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Archive for the ‘BIS’ Category

Jul

31

BIS Has Some Moore Fun

Posted by Clif Burns at 6:17 pm on July 31, 2007

Promo Still for Sicko Apparently feeling that Michael Moore’s new movie wasn’t getting enough publicity, the Bureau of Industry and Security (“BIS”) served its own subpoena on Moore, giving Moore yet another opportunity to talk about persecution on the late night talk show circuit. Additionally, the BIS subpoena sent a sly message to Treasury’s Office of Foreign Assets Control (“OFAC”), which is also investigating Moore, that the enforcement folks at BIS are just as rough and tough as those at OFAC.

I can’t find a copy of the subpoena, but it’s pretty easy to guess what’s going on here. BIS can penalize exports to Cuba under EAR section 746.2, which requires a license from BIS for all exports to Cuba not subject to certain narrow exceptions set forth in the rule. (OFAC on the other hand penalizes financial transactions with Cubans or the Cuban government.)

So BIS is clearly looking for something exported by Moore to Cuba. One possibility is the ~~horse~~ boat he road in on. We’ve seen that before when BIS nailed a sport fishing boat that chased a fish into Cuban waters. Outside of that it’s hard to see what Moore would have exported. Maybe he spit out some gum he brought with him from the United States. This would be problematic because section 746.2 doesn’t contain the LVS exception for limited value shipments that might otherwise cover the export of a stick of chewed-up chewing gum to Cuba.

Back to the boat theory, however, there may be an applicable exemption, because section 746.2(a)(1)(i) permits temporary exports to Cuba “by the news media,” which puts us back to pretty much where things are over in the OFAC proceeding. There the question is whether Moore is a “journalist” and therefore entitled to the general license for journalists to travel to Cuba. In BIS-land, the issue will be whether Moore is a member of the “news media” or not.

Unless, of course, they can nail Moore for that piece of gum he spit out on El MalecÃ³n.

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Jul

30

Christopher Padilla Testifies on Export Controls Before House Subcommittee

Posted by Clif Burns at 6:29 pm on July 30, 2007

Category: BIS

Assistant Secretary of Commerce Christopher Padilla testified on Friday at a hearing on export controls held by a subcommittee of the House Foreign Affairs Committee. Most of the testimony was devoted to the current hobby-horses of Padilla’s Bureau of Industry and Security, including, of course, the agency’s emphasis on end users rather than on destination country. Two things, however, stuck out.

First, Padilla’s choice of an illustrative example of a dual-use good was interesting:

A good example is this triggered spark gap. Triggered spark gaps, which resemble empty spools of thread, are in fact high-speed electrical switches capable of sending synchronized, high-voltage electronic pulses. They have two principal uses: to break up kidney stones and to detonate nuclear weapons.

That’s not a very good explanation of the uses of a triggered spark gap (which, by the way, are covered by ECCN 3A228.b). Triggered spark gaps are used in flashlamps, pulsed CO₂ lasers, “crowbar” protection circuits, and a number of other common industrial applications. To say that nuclear detonation and lithotripsy are the two principal uses of triggered spark gaps is, frankly, misleading. And it is of more than a little concern when an agency like BIS which is required to be conversant in technical matters doesn’t fully understand what it is regulating.

But not everything about Padilla’s testimony deserved a boo and a hiss. The second thing I noted in his testimony deserves a cheer:

We are also planning a draft proposal that would introduce a standard format for all U.S. Government screening lists. Our goal is to have a more complete continuum of information â€“ from the Unverified List through the Entity List to the Denied Persons List â€“ available for exporters to use in screening potential customers.

Of course, like all other instances of proposed inter-agency cooperation, I’m filing this proposal under “I’ll believe it when I see it.” OFAC has zealously guarded its prerogative to have entries on the SDN list which are nothing more than a common name and, perhaps, a country of residence.

And while we’re talking about needed proposals for U.S. government screening lists, why doesn’t someone propose the next logical step? You know, one list in one place. How hard would that be?

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Jul

24

Weatherford under Investigation for Operations in Iran

Posted by Clif Burns at 6:44 pm on July 24, 2007

Category: BIS • Criminal Penalties • Iran Sanctions

Denied Houston-based oil-drilling and oilfield services company Weatherford announced yesterday in its 8-K filing with the SEC that the company has

been notified that the Bureau of Industry & Security and the U.S. Department of Justice are investigating allegations of improper sales of products and services by us in sanctioned countries. We are cooperating fully with this investigation. In cooperation with the government, we have retained legal counsel, reporting to our audit committee, to investigate this matter. The investigation is in its preliminary stages.

It’s probably not to hard to guess what sanctioned country is involved. A map of Weatherford offices published in the September 2005 edition of W magazine, a Weatherford publication, tells the story:

Looks like three locations in Iran to me.

Of course, a foreign subsidiary of a U.S. company can do business in Iran provided that the foreign subsidiary has business in other countries (in other words, is not a device to evade the sanctions) and provided its operations in Iran are not controlled by the parent. Complying with the second condition — i.e. isolating the Iranian operation from control by the U.S. parent — is what normally creates a problem. Even something as innocent as U.S. approval of a travel and expense voucher in Iran from the foreign subsidiary can raise questions — particularly in an environment where U.S. officials are making louder and more frequent noises about swatting companies doing business in Iran.

