Archive for the ‘DOD’ Category

Owner of Defense Firm Charged with Defrauding DOD out of 7 Million in Contracts


By: Danielle Hatch

Ferdi Murat Gul (Fred Gul), 42, of Turkey has been indicted by a grand jury on the following counts:

  • One count of conspiracy to commit wire fraud
  • Six counts of wire fraud
  • One count of conspiracy to violate the Arms Export Control Act (AECA)
  • Once substantive count of violating the Arms Export Control Act

Gul is the principal owner, chief executive office, and general manager of Bright Machinery Manufacturing Group Inc. (BMM), a defense contracting company in New Jersey and FMG Machinery Group (FMG), a purported manufacturing company in New York. He also has an ownership interest in HFMG Insaat (HFMG), a manufacturing company located in Turkey.

Between October 2010 and June 2015 Gul would submit bids for DoD contracts for BMM, he would submit quotes based on BMM providing military goods manufactured in the US. BMM actually relied on Gul’s Turkish company, HFMG for the goods. Over the course of 5 years BMM was awarded approximately $7 million in DoD contracts. BMM fraudulently won 346 contracts to manufacture torpedoes for the US Navy, bomb ejector racks, and armament utilized in US Air Force aircraft, and firearms and mine clearance systems used by US military abroad. Later testing by the DoD exposed the some parts had several design flaws and were unusable.

Gul and his conspirators hid the fraudulent activity from the government by submitting forged certifications and fabricated information by email to DoD. They also falsely claimed that they performed quality control on the procedures and parts sold to DoD. To have HFMG create the parts for BMM, Gul exported drawings and technical data to Turkey. Some of this information was subject to the International Traffic in Arms Regulations (ITAR) and required a license form the State Department.

The wire fraud counts carry a maximum penalty of 20 years in prison and a fine of $250,000. The Arms Export Control Act violations carry a maximum penalty of 20 years in prison and a $1 million fine.

Ferdi Murat Gul is currently at large and believed to be in Turkey. Also remember…The charges and allegations of this indictment are merely accusations, and the defendant is considered innocent until proven guilty (cue sound from Law & Order).

Department of Justice:

White Paper: Recent Department of Defense Guidance on Cybersecurity Requirements and Related Export Control Issues


(Source: Akin Gump Strauss Hauer & Feld LLP, 31 May 2018)

By: Authors: Robert K. Huffman, Esq.,, +1 202-887-4530; Kevin J. Wolf, Esq.,, +1 202-887-4051; and Natasha G. Kohne, Esq.,, +1 415-765-9505.  All of Akin Gump Strauss Hauer & Feld LLP

The U.S. Department of Defense (DoD) recently released two sets of guidance regarding Defense Federal Acquisition Regulation Supplement (DFARS) Clause 252.204-7012, “Safeguarding Covered Defense Information and Cyber Incident Reporting.” The more recent set, “DoD Guidance for Reviewing System Security Plans and the NIST SP 800-171 Security Requirements Not Yet Implemented” 83 Fed. Reg. 17,807, was attached to an April 24, 2018 notice and request for comment. The other white paper contains updated Frequently Asked Questions that DoD issued on April 2, 2018 and examines the impact of these guidance documents on the role of contractor System Security Plans and Plans of Action and Milestones in source selection and contract performance, the proper interpretation of particular National Institute of Standards and Technology Special Publication 800-171 requirements, and the potential impact of DFARS Clause 252.204-7012 with respect to safeguarding and reporting requirements on export-controlled information resident in contractor information systems.

To access the white paper outlining more information, please click here.

The Check’s in the Mail (Export Control Reform [Again])


Editorial Analysis by John Black

I am old.  I can’t even count the number of times I have heard well intentioned high level government officials tell us that they plan to make significant reforms in the US export control system.  Some government officials have told me that they are going to make the system so transparent and user friendly that they will put consultants like me out of business.

