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Jul

14

Buy This Book or the ICC Will Kill a Kitten

Posted by Clif Burns at 9:02 pm on July 14, 2010

Category: INCOTERMS

It has begun. A press release from the U.S. Council For International Business (“USCIB”), the U.S. “arm” of the International Chamber of Commerce (“ICC”), announced today day-long seminars, to be held everywhere from Pittsburgh to Omaha, on the “much anticipated” revisions to Incoterms that will become effective on January 1, 2011. Much anticipated, I think, mostly by the USCIB and the ICC for the most excellent revenue opportunity the revised Incoterms will provide to both organizations in seminar fees and sales of the new edition of Incoterms.

The press release claims that the changes are “sweeping” but provides little substantive detail about these changes. Who, after all, will buy the cow if the milk is given away? I’ve heard that the new edition will eliminate some of the distinctions between marine-only terms (like FOB and ~~FCA~~ FAS) and the other terms, but not much else. Readers are welcome to share in the comments section what they’ve heard.

Forgive me for being skeptical but I recall the sweeping changes between Incoterms 1990 and Incoterms 2000 which mostly consisted of changing the export clearance obligation under FAS from the buyer to the seller and the import clearance obligation under DEQ from the seller to the buyer. And for that the ICC wanted to get people to buy brand new copies of Incoterms. Now comes USCIB hoping to convince people to pay to shut themselves up in dank hotel conference rooms with weak coffee and stale sandwiches for a day-long seminar on the “sweeping” and “much anticipated” changes.

For those who want to learn about these changes from the comfort of their own ergonomic office chairs with the tasty beverages and snacks of their choice, this blog promises to post on the important new changes once the new edition of Incoterms is released. In all fairness, however, for those who don’t have much familiarity with Incoterms of any vintage, these seminars will present a good opportunity to learn about the usage and meaning of these increasingly important shipping terms.

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Jul

13

DTAG Proposes a New Spare Parts Exemption

Posted by Clif Burns at 8:52 pm on July 13, 2010

Category: Arms Export

Spare Parts The website for the Directorate of Defense Trade Controls (“DDTC”) recently posted the reports of three Working Groups for the Defense Trade Advisory Group (“DTAG”). DTAG is an industry-advisory group set up by DDTC to consult with the agency on regulatory issues important to the export sector of the defense industry.

The report of Working Group #2 details a proposed new exemption for export of spare parts to foreign government end users of defense articles previously approved for export. Under the current exemption for spare parts, found in section 123.16(b)(2) of the International Traffic in Arms Regulations, the exemption for spare parts is limited to individual shipments of less than $500 and a maximum of 24 such shipments per year, with a provision that orders cannot be split to avoid exceeding these limits. These shipments can be made to government and non-government end users provided that the parts are for a defense article previously approved for export.

Working Group #2’s proposed exemption, which would be inserted into the ITAR as section 123.28, would only apply to foreign-government end users and not to private end users. Although the proposed exemption would eliminate the value and shipment caps in the existing exemption, it includes a number of other significant restrictions

The exemption is available only to the original exporter and the original government end-user.
The parts will not provide an upgrade to the capabilities of the defense article as originally exported.
The parts must be of a type and quantity consistent with normal logistical support.
The exporter must use only the United States Postal Service, freight forwarders registered with DDTC and customs brokers licensed by the U.S. Customs Service.

I’m not sure what is meant by freight forwarders registered with DDTC. The current broker registration requirements under Part 129 of the ITAR exempt freight forwarders from registration requirements under that part. Perhaps the Working Group is hinting at some independent registration requirement for freight forwarders handling ITAR exports. Although that is not currently required, given the dismal ITAR compliance record of freight forwarders, there is much to commend some system of regulating freight forwarders that handled ITAR-controlled exports.

The larger question here is where all this would fit in the current export reform initiative. Will the new system adopt a uniform exception that looks like the RPL license exception of the Bureau of Industry and Security (“BIS”). That exception is limited to one-to-one exports. Or will the reforms lift the value limits imposed by DDTC on shipments to all users? Although DTAG’s work here is laudable, it might be rendered moot by the proposed export reforms.

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Jul

10

Cuba Travel Bill Loosens Export Restrictions, Advances to House Floor

Posted by Clif Burns at 1:04 pm on July 10, 2010

Category: Cuba Sanctions

Visit Cuba On June 30, the Travel Restriction Reform and Export Enhancement Act was voted out of the House Agriculture Committee by a vote of 25 to 20. The Bill would completely lift the longstanding ban on travel by most Americans to Cuba. The next step for the Bill would be a vote by the entire House, although there is no way to predict when, and whether, that might occur

In addition, and not mentioned by most press coverage of the proposed bill, the proposed legislation contains two measures relating to exports of agricultural products, medicine and medical devices to Cuba under the Trade Sanctions Reform and Export Enhancement Act of 2000 (“TSRA”). The first would reverse a regulation by the Office of Foreign Assets Control (“OFAC”) that interpreted language in TSRA requiring “payment of cash in advance” to mean payment prior to the departure of the ship carrying the goods from its U.S. port. Under the new bill, payment could be made upon presentation of the negotiable bill of lading or other document of title or prior to the physical delivery of the goods in Cuba.

The proposed bill also changes the payment mechanism for TSRA goods shipped to Cuba. Currently, an intermediary bank outside Cuba must receive payments from a Cuban bank and then transmit that payment to the U.S. bank involved in the transaction. Under the new law, the payment funds can be transferred directly from the Cuban bank to the U.S. bank.

