MTS Gets $400,000 Penalty for Lying on Export License Applications

Have you ever been in a meeting where you are gathering information to put together a license application, and one of your engineers or sales people says, “Don’t put that information in the application.” That will make the government deny the license.” Well, as you know, if you fail to include in an application certain information that would make the government deny the application, you probably are “omitting materials facts,” or as we say out here in my mountains, “lying.” Here is a story that validates that lying on an application can get you in trouble if the government finds out.

A Minnesota-based test system manufacturer, MTS Systems Corp. agreed to plead guilty to violating US export laws. The company submitted two false export license applications for exports to India. MTS now has to pay $400,000 penalty, implement a model export compliance program, and be on probation for two years.

Here is the story of the two “false” applications:

In Nov. 21, 2002, MTS received an inquiry to purchase its equipment from the Electrical Research and Development Association (ERDA), located in India. A MTS representative in India then confirmed to MTS employees that ERDA would be using the MTS equipment for testing nuclear power plant components. MTS, therefore, was required to obtain an export license from the Commerce Department. MTS did not initially apply for a license because the MTS employee in charge of export compliance stated that it was “extremely unlikely” that it would be approved unless the customer could make a “strong and convincing” argument that this test system would not and could not make a significant contribution to India’s nuclear energy programs. Neither the customer nor MTS ever attempted to make this argument to the Commerce Department.

On Jan. 13, 2003, MTS received a follow-up inquiry from its representative in India, which included an end- use statement provided by ERDA that did not reflect MTS’s already-existing corporate knowledge of a nuclear end-use. On March 20, 2003, MTS electronically filed a license application stating the end-use was “for seismic vibration testing facility to test motors and other electronic equipment under earthquake conditions.” The license application did not reflect the corporate knowledge or suspicion of nuclear end-use based on the initial end use information. Leaving out that key detail, “made the application false,” according to the US Government.

The plea agreement also highlights a separate second offense. Prior to Nov. 14, 2003, MTS was aware that the Structural Engineering Research Center (SERC) in India was seeking to purchase approximately $3 million of seismic testing equipment from MTS, and that at least some of SERC’s funding was being provided by India’s Department of Atomic Energy (DAE), which is an entity prohibited by the U.S. government from receiving U.S. exports without an export license. At least one MTS representative believed that SERC might use the MTS equipment to test nuclear power plant systems in India. On Nov. 14, 2003, MTS electronically submitted to the Commerce Department a license application for the sale noting that support documents would follow. MTS provided an end-use statement, based on a letter provided by SERC, which said the system would be used only for testing prototype components and other non-nuclear uses. The license application did not state that SERC was receiving funding from India’s DAE or the possibility of a nuclear end-use. Not telling Commerce about the DAE funding and possible nuclear end-use “made the application false.” The US Government emphasized that MTS did not reveal the possible nuclear end-use information in either the initial application or its is later correspondence with the Commerce Department when MTS tried to rebut a letter from the Commerce Department indicating its intent to deny the application for SERC because it “would pose a risk of diversion to a prohibited nuclear end use.”

More information:

• News Release (PDF)