Archive for the ‘DDTC’ Category

Feb

8

The Third Deadly Sin

Posted by Clif Burns at 11:45 pm on February 8, 2012
Category: Arms Export • Criminal Penalties • DDTC • General

Space CircuitryA California man has been indicted in connection with his attempt to export radiation hardened, space qualified chips to the People’s Republic of China without an export license. The indictment, if true, tells an interesting tale.

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.

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Jan

23

Massachusetts Man Pleads Guilty to Illegal Export Charges

Posted by Clif Burns at 8:00 pm on January 23, 2012
Category: Criminal Penalties • DDTC

Microwave Engineering CorporationRudolf Cheung, who is the head of the Research & Development department of Microwave Engineering Corporation in North Andover, Massachusetts, pleaded guilty on January 20, 2012, to charges that he violated the Arms Export Control Act in connection with unlicensed exports of military antennae to Singapore. A copy of the criminal information detailing the charges can be found here.

The story begins in June 2006 when an unnamed company in Singapore sought to order certain military antennae from Microwave Engineering. In preparation for requesting an export license, Microwave Engineering asked the Singapore company to execute a Form DSP-83 (Nontransfer and Use Certificate). When the company, citing its own internal policies, refused to sign the DSP-83, the sale and export were cancelled by Microwave Engineering’s export compliance officer.

When Cheung learned of the cancellation of the sale, he contacted another Massachusetts company, and agreed with that local company that it would purchase the military antennae and ship them to the company in Singapore. Thereafter, the local company purchased antennae from Microwave Engineering and exported them without license to the company in Singapore. The local company also purchased antennae from Microwave Engineering for export to another company in Singapore, Corezing International. Corezing is subject to another indictment, and the U.S. is seeking extradition, in connection with its role in the exports of radio modules from the United States to Iran which were later found in improvised explosive devices in Iraq.

The criminal information alleges that Cheung was aware that the purchases by the unnamed local company were destined for the customer in Singapore and that he took no action to stop these exports or to obtain the required licenses from the Directorate of Defense Trade Controls (“DDTC”).

Moral of the story: if your export compliance officers stops a sale, it is probably not a good idea to try to find another way to make the sale.

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Jan

18

Mystery Solved (Maybe)

Posted by Clif Burns at 6:29 pm on January 18, 2012
Category: BIS • DDTC

MMICIn a post back in December titled “Imaginary Numbers,” I noted that the list of commodity jurisdiction determinations by the Directorate of Defense Trade Controls had some puzzling entries:

Three entries on the list, two for a high mobility electron transistor (“HMET”) and one for a microwave monolithic integrated circuit (“MMIC”), indicate that the correct classification for these items is ECCN 3A982. The problem is that there is no ECCN 3A982, and there has never been, at least that I could find.

Well today I came across a notice of a final rule by the Bureau of Industry and Security, dated January 9, 2012, and effective on the same date, which creates a new ECCN 3A982 for HMETs and MMICs. Of course, the mystery remains as to how the DDTC could classify something as ECCN 3A982 before the ECCN actually existed, but I suppose that only bothers people concerned about the rule of law and other minor details.

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Jan

10

Twenty IED Jammers in a Jam

Posted by Clif Burns at 9:02 pm on January 10, 2012
Category: Criminal Penalties • DDTC

Miljam 350Law students always chuckle at forfeiture cases because they have the best names, such as United States v. 3,462 Cans of Tuna Fish or the like. It always seemed so unfair to those cans of tuna to have the entire juridical apparatus and force of the United States arrayed against them. Poor cans!

So I’m hoping that readers will be equally amused by an export law forfeiture case that is titled United States v. Twenty Miljam 350 IED Jammers and that was recently decided by the Second Circuit Court of Appeals. The twenty jammers at issue were manufactured by an Israeli company called Wireless Avionics. They were seized by Immigration and Customs Enforcement during a criminal proceeding against the CEO of the company for attempting to export these items without a license from the Directorate of Defense Trade Controls. They had been manufactured for sale to NATO, but DDTC had denied an export license claiming that the devices would interfere with radios used by U.S. forces in Afghanistan. The CEO then tried to disassemble them and export them from the U.S. for reassembly and sale elsewhere, which led to the seizure of the jammers, his arrest and a criminal indictment.

