Export License

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

BIS has revised a license exception in the Export Administration Regulations which will allow individuals to export mobile phones as gifts to eligible recipients in Cuba. The change was brought about because BIS feels that this will provide support for individuals to sustain democracy-building efforts for Cuba by allowing Cuban citizens to have contact with persons in other countries. The president announced that this will support, “Cubans who work to make their nation democratic and prosperous and just.”

The terms of License Exception Gift Parcels and Humanitarian Donations (GFT) will now allow mobile phones and related software, batteries, memory cards, chargers, and other accessories for mobile phones to be included under gift parcels. The value on gift parcels has also increased from $200 to $400; this will allow donors to still send medicines and medical supplies along with the mobile phone and accessories without having to make any reductions in the quantities of other supplies in the gift parcel. Read More

The United States Government has decided to take another small step to aid the peoples of Southern Sudan by agreeing to approve certain exports of defense articles to Southern Sudan to support the peace arrangement between Southern Sudan and the murderous Government of Sudan which, along with its Janjaweed henchmen, is known to support or be involved in the murdering and burning of babies, women and children as part of its genocide against certain groups in Sudan.

The Department of State alongside with Foreign Operations has authorized the US to provide non-lethal defense services to the Government of Southern Sudan. This will include military assistance, military education and training, and defense services controlled under the International Traffic in Arms Regulations. It has been determined by State that this is in the best interest of the United States and Southern Sudan and that the assistance may be provided pursuant to section 666(e) of the ITAR.

More information:

• Federal Register Notice

Kabba & Amir Investments, Inc., d.b.a. International Freight Forwarders (IFF) of Canada have been fined $6,000 for export violations. The company is a freight forwarding company. In June 2000, IFF took possession of shipment of X-Ray Film Processors, items subject to the Regulations, and exported them to Cuba without a license.

The company worked with known and unknown co- conspirators to export the processors to Cuba via Canada without obtaining a BIS export license. IFF violated the regulations when they took possession of the items in the United States and took them to Canada.

After several reviews, and IFF claiming that they were unaware that a license was necessary, BIS found that they do not have to prove that the company knew or did know that they needed a license. As long as IFF pays their fine within 30 days of their final charging letter they will not be denied export privileges, if they do not, their export privileges will be denied for three years.

More information:

• efoia.bis.doc.gov/exportcontrolviolations/e2045.pdf (PDF)

Willbros Group Inc. and Willbros International Inc., a wholly owned subsidiary, have agreed to pay over $32 million in penalties, disgorgement and interested in criminal case with the Department of Justice and with the Securities and Exchange Commission. The companies are both publicly traded and provide construction, engineering and other services in the oil and gas industry. Read More

The Bureau of Industry and Security has proposed to amend the Export Administration Regulations by making changes to ensure consistency within the language and terminology of Part 744. Because this is only a proposed rule, none of the changes are in force at this time.

Part 744 of the EAR deals with the end-user and end- use based control policy. Sections 744.3 (missile catch-all control), 744.4 (chemical/biological weapons catch-all control), and 744.6 (US persons involvement in weapons of mass destruction proliferation activities) all prohibit exports, reexports and transfers (in-country) of items subject to the EAR. 744.2 (nuclear catch-all control) presently only states it prohibits exports and reexports of items subject to the EAR. The proposed amendment would change the nuclear catch-all control language to prohibit export, reexport, and transfers (in-country) to conform to the other sections.

The rule also proposes to amend the “is informed” paragraph (B) of the sections of part 744 to ensure that the same terminology is used throughout all sections. Read More

The Directorate for Defense Trade Controls (DDTC) has posted an updated chart to show the past year’s license processing times. DDTC says it gives out these processing times so that US defense firms can clearly predict the amount of time required for license submissions. In the past year the average processing times have been cut from 35 days down to 15. These processing times are only for applications submitted electronically via the D-TRADE system. Beginning in May DDTC will release April 2008 hardcopy statistics which will provide a more accurate average processing time.

Editor’s Note: 15 days average processing times..hmmm. Well, if I were you, I wouldn’t tell anybody in my company that the average license processing time is 15 days because when all of your staffed applications take well over 15 days, everybody in your company is going to blame you for the delays. — John Black

More information:

• DDTC License Processing Time

OFAC has released its Quarterly Report of Licensing Activities involving the Trade Sanctions Reform and Export Enhancement Act of 2000. Of the 276 license applications received, 10 were denied, 100 were issued and 26 were amended. The overall average processing time was 67 days, most licenses took 80 days and Return Without Action letters were processed in 18 days.