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Jul

23

If You Have an Export Law Question, Don’t Ask the Wall Street Journal

Posted by Clif Burns at 8:29 pm on July 23, 2007

Category: BIS • Sanctions

Denied An editorial in Friday’s Wall Street Journal was critical of the United Nations Development Program (“UNDP”) for several supposedly illegal exports. The criticism seems to be largely based on the questionable claim that the UNDP was required to obtain export licenses from the Bureau of Industry and Security for certain items exported by UNDP from foreign countries to North Korea, including a spectrometer, some GPS equipment and some computer equipment. Sadly, the author of the editorial, Melanie Kirkpatrick, doesn’t appear to have consulted with anyone who actually knows anything about export law.

Ms. Kirkpatrick premises her analysis on a export license application by UNDP for GPS mapping software which was denied on September 16, 1999. She notes that the software was EAR99. Astute readers will recall that up until September 17, 1999, U.S. sanctions prohibited the export of EAR99 items to North Korea. Thereafter, EAR99 items were freely exportable to North Korea (although on January 26, 2007, new license requirements and prohibitions on exporting certain luxury items such as cognac and iPods to North Korea were put in place). Hence, the need then for a license application that would not be required now.

Even so, Ms. Kirkpatrick seems to think that such a license would still be required:

Yet seven years later, the UNDP procured and transferred sensitive technology to the same, unsafeguarded project — this time without bothering to apply for a license. And while there’s no evidence the UNDP went ahead and purchased the software for which it had been denied a license, that possibility must be considered, since GPS equipment is useless in such a project without mapping software.

If it’s EAR99 and was shipped before anuary 26, 2007, no license would have been required, meaning that UNDP could have freely exported the software to North Korea.

Nor is it clear that a license was required for the other items at issue. The commercial GPS system would be classified as ECCN 7A994 and would require a license for export to North Korea. Similarly, the computer equipment may well be ECCN 4A994, which would require a license for North Korea. We can’t tell from Ms. Kirkpatrick’s description what the ECCN would be for the spectrometer, but let’s also assume, for the sake of argument, that it wasn’t EAR99

Even so, the EAR wouldn’t require licenses for the export even of these items to North Korea unless exported from the United States, or unless exported by a U.S. person (which UNDP is not), or unless the item has U.S. content. And it’s not clear that any of these conditions were met. According to Ms. Kilpatrick:

Mr. Melkert says in the annex that the UNDP is investigating “whether the vendors [in the Netherlands and Singapore] were required to obtain export permits for these items”–which sure sounds like an effort to shift responsibility.

It may sound to the Wall Street Journal like an “effort to shift responsibility” but to anyone familiar with export law it sounds like a claim that the exports may not have been subject to U.S. law.

There may well be a number of good policy reasons that these items shouldn’t be in North Korea, but saying that the export of these items violated U.S. laws isn’t one of those reasons.

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Jul

19

New BIS Regulations Discourage Voluntary Disclosures of Violations

Posted by Clif Burns at 5:40 pm on July 19, 2007

Category: Anti-Boycott • BIS

Noose The Bureau of Industry and Security (“BIS”) has released new regulations explaining the treatment that BIS will give to voluntary disclosures of BIS’s antiboycott regulations. Those regulations, for example, prohibit exporters from certifying to Arab League countries that exported products do not contain Israeli content.

The new regulations set forth the procedures for filing a voluntary disclosure. These procedures more or less parallel the procedures adopted at other agencies, including permitting the filing of a bifurcated voluntary disclosure, i.e., an initial disclosure after the violation was discovered and a more detailed disclosure after the violation has been investigated by the company making the disclosure. The initial voluntary disclosure must be filed before BIS has learned of that information from another source and commenced an investigation. The new regulations make clear that disclosures made to the agency during telephone calls seeking guidance on the rules are not considered disclosure of the information from another source.

But, BIS being BIS, the new rules enshrine significant disincentives to companies to make voluntary disclosures. Most significantly, section 764.8(b)(4) says this:

Although a voluntary self-disclosure is a mitigating factor in determining what administrative sanctions, if any, will be sought by BIS, it is a factor that is considered together with all other factors in a case. The weight given to voluntary self-disclosure is solely within the discretion of BIS, and the mitigating effect of voluntary self-disclosure may be outweighed by aggravating factors.

What BIS is saying here is that it may in certain circumstances give no weight whatsoever in mitigation because of the voluntary disclosure. This is a significant disincentive to voluntary disclosures because a company must weigh the possibility of there being no benefit to the voluntary disclosure against the possibility that BIS would never discover the violation if it hadn’t been disclosed. The only way to preserve the incentive to make a voluntary disclosure is to say that aggravating factors might be used to reduce the weight given to the voluntary disclosure but not to totally eliminate it.

But (and I’m sure some readers won’t be surprised by this) it gets worse:

Voluntary self-disclosure does not prevent transactions from being referred to the Department of Justice for criminal prosecution. In such a case, BIS would notify the Department of Justice of the voluntary self-disclosure, but the decision as to how to consider that factor is within the discretion of the Department of Justice.

Of course, a VSD shouldn’t be a “get out of jail free” card and there may be rare circumstances where such a disclosure should be referred to DOJ. But BIS by stating only that cases may be referred without the further qualification that the VSD at least makes it somewhat less likely that the case will be referred, erects another disincentive to voluntary disclosure. In my experience, the driving force behind most voluntary disclosures is the company’s desire to reduce the risk of prosecution.

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Archive for the ‘BIS’ Category

BIS Has Some Moore Fun

Christopher Padilla Testifies on Export Controls Before House Subcommittee

Weatherford under Investigation for Operations in Iran

If You Have an Export Law Question, Don’t Ask the Wall Street Journal

New BIS Regulations Discourage Voluntary Disclosures of Violations

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