On September 28, the U.S. Commerce Department, Bureau of Industry and Security (BIS) announced that it has imposed a civil penalty fine and denial of export privileges against Vorago Technologies (Vorago) for the unauthorized export of controlled commodities to Russia.
Vorago is a U.S. manufacturer of integrated circuits for use in environments with high radiation levels and extreme temperatures. The company’s products are particularly well suited for use in space. BIS is the primary U.S. government agency that administers and enforces U.S. export controls on commercial items, including particularly strict licensing requirements on items that can be used with weapons of mass destruction or conventional weapons.
According to BIS, Vorago engaged in a conspiracy with a Russian company, Cosmos Complect (Cosmos), to circumvent U.S. export controls. To settle the matter, Vorago agreed to the following:
The denial of export privileges, and roughly half of the penalty, will be suspended as long as Vorago complies with the terms of the settlement.
In the spring of 2014, Vorago’s VP of International Sales emailed Vorago’s CEO and other employees about Cosmos, and arranged a meeting between Vorago and Cosmos’ leaders in the United States. At that meeting, Cosmos discussed buying 16Mb Status Random-Access Memory (SRAM) wafers from Vorago.
Because SRAM wafers have military and space applications, an export license is required to export them to many destinations, including Russia. Since 2014, when Russia invaded the Crimea region of Ukraine, the United States has maintained significant export restrictions on Russia, especially with respect to exports for a potential military application. See for example our prior blog posts from September 2018, September 2016 and December 2015.
After the initial meeting, Vorago became aware that Cosmos sought to purchase a Bulgarian company and move its operations to Bulgaria to avoid U.S. export restrictions to Russia. By the end of 2014, Cosmos had created a company, Multi Technology Integration Group (MTIG), in Bulgaria, with the stated goal of using the SRAM wafers to build heavy machinery for use in the European Union.
Vorago began selling and shipping SRAM wafers to MTIG in Bulgaria. According to BIS, however, on many of Vorago’s internal documents, Cosmos was listed as the ultimate customer for these products.
By the end of 2015, Cosmos was asking Vorago if the SRAM wafers purchased by MTIG could be shipped directly from the United States to Moscow. Vorago’s CEO replied that the SRAM wafers had to be shipped to Bulgaria for export control reasons. Despite this, the relationship between Vorago and Cosmos, through MTIG, continued until 2019. A joint investigation by BIS and the FBI revealed the scheme in 2020.
This matter is a reminder that, under the Export Administration Regulations (EAR), “the export of an item that will transit through a country or countries to a destination identified in the EAR is deemed to be an export to that destination.” In the Vorago case, the final destination was clearly Russia and a license was required to export these SRAM wafers to Russia. As stated in the settlement agreement, SRAM wafers are controlled because of their ideal use in space applications.
The suspension of a portion of the monetary fine and the denial of export privileges was in part due to a 2020 non-prosecution agreement between Vorago and the U.S. Department of Justice (DOJ). MTIG, Cosmos, and individuals associated with the companies were added to the BIS Entity List upon indictment by DOJ. For more information on those actions, see the DOJ press release, available here.
The matter also is a reminder that BIS works with the FBI to identify violations. This enforcement action makes clear that BIS will ferret out violations of the EAR no matter where they occur.
Our International Trade Practice Group works closely with U.S. and non-U.S. companies to help them understand and comply with U.S. export requirements. We also regularly represent companies in government investigations of export, sanctions, and other trade compliance issues.
We would like to thank law clerk Ramon Ryan for his valuable contributions to this article.
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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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