Order Making Denial of Export Privileges Applicable to a Related Person, 38294-38296 [2013-15272]

Agencies

• DEPARTMENT OF COMMERCE
• Bureau of Industry and Security

[Federal Register Volume 78, Number 123 (Wednesday, June 26, 2013)]
[Notices]
[Pages 38294-38296]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-15272]


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DEPARTMENT OF COMMERCE

Bureau of Industry And Security


 Order Making Denial of Export Privileges Applicable to a Related 
Person

    In the Matter of: Enterysys Corporation, with last known 
addresses of: 1307 Muench Court, San Jose, CA 95131, and Plot No. 
39, Public Sector, Employees Colony, New Bowenpally 500011, 
Secunderabad, India Respondent.
    Shekar Babu, a.k.a. Bob Babu, with last known addresses of: 1307 
Muench Court, San Jose, CA 95131, and c/o Enterysys Corporation, 
Plot No. 39, Public Sector, Employees Colony, New Bowenpally 500011, 
Secunderabad, India, Related Person.

    Pursuant to Section 766.23 of the Export Administration Regulations 
(``EAR'' or ``Regulations''),\1\ the Bureau of Industry and Security 
(``BIS''), U.S. Department of Commerce, through its Office of Export 
Enforcement (``OEE''), has requested that I make the denial order that 
was issued against Respondent Enterysys Corporation (``Enterysys'') on 
December 3, 2012, and published in the Federal Register on December 14, 
2012, and will remain in effect until December 14, 2022 (hereinafter 
the ``Denial Order''), applicable to the following individual as a 
person related to Enterysys:
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    \1\ The Regulations currently are codified at 15 CFR parts 730-
774 (2013). The Regulations issued pursuant to the Export 
Administration Act of 1979, as amended (50 U.S.C. app. 2401-2420 
(2000)) (the ``Act''). Since August 21, 2001, the Act has been in 
lapse and the President, through Executive Order 13,222 of August 
17, 2001 (3 CFR, 2001 Comp. 783 (2002)), which has been extended by 
successive Presidential Notices, the most recent being that of 
August 15, 2012 (77 F. 49,699 (Aug. 16, 2012)), has continued the 
Regulations in effect under the International Emergency Economic 
Powers Act (50 U.S.C. 1701, et seq. (2006 and Supp. IV 2010)).
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    Shekar Babu, a.k.a. Bob Babu, with last known addresses of: 1307 
Muench Court, San Jose, CA 95131, and, c/o Enterysys Corporation, Plot 
No. 39, Public Sector, Employees Colony, New Bowenpally 500011, 
Secunderabad, India.

I. Background

A. The Denial Order

    The Denial Order issued as part of the Final Decision and Order 
issued by the Under Secretary of Commerce for Industry and Security 
(``Under Secretary'') concluding a formal BIS administrative proceeding 
against Enterysys. In the Matter of Enterysys Corporation, 11-BIS-0005 
(Final Decision and Order dated Dec. 3, 2012, and published in the 
Federal Register on Dec. 14, 2012 (77 FR 74,458)). The Under Secretary 
affirmed the findings and conclusions contained in the Recommended 
Decision and Order issued by an Administrative Law Judge (``ALJ''), in 
which the ALJ found Enterysys in default, found the facts to be as 
alleged in the Charging Letter, and concluded that Enterysys had 
committed the sixteen (16) violations alleged in the Charging Letter.
    BIS served the Charging Letter on Enterysys at its last known 
addresses in California and India. On August 2, 2011, Shekar Babu sent 
an email to BIS's counsel acknowledging receipt of the Charging Letter, 
which had been sent to Enterysys marked to Babu's attention as 
President of the company. Eventually, Enterysys/Babu ceased 
communicating with BIS and Enterysys failed to answer the Charging 
Letter, requiring BIS to move for a default order.
    As alleged in the Charging Letter, determined by the ALJ, and 
affirmed by the Under Secretary, Enterysys engaged in the following 
conduct in violation of the Regulations:

