Last Friday BIS issued its new and final rule in the war of the iPods pursuant to which the U.S. has proposed to ban export of “luxury items” to North Korea. These sanctions were allegedly directed at the power elite of North Korea and sought to deny them access to Segway scooters, iPods, leather coats, plasma TVs and other luxury goods craved by the Pyongyang powerati.

A provisional list of such items had been developed, and BIS was widely expected to refine that list and ban the export of items on the list to North Korea, particularly since lip service had been paid — unique in the sanctions arena — to a supposed desire not to do anything that would harm the ordinary people of North Korea since, clearly, they had suffered enough under the rule of their Divine Leader and his minions.

So, of course, it was more than a little surprising to see that the final rule adopted by BIS went far beyond what was expected and required a license not just for the luxury items but for all items exported to North Korea other than food and medicine. Luxury goods would be subject to a general policy of denial and non-luxury goods would be subject to a general policy of approval. Of course, non-luxury goods would now require the expense and delay of a license application. So much for those crocodile tears about the people of North Korea.

And rather than define luxury items, the new rule adopts the Justice Stewart Rule on Pornography — “I can’t define it but I know it when I see it.” The notice explicitly states that the list is “illustrative” and that “whether an item is a luxury good will be made on a case-by-case basis.” The rule goes far out on the limb by offering three (yes, only three) examples of things that aren’t luxury goods: “blankets, basic footwear [and] heating oil.” Whether an umbrella is a luxury item will be determined deep in the bowels of BIS if anyone tries to export them to Pyongyang.

(On a side note, what BIS Federal Register notice would be complete without an obvious error? In this instance, no one at BIS read the notice to catch bad cross references. So, the new Supplement No. 1 to Part 746 set forth in the notice says:

The following further amplifies the illustrative of list luxury goods set forth in § 746.4(c):

In fact, the illustrative list is in § 746.4(b)(1), not 746.4(c). This shouldn’t have been hard to check since § 746.4(b)(1) is on the same page as, and only a few inches away from, the erroneous cross-reference.)

The Ninth Circuit Federal Court of Appeals in California yesterday overturned the conviction of Qing Chang Jiang, who had been convicted of making false statements to a BIS investigator in connection with an export investigation. In unusually harsh language, the Court criticized the investigator and the prosecution for seeking to prosecute Mr. Jiang based on ambiguous answers to poorly-phrased questions. “The consequences of imprecision,” said the appeals court, “in the language used to question a witness must be laid at the table of the questioner, not the questioned.”

Mr. Jiang entered into a contract with a Chinese company to ship them nine microwave amplifiers and applied for a BIS export license for them. Because the Chinese company shared the same address with a Chinese military organization, BIS opened an investigation to obtain further information concerning the proposed export. Before the license was granted, the manufacturer of the microwave amplifiers advised Jiang that no license was necessary for these exports, and Jiang exported four of the nine amplifiers to the Chinese end-user.

Thereafter, the Chinese company determined that the amplifiers did not meet specifications. It retained three of the amplifiers for another use, canceled its order for the nine amplifiers, and returned the fourth to Jiang. Jiang then sent back to the manufacturer the returned amplifier along with the other five amplifiers which Jiang had received in the interim but not yet exported.

Ultimately Jiang’s export license application was denied by BIS and a criminal action was instituted against Mr. Jiang for illegal export of the amplifiers. Almost two years later, a count was added to the indictment by alleging that Mr. Jiang had violated 18 U.S.C. § 1001(a)(2) when he told the BIS investigator that “that the product was returned to Narda [the manufacturer].” Jiang was acquitted by the trial court of the export violation but convicted of the false statement charge.

In overturning the trial court, the Ninth Circuit noted that Jiang’s response that “the product” was returned to the manufacturer could well have been a reference to his return of two-thirds of the amplifiers to the manufacturer. Further support was found for this interpretation from Jiang’s statement, in a second interview, that three amplifiers were shipped to China when he was asked whether any amplifiers had been shipped to China. The court also noted that Jiang’s command of the English language was limited.

As a result of these factors, the Court concluded as follows:

It does not escape our attention that the ambiguity could have been resolved easily had Spelce [the BIS investigator] simply asked whether any of the amplifiers had been shipped to China. In this vein, requiring agents to use a minimum “level of clarity and specificity is the appropriate remedy for imprecise questioning, not a [criminal] prosecution.

Although Jiang was ultimately acquitted, it was, no doubt, only after great personal expense, both financial and emotional. The lesson for exporters here is to remember that statements to BIS investigators, even if not “under oath,” can lead to criminal prosecution and possibly conviction. Worse, a prosecution can occur even where there is a significant dispute between BIS and the exporter over exactly what was said in the interview. Accordingly, when BIS knocks at your door, for any reason, you will certainly want your lawyer to participate in all meetings with BIS investigators.

On Monday we complained about a broken link at the BIS website to its report of a settlement agreement entered into by Olympiad Line LLC, a Non-Vessel Operating Common Carrier (“NVOCC”). The link had been broken for almost a month. Today the link was at last fixed, so we want to thank the diligent BIS employee who dropped by the site, saw our report, and fixed the link. In fact, we want to thank BIS for fixing the link even if we had nothing to do with it.

According to the fixed link, Olympiad was charged with exporting canning machinery to Iran without a license. As an NVOCC, Olympiad consolidated the shipment with cargo from other shippers and arranged for the consolidated shipment to be shipped by another carrier’s vessel. As a result of the shipment of the canning machinery to Iran, the Company agreed to a fine of $14,000.

The Company’s explanation for the illegal export was, well, a bit lame:

One of Olympiad’s co-owners informed BIS that he was aware of the embargo against Iran but that he forwarded the items anyway because the shipping company accepted the shipment.

I suppose this was a candid admission by the company of its erroneous assumption that if the ultimate shipping company accepted the cargo, the legality of the cargo’s destination was the other company’s problem.

Although only one export was involved, BIS claimed two separate violations, which explains why the agency sought a fine in excess of the $11,000 statutory limit. The first violation alleged was a violation of section 764.2(b) of the EAR by aiding and abetting the shipper in the illegal violation. The second violation alleged was a violation of section 764.2(e) by exporting with knowledge of the violation.

This piling on of violations on one export is somewhat arbitrary since BIS could also have charged, but did not charge, Olympiad with an illegal export in violation of 764.2(a), conspiracy in violation of section 764.2(c) and possession with intent to export in violation of 764.2(f), all from this one export. Call us literal-minded, but it seems to us that one export should simply be one violation.

Last month BIS added a new entry to the Hall of Shame: the BIS listing of export violations. The entry was for a case brought against Olympiad Lines LLC, an “NVOCC” in maritime speak (i.e., a Non-Vessel Operating Common Carrier, which is a company which resells space on boats owned by others). This was the first time I had seen an export violation alleged against an NVOCC, so it was with considerable interest that I clicked the link, only to find that it was broken.

Not being easily deterred, I sent a message to BIS on the page which they set up to report web site problems. That neither garnered a response or a page fix, which remains broken several weeks later. So now we can only ponder what an NVOCC did to get themselves in trouble. And why no one at BIS apparently pays any attention to their own website.