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Apr

6

One That Should Have Gotten Away

Posted by Clif Burns at 11:12 am on April 6, 2007

Captain Ted Baier and his charter fishing boat “Lethal Weapon” went fishing in March 2003 and encountered Jaws — or, at least, the jaws of the Bureau of Industry and Security (“BIS”). According to charging letters and settlement agreements just posted on the BIS website, this fateful trip started from the tropic port of Key West. Captain Baier, the skipper brave and sure, apparently wandered into Cuban territorial waters not so far south of Key West. And the rest is history — a $5,000 fine for the Skipper and a $12,000 fine for his company Lethal Weapon Charters.

The charging letters accuse the boat of being exported without an OFAC license from Cuba when it traveled twice “from the United States to Cuba or enter[ed] Cuban territorial waters.” It’s doubtful that the Lethal Weapon landed in Cuba and much more likely that, in pursuit of marlin or other quarry, the eager crew entered Cuban territorial waters 12 miles from the coast of Cuba (and 78 miles from Key West). I’ve heard that this is not uncommon for charters out of Key West. A little Google work and you can quickly find some Key West charter boats that trumpet on their websites their successes in Cuba’s annual International Hemingway Fishing Tournament.

Now, we’re not going to claim that Captain Baier and his boat didn’t break the law here. But we can’t resist saying “Come on, doesn’t BIS have better things to do??” The purpose of the Cuba embargo is to deprive Castro of needed financial resources. Castro didn’t earn one red dime from the Lethal Weapon’s foray into his waters. If anything, U.S. fishing in Cuban waters takes money away from Castro.

So, BIS should stop wasting time worrying about where charter boats are in the Florida Straits and do what they are supposed to do which, we thought, was to protect national security.

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Apr

5

You Mean England Is a Separate Country?

Posted by Clif Burns at 7:50 am on April 5, 2007

Category: BIS

flag The Bureau of Industry and Security has a new target: foreign employees of U.S. companies. BIS just posted an order, effective April 2, 2007, imposing a seven-year denial of export privileges on Stephen Lincoln, a citizen and resident of the United Kingdom. The order was the result of a settlement agreement between Lincoln and BIS.

According to BIS, Lincoln shipped U.S. origin software with an encryption module to Iran while he was the Sales Manager of the UK office of Buehler, Ltd., a U.S. company that manufactures scientific instruments and supplies for material analysis. The charging letter does not allege that Mr. Lincoln ever set foot in the United States or had any connection to the United States other than his employment by a U.K. subsidiary of a U.S. company.

Of course, issues as to the extraterritorial application of U.S. laws are merely legal niceties with which BIS cannot be bothered. However, U.S. law restricts extraterritorial application of U.S. law to two cases. First, a statute may have extraterritorial application where it clearly states an intent to have such application. EEOC v. Arabian American Oil Co., 499 U.S. 244, 248 (1991). Second a statute may have extraterritorial application where it is being used to punish extraterritorial misconduct that was intended to have an effect in the United States. Ford v. United States, 273 U.S. 593, 623 (1927). The classic paradigm of this second situation is where someone fires a shot across a border and kills somebody in the other country.

Nothing in the Lincoln case suggests that the second factor, extraterritorial effect, can justify punishment of a U.K. citizen for an export from the U.K. to Iran. Nor do the EAR or IEEPA, the authorizing statute, manifest a clear intent to exercise extraterritorial jurisdiction over foreign citizens in their home countries. Section 734.5 of the EAR is the only provision of the EAR that directly addresses the jurisdiction of the EAR over foreign persons outside the U.S. That section — titled “Activities of U.S. and foreign persons subject to the EAR” — provides that foreign persons are only subject to the EAR for violations of an order issued under the EAR. No order had been issued against Mr. Lincoln at the time of Mr. Lincoln’s shipment of the software, and so that shipment violated no order under the EAR. Of course, now that Mr. Lincoln has consented to an order denying him export privileges, his future conduct may be held to be covered by the EAR.

But even if the U.S. could in theory exercise jurisdiction over Mr. Lincoln for his shipment of software to Iran, the U.S. couldn’t exercise this jurisdiction in practice unless it could extradite him. The recently-adopted extradition treaty between the U.S. and the U.K., however, makes extradition seem at best a distant possibility. Article 2(4) deals with crimes committed outside the territory of the “Requesting State,” which, in this instance would be the United States. Under the treaty, the crime would be an extraditable offense only if the laws of the U.K provide for punishment of U.S. citizens for extraterritorial violations of U.K. export laws, a dubious proposition at best.

