Jun

4

ITAR Registration Puffery: XAND Raises the Bar


Posted by at 6:38 pm on June 4, 2014
Category: Part 122

XAND Date Center via http://www.xand.com/assets/MG_2226_Low-1024x668.jpg [Fair Use]An ongoing feature of this blog has been, for some time, to highlight ITAR registration press releases where companies breathlessly announce their registration under part 122 of the ITAR as if it were equivalent to having been awarded the Nobel Peace Price, an Oscar, and three Michelin stars on the same day when in fact the State Department routinely hands out Part 122 registration to anyone who can figure out how to fill out a short form, write a check for the registration fee and send both to Washington. Once the check clears, a registration is issued by DDTC without so much as even looking at the registrant’s elevator certificates and corporate cafeteria lunch menu.

So when a friend of the blog pointed out a press release headlined “Xand Earns International Traffic in Arms Regulations (ITAR) Compliance from U.S. Department of State,” it was clear that we had a moral obligation to bring to our readers the latest and greatest in marketing department hyperbole.

Xand, the Northeast’s premier provider of cloud, managed services, colocation and disaster recovery announced today the successful completion of all regulatory requirements required to attain International Traffic in Arms Regulations (ITAR) registration and compliance from the U.S. Department of State, a unique distinction among infrastructure service providers.

Okay, so maybe the “regulatory requirements” meant by Xand were filling out the form and sending the check. Well, you might think that until you see what the company’s Chief Security Officer had to say:

We selected data center facilities in Pennsylvania, New York, and Massachusetts to undergo thorough and exhaustive compliance testing to meet the critical standards of the U.S. Department of State. The end result allows Xand to provide clients with unmatched geographic diversity and redundancy options when it comes to housing, storing, and protecting the data and technology infrastructure needed to power the critically important work of the defense industry.

It seems to me that the State Department ought to tell people that it will revoke the registration of anyone who so fundamentally misunderstands the ITAR as to suggest in public that registration is the result of compliance testing and constitutes a certification that the registrant is compliant.

One other interesting point here is to try to figure out why Xand needed registration in the first place. Registration is required for parties that manufacture items on the USML and for those that export goods or technical data on the USML. Frankly, I’m baffled how a domestic cloud and colocation service provider does either of those things even if it has customers that manufacture or export USML items. Anyone have any thoughts on this?

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May

30

Having Baggage Is Not A Crime


Posted by at 5:10 pm on May 30, 2014
Category: Criminal PenaltiesDoJEconomic SanctionsIran SanctionsSanctions

Please Report Any Unattended Luggage by Kenneth Lu https://www.flickr.com/photos/toasty/2619866851/in/photolist-DLUFQ-5z9X21-K3Ta2-4Zvv98-JHpPQ-AEW4c CC BY 2.0 [https://creativecommons.org/licenses/by/2.0/] (cropped)

A federal jury in Ft. Lauderdale, Florida recently acquitted Patrick Campbell on charges that alleged he attempted and conspired to violate U.S. economic sanctions against Iran.  As we reported at the time of his arrest last year, Campbell, who is from Sierra Leone, was detained at JFK Airport as soon as he cleared customs and was found to have uranium inside shoes packed in his luggage.  Prior to his U.S. arrival (and immediate arrest), according to the government, Campbell had been communicating with an undercover ICE agent in Ft. Lauderdale in order to arrange the sale of uranium from Sierra Leone to Iran.

We surmised at the time of his initial charging that Campbell had arguably done nothing in the United States that constituted an attempt or conspiracy to commit a U.S. sanctions violation simply by entering the United States.  Because the Iran Transactions and Sanctions Regulations cover only exports from the United States (which this was not) or exports by a U.S. person (which Campbell was only by virtue of being physically present in the United States), he could only be convicted for what he actually did while in the United States.  The Justice Department tested those boundaries, and a jury wasn’t convinced.  A great deal of credit should be given to Campbell’s attorney, Richard Serafini.

We spoke with Mr. Serafini about the case and the arguments he made to the jury in Campbell’s defense.  Mr. Serafini said that he emphasized to the jury that the Justice Department had not shown beyond a reasonable doubt that Campbell had done anything with the specific intent to violate U.S. sanctions.  In addition, he said that he told the jury that Campbell should not be considered to have committed any criminal acts as a U.S. person simply because he was lured to enter the United States by law enforcement.  Mr. Serafini said that he finally impressed upon the jury that, regardless of any criminal act that may have been committed, Campbell had been entrapped by the ICE agent to do so.

