[Federal Register Volume 88, Number 64 (Tuesday, April 4, 2023)]
[Notices]
[Pages 19913-19916]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-06920]


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DEPARTMENT OF COMMERCE

Bureau of Industry and Security

[Case No. 22-BIS-0007]


Order Relating to Kenneth Scott, Scott Communications, Inc., and 
Mission Communications, LLC; In the Matter of: Scott Communications, 
Inc., 61574 Hillside Road, St. Ignatius, MT 59865; Mission 
Communications, LLC, 61574 Hillside Road, St. Ignatius, MT 59865; 
Kenneth Peter Scott, 61574 Hillside Road, St. Ignatius, MT 59865; 
Respondents

    The Bureau of Industry and Security, U.S. Department of Commerce 
(``BIS''), has notified Scott Communications, Inc. and Kenneth Scott 
(collectively ``Scott''), as well as Mission Communications, LLC 
(``Mission'') of St. Ignatius, Montana (``Respondents''), that it has 
initiated an administrative proceeding against them pursuant to section 
766.3 of the Export Administration Regulations (the 
``Regulations''),\1\ through the issuance of a Charging Letter alleging 
that Respondents committed five violations of the Regulations. 
Specifically:
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    \1\ The Regulations originally issued under the Export 
Administration Act of 1979, as amended, 50 U.S.C. 4601-4623 (Supp. 
III 2015) (``the EAA''), which lapsed on August 21, 2001. 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, continued the Regulations in full force and 
effect under the International Emergency Economic Powers Act, 50 
U.S.C. 1701, et seq. (2012) (``IEEPA''). On August 13, 2018, the 
President signed into law the John S. McCain National Defense 
Authorization Act for Fiscal Year 2019, which includes the Export 
Control Reform Act of 2018, 50 U.S.C. 4801-4852 (``ECRA''). While 
section 1766 of ECRA repeals the provisions of the EAA (except for 
three sections which are inapplicable here), section 1768 of ECRA 
provides, in pertinent part, that all rules and regulations that 
were made or issued under the EAA, including as continued in effect 
pursuant to IEEPA, and were in effect as of ECRA's date of enactment 
(August 13, 2018), shall continue in effect until modified, 
superseded, set aside, or revoked through action undertaken pursuant 
to the authority provided under ECRA.
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General Allegations

    1. In or about March 2017, a Federal Bureau of Investigations 
(``FBI'') Special Agent working in an undercover capacity (the ``UC'') 
contacted Kenneth Scott via email. The UC used an email address 
identified from a trade magazine advertisement in which Scott 
Communications advertised various communications equipment for sale. 
During the course of the sales negotiations with the UC, Scott was 
acting on behalf of Scott Communications, Inc. For example, the 
advertisement also included a telephone and fax number for ``Ken 
Scott.'' A 2017 Better Business Bureau business profile further 
identified Kenneth Scott as the president of Scott Communications, Inc. 
In addition, in his email communications with the UC, as well in his 
social media profiles, Kenneth Scott identified himself as the 
President of Scott Communications.
    2. On or about March 16, 2017, the UC sent Scott an email titled 
``Motorola Radio Quote Request.'' In the email, the UC requested a 
price quote for two Motorola XTS 2500, 800 or 900 Mhz radios. The UC 
also told Scott that, after the initial order of two radios, he 
intended to follow up with a larger order. The UC also asked Scott 
about shipping to Iran and later informed Scott that he intended to 
transship the radios from Jordan to Iran. Scott ultimately agreed to 
ship the radios to Jordan with knowledge that they would then be 
transshipped to Iran.
    3. Specifically, on or about March 21, 2017, the UC emailed Scott 
asking him to: Please provide me with your competitive shipping price 
to Jordan. My customer will test the units there. For the second order, 
it would be very valuable to me if you can ship directly to my customer 
in Iran. I want to continue business with you and this would be very 
helpful because as you know my customer cannot purchase directly from 
the United States. If you are able to get the units to Iran we will 
negotiate your fees in addition to the price for radios and your 
shipping rates. If you can only get the radios close, we can determine 
an appropriate fee.
    4. In response, Scott stated: I have never shipped to IRAN, and the 
way the politics here are concerned, I would guess not. Where else 
could we ship them to, [p]rior to them going to IRAN. Do you have a 
broker here in the US?''
    5. The following day, the UC responded with: Unfortunately, I do 
not have a US based broker. I understand that due to the sanctions the 
US has against Iran one cannot ship goods from the US directly to that 
country. If you can ship the radios to Jordan I can transship them to 
my customer in Iran. Please provide me with a quote for shipping the 
two radios to Jordan.
    6. The UC also discussed possible shipments to Singapore. Scott 
ultimately advised that shipping via

