[Federal Register Volume 64, Number 150 (Thursday, August 5, 1999)]
[Notices]
[Pages 42641-42651]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-19095]
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DEPARTMENT OF COMMERCE
Bureau of Export Administration
[Docket No.: 97-BXA-20]
Re: Aluminum Company of America
On Friday, February 26, 1999, the Federal Register published the
Decision and Order issued by the Under Secretary for Export
Administration, Bureau of Export Administration, United States
Department of Commerce (BXA) on February 19, 1999 (64 FR 9471).
However, the Recommended Decision and Order of the Administration Law
Judge (ALJ) was inadvertently not included with the Order of the Under
Secretary. This notice is to hereby publish the December 21, 1998,
Recommended and Decision Order of the ALJ.
Dated: July 21, 1999.
William A. Reinsch,
Under Secretary for Export Administration.
Recommended Decision and Order
Appearance for Respondents: Edward L. Rubinoff, Esq, Samuel C.
Straight, Esq., of Akin, Gump, Strauss, Hauer & Feld, L.L.P.,
Michael D. Scott, Aluminum Company of America.
Appearance for Agency: Jeffrey E.M. Joyner, Esq., Office of the
Chief Counsel for Export Administration, U.S. Department of
Commerce.
Before: Hon. Parlen L. McKenna, United States Administrative Law
Judge.
Preliminary Statement
This is a civil penalty proceeding initiated pursuant to the
legal authority contained under the Export Administration Act of
1979, as amended (50. U.S.C.A. Secs. 2401-2420 (1991 & Supp. 1997)
(hereinafter known as the ``ACT''). It was conducted in accordance
with the procedural requirements as found in 15 CFR Parts 768-799
(1991-1995). Those
[[Page 42642]]
Regulations were reorganized and restructured in 1997. The current
Regulations are found at 15 CFR Parts 730-744 (1997) which govern
these proceedings.
On December 12, 1997, Aluminum Company of America (``ALCOA'')
was issued a charging letter by the Office of Export Enforcement,
Bureau of Export Administration, United States Department of
Commerce (``BXA'') alleging that ALCOA committed 100 violations of
the Export Administration Regulations (``EAR'') between 1991 and
1995.\1\ The alleged violations are as follows:
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\1\ Each of these alleged violations were the result of separate
and distinct shipments over a desperate four and one-half year
period and were not based upon a continuing violation concept. The
alleged violations are defined in the charging letter with reference
to the EAR that were in effect at the time of the alleged incidents
(See 15 CFR Parts 768-799 (1991-1995). These Regulations were issued
pursuant to the Export Administration Act of 1979 and define the
violations that BXA alleges occurred and are referred to hereinafter
as the former regulations. Since that time, the regulations have
been reorganized and restructured; the restructured regulations
establish the procedures that apply to this matter. The Act expired
on August 20, 1994. Executive Order 12924 (3 F.R.R. 1994 Comp. 917
(1995)), August 14, 1996 (3 CFR 1996 Comp. 298 (1997)), and August
13, 1997 (62 FR 43629, August 15, 1997), continued the Regulations
in effect under the International Emergency Economic Powers Act
(currently codified at 50 U.S.C.A. Secs. 1701-1706 (1991 and Supp.
1998)).
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CHARGES 1-50: On 50 separate occasions between June 14, 1991,
and December 7, 1995, ALCOA exported potassium fluoride and sodium
fluoride from the United States to Jamaica and Suriniam, without
obtaining from BXA the validated export licenses required by Section
772.1(b) of the former regulations. By exporting U.S.--origin
commodities to any person or to any destination in violation of or
contrary to the provisions of the Act or any regulation, order, or
license issued thereunder, ALCOA violated Section 7878.6 of the
former Regulations on 50 separate occasions, for a total of 50
violations.
CHARGES 51-100: In connection with the exports described in
Charges 1-50 above, on 50 separate occasions between June 14, 1991,
and December 7, 1995, ALCOA used Shipper's Export Declarations, as
defined in Section 770.2 of the former regulations, on which it
represented, potassium fluoride and sodium fluoride, qualified for
exports from the United States to Jamaica and Surinam under general
license G-DEST. These chemicals required a validated license for
export from the United States to both of those destinations. By
making false or misleading statements of material fact, directly or
indirectly, to a United States agency in connection with the use of
export control documents to effect exports from the United States,
ALCOA violated Section 787.5(a) of the former Regulations in
connection with each of the 50 exports, for a total of 50 additional
violations.
The maximum civil penalty assessment for each violation is
$10,000 (See 15 CFR Sec. 764.3(a) (1)). In addition to the penalty
assessment, a denial of export privileges could be imposed (see
Section 764.3(a) (2)) and the exclusion from practice (See Section
764.3(a) (3)). BXA proposed a civil penalty assessment of $7,500 for
each of the 50 violations of Section 787.6 of the former Regulations
and $7,500 for each of the 50 violations of Section 787.5(a) of the
former Regulations, for a total civil penalty of $750.000.
On February 9, 1998, a telephonic pre-hearing conference was
held which included both parties and the undersigned. As a result of
that conference, it was agreed by the parties that no hearing would
be required since the facts of the case were not in dispute.
Accordingly, a schedule was established for the submission of joint
stipulations of fact and the filing of initial and reply briefs.
Joint Stipulations were filed on March 27, 1998. ALCOA had
previously filed its Answer to the Charging Letter on January 20,
1998. BXA Replied to ALCOA's Answer on May 1, 1998. On May 7, 1998,
the undersigned issued on order permitting ALCOA to submit a
response to BXA's Reply which was filed on May 13, 1998. In that
Reply, Counsel for ALCOA took exception to BXA's assertion that the
parties agreed during the February 9, 1998 prehearing conference
that this matter could be resolved without a hearing because the
facts were not in dispute. Subsequently, another telephonic
conference was heard between the parties and the undersigned. At
that time, after listening to the arguments of counsel for ALCOA, it
became clear to me that Mr. Rubinoff was only asking for Oral
Argument and not an evidentiary hearing. Given the complex nature of
this case and my desire to insure that ALCOA's due process rights
were fully protected, I granted Oral Argument. Oral Argument in this
matter was held in Washington, DC on Monday, July 20, 1998. A
transcript of the Oral Argument was released thereafter and the
matter is now ripe for decision.
The findings of fact and conclusions of law which follow are
prepared upon my analysis of the entire record, and applicable
regulations, statutes, and case law. Each submission of the parties,
although perhaps not specifically mentioned in this decision, has
been carefully reviewed and given thoughtful consideration.\1\
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\1\ A list of the record evidence in this case is set forth in
Appendix A, attached hereto.
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Law and Regulation \2\
The United States, like many other industrialized nations,
restricts the export of goods and services for reasons of national
security. The United States Congress, under the President's
signature, statutorily defined the penalties for violating such
restrictions in Title 50 of the United States Code--``War and
National Defense'' as follows:
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\2\ Because an evidentiary hearing was not held in this matter,
a record was not developed which included exhibits that contained
copies of each of the applicable laws and regulations. In order to
aid the readers of this opinion, all applicable laws and regulations
are set forth herein.
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Sec. 2410 Violations
(a) In general
Except as provided in subsection (b) of this section, whoever
knowingly violates or conspires to or attempts to violate any
provision of this Act [section 2401 to 2420 of this Appendix] or any
regulation, order, or license issued thereunder shall be fined not
more than five times the value of the exports involved or $50,000,
whichever is greater, or imprisoned not more than 5 years, or both.
(b) Willful violations
(1) Whoever willfully violates or conspires to or attempts to
violate any provision of this Act [sections 2401 to 2420 of this
Appendix] for any regulation, order, or license issued thereunder,
with knowledge that the exports involved will be used for the
benefit of, or that the destination or intended destination of the
goods or technology involved is, any controlled country or any
country to which exports are controlled for foreign policy
purposes--
(A) Except in the case of an individual, shall be fined not more
than five times the value of the exports involved or $1,000,000,
whichever is greater; and
(B) In the case of an individual, shall be fined not more than
$250,000, or imprisoned not more than 10 years, or both.
(2) Any person who is issued a validated license under this Act
[sections 2401 to 2420 of this Appendix] for the export of any good
or technology to a controlled country and who, with knowledge that
such a good or technology is being used by such controlled country
for military or intelligence gathering purposes contrary to the
conditions under which the license was issued, willfully fails to
report such use to the Secretary of Defense--
(A) Except in the case of an individual, shall be fined not more
than five times the value of the exports involved or $1,000,000,
whichever is greater; and
(B) In the case of an individual, shall be fined not more that
$250,000, or imprisoned not more than 5 years, or both.
(3) Any person who possesses any goods or technology--
(A) With the intent to export such goods or technology in
violation of an export control imposed under section 5 or 6 of this
Act [section 2404 or 2405 of this Appendix] or any regulation,
order, or license issued with respect to such control, or
(B) Knowing or reason to believe that the goods or technology
would be so exported,
Shall, in the case of a violation of an export control imposed
under section 5 [section 2404 of this Appendix] (or any regulation,
order, or license issued with respect to such control), be subject
to the penalties set forth in paragraph (1) of this subsection and
shall, in the case of a violation of an export control imposed under
section 6 [section 2405 of this Appendix] (or any regulation, order,
or license issued with respect to such control), be subject to the
penalties set forth in subsection (a).
