Archive for August, 2008


Aug

15

The FBI Made Me Do It


Posted by at 12:23 pm on August 15, 2008
Category: Criminal PenaltiesDDTC

Congressman John MurthaAn article in today’s Washington Post provides some interesting insights into the April 2007 conviction of Pennsylvania-based Electro-Glass Products for violations of the Arms Export Control Act arising from the company’s unlicensed exports of 23,000 solder-glass preforms to India. The preforms are allegedly components of military night vision goggles.

As a result of the 2007 conviction, Electro-Glass was debarred from exporting by the Directorate of Defense Trade Controls (“DDTC”). Electro-Glass has now prevailed upon Representative John Murtha to write a letter to DDTC seeking to have the agency set aside the debarment. According to the article, Murtha wrote the letter as a favor to a constituent — the company is located in Murtha’s congressional district.

More interesting than this congressional intervention is the defense proffered by Electro-Glass for its unlicensed exports:

“We want to stay legal, we want to stay aboveboard. It was an accident what happened in the first place,” [James K.] Schmidt [Electro-Glass’s President] said in a telephone interview.

Schmidt said he called the FBI and “they told me that India was a democracy and they should not be denied.” The company later consulted U.S. customs officials and got the impression that it should not stop the shipments, he said.

But officials from both the FBI and U.S. Customs and Border Protection have denied that they gave approval.

Although I don’t doubt that the FBI may have said something like that to Schmidt, you have to wonder why Schmidt was using the Bureau as the company’s export compliance department. Moreover, given that it wouldn’t be clear to either the FBI or Customs that “solder glass preforms” were components of military night vision, it’s hard to see that the okay from either agency, even if given, would be much of a defense.

Admittedly it is self-serving for me to say so, but this case just illustrates why inexperienced companies ought to call an export lawyer before exporting any item that could conceivably have a military use. But don’t be too hard on me for this little bit of self-promotion: it’s the middle of August, everybody is on vacation, and probably only three people will read this post.

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Copyright © 2008 Clif Burns. All Rights Reserved.
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Aug

14

Campo de Sueños


Posted by at 6:08 pm on August 14, 2008
Category: Cuba SanctionsOFAC

Twin State Peregrine Winds UpThe Twin State Peregrines, a little league baseball team from Vermont and New Hampshire, is currently playing ball in Cuba with Cuban teams their own age, the first little league tour of Cuba by an American team since 2000 and the first since more stringent travel regulations went into place in 2002. Obtaining approval from OFAC for the privately-funded trip took the team twenty months and three rejections until the travel license was obtained in March of this year. Ironically it’s easier to export cows from Vermont to Cuba than a bunch of pint-sized little leaguers.

News of the baseball tour to the island, not surprisingly, generated an alarmed reaction from some of the predictable corners of support for the Cuba embargo on the Hill. Congressman Lincoln Diaz-Balart called the OFAC action granting the license to the kids “very troubling.”

”Sporting events may be interpreted as diplomatic gestures even when they are not meant to be,” Diaz-Balart said. “And a sporting event is not an appropriate way to respond to the ongoing torture of political prisoners Yuselin Ferrera, Nelson Aguiar and many others.”

Vermont’s Senator Patrick Leahy took Diaz-Balart’s pitch and knocked it out of the park:

”He should pick on someone his own size,” [Leahy] said.

The latest report on the series has the Peregrines 1-1 in the series, losing 16-5 to the Santos and beating the Mangos 19-8.

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Aug

13

Draft Rules For U.S.-U.K. Export Treaty Released


Posted by at 5:32 pm on August 13, 2008
Category: General

FlagsOn Monday, the Directorate of Defense Trade Controls (“DDTC”) published on its website the minutes of the June 19th meeting of the Defense Trade Advisory Group, and attached to those minutes was a draft of the proposed implementing rules for the Defense Trade Cooperation Treaty between the United States and the United Kingdom. The purpose of that treaty was to eliminate the requirement for export licenses for certain exports of defense articles between the United States and the United Kingdom. These rules go a long way in answering questions that had been raised about the scope of the treaty.

First, the treaty eliminated the export license requirement for certain exports between the “United States Community” and the “United Kingdom Community.” This language and structure led to some question as to whether the benefits would be accorded to all exporters. In fact, the rules make clear that the “United States Community” includes all exporters registered with DDTC and not otherwise disqualified from exporting due to commission of a disqualifying felony, debarment, etc.

Second, the treaty contemplated that certain items on the United States Munitions List of particular sensitivity would be excluded from the benefits of the treaty. The draft rules provide a side-by-side list comparing the USML and the items that are approved for export under the treaty.

Of particular significance here is the provision of the rules which states that, notwithstanding the list of acceptable items, no exports will be allowed without licenses under the treaty of

Defense articles specific to reduced observable, or counter low observables in any part of the spectrum, including radio frequency (RF), infrared (IR), Electro-Optical, visual, ultraviolet (UV), acoustic, and magnetic shall not be exported.

