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Sep

18

Ninth Circuit Bulldozes the Arms Export Control Act

Posted by Clif Burns at 2:20 pm on September 18, 2007

Category: Arms Export

Doobi Yesterday the U.S. Court of Appeals for the Ninth Circuit upheld the dismissal of a lawsuit filed against Caterpillar by relatives who had been injured when Caterpillar D9 bulldozers were used to demolish homes in the Palestinian Territories. The court ruled that, because of the foreign policy issues implicated by the case, the complaint was subject to the political question doctrine and therefore not justiciable, i.e. not within any court’s jurisdiction.

This ruling was premised on the court’s finding that all the bulldozers had been sold to Israel under the Foreign Military Financing (FMF) program. According to the court:

[T]hese sales were financed by the executive branch pursuant to a congressionally enacted program calling for executive discretion as to what lies in the foreign policy and national security interests of the United States. See 22 U.S.C. Â§ 2751 (stating that the purpose of the Arms Export Control Act, which authorizes the FMF program, is to support â€œeffective and mutually beneficial defense relationships in order to maintain and foster the environment of international peace and security essential to social, economic, and political progressâ€).

Now this might make sense if Caterpillar manufactured an armored or military spec version of the D9 bulldozer. But it doesn’t. The Israeli Army customizes the civilian D9 to its own military specifications and then ironically renames these armored behemoths “Doobi” (Hebrew: ×“×•×‘×™â€Ž; lit. teddy bear). In fact, the U.S. Army has purchased armor kits from the IDF to convert D9s for use in Iraq.

The point of this is that Section 23 of the Arms Export Control Act, which authorizes the FMF program, only covers procurement of defense articles and services. If the D9 bulldozer is not a defense article, then the Ninth Circuit’s reliance on the AECA as a justification for finding that the law suit presents non-justiciable questions of foreign policy is misplaced. And if an unmodified D9 is now considered a defense article, it can’t be exported without a license under section 38 of the AECA, a conclusion that the folks at Caterpillar might find somewhat inconvenient. The Ninth Circuit, however, never looked behind the U.S. Government’s suspect decision to sell these items under the FMF program and, therefore, never saw this possible dilemma.

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Sep

13

Shackles Raise Hackles

Posted by Clif Burns at 7:52 pm on September 13, 2007

Category: Arms Export

DSEI Exhibition Floor The Guardian had an interesting dispatch from this year’s Defense Systems and Equipment Show:

Two companies were ejected last night from Britain’s biggest arms fair for promoting leg irons for prisoners and battlefield captors. BCB International, a British-based firm, and Famous Glory Holding, a Chinese company, were thrown out of the biennial Defence Systems and Equipment show which opened in London’s Docklands yesterday.

Although the type of leg irons on offer appear to escape the government’s ban on the sale and export of equipment that can be used for repression and torture, their promotion is hugely embarrassing to the exhibition’s organisers.

I’m sorry but I just don’t get that. You can exhibit at the DSEI show equipment that can wreak havoc six ways to Sunday but you can’t display leg irons? Because its embarrassing? That’s like banning the exhibition of skimpy pajamas at an “adult” product show.

On another note, you have to admit that Famous Glory Holding is the best name — ever — for a Chinese defense company.

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Sep

12

New Details on Oz Defense Trade Treaty

Posted by Clif Burns at 4:27 pm on September 12, 2007

United States of Australia The fact sheet released by the State Department’s Bureau of Political-Military Affairs on the defense trade treaty recently signed by President Bush and Australia’s Prime Minister Howard provides few details on what the treaty says. Fortunately, a detailed FAQ on the treaty was posted on the Australian Prime Minister’s website. Here are some of the more interesting portions of the FAQ.

First, unlicensed exports under the treaty will still require governmental notification:

Under the Treaty, US exporters will only need to advise the State Department that they have engaged in an eligible defence export activity; they will not need to apply for a licence.

Second, although government-to-government sales under the Foreign Military Sales programs are not addressed by the treaty transfers of technical data relating to the approved FMS equipment will not be required:

The arrangements for approving the export of US defence equipment to Australia on a government-to-government basis under the Foreign Military Sales (FMS) program will not be included under the Treaty. But once the equipment has been received in Australia, retransfers of the FMS-origin technology within the approved community of Australian companies will be permitted without the need for further approvals, significantly enhancing our ability to support this equipment in country and creating improved opportunities for Australian companies.

Third, the treaty permits unlicensed exports to companies in the “approved community.” The FAQ provides more detail on the requirements to be in that community. An Australian company would be excluded if

– There is a serious failure to comply with Australian export control laws and regulations and/or the commitments undertaken in joining the approved community;

– A company fails to meet its security obligations under the Defence Industry Security Program;

– There is a failure to provide written notification of material changes in the facts provided with the companyâ€™s application for qualification;

– There is a significant risk that there will be unauthorised diversion of articles or data provided under the treaty;

– There are false statements, misrepresentations or omissions of fact in the application or export related documentation, or significant failures to provide or maintain records of US defence articles and data in the companyâ€™s possession.

Fourth, the treaty will include verification procedures:

The Treaty will stipulate the setting up of a compliance and audit regime, the details of which have yet to be mutually determined.

Finally, as with the analogous U.S.-U.K. treaty, the treaty with Australia will exclude “highly sensitive exports” although there is not yet any agreement as to what articles will be deemed to be “highly sensitive.”

