Archive for the ‘UAE’ Category

Strict Export Regulations May Be Costing Us Industry Billions in Foreign Sales

2018/07/30

(Source: Defense News, 18 June 2018.)

A new RAND report (a source for research on policy ideas and analysis) studying the spread of unmanned aerial vehicles suggests that the current export controls for drones might be hurting the US more than helping.

US competitors like China and Russia are filling the void that has been left by the limitation on US drone exports in markets like the Middle East where the US historically dominated in sales. Over the past several years, Jordan, Saudi Arabia, and United Arab Emirates (UAE) were denied requests to buy American drones, and have since turned to China to purchase similar systems. The Trump administration recently revealed a new set of export policies concerning military technology in an attempt to facilitate the transfer of military technology, but the changes do not change the status of drones under the Missile Technology Control Regime.

How does the MTCR work?

The MTCR is a voluntary export control group of 35 nations who collaborate to prevent signatories from proliferating longer-range cruise and ballistic missile technology. The arms control regime was extended to UAVs because early iterations of drones were considered a subset of cruise missile technology due to their active guidance system.

The regime divides missiles into two categories. This article will cover Category I.

Category I:

  • Capable of delivering a 500 kg payload more than 300 km
  • Sale of category I systems is restricted by a “strong presumption of denial” (meaning they are only exported in rare circumstances)
  • MQ-9 Reaper, RQ-4 Global Hawk and MQ-4 Triton are well-known unmanned systems that fall under this category

Drone proliferation

RAND found that 10 nations use category I drones, and more than 15 use near-category I systems that register just below the MTCR’s payload and distance restrictions. The report states that these increased proliferation rates are due to countries like China, Israel, and the UAE who are not part of the MCTR. More countries are expected to follow suit which will cause a “growing threat to U.S. and allied military operations,” the report says.

While category I systems can deploy missiles, their main threat lies in “their ability to conduct intelligence, surveillance, and reconnaissance (ISR) operations against U.S. forces prior to hostilities,” according to RAND. “Adversaries that would otherwise have difficulty detecting U.S. force deployments, monitoring U.S. operations, and maintaining targeting data on U.S. units can employ UAVs to maintain situational awareness of U.S. capabilities.”

The report identifies Russia, China, and Iran as unfriendly nations that will try to utilize drones to complicate US military operations.

A US-sized hole

Due to restrictions on US drone exports, competitors have established themselves in a market Rand expects to “grow from about $6 billion in 2015 to about $12 billion in 2025.”

“What you are enabling the competition to do is not just to sell some hardware,” Linden Blue, General Atomic’s chief executive, told reporters during an Aug. 16, 2017 roundtable at the company’s headquarters in Poway, California. “You’re enabling it to build a customer base for at least 20 years, I would say. You’re enabling them to build a logistics system. It will take them many years to get to where we are right now, but you’re helping them start out. They should be very thankful.”

Details: https://www.defensenews.com/newsletters/unmanned-systems/2018/06/18/strict-export-regulations-may-be-costing-us-industry-billions-in-foreign-sales/


Treasury Publishes List of Countries Requiring Cooperation with an International Boycott

2018/02/08

Source: Federal Register

The Department of the Treasury has named the following countries as requiring or may requiring participation in, or cooperation with, an international boycott (within the meaning of section 999(b)(3) of the Internal Revenue Code of 1986).

  • Iraq
  • Kuwait
  • Lebanon
  • Libya
  • Qatar
  • Saudi Arabia
  • Syria
  • United Arab Emirates
  • Yemen

Federal Register: https://www.gpo.gov/fdsys/pkg/FR-2018-01-08/pdf/2018-00123.pdf


Treasury Fingers Countries Enforcing the Arab League Boycott of Israel

2017/10/16

Editorial By: John Black

Note:  I love this list.  It gives me a chance to say tertiary.   As my career winds down its things like this that I will miss.

N.B.:  I don’t remember ever seeing anybody write an editorial piece about Treasury publishing this list, probably for good reason.  If I don’t do this now, nobody ever will. 

Once again the Treasury Department has published its list of countries that more or less enforce certain aspects of the Arab League Boycott of Israel. Or, as Treasury clearly states, they are countries “which may require participation in, or cooperation with, an international boycott (within the meaning of section 999(b)(3) of the Internal Revenue Code of 1986).”