(4) Any person who takes any action with the intent to evade the
provisions of this Act [sections 2401 to 2420 of this Appendix] or
any regulation, order, or license issued under this Act [sections
2401 to 2420 of this Appendix] shall be subject to the penalties set
for in subsection (a), except that in the case of an evasion of an
export control imposed under section 5 or 6 of this Act [section
2404 or 2405 of this Appendix] (or
[[Page 42643]]
any regulation, order, or license issued with respect to such
control), such person shall be subject to the penalties set forth in
paragraph (1) of this subsection.
(5) Nothing in this subsection or subsection (a) shall limit the
power of the Secretary to define by regulations violations under
this Act [sections 2401 to 2420 of this Appendix].
(c) Civil penalties; administrative sanctions
(1) The Secretary (and officers and employees of the Department
of Commerce specifically designated by the Secretary) may impose a
civil penalty not to exceed $10,000 for each violation of this Act
[sections 2401 to 2420 of this Appendix] or any regulation, order or
license issued under this Act [sections 2401 to 2420 of this
Appendix], either in addition to or in lieu of any other liability
or penalty which may be imposed, except that the civil penalty for
each such violation involving national security controls imposed
under section 5 of this Act [section 2404 of this Appendix] or
controls imposed on the export of defense articles and defense
services under section 38 of the Arms Export Control Act [22
U.S.C.A. Sec. 2778] may not exceed $100,000.
(2)(A) The authority under this Act [sections 2401 to 2420 of
this Appendix] to suspend or revoke the authority of any United
States person to export goods or technology may be used with respect
to any violation of the regulations issued pursuant to section 8(a)
of the Act [section 2407(a) of the Appendix].
(B) Any administrative sanction (including any civil penalty or
any suspension or revocation of authority to export) imposed under
this Act [sections 2401 to 2420 of this Appendix] for a violation of
the regulations issued pursuant to section 8(a) of this Act [section
2407(a) of this Appendix] may be imposed only after notice and
opportunity for an agency hearing on the record in accordance with
sections 554 through 557 of title 5, United States Code [5 U.S.C.A.
Secs. 554 to 557].
(C) Any charging letter or other document initiating
administrative proceedings for the imposition of sanctions for
violations of the regulations issued pursuant to section 8(a) of the
Act [section 2407(a) of the Appendix] shall be made available for
public inspection and copying.
(3) An exception may not be made to any order issued under this
Act [sections 2401 to 2420 of this Appendix] which revokes the
authority of a United States person to export goods or technology
unless the Committee on Foreign Affairs of the House of
Representatives and the Committee on Banking, Housing, and Urban
Affairs of the Senate are first consulted concerning the exception.
(4) The President may by regulation provide standards for
establishing levels of civil penalty provided in this subsection
based upon the seriousness of the violation, the culpability of the
violator, and the violator's record of cooperation with the
Government in disclosing the violation.
United States Department of Commerce Regulations
15 CFR 787--Enforcement
Sec. 787.1 Sanctions
(a) Criminal (1) Violations of Export Administrative Act (i)
General. Except as provided in paragraph (a)(1)(ii) of this section,
whoever knowingly violates or conspires to or attempts to violate
the Export Administration Act (``the Act'') or any regulation,
order, or license issued under the Act is punishable for each
violation by a fine of not more than five times the value of the
exports involved or $50,000, whichever is greater, or by
imprisonment for not more than five years, or both.
(ii) Willful violations. (A) Whoever willfully violates or
conspires to or attempts to violate any provision of this Act or any
regulation, order, license issued thereunder, with knowledge that
the exports involved will be used for the benefit of or that the
destination or intended destination of the goods or technology
involved is any controlled country or any country to which exports
are controlled for foreign policy purposes, except in the case of an
individual, shall be fined not more than five times the value of the
export involved or $1,000,000 whichever is greater; and in the case
of an individual shall be fined not more than $250,000, or
imprisoned not more than 10 years, or both.
(B) Any person who is issued a validated license under this Act
for the export of any goods or technology to a controlled country
and who with the knowledge that such export is being used by such
controlled country for military or intelligence gathering purposes
contrary to the conditions under which the license was issued,
willfully fails to report such use to the Secretary of Defense,
except in the case of an individual, shall be fined not more than
five times the value of the exports involved or $1,000,000,
whichever is greater; and in the case of an individual, shall be
fined not more than $250,000, or imprisoned not more than five
years, or both.
(C) Any person who possesses any goods or technology with the
intent to export such goods or technology in violation of an export
control imposed under section 5 or 6 of the Act or any regulation,
order, or license issued with respect to such control, or knowing or
having reason to believe that the goods or technology would be so
exported, shall, in the case of a violation of an export control
imposed under section 5 of the Act (or any regulation, order, or
license issued with respect to such control), be subject to the
penalties set forth in paragraph (a)(1)(ii)(A) of this section and
shall, in the case of a violation of an export control imposed under
section 6 of the Act (or any regulation, order, or license issued
with respect to such control), be subject to the penalties set forth
in paragraph (a)(1)(I) of this section.
(D) Any person who takes any action with the intent to evade the
provisions of this Act or any regulation, order, or license issued
under this Act shall be subject to the penalties set forth in
paragraph (a)(1)(i) of this section, except that in the case of an
evasion of an export control imposed under section 5 or 6 of the Act
(or any regulation, order, or license issued with respect to such
control), such person shall be subject to the penalties set forth in
paragraph (a)(1)(ii)(A) of this section.
(2) Violations of False Statements Act. The submission of false
or misleading information or the concealment of material facts,
whether in connection with license applications, boycott reports,
Shipper's Export Declarations, Investigations, compliance
proceedings, appeals, or otherwise, is also punishable by a fine of
not more than $10,000 or by imprisonment for not more than five
years, or both, for each violation (18 U.S.C. 1001).
(b) Administrative \1\--(1) Denial of export privileges, Whoever
violates any law, regulation, order, or license relating to export
controls or restrictive trade practices and boycotts is also subject
to administrative action which may result in suspension, revocation,
or denial of export privileges conferred under the Export
Administration Act (See Sec. 788.3 et seq).
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\1\ Violations of the Act or regulations, or any order or
license issued under the Act, may result in the imposition of
administrative sanctions, and also or alternatively of a fine or
imprisonment as described in paragraph (a) of this section, seizure
or forfeiture of property under section 11(g) of this Act or 22
U.S.C. 401, or any other liability or penalty imposed by law. The
U.S. Department of Commerce may compromise and settle any
administrative proceeding brought with respect to such violations.
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(2) Exclusion from practice. Whoever violates any law,
regulation, order, or license relating to export controls or
restrictive trade practices and boycotts is further subject to
administrative action which may result in exclusion from practice
before the Bureau of Export Administration (See Sec. 790.2(a)).
(3) Civil penalty. A civil penalty may be imposed for each
violation of the Export Administration Act or any regulation, order
or license issued under the Act either in addition to, or instead
of, any other liability or penalty which may be imposed. The civil
penalty may not exceed $10,000 for each violation except that the
civil penalty for each violation involving national security
controls imposed under section 5 of the Act may not exceed $100,000.
The payment of such penalty may be deferred or suspended, in whole
or in part, for a period of time that may exceed one year. Deferral
or suspension shall not operate as a bar in the collection of the
penalty in the event that the conditions of the suspension or
deferral are not fulfilled. When any person fails to pay a penalty
imposed under this paragraph (b)(3), civil action for the recovery
of the penalty may be brought in the name of the United States, in
which action the court shall determine de novo all issues necessary
to establish liability. Once a penalty has been paid, no action for
its refund may be maintained in any court.\1\
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\1\ The U.S. Department of Commerce may refund the penalty at
any time within two years of payment if it is found that there was a
material error of fact or of law.
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(4) Seizure. Commodities or technical data which have been, are
being, or are intended to be, exported or shipped from or taken out
of the United States in violation of the Export
[[Page 42644]]
Administration Act or of any regulation, order, or license issued
the Act are subject to being seized and detained, as are the
vessels, vehicles, and aircraft carrying such commodities or
technical data are subject to forfeiture (50 U.S.C. app. 2411(g))
(22 U.S.C. 401, see Sec. 786.8(b)(6)).
15 CFR 772.1(b)--Exports Requiring Validated Licenses
No commodity or technical data subject to the Export
Administration Regulations may be exported to any destination
without a validated license issued by the Office of Export
Licensing, except where the export is authorized by a general
license or other authorization by the Office of Export Licensing.
15 CFR 787.5--Misrepresentation and Concealment of Facts; Evasion
(A)(1) Misrepresentation and Concealment. No person may make any
false or misleading representation, statement, or certification, or
falsify or conceal any material fact, whether directly to the Bureau
of Export Administration, any Customs Office, or any official of any
other United States agency, or indirectly to any of the foregoing
through any other person or foreign government agency or official *
* *
15 CFR 787.6--Export, Diversion, Reexport, Transshipment
Except as specifically authorized by the Office of Export
Licensing, in consultation with the Office of Export Enforcement, no
person may export, dispose of, divert, direct, mail or otherwise
ship, transship, or reexport commodities or technical data to any
person or destination or for any use in violation of or contrary to
the terms, provisions, or conditions of any export control document,
any prior representation, any form of notification a prohibition
against such action, or any provision of the Export Administration
Act or any regulation, order, or license issued under the Act.
