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Archive for the ‘Criminal Penalties’ Category

Jan

31

Russian Export Defendant Slapped on Wrist, Told to Leave U.S.

Posted by Clif Burns at 5:35 pm on January 31, 2014

By Sgt. Scott M. Biscuiti [Public domain], via Wikimedia Commons http://commons.wikimedia.org/wiki/File%3ADefense.gov_photo_essay_090329-M-7747B-015.jpg Back in November, this blog reported on the indictment of a Russian citizen, Roman Kvinikadze, on charges that he attempted to export military thermal imaging sights without the required State Department license. As we noted then, the indictment created a bit of a diplomatic row between the United States and Russia, with Russia claiming that federal agents knowingly provoked Kvinikadze to violate the law and then lured him into the United States to arrest him. The Russian pique was directed at statements by the undercover U.S. agent to Kvinikadze that the sights required an export license but that if the license was unavailable there were other ways he could ship the sights to Kvinikadze. Although these facts might not supportÂ the narrowly construed entrapment defense, they can easily been seen as grounds for a diplomatic contretemps.

Well, the Russian irritation seems to have been heard loud and clear in Washington. Last week, a federal judge sentenced Kvinikadze, who had entered a guilty plea, to time served and a $7500 fine. He also ordered Kvinikadze to leave the United States, something that Kvinikadze was no doubt happy to do with or without a judicial order requiring him to do so. Kvinikadze had been in custody for 147 days so time served was significantly less than would have been required under federal sentencing guidelines which would have specified a minimum sentence of 33 to 41 months. News reports stated that the prosecutor requested the reduced sentence, and the judge justified it by stating that “Kvinikadze may not have fully appreciated the potential damage to relations between the U.S. and Russia if the sights had fallen into wrong hands.”

When I reviewed the docket to see if I could find anything else to justify this lenient sentence, I discovered that the Presentence Report, the Presentence Report Recommendation and an Addendum to the Presentence Report were all sealed and unavailable for review. Although there are a number of reasons that this could be the case, including the possibility of the discussion of some extremely private matters involving Kvinikadze, my money is that these were sealed because they have a discussion of the diplomatic ramifications of the sentence, something that prosecutors and courts are loathe to reveal. So when Kvinikadze is safely back in Russia, I’m going to bet he sends an effusive thank you note to his BFF Vladimir Putin.

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Jan

28

Fun BIS Fact: Companies May Actually Know What They Don’t Know

Posted by Clif Burns at 3:41 pm on January 28, 2014

Amplifier Research HQ Street View from Google http://www.google.com/permissions/geoguidelines/attr-guide.html [By Permission]

ABOVE: Amplifier Research HQ

There seems to be a recent plague of rogue export control managers with a penchant for forging licenses, making up authorizations, fudging exemptions and exceptions and engaging in other nefarious practices in order to avoid having to do any actual work while on the job they are being paid for. First it was LeAnne Lesmeister who specialized in photoshopping fake export licenses. Now we have Timothy Gormley at Amplifier Research Corporation who among other things falsified paperwork to conceal correct export classifications, listed fake license numbers on export documentation, authorized exports before license applications were granted and lied to other employees at the company about the existence of required export licenses.

The BIS settlement documents assert that Amplifier Research never conducted any compliance audits during the time that Gormley was running the export show. BIS imposed a $500,000 suspended fine on Amplifier Research to settle the violations and required the company to conduct a complete export compliance audit. A federal judge awarded Gormley a 42-month vacation in a federal correctional facility.

This all seems pretty routine until you get to the last count against the Company in which BIS charges Amplifier Research with “acting with knowledge” of the illegal exports at issue. The Export Administration Regulations define knowledge as follows:

Knowledge of a circumstance (the term may be a variant, such as â€œknow,â€ â€œreason to know,â€ or â€œreason to believeâ€) includes not only positive knowledge that the circumstance exists or is substantially certain to occur, but also an awareness of a high probability of its existence or future occurrence. Such awareness is inferred from evidence of the conscious disregard of facts known to a person and is also inferred from a person’s willful avoidance of facts.

Neither this definition of knowledge, nor section 764.2 of the EAR, addresses when a company knows something. Additionally, neither addresses the issue as to whether the knowledge of each and every employee can be imputed to the company for purposes of “acting with knowledge” violations under section 764.2. Certainly, Gormley can be said to have acted with knowledge, but should the company also be said to have acted with knowledge unless senior management had “knowledge” as defined above of Gormley’s actions? Certainly those standards of knowledge would not be met simply because the company failed to conduct a compliance audit on Gormley and the export program. Rather, it seems to me, there would need to some red flags that senior management ignored and there is no evidence or assertion by BIS that there were any such ignored red flags.

