Archive for 2002

Brokering Barb Digs Deeper

Monday, December 30th, 2002 by Maarten Sengers

You don’t think you have a brokering compliance issue? Think again. ’97’s Christmas present from the Office of Defense Trade Controls (ODTC) unwrapped the latest exemplar of muddled yet sweeping regulatory writing: the ITAR Part 129 brokering provisions. The thrust of the provision is to require that people and companies that act as paid agents for others in negotiating the sale of defense articles or services (a.k.a. brokers) register with ODTC.  In addition, such brokers must frequently obtain prior approval to conduct brokering activity.

Little did we know about the ODTC gift under our tree. Figuring out the nitty gritty – how and when you must to comply with the brokering provisions in the context of your business – was extraordinarily difficult.  The writing and structure of this provision is so horrendously twisted a regulatory scholar could write a treatise on what these few pages could possibly mean. Rather than figuring it out, many companies coped instead by dismissing the provisions out of hand as inapplicable to them with a “we’re not brokers” attitude.

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Prosecution for Lack of Export Due Diligence for Domestic Transactions

Monday, December 30th, 2002 by John Black

A domestic company orders a defense article part from your company.  What due diligence do you do to ensure the product is not intended for export? If you know the product is intended for export, what due diligence do you take to ensure a license is in place? If you know or have reason to know that a defense article is intended for export, you should verify that your customer holds an export license. The best method of verification is to ask for a copy of the license. A recent enforcement case underscores that point.

According to an Associated Press report dated December 11, Federal prosecutors have indicted a number of individuals and small companies for shipping engine starters used for defense aircraft to a domestic location. The owner of the domestic customer happened to US Customs, who accused the defendants of failing to verifying the end use.  Some refer to this as a sting.

According to the AP report, the US prosecutor stated “today’s indictments allege not that the defendants knew the parts were destined for Iran or some other prohibited party or source. Rather, the charges allege that the defendants took no action to ascertain the end user of these items. Simply put, the indictments allege that these companies acted as if they did not care.”

It’s questionable if Customs would target mainstream defense manufacturers for similar stings. But the prosecution underscores the point that domestic transactions should not completely fall off the radar scope of your export compliance program.

Exemption Clarification for Canadian Registered Persons

Thursday, December 26th, 2002 by John Black

While your company was on shutdown or otherwise closed for the holidays, ODTC officials were still punching the clock. In a Federal Register notice dated December 26, State made a minor regulatory change to the Canadian Exemption.

The Canadian exemption, ITAR 126.5(b), states that you can only use the exemption for defense article exports if the defense articles are destined for return to the US, a Canadian Federal, Provincial or Territorial Government, as well as “Canadian-registered persons.” A Canadian registered person is defined as somebody registered in accordance with the Canadian Defence Production Act.

In the Federal Register Notice, State expanded the language slightly by stating that other Canadian companies designated on the ODTC website or by other means are also eligible for the Canadian Exemption. At this time, no such companies are listed on the ODTC website, www.pmddtc.state.gov, so rule change seems to have no immediate impact.

Prohibited Party List Changes December 2002

Tuesday, December 3rd, 2002 by John Black

In a State Department Notice dated December 3, 2002 , the following alias’ of the Kurdistan Workers’ Party was added to the designated terrorist list:

Kurdistan Freedom and Democracy Congress

Freedom and Democracy Congress of Kurdistan

KADEK

Likewise in another State Notice dated December 17, the following group was also added designated as terrorist threat to the US:

Moroccan Islamic Combatant Group (GICM)

In a Bureau of Industry Notice dated December 11, 2002, the following person was added to the Denied Parties List for his involvement in the illegal export of high performance computers to a Russian nuclear weapons lab, a high profile case dating back to the mid’90’s.

Alexander Zisman, 2 Flotskaya, 81,
Moscow, Russia, 125565

OFAC also joined on the Kurdistan bandwagon and added related parties to their SDN list in a notice dated 12/03/2002

Three additional “a.k.a.”s have been added to the KURDISTAN WORKERS’ PARTY [FTO][SDGT] designation–FREEDOM AND DEMOCRACY CONGRESS OF KURDISTAN, KADEK, and KURDISTAN FREEDOM AND DEMOCRACY CONGRESS–resulting in the following primary entry:

KURDISTAN WORKERS’ PARTY (a.k.a. FREEDOM AND DEMOCRACY CONGRESS OF KURDISTAN; a.k.a. HALU MESRU SAVUNMA KUVVETI [HSK]; a.k.a. KADEK; a.k.a. KURDISTAN FREEDOM AND DEMOCRACY CONGRESS; a.k.a. PARTIYA KARKERAN KURDISTAN; a.k.a. PKK; a.k.a. THE PEOPLE’S DEFENSE FORCE) [FTO][SDGT]

Prohibited Parties Lists Changes November 2002

Saturday, November 30th, 2002 by John Black

1. Commerce Department Unverified List

In the November 21, 2002 Federal Register, the Commerce Department REMOVED the following entity from its Unverified List:

S.B. Submarine Systems Co., Ltd.

