The Bureau of Industry and Security (“BIS”) issued a press release today announcing a consent decree between the agency and Ericsson de Panama S.A. in Panama City, Panama. Under the consent decree, Ericsson’s Panamanian subsidiary agreed to pay $1.753 million to settle charges that it violated the U.S. embargo on Cuba. BIS’s press release alleges that Ericsson de Panama imported mobile telephones from Cuba into Panama for repair. The company is then alleged to have re-packaged the telephones to conceal their Cuban origin. The phones were sent to the United States for repair and then returned by the company to Cuba once the repaired phones had been received back from the United States. The press release noted that the company avoided criminal prosecution, notwithstanding the “egregious” nature of the violations, because the matter had been voluntarily disclosed and the company had cooperated with the agency’s investigation.

The agency could assert jurisdiction over a Panamanian company here because the Panamanian company imported and exported the Cuban phones from and to the United States. This is different from situations, such as we discussed in our last post where none of the activity at issue occurred in or had any nexus with the United States.

Of even more significant interest, the press release indicates that the agency required, and the company consented to, a “company-wide export audit conducted by an independent third party of all transactions connected with Cuban customers.” Unlike other cases where BIS has permitted part of the fine to be allocated to compliance costs, it appears that in this case the cost of the audit will be a cost to the company above and beyond the hefty monetary fine exacted by BIS.

Finally, it should be noted that the items involved here are personal communications devices that since 2009 have been eligible for export and re-export to Cuba. However, the exports in questions occurred between 2004 and 2007, before the new rules were in effect. The new rules also apply only to donated mobile phones, and it seems doubtful that all the phones involved in this case had been donated to people in Cuba.

You may be scratching your head, and rightly so, about what OFAC was doing futzing around in the business of U.K. investment managers and their advice to, and investment in, funds in island-based tax havens. Part of the reason appears to be that OFAC believed GAM to be a U.S. company, even though its website, linked above, shows the company to be based in the United Kingdom. There must be some connection to the United States — hence the voluntary disclosure and the fine — but OFAC is not letting on what it is.

But even if GAM is based in the United States, this is still a fairly tenuous basis to penalize GAM based on these facts. There is nothing in the OFAC announcement that indicates that GAM facilitated, or was otherwise involved in, U.K.-based GIM’s purchase for a Gurnsey fund of shares in a Cayman fund. The release says that officers of GAM “were aware of the conduct giving rise to the apparent violation.” But mere knowledge that a foreign affiliate engaged in a transaction for foreign companies involving Iran is not enough absent some finding that the GAM officers participated in or somehow facilitated the transaction.

UANI’s latest campaign is to pressure automobile companies to stop doing business in Iran. (If nuclear scientists can’t drive to work, that will apparently cripple Iran’s nuclear ambitions.) Wallace’s testimony before the Committee, however, contained this interesting nugget:

Despite its extensive business in Iran, Peugeot has partnered with American automaker General Motors, a company partly owned by the U.S. Treasury.

In fact, in March, General Motors bought 7 percent of Peugeot. The Treasury Department, which administers U.S. sanctions against Iran, owns about 25 percent of GM. And now it indirectly owns a piece of Peugeot which ships complete knock-down (CKD) kits to Khodro in Iran. Khodro then assembles and sells the Peugeots in Iran. Apparently, the export of CKD kits by Peugeot to Khodro in Iran has been stopped for the moment. Peugeot cites the risky financial situation in Iran and not the GM investment as the reason it temporarily stopped shipping CKD kits to Iran.

As part of its campaign against automakers, UANI is pushing an acronym-errific piece of legislation it calls the DRIVE act. That stands for the Debarment and Restrictions for Iranian-related Vehicle Enterprises Act and would require automakers to certify that they are not doing any business in Iran to be eligible for government contracts or financial assistance. (I suppose calling it the Car Restrictions Against Persians Act was out of the question.)

Before you accuse me of being soft on Iran, I do support smart sanctions which target goods that are useful for nuclear proliferation and groups in Iran involved in nuclear proliferation. However, keeping Peugeots out of Iran won’t accomplish much other than, perhaps, to bankrupt Iranian car repair garages that all do gangbuster business fixing broken-down Peugeots.

