On September 28, the US Department of Commerce and the Bureau of Industry and Safety (BIS) announced that they had imposed a civil fine and denial of export privileges on Vorago Technologies (Vorago) for unauthorized export of controlled products to Russia.
Vorago is an American manufacturer of integrated circuits intended for use in environments with high radiation levels and extreme temperatures. The company’s products are particularly well suited for use in space. The BIS is the primary U.S. government agency that administers and enforces U.S. export controls on commercial items, including particularly stringent licensing requirements on items that may be used with weapons of mass destruction or conventional weapons.
According to BIS, Vorago has engaged in a conspiracy with a Russian company, Cosmos Complect (Cosmos), to circumvent US export controls. To resolve the matter, Vorago agreed to the following:
- A penalty of $ 497,000, and
- Denial of export privileges until September 2023.
Denial of export privileges and approximately half of the penalty will be suspended as long as Vorago complies with the terms of the settlement.
Exports made without an export license required due to US restrictions on Russia
In the spring of 2014, Vorago’s VP of International Sales emailed Vorago CEO and other employees about Cosmos and arranged a meeting between Vorago and Cosmos executives in the United States. At this meeting, Cosmos discussed the purchase of 16MB Random Access Memory (SRAM) chips from Vorago.
Since SRAM pads have military and space applications, an export license is required to export them to many destinations, including Russia. Since 2014, when Russia invaded Ukraine’s Crimea region, the United States has maintained significant restrictions on Russia’s export, especially on exports for potential military application. See for example our previous blog posts from September 2018, September 2016 and December 2015.
After the first meeting, Vorago learned that Cosmos was looking to buy a Bulgarian company and move its business to Bulgaria to avoid US restrictions on exports to Russia. By the end of 2014, Cosmos had created a company, Multi Technology Integration Group (MTIG), in Bulgaria, with the stated objective of using SRAM inserts to build heavy machinery for use in the European Union.
Products shipped to Bulgaria have been transferred to Russia
Vorago started selling and shipping SRAM pads to MTIG in Bulgaria. According to BIS, however, on numerous internal Vorago documents, Cosmos was listed as the end customer for these products.
At the end of 2015, Cosmos asked Vorago if the SRAM brake pads purchased by MTIG could be shipped directly from the United States to Moscow. The CEO of Vorago responded that SRAM pads need to be shipped to Bulgaria for export control reasons. Despite this, the relationship between Vorago and Cosmos, via MTIG, continued until 2019. A joint BIS and FBI investigation uncovered the scheme in 2020.
Indirect exports are controlled like direct exports
This case recalls that under the Export Administration Regulations (EAR), “the export of an article which will transit through one or more countries to a destination identified in the EAR is considered as an export to that destination”. In the Vorago case, the final destination was clearly Russia and a license was required to export these SRAM pads to Russia. As stated in the settlement agreement, SRAM pads are vetted due to their ideal use in space applications.
The suspension of part of the monetary fine and the denial of export privileges were in part due to a no-prosecution agreement reached in 2020 between Vorago and the United States Department of Justice (DOJ). The MTIG, Cosmos and individuals associated with the companies were added to the list of BIS entities after indictment by the DOJ. For more information on these actions, see the DOJ press release, available here.
The case is also a reminder that the BIS is working with the FBI to identify violations. This enforcement action clearly shows that BIS will detect AEOI violations no matter where they occur.
Our International Trade Practice Group works closely with US and non-US companies to help them understand and comply with US export requirements. We also regularly represent companies in government investigations into exports, sanctions and other trade compliance issues.
We would like to thank forensic scientist Ramon Ryan for his valuable contributions to this article.