EGADD NEWS ARCHIVES…
Undermining Efforts to Prevent the Proliferation of Weapons of Mass Destruction: International Governance on the Cheap
Constrained and sometimes arbitrary financial support from member states to many international organizations, particularly those with critical international security functions, risks shortchanging their long-term confidence and makes balanced and objective planning difficult. For organizations devoted to countering the proliferation of weapons of mass destruction, this can negatively impact the deliberation and diligence they require to investigate, analyze and act against state or other actors seeking to unbalance global security norms and architecture. The United States has a pivotal role to play in building support for a global WMD nonproliferation system that works to support U.S. national interests and global security. This will also necessarily involve building international consensus on institutions that do not provide good nonproliferation value-for-money, and seek to reform those organizations so they work towards the common good….
Export Support Service (ESS)
What is ESS?
The Export Support Service is a new helpline and online service where all UK businesses can get answers to practical questions about exporting to Europe. The service is a ‘one-stop shop’ and brings together UK government information, making it easier for exporters to access advice and support.
The helpline and digital enquiry service launched on 1 October.
- The Export Support Service is a new government helpline and online service where all UK businesses can get answers to practical questions about exporting to Europe
- It gives access to cross government information and support all in one place
- If you are a UK business you can use this free service, no matter the size of your business or which part of the UK you are based
- DIT will continue to work with businesses and business representative groups from all sectors, in all parts of the UK, to help make the service as useful as possible for businesses
- You can access the Export Support Service at UK/ask-export-support-team or by calling 0300 303 8955 where you will be put in touch with a member of our dedicated export support team
Classified details of army’s Challenger tank leaked via video game
The Guardian – David Connett
Classified details of the British Army’s main battle tank, Challenger 2, have been leaked online after a player in a tank battle video game disputed its accuracy.
The player, who claimed to have been a real life Challenger 2 tank commander and gunnery instructor, disputed the design of the tank in the popular combat video game “War Thunder”, arguing it needed changing. He claimed game designers had failed to “model it properly”.
To support his argument the player posted pages from the official Challenger 2 Army Equipment Support Publication – a manual and maintenance guide.
Full Client Alert: The Modernisation of EU Dual-Use Export Controls
New EU Dual Use Regulation published
The new EU Regulation 821/2021 replacing (and repealing) Regulation 428/2009 on the control of exports of dual use goods has been published. It will enter into force on 9 September 2021.
For versions in all languages, go to (top right column):
What happens if I violate export controls in the USA? (January – December 2021)
Commerce/BIS/OEE: Fines Skyline USA, Inc. $140,000 for Unauthorized Exports of Police Equipment
(Source: BIS Export Violations, 24 Jun 2021)
* Respondent: Skyline USA, Inc., 3180 St. John’s Parkway, Sanford, FL 32771
* Case ID: E2669
- 15 CFR 764.2(a) – Engaging in Prohibited Conduct; Export of stun guns, pepper spray, police batons, and handcuffs to numerous countries without require export authorization.
- 15 CFR 764.2(i): Failure to Comply with Recordkeeping Requirements
* Voluntary Self-Disclosure: Not indicated
* Settlement Agreement: Yes
* Penalties: $140,000 fine in monthly instalments.
* Debarred from Exporting: Not if fine is paid as agreed.
BIS Reaches settlement with Photonics Industries International Inc
The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) has announced that Photonics Industries International, Inc., of Ronkonkoma, New York, has agreed to pay a civil penalty of $350,000 (with $50,000 payable within 30 days and payment of the remaining $300,000 suspended for a period of two years and then waived if the company has not committed any further violations) to settle the following charges:
- Charges 1-3 15 C.F.R. § 764.2(a) – Engaging in Prohibited Conduct: On three occasions, on or about December 13, 2014, December 17, · 14, and December 20, 2014, respectively, Photonics engaged in prohibited conduct prohibited when it exported RGH-1064-30 picosecond laser systems, items subject to the EAR, to the People’s Republic of China (“China”) without the required BIS licenses. Specifically, Photonics exported 16 such laser systems on or about December 13, 2014, two such laser systems on or about December 17, 2014, and seven additional such laser systems on or about December 20, 2014. At the time of each of these exports, the items were classified under Export Control Classification Number (“ECCN”) 6A005.b.6.b, and controlled for National Security (“NS”) and Anti-Terrorism (“AT”) reasons. Based upon the NS control for the items, a license was required, pursuant to EAR § 742.4, to export them to China. However, no license was sought or obtained for the above-described exports. In transaction documentation for these unlicensed exports to China, Photonics erroneously listed the ECCN applicable to the items as EAR99 and indicated that no license was required for the exports. Photonics had not sought a commodity classification relating to the items from BIS, but, instead, purportedly mistakenly self-classified the items as EAR99. Photonics also directed a freight forwarder to file Electronic Export Information (“EEi”) in the Automated Export System in connection with each of these exports that listed Hong Kong as the ultimate destination and a Hong Kong freight forwarder as the ultimate consignee. Photonics assertedly did so at the request of its customer but knew that China was the actual ultimate destination and that the actual ultimate consignee was located in Shenzhen, China.
- Charge 4 15 C.F.R. § 764.2(c) – Attempt: On one occasion, on or about December 30, 2014, Photonics engaged in prohibited conduct when it attempted to export eight RGH-1064-30 picosecond laser systems, items subject to the EAR, classified under ECCN 6A005.b.6.b, controlled for NS (and AT) reasons, to China without the required BIS license. A license was required, pursuant to EAR § 742.4, to export the items to China, but no license was sought or obtained for this attempted export. In transaction documentation for this attempted unlicensed export to China, Photonics erroneously listed the items as EAR99, apparently based on its mistaken self-classification of the items, and indicated that no license was required for the export. Photonics also directed a freight forwarder to file EEI in the Automated Export System in connection with this attempted export that listed Hong Kong as the ultimate destination and a Hong Kong freight forwarder as the ultimate consignee. Photonics assertedly did so at the request of its customer but knew that China was the actual ultimate destination and that the actual ultimate consignee was located in Shenzhen, China.
- Charge 5 15 C.F.R. § 764.2(a) – Engaging in Prohibited Conduct: On or about May 25, 2016, Photonics engaged in prohibited conduct prohibited by when it exported a DCH-355-3 laser system, an item subject to the EAR, designated EAR99,5 to Sichuan University in Chengdu, China, without the required BIS license. Sichuan University was at all relevant times relevant (and remains) listed on the Entity List, Supplement No. 4 to EAR Part 744, and a BIS license was required to export any item subject to the Regulations to that entity. However, Photonics did not seek or obtain a license for the export of the item to Sichuan University. Although Photonics was aware of BIS’ investigation into the December 2014 transactions described in Paragraphs 1-12, supra, it still did not have in place an export control compliance program that included screening foreign customers against the Entity List (or other BIS or U.S. Government export controls lists).
Click here for the Settlement Agreement and related documentation.
