In the Matters of: Nordic Maritime Pte. Ltd. and Morten Innhaug Respondents; Partial Remand and Final Denial Order
| Published date | 18 March 2020 |
| Citation | 85 FR 15414 |
| Record Number | 2020-05600 |
| Section | Notices |
| Court | Industry And Security Bureau |
Federal Register, Volume 85 Issue 53 (Wednesday, March 18, 2020)
[Federal Register Volume 85, Number 53 (Wednesday, March 18, 2020)]
[Notices]
[Pages 15414-15428]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-05600]
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DEPARTMENT OF COMMERCE
Bureau of Industry and Security
[Docket Number 17-BIS-0004 (consolidated)]
In the Matters of: Nordic Maritime Pte. Ltd. and Morten Innhaug
Respondents; Partial Remand and Final Denial Order
This matter is before me to review the Administrative Law Judge's
(ALJ) February 7, 2020 Recommended Decision and Order (RDO).\1\ For the
[[Page 15415]]
reasons discussed below, and upon review of the administrative record,
I find there is sufficient evidence that Nordic Maritime Pte. Ltd.
(Nordic) and Morten Innhaug (Innhaug and, collectively, Respondents)
violated the Export Administration Regulations (EAR),\2\ that Nordic
did so knowingly, and that Nordic made false statements to the Bureau
of Industry and Security (BIS) in the course of its investigation. I
further find that the evidence supports the conclusion that Innhaug
caused, aided, or abetted Nordic's unlawful reexport of the survey
equipment in violation of EAR. The ALJ recommended a civil monetary
penalty of $31,425,760, as well as a denial of export privileges until
such time Respondents pay the civil monetary penalty. With respect to
the RDO's monetary penalty recommendation, I conclude the analysis of
damages in the RDO is incomplete.
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\1\ I received the certified copy of the record from the ALJ,
including the original copy of the RDO, for my review on February
10, 2020. Following an extension of time authorized by the
undersigned, both the Respondents and BIS each filed timely
responses to the RDO and replies to those responses. I have
considered the parties' submissions in this decision.
\2\ The EAR originally issued under the Export Administration
Act of 1979, as amended, 50 U.S.C. 4601-4623 (Supp. III 2015) (the
EAA), which lapsed on August 21, 2001. The President continued the
Regulations under the International Emergency Economic Powers Act,
50 U.S.C. 1701-1708, including during the time period of the
violations at issue here. On August 13, 2018, the President signed
into law the John S. McCain National Defense Authorization Act for
Fiscal Year 2019, which includes the Export Control Reform Act of
2018, 50 U.S.C. 4801-4852 (ECRA). While Section 1766 of ECRA repeals
the provisions of the EAA (except for three sections which are
inapplicable here), Section 1768 of ECRA provides, in pertinent
part, that all rules and regulations that were made or issued under
the EAA, including as continued in effect pursuant to IEEPA, and
were in effect as of ECRA's date of enactment, shall continue in
effect according to their terms until modified, superseded, set
aside, or revoked through action undertaken pursuant to the
authority provided under ECRA.
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For the following reasons, I affirm the findings of liability,
modify the denial order to a period of 15 years, and vacate the civil
monetary penalty, and remand this case to the ALJ for a reexamination
of the civil monetary penalty.
I. Background \3\
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\3\ For a more fulsome description of the facts and procedural
background of this case, the RDO is attached as an addendum to this
Partial Remand and Final Denial Order.
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BIS issued a charging letter to Respondent Nordic on April 28,
2017, alleging three violations of the EAR: (i) Nordic illegally
reexported certain seismic survey equipment to Iran that were
controlled by the EAR for national security and anti-terrorism reasons;
(ii) Nordic acted knowingly in doing so; and (iii) Nordic made false
and misleading statements to BIS during its investigation. BIS also
issued a charging letter to Innhaug, alleging he aided and abetted
Nordic in violating the EAR.
The Charging Letter issued against Nordic (Nordic Charging Letter)
included the following specific allegations:
Charge 1 15 CFR 764.2(e)--Acting With Knowledge of a Violation
1. Between on or about May 1, 2012, and on or about April 4,
2013, Nordic Maritime transported and used items exported from the
United States and subject to the Regulations with knowledge that a
violation of the Regulations had occurred or was about or intended
to occur in connection with the items.
2. Nordic Maritime transported to and used in Iranian waters
U.S.-origin maritime surveying equipment, including specifically
compass birds and streamer sections, classified under Export Control
Classification Number (``ECCN'') 6A001 and controlled for National
Security and Anti-Terrorism reasons (hereinafter, ``the items'').
The items also were subject to the Iranian Transactions and
Sanctions Regulations (``ITSR''), 31 CFR part 560, administered by
the Department of the Treasury's Office of Foreign Assets Control
(``OFAC''). Nordic Maritime used the items to conduct a seismic
survey of Iran's off-shore Forouz B natural gas field.
3. The United States has had a long-standing and widely known
embargo against Iran.
4. At all times pertinent hereto, Sections 742.4, 742.8, and
746.7 of the Regulations imposed a BIS license requirement for the
export or reexport of the items to Iran. In addition, Section 746.7
of the Regulations also prohibited the export or reexport of any
item subject to the Regulations if the transaction was prohibited by
the ITSR. At all times pertinent hereto, the ITSR prohibited, inter
alia, the unauthorized reexportation or supply, either directly or
indirectly, of the items to Iran. See 31 CFR 560.204-205.
5. In order to avoid duplication regarding transactions
involving items subject to both the Regulations and the ITSR,
Section 746.7 of the Regulations provided that authorization did not
need to be obtained from both BIS and OFAC, but instead that
authorization by OFAC under the ITSR was considered authorization
for purposes of the Regulations as well.
6. However, Nordic Maritime did not seek or obtain authorization
from BIS, or from OFAC, in connection with the items.
7. Nordic Maritime knew at all times pertinent hereto, including
as subsequently admitted in a written submission to BIS dated April
15, 2014, that the items were of U.S.-origin and that it was aware
of the U.S. embargo against Iran and related U.S. export controls,
including through its own licensing history of BIS license
requirements concerning similar items classified under ECCN 6A001 of
the Regulations.
8. In addition, on or about April 11, 2012, Nordic Maritime was
warned, via a letter to its Chairman, Morten Innhaug, that its use
of the items in Iranian waters would violate U.S. law and would be
``in direct breach of the terms of Re-Export License issued by the
US Department of Commerce (Bureau of Industry and Security) in
relation to use of the Equipment.'' (Parenthetical in original).
Nordic Maritime received this warning letter from counsel to the
company that at the time held a BIS reexport license for the items
(hereinafter, ``[Reflect Geophysical]'') that had issued in July
2011.
9. Moreover, Nordic Maritime obtained a copy of the reexport
license held by [Reflect Geophysical] no later than on or about June
29, 2012. The license by its terms did not authorize use of the
items in Iranian waters or other reexport of the items to Iran by
any person or entity, and specifically provided that ``no transfer,
resale, or re-export of the controlled equipment is authorized
without prior [U.S. Government] approval.''
10. Notwithstanding the foregoing, Nordic Maritime transported
the items to and used them in Iran's Forouz B natural gas field
between on or about May 1, 2012, and on or about at least April 4,
2013, without the required U.S. Government authorization.
11. As it subsequently admitted in its April 15, 2014 written
submission to BIS, Nordic Maritime used the items on a vessel that
it had leased from a ``Russian State owned company Seismic
Geophysical Company'' and ``that had certain U.S.-origin seismic
surveying equipment onboard (streamer sections and compass birds
subject to the EAR and classified under ECCN 6A001) that were owned
by'' [Reflect Geophysical]. (Parenthetical in original). Moreover,
Nordic Maritime admittedly conducted the ``seismic survey in Iranian
waters . . . under a contract that Nordic entered into with Mapna
International FZE, a company based in Dubai, UAE.'' Furthermore,
although feigning ignorance when it contracted to perform the
seismic survey in Iranian waters that the survey on behalf of or for
the benefit of Iran, Nordic Maritime admitted in its April 15, 2014
submission to BIS that ``Mapna International has significant ties to
Iran'' and that ``the work for which Mapna International was
contracting was in furtherance of Mapna Group's contract with the
National Iranian Offshore Oil Company to [ ] explore the Forouz B
natural gas field.''
12. In so transporting and using the items with knowledge that a
violation of the Regulations had occurred or was about or intended
to occur in connection with them, Nordic Maritime violated Section
764.2(e) of the Regulations.
Charge 2 15 CFR 764.2(a)--Reexport of Maritime Surveying Equipment to
Iran Without Required License
13. BIS re-alleges and incorporates herein the allegations set
forth in Paragraphs 1-12, supra.
14. Between on or about May 1, 2012, and on or about April 4,
2013, Nordic Maritime engaged in conduct prohibited by the
Regulations when it reexported to Iran items subject to the
Regulations without the required license.
15. Pursuant to Sections 742.4, 742.8, and 746.7 of the
Regulations, the items--U.S.-origin maritime surveying equipment,
including specifically compass birds and streamer sections,
classified under Export
[[Page 15416]]
Control Classification Number (``ECCN'') 6A001 and controlled for
National Security and Anti-Terrorism reasons--could not lawfully be
exported or reexported to Iran without a BIS license. Section 746.7
of the Regulations also prohibited the export or reexport of any
item subject to the Regulations if the transaction was prohibited by
the ITSR. At all times pertinent hereto, the ITSR prohibited, inter
alia, the unauthorized reexportation or supply, either directly or
indirectly, of the items to Iran. See 31 CFR 560.204-205.
16. In order to avoid duplication regarding transactions
involving items subject to both the Regulations and the ITSR,
Section 746.7 of the Regulations provided that authorization did not
need to be obtained from both BIS and OFAC, but instead that
authorization by OFAC under the ITSR was considered authorization
for purposes of the Regulations.
17. However, Nordic Maritime reexported the items to the Forouz
B natural gas field in Iran without seeking or obtaining
authorization from BIS, or from OFAC, in connection with the items.
Nordic Maritime used the items to conduct a seismic survey of the
Forouz B gas field in furtherance of Mapna Group's contract with the
National Iranian Offshore Oil Company, an Iranian Government entity.
18. In so doing, Nordic Maritime violated Section 764.2(a) of
the Regulations.
Charge 3 15 CFR 764.2(g)--False or Misleading Statements to BIS in the
Course of an Investigation
19. BIS re-alleges and incorporates herein the allegations set
forth in Paragraphs 1-18, supra.
20. On or about April 15, 2014, Nordic Maritime made false or
misleading statements to BIS in the course of the investigation of
the violations and the related unauthorized reexport to Iran
described in Paragraphs 1-18, supra.
21. Specifically, Nordic Maritime made a written submission to
BIS admitting that the company had acquired the items from [Reflect
Geophysical] and that Nordic Maritime was aware that the items were
of U.S. origin.
22. However, Nordic Maritime further stated that [Reflect
Geophysical] had never ``(1) advised Nordic that any of the
equipment onboard the vessel was re-exported pursuant to a BIS
export license,'' ``(2) communicated to Nordic any BIS export
license conditions'' or ``(3) provided a copy of the BIS license to
Nordic.'' These statements were false or misleading.
23. In fact, Nordic Maritime knew that the items had been
subject to a BIS reexport license issued in July 2011 to and was
held by [Reflect Geophysical]. Nordic Maritime had been warned by
counsel to [Reflect Geophysical], on or about April 11, 2012, via a
letter to Nordic Maritime's Chairman, Morten Innhaug, that the items
had been reexported pursuant to a BIS license. Moreover, on or about
June 29, 2012, Nordic Maritime had obtained a copy of the license,
including the license conditions, from [Reflect Geophysical].
24. In so making false or misleading statements to BIS during
the course of an investigation, Nordic Maritime violated Section
764.2(g) of the Regulations.
Nordic Charging Letter (footnotes omitted).