15 CFR 774.1--Reexport of U.S.-Made Equipment
Unless the reexport of a commodity previously exported from the
United States has been specifically authorized in writing by the
Office of Export, Licensing prior to its reexport * * *, no person
in a foreign country (including Canada) or in the United States may;
(a) Reexport such commodity * * * from the authorized
country(ies) of ultimate destination * * *.
Joint Stipulations of Fact
Aluminum Company of America (ALCOA) and the Office of Export
Enforcement, Bureau of Export Administration, United States
Department of Commerce (BXA) stipulated to the following facts:
1. ALCOA is a corporation organized under the laws of
Pennsylvania with its principal offices located at 425 Sixth Avenue,
ALCOA Building, Pittsburgh, Pennsylvania 15219.
2. ALCOA is one of the world's leading producers of aluminum and
a primary participant in all segments of the industry mining,
refining, smelting, fabricating, and recycling.
3. ALCOA is one of the world's largest producers of alumina,
which is both an intermediate product in the production of aluminum
and an important chemical product in itself.
4. During the period June 14, 1991 through December 7, 1995
(``the review period''), ALCOA, through its subsidiary ALCOA
Minerals of Jamaica (``AMJ''), and the Government of Jamaica,
through its subsidiary Clarendon Alumina Productions (``CAP''),
owned an alumina refinery in Clarendon Parish, Jamaica. CAP and AMJ
each owned a 50% interest in the alumina refinery.
5. Jamalco is a joint operation, located in Kingston, Jamaica,
governed by a Joint Venture Agreement between AMJ and CAP dated
March 1, 1988. The joint venture is governed by an eight member
Executive Committee, four members each from CAP and AMJ. Article 5
of the Joint Venture Agreement provides that the Executive Committee
will appoint a manager who will have full rights and
responsibilities to manage and control the day to day conduct of the
operations of the joint venture. Article 5 further requires that AMJ
be appointed as the Manager. AMJ has acted as Manager at all times
since 1988.
6. Prior to December 30, 1994, ALCOA operated mining, refining,
and smelting operations in Suriname (Suralco). As of December 30,
1994, all of ALCOA's bauxite, alumina and alumina-based chemicals
businesses, including Suralco, were restructured and combined into
ALCOA Alumina and Chemicals, L.L.C. Subsequently, Suralco has been
owned 98% by ALCOA Alumina and Chemicals, L.L.C., and 2% by ALCOA
Caribbean Alumina Holdings, L.L.C., each of which is owned 60% by
ALCOA and 40% by WMC Limited, an Australian corporation.
7. Since 1984, the alumina refinery in Paranarn, Suriname has
been co-owned by Suralco and an affiliate of Billiton N.V., a Dutch
corporation, and has been operated pursuant to a Refining Joint
Venture Operating Agreement dated March 14, 1984, as amended. In
accordance with Article 5.02 of the Refining Joint Venture Operating
Agreement, Suralco was in 1984 appointed, and has since then acted
as Manager of the Paranam refinery.
8. During the review period, the refineries in Jamaica and
Suriname used potassium fluoride as the key reagent for refining
alumina from bauxite, the raw ore for aluminum.
9. During the review period, the water treatment facility in
Suriname used sodium fluoride to treat drinking water. Suralco's
water treatment facility was located in the powerhouse which
supplied electricity to and was located at Suralco's bauxite mine in
Moengo, Suriname. In March 1994, Suralco sold its Moengo powerhouse
and water treatment facility to Energie Bedrijven Suriname (EBS), a
utility company owned by the government of Suriname. In conjunction
with the sale of the powerhouse and water treatment facility,
Suralco agreed to continue operating the water treatment facility
for one year. Consequently, Suralco personnel were on-site at the
water treatment facility at all times when ALCOA's Export Supply
Division shipped sodium fluoride to Suralco. Also as part of the
powerhouse sale agreement, Suralco agreed to provide the chemicals
used in the water treatment facility for a period of two years
following the sale.
10. During the review period, logistical support for Jamalco and
Suralco was provided by ALCOA's Export Supply Division (``ESD''),
located in New Orleans, Louisiana.
11. During the review period, Jamalco and Suralco purchased
certain items from a scheduled buying list, while other times were
purchased only as required in specific instances.
12. During the review period, ESD received requisitions from
Jamalco and Suralco, located suppliers, purchased products, and
shipped the requested items to Jamalco and Suralco.
13. During the review period, ESD prepared all export and
shipping documentation for shipments to Jamalco and Suralco.
14. ESD was responsible for determining the applicable export
licensing requirements for items ordered by Jamalco and Suralco
during the review period.
15. For each shipment of specially-ordered items to Jamalco and
Suralco during the review period, the export compliance procedures
in place provided that ESD was to review the Export Administration
Regulations to determine the applicable export licensing
requirement.
16. On several occasions during the review period, ESD obtained
validated licenses from BXA to export specially-ordered items, such
as computers, to Jamalco and Suralco.
17. By contrast, once ESD made an initial determination of the
export licensing requirements for items on the scheduled buying
list, ESD did not thereafter review the Export Administration
Regulations for each subsequent shipment of ``scheduled buying
lists'' goods to Jamalco and Suralco.
18. Both potassium fluoride and sodium fluoride were on ESD's
scheduled buying list for Jamalco and Suralco both before and during
the review period.
19. Both potassium fluoride and sodium fluoride were routinely
purchased against periodic requisitions regularly submitted by
Jamalco and Suralco both before and during the review period.
20. Under the export compliance procedures in place during the
review period, ESD did not perform a complete export compliance
check for each shipment of potassium fluoride and sodium fluoride to
Jamalco and Suralco.
21. Prior to March 13, 1991, exporters were not required to
obtain from BXA a validated license to export potassium fluoride and
sodium fluoride from the United States to Jamalco and Suralco.
22. Prior to March 13, 1991, ESD lawfully exported potassium
fluoride and sodium fluoride on a regular basis to Jamalco and
Suralco under general license authority.
23. On March 13, 1991, through a notice published in the Federal
Register, entitled Expansion of Foreign policy Controls on Chemical
Weapons Precursors (56 Fed. Reg 10756), the Department of Commerce
[[Page 42645]]
amended the Commerce Control List of the Export Administration
Regulations (currently codified at 15 C.F.R. Parts 730-774
(1997)),\2\ ``by expanding the number of countries for which a
validated license is required for 39 precursor chemicals. Under the
rule, the 39 chemicals will require a validated license for export
to all destinations except NATO member countries, Australia,
Austria, Ireland, Japan, New Zealand, and Switzerland.'' Potassium
fluoride and sodium fluoride were included on the list of 39
chemicals subject to the regulatory change.
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\2\ At the time BXA promulgated this rule, the Export
Administration Regulations were found at 15 CFR Parts 768-799
(1991). Since that time, the Regulations have been reorganized and
restructured.
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24. As potassium fluoride and sodium fluoride were routinely
ordered by Jamalco and Suralco, ESD failed to attach any
significance to the March 1991 amendment, missed the regulatory
change, and continued to export these commodities to the refineries
during review period without first obtaining from BXA the validated
export license required under the Regulations.
25. During the review period, ESD made 47 shipments of potassium
fluoride to Jamalco and Suralco without validated license. The total
value of these shipments was $104,637.00.
26. During the review period, ESD made three shipments of sodium
fluoride to Suralco without validated licenses. The total value of
these shipments was $6.603.00.
27. During the review period, ESD used Shippers Export
Declarations (``SEDs''), an export control document as defined in
the Export Administration Regulations, to effect the export of
potassium fluoride and sodium fluoride from the United States to
Jamaica and Suriname.
28. With eight exceptions, ALCOA identified the chemicals
shipped to Jamalco and Suralco on the SEDs by their specific
nomenclature.
29. As a result of missing the March 1991 regulatory amendment,
ALCOA, during the review period, indicated on each SED used for the
export of the chemicals from the United States to Jamaica and
Suriname that the goods qualified for export from the United States
to Jamaica and Suriname under general license G-DEST, when in fact
the chemicals required a validated license for export from the
United States to both destinations.
30. ESD had no intent to make any false or misleading statements
on the SEDs accompanying the shipments of potassium fluoride and
sodium fluoride to Jamalco and Suralco during the review period.
31. The exports of potassium fluoride and sodium fluoride during
the review period were made to countries that are not suspected of
engaging in illicit weapons development.
32. All of the potassium fluoride and sodium fluoride shipped by
ESD to Jamalco and Suralco during the review period was completely
consumed on the premises of the refinery and water treatment
facilities in Jamaica and Suriname.
33. Once BXA informed ALCOA that ESD had shipped potassium
fluoride and sodium fluoride to Jamaica and Suriname during the
review period without the required validated export license, ALCOA
cooperated fully with BXA in its investigation.
34. After BXA brought to ALCOA's attention the regulatory change
imposing a validated licensing requirements on exports of potassium
fluoride and sodium fluoride to Jamaica and Suriname, ALCOA applied
for, and BXA granted, validated license for shipments of potassium
fluoride to Jamaica and Suriname made after the review period.
35. During the review period, there was a presumption of
approval, on a case-by-case basis, for license to export potassium
fluoride and sodium fluoride from the United States to Jamaica and
Suriname.