BIS penalises Alsima Middle East General Trading LLC
The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) has announced that Alsima Middle East General Trading LLC, also known as Al Sima Middle East General Trading LLC, of Dubai, United Arab Emirates, has agreed to pay a civil penalty of $50,000 ($12,500 payable within 30 days and the remaining 12,000, $500 suspended for a period of two years and thereafter waived if the company commits no further violations) to settle charges that it committed one violation of EAR § 764.2(g) – Misrepresentation and Concealment of Facts. On or about October 5, 2015, Alsima made false and misleading representations, statements, and certifications in connection with the submission to BIS of a license application for the export to the United Arab Emirates of powder grade nickel. The nickel powder is classified under ECCN 1C240, controlled for nonproliferation and antiterrorism reasons, and required a license to be exported to the UAE. In the submission of the license application, Alsima falsely and misleadingly represented that the nickel powder was to be used to manufacture self-lubricating seal rings in the UAE for distribution in the UAE. On or about April 18, 2016, BIS conducted a Post Shipment Verification (“PSV”) at Alsima. The company’s director stated that the nickel powder was for the manufacturing of specialized compressor rings. However, the director further clarified that Alsima had intended to export the manufactured rings to an Azerbaijani company. The director provided an invoice dated February 14, 2015 – several months before the submission of the BIS-711 and Alsima’s in-user statement, purportedly from the Azerbaijani company for the specialized compressor rings. Click here for the Settlement Agreement and related documentation.
BIS Reaches Settlement Agreement with Dutch company Kleiss & Co BV over sales to Iran
The US Department of Commerce’s Bureau of Industry and Security (BIS) has reached settlement agreement with Kleiss & Co. BV of The Netherlands, who has agreed to pay a civil penalty of US$60,000 and have its export privileges denied for two years to resolve charges that it engaged in two violations of EAR § 764.2(e) – Acting With Knowledge of a Violation. Specifically, on two occasions on or about June 28, 2016, and on or about March 15, 2017, Kleiss ordered, bought, and later concealed details of the export of extruded butyl sealants from the United States on behalf of its Iranian customer with knowledge or reason to know that a violation of the EAR had occurred, was occurring, or was about to occur in connection with the items. The extruded butyl sealants, valued at approximately US$20,951 in total and designated EAR99, are subject to the EAR. Kleiss had reason to know of the prohibitions on exporting US-origin items to Iran without US Government authorization. Specifically, on or about June 28, 2016, Kleiss & Co. ordered and/or bought extruded butyl sealants from its US supplier for a customer in Iran. The US freight forwarder returned the shipment to the US supplier, explaining to the U.S. supplier and Kleiss that they were unable to ship to Iran directly or indirectly: “We cannot ship any cargo to Iran, directly or indirectly. The primary sanctions are still in place despite the JCPOA [Joint Comprehensive Plan of Action].” Despite the previous warning from the freight forwarder, on or about September 2, 2016, Kleiss provided its U.S. supplier with new invoices for the order of extruded butyl sealants, originally purchased for its customer in Iran, and stopped by the freight forwarder, listing a new company and address in Dubai, United Arab Emirates. Kleiss removed all references to Iran from the invoices and packing list in an eff01i to conceal from the freight forwarder and the US Government the ultimate destination of the items. However, the new invoices and packing list provided to the US supplier did not change the invoice number, quantity, or price from the original documents. This order was exported from the United States on or about September 2, 2016.
BIS Reaches Settlement Agreement with TeleDynamics LLP
The US Department of Commerce’s Bureau of Industry and Security (BIS) has reached settlement agreement with TeleDynamics LLP of Austin, Texas, who has agreed to pay a US$55,000 civil penalty to settle charges that it committed 10 violations of EAR § 764.2(b) – Causing, Aiding, or Abetting a Violation. Specifically, on ten occasions between on or about August 11, 2014, and on or about October 20, 2014, TeleDynamics caused, aided, or abetted violations of the EAR, namely the unlicensed export of rifle scopes, items subject to the EAR, classified under Export Control Classification Number (“ECCN”) 0A987, and valued at approximately US$1,047. Specifically, TeleDynamics forwarded the items for export from the United States to Russia and Ukraine. An export license was at all relevant times required to export rifle scopes to Russia and Ukraine pursuant to EAR § 742.7. TeleDynamics was aware of export licensing requirements for rifle scopes, having been notified on a number of occasions by US Customs and Border Protection that shipments of rifle scopes being forwarded by TeleDynamics were detained for not having the required export license.
Trade of Dual-Use Items: New EU Rules Adopted
The EU has upgraded legislation on the export controls applicable to sensitive dual-use goods and technologies such as cyber surveillance tools.
Today the Council adopted a regulation modernising the EU system for the control of exports, brokering, technical assistance, transit and transfer of dual-use items. These are goods, software and technology that can be used for both civilian and military applications.
The new regulation strengthens controls on a wider range of emerging dual-use technologies, and the coordination between member states and the Commision in support of the effective enforcement of controls throughout the EU. By introducing due diligence obligations for producers, the new rules also give companies an important role in addressing the risks to international security sometimes posed by dual-use items.
Finally, the dual-use regulation paves the way for better coordination between the EU and partner countries in enhancing international security through more convergent approaches to export controls at global level.
US Export Regulatory Updates
Here is a summary of the developments, and glad to address anything of interest in more specific detail:
- Sudan. The Commerce Bureau of Industry and Security (BIS) sent to the Federal Register a pre-publication version of a rule removing the export embargo against Sudan. Treasury previously had removed its transaction-based sanctions, and the remaining BIS embargo only applied to controlled items (not EAR99). This rule puts Sudan in Country Group B with most of the rest of the world, removes the antiterrorism (AT) controls, and establishes a 25% de minimis threshold for determining EAR jurisdiction. It goes into effect upon publication, expected Jan. 19. At that point, Sudan will be a “normal” country for trade control purposes.
>> Sudan Rule
- New Addition to MEU List. Another Chinese entity added to the MEU List, in the aircraft sector: Beijing Skyrizon Aviation Industry Investment Co., Ltd. – effective immediately.
- CNOOC. China National Offshore Oil Company was added the BIS Entity List – effective immediately. There is a license requirement (presumption of denial) for everything subject to the EAR, except for: crude oil, condensates, aromatics, natural gas liquids, hydrocarbon gas liquids, natural gas plant liquids, refined petroleum products, liquefied natural gas, natural gas, synthetic natural gas, and compressed natural gas that are identified under one of thirty-seven Harmonized System codes included in the license requirement column; or for items required for the continued operation of joint ventures with persons from countries in Country Group A (closest allies) not operating in the South China Sea.
>> CNOOC Entity List
- Expansion of End Use Controls: effective March 16, 2021, with public comment due by March 1.
>> BIS – End Use Rules
- BIS added a new military-intelligence end use restriction at section 744.22 of the EAR, following the existing military end use rule at section 744.21. This also applies to China, Russia and Venezuela. Unlike the existing military end use rule, which only applies to items on the Supplement No. 2 list, this end use restriction applies to all items subject to the EAR. It functions similarly to the Entity List in that regard, except that exporters have to figure out who are the entities. The rule named several such entities, but it is not an exclusive list, and exporters are required to perform their own due diligence to confirm whether other entities might meet the definition of a military-intelligence end user. Checking for this type of end use will become an important part of due diligence even for EAR99 sales to those countries.
