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Oct

11

Catfish Row

Posted by Clif Burns at 2:06 pm on October 11, 2006

Vietnamese Catfish False labelling of exported goods can land exporters in a world of trouble and sometimes in places they don’t expect. We previously posted on a shrimp exporter prosecuted in the United States for misrepresentations made to Mexican authorities. Today we have a new development in the case of a Vietnamese exporter indicted in Florida for mislabeling exports from Vietnam to the United States.

At issue were exports of catfish from Vietnam to the United States. Because catfish from Vietnam is subject to anti-dumping duties in the United States, the exporter in question labelled the catfish as grouper to avoid the dumping duties. In May 2006, the U.S. Attorney for the Northern District of Florida obtained a criminal indictment against both domestic importers and foreign exporters of the mislabelled catfish. An Giang Agricultural and Food Import Export Company (“AFIEX”) and Mr. Buu Huy, its Deputy Director, were included among the indicted Vietnamese exporters.

Several days after the indictment Mr. Huy traveled to Brussels to attend the European Aquatic Product Fair and was promptly arrested by Belgian officials at the request of the U.S. Attorney who had obtained the indictment. The Belgians held Mr. Huy in custody while U.S. officials sought to extradite Mr. Huy to Florida. Mr. Huy spent 133 days in custody in Belgium before Belgian officials refused, on September 20, to allow the extradition. On Monday, Mr. Huy finally returned to Hanoi. It is perhaps safe to assume that if he had plans to visit Disneyland, they have been indefinitely postponed.

The Vietnamese Association of Seafood Exporters and Processors (“VASEP”) had intervened with the Belgian government to secure Mr. Huy’s release. One of the arguments that they presented to the Belgian officials is that the Vietnamese exporters were not liable to pay the U.S. duties that were being evaded and that liability should rest solely with the U.S. importers who were obliged to pay the evaded duties. Although this explains why an exporter might believe that its actions shouldn’t lead to penalties for it in the importing country, it neglects that the conspiracy to help the importer evade duties is equally criminal. Furthermore, the fact that Mr. Huy was involved in exporting goods to the United States arguably gave the U.S. courts criminal jurisdiction.

I could find no record as to why the Belgian government finally released Mr. Huy. In addition to the argument that VASEP made to the government, Mr. Huy’s lawyer also argued that AFIEX stopped exporting to the United States prior to the imposition of the anti-dumping duties and that the shipments had the correct Latin name for the fish. The important point here, however, is that exporters should understand that unlawful exports can result in liability in both their home country and in the country to which the goods are shipped.

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Oct

10

OFAC Fines Koch Foods More than a Poultry Sum

Posted by Clif Burns at 11:59 am on October 10, 2006

Category: OFAC

OFAC announced last week that it had reached a settlement with Koch Foods, a major chicken processing firm, arising out of shipments by Koch to Iraq in August 2002. The OFAC announcement follows OFAC’s general policy of providing minimal guidance to the export community and, thus, has few details of Koch’s violation other than this:

OFAC alleged that Koch shipped under contract with a company located in a third country four shipments (consisting of 20 containers) of frozen poultry that had a final destination of Iraq. Koch has reported to OFAC corrective measures and improvements to its OFAC compliance program. Koch did not voluntarily disclose this matter to OFAC.

Since Koch’s contract was with a third-party outside Iraq, it is not clear from this barebones factual statement whether Koch knew, or even should have known, that the chicken was destined for Iraq. If, for example, this was a case where Koch didn’t know, but should have known, where the chicken was being shipped, then OFAC could educate exporters and prevent future violations by detailing the factors that should have alerted Koch that the poultry was headed for the markets of Saddam Hussein’s Baghdad.

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Oct

9

Paying for the Sins of the Exporter

Posted by Clif Burns at 1:14 pm on October 9, 2006

Category: BIS

Behang University Logo With each export violation for an item on the Commodity Control List, there is always the possibility that not only will the exporter have BIS to deal with, but also the freight forwarder and shipper will have an unpleasant encounter with the agency. This is a lesson that UTi Worldwide, a global logistics company, just learned the hard way.

The story starts in February 2002 when Extreme Networks, Inc., a NASDAQ-listed provider of communications hardware, shipped a telecommunications switch to Beijing University of Aeronautics and Astronautics (Beihang University). The switch was classified as ECCN 5A991, which is controlled for AT reasons and normally would not require a license to China. Beihang, however, is on BIS’s “Entity List” and therefore a license was required for shipment of the switch to Beihang. According to the BIS charging letter, Beihang knew this because it had previously applied for, and been denied, a license to ship comparable items to Beihang. Extreme Networks agreed in May 2006 to pay a $35,000 civil penalty to settle BIS’s charges.

UTi was the freight forwarder in the transaction. The BIS charging letter accused UTi of aiding and abetting Extreme Networks’ export violation, of aiding and abetting Extreme Network’s false statement on the SED that the goods were destined for Hong Kong, making a false statement on the SED by stating that the item was EAR99, and transporting the item from Hong Kong to China. UTi agreed to to a fine of $33,000, or just $2,000 less than the fine paid by the exporter Extreme Networks.

