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Archive for March, 2007

Mar

13

Additional U.N. Sanctions on Iran Seem Likely

Posted by Clif Burns at 5:32 pm on March 13, 2007

Iranian proliferation A number of news reports, including this report from the AP, indicate that the six nations negotiating a U.N. Security Council resolution imposing a second set of sanctions on Iran are close to an agreement. In December 2006, the Security Council adopted Resolution 1737, which directed U.N. members to stop supplying materials to Iran that could be used for nuclear and missile proliferation and which froze the assets of various Iranian firms and individuals involved in proliferation activities. Iran responded by stepping up its uranium enrichment activities which led to the second round of sanctions negotiations.

Proposals to impose a travel ban on Iranian officials have been dropped from the new sanctions. Similarly, the new sanctions are not expected to include a ban on arms exports to Iran. However, it seems clear that the proposal will forbid imports of arms from Iran, loans to the government of Iran, and an expansion of the list of Iranian individuals and companies subject to an asset freeze.

Since current U.S. sanctions already forbid import of Iranian arms and loans to the government of Tehran, the expansion of the list of blocked firms and individuals is the part of the resolution that will be most significant to U.S. exporters and companies. Although it seems certain that the list will be expanded, there is still some disagreement over who to include on that list. For example, the United States is pushing to include all firms owned by the Iranian Revolutionary Guard on the list but is encountering some resistance. The Russians have whimsically argued that the Revolutionary Guard is an “institution” in Iran and are hesitant to penalize an institution. There’s little point in trying to make sense of that argument because the Russians, of course, aren’t terribly keen on sanctioning Iran in the first place but can’t very well admit that.

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Mar

12

Subs Gone Wild!

Posted by Clif Burns at 5:24 pm on March 12, 2007

Category: BIS • OFAC

Varian Logo The Office of Foreign Assets Control (“OFAC”) released on Friday its civil penalty information for February 2006 and reported that Varian, the Palo Alto scientific instrument giant, agreed to pay $114,958 to settle allegations that its Swiss and German subsidiaries had sold software to customers in Iraq and Iran without an OFAC license or outside the scope of an existing license. The payment was made after a voluntary disclosure by Varian.

So does that give you a little twinge of dÃ©jÃ vu? It should. It was only last July when Varian entered into settlement agreements with the Bureau of Industry and Security (“BIS”) over similar antics by its overseas subsidiaries. Varian paid $26,400 for computers and associated software shipped to Syria by its Dutch subsidiary without a BIS license. The Dutch subsidiary paid an additional $39,600 for separate unlicensed shipments of computer hardware and software to Syria. Finally, the company’s Swiss subsidiary paid $8,800 for shipment of computers and associated software to North Korea without a BIS license. All of these settlements also followed voluntary disclosures.

In my view the single weakest link in current compliance programs are overseas subsidiaries. All too often the foreign subsidiaries believe that only the local law of their own country governs the re-export of merchandise once they have received it. Moreover, shipment of merchandise from the subsidiaries to North Korea, Iran or other sanctioned countries won’t raise the red flags that such shipments do in the United States. Companies that do not make sure that their compliance training also covers employees of their subsidiaries really should set aside several hundred thousands dollars in reserves for the inevitable day when a European subsidiary sends a shipment to Iran.

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Mar

9

How Not to Make a Dirty Bomb

Posted by Clif Burns at 9:12 am on March 9, 2007

Category: NRC

Mock RDD in Seattle In an earlier post about Nuclear Regulatory Commission controls on the export of americium-241, the isotope used in smoke alarms, we discussed a group of competency-challenged terrorists who were planning on building a dirty bomb from smoke alarms. In an excellent article in this week’s New Yorker, Steve Coll provides more details on the not-so-alarming plot:

Charles Ferguson. . ., a former nuclear submarine officer trained in physics, . . . co-wrote an unclassified report titled â€œCommercial Radioactive Sources: Surveying the Security Risks.â€ About two years later, F.B.I. agents . . . asked to meet with him. They brought a document showing that some of his report had been downloaded onto the computer of a British citizen named Dhiren Barot, a Hindu who had converted to Islam. Barot, it turned out, had been communicating with Al Qaeda about a plan to detonate a dirty bomb in Britain, and he had used a highlighting pen on a printout of Fergusonâ€™s study while conducting his research.

The report described how large amounts of certain commercial radioactive materials might pose a danger to a terrorist who tried to handle them. â€œThis seems to have worried him,â€ Ferguson told me, referring to Barot, â€œso he decided to look at smoke detectors.â€ Some detectors contain slivers of americium-241; the isotopeâ€™s constant emission of radiation creates a chemical process that screens for smoke. Barot informed his Al Qaeda handlers that he was thinking about buying ten thousand smoke detectors to make his bomb. In fact, to make a device that would be even remotely effective, Ferguson said, he would have had to buy more than a million. â€œEither his reading comprehension was poor or he was evading the assignment,â€ Ferguson told me.

