Government Contracts Monitor
Conviction In Chinese Ammunition Case is Upheld on Appeal
July 23, 2012
On June 27, 2012, the United States Court of Appeals for the Eleventh Circuit affirmed the convictions and four-year prison sentence of Ralph Merrill, an investor in AEY and a munitions dealer based in Miami Beach, Florida. Merrill was charged with concealing from the government that the millions of rounds of ammunition AEY sold pursuant to a $298 million dollar Army contract were actually manufactured by a Communist Chinese military company even though AEY’s contract with the Army prohibited the delivery of such ammunition. See United States v. Merrill, No. 11-11432 (11th Cir. June 27, 2012). Mr. Merrill was convicted of one count of conspiracy to commit false statements, major fraud, and wire fraud, 21 substantive counts of major fraud and 11 counts of wire fraud.
The case received significant media coverage, including a detailed article in Rolling Stone (The Stoner Arms Dealers: How Two American Kids Became Big-Time Weapons Traders, March 31, 2011), particularly because of the size of the contract, the brazen nature of the conduct, and the youth of Merrill’s co-defendants.
The contract required a certificate regarding where the ammunition was manufactured pursuant to Section 1211 of the National Defense Authorization Acct for Fiscal Year 2006, which provided that “[t]he Secretary of Defense may not procure goods or services . . . through a contract or any subcontract (at any tier) under a contract, from any Communist Chinese military company.” Pub. L. 109-163, §1211, 119 Stat. 3461 (Jan. 6, 2006). A co-defendant asked a State Department employee whether the ammunition, which was manufactured before the United States enacted an arms embargo against China, was permitted under the contract. When the co-defendant was informed that “US policy . . . would not authorize the transaction,” the Defendants removed the Chinese characters from the wooden crates holding the ammunition, re-painted the hermetically sealed tins that held the ammunition, removed Chinese papers inside the tins, and repackaged the ammunition in cardboard boxes.
The Court easily affirmed Merrill’s convictions and sentence. The Court rejected an argument by Merrill that because the ammunition was purchased from an Albanian company, not the original Chinese manufacturer, the ammunition was in compliance. The Court held that the U.S. embargo with China includes goods that have left China, and that the rule prohibits delivery of any goods acquired “directly or indirectly” from China, easily rejecting the “gaping loophole” proposed by Merrill.
The very simple message of this high-profile story is – deliver what you agree to deliver to the government, and don’t conceal non-conforming goods.
Brian Stolarz is the attorney responsible for the content of this article