The International Trade Blog Export Compliance
The Golden Rule of Export Compliance: Don't Let This Happen to You!
On: May 10, 2023 | By: David Noah | 5 min. read
Far too often we hear from exporters who say they’re not worried about export compliance because their company is “too small to be noticed” or they “don’t ship items that will get them in trouble.”
This is a huge—and potentially costly—mistake.
Even if you’re not shipping guns, weapons or biological substances that can be used for harmful purposes, you’re not excused from export compliance. Here’s what many exporters don’t understand: certain commercial items for non-military purposes can be classified as dual use. That is, though they were created for commercial purposes, these items can be adapted into something more destructive.
Here are three real examples of export compliance violations as published in the Bureau of Industry and Security's publication: Don't Let This Happen to You. Each highlights the detrimental effects of being out of compliance and underscores the need to closely watch and constantly review your company's export operation:
1. Timothy Gormley/Amplified Research Corporation
The Violation: Timothy Gormley was an employee of Amplifier Research Corporation in Souderton, Pennsylvania. Many of this company’s products are classified as ECCNs 3A001 and EAR99 and are controlled for national security reasons with applications in military systems, requiring a license for export to most destinations outside Europe. While working for Amplifier Research Corp., Gormley altered invoices and shipping documents to conceal the correct classification of the amplifiers so they would be shipped without the required licenses, listed false license numbers on the export paperwork, and lied to fellow employees about the status and existence of export licenses. Gormley’s actions resulted in at least 50 unlicensed exports of national security items to such destinations as China, India, Hong Kong, Taiwan, Thailand, Russia and Mexico. In admitting to the conduct, he explained that he was “too busy” to obtain the licenses.
The Penalty: On January 17, 2013, Gormley was sentenced to 42 months in prison, five years of supervised release, a $1,000 criminal fine, and a $500 assessment. On December 27, 2013, Amplifier Research agreed to a fully suspended civil penalty of $500,000, provided the company does not commit any export violations for two years. Additionally, Amplifier Research is required to conduct external audits of their compliance programs and submit the results to BIS. Amplifier Research voluntarily disclosed the violations and cooperated fully with the investigation.
2. Intevac, Inc.
The Violation: Between January 2007 and August 2007, Intevac, Inc. released technology subject to the Export Administration Regulations (EAR) to a Russion national working at its Santa Clara, CA, facility. Specifically, the company released drawings and blueprints for parts, and identification numbers for parts, development and production technology classified as ECCN 3E001 without the required license. Intevac applied for a deemed export license after discovering the initial releases but failed to prevent additional releases of technology while the license application was pending. BIS charged Intevac with knowledge of these additional releases and considered the company's conduct to be an aggravating factor in the penalty assessment. The company was also charged with one violation related to the unauthorized transmission of the technology to its subsidiary in China. This case resulted from an investigation conducted by BIS's San Jose Field Office.
The Penalty: On February 19, 2014, Intevac, Inc. agreed to pay a $115,000 civil penalty. Intevac voluntarily disclosed the violations and cooperated fully with the investigation.
3. Digi-Key Corporation
The Violation: During the years 2008 through 2011, in connection with transactions involving the sale and/or transfer of U.S.-origin goods to Malaysia and the United Arab Emirates, Digi-Key Corporation, located in Minnesota, on five occasions furnished to its customer a statement that certain of the ordered goods were not made in Israel. Furnishing this information is prohibited because the information concerns Digi-Key’s or another person’s business relationships with or in a boycotted country. In addition, on 58 occasions, Digi-Key received a goods directive prohibiting any import from Israel or of goods made in Israel. Digi-Key failed to report its receipts of these requests to engage in a restrictive trade practice or boycott. (See the blog post, Exporting Compliance Basics: Beware of Antiboycott Provisions.) Digi-Key voluntarily disclosed these transactions to BIS.
The Penalty: On September 13, 2013, Digi-Key Corporation agreed to pay a civil penalty of $56,600.
Must-Know Export Compliance Information
As you can see from the above examples, export compliance is something the U.S. government takes extremely seriously—no matter how big or small your company is.
But it doesn’t stop at controlled items. Even if an item isn’t controlled in any way, there are people and organizations with whom you can’t do business, and the U.S. government publishes these names on a variety of denied party or restricted party lists.
As you can tell, there are lots of layers to export regulations, and exporters have a responsibility to be familiar with all of them. The Shipping Solutions whitepaper, What You Need to Know About Export Compliance, summarizes the requirements.
The Bureau of Industry and Security (BIS) publication, Don’t Let This Happen To You, not only outlines the export requirements, but it provides real-life examples of penalties like the three listed above. This is a must-read for every exporter, their bosses, and even top executives. If you haven’t yet seen it, you can download it below.
Once you have a firm understanding of the regulations, you need to make sure you're in compliance with every single export. The easiest way to do that is to use our Trade Compliance Wizards for every export:
- The Restricted Party Screening Wizard makes it easy for you to check all denied party lists published by the various U.S. government agencies at one time.
- The Export Controls Wizard helps you determine if your products require an export license.
- The Product Classification Wizard allows you to quickly search the EAR and the International Traffic in Arms Regulations (ITAR) to determine whether or not your products have an ECCN or U.S. Munitions List Classifiction (USML), which is used for determining export license requirements.
Click here to request a free trial subscription to the International Trade Compliance Wizards.
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This post was originally published in September 2015 and has been updated to include current information, links and formatting.
About the Author: David Noah
David Noah is the founder and president of Shipping Solutions, a software company that develops and sells export documentation and compliance software targeted at U.S. companies that export. David is a frequent speaker on export documentation and compliance issues and has published several articles on the topic.