BIS's charging letter against Innhaug (Innhaug Charging Letter)
alleged:
Charge 1 15 CFR 764.2(b)--Causing, Aiding, and Abetting Unlicensed
Reexports of Maritime Surveying Equipment to Iran
1. Between on or about May 1, 2012, and on or about April 4,
2013, Innhaug engaged in conduct prohibited by the Regulations by
causing, aiding, abetting, counseling, commanding, inducing and/or
permitting the unlawful reexport of U.S.-origin maritime surveying
equipment to Iran by Nordic Maritime Pte Ltd., of Singapore
(``Nordic Maritime'').
2. At all pertinent times hereto, Innhaug was the Chairman and
majority shareholder of Nordic Maritime, and directed and/or
controlled its activities.
3. Between on or about May 1, 2012, and on or about April 4,
2013, Nordic Maritime engaged in conduct prohibited by the
Regulations when it reexported to Iran items subject to the
Regulations without the required U.S. Government authorization, in
violation of Section 764.2(a) of the Regulations.
4. Pursuant to Sections 742.4, 742.8, and 746.7 of the
Regulations, the items--U.S.-origin maritime surveying equipment,
including specifically compass birds and streamer sections,
classified under Export Control Classification Number (``ECCN'')
6A001 and controlled for National Security and Anti-Terrorism
reasons--could not lawfully be exported or reexported to Iran
without a BIS license. Section 746.7 of the Regulations also
prohibited the export or reexport of any item subject to the
Regulations if the transaction was prohibited by the ITSR. At all
times pertinent hereto, the ITSR prohibited, inter alia, the
unauthorized reexportation or supply, either directly or indirectly,
of the items to Iran. See 31 CFR 560.203-.205.
5. In order to avoid duplication regarding transactions
involving items subject to both the Regulations and the ITSR,
Section 746.7 of the Regulations provided that authorization did not
need to be obtained from both BIS and OFAC, but instead that
authorization by OFAC under the ITSR was considered authorization
for purposes of the Regulations.
6. However, Nordic Maritime reexported the items to the Forouz B
natural gas field in Iran without seeking or obtaining authorization
from BIS, or from OFAC, in connection with the items. Nordic
Maritime used the items to conduct a seismic survey of the Forouz B
gas field and did so effectively on behalf of or for the benefit of
the Iranian Government.
7. As subsequently admitted by Nordic Maritime in a written
submission to BIS dated April 15, 2014, Nordic Maritime operated a
vessel (the M/V Orient Explorer) that it had leased from a ``Russian
State owned company Seismic Geophysical Company'' and had ``certain
U.S.-origin seismic surveying equipment onboard (streamer sections
and compass birds subject to the EAR and classified under ECCN
6A001) that were owned by'' [Reflect Geophysical]. (Parenthetical in
original). Moreover, Nordic Maritime conducted the ``seismic survey
in Iranian waters . . . under a contract that Nordic entered into
with Mapna International FZE, a company based in Dubai, UAE.''
Furthermore, although feigning ignorance at the time the contract
was entered, Nordic Maritime admitted in its April 15, 2014
submission that ``Mapna International has significant ties to Iran''
and that ``the work for which Mapna International was contracting
was in furtherance of Mapna Group's contract with the National
Iranian Offshore Oil Company to [ ] explore the Forouz B natural gas
field.''
8. On or about April 11, 2012, prior to Nordic Maritime's
reexport of the items to Iran, Innhaug received a cease and desist
letter sent to his attention from counsel to the company
(hereinafter, ``[Reflect Geophysical]'') that at the time held a BIS
reexport license for the items. That letter indicated [Reflect
Geophysical's] understanding, which was accurate, that the M/V
Orient Explorer was en route with the items on board and would be
deployed in Iranian waters after making a port of call in Dubai,
United Arab Emirates. The letter warned that Nordic Maritime's use
of the items in Iranian waters would violate U.S. law and would be
``in direct breach of the terms of Re-Export License issued by the
US Department of Commerce (Bureau of Industry and Security) in
relation to use of the Equipment.'' (Parenthetical in original).
9. As alleged above, Nordic Maritime reexported the items to and
used them in Iran's Forouz B natural gas field beginning on or about
May 1, 2012, in violation of the Regulations. In no later than June
2012, while conducting the seismic survey, Nordic Maritime obtained
a copy of the license from [Reflect Geophysical]. The license by its
terms did not authorize use of the items in Iranian waters or other
reexport of the items to Iran by any person or entity, and
specifically provided that ``no transfer, resale, or re-export of
the controlled equipment is authorized without prior [U.S.
Government] approval.'' Nonetheless, Nordic Maritime continued to
conduct the survey in violation of the Regulations until at least on
or about April 4, 2013.
10. As Nordic Maritime's chairman and majority owner, Innhaug
directed and/or controlled Nordic Maritime. In addition, he also had
received actual notice providing him with personal knowledge that
Nordic Maritime was about to engage, and then was engaging on an
ongoing or continuing basis, in conduct in violation of the
Regulations. Through his actions and/or failure to act, Innhaug
caused, aided, abetted, counseled, commanded, induced and/or
permitted Nordic Maritime's unlawful reexport of the items to Iran
and their use in Iranian waters without the required U.S. Government
authorization.
11. In so doing, Innhaug violated Section 764.2(b) of the
Regulations.
Innhaug Charging Letter (footnotes omitted).
Nordic and Innhaug answered the charging letters on June 1, 2017,
and
[[Page 15417]]
requested a 30-day stay of the proceedings. The stay was denied, and
the proceedings continued for approximately two years,\4\ but there are
a few events worth highlighting.
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\4\ Part of the delay was the result of the Supreme Court's
decision in Lucia v. SEC, 138 S Ct. 2044 (2018), in which the Court
concluded many administrative law judges are ``[o]fficers of the
United States'' for purposes of the Constitution's Appointments
Clause. See id. at 2055. As a result, a new ALJ was assigned and for
the most part was required to start over and redo the proceedings
conducted before the Court's decision in Lucia. The events described
infra occurred after the ALJ was appointed in compliance with the
Court's ruling in Lucia.
In addition to the Lucia-related delays, the federal government
experienced a lapse of appropriations from December 22, 2018 to
January 25, 2019.
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The parties disputed whether the Respondents had the ability to pay
any fine should the Respondents be found liable. After some filings
back and forth--and after being provided several opportunities to
comply by the ALJ by way of orders on May 22 and 24, 2019--the
Respondents advised the ALJ that they would not participate in the
upcoming trial. Respondents' counsel filed a notice on June 10, 2019
that counsel was not authorized by Respondents to appear at the hearing
the next day to discuss Respondents' arguments regarding inability to
pay any fine. At the June 11, 2019 hearing, the ALJ ruled that the
Respondents would be precluded from raising any arguments regarding an
inability to pay.
Following a hearing on June 11, 2019, and post-hearing briefing by
the parties,\5\ the ALJ issued the RDO. The ALJ found Respondents
liable on all counts. The ALJ also recommended that Respondents be
fined [euro]23.6 million--converted to $31,425,760 \6\--or twice the
amount of Respondent Nordic's contract with Mapna. The ALJ recommended
the civil monetary penalty be jointly and severally imposed on
Respondents.
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\5\ In their post-hearing briefing before the ALJ, the
Respondents sought to resurrect their already-barred argument
regarding an inability to pay by way of two attachments. The ALJ
struck those attachments and did not consider them. In their brief
before the undersigned, Respondents again attach materials related
to their purported inability to pay. For the reasons discussed in
this Partial Remand and Final Denial Order, the Respondents have
waived their ability to argue an inability to pay, and I did not
consider the attachments to their brief.
\6\ The ALJ used the conversion rate applicable when Nordic
entered the contract with Mapna. Because the contract was dated
``March 2012,'' the ALJ used March 1, 2012 for the conversion date.
I agree March 1, 2012 is the appropriate conversion date.
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II. Review Under Section 766.22
A. Jurisdiction
The undersigned has jurisdiction under Section 766.22 of the
EAR.\7\ While this case was pending before the ALJ, the Export Control
Reform Act of 2018 (ECRA) became law. See Public Law 115-232 (2018)
(codified at 50 U.S.C. 4801-4852). At the time of the offenses,
however, the previous statutory scheme, the Export Administration Act
of 1979, had lapsed and, as noted above, the EAR was kept in effect
under the International Emergency Economic Powers Act (IEEPA).
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\7\ Because the conduct at issue in this case took place in 2012
and 2013, those versions of the EAR govern the substantive aspects
of the case.
The procedural aspects of this case are governed by the 2019
version of the EAR.
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ECRA provided that the authority of the EAR and any judicial or
administrative proceedings pending on the date of enactment would be
unaffected. See 50 U.S.C. 4826.
B. Liability
The RDO correctly sets out the standard for proving violations of
the EAR. In particular, BIS must prove the allegations by reliable,
probative, and substantial evidence. BIS's burden is one of
preponderance of the evidence, which means it is more likely than not
that the Respondents committed the violations charged.
The RDO contains a detailed review of the record relating to the
merits in this case, and the findings of liability are affirmed.
1. Respondent Nordic Charge 2--Reexporting Equipment to Iran \8\
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\8\ The RDO considers Charge 2 first. For the sake of
consistency, I will do so as well.
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The evidence in this case is conclusive that Respondent Nordic
reexported seismic equipment to Iran without the license required under
the EAR. That reexport violated 15 CFR 764.2(a). In fact, Nordic's own
answer before the ALJ concedes this point, but argues that it did not
do so knowingly. Answer of Respondent Nordic Pte. and Demand for a
Hearing ]] 2, 6, 8-10, 17.
As the RDO correctly outlines, section 764.2(a) prohibits all
violations of the EAR. In addition, violations of section 764.2(a) are
strict liability offenses. See In the Matter of Wayne LaFleur, 74 FR
5916, 5918 (Feb. 3, 2009). BIS, therefore, need not prove knowledge to
sustain a violation of section 764.2(a).
The parties do not dispute number of material facts. Neither party
contests that the survey equipment at issue in this case was classified
under Export Control Classification Number (ECCN) 6A001. The parties do
not dispute that the equipment was possessed by Respondent Nordic in
Iranian territorial waters, and was therefore reexported. The parties
also agree that neither of the Respondents had a license to reexport
the survey equipment.
These uncontested facts support the RDO's finding that Nordic
violated the EAR by reexporting the survey equipment when it used the
equipment in Iranian territorial waters. Even if the facts above were
contested, the record amply supports that Nordic reexported the
equipment without a license. I therefore affirm the RDO's finding on
this count.
2. Respondent Nordic Charge 1--Acting With Knowledge of an EAR
Violation
The evidence in this case strongly supports the conclusion that
Nordic reexported the survey equipment with knowledge that doing so
would violate the EAR. See 15 CFR 764(e). The EAR defines ``knowledge''
as ``not only positive knowledge that the circumstance exists or is
substantially certain to occur, but also an awareness of a high
probability of its existence or future occurrence.'' 15 CFR 772.1. A
factfinder can infer knowledge where the party exhibits a ``conscious
disregard of facts known to a person'' or willful avoidance of such
facts. Id.
In this case, the record is clear that Nordic was put on notice no
later than April 2012 that the use of the survey equipment in Iranian
waters would require an export license. The company that leased the
seismic survey equipment, Reflect Geophysical, sent a cease and desist
letter to Nordic that any use in Iranian waters would violate the
license Reflect Geophysical obtained from BIS. Were this not enough,
Reflect Geophysical provided a copy of the license to Nordic in June
2012.
Although it is clear Nordic had actual notice, even if one were not
convinced, the RDO lays out a history of communications between Reflect
Geophysical and Nordic concerning their dispute about the scope of the
use of the equipment. I agree with the RDO's finding that ``[t]hese
communications . . . are telling and lead to the conclusion that the
parties discussed the use of equipment in Iranian waters.''
The record amply supports the RDO's statement that ``[t]he evidence
is conclusive'' that Nordic had knowledge that using the survey
equipment in Iranian waters would violate the EAR. I affirm the RDO's
conclusion on this count.
