Archive for the ‘EAR’ Category

Company President Gets out of Jail and Gets BIS Fine

Tuesday, July 20th, 2010 by John Black

By: John Black

BIS announced that is have imposed an administrative $300,000 fine ($275,000 suspended) on Patrick Gaillard, President of Oyster Bay Pump Works of Hicksville, New York.  In 2007, Mr. Gaillard pleaded guilty to criminal charges for the same actions for which BIS just now penalized him.  As a result of his guilty plea, he got 30 days in prison, a $25,000 fine, 3 years of probation, and a $300 special assessment.  But, all in all, it seems like Gaillard got off fairly easy, if you ask me.  But, then again, I am not the guy who spent 30 days in prison.

BIS charged Gaillard and Oyster Bay, in separate charging letters.  This shows that in cases where BIS thinks one person in a company acted intentionally to violate the regulations, BIS will go after that person as an individual in addition to going after the company.

Even though there was one charging for Gaillard and another for Oyster Bay for essentially the same actions.  I will discuss them as if there were one charging letter.  Here are the charges:

Charge 1: Illegally exported microplate processing equipment via Germany to Cuba

Charges 2 & 3:Sold microplate processing equipment (Charge 2) and 3 power supplies (Charge 3) via Germany to Iran.  At least twice Oyster Bay staff told Gaillard the sale required an export license.  Gaillard told his staff to export the items without an export license.  The items were classified as EAR99.

Charge 4:  Sold microplate processing equipment for export to Iran via the UAE.  Initially, a representative of the Iranian buyer approach Oyster Bay to buy the equipment and Oyster Bay said it could not export the items to Iran due to the US embargo.  Then the Iranian rep arranged with Gaillard to export the items to the Iranian company’s trading arm in the UAE for ultimate delivery to Iran.  The US Government seized the items before the export took place.  The items were classified as EAR99.

Charge 5: Destroying and altering records related to Charges 1-3 involving Cuba.  Around the time he learned that the US Government seized the items destined for Iran, Gaillard told his staff to remove references to Cuba from certain document and to destroy other documents related to the Cuba activities.

Charge 6: Destroying and altering records related to Charge 4 involving Iran.  When he learned that the US Government seized the items destined for Iran, Gaillard told his staff to remove references to Iran from certain document and to destroy other documents related to the Iran activities.

According to BIS Gaillard intentionally violated the regulations and tried to destroy and alter documents to cover his tracks.  BIS typically goes after an individual in addition to the company when it thinks an individual has done such things.  In the end, Gaillard got these combined criminal and administrative penalties:  Combined fines of $50,300 (plus another $275,000 suspended penalty if he stays clean), 30 days in prison, and a 3 year period on the Denied Persons List (all of the 3 years on the List is suspended if he stays clean).  Plus Oyster Bay got a $300,000 fine ($275,000 suspended) and 3 years on the Denied Persons List (all of which is suspended).

As I said above, having not spent the 30 days in prison myself, it seems to me that Gaillard got off relatively easy.  The fines certainly could have been higher on him and his company.  Let’s run through some aggravating and mitigating factors to see if we can find any reason for the easy treatment.  This was not a voluntary disclosure, so that mitigating factor does not enter into the equation.  Cuba and Iran normally are aggravating factors.  Intentionally violating the regulations normally is an aggravating factor.  The fact that this was EAR99 stuff and not sensitive is mitigating—but these products are not medical equipment eligible for a relatively favorable license approval policy.  I just can’t figure it out.

Maybe I am just selfish and wish that BIS would have fined the guy a million dollars so export compliance people could tell other people in their company about the harsh penalties imposed on an individual.

Or maybe it’s just my unquenched desire to see an intentional violator tazed in a youtube.com video.

BIS did not say how it learned about these activities.  Wait, a second, what is that I hear?  Is that a whistle blowing?

Posted in BIS, EAR, Export License, Iran, Violations & Fines | Comments Off

“Buying Export Violations” or “When Will the Valve Companies Catch On?”

Tuesday, July 20th, 2010 by John Black

By: John Black

I don’t know if my first observation should focus on successor liability or the fact that this is another 2B350 violation.  So I will start with a few facts.

