Enforcement
Prosecution of Export Controls Violations Increased in the Past Year
10/28/08 12:35 AM
On October 28, 2008, the
U.S. Department of Justice issued a statement in which it announced
that the National Export Enforcement Initiative (NEEI), a
multi-agency effort to combat illegal exports of restricted
military and dual-use technology, has led to criminal charges
against more that 145 defendants in the past fiscal year.
The NEEI was established in October 2007 and is designed to increase coordination among agencies involved in export controls, to enhance prosecution of these crimes, and to deter illicit exports. The 145 defendants in export controls and embargo cases in FY 2008 are an increase from the 110 charged in FY 2007. Charges brought in these cases include violations of the Arms Export Control Act (AECA), the International Emergency Economic Powers Act (IEEPA), the export control provision of the Patriot Reauthorization Act (PRA), the Trading with the Enemy Act (TEA), and other statutes.
About 43 percent of the defendants charged in FY 2008 were charged in export control or embargo cases that involved munitions or other restricted technology that were bound for Iran or China. Iran ranked as the leading destination for illegal exports of restricted technology in the prosecutions brought in both FY 2007 and FY 2008.
The illegal exports bound for Iran have involved such items as missile guidance systems, Improvised Explosive Device (IED) components, military aircraft parts, and night vision systems. The illegal exports to China have involved rocket launch data, space shuttle technology, missile technology, naval warship data, Unmanned Aerial Vehicle or “drone” technology, thermal imaging systems, military night vision systems and other materials. A significant portion of the cases in FY 2007 and FY 2008 involved illegal exports to Mexico. These prosecutions primarily involved illegal exports of firearms and large quantities of ammunition destined for Mexico.
The most recent indictment under the NEEI was returned on October 28, 2008, against three individuals in the District Court of Minnesota, charging them with conspiring to illegally export to China controlled carbon-fiber material with applications in rockets, satellites, spacecraft, and uranium enrichment process.
The U.S. Military items, dual-use equipment, and technological expertise may not be exported without the U.S. government approval. Foreign procurement networks rarely target complete weapons systems, but often focus on components to obtain their own weapons systems.
The NEEI was established in October 2007 and is designed to increase coordination among agencies involved in export controls, to enhance prosecution of these crimes, and to deter illicit exports. The 145 defendants in export controls and embargo cases in FY 2008 are an increase from the 110 charged in FY 2007. Charges brought in these cases include violations of the Arms Export Control Act (AECA), the International Emergency Economic Powers Act (IEEPA), the export control provision of the Patriot Reauthorization Act (PRA), the Trading with the Enemy Act (TEA), and other statutes.
About 43 percent of the defendants charged in FY 2008 were charged in export control or embargo cases that involved munitions or other restricted technology that were bound for Iran or China. Iran ranked as the leading destination for illegal exports of restricted technology in the prosecutions brought in both FY 2007 and FY 2008.
The illegal exports bound for Iran have involved such items as missile guidance systems, Improvised Explosive Device (IED) components, military aircraft parts, and night vision systems. The illegal exports to China have involved rocket launch data, space shuttle technology, missile technology, naval warship data, Unmanned Aerial Vehicle or “drone” technology, thermal imaging systems, military night vision systems and other materials. A significant portion of the cases in FY 2007 and FY 2008 involved illegal exports to Mexico. These prosecutions primarily involved illegal exports of firearms and large quantities of ammunition destined for Mexico.
The most recent indictment under the NEEI was returned on October 28, 2008, against three individuals in the District Court of Minnesota, charging them with conspiring to illegally export to China controlled carbon-fiber material with applications in rockets, satellites, spacecraft, and uranium enrichment process.
The U.S. Military items, dual-use equipment, and technological expertise may not be exported without the U.S. government approval. Foreign procurement networks rarely target complete weapons systems, but often focus on components to obtain their own weapons systems.
OFAC Issues New Economic Sanctions Enforcement Guidelines
09/10/08 11:05 PM
On September 8, 2008, the Office
of Foreign Assets Control (OFAC) of the U.S. Department of the
Treasury published in the Federal
Register an
interim final rule, “Economic Sanctions Enforcement Guidelines”
(Guidelines). The Guidelines are applicable to all persons subject
to any of the sanctions programs administered by OFAC, including
matters that fall under International Emergency Economic Powers Act
(IEEPA) and Trading With the Enemy Act (TWEA).
The Guidelines establish several significant changes from the 2003 proposed rule.
First, rather than identifying “aggravating” and “mitigating” factors, the Guidelines set forth General Factors for Taking Administrative Action (General Factors) that OFAC will consider in determining an appropriate enforcement response to an apparent violation and, if a civil monetary penalty is warranted, in establishing the amount of the penalty. The Guidelines reflect a realization that in many cases, a particular factor may be considered either “aggravating” or “mitigating” (e.g. remedial action was considered a mitigating factor under 2003 rules; but, absence of remedial action considered as aggravating factor).
Some or all of the following General Factors will be considered in determining the appropriate administrative action in response to an apparent violation of U.S. sanctions by a person, and, where a civil monetary penalty is imposed, the amount of such penalty:
A. Willful or reckless violation of law,
B. Awareness of conduct at issue,
C. Harm to sanctions program objectives,
D. Individual characteristics of the subject person,
E. Compliance program,
F. Remedial response,
G. Cooperation with OFAC,
H. Timing of apparent violation in relation to imposition of sanctions,
I. Other enforcement actions taken by federal, state or local agencies against the subject person,
J. Future compliance / Deterrence effect, and
K. Other relevant facts on a case-by-case basis.
Second significant development is that the Guidelines provide for the issuance of either cautionary letters or findings of violation under certain circumstances, rather than the cautionary letters and warning letters provided for under the 2003 proposed rule and the evaluative letters provided for in the 2006 interim final rule.
Third, in recognition of OFAC’s position that enhanced maximum civil penalties authorized by the Enhancement Act should be reserved for the most serious cases, the Guidelines distinguish between egregious and non-egregious civil monetary penalty cases. Egregious cases are defined as those representing the most serious sanctions violations, based on an analysis of all applicable General Factors.
Fourth, in those cases in which the imposition of a civil monetary penalty is deemed appropriate, the Guidelines provide a new process for determining the penalty amount. This process involves first determining a base penalty amount, which is based on two considerations: (i) whether the conduct, activity, or transaction giving rise to a violation is egregious or non-egregious, and (ii) whether the case involves a voluntary self-disclosure by the subject person. The existence or lack of a voluntary self-disclosure is a major factor in establishing the penalty amount. The base penalty amount for a case involving self-disclosure reflects a 50 percent or more reduction from the base penalty amount that would otherwise be applicable.
