Re: Aluminum Company of America

DEPARTMENT OF COMMERCE

Bureau of Export Administration

[Docket No.: 97-BXA-20]

Re: Aluminum Company of America

On Friday, February 26, 1999, the Federal Register published the

Decision and Order issued by the Under Secretary for Export

Administration, Bureau of Export Administration, United States

Department of Commerce (BXA) on February 19, 1999 (64 FR 9471).

However, the Recommended Decision and Order of the Administration Law

Judge (ALJ) was inadvertently not included with the Order of the Under

Secretary. This notice is to hereby publish the December 21, 1998,

Recommended and Decision Order of the ALJ.

Dated: July 21, 1999.

William A. Reinsch,

Under Secretary for Export Administration.

Recommended Decision and Order

Appearance for Respondents: Edward L. Rubinoff, Esq, Samuel C.

Straight, Esq., of Akin, Gump, Strauss, Hauer & Feld, L.L.P.,

Michael D. Scott, Aluminum Company of America.

Appearance for Agency: Jeffrey E.M. Joyner, Esq., Office of the

Chief Counsel for Export Administration, U.S. Department of

Commerce.

Before: Hon. Parlen L. McKenna, United States Administrative Law

Judge.

Preliminary Statement

This is a civil penalty proceeding initiated pursuant to the

legal authority contained under the Export Administration Act of

1979, as amended (50. U.S.C.A. Secs. 2401-2420 (1991 & Supp. 1997)

(hereinafter known as the ``ACT''). It was conducted in accordance

with the procedural requirements as found in 15 CFR Parts 768-799

(1991-1995). Those

[[Page 42642]]

Regulations were reorganized and restructured in 1997. The current

Regulations are found at 15 CFR Parts 730-744 (1997) which govern

these proceedings.

On December 12, 1997, Aluminum Company of America (``ALCOA'')

was issued a charging letter by the Office of Export Enforcement,

Bureau of Export Administration, United States Department of

Commerce (``BXA'') alleging that ALCOA committed 100 violations of

the Export Administration Regulations (``EAR'') between 1991 and

1995.\1\ The alleged violations are as follows:

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\1\ Each of these alleged violations were the result of separate

and distinct shipments over a desperate four and one-half year

period and were not based upon a continuing violation concept. The

alleged violations are defined in the charging letter with reference

to the EAR that were in effect at the time of the alleged incidents

(See 15 CFR Parts 768-799 (1991-1995). These Regulations were issued

pursuant to the Export Administration Act of 1979 and define the

violations that BXA alleges occurred and are referred to hereinafter

as the former regulations. Since that time, the regulations have

been reorganized and restructured; the restructured regulations

establish the procedures that apply to this matter. The Act expired

on August 20, 1994. Executive Order 12924 (3 F.R.R. 1994 Comp. 917

(1995)), August 14, 1996 (3 CFR 1996 Comp. 298 (1997)), and August

13, 1997 (62 FR 43629, August 15, 1997), continued the Regulations

in effect under the International Emergency Economic Powers Act

(currently codified at 50 U.S.C.A. Secs. 1701-1706 (1991 and Supp.

1998)).

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CHARGES 1-50: On 50 separate occasions between June 14, 1991,

and December 7, 1995, ALCOA exported potassium fluoride and sodium

fluoride from the United States to Jamaica and Suriniam, without

obtaining from BXA the validated export licenses required by Section

772.1(b) of the former regulations. By exporting U.S.--origin

commodities to any person or to any destination in violation of or

contrary to the provisions of the Act or any regulation, order, or

license issued thereunder, ALCOA violated Section 7878.6 of the

former Regulations on 50 separate occasions, for a total of 50

violations.

CHARGES 51-100: In connection with the exports described in

Charges 1-50 above, on 50 separate occasions between June 14, 1991,

and December 7, 1995, ALCOA used Shipper's Export Declarations, as

defined in Section 770.2 of the former regulations, on which it

represented, potassium fluoride and sodium fluoride, qualified for

exports from the United States to Jamaica and Surinam under general

license G-DEST. These chemicals required a validated license for

export from the United States to both of those destinations. By

making false or misleading statements of material fact, directly or

indirectly, to a United States agency in connection with the use of

export control documents to effect exports from the United States,

ALCOA violated Section 787.5(a) of the former Regulations in

connection with each of the 50 exports, for a total of 50 additional

violations.

The maximum civil penalty assessment for each violation is

$10,000 (See 15 CFR Sec. 764.3(a) (1)). In addition to the penalty

assessment, a denial of export privileges could be imposed (see

Section 764.3(a) (2)) and the exclusion from practice (See Section

764.3(a) (3)). BXA proposed a civil penalty assessment of $7,500 for

each of the 50 violations of Section 787.6 of the former Regulations

and $7,500 for each of the 50 violations of Section 787.5(a) of the

former Regulations, for a total civil penalty of $750.000.

On February 9, 1998, a telephonic pre-hearing conference was

held which included both parties and the undersigned. As a result of

that conference, it was agreed by the parties that no hearing would

be required since the facts of the case were not in dispute.

Accordingly, a schedule was established for the submission of joint

stipulations of fact and the filing of initial and reply briefs.

Joint Stipulations were filed on March 27, 1998. ALCOA had

previously filed its Answer to the Charging Letter on January 20,

1998. BXA Replied to ALCOA's Answer on May 1, 1998. On May 7, 1998,

the undersigned issued on order permitting ALCOA to submit a

response to BXA's Reply which was filed on May 13, 1998. In that

Reply, Counsel for ALCOA took exception to BXA's assertion that the

parties agreed during the February 9, 1998 prehearing conference

that this matter could be resolved without a hearing because the

facts were not in dispute. Subsequently, another telephonic

conference was heard between the parties and the undersigned. At

that time, after listening to the arguments of counsel for ALCOA, it

became clear to me that Mr. Rubinoff was only asking for Oral

Argument and not an evidentiary hearing. Given the complex nature of

this case and my desire to insure that ALCOA's due process rights

were fully protected, I granted Oral Argument. Oral Argument in this

matter was held in Washington, DC on Monday, July 20, 1998. A

transcript of the Oral Argument was released thereafter and the

matter is now ripe for decision.

The findings of fact and conclusions of law which follow are

prepared upon my analysis of the entire record, and applicable

regulations, statutes, and case law. Each submission of the parties,

although perhaps not specifically mentioned in this decision, has

been carefully reviewed and given thoughtful consideration.\1\

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\1\ A list of the record evidence in this case is set forth in

Appendix A, attached hereto.

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Law and Regulation \2\

The United States, like many other industrialized nations,

restricts the export of goods and services for reasons of national

security. The United States Congress, under the President's

signature, statutorily defined the penalties for violating such

restrictions in Title 50 of the United States Code--``War and

National Defense'' as follows:

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\2\ Because an evidentiary hearing was not held in this matter,

a record was not developed which included exhibits that contained

copies of each of the applicable laws and regulations. In order to

aid the readers of this opinion, all applicable laws and regulations

are set forth herein.

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Sec. 2410 Violations

(a) In general

Except as provided in subsection (b) of this section, whoever

knowingly violates or conspires to or attempts to violate any

provision of this Act [section 2401 to 2420 of this Appendix] or any

regulation, order, or license issued thereunder shall be fined not

more than five times the value of the exports involved or $50,000,

whichever is greater, or imprisoned not more than 5 years, or both.

(b) Willful violations

(1) Whoever willfully violates or conspires to or attempts to

violate any provision of this Act [sections 2401 to 2420 of this

Appendix] for any regulation, order, or license issued thereunder,

with knowledge that the exports involved will be used for the

benefit of, or that the destination or intended destination of the

goods or technology involved is, any controlled country or any

country to which exports are controlled for foreign policy

purposes--

(A) Except in the case of an individual, shall be fined not more

than five times the value of the exports involved or $1,000,000,

whichever is greater; and

(B) In the case of an individual, shall be fined not more than

$250,000, or imprisoned not more than 10 years, or both.

(2) Any person who is issued a validated license under this Act

[sections 2401 to 2420 of this Appendix] for the export of any good

or technology to a controlled country and who, with knowledge that

such a good or technology is being used by such controlled country

for military or intelligence gathering purposes contrary to the

conditions under which the license was issued, willfully fails to

report such use to the Secretary of Defense--

(A) Except in the case of an individual, shall be fined not more

than five times the value of the exports involved or $1,000,000,

whichever is greater; and

(B) In the case of an individual, shall be fined not more that

$250,000, or imprisoned not more than 5 years, or both.

(3) Any person who possesses any goods or technology--

(A) With the intent to export such goods or technology in

violation of an export control imposed under section 5 or 6 of this

Act [section 2404 or 2405 of this Appendix] or any regulation,

order, or license issued with respect to such control, or

(B) Knowing or reason to believe that the goods or technology

would be so exported,

Shall, in the case of a violation of an export control imposed

under section 5 [section 2404 of this Appendix] (or any regulation,

order, or license issued with respect to such control), be subject

to the penalties set forth in paragraph (1) of this subsection and

shall, in the case of a violation of an export control imposed under

section 6 [section 2405 of this Appendix] (or any regulation, order,

or license issued with respect to such control), be subject to the

penalties set forth in subsection (a).

