Archive for November, 2009

Update to 11/25/09 Post

Monday, November 30th, 2009

The previous post, dated November 25, quoted an article in Crain’s Chicago Business in which an export attorney was quoted as saying:

“At the very least, you should have your freight forwarder check compliance, so if they identify a problem, they can stop the order before it ships.”

I said in that post that, knowing what I did about the law firm in question, I was “absolutely certain” that the lawyer was misquoted or the statement was taken completely out of context. The attorney involved has since spoken with me and confirmed that I was right and that the article misquoted the lawyer.

Significantly, during the interview the lawyer had become concerned that the reporter was not understanding what was being said and asked to review any attributed quotations prior to publication, a request that the reporter did not honor. Another reason, of course, not to believe everything you read in a newspaper or magazine. Blogs, on the other hand, can always be trusted completely.

Posted in General | 2 Comments »

Worst. Advice. Ever.

Wednesday, November 25th, 2009

Prison CellThe title of this post is not really meant to be hyperbole. The advice given in Crain’s Chicago Business in an article titled “Liars and terrorists and drug traffickers, oh my!” is without doubt the single worst piece of advice on export law that I’ve ever seen dispensed by anyone:

Further complicating matters, export control laws are regularly updated, and it’s up to business owners to stay current. That isn’t always easy. But a good place to start, experts say, is with … a freight forwarder who is regularly dealing with shipping and tariff restrictions.

To begin with, as regular readers know, the defense of “my freight forwarder did it” is the export law equivalent of “the dog ate my homework.” It’s not going to keep you from doing detention. Worse, many freight forwarders have no working knowledge of export laws and little interest in complying because DDTC and BIS usually whack the exporter not the freight forwarder in these matters.

On top of everything else, a lawyer was misquoted by the reporter.

“It’s a labor-intensive process,” says … [the] managing partner of … [a] law firm specializing in international trade law. “At the very least, you should have your freight forwarder check compliance, so if they identify a problem, they can stop the order before it ships.”

I know attorneys at the law firm in question. They are all smart people. They have people just as knowledgeable about export law as anyone else in the export bar. I am absolutely certain that the partner in question was misquoted or the statement was taken completely out of context by the reporter. (11/30 UPDATE: The attorney in question has contacted me to confirm that the quotation was inaccurate and that the reporter, although she promised to allow the attorney to review the article in question before it went to print, did not do so. Again, I absolutely believe that the attorney was misquoted and never would have said what the reporter claimed.)

Here’s some better advice: ask a Ouija Board your export compliance questions before submitting them to your freight forwarder.

Happy Thanksgiving everyone! Export Law Blog will be back to a regular schedule on Monday.

UPDATE (Early Thanksgiving Morning): I should add one qualification, based on a few comments this post has received from esteemed readers who work for freight forwarders. There is, of course, an irrebuttable presumption that any freight forwarder who is a reader of this blog would be an excellent source of export compliance information. :)

Posted in General | 6 Comments »

Monsieur Monsieur Cops Cops Plea Plea

Monday, November 23rd, 2009
Jacques Monsieur
ABOVE: M. Jacques
Monsieur

Monsieur Jacques Monsieur, international arms dealer and man of mystery who, I previously reported, once tried to excuse his arms dealing by claiming to be working for U.S. and French intelligence services, pleaded guilty today in a federal court in Mobile to charges that he had illegally attempted to export aircraft parts to Iran. Amazingly neither the CIA nor it’s French counterpart the DST rode into the courtroom at the last minute to save Mr. Monsieur.

According to an article in the Mobile Press Register, the plea agreement offers Monsieur a chance to reduce his penalty by providing helpful information in his own case and others. It may well be the case that the U.S. is more interested in Monsieur’s Iranian contacts than in Monsieur himself.

In my original post on Monsieur Monsieur, I expressed more than a small amount of skepticism that Monsieur would, during the middle of a deal to export jet engines from New York to Iran, casually show up in New York where he could be, and was, arrested by U.S. officials. A commenter on my original post says that “a little birdie” told him that Monsieur was nabbed in Panama by U.S. officials then taken to New York for his arrest, a credible, if still unverified, story.

