Three naturalized U.S. citizens, Dan Tran Dang, Liem Duc Huynh, and George Ngoc Bui were recently indicted and charged with conspiracy to export 55 third generation military night vision goggles to Vietnam without a license. According to the indictment, the men purchased ITT AN/PVS-7 night vision goggles from Win-Tron Electronics, an electronics wholesaler principally specializing in marine electronics. The head straps and helmet mounts were removed and shipped to defendant Bui in Vietnam. The remaining parts of the night vision were then carried by Huynh and Dang in their luggage on trips to Vietnam.

The three men were caught in large measure because of Win-Tron Electronics and what appears to have been its careful attention to export compliance issues. According to a story in the Tulsa World, Win-Tron tipped off the authorities when it became suspicious of the purchases by the three men. The defendants claimed to have a business called Protective Security, and yet the address for Protective Security turned out to be a private residence. This apparently led Win-Tron to suspect that Protective Security had no use for a large volume of night vision goggles and suggested that the goggles might be instead destined for export, likely to the defendants’ country of origin.

Knowing your customer means knowing where your customer lives; and if a business has a residential address, this certainly should be considered a red flag.

Edward Hasbrouck, the author of the informative travel manual The Practical Nomad and of an entertaining and informative travel blog of the same name, left a comment to one of our earlier posts on the Syria sanctions:

Earlier this year, [my bank] froze my account (refused to honor checks, and refused to accept deposits, both paper and electronic) after I tried to check my balance on their Web site from a Syrian IP address. …

Only after I had left Syria (which [my bank] “verified’ by calling me at a Turkish land-line telephone number, which of course could have been forwarded to anywhere) was I able to get the account unfrozen. …

I had notified [my bank] in advance of my intent to travel to Syria. I had read their customer disclosures, which make no mention of any sanctions by [the bank] except those *required* by OFAC regulations, which this clearly wasn’t. I had gone to considerable lengths to avoid having any financial dealings with the government of Syria or government-owned entities (or any other “specially designated nationals” in Syria). And I had been able to withdraw funds from an ATM in Syria (of a private, non-Syrian — I was later told they route transactions via a private line to Lebanon, although my … Bank statement correctly showed the address of the ATM in Syria) without incident.

The prior post in question dealt with Google blocking downloads to Syrian IP addresses and wondered how widespread that practice is. Apparently, some banks are at least trapping IP addresses for queries to their websites, but apparently these banks don’t know what to do once they capture an IP address from a sanctioned country such as Syria.

The current Syria sanctions prohibit export of U.S. products to Syria. Food, medicine and informational products are exempted from the export ban. It’s not clear whether the bank’s response to a web-based balance inquiry was an export of a product to Syria and, even if it were, it arguably fell under the informational exception. Even if the informational exemption were not applicable, the bank’s obligation was simply not to return an answer to the Syrian IP address, not to block the account.

The remaining relevant segment of the Syria sanctions blocks the assets of approximately 20 individuals that have been determined to be involved in (a) the proliferation of weapons of mass destruction; (b) destabilizing activities in Iraq and Lebanon; (c) associating with al Qaeda, the Taliban or Osama bin Laden; or (d) benefiting from public corruption. These sanctions would permit blocking a bank account. However, Hasbrouck’s bank certainly couldn’t conclude from the IP address alone of his web-based balance inquiry that he was one of those 20 individuals (he, of course, is not) or that he was acting on behalf of such individuals. Moreover, because the bank itself “unfroze” the account, it was never officially blocked in any event, because only OFAC can unblock such an account once the bank has blocked it.

It seems what likely happened here is that the bank’s compliance program, rather than focusing on the precise scope of U.S. sanctions against Syria, simply blocked all transactions with Syria whether required or not. There certainly are administrative advantages to such a broad brush approach to compliance; however, a bank using such an approach might wind up violating its own account agreement with the customer. In such a case, let’s say that the blocked accounts leave the customer stranded in Syria, or thrown in jail when he can’t pay his hotel bill, the liability to the customer could be significant.

It’s easy to forget that there are things other than dual-use items, defense articles, and nuclear materials that are export-controlled. The recent conviction of Florida resident Max Moghaddam for the unlicensed export of paddlefish roe should serve as a reminder that plants and animals listed on Appendix II to the Convention on International Trade in Endangered Species of Wild Fauna and Flora (“CITES”) also require export licenses from the U.S. Fish and Wildlife Service. Paddlefish, a species found in the Mississippi River and related to sturgeon, produces a roe that is often sold as American caviar at around $17 per ounce, about one-tenth the cost of Iranian beluga.

