Enforcement
French Company Settles FCPA Charges for $240 Million
06/30/10 12:31 PM
On
June 28, 2010, Department of Justice (DOJ)
announced that Technip
S.A., a global engineering, construction, and
services company based in Paris, France, has
agreed to a $240 million criminal penalty to
resolve charges related to the Foreign Corrupt
Practices Act (FCPA) for its participation in a
decade-long scheme to bribe Nigerian government
officials to obtain engineering, procurement,
and construction (EPC) contracts. The EPC
contracts to build liquefied natural gas (LNG)
facilities on Bonny Island, Nigeria, were valued
at more than $6 billion.
DOJ filed a deferred prosecution agreement and a criminal information against Technip in the U.S. District Court for the Southern District of Texas. The two-count information charges Technip with one count of conspiracy and one count of violating the FCPA.
Technip, Kellogg Brown & Root Inc (KBR) and two other companies were part of a joint venture that was awarded four EPC contracts by Nigeria LNG Ltd. (NLNG) between 1995 and 2004 to build LNG facilities on Bonny Island. The government-owned Nigerian National Petroleum Corporation (NNPC) was the largest shareholder of NLNG.
According to court documents, Technip authorized the joint venture to hire two agents to pay bribed to a range of Nigerian government officials, including top-level executive branch officials, to assist Technip and the joint venture in obtaining the EPC contracts. The joint venture paid approximately $182 million to its agents to be forwarded to Nigerian government officials as bribes.
Under the terms of the deferred prosecution agreement, DOJ agreed to deter prosecution of Technip for two years. Meanwhile, Technip is obligated to obtain an independent compliance monitor for a two-year period to review the design and implementation for Technip’s compliance program and to cooperate with the department in ongoing investigations. If Technip abides by the terms of the deferred prosecution agreement, DOJ will dismiss the criminal information when the term of the agreement expires.
Technip also reached a settlement of a related civil complaint filed by the Securities and Exchange Commission (SEC) charging Technip with violating the FCPA’s anti-bribery, books and records, and internal controls provisions. As part of this settlement, Technip agreed to pay $98 million in disgorgement of profits relating to those violations.
Including today’s resolutions, a total of $917 million in criminal and civil penalties have been obtained to date as a result of the ongoing DOJ and SEC investigations of the scheme to bribe Nigerian government officials in order to win the Bonny Island EPC contract.
DOJ filed a deferred prosecution agreement and a criminal information against Technip in the U.S. District Court for the Southern District of Texas. The two-count information charges Technip with one count of conspiracy and one count of violating the FCPA.
Technip, Kellogg Brown & Root Inc (KBR) and two other companies were part of a joint venture that was awarded four EPC contracts by Nigeria LNG Ltd. (NLNG) between 1995 and 2004 to build LNG facilities on Bonny Island. The government-owned Nigerian National Petroleum Corporation (NNPC) was the largest shareholder of NLNG.
According to court documents, Technip authorized the joint venture to hire two agents to pay bribed to a range of Nigerian government officials, including top-level executive branch officials, to assist Technip and the joint venture in obtaining the EPC contracts. The joint venture paid approximately $182 million to its agents to be forwarded to Nigerian government officials as bribes.
Under the terms of the deferred prosecution agreement, DOJ agreed to deter prosecution of Technip for two years. Meanwhile, Technip is obligated to obtain an independent compliance monitor for a two-year period to review the design and implementation for Technip’s compliance program and to cooperate with the department in ongoing investigations. If Technip abides by the terms of the deferred prosecution agreement, DOJ will dismiss the criminal information when the term of the agreement expires.
Technip also reached a settlement of a related civil complaint filed by the Securities and Exchange Commission (SEC) charging Technip with violating the FCPA’s anti-bribery, books and records, and internal controls provisions. As part of this settlement, Technip agreed to pay $98 million in disgorgement of profits relating to those violations.
Including today’s resolutions, a total of $917 million in criminal and civil penalties have been obtained to date as a result of the ongoing DOJ and SEC investigations of the scheme to bribe Nigerian government officials in order to win the Bonny Island EPC contract.
Freight Forwarder Settles Allegation Of Antiboycott Violation
06/25/10 04:26 PM
On
June 25, 2010, the U.S. Department of Commerce’s
Bureau of Industry and Security (BIS)
announced that Plane
Cargo Inc. (PCI), a freight forwarder located in
Houston, TX, has agreed to pay a $5,200 civil
penalty to settle allegations that it violated
the antiboycott provisions of the Export
Administration Regulations (EAR).
The announcement provided that:
The announcement provided that:
BIS, through its Office of Antiboycott Compliance, alleged that on one occasion in 2003, PCI, in connection with a transaction involving the sale and transfer of goods from the United States to Syria, furnished an invoice to a company in Syria that certified that the goods were not of Israeli origin in violation of the antiboycott provisions of the EAR. PCI cooperated fully with the investigation.
VA Resident Sentenced for FCPA Violations
06/25/10 12:24 PM
On
June 25, 2010, the U.S. Department of
Justice announced that John
Webster Warwick, a 64-year old Virginia Beach,
VA, resident, was sentenced in U.S. District
Court in Richmond, VA, to 37 months in prison
for conspiring to pay bribes to former
Panamanian government officials to secure
maritime contracts.
On February 10, 2010, Warwick pleaded guilty to conspiracy to make corrupt payments to foreign government officials for the purpose of securing business for Ports Engineering Consultants Corporation (PECC) in violation of the Foreign Corrupt Practices Act (FCPA).
According to court documents, Warwick and others conspired to pay money secretly to Panamanian government officials for awarding contracts to PECC. In December 1997, the Panamanian government awarded PECC a no-bid 20-year concession. In December 1997, Warwick and others authorized payments to be made to the Panamanian government officials, which totaled more than $200,000.
In addition to the prison term, Warwick forfeited $331,000 in proceeds of the conspiracy and will be subject to a two-year supervised release following his prison term.
On February 10, 2010, Warwick pleaded guilty to conspiracy to make corrupt payments to foreign government officials for the purpose of securing business for Ports Engineering Consultants Corporation (PECC) in violation of the Foreign Corrupt Practices Act (FCPA).
According to court documents, Warwick and others conspired to pay money secretly to Panamanian government officials for awarding contracts to PECC. In December 1997, the Panamanian government awarded PECC a no-bid 20-year concession. In December 1997, Warwick and others authorized payments to be made to the Panamanian government officials, which totaled more than $200,000.
In addition to the prison term, Warwick forfeited $331,000 in proceeds of the conspiracy and will be subject to a two-year supervised release following his prison term.
Iranian National Convicted of Export Violations
06/17/10 11:49 AM
On
June 17, 2010, the U.S. Department of
Justice announced that Omid
Khalili, an Iranian national, pleaded guilty in
U.S. District Court for the Southern District of
Alabama to attempting to illegally export
fighter jet or military aircraft parts from the
U.S. to Iran.
Khalili and other defendant were charged in a nine-count indictment returned on January 28, 2010, with conspiracy, money laundering, smuggling, and violations of the Arms Export Control Act (AECA), and the International Emergency Economic Powers Act (IEEPA).
According to court documents, Khalili and his co-conspirator have been working with the Iranian government to procure military items for the Iranian government. In November 2009, Khalili contacted an undercover agent seeking parts for the military aircraft for export to Iran.
The parts requested by Khalili are designated as defense articles on the U.S. Munitions List and require a U.S. State Department export license. In addition, these items may not be exported to Iran without a license from the U.S. Treasury Department due to the U.S. trade embargo on Iran. Neither Khalili nor his co-conspirator obtained the required export licenses.
On November 20, 2009, Khalili send an e-mail to the undercover agent containing a list of aircraft parts for the military aircraft and inquiring about their prices. In December 2009, Khalili and his co-conspirator talked with the agent and informed him that the parts were to be sent to Iran and that, because of the U.S. embargo, they would need to be re-routed through an intermediate country. When the undercover agent agreed to send the requested parts to the defendants, Khalili and his other co-conspirators sent four separate cash deposits totaling in excess of $70,000 from a bank in U.A.E. to a bank in Alabama as down-payment for the aircraft parts.
Khalili faces a maximum penalty of ten years in prison and a $1 million fine.
Khalili and other defendant were charged in a nine-count indictment returned on January 28, 2010, with conspiracy, money laundering, smuggling, and violations of the Arms Export Control Act (AECA), and the International Emergency Economic Powers Act (IEEPA).
According to court documents, Khalili and his co-conspirator have been working with the Iranian government to procure military items for the Iranian government. In November 2009, Khalili contacted an undercover agent seeking parts for the military aircraft for export to Iran.
The parts requested by Khalili are designated as defense articles on the U.S. Munitions List and require a U.S. State Department export license. In addition, these items may not be exported to Iran without a license from the U.S. Treasury Department due to the U.S. trade embargo on Iran. Neither Khalili nor his co-conspirator obtained the required export licenses.
On November 20, 2009, Khalili send an e-mail to the undercover agent containing a list of aircraft parts for the military aircraft and inquiring about their prices. In December 2009, Khalili and his co-conspirator talked with the agent and informed him that the parts were to be sent to Iran and that, because of the U.S. embargo, they would need to be re-routed through an intermediate country. When the undercover agent agreed to send the requested parts to the defendants, Khalili and his other co-conspirators sent four separate cash deposits totaling in excess of $70,000 from a bank in U.A.E. to a bank in Alabama as down-payment for the aircraft parts.
Khalili faces a maximum penalty of ten years in prison and a $1 million fine.
Chinese Nationals Convicted of Illegally Exporting ITAR-Controlled Items to China
05/17/10 12:28 PM
On May
17, 2010, Bureau of Industry and Security
(BIS) announced that a federal
jury in Massachusetts convicted Chinese
nationals Zhen Zhou Wu (Wu) and Yufeng Wei (Wei)
of conspiracy to violate U.S. export laws and
illegally exporting electronic equipment from
the U.S. to China on numerous occasions from
2004 to 2007.
Evidence presented at trial showed that between April 2004 and June 2006 Wu and Wei illegally exported military electronic components, designated on the U.S. Munitions List (USML), to mainland China via Hong Kong. The defense articles that defendants exported are primarily used in military phased array radar, electronic warfare, military guidance systems, and military satellite communications.
Also indicted was Chitron Electronics, Inc. (Chitron), a company created by Wu. Using Chitron, Wu targeted Chinese military factories and research institutes as customers of Chitron, including numerous institutes of the China Electronics Technology Group Corporation, which is responsible for the procurement, development, and manufacture of electronics for the Chinese military.
Based on the correspondence, Wu, Wei and other Chitron employees knew that exports of restricted parts were being shipped to Chinese customers without required export licenses. Wu instructed Wei and Chitron employees to never tell U.S. companies that parts were being exported overseas. Instead, U.S. companies were told to ship all ordered products to the Chitron office located in Waltham, Massachusetts. Upon receiving the products, Chitron employees forwarded them to Chitron’s Shenzhen office using freight forwarders in Hong Kong. The shipments were done without the requisite Department of State and Department of Commerce export licenses.
Wu and Wei both face up to 20 years imprisonment to be followed by three years supervised release and a $1 million fine. After serving their sentence, both will face deportation to China.
Chitron faces up to a $1 million fine for each count in the indictment charging them with illegal export of U.S. Munitions List items and $500,000 for each count in the indictment charging them with illegal export of Commerce controlled electronics. Sentencing is scheduled for August 17, 2010.