Posted in Criminal Penalties, Iran Sanctions | 2 Comments »

Boon and Bane

Thursday, November 19th, 2009

Mr. Chip WashMinnesota-based FSI International, a manufacturer of semiconductor wafer cleaning products, voluntarily disclosed to the Bureau of Industry and Security (“BIS”) that it had exported fluoropolymer-coated pumps and valves classified under ECCN 2B350 without first obtaining an export license from BIS. Last month, FSI entered into a settlement agreement pursuant to which it agreed to pay $400,000 in fines. The exports in question consisted of 66 shipments valued at around $265,000. (I didn’t actually add up the amounts in the schedule of exports but did a rough estimate.)

Those are the facts, but I think that my speculation about what happened here offers a valuable compliance lesson, one that suggests that BIS’s “Interpretation 2″ is both a boon and a bane to exporters. The equipment produced by FSI is designed to clean semiconductor materials at various stages in the manufacture of those materials into integrated circuits. Because the FSI equipment doesn’t make the semiconductor wafers or etch or imprint the patterns into them, FSI’s equipment does not appear to be controlled by ECCN 3B001, the most likely classification for such equipment. The exports in question — fluoropolymer-coated valves and pumps — were likely parts and components of FSI’s cleaning equipment which FSI was exporting to its customers to maintain or to repair the equipment.

By now you should see where I’m going with this. Interpretation 2, which is set forth in EAR § 770.2(b), is what you might call BIS’s “no-see-through” rule. It states that parts integrated into equipment do not require licenses for export as long as the parts are “normal and usual” components of the equipment and have not been incorporated into the equipment for the purpose of evading the rules. But, and it’s an important “but,” if the parts are exported when not incorporated into the equipment, whether as spares, replacements, or otherwise, they may require a license depending on the ECCN of the part and its destination.

The lesson here is that although Interpretation 2 makes the classification of an item easier and permits its export even when it has export-controlled parts (the boon), Interpretation 2 also means that spare parts may still have to be classified before they are exported for maintenance or repair purposes (the bane). It seems likely that FSI had determined that its cleaning equipment was EAR99 and never thought about separately classifying its parts. Even if equipment has an ECCN other than EAR99, the reasons for control for the equipment’s ECCN may be different from those for the ECCNs for the parts, meaning that export licenses are required for both but possibly for different countries.

Posted in BIS | 2 Comments »

Wednesday Export Law Grab Bag

Wednesday, November 18th, 2009

Grab BagNo big news today, so it’s time for another Export Law Blog grab bag:

  • Failed state Solomon Islands wanted Iran to pay for transportation of Solomon Islands students to Cuba to attend medical school. Australia-based ANZ Bank refused to transfer $100,000 from Iran to pay for the transportation. The Solomon Islands High Commissioner to Australia complained that the banks actions weren’t based on international sanctions. The bank responded that it simply doesn’t engage in financial transactions involving Iran or Cuba. Presumably ANZ doesn’t want to cough up another $5.75 million fine to OFAC. Sometimes OFAC can successfully use fear as a means of asserting extraterritorial jurisdiction
  • Looks like that Iranian communications satellite that’s been kicking around for a while is going to remain earthbound for the forseeable future. The Russians sat on the satellite since 2005, leading the Iranians to claim that Italy would be launching it “soon.” Carlo Gavazzi Space said today that an Italian launch of the satellite wasn’t likely to happen since there were no launch platforms in Italy, that the satellite is currently in Italy and that no export license had been requested or would be requested for the satellite to be exported to another country for launch.
  • The Miami Herald published a bipartisan letter on Tuesday from Republican Richard Lugar and Democrat Howard Berman urging an end to the U.S. ban on travel to Cuba, noting that Cuba was the only country in the world to which Americans couldn’t travel and that the ban had prevented contact between “Cubans and ordinary Americans, who serve as ambassadors for the democratic values we hold dear.” The ink on the Miami Herald letter was hardly dry before José R. Cárdenas at Foreign Policy shot back, arguing that there was no reason to end the hugely successful travel ban and taking a swipe at ordinary Americans, who he claimed wouldn’t be ambassadors for democratic values but just a few more drunks on the beaches in Cuba.

Posted in Cuba Sanctions, Iran Sanctions | 2 Comments »

Export Nickel, Pay 14 Million Nickels

Tuesday, November 17th, 2009

K25 Building at the East Tennessee Technology ParkNovamet Specialty Products Corporation recently agreed to pay $700,000 to the Bureau of Industry and Security (“BIS”) for 15 unlicensed shipments of nickel powder worth about $80,000. According to the charging documents, the powder was classified as ECCN 1C240.a. It does not appear from the charging documents that the violation was voluntarily disclosed by Novamet to the United States.