Sort of.

Here’s what she said, which is the only official announcement so far of the new policy

Today, I am also announcing new steps to permit American investment in the country and export of U.S. financial services. These are the most significant adjustments to our previous policy that have been taken to date. The United States will issue a general license that will enable American businesses to invest across the economy, allow citizens access to international credit markets and dollar-based transactions.

Late in her remarks the Secretary indicated that the United States would maintain the arms embargo against Burma, which would prohibit sales of any item on the United States Munitions List to Burma.

But then came this curious exchange which suggested that the “general license” might not be so “general.”

QUESTION: Secretary Clinton, regarding the easing of economic restrictions, will the – will U.S. companies be able to invest and trade with Myanmar state-owned companies, including in the oil and gas sector? And also, you talk about the corporate responsibilities of U.S. companies. Will these expectations be binding under U.S. law?

…

SECRETARY CLINTON: Well, thank you. First, let me say our presumption is that our companies will be able to deal in every sector of the economy with any business. That is a rebuttable presumption in the event that there is a company whose reputation, whose practices, are not in keeping with our stated policies of corporate responsibility or other matters that rise to our attention. But the presumption is that our oil and gas companies, our mining companies, our financial services companies are all now free to look for investments that can be mutually beneficial to Burma and to them.

Huh? Presumption? What part of “general license” do we not understand here? Perhaps Secretary Clinton means that if the U.S. doesn’t like a particular investment made pursuant to the general license it can revoke this “presumption” and revoke the general license as to that transaction. That, of course, would mean that making a new investment in Burma would be more risky than most companies could tolerate. We will have to wait and see exactly what the general license says when it is issued.

On May 15, Ulrich Davis, a citizen and resident of the Netherlands, was sentenced to six months in prison and a $2,000 fine. He was charged with violating a Temporary Denial Order issued by the Bureau of Industry and Security (“BIS”).

The TDO in question was issued on October 1, 2007, against Aviation Services International, B.V., in the Netherlands, as well as affiliated and related individuals and entities in the Netherlands. Cyprus, and the UAE, and arose out of allegations that the parties subject to the TDO had shipped U.S. origin items to Iran. According to the Criminal Information, which served as the basis for Davis’s plea, Davis provided freight forwarding services involved in the export of acrylic adhesives and spray-paint coatings” from a company in the United States to an unspecified company listed on the TDO. All actions charged in the Criminal Information were undertaken by Davis entirely within the Netherlands and outside the United States.

The reason that Davis wound up being hauled in front of a U.S. federal district court and charged with violating U.S. criminal laws is that he traveled to the United States and was arrested at Newark Liberty Airport on his way back to the Netherlands from the United States. The U.S. takes the position that it has criminal jurisdiction over all persons, regardless of location and citizenship, for crimes arising out of their dealings with U.S. origin goods. This is not a position recognized by many other foreign countries, meaning that it would be unlikely that Davis could have been extradited from the Netherlands based on the actions alleged in this case, which all took place in the Netherlands and which did not violate Dutch law. But once he was in the United States — and voluntarily at that — whether he was extraditable under Dutch law was, at best, a moot point.

Moral of the story: if you live outside the United States and sell U.S. goods to Iran, postpone indefinitely any plans to visit Disneyland. (There is no indication of why Davis was in the United States. The reference to Disneyland is for illustrative purposes only.)

The criminal complaint details three interviews between law enforcement and the defendant. In the first interview, conducted when the defendant was entering the United States through the Miami airport, the defendant allegedly admitted that he had stolen the item in question while serving in Iraq, but denied any knowledge of the International Traffic in Arms Regulations (“ITAR”) or its restrictions on the export of defense articles. In a second interview, conducted ten days later at the defendant’s home, he again admitted taking the item while on duty in Iraq. When asked why he had described the item in shipping documents as “used camera lens (optic),” he said that he did that as a result of instructions from the buyer and not because he was aware of ITAR restrictions on exporting the item.

