By George W. Thompson
The Bureau of Industry and Security recently announced a settlement agreement with Unisol International for five “knowing” violations of the Export Administration Regulations. While the alleged facts of these violations are mundane, the case prompted some ruminations about the meaning of “knowledge” for export control purposes.
Exporter Ignored a Warning About the Products’ Control Status
Here’s what happened, according to the BIS allegations to which Unisol agreed. The company “sold or transferred for export” to Ecuador, Mexico and Venezuela certain thermal image cameras. The cameras were controlled to those destinations for National Security and Regional Stability reasons. Unisol proceeded even though it had not obtained the required export licenses.
Although Unisol exported the cameras, it was not charged with “engaging in prohibited conduct” (i.e., exporting without a license) under 15 C.F.R. § 764.2(e). Instead, the alleged violation was “acting with knowledge of a violation” in disregard of 15 C.F.R. § 764.2(e). The former provision prohibits numerous activities, including “sale” and “transfer”, of “any item . . . to be exported from the United States . . . with knowledge that a violation . . . is about to occur.” Although the charging letter is a bit sketchy on the facts, the “sales” likely were those to the foreign purchasers, and the “transfers” to a freight forwarder or other party for shipment.
In any event, Unisol had “knowledge” of an impending violation because another company had advised it that the cameras were controlled and required a license for export. That company had recently seen its attempted shipment of similar cameras to Ecuador intercepted by the U.S. government. It advised Unisol, the distributor that had supplied it with the cameras, of this event.
Nevertheless, Unisol proceeded with its own export transactions. The BIS charging letter and settlement agreement did not discuss how these were discovered; since there’s no mention of a voluntary disclosure by Unisol, we can assume none was filed.
Unisol Had “Knowledge” Its Activity Was Illegal
Based on the other company’s notification, BIS concluded that Unisol had knowledge that its sale and transfer of the cameras were in violation of the regulations. Is it appropriate, however, to find “knowledge” in those circumstances? Is a tip-off from an outside source, which may or may not have been read by the recipient – the charging letter doesn’t address this point — sufficient on its own to establish the exporter “knew” its actions were illegal?
The EAR provide a broad definition of the term:
Knowledge of a circumstance (the term may be a variant, such as “know,” “reason to know,” or “reason to believe”) includes not only positive knowledge that the circumstance exists or is substantially certain to occur, but also an awareness of a high probability of its existence or future occurrence. Such awareness is inferred from evidence of the conscious disregard of facts known to a person and is also inferred from a person’s willful avoidance of facts.
Under this definition, it does not matter whether Unisol had “positive knowledge”. Its receipt of notification regarding the cameras’ control status arguably constituted facts known to it or, if it ignored that letter, willful avoidance of facts. There is nothing in the BIS charging letter to indicate that Unisol followed up on the warning it received, or independently evaluated the control status of the cameras.
To place it in more universal terms, when an exporter becomes aware of purported facts about its merchandise or other aspects of a transaction, such as the customer or end-use, it is required to follow-up on them to ensure compliance. I would go one step further, and propose that exporters must take into account facts reasonably available to them to avoid a knowledge-based violation.
Thus, if a manufacturer’s literature provides information regarding a product’s attributes, the exporter is charged with “knowledge” of that information for purposes of classifying the product for export. If the manufacturer has posted Commerce Control List classifications on its website (as many do), an exporter that misclassifies any such items may meet the “willful disregard” standard.
Even if BIS would not necessarily find a knowledge-based violation in either of these circumstances, it’s still a good idea for exporters to take such information into account; after all, a mistake could lead to a negligence-based violation, even if BIS could not make a “knowledge” claim stick.
For Unisol, ignoring the customer’s letter about the cameras had a very expensive consequence: a penalty of $250,000, of which $100,000 will be waived if there are no additional violations, and the ignominy of being publicly scolded by BIS.
The BIS charging letter and other documents are available here.
