Aug
15
The FBI Made Me Do It
Posted by Clif Burns at 12:23 pm on August 15, 2008
Category: Criminal Penalties • DDTC
An article in today’s Washington Post provides some interesting insights into the April 2007 conviction of Pennsylvania-based Electro-Glass Products for violations of the Arms Export Control Act arising from the company’s unlicensed exports of 23,000 solder-glass preforms to India. The preforms are allegedly components of military night vision goggles.
As a result of the 2007 conviction, Electro-Glass was debarred from exporting by the Directorate of Defense Trade Controls (“DDTC”). Electro-Glass has now prevailed upon Representative John Murtha to write a letter to DDTC seeking to have the agency set aside the debarment. According to the article, Murtha wrote the letter as a favor to a constituent — the company is located in Murtha’s congressional district.
More interesting than this congressional intervention is the defense proffered by Electro-Glass for its unlicensed exports:
“We want to stay legal, we want to stay aboveboard. It was an accident what happened in the first place,” [James K.] Schmidt [Electro-Glass’s President] said in a telephone interview.
Schmidt said he called the FBI and “they told me that India was a democracy and they should not be denied.” The company later consulted U.S. customs officials and got the impression that it should not stop the shipments, he said.
But officials from both the FBI and U.S. Customs and Border Protection have denied that they gave approval.
Although I don’t doubt that the FBI may have said something like that to Schmidt, you have to wonder why Schmidt was using the Bureau as the company’s export compliance department. Moreover, given that it wouldn’t be clear to either the FBI or Customs that “solder glass preforms” were components of military night vision, it’s hard to see that the okay from either agency, even if given, would be much of a defense.
Admittedly it is self-serving for me to say so, but this case just illustrates why inexperienced companies ought to call an export lawyer before exporting any item that could conceivably have a military use. But don’t be too hard on me for this little bit of self-promotion: it’s the middle of August, everybody is on vacation, and probably only three people will read this post.
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Copyright © 2008 Clif Burns. All Rights Reserved.
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12 Comments:
Reader # 1 checking in, two more??
Wrong! At least a dozen people in my firm alone – to say nothing of the clients to whom we forward (most of)
your posts – have read this or will read this today.
Well as one of the three… I don’t know how expericenced the above exporter was but, people who have this crazy business as a profession sometimes
forget that the unsophisticated exporter doesn’t know where to turn for resources and advice. How would they know to turn to the Dept. of Commerce, Bureau of Industry and Security or that you’d actually have to talk to the Dept. of State Dir. of Defense Trade Controls to discern export controls let alone an export attorney. Provided what the company said is true, it doesn’t sound like the FBI or Customs agent knew either.
Reader #4 here – I agree with LM; one of the difficulties facing inexperienced, first-time exporters is where to turn for advice. You won’t get State, Treasury or Commerce to admit it, but outside of the established exporting community and those of us you so generously support, very few members of the business community or public-at-large have ever heard of DDTC, OFAC or BIS, much less understand how to navigate the minefields of commodity jurisdiction, product classification and license requirements (granted, a Google search will begin to identify the fact that there are multiple agencies/regulatory schemes potentially involved in an export, which should at least be a clue to a first-time exporter that they should, as Clif suggests, reach out to an attorney, consultant or peer working in the area of export controls to get some help).
At BIS we recognized that our outreach programs were generally reaching the same audiences of established exporters, over and over; and I believe that the major export compliance associations (SIA, etc.) recognize the same thing – it’s the same group of folks that attend conferences and symposia year after year; very few new attendees show up. So there needs to be an effort, both on the part of the regulatory agencies as well as us service providers, to reach beyond the ‘usual suspects’ to find the less experienced exporters who need help in understanding their compliance responsibilties and setting up internal control programs to meet them.
All that said, I wonder in what context Electro-Glass came to contact the FBI and Customs with their questions? Did the FBI/Customs contact them as a part of their outreach programs? Or did Electro-Glass guess, incorrectly, that these were the agencies that could help them? Why didn’t FBI/Customs refer them to the appropriate agencies? And by “Customs” does Elecro-Glass mean Customs and Border Protection, or Immigration and Customs Enforcement? These questions alone serve to illustrate how the confusing the entire process can be for those not in the know.
I think you have more than three readers, even for August!
