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Nov

22

New U.S. Sanctions on Foreign Companies Doing Business in Iran

Posted by Clif Burns at 11:23 pm on November 22, 2011

Iranian oil field The White House signed, on November 19, Executive Order 13590, which increased the sanctions on foreign firms doing business in Iran. An official copy of the executive order has not been released but it is described in this “Fact Sheet” released by the Treasury Department. A State Department briefing held yesterday provides further background on the new sanctions.

The new sanctions expand on the sanctions on foreign persons dealing with the Iranian energy sector that started with the Iran Sanctions Act of 1996 and continued with last year’s Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 (“CISADA”).

Under CISADA, foreign persons can be sanctioned if they make investments that contribute to the development of petroleum resources in Iran. Investment is defined to exclude the simple sale of goods to Iranian petroleum companies. Under the new sanctions, the transactional amounts are reduced to $1,000,000 per transaction or $5,000,000 in a twelve-month period. Additionally, the new sanctions will cover the simple sale of goods in excess of these amounts.

The new sanctions now go beyond the petroleum industry in Iran and will include the petrochemical industry. Foreign companies will face sanctions if they provide goods, services, or technology to Iran that could “directly and significantly facilitate the maintenance or expansion of its domestic production of petrochemical products.” The triggers for these petrochemical sales are even lower than the triggers for petroleum investments and cover a single transaction that has a fair market value of $250,000 or more or a series of transactions valued at $1 million or more over a 12-month period.

This blog has pointed out before that secondary boycotts of this sort violate U.S. obligations under GATT. The European Union filed a complaint with the WTO against the secondary boycotts contained in the Iran Sanctions Act, a complaint that was withdrawn when the Clinton administration agreed to use the national security exception in the Act to permit certain European investments in Iran. However, given all the accumulating evidence that Iran is in fact attempting to develop a nuclear bomb, it seems unlikely that the E.U. will seek a WTO remedy with respect to these new sanctions.

(For an excellent summary of Iran sanctions legislation, take a look at this excellent CRS study from October.)

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Nov

17

Ingrate

Posted by Clif Burns at 6:50 pm on November 17, 2011

Love Fest This blog reported back in January on the removal of various Indian companies and organizations from the Entity List. This removal eliminated the requirement for licenses for certain exports to the removed companies that might not have otherwise required licenses.

An Indian website today quoted an executive of one of these removed groups who was, it seems, unenthused about the impact of the removal:

“I do not think removal of some DRDO labs from the Entity List by the U.S. has changed anything for us. The American export regulations for dual-use technologies and items need stringent clearances from their commerce and defence departments,” Saraswat [Chief of the Defence Research and Development Organisation (“DRDO”)] said when asked if the American policy announced during US President Barack Obama’s visit last November and implemented in January this year had helped India in anyway.

“Whether or now we are with Missile Technology Control Regime (MTCR), the export rules and regulations apply for us. We have to go through the process. It is not an easy process and it becomes difficult to acquire them,” he said.

“Our experience has been these regulations make it more difficult,” he added.

If that’s the case, perhaps Saraswat won’t mind if the U.S. puts DRDO back on the Entity List.

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Nov

16

So That’s The Reason for the China Arms Embargo?

Posted by Clif Burns at 7:03 pm on November 16, 2011

Category: Arms Export • Criminal Penalties

Swiss Technology HQ NJ-based Swiss Technology, Inc. was sentenced yesterday to probation in connection with its guilty plea last July to charges that it violated the Arms Export Control Act when it exported diagrams of military rifle parts to China for manufacture there. The company was also ordered to pay $1.1 million in restitution to the Department of Defense.

The DOJ press release in July regarding the initial plea is larded with the typically hyperbolic language of prosecutors in export cases, but with a twist.

â€œWe simply canâ€™t risk that companies trying to manufacture military equipment on the cheap will expose our troops to more danger than they already face,â€ said U.S. Attorney Fishman.

