Export Control News & Alerts

The Export Control Update Newsletter
February 2008

CONTENTS

1. New Format for DDTC Website
2. D-Trade 2 Rollout Due Late March
3. Man Gets Five Years for ITAR Violations Related to Tamil Tigers
4. Bell Helicopter and Quebec Human Rights Commission Settle ITAR-Based Problem
5. GAO Study Says US Embargo on Iran Is Ineffective
6. Illegal Export to Iran Nets Home Confinement, Community Service, Export Denial, and $10,000 Fine
7. Another US Administration Says ITAR License Review Will Get Better
8. Elite Settles for $156,000 for Illegal Chemical Exports
9. Another Indictment for Sale to Iran
10. Canada Implements Export and Financial Sanctions on Burma
    
11. AES Requirement to Identify ECCN for EAR License Exception Exports Begins April 28, 2008
12. Antiboycott Violations Result in Export Denial Order
13. Australia Government Allows BAE to Discriminate for ITAR Reasons
14. Wang-Woodford Arrested for Sending Helicopter Components to Iran via Singapore
15. Northrop Grumman Agrees to Pay $470,000 after Voluntary Disclosure of Reexport Violations
16. Older stories are in the Export Control Update newsletter archive

1. New Format for DDTC Website

Beginning January 22, 2008 the State Department, Directorate of Defense Trade Controls Web site got a new format. DDTC says the changes are designed to assist users in searching for defense trade information. Many of the pages have been updated and most of the content from the current site can be found on the new site.

More information:

www.pmddtc.state.gov/new_look_for_website.htm

— Danielle McClellan

2. D-Trade 2 Rollout Due Late March (?)

DDTC says its D-Trade2 rollout is scheduled for the end of February with multiple updates and changes. The D-Trade2 rollout will incorporate the new amendments forms DSP-6, -62, -74. “Batch” users will continue to use the DSP-119 which will still be submitted through the legacy system for an additional 12 weeks after the end of February rollout. DDTC will give notice when the new amendment forms will be officially be enabled in the batch function.

More information:

www.pmddtc.state.gov/dtrade2_rollout.htm

— Danielle McClellan

3. Man Gets Five Years for ITAR Violations Related to Tamil Tigers

On January 10, 2008, Thirunavukarasu Varatharasa, a citizen of the Democratic Socialist Republic of Sri Lanka, was sentenced to 57 months in prison and three years of supervised release after being convicted of conspiracy to provide material support to a the Tamil Tigers, a designated foreign terrorist organization and attempted exportation of arms and munitions.

From April to September 29, 2006 Varatharasa and his associates, Haji Subandi, Haniffa Osman, and Erick Wotulo, conspired to export state of the art firearms, machine guns and ammunition, surface to air missiles, night vision goggles, and other military weapons to the Tamil Tigers in Sri Lanka. The weapons would have been used to fight against the Sri Lankan government forces.

The defendants aided the Tamil Tigers by requesting price quotes and negotiating purchases for the military weapons on their behalf. They contacted a Maryland business run by undercover agents and sent an itemized list of 53 military weapons. On September 25, 2006 Varatharasa and Osman met undercover officers in Saipan and later in Guam to inspect the weaponry that was ordered including various machine guns and surface to air missiles. They agreed to arrange for the transfer to the money into the undercover agents bank account as payment.

Robert Craig, the Acting Special Agent in Charge of the Defense Criminal Investigative Service, quoted that, “DCIS will continue working with out partners in law enforcement to ensure that DoD weapons systems and technologies are secure.”

More information:

media-newswire.com/release_1059459.html

— Danielle McClellan

4. Bell Helicopter and Quebec Human Rights Commission Settle ITAR-Based Problem

The Quebec Human Rights Commission issued a press release on January 17, 2008 regarding the settlement between Bell Helicopter Textron Canada Ltd. and a Haitian-born man who held Canadian citizenship but was denied an internship because of his ethnicity and the ITAR. According to the ITAR, individuals who hold citizenship in 25 countries, Haiti included, cannot work on U.S. military contracts.

The man was initially hired for the internship with Bell Helicopter until it was found that his citizenship would affect the company’s compliance with the ITAR so he was denied the position. The man has lived in Canada for 30 years and was a citizen, but because he was born in Haiti he was restricted by the ITAR to perform duties at Bell Helicopter.

Quebec Human Rights Commission is now encouraging other individuals of dual citizenship to bring cases to the human rights commissions if they have suffered, are suffering or will suffer in the future discrimination by companies who are complying with the U.S. ITAR. Companies are urged to develop policies and procedures to comply with Canada’s Charter of Rights and Freedoms. This however, will be difficult because certain policies and procedures will not be appropriate and work for the laws in both Canada and the United States.

