ExportLawBlog

Archive for the ‘BIS’ Category

Mar

24

Valve Export Rules Changed

Posted by Clif Burns at 8:57 pm on March 24, 2010

Category: BIS

Valve Cutaway The Bureau of Industry and Security (“BIS”) yesterday published a final rule implementing changes proposed by The Australia Group to its Control List of Dual-Use Chemical Manufacturing Facilities and Equipment and Related Technology and Software. To implement one of the changes in question, the final rule amended ECCN 2B350.g which controls valves with a “nominal sizes” greater than 1.0 cm and which are made of certain specified alloys. The amendment adds a technical note stating:

The ‘nominal size’ is defined as the smaller of the inlet and outlet port diameters.

As this blog has previously noted, the “nominal size” of a valve is the size under which the valve is marketed. That size may be, and usually is, different from both the outer and inner diameter of the valve. Various industry standards have been established for the inner and outer diameters of marketed under particular nominal sizes.

The technical note departs from these standards and establishes a new and arguably more ambiguous standard. When it refers to the “smaller” of the inlet and outlet “port diameters,” it does not mention whether it means the inner diameter of the bore of the valve or the outer diameter of its casing.

This change may be an effort to reflect a statement in the Related Controls section of ECCN 2A226 which states that:

For valves with different inlet and outlet diameters, the “nominal size” in 2A226 refers to the smallest diameter.

But the new note is not restricted to valves with different inlet and outlet diameters, but purports to change the definition of “nominal size” for all valves otherwise subject to ECCN 2B350. As a compliance matter, the safe thing to do is to measure valve by the larger diameter, namely the outer diameter, even though the purpose of the control would seem to make the inner diameter the most relevant parameter. Perhaps the confusion has occurred here because neither BIS or The Australia Group realized that the inner and outer diameters of a valve might be significantly different.

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Mar

17

The Washington Times Makes a Shocking Discovery

Posted by Clif Burns at 8:44 pm on March 17, 2010

Rev. Sun Myung Moon’s media arm, the Washington Times, has made a shocking discovery: lawyers represent clients. Washington Times reporter Jim McElhatton reveals this horrifying discovery in a piece he wrote on Eric Hirschhorn, the Obama administration’s nominee to head up the Bureau of Industry and Security (“BIS”). The headline to the article says it all: “Exports [sic] nominee tied to 2 watch list firms.”

The article itself continues this ominous tone and hints that Hirschhorn plans to dismantle BIS and hand the keys over to Iran and other terrorist interests:

President Obama’s pick to oversee export controls at the Commerce Department is a trade lawyer whose recent clients include two companies on a government watch list and a shipping business that agreed to pay millions of dollars last year to resolve a federal probe into shipments to Iran, Sudan and Syria.

All three companies have had recent interests before the government office that Eric Hirschhorn would oversee if he is confirmed as undersecretary of commerce for industry and security [sic].

The companies referred to by the Washington Times article are DHL as well as two companies that were put on the BIS Entity List because of suspected ties to Mayrow Trading Company. Why the DHL representation is an issue isn’t explained given that under current rules, Hirschhorn would not be allowed to be involved in any case involving DHL for two years. Nor is it clear why representing the two companies on the entity list is a problem given that, as administration officials quoted at the end of the article state, Hirschhorn’s representation of the two companies occurred after the companies were placed on the list and involved advice to the two companies on how to comply with U.S. export laws.

McElhatton’s fainting couch routine about Hirschhorn’s legal work for these companies rings more than a little hollow when you consider this: throughout the 1990s, the Moon organization, which pays Mr. McElhatton’s salary, paid millions of dollars to the regime of North Korea when such payments were forbidden by the United States because of concerns with respect to that regime’s WMD and missile program.

UPDATE: I had a nice conversation with Jim McElhatton who wrote the article that is the subject of the post. He said that his intent was not to criticize or to derail the Hirschhorn nomination but simply to provide some transparency as to clients that Hirschhorn has represented in private practice. He also noted that he had quoted a former Commerce official who said that Hirschhorn’s representation of these companies could be seen as a positive: “It shouldn’t be seen as a negative at all. In fact, it should be seen as a positive. In order to get off the entity list, companies need to show that they are complying with U.S. export controls. Advising companies on how to comply with U.S. export controls is what lawyers do.” After our conversation, I suspect that the major disagreement between McElhatton and myself is more a matter of emphasis than it is of substance. I would have given greater emphasis to Hirschhorn’s undisputed qualifications for the post.

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Mar

15

Obama Hints at Specific Export Reforms

Posted by Clif Burns at 8:30 pm on March 15, 2010

Category: BIS • DDTC • Deemed Exports • Encryption

Blackberry Last week, in his speech before the Ex-Im Bank, President Obama provided some details about the specific export control reforms which might be in the offing. The first relates to our ludicrously archaic and burdensome system of encryption controls. Obama promised to streamline the review process for “products with encryption capabilities like cell phone and network storage devices.” He promised to cut the review process required before exporting such devices from 30 days to 30 minutes. While a welcome change, even 30 minutes is too much. The U.S. should acknowledge the widespread availability of commercial encryption outside the U.S. and deregulate exports of all encryption products other than military encryption.