â€œOur armed forces deserve the very best equipment to perform their missions in these difficult times,â€ said Edward T. Bradley, Special Agent in Charge, Department of Defense, Defense Criminal Investigative Service (DCIS), Northeast Field Office. â€œFraudulent practices, designed to illegally enrich a corporation, and which could compromise the integrity and reliability of that vital equipment is inexcusable. The Defense Criminal Investigative Service is committed to vigorously investigating such violations of law.â€

â€œThis case underscores ICEâ€™s commitment to work tirelessly with our law enforcement partners to investigate individuals or corporate organizations that circumvent federal regulations in the name of greed,â€ said Peter T. Edge, Special Agent in Charge of U.S. Immigration and Customs Enforcementâ€™s Homeland Security Investigation (ICE HSI) in Newark. â€œWhen our troopsâ€™ safety is put in jeopardy, our national security is also compromised.â€

And here I always thought that the purpose of the China arms embargo was to keep weapons and military technology out of the hands of the Chicoms because they were a military threat. Instead it appears that the reason is because they make shoddy stuff. If that’s the reason, is an arms embargo of Taiwan next?

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Nov

15

Pound of Flesh Demanded From Export Defendant

Posted by Clif Burns at 10:30 pm on November 15, 2011

Category: BIS

Chasma Nuclear Power Plant There was more fallout from the PPG case today. Xun Wang, who was the former manager of the Shanghai subsidiary of PPG, pleaded guilty to one count of conspiring to violate the International Emergency Economic Powers Act in connection with the unlicensed export of EAR99 paint to a party on the Entity List maintained by the Bureau of Industry and Security (“BIS”). As a result of the plea, Wang faces a possible sentence of five years in jail and a $250,000 fine.

At the same time, Wang settled civil penalty charges brought against her by BIS for the same exports. Under that agreement, Wang has agreed to a civil penalty of $200,000 and a five-year denial order. Under the denial order, Wang will be forbidden from engaging in any transactions involving the export of items from the United States. Of course, a five year jail sentence will also accomplish the same goal, since I doubt that federal prisoners can engage in export transactions from jail.

Whatever one thinks of the seriousness of the charges against Wang, wacking her, or anyone else, with both criminal and civil penalties seems to be overkill. There used to be this quaint notion that jail time was the ultimate penalty and was designed to assure that the defendant paid his or her debt to society. But now that is just the starting point, with every other penalty piled on top for good measure. Frankly, I won’t be surprised when I read of an export defendant subjected to jail time, criminal fines, civil fines, denial of export privileges, permanent suspension of his or her driver’s license, three thousand push-ups, five weeks in the stocks in Times Square, eight weeks in a re-education camp, and a pound of flesh.

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Nov

10

DDTC Publishes New Proposed Aircraft Rules

Posted by Clif Burns at 1:49 pm on November 10, 2011

Category: Arms Export • DDTC

Military UAV On November 7, the Directorate of Defense Trade Controls (“DDTC”) published its second iteration of the proposed rules on aircraft and aircraft components as part of the White House’s export control reform initiative. As with the first iteration, published back in December, this new version of the proposed rules continues to pursue the goal of making the USML, to the extent possible, a “positive” list and to eschew the “specifically designed” criterion which has been central to the current USML approach to determining what items are controlled by the list. And although the new rules are a laudable improvement they still fall short of these worthy aspirations.

First, for certain aircraft, such as the F-22, parts and components will still be controlled if they were “specially designed” for those aircraft. And DDTC concedes it hasn’t figured out a good way to define “specially designed,” conceding that the definition used in the December notice was being revised and would be the subject of a future notice.

Second, not all the covered aircraft are positively defined. Under the proposed revision of Category VIII, “armed unmanned aerial vehicles” are covered, which makes eminent sense, but so are “unarmed military unmanned aerial vehicles.” I can hear you asking now what makes an unarmed UAV a military UAV? DDTC concedes it has no earthly idea itself of the answer to this question, and asks for comments on this matter, sort of like the stumped contestant in “Who Wants To Be A Millionaire” using the audience lifeline.

Here’s a thought on an answer to that question. Unarmed UAVs are never military unless they are classified or contain classified systems or components. Because the proposed rule covers classified parts, the same principle should cover, by extension, classified aircraft or aircraft with classified components, in which case military unarmed UAVs do not need to be listed.

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