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 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.

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.

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.

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.

Employees are not considered brokers under the current rules because the rules make clear that brokers are persons that provide brokering activities “as an agent for others.” Even under the absurdist position taken by certain DDTC employees that a subsidiary acting for a parent is acting “for others,” there was never even a peep from the agency that an employee working for a company might be working “for others” even though the employee and the company were legally distinct entities.

The new definition eliminates the requirement that a brokering activity be as “an agent for others.” It simply states:

Broker means any person (as defined by § 120.14 of this subchapter) who engages in brokering activities.

And brokering activities are simply defined as:

any action to facilitate the manufacture, export, reexport, import, transfer, or retransfer of a defense article or defense service.

The new section 129.2(e) provides some exemptions from the definition of brokering activities but the only “employees” exempted are U.S. government employees. The new section 129.2(e)(3) exempts certain clerical and administrative tasks from brokering activities and would cover some clerical and administrative employees.

There is also an exemption of sorts for employees in the proposed section 129.3(b)(3) which states that “bona fide and full-time regular employees” of manufacturers registered under Part 122 of the ITAR (as manufacturers) are exempt from the requirement of registration and prior approval in two situations. This exemption does not cover part-time employees and does not clearly cover temporary employees working a full-time schedule.

The two conditions may also be problematic for full-time employees. Those conditions to exemption from registration and prior approval are:

brokering activities [which] (A) involve only such registered persons’ defense articles or defense services that are currently subject to an export approval under this subchapter obtained by the part 122 registrant or will require such an approval prior to their export, or (B) are on behalf of the part 122 registrant and involve only defense articles and defense services that are located and obtained from a manufacturer or source in the United States for export outside the United States under an export approval under this subchapter.

Both of these conditions require a prior export license, meaning that even full-time employees will need to be separately registered and obtain prior approval to work on the item to be exported if that work occurs prior to obtaining an export license.

What these convoluted new regulations mean are that non-clerical part-time and full-time employees working on items not yet approved for export will need to register and to obtain prior approval their employment by DDTC unless their involvement with exports fits within the narrow exemptions in the new section 129.7, which I discussed on Monday — e.g., NATO+4 only, FMS and non-SME equipment for foreign governments.

If this regulation stands as written, many manufacturers of defense articles might seriously consider whether it would be safer and easier for them to switch their production facilities to making some item over which DDTC has no arguable jurisdiction whatsoever, such as malted milk balls or shower curtain rings.

As a reminder, comments are due on February 17, 2012.

Naturally I first looked at how the new rules handled export lawyers who provide advice to defense manufacturers. The language of the old rules was broad enough that arguably all export lawyers were brokers and needed to register under part 129 of the International Traffic in Arms Regulations (the “ITAR”) because brokering was defined to include any action that facilitated the manufacture or export of defense articles. Notwithstanding the breadth of that language, lawyers and law firms have not been registering under Part 129, using the well-accepted principal of statutory construction: hic lex non comprehendo mihi. And DDTC had not been rattling any sabers about their not registering.

The proposed rule now specifically exempts “activities by an attorney that do not extend beyond providing legal advice to a broker.” This exemption would seem to require the conclusion that all export lawyers need to register unless they are only providing advice to brokers, although it’s hard to imagine this is what DDTC actually intends.

But it gets worse. Not only will law firms with export lawyers have to file a registration application and pay the annual registration fee, but they also will have to obtain prior approval from DDTC prior to providing many legal services to defense manufacturers. The new rules require prior approval for all brokering activities unless they are specifically exempted from that requirement in the new section 129.7, which exempts brokering (a) conducted for a government agency, (b) brokering of certain defense articles (excluding, for example, night vision) wholly within NATO countries, Japan, New Zealand, Australia or South Korea, or (c) brokering of defense articles that are not “Significant Military Equipment” (“SME”) for end use by foreign governments or international organizations. So, if a law firm provides advice to a defense manufacturer about exporting night vision to France, the law firm will need DDTC approval before providing that advice.

This, of course, is either pernicious policy or unbelievable sloppy drafting by DDTC. The agency takes great pains to exclude banks, insurance companies and freight forwarders from the scope of the new brokering rules but leaves them fully applicable to law firms and requires law firms to obtain agency permission to provide legal services. I cannot think of another instance (other than cases involving blocked parties) where federal agency permission is needed as a precondition to the provision of legal services to clients.

Comments are due on February 17, 2012.

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.

I have an idea of what might have happened. I think this is a typo for ECCN 3A991 which covers “[e]lectronic devices and components not controlled by 3A001,” which is where some MMICs and HMETs are classified. ECCN 3A991 immediately follows ECCN 3A981, so somebody at DDTC more or less renumber 3A991 as 3A982. Anybody have a better theory about what happened?

And. although I love the new final determination list and applaud DDTC for putting it on line, please allow me one final quibble and I’ll never say another negative thing about the list. For some reason, the page that has the list will not open up in Chrome. On behalf of Chrome users everywhere (and we now are 18 percent of all browser users), it would be nice if this could be fixed.

In March 2011, BlastGard’s management team officially assumed operational control of HighCom. Since this time we have accomplished a number of key compliance tasks and finalized manufacturing agreements with several key partners. As stated in the paragraph above, BlastGard has received official communication from the U.S. State Department that HighCom’s export authority has been reinstated. In addition to this, BlastGard has completed registration through both the Directorate of Defense Trade Controls as well as the Bureau of Industry and Security (“BSI”). The purpose of these registrations is to allow BlastGard control over the export management and compliance program moving forward.

Completing registration with the Bureau of Industry and Security is quite an accomplishment — considering the BIS (or is it BSI?) doesn’t have a registration process. Perhaps they mean that they’ve gotten a PIN for the SNAP-R system? And we’ll award the coveted “Reader of the Week” prize to anyone who can figure out what the last sentence in that quotation means.

All kidding aside, I still am somewhat surprised that BIS hasn’t gotten on the needless user fee gravy train yet along with DDTC. It’s probably only a matter of time before BIS realizes that there’s gold in them registration hills, and then companies will be able to boast in press releases that they’ve been certified as export-compliant and super cool by BIS in addition to having been certified by DDTC.

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.