ITAR

The State Department’s DDTC issued a correction for 22CFR Part 121.1(b) of the United States Munitions List. On page 19780 of the list, in the first column, in Sec. 121.1(b), in the first line, “(b)” will now read “*(b)”.

More information:

• Federal Register Notice

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

On April 11, 2008 the Department of State, Directorate of Defense Trade Controls (DDTC) published a proposed change to the International Traffic in Arms Regulations (ITAR). The notice of proposed rulemaking would add language intended to clarify the application of Section 17(c) of the Export Administration Act of 1979 (EAA) to the implementation of the ITAR and the Department of State’s obligations under the Arms Export Control Act (AECA). The proposed change would affirm that jurisdiction over exports of certain civil aircraft parts and components lies with the Department of Commerce under the Export Administration Regulations (EAR), and not with the Department of State under the ITAR. Comments on the proposed amendment will be accepted by the Department of State through May 12, 2008. Read More

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

So, you got some commercial hardware controlled by the Export Administration Regulations, and then you load some military software on to it. What do you have? You have an item that is now controlled by the International Traffic in Arms Regulations.

And even if the Commerce Department gives you many licenses for many exports of those things, you still have ITAR violations.

That seems to be what happened in this case in which Northrop Grumman Corp. reached a settlement agreement related to exports that Northrop Grumman discovered after it acquired Litton Industries in 2001. The violations Northrop discovered occurred from 1994-2001. According to documents provided to the State Department from Northrop the company had committed over 110 violations involving sales of 73 aircraft navigation systems. Northrop Grumman discovered the violations as it was working to install its compliance procedures in its new acquisition.

Read More

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)

Early in 2007 Taiwanese officials reported that four packages they received from the US military did not contain the helicopter batteries that they were expecting. US officials told the Taiwanese officials to simply dispose of the incorrect items. Last week however posed a serious issue for the US Defense Department; apparently the Taiwanese officials opened the packages before disposing of them and alerted the US that they contained “warheads”.

It is uncertain how long the Taiwanese officials actually knew that the packages contained warhead-related material, but the drums had been in their possession for over 18 months and the US never noticed that the sensitive materials were missing. The items inside the barrels were labeled “secret” and they included Mark 12 nose cones, which are used in intercontinental ballistic missiles.

President Bush has ordered an immediate investigation to focus on whether the Air Force properly labeled the packages for shipment to the DLA, how it was stored, tracked and shipped overseas. Authorities claim that the packages were inappropriately stored in an unclassified warehouse and the outer packages might have been mislabeled. “The investigation will determine the integrity of the shipping containers and their contents during the foreign military sales process,” explained Air Force Secretary Michael Wynne in announcing the erroneous shipment.

So we should be concerned for various reasons here. First, the US Government didn’t notice that these nuclear bomb widgets were missing. Should we worry that there is other unknown missing nuclear bomb stuff? Second, should we assume this is the first time this has happened? Are there other boxes in some foreign government warehouse that contain nuclear weapons parts? And third, despite the fact that several mistakes were made in this case, the US Air Force should thank its lucky stars that it is not a regular exporter. If an exporter were to make the same mistake and ship the wrong military equipment to Taiwan, it would have an ITAR violation, which could result in significant penalties in some cases, and even if you don’t end up paying an ITAR fine, you could end up paying your lawyers a lot of money if you report the violation. And I am thinking that a company that would mis-label and illegally export nuclear bomb components would get both a fine and a large legal bill.

More information:

OK, so you violate the Export Administration Regulations, you might get a fine between $50,000 and $500,000 in most cases. And in the small percentage of ITAR violations in which there is a monetary penalty, you normally are looking at a fine between $1 million to $20 million. But, ladies and gentleman, if you over charge the US Government for shipping costs, you might end up with a big fat $28 million fine.

National Air Cargo (NAC), a US military contractor, has paid $28 million to settle both criminal and civil allegations. NAC is said to have defrauded the Department of Defense, and the Justice Department by submitting fraudulent claims for payments for the shipment of freight. The company pleaded guilty to one count of knowingly making a material misstatement to the US.

From 1999 to 2005 NAC transported freight wholly by surface transportation rather than by air as required by the Department of Defense regulations. The company would then bill the DOD for freight charges and pocket the difference between air and land delivery. The company falsified documents to represent actual delivery dates.

The lawsuit was actually brought on by Mark Oehm, a former NAC employee, the “whistleblower” brought on the lawsuit under the False Claims Act, which permits private citizens to bring lawsuits on behalf of the US and receive a portion of the proceeds of any settlement or judgment. Oehm will be receiving $3.3 million as his share, he may not have his job anymore, but I am sure his share of the settlement will help him cope.

More information:

• DOJ News Release

The Department of State issued a final rule amending section 123.9(e) of the International Traffic in Arms Regulations to allow for NATO and its agencies, the governments of NATO members, and the governments of Australia and Japan to reexport or retransfer US origin components incorporated into a foreign defense article without any prior approval from the Directorate of Defense Trade Controls. Prior to the revision/clarification, 123.9(e) did not authorize retransfers to agencies of NATO-it only authorized retransfers to the member governments themselves, plus Australia and Japan.