[[Page 19914]]

DHL to Jordan would cost $250 and indicated that the price would remain 
the same if the UC preferred Singapore. On or about March 22, 2017, 
Scott emailed an invoice to the UC, listing two Motorola XTS 2500 
radios valued at $850 each, for a total product cost of $1700, with 
shipping valued at $250. On or about March 28, 2017, the UC advised 
Scott via email that he was ready to proceed with the order and 
reiterated again that the ultimate consignee was located in Iran.
    7. On or about April 15, 2017, the UC reached out to Scott and 
informed him that, after speaking to his customer in Iran, the customer 
expected the radios to be loaded with 256-Bit AES Encryption. Scott 
indicated that he did not provide encryption but advised that the 
customer could program the radios himself if he had the software. The 
UC agreed to proceed with the sale but asked Scott about the 
availability of other models that could be loaded with 256-bit AES 
encryption and stated that encrypted radios were more difficult to 
procure. The UC then proceeded to share emails from his purported 
customer in Iran with Scott, again reiterating that the ultimate end-
user was located in Iran. On or about April 17, 2017, Scott emailed the 
UC with suggestions on how to procure the necessary equipment to load 
the radios with 256-bit AES encryption.
    8. Following additional emails in which the UC again advised Scott 
that the ultimate end-user was located in Iran and that the radios 
would be transshipped from Jordan to Iran, Scott proceeded with the 
sales transaction. On or about June 7, 2017, Scott provided the UC with 
the U.S. Postal Service (``USPS'') tracking number for the shipment of 
the two radios, which were ultimately detained with the assistance of 
the USPS in St. Ignatius, Montana prior to export. Scott completed the 
United States Postal Form 2976-R and signed the customs declaration 
form, verifying that he had complied with all applicable export laws 
and regulations.
    9. In December 2018, Special Agents from the FBI and BIS contacted 
Scott to conduct an interview and outreach. During the interview, Scott 
stated that he was familiar with BIS regulations and that he regularly 
checks the BIS website for updates. When asked about conducting 
business with sanctioned countries, Scott stated that he had never done 
business with North Korea, Cuba, Syria or Sudan. When asked 
specifically about Iran, he acknowledged that he had received an 
inquiry about a Motorola portable radio destined for a customer in Iran 
and that he completed the sale. He indicated, however, that the export 
was made through an individual in Florida. At the conclusion of the 
interview, the BIS Special Agent explained the BIS voluntary self-
disclosure program, provided Scott with additional information related 
to export controls, and served Scott with an administrative subpoena. 
Despite receiving this information, Scott never filed a voluntary self-
disclosure related to the shipment of the two Motorola radios.
    10. Later that same day, Scott forwarded the BIS Special Agent 
several emails related to his sales transaction with the UC. Scott 
failed to include any of the emails with the UC referencing Iran or 
discussing possible transshipment through Jordan or Singapore. He also 
claimed that he had ``misspoke[n] about the route this package took'' 
when he stated that the export mentioned during the interview had gone 
through Florida.
    11. After the BIS Special Agent contacted Scott with additional 
questions, Scott responded: Call me on Monday so I can explain, I never 
sold anything to Iran. My customer had someone in Iran who wanted to 
buy these radios. I refused after he called me a [sic] tried to 
convince me to sell and ship to that location. I refused. I actually 
was thinking he was trying to set me up. Then he hounded me about 
Encryption, which I flat told him no way. . .
     12. In answering the BIS Special Agent's questions via email and 
responding to the BIS administrative subpoena, Scott made several false 
statements about the sales transaction with the UC. Notably, he falsely 
stated that he communicated with the UC by phone, denied having had 
additional email communications with the UC, and falsely stated that 
the UC told him that the radios' end-use was for oil exploration.
    13. When the emails Scott provided to the BIS Special Agent were 
compared with emails obtained by the UC during the investigation, it 
appeared that Scott edited one of the emails to support his claim that 
he did not export anything to Iran. Specifically, in an April 15, 2017 
email to the UC, which made no refence to Iran, Scott inserted the 
following sentence into the document he provided to the BIS Special 
Agent: ``I won't sell to IRAN OR I WILL NOT SUPPLY ANY ENCRYPTION. I 
have explained this to you on the phone, why are you badgering me.''
    14. Scott also failed to comply with reporting requirements by 
failing to file an Electronic Export Information (``EEI'') for the 
export of the two radios and failed to maintain appropriate records. 
Specifically, the BIS Special Agent asked Scott to respond to OEE's 
subpoena requesting ``[a]ny and all records, from 2013 to present, 
related to export/re-export, facilitation of an export/re-export, or 
attempted export/re-export of any and all commodities subject to the 
Export Administration Regulations. . . .'' In response, Scott stated 
that he has never ``kept a record or a file on this stuff, as I had no 
idea I had to. . . . Some of my shipping records were on my old 
computer that was damaged by a lightning strike about 3 years ago.''
    15. Since at least March 2018, Scott has also exported under the 
business name Mission Communications, LLC (``Mission''), which shares 
the same address as Scott Communications, Inc. Specifically, beginning 
in March 2018 and continuing until at least May 2019, Scott began 
exporting under an export identification number associated with 
Mission. In addition, at times material to the violations, including in 
his December 2018 communications with the BIS Special Agent, Scott 
identified himself via email as the president of Mission.
    16. BIS incorporates and alleges paragraphs 1-15 of the General 
Allegations into the below:

Charge 1 CFR 764.2(e)--Acting With Knowledge of a Violation Related to 
the Sale of Two Digital Portable Radios

    17. Beginning in or about March 2017 and continuing through on or 
about June 7, 2017, Scott sold, transferred, or conducted negotiations 
with respect to items subject to the EAR and the Iranian Transactions 
and Sanctions Regulations (``ITSR''),\2\ specifically two Motorola 
Astro XTS 2500 Digital Portable Radios, a commodity classified as 
Export Control Classification Number (ECCN) 5A991.g. and controlled for 
Anti-Terrorism reasons, with knowledge that a violation of the 
Regulations had or was about or intended to occur in connection with 
the items. In particular, Scott sold, transferred, or conducted 
negotiations with respect to the items with knowledge that they were 
destined for Iran without the required U.S. Government authorization. 
At all times pertinent hereto, section 742.8 of the Regulations imposed 
a BIS license requirement for the export or reexport of the items to 
Iran. Additionally, section 746.7 of the Regulations prohibits the 
export or reexport to Iran of any item subject to both the Regulations 
and the ITSR, if the transaction is prohibited by the ITSR and has not 
been authorized by the Treasury Department's Office of

[[Page 19915]]

Foreign Assets Control (``OFAC''). At all times pertinent hereto, the 
ITSR prohibited, inter alia, the unauthorized export or reexport, 
either directly or indirectly, of the items to Iran. See 31 CFR 
560.204-205.
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    \2\ 31 CFR part 560 (2017).
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    18. Specifically, as set forth above, in or about March 2017, Scott 
began negotiating the sale of two Motorola Astro XTS 2500 Digital 
Portable Radios through emails with an undercover Special Agent, whose 
true identity was unknown to Scott. The UC requested that the radios be 
sent to Iran and later stated that they would be transshipped from 
Jordan to Iran. Although the UC reiterated on multiple occasions that 
the ultimate end-user was located in Iran, Scott agreed to complete the 
sales transaction. On or about June 7, 2017, Scott provided the 
undercover Special Agent with a USPS tracking number for the shipment 
of the two radios.
    19. No U.S. Government authorization had been sought or obtained in 
connection with this transaction. In engaging in such conduct with 
knowledge that a violation of the EAR, or any order, license or 
authorization issued thereunder, has occurred, is about to occur, or is 
intended to occur, Scott violated section 764.2(e) of the Regulations.