Evidence presented at trial showed that between April 2004 and June 2006 Wu and Wei illegally exported military electronic components, designated on the U.S. Munitions List (USML), to mainland China via Hong Kong. The defense articles that defendants exported are primarily used in military phased array radar, electronic warfare, military guidance systems, and military satellite communications.
Also indicted was Chitron Electronics, Inc. (Chitron), a company created by Wu. Using Chitron, Wu targeted Chinese military factories and research institutes as customers of Chitron, including numerous institutes of the China Electronics Technology Group Corporation, which is responsible for the procurement, development, and manufacture of electronics for the Chinese military.
Based on the correspondence, Wu, Wei and other Chitron employees knew that exports of restricted parts were being shipped to Chinese customers without required export licenses. Wu instructed Wei and Chitron employees to never tell U.S. companies that parts were being exported overseas. Instead, U.S. companies were told to ship all ordered products to the Chitron office located in Waltham, Massachusetts. Upon receiving the products, Chitron employees forwarded them to Chitron’s Shenzhen office using freight forwarders in Hong Kong. The shipments were done without the requisite Department of State and Department of Commerce export licenses.
Wu and Wei both face up to 20 years imprisonment to be followed by three years supervised release and a $1 million fine. After serving their sentence, both will face deportation to China.
Chitron faces up to a $1 million fine for each count in the indictment charging them with illegal export of U.S. Munitions List items and $500,000 for each count in the indictment charging them with illegal export of Commerce controlled electronics. Sentencing is scheduled for August 17, 2010.
UK Firm Fined $2M for Exporting Boeing 747 Aircraft to Iran
05/11/10 12:10 PM
On May
11, 2010, the Department of Justice (DOJ)
announced that Balli
Aviation Ltd., a subsidiary of the United
Kingdom-based Balli Group PLC, was sentenced
that day in the U.S. District Court for the
District of Columbia to pay a $2 million fine
and to serve a five-year corporate period of
probation after pleading guilty on Feb. 5, 2010,
to a two-count criminal information in
connection with its illegal export of commercial
Boeing 747 aircraft from the United States to
Iran.
DOJ stated that:
The court imposed the maximum $2 million fine and a corporate probation of five years. The $2 million fine combined with a related $15 million civil settlement among Balli Group PLC, Balli Aviation Ltd., the U.S. Department of Commerce’s Bureau of Industry and Security (BIS), and the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), is one of the largest fines for an export violation in BIS history.
DOJ stated that:
According to count one of the criminal information filed with the court, beginning in at least October 2007, through July 2008, Balli Aviation Ltd. conspired to export three Boeing 747 aircraft from the United States to Iran without first having obtained the required export license from BIS or authorization from OFAC, in violation of the Export Administration Regulations (EAR) and the Iranian Transactions Regulations. Specifically, the information states that Balli Aviation Ltd., through its subsidiaries, the Blue Sky Companies, purchased U.S.-origin aircraft with financing obtained from an Iranian airline and caused these aircraft to be exported to Iran without obtaining the required U.S. government licenses. Further, Balli Aviation Ltd. entered into lease arrangements that permitted the Iranian airline to use the U.S.-origin aircraft for flights in and out of Iran.Count two of the criminal information states that Balli Aviation Ltd. violated a Temporary Denial Order (TDO) issued by BIS on March 17, 2008, that prohibited the company from conducting any transaction involving any item subject to the EAR. Starting in or about March 2008 and continuing through about August 2008, Balli Aviation Ltd. willfully violated the TDO by carrying on negotiations with others concerning buying, receiving, using, selling and delivering U.S.-origin aircraft which went to the Export Administration Regulations.
The court imposed the maximum $2 million fine and a corporate probation of five years. The $2 million fine combined with a related $15 million civil settlement among Balli Group PLC, Balli Aviation Ltd., the U.S. Department of Commerce’s Bureau of Industry and Security (BIS), and the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), is one of the largest fines for an export violation in BIS history.
French Court Refuses U.S. Request to Extradite Iranian Engineer
05/05/10 09:44 AM
The
New York Times reported that on May 5,
2010, French court rejected a U.S. request to
extradite Majid Kakavand (Kakavand), an Iranian
engineer and businessman accused of buying
equipment for a front company in Malaysia and
then rerouting it to Iranian military firms, in
violation an American embargo on exports to
Iran.
Specifically, the indictment against Kakavand alleged that from January 2006 to December 2008 he purchased online dual-use equipment intended for military purposes and had it shipped to Iran via Malaysia. The equipment included capacitors, resistors, connectors, reflectometers and pressure sensors that have a military application.
Iran Electronics Industry, one of the Iranian companies Kakavand bought the equipment for, was put on the European Union blacklist in June 2008. The last transaction between him and the company took place in April 2008. The other company, Iran Communications Industry, manufactures military and civilian communication equipment and now too is on the European blacklist.
The French government prosecutor opposed the request to extradite Kakavand on the grounds that he had not violated French law and that equipment at issue was not necessarily military in nature. In addition, he emphasized that, in contrast to the U.S., neither France nor the European Union has a general trade embargo on Iran.
The court ordered Kakavand set free, and his passport and bail returned. The U.S. Justice Department spokesman said efforts to apprehend Kakavand would continue, and that he would stand trial for his alleged crimes if he came into U.S. custody.
Specifically, the indictment against Kakavand alleged that from January 2006 to December 2008 he purchased online dual-use equipment intended for military purposes and had it shipped to Iran via Malaysia. The equipment included capacitors, resistors, connectors, reflectometers and pressure sensors that have a military application.
Iran Electronics Industry, one of the Iranian companies Kakavand bought the equipment for, was put on the European Union blacklist in June 2008. The last transaction between him and the company took place in April 2008. The other company, Iran Communications Industry, manufactures military and civilian communication equipment and now too is on the European blacklist.
The French government prosecutor opposed the request to extradite Kakavand on the grounds that he had not violated French law and that equipment at issue was not necessarily military in nature. In addition, he emphasized that, in contrast to the U.S., neither France nor the European Union has a general trade embargo on Iran.
The court ordered Kakavand set free, and his passport and bail returned. The U.S. Justice Department spokesman said efforts to apprehend Kakavand would continue, and that he would stand trial for his alleged crimes if he came into U.S. custody.
Former Probation Officer Convicted For Illegally Exporting Guns and Ammunition To Nigeria
04/28/10 12:24 AM
On
April 28, 2010, the Department of Justice (DOJ)
announced that Emenike Charles Nwankwoala, age 49,
of Laurel, Maryland, pleaded guilty today to
exporting arms without a license, exporting
controlled goods without a license and willful
delivery of a firearm to a common carrier without
written notice, in connection with a scheme to
export firearms and ammunition to Nigeria.
DOJ states that:
DOJ states that:
Nwankwoala faces a maximum sentence of 10 years in prison for exporting arms without a license; 20 years in prison for exporting controlled goods without a license; and five years in prison for willful delivery of a firearm to a common carrier without written notice. U.S. District Judge Peter J. Messitte has scheduled sentencing for July 21, 2010 at 9:30 a.m.According to Nwankwoala’s plea agreement, he was employed by the State of Maryland as a Probation Officer. Investigation showed that during a six-month period beginning in December 2008, Nwankwoala purchased at least 37 Maverick Model 88 shotguns from a Federal Firearms Licensee located in Kensington, Maryland. On April 21, 2009, Nwankwoala ordered an additional 25 shotguns over the internet from Impact Guns in Ogden, Utah, a Federal Firearms Licensee. Nwankwoala stated that he was purchasing these shotguns for hunting in Nigeria. The licensee asked Nwankwoala if he had an export license, and Nwankwoala falsely indicated that he did. Nwankwoala never obtained guns through this gun store.
Virginia Resident Sentenced to 87 Months for FCPA Violations
04/26/10 12:40 AM
On
April 19, 2010, the Department of Justice
(DOJ) announced that Charles
Paul Edward Jumet of Fluvanna County, CA, was
sentenced to 87 months in prison for bribing
former Panamanian government officials to secure
maritime contracts in violation of the Foreign
Corrupt Practices Act (FCPA), and for making
false statements to federal agents.
According to the court documents, from 1997 through 2003, Jumet and others conspired to bribe Panamanian government officials in exchange for awarding contracts to Ports Engineering Consultants Corporation (PECC) to maintain lighthouses and buoys along Panama’s waterway. In December 1997, the Panamanian government awarded PECC a no-bid 20-year concession. Upon receipt of the concession, Jumet admitted that he and others authorized corrupt payments to be made to the Panamanian government officials totaling more that $200,000.
In addition, Jumet also made a false statement to federal agents about a dividend check payable to the bearer in the amount of $18,000 that was endorsed and deposited into an account belonging to the high-ranking elected Panamanian government official. Jumet falsely claimed that this check was a donation for the official’s re-election campaign, when, in fact, Jumet admitted it was given to the Panamanian government official as a corrupt payment for allowing PECC to receive the contract.
In a related case, in February 2010, John Warwick pleaded guilty for his role in the same conspiracy to violate the FCPA. His sentencing is scheduled for May 14, 2010.
According to the court documents, from 1997 through 2003, Jumet and others conspired to bribe Panamanian government officials in exchange for awarding contracts to Ports Engineering Consultants Corporation (PECC) to maintain lighthouses and buoys along Panama’s waterway. In December 1997, the Panamanian government awarded PECC a no-bid 20-year concession. Upon receipt of the concession, Jumet admitted that he and others authorized corrupt payments to be made to the Panamanian government officials totaling more that $200,000.
In addition, Jumet also made a false statement to federal agents about a dividend check payable to the bearer in the amount of $18,000 that was endorsed and deposited into an account belonging to the high-ranking elected Panamanian government official. Jumet falsely claimed that this check was a donation for the official’s re-election campaign, when, in fact, Jumet admitted it was given to the Panamanian government official as a corrupt payment for allowing PECC to receive the contract.
In a related case, in February 2010, John Warwick pleaded guilty for his role in the same conspiracy to violate the FCPA. His sentencing is scheduled for May 14, 2010.
OFAC Posts Recent Enforcement Actions
04/23/10 12:50 AM
On
April 23, 2010, the Office of Foreign Assets
Controls (OFAC) issued information on recent enforcement
cases:
LD Telecommunications, Inc. of Coral Gables, FL, has agreed to remit $21,671 to settle allegations of violations of the Cuban Assets Control Regulations (CACR) occurring between December 2005 and March 2006. OFAC alleged that LD Telecommunications, Inc. initiated unlicensed funds transfers for the provision of telecommunications services to Cuba. LD Telecommunications, Inc. did not voluntarily disclose this matter to OFAC.
Hilton International Co. of McLean, VA (HI), a subsidiary of Hilton Worldwide, has remitted $735,407 to settle allegations of violations of the Sudanese Sanctions Regulations (SSR). OFAC alleged that between June 2002 and February 2006 HI engaged in 142 violations of the SSR in connection with its unlicensed operation of two Hilton brand hotels in Sudan. HI voluntarily disclosed this matter to OFAC. The alleged violations were discovered and self-reported as a result of pre-acquisition due diligence directed by Hilton Hotels Corporation, which acquired HI from the UK-based Hilton Group plc. in February 2006.
