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CISTEC – On the Revision of Japan’s Application of Export Controls to the Republic of Korea and Compliance of Japan’s Security Export Control Systems with WTO Rules

Posted on November 8, 2019

The following explanatory document by Powerpoint is the latest one of Nov. 1, 2019, which has comprehensively reflected the recent situations as well.

◎On the Revision of Japan’s Application of Export Controls to the Republic of Korea and Compliance of Japan’s Security Export Control Systems with WTO Rules（November 1, 2019) – http://www.cistec.or.jp/service/kankoku/191101-e.pdf 

The points of this explanatory document of Nov. 1, 2019 are as follows.

This latest document summarizes the results of CISTEC’s review from the standpoint of “a non-governmental organization specializing in export controls” regarding the revision of Japan’s application of export controls measures to Republic of Korea(ROK).

CISTEC has been supporting ROK for nearly 20 years since their development of export control systems and organizations, and has been researching the ROK’s export control system operations and publishing guidance books on these for industries every year. Therefore, we are fully aware of the differences between Japan’s in export control system operations and ROK’s ones.

Based on the above-mentioned understanding and knowledge as a professional export control organization, CISTEC has understood not only the backgrounds and purposes of the measures taken by the Japanese government on exports to ROK but also the reasons why ROK has misunderstood it.

Although ROK insists Japan’s measures are political ones as retaliation against the “forced labor” issue, Japan’s measures are not such political ones at all but they are faithful measures to the basic requirements of export control to identify end-use and end-users, and to prevent items being used for purposes other than the authorized purpose or for unauthorized reexports or for export circumvention.

However, since ROK has misunderstood and frequently criticized it both in ROK and abroad, it seems that the above-mentioned facts have not been precisely understood outside of Japan.

As ROK has admitted recently, it has been clarified there is no “damage” from the measures taken by the government of Japan. It is fruitless for ROK to repeat criticism against Japan regarding the export control measures and continue the tense relationship between Japan and ROK in spite of the above-mentioned facts of no damage. It is also an unfortunate story for South Korea itself to such situations are causing negative domestic impacts.

This explanatory document was prepared in order to promote accurate understanding of the above-mentioned facts and normalize the relationship. We do hope this document would contribute to the correct understanding of all of the parties who have interests in these issues.

If you have any questions, please feel free to contact us.

Thank you again for your various cooperation and we look forward to hearing from you.

Best regards,

Yasushi Tagami,
Deputy General Manager (International Affairs) of Research Department,
& Director of Center for International Cooperation on Security Export Control,
CISTEC (Center for Information on Security Trade Control)

Australia: The Defence export licence timeline

Posted on November 4, 2019

By Katherine Ziesing

Former Minister for Defence Christopher Pyne released the Defence Export Strategy in January 2018, which aims to make Australia one of the top ten global defence exporters within the next decade. News in the past month that Australia has dropped in Defence exports rankings since that announcement needs some context….

…While Defence does not publish detailed analysis of the applications received (for example the number of joint applications between industry and academia), high-level data can be accessed to get a high level overview of the data. These figures clearly show that 89 per cent of the applications that Defence receives are not complex. The remaining 11 per cent therefore are complex, and so take up much more time, not unlike complex programs in the acquisition/sustainment space….

Read more at https://www.australiandefence.com.au/news/the-defence-export-licence-timeline#D3B6XF0kjg135z05.99

CISTEC’s Explanation in English on Japan METI’s update of the legal application of export controls to South Korea

Posted on August 27, 2019

As you know, Japanese government METI published the update of the legal application of export controls to South Korea on July 1 and August 2.

On this subject there have been many medias’ articles, however, unfortunately, there are lots of articles which are totally wrong or incorrect under the serious misunderstanding of the above-mentioned Japanese update.

Therefore, although CISTEC, a non-profit and non-government organization, is not in charge of the above-mentioned update, we CISTEC have recently made and published the following 3 kinds of explanatory materials on the basis of the facts on our open websites in order to be able to resolve such misunderstanding and confusion.

◎CISTEC’s brief explanatory materials in English by Powerpoint slides:

◎CISTEC’s detailed explanatory materials in English:

○CISTEC’s Open Website in English

Notice to Exporters 2019/08: 3 open general licences updated
Posted on June 10, 2019

Three open general licences relating to Iraq, maritime anti-piracy and export of military goods after exhibition or demonstration have been updated.

Read more about this important news in Notice to Exporters 2019/08.

For general export control queries please contact our Helpline on 020 7215 4594 or exportcontrol.help@trade.gov.uk

What happens if I violate export controls in the UK? (Jan – Dec 2019)

Notice to exporters 2019/05: UK company fined more than £80,000 for illegal exports

Her Majesty’s Revenue and Customs (HMRC) recently issued a heavy penalty to a UK exporter.

Read more about this important news in Notice to Exporters 2019/05.

For general export control queries please contact our Helpline on 020 7215 4594 or exportcontrol.help@trade.gov.uk

Business Awareness Unit Export Control Joint Unit

What happens if I violate export controls in the USA? (Jan – Dec 2019)

Ghaddar Machinery Co., SAL, in Lebanon Agrees to Pay a $368,000 Civil Penalty to Settle EAR Violations

The US Department of Commerce’s Bureau of Industry and Security (BIS) has announced that Ghaddar Machinery Co., SAL, in Ghazieh, Sidon, Lebanon, has agreed to pay a US$368,000 civil penalty (five instalments of US$100,000 no later than 30 days from the date of the BIS Order; US$67,000 not later than May 1, 2020; US$67,000 not later than November 1, 2020; US$67,000 not later than May 1, 2021; and US$67,000 and not later than November 1, 2021) to settle charges that it committed 20 violations of EAR § 764.2(a) ( Engaging in prohibited conduct by re-exporting items subject to the EAR to Syria without the required BIS licenses). Specifically, on twenty (20) occasions between on or about January 23, 2014, and on or about September 20, 2016, as described in additional detail in the Schedule of Violationsto the Settlement Agreement, Ghaddar engaged in conduct prohibited by the EAR when it reexported generator sets, items subject to the EAR and worth approximately US$736,236 in total, from Lebanon to Syria without the required BIS reexport licenses. At all times pertinent to the transactions at issue, the generator sets were designated EAR99 under the EAR and controlled for reexport to Syria. The generator sets were assembled in Lebanon incorporating US-origin engines and were subject to the EAR when reexported to Syria because they contained more than 10% of controlled US-origin content. Click here for a copy of the Settlement Agreement and related documentation.

State/DDTC: AeroVironment Inc, of Simi Valley, CA, Agrees to $1 Million Fine and Corrective Actions to Settle AECA and ITAR Charges
(Source: DDTC Penalties & Oversight Agreements) [Excerpts.]

* Respondent: AeroVironment, 900 Innovators Way, Simi Valley, CA
* Charges: Ten violations of the AECA and ITAR, consisting of unauthorized export of defense articles, to include technical data; failure to properly maintain records involving ITAR-controlled transactions; and violations of the provisos, terms, and conditions of export authorizations.
* Civil Settlement: $1 million fine ($500,000 suspended if spent on corrective actions)
* Debarred or Suspended from Export Transactions: Not if penalty is paid and corrective actions are completed as agreed.
* Result of Voluntary Self-Disclosure: Yes (14 VDs)
* Date of Order: 19 Nov 2019
* Available documents:
– Proposed Charging Letter: HERE
– Consent Agreement: HERE
– Order: HERE
* Mitigating Factors:
– Voluntary disclosure of violations.
– Waiver of Statute of Limitations
– Respondent’s self-initiated comprehensive remedial compliance measures before and during the course of government review.
– Respondent’s responsiveness and cooperation with DDTC.
– No indication that Respondent’s violations caused harm to U.S. national security.
* Aggravating Factors:
(a) A systemic lack of authorization management and attention to provisos, terms & conditions of export authorizations;
(b) an unknown number of instances where Respondent failed to properly maintain records as required by the ITAR; and
(c) the involvement of Significant Military Equipment (SME).
* Required Corrective Actions (CAs): (Excerpts.)
– Retain a Special Compliance Officers who will report directly to DDTC: SCO for 1 year, followed by Internal SCO for 1 year
– Perform a comprehensive jurisdiction/classification review of products and services.
– Incorporate CAs upon acquisition of any new business entity engaged in ITAR-regulated activities.
– Notify DDTC 60 days before sale of any entity engaged in ITAR-regulated activities and inform purchaser of CA requirements.
– Ensure adequate resources are dedicated to ITAR compliance, including lines of authority, staffing increases, performance evaluations, career paths, promotions, and compensation.
– VP/General Counsel to brief Board annually re findings and recommendations of ISCO.
– Retain independent consultant to conduct comprehensive audit of ITAR-regulated business operations.

State/DDTC: “Darling Industries, Inc. Fined $400,000 to Settle Alleged AECA and ITAR Violations, Including Failure to Appoint a Qualified Empowered Official”

(Source: State/DDTC, 28 Feb 2019.)

Darling Industries, Inc., of 3749 N. Romero Road, Tucson, AZ, settled allegations that it violated the International Traffic in Arms Regulations (ITAR) in connection with unauthorized exports of defense articles; provision of defense services; and failure to appoint a qualified Empowered Official.

Summary

* Respondent: Darling Industries Inc., 3749 N. Romero Rd., Tucson, AZ 85705
* Charges: Six violations of the Arms Export Control Act (AECA), and the International Traffic in Arms Regulations (ITAR), for unauthorized exports; unauthorized defense services; and failure to appoint a qualified Empowered Official (EO), between 9 Feb 2012 and 3 Mar 2014.  A self-initiated compliance review described decades of systematic, reoccurring violations involving R.E. Darling’s manufacture and sale of ethylene propylene diene monomer compound (EPDM), a Kevlar-filled, raw material used as a missile case insulator and missile motor insulator, controlled under USML IV(h) and breathing hoses, controlled under USML VIII(h). EPDM is also designated on MTCR Annex, Category II- Item 3.  Specifically:
– Violation of ITAR § 127.1(a)(1) by unauthorized exports of defense articles and furnishing of defense services to Canada for the production of Black Brant rocket motors.
– Violation of ITAR § 127.1(a)(1) by unauthorized exports of Cat VIII(h) breathing hoses to the UK and Italy.

– Violation of ITAR § 127.1(b)(1) by appointing an unqualified EO who did not meet § 120.25 requirements. “R.E. Darling’s Empowered Official was not in a position of having authority for policy or management within R.E. Darling’s organization, as required by 22 CFR 120.25(a)(1).  Also, the Empowered Official did not understand the provisions and requirements of the various export statutes and regulations, as described in 22 CFR 120.25(a)(3).” Charging Letter, pp. 3-4.
* Civil Settlement: $400,000 ($200,000 will be suspended if penalty is paid and corrective actions are undertaken as agreed).
* Result of Voluntary Disclosure: Yes.
* Date of Order: 26 Feb 2019.
* Available documents: Proposed Charging Letter; Consent Agreement; Order.
* Mitigating Factors:
– Respondent submitted a Voluntary Disclosure.
– Respondent entered into an agreement with DDTC.
– Respondent instituted a number of self-initiated compliance program improvements.
* Aggravating Factors:
– Delayed disclosure (22 months after discovery of the violation).
* Corrective Actions (CAs) include:
– Incorporate CAs into any of future business acquisitions that are involved in AECA and ITAR-regulated activities.
– Notify DDTC 60 days before sale of any entity engaged in ITAR-regulated activities and inform purchaser of CA requirements.
– Ensure adequate resources are dedicated to ITAR compliance, including lines of authority, staffing increases, performance evaluations, and career paths.
– Appoint Internal Special Compliance Officer (ISCO) who will:
(1) Report directly to DDTC and to VP/GM;
(2) Conduct ITAR compliance review throughout ITAR-regulated business units;
(3) Oversee implementation of all compliance measures;
(4) Have authority to hire staff and outside consultants to assist.
(5) Review and verify export control jurisdictions and classifications.
(6) Perform, under supervision of ISCO, one audit by an outside consultant during the term of the Consent Agreement.

Commerce/BIS Denies Export Privileges to 8 Persons

(Source: Commerce/BIS, 29 Jan 2019.)