Thus, under the Guidelines, the base penalty amount in a case determined to be non-egregious and involving voluntary self disclosure will not exceed one-half of the transaction value (capped at $125,000 per violation), while in an egregious case without voluntary self-disclosure, the penalty may reach the applicable statutory maximum.
Once a base penalty amount is determined based on the transaction value and egregiousness / voluntary self-disclosure factors, the amount may be adjusted upward or downward based on the other General Factors.
With respect to responses to apparent violations, depending on the facts and circumstances of a particular case, an OFAC investigation may lead to one or more of the following actions:
A. No action,
B. Request for additional information,
C. Cautionary letter,
D. Finding of violation,
E. Civil monetary penalty,
F. Criminal referral, or
G. Other administrative actions, including (1) License denial, suspension, modification, or revocation, and (2) Cease and desist order.
In establishing the amount of civil penalties, including for failure to furnish information or to keep records, OFAC will review the facts and circumstances surrounding an apparent violation and apply the General Factors.
Although this interim final rule is effective immediately, OFAC is soliciting comments for a 60-day period with a view of improving the Guidelines.
The Guidelines establish several significant changes from the 2003 proposed rule.
First, rather than identifying “aggravating” and “mitigating” factors, the Guidelines set forth General Factors for Taking Administrative Action (General Factors) that OFAC will consider in determining an appropriate enforcement response to an apparent violation and, if a civil monetary penalty is warranted, in establishing the amount of the penalty. The Guidelines reflect a realization that in many cases, a particular factor may be considered either “aggravating” or “mitigating” (e.g. remedial action was considered a mitigating factor under 2003 rules; but, absence of remedial action considered as aggravating factor).
Some or all of the following General Factors will be considered in determining the appropriate administrative action in response to an apparent violation of U.S. sanctions by a person, and, where a civil monetary penalty is imposed, the amount of such penalty:
A. Willful or reckless violation of law,
B. Awareness of conduct at issue,
C. Harm to sanctions program objectives,
D. Individual characteristics of the subject person,
E. Compliance program,
F. Remedial response,
G. Cooperation with OFAC,
H. Timing of apparent violation in relation to imposition of sanctions,
I. Other enforcement actions taken by federal, state or local agencies against the subject person,
J. Future compliance / Deterrence effect, and
K. Other relevant facts on a case-by-case basis.
Second significant development is that the Guidelines provide for the issuance of either cautionary letters or findings of violation under certain circumstances, rather than the cautionary letters and warning letters provided for under the 2003 proposed rule and the evaluative letters provided for in the 2006 interim final rule.
Third, in recognition of OFAC’s position that enhanced maximum civil penalties authorized by the Enhancement Act should be reserved for the most serious cases, the Guidelines distinguish between egregious and non-egregious civil monetary penalty cases. Egregious cases are defined as those representing the most serious sanctions violations, based on an analysis of all applicable General Factors.
Fourth, in those cases in which the imposition of a civil monetary penalty is deemed appropriate, the Guidelines provide a new process for determining the penalty amount. This process involves first determining a base penalty amount, which is based on two considerations: (i) whether the conduct, activity, or transaction giving rise to a violation is egregious or non-egregious, and (ii) whether the case involves a voluntary self-disclosure by the subject person. The existence or lack of a voluntary self-disclosure is a major factor in establishing the penalty amount. The base penalty amount for a case involving self-disclosure reflects a 50 percent or more reduction from the base penalty amount that would otherwise be applicable.
Thus, under the Guidelines, the base penalty amount in a case determined to be non-egregious and involving voluntary self disclosure will not exceed one-half of the transaction value (capped at $125,000 per violation), while in an egregious case without voluntary self-disclosure, the penalty may reach the applicable statutory maximum.
Once a base penalty amount is determined based on the transaction value and egregiousness / voluntary self-disclosure factors, the amount may be adjusted upward or downward based on the other General Factors.
With respect to responses to apparent violations, depending on the facts and circumstances of a particular case, an OFAC investigation may lead to one or more of the following actions:
A. No action,
B. Request for additional information,
C. Cautionary letter,
D. Finding of violation,
E. Civil monetary penalty,
F. Criminal referral, or
G. Other administrative actions, including (1) License denial, suspension, modification, or revocation, and (2) Cease and desist order.
In establishing the amount of civil penalties, including for failure to furnish information or to keep records, OFAC will review the facts and circumstances surrounding an apparent violation and apply the General Factors.
Although this interim final rule is effective immediately, OFAC is soliciting comments for a 60-day period with a view of improving the Guidelines.
Retired Professor Convicted of Arms Export Violations
09/05/08 09:44 PM
On September 3, 2008, Dr. J. Reece
Roth, a retired University of Tennessee (UT) professor, was
found guilty of conspiracy to violate the Arms
Export Control Act (AECA) and fifteen separate violations of
illegally exporting sensitive information relating to a U.S. Air
Force research and development contract. The information concerned
plasma technology to be used in the construction of drones under
the U.S. Air Force contract.
The AECA prohibits transfer of defense-related materials, including technical data, to a foreign national without permission. Dr. Roth was convicted of conspiring with Atmospheric Glow Technology, Inc. (AGT), a Knoxville, Tennessee, technology company, with unlawfully transferring fifteen different "defense articles" to a graduate student, a national of China, in violation of the AECA. As part of a plea agreement, AGT recently pleaded guilty to 10 counts of exporting defense-related materials. Sentencing in that case in still pending.
Roth testified last week that he didn’t break the law because the prosecution had not proved that the research was successful, reports the Associated Press. "My understanding was that it only applied to things that worked, and we had not shown that. We had a lot of work to do," Roth testified.
Roth was also accused of taking reports and related studies in his laptop to China during a lecture tour in 2006, and having one report e-mailed to him there through a Chinese professor's Internet connection.
The government seized materials from Roth's office and took his laptop from him at the airport when he returned from the trip. Prosecutors claimed he violated the export control act simply by taking the laptop with sensitive materials outside the country even if, as forensic evidence showed, he didn't open all of those files while he was in China.
"Today's guilty verdict should serve as a warning to anyone who knowingly discloses restricted U.S. military data to foreign nationals," said Patrick Rowan, Acting Assistant Attorney General for National Security. United States Attorney Russ Dedrick said, "Our scientific and educational communities must take precautions to insure that technology and research are protected, when required, from disclosure to foreign governments."
The maximum punishment for the conspiracy to violate AECA is five years imprisonment and a fine of $250,000. The maximum penalty for each of the AECA offenses is 10 years imprisonment, a criminal fine of $1,000,000, and a mandatory special assessment of $100 for each offense. Dr. Roth's sentencing has been set for January 7, 2009, in United States District Court in Knoxville.