It’s been 26 years for me in this business and numerous government pledges to make things better.  As far as I can tell, I am still here and there is still a huge demand for assistance in dealing with the infinite number of problems that US export controls create for companies who try to comply with the rules.  Yes, this reform could be different.

So, I apologize (for a change) in advance for being the cynic as a good number of my peers spout enthusiastically about Defense Secretary Gates’ call for comprehensive reform to the US export control system.  Reform certainly makes sense.  Comprehensive reform could both promote national security and make compliance a bit easier for companies.

Comprehensive reform is highly unlikely.  Adjustments to certain aspects of US export controls might be the better-than-nothing result we should hope for.  And, changes to the current system that will create a lot of extra work for us without actually improving anything is what we should fear.   (Well, this last scenario will probably be a gold mine for my seminar and consulting businesses.)

On behalf of the Obama Administration, Secretary Gates called on Congress to make sweeping reforms.  There are four pillars of the reform:

1)      Create a single export control list.

2)      Create a single export licensing government agency.

3)      Designate a single agency to coordinate the currently dispersed export enforcement resources.

4)      Create a single, unified IT infrastructure for the US export control system

Items 1 and 2 seem to be the focus of most of joyful exporter discussions.  Item 3 seems to be closely related to item 2, except I guess the licensing agency and the enforcement agency could be separate agencies.  Item 4 is the least talked about and would be a relatively natural consequence of item 2.

I once again apologize in advance. Something I do now that I am old.  Here is my editorial view of the 4 pillars.

Single Control List

The number of export control lists we have is not as big a problem as a) the US imposing severe military product type controls on non-military products such as satellites; and b) the difficulty determining where an item is controlled.

We could get a single list and keep those two problems.  We could have bombs, satellites, and machine tools on the same list.  But if the new single list says that satellites are subject to the same ITAR-type requirements as bombs, we have we gained nothing.  If in the current structure, satellites were moved from the ITAR to the EAR but that move included creating EAR MLAs, TAAs, exclusion from the de minimis rule, etc. for satellites and the US continued to deny all licenses involving countries such as China, the list switch doesn’t benefit satellite companies.

READ THIS:  And, worse yet, unfortunately, a single list could increase the risk that items currently controlled by the friendly EAR rules could be made subject to ITAR type export controls.  Right now, the EAR structure is not set up to impose ITAR type controls on, let’s say, a super duper machine tool.  But if both military and commercial items exist in the same list, that implies that some items will be covered by ITAR type controls and some will be covered by EAR type controls.  So, if that machine tool is covered by regulations that include ITAR type controls, the government could much more easily  apply ITAR type controls to machine tools because the ITAR type controls would be part of the regulations that apply to that single list.

On to problem b):  A significant problem companies face is determining whether an item is controlled by the ITAR’s USML or the EAR’s CCL.  (The fact that companies might not like their commercial items being subject to ITAR-type controls is discussed above.)  For example, let’s say a single list merges renames ITAR Category XI as ECCN 6A881 and Category XII as 6A882 and puts those ECCNs into EAR Category 6.  If the new ECCNs use the words from the former ITAR categories, then the difficulty in figuring out whether something is controlled by 6A881, 6A882 or 6A003 is the same as the current problem of figuring out if something is Category XI, Category XII, or 6A003.

The difficulty in determining jurisdiction/classification is due to the words used in categories XI and XII—these words are sometimes ambiguous and open to interpretation, and perhaps that is a naturally unavoidable problem that a single control list will make neither better nor worse.  But a bigger problem might be the fact that DDTC is willing to say an item is controlled by categories XI or XII even if there are no words in the ITAR that says that item is controlled by either of those categories.  (The ITAR says DDTC can put USML controls on things not mentioned in the USML, and DDTC says the USML is “illustrative” of the things subject to ITAR jurisdiction.)  So, some exporters live in a world where DDTC imposes ITAR controls on a thing not described by the ITAR—that is a world where “white” might mean “black” so some companies live in fear that their product, that they treat under the EAR could be the next “QRS-11 case,” a case where DDTC imposed ITAR controls on a commercial aircraft part, just because it wanted to.  So, some companies err on the conservative side and treat items as being ITAR controlled because maybe DDTC would want to control them.  Since the new regulations that apply to the single list will be able to apply ITAR-type controls to some items and EAR-type controls to other items, the implications of making the wrong classification decision in the single list could be as serious as the current risk associated with making the wrong ITAR vs. EAR jurisdiction determination.