* Respondent (1): Alexander Fishenko of Three Rivers, TX

* Charges: Fishenko was convicted of violating the Internal Emergency Economic Powers Act (50 U.S.C. 1701, et seq. (2012)) and section 38 of the Arms Export Control Act (22 U.S.C. Part 2778 (2012)) (“AECA”). Specifically, Fishenko was convicted of knowingly and intentionally exporting from the U.S. to Russia microelectronics without the required U.S. Department of Commerce licenses. Fishenko was also convicted of knowingly, intentionally, and wilfully exporting from the U.S. to Russia power amplifiers designated as defense articles on the U.S. Munitions List, namely five TriQuint parts TGA2517, without the required U.S. Department of State licenses, in violation of the AECA. Fishenko was sentenced 120 months in prison, three years of supervised release, and a $1,900 assessment, and forfeited over $500,000 in criminal proceeds in the United States. Fishenko was also placed on the U.S. Department of State Debarred List.

* Debarred: 10 years from the date of Fishenko’s conviction.

* Date of Order: 31 Dec 2018.

* Respondent (2): Asim Fareed of Boca Raton, FL

* Charges:

– 15 C.F.R. Part 764.2(d) – Conspiracy.  Specifically, Fareed conspired to export a Humboldt Bending Beam Rheometer and a Humboldt Pressure Aging Vessel subject to the EAR from the United States to Iran, via the United Arab Emirates, without the required U.S. Government authorization.

* Penalty:

– Fareed shall provide two annual reports of all export and reexport transactions involving items subject to the EAR in which he participates in any way.

* Debarred: 3 years from the date of the order.

* Date of Order: 19 Dec 2018.

* Respondent (3): Eduard Roel Vazquez of Beaumont, TX

* Charges:

– Vazquez was convicted of violating section 38 of the Arms Export Control Act (22 U.S.C. Part 2778 (2012)). Specifically, knowingly and wilfully aided and abetted the export, and attempt to export, two 7.62x39mm rifles and a 5.56mm rifle, items designated as defense articles on the U.S. Munitions List, from the U.S. to Mexico, without the required U.S. Department of State licenses. Vazquez was sentenced 38 months in prison, three years of supervised release, and a $100 assessment.

* Debarred: 10 years from the date of the order.

* Date of Order: 31 Dec 2018.

* Respondent (4): Joel Prado, Jr. of Beaumont, TX

* Charges: Prado was convicted of violating section 38 of the Arms Export Control Act (22 U.S.C. Part 2778 (2012)). Specifically, conspired to knowingly and wilfully export and cause to export from the U.S. to Mexico .223 caliber rifles, items designated as defense articles on the U.S. Munitions List, without the required U.S. Department of State licenses. Prado was sentenced to 96 months in prison, three years of supervised release, and an assessment of $200.

* Debarred: 10 years from the date of respondent’s conviction.

* Date of Order: 31 Dec 2018.

* Respondent (5): Jose Jesus Campos-Flores of Bastrop, TX

* Charges: Campos-Flores was convicted of violating section 38 of the Arms Export Control Act (22 U.S.C. Part 2778 (2012)). Specifically, the respondent knowingly exported and attempted to export from the U.S. to Mexico firearms designated on the U.S. Munitions List, without the required U.S. Department of State licenses. Campos-Flores was sentenced to 36 months in prison, three years of supervised release, and a $100 assessment.

* Debarred: 7 years from the date of Campos-Flores’ conviction.

* Date of Order: 31 Dec 2018.

* Respondent (6): Shavkat Abdullaev of Philipsburg, PA

* Charges:

– Abdullaev was convicted of violating the Internal Emergency Economic Powers Act (50 U.S.C. 1701, et seq. (2012)). Specifically, Abdullaev was convicted of knowingly and intentionally exporting from the U.S. to Russia microelectronics without the required U.S. Department of Commerce licenses. Abdullaev was sentenced to 36 months in prison, two years of supervised release, and a $400 assessment.

* Debarred: 5 years from the date of the order.

* Date of Order: 31 Dec 2018.

* Respondent (7): Veronica Trujillo of Phoenix, AZ

* Charges:

– Trujillo violated section 38 of the Arms Export Control Act (22 U.S.C. Part 2778 (2012)). Specifically, Trujillo attempted to wilfully and knowingly export and cause to be exported from the U.S. to Mexico 2000 rounds of Wolf 7.62x39mm ammunition and 1,000 rounds of Wolf 9MM luger ammunition, items designated on the U.S. Munitions List, without the required U.S. State Department licenses. Trujillo was sentenced 46 months in prison, with credit for time served, three years of supervised release, and a $100 assessment. Trujillo was also placed on the U.S. Department of State Debarred List.

* Debarred: 7 years from the date of Trujillo’s conviction.

* Date of Order: 31 Dec 2018.

* Respondent (8): Folasade Omowanile of Brooklyn, NY

* Charges:

– Charge 1: 15 C.F.R. 764.2(b) – Causing, Aiding, or Abetting a Violation.  Specifically, respondent caused, aided and/or abetted one or more violations of the EAR in connection with the export of handcuffs and leg cuffs, subject to the EAR, to Nigeria. Respondent filed no Electronic Export Information (“EEI”) for the export of the items, nor was a license sought or obtained for export.

* Penalty: Civil penalty in the amount of $10,000.

* Debarred: 3 years from the date of this Order.

* Date of Order: 17 Jan 2019.

Commerce/BIS Fines Ithaca-based Company $80,000 for Engaging in Prohibited Conduct

(Source: Commerce/BIS, 29 Jan 2019.)

* Respondent: Multiwire Laboratories, Ltd. of Ithaca, NY

* Charges: BIS has notified the respondent of its intention to initiate an administrative proceeding pursuant to EAR Part 766.3. Specifically, BIS believes that Multiwire committed the following two violations:

– Charge 1-2: 15 C.F.R. Part 764.2(a): Engaging in Prohibited Conduct.  Specifically, Multiwire exported Real-Time Back Reflection Laue Camera Detectors and Accessories, designated EAR99, to the University of Electronic Science and Technology China in Chengdu, China, without the required BIS licenses. The Chinese entity was at all relevant times listed on the EAR’s Entity List. Multiwire did not have an export control compliance program.

* Penalty: Civil penalty of $80,000.

* Date of Order: 16 Jan 2019.

The Export Compliance Journal: “Florida-Based Business Man Handed Largest Civil Penalty in BIS History”

(Source: The Export Compliance Journal, 24 Jan 2018.)

Eric Baird, former CEO of the Sarasota-based package consolidation and shipping service Access USA Shipping, has agreed to pay $17M for willful violations of Bureau of Industry and Security (BIS) regulations.

The civil penalty is the largest to be paid by an individual in BIS history.

On December 18, 2018, Baird entered a guilty plea to 166 counts of U.S. export control laws administrative violations, stemming from Access USA intentionally misrepresenting values and descriptions of items on export documentation, and shipping items listed on the Commerce Control List (CCL) without the appropriate licenses. For example, the Federal Register lists at least once instance where laser sights were identified as “tools and hardware.”

In addition to his own willful export violations, Baird also caused, aided, or abetted Access USA employees, forwarders, and carriers to make false or misleading SED/AES filings with the U.S. Government, and, in some cases, failure to submit any filings for an export shipment.

Under Baird’s direction, employees of Access USA also purchased items for client using Baird’s personal credit card and their own personal cards. They were also instructed to have items delivered to their personal addresses for the express purpose of obscuring the intended recipient of the good purchased.

“Willfully and Intentionally”

Baird and other members of Access USA’s management were aware that their conduct constituted violations of export controls. They had previously received an outreach visit from the BIS’s Office of Export Enforcement, during which they were provided with detailed information related to complying with Export Administration Regulations (EAR), as well as the penalties for violating these regulations. Additionally, in an email to Baird relating to the company’s practice of intentionally undervaluing shipments, his sister, Access USA’s Chief Technology Officer, made it known to Baird that she was not willing to continue being part of the practice of “WILLINGLY AND INTENTIONALLY breaking the law.”

As part of his plea, Baird has been assessed a civil penalty of $17M, and faces a five-year suspension of his export privileges-including not being allowed to apply for export licenses, become involved in negotiations related to any transaction involving any export; or benefiting from any export transaction.

Baird is set to face sentencing on January 30, 2019, where it is expected he will be sentenced to two years of probation on a single criminal count.

UK Notice to Exporters on Fines and Penalties – issued 29th January 2019
Posted on January 30, 2019

Over the last 7 months, HM Revenue & Customs (HMRC) has issued compound penalties ranging between £1,000 and £4,000 to 3 separate UK Exporters. These related to unlicensed exports of dual use goods and export breaches controlled by The Export Control Order 2008.

Export control legislation is enforced by HMRC, working with the Crown Prosecution Service. Where appropriate, HMRC can use their powers to offer a compound penalty in lieu of prosecution.

2018 News Articles >>

What happens if I violate export controls in the USA? (January – December 2018)

Posted on December 19, 2018
Former Florida CEO Pleads Guilty To Export Violations And Agrees To Pay Record $17 Million To Department Of Commerce(Source: Justice, 14 Dec 2018.) [Excerpts.]

Eric Baird, the former owner and Chief Executive Offer (CEO) of a Florida-based package consolidation and shipping service, has pleaded guilty to one count of felony smuggling and admitted to 166 administrative violations of U.S. export control laws as part of a global settlement with the U.S. Department of Justice (DOJ) and the U.S. Department of Commerce’s Bureau of Industry and Security (BIS).

On December 12, 2018, Baird’s criminal plea was accepted by a federal judge in the U.S. District Court for the Middle District of Florida, and BIS issued an Order outlining the administrative violations and imposing civil penalties of $17 million, with $7 million suspended, and a 5-year denial of export privileges, of which one year is suspended.  The civil penalty is the largest to be paid by an individual in BIS history. In February 2017, Access USA settled with BIS and agreed to an administrative civil penalty of $27 million, with $17 million suspended.

As part of the administrative settlement, Baird admitted to violations of the Export Administration Regulations committed from August 1, 2011, through January 7, 2013, during his tenure as CEO of Access USA Shipping, LLC d/b/a MyUS.com (“Access USA”). Baird founded Access USA and developed its business model, which provided foreign customers with a U.S. address that they used to acquire U.S.-origin items for export without alerting U.S. merchants of the items’ intended destinations.  Under Baird’s direction, Access USA developed practices and policies which facilitated concealment from U.S. merchants.  Access USA would regularly change the values and descriptions of items on export documentation even where it knew the accurate value and nature of the items. Among the altered descriptions were some for controlled items listed on the Commerce Control List (CCL).  For example, laser sights for firearms were described as “tools and hardware,” and rifle scopes were described as “sporting goods” or “tools, hand tools.”

Additionally, Baird established and/or authorized Access USA’s “personal shopper” program.  As part of this program, Access USA employees purchased items for foreign customers from a shopping list while falsely presenting themselves to U.S. merchants as the domestic end-users of the items.  In some cases, Baird directed or authorized Access USA employees to use his personal credit card information, and in others Baird personally asked Access USA employees to apply for and use personal credit cards of their own to make such purchases and have the items sent to their personal addresses.  As a result, in addition to being misled to believe that a domestic customer and end-user was involved when the items were in fact intended for export, the U.S. merchant would be misled to believe that Access USA itself was not involved in the transaction.

The activities that Baird knowingly authorized and/or participated in resulted in unlicensed exports of controlled items to various countries, as well as repeated false statements on Automated Export System (AES) filings.  As early as September 2011, Baird was made aware that undervaluing violated U.S. export laws, including the EAR.  In fact, Baird received e-mails on this subject from his Chief Technology Officer, who stated, “I know we are WILLINGLY AND INTENTIONALLY breaking the law.”  (Emphasis in original).  In the same email chain, Baird suggested that Access USA could falsely reduce the value of items by 25% on export control documentation submitted to the U.S. government and if “warned by [the U.S.] government,” then the company “can stop ASAP.”

“It was through the outstanding investigative skills and dedication of the special agents of the Department of Commerce and the Department of Homeland Security, that enabled us to protect our country’s national security by detecting, disrupting and prosecuting a complex illegal export scheme led by Access USA’s former owner and CEO, Eric Baird.  The message must be received that individuals, as well as companies, are equally liable for their illegal activities,” said BIS Special Agent-in-Charge Robert Luzzi. “BIS brought this action because of the serious potential harm to national security inherent in a business model where companies consolidating or forwarding packages abroad conceal from U.S. merchants the location of foreign customers and the fact that items are intended for export. As a result of these deceptive practices, U.S. merchants’ compliance programs may be unable to detect potential unlicensed exports and other violations.”

