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Archive for June, 2012

Jun

27

BIS Introduces an Export Version of Drunk Driving School

Posted by Clif Burns at 8:50 pm on June 27, 2012

The Bureau of Industry and Security (“BIS”) recently released documents relating to the settlement of charges against a California man, York Yuan Chang, in connection with alleged unlicensed technology exports by Chang to the 24th Research Institute of the China Electronics Technology Corporation, which — in case you were wondering — is in China. The exports at issue related to the design of certain analog to digital converters controlled by ECCN 3E001. Pursuant to the settlement agreement, Chang agreed to pay a $300,000 fine and submit to a 12-year export denial order.

All but $50,000 of the fine was suspended on condition that that Chang committed no further export violations during a two-year probationary period. The twelve year denial order was also suspended upon several conditions, including timely payment of the $50,000 fine and compliance with the terms of his plea agreement in a related criminal prosecution. More significantly, because I haven’t seen this condition applied previously, the suspension of the denial order was also conditioned upon Chang’s attendance at, and completion of, an export compliance training course within twelve months. The settlement agreement also contained language prohibiting Chang from making any public statements denying the allegations in the proposed charging letter or the BIS order implementing the settlement agreement.

Only one count was charged. That single count resulted in a fine in excess of the normal $250,000 per count penalty because the transaction was valued at $1 million which permits the imposition of a fine equal to twice the value of the transaction.

A review of the docket (PACER subscription required) in the criminal case revealed a few other interesting things about this case. First, it appears that a Foreign Intelligence Surveillance Act (“FISA”) warrant was used to obtain evidence against Chang. That explains, no doubt, the extraordinary detail presented in the BIS charging documents relating to the telephone conversations between Chang and persons employed by the 24th Research Institute. These conversations apparently contained an admission by Chang that he was aware that the analog to digital conversion technology at issue was export controlled. Additionally, Chang’s plea agreement is sealed and no sentence has been imposed yet. This suggests, along with the FISA warrant, that a broader investigation is involved and that Chang’s cooperation in that investigation is an essential part of the plea deal.

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Jun

26

Best. Office. Name. Ever. Really.

Posted by Clif Burns at 9:40 pm on June 26, 2012

F-16 Two criminal informations (which you can find here and here) have been filed in the United States District Court for the Southern District of Florida charging Alberto Pichardo, an officer of the Venezuelan Air Force, and others with violation of the Arms Export Control Act in connection with alleged unlicensed exports of F-16 parts and other military aircraft parts from the United States to the Venezuelan Air Force.

Judging from a news report on the charges as well as the two dockets, it appears that Pichardo has decamped the United States prior to the charges. There is no indication in the docket that an arrest has been made. It is probably safe to assume that Pichardo is not coming back to the United States voluntarily in the future at this point and that an extradition request with the Venezuelan courts will not be favorably received. The charging documents also name Freddy Arguelles, a former pilot of the Venezuelan Air Force (also no longer in Florida), as well as Victor Brown, a Hialeah Gardens aircraft parts trader, as co-defendants. Kirk Drellich of SkyHigh Accessories, Inc., located in Davie, Florida, was named as a co-conspirator but not charged in the documents that have been filed so far. (SkyHigh advertises on its website that it is “fully export compliant.”)

But the most interesting detail in the charging papers, and the reason for the post title, is this: Pichardo “was responsible for the oversight and control of the Venezuelan Military Acquisitions Office in Doral, Florida.” That’s right. In 2009 and 2010, the time period of the exports in question, there was a “Venezuelan Military Acquisitions Office” openly operating in Doral, Florida. The U.S. arms embargo against Venezuela had been in place since August 2006.

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Jun

22

Stupid Quote of the Day

Posted by Clif Burns at 2:00 pm on June 22, 2012

Category: BIS • Iran Sanctions • OFAC

Red Penalty Card Ahem. Here is what Nahal Iravani-Sami, president of the Iranian American Bar Association, has to say about whether retail clerks at Apple Store should sell items to customers even if it is disclosed they plan on illegally exporting those items to sanctioned countries:

“The responsibility for enforcement should fall on border patrol, law enforcement, the U.S. post office, customs — government agencies.” As it is, the law “promotes dishonesty and invites profiling. When you come down to it, it’s absurd.”

So, folks, it’s time to take that portion on red flags out of your export compliance program. Just let Customs worry about it. After all, that’s their job, not yours.

What’s even more amazing is that Ms. Irvani-Sami is a prosecutor. I wonder if she would say the same thing about selling a weapon to somebody who said he was going to use it to rob a bank? Make the sale! Don’t worry about stopping the bank robbery. That, after all, is what the police are for.

I’m quoted with Ms. Irvani-Sami in the above-linked article at MSNBC on shopping while Iranian at Apple. As you can see from what I said there, I am certainly aware of the conflicting interests involved and the need to balance export enforcement with human rights laws and local anti-discrimination provisions. Even so, just saying “leave it to Customs,” as Ms. Irvani-Sami does, is remarkably foolish.

