Aug
19
Did You Know That You Know More Than You Actually Know?
Posted by Clif Burns at 8:24 pm on August 19, 2009
Category: BIS • Iran Sanctions
Publicly-traded RF Micro Devices, Inc. recently agreed to pay to the Bureau of Industry and Security (“BIS”) a $190,000 fine to settle charges that it had exported spread spectrum modems covered by ECCN 5A001.b.3 to China without obtaining the required licenses from BIS. According to the schedule of exports attached to the charging letter, the company allegedly engaged in 14 illegal shipments of modems with a total value of $58,638.25. The alleged violations were not voluntarily disclosed to BIS. (UPDATE: Although there is no indication in the settlement documents that the violations were voluntarily disclosed to BIS by RF Micro Devices, the BIS press release on this case says that a voluntary disclosure was made by RF Micro Devices.)
BIS piled on charges for 13 of the 14 shipments, alleging a violation of 15 C.F.R. § 764.2(a) for exporting without a license, 15 C.F.R. § 746.2(e) for “acting with knowledge” of the export violation, and 15 C.F.R. 764.2(g) for falsely stating on export documents that no license was required for the shipments. With a maximum penalty of $250,000 for each count, there no longer seems to be much justification for this kind of piling on.
But the worst part of this piling on is that the basis for the claim of acting with knowledge, is, well, extremely dubious. According to the charging documents,
[T]he consultant’s initial review determined that the RF3000 spread spectrum modem may have required a license to the PRC.
(emphasis added) I’m sorry if I’m being persnickety here, but, the last time I checked, knowledge that something might be the case is a long way off from knowledge that something is the case.
But it gets worse. One of the exporting with knowledge charges related not to the RF3000 modem but to the RF3002 modem which had not been covered by the consultant’s initial review. But not to worry, that won’t stop BIS from shoehorning these facts into an acting with knowledge violation:
As the RF3000 and RF3002 models have similar technical specifications, when informed the the RF3000 may require a license, RFMD had reason to know that the RF3002 also may have required a license.
(emphasis added)
Reason to know that something may have required a license is a far cry from actual knowledge that something requires a license. At this rate, BIS will premise an acting with knowledge charge on evidence that the exporter knows the address of the BIS website and therefore had reason to know that the item may be controlled. Worse yet, why not just premise an acting with knowledge violation on evidence that the exporter knew the URL for Google and therefore had reason to know how to find BIS’s website and, accordingly, had reason to know that the exported item might need a license?
Permalink
Copyright © 2009 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)
11 Comments:
Now you’re just arguing semantics. This company had knowledge of the export restrictions relating to products which they sold, therefore due diligence requires that they have the rest of their similar products reviewed as well. That’s knowledge of in my book.
Let’s not forget that their compliance manager, and I’m trying to keep myself from laughing at the title for this person in this case, lied to the agents investigating the case. She knew or had pretty darn good reason to know that her company’s products were restricted and chose to export them anyway.
Law, especially administrative law and statutory interpretation, is about semantics if nothing else. Therefore “just arguing semantics” is about determining just what the law actually requires.
reason to know, possibly knowing or not knowing.. i’m reminded of a poem:
As we know,
There are known knowns.
There are things we know we know.
We also know
There are known unknowns.
That is to say
We know there are some things
We do not know.
But there are also unknown unknowns,
The ones we don’t know
We don’t know.
So where is the line drawn? We screen customers, verify end-use, and review jurisdiction of our commodities but how much ‘due diligence’ is actually ‘due’. Seems BIS and DDTC increasingly are applying ‘knowledge’ as a criteria in decisions and fines. Read the regulations and compliance managers can argue interpretation all day. Look at the USML and the CCL, throw in the concept of dual-use for kicks, let some engineers loose and watch the fun begin!
Enjoy the posts – as always.
BIS is bound to impute knowledge to any company with a compliance program savvy enough to secure an outside consultant – especially where a quick look at the Alphabetical Index to the Commerce Control List reveals that the hardware _may_ be controlled.
Well MJ’s comment is right on point: When I was an investigative team leader, we took an ineffectual compliance program as proof of knowledge and a decision by the company not to invest in serious compliance. Even outside of government, it continues to amaze me that so many companies think they can escape liability by buying some consultant’s form book, as though investigators will be overcome by the form and not see through the transaction. Let me tell y’all: Investigators are smarter than the average bear, certainly smarter than some Yankee with an MBA who thinks they are a master of the universe. All those forms, even when signed by customers, will not hide an otherwise illegal transaction. You folks, and those expensive consultants from former accounting firms, will still be liable. You need to craft compliance programs that fit your business instead of buying a form book from some accounting firm.
So RF Micro is gullible for hiring the consultant and presumably trusting corporate counsel/ outside counsel to negotiate this fine with BIS with the “lumped on” charges, or were they preyed upon by BIS and/or the myriad of lawyers who no doubt made a tidy sum because they decided to export a commodity that required a license?
I agree with MJ and Hillbilly (and others) that too often a company buys a canned export program and does little more than hand it to an untrained staff member with no budget for further training and little care if it’s implemented. Even in large companies with a bigger volume, export compliance is seen as a cost center not a revenue generating one. It’s always hard to prove a negative such as cost/fine avoidance until management has a concrete example.
It would be great if those espousing that mentality was limited to Yankees with MBAs and attitude. So much easier to identify. Unfortunately it knows no regional bounds as I learned while living in the south.
Quick correction to the post – if you look at the dates on the charge against Ms. Wilkins, RFMD must have filed the disclosure at some point prior to July 1, 2004. As such, under current BIS enforcement policy, they would have been subject to the $11,000/violation statutory maximum, rather than the current $250,000/violation maximum, which makes the “piling on” by BIS a little more understandable (or at least consistent with BIS practice in the past).
The undated charging letter claimed that the applicable penalty was $250,000. That would be wrong if there was a VSD before October 16, 2007 according to these guidelines. The charging documents did not say that there was a VSD as they usually do when there is a VSD. Instead that information came from the BIS press release. Perhaps the press release was wrong and there was no VSD. In that case, the undated charging letter might have been filed after October 17, 2007, and the higher penalty would apply
