The U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) issued an Order resolving an administrative enforcement action involving Coastal PVA Technology, Inc., a California-based manufacturer of polyvinyl alcohol (“PVA”) brushes used in semiconductor manufacturing processes. The action arises under the Export Administration Regulations (“EAR”) and follows the issuance of a Proposed Charging Letter alleging multiple violations stemming from exports to restricted parties in China. The matter was resolved through a Settlement Agreement, pursuant to which Coastal admitted the conduct described in the charging documents, and BIS approved the agreement as the final disposition of the case.

The enforcement action centers on Coastal’s sale and export of PVA brushes and related products, classified as EAR99 and subject to the EAR, to Semiconductor Manufacturing International (Beijing) Corporation (“SMIC Beijing”) and Semiconductor Manufacturing North China (Beijing) Corporation (“SMIC North”), both of which are listed on the BIS Entity List. Between May 2021 and May 2024, Coastal engaged in a series of transactions involving these entities without obtaining the required licenses or authorizations from BIS. The conduct occurred on eighteen separate occasions and involved products valued at approximately $400,000. At all relevant times, a license was required for the export, reexport, or transfer (in-country) of such items to these counterparties.

The transactions were executed through two third-party distributors based in China. In certain instances, Coastal shipped products directly to SMIC Beijing or SMIC North, while in others, the items were first delivered to distributors who then transferred the products to the restricted end users. The record reflects that Coastal knew that its products were ultimately destined for these Entity List parties. Despite this knowledge, the company neither sought nor obtained the requisite BIS authorization prior to engaging in the transactions.

The materials further indicate that the violations were attributable, at least in part, to deficiencies in Coastal’s internal compliance framework. At the time of the relevant transactions, the company did not maintain formal export compliance policies or procedures. As a result, Coastal failed to identify that a license was required for the export of EAR99 items to Entity List parties. Following an inquiry from BIS, a senior executive acknowledged that the company had been unaware that such transactions required authorization. Coastal subsequently ceased further sales to SMIC Beijing and SMIC North after being informed of the applicable licensing requirements.

Pursuant to the Settlement Agreement, BIS assessed a civil penalty in the amount of $1,700,000. However, the full amount of the penalty was suspended for a period of one year and may be waived in its entirety, provided that Coastal complies with the terms of the Order and the Settlement Agreement during that period. These conditions include the implementation of export compliance training for relevant personnel and the completion of an internal audit of the company’s export control compliance program within specified timeframes. The Order further provides that failure to comply with these conditions may result in the activation of the suspended penalty, rendering the full amount immediately due and payable.

The Order also imposes specific compliance obligations designed to remediate the deficiencies identified in the enforcement action. Coastal is required to ensure that personnel responsible for export compliance complete training on the EAR within six months and to submit certification of such training to BIS. In addition, the company must conduct an internal audit of its export compliance program within nine months, covering a defined review period and including an assessment of compliance with the Regulations. Any actual or potential violations identified during the audit must be promptly disclosed to BIS, along with supporting documentation.

This enforcement action illustrates the significant regulatory risk associated with transactions involving Entity List parties, even where the underlying items are classified as EAR99. The classification of items as EAR99 does not eliminate licensing obligations where restricted end users are involved, and the requirement to obtain authorization applies regardless of the perceived sensitivity of the items. Companies that rely on distributors or intermediaries remain responsible for understanding the ultimate destination and end use of their products, particularly where there is knowledge that items are destined for restricted entities.

From a compliance perspective, the matter underscores the importance of maintaining a formal, well-documented export compliance program capable of identifying licensing requirements and escalating high-risk transactions. The absence of basic compliance controls—such as procedures for screening counterparties, assessing end users, and identifying licensing triggers—can result in repeated violations over an extended period, as reflected in the eighteen separate transactions at issue here. These are not complex or ambiguous regulatory requirements; rather, they are foundational elements of export compliance that can be effectively addressed through structured policies, employee training, and transaction-level review processes.

At the same time, the resolution reflects BIS’s willingness to structure enforcement outcomes in a manner that incentivizes remediation and future compliance. The suspension of the full monetary penalty, conditioned on the implementation of corrective measures, provides a clear pathway for the company to avoid significant financial liability while bringing its compliance program into alignment with regulatory expectations. However, this leniency is contingent on strict adherence to the terms of the Order, and failure to comply would result in substantial financial consequences.

Ultimately, the Coastal PVA Technology matter demonstrates that while enforcement actions may, in some instances, be resolved without immediate financial impact, the underlying conduct—and the deficiencies that give rise to it—can expose companies to significant regulatory and operational risk. The reputational implications of engaging in repeated unlicensed transactions with Entity List parties, coupled with the potential activation of a substantial suspended penalty, underscore the need for companies to implement and maintain robust internal controls that are capable of identifying and mitigating export compliance risks before they materialize.