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Archive for April, 2009

Apr

20

Canada Prosecutes Export Violation; Sun Sets in East

Posted by Clif Burns at 5:29 pm on April 20, 2009

Royal Canadian Mounty The lede in the Globe and Mail story says it all:

MILTON, ONT., TORONTO — In a case that police say is without precedent, an Iranian-Canadian has been charged with trying to export technology that could have helped Tehran get the nuclear bomb it so desperately seeks.

Yes, even the Mounties admit that it is rare from them to catch someone violating the export laws and even rarer for them to prosecute them.

A 35-year-old Canadian man in Toronto, Mahmoud Yadegari, was accused of attempting to ship 10 pressure transducers to Iran. These devices are claimed to be useful in the enrichment of uranium.

The Mounties were tipped off by Setra Systems, the Massachusetts-based manufacturer of the device, after Setra received Yadegari’s order. They told the Mounties that this was an unusual purchase from an unknown purchaser in Canada. (Of course, instead of shipping the goods and calling the cops, Setra arguably should have never shipped the goods under these circumstances.)

George Webb, a Canadian counter-proliferation official, explained to the Globe and Mail why export prosecutions are so rare in Canada, and the explanation is definitely not pretty:

[Webb said] that 25 similar seizures were made in Canada last year – but these cases were never made public, as no one was ever arrested.

Canada has recently intercepted “isolation chambers, isotope splitters – everything from soup to nuts,” said Mr. Webb …. But no one could peer past the webs of domestic front companies and foreign intrigues to find the perpetrators.

[Webb said] the new case is unique, as it is the first time his officials have managed to hand over such an investigation to the Mounties for prosecution. And the perpetrators behind last year’s 25 seized shipments, the ones that didn’t result in publicity or arrests? “We don’t even know who they are,” Mr. Webb said.

This only makes sense if Canadian shippers take international packages from unknown shippers who pay cash, something that seems, well, unlikely. Otherwise, you’d think that a Mounty or two could get off their ponies long enough to figure out who in fact was shipping nuclear technology out of Canada rather than just wringing their hands about domestic front-companies and foreign intrigues.

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Apr

16

More States Get into the Sanctions Business

Posted by Clif Burns at 8:36 pm on April 16, 2009

Category: General

Iranian proliferation According to an article today in the Abu Dhabi daily The National, more than 20 states in the United States have passed laws, or have legislation pending, to require state pension funds to divest stocks of companies doing business in Iran. Although the laws appear to be modeled after similar divestment laws directed at apartheid-era South Africa, they also appear to fly in the face of Crosby v. National Foreign Trade Council, the U.S. Supreme Court opinion, issued in 2000, which struck down similar sanctions that Massachusetts attempted to impose on Burma.

Although I’ve heard some suggest that state divestment laws may be distinguishable from the Massachusetts law thrown out in Crosby, I don’t think that a valid distinction is possible. The Massachusetts law prohibited the state from contracting with companies that did business with Burma. Justice Souter’s opinion, which held that the Massachusetts law was pre-empted by the federal sanctions against Burma, emphasized that “state statute penalizes some private action that the federal Act (as administered by the President) may allow.” In particular, the Massachusetts act penalized past investments whereas the federal law reached only new investments made after the passage of the law. Additionally, the Massachusetts law penalized foreign companies with investments in Burma, whereas the federal sanctions were only directed at U.S. companies.

State divestment statutes are indirect in the same sense that the invalidated Massachusetts statute was. In other words, although they don’t forbid trade with the sanctioned country, they impose penalties on those that do. And the state Iranian divestment statutes are similarly broader than the federal sanctions by targeting foreign subsidiaries of U.S. companies, and foreign companies, which may in certain instances do business in Iran under the federal sanctions.

The only hope for the survival of some of these state-level economic sanctions is the Iran Sanctions Enabling Act of 2009 introduced by Rep. Barney Frank (D – Mass). The law would require the federal government to publish a list of all companies, domestic and foreign, with investments of more than $20 million in the Iranian energy sector. The law would also authorize, but not require, divestment by state and local governments and educational institutions in companies on the list. The likelihood of the proposed bill passing, however, may be limited given the Obama administration’s reported offer to freeze additional sanctions on Iran if Iran suspends nuclear development work and joins talks over the future of its program.

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Apr

15

More Bars in More Places (Except Havana)

Posted by Clif Burns at 9:17 pm on April 15, 2009

Category: Cuba Sanctions

Servicio Telefonica title= There has been a fair amount of publicity regarding the Obama administration’s recent action rolling back Bush administration policies on family remittances and travel to Cuba. The much less discussed communications provision of the action have been touted by some as potentially opening up a number of opportunities for U.S. companies seeking to provide telecom service in and to Cuba. Under these provisions, the new administration is permitting U.S. companies to “enter into agreements to establish fiber-optic cable and satellite telecommunications facilities linking the United States and Cuba” as well as to enter into roaming agreements for cell phone usage in Cuba.

To be understood, however, this action needs to be put into some historical context as comprehensively described in this paper published by the Columbia Business School’s Virtual Institute of Information. When the Cuban embargo was imposed in 1962, this effectively froze the development of telecommunications links between the United States and Cuba, which at that time consisted of a submarine cable with a capacity to carry 130 calls and a tropospheric radio channel with a capacity of 79 calls. OFAC allowed the operation of these telecommunications channels to continue despite the embargo under a grandfather clause but prohibited upgrading these channels and forbidding payment of settlement payments to Cuba. (Settlement payments are those payments made by a carrier to a foreign carrier for connecting the incoming international call to its domestic subscribers.)

