Export Control News & Alerts

The Export Control Update Newsletter
August 2008

CONTENTS

1. DDTC Clarifies Jurisdiction over Dual Use Aircraft Parts
2. DDTC Announces New Registration Rules
3. DDTC Proposes Higher Export Tax for ITAR Exporters
4. DDTC Posts Iraq and Afghanistan Guidance on Its Website
5. California Aerospace Company Gets $250,000 Fine
6. New DFARS Export Compliance Requirements
7. Lockheed Agrees to $4 Million Penalty after Voluntary Disclosure
8. Exports from US via Brazil to Iran Net $132,791.39 Settlement
9. Man Gets Jail Time for Exports to Sudan
10. BIS Increases Denial Order Scope of Ankair
11. DDTC Reminds Applicants of Support Document Requirements
12. Illegal Nickle Transactions Net Fine of More than a Nickle
13. Sales & Marketing VP Nailed for Export Violation
14. Deemed Exports to Indian and Italian Employees Gets $126,000 Fine
15. Food, Insurance and Cigar Fines
16. Allied Telesis Gets $500,000 Fine for Activities with Iran
17. Letters to the Editor - Summer 2008
    
18. Older stories are in the Export Control Update newsletter archive

1. DDTC Clarifies Jurisdiction over Dual Use Aircraft Parts

Here is some good news: On August 14, 2008 the State Department published a notice in the Federal Register clarifying the jurisdiction of aircraft parts used in military and commercial aircraft. The new rule says that such items originally designed or modified for military use and that are also in an FAA certified commercial application do not fall under the jurisdiction of the US Munitions List (USML) and fall under the jurisdiction of the usually less restrictive Commerce Control List (CCL). (Of course, there are a few exceptions to this general rule. I will explain the details below.)

This welcome news gives peace of mind to exporters who sometimes are uneasy about the jurisdiction of a part originally designed for a military aircraft and then used in a commercial aircraft — for years and years exporters thought dual-use aircraft parts always fell under CCL jurisdiction. And then along came the QRS-11 case in which the State Department asserts USML jurisdiction over the QRS-11, which even was actually originally designed for commercial aircraft. Exporters may read the new rules and determine that items originally designed for military use but now in commercial use are not on the USML. If the item, however, is Significant Military Equipment (SME), the exporter cannot make it own decision. SME items only go to CCL jurisdiction if State issues a written Commodity Jurisdiction determination for the SME item.

The new rule also moves specifically designed military hot section components and digital engine controls into Category VIII(b) where they are now SME and excluded from the self-executing benefits of the new jurisdiction clarification

That’s the good news in a nutshell, here are the details of the new rule:

Jurisdiction Clarification Note After USML VIII(h):

At the end of Category VIII(h), the paragraph that controls parts and components, there is a a new note. The note creates 4 categories of controls for aircraft and aircraft engine parts:

1. The EAR controls any component, part, accessory, attachment, and associated equipment designed exclusively for civil, non-military aircraft and engines.
2. The ITAR controls any component, part, accessory, attachment, and associated equipment designed, developed, configured, adapted or modified for military aircraft or military aircraft engines.
3. The EAR controls components and parts that do not meet the above criteria, including those that may be used on either civil or military aircraft, that meet following all five of these requirements:
   • i. The item is not SME
   • ii. The item is not controlled under another category (other than Category VIII) in the USML
   • iii. The item is “standard equipment” (see definition below);
   • iv. The item is covered by a civil aircraft type certificate (including amended type certificates and supplemental type certificates) issued by the FAA for a civil, non-military aircraft (this expressly excludes military aircraft certified as restricted and any type certification of Military Commercial Derivative Aircraft); and
   • v. The item is an “integral” (see definition below) part of such civil aircraft.
4. SME items remain on the USML even when they meet the requirements of iii. - v. in paragraph 3) above. SME items only come off the USML if the State Deparmtne issues a CJ removing the SME from the USML. The only exception to this requirement is where a part or component designated as SME in this category was integral to civil aircraft prior to August 14, 2008. For such part or component, U.S. exporters are not required to seek a commodity jurisdiction determination from State, unless doubt exists as to whether the item meets the three criteria in iii. - v. in paragraph 3) above.

