A criminal complaint was filed yesterday in federal court in Newark against Xu Bing, a Chinese national and resident of Nanjing, for attempted export of night vision equipment to China. Not surprisingly, the arrest was the result of a sting operation, one in which the undercover agents actually lured Mr. Xu to the United States.

The story told by the criminal complaint starts when someone named “Sherley” from the Everbright Science & Technology Company, Ltd. in Nanjing contacted an undercover operation indicating an interest in purchasing an AstroScope 9350XL Gen 3 image intensified designed for use with Canon XL-series videocameras. Sherley indicated that a previous exporter had applied for a license to ship the 9350XL to Everbright but nonetheless asked the undercover company to arrange export of the equipment to China.

Thereafter an elaborate dance between the undercover agents and Sherley appears to have commenced. Although Sherley’s original plan was to have the undercover company ship the equipment to China, she ultimately told the undercover company that that Everbright was willing to pre-pay for the equipment and take delivery in the United States. The undercovers kept Shirley interested, even though they were obviously refusing to ship the equipment. How they accomplished this feat isn’t revealed in the complaint.

Finally, Everbright prepaid for the equipment and Mr. Xu flew to the United States to pick it up. While meeting with the undercover agents, Mr. Xu admitted that he knew that the night vision equipment couldn’t be legally shipped to the United States. The next thing he knew he was being read his Miranda rights and wishing, no doubt, that he’d stayed at home in Nanjing.

Felipe Ramón Pérez Roque

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ExportLawBlog opposes, as most readers know, unilateral sanctions, including the Cuba sanctions. But the speech given yesterday by Felipe Ramón Pérez Roque, Cuba’s Foreign Minister, before the UN prior to the UN’s annual vote on a resolution condemning the U.S. embargo, didn’t do Cuba or other who oppose the embargo any favors.

The Minister’s speech, larded throughout with purple prose and hyperbole typical of the Castro regime, claims that the blockade is an “attempt to subdue the Cuban people through starvation and disease.” And, in what is probably this year’s most unwanted compliment, the Cuban Foreign Minister expressed his “solidarity” with Michael Moore and his on-going fight with OFAC over his trip to Cuba to film “Sicko.”

The Minister’s speech recounted a number of alleged effects of the embargo, but this one struck me in particular:

Cuban children cannot receive Sevorane, an inhalation anesthetic manufactured by the American company Abbott, which is the best product for children’s general anesthesia. We have to use lower-quality substitutes.

This, of course, sounds like bunch of hooey, since an inhalation anesthetic would certainly qualify as a medicine that could be exported under the Trade Sanctions Reform and Export Enhancement Act of 2000 (“TSRA”). But there is more to the story, it would seem, even if the story still remains a bunch of hooey.

Sevorane is the Canadian brand name for sevoflurane sold by Abbott Canada. That suggests that Abbott Canada, a foreign subsidiary of U.S.-based Abbott probably ran up against section 746.2(b)(3)(iii) of the Export Administration Regulations (“EAR”), which restricts exports by foreign subsidiaries owned or controlled by a U.S. parent. In the case of medicines, these exports are only allowed if the

transaction involves the export of foreign-produced medicines or medical devices incorporating U.S. origin parts, components or materials … .

If Sevorane was produced in the United States, which seems likely, then Abbott Canada couldn’t ship it to Cuba.

So why is the Foreign Minister’s anecdote still a bunch of hooey? Simple. Sevoflurane, which is sold as Sevorane in Canada, is sold as Ultane in the United States. This means that the very same inhalation anesthetic, albeit under a different name, could be shipped to Cuba under the provisions of TSRA.

Oh, and in case you were wondering, after the Foreign Minister’s speech, the U.N. passed — for the sixteenth year in a row — a resolution condemning the U.S. embargo of Cuba. Only Israel, the Marshall Islands and Palau voted with the U.S. to oppose the resolution. The resolution is unlikely to have any effect.

The Bureau of Industry and Security (“BIS”) just released the decision of an Administrative Law Judge recommending a 15-year denial of export privileges to Megatech Engineering, a Mumbai-based distributor of MTS Systems products, and three of its employees. At issue were unlicensed exports of two MTS Systems products to the Indira Gandhi Centre for Atomic Research {“IGCAR”), a company on BIS’s Entity List. Based on the ALJ’s recommendation, Megatech and the named employees have been added to the Denied Persons List.

Megatech and the individual respondents argued before the ALJ that they were duped by IGCAR which set up front companies and then diverted the exported products from those companies. The ALJ rejected this argument on two grounds.

First, the ALJ noted that the orders that were allegedly destined to the front companies were negotiated by Megatech with an individual that Megatech knew to be an employee of IGCAR. This wasn’t a red flag as much as it was a smoking gun.

Second, the ALJ noted that Megatech departed from its routine procedures with respect to the sales that were diverted to the IGCAR. Normally, MTS Sytems employees would travel to India for installation and final acceptance of products sold by Megatech to its customers in India. For the sales at issue, however, the Indian customer traveled to the United States for pre-shipment inspection, and MTS Systems trained a Megatech engineer to install the equipment and handle final acceptance in its stead. This change guaranteed that MTS Systems would not travel to India to discover that the front companies were not the final end user of the products.

Of course, the change in procedures should have been a red flag not only to Megatech but also to MTS Systems. So, not surprisingly, MTS Systems agreed in March 2006 to a $36,000 civil penalty. The charging documents against MTS Systems noted that an employee working on the exports at issue sent an email stating that “all kinds of flags are being raised here.” Those “flags” weren’t specified, but chief among them had to be the change in routine installation and acceptance procedures.

The State Department is apparently upset that a Pratt & Whitney engine exported from Canada by Pratt & Whitney Canada, a Canadian subsidiary of United Technologies, wound up in the Chinese military’s Z-10 attack helicopter, pictured above.

State Department spokesman Karl Duckworth said information was being gathered before deciding whether to take any action. “We are reviewing the matter and have no further comments at this time,” he said.

According to P&W Canada, it received an export license in 2001 to ship 10 PT-6 engines to the Chinese. The PT-6, developed 40 years ago in Canada, is used in 25,000 civilian helicopters around the world.

So, the State Department may be upset, but where’s the beef? First, the State Department’s jurisdiction under the section 120.17 of the International Traffic in Arms Regulations extends only to exports of defense articles, including technology, from the United States. Unless the PT-6 engine shipped from P&W Canada contains U.S. technology, the State Department doesn’t have a hook to hang it’s annoyed hat on.

Second, the technology has to relate to a United States Munitions List (“USML”) item. Category VIII(b) of the USML only applies to engines for military helicopters. P&W Canada says that it shipped these engines for use on civil helicopters and that the Chinese, because of delays in developing engines for its military helicopters, subsequently decided to adapt the exported engines on the military helicopter.

Nobody, other than the Chinese, is particularly happy that the P&W engine wound up on the Z-10. But until the U.S. and other countries decide to restrict the sale of civilian aircraft engines to China, there’s nothing to be gained by threatening investigations against companies that legally exported the engines.