Worldwide: BIS Takes Enforcement Action Against US Companies Under Investigation For Export Of Technical Drawings To China

On June 7, the Department of Commerce's Bureau of Industry and Security ("BIS") issued a Temporary Denial Order ("TDO") suspending the export privileges of three US companies, Quicksilver Manufacturing, Inc.; Rapid Cut, LLC; and US Prototype, Inc., for 180 days due to the export of technical drawings and 3D graphic and computer aided drawing files for controlled items to China.¹ The TDO, which may be extended, blocks all three companies from participating in any transaction involving a commodity, software, or technology exported from the US that is subject to the Export Administration Regulations ("EAR"). As BIS noted, TDOs are one of "the most significant civil sanctions BIS can issue, cutting off not only the right to export items subject to the EAR from the US, but also to receive or participate in exports from the US or reexports of items subject to the EAR."²

The Prohibited Activity

The first violation occurred in 2017, when an unidentified US company contracted with Quicksilver to produce satellite parts. The US company provided Quicksilver with "approximately a dozen technical drawings and 3D graphic/computer aided drawing files" of items subject to the EAR with a presumption of denial licensing policy for China.³ Quicksilver then provided the drawings to a Chinese entity for production. When the unnamed US Company received the satellite parts made using the technical drawings, the shipping label and pro forma invoice indicated that the goods were delivered from China.⁴

Rapid Cut, which shares location, ownership, and operating personnel with Quicksilver, engaged in a similar transaction in May 2021, when it sent technical drawings of controlled rocket platform testing equipment, which was subject to a presumption of denial licensing policy for China, to China for manufacturing.

Quicksilver engaged in a similar transaction in March 2020, when it sent technical drawings and computer aided design files to China for items subject to the U.S. Munitions List ("USML") to China for manufacturing.

US Prototype was included in the TDO because it shares the same US mailbox address as Quicksilver and Rapid Cut, and the president of US Prototype was involved in the illegal transactions, according to documents examined by BIS.

After issuing the enforcement action, Assistant Secretary for Export Enforcement Matthew Axelrod provided a brief statement reading, "Outsourcing 3-D printing of space and defense prototypes to China harms US national security. By sending their customers' technical drawings and blueprints to China, these companies may have saved a few bucks, but they did so at the collective expense of protecting US military technology."⁵ Assistant Secretary Axelrod's statement indicates that more actions of its kind may be coming. This serves as a good reminder to companies whose businesses have US ties that US export controls not only extend to international movements of goods, but it also controls the export and reexport (including deemed export and deemed reexport) of software, technology and, sometimes, services. Technical drawings may very well be technology subject to the EAR or USML, when the legal definition is met.

Footnotes

1. US Department of Commerce, Order Temporarily Denying Export Privileges: Quicksilver Manufacturing, Inc., Rapid Cut LLC, US Prototype, Inc. (June 7, 2022),  https://efoia.bis.doc.gov/index.php/documents/export-violations/export-violations-2022/1372-quicksilver-tdo-final-6-7-2022/file (hereinafter Quicksilver et al. TDO).

2. Press Release, Temporary Denial Order Issued for Illegal Export of Satellite, Rocket, and Defense Technology to China, Bureau of Industry & Security, US Dep't of Commerce (June 8, 2022),  https://www.bis.doc.gov/index.php/documents/about-bis/newsroom/press-releases/3023-2022-06-08-bis-press-release-quicksilver-rapid-cut-and-us-prototype-tdo/file (hereinafter BIS Press Release).

3. Quicksilver et al. TDL, at 3-4.

4. Id. at 5.

5.  BIS Press Release.

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2020. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.