The new Note tells you that when you are deciding if an item meets the iii. - v. criteria, you should consider whether the same item is common to both civil and military applications without modification of the item’s form, fit, or function.

The new Note also says that some examples of parts or components that are not common to both civil and military applications are tail hooks, rotodomes, and low observable rotor blades.

Definitions for the New Note

Standard equipment: A part or component manufactured in compliance with an established and published industry specification or an established and published government specification (e.g., AN, MS, NAS, or SAE). Parts and components that are manufactured and tested to established but unpublished civil aviation industry specifications and standards are also “standard equipment,” for example, pumps, actuators, and generators. A part or component is not standard equipment if there are any performance, manufacturing or testing requirements beyond such specifications and standards. Simply testing a part or component to meet a military specification or standard for civil purposes does not in and of itself change the jurisdiction of such part or component.

“Integral” is defined as a part or component that is installed in an aircraft.

Further explanation of “standard equipment” and integral”: In determining whether a part or component may be considered as standard equipment and integral to a civil aircraft (for example, latches, fasteners, grommets, and switches) it is important to carefully review all of the criteria noted above. For example, a part approved solely on a non-interference/provisions basis under a type certificate issued by the Federal Aviation Administration would not qualify. Similarly, unique application parts or components not integral to the aircraft would also not qualify

The New Category VIII(b)

No doubt that hot section engine component and FADEC exporters are not as happy with the new jurisdiction clarification as I am. The new rule moves these items into paragraph b of Category and designates them as SME for the first time.

Here is the new Category VIII(b):

Military aircraft engines, except reciprocating engines, specifically designed or modified for the aircraft in paragraph (a) of this category, and all specifically designed military hot section components (i.e., combustion chambers and liners; high pressure turbine blades, vanes, disks and related cooled structure; cooled low pressure turbine blades, vanes, disks and related cooled structure; cooled augmenters; and cooled nozzles) and digital engine controls (e.g., Full Authority Digital Engine Controls (FADEC) and Digital Electronic Engine Controls (DEEC).

Well, that’s the new rule. It puts in the ITAR an interpretation exporters have used in the past-but now it is actually in the ITAR and we all can read it and use it with confidence. I congratulate the State Department for putting this in the ITAR instead of forcing exporters to rely on ITAR folklore to know how to make this critical jurisdiction decision.

— John Black

2. DDTC Announces New Registration Rules

In the July 18, 2008 Federal Register (PDF) the State Department revised the International Traffic in Arms rules for registration. State made two changes to ITAR 122.3. First, you may now register for only one year at a time — formerly you could register for two years. Second, you must submit your registration renewal request no earlier than 60 prior to the expiration date and no later than 30 days prior to the registration date.

State gave no justification for making these changes which will effectively double the number of times a company has to renew registrations and creates a tight window for renewal. Perhaps it is related to the proposal to use ITAR registration as a way to levy an export tax.

— John Black

3. DDTC Proposes Higher Export Tax for ITAR Exporters

The Department of State has issued a proposal in the July 28, 2008 Federal Register that would jack up the registration fees for any company who manufactures or exports defense articles controlled by the ITAR. The proposed increase in fees is part of Bush’s new requirement that State/DDTC begin a self-financing plan. The president wants State to be able to pay close to 75% of its costs.

This export tax could generate a solid income for DDTC.

DDTC now proposes a higher-priced three tier pricing strategy with registration fees that are significantly higher than the current $1750 per year. The proposed pricing structure is:

1. First tier: Set fee of $2,250 per year for registrants who are renewing a registration and who have not submitted any applications during the twelve month period ending 90 days prior to the expiration of their current registration. This tier will also include those registering for the first time.
2. Second tier: This tier is for registrants who have submitted ten or fewer applications during the twelve month period; this will be a set fee of $2,750.
3. Third tier: Registrants who submit more than 10 applications during the twelve month period will pay a fee of $2,750 and an additional fee of $250 for every application over your tenth. (If you submit an application under the proposed rule and it is returned without action and then you resubmit it, it is not clear if you would be charged $250 of $500.)

