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Archive for the ‘Iran Sanctions’ Category

May

28

An American in Rio

Posted by Clif Burns at 8:35 pm on May 28, 2008

Ipanema Beach Nelson S. Galgoul, the Brazilian distributor for software company Engineering Dynamics, who sold the company’s software to customers in Iran was sentenced to 13 months in jail, a fine of $100,000 and a forfeiture of $109,291 for violation of the International Emergency Economic Powers Act and the Iranian Transaction Regulations. We’ve previously posted on this case here, here and here.

Two things are of particular interest about this sentence. First, how did Mr. Galgoul, a Brazilian distributor, wind up in U.S. jail for violation of the U.S. embargo against Iran. An Immigration and Customs Enforcement (“ICE”) press release suggested that Mr. Galgoul was an American living in Rio, so that serves as a pretty solid basis for criminal jurisdiction. Certainly its a much better basis than the oft-asserted basis that the exported product was a U.S.-origin item.

But even if the U.S. courts had jurisdiction over Mr. Galgoul, they have to get their hands on him. The extradition treaty between Brazil doesn’t provide for extradition in the case of violation of U.S. export laws. Furthermore under the dual criminality principal embodies in Article III, even if it did, extradition wouldn’t be possible unless exports to Iran were a violation of Brazilian law, which they are not. Mr. Galgoul was arrested by Immigration and Customs Enforcement, which could only occur on U.S. soil, so obviously he came to the U.S. voluntarily, although the possibility can’t be dismissed that ICE and the FBI said that they just wanted to “talk” to him. I can imagine that he sure wishes he stayed home now.

Second, the DOJ apparently aware that 13 months might seem harsh for selling software to Iran, larded its press release with a whopper:

According to court documents, Galgoul is the director of SUPORTE, a Brazilian consulting engineering firm which acted as an agent for Engineering Dynamics, Inc. (EDI), a Kenner, Louisiana engineering company that designed, produced, marketed, and supported Structural Analytical Computer Software (SACS), an engineering software program intended to assist in the design of offshore oil and gas structures. Due to the productâ€™s sophistication and its potential use, SACS is a controlled product under various United States laws and regulations.

The cite to “various” laws should be the first indication that something is amiss. Computer assisted design (“CAD”) software for offshore oil and gas rigs isn’t controlled under any laws due to its “sophistication and its potential use,” much less “various” laws. The Commerce Control List covers CAD software for the design of semiconductors under ECCN 3D003. Software for the design of nuclear power plants is probably covered under ECCN 0D001. But the CAD software here seems to be EAR99 and only controlled for destinations such as Iran because it is a U.S.-origin product.

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May

9

Man Bites Dog? (Part 2)

Posted by Clif Burns at 12:26 pm on May 9, 2008

Category: Iran Sanctions

Poor Pooch Mr. Sasan Azodi, mentioned in yesterday’s post, called me just a few minutes ago to give me his side of the dispute between him and DrÃ¤ger Safety as to who was at fault for the export of the VisioWave security monitoring software to Iran. As you may recall, I questioned why he would be buying the expensive software for DrÃ¤ger in the first place.

According to Mr. Azodi, the project managers at DrÃ¤ger for the Irasco security system claimed that they had been blind-sided by the new requirement that the security system would be tested at DrÃ¤ger’s facilities in Germany. They alleged that they would get in trouble with the company if they now had to buy a second copy of the software for testing in Germany after already having told Irasco it would have to procure the software on its own for the final system. The factory acceptance testing would now require two copies of the software and, according to Azodi, the managers said that they hadn’t factored that into their planning for the project.

I’m guessing that Mr. Azodi’s commission on successful completion of the Irasco project must have been significant if he was willing to dig so deeply into his own pocket to make sure that the project was a success. Yet even if people at DrÃ¤ger swore a hundred times on their geliebten MÃ¼tter’s honor that they would never, ever export the software from Germany to Iran, surely one might have been a bit credulous in the circumstances involved that they could resist the temptation to ship the software to Tehran and be done with it. Even so, Mr. Azodi says he has that promise in writing and that should at least count for something.

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May

8

Man Bites Dog?

Posted by Clif Burns at 8:32 pm on May 8, 2008

Category: Iran Sanctions

When companies wind up with products in Iran, they usually claim that they were hoodwinked by their overseas sales reps or agents. In a case involving the German security firm DrÃ¤ger Safety, the situation appears reversed. According to this article in Deutsche Welle, DrÃ¤ger’s agent is claiming that he was hoodwinked by the company.

DrÃ¤ger had been contracted by Italian-based Irasco to build and deliver a security system for an Iranian pipeline. The security system used GE Security’s VisioWave monitoring software. Initially DrÃ¤ger, apparently concerned the the U.S embargo on exports to Iran, told Irasco that it would have to obtain and install the software on its own and install the software itself in Iran. Irasco made some unsuccessful efforts to obtain the software and then, allegedly, demanded a full test of the system at DrÃ¤ger’s facility in LÃ¼beck, Germany.

DrÃ¤ger then tasked Sasan Azodi, its intermediary with Irasco, to obtain the software and ship it to LÃ¼beck. Oddly enough, what happens in LÃ¼beck, doesn’t stay in LÃ¼beck and, for reasons that DrÃ¤ger can’t fully explain, the software miraculously wound up in Irasco’s hands in Iran. Sometime thereafter, DrÃ¤ger filed a voluntary disclosure with U.S. government authorities revealing the problem.

