Oct

7

De Minimis Rule? What De Minimis Rule?


Posted by at 10:40 pm on October 7, 2014
Category: BISCriminal PenaltiesSyria

Robbins & Myers Belgium HQ via Google Maps http://goo.gl/P9oIwo [Fair Use]
ABOVE: Robbins & Meyers Belgium


Robbins & Myers Belgium, a Belgian subsidiary of Robbins & Myers, Inc., which was recently acquired by National Oilwell Varco, pleaded guilty last week to charges that it violated U.S. sanctions on Syria when it exported stators that it manufactured in Belgium to Syria. According to the Bureau of Industry and Security (“BIS”) press release, the Belgian company was charged with violating U.S. criminal law because of the following:

The guilty plea stemmed from actions by Robbins & Myers Belgium that, in 2006, caused four illegal exports, reexports and/or transshipments of stators—important components of oil extraction equipment—that had made [sic] from steel that had been milled in the United States to a customer operating oil fields in Syria.

Say what? Is it really criminal for a foreign company to export an item just because it has some U.S. content in it? What happened to the de minimis rule? How hard would it be to say that the item consisted of more than 10 percent U.S.-origin steel to avoid suggesting that the export was illegal if there was any U.S. content?  Even though BIS used up three paragraphs in the press release patting itself on the back, it could not manage to add a sentence somewhere, anywhere, to correct this misstatement of the law?

The factual proffer that served as a basis for the guilty plea, which is supposed to contain facts sufficient to support the plea, is no better on this issue.

At all times pertinent to this case, the stators shipped by RMB to Company A in Syria were made from steel tube that Company B had milled in the United States.

Nope, being “made from steel tube … milled in the United States” is not enough to support the plea. Section 746.9(a) of the BIS rules forbids exports to Syria of items “subject to the EAR.” And section 734.3(c)(1), otherwise known as the de minimis rule, states that foreign-made items destined for Syria are not “subject to the EAR” if they contain “controlled U.S.-origin commodities … valued at 10% or less of the total value of the foreign-made commodity.” Although the rule is not clear, BIS takes the position that “controlled” here means “controlled for Syria” under section 746.9 and therefore includes any EAR99 item other than food or medicine.  Under that reading the EAR99 steel tubes would be controlled U.S.-origin commodities for purposes of the de minimis rule. We just don’t know if the tubes were more than 10 percent of the value of the foreign-made stators. And we don’t know this because the supposedly completely proffer leaves out this crucial element of the crime.

I do not doubt that in fact the U.S.-origin content here was in excess of de minimis as required by the rule for foreign-made products. My point is, however, that the BIS press release and the proffer incorrectly and misleadingly state that a criminal violation occurred because the stators contained any amount of U.S. origin goods. That is simply not a correct statement of the law, and those charged with enforcing the law should also correctly state it.

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Oct

2

Newest Sanctions Crime: Buying a Condo while Iranian-American


Posted by at 11:12 pm on October 2, 2014
Category: Iran SanctionsOFAC

By Don-vip (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons http://commons.wikimedia.org/wiki/File%3AU.S_Treasury_Department_in_Washington%2C_D.C..jpgOne of the possibly unintended consequences of the heavy fines imposed on banks by the Office of Foreign Assets Control (“OFAC”) for violations of the vaguely and confusingly written Iran sanctions regulations is that banks overreact, exhibiting a Pavlovian response to anything with the word Iran involved and blindly blocking everything in sight. As a result, Iranian-Americans often have a difficult and unpredictable relationship with their own banks here in the United States. As recently reported by the Arizona Republic, Neda Tavassoli, an Iranian-American, had difficulty closing her purchase of a condominium when one of the banks involved needlessly blocked the account holding her funds for the down payment.

The story begins, improbably enough, when her ex-husband, who is also a U.S. citizen, was visiting his family in Iran and checked their joint account from a computer in Iran. The bank then froze that account. Subsequently the bank even froze an unrelated escrow account to which Ms. Tavassoli’s parents, also U.S. citizens, wired the down payment for the condo in issue. Neither Ms. Tavassoli, her ex-husband,  her parents nor the U.S. bank from which the parents wired the funds are on the SDN list, so there is no conceivable reason for these accounts to be blocked. None of these parties are even in Iran so there was not even a reason to reject the wire transfer to the escrow account, much less to block it.

