Engineer Sentenced to 32 Years in Prison for Export Control and Other Violations Involving Sale of Stealth Technology to China

An engineer who had once worked on the B-2 stealth bomber program was sentenced today by a federal judge in Hawaii to 32 years in prison after being convicted of violating the Arms Export Control Act; communication, delivery and transmission of national defense information; conspiracy; money laundering; and filing a false tax return.

Noshir Gowadia, who was arrested in October 2005, was convicted by a jury in August 2010 on 14 of the 17 counts brought against him.

Among other things, Gowadia was charged with performing defense services for China by agreeing to design, and later designing, a low observable cruise missile exhaust system nozzle capable of rendering the missile less susceptible to detection and interception. Gowadia allegedly faxed a foreign official a proposal to develop infrared suppression technology for a foreign military aircraft and containing top secret level information concerning a U.S. defense system. He was also accused of submitting various proposals to persons in third countries to develop classified infrared suppression technology for foreign commercial aircraft. He allegedly used the funds received for selling the technical data to pay for a house in Maui, Hawaii.


Gowadia served as a visiting professor at Purdue University and worked as a consultant for a number of other universities.

Update: Justice Department's press release announcing Gowadia's sentencing can be found here.

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BIS Issues Final Rule Implementing Changes to Export Controls on India

The Commerce Department' Bureau of Industry and Security (BIS) will publish a final rule in tomorrow's Federal Register implementing changes to U.S. export controls on India that were announced by President Obama and Indian Prime Minister Singh on November 8, 2010. The changes announced in the final rule will go into effect on January 25, 2010.

As expected, the final rule amends the Export Administration Regulations (EAR) as follows:

Removal From Certain Indian Organizations From Entity List
 
The final rule removes the following Indian entities from the Entity List:

A. Bharat Dynamics Limited
B. Four remaining subordinates of the Defense Research and Development Organization (DRDO):

• Armament Research and Development Establishment (ARDE)
• Defense Research and Development Lab (DRDL)
• Missile Research and Development Complex
• Solid State Physics Laboratory

C. Four remaining subordinates of the Indian Space Research Organization (ISRO):

• Liquid Propulsion Systems Center
• Solid Propellant Space Booster Plant (SPROB)
• Sriharikota Space Center (SHAR), and
• Vikram Sarabhai Space Center (VSSC).

The removal of these nine Indian entities from the Entity List eliminates the existing
license requirements for exports, reexports, and in-country transfers to these entities.

The parties named on the Entity List associated with India's Department of Atomic Energy, including India's nuclear reactors, will remain on the Entity List for the foreseeable future and an export license is required to export or reexport all items subject to the EAR to such entities. BIS has a case-by-case licensing approval policy for controlled items and a presumption of approval for EAR99 items.

India Moves to Country Group A:2 From Country Groups D:2, D:3 and D:4

The final rule removes India from Country Groups D:2, D:3, and D:4 in Supplement No. 1 to part 740 of the EAR and adds India to Country Group A:2, the group consisting of countries adhering to the Missile Technology Control Regime.

While this change will result in the elimination of license requirements to export or reexport certain controlled products to India, this change will not change licensing policy toward India for items included in the Commerce Control List that are controlled for nuclear nonproliferation reasons (NP1). As a result, a license will still be required to export or reexport NP1 controlled items to all destinations in India. In addition, an export license to India will still be required for items controlled for missile technology (MT) reasons.

Exports to India of items classified as EAR99 (the designation for items not on the Commerce Control List) can take place without having to obtain an export license from BIS. Of course, no unlicensed exports can be made to prohibited parties or for prohibited end-uses.

It is important to note that these changes have no impact on the export of defense articles to India subject to the jurisdiction of the International Traffic in Arms Regulations (ITAR). An export license from the Directorate of Defense Trade Controls is required to export all items to India that are subject to the jurisdiction of the ITAR and the Arms Export Control Act.

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Census Bureau Issues Update on Port of Unlading Requirement in AES Filings

U.S. exporters and freight forwarders should note that the Census Bureau's Foreign Trade Division recently issued the following update regarding the Port of Unlading data element when filing Electronic Export Information (EEI) in the Automated Export System:

For shipments from the U.S. or Puerto Rico to a foreign country, the Port of Unlading Code is required for Vessel shipments only.

For shipments between the U.S. and Puerto Rico, the Port of Unlading is required for Vessel and Air shipments only (see chart below).

Any submission of EEI outside of the scope described above will result in a fatal error Response Code: 141 "PORT OF UNLADING NOT ALLOWED FOR MOT".

