Archive for December, 2015


Dec

29

Egregiousness, Like Beauty, Is in the Eye of the Beholder


Posted by at 11:04 pm on December 29, 2015
Category: BIS

By Daderot (Own work) [CC0], via Wikimedia Commons http://commons.wikimedia.org/wiki/File%3APatent_quote_-_United_States_Department_of_Commerce_-_DSC05103.JPGNot to be outdone by the Directorate of Defense Trade Controls, which left a nice little gift under every exporter’s tree last week, the Bureau of Industry and Security had a gift of its own which it dropped down everyone’s chimney the day after Christmas. Of course, whether it is a gift or a lump of coal is open to some discussion.

The gift/coal lump in question consists of proposed guidelines for the assessment of penalties for export violations. It more or less adopts the mostly unhelpful scheme in place over at the Office of Foreign Assets Control, going so far even as to adopt the notoriously unhelpful distinction between egregious and non-egregious cases. The base penalty would be established by looking at whether the case is egregious and whether a voluntary disclosure had been filed.

If the case is egregious and there is no voluntary disclosure the base penalty is the statutory maximum. (Ouch!) If egregious and voluntarily disclosed, the base penalty is half the statutory maximum. (Still an ouch!) If non-egegious but without a voluntary disclosure, the base penalty is a thing called, in Mid-Atlantic bureaucratese, the “Applicable Schedule Amount” capped at $250,000 per violation. The Applicable Schedule Amount is basically a bracketed round-up of the transaction value. For example, it’s $170,000 for transactions valued at between $100,000 and $170,000. And for non-egregious violations that were voluntarily disclosed, it is the transaction value capped at $125,000 per violation.  BIS then pulls aggravating and mitigating factors out of the sorting hat and decides whether to impose a penalty greater than or less than the base penalty

Now let’s talk about whether these Guidelines are a gift or a lump of coal. Because BIS takes the odd opportunity in the proposed guidelines to remind lawyers that it can disbar them from practice before the agency for whatever reason it wants, let’s start with the gifts and leave the lumps of coal for last in hopes that no one from the agency will read down that far.

Gift: BIS reiterates that most voluntary disclosures will result in no-action or warning letters and thus will not even involve these guidelines. In fact, BIS says this:

[O]ver the past several years, on average only three percent of VSDs submitted have resulted in a civil penalty.

Gift: Acquiring companies will not be weighed down by the sins of acquired companies. This is not a retreat from the doctrine of successor liability, premised on the ridiculous notion that without such liability companies will commit export violations willy-nilly knowing that they can easily absolve themselves by selling the company. (One has to imagine that no one at BIS has ever done a corporate deal if they actually believe this.) But the Guidelines now make clear that, if the acquiring company discloses and cleans up the target’s past violations, they won’t be counted under the aggravating factor for prior violations in subsequent voluntary disclosures by the acquiring company.

Lump of Coal: BIS is expressly reverting back to its practice of “piling on” violations, something it swore up and down to Congress it would stop doing if Congress upped the penalties to $250,000 per violation, a promise the agency kept for a while when it said that in cases where the same act led to multiple violations it would only charge the most serious. Well forget that. Now we are expressly back to the situation where if an exporter misclassifies an item, it has committed three (if not more) violations: one for the illegal export, one for the wrong ECCN on the AES, and one for putting NLR (“No License Required”) on the AES. That’s $750,000 before you’ve even walked through the door.  BIS makes clear that now (forget those pesky promises) it has the “discretion” to charge all three violations separately.

Lump of Coal: BIS will take into account whether the exporter had a compliance program at the time of the violation, at least to “the extent to which a Respondent complies with the principles set forth in BIS’s Export Management System (EMS) Guidelines.” The what guidelines, you ask? Oh, you know the, ones that “can be accessed through the BIS Web site at www.bis.doc.gov.” The lump of coal here is awarded because of this dispiriting proof that the agency in charge of regulating exports of technology can’t figure out how links and the Internet work. Perhaps they are afraid that if they give an actual link to these guidelines, the Chinese will click on it and hack their systems again. I would suggest typing “Export Management System Guidelines” into the search box on the BIS website, but that’s more characters than is allowed by that search tool. You can type in “Export Management Sy” but that doesn’t provide any useful results. If your Google-fu is strong, you can find them. If not, you’re pretty much out of luck.

Comments on the proposed guidelines are due on February 26, 2016.