You see, way back whenever, the US Congress decided it doesn’t like US persons cooperating with the secondary and tertiary elements of the Arab Boycott of Israel so it told the Treasury Department to put something in the tax code so that US person who illegally cooperate can’t claim foreign tax credits. Congress also told the Commerce Department to put something in its export control regulations so the Commerce rules make such cooperation illegal without telling anybody which countries it applies to.

You see, Congress and the US Government don’t want to have actual rules that say Arab League Boycott of Israel to make it clear that US person can’t cooperate with the unmentionable boycott on the unmentionable close ally of the United States.  Because, what the wizards* in Washington figured out is, if they don’t write little known rules that ban cooperation with the “Arab Boycott of Israel,” nobody will know that US foreign policy in many ways has long favored Israel over the Arab League.

(*Sorry, I did not mean to disparage indirectly the Washington Wizards NBA basketball team but this raises an important issue.  Years ago the Washington Bullets NBA team decided to change their name to the Washington Wizards. I always knew that they dropped the Bullets name to reduce violent crime in the capital city (how is that working?)  But, after wondering for years why the Washington team chose “Wizards,” I just now realized it is because most of the people in Congress and the US Government are wizards—either, if you are old like me, the type of wizards who wear pointy hats and robes with stars on them and have a magic wand or, if you are not old, those in Harry Potter movies; or, if you ask Congress, the type of wizards who are generally highly adept at what they do.  Now that’s another life knowledge breakthrough thanks to export regs.)

Treasury noted that this list is “based on currently available information,” which, I personally found to be a great relief because if the list had been based on only information available prior to 1975, it would have looked quite different.  And who knows what the list would have looked like if it were based on information that is not currently available—We could have ended up with Mexico and China on the list, seriously.

FYI, this paragraph contains information that is important:  Treasury listed these countries:

  • Iraq
  • Kuwait
  • Lebanon
  • Libya
  • Qatar
  • Saudi Arabia
  • Syria
  • United Arab Emirates
  • Yemen

The Commerce Department traditionally does not publish a similar list of countries for its antiboycott rules in Part 760 of the Export Administration Regulations (“EAR”).  EAR 760 prohibits a US person from cooperating with (or agreeing to do so) the secondary and tertiary elements of the Arab League boycott of Israel.  Instead of ever mentioning the Arab League or Israel, Commerce and the EAR brandish the terms “boycotting countries” and “boycotted countries” to adeptly hide the US pro-Israel foreign policy bias.

A reasonable person might assume that since the Commerce and Treasury rules have the same objective and are implemented by the same US Government, the Commerce Department considers its rules are applicable to the same countries as Treasury.

Editorial Note: I am not saying that the EAR rules are limited to the list of countries Treasury published. I am merely pointing out what a reasonable person might assume.

Useful Information:  In any event, when you do a risk based assessment of your EAR compliance issues and, based on that, decide how to allocate your limited compliance resources, it may be cost-effective to focus your EAR antiboycott rules compliance on the countries on the Treasury list.  And while you are doing risk assessments and deciding how to cost-effectively allocate your limited resources for EAR compliance, you may decide to allocate only a small portion of your total EAR compliance resources to compliance with the EAR antiboycott rules.  That is because antiboycott EAR fines are frequently well under $100k.  I recommend you allocate most of your EAR compliance resources to focus on compliance with the standard EAR export controls where it is not unusual for Commerce (along with OFAC) to impose fines of hundreds of millions of dollars, or in the case of ZTE, $1 billion and membership on an export denial list.

Federal Register: https://www.gpo.gov/fdsys/pkg/FR-2017-08-02/pdf/2017-16290.pdf


Company Fined $162K for Antiboycott Violations

2017/03/30

By: Danielle McClellan

The Office of Antiboycott Compliance, Bureau of Industry and Security (BIS) has charged Pelco Inc. (Pelco) with 66 violations. Between May 2011 and January 2016 it was found that on 32 occasions Pelco was engaged in transactions involving the sale/transfer of goods and services from the US to the United Arab Emirates and Kuwait, activities in the interstate or foreign commerce of the US (Section 760.1(d)). In connection with these transactions, Pelco, with intent to comply with, further supported an unsanctioned foreign boycott by agreeing to refuse to do business with another person (prohibited by Section 760.2(a)).

