[Federal Register Volume 83, Number 43 (Monday, March 5, 2018)]
[Notices]
[Pages 9259-9267]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-04404]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF COMMERCE
Bureau of Industry and Security
[Docket Number 15-BIS-0005 (consolidated)]
In the Matters of: Trilogy International Associates, Inc.,
William Michael Johnson, Respondents; Final Decision and Order
This matter is before me upon a Recommended Decision and Order
(``RDO'') of an Administrative Law Judge (``ALJ''), as further
described below.\1\
---------------------------------------------------------------------------
\1\ I received the certified record from the ALJ, including the
original copy of the RDO, for my review on January 25, 2018. The RDO
is dated January 24, 2018. BIS submitted a timely response to the
RDO, while Respondent has not filed a response to the RDO.
---------------------------------------------------------------------------
[[Page 9260]]
I. Background
On October 2, 2015, the Bureau of Industry and Security (``BIS'')
issued a Charging Letter to Respondent Trilogy International
Associates, Inc. (``Trilogy International'' or ``Trilogy''), alleging
that Trilogy committed three violations of Section 764.2(a) of the
Export Administration Regulations (``EAR'' or ``Regulations''),\2\ by
exporting national-security-controlled items to Russia without the
required BIS licenses. On the same date, BIS also issued a Charging
Letter to William Michael Johnson (``Johnson''), Trilogy's President
and General Manager, alleging that Johnson committed three violations
of Section 764.2(b) of the Regulations by causing, aiding, and/or
abetting Trilogy's unlawful exports.
---------------------------------------------------------------------------
\2\ The Regulations are codified at 15 CFR parts 730-774 (2017).
The violations charged occurred in 2010. The Regulations governing
the violations at issue are found in the 2010 version of the Code of
Federal Regulations. The 2017 Regulations govern the procedural
aspects of this case.
The Regulations issued pursuant to the Export Administration Act
of 1979, as amended, 50 U.S.C. 4601-4623 (Supp. III 2015) (available
at http://uscode.house.gov) (the ``Act'' or ``EAA''). Since August
21, 2001, the Act has been in lapse and the President, through
Executive Order 13,222 of August 17, 2001 (3 CFR, 2001 Comp. 783
(2002)), which has been extended by successive Presidential Notices,
the most recent being that of August 15, 2017 (82 FR 39,005 (Aug.
16, 2017)), has continued the Regulations in effect under the
International Emergency Economic Powers Act (50 U.S.C. 1701, et seq.
(2012)).
---------------------------------------------------------------------------
The Charging Letter issued against Trilogy (``Trilogy Charging
Letter'') included the following specific allegations:
Charges 1-3 15 CFR 764.2(a)--Engaging in Prohibited Conduct
1. On or about January 23, 2010, April 6, 2010, and May 14,
2010, respectively, Trilogy International engaged in conduct
prohibited by the Regulations by exporting items subject to the
Regulations and controlled on national security grounds to Russia
without the required BIS export licenses.
2. The items involved were an explosives detector and a total of
115 analog-to-digital converters. The items were classified under
Export Control Classification Numbers 1A004 and 3A001, respectively,
controlled as indicated above on national security grounds, and
valued in total at approximately $76,035.
3. Each of the items required a license for export to Russia
pursuant to Section 742.4 of the Regulations.
4. Trilogy International exported the items to TAIR R&D Co. Ltd.
(``TAIR R&D Co.''), a Russian company. TAIR R&D Co. employed
Alexander Volkov, who had previously formed Trilogy International
along with William Michael Johnson (``Johnson''). At all times
pertinent hereto, Johnson was President and General Manager of
Trilogy International, directed or controlled its operations, and
participated in the export transactions at issue.
5. After receiving requests for the items from TAIR R&D Co.,
Trilogy International procured the items from suppliers in the U.S.
and abroad. Once in possession of the items, Trilogy International
issued invoices, signed by Johnson and dated January 20, March 4,
and April 15, 2010, respectively, to TAIR R&D Co. for the sale and
export of the items from the United States to Russia.
6. Trilogy then exported the items from the United States to
TAIR R&D Co. in Russia on or about January 23, 2010, April 6, 2010,
and May 14, 2010, respectively.
7. As alleged above, each of the national-security-controlled
items at issue required a license for export to Russia pursuant to
Section 742.4 of the Regulations. However, no license was sought or
obtained by Trilogy International in connection with any of the
exports at issue.
8. By exporting these items without the required BIS export
licenses, Trilogy International committed three violations of
Section 764.2(a) of the Regulations.
Trilogy Charging Letter at 1-2.\3\
---------------------------------------------------------------------------
\3\ The Trilogy Charging Letter also includes a Schedule of
Violations that provides additional detail concerning the underlying
transactions. The Charging Letter, including the Schedule of
Violations, will be posted on BIS's ``eFOIA'' webpage along with a
copy of this Order (and a copy of the RDO).
---------------------------------------------------------------------------
The Charging Letter against Johnson (``Johnson Charging Letter'')
included the following specific allegations:
Charges 1-3 15 CFR 764.2(b)--Causing, Aiding, or Abetting a Violation
1. Between on or about January 20, 2010, and May 14, 2010,
Johnson caused, aided, and/or abetted three violations of the
Regulations, specifically, three exports from the United States to
Russia of items subject to the Regulations without the required BIS
export licenses.
2. The items involved were an explosives detector and a total of
115 analog-to-digital converters, classified under Export Control
Classification Numbers 1A004 and 3A001, respectively, controlled on
national security grounds, and valued in total at approximately
$76,035.
3. Each of the items at issue required a BIS license for export
to Russia pursuant to Section 742.4 of the Regulations.
4. At all times pertinent hereto, Johnson was President and
General Manager of Trilogy International Associates Inc. (``Trilogy
International'''), of Modesto, California, and directed or
controlled Trilogy International's operations.
5. Johnson also participated in and facilitated the transactions
at issue, including, inter alia, procuring the items from suppliers
after receiving requests from TAIR R&D Co. Ltd. (``TAIR R&D Co.''),
a Russian company that employed Alexander Volkov, with whom Johnson
had previously formed Trilogy International.
6. Johnson placed orders with U.S. suppliers for the analog-to-
digital converters at issue and was listed as the purchaser of those
items on supplier invoices dated January 21, 2010, and May 12, 2010,
respectively.
7. Johnson also signed Trilogy International invoices dated
January 20, March 4, and April 15, 2010, respectively, in connection
with the sales and exports to TAIR R&D Co. at issue, and provided
these invoices along with the items to a freight forwarder.
8. The items were then shipped on behalf of Trilogy
International to TAIR R&D Co. in Russia on or about January 23,
2010, April 6, 2010, and May 14, 2010, respectively.