“We expect companies and individuals to adhere to our nation’s strict import and export laws,” said U.S. Attorney Chapa Lopez. “Shipping and freight forwarding companies must take sufficient steps to ensure that they are always in compliance with United States law, in order to protect our borders and prevent potentially dangerous items from reaching the hands of our adversaries.”
Commerce/BIS: Spider Camera of Lansing, NY, to Pay $8,500 to Settle Alleged Export Violations(Source: Commerce/BIS, 11 Dec 2018.)* Respondent: Shai Gear LLC, d/b/a Spider Camera Holster, d/b/a Spider Camera of Lansing, NY (“Spider Camera”)

* Charges: Engaging in Prohibited Conduct (15 CFR Part 764.2(a)), specifically the respondent exported camera accessories to Iran via the United Arab Emirates without the required U.S. Government authorization.

* Penalty: Civil penalty of $8,500.

* Debarred: Not if penalty is paid as agreed.

* Date of Order: 10 Dec 2018.

Details: The US Department of Commerce’s Bureau of Industry and Security (BIS) has announced that Shai Gear LLC, d/b/a Spider Camera Holster and Spider Camera and located in Lansing, New York, has agreed to pay a civil penalty of US$8,500 to settle charges that it committed one violation of EAR § 764.2(a) (Engaging in Prohibited Contact). BIS charged that on or about July 5, 2017, Shai Gear exported camera accessories to Iran via the United Arab Emirates without the required US Government authorization. The camera accessories were subject to the Regulations, designated EAR99, and valued in total at approximately US$6,058.3 The items were subject to the Iranian Transactions and Sanctions Regulations (“ITSR”) administered by the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”). Absent prior authorization by OFAC, the ITSR prohibit, as they did at all times pertinent in this case, the exportation, re-exportation, sale, or supply, directly or indirectly, from the United States of any goods, technology, or services to Iran, including the exportation, re-exportation, sale, or supply of such items to a third country undertaken with knowledge or reason to know that the items were intended for supply, trans-shipment, or re-exportation, directly or indirectly, to Iran. See 31 C.F.R. § 560.204 (2017, 2018). Pursuant to EAR § 746.7, no person may export or reexport any item that is subject to the Regulations if such transaction is prohibited by the ITSR and has not been authorized by OFAC. See 15 C.F.R. § 746.7(e) (2018).
BIS Reaches Settlement with Mohawk Global Logistics Corp.
The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) has announced that Mohawk Global Logistics Corp. (f/k/a Mohawk Customs and Shipping Corp.) of North Syracuse, New York, has agreed to pay a civil penalty of $155,000 to settle charges that it committed thee violations of EAR § 764.2(b) (causing, aiding, or abetting a violation). BIS alleged:

  • Charge 1: On or about August 16, 2012, Mohawk caused, aided, and/or abetted a violation of the Export Administration Regulations, namely, the export of an LNP-20 Liquid Nitrogen Plant, an item subject to the Regulations, designated EAR99, and valued at $33,587. Mohawk forwarded the item for export from the United States to the All-Russian Scientific Research Institute of Experimental Physics (VNIIEF), a.k.a Russian Federal Nuclear Center-VNIIEF (RFNCVNIIEF) in Sarov, Russia. VNIIEF and its RFNC-VNIIEF alias (collectively, “VNIIEF”) were at all relevant times listed on the Entity List, Supplement No. 4 to Part 744 of the Regulations. A BIS license was at all relevant times required to export any item subject to the Regulations to VNIIEF. See 15 C.F.R. § 744.11 and Supp. No. 4 to 15 C.F.R. Part 744 (2012). Mohawk was at all relevant times aware of the Entity List and maintained a screening program designed to detect and prevent shipments to restricted parties. Mohawk compared the name of the ultimate consignee to entries on the Entity List using their screening software, which correctly identified VNIIEF as being listed on the Entity List and “flagged” the shipment. However, as Mohawk has acknowledged to BIS during this matter, a Mohawk export supervisor erroneously overrode or ignored this red flag and Mohawk proceeded without further inquiry or due diligence to forward the items for export on or about August 16, 2012. Mohawk prepared and filed Electronic Export Information (“EEi”) with the U.S. Government on or about that date indicating that the shipment was “NLR,” that is, “No License Required.”
  • Charges 2-3: On two separate occasions, on or about February 12, 2014, and on or about August 12, 2015, Mohawk caused, aided, and/or abetted a violation of the Regulations, namely, the export of Real-Time Back Reflection Laue Camera Detectors and Accessories, items subject to the Regulations, designated EAR99, and valued at $177,156, to the University of Electronic Science and Technology of China (“UESTC”) in Chengdu, People’s Republic of China, without the required BIS license. At all relevant times, UESTC was listed on the Entity List, and a BIS license was required to export any item subject to the Regulations to that entity. See 15 C.F.R. § 744.11 and Supp. No. 4 to 15 C.F.R. Part 744 (2014-2015). Mohawk provided freight forwarding services for the initial unlicensed export of these items to UESTC on or about February 12, 2014. Documents provided to Mohawk by the exporter clearly identified UESTC’s full name as it is listed on the Entity List, along with a near-exact match for the entity’s address. Mohawk used screening software in connection with this transaction, but failed to flag the transaction, assertedly because it failed to use UESTC’s full, unabbreviated name. Without further inquiry or due diligence, Mohawk proceeded with the transaction and prepared and filed EEi that falsely indicated the export was “NLR.” On the second occasion, on August 12, 2015, Mohawk caused, aided, and/or abetted the unlicensed export to UESTC of the same exact items, which had been returned to the U.S. manufacturer for warranty repair. Documents provided to Mohawk by the exporter again identified UESTC’s full name and a near-exact match for the entity’s address. For this second export, Mohawk failed to screen the transaction and proceeded to forward the item for export to UESTC. No EEi was filed in connection with this second export of the items to UESTC.

Mohawk is to pay the $155,000 civil penalty in three instalments as follows: $45,000 no later than September 15,2018; $45,000 no later than February 1, 2019; and $45,000 no later than June 15, 2019. Payment of the remaining $20,000 shall be suspended through December 15, 2019, and thereafter shall be waived, provided that during this payment probationary period: Mohawk has timely paid $135,000 to the Department of Commerce as set forth above; has otherwise complied with the provisions of the Agreement and this Order; and has committed no other violation of the Act or the Regulations or any order, license or authorization issued thereunder.
Commerce/BIS: “Merit Aerospace and Yanghong Zhou of Pasadena, CA, Denied Export Privileges for 4 Years, to Pay Civil Penalty of $221,000”  (Source: Commerce/BIS, 30 May 2018.) [Excerpts.]* Respondent: Merit Aerospace and Yanghong Zhou of Pasadena, CA.

* Charges:

– 15 CFR Part 764.2(g) – Mispresentation and concealment of facts

* Penalty:

– Civil penalty in the amount of $221,000

– Completion of two external audits

* Debarred: 4 years from the date of this order.

* Date of Order: 25 May 2018.
FLIR Systems Inc is fined US$30m for ITAR ViolationsThe US Department of State’s Directorate of Defense Trade Controls (DDTC) has entered into a Consent Agreement with FLIR Systems, Inc., to settle charges that it committed over 300 violations of the ITAR, including unauthorized export of defence articles, including: technical data; the unauthorized provision of defence services to various countries, including proscribed destinations; violation of the terms and conditions or other limitations of license authorizations; and failure to provide accurate and complete reporting pursuant to Part 130 of the ITAR involving sensitive thermal imaging systems. FLIR Systems agreed to pay a US$30m civil penalty (US$15m of which may be suspended if it implements the remedial compliance measures set forth in the Consent Agreement) and, among other measures, the appointment of a Special Compliance Official/Internal Special Compliance Official for four years.

BIS Settles Enforcement Case Against FedEx

The US Department of Commerce’s Bureau of Industry and Security (BIS) has announced that it has settled the following EAR enforcement case:
Federal Express Corporation d/b/a FedEx Express has agreed to pay a civil penalty of US$0.5m and complete external audits of its export controls compliance program cover FedEx fiscal years 2017-2020 to settle charges that it committed 53 violations of EAR § 764.2 (Causing, aiding, or abetting exports to entities on the Entity List without the required licenses). BIS alleged that on fifty-three occasions between on or about July 1, 2011, and on or about January 19, 2012, FedEx caused, aided or abetted acts prohibited by the Regulations when it facilitated the export of civil aircraft parts and equipment used for electron microscope manufacturing, items subject to the Regulations and classified under Export Control Classification Number (ECCN) 9A991 or 7A994 and controlled for Anti-Terrorism (“AT”) reasons, or designated as EAR99, 3 and valued in total at approximately $58,091, from the United States to Aerotechnic France SAS (“Aerotechnic”) in France, or to the Pakistan Institute for Nuclear Science and Technology (“PINSTECH”) in Pakistan, without the required BIS licenses.

BIS Settles Enforcement Case Against Weiming Zhang

The US Department of Commerce’s Bureau of Industry and Security (BIS) has announced that it has settled the following EAR enforcement case:
Weiming Zhang, a.k.a. John Zhang and Seasia Enterprises (USA), Inc. have jointly and severally agreed to pay a civil penalty of US$100,000 ($50,000 payable within 30 days and the payment of the remaining $50,000 suspended for five years and thereafter waived if the parties commit no further violations of the Order or the EAR) and denial of their export privileges for five years (suspended for a probationary period of five years and thereafter waived if the parties commit no further violations of the Order or the EAR) to settle charges that they committed one violation of EAR § 764.2(d) (Conspiracy to export items controlled for national security reasons from the United States to China without the required BIS licenses). Specifically, BIS alleged that Zhang/Seasia obtained electronic equipment from U.S. manufacturers, in what Zhang/Seasia made to appear to the U.S. manufacturers as domestic transactions. After Zhang/Seasia received the equipment at Seasia’s address in Huntington, New York, they exported the items while taking various additional actions designed to avoid export control scrutiny and detection by U.S. law enforcement, including, for example, concealing the type of equipment involved, its value, and/or ultimate destination. Zhang/Seasia used packaging that they deliberately re-labeled to identify falsely the items inside as, for example, low-value computer motherboards, which would not have required a BIS license to export to China. In addition, on at least one occasion, Zhang/Seasia did not export the equipment directly to China, but instead transshipped it to China via Hong Kong, while falsely stating or causing to be stated on export transaction documents that Hong Kong was the ultimate destination. Zhang/Seasia used Beijing Onsky Technologies, a.k.a. Beijing Lingtian, a Hong Kong company that, like Seasia, Zhang owned and controlled, to facilitate the transshipment of the equipment to China after it arrived in Hong Kong from the United States.
Commerce/BIS: Trilogy International Associates, Inc., of Altaville, CA, and William Michael Johnson of Angels Camp, CA, to Pay Each $100,000 for Export Violations(Source: Commerce/BIS, 1 Mar 2018.)

* Respondents:

– Trilogy International Associates, Inc., Altaville, CA; and

– William Michael Johnson, Angels Camp, CA

* Charges:

– Three Charges of 15 C.F.R. § 764.2(a) – Engaging in Prohibited Conduct:

On or about January 23, 2010, April 6, 2010, and May 14, 2010, respectively, Trilogy International engaged in conduct prohibited by the Export Administration Regulations (“EAR”) by exporting items subject to the EAR and controlled on national security grounds to Russia without the required BIS export licenses.

The items involved were an explosives detector and a total of 115 analog-to-digital converters. The items were classified under Export Control Classification Numbers 1A004 and 3A001, respectively, controlled as indicated above on national security grounds, and valued in total at approximately $76,035. Each of the items required a license for export to Russia pursuant to Section 742.4 of the EAR.

– Three charges of 15 C.F.R. § 764.2(b) – Causing, Aiding, or Abetting a Violation:

Between on or about January 20,2010, and May 14,2010, Johnson caused, aided, and/or abetted three violations of the EAR, specifically, three exports from the United States to Russia of items subject to the EAR without the required BIS export licenses.