Charge 1 15 C.F.R. Sec.  764.2(h)--Evasion

    In or about May 2006, Enterysys engaged in a transaction and 
took other actions with intent to evade the provisions of the 
Regulations. Through false statements to a U.S. manufacturer and 
freight forwarder, Enterysys obtained and exported to India twenty 
square meters of ceramic cloth, an item subject to the Regulations, 
classified under Export Control Classification Number (``ECCN'') 
1C010, controlled for National Security reasons, and valued at 
$15,460, without obtaining the required license pursuant to Section 
742.4 of the Regulations. Enterysys purchased the ceramic cloth from 
a U.S. manufacturer and arranged for the manufacturer to ship the 
item to a freight forwarder identified by Enterysys, knowing that a 
license was required for the export of the ceramic cloth to India. 
On or about May 1, 2006, when Enterysys asked that the U.S. 
manufacturer to ship the ceramic cloth to Enterysys's freight 
forwarder instead of directly to Enterysys, Enterysys was informed 
by the manufacturer that the material ``is a controlled commodity in 
terms of export to India,'' and the manufacturer asked Enterysys for 
assurance and a ``guarantee'' that the ceramic cloth would not be 
exported to India. In response, also on or about May 1, 2006, 
Enterysys stated, ``This is not going out of USA.'' In addition, in 
arranging for the purchase from the U.S. manufacturer, Enterysys 
asked the manufacturer not to put any packing list, invoice or 
certificate of conformance in the box with the ceramic cloth, but 
rather to fax the documents to Enterysys. Enterysys also arranged 
for its freight forwarder to ship the ceramic cloth to Enterysys in 
India. Once the manufacturer shipped the ceramic cloth to the 
freight forwarder identified by Enterysys, Enterysys provided the 
freight forwarder with shipping documentation on or about May 2, 
2006, including a packing list and invoice that falsely identified 
the ceramic cloth as twenty

[[Page 38295]]

square meters of ``used waste material'' with a value of $200. The 
ceramic cloth arrived at the freight forwarder on or about May 3, 
2006, and was exported pursuant to Enterysys's instructions to India 
on or about May 5, 2006. Enterysys undertook these acts to 
facilitate the export of U.S.-origin ceramic cloth to India without 
the required Department of Commerce license and to avoid detection 
by law enforcement. In so doing, Enterysys committed one violation 
of Section 764.2(h) of the Regulations.

Charge 2 15 C.F.R. Sec.  764.2(a)--Engaging in Prohibited Conduct by 
Exporting Ceramic Cloth to India without the Required License

    On or about May 5, 2006, Enterysys engaged in conduct prohibited 
by the Regulations by exporting to India twenty square meters of 
ceramic cloth, an item subject to the Regulations, classified under 
ECCN 1C010, controlled for National Security reasons and valued at 
$15,460, without the Department of Commerce license required 
pursuant to Section 742.4 of the Regulations. In so doing, Enterysys 
committed one violation of Section 764.2(a) of the Regulations.

Charges 3-13 15 C.F.R. Sec.  764.2(a)--Engaging in Prohibited Conduct 
by Exporting Electronic Components to a Listed Entity without the 
Required Licenses

    On eleven occasions between on or about August 12, 2005 and 
November 27, 2007, Enterysys engaged in conduct prohibited by the 
Regulations by exporting various electronic components, designated 
as EAR99 items \2\ and valued at a total of $38,527, from the United 
States to Bharat Dynamics Limited (``BDL'') in Hyderabad, India, 
without the Department of Commerce license required by Section 744.1 
and Supplement No. 4 to Part 744 of the Regulations. BDL is an 
entity that is designated in the Entity List set forth in Supplement 
No. 4 to Part 744 of the Regulations, and at all times pertinent 
hereto that designation included a requirement that a Department of 
Commerce license was required for all exports to BDL. In so doing, 
Enterysys committed eleven violations of Section 764.2(a) of the 
Regulations.
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    \2\ EAR99 is a designation for items subject to the Regulations 
but not listed on the Commerce Control List. 15 CFR 734.3(c) (2005-
07).
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Charge 14 15 C.F.R. Sec.  764.2(e)--Acting with Knowledge of a 
Violation

