Jeffrey LewisIndia and US Export Controls

I’ve been remiss in posting about the scandal linking the Indian Embassy in Washington to alleged efforts by a company called Cirrus USA to subvert US export control laws in support of India’s missile and aircraft programs. (Good coverage in the Indian press about the arrest and denial of bail.)

I eventually laid my hands on a copy of the indictment about the time it hit the press (So, to those of you who sent it along, thank you. To those of you who had a copy but didn’t … well, you know what Lady Sov sez … and if you don’t … well … let me assure you that there is nothing about that young woman that is in any way, shape or form appropriate, let alone for the workplace).

The indictment makes for a fascinating read, revealing how India uses “tenders” to acquire controlled goods. The indictment is divided into two parts, one conspiracy to acquire missile components and another to acquire components for a combat aircraft.

Here is how an Indian official defends the practice of using tenders to acquired controlled goods:

A top DRDO official, however, said the responsibility of ascertaining whether an item needs license or not rests with the company. In this case, ADE is said to have floated a global tender as the i960 microprocessors are out of production. Cirrus bid, won the contract and identified Rochester Electronics as one of the companies that has license from Intel to manufacture this item. “Of course, we lay a condition to a test by DRDO officials before the item is purchased,” said the official. It is one of the jobs of the DRDO representatives in the Indian mission to observe these tests and clear the item for purchase. Now if the company violates any law, DRDO officials claim, they cannot be held responsible.

David Albright pointed EXACTLY to this bullshit practice a couple of months ago—putting out tenders for export controlled goods, then not asking too many questions about how the company gets the item out of the country.

The indictment, however, states that an Indian Embassy employee— “Co-Conspirator A”— was asking questions about specifications—questions that might result in the goods being controlled. ( The Indian Express reports “Co-Conspirator A” is Manik Mukherjee, who until last year, was a counsellor (Defense Technology) at the Indian Embassy in Washington.)

***

Testing some of components to “military specifications”—the purpose of Mukherjee’s trip to one of the suppliers, a trip that we know about because he frickin’ e-mailed Cirrus to have his expenses covered—may actually make a real difference as to whether Cirrus USA broke the law in the second conspiracy (the first looks much more open and shut).

Clif Burns at export law blog suggests one of the microprocessors—the i960—in the second half of the indictment isn’t controlled, noting that its out of production and obsolete.

I asked our old friend Scott Gearity if the i960 microprocessor was controlled. Scott pointed to “a couple red herrings in Burns’ analysis—(1) just because something is no longer being manufactured doesn’t mean its no longer … potentially subject to the ITAR (don’t export that surplus B-52 without asking State first) and (2) a term like “off-the-shelf” obfuscates the main issue, which is whether an item as been specially designed, developed, configured, adapted or modified for a military application.” On the latter question, Scott was a little more circumspect than Burns about exporting items tested for military applications:

I’d say its an unsettled issue as to whether general purpose microprocessors tested to a military standard are subject to the ITAR. The definition of a “defense article” is silent on items tested to military standards. Say you make 100 chips, all of identical design, materials, etc., but when you test them only 90 meet the military QA standards (for reliability or whatnot). Are those 90 defense articles? All 100? I think you could argue that none of them are, but that’s a more aggressive approach then I would recommend to a client without first obtaining a written opinion from State. The prosecutors appear to believe that such testing is sufficient to qualify an item as a defense article and therefore make its export a violation of the ITAR/AECA.

Obviously, Cirrus USA wasn’t going to be asking State for a written opinion on its alleged smuggling operation.

Comments

  1. Clif Burns (History)

    If you’re going to criticize my position, you should at least read what I said. I noted that the i960MX, which was built to military spec, would be controlled but that it didn’t appear that the i960MX was involved here. The other i960 chips weren’t built to military spec and wouldn’t be controlled in the first place. I never said that something wouldn’t be controlled because it was no longer being manufactured. What I said was that since the controlled flavor wasn’t being manufactured it was unlikely that the controlled version was being exported.