I may be wrong, but I thought that ElectroGlas already had been penalized by DOS for a previous occurrence. So, the letter pleading ignorance (which isn’t an adequate excuse anyway) doesn’t work. To add to that, there was a period of time (was it the 1990s?) where seemingly nothing could be exported to India. Wouldn’t such a period make ElectroGlas question the exportability of their products?
Debarments (such as ElectroGlas and ITT Night Vision) make it difficult for those Night Vision manufacturers that make sure they have sufficient export control processes.
One more August reader checking in! Thanks for providing us with info and for fostering some interesting discussion.
Ok, if I had a question about an export, I surely would not be calling the FBI for guidance. I have only been in exports for 8 months and I know that. They need to go to the BIS classes.
Cliff,
I have forwarded most of your articles to my sales department. You have loyal readers.
This is something I look forward to reading every day.
Thank you,
Pamela
DDTC’s “Outreach” is pretty much limited to SIA, which means DDTC is preaching to the same choir, composed mainly of the same large defense contractors. Given that SIA programs are relatively few, and always oversubscribed, the opportunity for small business to obtain the needed education is next to nil.
State’s actual educational outreach is pretty much non-existent. That creates a barrier to entry, stiffling competition, which I suspect is just fine with DDTC and its patrons. Add to that State’s tendency to target small business and individuals for criminal prosecution while giving their cronies in big business “get out of jail free cards” known as Consent Agreements, and it becomes clear that DDTC likes to plus up its body count with small business while cozying up to the big boys who might employ them in their second career.
DDTC has always evaded federal law requiring outreach to small business by falsely claiming that its activity is exempt from the Administrative Procedures Act, which in turn triggers various statutes such as the Small Business Regulatory Flexibility Act and others. The 1946 legislative history of the APA makes it eminently clear that the “foreign affairs function” exemption in Sections 553 and 554 of the APA was intended to cover only actual diplomatic activity, not regulation of foreign commerce. Even if the foreign affairs function exclusion applied, it only applies to Sections 553 and 554: Sections 555 and 558, which place real limits on agency sanctions and licensing determinations, are unaffected.
O.K., another August reader… and a question; Where was the freight forwarder on this?
Hell would freeze over before we would ship this stuff without getting an ECCN, checking denied parties, etc. and if necessary, advise the shipper that we would not handle the forwarding.
The plain fact is that Electro-Glass is the kind of exporter who not only gets themselves in trouble, but drags the freight forwarder into potential violations as well.
No sympathy here – they had it coming…
I’ll speak for the freight forwarder.
We often see shipping documents from exporters blanketly claiming EAR99/NLR. If ever we call it into question, the reply is often, “That’s what the guy that did this before me did”. If by some luck that guy is still working there, he says, “That’s what the gal before ME did.” And so it goes. These things become a boiler plate with an unknown point of origin.
We also see shipping documents with these fields left blank. And if we question that, the reply is something like, “Our previous forwarder just took care of it. Why can you do that?”
“Well, sorry, but we really do need to know if that acoustic beacon designed to withstand pressures at depths exceeding 1,000 meters has transducers with dynamic compensation for pressure or incorporates other than lead zirconate titanate as a transducer element.” “Well how am I supposed to know? I just pick and ship!” Or some other deer-in-the-headlights type of response.
If you’re going to drive on the freeway, you have to know how to read the speed limit signs.
Does anyone know why solder glass preforms are on
the ITAR? Just because they could be used for
night vision devices, doesn’t mean they were.
India is not a big producer of night vision equipment.
This story doesn’t seem to make sense. I though Solder glass is just a type of glue to connect different types of glass, common to many types of lighting. Is more technical information available?
I am also surprised that glass preforms are considered ITAR. However by ITAR definition a defense article ” modified, amended, configured ” for military application is a ITAR-controlled item and any component intended for use in the ITAR item would also be ITAR controlled. It will therefore require a license for shipment to any country no matter who it is even if it is UK or Canada or Germany – countries which we would think as U.S. allies. I am aghast that someone at FBI actually said that India is a democracy so it should be OK to ship.
All the comments here show how little people undertand export regulations (both Commerce and State) and how one needs to be vigilant when exporting. This company should be paying more attention when exporting. Ignorance is not an excuse.
For starter I would file a commodity jurisdiction just so one would get a ruling why the solder preform is an ITAR item. I only heard about it because we buy this material from the same company for use in our products and they sent us a questionnaire asking if this was being exported and being used in an ITAR part. Technically when we export it would be our job to determine if it needs a license or not and then getting a DSP-5 or whatever that is needed before shipping outside of the U.S.