The problematic language here is “in any part of the spectrum” which led DTAG Vice-Chair Sam Sevier to note that “almost all” military items would fall somewhere within that broad spectrum and that this exception could render the treaty meaningless and unusable. It does, indeed, seem broad since ordinary camouflage could be seen as a reduced observable in the visual spectrum.

Additionally the proposed rules exclude “sensor fusion capabilities beyond that required for display or identification correlation.” Participants at the DTAG meeting pointed out the unnecessary breadth of this provision by noting that it would cover export of Google Maps which put sensors and processing together beyond what is required for display or identification correlation.

Further comments on these issues are being solicited and should be sent to Terry Otis, DTAG Recorder, before the close of business on June 20 at [email protected]

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Aug

11

Lockheed’s Voluntary Disclosure Leads to $4 Million Fine


Posted by at 4:35 pm on August 11, 2008
Category: General

Hellfire Missile LaunchLast week Lockheed-Martin agreed to pay $4 million in fines arising from (1) a proposal it made to the UAE for the sale of Hellfire missiles without providing prior notice of the proposal to the Directorate of Defense Trade Controls (“DDTC”); (2) technical data it transferred to UAE officials without a license in connection with that proposal; and (3) disclosure of classified information on the Joint Air-to-Surface Standoff Missile to foreign persons of a major non-NATO ally. The settlement agreement between DDTC and Lockheed-Martin provided that $1 million of that fine would be suspended provided that Lockheed-Martin undertakes certain prospective compliance activities.

The most interesting part of this settlement relates to the charge that Lockheed-Martin failed to provide prior notice to the DDTC of its proposal to the UAE regarding the Hellfire missiles. Section 126.8(a)(2) of the International Traffic in Arms Regulations (“ITAR”) provides that prior notice must be given to DDTC of any proposal to sell more than $14 million dollars of “significant military equipment” to a country other than one that is a NATO member, Australia, New Zealand or Japan, provided that a license for permanent export of the article has been previously granted or a Foreign Military Sale of the item has been previously approved. If no such license has been granted, or FMS sale approved, the proposal requires prior approval by DDTC.

The issue is usually what constitutes a “proposal.” Is a casual conversation at the Farnborough Air Show covered? Does the proposal have to be a binding contractual offer? Section 126.8(b) of the ITAR attempts to define a proposal, but raises more questions than it answers

The terms proposal or presentation … mean the communication of information in sufficient detail that the person communicating that information knows or should know that it would permit an intended purchaser to decide either to acquire the particular equipment in question … For example, a presentation which describes the equipment’s performance characteristics, price, and probable availability for delivery would require prior notification or approval, as appropriate, where the conditions specified in paragraph (a) of this section are met. By contrast, the following would not require prior notification or approval: Advertising or other reporting in a publication of general circulation; preliminary discussions to ascertain market potential; or merely calling attention to the fact that a company manufactures a particular item of significant military equipment.

By contrast, the proposal given by Lockheed seems short of one “which describes the equipment’s performance characteristics, price, and probable availability for delivery.” According to the Charging Letter:

[Lockheed-Martin] sent its first proposal to the UAE on June 11, 2003, specifically providing a planning estimate and quoting a price for 360 Hellfire Heat missiles and 100 Hellfire Blast Missiles.

The takeaway from this is, I think, that any written proposal that provides a price for the item to be exported should be considered a proposal subject to section 126.8 and that this proposal will require prior approval or notification if the other requirements of that section are met.

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Aug

7

Who You Gonna Call, Listbusters?


Posted by at 9:03 pm on August 7, 2008
Category: OFACSyria

ListbustersAs previously reported on this blog, Syriatel, Syria’s largest provider of mobile phone service, was recently put on the Specially Designated Nationals (“SDN”) List by the Office of Foreign Assets Control (“OFAC”). As a result, U.S. citizens are prohibited from doing business with Syriatel. Last Thursday, Syriatel sent a fax to the Associated Press claiming that it was hiring lawyers in the United States to contest this designation.

The basis for this objection, as stated in that fax, is that Syriatel is owned by more than 7,500 shareholder and not only by Rami Makhluf whose ownership of Syriatel served as the basis for the designation. The company is going to need a stronger argument than that because OFAC seemed to be quite aware, judging by its press release announcing the designation, that Makhluf was not the only owner of Syriatel but simply the majority owner.

Syriatel’s efforts to contest the designation may face a larger barrier. A recent guidance document from OFAC suggests that OFAC is going to limit the fees paid to lawyers representing SDNs to $125 per hour, with a cap of $7,000 per lawyer for up to two lawyers. We’ll be interested to see who agrees to represent Syriatel under these conditions.

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Copyright © 2008 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)