DDTC Solicits Public Comment on New Application System Sight Unseen

Posted by at 8:03 am on June 22, 2016
Category: DDTC

Cockers for the Nationals by Clif Burns [All Rights Reserved], via Flickr https://flic.kr/p/F2FiEi

So, I’ve decided to give you the contents of this box over here. Of course, the deal is you must keep the contents whatever they are. So, please tell me what you think about what’s in the box and whether you will like whatever it is. Nope, no peeking. You tell me whether you like what’s in the box and then I’ll give it to you. That way if the box contains an 80-foot Burmese python, you can’t say I didn’t give you a chance to object before saddling you with your new pet.

On Monday, the Directorate of Defense Trade Controls did just that when it announced that it is overhauling its export licensing system. No more DSP-5s. No more DSP-83s. Instead, according to the agency

licensing operations will move from the current, largely form-based submissions to an intuitive system which will allow both industry users and DDTC staff to smoothly and securely navigate the submission and review process.

DDTC is giving the public 60-days to comment on this new system. No details on the system have been provided beyond what’s quoted above. So the box that DDTC is proposing to drop on your doorstep may have a cute puppy inside. Or maybe a hungry python. So, speak up now. Tell us what you think!

Of course, if DDTC revises the utterly ridiculous mess surrounding agreement submissions (where, among other things the transmittal letter is longer than the agreement and where the submission process is described in a constantly changing 223-page document that rivals War and Peace for prolixity and Finnegan’s Wake for obscurity) there will be general rejoicing all around. But there isn’t a scintilla of a suggestion in the notice that this monstrosity is going away.

So, which will it be? Puppy or python?

Photo Credit: Cockers for the Nationals by Clif Burns [All Rights Reserved], via Flickr https://flic.kr/p/F2FiEi. Copyright 2016 Clif Burns

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Package Forwarder Coughs Up $60K For Export Violations

Posted by at 10:18 pm on June 21, 2016
Category: BISChina

Fulfill Your Packages HQ via Google Maps https://goo.gl/maps/gJ8z3G3j2gm [Fair Use]
ABOVE: Fulfill Your Packages HQ

The Bureau of Industry and Security (“BIS”) issued settlement documents last week indicating that a California company called Fulfill Your Packages agreed to pay a $250,000 fine, of which $190,000 was suspended if the company behaves itself for the next two years and commits no further export violations. At least from the facts recited by BIS, it’s a very odd case.

Fulfill Your Packages is apparently a company that agrees to serve as a local address for Chinese companies. Those companies order products from U.S. companies which Fulfill Your Packages dutiful re-packages and ships to China. Frankly, a better name for the company might be Ginormous Export Red Flag, Inc., but I suppose Fulfill Your Packages sounds better.

The violation arose from an unnamed Chinese company ordering an export controlled FLIR thermal imaging camera from an unnamed U.S. company which then shipped the camera to Fulfill Your Packages’ address in Portland, Oregon. The Google Street View of that address reveals a large warehouse. Google itself further reveals that the address is used by several logistics companies and, oddly, a liquor store.

When Fulfill Your Packages received the package, it dutifully repackaged the FLIR system and arranged for the USPS to pick up the package. For reasons that aren’t clear, Fulfill Your Packages described the item on shipping documents as “metal parts” even though its own order system described the item as an “infrared webcam/surveillance installation kit.” It also stated the value as $255 even though the distributor’s invoice for the camera received with the package listed the value at $2,617. It’s not clear at all why the company, for the small fee it was receiving, would falsify the export documents. It didn’t really have a dog in the race. Of course, it could be simple incompetence. Or perhaps it was some conspiracy with the Chinese purchaser for a large sum. There’s no way to tell.

But what about the distributor that shipped a FLIR system to a warehouse in Oregon for a Chinese customer? Don’t they bear some responsibility here? They didn’t ignore red flags, they ignored red banners the size of a skyscraper. Or maybe not. The BIS documents suggest that BIS thwarted the shipment before the USPS arrived to pick up the package. What likely happened here is that the distributor did do its job, did consult the all-knowing wizard of Google while evaluating the order, smelled a rat and called BIS.

The lesson here is that the Internet is your friend and that orders for export controlled items should not be fulfilled without doing the research that is now, literally, at your fingertips.

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DOJ Issues Misleading Press Release in Connection with Export Guilty Plea

Posted by at 11:47 pm on June 15, 2016
Category: BISCriminal PenaltiesIran SanctionsOFAC

All in a Day's Work by Damian Gadal via Flickr https://flic.kr/p/5xQkWj [Fair Use]
ABOVE: Erdal Kuyumcu

This blog reported earlier on the case against Erdal Kuyumcu in connection with exports of an EAR99 Cobalt Nickel powder (CoNiCrAIY) to Iran. In that initial post, I questioned the government’s evidence that Mr. Kuyumcu knew that his sales of this powder to a customer in Turkey were destined to Iran, noting that the criminal complaint based its allegations on the “training and experience” of an investigating agent who felt that unrelated emails discussing Iran covered these shipments. (I also mocked the agent’s claim that a “[b]ased on my training and experience … [a] colon followed by a close parenthesis … represents a smiley face.”)