Luckily, for those of you in the third tier, DDTC decided to limit your new ITAR export tax to the greater of $2750 or 3% of the total value of all applications you submit. If you use the Third Tier formula to calculate your registration fee and it comes to a number greater than 3% of the value of all of the applications you submitted, DDTC will reduce the registration fee to 3% of total application value (or to $2750 if that is greater than 3%).

In a related move, we have learned that DDTC will soon publish another notice announcing it will charge a $20 fee to access the DDTC website. Volume discounts for companies who access the website frequently will be available and DDTC will issue user IDs and passwords for you employees. You will be able to enter your credit card number in the DDTC website to pay the fee. Extra fees may be charged for downloads of large documents such as the new agreement guidelines. We have also learned that DDTC will charge you $50 for every phone call to DDTC licensing officers — $30 if you don’t actually speak to the licensing officers and just leave a voice mail.

Hahahaha — that last paragraph is just a joke and is not true — we hope!

While the proposed rule will generate some significant revenue for DDTC, I wonder if there will be a backlash from exporters who will demand they get their money’s worth for their $250 application fee. Of course, seriously, exporters are bound to complain about this new rule.

As a practical matter, US exporters may pass the $250 fee on as an extra charge to their overseas customers-they might not notice it now with the weak US dollar.

In any event, this is just a proposed rule now. It has no immediate impact on anything other than to create a new topic for discussion among export control nerds like me.

More information:

• Federal Register Notice July 28, 2008

— John Black

4. DDTC Posts Iraq and Afghanistan Guidance on Its Website

DDTC published on its website an updated version of its “Guidance for Iraq and Afghanistan Cases” publication (OEFandOIF_Guidelines2008.doc) on July 22, 2008. The policy in place puts priority on all requests for exports that directly support Operation Iraqi Freedom (OIF) and Operation Enduring Freedom (OEF) in Iraq and Afghanistan.

Licenses that qualify under the policy are as follows:

• Defense articles and services to forces or organizations deployed in Afghanistan and Iraq;
• Defense articles and services to forces or organizations within 90 days of a scheduled deployment.

Any licenses not meeting these criteria and requesting the expedited review will be RWA.

If your export meets the criteria, application submission must include:

• The Transaction ID (for D-Trade and DSP-119) needs to begin with “OIF” or “OEF” as applicable
• All requests must note “OIF” or “OEF” in the first line of purpose block (Block 20 for DSP-5; 23 for DSP-73 and DSP-61).
• Hard copy submissions should have a bright color cover sheet indicating that the case is for OIF or OEF and include the appropriate licensing division based on the USML category, the list is available at pmddtc.state.gov/docs/OEFandOIF_Guidelines2008.doc

The following documentation must accompany the license:

• Transmittal letter explaining the transaction
• Complete copy of the contract or PO to the proposed export
• End use and end user statement from the foreign purchaser
• Letter from the appropriate service or agency identifying that the specific export is urgent and a requirement in support for OIF or OEF (licenses in support of US government contracts)
• Copy of product specifications/descriptive literature that clearly details commodities requested for export
• DSP-83’s are required for all exports of significant military equipment regardless of country of ultimate destination

Reexport requests must include the following:

• Request must clearly demonstrate that the reexport is for equipment to US persons and/or coalition forces or supporting contractors currently deployed in Afghanistan or Iraq
• Transmittal letter describing the transaction and identifying the original license number under which the articles were exported
• Copy of the PO, contract, or letter of intent from the new ultimate end user
• End use statement from the ultimate end user explaining the transfer is an urgent OIF/OEF requirement
• Copy of product specifications/descriptive literature for the export
• DSP-83 if the transfer includes SME
• Certification that the applicant is a US persons (ITAR 126.13)

—Danielle McClellan

5. California Aerospace Company Gets $250,000 Fine

Air Shunt Instruments Inc., a California aircraft components company, is required to pay a criminal fine of $250,000 regarding false statements made concerning exports. The company willfully and knowingly made false statements in connection with a gyroscope used on military helicopters; Air Shunt stated that part in question was sent to a freight forwarder in San Diego who then exported the item to Thailand in 2003. The gyroscope is currently on the USML and requires a license to be exported.