— Danielle McClellan

5. GAO Study Says US Embargo on Iran Is Ineffective

In 2006, the U.S. National Security Strategy stated that the United States was facing challenges from Iran and its efforts and involvement in international terrorism. The GAO has since reviewed U.S. sanctions against Iran and the impact it has had and reviewed numerous data relating to Iran’s economy and energy sector.

After conducting research, the GAO concluded that Congress should consider requiring the National Security Council and key agencies to:

1. Assess data on Iran sanctions and complete an overall baseline assessment of sanctions
2. Develop a framework for ongoing assessments
3. Periodically report the results to Congress

Officials did report that U.S. sanctions involving Iran has slowed foreign investment in the country’s petroleum sector, however other evidence indicates that the extent of the reported impact. The Iranian government has signed contracts since 2003 reported at $20 billion with foreign firms to develop its energy resources. Even further reports show that sanctioned Iranian banks are funding their activities in currencies other than the dollar. Finally, Iran continues to enrich uranium, acquire advanced weapons technology, and support terrorism even after the numerous sanctions provided by the United States.

Iran has strong global ties and a leading role in energy production, making the U.S. sanctions nearly impossible to isolate Iran and reduce its support for terrorism. In some cases, studies show that Iran’s overall trade with the world has grown since the U.S. imposed sanctions, although this trade has fluctuated because of the Iran-Iraq war and the growing oil prices in 2002. This trade did include imports of weapons and nuclear technology.

More information:

www.gao.gov/highlights/d0858high.pdf (PDF)

www.gao.gov/new.items/d0858.pdf (PDF)

— Danielle McClellan

6. Illegal Export to Iran Nets Home Confinement, Community Service, Export Denial, and $10,000 Fine

Well, maybe the US Iran embargo will be successful in cleaning up trash on America’s highways.

Juan Sevilla has been found guilty of knowingly and willfully selling a United Computer Inclusive Hydraulic Floor Model Testing Machine to Iran. The machine tests the hardness of plastics, polymers and many metals and composites. Beginning January 16, 2008 Sevilla is suspended from any exporting transactions until December 5, 2011. He has been sentenced to home confinement for six months and probation for five years. Sevilla was also ordered to serve 100 hours community service and ordered to pay a $10,000 fine.

More information:

Federal Register Notice

— Danielle McClellan

7. Another US Administration Says ITAR License Review Will Get Better

President Bush issued an Export Control Directive on January 22, 2008, the directive is presumed to improve the way in which the Department of State responds to the many licenses it receives for the export of defense equipment, services, and technical data. Bush promised, “a more efficient and transparent export license process” and better “dispute resolution mechanisms” but was sure to include that there will remain a strong monitor on protecting national security.

The specific changes include:

1. Additional financial resources and intelligence support to provide timely adjudication of defense trade licenses
2. New guidelines requiring decisions by the U.S. Government on defense trade export license applications within 60 days unless there is strong reason for additional time which must be approved
3. The electronic licensing system will be upgraded to allow all types of defense trade licenses and their submission
4. An interagency will be created to allow for timely resolution of licensing jurisdiction issues under the Commodity Jurisdiction process
5. A multi-agency working group will be created to improve procedures for export enforcement investigations

The majority applauds the administration’s actions and feels that this will benefit all users. The Aerospace Industries Association and the Coalition for Security and Competitiveness all released statements commending the directive and welcoming it with open arms. Others however, are more skeptical of the reforms and especially the time that will be required to implement such a system. Donald Weadon, a congressional aid and expert on export controls, said the initiative, “fails to address the principal deficiencies of the current system, which are adversely impacting U.S. technology companies.” He also stressed that, “There is little chance that any of the elements touted will be implemented in the next 12 months, especially since they require significant increases in funding and acquisition of sorely needed secure computer systems and the training of skilled manpower.”

No exact dates have been released when the Department of State will begin to see changes and exactly how the changes will be implemented has yet to be released. It will be interesting to see how quickly the directives are executed and if they make a difference, as so many feel very confident about the reform and the impact it will have on the U.S. economy.

We unfortunately are not excited by the latest announcement and are waiting for proof that this is not just another case of a lot of talk that results in marginal and temporary improvement in the ITAR license review problems.

More information:

state.gov/r/pa/prs/ps/2008/jan/99562.htm

— Danielle McClellan and John Black

8. Elite Settles for $156,000 for Illegal Chemical Exports

Elite International Transportation, Inc. has signed a Settlement Agreement with the U.S. Department of Commerce after being charged with 55 violations. The Houston, Texas company will pay $156,000 to settle the charges and to keep from being added to the US denial list.

