The Bureau of Industry and Security (“BIS”) released today a notice of a proposed rule that would expand the reasons that a company could be placed on BIS’s Entity List. A license is required for exports of all items subject to the EAR, including EAR99 items, to persons or companies listed on the Entity List.

The new reasons for designation on an entity list include acts supporting terrorism, acts that enhance the military (or terrorist) capabilities of governments that are designated as state supporters of terrorism, dealing in conventional weapons in a manner deemed contrary to the interests of the United States, and failing to cooperate in an end-use verification by BIS. All of these seem to be perfectly sound reasons for adding a person or company to the Entity List. But, a fifth reason for inclusion was, shall we say, just a little bit broader and a just a little bit more puzzling:

Engaging in conduct that poses a risk of violating the EAR and raises sufficient concern that BIS believes that prior review of exports or reexports involving the party and the possible imposition of license conditions or license denial enhances BIS’s ability to prevent violations of the EAR.

Before you get too worked up about this, we should note that BIS specifically notes that none of these new reasons, including this last reason, can be used to put a U.S. person on the Entity List.

Still there is some cause for concern. BIS doesn’t provide any clues as to what kind of conduct “poses a risk of violating the EAR.” Is having a subsidiary in a sanctioned country, such as Iran, conduct that poses such a risk? Would a foreign company that speaks out against BIS export controls be engaging in such conduct? It’s impossible to tell.

Of course, from a compliance viewpoint, a U.S. exporter that checks the Entity List has no increased risk from this proposed rule because the export requires a license only after the suspected EAR violator is added to the list.

Comments on the proposed rule are due on or before August 6, 2007.

The Bureau of Industry and Security (“BIS”) just published on its website a settlement agreement with someone who appears to been simply a shipping clerk at Universal Technology, Inc. Back in June 2006, BIS entered into a Settlement Agreement with Universal Technology arising out of charges that the company had shipped high-tech electronic components classified under ECCN 3A001 to China without the required license. Under the Settlement Agreement, the Company agreed to pay a $170,000 fine, personally guaranteed by the owners of the company, and agreed to a twenty-year denial of export privileges.

Fast forward to May 2007 and we have another Settlement Agreement arising out of the Universal Technology exports. In this Settlement Agreement with an employee of Universal Technology, BIS states that:

In his capacity as an employee of Universal Technology, Inc., James Ji prepared, or assisted in the preparation of, invoices, shipping documents and other materials related to these transactions.

Mr. Ji agreed to a $46,000 fine, $44,000 of which was suspended on condition that Mr. Ji does not commit any further export violations for a one-year period.

Granted we don’t know exactly what Mr. Ji did at Universal Technology. He may have done more and had more knowledge than one who simply prepared, or assisted in preparing invoices, shipping documents and related materials. But if that is all that he did, and that is, after all, the only allegation, then what is gained by spending time fining a shipping clerk? Why punish a private for the general’s mistakes?

That question is particularly compelling where the shipping clerk is being expected to understand that a particular electrical component is listed on the Commerce Control List. I might have some sympathy if this case involved shipping to someone on the Entity List, since checking that list is something that, at least, is conceivably within the reasonable competency of a shipping clerk. And if there were some evidence that the clerk was aware of the Entity List. But that wasn’t the case.

And if Mr. Ji was simply a shipping clerk, $2,000 is a hefty chunk of change.

UPDATE: Diligent readers and commenters Stephanie and Rafael provided information, not provided by BIS, that indicates that Mr. Ji was more than a shipping clerk. According to the criminal complaint filed against Mr. Ji:

Beginning sometime prior to December 1999, and continuing to on or about January 1, 2004, defendant ZHONGHE JI, a/k/a “James Ji” (“James Ji”) was Vice President of UTI. In this capacity, JAMES JI handled purchase orders, price quotations and technological aspects of UTI’s business (including analyzing technical requirements for orders), as well as correspondence with customers in the PRC.

If Mr. Ji did all that, the $2,000 fine seems, well, a little low.