Charges 2-3 15 CFR 764.2(g)--Misrepresenting and Concealing Facts to an 
Official of a United States Agency

    20. On at least two occasions between December 2018 and January 
2019, Scott and Mission made a false or misleading representation, 
statement, certification, or falsified or concealed a material fact, to 
a U.S. government official.
    21. Following the above-described efforts by Scott to ship the two 
radios, FBI and BIS Special Agents interviewed Scott on or about 
December 5, 2018. During the interview with these U.S. government 
officials, Scott stated that he received an inquiry for a Motorola 
portable radio destined for a customer in Iran and that he had 
completed the sale. Thereafter, on or about December 7, 2018, in a 
follow-up email to the BIS Special Agent, Scott indicated that he had 
never shipped anything to Iran and that, when the buyer telephoned him 
to purchase for a customer in Iran, he refused.
    22. On or about December 7, 2018, Scott made additional materially 
false statements or omissions to the BIS Special Agent about his 
communications related to the sale of the radios. Specifically, Scott 
falsely represented that he communicated with the UC by phone and that 
there were no email communications indicating that the radios were 
destined for Iran. He also falsely stated that the UC advised him that 
the radios would be used for oil exploration.
    23. Additionally, on or about December 11, 2018, Scott produced an 
email in response to the BIS subpoena that had been materially altered 
and falsified. Although the original April 15, 2017, email 
communication between Scott and the UC made no reference to Iran, the 
document provided by Scott to the Special Agent had been altered and 
falsified by inserting the following statement into the email: ``I 
won't sell to IRAN OR I WILL NOT SUPPLY ANY ENCRYPTION. I have 
explained this to you on the phone, why are you badgering me.'' 
(Capitalization as shown in email).
    24. By making a false or misleading representation, statement, or 
certification, or falsifying or concealing any material fact to BIS 
and/or FBI Special Agents in the course of an investigation or other 
action subject to the EAR, Scott and Mission violated section 764.2(g) 
of the Regulations on at least two occasions.

Charge 4 15 CFR 764.2(a)--Engaging in Prohibited Conduct Related to the 
Failure to File Electronic Export Information

    25. On or about June 7, 2017, Scott engaged in conduct prohibited 
by the Regulations by failing to comply with reporting requirements, 
namely by failing to file Electronic Export Information (``EEI'') for 
the shipment of two Motorola Astro XTS 2500 Digital Portable Radios as 
described above. EEI includes export information about a transaction 
such as the names and addresses of the parties to a transaction; the 
ECCN (when required); the description, quantity and value of the items 
exported; and the license authority for the export.
    26. Section 758.1(b) of the EAR required that EEI be filed in 
certain situations, including for all exports of items subject to the 
EAR that were destined for Iran, a Country Group E:1 destination,\3\ 
regardless of value, and ``for all exports subject to the EAR that 
require submission of a license application, regardless of value or 
destination . . . .'' Records checks reflect that Scott failed to file 
EEI related to the June 7, 2017 shipment of the two Motorola Astro XTS 
2500 Digital Portable Radios.
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    \3\ See Supplement No. 1 to 15 CFR part 740.
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    27. By failing to file the EEI for the shipment of the two Motorola 
Astro XTS 2500 Digital Portable Radios as required pursuant to section 
758.1(b), Scott committed one violation of section 764.2(a) of the 
Regulations, by engaging in any transaction or taking any other action 
prohibited by or contrary to, or refraining from engaging in any 
transaction or taking any other action required by ECRA, the EAR, or 
any order, license or authorization issued thereunder.

Charge 5 15 CFR 764.2(i)--Failure To Comply With Reporting, 
Recordkeeping Requirements