[[Page 15418]]
3. Respondent Nordic Charge 3--Making False and Misleading Statements
BIS also charged Nordic with making false statements during a
purported voluntary disclosure reporting the conduct at issue in this
case.\9\ The evidence supports the RDO's finding that Nordic made false
and misleading statements to BIS during its investigation, in violation
of 15 CFR 764.2(g).
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\9\ The parties dispute whether Nordic's disclosure was truly
voluntary, given that it was submitted after BIS had begun its
investigation. The evidence in this case demonstrates that
Respondents' purported voluntary disclosure came after BIS had begun
its investigation and was therefore not a voluntary disclosure under
the EAR. See 15 CFR 764.5(b)(3). I would note, however, that even if
this were a voluntary disclosure. ``a respondent who makes false
statements to BIS during an investigation cannot properly claim, and
should not be accorded, mitigation credit relating to the subject of
those false statements.'' In the Matter of Manoj Bhayana, 76 FR
18,716, 18,718 (Apr. 5, 2011). Put more bluntly: ``a respondent
should not be allowed to reap any benefit from such false or
misleading statements.'' Id.
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I agree with the RDO's finding that BIS opened its investigation
after it received Reflect Geophysical's April 17, 2012 letter to Nordic
regarding the latter's possible use of the survey equipment in Iranian
waters. The basis for Charge 3 was Nordic's April 15, 2014 letter to
BIS. That letter mentioned an interview the company had with a BIS
special agent regarding the conduct in this case.
In the April 15, 2014 letter, Nordic claimed Reflect Geophysical
failed to advise Nordic that the survey equipment was subject to a BIS
license, that there were license conditions regarding the survey
equipment, and that Reflect Geophysical never provided a copy of the
license to Nordic. As the RDO concluded, ``[n]one of these statements
were true.'' The April 2012 letter made reference to the BIS license
and the conditions related thereto. Reflect Geophysical also provided a
copy of the license with the June 2012 lease agreement between the
companies.
The evidence supports the charge that Nordic's statements in the
April 15, 2014 were false and misleading with respect to BIS's
investigation. I therefore affirm the RDO's finding that Nordic made
false and misleading statements to BIS.
4. Respondent Innhaug Charge 1--Causing, Aiding, and Abetting Any Act
Prohibited by the EAR
The evidence also supports the conclusion that Innhaug caused,
aided, or abetted Nordic's unlawful reexport of the survey equipment in
violation of 15 CFR 764.2(b).
Innhaug was, at all relevant times, the Chairman and majority
shareholder of Nordic. Under the EAR, a corporate officer can be held
liable for acts of the corporation. See In the Matter of Trilogy Int'l,
83 FR 9259, 9261 (Mar. 5, 2018) (citing a remand order from the Acting
Under Secretary to treat a corporation and its executive separately
because ``it is well established that a corporate officer can be
charged with causing, aiding or abetting the corporation's underlying
violations'') (internal quotation marks omitted).
The April 11, 2012 cease and desist letter from Reflect Geophysical
was addressed to Innhaug. As a result, he was aware of the concerns
regarding the potential use of the survey equipment in Iranian waters.
Innhaug was also a signatory to the time-charter agreement for the
vessel used to carry the survey equipment into Iranian waters. That
was, the RDO noted, ``an integral part of the ultimate violation.''
Finally, Innhaug admitted to reviewing the April 15, 2014 letter to
BIS, which formed the basis for the false and misleading statements
charge against Nordic.
The evidence supports the conclusion that Innhaug aided and abetted
Nordic's violations of the EAR, and I affirm the RDO's conclusion.
C. Penalties
The EAR permits the undersigned to impose: (1) A civil monetary
penalty; (2) a denial of export privileges, and (3) an exclusion from
practicing as a representative in a licensing transaction. See 15 CFR
764.3(a)(1)-(3). In addition, the relevant statutory provision in
effect at the time of the offense permits imposition of a civil penalty
or $289,238 per violation \10\ or ``an amount that is twice the amount
of the transaction that is the basis of the violation with respect to
the penalty imposed.'' 50 U.S.C. 1705(b)(2).
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\10\ The maximum civil penalty amount is subject to increase
pursuant to the Federal Civil Penalties Inflation Adjustment Act
Improvements Act of 2015, Public Law 114-74, 701 (2015). See 15 CFR
6.4(b)(4).
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1. Civil Monetary Penalty
The RDO recommended a civil monetary penalty jointly and severally
on both Respondents. The ALJ took the value of the contract between
Nordic and Mapna--[euro]11.3 million--doubled it, as permitted under
IEEPA, and converted it to U.S. dollars. The resulting penalty is
$31,425,760. The ALJ did not suspend any portion of the fine.
The ALJ applied the factors used by BIS in settlement cases, found
in 15 CFR part 766, Supp. No. 1.\11\ Although instructive, this case
was not settled; rather, the case proceeded to a full hearing before an
ALJ--a hearing that Respondents decided the day before to decline to
participate. In any event, I agree with the ALJ's application of the
factors, both mitigating and aggravating. I also agree with the RDO and
BIS that IEEPA permits a civil monetary penalty that is ``twice the
amount of the transaction that is the basis of the violation with
respect to which the penalty is imposed.'' 50 U.S.C. 1705(b)(2). In
this case, the relevant transaction--that is, the transaction that
caused the illegal reexport of the survey equipment to Iran--was the
contract between Nordic and Mapna.
---------------------------------------------------------------------------
\11\ The ALJ appropriately used the 2014 version of the CFR to
analyze the settlement factors.
---------------------------------------------------------------------------
Respondents' conduct in this case was unquestionably serious, and
it warrants a significant sanction.\12\ The RDO analyzes the factors
for settlement cases, but it does not provide any analysis regarding
how this penalty fits into other cases. I agree with BIS's position
before the ALJ that penalties in litigated cases should be higher than
settlement cases based on similar conduct. Indeed, the EAR guidelines
on settlement gave the respondents notice that ``penalties for
settlements reached after the initiation of litigation will usually be
higher than those'' that settle. 15 CFR part 766, Supp. No. 1.
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\12\ By using the term ``serious,'' I am not implying that
Respondents' conduct falls short of egregiousness, as noted in the
EAR. See 15 CFR part 766, Supp. No. 1, Sec. IV.B. I instead leave
that to the ALJ to consider on remand.
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The record does not, at this point, support the civil monetary
penalty amount recommended in this case. Even accounting for the fact
that this case was litigated, the penalty here is disproportionate to
similar cases charged by BIS notwithstanding that many of these cases
are subject to a lower statutory penalty amount. Further, even taking
into account, for example, cases proceeding through litigation (even if
defaulted), relating to exports to Iran, and with a sustained charge of
a knowing violation of the EAR, the penalty in this case is out of
proportion.\13\ There are a number other cases in this vein where the
Under Secretary imposed no civil penalty at all. See, e.g., In the
Matter of Ali Asghar Manzarpour, 73 FR 12,073 (Mar. 6, 2008) (three
violations, including
[[Page 15419]]
knowledge, and no civil penalty); In the Matter of Teepad Electronic
General Trading, 71 FR 34,596 (June 15, 2006) (five violations,
including knowledge, and no civil penalty); In the Matter of Swiss
Telecom, 71 FR 32,920 (June 7, 2006) (nine violations, including
knowledge, and no civil penalty); In the Matter of Arian
Transportvermittlungs GmbH, 69 FR 28,120 (May 18, 2004) (two
violations, including knowledge, and no civil penalty); In the Matter
of Adbulamir Mahdi, 68 FR 57,406 (Oct. 3, 2003) (six violations,
including knowledge, and no civil penalty); and In the Matter of Jabal
Damavand General Grading Company, 67 FR 32,009 (May 13, 2002) (four
violations, including knowledge, and no civil penalty).
---------------------------------------------------------------------------
\13\ This method of considering penalties was used in In the
Matter of Petrom GmbH International Trade, and I agree with its
utility. See 70 FR at 32,744 (``[T]he proposed denial order is
consistent with penalties imposed in recent cases under the
Regulations involving shipments to Iran.'') (collecting cases).
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In their briefing before the undersigned, both parties cite In the
Matter of Aiman Ammar, 80 FR 57,572 (Sept. 24, 2015), as being in their
favor. In that case, respondents settled a case with eight violations
of the EAR related to reexport of computer equipment to Syria,
including a charge related to a knowing violation. Id. at 57,574. The
total value of the transactions at issue in that case was approximately
$3.6 million. Id. at 57,573-57,575. The settlement agreement assessed a
$7,000,000 civil monetary penalty, with all but $250,000 suspended for
two years and conditioned on no further export control violations. Id.
at 57,575. Similarly, at the hearing before the ALJ, BIS posited that
In the Matter of Yavuz Cizmeci, 80 FR 18,194 (Apr. 3, 2015), advanced
BIS's penalty arguments. That case, however, simply confirms the
analysis above: The ALJ on remand should conduct a proportionality
analysis in this case. In Cizmeci, BIS charged the respondent with a
single count of aiding and abetting violations of a temporary denial
order related to the acquisition of a Boeing 747 aircraft by Iran Air.
Id. at 18,194. The total value of that transaction was $5.3 million.
Id. In the course of settling that case, BIS accepted a $50,000 civil
penalty, less than 1% of the value of the transaction. Id. at 18,195.
Even cases related to false statements to BIS in the course of an
investigation, there appears to be little precedent for a civil
monetary penalty like the one given here. See, e.g., In the Matter of
Manoj Bhayana, 76 FR 18,716 (Apr. 5, 2011) (on Under Secretary review
of a false statement to BIS during an investigation, no civil monetary
penalty and a two-year denial order); In the Matter of William Kovacs,
72 FR 8967 (Feb. 28, 2007) (on Under Secretary review of a false
statement to BIS during an investigation, a $66,000 civil monetary
penalty and a five-year denial order); see also In the Matter of Saeid
Yahya Charkhian, 82 FR 61,540 (Dec. 28, 2017) (settlement agreement
containing a charge of making a ``false or misleading statement to BIS
and other U.S. Government officials'' with no civil monetary penalty);
In the Matter of Berty Tyloo, 82 FR 4842 (Jan. 17, 2017) (settlement
agreement containing a charge of making a false statement to BIS with
no civil monetary penalty).
A wider view of BIS's cases tells a similar story. In In the Matter
of Eric Baird, 83 FR 65,340 (Dec. 20, 2018), BIS entered into a
settlement agreement for 166 violations of the EAR, but with no
knowledge charges. The parties settled for $17,000,000, with $7,000,000
suspended on the condition of prompt payment. Id. at 65,342. That case
had a related criminal resolution, in which Baird pled guilty to felony
smuggling.\14\ BIS settled a related case, consisting of 150 violations
of the EAR, for $27,000,000, with $17,000,000 suspended. In the Matter
of Access USA Shipping, LLC. See Order dated Feb. 9, 2017, available at
www.bis.doc.gov. Similarly, the respondent in In the Matter of Petrom
GmbH International Trade, 70 FR 32,743 (June 6, 2005), committed
thirteen violations of the EAR, including a knowing violation of the
EAR. The Under Secretary affirmed a civil penalty in the amount of
$143,000--the maximum amount permitted under the statute at the time--
on transactions valued at approximately $100,000. Id. at 32,744,
32,750-51.
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\14\ U.S. Dep't of Justice, ``Former Florida CEO Pleads Guilty
To Export Violations And Agrees To Pay Record $17 Million To
Department Of Commerce,'' Dec. 14, 2018, https://www.justice.gov/usao-mdfl/pr/former-florida-ceo-pleads-guilty-export-violations-and-agrees-pay-record-17-million.
---------------------------------------------------------------------------
Baird and Access USA are not the outer limits of the penalties
available in any case. But, compared to the number of violations here,
and that none of the penalty in this case was suspended, there are
questions about whether the penalty recommended in this case is
proportional to Respondents' conduct in this case. During the hearing
and in several portions of its brief before the ALJ, BIS argued these
facts are ``egregious,'' with the post-hearing briefing saying the
facts here constitute ``one of the most egregious set of facts ever
encountered by BIS.'' If that is so, BIS should be able to make the
record before the ALJ to conduct a comparative analysis.
