Tuesday, November 17, 2009
Seventh Circuit on ITAR
Sometimes it takes a while for things to actually hit the front of my brain. Such is the case with a June 2009 decision of the Seventh Circuit Court of Appeals involving an appeal from a criminal conviction under ITAR. In the spirit of "better late than never," here is a summary of U.S. v. Pulungan (No. 08-3000, decided Jun. 15, 2009).
Mr. Pulungan tried to export some riflescopes to Indonesia. Believing there to be an arms embargo on Indonesia, he planned conceal the actual destination by transshipping via Saudi Arabia. In reality, the embargo had been lifted in 2005, two years before the attempted export. The scopes, however, are arguably controlled by the International Traffic in Arms Regulations as riflescopes "manufactured to military specifications." Importantly, the law provides that the designation "in regulation" of items as defense articles is not subject to judicial review. As a result, the district court instructed the jury to accept the State Department's designation of the rifle scopes as being manufactured to military specifications even though the responsible witness was not able to explain what those specifications entail. He was found guilty by a jury of trying to export without a license and sentenced to 48 months in prison.
Enter the appellate lawyers.
The first issue was whether the designation of the 'scopes as manufactured to military specifications was "in regulation" and, therefore, beyond judicial review. The Seventh Circuit recognized that it would not be possible for the government to list every single 'scope made to military specs and that a narrative description was an efficient way to draft the regulation. However, the Court also stated that the designation of the specific 'scopes at issue in this case was not in the regulations. It was known to the manufacturer (presumably via a commodity jurisdiction decision) and to other industry "insiders" but there is no evidence the status of these specific 'scopes was known to the defendant.
Unlike a regulation, which is published for the world to see, a commodity jurisdiction decision is essentially private. The State Department, according to the Court, cannot be permitted to regulate (actually criminalize) behavior based on a document kept secret in a file. Thus, the Court held that in a case such as this, the government is required to prove, not just assert, that the products are covered by the regulation. In this case, that means the government needed to prove that the 'scopes were manufactured to military specs.
The second issue had to do with whether the defendant knew that the 'scopes were defense articles. That knowledge is a legal requirement for conviction. But, as was discussed above, the defendant did not know that the 'scopes had been designated as defense articles. On this front, there are some bad facts for Mr. Pulungan. First, he apparently viewed and printed web pages stating that limit the countries available for shipment of the 'scopes. Second, he was apparently willing to pay above market prices for the 'scopes. Third, he lied to associates about how many 'scopes he was buying and where they were to be sent. Lastly, he had written notes wrongly indicating that munitions shipments to Indonesia were barred. Taken together, the United States argued, these facts indicate knowledge by the defendant that something illegal was going on.
In a very forcefully worded section of the opinion, the Court said that the retail web sites might have had numerous reasons for declining to sell outside the U.S. including possibly exclusive distribution territories. As a result, Mr. Pulungan cannot be said to have known that the merchandise could not be legally exported without a license. As an aside, it is interesting to note that the examples the Court used might not be as clear as the Court believes. USB flash memory produced outside the U.S. is, contrary to the Court's statement, subject to U.S. export control laws once imported to the U.S. even if it is not a defense article. Similarly, the limitation on the export of orange flavored milk chocolate may have to do with dairy quota systems. Nevertheless, the legal conclusion was that the defendant did not have knowledge of the requirement for a license to export the 'scopes.
On the second point, the Court refused to hold that the knowing effort to violate a non-existent arms embargo transferred to the attempted unlicensed export. In the end, though, it did not matter because the U.S. was unable to prove that the defendant knew the 'scopes were manufactured to military specs.
Where does this leave the Department of State and, more specifically, the Directorate of Defense Trade Controls? The Court very clearly offered on alternative: make publicly available the list of items found to fall within a certain USML category. In other words, list the results of commodity jurisdiction decisions. That would result in something similar to Customs and Border Protection's online rulings database. Not only would exporters see the specific items found to be defense articles, but the rationale would be visible. That would make internal corporate commodity jurisdiction determinations more reliable. Of course, for policy reasons, the government may not want the specific details available. Still, providing the list would be a useful first step.