36. Prior to the initiation of the investigation by BXA, ALCOA
retained outside counsel and experts to assist in improving and
strengthening ALCOA's export compliance procedures.
37. As a result of these efforts, ALCOA developed and
implemented a new export compliance program that includes an export
compliance manual (with specific procedures and policies applicable
to all exports by ALCOA), training seminars, instructional videos,
and other measures.
38. 15 CFR 787.4(a) provides:
(a) No person may order, buy, receive, conceal, store, use,
sell, loan, dispose of, transfer, transport, finance, forward, or
otherwise service, in whole or in part, any commodity or technical
data exported or to be exported from the United States or which is
otherwise subject to the Export Administration Regulations, with
knowledge or reason to know that a violation of the Export
Administration Act or any regulation order, or license has occurred,
is about to occur, or is intended to occur with respect to any
transaction.
The parties stipulated at the Oral Argument that this regulation
does not have a strict liability trigger since it contains a
knowledge element (TR-33).
39. 15 CFR Sec. 787.4(b) provides:
(b) No person may possess any commodities or technical data,
controlled for national security or foreign policy reasons under
section 5 or 6 of the Act:
(1) With the intent to export such commodities or technical data
in violation of the Export Administration Act or any regulation,
order, license or other authorization under the Act, or;
(2) Knowing or having reason to believe that the commodities or
technical data would be so exported.
The parties stipulated at the Oral Argument that this regulation
does not have a strict liability trigger since it contains a
knowledge or intent element (TR-33).
40. 15 CFR 787.5(b) provides:
(b) Evasion. No person may engage in any transaction or take any
other action, either independently or through any other person, with
intent to evade the provision of the Act, or any regulation, order,
license or other authorization issued under the Act.
The parties stipulated at the Oral Argument that this regulation
does not have a strict liability trigger since it contains a
knowledge or intent element (TR-33).
Findings of Fact \1\
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\1\ Neither Respondent nor Agency submitted Proposed Findings of
Fact. As a result, no rulings are made thereon.
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1. The Respondent and BXA entered into forty (40) Joint
Stipulations of Fact which are set forth above. Each and every one
of those Joint Stipulations of Fact are hereby accepted by the
undersigned and adopted as a Finding of Fact in this proceeding.
2. Aluminum Company of America (ALCOA), the Respondent, was at
all times herein a Corporation authorized to and doing business in
the United States. As such, the Respondent clearly fails within the
definition of ``person'' set forth in 15 CFR 770.2; currently
codified at 15 Code of Federal Regulations, Parts 730-774 (1997),
issued the Regulations 768-799) hereinafter known as the former
Regulations (see Joint Stipulations of Fact Nos. 1, 2, and 3).
3. Potassium fluoride is the key reagent used during the
refining of alumina from its bauxite ore. Bauxite is crushed and
mixed with a caustic soda solution. This solution dissolves the
alumina present in the bauxite. Potassium fluoride is used to
determine the level of dissolved alumina in the caustic solution.
Only a small amount of potassium fluoride is used per metric ton of
bauxite processed (see Respondent's Answer dated January 20, 1998,
page 2).
4. Sodium fluoride was used by the ALCOA facility in Suriname to
treat drinking water for people living in the Suralco refinery area.
All of the sodium fluoride exported from the United States to
Suriname was used by this ALCOA subsidiary facility and was fully
consumed in the water treatment process. ALCOA sold the water
treatment facility to the government of Suriname in July 1994.
Therefore, Suralco no longer uses any sodium fluoride (See
Respondent's Answer dated January 20, 1998, page 3).
5. All of the potassium fluoride and Sodium Fluoride exports at
issue in this case were sent to ALCOA's refinery operations in
Jamaica (Jamalco) and Suriname (Suralco). These refineries are
located near bauxite mines. Bauxite is the raw ore for aluminum. The
refineries process the bauxite so as to extract aluminum oride
(alumina), which becomes the basic feedstock for ALCOA's metal and
chemical businesses. Both refineries were directly controlled by
ALCOA during the period June 14, 1991 through December 7, 1995 (See
Respondent's Answer dated January 20, 1998, page 2).
6. Prior to March 13, 1991, validated licenses were not required
under the EAR for exports of potassium fluoride and sodium fluoride
either to Jamaica or Suriname. Therefore, prior to that date, ESD
had lawfully exported these products to the refineries under the EAR
general license authority. However, on March 13, 1991, the
Department of Commerce amended the Commerce Control List of the EAR
by expanding the number of countries for which a validated license
was required for exports of thirty-nine (39) commodities.
7. Logistical support for the ALCOA refineries in Jamaica and
Suriname was provided by ALCOA's Export Supply
[[Page 42646]]
Division (``ESD''), located in New Orleans, LA. Through ESD, the
refineries regularly purchased certain items from a scheduled buying
list, while other items were purchased only as required in specific
instances. In this capacity, ESD purchased everything from office
surplus and repaired parts to replacements for equipment and
operating supplies. ESD received requisitions from the refineries,
located U.S. suppliers for the requested product, purchased the
products, and shipped them to the refineries. ESD prepared all
export and shipping documentation for shipments to the refineries
(See Respondent's Answer dated January 20, 1998, page 3).
8. ESD's sole function was to support the Jamalco and Suralco
refineries. It annually handled approximately 25,000 transactions
involving 100,000 different items, with a total value of over $125
million. Before, during and after the time periods in question, ESD
was aware of the EAR, and sought and obtained validated export
licenses for a variety of products, including computer systems and
related equipment (See Respondent's Answer dated January 20, 1998,
page 3).
9. Both potassium fluoride and sodium fluoride were ESD's
scheduled buying list for the refineries both before and during the
time periods in question and were, in fact, purchased against
requisitions submitted by Jamalco and Suralco. Indeed, during the
time period in question, ESD made forty-seven (47) shipments of
potassium fluoride to the Jamalco and Suralco refineries, and three
(3) shipments of sodium fluoride to the Suralco refinery (See
Respondent's Answer dated January 20, 1998, page 3).
10. On 50 separate occasions between June 14, 1991, and December
7, 1995, ALCOA exported potassium fluoride and sodium fluoride from
the United States to Jamaica and Surinam, without obtaining from BXA
the validated export licenses required by Section 772.1(b) of the
former regulations. By exporting U.S.--origin commodities to any
person or to any destination as set forth in Section 772.1(b) of the
former regulations, ALCOA violated Section 787.6 of the former
regulations on 50 separate occasions, for a total of 50 separate
violations (See Respondent's plea of ``Admit'' to charges 1-50 in
its January 1998 Answer, page 5).
11. On 50 separate occasions between June 14, 1991, and December
7, 1995. ALCOA used Shipper's Export Declarations as defined in
Section 770.2 of the former Regulations, on which it represented
that potassium fluoride and sodium fluoride, qualified for export
from the United States to Jamaica and Surinam under general license
G-DEST. Contrary to ALCOA's Shippers Export Declarations, the export
of potassium fluoride and sodium fluoride to Jamaica and Surinam
required a validated license to both of those destinations and did
not qualify for export under general license G-DEST (See
Respondent's plea of ``Admit'' to finding of Fact No. 9, above; and
Joint Stipulation of Fact No. 29, above).
12. Based on the Respondent's admitted actions set forth in
Finding of Fact No. 10 above, ALCOA violated 15 CFR 787.5(a) of the
former regulations by making ``false or misleading
representations[s], statement[s], or certification[s]'' of material
fact to a United States agency in connection with the use of export
control documents required under 15 CFR 772.1(b) to effectuate the
export of potassium fluoride and sodium fluoride from the United
States to Jamaica and Suriname (See, legal discussion below).
Conclusions of Law
1. That 15 CFR 787.5(a) of the former regulations does not
require ``knowledge'' or ``intent'' in order for a finding that the
Respondent violated said regulation. Liability and administrative
sanctions are imposed on a strict liability basis once the
Respondent commits the proscribed act;
2. That the Respondent, Aluminum Company of America, committed
50 violations of 15 CFR 787.5(a) during the period from June 14,
1991 through December 7, 1995 when potassium fluoride and sodium
fluoride were exported from the United States to Jamaica and
Suriname without obtaining validated export licenses required by 15
CFR 772.1(b);
3. That the Respondent, Aluminum Company of America, committed
50 violations of 15 CFR 787.6 during the period of June 14, 1991
through December 7, 1995 by making false and misleading statements
of material fact to a United States agency in connection with the
use of export control documents;
4. That based upon the entire record in this matter, the
appropriate civil penalty for each of the 100 violations is $10,000
for a total of $1,000,000. The record does not support the
suspension of part of the civil penalty assessment on probation.
Discussion
Based upon the stipulations of the parties, there are only two
questions to be answered in this proceeding:
(I) Is ``knowledge'' or ``intent'' a necessary element of a
violation of Sec. 787.5(a) of the former regulations? and
(II) What is the appropriate level of sanctions in this case?
I. SECTION 787.5(a) OF THE FORMER REGULATIONS DOES NOT REQUIRE
``KNOWLEDGE'' OR ``INTENT'' IN ORDER FOR A FINDING THAT THE
RESPONDANT VIOLATED SAID REGULATION. LIABILITY AND ADMINISTRATIVE
SANCTIONS ARE IMPOSED ON A STRICT LIABILITY BASIS ONCE THE
RESPONDANT COMMITS THE PROSCRIBED ACT.
