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Archive for November, 2010

Nov

30

Defense Counsel Mistakes Blamed for Guilty Plea in Export Case

Posted by Clif Burns at 11:07 pm on November 30, 2010

ABOVE: D&R Sports Center

Mark Komoroski, owner of D&R Sports Center in Nanticoke, Pennsylvania, pleaded guilty in August 2009 to illegally exporting rifle scopes and other optics to Russia. He was sentenced to 32 months in jail and ordered to pay a $10,000 fine.

Earlier this month Komoroski filed a motion to vacate the sentence arguing ineffective assistance of counsel. According to that motion, his attorneys never advised him that, following the logic of the Seventh Circuit’s decision in United States v. Pulungan, he could only be convicted of the export offense if he knew that the export of the rifle scopes and optics required a license. Komoroski claims that had he known that he would have applied for licenses. He further alleges that he would not have pleaded guilty if he knew that this knowledge was a requirement for conviction.

Setting aside a guilty plea is usually quite difficult. First, in the plea hearing, if conducted correctly, the defendant will be asked to state in open court and under oath that he knew that the export was illegal. That makes it difficult for the defendant to say later that he didn’t know his actions violated the law without setting up the classic question as to whether the defendant was lying in open court or in the motion to set aside the guilty plea. But there is no transcript of the guilty plea available in the docket for the case, so it’s impossible to say whether this is a problem here or not.

Another issue is whether other evidence would permit an inference that the defendant knew the export was illegal. Usually this evidence is readily satisfied by export declarations that provide a false description of the item being exported. Most of the docket here is sealed, apparently because Komoroski’s Russian co-defendant is alleged to be connected in some fashion to notorious Russian arms dealer Viktor Bout. But one contemporary news report suggests that Komoroski’s shipping declarations described the items accurately.

Finally, although not mentioned in Komoroski’s motion, the presiding judge said something more than a little troubling in the sentencing hearing:

It’s a pretty clear case for a prosecutor in a case such as this to recognize, as everybody in this room recognizes, that the conduct is prohibited, there’s a reason the law was passed and the defendant himself — why he didn’t appreciate why that law prevented him from doing what he did and why he allowed himself to be persuaded to do what he did and in effect destroyed his life, affected the life of his family and affected the life supporting business.

(Emphasis added.)

The judge here seems to be admitting that Komoroski didn’t understand that his actions violated the law. If that’s true, Komoroski shouldn’t be sitting in a federal prison cell. But Komoroski is representing himself pro se, his own lawyers having told the press that they thought that the 32-month sentence was fair.

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Nov

29

Wikileaks: Armenia Threatened with Sanctions after Iran Arms Deal

Posted by Clif Burns at 10:22 pm on November 29, 2010

Category: Armenia • Arms Export • Sanctions • Wassenaar

ABOVE: Armenian President Serzh
Sarkisian

According to one of the Wikileak cables published by the Guardian, Armenia, in 2003, sold machine guns and rockets to Iran which were later used in a fatal attack on U.S. forces in Iraq by Shia militants. Secretary Rice discussed this with Armenian President Serzh Sarkisian, who denied any involvement in the arms transfer.

In December 2008 the State Department sent a letter to Sarkisian threatening U.S. sanctions on Armenia unless Armenia signed a written agreement that it would undertake certain specified steps to prevent further arms transfers to Iran or other terrorist states. Those steps were to include:

Adopt the Wassenaar Arrangement control lists
Ensure that Armenian-based brokers aren’t involved in arms transfers
Accept periodic unannounced inspections by the United States
Consult with the United States on all arms transfers to countries that are not members of NATO, the E.U., or the Wassenaar Arrangement.

There is no indication that Armenia entered into such an agreement other than, of course, the absence of current U.S. sanctions against Armenia.

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Nov

23

Are Virtual Office Addresses a New Red Flag?

Posted by Clif Burns at 10:50 pm on November 23, 2010

Category: BIS

Anvik HQ The Bureau of Industry and Security (“BIS”) recently imposed a temporary denial order (“TDO”) on Singapore-based Anvik Technologies, and its owner Babak Jafarpour. The TDO is based on evidence that BIS alleges that it has demonstrating that Anvik and Jafarpour exported items from the United States to Iran by transshipment through third countries.

What’s interesting here is that the transshipment points were “virtual offices” that Anvik maintained in the United States, Hong Kong and Malaysia. Virtual offices are arrangements with companies that provide an address, a telephone number, answering services and other office services to individuals and companies that don’t have actual physical space at the location and may not ever be actually present in that office.

In one of the transactions described in the TDO an order was placed by Anvik with a U.S. company to ship items to Anvik’s virtual office located at 155 North Wacker Drive, 42nd Floor, Chicago, Illinois 60606. Anvik then instructed the personnel at the Chicago location to ship the items to Anvik’s virtual office in Kuala Lumpur. Anvik instructed the Malaysia virtual office to ship the items to Iran.