(4) Any person who takes any action with the intent to evade the

provisions of this Act [sections 2401 to 2420 of this Appendix] or

any regulation, order, or license issued under this Act [sections

2401 to 2420 of this Appendix] shall be subject to the penalties set

for in subsection (a), except that in the case of an evasion of an

export control imposed under section 5 or 6 of this Act [section

2404 or 2405 of this Appendix] (or

[[Page 42643]]

any regulation, order, or license issued with respect to such

control), such person shall be subject to the penalties set forth in

paragraph (1) of this subsection.

(5) Nothing in this subsection or subsection (a) shall limit the

power of the Secretary to define by regulations violations under

this Act [sections 2401 to 2420 of this Appendix].

(c) Civil penalties; administrative sanctions

(1) The Secretary (and officers and employees of the Department

of Commerce specifically designated by the Secretary) may impose a

civil penalty not to exceed $10,000 for each violation of this Act

[sections 2401 to 2420 of this Appendix] or any regulation, order or

license issued under this Act [sections 2401 to 2420 of this

Appendix], either in addition to or in lieu of any other liability

or penalty which may be imposed, except that the civil penalty for

each such violation involving national security controls imposed

under section 5 of this Act [section 2404 of this Appendix] or

controls imposed on the export of defense articles and defense

services under section 38 of the Arms Export Control Act [22

U.S.C.A. Sec. 2778] may not exceed $100,000.

(2)(A) The authority under this Act [sections 2401 to 2420 of

this Appendix] to suspend or revoke the authority of any United

States person to export goods or technology may be used with respect

to any violation of the regulations issued pursuant to section 8(a)

of the Act [section 2407(a) of the Appendix].

(B) Any administrative sanction (including any civil penalty or

any suspension or revocation of authority to export) imposed under

this Act [sections 2401 to 2420 of this Appendix] for a violation of

the regulations issued pursuant to section 8(a) of this Act [section

2407(a) of this Appendix] may be imposed only after notice and

opportunity for an agency hearing on the record in accordance with

sections 554 through 557 of title 5, United States Code [5 U.S.C.A.

Secs. 554 to 557].

(C) Any charging letter or other document initiating

administrative proceedings for the imposition of sanctions for

violations of the regulations issued pursuant to section 8(a) of the

Act [section 2407(a) of the Appendix] shall be made available for

public inspection and copying.

(3) An exception may not be made to any order issued under this

Act [sections 2401 to 2420 of this Appendix] which revokes the

authority of a United States person to export goods or technology

unless the Committee on Foreign Affairs of the House of

Representatives and the Committee on Banking, Housing, and Urban

Affairs of the Senate are first consulted concerning the exception.

(4) The President may by regulation provide standards for

establishing levels of civil penalty provided in this subsection

based upon the seriousness of the violation, the culpability of the

violator, and the violator's record of cooperation with the

Government in disclosing the violation.

United States Department of Commerce Regulations

15 CFR 787--Enforcement

Sec. 787.1 Sanctions

(a) Criminal (1) Violations of Export Administrative Act (i)

General. Except as provided in paragraph (a)(1)(ii) of this section,

whoever knowingly violates or conspires to or attempts to violate

the Export Administration Act (``the Act'') or any regulation,

order, or license issued under the Act is punishable for each

violation by a fine of not more than five times the value of the

exports involved or $50,000, whichever is greater, or by

imprisonment for not more than five years, or both.

(ii) Willful violations. (A) Whoever willfully violates or

conspires to or attempts to violate any provision of this Act or any

regulation, order, license issued thereunder, with knowledge that

the exports involved will be used for the benefit of or that the

destination or intended destination of the goods or technology

involved is any controlled country or any country to which exports

are controlled for foreign policy purposes, except in the case of an

individual, shall be fined not more than five times the value of the

export involved or $1,000,000 whichever is greater; and in the case

of an individual shall be fined not more than $250,000, or

imprisoned not more than 10 years, or both.

(B) Any person who is issued a validated license under this Act

for the export of any goods or technology to a controlled country

and who with the knowledge that such export is being used by such

controlled country for military or intelligence gathering purposes

contrary to the conditions under which the license was issued,

willfully fails to report such use to the Secretary of Defense,

except in the case of an individual, shall be fined not more than

five times the value of the exports involved or $1,000,000,

whichever is greater; and in the case of an individual, shall be

fined not more than $250,000, or imprisoned not more than five

years, or both.

(C) Any person who possesses any goods or technology with the

intent to export such goods or technology in violation of an export

control imposed under section 5 or 6 of the Act or any regulation,

order, or license issued with respect to such control, or knowing or

having reason to believe that the goods or technology would be so

exported, shall, in the case of a violation of an export control

imposed under section 5 of the Act (or any regulation, order, or

license issued with respect to such control), be subject to the

penalties set forth in paragraph (a)(1)(ii)(A) of this section and

shall, in the case of a violation of an export control imposed under

section 6 of the Act (or any regulation, order, or license issued

with respect to such control), be subject to the penalties set forth

in paragraph (a)(1)(I) of this section.

(D) Any person who takes any action with the intent to evade the

provisions of this Act or any regulation, order, or license issued

under this Act shall be subject to the penalties set forth in

paragraph (a)(1)(i) of this section, except that in the case of an

evasion of an export control imposed under section 5 or 6 of the Act

(or any regulation, order, or license issued with respect to such

control), such person shall be subject to the penalties set forth in

paragraph (a)(1)(ii)(A) of this section.

(2) Violations of False Statements Act. The submission of false

or misleading information or the concealment of material facts,

whether in connection with license applications, boycott reports,

Shipper's Export Declarations, Investigations, compliance

proceedings, appeals, or otherwise, is also punishable by a fine of

not more than $10,000 or by imprisonment for not more than five

years, or both, for each violation (18 U.S.C. 1001).

(b) Administrative \1\--(1) Denial of export privileges, Whoever

violates any law, regulation, order, or license relating to export

controls or restrictive trade practices and boycotts is also subject

to administrative action which may result in suspension, revocation,

or denial of export privileges conferred under the Export

Administration Act (See Sec. 788.3 et seq).

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\1\ Violations of the Act or regulations, or any order or

license issued under the Act, may result in the imposition of

administrative sanctions, and also or alternatively of a fine or

imprisonment as described in paragraph (a) of this section, seizure

or forfeiture of property under section 11(g) of this Act or 22

U.S.C. 401, or any other liability or penalty imposed by law. The

U.S. Department of Commerce may compromise and settle any

administrative proceeding brought with respect to such violations.

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(2) Exclusion from practice. Whoever violates any law,

regulation, order, or license relating to export controls or

restrictive trade practices and boycotts is further subject to

administrative action which may result in exclusion from practice

before the Bureau of Export Administration (See Sec. 790.2(a)).

(3) Civil penalty. A civil penalty may be imposed for each

violation of the Export Administration Act or any regulation, order

or license issued under the Act either in addition to, or instead

of, any other liability or penalty which may be imposed. The civil

penalty may not exceed $10,000 for each violation except that the

civil penalty for each violation involving national security

controls imposed under section 5 of the Act may not exceed $100,000.

The payment of such penalty may be deferred or suspended, in whole

or in part, for a period of time that may exceed one year. Deferral

or suspension shall not operate as a bar in the collection of the

penalty in the event that the conditions of the suspension or

deferral are not fulfilled. When any person fails to pay a penalty

imposed under this paragraph (b)(3), civil action for the recovery

of the penalty may be brought in the name of the United States, in

which action the court shall determine de novo all issues necessary

to establish liability. Once a penalty has been paid, no action for

its refund may be maintained in any court.\1\

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\1\ The U.S. Department of Commerce may refund the penalty at

any time within two years of payment if it is found that there was a

material error of fact or of law.

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(4) Seizure. Commodities or technical data which have been, are

being, or are intended to be, exported or shipped from or taken out

of the United States in violation of the Export

[[Page 42644]]

Administration Act or of any regulation, order, or license issued

the Act are subject to being seized and detained, as are the

vessels, vehicles, and aircraft carrying such commodities or

technical data are subject to forfeiture (50 U.S.C. app. 2411(g))

(22 U.S.C. 401, see Sec. 786.8(b)(6)).

15 CFR 772.1(b)--Exports Requiring Validated Licenses

No commodity or technical data subject to the Export

Administration Regulations may be exported to any destination

without a validated license issued by the Office of Export

Licensing, except where the export is authorized by a general

license or other authorization by the Office of Export Licensing.

15 CFR 787.5--Misrepresentation and Concealment of Facts; Evasion

(A)(1) Misrepresentation and Concealment. No person may make any

false or misleading representation, statement, or certification, or

falsify or conceal any material fact, whether directly to the Bureau

of Export Administration, any Customs Office, or any official of any

other United States agency, or indirectly to any of the foregoing

through any other person or foreign government agency or official *

* *

15 CFR 787.6--Export, Diversion, Reexport, Transshipment

Except as specifically authorized by the Office of Export

Licensing, in consultation with the Office of Export Enforcement, no

person may export, dispose of, divert, direct, mail or otherwise

ship, transship, or reexport commodities or technical data to any

person or destination or for any use in violation of or contrary to

the terms, provisions, or conditions of any export control document,

any prior representation, any form of notification a prohibition

against such action, or any provision of the Export Administration

Act or any regulation, order, or license issued under the Act.

