The Chi Mak case has engendered its fair share of confusion, and the latest victim is a trade law attorney who submitted a brief article to an export law newsletter that was published today. According to that article, the verdict in Chi Mak stands for the proposition that public domain data about defense articles can’t be exported to China. That’s simply wrong and betrays a fundamental misapprehension both of the International Traffic in Arms Regulations (“ITAR”) and what went on in the Chi Mak case. (Fair disclosure: I advised the Chi Mak defense team on the public domain issue in that case).

The article states:

The case sets the precedent that “technical data”, despite entering the “public domain”, requires an export license from the Directorate of Defense Trade Controls (DDTC) if China is the country of export. The jury’s finding reinforces this interpretation of the ITAR, and the subsequently heavy sentence by Judge Carmey reflects the seriousness the United States deems Chinese acquisition of military knowledge.

What the author apparently didn’t understand was that an instruction was given, and agreed to by the prosecutors, that if the data was in the public domain as defined by section 120.11(a) of the ITAR, it wasn’t subject to ITAR. So the jury’s conviction represents a determination that the items weren’t in the public domain as so defined.

For example, the conference exception in section 120.11(a)(6) doesn’t cover every conference. That exception was at issue in the Chi Mak case because the documents were alleged to have been presented at an American Society of Naval Engineers (“ASNE”) conference According to that exception, a document is public domain if it is generally accessible to the public:

Through unlimited distribution at a conference, meeting, seminar, trade show or exhibition, generally accessible to the public, in the United States.

The jury may well have determined that the ASNE conference wasn’t “generally accessible to the public.”

The article goes even further astray when it tries to find a basis in the ITAR for a conclusion that public domain technical data can’t be exported to China.

§125.4 contains the licensing exemptions provision of ITAR. §125.4(a) states:

“The following exemptions [§125(b)(1)-(13)] apply to exports of technical data for which approval is not needed from the Directorate of Defense Trade Controls. These exemptions, except for paragraph (b)(13) of this section, do not apply to exports to proscribed destinations under § 126.1 of this subchapter…”

So if §125.4 is the exclusive exemption section of the ITAR, and China is excluded from any exemption as a country listed in §126.1, then it follows all technical data exported to China requires a license regardless of its presence in the public domain.

The critical problem with this analysis is that the definition which excludes public domain information from the definition of technical data isn’t an exemption mentioned in § 125.4. It isn’t even an exemption at all or it would be covered by section 126.1 itself, as the prosecutors initially argued, which notes that the “exemptions” in the ITAR aren’t applicable to China and the other proscribed countries.

Rather public domain material is excluded from the definition of technical data covered by the regulations. Exemptions are exceptions to licensing requirements for technical data otherwise subject to ITAR such as, for example, technical data being returned to the original source of import or technical data exported in furtherance of an approved technical assistance agreement. But if information is public domain under § 120.11, it isn’t technical data at all under § 120.10, and it can be exported without license and without reference to any exemptions.

A case that makes clear the difference between a definitional exclusion and an exemption is the way that the USML handles the QRS-11 quartz rate sensor navigational chip. There is now a note to Category VIII(e) that excludes such sensors when, among other things, they are integrated into a civil aircraft. The reason for this was to permit Boeing aircraft (all of which were equipped with the QRS-11 chip) to be exported to China. If the note is seen as an “exemption” for sensors in civil aircraft rather than as a definitional exclusion from the USML, then § 126.1 would proscribe exports of those planes to China, which was not the result contemplated by DDTC when it added that note to the USML

In short, exemptions and definitional exclusions are two very different things in the ITAR and you confuse them at your peril as did the author of the article in question. Frankly he should have been suspicious of his own conclusion because by his reasoning if someone tells a Chinese national that the B-2 stealth bomber has a “bat-wing” shape to reduce its radar cross-section, that person would be committing a criminal act, even though everyone who hasn’t spent the last two decades in a cave in Siberia is aware of the shape of a B-2 bomber and its purpose.

For all the time that we export lawyers spend trying to inculcate into our clients the concept of export red flags, it’s heartening to see that pay off. And it certainly did payoff in the case of two Chinese citizens stopped at LAX carrying suitcases stuffed to overflowing with night vision cameras. The not-so-swift attempted exporters had used a company called Printing Plus Graphics as their front. I suppose that was better than using Panda Express as a front, but not much.

The manufacturer of the cameras, FLIR Systems, knew that a storefront print shop had little use for infrared cameras and quite properly saw the order as a red flag. They contacted the government about the attempted purchases and the rest, as they say, is history.

The Second Circuit issued an opinion on March 19 interpreting the sentencing guidelines applicable to violations of the Arms Export Control Act. That case, United States v. Sero, involved an appeal by a defendant that had entered a guilty plea to charges that he unlawfully exported gun parts and ammunition to the Philippines without a license. The District Court sentenced the defendant to 40 months followed by a three-year period of supervised release.

The defendant argued that the District Court erred when it interpreted the applicable sentencing guidelines and held that the lower sentence available under Sentencing Guidelines § 2M5.2 did not apply. A lower sentence is available under that guideline where “the offense involved only non-fully automatic small arms (rifles, handguns, or shotguns), and the number of weapons did not exceed ten.” Since the defendant’s exports included 2 boxes of .40 caliber Black Talon DP cartridges, the court held that the defendant was not eligible for the lower sentencing guideline. Interpreting that language literally, the Second Circuit held that the lower guideline is applicable only for exports that are restricted to small arms and do not include ammunition for those small arms.

The defendant also argued that a downward departure from the guidelines was warranted because he was selling the parts and ammunition to the alleged good guys. Section 2M5.2 permits a downward departure where the offending conduct posed no “security or foreign policy interest of the United States.”

The Second Circuit rejected this argument noting, first, that this downward departure is committed to the unreviewable discretion of the lower court unless the lower court mistakenly believed it had no authority to permit a downward departure. In this case, the Second Circuit noted, the lower court considered the security impact:

It explained that “it is not a good defense to say that the defendant sold to the right side or that he was not selling directly to the insurgents. There is no indication that he was.” Moreover, it found that a “citizen cannot pick and choose the firearm vendees that he will wish to deal with to the detriment of the policies of the State department” and that Sero had made no good faith attempt to receive an export license, suggesting that Sero knew that his gunrunning activity was potentially harmful.

The Court’s reasoning here is somewhat suspect. The language quoted by the Second Circuit suggests that the lower court was holding that all violations of the export laws necessarily pose a risk to security interests because the State Department says so. That comes perilously close to a holding by the lower court that it has no authority to make a downward departure by evaluating whether the conduct posed any risk to the security or foreign policy of the United States.