[Federal Register Volume 61, Number 116 (Friday, June 14, 1996)]
[Notices]
[Pages 30216-30219]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15074]
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DEPARTMENT OF COMMERCE
Bureau of Export Administration
[Docket Nos. AB3-95; AB2-95]
Serfilco, Ltd. and Jack H. Berg, Respondents; Final Decision and
Order
I. Summary
Before me for decision is the appeal of respondents, Serfilco Ltd.
(Serfilco) and Jack H. Berg (Berg), from the decision and order of the
Administrative Law Judge (ALJ). The ALJ found that Berg and Serfilco, a
company wholly owned by Berg, each committed nine violations of
Sec. 769.2(d) of the Export Administration Regulations (15 C.F.R.
Sec. 769.2(d)). The charges were based on their responding to seven of
the eight questions contained in a boycott questionnaire (the
``Annex''), and providing two additional items of prohibited
information in a cover letter transmitting the answers to the Annex.
The ALJ imposed a civil penalty of $10,000 for each of these
violations, for a total of $180,000. In addition, Serfilco was found to
have committed seven violations of Sec. 769.6 of the regulations for
failure to report its receipt of seven boycott-related requests. The
ALJ imposed a civil penalty of $4,000 for each of these violations, for
a total of $28,000. The civil penalties totaled $90,000 against Berg
and $118,000 against Serfilco or $208,000 against the two. Finally, the
ALJ imposed on respondents a one year denial of export privileges to
Bahrain, Iraq, Kuwait, Lebanon, Libya, Oman, Qatar, Saudi Arabia,
Syria, United Arab Emirates, and the Republic of Yemen.
I have affirmed the findings of the ALJ that the respondents
committed the violations in question. I have, however, reduced the
amounts of some of the civil penalties. I have set the penalties at
$80,000 for Berg and $38,000 for Serfilco. The total of the civil
penalties against the two is now $118,000. I have also affirmed the
periods of denial of export privileges to the countries specified for
each respondent.
II. Introduction
On August 24, 1995, the Office of Antiboycott Compliance, Bureau of
Export Administration, United States Department of Commerce (``agency''
herein) issued charging letters to the respondents, Serfilco, Ltd. and
Jack H. Berg. The agency charged that Berg, the President of Serfilco,
and Serfilco each committed nine violations of Sec. 769.2(d) of the
Export Administration Regulations and that Serfilco committed seven
violations of Sec. 769.6 of the Export Administration Regulations. (All
references to regulations in this decision are to the Export
Administration Regulations in 15 CFR) \1\ The respondents and the
agency jointly stipulated to, or the respondents requested and
received, an extension of the due date for the respondents' answer to
the charging letters on nine occasions. On March 27, 1995, the
respondents answered the charging letters and requested a hearing. The
hearing was held on August 23, 1995 in Washington, D.C. Post-hearing
briefs and proposed findings and conclusions were filed by the parties
on October 12, 1995; replies were filed on November 9, 1995. The
Administrative Law Judge issued his Decision and Order on December 5,
1995. The respondents filed their appeal on January 4, 1996. The
agency's reply brief was filed on February 16, 1996, pursuant to an
extension of time I granted.
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\1\ On March 25, 1996, the Bureau issued revised Export
Administration Regulations (61 Fed. Reg. 12714). While those
revisions made significant changes to export licensing procedures,
they do not affect the result of this case. References in this
Decision and Order are to the part numbers used in the Export
Administration Regulations prior to March 25.
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III. Findings of Fact
When the alleged violations occurred, Serfilco was a corporation
located in Glenview, Illinois and incorporated in Illinois. All of the
violations occurred during 1988, 1989, and 1990 when Berg resided in
the United States. Berg wholly owned Serfilco; he was its president,
treasurer, and chief executive officer. Serfilco was a United States
person, as defined in Sec. 769.1(d), during the time of the alleged
violations. At the time of the alleged violations, Serfilco
manufactured and exported commercial
[[Page 30217]]
filtration and pumping equipment. Berg also owned independent operating
companies, under the Serfilco name, in Canada and England. In 1989,
Serfilco's export sales represented approximately 17 or 18 percent of
its total sales. Its sales in the Middle East were a fraction of
overall sales. Serfilco also filled Middle East orders for its products
from its facility in England. The record does not reflect whether the
sales estimates include sales from England. Serfilco has an
international department at its Illinois headquarters.
