Export Control News & Alerts

The Export Control Update Newsletter
May 2007

CONTENTS

1. ITT’s $100 Million Penalty Pays for Limited Debarment
2. DDTC Publishes Guidance for Dealing with Alcatel Alenia Space Name Change
3. Despite Government Warnings, Yamada Makes Illegal Exports of Pumps
4. Data Physics Corporation Agrees to 5-Year Denial of Export Privileges, for Charges for Exports to Chinese Entities on EAR Entities List
5. OFAC Investigates Michael Moore’s Trip to Cuba
6. DDTC Review Finds Almost Half of Registration Requests and Renewals Unacceptable
7. LogicaCMG, Inc. Fined $50,000 for Prior Illegal Exports to Cuba by Acquired Company
8. Six Canadian GM Workers Strike a Tentative Human Rights Deal after a Fight over Dual Citizenship
9. DDTC Trade Policy with Somalia Amended
10. Reexports to Iran Get Winter Aircraft on Denial List for 10 Years
11. OFAC Penalties and Settlements
12. DDTC Says Farewell to Turk Maggi as He Reports(Again) to Afghanistan
13. Lending Money to Export Violators Can Be Risky Business
14. Defense Trade Advisory Group to Hold Public Meeting September 20, 2007

1. ITT’s $100 Million Penalty Pays for Limited Debarment

So, you pay a $100 million penalty for ITAR violations and the Directorate for Defense Trade Controls (DDTC) will give you a special deal so that your entire corporation is not debarred under the ITAR. Actually, that is a pretty good deal. If your corporation is debarred, then the general rules are it may not use any ITAR license or approved agreement and it may not use any ITAR exemptions. In addition, no other party may use a license, agreement, or exemption to export any items obtained from the debarred party. Clearly, a debarment is the kiss of death for a company heavily involved in the defense business.

ITT Night Vision in Roanoke, VA set the record for highest known settlement agreement for ITAR violations, and its problems continue, and maybe even the worse is yet to come.

But, for now, let’s talk about the ITAR debarment. DDTC possibly could have debarred the entire ITT Corporation, one of the biggest defense contractors in the United States. It appears that ITT Corporation was able to negotiate limits on the debarment DDTC imposed as a result of ITT Night Vision’s agreement to plead guilty to ITAR violations. Generally speaking, the debarment focuses on ITT Night Vision.

The details of the debarment:

As announced in the Federal Register and as described on www.pmddtc.state.gov

• Scope of the Debarment The debarment is applicable to ITT Night Vision Division. The Department has excluded from the debarment all other ITT business units.
• Existing approvals All approvals granted prior to March 28 where ITT was not the applicant are still valid.

Most licenses and other approvals granted prior to March 28 where ITT was the applicant are also still valid except that DDTC revoked certain specified export authorizations held by ITT Night Vision Division, which has advised the relevant parties of the DDTC’s revocation of such authorizations.

• Exemptions: ITT has been informed of certain limitations on its use of exemptions.
• New Approvals: New export authorizations requested by or involving ITT Night Vision Division are subject to the debarment and a policy of denial will be applied, with these potential exceptions for authorization:
  • In support of U.S. Government contracts or U.S. Government end-use.
  • In support of our coalition partners or to otherwise support the Global War on Terror.
• There may be other export transactions that meet the criteria for granting such exceptions (e.g., certain authorization requests for end-use by NATO and Major Non-NATO Allies and certain foreign law enforcement activities). Exporters wishing to apply for exceptions, known as “Transaction Exceptions” (TE), should note this request in their application letter and provide relevant justification.
• Criteria for Transaction Exceptions: Transaction exceptions, may be granted if the export would further: overriding U.S. foreign policy or national security interests:
  • law enforcement interests that are consistent with foreign policy or national security interests of the United States, or
  • other compelling interests that are consistent with the foreign policy or national security interests of the United States.
• Special Guidance for Exporters of Defense Articles Procured from ITT Night Vision Division
  Persons who procured ITT NVD defense articles prior to the date of statutory debarment: With the exceptions noted above, existing authorizations issued to ITT and all authorizations involving ITT Night Vision where ITT is the applicant remain valid.