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Dec

23

How the OFAC Stole Christmas


Posted by at 11:50 am on December 23, 2015
Category: Cuba SanctionsOFAC

Santa Flanked by F-16

A spokesman for the Treasury Department’s Office of Foreign Assets Control (“OFAC”) told Export Law Blog this morning that discussions between OFAC and the North Pole over Santa Claus’s Christmas Eve itinerary had once again broken down and were not expected to be resumed before Santa’s scheduled departure on December 24 at 10 pm EST.

The dispute arose from a dilemma that the U.S. sanctions against Cuba posed for Santa’s planned delivery of toys to children in Cuba. If Santa delivers toys for U.S. children first, there will be toys destined for Cuba in the sleigh in violation of 31 C.F.R. § 515.207(b). That rule prohibits Santa’s sleigh from entering the United States with “goods in which Cuba or a Cuban national has an interest.” On the other hand, if Santa delivers the toys to Cuban children first, then 31 C.F.R. § 515.207(a) prohibits the sleigh from entering the United States and “unloading freight for a period of 180 days from the date the vessel departed from a port or place in Cuba.”

A press release from the North Pole announced that the OFAC rules left Santa no choice but to bypass the children of the United States this Christmas. A spokesman from OFAC warned that if Santa attempted to overfly the United States, his sleigh would be forced to land and his cargo seized. He continued:

We know that the outcome is harsh, but we cannot allow the Cuban regime to continue to be propped up by Santa’s annual delivery of valuable Christmas toys to Cuban children. We told Santa that, as long as he only delivered food, books, and mobile phones to children in Cuba he would be eligible to enter the United States under the exception in § 515.550, but he insisted on delivering teddy bears as well. We draw the line at teddy bears, so in our view it’s his fault, not ours.

Congressional leaders did not return our calls.


This post is an annual tradition and has appeared every year since 2007. Alert readers will notice a slight change in this year’s post.

Export Law Blog would like to take the opportunity of this post to extend its best holiday wishes to all of its readers. Posting will be light between now and the end of the holidays.

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Dec

22

An Indictment That Doesn’t Add Up


Posted by at 9:23 pm on December 22, 2015
Category: Arms ExportCriminal PenaltiesDDTC

M16 Disconnecter via http://www.brownells.com/rifle-parts/triggers-parts/disconnector-parts/disconnectors/m16-disconnectors-prod41727.aspx [Fair Use]The recent indictment of Brian Thomas Platt, a federally-registered firearms manufacturer, makes me wonder whether there is so little crime in Maryland that prosecutors have the time to indict an individual for exporting a handful of rifle parts without a license, particularly where at least one of the exports arguably qualified for the license exemption for exports of firearms parts with a wholesale value less than $100.  Worse the indictment doesn’t even allege the required element of scienter in an Arms Export Control Act prosecution, namely that the defendant knew that the exports were in violation of law.    The absence of a scienter allegation is significant given that the case is likely to turn on the wholesale value of the parts exported, another crucial fact left out of the oddly and amateurishly drafted indictment.

Three exports are at issue.  The second involved M-16 parts: three selectors, disconnectors, auto sear assemblies and hammers.  The Brownells site gives the retail value of the items as $32.37 for the selectors, $17.97 for the disconnectors (pictured above), $29.97 for the sear assemblies and $66.90 for the hammers. That’s $147.21 retail. It is not unreasonable to assume that the wholesale price of these items is under $100, and the exemption in section 123.17(a) of the ITAR is for exports where the wholesale price is $100 or less.

The remaining exports include one rifle barrel (which is not covered by the exemption in section 123.17) and another export of two Uzi tops and a trigger assembly, also with an apparent value that may well be under the $100 limit. And, of course, the indictment doesn’t bother to allege the value of the shipments or that Platt knew that the parts exceeded the $100 value or that he knew that the exports were illegal. Indeed, given that licenses probably could have been easily obtained for these parts, given the low value (and profits involved) for these parts, and given Platt’s status as a licensed firearm manufacturers, it seems highly unlikely that he knew these exports were illegal.

This appears to be a classic case for a civil penalty. No knowledge or scienter is required for a civil penalty. If Platt was mistaken about the value of the parts, he could still suffer a significant fine. Here, however, for a handful of cheap rifle parts that may or may not have required a license, the prosecutors want to send Platt to jail for 60 years and, in the now inevitable forfeiture allegations, take away his house too. What a ridiculous waste of taxpayer money and prosecutorial resources.

 

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Dec

21

Look Under Your Tree for a Gift From DDTC. Ho Ho Ho!


