Every Monday we post the highlights out of last week’s FCC Export/Import Daily Update (“The Daily Bugle”). Send out every business day to approximately 7,500 readers of changes to defense and high-tech trade laws and regulations, The Daily Bugle is a free daily newsletter from Full Circle Compliance, edited by James E. Bartlett III, and Alexander Witt.
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Last week’s highlights of The Daily Bugle included in this edition are:
- EU Council Adopts Framework for Sanctions Concerning Turkey; The Daily Bugle; Tuesday, 12 November 2019, Item #5;
- UK HMRC Issued Fines of Between £5,000 and £90,000 to 9 UK Exporters for Unlicensed Exports; The Daily Bugle; Tuesday, 12 November 2019, Item #7;
- Commerce/BIS Amends EAR by Adding 22 Entities, Modifying 1, and Removing 3 from Entity List; The Daily Bugle; Wednesday, 13 November 2019, Item #1;
- AW-Tronics LLC, of Miami, FL, Ali Caby, and Arrowtronic, LLC, Agrees TO Settlement with BIS to be Debarred and Designated “Denied Persons” for Conspiracy to Export Goods to Syria; The Daily Bugle; Friday, 15 November 2019, Item #1;
- Justice: “Iranian Businessman Sentenced to 46 Months in Prison for Violating U.S. Sanctions by Exporting Carbon Fiber from the United States to Iran”; The Daily Bugle; Friday, 15 November 2019, Item #4;
- U.S. District Court (Nev.): Firearms Exporter Asks Federal Court to Stop DDTC from Imposing ‘Unlawful Presumption of Denial'”; The Daily Bugle; Friday, 15 November 2019, Item #6;
1. EU Council Adopts Framework for Sanctions Concerning Turkey
(Source: Council of the European Union, 11 Nov 2019.)
Today, the Council adopted a framework for restrictive measures in response to Turkey’s unauthorised drilling activities in the Eastern Mediterranean. The framework will make it possible to sanction individuals or entities responsible for or involved in unauthorised drilling activities of hydrocarbons in the Eastern Mediterranean.
The sanctions will consist of a travel ban to the EU and an asset freeze for persons, and an asset freeze for entities. In addition, EU persons and entities will be forbidden from making funds available to those listed.
The framework for restrictive measures makes it possible to place under sanctions:
(1) persons or entities responsible for drilling activities related to hydrocarbon exploration and production not authorised by Cyprus within its territorial sea, exclusive economic zone (EEZ) or continental shelf. Such drilling activities include, where the EEZ or continental shelf has not been delimited in accordance with international law, activities which may jeopardize or hamper the reaching of such a delimitation agreement;
(2) persons or entities providing financial, technical or material support for the above mentioned drilling activities;
(3) persons or entities associated with them.
Today’s decision is a direct follow-up to the Council conclusions of 14 October 2019, which were endorsed by the European Council on 17-18 October 2019, when the EU reaffirmed its full solidarity with Cyprus, regarding the respect of its sovereignty and sovereign rights in accordance with international law and invited the Commission and the European External Action Service to submit proposals for a framework for restrictive measures. …
* Council Decision (CFSP) 2019/1894 of 11 November 2019 concerning restrictive measures in view of Turkey’s unauthorised drilling activities in the Eastern Mediterranean
2. UK HMRC Issued Fines of Between £5,000 and £90,000 to 9 UK Exporters for Unlicensed Exports
(Source: UK ECJU,12 Nov 2019.)
Between May and October 2019, HM Revenue & Customs (HMRC) issued compound penalties between £5,000 and £90,000 to 9 UK exporters. These related to unlicensed exports of dual use goods, military goods and related activity controlled by The Export Control Order 2008.
HMRC have policy responsibility for enforcing export controls on strategic goods and sanctions, and investigating breaches of those controls. Where appropriate, HMRC can use their powers to offer a compound penalty in lieu of prosecution.
3. Commerce/BIS Amends EAR by Adding 22 Entities, Modifying 1, and Removing 3 from Entity List
(Source: Federal Register, 13 Nov 2019.) [Excerpts.]