Contrary to the arguments of the Respondent, the answer to this
issue is clearly set forth in Iran air v. Kugelman, 996 F.2d 1253
(D.C. Cir. 1993). In that case, then-Judge Ruth Bader Ginsburg found
that the ``essential question is whether the agency, in its reading
of the current regulations, reasonably construed the statute, 50
U.S.C.A. App. Sec. 2410, to allow the imposition of civil sanctions
on a strict liability basis.'' The answer in Iran Air was clearly
yes. Therein, the Acting Under Secretary of Commerce for Export
Administration determined that an exporter's knowledge need not be
shown as a prerequisite to the imposition of civil penalties under
the Export Administration Act of 1979, Sec. 11(c), 50 U.S.C.A. App.
Sec. 2410(c).\1\
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\1\ In the Iran Air, case, Id., the court specifically found
that 15 CFR Sec. 774.1 of the regulations had a strict liability
trigger.
---------------------------------------------------------------------------
The court in the Iran Air case stated:
It is not unusual for Congress to provide for both criminal and
administrative penalties in the same statute and to permit the
imposition of civil sanctions without proof of the violator's
knowledge. Here, the agency maintains, Congress has allowed for an
array of penalties for violations of the Export Act: criminal fine
and/or imprisonment for the knowing violator; more severe criminal
fine and/or longer prison terms for the willful violator; and civil
penalties against any violator. Supporting the agency's position
that subsection (a)'s knowledge requirement need not be read into
subsection (c), Congress expressly provided that nothing in
subsection (a) or (b) ``limits the power of the Secretary to define
by regulations violations under this Act.'' 50 U.S.C. App.
Sec. 2410(b)(5). Furthermore, Congress specifically authorized the
executive to establish ``levels of civil penalty * * * based upon
the seriousness of the violation, the culpability of the violator,
and the violator's record of cooperation with the Government in
disclosing the violation.'' Id. At 2420(c)(4). The provisions appear
to leave room for civil penalty regulations that include a knowledge
requirement * * * or that allow * * * the imposition of strict
liability. Id. At 1258.
Therefore, there can be no question that the United States
Congress authorized the Secretary of Commerce to promulgate
regulations on a strict liability basis pursuant to Sec. 2410 of the
Export Administration Act. In order to determine if the Secretary
intended to impose a civil sanction for an unwitting violation of
the Act (i.e., strict liability), we must look at the regulation
that ALCOA was charged with violating:
15 CFR 787.5 Misrepresentation and Concealment of Facts; Evasion
(a)(1) Misrepresentation and Concealment. No person may make any
false or misleading representation, statement, or certification, or
falsify or conceal any material fact, whether directly to the Bureau
of Export Administration, any Bureau of Export Administration, any
Customs Office, or an official of any other United States agency, or
indirectly to any of the foregoing through any other person or
foreign government agency or official. * * *
The drafting of agency regulations has evolved into an art form
since the passage of the Administrative Procedure Act (5 U.S.C.
Sec. 551 et seq.) in 1946. As the Court noted in the Iran Air case,
Id. at 1256, the answer to whether a regulation has a strict
liability trigger is determined by whether the Secretary, in
drafting the regulation, included a ``state of mind'' requirement. A
clear and unbiased reading of this regulation reveals no such
requirement and therefore liability attaches on a strict liability
basis.
The Respondent acknowledges that this regulation does not
contain a ``state of mind'' element such as ``knowledge to cause''
(Sec. 787.2), with ``knowledge or reason to
[[Page 42647]]
know'' (Sec. 787.4(a)), ``with intent'' or ``knowing or having
reason to believe'' (Sec. 787.4(b)), and ``with intent to evade''
(Sec. 787.5(b) (See Joint Stipulations of Fact Nos. 38, 39 and 40).
However, the Respondent argues that since neither the statute nor
the regulations define ``false or misleading statements'', the judge
must use the ``accumulated settled meaning'' of these terms as
defined in Black's Law Dictionary and the legal precedent applicable
thereto. The Respondent argues that Black's Law Dictionary defines a
``false statement'' as one that is made with knowedge that it is
false. The word ``misleading'' is defined as delusive--calculated to
lead astray or lead into error. The Respondent cites Feld v. Mans,
116 S. Ct. 437, 445-46 (1995) for the proposition that it is
established practice to find meaning in the generally shared common-
law when common-law terms are used without further specification.\1\
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\1\ In support of its argument, the Respondent cites NLRB v.
Amax Coal Co., 453 U.S. 322, 329 (1981). In that case, the court
held that ``where Congress uses terms that have accumulated settled
meaning under either equity or the common law, a court must infer,
unless the statute otherwise dictates, that Congress meant to
incorporate the established meaning of these terms.''
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The government disagrees with what it calls the Respondent's
``attenuated lexicographical-based arguments''. The government
argues that as to the federal statute issue, had the Congress
intended to include a ``knowledge'' element in the civil penalty
provision, it would have explicitly done so (See e.g., False Claims
Act, 31 U.S.C. Sec. 3729(a). I agree. 50 U.S.C. App. Sec. 2410(c)(1)
does not include a ``knowledge'' element and it is clear in the Iran
Air case, Id at 1258, that Congress explicitly left the issue of
strict liability vs. knowledge/intent with the Secretary of
Commerce. Indeed, the Secretary promulgated a regulatory scheme that
included both types of regulations. Thus, where the Secretary
intended that a regulation include a ``knowledge'' or ``intent''
element, the regulation contained explicit language (See e.g.,
Secs. 787.4(a), 787.4(b), 787.5(b), Sec. 387.2 (1980) and joint
stipulations of fact Nos. 38, 39, and 40). Conversely, where the
Secretary intended no such ``knowledge'' or ``intent'' element, the
regulations did not include such a trigger (See e.g. Secs. 774.1(a),
787.2, 787.5(a)).
The case of People v. Chevron Chemical Co., 191 Cal.Rptr 537
(App. 1983) is very informative on the issue at hand. The fact that
it is a California criminal case rather than a federal civil penalty
case is even more compelling. In that case, the state brought an
action against Chevron, charging it with violating the Fish and Game
Code for depositing substances deleterious to fish, plant or bird
life into state waters--a criminal misdemeanor penalty. The sole
issue presented in that case was whether the offense should be
construed as a strict liability offense, or one that requires proof
of criminal negligence or criminal intent.\1\ In ruling on that
issue, the Court stated;
\1\ Fish and Game Code Sec. 5650(f) provides that ``It is
unlawful to deposit in, permit to pass into or place where it can
pass into waters of this State any of the following: * * * (f) any
substances or material deleterious to fish, plant life or bird
life.''
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In more recent times, the California Supreme Court found mens rea
unnecessary and upheld the conviction of a meat market proprietor
for ``short-weighting'' in the sale of meat by his employee. The
court noted that ``where qualifying words such as knowingly,
intentionally, or fraudulently are omitted from provisions creating
the offense, it is held that guilty knowledge and intent are not
elements of the offense''. The court went on to quote from an Ohio
case which stated the basic principle: `There are many acts that are
so destructive of the social order, or where the ability of the
state to establish the element of criminal intent would be so
extremely difficult if not impossible of proof, that in the interest
of justice the legislature has provided that the doing of the act
constitutes a crime, regardless of knowledge or criminal intent on
the part of the defendant'. (In re Marley (1946) 29 Cal.2d 525, 529,
175 P. 2d 832).
In the Chevron case, supra at 539, the court discusses the well
recognized public welfare offenses exception to the mens rea
requirement in criminal prosecution. While not a criminal case, nor
the traditional public welfare offense (e.g., water pollution, use
of unlicensed poison, sale of improperly branded motor oil, and
liability of pharmacist for compounding of prescriptions by
unlicensed persons), the regulatory violation herein involves
materials that could be used for weapons of mass destruction and the
injury or death of untold numbers of people. Accordingly, since
these regulations deal with the most profound public welfare/
national defense issues, the public interest demands that they be
strictly construed in the absence of express ``knowledge'' or
``intent'' language.
The Respondent asserts that the case of Ceasar Electronics,
Inc., 55 Fed. Reg. 53016 (Dept Commerce 1990) supports it's position
that 15 CFR Sec. 787.5(a) requires that liability is imposed only
when there exists a relatively high level of knowledge and intent to
make false statements. I disagree. The factual circumstances
involved therein proceeded on two tracks--a criminal indictment and
conviction for violating 15 CFR Sec. 787.5(a)(3) of the Regulations
by one of the Respondent's Vice-Presidents and a subsequent
administrative proceeding against the Corporation for violation of
15 CFR Sec. 787.5(a)(1)(ii)(1984). The Order from the United States
District Court in criminal case served as the underlying factual
basis for the joint stipulations of the parties in the
administrative case against the corporation. Thus, while the
decision and order in the administrative case discussed knowledge
and intent in relation to a Sec. 787.5(a) violation, such predicates
were not necessary to a finding of a violation. Indeed, both counsel
stipulated at the oral argument in this case that the issue of
strict liability for Sec. 787.5(a) has never been decided (TR-36,
lines 15-19).\1\
---------------------------------------------------------------------------
\1\ 50 U.S.C. App.Sec. 2412(c). (Also see, Sparvr Optical
Research, Inc. v. Baldrige, 649 Supp, 1366 (D.C. Cir. 1986). This
case was reversed, in part, in the Iran Air case, note No. 8 finding
that a civil penalty may be imposed absent knowledge.); Dart v.