Posted by at 8:53 pm on December 21, 2015
Category: CBPDDTC

State Department by Josh [CC-BY-SA-2.0 (https://creativecommons.org/licenses/by-nd/2.0/)], via Flickr https://www.flickr.com/photos/ncindc/2838284991 [cropped]If you’ve had outbound goods seized because a certain big name shipping company filed your AES on a shipment before you lodged the license with Customs, raise your hand. I thought so. A bunch of you have had that happen.

And I see a number of you mumbling and grousing that this high-profile shipping company, after learning of the seizure, ran out of the room like a scalded dog, leaving you with the pleasure of paying off Customs an absurd amount to get your goods released (after, on average, 37.245 years). When your lawyers wrote the company, it sent back a note saying that under your contract with them, you had absolved them from all liability, even if they opened up your package, substituted weapons of mass destruction, exported them and you were later, as a result, criminally indicted and sentenced to  13 years in jail.

Well, Merry Christmas. Just days before Santa dispenses his gifts to all children (except U.S. children because of his continued insistence on providing gifts to Cuban children), the State Department has given you the biggest gift of all. Effective immediately, you no longer have to lodge DDTC export licenses. This is possibly the best news since Disney announced that J.J. Abrams would direct the latest installment in the Star Wars franchise.

The notice of the elimination of this requirement appears on the front page of the DDTC site today (and, apparently nowhere else, so that if DDTC changes it mind, it can delete the notice and take the gift back). This Christmas present was not entirely unexpected because, as the web notice states, DDTC, having finally discovered how computers work, has been sending licensing data daily to Customs thus effectively ending the need for exporters to hand off a dead tree copy of the license to the Pony Express for delivery to your closest Customs port.

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Dec

14

Let My Field Trips Go


Posted by at 11:01 pm on December 14, 2015
Category: General

Full Lab Close by NSCL [By Permission http://www.nscl.msu.edu/about/nscl%20photos.html], via Flickr https://flic.kr/p/8hb7MU [cropped]
ABOVE: National Supercon-
ducting Cyclotron Laboratory


A Lansing high school field trip to Michigan State University’s National Superconducting Cyclotron Laboratory was just cancelled* and the school is blaming this on the Bureau of Industry and Security.  According to the school, the field trip was cancelled when the school received the permission slip from NSCL and saw this:

“I also certify that this minor is not a citizen/resident of Cuba, Iran, North Korea, Sudan or Syria.”

The school district superintendent said that she believed that the restriction violated Title VI of the Civil Rights Act which prohibits discrimination based on national origin.

Let’s start with that. They apparently don’t teach civics in Lansing. National origin and citizenship are different things. You can discriminate based on citizenship status but not on national origin. A naturalized U.S. citizen cannot be treated differently because he or she was born in Cuba or China or the Duchy of Grand Fenwick.

But going a little further, what’s up with this restriction? The NSCL apparently told the school that the restriction comes from the Bureau of Industry and Security. This means, given the singling out of nationals from AT countries, that something in the lab must be classified under one of the 990 series of ECCNs which are controlled only for AT reasons, and NSCL is concerned about giving access to that equipment by nationals of AT countries.

Indeed, the minor permission form that caused the brouhaha can be found here and does indeed have the quoted language. But the Tour Certification Form, also required by NSCL to be signed by the tour group, has this curious language:

I have made the members of the party aware that certain technology in FRIB/NSCL falls under fundamental research exclusions from export control within the MSU setting of a domestic research university, but is subject to control elsewhere.

If the concern is access to series 990 equipment, the fundamental research exclusion is irrelevant. Additionally, the notion that information that is fundamental research if disclosed at the university, but is not if it is disclosed elsewhere is just wrong. Once it is fundamental research, it is released from controls everywhere and to everyone. The information does not stop being fundamental research once it leaves the campus.

But more fundamentally, even if the lab equipment is controlled, would the NSCL be transferring technology to a bunch of high school kids that visited the lab? Remember that technology is defined as information required for the development, production or use of the equipment. Certainly, nothing that kids would see on a field trip would permit them to develop or produce the equipment. Nor would it likely help them to use the equipment given that “use” is defined as operation, installation (including on-site installation), maintenance (checking), repair, overhaul and refurbishing. Unless the high school kids could figure out how to operate the equipment after seeing it, there’s no way that they would be able to install, maintain, repair, overhaul or refurbish it.

So, I say, let the kids go — even if they are Cuban exchange students. Just make sure you don’t tell them how to install, maintain, repair, overhaul and refurbish the cyclotron (or whatever equipment is causing the concern) while they are there.


*WARNING: the newspaper requires you to answer an obnoxious survey in order to read the article.

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(No republication, syndication or use permitted without my consent.)