15 CFR 774.1--Reexport of U.S.-Made Equipment

Unless the reexport of a commodity previously exported from the

United States has been specifically authorized in writing by the

Office of Export, Licensing prior to its reexport * * *, no person

in a foreign country (including Canada) or in the United States may;

(a) Reexport such commodity * * * from the authorized

country(ies) of ultimate destination * * *.

Joint Stipulations of Fact

Aluminum Company of America (ALCOA) and the Office of Export

Enforcement, Bureau of Export Administration, United States

Department of Commerce (BXA) stipulated to the following facts:

1. ALCOA is a corporation organized under the laws of

Pennsylvania with its principal offices located at 425 Sixth Avenue,

ALCOA Building, Pittsburgh, Pennsylvania 15219.

2. ALCOA is one of the world's leading producers of aluminum and

a primary participant in all segments of the industry mining,

refining, smelting, fabricating, and recycling.

3. ALCOA is one of the world's largest producers of alumina,

which is both an intermediate product in the production of aluminum

and an important chemical product in itself.

4. During the period June 14, 1991 through December 7, 1995

(``the review period''), ALCOA, through its subsidiary ALCOA

Minerals of Jamaica (``AMJ''), and the Government of Jamaica,

through its subsidiary Clarendon Alumina Productions (``CAP''),

owned an alumina refinery in Clarendon Parish, Jamaica. CAP and AMJ

each owned a 50% interest in the alumina refinery.

5. Jamalco is a joint operation, located in Kingston, Jamaica,

governed by a Joint Venture Agreement between AMJ and CAP dated

March 1, 1988. The joint venture is governed by an eight member

Executive Committee, four members each from CAP and AMJ. Article 5

of the Joint Venture Agreement provides that the Executive Committee

will appoint a manager who will have full rights and

responsibilities to manage and control the day to day conduct of the

operations of the joint venture. Article 5 further requires that AMJ

be appointed as the Manager. AMJ has acted as Manager at all times

since 1988.

6. Prior to December 30, 1994, ALCOA operated mining, refining,

and smelting operations in Suriname (Suralco). As of December 30,

1994, all of ALCOA's bauxite, alumina and alumina-based chemicals

businesses, including Suralco, were restructured and combined into

ALCOA Alumina and Chemicals, L.L.C. Subsequently, Suralco has been

owned 98% by ALCOA Alumina and Chemicals, L.L.C., and 2% by ALCOA

Caribbean Alumina Holdings, L.L.C., each of which is owned 60% by

ALCOA and 40% by WMC Limited, an Australian corporation.

7. Since 1984, the alumina refinery in Paranarn, Suriname has

been co-owned by Suralco and an affiliate of Billiton N.V., a Dutch

corporation, and has been operated pursuant to a Refining Joint

Venture Operating Agreement dated March 14, 1984, as amended. In

accordance with Article 5.02 of the Refining Joint Venture Operating

Agreement, Suralco was in 1984 appointed, and has since then acted

as Manager of the Paranam refinery.

8. During the review period, the refineries in Jamaica and

Suriname used potassium fluoride as the key reagent for refining

alumina from bauxite, the raw ore for aluminum.

9. During the review period, the water treatment facility in

Suriname used sodium fluoride to treat drinking water. Suralco's

water treatment facility was located in the powerhouse which

supplied electricity to and was located at Suralco's bauxite mine in

Moengo, Suriname. In March 1994, Suralco sold its Moengo powerhouse

and water treatment facility to Energie Bedrijven Suriname (EBS), a

utility company owned by the government of Suriname. In conjunction

with the sale of the powerhouse and water treatment facility,

Suralco agreed to continue operating the water treatment facility

for one year. Consequently, Suralco personnel were on-site at the

water treatment facility at all times when ALCOA's Export Supply

Division shipped sodium fluoride to Suralco. Also as part of the

powerhouse sale agreement, Suralco agreed to provide the chemicals

used in the water treatment facility for a period of two years

following the sale.

10. During the review period, logistical support for Jamalco and

Suralco was provided by ALCOA's Export Supply Division (``ESD''),

located in New Orleans, Louisiana.

11. During the review period, Jamalco and Suralco purchased

certain items from a scheduled buying list, while other times were

purchased only as required in specific instances.

12. During the review period, ESD received requisitions from

Jamalco and Suralco, located suppliers, purchased products, and

shipped the requested items to Jamalco and Suralco.

13. During the review period, ESD prepared all export and

shipping documentation for shipments to Jamalco and Suralco.

14. ESD was responsible for determining the applicable export

licensing requirements for items ordered by Jamalco and Suralco

during the review period.

15. For each shipment of specially-ordered items to Jamalco and

Suralco during the review period, the export compliance procedures

in place provided that ESD was to review the Export Administration

Regulations to determine the applicable export licensing

requirement.

16. On several occasions during the review period, ESD obtained

validated licenses from BXA to export specially-ordered items, such

as computers, to Jamalco and Suralco.

17. By contrast, once ESD made an initial determination of the

export licensing requirements for items on the scheduled buying

list, ESD did not thereafter review the Export Administration

Regulations for each subsequent shipment of ``scheduled buying

lists'' goods to Jamalco and Suralco.

18. Both potassium fluoride and sodium fluoride were on ESD's

scheduled buying list for Jamalco and Suralco both before and during

the review period.

19. Both potassium fluoride and sodium fluoride were routinely

purchased against periodic requisitions regularly submitted by

Jamalco and Suralco both before and during the review period.

20. Under the export compliance procedures in place during the

review period, ESD did not perform a complete export compliance

check for each shipment of potassium fluoride and sodium fluoride to

Jamalco and Suralco.

21. Prior to March 13, 1991, exporters were not required to

obtain from BXA a validated license to export potassium fluoride and

sodium fluoride from the United States to Jamalco and Suralco.

22. Prior to March 13, 1991, ESD lawfully exported potassium

fluoride and sodium fluoride on a regular basis to Jamalco and

Suralco under general license authority.

23. On March 13, 1991, through a notice published in the Federal

Register, entitled Expansion of Foreign policy Controls on Chemical

Weapons Precursors (56 Fed. Reg 10756), the Department of Commerce

[[Page 42645]]

amended the Commerce Control List of the Export Administration

Regulations (currently codified at 15 C.F.R. Parts 730-774

(1997)),\2\ ``by expanding the number of countries for which a

validated license is required for 39 precursor chemicals. Under the

rule, the 39 chemicals will require a validated license for export

to all destinations except NATO member countries, Australia,

Austria, Ireland, Japan, New Zealand, and Switzerland.'' Potassium

fluoride and sodium fluoride were included on the list of 39

chemicals subject to the regulatory change.

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\2\ At the time BXA promulgated this rule, the Export

Administration Regulations were found at 15 CFR Parts 768-799

(1991). Since that time, the Regulations have been reorganized and

restructured.

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24. As potassium fluoride and sodium fluoride were routinely

ordered by Jamalco and Suralco, ESD failed to attach any

significance to the March 1991 amendment, missed the regulatory

change, and continued to export these commodities to the refineries

during review period without first obtaining from BXA the validated

export license required under the Regulations.

25. During the review period, ESD made 47 shipments of potassium

fluoride to Jamalco and Suralco without validated license. The total

value of these shipments was $104,637.00.

26. During the review period, ESD made three shipments of sodium

fluoride to Suralco without validated licenses. The total value of

these shipments was $6.603.00.

27. During the review period, ESD used Shippers Export

Declarations (``SEDs''), an export control document as defined in

the Export Administration Regulations, to effect the export of

potassium fluoride and sodium fluoride from the United States to

Jamaica and Suriname.

28. With eight exceptions, ALCOA identified the chemicals

shipped to Jamalco and Suralco on the SEDs by their specific

nomenclature.

29. As a result of missing the March 1991 regulatory amendment,

ALCOA, during the review period, indicated on each SED used for the

export of the chemicals from the United States to Jamaica and

Suriname that the goods qualified for export from the United States

to Jamaica and Suriname under general license G-DEST, when in fact

the chemicals required a validated license for export from the

United States to both destinations.

30. ESD had no intent to make any false or misleading statements

on the SEDs accompanying the shipments of potassium fluoride and

sodium fluoride to Jamalco and Suralco during the review period.

31. The exports of potassium fluoride and sodium fluoride during

the review period were made to countries that are not suspected of

engaging in illicit weapons development.

32. All of the potassium fluoride and sodium fluoride shipped by

ESD to Jamalco and Suralco during the review period was completely

consumed on the premises of the refinery and water treatment

facilities in Jamaica and Suriname.

33. Once BXA informed ALCOA that ESD had shipped potassium

fluoride and sodium fluoride to Jamaica and Suriname during the

review period without the required validated export license, ALCOA

cooperated fully with BXA in its investigation.

34. After BXA brought to ALCOA's attention the regulatory change

imposing a validated licensing requirements on exports of potassium

fluoride and sodium fluoride to Jamaica and Suriname, ALCOA applied

for, and BXA granted, validated license for shipments of potassium

fluoride to Jamaica and Suriname made after the review period.

35. During the review period, there was a presumption of

approval, on a case-by-case basis, for license to export potassium

fluoride and sodium fluoride from the United States to Jamaica and

Suriname.