    28. Between on or about March 16, 2017 and January 14, 2019, Scott 
and Mission failed to comply with the recordkeeping requirements set 
forth in Part 762 of the EAR. Scott and Mission at all relevant times 
were (and remain) subject to the jurisdiction of the United States and 
participated in transactions involving the export from the United 
States of items subject to the Regulations, including the transaction 
described in Charge 1, supra, and were required to keep and maintain 
all records described in section 762.2 of the Regulations made or 
obtained. See 15 CFR 762.1(a)(2), (a)(4), and (b).
    29. The records required to be retained include, inter alia, bills 
of lading and other ``export control documents'' (as defined in part 
772 of the Regulations), correspondence, and any other records Scott or 
Mission made or obtained pertaining to such transactions. See 15 CFR 
762.2 and 772.1 (at definition of ``export control document''). All 
such records must be retained for a period of five years from the date 
of the export of the item involved in the transaction. See 15 CFR 
762.6(a). In addition, any such records formally or informally 
requested by BIS (or any other U.S. Government agency) may not be 
destroyed or disposed of without written authorization from BIS (or 
other agency concerned), even if such records have been retained for 
more than the required retention period. See 15 CFR 762.6(b).
    30. Scott and Mission failed to maintain records as required 
pursuant to section 762 of the EAR. On or about December 5, 2018, the 
BIS Special Agent served Scott with a BIS administrative subpoena 
requesting ``[a]ny and all records, from December 2013 to present, 
related to export/re-export, facilitation of an export/re-export, or 
attempted export/re-export of any and all commodities'' subject to the 
EAR. The requested records included, but were not limited to, requests 
for quotes, waybills, bills of lading, Shipper's Export Declarations, 
payment records, emails, and other correspondence.
    31. On or about December 10, 2018, in responding to the BIS 
administrative

[[Page 19916]]

subpoena, Scott advised the BIS Special Agent that he has never ``kept 
a record or a file on this stuff, as I had no idea I had to. . . . Some 
of my shipping records were on my old computer that was damaged by a 
lightning strike about 3 years ago.'' On January 14, 2019, after the 
BIS Special Agent granted Scott additional time to respond to the 
subpoena, he provided some records, including a list of freight 
forwarders/brokers and invoices related to exports to approximately 15 
countries. For almost all of these exports, however, he failed to 
produce any of the other requested records, including quotes, requests 
for quotes, waybills, bills of lading, payment records, or emails and 
other correspondence. Scott also acknowledged that the records were 
incomplete, claiming that ``[w]e lost our main HD computer during a 
storm in April of 2015. A lot of information was lost.''
    32. As a result of these failures, Scott and Mission committed a 
violation of section 764.2(i) of the Regulations, by failing or 
refusing to comply with any reporting or recordkeeping requirement of 
ECRA, the EAR, or of any order, license, or authorization issued 
thereunder.
    Whereas, I have taken into consideration the Respondents' limited 
ability to pay a monetary penalty;
    Whereas, BIS and Respondents have entered into a Settlement 
Agreement pursuant to section 766.18(b) of the Regulations, whereby 
they agreed to settle this matter in accordance with the terms and 
conditions set forth therein;
    Whereas, Respondents admit committing the alleged conduct described 
in the Charging Letter; and
    Whereas, I have approved of the terms of such Settlement Agreement; 
it is therefore ordered:
    First, for a period of twenty (20) years from the date of the 
Order, Kenneth Scott, Scott Communications, Inc., and Mission 
Communications, LLC, with a last known address of 61574 Hillside Road, 
St. Ignatius, MT 59865, and when acting for or on their behalf, their 
successors, assigns, representatives, agents, or employees (hereinafter 
collectively referred to as the ``Denied Person''), 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 to 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.
    Second, no person may, directly or indirectly, do any of the 
following:
    A. Export or reexport to or on behalf of the Denied Person any item 
subject to the Regulations;
    B. Take any action that facilitates the acquisition or attempted 
acquisition by the 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 the 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 the Denied Person of any item subject to 
the Regulations that has been exported from the United States;
    D. Obtain from the 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 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 the Denied Person, or 
service any item, of whatever origin, that is owned, possessed or 
controlled by the 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.
    Third, any licenses issued under the Regulations in which 
Respondents have an interest as of the date of this Order shall be 
revoked by BIS.
    Fourth, after notice and opportunity for comment as provided in 
section 766.23 of the Regulations, any person, firm, corporation, or 
business organization related to the Denied Person by affiliation, 
ownership, control, or position of responsibility in the conduct of 
trade or related services may also be made subject to the provisions of 
the Order.
    Fifth, the Settlement Agreement and this Order shall be made 
available to the public.
    This Order, which constitutes the final agency action in this 
matter, is effective immediately.

Matthew S. Axelrod,
Assistant Secretary of Commerce for Export Enforcement.
[FR Doc. 2023-06920 Filed 4-3-23; 8:45 am]
BILLING CODE 3510-DT-P