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Bureau of Industry and Security (BIS) Orders Company to Conduct External Audit in Settlement

On December 27, 2013, the Bureau of Industry and Security (BIS) in the U.S. Department of Commerce entered into a settlement agreement with Amplifier Research Corporation (AR). AR agreed to pay a $500,000 fine to settle charges that it committed 50 violations of the Export Administration Regulations (EAR) by exporting, without a license, U.S.-origin amplifiers that were controlled for national security reasons to end-users in China, India, Russia, Hong Kong, Singapore, Malaysia, Korea, and Thailand. 

BIS asserted that the unlicensed exports occurred, at least in part, due to AR’s failure to maintain oversight over its export coordinator. The export coordinator admitted that the he had, among other things, routinely falsified paperwork to conceal the correct export classification, authorized exports before license applications were granted, and lied to other employees at the company about the existence of the required export licenses. 

BIS faulted AR with not performing any internal or external audits of its export compliance procedures during the time period when the violations occurred. BIS also charged AR acted “with knowledge” because of its contemporaneous experience with applying for and receiving licenses, its licensing history, and its actions to conceal license-related information. 

BIS agreed to suspend the fine for two years and possibly waive it entirely if, during that period, AR commits no further export violations. As part of the suspension and possible waiver, BIS also required that AR hire an unaffiliated third-party to conduct external audits of its exports and reexports. If AR does not complete the audit and submit the results to BIS within 15 months, its export privileges may be suspended for a year. 

This was not the first time in 2013 that, as part of a settlement agreement, BIS ordered a company to hire an unaffiliated third-party to conduct external audits. In April, BIS ordered Computerlinks FZCO to complete three external audits of its export controls compliance program. 

Although it is a long-standing practice for the Directorate of Defense Trade Controls (DDTC) to issue a directed audit for suspected violations of the International Traffic in Arms Regulations (ITAR), those familiar with BIS should not be surprised it is moving in the same direction. Recently, BIS has begun focusing on companies’ “knowledge,” whether it is actual, constructive, or implied, and expanding the boundaries of that expected universe of knowledge. 

Your company can benefit from BIS’ focus on knowledge, because BIS does look at actions taken and voluntary disclosures made when considering mitigation for violations. Just as your company conducts regular audits on the import-side as part of its routine compliance, it would be wise to consider conducting regular audits of your export compliance program, particularly in light of ongoing changes to the regulations applicable to various types of exports. 

© 2020 Faegre Drinker Biddle & Reath LLP. All Rights Reserved.National Law Review, Volume IV, Number 35


About this Author

Mollie Sitkowski, Drinker Biddle Law Firm, Chicago, Trade Law Attorney

Mollie D. Sitkowski assists clients in ensuring their internal processes meet Customs' "reasonable care" standard. She assists clients with various aspects of trade law, including valuation, classification, free trade agreements, country of origin determinations, and auditing their import documentation to identify potential issues and risk areas. Mollie also supports clients with export compliance, including advising on export screening and classification, and filing license classification requests and voluntary disclosures with the Bureau of Industry...