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Jul

9

Arms Export Charges Added to Mac Aviation Indictment

Posted by Clif Burns at 9:19 am on July 9, 2010

Category: Arms Export • Criminal Penalties • Iran Sanctions

ABOVE: Thomas McGuinn

This blog previously reported on the indictment of three Irish residents — Tom McGuinn, his son Sean McGuinn, and Sean Byrne — and their company Mac Aviation for exports of helicopter engines from the United States to Iran. The defendants allegedly had the engines shipped from the United States to Mac Aviation in Ireland and then re-exported them to Iran.

Now comes news of a superseding indictment in that case with new charges against the defendants. Most significantly, the superseding indictment now alleges that the defendants bought F-5 canopy panels in the United States and then exported them to Iran. Based on these allegations, the superseding indictment adds for the first time counts for violating the Arms Export Control Act.

The significance here is that these charges may make it easier to extradite the defendants from Ireland because these exports violate current U.N. sanctions and would (at least presumably) violate Irish law, whereas the helicopter engine exports likely were legal under Irish law. The only problem here is that the F-5 canopy panel exports occurred in 2005. This was before U.N Security Council Resolution 1747 which imposed the international arms embargo on Iran in 2007.

The story told by the superseding indictment about how McGuinn and company got the canopy panels out of the U.S. is both interesting and a little unclear. McGuinn allegedly purchased the panels from a California company and told the company that the panels were going to the Nigerian Air Force. The California company naturally refused to sell the panels to McGuinn without an export license authorizing the panels to go to Nigeria. McGuinn then, according to the indictment, asked the California company to ship the panels to a representative of McGuinn’s freight forwarder in the United States, something the California company also declined to do without an export license. (Obviously, the California company had undergone good compliance training on export red flags!)

Now comes the interesting part. According to the indictment:

[D]efendant MAC AVIATION caused a representative of ABL freight, located in Compton, California, to remove all attached invoices from [the California company] from the F-5 forward canopy panels, and replace them with a Packing List and Proforma Invoice on defendant MAC AVIATION letterhead addressed to â€œMicroset Systems Sdn Bhd,â€ Free Commercial Zone, Southern Zone, Kuala Lumpur, Malaysia for three (3) Plastic Panels, Part Number 3-13204-01, Serial Numbers 2146, 2149, and 2150.

The packages were then shipped by ABL to Malaysia and, thereafter, McGuinn allegedly had them shipped on to Tehran.

It’s not clear who ABL is. Probably they are the California company’s freight forwarder. How MacGuinn got ABL to change the packing information and then ship the panels is even more unclear, although if that happened, my guess would be that some improper financial incentives to some ABL employee was involved. The panels had either been consigned to an ABL facility pending the licenses or the ABL employee had access to the California company’s parts warehouse. This part of the export scenario, if true, would also increase the likelihood of extradition from Ireland by strengthening the claims of U.S. jurisdiction over McGuinn who, it would appear, engaged in substantial activities in the United States in order to avoid the U.S. requirement for an export license.

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Jul

7

Mr. Gaillard Not So Gaillard Now

Posted by Clif Burns at 10:19 pm on July 7, 2010

Category: BIS • Criminal Penalties • Cuba Sanctions • Iran Sanctions

ABOVE: Oyster Bay Pump Works

Patrick Gaillard, president of Oyster Bay Pump Works, a producer of automated liquid dispensing laboratory equipment, recently signed a consent agreement with the Bureau of Industry and Security (“BIS”) under which he agreed to a three-year denial order and a $300,000 fine, $275,000 of which was suspended for one year provided that he commits no further export violations. According to the charging documents, Gaillard shipped laboratory equipment made by his company to Cuba and Iran by transshipping the equipment through Germany and the U.A.E.

Back in 2007. Gaillard pleaded guilty to criminal charges arising out of one of these exports and was sentenced to 30 days in prison, a $25,000 criminal fine, three years of probation, and a $300 special assessment. And, apparently, as Mr. Gaillard walked out of prison after serving his time, there were his friends from BIS, who participated no doubt in the criminal investigation, waiting at the prison gate for a second bite at Mr. Gaillard’s apple. BIS is free to waive about the Supreme Court’s decision in Hudson v. United States, 522 U.S. 93 (1997), which held that subsequent administrative fines almost never violate the Double Jeopardy Clause, but that doesn’t make the double whammy fair or decent, particularly where BIS is knee deep in the criminal trial.

The charging documents also accuse Gaillard of “acting with knowledge,” but the facts supporting these charges don’t seem altogether consistent with that.

Gaillard had knowledge that violations of the regulations were occurring or were about and intended to occur because Gaillard knew of the U.S. embargo of Iran and that the items could not be exported to Iran without U.S. Government authorization. In or around November 2005, a sales representative from an Iranian company approached Gaillard for the sale and export of the items described above to Iran. When Gaillard declined, citing the U.S. embargo of exports to Iran, the sales representative arranged with Gaillard to have the items exported to the Iranian company’s trading arm in the U.A.E., from where the items would be transshipped to Iran.

This suggests that Gaillard may have held the common, but incorrect, belief that the Iran sanctions would not block an export to a country other than Iran. Once the item is in the foreign country, so the belief goes, it is the law of that foreign country which governs whether or not the item can be exported to Iran. If that is what Gaillard believed, it is hard to assert that Gaillard acted with knowledge that his actions were illegal even if his belief were incorrect.

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