On December 16, 1987, Berg wrote to the U.S. Chamber of Commerce,
attaching correspondence, and inquired whether the Chamber of Commerce
knew of any reason why his English company should not sell Serfilco
pumps to Iran. During the period 1988-1990, Berg was trying to obtain
business in Iraq. Between January 1989 and June 1989, Berg sought a
distributor in Iraq for his commercial filtration equipment and
industrial pumps. As part of that effort, on January 4, 1989, Berg
wrote to the senior commercial officer at the U.S. Embassy in Baghdad
at the suggestion of M. A. Al-Hantaway, a potential agent for
Serfilco's products in Iraq. Berg explained in his letter to the
embassy that the Al-Hantaway Bureau in Baghdad would represent
Serfilco's products and he sought embassy approval. On January 29,
1989, Russell Y. Smith, the Commercial Attache at the American Embassy
in Baghdad, sent Berg a facsimile explaining that ``Iraqi agency law
require[s] you to answer questions about your relations with a country
boycotted by Iraq.'' The embassy advised Berg that ``U.S. law
prohibiting U.S. persons from answering such suggestions may apply.''
Smith told Berg to call 202-377-2381 or 4550, the Office of Antiboycott
Compliance, to find out about the requirements of U.S. law.
Also on January 29, 1989, Smith wrote to Berg, reminded him that
the United States had an antiboycott law and ``that the Iraqi Agency
Law of 1983 may require responses to a series of questions (contained
on one sheet) concerning your relations with Israel.'' Smith told Berg
that:
A U.S. person is prohibited from responding to these questions
under American law. If you are not familiar with the antiboycott law
* * * please contact the Office of Antiboycott Compliance in
Washington at (202) 377-4550 or (202) 377-2381. They will be happy
to advise you how to comply with the law and also to suggest
alternative actions you may take.
Smith also sent Berg the Office of Antiboycott Compliance
publication ``Restrictive Trade Practices or Boycotts Including
Enforcement and Administrative Proceedings,'' which included the
antiboycott regulations. Berg filed Smith's correspondence in his
``Iraqi folder.''
Between May 14, 1989 and June 6, 1989, Berg received a May 14, 1989
letter from M. A. Al-Hantaway, Director of Al-Hantaway Bureau,
Commissioning Agency, Baghdad, Iraq. The letter was a request to Berg
that he ``approve 6 copies of the (Sales Policy) each with its attached
annex * * * and then send them all to us for further process here in
Iraq.'' The annex was a single page list of eight questions about
respondents' relationships with Israel.
The annex questions were as follows:
1. We do not have now & ever have a branch or main company factory
or assembly plant in Israel.
2. We do not have now or ever have general Agencies or offices in
Israel for our middle eastern international operations.
3. We have never granted the right using name, trade-marks,
royalty, patent, copyright or any of our subsidiaries to Israeli
persons or firms.
4. We do not participate or own or ever participate or own shares
in Israeli firm or business.
5. We do not render now or ever have rendered any consultance
servic[e] or technical assistance to any Israeli firm business.
6. We do not represent now or ever represented any Israeli firm or
business in Israel or abroad.
7. (What companies in whose capital are you shareholders? [P]lease
state the name and nationality of each company and the percent of share
to their total capital.)
8. (What companies are shareholding in your capital, please state
the name and nationality of each company and the percentage of share to
your total capital.)
On June 6, 1989, Berg answered all of the questions except number
five and sent those answers to Al-Hantaway. In his letter to Al-
Hantaway accompanying his responses he volunteered:
Please note that we presently receive orders from Israel, and
have also received orders in the past. We have sales dealers or
representatives in Israel, same as you. We will continue the above
sales.