United States, 848 F.2d 217 (D.C. Cir. 1988); and Harrisiades v.
Shavgnessy, 342 U.S. 580, 589, 725, Ct. 512, 519, 96 L.Ed. 586
(1952). The William A. Roessel, d/b/a Enigma Industries, 62 Fed.
Reg 4031 (Dep't Commerce 1997) and Herman Kluever, 56 FR 14916
(Dep't Commerce 1991) are similarly not dispositive of the issue
since both cases also involved the aggravating factor of
``knowledge'' or ``intentional conduct''.
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The Respondent cities Section 523(a)(2)(A) of the Bankruptcy
Code as support for its position that knowledge and intent to
deceive is a prerequisite to any violation of Sec. 787.5(a). I
disagree. The Iran Air case, supra, clearly spells out that
Congress authorized the Secretary of Commerce to promulgate strict
liability and knowledge/intent based regulations. The Secretary
differentiated between the two types of regulations by using ``state
of mind'' language for violations which were not intended to employ
a strict liability standard and eliminated such triggering language
where strict liability was intended. Under this circumstance, any
caselaw dealing with Sec. 523(a)(2)(A) requiring knowledge and
intent to deceive as a predicate to liability where the regulation
is silent as to the issue of ``state of mind'' is simply
inapplicable. Moreover, the legislative history, purpose, and
construction of the Bankruptcy Code concerns a fresh start for the
debtor while the Export Administration Act concerns regulations
exports for reasons of national security and foreign policy.
Importantly, an agency has the power to authoritatively
interpret its own regulations as a component of it's delegated
rulemaking powers (See Martin v. OSHRC, 499 U.S. 144, 113 L.Ed. 2d
117, 11 S. Ct. 1171.) This delegation of interpretive authority is
ordinarily subject to full judicial review. However, because of the
national security and/or foreign policy issues involved in
regulations exports that could become component parts of weapons,
the United States Congress made these Secretarial determinations
final and only subject to limited judicial review (See, 50 U.S.C.
App. Sec. 2412(c)(1) and (3).
II What Is the Appropriate Level of Sanctions in This Case?
The Respondent has been found to have 50 separate violations of
15 CFR 787.6 of the former Regulations and 50 separate violations of
15 CFR 787.5(a) of the former regulations for a total of 100
violations.
Congress has provided for an array of penalties for violations
of the Export Administration Act and the regulations promulgated
thereunder. These penalties include a criminal fine and/or
imprisonment for knowing violators, more severe criminal fines and/
or longer prison terms for willful violators and civil penalties
against any violator. Since the government apparently did not have
proof of willful or intentional acts by the Respondent, criminal
charges were not filed (TR-47). Thus, the government commenced this
civil penalty action against the Respondent.
The maximum civil penalty assessment for each violation is
$10,000 (See 15 CFR 764.3(a)(1)). In addition to the penalty
assessment, the government could have requested a denial of export
privileges (Sec. 764.3(a)(2)) and/or the exclusion from
[[Page 42648]]
practice (Sec. 764.3(a)(3)). However, after investigating this case,
the government determined that it would only seek $7,500 per
violation and would not seek the denial of its export privileges or
its exclusion from practice.
15 CFR 766.17(b)(2) requires that the presiding judge, after a
de novo review of the entire record, recommend the appropriate
administrative sanction or such other action as he or she deems
appropriate.\1\ 15 CFR 766.17(c) provides that any such penalty, or
part thereof, may be suspended for a reasonable period of probation
and remitted if no further violations occur during said probationary
period. The Respondent argues that no administrative sanctions be
imposed in this case or alternatively, that only a modest civil
penalty be levied. ALCOA further argues that if the judge decides on
the latter approach, that said penalty be suspended on probation.
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\1\ Importantly, BXA does not have a standard table of orders
which lists offenses with a recommended penalty range (e.g.,
misconduct: 1-3 month suspension) which provides guidance to the
judge such as in United States Coast Guard license suspension and
revocation cases (46 CFR Sec. 5.569) or a penalty schedule for
United States Department of Commerce, National Oceanic and
Atmospheric Administration cases where the proposed penalty is based
on a published penalty schedule promulgated by the NOAA general
counsel and which carries a presumption as to reasonableness (See In
the Matter of William J. Verna, 4 O.R.W. 64 (NOAA App. 1985)). In
that case, the Acting Administrator of NOAA found that the published
penalty schedule represents a reasonable starting point and if the
judge substantially increases or decreases the amount, good reason
for such departures should be stated (Also see, In the Matter of
Kuhnle, 5 O.R.W. 514, (NOAA App. 1989).
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In support of its position, the Respondent argues that any
violations that occurred were not intentional or willful, that said
violations resulted from its failure to comprehend the fact that the
March 1991 Federal Register Notice added thirty-nine (39) chemicals
to the list of chemicals that were identified as precursors for
chemical weapons; that there was no risk that the chemicals would be
diverted to chemical weapons use; that had the Respondent applied to
BXA for the necessary validated licenses, they surely would have
been granted; that the exports were entirely consumed at the
refineries of the Respondent's subsidiary companies in Jamaica and
Suriname; \1\ that prior to the initiation of the government's
investigation of this matter, the Respondent began developing and
implementing an expanded and more comprehensive export compliance
program, and that the Respondent has fully cooperated with the
government in it's investigation of this matter.
---------------------------------------------------------------------------
\1\ The Respondent notes that neither of these designations were
included in Court Group D: 3, which identifies those designations of
particular concern with respect to chemical weapons proliferation
(i.e., Iran, Syria, Libya. North Korea, and Cuba) See CFR
para.799.1, Supp. 1 (See 15 CFR Sec. 799.1, Supp.1 (1995)).
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In the government's reply to the Respondent's Answer, it argues
that the retaining of outside counsel and experts to assist in
improving its export compliance procedures prior to the initiation
of the investigation is an aggravating rather than a mitigating
factor; that the violations alleged herein are derived from errors
that go to the very core of ALCOA's export compliance procedures;
that ALCOA's methodology did not involve a periodic review of the
Regulations for shipment of ``scheduled buying list goods'' after an
initial determination was made concerning the export licensing of
items on that list or a thorough monitoring of pertinent regulatory
amendments published in the Federal Register; that outside counsel
and experts retained by ALCOA should have revamped this system
immediately upon being retained; that such changes in procedures
were not implemented until after the commencement of the
investigation; that this investigation did not arise in the context
of a voluntary self-disclosure pursuant to Sec. 764.4 of the
Regulations; and that given this, the favorable weight accorded such
self-disclosures in determining appropriate sanctions is not a
factor to be considered.
The government goes on to argue that an ``exporter cannot
reasonably `fail to attach significance' to a regulatory change,
bemoan the fact that he/she has been `tripped-up' by changes in the
law, and them argue that, by some stretch of the imagination, he/she
should not be penalized for `inadvertently' violating the law'';
that ignorance of the law is no excuse; that the fact that the total
value of the 50 shipments was under $112,000 is of no consequence in
determining the proper amount of the civil penalty; and that the
lack of intent to make false or misleading statements is irrelevant
since liability attaches on a strict liability basis. Finally, the
government notes that since the March 13, 1991 amendments were
properly published in The Federal Register, the Respondent was
charged with notice of the contents of the changes (See 44 U.S.C.A.
Sec. 1507 (1991)).
In ALCOA's response to the government's arguments, it states
that there are numerous undisputed mitigating circumstances in this
case and no aggravating factors; that under the circumstances, it is
appropriated to waive or suspend sanctions; that included within the
mitigating factors are that the Respondent has no prior violations;
that the chemicals were shipped to countries that are not suspected
of illegal weapons development; that there was a presumption of
approval, on a case by case basis, for licenses to export these
chemicals from the United States to Jamaica and Suriname; that the
failure of the Respondent to obtain validated licenses should be
viewed as technical violations; that the government's logic is
distorted since it implies that it is somehow more appropriate to
impose a civil penalty on the Respondent because its compliance
program was imperfect rather than if ALCOA had had no export
compliance program at all; that while the Act and Regulations may
not mention the value of exports as a standard for Administrative
sanctions, the Judge may consider that issue as a factor in his
determination; that the government's proposed penalties are nearly
seven (7) times larger than the value of the shipments in this case;
that given the lack of harm to U.S. national security or foreign
policy interests as a result of these exports, this huge multiple
illustrates that the proposed penalty is excessive and overly
punitive; that recent government settlement agreements in other
cases demonstrate that the proposed penalty is unreasonable; that
the Respondent has no prior violations; and that there are numerous
cases with similar or even more egregious facts in which the
settlement proposal ranged from $2,000 to $5,000 per violation,
large portions of which were suspended.