Pursuant to OFAC’s Civil Penalties - Interim Policy (Nov. 27, 2007), because HI signed a statute of limitation tolling agreement covering alleged violations for which the statute of limitations would have otherwise expired prior to October 16, 2007 (the effective date of the IEEPA Enhancement Act), the settlement agreement is based on the maximum statutory penalties in place at the time the tolling agreement was signed, which in this case equaled $11,000 per alleged violation.
LD Telecommunications, Inc. of Coral Gables, FL, has agreed to remit $21,671 to settle allegations of violations of the Cuban Assets Control Regulations (CACR) occurring between December 2005 and March 2006. OFAC alleged that LD Telecommunications, Inc. initiated unlicensed funds transfers for the provision of telecommunications services to Cuba. LD Telecommunications, Inc. did not voluntarily disclose this matter to OFAC.
Hilton International Co. of McLean, VA (HI), a subsidiary of Hilton Worldwide, has remitted $735,407 to settle allegations of violations of the Sudanese Sanctions Regulations (SSR). OFAC alleged that between June 2002 and February 2006 HI engaged in 142 violations of the SSR in connection with its unlicensed operation of two Hilton brand hotels in Sudan. HI voluntarily disclosed this matter to OFAC. The alleged violations were discovered and self-reported as a result of pre-acquisition due diligence directed by Hilton Hotels Corporation, which acquired HI from the UK-based Hilton Group plc. in February 2006.
Pursuant to OFAC’s Civil Penalties - Interim Policy (Nov. 27, 2007), because HI signed a statute of limitation tolling agreement covering alleged violations for which the statute of limitations would have otherwise expired prior to October 16, 2007 (the effective date of the IEEPA Enhancement Act), the settlement agreement is based on the maximum statutory penalties in place at the time the tolling agreement was signed, which in this case equaled $11,000 per alleged violation.
Exporter Assessed $100,000 Penalty for Unauthorized Exports to Iran
04/02/10 11:18 PM
On
April 2, 2010, Aqua-Loop Cooling Towers Co.
(Aqua-Loop) of Folsom, CA, settled with Bureau of
Industry and Security (BIS) charges of violating
the Export Administrations Regulations (EAR).
According to the settlement agreement, from June 2004 to April 2005, Aqua-Loop exported items subject to the EAR from the U.S. to Iran, via the United Arab Emirates, without the required authorization from the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC).
Specifically, Aqua-Loop searched for and obtained items from U.S. distributors and then exported them to an Iranian customer and co-conspirator, Parto Abgardan Cooling Towers Co. (Parto). On one occasion, Parto asked Aqua-Loop to purchase a filament winding machine in the U.S. on its behalf and forward it on to Dubai and then to Iran.
According to the settlement agreement, Aqua-Loop was assessed a civil penalty of $100, 000 that was suspended for 10 years. The company is also prohibited from dealing in any transaction that is subject to the EAR for ten years
According to the settlement agreement, from June 2004 to April 2005, Aqua-Loop exported items subject to the EAR from the U.S. to Iran, via the United Arab Emirates, without the required authorization from the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC).
Specifically, Aqua-Loop searched for and obtained items from U.S. distributors and then exported them to an Iranian customer and co-conspirator, Parto Abgardan Cooling Towers Co. (Parto). On one occasion, Parto asked Aqua-Loop to purchase a filament winding machine in the U.S. on its behalf and forward it on to Dubai and then to Iran.
According to the settlement agreement, Aqua-Loop was assessed a civil penalty of $100, 000 that was suspended for 10 years. The company is also prohibited from dealing in any transaction that is subject to the EAR for ten years
Daimler Settles FCPA Charges for $185 Million
04/01/10 11:06 PM
On
April 1, 2010, German auto manufacturer Daimler AG
(Daimler) and three of its subsidiaries
settled Foreign Corrupt
Practices Act (FCPA) charges in Washington’s
U.S. District Court.
The complaint filed against Daimler alleged that from 1998 to 2008 the company bribed foreign officials in 22 countries, including Russia, Iraq and China, to secure business. According to the settlement agreement, acknowledged its FCPA violations and entered into a two-year deferred prosecution agreement with the Justice Department. In addition, Daimler must disgorge $91.4 million in profits to the Securities and Exchange Commission (SEC) and pay a $93.6 million fine to the Justice Department, for a total of $185 million in combined criminal and civil penalties.
Federal sentencing guidelines call for a larger fine, but the Justice Department decided to reduce the penalty following Daimler’s cooperation with the government. As part of its deferred prosecution agreement, Daimler agreed to retain an independent compliance monitor for three years to oversee its implementation of a compliance program.
The complaint filed against Daimler alleged that from 1998 to 2008 the company bribed foreign officials in 22 countries, including Russia, Iraq and China, to secure business. According to the settlement agreement, acknowledged its FCPA violations and entered into a two-year deferred prosecution agreement with the Justice Department. In addition, Daimler must disgorge $91.4 million in profits to the Securities and Exchange Commission (SEC) and pay a $93.6 million fine to the Justice Department, for a total of $185 million in combined criminal and civil penalties.
Federal sentencing guidelines call for a larger fine, but the Justice Department decided to reduce the penalty following Daimler’s cooperation with the government. As part of its deferred prosecution agreement, Daimler agreed to retain an independent compliance monitor for three years to oversee its implementation of a compliance program.
Virginia Man Convicted of Theft of DuPont Trade Secrets
03/18/10 10:33 PM
On
March 18, 2010, the Department of Justice (DOJ)
issued a press release
regarding the
sentencing of Michael David Mitchell, a Virginia
man, to 18 months imprisonment for theft of
trade secrets and obstruction of justice.
Mitchell was employed as an engineer and
salesperson for DuPont for over 25 years. During
his last two years of employment, Mitchell
worked in the sales and marketing of Kevlar,®
DuPont's registered trademark for a very light,
very strong synthetic fiber that is spun into
ropes or fabric sheets that can be used as such,
or as an ingredient in composite material
components.
After DuPont terminated his employment, Mitchell began work as a consultant for Kolon Industries, Inc. (Kolon), a DuPont competitor. In 2007, DuPont officials became aware that Mitchell had been contacting current and former employees of DuPont seeking technical information on behalf of Kolon. DuPont officials raised their concerns with FBI and Department of Commerce (DoC) investigators, who launched a joint investigation. On March 12, 2008, FBI and DoC special agents executed a federal search warrant on Mitchell's house, seizing documents and multiple computers. Forensic analysis of the defendant's computers revealed hundreds of pages of DuPont proprietary documents, along with the evidence of the above-referenced Denier Economics email.
Following the execution of the search warrant, Mitchell agreed to become a cooperator for the government during its ongoing investigation relating to possible attempted theft of trade secrets and violations of export control laws. Under the direction and supervision of federal investigators, Mitchell made numerous recorded telephone conversations and exchanged emails with Kolon employees.
After DuPont terminated his employment, Mitchell began work as a consultant for Kolon Industries, Inc. (Kolon), a DuPont competitor. In 2007, DuPont officials became aware that Mitchell had been contacting current and former employees of DuPont seeking technical information on behalf of Kolon. DuPont officials raised their concerns with FBI and Department of Commerce (DoC) investigators, who launched a joint investigation. On March 12, 2008, FBI and DoC special agents executed a federal search warrant on Mitchell's house, seizing documents and multiple computers. Forensic analysis of the defendant's computers revealed hundreds of pages of DuPont proprietary documents, along with the evidence of the above-referenced Denier Economics email.
Following the execution of the search warrant, Mitchell agreed to become a cooperator for the government during its ongoing investigation relating to possible attempted theft of trade secrets and violations of export control laws. Under the direction and supervision of federal investigators, Mitchell made numerous recorded telephone conversations and exchanged emails with Kolon employees.
U.K. Co. Pleads Guilty to Conspiracy to Defraud U.S. Government Agencies
03/02/10 05:32 PM
On
March 1, 2010, Department of Justice (DOJ)
issued a press release
announcing that
BAE Systems plc (BAES) pleaded guilty in U.S.
District Court in the District of Columbia to
conspiracy to defraud the U.S. by impairing and
impeding its lawful functions, to make false
statements about its Foreign Corrupt Practices
Act (FCPA) compliance program, and to violate
the Arms Export Control Act (AECA) and
International Traffic in Arms Regulations
(ITAR). BAES was sentenced to pay $400 million
criminal fine.
Headquartered in the U.K., BAES is a multinational defense contractor. The company also has a U.S. subsidiary, BAE Systems, Inc., headquartered in Rockville, Maryland. None of the criminal conduct described in the case is attributable to the American company.
According to court documents, from approximately 2000 to 2002, despite its promises to create mechanisms to ensure compliance with the legal prohibitions on foreign bribery stemming from FCPA, as well as foreign laws implementing the Organization for Economic Cooperation and Development (OECD) Anti-Bribery Convention, BAES knowingly and willfully failed to do so.
Instead, BAES made a series of substantial payments to shell companies and third party intermediaries that were not subject to the degree of scrutiny and review to which BAES told the U.S. government the payments would be subjected. BAES admitted it regularly retained what it referred to as “marketing advisors” to assist in securing sales of defense items without scrutinizing those relationships.
BAES also encouraged the advisors to establish their own offshore shell companies to receive payments from BAES while disguising the origins and recipients of these payments. BAES set up a company in the British Virgin Islands (BVI) to conceal its marketing advisor relationships and to circumvent laws in countries that did not allow such relationships, to create obstacles for investigators to penetrate the arrangements, and to assist advisors in avoiding tax liability for payment from BAES.
BAES used this BVI entity to make payments totaling more than £135 million in addition to $14 million, although being aware, in some cases, that there was a high probability that part of the payment would be used to ensure that BAES was favored in foreign government contracts regarding purchase of defense articles.
BAES also served as the prime contractor to the U.K. government in the mid-1980s, after the U.K. and the Kingdom of Saudi Arabia (KSA) entered into a formal understanding. There, BAES provided “support services” resulting in substantial benefits to a foreign public official of KSA, who was in position to influence sales of fighter jets, and other defense materials and related support services. BAES did not review or verify benefits provided to the KSA official, including it did not perform adequate review of more than $5 million in invoices submitted by a BAES employees from May 2001 to early 2002 to establish whether the listed expenses were in compliance with previous statements made by BAES to the U.S. government regarding its anti-corruption compliance measures.
As part of its guilty plea, BAES has agreed to maintain a compliance program designed to detect and deter violations of the FCPA, other foreign laws implementing the OECD Anti-bribery Convention, and any other applicable anti-corruption laws, and that is designed to detect and deter violations of the AECA and ITAR, as well as similar export control laws.
Headquartered in the U.K., BAES is a multinational defense contractor. The company also has a U.S. subsidiary, BAE Systems, Inc., headquartered in Rockville, Maryland. None of the criminal conduct described in the case is attributable to the American company.
According to court documents, from approximately 2000 to 2002, despite its promises to create mechanisms to ensure compliance with the legal prohibitions on foreign bribery stemming from FCPA, as well as foreign laws implementing the Organization for Economic Cooperation and Development (OECD) Anti-Bribery Convention, BAES knowingly and willfully failed to do so.
Instead, BAES made a series of substantial payments to shell companies and third party intermediaries that were not subject to the degree of scrutiny and review to which BAES told the U.S. government the payments would be subjected. BAES admitted it regularly retained what it referred to as “marketing advisors” to assist in securing sales of defense items without scrutinizing those relationships.
