[Federal Register Volume 62, Number 124 (Friday, June 27, 1997)]
[Notices]
[Pages 34688-34690]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-16822]


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DEPARTMENT OF COMMERCE

Bureau of Export Administration
[Docket Number 97-BXA-9]


Action Affecting Export Privileges; Thane-Coat, Inc., Jerry 
Vernon Ford, Preston John Engebretson, Export Materials, Inc. and 
Thane-Coat, International, Ltd.; Decision and Order

IN THE MATTER OF:

Thane-Coat, Inc., 12725 Royal Drive, Stafford, Texas 77477,
Jerry Vernon Ford, President, Thane-Coat, Inc., 12725 Royal Drive, 
Stafford, Texas 77477, and with an address at 7707 Augustine Drive, 
Houston, Texas 77036,
Preston John Engebretson, Vice-President, Thane-Coat, Inc., 12725 
Royal Drive, Stafford, Texas 77477, and with an address at 8903 
Bonhomme Road, Houston, Texas 77074,
Export Materials, Inc., 3727 Greenbriar Drive, No. 108, Stafford, 
Texas 77477,
    and
Thane-Coat, International, Ltd., Suite C, Regent Centre, Explorers 
Way, P.O. Box F-40775, Freeport, The Bahamas,

Respondents

    The respondents appeal from an order issued on May 5, 1997, by the 
Acting Assistant Secretary for Export Enforcement which temporarily 
denies their U.S. export privileges pursuant to Section 766.24 of the 
Export Administration Regulations (15 CFR Parts 730-74). I have 
reviewed the files and records of this matter including the Recommended 
Decision and Order of the Administrative Law Judge which is attached 
hereto. Based upon the findings and conclusions of the Administrative 
Law Judge, I find that the Acting Assistant Secretary's decision to 
issue the order was fully supported by the facts and is consistent with 
the applicable law. Accordingly, the issuance of the Order Temporarily 
Denying Export Privileges to Thane-Coat, Inc., Jerry Vernon Ford, 
Preston John Engebretson, Export Materials, Inc., and Thane-Coat 
International, Ltd., is affirmed.

    Dated this 19th day of June, 1997, Washington, D.C.
William A. Reinsch,
Under Secretary for Export Administration.

Recommended Decision and Order

Preliminary Statement

    This proceeding is an appeal from an Order Temporarily Denying 
Export Privileges, and brought pursuant to the Export Administration 
Act of 1979, (hereinafter ``The Act''), 50 U.S.C.A. app. Secs. 2401-
2420 (1991 & Supp. 1997), and provisions of Section 766.24 of the 
Export Administration Regulations codified at 15 CFR Parts 730-774 
(1997). On May 1, 1997, the Office of Export Enforcement, Bureau of 
Export Administration, United States Department of Commerce, 
(hereinafter ``BXA''), requested that the Acting Assistant Secretary 
for Export Enforcement issue an order, (hereinafter ``TDO''), 
temporarily denying all United States export privileges to Respondents. 
The Acting Assistant Secretary, on May 5, 1997, issued the TDO on an ex 
parte basis. On May 23, 1997,\1\ the Respondents appealed this order to 
the Administrative Law Judge.
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    \1\ The Appeal was not received in the Office of the 
Administrative Law Judge until May 28, 1997.
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Findings of Fact \2\

