Colorado-based Rocky Mountain Instruments, a manufacturer and distributor of optical components for lasers and imaging devices, filed for reorganization under Chapter 11 of the Bankruptcy Code. An affidavit by a company executive that is part of the filing also blames a 2007 raid by the Defense Criminal Investigative Service (“DCIS”) for at least part of the company’s financial woes, even though the raid has not yet resulted in any formal charges being filed against the company.

The affidavit went on to claim that the raid was triggered by an employee whistle-blower who reported that the company exported product specifications without a necessary export license. The product involved was not specified by the affidavit. As a result of the tip, DCIS, Immigration and Customs Enforcement (“ICE”) and the local constabulary surrounded the business on October 11, 2007, with fifty cars. Yes, you read that correctly: not five, but fifty, “five-zero,” five times ten, or, for any latinists out there, “L” cars. The company claims that the raid triggered a 15 percent decline in business, although it’s not quite clear how it derived that figure. In all events, it’s hard to imagine that a convoy of fifty police cars didn’t have at least some temporary impact on business.

Two compliance lessons can be learned here. First, there’s always a disgruntled employee who will happily turn your company in for export violations. Second, the ensuing theatrics from law enforcement might have a negative impact on a company’s future sales.

. . . to the tune of $6,600. In the civil penalties information released today by the Treasury Department’s Office of Foreign Assets Control (“OFAC”), the agency reported that Willbros, a Texas-based oil and gas drilling services company, paid $6,600 to settle charges that the company

through a former Senior Vice President, willfully violated the Sudanese Sanctions Regulations (the “Regulations”) when it entered into a contract to bid on an oil development project in Sudan, despite its knowledge that such activities violated the Regulations, by facilitating the export of goods, technology or services to Sudan and evading the prohibitions set forth in the Regulations.

A Willbros SEC filing provides a little more detail on the alleged violation:

Acts carried out by Mr. [James] Tillery and others acting under his direction with respect to a bid for work in Sudan may constitute facilitation efforts prohibited by U.S. law, a violation of U.S. trade sanctions and the unauthorized export of technical information.

In December 2008, Tillery was indicted for violations of the Foreign Corrupt Practices Act in connection with bribes paid to officials of Ecuador and Nigeria to retain business with the state-owned oil companies in those countries. Tillery remains at large. Willbros itself paid $22 million dollars to settle criminal charges in connection with these bribes.

The OFAC description of the violation is that Tillery “entered into a contract to bid” on the Sudanese oil project. There is no claim that Willbros actually bid on, or even worked on, the Sudanese oil project, which makes it somewhat unclear as to how the regulations were violated. If I agree with a friend to take a trip to Cuba, I haven’t violated the Cuba sanctions until I actually take the trip.

But, of course, there’s always the issue of facilitation, and OFAC claims that this contract somehow facilitated a violation whether or not a bid was ever made. If I don’t go to Cuba but my friend later does, then the facilitation argument, in its broadest since, is that I facilitated that violation by proposing the trip. (Hemingway might also, if he were still around, be guilty of facilitation by writing books that indirectly encourage his fans to visit his home and drinking haunts in Havana.)

And although this may all seem a stretch, it is consistent with OFAC’s broad concept of facilitation in which the butterfly that flaps its wings in Western Africa arguably facilitates the hurricane that a month later slams into the Atlantic coast of Florida.

An alert reader from the U.K. pointed this out:

BERR (“Department for Business, Enterprise & Regulatory Reform”) which houses the United Kingdom’s Export Control Office has changed its name to BIS (“Department for Business Innovations and Skills”). I can’t imagine that our own BIS (“Bureau of Industry and Security”) is very happy about this foreign incursion on its export control brand. Perhaps this will prompt the U.S. BIS to go back to its original name — BXA, or the Bureau of Export Administration. Or better yet: “CSI:Exports”

Then again tit-for-tat is always fun so we could rename BIS as the Export Control Office and the Department of Commerce could be come the Department of Business, Enterprise, Recovery and Reinvestment (“BERR”). Then 10 Downing Street could paint itself white and Pennsylvania Avenue could be renamed Downing Street. By the time it was all over, Parliament and Congress would shift names, and we could trade the Washington Monument for the Tower of London. Such fun, as long as we don’t have to trade anything for the Millennium Wheel.