BAES also encouraged the advisors to establish their own offshore shell companies to receive payments from BAES while disguising the origins and recipients of these payments. BAES set up a company in the British Virgin Islands (BVI) to conceal its marketing advisor relationships and to circumvent laws in countries that did not allow such relationships, to create obstacles for investigators to penetrate the arrangements, and to assist advisors in avoiding tax liability for payment from BAES.
BAES used this BVI entity to make payments totaling more than £135 million in addition to $14 million, although being aware, in some cases, that there was a high probability that part of the payment would be used to ensure that BAES was favored in foreign government contracts regarding purchase of defense articles.
BAES also served as the prime contractor to the U.K. government in the mid-1980s, after the U.K. and the Kingdom of Saudi Arabia (KSA) entered into a formal understanding. There, BAES provided “support services” resulting in substantial benefits to a foreign public official of KSA, who was in position to influence sales of fighter jets, and other defense materials and related support services. BAES did not review or verify benefits provided to the KSA official, including it did not perform adequate review of more than $5 million in invoices submitted by a BAES employees from May 2001 to early 2002 to establish whether the listed expenses were in compliance with previous statements made by BAES to the U.S. government regarding its anti-corruption compliance measures.
As part of its guilty plea, BAES has agreed to maintain a compliance program designed to detect and deter violations of the FCPA, other foreign laws implementing the OECD Anti-bribery Convention, and any other applicable anti-corruption laws, and that is designed to detect and deter violations of the AECA and ITAR, as well as similar export control laws.
Customs Broker Sentenced in a Fraud Scheme
02/18/10 10:42 PM
On
February 18, 2010, the U.S. Department of Justice
(DOJ) announced the sentencing
of a Long Island customs broker who defrauded a
Massachusetts medical equipment distributor out
of $1.2 million.
Gregory Manuelian (Manuelian) of Manhasset, N.Y, was sentenced to 24 months in prison, followed by 3 years of supervised release and ordered to pay almost $1.2 million in restitution based on charges that he defrauded his client, B-K Medical Systems, by repeatedly submitting falsified customs documents indicating that B-K owed customs duties on goods that were actually duty-free.
Manuelian operated Marquis Clearance, Ltd., a customs brokerage in Jamaica, N.Y. and served as B-K’s customs broker since 1980. On B-K’s goods entering the U.S., Manuelian ordinarily paid the duties and then faxed the invoices to the client. B-K reimbursed Manuelian for the duties and paid him a brokerage fee. In 1996, the U.S. Department of Commerce began to phase out the duties on the types of goods imported by B-K; by 1999, the imports of the goods imported by B-K were duty free.
Throughout the duty phase-out program and when the imports became duty-free, Manuelian continued to bill its client for supposedly pre-paid duties on the equipment. To support the claims, Manuelian mailed its client falsified customs forms which showed a duty owed on the imported equipment, usually set at 5.3% of the equipment’s value. By the time B-K discovered its loss in 2006, Manuelian had defrauded it out of approximately $1.2 million.
Gregory Manuelian (Manuelian) of Manhasset, N.Y, was sentenced to 24 months in prison, followed by 3 years of supervised release and ordered to pay almost $1.2 million in restitution based on charges that he defrauded his client, B-K Medical Systems, by repeatedly submitting falsified customs documents indicating that B-K owed customs duties on goods that were actually duty-free.
Manuelian operated Marquis Clearance, Ltd., a customs brokerage in Jamaica, N.Y. and served as B-K’s customs broker since 1980. On B-K’s goods entering the U.S., Manuelian ordinarily paid the duties and then faxed the invoices to the client. B-K reimbursed Manuelian for the duties and paid him a brokerage fee. In 1996, the U.S. Department of Commerce began to phase out the duties on the types of goods imported by B-K; by 1999, the imports of the goods imported by B-K were duty free.
Throughout the duty phase-out program and when the imports became duty-free, Manuelian continued to bill its client for supposedly pre-paid duties on the equipment. To support the claims, Manuelian mailed its client falsified customs forms which showed a duty owed on the imported equipment, usually set at 5.3% of the equipment’s value. By the time B-K discovered its loss in 2006, Manuelian had defrauded it out of approximately $1.2 million.
U.S. Seeks Extradition of Iranian Engineer Who Purchased Sensitive Items Online
02/17/10 10:12 PM
The
Associated Press reported that on
February 17, 2010, a French court postponed a
decision on whether to extradite an Iranian
Engineer to the U.S., where he is accused of
exporting goods to an embargoed country, money
laundering, smuggling goods, and other charges.
Majid Kakavand (Kakavand) was arrested in Paris
on March 20, 2009 and held in prison until
August 26, 2009, until his release on condition
that he stays in Paris.
U.S. government claims that Kakavand went online to purchase U.S. electronics, including capacitors, inductors, resistors, sensors and connectors, and had them shipped to Malaysia, from where they were forwarded to two Iranian military entities.
The French court must decide whether Kakavand is to be extradited based on whether his actions were illegal in France as well as the United States. U.S. government claims that Kakavand needed export licenses to send the items to Iran. Kakavand’s attorneys argue that he did not violate French or European Union laws which have no general trade embargo on Iran like the U.S, and that documents in all sales transactions were stamped NLR, for “No License Required.”
The main argument in this case is whether items that Kakavand purchased have sensitive defense uses. The accused firefengineer contends that the electronics that he bought online are ordinary and commonplace; however, the U.S. in its extradition request argue that many items at issue meet military standards.
In February’s hearing, the judge handling the case asked for additional information on the matter, including France’s military armament body studies, before making the extradition decision. The new hearing has been set for March 31, 2010.
U.S. government claims that Kakavand went online to purchase U.S. electronics, including capacitors, inductors, resistors, sensors and connectors, and had them shipped to Malaysia, from where they were forwarded to two Iranian military entities.
The French court must decide whether Kakavand is to be extradited based on whether his actions were illegal in France as well as the United States. U.S. government claims that Kakavand needed export licenses to send the items to Iran. Kakavand’s attorneys argue that he did not violate French or European Union laws which have no general trade embargo on Iran like the U.S, and that documents in all sales transactions were stamped NLR, for “No License Required.”
The main argument in this case is whether items that Kakavand purchased have sensitive defense uses. The accused firefengineer contends that the electronics that he bought online are ordinary and commonplace; however, the U.S. in its extradition request argue that many items at issue meet military standards.
In February’s hearing, the judge handling the case asked for additional information on the matter, including France’s military armament body studies, before making the extradition decision. The new hearing has been set for March 31, 2010.
Ex-Boeing Engineer Sentenced for Stealing Aerospace Secrets for China
02/08/10 11:22 PM
The
Wall Street Journal reported that on
February 8, 2010, Dongfan “Greg” Chung, a
Chinese-born former Boeing engineer was
sentenced to 15 years and 8 months in prison for
acquiring sensitive U.S. space shuttle
information and other documents for China.
The case against Chung was the first U.S. trial on economic espionage charges. The government charged that Chung began spying for the Chinese in the late 1970s, after he became a naturalized U.S. citizen and was hired by Rockwell International, where he worked until it was acquired by Boeing in 1996. Chung stayed with Boeing until he was laid off in 2002, but a year later he was brought back as a consultant. Boeing fired Chung when FBI began its investigation in 2006.
The government accused Chung, a stress analyst with high-level clearance, of stealing documents related to aerospace technology development while working for Rockwell and Boeing. When FBI agents searched Chung’s house in 2006, they found more than 300,000 pages of documents on Boeing-developed aerospace and defense technologies. Specifically, the technologies involved an antenna developed for radar and communications on the U.S. shuttle and a fueling mechanism for a booster rocket used to launch manned space vehicles.
During trial, Chung claimed that he had brought the documents home to write a book. Chung’s lawyers argued that he may have violated Boeing policy by bringing the papers home, but he did not break any laws by doing so, and U.S. government could not prove that he had given away any sensitive information to China.
Assistant U.S. Attorney noted in sentencing papers that Chung acquired a personal wealth of more than $3 million during his cooperation with China.
Chung’s activities were discovered while investigating Chi Mak, another suspected Chinese spy living in Southern California. In 2007, Mak was convicted of conspiracy to export U.S. defense technology to China and sentenced to 24 years in prison.
The case against Chung was the first U.S. trial on economic espionage charges. The government charged that Chung began spying for the Chinese in the late 1970s, after he became a naturalized U.S. citizen and was hired by Rockwell International, where he worked until it was acquired by Boeing in 1996. Chung stayed with Boeing until he was laid off in 2002, but a year later he was brought back as a consultant. Boeing fired Chung when FBI began its investigation in 2006.
The government accused Chung, a stress analyst with high-level clearance, of stealing documents related to aerospace technology development while working for Rockwell and Boeing. When FBI agents searched Chung’s house in 2006, they found more than 300,000 pages of documents on Boeing-developed aerospace and defense technologies. Specifically, the technologies involved an antenna developed for radar and communications on the U.S. shuttle and a fueling mechanism for a booster rocket used to launch manned space vehicles.
During trial, Chung claimed that he had brought the documents home to write a book. Chung’s lawyers argued that he may have violated Boeing policy by bringing the papers home, but he did not break any laws by doing so, and U.S. government could not prove that he had given away any sensitive information to China.
Assistant U.S. Attorney noted in sentencing papers that Chung acquired a personal wealth of more than $3 million during his cooperation with China.
Chung’s activities were discovered while investigating Chi Mak, another suspected Chinese spy living in Southern California. In 2007, Mak was convicted of conspiracy to export U.S. defense technology to China and sentenced to 24 years in prison.
UK Firm Pleads Guilty to Exporting Boeing 747 Aircraft to Iran; Pays $15 Million in Fines
02/06/10 02:58 PM
On
February 5, 2010, the Department of Justice
(DOJ) announced that Balli
Aviation Ltd., a subsidiary of United
Kingdom-based Balli Group PLC, pleaded guilty in
the U.S. District Court for the District of
Columbia to a two-count criminal information in
connection with its illegal export of commercial
Boeing 747 aircraft from the United States to
Iran. (BIS’ press release can be found
here.)
The DOJ announced:
Under the plea agreement, Balli Aviation Ltd. agreed to pay a $2 million criminal fine and be placed on corporate probation for five years. The $2 million fine, combined with a related $15 million civil settlement among Balli Group PLC, Balli Aviation Ltd., the U.S. Department of Commerce's Bureau of Industry and Security (BIS), and the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC), that was also announced today, represents one of the largest fines for an export violation in BIS history.
Under the terms of the related civil settlement, Balli Group PLC and Balli Aviation Ltd. have agreed to pay a civil penalty of $15 million of which $2 million will be suspended if there are no further export control violations. In addition, Balli Aviation Ltd. and Balli Group PLC are denied export privileges for five years, although this penalty will be suspended provided that neither Balli Aviation nor Balli Group commits any export violations and pays the civil penalty. Under the terms of the settlement, Balli Group PLC and Balli Aviation, Ltd. will also have to submit the results of an independent audit of its export compliance program to BIS and OFAC for each of the next five years.
According to count one of the information filed with the court, beginning in at least October 2005, through October 2008, Balli Aviation Ltd. conspired to export three Boeing 747 aircraft from the United States to Iran without first having obtained the required export license from BIS or authorization from OFAC, in violation of the Export Administration Regulations (EAR) and the Iranian Transactions Regulations. More particularly, the information states that Balli Aviation Ltd., through its subsidiaries, the Blue Sky Companies, purchased U.S.-origin aircraft with financing obtained from an Iranian airline and caused these aircraft to be exported to Iran without obtaining the required U.S. government licenses. Further, Balli Aviation Ltd. entered into lease arrangements that permitted the Iranian airline to use the U.S.-origin aircraft for flights in and out of Iran.