Berg suggested to Al-Hantaway that he might prefer dealing with
Serfilco's office in England. Berg stated that his statement to Al-
Hantaway was meant to convey the company's policy to sell its products
all over the world without prejudice. Berg maintains that he was not
aware of any boycott of Israel when he responded.
Al-Hantaway responded to Berg's June 6, 1989 letter on June 27,
1989 and pointed out that since Berg could not ``sign for all the eight
items concerning Israel,'' it would be useless to continue negotiation.
Al-Hantaway explained that it would be necessary for Serfilco to ``stop
relations with Israelian dealers and representatives and promise to
avoid any relation with Israel in the future.'' If Serfilco were to do
this, he said, he would then ask the Iraqi authorities to allow him to
represent Serfilco. Al-Hantaway's refusal to represent Serfilco,
resulted in Berg calling the Office of Antiboycott Compliance, as
Commercial Attache Smith had suggested in January.
On July 20, 1989, Berg telephoned the Office of Antiboycott
Compliance. Berg told Joyce Shephard of that office that he had
received a letter from Commercial Attache Smith about selling to Iraq.
he said that a company in Iraq wanted to represent Serfilco but that
the company wanted him to sign an agreement about the boycott of
Israel. According to a report of that conversation that Shephard wrote,
Berg wanted to know if he could ship from his facility in England or
Canada and avoid violating the antiboycott law. He also wanted to know
whether he would have to agree to boycott Israel. Berg told Shephard
that in his absence she should talk with Shirley Futterman, A Serfilco
employee. On July 21, 1989, Berg sent Shephard the January 1989 letter
from Commercial Attache Smith and his correspondence with Al-Hantaway.
Berg told Shephard he wanted to know if there were alternative actions
that Serfilco could take that would permit the company to continue its
business in Israel and also trade with Iraq. Berg explained to Shepard
that Smith had sent him a package containing materials which included a
publication called ``Restrictive Trade Practices or Boycotts Including
Enforcement and Administrative Proceedings.''
About November 13, 1988, Serfilco received a request for a
quotation, with attachments, from Faisal A. Alarfaj, Managing Director,
Grace Trading Est. Grace Trading requested that Serfilco include the
manufacturer's name and address ``for Israeli Boycott Office
verification.'' Berg responded on December 2, 1988 and stated that the
manufacturer of the pump offered was Serfilco's subsidiary, ASM
Industries, Leola, Pennsylvania.
About May 14, 1989, Serfilco received an inquiry from Ahmad Jassim
Heleyel, Commercial Director, State Enterprise for Mechanical
Industries Republic of Iraq. The inquiry contained ``General Terms and
Conditions'' which were
[[Page 30218]]
found in Serfilco's files. Among the conditions was the requirement
that ``commercial invoices indicat[e] the name of exporter,
manufacturer & that he or his principal is not a branch, mother, sister
or partner to establishment included in Israeli boycott'' and the
exporter would need to certify that Israeli labor, capital or raw
materials were not used, that the ship is not blacklisted and that the
ship will not call at any Israeli port. Shirley Futterman on behalf of
William H. Smyth, a Serfilco Sales Application Engineer, responded to
the letter from Heleyel on June 27, 1989. Futterman sent Heleyel a copy
of Serfilco's catalogue and explained that Serfilco had reviewed the
Heleyel's requirements but that Serfilco did not have anything to
offer.
About May 30, 1989, Serfilco received a request for a quotation
from Al-Jubail Fertilizer Company (SAMAD) of Saudi Arabia which
attached a document entitled ``Instructions to Bidders.'' Those
instructions stated that among the elements to be considered in the
evaluating the quotation would be the ``Manufacturer's name and address
(for boycott verification).'' The document entitled ``Request for
Quotation'' which preceded the instructions also stated that all
quotations must contain the manufacturer's name and address for boycott
verification purposes. On June 13, 1989, Futterman responded to SAMAD
with a quotation for the part sought. She signed on behalf of
Serfilco's Export Department.
