The Bureau of Industry and Security (”BIS”) released today an order changing the address of Mohammad Fazeli on the Denied Persons List. Mr. Fazeli had been convicted of an attempt to export pressure sensors to Iran and was sentenced to one year and a day in jail. He was released in July 2007

Normally such an order wouldn’t merit a blog post, but something about it caught my attention. One of the addresses being corrected was this: “1439 Saltair Fazeli Ave., Los Angeles.” Hmmm. That’s cool. Mr. Fazeli was living on a street in Los Angeles that bore his surname. What a lucky guy. Or not.

If you put that address into Google Maps, you’ll find it doesn’t exist. There is a 1439 South Saltair Ave., but that’s as close as it gets. So, when the BIS order says that the 1439 Saltair Fazeli Avenue address is “no longer correct,” that’s a bit of a stretch. It was never correct.

So where in the world is Mohammad Fazeli now? According to the order he’s at 545 South Atlantic Blvd, #C, Los Angeles. Of course, since the “Saltair Fazeli” address was wrong, I couldn’t help but go back to Google Maps and check out 545 South Atlantic Boulevard. And what did we find? This:

Yep, a used car dealership called Bingo Motors. Is apartment # C perhaps one of the cars on the lot? Or maybe Mr. Fazeli is living in St. Alphonsus Catholic Church directly across the street at 532 South Atlantic Boulevard.

I suspect we’ll see Mr. Fazeli staying one step ahead of BIS, even after the next address correction for him. And, as a compliance note, be very careful if you’re doing business with anyone named Mohammad Fazeli at any address in Los Angeles or elsewhere.

UPDATE: Not surprisingly, this post (like any other post critical of something BIS has done) attracted our resident BIS troll. He stopped by to fuss about the practice on this blog of referring to “BIS ALJs.” He seems somewhat fixated on this, due apparently to an idiosyncratic notion that because these ALJs are not paid by BIS (but rather by the Coast Guard), they can’t be BIS ALJs, even though they are assigned to BIS cases. It’s rather like complaining about calling someone Joe Smith’s attorney when Mr. Smith is court appointed and paid by the Court and not by Smith. Oh well.

Needless to say, the troll stomps his foot loudly and spews lots of smoke and exclamation points when his comments don’t make it through moderation. Well, here’s an offer to our cowardly troll: leave a real work email address in the comment form (as opposed to your ususal “whocares@whocares.com”) and your comments will sail through moderation in a heartbeat. Then you can complain about my referring to “BIS ALJs” to your heart’s content. I’m not holding my breath.

UPDATE 2: The troll took the bait left in the first update and returned to continue his/her rant about “BIS ALJs.” But, as predicted, the troll is still too much of a coward to identify himself/herself, so, sadly, I won’t be able to share with you the troll’s further gems of wisdom on this issue.

ABOVE: Schematic of bifilar weight assembly for Black Hawk helicopters (Source).

After yesterday’s post on the acquittal in the Axion case, I decided to dig deeper to find out more about the drawing of the bifilar weight assembly that was exported to China and which was the basis of the prosecution. The defense claimed that the drawing was available on the Internet and was therefore public domain technical data not subject to licensing requirements. I wondered why, if that were the case, the prosecution was brought in the first place. The judge did not issue a written opinion in connection with the acquittal so I consulted the prosecution’s trial brief to get a better view of the evidence.

So, was the drawing that was exported available on the Internet? The answer appears to be “yes and no.” First, with a little more snooping around I did find schematics of the bifilar weight assembly, as you can see from the picture above this post. And, as you can see from the drawing, it appears to be, notwithstanding the imposingly technical name, a rather simple part.

Second, and here’s the rub, it doesn’t appear that the exported drawing itself was available on the Internet. Rather it seems to have been a drawing made by an Axion engineer based on one of the publicly available schematics.