Count two of the information states that Balli Aviation Ltd. violated a Temporary Denial Order (TDO) issued by BIS on March 17, 2008, that prohibited the company from conducting any transaction involving any item subject to the EAR. Starting in or about March 2008 and continuing through about August 2008, Balli Aviation Ltd. willfully violated the TDO by carrying on negotiations with others concerning buying, receiving, using, selling and delivering U.S.-origin aircraft which went to the Export Administration Regulations.
"Today's case should serve as further warning of Iran's continued efforts to circumvent sanctions and obtain U.S. technology. Together with our colleagues from the Justice and Commerce departments, OFAC will continue to aggressively pursue both domestic and foreign entities that seek to violate U.S. sanctions programs by exporting goods to Iran from the United States." said Adam J. Szubin, Director, Office of Foreign Assets Control.
The DOJ announced:
Under the plea agreement, Balli Aviation Ltd. agreed to pay a $2 million criminal fine and be placed on corporate probation for five years. The $2 million fine, combined with a related $15 million civil settlement among Balli Group PLC, Balli Aviation Ltd., the U.S. Department of Commerce's Bureau of Industry and Security (BIS), and the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC), that was also announced today, represents one of the largest fines for an export violation in BIS history.
Under the terms of the related civil settlement, Balli Group PLC and Balli Aviation Ltd. have agreed to pay a civil penalty of $15 million of which $2 million will be suspended if there are no further export control violations. In addition, Balli Aviation Ltd. and Balli Group PLC are denied export privileges for five years, although this penalty will be suspended provided that neither Balli Aviation nor Balli Group commits any export violations and pays the civil penalty. Under the terms of the settlement, Balli Group PLC and Balli Aviation, Ltd. will also have to submit the results of an independent audit of its export compliance program to BIS and OFAC for each of the next five years.
According to count one of the information filed with the court, beginning in at least October 2005, through October 2008, Balli Aviation Ltd. conspired to export three Boeing 747 aircraft from the United States to Iran without first having obtained the required export license from BIS or authorization from OFAC, in violation of the Export Administration Regulations (EAR) and the Iranian Transactions Regulations. More particularly, the information states that Balli Aviation Ltd., through its subsidiaries, the Blue Sky Companies, purchased U.S.-origin aircraft with financing obtained from an Iranian airline and caused these aircraft to be exported to Iran without obtaining the required U.S. government licenses. Further, Balli Aviation Ltd. entered into lease arrangements that permitted the Iranian airline to use the U.S.-origin aircraft for flights in and out of Iran.
Count two of the information states that Balli Aviation Ltd. violated a Temporary Denial Order (TDO) issued by BIS on March 17, 2008, that prohibited the company from conducting any transaction involving any item subject to the EAR. Starting in or about March 2008 and continuing through about August 2008, Balli Aviation Ltd. willfully violated the TDO by carrying on negotiations with others concerning buying, receiving, using, selling and delivering U.S.-origin aircraft which went to the Export Administration Regulations.
"Today's case should serve as further warning of Iran's continued efforts to circumvent sanctions and obtain U.S. technology. Together with our colleagues from the Justice and Commerce departments, OFAC will continue to aggressively pursue both domestic and foreign entities that seek to violate U.S. sanctions programs by exporting goods to Iran from the United States." said Adam J. Szubin, Director, Office of Foreign Assets Control.
Executives of Military and Security Product Companies Indicted in Foreign Bribery Scheme
01/19/10 10:37 PM
On
January 19, 2010, the U.S. Department of Justice
(DOJ) announced that twenty-two
executives working in the military and security
industries were arrested and charged with
conspiracy to bribe an African defense minister
in violation of the Foreign Corrupt Practices
Act (FCPA).
The indictments are a result of the largest single investigation and prosecution against individual defendants in the history of DOJ’s enforcement of FCPA. The indictments allege that the defendants engaged in a scheme to bribe an African defense minister and agreed to pay a 20% “sales commission” to someone they believed was the minister’s representative in order to win a portion of a $15 million contract to outfit the country’s presidential guard. The defense minister’s representative, who in fact was an undercover FBI agent, told the defendants that the “sales commission” would be paid directly to the minister of defense.
The defendants allegedly agreed to engage in a small test deal to show the minister of defense that he would personally receive the bribe, and to create two price quotations in connection with the deal: one representing the true cost of the goods, and another representing the cost of the goods plus the 20% commission.
Each of the indictments alleges that the defendants conspired and violated the Foreign Corrupt Practices Act (FCPA) and conspired to engage in money laundering.
The defendants face five years imprisonment for the conspiracy count and for each FCPA count. The indictments in this case also seek criminal forfeiture of the defendants’ gains.
The indictments are a result of the largest single investigation and prosecution against individual defendants in the history of DOJ’s enforcement of FCPA. The indictments allege that the defendants engaged in a scheme to bribe an African defense minister and agreed to pay a 20% “sales commission” to someone they believed was the minister’s representative in order to win a portion of a $15 million contract to outfit the country’s presidential guard. The defense minister’s representative, who in fact was an undercover FBI agent, told the defendants that the “sales commission” would be paid directly to the minister of defense.
The defendants allegedly agreed to engage in a small test deal to show the minister of defense that he would personally receive the bribe, and to create two price quotations in connection with the deal: one representing the true cost of the goods, and another representing the cost of the goods plus the 20% commission.
Each of the indictments alleges that the defendants conspired and violated the Foreign Corrupt Practices Act (FCPA) and conspired to engage in money laundering.
The defendants face five years imprisonment for the conspiracy count and for each FCPA count. The indictments in this case also seek criminal forfeiture of the defendants’ gains.
Banks Settle Charges of Violating OFAC Regulations
12/11/09 10:42 PM
On
December 11, 2009, the U.S. Department of Justice
and Credit Suisse AG (Credit Suisse)
entered into a global
settlement agreement to settle alleged
violations of the International Emergency
Economic Powers Act (IEEPA), Trading with the
Enemy Act (TWEA), the Executive Orders, and
Office of Foreign Assets Control (OFAC)
regulations.
Credit Suisse, Lloyds TSB Bank PLC (Lloyds) and several other banks have been investigated for deleting and manipulating wire transfer information to conceal illegal money transfers involving Iran, Burma, Cuba, and Libya from the mid-1990s through 2006. Credit Suisse also instructed Iranian customers on how to format dollar-denominated transactions to avoid detection by the U.S. authorities.
Credit Suisse was fined $536 million after disclosing various apparent violations in a voluntary self-disclosure. According to the Assistant Attorney General, the fine would have been much higher had Credit Suisse not cooperated fully.
Lloyds used a similar technique to manipulate information that disguised clients in Iran and Sudan who were barred from doing business in the U.S. Based on OFAC’s analysis of Lloyds’ transactions, the bank routed over 4,200 wire transfers in apparent violation of IEEPA and the OFAC regulations related to Iran, Sudan, and Libya from June 2003 through August 2006.
Lloyds indicated that it terminated these illegal activities, including ceasing U.S. dollar clearing activities for Iranian bank customers in 2003, and has cooperated fully with OFAC investigation. Lloyds has settled with OFAC for $217 million, a sum which has been deemed satisfied by its prior payment of a larger amount in satisfaction of penalties assessed by the U.S. Department of Justice.
While Lloyds did not voluntarily self-disclose the apparent violations, OFAC mitigated the total potential penalty based on Lloyds’ substantial cooperation and its prompt and thorough remedial response.
Credit Suisse, Lloyds TSB Bank PLC (Lloyds) and several other banks have been investigated for deleting and manipulating wire transfer information to conceal illegal money transfers involving Iran, Burma, Cuba, and Libya from the mid-1990s through 2006. Credit Suisse also instructed Iranian customers on how to format dollar-denominated transactions to avoid detection by the U.S. authorities.
Credit Suisse was fined $536 million after disclosing various apparent violations in a voluntary self-disclosure. According to the Assistant Attorney General, the fine would have been much higher had Credit Suisse not cooperated fully.
Lloyds used a similar technique to manipulate information that disguised clients in Iran and Sudan who were barred from doing business in the U.S. Based on OFAC’s analysis of Lloyds’ transactions, the bank routed over 4,200 wire transfers in apparent violation of IEEPA and the OFAC regulations related to Iran, Sudan, and Libya from June 2003 through August 2006.
Lloyds indicated that it terminated these illegal activities, including ceasing U.S. dollar clearing activities for Iranian bank customers in 2003, and has cooperated fully with OFAC investigation. Lloyds has settled with OFAC for $217 million, a sum which has been deemed satisfied by its prior payment of a larger amount in satisfaction of penalties assessed by the U.S. Department of Justice.
While Lloyds did not voluntarily self-disclose the apparent violations, OFAC mitigated the total potential penalty based on Lloyds’ substantial cooperation and its prompt and thorough remedial response.
Gibson Guitar May Be First Prosecuted under Revised Lacey Act
11/19/09 03:55 PM
The
Nashville Business Journal has reported that on
November 10, 2009, U.S. Fish & Wildlife
Service agents executed a search warrant at the
Gibson Guitar Corporation’s (Gibson Guitar)
Nashville manufacturing plant. The search is
said to be part of an investigation into the use
of endangered rosewood from Madagascar in
violation of the revised Lace Act.
Gibson Guitar, heralded in the past for its pioneering efforts to use sustainable wood products, is the first U.S. company to face prosecution under the revised Lacey Act – a new federal law banning trade in articles made of or containing specifically designated wood. The company issued a statement in which it proclaims full cooperation with the U.S. Fish & Wildlife Service investigation into the wood procurement.
The Lacey Act was expanded by the 2008 Farm Bill (the Food, Conservation, and Energy Act of 2008) to include timber and wood products, making the U.S. the first in the world to regulate trade in plants. Among other things, the Lacey Act requires an import declaration for certain plants and plant products, including the plant’s geographical origin and biological genus.
Penalties for violations of the Lacey Act range from a forfeiture of goods to fines up to $500,000 and even imprisonment if the company is found to have knowingly engaged in trade of illegally sourced wood.
Gibson Guitar, heralded in the past for its pioneering efforts to use sustainable wood products, is the first U.S. company to face prosecution under the revised Lacey Act – a new federal law banning trade in articles made of or containing specifically designated wood. The company issued a statement in which it proclaims full cooperation with the U.S. Fish & Wildlife Service investigation into the wood procurement.
The Lacey Act was expanded by the 2008 Farm Bill (the Food, Conservation, and Energy Act of 2008) to include timber and wood products, making the U.S. the first in the world to regulate trade in plants. Among other things, the Lacey Act requires an import declaration for certain plants and plant products, including the plant’s geographical origin and biological genus.
Penalties for violations of the Lacey Act range from a forfeiture of goods to fines up to $500,000 and even imprisonment if the company is found to have knowingly engaged in trade of illegally sourced wood.
OFAC Releases Economic Sanctions Enforcement Guidelines
11/09/09 04:18 PM
On
November 9, 2009, the U.S. Treasury Department’s
Office of Foreign Assets Control (OFAC) issued
“Economic Sanctions Enforcement Guidelines”
as final rule in the Federal
Register, setting forth the enforcement
guidelines that OFAC will follow in determining
a response to violations of the OFAC-enforced
U.S. economic sanctions programs.