So why didn’t Mr. Lincoln tell the BIS simply to take a hike? Here we can only speculate, but my guess is Disneyland. Or perhaps the Grand Canyon. Mr. Lincoln didn’t want to risk being arrested if he visited the U.S. on holiday so he thought that agreeing to the order, particularly inasmuch as he didn’t have to pay a fine, was a simple way to avoid that problem.

Unfortunately, complying with the Order may be more difficult for Mr. Lincoln than he imagines. The Order entered is a typical BIS order that prohibits the person subject to the order from, inter alia, “receiving [or] using . . . any item exported or to be exported from the United States that is subject to the Regulations.” Under section 734.3(a)(2), an item subject to the Regulations includes all “U.S. origin items wherever located.”

Now this language makes perfect sense for an order denying export privileges to someone in the United States. It makes no sense whatsoever when applied to Mr. Lincoln, who will violate the terms of the order if he orders a Budweiser at the local pub, rents a DVD of “Casino Royale” at his neighborhood video store, or uses a computer running a Windows operating system. And by agreeing to the order, he has obviously made himself subject to U.S. jurisdiction as well as the absurd requirements of this order.

Perhaps Mr. Lincoln should rethink that trip to Disneyland.

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Apr

4

Prosecution’s Argument in Mak Trial Makes Exports of 757s to China Illegal

Posted by Clif Burns at 8:05 am on April 4, 2007

Category: General

QRS-11 Navigational Chip We have criticized before the prosecution’s claim in the Chi Mak prosecution that the public domain exclusion doesn’t apply to exports of technical data to China. The prosecution bases its argument on language in section 126.1(a) of the ITAR that says that “exemptions” can’t be used for exports to embargoed countries. As we have noted, that language clearly refers to parts of the ITAR explicitly denominated as “exemptions” and not to the various definitional exclusions scattered through the ITAR, such as the exclusions of public domain information and basic research principles from the definition of technical data.

It recently occurred to us that one exclusion in particular shows the folly of the government’s position — the exclusion of quartz rate sensors from Category VIII(e). That category covers “inertial navigation systems.” A note to Category VIII(e) states that the category “does not include” quartz rate sensors if the sensor is “included as an integral part of a commercial standby instrument system” on commercial aircraft.

The background behind that rule is the infamous QRS-11 navigational chip that Boeing began to put in the navigational systems of commercial jetliners in 2000. In April 2006, Boeing agreed to pay a $15 million civil penalty for, among other violations set forth in the charging letter, exporting commercial jetliners equipped with that chip to embargoed countries, including China from 2000 until 2003.

Beginning in 2003, Boeing began to apply for license for exports of commercial aircraft equipped with the QRS-11. In September 2003, Boeing applied for a license to export such aircraft to China. It was clear to DDTC that the arms embargo wasn’t intended to prevent shipment of QRS-11 equipped planes to China. Accordingly, it sought and obtained Presidential waivers to permit shipment of such planes to China, notwithstanding the arms embargo. Additionally, DDTC ultimately amended the rules on January 7, 2004, to exclude QRS-11 equipped commercial airplanes from the USML. The clear intent of this provision was to remove such aircraft from the strictures of the arms embargo in section 126.1.

The argument by the prosecution in the Mak case is counter to the understanding of DDTC of its own rules. DDTC clearly intended to permit QRS-11 aircraft to be shipped to proscribed countries under section 126.1. If the prosecution’s argument were accepted, Boeing will be breaking the law by selling its commercial aircraft to China. The prosecution might actually believe that but DDTC, which makes the rules, doesn’t.

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Apr

2

Indian Government Officials Accused in U.S. Export Indictment

Posted by Clif Burns at 3:20 pm on April 2, 2007

Category: BIS • Criminal Penalties • Nonproliferation

Dr. Vikram Sarabhai! Two Indian nationals were arrested in the United States on March 23 for exporting dual-use items to India without a license. Although the indictment delivered by the District of Columbia grand jury is not yet posted on the Internet, recent news reports from the Indian press, provide some additional detail as to the charges.

The two arrested men are Parthasarathy Sudarshan, founder of Singapore-based Cirrus Electronics, and Mythili Gopal, president of Cirrus’s U.S. subsidiary. Cirrus’s U.S. subsidiary would source parts from U.S. vendors and then ship to Cirrus in Singapore from where they were trans-shipped to India. In one case, the indictment alleged that parts were shipped by Cirrus to the Vikram Sarabhai Space Centre, which is on BIS’s Entity List.

