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Participant in Legal Export Transaction Slapped with Denial Order
Posted by Clif Burns at 8:02 pm on April 6, 2011
Category: BIS
This blog reported earlier on a strange case where Ameri-Source, a manufacturer of graphite and other carbon products, settled charges by the Bureau of Industry and Security that it had caused a freight forwarder to file a false shipping declaration when it supplied a forged mill certificate which falsely indicated another company as the source of the exported graphite. The settlement documents provided little insight into what lay behind the charges. There was no indication, for example, as to whether the exported graphite even required a license.
A Final Decision and Order released by BIS last week involving the same case made clear that the export transaction did not require any license. The Final Decision imposed a two-year denial order on Manoj Bhayana, a sales representative for the company that brokered the graphite transaction in question. The denial order was not based on any illegal export but was based on allegations that Mr. Bhayana supplied the forged mill certificate to BIS investigators when questioned about the export. The Final Decision and Order alleged that Mr. Bhayana knew that the certificate was false because he had supposedly participated with the manufacturer, Ameri-Source, in forging the certificate.
Section 764.2(g) of the Export Administration Regulations makes it a violation for any person to make a “false or misleading” statement to BIS or to “falsify or conceal any material fact.” The language is a typical example of the sloppy drafting found throughout the EAR. On the one hand, it would seem to make it a violation to simply make a false statement, regardless of its materiality. Yet, if that were the intent, why would the regulation bother to define as an additional violation the falsification of a “material fact”?
The Final Decision and Order seemed to acknowledge a materiality requirement by noting that the ALJ found that providing the forged mill certificate “hindered” the investigation. However, no explanation was given as to how this hindered this investigation. This question becomes significant because the ALJ found that the export in question did not require a license. It’s hard to see how a statement about an item that did not require a license could be material
The ALJ did find that the fact that the statement concerned an item that did not require an export license was a mitigating factor. The Final Decision and Order, although it adopted the ALJ’s decision in its totality, specifically disagreed that the fact that the graphite did not require an export license was a relevant mitigating factor
A respondent who makes false statements to BIS during an investigation cannot properly claim, and should not be accorded, mitigation credit relating to the subject ot those false statements.
So, if you tell a BIS investigator that the sky is green, it will not be a mitigating factor that this false statement was irrelevant to the investigation. The moral of this story is that in some instances the less said to BIS investigators in informal interviews, the better. Ask for the agents to put their inquiries in writing and reply with written answers reviewed by counsel.
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8 Comments:
Regardless of the material facts concerning the export, the intentional falsification of federal documents constitutes a crime. See 18 U.S.C. § 1001. Rather than complaining about being denied export privileges for two years, the Mr. Bhayana should be glad he is not sitting in prison for up to five years.
It appears that Mr. Bhayana forged the mill certificate only to facilitate the sale to his client. Apparently, he did not want to go through the hassle of obtaining the actual mill certificate (if there even was one), or perhaps the graphite didn’t meet the client’s specifications, in which case, he was just flat out cheating. Once he created that lie, he doubled down, not realizing the tenuousness of his position vis a vis BIS.
It also appears that Mr. Bhayana indicated no desire to create or follow an Export Compliance Program. It is my impression that having an ECP, or improving an existing one, is itself a mitigating circumstance. For whatever reason, Mr. Bhayana failed to grasp that essential particular to his case.
Still, the advice to make no statements without legal counsel is spot on. Everyone at a company must be drilled to zip their lips and call the company attorney whenever anyone from the government comes calling. An attorney would likely have urged Mr. Bhayana to admit to his first deception rather than continue it. It seems to me that the attorney would be suborning perjury if he were to suggest that Mr. Bhayana claim he had made a paperwork error.
Bottom line: it does not pay to cheat. And as we have seen, it is the lie more often than the act being lied about that gets you in the most trouble.
There is one basic problem with this Denial Order: It is contrary to law because it is not authorized by statute. The Administrative Procedures Act, at 5 USC 558(b), provides:
(b) A sanction may not be imposed or a substantive rule or order issued except within jurisdiction delegated to the agency and as authorized by law.
Given that the Export Administration Act has been long expired (after this long, I decline to concede that the EAA is merely in “lapse”), the only authority for this DO cited by BIS is the International Economic Emergencies Powers Act (“IEEPA”). Unlike the expired EAA, the penalties section of IEEPA (5 USC 1705) makes no provision for imposition of denial orders as a sanction or penalty. A few years ago I challenged BIS authority to impose DOs and I received a letter back from BIS (I won’t name names) stating that their authority was inherent in the authority section of IEEPA, i.e., 5 USC 1702. Well, a tortured construction of that section may give the President authority to impose denial orders or restrictions on specific foreign persons in the event of an emergency, but there ain’t no authority anywhere in IEEPA to impose anything like a denial order on a United States person as a penalty for violating regulations supposedly promulgated under the authority of IEEPA.
I respectfully suggest that it is the time is long past due for the exporting community to step up and make BIS follow the law.
Just ask Carol Wilkins…
@DGH. Prosecution under 18 U.S.C. § 1001 also requires that the misrepresentation be material. Where this product wasn’t export-controlled with or without the mill certificate, providing a false mill certificate to BIS investigators wasn’t a material misrepresentation.
@DGH: As a former investigative team leader at the old Export Administration, the long ago predecessor of BXA and BIS, if I had pursued charges against every corporate employee who told me a lie I would have never had time for substantive cases. This case is troubling precisely because, as Brother Burns has noted, the statements were not material and they do not appear to have encumbered the investigation. You just have to figure that this poor guy rubbed the investigators the wrong way, i.e., there is more to this case than is in the RDO.
“No person may make any false or misleading representation, statement, or certification, … In the course of an investigation or other action subject to the EAR….”
Once you prune the disjunctive conjunctions, I don’t see the issue….
@John: The first sentence can be read to make it a violation just to make a false statement. If that is the case, there is no need for the second sentence which makes a second offense where the falsehood is material. That was my point, not that the first sentence couldn’t be read to not require materiality.
Mea culpa. My cite to IEEPA should have read 50 USC 1702 and 50 USC 1705 instead of 5 USC.