This rule has been initially published as an interim final rule with request for comments on September 8, 2008. In response to comments received, OFAC made several changes to the final version of the rule:
More detailed discussion of the amendments and public comments can be found in the final rule, published as Appendix A to Part 501 – Economic Sanctions Enforcement.
This rule has been initially published as an interim final rule with request for comments on September 8, 2008. In response to comments received, OFAC made several changes to the final version of the rule:
- The definition
of “voluntary self-disclosure” was amended to
clarify that when a third party required to
report an apparent violation fails to do so, but
a person that has committed an apparent violation
and is subject to any of the OFAC sanctions
("Subject Person") reports the violation to OFAC,
the notification will still be considered a
voluntary self-disclosure. However, in those
cases where the third party does notify OFAC
before a final enforcement response to the
violation, a Subject Person’s notification will
not be considered a voluntary self-disclosure
even if it precedes the third party’s
notification.
- The definition
of “voluntary self-disclosure” was also amended
to clarify that a self-initiated notification to
OFAC made at the same time as another government
agency learns of the apparent violation (either
through disclosure or otherwise) does qualify as
voluntary self-disclosure if the other aspects of
the definitions are met. This change is intended
to cover self-disclosures made to OFAC and
another government agency simultaneously.
- Similarly, if a
Subject Person notifies another government agency
of an apparent violation as required by that
agency, the notification may be considered a
voluntary self-disclosure by OFAC, based on a
case-by-case determination.
- On the requested
clarification on Suspicious Activity Report (SAR)
filing, OFAC responded that the filing of a SAR
does not itself preclude a determination of
voluntary self-disclosure for a subsequent
self-disclosure to OFAC of the same transaction,
unless OFAC learns of the apparent violation
prior to the self-disclosure filing.
- Regarding party
cooperation and tolling agreements, the final
rule eliminates any reference to statute of
limitations waivers. Furthermore, with respect to
whether a Subject Person’s refusal to enter into
a tolling agreement should be considered an
aggravating factor in assessing the person’s
cooperation, the final rules states that a
Subject Person’s unwillingness to enter into a
tolling agreement will not be considered against
the Subject Person. On the other hand, if a
Subject Person is willing to enter into a tolling
agreement, it may be considered a mitigating
factor.
- For the purposes
of calculating a penalty in cases involving a set
of “substantially similar violations,” OFAC
clarified that the penalty reduction of up to 25%
for a Subject Person’s first violation will
generally apply to the entire set of
“substantially similar violations” and not solely
to the first of those violations.
- OFAC also
amended the final rule to make clear that
determination of appropriate enforcement response
is not limited to prior formal determinations of
sanctions violations. Thus, prior cautionary
letters, warning letters, and evaluative letters
will be considered in determining OFAC sanctions,
if any. This particular amendment specifies that
consideration of a Subject Person’s sanction
history will be limited to the five years
preceding the transaction giving rise to the
apparent violation.
- On the issue of attorney-client privilege or the attorney work product doctrine, the final rule was amended by eliminating the reference to “failure to furnish the requested information” and instead referring to a “failure to comply” with a request for information. The language is intended to specify that OFAC will not seek penalties in cases where responsive information is withheld on the basis of apparently applicable and properly invoked privilege.
- The Enforcement
Guidelines also clarify the base penalty amounts
for transactions within the scope of the Trading
With the Enemy Act (TWEA), which are capped at
the $65,000. In non-egregious cases involving
apparent violations of TWEA, when the apparent
violation is disclosed through a voluntary
self-disclosure, the civil penalty is capped at
the $32,500. Non-egregious violations of TWEA not
voluntarily disclosed are capped at the $65,000.
- The penalty for
failure to maintain records in conformance with
the requirements of OFAC regulations is set at a
maximum of $50,000.
More detailed discussion of the amendments and public comments can be found in the final rule, published as Appendix A to Part 501 – Economic Sanctions Enforcement.
Director of Singapore Company Sentenced for Iran Embargo Violations
11/06/09 04:15 PM
On
November 5, 2009, a federal court in Brooklyn,
NY sentenced Laura
Wang-Woodford, a U.S. citizen and a director of
Singapore-based Monarch Aviation Pte, Ltd.
(Monarch), to 46 months’ incarceration for
conspiracy to violate the U.S. trade embargo by
exporting controlled aircraft components to
Iran.
Monarch has been engaged in imports and exports of military and commercial aircraft components for over 20 years.
Wang-Woodford was arrested at San Francisco International Airport in December 2007 after arriving on a flight from Hong Kong and has remained incarcerated ever since. Originally, Wang-Woodford was charged along with her husband Brian D. Woodford in a 20-count indictment returned in the Eastern District of New York on January 15, 2003. A superceding indictment charging Wang-Woodford with operating Jungda International Pte. Ltd (Jungda), a Singapore-based successor to Monarch, was returned on May 22, 2008. Brian Woodford, a U.K. citizen who served as chairman and managing director of Monarch, remains a fugitive.
The 2008 indictment alleged that between January 1998 and December 2007, the defendants exported controlled U.S. aircraft parts from the U.S. to Monarch and Jungda in Singapore and Malaysia and then re-exported those items to buyers in Iran without the required U.S. government licenses. The parts exported included aircraft shields, shears, “o” rings, and switch assemblies. On the export documents filed with the U.S. government, the defendants falsely listed Monarch and Jungda as the ultimate recipients of the parts.
At the time of her arrest, Wang-Woodford had in her possession catalogues from China National Precision Machinery Import and Export Corporation (CPMIEC) containing advertisements for military technology and weaponry, including surface-to-air missile systems and rocket launchers. CPMIEC, a Chinese company, has been sanctioned by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) based on the company’s history of selling military hardware to Iran. Under those sanctions, all U.S. persons and entities are prohibited from engaging in business with CPMIEC.
The Bureau of Industry and Security publish on its website Lists to Check that include sanctions by various government agencies and that should be consulted by persons involved in export or re-export transactions.
Monarch has been engaged in imports and exports of military and commercial aircraft components for over 20 years.
Wang-Woodford was arrested at San Francisco International Airport in December 2007 after arriving on a flight from Hong Kong and has remained incarcerated ever since. Originally, Wang-Woodford was charged along with her husband Brian D. Woodford in a 20-count indictment returned in the Eastern District of New York on January 15, 2003. A superceding indictment charging Wang-Woodford with operating Jungda International Pte. Ltd (Jungda), a Singapore-based successor to Monarch, was returned on May 22, 2008. Brian Woodford, a U.K. citizen who served as chairman and managing director of Monarch, remains a fugitive.
The 2008 indictment alleged that between January 1998 and December 2007, the defendants exported controlled U.S. aircraft parts from the U.S. to Monarch and Jungda in Singapore and Malaysia and then re-exported those items to buyers in Iran without the required U.S. government licenses. The parts exported included aircraft shields, shears, “o” rings, and switch assemblies. On the export documents filed with the U.S. government, the defendants falsely listed Monarch and Jungda as the ultimate recipients of the parts.
At the time of her arrest, Wang-Woodford had in her possession catalogues from China National Precision Machinery Import and Export Corporation (CPMIEC) containing advertisements for military technology and weaponry, including surface-to-air missile systems and rocket launchers. CPMIEC, a Chinese company, has been sanctioned by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) based on the company’s history of selling military hardware to Iran. Under those sanctions, all U.S. persons and entities are prohibited from engaging in business with CPMIEC.
The Bureau of Industry and Security publish on its website Lists to Check that include sanctions by various government agencies and that should be consulted by persons involved in export or re-export transactions.
Exporters Settle Allegations of Unlawful Exports
09/15/09 04:09 PM
On
September 15, 2009, the Commerce Department’s
Bureau of Industry and Security (BIS) issued press
releases announcing companies settling allegations
of unlawful exports:
• Five foreign subsidiaries of Thermon Manufacturing Company (Thermon US), a Texas-based firm, have agreed to pay a $176,000 in combined civil penalties to settle allegations that they exported and reexported EAR99 heat tracing equipment to Iran, Syrian, Libya, and listed entities in India without the required BIS or the Treasury Department’s Office of Foreign Assets Controls (OFAC) licenses. The foreign subsidiaries were told by the parent company that products manufactured by Thermon US may not be sold to countries on the U.S. trade sanctions list; however, the subsidiaries exported the equipment to prohibited end users without informing the parent company of the ultimate destination for the items. Thermon US voluntarily disclosed the violations to BIS.
• Foxsemicon Integrated Technologies, Inc. (FITI) of Taiwan has agreed to pay $250,000 to settle allegations that between August 2005 and May 2006, the company made unlicensed exports of pressure transducers to China, in violation of the EAR. The transducers are used as spare components of manufacturing systems controlled for nuclear non-proliferation reasons. BIS alleged that FITI knew that licenses were required for the parts but made no attempt to apply for the shipment authorization. FITI was also alleged to have made false statements on export documentation stating that no license was required for the exports. In addition to FITI, FITI’s wholly-owned affiliate, Foxsemicon LLC of San Jose, CA, settled allegations that it aided and abetted FITI’s violations. Foxsemicon’s $160,000 civil penalty was suspended provided no additional violations occur in the next year.
• Five foreign subsidiaries of Thermon Manufacturing Company (Thermon US), a Texas-based firm, have agreed to pay a $176,000 in combined civil penalties to settle allegations that they exported and reexported EAR99 heat tracing equipment to Iran, Syrian, Libya, and listed entities in India without the required BIS or the Treasury Department’s Office of Foreign Assets Controls (OFAC) licenses. The foreign subsidiaries were told by the parent company that products manufactured by Thermon US may not be sold to countries on the U.S. trade sanctions list; however, the subsidiaries exported the equipment to prohibited end users without informing the parent company of the ultimate destination for the items. Thermon US voluntarily disclosed the violations to BIS.
• Foxsemicon Integrated Technologies, Inc. (FITI) of Taiwan has agreed to pay $250,000 to settle allegations that between August 2005 and May 2006, the company made unlicensed exports of pressure transducers to China, in violation of the EAR. The transducers are used as spare components of manufacturing systems controlled for nuclear non-proliferation reasons. BIS alleged that FITI knew that licenses were required for the parts but made no attempt to apply for the shipment authorization. FITI was also alleged to have made false statements on export documentation stating that no license was required for the exports. In addition to FITI, FITI’s wholly-owned affiliate, Foxsemicon LLC of San Jose, CA, settled allegations that it aided and abetted FITI’s violations. Foxsemicon’s $160,000 civil penalty was suspended provided no additional violations occur in the next year.
Exporter Settles Allegations of EAR Violations & Agrees to $190,000 Penalty
08/15/09 08:40 PM
On
August 14, 2009, the Commerce Department’s Bureau
of Industry and Security (BIS) announced that RF Micro
Devices, Inc. (RFMD) of Greensboro, N.C. has
agreed to pay a $190,000 civil penalty to settle
allegations that it exported spread-spectrum
modems in violation of the Export Administration
Regulations (EAR) to China. In addition, Carol
Wilkins, RFMD manager whose responsibilities, at
the time of the violations, included export
control compliance, has agreed to pay a civil
penalty in the amount of $15,000 for making
false and misleading statements to BIS Special
Agents during the investigation.
