by Jason E. Prince and Steven W. Pelak
Consistent with the United States’ and Japan’s increasing focus on joint security cooperation, the U.S. Department of Defense (“DOD”) is seeking industry input on the negotiation of a reciprocal defense procurement pact with Japan’s Ministry of Defense. On December 31, 2015, DOD issued a Federal Register notice “asking U.S. firms that have participated or attempted to participate in procurements by or on behalf of Japan’s Ministry of Defense or Armed Forces to let us know if the procurements were conducted with transparency, integrity, fairness and due process in accordance with published procedures, and if not, the nature of the problems encountered.” Additionally, DOD is “interested in comments relating to the degree of reciprocity that exists between the United States and Japan when it comes to the openness of defense procurements to offers of products from the other country.”
The United States has entered into a reciprocal defense procurement memorandum of understanding with 23 other nations. According to DOD’s notice, such agreements strive “to promote rationalization, standardization, and interoperability of conventional defense equipment with allies and other friendly governments” and “provide a framework for ongoing communication regarding market access and procurement matters that enhance effective defense cooperation.” Typically, these agreements require both countries to conduct defense procurements in accordance with specific implementing procedures and to afford each other certain benefits consistent with national laws and regulations (e.g., waivers of customs, taxes, duties, and “Buy America” requirements for end products and components of defense procurements).
by Steven Pelak and Gwen Green
On December 28, 2015, the U.S. Department of Commerce, Bureau of Industry and Security (“BIS”) published a proposed rule revising its guidance on charging and penalty determinations in administrative enforcement actions under the Export Administration Regulations (“EAR”). The proposed changes would bring the agency’s guidance closely in line with the Economic Sanctions Enforcement Guidelines promulgated by the Department of the Treasury, Office of Foreign Assets Control (“OFAC”) and provide greater predictability and transparency to BIS administrative penalties. The proposed revisions to the BIS’s Guidance on Charging and Penalty Determinations (Supplement No. 1 to part 766 of the EAR) are open for comment until February 26, 2016.
Alignment with OFAC Guidelines
BIS implements the EAR under the International Emergency Economic Powers Act (“IEEPA”), the same statutory authority by which OFAC implements most of its sanctions programs. Under IEEPA, criminal penalties can reach 20 years imprisonment and $1 million per violation, and administrative monetary penalties can reach $250,000 or twice the value of the transaction, whichever is greater.
by Steven Pelak and Michael O’Leary
On Wednesday, the U.S. Department of Justice (DOJ) announced that Geoffrey Shank, has been sworn in as the new Washington Director of the International Criminal Police Organization (INTERPOL). See http://www.justice.gov/interpol-washington/pr/fbis-james-comey-swears-new-interpol-washington-director. As Director, Mr. Shank will act on behalf of the Attorney General as the official U.S. representative to INTERPOL. He previously served as the Deputy Director of Washington INTERPOL and has had a distinguished career within the U.S. Marshal’s Service spanning more than 25 years.
Through their energy, initiative, and drive, individuals do matter in law enforcement. The appointment of a well-respected and vigorous law enforcement official to the top post in the U.S.’s delegation to INTERPOL is a clear signal that efforts aimed at greater cooperation between U.S. and foreign law enforcement agencies will likely accelerate in the immediate future. Because of the particular importance of international cooperation and assistance by law enforcement in export controls and trade sanctions investigations and enforcement matters, Mr. Shank’s appointment will have particular importance for individuals and companies facing cross-border compliance issues in these areas.
by Steven Pelak, Jeremy Paner, and Gwen Green
On November 13, 2015, Ahmad Feras Diri, of London, was arraigned for his alleged involvement in a conspiracy to illegally export laboratory equipment, including items used to detect chemical warfare agents, from the United States to Syria. The arraignment comes almost three years after Mr. Diri was originally indicted on the charges in November 2012. The arraignment highlights the efforts and distances which U.S. law enforcement will go in pursuit of those assisting the military regimes of Syria and Iran.