Requests for new authorizations for equipment procured prior to the debarment and for equipment procured from ITT Night Vision after the debarment require a transaction exception as noted above. Exporters may apply for a transaction exception when they submit a request for export approval. Requests for transaction exceptions should note the circumstances of ITT Night Vision Division’s role in the transaction and should be accompanied by relevant justification addressing how the transaction meets one of the broad exceptions already granted by the Department (discussed above) or how the transaction otherwise meets the criteria for exception (also noted above). Such requests should clearly note whether the acquisition of the ITT Night Vision equipment to be exported occurred prior to March 28, 2007. As with any statutory debarment, the Department does not wish to create undue hardship on third parties as a consequence of ITT Night Vision Division’s debarment.

Please note: Requests for new authorizations for ITT Night Vision that do not address the exceptions to debarment or provide support for a transaction exception will be returned without action.

Details:

• Federal Register Notice (PDF)

 

— John Black

2. DDTC Publishes Guidance for Dealing with Alcatel Alenia Space Name Change

Company Name Changed to Thales Alenia Space

In an effort to facilitate continued licensed defense trade between the United States and the recently renamed Thales Alenia Space, the DDTC has published guidance for dealings with the company and its subsidiaries.

Satellite designer and manufacturer Alcatel Alenia Space SAS (AAS), has its stock held by Alcatel-Lucent Participations SA (France) and Finmeccanica SpA (Italy). Subsidiaries of AAS are located in France, Italy, Belgium and Spain. As the result of a transaction reassigning its current stock, AAS has changed its name to Thales Alenia Space. Subsidiaries have also changed their names accordingly.

For the purposes of exporting against valid licenses after the transaction closing dates (April & May 2007), exporters should note the name change at the time of the AES filing. Submitting a DSP-119 is not necessary.

Example: “Thales Alenia Space France” formerly “Alcatel Alenia Space France”

For the purposes of current TAA and MLA agreements, an amendment must be submitted to each agreement to reflect the name change. Failure to submit the necessary amendment within 60 days of the transaction closing date for each entity will result in the termination of the agreement.

For the purposes of agreements currently in review, those pending approval will be processed under the submitted name. Once approvals are granted, exporters must change the name to the new entity before execution of the agreement or amendment and must note the change in the cover letter of the submission of the executed agreement.

For new licenses & agreements, exporters must supply the new legal name of the entity. New agreements submitted 60 days after specified closing dates with the incorrect name will be returned without action.

The relevant closing dates for entities affected by this change are as follows:

• Alcatel Alenia Space in France on April 6, 2007
• Alcatel Alenia Space in Belgium on April 11, 2007
• Alcatel Alenia Space in Spain on April 11, 2007
• Alcatel Alenia Space in Italy on May 4, 2007

Affected Companies and their former and current names can be viewed, along with the complete guidelines, at:

• www.pmddtc.state.gov/docs/exporter_guidance_AAS.doc (Word doc)

 

— Jill Kincaid

3. Despite Government Warnings, Yamada Makes Illegal Exports of Pumps

OK, the Office of Export Enforcement (OEE) visits you twice and tells you that your pumps need an export license. You make 6 exports without a license anyway, after having made 4 unlicensed pump exports before the OEE visits.

Duh!! You think OEE might be watching you if they think they need to come by your office not just once, but twice, to tell you that your exports need a license? I would have enjoyed being a fly on the wall in the internal Yamada meetings when some guy/gal makes the argument: “I know Commerce told us we need to get export licenses, but …” Gee, did Yamada think that OEE didn’t know about the first four illegal exports? Did somebody actually argue: “They didn’t catch us on the first four illegal exports, they won’t get us on these either”?

Yamada America, Inc. of Arlington Heights, IL agreed to pay $220,000 to settle 26 charges related to 10 illegal exports of diaphragm pumps to Taiwan, Israel, Singapore, Brazil and Ecuador. Six of the illegal exports came after OEE told Yamada their pumps require export licenses.

And I thought I was hard-headed!