9. As alleged above, each of the national-security-controlled
items at issue required a license for export to Russia pursuant to
Section 742.4 of the Regulations. However, no license was sought or
obtained by Johnson or Trilogy International in connection with any
of the exports at issue.
10. By causing, aiding, and/or abetting the export of these
items without the required BIS export licenses, Johnson committed
three violations of Section 764.2(b) of the Regulations.
Johnson Charging Letter at 1-2.\4\
---------------------------------------------------------------------------
\4\ The Johnson Charging Letter, like the Trilogy Charging
Letter, also includes a Schedule of Violations that provides
additional detail concerning the underlying transactions and that
will be included as part of the Charging Letter posted on BIS's
eFOIA webpage. See note 3, supra.
---------------------------------------------------------------------------
On June 17, 2016, Respondent Trilogy and Respondent Johnson
(collectively, ``Respondents'') filed a joint answer to the Charging
Letters, and the proceedings against Trilogy and Johnson were
subsequently consolidated.
Following discovery, BIS filed its Motion for Summary Decision
pursuant to Section 766.8 of the Regulations on January 13, 2017, as to
all charges against Trilogy and all charges against Johnson. On the
same date, Respondents filed their Motion for Summary Dismissal as to
all charges against them, relying upon the argument that a third party,
the freight forwarder, bore responsibility for the unlicensed exports.
On February 8, 2017, the ALJ issued an ``Initial Decision'' denying
Respondents' Motion for Summary Dismissal and granting summary decision
for BIS on the three Section 764.2(a) unlicensed export charges against
Trilogy. However, the ALJ denied summary decision for BIS with respect
to the three Section 764.2(b) causing, aiding, or abetting charges
against Johnson. The ALJ treated Trilogy and Johnson as a single,
collective party and as a result concluded that the Section 764.2(b)
charges were ``multiplicious'' of the underlying Section 764.2(a)
unlicensed export charges.
Following opportunity for briefing on sanctions issues, the ALJ
issued an ``Initial Decision Imposing Sanctions''
[[Page 9261]]
on April 24, 2017, in which the ALJ also treated Respondents as a
single, collective entity or individual, and indicated that a civil
penalty of $100,000 and a seven-year denial of export privileges would
be imposed. On April 28, 2017, a ``Notice of Errata'' issued, signed by
a paralegal specialist that was designed to correct the title of the
ALJ's April 24, 2017 decision from ``Initial Decision Imposing
Sanctions,'' to ``Recommended Decision Imposing Sanctions,'' and to
make corresponding changes to some of the text of that decision.
The case was thereafter referred to the Under Secretary's Office as
of May 2, 2017. On May 30, 2017, then-Acting Under Secretary Daniel O.
Hill issued an order (``Remand Order'') vacating the Notice of Errata
and remanding this consolidated proceeding for the ALJ to, inter alia,
issue a single RDO in accordance with the provisions of Section
766.17(b)(2) of the Regulations and address all charges on the merits
against each of the respondents. In the Remand Order, the Acting Under
Secretary determined that the ALJ had erred in treating the two
respondents collectively, and directed that on remand the ALJ treat the
respondents as distinct parties and reconsider his denial of summary
decision with regard to the Section 764.2(b) charges against Respondent
Johnson. In this regard, the Acting Under Secretary determined that it
is ``well established that a corporate officer can be charged with
causing, aiding or abetting the corporation's underlying violations.''
Remand Order, at 2.
On January 24, 2018, after providing the parties opportunity for
further briefing and based upon the record before him, the ALJ issued
the RDO, in which he concluded that Respondent Trilogy had committed
the three violations of Section 764.2(a) of the Regulations alleged in
the Trilogy Charging Letter, and that Respondent Johnson committed the
three violations of Section 764.2(b) alleged in the Johnson Charging
Letter. The ALJ determined that, in accordance with Section 766.8 of
the Regulations, BIS established that there are no genuine issues of
material fact and that BIS is entitled to summary decision as a matter
of law as to all the charges at issue. The ALJ set out detailed
findings of undisputed material fact in the RDO regarding each of the
charges, RDO, at 5-7, including that ``Johnson directed, controlled,
and performed Trilogy's operations at all times relevant to the charges
. . . and acted on behalf of Trilogy.'' Id. at 5, ] 3.\5\ In addition
to finding that Johnson directed and controlled Trilogy's operations,
the ALJ also found that Johnson took specific actions in connection
with each of the unlawful unlicensed exports, including in connection
with procuring the items, preparing and signing documentation for the
sale of the items to TAIR R&D Co., and/or providing directions to the
freight forwarder regarding the export of the items to Russia. See id.
at 5-7, ]] 3, 6, 10-11, 14-15, 17-18.
---------------------------------------------------------------------------
\5\ In connection with transaction at issue in the Charge 1 of
the Charging Letters, RDO Finding of Fact No. 12 states that on or
about January 23, 2010, ``Johnson was the U.S. Principal Party in
Interest (``USPPI'')/exporter that exported the E-3500 explosives
detector at issue from the United States to Russia.'' RDO, at 6, ]
12 (footnote omitted; parenthetical in original). After a review of
the RDO, I find that the reference to Johnson there, rather than
Trilogy, as the USPPI/exporter, clearly was not intended by the ALJ.
Throughout the rest of the RDO, the ALJ refers to Trilogy as the
USPPI/exporter. See, e.g., RDO, at 10 (``Trilogy, as the USPPI/
exporter, had the legal obligation to determine any license
requirements and obtain the needed export licenses in connection
with each of the exports at issue here.''); at 11 (``The record is
undisputed, Respondent Trilogy sent three shipments . . . [and]
Respondent Trilogy violated 15 CFR 764.2(a) by shipping these
materials to Russia on three separate occasions.''); see generally
RDO, at 8-11. Moreover, BIS alleged and submitted evidence to show
that Trilogy was the USPPI/exporter for each of the transactions and
charges at issue, see Charging Letters and BIS's Motion for Summary
Decision, and the ALJ found that Trilogy was the USPPI/exporter for
the exports at issue in Charges 2 and 3. RDO, at 7, ]] 16 and 19.
---------------------------------------------------------------------------
The ALJ determined that Respondents had not provided any evidence
showing the existence of any genuine issues of material fact and that
Respondents had failed to factually or legally substantiate their
argument that it was the freight forwarder, rather than Respondents,
that bore responsibility for the unlawful unlicensed exports. RDO, at
8-12. The ALJ rejected Respondents' purported defense, which was based
primarily on an unsigned power of attorney form that Respondents
asserted authorized the forwarder ``to handle necessary export
paperwork,'' RDO, at 10 (quoting, in part, Respondents' Answer),
because Trilogy, as the USPPI/exporter, had the legal obligation to
determine any license requirements and obtain the necessary licenses in
connection with the exports at issue. RDO, at 10 and n. 14 (discussing
and quoting, in part, Section 758.3 of the Regulations).
