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Jul

9

Enternet Fined by BIS for Deemed Export Violations


Posted by at 6:16 pm on July 9, 2007
Category: BIS

Programmable Logic DeviceThe Bureau of Industry and Security (BIS) released last week a Settlement Agreement with Enternet LLC, an Illinois-based manufacturer and distributor of collating and insertion systems for newspapers. According to the released documents, Enternet “releas[ed] technology for the development, production or use of a field programmable logic device, technology subject to the Regulations (ECCN 3E991), to an employee who was, at that time, a national of Iran” without the required license. A penalty of $7,000 was imposed. It does not appear that the violation was voluntarily disclosed.

The device in question was most likely one of two sensors used by Enternet and that were described on its website:

Enternet’s Check One sensor, a positive logic infrared sensor, prevents human intervention or dirt from compromising the sensor’s purpose. And Enternet’s Cycle Sensor, also a positive logic device, enables phasing of the system to lock in on hopper adjustments before the hopper is required to feed, eliminating waste without operator intervention. Operating together, these two sensors permit the system to auto-learn and adjust for hopper drop locations.

The lesson here is that you can find export controlled technology in the most unlikely places. it is reasonable to suppose (particularly given the small fine) that Enternet didn’t know that these devices were export controlled. As a result, they wouldnt have know that they couldn’t provide information about the operation of those devices to an Iranian employee in the United States.

One important qualifications should be noted. The settlement documents don’t make clear that only certain field programmable logic devices are covered. Under ECCN 3A991 (to which ECCN 3E991 refers) covers only field programmable logic devices that have an equivalent gate count of more than 5000 (2 input gates) or a toggle frequency exceeding 100 MHz. I’m a bit surprised that these control sensors would have met those specifications, but they obviously must have, which is yet another reason that company engineers need to be conversant with the Commerce Control List.

Finally, when you click on the link to the Enternet documents on the BIS website, you will no doubt notice that the documents take quite some time to load. That’s because the file is more than 20 MB, which is much larger than needed for 11 pages. Recently, BIS has been posting these bloated documents instead of the much more streamlined documents that they had been posting previously. For example, another 11 page document, posted back in March of this year, was only 700 KB, almost thirty times smaller. Either BIS doesn’t want people looking at settlement agreements or they have a new person who doesn’t know how to scan the documents in properly. Since my money is on the latter possibility, I hope that they can fix this problem soon.

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Jul

5

Back Soon


Posted by at 1:31 pm on July 5, 2007
Category: General

Impromptu Fishing Hole

Regular posting resumes on July 9.

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Copyright © 2007 Clif Burns. All Rights Reserved.
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Jul

2

SEC Is Making A List, Not Checking It Twice


Posted by at 8:43 pm on July 2, 2007
Category: SanctionsSEC

SEC SealA new link has appeared on the home page of the Securities and Exchange Commission’s website. Under “Investor Information” there is a link called “State Sponsors of Terrorism” Hmmm, you wonder, the SEC now thinks that investors need to know which countries are state sponsors of terrorism? Perhaps, because when you click the link, there’s a list itemizing Cuba, Iran, North Korea, Sudan and Syria.

But wait, there’s more. Each country on the list is linked to a list of companies that mentioned that particular country in its 2006 annual report. This list is clearly an outgrowth of the SEC’s Office of Global Security Risk, on which we’ve reported here before and which is tasked with reviewing securities filings of publicly-traded companies to determine whether, among other things, companies should disclose dealings with sanctioned countries.

Being on that list is probably not a good thing. So you might think that the SEC might exercise some discretion about who belongs on the list and who does not. But you would be wrong. Take for example, candy and soft drink giant Cadbury Schweppes, which is on the Syria list. But if you click the link on that page you will discover that Cadbury sold its operations in Syria. Yes, it’s on the list because the annual report mentioned Syria, but only in the context that it divested its operations in Syria. If the purpose of the list is to disclose to investors companies that are running a risk by having operations in sanctioned countries, that is hardly served by listing companies that have divested their operations in those countries.

Needless to say, the list is starting to draw fire from business interests. The Institute of International Banks, for example, charged that the blacklist could discourage banks from listing on U.S. securities exchanges, even though that might arguably be the goal of such a list.

(FULL DISCLOSURE: If it’s hot over the July 4th holiday, a certain Cadbury Schweppes product will, at my house, be liberally mixed with gin and a squeeze of fresh lime, so we may not be completely impartial in our reporting on Cadbury Schweppes.)