Beginning in February of 2000, the company began exporting chemicals to Mexico without obtaining a license. The company filed that there was no license required on the Shipper’s Export Declarations, causing them to receive 55charges of making false and misleading representations, statements and certifications. The 55 charges conclude that on 55 separate occasions, Elite International Transportation, Inc. exported the goods to Mexico and filed that they were not subject to any licensing requirement from the Department of Commerce when in fact this was false.

More information:

efoia.bis.doc.gov/exportcontrolviolations/e2031.pdf (PDF)

— Danielle McClellan

9. Another Indictment for Sale to Iran

Two Louisiana men have been indicted after officials claimed that their company, Engineering Dynamics, Inc., sold CAD software to companies in Iran. They did not actually directly sell the software to Iran, but sold the software to a distributor in Brazil who then sold the software to companies in Iran.

The indictment is based on sales by the foreign distributor and most of the allegations relate to communications from the Brazilian distributor to Engineering Dynamics, Inc. relating to its Iranian sales. Most of the communication was only for the purpose of calculating and paying commissions that were due to EDI. There were merely a handful of communications from EDI to the Brazilian distributors and of those communications none ever indicated that EDI was directing the distributor to sell the goods to Iran.

The indictment does raise the question as to the reach of U.S. sanctions against Iran. If a U.S. company sells an item to a foreign distributor who later sells an item to a sanction country, the U.S. company is not liable for that sale unless there is evidence that the original US export was made for the purpose of reexporting the goods to the sanctioned country. This is a lesson to be learned for many companies, it is a good idea to obtain an undertaking from foreign distributors that the exporter’s products won’t be sold to a sanctioned country. This is especially important because it is very hard for a U.S. exporter to prove that the distributor was solely responsible for the sale and that it was made with no prior knowledge, participation or assistance of the U.S. exporter.

More information:

Export Control Blog

— Danielle McClellan

10. Canada Implements Export and Financial Sanctions on Burma

Canada has released the implementation to the Special Economic Measures (Burma) Regulations applying sanctions against Burma.

The main measures taken by Canada prohibit:

1. The export from Canada to Burma of any goods, excepting only the export of humanitarian goods
2. The export of technical data
3. The provision of financial services to Burma

Canada implemented the new sanctions in light of resolutions by both the United Nations Commission on Human Rights and the General Assembly who condemned the human right violations in Burma at this time.

More information:

dfait-maeci.gc.ca/trade/eicb/notices/Ser155-en.asp

— Danielle McClellan

11. AES Requirement to Identify ECCN for EAR License Exception Exports Begins April 28, 2008

Beginning on April 28, 2008, AES reporting requirements for export license exceptions will change. It will be mandatory to report the Export Control Classifications Number (ECCN) on the AES record when using license exceptions TSR, RPL, GOV, GFT, TSU, BAG, AVS, APR, KMI, TAPS, ENC to export goods, technology, or software from the United States.

The ECCN will be required for the following exception codes:

1. C35-LVS
2. C36-GBS
3. C37-CIV
4. C38-TSR
5. C40-TMPC
6. C41-RPL
7. C42-GOV
8. C43-GFT
9. C44-TSU
10. C45-BAG
11. C46-AVS
12. C47-APR
13. C48-KMI
14. C49-TAPS
15. C50-ENCC51-AGR
16. C53-APP

While some have argued that this new requirement should not pose any problems for exporters, those arguments usually come from people who are not responsible for doing AES submissions and coordinating export paperwork and documentation.

More information:

www.access.gpo.gov/bis/ear/ear_data.html

— Danielle McClellan

12. Antiboycott Violations Result in Export Denial Order

The US Department of Commerce’s Bureau of Industry and Security (BIS) has issued denial orders for two New York medical device distributor companies. AR-AM Medical Services LLC and DMA Med-Chem Corporation, both located at 49 Watermill Lane, Great Neck, New York. The charging papers explain that the companies supplied commercial invoices to the New York branch of the Bank of Egypt containing the following language that violations the antiboycott rules in the Export Administration Regulations:

The goods are neither of Israeli materials nor [sic] they contain any Israeli materials nor are they exported from Israel.

We declare that no raw material of Israeli origin has been used for production or preparation of the goods mentioned in this invoice.

Because the language was found on invoices that both companies generated, this is not a case where either company missed the boycott language in terms and conditions and/or other documents supplied by the purchaser. AR-AM included the language in three invoices, whereas DMA has allegedly only included it in one of their invoices.

