Georgia lawyer Nyema E. Weli entered into a settlement agreement (link warning — see below) with the Bureau of Industry and Security (BIS) on June 27, 2007, arising out of allegations by BIS that he had attempted to export five armored vehicles to Nigeria in July 2005 in violation of section 764.2(c) of the Export Administration Regulations. Mr. Weli was also charged with violating section 764.2(i) for failing to keep records relating to the attempted export.

The alleged violations were not voluntarily disclosed to BIS, which is not surprising, since you have to imagine that someone tipped off BIS or Customs long before the armored vehicles made it to the border. After all, exporting armored vehicles is not something that can be easily concealed.

You might think that an attempted export of armored vehicles to a country where there is an armed insurrection in the Niger Delta, particularly where there wasn’t a voluntary disclosure, would result in a substantial fine. But you would be wrong. Weli’s legal skills (that apparently failed him when he decided to get in the export business) came to his aid in the penalty proceedings and he somehow or other talked BIS down to the paltry sum of $2,500 as the agreed penalty. (Granted there is also a $30,000 kicker if he commits another export violation in the year following the settlement agreement or doesn’t pay the $2,500 penalty on time).

So let’s recap the latest two enforcement actions by BIS. On the one hand, we have a company that voluntarily discloses exports of ceramic yarn in amounts too small to be of use in military or space applications which is fined $225,000. On the other hand, we have a lawyer who gets caught red-handed attempting to export armored vehicles to a country with an ongoing insurrection in its oil-producing regions and who is fined $2,500. What are we missing here?

Littelfuse, an Illinois-based manufacturer and seller of fuses and electronic components, filed a voluntary disclosure with the Bureau of Industry and Security (BIS) and for its efforts got whacked with a $221,000 fine. The details can be found in yet another inexplicably large (and slow to download) file posted on the BIS website.

According to the proposed charging letter, Littelfuse engaged in exports of ceramic yarn classified under ECCN 1C010.c. Sixty two of the exports were without required licenses; others were eligible for the LVS license exception but in those cases Littelfuse failed to file four required semiannual reports for those exports. Littelfuse was charged with violating section 764.2(a) of the EAR with respect to the unlicensed exports, rather than under section 764.2(e) which requires knowledge of the violation. The failure to file the semiannual reports was charged under section 764.2(i).

As is normally the case, the charging documents provide little helpful detail as to what actually happened in this case, but it’s easy to make an educated guess. It appears that small quantities of ceramic yarn are used in certain fuse applications. In particular, Littelfuse’s U.S. Patent No. 4,409,729 explains the use of the ceramic yarn produced by 3M and known as Nextel 312 to form the core of a slow-blowing fuse. Such ceramic yarn is designed to tolerate high temperatures (naturally), and thus falls under ECCN 1C010.c which covers inorganic filamentary materials with a specific modulus exceeding 2.54 x 106 m and a melting, softening, decomposition or sublimation point exceeding 1,649 °C. A previously-reported settlement agreement entered into between BIS and Hexcel Corporation affirms that Nextel 312 is classified under ECCN 1C010.c.

With that background in mind, the $221,000 fine does seem somewhat excessive. To begin with, it seems likely that Littelfuse didn’t realize that Nextel 312 was export-controlled and that using it as a fuse core would subject that fuse to export controls as well. When it did discover that, it acted like a good citizen and told BIS about the problem. Beyond that mitigating factor, it seems clear that only small amounts of the ceramic yarn were exported. This is relevant because the reason that such fibers and materials is controlled is their usefulness in creating surface materials for missiles and space vehicles. It would certainly take many, many more than 67 fuses with ceramic yarn cores to permit the fabrication of surface materials for space vehicles and missiles.

Of course, defenders of BIS here will be quick with the usual refrain: “we could have fined Littelfuse $3 trillion*, so they should be happy it was only $221,000.” But if the BIS truly wants to encourage people to make voluntarily disclosures, it is more persuasive to point to the fine itself, rather than to a larger fine that the company might have paid in the uncertain event that BIS discovered the violation.

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The Bureau of Industry and Security (BIS) released last week a Settlement Agreement with Enternet LLC, an Illinois-based manufacturer and distributor of collating and insertion systems for newspapers. According to the released documents, Enternet “releas[ed] technology for the development, production or use of a field programmable logic device, technology subject to the Regulations (ECCN 3E991), to an employee who was, at that time, a national of Iran” without the required license. A penalty of $7,000 was imposed. It does not appear that the violation was voluntarily disclosed.

The device in question was most likely one of two sensors used by Enternet and that were described on its website:

Enternet’s Check One sensor, a positive logic infrared sensor, prevents human intervention or dirt from compromising the sensor’s purpose. And Enternet’s Cycle Sensor, also a positive logic device, enables phasing of the system to lock in on hopper adjustments before the hopper is required to feed, eliminating waste without operator intervention. Operating together, these two sensors permit the system to auto-learn and adjust for hopper drop locations.

The lesson here is that you can find export controlled technology in the most unlikely places. it is reasonable to suppose (particularly given the small fine) that Enternet didn’t know that these devices were export controlled. As a result, they wouldnt have know that they couldn’t provide information about the operation of those devices to an Iranian employee in the United States.

One important qualifications should be noted. The settlement documents don’t make clear that only certain field programmable logic devices are covered. Under ECCN 3A991 (to which ECCN 3E991 refers) covers only field programmable logic devices that have an equivalent gate count of more than 5000 (2 input gates) or a toggle frequency exceeding 100 MHz. I’m a bit surprised that these control sensors would have met those specifications, but they obviously must have, which is yet another reason that company engineers need to be conversant with the Commerce Control List.

Finally, when you click on the link to the Enternet documents on the BIS website, you will no doubt notice that the documents take quite some time to load. That’s because the file is more than 20 MB, which is much larger than needed for 11 pages. Recently, BIS has been posting these bloated documents instead of the much more streamlined documents that they had been posting previously. For example, another 11 page document, posted back in March of this year, was only 700 KB, almost thirty times smaller. Either BIS doesn’t want people looking at settlement agreements or they have a new person who doesn’t know how to scan the documents in properly. Since my money is on the latter possibility, I hope that they can fix this problem soon.

BIS recently released a Charging Letter, Settlement Agreement and Order pursuant to which pump maker Graco agreed to pay $97,000 to the Bureau of Industry and Security (“BIS”) to settle fifteen alleged violations of the Export Administration Regulations. The violations involved direct shipment of diaphragm pumps to locations requiring licenses as well as shipment of the pumps to distributors with knowledge that the distributor would reship the pumps without a license to destinations requiring a license.

The Settlement Agreement and the Order were dated June 22, 2007. The earliest violation occurred in 1999 and the latest violation in February 2002. All fifteen violations, accordingly, fell outside the relevant five-year statute of limitations set forth in 28 U.S.C. § 2462.

So why, some of you might ask, would Graco agree to pay a $97,000 to BIS even though BIS would have no power to collect the fine in federal court? Simple. Graco agreed to pay the amount to avoid denial of export privileges which is not subject to the statute of limitations. The bottom line for exporters is that the threat of denial of export privileges can be used to obtain a fine from exporters that would otherwise be barred by the statute of limitations.