The statement of facts submitted by Air Shunt explains that the company’s Vice President, John Nakkashian was responsible for obtaining any and all licenses for all company sales. The company’s documents further illustrate that Nakkashian was well aware that a license was required to export the gyroscope.

Nakkashian has been indicted on four counts of violating the Arms Export Control Act. The indictment alleges that Nakkashian illegally exported military components for engines used on F-5 fighter jets to Dubai. The accusation includes the military gyroscope exported to Thailand in 2003.

Currently Nakkashian is being sought out by the Justice Department, DCIS and ICE. Apparently he fled the country when the investigation concerning the gyroscope began. He faces a sentence of up to 10 years imprisonment for each count of violating the Arms Export Control Act.

Air Shunt has adopted effective standards of conduct and internal control systems after discovering the illegal exports. They have revised and reviewed all procedures and created ethics training programs to prevent and detect violations.

Anyone with information on the whereabouts of Nakkashian is encouraged to contact the San Diego Resident Agency of DCIS at (858) 569-1497 or the ICE hotline at 1-866-DHS-2ICE.

(Anyone with information concerning the whereabouts of Elvis is encouraged to contact us at telephone number BR-549.)

More information:

• DOJ News Release: California Firm Sentenced While Search for Its Fugitive Vice President Continues in Arms Export Case

—Danielle McClellan

6. New DFARS Export Compliance Requirements

In July 2005 DoD published a proposed rule to address requirements for preventing unauthorized disclosure of export-controlled information and technology in DoD contracts. After receiving numerous comments, a second proposed rule was published in August 2006; the rule simplified the original policy and framework that currently exists in the ITAR and EAR.

This month DoD issued an interim rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) to address the new requirements to be followed when performing DoD contracts. Two new clauses have been added in the event that, export-controlled items may or could be expected to be involved in a contract.

The differences between the second rule in 2006 and the new interim are as follows:

• The term, “export-controlled items” will be used instead of “export-controlled information and technology” to better describe what is controlled by the EAR and ITAR.
• With respect to the EAR, the definition of “items” will clarify that access to an “export-controlled item” is not necessarily subject to the EAR, only technology and source code (not commodities) are subject to EAR when released to a foreign national.
• The definition of “fundamental research” and “applied research” found in DFARS 204.7301 has been relocated since both terms have been excluded from the interim rule.
• Additional references to the ITAR and EAR in 204.7302 of the DFARS
• Procedural requirements were formerly found in 204.7303 (Policy) are now found in “Procedures” section at 204.7305(a) of the DFARS
• The number of contract clauses has been reduced from three to two by eliminating the separate clause for fundamental research contracts.
• Clause 252.204-7009 (Requirements Regarding Potential Access to Export-Controlled Items) has been changed to include that, if during performance of the contract, the contractor becomes aware and notifies the contracting officer that the contractor will need access to export-controlled items, the contracting officer has the right to terminate the contract in whole or in part for the convenience of the government.

The new interim rule will become effective July 21, 2008.

More information:

• Federal Register Notice July 21, 2008

— Danielle McClellan

7. Lockheed Agrees to $4 Million Penalty after Voluntary Disclosure

Lockheed Martin Corporation agreed to pay a $4 million dollar penalty to settle charges of 8 violations of the Arms Export Control Act and the ITAR. The company voluntarily disclosed the violations, the charging letter states, “remedial measures as significant mitigating factors, the Department would have charged the Respondent with additional violations”.

