On Feb. 5, 2010, a small company named Capintec, Inc. received a seemingly cordial and routine “outreach visit” from Bureau of Industry and Security (BIS) special agents. What appeared to be a harmless and informative visit turned out to be the Trojan horse that led to a $23,000 fine assessed against Capintec for unauthorized shipments to Pakistan. What Capintec failed to realize before it was too late was that BIS had taken something with them when they walked out of Capintec’s doors – knowledge, a necessary element for the criminal prosecution of violations of export law. This knowledge gives BIS agents seeking to enforce export laws considerable leverage as companies will be all too happy to accept large civil penalties in lieu of a criminal prosecution.
Capintec is not alone in falling victim to this strategy. Other large settlements include a $60,000 fine against Powerlines Industry and a $1 million fine against Microsystems. Each of these cases began with an outreach visit where agents provided the necessary information to company managers to allow for prosecutorial leverage and, consequently, large civil fines.
Although outreach visits may appear benign, in reality they are a means through which government agencies can conduct an investigation into a company. They are also a good sign that the government has suspicions about a company’s activities. These suspicions can arise for any number of reasons including particular evidence provided by a competitor and intelligence regarding potential diversion, among other sources.
Due to the true nature of most outreach visits, it is crucial that companies conduct themselves as if they are being investigated rather than assume that an outreach visit is harmless. Treating an outreach visit as an investigation requires a company to tread lightly and walk the fine line between cooperation and incrimination. While acting in ways to prevent self-incrimination, it is also important to appreciate the value of cooperation and utilize such cooperation as a mitigating factor when appropriate.
The first thing to note is that these outreach visits are purely voluntary and an exporter can refuse to participate. However, refusing to participate in an outreach visit may result in BIS adding your company to the “unverified list,” which becomes a red-flag to others who might not deal with you because of this change in your company’s status. With that said, it is better to defer an unannounced outreach visit rather than attempt to power through one when your company is unprepared. Best practice would dictate that you speak with your attorney first or have your attorney present at the outreach visit to ensure that your company does not inadvertently misrepresent facts or make incriminating statements at the meeting. In keeping with this goal, your company should keep the outreach visit focused on the concerns that the government officials are trying to address. By exposing your company’s export policies beyond the scope of the purposes of the outreach visit, your company increases the risk of making misrepresentations or making incriminating statements that will increase the government’s suspicions.
While an outreach visit is a strong indication that your company’s export compliance policy has defects, it should not be taken as a bad omen. Rather, an outreach visit should be seen as an opportunity. The government is tipping you off that it has concerns and is giving you the opportunity to shape up your export compliance policy. Receiving an outreach visit should encourage an immediate reassessment of your company’s export policy and readjustments where those policies fall out of line with export laws.
Written By: Adrienne Braumiller, Partner