BIS Makes A List, Bruker Doesn’t Check It Twice, Or Even Once.
Posted by Clif Burns at 8:20 pm on July 20, 2009
The Bureau of Industry and Security (“BIS”) just published a settlement agreement with Bruker AXS, the Wisconsin-based manufacturer of precision X-ray systems. The settlement, under which Bruker agreed to pay a fine of $7,500, arose from Bruker’s voluntary disclosure that it exported an EAR99 X-ray system to the Karachi CBW Research Institute University of Karachi’s Husein Ebrahim Jamal Research Institute of Chemistry (“HEJRIC”) in Karachi, Pakistan. HEJRIC is on BIS’s Entity List which means that a license is required for all exports of U.S.-origin items to HEJRIC.
It’s pretty clear what happened here. Bruker never bothered to look at or even check the entity list. This wasn’t an effort to export something that couldn’t be exported to HEJRIC because the entry for HEJRIC on the entity list notes that there is a presumption of approval for license applications for EAR99 items to HEJRIC. The lesson here is that your compliance program should make sure that all lists are checked — particularly since BIS has kindly compiled them in one place here.
UPDATE: As commenter SParis pointed out, HEJRIC was just today removed from the Entitly List.
Export Law Grab Bag: Middle East Edition
Posted by Clif Burns at 7:08 pm on July 15, 2009
No big news today, so it’s time for another Export Law Blog grab bag, this time with an emphasis on some Middle East stories:
- Saudi Arabia: This news report discloses that immigration officials in Saudi Arabia are scanning incoming electronic devices in search of pornography and pirated software. Before moving this to the “this won’t be a problem for me” column, remember that the Saudis have a more expansive view of pornography than you or I might and that it could include pictures that the puritanical Wahabbi inspector finds provocative. Electronic devices are said to include laptops, mp3 players, cell phone memory cards, flash drives, external hard drives and any other device that could harbor morally pernicious images. If such material is found, the device will be confiscated. You might try to claim that a genie put the images there, but I can’t guarantee that will be a successful defense. (UPDATE: A reader emails me to tell me that he knows of instances where Saudi immigration/customs seized Disney films on the grounds that talking animals were offensive.)
- UAE: A software update pushed to Blackberry users in the UAE apparently contained spyware from California-based SS8. The spyware was a java application designed to intercept emails and text messages sent and received by the Blackberry user and then forward them to a central server where they could be examined more closely by UAE authorities. We assume that SS8 had a license for this since such software is classified under ECCN 5D980, which requires licenses to all destinations. The licensing policy set forth in section 742.13(b) indicates that licenses will ordinarily be given to telcom companies and their contractors. Of course, one wishes that the UAE spent as much time enforcing its own export controls as it does worrying about what its subjects are texting one another.
- Syria: This blog reported last week on the sad fortunes of Orionair as a result of a Temporary Denial Order (“TDO”) issued by the Bureau of Industry and Security (“BIS”) once it learned that the company had entered into a wet lease with Syrian Pearl airlines of two BAE aircraft with U.S. engines. The report was based on a story in Madrid’s Spanish-language daily CincoDías, which reported that BAE informed Orionair that it couldn’t return the aircraft that it was servicing to Orianair even before the TDO had been published. Apparently the CincoDías story was inaccurate in two minor respects. First, BAE didn’t take any action until it received a signed copy of the TDO. Second, BAE’s only communication was with Flybe, the maintenance provider, and not directly with Orionair. BAE, further did not advise Flybe that the aircraft had to remain in the United Kingdom, although the terms of the TDO clearly required that the aircraft not be exported back to Orionair in Spain. One other thing bears mention. In the TDO, BIS claimed that Orionair agreed not to export the BAE aircraft to Syria, although Orionair’s account seems to differ from this, particularly inasmuch as Orionair says it told BIS, in the words of Dorothy Gale, that it “had no power here.”
Company Files Chapter 11; Blames Export Investigation
Posted by Clif Burns at 5:27 pm on July 14, 2009
Colorado-based Rocky Mountain Instruments, a manufacturer and distributor of optical components for lasers and imaging devices, filed for reorganization under Chapter 11 of the Bankruptcy Code. An affidavit by a company executive that is part of the filing also blames a 2007 raid by the Defense Criminal Investigative Service (“DCIS”) for at least part of the company’s financial woes, even though the raid has not yet resulted in any formal charges being filed against the company.
The affidavit went on to claim that the raid was triggered by an employee whistle-blower who reported that the company exported product specifications without a necessary export license. The product involved was not specified by the affidavit. As a result of the tip, DCIS, Immigration and Customs Enforcement (“ICE”) and the local constabulary surrounded the business on October 11, 2007, with fifty cars. Yes, you read that correctly: not five, but fifty, “five-zero,” five times ten, or, for any latinists out there, “L” cars. The company claims that the raid triggered a 15 percent decline in business, although it’s not quite clear how it derived that figure. In all events, it’s hard to imagine that a convoy of fifty police cars didn’t have at least some temporary impact on business.