1591 Hongqiao Rd., Bldg. 15

People’s Republic of China

2. Commerce Department Denied Parties List

In the November 18, 2002 Federal Register Department of Commerce denied the export privileges of the following party:

Oerlikon Schweisstechnik AG (also known in Switzerland as Oerlikon-Welding Ltd.)

Neumbrunnerstrasse 50

CH-8050 Zurich, Switzerland,

Commerce alleged that Oerlikon committed three violations of the Export Administration Regulations (EAR) by soliciting the export of cellulose from the United States to Iran and related conspiracy charges. Commerce also charged another party, Reweld AG of Switzerland, with two violations of the EAR for its role. According to Commerce the “conspirators” represented the transaction to the US supplier as an export from the United States to Switzerland.

Commerce and Oerlikon reached a settlement in which Oerlikon goes on the denial list for one year (with six months suspended) and pays a fine of $33,000. Commerce and Reweld reached a settlement in which Reweld would pay a fine of $11,000.

The cellulose, which is classified as EAR99, would be eligible for reexport from inventory outside of the United States to Iran without a US license. US regulations, however, prohibit the export of the same material from the United States if it is destined for a third country and then ultimately for Iran. According to US Government charges, however, Oerlikon and Reweld knew at the time of export the material was destined for Iran, a violation of US rules.

The violations are based on Commerce allegations that “the conspirators placed an order for the abovementioned goods without identifying the [sic] Iran as the ultimate destination of the export and attempted to export the goods to Iran.” Commerce also said that the “conspirators” violated the regulations by the mere act of placing an order for the US-origin items knowing the items ultimately were destined for Iran.

Because, according to Commerce, both the act of placing the order and the act of not identifying Iran as the final destination were EAR violations, an interesting aspect of this case is that two parties located outside of the United States were charged with violations for an attempted (or nearly attempted) export from the United States. In most cases, parties outside of the United States are charged with reexport violations and are not charged for attempting to cause an illegal export from the United States. This is an interesting extension of liability for export violations to parties outside the United States who place orders for illegal exports and do not tell the US exporter the final destination of the export.

3. Office of Foreign Assets Control Lists

The Office of Foreign Assets Control published three changes to its prohibited parties lists on its website during November:

11/22/2002-OFAC added the following to its Specially Designated Global Terrorist list:

MOROCCAN ISLAMIC COMBATANT GROUP (a.k.a. GICM; a.k.a. GROUPE ISLAMIQUE COMBATTANT MAROCAIN) [SDGT]

11/19/2002-OFAC redesignated Benevolence International Foundation on its “Specially Designated Global Terrorist” [SDGT] list as follows:

OFAC deleted the following entry:

BENEVOLENCE INTERNATIONAL FOUNDATION, INC., 20-24 Branford Place, Suite 705, Newark, NJ 07102, U.S.A.; 9838 S. Roberts Road, Suite 1-W, Palos Hills, IL 60465, U.S.A.; P.O. Box 548, Worth, IL 60482, U.S.A.; U.S. FEIN: 36-3823186 (all financial assets and all records are blocked) [BPI-PA]

OFAC added the following entries:

BENEVOLENCE INTERNATIONAL FOUNDATION (a.k.a. AL BIR AL DAWALIA; a.k.a. BIF; a.k.a. BIF-USA; a.k.a. MEZHDUNARODNYJ BLAGOTVORITEL’NYJ FOND), 8820 Mobile Avenue, 1A, Oak Lawn, IL 60453, U.S.A.; P.O. Box 548, Worth, IL 60482, U.S.A.; formerly at 9838 S. Roberts Road, Suite 1W, Palos Hills, IL 60465, U.S.A.; formerly at 20-24 Branford Place, Suite 705, Newark, NJ 07102, U.S.A.; Bashir Safar Ugli 69, Baku, Azerbaijan; 69 Boshir Safaroglu St., Baku, Azerbaijan; Sarajevo, Bosnia-Herzegovina; Zenica, Bosnia-Herzegovina; “last known address,” 3 King Street, South Waterloo, Ontario, N2J 3Z6 Canada; “last known address,” P.O. Box 1508 Station B, Mississauga, Ontario, L4Y 4G2 Canada; “last known address,” 2465 Cawthra Rd., #203, Mississauga, Ontario, L5A 3P2 Canada; Ottawa, Canada; Grozny, Chechnya; 91 Paihonggou, Lanzhou, Gansu, China 730000; Hrvatov 30, 41000, Zagreb, Croatia; Makhachkala, Daghestan; Duisi, Georgia; Tbilisi, Georgia; Nazran, Ingushetia; Burgemeester Kessensingel 40, Maastricht, Netherlands; House 111, First Floor, Street 64, F-10/3, Islamabad, Pakistan; P.O. Box 1055, Peshawar, Pakistan; Azovskaya 6, km. 3, off. 401, Moscow, Russia 113149; Ulitsa Oktyabr’skaya, dom. 89, Moscow, Russia 127521; P.O. Box 1937, Khartoum, Sudan; P.O. Box 7600, Jeddah 21472, Saudi Arabia; P.O. Box 10845, Riyadh 11442, Saudi Arabia; Dushanbe, Tajikistan; United Kingdom; Afghanistan; Bangladesh; Bosnia-Herzegovina; Gaza Strip; Yemen; U.S. FEIN: 36-3823186 [SDGT]

BENEVOLENCE INTERNATIONAL FUND (a.k.a. BENEVOLENT INTERNATIONAL FUND; a.k.a. BIF-CANADA), “last known address,” 2465 Cawthra Rd., Unit 203, Mississauga, Ontario, L5A 3P2 Canada; “last known address,” P.O. Box 1508, Station B, Mississauga, Ontario, L4Y 4G2 Canada; “last known address,” P.O. Box 40015, 75 King Street South, Waterloo, Ontario, N2J 4V1 Canada; “last known address,” 92 King Street, 201, Waterloo, Ontario, N2J 1P5 Canada [SDGT]

BOSANSKA IDEALNA FUTURA (a.k.a. BECF CHARITABLE EDUCATIONAL CENTER; a.k.a. BENEVOLENCE EDUCATIONAL CENTER; a.k.a. BIF-BOSNIA; a.k.a. BOSNIAN IDEAL FUTURE), Salke Lagumdzije 12, 71000 Sarajevo, Bosnia-Herzegovina; Hadzije Mazica Put 16F, 72000 Zenica, Bosnia-Herzegovina; Sehidska Street, Breza, Bosnia-Herzegovina; Kanal 1, 72000 Zenica, Bosnia-Herzegovina; Hamze Celenke 35, Ilidza, Sarajevo, Bosnia-Herzegovina [SDGT]

11/06/2002-OFAC added the following entries to its Specially Designated Global Terrorists (SDGTs) list:

ECHEBERRIA SIMARRO, Leire; member ETA; DOB 20 Dec 1977; POB Basauri (Vizcaya Province), Spain; D.N.I. 45.625.646 (individual) [SDGT]

ECHEGARAY ACHIRICA, Alfonso; member ETA; DOB 10 Jan 1958; POB Plencia (Vizcaya Province), Spain; D.N.I. 16.027.051 (individual) [SDGT]

IZTUETA BARANDICA, Enrique; member ETA; DOB 30 Jul 1955; POB Santurce (Vizcaya Province), Spain; D.N.I. 14.929.950 (individual) [SDGT]

VALLEJO FRANCO, Inigo; member ETA; DOB 21 May 1976; POB Bilbao (Vizcaya Province), Spain; D.N.I. 29.036.694 (individual) [SDGT]

Iran Bans Advertisements/Commercials for US Products

Friday, November 29th, 2002 by John Black

According to Reuters reports, the Iranian Ministry of Culture and Islamic Guidance has ordered that its press and broadcasters no longer run advertisements for US products. Why, you may ask, would there be advertisements in Iran for US products when the United States has a comprehensive trade embargo on Iran-certainly there are no US products for sale in Iran you may be thinking. Well, if you think that is true, send me a check for $2 million so that I can access $40 million I have stuck in a Nigerian bank and I will send you $20 million when I get those funds.

Yes, America, despite the comprehensive US embargo on Iran, US products are available in Iran.

But let’s look at the bright side. Perhaps the Iranian Government’s recent actions to strengthen US trade embargo on Iran is an indication of upcoming improvement in relations between the two countries.

