Export Control Blog

Welcome to the Violation Time Machine

As those of you who've been reading this blog for a while already know, the Bureau of Industry and Security's FOIA reading room is a treasure trove of export violation data and one that I mine frequently.  There is no better source of hard facts on the government's commercial export control enforcement priorities.  Enforcement officials might say that a certain industry or practice is at the top of their list, but enforcement actions -- fines, denial orders, and other penalties -- are where the rubber meets the road.

There are some limits to the usefulness of these data.  For starters, settlement agreements are a backward-looking indicator. Years may pass between when the alleged violation was committed (or even discovered by the feds) and a settlement is reached or penalty assessed.  By the time a case is published to the web, OEE may well have reprioritized their workload and turned their attention from, say, crime control items to stuff useful in developing chemical weapons.  And of course neither written or oral warnings nor charging letters which do not result in a penalty ever find their way to the web.  (These usually remain under lock and key in some now-quite-relieved compliance manager's desk drawer.)

Still, with these caveats in mind, the violation data can be quite helpful in understanding what sorts of activities are likely to attract the most unwanted attention from federal law enforcement.  There's just one further problem -- the BIS website only archives violation documents going back to February of 2000.  For whatever reason, BIS removed the links to the earlier cases.  That's unfortunate because there is undoubtedly much useful info in those documents.  Wouldn't you like to know how often companies exporting products under the same ECCNs as yours have been penalized?

As a service to our readers, ECB has compiled about eighty of the earlier case documents (numbers E563-E644) dating as far back as January 1998 into a single 50 megabyte zip file.  Go crazy.

NSA Trying Real Hard to Impress the Kiddies

Via Bruce Schneier:

The NSA has a site for kids.

Crypto Cat, Decipher Dog, and friends.

Export Control Ernie isn't part of the gang, but one of Schneier's readers couldn't help himself:

That sounds like a nice utopian world, but shouldn't it read "not passing unbreakable ciphertext in class"? It could be something like:

Dear kids, please ensure that your teacher can decipher all your messages. If you figure out how to make something unbreakable, please bring it to your teacher for proper review and full credit. Thank you. Sincerely, Your government.

Hmmm...that sounds awfully familiar.

I Have to Praise You Like I Should

Apologies for the light posting schedule lately.  Blame the fixer-upper I'm in the middle of renovating.  I hope to pick up the pace again by next week, but I didn't want to wait on this post.

The Bureau of Industry and Security comes in for a fair share of ribbing on this blog, so I thought it only fair to follow Fatboy Slim's sage advice and offer credit to our friends at 14th Street and Pennsylvania Avenue in recognition of something they did right recently.  It wasn't really a big thing, but a few small things done right.

On behalf of a client, I requested authorization for the use of License Exception ENC (unrestricted, if you must know) to export the company's new software product.  That was on October 20.  By November 9 the review was complete and waiting for me to review in SNAP.  For those of you following along at home, that's only twenty days.  Pretty quick.  Not only that, but the assigned Information Technology Controls Division export policy analyst quickly let me know when she had received the supporting documentation I sent and gave me a heads up when she was about to sign off on the review.

The skeptics among you are probably thinking "so what, that's what they're supposed to do".  And that's true, as it goes.  But it's also beside the point.  If Commerce could dispose of every classification, license exception, de minimis report, etc. in no more than the time it took for this encryption review, the burden on US exporters of every restriction in the EAR would be reduced proportionately.  Short of a massive decontrol (which, uh, ain't happening) slashing processing times is probably the most helpful step the export control bureaucracy can take.  So keep it up, guys.

Oh, there's one more thing I've been meaning to compliment BIS on, but it probably doesn't deserve its own post.  So I'll just say it here: nice cake.

ACT November

The latest version of Arms Control Today is up and, as always, there's much to recommend.  Wade Boese details the reaction of Nuclear Suppliers Group members to US proposals to upgrade civilian nuclear cooperation with India.  And you'll want to pay special attention to a timely analysis of multilateral export controls from former Commerce Department director of Strategic Trade and Foreign Policy Controls Jim Lewis.

All that and an index that's bound to make you wonder how you possibly missed so much relevant writing last month.

Compliance Tech Tip: Convert Files to PDF for Free

In the last compliance technology tip of the day, I explained how to use a Firefox extension to download multiple files from a site all at once -- something that comes in very handy for picking up the latest online versions of the EAR or ITAR.  It could even prompt you to finally toss out your hardcopy regs altogether, though the need to use Firefox (which is not that common in corporate environments) and the multi-step process may have understandably caused your eyes to glaze over.