Most importantly, checking the account from Iran, which got the whole business started, would not serve as a basis for blocking the account. Whether the bank broke any rules by providing the information back to Iran in response to the account query depends on whether that communication was “incident to the exchange of personal communications over the Internet” and therefore permitted by section 560.540 of the Iran regulations. But even if the exception in section 560.540 for Internet communications does not apply, the proper response by the bank was simply not to respond to the request, not to block the account.

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Sep

30

BIS Kicks Dirt in Face of Utah Dirt Bike Dealer


Posted by at 9:35 pm on September 30, 2014
Category: BIS

Xtreme Motors via Google Maps [Fair Use]Like many Washingtonians, I have grown weary of marauding packs of dirtbags on dirt bikes and ATVs that terrorize drivers and pedestrians by speeding down the wrong side of streets and on sidewalks defying the police to chase them down. So it was with a slight frisson of Schadenfreude when I read that BIS today issued a Temporary Denial Order against X-TREME Motors, a dirt bike and ATV dealer in Utah. According to BIS, the TDO was based on a number of unlicensed exports of items requiring licenses, such as rifle scopes, which X-TREME misdescribed in export documents as ATV parts. It seems that the dirt bike and ATV business might have been a cover to smuggle controlled items from Utah to Russia and China, among other places

The dirt bike dealer, as you can still tell from its web site, had a side eBay business in which it sells a number of items that don’t seem particularly related to dirt bikes and ATVs, like rifle stocks, rifle scopes, ammo magazines and rifle barrels, and which will in many cases require export licenses. The BIS press release said that X-TREME was selling “crime control” equipment to China and Russia. It does not say what that equipment was, but I found two pairs of handcuffs for sale on X-TREME’s eBay site. After all, what fun is riding a dirt bike if you don’t have a few pairs of handcuffs along for the ride.

Between when I first looked at X-TREME’s eBay site and just now, someone has added at the top, in big red letters, this legend:

Hello we will not be offering any international shipping at this time. Please check back soon

Duh.  But “soon” might be a tad optimistic.

UPDATE:  As a commenter noted, and as I forgot when I wrote this post, riflescopes are also controlled for crime control reasons.

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Sep

24

Get Smart: Chinese Spy Edition


Posted by at 4:51 pm on September 24, 2014
Category: Arms ExportCriminal PenaltiesDDTCTechnical Data Export

By General Artists Corporation-GAC-management. [Public domain], via Wikimedia Commons http://commons.wikimedia.org/wiki/File%3ADonAdams.jpgMeet Charlie and Alice, two self-professed PRC spies who branched out from smuggling crystal meth into the United States to attempting to export airplanes and military technology from the United States to the PRC. Things did not turn out so well for Charlie and Alice who probably should have stuck with drug trafficking. So, find a comfortable chair, grab a bag of popcorn, and prepare to be entertained by the story that unfolds in the Criminal Complaint filed against them and to which they just pleaded guilty.

It was a dark and stormy evening in Manila when a counterfeit cigarette smuggler introduced two undercover agents working for the United States to Hui Sheng Shen, a/k/a “Charlie,” and Huan Ling Chang, a/k/a “Alice.” According to Mr. Counterfeit Cigarette Guy, Alice and Charlie could help the UCs obtain methamphetamine.

Alice and Charlie, explaining to the UCs that email was insecure, set up a drop email account, gave the UCs the credentials for the account, and said that they should communicate via messages left in the draft folder. (This method is not particularly effective in hiding communications from the government when you’re dealing with undercover agents but, whatever, it’s the trendy spycraft du jour.) Using this method, a deal for a kilo of meth was consummated and shipped to the UCs in tea bags hidden in computer towers. (Of course, no customs inspector would ever be suspicious of tea bags in computer towers so this is yet another example of top notch spycraft by Charlie and Alice.)

