The defense trade cooperation treaties signed by the United States with the United Kingdom and Australia may have just become victims of election year politics. The Senate Foreign Relations Committee announced today, according to this report in Defense News, that further consideration of Senate ratification of these treaties would be deferred until next year, i.e., until after the November elections. This could entail even further delays if the Democrats take the White House and decide to rewrite the treaty in order to put their own stamp on, and take credit for, the treaty.

The current delay seems to be prompted by the Senate panel’s concern that the State Department would need to amend the International Traffic in Arms Regulations in order for the treaty to be enforceable. Although the Foreign Relations Committee had repeatedly asked for such amendments, they had not been forthcoming, and apparently the committee became frustrated with the last response it received from State on September 15 and which the committee deemed incomplete.

According to the Defense News article, the members of the Foreign Relations Committee aren’t the only ones expressing frustration — U.K. officials are reportedly peeved as well:

In Britain, there has been mounting frustration that the measures have stalled, and the delay infuriated U.K. officials who were counting on securing approval before the end of the Bush administration.

“All the U.K. government wants is clarity of message from the U.S. government on what’s happened and whether they are motivated to get this ratified as soon as their processes are completed,” said one British official. “Right now, we’re getting all sorts of messages from each of the three strands of government.”

The Australians, being somewhat more patient than their colonial forebears, are reported to have put another prawn on the barbie, cracked open another tinny of Foster’s, and gone back to watching a game of footy on the telly. (In fact, I imagine that the Australians aren’t pleased with this development either, but I couldn’t find any reported reaction from the Australian government.)

The common wisdom is that the Directorate of Defense Trade Controls (“DDTC”) has a “see-through” rule for exports of defense articles, but that the Bureau of Industry and Security (“BIS”) does not have a see-through rule for exports of dual use items regulated by it. A “see-through” rule will impose export controls on an item if one of its parts is export controlled.

Well, as the recently released Settlement Agreement with Nalco Company illustrates, it is not strictly the case that BIS doesn’t have “see-through” rules. Nalco agreed to a $115,000 fine for thirteen unlicensed exports of water hardness testing kits to the Bahamas, the Dominican Republican, and Angola. One of the reagents in those kits contained triethanolamine, a chemical weapons precursor classified as ECCN 1C350.

The reason for the “see-through” rule here can be found in the ECCN’s “License Requrement Notes” which indicate that “mixtures” (as opposed to “compounds”) with specified percentages of the listed chemical weapons precursor are controlled by 1C350. Although there is no definition of “compound” or “mixture” in the Export Administration Regulations, it seems reasonable to assume that a “compound” refers to a new substance created by a chemical reaction of the component compounds, whereas a “mixture” refers to a separable commingling of various components. In layman’s (and somewhat simplistic) terms, bread is a “compound” of flour, yeast and water and salad dressing is a “mixture” of oil and vinegar. In the case of triethanolamine, the relevant percentage is 30 percent.

Mixtures containing 30 percent or more of chemical weapons precursors that are used as reagents in testing kits are excluded from 1C350 but are instead classified under ECCN 1C395. Items classified under ECCN IC395 require licenses to any country not a member of the Chemical Weapons Convention. Those countries are listed on Supplement 2 to Part 745 of the EAR and, needless to say, do not include the Bahamas, the Dominican Republic and Angola, the destinations for the exports by Nalco.

Yesterday the Treasury Department’s Office of Foreign Assets Control (“OFAC”) added the Islamic Republic of Iran Shipping Lines (“IRISL”) and its related companies to the Specially Designated Nationals and Blocked Persons (“SDN”) list. As part of this designation, 123 vessels believed to be operated by IRISL were added to the SDN list. As a result of these designations, U.S. persons are forbidden to engage in any transactions with IRISL, it’s related entities or the designated vessels. Freight forwarders and shippers are now forbidden to ship any cargo — including licensed cargo — on the 123 designated vessels. Furthermore any property of the IRISL that comes under the control of a U.S. person must be blocked.