Wesco Industrial Products, Inc. of Lansdale, PA agreed to pay a $50,000 in a settlement agreement with the Bureau of Industry and Security resulting from its voluntary disclosure of some relatively harmless exports of ECCN 2B350 valves.  Wesco is the surviving entity of several mergers that occurred in 2008 and is the successor to Neptune Chemical Pump Co., Inc.  The violations all occurred before the merger. (more…)

Posted in BIS, Commerce Dept, EAR, Export License, Singapore, Violations & Fines | 1 Comment »

What the New Encryption Rules Mean For U.S. Exporters

Tuesday, July 20th, 2010 by admin

This article originally appeared in a slightly different form in International Trade Law360, July 1, 2010.  Reprinted with permission of Pillsbury Winthrop Shaw Pittman LLP.

by Sanjay Jose Mullick

The Obama administration has taken the first step in export control reform by easing the pathway for U.S. companies to export certain encryption items.

The First Export Control Reform

On June 25, the U.S. Department of Commerce’s Bureau of Industry and Security issued new regulations governing export controls on encryption. This rulemaking represents the first formal example of the president’s initiative to reform U.S. export controls by concentrating regulation on the most sensitive items.

The new regulations reflect a recognition that encryption is ubiquitous in today’s high-tech world and cannot be completely regulated. These rules also attempt to address the need for U.S. companies to be able to get to market quickly, to foster the competitiveness of U.S. industry. However, they do not accomplish a complete de-control of encryption, and the prior system will remain in place for many products.

Although the regulations have been published as an interim final rule with a request for comments, they likely reflect the prevailing framework for regulating encryption exports going forward. Let’s take a look at some of the key elements of the new rules and how they will impact exporters. (more…)

Posted in BIS, CCL, Commerce Dept, EAR, Encryption, Export License, Uncategorized | Comments Off

The Check’s in the Mail (Export Control Reform [Again])

Wednesday, June 9th, 2010 by John Black

Editorial Analysis by John Black

I am old.  I can’t even count the number of times I have heard well intentioned high level government officials tell us that they plan to make significant reforms in the US export control system.  Some government officials have told me that they are going to make the system so transparent and user friendly that they will put consultants like me out of business.

It’s been 26 years for me in this business and numerous government pledges to make things better.  As far as I can tell, I am still here and there is still a huge demand for assistance in dealing with the infinite number of problems that US export controls create for companies who try to comply with the rules.  Yes, this reform could be different.

So, I apologize (for a change) in advance for being the cynic as a good number of my peers spout enthusiastically about Defense Secretary Gates’ call for comprehensive reform to the US export control system.  Reform certainly makes sense.  Comprehensive reform could both promote national security and make compliance a bit easier for companies.

Comprehensive reform is highly unlikely.  Adjustments to certain aspects of US export controls might be the better-than-nothing result we should hope for.  And, changes to the current system that will create a lot of extra work for us without actually improving anything is what we should fear.   (Well, this last scenario will probably be a gold mine for my seminar and consulting businesses.) (more…)

Posted in BIS, CCL, Commerce Dept, DDTC, DOD, DOJ, Defense Trade Controls, Defense Trade Controls, EAR, Export License, State Dept, State Dept, USA Regulations | 3 Comments »

Freight Forwarder Pays Small Fine for Export Involving Prohibited Party

Wednesday, June 9th, 2010 by John Black

G&W International Forwarders (G&W) agreed to settle a charge of aiding and abetting an export of an EAR99 Stack Sizer Screening Machine to Indian Rare Earths, Ltd., which is on the Proliferation Entity List in Supplement No. 4 to Part 744 of the Export Administration Regulations.  G&W  agreed to pay $20,000 (in 5 installments) for the violation.

Two interesting points:  First, the freight forwarder got nailed for arranging the export to a party on the Entity List.  This shows that forwarders and other parties involved in facilitating exports can be penalized for participating in illegal exports.  I have not heard that the actual exporter got penalized in this case.  I do not know who the exporter is, but I got this website when I googled Stack Sizer Screening Machine:  http://www.derrickcorp.com/webmodules/catCatalog/dtl_Product.aspx?ID=33 and that company is in Buffalo with G&W.  I do not know why the exporter got penalized but if I had to make a wild guess, I would say maybe the actual exporter did a voluntary disclosure and maybe the exporter did not warn G&W it was doing a disclosure so that G&W could do its own disclosure.