A press release from Her Majesty’s Revenue and Customs (U.K.) supplied some further and very interesting details relating to the conviction of three UK residents (including two Iranians granted political asylum) for the attempted export to Iran of oxygen cylinders used in fighter jets. This story was first reported here on April 29 as the three men went to trial. All three men were convicted and sentenced to serve, respectively, five years, 30 months, and 30 months, in jail.

Of particular interest is the source of the oxygen cylinders: the defendants bought them on eBay. The decision by the three defendants to use eBay was quite canny and illustrates how the US export control system is vulnerable when military parts are sold by unsophisticated and inexperienced sellers using the auction site. While many established manufacturers and distributors have had the “know-your-customer” mantra drilled into their heads by now, such niceties are probably unheard of by, and unknown to, eBay sellers, often working out of their garages and basements. The only questions such sellers are likely to have about their buyers is how quickly they can pay. The eBay seller in this question didn’t pause long enough to realize that the purchase by an Iranian in the U.K of military parts might be problematic.

The press release also notes that in cases of prior exports of military goods to Iran by the trio, more sophisticated businesses which weren’t selling their good through eBay had indicated that they needed export licenses to ship the goods to the U.K. In those instances, the three men would pretend that their actual customer was in the United States and asked the businesses to ship the goods to an address in Florida where, of course, the three men would then have the goods transshipped to themselves in the UK. This wasn’t just a red flag, it was a red banner the size of a football field, and the U.S. businesses never should have shipped the items to the Florida address.

In all events, the eBay connection in this case should serve as a wake-up call to the Pentagon as to the many problems in its current program of military surplus sales to the general public. Sales to casual sellers who then plan on disposing of these goods over eBay is equivalent to the Pentagon selling them to a store with window signs saying “Iranians Welcome,” “Free Shipping to Tehran” and “Get Your F-14 Parts Here!”

Firth Rixson Monroe, a specialty metals forger, recently agreed to pay $85,000 to the Bureau of Industry and Security (“BIS”) to settle charges that the company exported, on three occasions, 1,055 pounds of 6-2-4-2 titanium alloy billets worth about $35,000 to the People’s Republic of China. The company voluntarily disclosed these three exports to BIS.

The 6-2-4-2 titanium alloy can be used in aerospace and missile applications requiring an alloy capable of resisting high temperatures and maintaining high tensile strength. The “6-2-4-2” designation used here with titanium is shorthand for Ti-6Al-2Sn-4Zr-2Mo and signifies the other metals used in the alloy, specifically aluminum (6%), tin (2%), zirconium (4%) and molybdenum (2%). This alloy is classified under ECCN 1C202 because it exhibits an ultimate tensile strength of 900 MPa at 20° and because, apparently, the billets had an outside diameter in excess of 75 millimeters. (Tensile strength specifications for 6-2-4-2 titanium, and other titanium alloys, can be found here.)

The alloy designation for the titanium billets seemed to cause considerable confusion for the enforcement staff. The order interpreted it to mean that 6,242 billets had been exported. The charging letter turned 6-2-4-2 into 6,242 pounds of titanium. Only the settlement agreement got it right. The charging letter also stated that the exports went to Chile. The agency’s confusion over the destination of the exports in the charging letter somehow seems more understandable than the agency’s confusion about the standard practices by the engineering community for designating particular alloys of titanium. The 6-2-4-2 designation was, after all, what allows the conclusion that the alloy was indeed covered by ECCN 1C202.

UPDATE: BIS has removed the settlement documents to which I linked in this post, presumably to correct the errors that I pointed out or that they learned from other sources.