According to the indictment, from 2003 until November 20, 2012, Mr. Diri; his brother Mowea Diri, a citizen of Syria; d-Deri Contracting & Trading, a business located in Syria; and Harold Rinko, a U.S. citizen and 73-year old Pennsylvania resident, conspired to export EAR-controlled laboratory equipment from the United States through third party countries to customers in Syria without the required U.S. Commerce Department licenses. Some of the items allegedly exported include: a portable gas scanner used for detection of chemical warfare agents and a handheld instrument for field detection and classification of chemical warfare agents and toxic industrial chemicals. Pursuant to the Export Administration Regulations (“EAR”), a license is required to export and reexport to Syria all items subject to the EAR, other than limited and certain categories of food and medicine.
by Steven Pelak and Gwen Green
On October 23, 2015, Mozaffar Khazaee was sentenced to 8 years in prison and ordered to pay $50,000 in fines for violating the Arms Export Control Act, 22 U.S.C. § 2778 (the “AECA”), by attempting to transfer to Iran proprietary, trade secret and export controlled material relating to the U.S. Air Force’s F-35 Joint Strike Fighter (JSF) Program. The sentence comes almost eight months after Mr. Khazaee pled guilty in February 2015 to one count of the unlawful export of technical data from the United States in violation of the AECA. To the surprise of many, the Government originally charged and indicted Mr. Khazaee solely with the federal offense of Interstate Transportation of Stolen Property (“ITSP”) rather than a violation of the AECA and the International Traffic in Arms Regulations (“ITAR”), even though the stolen information was apparently well marked as “technical data” controlled under the ITAR. The prosecution demonstrates the challenges and difficulties confronted by law enforcement in light of recent and ongoing deregulation of aspects of international commercial arms sales by the Obama Administration.
According to court documents, from approximately 2009 through late 2013, Mr. Khazaee offered to provide and did provide documents containing stolen export controlled defense technology to gain employment with state-controlled Iranian technical universities. In or about November 2013, Mr. Khazaee attempted to send a container of stolen material to Iran, including thousands of technical manuals, specification sheets, test results, technical drawings and data and other proprietary material relating to military jet engines and the U.S. Air Force’s F-35 JSF Program and the F-22 Raptor. Mr. Khazaee allegedly stole the materials from U.S. defense contractors where he had formerly worked, and many of the documents were prominently labeled as “Export-Controlled” and stamped with “ITAR-controlled” warnings.
by Gwen Green and Steven Pelak
On July 2, 2015, the U.S. Department of State, Directorate of Defense Trade Controls (“DDTC”) published a final rule temporarily modifying Category XI of the United States Munitions List
(“USML”). This final rule revises paragraph (b) of Category XI to clarify the extent of control over “certain intelligence analytics software”. Specifically, DDTC has attempted to prevent exporters from “read[ing] the revised control language [of Category XI(b)] to exclude” such software from the USML. DDTC maintains in its public notice that “intelligence analytics software . . . has been and remains controlled on the USML.”
A year ago on July 1, 2014, DDTC revised USML Category XI (effective December 30, 2014). DDTC or others in the U.S. Government apparently have found that exporters may read the revised Category XI(b) language to exclude certain intelligence analytics software which, in DDTC’s view, should be controlled on the USML. DDTC stated last week that it wished “in the interest of the security of the United States to temporarily revise” USML Category XI(b) pursuant to its emergency powers under Section 126.2 of the ITAR. DDTC asserted that its “clarification is achieved by reinserting the words ‘analyze and produce information from’ and by adding software to the description of items controlled” under Category XI(b). In full, Category XI(b) now reads:
“*(b) Electronic systems, equipment or software, not elsewhere enumerated in this sub-chapter, specially designed for intelligence purposes that collect, survey, monitor, or exploit, or analyze and produce information from, the electromagnetic spectrum (regardless of transmission medium), or for counteracting such activities.”
DDTC has put the revised rule into effect until December 29, 2015 “while a long term solution is developed.”
by Gwen Green
On June 17, 2015, the U.S. Department of State, Directorate of Defense Trade Controls (“DDTC”) and the U.S. Department of Commerce, Bureau of Industry and Security (“BIS”) published proposed rules to transfer certain items from U.S. Munitions List (“USML”) Category XIV (toxicological agents, including chemical agents, biological agents, and associated equipment) and Category XVIII (directed energy weapons) to the less restrictive Commerce Control List (“CCL”). BIS and DDTC have stated the proposed revisions are intended to create a “bright line” regarding control of these items between the USML and CCL. The proposed rules are only a small part of the President’s broader Export Control Reform (“ECR”) effort to streamline the U.S. export control system.