The second interesting point is that $20,000 penalty is not much of a deterrent.  I doubt you can use this case to convince your management that you should be doing a better job of screening against the denial lists.  In fact, an unscrupulous person could argue that it is cheaper to pay a $20k fine than to implement comprehensive denial list screening procedures.  Of course, penalties are based on an assessment of aggravating and mitigating factors.

http://efoia.bis.doc.gov/exportcontrolviolations/tocexportviolations.htm

Posted in BIS, Denied & Restricted Parties, EAR, Violations & Fines, Violations & Fines | Comments Off

OFAC Slightly Loosens US Embargoes’ Grip on Personal Communication

Friday, April 16th, 2010 by John Black

Well, maybe I should take credit for this one.  After all, I wrote that article “Fortunate Failing of US Embargo on Iran.”  I said I was happy that the US embargo against sending everything to Iran did not prevent the Iranian people from sending instant messages, talk on cell phones, etc. when they were protesting the election in Iran in June 2009. (more…)

Posted in BIS, Cuba, EAR, Export License, Iran | Comments Off

Actual and Attempted Iran Shipments worth $63,511 Result in Denied Party Status

Friday, April 16th, 2010 by Danielle McClellan

Aviation Services International (“ASI”), Robert Kraaipoel, and Niels Kraaipoel reached settlement agreements with the Commerce Department for their involvement in illegal shipments from the US via third countries to Iran and for some apparently foiled attempts to do so.  The three parties agreed to be placed on the Denied Parties List:  Seven years each for ASI and Robert, three years for Niels.  Apparently, two of their three attempts to send stuff illegally to Iran failed to reach Iran.  I guess that goes to show that even if you are not a good illegal exporter, you can get in a lot of trouble. (more…)

Posted in Commerce Dept, Denied & Restricted Parties, EAR, Embargoes, Export License, Iran, Netherlands, Violations & Fines, Violations & Fines | No Comments »

US Iran Sanctions: Where Are They Going?

Thursday, April 1st, 2010 by Maarten Sengers

By Maarten Sengers

US Iran Sanctions are currently being hotly debated in Washington.  Although there is no clear consensus yet, one thing seems clear: The US will likely tighten the screws on Iran sanctions in some form soon.  The pressing question is by how much and how soon.  Though it is impossible to predict the final outcome given all the moving interests and variables, we will stick our neck out (for a change) and make some predictions.  We think it is likely that final US sanctions will include restrictions on refined petroleum products related trade with Iran – sanctions that will probably apply to both US and non-US companies.  Also likely will be a further clamp down on Iran trade by overseas subsidiaries of US companies, and an increase in the use of targeted sanctions on trading with Iranian entities that the US believes are closely associated with Iran’s nuclear program and the Revolutionary Guard.  We currently give 50/50 odds that the US will also impose reexport licensing requirements on non-strategic US origin goods, many of which currently do not currently require a license for bona fide reexport to Iran.  When will this happen?  : By June, barring any major breakthrough in negotiations with Iran. (more…)

Posted in BIS, EAR, Export License, Iran, Sanctions | No Comments »

BIS Places a Caution Sign Next to Second Incorporation Pool

Friday, February 19th, 2010 by Maarten Sengers

Reexporters beware: The Bureau of Industry and Security (BIS) recently published an Advisory Opinion on second incorporation which articulates a “discrete products” test and other caveats that appears to substantially narrow the applicability of the second incorporation principle when compared to earlier published guidance.  Foreign companies that apply second incorporation principles in their US de minimis content calculations should carefully examine the Advisory Opinion (see  http://www.bis.doc.gov/policiesandregulations/advisoryopinions/second_incorporation_rule_advisory.PDF) and the newly articulated tests, and adjust their calculation procedures accordingly.   (more…)

Posted in BIS, EAR | Comments Off

BIS Suspends Validated End User Status for Two Companies

Friday, February 19th, 2010 by Danielle McClellan

BIS recently amended the EAR to suspend 2 companies Authorized Validated End-User (VEU) status. Aviza Technology China and GE India’s GE Fanuc Systems PVT Ltd. were both added to the VEU program in 2009 and because of material changes at the companies, they have been suspended from the program. BIS states that the suspension is not the result of any prohibited activities by the two companies. The VEU program is very strict and often a material change that could affect a company’s status could be a change in management or failure of the company to provide financial reports on a timely basis.

So, while it is difficult to get on the VEU list, it is apparently easy to get kicked off the list—VEU’s make sure you submit your financial reports on time!

Federal Register: http://edocket.access.gpo.gov/2009/E9-30487.htm

Posted in BIS, China, EAR, India | Comments Off

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