Defendants in Criminal Case Argue ITAR 'Specially Designed' Provision Unconstitutionally Vague

Preparations continue for a jury trial set for April 1 in a criminal arms smuggling case involving the constitutionality of "specially designed" provisions in U.S. export controls (U.S. v. Quadrant Magnetics, LLC, W.D. Ky. # 3:22-CR-88-DJH).

In the U.S. District Court for the Western District of Kentucky, a defendant military contractor seeks to clarify the constitutionality of an International Traffic in Arms Regulations provision designating certain goods as “specially designed” for use in defense articles. The U.S. says it has evidence the contractor knew it was breaking the law and taking measures to avoid getting caught.

The government charged Quadrant Magnetics with, among other things, one count of conspiracy, three counts of willful violation of the Arms Export Control Act and one count of smuggling for selling to China drawings of a rare earth permanent magnet used in F/A-18 Super Hornets.

Quadrant, a military contractor, sent the magnet drawings to its affiliate, the Chinese company Hangzhou X-Mag, to manufacture, smelt, magnetize and send the completed magnets back, the government said in its response to the company’s motion. Quadrant “then repackaged the magnets in containers with Quadrant Magnetics labels and forwarded them to its customers, concealing the magnets’ country of origin,” it said.

“Defendants exported technical data with prominent ITAR warnings related to the magnets to China from at least as early as 2012 until at least in or around October 2018,” DOJ said.

In its Dec. 21, 2023, motion to dismiss and its Feb. 9 brief supporting that motion, Quadrant alleged that the ITAR's “specially designed” provision is too vague to be constitutional under the Fifth Amendment.

One ITAR exemption allows “specially designed” goods that have commercial, non-defense-related equivalents, but this exemption is still too broad, Quadrant said. The government’s search for a commercially available equivalent to Quadrant’s magnets is essentially a “guessing game … given these sorts of magnets’ ubiquity for decades,” Quadrant said.

“[A]bsent the power of an emperor and an omniscience surpassing even ChatGPT, the government has no meaningful way to fulfil its mandate of determining the existence of those equivalents,” it said.

Many challenges had been made, unsuccessfully, against the AECA and ITAR for vagueness, but “this challenge is different,” Quadrant said. It said its claim was “tightly bound” to the magnets at issue, asking only whether the government had any reliable way to tell that the magnets pictured in the exported drawings were “specially designed.”

“Nobody can,” it said.

That ITAR exemption, release (3), “has no default setting,” and requires inquiry into “every neodymium or samarium-cobalt magnet ever used in a commercial product,” Quadrant said. These magnets are everywhere in daily life, but “neither the Defendants nor the government can do that sort of search because they are limited to only a small portion of the magnet universe” and also wouldn’t have the time, it said.

Rules with “indeterminate metrics” such as this are unconstitutionally vague, it said.

In a response filed Jan. 26, the U.S. said that the law “does not encourage arbitrary and discriminatory enforcement but rather sets forth a reasonably precise standard for enforcement when placed within its larger regulatory framework.” Alternatively, the U.S. also claimed that Quadrant’s vagueness challenge is premature because the jury hasn't yet considered the facts established at trial.

“Correctly framed, Defendants’ argument is not credible,” the U.S. said.

For Quadrant to win its case, it had to prove that either the law was “so standardless that it permitted arbitrary and discriminatory enforcement” or it had not had fair notice its actions were illegal, it argued.

It said the law is not standardless. If an exporter isn't sure if its product will fall under ITAR’s “specially designed” provision, it can seek a commodity jurisdiction determination from the State Department’s Directorate of Defense Trade Controls, it said.

This agency has a list of objective, statutorily defined criteria it considers on a case-by-case basis when making these determinations, including “form and fit,” “function and performance capability” and information such as the ”product’s history, specifications and other relevant data,” it said. These criteria provide flexible and equal enforcement under the law, it said.

This framework has “consistently” withstood vagueness challenges, it said, and Quadrant’s own claim wasn't distinguishable simply due to the “‘ubiquity’ of magnets.”

“If the Court found that argument had any merit, it would jeopardize the entirety of DDTC’s (and the Department of Commerce’s) specially designed program,” the government said.

Quadrant also had fair notice of the law but didn't follow it, the government said. There is “no evidence that Defendants ever question that these magnets were ITAR-controlled,” it said.

It pointed out that when one of Quadrant’s customers, GE Aviation, learned where Quadrant’s custom-designed magnet for it had been produced, that customer confronted the magnet company and began its own investigation. During that time, it asked one of the individual defendants, a Quadrant employee, whether the company made a commercial-equivalent magnet, it said.

That defendant “stated he did not think there was an industrial off-the-shelf magnet that could be used to fulfill GE Aviation’s order and noted ‘the specified technician requirements on [GE Aviation’s] print,’” the government said. He said the magnet “was not an easy part to make -- mostly based on what we do to the material here at Quadrant.”

In 2017, GE Aviation also sought a commodity jurisdiction determination regarding its magnet from DDTC, the government said. The agency found that it was “specially designed” for defense articles, it said.

Evidence, including emails between defendants, also showed that Quadrant knew it was violating the law, the government said. And during GE Aviation’s investigation, the company sent its customer a letter “falsely stating” that it hadn't sent any technical data regarding the magnets to China and that it had complied with the Defense Federal Acquisition Regulation Supplement -- the set of regulations that govern Defense Department contracts -- in manufacturing them, it said.

In its Feb. 9 brief, Quadrant said that the U.S. “ignores the core of Defendant’s vagueness argument,” focusing too much on the fact that the company had fair warning of the law and wrongly equating its claim to other AECA vagueness challenges, despite the differences between them and its own case.

“Vagueness also is not cured by the fact that Defendants could ask for a government determination, when that determination itself cannot be meaningfully made,” it argued.