Freight Forwarder Fined For Export Violation May be Forced to Shut Down

American Metal Market (www.amm.com) recently ran the following story containing additional details on our recent post describing the recent Bureau of Industry and Security (BIS) enforcement case involving Eastways Shipping Corporation, a New York City-based freight forwarder. As noted below, it appears that the penalty will force the freight forwarder to shut down their business (disclaimer: the editor of International Trade Law News is quoted in the article):

Export of Tinplate Brings Freight Firm $70,000 Fine

By: Paul Schaffer
Published: Aug. 26, 2009
(Reprinted with permission of American Metal Market)

New York -- A freight forwarder who arranged to deliver $95,335 worth of tinplate scrap to Pakistan in 2006 has been hit with a $70,000 penalty because the Karachi buyer was on a U.S. Commerce Department blacklist.

Although New York-based Eastways Shipping Corp. has been given six months to pay the penalty in installments, owner and president Nigel Storey told AMM that the business can't survive such a hit and that he will shut it once he settles with his landlord. The order issued by the Bureau of Industry and Security said Eastways failed to obtain a license for the shipment. The violation didn't pertain to the contents of the shipment, but rather that Allied Trading Co. is on the bureau's "entity list." The Commerce Department roster shows Allied as one of many buyers of technologically sensitive goods that ended up in Pakistan's nuclear weapons program.

Storey said that his client, Fairfield, Conn.-based Tinplex Corp., was listed as the exporter and was willing to explain Eastways' limited role to the Commerce Department. "They wanted no part of that," he said. The forwarder is held responsible for knowing export control subtleties if the commodity itself isn't on any restricted list. "I still felt that the actual exporter was really the responsible party," he said.

Douglas Jacobson, a Washington-based trade lawyer not involved with the forwarder or Allied, said that Eastways would have been cleared for the shipment if it had dealt with Commerce ahead of time. However, any transactions with Allied Trading require pre-clearance because of the Pakistani company's past activities, he said.

Note that the article's reference to "pre-clearance" refers to the Export Administration Regulation's requirement that exports and reexports to parties identified on the Entity List require a license to be obtained from BIS prior to shipment. In this case, the Entity List states that the license review policy for Allied Trading Company is "case-by-case for all items listed on the CCL" and that there is a "presumption of approval for EAR99 items." Because the scrap metal was classified as EAR99, it appears that BIS may have approved the export license application submitted by the exporter in this case.

It is not yet clear whether BIS has or will bring an enforcement case against the exporter of the scrap metal to Pakistan. While each case is evaluated by BIS independently, BIS will typically allege that both the freight forwarder and exporter engaged in prohibited activity in connection with the export to the party on the Entity List.