ITAR Criminal Violations — Where the Less You Know Is Not Necessarily the Better
For decades, courts have wrangled with the “state of mind” needed to establish a criminal violation of the International Trafficking in Arms Regulations (ITAR). The question has been whether general knowledge of the illegality of the conduct is sufficient to sustain a criminal conviction or whether instead the government must prove that the defendant knew of the specific law or regulation that was violated. With the recent decision in United States v. Brian Keith Bishop, No. 13–4356, 2014 WL 292695 (4th Cir. Dec. 11, 2013), the Fourth Circuit joined its seven sister circuits, holding that proof of general knowledge of the illegality of the conduct is sufficient to convict a person of a willful violation of US export laws.
In Bishop, the defendant, a Foreign Service Officer in the US Department of State, was charged and convicted of attempting to ship small arms ammunition from Alabama to Amman, Jordan in violation of the Arms Export Control Act (AECA), 22 USC § 2778, when, as part of his move to his new State Department post in Jordan, he sent the ammunition together with his personal effects to the State Department’s shipping company. Bishop appealed his conviction, arguing that the government failed to prove that he knew his conduct was illegal and that he knew that the ammunition he was attempting to export was listed on the United States Munitions List (USML). The government argued that it merely had to prove that Bishop knew that exporting ammunition was illegal as a general matter. Unfortunately for Bishop, the Fourth Circuit agreed with the government’s argument that it was sufficient enough that Bishop believed that exporting ammunition was illegal, “even if unaccompanied by knowledge of the contents of the USML.”
As other federal courts have done in the past, the Fourth Circuit relied heavily on the United States Supreme Court decision in Bryan v. United States (524 U.S. 184 1998) (in which the Supreme Court held that specific knowledge of a firearms licensing requirement under Firearm Owners’ Protection Act (FOPA), codified at 18 U.S.C. §§ 921–929, was not required to find a criminal violation of FOPA), stating that “to establish a ‘willful’ violation of a statute, the Government must prove that the defendant acted with knowledge that his conduct was unlawful.” In doing so, the Court distinguished the AECA from other “highly technical” statutes or regulations, finding instead that using a heightened standard of intent would be a step toward “an unregulated system and undermine congressional intent.”
Notably, the Bryan Court distinguished its holding from two previous decisions that suggested that a heightened intent standard should apply to prove willfulness when complex statutory or regulatory schemes are implicated. See, e.g., Ratzlaf v. United States, 510 U.S. 135 (1994) (holding that criminal convictions for willfully structuring currency transactions in violation of 31 U.S.C. § 5324 could be maintained only when the government proved that the defendant knew he was violating the structuring laws at the time he committed the offense); Cheek v. United States, 498 U.S. 192 (1991) (holding that a good faith misunderstanding of the law could negate the willfulness requirement of the crimes of willful tax evasion, 26 U.S.C. § 7201, and of willful failure to file a tax return, 26 U.S.C. § 7203). The Bryan Court distinguished these cases in which “willfully” required a showing that the defendant was aware of the specific statutory violation, where the statutes concerned tax and currency restructuring, because “the complexity of these statutes presented the danger of ensnaring individuals engaged in innocent conduct.” In other words, the Bryan decision regarding what scienter level is required to prove a criminal violation turned on what the Court perceived as the complexity of the underlying regulations governing the conduct.
The government quickly seized on the reasoning in Bryan and consistently has taken the position that the complex regulatory structure governing US export laws is readily distinguishable from complex tax and money laundering regulations. With the recent holding in Bishop, the government has increased its tally to seven federal circuits, namely the First, Second, Third, Fourth, Sixth, Eighth, Ninth, and the DC District Court that have adopted the lower intent standard. See, e.g., United States v. Murphy, 852 F.2d 1 (1st Cir. 1988), cert. denied, 489 U.S. 1022 (1989) (upholding a jury instruction that “made clear that conviction [under the AECA] would not require evidence that defendants knew of the licensing requirement or were aware of the munitions list”); United States v. Homa Int’l Trading Corp., 387 F.3d 144 (2nd Cir. 2004) (quoting Bryan in holding “to establish a ‘willful’ violation of [IEEPA] ... the Government must prove that the defendant acted with knowledge that his conduct was unlawful”); United States v. Electro Glass Prods., 298 Fed. Appx. 157 (3d Cir. 2008) (stating, “[T]he willfulness element of the AECA is established only if the defendant knew that the export was in violation of the law. The Government does not need to prove the basis of that knowledge, or that the defendant was aware of the licensing requirement.”); United States v. Roth, 628 F.3d 827 (6th Cir. 2011) (citing Bryan and invoking its standard in finding that the defendant did not need to know that particular items being exported are specifically listed on a “munitions list” prohibiting their export); United States v. Gregg, 829 F.2d 1430 (8th Cir. 1987), cert. denied, 486 U.S. 1022 (1988) (“all the Government needs to prove is that the item exported appears on the Munitions List or the Commodity Control List.”); United States v. Mousavi, 604 F.3d 1084 (9th Cir. 2010) (“willfulness” under IEEPA requires the government to prove beyond a reasonable doubt that the defendant acted with knowledge “that his conduct was unlawful,”... but not that the defendant was aware of a specific licensing requirement.”); United States v. Quinn, 403 F. Supp. 2d 57 (D.D.C. 2005) (concurring “with the government’s assertion that it need not prove to the jury that defendants had knowledge of the existence of a licensing requirement; it need only show that they knew their precise conduct was unlawful.”) (vacated on other grounds).