With regard to sanctions, the ALJ recommended that I impose a
$50,000 civil penalty against Trilogy and a $50,000 civil penalty
against Johnson, and that I should also issue denial orders suspending
the export privileges of both Respondents for a period of seven years.
In making this recommendation, the ALJ reiterated and expanded upon his
previous finding, in his April 24, 2017 decision, that Respondents
engaged in a willful and reckless course of conduct involving
unlicensed exports of national-security-controlled items to TAIR R&D
Co. in Russia. RDO, at 13-14; April 24, 2017 Decision at 7-8. ``The
undisputed facts show Respondents maneuvered to procure national
security items and then to export them from the United States, without
seeking authorization from BIS or procuring the requisite license. As
the April 24, 2017 Order recognizes, Respondents were willful and
reckless.'' RDO, at 13-14. The ALJ also found that in addition to
failing to fulfill their licensing obligations regarding the export of
the items at issue to Russia, Respondents also failed to seek pertinent
information regarding these export transactions and the foreign parties
interested in them. ``Moreover, the record shows Respondents failed to
learn details related to the financing of the illicit transactions,
provided through Trilogy Netherlands, with the ultimate source of the
financing being unknown to Respondents.'' RDO, at 15 (citing
Respondents' deposition testimony).\6\
---------------------------------------------------------------------------
\6\ In the deposition testimony cited by the ALJ, Respondents
asserted that although they believed that an investor group paid
TAIR R&D Co. for the items, they did not know the identity of the
investor group. Johnson Deposition Transcript, at page 91, line 5 to
page 92, line 10, filed as part of Exhibit 3 to BIS's Brief on
Sanctions dated March 17, 2017. Respondents asserted that after they
procured the items, Trilogy Netherlands, a Dutch company, paid for
the items that Respondent Trilogy ordered, while Trilogy
Netherlands, in turn, received funds from TAIR R&D Co. to pay the
manufacturers and suppliers. See Exhibit 3 to BIS's Brief on
Sanctions, dated March 17, 2017, at page 94, line 1 to page 95, line
14. Respondents also asserted that they had no role in Trilogy
Netherlands. See id.
---------------------------------------------------------------------------
The ALJ, in making his sanctions recommendations, also rejected
Respondents' efforts throughout this proceeding to shift responsibility
to the freight forwarder. See RDO, at 14. The ALJ further found that
Respondents generally exhibited a ``flippant attitude towards
regulatory control'' and ``have yet to acknowledge the seriousness of
the violations nor shown any remorse for these failures.'' RDO, at 15.
The ALJ also saw no evidence that the Respondents have taken any
corrective compliance measures or that they possess the ability or
willingness to comply with the Regulations. See id.
Finally, the ALJ found that BIS precedent supported his recommended
sanctions against Respondents. RDO, at 15-16.
II. Review Under Section 766.22
The RDO, together with the entire record in this case, has been
referred to me for final action under Section 766.22
[[Page 9262]]
of the Regulations. BIS submitted a timely response to the RDO pursuant
to Section 766.22(b). Respondents have not submitted any response to
the RDO, nor have they submitted any reply to BIS's response.
The RDO contains a detailed review of the record relating to both
merits and sanctions issues in this case, including in light of the
Remand Order. I find that the record amply supports the ALJ's findings
of fact and conclusions of law that Respondent Trilogy committed the
three violations of Section 764.2(a) of the Regulations alleged in the
Charging Letter issued to Trilogy, and that Respondent Johnson
committed the three violations of Section 764.2(b) of the Regulations
alleged in the Charging Letter issued to Johnson. The ALJ correctly
concluded that BIS is entitled to summary decision pursuant to Section
766.8 of the Regulations as to all of the charges at issue based upon
the indisputable evidence of record. In doing so, the ALJ correctly
determined that Respondent Trilogy was the USPPI/exporter and thus had
the legal obligation under the Regulations to determine licensing
requirements and obtain the necessary licenses for the export
transactions at issue, rightly rejecting Respondents' persistently
proffered, but unsubstantiated, defense that the freight forwarder bore
responsibility for the unlawful exports at issue. The ALJ also
correctly determined that Respondent Johnson caused, aided, or abetted
Trilogy's unlawful exports, finding in that regard that Johnson
directed and controlled Trilogy and its operations, and also finding
that Johnson took one or more specific actions in connection with each
of the exports at issue.
After further consideration of the penalties initially assessed, I
find that they are not sufficient considering the serious nature of the
violations. Therefore I am modifying both the civil penalty and the
denial order. I am modifying the civil penalty assessed against each
Respondent from $50,000 to $100,000, and adding an additional three
years to the seven-year denial order bringing it to ten years. The RDO
and the record indicate that Respondents participated in sustained
procurement and export activities with at least one known Russian
entity regarding national-security-controlled items, while willfully
ignoring, or, at best, blinding themselves to their compliance
obligations. The RDO and record also show that Respondents have refused
to acknowledge their compliance obligations during this proceeding or
accept responsibility for their actions despite their clear violations
of the Regulations. The ALJ also correctly determined that Respondents'
rejection of their export control responsibilities and apparent failure
to adopt corrective measures raises additional concerns about their
ability and willingness to comply with the Regulations now or in the
future. Thus, in sum, given the high degree of culpability exhibited by
Respondents' willful and/or reckless conduct, the serious nature of the
violations at issue, and the importance of deterring the Respondents
and others from violating the Regulations in the future, I agree that
the imposition of both preventive relief and monetary penalties against
Respondents are necessary and appropriate to sanction Respondents and
prevent and deter future violations of the Regulations. Therefore, I
modify the seven-year denial order against each Respondent to ten
years, as well as modifying the civil penalty by increasing to $100,000
per Respondent to reflect seriousness of the conduct at issue as
described above.\7\
---------------------------------------------------------------------------
\7\ The ALJ did not specifically address the terms of the denial
orders to be imposed against Respondents. I conclude that the
standard denial order found in Supplement No. 1 to Part 764 of the
Regulations is appropriate in this situation. Nothing in the RDO
suggests that the ALJ intended to recommend a non-standard denial
order.
---------------------------------------------------------------------------
Accordingly, based on my review of the RDO and entire record, I
affirm the findings of fact and conclusions of law in the RDO and
modify the recommended sanctions as described above.\8\
---------------------------------------------------------------------------
\8\ As noted, supra, my review of the RDO indicates that the ALJ
clearly intended to indicate in the RDO that Respondent Trilogy was
the USPPI/exporter with regard to each of the transactions at issue.
See note 5 supra. My determination to affirm the findings of fact
and conclusions of law is based on this understanding of the RDO.
---------------------------------------------------------------------------
Accordingly, it is therefore ordered:
First, a civil penalty of $100,000 shall be assessed against
Trilogy International Associates Inc. (``Trilogy''), the payment of
which shall be made to the U.S. Department of Commerce within 30 days
of the date of this Order.
