Archive for April, 2011


Apr

25

DDTC’s Proposed Definition of “Defense Services” Still Has Problems


Posted by at 6:33 pm on April 25, 2011
Category: DDTC

Library Internet TerminalEarlier this month, the Directorate of Defense Trade Controls (“DDTC”) issued a public notice proposing to revise the definition of defense services set forth in section § 120.9 of the International Traffic in Arms Regulations (“ITAR”). The most significant change is that the new rule would exclude the provision of public domain data from the definition of defense services. This is both a welcome revision and an embarrassing admission by DDTC that the previous definition was absurdly broad.

Under the current definition, if a U.S. person tells a foreign person that the ratio of an aircraft’s speed to the speed of sound affects the forces on the aircraft and that the speed of sound at sea level is 340.29 m/s, the U.S. person has arguably provided a defense service in the design and development of a defense article if the foreign person was previously unaware of those facts. Telling a person that it is a good idea to clean a rifle regularly could also be construed as a defense service because it provides assistance in the use of a defense article.

The problem here is that DDTC takes a rather counterintuitive (or more bluntly, absurd) view of what is and isn’t public domain. Previously it has advised an exported that photographs of military cockpits found on the Internet was not public domain. The basis for this decision is that the definition of public domain in section 120.11 of the ITAR does not specifically reference the Internet. (It does however include information generally accessible at libraries open to the public and most libraries make Internet access available to anyone who walks through the door.) So, until DDTC deals with how it wants to define the public domain, the ITAR could still forbid a U.S. person from sending an Internet link to a foreign person.

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Apr

13

OFAC Says Nyet to Irish-American Musicians in Cuba


Posted by at 4:56 pm on April 13, 2011
Category: Cuba Sanctions

Banda de Gaitas de La HabanaIf you’ve been staying awake at night worried about Cuban terrorist attacks in your neighborhood, you can sleep better now. The Office of Foreign Assets Control (“OFAC”) has denied a request by Irish-American musicians to travel to Cuba to learn terrorist-influenced dance steps at the Second Annual Celtic Festival in Cuba. In addition to fighting international terrorism, the OFAC decision will also prevent the lavishly wealthy American Celtic musicians from spreading their vast sums of money around in Cuba, which would, if permitted, have further propped up the current regime there.

The artists applied for a license, which OFAC denied on April 7, barely a week before the festival in Havana was to begin. The festival, sponsored by Cuba and Culture Ireland, features Celtic musicians from Ireland and Cuba. (Somewhat remarkably Cuban descendants of immigrants from Gaelic provinces in Northern Spain maintain a lively tradition of Celtic music in Cuba).

According to the above-linked report in IrishCentral.com, the license was denied because it went “beyond the scope of what was authorized” in the 2004 Guidelines on Cuba travel issued by the Bush administration as part of an initiative to cut back on U.S. travel and personal remittances to Cuba. Although the IrishCentral report doesn’t indicate how the request exceeded those guidelines, it is not hard to figure out.

Licenses are not granted to individuals to participate in Cuban-organized international festivals inasmuch as the proposed participation goes beyond the direct, bilateral interaction between U.S. and Cuban nationals contemplated by this licensing provision.

In other words, the Irish-American musicians can’t go to the Cuban festival because there will be Irish people there.

Back in January 2011, President Obama announced that the travel guidelines would be amended “[t]o enhance contact with the Cuban people and support civil society through purposeful travel, including religious, cultural, and educational travel.” The Cuba page on the OFAC website footnotes the link to the 2004 Guidelines with the statement that they are “presently being updated to reflect January 2011 policy changes.” The denial of this license suggests that the revised guidelines will retain the silly requirement that cultural exchanges in Cuba may only be bilateral. No Irish (or other foreigners) need apply — as they used to say.

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Apr

12

OFAC Lifts Sanctions on Southern Sudan . . . Almost


Posted by at 8:25 pm on April 12, 2011
Category: Sudan

Southern SudanToday the Office of Foreign Assets Control (“OFAC”) released guidance on the application of the Sudan sanctions to the new state to be formed in Southern Sudan as a result of the secession referendum held in January 2011. The new state is expected to be formed and to come into existence on July 9, 2011. Not surprisingly, the guidance stated that the current sanctions on the Government of Sudan would not apply to the new state in Southern Sudan.

That being said, there was a major caveat pointed out by OFAC:

While the new state formed by Southern Sudan will no longer be directly subject to OFAC sanctions, certain activities by U.S. persons in the new state will continue to be prohibited by the SSR absent OFAC authorization given the interdependence between some sectors of the Southern Sudanese economy and infrastructure and those of the rest of present-day Sudan. The SSR will continue to prohibit U.S. persons from dealing in property and interests in property of the Government of Sudan, from performing services that benefit Sudan or the Government of Sudan, from engaging in transactions relating to the petroleum or petrochemical industry in Sudan, and from participating in exports to or imports from the new state that transit through Sudan, see 31 C.F.R. §§ 538.406, 538.210, and 538.417. … [S]hould a revenue-sharing arrangement between Sudan and the new state result in a situation where the government of the new state makes payments to the Government of Sudan from the sale of Southern Sudanese petroleum, U.S. persons generally could not engage in transactions involving the oil industry in the new state unless authorized by OFAC.