In May 2003 Lockheed began the process of selling Hellfire missiles to the UAE; part of a Foreign Military Sale (“FMS”). Hellfire missiles are air-to-ground, laser guided, subsonic missiles that are capable of defeating any known tank in the world today. The UAE Air Force indicated that performance specifications of the missiles were needed to carry on the sale. In February 2004, Lockheed traveled to the UAE where they provided the Air Force with the specifications. Lockheed had edited the information to protect any confidential material but failed to omit all sensitive details on the capabilities of the missiles.

In April 2004, Lockheed disclosed to the Department that they, “mistakenly believed that since the UAE already possessed inventories of the missiles, an export license to export the associated technical data (i.e. performance specifications) must have already been in place.” The disclosure provided that Lockheed did take further steps to secure the return of the classified information that they had provided to the UAE Air Force.

Lockheed submitted another Voluntary disclosure in March 2008 regarding the unauthorized export of classified information concerning the Joint Air-to-surface Standoff Missile (“JASSM”) by one of its Lockheed Martin Missile and Fire Control (“LMMFC”) employees.The employee discussed JASM information with a foreign person of a major non-NATO ally while on a business trip. Lockheed informed the employee before the trip that certain JASSM information was not approved for export to any country and was highly confidential. The employee confused the information authorized for public release with classified information when meeting with the non-NATO ally.

Both the Hellfire Air to Ground Missile System and the JASSM are defense articles controlled under the US Munitions List (121.1 of the ITAR).

The Charges against Lockheed are as follows:

• Charges 1-3: Unauthorized presentation/proposal concerning sale of SME (Hellfire Missiles)
• Charge 4: Unauthorized export of technical data (Hellfire missile technical data)
• Charge 5: Unauthorized Export of Classified Technical Data (Hellfire missile technical data)
• Charges 6-7: Failure to comply with requirements for classified information (JASSM information)
• Charge 8: Failure to obtain non-transfer and use certificate (no DSP-83 for exported technical data)

Lockheed was fined $4 million and entered into a Consent Agreement to settle all charges.

More information:

• Consent Agreement (PDF)
  

— Danielle McClellan

8. Exports from US via Brazil to Iran Net $132,791.39 Settlement

MBIS has released a Settlement Agreement with Engineering Dynamics, Inc. of Louisiana. The company designed, produced, marketed, and supported Structural Analytical Computer Software (SACS) which assists in the design of offshore oil and gas structures such as oil and gas drilling platforms and rigs.

From March 1995 into February 2007 EDI exported the engineering software programs from the US to Iran, via Brazil, without obtaining the required US Government authorization. The software was classified under ECCN 8D992 because of its highly technical sophistication and its potential use. Nelson Szilard Galgoul, director of SUPORTE Consultoria e Projetos Ltda of Brazil, acted as an agent for EDI in the marketing and support of SACS for users in Iran.

EDI was charged with one count of conspiracy for knowingly exporting the software to Iran through its Brazilian agent and devising and employing a scheme to continue to market, sell and service the engineering software to Iran through Galgoul. The company will pay a civil penalty of $132,791.39 for its violation. (Note from John Black: 39 cents???) BIS could have charged the company under the new $250,000 penalty provision, and could have charged the company with several charges compared to the one that they received, since there were multiple shipments to Iran. BIS officials say that, “under the new penalty scheme they will be less likely to pile on counts and this [case] provides some confirmation of that.”

James Angehr and John Fowler, owners and corporate officers of EDI are currently subject to criminal charges in connection with the same sales of the software to Iran. They are charged with conspiracy to violate IEEPA and The Iranian Transactions Regulations, both of which require approval for the export of goods to Iran.

It should be noted that usually when a US company’s “distributor” (in this case Galgoul) reexports the goods to an illegal destination, the US company is typically not held liable for the distributor’s actions. It is often very hard to find evidence to support the conspiracy charge because the US company can deny they ever had any knowledge of the violation.

In this case, that is not the case, after reading the charging papers filed against Angehr and Fowler it is clear they were fully aware that Iran was receiving the software. Galgoul was paid by the Iranian companies; he would keep 20%, his commission, and then forward the 80% to EDI. There are also numerous emails and faxes between Angehr and Galgoul regarding the companies they serviced in Iran over the 12 twelve year span.

