ExportLawBlog

Archive for the ‘BIS’ Category

Apr

11

Cuba Export Indictment Mangles U.S. Export Laws

Posted by Clif Burns at 6:27 pm on April 11, 2018

Image via https://pixabay.com/p-1202440/?no_redirect [Public Domain] Last week Bryan Singer, a Texas resident, was indicted for attempting to export to Cuba certain items that U.S. Customs found on his boat in a harbor in the Florida keys. The items are involved are Ubiquiti Nanostation M2 modems classified as 5A002, TP Link modems classified as 5A992 and cable box circuit boards classified as EAR99. The brief indictment states that Singer did not obtain a license from “DOC or OFAC” to export these items to Cuba. It also notes that he failed to file an Electronic Export Information covering the export of these items.

There is supposed to be an adult at the Export Enforcement Coordination Center who reviews these export indictments, but that would appear not to be the case. To begin with, two of the items mentioned in the indictment, the TP Link Modems and the cable box circuit boards, were eligible for license exceptions and would not have needed licenses. The TP Link modems are a no brainer and are clearly covered by BIS License Exception CCD. The EAR99 cable circuit boards if they went to private companies or private individuals probably were eligible for export under License Exception SCP. Mr. Singer says in press reports that he was relying on that exemption, and nothing in the indictment alleges that the intended export did not qualify for License Exception SCP.

So that leaves the 5A002 Ubiquiti modems, which would not have been eligible under either License Exception CCD or License Exception SCP. Of course, when the government itself does not understand the export laws (witness including the TP Link modem in the indictment), it is hard for it to establish that Singer had criminal intent when he apparently thought, albeit incorrectly, that he could send the Ubiquiti modem to private individuals in Cuba.

The indictment’s efforts to cobble together a violation due to the failure to file an EEI are equally unavailing. No allegation is made, or proof offered, that items with the same Schedule B number in the shipment had a total value of $2500 or more. Under section 30.37(a) of the Foreign Trade Regulations no EEI was required if that were not the case. And it seems clear that these values weren’t met. The Ubiquiti and TP Link modems share the same schedule B number (8517.62), but given that the Ubiquiti modem retails for 50 bucks and the TP Modems were probably close to that, we would be talking about 50 or more of them needed before an EEI was required. And it’s hard to imagine that the cable circuit boards, which would have a different Schedule B number, were worth more than $2500. So, once again, if the AUSA who signed this indictment can’t figure out the law, how can he criminally prosecute Mr. Singer for not understanding it?

UPDATE: A reader notes in the comments below:

On the EEI issue, section 30.37(a) has no bearing on shipments to Cuba, as itâ€™s in Country Group E:2. The only exceptions that apply are those in section 30.37(y). If none of those apply, then an EEI filing is required under section 30.16(d).

The FTR is poorly drafted here, so I’m not sure I agree. Section 30.7(a) does not say anything like “except as otherwise provided in 30.7(y).” Nor does section 30.7(y), which sets forth certain conditions where exports to E:2 countries do not require an EEI filing, state that these are the only situations where an EEI filing is not required, notwithstanding other exceptions set forth in section 30.7. I admit that the reader’s interpretation is one possible interpretation, but certainly give the plain language of 30.7(a) which does not limit its application creates too much ambiguity to support a criminal prosecution. Additionally, if the CCD-eligible items qualified under License Exception GFT, which is possible here, even 30.7(y) by its own terms would not be relevant.

The EAR, in section 758.1 is clearer about the $2500 threshhold not applying to Cuba, although that provision is not cited by the indictment, which only cites 30.37 of the FTR.Â But that section doesn’t alter the availability of an EEI exemption for exports to Cuba of CCD items made under the GFT exception.

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Apr

3

The Export Control Nightmare Act of 2018 (UPDATED)

Posted by Clif Burns at 6:08 pm on April 3, 2018

Category: BIS • Export Control Proposals • Export Reform

Ed Royce via https://royce.house.gov/uploadedphotos/mediumresolution/320ee60e-b83a-4f74-9767-a0e68f3095f6.png [Fair Use]

ABOVE: Rep. Ed Royce

When the Export Administration Act lapsed years ago, it meant that every year the President had to issue an executive order under the International Emergency Economic Powers Act (“IEEPA”) resurrecting the Export Administration Regulations for another year.Â (Declarations of emergency, the premise for any IEEPA resuscitation of the EAR, can only last one year under the National Emergencies Act.)Â The proposed bi-partisan Export Control Reform Act of 2018, sponsored by Rep. Ed Royce (R-Ca) is mostly designed to give the President the authority to re-promulgate the Export Administration Regulations on a more permanent basis.Â He or she will still have to renew annually the Executive Orders that impose economic sanctions on people, places, and things (mostly boats).