While no one can know what may have led the jury to acquit, it is certainly noteworthy that one or more of those arguments possibly resonated with jurors.  The jury instructions shed a little more light in that the court explained an attempt must be “more than simply preparing” and have a ”substantial step … that would normally result in committing the offence.”  What did Campbell do in the United States to meet that requirement?  Having uranium in your luggage could be seen by a jury as “simply preparing.”  As for conspiracy, the jury rightfully asked the court during deliberation whether the undercover agent could be part of the conspiracy.  The court responded simply, “No, a government agent cannot be a co-conspirator.”  In sum, it looks like the facts didn’t fit the crime and a well-marshaled defense portrayed that.

In so far as Campbell’s case has a bearing on subsequent sanctions prosecutions, we may have been clairvoyant in our warning last September:

As the stretch of sanctions includes more foreign individuals and their subsequent imprisonment, the United States may find itself retreating from expanding prosecution after a successful defense or even international criticism that U.S. sanctions as so applied are too attenuated for a reasonable interpretation of the sanctions’ purpose or the laws themselves.

Campbell’s acquittal sends the Justice Department back to the drawing board to reconsider future prosecutions based on undercover operations targeting foreign persons and inviting them to the United States for their unbeknownst arrest.  As we reported in the case of a Russian caught up a similar operation last year, the resulting arrest stirred U.S.-Russian diplomatic waters and resulted in his return to Russia after pleading guilty.  Be careful what you do on the Internet, and that goes for the government too.

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May

28

DoJ Miffs Description of Iran Sanctions


Posted by at 6:09 pm on May 28, 2014
Category: Criminal PenaltiesDoJIran Sanctions

By Another Believer (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons http://commons.wikimedia.org/wiki/File%3ADepartment_of_Justice%2C_Washington%2C_D.C._2012.JPGIn a recent DoJ press release correcting a previous press release that incorrectly stated that the DoJ had indicted someone on export charges that they hadn’t actually indicted him on (oops!), the DoJ took the opportunity to try to explain the scope of the U.S. sanctions on Iran. Unfortunately the DoJ got it wrong. Of course, when an exporter makes a mistake about the scope of the Iran sanctions, it’s a big deal; but when the DoJ makes a mistake, oh well, we all make mistakes.

At issue are charges against Pennsylvania-based Hetran, Inc. which allegedly shipped a horizontal lathe to Iran via a company in Dubai. This gives the DoJ the opportunity to say this:

American companies are forbidden to ship dual use items – such as the peeler – to Iran without first obtaining a license from the U.S. Department of Commerce

Oh dear, where to start with this? Really, it’s just wrong in so many ways. Let’s start with section 746.7 of the Export Administration Regulations which sets forth the controls by the Department of Commerce’s Bureau of Industry and Security on exports to Iran. That would have been a good place for the DoJ to start as well before attempting to explain U.S. sanctions on Iran.

Subsection (e) says this

No person may export or reexport any item that is subject to the EAR if such transaction is prohibited by the Iranian Transactions Regulations (31 CFR part 560) and not authorized by OFAC.

Subsection (a) says this:

[I]f OFAC authorizes an export or reexport, such authorization is considered authorization for purposes of the EAR as well.

So, where does that leave us?

Error 1: Licenses aren’t just required for exporting dual use items to Iran. OFAC rules forbid all exports to Iran except for certain limited items such as food, medicine, medical devices, informational products and personal telecommunications devices. Plenty of things that aren’t dual use (i.e. listed on the Commerce Control List) require licenses.

Error 2: the requirement for exports to Iran is a license from OFAC, not from BIS. A license from BIS is required only if no license from OFAC has been obtained and the matter is “not subject to OFAC regulatory authority.”  EAR 746.7(a)(2).

Here’s an idea: maybe people in the DoJ should be required to attend BIS’s annual Update Conference before they are allowed to say things about export law.

 

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May

27

Universal Jurisdiction: Export Denial Order Edition


Posted by at 8:07 pm on May 27, 2014
Category: BISSyria

Aramex Employee via http://www.aramex.com/content/uploads/109/243/46240/MainBanner_EXP.jpg [Fair Use]BIS recently announced a consent agreement with Aramex Emirates under which Aramex agreed to cough up $125,000 in connection with its export of network equipment from the U.A.E. to Syria. Of course, for the few of us remaining that do not believe that the U.S. Government can exercise jurisdiction over everyone anywhere in the world whenever it wants, the interesting question is this: why did a company in the U.A.E. get tangled up over a shipment from the U.A.E. to Syria that was legal under U.A.E. law?