The items involved were an explosives detector and a total of 115 analog-to-digital converters, classified under Export Control Classification Numbers 1A004 and 3A001, respectively, controlled on national security grounds, and valued in total at approximately $76,035. Each of the items at issue required a BIS license for export to Russia pursuant to Section 742.4 of the EAR.

* Penalty:

– Civil penalty of $100,000 against Trilogy International Associates, Inc.; and

– Civil penalty of $100,000 against William Michael Johnson.

* Debarred: Both Trilogy International Associates, Inc. and William Michael Johnson are denied export privileges for a period of 10 years from the date of this Order, until 26 February 2028.

* Date of Order: 26 February 2018
Commerce/BIS: Pilot Air Freight LLC of Lima, PA, to Pay $175,000 to Settle Alleged Export Violations(Source: Commerce/BIS, 27 Nov 2017.) [Excerpts.]* Respondent: Pilot Air Freight LLC a/k/a Pilot Air Freight Corp. of Lima, PA.

* Charges: On one occasion, in or about February 2015, Pilot Air Freight LLC a/k/a Pilot Air Freight Corp. (“Pilot”) of Lima, PA, caused, aided, and/or abetted a violation by the Regulations by facilitating the attempted unlicensed export of items subject to the Regulations from the United States to IKAN Engineering Services (“IKAN”), an entity in Pakistan listed on BIS’s Entity List. The items included an ultrasonic mill cutting machine, which is classified under Export Control Classification Number (“ECCN”) 2B991 and controlled for Anti-Terrorism reasons, and related electronical equipment, designated as EAR99, and were valued in total at approximately $250,287.

* Penalty:

– A civil monetary penalty in the amount of $175,000. The payment of $100,000 shall be made to the U.S. Commerce Department within 30 days of the order. Payment of the remaining $75,000 shall be suspended through March 31, 2020 and thereafter shall be waved, provided that during the probationary period under the Order: Pilot has timely paid $100,000 to the Department of Commerce; has otherwise complied with the provisions of the Settlement Agreement and this Order; and has committed no other violation of the Act, or any regulation, order, license or authorization issued thereunder.

– Pilot shall complete two external audits of its export compliance program.

* Debarred: Not if penalty is paid as agreed.

* Date of Order: 21 Nov 2017.
Commerce/BIS: MHz Electronics, Inc. of Phoenix, AZ, to Pay $10,000 to Settle Alleged Export Violations(Source: Commerce/BIS, 16 Jan 2018.) [Excerpts.]

* Respondent: MHz Electronics, Inc., Phoenix, AZ

* Charges: Two charges of 15 C.F.R. 764.2(a) – Engaging in Prohibited Conduct:

On two occasions between on or about 15 January 2013, and on or about 3 October 2013, MHz Electronics engaged in conduct prohibited by the EAR when it exported pressure transducers, items subject to the EAR and classified under Export Control Classification Number (“ECCN”) 2B230, to China and Taiwan without the BIS export licenses required pursuant to Section 742.3 of the EAR. Item classified under ECCN are controlled under the EAR for nuclear nonproliferation reasons and can be of significance for nuclear explosive purposes. …

* Penalty:

– Civil penalty of $10,000, which shall be suspended for two-years and afterwards waived if no further violations are committed.

– Complete an external audit of its export control compliance program. The results of the audits, including any relevant supporting materials, shall be submitted to Commerce/BIS.

* Debarred: Not if the audit is completed and submitted as agreed.

* Date of Order: 11 January 2018.

More Than a Trade War: What the Huawei Arrest and Investigation Means to Your Business

Posted on December 12, 2018

ONPOINT / A legal update from Dechert’s International Trade Group
December 2018

On December 1, 2018, acting at the request of the United States, Canadian authorities arrested a senior officer of Huawei Technologies Co. (“Huawei”), the Chinese telecommunications equipment and consumer electronics device manufacturer. The arrest is the most recent escalation in the relationship between the United States and Huawei and in U.S.-Chinese relations. The new arrest goes beyond prior concerns that Huawei products may be used by the Chinese government to collect information on users. Now, the U.S. government is alleging fraud in the diversion of products to Iran, in violation of U.S. economic sanctions programs. According to public reporting, the U.S. Department of Justice (“DOJ”) commenced a criminal investigation into Huawei’s potential violation of U.S. sanctions in early 2017. This investigation impacts Huawei’s business partners, including U.S. and non-U.S. financial institutions as well as participants in Huawei’s supply chain.Beyond the impact of what could be a wide-reaching investigation, this recent development signals an escalation in the trade war between the U.S. and China, with particular focus on Huawei.

  • Huawei has struggled to access global markets, as the U.S., Australia, Japan and New Zealand have prohibited public procurement of the company’s products. While those governments have cited security concerns, the procurement bans arise against the backdrop of the economic struggle for dominance in the telecom market. With the emergence of super-fast fifth generation (“5G”) mobile phone networks, telecoms will have to make critical decisions about whose network infrastructure to buy, thus designing particular suppliers into their systems.
  • The U.S. and China also are engaged in a high-profile trade standoff, with both sides imposing escalating tariffs. The Trump Administration recently announced a 90-day tariff cease-fire (expiring March 1, 2019), during which a planned tariff increase has been suspended while the U.S. and China negotiate to end the tariffs. However, in light of the Huawei arrest, there is concern about whether the cease-fire can be sustained.
  • The U.S. government already exercises heightened scrutiny of Chinese investment into U.S. businesses through the CFIUS process, and with recent CFIUS reform giving the U.S. government broader discretion, investors that have any potential, even indirect, link to Huawei (or other Chinese telecom connections) will face even greater scrutiny now in the CFIUS review process.
  • Finally, given the precedent of mutual escalation in the trade war, U.S. companies should be prepared for retaliation by the Chinese government, including possible arrests of senior officers of U.S. companies travelling in China.

Ultimately, this latest development with Huawei plays into the broader political dispute for economic leadership in the world. How the Huawei investigation proceeds may be determined by how it fits into the resolution of larger economic disputes between the U.S. and China.

Latest Allegations against Huawei

Wanzhou Meng, Huawei’s Chief Financial Officer, and daughter of the company’s founder, was arrested in Canada and is facing extradition to the United States. U.S. authorities reportedly allege that between 2007 and 2014, Huawei operated Skycom Tech (“Skycom”), a Hong Kong company, as an unofficial subsidiary. During that time, Huawei is alleged to have used Skycom to provide U.S.-origin items to the Iranian market, in violation of U.S. economic sanctions and export controls.News of the Huawei-Skycom connection was reported in 2013.1 At that time, Skycom was alleged to have offered, on Huawei’s behalf, U.S.-origin IT equipment to telecommunications providers in Iran. Following news reports, certain of Huawei’s banking partners inquired about the potential connection between Huawei and Skycom. The U.S. alleges Ms. Meng made fraudulent statements to HSBC that there was no link between Huawei and Skycom, and that Huawei’s transactions processed through the bank were compliant with applicable sanctions law. HSBC reportedly relied on those statements to continue processing transactions. HSBC reportedly became aware thereafter of transactions that drew suspicion of diversion and shared information with U.S. prosecutors about the apparent connection between Huawei and Skycom.2 HSBC recently announced that it is not under investigation in connection with Huawei’s alleged violations.

Next Steps

With cooperation from HSBC (and perhaps other financial institutions), the U.S. government already has significant information about the parties involved in Huawei’s operations. Accordingly, companies that directly or indirectly supply products and technology to Huawei, and financial institutions that process financial transactions for Huawei, should assess their internal records to determine their potential legal and commercial exposure. As the U.S. demonstrated in its settlement agreement with PayPal arising out of sanctions violations, liability can arise when previously segregated information is aggregated, and the aggregated information gives rise to a claim that a company knew or had reason to know of a violation. And as the recent investigation of Huawei’s competitor, ZTE, demonstrated, major customers can disappear in a hurry.As the U.S. government moves to build its case against Huawei, and Ms. Meng individually, the recent investigation into ZTE may prove instructive. During the ZTE investigation, the U.S. government issued subpoenas to companies throughout the ZTE supply chain. Companies that sell to or partner with Huawei should take the opportunity now to assess their potential legal exposure. It should be noted in this regard that U.S. enforcement authorities welcome voluntary disclosures of violations of U.S. economic sanctions and export controls, offering significant mitigation of potential penalties as an incentive. At the same time, voluntary disclosure credit is not available if a potential violation is disclosed in response to a subpoena or other U.S. government investigation.In addition to legal liability, companies should evaluate how their commercial operations could be impacted if Huawei is made subject to export restrictions. When ZTE was placed on the Commerce Department’s Denied Party List, global companies were prohibited from providing ZTE with any U.S.-origin goods or technology. Before any equivalent action may be taken against Huawei, companies should assess if they are providing Huawei with any goods or technology subject to U.S. export controls and sanctions, bearing in mind the U.S. government’s de minimis rule. (Pursuant to this rule, the U.S. government asserts export control jurisdiction over certain foreign-made commodities and technology that include or incorporate a specified percentage of U.S.-origin items or technology.)Should the U.S. impose export restrictions on Huawei, specific areas that may be impacted include:

  • Supply of U.S.-origin parts and components, including foreign items that incorporate a specified percentage of U.S.-origin items or technology;
  • Return and repair agreements;
  • Continuation or renewal of IP licensing agreements; and
  • Provision of software updates or patches.

Conclusion

The U.S. government is investigating Huawei’s compliance with U.S. sanctions and export control regulations. The investigation likely will encompass Huawei’s supply chain and partner financial institutions. Impacted companies should consider conducting internal assessments now – before they are contacted by the U.S. government – to gauge their legal and commercial exposure. Identification of any violations and implementation of corrective actions before a government inquiry, with or without an accompanying disclosure, can help to mitigate potential government enforcement.

How Dechert Can Help

Dechert frequently assists clients in internal risk assessments, internal investigations and the defense of economic sanctions and export controls matters. When appropriate, Dechert assists with disclosures to enforcement authorities and settlements. For further information or assistance, please contact the authors.

Footnotes:
1) Steve Stecklow, Reuters, Exclusive: Huawei CFO linked to firm that offered HP gear to Iran (Jan. 31, 2013), available at: https://www.reuters.com/article/us-huawei-skycom/exclusive-huawei-cfo-linked-to-firm-that-offered-hp-gear-to-iran-idUSBRE90U0CC20130131

2) Rachel Louise Ensign, The Wall Street Journal, HSBC Monitor Flagged Suspicious Huawei Transactions to Prosecutors (Dec. 6, 2018), available at https://www.wsj.com/articles/hsbc-monitor-flagged-suspicious-huawei-transactions-to-prosecutors-1544122717

The update was authored by:
F. Amanda DeBusk
Partner, Washington, D.C.
T: +1 202 261 3452
amanda.debusk@dechert.com
Jeremy Zucker
Partner, Washington, D.C.
T: +1 202 261 3322
jeremy.zucker@dechert.com
Melissa L. Duffy
Partner, Washington, D.C.
T: +1 202 261 3388
melissa.duffy@dechert.com
Sean Kane
Counsel, Washington, D.C.
T: +1 202 261 3407
sean.kane@dechert.com
Darshak S. Dholakia
Associate, Washington, D.C.
T: +1 202 261 3467
darshak.dholakia@dechert.com
Michael A. Grant
Associate, Washington, D.C.
T: +1 202 261 3337
michael.grant@dechert.com

The CFIUS Reform Legislation—FIRRMA—Will Become Law on August 13, 2018

Posted on August 17, 2018

Key Points

  • CFIUS will continue to have broad jurisdiction to conduct national security reviews of foreign investments that could result in foreign control of a U.S. business. When regulations implementing FIRRMA become effective within the next 18 months, CFIUS will have additional jurisdiction over (a) real estate transactions near sensitive government locations and ports, and (b) noncontrolling investments in U.S. businesses associated with critical technology, critical infrastructure or sensitive personal data. Certain covered transactions involving foreign government investors and, potentially, U.S. critical technology companies will trigger mandatory CFIUS filings.
  • To address concerns regarding the transfer of uncontrolled critical emerging and foundational technologies to foreign persons, FIRRMA requires an interagency process to identify and, after public notice and comment, control such technologies in the export control regulations. (This identification process has already begun.) Unlike the bill as introduced, FIRRMA does not expand CFIUS’s authority to review outbound investments to address this issue.
  • The timelines for CFIUS review of filings will be extended when the law goes in to effect. The Treasury Department is, however, required to publish regulations to create a quicker short-form “declaration”—“light filing”—process that could be used in place of full filings.
  • FIRRMA leaves many key details and definitions to the Treasury Department to address through implementing regulations. Those potentially affected by the new CFIUS authorities will likely want to monitor and eventually comment on them, particularly:
    • U.S. businesses that might receive noncontrolling foreign investments and that are involved in critical technology, critical infrastructure or sensitive personal data;
    • funds with foreign limited partners that might have access to such information or the ability to influence what is done with it; and
    • those involved, directly or indirectly, with covered investments by foreign governments and involving U.S. critical technology companies because of the mandatory filing requirements that will be created.

