Archive for November, 2007


Nov

15

Maybe My Dog Ate the Service Copy


Posted by at 10:43 pm on November 15, 2007
Category: BIS

Daumier LawyersThe Bureau of Industry and Security (“BIS”) recently set aside a default judgment denying export privileges to S.P. Equipamentos de Protecao ao Trabalho Ltda (“SPE”), a Brazilian firm charged with violating U.S. export laws by re-exporting night vision equipment to Brazil’s State Secretariat of Civil Defense. The reasons given by Undersecretary Mancuso for setting aside the judgment suggest, at best, a simple mistake by BIS’s Office of Chief Counsel (“OCC”) and, at worst, a violation of BIS’s rules by the OCC. Somewhere in between is the possibility of some legal but unfair shenanigans by BIS’s lawyers.

According to Undersecretary Mancuso’s decision, a charging letter was sent to SPE on September 13, 2004, and received by SPE eleven days later. On February 7, 2005, counsel for SPE filed an appearance with BIS. On November 11, 2006, BIS filed a motion for default based on the failure of SPE to file an answer to the charging letter within 30 days as required by the Export Administration Regulations (“EAR”). On January 31, 2007, the BIS Administrative Law Judge entered a default judgment which was approved by BIS on February 26, 2007.

On September 7, 2007, Counsel for SPE filed motion to set aside the default judgment for good cause, arguing that it did not receive a copy from BIS’s counsel of the motion for default. The certificate of service for the default judgment, which is addressed only to BIS’s counsel, supports this claim of failure of service. Undersecretary Mancuso’s decision further states that there is evidence that for about a year prior to BIS’s filing of the motion for default, counsel for SPE and counsel for BIS “engaged in settlement negotiations” regarding these charges. BIS filed a response which did not oppose SPE’s claim that good cause existed to set aside the default.

The question here, of course, is why on earth did counsel for BIS fail to file the motion for default on SPE’s counsel with whom it had been negotiating the matter for a considerable period of time? Section 766.5 of the EAR governs service of papers other than the charging letter. It explicitly states that service must be made on “each party in the proceeding.” If a party is represented by counsel, service on such counsel constitutes service on the party.

Section 766.7 of the EAR governs default motions and states:

Failure of the respondent to file an answer within the time provided constitutes a waiver of the respondent’s right to appear and contest the allegations in the charging letter. In such event, the administrative law judge, on BIS’s motion and without further notice to the respondent, shall find the facts to be as alleged in the charging letter.

That rule says that the default judgment can be entered “without further notice,” but it doesn’t say, in my view, that the motion for default isn’t subject to the service rules provided in Section 766.5. Even supposing that it does, isn’t it a violation of Simple Decency and Fairness 101 not to mail a copy of such a motion to opposing counsel?

Perhaps it was a simple oversight by BIS’s lawyer, but it’s hard to imagine how that happened. In all events, however, BIS did what appears to be the right thing by setting aside a default judgment that was obtained through a motion that wasn’t served on the respondent’s counsel.

Permalink Comments (1)

Bookmark and Share


Copyright © 2007 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

Nov

14

No Cigar!


Posted by at 11:04 pm on November 14, 2007
Category: OFAC

Treasury on the MoneyThe Office of Foreign Assets Control (“OFAC”) yesterday released its monthly report on penalties imposed by the agency last month. And, for the first time since the invention of the Internet, no one got fined for buying Cohibas over the web. Instead, OFAC reports penalties relating to Sudan, Iran and Specially Designated Global Terrorists (“SDGTs”).

  • SKE Midwestern was fined $20,000 for brokering shipments between Sudan and Mexico between 2003 and 2005. The violation was not voluntarily disclosed.
  • Wachovia was fined $11,000 for rejecting, rather than blocking, one payment to a “Specifically [sic] Designated Global Terrorist” in 2004. The violation was voluntarily disclosed.
  • Rita Medical Systems was fined $2,750 for transactions between 2002 and 2003 by its predecessor company with Iran. The violation was not voluntarily disclosed.

