The Bureau of Industry and Security (“BIS”) just reported a settlement agreement it entered into with JSR Micro under which JSR Micro agreed to pay a civil penalty of $270,000. JSR Micro had voluntarily disclosed to BIS that it had exported photoresists classified under ECCN 3C002.a without the required licenses from BIS.

A photoresist is a thin material placed between a mask and a substrate, such as a semiconductor, which allows circuits or other patterns to be etched onto the substrate. Light is used to expose the photoresist and then a chemical process is used to remove exposed or unexposed portions of the photoresist. The shorter the wavelength of the light used to expose the photoresist, the higher the resolution of the image achieved on the substrate. Under ECCN 3C002.a, export licenses are required for photoresists optimized for use with light wavelengths that are 350 nm or shorter. (The Wassenaar Arrangement, by contrast, only requires licenses for photoresists optimized for use with wavelengths that are 245 nm or shorter).

According to the documents filed with the settlement agreement, JSR Micro engaged in 45 separate unlicensed exports of the photoresists to Israel, Singapore and Taiwan. These documents, however, charged JSR Micro with 90 separate violations. Each export was deemed a violation of section 764.2(a) of the Export Administration Regulations (“EAR”). Additionally, each export was deemed a violation of section 764.2(g) of the EAR because the Shipper’s Export Declarations filed with the exports stated that no license was required for the exports. Since each violation could result in an $11,000 fine, the charging letter asserted a potential liability of $990,000.

In fact, however, BIS was clearly double-charging the offense to try to extract a higher fine from JSR Micro. In every case where an exporter ships an item without a required license, it will always be the case that the SED states that no license is required, and yet BIS does not consistently add the SED charge in its charging documents for all unlicensed exports. The additional SED charge might seem fair where the exporter knew that a license was required and yet said that one was not on the SED. But there are no allegations here that JSR Micro knew that a license was required.

Even if one thinks that $270,000 is a fair settlement of a $990,000 liability in a voluntary disclosure case, it seems hard to feel the same about the same fine in such a case where only a $495,000 liability is asserted. That’s not even a fifty-percent reduction.

Three of the 167 counts charged against Armor Holdings which led to the recent $1,102,200 settlement agreement related to charges that Armor exported items in excess of licensed value in violation of EAR Section 764.2(a). For example, Armor exported plastic handcuffs valued at $1,980 under a license that authorized export of plastic handcuffs valued at $1,000. The Settlement Agreement doesn’t make clear why exporting merchandise in excess of authorized value under the license is a violation of the EAR, but it is, and it’s instructive to see why it is a violation.

The specific violation charged with respect to the export of excess-value plastic handcuffs was Section 764.2(a) which says:

No person may engage in any conduct prohibited by or contrary to, or refrain from engaging in any conduct required by, the EAA, the EAR, or any order, license or authorization issued thereunder.

But where exactly in the EAR is there a prohibition on shipping items in excess of the value authorized in the license? That would be Section 750.7(c)(1)(ii) which lists the “non-material changes” in an export that do not require the issuance of a replacement license, including:

Increase in price or quantity if permitted under the shipping tolerances in §750.11 of this part.

Under Section 750.11, shipping tolerances depend upon the unit value specified in the relevant ECCN. If the unit reads “$ value,” there is no shipping tolerance. If the unit reads “Number” or “in Number,” then the value of all shipments under one license may exceed the authorized dollar value by up to 25 percent. If the unit refers to weight, area or some other similar measure, then that measure may be exceed by up to 10 percent and authorized value by up to 25 percent.

Plastic handcuffs are categorized under ECCN 0A982, which specifies the unit as “$ value.” That means that, under the zero tolerance policy, you can get whacked for shipping plastic handcuffs valued at $1000.01 under a license authorizing exports of $1,000. Is that a compliance nightmare or what?

Consider for example nylon hand restraints also categorized under ECCN 0A982 and subject to the zero tolerance policy. These restraints are valued as low as fifty cents, so a license authorizing $1,000 would authorize the export of 2,000 such restraints. How do you know you haven’t exported 2,001? How many times did your shipping department count the contents of the package being exported? Let’s even suppose that you are shipping ten 200-count packages that you purchased from a third party. How do you know that there are 200 in each package? How many export compliance officers reading this have just broken into a cold sweat?