- The catch-all end use restrictions at Part 744 that relate to nuclear proliferation, chem/bio weapons, missiles, etc., have been expanded. Previously, this was one of the few spots in the EAR where the export controls actually applied to *services* performed by U.S. persons (e.g., direct support to a restricted activity). The scope of restricted services has been expanded to cover brokering types of activities (facilitation of support) and other types of services such as performance on contracts relating to those activities. It already is an important part of due diligence to ensure that these WMD end uses are not involved, and this rule just expands the types of services that can be restricted with respect to those end uses.
- BIS has expanded its ability to prevent circumvention of the Entity List. The existing, and continuing, policy is that Entity List restrictions do not apply to the separately incorporated affiliates and subsidiaries of listed entities. A while ago BIS published an FAQ on that point, which is still valid. That FAQ emphasizes the need to conduct thorough due diligence for assurance that the other entity is not acting as a shell or pass-through for the restricted entity. BIS has added a new provision to its Entity List rules at section 744.11, which explicitly gives it the authority in some cases to advise an exporter that transactions with a specific non-listed entity provide a high risk of diversion, and that a license is required when exporting to that non-listed entity. This rule doesn’t substantively change the requirements for dealing with non-listed affiliates, but it underscores the importance of due diligence and end use assurances when doing so.
- DoD Section 1237 List. DoD just released another installment of its Section 1237 list, targeting Chinese tech and aviation companies. Many news articles are describing this as a blacklisting. It is not, although it does trigger some limited sanctions and a red flag for military end use purposes. This list invokes application of Executive Order 13959, which provides for limited sanctions administered by Treasury that prohibit US persons from dealing in the publicly traded securities of those companies. Also, this list creates a presumption that the entities are military end users, and it can be a precursor to getting put on the BIS military end use list or the Entity List. BIS has stated: “parties not listed on the MEU List but included on the Department of Defense’s Section 1237 list of the National Defense Authorization Act would raise a Red Flag under the EAR and require additional due diligence by exporters, re-exporters, or transferors.”
>> DOD 1237 List Update (1-14-2021)
- ICT Supply Chain Rule. The Secretary’s office at the Commerce Department has announced it is issuing an interim final rule to implement Executive Order 13873 from May 2019 concerning “Securing the Information and Communications Technology (ICT) and Services Supply Chain” The rule is pending publication at the Federal Register (pre-publication version attached). It gives the Secretary of Commerce the ability to review and block ICT transactions involving parties from certain countries: the People’s Republic of China (China), the Russian Federation (Russia), the Islamic Republic of Iran (Iran), the Democratic People’s Republic of Korea (North Korea), the Republic of Cuba (Cuba), and Venezuelan politician Nicolás Maduro (Maduro Regime). It goes into effect in 60 days.
>> Commerrce ICT Rule
Melissa L. Duffy
+1 202 641 7941 Mobile
Notice to exporters 2021/01: changes to export control legislation and licensing
Published 08 Jan 2021
GOV.UK guidance on export controls was updated on 31 December 2020 to reflect the end of the EU transition period.
To see the latest guides visit Export Control Joint Unit homepage.
Key changes to export licensing for EU countries
To find out more about:
- exporting dual-use items
- exporting firearms
- exporting civil nuclear material
- trade sanctions
- exporting military items
Visit the guidance on exporting controlled goods.
Also read our guides on:
- UK retained general export authorisations for dual-use goods which replaced EU GEAs
- exporting dual-use controlled items from Great Britain and Northern Ireland
- goods subject to export prohibitions or controls from Great Britain and Northern Ireland if they can be used for torture; capital punishment or inhumane purposes
- exporting firearms from Great Britain and Northern Ireland
- UK sanctions
- UK trade sanctions, arms embargoes and other restrictions
- open general licences for export; transhipment; and trade control
- how to apply for licences
Export Control Joint Unit
3 Whitehall Place
Telephone 020 7215 4594
Contact for general queries about strategic export licensing.
Why arms embargoes on countries such as North Korea fail
North Korea has long profited from the export of arms, missiles and even nuclear technology to other states – even since the sanctions were passed by the UN Security Council. The sanctions era has whittled down the markets for North Korea’s arms, and simultaneously seen the regime in Pyongyang find increasingly elaborate means of raising hard currency.
Illicit networks – such as those showcased in “The Mole” – have allowed North Korea to get around the embargo – exporting arms and importing advanced military, dual-use and manufacturing technologies to build up indigenous production capabilities. The parade in October showcased Pyongyang’s wares for sale, but also the country’s increasingly capable defence industry benefitting from North Korea’s illicit procurement….more
Japan’s 10 industrial associations’ Joint Request letter to Japan’s Government METI on Extraterritorial Application of Chinese and US Regulations
UK exporters of ‘dual-use’ items to EU countries face criminal sanction unless they register in time for an export licence, experts in export controls at international law firm Pinsent Masons have warned.
According to Tom Stocker and Fiona Cameron of Pinsent Masons, the law firm behind Out-Law, action is required from UK exporters of dual-use items ahead of the fast-approaching expiry of the Brexit transition period on 31 December 2020 as the licensing regime is due to change after that date.
From 1 January 2021, an Open General Export Licence (OGEL) will be required. Exporting without a required licence is a strict liability criminal offence, which includes inadvertent breaches, and a more serious offence for deliberate evasion of export controls…more
Below is an English translation of a Japanese 10 industrial associations’ joint request letter to Japanese government METI on Extraterritorial Application of Chinese and US Regulations, CISTEC submitted to METI on 11 November 2020
Trade Support Service: Action Required
With the end of the Transition period just 51 days away we are making every effort to ensure our members and the sectors are as prepared as the can be for the upcoming changes.
Some of this is to be agreed by the UK-EU Joint Committee but, as Government keep reminding us, time is running out. Businesses need clear direction on what changes are coming and what actions they can take to prepare.
Trader Support Service
This is where the Trader Support Service provides some use. In a letter sent yesterday to business groups, Lord Agnew KT urges businesses to sign up to the Trader Support Service (TSS) to help prepare for the end of the Transition period.
The TSS has been up and running since 28 September 2020. ADS has flagged this with members before, as have many business groups, but Lord Agnew KT states in his letter that while many large businesses have signed up, there is growing concern for micro, small and medium sized businesses.
How can TSS help
First of all, TSS is a free service, so there is no loss or cost for businesses signing up. The service is targeted at businesses trading in or with Northern Ireland and will provide initial support in key areas of change including:
- Guidance and training to support traders implementing changes arising from the Northern Ireland Protocol including new declaration requirements
- Enable traders to make declarations with purchasing software
- Help traders save time in completing declarations
We know that traders in Northern Ireland may in fact need a separate XI EORI number and if businesses sign up to TSS before 23 November they will automatically be assigned an XI EORI.
Action to take
Simply, if you are in Northern Ireland or do business with a company in Northern Ireland you should sign up to the Trader Support Service: https://www.gov.uk/guidance/trader-support-service
Secondly, you should encourage your suppliers and customers to sign up too.