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Sep

11

A Cotton-Pickin’ Shame

Posted by Clif Burns at 5:07 pm on September 11, 2007

Category: OFAC • Sudan

Cotton The Office of Foreign Assets Control (“OFAC”) released today its monthly report of penalties imposed by the agency. Of course, that report reveals that OFAC continues to protect our national security by chasing hapless cigarficianados who buy their Cuban Cohibas over the Internet. More interesting, however, was a Penalty Notice posted by OFAC in conjunction with the report and which imposed a penalty of $8,250 on Parkdale Mills, the largest independent yarn spinner in the United States.

According to the Penalty Notice, Parkdale attempted to import, in October 2003, 1.65 million pounds of cotton from Sudan. Upon learning that such a transaction would violate the Sudanese Sanctions Regulations, Parkdale cancelled the transaction and the cotton was never imported from Sudan to the United States. In April 2007, OFAC sent a Prepenalty Notice to Parkdale alleging that the attempted import of cotton from Sudan violated section 538.204 and section 538.210 of the Sudanese Sanctions Regulations.

In a written submission to OFAC, Parkdale raised a number of arguments in its defense. The first argument was the Parkdale was unaware of the embargo of Sudan. I suspect that had Parkdale made that argument to Judge Judy, it would have elicited her trademark riposte: “Don’t pee on my leg and tell me it’s raining.” Cotton is the main cash crop of Sudan and constitutes 45 percent of its exports. There is no way on earth that Parkdale didn’t know that Sudanese cotton was embargoed.

Second, Parkdale claimed that First Atlantic Commodities told it that there were no licensing requirements. This argument is pretty much the equivalent of saying that your Uncle George thought the transaction was okay, given that First Atlantic Commodities is a small North Carolina company that appears to be principally involved in the real estate business and not international trade.

Saving its best argument for last, Parkdale also noted that it had in fact cancelled the order when it discovered that it violated the embargo. More likely, it cancelled the order when a freight forwarder or shipper said it wouldn’t handle the transaction because it seems inconceivable that Parkdale “discovered’ the prohibition only after it ordered the cotton.

OFAC, not surprisingly, wasn’t impressed by the first two arguments made by Parkdale. It provided a 25% mitigation of the originally proposed $11,000 penalty and based that mitigation on Parkdale’s previously clean record, its cancellation of the order and its timely provision of a response to the Prepenalty Notice.

Parkdale should really consider itself lucky here. For the life of me, I don’t understand why it would try to mitigate an $11,000 fine from OFAC by telling a story which, even on the off chance that it were true, sounds like a whopper. A company like Parkdale is going to be assumed to be a sophisticated company that buys large amounts of cotton on the world market and would therefore be quite aware of the embargo on Sudanese cotton — unless the entire purchasing staff of the company had been conducting their trading operations from space ships in some distant galaxy. Moreover, no agency likes to hear companies assert that the agency’s regulatory activities were so unimportant that the company just couldn’t bother to keep abreast of agency regulations. If OFAC had been more aggressive, it might well have launched an investigation into whether the response to the Prepenalty Notice was a misrepresentation that warranted further civil and/or criminal penalties.

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Sep

10

Yet Another Significant Fine Imposed by BIS After Voluntary Disclosure

Posted by Clif Burns at 5:20 pm on September 10, 2007

Category: BIS • General

Semiconductor Chip The Bureau of Industry and Security (“BIS”) just reported a settlement agreement it entered into with JSR Micro under which JSR Micro agreed to pay a civil penalty of $270,000. JSR Micro had voluntarily disclosed to BIS that it had exported photoresists classified under ECCN 3C002.a without the required licenses from BIS.

A photoresist is a thin material placed between a mask and a substrate, such as a semiconductor, which allows circuits or other patterns to be etched onto the substrate. Light is used to expose the photoresist and then a chemical process is used to remove exposed or unexposed portions of the photoresist. The shorter the wavelength of the light used to expose the photoresist, the higher the resolution of the image achieved on the substrate. Under ECCN 3C002.a, export licenses are required for photoresists optimized for use with light wavelengths that are 350 nm or shorter. (The Wassenaar Arrangement, by contrast, only requires licenses for photoresists optimized for use with wavelengths that are 245 nm or shorter).

According to the documents filed with the settlement agreement, JSR Micro engaged in 45 separate unlicensed exports of the photoresists to Israel, Singapore and Taiwan. These documents, however, charged JSR Micro with 90 separate violations. Each export was deemed a violation of section 764.2(a) of the Export Administration Regulations (“EAR”). Additionally, each export was deemed a violation of section 764.2(g) of the EAR because the Shipper’s Export Declarations filed with the exports stated that no license was required for the exports. Since each violation could result in an $11,000 fine, the charging letter asserted a potential liability of $990,000.

In fact, however, BIS was clearly double-charging the offense to try to extract a higher fine from JSR Micro. In every case where an exporter ships an item without a required license, it will always be the case that the SED states that no license is required, and yet BIS does not consistently add the SED charge in its charging documents for all unlicensed exports. The additional SED charge might seem fair where the exporter knew that a license was required and yet said that one was not on the SED. But there are no allegations here that JSR Micro knew that a license was required.

Even if one thinks that $270,000 is a fair settlement of a $990,000 liability in a voluntary disclosure case, it seems hard to feel the same about the same fine in such a case where only a $495,000 liability is asserted. That’s not even a fifty-percent reduction.

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