Meritor, a Michigan-based manufacturer of vehicle parts, recently agreed to pay $100,000 to the Bureau of Industry and Security (“BIS”) to settle various allegations that it had illegally exported vehicle parts and technology without required export licenses. One settled count dealt with deemed exports to an Indian national who was a U.S.-based employee. The charges and the large fine arose from Meritor’s voluntary disclosure of the export violations to BIS. Of course, we all know that BIS will justify whacking Meritor for its voluntary disclosure on the grounds that BIS could have fined Meritor 3.5 million dollars and imposed a perpetual export denial order for the 14 export violations that Meritor disclosed. Cold comfort, as they say.

For the most part, the exports of parts and technology related to the U.S. Army’s Family of Medium Tactical Vehicles (“FMTV”) which would clearly be classified as ECCNs 9A018 and 9E018. For two of the charged violations, however, it’s not clear what the parts were or why the parts and related technology would be classified as 9A018 or 9E018.

In a 2005 export to China, the exported items are only described as “various axles” that Meritor believed were “to be incorporated into a prototype of a commercial diesel vehicle.” Unlike the FMTV parts, it’s not obvious that these parts were for vehicles “modified for non-combat military use” as required by the language of ECCN 9A018, particularly as they were destined for commercial diesel vehicles. This charge was sloppy in at least one other respect. The Settlement Agreement and the Order both referred to the exported axles as being valued at $45,150, even though the Charging Letter specified the value as $2,057.86. Careless copy-and-pasting coupled with sloppy proofreading were the culprits, no doubt.

For the deemed export charge, the BIS documents describe the technology as technical drawings that “depicted axle assemblies for two vehicle platforms, one for a tractor-trailer and another for a heavy-duty truck.” Again, technical drawings described in that fashion would not be controlled by ECCN 9E018 since they don’t relate to vehicles modified for non-combat military use. Without more, nothing prohibits the export of drawings of axle assemblies for tractor-trailers or for heavy-duty trucks. Presumably these would be for military tractor-trailers and military heavy-duty trucks, but the charging documents do not make that clear. The problem with such careless drafting is that members of the public who read these documents might well think that all drawings of axle assemblies for all tractor-trailers and heavy-duty trucks are export controlled, which is definitively not the case.

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.

From the department of low-hanging fruit, the topic of today’s post is an enforcement action by the Bureau of Industry and Security (“BIS”) against Amy Farrow, the sole proprietor of the Wholesale Discount Store of Bethlehem, Pennsylvania (pictured right) for unlicensed exports of stun guns. Ms. Farrow agreed to a 2-year export denial order to settle the BIS charges.

Wholesale Discount Store has one employee, Ms. Farrow, and approximately $50,000 in annual revenues. She appears to run the business from her home. And the charging papers do not suggest that she had any idea that she needed a license to export the stun guns. Although BIS is to be commended for not whacking Ms. Farrow with a huge fine in this instance, it is still hard not to wonder whether scarce government funds spent in this enforcement action wouldn’t have been better spent to educate small businesses about what can and can’t be exported without a license.

There was apparently a blue light special on stun guns at BIS recently because on the same day that BIS released charging documents relating to Ms. Farrow, the agency also released charging documents relating to its charges against another home basement retailer, Ms. Sandra Stevens, of Mira Loma, California. (If you search the address for Ms. Stevens shown in the BIS documents, Google Maps Street View will show a modest suburban home at the address in question). Ms. Stevens agreed to a one-year denial order to settle charges that she exported $3,995 worth of stun guns without BIS licenses.