84 FR 61538-61546: Addition of Entities to the Entity List, Revision of an Entry on the Entity List, and Removal of Entities from the Entity List
* AGENCY: Bureau of Industry and Security, Commerce.
* ACTION: Final rule.
* SUMMARY: In this rule, the Bureau of Industry and Security (BIS) amends the Export Administration Regulations (EAR) by adding twenty-two entities, under a total of thirty-two entries, to the Entity List. These twenty-two entities have been determined by the U.S. Government to be acting contrary to the national security or foreign policy interests of the United States. These entities will be listed on the Entity List under the destinations of Bahrain, France, Iran, Jordan, Lebanon, Oman, Pakistan, Saudi Arabia, Senegal, Syria, Turkey, the United Arab Emirates (U.A.E.) and the United Kingdom (U.K.). This rule also modifies one existing entry on the Entity List under the destination of Pakistan. Finally, this rule removes three entities from the Entity List; one under the destination of Pakistan, one under the destination of Singapore and one under the destination of the U.A.E. The removals are made in connection with requests for removal that BIS received pursuant to sections of the EAR used for requesting removal or modification of an Entity List entry, and the subsequent review by the
End-User Review Committee of the information provided in the requests.
* DATES: This rule is effective November 13, 2019. …
4. AW-Tronics LLC, of Miami, FL, Ali Caby, and Arrowtronic, LLC, Agrees TO Settlement with BIS to be Debarred and Designated “Denied Persons” for Conspiracy to Export Goods to Syria
(Source: Federal Register, 15 Nov 2019.) [Excerpts.]
84 FR 62502: Order Relating to AW-Tronics LLC
* AGENCY: Commerce, Bureau of Industry & Security
* ACTION: Order
* RESPONDENTS: AW-Tronics LLC, of Miami, Florida. Ali Caby, AW-Tronics, LLC, and Arrowtronic, LLC are jointly and severally liable.
* CHARGE: 15 CFR 764.2(d)-Conspiracy
* SUMMARY: The Bureau of Industry and Security, U.S. Department of Commerce (”BIS”), has notified AW-Tronics LLC, of Miami, Florida, (”AW-Tronics”) that it has initiated an administrative proceeding against it pursuant to Section 766.3 of the Export Administration Regulations through the issuance of a Charging Letter alleging that AW-Tronics, Ali Caby, Arash Caby, Marjan Caby, and Arrowtronic, LLC, violated the Regulations as follows: Charge 1 15 CFR 764.2(d)-Conspiracy. … The purpose and object of the conspiracy was to unlawfully export goods from the United States through transshipment points to Syria, including to Syrian Arab Airlines (”Syrian Air”), the flag carrier airline of Syria and a Specially Designated Global Terrorist (”SDGT”), and in doing so evade the prohibitions and licensing requirements of the Regulations and avoid detection by U.S. law enforcement. … Whereas, BIS and AW-Tronics have entered into a Settlement Agreement pursuant to EAR Sect. 766.18(b), whereby they agreed to settle this matter in accordance with the terms and conditions set forth therein.
* PENALTY: As set forth in Settlement Agreement pursuant to Section 766.18(b). Among other penalties, Respondents are designated “Denied Persons.” Any EAR license in which AW-Tronics has an interest is revoked.
* DEBARRED: 6 years
* DATE OF ORDER: October 30, 2019; effective immediately.
5. Justice: “Iranian Businessman Sentenced to 46 Months in Prison for Violating U.S. Sanctions by Exporting Carbon Fiber from the United States to Iran”
(Source: Justice, 14 Nov 2019.) [Excerpt.]
The Department of Justice announced that Behzad Pourghannad was sentenced yesterday to 46 months in prison for participating in a conspiracy to export carbon fiber from the United States to Iran between 2008 and 2013. Pourghannad pleaded guilty on Aug. 29, 2019,before United States Magistrate Judge Paul E. Davison. United States District Judge Vincent L. Briccetti imposed yesterday’s sentence.
