According to the indictment, which was unsealed on Monday, the defendant Philip Chaohui He owned and operated a company called Sierra Electronic Instruments, of which he was the only employee. Estimated sales revenues for 2010 were $110,000. I was unable to locate any website for the company, and the company’s web footprint consisted of two sparse directory entries.

Even so, He and Sierra got their hands on $549,654 worth of radiation hardened, space qualified memory chips from Aeroflex, a Colorado Springs chip designer and manufacturer. Seven months later, He drove his car to the Port of Long Beach and to a PRC-flagged ship there which had recently arrived from Shanghai and was scheduled to return in a week. The chips in question were in the defendant’s trunk concealed “in several plastic infant formula containers placed inside five boxes which were sealed and labeled as “milk powder” written in Chinese.

The indictment doesn’t describe what happened next, but it’s pretty clear. The federal agent that had been tailing Mr. He informed his buddies who swooped down on Mr. He, waving guns and shouting typical law enforcement stuff at him before dragging him away in handcuffs. The indictment suggests that before the dockside bust, the feds had snooped into his bank account and phone records and identified numerous phone calls to the PRC and, more ominously, two wires from the PRC to Mr. He totaling just under $500,000. As a result, Mr. He’s careful concealment of the goods in baby formula was a waste of time.

It doesn’t take a rocket scientist to guess what happened here. Obviously, Aeroflex smelled a rat when this one-man storefront operation wanted to lay his hands on a half-million dollars worth of highly specialized space-qualified circuitry, so they alerted the authorities. All the while Mr. He was agonizing over whether it was safest to hide the goods in baby formula, cans of dog food or boxes of knitting needles, he was already a marked man. Had he gone in for a smaller amount (for which he certainly would have been paid less) he might be basking in the Southern California sun. Indeed, he reminds me of the would-be bicycle thief who tried to walk out of my condo building’s parking garage with two bicycles rather than racing off swiftly on one bicycle.

He went down too.

The DOJ press release in July regarding the initial plea is larded with the typically hyperbolic language of prosecutors in export cases, but with a twist.

“We simply can’t risk that companies trying to manufacture military equipment on the cheap will expose our troops to more danger than they already face,” said U.S. Attorney Fishman.

“Our armed forces deserve the very best equipment to perform their missions in these difficult times,” said Edward T. Bradley, Special Agent in Charge, Department of Defense, Defense Criminal Investigative Service (DCIS), Northeast Field Office. “Fraudulent practices, designed to illegally enrich a corporation, and which could compromise the integrity and reliability of that vital equipment is inexcusable. The Defense Criminal Investigative Service is committed to vigorously investigating such violations of law.”

“This case underscores ICE’s commitment to work tirelessly with our law enforcement partners to investigate individuals or corporate organizations that circumvent federal regulations in the name of greed,” said Peter T. Edge, Special Agent in Charge of U.S. Immigration and Customs Enforcement’s Homeland Security Investigation (ICE HSI) in Newark. “When our troops’ safety is put in jeopardy, our national security is also compromised.”

And here I always thought that the purpose of the China arms embargo was to keep weapons and military technology out of the hands of the Chicoms because they were a military threat. Instead it appears that the reason is because they make shoddy stuff. If that’s the reason, is an arms embargo of Taiwan next?

First, for certain aircraft, such as the F-22, parts and components will still be controlled if they were “specially designed” for those aircraft. And DDTC concedes it hasn’t figured out a good way to define “specially designed,” conceding that the definition used in the December notice was being revised and would be the subject of a future notice.

Second, not all the covered aircraft are positively defined. Under the proposed revision of Category VIII, “armed unmanned aerial vehicles” are covered, which makes eminent sense, but so are “unarmed military unmanned aerial vehicles.” I can hear you asking now what makes an unarmed UAV a military UAV? DDTC concedes it has no earthly idea itself of the answer to this question, and asks for comments on this matter, sort of like the stumped contestant in “Who Wants To Be A Millionaire” using the audience lifeline.

Here’s a thought on an answer to that question. Unarmed UAVs are never military unless they are classified or contain classified systems or components. Because the proposed rule covers classified parts, the same principle should cover, by extension, classified aircraft or aircraft with classified components, in which case military unarmed UAVs do not need to be listed.

Twenty-five year old Texas woman and Russian expat, Anna Fermanova, was sentenced to four months in federal prison and four months of home confinement after she pleaded guilty to having tried to export Russian night vision equipment, which she concealed inside pairs of Uggs in her luggage.