FURTHER DETAILS >

BREXIT: Customs, Sanctions and Export Controls

Posted on April 5, 2018

Summary notes from the Joint Event by ADS / EGADD and techUK held on Tuesday 27th March 2018.

CISTEC Joint Comments on Draft China Export Control Law

Posted on February 16, 2018

Towards the end of 2017 EGADD was approached by the Japanese Center for Information on Security Trade Controls or CISTEC (http://www.cistec.or.jp/english/index.html) – essentially the Japanese equivalent of EGADD relationship – which had been seeking to put together a multinational response to export control developments in the People’s Republic of China. The Ministry of Commerce of China (MOFCOM) published China’s New Export Control Law Draft on their website on 16th June 2016 to seek public comments. Attached is a copy of the resulting joint EGADD/CISTEC letter to MOFCOM on the proposed New Export Control Law Draft.

HMRC goes public on CDS go-live date & timetable to replace CHIEF

Posted on February 5, 2018

HM Revenue and Customs (HMRC) will begin a phased launch of the Customs Declaration Service (CDS) in August 2018. CDS will replace the existing Customs Handling of Import and Export Freight (CHIEF) system, with all declarations taking place on CDS from early 2019. Read more …

2017 News Articles >>

Commerce/BIS: Ali Eslamian and Equipco (UK) Ltd of London, UK, Denied Export Privileges for 4 Years, Ordered to Pay $250,000 to Settle Alleged Violation of TDO

(Source: Commerce/BIS)

* Respondent: Ali Eslamian and Equipco (UK) Ltd. of London, UK.

* Charges: Between in or about October 2011, and in or about February 2012, Eslamian took actions prohibited by a BIS temporary denial order issued as to Eslamian on 24 August 2011 (“TDO” or “24 August 2011 TDO”). The TDO was issued pursuant to Section 766.24 of the Regulations, was effective upon issuance, and was published in the Federal Register on 31 August 2011… The TDO was a renewal of an existing BIS temporary denial order, the primary respondent was Mahan Airways, an Iranian airline…

Eslamian violated the TDO by participating in a transaction subject to the Regulations between in or about October 2011, and in or about February 2012, by carrying on negotiations concerning and ordering an aircraft engine subject to the Regulations during that time period… In doing so, Eslamian acted at least in part through Equipco (UK) Ltd. (“Equipco”), a company owned and directed by Eslamian.

The U.S. origin International Aero Engine (“IAE”) aircraft is an item subject to the Regulations, classified under Export Control Classification Number (“ECCN”) 9A991.d, and controlled for anti-terrorism reasons. …

* Penalty:

– Civil penalty in the amount of $250,000

* Debarred: Four (4) years from the date of this Order, provided that Eslamian has made full and timely payment of the civil penalty.

* Date of Order: 28 September 2017.
Commerce/BIS: Miltech, Inc. of Northampton, MA, to Pay $230,000 to Settle Alleged Export Violations(Source: Commerce/BIS) [Excerpts.

* Respondent: Miltech, Inc., Northampton, MA

* Charges: 18 Charges of 15 C.F.R. § 764.2(a): Engaging in Prohibited Conduct

On eighteen occasions between on or about 14 October 2011 and or about 24 July 2014, Miltech engaged in conduct prohibited by the EAR when it exported items subject to the EAR from the United States to China and Russia without the required BIS licenses. Specifically, Miltech exported active multiplier chains, items classified under Export Control Classification Number (“ECCN”) 3A001.b.4, controlled on national security and anti-terrorism grounds, and valued in total at approximately $364,947, without seeking or obtaining the licenses required for these exports pursuant to section 742.4 of the EAR. …

* Penalty: Civil penalty of $230,000, of which $180,000 needs to be paid within 30 days, and the remaining $50,000 will be suspended and waived after two years if Miltech complies with the terms of its settlement agreement and this order.

* Debarred: Not if penalty is paid as agreed, and Miltech complies with the other terms of its settlement agreement and this order.

* Date of Order: 25 September 2017.
American Shipper: “New Jersey Firm Fined $400,000 for Export Violation”(Source: American Shipper, 15 Sep 2017) [Excerpts.]

The State Department’s Directorate of Defense Trade Controls (DDTC) this week imposed a $400,000 civil penalty against Barrington, N.J.-based Bright Lights USA for exports of unauthorized defense components and technical data in violation of the International Traffic in Arms Regulations (ITAR).

Bright Lights notified DDTC of two ITAR violations in voluntary self-disclosures filed with the agency in April 2013 and June 2016.

The primary reason for the violations relates to the company not staying current with the former Obama administration’s Export Control Reform (ECR) regarding transition of ITAR-related commodities/technology from the State Department’s U.S. Munitions List to the Commerce Control List. The wrong commodity jurisdiction resulted in the incorrect export licensing classification, which further resulted in export violations for both the physical export of the items and the illegal transfer of technology made by the company.
State/DDTC: Bright Lights USA, Inc., Barrington, NJ to Pay $400,000 to Settle Alleged AECA and ITAR Violations(Source: State/DDTC)

* Respondent: Bright Lights USA, Inc., 145 Shreve Ave., Barrington, NJ

* Charges: Eleven charges of violations of the AECA and ITAR between 2010 and 2012, and 2014 and 2015

– Four Charges of Unauthorized Export of Defense Articles to a Proscribed Destination

– One Charge of Unauthorized Export of Defense Article (Technical Data)

– One Charge of Failure to Maintain and Provide Required Records

– Five Charges of Unauthorized Export of Defense Articles (Parts and Components)

* Civil Settlement: $400,000

* Debarred or Suspended from Export Transactions: Not if penalty is paid and corrective actions are completed as agreed.

* Result of Voluntary Self-Disclosure: Yes

* Date of Order: 11 September 2017

* Available documents:

– Proposed Charging Letter

– Consent Agreement

– Order

* Mitigating Factors:

– Submitting two voluntary disclosures;

– Cooperating with the Department’s review of the disclosed events and signed multiple agreements tolling the statutory period;

– Provided information suggesting that the violations were not wilful in nature; and

– Significant improvements to its export compliance program that reduce the likelihood of future violations.

* Aggravating Factors:

– Central role of an individual with a prior AECA conviction;

– Significant ITAR training and compliance program deficiencies that directly contributed to the violations;

– Unauthorized export of technical data to a proscribed destination.
Justice: “CEO of International Metallurgical Company Sentenced to 57 Months in Prison for Conspiring to Export Specialty Metals to Iran”(Source: Justice) [Excerpts.]

Earlier today, at the federal courthouse in Brooklyn, New York, Erdal Kuyumcu, the chief executive officer of Global Metallurgy, LLC, based in Woodside, New York, was sentenced to 57 months in prison following his June 14, 2016 guilty plea to conspiracy to violate the International Emergency Economic Powers Act by exporting specialty metals from the United States to Iran.  The sentencing proceeding was held before Chief United States District Judge Dora L. Irizarry. …

According to court documents, Kuyumcu, a U.S. citizen, conspired to export from the United States to Iran a metallic powder primarily composed of cobalt and nickel, without having obtained the required license from the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC).  As established during a two-day presentencing evidentiary hearing, the metallic powder has potential military and nuclear applications.  Such specialized metals are regulated by the U.S. Department of Commerce to combat nuclear proliferation and terrorism, and exporting them without the required license is illegal.

In furtherance of the illegal scheme, Kuyumcu and others plotted to obtain more than 1,000 pounds of the metallic powder from a U.S.-based supplier.  To hide the true destination of the goods from the supplier, Kuyumcu arranged for the metallic powder to be shipped first to Turkey and then to Iran.  Kuyumcu used coded language when discussing shipment of the powder with a Turkey-based co-conspirator, such as referring to Iran as the “neighbor.”  Shortly after one of the shipments was sent from Turkey to Iran, a steel company in Iran sent a letter-sized package to Kuyumcu’s Turkey-based co-conspirator.  The Iranian steel company had the same address as an OFAC-designated Iranian entity under the Weapons of Mass Destruction proliferators sanctions program that was associated with Iran’s nuclear and ballistic missile programs.  …
Commerce/BIS: Narender Sharma and Hydel Engineering Products of Rampur Bushahr, India, to Pay $100,000 to Settle Alleged Export Violations(Source: Commerce/BIS) [Excerpts.]

* Respondent: Narender Sharma and Hydel Engineering Products of Rampur Bushahr, India

* Charges: 15 C.F.R. § 764.2(d) – Conspiracy to Export Items from the United States to Iran, Including to an Iranian Government Entity, without the Required U.S. Government Authorization:

Beginning no later than in or around May 2009, and continuing through in or around January 2012, Hydel/Sharma conspired and acted in concert with others, known and unknown, to violate the Regulations and to bring about an act or acts that constitutes a violation of the Regulations. The purpose of the conspiracy was to evade the long-standing and well-known U.S. embargo against Iran in order to sell and export U.S.-origin waterway barrier debris systems and related components to Iran via transshipment through third countries, including to Mahab Ghodss, an Iranian Government entity, without the required U.S. Government authorization.

The conspiracy led to the attempted export of a waterway barrier debris system, an item subject to the Regulations, designated EAR99,3 and valued at $420,256, from the United States to Mahab Ghodss in Iran, via transshipment through the United Arab Emirates (“UAE”). This item also was subject to the Iranian Transactions Regulations (“ITR”), administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”). …

* Penalty:

– A civil penalty in the amount of $100,000 for which they are jointly and severally liable

– Narender Sharma and Hydel Engineering Products may not, directly or indirectly, participate in any way in any transaction involving any commodity, software or technology exported or to be exported from the United States that is subject to the Regulations, or in any other activity subject to the Regulations. … The five-year denial period set forth above shall be suspended during a probationary period of five years under this Order, and shall thereafter be waived, provided that Hydel and Sharma have made full and timely payment as set forth above, have otherwise complied with the terms of the Settlement Agreement and this Order, and have committed no other violation of the Act or the Regulations or any order, license, or authorization issued thereunder.

* Debarred: Not if penalty is paid as agreed.

* Date of Order: 31 August 2017.
Commerce/BIS: Cryofab, Inc. of Kenilworth, NJ, to Pay $35,000 to Settle Alleged Export Violations(Source: Commerce/BIS) [Excerpts.]

* Respondent: Cryofab, Inc., Kenilworth, NJ

* Charges: 2 Charges of 15 C.F.R. § 764.2(a) — Engaging in Conduct Prohibited by the Regulations:

On two occasions, on or about July 19, 2012 and December 4, 2012, respectively, Cryofab engaged in conducted prohibited by the Regulations by exporting gas storage containers and related tools and accessories, items subject to the Regulations, designated EAR99, and valued in total at $21,570, from the United States to the Bhabha Atomic Research Center (BARC), an Indian Department of Atomic Energy entity located in Mumbai, India, without the BIS licenses required by Section 744.11 and Supplement No. 4 to Part 744 of the Regulations. On the first occasion, Cryofab exported a liquid helium storage container and accessory (total value: $16,275), and on the second occasion, it exported a liquid nitrogen storage container and operating tool (total value: $5,295). BARC is and at all times pertinent hereto was an organization listed on the Entity List set forth at Supplement No. 4 to Part 744 of the Regulations. BARC was added to the Entity List on June 30, 1997.

Although an experienced exporter, Cryofab failed to screen the Entity List in connection with these two transactions and failed to seek or obtain the BIS licenses required pursuant to Section 744.11 and Supplement No. 4. It also erroneously listed the items as eligible for shipment without a license (“NLR,” or No License Required) on the Shipper’s Letter of Instructions for each shipment. …

* Penalty:

– Civil penalty of $35,000;

– Cryofab shall complete an external audit of its export controls compliance program; and

– Cryofab shall hire an unaffiliated third-party consultant with expertise in U.S. export control laws to conduct the external audit of its compliance with U.S. export control laws (including recordkeeping requirements).