The AECA prohibits transfer of defense-related materials, including technical data, to a foreign national without permission. Dr. Roth was convicted of conspiring with Atmospheric Glow Technology, Inc. (AGT), a Knoxville, Tennessee, technology company, with unlawfully transferring fifteen different "defense articles" to a graduate student, a national of China, in violation of the AECA. As part of a plea agreement, AGT recently pleaded guilty to 10 counts of exporting defense-related materials. Sentencing in that case in still pending.
Roth testified last week that he didn’t break the law because the prosecution had not proved that the research was successful, reports the Associated Press. "My understanding was that it only applied to things that worked, and we had not shown that. We had a lot of work to do," Roth testified.
Roth was also accused of taking reports and related studies in his laptop to China during a lecture tour in 2006, and having one report e-mailed to him there through a Chinese professor's Internet connection.
The government seized materials from Roth's office and took his laptop from him at the airport when he returned from the trip. Prosecutors claimed he violated the export control act simply by taking the laptop with sensitive materials outside the country even if, as forensic evidence showed, he didn't open all of those files while he was in China.
"Today's guilty verdict should serve as a warning to anyone who knowingly discloses restricted U.S. military data to foreign nationals," said Patrick Rowan, Acting Assistant Attorney General for National Security. United States Attorney Russ Dedrick said, "Our scientific and educational communities must take precautions to insure that technology and research are protected, when required, from disclosure to foreign governments."
The maximum punishment for the conspiracy to violate AECA is five years imprisonment and a fine of $250,000. The maximum penalty for each of the AECA offenses is 10 years imprisonment, a criminal fine of $1,000,000, and a mandatory special assessment of $100 for each offense. Dr. Roth's sentencing has been set for January 7, 2009, in United States District Court in Knoxville.
Trial Begins for Retired Professor Charged with ITAR Violations
08/25/08 10:26 PM
On August 25, 2008, J. Reece Roth,
a retired University of Tennessee (UT) physics professor went on
trial charged with violating the Arms Export Control Act (AECA). As
reported by USA Today, prosecutors allege Roth violated
AECA by allowing two UT students, one from China and another from
Iran, unrestricted access to information about the technology used
in an U.S. Air Force project. The professor is also said to have
taken documents relating to that project on his trip to China in
2006.
The Air Force contract involved developing lightweight flight control system technology for use in unmanned air vehicles, otherwise known as drones. According to USA Today, Atmospheric Glow Technologies (AGT), with Roth as a consultant and subcontractor, promised a control system that would use plasma, rather than mechanical flaps, to lift the aircraft. Roth, an expert in plasma technology, was one of the founders of AGT, but later the company went public. The company specialized in use of plasma technology that was developed by UT.
AECA bars the transfer of sensitive information to foreign nationals without permission. Roth came under investigation in 2006 when UT export-control officials discovered his use of foreign nationals in his UT lab on the military contract. Government agents searched his office and seized his laptop computer when he returned from a lecture trip to China in May of 2006.
On August 20, 2008, AGT pleaded guilty to 10 counts of AECA violations from late 2004 to May 2006, reports the Knoxville News Sentinel. AGT, which is in bankruptcy, still faces probation and a maximum fine of $1 million for each AECA violation. Knoxville News Sentinel reports that, as part of the plea agreement, AGT’s board of directors now admits company officials knew Roth had allowed the China national access to information on the Air Force project without notifying the Department of Defense.
Daily updates on the trial can be found at www.knoxnews.com.
The Air Force contract involved developing lightweight flight control system technology for use in unmanned air vehicles, otherwise known as drones. According to USA Today, Atmospheric Glow Technologies (AGT), with Roth as a consultant and subcontractor, promised a control system that would use plasma, rather than mechanical flaps, to lift the aircraft. Roth, an expert in plasma technology, was one of the founders of AGT, but later the company went public. The company specialized in use of plasma technology that was developed by UT.
AECA bars the transfer of sensitive information to foreign nationals without permission. Roth came under investigation in 2006 when UT export-control officials discovered his use of foreign nationals in his UT lab on the military contract. Government agents searched his office and seized his laptop computer when he returned from a lecture trip to China in May of 2006.
On August 20, 2008, AGT pleaded guilty to 10 counts of AECA violations from late 2004 to May 2006, reports the Knoxville News Sentinel. AGT, which is in bankruptcy, still faces probation and a maximum fine of $1 million for each AECA violation. Knoxville News Sentinel reports that, as part of the plea agreement, AGT’s board of directors now admits company officials knew Roth had allowed the China national access to information on the Air Force project without notifying the Department of Defense.
Daily updates on the trial can be found at www.knoxnews.com.
Airlines Plead Guilty to Price Fixing Air Cargo Rates and Agree to Pay Criminal Fines of More than $500 Million
06/30/08 10:54 PM
On June 26, 2008, the United
States Department of Justice (DOJ) announced that five major international
airlines (Air France, Cathay Pacific, KLM Royal Dutch Airlines,
Martinair, and SAS) have agreed to each plead guilty and pay
criminal fines totaling $504 million for participating in a
multi-year conspiracy to fix prices for air cargo rates. Of the
total, Air France-KLM, which now operates under common ownership by
a single holding company, has agreed to pay a $350 million criminal
fine, the second highest ever levied in a criminal antitrust
prosecution, DOJ states.
According to the charges filed on June 26, 2008, the airlines each engaged in a conspiracy to suppress and eliminate competition by fixing the cargo rates charged to customers for international air shipments. The companies have each agreed to cooperate in the DOJ's ongoing investigation.
The DOJ stated:
According to the charges filed on June 26, 2008, the airlines each engaged in a conspiracy to suppress and eliminate competition by fixing the cargo rates charged to customers for international air shipments. The companies have each agreed to cooperate in the DOJ's ongoing investigation.
The DOJ stated:
The plea agreements are subject to court approval. Along with Air France-KLM’s $350 million fine, Cathay has agreed to pay a $60 million criminal fine, Martinair has agreed to pay a $42 million criminal fine, and SAS has agreed to pay a $52 million criminal fine. If the court accepts the plea agreements, it would bring the total fines imposed in the Antitrust Division’s investigation in the air transportation industry to more than $1.27 billion, marking the highest total amount of fines ever imposed in a criminal antitrust investigation.
CBP Develops New Online Trade Violation Reporting System
06/18/08 10:53 AM
On June 17, 2008, U.S. Customs and
Border Protection (CBP) announced
the development of a
new online trade violation reporting system called
eAllegations
to provide concerned
members of the public a means to confidentially report suspected
trade violations to CBP. eAllegations is open for public use as of
June 17, 2008.
