I recently authored an article for Law360 providing insight on a recent appellate ruling related to violations of the Export Control Reform Act (ECRA), along with takeaways from the case and next steps from the U.S. Department of Commerce to address related compliance issues.
On July 8, the U.S. Court of Appeals for the District of Columbia Circuit upheld a 2020 decision by the U.S. District Court for the District of Columbia in Federal Express Corporation v. U.S. Department of Commerce dismissing FedEx’s complaint against the agency and holding it liable for violations of the Export Control Reform Act, or ECRA. “The common carrier was held liable even though it had been completely unaware of its violation,” I explained in the article. “On appeal, FedEx unsuccessfully argued that Commerce’s strict liability interpretation of Title 15 of the Code of Federal Regulations, Section 764.2(b) is ultra vires – a clear overstep of statutory authority.”
The case stems from 2017 allegations from Commerce that FedEx caused, aided or abetted violations of the Export Administration Regulations (EAR). The allegations were in connection to the facilitated export of civil aircraft parts to entities on the Commerce’s Entity List without a license. “Commerce asserted that FedEx’s screening process was inadequate because it ‘did not flag a transaction unless the name of the recipient/consignee exactly matched the full name of the entity as found on the Entity List, even where the address information was identical or nearly identical,’” I said.
After settling with a $500,000 civil penalty, FedEx filed its complaint with the aforementioned arguments related to Commerce’s strict liability interpretation of Title 15 of the Code of Federal Regulations, Section 764.2(b), which were dismissed at district court. I previously published a blog post detailing the ensuing appeals decision upholding the district court ruling.
In its decision, the appeals court decision granted broad authority to government agencies for national security and foreign policy purposes. “Even companies that unknowingly and unwittingly ’cause or aid, abet, counsel, command, induce, procure, permit, or approve the doing of any act prohibited, or the omission of any act required by’ export controls, can be held civilly liable and exposed to severe penalties,” I explained. “This presents countless avenues of liability for companies even without prior knowledge of the underlying violation.”
I concluded by discussing a June 2022 announcement from Commerce that upped the ante in terms of enforcement with four policy changes to strengthen export enforcement:
- It will use all existing regulatory and statutory authorities to ensure that the most serious administrative violations trigger commensurately serious penalties.
- It is doing away with no-admit, no-deny settlements.
- For certain less egregious violations, it is going to offer settlement agreements that do not require monetary penalties, and instead will seek to resolve cases by focusing on remediation, such as through the imposition of suspended-denial orders with certain conditions like training and compliance requirements.
- It is amending how it will process voluntary self-disclosures by establishing a two-track system —a fast track for minor or technical infractions and a separate track for disclosures that indicate a potentially more serious violation.
“Companies should prioritize the development and implementation of a robust compliance infrastructure based on a risk assessment,” I said. “Following the assessment, companies can fund initiatives addressing the highest risk areas. This compliance framework should help identify and prevent sanctions violations.”
Though even the best compliance program may not be enough to stop export compliance violation under the strict liability standard the appellate court upheld, organizations should commit to establishing robust compliance programs, employee training programs and voluntary disclosures when appropriate – such a program remains an exporter’s best defense.
The full article, “Exporters Should Take Heed After D.C. Circuit’s FedEx Ruling,” was published by Law360 on August 23 and is available online.