    On or about July 11, 2007, in connection with the transaction 
described in Charge 11, above, Enterysys ordered, bought, stored, 
transferred, transported and forwarded electronic components, 
designated as EAR99 items and valued at $8,644, that were to be 
exported from the United States to BDL in Hyderabad, India, with 
knowledge that a violation of the Regulations was about to occur or 
was intended to occur in connection with the items. Enterysys had 
knowledge that exports to BDL required authorization from the 
Department of Commerce because, in or around May 2007, Enterysys 
provided these items to a freight forwarder and was informed by the 
freight forwarder that items being exported to BDL required an 
export license and that BDL was on the Entity List. The freight 
forwarder also directed Enterysys to the BIS Web site. The freight 
forwarder then returned the items to Enterysys. Subsequently, 
Enterysys provided the items to a second freight forwarder for 
export to BDL even though Enterysys knew that an export license was 
required and had not been obtained. In so doing, Enterysys committed 
one violation of Section 764.2(e) of the Regulations.

Charges 15-16 15 C.F.R. Sec.  764.2(e)--Acting with Knowledge of a 
Violation

    On two occasions on or about November 7, 2007 and November 27, 
2007, in connection with the transactions described in Charges 12 
and 13, above, Enterysys ordered, bought, stored, transferred, 
transported and forwarded electronic components, designated as EAR99 
items and valued at $11,266.85, that were to be exported from the 
United States to BDL in Hyderabad, India, with knowledge that a 
violation of the Regulations was about to occur or was intended to 
occur in connection with the items. Enterysys had knowledge that 
exports to BDL required authorization from the Department of 
Commerce because, in or around May 2007, Enterysys was informed by a 
freight forwarder that items being exported to BDL required a 
license and that BDL was on the Entity List. The freight forwarder 
also directed Enterysys to the BIS Web site. Subsequently, Enterysys 
wrote an email on or about October 11, 2007, to the Department of 
Commerce requesting guidance about license requirements to BDL, and 
in response was provided with a copy of the Entity List, advised, 
among other things, that all exporting companies need to check 
transactions against certain lists, and provided with a link to such 
lists on the BIS Web site. Thereafter, on October 24, 2007, 
Enterysys's President Shekar Babu wrote an email stating that he was 
``working directly with US Govt on the export license'' and that the 
license would ``take a month.'' Nevertheless, Enterysys did not 
apply for or obtain the required export license. In so doing, 
Enterysys committed two violations of Section 764.2(e) of the 
Regulations.

    As noted in Final Decision and Order, the ``ALJ also recommended 
that the Under Secretary deny Enterysys's export privileges for a 
period of ten years, citing, inter alia, Enterysys's `evasive and 
knowing misconduct and . . . series of unlawful exports,' including 
`deliberate efforts to evade the Regulations in connection with the 
export of . . . an item controlled for national security reasons,' and 
its three similar `knowledge violations in connection with the 
unlicensed export of electronic components to BDL.' '' Final Decision 
and Order, at 74,460 (quoting Recommended Decision and Order at 15-16). 
The ALJ further noted that ``Respondent's misconduct exhibited a severe 
disregard for the Regulations and U.S. export controls and a monetary 
penalty is not likely to be an effective deterrent in this case.'' Id. 
(quoting Recommended Decision and Order at 17-18).
    The Under Secretary agreed with this recommendation and imposed the 
Denial Order given, inter alia, the nature and number of the violations 
and the importance of deterring Enterysys and others from acting to 
evade the Regulations and otherwise knowingly violate the Regulations. 
Id. at 8.