But, at least, if you classify an item as being 6A003 when, in fact, the government thinks it is 6A882, you won’t make the current mistake of getting an EAR license for an ITAR item.  But the new single list rules could still impose an extremely harsh penalty if you export a 6A882 item under the 6A003 rules—say you export a 6A003 item under an EAR-type license exception to China when in fact it is subject to ITAR-type military rules..  The penalties might be described in a different way, but why would we assume that mistake will be subject to lesser penalties?

Single Agency

If there is going to be a single control list, there probably will first have to be a single agency.  Some agency will have to take the lead in combining the control lists and the regulations that go around them.  If that single agency is transparent, customer-service oriented, efficient, and friendly, life will be good.  If that single agency is the opposite, life will be bad.  I won’t make any stereotypical statements about the current State and Commerce department export licensing agency strengths and minuses.

If I am a company who exports only items classified as 9A991 and EAR99, the last thing I want is a single agency and a single set of regulations because I am thinking that things can only get worse than they are now.  If I am a company who makes satellites, maybe I think a single agency can only make things better.  But, ultimately, it is the rules and policies that are the issue, not the number of agencies who administer them.  Sure, at the margin a single agency may improve consistency of interpretation (perhaps) and there might be benefits to the one-stop-shop export licensing agency.  But, it is ultimately the regulations, rules, policies and procedures that are the biggest issue, not the number of agencies involved.

And I didn’t even talk about the fierce turf wars that will be involved in deciding what government department gets to have the single export control agency.  The turf wars make take so long that by the time they are resolved, President Palin won’t favor the single agency idea anyway.


Don’t get me wrong. I support export control reform.  And I know that reforms, if possible, could enhance our national security and make compliance a bit easier for exporters.

Obama’s reform plan is based on good ideas.  I see the biggest challenge as being reforming the rules and policies that underlie the multi-control list and multi-agency structure we have.  So many organization, agencies, and people have a vested interested in the current rules and policies—maybe of those entities and people created the system we have now, and they did it for what they see to be good reasons.  And those entities, even at the lowest level of government, have an enormous capability to prevent real reform, even if the White House supports reform.  (Remember when President Clinton’s Administration announced the Defense Trade Security Initiative and decided to create the special bulk ITAR authorizations (“Global Project,” etc.)  for certain trade with our allies?  DDTC ended up setting up those bulk authorizations in a way that no company wanted to use them.  To prevent the White House from reforming the ITAR, DDTC had to implement the idea, but DDTC maintained the status quo by implementing that reform idea in a way that effectively blocked reform.  We did get the allies maintenance exemption out of that, which was a decent improvement, but not a sweeping reform.)

Export control reform is a great idea.  It is long overdue.  But pardon me for wondering if real reform is possible.  Who among you remember these labels for past reforms:  “China Green Zone,” “The Core List” (and “The Bikini List”), the Defense Capabilities Initiative, and the ever popular “Higher Fences around Fewer Products,” and, of course, the above mentioned “DTSI.”

When I use the word reform, I mean significant and meaningful changes to the current system, not just superficial changes made that result in marginal improvements.  Marginal changes to the system are not reform.  They are adjustments.  Adjustments can be good, and they are certainly possible.

