Notice2023-06920
Order Relating to Kenneth Scott, Scott Communications, Inc., and Mission Communications, LLC; In the Matter of: Scott Communications, Inc., 61574 Hillside Road, St. Ignatius, MT 59865; Mission Communications, LLC, 61574 Hillside Road, St. Ignatius, MT 59865; Kenneth Peter Scott, 61574 Hillside Road, St. Ignatius, MT 59865; Respondents
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
April 4, 2023
Issuing agencies
Commerce DepartmentIndustry and Security Bureau
Full Text
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<title>Federal Register, Volume 88 Issue 64 (Tuesday, April 4, 2023)</title>
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[Federal Register Volume 88, Number 64 (Tuesday, April 4, 2023)]
[Notices]
[Pages 19913-19916]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-06920]
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DEPARTMENT OF COMMERCE
Bureau of Industry and Security
[Case No. 22-BIS-0007]
Order Relating to Kenneth Scott, Scott Communications, Inc., and
Mission Communications, LLC; In the Matter of: Scott Communications,
Inc., 61574 Hillside Road, St. Ignatius, MT 59865; Mission
Communications, LLC, 61574 Hillside Road, St. Ignatius, MT 59865;
Kenneth Peter Scott, 61574 Hillside Road, St. Ignatius, MT 59865;
Respondents
The Bureau of Industry and Security, U.S. Department of Commerce
(``BIS''), has notified Scott Communications, Inc. and Kenneth Scott
(collectively ``Scott''), as well as Mission Communications, LLC
(``Mission'') of St. Ignatius, Montana (``Respondents''), that it has
initiated an administrative proceeding against them pursuant to section
766.3 of the Export Administration Regulations (the
``Regulations''),\1\ through the issuance of a Charging Letter alleging
that Respondents committed five violations of the Regulations.
Specifically:
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\1\ The Regulations originally issued under the Export
Administration Act of 1979, as amended, 50 U.S.C. 4601-4623 (Supp.
III 2015) (``the EAA''), which lapsed on August 21, 2001. 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, continued the Regulations in full force and
effect under the International Emergency Economic Powers Act, 50
U.S.C. 1701, et seq. (2012) (``IEEPA''). On August 13, 2018, the
President signed into law the John S. McCain National Defense
Authorization Act for Fiscal Year 2019, which includes the Export
Control Reform Act of 2018, 50 U.S.C. 4801-4852 (``ECRA''). While
section 1766 of ECRA repeals the provisions of the EAA (except for
three sections which are inapplicable here), section 1768 of ECRA
provides, in pertinent part, that all rules and regulations that
were made or issued under the EAA, including as continued in effect
pursuant to IEEPA, and were in effect as of ECRA's date of enactment
(August 13, 2018), shall continue in effect until modified,
superseded, set aside, or revoked through action undertaken pursuant
to the authority provided under ECRA.
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General Allegations
1. In or about March 2017, a Federal Bureau of Investigations
(``FBI'') Special Agent working in an undercover capacity (the ``UC'')
contacted Kenneth Scott via email. The UC used an email address
identified from a trade magazine advertisement in which Scott
Communications advertised various communications equipment for sale.
During the course of the sales negotiations with the UC, Scott was
acting on behalf of Scott Communications, Inc. For example, the
advertisement also included a telephone and fax number for ``Ken
Scott.'' A 2017 Better Business Bureau business profile further
identified Kenneth Scott as the president of Scott Communications, Inc.
In addition, in his email communications with the UC, as well in his
social media profiles, Kenneth Scott identified himself as the
President of Scott Communications.
2. On or about March 16, 2017, the UC sent Scott an email titled
``Motorola Radio Quote Request.'' In the email, the UC requested a
price quote for two Motorola XTS 2500, 800 or 900 Mhz radios. The UC
also told Scott that, after the initial order of two radios, he
intended to follow up with a larger order. The UC also asked Scott
about shipping to Iran and later informed Scott that he intended to
transship the radios from Jordan to Iran. Scott ultimately agreed to
ship the radios to Jordan with knowledge that they would then be
transshipped to Iran.
