Department of Commerce Imposes Administrative Penalty on German Company for “Causing” EAR99-Related Violations in China

On January 7, 2026, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) announced that it is imposing an administrative penalty of $1.5 million on Exyte Management GmbH (Exyte) as part of a settlement agreement with the company for “causing” 13 violations of the Export Administration Regulations (EAR). The 13 violations involve in-country transfers of EAR-controlled products to a party on BIS’ Entity List. BIS imposed the penalty despite the fact that the prohibited in-country transfers to the restricted party were undertaken by third-party distributors unaffiliated with Exyte, and notwithstanding Exyte’s cooperation and voluntary disclosures — all of which provide important lessons to other companies dealing in transactions with Chinese entities.

BIS’ allegations against Exyte relate to in-country transfers of items subject to the EAR but without export control classification numbers (EAR99) to Semiconductor Manufacturing International (Beijing) Corporation (SMIC Beijing). Because SMIC Beijing was on the Entity List, a BIS authorization was required  to export, reexport, and transfer (in-country) any item subject to the EAR, including EAR99 items, to SMIC Beijing. However, from approximately March 8, 2021 through March 24, 2022, Exyte’s affiliate in China, Exyte Shanghai Ltd. (Exyte China), induced the in-country transfer of 884 EAR99 items to SMIC Beijing without obtaining a license. Specifically, Exyte China engaged with a local distributor in China to deliver flowmeters, pressure transmitters, logic controllers, and voltage sag protectors, collectively valued at approximately $2,850,030, from local Chinese suppliers to SMIC Beijing.

BIS found that, by engaging with a local Chinese distributor to have the items transferred to SMIC Beijing, Exyte China “caused” local Chinese suppliers to transfer (in-country) the EAR99 items to SMIC Beijing in violation of the EAR. Therefore, although Exyte China did not directly transfer the items to SMIC Beijing, its actions still violated the EAR. Upon learning of the in-country transfers, Exyte launched an internal investigation, voluntarily disclosed the potential violations to BIS, and retained outside counsel to support its investigation. Yet despite Exyte’s cooperation, BIS imposed an administrative penalty.

This enforcement case offers several important reminders. First, a company can “cause” an EAR violation, and thus commit an EAR violation itself, by inducing an illicit export, reexport, or in-country transfer, even where the unauthorized export, reexport, or in-country transfer is carried out by a distributor or another third party. Second, this enforcement action provides a reminder that in-country transfers of items subject to the EAR are also controlled under the EAR. (The EAR defines the term transfer (in-country) broadly to mean “a change in end use or end user of an item within the same foreign country.” Therefore, even if the item does not physically move, a change in end use or end user constitutes an in-country transfer and may require an authorization from BIS.)

Moreover, BIS’ decision to charge Exyte and the outcome of the settlement agreement offer important lessons about the potential outcomes of disclosing to and cooperating with BIS. On one hand, voluntary self-disclosure by Exyte to BIS resulted in a lower civil penalty than the statutory maximum of $5,700,060 and likely helped Exyte avoid more serious penalties, such as denial of export privileges. On the other hand, BIS still chose to charge Exyte for voluntarily disclosing that it had “caused” violations of EAR99 items. This makes clear that BIS is taking a strict approach to enforcement cases with nexuses to Chinese entities designated on the Entity List, and especially those that operate in China’s semiconductor manufacturing capacity. The takeaway: although companies should continue to diligently monitor all trade compliance, companies should pay particular attention to transactions either involving Chinese customers or which are associated with emerging technologies. If a potential violation of the EAR is uncovered, companies should carefully consider the potential benefits of submitting a voluntary self-disclosure to BIS.

For questions about this post or other export control or sanctions matters, contact the authors or any of their colleagues in Arnold & Porter’s Export Control & Sanctions or White Collar Defense & Investigations practice groups.

© Arnold & Porter Kaye Scholer LLP 2026 All Rights Reserved. This Blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.