Now comes the odd part. For reasons not clearly explained by the Second Circuit opinion, the U.S. dropped all criminal charges provided that the CEO agreed to waive any future claims against the U.S. and the ICE agents for false arrest and to waive any objection to the forfeiture of the devices. The CEO, however, contested the forfeiture claiming that he was forced to sign the release under duress, the duress apparently being the threat of criminal prosecution. He also argued that the items were not on the United States Munitions List and did not require an export license. The Second Circuit dismissed the duress claim in large part based on a letter that the CEO sent after signing the waiver in which he said he had signed it voluntarily. And although the court notes that items on the USML require a license, it does not discuss whether these items were on the USML or not.

The Wireless Avionics website asserts that these devices are covered by “ECCN class 5.A.1.h,” presumably a reference to ECCN 5A001.h. That ECCN has a somewhat cryptic note that says “See also . . . Category XI of the International Traffic in Arms Regulations.” It would seem that whether an IED jammer fits under ECCN 5A001.h or Category XI of the ITAR would depend on whether it was specifically designed, modified or configured for military application.

Here the fact that the products were destined for NATO and were called — of all things — by the model name “Miljam” both suggest the items might well be Category XI. But then it’s hard to understand why the government folded like cheap lawn chairs and tried to get a promise that no one would get sued for false arrest. It also doesn’t help the Wireless Avionics case here that it applied for a license from DDTC which was denied. On the other hand, there is nothing to indicate that these jammers had been ruggedized, shielded or otherwise specifically adapted for military vehicles.

Because all we can do is speculate about the Government’s action here, speculation is welcomed in the comments section.

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Jan

4

We’re Not Done Yet

Posted by Clif Burns at 9:01 pm on January 4, 2012
Category: DDTC • Part 129

Arms BazaarAnother problem with the arms brokering regulations proposed by the Directorate of Defense Trade Controls (“DDTC”) is their jurisdictional scope, which is impossibly vague and far exceeds the scope of permissible regulation under the Brokering Amendment which was passed by Congress and which permitted DDTC regulation of arms brokers in the first place.

So let’s start with vague. Under the current rules, the rules’ requirements of registration and approval apply to foreign brokers “subject to U.S. jurisdiction.” Normally this would mean foreign persons with sufficient contacts with the U.S. so as to permit jurisdiction over them consistent with the due process clause. DDTC has been arguing that this should also include any foreign person who has any contact with U.S.-origin defense articles. The new rules would codify this remarkable and extraordinary claim for the permissible scope of U.S. jurisdiction. stating that its requirements cover activities of:

any foreign person located outside the United States involving a U.S.-origin defense article or defense service.

Notwithstanding the numerous ways that U.S.-origin can be defined the proposed rules are completely silent on what constitutes a U.S.-origin defense article. Is a tank with one lugnut made in Grand Rapids a U.S.-origin article. Or is there a requirement that U.S. parts constitute at least 50 percent of the value of the item? Or does it require that a substantial transformation or tariff classification shift occur in the United States. The new rules provide absolutely no guidance, largely because, I suppose, DDTC sees the United States as having unlimited jurisdiction over foreign persons, and therefore, the agency intentionally wishes to keep this concept vague.

Whether or not the U.S. has such broad jurisdiction, it is quite clear that when Congress passed the Brokering Amendment which authorized these rules in the first place, it didn’t intend to confer such broad jurisdiction. As I detailed in this article (subscription required) back in 2006 in Export Practitioner, the House Report on the Brokering Amendment makes it crystal clear that Congress only intended to cover “U.S. persons (and foreign persons located in the U.S.).” It does not authorize DDTC to try to exert jurisdiction over foreign persons outside the United States that may have some connection to a defense article that has one U.S. part in it.

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