ExportLawBlog

Archive for the ‘BIS’ Category

Jun

7

Export Reform Boulder Moves Further Up Mountain

Posted by Clif Burns at 3:56 pm on June 7, 2010

Export Reform An article (subscription required) in the latest issue of Inside U.S. Trade describes an interview the publication held with a “senior administration official” on the White House’s proposed export control reforms. According to the official, an interagency agreement should occur shortly that will allow the agencies to move forward in implementing one export license application form for BIS, OFAC and DDTC and to paring down the various export control lists to one list of critical items and technologies.

Probably the most significant of the contemplated reforms is the paring down of the United States Munitions List to a “positive list” of items. Currently, the list has both positive listings of items that are controlled (e.g., firearms or the specific chemical agents listed in Category XIV) and indirect (dare I say “negative”?) listings which cover unspecified items with certain attributes, such as electronics “designed, modified or configured for military application.” This latter category of listings creates conflicting interpretations, confusion and uncertainty about which items require export licenses and which do not.

Other highlights of the interview included the following:

The single IT system will be the Department of Defense’s IT system
The Nuclear Regulatory Commission, which licenses nuclear exports, will not be part of the single export agency.
There will be common definitions of terms, including “U.S. Person” and “export.”
The single list will be the United States Munitions List. Dual use items will be added to the list and the Commerce Control List will disappear

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May

27

No Relief In Pressure Relief Valve Export Settlement

Posted by Clif Burns at 8:26 pm on May 27, 2010

Category: BIS

Wesco Industrial Products, Inc., a U.S.-based manufacturer of material handling equipment such as hand trucks and fork lifts recently agreed to pay the Bureau of Industry and Security (“BIS”) $50,000 to settle charges that it had illegally exported pressure relief valves without licenses. The pressure relief valves were allegedly classified as ECCN 2B350.g.

Wesco is the successor to Neptune Chemical Valve company due to a series of mergers that occurred in 2008, and the exports of the Neptune valves involved in this case occurred prior to these mergers. Neptune still has its own website and, helpfully, posts export classifications for its valves, including the valves at issue, on this page. Interestingly, that page says this:

Note that BIS has issued a CCATS determination of EAR99 for Neptuneâ€™s Back Pressure Valves, but due to the interchangeability of back pressure valves and pressure relief valves, Neptune has decided to treat the Back Pressure Valves as [ECCN] 2B350 for internal compliance purposes.

Indeed, as explained here, pressure relief valves and back pressure valves are the same device employed in different applications. A pressure relief valve opens up to vent fluids and gases externally when pressure is too high whereas a back pressure valve opens up to maintain pressure by allowing upstream excess pressure to flow downstream.

This raises the question as to why, if Neptune’s back pressure relief valves are EAR99, Neptune was being penalized for exporting interchangeable and equivalent devices. It shouldn’t be relevant that a formal classification for the pressure relief valves had not yet been obtained. That should have been obtained in the course of this investigation as a predicate to the charged violation.

Chances are extremely good that the back pressure valves were classified as EAR99 based on Note 1 to ECCN 2B350 which states:

This ECCN does not control equipment that is both: (1) specially designed for use in civil applications (e.g., food processing, pulp and paper processing, or water purification) and (2) inappropriate, by the nature of its design, for use in storing, processing,producing or conducting and controlling the flowof the chemical weapons precursors controlled by 1C350.

Interestingly, a pressure relief valve is more likely inappropriate by design for use in producing chemical weapons precursors than a back pressure valve because a pressure relief valve is designed to vent excess pressure outside the system, something that’s not really ideal when the substances to be vented are toxic. Back pressure valves, however, are designed to keep the pressure in the system and simply to move it downstream. If Neptune’s back pressure valves fit within Note 1, it would seem that there is an even stronger case that the pressure relief valves would fit within the Note.

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May

11

Is BIS Now Punishing Thought Crimes?

Posted by Clif Burns at 7:31 pm on May 11, 2010

Category: BIS

Oscilloscope Screen California-based Telogy LLC (“Telogy”), a distributor of test equipment, agreed last week with the Bureau of Industry and Security (“BIS”) to a suspended $76,000 fine in connection with Telogy’s exports of three oscilloscopes and one spectrum analyzer. The fine was suspended on the condition that Telogy commit no further export violations for a one-year period. No export denial order was agreed to as part of the settlement agreement. Telogy voluntarily disclosed the matter to BIS.