Yesterday the Department of Justice issued a press release stating that Mr. Kuyumcu had pleaded guilty to the charges against him. Of course, the DoJ, as usual, could not restrain itself from misleading hyperbole in the process of patting itself on its own back:

Kuyumcu, a United States citizen, conspired to export from the United States to Iran a metallic powder composed of cobalt and nickel without having obtained the required license from the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC). The metallic powder can be used to coat gas turbine components, such as turbine blades, and can also be used in aerospace, missile production, and nuclear applications. Such specialized metals are closely regulated by the U.S. Department of Commerce to combat nuclear proliferation and protect national security, and exporting them without an OFAC license is illegal.

Why, you ask, if CoNiCrAIY powder is “closely regulated” by the U.S. Department of Commerce was its export a violation of OFAC rules? Good question. CoNiCrAIY powder is EAR99 and its export is not regulated, either “closely” or otherwise, by the Department of Commerce. Perhaps the DoJ has gotten confused, innocently or otherwise, by ECCN 2E003.f which controls certain “technology” for application of certain specified inorganic compounds, including CoNiCrAIY and similar compounds, on non-electronic substrates. But even this is not tantamount to close regulation of the powder because other inorganic compounds covered within these controls of deposition technology include tungsten and oxides like, er, carbon dioxide. By this logic, if Kuyumcu exported a carbonated soft drink to Iran, the DoJ could claim that he exported a product to Iran “closely regulated” by the Department of Commerce.

Once again, we see that the government can misinterpret export laws and regulations with immunity while everyone else does so at their peril.

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Busman’s Holiday

Posted by at 9:29 pm on June 14, 2016
Category: General

Before the FallI don’t know what’s going on but it seems I can’t escape my job even during seemingly harmless activities.   I watched the excellent AMC/BBC miniseries The Night Manager and it turns out to be about an illegal arms deal, and one of the major characters is from, get this, the Directorate of Defense Trade Controls.   DDTC on TV?  Really?  Who knew?

So now I’m reading Before the Fall, a mystery/thriller by Noah Hawley, best known, perhaps, for his role as the screenwriter for the television miniseries Fargo.  The novel, which has been well-reviewed and which is hard to put down, has, as a plot point . . .


. . . has, as a plot point, an investigation of sanctions violations by the Office of Foreign Assets Control.  But, sadly, popular novels are poorly edited these days, and there is an unfortunate whopper of an error.   The whopper is not the hilarious and continual references to “the OFAC” as in “Agent Hex and his superiors at the OFAC.”  (I suspect that Hawley is thinking that you say O-F-A-C and not OFAC.  Sigh).

No the whopper is that, in 2015, OFAC still thinks that Libya is sanctioned.   An indictment at issue involves a character engaging in financial transactions with Libya, even though those sanctions were lifted in 2011 with the only remnants remaining being the blocking of certain people who were once part of the Muammar Gaddafi regime.  Still, although I haven’t finished the book, it’s an enjoyable read.  Perhaps I’ll learn as I read further on that it’s actually an alternative history novel like Philip K. Dick’s The Man in the High Castle.

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Cost of Sinning Adjusted for Inflation

Posted by at 7:27 pm on June 8, 2016
Category: Civil PenaltiesDDTC

Money by Nick Ares [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/55FLSR [cropped and processed]Of course, when it comes to adjusting benefits, the government could care less about the effects of inflation. However, when it comes to putting money in its pocket (as opposed to taking it out of the government till and putting it in yours), well, inflation is, all of a sudden, a huge issue. Just in case you were thinking of committing any export violations, the Directorate of Defense Trade Controls (“DDTC”) wants you to know that your penalty will be adjusted upward, as of August 1, 2016, to reflect inflation since 1985, the year in which the $500,000 per violation penalty was set. This adjustment will apply to all penalties assessed after that date even if the export occurred prior to that date.

So how much is an export violation going to cost now? Well, DDTC consulted the Office of Management and Budget (“OMB”) which told it, based on price increases, that the multiplier for penalties set in 1985 is 2.1182. This means the new penalty is a whopping $1,094,010 per violation. Evidently, Christmas occurs in August for DDTC this year. Although I’m not clear exactly how OMB computed that multiplier, I can verify that the difference in the Consumer Price Index between 1985 and 2016 is a multiple of around 2.23, so apparently the OMB was in a good mood and cut violators a little slack here.

Of course, for all of you who were checking your cash reserves and contemplating leaving the export business entirely, DDTC was quick to point out, in a statement on its website, that the increase “does not impede the discretion of [DDTC] to assess [penalties] lower than the maximum amount should circumstances warrant.” That’s cold comfort when lower means something lower than a million dollars.

Photo Credit: Money by Nick Ares [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/55FLSR [cropped and processed]. Copyright 2008 by Nick Ares

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