More information:

• www.exportlawblog.com/docs/Angehr.pdf (PDF)
• Order e2044 (PDF)

—Danielle McClellan

9. Man Gets Jail Time for Exports to Sudan

Khalid Ahmed, a native of Sudan and legal permanent resident of the US has been sentenced to five months in prison, followed by five months in community confinement, a fine of $1,500, and three years of supervised release.

Beginning in 2007 Ahmed began exporting components of an assault rifle to Sudan; ICE agents intercepted a package that Ahmed had sent in the mail to Sudan. The agents then advised Ahmed of the licensing requirements for the export and US sanctions against Sudan.

Ahmed continued to illegally export items to Sudan, including tactical equipment, gun parts, and several other military items worth several thousands of dollars. On August 22, 2007 he and his wife attempted to travel to Sudan with more parts packed away in their luggage. Dulles International Airport checked the luggage discovering the contents. The items were seized and then an intense investigation began, leading to Ahmed’s arrest on January 31, 2008.

More information:

• DOJ News Release: Alexandria Man Sentenced for Illegal Export of Firearms Parts to Sudan

— Danielle McClellan

10. BIS Increases Denial Order Scope of Ankair

BIS has modified its Temporary Denial Order involving Ankair of Turkey. On June 6, 2008 BIS denied the company’s export priveledges involving the Boeing aircraft currently involved in the case. After finding evidence that the company was about to engage in further violations involving additional US origin aircrafts to Iran, a denial order involving all exports was placed on Ankair.

Background of Case:

BIS issued a denial order suspending export privileges of Galaxy Aviation Trade Company, and three of its shareholders on June 6, 2003. The London Based company planned to purchase a Boeing 747 from Ankair, a Turkish company who would then re-export the US-origin plane to Iran. Iran Air, who was to acquire the aircraft, has been issued a denial order and Ankair has been issued a non-standard denial.

Because the aircraft was of US-origin it is an EAR violation to reexport it, and because the US government maintains strong economic sanctions on Iran, reexporting the Boeing was illegal on many grounds.

Under this denial order, Galaxy Aviation Trade Company and Iran may not directly/indirectly participate in or benefit in any way from any transaction subject to the EAR. It is also an EAR violation for any person to participate in a transaction subject to the EAR involving a denied party.

More information:

• Federal Register Notice June 17, 2008
• Order e2054 (PDF)
  

— Danielle McClellan

11.  DDTC Reminds Applicants of Support Document Requirements

DDTC has published a notice to reiterate the fundamental ITAR requirements for supporting documentation. The main concern posted in the notice is the legitimacy of the empowered officials under Section 120.25 of the ITAR.

120.25 states (in laymen’s terms):

(a) Empowered Official means:

1. You have the authority for policy management within the organization
2. You are legally empowered in writing by your organization to sign license applications or other requests for approval on behalf of the organization; and
3. You understand the provisions and requirements of the various export control regulations, and understand the penalties of violating them; and
4. You have the independent authority to ask questions about the export/import and to verify the legality of the transaction and the right to refuse to sign the license application.

Apparently, numerous applications have been Returned Without Action due to DTCL calling into question, “whether the applicants are in a position to fulfill their responsibilities as registered exporters and, in fact, whether anyone at the companies could meet the obligations as empowered officials under Section 120.25.”

The notice also provides that all applications need to be in compliance with the following requirements or they will be RWA:

• Applications must include a purchase order, letter of intent or other documentation
• The purchase documentation must be from the foreign party purchasing the defense articles, it cannot be from its US subsidiary
• The PO must be addressed and directed to the registered US party selling the defense articles and submitting the export license application
• The supporting PO, letter of intent or any other documentation must have an issue date within one year from the date of the application; the only exception would be an unshipped balance license request where the original PO is required as supporting documentation with a letter of explanation identifying the unshipped balance.
• The PO, letter of intent or other documentation must include the following:
  • The purchase price must be in US currency; if it is non-US currency the exchange rate and US dollar conversion for each line item must be provided
  • The end-user and end-use of the requested defense articles must be stated; if this is not available to you, a separate statement from the foreign party is acceptable but does not take the place of a DSP-83 when required.
• DDTC will not accept post office boxes or other general or imprecise addresses without a letter of explanation/justification. This extends to all parties involved in the transaction.
• If the address of the manufacturer is not known, applicants can select “unknown” and then provide a letter of explanation as to why the information is unknown.
• Provide any related precedent licenses in the “Description of Transaction” section of the application; there is no need to upload a copy of the precedent license, simply cite the case number.