At first the completely suspended fine suggests the appearance of a kinder, gentler BIS after a long history of BIS punishing exporters who make voluntary disclosures with needlessly punitive fines. Of course, a further examination of what was going on quickly extinguishes that false hope.

BIS released at the same time as the Telogy settlement a settlement with Telogy International NV, the Belgian affiliate of Telogy, pursuant to which Telogy International agreed to pay $75,000 of a $467,000 fine, with the rest being suspended on condition that Telogy International commit no further export violations for a one-year period. That settlement agreement involved re-exports of 22 oscilloscopes from Belgium to Israel and one spectrum analyzer to South Africa. What is interesting about this is that these exports by Telogy International are not charged in the settlement agreement with Telogy, and that the exports charged in the Telogy settlement aren’t charged in the Telogy International settlement.

That raises a very interesting question. Telogy was charged with evading the regulations by shipping to Telogy International in Belgium items that, while not requiring a license to Belgium, would require a license to the ultimate destination. The three charges against Telogy were two oscilloscopes to India, one spectrum analyzer to the PRC, and one oscilloscope to Israel. This latter export occurred, it was alleged, in June or July of 2007. On the other hand, Telogy International is charged with exports to South Africa and Israel. The last of the exports by Telogy International to Israel charged by BIS was in March 2007. The interesting question is whether the shipments charged against Telogy that were allegedly destined for India, the PRC and Israel were ever actually shipped by Telogy International to those destinations. And if so, why weren’t they included in the charges against Telogy International?

Needless to say, the fact that the Telogy charges aren’t reflected in the Telogy International charges can only really be explained if those three shipments never made it to their intended destination. Telogy is accused of violation section 764.2(h) of the Export Administration Regulations (“EAR”) which forbids “taking any . . . action with intent to evade the provisions of … the EAR.” The charges alleged by BIS accuse Telogy of taking action to evade the EAR when it shipped (legally) the items to Belgium with the intention that Telogy International re-export the items (illegally) to Israel, the PRC and India.

So BIS apparently wants to punish an unconsummated intention to export an item without a required license. This isn’t strictly a thought crime, as provocatively suggested by the headline to this post, because the thought has to be coupled with an action, here the export to Belgium. By how far is this away from a thought crime? What kind of action is covered? If Telogy sent an email stating that it was sending the item to Belgium for re-export but never did send the item to Belgium, would sending the email be an action with intent to evade? Suppose Telogy wrote that email but didn’t even send it? Is the mere writing of the email an action with intent to evade? Perhaps an officer of Telogy booted up a computer with intent to write the email but never even wrote the email. Or went to the office intending to write the email but never even logging into an email program. Even a conspiracy charge at least requires some agreement with another person to punish an unconsummated crime.

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Apr

28

The ICE Repo Man Cometh

Posted by Clif Burns at 6:53 pm on April 28, 2010

Category: BIS • Iran Sanctions

Ice Agent A court battle raging between Italian company Tiber Aviation s.r.l. and Bell Helicopter Textron Inc. turns on whether Tiber was actually intending to ship a helicopter to Iran or whether Bell told that story to a special agent of the Bureau of Industry and Security (“BIS”) in order to secure the government’s help in repossessing the helicopter. The latest chapter in the saga occurred earlier this month when ICE agents formally seized the helicopter in question.

According to a complaint filed by Tiber against Bell in a federal court in Texas, Tiber purchased three helicopters from Mexico-based Helicopteros y Vechiculos Aereas Nacionales (“Helivan”) for $22 million. Two of the helicopters were shipped directly from Mexico to Italy, while the third was sent to the U.S. to be taken apart and shipped to Italy after Tiber discovered that this was a cheaper method of getting the helicopter to Italy. Although Helivan purported to sell the helicopters with clear title, Bell asserts that they were financed under a lease agreement to Helivan and that Bell still had title to the helicopters, including the one still in Texas. According to Tiber, that interest was not properly recorded by Bell.