There's no such excuse with today's tip.  It is very simple.

No matter how hard we might try to move to an electronic document management environment, the reality is that manging export compliance still often requires pushing a lot of paper around.  Sometimes though it is useful to convert documents into electronic form.  Maybe you want to scan all your licenses so they can be easily viewed and managed by personnel in multiple locations?  The universal standard for sharing documents is increasingly Adobe Acrobat (or pdf).  Adobe makes the Acrobat viewer available for free on its website, but the software that actually allows you to create Acrobat files can only be downloaded for a fee.

Fortunately, there's an alternative -- CutePDF Writer, freeware which enable you to turn almost any document into an easily shared Acrobat file.  Just follow the simple directions, restart your computer, and presto -- now you're able to create pdfs from most every application.

Indiana Jones and the Last Legal Authority Under IEEPA

From the ECB mailbag:

At the recent Update Wendy Wysong was asked under what authority the Office of Export Enforcement is making pseudo 'denied party' publications via the Unverified List for those companies/organizations/individuals "to which BIS could not conduct a pre-license check ("PLC") or a post-shipment verification ("PSV") for reasons outside of the U.S. Government's control."  Ms. Wysong said she was not able to answer the question at the briefing, but invited exporters to send her an e-mail to ask for the legal authority citations.

Somehow I don't think there will be a line of folks e-mailing OEE for this information.

Do you have any insight into this issue?

Best Regards,
Raider of the Lost Citation

I've looked in to this one ROTLC (great name by the way).  I even checked my notes from the Update enforcement plenary, but I don't recall this particular exchange.  That doesn't mean it didn't happen -- I could have missed something.  But may I be so bold as to suggest that you may actually be referring to this bit of Q&A (quoting from my paraphrased notes here) which isn't exactly as you remember it:

Q: What is your authority in imposing denial orders (since the Export Administration Act is expired)?

A: We believe we have the authority, but there is pending litigation on this so we're going to punt to the chief counsel’s office.

The Update questioner was referring to the good old fashioned Denied Persons List not the relatively newfangled Unverified List.  He was questioning the Commerce Department's authority to issue denial orders while operating under IEEPA.  Now, there was some discussion of PSVs and PLCs elsewhere in the Q&A, but I don't recall the legal authority angle on those.

Does anyone have a different recollection?  If so, make ROTLC's day and leave a comment using the link below.

UPDATE: Direct from the horse's mouth, attorney Michael Deal chimes in (from the comments section):

I am the fellow that asked that question: Specifically, I first observed that unlike the EAA, IEEPA had no specific authority for denial orders, and then noted that under the Administrative Procedures Act, agencies can not impose sanctions unless authorized by law. It may have been a tad unfair to ambush Wendy like that, but I wanted to make a point in a public way that in the absence of statutory authority, BIS can not impose denial orders under the expired EAA. Judge Bates' analysis in his opinion in October in the Quinn case in DC District court, to which Wendy alluded, while not directly on point, supports the general proposition that authorities in the EAA that are not expressly replicated in IEEPA can not be invoked through the "emergency" Executive Order continuing the EAR after the expiration of the EAA.

The portion of Judge Bates' opinion dealing with enforcement of the EAR under an expired EAA runs about ten pages, which you can read for yourself (pdf, start on p. 16).  Ultimately, the court ruled against the government, granting the defendants motion to dismiss this charge:

...IEEPA -- whether or not it authorized the President to reissue other regulations promulgated under the EAR "as if they were issued" under IEEPA -- cannot confer authority on the President to promulgate regulations criminalizing conspiracies to violate trade embargoes when neither IEEPA nor the EAA, as written at the time of IEEPA's passage, supplies any basis for a conspiracy offense.

...In sum, the Court cannot sustain Count One of the indictment as consistent with IEEPA's grant of regulatory authority to the President, and therefore the Court will grant defendants' motion to dismiss Count One for failing to properly charge the offense of conspiracy. It is important to note that the Court is not saying that defendants could not be charged with conspiracy to violate trade embargo laws, for example under 18 U.S.C. § 371. But the indictment does not do so, and, as framed based on the EAR, Count One cannot survive.