Here’s the relevant section from the prosecution’s trial brief:

In September 2003, Latifi asked James Hopkins to edit the technical drawings for the bifilar weight assembly. Hopkins extracted information from the technical drawings and used a computer-aided design program to redraw the drawings. While working at Axion, Hopkins observed a brochure from a Chinese manufacturer for tungsten parts, which is the material used to make the bifilar weight assembly. Hopkins advised Latifi that the drawings might be subject to the export control laws. Latifi told Hopkins that it seemed too complicated to export the technical drawings outside the United States; instead, Latifi advised Hopkins that he would only distribute them to domestic companies.

This makes it easy to see the substance of the dispute between the prosecution and the defense. The drawing itself wasn’t literally available on the Internet, but if Hopkins didn’t make any material changes in the drawing, there’s also a sense in which it was available on the Internet. If, for example, Hopkins simplified a publicly-available drawing, would that make the revised drawing subject to export controls? And consider these questions in the context of a schematic for a part that is admittedly a rather simple mechanical part.

It seems to me that the judge in acquitting Axion and Latifi eschewed the literal notion that the drawing in question must have been available on the Internet rather than simply have been based on a drawing available on the Internet.

An interesting article in yesterday’s edition of The Birmingham News provides some further details on the unsuccessful prosecution of an Iranian-American defense contractor in Huntsville that was the subject of a previous post on this blog. As we noted in that post, the prosecution’s case collapsed when it was revealed that one of the prosecution’s chief witnesses had pleaded guilty to forging checks from the company that she was now accusing of export violations.

But that’s not all that sank the prosecution. According to article in The Birmingham News, the drawing of the Black Hawk that had been sent to China was apparently available on the Internet:

The Black Hawk drawing Alex Latifi was accused of sending to China also backfired on the government. A prosecution witness conceded that it wasn’t marked with customary warnings barring it from being sent to trading partners subject to arms control laws. And the argument by Latifi’s lawyers that the Black Hawk plans were in the public domain, which would exempt them from certain arms-control provisions, dogged the prosecution.

“Hang on, I have not heard about that before,” trial judge Johnson said as Alex Latifi lawyer James Barger cross-examined a government witness on the trial’s fifth day. “These drawings are on the Internet?”

We’ll have to take this claim at face value, although I have to say that I couldn’t find detailed schematics of the Black Hawk on the Internet. I found some indication, however, that Sikorsky may once have made certain schematics available that way, but these have since disappeared from the Sikorsky website (WARNING: annoying audio at link). But if those documents were public domain as alleged, it is hard to say why the prosecution filed the case.

The defense lawyers, however, are keeping the government’s feet to the fire even after the acquittal by filing a motion under the Hyde Amendment (18 U.S.C. § 3006A Note).

[The] lead lawyer, Henry Frohsin of Birmingham’s Baker, Donelson, Bearman, Caldwell & Berkowitz, has filed a claim for compensation from the government called a Hyde motion. It’s based on a 1997 law that allows acquitted federal criminal defendants to argue the Justice Department engaged in wrongful prosecution and collect whatever money they spent on their legal defense. …

Frohsin said … “If this doesn’t qualify as a vexatious, misguided prosecution, then nothing will.”

(As full disclosure, I was interviewed by the Birmingham News reporter and am quoted in the article.)

ABOVE: Rami Makhluf

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Today the Department of Treasury’s Office of Foreign Assets Control (”OFAC”) designated as an SDN Rami Makhluf, the maternal cousin of Syria’s President Bashar al-Assad and owner of Syriatel, Syria’s largest mobile phone provider. The basis for the designation was novel. It was not because of any allegation that Makhluf was involved in destabilizing the peace process in the Middle East or destabilizing Lebanon. Rather, it was because he is alleged to be a corrupt guy who exploits his close family ties to the Syrian government to further his business interests in Syria.

Come again? Hear for yourself, straight from the lips of Stuart Levey, the Department of Treasury’s Under Secretary for Terrorism and Financial Intelligence:

Rami Makhluf has used intimidation and his close ties to the Asad regime to obtain improper business advantages at the expense of ordinary Syrians,” said Stuart Levey, Under Secretary for Terrorism and Financial Intelligence. The Asad regime’s cronyism and corruption has a corrosive effect, disadvantaging innocent Syrian businessmen and entrenching a regime that pursues oppressive and destabilizing policies, including beyond Syria’s borders, in Iraq, Lebanon, and the Palestinian territories.

