On September 15, 2009, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS), the agency responsible for administering export controls regarding dual use and commercial items, announced that it had issued a $176,000 administrative penalty against five foreign subsidiaries of Thermon Manufacturing, Inc. (Thermon) of San Marcos, Texas. According to BIS’ press release, the Thermon subsidiaries, on a number of occasions and without the required BIS licenses, reexported or caused the export of U.S.-origin EAR99 heat tracing equipment manufactured by Thermon to Iran, Syria, Libya, and certain sanctioned parties in India. [1]

The EAR99 classification is a basket category that includes any item not listed in Supplement No. 1 to 15 C.F.R. Part 774, the Commerce Control List. In general, items classified as EAR99 are subject to minimal controls, and may be exported or reexported to most destinations without a license. However, for sanctioned countries like Iran, Syria, and (at the time of the violations) Libya, a BIS license is often required, even for items classified as EAR99. In addition, even for EAR99 items, a license is required before exports or re-exports can be made to entities identified on BIS’ Entity List. The five Thermon subsidiaries failed to obtain the required licenses for these destinations and end-users, apparently without the knowledge of and contrary to the instructions of their parent company, Thermon.

The Thermon case continues a trend on the part of BIS and at least one of its sister agencies, the U.S. Department of the Treasury’s Office of Foreign Assets Control, to impose penalties directly upon the non-U.S. entity engaged in the violation, rather than on the U.S. affiliates who were unknowing participants in a prohibited transaction. This case is also significant because BIS exercised its extraterritorial jurisdiction over U.S.-origin commodities to penalize five non-U.S. companies (but not their U.S. parent). For this reason, U.S.-based companies with overseas affiliates should use the Thermon case as an illustrative tool in implementing a company-wide export compliance program.