ABOVE: Professor Reece Roth

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Opening statements were made yesterday in the criminal prosecution of Professor J. Reece Roth, a retired University of Tennessee professor accused, inter alia, of violating the Arms Export Control Act. Specifically Roth is accused of violating the law by permitting a Chinese graduate student to work on a project involving the application of plasma technology to military unmanned aerial vehicles, commonly known as drones.

According to a report by the Knoxville News Sentinel on its website, the prosecution argued yesterday in its opening statement that an unidentified University of Tennessee official told Roth that it was illegal to have the Chinese graduate student working on the project. Roth’s attorneys do not deny this encounter:

Dundon [Roth’s defense counsel] conceded a UT official, who has not yet been identified in court, told Roth he was violating the law.

“Dr. Roth said, ‘That’s crazy,’ ” Dundon said. “He has not stopped expressing his displeasure and his conviction this research was never subject to (the arms export law).”

Although the identity of this official wasn’t identified in the opening statements, the official was clearly identified in the prosecution’s pre-trial brief filed last week. The official who told Roth that the Chinese graduate student couldn’t work on the project was Robin Witherspoon, the University of Tennessee’s Export Control Officer.

If true, and the defense seems to concede that it is, this puts Roth’s scienter defense into a very strange position. It’s not as if the University’s football coach told Roth that the Chinese student’s participation violated the export laws. In such a case, Roth’s vigorous disagreement with that statement might have some weight. But it was the University’s Export Control Officer, who Roth had to presume knew more about the export laws than he did.

The prosecution clearly feels that the issue of scienter is central to the case. Almost all of its discussion in the pretrial brief of the applicable standards of law discusses the scienter requirement and an apparent conflict among courts as to the meaning of that requirement in export cases. The weak version of scienter only requires that the defendants knows that his or her conduct is unlawful without also requiring any specific knowledge of the laws that are violated or why they are violated. The stronger version requires that the defendant have specific knowledge that the item is on the United States Munitions List or that a license is required.

None of these cases, however, appears to address the scienter issue raised here, namely, whether scienter exists where the defendant has been advised of the export violation but believes, in good faith, that such advice is incorrect.

Today the Bureau of Industry and Security (“BIS”) published a final rule which expanded the criteria which the agency could use to put foreign persons and companies on its “Entity List.” Most exports of U.S.-origin items to parties on the Entity List require export licenses, including exports of items that are not listed on the Commerce Control List.

Initially the Entity List included persons and companies that were likely to divert exports into programs related to weapons of mass destruction. The new rule now permits BIS to designate foreign entities on the list when it determines that the entity has been engaged in activities that are detrimental to the foreign policy or national security interests of the United States.

Five types of activities are detailed in the new rule as examples of such detrimental conduct:

• Supporting persons engaged in acts of terror;
• Supporting the military or terrorism capabilities of governments that have been designated by the State Department as repeatedly providing support for international terrorism;
• Dealing with conventional weapons in a manner detrimental to the foreign policy or national security interests of the United States
• Preventing accomplishment of an end-use check by BIS or the Directorate of Defense Trade Controls (“DDTC”); or
• Engaging in conduct that poses a risk of violating the Export Administration Regulations (“EAR”) when such conduct raises sufficient concern that prior review of exports or reexports involving the party enhances BIS’s ability to prevent such violations

These rules provide fairly broad grounds for designation, and it is hard to predict how aggressively BIS will pursue designations based on these five new categories. Two comments on the new rules, however, are in order.

First, some of the comments on the proposed rule that formed the basis of the final rule released today noted that there appeared to be an overlap between the Unverified List and the fourth category contained in the new rule, i.e., preventing an end-use check. BIS noted that the difference between the two lists is that parties can be placed on the Unverified List where BIS is unable to conduct an end-use check, whether that is because of the party’s active refusal to cooperate with the agency or permit the end-use check or because of some other reason unrelated to the party’s activity. On the other hand, an active refusal or interference with an end-use check can provide a basis now for designation on the Entity List.

Second, the most interesting comment, and the least helpful response from BIS, was buried near the end of BIS’s notice adopting the final rule:

One commenter stated that the rule should make clear that only listed entities—not, for example, unlisted affiliates, subsidiaries or sister entities are covered.

BIS intends to publish guidance on dealing with entities related to those on the Entity List in the near future.

This has been a persistent problem with the Entity List and other BIS lists, and BIS shouldn’t have blithely declined to provide guidance when promulgating this rule. The issue is whether the fact that an end-user is a parent, subsidiary or affiliate of a listed entity should be treated as a red flag, triggering an obligation to engage in more due diligence to assure that the item won’t be diverted to the listed entity or whether that fact should that trigger a license requirement. At least for the moment, BIS isn’t providing any guidance on this issue.

The safest course of action is to treat an export to a parent or a wholly-owned subsidiary of a company on the Entity List as equivalent to an export to the listed entity and to obtain a license. Exports to affiliates of a company or individual on the Entity List should trigger due diligence and further investigation to assure that the exported item won’t be diverted to the listed entity.

ABOVE: Professor John Roth

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Today, on the eve of the trial of retired Professor John Roth of the University of Tennessee for permitting a Chinese graduate student to access controlled technical data relating to military unmanned aerial vehicle (“UAV”) development contract, the company that subcontracted Roth to work on the UAV project pleaded guilty to ten violations of the Arms Export Control Act. As part of its guilty plea, the company, Atmospheric Glow Technologies, admitted that it knew that Professor Roth had a Chinese graduate student assisting him on the UAV project and was providing information on the project to the student without the approval of the State Department’s Directorate of Defense Trade Controls (“DDTC”). Roth’s trial starts Monday. Roth has pleaded not guilty.

We have discussed this case in two prior posts which can be found here and here. Roth’s likely defense will be that he didn’t know that he violated any laws by providing the information to the graduate student. Although AGT’s plea doesn’t directly affect that claim, that plea may result in AGT officials providing testimony on the issue of Professor Roth’s knowledge of whether U.S. export laws restrained him from disclosing the UAV data to a Chinese national.

Who knew that they had giants in Iran? More specifically, who knew that Iran had a 7’2″ basketball player named Hamed Ehadadi. The NBA did, that’s who. And faster than you can say “Yao Ming,” several NBA teams were doing what NBA teams do to lay claim to a guy who can touch the hoop without even jumping.

Enter the lawyers. Last Friday, legal counsel for NBA sent an urgent letter to all NBA teams, telling them to cool their heels. According to the letter:

We have been advised that a federal statue prohibits a person or organization in the United States from engaging in business dealings with Iranian nationals.

And, of course, the NBA rapidly filed an application for a license from OFAC for the talks to continue, an application which is likely to be granted, if for no other reason that it will be hard for a 7’2″ guy to do anything sneaky once in the U.S.

But the NBA letter and last-minute application may not be the buzzer beater that it seems. According to the Yahoo Sports news report that broke the story of the NBA’s license application:

After going unselected in the 2004 NBA draft, Ehadadi became a free agent eligible to sign with any team.

Look, if Ehadadi was signed up for the 2004 draft, the horses have already left the barn, so to speak. For the draft to work, Ehadadi had to file a draft declaration and that draft declaration had to be communicated to each of the NBA teams participating in the draft. That certainly looks like a prohibited transaction with an Iranian national to me, although it’s possible that the NBA had an OFAC license permitting Ehadadi’s participation and the news report didn’t mention it.

UPDATE: A further thought on Ehadadi being in the 2004 Draft. Maybe the NBA can try to rely on the information exception. Since Ehadadi was never signed, it remained simply the provision of information about his availability. Thoughts on this argument, anyone?