• Settlement Agreement (PDF)

 

— John Black

4. Data Physics Corporation Agrees to 5-Year Denial of Export Privileges

For Charges for Exports to Chinese Entities on EAR Entities List

Don’t stop screening all known names of all known parties in all export/reexport transactions against the various US Government export denial lists. This recent enforcement case illustrates the potential negative consequences for dealing with somebody on the list.

Data Physics Corporation of San Jose, CA has settled five charges of export violations relating to one unlicensed export to Beijing Automation Control Equipment Institute (BACEI) and another unlicensed export to Chinese Academy of Launch Vehicle Technology (CALT). BACEI and CALT are on the Commerce Department’s Entities List.

As is typically the case, the two exports netted more than two violations. Each export earned an “unlicensed export” charge and an “acting with knowledge of a violation” charge. And, on top of that the exporter got a charge of making a false statement by stating that an export license was not require for the shipment on the Shipper’s Export Declaration.

Data Physics Corporation agreed to accept a complete denial of export privileges for export to China — not being able to sell any product known to man to China for five years surely would be a much larger penalty for most companies than agreeing to pay a $55,000 fine. The company must also perform an audit of internal export compliance procedures within 12 months from the order and give a report to the BIS. The order went into effect May 15, 2007.

And, don’t forget, now nobody anywhere in the world may export or transfer any products from Data Physics Corporation to China.

• Federal Register Notice (PDF)

 

— Jill Kincaid

5. OFAC Investigates Michael Moore’s Trip to Cuba

In March 2007, controversial director Michael Moore filmed his latest documentary “Sicko” in Havana, Cuba. The film is about failures of the US healthcare system and features “9/11 first responders” being examined in Cuban health care systems. All the 9/11 workers that traveled with Moore were experiencing health problems because of the toxic Ground Zero conditions.

The Office of Foreign Assets Control (OFAC) is now investigating to determine whether Moore’s trip violates US law. On May 2, OFAC sent out a letter to Moore informing him of the investigation and the allegations against him. Although OFAC admits to Moore applying for permission to go to Cuba, OFAC is accusing the director of going before any determination had been made or any license had been issued. The letter sent to Moore demanded a very detailed report about his trip to Cuba which will determine whether he qualifies as a full-time journalist and can therefore qualify for a general license. Moore wrote a letter in response to OFAC and ultimately requested they end the investigation and concentrate, instead, on 9/11 heroes in need. It seems unlikely that OFAC will initiate an investigation of the needs of 9/11 heroes as enforcing US trade embargoes keeps it busy enough.

Moore was also attacked in the National Review by Law & Order star and former senator, Fred Thompson. Moore responds again, by letter, telling Thompson that he is in no position to criticize Moore’s trip to Cuba and notes Thompson’s fondness for Cuban cigars and eventually challenging this former Tennessee Senator to a one-on-one debate concerning health care. Thompson declined the debate and hinted that Moore should look into a mental facility.

— Britain Black

6. DDTC Review Finds Almost Half of Registration Requests and Renewals Unacceptable

In an April 12, 2007 Message from DDTC Director of Compliance, David Trimble, he relates that in a review of registration requests and renewals from the past 6 months nearly 50% were below the minimum standards for acceptance and either had, or would be, returned. Common mistakes or omissions included:

1. Form DS-2032:
   1. Not properly completed
   2. Left blank
   3. Contained incorrect information
2. Transmittal letter pursuant to ITAR 122.2(b):
   1. Absent
   2. Not on company letterhead
   3. Not signed by authorized senior official
   4. Didn’t fully address information on foreign ownership
3. Copy of Certificate of Incorporation of Authorization to do business:
   1. Absent
   2. Document copy didn’t meet one of accepted criterions
4. Check Payment:
   1. Incorrect amount
   2. Not drawn on a US Bank
   3. Not a corporate account

DDTC warns exporters that it no longer wants to use its limited resources to call applicants whose registration packages are incomplete. From now on, when requests do not meet the basic minimum criteria they will be rejected and returned via certified mail with the reason for rejection. DDTC lets you see a copy of the actual form its uses to return without action (RWA) an incomplete registration request. So, it would be a good idea to compare your registration package to the DDTC checklist before you submit to make sure you have all of the key elements.