    1. Thane-Coat was founded in 1982 as a sole proprietorship engaged 
in the business of manufacturing and applying industrial paints and 
coatings (Respondent's Exhibit 1, hereinafter ``Resp. Ex.'').
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    \2\ Neither Respondent nor Agency submitted Proposed Findings of 
Fact. As a result, no rulings are made hereon.
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    2. The company was incorporated in Texas in 1984. (Id.).
    3. Thane-Coat markets its products through direct sales, commission 
representatives, distributors, and license agreements. The products 
include: coatings for steel pipes; materials for the repair of steel 
pipe coatings; epoxy materials for coating sewer manholes; coatings for 
concrete pipes; liquid casting materials; truck-bed liner coatings; 
fiberglass replacement materials for automotive after market products; 
and, coal tar pipe coating paint. (Id.).
    4. During 1991, Respondents Ford and Engebreston sought a contract 
with the Great Man-Made River Authority of the Government of Libya to 
provide coating needed for the PCCP for the second stage of the Great 
Man-Made River Project. (Government's Exhibit 1, hereinafter ``Gov. 
Ex.'').
    5. Thane-Coat also sought the advice of counsel regarding corporate 
restructuring. (Id.).
    6. On September 5, 1991, Thane-Coat's counsel, in memorandum, 
advised Respondent to apply for a license to sell products to Libya. 
(Id.). Respondents did not do so.
    7. On September 20, 1991, Respondent Engebreston contacted the 
Bahamian Transportation Office, stating that he was interested in 
establishing a ``manufacturing/blending facility'' in the free trade 
area of Freeport. (Id.).
    8. On, or about, October 9, 1991, the name ``Thane-Coat 
International Limited'' was reserved as a Bahamian Ordinary Company. 
(Id.).
    9. In Mid-1992, Respondents Ford and Engebreston traveled to Libya 
to purse a contract to provide coating for the external surface of the 
PCCP for the second phase of the Great Man-Made River Project. This 
contract was not procured. (Id.).
    10. On, or about, March 17, 1993, Respondents Ford and Engebreston 
incorporated Thane-Coat International Limited in the Commonwealth of 
the Bahamas. (Id.).
    11. During 1995 and the first half of 1996, a significant portion 
of the company's revenues was derived from exports. (Resp. Ex. 1).

[[Page 34689]]

    12. On September 11, 1995, TIC, Ltd. purchased 256 drums of a 
corrosive, synthetic resin (hereinafter ``coating materials''), from 
Everest Coatings of Spring, Texas, a manufacturer of chemicals. (Gov. 
Ex. 1 at Ex. 4).
    13. The cosignee of the shipments was Harkmel International in 
Middlesex, United Kingdom. (Id.).
    14. On, or about, September 23, 1995, the coating material was 
exported from Houston Texas to Felixstowe, U.K., in four 40-foot 
containers, each containing 64 pallets. (Gov. Ex. 1 at Ex. 4).
    15. In the U.K., the coating material was unloaded and taken to a 
warehouse by a U.K. freight forwarder, where it was repackaged into 
four 20-foot containers before transfer to Harwich, U.K. (Id).
    16. At Harwick, the four 20-foot containers were loaded aboard the 
``Norlandia'' for delivery to Marsa El Brega, Libya. (Id).
    17. On July 5, 1996, the Respondents were targeted in a federal 
investigation regarding the alleged export of concrete pipe coating 
materials and technology to Libya when a search warrant was executed on 
Thane-Coat's business premises and a large volume of documents was 
seized in relation to Respondents' business Resp. Ex. 1).
    18. On April 28, 1997, a civil forfeiture action was initiated by 
the Government in rem against certain real and personal property owned 
by the Respondents. (Id).
    19. The complaint filed therein alleged that the Respondents had 
performed one or more contracts to provide concrete pipe coating 
materials and technology to the government of Libya between January 
1994 and July 1996. It is further alleged that the materials were sold 
through certain Bahamian companies with knowledge that they would be 
used in connection with the construction of a large-scale aqueduct 
project designed to transfer freshwater from internal regions of Libya 
to cities related to its coast. (Id).
    20. On April 28, 1997, United States Magistrate Judge for the 
Southern District of Texas, authorized the arrest and seizure of the 
defendant property. This order has been appealed, the resolution of 
which is still pending. (Id).
    21. On May 5, 1997, based upon an ex parte application of the 
Bureau of Export Administration's Office of Enforcement, the Acting 
Assistant Secretary for Export Enforcement issued a TDO to the 
Respondents.
    22. The TDO was issued based upon the belief of BXA that the 
Respondents had made approximately 100 shipments of U.S.-origin pipe 
coating materials, machines, and parts to a concern in Libya during the 
period from June 1994 through July 1996, for use in coating the 
internal surface of pre-stressed concrete cylinder pipe for the 
Government of Libya's Great Man-Made River project. (Gov. Ex. 1).
    23. The TDO bars Respondents from further participation in any 
exports from the United States that are subject to the EAR, or engaging 
in any other activity that is subject to the EAR for 180 days. Gov.Ex. 
1).