Read and share the slide deck from Government preparedness webinars on Northern Ireland linked to the TSS.
Continue to use the ADS Brexit Hub and sign up for the Brexit Bulletin for latest updates and ways to prepare as they become more clear.
Export Control Law of the People’s Republic of China
Posted on October 28, 2020
- Status: Passed
- Legislative Body (Vote): NPCSC (N/A)
- Drafter & Submitter: State Council
- Legislative Plans
- Five-year: 13th NPCSC Category I
- Annual: 2018 (preparatory), 2019 (presumed), 2020
- Legislative History & Texts
- Legislative Records
- Press Conference: N/A
NPC Observer Coverage
- NPCSC Passes Export Control Law & Biosecurity Law, Updates Patent Law, National Flag/Emblem Laws, Election Law & Minors Protection Law (Oct. 17, 2020)
- NPCSC Seeks Public Comments on Draft Patent Law Amendment, Export Control Law, Criminal Law Amendment, Data Security Law & Two Other Bills (July 1, 2020)
- NPCSC Concludes First June Session Before Immediately Scheduling Another, Likely to Adopt Hong Kong National Security Law (June 21, 2020)
- NPCSC Solicits Public Comments on Draft Civil Code, Export Control Law, Yangtze River Protection Law, Solid Waste Law Revisions & Two Tax Laws (Dec. 28, 2019)
- NPCSC Session Watch: Civil Code, Securities Law, Yangtze River Protection, Taiwanese Investments & Export Control (Dec. 17, 2019)
What happens if I violate export controls in the USA? (January – December 2020)
Fine for Singaporean Company
US Department of Commerce’s Bureau of Industry and Security (BIS)
The US Department of Commerce’s Bureau of Industry and Security (BIS) has imposed a US$31.43m fine on Singapore-based Nordic Maritime and its chairman, Morten Innhaug, over the company’s use of US-origin subsea survey equipment in Iranian territorial waters. In July 2011, Reflect Geophysical obtained a license from BIS to re-export subsea survey equipment controlled on national security and anti-terrorism grounds. The equipment was loaded onto the Orient Explorer, a vessel owned by DMNG, a Russian state-owned company. In March 2012, Reflect lost control of the equipment aboard the vessel in Singapore due to DMNG exercising a lien over the controlled surveying equipment as a result of a contractual dispute. Nordic subsequently gained control of the equipment by chartering the Orient Explorer from DMNG. In April 2012, Reflect sent a cease and desist letter to DMNG, Nordic, and Innhaug cautioning the parties that the use of Reflect’s equipment in Iranian waters would violate the terms of the BIS issued re-export license. Despite the warning by Reflect, BIS said Nordic used the controlled equipment to perform a 3D offshore seismic survey in the Forouz B natural gas field in Iranian territorial waters. The survey was conducted pursuant to a contract that Nordic had with Mapna International FZE, a subsidiary of Mapna Group, also known as the Iran Power Plant Management Company.
Further details on this case are to be found at: https://www.bis.doc.gov/index.php/documents/about-bis/newsroom/press-releases/2596-nordic-maritime-press-release-final-08-24-20/file
Pledge Times: “Defense Trade: Europe Desires to Emancipate Itself from the United States”
(Source: Pledge Times, 6 Aug 20) [Excerpts]
Weight? Reliability? Price? These are the usual criteria when the Bundeswehr starts the tender for a device. In three years, the soldiers are said to have new assault rifles in their hands. There is another condition with a key role for the successor of the G36. The chief buyers of the German military are additionally demanding: The components of the new weapon “may not be subject to ITAR regulations”.
The wording hides the instruction that no US components or armament technology may be in the product. The abbreviation ITAR stands for “International Traffic in Arms Regulations” – and for one of the most comprehensive export regulations in the USA. The authorities secure the possibility of control and export restrictions via ITAR regulations. Even if the product and components are not manufactured in the USA, they want to have a say where the products are going, and even who can work on them. After all, it’s about their armament technology.
But now there is resistance in Europe. Events such as the withdrawal of thousands of soldiers from Germany just announced by US President Donald Trump are prompting many local soldiers to demand that Europeans do more for their own security and become more independent.
“ITAR free” is the goal. For a long time now, it’s not just about assault rifles, drones or, as in a recent call for tenders, electronic ammunition detonators for howitzer tanks. The “ITAR free” goal is now considered a sign of self-confidence, self-determination and the search for sovereignty in Europe’s armaments industry and politics.
Even one of the largest European armaments projects, the Future Combat Air System (FCAS) with a new fighter jet as the centerpiece, should manage with as little or as little US technology as possible. A few days ago, Michael Schreyögg, board member of the German engine manufacturer MTU Aero Engines, said that “ITAR free” was definitely the goal for the engine of the so-called superjet, which should be ready for use in 2040. This is to ensure exportability. Airbus armaments chief Dirk Hoke also sees “ITAR free” efforts as an industrial policy aspect. “To be a real reliable partner for NATO and the Americans in transatlantic alliances, we have to develop and develop our own capabilities in Europe.”
So it is no wonder that Europe’s arms managers are always happy to listen when President Emmanuel Macron talks about the “strategic autonomy” of France and the European Union. … When the leading French engine manufacturer Safran recently presented a technical cooperation with the German transmission specialist ZF Friedrichshafen for a large propeller engine, the slogan “ITAR free” was emblazoned on a presentation slide. It was emphasized several times that it was a “100 percent European solution”. Everything stays in Europe, the patents, the supplies. The sure sovereignty, especially since the engine could be installed in the large military drone “Euro drone”.
“One of the advantages of 100 percent European products is that the data from operations remains in Europe and does not end up in the hands of non-European countries,” says the sales manager of the saffron helicopter division Florent Chauvancy. Then it becomes clear: “With ‘ITAR free’ and without the requirements of other American regulatory systems, Europe gets more freedom to whom defense products are delivered.” …
Of course, there is also a business calculation behind the statements. The new saffron helicopter engine is in the Euro drone competition with a drive from the US company General Electric. It is not purely European. Saffron therefore relies on the “ITAR free” joker.
However, Europe’s arms emancipation is still at the very beginning. So far, it has been impossible to do without US technology in some areas. The Bundeswehr is currently in the process of selecting a new heavy transport helicopter. There are only two US products to choose from here – either from Boeing or Lockheed Martin / Sikorsky. Europe has nothing to offer in the large helicopter class. The situation is similar with larger missiles for air defense systems.
The rules even have an impact on the staff. The Munich lawyer Matthias Creydt, who works as a consultant for the defense industry, also calls for a realistic assessment of the extent to which US defense technology can be dispensed with. In addition, the ITAR list, which had been blown up in the Cold War, had already been defused by the USA a few years ago with an export control reform. There used to be tens of thousands more items on it, even the smallest parts of a few grams or about glue. If it was used in European products, the USA had a say in where these products could be delivered or taken.
Industry specialist Creydt admits that the US arms export control regulations are still very complex. They go so far that even former citizenships of people can play a role in who can work on the products with US defense technology components or know-how at all.
