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.