At the end of the day, the White House is going to have to invest a great deal of time, effort and political capital into achieving its objectives, and even more if those objectives end up being beneficial for national security and exporters.  US companies will have to invest a great deal of their resources into this too if they want to get beneficial reform.  I think ultimately, most companies believe they have better places to spend their government relations budgets and ultimately the White House and Congress will decide they have better places to spend their time.  Many of those with vested interests in the current system do not have a better place to invest their time and resources and they are willing to fight a slow war of attrition against reforming what they have created.

I do not think significant reform will happen.

I hear that most people in Washington disagree with me.   Somebody just told me that Washington insiders are convinced real reform will happen.

I rest my case.

DOD Announced New FedEx Shipping Policy


By: Danielle McClellan

DOD has released an update involving FedEx shipping activities for items shipped from Pacific locations to Europe, CENTCOM AOR and intra Pacific. On August 4, 2009 DOD released a statement advising that in addition to an earlier restriction to ship to Indonesia, Malaysia, Philippines, Thailand and Vietnam, FedEx can now no longer accept shipments containing ITAR controlled items for movement between the following regions:

  • APAC-Middle East
  • Middle East-APAC
  • APAC-Europe
  • Europe-APAC
  • Intra APAC
  • APAC-India
  • India-APAC

The only routing for ITAR controlled shipments is via the FedEx hub in China.

Don’t forget to always check the ITAR prior to booking a shipment to any of the above mentioned countries with FedEx.

More information: Surface Deployment and Distribution Command – August 4, 2009 Advisory

Australian Ministry of Defence Memo: Expedited Treatment for ITAR Exports; Special Dual National Policy



By: John Black

Part 1: Expedited License Review

Don’t Tell Anybody-Expedited Treatment Available for ITAR Exports to Australia?

According to Kerry Clarke AO, in the Australian Department of Defence, the US State and Defense departments have agreed to give streamlined processing for exports to Australia under two new policies known as Expedited License Review I (ELR I) and Expedited License Review II (ELR II).

But, according to Kerry Clarke, the expedited processing might not yet be in operation and is “dependent on the continued implementation of D-Trade — [which] — the State Department hopes — to have fully implemented by the end of 2007. Until then, licence and TAA approvals may take longer than the 10 and 30 day target times, but hopefully less than the current approval times.”

(Not sure I agree with the hopefulness of Kerry Clarke.)

OK, so the bottom line appears to be that the expedited system might not be in operation yet and hopefully it will be up and running by the end of the year. (I personally am not going to use up my limited supply of personal hope hoping for streamlined processing. I plan to spend all my hope on hoping I win the lottery so I can retire to the mountains.)

Anyway, according to an Australian Department of Defence memo (see end of this article for a copy), here are the two expedited procedures the US and Australian agreed upon:


Department of Defense Proposes New Rule Amending DFARS



By: Jill Kincaid

In July 2005, the Department of Defense (DoD) proposed a new rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) as it relates to the prevention of unauthorized disclosure of export-controlled information and technology under DoD contracts.  Due to a multitude of public comments criticizing the proposal (145 parties), it has been revised and reissued as of August 2006.  Companies said that the original proposal was overly prescriptive in terms of export compliance burdens.  It mandated more expansive regulatory requirements for export compliance than either the Export Administration Regulations (EAR) or the International Traffic in Arms (ITAR) regulations.

Academic Institutions, in particular, were concerned about the regulations relating to fundamental research.  Under the new proposal it is noted that although fundamental research is not altogether exempt from statute-based export controls, it is to remain unrestricted to the extent possible.

In another provision, the revised proposal continues to place the burden of determining if a contract will generate or require access to export-controlled information or technology on the shoulders of the contracting officer.  The contractor also has the responsibility to comply with EAR and ITAR requirements.  Making both contracting officers and contractors responsible for following regulations is intended to decrease mistakes according to the DoD.

Several requirements relating to contractors were removed in the revised proposal in an attempt to eliminate potential conflicts with the EAR and ITAR.  The new proposal no longer requires that contractors awarded DoD contracts involving export-controlled information:

  1. Maintain an export compliance program
  2. Conduct training on export compliance controls
  3. Perform periodic assessments
  4. Develop an access control plan that includes badging and segregated work areas

Contractors would be directed to the EAR and ITAR to determine their compliance with existing requirements.