“Pourghannad falsified shipment documents and used front companies to export carbon fiber to Iran in violation of U.S. sanctions,” said Assistant Attorney of National Security John C. Demers. “Carbon fiber is used by the Iranian Regime to further its nuclear, military, and aerospace programs. We continue to thwart the efforts of the Iranian regime to evade our sanctions and work steadfastly with our international partners to investigate, prosecute and bring sanctions violators to justice.”
“Behzad Pourghannad conspired to circumvent U.S. export controls on carbon fiber, a substance with numerous military and aerospace applications,” said U.S. Attorney Geoffrey Berman for the Sourthern District of New York. “The significant sentence Pourghannad received should send a message that such violations, which threaten our national security, will incur stiff penalties.”
According to the Indictment and other documents filed in the case, including statements made during the plea and sentencing proceedings:
Between 2008 and July 2013, Pourghannad and his two codefendants, Ali Reza Shokri and Farzin Faridmanesh, lived and worked in Iran. During that period, they worked together to obtain carbon fiber from the United States and surreptitiously export it to Iran via third countries in violation of United States sanctions. In particular, Shokri worked to procure many tons of carbon fiber from the United States; Pourghannad agreed to serve as the financial guarantor for large carbon fiber transactions; and Faridmanesh agreed to serve as the trans-shipper. Carbon fiber has a wide variety of uses, including in missiles, aerospace engineering, and gas centrifuges that enrich uranium.
In or about late 2007 and early 2008, Shokri and a Turkey-based co-conspirator (CC-2) successfully arranged for the illegal export and transshipment of carbon fiber from the United States to an Iranian company Shokri operated (Iranian Company-1). Specifically, CC-2 contacted a United States supplier of carbon fiber, who in turn enlisted a third individual (Individual-1) for assistance with the transaction. Through Individual-1, CC-2 purchased carbon fiber from the United States supplier and arranged for the shipment of the carbon fiber from the United States, through Europe and Dubai, United Arab Emirates, to Iranian Company-1 in Iran.
In or about May 2009, Pourghannad and Shokri attempted to arrange another illegal purchase and transshipment of carbon fiber from the United States to Iran. Specifically, Individual-1 returned a signed contract to Pourghannad for Shokri’s purchase of a large quantity of carbon fiber. Individual-1 then purchased the carbon fiber from a United States supplier and arranged for the carbon fiber to be exported from the United States to a third country (Country-1), en route to Iran. Country-1 authorities, however, interdicted the carbon fiber shipment before it could be trans-shipped to Iran.
In or about 2013, Pourghannad, Shokri, and Faridmanesh again attempted to illegally procure and export carbon fiber from the United States to Iran. In the 2013 transaction, Shokri and Pourghannad negotiated with Individual-1 for the purchase and trans-shipment to Iran of more than five tons of carbon fiber. Faridmanesh and Pourghannad further agreed with Individual-1 that the carbon fiber would be trans-shipped from the United States to Iran through Tbilisi, Georgia, with Faridmanesh to serve as the trans-shipper. Faridmanesh specifically instructed Individual-1 to change the shipping labels on the carbon fiber to reference “acrylic” or “polyester,” rather than “carbon fiber.” Pourghannad provided Individual-1 with the bank guarantee that was to serve as surety for a portion of the carbon fiber. In or about June 2013, Individual-1 informed Pourghannad, Shokri, and Faridmanesh that the carbon fiber would soon be shipped from Manhattan and that Individual-1 would replace the carbon fiber labels with shipping labels referencing “acrylic” to evade U.S. export controls.
No one involved in these transactions obtained permission from the U.S. Department of Treasury, Office of Foreign Assets Control to export the carbon fiber from the United States. …
6. U.S. District Court (Nev.): Firearms Exporter Asks Federal Court to Stop DDTC from Imposing ‘Unlawful Presumption of Denial'”
(Source: Pacemonitor.com) [Excerpts.]