The DDTC proposed rule would amend the International Traffic in Arms Regulations (“ITAR”) to revise USML Categories XIV and XVIII to more precisely describe the items still warranting control on the USML. Items no longer controlled in the revised USML Categories would be transferred to new “600 Series” Export Control Classification Numbers (“ECCNs”) on the CCL. Affected Category XIV items consist primarily of dissemination, detection and protection “equipment” and related items. Affected Category XVIII items consist primarily of tooling, production “equipment,” test and evaluation “equipment,” test models and related items. The DDTC proposed revisions are part of the Department of State’s retrospective plan under Executive Order 13563 completed on August 17, 2011. Continue reading
by Gwen Green
On May 29, 2015, the U.S. Department of State formally removed Cuba from the List of State Sponsors of Terrorism. The United States originally added Cuba to the List of State Sponsors of Terrorism in 1982 “due to its efforts to promote armed revolution by organizations that used terrorism.”
As part of his December 17, 2014, announcement of historic policy changes related to Cuba, President Barak Obama directed the Department of State to review Cuba’s designation as a State Sponsor of Terrorism, and to prepare a report within six months regarding Cuba’s support for international terrorism. At the conclusion of its review, the Department of State recommended that the United States rescind Cuba’s designation.
On April 14, 2015, President Obama submitted a report to Congress indicating the Administration’s intent to rescind Cuba’s State Sponsor of Terrorism designation, including the certification that Cuba had not provided any support for international terrorism during the previous six-months; and that Cuba had provided assurances that it will not support acts of international terrorism in the future.
by Gwen Green
On June 3, 2015, the U.S. Department of State, Directorate of Defense Trade Controls (“DDTC”) and the U.S. Department of Commerce, Bureau of Industry and Security (“BIS”) published proposed rules to amend the International Traffic in Arms Regulations (“ITAR”) and the Export Administration Regulations (“EAR”) to harmonize key definitions and terms between the two regulations. The proposed rules are a part of the continuing Export Control Reform (“ECR”) initiative to enhance U.S. national and economic security, facilitate compliance with export controls, and streamline the U.S. export control system.
Harmonization of Definitions Between ITAR and EAR
DDTC and BIS have identified a series of similar terms in the ITAR and the EAR that are defined differently and that warrant either harmonization or the creation of similar structures that would identify more unambiguously the differences in how similar concepts are treated under the two regulations. DDTC proposes to therefore revise the ITAR’s definitions of the terms “defense article,” “defense services,” “technical data,” “public domain,” “export,” and “reexport or retransfer,” and create definitions for the terms “required,” “technical data that arises during, or results from, fundamental research,” “release,” “retransfer,” and “activities that are not exports, reexports, or retransfers.” Likewise, BIS proposes amendments to the EAR regarding the definitions of the terms “technology,” “required,” “peculiarly responsible,” “proscribed person,” “published,” results of “fundamental research,” “export,” “reexport,” “release,” “transfer,” and “transfer (in-country).”
by Gwen Green
On May 29, 2015, the U.S. Department of State issued a final rule amending the International Traffic in Arms Regulations (“ITAR”) to rescind its previous policy of denying the export of defense articles and defense services to Fiji. The final rule, effective May 29, 2015, comes approximately eight months after Fiji held the first democratic elections in the country since retired Rear Adm. Voreqe Bainimarama seized control in a military coup in 2006.
The Multinational Observer Group (“MOG”), representing 14 countries including the United States, was invited by the acting Fijian Government to observe the September 2014 parliamentary elections, which resulted in the landslide victory of Bainimarama’s Fiji First Party. In April 2015, the MOG released its final report on the Fijian elections finding, “The outcome of the 2014 Fijian Election broadly represented the will of the Fijian voters. The conditions were in place for Fijians to exercise their right to vote freely.”
In the final rule, the Department of State explained it has therefore determined it is in the best interests of U.S. foreign policy, national security, and human rights concerns to rescind its previous policy of denying defense exports to Fiji.