Ultimate Findings of Fact and Conclusions of Law

    1. The Acting Assistant Secretary's decision to issue a TDO is 
supported by the record.
    2. A violation is ``imminent'' if ``the general circumstances of 
the matter under investigation demonstrate a likelihood of future 
violations. To indicate the likelihood of future violations, BXA may 
show that the violation under investigation ``is significant, 
deliberate, covert and/or likely to occur again.''
    3. The Administrative Law Judge does not have the authority to 
decide whether or not the Regulations as applied against the 
Respondents violate Due Process. Frost v. Weinberg, 375 F. Supp. 1312, 
1320, (E.D.N.Y 1974), rev'd on other grounds, 515 F.2d 57 (2d Cir. 
1975), cert. denied, 424 U.S. 958 (1976).
    4. The Administrative Law Judge does not have the authority to 
determine whether or not the deprivation of Respondent's export 
privileges violates their right to procedural due process. D'Amico v. 
Schweiker, 698 F.2d 903, 906 (7th Cir. 1983); Steiberger v. Heckler, 
615 F. Supp. 1315, 1386 (S.D.N.Y. 1985); Association of Administrative 
Law Judges v. Heckler, 594 F. Supp. 1132, 1141 (D.D.C. 1984).
    5. The Administrative Law Judge does not have the authority to 
decide whether or not the TDO will prevent further proceedings to 
impose additional penalties on respondents for any alleged past 
violations and Fifth Amendment concerns. Frost v. Weinberg, 375 F. 
Supp. 1312, 1320. (E.D.N.Y 1974), rev'd on other grounds, 515 F.2d 57 
(2d Cir. 1975), cert. Denied, 424 U.S. 958 (1976).

Opinion

1. Due Process and the Validity of the Regulations

    Respondents initially urge vacation of the Temporary Denial of 
Export Privileges Order by averring that the Regulations, as applied to 
Respondents are inconsistent with the Act and the Constitution. First, 
Respondents contend that the issuance of a Temporary Denial Order based 
upon the regulatory requirement of a showing that a violation is 
``imminent'', is in conflict with the Terms of the Act, and 
inconsistent with its intent. Second, Respondents contends that the 
allowance of the imposition of a TDO based upon ``the general 
circumstances of the matter under investigation,'' \3\ or because the 
alleged violation is significant instead of technical is 
unconstitutionally vague and violates Due Process. Third, Respondents 
argue that the imposition of a TDO on an ex parte basis denies the 
Respondents their rights to procedural Due Process. Lastly Respondents 
contend that due to the Double Jeopardy clause of the Fifth Amendment, 
the TDO will prevent any further proceedings to impose additional 
penalties on Respondents for any alleged violations of the past.
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    \3\ (Respondent's Brief at 16.).
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    Regardless of the validity, or invalidity, of these arguments, the 
Administrative Law Judge does not have the authority to consider them. 
See Frost v. Weinberg, 375 F. Supp. 1312, 1320, (E.D.N.Y. 1974), rev'd 
on other grounds, 515 F.2d 57 (2d Cir. 1975), cert. denied, 424 U.S. 
958 (1976) (holding that an administrative law judge is precluded from 
passing upon the constitutionality of the very procedures he is called 
upon to administer);. See also D'Amico v. Schweiker, 698 F.2d 903, 906 
(7th Cir. 1983); Steiberger v. Heckler, 615 F. Supp. 1315, 1386 
(S.D.N.Y. 1985); Association of Administrative Law Judges v. Heckler, 
594 F. Supp. II 32, 1141 (D.D.C. 1984). Wherefore, consideration of 
these arguments will not be undertaken.

2. The Temporary Denial Order and the Definition of ``Imminent''

    Respondents contend that the purpose of this proceeding ``is not to 
determine whether any of the Respondents ever allegedly violated the 
Act, the EAR, or any order of license issued thereunder,'' but rather 
to determine whether ``BXA has proved that it is entitled to emergency, 
ex parte relief to prevent Respondents from commiting future, imminent, 
violations of the Act, the EAR, an order or a license.'' (Resp. Brief 
at 1). Respondents further contend that in so determining this issue, 
the definition of the term ``imminent'' should be ``likely to happen 
without delay.'' As a result, Respondents aver that a TDO may only be 
issued where violations are likely to happen presently and cannot be 
issued for past, suspected violations of the Act. I cannot agree with 
this statement of the issue at hand.
    The Regulations provide that a Temporary Denial of Export 
Privileges