You may wonder why such a large fine for nickel powder. Well there is a partial answer to that, and the hint to the answer is the picture of the Oak Ridge gaseous diffusion uranium enrichment facility that illustrates this post. Gaseous diffusion enrichment requires a barrier that is used to separate isotopes of uranium, the goal being an output of fissionable uranium such as U-235. Apparently sintered nickel powder serves this purpose well. Sintered powder is powder that has been formed into a mass by high temperature and pressure alone without melting the powder. After this process, nickel creates a solid porous structure that permits the right isotopes to pass through and the others to stay behind, although it requires a multi-step cascading procedure. Sintered nickel powder was used as such a barrier in the gaseous diffusion plant at Oak Ridge.

Barrier technologies are, naturally, classified. But the description of ECCN 1C240.a probably gives a potential nuclear proliferator a good head start in developing a sintered nickel powder barrier. To be controlled under that ECCN, the nickel powder must be 99.0% pure and must have a mean particle size of less than 10 micrometers. I didn’t check each of the Novamet nickel powder exports alleged by BIS but five of them involved Novamet’s 4SP-10 powder, which judging from this specification sheet falls well within the parameters of ECCN 1C240.a.

That being said, and with requisite acknowledgment that this product could be used in uranium enrichment, there is certainly a foreign availability issue to consider here. The U.S. doesn’t mine or produce significant quantities of nickel. Russia is the largest producer, followed by Canada, Australia, and Indonesia. And nickel powder isn’t controlled under the Wassenaar Arrangement meaning that these countries can freely export nickel powder meeting the specifications described in ECCN 1C240.a. So, a $700,000 fine against Novamet seems far in excess of any injury that the exports might have caused.

UPDATE: Ed Fox, from DOE’s NNSA, points out in the comments that nickel powder is controlled by the Nuclear Suppliers Group. Indeed, it is listed on that group’s Guidelines for Transfers of Nuclear-Related Dual-Use Equipment, Materials, Software, and Related Technology under Category 2.C.16.a. That would prevent exports by Russia, Canada and Australia of nickel powder to certain countries. Singapore, another major producer of nickel, however, is not a member of the Nuclear Suppliers Group, although I can’t determine whether it has manufacturers who export nickel powder.

[P.S. The brief I mentioned earlier as my excuse for not posting more has been filed, so I should be on a more regular posting schedule.]

Posted in BIS, Nonproliferation, Wassenaar | 5 Comments »

Gone Briefing

Thursday, November 12th, 2009

BusyI’ve received some emails from irate subscribers demanding their money back (to steal a joke from Jim Bartlett) due to the paucity of postings lately. Kinder, gentler readers have expressed concern as to whether I have been kidnapped. To the first group, I say, your refund check is in the mail. To the second, I say, I have a brief due this upcoming Monday on an export issue before the U.S. Court of Appeals for the D.C. Circuit, and it’s been taking up mountains of time. Posting should be back to normal next week.

In the meantime, for your enjoyment, I offer up two particularly amusing instances, sent to me by readers, of companies that have paid their registration fees to DDTC and are bound and determined to get extra mileage out of their fees with press releases providing novel theories about the benefits of manufacturer registration under Part 122 of the ITAR.

Contestant No. 1 goes for the gold by refusing to call it a registration — no, no, it’s now a “certification.” It demonstrates that DDTC has “certified” that the company “has the knowledge and understanding to fully comply with the Arms Export Control Act (AECA).” I’ll bet you didn’t know there was a test involved, did you? What, you didn’t take one before you sent in your registration form? Uh oh. And for more fun, take a look at the definition of “U.S. person” at the bottom of Contestant No. 1’s press release.

Contestant No. 2 is a company that I at first thought, incorrectly, was the company that froze Ted Williams for future reanimation in 2094. (Even that wouldn’t help the Red Sox at this point.) This company takes a standard approach and merely talks about how it has received registration. Perhaps this company didn’t want such a splashy press release because it looks like it has been providing “specialty cryogenic processing services for sensitive components used in military, aerospace and defense applications” for some time but only became registered just last month. I suppose they are trying to minimize the risk of a directed disclosure.

