For Once, Company Wins ITAR Case in Court – Now Company Is Asking for Compensation from Justice Department

2008/03/30

2008/03/30

By: Danielle McClellan

After announcing an “enhanced counter-proliferation effort” the government has lost a major Arms Export Control Act (AECA) trial under the new Justice Department initiative.

The AECA is the law that authorizes the International Traffic in Arms Regulations (ITAR). Although it seems that the there is a high success rate in many AECA prosecutions, the fact is that nearly all cases result in guilty pleas before a trial ever begins.

In 2003 Axion Corp, a small family owned contracting business won a contract with the government to make weight assembly systems for the Black Hawk. The company made the block of tungsten that attaches to the propeller rotors to reduce vibrations. As the company began filling orders, Axion’s owner Alex Latifi found that he could save time, weight and money in the process. Latifi, an engineer found that if he used virgin tungsten instead of the recycled blocks he would save the government millions. The only problem Latifi faced was the fact that virgin tungsten is only available in China, Latifi was not concerned because the Black Hawk plan furnished to him from the Defense Department did not contain any markings restricting them from export.

On April 13, 2004 the FBI and Army criminal investigators began to investigate only after an Axion secretary had been secretly providing the Army criminal investigators with information to indict Latifi. The investigators seized equipment, supplies, computers and records, including cell phones belonging to Latifi, his wife and children. Latifi, an American citizen, born in Iran, and Axion were charged with sending technical data drawings of Blackhawk helicopter parts to China in violation of the AECA. The government went on further to allege that the company and its owner falsified test reports for the Blackhawk and pushed for a forfeiture of Axion’s assets and a significant prison term for Latifi.

Over the course of 4 years Axion lost all of its business, and its reputation. Oddly enough, the secretary who was secretly informing the investigators was convicted of forging Latifi’s name on nearly $13,000 in company checks. Her disinformation of the case was eventually proven to be immaterial and flat out not true.

Latifi made the choice to have a bench trial simply because of the negative connotation that his Iranian background may have had on a jury. During the trial it was shown that there were no customary warnings on the Blackhawk drawings that were sent to China. Latifi’s lawyers were also sure to make the point that the drawings were made available on the internet, making them public domain, in turn exempting them from certain arms control provisions. Two days later the judge acquitted Latifi on the grounds that the government had no means to prove that any AECA criminal violations were committed by the defendant and that the undisputed evidence demonstrated that the Axion and Latifi had acted in good faith.

Latifi and his lawyers have now filed a claim for compensation from the government, known as a Hyde motion. The motion allows acquitted federal criminal defendants to argue that the Justice Department engaged in wrongful prosecution and allows them to collect whatever money they spent on their legal defense. Henry Frohsin, Latifi’s lead lawyer explained, “It will be a mini-trial, I plan to put Alice Martin (secretary) on the witness stand. I plan to subpoena federal agents. If this doesn’t qualify as a vexatious, misguided prosecution, then nothing will.” The trial is set for April 15, 2008.

So, will this case change the way many businesses handle AECA charges? Nearly all of the AECA cases are settled with negotiated pleas, this may have been why they continued with the indictment against Latifi even after their only witness was convicted of embezzlement and the only real evidence they had was weak at most. It could be that this case may have a positive effect on the government to the extent that it might focus its attention on the new initiative of developing strong cases and leave the weak, marginal cases to ensure that errors of this caliber are never taken to this level of the court system. It could be that the lesson is if the government is desperate to make a case against you, it will ignore ethics and not hesitate to ruin your small business by dragging you through long and costly legal proceedings.

More information:
The Birmingham News article