ExportLawBlog

Archive for the ‘BIS’ Category

Oct

14

North Pole Praises Today’s OFAC Actions

Posted by Clif Burns at 4:27 pm on October 14, 2016

The following just arrived in my email:

FOR IMMEDIATE RELEASE
MEDIA CONTACT: Elf E. McElfface, [email protected] or (951) 262-3062

Santa’s Village, North Pole – Santa Claus today, on behalf of himself, Mrs. Claus and the 40,000 elfployees of the Santa Foundation, expressed his gratitude to the Office of Foreign Assets Control for its timely revision of its rules to grant Santa clear authority this year to visit children both in the United States and Cuba. For years, Santa’s efforts to bring holiday cheer to children of both countries has been thwarted by section 515.207 of the Cuba regulations which would prohibit Santa’s sleigh from landing in the United States while toys for Cuban children remained in the sleigh or in landing in the United States if those toys had been delivered to Cuban children first.

Today’s action waives these restrictions if Santa’s sleigh only carries items that would, if they were subject to the EAR, beÂ EAR99 or controlled only for AT reasons. This ends the long struggle over whether teddy bears and other toys — which are not food, medicine, or personal communications devices — could only be delivered to Cuban children in wrapped parcels with the child’s name and address written on the outside and with the statement “GIFTâ€”Export License Not Required” also marked onÂ the parcel package. Notwithstanding the diligence and timely efforts of Santa’s elfployees, compliance with these requirements for each non-naughty child in Cuba has heretofore been impossible.

News of the OFAC announcement led to loud cheers and applause throughout Santa’s Village. Elf E. McElfface, Santa’s spokeself, wiped a tear of joy from his eye as he said to the elves in one of Santa’s workshops that he never believed that this would occur in his lifetime, which was saying a lot given that the average life expectancy of an elf on the North Pole is currently just over 500 years.

As Christmas approaches, Santa said that he was looking forward to this year’s delivery of toys and goodies to the nice children throughout the world more than ever before and reminded children everywhere, both in Cuba and the United States, that they could call his hotline at +1 (951) 262-3062 to leave their Christmas wishes and toy requests.

This press release may include predictions, estimates or other information that might be considered forward-looking. While these forward-looking statements represent the Santa Foundation’s current judgment on what the future holds, they are subject to risks and uncertainties that could cause actual results to differ materially. You are cautioned not to place undue reliance on these forward-looking statements, which reflect our opinions only as of the date of this press release. Please keep in mind that we are not obligating ourselves to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events.

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Oct

12

DOJ to Exporters: Confession Is Good for the Soul

Posted by Clif Burns at 9:40 pm on October 12, 2016

Category: BIS • Criminal Penalties • DDTC • OFAC • Voluntary Disclosures

Department of Justice by Ryan J. Reilly [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/76Kjf9 [cropped] Apparently the National Security Division at DOJ had a bunch of interns this summer with nothing to do, because this is the only conceivable explanation for the mostly risible “Guidance Regarding Voluntary Disclosures” which the NSD released on October 2. To set the tone for a further discussion of the substance of this Guidance, let’s start with a howler in the Guidance itself. Even if this guidance was written in large part, as it must have been, by eager interns, one would think that a grown-up lawyer would have reviewed this for substance. And, presumably, that grown-up lawyer whose job is to send real people to real jails would understand the laws that he or she is enforcing, right? So how do you explain this statement in the Guidance?

U.S. sanctions regimes and the Department of Commerceâ€™s Export Administration Regulations are currently enforced through IEEPA.

Apparently, no one in the NSD has ever heard of the Trading with the Enemies Act which, as most of this blog’s faithful readers will know, is the statutory basis for the Cuba sanctions and their enforcement. Â This is pretty embarrassing mistake about pretty elementary facts.

The thrust of the Guidance is an interagency power grab by which DOJ wants to take away the first responsibility for review of voluntary disclosures from OFAC, DDTC and BIS. The guidance states that voluntary disclosures should be made to the Counterintelligence and Export Section of NSD when the exporter learns that a violation “may have been willful.” Specifically, the Guidance says:

Ordinarily, when an organization voluntarily self-discloses violations of U.S. exportÂ controls and sanctions, it presents its VSD to the appropriate regulatory agency under theÂ procedures set forth in the agencyâ€™s regulations. … It is not the purpose of this Guidance to alterÂ that practice. However, as discussed further below, when an organization, including its counsel, becomes aware that the violations may have been willful, it should within a reasonably prompt time also submit a VSD to CES.