CBP states that eAllegations is not intended to be used for reporting security issues such as terrorism or weapons of mass destruction, but rather is intended for trade violations such as misclassification, under valuation, country of origin markings, health and safety violations, intellectual property rights violations, and/or textile or other trade violations. CBP provided the following example --
To report a possible violation, the following information must be submitted via eAllegations: the type of trade violation, description of what has occurred, the products or goods involved in the violation, and the alleged violator's name and/or company. Other information may be provided on a voluntary basis.
CBP has provided frequently asked questions (FAQ) here.
CBP states that eAllegations is not intended to be used for reporting security issues such as terrorism or weapons of mass destruction, but rather is intended for trade violations such as misclassification, under valuation, country of origin markings, health and safety violations, intellectual property rights violations, and/or textile or other trade violations. CBP provided the following example --
eAllegations will provide a means to report a possible violator who is importing substandard steel, claiming that it is of a higher grade, therefore creating a potential safety issue. Other possible violations that can be reported include a company claiming a lower than actual value on a product they are importing to pay less duty or a company who is importing textiles from one country to avoid quota restrictions.
To report a possible violation, the following information must be submitted via eAllegations: the type of trade violation, description of what has occurred, the products or goods involved in the violation, and the alleged violator's name and/or company. Other information may be provided on a voluntary basis.
CBP has provided frequently asked questions (FAQ) here.
Retired Professor Indicted on 16 Counts for ITAR Violations
05/21/08 04:18 PM
On May 20, 2008, the
Department of Justice announced that a federal grand
jury returned an 18 count indictment charging J. Reece Roth, a
professor emeritus who headed University of Tennessee's Plasma
Sciences Lab, and Atmospheric Glow Technologies, Inc. (AGT), a
Knoxville-based company Roth helped found, of conspiring to defraud
the U.S. Air Force and disclose restricted U.S. military data about
unmanned aerial vehicles (UAV) or "drones" to foreign nationals
without first obtaining the required U.S. government license or
approval. (The indictment is available here on Clif Burns' Export
Law Blog.) Graduate students from China and Iran are alleged to
have been given unfettered access to controlled
technology.
Roth, who is 70 and now retired, was charged with one count of conspiracy to defraud the U.S. Air Force and violate the Arms Export Control Act (AECA); 15 counts of violating the AECA; and one count of wire fraud for defrauding the University of Tennessee. AGT is charged in the indictment with one count of conspiracy to defraud the U.S. Air Force and violate the AECA and 10 counts of violating the AECA.
The DOJ announcement states that:
Violations of the AECA carry a maximum possibly penalty of 10 years imprisonment and a $1 million fine. Wire fraud carries a maximum penalty of 20 years imprisonment and a $250,000 fine and conspiracy carries a maximum penalty of 5 years imprisonment and a $250,000 fine.
Roth, who is 70 and now retired, was charged with one count of conspiracy to defraud the U.S. Air Force and violate the Arms Export Control Act (AECA); 15 counts of violating the AECA; and one count of wire fraud for defrauding the University of Tennessee. AGT is charged in the indictment with one count of conspiracy to defraud the U.S. Air Force and violate the AECA and 10 counts of violating the AECA.
The DOJ announcement states that:
United States Attorney Russ Dedrick said, “The protection of United States technology is a continuing priority of the Department of Justice and this District. Whenever restricted U.S. military data is illegally disclosed to foreign nationals, America’s security is put at risk. Today’s indictment demonstrates just how seriously we view such violations.”According to the indictment, between January 2004 and May 2006, Roth and AGT engaged in a conspiracy to defraud the U.S. Air Force and transmit export-controlled technical data related to a restricted U.S. Air Force contract to develop plasma actuators for a munitions-type UAV, or “drone,” to one or more foreign nationals, including a citizen from the People’s Republic of China. The Chinese national was a graduate research assistant at the University of Tennessee. The University of Tennessee was victimized by the conspirators and cooperated throughout with the Federal Bureau of Investigation (FBI) led federal investigation.
Violations of the AECA carry a maximum possibly penalty of 10 years imprisonment and a $1 million fine. Wire fraud carries a maximum penalty of 20 years imprisonment and a $250,000 fine and conspiracy carries a maximum penalty of 5 years imprisonment and a $250,000 fine.
Company Agrees to Pay $22 Million Penalty for FCPA Violations
05/15/08 10:48 PM
On May 14, 2008, the
Department of Justice (DOJ) announced that Willbros Group
Inc., a publicly traded company that provides construction,
engineering, and other services in the oil and gas industry, and
its wholly owned subsidiary, Wilbros International Inc. have agreed
to pay a $22 million penalty in connection with corrupt payments to
Nigerian and Ecuadorean government officials in violation of the
Foreign Corrupt Practices Act (FCPA).
The DOJ stated:
The DOJ stated:
According to the criminal information, from late 2003 through March 2005, Willbros employees agreed to make corrupt payments totaling more than $6.3 million to Nigerian government officials to assist in obtaining and retaining a $387 million contract for work on a major engineering, procurement and construction gas pipeline project known as the Eastern Gas Gathering System (EGGS). In exchange for the EGGS project, the conspirators corruptly paid, promised to pay and authorized payments to officials of the Nigerian National Petroleum Corporation (NNPC), the state-owned oil company in Nigeria; NNPC’s subsidiary, the National Petroleum Investment Management Services (NAPIMS); a senior official in the executive branch of the Nigerian federal government; officials of a multinational oil company serving as the operator of the EGGS joint venture; and a political party.
In recognition of Willbros' thorough review of the improper payments, the companies’ exemplary cooperation, the companies’ implementation of enhanced compliance policies and procedures, and the companies’ engagement of an independent corporate monitor, the Department has agreed to defer prosecution of these companies for three years. If Willbros Group and Willbros International abide by the terms of the agreement, the Department will dismiss the criminal information when the term of the agreement ends.
Chinese Grad Student Involvement Leads to Criminal Case: Physicist Pleads Guilty to ITAR Violation
04/16/08 01:08 AM
On April 15, 2008, the Department
of Justice announced that Daniel Max Sherman, a
physicist who formerly worked as the director of plasma research at
Atmospheric Glow Technologies, Inc., a Knoxville, Tennessee based
company. According the to plea agreement, between January 2004 and
May 2006, Sherman and J. Reece Roth, a Professor Emeritus at the
University of Tennessee, engaged in a conspiracy to transmit export
controlled technical data related to a restricted U.S. Air Force
contract to develop plasma actuators for munitions-type Unmanned
Aerial Vehicle (UAV) or "drones", to a foreign national from the
People's Republic of China.
The Chinese national was a graduate research assistant at the University of Tennessee. The DOJ reported that the University of Tennessee was victimized by the conspirators and cooperated throughout the FBI-led investigation.
