Not too long ago when I posted on Cabela’s settlement of export violation charges alleged by the Bureau of Industry and Security (“BIS”), I noted that part of the settlement agreement required Cabela’s to complete BIS’s “Export Management Systems Review Module.” I went on to criticize that requirement because the Review Module was last revised in May 2000 and contained a number of out-dated requirements, including a requirement to keep a dead-tree copy of the Internet-accessible Denied Persons List. The review module also included questions about the discontinued Shipper’s Export Declarations without any mention of the Automated Export System which replaced the filing of SEDs.

It seems to me that if BIS wants to tout the EMS audit module as the touchstone of export compliance, it might want to update it a little more often than every decade.

Well, as they say, be careful what you wish for because last Friday BIS updated its site with a brand spanking new audit module which, in addition to remedying the out-of-date portions I complained about, is a pretty thorough top-to-bottom revision of the module. It’s longer too — with 31 pages instead of the 18 pages of the old module. (Granted that the font is larger in the new module, it doesn’t appear to be big enough to account for the additional 13 pages.) You can access the module from the page you are directed to when you click the “Compliance Program Assistance” link in the left column of the BIS home page.

Trying to find the module with a Google search, however, may take you back to the old module which, for some reason, is still on BIS’s site. While I was looking for the new module, a Google search took me to this page which included a link to the old module. It looks like these pages have been “de-linked” from the rest of the site, but nothing can hide from Google. So, if you are looking for the new audit module, be forewarned that the old ones are still on BIS’s site

According to documents posted today on the website of the Bureau of Industry and Security (“BIS”), Pennsylvania-based Ameri-Source, Inc., a manufacturer of graphite and other carbon products, agreed to pay an $11,500 penalty to BIS. The payments was to settle charges that Ameri-Source had violated section 764.2(b) of the Export Administration Regulations by supplying false information to its freight forwarder which in turn caused the freight forwarder to file a false SED. Thomas Diener, a Director of Ameri-Source, also agreed to pay $11,500 to BIS to settle the same charges.

The description in the charging documents of the violation suggests that more was going on than meets the eye:

On or about December 2, 2003, Ameri-Source caused, aided, abetted, and permitted the doing of an act prohibited by the Regulations, bu causing, aiding, abetting and permitting the making of a false representation or statement to the U.S. Government in connection with the preparation and submission of a Shipper’s Export Declaration (SED), an export control document. The SED falsely represented and stated that the item being exported from the United States was “UCAR-GRAPHITE.” In fact, an Ameri-Source employee and others created a forged mill certificate falsely indicating that the item was “UCAR” graphite. The forged certificate was then submitted to a freight forwarder. Based on this false information, the freight forwarded prepared and filed an SED falsely stating that the item was “UCAR-GRAPHITE” In so doing, Ameri-Source committed on violation of Section 764.2(b) of the Regulations.

UCAR is a brand of graphite manufactured and sold by GrafTech International, Ltd.

What is odd about this description of the violation is its failure to state what exactly was the product in the shipping package. Was Ameri-Source trying to pass off it’s graphite product as UCAR-branded graphite? And if so, even though this is a technical violation of the rules, why on earth would BIS care? Did the package contain an item that required a license? If so, why wasn’t Ameri-Source charged with the export violation? Or perhaps the product in the box was subject to a higher import duty at the destination than graphite. If so, why wasn’t there a criminal prosecution under 18 U.S.C. § 1001(a)(3), such as happened to this exporter who mislabelled goods to defraud foreign customs authorities?

Rampant speculation and wild conjecture about the answers to these questions and what was in fact in the shipped package are invited in the comments to this post.

A website notice mysteriously appeared today in the advisory opinion section of the website for the Bureau of Industry and Security (“BIS”). Titled “Website Notice on Transfers of Licenses,” I’m not so sure what its doing in the advisory opinion section, but I’ll bet there’s a story behind it, and it’s not a pretty one. The Website Notice cautions exporters that the licensee must apply to transfer licenses before it is swallowed up in the merger and can no longer make license applications.