The indictment alleges participation in the illegal exports by two unnamed Indian officials: a consular official posted to the Indian embassy in Washington, D.C. and another official of the Aeronautical Development Establishment, an Indian government agency. A spokesman for the Indian government was, not surprisingly, non-committal about these allegations. According to the Mumbai Sunday Express:

Foreign Secretary Shiv Shankar Menon said: â€œWe are looking into the allegations. Now they are only allegations…we will get back to you when we have something to say about it.â€

No doubt the Foreign Secretary is concerned about the impact that these allegations may have on current negotiations of a 123 Agreement between the United States and India under which India will gain access to nuclear fuel, technology and reactors. (A “123 Agreement” is a nuclear cooperation pact fulfilling the conditions of section 123 of the Atomic Energy Act.)

The head of the Vikram Sarabhai Space Centre is already trying to spin the indictment according to this story in the Times of India:

Vikram Sarabhai Space Centre director, B N Sureesh, told TOI from Thiruvananthapuram, “We do not bluff.” He said whenever his organisation imports items, it always provides an end-user certificate. “So there is no question of us trying to obtain items by stating one purpose and quietly using it for another.”

Or maybe not.

When we can dig up the indictment, we’ll provide more information on exactly what the government has charged.

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Mar

29

One Way to Win An Argument . . .

Posted by Clif Burns at 7:51 pm on March 29, 2007

Category: Arms Export • Criminal Penalties • DDTC

Silenced! . . . is to gag your opponent. And that’s exactly how the prosecution is trying to win the public domain argument in the Chi Mak trial, which we’ve discussed here and here.

At least two of the three documents that Mak is charged with exporting in violation of the Arms Export Control Act were clearly public domain. They were co-authored by Mak and presented at seminars which were conducted by the American Society of Naval Engineers and which were open to the public. Accordingly, under section 120.11(a)(6) of the ITAR, these papers were public domain information and not export-restricted technical data.

The prosecution’s approach to this argument was to ask the trial court through a Motion in Limine to forbid Mak from introducing any evidence that these papers were presented at public conferences, which is rather like trying to suppress evidence that the victim is still alive at a murder trial.

The government’s basis for this outrageous claim is, well, outrageous. The government asserts that DDTC has certified that the two papers were technical data within the rule and then claims that this certification is immune from any judicial review.

The basis for this argument is Â§ 2278(h) of the Arms Export Control Act, which states

The designation by [DDTC], in regulations issued under this section, of items as defense articles or defense services for purposes of this section shall not be subject to judicial review.

So, did DDTC issue regulations designating these documents as technical data? Of course not. So how could this provision apply at all?

The government tries to get around this problem by citing Karn v. United States Dep’t of State, 925 F. Supp 1 (D.D.C. 1996). That case did indeed hold that a DDTC determination that a particular diskette was a defense article was not subject to review. But the government doesn’t tell the whole story of why the Karn court held that this determination was unreviewable. The court made that determination because the determination was made by DDTC pursuant to the specific procedures for a commodity jurisdiction request set forth in section 120.4 of the ITAR:

It is far more reasonable to read [the Arms Export Control Act] to preclude judicial review for the designation of items as defense articles pursuant to the language of the munitions list and the procedures provided for interpreting the list, all set forth in the ITAR–in other words, if the defendants follow the procedures set forth in the ITAR and authorized by the AECA for designating an item as a defense article, such item is a part of the munitions list.

I’ve seen these certifications from DDTC in other criminal export cases but, dollars to doughnuts, the DDTC has not made a formal commodity jurisdiction determination under the procedures set forth in section 120.4 Instead, it is likely that it simply responded to an informal request from the prosecution with a letter or affidavit. Nothing, not one word, in Karn suggests that such an informal response from the DDTC is immune from judicial review.

Even if the informal determination is unreviewable, it is only unreviewable as to what the DDTC actually determined. Clearly the DDTC would have determined that the papers related to a defense article on the USML. If the papers also had possible non-military applications, the DDTC would have determined in addition that the papers primarily related to the defense article.

But did the DDTC determine that the papers were in the public domain? Of course not. How could it? How could the DDTC determine that the documents had never been released to the public? At most, the DDTC determination, even if you buy the government’s non-reviewability argument, forecloses the defendants from litigating whether the papers predominantly relate to defense articles.

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