Second, a civil penalty of $100,000 shall be assessed against
William Michael Johnson (``Johnson''), the payment of which shall be
made to the U.S. Department of Commerce within 30 days of the date of
this Order.
Third, pursuant to the Debt Collection Act of 1982, as amended (31
U.S.C. 3701-3720E (2000)), the civil penalties owed under this Order
accrue interest as more fully described in the attached Notice, and, if
payment is not made by the due date specified herein, the party that
fails to make payment will be assessed, in addition to the full amount
of the civil penalty and interest, a penalty charge and administrative
charge.
Fourth, for a period of ten years from the date of this Order,
Trilogy International Associates, Inc. and William Michael Johnson,
both with last known addresses of P.O. Box 342, Altaville, CA 95221 and
552 Lee Lane, Box 342/21, Angels Camp, CA 95222, 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 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 engaging in any
other activity subject to the Regulations; 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 Regulations, or from any other activity subject to the Regulations.
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 Regulations 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 Regulations that has been exported from the United States;
D. Obtain from a Denied Person in the United States any item
subject to the Regulations with knowledge or reason to know that the
item will be, or is
[[Page 9263]]
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 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 Regulations, 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 Trilogy
International Associates, Inc. and William Michael Johnson 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.
This Order, which constitutes final agency action in this matter,
is effective immediately.
Issued this 26th day of February 2018.
Mira R. Ricardel,
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: Trilogy International Associates, Inc.,
William Michael Johnson, Respondents
Docket Number 15-BIS-0005 (consolidated)
RECOMMENDED DECISION AND ORDER GRANTING SUMMARY DECISION ON REMAND
This matter comes before the undersigned administrative law
judge (ALJ) pursuant to a remand order issued by the Acting Under
Secretary of Commerce for Industry and Security (Under Secretary) on
May 30, 2017. The Under Secretary's order vacated in part, affirmed
in part, and remanded two rulings issued by the undersigned on
February 8, 2017 and April 24, 2017.\1\ The remand order primarily
directs the ALJ to reconsider its partial denial of the Bureau of
Industry and Security's (BIS or Agency) January 13, 2017 Motion for
Summary Decision, and orders the ALJ to issue a single Decision and
Order in accordance with Section 766.17(b)(2).
---------------------------------------------------------------------------
\1\ The Under Secretary's Order affirmed the ALJ's findings of
fact and partial issuance of summary decision and instructed the ALJ
not to disturb the factual findings made in the ALJ's April 24, 2017
and February 7, 2017 decisions.
---------------------------------------------------------------------------
As set forth below, upon reconsideration, the undersigned finds
there are no genuine issues as to any material facts and BIS is
entitled to summary decisions against Trilogy International
Associates, Inc. and William Michael Johnson. Therefore, BIS'
January 13, 2017 Motion for Summary Decision is GRANTED.
Furthermore, because this Order Granting Summary Decision disposes
of this matter entirely, the undersigned issues this Recommended
Decision and Order to the Under Secretary as permitted by 15 CFR
766.8.\2\
---------------------------------------------------------------------------
\2\ Title 15 C.F.R. Sec. 766.8 permits the ALJ to issue a
recommended decision if granting a motion for summary decision.
---------------------------------------------------------------------------
Procedural Background
On October 2, 2015, the Agency filed separate Charging Letters
against Respondent Trilogy International Associates, Inc.
(Respondent Trilogy) (docket number 15-BIS-0004) and Respondent
William Michael Johnson (Respondent Johnson) (docket number 15-BIS-
0005).\3\ Respondent Trilogy's Charging Letter alleges the
corporation violated Section 764.2(a) of the Export Administration
Regulations (EAR or Regulations) by exporting national-security
controlled items to Russia on three separate occasions in 2010,
without the requisite BIS licenses.\4\ Respondent Johnson's Charging
Letter alleges he violated Section 764(b) of the regulations by
aiding and abetting Respondent Trilogy's three unlicensed exports to
Russia, in his capacity as president of the corporation.\5\
---------------------------------------------------------------------------
\3\ Trilogy International Associates, Inc. was, apparently, a
lawfully constituted corporation under the laws of the State of
California and the State of Nevada at times relevant to the
Complaint. The undersigned ALJ gleans from the discovery that
Trilogy is not presently a lawfully constituted corporation in
either state. (Response to Interrogatories Nos. 1-5).
\4\ Those items consisted of an explosives detector and several
analog-to-digital converters; items listed under Agency Export
Control Classification as Numbers 1A004 and 3A001, respectively, and
controlled for reasons of national security).
\5\ The Charging Letters allege the International Emergency
Economic Powers Enhancement Act of 2007, Pub. L. No. 110-96, 121
Stat. 1011 (2007) and 15 C.F.R. part 766 allows the imposition of a
civil penalty ``up to the greater of $250,000.00 per violation or
twice the value of the transaction that is the basis of the
violation.'' By contrast, the Agency's Motion alleges that 15 C.F.R.
Sec. 764.3 allows the imposition of a monetary sanction of up to
$289,238.00 per violation.
---------------------------------------------------------------------------
On December 21, 2015, Respondents filed an e-mail response to
the Agency's Charging Letters, but did not address all of the
allegations. Subsequently, on June 17, 2016, Respondents filed a
lengthy written denial (Answer) alleging the Charging Letters are
politically-motivated and that a third-party was responsible for any
violations of law or regulation.
The Agency filed a Motion for Summary Decision on January 13,
2017, in accordance with the provisions of 15 C.F.R. Sec. 766.8. On
the same day, Respondents filed a competing Motion for Summary
Dismissal (Cross Motion). Respondents supplemented the Cross Motion
with a three-page attachment to an e-mail to the undersigned and the
Agency.\6\ On February 1, 2017, the Agency filed its response to the
Cross Motion.
---------------------------------------------------------------------------
\6\ The undersigned considers the attachment as part of the
Cross Motion.
---------------------------------------------------------------------------
On February 8, 2017, the undersigned ALJ issued an Initial
Decision, granting in part and denying in part BIS' Motion for
Summary Decision.\7\ The February 8, 2017 Order considered the two
charging letters (issued separately to Respondents) multiplicious,
and referred to the two Respondents in the collective. Essentially,
the ALJ held Respondent Johnson's actions to be those of Respondent
Trilogy, and found the Agency could only sanction Respondent Trilogy
as a company, not Respondent Johnson as an individual. To this end,
the ALJ denied Summary Decision against Respondent Johnson, but
granted Summary Decision against Respondent Trilogy. The February 8,
2017 Order directed the parties to submit additional briefing on the
appropriate amount of sanctions against Respondent Trilogy.