Emboldened by their world-class narcotics deal, Charlie and Alice decided to move on to bigger things and just kinda casually dropped into a subsequent conversation with the UCs that they would, oh, by the way, like to buy a military aircraft. Because, naturally, guys who buy drugs normally have a warehouse of military aircraft that they can sell to the people they buy drugs from.  And Charlie and Alice wanted not just any airplane but a honking huge E-2 Hawkeye reconnaisance aircraft. “Sure, Charlie, I’ll leave one for you at the front desk of your hotel after you wire me $100 million dollars.”

Of course, knowing the sensitivity of such an operation, Charlie and Alice wanted to refer to the Hawkeye in code as the “Big Toy.” That way, they could always claim, if caught, that they were really talking about a 12-ton toy Tonka truck. At this point, one of the UCs hits comedy gold when he says to Charlie and Alice:

“Do you guys realize what this thing is?.. . This thing is like a um 757 plane — it’s on aircraft carriers. Those things don’t just disappear.”

Undeterred, Charlie and Alice still kept negotiating to buy the “big toy,” stating that their buyer, which they described as the “Chinese C.I.A.,” could afford it. The UCs, however, managed to steer them to something more manageable, something that could fit in a backpack, namely, a Raven RQ 11B UAV. Charlie and Alice explained that they could smuggle the UAV out of the United States by having scuba divers or remote-controlled submersible vehicles carry the items to an off-shore Chinese ship. They also planned to get the manuals out by taking pictures of the manuals, deleting the pictures from the memory cards and then having their friends in China recover the deleted images.

There were, of course, two problems with the deleted image trick. First, everyone (even Customs) knows about it and can easily detect and recover deleted images on digital camera memory cards. Second, Charlie and Alice were arrested while taking the pictures.

For those who want to try at home the recovering deleted images trick, here’s a quick guide on how to do that.

 

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Sep

22

Texas Man Charged with Smuggling for Forwarding One Email


Posted by at 10:10 pm on September 22, 2014
Category: Criminal PenaltiesIran SanctionsOFAC

BlackBerry email on the BB 8330 by Ian Lamont(Own work) [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://www.flickr.com/photos/ilamont/4329363938/A criminal information was filed last week against Patrick Jean Zuber, a U.S permanent resident and former Weatherford International Vice-President, charging him with conspiracy to violate the anti-smuggling statute, 18 U.S.C. § 554. How did he get into such trouble? Actually, he didn’t do anything more than push the forward button to send an email from a company in Thailand seeking to purchase equipment for an oil project in Iran. That’s right: he is being charged not with sending any equipment to Iran; he is being charged with sending an email forwarding that inquiry from the potential customer in Thailand.  Zuber forwarded that inquiry to a Canadian employee of Weatherford.  This cold-blooded and heinous act of clicking “forward”  was deemed to be facilitation of an illegal export to Iran. The criminal information is silent as to whether any export actually occurred

Whether the Canadian to whom the email was sent was employed by a U.S. or foreign subsidiary of Weatherford is not made clear by the criminal information. If it was a foreign subsidiary, then at the time Zuber forwarded the email, it would have been perfectly legal, under section 560.205 of OFAC’s Iranian Transactions and Sanctions Regulations, for the Canadian citizen at a foreign company to export EAR99 items to Iran even if they were originally manufactured in the United States. In that case, showing criminal intent by Zuber, who may well have thought that Canada could legally fulfill the order he forwarded, is going to be extremely difficult.

Of course, there may be other facts not mentioned in the criminal information which justify this prosecution. But if the basic crime here is forwarding an email to someone that Zuber thought could legally fulfill the order, this really seems more suited for a civil, rather than a criminal, penalty. After all, section 560.205 of OFAC’s requlations does prohibit a U.S. person from facilitating a transaction by a foreign person that would be illegal if done by a U.S. person and so OFAC would clearly have the authority to fine Mr. Zuber for pushing the forward button.

Photo Credit: In 30 Minute Guides

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