* Case Name: Thorne et al v. Dept. of State et al
* Citation: Nevada District Court Docket No. 2:19-cv-01982
– Plaintiffs: Robert D. Thorne, Jr. (“Thorne”), Barbara J. Denysschen (“Denysschen”), Dave Sheer Guns (“Dave Sheer”), Diplopoint, Southern Arms, Pretoria Arms Pty Ltd, and G and D Group (Dave Sheer, Diplopoint, Southern Arms, Pretoria Arms Pty Ltd, and G and D Group, collectively referred to herein as the “Dave Sheer entities”)
— Counsel for Plaintiffs: Matthew A. Goldstein (Pro Hac Vice Forthcoming), email@example.com; Robert A. Bernheim (Pro Hac Vice Forthcoming), firstname.lastname@example.org; Farhang & Medcoff, PLLC
– Defendants: U.S. Department of State; Michael R. Pompeo, in his official capacity as Secretary of U.S. Department of State; Directorate of Defense Trade Controls, Bureau of Political Military Affairs, U.S. Department of State; Mike Miller, in his official capacity as Acting Deputy Assistant Secretary for Defense Trade Controls, Bureau of Political Military Affairs, U.S. Department of State
* Date of Filing: 13 Nov 2019
* Judge: James C Mahan
* Pleadings (partial):
COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF — INTRODUCTION
(1) This is an action for declaratory and injunctive relief challenging the U.S. Department of State Directorate of Defense Trade Controls’ (“DDTC”) failure to provide due process protections in debarring persons under the International Traffic in Arms Regulations (“ITAR”), 22 C.F.R. Parts 120 to 130, as administered by the U.S. Department of State (“State Department”) under the authority of the Arms Export Control Act (“AECA”), 22 U.S.C. § 2778.
(2) This action does not challenge any DDTC discretion whether to grant a particular license or other approval.
(3) On the contrary, this action arises from multiple DDTC’s actions that prohibit the Dave Sheer entities and Barbara Denysschen from participating in transactions subject to the ITAR.
(4) Specifically, DDTC:
- a) imposes a “presumption of denial” against all applications for export to the Dave Sheer entities;
- b) expressly classifies the Dave Sheer entities as “unreliable recipient[s] of U.S.-origin defense articles, defense services and technical data”;
- c) repeatedly imposes conditions on third-party license applications that ITAR-controlled articles cannot be transferred to the Dave Sheer and that
imply that the Dave Sheer entities violated the AECA or ITAR; Also doing business as Dave Sheer Gunsmithing and Dave Sheer Gunsmithing & Firearms Exchange.
- d) repeatedly requires third parties to inform other persons that defense articles cannot be transferred to the Dave Sheer entities and repeatedly implies that the Dave Sheer entities violated the AECA or ITAR; and
- e) repeatedly requires end users to provide a written acknowledgement that defense articles cannot be transferred to the Dave Sheer entities.
(5) Collectively, the DDTC actions, in form, scope, and impact, constitute the de facto debarment of the Dave Sheer entities and Denysschen, who is a beneficial owner of the Dave Sheer entities, who controls the Dave Sheer entities, and who has a position of responsibility within the entities.
(6) The mere fact of this de facto debarment harms Plaintiffs’ good name, reputation, and integrity.
(7) Among the other results of DDTC’s de facto debarment, the Dave Sheer entities received multiple letters from their United States and South African suppliers revealing that the State Department advised them that the Dave Sheer entities may not be involved in ITAR-controlled transactions and DDTC implies that the Dave Sheer entities violated the AECA or ITAR.
(8) DDTC’s actions have harmed and continue to irreparably harm Plaintiffs’ constitutionally protected interests in the good name, reputation, and integrity of the Dave Sheer entities; harm Plaintiffs’ financial position, and customer relations; and resulted in numerous order cancellations and other lost business, with the loss of associated profits.
(9) DDTC cites ITAR Section 126.7 as authority for its de facto debarment of the Dave Sheer entities and Denysschen.
(10) But DDTC’s decision to impose the de facto debarment is an implementation of a general policy, and is not a discrete licensing decision under ITAR Section 126.7. Illustrating the point, DDTC repeatedly imposes conditions on third-party licenses to prevent any transfers to the Dave Sheer entities-even though the licenses do not list any Dave Sheer entity as an end user.
