The export classification of recently-devised forms of non-lethal weaponry can be a tricky business, and nowhere more so than in the case of Long Range Acoustical Devices (“LRAD”). This interesting article in Der Spiegel Online states that the Bureau of Industry and Security (“BIS”) is considering adding LRADs to the Commerce Control List. What is apparently motivating the review of the LRAD is concerns that the Chinese, who have a number of LRADs manufactured by American Technology Corporation, may use them on human rights demonstrators during the Beijing Olympics.

The LRAD, according to the Der Spiegel article, was developed in the wake of the attack on the USS Cole in order to enforce exclusion zones around naval vessels. That would certainly seem to put the equipment in Category XI of the USML. American Technology Corporation argues otherwise:

But the American Technology Corp. (ATC) says the device is designed to “influence behavior and determine intent.” Robert Putnam, in charge of media and investor relations with the San Diego, California-based company, says it is “a directed sounds communications system, not a weapon.”

And the company’s website describes the ability of LRAD to communicate over long distances “with authority.”

But the device can also direct over long distances ear-splitting sounds that are painful and potentially dangerous to hearing. So it seems somewhat dicey to say that the device is just a long-distance communication device.

According to this article in The Times, Lloyd’s TSB expects to pay a £180 million fine, or about $350 million, to the Department of Treasury’s Office of Foreign Assets Control (“OFAC”) for transactions with companies and individuals in embargoed countries. No detail is given on the specific payments involved, but it’s reasonable to speculate that it involves a number of payments to Cuba and Iran given the size of the anticipated penalty. The anticipated £180 million fine outpaces the $80 million payment made by ABN Amro in 2005 and the $100 million fine paid by UBS to the Federal Reserve in 2004 for transactions with sanctioned countries.

The Times reporter, however, seems to have more or less made up her description of the applicable OFAC regulations rather than speaking with anyone who was actually familiar with them:

America banned banks from carrying out transactions in the US in dollars for people or businesses from the countries on its blacklist in the hope that this would starve terrorists of funding.

Er, no. Transactions in foreign currencies are covered as are transactions carried out by branches of U.S. companies outside the United States. Perhaps I shouldn’t be so critical since I’d probably have as much trouble with the rules of cricket as the Times reporter had with OFAC’s much more complex rules.

The Bureau of Industry and Security (“BIS”) recently released a settlement agreement pursuant to which Aviall Pte Ltd agreed to pay $3600 for violation of BIS’s antiboycott regulations. Aviall Pte Ltd. is a Singapore-based subsidiary of U.S.-based Aviall, Inc., which is, in turn, a wholly-owned subsidiary of Boeing.

According to the charging letter, Aviall Pte. received a purchase order in November 2002 from a customer in Bahrain with the following language:

9. ISRAELI BOYCOTT: In the case of overseas suppliers, this order is placed subject to the Suppliers being NOT on the Israeli Boycott list published by the Central Arab League.

Aviall fulfilled the order without deleting or otherwise taking exception to this condition in violation of section 760.2(a) of the Export Administration Regulations. Furthermore, and in violation of section 760.5 of the EAR, Aviall Pte. failed to report the boycott request to BIS.

This case is a good occasion to remind exporters and companies with foreign subsidiaries that the anti-boycott regulations apply fully and directly to controlled foreign subsidiaries of U.S. companies under sections 760.1(b) and 760.1(c) of the EAR. Under section 760.1(b)(1) a U.S. person includes a “controlled in fact” foreign subsidiary of a U.S. company. Section 760.1(c)(2) a company is “controlled in fact” if the U.S. company owns more than 50 percent of the stock of the foreign subsidiary or owns 25 percent or more of the stock of the foreign subsidiary if no other person owns or controls an equal or larger percentage of the foreign subsidiary. Here Aviall Pte. was a wholly-owned subsidiary of Aviall, Inc., which is a U.S. company incorporated in Delaware.

Although the fine here was relatively small, larger fines are a distinct possibility, meaning that U.S. companies should impress the need upon their foreign subsidiaries doing business in the Middle East to carefully read contracts for anti-boycott language, and to delete and report such language when found.