America’s ITAR regulations even influence the personnel policy of European defense and space groups. Even with later German citizenship, an Iranian has practically poor chances of working on an armaments project using US technology. Ironically, this also applies to the same extent to US citizens who work outside the United States. For their work in projects related to armaments or missiles, these require regular approval from the US authority.
At the Federal Armed Forces Procurement Agency, the so far only isolated tenders with ITAR-free conditions are not officially declared politically. Here we talk more of practical considerations. Due to the regulations, there are reporting obligations to the US government and various approval requirements, it says. “This restricts the use of a product considerably and requires complex configuration management”, is communicated on request. “In this respect, the ITAR-free requirement is associated with both time and cost savings.”
JD Supra: “DOJ and OFAC Settle with UAE Company for $665,112 for Violations of North Korea Sanctions”
(Source: JD Supra, 29 Jul 2020) [Excerpts]
The Justice Department and OFAC announced a settlement with Essentra FZE Company Limited (“Essentra FZE”), a cigarette filter and tear tape manufacturer, for violation of the North Korea Sanctions Program. The violations were based on payments for goods that were received by a foreign branch of a U.S. bank.
Essentra FZE, a UAE company, manufactures and sells cigarette filters and tear tape for customers in the Middle East, Africa and elsewhere. It is a subsidiary of Essentra plc, a UK pubic company, that manufacturers essential components, cigarette filters and packaging materials, with operations in 33 countries. Prior to March 2019, Essentra FZE was owned by a joint venture between Essentra plc and a foreign-based tobacco company.
DOJ entered into a three-year deferred prosecution agreement in exchange for the payment of a $655,112 payment. OFAC entered into a settlement for $665,112, and stated that Essentra FZE’s payment to DOJ would satisfy its obligation to OFAC. Essentra FZE did not voluntarily disclose the conduct.
DOJ stated that the enforcement action was its first against a corporate actor for violation of the North Korea Sanctions Regulations. DOJ’s participation in the settlement, and inclusion of the DPA, reflected DOJ’s application of its Export Control and Sanctions Enforcement Policy for Business Organizations. Based on this Enforcement Policy, DOJ’s participation in sanctions enforcement matters is expected to increase.
The Illegal Transactions
Essentra FZE exported cigarette filters to the Democratic People’s Republic of Korea (“DPRK”) through a network of front companies in China and other countries and received payments for shipments of these goods in its bank accounts at a foreign branch of a U.S. bank.
The scheme occurred over roughly a one-year period starting in 2018, when a senior manager from Essentra FZE and an employee were introduced to a DPRK national at a business meeting arranged by the regional director of a foreign tobacco company. The DPRK national asked if Essentra FZE could manufacture cigarette filter rods to export to the DPRK.
Subsequently, the Essentra FZE employee exchanged messages with the DPRK national who instructed, “[D]on’t mention that customer is in my country… You just mention China or where else. Contract will be signed by other foreign company.” The DPRK national asked Essentra FZE to avoid identifying the DPRK several times. …
OFAC Penalty Calculation
OFAC outlined its penalty calculation – the maximum civil penalty was $923,766. Essentra FZE did not voluntarily disclose the conduct. OFAC determined that the violations constituted an egregious case. The base civil penalty was $923,766.
OFAC agreed to a discount to $665,112 based on the following aggravating and mitigating factors:
- Essentra FZE wilfully violated the North Korea Sanctions Regulations (“NKSR”);
- The Essentra FZE senior manager and employee had actual knowledge that the conduct involved the sale of cigarette filters to the DPRK.
- Essentra FZE’s conduct significantly harmed foreign policy objectives.
- Essentra FZE is part of a sophisticated commercial group operating in international filters markets around the world.
- Essentra FZE has not received a prior penalty notice or finding of violation in the preceding five years.
- Essentra FZE cooperated substantially with OFAC’s investigation.
- OFAC noted that the settlement prohibited processing financial transactions even though no U.S. persons were involved in the underlying commercial activity – shipment of goods to or from a third country to an OFAC-sanctioned country.
Tennessee man pleads guilty to smuggling items to Iran
10 March 2020
The US Department of Justice (DOJ) has announced that Aiden Davidson, a-k-a Hamed Aliabadi, of Tennessee, has pleaded guilty in Federal Court to smuggling goods from the United States to Iran. According to court documents and statements made in court, Davidson is a citizen of Iran and a naturalized citizen and resident of the United States. Davidson was the manager/member and registered agent of a New Hampshire limited liability company, Golden Gate International, LLC (“Golden Gate”). Babazedeh Trading Co., a/k/a “Babazadeh Hydraulic Trading Group” (“Babazadeh”) was an Iranian company that operated an online resale business based in Tehran, Iran. Stare Lojistik Enerji Sanayi Ticaret (“Stare”) was a Turkish freight forwarding company with a location in Igdir, Turkey. Between December 2016 and February 2017, Davidson and Golden Gate smuggled goods from Savannah, Georgia, to Babazadeh in Iran. The goods included motors, pumps, valves, and other items that were valued at more than US$100,000. Documents related to the shipments falsely identified the Ultimate Consignee of the shipments as Stare in Turkey. In causing the unlicensed exportation of these goods, Davidson and Golden Gate wilfully evaded national security controls related to transactions with Iran. Again, between April 2017 and August 2017, Davidson and Golden Gate knowingly smuggled goods from Savannah, Georgia, to Babazadeh in Iran. The goods included displacement pumps that were valued at approximately US$13,000. Documents related to these shipments falsely identified the Ultimate Consignee of the shipments as Ariyanis Group in Turkey. In causing the unlicensed exportation of these goods, Davidson and Golden Gate wilfully evaded national security controls related to transactions with Iran. The defendant is scheduled to be sentenced on June 17, 2020.
Further information is to be found at: https://www.justice.gov/usao-nh/pr/tennessee-man-pleads-guilty-smuggling-goods-united-states-iran
Why is China Introducing New Export Controls?
The Standing Committee of the National People’s Congress will deliberate on China’s new export control law at a session starting Tuesday, October 13, 2020, with the goal of safeguarding national security interests and could ban Chinese suppliers from doing business with specific foreign companies. This law is expected to be enacted next year. Details are awaited on what will be the scope of these restrictions, what constitutes a threat to national security, guidance for firms to establish internal compliance mechanisms, and what happens in case export controls are violated.
Further Details – Why is China Introducing New Export Controls?
US National Strategy for Critical and Emerging Technologies
The National Security Strategy (NSS) lays out a vision for promoting American prosperity; protecting the American people, the homeland, and the American way of life; preserving peace through strength; and advancing American influence in an era of great power competition. It calls for the United States to lead in research, technology, invention, and innovation, referred to here generally as science and technology (S&T), by prioritizing emerging technologies critical to economic growth and security. The NSS also calls for the United States to promote and protect the United States National Security Innovation Base (NSIB), which it defines as the American network of knowledge, capabilities, and people – including academia, National Laboratories, and the private sector – that turns ideas into innovations, transforms discoveries into successful commercial products and companies, and protects and enhances the American way of life.