Notice the interesting disparity between the violations that were voluntarily disclosed and those that weren’t. Wachovia voluntarily disclosed one rejected rather than blocked payment to an SDGT and got the maximum penalty for one violation, which in 2004 was $11,000. SKE and Rita made multiple shipments over a period of years and paid less than $11,000 per violation even though the violations were not voluntarily disclosed. OFAC has a good record of reducing penalties for voluntary disclosures, so it is not quite clear here why this didn’t happen for Wachovia.

Permalink Comments (2)

Bookmark and Share


Copyright © 2007 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

Nov

13

Nightmare on Compliance Street, Directed by BIS


Posted by at 11:32 pm on November 13, 2007
Category: BIS

Do Your Files Look Like This?If any company considering its first export transaction actually read and tried to understand the recordkeeping requirements of Part 762 of the Export Administration Regulations (“EAR”), it is unlikely that anything would ever be exported from the United States. And although enforcement actions by the Bureau of Industry and Security (“BIS”) which promulgated and enforces these regulations are rare, they are not non-existent as Hardinge, Inc., the New York-based manufacturer of milling, grinding, turning and workholding machinery learned the hard way. Well, not that hard. The company signed at the beginning of the month a Settlement Agreement pursuant to which it agreed to pay BIS $3,000 for failure to keep records relating to its export of “metalworking and/or machine tools” to Israel. There was no allegation by BIS that the exported equipment was subject to any licensing requirements.

The recordkeeping requirements of Part 762 are, to say the least, extensive. Section 762.2 states:

The records required to be retained under this part 762 include the following:
(1) Export control documents, as defined in part 772 of the EAR;
(2) Memoranda;
(3) Notes;
(4) Correspondence;
(5) Contracts;
(6) Invitations to bid;
(7) Books of account;
(8) Financial records;

Just let that sink in for a moment. Let’s say one of your company’s salespersons receives a call from an overseas customer and he jots down on a piece of paper “Company X wants us to quote prices to export three cases of peanut butter to the U.K.” If you ship the peanut butter, but don’t retain the original of that note, you’ve broken the rule.

The rule does permit copies to be retained under section 762.5 but only if you comply with an onerous set of restrictions relating to the copies, including making a copy of the “obverse and reverse”* sides of paper documents. You also have to keep a record of “where, when, by whom, and on what equipment” the document was copied. You don’t have to be a management consultant to figure out that this is simply not going to happen.

Section 762.4
describes a number of documents exempted from the broad recordkeeping requirements of section 762.2. But these exemptions don’t include the note I described or other “notes” or “memoranda” regarding the transaction.

Of course, the charging documents and the Settlement Agreement don’t tell the whole story. It’s doubtful that it was just a salesman’s note that was involved. Still, the BIS requirements are extremely broad and quite easy for even a legitimately concerned and compliant exporter to trip over.


*”Obverse” and “reverse” are terms that are normally applied to coins and paper currency. The corresponding words for book pages, prints and drawings are “recto” and “verso.” And the words used by ordinary people who haven’t spent three years in law school or too much time in government agencies are, of course, simply “front” and “back.”

Permalink Comments (1)

Bookmark and Share


Copyright © 2007 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

Nov

9

Federal Judge Tosses Export Prosecution After Trial


Posted by at 12:52 pm on November 9, 2007
Category: Arms ExportCriminal Penalties

Blackhawk HelicopterU.S. District Court Judge Inge P. Johnson, after a seven day bench trial, recently dismissed six felony charges against Alexander Latifi, a defense contractor from Huntsville, Alabama. The judge ruled that the prosecution failed to carry its burden of proof. Based on news accounts of the decision, it is likely that the judge’s decision was swayed by the revelation that the prosecution’s chief witness, a former employee of Latifi named Elizabeth Lemay, pleaded guilty to embezzling money from Latifi and admitted on the stand that before she left Latifi’s company she sabotaged company computers and destroyed the purchase order system.

