Decision and Order on Renewal of Temporary Denial Order

DEPARTMENT OF COMMERCE

Bureau of Export Administration

[No. 97-BXA-9]

Decision and Order on Renewal of Temporary Denial Order

In the Matters 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 Greenbrier 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.

Background

On May 5, 1997, I entered an Order temporarily denying all United

States export privileges to Thane-Coat, Inc.; Jerry Vernon Ford,

president, Thane-Coat, Inc.; Preston John Engebretson, vice-president,

Thane-Coat, Inc. (hereinafter collectively referred to as ``T-CF&E''),

located in the State of Texas; Export Materials, Inc. (hereinafter

referred to as ``EMI''), located in the State of Texas; and Thane-Coat

International, Ltd. (hereinafter referred to as ``TCIL''), located in

Freeport, the Bahamas.

[[Page 60064]]

T-CF&E, EMI and TCIL appealed the Temporary Denial Order

hereinafter ``TDO'') to an Administrative Law Judge (hereinafter the

``ALJ''). On June 11, 1997, the ALJ recommended to the Under Secretary

for Export Administration that the TDO be affirmed. The Under Secretary

affirmed the TDO on June 20, 1997. T-CF&E, EMI and TCIL appealed the

issuance of the TDO in the U.S. District Court in the Southern District

of Texas.

The TDO will expire on November 1, 1997. Pursuant to Section 766.24

of the Export Administration Regulations (15 C.F.R. parts 730-774

(1997)) (hereinafter the ``Regulations''), issued pursuant to the

Export Administration Act of 1979, as amended (50 U.S.C.A. app

Secs. 2401-2420 (1991 & Supp. 1997)) (hereinafter the ``Act''),\1\ the

Office of Export Enforcement, Bureau of Export Administration, United

States Department of Commerce (hereinafter ``BXA'') has requested that

I renew the TDO against T-CF&E, EMI and TCIL for an additional 180

days.

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\1\ The Act expired on August 20, 1994. Executive Order 12924 (3

C.F.R., 1994 Comp. 917 (1995)), extended by Presidential Notices of

August 15, 1995 (3 C.F.R., 1995 Comp. 501 (1996)), and August 14,

1996 (3 C.F.R., Comp. 298 (1997)), continued the Regulations in

effect under the International Emergency Economic Powers Act (50

U.S.C.A. Secs. 1701-1706 (1991 & Supp. 1997)).

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T-CF&E, through its attorneys, opposed the Department's request and

sought a hearing as authorized by Section 766.24(d)(3)(i) of the

Regulations. The hearing was held on October 28, 1997.

Neither EMI nor TCIL filed written submissions opposing renewal of

the TDO.

Discussion

The sole issue presented is whether the TDO should be renewed to

prevent an imminent violation of the Regulations. A violation may be

``imminent'' either in time or likelihood. To establish grounds for a

temporary denial order, BXA may show either that a violation is about

to occur or that the general circumstances of the matter under

investigation demonstrate a likelihood of future violations. BXA may

show that the violation under investigation or charges is significant,

deliberate, covert and/or likely to occur again, rather than technical

or negligent. BXA may show that it is appropriate to give notice to

companies in the United States and abroad to cease dealing with the

persons in U.S.-origin goods and technology in order to reduce the

likelihood that the persons under investigation or charges continue to

export or acquire abroad such goods and technology, risking subsequent

disposition contrary to export control requirements. Lack of

information establishing the precise time a violation may occur does

not preclude a finding that a violation is imminent, so long as there

is sufficient reason to believe the likelihood of a violation. BXA may

request renewal of a TDO if BXA believes the TDO is necessary in the

public interest to prevent an imminent violation. 15 CFR 766.24.

In its request, BXA states that, as a result of an ongoing

investigation, it has reason to believe that, during the period from

approximately June 1994 through approximately July 1996, Thane-Coat,

Inc., through Ford and Engebretson, and using its affiliated companies,

TCIL and EMI, made approximately 100 shipments of U.S.-origin pipe

coating materials, machines and parts to the Dong Ah Consortium in

Benghazi, Libya. BXA asserts the approximate value of these shipments

was $35 million. These items were used in coating the internal surface

of prestressed concrete cylinder pipe for the Government of Libya's

Great Man-Made River Project, which is ongoing. BXA's investigation

gives it reason to believe that T-CF&E, EMI and TCIL employed a scheme

to export U.S.-origin products from the United States, through the

United Kingdom or Italy, to Libya, a country subject to a comprehensive

economic sanctions program, without the authorizations required under

U.S. law and regulations, including the Regulations.

BXA believes that the violations T-CF&E, EMI and TCIL are suspected

of having committed were significant, deliberate, covert and/or likely

to occur again unless a temporary denial order naming T-CF&E, EMI and

TCIL is issued. Additionally, BXA believes that a temporary denial

order is necessary to give notice to companies in the United States and

abroad that they should cease dealing with T-CF&E, EMI and TCIL in

export-related transactions involving U.S.-origin goods.

Counsel for T-CF&E argues that BXA has not shown that a TDO is

needed to prevent an imminent violation of law and that evidence of

past alleged violations of the Act do not show that a future violation

is imminent.\2\ Counsel's arguments are not persuasive.

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\2\ ``Opposition To Request for Renewal of Order Temporarily

Denying Export Privileges'', dated October 24, 1997.

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Counsel argues that the TDO is void and should not be renewed

because the Act has expired. I do not accept Counsel's argument.

Counsel argues that evidence of the violations upon which BXA bases

its request is contained in privileged communications. Counsel further

argues that privileged communications may not be considered in deciding

whether to renew the TDO. The showing by BXA, that renewal of the TDO

is appropriate, is compelling even without the communications to which

counsel claims privilege. I do not concur in Counsel's argument.