Full report – National-Strategy-for-CET
Paying Ransomware Demands May Violate Sanctions, US Treasury Warns
Never pay. Insurers and others are warned by US Treasury Dept that cyberattack payouts to hackers may violate US sanction rules
US officials have issued a stark warning to financial institutions and insurers who have paid hackers following cyberattacks…more
EU companies selling surveillance tools to China’s human rights abusers
European tech companies risk fuelling widespread human rights abuses by selling digital surveillance technology to China’s public security agencies, a new Amnesty International investigation reveals. The findings are published ahead of a crucial meeting in Brussels on 22 September where the European Parliament and EU member states will decide whether to strengthen lax surveillance export rules…more
Written Statement – Trade Update – Made by: Elizabeth Truss (Secretary of State for International Trade)
I want to update the House on the steps that have been taken to comply with the judgment of the Court of Appeal of 20 June 2019 regarding licences for military exports to Saudi Arabia for possible use in the conflict in Yemen.
The legal proceedings concerned the decisions of the then Secretary of State for Business, Innovation and Skills of 9 December 2015:
- Not to suspend extant export licences for the sale or transfer of arms and military equipment to Saudi Arabia for possible use in the conflict in Yemen; and
- To continue to grant further such licences.
The legal proceedings concerned Criterion 2c of the Consolidated EU and National Arms Export Licensing Criteria – which requires the Government to assess Saudi Arabia’s attitude towards relevant principles of international law and provides that the Government will not grant a licence if there is a clear risk that the items might be used in the commission of a serious violation of international humanitarian law (IHL).
The Divisional Court found in favour of the Government in its judgment of July 2017, noting that we applied a rigorous and robust, multi-layered process of analysis to making our licensing decisions. Our approach has focused on a predictive evaluation of risk as to the attitude and future conduct of the Saudi-led coalition, recognising the inherent difficulties of seeking to reach findings on IHL for specific incidents where we do not have access to complete information. Even so, this analysis has always incorporated a detailed and careful review of past allegations of incidents of concern. This included analysis, to the extent possible, of whether there were patterns of concern, in particular arising from trends in the number of allegations of civilian casualties and of damage to key civilian infrastructure. The Court of Appeal broadly endorsed this decision-making process.
The principal issue in the Court of Appeal was whether this analysis needed to go further. In the Court’s judgment, the question of whether there was an historic pattern of breaches of IHL was a question which required to be faced. Even if it could not be answered with reasonable confidence for every incident, at least the attempt had to be made. It was because we had not reached findings on whether specific incidents constituted breaches of IHL as part of our assessment of clear risk, under Criterion 2c, that the Court of Appeal concluded that our decision-making process was irrational and therefore unlawful.
To address the Court of Appeal’s judgment, we have developed a revised methodology in respect of all allegations which it is assessed are likely to have occurred and to have been caused by fixed wing aircraft, reflecting the factual circumstances that the court proceedings concerned. Each of those allegations has been subject to detailed analysis by reference to the relevant principles of IHL and in the light of all the information and intelligence available. An evaluation has then been made, in respect of each incident, whether it is possible that it constitutes a breach of IHL or whether it is unlikely that it represents a breach. For a number of incidents, as envisaged by the Court of Appeal, there is insufficient information to make this evaluation. Where an incident is assessed as being a “possible” breach, it is regarded – for the purposes of the Criterion 2c analysis – as if it were a breach of IHL. By setting the threshold as “possible” the IHL analysis has captured the widest range of relevant potential IHL breaches, to provide a base from which to assess the prospective risk for Criterion 2c.
The IHL analysis has now been applied to all credible incidents of concern of which we are aware. Some of these incidents have been assessed as “possible” violations of IHL. These have therefore been factored into the overall Criterion 2c Analysis on the basis that they are violations of IHL.
We have sought to determine whether these “violations” are indicative of:
(i) any patterns of non-compliance;
(ii) a lack of commitment on the part of Saudi Arabia to comply with IHL; and/or
(iii) a lack of capacity or systemic weaknesses which might give rise to a clear risk of IHL breaches.
We have similarly looked for patterns and trends across the incidents which have been assessed as being unlikely to be breaches of IHL and those for which there is insufficient information to make an assessment.
This analysis has not revealed any such patterns, trends or systemic weaknesses. It is noted, in particular, that the incidents which have been assessed to be possible violations of IHL occurred at different times, in different circumstances and for different reasons. The conclusion is that these are isolated incidents.
I want to emphasise that the IHL analysis is just one part of the Criterion 2c assessment. In re-taking these decisions, I have taken into account the full range of information available to the Government. In the light of all that information and analysis, I have concluded that, notwithstanding the isolated incidents which have been factored into the analysis as historic violations of IHL, Saudi Arabia has a genuine intent and the capacity to comply with IHL.
On that basis, I have assessed that there is not a clear risk that the export of arms and military equipment to Saudi Arabia might be used in the commission of a serious violation of IHL.
Having now re-taken the decisions that were the subject of judicial review on the correct legal basis, as required by the Order of the Court of Appeal of 20 June, it follows that the undertaking that my predecessor gave to the Court – that we would not grant any new licences for the export of arms or military equipment to Saudi Arabia for possible use in Yemen – falls away. The broader commitment that was given to Parliament, relating to licences for Saudi Arabia and its coalition partners, also no longer applies.
The Government will now begin the process of clearing the backlog of licence applications for Saudi Arabia and its coalition partners that has built up since 20 June last year. Each application will, of course, be carefully assessed against the Consolidated EU and National Arms Export Licensing Criteria and a licence would not be granted if to do so would be a breach of the Criteria. It may take some months to clear this backlog.
Finally, as indicated in the statement made to the House on 20 June 2019, we sought permission to appeal to the Supreme Court against the Court of Appeal’s judgment. Permission was granted by the Court of Appeal on 9 July 2019. In light of the revised methodology which I have just described, I will now be taking steps to withdraw this appeal.
See online here
US BIS – Tightening Restrictions on Exports to China, Russia and Venezuela
Expansion of Export, Reexport, and Transfer (in-Country) Controls for Military End Use or Military End Users in the People’s Republic of China, Russia, or Venezuela. Final Rule. (85 FR 23459) (April 28, 2020)
Current Export and Trade Control Licensing Delays
As many UK companies are already aware, the UK Government has been working hard to try to address the current delays that are being widely experienced with the UK export and trade control licensing system. The situation is extremely challenging for all involved, and is fundamentally a knock-on from the 20th June 2019 Appeal Court ruling (on the Kingdom of Saudi Arabia and its coalition allies in Yemen) and the 15th October 2019 Ministerial announcement to Parliament (on licences for Turkey). ECJU is well aware of the issues that have been caused for companies, as a result, and the intense frustration that many of you are experiencing. The good news is that it is anticipated that ECJU should be able to start clearing the backlog in the near future, which will likely take at least c.3 months.
