ExportLawBlog

Archive for the ‘BIS’ Category

Jul

24

Double Jeopardy?

Posted by Clif Burns at 11:48 pm on July 24, 2012

Category: BIS • DDTC

Scylla and Charybdis A colleague brought back an interesting tidbit from the BIS Update Conference last week relating to one of the unresolved conundrums of the current export reform efforts. Under the currently proposed reforms, certain items on the United States Munitions List will be transferred to the Commodity Control List, which will transfer licensing jurisdiction over those items from the Department of State’s Directorate of Defense Trade Controls (“DDTC”) to the Department of Commerce’s Bureau of Industry and Security (“BIS”). That process is summarized in some detail in this BIS fact sheet.

In a presentation at Update by Kevin Kurland, in BIS’s Office of Enforcement Analysis, there was confirmation that even after the transfer of items to the CCL, previously issued DDTC licenses will remain effective for two years.

Now here’s the issue: suppose you are exporting a 600 series item under a grandfathered DDTC license and some irregularity occurs in the export. If the exporter decides to report this issue, to whom is the report made. Is it in a voluntary disclosure to DDTC or a voluntary self disclosure to BIS? (One thing that we can hope about export reform, but which appears to be a futile hope, is that we could forever stamp out this silly terminological distinction. Please, guys, agree to include or omit “self’ and move on!)

It seems that there is no current resolution to this issue. So what does the exporter do? File a disclosure with each agency? Or avoid the issue by not shipping under grandfathered DDTC licenses and getting new license from BIS? Of course, most exporters would prefer to file a disclosure with DDTC which does not appear to consider the disclosure process as a revenue collecting enterprise and is often thought to be fairer in dealing with parties that make a voluntary disclosure. But that option may not be available.

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Jul

18

Better Get An Export License For That Belt

Posted by Clif Burns at 8:34 pm on July 18, 2012

Category: BIS

A Wisconsin-based company, with the appealing name Humane Restraints, Inc., recently agreed to settle charges that it exported without licenses various restraining items worth approximately $15,000 and classified under ECCN 0A982. Pursuant to the settlement agreement, Humane Restraints agreed to a $465,000 fine and a two-year export denial order. All but $50,000 of the fine was suspended contingent upon no further export violations or violations of the denial order. Additionally, the denial order exempts exports to Canada from its prohibitions.

The charging letter describes the exports as “various restraint devices, including, but not limited to strait jackets, bed restraints, and wrist and ankle restraints.” Bed restraints? Yes, you read that right: bed restraints. BIS is saying that bed restraints require export licenses. The problem here is that the Note to ECCN 0A982 states that it “applies to restraint devices used in law enforcement activities.” The Note explicitly excludes “medical devices that are equipped to restrain patient movement during medical procedures,” which seems to me to cover bed restraints directly.

Perhaps BIS is thinking that the ECCN covers bed restraints because law enforcement might sometimes use them, even if they are principally used by hospitals and medical facilities. If that’s the case, the ordinary cable ties that you buy at Target are then ECCN 0A982 because police often use cable ties as an alternative to hand cuffs. They might use rope, twine and belts too, when handcuffs and cable ties aren’t at hand. Even so, I am aware of at least one instance in which BIS has issued a CCATS on cable ties as EAR99 even though they could be, and are, used by law enforcement.

This all underlines the inherent vagueness of ECCN 0A982. Of course, there is a fairly central core of items that are clearly covered by that ECCN. Handcuffs, for instance, clearly fall within this ECCN. (Adventurous honeymooners under the thrall of Fifty Shades of Grey and headed for Bermuda might want to keep this in mind!) And some of the items exported by Humane Restraints seem to fall within the group of things clearly covered by the ECCN, such as ankle hobbles.

Probably the ultimate reason the Humane Restraints was whacked so badly by BIS involved its exports of straitjackets. Again, I don’t think that straitjackets are devices used in law enforcement activities. But, according to the settlement documents, Customs seized an export of one straitjacket, thereby putting Human Restraints on somewhat clearer (if dubious) notice that straitjackets were covered by ECCN 0A982, and yet Humane Restraints exported three more straitjackets without licenses after that seizure. And that, you might say, was all she wrote.

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Jun

27

BIS Introduces an Export Version of Drunk Driving School

Posted by Clif Burns at 8:50 pm on June 27, 2012

Category: BIS • Criminal Penalties

The Bureau of Industry and Security (“BIS”) recently released documents relating to the settlement of charges against a California man, York Yuan Chang, in connection with alleged unlicensed technology exports by Chang to the 24th Research Institute of the China Electronics Technology Corporation, which — in case you were wondering — is in China. The exports at issue related to the design of certain analog to digital converters controlled by ECCN 3E001. Pursuant to the settlement agreement, Chang agreed to pay a $300,000 fine and submit to a 12-year export denial order.

All but $50,000 of the fine was suspended on condition that that Chang committed no further export violations during a two-year probationary period. The twelve year denial order was also suspended upon several conditions, including timely payment of the $50,000 fine and compliance with the terms of his plea agreement in a related criminal prosecution. More significantly, because I haven’t seen this condition applied previously, the suspension of the denial order was also conditioned upon Chang’s attendance at, and completion of, an export compliance training course within twelve months. The settlement agreement also contained language prohibiting Chang from making any public statements denying the allegations in the proposed charging letter or the BIS order implementing the settlement agreement.

Only one count was charged. That single count resulted in a fine in excess of the normal $250,000 per count penalty because the transaction was valued at $1 million which permits the imposition of a fine equal to twice the value of the transaction.