One count of the three-count indictment in the Moghaddam case charges the defendant with unlicensed export of the paddlefish roe to Belgium in violation of the Lacey Act, 16 U.S.C. §§ 3371 et seq.. Section 3372(a)(1) of the Act prohibits the transport of any fish or wildlife in violation of an U.S. treaty. Article IV of CITES requires member states to prohibit the unlicensed export of items listed on Appendix II of the treaty. And paddlefish are listed on Appendix II of CITES.

A second count charged Moghaddam with falsely labeling the paddlefish roe on export documents in violation of section 3372(d). According to the indictment, Moghaddam labeled the paddlefish row as bowfiin roe, amia calva (the scientific name for bowfin) and mia calva (a misspelling of amia calva). The false labeling, in addition to constituting a separate count, also provides evidence that the defendant was perfectly aware that his export required a license.

A review of the docket in the case provides no clear view of Moghaddam’s defenses against the charges. Most seem to have been procedural and directed at a third count of the indictment which charged Moghaddam with conspiracy to violate the export provisions of the Lacey Act. A motion to dismiss filed by the defense alleged that the indictment failed to provide sufficient details regarding the co-conspirators and the defendant’s alleged overt acts with these co-conspirators. I couldn’t determine what defenses Moghaddam offered with respect to the attempted export and false labelling charges. Perhaps he argued that the exports really were bowfin roe. Whatever he argued, the jury didn’t buy it.

Last week, the Bureau of Industry and Security (“BIS”) used section 744.11 of the Export Administration Regulations for a second time to designate sixteen more entities to the Entity List for activities by these entities that could be contrary to the national security or foreign policy interests of the United States. The first round of designations under the section occurred on September 22, 2008. The effect of the designations in this instance is to require a license for all exports to the designated entities and to adopt a policy of denial for all such license requests.

Nine of the newly-designated entities are located in Iran. Since exports to these entities in Iran are already prohibited these new designations are of limited utility except, I suppose, inasmuch as the designation would prohibit exports made to these entities when they are located outside Iran. Additionally, the designation order states that no license exceptions are available for exports to the newly-designated entities, which means that gifts and humanitarian donations to these entities that might otherwise be eligible for license exceptions are now not eligible for export under these exceptions.

The remaining designations are entities in Singapore and the United Kingdom, including Brian Douglas Woodford, a U.K citizen and his Singapore-based company, Monarch Aviation. Woodford’s wife Laura Wang-Woodford was arraigned in February in connection with aircraft parts allegedly exported by Monarch Aviation and the Woodfords to Iran. Brian Woodford is still at large although he does have a LinkedIn Profile up which indicates that he’s interested in “getting back in touch.” I suspect that the DOJ is also interested in getting in touch with him. In the meantime, he’s not getting any Christmas presents sent to him from the United States.

The final designation is as brief as it is vague and reads — in its entirety — as follows: “MCES, London, United Kingdom.” A Google search reveals three companies named MCES in London here, here, and here. So which one is it? Come on, guys, at least give us a hint.

ABOVE:A380 Cockpit

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The Bureau of Industry and Security (“BIS”) has asked for comment on a proposal to eliminate the de minimis rule, in certain instances, with respect to products classified under Category 7A of the Commerce Control List and controlled for missile technology (“MT”) reasons. The de minimis rule permits re-exports of foreign manufactured goods containing U.S. origin components when those components constitute only de minimis content, as defined by the rule, of the final product.

The concern which has prompted the proposed limitation is that the avionics and navigational items controlled by Category 7A for MT reasons might be diverted by foreign governments and be used for missile proliferation. The proposed rule excepts U.S.-origin components incorporated into “standard equipment in FAA (or national equivalent) certified civilian transport aircraft.” The reason for this exception is that in that case there is less likelihood of diversion because, in large part, it seems unlikely that foreign companies or governments would buy civilian aircraft simply to strip out the navigation and avionics in order to incorporate such items into a national missile program. In the case of aircraft components, however, the likelihood of diversion into missile programs is thought to be higher.

The proposed exception is not clearly explained by BIS, but I think it would work like this. If a U.S.-origin Category 7A item controlled for MT reasons is exported to be incorporated in an aircraft component, that component can’t then be re-exported to a third country even if it is to incorporated as standard equipment in an FAA-certified aircraft. However, if the U.S.-origin component is incorporated into the aircraft component and that component is incorporated as standard equipment in an FAA-certified civilian aircraft in the same country, then the de minimis rule would apply to exports of the aircraft.

Comments are requested on what impact this would have on, among other things, the decision by foreign manufacturers to use U.S. components and estimates of U.S. jobs that might be affected by the rule. The deadline for comments, which can be filed by email at [email protected], is January 20, 2009.