The D.C Circuit Court of Appeals sits in a unique position as the primary reviewing court for federal government agency actions. As a result, the D.C. Circuit sits in a high-profile position and several judges have eventually ended up at the Supreme Court.
Given the rising importance and enforcement of export sanctions and controls, the D.C. Circuit Court is addressing important issues on appeal relating to the Department of Commerce Bureau of Industry and Security (“BIS”) and the Department of Treasury Office of Foreign Asset Control (“OFAC”). Five years ago, the DC Circuit issued an important decision in Epsilon Electronics v. United States Department of Treasury, affirming OFAC’s broad enforcement authority over transshipment liability for exports by third-party distributors to prohibited countries.
In a recent decision, the DC Circuit Court rejected a challenge by Federal Express (“FedEx”) to the Commerce Department BIS’s authority to impose civil penalties for strict liability violations of export regulations. FedEx claimed that BIS crossed the ultra vires line by interpreting regulations “to hold common carriers strictly liable for aiding and abetting and causing export violations.” Opinion at 17.
The origins of the case stems from a series of BIS enforcement actions against FedEx in 2011 and 2017. In 2011, FedEx was charged with violating the Export Administration Regulations prohibiting exports to Syria, and paid a penalty of approximately $370,000. Six years later, in 2017, FedEx was charged again for violating export controls by facilitating export of civil aircraft equipment to France and Pakistan, and settled by paying a penalty of $500,000. In 2019, FedEx challenged BIS authority in federal court. The DC District Court dismissed FedEx’s suit and FedEx appealed.
The DC Circuit Court reviewed the 2018 Export Controls Act which prescribes criminal and civil penalties for export control violations. Criminal penalties are prescribed for anyone “who willfully commits, willfully attempts to commit, or willfully conspires to commit, or aids and abets in the commission of [an export control violation].” Civil penalties may be imposed for each violation of the Act or any regulation, order or license issued under the Act. The civil penalty provisions were amended in 1980 to remove the requirement for a “knowing” violation.
In rejecting FedEx’s challenge, the DC Circuit ruled that FedEx was unable to bring a challenge to BIS’ authority under the Administrative Procedure Act because appellate review of BIS’ authority was foreclosed by Congress in the Export Control Act. As a result, FedEx had to bring an ultra vires challenge and satisfy the standard for such a challenge — that BIS’ action was a blatant error and therefore beyond its statutory authority.
The Court noted further that BIS’s civil standard which omitted any mens rea requirement fell squarely within Commerce’s statutory authority as provided that “no person may cause or aid, abet, counsel, command, induce, procure, permit or approve the doing of any act prohibited, or the omission of any act required by” export control laws.
The DC Circuit Court explained that Congress clearly distinguished between criminal and civil liability under the Export Control Act. Criminal violations required a mental state of “willfully . . . aids and abets in the commission of an unlawful act.” With respect to civil violations, the statute is silent as to any mens rea requirements. Opinion at 18.
Beyond the statutory text, the DC Circuit Court cited circuit precedent and deference to the Executive Branch in matters of national security and foreign affairs” as supporting BIS’s authority in this area, noting that the issues “lie at the heart of the United States’ national security and foreign policy interests.”
Given the extent of this deference, the DC Circuit Court concluded that it would be “hard-pressed” to hold that the law plainly forecloses [BIS] from interpreting its regulation to strike the mens rea balance in favor of protecting the Nation’s security.”