On or about March 5, 1990, Serfilco, Ltd. received a request for a
quotation from Arthur Goveas, Thuwainy Trading Co., W.L.L. in Kuwait,
with an attached document from the purchasing department of the Kuwait
Oil Company. The Kuwait Oil Company document was called an ``Enquiry''
and provided the following specifications for bidders:
(K) A Boycott Certificate from the IBO Kuwait or Declaration
letter from bidder, should be supplied with the bid confirming that
the manufacturer is neither boycotted nor warned, otherwise bid will
not be considered.
On or about March 21, 1990, Shirley Futterman on behalf of William H.
Smyth, International Sales Application, Serfilco, Ltd. responded to the
request from Thuwainy Trading Co.
About April 22, 1990, Serfilco, Ltd. received a request for
quotation from Abdullatif Abdalla Almihri, President, Middle East
Group--Trading & Contracting W.L.L., with an attached document entitled
``SCHEDULE OF PRICES.'' The request for quotation required the bidder
to comply with the following requirement:
Complete name & address of manufacturer/s must be stated on the
offer sheet for clearance from the Israeli Boycott Office--Kuwait,
without which your offer will be rejected by the authorities.
By letter dated May 10, 1990, Mark Glodoski, International Sales
Appl., Serfilco, Ltd. responded to the request from the Middle East
Group--Trading & Contracting W.L.L.
Serfilco did not institute an antiboycott compliance program until
``right after 1992.''
IV. Analysis \2\
A. Furnishing Prohibited Information (Sec. 769.2(d))
While it is beyond doubt that respondents furnished prohibited
information, the 18 charges under Sec. 769.2(d) (nine against Berg and
nine against his corporation, Serfilco) and $180,000 penalty pertain to
two documents--the annex and the cover letter. Government counsel
correctly argues that applicable agency law establishes that the
``proper unit of prosecution'' is each item of prohibited information
within a transmission. The ALJ also correctly concluded that he did not
have authority to reduce the number of charges. That authority is
vested only in the Under Secretary.
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\2\ Arguments raised by Respondents not discussed below have
been considered and rejected as being without merit or as being
immaterial to the final decision. The conclusions reached are based
on consideration of the record as a whole.
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Under the longstanding policy and practice of this agency, charges
are initiated and penalties are imposed based upon items of information
improperly furnished. Here, each charge under Sec. 769.2(d) was based
upon a separate piece of information whose transmission could assist in
the administration of the boycott. It was appropriate to initiate
charges and exact penalties on each of these. I will not exercise my
discretion to reduce the number of these charges.
I also concur with the ALJ's finding that Berg and Serfilco are
separate entities and are each legally responsible for the violations
committed.
1. The Annex
The record clearly demonstrates that respondent Berg was
specifically warned that he would be receiving a boycott request and
that responding to the request was prohibited. Additionally, he was
furnished a copy of the applicable regulations. Therefore, the
imposition of the maximum $10,000 penalty against Berg for completing
each question in the Annex is appropriate. However, mindful that
Serfilco is a small, closely held company whose actions were under the
control of respondent Berg, I have exercised my discretion and reduced
the penalties against it to $2,500 for each of the seven violations
relating to the annex.
2. The Cover Letter
Having completed the Annex, Berg apparently realized that it could
create the false impression that he did not do business in Israel. In a
misguided attempt to make it clear that he did such business in Israel
and intended to continue to do so, Berg provided the additional items
of information in his cover letter which form the basis for the second
set of Sec. 769.2(d) violations (two against him and two against
Serfilco). The body of Berg's letter reads, in its entirety:
Thank you for your letter of May 16th.
I have read the attached annex and indicated my answers.
Please not that we presently receive orders from Israel, and
have received orders in the past. We have sales dealers and
representatives in Israel, same as you.
We will continue the above sales, and will be pleased to work
with you on the same arrangement. Please advise if this is
agreeable. We'll then forward copies of the sales policy to your
embassy.
As noted above, I believe that this cover letter constitutes two
separate violations of Sec. 769.2(d) for each respondent. I do not,
however, believe that imposition of the maximum penalty is appropriate.