  2. Seema Gahlaut (History)

    I am not sure why the practice of not asking questions about “how the supplier gets it out of the country” are such a unique offense that apparently are committed only by India. Under US law, importers are not even supposed to contact the BIS/DOS directly to argue their case—it is the job of the US exporter to file end-use & end-user info and abide by the USG ruling. Indian stand about not asking if the US exporter has followed US laws is no different from USG not asking its companies operating in India and China if they are complying with Indian and Chinese XC laws before they export those items out of these countries. USG concern is legitimately limited: that the companies – no matter where they are located – do not violate US laws. Similarly, how many times did US consumers or importers ask where & how a particular item was manufactured [eg prison labor in China or something] before it became a “competitiveness” concern here? Do US importers ask if the exporting foreign company has paid bribes locally to facilitate the export? [If bribing was involved, it is again not US responsibility but that of the host country to prosecute the bribe givers and takers]. So long as they do not pay those bribes themselves, US companies are not prosecutable and therefore the issue of what their couterparts are doing is not germane to them. It might, in some instance, become a moral issue for the US company – usually under public pressure. but the lack of concern about it is certainly not as uniquely sinister that you make it out to be.

  3. Jeffrey Lewis (History)

    Clif

    I find your tone a little more defensive than necessary.

    One should be careful when accusing others of not reading carefully. In particular, you should note the difference between what I said and what Scott said, as well as the specifics of Scott’s objections.

    Scott, in my opinion, didn’t fail to understand your argument; he disagreed. Whereas you assert that “testing a microprocessor isn’t designing it or modifying it for a military use,” Scott is far less convinced—he said “that’s a more aggressive approach then I would recommend to a client without first obtaining a written opinion from State.” The reasons for Scott’s caution, as Sudarshan is discovering, are obvious.

    To this point, I was merely reporting Scott’s arguments. I don’t agree or disagree. Indeed, I have no specific expertise in export control law.

    My opinion—which occurs at the end—is simply that Cirrus USA, given the alleged nature of its activities and the obvious motive to avoid drawing attention to itself, didn’t have the same recourse to a written opinion as a law abiding company might have.

    I don’t know if you are new to the blogging world, but you have to be willing to accept that some people will disagree with you.

  4. Clif Burns (History)

    Jeffrey,

    We can disagree about the testing point, and I understand that.

    What I objected to was the assertion that I said that something wasn’t on the USML because it was no longer manufactured. I didn’t say that because such an assertion would be both foolish and wrong.

    Or are you claiming that there is legitimate disagreement about what I actually said?

  5. Michael Deal (History)

    The tender process is pretty standard procedure in most of the world for government procurement for any goods and most services. Only an academician with no real-world commercial experience would think that there is something sinister about it. There are many troubling things about the US export control system that are far more sinister and far less transparent that India’s procurement system, e.g., failure to follow the rulemaking procedures required by the Administrative Procedures Act when there is no specific exception in the agency’s enabling statute, or the perpetuation of civilian export controls under IEEPA.

  6. Jeffrey Lewis (History)

    I see, maybe Scott shouldn’t have called it a “red herring” — I can see how that might imply something you didn’t say — but I understood him to be merely observing that some of the discussion of the microprocessor’s other uses was tangential to the question.

    But I thought it was important to point out, as Scott did, that the issue was what made a good subject to control.

  7. None (History)

    The question that is very valid is what if a foreign nation (using a commercial subsidiary) were to buy a lot of say, 100,000 parts for a legitimate commercial purpose. Then, the parts are retested and re-qualified overseas in the end use country for a military purpose that makes it subject to control. Suppose the retest yielded 20% qualified parts, but the military application only needed 10% of the lot, so the ‘excess’ is just simply put back into the bin and sent onwards to the normal commercial parts inventory.

    The country concerned got their parts, bypassed export controls, and even got military spec parts ‘in excess’ in inventory.

    How can this be stopped?

    Very difficult unless you are to seriously disrupt the commercial channels.

    The Cirrus case is notable not for what happened, but for how the Indian government could have simply done things in the aforementioned fashion and got away with it.

    To email Cirrus for an expense claim is, bluntly put, an incredible act of stupidity.

    If they are going to do that, they might as well have approached the US formally for an export license, and it would probably be granted.

    Whether the parts are obsolete is totally a moot point. Iranians would love to get a hold of scrapped F-14 parts at any price—- if it is an exact fit, it doesn’t matter if it is obsolete. It is cheaper than rebuilding a subsystem from scratch because you can’t get the old parts.

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