That last sentence is the tail that may swallow the snake. Right now, under the Comprehensive Peace Agreement, the South, which produces about 85 percent of the oil in Sudan, shares oil revenue 50-50 with the North. Upon independence, the land-locked state in Southern Sudan won’t be bound by the 50-50 split in the Comprehensive Peace Agreement, but it is now negotiating a post-independence revenue split, possibly as much as 30-70, to compensate for transiting its oil through facilities in the North. In that case, all activity by U.S. oil companies in the newly independent, and allegedly non-sanctioned, state in Southern Sudan will still require an OFAC license. The new guidance provides no guidance as to what OFAC’s policy will be for granting those licenses.

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Apr

11

Voluntary Disclosure Earns $100,000 Fine for Disclosing Exporter


Posted by at 6:39 pm on April 11, 2011
Category: BIS

Army Medium Tactical VehicleMeritor, a Michigan-based manufacturer of vehicle parts, recently agreed to pay $100,000 to the Bureau of Industry and Security (“BIS”) to settle various allegations that it had illegally exported vehicle parts and technology without required export licenses. One settled count dealt with deemed exports to an Indian national who was a U.S.-based employee. The charges and the large fine arose from Meritor’s voluntary disclosure of the export violations to BIS. Of course, we all know that BIS will justify whacking Meritor for its voluntary disclosure on the grounds that BIS could have fined Meritor 3.5 million dollars and imposed a perpetual export denial order for the 14 export violations that Meritor disclosed. Cold comfort, as they say.

For the most part, the exports of parts and technology related to the U.S. Army’s Family of Medium Tactical Vehicles (“FMTV”) which would clearly be classified as ECCNs 9A018 and 9E018. For two of the charged violations, however, it’s not clear what the parts were or why the parts and related technology would be classified as 9A018 or 9E018.

In a 2005 export to China, the exported items are only described as “various axles” that Meritor believed were “to be incorporated into a prototype of a commercial diesel vehicle.” Unlike the FMTV parts, it’s not obvious that these parts were for vehicles “modified for non-combat military use” as required by the language of ECCN 9A018, particularly as they were destined for commercial diesel vehicles. This charge was sloppy in at least one other respect. The Settlement Agreement and the Order both referred to the exported axles as being valued at $45,150, even though the Charging Letter specified the value as $2,057.86. Careless copy-and-pasting coupled with sloppy proofreading were the culprits, no doubt.

For the deemed export charge, the BIS documents describe the technology as technical drawings that “depicted axle assemblies for two vehicle platforms, one for a tractor-trailer and another for a heavy-duty truck.” Again, technical drawings described in that fashion would not be controlled by ECCN 9E018 since they don’t relate to vehicles modified for non-combat military use. Without more, nothing prohibits the export of drawings of axle assemblies for tractor-trailers or for heavy-duty trucks. Presumably these would be for military tractor-trailers and military heavy-duty trucks, but the charging documents do not make that clear. The problem with such careless drafting is that members of the public who read these documents might well think that all drawings of axle assemblies for all tractor-trailers and heavy-duty trucks are export controlled, which is definitively not the case.

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Apr

6

Participant in Legal Export Transaction Slapped with Denial Order


Posted by at 8:02 pm on April 6, 2011
Category: BIS

graphiteThis blog reported earlier on a strange case where Ameri-Source, a manufacturer of graphite and other carbon products, settled charges by the Bureau of Industry and Security that it had caused a freight forwarder to file a false shipping declaration when it supplied a forged mill certificate which falsely indicated another company as the source of the exported graphite. The settlement documents provided little insight into what lay behind the charges. There was no indication, for example, as to whether the exported graphite even required a license.

A Final Decision and Order released by BIS last week involving the same case made clear that the export transaction did not require any license. The Final Decision imposed a two-year denial order on Manoj Bhayana, a sales representative for the company that brokered the graphite transaction in question. The denial order was not based on any illegal export but was based on allegations that Mr. Bhayana supplied the forged mill certificate to BIS investigators when questioned about the export. The Final Decision and Order alleged that Mr. Bhayana knew that the certificate was false because he had supposedly participated with the manufacturer, Ameri-Source, in forging the certificate.

Section 764.2(g) of the Export Administration Regulations makes it a violation for any person to make a “false or misleading” statement to BIS or to “falsify or conceal any material fact.” The language is a typical example of the sloppy drafting found throughout the EAR. On the one hand, it would seem to make it a violation to simply make a false statement, regardless of its materiality. Yet, if that were the intent, why would the regulation bother to define as an additional violation the falsification of a “material fact”?

The Final Decision and Order seemed to acknowledge a materiality requirement by noting that the ALJ found that providing the forged mill certificate “hindered” the investigation. However, no explanation was given as to how this hindered this investigation. This question becomes significant because the ALJ found that the export in question did not require a license. It’s hard to see how a statement about an item that did not require a license could be material

The ALJ did find that the fact that the statement concerned an item that did not require an export license was a mitigating factor. The Final Decision and Order, although it adopted the ALJ’s decision in its totality, specifically disagreed that the fact that the graphite did not require an export license was a relevant mitigating factor

A respondent who makes false statements to BIS during an investigation cannot properly claim, and should not be accorded, mitigation credit relating to the subject ot those false statements.

So, if you tell a BIS investigator that the sky is green, it will not be a mitigating factor that this false statement was irrelevant to the investigation. The moral of this story is that in some instances the less said to BIS investigators in informal interviews, the better. Ask for the agents to put their inquiries in writing and reply with written answers reviewed by counsel.

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