In addition to those 32 charges, Pelco was charged with 34 violations of “Failing to Report the Receipt of a Request to Engage in a Restrictive Trade Practice or Foreign Boycott Against a Country Friendly to the US” (Section 760.5). This is not surprising, a company who agrees to an illegal boycott is not likely to report said boycott.

Pelco will pay $162K to settle the violations and will not be debarred as long as the settlement amount it paid.

Charging Letter: https://efoia.bis.doc.gov/index.php/documents/antiboycott/alleged-antiboycott-violations-2015/1100-a749/file


U.S. Antiboycott Compliance: New Federal List Published

2017/01/31

By: Melissa Proctor, Polsinelli PC

Companies doing business in the Middle East take note: The Treasury Department recently published its quarterly list of countries that currently require participation or cooperation with an international boycott, such as the Arab League‘s boycott of Israel.

Even though many of these countries are WTO members and were required to shut down their Arab League offices as a condition of membership, many boycott-related requests are still being issued by government agencies and companies in these countries. The countries that are designated on this list, which by the way are the very same countries that were listed in the Third Quarter list, are:

  • Iraq
  • Kuwait
  • Lebanon
  • Libya
  • Qatar
  • Saudi Arabia
  • Syria
  • United Arab Emirates
  • Yemen

To view the list, click here.

If you are not familiar with U.S. antiboycott requirements, Part 750 of the Export Administration Regulations (EAR) prohibits U.S. companies and their foreign affiliates from complying with requests related to a foreign boycott that is not sanctioned by the U.S. Government. Specifically, U.S. companies and their overseas affiliates are prohibited from agreeing to:

  1. Refuse to do business with or in Israel or with blacklisted companies
  2. Discriminate against other persons based on race, religion, sex, national origin or nationality
  3. Furnish information about business relationships with or in Israel or with blacklisted companies, or
  4. Furnish information about the race, religion, sex, or national origin of another person

Foreign boycott-related requests can take many forms, and can be either verbal or written. They can appear in bid invitations, purchase agreements, letters of credit and can even be seen in emails, telephone conversations and in-person meetings. Some recent examples of boycott-related requests include:

  • “Provide a certificate of origin stating that your goods are not products of Israel.”
  • “Provide the religion and nationality of your officers and board members.” 
  • “Suppliers cannot be on the Israel boycott list published by the central Arab League.”  
  • “Provide a signed statement from the shipping company or its agent containing the name, flag and nationality of the carrying vessel and its eligibility to enter Arab ports “

In addition, implementing letters of credit that contain foreign boycott terms or conditions is also prohibited under the EAR.

Antiboycott compliance is a key issue for U.S. companies doing business in the Middle East, and personnel on the front lines with customers and supply chain partners in these countries should be trained to identify potential foreign boycott-related requests and escalate them to senior compliance personnel or in-house counsel to determine the applicable OAC and IRS reporting requirements.

Companies that receive boycott-related requests must submit quarterly reports to the Office of Antiboycott Compliance (OAC) unless an exemption applies. Failing to timely report a boycott request or complying with the request itself can lead to the imposition of civil penalties by the OAC. The IRS also requires U.S. taxpayers to report their operations in countries that require participation or cooperation with an international boycott on IRS Form 5713 (International Boycott Report) – the forms are submitted annually with U.S. tax returns.  Failure to comply with the Internal Revenue Code’s antiboycott requirements can lead to the revocation of certain international tax credits and benefits.

© Polsinelli PC, Polsinelli LLP in California


Antiboycott Violation Nets $238,000 Fine for Furnishing Prohibited Business Information

2016/11/15

By: Danielle McClellan

Coty Middle East FZCO (UAE) has agreed to pay $238,000 to settle 70 violations of 15 CFR §760.2(d) – Furnishing Information about Business Relationships with Boycotted Countries or Blacklisted Persons.

Coty Middle East FZCO is a foreign affiliate of Coty Inc., a US company located in Delaware thus are they are defined as a US person under 760.1(b) of the Export Administration Regulations (EAR). From 2009-2013 Coty Middle East engaged in transactions involving the sale and/or transfer of goods or services from the US to Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Oman, Pakistan, Qatar, Saudi Arabia, Syria, UAE, and Yemen, activities in the interstate or foreign commerce of the United States. In connection with these activities Coty Middle East furnished the following statement 70 times:  “WE HEREBY CERTIFY…. THAT ABOVE MENTIONED GOODS DO NOT CONTAIN ANY MATERIAL OF ISRAEL ORIGIN…”

View Order: https://efoia.bis.doc.gov/index.php/documents/antiboycott/alleged-antiboycott-violations-2015/1083-a748/file


3 Men & Illegal Exports to Syria

2016/07/12

By: Danielle McClellan

In November 2012, three individuals and one company were indicted with charges of criminal conspiracy, wire fraud, illegal export of goods, money laundering, and false statements. Until now the indictment remained under seal pending the arrest of the defendants.