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Jan

13

California Man Sentenced to Three Years for Export Violations

Posted by Clif Burns at 6:14 pm on January 13, 2014

Category: Criminal Penalties • DDTC • ITAR

Philip He Family Photo via http://news.yahoo.com/special-report-china-39-weapon-snatchers-penetrating-u-150652962.html [Fair Use]

ABOVE: Philip Chaohui He

Last February, this blog reported on the indictment of Philip Chaohui He, who had been indicted on charges that he attempted to export to China $549,654 worth of ITAR-controlled, radiation hardened, space qualified memory chips to China without the required export license. On December 19, Mr. He, who had entered a guilty plea to the charges, was sentenced to three years in prison.

Since our original post, several interesting details have emerged with respect to Mr. He and his attempted export to China. The first relates to the potential involvement of the Chinese government in these exports. The San Francisco Chronicle tells an interesting story as to the ship on which He tried to load the memory chips. The ship was owned by ZPMC, a Chinese state-owned enterprise that was fabricating steel towers for the San Francisco Bay Bridge renovation, a project on which Mr. He was working as an engineer. Mr. He told Jim Yang an employee of ZPMC that one of their employees had left behind in San Francisco a package of personal effects and that he would like to return the package to the employee via a ZPMC ship that was soon departing from the port in Long Beach, California.

Yang said he wondered why He would want to drive seven hours to make the delivery, but he had replied, “Fine.”

“So he drove down by himself with a couple of boxes in his vehicle,” Yang said. “And we had dinner together because he was doing us a favor.”

The next morning, Yang said, He followed him in his car to the Port of Long Beach, where they entered the ZPMC dock site using Yang’s security badge.

Mr. He was immediately arrested on the dock. Yang denies that he knew what was in the package or that ZPMC was in cahoots with He. The red flag here is not just the one flying over Beijing. Why was He driving seven hours with a package of personal effects as a favor to a ZPMC employee he met on the Bay Bridge Project? He couldn’t figure out any other easier way to return the box? Then Yang uses his badge and let’s He on the dock with a package of completely unknown contents that could have been a dirty bomb for all Yang knew. Uh huh. Sure. And if you believe that I’ve got a Bay Bridge to sell you.

The second detail relates to the participation of the memory chip manufacturer, Aeroflex, in the apprehension of Mr. He. We speculated in the original post that He’s large order of stuff he had little demonstrated need for set off alarm bells in Aeroflex and that they set the law on him. This lengthy investigative report on the case by Reuters confirms that this was the case.

People and companies who buy these kinds of rad-chips are usually well-established, repeat customers – more multinational corporation than mom & pop. Aeroflex salesmen had never heard of “Philip Hope” or his company, “Sierra Electronic Instruments.”

Most suspicious of all, just days after placing the order, Hope sent Aeroflex a certified check for the full amount, $549,654. That was rare. Buyers were expected to make a deposit, but nobody paid up front.

Of course, being alert to red flags and lending a helping hand to the government did not result in any expression of gratitude from the Government which, not long after, fined Aeroflex $8 million for export violations that Aeroflex voluntarily disclosed to the Government. My guess is that in the future Aeroflex will simply decline to make sales like this one that are suspicious and won’t feel particularly motivated to pick up the phone and tell the feds about it.

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Dec

20

Back in the U.S.S.R.? Pleading Guilty to U.S. Export Violations May Get You Home

Posted by George Murphy at 12:53 am on December 20, 2013

Category: Criminal Penalties • DDTC • General • ITAR • USML

By Sgt. Scott M. Biscuiti [Public domain], via Wikimedia Commons http://commons.wikimedia.org/wiki/File%3ADefense.gov_photo_essay_090329-M-7747B-015.jpg

On Tuesday, Russian Roman Kvinikadze pleaded guilty inÂ federal court in Wyoming to charges that he attempted to export thermal imaging weapon sights to Russia without a required license from the U.S. State Department.Â Last month, we reported on Kvinikadzeâ€™s arrest and the charges brought against him as well as the Russian governmentâ€™s criticism of the entire matter.Â Kvinikadzeâ€™s plea is not a surprising development since, as we alluded to last month, an entrapment defense even under the most favorable circumstances is difficult to prove.

What is surprising, however, is how soon Kvinikadze may be leaving U.S. federal prison.Â The Associated Press reported on Tuesday that the federal judge in Kvinikadzeâ€™s case said “immigration authorities intend to send Kivinikadze back to Russia.”Â As we said last month, Kvinikadzeâ€™s best defense was not going to be in the courtroom but through diplomatic channels plied with the Russian governmentâ€™s support.Â Unlike a month ago, when the Russian human rights commissioner publicly decried Kvinikadzeâ€™s arrest, the Russian government has been quiet since Kvinikadze entered his guilty plea.

