Oct
5
BIS’s War On Small Business Continues
Posted by Clif Burns at 8:06 pm on October 5, 2010
Category: BIS
Last week the Bureau of Industry and Security (“BIS”) released documents relating to two settlement agreements (here and here) arising out of charges brought by the agency against International Photo Equipment Company, Inc. in Orlando, Florida, and its owner Adam Karesh. Under the settlement documents, a $45,000 suspended penalty was imposed on International Photo and a $45,000 penalty was imposed on Mr. Karesh, of which only $20,000 was suspended.
BIS had Karesh digging into his pockets based on alleged exports of EAR99 photographic equipment, of unspecified value, shipped by International Photo to Syria through Lebanon. Both Karesh and the company were charged with “acting with knowledge” under 15 C.F.R. § 764.2(e). Here is what BIS thought was acting with knowledge:
Karesh had knowledge that a violation of the Regulations was about to occur . . . because on or about April 19, 2006, a freight forwarder informed Koresh that the photography equipment could not be exported to Syria due to the U.S. sanctions in place on Syria. After the freight forwarder told Karesh that it did not know of any U.S. restrictions on exports to Lebanon, Karesh instructed the freight forwarder to ship the photography equipment to Lebanon so that Karesh’s customer could pick up the items and drive them the rest of the way to Syria.
“Knowledge” apparently means something else to BIS than it does to the rest of the world because under BIS’s definition of knowledge, Karesh “knew” that the export was illegal even though the freight forwarder told him that the export to Lebanon was completely legal! The only knowledge of a violation that I see here is that BIS must know that it is violating its own rules if this is what it calls knowledge of a violation.
What BIS fails to confront or acknowledge here is that the vast majority of people would not think that they were violating the law when shipping an item to a country to which an export was legal if thereafter someone was going to pick up the items and ship them to a destination where a direct export from the United States would be illegal. BIS would better serve its own interests and the security of the nation by educating exporters that such exports are illegal rather than making an example of small businesses that probably didn’t understand they were breaking the law.
When Voltaire referred to the British hanging an admiral “pour encourager les autres,” this was not intended as a compliment.
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14 Comments:
My Friend,
I disagree with you on this one. The U.S. exporter who was issued the Charge by BIS was absolutely positive that the item being shipped to Lebanon was really destined to Syria, so the “knowledge” requirement seems to have been satisfied.
Peter Quinter
@Peter. The charge requires that he knew that shipping the item to Lebanon when someone would then later take it to Syria was illegal. It is not enough that he knew that it would later go to Syria. You and I know that’s illegal but plenty of people don’t.
Sorry Clif but I agree with Peter on this one. It seems to me that common sense would tell you that you can’t ship to one country then have someone pick it up and take it to a sanctioned country. DUH
Mr. Burns. Shipper knew it would be diverted. He is guilty.
Thanks
Edw Korleski
I don’t want to get in the middle of two powerhouses but I have a question for both of you; did the exporting organization not have an Empowered Official and/or Export Compliance Officer who is/was required to KNOW the regulations in order to properly classify the items being exported?
When attending both BIS and ITAR conferences someone will mention “Red Flags” and “Sanctioned/Denied Party Lists”, don’t these apply in this instance?
Clif, I appreciate your website and enjoy your commentary but I respectfully disagree with you on this one. The exporter knew that the goods were destined for an end user in an embargoed country and shipped the goods anyway. The exporter is clearly in violation of US export law because of this knowledge. It does not really matter that the goods were transshipped through an intermediate consignee in a non-embargoed country.
If the exporter shipped the goods to a non-embargoed country and then the goods were transferred to an embargoed country without their knowledge there would be no violation. It really is the knowledge of final destination that makes this transaction illegal.
Just me thoughts on the matter.
Another point to ponder… What about the forwarder? As a forwarder myself, if a shipper tells me they want to send something to a sanctioned country and I tell them they can’t, I would also be obliged to tell them that routing through a third country on the way to the sanctioned country is illegal as well. Did the forwarder in this case get fined for routing an export to Lebanon already knowing it would ultimately be destined for Syria?
@Mark S.
You asked if the exporting orginazation had an empowered official and or export compliance officer. Given that the exporting organization is a small business run out of a 200 foot long warehouse in Florida with a bass boat in the back lot, I’m betting not. I do so love Google maps.