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Jun

28

House and Senate Move to Restore “Cash Against Documents” Rule


Posted by at 6:30 pm on June 28, 2007
Category: Cuba SanctionsOFAC

Cuban StampThe House today adopted legislation that would roll back restrictive rules adopted by the Office of Foreign Assets Control (“OFAC”) in February 2005 regarding shipments of agricultural goods to Cuba under the Trade Sanctions Reform Act of 2005 (“TSRA”). Under those rules, payment was required prior to the departure of the ships carrying the agricultural goods.

The language of TSRA only requires that payment be made in one of two ways: (i) “payment of cash in advance” or (ii) through financing by third-country (i.e. non-U.S. and non-Cuban) financial institutions. Because of Cuba’s credit standing and inability to obtain third-country financing facilities, most transactions have been structured as “payment of cash in advance.”

The statutory term “payment of cash in advance” does not specify in advance of what. Prior to February 2005, OFAC had taken the position that a standard “cash against documents” transaction complied with that
term.

In a “cash against documents” transaction, the seller delivers the goods to the shipper and obtains a negotiable bill of lading from the shipper. The Cuban buyer’s bank (usually either Paris-based Banque National de Paris or Société Générale) pays the seller upon presentation of the bill of lading. The bill of lading is then provided to the Cuban buyer by the French bank. That bill of lading authorizes the shipper to unload the cargo and permits the Cuban buyer to take possession of the cargo.

Under prevailing commercial case law, the delivery of a negotiable bill of lading is seen as equivalent to delivery of the goods themselves. Accordingly, payment in advance of obtaining the bill of lading was seen as complying with the statutory requirement of payment in advance.

Under the “cash against documents” method, the goods are usually shipped shortly after the U.S. seller obtains the bill of lading. Because of the short shipping distance from southern ports to Cuba the goods often arrived at the port in Cuba before the French bank has confirmed the issuance of the bill of lading and made payment to the seller’s account. For this reason, OFAC began to advise the sellers’ banks that the transactions did not conform to the TSRA “payment in advance” requirement. And in February 2005, it adopted rules requiring payment prior to the departure of the ship transporting the purchased goods.

The House bill would restore the “cash against documents” rule. The Bush administration recently threatened to veto any legislation that would “weaken” the current sanctions, and it is widely believed that this threat was specifically directed at plans to restore the “cash against documents” rule.

A bill was introduced in the Senate on June 21 that would also restore the “cash against documents” rule. That bill would also lift all restrictions on travel to Cuba. A copy of the Senate bill can be found here.

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Jun

27

New ITAR Firearms Export Exemption in the Works


Posted by at 6:08 pm on June 27, 2007
Category: Arms ExportDDTC

Air Marshal PracticeOfficer Ozzie Ossifer is patrolling in Vermont near the Canadian border when he witnesses a juvenile engage in an act of malicious criminal cow-tipping. He takes off after the delinquent who crosses the Canadian border. He follows the youth into Canada, his service revolver still firmly stored in his holster. Donuts and desk work have taken their toll on Officer Ossifer and the youth eludes him.

A bad day for the faithful law enforcement official becomes worse when he’s stopped by ICE as he attempts to cross back into the United States. He’s cuffed and taken away for having violated the Arms Export Control Act when he carried his service revolver into Canada without a license from the Directorate of Defense Trade Controls. The cow-tipper having escaped scot-free returns night after night to Vermont to terrorize the local bovine population while Officer Ossifer is on forced administrative leave.

“Nonsense,” you say. Surely the ITAR must have an exemption for this. Well, the ITAR does have an exemption for temporary exports of firearms in section 123.17, but that exemption would be of no avail to the officer in this case. Officer Ossifer made no declaration of the weapon and there was no customs inspection. Things look grim for our fictional Officer Ossifer.

However, the U.S. and Canada are working on an agreement that may protect future (and real) law enforcement officers that cross the Canadian border with their weapons. An article on the CTV website today revealed that Canada is considering a change in its Export and Import Permits Act to permit exempt imports and exports by law enforcement officers when they cross the U.S.-Canada border in the course of their official duties. Significantly this is said to be part of a reciprocal arrangement with the United States, although the United States has yet to announce that it is considering such a reciprocal arrangement.

The chief motivation appears not to be hot pursuit cases such as the one described above, but the U.S. Air Marshall program and its Canadian equivalent, the Canadian Air Carrier Protective Program. Section 123.17 of the ITAR doesn’t apply to U.S. air marshals, who instead can only export firearms without a license under section 123.18 and then only “if they are assigned abroad for extended duty.” It is, of course, safe to assume that the TSA and its air marshals have simply been ignoring the ITAR. If the CTV report is right, we can expect to see soon a revision of the ITAR to cover temporary exports of service weapons by law enforcement officers in the course of their official duties.

The Canadian Gazette notice of the proposed change in Canadian law can be found here.

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Copyright © 2007 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)