ABOVE: John L. Withers, II

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On Friday, a federal grand jury indicted arms dealer AEY and four company officials on charges, among others, that they committed procurement fraud and lied to U.S. officials about the origin of Chinese manufactured ammunition supplied by the company to Afghan forces in Afghanistan pursuant to a U.S. Government contract. Section 126.1 of the International Traffic in Arms Regulations provides that it is the policy of the United States to deny approvals for exports and imports of defense articles originating in China.

Today, Henry Waxman, the Chairman of the House Committee on Oversight and Government Reform, released a letter detailing evidence the Chairman said suggested that John L. Withers, II, the U.S. ambassador to Albania, was involved in efforts to conceal the origin of the Chinese ammunition. The Chinese-made ammunition was being sold to AEY by the Albanian Ministry of Defense through the Military Export Import Company of Albania (MEICO). Because the Ministry, AEY and MEICO knew that Chinese ammunition couldn’t be sold by AEY, the Chinese ammunition was being repackaged at a facility in Albania prior to its export. When a New York Times reporter wanted to inspect the facility, the Albanians became alarmed.

According to testimony before the Oversight and Government Reform Committee by Major Larry Harrison, a Defense Department official working in Albania, the Albanian Defense Minister requested an urgent meeting with the U.S. Ambassador in November 2007:

Major Harrison stated that in response to the Albanian Defense Minister’s request, he contacted the U.S. Embassy’s Deputy Chief of Mission, Stephen Cristina, who arranged for a meeting to take place at his private residence in Tirana that evening. Major Harrison personally attended the meeting, along with the Albanian Defense Minister, Ambassador Withers, Deputy Chief of Mission Cristina, and the Embassy’s Regional Security Officer, Patrick Leonard.

According to Major Harrison, the meeting lasted for several hours, ending around midnight. Major Harrison told the Committee that during this meeting, the Albanian Defense Minister asked for help from the U.S. Ambassador?l According to Major Harrison, “He made several comments to the effect of how he had been a friend of the U.S., he’d help the U.S…. He felt the U.S. owed him something.”

Major Harrison stated that the officials then discussed how to handle the New York Times reporter. He stated that his advice was to not allow the reporter to visit the facility, but that his advice was not accepted. Instead, the Albanian Defense Minister called the commanding general of the Albanian military forces and instructed him to remove all Chinese ammunition boxes from the site of the repackaging operation so that “there would be nothing for the reporter to see.” According to Major Harrison, “the Ambassador agreed that this would alleviate the suspicion of wrongdoing, if Mr. Wood [the New York Times reporter], while he was at Rinas, did not see Chinese ammo boxes.”

Waxman also alleges that U.S. embassy officials also attempted to conceal information about the November 2007 meeting from the Committee. This allegation is based on a document which the Embassy supplied to the Committee on its meetings with Albanian officials with respect to AEY contract and which did not fully describe the meeting at issue.

Neither the State Department, nor Ambassador Withers, has issued a response to these charges, but we won’t be surprised if the State Department makes allusions to a certain novel by Joseph Conrad and a character named Kurtz.

Alexander Latifi, who was acquitted last February on criminal export charges, has been busy seeking vindication, including seeking an award of attorneys’ fees under the Hyde Amendment. In a motion filed on June 12, 2008, we get a better idea of some of the defense arguments that the court may have relied upon in acquitting Latifi.

We have previously speculated that the availability on the Internet of the bifilar weight assembly drawing that was exported was a significant factor, although DDTC has continued to maintain the absurd position that drawings and photographs on the Internet might not be “public domain” material. Additionally, Latifi’s Hyde Amendment motion argues that the drawing, which was provided to Latifi by Redstone Arsenal as part of the bid solicitation, did not bear the legends required by Department of Defense Directive 5230.24. That directive provides, at paragraph E3.1.1.8, as follows:

All technical documents that are determined to contain export-controlled technical data shall be marked “WARNING – This document contains technical data whose export is restricted by the Arms Export Control Act (Title 22, U.S.C., Sec 2751, et. seq.) or the Export Administration Act of 1979, as amended, Title 50, U.S.C., App. 2401 et. seq. Violations of these export laws are subject to severe criminal penalties. Disseminate in accordance with provisions of DoD Directive 5230.25.”

Failure by the U.S. government to comply with this labeling requirement is not in itself a defense to a prosecution for a violation of the Arms Export Control Act and the International Traffic in Arms Regulations. But it could be relevant to the scienter requirement if the defendant did not otherwise know that the data or drawing contained technical data. Because of the scienter requirement for AECA and ITAR prosecutions, the government must prove that the defendant knew that the export was unlawful. But if there was other evidence that the defendant knew the export of the drawings was illegal, the failure of the DoD to abide by its own labeling regulations wouldn’t be relevant.