* Debarred: Not if penalty is paid, and the audit completed as agreed.

* Date of Order: 18 August 2017.
Commerce/BIS: Harold Rinko/Global Parts Supply of Hallstead, PA, to Pay $100,000 and Debarred for Ten Years to Settle Alleged Export Violations(Source: Commerce/BIS) [Excerpts.]

* Respondent: Harold Rinko/Global Parts Supply, Hallstead, PA

* Charges: One charge of 15 C.F.R. §764.2(d)- Conspiracy

Beginning in at least September 2007, and continuing through at least May 2011, Rinko/Global Parts Supply conspired and/or acted in concert with others, known and unknown, to bring about an act that constitutes a violation of the Export Administration Regulations (“EAR”). The purpose of the conspiracy was to procure U.S.-origin goods, items subject to the EAR, from suppliers in the United States for export from the United States to Syria without the required authorization from BIS.

Rinko/Global Parts Supply’s co- conspirators included Moawea Deri, a citizen and resident of Syria, and his brother, Ahmad Feras Diri, also known as Feras Diri, a citizen and resident of the United Kingdom (“U.K.”), who both operated d-Deri Contracting & Trading, a business located in Damascus, Syria that also transacted business in and through the U.K. In furtherance of the conspiracy, Rinko/Global Parts Supply procured items subject to the EAR from U.S. suppliers and exported or attempted to export them to Syria through a third country. These items were either specifically listed on the Commerce Control List or designated as EAR99. …

* Penalty: Civil penalty in the amount of $100,000. However, all of which shall be suspended for a period of five years from the date of this Order, and thereafter shall be waived, provided that during this five-year payment probationary period, Rinko has fully and timely complied with the quarterly reporting requirements described in the Order and has not committed a violation of the Act, or any regulation, order, license, or authorization issued thereunder.

* Debarred: For a period of ten years from the date of the Order. However, the ten-year denial period shall be suspended for a period of ten years from the date of the Order, and shall thereafter be waived, provided that during this ten-year probationary period Rinko has timely completed and submitted each of the quarterly reports as set forth above, and has not committed any violation of the Act or the Regulations or any order, license or authorization issued thereunder.

* Date of Order: 26 July 2017

DHS/ICE: “New Zealand Man Sentenced for Conspiring to Export Sensitive Parts to China”

(Source: DHS/ICE) [Excerpts.]

A New Zealand man who traveled to Seattle last year to take possession of export-restricted parts designed for missile and space applications was sentenced Thursday to two years in federal prison for conspiring to violate the Arms Export Control Act, following a probe by U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI).

William Ali, 38, has been in federal custody since his arrest April 11, 2016, by HSI special agents. At Thursday’s sentencing, U.S. District Judge Thomas S. Zilly said, “You knew that if you did it you could go to jail and you proceeded to do it…you laughed and you were undeterred in your decision to come here.” …

According to records in the case and testimony presented at trial, Ali emailed several companies and distributors in April 2015 about purchasing certain accelerometers that are designed for use in spacecraft and missile navigation. These accelerometers cannot be exported from the United States without a license from the U.S. State Department, which Ali did not have. HSI learned of Ali’s inquiries and began an investigation. …

Over the next year, Ali communicated by phone and email with an HSI undercover special agent, and with a person in China known in his emails as “Michael.” Michael was the person seeking the accelerometers, as well as certain gyroscopes that are designed for military use. Ali was working to find a way to purchase the devices and transport them secretly to Michael in China. In multiple emails, Ali made clear he was aware that export of the accelerometers and gyroscopes was illegal. Ali sent the undercover agent nearly $25,000 for the devices – money he got from Michael. Ali traveled to Seattle and met with the undercover HSI special agent April 11, 2016, at a downtown hotel. Shortly after Ali took possession of the devices he was arrested.  Ali had with him an airline ticket to Hong Kong and a visa to travel to China.
Commerce/BIS: Hassan Zafari of Brentwood, CA, to Pay $52,500 to Settle Alleged Export Violations(Source: Commerce/BIS) [Excerpts.]

* Respondent: Hassan Zafari, Brentwood, CA.

* Charges: One Charge of 15 C.F.R. § 764.2(b): Causing, Aiding, or Abetting an Unauthorized Export to Iran:

In or about September and October 2014, Hassan Zafari, a.k.a. Sam Zafari (“Zafari”), caused, aided, or abetted a violation ofthe Regulations. Specifically, Zafari caused, aided or abetted the export from the United States to Iran, via the United Arab Emirates (“UAE”), of a used industrial laser system subject to the Regulations and valued at approximately $12,000, without the required U.S. Government authorization.

* Penalty: Civil penalty of $52,500.

* Debarred: Not if penalty is paid as agreed.

* Date of Order: 28 June 2017.
Commerce/BIS: Axis Communications, Inc. of Chelmsford, MA, to Pay $700,000 to Settle Alleged Export Violations(Source: Commerce/BIS) [Excerpts.]

* Respondent: Axis Communications, Inc., Chelmsford, MA

* Charges:

– Thirteen Charges of 15 C.F.R. § 764.2(a), Export of Thermal Imaging Cameras Without the Required Licenses:

On 13 occasions between on or about 16 March 2011, and on or about 15 July 2013, Axis engaged in conduct prohibited by the Regulations when it made unlicensed exports from the United States to Mexico of thermal imaging cameras, items subject to the Regulations, classified under Export Control Classification Number 6A003.b.4, controlled for national security and regional stability reasons, and valued in total at $391,819. These exports to Mexico required BIS licenses pursuant to Sections 742.4 and 742.6 of the Regulations.

– Two Charges of 15 C.F.R. § 764.2(i): Failure to Comply with Recordkeeping Requirements:

On two occasions, on or about 17 June 2013, and on or about 15 July 2013, respectively, Axis failed to comply with the recordkeeping requirements set forth in Section 762.2 of the Regulations in connection with exports from the United States to Mexico of thermal imaging cameras, items subject to the Regulations, classified under Export Control Classification Number 6A003.b.4, and controlled for national security and regional stability reasons. Axis failed to retain documents required to be retained under Section 762.2, including, but not limited to, invoices relating to these exports.

* Penalty:

– Civil penalty of $700,000

– Complete an external audit of its export controls compliance program

– Hire an unaffiliated third-party consultant with expertise in U.S. export control laws to conduct the external audit of its compliance with U.S. export control laws

* Debarred: Not if penalty is paid as agreed, the audit is completed, and the audit results submitted.

* Date of Order: 9 June 2017.
Commerce/BIS: Cryomech, Inc. of Syracuse, NY, to Pay $28,000 to Settle Alleged Export Violations(Source: Commerce/BIS) [Excerpts.]

* Respondent: Cryomech, Inc., Syracuse, NY

* Charges: 1 Charge of 15 C.F.R. § 764.2(a): Engaging in Prohibited Conduct:

On one occasion, on or about August 16, 2012, Cryomech engaged in conduct prohibited by the Regulations when it exported an LNP-20 Liquid Nitrogen Plant, an item subject to

the Regulations, designated EAR99, and valued at $33,587, from the United States to the All-Russian Scientific Research Institute of Experimental Physics (VNIIEF) a.k.a Russian Federal Nuclear Center-VNIIEF (RFNC-VNIIEF) in Sarov, Russia, without the required BIS license. …

* Penalty:

– Civil penalty of $700,000

– Complete an external audit of its export controls compliance program

– Hire an unaffiliated third-party consultant with expertise in U.S. export control laws to conduct the external audit of its compliance with U.S. export control laws

* Debarred: Not if penalty is paid as agreed, the audit is completed, and the audit results submitted.

* Date of Order: 9 June 2017.
DHS/ICE: Four Arizona Residents Receive Lengthy Prison Terms for Exporting Firearms and Ammunition to Hong Kong(Source: DHS/ICE) [Excerpts.]

Four Arizona residents have been sentenced to lengthy prison terms for their role in a scheme to illegally export weapons and ammunition to Hong Kong, following a multiagency probe that included U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI).

Peter Steve Plesinger, 55, of Sahuarita, and Stephen Edward Smith, 63, of Tucson, were sentenced Wednesday by U.S. District Judge James A. Soto. Plesinger received a term of 87 months. Smith was sentenced to 102 months in prison. Both men had previously pleaded guilty to exporting munitions to Hong Kong, dealing firearms without a license, and money laundering. Two other defendants, Irina Cvetkovic and Earl Richmond, both of Sahuarita, were charged and convicted for lessor roles in the conspiracy.

In 2014, law enforcement authorities in Hong Kong intercepted a package containing 139 rounds of ammunition that had been shipped from Arizona by Plesinger.  A search of the intended recipient’s Hong Kong residence resulted in the recovery of three rifles, two pistols, four rifle barrels, a silencer, and at least 9,000 rounds of ammunition. Further investigation revealed Plesinger had previously shipped those items to Hong Kong in packages with innocuous labels. Additionally, investigators determined Plesinger had been paid at least $64,500 to ship large quantities of firearms, ammunition, and silencers to Hong Kong, and that Smith had been paid at least $59,550 for making similar shipments.

“The sentences imposed in this case should send a strong message to those who would consider illegally exporting firearms, ammunition, or silencers to other countries,” stated Acting United States Attorney Elizabeth A. Strange. “We will continue to work diligently with our national and international partners to vigorously investigate and prosecute such conduct.”

“I wish to compliment the tenacity of the ATF agents and prosecuting attorneys who brought this case to a successful conclusion,” said ATF Assistant Special Agent in Charge Mark Murray. “Our agents left no stone unturned as they doggedly pursued these criminals and brought them to justice. ATF will continue our role in enforcing violations of the federal firearms and explosives laws both domestically and in this case internationally.”

“HSI, together with our domestic and international law enforcement partners, is dedicated to making communities safer by bringing criminals to justice,” said HSI Special Agent in Charge Scott Brown. “The successful outcome of this case is a direct result of the steadfast efforts of federal agents to prevent firearms from falling into the hands of transnational criminal organizations that pose a threat to public safety both here and abroad.” …
Justice: California Bay Area Residents Charged In Scheme To Export Components For Production Of Night Vision Rifle Scopes(Source: Justice) [Excerpts.]

New charges supplement bank fraud conspiracy charges filed against the defendants in September of last year

Naum Morgovsky and Irina Morgovsky were charged today for their respective roles in an alleged scheme to export components for the production of night vision rifle scopes in violation of the Arms Export Control Act, announced United States Attorney Brian J. Stretch and Federal Bureau of Investigation Special Agent in Charge John F. Bennett.  The superseding indictment supplements bank fraud charges that were leveled in September of last year against Naum Morgovsky and Mark Migdal.

According to the superseding indictment, Naum and Irina Morgovsky owned night vision businesses in the United States and purchased numerous scope components including image intensifier tubes and lenses.  The superseding indictment alleges the Morgovskys conspired to ship these items to a night vision manufacturing company in Moscow, Russia that was partly owned by Naum Morgovsky.  The United States Munitions List prohibits export of the items unless the exporter obtains a license from the Department of State, Directorate of Defense Trade Controls.  According to the superseding indictment, the Morgovskys did not have such a license.

In addition, the superseding indictment alleges the Morgovskys took steps to conceal their crimes so that they could continue to run their illegal export business undetected.  According to the superseding indictment, Naum Morgovsky laundered the proceeds of the export conspiracy, used a bank account in the name of a deceased person to conceal the ownership and control of the scheme’s proceeds.  The superseding indictment further alleges that Irina Morgovsky allegedly used a passport that she fraudulently obtained in the name of another individual to travel to Russia three times in 2007.

The superseding indictment includes the charges against Naum Morgovsky and Mark Migdal in the indictment filed in September of 2016.  Specifically, the superseding indictment repeats that between June 2009 and April 2016, Morgovsky and Migdal conspired to defraud two federally-insured banks, now Bank of America and EverBank, by seeking those banks’ approval for a short sale of two condominiums owned by Migdal.  The two condominium units were in the same building in Kihei, Maui.  The superseding indictment alleges that Morgovsky and Midgal conspired to convince the banks to allow the properties to be sold in a short sale to an individual who was, in reality, deceased.  A short sale is a sale in which a lender allows a property to be sold at a price that is less than the amount owed on the loan.  According to the superseding indictment, the conspiracy also involved submission of false statements to the bank about Midgal’s employment status and income.  After the banks approved the short sales in 2009 and 2010, Migdal continued to treat the property as his own, including collecting rent and paying taxes and homeowners’ association dues.  The properties allegedly were transferred to Migdal’s wife in 2016.