If Kvinikadze in fact returns shortly to Russia, the Department of Homeland Security, the agency which conducted the investigation into Kvinikadze, may beÂ reconsidering the effectiveness of operations, like the one used against Kvinikadze, that engage foreign persons online to arrange for unlawful export transactionsÂ and entice them into travel to the United States to be arrested.Â At a minimum, would-be U.S. export control violators abroad ought to think twice about meeting a potential business partner for the first time in the United States.Â But more importantly, foreign governments may begin to join Russia in denouncing such U.S. policing of its laws around the world.Â One of the aspects that have made U.S. investigations and law enforcement activitiesÂ abroad of FCPA violations so successful in recent years is the U.S. cooperation with foreign law enforcement. Without such cooperation, the United States mayÂ see more guilty foreign criminals going home.

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Nov

11

From Russia with â€¦ Weapon Sights and a Diplomatic Row?

Posted by George Murphy at 5:54 pm on November 11, 2013

Category: Arms Export • Criminal Penalties • DDTC • USML

By Sgt. Scott M. Biscuiti [Public domain], via Wikimedia Commons http://commons.wikimedia.org/wiki/File%3ADefense.gov_photo_essay_090329-M-7747B-015.jpg

Last week, a federal judge in Wyoming set trial for February of next year for Russian Roman Kvinikadze, who was arrested this August on charges that he attempted to export thermal imaging weapon sights without a required license from the U.S. State Department.

The story of Kvinikadzeâ€™s arrest began last year when he contacted an undercover Department of Homeland Security agent on the Chinese e-commerce site, Alibaba.com.Â It is unclear from court documents what the DHS agent posted on Alibaba.com to attract Kvinikadze, but it was enough for Kvinikadze to introduce himself as an aspiring hunting store owner that wanted a quote for weapon sights.Â According to the criminal complaint, Kvinikadze eventually traveled to a Las Vegas gun show where the DHS agent told him that the sights required a U.S. export license but “there were other ways to ship the weapon sights without a license.”Â Kvinikadze apparently expressed continued interest and laterÂ went to meetÂ the agentÂ in Wyoming, where he was arrested.

According to Russian media on Friday, the Russian Foreign Ministryâ€™s human rights commissioner described Kvinikadzeâ€™s arrest as a “kind of American law enforcement agency approach to Russian citizens [that] is becoming increasingly disrespectful of international law and bilateral agreements, including the 1999 agreement on mutual legal assistance in investigating crimes.”Â He also reportedly described Kvinikadze as “being knowingly provoked to violate the law as he was lured into the United States [to be arrested].”

The Russian governmentÂ appears to beÂ intimating Kvinikadzeâ€™s entrapment defense at trial.Â Although a successful entrapment defense is difficult and complex, Kvinikadze appears to have a better chance than previous foreign nationals engaging with undercover U.S. agents online.Â In September, weÂ discussedÂ the arrest of Patrick Campbell, the foreign national arrested at JFK airport for, among other things, having yellowcake uranium in his luggage.Â In that case, again beginning on Alibaba.com, Campbell responded to a DHS agentâ€™s solicitation for yellowcake and informed the agent that he could “handle” any U.S. export restrictions that concerned the agent in shipping uranium to Iran.

In Kvinikadzeâ€™s case, critical facts are the reverse: Kvinikadze found the DHS agent purporting to be a seller and the DHS agent was the one who informed Kvinikadze ofÂ a required U.S. export license and “ways” to avoid getting one.Â The criminal complaint is, however, peppered with suggestions that Kvinikadze was a sophisticated buyer and was not lured, but rather conspired, to export the sights illegally.

What may be Kvinikadzeâ€™s best defense is the Russian governmentâ€™s support.Â The Russian human rights commissioner has reportedly also said that “[Kvinikadzeâ€™s] situation is being closely followed by the Russian Foreign Ministry,” and that after Kvinikadzeâ€™s arrest, “our consular workers got in touch with him and with the prison authorities in Nebraska where he is being held â€¦ We will continue providing consular-legal assistance to our compatriot.”

There are, of course, a host of reasons why U.S. law enforcementÂ looks forÂ foreign threats on foreign websites where activity threatening U.S. security interests is taking place.Â However, how such operations are conducted as well as their frequency and targets have, as this case shows, diplomatic ramifications.

Based on the Russian governmentâ€™s response, one has to wonder how the United States would respond if the weapon sights were looking the other way.Â How Russiaâ€™s response to Kvinikadze affects U.S. law enforcement strategy remains to be seen.Â In the meantime, if sites like Alibaba.com are open for undercover U.S. law enforcement, any U.S. business should be keenly aware that other countries are likely doing the same.

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