Failing to Check BIS Entity List Can be Costly (From the ATTUS Technologies Blog)

The following article was recently published on the ATTUS Technologies Blog and is reprinted by permission.

Failing to Check BIS Entity List Can be Costly

By Douglas N. Jacobson*

The recent payment of a $200,000 civil penalty to settle an enforcement action brought by the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) serves as an important reminder to parties involved in export transactions of the need to check all restricted party lists maintained by the U.S. Government in connection with export transactions, including the Entity List.

On July 28, 2011, the Deputy Assistant Secretary for Export Enforcement signed an order approving a settlement agreement whereby freight forwarder Toll Global Forwarding (USA) Inc. agreed to pay $200,000 to settle allegations that a company that it had previously acquired, Baltrans Logistics, Inc., had arranged for the export of a number of shipments to organizations in India that were included on BIS’s Entity List.

BIS maintains three restricted party lists: the Denied Persons List, the Entity List and the Unverified List. The Entity List includes the names of businesses, research institutions, government organizations and individuals that have been identified as being involved in activities that merit additional scrutiny and licensing requirements. The entries on the Entity List specify the license requirements and license review policy that are applicable to shipments to each listed entity. In some cases, a license will be required to ship items classified as EAR99 to the customer, even when a license would not normally be required. In other cases, all items subject to the Export Administration Regulations will require a license. The export license review policy also varies from entity to entity. In some cases, there is a presumption of approval or denial and, in other cases, the license will be reviewed by BIS on a case-by-case basis.

In this case, the freight forwarder arranged for the export of electronic components and platinum pellets, both classified as EAR99, from the U.S. to Bharat Dynamics Limited and the Solid State Physics Laboratories in India. While the export of EAR99 items to India would not normally require an export license, Bharat Dynamics Limited and the Solid State Physics Laboratories were included on the Entity List at the time the shipments occurred. The BIS licensing policy for these entities was a “presumption of approval for EAR99 items” and thus an export license may have been issued if a license application would have been submitted.

Because the freight forwarder either did not check to determine whether these two organizations were included on the Entity List prior to the shipment or was not aware of the export license requirements, the freight forwarder was charged by BIS with nine violations of 15 CFR § 764.2(b), causing, aiding and abetting an act prohibited by the Export Administration Regulations (EAR).

In addition to agreeing to settle this case for $200,000, the settlement agreement requires the freight forwarder to undergo an external export compliance audit and submit the results of the audit to BIS next year. The settlement agreement also requires that any potential violations of the EAR must be submitted to BIS for review and that the failure to pay the penalty or submit the audit results as required could lead to a denial of the freight forwarder’s export privileges.

While Bharat Dynamics Limited and the Solid State Physics Laboratories were removed from the Entity List on Jan. 25, 2011, BIS adds new parties to the Entity List and the other lists that it maintains on a regular basis. The charging letter, settlement agreement and other documents related to this case can be found here.

*Douglas N. Jacobson is a Washington, D.C.-based attorney who specializes in export controls, sanctions and other international trade legal issues. He can be reached at (202) 431-2407 or info@djacobsonlaw.com.