[[Page 34690]]

may be granted if the Secretary finds that the order is necessary in 
the public interest to prevent an imminent violation. 15 CFR 766.24. A 
Respondent may appeal the imposition of any such TDO on the grounds 
that the finding that the order is necessary in the public interest to 
prevent an imminent violation is unsupported. 15 CFR 766.24(e)(4). The 
relevant issue at hand, therefore, is whether or not the finding that a 
TDO was necessary to prevent an ``imminent'' violation is supported.
    The Regulations provide that a violation is ``imminent'' if:

[T]he general circumstances of the matter under investigation 
demonstrate a likelihood of future violations. To indicate the 
likelihood of future violations, BXA may show that the violation 
under investigation is significant, deliberate, covert and/or likely 
to occur again, rather than technical or negligent, and that it is 
appropriate to give notice to companies in the United States and 
abroad to ceased along with the person in U.S.-origin items in order 
to reduce the likelihood that a person under investigation continues 
to export or acquire abroad such items, risking subsequent 
disposition contrary to export control requirements.

15 CFR 766.24(b)(3) (emphasis added).
    The BXA introduced the following in suppport of its argument that 
the violation under investigation is significant, deliberate and 
covert. First, BXA avers, and I concur, that the activities under 
question involved exports of U.S.-origin commodities to Libya. Libya, 
is a country which is subject to restrictive economic controls. See 
Libyan Sanction Regulations, 31 CFR Part 550 (1996). Under the 
regulation virtually all exporting and re-exporting to Libya are 
monitored and controlled, requiring a license issued by the Office of 
Foreign Assets Control (hereinafter ``OFAC''). This off ice has no 
record of Thane-Coat, Inc. or TIC, Ltd. ever requesting such a license. 
Gov. Ex. 1, Ex. 15).
    Second, an export scheme was undertaken to complete the export of 
pipe coating materials to Libya. Thane-Coat, Inc. through Ford and 
Engebretson, using TIC, Ltd. as the exporter of record, obtained 
coating products from U.S. manufacturers and had those items delivered 
to U.S. ports for export to Fleixstow, United Kingdom, (Gov. Ex. 1). 
Once in the U.K., Harkmel International ``re-stuffed'' the cargo, 
unloading it from 40-foot containers at the U.K. port of Felixstowe and 
reloading it into 20-foot containers. These containers were re-stuffed 
based upon the advice from Harkmel that use of the same containers 
would be ``a flag for person following movements to country.'' (Gov. 
Ex. 1). The repackaged containers were then sent to Marsa El Brega, 
Libya. (Id.).
    Based upon the above evidence, BXA has shown that Respondents 
committed a violation that was both significant, deliberate and covert. 
In light of this, the Acting Assistant Secretary's decision to issue a 
TDO is clearly supportable.

Conclusion

    In light of the fact that Respondents entered into a scheme of 
violations which were not only deliberate, but also covert, it is 
hereby strongly recommended that the decision of the Acting Assistant 
Secretary to temporarily deny export privileges to the Respondents for 
a period of 180 days be affirmed.

Recommendation

    It is Hereby Recommended That the issuance of the Order Temporarily 
Denying Export Privileges to Thane-Coat, Inc., Jerry Vernon Ford, 
Preston John Engebretson, Export Materials, Inc. and Thane-Coat 
International, Ltd., be Affirmed.

    Dated on the 11th day of June 1997, Baltimore, Maryland.
Hon. Joseph N. Ingolia,
Chief Administrative Law Judge, United States Coast Guard.

Certificate of Mailing

    I hereby certify that I forwarded the attached document by federal 
express to the following persons:

Jeffrey M. Joyner, Esq., Office of Chief Counsel for Export 
Administration, Bureau of Export Administration, United States 
Department of Commerce, H3839, 14th and Constitution, NW., 
Washington, DC 20230.
Samuel J. Buffone, Thomas B. Smith, Ropes & Gray, 1301 K Street, 
NW., Suite 800 East, Washington, DC 20005.
Undersecretary for Export Administration, Bureau of Export 
Administration, United States Department of Commerce, 14th and 
Constitution, NW., Washington, DC 20230.

    Dated this 11th day of June 1997, Baltimore, Maryland.
Joi L. Johnson,
Legal Assistant to Chief Judge Ingolia.
[FR Doc. 97-16822 Filed 6-26-97; 8:45 am]
BILLING CODE 3510-DT-M