Entering into full speculation mode, what prompted this notice was no doubt the aftermath of a merger where the surviving company woke up one morning and discovered it had export licenses, rather like Gregor Samsa waking up and finding himself with four extra legs. Hopefully the overlooked licenses were discovered before the company tried to export anything under those licenses. A meeting was hastily convened and the General Counsel proposed that the company file transfer applications under section 750.10 of the Export Administration Regulations (“EAR”). The application letter dropped a footnote explaining the inconvenient disappearance of the licensee as justification for the application being filed not by the licensee but by the proposed transferee. BIS was not amused. BIS denied license transfer. Company, through a veil of copious tears, regrets and apologies, pleadedthat the result was unfair, that it was the triumph of form over substance. BIS stood firm. Website Notice mysteriously appears.

Granted that section 750.10 requires a letter from the licensee as part of the transfer procedure, but little of substance is required in that letter which the proposed transferee couldn’t provide. Certainly the transferee could reasonably attest to the reasons for the transfer (that would, of course, be the merger), the licenses involved, identifying information about the transferee, and a description of the merger documents. So, if something like our hypothetical did in fact occur, the charge that BIS exalted form over substance and enforced the literal language of the rule without a particularly salient policy justification would be true.

Still, the rule is the rule. Rather than having to fuss with BIS over the unfairness of this requirement, companies that are about to acquire exporters need to remember that at least one component of their due diligence needs to cover export issues.

Yesterday the Bureau of Industry and Security (“BIS”) released four settlement agreements arising out of a scheme by a large Taiwanese company to use its U.S. subsidiary to export products (mostly chemicals, metals and electronic components) on the Commerce Control List without the required export licenses. The parent company, with an improbably soothing name for a distributor of toxic chemcals, Well-Being Enterprise Co., Ltd. signed a settlement agreement pursuant to which the company agreed to pay a $250,000 fine, $220,000 of which would be suspended if the company committed no further export violations during the next five years. The company also agreed to a 20-year suspension of its export privileges with respect to items listed on the Commerce Control List (“CCL”). Hui-Fen Chen a.k.a. Angela Chen, an employee of the company also agreed to a similar 20-year suspension of export privileges.

Well-Being’s U.S. subsidiary, a San-Francisco-based company named Elecmat, Inc. signed a settlement agreement under which it agreed to a twenty-year suspension of all export privileges for all U.S.-origin items (not just items on the CCL). Elecmat’s manager, Theresa Huei-Min Chang, agreed to a two-year suspension of export privileges for all U.S.-origin items.

The charging documents contain a number of allegations that suggest that the companies and individuals involved in this scheme knew exactly what they were doing was in violation of U.S. export laws. Well-Being told Elecmat what products to buy and instructed Elecmat not to tell or reveal to its vendors that the items were for export. In instances where Well-Being was concerned that the vendor might be aware of the connection between Well-Being and Elecmat, Well-Being instructed Elecmat to buy the products to be exported under a false name. Ms. Chang, the manager of Elecmat, apparently wanting to distance herself from Elecmat’s activities with Well-Being, claimed that she received no individual compensation from Well-Being and ran the company as a “favor,” even though it was subsequently learned that Well-Being transferred approximately $6500 per month to her brother’s account.

As in every case where people are engaged in illegal unlicensed exports, it’s hard not to speculate why they didn’t apply for a license. As a distributor of, rather than a user of, the illegally exported items, it is likely that Well-Being didn’t want to license the exports because the products were destined for end users, likely in Mainland China, that wouldn’t be approved.

Another interesting issue here is why Well-Being’s suspension of export privileges was limited to items on the CCL while the denial for Elecmat was for all U.S.-origin goods. The answer seems to be that Well-Being was in Taipei and beyond BIS’s jurisdiction. If the denial order for Well-Being had covered all U.S. origin goods, Well-Being wouldn’t have had any practical motivation to sign the Settlement Agreement and pay the requested fines.