In a recent enforcement action, the Bureau of Industry and Security imposed a $4.25 million civil penalty on a semiconductor manufacturer for unauthorized shipments to a restricted foreign entity. This case serves as a reminder that U.S. export laws can apply even to foreign-made goods if they are shipped from the U.S.
The company was charged with 15 violations of the Export Administration Regulations, specifically for exporting items subject to the EAR to a foreign firm that had been added to the Entity List in May 2019 due to national security concerns. The violations fall under two categories: (1) the company exported about 600 samples from the U.S. to China, where they appear to have been subsequently transferred to the listed entity, without the required BIS authorization, and (2) despite receiving legal guidance that exports of the subject goods required a license, the company sent more than 1,000 of them from the U.S. to China for use by the listed entity, knowingly bypassing the licensing requirement.
The items involved were foreign-designed and foreign-produced and classified as EAR99, meaning they are generally low-risk and not listed on the Commerce Control List. However, the items in the transactions at issue were subject to the EAR because they were exported from the U.S. to a restricted entity.
This case offers several key takeaways for exporters.
- Exporters should maintain up-to-date knowledge of the BIS Entity List and verify end-users against that list before each shipment. Even seemingly routine shipments can become violations if the end-user is restricted.
- The company in question consulted outside legal counsel but failed to provide it with complete information or to follow through on its recommendations. Exporters should ensure that legal guidance is based on full disclosure and is implemented across all relevant departments.
- Items classified as EAR99 are not automatically free from restrictions. Their export becomes tightly controlled when the destination or end-user is subject to sanctions or licensing requirements.
- Failure to disseminate legal guidance internally contributed to the violations in this case. A robust export compliance program, including employee training and internal audits, is vital to prevent such lapses.
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