Source: https://www.learnexportcompliance.com/blog/2005/
Timestamp: 2018-04-25 22:00:33
Document Index: 687371180

Matched Legal Cases: ['art 1', 'art 2', 'art 3', 'art 129', 'art 129', 'art 129', 'art 129']

2005 – Export Compliance Training Institute
Jurisdiction and Classification: Handling CJs, CCATS, Self-Determinations, and Creating JCA Systems
Exporting Under the NAFTA
The Essentials and Challenges of Exporting Firearms and Ammunition
HomeBlogAli Khan Be Fined $110,000
Ali Khan Be Fined $110,000
By: Scott Gearity
The Iran export violation hit parade continues with the settlement (pdf) between Ali Khan, CEO of Turboanalysis, Inc. and Turbo Technologies, LLC and BIS in the amount of $110,000. The settlement covers ten charges related to the alleged 2003 exports of aircraft parts classified 9A991 and worth over $1,000,000 to Iran via Malaysia and Singapore.
Now class, here’s your homework assignment. Compare and contrast the Iran-related settlements of Encore ($101,000 penalty for about $7,000 worth of EAR99 exports) and Khan ($110,000 penalty for over $1,000,000 of aircraft part exports subject to anti-terrorism controls). Explain how the BIS administrative penalty and mitigation guidelines apply to each case. Show your work.
Posted in Malaysia, Singapore, Violations & Fines
Medical Equipment Firm Pays Six Figures to Make the Pain Go Away
Encore Medical, L.P. of Tennessee has agreed to settle (pdf) charges of unlicensed exports of physical rehabilitation and chiropractic equipment to Iran for $101,000. This is quite a substantial penalty considering the innocuous nature of the EAR99-classified equipment and its value of a little over $7,000 when allegedly exported to Iran in 2000 via Australia. The charging letter came as an unpleasant lesson in successor liability for Encore Medical, which purchased the actual alleged exporter, Chattanooga Group, Inc., in 2002.
David Henley, vice president of business development for Encore, offered a refreshingly blunt explanation for why his employer decided to settle with BIS. “We agreed (to pay the fine) because it’s worth that much to eliminate a nuisance,” Mr. Henley said. “We make medical devices that are used for orthopedic rehabilitation. We certainly don’t make anything that is involved with what could be considered a weapon and we never knowingly shipped our products to Iran.”
Not that I would recommend his approach to clients whose priority is a constructive long-term relationship with US export control officialdom, but you’ve got to admire his chutzpah. You’ll get no paeans to the wisdom of federal government officials or the utility of the embargo on Iran from Mr. Henley, just a calculated business decision, served up cold.
South African Imprisoned for Illegal Nuclear-Related Exports
In an export enforcement case that has received more mass media attention than most, South African Asher Karni has been sentenced (pdf) to three years in prison for his role in exporting items controlled for nuclear non-proliferation reasons to India and Pakistan. The Israel-born Karni was the owner of Cape Town-based import-export firm Top-Cape Technology and arranged shipments of oscilloscopes and triggered spark gaps, in many cases diverting them via fronts in South Africa to evade Commerce Department licensing requirements.
For in depth reporting on this case, check out the website of the PBS Frontline/World program, which has extensive background, video, and documents related to the investigation. The are three main parts to the Frontline/World report (Part 1, Part 2, Part 3) as well pieces of the email exchange between Karni and his Pakistani interloper Humayun Kahn. (The transcript and audio (scroll down a bit) of reporter Mark Schapiro’s interview with Kahn are also available on pbs.org)
Also on the Frontline/World site and possibly most intriguing to BIS-watchers are the interviews with Acting Under Secretary for Industry and Security Peter Lichtenbaum and Special Agent John McKenna of the Office of Export Enforcement. Frontline/World rather accurately describes BIS as “an obscure government entity with a highly sensitive mission”. Look at this page on pbs.org (and scroll down to the bottom) to learn about Lichtenbaum’s “favorite” enforcement case and how a guy known to OEE only as “South African John” tipped off OEE to Karni’s crimes.