Counsel argues that the TDO is over-broad and, if renewed, should

be narrowed. In its showing, BXA described an elaborate international

scheme put in place by T-CF&E, EMI and TCIL. BXA argues that, if the

TDO is not renewed, T-CF&E can establish a similar scheme and commit

additional violations. Based on the showing by BXA, the scope of the

TDO is in the public interest to prevent additional violations. BXA's

argument is persuasive.

Counsel offers declarations by Jerry Vernon Ford, president of

Thane-Coat, Inc., and Preston John Engebretson, vice-president of

Thane-Coat, Inc. Each certified, under penalty of perjury, that neither

he nor Thane-Coat, Inc. will enter into any contract, agreement,

understanding, or arrangement with any other party to sell, export,

ship or transmit any coating products, of any kind, to any entity in

any country subject to a general embargo, as indicated in Section

746.1(a) of the Regulations. Messrs. Ford and Engebretson, on behalf of

themselves and Thane-Coat, Inc., also consent to pre-export and post-

export monitoring by BXA of all export transactions entered into by

Thane-Coat.

The pledge by Messrs. Ford and Engebretson, to comply with Section

746.1(a) of the Regulations, is not persuasive in light of the showing

by BXA.

Counsel requests that BXA produce documents related to the matters

associated with transactions to Libya involving T-CF&E, EMI and TCIL.

At this point, this matter is not ripe for discovery.

Findings

Based on the record in this matter, including the submissions of

the parties and the oral arguments at the hearing held on October 28,

1997, I find that it is necessary to renew the order temporarily

denying the export privileges of Thane-Coat, Inc.; Jerry Vernon Ford;

Preston John Engebretson; Export Materials, Inc.; and Thane-Coat

International, Ltd. I find such renewal is in the public interest to

prevent an imminent violation of the Regulations

[[Page 60065]]

and to give notice to companies in the United States and abroad to

cease dealing with these entities in goods and technical data subject

to the Regulations. I find such renewal is in the public interest in

order to reduce the substantial likelihood that they will engage in

activities which are in violation of the Regulations.

Order

Accordingly, it is hereby ordered that:

All outstanding validated export licenses in which Thane-Coat,

Inc., 12725 Royal Drive, Stafford, Texas; Jerry Vernon Ford, president,

Thane-Coat, Inc., 12725 Royal Drive, Stafford, Texas 77477, with an

address at 7707 Augustine Drive, Houston, Texas 77036; Preston John

Engebretson, vice-president, Thane-Coat, Inc., 12725 Royal Drive,

Stafford, Texas 77477, with an address at 8903 Bonhomme Road, Houston,

Texas 77074; Export Materials, Inc., 3727 Greenbrier Drive, No. 108,

Stafford, Texas 77477; and/or Thane-Coat International, Ltd., Suite C,

Regent Center, Explorers Way, P.O. Box F-40775, Freeport, The Bahamas,

appear or participate, in any manner or capacity, are hereby revoked

and shall be returned forthwith to the Office of Export Licensing for

cancellation. Further, all privileges of T-CF&E, EMI and TCIL of

participating, in any manner or capacity, in any special licensing

procedure, including, but not limited to, distribution licenses, are

hereby revoked.

Thane-Coat, Inc., and all of its successors or assigns, officers,

representatives, agents, and employees when acting on its behalf; Jerry

Vernon Ford; Preston John Engebretson; Export Materials, Inc., and all

of its successors or assigns, officers, representatives, agents, and

employees when acting on its behalf; and Thane-Coat International,

Ltd., and all of its successors or assigns, officers, representatives,

agents, and employees when acting on its behalf, 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 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 in any other

activity subject to the Regulations; or

C. Benefiting 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 in any other activity subject to the Regulations.

No person may, directly or indirectly, do any of the following:

A. Export or reexport to or on behalf of any of the denied persons

any item subject to the Regulations;

B. Take any action that facilitates the acquisition, or attempted

acquisition, by any of the denied persons 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 any of the denied

persons 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, any of the denied persons of

any item subject to the Regulations that has been exported from the

United States;

D. Obtain from any of the denied persons 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;

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 any of the denied

persons, or service any item, of whatever origin, that is owned,

possessed or controlled by any of the denied persons 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.

After notice and opportunity for comment, as provided in Section

766.23 of the Regulations, any person, firm, corporation, or business

organization related to any of the denied persons 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 this Order.

This order does not prohibit any export, reexport, or other

transaction subject to the Regulations where the only items involved

that are subject to the Regulations are the foreign-produced direct

product of U.S.-origin technology.

In accordance with the provisions of Section 766.24(e) of the

Regulations, T-CF&E, EMI, and/or TCIL may, at any time, appeal this

Order by filing a full written statement in support of the appeal with

the Office of the Administrative Law Judge, U.S. Coast Guard ALJ

Docketing Center, 40 South Gay Street, Baltimore, Maryland 21202-4022.

This order is effective immediately and shall remain in effect for

180 days.

In accordance with Section 766.24 of the Regulations, the

Department may seek renewal of this TDO by filing a written request not

later than 20 days before the expiration date. Any respondent may

oppose a request to renew this TDO by filing a written submission with

the Assistant Secretary for Export Enforcement, which must be received

no later than seven days before the expiration of this order.

A copy of this order shall be served on each respondent and this

order shall be published in the Federal Register.

Entered this 31st day of October 1997.

Frank W. Deliberti,

Acting Assistant Secretary for Export Enforcement.

[FR Doc. 97-29377 Filed 11-5-95; 8:45 am]

BILLING CODE 3510-DT-M