OFAC claims that the increased complexity and length of the license applications joined with the scrutiny from other reviewing agencies is continuing to affect processing times, especially in this quarter.

The majority of licenses were issued for Iran for medical devices, only 29 of the 276 applications pertained to Sudan products.

The report is available at:

• OFAC Report of Licensing Activities October - December 2007

On April 17, 2008 Don Manzullo (R-Illinois) and Adam Smith (D-Washington), introduced new legislation to modernize the Automated Export System. The Securing Exports Through Coordination and Technology Act is described as being able to, “clarify the confusing US export system that punishes mistakes with costly fines” as well as “strengthen the government’s ability to crack down on deliberate violators” as described by Smith and Manzullo. The bill will also include provisions designed to improve the use and operation of e AES.

Under the Act the AES would be required to:

• Reject data submitted for exports that would violate US export control or sanction regulations by virtue of the destination country or entity;
• Alert the exporter of potential export license requirements under the EAR and/or the ITAR based on codes;
• Issue a fatal error notice when the data submitted includes: names, addresses or restricted entities or destination countries subject to US sanctions and embargoes;
• Issue compliance alerts or other warnings to the filer if: the data submitted includes an inconsistent classification number, a license exception which is not available for the country or ultimate consignee or if there is no license number

Exporters say that these types of errors happen often because of the many different export control laws and regulations they have to handle. Read More

French corporation, Cryostar France pleads guilty to conspiracy, illegal export, and attempted illegal export of Cryogenic Submersible Pumps to Iran. Cryostar has several businesses worldwide where they specialize in the design and manufacturing of cryogenic equipment. They were sentenced in the US to a criminal fine of $500,000 and corporate probation of two years.

Cyrostar was a middleman between Ebara International Corp., Inc. and “TN” a French company with a US subsidiary. Cryostar was to purchase the pumps from Ebara and then resell them to “TN” who would then forward the pumps to Iran. Cryostar falsely indicated that the final purchaser was the French company “TN” who would install the pumps in France, when all parties were in agreement that the pumps would go to Iran. The three companies created false purchase orders, and purchased as many component parts from non-US suppliers as possible to avoid any and all questions from US suppliers and to conceal their conduct. No export licenses were ever obtained for any of the items.

In 2004 penalties were imposed on Ebara and its former CEO Everett Hylton. At that time Ebara pled guilty to criminal violations and agreed to an administrative settlement, with combined fines of over $6.4 million dollars while Hylton agreed to personally pay $109,000. Ebara and Hylton’s schemed together to violate the embargo on Iran after some people in Ebara initially stopped an Ebara sale to Iran. Ebara falsified some documents and removed “made by Ebara” markings from certain items to evade US restrictions on Iran.

More information:

• DOJ Announces $500,000 Fine for Illegal Exports to Iran (WorldTrade Interactive)
• For the 2004 penalties: BIS News Release

Daniel Max Sherman a former physicist from Atmospheric Glow Technologies, Incorporated plead guilty to conspiracy with J. Reece Roth a professor at The University of Tennessee to transmit export controlled technical data to the People’s Republic of China. Between January 2004 and May 2006 the two worked with a Chinese graduate research assistant at the university where the professor and student researched military drone aircraft to develop plasma actuators.

In the court documents, prosecutors claim that Sherman and Roth both agreed amongst themselves to assign the Chinese student, Xin Dai, to the military development project. They never advised the Air Force or sought any special export licenses or consul.

At this time Sherman faces up to 5 years imprisonment and a $250,000 fine, the charges for the professor and student have yet to be released.

Patrick Rowan, Assistant Attorney General for National Security made a point, “Knowingly disclosing restricted US military data to foreign nationals represents a very real threat to our national security, particularly when we know that foreign governments are actively seeking this information for their military development.”

More information:

• DOJ News Release

John,
Reading your (slightly) tongue in cheek article on the ITAR status of Sri Lanka sent my deranged mind wandering on strange interpretations for the ITAR exemption permitting Americans to export three weapons and a thousand rounds of ammo temporarily “for personal use”. Now a gun exported and returned would be a temporary exportation, in the spirit of the regulations.