I agree that a company is liable for the shipping decisions it makes, but some guy shipping used camera parts (the URL for the company is “usedphotolab.com” and probably rather more accurate a description that the rather grandiose International Photo Equipment Company on the splash page) would know more about FedEx’s rates than a set of Federal Regulations that he doesn’t know apply to him.
I’m not a powerhouse; I’m a nobody with only a few years experience in the industry, but I promise you that every
conference I attend has someone sitting in the back, listening to the enforcement panels with wide open eyes, wondering just what he or she has gotten into.
How do companies (especially small or start ups)find out about the ITAR and EAR? From employees who come in from other companies with an existing program or from having been warned, by a freight forwarder, by a customer, by a competitor, by the government, sometimes in the form of press releases like this one.
Betcha all this guy’s neighbors, customers, and local competitors are researching affordable expcomp conferences right now.
I’m with Clif on this one. As someone who has been on the government side but mostly on the exporters’ side, giving seminars in the small towns and backwoods of The South and the Southwest, I think it perfectly imaginable and quite probable that it never occurred to the small business folks not intimatedly familar with EAR that just because you can’t ship to one country you couldn’t ship it to another country which is not restricted just because the item was going to be reexported. Even OFAC realizes that they have to expressly prohibit transshipment and then define what they mean by transshipment.
If you look at the enforcement record, its pretty clear in recent years that OEE has tried to plus up its body count by going after, in the words of a certain OEE agent from Dallas, “low hanging fruit”, meaning small businesses that can’t afford high priced defense teams already familiar with the regulations who have enough experience and knowledge to challenge BIS’s misinterpretation of IEEPA and evasion of the Administrative Procedures Act. A disproportionate number of the cases against small business involve exports of EAR99 items, so presuming these small business exporters were sophisticates who should have known better is laughable.
Finally, for Mark S., there is no requirement under EAR for a company, even an exporter, to have an Export Compliance Officer, and the term “Empowered Officicial” is peculiar to ITAR. A Chamber of Commerce in a State in The South did a survey of small business manufacturers and found that most made products that would be competitive in international markets but few actually exported. The reason most often cited after unfamiliarity with or lack of export fincing and payment mechanisms was fear of export controls. When BIS imposes heavy fines on small businesses for transshipments of EAR99 hardware to countries we unilaterally embargo, then its just killing any hope of economic recovery any time soon, and it becomes clear that the New Export Initiative is just for the big boys.
The BIS Order seems to indicate that after being told first by his customer and then by the freight forwarder that he might not be able to ship the goods directly to Syria, he discussed shipping the goods to the UAE or Lebanon. Thereafter, he sent the material to Lebanon with the knowledge (and agreement) that his Syrian customer would pick-up the goods and move them to Syria. Sounds like a thought-through plan to engage in diversionary activity.
@C. Wilkinson. That still doesn’t demonstrate that he knew that to do so was illegal. His freight forwarder told him he could ship to Lebanon even though the freight forwarder knew goods were going to Syria. The freight forwarded even shipped them to Lebanon. I can’t tell you how often I encounter small businesses that think that U.S. law only controls the shipment to the first destination and not any subsequent transshipment by third parties.
@Hillbilly,
Thanks for the input. I’m not sure that the organization was acting with knowledge of a violation as defined in 15.C.F.R. §736.2(b)(10)(2009). My take is that the company can’t claim ignorance when it chose to pursue the transaction. Choosing to participate in a transshipment to an embargoed destination was ultimately the organization’s responsibility. Yes the “regs” can be confusing but there’s safety in a multitude of counselors.
I can appreciate both arguments but how many times have we read in this forum that ignorance is not an excuse. I also agree with one of the posts that mention the responsibility that the freight forwarder must accept. They had knowledge that the end user was in Syria. Good story and a lot of interesting points.
I feel like the freight forwarded took this guy’s money & left the customer with all the liability. The FF company should be held at least as much accountable as the ‘exporter’, if not more so.
And I’m not convinced the business didn’t just take the freight forwarder’s word for it (that shipment was ok) because he paid the freight forwarder for their expertise. I don’t think the business knew at all that the shipment was in violation…