3. Specifically, on or about March 21, 2017, the UC emailed Scott
asking him to: Please provide me with your competitive shipping price
to Jordan. My customer will test the units there. For the second order,
it would be very valuable to me if you can ship directly to my customer
in Iran. I want to continue business with you and this would be very
helpful because as you know my customer cannot purchase directly from
the United States. If you are able to get the units to Iran we will
negotiate your fees in addition to the price for radios and your
shipping rates. If you can only get the radios close, we can determine
an appropriate fee.
4. In response, Scott stated: I have never shipped to IRAN, and the
way the politics here are concerned, I would guess not. Where else
could we ship them to, [p]rior to them going to IRAN. Do you have a
broker here in the US?''
5. The following day, the UC responded with: Unfortunately, I do
not have a US based broker. I understand that due to the sanctions the
US has against Iran one cannot ship goods from the US directly to that
country. If you can ship the radios to Jordan I can transship them to
my customer in Iran. Please provide me with a quote for shipping the
two radios to Jordan.
6. The UC also discussed possible shipments to Singapore. Scott
ultimately advised that shipping via
[[Page 19914]]
DHL to Jordan would cost $250 and indicated that the price would remain
the same if the UC preferred Singapore. On or about March 22, 2017,
Scott emailed an invoice to the UC, listing two Motorola XTS 2500
radios valued at $850 each, for a total product cost of $1700, with
shipping valued at $250. On or about March 28, 2017, the UC advised
Scott via email that he was ready to proceed with the order and
reiterated again that the ultimate consignee was located in Iran.
7. On or about April 15, 2017, the UC reached out to Scott and
informed him that, after speaking to his customer in Iran, the customer
expected the radios to be loaded with 256-Bit AES Encryption. Scott
indicated that he did not provide encryption but advised that the
customer could program the radios himself if he had the software. The
UC agreed to proceed with the sale but asked Scott about the
availability of other models that could be loaded with 256-bit AES
encryption and stated that encrypted radios were more difficult to
procure. The UC then proceeded to share emails from his purported
customer in Iran with Scott, again reiterating that the ultimate end-
user was located in Iran. On or about April 17, 2017, Scott emailed the
UC with suggestions on how to procure the necessary equipment to load
the radios with 256-bit AES encryption.
8. Following additional emails in which the UC again advised Scott
that the ultimate end-user was located in Iran and that the radios
would be transshipped from Jordan to Iran, Scott proceeded with the
sales transaction. On or about June 7, 2017, Scott provided the UC with
the U.S. Postal Service (``USPS'') tracking number for the shipment of
the two radios, which were ultimately detained with the assistance of
the USPS in St. Ignatius, Montana prior to export. Scott completed the
United States Postal Form 2976-R and signed the customs declaration
form, verifying that he had complied with all applicable export laws
and regulations.
9. In December 2018, Special Agents from the FBI and BIS contacted
Scott to conduct an interview and outreach. During the interview, Scott
stated that he was familiar with BIS regulations and that he regularly
checks the BIS website for updates. When asked about conducting
business with sanctioned countries, Scott stated that he had never done
business with North Korea, Cuba, Syria or Sudan. When asked
specifically about Iran, he acknowledged that he had received an
inquiry about a Motorola portable radio destined for a customer in Iran
and that he completed the sale. He indicated, however, that the export
was made through an individual in Florida. At the conclusion of the
interview, the BIS Special Agent explained the BIS voluntary self-
disclosure program, provided Scott with additional information related
to export controls, and served Scott with an administrative subpoena.
Despite receiving this information, Scott never filed a voluntary self-
disclosure related to the shipment of the two Motorola radios.
10. Later that same day, Scott forwarded the BIS Special Agent
several emails related to his sales transaction with the UC. Scott
failed to include any of the emails with the UC referencing Iran or
discussing possible transshipment through Jordan or Singapore. He also
claimed that he had ``misspoke[n] about the route this package took''
when he stated that the export mentioned during the interview had gone
through Florida.