Brokering Befuddlement
In another apparent unannounced DDTC policy change, noted (pdf) by Cliff Burns and Bill Steinman of Powell Goldstein LLP, the US government is returning export license applications without action because of its broad interpretation of brokering regulations. Burns and Steinman begin their explanation as follows:
A number of companies that regularly apply for licenses to export defense articles controlled by the International Traffic in Arms Regulations (“ITAR”), promulgated under the U.S. Arms Export Control Act, have begun to report that license applications are being returned by the Department of State’s Directorate of Defense Trade Controls (“DDTC”). These applications are being returned because the DDTC suspects that an agent listed as a foreign consignee may be a broker who has not registered as required under Part 129. The DDTC has recently informally adopted an interpretation of Part 129 of the ITAR which, in most exporters’ views, widely expands the definition of brokers who are required to register with the DDTC. This new and more expansive definition has led to the increased returns of license applications.
Part 129 defines a broker as any person who, in return for a fee, acts as an agent for another in arranging sales of defense articles. Virtually all exporters of defense articles employ such local agents to assist in promoting and negotiating contracts with foreign governments and militaries. However, not all brokers are required to be registered with the DDTC. Under Part 129, only the following brokers are required to register: (a) U.S. persons wherever located and (b) foreign persons located in the United States “or otherwise subject to the jurisdiction of the United States.” It is the “otherwise subject to” language that is at the heart of the current debate.
Read the rest at www.pogolaw.com (pdf).
Posted in DDTC, Defense Trade Controls, Export License, ITAR, State Dept, USA Regulations
State Gives Freight Forwarders the Boot?
Ordinarily we strive to bring you only the most original reporting, thinly-supported gossip, and contemptible fear-mongering. But once in a blue moon someone beats us to the punch, as Carlos Rodriguez of the partially-eponymous law firm Rodriguez O’Donnell Ross Fuerst Gonzalez & Williams did in a recent dispatch. Excerpts are below, from the firm’s website.
…[A]s a result of an abrupt change of policy, the U.S. State Department’s Directorate of Defense Trade Controls (DDTC) will no longer approve export licenses for freight forwarders that have traditionally managed international shipments for American shippers of military technology.
…DDTC’s policy will only allow shippers to obtain export licenses for their own shipments regulated under the U.S. International Traffic in Arms Regulations (ITAR).
According to a recent letter from the DDTC, an applicant “must be the entity who is selling the defense article to the designated recipient foreign company, thus making an ‘export’ as defined by ITAR, Section 120.17.” This section of ITAR merely defines the term ‘export.’ It says nothing concerning the identity of the entity which can ‘make’ the export.
This sudden policy shift taken by DDTC will now probably force the previously reluctant U.S. suppliers to ship pursuant to their own licenses, and to change the terms of sale from “ex works” to whatever.
Also, these U.S. suppliers will now shift the logistics/forwarding function to their own forwarders/logistics companies. In short the policy shift has dictated the commercial structure of the transaction.
We think this governmental interference has no compensating regulatory benefit.
We would be interested in hearing from clients or others who can confirm this ostensible policy shift.
Posted in DDTC, Defense Trade Controls, Export License, ITAR, Shipping, State Dept
BIS Celebrates Australia Group Milestone with New Regulation
While most college-age Australians have nothing more to remember their birthdays than hangovers and bad sunburns, a rather more sober Australian twenty-year-old recently celebrated its first twenty years stemming the spread of chemical and biological weapons. I am speaking of course of the Australia Group, the informal multilateral export control regime which returned to its place of birth earlier this year for its twentieth annual plenary session. Speaking at the plenary, Australian Foreign Minister Alexander Downer recounted a bit of the organization’s history:
It is 20 years since Australia convened the first meeting of 15 like-minded countries in 1985 in Brussels.
That meeting was a response to the findings of a UN investigation, led by an Australian – Dr Peter Dunn, that Iraq had used chemical weapons in the Iran-Iraq war. It posed the question of how to prevent Iraq from acquiring materials for the production of chemical weapons through otherwise legitimate commercial trade.
The response – a proposal to harmonize national export controls – was endorsed by all present at that meeting, and the Australia Group was born.
But the plenary wasn’t all talk with the AG participants agreeing on three control list changes to refine limits on illegitimate trade in items with chemical or biological weapons end uses:
Simplification of the types of pumps subject to controls due to their usefulness in manufacturing chemical weapons (the US controls such equipment under ECCN 2B350.i).
New controls on spraying or fogging systems designed for use with aircraft or unmanned aerial vehicles (UAVs) and capable of delivering droplets of less than 50 m in diameter at a rate of greater than 2 liters per minute (ECCN 2B352).
A revision to the technical note clarifying that the controls applicable to genetic elements and genetically-modified organisms also cover nucleic acid sequences that represent a significant hazard to human, animal or plant health or enhance the ability of AG-controlled or other microorganisms to cause harm. (This change in particular has potentially significant implications for firms and universities involved in biotechnology research. The revised technical note can be found under ECCN 1C353).