Two things are worth noting here. First, should shippers and exporters consider a request to ship items to a virtual office a red flag that the items may be diverted to an impermissible location or party? If you search for “155 North Wacker Drive, 42nd Floor” in Google, this is the first returned result:

search result

So, it wouldn’t take a rocket scientist or back-breaking due diligence to discover that Anvik was using a virtual office and not a real one. This should trigger a further investigation by a shipper as to the identity of Anvik and why it was shipping merchandise to a virtual office in a Chicago high-rise.

Second, the Chicago address is soon going to be on the BIS Denied Parties list. And what is the first red flag on BIS’s list of Red Flags?

The customer or its address is similar to one of the parties found on the Commerce Department’s [BIS’s] list of denied persons.

As a result, other “tenants” at the same North Wacker Drive address may start to encounter difficulties in having packages shipped to that address as shippers and exporters encounter that red flag.

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Nov

22

Huawei Claims CCATS Filings Are Constructive CFIUS Notices

Posted by Clif Burns at 10:10 pm on November 22, 2010

Category: BIS • CFIUS

Huawei HQ Chinese telecom handset and equipment manufacturer Huawei has been forced by the Pentagon to seek retroactive approval from the Committee on Foreign Investment in the United States (“CFIUS”) for its $2 million acquisition of some of the assets of 3Leaf Systems, a California-based company that developed technology to link separate computers together to create more powerful computing solutions. If CFIUS determines that this acquisition could pose a threat to U.S. national security, it could require Huawei to divest those assets.

Retroactive requests for approval of acquisitions by CFIUS are extremely rare. Even more unusual is imposing this requirement on an asset purchase worth less than the value of many Manhattan condos. Huawei acquired only the intellectual property of 3Leaf and 15 of its 60 employees. Equipment, buildings and other hard assets of the company were not purchased.

Under section 800.302(c) of CFIUS’s regulations, an asset acquisition does not require CFIUS approval “if such part of an entity or assets do not constitute a U.S. business.” An example given by the regulations of a covered asset acquisition that constitutes acquisition of the business is an acquisition of “production facilities, customer lists, technology, and staff.” Under these standards, it seems hard to say that Huawei was required to obtain CFIUS approval.

The reason why I’m posting on this is a novel theory advanced by Huawei as to why retroactive approval is not needed in this case:

Huawei executives insist they weren’t trying to hide anything from the government and note that they filed with the Commerce Department seeking to classify the technology under export control requirements before the company completed the acquisition.

Leaving aside the issue that the Bureau of Industry and Security, the part of the Commerce Department that considers classification requests, has no power to stop an acquisition, the argument that a CCATS filing at BIS would give notice of a planned acquisition to the U.S. government is risible at best. Huawei might as well have argued that the unemployment compensation application filed by the employees left behind also constituted notice of its planned acquisition.

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Nov

19

OFAC Fines Exporter for Failure to Comply with the Agency’s Subpoena

Posted by Clif Burns at 10:22 am on November 19, 2010

Category: OFAC

ABOVE: Pinnacle Aircraft Parts HQ

The Office of Foreign Assets Control (“OFAC”) released civil penalty information revealing that Pinnacle Aircraft Parts, Inc., agreed to pay $225,000 to settle allegations that Pinnacle had failed to comply with an OFAC subpoena. OFAC had issued the subpoena as part of its investigation of Pinnacle’s involvement in the sale of a jet engine that may have been ultimately destined for Iran. Principally at issue was an email that Pinnacle had given its lawyer “indicating that the aircraft engine was likely destined for Iran” but which the company had failed to supply to OFAC in its response to the subpoena.

You don’t have to be Perry Mason to figure out why the lawyer didn’t want to hand over that email. Because the email appeared to indicate an awareness by the company and its employees that the engine was going to Iran, that email could have served as a basis for criminal prosecution of Pinnacle and/or some of its principals or employees.

There is no mention by OFAC whether Pinnacle attempted to assert a privilege or not in connection with its failure to turn over the email. A problem, of course, with asserting a Fifth Amendment privilege here is that although the principals and employees of Pinnacle might have had that right for documents in their possession, the corporation did not have that privilege. See, e.g., Couch v. United States, 409 U.S. 322 (1973).

In calculating the appropriate penalty, OFAC called the failure to provide the email “egregious,” suggesting that Pinnacle’s lawyer did not even try to assert any privileges with respect to the email and simply locked it up in a file cabinet. The penalty was slightly mitigated by OFAC based on the fact that Pinnacle relied on advice of counsel in deciding not to turn over the email.

Although Pinnacle relied on the advice of counsel in determining not to produce the e-mail and other documents, Pinnacle is the party legally responsible for compliance with OFACâ€™s subpoena and the actions of its counsel (in this case, the determination that clearly responsive documents need not be produced to OFAC) are attributable to Pinnacle for purposes of calculating a base penalty and settlement amount.

Well, at least OFAC had the courtesy of teeing up a malpractice suit by Pinnacle against its unnamed attorney for the amount of the fine.

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