36. Prior to the initiation of the investigation by BXA, ALCOA

retained outside counsel and experts to assist in improving and

strengthening ALCOA's export compliance procedures.

37. As a result of these efforts, ALCOA developed and

implemented a new export compliance program that includes an export

compliance manual (with specific procedures and policies applicable

to all exports by ALCOA), training seminars, instructional videos,

and other measures.

38. 15 CFR 787.4(a) provides:

(a) No person may order, buy, receive, conceal, store, use,

sell, loan, dispose of, transfer, transport, finance, forward, or

otherwise service, in whole or in part, any commodity or technical

data exported or to be exported from the United States or which is

otherwise subject to the Export Administration Regulations, with

knowledge or reason to know that a violation of the Export

Administration Act or any regulation order, or license has occurred,

is about to occur, or is intended to occur with respect to any

transaction.

The parties stipulated at the Oral Argument that this regulation

does not have a strict liability trigger since it contains a

knowledge element (TR-33).

39. 15 CFR Sec. 787.4(b) provides:

(b) No person may possess any commodities or technical data,

controlled for national security or foreign policy reasons under

section 5 or 6 of the Act:

(1) With the intent to export such commodities or technical data

in violation of the Export Administration Act or any regulation,

order, license or other authorization under the Act, or;

(2) Knowing or having reason to believe that the commodities or

technical data would be so exported.

The parties stipulated at the Oral Argument that this regulation

does not have a strict liability trigger since it contains a

knowledge or intent element (TR-33).

40. 15 CFR 787.5(b) provides:

(b) Evasion. No person may engage in any transaction or take any

other action, either independently or through any other person, with

intent to evade the provision of the Act, or any regulation, order,

license or other authorization issued under the Act.

The parties stipulated at the Oral Argument that this regulation

does not have a strict liability trigger since it contains a

knowledge or intent element (TR-33).

Findings of Fact \1\

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\1\ Neither Respondent nor Agency submitted Proposed Findings of

Fact. As a result, no rulings are made thereon.

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1. The Respondent and BXA entered into forty (40) Joint

Stipulations of Fact which are set forth above. Each and every one

of those Joint Stipulations of Fact are hereby accepted by the

undersigned and adopted as a Finding of Fact in this proceeding.

2. Aluminum Company of America (ALCOA), the Respondent, was at

all times herein a Corporation authorized to and doing business in

the United States. As such, the Respondent clearly fails within the

definition of ``person'' set forth in 15 CFR 770.2; currently

codified at 15 Code of Federal Regulations, Parts 730-774 (1997),

issued the Regulations 768-799) hereinafter known as the former

Regulations (see Joint Stipulations of Fact Nos. 1, 2, and 3).

3. Potassium fluoride is the key reagent used during the

refining of alumina from its bauxite ore. Bauxite is crushed and

mixed with a caustic soda solution. This solution dissolves the

alumina present in the bauxite. Potassium fluoride is used to

determine the level of dissolved alumina in the caustic solution.

Only a small amount of potassium fluoride is used per metric ton of

bauxite processed (see Respondent's Answer dated January 20, 1998,

page 2).

4. Sodium fluoride was used by the ALCOA facility in Suriname to

treat drinking water for people living in the Suralco refinery area.

All of the sodium fluoride exported from the United States to

Suriname was used by this ALCOA subsidiary facility and was fully

consumed in the water treatment process. ALCOA sold the water

treatment facility to the government of Suriname in July 1994.

Therefore, Suralco no longer uses any sodium fluoride (See

Respondent's Answer dated January 20, 1998, page 3).

5. All of the potassium fluoride and Sodium Fluoride exports at

issue in this case were sent to ALCOA's refinery operations in

Jamaica (Jamalco) and Suriname (Suralco). These refineries are

located near bauxite mines. Bauxite is the raw ore for aluminum. The

refineries process the bauxite so as to extract aluminum oride

(alumina), which becomes the basic feedstock for ALCOA's metal and

chemical businesses. Both refineries were directly controlled by

ALCOA during the period June 14, 1991 through December 7, 1995 (See

Respondent's Answer dated January 20, 1998, page 2).

6. Prior to March 13, 1991, validated licenses were not required

under the EAR for exports of potassium fluoride and sodium fluoride

either to Jamaica or Suriname. Therefore, prior to that date, ESD

had lawfully exported these products to the refineries under the EAR

general license authority. However, on March 13, 1991, the

Department of Commerce amended the Commerce Control List of the EAR

by expanding the number of countries for which a validated license

was required for exports of thirty-nine (39) commodities.

7. Logistical support for the ALCOA refineries in Jamaica and

Suriname was provided by ALCOA's Export Supply

[[Page 42646]]

Division (``ESD''), located in New Orleans, LA. Through ESD, the

refineries regularly purchased certain items from a scheduled buying

list, while other items were purchased only as required in specific

instances. In this capacity, ESD purchased everything from office

surplus and repaired parts to replacements for equipment and

operating supplies. ESD received requisitions from the refineries,

located U.S. suppliers for the requested product, purchased the

products, and shipped them to the refineries. ESD prepared all

export and shipping documentation for shipments to the refineries

(See Respondent's Answer dated January 20, 1998, page 3).

8. ESD's sole function was to support the Jamalco and Suralco

refineries. It annually handled approximately 25,000 transactions

involving 100,000 different items, with a total value of over $125

million. Before, during and after the time periods in question, ESD

was aware of the EAR, and sought and obtained validated export

licenses for a variety of products, including computer systems and

related equipment (See Respondent's Answer dated January 20, 1998,

page 3).

9. Both potassium fluoride and sodium fluoride were ESD's

scheduled buying list for the refineries both before and during the

time periods in question and were, in fact, purchased against

requisitions submitted by Jamalco and Suralco. Indeed, during the

time period in question, ESD made forty-seven (47) shipments of

potassium fluoride to the Jamalco and Suralco refineries, and three

(3) shipments of sodium fluoride to the Suralco refinery (See

Respondent's Answer dated January 20, 1998, page 3).

10. On 50 separate occasions between June 14, 1991, and December

7, 1995, ALCOA exported potassium fluoride and sodium fluoride from

the United States to Jamaica and Surinam, without obtaining from BXA

the validated export licenses required by Section 772.1(b) of the

former regulations. By exporting U.S.--origin commodities to any

person or to any destination as set forth in Section 772.1(b) of the

former regulations, ALCOA violated Section 787.6 of the former

regulations on 50 separate occasions, for a total of 50 separate

violations (See Respondent's plea of ``Admit'' to charges 1-50 in

its January 1998 Answer, page 5).

11. On 50 separate occasions between June 14, 1991, and December

7, 1995. ALCOA used Shipper's Export Declarations as defined in

Section 770.2 of the former Regulations, on which it represented

that potassium fluoride and sodium fluoride, qualified for export

from the United States to Jamaica and Surinam under general license

G-DEST. Contrary to ALCOA's Shippers Export Declarations, the export

of potassium fluoride and sodium fluoride to Jamaica and Surinam

required a validated license to both of those destinations and did

not qualify for export under general license G-DEST (See

Respondent's plea of ``Admit'' to finding of Fact No. 9, above; and

Joint Stipulation of Fact No. 29, above).

12. Based on the Respondent's admitted actions set forth in

Finding of Fact No. 10 above, ALCOA violated 15 CFR 787.5(a) of the

former regulations by making ``false or misleading

representations[s], statement[s], or certification[s]'' of material

fact to a United States agency in connection with the use of export

control documents required under 15 CFR 772.1(b) to effectuate the

export of potassium fluoride and sodium fluoride from the United

States to Jamaica and Suriname (See, legal discussion below).

Conclusions of Law

1. That 15 CFR 787.5(a) of the former regulations does not

require ``knowledge'' or ``intent'' in order for a finding that the

Respondent violated said regulation. Liability and administrative

sanctions are imposed on a strict liability basis once the

Respondent commits the proscribed act;

2. That the Respondent, Aluminum Company of America, committed

50 violations of 15 CFR 787.5(a) during the period from June 14,

1991 through December 7, 1995 when potassium fluoride and sodium

fluoride were exported from the United States to Jamaica and

Suriname without obtaining validated export licenses required by 15

CFR 772.1(b);

3. That the Respondent, Aluminum Company of America, committed

50 violations of 15 CFR 787.6 during the period of June 14, 1991

through December 7, 1995 by making false and misleading statements

of material fact to a United States agency in connection with the

use of export control documents;

4. That based upon the entire record in this matter, the

appropriate civil penalty for each of the 100 violations is $10,000

for a total of $1,000,000. The record does not support the

suspension of part of the civil penalty assessment on probation.

Discussion

Based upon the stipulations of the parties, there are only two

questions to be answered in this proceeding:

(I) Is ``knowledge'' or ``intent'' a necessary element of a

violation of Sec. 787.5(a) of the former regulations? and

(II) What is the appropriate level of sanctions in this case?

I. SECTION 787.5(a) OF THE FORMER REGULATIONS DOES NOT REQUIRE

``KNOWLEDGE'' OR ``INTENT'' IN ORDER FOR A FINDING THAT THE

RESPONDANT VIOLATED SAID REGULATION. LIABILITY AND ADMINISTRATIVE

SANCTIONS ARE IMPOSED ON A STRICT LIABILITY BASIS ONCE THE

RESPONDANT COMMITS THE PROSCRIBED ACT.