Apart from the amount of the fine in this case, several of the
cases above demonstrate that BIS occasionally suspends portions of a
civil monetary penalty, particularly in cases with penalties over
$1,000,000. See Baird (assessing a penalty of $17,000,000 with
$10,000,000 suspended); Access USA (assessing a penalty of $27,000,000
with $17,000,000 suspended); Ammar (assessing a penalty of $7,000,000
with $6,750,000 suspended). The ALJ in this case did not suspend any of
the civil penalty. Respondents argue in their briefing that BIS
suspends at least a portion of the civil monetary penalty in 43% of
cases since 2009. Without attesting to the veracity of that figure, it
remains short of a majority. In any event, the significant penalties
with a portion suspended in the cases above are all settlements; that
is, the parties agreed to it. In this case, Respondents participated in
the hearing, up to a point. They required BIS to prepare for and
present at a hearing before the ALJ. Because I am vacating and
remanding the civil monetary penalty, I need not decide at this point
whether the suspension of any portion is appropriate. It may well not
be, as the ALJ concluded in the RDO, but I will leave that issue open
for the ALJ to consider on remand.
Given the range of outcomes in previous resolutions, it is
preferable for the ALJ to conduct the proportionality analysis in the
first instance. Although IEEPA--and now ECRA--permits a reviewing
authority to impose twice the amount of the transaction, the ALJ on
remand should reconsider the civil monetary penalty in light of the
penalties issued in previous cases, recognizing some of them were the
statutory maximum at the time. Respondents' conduct was serious, and
they should be punished. The ALJ was correct that any penalty ``should
be such that it dissuades future violations of this sort, and acts as a
strong deterrent against this type of behavior.'' Viewed through this
lens, it may well be that the civil monetary penalty in case will be
substantial. Perhaps it will remain unchanged. But the record would
benefit from further development on the issue of proportionality.
As a result, I vacate the ALJ's imposition of a civil monetary
penalty, and this case is remanded to the ALJ for a reexamination of
the penalty in view of the guidance provided above.
2. Denial Order
In addition to the civil penalty, the ALJ recommended the
imposition of a temporary denial order on Respondents to run until such
time as Respondents pay the civil monetary penalty in full. Although
Respondents have waived their inability-to-pay argument, I conclude
that a denial order unbounded in time does not serve the ends of
[[Page 15420]]
justice. Accordingly, I conclude a denial order of 15 years will
adequately vindicate BIS's interests in this case.\15\
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\15\ The ALJ in fact potentially exceeded even BIS's requested
denial order period. BIS requested a denial order of 15 years.
---------------------------------------------------------------------------
A review of the same cases cited above--those related to Iran and a
knowing violation of the EAR--is useful. In each of those, the Under
Secretary affirmed denial orders for a specified period of years. See,
e.g., In the Matter of Ali Asghar Manzarpour, 73 FR 12,073 (Mar. 6,
2008) (affirming a 20-year denial order period); In the Matter of
Teepad Electronic General Trading, 71 FR 34,596 (June 15, 2006)
(affirming a 10-year denial order period); In the Matter of Swiss
Telecom, 71 FR 32,920 (June 7, 2006) (affirming a 10-year denial order
period); In the Matter of Petrom GmbH International Trade, 70 FR 32,743
(June 6, 2005) (affirming a 20-year denial order period); In the Matter
of Arian Transportvermittlungs GmbH, 69 FR 28,120 (May 18, 2004)
(affirming a 10-year denial order period); In the Matter of Adbulamir
Mahdi, 68 FR 57,406 (Oct. 3, 2003) (affirming a 20-year denial order
period); and In the Matter of Jabal Damavand General Grading Company,
67 FR 32,009 (May 13, 2002) (affirming a 10-year denial order period).
I conclude BIS's position requesting a 15-year denial period is
appropriate, and I modify the denial order period to run 15 years from
the date of this Partial Remand and Final Denial Order.
D. Miscellaneous Items
Several other items require brief consideration. First, Respondents
requested a meeting with the undersigned to discuss the case. The EAR
provides that the Under Secretary's ``review will ordinarily be limited
to the written record for decision, including the transcript of any
hearing, and any submissions by the parties concerning'' the RDO. 15
CFR 766.22(c). I agree with BIS's argument that to do so would be a
departure from the normal practice. In any case, it is unnecessary
here. The record and RDO are clear and support the findings of
liability. In addition, because I am vacating the monetary penalties,
the ALJ will have the opportunity to hold arguments, should he so
choose, to consider the remaining issue in this case; although I would
note that Respondents declined to participate in the June 11, 2019
hearing, and there are reasons not to reward them for their choice.
Respondents also point to the Small Business Regulatory Enforcement
Fairness Act of 1996 (SBREFA) \16\ for the proposition that ``under the
appropriate circumstances,'' I am permitted to grant a ``waiver of
civil penalties for statutory or regulatory violations by small
entities.'' Although true, there are several problems with Respondents'
request. The charging letters for both sets of Respondents point to the
U.S. Small Business Administration's Ombudsman to discuss the potential
applicability of the SBREFA. There is no evidence in the record that
Respondents did so, and they do not claim to have done so in their
brief. In any event, Respondents declined to participate in the
hearing--including to appear and present arguments about whether Nordic
is a small business, the financial implications or any penalties, or
similar issues. There is little reason to entertain an eleventh-hour
argument on this point.
---------------------------------------------------------------------------
\16\ See Public Law 104-121 (1996) (codified at various sections
of the U.S. Code).
---------------------------------------------------------------------------
* * * * *
Accordingly, based on my review of the RDO and entire record, I
affirm the findings of liability in the RDO, I vacate and remand for
reconsideration the civil monetary penalty, and modify the recommended
period of the denial order to a period of 15 years.
Accordingly, it is therefore ordered:
First, the findings of liability are affirmed against the
Respondents.
Second, the civil monetary penalty is vacated and remanded for
additional consideration as discussed above.
Third, for a period of 15 years from the date of this Order, Nordic
Marine Pte, Ltd., with the last known address of 3 HarbourFront Place,
#04-03 HarbourFront Tower 2, Singapore 099254, and Morten Innhaug, with
a last known address of 16 Keppel Bay Drive #04-20 Caribbean at Keppel
Bay, Singapore 098643 and when acting for or on their behalf, their
successors, assigns, employees, agents, or representatives (each a
``Denied Person'' and collectively the ``Denied Persons'') may not,
directly or indirectly, participate in any way in any transaction
involving any commodity, software or technology (hereinafter
collectively referred to as ``item'') exported or to be exported from
the United States that is subject to the EAR, or in any other activity
subject to the EAR, including, but not limited to:
A. Applying for, obtaining, or using any license, license
exception, or export control document;
B. Carrying on negotiations concerning, or ordering, buying,
receiving, using, selling, delivering, storing, disposing of,
forwarding, transporting, financing, or otherwise servicing in any way,
any transaction involving any item exported or to be exported from the
United States that is subject to the EAR, or engaging in any other
activity subject to the EAR; or
C. Benefitting in any way from any transaction involving any item
exported or to be exported from the United States that is subject to
the EAR, or from any other activity subject to the EAR.
Fourth, that no person may, directly or indirectly, do any of the
following:
A. Export or reexport to or on behalf of a Denied Person any item
subject to the Regulations;
B. Take any action that facilitates the acquisition or attempted
acquisition by a Denied Person of the ownership, possession, or control
of any item subject to the EAR that has been or will be exported from
the United States, including financing or other support activities
related to a transaction whereby a Denied Person acquires or attempts
to acquire such ownership, possession or control;
C. Take any action to acquire from or to facilitate the acquisition
or attempted acquisition from a Denied Person of any item subject to
the EAR that has been exported from the United States;
D. Obtain from a Denied Person in the United States any item
subject to the EAR with knowledge or reason to know that the item will
be, or is intended to be, exported from the United States; or
E. Engage in any transaction to service any item subject to the EAR
that has been or will be exported from the United States and which is
owned, possessed or controlled by a Denied Person, or service any item,
of whatever origin, that is owned, possessed or controlled by a Denied
Person if such service involves the use of any item subject to the
Regulations that has been or will be exported from the United States.
For purposes of this paragraph, servicing means installation,
maintenance, repair, modification or testing.
Fifth, after notice and opportunity for comment as provided in
section 766.23 of the EAR, any person, firm, corporation, or business
organization related to a Denied Person or the Denied Persons by
ownership, control, position of responsibility, affiliation, or other
connection in the conduct of trade or business may also be made subject
to the provisions of this Order.
Sixth, this Order shall be served on Respondents Nordic Maritime
Pte Ltd. and Morten Innhaug and on BIS, and shall be published in the
Federal Register. In addition, the ALJ's Recommended Decision and Order
shall be published in the Federal Register.
[[Page 15421]]
The findings of liability and the denial order, which constitute
final agency action in this matter, are effective immediately.
Issued this 11th day of March, 2020.
Cordell A. Hull,
Acting Under Secretary of Commerce for Industry and Security.
United States Department of Commerce, Bureau of Industry and Security,
Washington, DC 20230
In the Matters of: Nordic Maritime Pte. Ltd. and Morten Innhaug,
Respondent
17 BIS-0004 (consolidated)
Certificate of Service
I hereby certify that, on March 11, 2020, I caused the foregoing
Partial Remand and Final Denial Order to be served upon:
Gregory Michelsen, Esq., Zachary Klein, Esq., U.S. Department of
Commerce, Office of Chief Counsel for Industry and Security, 14th &
Constitution Avenue NW, Washington, DC 20230, [email protected],
[email protected], (Electronically).
Douglas N. Jacobson, Esq., JACOBSON BURTON KELLEY PLLC, 1725 I Street
NW--Suite 300, Washington, DC 20006, [email protected],
(Electronically).
Honorable Dean C. Metry, Administrative Law Judge, U.S. Coast Guard,
U.S. Courthouse, 601 25th St., Suite 508A, Galveston, TX 77550,
[email protected], (Electronically).
ALJ Docketing Center, Attention: Hearing Docket Clerk, 40 S. Gay
Street, Room 4124, Baltimore, MD 21202-4022, [email protected],
(Electronically).
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Office of the Under Secretary for Industry and Security
United States Department of Commerce, Bureau of Industry and Security,
Washington, DC
In the Matters of: Nordic Maritime Pte. Ltd., and Morten Innhaug,
Respondents.
17 BIS-0004
Recommended Decision and Order
The Bureau of Industry and Security (BIS or Agency) initiated this
administrative enforcement action against Nordic Maritime Pte. Ltd.
(Respondent Nordic) and Morten Innhaug (Respondent Innhaug) on April
28, 2017. BIS alleges Respondent Nordic committed three violations and
Respondent Innhaug committed one violation of the Export Administration
Regulations (EAR or Regulations). 15 CFR parts 730-74 (2012-14). The
first three allegations allege Respondent Nordic: (1) Illegally
reexported certain equipment to Iran; (2) acted with knowledge when it
illegally reexported the equipment; and (3) made false and misleading
statements during the BIS investigation.\17\ The single charge against
Respondent Innhaug alleges he aided and abetted Respondent Nordic in
violating the regulations.
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\17\ Reexport means to ship an item subject to the EAR from one
foreign country to another foreign country. See 15 CFR 734.14.
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As set forth below, I find BIS proved the allegations in the
charging letters. I recommend Respondents be fined in the amount of
$31,425,760.00 dollars. I further recommend the Under Secretary impose
a standard denial order as described below until Respondents repay the
fine in full.
Background
After BIS filed two separate charging letters against Respondents
separately, the Chief Administrative Law Judge (CALJ) of the United
States Coast Guard (USCG), consolidated 17-BIS-0003 and 17-BIS-0004.
See 5 U.S.C. 3344 and 5 CFR 930.208. Thereafter, the CALJ set deadlines
for discovery and motion practice, as well as establishing a hearing
date.
