Export Control News & Alerts

The Export Control Update Newsletter
September 2008

CONTENTS

1. Danish Company's Voluntary Disclosure Nets $119,250 Penalty, More for Its Subs
2. BIS Requires Mandatory Submission of Most Applications through SNAP-R
3. BIS Announces New Procedures for Putting Parties on Its Entity List
4. Freight Forwarder Pays $20,000 Fine for Forwarding to Syria
5. Taiwanese Company Pays for Causing Illegal Export from the US
6. University of Tenessee Professor Convicted for Releasing Data to Chinese National
7. BIS Recognizes Kosova as Country in the EAR
8. Man and Company Indicted for Illegal Exports to Government of India
9. AES Advance Filing Requirements Do Not Apply to Shipments between US and Puerto Rico
10. BIS Clarifies Controls on Crew Protection Kits
    
11. Older stories are in the Export Control Update newsletter archive

1. Danish Company's Voluntary Disclosure Nets $119,250 Penalty, More for Its Subs

BIS announced on August 14, 2008 that Reson A/S (RAS), a Denmark company that sells underwater acoustic equipment globally, has agreed to pay $119,250 in civil penalties. The company voluntarily disclosed 29 violations involving unlicensed exports and reexports of underwater navigation equipment to destinations in South Africa, Singapore, UAE, Mozambique, Taiwan, Russia and India between 2002 and 2006.

In addition to RAS’s penalties, its subsidiaries were also fined. Reson, Incorporated of California will pay $83,000, Reson Offshore Limited of the UK ($9,900), and a former subsidiary Underwater Surveys of Cape Town, South Africa ($29,700) for their involvement regarding the violations.

More information:

• BIS News Release
  

— Danielle McClellan

2. BIS Requires Mandatory Submission of Most Applications through SNAP-R

BIS announced that effective October 20, 2008, it will require the following applications or notifications to be submitted through SNAP-R:

• Export and reexport license applications
• Classification requests
• Encryption review requests
• License exception AGR notifications
• Any related documents to be submitted with the above mentioned; PDF files can be submitted as “attachments”
  

The requirement does not apply to applications for Special Comprehensive Licenses or in certain situations in which BIS authorizes paper submissions.

Section 748.1 “General provisions,” Section 748.3 “Classification requests, advisory opinions, and encryption review requests,” and Section 748.6 “General instructions for license applications,” have been amended to comply with the new ruling.

More information:

• Federal Register Notice - August 21, 2008
  

— Danielle McClellan

3. BIS Announces New Procedures for Putting Parties on Its Entity List

BIS has published a final rule in the Federal Register amending the EAR export and reexport requirements for persons and entities designated on the Entity List. 15 CFR Parts 730, 744 and 756 have been changed effective immediately The rule expands on the idea that certain exports and reexports to parties on the Entity List require a license from BIS and availability of License Exceptions in those transactions is limited.

A summary of the changes are as follows:

• An End-User Review Committee will be formed consisting of representatives from the Department of Commerce, State, Defense, Energy, and Treasury. The committee will have the discretion to add, remove or modify a party on the Entity List.
• The Entity List will be changed when there is reasonable cause to believe, based on specific facts, that an entity has been involved in, or poses a risk of being involved in activities that are contrary to the national security or foreign policy interests of the US. BIS stated that a guidance will be published in the near future regarding the ability of US persons to deal with parties related to those on the Entity List; BIS also stated that “US persons” will not be placed on the Entity List.

Under Section 744.11(b) five types of conduct that the End-User Review Committee could determine are contrary to US national security or foreign policy interests are:

1. Supporting persons engaged in acts of terror.
2. Actions that could enhance the military capability of, or the ability to support terrorism of governments that have designated by the Secretary of State as having repeatedly provided support for acts of international terrorism.
3. Transferring, developing, servicing, repairing, or producing conventional weapons in a manner that is contrary to US national security or foreign policy interests or enabling such transfer development, service, repair or reproduction by supplying parts, components, technology, or financing for such activity.
4. Preventing accomplishment of an end use check conducted by or on behalf of BIS or the Directorate of Defense Trade Controls of the Department of State by: precluding access to; refusing to provide information about; or providing false or misleading information about parties to the transaction or the item to be checked; or
5. Engaging in conduct that poses a risk of violating the EAR when such conduct raises sufficient concern that prior review of exports or reexports involving the party and the possible imposition of license conditions or license denial enhances BIS’s ability to prevent violations of the EAR.

