ExportLawBlog

Archive for the ‘DDTC’ Category

Nov

17

Proposed CFIUS Legislation: Good News for Cattle Prod Makers, Bad News for Cows

Posted by Clif Burns at 3:09 pm on November 17, 2017

Cow by Kabsik Park [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/5xQkWj [cropped] On November 8, 2017, the House and Senate introduced the Foreign Investment Risk Review Modernization Act of 2017 (FIRRMA) proposing the first amendments to the CFIUS process since the Foreign Investment and National Security Act was passed in 2007. Although the bill has bi-partisan support and a good chance of passage, there are no guaranties on anything these days where Congress is concerned.

Of interest to export geeks is the proposed new definition of critical technologies to be considered by CFIUS during the review process. Section 3(a)(8) of the proposed legislation defines critical technologies to include:

(i) Defense articles or defense services included on the United States Munitions List set forth in the International Traffic in Arms Regulations under subchapter M of chapter I of title 22, Code of Federal Regulations.

(ii) Items included on the Commerce Control List set forth in Supplement No. 1 to part 774 of the Export Administration Regulations under subchapter C of chapter VII of title 15, Code of Federal Regulations, and controlledâ€”

(I) pursuant to multilateral regimes, including for reasons relating to national security, chemical and biological weapons proliferation, nuclear nonproliferation, or missile technology; or

(II) for reasons relating to regional stability or surreptitious listening.

What that means is that items controlled solely for Crime Control or AT reasons won’t be critical technologies and that CFIUS will not get worked up if a Chinese company seeks to buy the Cowpoke Cattle Prod (ECCN 0A985) Company in Wyoming. Nor should it care much if a foreign purchaser makes a bid for Missouri-based Ferguson Sjamboks and Tonfas (ECCN 0A9678) R US, Inc.

It is, of course, unlikely that CFIUS would have, either before or after any potential passage of the proposed legislation, considered the fact that the target made cattle prods (or tonfas) even though it has routinely examined transactions where other export-controlled goods were involved. But the proposed legislation, if it becomes law, would provide a statutory basis for CFIUS to ignore issues arising from the U.S. business producing AT- or CC-controlled items.

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Sep

22

Export Control Reform Arrives (Soon?) For Small Arms

Posted by Clif Burns at 4:00 pm on September 22, 2017

Category: BIS • DDTC • Export Reform

Gun Show by M&R Glasgow [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/EfXLa [cropped] Rumors have begun to circulate that export control reform is coming to USML Category I small arms despite thoughts that this might never happen. The reporters in this Reuters article, who clearly have little background in export policy and reform, have fallen on their fainting couches, clutched their pearls, and conjured up terrifying images of an out-of-control international arms bazaar that will result. This is, of course, silliness. Thousands of items have transitioned from the USML to the 600 series of the Commerce Control List without military items falling willy-nilly into the hands of foreigners.

There are two issues I think are worthy of comment without histrionics. The first relates to brokering issues. I have been a critic of DDTC’s brokering rules, not because of their concept, but mostly because of their implementation. The rules have been improved by restricting the registration and licensing requirements to brokers who are U.S. citizens or who are located in and acting from the United States. But I think that potentially removing small arms shipments from the restrictions of the brokering rules is not necessarily a good idea. Remember that the reason that these were passed in the first place was that U.S. persons were shipping small arms from foreign countries to regional disputes and rebellions outside the United States where those arms were used for genocide or otherwise against the foreign policy of the United States. The EAR has no controls on brokering and would not control export of foreign-manufactured arms (without U.S. content) to areas outside the United States by U.S. citizens or persons in the United States. The brokering issue is negligible when we talk about other transitioned items, like certain military aircraft parts. But the issue is front and center when it comes to small arms.

Another interesting effect of transitioning small arms to the CCL, and one that will be probably a beneficial one, relates to the issue of providing firearms training to foreign persons. As it stands, the definition of defense services in section 120.9 covers ” training â€¦ foreign persons â€¦ in the â€¦ maintenance, â€¦ operation, â€¦ or use of defense articles.” So a U.S. person could not show a foreign person how to clean a rifle but could provide a copy of the publicly available rifle manual with cleaning instructions to the foreign person. After transition of the rifle as a 600 series item to the EAR, since the information on how to clean the rifle is published, a U.S. person could show the foreign person how to clean the rifle rather than just provide a copy of the manual. This, of course, seems a much more sensible result.

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Sep

19

America’s Worst Spy Sentenced

Posted by Clif Burns at 11:52 pm on September 19, 2017

Category: Criminal Penalties • DDTC • ITAR

DOJ Interview Video of Gregory Allen Justice [Public Domain - Work of U.S. Government] Yesterday, Gregory Allen Justice, a former Boeing engineer, who tried to sell satellite information to undercover agents he believed were Russian spies, was sentenced to five years in jail. I reported on the case previously here, noting that Justice was playing spy to get money for an online girlfriend (who had catfished him with sexy photos of another woman and to whom he was sending gifts, such as charcoal grills, from Amazon). Justice, who admitted he was under the spell of Â the TV show “The Americans,” Jason Bourne and James Bond (and had even taken online spy courses), demonstrated his intimate knowledge of spy craft when he gave a receipt to the fake spies for the money they paid him after he made his first drop. Seriously. Worst spy ever. He might as well have posted pictures of the drop on Facebook — oh wait, that wouldn’t have been a problem because Russian spies apparently can post on Facebook without anyone noticing.

