ExportLawBlog » 2011

Archive for October, 2011

Oct

13

Criminal Export Charges Settled with $1.25M Fine and 10-Year Denial Order

Posted by Clif Burns at 7:55 pm on October 13, 2011

Category: BIS • China

Iran Laptop New-York based electronics wholesaler Earlier this year we reported on an indictment against New-York based electronics wholesaler Sunrise Technologies and Trading Company (â€œST&TCâ€) and its president Jeng â€œJayâ€ Shih for exporting laptops to Iran by transshipping them through the UAE. Last Friday, the Department of Justice, along with officials of the Bureau of Industry and Security (“BIS”) and the Office of Foreign Assets Control (“OFAC”) announced that Shih and his company pleaded guilty to the export charges in exchange for an agreement to pay a $1.25 million criminal fine and to consent to a suspended 10-year export denial order. No jail time is contemplated by the plea agreement.

The suspended export denial order is contained in the BIS settlement documents. The suspension is conditioned on the defendants complying with the plea agreement, i.e., paying the $1.25 million fine, and on the defendants not committing any export violations during the 10-year period of the suspended denial order.

Although the judge could theoretically impose jail time during sentencing scheduled for January 13, 2012, that seems unlikely. The absence of jail time and the suspended denial order are unusual in cases like this. I can only speculate that the relative leniency of the penalty, particularly the absence of jail time, is due to a deficiency in the government’s case which I pointed out in my initial posting on the indictment. Although the government had evidence that Shih knew that the computers that he was shipping to the UAE were ultimately destined for Iran, he also said in conversations with the government’s informant that he believed his actions were legal because he was only exporting the items to the UAE. A criminal export violation requires knowledge by the defendant that his actions are illegal and it appears that was going to be difficult to prove here.

Obviously this is only speculation on my part and there may have been other factors involved in the lenient treatment of Mr. Shih and his company. Still, my speculation seems pretty reasonable in this case.

Permalink

Comments (3)

Oct

11

General License To Be Issued by OFAC for Food Exports to Iran and Sudan

Posted by Clif Burns at 8:52 pm on October 11, 2011

Food A Federal Register notice is scheduled to be published tomorrow in which the Office of Foreign Assets Control (“OFAC”) announces the issuance of a general license for the export of food to Iran and Sudan. Previously, although the Trade Sanctions Reform and Export Enhancement Act of 2000 (“TSRA”) authorized the export of agricultural products, medicine and medical devices to Iran and Sudan, those exports required specific one-year licenses from OFAC. The general license does not cover sales to military or law enforcement purchasers.

The general license specifically covers “food” which is a subset of agricultural products. The new rules will define food as

items that are intended to be consumed by and provide nutrition to humans or animals … ,
including vitamins and minerals, food additives and supplements, and bottled drinking water, and seeds that germinate into items that are intended to be consumed by and provide nutrition to humans or animals.

Items that are agricultural products but not food will still require licenses.

The rules make some specific exceptions to the definition of food, including, not surprisingly, castor beans. Thriller enthusiasts and news junkies will understand this exception: castor beans are used to manufacture the highly powerful poison ricin (although Iran can easily grow castor beans or import them from other countries other than the United States.) Also excluded are Rosary/Jequirity peas, the source of ricin’s more potent cousin abrin, which although more powerful than ricin is not known, according to the CDC, to have been weaponized or used in terrorist attacks.

My favorite part of the new rule is the exclusion of alcoholic beverages from the general license for Iran. I have not figured out whether this exclusion is made from ignorance, Puritanism or a desire by OFAC to enforce Islamic law. It should probably come as no surprise to anyone with even a passing acquaintance with Iran or Islam that alcoholic beverages are illegal in Iran and that people trying to import them into Iran are subject to being shot or sentenced to prison.

UPDATE: This post has been updated to correct a mistake I made in reading the new rule which does in fact permit export under general license of food to the Government of Iran and to purchasers outside Iran for export to Iran. My apologies for any confusion.

Permalink

Comments (2)

Oct

5

Just Because It’s Not Double Jeopardy Doesn’t Mean It’s Fair

Posted by Clif Burns at 9:15 pm on October 5, 2011

Category: BIS • Iran Sanctions • OFAC

ABOVE: Flowserve HQ

The Bureau of Industry and Security (“BIS”) announced on Monday that Texas-based manufacturer Flowserve agreed to pay $2.5 million to settle charges that the company and its foreign affiliates to settle BIS’s allegation of 288 violations of the Export Administration Regulations, including exports of items to Iran, Syria and other sanctioned countries. What makes this a particularly hard kick in the nether regions by BIS is that Flowserve voluntarily disclosed these violations. I suppose this is considered leniency by BIS because it could have fined Flowserve $72 million dollars.

The BIS settlement with Flowserve GB Ltd. (“Flowserve UK”), Flowserve’s British subsidiary, which is one of the dozen Flowserve settlements posted by BIS on its electronic FOIA page, is particularly instructive. Two of the counts against Flowserve GB relate to Flowserve products which Flowserve UK ordered from the U.S. and then transshipped to Iran:

Pursuant to Section 560.204 of the [Iranian Transaction Regulations], maintained by the Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), an export to a third country intended for transshipment to Iran is a transaction subject to the ITR and requires OFAC authorization. Pursuant to Section 746.7 of the [Export Administration] Regulations, no person may engage in the exportation of an item subject to both the Regulations and the ITR without authorization from OFAC. No OFAC authorization was obtained for the exports described herein. In so doing, Flowserve UK committed two violations of section 764.2(b) of the Regulations.

The problem with this, at least in terms of simple fairness, is that OFAC, which administers the ITR had already extracted a fine from Flowserve for this very violation of OFAC’s own regulations. When Congress upped the possible fines for export violations to $250,000, it is quite clear that it had no idea that the export agencies would engage in such piling on and that neither of the agencies made clear to Congress that they intended to engage in such behavior.

Permalink

Comments (1)

Oct

3

Supreme Court Refuses to Hear Roth Appeal

Posted by Clif Burns at 5:41 pm on October 3, 2011

Category: Criminal Penalties • ITAR • USML

ABOVE: Professor Reece Roth

The Supreme Court term began today — today being the first Monday in October — and it got right to work by denying the certiorari petition of Professor of Professor J. Reece Roth, a professor emeritus at the University of Tennessee who had been convicted of violating the Arms Export Control Act (â€œAECAâ€). The conviction was based on, among other things, Professor Roth permitting access by a foreign graduate student to technical data relating to an Air Force military drone project. In January of this year, the Sixth Circuit dismissed Professor Roth’s appeal, which makes this pretty much the end of the road for Professor Roth.

Roth’s petition for certiorari argued that the Sixth Circuit was incorrect in its finding that the wilfulness element necessary for a conviction under the Arms Export Control Act did not require a finding that Professor Roth knew that the technology in question was on the United States Munitions List. The Sixth Circuit instead held that the standard was satisfied if Professor Roth knew that his conduct was unlawful without regard to any specific knowledge he might have relating to the USML.

Roth’s petition for certiorari relied on the Eighth Circuit’s decision in United States v. Gregg, 829 F.2d 1430, 1437 & n.14 (8th Cir. 1987) which appeared to hold that a conviction required a finding that the defendant knew the exported item was on the USML. The United States government, in its brief opposing Professor Roth’s petition for certiorari, argued that the decision in the Gregg case, although it cited a jury instruction requiring that the defendant knew the export item was on the USML, did not hold that the conviction would have been reversed if the jury instruction had not referenced the USML and had simply required knowledge by the defendant that the conduct was unlawful.

Permalink

Comments (6)