The Seventh Circuit has not cited Bryan but has applied a similar standard. See United States v. Reyes, 270 F.3d 1158 (7th Cir. 2001) (finding that the defendant’s “obvious disregard for his known legal duties in attempting to export items on the Munitions List without a license, provided more than sufficient grounds for the jury’s finding of a willful violation of the AECA”). The Tenth Circuit has not reached the scienter issue as yet, as the issue of intent was based on the weight of the evidence and not the definition of “willfulness.” See United States v. Soussi, 316 F.3d 1095, 1107 (10th Cir. 2002) (upholding deliberate ignorance instruction where government’s evidence showed, among other things, that defendant had deliberately refused to read document on export ban, “presumably because he wanted to avoid unequivocal knowledge it was illegal for him to engage in the [illicit] transaction” that was the subject of the case).
As it stands now, only the Fifth and Eleventh Circuits still apply the higher intent standard. See, e.g., United States v. Covarrubias, 94 F.3d 172 (5th Cir. 1996) (“government must prove defendant acted with specific intent to violate a known legal duty”); United States v. Macko, 994 F.2d 1526 (11th Cir. 1993) (concluding “the evidence was sufficient for a reasonable jury to find beyond a reasonable doubt that [the defendants] knew about the Cuban trade embargo and deliberately violated it through their own conduct or by aiding and abetting other individuals”).
The zeal with which the government has methodically marched through the federal courts to establish a lower standard of intent to sustain a criminal export violation underscores its intent to vigorously pursue criminal cases against individuals and companies. Indeed, the US Government takes the position that companies can and should be held responsible for the acts of its employees, even if the conduct may be contrary to the company’s stated policies and procedures.
This raises the interesting “sauce for the gander” question: Should the State Department be held legally liable at least on a civil basis for the acts of Mr. Bishop, a Foreign Service Officer (FSO) employed by the State Department?
Mr. Bishop was sending his personal effects in order to take a FSO post for the State Department in Jordan. The shipment in question, was, in fact a State Department shipment — carried out by the government contract carrier, Paxton Van Lines (Paxton) pursuant to the State Department’s policy of shipping employees’ personal effects overseas at government expense. The shipment was already on its way out of the country when it was stopped. Thus, as a technical matter, an ITAR violation had taken place and the shipment was to be made by the State Department at US taxpayer expense. Clearly the State Department did not want its employee to violate its own policy or the ITAR, but companies typically do not want their employees to violate their policies or the ITAR either. Yet, when it happens, companies can be (and are) sometimes held strictly liable for the acts of their employees, even when that conduct violates the company’s own policies
But it is not a level playing field between the US government and US exporters when it comes to the export control violations of their respective employees. As a consequence, it is imperative that companies implement export compliance procedures, institute training programs which include the ramifications of “willfully” violating export regulations, audit the procedures to ensure compliance with its export procedures and policies, identify gaps or violations of the procedures, and swiftly remediate any gaps and violations which may include terminating or disciplining the violators and filing a voluntary disclosure with the State Department or the US Department of Commerce or both.
With the high costs that can result from a violation of the export laws, including prison-time, fines, penalties, denial of export privileges, and loss of revenue — just to mention a few — complacency is not an option and compliance cost savings are penny wise but pound foolish. Companies and compliance officers, and we would argue, US government agencies, must ensure that appropriate export procedures and implemented and followed.
Arent Fox has extensive experience in assisting companies in complying with US export control and economic sanctions regulations, including representing companies and individuals in both criminal and civil enforcement actions under the ITAR, Export Administration Regulations (EAR), Office of Foreign Asset Control (OFAC), and many additional export related laws and regulations. For more information, please contact Kay C. Georgi, or Keith F. Huffman.