DDTC has also posted an FAQ’s document (DOC) regarding license support documentation.

In a related move, DDTC now requires that exporters enter their credit card numbers and pay a $20 access fee to access the DDTC website. Hahaha… Just kidding.

More information:

DDTC’s Notice on License Support Documentation

— Danielle McClellan

12.  Illegal Nickle Transactions Net Fine of More than a Nickle

OFAC has released that Minxia Non-Ferrous Metals, Inc. remitted nearly $1.2 million to settle allegations that it dealt in Cuban metals. The only other facts disclosed by OFAC is that the purchase of metals was between 2003 and 2006.

This is the highest fine of the year alone and with next to no details provided about the case many are speculating on the reasoning behind the hefty fine. Minxia Non-Ferrous Metals is a subsidiary of China Antimony Cheminals Co., Ltd., which is a subsidiary of China Minmetals Non-Ferrous Metals Co., Ltd., which in turn is a subsidiary of the huge China Minmetals Corporation.

This is where the speculation comes in. In July 2006, the Bush Administration announced a crack down on nickel exports to dampen Cuba’s foreign income (half of Cuba’s income comes from nickel). Not long after, China Minmetals Corporation joined in a $600 million joint venture with Cuba to develop and use the country’s large surplus of nickel.

If OFAC imposed the large fine to punish China Minmetals for the venture, they are sure to be smiling now. The nickel venture with Cuba was recently bought out by Venezuela, leaving China with no nickel, no money and a huge fine.

More information:

• Comment by Walter Lippman on Export Law Blog
• OFAC July 11, 2008 (PDF)
  

— Danielle McClellan

13. Sales & Marketing VP Nailed for Export Violation

David Rainville, VP of Sales & Marketing of Select Engineering, Inc. has been fined $35,200. Rainville was directly and personally involved in a transaction where Select Engineering exported medical electrode sensor elements and stainless steel snap connectors to Iran via the UAE in January 2005. The elements and connectors are classified as EAR 99, but because of the embargo against Iraq a license was required.

BIS began investigating the company in April 2005, Rainville was asked if, “he had consulted with anyone concerning export compliance issues regarding the transaction”, Rainville explained he had only discussed the transaction with a specialist from the Department of Commerce’s International Trade Administration in March 2005, after the export had occurred. This was false; he had discussed the transaction through email with the same international trade specialist before the export occurred; and was informed that a license from OFAC was required because of the embargo.

Rainville is charged with one count of making a false or misleading statement to the BIS Special Agent in the course of the investigation, the lie only cost him $35,200.

Select Engineering was charged with one violation, exporting the medical equipment to Iran with knowledge of the violation, they were fined $52,800.

More information:

• Order e2056.pdf (PDF)
• Order e2057.pdf (PDF)
  

— Danielle McClellan

14. Deemed Exports to Indian and Italian Employees Gets $126,000 Fine

BIS announced on August 12, 2008 that an Illinois firm will pay a $126,000 fine for committing 8 violations of the EAR. Ingersoll Machine Tools (IMT) employed foreign nationals from India and Italy, between November 2003 and January 2007 Ingersoll allowed the employees access to production and development technology for vertical fiber placement machines and production technology for five axis milling machines.

The technology was controlled under National Security and Missile Technology reasons to Italy and India, and for nuclear non-proliferation in India. Ingersoll was charged $15,750 for each of the eight deemed export violations, under section 734.2(b)(ii) of the EAR.

