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Archive for July, 2010

Jul

10

Cuba Travel Bill Loosens Export Restrictions, Advances to House Floor

Posted by Clif Burns at 1:04 pm on July 10, 2010

Visit Cuba On June 30, the Travel Restriction Reform and Export Enhancement Act was voted out of the House Agriculture Committee by a vote of 25 to 20. The Bill would completely lift the longstanding ban on travel by most Americans to Cuba. The next step for the Bill would be a vote by the entire House, although there is no way to predict when, and whether, that might occur

In addition, and not mentioned by most press coverage of the proposed bill, the proposed legislation contains two measures relating to exports of agricultural products, medicine and medical devices to Cuba under the Trade Sanctions Reform and Export Enhancement Act of 2000 (“TSRA”). The first would reverse a regulation by the Office of Foreign Assets Control (“OFAC”) that interpreted language in TSRA requiring “payment of cash in advance” to mean payment prior to the departure of the ship carrying the goods from its U.S. port. Under the new bill, payment could be made upon presentation of the negotiable bill of lading or other document of title or prior to the physical delivery of the goods in Cuba.

The proposed bill also changes the payment mechanism for TSRA goods shipped to Cuba. Currently, an intermediary bank outside Cuba must receive payments from a Cuban bank and then transmit that payment to the U.S. bank involved in the transaction. Under the new law, the payment funds can be transferred directly from the Cuban bank to the U.S. bank.

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Jul

9

Arms Export Charges Added to Mac Aviation Indictment

Posted by Clif Burns at 9:19 am on July 9, 2010

ABOVE: Thomas McGuinn

This blog previously reported on the indictment of three Irish residents — Tom McGuinn, his son Sean McGuinn, and Sean Byrne — and their company Mac Aviation for exports of helicopter engines from the United States to Iran. The defendants allegedly had the engines shipped from the United States to Mac Aviation in Ireland and then re-exported them to Iran.

Now comes news of a superseding indictment in that case with new charges against the defendants. Most significantly, the superseding indictment now alleges that the defendants bought F-5 canopy panels in the United States and then exported them to Iran. Based on these allegations, the superseding indictment adds for the first time counts for violating the Arms Export Control Act.

The significance here is that these charges may make it easier to extradite the defendants from Ireland because these exports violate current U.N. sanctions and would (at least presumably) violate Irish law, whereas the helicopter engine exports likely were legal under Irish law. The only problem here is that the F-5 canopy panel exports occurred in 2005. This was before U.N Security Council Resolution 1747 which imposed the international arms embargo on Iran in 2007.

The story told by the superseding indictment about how McGuinn and company got the canopy panels out of the U.S. is both interesting and a little unclear. McGuinn allegedly purchased the panels from a California company and told the company that the panels were going to the Nigerian Air Force. The California company naturally refused to sell the panels to McGuinn without an export license authorizing the panels to go to Nigeria. McGuinn then, according to the indictment, asked the California company to ship the panels to a representative of McGuinn’s freight forwarder in the United States, something the California company also declined to do without an export license. (Obviously, the California company had undergone good compliance training on export red flags!)

Now comes the interesting part. According to the indictment:

[D]efendant MAC AVIATION caused a representative of ABL freight, located in Compton, California, to remove all attached invoices from [the California company] from the F-5 forward canopy panels, and replace them with a Packing List and Proforma Invoice on defendant MAC AVIATION letterhead addressed to â€œMicroset Systems Sdn Bhd,â€ Free Commercial Zone, Southern Zone, Kuala Lumpur, Malaysia for three (3) Plastic Panels, Part Number 3-13204-01, Serial Numbers 2146, 2149, and 2150.

The packages were then shipped by ABL to Malaysia and, thereafter, McGuinn allegedly had them shipped on to Tehran.

It’s not clear who ABL is. Probably they are the California company’s freight forwarder. How MacGuinn got ABL to change the packing information and then ship the panels is even more unclear, although if that happened, my guess would be that some improper financial incentives to some ABL employee was involved. The panels had either been consigned to an ABL facility pending the licenses or the ABL employee had access to the California company’s parts warehouse. This part of the export scenario, if true, would also increase the likelihood of extradition from Ireland by strengthening the claims of U.S. jurisdiction over McGuinn who, it would appear, engaged in substantial activities in the United States in order to avoid the U.S. requirement for an export license.

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Jul

7

Mr. Gaillard Not So Gaillard Now

Posted by Clif Burns at 10:19 pm on July 7, 2010

Category: BIS • Criminal Penalties • Cuba Sanctions • Iran Sanctions

ABOVE: Oyster Bay Pump Works

Patrick Gaillard, president of Oyster Bay Pump Works, a producer of automated liquid dispensing laboratory equipment, recently signed a consent agreement with the Bureau of Industry and Security (“BIS”) under which he agreed to a three-year denial order and a $300,000 fine, $275,000 of which was suspended for one year provided that he commits no further export violations. According to the charging documents, Gaillard shipped laboratory equipment made by his company to Cuba and Iran by transshipping the equipment through Germany and the U.A.E.