The new rule also states that a party on the Entity List has the right to request that its listing be removed or modified and sets procedures for addressing such requests. BIS stated in the Federal Register (in response to public comments) that it may further focus the controls by tailoring licensing requirements to a specific named entity, suggesting that the exporter will not necessarily be required to obtain a license for all exports to a named entity. BIS also proposes that the new rule will provide additional information to allow the public to screen potential recipients of items subject to the EAR, as well as reduce the number of provisions that the public normally would need to review to determine the license requirements.

More information:

• Federal Register - August 21, 2008

— Danielle McClellan

4. Freight Forwarder Pays $20,000 Fine for Forwarding to Syria

BAX Global of Wisconsin has been charged with committing three violations of the EAR. Between June 2004 and October 2004 the company forwarded HLA Tissue Typing Trays to Syria on three separate occasions without obtaining the required licenses.

According to the charging letter BAX will pay a civil penalty of $20,000, the company will not be denied any export privileges.

More information:

• Charging Letter (PDF)

— Danielle McClellan

5. Taiwanese Company Pays for Causing Illegal Export from the US

Johnson Trading & Engineering Company, Ltd. of Taiwan has agreed to pay BIS $90,000 to settle charges that it knowingly caused the unlicensed export of computer chips to the People’s Republic of China, and for evading the EAR. The computer chips are subject to the EAR and controlled for national security and anti-terrorism reasons.

Between February 2003 and December 2003, on seven different occasions, Johnson Trading ordered computer chips form a US exporter and provided the exporter with false documentation that the country of ultimate destination was Taiwan. When the chips reached Taiwan, Johnson Trading arranged for them to be shipped to the PRC via Hong Kong.

Johnson Trading has agreed to the fine and will be suspended for a five-year period encompassing the denial of export privileges and an audit of the company’s export compliance program. If Johnson Trading fully complies with all terms of the agreement (which has yet to be published), $30,000 of the $90,000 penalty will be suspended.

“BIS is taking a hard-line with license exceptions being used to evade licensing requirements,” explained Kevin Delli-Colli, Deputy Assistant Secretary for Export Enforcement at BIS.

More information:

• BIS News Release

— Danielle McClellan

6. University of Tenessee Professor Convicted for Releasing Data to Chinese National

J. Reece Roth, a 70 year old retired University of Tennessee professor faces up to 160 years in prison and more than $1.5 million in fines for 18 counts of conspiracy, fraud and violating the Arms Export Control Act. Roth, an expert in plasma research, agreed to serve as a subcontractor on a US Air Force project which was awarded to Knoxville technology firm Atmospheric Glow Technologies Inc.(AGT) The project involved the development of advanced plasma actuators for use on the wings of Air Force drones, a defense munitions item.

Roth assigned two of his graduate students, Truman Bond an American and Xin Dai a Chinese foreign national, to work on the project with him. At first, Xin Dai was not allowed to view Truman Bond’s work to ensure that export laws were not broken. Soon after, Roth and Atmospheric Glow Technologies representative Daniel Max Sherman agreed that this was slowing the process and allowed the graduate students to work together and share all information.

It soon came the time for Xin Dai to graduate; Roth told Sherman at AGT that he planned to replace the Chinese foreign national with Iranian student Sirous Nourgostar. AGT declined to allow the new Iranian student to be added into the mix, Roth saw this as discrimination of Nourgostar’s Iranian nationality. Roth went to the University of Tennessee and complained about the discrimination, UT then in turn notified the Air Force that Roth had been violating the Export Control Act.

Roth continues to maintain, even after his conviction, that the research he allowed the foreign national graduate student to work on was itself not subject to any export control laws. He explained that, because the project did not actually produce a physical product, that the information is yet to be controlled under the EAR.

