Houston-based FMC Technologies recently agreed to pay $610,000 to settle charges that it had exported butterfly valves on 78 occasions without required export licenses from the Bureau of Industry and Security (“BIS”). This ouch-sized fine, which followed a voluntary disclosure by FMC, is almost twice the $304,141 value of the exported valves. BIS, perhaps hoping not to scare other people thinking about voluntary disclosures, didn’t actually provide the total value of the exports in its schedule of exports but, of course, Export Law Blog whipped out its calculator to total up the value of the individual shipments as a unique service to its readers.

I would hazard that pipe and valve exports cause more problems for exporters than almost any other item. This is, I think, because it doesn’t occur to most people that a valve or pipe could be export-controlled. Supercomputers, yes; pipes, er, not so much.

But pipes and valves are indeed controlled by ECCN 2B350, depending on the composition of the surfaces that come in contact with the fluids or gases flowing through the pipe or valve. The two most common surfaces that cause a pipe or valve to become controlled are, first, alloys (usually stainless steel) with more than 25% nickel and 20% chromium and, second,Teflon or other fluoropolymers. FMC’s catalog of its butterfly valves indicates that Teflon was one of the optional materials for the O-ring and the valve disk. (Stainless steel 351 was also available but its nickel and chromium percentages, 14% and 18% respectively, fall below the parameters for ECCN 2B350.)

Needless to say, the value of these particular controls is somewhat dubious. Teflon-coated valves are widely available from pipe and valve manufacturers throughout the world. A quick Google search shows a number of sources of supply for teflon-coated valves and pipes. Like this company in Singapore or this one in China. The newly-announced top-to-bottom review of export controls would do well to start with review of these pipe and valve controls.
304141

ABOVE: CSM 7806 Mobile Telephone
Interception Device

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Manhattan defense attorney Robert Simels is on trial in connection with alleged criminal actions taken by him in the course his defense of Guyanese drug lord Roger Khan. These charges included alleged witness tampering and alleged possession of illegal eavesdropping equipment. Simels has claimed that the eavesdropping equipment came from Guyana and was owned by his client Roger Khan. This claim has the Guyanese government fussing and fuming like a convention of preachers caught caught in a go-go joint, with the Guyanese police even going so far as to trot out and display interception equipment that the government claims it seized from Khan.

Why doth the Guyanese government protest so much? Well it appears that the equipment — a laptop computer and a CSM 7806 (pictured on the right) came from a Fort Lauderdale store called the Spy Shop and were exported to Guyana. Export geeks will immediately realize that such equipment is classified as ECCN 5A980. Under the licensing policy set forth for these devices in section 742.13 of the Export Administration Regulations licenses to someone other than a telecom company are subject to a general policy of denial. Although section 742.13 doesn’t say this, one has to assume that an export to a foreign government (other than an AT country) or its law enforcement agencies would also be approved notwithstanding a general policy of denial.

If the cellphone eavesdropping device was legally exported and wound up in Khan’s hands, it means he got it from either one of Guyana’s (now-privatized) telecom companies or, more likely, from the Guyanese government. If from the Guyanese government, that means the government had connections to Khan’s cocaine business. That would, of course, be bad. Very bad. And that might explain why the Guyanese are claiming that they don’t know where Simel’s CSM 7806 came from, but that it didn’t come from them because they not only didn’t give the device to Khan but also they seized the stuff from him when they found him with it.

So who do you believe? Oh, and just to help you make your decision, the head of the company that owns the Spy Shop that sold the equipment testified in the Simel trial that the equipment was sold to the Government of Guyana.

This EETimes story, which discusses some of the litigation woes of Altmel disclosed by the company in its SEC filings, mentions one lawsuit that will be of particular interest to the export community.

On June 9, [Nucleus Electronics Ltd. (Hong Kong)] NEHK separately sued Atmel in Santa Clara County Superior Court, alleging that Atmel’s suspension of shipments to the distributor following its appearance on the Dept. of Commerce, Bureau of Industry and Security’s Entity List breached the companies’ distributor agreement. NEHK also alleges libel and other charges against Atmel and is seeking damages of more than $10 million, Atmel said.

NEHK affiliate, TLG Electronics, also in Hong Kong, was added to the BIS Entity List in September 2008 as part of a group of foreign companies that BIS said it had intelligence suggesting were involved in the acquisition and sale of electronic components being incorporated into improvised explosive devices (IEDs) used against U.S. troops in Iraq.

I haven’t looked at the lawsuit, so I don’t know its theory of liability. Certainly it’s not claiming that the distribution agreement obligated Atmel to break the law and export items to NEHK. Perhaps the law suit claims that Atmel at least had an obligation to seek licenses for shipments to it under the distribution agreement. However, the entry on the Entity List for TLG indicates that BIS licensing policy for proposed exports to TLG will be a presumption of denial. This, I think, pretty much relieved Atmel of applying for licenses that it would never get.

Perhaps the argument is that the listing of TLG didn’t justify stopping exports to NEHK. Section 744.11 of the Export Administration Regulations forbids exports to the listed entity and says nothing about related companies. The NEHK lawsuit is, thus, a good occasion to note that distribution agreements with foreign distributors ought to have language permitting immediate termination of the distribution agreement should the distributor or any of its related companies — including parents, subsidiaries and affiliates under common control — are placed on the BIS Entity List.

Even without that language in the distribution agreement, I would be hesitant to export to the affiliate of a listed entity because of the strong probability of diversion of the export to the listed entity.