To refresh your memory on the ITAR 123.9(e) NATO+ parts exemption, there are several limits however to what components can be reexported or retransferred. First of all, to qualify for the exemption the US origin components must have been initially authorized for export from the US either through license or an exemption. The following are US origin components that are NOT eligible for the exemption:

• Significant military equipment;
• Major defense equipment sold under a contract in the amount of US $14 million or more;
• Defense articles or defense services sold under a contract in the amount of US $50 million or more;
• Identified as items in the Missile Technology Control Regime of ITAR.

Finally the person reexporting the defense article must provide written notification to DDTC about the retransfer no later than 30 days after the transaction, and the notification must identify the articles reexported and the recipient government or NATO entity. After receiving this documentation the DDTC has the option to place restrictions on the component.

More information:

• State Dept. Notices: ITAR Clarified for NATO Re-exports; U.S., Chile to Hold Environment Meeting (WorldTrade Interactive)

The Center for Strategic and International Studies (CSIS) released their report of the health of the US space industry in February 2008, and there has been controversy since. The report concluded quantifiable data about the consequences that the ITAR has brought onto American second and third-tiered suppliers of commercial satellites and their components.

Large companies and organizations such as NASA have resources to overcome the obstacles set forth by the ITAR, although they dispute that their profit margins are depleting as they continue to cope with regulations. Small companies and individual researchers are slowly falling out of the space industry because they can not survive the financial issues brought on by the ITAR regulations.

Former AIA President and CEO John Douglass recommended that, among other things, “removing commercial communications satellites and components from the US Munitions List.” He also suggested a “further study to determine whether other non-military systems should be available for export.”

Many have made the strong point that the US is the only country which classifies commercial satellites as “weapons systems” and the fact that a rebalancing of the government’s approach must take place. Many are looking towards the upcoming President and Congress to make changes that will allow US companies to sell their products in the global market place. The major issue in question is how to balance our indefinite need for security and our need for trade.

More information:

• Itar’s failure (The Space Review)
• Aerospace Industries Association

DDTC has updated their key personnel list and it is now available at
pmddtc.state.gov/personnel.htm.

Note from DDTC: “Although telephone numbers for key personnel are supplied, please call the Response Team first when trying to reach us on any matter. The Response Team is prepared to respond to the full range of defense trade inquiries. If your inquiry requires the attention of others within DDTC, it will ensure a prompt answer to your call. For best service, call the Response Team first at (202) 663-1282.”

Note from John Black: Don’t ask ITAR questions to the Response Team unless you know the answer to the question. You might want to limit your questions to the Response Team to procedural or status questions. I have heard way too many stories of well meaning RT members giving absolutely wrong ITAR interpretations to exporters. Ultimately, many exporters have more ITAR experience than the people on the RT.

The US Department of State, Directorate of Defense Trade Controls (DDTC) amended the International Traffic in Arms Regulations to add Sri Lanka to the list of prohibited countries. Effective March 24, 2008, DDTC will not approve any licenses or agreements for Sri Lanka. There will be a possibility that licenses may be issued for technical data or equipment for maritime or air surveillance and communications, but only after a case-by-case review by DDTC.

Importantly, this means that exemptions may not be used for Sri Lanka.

But, of course you can use the ITAR 123.17 exemption to carry three guns and a thousand rounds of ammo with you if you travel to Sri Lanka, or to any other ITAR 126.1 country for that matter. You gotta love the 123.17 availability so that Americans can be fully armed when they take a vacation to Venezuela or Belarus. No sir, you can’t use the temporary import exemption in ITAR 123.4 to fix a broken military radio, but you can be packing heat when you go to see Panduwasnuwara in Sri Lanka. Only in America would we require an export license for a company to send some spare parts to the US Army fighting a war in Iraq but let me carry a thousand rounds of ammo and 3 guns on my family vacation to Costa Rica.

More information:

• Amendment to ITAR: Sri Lanka (22 CFR Part 126)

Parker Hannifin Corporation, Aerospace Group

Contract Senior Contracts Administrator

Parker Electronics Systems, an industry leader in the design and mfr of fuel mgmt systems and controls, seeks individual to administer contracts for complex programs and ensure fulfillment of contractual, fiscal & performance obligations. The successful candidate will demonstrate their ability to perform the essential functions of proposal preparation, contract review and negotiation of price, terms and other performance requirement in accordance with FAR/DFAR. Candidate shall also possess a strong working knowledge of ITAR, EAR administration (i.e. TAA’s, MLA’s DSP-5’s). Requires a Bachelors degree in Bus Admin or related field and 6+ years of related experience, preferably in the military aerospace Industry.

We offer competitive salaries & benefits. To be considered, please email: hresd [at] parker.com, fax 631.273.2817, or send your resume to: HT Dept-CC, Parker Hannifin Corp., Electronics Systems, 300 Marcus Blvd, PO Box 9400, Smithtown, NY 11787.
EOE

www.parker.com

After announcing an “enhanced counter-proliferation effort” the government has lost a major Arms Export Control Act (AECA) trial under the new Justice Department initiative.