It may have taken nearly four months, but the US Bureau of Industry and Security did finally turn up with a gift in honor of the AG’s first twenty years on August 5 – a regulation implementing the group’s new rules. In addition to the control list and technical note revisions explained above, the BIS rule updates the Export Administration Regulations to reflect a new AG participant (Ukraine), the fact that the tiny Pacific island nation of Niue has acceded to the Chemical Weapons Convention, and a new name for the largest part of the former Yugoslavia (Serbia and Montenegro).
Posted in Australia, Australia Group, Balkans, BIS, Chemical & Biological Weapons, Commerce Dept, EAR, Nonproliferation & Nuclear, USA Regulations
Filled to the BRIMT with Ballistic Missile End Uses
Sunford Trading, Ltd. of Hong Kong agreed to pay $33,000 to settle three BIS charges that it violated the EAR’s ballistic missile end use restrictions in supplying an industrial hot press to the Beijing Institute of Research and Materials (BRIMT) in China. BRIMT is an organizational component of the China Academy of Launch Vehicle Technology (CALT) which, according to the experts at the Nuclear Threat Initiative, is “China’s largest and most important organization for the research, development and production of space launch vehicles, liquid-fueled surface-to-surface missiles, and solid-fueled surface-to-surface and submarine-launched missiles.” In other words, Sunford supplied a Chinese government agency with equipment that will assist in making rockets which can lob nukes at the United States, among other applications.
Revamped Burmese Sanctions Regulations
On August 16, the Office of Foreign Assets Control reissued a thoroughly revised version of the Burmese Sanctions Regulations. OFAC says the extensive rewrite was needed in order to implement the Burmese Freedom and Democracy Act of 2003. One of the major provisions of the BFDA was to institute a ban on imports from Burma, a measure which remains in effect through today.
The revamped regulations do provide some important (and rather elementary) definitions, such as “exportation or reexportation of financial services to Burma” and “product of Burma”. They also codify a number of exemptions, including some for US citizens and diplomats in Burma and for certain humanitarian and publishing activities, some of which were previously permitted only under general licenses. It is also worth reminding our readers that OFAC’s sanctions on Burma remain somewhat less comprehensive than those applied to Cuba or Iran. For example, while imports and exports of financial services are generally banned, exports of goods and non-financial services are permitted, though exporters should proceed carefully to avoid transactions involving blocked property and the ban on new investment by US persons.
Posted in Burma/Myanmar, Finance & Banking, OFAC
Say Goodbye to SEDs, Mandatory AES Nearly Here
In what may truly be the most long-anticipated regulatory change in the export control arena, the Census Bureau is finally nearing its goal of mandating use of the Automated Export System (AES) in place of paper Shipper’s Export Declarations (SEDs) across-the-board. AES is already mandatory (since 2003) for the export of items on the United States Munitions List (USML) and the Commerce Control List (CCL), as well as rough diamonds subject to the Kimberly Process. In a February 17, 2005 notice of proposed rulemaking, Census reiterated its intent to extend the AES requirement to cover all exports from the US which currently require a SED. The threshold triggering the need for a SED under the current Census regulations – a value of more than $2,500 classified under an individual Schedule B or Harmonized Tariff Schedule (HTS) commodity classification code – remains unchanged. (After all these years, an adjustment for inflation would be nice.) Exports valued at less than $2,500, but which require either a license from Commerce or a license or license exemption from State will continue to require AES reporting (data submitted via AES is now called “Electronic Export Information” or EEI).
Census solicited feedback with their February proposed rule, which they received in spades from over forty different exporters, carriers, trade associations, and even other federal government agencies. For those seeking to understand every nuance, impact, and possible criticism of the Census proposal, the comments are an excellent resource. (Although, unfortunately, when Census scanned the comments into Adobe Acrobat files they did not turn on the optical character recognition feature which would have made it possible to easily locate references to particular words or phrases.) I particularly recommend the response offered by the Regulations and Procedures Technical Advisory Committee (pdf, RPTAC), which identifies numerous inconsistencies and ambiguities in the Census proposal, and the comments from US Customs and Border Protection (pdf, CBP) which argues that even the very limited exemptions from filing EEI provide an unacceptable loophole for bad actors to exploit. CBP wants all exemptions eliminated, including the sub-$2,500 exclusion.
Census is expected to issue a final rule as early as this month, which will most likely go into effect sometime around the first day of the new year.