Two compliance lessons can be learned here. First, there’s always a disgruntled employee who will happily turn your company in for export violations. Second, the ensuing theatrics from law enforcement might have a negative impact on a company’s future sales.
Air Shunt Settles Export Charges; Former Exec Still at Large
Posted by Clif Burns at 5:03 pm on July 13, 2009
Last week the Directorate of Defense Trade Controls (“DDTC”) posted a charging letter, a consent agreement, and an order relating to alleged export violations by Air Shunt, a California-based distributor of aircraft parts. Under the settlement, Air Shunt agreed to a $100,000 fine which was suspended provided that $70,000 had been spent on past compliance measures and $30,000 will be spent on future remedial actions specified in the consent agreement. Specifically, Air Shunt agreed to conduct an audit of its compliance procedures as well as to facilitate on-site inspections by DDTC with minimal advance notice.
The charges set forth in the charging letter consist of three exports which were previously recounted in an indictment filed against John Nakkashian, a former Vice-President of Shunt and a current fugitive from justice. These consisted of unlicensed exports of a J85-GE-21B engine actuator to the UAE, a J85-GE-21B engine ignition exciter to the UAE, and an Ametek military helicopter gyroscope to Thailand. The indictment alleged a fourth export of a Hamilton Sundstrand Generator Control to the UAE which is not recited in the charging letter but is undoubtedly referenced when that letter mentions “additional violations” that might have been charged but for Air Shunt’s adoption of remedial measures. A fourth count in the charging letter re-iterates a charge, previously set forth in a criminal information filed against Air Shunt that arose from Nakkashian having falsely marked export documents for the gyroscope export with “NLR” meaning “No License Required.” Air Shunt paid a $250,000 fine as part of a plea agreement in the criminal matter.
It doesn’t take much speculation to figure out why Nakkashian’s exports led to criminal charges. The J85-GE-21B engine is used on the F-5 Freedom Fighter. The largest fleet outside the United States is in Iran, having been sold to the Shah prior to the revolution. (Smaller fleets are flown by Ethiopia, Morocco, and Saudi Arabia). I seriously doubt any regular reader of this blog will object when I surmise that the F-5 engine parts exported to the UAE were on their way to neighboring Iran.
A DOJ press release states that Nakkashian disappeared during the investigation of Air Shunt. His surname is a common Armenian surname and that could provide at least one clue as to where he might be.
[Thanks to reader HB for pointing out the F-5 connection.]
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Chinese Spy Arrested for Export Violations During Atlanta Layover
Posted by Clif Burns at 8:32 pm on July 9, 2009
Category: Criminal Penalties
Chi Tong Kuok, a citizen of the PRC, was indicted earlier this week for violations of the Arms Export Control Act in connection with an attempted export of a General Dynamics KG-175 Taclane Encryptor to Kuok at his address in Macau. Kuok became the subject of an undercover investigation in 2006 after he sought to buy from a defense industry employee a device used for encrypted satellite communications between military aircraft and satellites. That defense industry contact referred Kuok to an undercover agent, who ultimately negotiated with Kuok to sell him the KG-175 Taclane Encryptor for export.
There doesn’t seem to be much question that the Taclane Encryptor is in Category XIII(b)(3) of the United States Munitions List. Although the General Dynamics web page describing the product doesn’t explicitly state that the item is USML, it is clear that the item was designed for, and primarily used for, military applications. Kuok also seemed to be quite aware that the export of the device was illegal. In the affidavit filed in support of the criminal complaint, Kuok allegedly expressed concern that the undercover agent was FBI and allegedly indicated he preferred to pay by Western Union rather than through PayPal because the U.S. government monitored PayPal transactions.
Several interesting background details to the indictment are provided in this article in Wired. First, since Kuok was operating out of Macau, the federal agents running the investigation had to lure him back into the United States. The undercover agreed to deliver the encryption device in Panama. Kuok flew to Panama . . . through Atlanta. Oops. Kuok was arrested in Atlanta and is now being held without bail.
Second, Kuok told federal investigators after his arrest that he was acting on behalf of the government of the PRC. According to Kuok, the PRC government was seeking the encryption device, and other similar devices he had obtained or tried to obtain, to eavesdrop on U.S. military and government communications.
Third, after Kuok was arrested investigators were able to examine Kuok’s eBay account. This examination allegedly revealed that Kuok had purchased export-controlled items over eBay for export to China starting in 2005.
Once again, eBay seems to be developing as a major source of leakage of sensitive export-controlled items. Sellers on eBay are not likely to be very sophisticated about the export-status of the items they are selling and are unlikely to be concerned about much more than guaranteeing that they are paid for items before they ship them. And the Chinese government seems well aware of vulnerabiity and is all too willing to exploit it. At some point eBay and Craig’s List will be forced to address this issue on their own or risk possible government intervention to correct the problem.