India

On September 9, 2008, a federal grand jury returned a five-count indictment against Siddabasappa Suresh and his company Rajaram Engineering Corporation for conspiring to violate the IEEPA and the EAR. Between August 2001 and June 2003 the defendants supplied the Government of India with controlled goods and technology without first obtaining the required licenses.

Rajaram Engineering Corporation sent the controlled items to the Vikram Sarabhai Space Centre (VSSC), the company is within the Department of Space of the Government of India and can be found on the Entity List. VSSC is responsible for not only research and development of India’s space launch system but also ballistic missiles. Read More

Parthasarathy Sudarshan, Cirrus Electronics CEO was sentenced to 35 months in prison for his involvement in illegal exports to India. In March of this year he pled guilty to felony charges of conspiracy to violate the International Emergency Economic Act (IEEPA), EAR, Arms Export Controls Act, and the ITAR.

Sudarshan and other employees at Cirrus Electronics exported items to Vikram Sarabhai Space Centre (VSSC), an enterprise within the Department of Space of the Government of India, and Bharat Dynamics, Ltd. (BDL), within the Ministry of Defense of the Government of India. Both companies are on the Department of Commerce’s Entity List, any exports of U.S. origin commodities are restricted and require a license, which was never acquired. The company also exported over 500 microprocessors for the Teja’s, a fighter jet in development in India, to the Aeronautical Development Establishment, yet another enterprise within the Ministry of Defense of the Government of India. The microprocessors are on the U.S. munitions list and require a license, which, with no surprise, was never obtained.

Cirrus provided US companies with fraudulent certificates that showed the end-user to the electrical components going to non-restricted entities in India. The company would send the products from its South Carolina facility to its Singapore facility and would then resend the packages to India to further conceal the illegal exports.

More information:

• DOJ News Release: Businessman Sentenced for Supplying Indian Government with Controlled Technology
• Cirrus President Pleads Guilty for Sales to Indian Missile Programs

Have you ever been in a meeting where you are gathering information to put together a license application, and one of your engineers or sales people says, “Don’t put that information in the application.” That will make the government deny the license.” Well, as you know, if you fail to include in an application certain information that would make the government deny the application, you probably are “omitting materials facts,” or as we say out here in my mountains, “lying.” Here is a story that validates that lying on an application can get you in trouble if the government finds out.

A Minnesota-based test system manufacturer, MTS Systems Corp. agreed to plead guilty to violating US export laws. The company submitted two false export license applications for exports to India. MTS now has to pay $400,000 penalty, implement a model export compliance program, and be on probation for two years.

Here is the story of the two “false” applications:

In Nov. 21, 2002, MTS received an inquiry to purchase its equipment from the Electrical Research and Development Association (ERDA), located in India. A MTS representative in India then confirmed to MTS employees that ERDA would be using the MTS equipment for testing nuclear power plant components. MTS, therefore, was required to obtain an export license from the Commerce Department. MTS did not initially apply for a license because the MTS employee in charge of export compliance stated that it was “extremely unlikely” that it would be approved unless the customer could make a “strong and convincing” argument that this test system would not and could not make a significant contribution to India’s nuclear energy programs. Neither the customer nor MTS ever attempted to make this argument to the Commerce Department.

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Parthasarathy Sudarshan, president of Cirrus Electronics pleaded guilty to felony charges of conspiracy to violate the International Emergency Economic Powers Act and the Export Administration Regulations, and to violate the Arms Export Control Act and the International Traffic in Arms Regulations. Sudarshan faces up to five years in prison, a $250,000 fine and a maximum of three years supervised release.

Cirrus Electronics, an international electronics firm holds office in the United States, Singapore, and India. Sudarshan held himself as the company’s CEO and used the company to illegally export controlled microprocessors and electronic components to Indian state entities involved in developing ballistic missiles, space launch vehicles, and fighter jets. In particular the company sent US technology to Vikram Sarabhai Space Centre (VSSC) and Bharat Dynamics, Ltd. (BDL), both companies are on the Department of Commerce’s Entity List and any exports to these entities are restricted. Cirrus Electronics provided their US vendors with fraudulent certificates that claimed that the end users of these electrical components were non-restricted entities in India, when in fact they were not. Sudarshan also made sure to route the products through its Singapore office and then send the packages on to India to further conceal any misconduct from the US government.

Sudarshan is scheduled to be sentenced on June 16, 2008.

More information:

• DOJ News Release (PDF)

Westinghouse Air Brake Technologies Corporations (WABTEC) has entered into an agreement with the Department of Justice regarding its violations of the Foreign Corrupt Practices Act. WABTEC has its headquarters in Wilmerding, Pennsylvania. One of their subsidiaries, Pioneer Friction Limited, is based in Calcutta, India where they manufacture low and high friction brake blocks for rail operations in India.