A review of the docket (PACER subscription required) in the criminal case revealed a few other interesting things about this case. First, it appears that a Foreign Intelligence Surveillance Act (“FISA”) warrant was used to obtain evidence against Chang. That explains, no doubt, the extraordinary detail presented in the BIS charging documents relating to the telephone conversations between Chang and persons employed by the 24th Research Institute. These conversations apparently contained an admission by Chang that he was aware that the analog to digital conversion technology at issue was export controlled. Additionally, Chang’s plea agreement is sealed and no sentence has been imposed yet. This suggests, along with the FISA warrant, that a broader investigation is involved and that Chang’s cooperation in that investigation is an essential part of the plea deal.

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Jun

22

Stupid Quote of the Day

Posted by Clif Burns at 2:00 pm on June 22, 2012

Category: BIS • Iran Sanctions • OFAC

Red Penalty Card Ahem. Here is what Nahal Iravani-Sami, president of the Iranian American Bar Association, has to say about whether retail clerks at Apple Store should sell items to customers even if it is disclosed they plan on illegally exporting those items to sanctioned countries:

“The responsibility for enforcement should fall on border patrol, law enforcement, the U.S. post office, customs — government agencies.” As it is, the law “promotes dishonesty and invites profiling. When you come down to it, it’s absurd.”

So, folks, it’s time to take that portion on red flags out of your export compliance program. Just let Customs worry about it. After all, that’s their job, not yours.

What’s even more amazing is that Ms. Irvani-Sami is a prosecutor. I wonder if she would say the same thing about selling a weapon to somebody who said he was going to use it to rob a bank? Make the sale! Don’t worry about stopping the bank robbery. That, after all, is what the police are for.

I’m quoted with Ms. Irvani-Sami in the above-linked article at MSNBC on shopping while Iranian at Apple. As you can see from what I said there, I am certainly aware of the conflicting interests involved and the need to balance export enforcement with human rights laws and local anti-discrimination provisions. Even so, just saying “leave it to Customs,” as Ms. Irvani-Sami does, is remarkably foolish.

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Jun

19

If You Speak Farsi, Well, You Can’t Have an iPhone

Posted by Clif Burns at 7:40 pm on June 19, 2012

Category: BIS • Iran Sanctions

Sometimes, believe it or not, export compliance efforts might be a bit overzealous and lead to other problems. Several readers brought to my attention this story at the Consumerist website suggesting that Apple Store employees in Georgia were refusing to sell iPads and other coveted Apple goodies to customers who spoke Farsi on the grounds that such sales would violate the U.S. embargo against Iran. Now, leaving aside the entire issue of how an Apple Store “genius” in Georgia is going to recognize that someone is speaking Farsi (as opposed to say, Pashto, or even, this being Georgia, French), this would seem to be a little problematic. In one case, the rebuffed customer was an American of Iranian descent who was speaking Farsi with her uncle.

A second case, however, was a bit more problematic. It involved an Iranian student properly in the United States on a student visa who wanted to buy an iPhone. The writer at the Consumerist, naturally being an expert on export law, quickly disposed of this issue.

In the second case, of the man here on a student visa, you might be able to make that argument, though it’s really just the exporting of goods to Iran â€” and not the sale of items to Iranians in the U.S. â€” that is embargoed.

Well, we must give the Consumerist guy some points for effort, but the issue is just a little more complicated than that. First, you can’t sell anything to an Iranian in the United States if you have any reason to believe that the item might be exported back to Iran by the purchaser. In the case of an iPhone, which is probably locked to a U.S. carrier, the export of that item seems unlikely.

Second, you can’t forget about the “deemed export” rules which could forbid transfer of certain technology to Iranian citizens in the United States, even on a legitimate visa. (Does the name Dr. Roth ring a bell?) And in some instances, given that the Export Administration Regulations, make clear that “visual inspection” can be a technology transfer, there might be certain items that you can’t sell to Iranian citizens in the United States. However, iPads, iPhones and Airbooks, aren’t among those items.

The nice folks at Apple have a listing of ECCNs on their website. (Would that more companies would do that!) The iPad, iPhone and even the Mac Book Air, are all classified as 5A992. (None of them has the horsepower, apparently to fit under 4A994, which covers certain personal computing devices.) Now here’s where the analysis gets slightly tricky. ECCN 5E992 controls technology for the “use” of items controlled by 5A992. Would the manual for these devices, or even the visual inspection of these devices, provide information about the “use” of the devices? If so, their sales to an Iranian citizen in the U.S. on a visa would require a license.

The reason it doesn’t is because of BIS’s rather odd definition of “use.” I’ll let BIS speak for itself on this point:

Keep in mind that the deemed export rule does not regulate the operation of controlled equipment. Rather, it is a release to a foreign national of export-controlled â€œuseâ€ technology that may have deemed export licensing implications, and â€œuseâ€ technology includes all of the attributes of â€œuseâ€ as defined in the EAR Part 772 (i.e., operation, installation, maintenance, repair, refurbishing and overhaul). If the foreign national has access only to the technology that is necessary to operate the export controlled equipment, a release of â€œuseâ€ technology has not occurred and no deemed export license requirement is triggered.

So since neither the manual or visual inspection of the Apple stuff will help the purchaser repair, refurbish or overhaul those items, Apple is free to sell them away to Iranians in the United States unless, of course, it has reason to believe that the Iranian is going to ship the goods back to Iran or take them back to Iran upon the visa-holders return.

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