After fully considering the arguments of the parties as to the
appropriate sanction in this case, I find that the Respondent's
civil penalty shall be $10,000 for each of the 100 violations for a
total of $1,000,000. While this assessment exceeds that requested by
the government, I find that it is warranted under the facts of this
case. The passage of the Export Administration Act of 1979 had one
main purpose--to control exports from the United States to other
countries. As was noted in the Legislative history of this Act
referring to S 737:
Exports contribute significantly to U.S. production and employment,
and improved export performance helps pay for expanding U.S. imports
of oil and other commodities. There are circumstances, however, in
which the economic benefits and the presumption against government
interference with participation in international commerce by United
States citizens are outweighed by the potential adverse effect of
particular exports on the national security * * * of the United
States.\1\
\1\ See Export Administrative Act, P.L. 96-92, 93 Stat. 503,
Legislative History at 1148 (Purpose of the Legislation) which is
part of the record herein.
By Federal Register Notice (Volume 56, No. 49, dated March 13,
1991), the Department of Commerce expanded export control of certain
chemical weapons precursors (i.e., chemicals that can be used in the
manufacture of chemical weapons). The Notice amended the extant
Commodity Control List, by expanding the number of countries for
which a validated license was required for 39 precursor chemicals.
In issuing this Notice, the Department of Commerce underscored its
concern about chemical and biological weapons indicating that
serious consideration is being given to eliminating the then-
existing contract sanctity provisions of the regulations (See
Respondent's July 27, 1998 submission, Tab 6). Thus, as the world
was becoming a more dangerous place subject to terrorist attacks,
the United States Government responded by significantly increasing
its regulation of specific chemicals and biological precursors.
In this regard, the government noted in it's May 1, 1998 Reply
at page 10:
International trade has been regulated from the earliest days of the
republic. While particular aspects or areas of regulations have
varied, the fact of the matter is that those engaged in an industry
in which government regulation is likely must be presumed to be
aware of, and practitioners in the industry are charged with
knowledge of as well as the responsibility to comply with, the duly
promulgated regulations. [Citing United States v. International
Minerals and Chemical Corporation, 402 U.S. 558 at 563 & 565, 29
L.Ed. 178(1971)].
[[Page 42649]]
In the Matter of Core Laboratories, Inc., ITA-AB-2-80, Initial
Decision and Order on Remand of Administrative Law Judge Huge J.
Dolan (May 4, 1982) aff'd, In the Matter of Core Laboratories, Inc.,
ITA-AB-2-80, Decision on Appeal and Order (March 14, 1983), remanded
on other grounds, United States v. Core Laboratories, Inc., 759 F.2d
480 (5th Cir. 1985).
Of all the aggravating factors in this case, one is particularly
damming--that the Respondent, over a period of four and one-half
(4.5) years, made 50 separate exports of potassium fluoride and/or
sodium fluoride in violation of the Export Administration
Regulations (emphasis added). Importantly, ALCOA is not a new or
small company that doesn't understand the foreign export regulatory
process. Quite to the contrary, the Respondent is a large
multinational corporation which had a separate division (Export
Supply Division) specifically dedicated to receiving requisitions,
locating suppliers, purchasing products, and shipping the requested
items in accordance with applicable export licensing requirements.
Thus, ALCOA's conduct, under this backdrop, was flatly inexcusable
and the fact that the violations were not intentional or willful is
only relevant to the fact that a federal criminal indictment was not
handed down. Respondent's failure to comprehend the change in the
Federal Register Notice, given the existence of its Export Supply
Division, is also particularly troubling.\1\ Moreover, the fact that
the unlawful shipments consisted of precursors for chemical weapons,
regardless of the lack of any potential diversion in these
instances, is not something that should be viewed as a technical
oversight and is clearly an aggravating factor.
---------------------------------------------------------------------------
\1\ As noted above, 44 U.S.C.A. Sec. 1507 (1991) imputes
knowledge of these changes to the Respondent.
---------------------------------------------------------------------------
In mitigation, ALCOA argues that had it applied for the
necessary validated licenses, they would have been presumptively
granted. This argument misses the point. Over the past 20 years, a
terrorist threat has developed to our Republic and our interests
aboard. In order to protect our country and our interests, laws and
regulations were passed/implemented to allow the government to
monitor and regulate the export of precursor chemicals and if
necessary, prevent any such exports that pose a clear and present
danger. Given the huge number of exports from the United States, how
is the government suppose to monitor the export of precursor
chemicals if it doesn't know that the shipments were being made over
a four and one-half year period? ALCOA responds that it filed under
general license G-DEST and implies that the government was aware of
these 50 separate exports over a four and one-half year period (See
Respondent's Answer dated January 20, 1998, page 8). I disagree. The
Respondent did not submit any evidence to support this position. The
Respondent cannot shift its responsibility to the government to do
that which it is legally required to do. Given the volume of such
exports and the limited public resources to regulate these
shipments, the government placed a legal duty on the exporter to
file the specific applications with the office charged with such
oversight responsibility. The Respondent breached that duty and in
so doing, deprived the government of the opportunity to monitor its
export of precursor chemicals.
The Respondent also argues that all of the precursor chemicals
were entirely consumed at the refineries of the Respondent's
subsidiary companies in Jamaica and Suriname. Once again, ALCOA
misses the point. The crucial point here is that the government was
deprived of possible vital information in its fight to control
terrorism. In other words, if the world-wide export of chemicals/
biological agents were a puzzle being put together by a U.S.
Department of Commerce security team, this information constituted
50 pieces of that puzzle that the government did not have. While it
turned out that there was no problem, the fact remains that the
government did not have the whole picture. Without the whole
picture, or in this case, all of the information about precursor
chemical exports, catastrophic errors in preventative decision-
making could have occurred.
The Respondent argues that prior to the initiation of the
investigation into this matter, it began developing and implementing
an expanded and more comprehensive export compliance program. The
Respondent notes that it developed export control matrices for each
U.S. business unit to identify export control issues on a product-
by-product basis; produced a video to increase awareness of export
control requirements to be used in conjunction with on-site training
for each business unit; appointed export liaison's for each of its
business units including the Export Supply Division, who is
responsible for disseminating export compliance information; that
it's legal department now monitors the Federal Register daily for
changes to the EAR effecting the Respondent's products and
operations, and disseminates this information to the export
liaisons; that the Respondent is also developing a Denial List
search application on its new company-wide intranet; and that all
key Exports Supply Division employees have attended export
compliance training seminars.
While the Respondent's January 20, 1998 Answer details the
above-recited improvements to its export compliance program, there
is no record evidence submitted by the Respondent in Tab 2 of its
January 20, 1998 Answer specifying when these improvements were
implemented. The EAR amendment occurred on March 13, 1991. The
violations occurred between June 14, 1991 and December 7, 1995.
During this period of time, the Respondent's export compliance
procedures did not involve a periodic review of the requirements for
shipments of ``scheduled buying list goods'' or a through monitoring
of pertinent regulatory amendments published in the Federal Register
(See Stipulation of Fact No. 17). Thus, the record is void of any
meaningful evidence as to what policies and procedures were in
effect between March 13, 1991 and December 7, 1995.
Moreover, subsequent to December 7, 1995, the record does not
indicate when the above-recited improvements were implemented and in
what form those improvements were made. Indeed, the first memorandum
from the Legal Department to the Export Supply Division is dated May
9, 1996. Interestingly, the only time this issue is discussed during
this time period is set forth in the Joint Stipulations. However, as
one can see from reading joint Stipulation of Fact Nos. 17, 20, 27,
and 29, these factual recitations only recite what the Respondent
did not do as opposed to what program it had in effect and what
changes were made.
The Respondent states that anything more than a nominal fine in
this case is unreasonable. In support of this position, ALCOA argues
that recent BXA enforcement orders based on settlement agreements
establish a range from $2,000 per violation to $5,000 per violation,
large portions of which were suspended. The Respondent cites the
following settlements in support of it's argument that the
government's proposed $7,500 per violation is excessive and
inconsistent with past BXA practice:
1. Gateway 2000 case--This case involved the unlawful export of
U.S.--origin computer equipment without a license in violation of
Sec. 787.4(a), Sec. 787.5(a) and Sec. 787.6 for a total of 87
violations. The agreed upon fine was $402,000 or $4,620 per
violation.
2. Allergan, Inc. case--The Respondent was charged with 412
violations of Sec. 787.6 for violating export controls on biological
agents. the fine was $824,000 or $2,000 per violation.
3. Sierra Rutil America, Inc. case--The Respondent was charged
with eight unlicensed exports of sodium fluoride to Sierra Leone
over a two year period in violation of Sec. 787.6. The settlement
resulted in a $30,000 fine or $3,750 per violation with half of the
fine remitted on probation. This case did not involve exports to
controlled or affiliated entities.
4. Herb Kimiatck and Kimson Chemical Inc. case--The Respondent
was charged with two counts of exporting sodium cyanide without a
validated license in violation of Sec. 787.6 and Sec. 787.4(a) of
the regulations. The fine was $20,000 or $10,000 per violation.
5. Snytex case--The Respondent was charged with 13 violations of
unlawfully exporting hydrogen fluoride in violation of Sec. 787.2.
The fine was $65,000 or $5,000 per violation. One half of the fine
was remitted for 2 years and then waived if there were no further
violations.
6. Palmeros Forwarding case--The Respondent was charged with 10
violations wherein it used export control documents which
represented that the Syntex hydrogen fluoride did not need export
licenses. The fine was $50,000 or $5,000 per violation with a two
year denial of export privileges. The fine was export privilege
denial were suspended on probation.