Pioneer’s employees and agents made several payments to officials of the Indian Railway Board (IRB) in order to assist them in obtaining and retaining business with the IRB; to schedule pre-shipping product inspections; to obtain issuance of product delivery certificates; and to curb what Pioneer considered to be excessive tax audits. WABTEC later discovered these payments and conducted an investigation which later led to the company openly disclosing its findings to the Department of Justice and fully cooperating in their investigation.

WABTEC has agreed to pay a $300,000 penalty, implement internal controls, and fully cooperate with the Department. The company has also entered into a settlement with the Securities and Exchange Commission where they have agreed to pay $288,000 in disgorgement of profits, and $89,000 in civil penalties in connection with Pioneer’s unlawful business practices.

During the 58th International Astronautical Congress in Hyderabad, India, many speakers from emerging space nations all voiced a concern over the United States International Traffic and Arms Regulations (ITAR). The speakers charged that the United States ITAR is holding back growth in the industry. All of the speakers made a point to explain that both cooperation and competition were necessary to ensure growth of the space industry, and the ITAR is holding emerging space nations back.

China claimed that the U.S. policy was the largest hurdle to be faced by the growth of new actors in the industry, while India claimed that there is more risk to non-US players because of the ITAR rules

(Hmmmm, I guess the US Government is glad to hear that news, because that is exactly the intent of the ITAR. — John Black)

Hua Changzhi, vice president of China Great Wall Corp. pointed out those U.S. satellite manufacturers had lost market share in recent years, he remarked, “This is the price paid by U.S. policy”. Ray A. Williamson, research professor, Space Policy Institute at George Washington University in the United States said that change in ITAR would make it easier for the international space industry to operate, “unfortunately, given the current political situation in the United States, I don’t think ITAR regime will change for the next five to ten years”.

Executive director of Antrix Corp Ltd, the commercial arm of Indian Space Research Organization, K.R. Sridhara Murthy called for addressing certain issues at a political level especially regarding the export policies of advanced countries. Murthy also called for a unified licensing system for space services and complementary ground services and also underlined a need to change policy and regulations to facilitate easy access to remote sensing data used by many companies. Another one of his concerns was the merger of smaller companies with the “big players” in the industry, explaining that the dominant players in the industry hurt the market and consumers. The industry is also faced with the fact that the orbit and spectrum resources are in the hands of the governments.

More information:

US regulations restrict space industry growth (Earth Times)

US regulations restrict space industry growth (India PR Wire)

According to the Justice Department, Samuel Shangteh Peng, who formerly was involved in export sales for Edevco Corporation, agreed to plead guilty to five illegal export criminal charges, each of which carries a maximum of 10 years in jail. Mr. Peng was charged with illegal exports in 1999 and 2000 of vibration amplifiers, cable assemblies and vibration processor units to Hindustan Aeronautics Limited’s Engine Division in India, which was on BIS’ Entity List during that time.

Ouch.

DOJ News Release

The first-ever National Export Control Coordinator for the Department of Justice was appointed last June 20, 2007. Steven W. Pelak, a veteran prosecutor for 18 years, has been an Assistant U.S. Attorney and Senior Litigation Counsel in the National Security Section of the U.S. Attorney’s Office for the District of Columbia and, since September 2001, has served as the Anti- Terrorism Coordinator for the U.S. Attorney’s Office. Mr. Pelak is detailed to the Counter-espionage Section of the Justice Department’s National Security Division, wherein he will have some of the following responsibilities:

• development of comprehensive training materials on export control investigations and prosecutions for federal prosecutors nationwide
• solicit and receive regular progress reports from U.S. Attorneys’ offices on the development of export control cases
• coordinate between the Justice Department and the many other U.S. law enforcement, licensing and intelligence agencies that play a role in export enforcement.

Attorney General Alberto Gonzales mentioned in his June 11 speech on nuclear terrorism that the Justice Department’s National Security Division where federal prosecutors were provided instruction and guidance on export control cases, with trainers from the Justice Department and the relevant investigative agents on hand providing comprehensive prosecutorial instruction.

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It appears that the indictments of four Indian nationals for export violations have muddied the water on the US-India nuclear cooperation talks. The talks between India and the US are important to India in terms of its civil nuclear capacities. Good relations with the US could pave the way for the lifting of restrictions by the Nuclear Suppliers Group (a group of countries who implement guidelines for exports of nuclear items and nuclear-related items to prevent the proliferation of nuclear weapons) on exports to India. Symbolicly, at least, successful talks with the US could also signal that the United State implicitly accepts the legitimacy of the Indian nuclear weapons program, even though the Indians (like the Pakistanis and Israelis) developed their nuclear weapons in direct violation of the Nuclear Non-Proliferation Treaty.