Darryl W. Jackson, Assistant Secretary of Commerce for Export Enforcement commented on the case, “Companies that employ foreign nationals must be mindful of the need to comply with the EAR as they relate to the release of technology or source code to foreign nationals.”

More information:

• BIS News Release: Illinois-Based Firm Settles Charges of Deemed Export Violations

— Danielle McClellan

15. Food, Insurance and Cigar Fines

OFAC has published their July Sanctions Enforcement Report (PDF).

Here are a few cases that stood out….

Gate Gourmet, Inc. voluntarily disclosed that they violated the Cuban Assets Control Regulations when they supplied catering services to Cubana Airlines without obtaining a license. The company funded employee travel to Cuba and referred business with Air Cubana to other suppliers. Gate Gourmet agreed to pay $581,901.54 for the violations.

Aetna Life Insurance Company has remitted $5,210.31 for initiating a life insurance proceeds payment to a beneficiary in Cuba. Aetna did not voluntarily disclose the matter nor did they attempt to obtain a license for the payment.

Geico Corporation voluntarily disclosed a violation in which they dealt with property and/or interests in property of a specially designated national. Geico cooperated with the investigation and remitted a $1,085.63 fine.

Five unnamed individuals were fined a total of $8,303.30 for the illegal purchase of Cuban-origin cigars, none of which self-disclosed the purchase.

— Danielle McClellan

16. Allied Telesis Gets $500,000 Fine for Activities with Iran

On July 28, 2008 Allied Telesis Labs, Inc. (ATL) was sentenced to a $500,000 criminal fine and two years of probation for conducting business with Iran. The company designs telecommunication equipment and systems for high capacity Multiservice Access Platforms (iMAPS).

ATL entered a guilty plea and explained that they conspired with another business (unnamed) to rebuild and upgrade the telecommunications systems in 20 Iranian cities. The company signed a $95,000,000 contract with Iranian Information Technology Company (IRITCO) and began manufacturing $2 million worth of iMAPS in their facility in Singapore. After several months the contract fell through and the iMAPS that were manufactured were sold elsewhere at a loss. The telecommunications system never reached Iran and ATL immediately fired all employees involved in the conspiracy when news of the contract leaked.

Court documents show that the ATL employees were well aware that the contract was in violation of export laws. It was noted that a confidential informant helped to break the case.

More information:

• BIS News Release: Sentencing of Company for Efforts to Trade with Iran

— Danielle McClellan

17. An Application under Any other Name is a Rejected Application

WDDTC has posted a reminder on its website (www.pmddtc.state.gov). Registrants need to make sure that license applications include their registrant name as it appears in the registration letter. Any differences will result in a rejection of the application in D-Trade.

— Danielle McClellan

18. Letters to the Editor - Summer 2008

Regarding the article The “Soon” Is Now: Throw Away Your SEDs Because It’s AES EEI Time!:

John,

You need to get out more — not that you didn’t know that. Drayage is a short haul movement of a conveyance at a port. For example, drayage at an ocean port typically refers to the truck movement of the ocean container from the stuffing point to the port of export (or from the port of arrival to the rail ramp or CFS). On the Southern border, drayage could refer to the portion of the move (either direction) between the U.S. and MX border crossing points. For example between Laredo and Nuevo Laredo or between El Paso and Juarez....within the “20 mile commercial zone”.

— Joan Koenig
Drinker Biddle & Reath LLP

Joan,

Haha. I don’t think my not knowing drayage has anything to do with whether I need to get out more. I actually am on a 3 week vacation in Asia now.

I think your knowledge of drayage proves you need to get out more.

Best Regards,

— John Black

Another reader sent this note in response to the article:

Hi — drayage dates way back to the horse and buggy days — back then they towed a lot of loads with a horse and a 2 wheeled “cart”— “A dray horse and and a dray cart” — it was about the only way to move large loads until cranes were built to load more and of course the automobile and trucks came into existence -many of the modern day major lifting and trucking companies like to show off there age by calling themselves Moving and Drayage companies.

 

We encourage all of our readers to send us their comments on our newsletter — both comments that you would like to see printed and those that you don’t want printed.

— John Black

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