Sun in talks over US export control allegations

Company accused of violating U.S. controls

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Accused of violating U.S. export controls, Sun Microsystems is trying to negotiate a settlement with a U.S. government agency, it reported Wednesday in a filing with the U.S. Securities and Exchange Commission.

Sun is in talks with the Office of Export Enforcement at the U.S. Department of Commerce's Bureau of Industry and Security (BIS), it said.

The bureau wrote to Sun in February 2002, charging that sales in Egypt in 1998 and to a reseller in Hong Kong in 1997 for subsequent resale to China violated U.S. export control regulations. It wrote to Sun again in April this year, documenting 19 additional charges, the company said in its Form 10-Q filing.

All of the charges relate to Sun products shipped through third parties like the Hong Kong reseller, according to a Sun Vice President of Global Communications & Marketing Andy Lark.

Sun declined to name the specific third-party companies involved in the investigation.

If Sun is found to be in violation of the export controls, it could face financial penalties, or be denied export privileges, the company said.

BIS has proposed a settlement involving a financial penalty and a one-year suspended denial of export privileges, a denial which would not be enforced as long as Sun respected the export controls during the period, Sun said in the filing. Sun is negotiating with BIS over the scope of the proposed denial of export privileges, it said.

Sun is reasonably likely to reach a negotiated resolution, it said in the filing, noting that if negotiations fail, the matter will go to an administrative hearing.

While it expects that the proposed financial penalties will not have a significant effect on its business, an export ban could hurt it, Sun said.

"We're optimistic about reaching a settlement," Lark said.

This is not the first time that Sun has come under the gaze of the U.S. Department of Commerce. In 1997 the company announced plans to sell outside of the U.S. software developed by a Russian company called Elvis+ Co that was capable of 128-bit encryption. The move was seen as an attempt to skirt U.S. law, which required Department of Commerce approval for the export of anything stronger than 40-bit encryption.

Sun dropped its Elvis+ plans, following a nine-month inquiry by the U.S. government, but it continues to maintain a bellicose position on U.S. export control laws, calling them "a legacy of the bygone Cold War, when their intent was to retard the then Soviet Union and its allies from reaching military parity with the U.S.," according to a position paper on Sun's Web site.

The position paper claims that U.S. controls on high-performance computing systems are "no longer effective," and calls on the U.S. government to "eliminate ... performance-based controls entirely."

The BIS declined to comment on this story.