The Long Arm Of US Export Control Law
September 17, 2014
Every now and then, an export control enforcement action serves as a useful reminder that the reach of United States laws is long, nabbing not only US/foreign citizens or corporations acting within the US, but also pinching US and foreign citizens or companies acting outside the US.
Back in August, the Commerce Department’s Bureau of Industry and Security (“BIS”) announced a settlement with Gatewick LLC, a freight forwarder based in Dubai, under which Gatewick agreed to pay a civil penalty and was placed on BIS’s Table of Denial Orders for a period of seven years, making it a crime for any other person/entity, here or abroad to engage, directly or indirectly, in any transaction involving Gatewick and US-origin goods, technology, software or services.
And what was Gatewick’s crime?
It facilitated the acquisition of 2,300 computer motherboards, valued at $130,000, by Mahan Airlines, an Iranian airline that was itself on the Table of Denial Orders! (More specifically, Gatewick – as Mahan’s sole booking agent for air freight services – entered into an agreement with an Iranian trading company under which Gatewick agreed to receive motherboards that the Iranian company ordered from the US, listing itself as a Dubai company; and Gatewick then handed the motherboards to Mahan for shipment to the Iranian company.)
This case illustrates several seminal points.
• For purposes of US export control law, US jurisdiction follows products that are manufactured in, or that pass through, the United States. This means, for example that goods manufactured in Peoria, if exported to France, reexported to Venezuela, transshipped to Hong Kong, and finally delivered from there to Iran, are subject at every step of the way to US prohibitions on transactions involving Iran or its nationals, such that the Hong Kong company needs a license from BIS to send the goods to Iran – a license that BIS will not grant.
This trips up a lot of foreign companies. Why, they ask, after charges have been brought, should we have supposed that we needed a US license to send Microsoft products that we purchased in Taiwan to Iran – or anywhere else, for that matter? The answer is: US jurisdiction – and US law’s ban on transactions with Iranians – follows US-origin products.
• BIS uses its Table of Denial Orders to put punch behind the long arm of US law. One might well ask: Why should foreign companies care about violations of US law. After all, the US Department of Justice can’t just walk into a Dubai court and demand that it enforce US law against a Dubai company. (Well, the Department could walk in and flap its wings, but it would be laughed out of court in very short order.) The answer is: BIS can effectively bar US companies from doing business with foreign companies simply by putting the latter on its Table of Denial Orders.
If America’s economy were the size of Liberia’s, say, that penalty would not amount to much. But the size of our economy makes a ban on doing business with us a very big stick to wield. And that’s what BIS did here, by putting Gatewick on its Table of Denial Orders.