Hitting the Bottom Line: Monetary Sanctions For Export Control Violations
By Jordan Collins*
The Department of Commerce's Bureau of Industry and Security (BIS) frequently imposes civil penalties against companies that violate the Export Administration Regulations (EAR). Whether the purpose of these penalties is deterrence, retribution, or a little bit of both, the penalties sought by BIS send a clear statement to exporters: an export control violation comes with a potentially hefty price tag.**
An analysis of BIS's settlement agreements and orders issued in May and June 2007 reveals that BIS imposed monetary sanctions in ten of the 15 administrative enforcement proceedings. The monetary sanctions levied by BIS served as the exclusive sanctions in eight of the cases, while equitable penalties, such as denial of export privileges, were imposed by BIS in the remaining cases. The number of charges alleged by BIS ranged from five to 26 violations of 15 C.F.R. §764.2(a)-(k), the EAR’s laundry list of actionable violations.
The list of violations set forth in section 764.2 of the EAR ranges from a general “engaging in prohibited conduct” violation to more specific intent violations such as: solicitation, aiding and abetting, acting with knowledge of a violation, misrepresentation, concealment of facts, evasion and license alteration.
The two largest civil penalties imposed by BIS in the past two months were against Yamada America, Inc. and LogicaCMG. Yamada America, Inc., a manufacturer and distributor of controlled pumps, agreed to pay $220,000 to settle 26 counts of alleged export violations arising from the sale of diaphragm pumps to Taiwan, Singapore, Ecuador, Brazil and Israel without the required export licenses. LogicaCMG agreed to pay a $99,000 penalty to settle nine allegations that its predecessor and affiliate violated the EAR by selling telecommunications equipment to
The third largest penalty imposed by BIS during this time frame was a $97,000 penalty imposed against Graco Inc. for the unauthorized export of diaphragm pumps to
Other relatively large export control penalties included a $55,000 fine imposed on Sri Welaratana in his individual capacity for shipping a Vibration Controller to the Chinese Academy of Launch Vehicle Technology, a restricted party on BIS’s Entity List. Welaratna's employer, Data Physics Corporation reached a separate settlement agreement with BIS, agreeing to pay $6,600 for its role in the transaction.
Although not monetarily significant, at the end of June BIS also settled two cases involving prohibited exports to Iran. The first case involved the imposition of a $6,380 penalty on David McCauley for conspiring with others to circumvent U.S. export control laws by selling dental equipment to Iran under the guise of a sale to the United Arab Emirates.
The final case that BIS settled in June involved a penalty imposed on a U.S company for violating the Deemed Export Rule. In its charging letter, BIS alleged that Enternet, an Illinois-based company that designs and manufactures network-compatible process control systems, released controlled technology for the development, production or use of a field programmable logic device in the U.S. to an employee who was an Iranian national without the required export license from BIS. Under the Deemed Export Rule set forth in 734.2(b)(ii) of the EAR, the release of technology or source code subject to the EAR to a foreign national in the U.S. is "deemed" to be an export to the home country of the foreign national. As a result, Enternet paid a civil penalty of $7,000 to settle one count of violating section 764.2(a) of the EAR.
Monetary sanctions provide BIS and its Office of Enforcement with a powerful bargaining chip, bringing alleged export violators to the table without the time and expense associated with formal judicial proceedings. With a flexible and easily aggregated list of violations, BIS's ability to render steep monetary penalties can affect a company's bottom line, sometimes proving the most effective method of enforcing export regulations.
If Congress passes pending proposals that increase current export control violation penalties to either $250,000 under the IEEPA Enhancement Act or to $500,000 under the Export Administration Enforcement Act of 2007, the use of monetary sanctions as an export control deterrent will be significantly enhanced.
** Since August 21, 2001, the date of the most recent lapse of the Export Administration Act, civil monetary penalties for violations of the EAR have been governed by the penalty amounts set forth in the International Emergency Economic Powers Act (IEEPA). From August 21, 2001 through August 3, 2006, the maximum penalty per violation was $11,000. As a result of the enactment of the USA PATRIOT Act Improvement and Reauthorization Act of 2005 (Public Law 109-177), the maximum civil monetary penalty was raised to $50,000 per violation.