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Jun

20

New Jersey Jumps on Iran Sanctions Bandwagon

Posted by Clif Burns at 11:33 pm on June 20, 2012

Category: Iran Sanctions • OFAC

New Jersey State Capitol Building A committee of the New Jersey state senate and a committee of the state assembly both recently approved legislation that would prohibit the state from entering into contracts with companies that do business in Iran. I recently posted on Florida’s efforts to do the same thing and expressed considerable doubt that Florida’s statute could survive judicial review based on the Supreme Court decision in Crosby v. National Foreign Trade Council, 530 U.S. 363 (2000), which held that a similar Massachusetts law that penalized companies doing business with Burma was preempted by federal law.

The proposed New Jersey law, however, is somewhat different and may have a better chance of surviving an inevitable judicial attack. Section 202 of the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 — or CISADA for any acronymophiles out there — explicitly permits state and local governments to impose certain limited sanctions on Iran. The initial draft of the Bill was quite broad and penalized a broad range of activities in Iran, including making an investment in any amount in the “energy, financial or construction sectors of Iran.” However, before being approved by the two New Jersey legislative committees, the proposed law was amended to limit those activities which are permitted under CISADA to be a predicate for state and local sanctions, namely to an investment of $20 million or more in Iran’s energy sector.

Bringing the law within the statutory confines of state sanctions laws permitted by CISADA would certainly seem to shield the law from a challenge that the state law was preempted by federal law. Whether it shields it from a constitutional attack that it is an impermissible foray by a state government into U.S. foreign policy matters is a different question.

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Jun

19

If You Speak Farsi, Well, You Can’t Have an iPhone

Posted by Clif Burns at 7:40 pm on June 19, 2012

Category: BIS • Iran Sanctions

Sometimes, believe it or not, export compliance efforts might be a bit overzealous and lead to other problems. Several readers brought to my attention this story at the Consumerist website suggesting that Apple Store employees in Georgia were refusing to sell iPads and other coveted Apple goodies to customers who spoke Farsi on the grounds that such sales would violate the U.S. embargo against Iran. Now, leaving aside the entire issue of how an Apple Store “genius” in Georgia is going to recognize that someone is speaking Farsi (as opposed to say, Pashto, or even, this being Georgia, French), this would seem to be a little problematic. In one case, the rebuffed customer was an American of Iranian descent who was speaking Farsi with her uncle.

A second case, however, was a bit more problematic. It involved an Iranian student properly in the United States on a student visa who wanted to buy an iPhone. The writer at the Consumerist, naturally being an expert on export law, quickly disposed of this issue.

In the second case, of the man here on a student visa, you might be able to make that argument, though it’s really just the exporting of goods to Iran â€” and not the sale of items to Iranians in the U.S. â€” that is embargoed.

Well, we must give the Consumerist guy some points for effort, but the issue is just a little more complicated than that. First, you can’t sell anything to an Iranian in the United States if you have any reason to believe that the item might be exported back to Iran by the purchaser. In the case of an iPhone, which is probably locked to a U.S. carrier, the export of that item seems unlikely.

Second, you can’t forget about the “deemed export” rules which could forbid transfer of certain technology to Iranian citizens in the United States, even on a legitimate visa. (Does the name Dr. Roth ring a bell?) And in some instances, given that the Export Administration Regulations, make clear that “visual inspection” can be a technology transfer, there might be certain items that you can’t sell to Iranian citizens in the United States. However, iPads, iPhones and Airbooks, aren’t among those items.

The nice folks at Apple have a listing of ECCNs on their website. (Would that more companies would do that!) The iPad, iPhone and even the Mac Book Air, are all classified as 5A992. (None of them has the horsepower, apparently to fit under 4A994, which covers certain personal computing devices.) Now here’s where the analysis gets slightly tricky. ECCN 5E992 controls technology for the “use” of items controlled by 5A992. Would the manual for these devices, or even the visual inspection of these devices, provide information about the “use” of the devices? If so, their sales to an Iranian citizen in the U.S. on a visa would require a license.

The reason it doesn’t is because of BIS’s rather odd definition of “use.” I’ll let BIS speak for itself on this point:

Keep in mind that the deemed export rule does not regulate the operation of controlled equipment. Rather, it is a release to a foreign national of export-controlled â€œuseâ€ technology that may have deemed export licensing implications, and â€œuseâ€ technology includes all of the attributes of â€œuseâ€ as defined in the EAR Part 772 (i.e., operation, installation, maintenance, repair, refurbishing and overhaul). If the foreign national has access only to the technology that is necessary to operate the export controlled equipment, a release of â€œuseâ€ technology has not occurred and no deemed export license requirement is triggered.

So since neither the manual or visual inspection of the Apple stuff will help the purchaser repair, refurbish or overhaul those items, Apple is free to sell them away to Iranians in the United States unless, of course, it has reason to believe that the Iranian is going to ship the goods back to Iran or take them back to Iran upon the visa-holders return.

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