Archive for June, 2010


Jun

30

Congress May Nix Single Export Agency


Posted by at 8:37 pm on June 30, 2010
Category: Export Reform

US CapitolOnline journal DOD Buzz has some buzz that you might want to hear. Or maybe not.

Reporting on a speech by Jim Jones, Obama’s national security advisor, to the newly-formed Senate Aerospace Caucus, the journal quoted an unnamed “congressional source” throwing water on the idea of a single export licensing agency

A congressional source who knows arms export issues reacted this way when asked about the prospects for legislation that would be needed to get things moving: “Not good. It’s a massive change for a single agency, and rationale has not yet been provided.”

The main reason for congressional caution are memories of what many people believe was the disastrous result of the creation of the Department of Homeland Security, this source said

Although I have no doubt that Congress is not likely to support export control reform — at least the parts that must be approved by Congress — I think the source’s citation of the “disastrous results” of creating DHS is an effort to put another face on the real reason why Congress won’t get on board. While DHS may not have accomplished everything that was hoped for it, calling it a disaster is an overstatement.

The problems that export reform will face in Congress are based more on politics than on policy. Many GOP congress members can be counted to vote against anything that comes from the White House. And the Dems, facing the uphill battle of midterm elections, don’t see any political upside with constituents in supporting a proposal that the constituents don’t understand. Worse they fear that their opponents can hurl an accusation that they are weak on national security for supporting a plan that, so the accusation would go, allowed companies to export uranium enrichment centrifuges and suitcase nukes to the Taliban.

Much of the proposed export reform, particularly to the extent that it involves rewriting existing regulations, can be accomplished without having to get a permission slip from the Hill. But the single licensing agency requires Congressional approval that looks, increasingly, like it might not be obtainable.

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Jun

29

Former Air Force Colonel Charged With Illegal Arms Brokering


Posted by at 10:44 pm on June 29, 2010
Category: Criminal PenaltiesPart 129

AK47sA retired Air Force colonel, John O’Toole, and an Israeli aeronautics engineer, Chanoch Miller, are the subjects of a recently unsealed indictment in connection with an alleged plan to ship 700 AK-47s to Somalia. What is most interesting about the indictment is that O’Toole is not only charged with illegal exports but also is charged with brokering violations — namely brokering the sale of defense articles to Somalia in violation of the arms embargo against Somalia and brokering the sale of these defense articles without first obtaining a brokering license from the State Department’s Directorate of Defense Trade Controls.

From the indictment it appears that O’Toole was mostly involved in arranging transportation of the rifles to Sudan, whereas Miller was in charge of procuring and selling the AK-47s. In exchange for O’Toole’s services, Miller was going to pay him a commission. This, of course, if true, appears to fit within the definition of brokering under section 129.2 of the ITAR. In particular, the definition of brokering in section 129.2(b) includes arranging for the transportation of defense articles.

What’s interesting here is that because of the brokering offenses, O’Toole is being charged with more counts than Miller, even though it’s not clear that a broker should be more culpable than an exporter. Both O’Toole and Miller are charged with an attempted export and a conspiracy to export. Miller can’t be charged with brokering on top of that because brokering requires an action taken “as an agent for others,” which is not the case for Miller because he bought the rifles himself and was acting on his own behalf in selling them. But what sensible policy would make O’Toole more culpable than Miller when Miller was selling the rifles and was just paying O’Toole to help him transport them?

[Hat tip to Laura Rozen for bringing the indictment to my attention]

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Jun

24

Registration Follies


Posted by at 9:59 pm on June 24, 2010
Category: DDTCITARPart 122

Under ScrutinyRegular readers are no doubt familiar with this blog’s occasional posts poking fun of press releases from defense manufacturers noting that the company had “achieved” registration with the State Department’s Directorate of Defense Trade Controls (“DDTC”). A common feature of many of these press releases is to try to portray registration under Part 122 of the International Traffic in Arms Regulations as an endorsement by DDTC of the company’s export compliance expertise and procedures.

Well, I think a new bar was set by this press release from Virginia-based Zestron Corporation

ZESTRON process and service solutions, recently renewed its official International Traffic in Arms Regulations (ITAR) registration with the US Department of State, Directorate of Defense Trade Controls.

After several weeks of careful review of ZESTRON’s corporate structure, security, record keeping and procedures for handling sensitive military and intelligence applications, the company successfully passed the system’s strict requirements. The renewal of this registration demonstrates that ZESTRON is dedicated to adhering to the regulations that control the export and import of defense-related articles and services on the United States Munitions List.

Honestly, that doesn’t just take the cake. It takes the table the cake is on, the house where the table is, and the city in which the house is located. There is no scrutiny by DDTC of corporate structure, much less “several weeks” of such scrutiny. Nor is there any review of a company’s procedures for handling military and intelligence applications. And don’t get me started on the import business in the press release. The only strict requirement that a registered company has passed is that it was able to fill out the registration form correctly and submit it with the required fee.

Here’s a new export reform proposal: the DDTC should revoke the registration of any company that issues a press release incorrectly describing the significance of registration.