Posted in DDTC | 8 Comments »

Ex-Treasury Advisor Claims U.S. Jurisdiction over Entire Planet

Thursday, November 5th, 2009
Avi Jorisch
ABOVE: Avi Jorisch

Avi Jorisch, who used to be a policy advisor at the Treasury Department’s office of Terrorism and Financial Intelligence, wrote an Op-Ed in the Wall Street Journal titled “How Iran Skirts Sanctions: Could a U.N. agency be helping Tehran to launder money?” Jorisch’s article reaches some rather, er, surprising, ahem, conclusions about the scope of U.S. economic sanctions against Iran.

Mr. Jorisch’s article details the supposedly nefarious dealings of the Asian Clearing Union, which he erroneously refers to as a “United Nations office headquartered in Tehran.” The Asian Clearing Union, while formed during discussions sponsored by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) in 1974, is an independent multilateral organization.

Like all currency clearing unions, the Asian Currency Union allows participating countries to engage in trade with each other without converting local currency to a hard currency (such as euros or dollars) for each transaction. Rather member countries must only obtain hard currencies to clear any net deficit in that currency in their union accounts at the end of the settlement period. Even then currency swap arrangements among member countries may delay or eliminate the need for hard currency conversion at the end of the settlement period. The end goal of the Asian Currency Union, like other such clearing unions, is, obviously, to facilitate trade between the member countries, which, at this time, are Bangladesh, Bhutan, India, Maldives, Burma, Nepal, Pakistan and Sri Lanka.

Jorisch refers to the Asian Clearing Union as a “classic money laundering instrument … [used] to circumvent the U.S. sanctions program. But let’s take a look at a sample transaction that has Mr. Jorisch’s knickers in a knot:

Imagine the Iranian regime wants to buy machinery from an Indian company that insists on getting paid in dollars.

Whoa, Ari, hold your horses there. The Iranian Transactions Regulations only cover exportation by United States persons or re-exportation by foreign persons of U.S-origin goods. If the Indian seller here is exporting Indian made goods to Iran, the U.S. sanctions have not been violated. And even if a U.S. correspondent bank is involved, U.S. law only prohibits the bank’s participation, not the transaction between India and Iran. Finally, if the Asian Clearing Union means that the transaction can be cleared in dollars without a U.S. bank ever being involved, then, I think that’s not what we call skirting the Iran Sanctions but rather what should be called a legally-structured transaction. Simply put, the United States doesn’t rule the world, and it doesn’t have jurisdiction to enforce U.S. sanctions against Iran against everyone on the planet.

Posted in Iran Sanctions | 11 Comments »

Let Them Write Letters

Monday, November 2nd, 2009

Twitter Keeps Iran AfloatLast week several readers brought to my attention a Bloomberg story that announced in its headline “U.S. Wants Microsoft to End Message Ban in Iran, Cuba.” This created a bit of a hubbub at the world headquarters of Export Law Blog, since this blog has been advocating for some time that the information exception be read to cover instant messaging, twittering, and the like. Alas, as we learned at a tender age, you can’t believe everything you read in the newspapers. (You can, of course, believe everything you read in blogs.)

The Bloomberg story referenced a letter that OFAC sent last month to the Center for Democracy in the Americas, a group that, like Export Law Blog, has been a persistent critic of the Cuba sanctions. But when you read the letter, it’s quite clear that the letter doesn’t exactly say that the U.S. wants to end the application of sanctions to instant messaging services:

We assure you that the discontinuation of instant messaging services [by Microsoft to users in Cuba, Syria, Iran, Sudan and North Korea] was not directed by OFAC or, to our knowledge, any other Federal agency. Ensuring the flow and access to information available through the Internet and similar public sources is consistent with the policy interests of the United States Government.

OFAC is participating in an interagency effort to review any discontinuation of certain instant messaging services to sanctioned countries, with the goal of insuring that such services will be available to persons in sanctioned countries to the extent permitted by current U.S. law. [emphasis added]

The last clause is the catch here. OFAC has typically interpreted the information exception very narrowly, and there is no indication that OFAC has changed its view of what’s “permitted by current U.S. law.”

Instant messaging services require the download of software, and OFAC takes the position that software isn’t information covered by the information exception. Twitter creates a miniblog page with a unique URI for each user, which would, under OFAC’s narrow view of “information,” be considered provision of a service in violation of the sanctions regulations.

OFAC’s antiquated view of information, apparently formulated sometime between the invention of the printing press and Columbus’s discovery of the Americas, comprises only things written in ink on paper. Throw a few electrons into the mix and all bets are off.

So I wouldn’t take this OFAC letter to the bank if I were you. At least not yet.

Posted in Economic Sanctions, OFAC | 3 Comments »