On February 2, 2018, the CALJ issued an order partially granting
BIS' Motion for Summary Decision. See Docket Entry 42. The February 2,
2018 Order agreed there were no material issues of fact whether
Respondents committed the allegations in the charging letters but did
not, however, address the appropriate sanction to levy against
Respondents for the proved violations. Noting a lack of sufficient
briefing on the issue, the CALJ set a sanction hearing to commence on
February 6, 2018, in Baltimore, Maryland.
After the hearing on February 6, 2018, but before the CALJ issued a
sanction decision, the United States Supreme Court decided Lucia v.
SEC., on June 21, 2018. 138 S. Ct. 2044 (2018). Lucia declared SEC ALJs
``Officers of the United States'' and required an appointment in
accordance with the Appointments Clause in Art. II, Sec. 2, cl. 2 of
the U.S. Constitution. Ultimately, the Court concluded SEC ALJs were
not properly appointed, and agreed the SEC respondents were entitled to
a new ``hearing'' before a new, properly appointed ALJ on remand.
Lucia, 138 S. Ct. at 2055.
Relying on Lucia, Respondents filed motions attacking USCG ALJ
appointments. Agreeing with Respondents in part, the CALJ issued an
Order on October 19, 2018, recognizing he was similarly situated to SEC
ALJs. The CALJ acknowledged he was not properly appointed under the
Appointments Clause when he issued the order granting partial summary
decision and when he presided over the sanction hearing in this matter.
Accordingly, the CALJ reassigned this matter to the undersigned ALJ per
the Supreme Court's discussion in Lucia. 138 S. Ct. at 2055 (discussing
reassignment to a constitutionally appointed ALJ as the proper
recourse).
Upon reassignment, and after reviewing Respondents' pending motions
and BIS' oppositions, the undersigned ALJ held a telephone conference
on November 8, 2018. During the conference, the parties agreed this
matter should be reset for a hearing and that CALJ's order partially
granting summary decision did not effectively dispose of the
allegations in the charging letters because of his improper appointment
at the time he issued the decision. However, the parties disagreed on
the need for additional discovery and/or more time to file additional
motions in this matter. The undersigned directed the parties to file
legal memoranda addressing the need for further discovery; both parties
complied on December 3, 2018.
Before the undersigned had the opportunity to decide the pending
motions, the United States Department of Homeland Security, the parent
department of the USCG, experienced a lapse in appropriations beginning
on December 22, 2018. The funding lapse persisted until January 25,
2019, during which time the court's staff was not permitted to report
for duty.
After the government shutdown, the undersigned issued an Order on
February 1, 2019, granting Respondents' request to partially reopen
discovery. The February 1, 2019 Order noted Respondents' well-reasoned
argument that new discovery should be permitted because Respondents'
ability to pay any levied sanction (if one is imposed) might have
changed since the original discovery exchange in 2017. However, the
undersigned did not grant unfettered discovery; the parties were only
permitted to update already existing discovery responses or conduct
additional discovery that did not already exist. See February 1, 2019
Order.
On April 12, 2019, Respondents provided BIS with updated responses
to a request for production of documents, which BIS propounded in 2017.
In its updated production, Respondents provided BIS with one page
concerning
[[Page 15422]]
Respondent Innhaug's ability to pay a civil penalty and two pages of
documents concerning Respondent Nordic's ability to pay a civil
penalty.
BIS filed a Motion in Limine on April 26, 2019, arguing
Respondents' updated production was insufficient. Respondents did not
file a timely response to BIS' April 26, 2019 motion, and did not
timely seek permission from the undersigned for additional time to file
a response. BIS also filed a Motion for Summary Judgment on May 8,
2019.
The undersigned issued two notable orders on May 22, 2019, and May
24, 2019, in response to BIS' motions. The May 22, 2019 Order
instructed Respondents to produce all documents responsive to BIS'
Request for Production 5, 6, and 7, and noted that if Respondents
failed to comply, the undersigned may grant BIS' request to prevent
Respondents from asserting an inability to pay argument at the hearing.
In the May 24, 2019 Order, the court again observed Respondents'
obligation to comply with the May 22, 2019 Order, but denied BIS'
request to enter summary judgment.
Thereafter, BIS renewed its Motion in Limine on June 4, 2019,
asking the undersigned to prevent Respondents from asserting an
inability to pay argument because Respondents failed to comply with the
discovery orders issued in this case. See May 22, 2019 Order
(permitting BIS to renew motion). Respondents filed an opposition to
BIS' renewed motion, and filed a notice specifically informing the
undersigned ALJ that Respondents would not appear at the June 11, 2019
hearing, and would not permit their attorney of record to appear on
their behalf.
On June 11, 2019, the undersigned ALJ convened a hearing in
Baltimore, Maryland. Gregory Michelsen, Esq., and Zachary Klein, Esq.,
appeared on behalf of the BIS. However, in keeping with the June 11,
2019 Notice, neither Respondents nor Respondents' counsel appeared at
the hearing.
At the beginning of the hearing, BIS renewed their motion to bar
Respondents from raising the inability to pay argument as a result of
the discovery violations. The undersigned agreed and granted BIS'
motion to bar Respondents from asserting the inability to pay argument.
Tr. 12. Thereafter, BIS called three witnesses and offered 17 exhibits,
all of which were admitted.
After the hearing, BIS filed a post-hearing brief on August 15,
2019. Respondents filed a post-hearing brief on August 16, 2019, and
BIS replied on September 13, 2019. Briefing is closed in this case and
this matter is ripe for decision.
Preliminary Evidentiary Issues
Before turning to the substance of this case, the undersigned finds
it necessary to address the exhibits BIS attached to its post-hearing
brief and attachments accompanying Respondents' post-hearing brief. I
address each in turn.
a. A. BIS' Exhibits
A review of BIS' brief shows it did not cite to the 17 exhibits
entered and numbered at the hearing. Instead, without permission from
the ALJ, BIS' brief cites to 27 exhibits. Of the 27 exhibits, some were
admitted at the hearing, others were incorporated in the record at
various points during this entire litigation, and at least one was
created after the hearing. BIS' mixture of these exhibits has the
potential to cause great confusion. To remedy the confusion, and to
prevent further delay of this matter, all exhibits referenced
throughout this decision correspond to the exhibit list cited in BIS'
post-hearing brief.
In addition to the citation issue, some of the exhibits cited by
BIS in the post-hearing brief raise the question of admissibility. For
example, BIS relies on testimony taken during the February 6, 2018
hearing before CALJ Brudzinski. This was in error. As discussed above,
CALJ Brudzinski lacked authority to convene the hearing on February 6,
2018, and similarly lacked authority to place any witnesses under oath,
because he was not authorized to exercise the powers of an inferior
officer at the time. Since he lacked authority to place witnesses under
oath or convene the hearing, any testimony before CALJ Brudzinski
should not be considered. To hold otherwise would sidestep Lucia's
instruction to grant a respondent a new hearing where an ill-appointed
ALJ has presided before. Indeed, it would be an odd outcome to allow a
respondent to have a new hearing because the first ALJ was wrongfully
appointed, but allow all the testimony presented to that same ALJ as
evidence in a second hearing. Accordingly, the undersigned will strike
Exhibit 5 and will not consider the February 6, 2018 transcript in this
case.
With regard to Exhibit 8, which is the transcript of the
proceedings on June 11, 2019, the undersigned finds it a bootless
errand and a waste of resources to attach the hearing transcript as an
exhibit. The undersigned's July 11, 2019 Order serving the transcript
on the parties made the document a part of the record. As a matter of
housekeeping, by attaching it as an exhibit, BIS clutters the record
and creates redundant copies of identical documents for no reason.
Accordingly, Exhibit 8 is stricken; however, the undersigned will rely
on the substance of the transcript, cited as Tr. at __.
Lastly, there is the issue of an affidavit signed by BIS' counsel.
A review of Exhibit No. 27 shows it is a sworn statement created on
August 15, 2019, well after the hearing in this case. BIS attached this
exhibit without permission of the ALJ. Given the timing of its
creation, and the fact that BIS seeks to add evidence into the record
without any regard for the ALJ as the evidentiary gatekeeper in this
case, I am striking Exhibit 27, and will not rely on it in this
decision.
b. B. Respondents' Attachments
A review of Respondents' post-hearing brief shows Attachments 1 and
2 are documents which purportedly support the argument concerning
Respondents' inability to pay a sanction if one is imposed in this
case. Without belaboring this issue, the undersigned will strike both
attachments. A review of the hearing transcript in this case shows the
undersigned granted BIS' motion to prevent Respondents from raising an
inability to pay argument during these proceedings because of
Respondents' discovery violations, i.e., failure to comply with the May
22, and 24, 2019 Orders. Tr. at 12.\18\
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\18\ BIS also asked the undersigned to find, as a result of the
discovery violation, that Respondent Innhaug allegedly received 90
percent of a $22.8 million distribution. Tr. at 14. The undersigned
finds it unnecessary to make such a finding because Respondents'
ability to pay is no longer a question in this case since I
prohibited Respondents from raising the issue as a mitigating
factor.
---------------------------------------------------------------------------
Having disposed of these evidentiary issues, the undersigned turns
to the case at bar.
Recommended Findings of Fact
Upon review of the file, the undersigned finds the following facts
proved by preponderant evidence:
1. On or about July 12, 2011, Reflect Geophysical obtained a
license from BIS covering certain seismic survey equipment, including
compass birds and streamer sections (survey equipment). Ex. 7.
2. At some point after Reflect Geophysical obtained the license,
Respondent Nordic came into possession of the survey equipment. Ex. 14.
3. Respondent Nordic is a company located in Singapore, and at all
times relevant to this case, Morten Innhaug was the Chairman and
majority shareholder of Nordic Maritime Pte. Ltd. Ex. 3.
4. On or about April 11, 2012, Reflect Geophysical provided
Respondent
[[Page 15423]]
Nordic with a cease and desist letter, warning the equipment's use in
Iranian waters would violate the license BIS granted Reflect
Geophysical. The letter also demanded Respondent Nordic return the
equipment until resolution of the dispute. Ex. 14; Tr. at 71.
5. On April 17, 2012, Reflect Geophysical informed BIS Respondent
Nordic might use the survey equipment to explore oil and gas in Iran,
in violation of U.S. law and regulation. Ex. 11.
6. In June 2012, after the cease and desist letter, Reflect
Geophysical leased the survey equipment to Respondent Nordic pursuant
to a written agreement, which included a retroactive commence date of
April 2012. Ex. 16.
7. Although Respondents had a lease to use the survey equipment,
Respondents never obtained any licenses from BIS for possession, use,
or reexport of the leased survey equipment. Ex. 4.
8. On or about May 1, 2012, through and including April 4, 2013,
Respondent Nordic transported the survey equipment to the Forouz B
natural gas field and used it to conduct seismic surveys. Ex. 4.
9. The Forouz B natural gas field is within Iranian territorial
waters. Ex. 4.
10. Respondent Nordic transported the survey equipment to the
Forouz B natural gas field aboard the M/V ORIENT EXPLORER, a vessel it
leased/chartered from a Russian state-owned company, DMNG, via a
charter party signed by Respondent Innhaug. Ex. 4.
11. Respondent Nordic conducted the seismic survey of the Forouz B
natural gas field pursuant to an [euro]11.8 million euro contract it
had with Mapna International FZE (Mapna), using the survey equipment at
issue in this case. Ex. 4; Ex. 13; Tr. at 15.
12. Mapna has significant ties to Iran. Tr. at 64.
13. Respondents neither sought nor obtained authorization from
either BIS or the Department of Treasury's Office of Foreign Assets
Control (OFAC) to reexport the survey equipment at issue to the Forouz
B natural gas field in Iran. Ex. 6.
14. Respondents were aware the survey equipment would be used to
conduct a seismic survey at the Forouz B natural gas field in Iran. Ex.
4.
15. Respondents were on notice that U.S. government authorization
was required to reexport the survey equipment to Iran, including the
territorial waters of Iran. Ex. 14; Tr. at 71-72.
