Export Control Practitioners Group Issues U.S. Export Control Reform Recommendations

Today the Export Control Practitioners Group, composed of a diverse group of associations, businesses, practitioners and seasoned compliance experts, released a comprehensive set of specific recommendations for transparent and efficient reform of the U.S. export control system.

The recommendations were included in a letter sent to National Security Advisor General James Jones and National Economic Council Director Lawrence Summers, both of whom are actively involved in the Obama Administration's export control reform initiative that was announced by the White House in August 2009.

The Export Controls Practitioners Group, which has been active for the past decade, began preparing these recommendations following the Administration’s announcement.

In addition to outlining their guiding principles for export control reform, the Export Controls Practitioners Group provided specific and practical recommendations in the following areas:

• Structure of the export control agencies;
• Changes to the Commodity Jurisdiction process;
• Control list review and reduction;
• Accountability in the export control process, including an appeals process of classification or jurisdiction decisions or technical and definitional decisions made by the agencies;
• Recommendations involving the process for decontrolling items in light of their foreign availability;
• Specific recommendations on changes to the procedures for the issuance of export licenses, license agreements, license exemptions, and license exceptions;
• Reforms to the export control enforcement process, including a suggestion for a graduated penalty process that would ensure that violations resulting from mistake or inadvertent conduct would not be subject to the most severe penalties;
• Limiting deemed export licensing requirements to sensitive, multilaterally controlled technology only (e.g., the Wassenaar Arrangement Very Sensitive List and the multilateral proliferation lists).
• Providing Trusted Party License Exceptions for dual-use intra-company transfers to and among non-embargoed destinations.
• Urging Congress to adopt legislation restoring Executive Branch authority to determine licensing
  jurisdiction for commercial satellites and associated items and technologies;
• Modernize the treatment of products and software containing encryption algorithms;
• Modifying end-user and end-Use Screening Requirements, including consolidating the various end-user lists maintained by the various agencies into one centralized list that includes names and data in the end users’ native languages, to afford easier access by exporters and other interested parties.

Several members of the Group are a part of the business community’s Coalition for Security and Competitiveness, which released its recommendations for reform last week. While the recommendations issued by the two groups differ in terms of emphasis, the key message is the same: the U.S. business community is united in the effort to work with the Administration to effectuate reform of outdated U.S. export controls.

The associations that signed the Export Controls Practitioners Group letter included the following:

• American Association of Exporters and Importers
• American Council on International Personnel
• Association For Manufacturing Technology
• Coalition for Employment Through Exports
• Computer and Communications Industry Association
• Electronic Design Automation Consortium
• Emergency Committee for American
• National Council on International Trade Development
• National Defense Industrial Association
• National Foreign Trade Council
• Satellite Industry Association
• Semiconductor Equipment and Materials International
• Semiconductor Industry Association
• TechAmerica
• U.S. Chamber of Commerce

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Twenty Two Executives and Employees of Military and Law Enforcement Products Companies Indicted in Alleged Foreign Bribery Scheme

The Justice Department announced today that 22 executives and employees of companies in the military and law enforcement products industry have been indicted and arrested in the largest single investigation and prosecution against individuals in the history of the enforcement of the U.S. Foreign Corrupt Practices Act (FCPA).

Twenty one of the defendants were arrested in Las Vegas yesterday and one defendant was arrested in Miami. In addition, approximately 150 FBI agents executed 14 search warrants in locations across the U.S. In addition, the United Kingdom’s City of London Police executed seven search warrants in connection with their own investigations into companies involved in the foreign bribery conduct that formed the basis for the indictments.

The defendants arrested in Las Vegas were there because they were attending the annual Shooting, Hunting, Outdoor Trade Show and Conference, known as the SHOT Show, the largest trade show of its kind. 

According to the Justice Department, the indictments allege that the defendants engaged in a scheme to pay bribes to the minister of defense for a country in Africa. In fact, the scheme was part of the undercover operation, with no actual involvement from any minister of defense. As part of the undercover operation, the defendants allegedly agreed to pay a 20 percent "commission" to a sales agent who the defendants believed represented the minister of defense for a country in Africa in order to win a portion of a $15 million deal to outfit the country’s presidential guard. In reality, the "sales agent" was an undercover FBI agent.

The defendants were told that half of that "commission" would be paid directly to the minister of defense. The defendants allegedly agreed to create two price quotations in connection with the deals, with one quote representing the true cost of the goods and the second quote representing the true cost, plus the 20 percent "commission." The defendants also allegedly agreed to engage in a small "test" deal to show the minister of defense that he would personally receive the 10 percent bribe.

Each of the indictments allege that the defendants conspired to violate the FCPA, conspired to engage in money laundering, and engaged in substantive violations of the FCPA. The indictments also seek criminal forfeiture of the defendants’ ill gotten gains.

The maximum prison sentence for the conspiracy count and for each FCPA count is five years. The maximum sentence for the money laundering conspiracy charge is 20 years in prison.

A list of the persons named in the indictments are included in the press release.