Tiber alleges that rather than seeking to exercise its claimed interest as owner of the helicopter, Bell took a more novel approach to repossessing the aircraft — namely, that Bell went to the field office of BIS in Dallas and alleged that Tiber was planning to ship the helicopters to Iran. Shortly therafter Bell and a BIS special agent went to the facility of United Rotocraft, where the helicopter was awaiting disassembly, and told United Rotocraft that the helicopter was being seized, whereupon they all got into the helicopter and flew it off to a hangar in Arlington, Texas. For its part, Tiber denies that it intended to ship the helicopter to Iran and, resorting to some colorful language in the complaint, compares Bell to a schoolyard bully stealing Tiber’s lunch money. (Since the helicopter is worth around $7-8 million, that was obviously money for a pretty big lunch.)

Bell, of course, denies in the answer and counterclaim that it filed in the Texas court, that it was trying to steal Tiber’s helicopter or even Tiber’s lunch money claiming, first, that it had validly recorded its interest in the helicopter and therefore still owned it. But Bell also admits that it went to BIS to allege that the helicopter was destined for Iran, although once it spoke with BIS it learned that the helicopter was already subject to an ongoing investigation by BIS. Bell says that it learned that the helicopter was destined for Iran from an unidentifed source that informed Bell that a Helivan mechanic was in Iran providing training and maintenance on the other two helicopters.

Far be it from me to speculate as to who is telling the truth here. The only thing I can say with certainty here is that $8 million dollars would buy several tons of school cafeteria mac and cheese.

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Apr

20

One List to Rule Them All, One Agency to Find Them (UPDATED)

Posted by Clif Burns at 5:10 pm on April 20, 2010

Category: BIS • DDTC • Export Reform

Secretary Gates The speech given this morning by Secretary of Defense Robert Gates to a business group detailing the administration’s plan for export reform is now posted on the Department of Defense website and can be found here. It is an ambitious and laudable proposal and one that, unfortunately, will likely die a slow and painful death on the floor of the dead-locked Senate.

Significantly, Gates proposed that the United States treat exports in the way that almost all of our allies do — with one unified list administered by one agency. The only real downside here would be the possibility that the employees of the two rival agencies — the Directorate of Defense Trade Controls (“DDTC”) at State and the Bureau of Industry and Security (“BIS”) at Commerce — would still not be able to play nicely with each other even when under the same roof. Gates alluded to the inability of the two agencies to get along when he mentioned an inter-agency struggle between BIS and DDTC with respect to jurisdiction over millimeter wave scanning machines. This squabble delayed the placement of these high-tech passenger screening machines in foreign airports and needlessly endangered U.S. citizens and others flying through those airports while the issue was being resolved. (BIS ultimately won that battle.)

Repeating the maxim often credited to Frederick the Great — “He who defends everything, defends nothing” — Gates also proposed that the unified list be tiered, with the “crown jewels” requiring the most stringent controls at the top and less sensitive technologies requiring fewer controls be placed in lower tiers. The unification push would also apply to the various lists of prohibited end users, which Gates proposed be consolidated into a single list.

Finally, Secretary Gates touched on an area near and dear to most exporters’ hearts — the impossibly narrow exemptions and license exceptions relating to exports of parts and components for items that have already been legally exported:

[M]any parts and components of a major piece of defense equipment â€“ such as a combat vehicle or aircraft â€“ require their own export licenses. It makes little sense to use the same lengthy process to control the export of every latch, wire, and lug nut for a piece of equipment like the F-16, when we have already approved the export of the whole aircraft.

Under DDTC rules an exemption — found in section 123.16(b)(2) of the ITAR — is only available for shipments worth less than $500 (and only 24 shipments per year are permitted.) BIS provides a license exception for parts and components, but only for one-to-one replacement. Parts being shipped to inventory require a license. A unified exemption with a higher shipment value limit and without the one-to-one replacement requirement would be a reform welcomed by most, if not all, exporters.

Rounding out in Gates speech what Defense Department officials referred to in a prior briefing as the “four singles” were the last two: one enforcement agency to bring them all and in one IT system bind them. Of course, Gates refrained from the Tolkien paraphrase that I couldn’t resist.

Regarding a unified IT system, here’s a question for Export Law Blog readers. As between DDTC’s D-Trade electronic licensing system and BIS’s SNAP-R electronic licensing system, which would you like to see survive and why? Or should they both be trashed and replaced with an entirely new system? Please share your thoughts on these questions in the comment section.

UPDATE: This White House fact sheet explains that the proposed reform will be implemented in three phases, with only the last phase requiring action by Congress. The second phase is set to be completed by the end of this year and will include the initial restructuring of the USML and CCL into tiered lists.

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