11. After the BIS Special Agent contacted Scott with additional
questions, Scott responded: Call me on Monday so I can explain, I never
sold anything to Iran. My customer had someone in Iran who wanted to
buy these radios. I refused after he called me a [sic] tried to
convince me to sell and ship to that location. I refused. I actually
was thinking he was trying to set me up. Then he hounded me about
Encryption, which I flat told him no way. . .
12. In answering the BIS Special Agent's questions via email and
responding to the BIS administrative subpoena, Scott made several false
statements about the sales transaction with the UC. Notably, he falsely
stated that he communicated with the UC by phone, denied having had
additional email communications with the UC, and falsely stated that
the UC told him that the radios' end-use was for oil exploration.
13. When the emails Scott provided to the BIS Special Agent were
compared with emails obtained by the UC during the investigation, it
appeared that Scott edited one of the emails to support his claim that
he did not export anything to Iran. Specifically, in an April 15, 2017
email to the UC, which made no refence to Iran, Scott inserted the
following sentence into the document he provided to the BIS Special
Agent: ``I won't sell to IRAN OR I WILL NOT SUPPLY ANY ENCRYPTION. I
have explained this to you on the phone, why are you badgering me.''
14. Scott also failed to comply with reporting requirements by
failing to file an Electronic Export Information (``EEI'') for the
export of the two radios and failed to maintain appropriate records.
Specifically, the BIS Special Agent asked Scott to respond to OEE's
subpoena requesting ``[a]ny and all records, from 2013 to present,
related to export/re-export, facilitation of an export/re-export, or
attempted export/re-export of any and all commodities subject to the
Export Administration Regulations. . . .'' In response, Scott stated
that he has never ``kept a record or a file on this stuff, as I had no
idea I had to. . . . Some of my shipping records were on my old
computer that was damaged by a lightning strike about 3 years ago.''
15. Since at least March 2018, Scott has also exported under the
business name Mission Communications, LLC (``Mission''), which shares
the same address as Scott Communications, Inc. Specifically, beginning
in March 2018 and continuing until at least May 2019, Scott began
exporting under an export identification number associated with
Mission. In addition, at times material to the violations, including in
his December 2018 communications with the BIS Special Agent, Scott
identified himself via email as the president of Mission.
16. BIS incorporates and alleges paragraphs 1-15 of the General
Allegations into the below:
Charge 1 CFR 764.2(e)--Acting With Knowledge of a Violation Related to
the Sale of Two Digital Portable Radios
17. Beginning in or about March 2017 and continuing through on or
about June 7, 2017, Scott sold, transferred, or conducted negotiations
with respect to items subject to the EAR and the Iranian Transactions
and Sanctions Regulations (``ITSR''),\2\ specifically two Motorola
Astro XTS 2500 Digital Portable Radios, a commodity classified as
Export Control Classification Number (ECCN) 5A991.g. and controlled for
Anti-Terrorism reasons, with knowledge that a violation of the
Regulations had or was about or intended to occur in connection with
the items. In particular, Scott sold, transferred, or conducted
negotiations with respect to the items with knowledge that they were
destined for Iran without the required U.S. Government authorization.
At all times pertinent hereto, section 742.8 of the Regulations imposed
a BIS license requirement for the export or reexport of the items to
Iran. Additionally, section 746.7 of the Regulations prohibits the
export or reexport to Iran of any item subject to both the Regulations
and the ITSR, if the transaction is prohibited by the ITSR and has not
been authorized by the Treasury Department's Office of
[[Page 19915]]
Foreign Assets Control (``OFAC''). At all times pertinent hereto, the
ITSR prohibited, inter alia, the unauthorized export or reexport,
either directly or indirectly, of the items to Iran. See 31 CFR
560.204-205.
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\2\ 31 CFR part 560 (2017).
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18. Specifically, as set forth above, in or about March 2017, Scott
began negotiating the sale of two Motorola Astro XTS 2500 Digital
Portable Radios through emails with an undercover Special Agent, whose
true identity was unknown to Scott. The UC requested that the radios be
sent to Iran and later stated that they would be transshipped from
Jordan to Iran. Although the UC reiterated on multiple occasions that
the ultimate end-user was located in Iran, Scott agreed to complete the
sales transaction. On or about June 7, 2017, Scott provided the
undercover Special Agent with a USPS tracking number for the shipment
of the two radios.