                                

Specify a Port of Unlading When…  

                            ___________________________________________________

                                      ROUTE                          |       MOT (Mode of Transport)     

                            ___________________________________________________

                                U.S. to a Foreign Country       |                  Vessel Only   

                            ___________________________________________________

                            Puerto Rico to a Foreign Country |                  Vessel Only

                            ___________________________________________________

                                     U.S. to Puerto Rico            |             Vessel and Air Only

                            ___________________________________________________

                                      Puerto Rico to U.S.           |             Vessel and Air Only                   

In general, Census' Foreign Trade Regulations an EEI must be filed for shipments from the U.S. (including exports to and from Puerto Rico and the U.S. Virgin Islands) when:

• Commodities from one U.S. Principal Party in Interest (USPPI) to one consignee on a single export carrier classified under an individual Schedule B code is greater than $2500 (exports to Canada are exempt from this requirement)
• The shipment requires an export license from BIS or DDTC, regardless of value.

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When Truth is Stranger Than Fiction: California Man Pleads Guilty After Attempting to Export Fighter Jet and Defense Articles to Iran, Hungary and Russia

In a case that reads a work of fiction, a California man last week pleaded guilty in federal court in Delaware to one count of violating the International Emergency Economic Powers Act and one count of violating the Arms Export Control Act in connection with the export and attempted export of defense articles to Iran, Hungary and Russia, including the attempted export of a F-5 fighter jet. 

Mark Knapp was accused of engaged in a seven-month course of conduct involved the illegal export and attempted export of the following United States defense articles:

• 1 F-5B Tiger II fighter jet;
• 5 CSU-13 Anti-Gravity Flight Suits, which are worn by pilots to counteract the forces of gravity and acceleration;
• 1 F-14 NATOPS emergency procedures manual, which is designed for use by pilots during in-flight emergencies in F-14 Tomcat (Iran received , F-5 and F-4B fighter jets;
• 3 electronic versions of the NATOPS emergency procedures manual;
• 4 AN/PRC-149 Survival radios, which are hand-held search and rescue radios used primarily by U.S. Navy pilots as an emergency locator beacon; and
• 2 F-14 Ejection Seats.

The following is the U.S. Government's summary of the scope Knapp's activities that led to his arrest:

A cooperating defendant introduced Knapp to an undercover HSI special agent (“UC”). Between December 2009 and July 2010, the UC met with Knapp on several occasions, at locations in California, Pennsylvania, Delaware, and Budapest, Hungary. During the meetings, Knapp informed the UC that he had various defense items for sale. He also admitted to procuring an F-14 (GRU-7A) Ejection Seat, which was sold to the UC by the cooperating defendant. Over the course of their interaction, Knapp provided the UC with various lists containing items for sale, and he sent photographs and descriptions to the UC via email.

On two occasions, Knapp exported items outside the United States. On February 22, 2010, Knapp exported two (2) CSU-13Anti-Gravity flight suits and a NATOPS emergency procedures manual to an address in Hungary; and on May 13, 2010, Knapp exported an additional three CSU- 13 Anti-Gravity flight suits to an address in Hungary. On a third occasion, Knapp sold the UC an F-14 (GRU-7A) ejection seat. On March 17, 2010, Knapp delivered the seat to a shipping company located in California. Knapp identified the item to the shipping company as a “museum display chair,” and he provided the shipping company with a consignee’s address in Denmark from which it was to be transshipped to Iran. After Knapp left the shipping company, HSI agents seized the ejection seat prior to its export outside the United States.

Knapp first broached the idea of obtaining an F-5 fighter jet from a source in California to sell to the UC in January 2010. Knapp told the UC that the “Iranians” might be interested in various items, including the F-5 fighter jet, and stated that he was not concerned whether the jet or the other items ended up in Iran. Knapp stated on January 4, 2010: “We’re essentially ... for lack of a better term, ... leveling the playing field....”

Knapp also asked the UC whether he had customers in China or Russia who would be interested in pilot emergency radios for use in locating downed pilots. Knapp explained that the customers would be able to “just listen in” to locate the downed pilot, and would therefore be interested in reverse-engineering the radios.

During a January 13, 2010 meeting in California, Knapp took the UC to an airport to inspect the aircraft. Over the course of the next several months, the UC and Knapp had multiple conversations regarding transporting the aircraft from California to a freight forwarder in Delaware; determining appropriate transshipment points to Iran; and devising a payment scheme. They also arranged to meet in Budapest, Hungary, to discuss the purchase.

On April 29-30, 2010, the UC and another undercover law enforcement officer posing as an Iranian intermediary, met with Knapp in Budapest. During the meetings, Knapp explained that he would have a contact fly the F-5 from California to the East Coast, where it would subsequently be crated and shipped to Hungary for transshipment to Iran. Knapp said that the F-5 would be flown cross country using “uncontrolled” airports. Knapp also displayed additional photographs of the F-5 on his laptop computer. Knapp also discussed making payment for the F-4 into a “trust” and setting up documents to make the payment look like a “gift” or a “loan”. Knapp also stated: “...[A]s more and more time goes on, I’m starting to hate the U.S. more and more....”

