X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
For defense contractors and arms exporters, 2007 is the year the feds turned up the heat. Government agencies report a record number of criminal investigations and prosecutions of individuals and companies accused of running afoul of laws restricting the transfer of sensitive technology and military parts to countries such as Iran and China. In October, maximum civil fines were quadrupled and criminal penalties doubled. And earlier this year, the Justice Department named a national export enforcement czar to coordinate the government’s efforts. A $100 million record settlement with a large defense contractor and a 66 percent jump in criminal prosecutions this year have prompted businesses to question whether their compliance programs are adequate. “That’s a new phenomenon: the Department of Justice getting more active in enforcing these cases,” says Christopher Wall, a senior international trade partner at Pillsbury Winthrop Shaw Pittman who helped organize a Practising Law Institute export law conference in Washington last week. Assistant Attorney General Kenneth Wainstein of the Justice Department’s National Security Division told about 270 attorneys, compliance officers, and in-house counsel who attended the two-day seminar that Justice will focus on the worst violators and will continue to offer incentives such as a voluntary disclosure program to companies who report export crimes. “We recognize that you are often the first to detect suspicious activity and that we need your help if we hope to get advance warning of proliferation plots before they result in damage to our national security,” Wainstein said. The high attendance at the seminar — which Wall and other observers say was the largest in recent years — along with comments from export lawyers signal that the business community is taking notice. “It makes us a tad nervous,” a defense industry representative says. Even U.S. companies that support the export industry or conduct business with embargoed nations are facing more scrutiny. “We are hearing from clients who would not have been ordinarily involved: banks, insurance companies, airlines, freight forwarders,” says Wendy Wysong, a partner at Clifford Chance and a former deputy assistant secretary for enforcement at the Commerce Department. HITS AND A MISS Export violation prosecutions increased from 60 in fiscal year 2006 to 100 in fiscal year 2007, according to the National Security Division. Justice officials say those numbers don’t include export-related cases that were prosecuted under other statutes, such as conspiracy. And until the creation of the National Security Division in 2006, there was no coordinated effort to track these cases, which were scattered throughout the department’s Criminal Division and U.S. attorney’s offices. Now, the enforcement is led by the National Security Division, which coordinates with several agencies, including the State Department, the Commerce Department, the Defense Department, and the Department of Homeland Security. A sampling of about three dozen export cases from 2006 to 2007 shows a vast majority result in guilty pleas and few go to trial. “Usually, they are very successful,” Wall says. In March, ITT Corp. — a leading defense firm based in McLean, Va. — agreed to pay a record $100 million penalty after admitting that it illegally exported restricted night vision data to China, Singapore, and the United Kingdom. ITT entered into a deferred prosecution agreement that allows it to invest half of the fine toward the development of a night vision system for the U.S. military. While renowned businesses such as Boeing Co., Lockheed Martin, Bass Pro Shops, Dresser Inc., and Alpine Armoring Inc. of Herndon, Va., have been ensnared in export cases over the past three years, most other defendants ran small operations. The banned goods run from jet parts to vibration machines that can be used for testing missiles to computer codes used to train fighter pilots. For fiscal year 2006, the Commerce Department’s Office of Export Enforcement obtained 33 convictions and $3 million in criminal fines while levying $13 million in administrative penalties. U.S. Immigration and Customs Enforcement agents made 149 export-related arrests during fiscal year 2007, while the FBI says it had about 125 open economic espionage investigations as of October. Steven Pelak, a prosecutor with the U.S. Attorney’s Office in the District of Columbia for 19 years who in June was tapped to become the national export enforcement coordinator, says one particular focus is on the diversion of so-called dual-use goods, which have civilian and military applications, to China. The Justice Department’s enforcement effort coincides with increased penalties mandated by an amendment to the International Emergency Economic Powers Act, which President George W. Bush signed in October. The measure increased the civil fines for export violations from $50,000 per transaction to $250,000. As to criminal sanctions, defendants now can face up to 20 years in prison and up to $1 million in criminal fines for conspiracy, committing, attempting, aiding or abetting a violation. A UNIQUE CASE? Not all is stacked in the government’s favor. Just weeks after holding a news conference announcing its new export initiative, the Justice Department lost a case fraught with witness problems. On Oct. 30, Judge Inge Johnson of the U.S. District Court for the Northern District of Alabama dismissed a five-count indictment against Alexander Nooredin Latifi, an Iranian-born U.S. citizen, and his company Axion Corp., for lack of evidence after a one-week bench trial. Latifi and his company were indicted in March on charges of illegally exporting sensitive military technology to China, fraud involving aircraft parts, and falsifying documents for a military contract. Henry Frohsin, a Birmingham, Ala., defense attorney with Baker, Donelson, Bearman, Caldwell & Berkowitz who represented Latifi along with colleague Jim Barger, said the prosecution was a “disgrace.” Last week, the lawyers filed a motion to request attorney fees be awarded to Latifi. Justice officials are not discussing the Axion case. Dean Boyd, a department spokesman, says, “We’re disappointed by the decision but respect the court’s verdict.” Jason Waite, a partner at Alston & Bird who specializes in import and export processes, says that acquittal is the exception to the rule. “The Axion case is positive in that the courts are not going to be rubber stamps for the prosecution even in an area [national security] that is sensitive,” Waite says. “But exporters should view the case cautiously, because it remains unique in the Department of Justice’s record in this area of late.”
Pedro Ruz Gutierrez can be contacted at [email protected].

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.