The defense argued that the sentencing guidelines, which in Fermanova’s case called for a sentence between 46 and 57 months, should not be applied on the basis, inter alia, that there was no harm to national security. The night vision, according to the defense, was destined for Fermanova’s father-in-law in Moscow who was Target Master at a private hunting club in Moscow. He intended to sell the night vision equipment to wealthy clients who would use the scopes to hunt wild game. The judge evidently accepted this argument.

Because the defendant is an attractive young blonde woman with a Facebook page on which she posted a number of her photos, this case quickly became catnip for the media which labelled Ms. Fermanova as the “sexy Russian spy” (or “sexy Russian smuggler”) and then rolled in the story as often as possible. Here’s my question, albeit mostly rhetorical: if a defendant in an export prosecution is an attractive young man, would the media call him a “sexy” spy?

Pendzich, of course, had little choice but to plead guilty to one count of violating the Arms Export Control Act (“AECA”). An article that appeared last week in the Knoxville News reported on the sentencing hearing at which the judge gave Pendzich a 46-month sentence for the illegal exports.

The applicable federal sentencing guideline for an AECA violation allows the judge to take into account national security considerations in determining the appropriate sentence. The defense argued that since the plates were shipped to federal agents there had been no adverse impact on national security. The prosecution reached deep into its bag of hypotheticals and argued:

Although not intended by the defendant, had he been successful, the bulletproof vests and body armor he attempted to export could possibly have ended up in the hands of narco-terrorists.

And if the plates had been made of highly-enriched uranium the narcos could have built and exploded a nuclear bomb. Unfortunately for Pendzich, the sentencing judge bought this coulda-shoulda-woulda line of argumentation and threw the book at him.

According to a story that ran today in Politico, Anders Breivik claimed in his “Manifesto” that he obtained by mail order from the United States the 10 30-round magazines for the Ruger Mini-14 rifle that he used in the shootings at the summer camp outside Oslo. The cost of the 10 magazines was said by him to be $550.

Breivik wrote in his manifesto that while he could have purchased the high-capacity magazines in Sweden, they would have been significantly more expensive than ordering them from a U.S. supplier.

Although this revelation has led some politicians and others to wonder why such exports are legal, these exports might well have been illegal. The magazines in question would clearly have been Category I(h) items on the United States Munitions List and would have required a State Department license unless one of the export exemptions in the International Traffic in Arms Regulations was applicable. The only one arguably applicable would be the one found in section 123.17(a) which permits unlicensed exports of certain parts and components, including magazines, of “semi-automatic firearms to caliber .50 inclusive” provided the value does not exceed $100 wholesale in any transaction.

Because of the dollar limitation, the export of these magazines, if done in one transaction, would not have been eligible for the exemption and would have required a license, something that likely was not obtained given the relatively low cost of the transaction. Breivik’s “Manifesto” entry on the purchases also makes it sound like it was one export and ineligible for the $100 exemption:

10 x 30 round magazines – .223 cal at 34 USD per mag. Had to buy through a smaller US supplier (who again ordered from other suppliers) as most suppliers have export limitations.

Of particular note here is that Breivik was looking for a U.S. supplier who was willing to, er, overlook U.S. export requirements. That supplier should be very nervous, because I bet that they’ll find shipping documents in Breivik’s apartment with the supplier’s name.

According to the criminal complaint filed in the case, the parts consisted of the nose cone, fuselage, and the horizontal surface of the tail assembly, but not the main wing, the entire tale assembly, the battery or the ground control equipment. (Almost all of the press stories, such as this one, this one, this one, and this one incorrectly reported that the illegal temporary import involved the entire drone.)

It’s important to understand that only parts were involved because a permanent import of these parts is not illegal. Aircraft and drone parts are not listed on the United States Munitions Import List. They are, however, listed in Category VIII(h) of the United States Munitions List, which means they require a State Department license for temporary (as opposed to permanent) imports, i.e., imports which will be followed by an export back out of the United States. As you will see, this distinction between legal permanent imports and illegal temporary imports opens up some major holes in the government’s case.

The narrative in the criminal complaint shows that Mr. Chua initially entered into negotiations with the federal agents to sell them the Raven parts, which apparently he was doing on behalf of a third party who claimed to have bought them in a Philippines government auction. During the negotiations, the agents frequently and incorrectly indicated that the import of these parts into the U.S. would be illegal. At one point, Mr. Chua responds that it should not be a problem because he is only shipping “as a part not a whole unit [and] can be declared as a spare.” (Paragraph 17.) At this point the agents might have realized that a permanent import of the parts would not be illegal, so they told Chua, for the first time and the very next day, that they were buying the parts for someone in Russia and the parts would be immediately exported after they received them. (Paragraph 18.)