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International Trade Law News Twitter Updates for 1/8/10 to 1/16/10

AP: Taiwan-based company assists Chinese firm in obtaining pressure transducers for Iran -- http://bit.ly/929Jcd

Follow-up from previous tweet: Certain pressure transducers are classified on U.S. Commerce Control List as ECCN 2B230 (NP and AT controls)

New Blog Post: Management Consultant Arrested and Charged With Violating Iran Embargo: http://bit.ly/79P0SX

It's official: DDTC Appoints Lisa Studtmann as Director of Office of Defense Trade Controls Compliance -- http://bit.ly/5Km9KX

Politico: Beth McCormick to be Deputy Ass't Secy at State Dept's Bureau of Political-Military Affairs (oversees DDTC) - http://bit.ly/7mo4lZ

RT @complianceweek: Poll says compliance budgets are faring better than you'd expect, considering economy . . . http://bit.ly/7ZVdOw

New Blog Post: Coalition for Security and Competitiveness Releases Detailed Export Control Recommendations: The Co... http://bit.ly/5q1FbK

House Foreign Affairs Committee to hold export controls hearing at Stanford University on January 15th. Details here: http://bit.ly/6ptLlb

New Blog Post: Philadelphia Area Chemical Engineer Sentenced to Four Years in Prison for Violating Iran Sanctions:... http://bit.ly/7Gnx11

Pakistan claims to be implementing "effective export controls in line with international obligations": http://bit.ly/61RuOX

The Hill's story on yesterday's CSC export control reform recommendations found here: http://is.gd/6bxHC

SEC Enforcement Division names Cheryl J. Scarboro as head of Foreign Corrupt Practices unit. Details at http://bit.ly/707aub

AP reports that North Korea will allow more American tourists -- http://bit.ly/6Y5Fk4

LA Times: 3 men charged in scheme to illegally export vacuum pumps and equipment to Iran via UAE -- http://is.gd/6fkmk

Politico: At meeting with defense company executives SecDef Gates pledges support for export control reforms - http://bit.ly/7S8u8z

DefenseNews reports on new Deputy Assistant Secretary of State who will oversee defense export control agency: http://bit.ly/6qRsfP

American Association of Exporters and Importers' export control reform recommendations to Congress can be found here: http://bit.ly/8abX2y

Op-Ed by Rep. Berman in San Jose Mercury News on today's export controls hearing being held at Stanford: http://bit.ly/8obtnz

Rep. Berman: You practically have to have a law degree or Ph.D. to keep from running afoul of increasingly complex export-controls regime.

BIS adds Chinese entity to list of parties eligible for Validated End-User (VEU) program: http://bit.ly/7Qp0v7

National Defense Magazine: Job Creation Argument May Prompt Congress to Move on Arms Export Controls Reform - http://bit.ly/8tlUlG

AP: North Korea plays sanctions card in nuclear standoff -- http://is.gd/6nvR6

Stanford president urges lawmakers to change export controls at export controls hearing (from Stanford News) http://bit.ly/4Kry4X

San Jose Mercury News' story on yesterday's export controls hearing at Stanford found here: http://bit.ly/5HIDYA

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Philadelphia Area Chemical Engineer Sentenced to Four Years in Prison for Violating Iran Sanctions

Philly.com reports that Dr. Ali Amirnazmi, a Stanford trained chemical engineer and founder of Exton, Pennsylvania-based TranTech Consultants Inc, who was convicted in February 2009 of violating the U.S. embargo on Iran, was sentenced today to four years in prison and five years of supervised release. He was also ordered to pay restitution to a bank of $17,277, forfeit $81,277 and continue mental-health treatment.

Dr. Amirnazmi was convicted by a federal jury of one count of conspiracy to violate the International Emergency Economic Powers Act (IEEPA), three counts of violating IEEPA, three counts of making false statements to federal officials and three counts of bank fraud.

The Justice Department alleged that Amirnazmi, a citizen of the U.S. and Iran, participated in illegal business transactions with Iran between 1996 and 2008. Amirnazmi also allegedly engaged in investments with companies located in Iran, including a chemical company controlled in whole or in part by the government of Iran.

The jury convicted Amirnazmi of making false statements to the Treasury Department's Office of Foreign Assets Control (OFAC), the FBI and the Internal Revenue Service (IRS) about business deals with Iran in an attempt to cover up that illegal activity. Amirnazmi also allegedly submitted false tax returns to several banks in order to secure loans for which he would not have qualified.

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Coalition for Security and Competitiveness Releases Detailed Export Control Recommendations

The Coalition for Security and Competitiveness (CSC) today released detailed recommendations on the specific steps the Obama Administration and Congress can take to reform and modernize the U.S. export control system.

The document, entitled "Recommendations for a 21st Century Technology Control Regime", which was included with a letter sent to to President Obama and other key members of the Obama Administration, states that:

United States export control system has not been significantly revised in more than twenty years. The result is a system that no longer fully protects our national security, has not kept up with accelerating technological change, and does not function with the efficiency and transparency needed to keep the United States competitive in the global marketplace.

The Administration’s export control review, as well as impending legislative proposals, provides an opportunity to strengthen our security and give business the clarity and guidance it needs to comply with the rules and remain competitive.