Mr. Roth has not been charged in the case. The investigation of Mr. Roth has been watched closely by those in academics since May 2006 when it was reported that Customs agents copied his laptop as he returned from a trip to China and that search warrants were executed at his office and laboratory. University officials who monitor export control compliance believe that the Tennessee case may have arisen due to the involvement of a for-profit company. The International Traffic in Arms Regulations (ITAR) exempts fundamental research done by universities that is ordinarily published and shared broadly within the scientific community. However, when a private company is involved and the research is proprietary or restricted from publication or disclosure, no exemption applies.
A report on the matter in the New York Sun contained these insights from university officials:
The Chinese national was a graduate research assistant at the University of Tennessee. The DOJ reported that the University of Tennessee was victimized by the conspirators and cooperated throughout the FBI-led investigation.
Mr. Roth has not been charged in the case. The investigation of Mr. Roth has been watched closely by those in academics since May 2006 when it was reported that Customs agents copied his laptop as he returned from a trip to China and that search warrants were executed at his office and laboratory. University officials who monitor export control compliance believe that the Tennessee case may have arisen due to the involvement of a for-profit company. The International Traffic in Arms Regulations (ITAR) exempts fundamental research done by universities that is ordinarily published and shared broadly within the scientific community. However, when a private company is involved and the research is proprietary or restricted from publication or disclosure, no exemption applies.
A report on the matter in the New York Sun contained these insights from university officials:
"If you're blurring the lines between the work you do at one place and the work you do at another, you can quickly get into trouble," Patrick Schlesinger of the University of California said. Doing only publishable research also allows universities to avoid segregating foreigners, a task that may be impractical in physical science programs where American citizen students are often a minority. "If we want to preserve that safe harbor, we also need to be very vigilant," Steven Eisner of Stanford University said. "This particular case in Tennessee will wake up the university community to export controls if they weren't aware of it already."
California Engineer Sentenced to 24 Years in Prison
03/27/08 05:45 PM
The Los Angeles Times
reported on March 25, 2008 that a
Chinese-born, naturalized U.S. citizen was sentenced to 24 years
and five months in federal prison and fined $50,000 for conspiring
to export ITAR-controlled technology to China. Chi Mak, 67, was a
former electrical engineer at Power Paragon, Inc. of Anaheim, CA,
which handled Navy contracts. Mak was convicted of conspiracy to
violate export control laws, attempting to violate export control
laws, acting as an unregistered agent of China, and lying to the
FBI.
Mak's conviction was the culmination of an 18-month long investigation of Mak's family that ended in October 2005 when he and four other family members were arrested by the FBI and charged with a scheme to illegally send military information to China. Mak's wife, brother, sister-in-law, and nephew have all pleaded guilty and agreed to jail terms or probation.
The government's case centered around three encrypted computer disks that the family had tried to take with them on a flight to China. Two of the disks contained information about an electrically powered propulsion system for warships and a solid-state power switch for ships. The third disk contained a Powerpoint presentation on the future of power electronics. Witnesses during the trial testified that some of these materials were available for purchase on the website of the American Society of Naval Engineers until the government put a stop to it. In addition, Mak's attorney stated that information contained on one of the disks was discussed at an international conference attended by Chinese engineers and the FBI.
Mak's attorney stated that Mak was "sentenced as a trophy rather than a human being" and the case against Mak was unwarranted. Mak will serve his sentence in a low security federal prison.
Mak's conviction was the culmination of an 18-month long investigation of Mak's family that ended in October 2005 when he and four other family members were arrested by the FBI and charged with a scheme to illegally send military information to China. Mak's wife, brother, sister-in-law, and nephew have all pleaded guilty and agreed to jail terms or probation.
The government's case centered around three encrypted computer disks that the family had tried to take with them on a flight to China. Two of the disks contained information about an electrically powered propulsion system for warships and a solid-state power switch for ships. The third disk contained a Powerpoint presentation on the future of power electronics. Witnesses during the trial testified that some of these materials were available for purchase on the website of the American Society of Naval Engineers until the government put a stop to it. In addition, Mak's attorney stated that information contained on one of the disks was discussed at an international conference attended by Chinese engineers and the FBI.
Mak's attorney stated that Mak was "sentenced as a trophy rather than a human being" and the case against Mak was unwarranted. Mak will serve his sentence in a low security federal prison.
Minnesota Company Fined $400,000 for Export Violations
03/13/08 03:07 PM
MTS Systems Corp. of Eden Prairie,
MN, pleaded guilty and was sentenced on March 12, 2008 in
connection with submitting false export license applications to the
U.S. Department of Commerce for proposed shipments to India. (The
DOJ news release can be found here.) MTS Systems Corp. was sentenced
to two years probation and a $400,000 fine. Pursuant to the plea
agreement, the court also ordered MTS to implement and maintain a
model export compliance program and to sponsor an export compliance
conference to be held at a future date.
The government alleged that MTS submitted a false export license application when it omitted any corporate knowledge of a possible nuclear end-use for seismic testing equipment to be shipped to India. Assistant Secretary of Commerce for Export Enforcement Darryl W. Jackson stated, "Omitting material information to a licensing official about the intended end-use of a controlled technology item is a serious offense. In this case, the omission clearly was an attempt to disguise the end-use of testing structural components of nuclear-power plants."
The case was the result of an investigation by BIS and ICE.
The government alleged that MTS submitted a false export license application when it omitted any corporate knowledge of a possible nuclear end-use for seismic testing equipment to be shipped to India. Assistant Secretary of Commerce for Export Enforcement Darryl W. Jackson stated, "Omitting material information to a licensing official about the intended end-use of a controlled technology item is a serious offense. In this case, the omission clearly was an attempt to disguise the end-use of testing structural components of nuclear-power plants."
The case was the result of an investigation by BIS and ICE.
BIS Fines Northrup Grumman $400,000 for Illegal Exports of Navigational Equipment
01/26/08 12:04 AM
On
January 25, 2008, the Commerce Department's Bureau of Industry
& Security (BIS) announced that Northrop Grumman agreed to pay a $400,000
civil penalty to settle allegations that it committed 131
violations of the Export Administration Regulations (EAR), both in
its own capacity and as successor to Litton Industries, Inc., which
it acquired in April 2001.
BIS states, "The allegations primarily involved unlicensed exports of specially designed components for navigation equipment and module manufacturing data that were to destinations in the Philippines, Singapore, Malaysia, Italy, and the United Kingdom between January 1998 and September 2002." Northrop Grumman made a voluntary self disclosure of these violations and cooperated fully in the investigation per BIS.