Nobody can really argue with the elimination of the annual renewal requirement for the EAR.Â Presumably the President has better things to do, like Easter Egg rolls, Thanksgiving turkey pardons and the such.Â But Congress took the opportunity to meddle with the definition of a U.S. person to create a whole new class of exports that are certain to cause headaches, if not nightmares.Â Â Under the proposed new definition, a U.S.Â business entity is not a U.S. person for export purposes if foreign citizens or corporations own 50 percent or more of the corporation.Â Under the old definition, aÂ business entity was a U.S. person ifÂ it was organized under the law of any jurisdiction in the United States.

If you previously thought that “deemed exports”Â already were the stuff of nightmares, well, as they say, you ain’t seen nothin’ yet.Â Here are some scenarios that I’m optioning to start a new horror series on Netflix.

Company A in Chicago wants to sell some microprocessors classified as ECCN classified as 3A001 to Company C, a U.S. corporation, in Detroit.Â It can’t do that until Company C gives it information on foreign ownership and, if Company C is owned 51% by Chinese corporation, then Company A cannot send the items from Chicago to Detroit without a [bad word] export license.Â Scared yet?
Company D, a manufacturer of computers in SeattleÂ wants to use Company F in Boston to manufacture certain components specially designed for its computers.Â The computers and the specially designed parts are classified as ECCN 4A001.Â In order to do that, Company DÂ must transfer 4E001 technology relating to the production of these parts to Company F.Â Â Company F is owned 60 percent bought by a Russian-Italian joint venture.Â Is Company F Russian or Italian?Â If the latter, no license is required; if the former, it is.Â This gives Freddie Kruger a run for his money.
Company G, which is 60 percent French owned, creates designs for a CNC-machine.Â Â That technology can be exported without license to France.Â Can the French parent build the machine and ship it to China without license?Â That will depend on whether the designs created by the U.S. company that is now a foreign person in the United States are U.S. technology or foreign technology.Â Â Warning: violent ending for mature audiences only.

You have to imagine that these nightmare scenarios never crossed the minds, such as they were, of the drafters of this legislation.Â Nor did they focus on the numerous compliance questions and problems that the new definition would create.Â But not to worry:Â section 108 is designed to provide “compliance assistance.”Â Â Whew.Â In fact, in section 108(c)(1), Congress mandates that the President “shall develop and submit to Congress a plan to assist small- and medium-sized United States [sic] in export licensing and other processes under this title.”Â I always thought we were a big, indeed great, United States, so I’m not so sure who are the small- and medium-sized United States that Congress hopes to help.

UPDATE: Kevin Wolf, who you may remember was running export control reform at BIS during the Obama administration, points out, in the comments, that the definition of U.S. person which resulted in the nightmares described above was, ahem, a mistake:

Everyone should relax. The definition of US person in the bill was a drafting error. The title I export definition got combined with the title II antiboycott definition. Committee staff is aware of the issue and will fix it during mark-up to get it back to the EAR status quo. You were not wrong in pointing out the absurdities as written, btw. When things seem weird though, it is good to ask the drafters if that is what they really meant. They did not in this case. Reg and leg writers do make mistakes.

That’s good news. It also goes to show that we all would have been better off if the antiboycott regulations had been left to die a deserved death. Those regulations never put even a dent in the Arab boycott but instead merely enriched lawyers (myself included) who had to decipher their ridiculously byzantine complexity and seventeenth-century syntax to advise clients on what language could and could not appear in letters of credit.

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Feb

8

The Trials and Tribulations of Used Part Exporting – UPDATED

Posted by Clif Burns at 12:40 pm on February 8, 2018

Category: BIS • CCL

MHz HQ via https://mhzelectronics.com [Fair Use] Last month the Bureau of Industry and Security fined Phoenix-based used equipment and part dealer MHz Electronics $10,000 in connection with its exports of two pressure transducers classified as ECCN 2B230 to China and Taiwan. The fine was suspended contingent upon MHz behaving itself during a two-year “probationary period.”