• The RWA checklist (Word doc)
• Helpful Hints for Preparing Registration Packages (PDF)

 

— Jill Kincaid

7. LogicaCMG, Inc., of New Hampshire, Fined $50,000 for Prior Illegal Exports to Cuba by Acquired Company

Successor Liability Update

LogicaCMG, successor to CMG Telecommunications, Inc., was been charged for violating the International Emergency Economic Powers Act for illegal exports to Cuba. In August 2001, LogicaCMG’s predecessor, CMG, illegally exported a computer server to Cuba. The computer server was shipped from CMG in Nashua, New Hampshire to a customer in Panama and then knowingly was shipped to a user in Cuba.

LogicaCMG pleaded guilty to the charges on April 25, 2007 and agreed to pay the maximum fine of $50,000. The company also made agreements to pay civil penalties associated with causing the server to be illegally exported to Cuba.

— Britain Black

8. Six Canadian GM Workers Strike a Tentative Human Rights Deal after a Fight over Dual Citizenship

On August 19, 2002, 279 workers from the GM Defense Plant in London, Ontario were escorted away from their jobs. Thirty-year employee Roland Craig said he was humiliated as he was suddenly taken away and even patted down on the way out by security. The crime of these men was the simple fact they all held dual citizenships of Canadian and ITAR restricted nationalities. The plant had recently landed a contract to supply armored vehicles to the US army and the US State Department demanded that no such dual citizens be allowed to work in a plant that supplies the US military. The workers were told that if they renounced their citizenship they could keep their jobs and although many did so, others were very upset by this request.

Over 25 of the workers decided to take their complaints to the human rights commission. Finally, 5 years later, six of the area men attended an Ontario Human Rights Commission hearing. Here they argued that losing their jobs because of dual citizenship alone violated their rights and also complained of harassment and racist remarks on the job. The men were also concerned that GM had sent out personal information to the US State Department after a pledge of confidentiality. An agreement was reached that included an apology from GM, security clearance, and a monetary settlement for the men.

— Britain Black

9. DDTC Trade Policy with Somalia Amended

The Directorate of Defense Trade Controls has amended its trade policy with respect to Somalia. In order to come in line with the recently adopted resolution amending the original 1992 embargo, the United Nations Security Council (UNSC) will now permit the export to Somalia of weapons and military equipment when it is intended solely to:

1. Support the African Union Mission to Somalia , or
2. Help to develop security sector institutions in Somalia that further the objectives of peace, stability and reconciliation

Proposed exports for this purpose will require advance notification and the absence of a negative decision of the UNSC Somalia Sanctions Committee.

• Notice on DDTC site

 

— Jill Kincaid

10. Reexports to Iran Get Winter Aircraft on Denial List for 10 Years

Winter Aircraft Products SA , of Madrid, Spain, has had its export privileges suspended for a period of 10 years. The same is true of the company’s president, Jose Alberto Diaz Sanchez and its principal, Rufina Sanchez Lopez. The suspension comes as the result of charges related to incidences of purchasing aircraft parts from U.S. suppliers with the intent to transship them to Iran. The transshipment actually took place in November of 2000. The destination of Iran was not noted in the purchase of the parts and the appropriate licenses were not obtained.

— Jill Kincaid

11. OFAC Penalties and Settlements

The following companies or individuals have been penalized for or settled charges of export violations according to the April 4, 2007 OFAC report:

• A. N. Deringer, Inc. (Valley Stream, NY) has paid $700 to settle charges of exporting goods to Iran without a license. This matter was not voluntarily disclosed.
• Datex-Ohmeda, Inc. (Madison, WI) and Spacelabs Medical, Inc. (Redmond, WA) have agreed to pay $66,547.31 to settle charges of exporting medical devices to Iran by way of Dubai, U.A.E without a license. The violation was voluntarily disclosed and both organizations have undertaken corrective measures to improve their compliance programs.
• Kinecta Federal Credit Union (Manhattan Beach, CA) has paid $3,102 to settle charges of initiating a funds transfer destined for a Cuban national outside the scope of its license. This was not a voluntary disclosure.
• Stephen Lincoln (Warwickshire, England) has been debarred from US Export Transactions for 7 years for reexporting items to Iran without the appropriate licenses and for acting with knowledge that a violation would occur. Specifically, Lincoln reexported a system containing specialized software from the UK to Iran in 2003. He had received specific instructions from Buehler United Kingdom’s parent company, Buehler Limited, that such systems could not be sold to Iran from any Buehler locations.