BIS states, "The allegations primarily involved unlicensed exports of specially designed components for navigation equipment and module manufacturing data that were to destinations in the Philippines, Singapore, Malaysia, Italy, and the United Kingdom between January 1998 and September 2002." Northrop Grumman made a voluntary self disclosure of these violations and cooperated fully in the investigation per BIS.
Former U.S. Defense Contractor Engineer Indicted For Spying
01/06/08 11:36 PM
The Washington Times
reported on December 12, 2007 that Noshir S. Gowadia, an
Indian-born engineer who former worked for Northop Grumman spent
more than two years working with China's military to design and
test a radar-evading component for a new Chinese cruise missile as
part of an espionage conspiracy, according to a federal indictment
submitted to the U.S. District Court in Hawaii in October 2997. The
indictment states that he worked closely with a Chinese government
agent and missile technicians during six visits to China between
2003 and 2005.
According to the indictment,
According to the indictment,
CBP Textile Enforcement Fiscal Year 2007 Review
12/17/07 12:58 AM
On December 17, 2007,
the U.S. Customs House Guide posted a review of Customs and
Border Protection (CBP) for Fiscal Year 2007. The report states
that among this year's accomplishments
are:
-
In FY 2007 CBP increased foreign factory visits by 57%. CBP visited 671 foreign factories to monitor for illegal transshipment by sending textile production verification teams (TPVT) to confirm actual country of origin and compliance with trade preference programs. These teams examine production documents at foreign factories to ensure that potentially violative shipments are stopped before being shipped to the United States;
-
CBP visited 168 foreign factories in 10 countries in FY 2007 to verify claims involving Free Trade Agreements like the Central America - Dominican Republic Free Trade Agreement and other trade preference programs such as the African Growth and Opportunity Act;
-
CBP auditors conducted 66 audits on textile importers and recommended additional revenue collections of $5.61 million in FY 2007 - an increase of 57% in audit activity;
-
CBP officers at the ports of entry examined 13,327 shipments in FY 2007 and found more than 2,300 shipments where discrepancies were identified;
-
Further, Import Specialists initiated 1,905 reviews of entry documents resulting in 959 detained shipments and 314 seized shipments worth $48.1 million for violations of China quota restraints; and
-
CBP also initiated 68 actions totaling $50.1 million in penalties for commercial fraud.
Pennsylvania Company Fined $470,000 for Export Violations
12/10/07 03:22 PM
On December 7, 2007, the
Bureau of Industry and Security (BIS) announced that Mine Safety
Appliances Company (MSA) of Pittsburgh, PA agreed to pay a $470,000
civil penalty. The settlement arose from allegations that MSA,
through its branch office in Abu Dhabi, MSA Middle East, violated
the Export Administration Regulations (EAR) on 107 occasions. The
allegations relate to the reexport of safety equipment from the UAE
to Iran and Syria without the required export licenses.
"Preventing the diversion of U.S.- origin goods so that they do not support the economies of countries that sponsor terrorism, such as Syria and Iran, is extremely important," said Darryl Jackson, assistant secretary of commerce for export enforcement. "This case demonstrates that companies must take extra care when implementing compliance programs with foreign subsidiaries.”
BIS alleged that between May 2001 and December 2005, MSA Middle East made 107 reexports of EAR99 and controlled items, including helmets, gas masks, detection equipment, filters, and other safety equipment to Iran and Syria from the UAE without required export licenses.
BIS stated that MSA voluntarily disclosed these violations to BIS and cooperated fully in the investigation, which was a mitigation factor in calculating the penalty. In addition, MSA received mitigation credit for its compliance efforts.
BIS stated:
"Preventing the diversion of U.S.- origin goods so that they do not support the economies of countries that sponsor terrorism, such as Syria and Iran, is extremely important," said Darryl Jackson, assistant secretary of commerce for export enforcement. "This case demonstrates that companies must take extra care when implementing compliance programs with foreign subsidiaries.”
BIS alleged that between May 2001 and December 2005, MSA Middle East made 107 reexports of EAR99 and controlled items, including helmets, gas masks, detection equipment, filters, and other safety equipment to Iran and Syria from the UAE without required export licenses.
BIS stated that MSA voluntarily disclosed these violations to BIS and cooperated fully in the investigation, which was a mitigation factor in calculating the penalty. In addition, MSA received mitigation credit for its compliance efforts.
BIS stated:
Parties who may have been involved in violations of the EAR are encouraged to submit a Voluntary Self Disclosure (VSD) to BIS’s Office of Export Enforcement, as provided in Part 764.5 of the EAR. VSDs are an important indicator of parties’ intent to bring themselves into compliance with the EAR, and may provide BIS important information on illicit proliferation networks. A VSD is considered a “great weight” mitigating factor in the settlement of BIS administrative cases.
Silicon Valley Export Broker Sentenced to 2 Years in Prison for Illegal Exports to China
12/04/07 01:08 PM
On December 4, 2007,
the San Jose Mercury News
reported that a Cupertino, CA man
was sentenced to two years in prison and ordered to pay a fine of
$50,000 for exporting controlled night vision equipment to
China.
Philip Cheng, an export broker, was indicted in 2004 on export control and arms trafficking violations for his role in brokering the sale of night vision gear to Chinese governement authorities. Cheng, 60, pleaded guilty after a mistrial in which a jury voted 11-1 for conviction. He was sentenced by United States District Court Judge Ronald M. Whyte in San Jose today.
The Mecury News reports:
Philip Cheng, an export broker, was indicted in 2004 on export control and arms trafficking violations for his role in brokering the sale of night vision gear to Chinese governement authorities. Cheng, 60, pleaded guilty after a mistrial in which a jury voted 11-1 for conviction. He was sentenced by United States District Court Judge Ronald M. Whyte in San Jose today.
The Mecury News reports:
Federal authorities accused Cheng and Martin Shih, founder of Night Vision Technology, of selling a Panther series infrared camera to the North China Research Institute of Electro-Optics and the China National Electronics Import & Export Corporation. Authorities said the equipment could be used by China's military. Shih has since died of cancer. Cheng will begin serving his sentence on Feb. 18.
Export Penalties Increase to $250,000 or More Per Violation
12/01/07 10:04 PM
The new law
increases civil penalties from $50,000 to the
greater of
either $250,000 or twice the amount of the transaction
that is the
basis for the violation. Fines for willful and knowing violations
(criminal
penalties) were increased from
$50,000 to
$1,000,000 with the maximum term of
imprisonment remaining at 20 years.
Prior to changes brought by the USA PATRIOT ACT Improvement and
Reauthorization Act of 2005, which went into effect in March 2006,
civil penalties for such violations were limited to only $11,000
per violation and the maximum term of imprisonment was only 10
years.
Thus, the new penalties are 250 times the amount of just 2 years
ago!