B. Related Person's Notice Letter

    This matter is now before me upon BIS's request to add Shekar Babu 
to the Denial Order as a related person to Enterysys.\3\
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    \3\ I have been designated by the Under Secretary as the 
authorized official to consider BIS's request under Section 766.23 
of the Regulations. See 15 CFR 766.23(b).
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    Pursuant to the Regulations, BIS notified Shekar Babu of its intent 
to add him as a person related to Enterysys by ownership, control, 
position of responsibility, affiliation, or other connection in the 
conduct of trade or business, in light of his position as President of 
Enterysys. This notice was provided by letter on February 13, 2013, 
sent in accordance with Sections 766.5(b) and 766.23(b) of the 
Regulations.
    Shekar Babu never responded.

II. Application of Section 766.23 (Related Persons)

A. Legal Standard

    Section 766.23(a) of the Regulations provides, in pertinent part, 
that:

    In order to prevent evasion, certain types of orders under [Part 
766] may be made applicable not only to the respondent, but also to 
other persons then or thereafter related to the respondent by 
ownership, control, position of responsibility, affiliation, or 
other connection in the conduct of trade or business. Orders that 
may be made applicable to related persons include those that deny or 
affect export privileges, including temporary denial orders, and 
those that exclude a respondent from practice before BIS.

15 CFR 766.23(a). Thus, a denial order may be made applicable to 
related persons, by adding them to the denial order at issue, in order 
to prevent evasion of the order. Id.

B. Findings

    Based on the record here, I find that Shekar Babu is a related 
person to Enterysys and that he should be added to the Denial Order in 
order to prevent its evasion. Babu is the President of Enterysys. In 
addition, he was personally involved in at least some of the 
transactions and violations that led to the issuance of the Denial 
Order

[[Page 38296]]

against Enterysys, including knowledge and evasion violations.
    As stated in the knowledge violations set forth in Charges 15-16 of 
the Charging Letter, Babu falsely stated in connection with Enterysys's 
planned export of electronic components to Bharat Dynamics Limited 
(``BDL''), an Indian entity on BIS's Entity List at all pertinent 
times, that he was ``working directly with US Govt on the export 
license'' and that the license would ``take a month.'' In reality, as 
also set forth in Charges 12-13, neither Babu nor Enterysys ever 
applied for or obtained the required export licenses, and during the 
course of the following five weeks, two unlawful exports of the items 
were made to BDL. Overall, while operating under Babu's management, 
Enterysys made eleven (11) unlawful exports to BDL, see Charges 3-13, 
which was placed on the Entity List in 1998 through a rule published in 
the Federal Register establishing an entity-specific license 
requirement for certain entities, including BDL, that were ``determined 
to be involved in nuclear or missile activities.'' See India and 
Pakistan Sanctions and Other Measures, 63 FR 64,322 (Nov. 19, 1998).\4\
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    \4\ BDL remained on the Entity List at all times pertinent to 
this case, and in fact until January 25, 2011, more than three years 
after Enterysys's violations at issue here, which occurred between 
August 12, 2005 and November 27, 2007. See U.S.-India Bilateral 
Understanding: Revisions to U.S. Export and Reexport Controls Under 
the Export Administration Regulations, 76 FR 4,228 (Jan. 25, 2011).
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    Charge 1 involved similar conduct by Babu. As set forth in Charge 
1, through false statements to a U.S. manufacturer and freight 
forwarder, Enterysys obtained and exported to India ceramic cloth, an 
item controlled under the Regulations for National Security reasons, 
without obtaining the required BIS export license. The manufacturer 
asked Enterysys for assurance and a ``guarantee'' that the ceramic 
cloth would not be exported to India. In response, on or about May 1, 
2006, the U.S. manufacturer received an email from Enterysys stating, 
``This is not going out of USA.'' I have been provided with a copy of 
this email, originally obtained by BIS's Office of Export Enforcement, 
with regard to the instant related person's request. Although he is not 
identified by name in Charge 1, the email was sent from Mr. Babu's 
Enterysys email address. Within days of this email, and pursuant to 
Enterysys's instructions to its freight forwarder, the item was 
exported to India without a license. See Charges 1-2.
    Based on the foregoing and the record as a whole in this matter, I 
find that Shekar Babu is a person related to Enterysys by ``ownership, 
control, position of responsibility, affiliation, or other connection 
in the conduct of trade or business'' pursuant to Section 766.23 of the 
Regulations, and that the Denial Order against Enterysys Corporation, 
which will remain in effect until December 14, 2022, should be made 
applicable to Shekar Babu in order to prevent evasion of that order.