Pressure transducers meeting the specifications in ECCN 2B230 can be used for blast measurement and are therefore controlled because of the role that they can allegedly play in nuclear testing and proliferation. The two items involved were sold for the eye-popping amounts of $280 and $1,100. Even though the fine imposed here was low, BIS’s miff factor was quite high, with the settlement documents noting that MHz did not have an “export compliance program.” In addition, MHz apparently brushed off a visit by FBI agents that had been trolling MHz’s (now-closed) eBay store and told them that one item (not either of these transducers) listed by them on eBay would require an export license if shipped internationally.

Under the circumstances, MHz got off lightly. But even so, this case raises some interesting questions and difficulties for export compliance for businesses like MHz. Like thousands of other small businesses, MHz bought and sold used electronic and testing equipment. With a 96,000 square foot warehouse, it no doubt had a staggering number of different kinds and types of parts and equipment.

HowÂ would it obtain ECCNs for all those items? Oh, you say, easy peasy: call the original manufacturer and ask. Uh-huh. Have you ever tried that before? Particularly if you’re selling used parts in an aftermarket competing with the original manufacturer. “You say you need the ECCN of our Model 2370C snarkle widget puffinator? Sure thing. Give me your phone number and someone will get right back to you by, say, April 1, 2032. Does that work?” Click.

And, I’m sure it should come as no surprise that many original manufacturers have no clue as to the ECCNs of their products, particularly if they are foreign. Try calling China and asking (in English or, even, Cantonese or Mandarin) for an ECCN.

Even if spec sheet for the product is published by the manufacturer, it rarely aligns with the control parameters in the relevant ECCN. I challenge you to figure out the classification of a CNC-machine, a computer, or almost anything else from published specification sheets.

The bottom line here is that compliance challenges effectively foreclose used parts companies (except, I suppose, companies exclusively devoted to selling used knitting supplies or antique fountain pens) from participating in the export market at all. And given that the parts that they sell are usually readily available outside the United States, there’s not much of a real justification for shutting this market down for them. BIS says that these bargain-basement priced items could be used for nuclear bomb testing. Does anyone really think that aspiring nuclear powers could not lay their hands on these (and probably better) items outside the United States?Â And, if you can use a $280 sensor in nuclear testing, well, we’re in a lot more trouble than I imagined.

UPDATE:Â An alert reader, who knows way more about nuclear bombs than I ever will, points out that pressure transducers covered by ECCN 2B230 are used for uranium enrichment in centrifuges, not for blast measurement.Â Â Specifically, the reader notes:Â “While 13 kiloPascal sounds like a big number, atmospheric pressure is 101 kPa, so 13 kPa is closer to a vacuum level.”Â Â I’m going to point some finger of blame at BIS itself, which in the charging documents said: “Items classified under ECCN 2B230 â€¦ can be of significance for nuclear explosive purposes,” which suggests that the enforcement folks at BIS made the same mistake. Imagine that. In any event, if these small, readily available and inexpensive parts can be used for centrifuge uranium enrichment, we’re still in a whole lot of trouble.

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Feb

1

Leaving on a Jet Plane (for Masikryong)

Posted by Clif Burns at 9:32 am on February 1, 2018

Category: BIS • North Korea Sanctions • OFAC

Joint Press Corps vihttp://koreajoongangdaily.joins.com/news/article/article.aspx?aid=3044038&cloc=joongangdaily%7Chome%7Ctop [Fair Use] The Olympics are, in theory, a time when foreign policy should be put aside and world athletes simply compete in the probably vain hope that peaceful athletic games might have a spill-over effect into the stormier regions of international relations.Â Â That being said, UN and US sanctions have gotten tangled up in the upcoming Winter Games in South Korea.

First, the International Olympic Committee, following its checkered past, ignored UN sanctionsÂ by shipping recreational sports equipment to the Nork athletes for training.Â Â If any of that equipment was U.S. origin, the IOC would have violated U.S. sanctions all well.Â Both prohibit the export of “recreational sports equipment” to North Korea.

Recently, an obscure provision in Executive Order 13810 reared its ugly head. Section 2(a) prohibits foreign aircraft that have landed in North Korea from visiting the United States for 180 days after the aircraft has departed North Korea. When the Executive Order came out, it was hard to imagine that this would ever apply to anything.Â Who flies into Nork airports thatÂ would want to later fly those planes to the United States?Â But now, it turns out, the South Korean ski team had chartered an Asiana aircraft to fly to North Korea’s Masikryong Ski Resort for training with the North Korean team.Â The plane would then to return to South Korea on the following day with the North Korean skiers who would remain in South Korea to participate in the Winter Games. Oops.