This novel theory of designation was set up by Executive Order 13460, signed by President Bush last week on February 15 and which found that

the conduct of certain members of the Government of Syria and other persons contributing to public corruption related to Syria, including by misusing Syrian public assets or by misusing public authority, entrenches and enriches the Government of Syria and its supporters and thereby enables the Government of Syria to continue to engage in certain conduct that formed the basis for the national emergency declared in Executive Order 13338.

Executive Order 13338 was based on Syria’s occupation of Lebanon, it’s pursuit of WMD, and its interference with the stabilization and reconstruction of Iraq.

Executive Order 13460 and the designation of Rami Makhluf, both promulgated under the International Economic Emergency Powers Act (”IEEPA”) must meet the standards set forth therein. That statute permits such designations if the President finds that it is necessary to meet an extraordinary threat to the national security, foreign policy or economy of the United States. Such a finding is clearly a leap when applied to foreign government “cronyism” with foreign companies and their executives. Exploiting family ties to the Syrian government officials doesn’t entrench the government; rather it entrenches the people exploiting those ties.

Another problem with this designation was pointed out by commenter Ex-OFAC in his comment on yesterday’s post on OFAC’s 50 percent rule. The designation prohibits U.S. persons from doing business with Makhluf, and by extension of the 50 percent rule, with any business in which Makhluf owns a 50 percent interest or greater. If Makhluf in fact owns a majority-stake in Syriatel, are American telephone companies violating the law when they connect U.S. outbound calls to that network and pay the connection fee? Makhluf’s other business holdings are alleged to be enormous and so any company doing business with Syria does so at the peril of finding out that Rami is a controlling shareholder.

Last week the Department of Treasury’s Office of Foreign Assets Control issued a guidance document that answered a question that has probably prompted legions of law firm associates and export compliance officers to call OFAC. The question: what if a company is not on the SDN list, but one of its partners/shareholders/members is? Can we do business with the company?

And the answer, given out by countless on the Hotline team and other OFAC employees is what you might think: only if the SDN does not control, directly or indirectly, a “50% or greater” interest in the company. Note that’s 50 percent or greater, not greater than 50%, although this distinction may not have been carefully observed by folks at the OFAC Hotline.

OFAC promises to start putting this into new regulations and to amend existing regulations to reflect this guidance. Be very careful, however, and don’t assume that this guidance applies to all sanctions programs. Some programs — such as the Cuba and Sudan sanctions — cover entities where persons of interest might hold less than 50 percent. Under section 515.201(a) of the Cuban Assets Control Regulations, transactions are prohibited in connection with property in which a Cuban national has any interest.

According to this article in the South Florida Sun-Sentinel, an Iranian woman and mother of two has voluntarily left Iran to face charges in South Florida that she attempted to export illegal 3,000 helmet-mounted night vision systems from the United States to the Iranian military. This is a somewhat surprising decision given that the United States and Iran understandably don’t have extradition treaties with each other.

The woman, Shahrazad Mir Gholikhan, was arrested in Vienna, Austria in 2004 when she and her ex-husband, Mahmoud Seif, traveled to Vienna Austria to pick up one night vision system that had been exported from the United States to Austria and that they planned to re-export to the Iranian military. She was convicted of violating Austrian export laws and sentenced to 50 days in prison. A grand jury in Florida thereafter indicted her on charges of money laundering and export violations.

At a bond hearing in Fort Lauderdale last Friday, Gholikan’s attorney David Markus explained Gholikhan’s remarkable decision on the basis that “she believes in her innocence.” But the defenses so far proffered by her attorney aren’t very convincing on their face:

Markus claims prosecutors have Gholikhan confused with another woman and his client at most acted as a translator. He is pushing to have the case thrown out, arguing Gholikhan’s 2005 conviction on similar charges in Austria makes the U.S. prosecution a violation of double jeopardy protections.