---------------------------------------------------------------------------
\7\ The February 8, 2017 Order denied Respondent's cross Motion
for Summary Decision. The Under Secretary's Remand did not disturb
the ruling against Respondent, and it is not revisited here.
Respondent's request for Summary Decision remains DENIED.
---------------------------------------------------------------------------
After receiving the parties' briefs on sanction, the undersigned
issued a separate order on April 24, 2017, levying a fine in the
amount of $100,000.00 against Respondent Trilogy and denying
Respondent Trilogy's export privileges for a period of seven years.
However, the undersigned inadvertently titled the April 24, 2017
Order as an ``Initial Decision.'' To correct the error, among
others, the undersigned directed a Notice of Errata be entered on
May 10, 2017, which changed the title of the undersigned's decision
from ``Initial Decision Imposing Sanctions'' to ``Recommended
Decision Imposing Sanction.''
On May 10, 2017, BIS filed a ``Response to Notice of Errata''
which asked the Under Secretary to vacate the ALJ's decisions and
remand with instructions. On May 30, 2017, the Under Secretary
Vacated the ALJ's Erratum Order, affirmed the ALJ's ultimate finding
that Respondent Trilogy committed three violations of Section
764.2(a), but reversed the ALJ's conclusion that the charges against
Respondent Trilogy and Respondent Johnson were multiplicious. The
Under Secretary also held ``a corporate officer can be charged with
causing, aiding or abetting the corporations' underlying
violations.'' The remand order instructed the ALJ to treat the
charges against Respondent Johnson distinct from those against
Respondent Trilogy. Ultimately, the Under Secretary ordered the ALJ
to reconsider BIS' Motion for Summary Decision, but only to the
charges against Respondent Johnson. If the ALJ recommended denial of
the Summary Decision against Respondent Johnson, the Under Secretary
instructed the ALJ to resolve the remaining charges pursuant to Part
766 of the regulations. The Order also required the ALJ to ``provide
the parties opportunity for briefing, including as to proposed
sanctions.''
[[Page 9264]]
Pursuant to the Under Secretary's Order, the undersigned issued
an Order on September 12, 2017, directing the parties to submit
briefs addressing the appropriate sanction that should be levied
against Respondent Johnson. BIS, through counsel, filed its brief
concerning a Respondent Johnson sanction on September 25, 2017. To
date, Respondents have not filed any reply, nor otherwise complied
with the undersigned's September 12, 2017 Order.
FINDINGS OF FACTS
Upon review of the record, the ALJ finds the following facts
undisputed and admitted by Respondents.
1. At all times relevant to this matter, Trilogy International
Associates, Inc. (``Trilogy'') was a California and Nevada
corporation, headquartered in California at William Michael
Johnson's personal residence. (Deposition Transcript (``Tr.''), at
38; Responses to Interrogatories Nos. 1 and 2).
2. William Michael Johnson (``Johnson'') was the president and
general manager of Trilogy at all times relevant to the charges in
the Complaint. (Response to Interrogatory No. 3; Responses to
Requests for Admissions Nos. 1 and 2).
3. Johnson directed, controlled, and performed Trilogy's
operations at all times relevant to the charges in the Complaint and
acted on behalf of Trilogy. (Response to Request for Admission No.
3).
4. TAIR R&D Co. (``TAIR'') is a Russian company and was at all
times relevant to the Complaint Respondents' sole customer. (Tr. at
29; Response to Requests for Admission, Nos. 5-6).
5. Periodically, TAIR would request to purchase items from
Respondents, who then procured those items for export to TAIR; some
of which were manufactured and located in the United States. (Tr. at
21, 29; Answer, p. 1-2; International Invoice dated January 20,
2010; International Invoice dated March 4, 2010, International
Invoice dated April 15, 2010).
6. On or about December 7, 2009, Johnson obtained an E-3500
explosives detector from Scintrex Trace Corp. (``Scintrex''),
located in Ottawa, Canada. (Declaration of Agency Special Agent
(``S/A'') Patrick Tinling at ] 5; Purchase Order).\8\ On or about
that same date, Johnson signed and issued to Scintrex a purchase
order for the E-3500 explosives detector. Id.
---------------------------------------------------------------------------
\8\ The E-3500 explosive detector is the item at issue in Charge
1 of the Complaint. Respondent referred to this item as ``E-3500 and
accessories, a. Trace detector spectrometer'' in its e-mail to
freight forwarder Mainfreight, Inc., regarding this export. (Email
from Respondent to Kalief Brown of Mainfreight, Inc.) The item was
listed as a ``Trace Detector Spectrometer'' in the Automated Export
System (``AES'') Record for this export, with a stated value of
$46,135. The stated value matched the amount Respondents invoiced
TAIR for their sale of the item to TAIR. (Respondent's Response to
Request for Admission No. 10). A copy of the Trilogy-TAIR invoice
was attached to the email that Respondent sent Mainfreight, Inc.
with Respondent's direction concerning export of the item to TAIR.
---------------------------------------------------------------------------
7. On or about December 30, 2009, Scintrex sent the E-3500
explosives detector to Trilogy in Tuolumne, California. (Tr. at 46;
UPS Waybill; Scintrex Packing List; S/A Tinling Declaration at ] 5).
8. The E-3500 explosives detector is an item subject to 15
C.F.R. Sec. 734.3(a)(1) and is classified on the Commerce Control
List (``CCL'') under Export Control Classification Number (``ECCN'')
1A004.d. (Agency License Determination E1025550; S/A Tinling
Declaration; ] 8).\9\
---------------------------------------------------------------------------
\9\ The item and its related export by Respondent were subject
to the regulations given that the item was located in the United
States. 15 C.F.R. Sec. 734.3(a)(1). The item became subject to the
Agency once Respondent procured it and had it shipped to it in
California. Id.
---------------------------------------------------------------------------
9. Export of an E-3500 explosives detector to Russia is
controlled on national security grounds and required an Agency
license for export to Russia at all times relevant to the charges in
the Complaint. (Agency License Determination E1025550).
10. On or about January 20, 2010, Johnson prepared an
international invoice to TAIR for the E-3500 explosives detector.
(Tr. at 54-55; International Invoice dated January 20, 2010;
Response to Request for Admission No. 10; S/A Tinling Declaration at
] 4.a).
11. On or about January 22, 2010, Johnson delivered an E-3500
explosives detector and a related international invoice to
Mainfreight, Inc. for export to TAIR in Russia. (Tr. at. 46, 54-55;
E-mail from Johnson to Kalief Brown of Mainfreight, Inc.; S/A
Tinling Declaration, at ] 4; Response to Request for Admission No.
7).
12. On or about January 23, 2010, Johnson was the U.S. Principal
Party in Interest (``USPPI'')/exporter,\10\ that exported the E-3500
explosives detector at issue from the United States to Russia. (Tr.
at 46, 54--55; Automated Export System (``AES'') Record for January
23, 2010 export; Air Waybill; S/A Tinling Declaration, at ]] 3, 4.a,
7).
