One thing’s cl(EAR)—BIS export enforcement efforts are working

In a case almost five years in the making, the Department of Justice (DOJ) announced last month that Alexander Posobilov, indicted in 2012 for unlawfully exporting over $50M worth of microelectronics and other technologies to the Russian military, and convicted in 2015 on all counts, will spend the next 11 years in prison. [i]

In addition to Posobilov, 10 other people were also charged in 2012 in connection with this case. Of the 10, two were convicted and sentenced with Posobilov, five pleaded guilty, while three individuals have managed to evade authorities. At the time of the indictment, 165 individuals and entities were also added to the Commerce Department’s denied party “Entity List,” demonstrating just how wide-reaching their criminal operation had spread.

The case is an interesting one in that it demonstrates the efforts some individuals, and the entities they operate, will go to in order to willfully circumvent U.S. export controls. Posobilov and his co-conspirators worked under the banner of ARC Electronics Inc., a Texas-based export company that went to extraordinary lengths to hide the true nature of their business. In fact, their company website claimed they manufactured harmless technology, such as that used in traffic lights and navigation systems, and concealed from their suppliers that they exported goods outside the U.S. at all. In truth, ARC Electronics manufactured nothing themselves.[ii]

The story gets even more interesting when you consider ARC Electronics’ owner, Alexander Fishenko, was sentenced to a 10-year prison term in 2016, in part for his role in the conspiracy, but also in his capacity working as a spy for the Russian Government (among other charges).[iii] Moreover, the dual U.S.-Russian citizen was ordered to forfeit over $500,000 in proceeds.

A sophisticated—and audacious—scheme

Posobilov, Fishenko, ARC Electronics, as well as a second entity called Apex System, L.L.C., had multiple methods in place to conceal their scheme to ship high-tech military-use goods to Russia—many products too sophisticated to be manufactured by the Russians domestically (and which have likely advanced Russia’s military technological capabilities). Among their practices included:

Ultimately, it was tips from vigilant members from the U.S. business community to law enforcement officials that helped identify the front company organization and, subsequently, the individuals involved.

Lessons to be learned

For their part, various U.S. agencies have used this case as an example of how export control laws are helping to keep the nation safe. Speaking at the 8th Annual Export Control Forum, the Assistant Secretary for Export Enforcement, David Mills, called particular attention to the important role the “Entity List” played in helping to change the business practices of many of the 165 names added to the List as a result of this case, thereby improving export compliance overall.[iv]

For one, those individuals and organizations who wished to remove themselves had to take a closer look at the risk measures they have in place if they want the lucrative privilege of doing business with U.S. companies once again. Many might have avoided being added to the list if they’d had appropriate export controls in place in the first place —denied party screening, classification and export license management, to name just a few.

For more food for thought on the importance of screening everyone, every entity, and every transaction—regardless of geography or line of business—please read our recent article “Transnational crime knows no borders—why screening everyone matters.”

[i] Exporter Of Microelectronics To Russian Military Sentenced To 135 Months In Prison Following Convictions On All Counts At Trial. February 28, 2017. https://www.justice.gov/usao-edny/pr/exporter-microelectronics-russian-military-sentenced. Accessed March 6, 2017.

[ii] Russian Agent and 10 Other Members of Procurement Network for Russian Military and Intelligence Operating in the U.S. and Russia Indicted in New York. October 3, 2012. https://archives.fbi.gov/archives/houston/press-releases/2012/russian-agent-and-10-other-members-of-procurement-network-for-russian-military-and-intelligence-operating-in-the-u.s.-and-russia-indicted-in-new-york. Accessed March 6, 2017.

[iii] Russian Agent Sentenced to 10 Years for Acting as Unregistered Russian Government Agent and Leading Scheme to Illegally Export Controlled Technology to Russian Military. July 21, 2016. https://www.justice.gov/opa/pr/russian-agent-sentenced-10-years-acting-unregistered-russian-government-agent-and-leading. Accessed March 6, 2017

[iv] Remarks of Assistant Secretary David Mills at the 8th Annual Export Control Forum. February 26, 2013.  https://www.bis.doc.gov/index.php/compliance-a-training/export-administration-regulations-training/online-training-room/103-about-bis/newsroom/speeches/speeches-2013. Accessed March 6, 2017.