16. On April 15, 2014, Respondent Nordic, through its Chief
Executive Officer, Kjell Goran Gauksheim, provided BIS a written
submission falsely stating that Reflect Geophysical: (1) Never advised
Respondent Nordic that the survey equipment was subject to a BIS export
license; (2) never communicated any BIS export license conditions
controlling the survey equipment; and (3) never provided a copy of the
BIS license (granted to Geophysical) to Respondents. Tr. at 66; Ex. 4.
Discussion
c. A. Jurisdiction
At the time of the alleged offenses, BIS had jurisdiction over this
matter pursuant to the Export Administration Act of 1979 (EAA), 50
U.S.C. 4601-4623, specifically the regulations promulgated under that
Act. See 15 CFR 730-774. Although the EAA of 1979 had lapsed at the
time, the President of the United States was authorized to enforce the
regulations promulgated under the EAA of 1979 pursuant to the
International Emergency Economic Powers Act (IEEPA). 50 U.S.C. 1701, et
seq.
In August 2018, Congress passed the Export Control Reform Act of
2018 and repealed much of the EAA. Under the 2018 Act, Congress
provided BIS with permanent statutory authority to administer the
export regulations. 50 U.S.C. 4826 (EAR in effect on August 13, 2018,
shall continue in effect). The 2018 Act specifically notes that all
administrative actions made or administrative proceedings commenced are
not disturbed by the new legislation. See 50 U.S.C. 4826. Accordingly,
BIS has jurisdiction over this matter, as it did at the time of the
offenses in question.
d. B. Burden of Proof
As set forth in prior BIS Decisions and Orders, BIS must prove the
allegations in the charging letter by reliable, probative, and
substantial evidence. In the Matter of Ihsan Medhat Elashi, 71 FR
38843, 38847 (July 10, 2006) citing 5 U.S.C. 556(d). In Elashi, the ALJ
acknowledged the Supreme Court's traditional ``preponderance of the
evidence'' standard of proof applies to BIS proceedings. Id. citing
Dir., Office of Workers' Comp. Programs v. Greenwich Collieries, 512
U.S. 267, 290 (1994) (the preponderance of the evidence . . . applies
in adjudications under the Administrative Procedure Act) (citing
Steadman v. SEC., 450 U.S. 91 (1981)).
Ultimately, to prevail, BIS must establish that it is more likely
than not the Respondents committed the violations alleged in the
charging letters. See Herman & Maclean v. Huddleston, 459 U.S. 375, 390
(1983). In other words, the agency must demonstrate ``that the
existence of a fact is more probable than its nonexistence.'' Concrete
Pipe & Products v. Construction Laborers Pension Trust, 508 U.S. 602,
622 (1993). To satisfy the burden of proof, BIS may rely on direct and/
or circumstantial evidence. See generally Monsanto Co. v. Spray-Rite
Servo Corp., 465 U.S. 752, 764-765 (1984); In the Matter of BiB and
Malte Mangelsen, 71 FR 37042, 37047 (June 29, 2006).
With this burden in mind, the undersigned turns to the charges in
this matter.
e. C. Charging Letters
The charging letters in this case allege separate violations
against Respondent Nordic and Respondent Innhaug. A review of the
charges shows they are not in logical order and difficult to follow. As
noted by BIS' brief, the charges are more easily analyzed out of order
because Charge 2 relates to the underlying action and forms the basis
of the other charges. Accordingly, I will address Charge 2 first,
followed by Charge 1 and Charge 3 against Respondent Nordic, and
finally address Charge 1 against Respondent Innhaug.
1. Charge 2 Against Respondent Nordic--Reexporting Equipment to Iran
In Charge 2 of the Nordic Charging Letter, BIS alleges Respondent
Nordic violated section 764.2(a) by reexporting U.S.-origin survey
equipment to Iran without the required license. Respondent Nordic
admits it reexported the survey equipment without a license, but denies
it had knowledge that reexporting to Iranian waters violated the
license requirement. See Answer, Ex. 6. As set forth below, I find BIS
proved by preponderant evidence Respondent Nordic violated 15 CFR
764.2(a) by reexporting the survey equipment at issue in this case.
As a general, overarching rule, 15 CFR 764.2(a) prohibits all
violations of the EAR. Violations of 15 CFR 764.2(a) are strict
liability offenses, and BIS need not show a violator intentionally,
knowingly committed the violations. See In the Matter of Wayne LaFleur,
74 FR 5916, 5918 (February 3, 2009).
In 2012-2013, at the time of the alleged offense, the EAR strictly
prohibited reexports of certain equipment identified on the Commerce
Control List (CCL). 15 CFR Supp. No. 1 to Part 774. However, the EAR
did not close the door to all reexportation of CCL items; instead, it
permitted an individual to request a license from the U.S. government,
which would allow
[[Page 15424]]
the reexport. 15 CFR 742.4, 742.8, and 746.7 (2012-2013). But
reexporting any of the items on the CCL without the appropriate
license, constitutes an EAR violation under 15 CFR 764.2(a) and non-
compliance with 15 CFR 742.4, 742.8, 746.7, and 15 CFR Supp. No. 1 to
Part 774.
A review of the CCL shows the survey equipment at issue here was
clearly classified under Export Control Classification Number (ECCN)
6A001; neither party contests this point. 15 CFR Supp. No. 1 to Part
774. Similarly, the parties agree Respondent Nordic possessed the
survey equipment without a license and that Respondent Nordic
reexported the equipment for use in Iranian waters onboard the M/V
ORIENT EXPLORER. Exs. 4; 6; 9; 11. Exhibit 6 shows Respondent Nordic
admitted to using the survey equipment in Iranian waters.
There can be only one conclusion under the facts of this case, by
taking the equipment into Iranian waters and conducting a seismic
survey without a license, Respondent Nordic violated 15 CFR 764.2(a) by
engaging in conduct prohibited by 15 CFR 742.4, 742.8, 746.7, and 15
CFR Supp. No. 1 to Part 774.
Respondent Nordic's argument that it did not know of the licensure
requirement is unpersuasive. As noted above, it is irrelevant whether a
violator knows a license is required because these types of violations
are strict liability offenses. Ergo, Respondent Nordic's lack of
regulatory knowledge is not a defense to this specific charge. In the
Matter of Wayne LaFleur, 74 FR 5916, 5918 (February 3, 2009).
2. Respondent Nordic Charge 1--Acting With Knowledge of EAR Violation
Unlike Charge 2, Charge 1 alleges Respondent Nordic not only
reexported the survey equipment, but did so with knowledge that the
reexport would violate the regulations and licensure requirements. See
15 CFR 764(e) (emphasis added). As noted above, Respondent Nordic
acknowledges it reexported the survey equipment, but insists it did so
without knowledge of the EAR violations.
Pursuant to 15 CFR 764.2(e), no person may act with knowledge they
are undertaking an action in violation of the EAR. The regulations
define knowledge as:
not only positive knowledge that the circumstance exists or is
substantially certain to occur, but also an awareness of a high
probability of its existence or future occurrence. Such awareness is
inferred from evidence of the conscious disregard of facts known to
a person and is also inferred from a person's willful avoidance of
facts.
15 CFR 772.1. Thus, where BIS alleges a section 764.2(e) violation, BIS
must prove (1) the person violated the regulations; and (2) the
violator did so with scienter--knowledge. A lack of knowledge would be
a defense under this charge.
As set forth above, the parties do not dispute whether Respondent
Nordic violated the EAR when it reexported the survey equipment to
Iranian waters. Thus, the record proves the first element of a section
764.2(e) violation.
With regard to the second element, the record shows Respondent
Nordic had the requisite knowledge when it violated the regulations.
Specifically, Respondent Nordic acknowledges in April 2012, Reflect
Geophysical straightaway warned Respondent Nordic by a cease and desist
letter that use of the survey equipment in Iranian waters would violate
the license BIS granted. Ex. 14. And while it may seem odd that Reflect
Geophysical subsequently leased the equipment to Respondent Nordic in
June 2012, the record shows Reflect Geophysical provided Respondent
Nordic with a copy of the license granted by BIS as part of the June
2012 lease. The license attached to the lease specifically identifies
countries wherein the equipment may be used, and Iran is noticeably
absent. Ex. 7. Thus, Respondent Nordic had two clear notices informing
it of the clear illegality of using the survey equipment in Iranian
waters and chose, on both instances, to ignore the warnings.
The evidence is conclusive. Respondent Nordic had actual specific
knowledge that use of the equipment in Iranian waters would run awry of
U.S. law and regulations. Accordingly, I find BIS proved Respondent
Nordic violated 15 CFR 764(e), by knowingly violating 15 CFR 764.2(a),
15 CFR 742.4, 742.8, 746.7, and 15 CFR Supp. No. 1 to Part 774.
Even assuming, arguendo, Respondent Nordic did not have actual
specific knowledge that it was violating the EAR, Respondent Nordic did
have an awareness of a high probability that BIS restrictions applied
to use of the equipment in Iranian waters, and that the use would be a
regulatory violation. 15 CFR 772.1. The record shows not only did
Respondent Nordic receive a cease and desist letter, but Respondent
Nordic and Reflect Geophysical had an ongoing dispute about the
equipment's use. A review of the April 14, 2012 cease and desist letter
shows Respondent Nordic had a history of conflict with Reflect
Geophysical, as expressed in Paragraph 5 which reads:
For the foregoing reasons we HEREBY DEMAND that . . . Nordic take
steps to have the Vessel returned to Singapore so that Equipment may
be offloaded and stored at mutually acceptable location, as
previously suggested in our letters 7 and 21 March 2012 pending the
resolution of this dispute. . . .
Ex. 14 (emphasis in original). It bears repeating, after sending the
cease and desist letter, Reflect Geophysical again provided Respondent
Nordic with clear information concerning the illegality of the survey
equipment's use in the June 2012 lease. And although it may seem highly
irresponsible for Reflect Geophysical to subsequently lease the
equipment to Respondent Nordic in June 2012, the fact remains the lease
included a copy of the BIS license describing restrictions applicable
to the equipment. This license makes very clear the countries in which
the equipment may be reexported, and Iran is not on the list.
These communications between Respondent Nordic and Reflect
Geophysical are telling and lead to the conclusion that the parties
discussed use of the equipment in Iranian waters. To this end, it is
far more likely than not that Respondent Nordic simply ignored all
warnings against use of the equipment in Iranian waters and proceeded
with a knowing disregard for the restrictions.
Upon review of the record, and applying the EAR to the case at
hand, preponderant evidence shows Respondent Nordic possessed the
requisite knowledge contemplated under 15 CFR 764.2(e) when it violated
the EAR. BIS supplied ample evidence proving Respondent Nordic knew
reexportation of the survey equipment into Iranian waters was a
violation of the regulations.
3. Respondent Nordic Charge 3--Making False and Misleading Statements
In Charge 3, BIS alleges Respondent Nordic made false and
misleading statements while BIS investigated the use of the survey
equipment in this case. See 15 CFR 764.2(g). The record shows BIS
proved Charge 3.
Title 15 CFR 764.2(g) prohibits misrepresentation and concealment
of facts, and provides in pertinent part:
(1) No person may make any false or misleading representation,
statement, or certification, or falsify or conceal any material
fact, either directly to BIS, the United States Customs Service, or
an official of any other United States agency, or indirectly through
any other person:
[[Page 15425]]
(i) In the course of an investigation or other action subject to
the EAR. . . .
Where a corporation is involved, an officer or employee constitute the
acts of the corporation. See U.S. v. Sain, 141 F.3d 463 (3d Cir. 1998);
S.E.C. v. Koenig, 2007 WL 1074901 *6 (N.D. Ill. Apr. 5, 2007).
Applying section 764.2(g) here, BIS must prove (1) BIS was
conducting an ongoing investigation; and (2) during the investigation,
Respondent Nordic made the false or misleading statements.