The allegations involved fourteen unlicensed exports of spread-spectrum modems, classified under Export Control Classification Number 5A001 and controlled for national security reasons, to China with knowledge that a violation of the Regulations was occurring, was about to occur or was intended to occur in connection with the spread-spectrum modems. Additionally, BIS alleged that on thirteen occasions RFMD made false or misleading statements about the submission of Shipper’s Export Declarations (SEDs).
RFMD voluntarily disclosed the violations that occurred in 2002 and 2003.
The allegations involved fourteen unlicensed exports of spread-spectrum modems, classified under Export Control Classification Number 5A001 and controlled for national security reasons, to China with knowledge that a violation of the Regulations was occurring, was about to occur or was intended to occur in connection with the spread-spectrum modems. Additionally, BIS alleged that on thirteen occasions RFMD made false or misleading statements about the submission of Shipper’s Export Declarations (SEDs).
RFMD voluntarily disclosed the violations that occurred in 2002 and 2003.
Physicist Sentenced to 28 Months Imprisonment for ITAR Violations
08/12/09 08:45 PM
On
August 11, 2009, Knoxnews.com
reported that
Daniel Max Sherman, a 38-year old physicist, was
sentenced to 28 months in federal prison for his
involvement with a Knoxville company and former
University of Tennessee professor, John Reece
Roth, who violated the International Traffic in
Arms Regulations (ITAR) by allowing foreign
nationals to have access to military-related
technical information.
Sherman faced a potential sentence of five years in prison and $250,000 fine, but received a lesser sentence because of his cooperation in the federal investigation. He already served fourteen months of his sentence. Roth, 73-year old former professor, was sentenced to four years in prison.
Roth, an expert in plasma research, was a subcontractor on a U.S. Air Force project awarded to Atmospheric Glow Technologies Inc. (AGT), a plasma technology company based in Knoxville and Sherman's employer. The project developed advanced plasma actuators for Air Force drones, which are covered by U.S. governing munitions. Both Roth and Sherman were involved in the project for which they allowed foreign and Chinese graduate students to work. Additionally, Roth was convicted of taking protected information with him on a lecture trip to China, a felony regardless of the intent.
Sherman faced a potential sentence of five years in prison and $250,000 fine, but received a lesser sentence because of his cooperation in the federal investigation. He already served fourteen months of his sentence. Roth, 73-year old former professor, was sentenced to four years in prison.
Roth, an expert in plasma research, was a subcontractor on a U.S. Air Force project awarded to Atmospheric Glow Technologies Inc. (AGT), a plasma technology company based in Knoxville and Sherman's employer. The project developed advanced plasma actuators for Air Force drones, which are covered by U.S. governing munitions. Both Roth and Sherman were involved in the project for which they allowed foreign and Chinese graduate students to work. Additionally, Roth was convicted of taking protected information with him on a lecture trip to China, a felony regardless of the intent.
BIS and OFAC Announce a Multi-Million Dollar Settlement with DHL BIS and OFAC Announce a Multi-Million Dollar Settlement with DHL BIS and OFAC Announce a Multi-Million Dollar Settlement with DHL BIS and OFAC Announce a Multi-Million Dollar Settlement with DHL BIS and OFAC Announce a Multi-Million Dollar Settlement with DHL BIS and OFAC Announce a Multi-Million Dollar Settlement with DHL BIS and OFAC Annouce Multi-Million Dollar Settlement with DHL
08/10/09 03:04 PM
On
August 6, 2009, the Commerce Department’s Bureau of
Industry and Security (BIS) and the Treasury
Department’s Office of Foreign Assets Control
(OFAC) announced they have
jointly entered into a settlement agreement with
DPWN Holdings (USA), Inc. and DHL Express (USA),
Inc. (collectively DHL) The settlement agreement
has been reached following allegations that DHL
unlawfully aided and abetted illegal exports of
goods to Syria, Iran and Sudan and failed to
comply with record keeping requirements of the
Export Administration Regulations (EAR) and OFAC
regulations.
Specifically, BIS charged that between June 2004 and September 2004, DHL transported articles subject to the EAR from the U.S. to Syria, and failed to retain air waybills and other export control documents, as required by the EAR. OFAC charged that between 2002 and 2006 DHL violated various OFAC regulations when it made thousands of shipments to Iran and Sudan, mainly failing to comply with applicable recordkeeping requirements.
Pursuant to the settlement agreement, DHL must pay a civil penalty of nearly $9.5 million and conduct external audits of exports to Iran, Syria and Sudan from March 2007 to December 2009, as well as conduct annual calendar year audits in 2010 and 2011.
Specifically, BIS charged that between June 2004 and September 2004, DHL transported articles subject to the EAR from the U.S. to Syria, and failed to retain air waybills and other export control documents, as required by the EAR. OFAC charged that between 2002 and 2006 DHL violated various OFAC regulations when it made thousands of shipments to Iran and Sudan, mainly failing to comply with applicable recordkeeping requirements.
Pursuant to the settlement agreement, DHL must pay a civil penalty of nearly $9.5 million and conduct external audits of exports to Iran, Syria and Sudan from March 2007 to December 2009, as well as conduct annual calendar year audits in 2010 and 2011.
SEC Imposes Control Person Liability on Corporate Officers of Public Companies for Foreign Corrupt Practices
08/01/09 08:31 PM
On Jul
31, 2009 the U.S. Securities and Exchange
Commission (SEC) filed a settled
enforcement of $600,000 against Nature's
Sunshine Products Inc. (NSP) and $25,000 against
NSP Chief Executive Officer Douglas Faggioli and
former Chief Financial Officer Craig D. Huff.
NSP’s Brazilian subsidiary allegedly paid the
Brazilian custom officials to import
unregistered products into Brazil and
subsequently falsified its books and records to
conceal the payments.
The SEC based its charge on NSP’s violations of the anti-bribery provision of the Foreign Corrupt Practices Act (FCPA). But, according to Philip Urofsky, a former federal prosecutor of FCPA claims, the SEC also invoked, for the first time, Section 20(a) of the Securities Exchange Act of 1934 to hold NSP’s officers liable.
In an interview with the National Law Journal on Control Person Liability theory, Mr. Urofsky, who now is a partner in the Washington office of New York's Shearman & Sterling, described this theory as an easy way to hold corporate individuals: the executives, directors, and accountants liable for the corporation’s books, records and internal controls violations “without pleading any knowledge or culpable involvement in the underlying bribes or accounting issues.”
The SEC based its charge on NSP’s violations of the anti-bribery provision of the Foreign Corrupt Practices Act (FCPA). But, according to Philip Urofsky, a former federal prosecutor of FCPA claims, the SEC also invoked, for the first time, Section 20(a) of the Securities Exchange Act of 1934 to hold NSP’s officers liable.
In an interview with the National Law Journal on Control Person Liability theory, Mr. Urofsky, who now is a partner in the Washington office of New York's Shearman & Sterling, described this theory as an easy way to hold corporate individuals: the executives, directors, and accountants liable for the corporation’s books, records and internal controls violations “without pleading any knowledge or culpable involvement in the underlying bribes or accounting issues.”
Retired University Professor Sentenced to 4 Years Imprisonment for Export Violations
07/02/09 10:34 PM
On
July 1, 2009, the Department of Justice issued
a press release announcing the
sentencing of a retired university professor
convicted of the Arms Export Control Act (AECA)
violations. The AECA prohibits the exports of
defense-related materials, including the
technical information or data, to a foreign
national or foreign nation.
In a U.S. District Court in Knoxville, Tennessee, Dr. John Reece Roth, a retired University of Tennessee professor, was sentenced to four years in prison.
In a highly publicized trial that ended in September 2008, Dr. Roth was convicted of more than a dozen AECA violations for illegally exporting to China technical information relating to a U.S. Air Force research and development contract. The illegal exports of military technical information for use in an unmanned aerial vehicle involved specific information about advanced plasma technology that had been designed and was being tested for use on the wings of UAVs operating as weapons or surveillance systems.
In a U.S. District Court in Knoxville, Tennessee, Dr. John Reece Roth, a retired University of Tennessee professor, was sentenced to four years in prison.
In a highly publicized trial that ended in September 2008, Dr. Roth was convicted of more than a dozen AECA violations for illegally exporting to China technical information relating to a U.S. Air Force research and development contract. The illegal exports of military technical information for use in an unmanned aerial vehicle involved specific information about advanced plasma technology that had been designed and was being tested for use on the wings of UAVs operating as weapons or surveillance systems.
OFAC Issues Monthly Report of Alleged OFAC Violations
07/02/09 10:23 PM
On
July 1, 2009, the Treasury Department’s Office of
Foreign Assets and Controls (OFAC) issued its June
2009 report of civil
penalties imposed for alleged violations of OFAC
sanctioned regimes. The report lists the
following four settlements of alleged
violations:
- Oxbow Carbon and Minerals LLC of West Palm Beach, FL agreed to remit $276,250 to settle allegations that the company violated the Iranian Transactions Regulations occurring from November 2006 through October 2007. OFAC alleged that Oxbow engaged in transactions involving services originating in Iran and facilitated trade-related transactions by non-U.S. persons which involved the use of vessels owned and/or managed by the Islamic Republic of Iran Shipping Lines in Tehran, Iran, without an OFAC license. Oxbow did not voluntarily disclose the alleged violations to OFAC, but OFAC noted that the company “demonstrated cooperation” during OFAC’s review of the alleged violations and has made revisions to its compliance program as a remedial measure.
- National Marine Consultants, Inc. has remitted $42,075 to settle allegations of violations of the Iranian Transactions Regulations. OFAC alleged that between March 2005 and May 2007 NMCI outsourced to an Iranian entity inspection services it was contractually bound to perform for a third-party, without an OFAC license. NMCI did not voluntarily disclose the matter to OFAC, but later cooperated with OFAC’s investigation.
- Philips Electronics of North America Corporation, a New York, NY company, has remitted $128,750 to settle allegations of violations of the Cuban Assets Control Regulations occurring between June 2004 and March 2006. OFAC alleged that PENAC acted without an OFAC license through an employee’s travel to Cuba in connection with the sale of medical equipment by a foreign affiliate of PENAC. PENAC voluntarily disclosed this matter to OFAC.
- Willbros USA, Inc. of Houston, Texas, paid $6,600 to settle an allegation of violation of the Sudanese Sanctions Regulations occurring between June 18, 2003 and December 29, 2004. OFAC alleged that Willbros willfully violated the Regulations when it entered into a contract to bid on an oil development project in Sudan, despite its knowledge that such activities violated the Regulations, by facilitating the export of goods, technology or services to Sudan and evading the prohibitions set forth in the Regulations. Willbros voluntarily disclosed this matter to OFAC. OFAC applied its 2003 Economic Sanctions Enforcement Guidelines to this violation because Willbros and OFAC agreed to settle the allegation of violation, and memorialized the tentative agreement, prior to the issuance of OFAC’s Civil Penalties Interim Policy of November 27, 2007.
Illinois Company Has Export Privileges Suspended
06/19/09 02:41 PM
On June 18, 2009, the Bureau of Industry and
Security (BIS) issued a
notice
in Federal Register detailing the sentencing of TAK
Components, Inc. (TAK), an Illinois firm that was
convicted of 16 counts of the International
Emergency Economic Powers Act (IEEPA) violations in
October, 2007.
TAK exported from the U.S. to Iran, via the United Arab Emirates, replacement and service parts and equipment for agricultural machinery without the requisite authorization from the Department of Treasury’s Office of Foreign Assets Control (OFAC).