The AECA is the law that authorizes the International Traffic in Arms Regulations (ITAR). Although it seems that the there is a high success rate in many AECA prosecutions, the fact is that nearly all cases result in guilty pleas before a trial ever begins.

In 2003 Axion Corp, a small family owned contracting business won a contract with the government to make weight assembly systems for the Black Hawk. The company made the block of tungsten that attaches to the propeller rotors to reduce vibrations. As the company began filling orders, Axion’s owner Alex Latifi found that he could save time, weight and money in the process. Latifi, an engineer found that if he used virgin tungsten instead of the recycled blocks he would save the government millions. The only problem Latifi faced was the fact that virgin tungsten is only available in China, Latifi was not concerned because the Black Hawk plan furnished to him from the Defense Department did not contain any markings restricting them from export.

On April 13, 2004 the FBI and Army criminal investigators began to investigate only after an Axion secretary had been secretly providing the Army criminal investigators with information to indict Latifi. The investigators seized equipment, supplies, computers and records, including cell phones belonging to Latifi, his wife and children. Latifi, an American citizen, born in Iran, and Axion were charged with sending technical data drawings of Blackhawk helicopter parts to China in violation of the AECA. The government went on further to allege that the company and its owner falsified test reports for the Blackhawk and pushed for a forfeiture of Axion’s assets and a significant prison term for Latifi.

Over the course of 4 years Axion lost all of its business, and its reputation. Oddly enough, the secretary who was secretly informing the investigators was convicted of forging Latifi’s name on nearly $13,000 in company checks. Her disinformation of the case was eventually proven to be immaterial and flat out not true.

Latifi made the choice to have a bench trial simply because of the negative connotation that his Iranian background may have had on a jury. During the trial it was shown that there were no customary warnings on the Blackhawk drawings that were sent to China. Latifi’s lawyers were also sure to make the point that the drawings were made available on the internet, making them public domain, in turn exempting them from certain arms control provisions. Two days later the judge acquitted Latifi on the grounds that the government had no means to prove that any AECA criminal violations were committed by the defendant and that the undisputed evidence demonstrated that the Axion and Latifi had acted in good faith.

Latifi and his lawyers have now filed a claim for compensation from the government, known as a Hyde motion. The motion allows acquitted federal criminal defendants to argue that the Justice Department engaged in wrongful prosecution and allows them to collect whatever money they spent on their legal defense. Henry Frohsin, Latifi’s lead lawyer explained, “It will be a mini-trial, I plan to put Alice Martin (secretary) on the witness stand. I plan to subpoena federal agents. If this doesn’t qualify as a vexatious, misguided prosecution, then nothing will.” The trial is set for April 15, 2008.

So, will this case change the way many businesses handle AECA charges? Nearly all of the AECA cases are settled with negotiated pleas, this may have been why they continued with the indictment against Latifi even after their only witness was convicted of embezzlement and the only real evidence they had was weak at most. It could be that this case may have a positive effect on the government to the extent that it might focus its attention on the new initiative of developing strong cases and leave the weak, marginal cases to ensure that errors of this caliber are never taken to this level of the court system. It could be that the lesson is if the government is desperate to make a case against you, it will ignore ethics and not hesitate to ruin your small business by dragging you through long and costly legal proceedings.

More information:
The Birmingham News article

The US Department of State’s Bureau of Political-Military Affairs, under the Directorate of Defense Trade Controls has published the Implementing Arrangement for the proposed US-UK Defense Trade Cooperation Treaty. This initial review of the arrangement still leaves many questions as to how the treaty will work unanswered.

The main points that were referenced in the Implementing arrangement were:

• Defense articles are termed as being, “articles, services, and related technical data, including software, tangible or intangible form, listed on the Munitions List of the International Traffic in Arms Regulations, as modified or amended. Many will notice throughout the document that no mention of ITAR controlled information is referenced although the Treaty is expected to cover the export controlled ITAR information.
• The bulk of the arrangement procedures focused on what UK participants must do to be eligible to receive US Defense Articles under the Treaty
• The criteria for determining whether a nongovernmental UK entity will be included in the UK Approved Community includes:
  • Entity or facility must be on Her Majesty’s Government’s “List X” of approved facilities
  • UK defense companies under foreign ownership, control, or influence will be handled on a case-by-case basis
  • Previous US convictions of US or UK export control laws or regulations will be considered by the US Government
  • US export licensing history of the entity or facility
    National security risks, for both the US and UK
• Any individuals working at UK companies must have security clearance from the UK, and a need to know to be eligible to have access to US Defense Articles.
• In order to “Retransfer” or Reexport” US Defense Articles to entities outside the UK Approved Community must request approval through the UK MOD process for the approval of the release of classified material, as well as apply US authorities approval.

The approved lists of operations, programs, and US and UK Defense Articles which are exempt under the treaty have yet to be published.

More information:
Implementing Arrangement