Simultaneously with the designation Adam Szubin, Director of OFAC, and several State Department officials held a press briefing on the new designations. Szubin explained that the designation was based on IRISL’s shipment of proliferation materials. He also did a little jaw-boning:

And when that is combined with the demonstrated pattern of deceptive practices, where IRISL has misled maritime authorities and other companies about the nature of the goods it’s shipping, it leads one to a very difficult question, if one is considering doing business with IRISL consistent with international requirements.

So to the question you ask, every company and insurance company will have to ascertain for itself whether it is comfortable that the cargos and the shipments that it is insuring are consistent with international requirements not to assist Iran’s proliferation program. I don’t know how easily they can reach a state of comfort with that. If they can, then they ought to proceed. But I think it’s presenting, at the very least, a very risky proposition.

What’s going on here is that an insurer of a shipment transiting on IRISL isn’t dealing directly with IRISL and thus isn’t strictly prohibited from insuring the shipment, so Szubin is trying to jaw-bone insurers into not insuring the shipments.

What about banks that issue letters of credit covering shipments carried by IRISL? Like insurers, the banks may not be dealing directly with IRISL. Here the situation is somewhat more complicated. The designation order instructs banks to reject (but not block) any funds transfer referencing a designated vessel. Moreover,

Banks must contact OFAC’s Compliance Programs Division for further instructions should the name of an SDN vessel appear in shipping documents presented under a letter of credit or if noticed in a documentary collection.

Presumably the concern here is that part of the payment under the letter of credit may be used to pay freight charges to IRISL and thus involve prohibited direct dealings with IRISL.

One problem with any vessel designation is that names and flags of the vessel can be easily changed. In the press briefing Szubin attempted to address this problem by noting the vessel information contained in the designation:

Something that I haven’t mentioned yet today, but Treasury has also made available on its website, through its specially designated nationals list, a list of 123 IRISL vessels with special identifier numbers, the flags of registry, all the information that we have, including tonnage, so as to facilitate those around the world identifying whether an IRISL ship and IRISL is involved in a given shipment. … That is the – that is the full list of vessels that we’ve been able to identify with certainty and with the types of identifiers — I was mentioning earlier the tonnage that – the unique identifying number that belongs to a ship even if it changes its name, and that’s a key point when it comes to IRISL.

Director Szubin seems to be somewhat confused and to be suggesting that the vessels net weight is a unique identifying number that should checked for each vessel. In fact, he should — and probably intended to — reference the IMO number, a unique number assigned to each vessel by the International Maritime Organization and which survives name and flag changes. Accordingly, no freight forwarder or shipper should use a vessel without obtaining the vessel’s IMO and checking that number on the SDN list.

A federal grand jury in the District of Columbia indicted an Indian national, Siddabasappa Suresh, and an Indian company, Rajaram Engineering Corporation, for unlicensed exports of U.S.-origin export-controlled goods to the Vikram Sarabhai Space Center, an Indian government agency listed on the Bureau of Industry and Security’s Entity List. All exports to individuals and companies on the Entity List of U.S.-origin goods require a license.

Although the indictment has not yet been released, a Department of Justice press release describes in more detail the facts supporting the indictment as well as showing how BIS’s Sentinel Program played a role in the indictment. Under the Sentinel program, BIS officials travel to foreign countries to verify the end-use of items that BIS has licensed for export. According to the press release, the agents conducting the investigation learned that items licensed for export to Rajaram Engineering Corporation, one of the indicted defendants, were diverted to the Vikram Sarabhai Space Center. No license was obtained from BIS to permit those items to be delivered to the space center.

The indictment further reveals that Suresh and Rajaram conspired with an unnamed Indian subsidiary of an unnamed U.S. company to divert the goods to Vikram Sarabhai Space Center. The U.S. company appears to have been the manufacturer of the exported goods. It is not clear why the U.S. company and its subsidiary were not named, nor why the Indian subsidiary and co-conspirator was not indicted.