After hearing this, Mr. Chua and the owner of the parts wisely consulted lawyers to see if the parts could still be shipped. Based on that consultation, Chua told the undercovers that they would need a State Department license (Paragraph 29.) After repeated statements by the agents that they would not obtain a license, Chua told the agents that he could only sell the parts to them if they would sign an agreement stating:

The Buyer shall not export, re-export, or transfer directly or indirectly either by laws applicalbe in the customer’s own courntry or by laws of the United States of America to countries/companies developing weapons of mass destruction (WMD) and to companies/persons listed under the U.S. Department of Commerce Denied List.”

(Paragraph 39.) The agents did sign such an agreement prior to the export of the parts by Chua to them. (Paragraph 42.)

As this blog has noted again and again, a criminal export violation requires knowledge by the defendant that he or she is violating the law. This is going to be tough in this case. The defendant correctly believed that he could ship the parts to the United States until the agents said that they were going to re-export the items to Russia. At that point, Chua and his seller consulted lawyers and told the undercovers they would need State Department licenses to ship the parts. When the agents declined to get licenses, Chua determined, apparently in consultation with legal counsel, that the items could only be shipped without a license if the agents agreed not to export them from the United States. Granted the advice was a bit flawed because the agreement no to re-export was limited to countries involved in developing WMD or to parties on the Department of Commerce’s Denied Parties List. But there is not a shred of evidence that Mr. Chua didn’t believe that this advice was a correct statement of U.S. law. Chua may be liable for civil penalties under the Arms Export Control Act but criminal penalties can’t be imposed without proving he knew he was relying on bad legal advice.

The criminal complaint suggested some convincing evidence that Yang knew he was breaking the law with these proposed exports. Apparently he had contemplated effacing the part numbers on the chips. He also proposed shipping them under false invoices that concealed the names of the parts.

However, at one point the undercover agents, who were posing as the suppliers of the parts, told him that there would be a delay in shipping the parts. The delay, they said, “is with the government,” further stating that the “compliance paperwork” was “waiting to be reviewed and signed.” That certainly seems like an implication by the undercover agents that the transaction was legal and was being approved by the government, which would certainly complicate the government’s proof that Yang had the requisite criminal intent to be convicted of the crime. In the end, however, with the defendant’s guilty plea, this slip-up had no impact on the case.

The Seattle Post-Intelligencer also reported on Yang’s plea. Its online report deserves both an award for the most obnoxious online advertisement I’ve ever seen (click the link at your peril) and the worst description of the AECA I’ve ever seen. Here’s the description of the AECA:

In charging information filed Monday in U.S. District Court, federal prosecutors accuse Yang of conspiring to violate the U.S. Arms Export Control Act, which bars the sale of potentially sensitive technologies.

You have to wonder where the reporter came up with that. There is quite the difference between a statute that requires government licenses for the sale of goods and technologies versus one which “bars” the sale of those goods or technologies, not to mention that the AECA involves the sale of military items and technologies, which is not really co-extensive with “potentially sensitive technologies.” The Post-Intelligencer reporter apparently didn’t even take the time to read the Wikipedia entry on the AECA which, at least, accurately describes the act as “control[ling] the import and export of defense articles and defense services.”

Well, the DDTC has apparently meditated on the fate of BAE long enough. An article in today’s Financial Times reported that BAE is bracing itself to have DDTC impose additional fines on the company and to suspend BAE’s privilege to export defense articles. Given BAE’s participation in such multilateral defense projects as the Joint Strike Fighter, it seems unlikely that the DDTC will impose a total export ban on BAE, but some version of an export ban is, apparently, both likely and imminent.

According to the Financial Times, the State Department was keeping mum on the matter but a BAE spokesperson had this to say: “Dialogue continues and is progressing with the Department of State in order to address its concerns regarding matters arising from the [Department of Justice] settlement.”

The most interesting aspect of the case is how easily Greenoe was able to ship these guns in his luggage. The guns were disassembled and scattered throughout his suitcases. During a trip last May to Atlanta, where Greenoe was catching a connecting flight to Manchester, scanners detected the gun parts when Greenoe checked his luggage in Raleigh-Durham. Somehow or other he convinced TSA agents that he was a firearms salesman and that the parts were non-working “engineering samples.” He was then allowed to board his flight to Atlanta and then to continue on to Manchester with the guns in his luggage.

An investigation into a cache of guns recovered by British police ultimately led British authorities to Greenoe. Greenoe was arrested at the Raleigh airport in July after a tip-off from British police. Greenoe apparently told U.S. investigators that he was a security consultant and that these guns were for his employees working in pirate-infested waters off the coast of Somalia. Even were this colorful explanation true, it would not justify failing to obtain an export license for the guns.