Virginia Resident Pleads Guilty in Connection With Role in Conspiracy to Pay Bribes to Obtain Business in Panama

Despite the snow in the Washington, DC area, the blizzard of FCPA prosectutions continues.

Today, John W. Warwick pleaded guilty before U.S. District Court Judge Henry E. Hudson in Richmond, Virginia., to a one-count indictment charging him with conspiring to make corrupt payments to foreign government officials for the purpose of securing business for Ports Engineering Consultants Corporation (PECC) in violation of the Foreign Corrupt Practices Act

According to the indictment issued on December 15, 2009, PECC, a company incorporated under the laws of Panama, was affiliated with an engineering firm based in Virginia Beach. According to the indictment, PECC was created so that Warwick, co-conspirator Charles Jumet, an the engineering firm could obtain certain maritime contracts from the Panamanian government.

According to the Justice Department, Warwick and Jumet participated in a conspiracy to pay money secretly to Panamanian government officials for awarding contracts to PECC to maintain lighthouses and buoy in Panama. In December 1997, the Panamanian government awarded PECC a no-bid, 20-year concession to perform these duties. Upon receipt of the concession, Warwick, Jumet, and others authorized payments to be made to the Panamanian government officials.

In connection with his guilty plea, Warwick admitted that at least from 1997 through approximately July 2003, he, Jumet and others conspired to make corrupt payments totaling more than $200,000 to the former administrator and deputy administrator of the Panama Maritime Authority and to a former, high-ranking elected executive official of the Republic of Panama.

As part of his plea agreement, Warwick agreed to forfeit $331,000,the proceeds of the contract. At sentencing, scheduled for May 14, 2010, Warwick faces a maximum of five years in prison and a fine of the greater of $250,000 or twice the gain.

Jumet pleaded guilty on Nov. 13, 2009, to a two-count criminal information charging him with conspiring to make corrupt payments to foreign government officials for the purpose of securing business for PECC, in violation of the FCPA, and making a false statement. Jumet is scheduled to be sentenced on March 26, 2010.

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U.S. Treasury Department Adds Affiliates of Iran's Islamic Revolutionary Guard Corps to SDN List

The U.S. Treasury Department's Office of Foreign Assets Control (OFAC) today took further action to implement existing U.S. sanctions against Iran's Islamic Revolutionary Guard Corps by adding to the Specially Designated Nationals List an individual and four companies affiliated with the Revolutionary Guard pursuant to Executive Order 13382, which freezes the assets of designated proliferators of weapons of mass destruction and their supporters.

Today's action targets Khatam al­-Anbiya Construction Headquarters, an arm of the Revolutionary Guard, previously designated in 2007 pursuant to E.O. 13382.

Today's designations include Revolutionary Guard Corps General Rostam Qasemi, the commander of Khatam al-Anbiya Construction Headquarters, the engineering arm of the Revolutionary Guard that serves to help the Revolutionary Guard generate income and fund its operations. According to the Treasury Department, Khatam al-Anbiya is owned or controlled by the Revolutionary Guard and is involved in the construction of streets, highways, tunnels, water conveyance projects, agricultural restoration projects, and pipelines.

OFAC also designated the following four companies companies that are owned or controlled by Khatam al-Anbiya, or that act on its behalf, and directly support various mining and engineering projects:

• Fater Engineering Institute
• Imensazen Consultant Engineers Institute (ICEI)
• Makin Institute
• Rahab Institute

U.S. persons (i.e., U.S. companies, citizens, permanent residents) are prohibited from engaging in any transaction or dealing with any party designated under E.O. 13382.

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Aerospace Engineer Sentenced to More than 15 Years in Prison After Being Convicted of Economic Espionage and Acting as Chinese Foreign Agent

An aerospace engineer formerly employed by Rockwell International and Boeing was sentenced on February 8, 2009 to 15 years and eight months in federal prison after being convicted on charges of economic espionage and acting as an agent of the People's Republic of China (PRC).

