by Gwen Green and Amani S. Floyd
On March 14, 2017, the D.C. Circuit dismissed a law firm’s challenge to the State Department’s application of the International Traffic in Arms Regulations (“ITAR”) Part 129 brokering provisions against practicing attorneys. In its lawsuit, law firm Matthew A. Goldstein, PLLC (“Goldstein”) alleged that the State Department lacked constitutional and statutory authority to apply Part 129 to legal services provided to its clients and sought declaratory and injunctive relief to prevent the State Department from applying the brokering provisions to the firm.
Regulation of Brokering Activities
The State Department regulates international arms brokering under the Arms Export Control Act (“AECA”) and the ITAR. The AECA mandates that “every person . . . who engages in the business of brokering activities with respect to the manufacture, export, import, or transfer of any defense article or defense service” shall register with the State Department and obtain a license before engaging in “the business of brokering activities.” The AECA further provides that “brokering activities shall include the financing, transportation, freight forwarding, or taking of any other action that facilitates the manufacture, export, or import of a defense article or defense service.” These requirements are implemented and further defined at Part 129 of the ITAR. Continue reading
by Gwen Green and Steven Pelak
On March 1, 2017, the First Circuit affirmed the nine-year sentence of Sihai Cheng, a Chinese national who pleaded guilty for his role in supplying over 1,000 pressure transducers to Iran’s nuclear program.
In December 2015, Cheng pleaded guilty to two counts of conspiring to commit export violations and smuggle goods from the United States to Iran and four counts of illegally exporting U.S. manufactured pressure transducers to Iran. On January 27, 2016, U.S. District Court Chief Judge Patti B. Saris departed upward from the Sentencing Guidelines and imposed a nine-year sentence, which is significantly beyond the otherwise applicable Guideline range. It should be noted that Chief Judge Saris has served as the Chairperson of the U.S. Sentencing Commission. Continue reading
by Steven Pelak and Gwen Green
The opinion issued on Tuesday, September 20 by the U.S. Court of Appeals for the Fifth Circuit in Defense Distributed, Second Amendment Foundation Inc. v. U.S. Dept. of State resolved for now an ongoing effort to obtain a preliminary injunction allowing the public release through the internet of weapon designs/technical data for the 3D printing/manufacture of AR-15s or assault rifle parts.
As a legal matter, the opinion is relatively limited and merely holds:
“In sum, we conclude that the district court did not abuse its discretion in denying Plaintiffs-Appellants’ preliminary injunction based on their failure to carry their burden of persuasion on two of the three non-merits requirements for preliminary injunctive relief, namely the balance of harm and the public interest. We therefore affirm the district court’s denial and decline to reach the question of whether Plaintiffs-Appellants have demonstrated a substantial likelihood of success on the merits.” Defense Distributed v. Dept. of State, ___ F.3d ___, slip op. at 13 (5th Cir. Sept. 20, 2016). http://www.ca5.uscourts.gov/electronic-case-filing/case-information/current-opinions
That said, in light of the lengthy dissent and the following quoted statement from the Court of Appeals, one might anticipate further legal challenge in the Fifth Circuit and to the Supreme Court: Continue reading
by Steven Pelak and Gwen Green
On January 20, 2016, the U.S. Department of State, Directorate of Defense Trade Controls (“DDTC”) announced the elevation of Lisa Aguirre to the position of Managing Director. Although DDTC has used the title of Managing Director in the past, this new role has different responsibilities from those held by previous Managing Directors.
As Managing Director, Ms. Aguirre will serve as deputy to the Deputy Assistant Secretary (“DAS”), acting when the DAS is unavailable, and dividing the DDTC front office responsibilities with the DAS. Prior to this appointment, Ms. Aguirre most recently served as Director of the Office of Defense Trade Controls Management. DAS Brian Nilsson has made an excellent and outstanding choice in his selection of Ms. Aguirre.
In light of emerging threats to U.S. national security, it is particularly important to have a judicious decision maker with a strong background in arms export controls such as Ms. Aguirre in such a critical position at DDTC. Ms. Aguirre has deep experience and knowledge in the AECA, the ITAR, and the role various law enforcement agencies and the intelligence community play in export controls. She understands well the important role of DDTC’s enforcement function in safeguarding the superiority of U.S. military technology, particularly with regard to constant efforts by the Chinese, Russian, and Iranian governments to obtain U.S. military technology. With the promotion of Ms. Aguirre and the October 2015 appointment of a new Deputy Assistant Secretary, DDTC has turned a corner. Under such professional and informed leadership, DDTC undoubtedly will serve the People effectively, independently, and wisely.
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 015 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.”