Apparently, according to this source, OFAC was initially reluctant to waive section 2(a) for the chartered Asiana flight, which would have pretty much put the kibosh on the flight to the joint training session. But minutes before the flight was to take off on 10:40 a.m. Wednesday time, Korea time, OFAC had a change of heart and the airplane left for North Korea.

The Bureau of Industry and Security (“BIS”) was not involved, even though BIS has said that the Airbus 321 is subject to the EAR as a result of havingU.S. origin engines which constitute more than 10 percent of the value of the aircraft. Presumably everyone felt that License Exception AVS would cover the temporary sojourn of the A321 in North Korea, even though the regulations are poorly written in this regard and do not clearly cover foreign manufactured aircraft subject to the EAR flying from a foreign country to North Korea.

License Exception AVS covers (1) foreign registered aircraft on temporary sojourn in the United States departing for foreign destinations, (2) U.S. registered aircraft departing for a temporary sojourn in a foreign destination, and (3) “[c]ivil aircraft legally exported from the United States.” Section 764.4(c)(6) says that AVS may be used for North Korea to the extent that it involves civil aircraft legally exported from the United States. Asiana’s A321 was not itself exported from the United States, although the U.S. origin engines that make the aircraft subject to the EAR were. To reach the result that AVS applies here, you have to interpret “civil aircraft legally exported from the United States” to cover aircraft where U.S. origin parts which make the aircraft subject to the EAR were legally exported, a plausible (if not certain) reading, I suppose, of that language.

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Jan

11

BIS Website Rolls Out Exciting New Feature

Posted by Clif Burns at 11:22 pm on January 11, 2018

Category: BIS

Richard Luthmann via https://twitter.com/LuthmannFirm/status/685863407157952512 [Fair Use] The Bureau of Industry and Security (“BIS”), apparently concerned that its website is not quite entertaining enough, has rolled out a new feature, which we can call “When Lawyers Go Bad.” The purpose of this new feature is, apparently, to highlight criminal activity by lawyers even if that criminal activity is wholly unrelated to export violations of any kind and wholly outside of BIS’s jurisdiction.

To roll out this new feature, BIS brings us, from the front page banner of its site, the case of Staten Island lawyer Richard Luthmann.Â Â Mr. Luthmann isÂ pictured at leftÂ with a sword and a shield,Â He used this relatively bizarre image to illustrate a Tweet where he exhorts potential clients: “Don’t be a #WIMP! Hire a #LawWarrior that will #Vanquish your legal woes.” Sadly, Mr. Luthmann has had to hire his own “LawWarrior” to vanquish his own legal woes as he was indicted in December for, among other things, wire fraud, kidnapping, identity theft, access device fraud, and money laundering (but not, oddly, export violations).

The indictment alleges that Luthmann and a client cooked up a scheme where they would sell scrap metal to various customers but pack the shipments with a little bit of scrap metal and a bunch of worthless filler. If customers complained, they would say the shipment was full of scrap metal when it left the warehouse and that some nefarious type had obviously tampered with the shipment. If that didn’t work, they planned on using the supposed organized crime connections of another one of the co-conspirators to intimidate the disgruntled customers to shut up. (You know, with horse heads in beds, threats of sleeping with the fishes and all that).

The company engaged in this sales was set up by Luthmann. He then installed another client of his, who was blind and on disability, as the alleged president of the company. When the blind guy worried he’d get in trouble, Luthmann, according to the indictment, assured him that the government would never find out. Famous last words.

Oh, and there’s more. Luthmann allegedly demanded legal fees from one of his co-conspirators in the short-fill scheme in connection with un-invoiced legal services he was allegedly providing the client. The “client” borrowed the sums to pay these fees from another of the co-conspirators who later kidnapped the “client” and threatened him with a weapon to have the loan repaid. Fun times.

As I explained above, I can’t for the life of me see what this case, however entertaining, has to do with anything within the jurisdiction of BIS. The word “export” does not appear even once in the indictment. But, as this blog has a number of readers who areÂ much smarter than I am, I propose a contest. I will award a prize of my choosing, worth at least $2.99, to the first person who can offer a credible explanation of why BIS has enough interest in this case to feature it on its website. This offer is void in any states where it might be illegal and in any states, including Alabama and Utah, where fun is prohibited.

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