry and Security a $7,500 fine for attempted exports in July 2004 of concealable vests, body armor and bomb blast blankets to Iraq without a license. During that time period, DAI was performing a $72 million USAID contract in Iraq to “restore the capacity of small and medium agro-enterprises to produce, process, and market agricultural goods and services.”

There’s no question, of course, that DAI needed licenses here and that BIS had the right to penalize DAI for these attempted exports. And, I suppose that the slight mitigation of the fine by BIS possibly reflected its sympathy that DAI had a legitimate need for these items to protect its employees in Iraq.

But this situation highlights a difficulty confronted by Iraq contractors in dealing with BIS. Unlike DDTC which has an expedited channel for exports of items being used in Operation Iraqi Freedom, BIS has no procedure to expedite exports by contractors of body armor and protective material to be used by their employees in Iraq. I suspect that if BIS had an office in Iraq, it would be much easier to export body armor to Iraq for use by U.S. employees.

UPDATE: Like every blog, we have our very own troll who comes to try to leave a nasty comment every time we say anything even vaguely negative about BIS. Although the troll won’t leave his or her real name or email address, the IP Address from which he comes suggests that he may be in one of the regional OEEs, although this is by no means certain. The troll took issue with my statement that if BIS had an office in Iraq it would be much easier to export body armor there.

Much easier?? Easier for the US Government to outfit it’s employees?? This would NOT be an export if the USG did it!!! C’mon Cliff…be more conversant!!

Trolls like to use lots of exclamation points and question marks for some reason. And the troll, as trolls often do, missed my point entirely.

My point was that if BIS employees were being shot at in Iraq they would be more sympathetic to the plight of private sector U.S. employees in Iraq running the same dangers and might adopt some procedure to expedite those private sector exports. That might be a hard point for our troll to fathom since I imagine that if he were in Iraq and had his own body armor, the plight of other U.S. citizens wouldn’t be of much concern to him (or her): “I got mine, suckas!” or something like that.

Yesterday the U.S. Court of Appeals for the Ninth Circuit upheld the dismissal of a lawsuit filed against Caterpillar by relatives who had been injured when Caterpillar D9 bulldozers were used to demolish homes in the Palestinian Territories. The court ruled that, because of the foreign policy issues implicated by the case, the complaint was subject to the political question doctrine and therefore not justiciable, i.e. not within any court’s jurisdiction.

This ruling was premised on the court’s finding that all the bulldozers had been sold to Israel under the Foreign Military Financing (FMF) program. According to the court:

[T]hese sales were financed by the executive branch pursuant to a congressionally enacted program calling for executive discretion as to what lies in the foreign policy and national security interests of the United States. See 22 U.S.C. § 2751 (stating that the purpose of the Arms Export Control Act, which authorizes the FMF program, is to support “effective and mutually beneficial defense relationships in order to maintain and foster the environment of international peace and security essential to social, economic, and political progress”).

Now this might make sense if Caterpillar manufactured an armored or military spec version of the D9 bulldozer. But it doesn’t. The Israeli Army customizes the civilian D9 to its own military specifications and then ironically renames these armored behemoths “Doobi” (Hebrew: דובי‎; lit. teddy bear). In fact, the U.S. Army has purchased armor kits from the IDF to convert D9s for use in Iraq.

The point of this is that Section 23 of the Arms Export Control Act, which authorizes the FMF program, only covers procurement of defense articles and services. If the D9 bulldozer is not a defense article, then the Ninth Circuit’s reliance on the AECA as a justification for finding that the law suit presents non-justiciable questions of foreign policy is misplaced. And if an unmodified D9 is now considered a defense article, it can’t be exported without a license under section 38 of the AECA, a conclusion that the folks at Caterpillar might find somewhat inconvenient. The Ninth Circuit, however, never looked behind the U.S. Government’s suspect decision to sell these items under the FMF program and, therefore, never saw this possible dilemma.

The Guardian had an interesting dispatch from this year’s Defense Systems and Equipment Show:

Two companies were ejected last night from Britain’s biggest arms fair for promoting leg irons for prisoners and battlefield captors. BCB International, a British-based firm, and Famous Glory Holding, a Chinese company, were thrown out of the biennial Defence Systems and Equipment show which opened in London’s Docklands yesterday.

Although the type of leg irons on offer appear to escape the government’s ban on the sale and export of equipment that can be used for repression and torture, their promotion is hugely embarrassing to the exhibition’s organisers.

I’m sorry but I just don’t get that. You can exhibit at the DSEI show equipment that can wreak havoc six ways to Sunday but you can’t display leg irons? Because its embarrassing? That’s like banning the exhibition of skimpy pajamas at an “adult” product show.