Export, etc. 11/4/05

• In face of a US arms embargo, Indonesian navy turns to Russia and...the Netherlands?
• Swiss helped out South Africa's apartheid-era nuke program
• US to decide on AESA radar for Indian Air Force
• Rollout of Sun's computing power on demand limited by export controls
• Congress out of the loop on Indian nuclear deal?
• Helpful new defense trade resource from the Aerospace Industries Association
• AS Lichtenbaum in London
• Yale president optimistic export control crackdown on research can be softened
• Hastings to Havana: Nebraska to sell $30M of food to Cuba (and it's not just the cornhuskers)

The Slightly Odd Couple: USAID and BIS

A reader, Puzzled in Portland, is questioning an unusual pair of recent export enforcement actions:

$5,500 fines for causing misrepresentation of country of origin on a Shipper’s Export Declaration?!  I refer to http://efoia.bis.doc.gov/ExportControlViolations/E928.pdf and http://efoia.bis.doc.gov/ExportControlViolations/E929.pdf in which these 2 guys fibbed to a company that the foreign-made equipment they sold was really US-origin.  When the company subsequently exported the equipment, they indicated that the goods were domestic on the SED.  I assert that most US exporters use "D" and "F" interchangeably on SEDs (or AES) every day.  These violations date back to 2000, but may relate to OEE’s and ICE’s newfound "data cop" delegation of authority.  What am I missing?  Is there more to the story?

It is a standard practice for BIS to tack paperwork violations on top of more primary charges such as exporting an item without a required license.  To understand what I mean, a useful example is the charging letter (pdf) sent by OEE to Laurel Industrial of California about a year ago.  In the letter BIS accuses Laurel of making three shipments of acoustic systems classified 6A001 to China.  A lesser federal law enforcement agency might write it up as three charges and call it a day.  But not the men and women of OEE.  Their charging letter to Laurel included a total of nine charges for the three shipments -- three for the unlicensed exports to China, another three for exporting with knowledge that violations would occur, and lastly, three for indicating on the SEDs that no license was required.  Laurel ultimately settled for $44,000, which is $11,000 more than the maximum civil penalty BIS could have assessed based on the three primary charges alone.  Now you can see why tacking on as many charges as possible is advantageous to OEE.  With an expired EAA and relatively low civil penalty maximums under the authority of IEEPA, more charges mean more leverage and (theoretically at least) better deterrence against export control malfeasance.

But, getting back to PIP's question, that doesn't entirely explain the recent cases against former Jackmoon, USA Inc. executives Lei Jack Chen and Spencer Clark Rogers.  The one and only charge against this pair related to when they "sold or transferred foreign origin sealing products located in the United States...to a U.S. exporter under the representation that the parts were of U.S. origin" causing "the U.S. exporter to file or cause to be filed a Shipper’s Export Declaration with the U.S. Government that falsely represented that the country of origin for the parts was the United States."  In other words, the only charge against both Chen and Rogers was that they told their US-based customer that the product they were selling was of US origin when in fact it was not.  The US customer then relied on their statements to complete the SED.

What's really strange about the cases against Chen and Rogers is that the SED-related charge is the only one leveled against either of them.  Just as it is typical for paperwork-related charges to be added to an enforcement action originating from more serious accusations, it is atypical for the only charge in a case to revolve around an inaccurate SED.  So I'm sure PIP is not the only one wondering if there's more to the story.  Unfortunately, the charging letters and settlement agreements on the BIS site don't provide any additional context.

And that's where the trail would run cold were it not for a pair of press releases from, of all places, USAID.  Here's the relevant piece of the one about Rogers:

The United States Agency for International Development's Office of Inspector General announced today that a plea was made on October 20, 2003, as a result of a two-year investigation by its Washington Field Office. Spencer Clark Rogers, former Vice President of Sales for Jackmoon, USA, Inc. pled guilty in U.S. District Court for the Central District of California to violating 18 U.S.C. 371 (Conspiracy) and 18 U.S.C. 1001 (False Statements).

According to a plea agreement filed with the U.S. District Court on August 1, 2003, Rogers admitted that he and other employees of California-based Jackmoon conspired and agreed to remove, and instruct other Jackmoon employees to remove the "Made in China" and place "Made in USA" designations on parts and packaging, or containers of part. These were sold and shipped to a USAID-funded prime contractor working on a telecommunications project in Egypt. The conspirators falsely represented the parts as having been made in the U.S. knowing that USAID funding for the purchase of parts supplied under the project was contingent on those parts being of U.S. origin.

A few months later USAID released an almost identical statement about Chen's guilty plea.

And there's your answer -- in the course of participating in a USAID program with a US-origin mandate, these two took an illegal shortcut by changing some markings from China to USA.  Somehow OEE caught wind of the USAID IG's investigation and decided to slap another charge on Chen and Rogers.

Pretty creative law enforcement, not to mention something to concentrate the minds of those who participate in USAID programs.