---------------------------------------------------------------------------
\10\ Under the regulations, ``principal parties in interest''
are ``[t]hose persons in a transaction that receive the primary
benefit, monetary or otherwise, of the transaction. Generally, the
principals in a transaction are the seller and the buyer. In most
cases, the forwarding or other agent is not a principal party in
interest.'' 15 C.F.R. Sec. 772.1.
---------------------------------------------------------------------------
13. No export license was obtained for the export of the E-3500
explosives detector to Russia. (Tr. at 56--57; S/A Tinling
Declaration, at ] 10).
14. On or about January 21, 2010, Johnson, on behalf of Trilogy,
placed an order with a United States supplier for 115 analog-to-
digital converter devices,\11\ of which 28 were eventually obtained
by Respondents. (Responses to Requests for Admission Nos. 20-22;
Analog Devices Invoice; S/A Tinling Declaration, at ]] 4.b, 6).
---------------------------------------------------------------------------
\11\ These 28 converters are the items at issue in Charge 2 of
the Complaint. (The same type of AD9268 converters are at issue in
Charge 3. Id.). Respondent exported these AD9268 converters to TAIR
along with other computer/electronics goods, including an AD9910
synthesizer. (Trilogy International Invoice dated March 4, 2010).
---------------------------------------------------------------------------
15. On or about March 4, 2010, Johnson signed and issued an
international invoice for the analog-to-digital converters.
(Response to Request for Admission No. 24; International Invoice; S/
A Tinling Declaration, at ] 4.b).
16. On or about April 6, 2010, Trilogy was the United States
Principal Party in Interest (``USPPI''), that exported 28 analog-to-
digital converters from the United States to Russia (AES Record for
April 6, 2010 export; Air Waybill; S/A Tinling Declaration at ]] 3,
4.b, 7).
17. On or about May 11, 2010, Johnson, on behalf of Trilogy,
placed an order with another U.S. supplier for additional analog-to-
digital converters, which were then obtained by Respondents.
(Response to Requests for Admissions Nos. 34-36; Arrow Electronics,
Inc. Invoice; S/A Tinling Declaration at ]] 4.b, 6).
18. On or about April 15, 2010, Johnson, on behalf of Trilogy,
signed and issued an international invoice for the additional
analog-to-digital converters. (Response to Request for Admission No.
38; International Invoice dated April 15, 2010; S/A Tinling
Declaration at ] 4.c).
19. On or about May 14, 2010, Trilogy, as the United States
Principal Party in Interest (``USPPI''), exported an additional 87
analog-to-digital converters from the United States to Russia. (Tr.
at 69; AES Record for Trilogy International Export to TAIR on or
about May 14, 2010; Air Waybill; S/A Tinling Declaration at ]] 3,
4.c, 7).\12\
---------------------------------------------------------------------------
\12\ These AD9268 converters are the items at issue in Charge 3
of the Complaint. The Trilogy International invoice for these
converters items lists their sale price as $22,620.
---------------------------------------------------------------------------
20. The analog-to-digital converters at issue are items subject
to 15 C.F.R. Sec. 734.3(a)(1), classified on the CCL under ECCN
3A001.a.5.a.5. (Agency License Determination E1020930; S/A Tinling
Declaration at ] 8).
21. Export of the analog-to-digital converters to Russia is
controlled on national security grounds and required an Agency
license for export to Russia at all times relevant to the Complaint.
(Agency License Determination E1020930).
22. Neither Trilogy, nor Johnson obtained an Agency export
license for the export of either the E-3500 explosives detector or
the analog-to-digital converters before exporting same to TAIR in
Russia. (S/A Tinling Declaration at ] 10).
Analysis
Having made the foregoing findings of fact largely based on
Respondents' admissions, the undersigned now turns to whether BIS is
entitled to summary decision as a matter of law. 15 C.F.R. Sec.
766.8.
The Agency bears the burden of proving the allegations in the
Complaint by the ``preponderance of the evidence'' standard of proof
typically applicable in administrative or civil litigation. See In
the Matter of lhsan Medhat Elashi, 71 Fed. Reg. 38843, 38847 (July
10, 2006). Applying this standard of proof, the Agency is entitled
to summary decision pursuant 15 C.F.R. Sec. 766.8 upon a showing
``there is no genuine issue as to any material fact,'' and thus, it
``is entitled to a summary decision as a matter of law.'' Id.
As set forth below, the record demonstrates there remain no
genuine issues of material fact and the Agency is entitled to
summary decision as a matter of law as to all of the charges at
against Respondents. All the evidence in this case shows Respondents
[[Page 9265]]
Trilogy and Johnson violated 15 C.F.R. Sec. 764.2(a) and 15 C.F.R.
Sec. 764.2(b).
Trilogy Violations of 15 C.F.R. Sec. 764.2(a)
The Charging Letters allege Respondent Trilogy violated 15
C.F.R. Sec. 764.2(a) on three instances when it sent explosives
detectors and analog-to-digital converters to Russia on January 22,
2010, April 6, 2010, and May 14, 2010. Pursuant to section 764.2(a),
the Agency argues Respondents were not permitted to make these three
shipments without a license or authorization from BIS. Specifically,
Section Sec. 764.2(a), provides:
Engaging in prohibited conduct. No person may engage in any
conduct prohibited by or contrary to, or refrain from engaging in
any conduct required by, the EAA, the EAR, or any order, license or
authorization issued thereunder.
Similarly, Title 15 C.F.R. Sec. 742.4 specifically requires a license
for ``all items in ECCN [Export Control Classification Number] on the
CCL [Commerce Control List] that include NS Column 1 in the Country
Chart column of the License Requirements'' section.\13\ BIS contends
the three Russian shipments falls under sections 764.2(a) and 742.4
because: 1) the explosive detectors and converters are listed on the
Commerce Control List, classified under ECCN 1A004.d, and controlled on
national security grounds for export to Russia; and 2) the analog-to-
digital converters are items subject to the Regulations and at all
times relevant were listed on the Commerce Control List, classified
under ECCN 3A001.a.5.a.5, and controlled on national security grounds
for export to Russia.
---------------------------------------------------------------------------
\13\ (a)License requirements. It is the policy of the United
States to restrict the export and reexport of items that would make
a significant contribution to the military potential of any other
country or combination of countries that would prove detrimental to
the national security of the United States. Accordingly, a license
is required for exports and reexports to all destinations, except
Canada, for all items in ECCNs on the CCL that include NS Column 1
in the Country Chart column of the ``License Requirements'' section.