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Jul

19

Why One of the Swapped Prisoners Did Not Return to Iran.

Posted by Clif Burns at 9:55 pm on July 19, 2017

Category: Criminal Penalties • DDTC • ITAR

ABOVE: Nima Golestaneh

In January 2016 the United States and Iran engaged in a prisoner swap. None of the freed prisoners returned to Iran, instead they all chose to remain in the United States, including Nima Golestaneh, the only Iranian national in the group. (The remainder were dual U.S.-Iranian citizens). Golestaneh, who had been nabbed in, and extradited from, Turkey, had been convicted of a scheme to hack into Arrow Tech in Vermont and send its ITAR-controlled software back to Iran.

Now we have a pretty good idea why he may have been selected for a pardon and why he decided that going back to Iran might not have been such a good idea. Yesterday, two Iranians, Mohammed Ajily and Mohammed Rezakhah were added by OFAC to the Specially Designated Nationals and Blocked Persons List (the “SDN List”) and the Department of Justice announced that an indictment against the two had been unsealed. The indictment reveals that Ajily and Rezakhah were Golestaneh’s co-conspirators in the hacking scheme, and it seems certain that Golestaneh made a deal and dropped the dime on Ajily and Rezakhah.

Both Ajily and Rezakhah are currently in Iran and probably have no current plans to visit Disneyland or anywhere else outside Iran. It’s also safe to assume that Golestaneh would not be welcomed with open arms should he turn up in Iran. In fact, that would be an instance of going from the frying pan (a U.S. jail) into the fire (an Iranian one).

The indictment details Golestaneh’s role in the hacking conspiracy. Apparently his job was to procure servers in Canada and the Netherlands. These enabled Rezakhah to download the Arrow Tech software without using an IP address from Iran, which likely would have been blocked by Arrow Tech. The software would not run without a hardware dongle from Arrow Tech, and Arrow Tech informed foreign customers that they would need an export license to obtain the dongle. That dongle not doubt contained the digital key needed to decrypt the program and allow it to run. It looks like Rezakhah hacked into Arrow Tech’s servers to obtain the digital key needed to decrypt the program.

Of course, it’s not just Rezakhah who has a problem in this scenario. If in fact, if Arrow Tech allowed foreign download of ITAR-controlled encrypted software without a license, that was arguably problematic. DDTC has taken the position that items are exported even if encrypted. And, if there is support for that position by DDTC, it can be found in this case, which demonstrates that there is always some possibility that the encryption willÂ be broken. (It now appears that Arrow Tech distributes the software only by optical media and not by download). One has to wonder if the failure of DDTC to adopt rules like those adopted by BIS which exempt encrypted items from the definition of export is, at least in part, the result of what happened in this case.

One other thing bears noting here, namely, the most amusing irrelevant statement ever put in a criminal indictment. For some reason, the indictment notes thatÂ Ajily, Rezakhah’s co-conspirator “received certificates of appreciation for his work from several of the Iranian government and military entities.” Â Seriously, he got certificates he could frame and hang on his office wall. Â Awesome. Â That was a clear violation of the law that forbids receiving certificates of appreciation from Iran. Â I have to imagine that this factoid comes from Golestaneh who, when he was singing to the DOJ, said something on the order ofÂ “AjilyÂ got certificates and all I got was this lousy jumpsuit.”

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Jul

11

Don’t Believe Everything You Read in Blogs

Posted by Clif Burns at 5:54 pm on July 11, 2017

Category: BIS • DDTC

Road Warrior at LAX by Clif Burns A lawyer, without any apparent background in export law, recently decided to write a post on export law for “In House,” which bills itself as the “FindLaw Corporate Counsel Blog.” The purpose of the post, it would seem, is to frighten people traveling internationally with their laptops with the suggestion that they may well be greeted on their return trip by an arrest warrant if they don’t have an export license for their laptop. No, really, he actually says that

Traveling abroad? Don’t forget your passport, your laptop, and your export license.

Wh-what export license? Oh, maybe your company attorney didn’t tell you that your laptop requires an export license.

That’s right, the United States requires a license for certain technology and software going abroad.

What the FindLaw post, in order to maximize clickbait value, never reveals is that while technically true that some laptop exports require an export license due to software or technology on that laptop, there are broad license exceptions which mean that, as a practical matter, such licenses are almost never required. That’s what License Exceptions TMP and BAG and the exemption in section 125.4(b)(9) of the ITAR are for. These are, oddly enough, never even mentioned in the FindLaw blog post.

I discussed these provisionsÂ permitting laptops to be exported without a license recently in a post about whether a requirement to check laptops in the cabin holdÂ might mean that these provisions would no longer apply. As explained there, section 125.4(b)(9) and license exception BAG permit export of laptops (and any software or technology on them) accompanying passengers and for their personal use as long as the laptop is password protected. License exception TMP requires that the laptop remain in the effective control of the traveler. (The difference between BAG and TMP is that BAG applies to laptops owned by the traveler and TMP applies to company laptops taken on a business trip).

So, no, if you password protect that laptop and keep it with you on your travels, you’re not going to need a license just to take the laptop with you. (If you intend to transfer the laptop or give the technology or software to someone else in the foreign country, these exceptions won’t apply.)

This all goes to show that, with perhaps one exception, don’t believe everything you read on a blog!

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