Posted in AES, CBP, CCL, FTS/Census, SED
US to India: No NPT? No problem.
For three and a half decades now under the bargain struck between the Nuclear Non-Proliferation Treaty‘s (NPT) five acknowledged nuclear-weapons states (China, France, Russia, the United Kingdom, and the US) and its non-nuclear-weapon states has gone like this: in exchange for the non-nuclear-weapons states forgoing nuclear weapons, the nuclear weapons states agreed to provide them with peaceful civilian nuclear power technology, subject to safeguards agreements overseen by the International Atomic Energy Agency (IAEA). Since the treaty entered into force in 1970, it has become the most broadly accepted arms control agreement in history. Only three states never acceded to the NPT – India, Israel, and Pakistan. (Former member North Korea withdrew in 2003.) Consistent with its obligations under the NPT, the US has long subjected countries outside the treaty to the most strict nuclear nonproliferation export controls, represented on the Commerce Country Chart (pdf) by an “X” in the NP 2 column.
But when Indian Prime Minister Manmohan Singh bid farewell to Washington this past July after meeting with President Bush, he left with a huge prize. The United States had just committed to essentially rewrite the rules for trade in nuclear technology in favor of India, which of course continues to operate a nuclear weapons program external to the NPT. In his joint statement with Singh, Bush praised India as a “responsible state” with a “strong commitment to prevent WMD proliferation” and asserted that “India should acquire the same benefits and advantages as other such states”. To that end, the American president said he would “also seek agreement from Congress to adjust U.S. laws and policies, and the United States will work with friends and allies to adjust international regimes to enable full civil nuclear energy cooperation and trade with India”. In addition, the US committed “to remove certain Indian organizations from the Department of Commerce’s Entity List”.
The Bush Administration took the first concrete steps to implement its new stance toward India on August 30 when it published a final rule, amending the EAR effective immediately, which eases restrictions on exports and reexports to India of items controlled for unilateral nuclear nonproliferation reasons. The new regulation removes the “X” from beside India in Column NP 2 of the Commerce Country Chart and thereby eliminates several license requirements for exports and reexports to India, including those for the following items:
ECCN 1A290: depleted uranium
ECCN 1C298: graphite for non-nuclear end-uses
ECCNs 2A290, 2A291, 2A292, 2A293, 2B290, 2D290, 2E001, 2E002, 2E290: nuclear plant equipment and related software and technology
ECCNs 3A292 and 3E292: certain oscilloscopes and related technology
In addition, the Entity List is now that much shorter with the removal of the following Indian organizations:
Indian Space Research Organization (ISRO) Telemetry, Tracking and Command Network (ISTRAC)
ISRO Inertial Systems Unit (IISU), Thiruvananthapuram
ISRO Space Applications Center (SAC), Ahmadabad
Department of Atomic Energy (DAE) Tarapur (TAPS 1 & 2)
DAE Rajasthan (RAPS 1 & 2)
DAE Kundankulam 1 & 2 (this power plant, still under construction, was never explicitly named to the Entity List, but now that the Indian Government has agreed that it will be placed under IAEA safeguards once work is completed
In removing unilateral nuclear nonproliferation sanctions on India and reducing the number of that country’s organizations subject to the sanctions of the Entity List, the administration has now completed the two major steps toward its goal of a new nuclear relationship with India that it can accomplish entirely within the existing authority of the executive branch. As the Bush-Singh joint statement itself admits, further movement toward greater civilian nuclear cooperation will require the assent of the US Congress and the multilateral Nuclear Suppliers Group. The irony of the US seeking NSG acquiescence to increased nuclear technology transfers to India is especially rich when one considers the origins of that regime.
The NSG is a child of India’s 1974 nuclear test in the Thar Desert of Rajasthan, which spurred governments to take action to stem the export of nuclear materials and equipment to India and other states demonstrating a proliferation risk. In his testimony before the House Committee on International Relations earlier this month, Under Secretary for Arms Control and International Security Robert G. Joseph hinted that some US allies participating in the NSG might be amenable to the US proposals for full peaceful nuclear cooperation with India (he specifically mentioned the UK). Still, the NSG operates by consensus, so it will be interesting to see if a State Department office not recently known for its diplomatic achievements (current US ambassador to the United Nations John Bolton was Joseph’s predecessor) can win one for the home team.
Posted in BIS, Commerce Dept, Defense Trade Controls, EAR, Energy, India, Nonproliferation & Nuclear, NSG
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