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Jul

27

Guilty Plea Expected To Be Entered in eBay Drone Sting Case

Posted by Clif Burns at 9:41 pm on July 27, 2011

Robot Attack! This blog reported in detail back in March of this year on the prosecution of Henderson Chua, a Philippine citizen, arising from his importation of military drone parts into the United States. Based on information in the indictment, it seemed to me that there were significant holes in the government’s case. Even so, and as is often the case, it is reported that Chua is expected to plead guilty tomorrow to the government’s charges.

As I noted in the original post, after Mr. Chua listed the parts on eBay, a government sting was conducted with U.S. agents pretending to be buyers for the parts. Initially, the government agents seemed to think, incorrectly, that the permanent import of the parts was illegal, which would not be the case because they were not listed on the United States Munitions Import List So the agents changed the deal and told Chua that the parts were for re-export to Russia, which would have required a license both for the temporary import into the United States and for the permanent export to Russia. Chua told them that he couldn’t sell them the items for export from the United States and had the agents sign an agreement not to export the items. From my point of view, the prosecution was going to have a hard time establishing that Chua had requisite criminal intent.

The anticipated guilty plea was reported on by DC political blog TPM Muckracker, which contained this howler about the case:

The Raven is listed on the U.S. munitions list as a defensive item, and U.S. law forbids people from buying and selling defense equipment without permission from the government.

Uh, no. U.S. law only forbids export of such equipment without permission. I can buy all the Category VIII(h) military aircraft parts I want without a license as long as they stay here in the United States. I guess it’s easier for a reporter simply to make things up than to, say, fire up Google in their web browser or, imagine this, to call an expert.

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Jul

26

Cloudy, With A Chance of Heavy Fines

Posted by Clif Burns at 5:45 pm on July 26, 2011

The Brookings Institution just issued a brief report entitled “Addressing Export Control in the Age of Cloud Computing.” The report raises more issues than it answers, which is not surprising given the brevity of the report and the uncertain state of the application of export rules and regulations to cloud computing.

One thing the report gets quite right is its observations that the questions of the application of export law to cloud computing are issues that pre-date the current cloud computing phenomenon and were raised initially by the trans-national characteristics of the Internet itself. Consider this example provided by the report:

Person A, a U.S. citizen located in the United States, sends an e-mail containing EAR-restricted information in the body of the message to Person B, a U.S. citizen who normally works at a location in the United States. Unbeknownst to Person A, Person B is on a short trip overseas. Person B logs onto his e-mail while overseas using a public computer in the lobby of his hotel, sees that he has an e-mail message from Person A, but since he does not have any reason to believe in advance that it will contain EAR-restricted information, proceeds to click on the message and read it.

Assuming this is an export violation, and under a literal reading of the Export Administration Regulations (“EAR”) it would be, who has broken the rules? The party sending the email without knowing it was going to leave the country or the party opening the email not knowing it contained export controlled data? The report piles on another question and another wrinkle: suppose the email provider moved the email on to a foreign server after noticing that Person B was accessing the email from abroad. Is the email provider guilty of an export violation? These same issues that are posed by a simple email are also posed when companies begin storing data on the cloud without full control or knowledge of where the cloud servers may be located.

Of course, the literal interpretation of export rules might well forbid the use of email, cloud services or the Internet in general with respect to export-controlled data. Is it time to shut off the computers, address a bunch of envelopes, and crank up the dusty postage meter in the back of your office?

The report suggests that regulators might avoid charges of Luddism and the enshrinement of nineteenth-century concepts of exports by looking at data encryption. Under current rules, data is exported if it crosses borders whether it does so as clear or encrypted text. Perhaps securely encrypted text can find a safe harbor from traditional concepts of export. And although the regulations do not currently take this approach, I have advised people emailing export-controlled data to do so always in encrypted form to guard against things similar to the scenario posed above. If the controlled data, through the miracle of the Internet, winds up on a foreign server, at least the contents of that data aren’t available in any practicable sense to any foreign persons with access to that server. If not a defense to the export violation, it is at least going to be a mitigating factor in any penalty action.

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Jul

21

Happy Days Are Here Again

Posted by Clif Burns at 5:00 pm on July 21, 2011

Category: BIS • CCL

Yay! Back in February, this blog lamented the change in the format of the Export Administration Regulations (“EAR”) on the website of the Bureau of Industry and Security (“BIS”). The agency deleted the PDF version of the regulations, which was clearly organized and could be easily downloaded and/or printed.

The PDF version was then replaced with the e-CFR version which, among other things, put the entire Commerce Control List (“CCL”) on one HTML page, making it very difficult to navigate to and from the various ECCNs. The e-CFR version also could not be downloaded or printed. This difficulty was further exacerbated by the notoriously slow response time of the Government Printing Office servers, meaning that you could often read War and Peace from cover to cover before a requested page loaded. Worse yet, statements from BIS staff suggested that the new format was easier for the agency to maintain and was here to stay.