At issue were network devices and software classified as ECCN 5A002 and 5D002. In the Order, BIS then has this to say:

Under the widely-known U.S. trade embargo against Syria, no item subject to the Regulations may be exported or re-exported to Syria without a Department of Commerce license, with the exceptions of certain medicines and food, as set forth at all times pertinent hereto in General Order No. 2.

General Order No. 2 notes that the prohibitions of the embargo on Syria are described in section 746.9 of the EAR, which indeed prohibits all exports and re-exports except “food and medicine” by everyone in the universe. (Don’t get confused by section 742.9 which describes another set of restrictions on Syria which would permit exports of certain EAR99 items but which have been superseded by 746.9 and is just kept in the EAR to confuse ordinary people and to keep lawyers employed.)

So, even though the EAR says that foreign persons can’t re-export items from their own country to Syria, why would anyone pay any attention to this, particularly where the export was not illegal under the laws of their own country? An attempt by the U.S. to extradite someone for such an export might not be entertained by his local courts simply because the U.S. asserts that the item originally came from the United States.

BIS’s hammer here is more likely the export denial order. Even if it has no criminal jurisdiction and no ability to enforce or collect administrative fines in such cases, it does have the power to impose an export denial order which would forbid persons within its jurisdiction from exporting anything to Aramex. That might deliver a significant economic blow to a freight forwarder and logistics provider like Aramex. In that case a $125,000 fine might appear to be a good deal.

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May

20

The First Thing We Do, Let’s (Not) Kill All the Lawyers


Posted by at 7:59 pm on May 20, 2014
Category: Economic SanctionsOFACRussia DesignationsRussia Sanctions

By VOA [Public domain], via Wikimedia Commons http://commons.wikimedia.org/wiki/File%3ASergei_Magnitsky.jpg

ABOVE: Sergei Magnitsky


Today the Office of Foreign Assets Control (“OFAC”) announced more Russia designations, this time under the Magnitsky sanctions. The Sergei Magnitsky Rule of Law Accountability Act of 2012 (H.R. 4405) authorizes sanctions on those individuals responsible for the death and detention of Sergei Magnitsky. Mr. Magnitsky was a Russian lawyer who was investigating corruption and fraud by certain Russian tax officials. The act also authorizes designations of individuals involved in human rights violations against anyone seeking to expose illegal activity by Russian officials or seeking to promote human rights in Russia.

Eighteen people have already been sanctioned under the Act, mostly mid-level law enforcement and tax officials. Those designated under the Magnitsky sanctions are not eligible to enter the United States and their assets must be blocked if they come into the hands of U.S. Persons

Among the newly designated officials, according to the AP, are “four prison officials, a judge, [a] court official, a law enforcement investigator and alleged co-conspirators in the fraud case.”  Dmitry Kratov, who is on the list, was previously acquitted in Russia of charges of negligence brought against him in connection with Magnitsky’s death

The newly designated individuals are the following:

ALISOV, Igor Borisovich; DOB 11 Mar 1968 (individual) [MAGNIT].

GAUS, Alexandra Viktorovna (a.k.a. GAUSS, Alexandra); DOB 29 Mar 1975 (individual) [MAGNIT].

KHLEBNIKOV, Vyacheslav Georgievich (a.k.a. KHLEBNIKOV, Viacheslav); DOB 09 Jul 1967 (individual) [MAGNIT].

KLYUEV, Dmitry Vladislavovich (a.k.a. KLYUYEV, Dmitriy); DOB 10 Aug 1967 (individual) [MAGNIT].

KRATOV, Dmitry Borisovich; DOB 16 Jul 1964 (individual) [MAGNIT].

KRECHETOV, Andrei Alexandrovich; DOB 22 Sep 1981 (individual) [MAGNIT].

LITVINOVA, Larisa Anatolievna; DOB 18 Nov 1963 (individual) [MAGNIT].

MARKELOV, Viktor Aleksandrovich; DOB 15 Dec 1967; POB Leninskoye village, Uzgenskiy District, Oshkaya region of the Kirghiz SSR (individual) [MAGNIT].

STEPANOV, Vladlen Yurievich; DOB 17 Jul 1962 (individual) [MAGNIT].

SUGAIPOV, Umar; DOB 17 Apr 1966; POB Chechen Republic, Russia (individual) [MAGNIT].

TAGIYEV, Fikret (a.k.a. TAGIEV, Fikhret Gabdulla Ogly; a.k.a. TAGIYEV, Fikhret); DOB 03 Apr 1962 (individual) [MAGNIT].

VAKHAYEV, Musa; DOB 1964; POB Urus-Martan, Chechen Republic, Russia (individual) [MAGNIT].

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