19. No U.S. Government authorization had been sought or obtained in
connection with this transaction. In engaging in such conduct with
knowledge that a violation of the EAR, or any order, license or
authorization issued thereunder, has occurred, is about to occur, or is
intended to occur, Scott violated section 764.2(e) of the Regulations.
Charges 2-3 15 CFR 764.2(g)--Misrepresenting and Concealing Facts to an
Official of a United States Agency
20. On at least two occasions between December 2018 and January
2019, Scott and Mission made a false or misleading representation,
statement, certification, or falsified or concealed a material fact, to
a U.S. government official.
21. Following the above-described efforts by Scott to ship the two
radios, FBI and BIS Special Agents interviewed Scott on or about
December 5, 2018. During the interview with these U.S. government
officials, Scott stated that he received an inquiry for a Motorola
portable radio destined for a customer in Iran and that he had
completed the sale. Thereafter, on or about December 7, 2018, in a
follow-up email to the BIS Special Agent, Scott indicated that he had
never shipped anything to Iran and that, when the buyer telephoned him
to purchase for a customer in Iran, he refused.
22. On or about December 7, 2018, Scott made additional materially
false statements or omissions to the BIS Special Agent about his
communications related to the sale of the radios. Specifically, Scott
falsely represented that he communicated with the UC by phone and that
there were no email communications indicating that the radios were
destined for Iran. He also falsely stated that the UC advised him that
the radios would be used for oil exploration.
23. Additionally, on or about December 11, 2018, Scott produced an
email in response to the BIS subpoena that had been materially altered
and falsified. Although the original April 15, 2017, email
communication between Scott and the UC made no reference to Iran, the
document provided by Scott to the Special Agent had been altered and
falsified by inserting the following statement into the email: ``I
won't sell to IRAN OR I WILL NOT SUPPLY ANY ENCRYPTION. I have
explained this to you on the phone, why are you badgering me.''
(Capitalization as shown in email).
24. By making a false or misleading representation, statement, or
certification, or falsifying or concealing any material fact to BIS
and/or FBI Special Agents in the course of an investigation or other
action subject to the EAR, Scott and Mission violated section 764.2(g)
of the Regulations on at least two occasions.
Charge 4 15 CFR 764.2(a)--Engaging in Prohibited Conduct Related to the
Failure to File Electronic Export Information
25. On or about June 7, 2017, Scott engaged in conduct prohibited
by the Regulations by failing to comply with reporting requirements,
namely by failing to file Electronic Export Information (``EEI'') for
the shipment of two Motorola Astro XTS 2500 Digital Portable Radios as
described above. EEI includes export information about a transaction
such as the names and addresses of the parties to a transaction; the
ECCN (when required); the description, quantity and value of the items
exported; and the license authority for the export.
26. Section 758.1(b) of the EAR required that EEI be filed in
certain situations, including for all exports of items subject to the
EAR that were destined for Iran, a Country Group E:1 destination,\3\
regardless of value, and ``for all exports subject to the EAR that
require submission of a license application, regardless of value or
destination . . . .'' Records checks reflect that Scott failed to file
EEI related to the June 7, 2017 shipment of the two Motorola Astro XTS
2500 Digital Portable Radios.
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\3\ See Supplement No. 1 to 15 CFR part 740.
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27. By failing to file the EEI for the shipment of the two Motorola
Astro XTS 2500 Digital Portable Radios as required pursuant to section
758.1(b), Scott committed one violation of section 764.2(a) of the
Regulations, by engaging in any transaction or taking any other action
prohibited by or contrary to, or refraining from engaging in any
transaction or taking any other action required by ECRA, the EAR, or
any order, license or authorization issued thereunder.
Charge 5 15 CFR 764.2(i)--Failure To Comply With Reporting,
Recordkeeping Requirements
28. Between on or about March 16, 2017 and January 14, 2019, Scott
and Mission failed to comply with the recordkeeping requirements set
forth in Part 762 of the EAR. Scott and Mission at all relevant times
were (and remain) subject to the jurisdiction of the United States and
participated in transactions involving the export from the United
States of items subject to the Regulations, including the transaction
described in Charge 1, supra, and were required to keep and maintain
all records described in section 762.2 of the Regulations made or
obtained. See 15 CFR 762.1(a)(2), (a)(4), and (b).
