The Bureau of Industry and Security (“BIS”) just released settlement documents pursuant to which a regional sales manager at PPG agreed to a $500,000 penalty arising out of one unlicensed export of EAR99 epoxy paint. The paint, valued at $25,0000, was allegedly for use by a Chinese company constructing a nuclear power facility for the Pakistan Atomic Energy Commission. This export required a license because PAEC is on the BIS Entity List. It may also have required a license under the end-use policy in section 744.2 of the Export Administration Regulations depending on the nature of the facility and whether it was subject to IAEA inspections or not. The settlement documents suspended all but $15,000 of the penalty, which are required to be paid with an initial payment of $5,000 and then four quarterly payments of $2,500.

BIS managed to parlay one export into two violations by charging the sales manager both with conspiring to violate the regulations and with aiding and abetting a violation of the regulations. The documents allege that the sales manager conspired with another sales employee, a distributor and a freight forwarder and that he aided and abetted the export by his employer. By recharacterizing one export as two violations and by imposing the maximum penalty for each, the agency was able to ring up a $500,000 penalty. I suppose that the agency figured they were giving the sales manager a break by not charging him with solicitation, acting with knowledge and misrepresentation in connection with the one export to run the tally up $1.25 million.

Do you remember when BIS said that with the new and improved $250,000 penalty authority, the days of piling on offenses to run up the penalty amount were over? Well, that didn’t last long did it? I suspect we are about to here a plea from BIS for authority to impose $1,000,000 for each violation.

Of course, with the $485,000 hanging over him, woe betide the sales manager if he is a day late or a dollar short in any of his installment payments. BIS will own his house, and he and his family will be living in a refrigerator box under a freeway overpass.

Talk about late fees. The Bureau of Industry and Security (“BIS”) responded to a payment under a Settlement Agreement that was nine days late by reimposing $2 million dollars of the penalty that had been originally suspended and by accelerating the remaining $5.2 million due under the Settlement Agreement.

The exporter Balli Aviation had agreed to a $15 million penalty in February 2010 in connection with its role in the export of three Boeing 747s to Iran. Under the agreement, the penalty was to be paid in five installments of $2.6 million with payments due on March 1, 2010; September 1, 2010; March 1, 2011; September 1, 2011; and March 1, 2012. The remaining $2 million was suspended for a period of five years upon condition that Balli commit no further export violations during that period and upon “full and timely payment” of the civil penalty.

Balli had made the first two payments on time and in full, but the third payment was made nine whole days late. According to a letter from Balli’s counsel, the late payment was occasioned by cash flow difficulties resulting from late payment to Balli of certain accounts receivable that it was expecting. BIS dismissed these arguments by noting that shortly before the March 1 due date, Balli received a $3 million payment which it applied to an obligation it owed to another creditor. BIS did not argue any prejudice to the agency caused by the late payment other than, apparently, that its feelings were hurt.

BIS ordered that the suspended penalty and the remaining two payments be paid within fifteen days of its order. Nothing in the Settlement Agreement supports the extremely short time period for payment dictated by BIS. Nor does anything part Part 764 of the Export Administration Regulations provide any basis for this time period. If Balli doesn’t come up with the money in the time period, a suspended five-year denial order may, under the agreement, come into effect.

The Fayetteville Observer provides details of an ongoing investigation of Raleigh-based Law Enforcement Associates, Inc. by the Bureau of Industry and Security (“BIS”) with respect to alleged unlicensed exports of surveillance equipment to Morocco, Egypt, the Netherlands, and Great Britain. The investigation started with the seizure of a van outfitted with covert listening gear that was destined for Morocco.

Alert readers will probably immediately wonder about BIS’s “no see through” rule, which looks at the proper classification of an item independently of its component parts. That rule is found as Interpretation 2 in section 770.2 of the Export Administration Regulations.

There are two requirements for the “no see through” rule to apply. First, the part must be physically integrated into the unit to be exported. Second, the parts must be:

normal and usual components of the machine or equipment being exported [and] the physical incorporation is not used as a device to evade the requirement for a license

The issue here is whether the “normal and usual component” requirement is met. The answer to that requires the answer to a more-or-less metaphysical question. If the item being exported is seen as a van, then arguably surreptitious listening devices are not normal and usual components (unless there is some dealer option I’ve missed). But, if the exported item is seen as a “surveillance van,” the listening devices are almost certainly normal and usual components. So to answer that question you’ll need to dig out your copy of Aristotle’s Metaphysics and reflect upon the difference between accident (συμβεβεκός) and essence (το τι ην ειναι). Good luck, as Plato used to say.

An alternate theory is that maybe BIS thinks that the van is itself the listening device covered by ECCN 5A980. That theory founders because that ECCN only covers items that are “primarily useful” for “surreptitious interception of wire, oral, or electronic communications.” My guess is that — without recourse to Aristotle — it is pretty easy to determine that the van is primarily useful for driving and, if sufficiently tricked out, for sleeping, not for surreptitious listening.