Between 2003 and 2012, d-Deri Contracting & Trading (owned by Ahmad Feras Diri of London) was exporting goods originally from the US from Global Parts Supply (owned by Harold Rinko of Hallstead, PA) to his brother and business partner Moawea Deri who was located in Syria.  The goods purchased from Rinko’s US company were done so based on false invoices, undervalued and mislabeled goods.  Then the purchased goods were exported by falsely listing their identity and final geographic location on all documentation. The items would be shipped from the US to Jordan, the UAE, and the UK, and finally transshipped to Syria.

The items exported allegedly included:

  • a portable gas scanner used for detection of chemical warfare agents by civil defense, military, police and border control agencies;
  • a handheld instrument for field detection and classification of chemical warfare agents and toxic industrial chemicals;
  • a laboratory source for detection of chemical warfare agents and toxic industrial chemicals in research, public safety and industrial environments;
  • a rubber mask for civil defense against chemicals and gases;
  • a meter used to measure chemicals and their composition;
  • flowmeters for measuring gas streams;
  • a stirrer for mixing and testing liquid chemical compounds;
  • industrial engines for use in oil and gas field operations and a device used to accurately locate buried pipelines

Note: Nearly all exports to Syria will be denied, other than a few items categorized under humanitarian food and medicine. The goal of the embargo on Syria is to shut down the supply chain used by the Syrian state to support terrorism and create proliferate weapons of mass destruction, and in this specific case, chemical weapons.

Fast forward to this month, Ahmad Feras Diri (age 43) of London has plead guilty to conspiracy to illegally export items used to detect chemical warfare agents to Syria. He lost his extradition fight in the UK in November 2015 at which point he was brought to the US to face the charges. Diri admitted that he conspired to export items from the US through third party countries to customers in Syria without obtaining the required US Commerce Department licenses.

Harold Rinko (age 73 of Hallstead, PA) was indicted by a grand jury in November 2012 and admitted in court that he conspired to export the items from the US through third party countries to customers in Syria without an export license.

Moawea Deri remains at large and is considered a fugitive but will likely remain in Syria as extradition is unlikely to occur.

“This extradition demonstrates HSI’s commitment to use all its resources to prevent sensitive and restricted technology from being exported to Syria through the black market,” said HSI Philadelphia Special Agent in Charge John Kelleghan. “No good comes of illegal exports to Syria, especially during this time of gross misgovernment and civil strife. As the principal enforcer of export controls, HSI will continue to do everything in its power to ensure that sensitive technology doesn’t fall into the wrong hands in Syria. I applaud our colleagues at the Department of Commerce, the U.S. Attorney’s Office for the Middle District of Pennsylvania, along with our law enforcement counterparts in the United Kingdom. This coordinated effort helped us make this complex investigation a success.”

More Information: https://www.ice.gov/news/releases/uk-resident-connected-syrian-export-scheme-extradited-us-face-federal-charges


It Never Pays to Use Your Church to Cover Your Export Violations

2016/05/05

By: Danielle McClellan

What does a system analyst for a defense contractor, a church volunteer and an owner of 3 US companies all have in common?  They all involve one woman, who will now spend 57 months in prison, encompassed each, and all at the same time. Hannah Robert, of North Burnswick, New Jersey recently plead guilty to conspiring to violate the Arms Export Act by exporting military technical drawings to India without government approval.

The story begins with Robert being an employee for a defense contractor where she worked as a system analyst and had access to thousands of export controlled drawings that were used for bids on US Department of Defense (DoD) contracts (Robert held this position until November 2012). In June 2010, she became the founder, owner and president of One Source USA LLC where she contracted with the DoD to supply defense hardware items and spare parts. In September 2012, Robert opened another defense company, Caldwell Components, Inc. as well as Once Source India (located in India), with a resident of India (identified on as R.P. in court documents) that manufactured defense hardware items and spare parts.