But if you USE the weapon abroad, you would expend some of the rounds, so wouldn’t that constitute a permanent export? Even if you picked up your brass and recovered the bullets, the powder would be gone and it would be in a vastly altered state. And if you fired the bullets into another person, wouldn’t that constitute a transfer of ownership? Or are you presumed to own the bullets even after they reside inside the body of another?

What if you were to fire the weapon across the border with another country. Wouldn’t that be a “reexport”? Or if you shoot someone and they manage to drag themselves across the border into another country? (Some of those countries are so small that just in falling, you could cross the line!) The “Expended Round Report” could become quite complicated.

Ronald E. Edelstein, CHB
Global Trade Compliance Manager
Freescale Semiconductors

Ron,
Thanks for you insight regarding the potential trap of using the ITAR exemption for temporary exports of 3 guns and 1000 rounds of ammo for personal use. I like the way you think.

For the record, ITAR 123.17(e) authorizes permanent exports of ammo for personal use and 123.17(c) authorizes temporary exports of ammo for personal use. So, if you plan to not bring any of the ammo home, you might want to use the 123.17(e) exemption.

You pointed out the risks of using 123.17(c) for a temporary export of ammo. I guess the risk is that if you declare 123.17(e) for your 1000 rounds of ammo for permanent export, you can’t bring it back home with you and, since 123.17(3) is personal use only, I guess you gotta load all of it into your gun and shoot it off until you use up all 1000 rounds because you can’t give the ammo to somebody else overseas. (And don’t forget to destroy those spent shell casings!)

Thanks,
John Black

Even though our booming seminar business seems to confirm that the ITAR is vague on many points, it seems for now that a court has decided the ITAR is not unconstitutionally vague as it relates to the case of Qing Li.

Last year Qing Li was charged with conspiracy to export defense articles without a license and to smuggle goods from the US. Li attempted to export Endevco 7270A-200K accelerometers without a license to China and was caught by undercover agents.

Her case is now scheduled to go to trial. Qing Li’s legal defense ordered motions to dismiss the indictment and to suppress evidence but were shot down indefinitely. Li argued that the indictment should be dismissed on the grounds that the AECA and its implementing regulations are unconstitutionally vague as they are applied to her case. Her defense disputes that a person of ordinary intelligence could not have been able to determine if the Endevco accelerometer was a “military accelerometer” that required an export license. They supported this argument by showing a two page manufacturer-provided “public information” sheet regarding the accelerometers. The defense argued that, “[a] person of ordinary intelligence would likely deem that data sheet incomprehensible, and that the sheet does not indicate whether the device is for military or weapons use.”

The court denied her motion to dismiss claiming that the defendant failed to cite a single case in where the court found the AECA unconstitutionally vague, and whether or not she knew that the accelerometers were on the munitions list will be for the jury to decide. Her motion to suppress evidence was also denied as the subpoenas were all authorized, she had no reasonable expectation of privacy, and she lacked standing to assert any fourth amendment violations.

More information:

• Qing Li Indictment Update (ExportLawBlog)

The DDTC has published the new guidelines for supporting documentation requirements for license types DSP-73 and DSP-61. These requirements became effective April 15, 2008 and any stand alone license applications that are submitted after this date are subject to Return Without Action.

Read More

The Department of Treasury’s Office of Foreign Assets Control has issued a guidance document to give much need direction banks, importers, and exporters regarding blocked property and interests in blocked property. The main issue the OFAC is attempting to answer in this document is, what if a company is not on the SDN list, but one of its partners/ shareholders/ members is? Can we do business with the company? The answer is not so clear however, it actually is that it depends. If the SDN lists any partners/ shareholders/ members who have 50% or more interest in the company than the answer is no, but if they only have 49% or less interest in the company than you can in fact do business with the company but you should act with strong caution.

This all may sound a bit clear until the fact arises of how to actually find out if the SDN has 50% or greater interest therein the company. The OFAC does not give any opinions or options to generate an answer for this problem. If in fact a company fails to detect a SDN interest in 50% or more in one of their customers and ends up engaging in business the company will be treated by the OFAC as if they dealt with an SDN directly.

OFAC warns and reminds companies, “In certain OFAC sanctions programs (e.g., Cuba and Sudan), there is a broader category of entities whose property and interests in property are blocked based on, for example, ownership or control.”

More information:
OFAC Guidance Document (PDF)