In addition, the superseding indictment alleges that, during 2009 and 2010, Migdal submitted false statements to a federally insured bank.  According to the superseding indictment, Migdal sought to obtain loan modifications for his residence in Portola Valley and his rental property in Mountain View by falsely stating he had rented part of his residence, by submitting a false employment offer letter, and by falsely stating his rental property in Mountain View was his principal residence. …

Any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.  The Superseding Indictment also seeks forfeiture of the false passport, a residence in Portola Valley, a condominium in Mountain View, and the two Hawaii condominiums.

An indictment merely alleges that crimes have been committed, and all defendants are presumed innocent until proven guilty beyond a reasonable doubt. …

[Editor’s Note: an overview of the charges and maximum statutory sentences against Naum Morgovsky, Irina Morgovsky, and Mark Migdal is available here.]
Justice: Singapore Man Sentenced to 40 Months in Prison for Plot Involving Exports to Iran of U.S. Components(Source: Justice) [Excerpts.]

Lim Yong Nam, aka Steven Lim, 43, a citizen of Singapore, was sentenced today (Thursday) to 40 months in prison for his role in a conspiracy that caused thousands of radio frequency modules to be illegally exported from the U.S. to Iran, at least 14 of which were later found in unexploded improvised explosive devices (IEDs) in Iraq. …

Lim was extradited in 2016 from Indonesia, where he had been detained since October 2014 in connection with the U.S. request for extradition. He pleaded guilty on Dec. 15, 2016, to a charge of conspiracy to defraud the U.S. by dishonest means. Lim will be deported upon completion of his sentence.

Lim and others were indicted in the District of Columbia in June of 2010 on charges involving the shipment of radio frequency modules made by a Minnesota-based company. The modules have several commercial applications, including in wireless local area networks connecting printers and computers in office settings. These modules include encryption capabilities and have a range allowing them to transmit data wirelessly as far as 40 miles when configured with a high-gain antenna. These same modules also have potentially lethal applications. Notably, during 2008 and 2009, coalition forces in Iraq recovered numerous modules made by the Minnesota firm that had been utilized as part of the remote detonation system for IEDs. According to the plea documents filed in the case, between 2001 and 2007, IEDs were the major source of American combat casualties in Iraq.

In a statement of offense submitted at the time of the guilty plea, Lim admitted that between August 2007 and February 2008, he and others caused 6,000 modules to be purchased and illegally exported from the Minnesota-based company through Singapore, and later to Iran, in five shipments, knowing that the export of U.S.-origin goods to Iran was a violation of U.S. law.  In each transaction, Lim and others made misrepresentations and false statements to the Minnesota firm that Singapore was the final destination of the goods; at no point in the series of transactions did Lim or any of his co-conspirators inform the company that the modules were destined for Iran.   Similarly, according to the statement of offense, Lim and others caused false documents to be filed with the U.S. government, in which they claimed that Singapore was the ultimate destination of the modules. Lim and his co-conspirators were directly aware of the restrictions on sending U.S.-origin goods to Iran.

Shortly after the modules arrived in Singapore, they were kept in storage at a freight forwarding company until being aggregated with other electronic components and shipped to Iran. There is no indication that Lim or any of his co-conspirators ever took physical possession of these modules before they reached Iran or that they were incorporated into another product before being re-exported to Iran.

According to the statement of offense, 14 of the 6,000 modules the defendants routed from Minnesota to Iran were later recovered in Iraq, where the modules were being used as part of IED remote detonation systems. …

[Editor’s Note: this release was also published on the DHS/ICE Newsroom website.]
Commerce/BIS: Access USA Shipping, LLC of Sarasota, FL, to Pay $27,000,000 to Settle Alleged Export Violations(Source: Commerce/BIS) [Excerpts.]

* Respondent: Access USA Shipping, LLC, Sarasota, FL

* Charges:

– Charges 1-129: 15 C.F.R. §764.2(h) – Evasion:

On one hundred twenty-nine (129) occasions beginning on or about 21 April 2011, and continuing through on or about 7 January 2013, Access USA Shipping, LLC (“Access”) engaged in transactions or took other actions to evade the Export Administration Regulations (“EAR” or “Regulations”). Specifically, Access took actions that enabled foreign customers to purchase items subject to the EAR through Access without U.S. merchants knowing the items were intended for export and that were designed at least in part to avoid detection by the U.S. Government and law enforcement. These actions included mis-describing and undervaluing the items in false export control documents; undervaluing the items improperly to avoid the filing of the required export control documents; allowing foreign customers to place orders through Access employees to avoid export scrutiny; destroying or altering export control documents; and failing to maintain records related to export transactions. …

– Charges 130-146: 15 C.F.R. §764.2(a) – Engaging in Conduct Prohibited by the Regulations by Exporting or Attempting to Export Crime Control Items without the Required License:

On seventeen (17) occasions between on or about 23 August 2011, and or about 24 January 2013, Access engaged in conduct prohibited by the EAR when it exported or attempted to export items classified under Export Control Classification Number (“ECCN”) 0A987 and controlled for Crime Control reasons without the BIS export licenses required pursuant to Section 742.7 of the EAR. The destinations included Argentina, Austria, Hong Kong, Indonesia, Libya, South Africa, and Sweden. …

– Charges 147-150: 15 C.F.R. §764.2(a) – Engaging in Conduct Prohibited by the Regulations by Exporting or Attempting To Export Items Subject to the Regulations to a Listed Entity Without the Required License:

On four occasions between on or about 17 October 2012, and on or about 15 February 2013, Access engaged in conduct prohibited by the EAR when it exported or attempted to export items subject to the Regulations from the United States to Transsphere Oy in Finland without the BIS license required pursuant to Section 744.11 and Supplement No. 4 to Part 744 of the Regulations. The items were classified under ECCN 5A991 and controlled for anti-terrorism reasons, or were designated as EAR99. Transsphere Oy is a Finish entity listed on the Entity List …

* Penalty: Civil penalty of $27,000,000, of which $17,000,000 shall be suspended for two years from the date of this Order, and waived provided that during this two year payment probationary period, Access has committed no violations of the Export Administration Act, or any regulation, order, license or authorization issues thereunto, has made full and timely payment of the $10,000,000, and has complied with all the other terms of its Settlement Agreement, and has committed no violation of the Non-Prosecution Agreement that Access has entered with U.S. Attorney’s Office for the Middle District of Florida

* Debarred: Not if penalty is paid as agreed, Access has complied with all the other terms of its Settlement Agreement, and has not failed to comply with the terms of the Non-Prosecution Agreement.

* Date of Order: 9 February 2017
Commerce/BIS: ZTE of Shenzhen and Hi-New Shenzhen, China, to Pay $661,000,000 for Export Violations(Source: Commerce/BIS) [See related items #10, #13, and #16.]

* Respondents: Zhongxing Telecommunications Equipment Corporation, Shenzhen, China, and ZTE Kangxun Telecommunications Ltd., Hi-New Shenzhen, China, collectively known as ZTE

* Charges: 380 violations of the EAR:

– One Charge of 15 C.F.R. § 764.2(d) -Conspiracy

– 283 Charges of 15 C.F.R. § 764.2(e) – Acting with Knowledge of a Violation in Connection with Unlicensed Shipments of Telecommunications Items to North Korea via China

– 16 Charges 15 C.F.R. § 764.2(h) – Evasion

* Penalty: Civil penalty of $661,000,000. The payment of $361,000,000 shall be made to the U.S. Dept. of Commerce within 60 days of the date of this Order. Payment of the remaining $300,000,000 shall be suspended for a probationary period of seven years provided that all the requirements set out in the Order are met.

* Main requirements:

– ZTE shall complete and submit six audit reports of its compliance with U.S. export control laws, with respect to all exports, reexports, or transfers (in-country) that are subject to the EAR;

– ZTE shall hire an unaffiliated third party consultant with expertise in U.S. export control laws to conduct the external audits;

– The audits required shall be in substantial compliance with the Export Management Program sample audit module, available on the BIS website;

– ZTE will ensure that all records required to be kept or retained under the EAR are stored in or fully accessible from the United States;

– ZTE will allow the U.S. government to verify ZTE’s adherence to its export control compliance program and the EAR

– ZTE shall provide extensive training on applicable export control requirements to its leadership, management, and employees, including the leadership, management and employees of its affiliates, subsidiaries, and other entities worldwide over which it has ownership or control

* Debarred: Not if penalty is paid as agreed and all requirements set out in the Order are met.

* Date of Order: 7 March 2017
Commerce/BIS: Milwaukee Electric Tool Corp. of Brookfield, WI, to Pay $301,000 to Settle Alleged Export Violations(Source: Commerce/BIS)

* Respondent: Milwaukee Electric Tool Corporation, Brookfield, WI

* Charges: 25 Charges of 15 C.F.R. § 764.2(a) – Engaging in Prohibited Conduct:
On 25 occasions between April 2012 and May 2014, Milwaukee Electric Tool Corporation (“Milwaukee Electric”) engaged in conduct prohibited by the EAR by exporting thermal imaging cameras, items subject to the EAR, from the United States to various countries, including Hong Kong, Colombia, Ecuador, El Salvador, and Mexico, without the required Department of Commerce export licenses. The items are classified under Export Control Classification Number (“ECCN”) 6A003.b.4, controlled for National Security and Regional Stability reasons, and valued in total at approximately $129,284. Pursuant to Sections 742.4 and 742.6 of the EAR, a BIS export license is required before the items can be exported to each of the destinations at issue. By exporting these items without the required export licenses, Milwaukee Electric committed 25 violations of Section 764.2(a) of the EAR.

* Penalty: Milwaukee Electric shall be assessed a civil penalty in the amount of $301,000.

* Debarred: Not if penalty is paid as agreed.

* Date of Order: 19 January 2017.
Commerce/BIS: Dane Francisco Delgado of Eden, TX, Denied Export Privileges for 10 Years(Source: Commerce/BIS)

* Respondent: Dane Francisco Delgado, Eden, TX

* Charges: On 4 November 2014, in the U.S. District Court for the Southern District of Texas, Dane Francisco Delgado (“Delgado”), was convicted of violating Section 38 of the Arms Export Control Act (22 U.S.C. § 2778 (2012)) (“‘AECA”). Specifically, Delgado knowingly and willfully conspired with persons known and unknown to export, furnish, and cause to be exported from the United States to Mexico defense articles designated on the United States Munitions List without having first obtained from the Department of State a license or written authorization for such export. Delgado was sentenced to 60 months in prison, three years of supervised release, and a $100 assessment.

* Debarred: Delgado’s is denied export privileges under the Regulations for a period of 10 years from the date of Delgado’s conviction, until 4 November 2024.

* Date of Order: 29 December 2016.
Commerce/BIS: Robert Luba of Waymart, PA, Denied Export Privileges for 10 Years(Source: Commerce/BIS)

* Respondent: Robert Luba, Waymart, PA

* Charges: On 25 April 2016, in the U.S. District Court for the District of New Jersey, Robert Luba (“Luba”), was convicted of violating Section 38 of the Arms Export Control Act (22 U.S.C. § 2778 (2012)) (“AECA”). Specifically, Luba knowingly and willfully exported and caused to be exported from the United States to India a defense article, that is, the technical drawing for the NSSN Class Submarine, Torpedo Tube, Open Breech Door, Gagging Collar A, Drawing Number 7072856, which was designated as a defense article on the United States Munitions List, without having first obtained from the Department of State a license for such export or written authorization for such export. Luba was sentenced six months in prison, three years of supervised release, $173,736.67 in restitution, and a $200 assessment.

* Debarred: Luba is denied export privileges under the Regulations for a period of 10 years from the date of Luba’s conviction 25 April 2026.