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The FBI has charged two persons of Indian origin of knowingly violating US export regulations by conspiring to export dual-use electronic components to organizations on the Entity List without obtaining the proper licenses. The two arrested parties are Parthasarathy Sudarashan, founder of Cirrus Electronics in Singapore, and Mythili Gopal, who launched Cirrus USA in Simpsonville, SC. Both are legal residents of the US. Two unnamed Indian government officials were referred to as co-conspirators.

The items exported were computer chips and other electronic components of a “dual-use” nature which can be used in missile guided systems and aircraft navigation systems. The modus operandi was to purchase the components in the US, illegally export them to Cirrus Singapore, and then re-export them to three Indian companies: Vikram Sarabhai Space Centre (VSSC) for possible use in missile production, Aeronautical Development Establishment (ADE) for use in the Tejas Light Combat Aircraft project, and Dharat Dynamics for an unnamed defense project. VSSC is on the Department of Commerce Entity List.

One of the unnamed alleged co-conspirators is posted at the Indian Embassy in the United States according to the FBI. The other is an official of ADE. Sudarashan and Gopal will have their first court appearance in early April according to a spokesperson for the US Attorney for the District of Columbia.

Source:

• The Indian Express April 4, 2007

After three decades of attempting to restrain India’s nuclear activities, historic legislation has been passed, and will probably be signed by the President, creating a dramatic initiative on US/India nuclear cooperation. One of the last orders of business of the 109th Congress was to pass the act allowing nuclear cooperation in a civil capacity with India. The final bill, named the “Henry J. Hyde United States-India Peaceful Atomic Energy Cooperation Act of 2006” was passed on December 9, 2006.

The bill will allow the President to waive provisions of the Atomic Energy Act of 1954 assuming that certain conditions are met by India. These conditions include the negotiation and implementation of a nuclear cooperation agreement between the two countries.

The implications could be great for US and other companies who are already in discussions with Indian officials in preparations for the new Indian market. The Indian government anticipates boosting its civil nuclear capacity in the range of 50,000 watts in the coming 20-25 years. This will create opportunities for companies in the nuclear power market worldwide.

The legislation that has hindered India/US cooperation in the past 30 years stemmed from India’s detonation of a nuclear test in 1974 and India’s claims that the Non-Proliferation Treaty was discriminatory. After a multitude of meetings between US and Indian officials over the past several years, the US decided that the time was right to relax the regulations if India agreed to a number of conditions. These include the agreement to not detonate another nuclear weapon. Another “deal-breaker” would be if the US determines that the new cooperation is benefiting India ’s weapons program.

If India meets the conditions set forth by the United States, controls on nuclear-related exports to India will, in all likelihood, be relaxed. The Nuclear Regulatory Commission and the Department of Energy could allow transfers of nuclear reactors, technology, and related equipment to India. The conditions are complex and may take some time to complete so it may be quite a while until nuclear cooperation can actually begin.

For three and a half decades now under the bargain struck between the Nuclear Non-Proliferation Treaty’s (NPT) five acknowledged nuclear-weapons states (China, France, Russia, the United Kingdom, and the US) and its non-nuclear-weapon states has gone like this: in exchange for the non-nuclear-weapons states forgoing nuclear weapons, the nuclear weapons states agreed to provide them with peaceful civilian nuclear power technology, subject to safeguards agreements overseen by the International Atomic Energy Agency (IAEA). Since the treaty entered into force in 1970, it has become the most broadly accepted arms control agreement in history. Only three states never acceded to the NPT - India, Israel, and Pakistan. (Former member North Korea withdrew in 2003.) Consistent with its obligations under the NPT, the US has long subjected countries outside the treaty to the most strict nuclear nonproliferation export controls, represented on the Commerce Country Chart (pdf) by an “X” in the NP 2 column.

But when Indian Prime Minister Manmohan Singh bid farewell to Washington this past July after meeting with President Bush, he left with a huge prize. The United States had just committed to essentially rewrite the rules for trade in nuclear technology in favor of India, which of course continues to operate a nuclear weapons program external to the NPT. In his joint statement with Singh, Bush praised India as a “responsible state” with a “strong commitment to prevent WMD proliferation” and asserted that “India should acquire the same benefits and advantages as other such states”. To that end, the American president said he would “also seek agreement from Congress to adjust U.S. laws and policies, and the United States will work with friends and allies to adjust international regimes to enable full civil nuclear energy cooperation and trade with India”. In addition, the US committed “to remove certain Indian organizations from the Department of Commerce’s Entity List”.