Well, I am happy to report that recently — I don’t know exactly when — the old format has returned. Click here to see for yourself. Better yet, the old PDF version had the search function disabled, but you can freely search throughout these new PDF versions. Also, the ECCN references appear to be hyperlinked to the ECCNs themselves, although those hyperlinks are not currently working. If the export community is appropriately grateful, and if we all think good things about BIS for this happy reversion, maybe those ECCN hyperlinks will be activated and start working sometime down the road.

If, for some reason, you became unaccountably attached to the e-CFR version of the EAR and the CCL, you can still find it here.

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Jul

20

Update on Update 2011: Sanctions

Posted by Clif Burns at 5:58 pm on July 20, 2011

Category: Iran Sanctions • OFAC

Iran Air Crash near Orumiyeh Nothing much of interest at the Sanctions breakout yesterday during the 2011 Update conference held by the Bureau of Industry and Security. The panel members included two people from the Office of Foreign Assets Control (“OFAC”) who went over some aspects of the new Libya sanctions and who conceded, during the Q&A session, that all the work on these new sanctions had slowed down their processing of licenses to Iran for food, medicine and medical devices. (Those exports are permitted under the Trade Sanctions Reform and Export Enhancement Act of 2000, commonly known as TSRA.)

The real jaw-dropper came from panel member John-Marshall Klein, Foreign Affairs Officer, Office of Terrorism Finance and Economics Sanctions Policy, at the State Department. In discussing the recent sanctions on Iran Air, he noted that these sanctions did not preclude travel on Iran Air due to the provisions of 50 U.S.C. Â§ 1702(b)(4) added by the Berman Amendment. But Mr. Klein didn’t stop there. He went on to say that he wouldn’t advise Americans to travel now on Iran Air because the sanctions would prevent Iran Air from getting spare parts.

Because Iran Air is now designated under the Weapons of Mass Destruction Proliferators Regulations, this means that the provision in section 560.528 of the Iranian Transaction Regulations which permits OFAC to license on a case-by-case basis spare parts necessary for the safety of civil aviation would not be strictly applicable. But that is not an exception made by OFAC out of the goodness of its own heart; that exception is required by the United States’s adherence to the Convention on International Civil Aviation, article 44 of which would prohibit the United States from taking actions that endanger civil aviation. And there is nothing that would prohibit a case-by-case licensing policy under the WMD proliferation regulations in cases of parts needed to promote the safety of civil aviation.

What Mr. Klein is saying is that it’s now the policy of the United States to use the sanctions against Iran Air in a way that will endanger the safety of its aircraft and its passengers. Even if true, and even if consistent with the United States’s treaty obligations, is this something that the U.S. government should openly admit? It can only be hoped that Mr. Klein was wrong.

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Jul

19

Update from Update 2011: License Exception STA

Posted by Clif Burns at 8:26 pm on July 19, 2011

Category: BIS

Update Banner This afternoon I was at Update 2011, the conference held every year in DC by the Bureau of Industry and Security (“BIS”). One of the break-out sessions dealt with the new license exception STA and, needless to say, it was well attended by exporters interested in the new exception.

I want to start out, however, by correcting something I missed in one of my earlier posts on license exception STA’s application to the new 600 series of items under the proposed rule dealing with items transferred from the United States Munitions List. Replacement parts and components do not need explicit BIS certification of eligibility under the process set forth in proposed section 740.20(g). That process only applies to end items. Parts and components in the new 600 series can be exported without license under exception STA if they are destined for use by a government in one of the 36 countries eligible under section 740.20(c)(1).

The biggest surprise came in response to a question as to how many exporters had so far used license exception STA. According to information from the Automated Export System, license exception STA has only been used twice since the exception became effective.

The BIS panel indicated that exporters could apply for a license even for products and destinations that qualified for the exception. Initially, BIS will hold the application in order to contact the exporter and confirm that the exporter wants to apply for a license rather than use exception STA. Also such a license, if and when granted, will not slip in as provisos the conditions that are otherwise required for STA eligibility, such as the required written certification from the foreign consignee. In fact, although the panel did not say this, many exporters may prefer to get a license rather than use exception STA precisely because of the difficulty of getting the required written certification from the foreign consignee.

One panel member brushed off the importance of the additional record keeping requirements for using the exception. Exporters will need to keep the written certification from the foreign consignee, the written notification from the exporter to the consignee of the applicable ECCN, and the written notification to the consignee that the shipment is made pursuant to license exception STA. The BIS spokesman brushed these new requirements off by saying, in effect, the exporter already has to keep voluminous records, so what are a few more? Really.

One audience question caught a panel member off guard. The question was whether license exception STA could be used, where otherwise applicable, to a temporary export for a duration longer than that permitted by license exception TMP. Initially, the panel member noted that the license exception could be used for temporary exports as well as permanent exports. But then the panel member realized that, under the question, the temporary export would be in the custody of an employee of the exporter. That, he thought, created problems because there had to be a foreign consignee for license exception STA to apply.

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