[Hat tip to David Brady who sent me a copy of Latifi’s Hyde Amendment motion]

Iranian sanctions legislation is back on Congress’s menu and Iranian caviar is not. Today the Senate Finance Committee approved a markup of The Iranian Sanctions Act of 2008, a re-tooling (and improvement) of the Iran Counter-Proliferation Act of 2007. The House approved similar legislation earlier this year.

Although the text of the mark-up is not yet available, a mark-up document posted on the Senate Finance Committee site describes the new legislation. Like the previously proposed legislation, the Iranian Sanctions Act of 2008 would forbid all exports from Iran to the United States, including carpets and food products — like caviar — which Iran can currently export to the United States. And it forbids foreign subsidiaries of U.S. companies from violating the sanctions, departing from current law which would permit foreign subsidiaries to trade with Iran if that trade is not controlled by the parent company or other U.S. persons.

The biggest change between the Iranian Counter-Proliferation Act of 2007 and the Iranian Sanctions Act of 2008 is that someone apparently looked at the text of the Trade Sanctions Reform and Export Enhancement Act of 2000 (“TSRA”) and made sure that the Iranian Sanctions Act of 2008 is consistent with the language of TSRA. Under the Counter-Proliferation Act exports of “food and medicine” were exempted from the export ban. Now the proposed Iranian Sanctions Act of 2008 exempts “agricultural commodities, medicine and medical devices,” thereby broadening the exemption to track TSRA.

The informational exemptions first past under the Berman Amendment are also preserved in the currently proposed legislation. And although the proposed legislation doesn’t codify the exemption for goods, service and technology to insure air safety, the proposed bill allows the President to make exceptions to the export bans and notes that the President had previously permitted the export of civilian aircraft parts.

It’s not often that we get to talk about horse meat at Export Law Blog, but that’s exactly what we’ll be talking about today. Yesterday, the Supreme Court denied certiorari in Cavel International v. Madigan, leaving in place a decision of the Seventh Circuit Court of Appeals upholding the constitutionality of an Illinois statue which, among other things, banned the export of horse meat for human consumption.

Now you should see why we’re serving up a platter of filet de cheval, sauce au poivre vert. Normally a state law banning a foreign export of any product (horse meat included) would raise serious questions under the U.S. Constitution’s Commerce Clause.

So why did the Supreme Court let the decision upholding the Illinois statute stand? Because Judge Posner, who wrote the opinion for the Seventh Circuit, deftly avoided the constitutionality of the anti-export provisions under the Illinois law.

The Illinois law banned the slaughter of horses for human consumption and banned the export of horse meat for human consumption. In the case before the Seventh Circuit, the plaintiff was a horse slaughterhouse and not an exporter. (Foreign exports were handled, apparently, solely by the middlemen.) So the plaintiff only had standing to challenge the anti-slaughter provision, not the anti-export provision, and the Seventh Circuit, therefore, had no occasion to decide whether the anti-export provision of the Illinois statute was unconstitutional, although there’s plenty in Judge Posner’s decision to suggest that the court had problems with the anti-export provision.

Although I don’t agree with everything in the the erudite Judge Posner’s opinion, it’s a fascinating and entertaining read, vividly written and argued, and it’s probably the only opinion of a federal appeals court (or any other court, for that matter) with a picture of a lion in a Texas zoo eating a “birthday cake” made of horse meat and decorated with whipped cream icing and a carrot candle.

Miami-based Andes Chemical Corp., which exports a variety of chemicals to the Caribbean as well as to Central and South America, was earlier this year named “Exporter of the Year” in the “Materials” Category by Commercial News USA, the “official export promotion magazine of the U.S. Department of Commerce.” Not very long after that, Andes entered into a settlement agreement with the Department of Commerce’s Bureau of Industry and Security (“BIS”) pursuant to which Andes admitted that it had exported sodium bifluoride, a precursor of sarin gas, to Jamaica without a license. Andes further agreed to pay a $60,000 for the six unlicensed shipments which occurred between May 2003 and July 2007. The company voluntarily disclosed the violations to BIS.

Sodium bifluoride is used as a souring agent by commercial laundries, in various sanitation and cleaning applications, and for tin plating and zinc galvanizing. And it can be used as the source of the fluorine atom in sarin and all other G-type nerve agents except tabun.

The chemical is categorized as ECCN 1C350.d.16 and it is clearly listed in the index to the Commerce Control List. It doesn’t take any specialized knowledge in chemical engineering to parse the CCL and the ECCN involved. So the only explanation for the failure to procure a license is that the company never even bothered to determine the export status of sodium bifluoride before exporting it.

The press release announcing the award to Andes states:

Winners were chosen based on the total number of documented export deals completed in 2006, total percentage increase in sales in 2006 compared to 2005, exports as percentage of total sales, the company’s commitment to exporting, the company’s commitment to customer service, and the company’s innovation and originality in marketing products or services.

Oddly, among the many factors considered in making the award, compliance with export laws and regulations is not among them, which explains how the company could be exporting a nerve gas precursor without a license and still be “Exporter of the Year.” Perhaps export compliance should be a factor considered by the Commerce Department when it makes the awards for 2009.