Patrick Rowan, Acting Assistant Attorney general for National Security, gave fair warning:

“Today’s guilty verdict should serve as a warning to anyone who knowingly discloses restricted US military data to foreign nationals. The illegal export of such sensitive data represents a very real threat to our national security, particularly when we know that foreign governments are actively seeking this information for their military development.”

J. Reece Roth will be sentenced on January 7, 2009.

More information:

• DOJ News Release

— Danielle McClellan

7. BIS Recognizes Kosovo as Country in the EAR

Effective September 2, 2008, BIS amended the EAR to establish export licensing requirements for Kosovo. The US recognized Kosovo as a sovereign state on February 18, 2008 and this rule will update the EAR as follows:

• Supplement No. 1 to part 738 (Country Chart) will have “Kosovo” added
• Supplement No. 1 to part 740 (Country Groups), will be amended by adding Kosovo to Country Group B
• 740.7(d) (1) (Computer Tier 3 destinations) will add “Kosovo” for License Exception APP purposes
  

This rule will not amend Supplement No. 2 to part 745 (States Parties to the Convention on the Prohibition...) to include Kosovo because the country is not currently a State Party to the Convention at this time.

More information:

• Federal Register - September 2, 2008
  

— Danielle McClellan

8. Man and Company Indicted for Illegal Exports to Government of India

On September 9, 2008, a federal grand jury returned a five-count indictment against Siddabasappa Suresh and his company Rajaram Engineering Corporation for conspiring to violate the IEEPA and the EAR. Between August 2001 and June 2003 the defendants supplied the Government of India with controlled goods and technology without first obtaining the required licenses.

Rajaram Engineering Corporation sent the controlled items to the Vikram Sarabhai Space Centre (VSSC), the company is within the Department of Space of the Government of India and can be found on the Entity List. VSSC is responsible for not only research and development of India’s space launch system but also ballistic missiles.

In early 2003, the Office of Export Enforcement conducted investigations whereas officials traveled to foreign countries to verify the end users of certain controlled goods. While investigating shipments of goods to India the agents uncovered the sale of these goods from a US based company, (referred to “Corporation-US in the indictment) to Rajaram located in Bangalore, India.

It was revealed later that Suresh conspired with employees of the Indian based-subsidary of “Corporation-US” to evade the US export control laws by transshipping the goods through Rajaram to VSSC. Approximately 25 shipments were made within the 3 years and were valued at $136,000. All items involved were high tech complex electronic instruments for high performance testing and monitoring.

It is still unclear why the “Corporation-US” has remained unnamed throughout the entire process and why they and their Indian-based subsidiary have not been indicted on any charges.

More information:

• DOJ News Release

— Danielle McClellan

9. AES Advance Filing Requirements Do Not Apply to Shipments between US and Puerto Rico

The Census Bureau issued a memorandum on September 4, 2008 to clarify the Foreign Trade Regulations requirement for advance filing of electronic export information through the AES. It is required, by the FTR, that the US principal party or authorized agent file the export information no later than the time period specified by mode of transportation.

After reviewing the information, Census has determined that Trade Act Deadlines do not apply to shipments within US territory, which includes Puerto Rico. Any shipments between the US and Puerto Rico or vice versa are exempt from filing timeframes in the FTR.

Census notes that the US Virgin Islands are not a part of the US customs territory and any shipments to USVI are required to file timeframes.

More information:

• Title 15: Commerce and Foreign Trade (Electronic Code of Federal Regulations)

— Danielle McClellan

10. BIS Clarifies Controls on Crew Protection Kits

BIS amended the EAR to clarify that crew protection kits are on the Wassenaar Arrangement Munitions List (WAML) and are correctly classified on the CCL under the entry regarding “construction equipment built to military specifications.” Crew protection kits are items used as protective cabs on construction equipment to help protect crews operating in a military or otherwise hostile environment.

The phrase “crew protection kits” will be added to ECCN 0A018.a, this ECCN is used to control items listed on the WAML. BIS believes that this will further clarify that the all items listed are considered to be “construction equipment built to military specifications” and that all are controlled by that ECCN.

This amendment will not create any new export controls for crew protection kits.

More information:

• Federal Register - September 5, 2008
  

— Danielle McClellan

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