Saying that it wasn’t her but if it was she was only a translator is rather like arguing that your client wasn’t involved in the bank robbery but if he was he only drove the get-away car.

And the double jeopardy claim is equally fanciful. The Supreme Court stated in United States v. Wheeler, 435 U.S. 313 (1978) that prosecutions

brought by separate sovereigns, they are not “for the same offence,” and the Double Jeopardy Clause thus does not bar one when the other has occurred.

So, it won’t be long before Ms. Gholikan may be tapping her heels together and chanting “There’s no place like home.” That may have gotten Dorothy back to Kansas but it’s doubtful whether it will get Ms. Gholikhan back to her home in Tehran.

A fascinating article in today’s Wall Street Journal details how Iran eludes U.S. sanctions on exports to that country. An interview with an Iranian merchant supplies an instructive example of how the merchant obtains iPod accessories from Tennessee-based Griffin Technology:

The owner of an electronics-goods store in affluent North Tehran, who asked to be identified only by his first name, Borhan, recently stopped using bank-to-bank wire transfers to pay for goods because of the restrictions. U.S. companies can’t ship most products into Iran. Borhan says he orders iPod accessories online from Griffin Technology in Nashville, Tenn., and has them shipped to a middleman — a UAE-registered company in Dubai that operates out of a post-office box.

A typical $10,000 order, packed in 10 boxes, costs as much as $800 to ship to Dubai, he says. He pays another $500 to the middleman to unpack the goods in Dubai and reship them to Tehran. To pay for the shipment, he says, he gives cash to an acquaintance in Tehran who sends the money to his brother in Dubai through an informal money-transfer service, or “hawala.” The brother then pays the middleman.

Commissions for the middlemen and for the hawala transfer come out to about $1,000. The payment system takes three days, instead of the 12 hours a bank-to-bank transfer would take. (A spokeswoman for Griffin says it is “unable to control where products end up in the marketplace.”)

The pat response from Griffin — “we can’t control where products end up” — just doesn’t cut it here. If the story of how the merchant ordered the product is true, this transaction doesn’t have red flags; it has red banners the size of a football field draped all over it. A transaction worth $10,000 shipped to a P.O. Box in Dubai is bad enough, but if Griffin checked the IP Address associated with the order it would almost certainly show that the order came from Iran. Game over.

Exporters can’t simply bury their heads, ostrich-like, in the sand and say they just have no idea where their products wind up and that they are “shocked, shocked to find that” their products were ultimately shipped to Iran or another sanctioned country.

Satellite image of the Strait
of Hormuz

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A wire story from Agence France Presse today documents the extent to which trade between Iran and the UAE may be circumventing unilateral U.S. sanctions against Iran:

Thousands of Iranian firms are still doing business in the country’s top trading partner, the United Arab Emirates, despite a US drive to choke Tehran’s economy over its controversial nuclear program. But US banking sanctions are also beginning to bite, industry sources say.

The AFP reporter interviewed Nasser Hashempour, executive deputy president of the Dubai-based Iranian Business Council, who provided one of the reasons the sanctions weren’t having much impact on trade between Dubai and Iran:

Iranian businesses “have not had any problem with local banks because we are considered UAE companies” under local rules requiring at least 51 percent of a business to be owned by an Emirati national, said Nasser Hashempour. …

The same goes for fully Iranian-owned firms operating out of free zones “because they are registered in the UAE and their sponsor is the free zone,” which would pull their licenses if they flouted the rules, he told AFP.

The article goes on to point out that almost 10 percent of the population of Dubai is Iranian and that almost 10,000 Iranian firms are doing business in Dubai.

But the real reason that the sanctions may not have stopped trade in U.S.-origin goods between Dubai and Iran is that Dubai has no interest in making it stop according to a UAE official who, not surprisingly, requested anonymity:

As for unilateral US sanctions, these would have to be applied by private banks and companies and “it is not for the UAE government to tell private companies what to do,” the official added.

That doesn’t appear to be what officials of the UAE were telling the U.S. government when they convinced U.S. officials not to put the UAE on Schedule C to the EAR as a country of “diversionary concern.”

