Last week Lockheed-Martin agreed to pay $4 million in fines arising from (1) a proposal it made to the UAE for the sale of Hellfire missiles without providing prior notice of the proposal to the Directorate of Defense Trade Controls (“DDTC”); (2) technical data it transferred to UAE officials without a license in connection with that proposal; and (3) disclosure of classified information on the Joint Air-to-Surface Standoff Missile to foreign persons of a major non-NATO ally. The settlement agreement between DDTC and Lockheed-Martin provided that $1 million of that fine would be suspended provided that Lockheed-Martin undertakes certain prospective compliance activities.

The most interesting part of this settlement relates to the charge that Lockheed-Martin failed to provide prior notice to the DDTC of its proposal to the UAE regarding the Hellfire missiles. Section 126.8(a)(2) of the International Traffic in Arms Regulations (“ITAR”) provides that prior notice must be given to DDTC of any proposal to sell more than $14 million dollars of “significant military equipment” to a country other than one that is a NATO member, Australia, New Zealand or Japan, provided that a license for permanent export of the article has been previously granted or a Foreign Military Sale of the item has been previously approved. If no such license has been granted, or FMS sale approved, the proposal requires prior approval by DDTC.

The issue is usually what constitutes a “proposal.” Is a casual conversation at the Farnborough Air Show covered? Does the proposal have to be a binding contractual offer? Section 126.8(b) of the ITAR attempts to define a proposal, but raises more questions than it answers

The terms proposal or presentation … mean the communication of information in sufficient detail that the person communicating that information knows or should know that it would permit an intended purchaser to decide either to acquire the particular equipment in question … For example, a presentation which describes the equipment’s performance characteristics, price, and probable availability for delivery would require prior notification or approval, as appropriate, where the conditions specified in paragraph (a) of this section are met. By contrast, the following would not require prior notification or approval: Advertising or other reporting in a publication of general circulation; preliminary discussions to ascertain market potential; or merely calling attention to the fact that a company manufactures a particular item of significant military equipment.

By contrast, the proposal given by Lockheed seems short of one “which describes the equipment’s performance characteristics, price, and probable availability for delivery.” According to the Charging Letter:

[Lockheed-Martin] sent its first proposal to the UAE on June 11, 2003, specifically providing a planning estimate and quoting a price for 360 Hellfire Heat missiles and 100 Hellfire Blast Missiles.

The takeaway from this is, I think, that any written proposal that provides a price for the item to be exported should be considered a proposal subject to section 126.8 and that this proposal will require prior approval or notification if the other requirements of that section are met.

ABOVE: Tomoaki Iishiba

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Captain Tomoaki Iishiba, stationed at Fort Lewis in Washington State, has been charged in connection with his shipment of sixty EoTech 553 night-vision-compatible holographic rifle sights to Japan without obtaining the required export license. Prior to these charges, Captain Iishiba was best known as one of the technical consultants on a computer war game known as Metal Gear Solid.

The export classification of these sights is unclear. The one-count criminal information filed by the U.S. Attorney makes no attempt to provide an export classification for the items. If these sights are principally used on firearms listed on Category I of the USML then they would be classified as Category I(h) and require a license from the Department of State’s Directorate of Defense Trade Controls. The sights could also be covered by ECCN 0A987 which covers “optical sighting devices for firearms,” but this classification does not require a license in the case of shipments to Japan. So, we can probably safely assume that the government believes that the items are properly classified as USML Category I(h).

Notwithstanding the likely USML classification of the sights, the criminal information does not charge Iishiba under 22 U.S.C. § 2778(c), the criminal provision of the Arms Export Control Act. Rather the charge is conspiracy to violate 18 U.S.C. § 555, the overseas anti-smuggling provision added by the USA Patriot Improvement and Reauthorization Act of 2005.* That section provides as follows:

Whoever fraudulently or knowingly exports or sends from the United States, or attempts to export or send from the United States, any merchandise, article, or object contrary to any law or regulation of the United States, or receives, conceals, buys, sells, or in any manner facilitates the transportation, concealment, or sale of such merchandise, article or object, prior to exportation, knowing the same to be intended for exportation contrary to any law or regulation of the United States, shall be fined under this title, imprisoned not more than 10 years, or both.

Significantly, the criminal information doesn’t allege that Iishiba knew that it was illegal to export the sights. Rather it only alleges that he “knowingly exported” the rifle sights. Now the reason to charge under 18 U.S.C. § 555 rather than Arms Export Control Act, 22 U.S.C. § 2778(h), seems clear: the prosecution is trying to avoid the scienter requirement of the later statute.

Section 127.1 of the International Traffic in Arms Regulations is violated by an unlicensed export of a defense article whether or not the violator was aware that the export required a license. And it would appear that the prosecution is reading the anti-smuggling provision to require only a knowing export that violates a regulation without a scienter requirement. Whether a court will support this reading of the new provision remains to be seen.

*The provision was enacted as 18 U.S.C. § 554, even though there was already a § 554, and it was later recodified as § 555. The information, however, continues to cite the provision as 18 U.S.C. § 554.

New-Jersey-based Advanced Orientation Systems entered into a settlement agreement with the Bureau of Industry and Security (“BIS”) pursuant to which it agreed to pay a $31,500 to settle charges that it shipped 11 “tiltometers” to Mayrow General Trading Company in August 2006. BIS agreed to waive $16,500 of this penalty if AOS committed no further export violations for one year. Exports to Mayrow General Trading Company without a BIS license are prohibited under BIS’s General Order No. 3.

AOS appears to be a relatively small company and not an experienced exporter, so it’s not surprising that it was unaware of the prohibitions of General Order No. 3, and there is no allegation in the charging documents that AOS was engaged in an intentional violation of BIS rules. Indeed, General Order No. 3 was promulgated by BIS in June 2006, only two months prior to the exports in question. This probably accounts for the relatively small fine agreed to by BIS.

One humorous aspect of the charging papers is that BIS continually insists on referring to the exported equipment as “tiltometers,” even though there is no such thing as a “tiltometer.” Maybe they were thinking about Tilt ‘O Wheels or something.

The correct term is an “inclination sensor,” which is the term used by AOS on its own website. A quick Google search of “tiltometer” would have revealed that this term refers only to a digital camera project by some English computer geeks who hung some plumb weights and protractors from a camera and to an Internet test, part of the Texas Information Literacy Tutorial about the best way to research certain questions. I guess the folks at BIS still don’t have access to the Internet.