Between June 2010 and December 2012 Robert illegally exported defense technical drawings for parts used in the torpedo systems for nuclear submarines, military attack helicopters and F-15 fighter aircraft to R.P. in India. Robert and her India counterpart also sold defense hardware items to foreign customers including the United Arab Emirates Ministry of Defence. Hannah Robert volunteered at a church in Camden County, New Jersey, as a web administrator. This allowed her access to the church’s website where she uploaded the defense technical data. She provided her login and password to the church’s website to R.P. so that he/she could download the files. This process went on for two years and was the way in which Robert and R.P. were able to pass the technical information amongst themselves.

Hannah Robert was also faced with the issue of providing US DoD with faulty wing pins for the F-15 fighter aircraft. Robert provided false and misleading material certificates and inspection reports for the parts. The documents also failed to list that the actual manufacturer of the pins was located in India, not One Source USA’s New Jersey location which was listed on all of her DoD bids. The failed wing pins grounded approximately 47 F-15 fighter aircraft and cost DoD over $150,000 to inspect and repair the pins. Robert must pay $181,000 to the DoD to cover the repair costs as well as forfeiting more than $77,000 that she earned from the contracts.

The case was investigated by the special agents of the Defense Criminal Investigative Service’s Northeast Field Office and the special agents of the Department of Homeland Security’s Counter Proliferation Investigations.

More Information: https://www.justice.gov/usao-nj/pr/former-owner-defense-contracting-businesses-sentenced-57-months-prison-illegally


Companies Fined a Combined $61K for Antiboycott Violations

2015/11/05

By: Danielle McClellan

Vinmar International, Ltd of Houston, TX will pay $19,800 to settle alleged antiboycott violations. Between January 2011 and February 2012, on two separate occasions, Vinmar provided information concerning another person’s business relationships with another person who is known or believed to be restricted from having any business relationship with or in a boycotting country (15 CFR 760.2(d)). In connection with these violations, Vinmar failed to report the receipt of a request to engage in a restrictive trade practice or Foreign Boycott against a country friendly to the US on five occasions (15 CFR 760.5). Below is a schedule of the violations.

An affiliate of Vinmar International, Ltd., Vinmar Overseas, Ltd. was charged with a total of 13 antiboycott violations with a total penalty of $41,400. On 5 separate occasions in 2009 the company violated 15 CFR 760.2(d) when they furnished information concerning another person’s business relationships with another person who is known or believed to be restricted from having any business relationship with or in a boycotting country. On 8 other instances the company violated 15 CFR 760.5 when they failed to report their receipts of requests to engage in a restrictive trade practice or boycott, as required by the Regulations. Below is a schedule of Vinmar Overseas, Ltd. violations.

Vinmar International, Ltd. Charging Letter

Vinmar Overseas, Ltd. Charging Letter

Need an Antiboycott refresher? Check out ECTI’s On Demand webinar, US Antiboycott Regulations: Clarified and Demystified!


If OFAC Denies Your License Application…Stop!

2015/09/11

By: Danielle McClellan

Great Plains Stainless Co. (GPS) of Tulsa, Oklahoma has agreed to pay $214,000 to settle allegations that it violated the Office of Foreign Assets Controls (OFAC) regulations in 2009. GPS sold goods that its Chinese vendor shipped from Shanghai to GPS’s customer in Dubai via MN Sahand, a vessel that is considered blocked property (EO 13382). GPS also created new bogus trade documents, with references to the blocked vessel to be removed and then transferred these altered documents to its Dubai customer to facilitate the release of the goods that were held at the port in Dubai.

GPS did not voluntarily disclose these violations to OFAC, the maximum penalty could have been $500,000. The settlement amount is reflective of the following:

  • GPS acted willfully since they altered the bill of lading
  • They disregarded verbal and written guidance from OFAC stating that the company should consult with OFAC’s Licensing Division before engaging in the transaction
  • GPS had submitted a license application to OFAC seeking authorization for this transaction and was denied but followed thru with the transaction
  • They did not have a compliance program in place at the time of the alleged violations.
  • The company has not received a penalty notice or Finding of Violation from OFAC in the past five years
  • GPS had no reason to know that the blocked vessel was to be used for the shipment until the vessel’s sailing date
  • They are a small company
  • GPS took remedial measures to prevent future violations

Read the full document at: http://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20150724_gps.pdf