If a lawyer at a cocktail party introduces himself to you as an “international trade lawyer,” would you think “oh, how boring”?
There may be some less-than-exciting aspects of trade law (see, e.g., anti-dumping work) but this regulatory practice is increasingly attracting the interest of criminal authorities.
Practice tip: If you work in a big firm, make friends with the trade lawyers because some of their clients are going to need your white collar expertise.
Two recent prosecutions in New Jersey are good examples of these kinds of cases. Both involve the Arms Export Control Act, both are against contractors and both deal with supposedly fraudulent military contracts.
The government separately indicted Alper Calik and Hannah Robert for wire fraud and violations of the Arms Export Control Act.
Arms Export Control Act
Let’s start with the basics. The Arms Export Control Act (AECA) gives the President the power to control how and when “defense articles and services” leave the United States. 22 U.S.C. § 2778. The AECA broadly prohibits the export of such articles and services, except where the exporting person or agency has the proper license. 22 U.S.C. §2778(b)(2).
The International Traffic in Arms Regulations (ITAR) flesh out the AECA. The ITAR make clear that defense articles and services include any item on the United States Munitions List. 22 C.F.R §121.1. In fact, even transferring a technical description of a listed item (not the actual item) to a foreign person or sending such a description out of the country would violate the AECA. 22 C.F.R. §120.17.
The criminal complaint against Mr. Calik alleges that he transmitted technical data to Turkey and the indictment against Ms. Roberts alleges that she disclosed technical data to foreign nationals.
What the DEP?
The alleged conduct underlying each set of charges is remarkably similar. The prosecution asserts that first, Ms. Robert and Mr. Calik each set up two shell corporations in New Jersey using their respective homes as business addresses.
Ms. Robert created “One Source USA, LLC” and “Caldwell Components, Inc.” with herself as the owner and operator. Mr. Calik formed “Clifmax LLC” and “Tunamann LLC.” These corporations were supposedly created to fraudulently secure contracts from the Department of Defense (DoD).
The alleged wire fraud arose mainly from the “Domestic End Product” (DEP) requirement that applies to many military contracts. To qualify as DEP, more than 50% of a product’s components must be mined, produced, and manufactured in the United States. Outsourcing the manufacture of these products would strip them of DEP status, but could yield massive savings and result in a much higher profit for the contractor.
The prosecution alleges that both Mr. Calik and Ms. Robert, tempted by fat profit margins, fulfilled their DoD contracts with parts manufactured overseas. Mr. Calik allegedly accepted nearly fifty thousand dollars from the DoD to provide DEP components for military armored personnel carriers. However, according to the prosecution, the components he delivered were manufactured in Turkey and failed to meet the specifications required by the contract.
Meanwhile, the government alleges that Ms. Robert contracted to supply DoD with DEP airplane components. However, the components she supplied were allegedly manufactured in India using inferior materials. When pressed by the DoD, Robert supposedly doubled down on her misrepresentations and falsified quality certifications for the contracted airplane components.
The AECA Charges Against Mr. Calik
Mr. Calik was charged with one count of violating the AECA. The complaint against him alleges that he illegally downloaded a batch of technical diagrams while directing Tunamann’s operations from Turkey.
Mr. Calik allegedly had access to hundreds of thousands of technical drawings as a result of his dealings with the DoD. Among them, the government contends, were the drawings corresponding to the torpedo functions of the NSSN Class nuclear-powered submarine. Such drawings contain warnings stating that their export is governed by the AECA and is not permitted without a license.
The complaint states that Mr. Calik disregarded the warning and, as he did not have an export license, violated the AECA by downloading them.
If found guilty, Mr. Calik faces up to 20 years in prison and $1 million in fines.
The AECA Charges Against Ms. Robert
Ms. Robert’s alleged transmission of technical data appears more flagrant and purposeful than Mr. Calik’s. She is charged with one count of violating the AECA and one count of conspiracy to violate the act.
In addition to One Source USA and Caldwell Components, Ms. Robert owned and operated a third company named One Source India; she did so with a resident of India that the complaint refers to only as “P.R.”
Between 2010 and 2012, Robert allegedly conspired with P.R. to export technical data describing components of nuclear submarines, military helicopters, and fighter jets without the proper licenses.
Ms. Robert is charged with sharing some of this data directly with P.R. The complaint states that Ms. Robert sent technical drawings to a joint email address accessed by both her and P.R., and that she uploaded those drawings to a computer server at her local church. She then allegedly created a username and login with which P.R. could access the drawings at his convenience.
The prosecution also contends that Ms. Robert sent P.R. emails containing export-controlled technical data with the intent to solicit bids from potential overseas clients who were looking to buy U.S. military hardware.
Finally, the complaint against Robert accuses her of following through on one such solicitation. In August of 2012, P.R. allegedly forwarded Ms. Robert an email from the United Arab Emirates Ministry of Defense. In this email, the prosecution maintains, the UAE official requested a price quote on a mechanism for the CH-47F Chinook military helicopter. Ms. Robert’s response email allegedly attached the technical diagrams corresponding to the mechanism at issue, in further violation of the AECA.
If convicted, Ms. Robert faces up to 20 years in prison and $1 million in fines for violation of the AECA, along with forfeiture of proceeds of the purported criminal scheme.
See, It’s Not Boring
If you read all that and are still bored, well, I can’t help you. This is a fascinating area of the law—with a complex regulatory scheme that is tied up in important policy issues. The idea that simply sending a description of certain technology to someone constitutes some type of arms trafficking is fascinating.
It makes me wonder how specific the technical description must be to get you in trouble. If you say, “it’s a gun on the Munitions List, and it’s made out of metal and it shoots bullets,” is that enough?
Maybe I should ask a trade lawyer at the next cocktail party.