The Bush Administration took the first concrete steps to implement its new stance toward India on August 30 when it published a final rule, amending the EAR effective immediately, which eases restrictions on exports and reexports to India of items controlled for unilateral nuclear nonproliferation reasons. The new regulation removes the “X” from beside India in Column NP 2 of the Commerce Country Chart and thereby eliminates several license requirements for exports and reexports to India, including those for the following items:

• ECCN 1A290: depleted uranium
• ECCN 1C298: graphite for non-nuclear end-uses
• ECCNs 2A290, 2A291, 2A292, 2A293, 2B290, 2D290, 2E001, 2E002, 2E290: nuclear plant equipment and related software and technology
• ECCNs 3A292 and 3E292: certain oscilloscopes and related technology

In addition, the Entity List is now that much shorter with the removal of the following Indian organizations:

• Indian Space Research Organization (ISRO) Telemetry, Tracking and Command Network (ISTRAC)
• ISRO Inertial Systems Unit (IISU), Thiruvananthapuram
• ISRO Space Applications Center (SAC), Ahmadabad
• Department of Atomic Energy (DAE) Tarapur (TAPS 1 & 2)
• DAE Rajasthan (RAPS 1 & 2)
• DAE Kundankulam 1 & 2 (this power plant, still under construction, was never explicitly named to the Entity List, but now that the Indian Government has agreed that it will be placed under IAEA safeguards once work is completed

In removing unilateral nuclear nonproliferation sanctions on India and reducing the number of that country’s organizations subject to the sanctions of the Entity List, the administration has now completed the two major steps toward its goal of a new nuclear relationship with India that it can accomplish entirely within the existing authority of the executive branch. As the Bush-Singh joint statement itself admits, further movement toward greater civilian nuclear cooperation will require the assent of the US Congress and the multilateral Nuclear Suppliers Group. The irony of the US seeking NSG acquiescence to increased nuclear technology transfers to India is especially rich when one considers the origins of that regime.

The NSG is a child of India’s 1974 nuclear test in the Thar Desert of Rajasthan, which spurred governments to take action to stem the export of nuclear materials and equipment to India and other states demonstrating a proliferation risk. In his testimony before the House Committee on International Relations earlier this month, Under Secretary for Arms Control and International Security Robert G. Joseph hinted that some US allies participating in the NSG might be amenable to the US proposals for full peaceful nuclear cooperation with India (he specifically mentioned the UK). Still, the NSG operates by consensus, so it will be interesting to see if a State Department office not recently known for its diplomatic achievements (current US ambassador to the United Nations John Bolton was Joseph’s predecessor) can win one for the home team.

Here is a rundown of changes to US Government trade control policy for certain countries:

India and Pakistan ITAR Licensing Policy

In a Federal Register Notice dated June 20, DDTC declared that defense export licenses to India and Pakistan would now be reviewed on a case-by-case basis. According to information posted on the www.pmddtc.state.gov website, the previous licensing policy had been one of denial.

Rwanda Licensing Policy Changes

Both DDTC and EAR changed their regulations to loosen restrictions surrounding the lifting of the UN Arms Embargo on Rwanda. The ITAR changes essentially enunciate a new case-by-case license policy for the Government of Rwanda only. For all non-Government exports, all other 126.1 ITAR proscribed country restrictions remain, including a policy of denial for licenses. Likewise, exemptions may not be used for non-Government end users.

Burma

On July 29, 2003, President Bush issued an Executive Order that place further trade restrictions on Burma (a.k.a. Myanmar). Previous to this order, the Foreign Assets Control regulations restricted investment by US firms in Burma. The Executive Order expands Burma trade restrictions. First the order freezes all assets of the Government of Burma that enter the US or are in the possession of US Persons (which includes US branch offices overseas). Second, all imports from Burma into the United States (but not exports or reexports to Burma) are prohibited effective August 28, 2003. The order also prohibits the export or import of financial services. The order contains restrictions of any facilitation of any activity by a third person that a US person could not engage in.

So you may continue to export commercial products to Burma, but dealing with the Government and Government entities will be tricky as Government assets are frozen and related financial services, such as confirming or negotiating a Letter of Credit, are restricted. No barter deals: imports into the US from Burma will soon be prohibited. Burma continues to remain an ITAR proscribed country, so defense article exports are prohibited.

Iraq

On June 27, OFAC formally amended its regulations on Iraq that now basically allow most EAR99 and “xx991″ export and reexports to Iraq under a General License. We described these changes last month, and this regulation adds nothing new.

The US Government has taken several steps to implement President Bush’s executive order waiving export and trade sanctions on India and Pakistan. The United States decided to relax its sanctions against India and Pakistan because of their cooperation in the US antiterrorism campaign. Bush’s executive order of September 22, 2001 effects both the Export Administration Regulations (EAR) and the International Traffic in Arms Regulations (ITAR), as well as trade US trade financing rules.

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In the aftermath of the September 11, 2001 terrorist attack against the United States, President Bush used export and trade controls to punish targeted “terrorists” and reward countries that have cooperated with the new US antiterrorism campaign.

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