Now let the finger-pointing begin. Azodi has this to say:

Azodi acknowledges that he arranged for the delivery of the software, via the US, to Luebeck, but claims he only sent it for test purposes. Upon learning that the software had been delivered to Iran, Azodi said, â€œthat’s when I realized I had probably been conned.â€

DrÃ¤ger, for its part, apparently is trying to blame everything on Azodi and has refused to pay Azodi for the software, which costs approximately $125,000. Azodi has filed lawsuits, in both the United States and Europe, seeking the money that he claims is owed for the software and seeking recovery of the damages caused to his business by the allegation that he violated the Iranian embargo.

Of course, one has to wonder why Azodi didn’t see red flags all over the field when DrÃ¤ger asked Azodi to purchase and export the expensive GE software to Germany. Why couldn’t DrÃ¤ger do that itself? Why would it ask its Iranian intermediary to ship the software from the U.S. to Germany?

It should be interesting to see how this plays out. Pass the popcorn, as they say.

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Apr

30

Engineering Dynamics Agrees to $132,791.39 Penalty for Sales to Iran

Posted by Clif Burns at 5:46 pm on April 30, 2008

Category: BIS • Iran Sanctions

Iranian Offshore Oil Rig The Bureau of Industry and Security (“BIS”) released yesterday a Settlement Agreement with Engineering Dynamics, Inc., a Louisiana-based company that writes and distributes computer-assisted design software used for the design of oil and gas drilling platforms and rigs. Under the Settlement Agreement, Engineering Dynamics admitted to a one-count charge that it had conspired with an individual in Brazil who would sell the company’s software to customers in Iran. Engineering Dynamics agreed to pay $132,791.39.

As we reported in a prior post, two officers of Engineering Dynamics are currently subject to criminal charges in connection with the same sales of the software to Iran. A copy of the criminal information filed against them can be found here, and it provides considerably more information on what happened than the BIS Settlement Agreement and related materials.

Upon my initial review of the criminal information, I expressed some skepticism in my earlier post that the two individual defendants — and, by extension, the company — should be held liable for the actions of their “distributor” in Brazil. Upon re-reading the criminal information, it seems to me that there is ample evidence here to support a conspiracy charge, at least if the facts alleged in the information are true.

To begin with, the company’s Brazilian distributor was really more a commissioned agent than a distributor, and that is significant. If a U.S. company sells its products to a distributor, who then resells those products without the U.S. company’s knowledge to a proscribed destination, it may be difficult to prove that the U.S. company was aware of the resale. However, in this case the Brazilian agent was paid a commission and then directly remitted the funds back to Engineering Dynamics. Additionally, the criminal information alleges a number of instances of communications between the U.S. company and the Brazilian agent about the customers in Iran.

This is also the second reported case subject to the new $250,000 penalty provision. Interestingly, BIS charged only one violation of the rules — a conspiracy count — even though multiple counts could have been charged for the various shipments to Iran through Brazil. Various BIS officials have said that under the new penalty scheme they will be less likely to pile on counts, and this provides some confirmation of that.

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Apr

28

The Sweet Power of Music

Posted by Clif Burns at 8:05 pm on April 28, 2008

Category: Iran Sanctions • OFAC

Persian Santur The Wall Street Journal’s Law Blog had an interesting post last Friday regarding Iranian santurs (a dulcimer-like instrument) that a UCLA professor of ethnomusicology had been importing from Tehran. These instruments had been sailing through customs until last August when somebody in customs woke up and seized the instruments. A curt notice from DHL informed the professor of the seizure and the possibility that the santurs might be destroyed.

So Professor Sadeghi hired a lawyer to free the santurs. The lawyer told the WSJ blog that he “scoured” the Iranian Transactions Regulations for an exception for “dulcimers” — to no avail, of course. I suspect that the lawyer is speaking figuratively here because anyone familiar with the regulations would have known immediately that there were no applicable exceptions that would cover Professor Sadeghi’s santurs.

So, the lawyer did his best to make something up:

In his package, he acknowledged that the dulcimers didnâ€™t have the appropriate licensing from the Office of Foreign Assets Control (OFAC) but argued that the instruments met the requirements for the regulatory exceptions made for informational materials and gifts.

Er, no. The gift exception provided in section 560.506 of the Iranian Transaction Regulations is limited to gifts valued at less than $100 dollars, and Persian santurs seem to exceed this dollar limit by a considerable amount. And I’m not quite sure how one gives a gift to oneself. Nor is the informational exception applicable. A musical instrument does not fit within the category of items described as informational materials in section 560.315. Frankly, he could just as well have argued that the santur is a carpet covered by section 560.534.

Even the lawyer himself appeared to be a little embarrassed by these arguments and offered an alternative justification:

Furthermore, [he] argued, even if they didnâ€™t meet those exceptions, this was an ideal case for OFAC to exercise its discretion.

Okay, now were talking. And, miraculously enough, he received a letter from OFAC, stating:

Mr. Manoochehr Sadeghi is hereby authorized to engage in all transactions necessary to receive delivery from Iran of four miniature hammered dulcimers (santurs) seized by U.S. Customs and Border Protection on or about August 30, 2007.

More interesting, it appears that the lawyer, rather than filing a voluntary disclosure, filed something akin to a retroactive license request. If he did file a voluntary disclosure, the WSJ blog doesn’t relate whether OFAC imposed a fine or mitigated the fine completely.

In the end, it appears that two factors were at play in OFAC’s decision. In the past, the Bureau of Industry and Security (“BIS”) has used its discretion to permit exports of musical instruments to Cuba, and so a direct appeal to OFAC’s discretion in this case, without relying on inapplicable regulatory exceptions, was probably the best approach. Additionally, it seems possible that OFAC may have been influenced by Professor Sadeghi’s fame: he performed at the Kennedy Center and received a National Heritage Award from the National Endowment for the Arts.

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