In order to accomplish these reforms, the CSC indicated that these goals can best be accomplished in the near term by structuring export control reform around the following five themes:

1. Draw clear lines of agency responsibility.

2. Control lists should be revised and reduced. 

3. Complete the transition to an end user-based system. 

4. Enhance cooperation with allies. 

5. Enhance cooperation with the business community. 

The CSC also provided detailed recommendations in the following 11 areas applicable to the dual-use (EAR) and munitions control (ITAR/USML) control systems that can be taken within the existing legislative authorizations and would not require further Congressional action:

1. Establish Clear Lines of Responsibility in the Commodity Jurisdiction Process

2. Promote Effective Compliance and Enforcement

3. Improve Outreach to and Resources for U.S. industry, particularly for Small and Medium-sized Enterprises

4. Promote Greater Multilateral Cooperation with Allies and Partners

5. Improve the Licensing System and Increase Transparency

6. Systematic Review of the Commerce Control List (CCL) with a Greater Focus on Foreign Availability

7. Encryption

8. Focus and Improve the U.S. Munitions List

9. Improve Export Licensing Caseload Management

10. Provide for DoD Acquisition, technology and Logistics Role in Export Controls

11. Developing Transparent and Disciplined Processes for the Department of Defense’s Disclosure Decisions

The CSC's letter to the President noted that, “our principles and recommendations would create a 21st century export control regime that protects critical technologies, safeguards our national security, spurs innovation and promotes economic growth.”

The CSC is comprised of the following member associations: the Aerospace Industries Association, the Association of American Exporters and Importers, the AMT - Association for Manufacturing Technology, The Business Roundtable, the Coalition for Employment Through Exports, the General Aviation Manufacturers Association, the Industrial Fastener Institute, the Information Technology Industry Council, the National Association of Manufacturers, the National Defense Industrial Association, the National Foreign Trade Council, the Satellite Industry Association, the Space Enterprise Council, The Space Foundation, TechAmerica and the U.S. Chamber of Commerce.

The CSC's letter to President Obama can be found here.

The CSC's specific export control reform recommendations can be found here.

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Management Consultant Arrested and Charged With Violating Iran Embargo

Mahmoud Reza Banki, a management consultant formerly employed by McKinsey and Co., was arrested yesterday by Immigration and Customs Enforcement agents following an indictment charging him with violating the U.S. sanctions on Iran and operating an unlicensed money transfer business between the U.S. and Iran.

According to the indictment, from January 2006 to September 2009, Banki, who is 33 years old and a U.S. citizen, allegedly provided money transmitting services to residents of Iran by operating a "hawala," which is a type of informal value-transfer system in which money does not physically cross international boundaries through the banking system. In the hawala system, funds are transferred by customers to a hawala operator, or "hawaladar," in one country, and corresponding funds, less any fees, are disbursed to recipients in another country by hawaladar associates on that end.

Banki allegedly received wire transfers in a personal bank account he maintained at Bank of America in Manhattan totaling about $4.7 million from companies and individuals located in Saudi Arabia, Kuwait, Latvia, Slovenia, Russia, Sweden, the Philippines, the United States, and other countries. Banki apparently did not know the wire originators personally. He allegedly received the funds with the understanding that an equivalent amount of Iranian currency would, in turn, be disbursed to intended recipients residing in Iran. Banki informed an Iran-based co-conspirator when funds had been received, and the co-conspirator then disbursed the funds in Iran, less any fees.

Banki allegedly used specific funds transferred into his Bank of America account to make joint investments in the United States with the Iran-based co-conspirator. Among other things, Banki used the funds to purchase a $2.4 million Manhattan condominium; to invest in securities for his own benefit and that of the co-conspirator; and to make payments on his credit card accounts, including about $55,000 in one month alone in the summer of 2007.

Banki is charged with violating the International Emergency Economic Powers Act (IEEPA), together with Executive Orders and U.S. Department of Treasury regulations; conducting an unlicensed money transmitting business; and conspiracy to commit those crimes. If convicted, Banki faces a maximum sentence of five years in prison on each of the conspiracy and unlicensed money transmitting counts and 20 years in prison on the IEEPA violation count.

This case is being prosecuted by the Complex Frauds and Asset Forfeiture Units of the U.S. Attorney's Office, Southern District of New York.

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DDTC Appoints Lisa Studtmann as Director of Office of Defense Trade Controls Compliance

The State Department's Directorate of Defense Trade Controls (DDTC) has confirmed that Lisa Studtmann, Esq. is now the Director of the Office of Defense Trade Controls Compliance, succeeding former Director David Trimble and Acting Director Daniel Buzby.

Ms. Studtmann began work as a compliance specialist at DDTC in July 2007 and has served as a senior compliance specialist at DDTC's Enforcement Division since August 2008. Prior to joining DDTC, Ms. Studtmann worked as an attorney for approximately ten years, both in private practice and in the General Counsel’s office of the Central Intelligence Agency.  She has a J.D. and an M.A. in Clinical Psychology from the University of Tulsa.

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