Appeals Court Tightens Criminal Export Rules

Feb. 17, 2005

The Court of Appeals for the First Circuit has issued an opinion in a criminal case, United States v. Lachman, 387 F.3d 42 (Oct. 25, 2004) interpreting language in the Export Administration Regulations ("EAR"), which may result in widely expanding licensing requirements for dual use articles.  The defendants had been convicted in the District Court of Massachusetts of violating and conspiring to violate the Export Administration Act.  They had exported a control panel for a hot isostatic press ("HIP") without the necessary export license.  The main issue in the appellate decision concerned whether the control panel was considered 'specially designed' for use with the HIP notwithstanding the fact that it could be used with other non-controlled items.  At trial, the District Court judge had instructed the jury that "specially designed" did not mean items exclusively designed for use with HIPs, but instead the item could be "specially designed" even if the panel could have been used for other purposes.  After conviction, the defendants brought a motion for acquittal or alternatively a new trial, arguing, in part, that the jury instructions erroneously defined "specifically designed."  In support of their motion were affidavits from Commerce Department officials stating that they understood "specially designed" to mean exclusively designed, and minutes of a 1975 Coordinating Committee on Multilateral Export Controls which reflected the same understanding.   The District Court granted the motion for acquittal, finding that the definition of "specially designed" it used in charging the jury was fundamentally wrong and Commerce had used a number of competing interpretations of that term.

The Court of Appeals for the First Circuit held that "specially designed" in the context of the Export Administration Regulations was not limited to items exclusively designed for the prohibited use, but included dual use items "intentionally created for use, and in fact capable of being used, with the embargoed commodity."  The Court found that this interpretation was more in harmony with the goals of the statute relating to national security and prevented exporters attempting to circumvent the statute by deliberately creating dual use items.    The Court stated that while there was much evidence of Commerce's informal understanding that "specially designed" referenced exclusively designed for, this was not the formal notice-and-comment policy that required deference.   The Court of Appeals vacated the acquittal, reinstated the convictions, and remanded the case to the district court for a ruling on the motion for a new trial.

This case has important implications for exporters.  First, that "specially designed" in the context of the EAR covers dual use items.  Second, that exporters may not rely on any informal comments or policy by Commerce officials for their understanding of the interpretation of the EAR.  Although it will be interesting to see what the district court does with the lack of willfulness argument, for now the clear message for exporters is that every review of the regulations and ECCNs for potential application should entail in-depth scrutiny and often consultation with legal counsel.

Click the link below to read the opinion.