Subsequently, the agents were given emails from the defendant’s Gmail account. One of these read as follows:

Sir,

Sorry late, I alrady [sic] payment.
Please check your paypal account
This
is ITAR itme[sic],If you ship,Please do not write AN PVS-14/7B or ATILLA-200
If you write invoice ex.car engine parts or car electronic parts ($100-$120)

In a third interview, conducted by telephone, the agent pointed out that the email quoted above mentioned that the ATILLA-200 was an ITAR item and instructed him to falsify the shipping documents. The defendant, according to the criminal complaint, continued to deny “that he knew what ITAR meant” and said that he had been truthful in prior interviews.

One semi-literate email from the Japanese purchaser seems a narrow thread on which to hang the required element of scienter, namely, that the defendant knew that the export was illegal. Certainly the defendant would have had a motivation to alter the shipping documents since he clearly knew that he had come into possession of the item illegally. But whether the email’s single reference to “ITAR itme” should have sent the defendant off to Wikipedia prior to shipping the item seems doubtful at best. It is equally reasonable to suppose that the defendant believed that ITAR was a garbled misspelling for some other word or was a Japanese term or any of a number of other possibilities. Indeed, if the defendant was dumb enough to list the item on eBay, it is not hard to imagine that he had no clue what the ITAR was or that the items required an export license.

The indictment describes an alleged conspiracy by the three defendants, all employees at Gulf Coast Cold Storage, to remove dressed chicken carcasses from blast freezers before they had reached certain temperatures required by the trade agreement between the U.S. and Russia. In other instances, the defendants were alleged to have put chicken that reached higher than permissible temperatures back into the blast freezers.

Why, you must be asking, is the U.S. concerned about exports of warm chickens to Russia? Can they be weaponized into chicken wings of mass destruction? Will the warm chickens be served, pathogens and all, to Russian political prisoners? No, the warm chickens became criminal export violations through the wondrous intervention of the federal prosecutor’s jack-of-all-trades and catch-all statute, 18 U.S.C. § 1001, a/k/a the Martha Stewart law, which can transform almost any activity otherwise legal under U.S. law into a federal crime. Just as Martha Stewart went to jail for lying about perfectly legal activities, so the Pascagoula Three risk jail time for an allegedly untrue statement on an export certificate with respect to processing techniques that would not themselves have violated U.S. law.

When required by importing countries, as is the case with Russia for poultry exports, the Food Safety and Inspection Service of the U.S. Department of Agriculture will issue an export certificate attesting that the product complies with the importing country’s requirements. The exporter fills out an application for that certificate on FSIS Form 9060-6 which has a certification at the end that “the product covered by this application for export meets the inspection requirements for the country of destination.” This was the alleged false statement that served as the basis of the 18 U.S.C. § 1001 charge.

In order to sustain a conviction under 18 U.S.C. § 1001, the prosecution must demonstrate that the defendants knew that their statements were false. United States v. Yermian, 708 F.2d 365 (9th Cir. 1983). Here that means that the prosecution must show that three guys working in a blast freezer in Mississippi were familiar with Russian law on chicken processing. That seems to be a heavy burden, although the indictment suggests that one or more of the defendants told others to report false chicken temperatures, which I suppose will be argued as proof that they knew the temperature requirements of Russian law.

And the moral of the story? It’s this: there is no product so benign or inconsequential that someone can’t figure out how to send you to jail for exporting it.

The violations were voluntarily disclosed by Mattson. According to an SEC filing, the disclosure occurred in 2008 and the violations were said to be “inadvertent.” None of the transducers were shipped to Iran. However, transducers were shipped to Israel, Malaysia, Singapore, PRC and Taiwan and were valued at “approximately $78,000″ according to the Charging Letter.

BIS disputed that the exports were inadvertent and claimed that, even though “in May 2006, one of Mattson’s supply chain partners informed it that pressure transducers that Mattson [used] required export licenses when shipped to Mattson customers in certain foreign countries,” Mattson went ahead and shipped these items without license. As a result, BIS fined Mattson $850,000, suspending all but $250,000 of that fine, which is still a hefty fine for matters that involved $78,253 in exports and were voluntarily disclosed. (I know, I know, the agency could have fined Mattson 43 trillion dollars — actually $11,750,000 at $250,000 for each of the 47 counts — but decided to cut Mattson some slack.)

