PVA Brush Manufacturer Faces $1,700,000 Civil Penalty for Entity List Sales
The Department of Commerce, Bureau of Industry and Security (BIS) recently announced a settlement (pdf) with Coastal PVA Technology, Inc. ("Coastal") for unlicensed sales of EAR99 items to companies on the Entity List.
A manufacturer of polyvinyl alcohol (PVA) brushes and related products, Coastal was assessed a civil penalty of $1,700,000 for selling around $400,000 worth of brushes and related products to two SMIC entities in China. The Entity List, found in Supplement No. 4 to Part 744 of the Export Administration Regulations (EAR), includes both individuals and entities involved in “activities that are contrary to the national security or foreign policy interests of the United States.” (EAR §744.11). Listed entities are subject to license requirements for EAR-controlled items (including EAR99 or other items that would otherwise be shipped No License Required, or NLR), typically with a presumption of denial.
According to the proposed charging letter (pdf), "Coastal had no formal export compliance policies or procedures in place at the time of the relevant sales." While the company ceased exports to SMIC after the notification from BIS, it still faces a civil penalty more than four times larger than the value of the shipments. The penalty may be waived if conditions are met, including the development and successful audit of an export compliance program and training of personnel.
This case provides a clear reminder of the importance of denied party screening within an export compliance program. Exporters must confirm whether potential customers can actually receive US origin goods or services.