Bottom line for exporters: it’s probably a bad idea to export an item to the UAE unless you have a pretty good reason to believe it’s going to stay in there

US Embassy in Khartoum

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Late last week Reuters reported that Adam Szubin, head of the Office of Foreign Assets Control (”OFAC”), announced that OFAC was stepping up its enforcement actions for violations of the U.S. sanctions on Sudan. According to Szubin, agents have built up a “queue” of enforcement actions against violators that will be rolled out in as early as a month’s time.

And Szubin is hoping to go for the big bucks:

Violating companies now face fines of up to $250,000 a breach or a charge of twice the offending transaction — a penalty that in some cases could run into millions, said Szubin. …

The recent increase in penalties for sanctions violators had strengthened OFAC’s hand, he added. …

Before the penalty increase, the company would have only had to pay up to $50,000 for each illegal sale — a charge that many organisations could write off.

“We’re now able to say, if your transactions totalled $40 million, and those were violative transactions, you could be facing a maximum penalty of $80 million. And that is no longer something that people will shrug off.”

This prospective uptick in enforcement actions, corresponds with increasing diplomatic parries between the U.S. and Sudan over the sanctions. According to a story in the Sudan Tribune, last year the government of Sudan had blocked 400 containers bound for the U.S. Embassy in Khartoum for failure to pay customs fees. The U.S. premised this non-payment on the Sudan sanctions and it was not until Sudanese president Omar Hassan Al-Bashir issued a decree granting an exception to the containers from custom fees that the containers were released. The Sudanese government later reversed its position and recently blocked entry of containers bound for the U.S. Embassy for non-payment of customs fees. In response, the U.S. has threatened to halt construction of a new U.S. Embassy in Khartoum. That construction has been underway for the past two years.

Yesterday the Bureau of Industry and Security (”BIS”) released a Settlement Agreement it had entered into with Selex Sistemi Integrati, Inc. According to the charging papers, Selex had exported an instrument landing system classified under ECCN 7A994 and then re-exported it without a license to Iran. The export and re-export in question occurred in November 2002. Selex agreed to a fine of $12,300. The violation was not voluntarily disclosed by Selex to BIS.

Interestingly, this is the first reported enforcement action commenced after the effective date of Public Law 110-96 which increased the penalties for export violations (under the International Emergency Economic Powers Act, or “IEEPA”) to the greater of $250,000 or twice the value of the transaction. Amended section 206(b) states that the higher penalty is applicable in any enforcement action which is “pending or commenced on or after the date of the enactment of this Act.” Because of BIS’s annoying habit of not dating much of its correspondence, it is impossible in this case to tell from the documents posted whether the enforcement action was commenced after after October 16, 2007, the date of enactment. Assuming, however, that this was the case, the $250,000 penalty would be, under the terms of the amendment, retroactively applicable.

In that light, the $12,600 fine is relatively low. There are several possible explanations for this. I do not think that one explanation was any concern about the legality of increasing the civil penalty retroactively. The black letter law is that the constitutional provision against ex post facto laws applies to criminal penalties but not to civil penalties. See Collins v. Youngblood, 497 U.S. 37 (1990). Granted there is some support for the proposition that a civil penalty that is essentially punitive and not remedial might be covered under the ex post facto clause. But it can’t be easily concluded that IEEPA’s $250,000 penalty is essentially punitive rather than remedial, although that might well be the case.

Another, and more likely possibility, is that the item exported, an instrument landing system, is a key component of aviation safety. The Iranian sanctions have been severely criticized for their detrimental impact on aviation safety and have been argued to have played a role in a recent civilian air disaster in Iran.

Finally, and probably the most likely possibility, is that the increase in maximum penalty available has not altered BIS’s perception of what a fair settlement is in a particular case. With most penalties in the past being in the five-figure range and only the rare penalty in the six- or seven-figure range, it may well be that BIS is not inclined to ratchet up penalties in the average case just because of the IEEPA amendment, but will reserve the maximum penalty for the most egregious cases.