Container Manufacturing, Ltd., based in Dayton, Ohio, was charged by the Bureau of Industry and Security (“BIS”) with exporting equipment valued at $264,721 and used in the manufacture of aluminum beverage cans to a company in Russia. According to the charging documents, these EAR99 exports required licenses because they had HTSUS classifications 8466.94 and 8462.29, both listed on Supplement 4 to Part 746. The company, which did not file a voluntary disclosure, but which did cooperate with the BIS investigation, was hit with, and agreed to pay, an eye-watering $1 million fine within 30 days of the settlement. That $1 million penalty, incidentally, was nearly four times the value of the exports at issue.
There does not appear to be any reason to contest that the items were properly classified as HTS 8466.94 and 8462.29 and were exported by the company to Russia without the required export licenses. Or that the company could be punished for this violation. But the BIS charging documents went beyond that and charged the company with knowing violations under EAR section 764.2(e).
A key element in establishing a knowing export violation would be what the company said was the HTS or Schedule B classification of the can manufacturing parts on the EEIs that it filed with the export . Oddly, absolutely nothing at all was said about this in the charging documents. I’m going to bet that’s because the EEIs did not state that the items were 8466.94 and/or 8462.29. If they did state that, well, I’m 10,000 percent certain BIS would have highlighted that.
So, how did BIS reach the conclusion, without an EEI admission, that the company acted with knowledge? BIS says the company
received notification from the bank that the two pending wire payments will NOT be processed due to the embargo on Russia.
The Russian company then arranged payment from a company outside Russia which the banks accepted and paid to the Ohio company.
Neither of the parties to this export deserve a gold star for good behavior, but this is far from proof of knowledge of a violation by the company. The bank that threw the Russia red flag would not have had any reason to know the HTS classification of the shipments and certainly was not objecting to the lack of a BIS export license. Rather, it was almost certainly responding to elements of the payment by the Russian company that involved sanctioned Russian banks and would therefore run afoul of OFAC’s financial sanctions on Russia. The refusal might also simply have reflected a super-cautious bank’s decision not to deal with Russia at all, regardless of whether the transactions were technically permissible. The bank’s reference to an “embargo” on Russia was not accurate as a number of EAR99 goods continue to be able to be exported to Russia without restriction.
BIS had a perfectly good case that there was a violation that deserved a fine. There was no reason to up the ante with a dodgy claim that the company acted with knowledge. Or, if there was, such a reason, BIS wasn’t revealing it.