On another note, you have to admit that Famous Glory Holding is the best name — ever — for a Chinese defense company.

The fact sheet released by the State Department’s Bureau of Political-Military Affairs on the defense trade treaty recently signed by President Bush and Australia’s Prime Minister Howard provides few details on what the treaty says. Fortunately, a detailed FAQ on the treaty was posted on the Australian Prime Minister’s website. Here are some of the more interesting portions of the FAQ.

First, unlicensed exports under the treaty will still require governmental notification:

Under the Treaty, US exporters will only need to advise the State Department that they have engaged in an eligible defence export activity; they will not need to apply for a licence.

Second, although government-to-government sales under the Foreign Military Sales programs are not addressed by the treaty transfers of technical data relating to the approved FMS equipment will not be required:

The arrangements for approving the export of US defence equipment to Australia on a government-to-government basis under the Foreign Military Sales (FMS) program will not be included under the Treaty. But once the equipment has been received in Australia, retransfers of the FMS-origin technology within the approved community of Australian companies will be permitted without the need for further approvals, significantly enhancing our ability to support this equipment in country and creating improved opportunities for Australian companies.

Third, the treaty permits unlicensed exports to companies in the “approved community.” The FAQ provides more detail on the requirements to be in that community. An Australian company would be excluded if

- There is a serious failure to comply with Australian export control laws and regulations and/or the commitments undertaken in joining the approved community;

- A company fails to meet its security obligations under the Defence Industry Security Program;

- There is a failure to provide written notification of material changes in the facts provided with the company’s application for qualification;

- There is a significant risk that there will be unauthorised diversion of articles or data provided under the treaty;

- There are false statements, misrepresentations or omissions of fact in the application or export related documentation, or significant failures to provide or maintain records of US defence articles and data in the company’s possession.

Fourth, the treaty will include verification procedures:

The Treaty will stipulate the setting up of a compliance and audit regime, the details of which have yet to be mutually determined.

Finally, as with the analogous U.S.-U.K. treaty, the treaty with Australia will exclude “highly sensitive exports” although there is not yet any agreement as to what articles will be deemed to be “highly sensitive.”

The Office of Foreign Assets Control (”OFAC”) released today its monthly report of penalties imposed by the agency. Of course, that report reveals that OFAC continues to protect our national security by chasing hapless cigarficianados who buy their Cuban Cohibas over the Internet. More interesting, however, was a Penalty Notice posted by OFAC in conjunction with the report and which imposed a penalty of $8,250 on Parkdale Mills, the largest independent yarn spinner in the United States.

According to the Penalty Notice, Parkdale attempted to import, in October 2003, 1.65 million pounds of cotton from Sudan. Upon learning that such a transaction would violate the Sudanese Sanctions Regulations, Parkdale cancelled the transaction and the cotton was never imported from Sudan to the United States. In April 2007, OFAC sent a Prepenalty Notice to Parkdale alleging that the attempted import of cotton from Sudan violated section 538.204 and section 538.210 of the Sudanese Sanctions Regulations.

In a written submission to OFAC, Parkdale raised a number of arguments in its defense. The first argument was the Parkdale was unaware of the embargo of Sudan. I suspect that had Parkdale made that argument to Judge Judy, it would have elicited her trademark riposte: “Don’t pee on my leg and tell me it’s raining.” Cotton is the main cash crop of Sudan and constitutes 45 percent of its exports. There is no way on earth that Parkdale didn’t know that Sudanese cotton was embargoed.

Second, Parkdale claimed that First Atlantic Commodities told it that there were no licensing requirements. This argument is pretty much the equivalent of saying that your Uncle George thought the transaction was okay, given that First Atlantic Commodities is a small North Carolina company that appears to be principally involved in the real estate business and not international trade.

Saving its best argument for last, Parkdale also noted that it had in fact cancelled the order when it discovered that it violated the embargo. More likely, it cancelled the order when a freight forwarder or shipper said it wouldn’t handle the transaction because it seems inconceivable that Parkdale “discovered’ the prohibition only after it ordered the cotton.

OFAC, not surprisingly, wasn’t impressed by the first two arguments made by Parkdale. It provided a 25% mitigation of the originally proposed $11,000 penalty and based that mitigation on Parkdale’s previously clean record, its cancellation of the order and its timely provision of a response to the Prepenalty Notice.