On July 9, 2010, Knapp sent a contract for the F-5 fighter jet to the UC via the United States mail. The body of the contract (entitled “Contract for acquisition and transport of F-5B from CA to DE”) set forth in detail the purchase price and terms for the sale of the aircraft. The contract further set forth the timing (approximately four weeks) for flying the F-5 to Delaware after the UC transferred $3.25 million into a bank account specified by Knapp. In addition, the contract provided terms for insurance, registration, and operational costs of flying the aircraft from California to Delaware. Knapp further noted that his requested commission would be $500,000, “with 50% paid on the date of arrival and landing of the aircraft at the DE (New Castle) or other agreed on airport, and 50% paid at the time of arrival at destination.”

On July 20, 2010, Knapp met with the UC at a location in Wilmington, Delaware. Knapp brought to the meeting various defense items, including the four AN/PRC-149 handheld search and rescue radios, which the UC agreed to purchase for $11,000.00. The UC told Knapp the customer was Russian, to which Knapp replied: “Awesome.” Knapp amplified: “Whoever your customer is, I’m happy with.”

Knapp stated that he was going to open an offshore bank account for the proceeds of the F-5 sale. Knapp and the UC discussed the logistics of flying the F-5 fighter jet from California to Delaware, and preparing the jet for transshipment to Iran. UC told Knapp that the Iranians expected Knapp to make a personal guarantee that the aircraft would arrive in Iran and that it would be operational. Knapp explained that the Iranians would know that it was in working order based upon his transport of the plane from California to Delaware. He further stated that what the Iranians had already seen in photographs was what they would get. According to Knapp, the only thing he would not be able to test was the weapons systems. The UC asked whether he could tell the Iranians that Marc Knapp personally guaranteed the aircraft, to which Knapp replied that he could. The parties then signed the contract.

Knapp was provided with a power of attorney form for use in exporting the F-5. He stated that he would use a false name and said that he would describe the item to be shipped as a “Museum Display Shell.”

Following the meeting, HSI and DCIS agents placed defendant under arrest.

Knapp faces a maximum prison sentence of 20 years in prison and a $2 million fine when he is sentenced later this year.

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Texan Pleads Guilty to Exporting ITAR-Controlled Weapons Sights to Russia

A Latvian born woman currently living in Texas pleaded guilty in federal court in Brooklyn, New York last Friday to one count of violating the Arms Export Control Act after attempting to export ITAR-controlled weapons sights to Russia without the required export licenses from the State Department's Directorate of Defense Trade Controls.

Ann Fermanova was arrested in July 2010 at JFK airport while returning to the U.S. from an overseas trip. She had been detained by U.S. Customs and Border Protection (CBP) several months earlier prior to boarding a flight to Moscow after it was determined that her luggage contained three night vision riflescopes worth $15,000, including a Raptor 4X Night Vision Weapons Sight. Riflescopes manufactured to military specifications are covered by USML Category I(f) and riflesights with night vision capabilities are included in USML category XII(c).

The weapons sights were confiscated by CBP, but she was allowed to continue her trip to Russia. When returning to the US several months later Fermanova was apprehended by FBI agents at JFK airport and charged with having "knowingly and intentionally" attempted to export "from the U.S. to Russia defense articles on the United States Munitions list".

Various reports indicated that Fermanova claimed that the weapons sights were either a gift to her father or were intended for sale by her husband in Russia to hunters, although she allegedly removed identifying information from the sights and blacked out the serial numbers.

Fermanova faces a maximum prison term of 10 years and a $1 million fine when she is sentenced in April 2011, although the sentencing guidelines provide for a reduced sentence.

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OFAC Adds Additional Entities Affiliated With Iran's Shipping Line and Aerospace Industry to SDN List

Last week the U.S. Department of the Treasury Office of Foreign Assets Control (OFAC) announced the addition to the List of Specially Designated Nationals (SDN List) 24 shipping companies affiliated with the Islamic Republic of Iran Shipping Lines (IRISL) and two entities that are subordinates of Iran’s Aerospace Industries Organization (AIO) because of their alleged role in proliferation activities.

The following entities were added to the SDN List pursuant to the authority of Executive Order 13382, which is aimed at freezing the assets of proliferators of weapons of mass destruction and their supporters:

• Four Hong Kong based shipping companies – Starry Shine International Limited, Ideal Success Investments Limited, Top Glacier Company Limited, and Top Prestige Trading Limited – for being owned and managed by Ahmad Sarkandi and Ghasem Nabipour, two individuals designated by Treasury in October 2010 for acting for or on behalf of IRISL.