Dongfan "Greg" Chung, 73, of Orange, California, was convicted in July 2009 after a 10 day bench trial held in U.S. Federal Court in Santa Ana, California on one count of acting as a foreign agent, one count of conspiring to violate the Economic Espionage Act of 1996, six counts of violating the EEA and one count of making a false statement to the Federal Bureau of Investigation. In his written decision after the trial, United States District Judge Cormac J. Carney found that Mr. Chung had been an agent of the PRC for over thirty years.

At the sentencing hearing, Judge Carney said that he could not "put a price tag" on national security, and that with the long sentence for Mr. Chung he wanted to send a signal to China to "stop sending your spies here."

The case against Mr. Chung resulted from an investigation into Mr. Chi Mak who was convicted of providing defense articles to China. Mr. Mak was sentenced in March 2008 to more than 24 years in prison. Four of Mr. Mak's family members later pleaded guilty to similar charges.

According to the evidence presented during Mr. Chung’s trial, individuals in the Chinese aviation industry began sending Mr. Chung "tasking" letters as early as 1979. Over the years, the letters directed Mr. Chung to collect specific technological information, including data related to the Space Shuttle and various military and civilian aircraft. Mr. Chung responded in one undated letter that "I would like to make an effort to contribute to the Four Modernizations of China." In various letters to his handlers in the PRC, Mr. Chung referenced engineering manuals he had collected and sent to the PRC, including 24 manuals relating to the B-1 Bomber.

Between 1985 and 2003, Mr. Chung made multiple trips to the PRC to deliver lectures on technology involving the Space Shuttle and other programs During those trips he met with PRC government officials, including agents affiliated with the People’s Liberation Army. Mr. Chung and PRC officials exchanged letters that discussed Mr. Chung’s travel to China and recommended methods for passing information, including suggestions that Mr. Chung use Chi Mak and his wife Rebecca to transmit information.

In September 2006, FBI and NASA agents searched Mr. Chung’s house and found more than 300,000 pages of documents from Boeing, Rockwell and other defense contractors inside the house and in a crawl space underneath the house. Among the documents found in the crawl space were scores of binders containing decades' worth of stress analysis reports, test results and design information for the Space Shuttle, Delta IV Rocket, F-15 fighter, B-52 bomber, CH-46/47 Chinook helicopter, and other proprietary aerospace and military technologies.

According to reports, Mr. Chung told the judge during the sentencing hearing that he had taken the information to write a book.

Mr. Chung's attorney plans to appeal.

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BIS Publishes Final Rule Amending EAR for Certain Exports Used on International Space Station

While the federal government in Washington, DC remains closed today for the second day in a row, the Government Printing Office remains open and publishing the Federal Register.

Today's edition of the Federal Register contains one export control-related notice, a final rule published by the Bureau of Industry and Security amending the Export Administration Regulations (EAR) to modify License Exception GOV to provide authorization for exports and reexports for use on the International Space Station (ISS).

In order to prepare for the end of the Space Shuttle program (there are only four more shuttle missions scheduled), today's final rule amends section 740.11 of the EAR by providing a new authorization for the export or reexport of commodities subject to the EAR that are classified under ECCN 9A004 (which covers space launch vehicles and spacecraft not controlled by the ITAR) for use on the ISS.

Specifically, this rule provides a new authorization for commodities classified under ECCN 9A004 that are subject to the EAR that  are needed at launch destinations outside of the U.S. (France, Japan, Kazakhstan and Russia) on short notice. The rule defines "short notice" as a requirement to have a commodity manifested and at the scheduled launch site for hatch-closure no more than 45 days from the time the exporter or reexporter received complete documentation.

While most exports of items for use on the RSS to launch countries are handled by NASA, this amended license exception permits other exporters to use this license exception if necessary.

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Export Control Reform 2010: Transforming the Legal Architecture of Dual-Use and Defense Trade Controls

While there have been many export control reform proposals issued in the past few months, very few of them have focused on the legal aspects of the U.S. export control regime.

