United States: 2019 BIS Enforcement Actions: Lessons For 2020 And Beyond

In 2019, the U.S. Department of Commerce Bureau of Industry and Security ("BIS") entered into six settlement agreements with companies (not including individuals) for export violations of the Export Administration Regulations ("EAR"). Through December, enforcement actions were brought against Multiwire Laboratories, Ltd. ("Multiwire"), Jaguar Imports, LLC ("Jaguar Imports"), AW-Tronics LLC ("AW-Tronics"), Arrowtronic, LLC ("Arrowtronic"), Cotran Corporation ("Cotran"), and Ghaddar Machinery Co., SAL ("Ghaddar").

Some of the companies were assessed civil penalties as a result of their violations, while others lost their export privileges. These enforcement decisions offer valuable insight as to the types of infractions and cost of penalties that could be handed down in 2020, and underscore the importance of disciplined export compliance for all companies subject to the EAR.

Enforcement Actions against U.S. Companies

Five of the BIS enforcements were issued to U.S. companies (not including any individuals). The first in 2019 was with Multiwire, a New York company. Multiwire entered into its Settlement Agreement with BIS on January 16, 2019, for two export violations of the EAR. According to the Order,¹ Multiwire exported in 2014 and 2015 "Real-Time Back Reflection Laue Camera Detectors and Accessories" to the University of Electronic Science and Technology of China ("UESTC") without the required licenses. At the time of the exports, UESTC was listed on the BIS Entity List. The company was fined $80,000 and was reprimanded by the government for not having an export compliance program in place in spite of being an experienced exporter.²

Next, Jaguar Imports (a Florida company) was penalized for export violations that occurred from 2015 through 2017.³ Jaguar Imports made 12 exports valued at approximately $35,355 of stun guns, handcuffs, police batons, and pepper spray to Colombia, Mexico, and Panama without the required licenses. All of these items are controlled on the Commerce Control List ("CCL") for Crime Control reasons.⁴ The company entered into a Settlement Agreement with BIS on October 9, 2019, and was fined $98,000 for its violations. Like Multiwire, Jaguar Imports was found to have implemented no export compliance program.

On November 7, 2019, Cotran (based in Rhode Island) entered into a Settlement Agreement with BIS for exporting electric cattle prods (controlled on the CCL for Crime Control reasons), to various countries, including Venezuela, Mexico, South Africa, and the Czech Republic, without the required export licenses.⁵ Cotran was fined $136,000 for these violations and additional recordkeeping errors.⁶ Notably, Cotran had applied for and received several export licenses for these products and end-user at issue, but it failed to obtain the licenses as required for each sale and also failed to monitor the expiration dates of the export licenses it was granted.

It's important to note that not all of BIS's enforcement actions issued in 2019 to U.S. companies resulted in civil penalties. On October 28, 2019, two Florida-based companies, Arrowtronic and AW-Tronics, each entered into a Settlement Agreement with BIS that did not impose a civil penalty.⁷ Rather the two companies were denied export privileges of EAR-controlled items for a period of six years.⁸ These sanctions resulted from charges of conspiracy between the two companies and other entities to unlawfully export goods from the United States through transshipment points to Syria. In doing so, the companies evaded the prohibitions and licensing requirements of the EAR.⁹

This action illustrates that BIS will not only exercise its authority to issue civil penalties but will also not hesitate to deny export privileges as a result of export violations. Because of the significant loss of business that the denial of export privileges likely creates, it is potentially even more damaging than a civil penalty.

Enforcement Actions against a Foreign Company

Most recently, on November 26, 2019 Ghaddar entered into a Settlement Agreement with BIS and was issued a civil penalty of $368,000,¹⁰ which – unlike the other companies subject to BIS enforcement action settlement agreements in 2019 – is a foreign company (from Lebanon). On 20 different occasions between 2014 and 2016, the company re-exported generator sets, worth approximately $736,236 in total, from Lebanon to Syria without the required export licenses. The generator sets are classified as EAR99 items and controlled for reexport to Syria.

Per the Order, the generator sets assembled in Lebanon incorporated U.S.-origin engines subject to the EAR when re-exported to Syria because they contained more than 10% of controlled U.S.-origin content.¹¹ Ghaddar purchased the engines from a U.S.-owned supplier in the United Kingdom that marked them as controlled items. Importantly, Ghaddar was warned by the U.K. supplier that Syria was a sanctioned country and that the products could not be made available to persons or entities in Syria. After receiving the warning, in 2014 and 2015, Ghaddar certified to the supplier's U.S. parent company that it understood and was compliant with all applicable laws, rules, and regulations, including the EAR and other U.S. export and sanction laws. Despite these certifications, Ghaddar re-exported the generator sets without the required BIS licenses.

The Ghaddar Settlement Agreement is very important because it shows that BIS does not shy away from holding foreign companies accountable for their export violations. One additionally significant takeaway from the Ghaddar enforcement action is that BIS appears to be as interested in export violations related to EAR99 items as it is with other EAR-controlled items. Companies should be very cautious and ensure that their export compliance program does not exclude restrictions for EAR99 items.

All of these companies received significant penalties for export violations and a lack of compliance with export laws. What does this tell us about potential enforcement actions in 2020?

First, that the government has high expectations for companies, particularly companies with export experience. Second, if a company fails to obtain the proper export licenses, it is likely that the company will face scrutiny. Third, that conspiring to avoid the export laws and regulations will result in major penalties and could result in the company losing its export privileges. While these lessons may not be new, these enforcement actions serve as a significant reminder to companies that export compliance is important and must not be taken lightly. Fully implemented export compliance programs are necessary to ensure compliance with the export regulations and to avoid license-related errors. 

Footnotes

1 Order Relating to Multiwire Laboratories, Ltd., United States Department of Commerce, Bureau of Industry and Security (Jan. 16, 2019).

2 Id. at 2-3.

3 Order Relating to Jaguar Imports, LLC, United States Department of Commerce, Bureau of Industry and Security (Oct. 9, 2019).

4 Id. at 2.

5 Order Relating to Cotran Corporation, United States Department of Commerce, Bureau of Industry and Security (Nov. 7, 2019).

6 The recordkeeping errors included the failure to retain documents, including invoices and bills of lading, required pursuant to 15 C.F.R. § 762.2.

7 Order Relating to Arrowtronic, LLC, United States Department of Commerce, Bureau of Industry and Security (Oct. 30, 2019); Order Relating to AW-Tronics, LLC, United States Department of Commerce, Bureau of Industry and Security (Oct. 30, 2019).

8 Id. at 3-5.

9 Id. at 2.

10 Order Relating to Ghaddar Machinery Co., SAL, United States Department of Commerce, Bureau of Industry and Security (Nov. 27, 2019).

11 Id. at 2-3.

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