Parkdale should really consider itself lucky here. For the life of me, I don’t understand why it would try to mitigate an $11,000 fine from OFAC by telling a story which, even on the off chance that it were true, sounds like a whopper. A company like Parkdale is going to be assumed to be a sophisticated company that buys large amounts of cotton on the world market and would therefore be quite aware of the embargo on Sudanese cotton — unless the entire purchasing staff of the company had been conducting their trading operations from space ships in some distant galaxy. Moreover, no agency likes to hear companies assert that the agency’s regulatory activities were so unimportant that the company just couldn’t bother to keep abreast of agency regulations. If OFAC had been more aggressive, it might well have launched an investigation into whether the response to the Prepenalty Notice was a misrepresentation that warranted further civil and/or criminal penalties.

The Bureau of Industry and Security (”BIS”) just reported a settlement agreement it entered into with JSR Micro under which JSR Micro agreed to pay a civil penalty of $270,000. JSR Micro had voluntarily disclosed to BIS that it had exported photoresists classified under ECCN 3C002.a without the required licenses from BIS.

A photoresist is a thin material placed between a mask and a substrate, such as a semiconductor, which allows circuits or other patterns to be etched onto the substrate. Light is used to expose the photoresist and then a chemical process is used to remove exposed or unexposed portions of the photoresist. The shorter the wavelength of the light used to expose the photoresist, the higher the resolution of the image achieved on the substrate. Under ECCN 3C002.a, export licenses are required for photoresists optimized for use with light wavelengths that are 350 nm or shorter. (The Wassenaar Arrangement, by contrast, only requires licenses for photoresists optimized for use with wavelengths that are 245 nm or shorter).

According to the documents filed with the settlement agreement, JSR Micro engaged in 45 separate unlicensed exports of the photoresists to Israel, Singapore and Taiwan. These documents, however, charged JSR Micro with 90 separate violations. Each export was deemed a violation of section 764.2(a) of the Export Administration Regulations (”EAR”). Additionally, each export was deemed a violation of section 764.2(g) of the EAR because the Shipper’s Export Declarations filed with the exports stated that no license was required for the exports. Since each violation could result in an $11,000 fine, the charging letter asserted a potential liability of $990,000.

In fact, however, BIS was clearly double-charging the offense to try to extract a higher fine from JSR Micro. In every case where an exporter ships an item without a required license, it will always be the case that the SED states that no license is required, and yet BIS does not consistently add the SED charge in its charging documents for all unlicensed exports. The additional SED charge might seem fair where the exporter knew that a license was required and yet said that one was not on the SED. But there are no allegations here that JSR Micro knew that a license was required.

Even if one thinks that $270,000 is a fair settlement of a $990,000 liability in a voluntary disclosure case, it seems hard to feel the same about the same fine in such a case where only a $495,000 liability is asserted. That’s not even a fifty-percent reduction.

An alert reader pointed out this interesting article in Aviation Week which raises the issue, which we last talked about in relation to the Chi Mak prosecution, of deemed exports at scientific conferences. The conference in question was an American Institute of Aeronautics and Astronautics conference in July on propulsion technologies, including scramjet and related technologies.

The Cincinnati meeting differed from a traditional U.S. industry gathering, because nearly a dozen engineers from Iran also submitted papers on Iranian solid and liquid rocket technologies. The Iranian engineers are based at the Sharif University of Technology and the KNT Technical University, both in Tehran. They apparently did not deliver the papers in person. However, as participants, the Iranians have access to all of the highly detailed U.S. aircraft and rocket propulsion presentations made at the conference.

Of course, the non-attendance of the Iranians isn’t surprising, since the probably didn’t apply for visas and even if they had those visas would likely have been denied. And the sanctions against Iran would not forbid access to presentations from the conference under the informational exception.

But, of course, if the information at the conference went beyond public domain information or fundamental research under section 120.11 of the ITAR, then companies and individuals at the conference may have committed export violations, not only because of any access to that information by Iranians nationals but also because of access to that information by any other foreign nationals. And it would appear that all the papers presented at the conference can be purchased from the AIAA website.

So, was any such information available? Consider this:

[O]ne [of] the more interesting historical papers presented at the forum was a detailed description of how the U.S. Air Force and Lockheed combined top-secret ramjet propulsion technologies with segmented solid rocket boosters for the Mach 3 D-21B reconnaissance drones that were launched by modified SR-71s and B-52Hs in the late 1960s. … This was the first time details on the segmented rocket booster portion of the D-21B program have been presented publicly, says Robert Geisler of Geisler Industries, who led the analysis with retired Pratt & Whitney and ATK Tactical Propulsion engineers.

Yikes. If I were the one who presented that paper, I might be a little nervous right now.