III. Order

    It is therefore ordered:
    First, that from the date this Order is published in the Federal 
Register, until December 14, 2022, Shekar Babu, also known as Bob Babu, 
located at the following addresses: 1307 Muench Court, San Jose, CA 
95131; and c/o Enterysys Corporation, Plot No. 39, Public Sector, 
Employees Colony, New Bowenpally 500011, Secunderabad, India 
(hereinafter referred to as ``Denied Person'') may not participate, 
directly or indirectly, in any way in any transaction involving any 
commodity, software or technology (hereinafter collectively referred to 
as ``item'') exported or to be exported from the United States that is 
subject to the Regulations, or in any other activity subject to the 
Regulations, including, but not limited to:
    A. Applying for, obtaining, or using any license, License 
Exception, or export control document;
    B. Carrying on negotiations concerning ordering, buying, receiving, 
using, selling, delivering, storing, disposing of, forwarding, 
transporting, financing, or otherwise servicing in any way, any 
transaction involving any item exported or to be exported from the 
United States that is subject to the Regulations, or in any other 
activity subject to the Regulations; or
    C. Benefiting in any way from any transaction involving any item 
exported or to be exported from the United States that is subject to 
the Regulations, or in any other activity subject to the Regulations.
    Second, that no person may, directly or indirectly, do any of the 
following:
    A. Export or reexport to or on behalf of the Denied Person any item 
subject to the Regulations;
    B. Take any action that facilitates the acquisition or attempted 
acquisition by the Denied Person of the ownership, possession, or 
control of any item subject to the Regulations that has been or will be 
exported from the United States, including financing or other support 
activities related to a transaction whereby the Denied Person acquires 
or attempts to acquire such ownership, possession or control;
    C. Take any action to acquire from or to facilitate the acquisition 
or attempted acquisition from the Denied Person of any item subject to 
the Regulations that has been exported from the United States;
    D. Obtain from the Denied Person in the United States any item 
subject to the Regulations with knowledge or reason to know that the 
item will be, or is intended to be, exported from the United States; or
    E. Engage in any transaction to service any item subject to the 
Regulations that has been or will be exported from the United States 
and which is owned, possessed or controlled by the Denied Person, or 
service any item, of whatever origin, that is owned, possessed or 
controlled by the Denied Person if such service involves the use of any 
item subject to the Regulations that has been or will be exported from 
the United States. For purposes of this paragraph, servicing means 
installation, maintenance, repair, modification or testing.
    Third, that, after notice and opportunity for comment as provided 
in Section 766.23 of the Regulations, any person, firm, corporation, or 
business organization related to the Denied Person by affiliation, 
ownership, control, or position of responsibility in the conduct of 
trade or related services may also be made subject to the provisions of 
this Order.
    Fourth, that this Order does not prohibit any export, reexport, or 
other transaction subject to the Regulations where the only items 
involved that are subject to the Regulations are the foreign-produced 
direct product of U.S.-origin technology.
    Fifth, that this Order shall be served on the Denied Person and on 
BIS, and shall be published in the Federal Register.
    This Order is effective upon publication in the Federal Register 
and shall remain in effect until December 14, 2022.

     Entered this 19th day of June 2013.
David W. Mills,
Assistant Secretary of Commerce for Export Enforcement.
[FR Doc. 2013-15272 Filed 6-25-13; 8:45 am]
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