Actually the purpose is precisely to alter that practice. Remember that the criminal violations involved are violations of the agency regulations themselves. That gives the relevant agencies, and not the DOJ, the principal expertise in determining if a violation has occurred and if it was willful.

The practice until now has been to disclose violationsÂ to the relevant agency or agencies with the understanding that the agenciesÂ could, if warranted, refer the matter to the DOJ. Once the referral was made, Â the prior agency disclosure and continued cooperation with the DOJ investigation would be the basis for credit by the DOJ. No longer. A separate disclosure to DOJ must be made without regard to an agency referral and, if not, the agency disclosure becomes irrelevant to the exercise of prosecutorial discretion if a subsequent referral occurs.

One of the hypotheticals discussed in the Guidance provides ample reason as to why DOJ, which clearly does not understand many of the basics of export control law, should not be usurping the primary role of OFAC, BIS, and DDTC, in export enforcement. In that hypothetical a foreign subsidiary of a U.S. corporation exports U.S. origin items in violation of BIS regulations. Without any suggestion of U.S. participation, the Guidance suggests that the parent would be offered an NPA by DOJ premised on payment of a criminal fine.

However, BIS rules, which have to be the basis of any prosecution in such a case, do not support a theory of vicarious liability by parent corporations. If the parent company did not export the items it could only be held liable, under section 764.2, for causing, aiding or abetting the export. That’s why in the recent Alcon Laboratories case, BIS held the U.S. parent liable for its exports to Iran but not for the exports of its Swiss subsidiary; those exports served only as a basis for a penalty against the Swiss subsidiary.

One last knee-slapper from the Guidance deserves mention. In another hypothetical, the Guidance says this:

Alert customs officers notice a bulky package within a container on a ship at a U.S. port bound to leave on a lengthy voyage overseas. The package contains ITAR-controlled commodities â€¦

Because, you see, all bulky packages are suspicious and probably contain export controlled items. Just remember that when you send a birthday present to your aunt in Slovenia — make sure its just a small package in order to avoid scrutiny by CBP on the way out.

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Sep

22

Don’t Forget Croatia

Posted by Clif Burns at 7:43 am on September 22, 2016

Category: BIS • Encryption

Sea view. Rovinj, Croatia by Andrey[CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/5oVXCk [cropped and processed]

Yesterday, the Bureau of Industry and Security (“BIS”) announced various amendments to the encryption rules. I realize that the encryption rules are a sprawling mess, scattered through various sections of the EAR and written in an incomprehensible jargon that sounds like they were translated into English from a Vulcan paraphraseÂ of the original Sanskrit. I also realize that your eyes understandably glazed over when you saw the word “encryption.” So I’ll try to make this as painless and entertaining as possible.

Let’s start with the really big news. Croatia has been added to the list of Supplement 3 Countries! Woohoo! For those of you aren’t really excited about this, that is probably because you forgot that if you are not a Supp. 3 country, there is a 30 day waiting period after a review request has been filed before encryption items described in 740.17(b)(2) and (b)(3) such as source code and high-performance network equipment can be exported to that country. And if those items were going to government end users in Â country not on the Supp. 3 list, a license was required. So, today was declared a national holiday in Croatia and papier-mÃ¢chÃ© effigies of key BIS officials were draped with garlands and paraded through town squares across the country.

While we’re on the subject of government end users, the amendments create a new kind of government end user — “less sensitive government end users.” These are government agencies that are the toughest of their kind and at which you can hurl the most frightening insults — say, “you cabal of pointy-headed bureaucrats!” — without hurting their feelings. No, I’m just kidding with you. “Less sensitive government end users” are government agencies that are less likely to use encryption for evil purposes, like museums, water treatment plants and census bureaus.