ITAR Technical Data Exemption for Joint Strike Fighter (JSF) Bids



By: Scott Gearity

Attention Joint Strike Fighter (JSF) contractors – did you know that you may be eligible for an exemption to the ITAR license requirement for technical data exports? In accordance with ITAR 125.4(b)(1) (pdf), the Department of Defense has authorized certain technical data exports “for the purpose of evaluating a potential supplier’s capabilities, developing requirements, and/or soliciting bids and proposals in furtherance of the System Development and Demonstration (SDD) Phase to include Low Rate Initial Production (LRIP) activity associated with the SDD phase of the JSF Program” according to a memorandum signed by Richard A. Genaille, Jr., chief of DOD’s Foreign Disclosure & Tech Transfer Division Policy Directorate on January 12, 2005.

Importantly, eligibility for this exemption is not automatic. There are two main requirements: (1) the company must be on the list of authorized users in the DOD memorandum and (2) all proposed disclosures must be reviewed in advance by Judson Mason ( of the JSF Program Office. In addition, your disclosure must follow these guidelines, here quoted verbatim from the DOD memorandum:

  1. Technical data provided under this certification will be limited to “build-to-print” and “build/design-to-specification data”. Related technical discussions must not result in the release of “design methodology”, “engineering analysis”, and “manufacturing know-how”. Refer to part 125.4 of the ITAR for definitions.
  2. Technical data and or technical discussions are limited to potential foreign suppliers in NATO countries and Australia.
  3. Technical data and or technical discussions are limited to unclassified information related only to defense articles that are not designated as Significant Military Equipment.
  4. The JSF program office reserves the right to provide a designated escort official, US military or civilian government employee, at activities that require foreign participation.
  5. No defense hardware or software will be shipped under provisions of this exemption.
  6. Companies must comply with applicable ITAR requirements for use of 125.4(b)(1).
  7. Companies named above [i.e. authorized users listed in the memorandum – ed.] must be eligible pursuant to IT AR 120.1.

The memorandum authorizing use of the exemption will expire January 31, 2006, but may well be extended prior to that date.

Using the Unwieldy 125.4(c) Close Ally Exemption



By: John Black

The Defense Capabilities Initiative (DCI) held so much promise for streamlining the export control process with close allies.  A case in point was the new 125.4(c) exemption, whose purpose was to facilitate close ally cooperation by allowing license free technical collaboration for the purposes of Department of Defense (DoD) procurement.  Many a program manager had eyed this exemption as a way to finally smooth out the bidding process.   DoD probably thought easing these licensing barriers would foster increased competition and thereby improve procurement costs and interoperability.    But once the concept was ITARized, the exemption, like many other DCI efforts, was at best left a vague notion and at worst gutted.   Let’s try to make some sense of the chaos.


DOD’s USXPORTS Initiative Looks to Enhance and Streamline License Submission and Review


The Department of Defense has announced USXPORT, an initiative to enhance and streamline the current US Government process for reviewing license applications required by the Export Administration Regulations (EAR) and the International Traffic in Arms Regulations (ITAR). The purpose of USXPORT is to address the current Commerce Department and State Department licensing systems which are not interoperable and which often require that applicants submit multiple copies of technical and other supporting documentation for license applications.

  • DOD has $30 million in funding to use over the next three years to achieve these 5 objectives:
  • Establish a common electronic interface between industry and government;
  • Improve the quality of reviews that protect military capabilities;
  • Improve and standardize computer systems among US Government players in the license review process;
  • Decrease license processing times; and
  • Ensure that the electronic license submission and review system is secure.

Exporters and reexporters certainly can hope that this DOD initiative will bring increased efficiency and decreased license processing times. It remains to be seen if the other US Government agencies involved in the licensing process agree with the goals and objectives of USXPORT.