A license is required to all destinations except those in Country
Group A:1 (see supplement no. 1 to part 740 of the EAR), for all
items in ECCNs on the CCL that include NS column 2 in the Commerce
Country Chart column of the ``License Requirements'' section except
those cameras in ECCN 6A003.b.4.b that have a focal plane array with
111,000 or fewer elements and a frame rate of 60 Hz or less. A
license is required to all destinations except those in Country
Group A:1 (see supplement no. 1 to part 740) for those cameras in
ECCN 6A003.b.4.b that have a focal plane array with 111,000 or fewer
elements and a frame rate of 60 Hz or less and for cameras being
exported or reexported pursuant to an authorization described in
Sec. 742.6(a)(2)(iii) or (v) of the EAR. The purpose of the
controls is to ensure that these items do not make a contribution to
the military potential of countries in Country Group D:1 (see
supplement no. 1 to part 740 of the EAR) that would prove
detrimental to the national security of the United States. License
Exception GBS is available for the export and reexport of certain
national security controlled items to Country Group B (see Sec.
740.4 and supplement no. 1 to part 740 of the EAR). (emphasis
added).
---------------------------------------------------------------------------
Respondent Trilogy provided no evidence showing the corporation
made these shipments with a license, makes no argument the items were
outside the scope of the licensure requirements in 764.2(a) and 742.4,
nor provides any evidence to dispute BIS' evidence. Instead, Respondent
argues that the corporation secured a third-party, Mainfreight, Inc.,
to properly comply with BIS regulations and claims Trilogy ``only
initiated'' the export transactions. In support of his position,
Respondent notes the corporation gave power of attorney to Mainfreight,
Inc. in 2009, authorizing ``Mainfreight SFO to handle necessary export
paperwork'' and when doing so he assumed competence on the part of
Mainfreight SFO. While recognizing Mainfreight, Inc, ``failed in their
responsibilities on three occasions'' Respondent Trilogy insists the
corporation in no way authorized Mainfreight SFO ``to violate federal
[law] on [Respondents'] behalf.'' Respondent's Answer, Id. Respondent's
argument ultimately asserts Mainfreight, Inc. is the culpable party
here, not Trilogy. See Respondent's Counter Motion. Respondent's
arguments are not persuasive.
Assuming, for the sake of argument, that Mainfreight, Inc., agreed
to take on all licensing responsibilities, Trilogy, as the USPPI/
exporter, remained obligated, as a matter of law, to determine whether
a license was required under the regulations and to seek any such
required license from BIS. Title 15 C.F.R. Sec. 758.3(a) clearly
states:
Export transactions. The United States principal party in
interest is the exporter, except in certain routed transactions. The
exporter must determine licensing authority (License, License
Exception, or NLR), and obtain the appropriate license or other
authorization. The exporter may hire forwarding or other agents to
perform various tasks, but doing so does not necessarily relieve the
exporter of compliance responsibilities.
Respondent does not allege that these export transactions were
routed transactions; \14\ therefore, per the regulations, Trilogy, as
the USPPI/exporter, had the legal obligation to determine any license
requirements and obtain the needed export licenses in connection with
each of the exports at issue here. Trilogy's failure to do so resulted
in three violations of 15 C.F.R. Sec. 764.2(a).
---------------------------------------------------------------------------
\14\ In order for these transactions to have been routed export
transactions, Respondent Trilogy International, as the USPPI, would
had to have obtained from TAIR, as the foreign principal party in
interest, ``a writing wherein the foreign principal party in
interest expressly assumes responsibility for determining licensing
requirements and obtaining license authority.'' 15 C.F.R. Sec.
758.3(b). Respondent could not have proven that these transactions
constituted routed export transactions even if it had raised such a
defense.
---------------------------------------------------------------------------
Ultimately, Respondent Trilogy's defense does not create a dispute
of a material fact; it does not counter the evidence cited by BIS.
Because Respondent Trilogy failed to produce any evidence to counter
the evidence cited by BIS showing the three violations of 15 C.F.R.
Sec. 764.2(a), the undersigned will GRANT BIS' motions for Summary
Decision on these charges. The record is undisputed, Respondent Trilogy
sent three shipments on January 22, 2010, April 6, 2010, and May 14,
2010 respectively. These shipments are controlled by 764.2(a) and 742.4
because: 1) the explosive detectors and converters are listed on the
Commerce Control List, classified under ECCN 1A004.d, and controlled on
national security grounds for export to Russia; and 2) the analog-to-
digital converters are items subject to the Regulations and at all
times relevant were listed on the Commerce Control List, classified
under ECCN 3A001.a.5.a.5, and controlled on national security grounds
for export to Russia. Respondent Trilogy violated 15 C.F.R. Sec.
764.2(a) by shipping these materials to Russia on three separate
occasions.
Johnson Violation of 15 C.F.R. Sec. 764.2(b)
The Agency also alleges Respondent Johnson violated the regulations
when he facilitated the corporation's three unlawful shipments.
Specifically, the Agency claims Respondent Johnson caused aided or
abetted Respondent Trilogy, through his actions as president of the
company, when he took action to initiate the unauthorized shipments in
January 20, 2010, March 4, 2010, and April 15, 2010.
Pursuant to 15 C.F.R. Sec. 764.2(b), ``[n]o 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.''
Here, Respondent Johnson's actions facilitated the corporation's
violations. At a minimum, Respondent Johnson aided Respondent Trilogy
by simply preparing the international invoices to TAIR for the
explosives detectors on January 20, 2010. Similarly, Respondent Johnson
aided and abetted Respondent Trilogy when he prepared the invoices for
the converters on March 4, 2010, and April 15, 2010. However, the
Agency correctly notes all of the actions taken by
[[Page 9266]]
Respondent Trilogy were done through Respondent Johnson.
Pursuant to the Under Secretary's May 30, 2017 Remand Order, BIS
can take action against Respondents separate and apart from each other,
even for the same acts. BIS correctly notes at least one federal court
acknowledges an agent's action can constitute both proof of a company's
primary violations and proof of the agent aiding and abetting
violations. S.E.C. v. Koenig, 2007 WL 1074901 (N.D. ILL. Apr. 5, 2007).
Accordingly, the undersigned concludes Respondent Johnson aided and
abetted Respondent Trilogy when it took steps to further the illegal
shipments for the company.
Respondent Johnson provides no evidence to counter the Agency's
evidence, and makes no argument that he did not take the alleged
actions to further the shipments to Russia. Again, his only defense,
discussed above, is that Mainfreight, Inc., bore the responsibility to
comply with Agency regulations, but ``failed in their responsibilities
on three occasions.'' This defense failed as applied to Respondent
Trilogy's three violations of 15 C.F.R. Sec. 764.2(a) and for similar
reasons, fails when applied to Respondent Johnson's violations of 15
C.F.R. Sec. 764.2(b).