However, in the meantime, and to assist the Government in its efforts to work its way through the backlog in a rational, thoughtful and strategic way, it has requested help from Industry to try to prioritise its efforts, and focus its finite resources on those cases which are really urgent and need to be expedited, so as to try to minimise the extent of any damage to UK Industry’s commercial interests. This will be a new, temporary approach which is going to be put in place to try to help to clear the current backlog of held up licence applications in a measured and controlled way, with companies seeking to try to highlight to HMG any REALLY urgent cases, which HAVE to be prioritised for processing, and where this claim for urgency can be fully and rationally justified by the applicants. Other cases will continue to be dealt with in chronological order on the basis of when they were received by the ECJU
To that end, the UK Government, first and foremost, will be seeking to try to focus on the most urgent priority cases, by working with the major prime contractors to see if it might be possible to coral together a number of relevant licence applications which are related to the same project, so these can be dealt with in small batches. These major prime contractors are to be directly contacted separately and individually by the UK Government.
Whilst this is going on, ADS had been asked to assist in the implementation of a temporary triage system whereby other UK exporters, outside of the major prime contractors, can seek help to prioritise their applications which are part of the backlog on the basis of perceived urgency. Such prioritisation efforts must be fully justifiable. If a company is able to provide sufficient justification that their case is really urgent and needs to be prioritised, then these cases can be raised with the ECJU for possible expediting. We need to be fair to all parties, but, especially if some justification can be provided as to why particular cases need to be expedited, that would be extremely useful for the ECJU. However, approaches by individual companies to ECJU need to be done sparingly and in an informed way, as seeking to expedite any particular licence through the system will, of necessity, result in diversion of resources from the processing of other cases. However, it must be made clear that cases will continue to be reviewed and decisions made on a strict case-by-case basis against the consolidated criteria – this is purely a prioritisation exercise to help manage the processing of cases, and it will not influence the decision, itself.
Clearly potential risk to contracts that have been awarded and where the company concerned has evidence it can share that business may about to be lost will be one key reason for possible prioritisation. The size of the order is not an issue, as what might be small, low-level business to a prime, might represent an existential threat to a smaller company, who is likely to have a much smaller financial tolerance level to losing business. Also, what might be a very small value contract could be for trial and demonstration purposes, and potentially lead on to significantly larger future business, and the establishment of a long-term, strategically-important commercial relationship. There will be other criteria for prioritisation.
The focus at the moment is on those licences which have been impacted by the 20th June 2019 Appeal Court ruling on Yemen, covering licences for any of the Saudi Arabian-led coalition partners active in Yemen (including: UAE, Kuwait, Bahrain, Jordan, Senegal, Sudan and Egypt), and I will be in touch separately regarding Turkey, in due course.
If any companies want to raise any cases that they feel need to be expedited due to their perceived urgency, they should send the details of their most urgent and pressing cases, including: the relevant licence application numbers; end user; date when the licence application was submitted; date when the contract was signed; and whether it relates to an item that is part of a wider supply chain, along with justification as to why your case(s) need to be expedited, to Brinley.Salzmann@adsgroup.org.uk so he can see if he may be able to raise them with the Government for early resolution over the coming weeks.
EGADD TCCG Members Survey 2020
The Export Group for Aerospace, Defence & Dual-Use (EGADD) and techUK’s Trade & Customs Compliance Group (TCCG) are jointly conducting a survey to enable them to assess the scale of the problems (and lost business) which have and are being experienced by UK firms as a direct result of the current delays and “issues” with export licensing that have been being experienced since the 20th June 2019 Appeal Court ruling. This does NOT just relate to KSA, its allies in Yemen, and Turkey, but is seeking details of wider problems that have been experienced by UK exporters. This will then enable ADS and techUK to consider making effective representations to senior officials of the UK Government.
This survey will consider all aspects of the export/trade control licensing process. We are seeking feedback on companies’ practical experiences of dealing with the UK’s export and trade control licensing system over the past 8 months (ie in the period 20th June 2019 to 20th February 2020).
The intention would be to produce a consolidated summary report with any major generic, common issues or concerns being put to the ECJU for their response.
All supplied information will be treated in extreme confidence, and will be anonymised as far as practicable, unless companies specifically state that they are happy to be quoted.
This Survey seeks inputs from Members concerning their current experiences when working with the existing system.
Please answer all that are relevant to you. If they are not, just skip them.
Please provide in free-form text any additional and/or innovative ideas and suggestions you might wish to share with us.
Members are requested to download, complete and return the survey form by Friday 20th March to Brinley.Salzmann@adsgroup.org.uk
CFIUS, FIRRMA and Emerging Technology Update
Posted on March 5, 2020
- August 2018, John S. McCain National Defense Authorization Act for Fiscal Year 2019 (NDAA) (H.R. 5515, 115th Cong. (2018))
Companion legislation: approaching the problem from different angles
– Foreign Investment Risk Review Modernization Act (FIRRMA)
– CFIUS – Reviews foreign investment in the US
– Export Control Reform Act (ECRA)
– BIS – Reviews exports, reexports and transfers (in country)
- Policy Objectives
– Slowing down Chinese leadership in emerging technology
– Maintaining the integrity of supply chains
– Identifying trusted investors aligned with US national security and foreign policy interests
– On November 10, 2018, the CFIUS Pilot Program came into effect, implementing mandatory declaration filings
– On February 13, 2020, comprehensive new regulations came into effect implementing FIRRMA (and ending the pilot program)
– Two rules defining control parameters for certain emerging technologies
On-Demand Trade Compliance Training Launched for Exporters
Posted on January 20, 2020
Immediate Release – Wednesday 15 January
New on-demand trade compliance training has been launched by the Export Group for Aerospace, Defence & Dual-Use (EGADD), and online trade compliance training provider Content Enablers, have partnered to produce new training.
The new training is the result of extensive work by EGADD – the UK’s only dedicated national industrial body dealing exclusively with export control issues – and Content Enablers to identify and address the training needs of exporters of controlled goods. It is designed to increase robust understanding of the regulations and promote compliance in export control mechanisms.
Created in an engaging, self-paced format, the training programme is designed to reflect both job function and compliance responsibility with specific modules for professional staff as well as compliance practitioners.
The new online training products are now available to EGADD members who are encouraged to use the subscription-based model to complete their training, reinforcing and extending their trade compliance knowledge. Upon completing the training, participants will receive Certificates of Continuing Professional Development from King’s College London.
Brinley Salzmann, Director of Overseas and Exports at EGADD and ADS, said:
“Our member companies operate an increasingly complex global trade environment. Ensuring that their leadership and employees in marketing and business development, engineering, human resources, and other roles understand how to spot potential red flags is critical to avoiding potential fines, penalties, and reputational damage.
“We wanted to make certain that our member companies have access to the best trade compliance training possible, and Content Enablers has a proven track record of providing training to leading companies in the aerospace and defence industry.”
Brad Kabanuk, President of Content Enablers said:
“Content Enablers has supported the compliance training needs of UK companies for two decades, but the need for effective training has never been more pronounced. This partnership with EGADD leverages our expansion into on-demand learning-as-a-service and our collaboration with King’s College London for continuing professional development units for our courses.”
“We are truly excited to partner with EGADD to create a unique trade compliance training offering for their member companies. Given our extensive experience in the UK aerospace and defense industry, combined with our unique learning model and industry-first partnership with King’s College London, we are well positioned to add significant value as a partner for EGADD.”