* Date of Order: 29 December 2016.
Commerce/BIS: Kamran Ashfaq Malik of Joint Base MDL, NJ, Denied Export Privileges for 5 Years(Source: Commerce/BIS)

* Respondent: Kamran Ashfaq Malik, Joint Base MDL, NJ

* Charges: On 29 June 2015, in the U.S. District Court for the District of Maryland, Kamran Ashfaq Malik (“Malik”), was convicted of violating Section 38 of the Arms Export Control Act (22 U.S.C. § 2778 (2012)) (“AECA”). Specifically, Malik knowingly and willfully exported and caused the exportation of firearm parts and accessories designated as defense articles in Category I of the United States Munitions List, to wit: a .223 caliber rifle lower receiver, a .334 caliber rifle lower receiver, two .223 caliber rifle bolt carriers, and two .223 10 round magazines, from the United States and destined for Pakistan without having first obtained the required licenses or authorizations from the Department of State. Malik was sentenced to 24months in prison, three years o f supervised release, and a $100 assessment.

* Debarred: Malik is denied export privileges under the Regulations for a period of 5 years from the date of Malik’s conviction, until 29 June 2020

* Date of Order: 29 December 2016.

The following represent the considered views of the Export Group for Aerospace, Defence & Dual-Use, and, as such, is proprietary to EGADD and should not be copied or otherwise used without seeking prior permission.

There had been much debate since the Referendum decision to leave the EU. The EGADD Executive committee thought that it could be useful to produce a short paper on the risks and opportunities created by this decision, as far as reasonably possible, ahead of the invoking of Article 50 and the necessary diplomatic negotiations with our former partners in the EU to achieve our desired ends. Much of the legislation in place in relation to Export Controls and Sanctions will not be impacted; however, there will be need for negotiation in relation to EU legislation pertaining to Dual-Use goods and the Intra Community Transfers Directive for Military Goods.

The issues surrounding Authorised Economic Operator (AEO) and the Union Customs Code (UCC) will not be addressed here as there are other, more relevant committees focused on these issues….

Reality Check – BREXIT – The Effect on Export Controls

The challenges for exporters are multiplying. Economic protectionism in the USA, ever stricter sanctions on Russia, Iran and North Korea, and escalating cybercrime are all important considerations for the export market. In the UK however, Brexit is the looming question. Without knowing which form Britain’s separation from the European Union will take, it is difficult for exporters to anticipate what the effects will be on their business. And yet preparedness is essential if they intend to land on their feet.

Stephen Osborne, Research Associate at Project Alpha – King’s College London’s centre for developing countermeasures to illicit trade – outlines two possible versions of Brexit. In one scenario, he told Global Trade Controls’ correspondent, more permissive export controls in the UK could lead to a competitive advantage for UK exporters. The downside, however, is that the UK could “become a target for procurement networks looking to acquire goods for military or WMD programmes,” which would in turn lead to a “reluctance by EU member states and their respective licensing authorities to export dual-use goods to the UK.” What at first sight appears to be a benefit to UK exporters could therefore harm the economy as a whole. The alternative? A stricter UK export control regime which places British exporters at a disadvantage, but preserves the EU’s confidence in the UK as a responsible importer of dual-use goods.

Across the channel, European regulators are also facing tough choices. In their recent proposal for modernising export controls, the EU Commission acknowledged the risks posed to the privacy and security of EU citizens by the increasing proliferation of potentially invasive cyber surveillance technologies. Their response was to expand the definition of dual use items to include “software and technology… which can be used for the commission of serious violation of human rights or international humanitarian law”. By the time the proposals come into effect, most likely in the Spring of next year, exporters will need to familiarise themselves with the new guidelines to ensure that they remain compliant.

Taking place in London this November, the Global Trade Controls conference will convene to discuss these issues and many others. Join an international roster of export compliance professionals, as well as over forty expert speakers, to discuss the implications of Brexit, the modernisation of EU export policy, sanctions under the Trump administration, considerations for exporters in Asia, technology transfers in the cloud, and much more.

Exchange ideas with your peers in a range of interactive sessions including close knit roundtable discussions, networking lunches, and practical case studies on recent developments including ZTE and Epsilon Electronics. On the first day of the conference is the Export Licensing & Trade Controls Seminar, which will provide a comprehensive introduction to trade controls and the process of export licensing.

Speakers for Global Trade Controls 2017 include representatives from Google, IBM, Marshall Aerospace and Defence Group, Deloitte, Thomson Reuters, PricewaterhouseCoopers and many others. Among the confirmed speakers are:

Ian Stewart, Head of Project Alpha, King’s College London

Lillian Norwood, Manager of IBM Governmental Programs, Export Regulation Office, IBM Corporation

Brinley Salzman, Director of Overseas and Exports, ADS Group Ltd

Michael Lutz, Director of Global Trade Compliance, Google

Katja Stockburger, Legal Counsel for Foreign Trade Governance, ZF Friedrichschafen AG

Laurence Carey, Group Control Manager, Marshall Aerospace and Defence Group

Join us at Global Trade Controls this November to hear what they have to say. Find out more here: https://goo.gl/csdYvw

SIPRI is pleased to draw attention to a recently published Concept Paper and set of Good Practice Guides examining the challenges facing the establishment and implementation of an effective Internal Compliance Programme (ICP) by companies and research institutes subject to dual-use and arms export controls.

An ICP is an arrangement that an entity affected by dual-use and arms export controls puts in place to ensure that it is complying with both these controls and its own internal policies. In recent years, the European Union (EU) and national governments have been encouraging companies and other stakeholders to adopt ICPs and to allow those that do so to benefit from reduced administrative requirements. However, while the requirement to have an ICP is being increasingly mainstreamed, the guidance and tools available to companies and other affected stakeholders on how one should be established and maintained is often deficient and not targeted at those most in need of assistance.

This SIPRI Concept Paper maps the key challenges faced by many of the sectors and actors most impacted by the EU’s dual-use and arms export controls, and the steps that have been taken—and could be taken—to help those affected to set up and run an effective ICP. The paper builds on past research by SIPRI in this area as well as information collected from export compliance officers, experts affiliated with industry associations and representatives of European licensing authorities.

The five accompanying SIPRI Good Practice Guides present available sector and actor-specific compliance-related guidance material. They cover the nuclear, defence and aerospace, and information and communication technology sectors, as well as academic and research, and transport and distribution service providers. Each Guide includes guidance material produced by national governments, the EU and other bodies, as well as publicly available ICPs produced by companies and research institutes.

SIPRI would be glad to receive feedback on the Concept Paper and accompanying Good Practice Guides. For more information about SIPRI’s work on dual-use and arms export controls please visit Dual-use and Arms Trade Control Programme homepage or contact Sibylle Bauer or Mark Bromley.

DOWNLOAD THE CONCEPT PAPER AND GOOD PRACTICE GUIDES:

Challenges and good practices in the implementation of the EU’s arms and dual-use export controls: A cross-sector analysis

Internal compliance and export control guidance documents for actors from academia and research
SIPRI Good Practice Guide: Export Control ICP Guidance Material no. 1

Internal compliance and export control guidance documents for the information and communications technology sector
SIPRI Good Practice Guide: Export Control ICP Guidance Material no. 2

Internal compliance and export control guidance documents for the nuclear sector
SIPRI Good Practice Guide: Export Control ICP Guidance Material no. 3

Internal compliance and export control guidance documents for transport or distribution service providers
SIPRI Good Practice Guide: Export Control ICP Guidance Material no. 4

Internal compliance and export control guidance documents for the defence and aerospace sector
SIPRI Good Practice Guide: Export Control ICP Guidance Material no. 5

Stockholm International Peace Research Institute (SIPRI)
SIPRI is an independent international institute dedicated to research into conflict, armaments, arms control and disarmament. Established in 1966, SIPRI provides data, analysis and recommendations, based on open sources, to policymakers, researchers, media and the interested public. SIPRI is regularly ranked among the most respected think tanks worldwide.

Following a query, on behalf of a Member Company, it has been confirmed to EGADD by the UK Ministry of Defence that the ONLY people who are authorised to issue Crown Exemption/Immunity letters to companies to move items on the UK Government’s behalf, are the UK MoD staff who are embedded within the Export Control Joint Unit. No other letters, from any other sources, can or should be relied upon, as we are aware of a number of instances in which companies, who have done so, have been found to be in breach of the regulations. The current information (at the time of writing) on this on the GOV.UK website was not up-to-date, and its guidance was wrong, and should NOT be relied upon. It must also be noted that Crown Immunity does not cascade down through the supply chain, despite comments to the contrary.

If any companies need any further clarification on this issue, they should contact: Brinley.Salzmann@adsgroup.org.uk.

Some of the items covered in the March newsletter include:

  • Current research activities
  • Meet the Project Alpha Staff
  • Study of WMD Proliferation Financing Typologies: Interim Report
  • Examining Intangible Technology Controls
  • DPRK Successful Missile Test
  • Putin, Trump and the JCPOA

Project Alpha – March 2017 Newsletter

2016 News Articles >>

Posted on September 29, 2015

Transparency is a key theme of the Coalition Government and plays a vital role in enabling the public to hold the Government to account. It is particularly important in a high profile area such as export control – confidence in the workings of the export licensing system needs to be shared by Parliament and by the public.

> Transparency-in-Export-Licensing–Government-Response—BIS—July-2012

The Export Control Organisation has just commenced consultations with Industry aimed at the replacement, in 2017, of the current SPIRE electronic licensing system, to produce a new, improved and more user-friendly system for companies to use to apply electronically for import licences, export licences, exhibition clearances, security gradings, F680s, etc, etc. The first formal consultation meeting with Industry took place on 13th January, and a copy of the blog that has been created on this project is available at: www.egadd.org.uk/useful-guidance/. All Members are encouraged to get involved in this process and provide inputs to these consultations.

Please respond with feed back to:

James Curran | Delivery Manager | Digital | Department for Business, Innovation & Skills |1 Victoria St Level 6 Orchard 1 | Mobile 07584 618 200 |www.bis.gov.uk

2015 News Articles >>

Data and information collection for EU dual-use export control policy review

As part of the ongoing review of the EU dual-use export control system, the European Commission is conducting an impact assessment. This study supports the impact assessment through the collection and analysis of data and information. The April
2014 Communication ‘Ensuring security and competitiveness in a changing world’, which outlines the review options, issues and actions provides the overall rationale and framework for this study. The Stockholm International Peace Research Institute (SIPRI) implemented the project jointly with Ecorys during January to September 2015.

The project included three main Actions:

(1) development of the methodology for data collection;

(2) analysis of the baseline scenario through the collection of data and information, both on the structure and performance of directly affected sectors,and with regard to the impact of current controls and related problems; and

(3) the analysis of the review options and corresponding review actions.

The project combines EU- and sector-wide data with case studies on the machine tools, chemical and aerospace sectors. A strong focus of the study has been the implementation and future expansion of controls on exports of cyber-surveillance technologies and related review options.

FINAL REPORT ANNEXES FINAL REPORT – Data and information collection for EU dual-use export control policy review

FINAL REPORT ANNEXES

The Economic Times of India

By Manu Pubby

A formal list of defence items that can be exported has been endorsed by the ministry of defence, bringing India at par with international laws governing arms trade. The move – which identifies 16 broad categories of products that can be exported after clearance – is expected to boost military trade with experts saying that it brings clarity to private companies pursuing export orders.

FULL ARTICLE >

Posted on August 29, 2015

Notices to Exporters 2012/25 and 2012/26 – Republishing of consolidated UK Strategic Export Control List along with number of Open General Export Licences…

Alpha’s new web platform to bring you the latest news on the implementation of trade controls to prevent proliferation. As you know, the Alpha team has been working hard for two years now to improve the implementation of trade controls both from the perspective of what governments are trying to achieve and from the business perspective of how to implement compliance requirements in practice.

The culmination of this research is the new alpha web platform. As Alpha is hosted at the Centre for Science and Security Studies of King’s College London, the site is called @csss, pronounced “access”. Through @csss Alpha has made available information, guidance, training and other resources intended to help implement trade controls. The Alpha team stand ready to discuss trade control implementation.

Posted on June 29, 2015

We have agreed to circulate the draft pages of the HMRC Officers Guidance (VTRANS) for information- please see 3 attached documents.  These pages will update the guidance currently published here: http://www.hmrc.gov.uk/manuals/vtransmanual/index.htm

Other pages (not included) will have consequential amendments to fit the numbering and cross referencing and other minor tweaks.