As a mitigating factor in assessing a penalty for this violation, the
record establishes that Berg's objective was to make clear his
intention to continue to do business in Israel. Moreover, it should be
noted that in his responses to the Annex and in this letter he
furnished information only on his firm. Thus, the only furtherance of
the boycott resulting from his response was the likely inclusion of his
firm on the ``blacklist,'' a result more harmful to himself than
supportive of the boycott. Therefore, I have decided to impose two
$5,000 penalties against Berg and two $1,000 penalties against Serfilco
for furnishing the information contained in the cover letter.
B. Reporting Violations (Sec. 769.6)
1. Grace Trading Co.
This request was dated November 13, 1988, before Serfilco received
specific warnings about the antiboycott laws. Serfilco presented
credible evidence that it did not read the ``fine print'' when it did
not stock and product in question, but instead responded with a form
letter. Since this apparently was Serfilco's first exposure to the Arab
boycott of Israel, I give credence to this
[[Page 30219]]
argument in mitigation and reduce the $4,000 penalty imposed by the ALJ
to $2,000.
2. Al-Hantaway
The two reporting violations involving Al-Hantaway cover the same
subject matter as the previously discussed Sec. 769.2(d) violations.
Specifically, Serfilco is charged with failing to report the request to
complete the Annex and a subsequent letter from Al-Hantaway informing
Serfilco that it must stop its ``relations with Israelian dealers and
representatives and promise to avoid any relation with Israel in
future.'' While the record is subject to interpretation concerning
Serfilco's motivation in contacting the Office of Antiboycott
Compliance (OAC) concerning this matter, it does clearly establish that
Serfilco provided the OAC, within the prescribed time period, copies of
all relevant correspondence. However, Serfilco did not submit the
required form. Under these circumstances, I must conclude that Serfilco
committed two violations of Sec. 769.6. In view of the mitigating
factors noted above, I have decided that the penalty for each of these
two violations should be $250.
3. The Four Later Reporting Violations
The record clearly establishes that Serfilco received reportable
requests from the State Enterprise for Mechanical Industries, Republic
of Iraq; the Al-Jubail Fertilizer Company; the Thunwainy Trading Co.;
and the Middle East Group; and failed to report any of them. These four
violations all occurred after Serfilco received specific warning about
the antiboycott laws, and I affirm the ALJ's imposition of a $4,000
penalty for each.
V. Order
A $10,000 penalty is imposed against Berg for each of the seven
Sec. 769.2(d) violations related to the annex. A $5,000 penalty is
imposed against Berg for each of the two Sec. 769.2(d) violations
involving the cover letter. A $2,500 penalty is imposed against
Serfilco for each of the seven Sec. 769.2(d) violations related to the
annex. A $1,000 penalty is imposed against Serfilco for each of the two
Sec. 769.2(d) violations involving the cover letter. A $2,000 penalty
is imposed against Serfilco for the Sec. 769.6 violation regarding
Grace Trading. A $250 penalty is imposed against Serfilco for each of
the two Sec. 769.6 violations involving Al-Hantaway. A $4,000 penalty
is imposed against Serfilco for each of the remaining four Sec. 769.6
violations. The total penalties imposed thus are $80,000 against Berg
and $38,000 against Serfilco. The ALJ's imposition, against each
respondent, of a one year denial of export privileges to Bahrain, Iraq,
Kuwait, Lebanon, Libya, Oman, Qatar, Saudi Arabia, Syria, United Arab
Emirates, and the Republic of Yemen, is sustained. The period of denial
shall begin on the date of this final decision and order. Respondents
shall pay these civil penalties within 30 days of the date of this
order in accordance with the attached instructions.
Dated: June 10, 1996.
William A. Reinsch,
Under Secretary for Export Administration.
Instruction for Payment of Civil Penalty
1. The civil penalty check should be made payable to: U.S.
Department of Commerce.
2. The check should be mailed to U.S. Department of Commerce,
Bureau of Export Administration, Office of Budget and Financial
Management, Room H-3889, 14th Street and Constitution Avenue, N.W.,
Washington, D.C. 20230. Attn: Victor Micit.
[FR Doc. 96-15074 Filed 6-13-96; 8:45 am]
BILLING CODE 3510-DT-M