Both companies are prohibited from participating in transactions in Bahrain, Iraq, Kuwait, Lebanon, Libya, Oman, Qatar, Saudi Arabia, Syria, and the United Arab Emirates, and the Republic of Yemen. Beginning January 14, 2008 the companies will be prohibited from any transactions for two years and AR-AM was fined $7,200 while DMA agreed to a fine of $2,400.

While it is unusual for a violation of the antiboycott rules to result in a company getting its export privileges denied, it is not unprecedented. In the landmark Baxter Healthcare antiboycott case, Baxter was partially denied its export privileges for Saudi Arabia and Syria, in addition to getting hit with a $6 million dollar fine and having its general counsel also personally fined.

More information:

www.exportlawblog.com/archives/288

www.bis.doc.gov/dpl/recentchanges.asp

— Danielle McClellan

13. Australia Government Allows BAE to Discriminate for ITAR Reasons

BAE Systems in South Australia, a defense company, has been granted an exemption from the equal opportunity laws. The company may discriminate on the basis of nationality when selecting employees for US contracts in order to satisfy the US International Traffic in Arms Regulations.

Linda Matthews, the South Australia Equal Opportunity Commissioner argued that basic human rights should not be overridden by commercial considerations. Her strong opposition of BAE’s application was not enough to convince the Department of Justice to deny their application. BAE’s legal counsel is denying all allegations that the company ever violated South Australia Equal Opportunity laws before the date of the approval of the company’s application.

This development allows BAE to comply with US ITAR requirements that certain foreign nationals not access US defense articles without violating the laws of Australia.

More information:

http://www.tradingmarkets.com/.site/news/Stock News/1058903/

— Danielle McClellan

14. Wang-Woodford Arrested for Sending Helicopter Components to Iran via Singapore

Laura Wang-Woodford, director of Monarch Aviation Pte, Ltd. (“Monarch”) of Singapore was arrested and has been arraigned on a 20-count federal indictment. Wang-Woodford is accused of exporting components for Chinook military helicopters from the US to Singapore and then to Iran in violation of the International Emergency Powers Act, after identifying them as commercial components.

Ms Wang-Woodford and her husband ran Monarch, which has been importing and exporting military and commercial aircraft components for more than 16 years. Brian Woodford remains fugitive since his wife was arrested on December 23, 2007 at San Francisco International Airport.

The indictment charges consist of charges of:

1. Conspiring to export aircraft parts to Iran
2. Several counts of exporting aircraft parts to Iran against the IEEPA
3. Conspiring to export defense articles without a license
4. Exporting and attempting to export defense articles without a license in violation of the AECA and ITAR
5. Conspiring to launder the proceeds of the unlawful export of defense articles
6. Illegal export of US military aircraft components
7. Falsely identifying components in export documents filed to the US government
8. Conspiring to transmit funds from Singapore to Cincinnati, Ohio with the intent to promote the illegal export scheme in violation of the federal money laundering statutes

When the defendant was arrested she was carrying 2 China National Precision Machinery Import and Export Corporation (“CPMIEC”) catalogs advertising surface-to-air missiles and rocket launchers. CPMIEC has been sanctioned by the United States Treasury Department, Office of Foreign Assets Control, as a Weapons of Mass Destruction proliferator. All US persons are prohibited from engaging in business with the company, meaning Wang-Woodford may be looking at additional charges after further investigation.

Both Wang-Woodford and her husband are accused of selling sensitive hardware to Iran, including commercial aircraft components for over 16 years. While Wang-Woodford’s husband is wanted, she is facing a imprisonment for close to the rest of her life. She faces a maximum sentence of 10 years for each count of violating the IEEPA, AECA, and the ITAR and up to 20 years for conspiring to lauder money.

More information:

www.usdoj.gov/opa/pr/2008/February/08_nsd_083.html

— Danielle McClellan

15. Northrop Grumman Agrees to Pay $470,000 after Voluntary Disclosure of Reexport Violations

Northrop Grumman Corporation of Los Angeles, California has voluntarily self-disclosed violations to the Commerce Department’s Bureau of Industry and Security. The company and Litton Industries, Inc., which Northrop acquired in April 2001, committed 131 violations of the Export Administration Regulations. A significant portion of the violations involved unlicensed reexports from the UK to a wide range of relatively friendly countries. The items were specially designed components for navigation equipments and they were illegally delivered to the Philippines, Singapore, Malaysia, Italy, and the United Kingdom from January 1998, to September 2002.

Northrop has agreed to pay $400,000 in civil penalties to settle the allegations of the 131 violations. The Commerce Department said that because Northrop voluntarily disclosed all information and fully cooperated with the investigation, Commerce decided to give a large break in fines.

More information:

www.bis.doc.gov/news/2008/northrop01252008.html

— Danielle McClellan

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