ABOVE: Skopje, Macedonia

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The Bureau of Industry and Security (“BIS”) just released an order fining and denying export privileges for Micei International, a retailer of guns. police equipment, digital cameras and other miscellaneous items in Skopje, Macedonia. The order, which adopted a recommended order by an administrative law judge, arose from charges that Micei aided and abetted Yuri Malinkovski, aka Yuri Montgomery, in violating an order denying Malinkovski’s export privileges. Pursuant to that order, Micei was fined $126,000 and had its export privileges denied for 5 years.

Malinkovski’s export privileges were denied in 2000 based on his conviction for unlicensed exports of stun guns to Macedonia. According to the BIS charging letter and the adminstrative law judge’s decision adopted by the order, Micei had Malinkovski negotiate the purchases of various items, including shirts and boots, for export from the United States to Micei in Skopje. Although the documents are not entirely clear on this point, it appears that the items were exported not by Malinkowski but by the vendors with whom he was negotiating on Micei’s behalf.

Micei was charged with knowing violations under section 764.2(e) of the Export Administration Regulations. The basis for the claim that these were knowing violations is, to say the least, somewhat dubious. The ALJ’s recommended order noted two bases for this finding. One was that the denial order was published in the Federal Register and that therefore knowledge of the denial order could be “imputed” to Micei. “Imputed” knowledge is a thin reed on which to base a claim of actual knowledge, particularly where knowledge is imputed to a company in Macedonia based on a Federal Register notice. I don’t think I’m going out on a limb here when I say that it seems a stretch to expect a company in Skopje, Macedonia, to subscribe to and read each word of the Federal Register to make sure it wasn’t dealing with parties whose export privileges had been denied.

The ALJ order also noted that an officer of Micei knew that Malinkowski was subject to a denial order. This is a better basis for a claim of a knowing violation, but still somewhat short of a slam dunk. Since it appears that the items were being exported by the sellers, and not by Malinkovski, there is a reasonable possibility that Micei didn’t know that Malinkowski’s actions as a purchasing agent rather than as an exporter would violate that order. To the credit of the BIS’s final order, however, the agency relied only on this statement by the Micei officer, and not on the claim that Federal Register publication could be imputed knowledge, in finding a knowing violation.

(For those of you who click through the BIS link, prepare to be a bit confused because it appears that someone at BIS shuffled the pages before scanning them.)

BJ Services, the Houston-based oil and gas field service provider, recently agreed to pay $800,000 to settle charges that it illegally exported certain valves without the requisite licenses from the Bureau of Industry and Security (“BIS”). The BIS investigation, and the subsequent fine, arose from a voluntary disclosure by BJ Services and serves as a potent reminder that a voluntary disclosure to BIS may well result in a substantial civil penalty.

The valves in issue were controlled by ECCN 2B350.g. Under that ECCN, a valve is controlled if the valve has a nominal size of more than 1.0 centimeter and is composed of nickel, titanium, zirconium or other specified metals, alloys or substances. (Nominal size is the size a pipe or valve is sold under; it may vary from actual size.) It can be safely said that this is an ECCN which doesn’t pose significant technical challenges in determining the appropriate classification, which might have been a factor in the hefty fine that BIS insisted on to settle the matter.

Prior to BIS’s April 14, 2005 amendment to the Export Administration Regulations, valves covered by ECCN 2B350 required licenses only for the 34 countries listed on column CB3 of the Country Chart. By the 2005 Amendment, the ECCN increased its controls to CB2 on the Country Chart, meaning that a license would be required to every country other than the 41 members of the Australia Group.

The first 33 counts in the charging letter relate to periods prior to the 2005 amendment and allege that exports to Kuwait, Kazakhstan, Libya, Saudi Arabia, and the U.A.E, all CB3-controlled destinations violate section 764.2(a) of the Export Administration Regulations. The remaining counts 34 to 67 related to exports after the amendment to ECCN 2B350 to such non-Australia Group countries such as Colombia, Mauritania, Mexico, Nigeria and Venezuela. These exports were alleged to violate section 764.2(e) which penalizes knowing export violations.

The allegations of knowing violations under 764.2(e) charged under counts 34 to 67 appear to be separate exports from those charged under counts 1-33, and, thus, don’t appear to be instances of “piling on” multiple charges for the same count in order to increase the possible penalties to be imposed. BIS’s penchant for such piling on appears to have been diminished by the statutory increase in available penalties from $11,000 to $250,000 per violation.

The settlement documents also describe the basis for BIS’s allegations that charges 34-67 represented knowing violations. According to the charging documents, the supplier of the valves had informed BJ Services that they were classified under ECCN 2B350. It is probably this factor that led the BIS to seek such a large fine even after a voluntary disclosure of the exports in question.

UPDATE: My former colleague Dan Fisher-Owens points out in the comments that BJ Services settled charges in 2005 for $142,500 arising from alleged unlicensed exports of ammonium bifluoride and a mixture containing triethanalomine. This was no doubt also a factor considered by BIS in determining settlement amount.