Second, Obama promised reform in a somewhat obscure area of export law mostly known to export control junkies and geeks:

And second, weâ€™re going to eliminate unnecessary obstacles for exporting products to companies with dual-national and third-country-national employees. Currently, our exporters and foreign consumers of these goods have to comply with two different, conflicting set of standards. Theyâ€™re running on two tracks, when they could be running just on one. So weâ€™re moving towards harmonizing those standards

What Obama is referring to here is the conflict between the standards applied by the State Department and the Commerce Department on “deemed exports.” Under the deemed export rules, exports of technology are deemed to be exports to the country of which the recipient is considered a national.

Under Commerce’s deemed export rules, an export to a foreigner with multiple citizenships or countries of permanent residencies is considered an export to the country of the most recently acquired citizenship or permanent residency. Under State Department rules, the export is considered to be an export to each of the countries — with the most restrictive licensing policy applied.

Obama doesn’t say which of these conflicting rules will yield to the other as they are “harmonized.” We can only hope that the Commerce rules will prevail.

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Feb

25

Balli Exec Tells Alma Mater His Defense to Iran Export Charges

Posted by Clif Burns at 9:14 pm on February 25, 2010

Category: BIS • Iran Sanctions

ABOVE: Valid
Alaghband

Valid Alaghband, Chairman of the Balli Group, which just agreed to a $17 million fine to settle charges that it exported U.S.-origin commercial passenger aircraft to Iran, took to the pages of the daily student newspaper of his alma mater Cornell University to present his side of the story. Frankly, his story isn’t very convincing, and I doubt that regular readers of this blog or others familiar with U.S. export laws will be swayed by Alaghband’s story. Some may, in fact, chuckle that Alaghband would publicly mount the defense that he does.

The confusion arises from the use of the term â€œexportâ€ which, to a layman, signifies a sale and purchase (or physical trade) of goods across international borders. That is not how the U.S. regulations necessarily define exports and our settlement with the U.S. authorities does not remotely suggest that Balli Aviation sold its aircraft to Iran. Balli Aviation legally and beneficially owned its fleet of aircraft at all material times.

Epic fail, as the kids on the blogs say nowadays. Anybody with even a smidgen of familiarity with U.S. export laws is aware that you can export stuff to Iran which hasn’t been sold to Iran. To begin with, the aircraft in question were flown in an out of Iran carrying commercial passengers. Balli was charged with re-exporting the aircraft to Iran and the Export Administration Regulations, in section 734.2(b), provide a pretty unambiguous definition of re-export:

â€œReexportâ€ means an actual shipment or transmission of items subject to the EAR from one foreign country to another foreign country

Hmm. I don’t see anything in that restricting an export to a cross-border purchase and sale, do you? I didn’t think so.

What happened here was that Balli leased the aircraft to an Armenian airline, Blue Sky, that then operated the aircraft in and out of Iran under a code-sharing arrangement with Mahan Airways. Or as Mr. Alaghband admits:

Balli Aviation … [leased] three of the aircraft to an Armenian operator which serviced the civilian passenger traffic under arrangements with a local operator.

The “local operator, which Alaghband can’t bring himself to name, was the Iranian carrier Mahan.

Alaghband also claims that Norton Rose, a prominent U.K. law firm, told him that this scheme would comply with U.S. export laws. If Norton Rose did indeed provide such profoundly awful advice, and I have no evidence of this other than Alaghband’s claim that they did, this would underline what I might have thought obvious: a firm of British solicitors with not even a single office in the United States might not be the best choice for obtaining advice on complying with U.S. export laws.

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Feb

17

BIS Assesses Maximum Possible Fine Against Exporter

Posted by Clif Burns at 8:44 am on February 17, 2010

Category: BIS

Fingerprint For several years now the Bureau of Industry and Security (“BIS”) has had the statutory authority to impose a civil penalty of $250,000 per export violation but has yet impose anything near that fine. So when BIS finally whacks someone with a $2.5 million fine for 10 violations, you might assume that the person paying such a fine did something really terrible like exporting dual-use items to Iran that Iran could use in uranium enrichment facilities. But you would be wrong.

Sirchie Acquisition Company, LLC, agreed to pay a $2.5 million fine for 10 violations arising from acts not committed by SAC but by an acquired company several years before SAC acquired it. And the exports involved included fingerprint equipment that did not require a license to the destinations involved (France and the U.K.). Â The exports also included, get this, some magnifying glasses. These exports are detailed in the deferred prosecution agreement with federal prosecutors but the BIS charging documents don’t provide any detail on the exports in question — proof, I suppose, that even BIS was embarrassed about whacking someone with a $250,000 fine for exporting magnifying glasses and fingerprint pads.

These exports were allegedly problematic because the CEO of the company that Sirchie acquired set prices for these exports, which was allegedly a violation ofÂ a denial order that BIS had entered against the CEO individually. As I pointed out in my last post on this case, SAC’s actions didn’t violate any of the provisions of the denial order that expressly applied to third parties. And BIS doesn’t claim that they did but claims instead that they constituted “aiding and abetting” the CEO’s violation of his own denial order. The problem here is that the denial order in question doesn’t say that all aiding and abetting activities by third parties are prohibited but instead prohibits particular and specific types of aiding and abetting, none of which occurred in this case.

Other aggravating factors that might justify such a massive fine aren’t mentioned by BIS. There is no claim in the charging papers that SAC, or its predecessor, knew that these activities violated the CEO’s denial order or that SAC, or its predecessor, tried to conceal the exports or that SAC, or its predecessor lied to federal investigators.

Call me old-fashioned, but it seems to me that the highest fines ought to be reserved for the most serious violations and not for exports of magnifying glasses by an acquired company.

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