Coastal PVA Technology Charged With 18 Export Violations for Unlicensed Shipments to SMIC

UNITED STATES DEPARTMENT OF COMMERCE Bureau of Industry and Security

Office of Export Enforcement 1401 Constitution Avenue, Suite 4508 Washington, DC 20230

PROPOSED CHARGING LETTER 4031 Alvis Court Rocklin, CA 95677 Dear Coastal PVA Technology, Inc.: The Bureau of Industry and Security, U.S. Department of Commerce ("BIS"), has reason to believe that Coastal PVA Technology, Inc. ("Coastal") is responsible for 18 violations of the Export Administration Regulations (the "EAR" or "Regulations"). Specifically, BIS alleges and charges 1 the following violations:

GENERAL ALLEGATIONS

Coastal is a California-based company that manufactures and exports polyvinyl alcohol (PVA) brushes, which can be used in the semiconductor manufacturing process. As described in further detail below, between May 2021 and May 2024, Coastal violated the EAR by selling such brushes for export, reexport, or transfer (in-country) to parties on the BIS Entity List in China without the requisite license or authorization from BIS. Specifically, using two third-party distributors, Coastal sold brushes and related products, valued at approximately $400,088, to Semiconductor Manufacturing International (Beijing) Corporation ("SMIC Beijing") and Semiconductor Manufacturing North China (Beijing) Corporation ("SMIC North"). At all relevant times, a license was required for the export, reexport, or transfer (in-country) of such items to SMIC Beijing and SMIC North.

STATEMENT OF CHARGES

Charges 1-18 15 C.F.R. § 764.2(a) - Engaging in Prohibited Conduct

1. Between on or about May 15, 2021 and May 19, 2024, Coastal engaged in conduct prohibited by the Regulations on 18 occasions when it sold and exported items subject to the EAR to SMIC Beijing and SMIC North--both parties on the Entity List --without the requisite license 2 or other authorization from BIS.

The Regulations are currently codified in the Code of Federal Regulations at 15 C.F.R. Parts 730-774 (2025). The 1 charged violations occurred in 2021 through 2024. The Regulations governing the violations at issue are found in the 2021 through 2024 versions of the Code of Federal Regulations (15 C.F.R. Parts 730-774). The 2025 Regulations set forth the procedures that apply to this matter. See 85 Fed. Reg. 83,420 (Dec. 22, 2020). Following the conduct discussed in this proposed charging letter, BIS 2 updated the Entity List and maintained the inclusion of both SMIC Beijing and SMIC North on the Entity List. 89 Fed. Reg. 96,836 (Dec. 5, 2024).

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1. Pursuant to § 744.11 and Supplement No. 4 to Part 744 of the EAR, a license is required to
   export, reexport, or transfer (in-country) any item subject to the EAR when an entity that is listed on the Entity List is a party to the transaction as described in § 748.5(c)-(f) of the EAR. At all times relevant to the charges in this letter, BIS authorization was required to export, reexport, or transfer (in-country) any item subject to the EAR to SMIC Beijing or SMIC North. Coastal never sought or received any license or other authorization from BIS for these exports.

2. Among other products, at its facilities in California, Coastal manufactures polyvinyl alcohol
   brushes and related products, which can be used in the semiconductor manufacturing process to clean post-etched semiconductor wafers. The brushes and related products exported by Coastal were of U.S.-origin, subject to the EAR, and classified as EAR99. 3

3. During the relevant time period, Coastal sold its brushes and related products to end users in
   China through two third-party distributors based in China. At times, even when it sold the brushes and related products through these distributors, Coastal in fact shipped the items directly to SMIC Beijing or SMIC North. At other times, Coastal shipped the items to the distributors, who subsequently transferred the items to SMIC Beijing or SMIC North. For all shipments, Coastal knew that its brushes were destined for SMIC Beijing or SMIC North.

4. Coastal sold the brushes and related products at issue without identifying the need for a license
   because of inadequate compliance controls. Coastal had no formal export compliance policies or procedures in place at the time of the relevant sales. After receiving an inquiry from BIS, a senior executive at Coastal stated that Coastal was unaware that unlicensed sales of EAR99 items to SMIC Beijing or SMIC North were prohibited by the Regulations. Coastal ceased further sales to SMIC Beijing and SMIC North after being informed of the licensing requirement.

5. By engaging in the above-described conduct, Coastal committed 18 violations of Section
   764.2(a) of the Regulations.

• * * * * Accordingly, Coastal is hereby notified that an administrative proceeding is instituted against it pursuant to Part 766 of the Regulations for the purpose of obtaining an order imposing administrative sanctions, including, but not limited to, any or all of the following:

EAR99 is a designation for items subject to the EAR but not listed on the Commerce Control List. See Section 3 734.3(c) of the EAR.

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• The maximum civil penalty allowed by law of up to the greater of $374,474 per violation, 4
  or twice the value of the transaction that is the basis of the violation; 5

• Denial of export privileges;

• Exclusion from practice before BIS; and/or

• Any other liability, sanction, or penalty available under law.
  If Coastal fails to answer the charges contained in this letter within 30 days after being served with notice of issuance of this letter, that failure will be treated as a default. See 15 C.F.R. §§ 766.6 and 766.7. If Coastal defaults, the Administrative Law Judge may find the charges alleged in this letter are true without a hearing or further notice to Coastal. 15 C.F.R. § 766.7(a). Coastal may then be subject to a sanction of up to the maximum penalty amount for the charges in this letter. Coastal is further notified that it is entitled to an agency hearing on the record if it files a written demand for one with any answer. See 15 C.F.R. § 766.6. Coastal is also entitled to be represented by counsel or other authorized representative who has power of attorney to represent it. See 15 C.F.R. §§ 766.3(a) and 766.4. The Regulations provide for settlement without a hearing. See 15 C.F.R. § 766.18. Should Coastal have a proposal to settle this case, it should transmit it to the attorneys representing BIS named below. Coastal is further notified that under the Small Business Regulatory Enforcement Flexibility Act, Coastal may be eligible for assistance from the Office of the National Ombudsman of the Small Business Administration in this matter. To determine eligibility and get more information, please see: http://www.sba.gov/ombudsman/. The U.S. Coast Guard is providing administrative law judge services in connection with the matters set forth in this letter. Accordingly, Coastal's answer must be filed in accordance with the instructions in Section 766.5(a) of the Regulations with: U.S. Coast Guard ALJ Docketing Center 40 S. Gay Street Baltimore, Maryland 21202-4022

See 15 C.F.R. § 6.3(c)(6). This amount is subject to annual increases pursuant to the Federal Civil Penalties 4 Inflation Adjustment Act Improvements Act of 2015, Sec. 701 of Public Law 114-74, enacted on November 2,

1. See 89 Fed. Reg. 106,308 (Dec. 30, 2024) (adjusting for inflation the maximum civil monetary penalty under the Export Control Reform Act of 2018 from $364,992 to 374,474, effective January 15, 2025). See Export Control Reform Act of 2018, 50 U.S.C. § 4819(c)(1)(A) (2019). 5

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In addition, a copy of Coastal's answer must be served on BIS at the following address: Chief Counsel for Industry and Security Attention: Kimberly Hsu and Malorie Eisenbrei Room H-3839 14th Street and Constitution Avenue, N.W. Washington, D.C. 20230 Kimberly Hsu and Malorie Eisenbrei are the attorneys representing BIS in this case; any communications that Coastal may wish to have concerning this matter should occur through them. Ms. Hsu and Ms. Eisenbrei may be contacted at 202-482-5301. Sincerely, Steven Fisher Acting Director Office of Export Enforcement