One interesting takeaway from this case — other than that VSDs can be expensive — is how it appears that Mattson got into trouble here. Mattson, according to its website, “designs, manufactures, and markets semiconductor wafer processing equipment used in the fabrication of integrated circuits.” Apparently, these machines utilize pressure transducers; and it is likely that the transducers at issue were shipped as spare or replacement parts for these machines to foreign customers that had purchased Mattson’s processing equipment. The machines themselves may have been classified as EAR99. Often companies do not realize that even if a system may not require an export license, its component parts might when shipped separately from the system. That is an understandable area of confusion and likely what, at least in part, happened here. An essential part of export training is to teach employees that parts and components may have different ECCNs from the equipment to which those parts and components belong.

First, here’s what the story reveals about the Georgia Tech voluntary disclosure. According to the story, a research scientist at the university wanted to put course materials and videos of his lectures for his course “Infrared Technology and Applications” on a DVD because he was planning to retire and he wanted to use these materials to train his successor. When the university’s media staff encountered problems putting the video and materials on DVD, they suggested making the information available by a link. The research scientist approved this idea, thinking that it was an internal link, whereas it was an ordinary Internet link. The material was available online for about three weeks before the mistake was discovered and the materials were taken down. Although the video received hits only from the United States, some of the Powerpoint slides that were posted received hits from foreign countries, including 33 from China and one from Iran. The university disclosed this lapse to the Directorate of Defense Trade Controls which issued a warning letter but imposed no penalties, something which appears to have scandalized the Bloomberg reporter.

Above and beyond the description of the Georgia Tech voluntary disclosure, the article takes a Chicken Little approach to the dangers posed to national security by university research:

Eager to preserve their culture of openness and global collaboration, campuses are skirting — and even flouting — export-control laws that require foreigners to hold government licenses to work on sensitive projects.

To support this startlingly broad conclusion, the reporter humps the Roth case for all it is worth and cites some voluntary disclosures by several universities. That doesn’t much sound like “flouting” export rules to me, but perhaps Bloomberg has a different definition of that word.

For those familiar with the sorts of information which may be export-controlled (but not classified), it is hard to get too worked up about the national security implications of this. After all, business proprietary information about how to make handcuffs is controlled under the Commerce Department’s rules. Suffice it to say, things that are of real concern are classified. Accordingly, I am not scandalized when voluntary disclosures by universities relating to deemed exports result in warning letters rather than jail time for everyone involved as the reporter seems to think is appropriate. And because “fundamental research,” which is exempted from export controls, is an incredibly vague term that is difficult to apply in many contexts, overzealous enforcement of export rules to university research would have an unwarranted chilling effect on that research given the number of foreign students at almost every college and university. Well, I suppose colleges could adopt an American-only admissions policy, and I wouldn’t be surprised if there weren’t certain advocates of deemed export controls who secretly wish for such national homogeneity at our institutions of higher learning.

As is typically the case, BIS provides only scant detail about what got these three parties into hot water beyond saying that they had been involved in the transhipment of items to Iran and Syria. Looking at the identity of the parties allows one to make some more reasonable assumptions about what was going on. One of the designated entities was Canada Lab Instruments in Montréal, which describes itself in a business directory as “supplying a wide range of environmental, laboratory, measuring and analytical instruments for researching and educational purposes from the most famous manufacturers.” The second entity, Abou Elkhir Al Joundi, is an individual who owns Canada Lab Instruments and was educated in Damascus, Syria. The third entity was “Masound [sic] Est. for Medical and Scientific Supplies” in Amman, Jordan, which describes itself in a business directory as involved in the distribution of medical and scientific laboratory equipment.

It seems, therefore, reasonable to assume that the three entities were put on the Entity List in connection with shipment of medical and lab equipment from Canada and through Jordan to Syria and Iran. The quantity and value of the shipments, however, cannot be determined and the BIS order gives no indication. This also does not seem to involve items of particular concern to the interests of the United States in Iran and Syria, particular since the medical equipment probably would have been eligible for licenses. But I guess if we are chasing folks for selling nail polish to Iran, everything is fair game.

As a side issue, if BIS wants to put people in jail for future unlicensed exports to the Jordan company, it at least ought to spell the name of the company correctly on the list establishing this license requirement. It’s “Masoud,” not “Masound.”