• Sixteen shipping companies, each based at the same address in Hong Kong, for being owned or controlled by IRISL or affiliated entities. In late 2009, these sixteen companies became the owners of a series of vessels, each of which is already identified on OFAC's SDN List, that were previously owned by the four Hong Kong companies listed above.

• Four shipping companies in the Isle of Man that that share the same address with eight previously-designated shipping companies wholly-owned by IRISL, for being owned or controlled by IRISL or IRISL front companies.

• Shahid Ahmad Kazemi Industries Group, a subordinate to AIO that is responsible for the development and production of surface-to-air missiles. It is suspected of soliciting foreign technology for Iran’s missile programs and participating in North Korea's missile-related programs. North Korea has provided significant assistance to Iran in its development of ballistic missiles and missile technology.

• M. Babaie Industries, also linked to Iran’s WMD proliferation efforts and suspected of soliciting foreign technology for Iran’s missile programs, was designated for being owned or controlled by, or acting for or on behalf of AIO.

In September 2008 the U.S. added IRISL and its fleet of vessels to the SDN List because of its role in supplying Iran’s weapon programs. In an effort to evade these sanctions IRISL started renaming the vessels and changing their ownership. The Wisconsin Project on Nuclear Arms Control's Iran Watch program has issued a report describing IRISL's renaming efforts and containing a chart showing the old and new name and owner of IRISL's vessels.

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White House's Cuba Travel Announcement - What Does it Really Mean?

As was widely reported, the White House announced on Friday revisions to the U.S. embargo on Cuba. Despite various reports referring this announcement as a further "easing" of the Cuban embargo, most of the changes returned U.S. policy on Cuba back to where it was during the Clinton Administration.

As noted below, these policy changes only impact very limited categories of travel to Cuba and have no impact on commercial travel or sales to Cuba. In addition, these changes will only take effect when new regulations are issued in the coming weeks by the Treasury Department's Office of Foreign Assets Control (OFAC) and U.S. Customs and Border Protection (CBP). 

The changes announced by the White House include the following:

1. Changes Involving Travel to Cuba - OFAC's Cuban Assets Control Regulations governing travel to Cuba will be modified as follows:

• In one of the most significant policy changes, religious organizations will be permitted to sponsor religious travel to Cuba under a general license. Currently, a paper license (known as a specific license) must be obtained in advance from OFAC for individuals associated with a religious organizations to travel to Cuba. A general license issued by OFAC authorizes activity to take place without having to submit a license application to OFAC. It is likely that OFAC's new regulations will require persons traveling to Cuba under the religious travel general license to submit pre- and/or post-travel reports to OFAC. 

• Authorizing additional educational exchanges with Cuba by allowing accredited institutions of higher education to sponsor travel to Cuba for course work for academic credit under a general license; allowing students to participate through academic institutions other than their own; and facilitating instructor support to include support from adjunct and part-time staff. This change should increase the number of college students studying in Cuba.

• Restore specific licensing of non-degree program educational exchanges under the auspices of an organization that sponsors and organizes people-to-people programs. Since this type of travel can only be done pursuant to a specific license, a license must be obtained from OFAC before this type of educational travel to Cuba can take place.

• Allow specifically licensed academic institutions to sponsor or cosponsor academic seminars, conferences, and workshops related to Cuba and allow faculty, staff, and students to attend.

• Allow specific licenses to organize or conduct non-academic clinics and workshops in Cuba for the Cuban people.

• Allow specific licensing for a greater scope of journalistic activities. It remains to be seen what types of additional journalistic activities will be authorized, since free-lance journalists can currently obtain specific licenses and a general license exists for journalists regularly employed by news organizations. 

2. Non-Family Remittances - OFAC will expand the scope of authorized payments to people and organizations in Cuba as follows:

• Restore a general license for U.S. persons to send remittances up to $500 per quarter to non-family members in Cuba to support private economic activity. 

• Create a general license authorizing payments to religious institutions in Cuba in support of religious activities.

3. Increase in Number of U.S. Airports Supporting Licensed Charter Flights To and From Cuba - Regulations will be issued to permit all U.S. international airports to apply for authorization to handle licensed charter flights to and from Cuba, provided such airports have adequate customs and immigration capabilities. Currently, all charters flights to and from Havana, Cuba must take place from Miami, JFK in New York or Los Angeles International Airport. However, in practice virtually all flights to and from Cuba depart from Miami. Tampa International Airport has already indicated an interest in handling flights to and from Cuba and hopes to offer charter flights in the coming months.

It is important to note that only OFAC-approved providers of air, travel and remittance forwarding services can handle travel and payments arrangements to and from Cuba. The current list of OFAC authorized Cuba providers can be found here (PDF).

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