Contrary to the arguments of the Respondent, the answer to this

issue is clearly set forth in Iran air v. Kugelman, 996 F.2d 1253

(D.C. Cir. 1993). In that case, then-Judge Ruth Bader Ginsburg found

that the ``essential question is whether the agency, in its reading

of the current regulations, reasonably construed the statute, 50

U.S.C.A. App. Sec. 2410, to allow the imposition of civil sanctions

on a strict liability basis.'' The answer in Iran Air was clearly

yes. Therein, the Acting Under Secretary of Commerce for Export

Administration determined that an exporter's knowledge need not be

shown as a prerequisite to the imposition of civil penalties under

the Export Administration Act of 1979, Sec. 11(c), 50 U.S.C.A. App.

Sec. 2410(c).\1\

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\1\ In the Iran Air, case, Id., the court specifically found

that 15 CFR Sec. 774.1 of the regulations had a strict liability

trigger.

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The court in the Iran Air case stated:

It is not unusual for Congress to provide for both criminal and

administrative penalties in the same statute and to permit the

imposition of civil sanctions without proof of the violator's

knowledge. Here, the agency maintains, Congress has allowed for an

array of penalties for violations of the Export Act: criminal fine

and/or imprisonment for the knowing violator; more severe criminal

fine and/or longer prison terms for the willful violator; and civil

penalties against any violator. Supporting the agency's position

that subsection (a)'s knowledge requirement need not be read into

subsection (c), Congress expressly provided that nothing in

subsection (a) or (b) ``limits the power of the Secretary to define

by regulations violations under this Act.'' 50 U.S.C. App.

Sec. 2410(b)(5). Furthermore, Congress specifically authorized the

executive to establish ``levels of civil penalty * * * based upon

the seriousness of the violation, the culpability of the violator,

and the violator's record of cooperation with the Government in

disclosing the violation.'' Id. At 2420(c)(4). The provisions appear

to leave room for civil penalty regulations that include a knowledge

requirement * * * or that allow * * * the imposition of strict

liability. Id. At 1258.

Therefore, there can be no question that the United States

Congress authorized the Secretary of Commerce to promulgate

regulations on a strict liability basis pursuant to Sec. 2410 of the

Export Administration Act. In order to determine if the Secretary

intended to impose a civil sanction for an unwitting violation of

the Act (i.e., strict liability), we must look at the regulation

that ALCOA was charged with violating:

15 CFR 787.5 Misrepresentation and Concealment of Facts; Evasion

(a)(1) Misrepresentation and Concealment. No person may make any

false or misleading representation, statement, or certification, or

falsify or conceal any material fact, whether directly to the Bureau

of Export Administration, any Bureau of Export Administration, any

Customs Office, or an official of any other United States agency, or

indirectly to any of the foregoing through any other person or

foreign government agency or official. * * *

The drafting of agency regulations has evolved into an art form

since the passage of the Administrative Procedure Act (5 U.S.C.

Sec. 551 et seq.) in 1946. As the Court noted in the Iran Air case,

Id. at 1256, the answer to whether a regulation has a strict

liability trigger is determined by whether the Secretary, in

drafting the regulation, included a ``state of mind'' requirement. A

clear and unbiased reading of this regulation reveals no such

requirement and therefore liability attaches on a strict liability

basis.

The Respondent acknowledges that this regulation does not

contain a ``state of mind'' element such as ``knowledge to cause''

(Sec. 787.2), with ``knowledge or reason to

[[Page 42647]]

know'' (Sec. 787.4(a)), ``with intent'' or ``knowing or having

reason to believe'' (Sec. 787.4(b)), and ``with intent to evade''

(Sec. 787.5(b) (See Joint Stipulations of Fact Nos. 38, 39 and 40).

However, the Respondent argues that since neither the statute nor

the regulations define ``false or misleading statements'', the judge

must use the ``accumulated settled meaning'' of these terms as

defined in Black's Law Dictionary and the legal precedent applicable

thereto. The Respondent argues that Black's Law Dictionary defines a

``false statement'' as one that is made with knowedge that it is

false. The word ``misleading'' is defined as delusive--calculated to

lead astray or lead into error. The Respondent cites Feld v. Mans,

116 S. Ct. 437, 445-46 (1995) for the proposition that it is

established practice to find meaning in the generally shared common-

law when common-law terms are used without further specification.\1\

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\1\ In support of its argument, the Respondent cites NLRB v.

Amax Coal Co., 453 U.S. 322, 329 (1981). In that case, the court

held that ``where Congress uses terms that have accumulated settled

meaning under either equity or the common law, a court must infer,

unless the statute otherwise dictates, that Congress meant to

incorporate the established meaning of these terms.''

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The government disagrees with what it calls the Respondent's

``attenuated lexicographical-based arguments''. The government

argues that as to the federal statute issue, had the Congress

intended to include a ``knowledge'' element in the civil penalty

provision, it would have explicitly done so (See e.g., False Claims

Act, 31 U.S.C. Sec. 3729(a). I agree. 50 U.S.C. App. Sec. 2410(c)(1)

does not include a ``knowledge'' element and it is clear in the Iran

Air case, Id at 1258, that Congress explicitly left the issue of

strict liability vs. knowledge/intent with the Secretary of

Commerce. Indeed, the Secretary promulgated a regulatory scheme that

included both types of regulations. Thus, where the Secretary

intended that a regulation include a ``knowledge'' or ``intent''

element, the regulation contained explicit language (See e.g.,

Secs. 787.4(a), 787.4(b), 787.5(b), Sec. 387.2 (1980) and joint

stipulations of fact Nos. 38, 39, and 40). Conversely, where the

Secretary intended no such ``knowledge'' or ``intent'' element, the

regulations did not include such a trigger (See e.g. Secs. 774.1(a),

787.2, 787.5(a)).

The case of People v. Chevron Chemical Co., 191 Cal.Rptr 537

(App. 1983) is very informative on the issue at hand. The fact that

it is a California criminal case rather than a federal civil penalty

case is even more compelling. In that case, the state brought an

action against Chevron, charging it with violating the Fish and Game

Code for depositing substances deleterious to fish, plant or bird

life into state waters--a criminal misdemeanor penalty. The sole

issue presented in that case was whether the offense should be

construed as a strict liability offense, or one that requires proof

of criminal negligence or criminal intent.\1\ In ruling on that

issue, the Court stated;

\1\ Fish and Game Code Sec. 5650(f) provides that ``It is

unlawful to deposit in, permit to pass into or place where it can

pass into waters of this State any of the following: * * * (f) any

substances or material deleterious to fish, plant life or bird

life.''

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In more recent times, the California Supreme Court found mens rea

unnecessary and upheld the conviction of a meat market proprietor

for ``short-weighting'' in the sale of meat by his employee. The

court noted that ``where qualifying words such as knowingly,

intentionally, or fraudulently are omitted from provisions creating

the offense, it is held that guilty knowledge and intent are not

elements of the offense''. The court went on to quote from an Ohio

case which stated the basic principle: `There are many acts that are

so destructive of the social order, or where the ability of the

state to establish the element of criminal intent would be so

extremely difficult if not impossible of proof, that in the interest

of justice the legislature has provided that the doing of the act

constitutes a crime, regardless of knowledge or criminal intent on

the part of the defendant'. (In re Marley (1946) 29 Cal.2d 525, 529,

175 P. 2d 832).

In the Chevron case, supra at 539, the court discusses the well

recognized public welfare offenses exception to the mens rea

requirement in criminal prosecution. While not a criminal case, nor

the traditional public welfare offense (e.g., water pollution, use

of unlicensed poison, sale of improperly branded motor oil, and

liability of pharmacist for compounding of prescriptions by

unlicensed persons), the regulatory violation herein involves

materials that could be used for weapons of mass destruction and the

injury or death of untold numbers of people. Accordingly, since

these regulations deal with the most profound public welfare/

national defense issues, the public interest demands that they be

strictly construed in the absence of express ``knowledge'' or

``intent'' language.

The Respondent asserts that the case of Ceasar Electronics,

Inc., 55 Fed. Reg. 53016 (Dept Commerce 1990) supports it's position

that 15 CFR Sec. 787.5(a) requires that liability is imposed only

when there exists a relatively high level of knowledge and intent to

make false statements. I disagree. The factual circumstances

involved therein proceeded on two tracks--a criminal indictment and

conviction for violating 15 CFR Sec. 787.5(a)(3) of the Regulations

by one of the Respondent's Vice-Presidents and a subsequent

administrative proceeding against the Corporation for violation of

15 CFR Sec. 787.5(a)(1)(ii)(1984). The Order from the United States

District Court in criminal case served as the underlying factual

basis for the joint stipulations of the parties in the

administrative case against the corporation. Thus, while the

decision and order in the administrative case discussed knowledge

and intent in relation to a Sec. 787.5(a) violation, such predicates

were not necessary to a finding of a violation. Indeed, both counsel

stipulated at the oral argument in this case that the issue of

strict liability for Sec. 787.5(a) has never been decided (TR-36,

lines 15-19).\1\

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\1\ 50 U.S.C. App.Sec. 2412(c). (Also see, Sparvr Optical

Research, Inc. v. Baldrige, 649 Supp, 1366 (D.C. Cir. 1986). This

case was reversed, in part, in the Iran Air case, note No. 8 finding

that a civil penalty may be imposed absent knowledge.); Dart v.