Notes to Editors
ADS is the UK trade organisation representing the aerospace, defence, security and space sectors, with more than 1,100 member businesses.
The Export Group for Aerospace, Defence & Dual-Use (EGADD) is a not-for-profit-making special interest industry group, founded in September 2004, focusing exclusively on all aspects of export and trade control matters. EGADD is the only dedicated national industrial body in the UK dealing exclusively with export control issues. EGADD operates under the joint auspices of ADS, British Marine, the British Naval Equipment Association (BNEA), the Society of Maritime Industries (SMI), and techUK.
About Content Enablers
Recognized as the most comprehensive online global trade compliance training solution, our platform is used by leading companies around the world, ranging from the Fortune 500 to small businesses that create the products and services that drive business forward and affect our everyday lives. Whether you’re looking for a solution to train your professional staff, trade compliance practitioners, or suppliers, you can rely on Content Enablers to help you move global trade forward efficiently and compliantly.
New Interim Final Rule Creates End-to-End Encryption Carve-Out for ITAR Technical Data
Posted on January 6, 2020
By: Olga Torres and Derrick Kyle
The Department of State Directorate of Defense Trade Controls (“DDTC”) has published an interim final rule (“the Interim Final Rule”) seeking public comments and clarifying that certain transfers of encrypted technical data are not exports, reexports, or retransfers subject to the International Traffic in Arms Regulations (“ITAR”).
The new definition of “activities that are not Exports, Reexports, Retransfers, or Temporary Imports, is found at 22 C.F.R. § 120.17 and reads, in its entirety, as follows:
(a) The following activities are not exports, reexports, retransfers, or temporary imports:
(1) Launching a spacecraft, launch vehicle, payload, or other item into space.
(2) Transmitting or otherwise transferring technical data to a U.S. person in the United States from a person in the United States.
(3) Transmitting or otherwise transferring within the same foreign country technical data between or among only U.S. persons, so long as the transmission or transfer does not result in a release to a foreign person or transfer to a person prohibited from receiving the technical data.
(4) Shipping, moving, or transferring defense articles between or among the United States as defined in § 120.13 of this subchapter.
(5) Sending, taking, or storing technical data that is:
(ii) Secured using end-to-end encryption;
(iii) Secured using cryptographic modules (hardware or software) compliant with the Federal Information Processing Standards Publication 140-2 (FIPS 140-2) or its successors, supplemented by software implementation, cryptographic key management, and other procedures and controls that are in accordance with guidance provided in current U.S. National Institute for Standards and Technology (NIST) publications, or by other cryptographic means that provide security strength that is at least comparable to the minimum 128 bits of security strength achieved by the Advanced Encryption Standard (AES-128);
(iv) Not intentionally sent to a person in or stored in a country proscribed in § 126.1 of this subchapter or the Russian Federation; and
(v) Not sent from a country proscribed in § 126.1 of this subchapter or the Russian Federation.
NOTE TO PARAGRAPH (a)(5)(iv): Data in-transit via the Internet is not deemed to be stored.
(b)(1) For purposes of this section, end-to-end encryption is defined as:
(i) The provision of cryptographic protection of data, such that the data is not in an unencrypted form, between an originator (or the originator’s in-country security boundary) and an intended recipient (or the recipient’s in-country security boundary); and
(ii) The means of decryption are not provided to any third party.
(2) The originator and the intended recipient may be the same person. The intended recipient must be the originator, a U.S. person in the United States, or a person otherwise authorized to receive the technical data, such as by a license or other approval pursuant to this subchapter.
(c) The ability to access technical data in encrypted form that satisfies the criteria set forth in paragraph (a)(5) of this section does not constitute the release or export of such technical data.
>>Click Here for full article
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.
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….
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:
- “On the Update to the Application of Export Controls to the Republic of Korea Misconceptions Regarding the Implementation of Export Controls ―Accurate Understanding Avoids Confusion!―”
◎CISTEC’s detailed explanatory materials in English:
- “On the Update of the Application of Export Controls to the Republic of Korea Basic Interpretation Regarding the Implementation of Japan’s System of Export Controls”
- “On the Revision to the Application of Export Controls Dated August 7” (Preliminary Report)
○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 firstname.lastname@example.org
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 email@example.com
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.
* 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
– 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.
– 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
– 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
– 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
– 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
– 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.
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:
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.
– 15 CFR Part 764.2(g) – Mispresentation and concealment of facts
– 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:
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:
|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.)
– Trilogy International Associates, Inc., Altaville, CA; and
– William Michael Johnson, Angels Camp, CA
– 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.
– 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.
– 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. …
– 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
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.
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.
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.
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
Partner, Washington, D.C.
T: +1 202 261 3322
Melissa L. Duffy
Partner, Washington, D.C.
T: +1 202 261 3388
Counsel, Washington, D.C.
T: +1 202 261 3407
Darshak S. Dholakia
Associate, Washington, D.C.
T: +1 202 261 3467
Michael A. Grant
Associate, Washington, D.C.
T: +1 202 261 3337
The CFIUS Reform Legislation—FIRRMA—Will Become Law on August 13, 2018
Posted on August 17, 2018
- 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.
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.
- China Releases Draft Export Control Law for Public Comment – Covington – July 21, 2017
- Change is Coming: China Proposes New Export Control Law (IRB No. 563) – Lexology – July 24 2017
- Change is Coming: China Proposes New Export Control Law – World Trade Controls – 8 September 2017
- China Prepares New Export Control Law – World ECR – August 2017
- China – What to Watch: Draft Export Control Law of China – Baker McKenzie – January 17, 2018
- A guide to China’s new Export Control Law – MiC – 3 November 2017
- Significant changes to export control laws proposed – Deloitte Tax@Hand – 07/19/2017
- Draft Chinese Export Control Law Would Make Significant Changes – STR Trade – June 29, 2017
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 …
What Happens if I Violate Export Controls in the USA? (Jan – Dec 2017)
|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
* 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. …
– 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:
* 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”). …
– 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. …
– 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
– 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.
– 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. …
– 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 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:
* 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.
Reality Check: BREXIT – The Effect on Export Control – Aug 2017
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….
Announcing Global Trade Controls, The Leading International Venue for Discussing Export Controls, Sanctions and the Regulations for Trading Duel-use Goods – Aug 2017
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 Study Examines the Challenges Associated with Implementing Effective Internal Compliance Programmes – Aug 2017
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:
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.
Crown Exemption – July 2017
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.
Project Alpha Newsletter – Mar 2017
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
What happens if I violate export controls in the USA – January – December 2016
BIS: Transparency in Export Licensing – Government Response – Jul 2012
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.
Import / Export Licensing Service – Mid-discovery Show & Tell – Jan 2016
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
SIPRI Work on Duel-use Export Controls and Cyber-surveillance Technologies – Dec 2015
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.
Indian Arms Export to get a Boost as Ministry of Defence Okays 16 Broad Categories of Products – Oct 2015
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.
BIS: Republishing of Consolidated UK Strategic Export Control – Aug 2015
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 – Export Compliance – Jul 2015
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.
HMRC: Aircraft Infraction Update – Nov 2010
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.