A review of the record shows BIS opened an investigation after
receiving Reflect Geophysical's April 17, 2012 letter expressing
concern that Respondent Nordic might use the survey equipment in
Iranian waters. Tr. at 38. Moreover, Respondent Nordic's April 15, 2014
letter to BIS shows Respondent Nordic's awareness of the ongoing BIS
investigation, inasmuch as the letter cites ``potential non-
compliance'' and an interview with Special Agent Payton from the Office
of Export Enforcement's (OEE) Houston, Texas office. Ex. 4.
Accordingly, BIS proved at some time between April 17, 2012, and April
15, 2014, BIS opened an investigation concerning the use of the survey
equipment.
The April 15, 2014 letter is also the source of BIS' theory that
Respondent Nordic made false and/or misleading representations to BIS
during the investigation. Specifically, the April 15, 2014 letter from
Respondent Nordic's CEO,\19\ accuses Reflect Geophysical of: (1) Never
advising Respondent Nordic that the survey equipment was subject to a
BIS export license; (2) never communicating any BIS export license
conditions controlling the survey equipment; and (3) never providing a
copy of the BIS license (granted to Geophysical) to Respondent Nordic.
Ex. 4; Tr. at 66. None of these statements were true.
---------------------------------------------------------------------------
\19\ Courts roundly recognize that a corporate officer's conduct
constitute acts of the corporation itself. See S.E.C. Koenig, 2007
WL 1074901 noting that a corporation's agent's action can constitute
proof of a corporation's violation.
---------------------------------------------------------------------------
As noted above, the evidence shows Respondent Nordic received the
cease and desist letter in April 2012, directly referencing the BIS
license and the restrictions on the equipment's use in Iranian waters.
Second, the June 2012 lease agreement included a copy of the license
which expressly stated the conditions controlling the survey equipment.
These two documents prove it is more probable than not Respondent
Nordic, through its CEO, misled BIS or made false misrepresentations to
BIS during the course of an investigation when it sent the April 15,
2014 letter to BIS. Accordingly, I find BIS proved Charge 3 against
Respondent Nordic.
4. Respondent Innhaug Charge 1--Causing, Aiding, and Abetting Any Act
Prohibited by the EAR
In Charge 1, BIS makes a separate allegation against Respondent
Innhaug, and alleges he caused, aided, or abetted Respondent Nordic to
reexport maritime surveying equipment into Iranian waters. Pursuant to
BIS case precedent and the applicable regulations, I find BIS proved
Charge 1 against Respondent Innhaug.
Title 15 CFR 764.2(b) provides: No person may cause or aid, abet,
counsel, command, induce, procure, or permit the doing of any act
prohibited, or the omission of any act required, by the EAA, the EAR,
or any order, license or authorization issued thereunder. Where a
corporation is involved, an officer or employee can be charged with
aiding and/or abetting the corporation's underlying violations. See
U.S. v. Sain, 141 F.3d 463 (3d Cir. 1998); S.E.C. v. Koenig, 2007 WL
1074901 *6 (N.D. Ill. Apr. 5, 2007). As explained in Koenig, an agent's
actions can constitute both proof of a company's primary violations and
proof of the agent's aiding and abetting violations. BIS case precedent
also shows under the EAR, a corporate officer can be held liable for
the acts committed in helping the corporation violate the EAR. In In
the Matters of: Trilogy International Assoc., Inc., and William Michael
Johnson, the Under Secretary agreed that an agent who (1) directs and
controls operations of a corporation; and (2) takes one or more
specific actions in connection with an EAR violation, may be held
liable for underlying violations committed by the company. 15-BIS-0005
(2018).
Here, BIS claims Respondent Innhaug, as the Chairman and majority
shareholder, caused, aided, and abetted Respondent Nordic's unlicensed
reexports of the survey equipment into Iranian waters. Having already
determined Respondent Nordic reexported the survey equipment into
Iranian waters in violation of the EAR, the only question remaining is
whether Respondent Innhaug aided and abetted in this conduct.
In this case, the primary evidence against Respondent Innhaug comes
from the time charter party \20\ entered into on or about April 1,
2012. Ex. 12. The time charter party bears Respondent Innhaug's and a
DMNG representative's signature. The essence of the agreement is for
worldwide use of the M/V ORIENT EXPLORER, which, as the evidence shows,
was the vessel used to reexport the survey equipment into Iranian
waters. Indeed, securing the vessel to carry the equipment to Iranian
waters was an integral part of the ultimate violation. Therefore, it
goes without saying that the agreement was essential to reexporting the
equipment to Iran in violation of the EARs.\21\
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\20\ A time charter party is a maritime contract for use of a
vessel for a certain period of time. See Interocean Shipping Co. v.
M/V LYGARIA, 512 F. Supp. 960, 967 (D. Md. 1981) (noting ``[a] time
charter party is simply an agreement between a vessel owner and a
charterer that the latter may use the vessel's cargo carrying
capacity to transport unspecified cargos for a fixed period of
time.'')
\21\ The undersigned observes that Respondent Innhaug's entrance
into the time charter party agreement appears to be well before the
cease and desist letter was sent to Respondent Innhaug. However, as
noted above, knowledge is not an element under Charge 2. Therefore,
Respondent Innhaug may have unknowingly aided and abetted his
company in violating the EAR in April 2012 by entering into the
charter party, which he knew was for use in Iranian waters under the
Mapna agreement.
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Moreover, the record shows the April 11, 2012 cease and desist
letter was addressed to and at the attention of Respondent Innhaug, and
Respondent Innhaug admitted to receiving the letter. Ex. 14; Ex 15.
Respondent Innhaug also admitted, through the course of discovery, to
reviewing the April 15, 2014 submission to BIS, wherein Respondent
Nordic, through the signature of another officer, made the three false,
misleading statements set forth in Charge 3, discussed above. Ex. 9 at
para. 33-35.
Accordingly, I find Respondent Innhaug aided and abetted Respondent
Nordic in the abovementioned EAR violations and therefore violated 15
CFR 764.2(b).
Recommended Sanction
Having determined Respondents committed the abovementioned
violations, I now turn to the appropriate sanction to recommend in this
case. Section 764.3 of the EAR permits the undersigned to recommend:
(1) A civil penalty, (2) a denial of export privileges under the
regulations, and (3) an exclusion from practice. See 15 CFR 764.3.
Pursuant to 50 U.S.C. 1705, which was in effect at the time of the
offense, the undersigned may impose a civil penalty in an amount that
is twice the amount of the transaction that is the basis of the
violation with respect to which the penalty is imposed.
Additionally, Supplement No. 1 to 15 CFR part 766 is instructive in
that it provides guidance to BIS on how to make penalty determinations
during administrative enforcement
[[Page 15426]]
``settlement'' cases.\22\ Even though this case is not a settlement,
the information contained in Supplement No. 1 can assist in determining
the appropriate sanction.
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\22\ Several updates have been made to Supplement No. 1 of 15
CFR part 766. As the last violation charged ended in 2014, we are
using the January 29, 2014 to July 21, 2016 version of Supplement
No. 1. The earlier version of Supplement No. 1 (June 4, 2010 to
January 28, 2014) used the same aggravating/mitigating factors.
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Supplement No. 1 discusses specific mitigating and aggravating
factors. The mitigating factors include:
1. The party self-disclosed the violations (given great weight).
2. The party created an effective export compliance program
(given great weight).
3. The violations resulted from a good-faith misinterpretation.
4. The export would likely have been granted upon request.
5. The party does not have a history of past export violations.
6. The party cooperated to an exceptional degree during the
investigation.
7. The party provided substantial assistance in the BIS
investigation.
8. The violation did not involve harm of the nature the
regulations were intended to protect.
9. The party had little export experience and was not familiar
with the requirement.
15 CFR part 766, Supp No. 1, at Sec. III(B)
The eight aggravating factors include:
1. The party deliberately hid the violations (given great
weight).
2. The party seriously disregarded export responsibilities
(given great weight).
3. The violation was significant in view of the sensitivity of
the item or destination (given great weight).
4. The violation was likely to involve harm of the nature the
regulations intended to protect.
5. The value of the exports was high, resulting in a need to
serve an adequate penalty for deterrence.
6. Other violations of law and regulations occurred.
7. The party has a history of past export violations.
8. The party lacked a systematic export compliance effort.
Id. I address each in turn.
f. A. Mitigating Factors
1. The party self-disclosed the violations (given great weight).
The record shows Respondent Nordic did provide a self-disclosure on
April 15, 2014. From the broadest perspective, Respondent Nordic should
be applauded for doing so. However, as discussed above, the disclosure
contained blatant falsehoods that Respondents knew, or should have
known about. Indeed, this disclosure forms the basis of Charge 3, where
BIS proved Respondent Nordic made false and misleading statements.
Accordingly, although this is typically a mitigating factor, the
undersigned finds any mitigation normally attributed to self-disclosure
is nullified by the unique facts of this case.
2. The party created an effective export compliance program (given
great weight).
There is some evidence in the record showing Respondents created an
export compliance program as a result of the abovementioned incident.
Ex. 4. Respondents' April 15, 2014 self-disclosure indicates the
company hired outside counsel to address compliance issues,
restructured management, and arranged training, among other actions. I
find these steps do not rise to an export compliance program that would
address the violations in this case. Here, Respondents actions were not
the result of a lapse in or the existence of a compliance program, but
instead were the result of blatant knowing disregard for U.S. law. To
this end, a compliance program, even if put in place, would have little
effect on deliberate, intentional violations, such as misleading BIS
and knowingly violating the regulations. To this end, I find this
factor not mitigating.
3. The violations resulted from a good-faith misinterpretation.
The record shows Respondents' conduct did not result from a good
faith misinterpretation. Although Respondents argued the license issued
to Reflect Geophysical was unclear as to how it applied to Iranian
waters, the record belies Respondents' argument. Respondents had two
opportunities to review the license, first when explained through the
cease and desist letter in April 2012, and second, when Reflect
Geophysical (despite knowing Respondents, at one time, might use the
equipment in violation of the license) provided a copy of the license
to Respondents as part of leasing the equipment.
This is not a case of misinterpretation at all; nothing in the
license or the cease and desist letter is ambiguous. Both make clear
using the survey equipment in Iranian waters would be contrary to U.S.
law.
4. The export would likely have been granted upon request.
During the hearing, BIS presented testimony indicating it would not
have granted the request to use the equipment in Iranian waters. Tr. at
146-147. Respondents provided no evidence, given their absence at the
hearing, and no evidence throughout this proceeding that BIS might have
granted their request to reexport the survey equipment to Iranian
waters. Accordingly, this factor is not mitigating.
5. The party does not have a history of past export violations.
The record contains no evidence concerning prior export violations.
As neither party provided evidence in this regard, it is neither
aggravating nor mitigating and given no weight.
6. The party cooperated to an exceptional degree during the
investigation.
The record shows Respondents made farcical attempts to cooperate
with BIS in this case. Specifically, as noted above, Respondents made a
self-disclosure concerning reexport of the survey equipment in this
case. However, that disclosure included falsehoods and
misrepresentations. Accordingly, it cannot be considered cooperation
under the facts of this case and is not mitigating.
7. The party provided substantial assistance in the BIS
investigation.
There is no evidence Respondents gave substantial assistance to BIS
during its investigation. Accordingly, this factor is not mitigating.
8. The violation did not involve harm of the nature the regulations
were intended to protect.
The violation in this case goes to the very heart of the EAR's
purpose. As part of our national security, BIS stringently regulates
certain equipment which it identifies by regulations and the Federal
Register. In 2012-2013, at the time of the alleged offense, the EAR
strictly prohibited reexports of certain equipment identified on the
CCL, which included the survey equipment at issue in this case. 15 CFR
Supp. No. 1 to Part 774. These materials are controlled due to national
security concerns, meaning the materials could make a significant
contribution to the military potential of certain countries, like Iran.
Tr. at 89. Moreover, BIS controls this equipment for anti-terrorism
purposes inasmuch as access to this equipment could help a country
develop a capacity to either support an international terrorist group
or engage in terrorist activities on their own. Tr. at 89. Seismic
surveys find oil and gas, oil and gas make money. Respondents' conduct
here could conceivably help fund terrorist groups in Iran, particularly
since the evidence shows the contract to conduct the survey was at the
behest of Mapna, a company with deep ties to Iran.