Aircraft to Yugoslavia

Monday, November 25th, 2002 by John Black

BIS finally lifted the last remnants of the arms embargo to Yugoslavia on November 25. The primary aerospace impact of the regulatory change is to make complete aircraft classified as 9A991.a NLR eligible to Yugoslavia. Up until the notice, complete commercial aircraft still required an export license to Yugoslavia, even though commercial aircraft parts did not.

The rule change also lifts licensing requirements on a variety of other ECCN’s, a few of which may be of interest to the aerospace community, such as 6A003.b.3 imaging cameras and 6A002 optical sensors. There’s more good news for those of you who enjoy mounting 0A989 water cannons on your aircraft. They too are now NLR to Yugoslavia.

Update on Upcoming Mandatory AES Filing

Thursday, November 21st, 2002 by John Black

The latest news on the Automated Export System (AES) front is that the International Traffic in Arms (ITAR) will be amended to establish preshipment filing times for Shipper’s Export Declarations (SED) of all Munitions List items. The new requirement will be that SED’s must be filed 8 hours prior to departure for air shipments, and 24 hours for vessel shipments. Other ITAR changes related to AES are expected, but how soon is anybody’s guess.

A final Census regulation on mandatory SED filing through AES is now expected in the coming month. That regulation will go into effect 90 days after publishing. So by the Spring, we should be filing all our SED’s electronically. Please be ready as the new penalties for failing to file SED’s now look almost as bad any license violation penalty.

The new penalty provisions under the Security Assistance Act of 2000 is an administrative civil penalty of $1,000 per day for up to $10,000 per transaction for delaying filing or failing to file an SED. But the new criminal sanctions for failing to file or filing misleading information is $10,000 per violation or five years imprisonment, or both. An additional embarrassment is admitting to your cellmates that you were locked up for failing to file an SED.

The buzz in Washington is that further AES related changes may be in the offing in 2003. Customs and Census are seriously considering extending preshipment filing requirements to commercial shipments. A natural extension is removing AES Option 4, which allows for post shipment filing of SED information. No definitive decisions have been made on either of these changes.

We have not been pounding the hallways of ODTC lobbying to remove the ITAR requirement for copying ODTC on SED’s for hardware shipments pursuant to an ITAR exemption (22 CFR 123.22(c)). We are in fact in favor of this arcane requirement, as it inevitably leads to many easy audit findings. But some appear to make tired old efficiency arguments that exemption SED’s can more effectively be routed electronically directly to ODTC by Census or Customs under the new mandatory AES.

Two Years of Undervalued Exports = $115,000 Fine

Thursday, October 31st, 2002 by John Black

On October 31, 2002, the Commerce Department announced it had reached a settlement agreement with Maria Ibanez, the president and owner of International High Tech Marketing (IHTM) for SED violations.  Allegedly, IHTM understated the value of its exports on numerous occasions between 1996 and 1998.  Because of the understated value on it commercial invoices, for all of the exports in question IHTM to committed one of these two violations:  1) IHTM failed to file an SED when, in fact, an SED was required because its false invoice value was under the $2500 threshold for the SED requirement; or 2) IHTM made a false statement on its SED by putting the false value on the invoice on the SED.None of the violations were for failure to obtain an export license because none of the exports required a license.  Most of the exports, even at their real value, were less than $10,000.  Still, Ms. Ibanez agreed to a $115,000 fine and a five year suspended membership on the Denied Parties List.

Even though I read the 50 or so pages of the charging letter, settlement agreement, and orders, I don’t know many other facts of the case.  But, if I were to venture a guess, I would bet that IHTM was undervaluing its exports so that its foreign customers would pay less import duties.  I haven’t seen anything that indicates that IHTM was trying to violate US rules, except to the extent that she put a false value on her invoices.

So, the next time somebody in your company comes to you and asks that you put a less than 100% accurate value on an invoice, when that person says “What’s the big deal?” you can tell them about Ms. Ibanez and her $115,000 fine.

ODTC’s Secret License: General Correspondence

Sunday, October 27th, 2002 by Maarten Sengers

WARNING: This information is SECRET. If you are not authorized to read this, you must continue to wrestle with officially acknowledged licenses only: DSP-5’s, 73’s, 61’s, 85’s or Technical Assistance Agreements (TAA). Only companies “in the know” may read about the Office of Defense Trade Controls’ (ODTC) secret license: general correspondence. All others must stop reading now.

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