SANCTION
Title 15 C.F.R. Sec. 764.3 sets forth the permissible sanctions
BIS may seek against regulatory violators and permits up to $289,238
per violation, or twice the value of the transaction upon which the
penalty is imposed, and a denial of Respondents' export privileges
under the regulations. The maximum total civil penalty which can be
imposed upon Respondent would be $867,894 and/or a denial of export
privileges for the three proved violations. The regulations do not
place any limit on the length of the time period for denial of export
privilege orders under 15 C.F.R. Sec. 764.3.
In its post-remand brief, the Agency argues BIS guidance on pre-
litigation settlements and the outcomes of previous BIS export control
cases provide useful guideposts to determine the sanction in this case.
BIS also relies on the guidance in Supplement No. 1 to Part 766 of the
Regulations (Penalty Guidance) to determine the appropriate sanction.
Under the Penalty Guidance, the undersigned may consider factors such
as: the degree of culpability (including whether reckless, knowing, or
willful conduct was involved), whether there were multiple violations,
and the timing of settlement. 15 C.F.R. Party 766, Supp. No. 1. The
Penalty Guidance also discusses aggravating factors that may be
accorded ``great weight,'' including whether the party's conduct
demonstrated a serious disregard for export compliance
responsibilities, and whether the violation was significant in view of
the sensitivity of the items involved and/or the reason for controlling
them to the destination in questions.
The undersigned agrees Respondents' violations warrant sanctions.
The undisputed facts show Respondents maneuvered to procure national
security items and then to export them from the United States, without
seeking authorization from BIS nor procuring the requisite license. As
the April 24, 2017 Order recognizes, Respondents were willful and
reckless. Given the Under Secretary did not disturb this finding, the
undersigned again finds the willfulness and recklessness relevant
actions when determining a sanction in this matter. Even if the
undersigned determined there was neither willful nor reckless activity,
the record supports a finding that Respondents acted with gross
negligence. Indeed, one of Respondents' defenses demonstrates the
point.\15\
---------------------------------------------------------------------------
\15\ Although Respondents did not respond to the court's
instruction to file a brief addressing sanctions, the court
considers his other defenses as arguments in mitigation.
---------------------------------------------------------------------------
Specifically, as noted above, Respondents argue that Mainfreight,
Inc., agreed to take on all licensing responsibilities, and it was
Mainfreight that failed to comply with BIS regulations in this case.
While the undersigned need not revisit why this is not a tenable
defense, it is relevant to point out that even assuming there was some
delegable duty under the regulations, Respondents would still be at
fault for failing to identify Mainfreight's deficiencies.
For example, had Respondents produced evidence that the agent,
Mainfreight, Inc., fraudulently informed Respondent Johnson that it
acquired the requisite license, and produced evidence reasonably
showing it complied with BIS regulations, the undersigned could
potentially consider this mitigating evidence. However, Respondents
produced no evidence of this and instead relies on the blanket argument
that Mainfreight, Inc., bore responsibility. What is more, Respondents
produced no evidence showing it monitored Mainfreight, Inc., set forth
any procedures to detect and deter noncompliance, nor show why it was
reasonable to rely on Mainfreight to fulfill BIS' requirements in any
way. Therefore, not only does Respondents' delegation argument not
excuse the conduct in this matter, it does not mitigate the severity of
the actions.
Moreover, the record shows Respondents failed to learn details
related to the financing of the illicit transactions, provided through
Trilogy Netherlands, with the ultimate source of financing being
unknown to Respondents. Johnson Depo. Tr., Exh. 3 to BIS's Brief on
Sanctions, at page 91, line 5 to page 92, line 10. Such avoidance of
these details shows Respondents' failure to act diligently to prevent
these export transactions, or to seek proper permission from BIS.
Tinling Declaration, Exh. 2 to BIS's Brief on Sanctions, at ] 5.
The undersigned also observes Respondent Johnson's conduct
illustrates a flippant attitude toward regulatory control. As an
example, Respondent Johnson straightaway acknowledged he failed to
comply with California state regulations in a separate instance because
``simply not complying appropriately with whatever in the hell the
regulations were'' because ``[y]ou know, I didn't pay much attention to
them.'' Johnson Depo. Tr. Exh. 3 to BIS' Brief on Sanctions, p. 11, 3-
12.
Finally, Respondents' have yet to acknowledge the seriousness of
the violations nor shown any remorse for these failures. Again,
Respondents fail to even make arguments to the undersigned concerning
the appropriate sanction here, show how he has corrected these issues,
or might correct these issues in the future.
Ultimately, after considering the regulations, the Penalty Guidance
and other BIS authority, the undersigned finds a $50,000.00 sanction
against Respondent Trilogy, and a $50, 000.00 sanction against
Respondent Johnson appropriate. Furthermore, the undersigned finds both
Respondent Trilogy and Johnson's export privileges should be suspended
for seven years. BIS authority in similar cases supports such a
sanction by analogy. See Matter of Yavuz Cizmeci (Order dated March 23,
2015); In the Matter of Gregorio L. Salazar (Order dated Dec. 10,
2015), In the Matter of Manoj Bhayana (Final Decision and Order dated
March 28, 2011).
CONCLUSION AND RECOMMENDATION
The undersigned issues this Recommended Decision and Order pursuant
to 15 C.F.R. Sec. 766.17(b)(2). The Agency's Motion for Summary
Decision against Respondent Trilogy and Johnson is GRANTED.
The undersigned recommends the Under Secretary find each of the
Section
[[Page 9267]]
764.2(b) charges PROVED. The undersigned further recommends the Under
Secretary levy a fine in the amount of 50,000.00 against Respondent
Trilogy; levy a fine in the Amount of 50,000.00 against Respondent
Johnson; and suspended both Trilogy and Johnson's exporting privileges
for seven years.
Done and dated this 24th day of January, 2018, Baltimore, MD.
Bruce Tucker Smith,
Administrative Law Judge, United States Coast Guard.
CERTIFICATE OF SERVICE
I hereby certify that I have served the foregoing Recommended
Decision and Order Granting Summary Decision on Remand the following:
Zachary Klein, Esq., Attorney for Bureau of Industry and Security,
Office of Chief Counsel for Industry and Security, U.S. Department of
Commerce, Room H-3839, 14th Street & Constitution Avenue NW,
Washington, D.C. 20230, Email: [email protected], (Electronically and
first class mail).
Trilogy International Associates, Inc. Attn: William Michael Johnson,
President and General Manager, P.O. Box 342, Altaville, CA 95221,
Email: inc.com">mjohnson@trilogy-inc.com, (Electronically and first class mail).
ALJ Docketing Center, Attention: Hearing Docket, Clerk 40 South Gay
Street, Room 412, Baltimore, MD 21202-4022, (Hand delivered).
Done and dated this 24th day of January 2018, Baltimore, MD.
Lauren M. Meus,
Hearing Docket Clerk, United States Coast Guard.
[FR Doc. 2018-04404 Filed 3-2-18; 8:45 am]
BILLING CODE P