The rest of the article is an interesting account of the current efforts by the U.S. government to interdict nuclear-terrorism on U.S. soil. Click here to read it.

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Mar

8

Trade Group Calls For Revision of BIS’s Deemed Export Rules

Posted by Clif Burns at 4:59 pm on March 8, 2007

Category: BIS • DDTC

Another Kind of Dual Use At the same time that The Coalition for Security and Competitiveness called for a reform of DDTC procedures and policies, it also took aim at the Bureau of Industry and Security (“BIS”) with a separate report. The Coalition’s recommendations included streamlining encryption controls, updating the commodity control list, enhancing procedural transparency, and revising the rules relating to foreign availability and to re-exports.

In my view, the Coalition’s most interesting recommendation came with respect to BIS’s deemed export rule. The report stated:

Licensing requirements can also apply to â€œdeemed exportsâ€ to company employees in the United States (i.e., the release of controlled technology to a foreign national within the U.S.). The regulations do not take into account the fact that many U.S. companies have company-wide policies on export compliance that apply to their foreign facilities and employees and serve to protect national security. U.S. companies have their own incentives to maintain strong controls to protect their intellectual property.

Commerce should create a license exception for intra-company transfers, including â€œdeemed exportsâ€, for companies that have strong compliance programs. This approach would streamline the export authorization process, reduce the licensing burden on U.S. exporters and enhance international competitiveness without compromising U.S. national security concerns.

The Coalition doesn’t explain why it argues for reform of BIS’s “deemed export” rules without seeking revision of the “deemed export” rules administered by DDTC. Nor does the Coalition suggest how BIS should determine whether a company has the requisite “strong compliance program.” My guess is that given the choice between requesting a BIS audit of compliance procedures and continuing to apply for deemed export licenses, there may be no more than one or two companies in the United States that would opt for the former. This leads me to believe that this recommendation by the Coalition stands about as much chance of being adopted as my dog stands of finally catching that squirrel in the park.

In related news, the Coalition’s complaints on DDTC processing times that we reported yesterday may have already had some impact. The Pentagon announced yesterday that it would examine industry concerns about long processing times at the DDTC and that it would carefully review the Coalition’s complaints regarding these delays.

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Mar

7

Trade Group Assails Delays at DDTC

Posted by Clif Burns at 6:12 pm on March 7, 2007

Category: DDTC

Sign in front of DDTC Mounting tension between the export industry and DDTC became evident this week when a major coalition of the leading trade associations — The Coalition for Security and Competitiveness — sent a letter to President Bush requesting a meeting to discuss proposed reforms relating to DDTC. Among the members of the coalition are the Aerospace Industries Association, the National Association of Manufacturers and the U.S. Chamber of Commerce.

It should not comes as a surprise to any one, DDTC staff included, that the specific proposals requested by the Coalition focused on the abysmal delays that have become the norm at DDTC as well as the lack of transparency and cooperation by DDTC with the industry that it regulates. Just last week the DDTC posted another jeremiad on its website about the low quality applications it was receiving and renewed its vow to simply return these applications without action (including the simple action of picking up the telephone to call the exporter.) The Coalition proposal responds to this attitude on the part of DDTC by proposing that the DDTC be required to provide notice of intent to deny or intent to return without action before such decisions are finalized.

The Coalition proposal also requests that funds be released to provide additional licensing staff to the DDTC and further requests that licensing actions be taken within reasonable and specified time periods. The specific processing periods requested by the Coalition will no doubt lead most exporters to swoon with joy:

The current export control system is not delivering decisions on technology release in the time sensitive fashion critical to U.S. interests. As both an individual proposal and a yardstick to measure progress, we believe a more efficient export control system should process decisions on individual â€œunstaffedâ€ (i.e. State Department review only) licenses or decide to send individual licenses for inter-agency â€œstaffingâ€ within 5 calendar days. More complex agreements that may or may not require inter-agency review should be either processed as unstaffed or staffed out within 10 calendar days. If licenses or agreements are staffed, the inter-agency review should be completed within a total of 30 days. Understanding that licenses and agreements for NATO+3 allies may involve more sophisticated technology transfer requests, the fact that they are close allies should be given due consideration and their staffed license and agreement applications fast-tracked and completed within 20 total days. A final licensing decision by the State Department after the completion of an interagency review should be issued within five days.

It’s hard to say whether the adoption of these processing metrics is likely, but we can always hope, can’t we?

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