The reason for identifying “less sensitive government end users” is that high performance network infrastructure equipment used to require a license to go to any government on the Naughty List (i.e., not on the Supp. 3 Nice list). Now these items can be exported 30-days after a review request is filed provided that it’s a less sensitive government end user.

The best news I’ve saved for last. Â No more encryption registration numbers! Â For the 50 or so companies out there who still don’t have an ERN, you’re off the hook. Â Annual self-classification reports will still have to be filed; and the new format for the report, which is detailed in an amended Supplement 8 to Part 742, incorporates some of the information that used to be required by the ERN application.

For a summary of the remaining changes, including a long-needed update of the performance parameters for high performance network infrastructure equipment subject to higher encryption controls, you can read this excellent summary, which is mostly clear and more or less written in English, helpfully provided by the nice people at BIS.

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Sep

2

Export Defendant Pays for Requesting Jury Trial

Posted by Clif Burns at 12:05 pm on September 2, 2016

Category: BIS • Criminal Penalties

ABOVE: Alexander Fishenko

This blog has closely followed the case involving Alexander Fishenko and his company ARC Electronics, mostly because the government larded the export charges against Fishenko with bogus “spying” charges premised on an alleged charge that he failed to register under the Foreign Agent Registration Act. Â Those charges were bogus because the act makes clear that selling goods to a foreign government is not an activity that requires registration.

A number of the employees of ARC were also indicted on export charges in connection with the exports to Russia without the required BIS licenses. One of them, Anastasia Diatlova, the most junior sales clerk in the organization, is now apparently facing harsher sentencing than other sales clerks at ARC because she ticked off the government by making them go to trial, or at least that’s the claim made in the Sentencing Memorandum filed by Ms. Diatlova’s attorneys. That memo argues that she should get the same sentence of time served as the other sales clerks in the organization. (Fishenko, who owned Arc and ran the operation, pleaded guilty and was sentenced to ten years.)

Apparently time served was offered in the plea deal but Diatlova went to trial anyway. Â That decision was premised on the reasonable belief thatÂ someone who had only an eighth grade education, received little if any compliance training, and had previously refused to sell parts where she knew them to be restricted was unlikely to have knownÂ that the one export with which she was involved and charged was illegal.

But, juries being juries, and with the prosecutors no doubt screaming “spy” and “Russia” at every available opportunity, the jury convicted her anyway. And now the government wants revenge and has taken the offer of a sentence of time served off the table. That is, of course, their right, but it seems petty and almost despicable in the case of a $15/hour sales clerk who sold an item that probably would have been licensed if one had beenÂ requested. One has to wonder why the government was chasing her anyway other than as potential low-hanging fruit that could result in another notch on their holsters.

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Aug

12

Friday Round-Up

Posted by Clif Burns at 4:28 pm on August 12, 2016

Category: BIS • DDTC • OFAC • SDN List

Here are a few recent odds and ends that are worth a mention (and to catch up on a few things I missed while on vacation):

The Directorate of Defense Trade Controls (“DDTC”) issued guidance as to whichÂ activities are “gunsmithing” that do not require registration under part 122 and whichÂ are “manufacturing” and do require registration. This guidance defines “gunsmithing” and “manufacturing” completely differentlyÂ from the definitions used by the Bureau of Alcohol, Tobacco and Firearms (“ATF”). For example, assembling kits into guns is “manufacturing” according to ATF but not according to DDTC. On behalf of lawyers everywhere: Thanks, DDTC, for keeping us busy!
More revisions to the TAA Guidelines, which are longer and less interesting than all six volumes of Proust, were announced. These mostly take into account the new definitions of export, re-export and retransfer that were recently adopted as an interim final rule by DDTC. I’ve said it before, and I’ll say it again, true export reform would get rid of the ridiculous TAA process entirely and make it similar to the Â process used by the Bureau of Industry and Security (“BIS”) for licensing technology exports.
The United States Marshals Service (“USMS”) is auctioning off 2,719.32669068 bitcoins. You will be, I’m sure, relieved to know that the auction notice explicitly states that the USMS won’t accept any bids from anyone on OFAC’s SDN List. I wouldn’t want Eliot Ness going after Rooster Cogburn, even if it would make a better movie than Batman v. Superman.