Under the new law, it appears that even low dollar amount
transactions could be subject to the maximum civil penalty of up to
$250,000. For example, if a violative export transaction of $5,000
occurred, the Department of Commerce’s Bureau of Industry and
Security (BIS) could impose a penalty of up to $250,000 (the
greater) versus a penalty of up to twice the amount of the
transaction, or $10,000 (the lesser).
Moreover, BIS or OFAC could impose a much higher penalty in the
case of a large dollar amount transaction. For example, in the case
of a violative export transaction or wire transfer of $1.5 million,
BIS or OFAC would have the authority to impose a maximum penalty of
twice the amount of the transaction or $3 million.
It remains to be seen how BIS or OFAC will actually assess maximum
penalties in practice.
However, in a November 1, 2007 BIS Fact Sheet, BIS states that it
will continue to grant up to a 25% reduction of the amount of
penalties to be assessed for the existence of an effective export
compliance program in place before the violation and later
upgraded. Furthermore, for all valid Voluntary Self-Disclosures,
BIS will generally reduce any calculated penalty by at least 50% -
and does so after considering the aggravating and mitigating
factors in the case.
Keep in mind that
penalties may increase even more in the near
future. Senator Christopher
Dodd introduced bill S. 2000 on August 3, 2007, that is intended to
increase the enforcement authority and extend the Export
Administration Act of 1979. If that bill is passed, the Export
Administration Act of 2007 will increase the
maximum civil penalty to
$500,000 per violation. It will also increase
the
maximum criminal penalties to the greater of $5 million or 10 times
the value of the transactions involved for
corporations and $1,000,000 and 10 years imprisonment for
individuals.
Qantas Airways Agrees to Plead Guilty and Pay $61 Million Fine for Cargo Price Fixing
11/29/07 12:26 PM
The DOJ reports that during the time period of the felony charge, Qantas was the largest carrier of cargo between the United States and Australia and earned more than $600 million from its cargo flights to and from the United States. Under the plea agreement, which is subject to court approval, Qantas has agreed to cooperate with the DOJ in the ongoing investigation.
Thomas O. Barnett, Assistant Attorney General in charge of the Department's Antitrust Division, stated:
Qantas’ guilty plea sends a clear message that those who engage in price fixing and other forms of illegal collusion will pay a heavy price for their crimes. The shipment of consumer products by air transportation is critical to our global economy. Our investigation into this important industry will continue, and we will aggressively pursue those who engage in criminal conduct that harms American consumers.
In August 2007, British Airways Plc and Korean Air Lines Co. Ltd. pleaded guilty and were sentenced to pay separate $300 million criminal fines for their roles in conspiracies to fix the prices of passenger and cargo flights
The ongoing investigation is being conducted by the Antitrust Division’s National Criminal Enforcement Section and the Federal Bureau of Investigation.
OFAC Issues Updated Enforcement Information
11/28/07 11:23 AM
OFAC states that these new penalties are applicable to all enforcement actions that are pending or commenced on or after October 16, 2007 and interprets this provision to mean that the new civil penalty provisions apply to all violations with respect to which a Final Penalty Notice had not been issued as of October 16, 2007.
OFAC intends to publish revised enforcement guidelines and procedures to account for the new maximum penalty amounts set forth in the IEEPA Enforcement Act. Until that time, OFAC will continue to apply its current enforcement guidelines which are set out in the notice. As a practical matter, OFAC states that this means that prepenalty notices will generally be issued at the transaction amount. Aggravating and mitigating factors and percentages set forth in the current guidelines will continue to be applied.
However, OFAC lists the following exceptions to those rules:
- PPN Mailed - Where a prepenalty notice ("PPN") has been mailed to the cited party prior to October, 16, 2007, OFAC will not impose a penalty in excess of the PPN and will continue to apply the current enforcement guidelines to calculate the penalty amount.
- Tentative Settlement Amount Communicated and Memorialized - Where OFAC has communicated to a party that an settlement amount would be recommended internally, and the party has made a written settlement offer to OFAC, OFAC will continue to process the settlement under the terms of the communication from OFAC.
- SOL Waivers - In those cases where a party has agreed to a statute of limitations ("SOL") waiver and the SOL would have expired prior to October 16, 2007, OFAC will calculate the penalty amounts in accordance with the maximum penalty applicable at the time the waiver was signed.
Importer Fined $7.5 Million for Declaring Incorrect Customs Values
11/12/07 02:13 PM
Based on the facts found at trial, Seaveg would negotiate the initial price for the produce with the Mexican growers by telephone and then, under an agreement with its suppliers, receive an invoice at 70% of the negotiated price, with the understanding that the remaining 30% would be paid within 60 days of delivery into storage after certain adjustments were made. At the time of entry, the invoice at 70% of the true sales price was declared value to Customs. However, neither Inn Foods, Seaveg, nor the customs broker informed Customs that the invoice values declared at the time of entry were "provisional."
Firstly, the court found that Inn Foods was responsible for all of the liabilities despite the fact that Seaveg and Inn Foods were incorporated as two separate entities because it found that Seaveg was an alter ego or alias of its sister subsidiary Inn Foods.
Secondly, the court found that Inn Foods' conduct was fraudulent as Customs had proved that Inn Foods had deliberately introduced merchandise into the commerce of the United States by means of material false statements with the intent to defraud the revenue or otherwise violate the laws of the United States. Although Inn Foods and Seaveg argued that there was no evidence adduced at trial that indicates that "Inn Foods knew or understood the legal effect of post-importation price adjustments to the price actually paid or payable to the grower/packers based on the U.S. resale prices," the court found the argument to needlessly confuse the crux of the wrongdoing. The court stated that the wrongdoing is that:
Inn Foods knew that (1) the prices on the subject entries were significantly undervalued, (2) these undervaluations caused a commensurate reduction in lawful Customs duties owed and (3) there was no plan or intention to correct these undervaluations. . . . Therefore, while Inn Foods correctly states that "there is nothing sinister, per se, about provisional pricing agreements," it is not the provisional pricing agreement here that is at issue, but the underlying undervaluation scheme which the provisional pricing agreements only play a part.
Customs sought $624,602.55 in unpaid duties and merchandise processing fees and civil penalties in the amount of $15,319,513.35 if Inn Foods' conduct was found to be fraudulent. In determining the penalty to be assessed, the court noted that for violations of fraud, the maximum penalty is the domestic value of the merchandise with no set minimum penalty and that the court possesses the discretion to determine a penalty within the parameters of the statute. After considering a number of factors as set forth in United States v. Complex Machine Works Co., 23 CIT 942, 949-50, 83 F. Supp. 2d 1307, 1315 (1999), the court ordered that Inn Foods pay $624,602.55 for unpaid duties plus pre-judgment and post-judgment interest, and civil penalties in the amount of $7,500,000.00, plus costs and fees and interest from the date of judgment.