United States, 848 F.2d 217 (D.C. Cir. 1988); and Harrisiades v.

Shavgnessy, 342 U.S. 580, 589, 725, Ct. 512, 519, 96 L.Ed. 586

(1952). The William A. Roessel, d/b/a Enigma Industries, 62 Fed.

Reg 4031 (Dep't Commerce 1997) and Herman Kluever, 56 FR 14916

(Dep't Commerce 1991) are similarly not dispositive of the issue

since both cases also involved the aggravating factor of

``knowledge'' or ``intentional conduct''.

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The Respondent cities Section 523(a)(2)(A) of the Bankruptcy

Code as support for its position that knowledge and intent to

deceive is a prerequisite to any violation of Sec. 787.5(a). I

disagree. The Iran Air case, supra, clearly spells out that

Congress authorized the Secretary of Commerce to promulgate strict

liability and knowledge/intent based regulations. The Secretary

differentiated between the two types of regulations by using ``state

of mind'' language for violations which were not intended to employ

a strict liability standard and eliminated such triggering language

where strict liability was intended. Under this circumstance, any

caselaw dealing with Sec. 523(a)(2)(A) requiring knowledge and

intent to deceive as a predicate to liability where the regulation

is silent as to the issue of ``state of mind'' is simply

inapplicable. Moreover, the legislative history, purpose, and

construction of the Bankruptcy Code concerns a fresh start for the

debtor while the Export Administration Act concerns regulations

exports for reasons of national security and foreign policy.

Importantly, an agency has the power to authoritatively

interpret its own regulations as a component of it's delegated

rulemaking powers (See Martin v. OSHRC, 499 U.S. 144, 113 L.Ed. 2d

117, 11 S. Ct. 1171.) This delegation of interpretive authority is

ordinarily subject to full judicial review. However, because of the

national security and/or foreign policy issues involved in

regulations exports that could become component parts of weapons,

the United States Congress made these Secretarial determinations

final and only subject to limited judicial review (See, 50 U.S.C.

App. Sec. 2412(c)(1) and (3).

II What Is the Appropriate Level of Sanctions in This Case?

The Respondent has been found to have 50 separate violations of

15 CFR 787.6 of the former Regulations and 50 separate violations of

15 CFR 787.5(a) of the former regulations for a total of 100

violations.

Congress has provided for an array of penalties for violations

of the Export Administration Act and the regulations promulgated

thereunder. These penalties include a criminal fine and/or

imprisonment for knowing violators, more severe criminal fines and/

or longer prison terms for willful violators and civil penalties

against any violator. Since the government apparently did not have

proof of willful or intentional acts by the Respondent, criminal

charges were not filed (TR-47). Thus, the government commenced this

civil penalty action against the Respondent.

The maximum civil penalty assessment for each violation is

$10,000 (See 15 CFR 764.3(a)(1)). In addition to the penalty

assessment, the government could have requested a denial of export

privileges (Sec. 764.3(a)(2)) and/or the exclusion from

[[Page 42648]]

practice (Sec. 764.3(a)(3)). However, after investigating this case,

the government determined that it would only seek $7,500 per

violation and would not seek the denial of its export privileges or

its exclusion from practice.

15 CFR 766.17(b)(2) requires that the presiding judge, after a

de novo review of the entire record, recommend the appropriate

administrative sanction or such other action as he or she deems

appropriate.\1\ 15 CFR 766.17(c) provides that any such penalty, or

part thereof, may be suspended for a reasonable period of probation

and remitted if no further violations occur during said probationary

period. The Respondent argues that no administrative sanctions be

imposed in this case or alternatively, that only a modest civil

penalty be levied. ALCOA further argues that if the judge decides on

the latter approach, that said penalty be suspended on probation.

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\1\ Importantly, BXA does not have a standard table of orders

which lists offenses with a recommended penalty range (e.g.,

misconduct: 1-3 month suspension) which provides guidance to the

judge such as in United States Coast Guard license suspension and

revocation cases (46 CFR Sec. 5.569) or a penalty schedule for

United States Department of Commerce, National Oceanic and

Atmospheric Administration cases where the proposed penalty is based

on a published penalty schedule promulgated by the NOAA general

counsel and which carries a presumption as to reasonableness (See In

the Matter of William J. Verna, 4 O.R.W. 64 (NOAA App. 1985)). In

that case, the Acting Administrator of NOAA found that the published

penalty schedule represents a reasonable starting point and if the

judge substantially increases or decreases the amount, good reason

for such departures should be stated (Also see, In the Matter of

Kuhnle, 5 O.R.W. 514, (NOAA App. 1989).

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In support of its position, the Respondent argues that any

violations that occurred were not intentional or willful, that said

violations resulted from its failure to comprehend the fact that the

March 1991 Federal Register Notice added thirty-nine (39) chemicals

to the list of chemicals that were identified as precursors for

chemical weapons; that there was no risk that the chemicals would be

diverted to chemical weapons use; that had the Respondent applied to

BXA for the necessary validated licenses, they surely would have

been granted; that the exports were entirely consumed at the

refineries of the Respondent's subsidiary companies in Jamaica and

Suriname; \1\ that prior to the initiation of the government's

investigation of this matter, the Respondent began developing and

implementing an expanded and more comprehensive export compliance

program, and that the Respondent has fully cooperated with the

government in it's investigation of this matter.

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\1\ The Respondent notes that neither of these designations were

included in Court Group D: 3, which identifies those designations of

particular concern with respect to chemical weapons proliferation

(i.e., Iran, Syria, Libya. North Korea, and Cuba) See CFR

para.799.1, Supp. 1 (See 15 CFR Sec. 799.1, Supp.1 (1995)).

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In the government's reply to the Respondent's Answer, it argues

that the retaining of outside counsel and experts to assist in

improving its export compliance procedures prior to the initiation

of the investigation is an aggravating rather than a mitigating

factor; that the violations alleged herein are derived from errors

that go to the very core of ALCOA's export compliance procedures;

that ALCOA's methodology did not involve a periodic review of the

Regulations for shipment of ``scheduled buying list goods'' after an

initial determination was made concerning the export licensing of

items on that list or a thorough monitoring of pertinent regulatory

amendments published in the Federal Register; that outside counsel

and experts retained by ALCOA should have revamped this system

immediately upon being retained; that such changes in procedures

were not implemented until after the commencement of the

investigation; that this investigation did not arise in the context

of a voluntary self-disclosure pursuant to Sec. 764.4 of the

Regulations; and that given this, the favorable weight accorded such

self-disclosures in determining appropriate sanctions is not a

factor to be considered.

The government goes on to argue that an ``exporter cannot

reasonably `fail to attach significance' to a regulatory change,

bemoan the fact that he/she has been `tripped-up' by changes in the

law, and them argue that, by some stretch of the imagination, he/she

should not be penalized for `inadvertently' violating the law'';

that ignorance of the law is no excuse; that the fact that the total

value of the 50 shipments was under $112,000 is of no consequence in

determining the proper amount of the civil penalty; and that the

lack of intent to make false or misleading statements is irrelevant

since liability attaches on a strict liability basis. Finally, the

government notes that since the March 13, 1991 amendments were

properly published in The Federal Register, the Respondent was

charged with notice of the contents of the changes (See 44 U.S.C.A.

Sec. 1507 (1991)).

In ALCOA's response to the government's arguments, it states

that there are numerous undisputed mitigating circumstances in this

case and no aggravating factors; that under the circumstances, it is

appropriated to waive or suspend sanctions; that included within the

mitigating factors are that the Respondent has no prior violations;

that the chemicals were shipped to countries that are not suspected

of illegal weapons development; that there was a presumption of

approval, on a case by case basis, for licenses to export these

chemicals from the United States to Jamaica and Suriname; that the

failure of the Respondent to obtain validated licenses should be

viewed as technical violations; that the government's logic is

distorted since it implies that it is somehow more appropriate to

impose a civil penalty on the Respondent because its compliance

program was imperfect rather than if ALCOA had had no export

compliance program at all; that while the Act and Regulations may

not mention the value of exports as a standard for Administrative

sanctions, the Judge may consider that issue as a factor in his

determination; that the government's proposed penalties are nearly

seven (7) times larger than the value of the shipments in this case;

that given the lack of harm to U.S. national security or foreign

policy interests as a result of these exports, this huge multiple

illustrates that the proposed penalty is excessive and overly

punitive; that recent government settlement agreements in other

cases demonstrate that the proposed penalty is unreasonable; that

the Respondent has no prior violations; and that there are numerous

cases with similar or even more egregious facts in which the

settlement proposal ranged from $2,000 to $5,000 per violation,

large portions of which were suspended.

