Know Your Foreign Export Broker!
BY RYAN C. SIDEN
Can a U.S. corporation be held responsible when its foreign export broker conceals the true end-user? Yes, it can!
In 1998, an executive from a small technology company in Massachusetts participated in a trade junket to Communist China. There, the executive hired two Chinese brokerage companies who seemed efficient middlemen for dealing with Chinese customers.
Flush with success over having landed over $3 million in equipment sales, the executive instructed the company's export compliance officer to apply for an export license from Department of Commerce (DOC) for shipping the device to China.
The application, however, was denied because the end-user could alter the device for use within nuclear weapons.
The next time that a Chinese end-user wanted a product of the company, it came under a different designation that did not require a license so long as the broker provided the company with a formally stamped end-user certificate representing that the second device had no ulterior end-use within a nuclear weapon. The company shipped the device the following year.
One month later, the DOC opened a formal investigation into the shipment of this second device, and federal law enforcement agencies conducted a SWAT-style raid on the company's headquarters, seizing all computers, computer records and boxes of documents involving the two different devices.
In 2003, the Department of Justice indicted the company and the executive for criminal conspiracy to violate the Export Administration Enforcement Act of 1979, in addition to other charges. During the discovery phase of the criminal proceeding, the executive learned for the first time that the Chinese brokers he engaged were well-known by the DOC for attempting to buy restricted technology out of the United States for the benefit of China's military/industrial complex.
The moral of the story? If you have any doubts about the foreign broker you are conducting business with, whether or not they are in a restricted country, perform a background check. If you do discover a situation that concerns your compliance with the export regulations, consult legal counsel immediately.
The best practice before engaging a foreign export broker is to consult the checklists of the U.S. Bureau of Industry & Security on their Web site, (www.bxa.doc.gov/ComplianceAndEnforcement/index.htm). Some lists to consult are: How do I avoid dealing with Unauthorized Parties? The Denied Persons List; The Unverified List; The Entity List; The Specially Designated Nationals List, and The Debarred List.
Comment: Investigate your choice of foreign export broker carefully to avoid possible prosecution and debarment from federal contracts.
© ASSOCIATION OF INDEPENDENT GENERAL COUNSEL 2005; (all rights reserved). This article is not intended as legal advice. Consult a qualified attorney for assistance concerning a specific issue or problem.