(11) To be sure, Plaintiffs do not suggest that DDTC lacks authority under the AECA to use its discretion to deny, revoke, suspend, or amend licenses on a case-by-case basis. But that is a very far cry from supposing that AECA authorizes DDTC’s actions in this case against the Plaintiffs, which not only involve DDTC’s across-the-board denial of any application for export, but DDTC’s complete bar of the Dave Sheer entities and Denysschen from involvement in any transaction subject to the ITAR, and DDTC’s stigmatizing of these plaintiffs to third parties.
(12) DDTC’s de facto debarment of the Dave Sheer entities and Denysschen without due process is not authorized by the AECA, ITAR Section 126.7(a) or any other ITAR provision, and DDTC failed to provide the procedural protections required for debarment under AECA Section 38(e), ITAR Section 127.7, and ITAR Part 128.
(13) DDTC’s actions are therefore in excess of DDTC’s statutory authority under the AECA and ITAR, unlawful under the Due Process and Takings clauses of the Fifth Amendment to the United States Constitution, and in violation of the Administrative Procedure Act (“APA”), 5 U.S.C. §§ 551-559.
(14) For all these reasons and others detailed below, Plaintiffs seek a declaration that DDTC’s de facto debarment of the Dave Sheer entities and Denysschen is invalid, null and void, and Plaintiffs seek an injunction requiring the Defendants to rescind the debarment.
. . . .
JURISDICTION AND VENUE
. . . .
. . . .
CAUSES OF ACTION:
COUNT I ULTRA VIRES GOVERNMENT ACTION
. . . .
COUNT II: DEPRIVATION OF DUE PROCESS-DUE PROCESS CLAUSE U.S. CONST. AMEND. V
. . . .
COUNT III: DEPRIVATION OF DUE PROCESS-TAKINGS CLAUSE U.S. CONST. AMEND V
. . . .
COUNT IV: VIOLATION OF THE ADMINISTRATIVE PROCEDURES ACT
. . . .
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs pray for judgment against Defendants, and each of them, as
(1) For a judicial declaration that:
- a) DDTC’s de facto debarment of the Dave Sheer entities and Denysschen is an unlawful Ultra Vires government action;
- b) DDTC’s de facto debarment of the Dave Sheer entities and Denysschen violates Plaintiffs’ rights to due process under the Fifth Amendment to the United States Constitution;
- c) DDTC’s de facto debarment of the Dave Sheer entities and Denysschen constitutes an unlawful regulatory taking under the Fifth Amendment to the United States Constitution;
- d) DDTC’s de facto debarment of the Dave Sheer entities and Denysschen is unlawful under the APA because it is an arbitrary and capricious government action that is an abuse of discretion;
- e) DDTC’s de facto debarment of the Dave Sheer entities and Denysschen is unlawful under the APA because it is contrary to the rights of Dave Sheer and Denysschen under the Fifth Amendment to the United States Constitution;
- f) DDTC’s de facto debarment of the Dave Sheer entities and Denysschen is unlawful and must be set aside under the APA because it in excess of DDTC’s statutory jurisdiction or authority;
- g) DDTC’s de facto debarment of the Dave Sheer entities and Denysschen is unlawful and must be set aside under the APA because it is taken without observance of procedure required by law; and
- h) for any and all of the above-stated reasons, DDTC’s de facto debarment of the Dave Sheer entities and Denysschen is invalid, null and void, and of no effect.
(2) Requiring Defendants to rescind the de facto debarment;
(3) Requiring that DDTC issue amended licenses to third parties that withdraw any previously issued license provisos that restrict retransfers to the Dave Sheer entities;
(4) Enjoining Defendants, their officers, agents, servants, employees, and all persons in active concert or participation with them who receive actual notice of the injunction, from pursuing or otherwise taking any action in support of DDTC’s de facto debarment of the Dave Sheer entities and Denysschen;
(5) Granting Plaintiffs their attorney fees and costs pursuant to 28 U.S.C. § 2412;
(6) Retaining ongoing jurisdiction over this action for purposes of ensuring compliance with any relief this Court sees fit to afford; and
(7) Granting such other relief as this Court deems just and proper.