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Jun

23

Export Issues Arise in Shot Show FCPA Prosecution


Posted by at 7:55 pm on June 23, 2010
Category: BISCriminal Penalties

Richard Bistrong
ABOVE: Richard Bistrong

Well, it now seems that some export issues may be arising in the much-publicized “Shot Show” Foreign Corrupt Practices Act (“FCPA”) prosecution. In that case, law enforcement officials perp-marched owners and officials of gun and law enforcement supply businesses from the Las Vegas Shot Show and then charged them with violating the FCPA.

This is the first and only FCPA prosecution that has arisen from a sting operation. The prosecution alleges that the defendants had agreed to make kickbacks to African officials in connection with the potential award by those officials of a $15 million contract. The transactions were fictional and cooked up by investigators. The African officials were imposters played by FBI agents with thespian inclinations.

The chief cooperating witness, who undertook a major role in setting up the sting, is Richard Bistrong, a former official of a body armor company who is himself now charged with paying actual bribes to actual officials in actual transactions. Specifically, Bistrong is the subject of a criminal information filed in a federal district court charging Bistrong with bribing UN officials to rig bids which resulted in awards of large body armor contracts to his company. In the Shot Show prosecutions, Mr. Bistrong pretended to be the broker in the phony African transactions and introduced the defendants to the FBI undercover agents who were playing various roles in the sting.

The defendants have argued that they were entrapped by the FBI through Bistrong’s inducement and that they had no predisposition to commit the crimes charged. In effect, Bistrong dangled $15 million contracts in front of the defendants, many or some of whom were store-front businesses and had never had such large contracts offered to them before. Key to the defense in this case is to discredit Bistrong above and beyond the issues raised by his own FCPA prosecution. According to this recent post at the blawg Main Justice, the defendants have asked for copies of Mr. Bistrong’s tax returns, alleging that they will reveal tax violations by Bistrong. The judge hearing the trial has indicated that if the government doesn’t turn over the tax returns voluntarily, then he will grant an order forcing them to do so.

The defense has also asked for “any export licenses [Bistrong] had been given by the federal government.” (And you thought I would never get to the export angle, didn’t you?). This request did not just come out of the blue. The criminal information filed against Bistrong alleges export violations in addition to the FCPA violations. Specifically it alleges that Bistrong shipped vests and helmets with level IIIa ballistic protection to the Kurdistan Regional Government in Iraq without the required licenses from the Department of Commerce’s Bureau of Industry and Security (“BIS”). It looks like the defendants here are gathering impeaching evidence to support the government’s charges against Bistrong, evidence which the government certainly won’t introduce on its own in the Shot Show FCPA prosecution.

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Jun

22

Get Your Flying Carpets and Beluga Caviar Before It’s Too Late


Posted by at 3:40 pm on June 22, 2010
Category: Iran SanctionsOFAC

Flying CarpetHouse and Senate conferees announced yesterday that they had reached agreement on the Iran sanctions legislation passed earlier this year by the House and Senate. The conferees also released the text of the newly agreed bill, now titled the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010.

The act’s most significant feature is its extraterritorial scope: it imposes sanctions on foreign persons and companies outside the United States that engage in transactions in Iran that violate the act. Such secondary boycotts have prompted objections from our allies in the past with respect to the Iran Sanctions Act of 1996, 50 U.S.C. § 1701 note, which the new act, if signed into law, would amend. And these same allies are likely to object once again to the enhanced extraterritorial effect of the new provisions.

The extraterritorial sanctions relate to foreign entities that (a) invest in Iran’s petroleum sector, (b) provide refining technology to Iran or (c) export refined petroleum to Iran. Since these activities by U.S. persons are already prohibited by current sanctions, the focus of this legislation is clearly on persons and companies outside the United States.

Threshold amounts of investments and exports are specified in the new act before sanctions are imposed. For example, for exports of refining products or refined petroleum, the threshold is a value of $1 million for one export or more than $5 million for all exports in a 12-month period. The thresholds for investment in Iran’s petroleum sector would be halved from the current limit of $10,00,000 per transaction and $40,000,000 over a 12-month period to $5,000,000 and $20,000,000 respectively. If those thresholds are exceeded, then mandatory sanctions would have to be imposed.

The number of mandatory sanctions that must be imposed would be increased from two to three and the list from which those three mandatory sanctions must be chosen would be increased from six to nine. The three new mandatory sanctions are denial of access to U.S. foreign exchange markets, denial of access to U.S. financial institutions and, even more significantly, an order prohibiting the import or export of any items from or to the United States by the sanctions party. Under the 1996 Act, the equivalent sanctions only included a possible ban on exports from the United States of military, dual-use and nuclear items.

The new act would forbid all imports from Iran except for informational materials (books, DVDs, etc.) and “accompanied baggage for personal use.” Gifts under $100, carpets, and foodstuffs, all permitted by current regulations, would no longer be able to be imported into the United States if this act becomes law.

Less change would be effected by the new act if signed into law with respect to exports to Iran. Exports of agricultural products, medicine and medical, as permitted under the Trade Sanctions Reform and Export Enhancement Act of 2000, would continue to be permitted, as would exports of informational materials, humanitarian assistance and parts and technologies necessary to assure the safety of civilian aviation. The law does codify, at least with respect to Iran, recent exceptions that the Treasury Department’s Office of Foreign Assets Control (“OFAC”) made to the export ban for goods and services incident to the exchange of personal communications over the Internet or for access to the Internet.

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