It’s not often that we get to talk about horse meat at Export Law Blog, but that’s exactly what we’ll be talking about today. Yesterday, the Supreme Court denied certiorari in Cavel International v. Madigan, leaving in place a decision of the Seventh Circuit Court of Appeals upholding the constitutionality of an Illinois statue which, among other things, banned the export of horse meat for human consumption.

Now you should see why we’re serving up a platter of filet de cheval, sauce au poivre vert. Normally a state law banning a foreign export of any product (horse meat included) would raise serious questions under the U.S. Constitution’s Commerce Clause.

So why did the Supreme Court let the decision upholding the Illinois statute stand? Because Judge Posner, who wrote the opinion for the Seventh Circuit, deftly avoided the constitutionality of the anti-export provisions under the Illinois law.

The Illinois law banned the slaughter of horses for human consumption and banned the export of horse meat for human consumption. In the case before the Seventh Circuit, the plaintiff was a horse slaughterhouse and not an exporter. (Foreign exports were handled, apparently, solely by the middlemen.) So the plaintiff only had standing to challenge the anti-slaughter provision, not the anti-export provision, and the Seventh Circuit, therefore, had no occasion to decide whether the anti-export provision of the Illinois statute was unconstitutional, although there’s plenty in Judge Posner’s decision to suggest that the court had problems with the anti-export provision.

Although I don’t agree with everything in the the erudite Judge Posner’s opinion, it’s a fascinating and entertaining read, vividly written and argued, and it’s probably the only opinion of a federal appeals court (or any other court, for that matter) with a picture of a lion in a Texas zoo eating a “birthday cake” made of horse meat and decorated with whipped cream icing and a carrot candle.

Miami-based Andes Chemical Corp., which exports a variety of chemicals to the Caribbean as well as to Central and South America, was earlier this year named “Exporter of the Year” in the “Materials” Category by Commercial News USA, the “official export promotion magazine of the U.S. Department of Commerce.” Not very long after that, Andes entered into a settlement agreement with the Department of Commerce’s Bureau of Industry and Security (“BIS”) pursuant to which Andes admitted that it had exported sodium bifluoride, a precursor of sarin gas, to Jamaica without a license. Andes further agreed to pay a $60,000 for the six unlicensed shipments which occurred between May 2003 and July 2007. The company voluntarily disclosed the violations to BIS.

Sodium bifluoride is used as a souring agent by commercial laundries, in various sanitation and cleaning applications, and for tin plating and zinc galvanizing. And it can be used as the source of the fluorine atom in sarin and all other G-type nerve agents except tabun.

The chemical is categorized as ECCN 1C350.d.16 and it is clearly listed in the index to the Commerce Control List. It doesn’t take any specialized knowledge in chemical engineering to parse the CCL and the ECCN involved. So the only explanation for the failure to procure a license is that the company never even bothered to determine the export status of sodium bifluoride before exporting it.

The press release announcing the award to Andes states:

Winners were chosen based on the total number of documented export deals completed in 2006, total percentage increase in sales in 2006 compared to 2005, exports as percentage of total sales, the company’s commitment to exporting, the company’s commitment to customer service, and the company’s innovation and originality in marketing products or services.

Oddly, among the many factors considered in making the award, compliance with export laws and regulations is not among them, which explains how the company could be exporting a nerve gas precursor without a license and still be “Exporter of the Year.” Perhaps export compliance should be a factor considered by the Commerce Department when it makes the awards for 2009.

The export classification of recently-devised forms of non-lethal weaponry can be a tricky business, and nowhere more so than in the case of Long Range Acoustical Devices (“LRAD”). This interesting article in Der Spiegel Online states that the Bureau of Industry and Security (“BIS”) is considering adding LRADs to the Commerce Control List. What is apparently motivating the review of the LRAD is concerns that the Chinese, who have a number of LRADs manufactured by American Technology Corporation, may use them on human rights demonstrators during the Beijing Olympics.

The LRAD, according to the Der Spiegel article, was developed in the wake of the attack on the USS Cole in order to enforce exclusion zones around naval vessels. That would certainly seem to put the equipment in Category XI of the USML. American Technology Corporation argues otherwise:

But the American Technology Corp. (ATC) says the device is designed to “influence behavior and determine intent.” Robert Putnam, in charge of media and investor relations with the San Diego, California-based company, says it is “a directed sounds communications system, not a weapon.”

And the company’s website describes the ability of LRAD to communicate over long distances “with authority.”

But the device can also direct over long distances ear-splitting sounds that are painful and potentially dangerous to hearing. So it seems somewhat dicey to say that the device is just a long-distance communication device.

According to this article in The Times, Lloyd’s TSB expects to pay a £180 million fine, or about $350 million, to the Department of Treasury’s Office of Foreign Assets Control (“OFAC”) for transactions with companies and individuals in embargoed countries. No detail is given on the specific payments involved, but it’s reasonable to speculate that it involves a number of payments to Cuba and Iran given the size of the anticipated penalty. The anticipated £180 million fine outpaces the $80 million payment made by ABN Amro in 2005 and the $100 million fine paid by UBS to the Federal Reserve in 2004 for transactions with sanctioned countries.

The Times reporter, however, seems to have more or less made up her description of the applicable OFAC regulations rather than speaking with anyone who was actually familiar with them:

America banned banks from carrying out transactions in the US in dollars for people or businesses from the countries on its blacklist in the hope that this would starve terrorists of funding.

Er, no. Transactions in foreign currencies are covered as are transactions carried out by branches of U.S. companies outside the United States. Perhaps I shouldn’t be so critical since I’d probably have as much trouble with the rules of cricket as the Times reporter had with OFAC’s much more complex rules.

The Bureau of Industry and Security (“BIS”) recently released a settlement agreement pursuant to which Aviall Pte Ltd agreed to pay $3600 for violation of BIS’s antiboycott regulations. Aviall Pte Ltd. is a Singapore-based subsidiary of U.S.-based Aviall, Inc., which is, in turn, a wholly-owned subsidiary of Boeing.

According to the charging letter, Aviall Pte. received a purchase order in November 2002 from a customer in Bahrain with the following language:

9. ISRAELI BOYCOTT: In the case of overseas suppliers, this order is placed subject to the Suppliers being NOT on the Israeli Boycott list published by the Central Arab League.

Aviall fulfilled the order without deleting or otherwise taking exception to this condition in violation of section 760.2(a) of the Export Administration Regulations. Furthermore, and in violation of section 760.5 of the EAR, Aviall Pte. failed to report the boycott request to BIS.

This case is a good occasion to remind exporters and companies with foreign subsidiaries that the anti-boycott regulations apply fully and directly to controlled foreign subsidiaries of U.S. companies under sections 760.1(b) and 760.1(c) of the EAR. Under section 760.1(b)(1) a U.S. person includes a “controlled in fact” foreign subsidiary of a U.S. company. Section 760.1(c)(2) a company is “controlled in fact” if the U.S. company owns more than 50 percent of the stock of the foreign subsidiary or owns 25 percent or more of the stock of the foreign subsidiary if no other person owns or controls an equal or larger percentage of the foreign subsidiary. Here Aviall Pte. was a wholly-owned subsidiary of Aviall, Inc., which is a U.S. company incorporated in Delaware.

Although the fine here was relatively small, larger fines are a distinct possibility, meaning that U.S. companies should impress the need upon their foreign subsidiaries doing business in the Middle East to carefully read contracts for anti-boycott language, and to delete and report such language when found.