BIS Imposes Civil Fine and Compels Hiring of Compliance Official or Cease Operations

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On October 12, the U.S. Commerce Department, Bureau of Industry and Security (BIS) announced that it imposed a civil penalty fine against VTA Telecom Corporation (VTA) for the unauthorized export of controlled commodities to Vietnam.  Additionally, BIS is requiring VTA to improve its export control compliance efforts and retain a Director of Trade Compliance.  Alternatively, VTA can dissolve or cease operations.

VTA, located in Milpitas, California, was established in 2013 as a subsidiary of a Vietnamese state-owned telecommunications company.  BIS is the primary U.S. government agency responsible for administering and enforcing export controls on commercial items that could support weapons proliferation and other threats to U.S. national security.

According to BIS, VTA procured and exported items from the United States to its parent company in Vietnam with knowledge that certain of those exports were intended to support a Vietnamese defense program. To settle the matter, VTA agreed to the following:

  1. A penalty of $1,869,372.
  2. Expenditure of $25,000 to fund its internal export compliance program (ICP).
  3. Hiring and retention of a Director of Trade Compliance to oversee VTA’s export activities for at least two years.

If VTA complies with the settlement agreement, $200,000 of the penalty will be suspended. In addition, if VTA dissolves or ceases operations, the fees related to maintaining an ICP and hiring a Director of Trade compliance would be waived.

VTA Committed Multiple Violations of the EAR

Over the course of two years, VTA committed the following violations of the Export Administration Regulations (EAR):

  1. Exporting without a license.

    In 2015, VTA exported computer processing chips, which are controlled for national security and anti-terrorism reasons, to its parent company without receiving a BIS export license. Items controlled for national security reasons require a license to export to Vietnam.

  2. Providing false statements to the government.

    In 2016, VTA obtained BIS licenses to export transistors, actuators, and a mass properties instrument controlled for national security, missile technology, anti-terrorism, and regional security reasons.  According to BIS, VTA misled BIS, U.S. Customs and Border Protection (CBP), and its U.S. vendor about the end-use items in Vietnam.  VTA provided false end-use statements concealing the actual defense-related end-use.

  1. Acting with knowledge.

    BIS alleged that VTA knew it was providing false statements to the government and its vendor, which relied on those false statements to apply for BIS licenses.

It’s Not Just About Money

It’s not unusual for BIS to impose monetary fines or deny export privileges against parties that violate the EAR.  What is notable about this matter is BIS’s requirement that VTA spend a specified amount of money developing an ICP and designating a company official to oversee compliance with the EAR.  (BIS does give VTA an option to go out of business rather than complying with these measures.)  Of the nearly 20 administrative enforcement actions completed by BIS since October 2020, this appears to be the only case in which BIS has imposed such a non-monetary penalty.

For exporters, this case serves as a valuable reminder that the government’s decision on whether to grant a license largely depends on how the items will be used at their destination.  The matter also is a reminder that severe penalties can be imposed for lying to BIS and other government entities about the end-use of a product when seeking an export license.

Our International Trade Practice Group works closely with U.S. and non-U.S. companies to help them understand and comply with U.S. export requirements. We also regularly represent companies in government investigations of export, sanctions, and other trade compliance issues.  

We would like to thank law clerk Ramon Ryan for his valuable contributions to this article.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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