Latifi’s company Axion had been awarded a contract by Sikorsky to produce a bifilar weight assembly which is used in a rotor in the steering system of the UH-60 Blackhawk helicopter. According to a report in the Huntsville News, Lemay testified that Lafiti needed to find a supplier for tungsten used in the weight assembly.

Eventually, Latifi contacted a man in California named Ming Hwong, the representative of a Chinese tungsten supplier, ECO-Tungsten, Lemay testified. Latifi and Ming Hwong traded numerous correspondence by e-mail and telephone, she said.

Then, an ECO-Tungsten representative named Ding Dong, entered the picture via e-mail and by telephone, Lemay testified. Eventually, Latifi ordered her to send technical drawings of the bifilar weight assembly to Ding Dong at ECO-Tungsten in China.

The defense claimed that Latifi never directed Lemay to send the drawings at issue and sought to impeach her testimony:

Latifi’s lawyer, Henry Froshin of Birmingham, engaged Lemay in a heated cross-examination about why she was lying about his client.

“Were you trying to cover up your own forgery and theft?” he asked.

“No,” she said.

According to Froshin and court records, Lemay pleaded guilty in 2005 to forging 15 Axion company checks totaling $12,730. Latifi fired Lemay on February 2004. A Madison County judge suspended a three-year prison sentence and placed her on probation for four years.

While she was stealing Axion’s money, Lemay was feeding information to federal agents, Froshin said.

She admitted that she did not tell federal agents about the theft. She also said she neglected to tell the grand jury.

And with those admissions I think we can safely say that Lemay and the prosecution’s case crashed and burned.

Defense counsel also told the Huntsville News that they opted for a bench trial rather than a jury trial because Latifi was born in Iran and, given the current state of relations between the United States and Iran, might not be favorably viewed by a jury.

Permalink Comments (2)

Bookmark and Share


Copyright © 2007 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

Nov

7

Better Late Than Never


Posted by at 6:30 pm on November 7, 2007
Category: General

Village in Southern SudanLast week, on October 31, the Office of Foreign Assets Control issued a final rule amending the Sudanese Sanctions to permit exports to the semi-autonomous region of Southern Sudan. These rules implemented Executive Order 13412 issued by the White House on October 13, 2006 which exempted Southern Sudan from the sanctions imposed on Sudan by Executive Order 13067.

Apparently because OFAC’s regulations weren’t revised for almost a year after Executive Order 13412 lifted the export ban for Southern Sudan, OFAC’s staff was insisting that licenses were still required for transactions in Southern Sudan and either weren’t granting them or were granting them after long delays. According to this wire report yesterday from Reuters:

Until now U.S. organisations have still had to go through long procedures with OFAC to get around the 1997 order. “To get an exemption from the comprehensive sanctions imposed in November 1997 was virtually impossible,” added Sudan specialist Eric Reeves, who has been trying to set up schools in the south despite “extremely onerous” regulations. “In some fundamental sense only now have sanctions really been lifted on the south,” Reeves added. …

“It should have been clear from day one that the south would be exempted from the sanctions,” said Sudan expert John Prendergast, currently with the Enough Project. He said the period of confusion arose from what he called U.S. government ineptness.

An interesting anomaly persists in the new regulations. The amended regulations of added a new subsection (g) to the list of exempt transactions in 31 C.F.R. § 538.12 (formerly § 538.11). Subsection (g)(1) exempts transactions in the “Specified Areas of Sudan” which are defined to include large parts of Southern Sudan. However, section (g)(2) says that the exemption in (g)(1) doesn’t apply to food, medicine and medical devices. Apparently, as I read this, you could ship a ton of bricks to Southern Sudan without a license to Sudan, but to send food and life-saving medicines you still need to undergo the delay and expense of a license. That doesn’t seem to make a whole lot of sense, but I haven’t gone back to see if there is some legislative justification for this in either the Trade Sanctions Reform Act, which governs exports of agricultural products, medicine and medical devices, or in the initial legislation which led to Executive Order 13067.

Permalink Comments (4)

Bookmark and Share


Copyright © 2007 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)