7. Villasana case--This case also arose out of the Syntex case,
The Respondent was charged with one count and fined $2500 and the
denial of export privileges. The fine and export privilege denial
were suspended on probation.
8. Chemicals Export Company of Boston case--The Respondent was
charged with four counts of exporting sodium cyanide without
[[Page 42650]]
a valid export permit in violation of Sec. 787.6. The fine was
$16,000 or $4,000 per violation.
9. Southern Information Systems case--The Respondent was charged
with five counts for the unlawful export of digital microwave
systems in violation of Sec. 787.6. The fine was $25,000 or $5,000
per violation.
10. Advanced Technology case--The Respondent was charged with
two counts of re-exporting electronic equipment from Belgium to
Russia without a permit in violation of Sec. 787.6. The fine was
$10,000 or $5,000 per violation.
11. LEP Profit International, Inc.--The Respondent were charged
with twelve counts of preparing shipping documents that contained
false information in violation of Sec. 0787.5(a). The fine was
$60,000 or $5,000 per violation. A portion of the penalty, $15,000,
was suspended for two years, then waived so long as LEP complies
with the export control regulations.
12. NF&M International Inc.--The Respondent were charged with
thirty-three violations for exporting titanium alloy products
without the necessary export licenses in violation of Sec. 787.6.
The fine was $82,500 or $42,500 per violation. The Department agreed
to suspend payment of $42,500 for one year and then to waive that
payment provided NF&M complies with export control regulations.
13. DATRAC AG--The Respondent was charged with one count for re-
exporting U.S.-origin data communications equipment from Switzerland
to Singapore without obtaining the required export license in
violation of Sec. 787.6. The fine was $2,500.
14. Lasertechnics Inc.--The Respondent in this case was charged
with thirty-six violations for exporting U.S.-origin thyratrons from
the United States to Hong Kong, Ireland, Malaysia, and Singapore
without obtaining the individual validated export licenses in
violation of Sec. 787.6. The fine was $180,000 or $5,000 per
violation. Pursuant to Sec. 766.18(c), the remaining balance of
$80,000 was suspended for three years and shall thereafter be
waived, provided that, during the period of suspension, the
Respondent has committed no violation of the Act, or any regulation,
order, or license issued thereunder.
15. President Titanium--The Respondent was charged with twenty-
five violations for exporting U.S.-origin titanium bars to various
countries without obtaining the required validate licenses in
violation of 787.6. The fine was $125,000 or $5,000 per violation.
Pursuant to Sec. 766.18(c), the remaining balance of $50,000 was
suspended for one year provided that, during the period of
suspension, the Respondent commit no violation of the Act, or any
regulation, order, or license issued thereunder.
16. Allvac--The Respondent was charged with forty-eight counts
for exporting titanium alloy solid cylindrical forms with diameters
greater than three inches from the United States to various
countries and exported maraging steel to Germany without the
required validated license in violation of Sec. 787.6. The fine was
$122,500 or $2,552 per violation. Pursuant to Sec. 766,18(c) payment
of the remaining balance of $47,500 was suspended for one year
provided that, during the period of suspension, the Respondent
commit no violation of the Act, or any regulation, order, or license
issued thereunder.
17. EC Company--The Respondent was charged with four violations
of making false or misleading statements on an export control
document; exported U.S.--origin spare parts from the United States
to Vietnam without validated license in violation of Sec. 787.6; and
two counts for exporting spare parts from the United States to
Singapore that Respondent knew would be re-exported from Singapore
to Vietnam in violation of Sec. 787.4(a). The fine was $8,000 or
$2,000 per violation.
I find the Respondent's argument regarding the previous
settlement of cases by BXA with lower civil penalty assessments to
be unpersuasive. Settlements are reached based upon the facts of
each case. These facts include the relative strengths and weaknesses
of each party's case; the desires of one or both sides to extricate
themselves from the litigation for whatever reason; and a
determination that such a settlement is a good business decision in
the case of a Respondent or satisfies the public interest in the
case of the government. Moreover, the reasons behind each party's
decision to enter into a settlement are rarely, if ever, made public
where foreign policy and/or national security issues are involved.
As the government points out, this phenomenon is especially true in
export cases (TR. 42).
During the Oral Argument in this matter, Counsel for the
government stated:
All parties in this courtroom know that citing a series of case
names and corresponding settlement figures knowing nothing of the
details of what actually transpired during the settlement
negotiations, much less any internal discussions of litigation
strategy or what not, is really not particularly helpful.
BXA does not maintain a rubric. It does not have a penalty matrix or
a cookie cutter into which to force every case it prosecutes.
Rather, each case is individually evaluated, and considerations that
apply in one, may not apply in another, or may not be given the same
impact depending on the facts of each case.
The Respondent argues in mitigation that it has no prior record
of violations. I find this argument is entitled to little or no
weight given the fact that for four and one-half years, the
Respondent committed one hundred violations of the EAR. Indeed, It
is not the prior record that is important here, but the aggravating
factor of 100 violations and the continuing course of conduct over
such a long period. Under this circumstance, I find that the
Respondent's actions constitute a gross and long standing neglect of
it's undisputed legal duty which totally outweighs the lack of a
prior record of violations.
As noted above, the government recommends a $7,500 civil penalty
assessment for each of the 100 violations. The Respondent argues for
a zero level of civil penalty. However, the Respondent states that
it would accept a nominal fine per violation under the suspension on
probation procedures. The Respondent also states that the
government's recommended sanction is close to the $10,000 maximum
and is therefore unreasonable. Indeed, it argues that if you look at
the cited cases that were settled, the maximum range should not
exceed $2,000 to $5,000. I disagree. Congress established a
statutory scheme which provided for a full panoply of penalties
ranging from federal prison time and/or severe monetary fines to
mere administrative action which could involve civil penalties,
denial of export privileges, exclusion from practice or any
combination thereof. When viewed in this context, it becomes readily
apparent that the government has recommended an unreasonably low
sanction (emphasis added).
Indeed, the government might well have opted to argue in a
criminal forum that ALCOA's conduct was so grossly negligent as to
constitute a willful disregard of federal law. In this case, the
amount of care demanded by the standard of reasonable conduct on the
part of the Respondent must be in proportion to the apparent risk.
As the danger becomes greater, the Respondent is required to
exercise caution commensurate with that increased risk. Since the
Respondent was dealing with precursors for chemical weapons, the
March 13, 1991 Federal Register Notice constructively put it on
notice that it must exercise a great amount of care because the risk
is great. It failed to do so.
Importantly, the government voluntarily lowered the sanction bar
all the way down to the level of an administrative civil penalty in
this case. That having been done, the Respondent argues that the
government is being harsh and should lower the bar further. In
effect, the Respondent is attempting to have the government
negotiate with itself. This is wrong. Based upon the detailed
discussion set forth above, I find the appropriate sanction for each
of these unlawful shipments is $10,000. The Respondent is a huge
multi-national corporation. As such, a $10,000 penalty per violation
is minuscule for ALCOA who describes itself as ``one of the world's
leading producers of aluminum.* * *''. At no time during this
proceeding, did ALCOA's counsel raise financial hardships for
mitigating any civil penalty. At some point, ALCOA has to stand up
and take responsibility for it's gross and long-standing breach of
legal duty. Conversely, the United States government must set its
civil penalties at a high enough level to insure that large multi-
national corporations don't ignore the law and if they get caught,
merely consider the fine as a cost of doing business.
Accordingly, it is ordered that Aluminum Company of America,
having been found by preponderant evidence to have one hundred
violations of the Export Administration Regulations, pay a civil
penalty in the amount of $10,000 per violation for a total of
$1,000,000. \1\
---------------------------------------------------------------------------
\1\ In addition to the arguments made herein as to the
appropriate amount of the monetary penalty for each violation in
this case, I hereby accept the arguments of the government as
reasonable to the extent they are not inconsistent with the rational
set forth in Section II, above. To the extent that the Respondent's
arguments as to sanction are inconsistent with the Recommended
Decision and Order, they are specifically rejected.
---------------------------------------------------------------------------
[[Page 42651]]
It is Further Ordered that a copy of this Recommended Decision
and Order shall be served on Aluminum Company of America and the
Department of Commerce in accordance with Sec. 778.16(b)(2) of the
Regulations.
Done and Dated on this 21sth day of December 1998, Alameda,
California.
Hon. Parlen L. McKenna,
United States Administrative Law Judge.
To be considered in the thirty (30) day statutory review process
which is mandated by 50 U.S.C.A. Sec. 2412(c) of the Act,
submissions must be received in the Office of the Under Secretary
for Export Administration, Bureau of Export Administration, U.S.
Department of Commerce, 14th & Constitution Ave., NW., Room H-3898,
Washington, DC 20230, within twelve (12) days. Replies to the other
party's submission are to be made within the following eight (8)
days (See 15 CFR 766.22(b) and 50 Fed. Reg. 53134 (1985)). Pursuant
to 50 U.S.C.A. Sec. 2412(c)(3) of the Act and 15 CFR 766.22(e) of
the Final Order of the Under Secretary may be appealed to the U.S.
Court of Appeals for the District of Columbia within fifteen (15)
days of its issuance.
[FR Doc. 99-19095 Filed 8-4-99; 8:45 am]
BILLING CODE 3510-DT-M