Neena Shenai, an adjunct scholar at the American Enterprise Institute for Public Policy Research, has added an interesting perspective to the export control reform debate in her working paper entitled Export Control Reform 2010: Transforming the Legal Architecture of Dual-Use and Defense Trade Controls (available here in PDF format). Ms. Shenai, an attorney, is well-suited to provide this perspective given her experience in the private sector and in government, which includes serving as a law clerk to a judge at the U.S. Court of International Trade, practicing international trade law at a leading law firm and serving as an advisor to the Assistant Secretary for Export Administration at the Commerce Department's Bureau of Industry and Security.

The paper offers the thesis that improvements in the export control system’s legal architecture, including administrative procedural safeguards and limited judicial review while also protecting classified information and national security determinations, will improve the workings of the system in general.

Ms. Shenai reaches that conclusion by discussing the existing legal framework of dual-use and defense-related export controls, examining the various shortcomings of the existing export controls legal regime and discussing what can be learned from other U.S. international-related legal regimes that could serve as useful models for reform of the U.S. export control system. The regimes examined include the licensing of nuclear products by the Nuclear Regulatory Commission, the administration of trade remedy laws, the administration of U.S. customs laws and the treatment of national security information protected from disclosure under the Freedom of Information Act.

The paper then provides a number of general and specific recommendations to improve the legal framework of the export control system, including improvements to the commodity jurisdiction (CJ), commodity classification and licensing processes. For example, the paper advocates having agency decisions provide applicants with detailed information on why licenses were granted or denied, the grounds on how CJ determinations are made and allowing applicants the ability to appeal such decisions to a federal court, preferably the Court of International Trade, given its longstanding history of hearing cases under the U.S. trade laws.

Ms. Shenai concludes by noting that "the recommendations made in this paper, if implemented, would serve to ensure that the U.S. export control laws are administered in a fair, transparent, predictable, and accountable fashion, while simultaneously maintaining national security protections."

It should be noted that this working paper has not yet been finalized and Ms. Shenai welcomes comments and corrections. Information on how to contact Ms. Shenai can be found in the document.

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Finding a Willing Buyer Only One Part of the Export Process

Finding a Willing Buyer Only One Part of the Export Process

Exporters Looking to Boost Business Need to Mind Rules and Regulations Too

The Obama administration is launching a government-wide effort to double U.S. exports over the next five years as part of a plan to increase domestic employment and boost the U.S. economy. However, companies looking to take advantage of the new National Export Initiative to break into new markets should be aware that shipping goods overseas comes with potential perils as well as opportunities.

As part of the NEI, the federal government plans to increase its trade advocacy efforts, including educating U.S. companies about opportunities overseas, directly connecting them with new customers and advocating more forcefully for their interests. The NEI will also include a focus on improving access to export financing and helping to remove barriers that prevent U.S. companies from getting access to foreign markets. Only a very small percentage of U.S. companies currently export their products, and of those that do, 58% export to only one country. The Obama administration is looking to increase these figures in the expectation that doing so will also increase employment.

However, warns Doug Jacobson, head of Sandler, Travis & Rosenberg’s export controls practice group, while increasing the number of U.S. companies that export and increasing trade promotion assistance are laudable goals, U.S. exporters must be aware that finding a willing buyer is only the first step in the exporting process.

“In addition to taking the necessary steps to ensure they are paid for their goods, U.S. exporters must be aware of the wide range of U.S. regulatory and legal issues applicable to exports,” Jacobson said. “The benefits of exporting can be great for U.S. companies, but the penalties for violating export laws and regulations can be severe. ST&R often represents exporters in enforcement actions that learn of their export compliance obligations only after they receive an administrative subpoena from the Bureau of Industry and Security or the Office of Foreign Assets Control. Many of those violations could have been avoided if the exporters understood their export compliance obligations in advance.”

Examples of the important compliance-related issues that U.S. exporters should be aware of when selling goods overseas include the following.

Ultimate Destination. U.S. export restrictions and licensing requirements vary by the country of destination. Some countries are subject to comprehensive embargoes, while others are subject to targeted sanctions directed at certain individuals and companies.

