Prime Technology Corporation (“Prime”) recently agreed to settle an alleged export violation with the Department of Commerce, Bureau of Industry and Security (“BIS”). Although the alleged violation appears to be quite serious (export of Toray carbon fibers, controlled for Nuclear Proliferation and National Security reasons, from the United States to the Academy of Space Technology in China without a license), most of the fine will be suspended if Prime completes specific remedial steps. Under the settlement, Prime will pay a civil penalty of $125,000 (two installments of $25,000 and the balance suspended and waived if Prime commits no further violations). In addition, Prime must complete two external audits, require its officers and employees responsible for export control compliance to complete an export compliance training program and complete and retain an “Item Classification Sheet” for any item exported from the United States.
Export control regulations have always challenged U.S. companies, and some companies have been less successful in this regard than others. Mistakes – mostly innocent and unintentional – are common. The principal government agencies involved in export licensing—State, Commerce, and Treasury—have regulations that encourage exporters to disclose violations voluntarily. The regulations vary, but all of them state, in essence, that voluntary disclosures may result in less severe sanctions than otherwise may be imposed if violations are unearthed by agency investigations. Historically, many voluntary disclosures at State have resulted in exporters agreeing to improving compliance rather than paying heavy fines, while disclosures at Commerce have triggered relatively substantial fines. Unsurprisingly, exporters have urged Commerce to revisit its approach to voluntary disclosures. If Prime’s settlement is a precursor of settlements to come, it is a welcome change indeed.