When the cable wore out in 1987, OFAC authorized its replacement, but only with the oldest cable available, which turned out to be some mothballed copper-cable with a capacity of 138 circuits. The antique cable was put down between West Palm Beach and Cojimar, Cuba at a cost of $8 million. Cuba refused to activate the cable until the U.S. met its demands for settlement payments for Cuba’s carriage of the local leg of calls originating in the U.S. and carried over the underwater cable. When Hurricane Andrew destroyed the Florida link of the troposphere channel, Cuba allowed a limited number of calls from the U.S. over ItalCable, Italy’s international carrier rather than allow the operation of the cable, which only went into operation several years later.

In the early 90s, the United States began to reconsider its telecommunications policy toward Cuba in large measure because it became easier for U.S. callers to Cuba to make those calls through Canada, bypassing AT&T and other U.S. carriers. As a result, the U.S. allowed carriers to make settlement payments to Cuba, an authority now codified in section 515.542 of the Cuban Assets Control Regulations. Section 515.542 of those regulations authorized transactions incident to the use of cable and satellite channels to provide telephone service to Cuba. As a result, U.S. telephone carriers can freely use existing satellite channels to provide telecom service to Cuba.

Indeed, the real barrier to building additional cable and communications facilities with Cuba may be economic more than regulatory. As an impoverished nation, telecommunications carriers may not see Cuba as a very attractive market. ATT’s response to the new policy was, to say the least, lukewarm:

AT&T spokesman Michael Coe said the [West Palm Beach-Cojimar] cable is no longer in operation, and the company connects calls to the island through third-party carriers. As for roaming agreements and direct connections to Cuba, the company has no plans yet.

“We’re certainly going to study the administration’s proposal,” Coe said.

Further liberalization of U.S. telecom policy toward Cuba is certainly laudable, but, at least for the moment, it’s not clear that the liberalization will have much practical effect.

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Apr

14

DDTC Asks NSC For Guidance on Foreign National Rules

Posted by Clif Burns at 10:06 pm on April 14, 2009

Category: BIS • DDTC • Deemed Exports

NSC Meeting During the Ford Administration An article (paid subscription required) in this week’s Washington Tariff & Trade Letter reports that at the Defense Trade Advisory Group (“DTAG”) meeting held on April 7, Frank Ruggiero, the Deputy Assistant Secretary of the Directorate of Defense Trade Controls (“DDTC”) announced that the agency had asked the National Security Council to review the treatment of foreign nationals under U.S. export laws. The DDTC request was sent at the end of March, but there is no current timetable for its consideration by the NSC inasmuch as the Obama administration is still putting together and organizing the new NSC.

At issue is the difference between the way the Bureau of Industry and Security (“BIS”) and DDTC treat foreign nationals with respect to approving transfer of controlled technical data to them. For example, DDTC may use the country of birth of a foreign national to deny licenses or agreements involving transfer of technical data to that individual. BIS, on the other hand, considers the individual’s current citizenship in evaluating his or her ability to receive controlled technical data regarding dual use items.

DDTC’s policy of considering country of birth has created some concern within the export community because it has been applied inconsistently and without any clear statement of applicable guidelines. In some formulations, it appears that the DDTC would automatically apply the policy to bar access to technical data by persons born in, but not citizens of, countries subject to arms embargos under section 126.1 of the International Traffic in Arms Regulations. At other times, DDTC has suggested that a case-by-case consideration would be applicable to foreign nationals born in proscribed countries, an approach that makes more sense when you consider situations such as a child of French diplomats born in China.

The policy has also drawn criticism from abroad. Human rights commissions in Canada and Australia have pointed out that the DDTC’s policy is, in effect, an illegal discrimination based on national origin. This has put U.S. contractors doing business in those countries in a difficult position since it is impossible for them to comply both with DDTC requirements and local laws.

Although a review of these issues for the purposes of achieving uniformity is laudable, DDTC’s motive in requesting that review is somewhat hard to determine. On the one hand, perhaps DDTC is looking for administrative cover to back away from its stricter rule and provide some relief from U.S. defense contractors with overseas operations. On the other hand, DDTC might simply be seeking to have its own narrower view imposed on BIS and other export agencies.

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Apr

10

Email: A Prosecutor’s Best Friend

Posted by Clif Burns at 7:32 am on April 10, 2009

Category: BIS • China • Criminal Penalties

ABOVE: Everjet HQ, allegedly

According to a Department of Justice press release, a federal grand jury indicted a California man and two of his companies — Fushine Technology, Inc., a California corporation, and Everjet Science and Technology Company, which is based in the PRC — for unlicensed exports of controlled microwave equipment to China.

Export prosecutions require proof that the defendant understood that the exports in question were illegal. Since there is often little dispute as to whether the exported item required a license or that a license was not obtained, this makes this scienter element the most important and interesting element of each case. Here the press release contains allegations that, if true, might go a long way towards showing the scienter element:

The indictment further alleges that the defendants knew about the licensing restrictions and specifically sought to circumvent them. The indictment quotes from an internal company e-mail in which an Everjet employee told a Fushine employee, â€œSince these products are a little bit sensitive, in case the maker ask you where the location of the end user is, please do not mention it is in China.â€ The indictment also quotes from another e-mail in which Lu advises a subordinate to pretend that the intended end-user for an item is in Singapore rather than China.

It seems to me that recent press releases, instead of merely focusing on the allegedly grave impact of the particular export on national security, have begun to provide much more information revealing the prosecution’s case for its claims that the exporter knew the export was illegal. And often the case revolves around emails sent to and from the exporter. Back in the days when exporters and their foreign customers communicated mostly by telex finding such proof was no doubt more difficult. But now the evidence may come, as allegedly it did in this case, wrapped up in a little gift package with a nice decorative bow on top and a subject line reading “Don’t tell anybody this chip is going to China.”

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