After fully considering the arguments of the parties as to the

appropriate sanction in this case, I find that the Respondent's

civil penalty shall be $10,000 for each of the 100 violations for a

total of $1,000,000. While this assessment exceeds that requested by

the government, I find that it is warranted under the facts of this

case. The passage of the Export Administration Act of 1979 had one

main purpose--to control exports from the United States to other

countries. As was noted in the Legislative history of this Act

referring to S 737:

Exports contribute significantly to U.S. production and employment,

and improved export performance helps pay for expanding U.S. imports

of oil and other commodities. There are circumstances, however, in

which the economic benefits and the presumption against government

interference with participation in international commerce by United

States citizens are outweighed by the potential adverse effect of

particular exports on the national security * * * of the United

States.\1\

\1\ See Export Administrative Act, P.L. 96-92, 93 Stat. 503,

Legislative History at 1148 (Purpose of the Legislation) which is

part of the record herein.

By Federal Register Notice (Volume 56, No. 49, dated March 13,

1991), the Department of Commerce expanded export control of certain

chemical weapons precursors (i.e., chemicals that can be used in the

manufacture of chemical weapons). The Notice amended the extant

Commodity Control List, by expanding the number of countries for

which a validated license was required for 39 precursor chemicals.

In issuing this Notice, the Department of Commerce underscored its

concern about chemical and biological weapons indicating that

serious consideration is being given to eliminating the then-

existing contract sanctity provisions of the regulations (See

Respondent's July 27, 1998 submission, Tab 6). Thus, as the world

was becoming a more dangerous place subject to terrorist attacks,

the United States Government responded by significantly increasing

its regulation of specific chemicals and biological precursors.

In this regard, the government noted in it's May 1, 1998 Reply

at page 10:

International trade has been regulated from the earliest days of the

republic. While particular aspects or areas of regulations have

varied, the fact of the matter is that those engaged in an industry

in which government regulation is likely must be presumed to be

aware of, and practitioners in the industry are charged with

knowledge of as well as the responsibility to comply with, the duly

promulgated regulations. [Citing United States v. International

Minerals and Chemical Corporation, 402 U.S. 558 at 563 & 565, 29

L.Ed. 178(1971)].

[[Page 42649]]

In the Matter of Core Laboratories, Inc., ITA-AB-2-80, Initial

Decision and Order on Remand of Administrative Law Judge Huge J.

Dolan (May 4, 1982) aff'd, In the Matter of Core Laboratories, Inc.,

ITA-AB-2-80, Decision on Appeal and Order (March 14, 1983), remanded

on other grounds, United States v. Core Laboratories, Inc., 759 F.2d

480 (5th Cir. 1985).

Of all the aggravating factors in this case, one is particularly

damming--that the Respondent, over a period of four and one-half

(4.5) years, made 50 separate exports of potassium fluoride and/or

sodium fluoride in violation of the Export Administration

Regulations (emphasis added). Importantly, ALCOA is not a new or

small company that doesn't understand the foreign export regulatory

process. Quite to the contrary, the Respondent is a large

multinational corporation which had a separate division (Export

Supply Division) specifically dedicated to receiving requisitions,

locating suppliers, purchasing products, and shipping the requested

items in accordance with applicable export licensing requirements.

Thus, ALCOA's conduct, under this backdrop, was flatly inexcusable

and the fact that the violations were not intentional or willful is

only relevant to the fact that a federal criminal indictment was not

handed down. Respondent's failure to comprehend the change in the

Federal Register Notice, given the existence of its Export Supply

Division, is also particularly troubling.\1\ Moreover, the fact that

the unlawful shipments consisted of precursors for chemical weapons,

regardless of the lack of any potential diversion in these

instances, is not something that should be viewed as a technical

oversight and is clearly an aggravating factor.

---------------------------------------------------------------------------

\1\ As noted above, 44 U.S.C.A. Sec. 1507 (1991) imputes

knowledge of these changes to the Respondent.

---------------------------------------------------------------------------

In mitigation, ALCOA argues that had it applied for the

necessary validated licenses, they would have been presumptively

granted. This argument misses the point. Over the past 20 years, a

terrorist threat has developed to our Republic and our interests

aboard. In order to protect our country and our interests, laws and

regulations were passed/implemented to allow the government to

monitor and regulate the export of precursor chemicals and if

necessary, prevent any such exports that pose a clear and present

danger. Given the huge number of exports from the United States, how

is the government suppose to monitor the export of precursor

chemicals if it doesn't know that the shipments were being made over

a four and one-half year period? ALCOA responds that it filed under

general license G-DEST and implies that the government was aware of

these 50 separate exports over a four and one-half year period (See

Respondent's Answer dated January 20, 1998, page 8). I disagree. The

Respondent did not submit any evidence to support this position. The

Respondent cannot shift its responsibility to the government to do

that which it is legally required to do. Given the volume of such

exports and the limited public resources to regulate these

shipments, the government placed a legal duty on the exporter to

file the specific applications with the office charged with such

oversight responsibility. The Respondent breached that duty and in

so doing, deprived the government of the opportunity to monitor its

export of precursor chemicals.

The Respondent also argues that all of the precursor chemicals

were entirely consumed at the refineries of the Respondent's

subsidiary companies in Jamaica and Suriname. Once again, ALCOA

misses the point. The crucial point here is that the government was

deprived of possible vital information in its fight to control

terrorism. In other words, if the world-wide export of chemicals/

biological agents were a puzzle being put together by a U.S.

Department of Commerce security team, this information constituted

50 pieces of that puzzle that the government did not have. While it

turned out that there was no problem, the fact remains that the

government did not have the whole picture. Without the whole

picture, or in this case, all of the information about precursor

chemical exports, catastrophic errors in preventative decision-

making could have occurred.

The Respondent argues that prior to the initiation of the

investigation into this matter, it began developing and implementing

an expanded and more comprehensive export compliance program. The

Respondent notes that it developed export control matrices for each

U.S. business unit to identify export control issues on a product-

by-product basis; produced a video to increase awareness of export

control requirements to be used in conjunction with on-site training

for each business unit; appointed export liaison's for each of its

business units including the Export Supply Division, who is

responsible for disseminating export compliance information; that

it's legal department now monitors the Federal Register daily for

changes to the EAR effecting the Respondent's products and

operations, and disseminates this information to the export

liaisons; that the Respondent is also developing a Denial List

search application on its new company-wide intranet; and that all

key Exports Supply Division employees have attended export

compliance training seminars.

While the Respondent's January 20, 1998 Answer details the

above-recited improvements to its export compliance program, there

is no record evidence submitted by the Respondent in Tab 2 of its

January 20, 1998 Answer specifying when these improvements were

implemented. The EAR amendment occurred on March 13, 1991. The

violations occurred between June 14, 1991 and December 7, 1995.

During this period of time, the Respondent's export compliance

procedures did not involve a periodic review of the requirements for

shipments of ``scheduled buying list goods'' or a through monitoring

of pertinent regulatory amendments published in the Federal Register

(See Stipulation of Fact No. 17). Thus, the record is void of any

meaningful evidence as to what policies and procedures were in

effect between March 13, 1991 and December 7, 1995.

Moreover, subsequent to December 7, 1995, the record does not

indicate when the above-recited improvements were implemented and in

what form those improvements were made. Indeed, the first memorandum

from the Legal Department to the Export Supply Division is dated May

9, 1996. Interestingly, the only time this issue is discussed during

this time period is set forth in the Joint Stipulations. However, as

one can see from reading joint Stipulation of Fact Nos. 17, 20, 27,

and 29, these factual recitations only recite what the Respondent

did not do as opposed to what program it had in effect and what

changes were made.

The Respondent states that anything more than a nominal fine in

this case is unreasonable. In support of this position, ALCOA argues

that recent BXA enforcement orders based on settlement agreements

establish a range from $2,000 per violation to $5,000 per violation,

large portions of which were suspended. The Respondent cites the

following settlements in support of it's argument that the

government's proposed $7,500 per violation is excessive and

inconsistent with past BXA practice:

1. Gateway 2000 case--This case involved the unlawful export of

U.S.--origin computer equipment without a license in violation of

Sec. 787.4(a), Sec. 787.5(a) and Sec. 787.6 for a total of 87

violations. The agreed upon fine was $402,000 or $4,620 per

violation.

2. Allergan, Inc. case--The Respondent was charged with 412

violations of Sec. 787.6 for violating export controls on biological

agents. the fine was $824,000 or $2,000 per violation.

3. Sierra Rutil America, Inc. case--The Respondent was charged

with eight unlicensed exports of sodium fluoride to Sierra Leone

over a two year period in violation of Sec. 787.6. The settlement

resulted in a $30,000 fine or $3,750 per violation with half of the

fine remitted on probation. This case did not involve exports to

controlled or affiliated entities.

4. Herb Kimiatck and Kimson Chemical Inc. case--The Respondent

was charged with two counts of exporting sodium cyanide without a

validated license in violation of Sec. 787.6 and Sec. 787.4(a) of

the regulations. The fine was $20,000 or $10,000 per violation.

5. Snytex case--The Respondent was charged with 13 violations of

unlawfully exporting hydrogen fluoride in violation of Sec. 787.2.

The fine was $65,000 or $5,000 per violation. One half of the fine

was remitted for 2 years and then waived if there were no further

violations.

6. Palmeros Forwarding case--The Respondent was charged with 10

violations wherein it used export control documents which

represented that the Syntex hydrogen fluoride did not need export

licenses. The fine was $50,000 or $5,000 per violation with a two

year denial of export privileges. The fine was export privilege

denial were suspended on probation.