29. The records required to be retained include, inter alia, bills
of lading and other ``export control documents'' (as defined in part
772 of the Regulations), correspondence, and any other records Scott or
Mission made or obtained pertaining to such transactions. See 15 CFR
762.2 and 772.1 (at definition of ``export control document''). All
such records must be retained for a period of five years from the date
of the export of the item involved in the transaction. See 15 CFR
762.6(a). In addition, any such records formally or informally
requested by BIS (or any other U.S. Government agency) may not be
destroyed or disposed of without written authorization from BIS (or
other agency concerned), even if such records have been retained for
more than the required retention period. See 15 CFR 762.6(b).
30. Scott and Mission failed to maintain records as required
pursuant to section 762 of the EAR. On or about December 5, 2018, the
BIS Special Agent served Scott with a BIS administrative subpoena
requesting ``[a]ny and all records, from December 2013 to present,
related to export/re-export, facilitation of an export/re-export, or
attempted export/re-export of any and all commodities'' subject to the
EAR. The requested records included, but were not limited to, requests
for quotes, waybills, bills of lading, Shipper's Export Declarations,
payment records, emails, and other correspondence.
31. On or about December 10, 2018, in responding to the BIS
administrative
[[Page 19916]]
subpoena, Scott advised the BIS Special Agent that he has never ``kept
a record or a file on this stuff, as I had no idea I had to. . . . Some
of my shipping records were on my old computer that was damaged by a
lightning strike about 3 years ago.'' On January 14, 2019, after the
BIS Special Agent granted Scott additional time to respond to the
subpoena, he provided some records, including a list of freight
forwarders/brokers and invoices related to exports to approximately 15
countries. For almost all of these exports, however, he failed to
produce any of the other requested records, including quotes, requests
for quotes, waybills, bills of lading, payment records, or emails and
other correspondence. Scott also acknowledged that the records were
incomplete, claiming that ``[w]e lost our main HD computer during a
storm in April of 2015. A lot of information was lost.''
32. As a result of these failures, Scott and Mission committed a
violation of section 764.2(i) of the Regulations, by failing or
refusing to comply with any reporting or recordkeeping requirement of
ECRA, the EAR, or of any order, license, or authorization issued
thereunder.
Whereas, I have taken into consideration the Respondents' limited
ability to pay a monetary penalty;
Whereas, BIS and Respondents have entered into a Settlement
Agreement pursuant to section 766.18(b) of the Regulations, whereby
they agreed to settle this matter in accordance with the terms and
conditions set forth therein;
Whereas, Respondents admit committing the alleged conduct described
in the Charging Letter; and
Whereas, I have approved of the terms of such Settlement Agreement;
it is therefore ordered:
First, for a period of twenty (20) years from the date of the
Order, Kenneth Scott, Scott Communications, Inc., and Mission
Communications, LLC, with a last known address of 61574 Hillside Road,
St. Ignatius, MT 59865, and when acting for or on their behalf, their
successors, assigns, representatives, agents, or employees (hereinafter
collectively referred to as the ``Denied Person''), may not, directly
or indirectly, participate in any way in any transaction involving any
commodity, software or technology (hereinafter collectively referred to
as ``item'') exported to 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, or 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 engaging in any
other activity subject to the Regulations; or
C. Benefitting 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 from any other activity subject to the Regulations.
Second, 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, any licenses issued under the Regulations in which
Respondents have an interest as of the date of this Order shall be
revoked by BIS.
Fourth, 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
the Order.
Fifth, the Settlement Agreement and this Order shall be made
available to the public.
This Order, which constitutes the final agency action in this
matter, is effective immediately.
Matthew S. Axelrod,
Assistant Secretary of Commerce for Export Enforcement.
[FR Doc. 2023-06920 Filed 4-3-23; 8:45 am]
BILLING CODE 3510-DT-P
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