• Details on OFAC site (PDF)

 

— Jill Kincaid

12. DDTC Says Farewell to Turk Maggi as He Reports(Again) to Afghanistan

Monday, May 7 DDTC Managing Director Robert “Turk” Maggi left for Afghanistan. On Friday May 11, he reported to the Commanding General, Combined Joint Task Force 82, as the Foreign Policy Advisor. Looks like one man’s promotion is another man’s assignment to a war zone.

— Britain Black

13. Lending Money to Export Violators Can Be Risky Business

It has been decided that lending company, Keltic Financial Partners, cannot sue their lawyers, Day Pitney, in a case regarding a loan to a man convicted of exporting arms illegally.

Daniel Malloy was found guilty in 1997 of the attempted sale of 20 Phoenix missile-battery components to Iran. He was fined $750,000, forfeited an additional $1,888,705 to the government, and was sentenced to 28 months in jail. Upon his release from jail he had to serve 3 years of supervised release during which he would be barred from dealing in certain defense and technology related items.

When Malloy was released in May of 2002, he and his wife applied to Keltic Financial Partners for a $3.75 Million credit line to pay their creditors and the government. Keltic hired Day Pitney to represent them in the loan transaction. During the closing was the first time that Keltic had been informed of the Commerce Department ruling preventing Malloy from conducting business as usual. The closing was postponed so that Keltic’s lawyers could investigate further. Keltic also consulted an export regulations expert (Margaret Gatti of Haddonfield’s Gatti and Assoc.) to get an opinion on whether Malloy and his companies were in compliance with the law. Gatti’s opinion was that they were. The closing on the loan went ahead in December of 2002.

The result of these events was that Malloy could not participate in his company to enough of an extent to make it profitable and the loan was in default by May of 2003. Malloy’s wife, who had run his company in his absence, could not get the export licenses that she needed due to her husband’s previous involvement.

Keltic filed a malpractice suit against Day Pitney and other involved law firms which was subsequently dismissed. The ruling for dismissal said that Keltic should have sued the law firms as part of its suit to settle the loan default. Ultimately, the judge felt like it was the Malloy’s fraud which caused the loss, and not malpractice by the lawyers.

Source:

• Law.com April 4, 2007, Author: Mary Pat Gallagher

 

— Jill Kincaid

14. Defense Trade Advisory Group to Hold Public Meeting September 20, 2007

On Thursday, September 20, 2007, from 9 a.m. to 12 noon, the Defense Trade Advisory Group (DTAG) will meet in the East Auditorium at the U.S. Department of State, Harry S. Truman Building, Washington, DC. Entry and registration will begin at 8:15 a.m. The members of this advisory committee are made up of private sector trade specialists who are appointed by the Assistant Secretary of State for Political-Military Affairs to advise the Department on policies, regulations and technical issues affecting defense trade. The aim of the meeting is to talk over current issues and topics concerning trade defense.

This meeting is open to the public along with participation in the discussion. Any non-member or DTAG member interested in attending must provide the following items to the DTAG Secretariat contact person, Nicholas Memos, via e-mail at MemosNi [at] state.gov:

• name
• company or organizational affiliation
• phone number
• date of birth
• identifying data such as driver’s license number, U.S. Government ID, or Military ID

Persons wishing to attend must contact the DTAG Secretariat by COB Thursday, September 13, 2007. On arrival one of the following forms of valid photo identification will be required for admission: U.S. driver’s license, passport, U.S. Government ID, or other valid photo ID.

For Further Information Contact:
Nicholas Memos, PM/DDTC, SA-1, 12th Floor,
Directorate of Defense Trade Controls, Bureau of Political-Military Affairs,
U.S. Department of State, Washington, DC 20522-0112;
telephone (202) 663-2804;
fax (202) 663-261-8199;
or e-mail MemosNI [at] state.gov

— Britain Black

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