ABOVE: Thomas McGuinn

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An excellent article by Justin Blum on the U.S. investigation of the Irish company Mac Aviation appeared today on Bloomberg News. I have previously reported here and here on the pending indictments of Mac Aviation and its principals Tom and Sean McGuinn arising out of their efforts to acquire aircraft parts and other items from U.S. suppliers for export to Iran. Blum has done considerable research and leg-work in reporting this story, including a number of interviews with law enforcement sources working on the case and speaking on condition of anonymity. It’s well worth a read. (I would recommend the article even if I were not quoted in it.)

The story clears up one detail I wondered about with respect to F-5 canopy panel exports contained in the superseding indictment of Mac Aviation and its principals Tom and Sean McGuinn. Commerce Overseas, the California company that ultimately sold the F-5 panels to Mac Aviation refused to sell the panels to Mac Aviation in Ireland or to deliver them to its representatives in the United States without an export license. Ultimately, however, Commerce Overseas released the panels to ABL Freight. The superseding indictment does not indicate the reason for Commerce Overseas’ change of heart.

Blum’s reporting indicates that Commerce Overseas decided to release the canopies to ABL Freight after an ABL manager, Eddie Garcia, agreed in writing not to export these items without an export license. Of course, the first thing that happened once ABL received the panels is that Garcia changed the shipping invoices, relabeled the contents as plastic panels, and indicated a shipping destination of Malaysia.

Garcia said he didn’t know the package contained F-5 parts and just included the documents Mac Aviation provided.

“We’re just simple people trying to do the business and that’s it,” he said.

Uh huh. Right. Garcia had to have known that there were export controlled items in the package, even if he didn’t know they were F-5 parts. Otherwise, why would Commerce Overseas have extracted from him the pledge not to export without a license? So he should have thought twice before swapping the labels and exporting the package. There was not, last time I checked, an exemption in the Arms Export Control Act for “simple people trying to do business.”

Blum’s story also delves into another anomaly in the Mac Aviation matter. Tom McGuinn pleaded guilty to export charges in 1994. Although that resulted in McGuinn winding up on the State Department’s List of Statutorily Debarred Parties, he was not placed on the Denied Persons List maintained by the Commerce Department, even though the conviction would permit him to have been placed on that list by Commerce. Companies and individuals on that list cannot receive any exports from the United States. According to Blum:

The Commerce Department, which regulates dual-use items, was never informed that McGuinn entered a guilty plea, so it put neither Mac Aviation nor McGuinn on its roll of those banned from exports of any items originating from the U.S., according to Kevin Griffis, a spokesman for the department.

The department now receives regular accounts of convictions, he said.

The five-year statute of limitations on export penalties would prevent Commerce from adding McGuinn to this list at this late date.

UPDATE: The five-year statute of limitations contained in 28 U.S.C. § 2462 applies to the judicial enforcement of any administrative penalty, which would include denial orders. It’s not entirely clear whether or not this would limit the period of time in which a denial order could be issued after conviction of an export law violation. If it doesn’t impose such a limit, then the question arises as to why the Department of Commerce, now that it is aware of the conviction of Thomas McGuinn (and has been for some time), hasn’t imposed a denial order on Mr. McGuinn and his company.

A criminal complaint recently filed in the United States District Court for the Central District of California accuses David Zhang and Nicola Huang with exporting controlled analog to digital conversion technology to China without a required license from the Bureau of Industry and Security (“BIS”). At least part of the interest of this case is that it involves an export of EAR-controlled technology. Most cases arising under the EAR generally involve the export of controlled goods, and the reason for that is probably related to the increased difficulty of proving technology exports.

The complaint alleges that the defendants engaged two engineers to assist them in carrying out an agreement to design for the Sichuan Institute for Solid State Circuits two analog-to-digital conversion (ADC) devices. One of the devices was to be an 8-bit 1.5 GSPS device and the other was to be 14-bit 125 MSPS. The criminal complaint alleges that these devices were described in ECCN 3A001.a.5.a.1 and 3A001.a.5.a.4, which would mean that the technology would be classified as ECCN 3E001.

Of course, the first prerequisite to a criminal charge here is to prove that this was controlled technology. Sections 734.7 and 734.8 of the EAR exempt information that has been published or that is the product of fundamental research. Almost all of the technology involved in analog to digital conversion is well-known and subject to these exemptions. The critical element for high-speed ADC devices is the know-how involved in fabricating components with the high degree of timing accuracy required. Nothing in the criminal complaint establishes or even suggests that the defendants provided any technology that wasn’t well-known or that provided the know-how to manufacture the highly precise components.

A second obstacle in this prosecution is the wording of the relevant ECCNs. ECCN 3A001.a.5.a.1 covers devices with “a resolution of 8 bit [sic] or more, but less than 10 bit [sic], with an output rate greater than 500 million words per second.” ECCN 3A001.a.5.a.4 covers devices with “[a] resolution of more than 12 bit [sic] but equal to or less than 14 bit [sic] with an output rate greater than 10 million words per second.” The EAR does not define the term “word” and there seems to be no clear definition of “word” in the context of data transmission.

In many instances, the term “word” is used in conjunction with a set number of bits, such as “4-bit word.” In other instances, “word” is used as equal to the bit-depth of the sampling performed by the device. In other instances, “word” is used to denote the logical size of an address in system memory. And finally sometimes “word” is used as an arbitrary but fixed size that is specifically stated, such as a “10-bit word.”

Although word isn’t defined in the ECCN, there is a technical note that defines “words per second” as “samples per second.” That seems an odd definition based on other common uses of word in the context of data transmission. It also seems needlessly complex, since the ECCN should, given that definition, say directly that an x-bit ADC is covered if the ADC’s sample rate exceeds y-million samples per second. But, by that definition, both ADCs do fall within the respective ECCNs.

A final point of interest is that the complaint tries to bolster its case by noting that two agents of Immigration and Customs Enforcement made a Project Shield America presentation at the defendant’s company. Based on that, the government assumes that the defendants were thereafter fully cognizant of all elements of U.S. export laws discussed in that presentation. This demonstrates, I think, that Project Shield America presentations are a double-edged sword that although billed as a purely educational program are also intended to be used as evidence in subsequent prosecutions. In my view, exporters are better off obtaining information about export compliance from private sources so that these presentations won’t later be used against them.