This case represents a cautionary tale for importers who use any type of provisional invoices, including those importers who true-up customs valuations at some point after entry due to the additions to value, such as assists, royalties, buying commissions, etc. Importers have a continuing obligation to review the correctness of information contained in invoices used as entry documents, and to declare to Customs the true and correct value of the goods at the time of entry. See 19 U.S.C. §§ 1484 and 1485. Accordingly, importers should maintain proactive internal controls over their Customs valuation and understand the impact of the full financial transaction for imported goods, including any possible additions to value.
If an intercompany or transfer price is declared as the customs value of an imported good, an importer should assess whether the intercompany or transfer price satisfies the customs valuation statute independent of the acceptability of the price for tax purposes. See Customs' Informed Compliance Publication, Determining the Acceptability of Transaction Value for Related Party Transactions. In addition, importers who utilize a customs value that must be adjusted subsequent to entry should consider joining Customs' Reconciliation program. This program allows importers to declare estimated customs values and subsequently adjust those values to final values and pay or be refunded any additional duties or fees owed.
Finally, an importer may be able to limit its liabilities for valuation and other errors it discovers on its own by filing a prior disclosure with Customs. By filing a prior disclosure, an importer voluntarily discloses to Customs the factual circumstances of a violation of the customs statute and tenders any duties and fees owing. If the prior disclosure is done properly, the importer's liability for penalties can be reduced to the interest owed, unless fraud is found.
Global Trade Expertise can assist with an importer in assessing the validity of their customs valuations, joining CBP's Reconciliation program, and/or filing a valid prior disclosure with CBP. Please contact us for assistance.
Customs Seizes Counterfeit Footwear and Jackets Worth $2 Million
11/07/07 03:44 PM
The report states that during fiscal year 2006, CBP made more than 14,000 seizures of counterfeit goods worth more than $155 million that violated intellectual property laws. Footwear and wearing apparel are among the top commodities seized by CBP in fiscal year 2006.
BIS Issues Press Release and Fact Sheet on Implementation of Enhanced IEEPA Penalty Provisions
11/02/07 11:24 PM
On November 1, 2007, BIS
issued a press release and fact sheet regarding welcoming the
enhanced penalties of the International Emergency Economic Powers
Enhancement Act (IEEPA) signed into law by President Bush on
October 16, 2007.
In its press release, BIS states:
The significant changes provided under the Act include:
In its press release, BIS states:
The significant changes provided under the Act include:
- Additional Unlawful Acts: Section 206(a) of IEEPA is amended to clarify that civil penalties may be assessed against those who conspire to violate, or cause a violation of any license, order, regulation, or prohibition of title 50 of the United States Code.
- Administrative Penalties: A civil penalty amounting to the greater of $250,000, or twice the value of the transaction that is the basis of the violation (Enhanced Penalties), may be imposed for each violation of IEEPA.
- Effective Date/Retroactivity: The new civil penalties apply to enforcement action that are pending, which BIS interprets an action to be if a Final Order has not been signed, or commenced on or after October 16, 2007.
- Criminal Penalties: Violators can be fined up to $1,000,000 and/or up to 20 years in prison. Additionally, criminal liability is provided for anyone who “willfully conspires to commit, or aids or abets in the commission of” an unlawful act described in the statute.
- Effective Date: The new criminal penalties apply to criminal enforcement actions commenced on or after October 16, 2007.
Court Refuses to Dismiss $42 Mil Recordkeeping Penalty
09/28/07 11:55 AM
The U.S. District Court
for the Western District of Texas issued an order on September 27,
2007 denying Ford Motor Company's motion to dismiss a $42 million
recordkeeping lawsuit brought by U.S. Customs and Border Protection
("CBP"). The lawsuit began when Ford refused to answer an
administrative summons by CBP demanding documents relation to
imports of products from Mexico under a NAFTA Certificate of
Origin. Ford claimed that the documents sought by CBP were not
"entry records" and thus, Ford had no obligation to keep those
records. The records in question all involved components used by
the Mexican exporter to manufacture the products purchased by
Ford.
The Court disagreed with Ford and claimed that the "(a)(1)(A) list"of entry records includes "NAFTA Certificate[s] of Origin and supporting records." It then held, as a matter of law, that the documents requested by CBP were "supporting records" to the NAFTA Certificates of Origin and therefore qualified as entry records.
The Court went on to reject Ford's arguments that it should not be responsible for documents that were both created and maintained solely by the exporter. Even though the Court noted that the CBP publication, NAFTA Focused Assessment Program Guidelines, states that an importer is not responsible to maintain supporting documentation that is certified by the exporter of the NAFTA Certificate of Origin, the Court stated that the publication does not have the force of law to contradict the (a)(1)(A) list recordkeeping requirements.
The Court's order will allow CBP to continue pursuing the $42 million recordkeeping penalty against Ford. More importantly, it may create judicial precedent that should cause NAFTA importers to greatly expand their recordkeeping programs.
The Court disagreed with Ford and claimed that the "(a)(1)(A) list"of entry records includes "NAFTA Certificate[s] of Origin and supporting records." It then held, as a matter of law, that the documents requested by CBP were "supporting records" to the NAFTA Certificates of Origin and therefore qualified as entry records.
The Court went on to reject Ford's arguments that it should not be responsible for documents that were both created and maintained solely by the exporter. Even though the Court noted that the CBP publication, NAFTA Focused Assessment Program Guidelines, states that an importer is not responsible to maintain supporting documentation that is certified by the exporter of the NAFTA Certificate of Origin, the Court stated that the publication does not have the force of law to contradict the (a)(1)(A) list recordkeeping requirements.
The Court's order will allow CBP to continue pursuing the $42 million recordkeeping penalty against Ford. More importantly, it may create judicial precedent that should cause NAFTA importers to greatly expand their recordkeeping programs.
Export Control Freaks?
09/12/07 10:08 PM
An article
entitled, Export Control
Freaks, appeared today on
Forbes website regarding the increased enforcement of export
control penalties especially in regard to exports to China. The
article discusses the U.S. government's concern over the potential
for Seagate Technology to be purchased by a Chinese company and
highlights recent enforcement actions against Springer Magrath Co.
(resulting in a penalty of $500,000) and Armor Holdings (a division
of BAE Systems) (resulting in a $1.1 million settlement agreement).
The Armor Holdings settlement agreement was related to charges that
Armor exported plastic handcuffs above the allowable license value.
Armor had exported $1,980 under a license that allowed exports up
to $1,000 in value.