In this case, Respondents did exactly what the regulations
attempted to prevent, the use of this equipment to survey waters
controlled by a U.S. adversary, Iran. Accordingly, this factor is not
mitigating.
[[Page 15427]]
9. The party had little export experience and was not familiar with
the requirement.
The record shows some evidence Respondents were familiar with U.S.
export laws. A review of Exhibit 17 shows Respondents had a history of
dealing with a similar maritime survey equipment license before. To
this end, I find Respondents were somewhat familiar with U.S.
regulations on the issue, and therefore this factor is not mitigating.
g. B. Aggravating Factors
1. The party deliberately hid the violations (given great weight).
As discussed above in Charge 3, the record contains evidence
proving Respondents misled BIS investigators by making false statements
concerning their receipt of the survey equipment lease and their
understanding of how use of the survey equipment in Iranian waters
might violate U.S. law. Inherently, Charge 3 could be construed as
``deliberately hiding'' evidence of the violation. Failing to admit
they received a copy of the lease, and/or that they knew of the Iranian
restrictions could easily be described as ``hiding the truth.''
However, aside from the misleading statements in the self-disclosure,
there does not appear to be any other evidence that Respondents hid any
information from BIS. Accordingly, this factor is not aggravating
outside of the inherent offense outlined in Charge 3.
2. The party seriously disregarded export responsibilities (given
great weight).
This case is the quintessential example of disregarding export
responsibilities. Given the documentary evidence Respondents were
provided with, the advanced notice of their potential violation in the
April 2012 cease and desist letter, and the fact they received a copy
of the license restricting the survey equipment's use, the undersigned
is compelled to find Respondents egregiously disregarded their export
responsibilities. The facts concerning this aggravating factor are
substantial and given great weight.
3. The violation was significant in view of the sensitivity of the
item or destination.
I find this factor not applicable and therefore given no weight.
4. The violation was likely to involve harm of the nature the
regulations intended to protect.
The nature of the regulations here intend to control the survey
equipment and prevent its use by U.S. adversaries. Here, the record
shows Respondents not only used the equipment in Iranian waters, a
notorious U.S. adversary, but also shows that they did so pursuant to a
contract entered into with Mapna, a company with ties to Iran. Tr. at
64. Accordingly, Respondents' actions committed the very evil the U.S.
regulations hoped to prevent. This factor is aggravating.
5. The value of the exports was high, resulting in a need to serve
an adequate penalty for deterrence.
In this case, the specific value of the equipment exported to
Iranian waters is not relevant; however, the value of the survey
equipment's use to survey oil and gas in Iranian waters is. In fact,
the evidence in this case shows Respondents use of the equipment
resulted from a lucrative contract between Respondent Nordic and Mapna,
to the tune of [euro]11.8 million euros. Ex. 13. Respondents knew their
use of the equipment would lead to consequences, but given the value of
the Mapna contract, they found 11.8 million reasons to ignore U.S. law.
To this end, the undersigned can only conclude lucre, cupidity, and
avariciousness propelled Respondents' conduct.
Because Respondents' illegal use of the equipment led to such a
profitable contract, the penalty should be such that it dissuades
further violations of this sort, and act as a strong deterrent against
this type of behavior. This factor is aggravating.
6. Other violations of law and regulations occurred.
The record contains no evidence of other violations of law, other
than those discussed above. But given Respondents' conduct involves not
only a knowing violation, but a violation resulting from misleading
BIS, I conclude this factor is aggravating.
Upon reviewing all the factors in this case, and considering the
record as a whole, I find a sanction in the amount of [euro]23.6
million euros is appropriate. This amount is commensurate to two times
the value of the contract Respondents had with Mapna. This sanction is
appropriate not only because it is commensurate with the offense given
Respondents' assistance to a U.S. adversary, but it also serves to
deter future conduct by Respondents and others.\23\
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\23\ The aggravating factors in 7 and 8 are discussed in the
mitigating factors 2 and 5 above.
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Ultimately, any company presented with a contract requiring the
company to violate U.S. law, should not be able to build into the
contract the possible penalties resulting from a BIS civil penalty
action. Accordingly, the only way to deter companies from building in
the civil penalty into the contract's value is to make the penalty so
high that the contract to violate U.S. law becomes not only non-
profitable, but detrimental. To this end, by fining Respondents double
the amount they would have earned in the Mapna contract, BIS is able to
dissuade companies from considering contracts requiring the violation
of U.S. law as a foreseeable cost factored into the contract's value.
Therefore, Respondents shall be assessed a fine in the amount of
[euro]23.6 million euros, or $31,425,760.00 U.S. dollars.\24\ The fine
is joint and severally imposed on both Respondents.
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\24\ BIS asks the undersigned to impose a fine of 11.8 million
euros, and asks the undersigned to convert that amount to U.S.
dollars based on the exchange rate on May 1, 2012--the date which
Respondent Nordic began conducting the survey in Iran. I find the
more appropriate conversion date to be March 2012, the date which
Respondent Nordic entered into a contract with Mapna. Ex. 13.
However, because the Mapna contract does not have a specific day,
the undersigned will use March 1, 2012, as the date for conversion.
See https://markets.businessinsider.com/currency-converter/euro_united-states-dollar.
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BIS also asks the undersigned to recommend an order denying
Respondents' export privileges for fifteen years. I believe a denial
order set to a fixed period of time is inappropriate for this case.
Instead, the undersigned recommends the Under Secretary deny
Respondents' export privileges until the fine set forth above is paid
in full. By doing so, the Under Secretary encourages prompt payment of
the fine and provides Respondents with an ability to show
rehabilitation.
VI. Recommended Order
It is hereby recommended, respondents shall jointly and severally
be liable to pay a civil penalty in the amount of $31,425,760.00 U.S.
dollars.
It is further recommended, a denial of U.S. export privileges shall
persist against Respondents Nordic Maritime Pte. Ltd., 3 HarbourFront
Place, #04-03 HarbourFront Tower 2, Singapore 099254 and Morten
Innhaug, 16 Keppel Bay Drive, #04-20 Caribbean at Keppel Bay, Singapore
098643 until the fine in this case is satisfied in full. In accordance
with 15 CFR Supplement No. 1 to Part 764, the recommended terms of the
export privileges denial against Respondents Nordic Maritime Pte. Ltd.,
3 HarbourFront Place, #04-03 HarbourFront Tower 2, Singapore 099254 and
Morten Innhaug, 16 Keppel Bay Drive, #04-20 Caribbean at Keppel Bay,
Singapore 098643, is as follows:
First, that until the abovementioned fine is paid, Respondents
Nordic Maritime Pte. Ltd., 3 HarbourFront Place, #04-03 HarbourFront
Tower 2, Singapore 099254 and Morten Innhaug,
[[Page 15428]]
16 Keppel Bay Drive, #04-20 Caribbean at Keppel Bay, Singapore 098643,
and all of their successors or assigns, when acting for or on behalf of
them, their agents, and employees, and their successors or assigns
(Denied Persons) may not, directly or indirectly, participate in any
way in any transaction involving any commodity, software or technology
(hereinafter collectively referred to as ``item'') exported or to be
exported from the United States that is subject to the Regulations, or
in any other activity subject to the Regulations, including, but not
limited to:
A. Applying for, obtaining, or using any license, License
Exception, or export control document;
B. Carrying on negotiations concerning, or ordering, buying,
receiving, using, selling, delivering, storing, disposing of,
forwarding, transporting, financing, or otherwise servicing in any way,
any transaction involving any item exported or to be exported from the
United States that is subject to the Regulations, or in any other
activity subject to the Regulations; or
C. Benefiting in any way from any transaction involving any item
exported or to be exported from the United States that is subject to
the Regulations, or in any other activity subject to the Regulations.
Second, that no person may, directly or indirectly, do any of the
following:
A. Export or re-export to or on behalf of the Denied Persons any
item subject to the Regulations;
B. Take any action that facilitates the acquisition or attempted
acquisition by the Denied Persons of the ownership, possession, or
control of any item subject to the Regulations that has been or will be
exported from the United States, including financing or other support
activities related to a transaction whereby the Denied Persons acquire
or attempt to acquire such ownership, possession or control;
C. Take any action to acquire from or to facilitate the acquisition
or attempted acquisition from the Denied Persons of any item subject to
the Regulations that has been exported from the United States;
D. Obtain from the Denied Persons in the United States any item
subject to the Regulations with knowledge or reason to know that the
item will be, or is intended to be, exported from the United States; or
E. Engage in any transaction to service any item subject to the
Regulations that has been or will be exported from the United States
and that is owned, possessed or controlled by the Denied Persons, or
service any item, of whatever origin, that is owned, possessed or
controlled by the Denied Persons if such service involves the use of
any item subject to the Regulations that has been or will be exported
from the United States. For purposes of this paragraph, servicing means
installation, maintenance, repair, modification or testing.
Third, that after notice and opportunity to oppose such action as
provided in Section 766.23 of the Regulations, any person, firm,
corporation, or business organization related to the Denied Persons by
affiliation, ownership, control, or position of responsibility in the
conduct of trade or related services may also be made subject to the
provisions of this Order.
Fourth, that this Order does not prohibit any export, reexport, or
other transaction subject to the Regulations where the only items
involved that are subject to the Regulations are the foreign-produced
direct product of U.S.-origin technology.
This Recommended Decision and Order is being referred to the Under
Secretary for review and final action by overnight carrier as provided
under 15 CFR 766.17(b)(2). Due to the short period of time for review
by the Under Secretary, all papers filed with the Under Secretary in
response to this Recommended Decision and Order must be sent by
personal delivery, facsimile, express mail, or other overnight carrier
as provided in 15 CFR 766.22(a).
Submissions by the parties must be filed with the Office of the
Under Secretary for Export Administration, Bureau of Industry and
Security, U.S. Department of Commerce, Room H-3898, 14th Street and
Constitution Avenue NW, Washington, DC 20230, within twelve (12) days
from the date of issuance of this Recommended Decision and Order.
Thereafter, the parties have eight (8) days from receipt of any
responses in which to submit replies. See 15 CFR 766.22(b).
Within thirty (30) days after receipt of this Recommended Decision
and Order, the Under Secretary shall issue a written order, affirming,
modifying, or vacating the Recommended Decision and Order. See 15 CFR
766.22(c).
Accordingly, I am referring this Recommended Decision and Order to
the Under Secretary for review and final action for the Agency, as
provided in 15 CFR 766.22.
Done and dated February 7, 2020, at Galveston, Texas.
Dean C. Metry,
Administrative Law Judge, United States Coast Guard.
Certificate of Service
I hereby certify that I have served the foregoing document as
indicated below to the following parties:
Cordell A. Hull, Acting Under Secretary of Commerce for Industry and
Security, Bureau of Industry and Security, U.S. Department of Commerce,
Room 3896, 1401 Constitution Ave. NW, Washington, DC 20230, Sent by
Federal Express.
EAR Administrative Enforcement Proceedings, U.S. Coast Guard, ALJ
Docketing Center, Attn: Hearing Docket Clerk, 40 S. Gay Street, Room
412, Baltimore, MD 21202-4022, Sent electronically:
[email protected].
Gregory Michelsen, Esq., Zachary Klein, Esq., Attorneys for Bureau of
Industry and Security, Office of Chief Counsel for Industry and
Security, U.S. Department of Commerce, 14th Street & Constitution
Avenue NW, Room H-3839, Washington, DC 20230, Sent by Federal Express.
Douglas N. Jacobson, Esq., JACOBSON BURTON KELLEY PLLC, 1725 I Street
NW, Suite 300, Washington, DC 20006, Sent by Federal Express.
Done and dated February 7, 2020, at Galveston, Texas.
Janice M. Emig,
Paralegal Specialist, United States Coast Guard, Department of Homeland
Security.
[FR Doc. 2020-05600 Filed 3-17-20; 8:45 am]
BILLING CODE 3510-33-P
