Feb

26

BIS Continues to Stack Deck Against Voluntary Disclosures

Posted by at 6:25 pm on February 26, 2007
Category: BIS

Magnetic Shield VaultMagnetic Shield Corporation, the company that made the magnetic shield vault in which the Watergate tapes are stored, filed a voluntary disclosure with the Bureau of Industry and Security (“BIS”), something it probably now regrets. According to a Charging Letter just posted on the BIS site, Magnetic Shield exported magnetic shielding in 2001 to the Indira Gandhi Centre for Atomic Research, which is on BIS’s Entity List, without the required license. The company also forgot to fill out item 27 on the Shipper’s Export Declaration for the 2001 export. Exporters are required to put the license number, license exception or NLR (“No License Required”) in Item 27. Finally, it appears that the company attempted to export magnetic shielding to the Indira Gandhi Centre in a separate transaction in 2004.

According to the Settlement Agreement entered into with respect to these transactions, Magnetic Shielding voluntarily disclosed “certain” of these transactions. The Settlement Agreement doesn’t disclose which of the transactions were voluntarily disclosed, but it’s reasonable to suppose that the completed transaction in 2001 was the subject of the voluntary disclosure after the attempted export in 2004 led to a BIS inquiry.

Magnetic Shield agreed to pay $19,000 in settlement of the BIS charges. Considering that Magnetic had a maximum liability of $33,000 for one export violation in 2001, one technical SED violation relating to the 2001 export, and one attempted export in 2004, BIS didn’t really do Magnetic Shield much of a favor here for the voluntary disclosure. The issue here is why BIS charged the SED violation other than to increase the ultimate penalty. There is no allegation that the failure to fill out Item 27 was anything other than a simple clerical error. The only reason to charge the failure to fill out Item 27 in the SED appears to have been to justify collecting a higher fine for the voluntary disclosure.

(Note: post and comments updated to reflect that two transactions rather than one were involved.)

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Copyright © 2007 Clif Burns. All Rights Reserved.
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4 Comments:

Another great example why it sometimes doesn’t pay to be too compliant and forthcoming with a VSD.

Comment by Andrew on February 27th, 2007 @ 10:17 am

So, you take 2 ounces of “stupid” violation, add 1 ounce of “clerical error” and 1 ounce of BIS “strong arming” and you get one hell of an “Export VSD Cocktail”!!! Other than the obvious fine of $19,000, can you imagine the monies spent on an internal audit prior to disclosure? Where was outside counsel? I simply fail to understand why any company would voluntarily self-disclose a violation that ocurred 6 years ago, especially if they had all of their “ducks” in a row, unless there is something more to the story.

Comment by Ladyx on February 27th, 2007 @ 2:10 pm

By my read of the charging letter and settlement agreement, these involved two different transaction (check the dates in the charging letter again).

Comment by exportattorney on February 27th, 2007 @ 8:33 pm

[…] The prior post “BIS Continues to Stack Deck Against Voluntary Disclosures” has been updated and revised to reflect the fact that there were two transactions, not one, involved in that case. Permalink No Comments […]

Comment by ExportLawBlog » Magnetic Shield Corporation — Update on February 28th, 2007 @ 10:48 am