There is considerable controversy about when a freight forwarder should pay for the sins of the exporter. The charging letter for UTi is, not surprisingly, devoid of many details describing the transaction, so it is difficult to determine why BIS sought to hold UTi culpable here. UTi is charged with aiding and abetting the export and with making a false statement that the item being exported was EAR99. It seems likely that UTi took Extreme Network’s claim that the item was EAR99 at face value. Having done so, it was then charged with making a false statement on the SED. The question here is what does a freight forwarded need to do to protect themselves? Should the forwarded open the package, inspect the goods, and attempt to classify them itself?

Perhaps what actually got UTi in hot water here is revealed in the third charge — that UTi exported the item from Hong Kong to China. (For BIS purposes, Hong Kong and China are still separate countries.) That was likely done by simple transshipment through Hong Kong. This should, under any interpretation, have been recognized by UTi as a red flag warranting further investigation of the shipment.

UTi’s woes did not end with the $33,000 civil penalty for the Extreme Network’s shipment. On the same date that UTi entered into the settlement relating to the Extreme Network’s violation, it entered into a separate settlement agreement for 34 other exports. The charging letter accused UTi of omitting the exporter’s EIN on one SED and of providing false EINs for the exporter on the other 33 exports. To settle these charges, UTi agreed to pay a civil penalty of $76,500.

It is easy to see how UTi should be culpable for failing to provide an EIN on the SED because it certainly knows that one must be provided. However, as to the false EINs, culpability seems less clear. That information was provided to UTi by the exporter and there appears to be no reason that UTi shouldn’t have accepted the exporter’s word as to its own EIN. Are shippers required to demand that exporters provide a document from the IRS attesting to the accuracy of the EIN? That would appear to be the only safe course but is a solution that is impractical both for exporters and their shippers and freight forwarders.

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Oct

5

The Prods That Keep on Prodding

Posted by Clif Burns at 12:05 pm on October 5, 2006

Category: BIS

Earlier we reported on the misfortunes of The Springer Magrath Company, a Nebraska-based agricultural supply house that had shipped cattle prods to South Africa without a license. Cattle prods are controlled because they can be used in human rights violations and require licenses from BIS for exports to all destinations. Criminal charges based on those exports were settled for an agreement by Springer Magrath to pay a fine of $50,000.

Of course, wherever you find the DOJ prosecuting an export violation for dual-use goods, BIS isn’t far behind. BIS rode into Nebraska and wanted to show Springer Magrath that it was rougher and tougher than the U.S. Attorney’s Office. After a little prodding from BIS, Springer Magrath agreed to pay a fine of $451,000 or face a denial of export privileges of one year. The Settlement Agreement also imposed a three-year denial of export privileges which would be suspended provided that Springer Magrath committed no further export violations for one year.

The charging letter details violations in addition to those alleged in the criminal proceeding. According to that letter, Springer Magrath shipped approximately $555,000 worth of cattle prods and related equipment to South Africa, Mexico, Ireland, Australia, Brazil and Germany, all countries where the prods were more likely to be used on cattle than on cattle-rustlers or other criminals.

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Oct

4

Amnesty Releases Report on Global Arms Industry: Try It, You’ll Like It.

Posted by Clif Burns at 12:02 pm on October 4, 2006

Category: Arms Export

Missile Launch If I said that the U.S. defense export community might actually applaud a report from Amnesty International, you would probably say that I need a vacation. I do, in fact, need a vacation, but that is not why I’m saying that the new report Arms Without Borders, released on Monday, might be received favorably by certain members of the defense industry.

The Amnesty report does advocate the adoption of an international arms control treaty, which, at first glance, wouldn’t appear to be at the top of most defense companies’ wish lists. But, the report advocates the international treaty to level the playing field among companies in different countries. A global treaty would eliminate any competitive disadvantage for manufacturers in the United States or Europe, countries with relatively strict arms control regimens, when compared to manufacturers in countries with emerging defense industries, countries which, for the most part, have lax or non-existent controls on arms exports.

The report identifies Israel, India, South Korea, Brazil, Singapore and South Africa as emerging exporters of defense articles and notes the absence of robust controls in those countries. As to India, for example, the report says this:

In 2001, India removed its prohibition on foreign investment in its arms sector, in order to allow, according to Janeâ€™s Defence Industry, â€˜badly needed technology transfersâ€™. Now, the production of conventional arms is another area where India is becoming globally competitive.

In 2002, Indiaâ€™s Defence Minister, George Fernandes, announced the scrapping of a government â€˜blacklistâ€™ of countries too sensitive for arms to be exported to. Since 2003, India has reportedly exported to Myanmar and Sudan, both of which, according to the UN, systematically violate human rights, and are now subject to EU and UN arms embargoes respectively.

The report also focuses on the consequences of manufacturers licensing production of defense articles in countries with less stringent export controls:

When companies license production overseas, the weapons and other military or security equipment produced may be destined for the legitimate security forces of the country where the arms are made, or they may be destined for the export market. However, few, if any governments have brought in effective controls over licensed production deals. As a result, they retain little or no control over production levels or the onward export of arms produced overseas under licence from companies within their jurisdiction.

The report then notes that the United States alone attempts to address this problem through its proviso, when approving manufacturing license agreements outside the United States, that prohibits exports of the manufactured item without a U.S. license for such export.

Inadequate controls on re-exports, on arms brokers, and on exports of dual-use goods that are converted to military use are all singled out by the report. In each of these instances, current U.S. export law addresses these problems in one fashion or another. The call by Arms Without Borders for uniform global approaches to these could well benefit U.S. industry, which will increasingly see competition from countries with less robust controls.

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