7. Villasana case--This case also arose out of the Syntex case,

The Respondent was charged with one count and fined $2500 and the

denial of export privileges. The fine and export privilege denial

were suspended on probation.

8. Chemicals Export Company of Boston case--The Respondent was

charged with four counts of exporting sodium cyanide without

[[Page 42650]]

a valid export permit in violation of Sec. 787.6. The fine was

$16,000 or $4,000 per violation.

9. Southern Information Systems case--The Respondent was charged

with five counts for the unlawful export of digital microwave

systems in violation of Sec. 787.6. The fine was $25,000 or $5,000

per violation.

10. Advanced Technology case--The Respondent was charged with

two counts of re-exporting electronic equipment from Belgium to

Russia without a permit in violation of Sec. 787.6. The fine was

$10,000 or $5,000 per violation.

11. LEP Profit International, Inc.--The Respondent were charged

with twelve counts of preparing shipping documents that contained

false information in violation of Sec. 0787.5(a). The fine was

$60,000 or $5,000 per violation. A portion of the penalty, $15,000,

was suspended for two years, then waived so long as LEP complies

with the export control regulations.

12. NF&M International Inc.--The Respondent were charged with

thirty-three violations for exporting titanium alloy products

without the necessary export licenses in violation of Sec. 787.6.

The fine was $82,500 or $42,500 per violation. The Department agreed

to suspend payment of $42,500 for one year and then to waive that

payment provided NF&M complies with export control regulations.

13. DATRAC AG--The Respondent was charged with one count for re-

exporting U.S.-origin data communications equipment from Switzerland

to Singapore without obtaining the required export license in

violation of Sec. 787.6. The fine was $2,500.

14. Lasertechnics Inc.--The Respondent in this case was charged

with thirty-six violations for exporting U.S.-origin thyratrons from

the United States to Hong Kong, Ireland, Malaysia, and Singapore

without obtaining the individual validated export licenses in

violation of Sec. 787.6. The fine was $180,000 or $5,000 per

violation. Pursuant to Sec. 766.18(c), the remaining balance of

$80,000 was suspended for three years and shall thereafter be

waived, provided that, during the period of suspension, the

Respondent has committed no violation of the Act, or any regulation,

order, or license issued thereunder.

15. President Titanium--The Respondent was charged with twenty-

five violations for exporting U.S.-origin titanium bars to various

countries without obtaining the required validate licenses in

violation of 787.6. The fine was $125,000 or $5,000 per violation.

Pursuant to Sec. 766.18(c), the remaining balance of $50,000 was

suspended for one year provided that, during the period of

suspension, the Respondent commit no violation of the Act, or any

regulation, order, or license issued thereunder.

16. Allvac--The Respondent was charged with forty-eight counts

for exporting titanium alloy solid cylindrical forms with diameters

greater than three inches from the United States to various

countries and exported maraging steel to Germany without the

required validated license in violation of Sec. 787.6. The fine was

$122,500 or $2,552 per violation. Pursuant to Sec. 766,18(c) payment

of the remaining balance of $47,500 was suspended for one year

provided that, during the period of suspension, the Respondent

commit no violation of the Act, or any regulation, order, or license

issued thereunder.

17. EC Company--The Respondent was charged with four violations

of making false or misleading statements on an export control

document; exported U.S.--origin spare parts from the United States

to Vietnam without validated license in violation of Sec. 787.6; and

two counts for exporting spare parts from the United States to

Singapore that Respondent knew would be re-exported from Singapore

to Vietnam in violation of Sec. 787.4(a). The fine was $8,000 or

$2,000 per violation.

I find the Respondent's argument regarding the previous

settlement of cases by BXA with lower civil penalty assessments to

be unpersuasive. Settlements are reached based upon the facts of

each case. These facts include the relative strengths and weaknesses

of each party's case; the desires of one or both sides to extricate

themselves from the litigation for whatever reason; and a

determination that such a settlement is a good business decision in

the case of a Respondent or satisfies the public interest in the

case of the government. Moreover, the reasons behind each party's

decision to enter into a settlement are rarely, if ever, made public

where foreign policy and/or national security issues are involved.

As the government points out, this phenomenon is especially true in

export cases (TR. 42).

During the Oral Argument in this matter, Counsel for the

government stated:

All parties in this courtroom know that citing a series of case

names and corresponding settlement figures knowing nothing of the

details of what actually transpired during the settlement

negotiations, much less any internal discussions of litigation

strategy or what not, is really not particularly helpful.

BXA does not maintain a rubric. It does not have a penalty matrix or

a cookie cutter into which to force every case it prosecutes.

Rather, each case is individually evaluated, and considerations that

apply in one, may not apply in another, or may not be given the same

impact depending on the facts of each case.

The Respondent argues in mitigation that it has no prior record

of violations. I find this argument is entitled to little or no

weight given the fact that for four and one-half years, the

Respondent committed one hundred violations of the EAR. Indeed, It

is not the prior record that is important here, but the aggravating

factor of 100 violations and the continuing course of conduct over

such a long period. Under this circumstance, I find that the

Respondent's actions constitute a gross and long standing neglect of

it's undisputed legal duty which totally outweighs the lack of a

prior record of violations.

As noted above, the government recommends a $7,500 civil penalty

assessment for each of the 100 violations. The Respondent argues for

a zero level of civil penalty. However, the Respondent states that

it would accept a nominal fine per violation under the suspension on

probation procedures. The Respondent also states that the

government's recommended sanction is close to the $10,000 maximum

and is therefore unreasonable. Indeed, it argues that if you look at

the cited cases that were settled, the maximum range should not

exceed $2,000 to $5,000. I disagree. Congress established a

statutory scheme which provided for a full panoply of penalties

ranging from federal prison time and/or severe monetary fines to

mere administrative action which could involve civil penalties,

denial of export privileges, exclusion from practice or any

combination thereof. When viewed in this context, it becomes readily

apparent that the government has recommended an unreasonably low

sanction (emphasis added).

Indeed, the government might well have opted to argue in a

criminal forum that ALCOA's conduct was so grossly negligent as to

constitute a willful disregard of federal law. In this case, the

amount of care demanded by the standard of reasonable conduct on the

part of the Respondent must be in proportion to the apparent risk.

As the danger becomes greater, the Respondent is required to

exercise caution commensurate with that increased risk. Since the

Respondent was dealing with precursors for chemical weapons, the

March 13, 1991 Federal Register Notice constructively put it on

notice that it must exercise a great amount of care because the risk

is great. It failed to do so.

Importantly, the government voluntarily lowered the sanction bar

all the way down to the level of an administrative civil penalty in

this case. That having been done, the Respondent argues that the

government is being harsh and should lower the bar further. In

effect, the Respondent is attempting to have the government

negotiate with itself. This is wrong. Based upon the detailed

discussion set forth above, I find the appropriate sanction for each

of these unlawful shipments is $10,000. The Respondent is a huge

multi-national corporation. As such, a $10,000 penalty per violation

is minuscule for ALCOA who describes itself as ``one of the world's

leading producers of aluminum.* * *''. At no time during this

proceeding, did ALCOA's counsel raise financial hardships for

mitigating any civil penalty. At some point, ALCOA has to stand up

and take responsibility for it's gross and long-standing breach of

legal duty. Conversely, the United States government must set its

civil penalties at a high enough level to insure that large multi-

national corporations don't ignore the law and if they get caught,

merely consider the fine as a cost of doing business.

Accordingly, it is ordered that Aluminum Company of America,

having been found by preponderant evidence to have one hundred

violations of the Export Administration Regulations, pay a civil

penalty in the amount of $10,000 per violation for a total of

$1,000,000. \1\

---------------------------------------------------------------------------

\1\ In addition to the arguments made herein as to the

appropriate amount of the monetary penalty for each violation in

this case, I hereby accept the arguments of the government as

reasonable to the extent they are not inconsistent with the rational

set forth in Section II, above. To the extent that the Respondent's

arguments as to sanction are inconsistent with the Recommended

Decision and Order, they are specifically rejected.

---------------------------------------------------------------------------

[[Page 42651]]

It is Further Ordered that a copy of this Recommended Decision

and Order shall be served on Aluminum Company of America and the

Department of Commerce in accordance with Sec. 778.16(b)(2) of the

Regulations.

Done and Dated on this 21sth day of December 1998, Alameda,

California.

Hon. Parlen L. McKenna,

United States Administrative Law Judge.

To be considered in the thirty (30) day statutory review process

which is mandated by 50 U.S.C.A. Sec. 2412(c) of the Act,

submissions must be received in the Office of the Under Secretary

for Export Administration, Bureau of Export Administration, U.S.

Department of Commerce, 14th & Constitution Ave., NW., Room H-3898,

Washington, DC 20230, within twelve (12) days. Replies to the other

party's submission are to be made within the following eight (8)

days (See 15 CFR 766.22(b) and 50 Fed. Reg. 53134 (1985)). Pursuant

to 50 U.S.C.A. Sec. 2412(c)(3) of the Act and 15 CFR 766.22(e) of

the Final Order of the Under Secretary may be appealed to the U.S.

Court of Appeals for the District of Columbia within fifteen (15)

days of its issuance.

[FR Doc. 99-19095 Filed 8-4-99; 8:45 am]

BILLING CODE 3510-DT-M