Back in 2007. Gaillard pleaded guilty to criminal charges arising out of one of these exports and was sentenced to 30 days in prison, a $25,000 criminal fine, three years of probation, and a $300 special assessment. And, apparently, as Mr. Gaillard walked out of prison after serving his time, there were his friends from BIS, who participated no doubt in the criminal investigation, waiting at the prison gate for a second bite at Mr. Gaillard’s apple. BIS is free to waive about the Supreme Court’s decision in Hudson v. United States, 522 U.S. 93 (1997), which held that subsequent administrative fines almost never violate the Double Jeopardy Clause, but that doesn’t make the double whammy fair or decent, particularly where BIS is knee deep in the criminal trial.

The charging documents also accuse Gaillard of “acting with knowledge,” but the facts supporting these charges don’t seem altogether consistent with that.

Gaillard had knowledge that violations of the regulations were occurring or were about and intended to occur because Gaillard knew of the U.S. embargo of Iran and that the items could not be exported to Iran without U.S. Government authorization. In or around November 2005, a sales representative from an Iranian company approached Gaillard for the sale and export of the items described above to Iran. When Gaillard declined, citing the U.S. embargo of exports to Iran, the sales representative arranged with Gaillard to have the items exported to the Iranian company’s trading arm in the U.A.E., from where the items would be transshipped to Iran.

This suggests that Gaillard may have held the common, but incorrect, belief that the Iran sanctions would not block an export to a country other than Iran. Once the item is in the foreign country, so the belief goes, it is the law of that foreign country which governs whether or not the item can be exported to Iran. If that is what Gaillard believed, it is hard to assert that Gaillard acted with knowledge that his actions were illegal even if his belief were incorrect.

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Jul

6

Malware Attack Targets Defense Exporters

Posted by Clif Burns at 8:52 pm on July 6, 2010

Category: General

Trojan Horse A multi-step attack targeting defense exporters was recently reported on Symantec’s security blog. This ploy first invaded one defense contractor’s network where it set up a directory on the system for fake press releases. The invaded network was then used to send emails from that network to employees of a second defense contractor. Those emails reported (falsely) that the CEO of the second defense contractor had been arrested for violations of the Export Administration Act and contained a link back to the fake press release directory on the first contractor’s website. Clicking that link would deliver the payload to the user’s computer.

Often these malware attacks originate outside the United States from people whose proficiency in English grammar and spelling is on the severely limited side, thereby providing the first clue that something is amiss. (If cybervillains could speak decent English, after all, they could probably get real jobs.)

The email with the payload link read as follows:

According to an official spokesperson of FBI, [name deleted], the CEO of [name deleted] had been detained for further investigation. The US government is accusing [name deleted] of vialating [sic] Export Administration Act. It is said that during 2001 and 2008 [name deleted] had been involved in several illegal technique exportation to Iran and North Korea. Click here for further information. [Link deleted.]

The missing “the” in front of “FBI” and “Export Administration Act” makes it sound like it was written by Natasha from Rocky and Bullwinkle and suggests a Slavic country as the origin. Read the email aloud in your best Natasha accent imitation and see if you don’t agree. My vote is for someone in Ukrussia as the culprit. (A friend of mine in the anti-malware business says that people in Ukraine and Russia are responsible for an alarmingly high number of malware attacks and has coined “Ukrussia” as a shorthand name for the two countries).

The lesson to be learned here is to think before you click. Look at an email, even from what appears to be a trusted source, with care for telltale signs that it was cooked up in Ukrussia and not in Rosslyn, Virginia. If you think that your competitor’s CEO may be headed for the hoosegow, try a Google News search rather than clicking an email link. And don’t forget that the recent large-scale invasion of defense networks by Chinese hackers relied on getting defense company employees to click on links in emails from people that they had met on Facebook and other social networks.

[Thanks to a reader for emailing a link to the Symantec article.]

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Jul

1

Export Reform: A Return to Original Intent?

Posted by Clif Burns at 9:50 pm on July 1, 2010

Category: Arms Export • Export Reform

ABOVE: Gen. James Jones

Yesterday’s post mentioned a speech given by National Security Advisor General James Jones to the Senate Aerospace Caucus. I’ve now had a chance to look at a text of his speech as prepared and noticed at least one part that may be of considerable interest to exporters.

General Jones begins his speech with, and mentions throughout, some significant changes that have occurred since our current export control regime was initially instituted. Most striking was his observation that when we first started controlling exports troops were moved around on trains and that, notwithstanding that military trains have gone the way of camels, horses and elephants as a mode of troop transport, “military railway trains” are still mentioned in USML Category VII.

More significantly, General Jones mentions this difference:

â€œSpecifically designed for military useâ€ â€“ a term still used in our munitions controls today â€“ meant what it says: items were intended only for military use having little or no civilian use.

My frisson of delight at that phrase — “‘specifically designed for military use’ meant what it says” — was probably counterbalanced by the grinch-like scowls it would have provoked at the Defense Technology Security Administration (“DTSA”).

The folks at DTSA have been the chief proponents at the Department of Defense for the notion that the phrase doesn’t mean what it says, that it instead means that an item, regardless of why it was designed, could be used for military purposes. DTSA has continued to champion that interpretation of “specifically designed” during the classification process even though it is so broad that virtually everything — from the flat panel TV in your living room to the toilet plunger in your bathroom — could be used for military purposes and therefore are properly classified as USML items.

Supplications to the deity of your choice that “specifically designed” is returned to its original meaning as part of the current export reform efforts would not be out of place.

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