Jurisdiction and Classification of Goods. Proper jurisdiction and classification of goods under the Export Administration Regulations or the International Traffic in Arms Regulations is required to determine export licensing requirements and end-use and end-user restrictions for all products being exported from the U.S. In addition, the proper export classification is required to be declared in the Electronic Export Information filing that must be transmitted via the Automated Export System.

Know Your Customer. To avoid engaging in transactions with parties that have been denied export privileges or are subject to U.S. sanctions, exporters should screen all customers and parties involved in the export against the government’s various restricted party lists.

Anti-boycott Compliance. Boycott requests, which often contain the words “boycott” or “blacklist” or provisions prohibiting the importation of goods from certain countries, are often found in documents involving sales to the Middle East, including purchase orders, tenders, contracts, shipping requests and letters of credit. Certain boycott requests must be reported to the Bureau of Industry and Security.

Foreign Corrupt Practices Act. The FCPA prohibits U.S. persons and their agents from making prohibited payments to foreign government officials to obtain and keep business.

For more information on these issues please contact Doug Jacobson at (202) 431-2407.

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U.K. Company Fined $17 Million for Exporting Boeing 747s to Iran

Balli Aviation Ltd., a subsidiary of the United Kingdom-based Balli Group PLC (collectively "Balli"), pleaded guilty today in the U.S. District Court for the District of Columbia to a two-count criminal information in connection with its illegal export of commercial Boeing 747 aircraft from the United States to Iran.

In a related civil enforcement case, Balli entered into a joint settlement agreement with the Treasury Department's Office of Foreign Assets Control (OFAC) and the Commerce Department's Bureau of Industry and Security (BIS) to settle alleged violations of U.S. export controls and sanctions laws..

Under the criminal plea agreement, Balli agreed to pay a $2 million criminal fine and be placed on corporate probation for five years. In the civil settlement with BIS and OFAC, Balli agreed to pay a $15 million civil penalty (payable in five installments over two years) to settle alleged violations of the Iranian Transactions Regulations and Export Adminstration Regulations. The terms of the civil settlement agreement provide that $2 million of Balli's civil penalty will be suspended and waived if Balli remains in compliance with U.S. export control laws.

According to count one of the criminal information, from 2005 through 2008, Balli conspired to export three Boeing 747 aircraft from the United States to Iran via a subsidiary without first having obtained the required export license from BIS or authorization from OFAC, in violation of the EAR and Iranian Transactions Regulations. The criminal information also states that the Boeing 747 was purchased  with financing obtained from Mahan Airlines, the first private airline in Iran. (Mahan Airlines prominently features the Boeing 747 on its home page).

Count two of the information states that Balli violated a Temporary Denial Order (TDO) issued by BIS in March 2008 that prohibited the company from conducting any transaction involving any item subject to the EAR. The Justice Department alleged Balli subsequently violated the TDO by carrying on negotiations with others concerning buying, receiving, using, selling and delivering U.S.-origin aircraft.

In the civil case, Balli was charged with conspiracy to violate the EAR by working with the Iranian airline to export the U.S.-origin aircraft to Iran. BIS also charged Balli with one count of acting contrary to the terms of a TDO by attempting to sell and export three additional 747s to Iran.

In addition to the civil monetary penalties, BIS suspended Balli's export privileges for five years (as noted, Balli was previously subject to a BIS TDO that was later lifted), although BIS agreed to suspend the denial order as long as the penalty is timely paid and the company remains compliant with the EAR. Mahan Airways remains on BIS's Denied Persons List.

In addition, the civil settlement agreement requires Balli to hire an unrelated third-party consultant with expertise in U.S. export control laws and sanctions regulations to conduct audits of Balli's U.S. export control and sanctions compliance on an annual basis during the next five years and to submit the audit results to BIS and OFAC.

The OFAC and BIS joint settlement agreement, which contain additional details on Balli's alleged activities, can be found here (pdf).

SIDEBAR: On a somewhat related note, last month marked the 40th anniversary of the first commercial flight of the Boeing 747 from New York to London by its launch customer Pan American World Airways.  The Flightglobal website has put together a special section marking the 40th anniversary of the Boeing 747 here.

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