TAK was sentenced to one year probation for each count, to run concurrently, was ordered to pay a special assessment of $6,400, and forfeited $181,000 obtained from the illegal transactions. TAK’s export privileges will be suspended until October 11, 2012.
TAK exported from the U.S. to Iran, via the United Arab Emirates, replacement and service parts and equipment for agricultural machinery without the requisite authorization from the Department of Treasury’s Office of Foreign Assets Control (OFAC).
TAK was sentenced to one year probation for each count, to run concurrently, was ordered to pay a special assessment of $6,400, and forfeited $181,000 obtained from the illegal transactions. TAK’s export privileges will be suspended until October 11, 2012.
Mattel Agrees to Pay $2.3M Fine for Allegedly Excessive Amounts of Lead in Toys
06/13/09 02:39 PM
On June 12, 2009, the U.S. Consumer Product Safety
Commission (CPSC) issued
a
notice
in Federal Register announcing that Mattel, Inc.
(Mattel) and its wholly-owned subsidiary
Fisher-Price, Inc. (Fisher-Price) have agreed to
settle with CPSC the alleged violations of the
Commission’s Ban of Lead-Containing Paint and
Certain Consumer Products Bearing Lead Containing
Paint (Lead Regulations).
CPSC alleged that Mattel and Fisher-Price imported from China to the U.S. thousands of units of various toys between July 2006 and August 2007. The subject toys were subject to CPSC’s Lead Regulations, and, upon testing, were found to contain lead in excess of federal standards.
As part of the settlement agreement, Mattel and Fisher-Price have agreed to pay a $2.3 million fine.
CPSC alleged that Mattel and Fisher-Price imported from China to the U.S. thousands of units of various toys between July 2006 and August 2007. The subject toys were subject to CPSC’s Lead Regulations, and, upon testing, were found to contain lead in excess of federal standards.
As part of the settlement agreement, Mattel and Fisher-Price have agreed to pay a $2.3 million fine.
Exporter Sentenced for Export of Aircraft Parts to Iran
06/12/09 02:09 PM
On June 11, 2009, the U.S. Department of Justice
(DOJ) issued a
press release
announcing the sentencing of Traian Bujduveanu
(Bujduveanu) for his participation in conspiracy to
illegally export military and dual use aircraft
parts to Iran.
Bujduveanu was sentenced in a U.S. Southern District of Florida Court to 35 months imprisonment, followed by 3 years of supervised release. Bujduveanu plead guilty in April, 2009 to conspiracy to export and export of aircraft parts from the U.S. to Iran, in violation of the Iran Embargo, the International Emergency Economic Powers Act (IEEPA), and the Arms Export Control Act (AECA).
Bujduveanu, a Romanian national and a naturalized U.S. citizen, admitted that he and his Orion Aviation corporation in Plantation, FL, sold aircraft parts to Hassan Keshari and Kesh Air International, who used a freight forwarder in Dubai, UAE, to forward the parts to Iran. Some of the parts exported were designed exclusively for fighter jets and military helicopters, and all are used in the Iranian military fleet.
All parts exported were designated by the U.S. Department of State as defense articles on the U.S. Munitions List, thus requiring export authorization from the Directorate of Defense Trade Controls with the Department of State. Neither Bujduveanu nor his co-defendants had such authorization.
Bujduveanu received from Keshari e-mails detailing specific aircraft part orders for buyers in Iran, and would ship the parts to a company in Dubai using false shipping documents. The parts would then be forwarded to the purchasers in Iran.
Bujduveanu was sentenced in a U.S. Southern District of Florida Court to 35 months imprisonment, followed by 3 years of supervised release. Bujduveanu plead guilty in April, 2009 to conspiracy to export and export of aircraft parts from the U.S. to Iran, in violation of the Iran Embargo, the International Emergency Economic Powers Act (IEEPA), and the Arms Export Control Act (AECA).
Bujduveanu, a Romanian national and a naturalized U.S. citizen, admitted that he and his Orion Aviation corporation in Plantation, FL, sold aircraft parts to Hassan Keshari and Kesh Air International, who used a freight forwarder in Dubai, UAE, to forward the parts to Iran. Some of the parts exported were designed exclusively for fighter jets and military helicopters, and all are used in the Iranian military fleet.
All parts exported were designated by the U.S. Department of State as defense articles on the U.S. Munitions List, thus requiring export authorization from the Directorate of Defense Trade Controls with the Department of State. Neither Bujduveanu nor his co-defendants had such authorization.
Bujduveanu received from Keshari e-mails detailing specific aircraft part orders for buyers in Iran, and would ship the parts to a company in Dubai using false shipping documents. The parts would then be forwarded to the purchasers in Iran.
Exporter Sentenced in Arms Export Conspiracy
05/18/09 01:06 AM
On May
18, 2009, CBS News reported that Joseph
Piquet, a 55-year old Port St. Lucie, Florida
man, was sentenced to 5 years in prison followed
by two years of supervised release for his
participation in conspiracy to export arms.
Piquet was charged with seven counts of arms export violations arising from conspiracy to purchase military use electronic components from Northrop Grumman Corporation, and then ship those items to China and Hong Kong without obtaining the required export licenses under the Arms Export Control Act (AECA) and the International Emergency Economic Powers Act (IEEPA). A federal jury in Fort Pierce convicted Piquet on all counts on March 5th.
Among the items involved in the conspiracy were high power amplifiers designed for U.S. military use and low noise amplifiers that have a dual – commercial and military – use. The testimony showed that on several occasions in 2004 and 2005, Piquet purchased restricted electronic parts and submitted false End Use Certificates to the manufacturer to conceal the intended final destination for those exports.
Piquet was charged with seven counts of arms export violations arising from conspiracy to purchase military use electronic components from Northrop Grumman Corporation, and then ship those items to China and Hong Kong without obtaining the required export licenses under the Arms Export Control Act (AECA) and the International Emergency Economic Powers Act (IEEPA). A federal jury in Fort Pierce convicted Piquet on all counts on March 5th.
Among the items involved in the conspiracy were high power amplifiers designed for U.S. military use and low noise amplifiers that have a dual – commercial and military – use. The testimony showed that on several occasions in 2004 and 2005, Piquet purchased restricted electronic parts and submitted false End Use Certificates to the manufacturer to conceal the intended final destination for those exports.
Importer Sentenced For Customs Fraud
05/15/09 01:09 AM
On May
15, 2009, the U.S. Department of Justice
announced that Paul
Kotsakos of Biloxi, Mississippi, was sentenced
to nine months in prison and ordered to pay
restitution in the amount of $10,403 and $3,000
fines for customs fraud.
In January, Kotsakos pleaded guilty to a 16-count indictment, charging him with conspiracy to commit customs violations and wire fraud. Kotsakos operated an import company PK Promotions, Inc., in Biloxi. The company provided promotional items to casinos, restaurants, sports teams, and wholesalers, and imported items, including bags, beads, cups, and shirts from China.
According to the indictment, Kotsakos submitted fraudulent invoices to U.S. Customs and arranged to give parts false HTS classifications. In furtherance of the conspiracy, Kotsakos e-mailed the foreign manufacturers to request that they prepare fraudulent invoices reflecting a lower price for goods sold or different classification of the goods. By requesting falsified invoices and wrong classifications for the imports, Kotsakos sought to avoid paying the full amount of duty on imported goods.
After his release, Kotsakos will have to serve three years of supervised release.
In January, Kotsakos pleaded guilty to a 16-count indictment, charging him with conspiracy to commit customs violations and wire fraud. Kotsakos operated an import company PK Promotions, Inc., in Biloxi. The company provided promotional items to casinos, restaurants, sports teams, and wholesalers, and imported items, including bags, beads, cups, and shirts from China.
According to the indictment, Kotsakos submitted fraudulent invoices to U.S. Customs and arranged to give parts false HTS classifications. In furtherance of the conspiracy, Kotsakos e-mailed the foreign manufacturers to request that they prepare fraudulent invoices reflecting a lower price for goods sold or different classification of the goods. By requesting falsified invoices and wrong classifications for the imports, Kotsakos sought to avoid paying the full amount of duty on imported goods.
After his release, Kotsakos will have to serve three years of supervised release.
Exporter Settles Allegations of U.S. Export Regulations with a Civil Penalty
05/01/09 01:05 AM
On May
1, 2009, the Bureau of Industry and Security
(BIS) announced that B.J.
Services Company agreed to settle allegations
that it exported certain butterfly and check
valves in violation of the Export Administration
Regulations (EAR) with an $800,000 civil fine.
The allegations against the company involved 63 cases of unlicensed exports to several countries during 2003 and 2007. The exports were controlled under Export Commodity Classification No. 2B350 for reasons of chemical and biological weapons proliferation.
The company voluntarily disclosed its EAR violations and fully cooperated in the investigation.
The allegations against the company involved 63 cases of unlicensed exports to several countries during 2003 and 2007. The exports were controlled under Export Commodity Classification No. 2B350 for reasons of chemical and biological weapons proliferation.
The company voluntarily disclosed its EAR violations and fully cooperated in the investigation.
Exporter Charged With Violations of U.S. Export Regulations and False Statements to Government Agency
04/06/09 03:31 PM
On
April 6, 2009, the Department of Justice
(DOJ) announced
that federal
grand jury sitting in San Jose, California,
indicted Fu-Tain Lu (Lu), Funshine Technology,
Inc. (Funshine), and Everjet Science and
Technology Corporation (Everjet), charging them
with conspiracy to violate U.S. export
regulations and with lying to federal agents
investigating Lu’s conduct.
Funshine, based in Cupertino, California, and Everjet, based in China, were founded by Lu. The indictment alleges that Lu and his two companies conspired to export sensitive microware amplifier technology to China without obtaining the required licenses or authorization from the U.S. Department of Commerce. Items that Funshine shipped and attempted to ship to China were restricted for reasons of national security.
The indictment details that the defendants knew about the licensing restrictions but chose not to comply. Charges against Lu and the companies are supported, in part, by using internal company e-mails in which an Everjet employee told a Funshine employee, “Since these products are a little bit sensitive, in case the maker asks you where the location of the end user is, please do not mention it is in China.” In another e-mail, Lu advised an employee to pretend that the intended end-user for the goods was in Singapore, not China.
Lu, as an individual defendant, faces five years imprisonment and a $250,000 fine (or, twice the gross financial gain from the offense) on each of the counts of conspiracy to violate export regulations and false statements to a government agency; for charges of violation of export regulations, the statutory maximum penalty is 10 years imprisonment and a $50,000 fine, or twice the gross gain from the offense.
Funshine, based in Cupertino, California, and Everjet, based in China, were founded by Lu. The indictment alleges that Lu and his two companies conspired to export sensitive microware amplifier technology to China without obtaining the required licenses or authorization from the U.S. Department of Commerce. Items that Funshine shipped and attempted to ship to China were restricted for reasons of national security.
The indictment details that the defendants knew about the licensing restrictions but chose not to comply. Charges against Lu and the companies are supported, in part, by using internal company e-mails in which an Everjet employee told a Funshine employee, “Since these products are a little bit sensitive, in case the maker asks you where the location of the end user is, please do not mention it is in China.” In another e-mail, Lu advised an employee to pretend that the intended end-user for the goods was in Singapore, not China.
Lu, as an individual defendant, faces five years imprisonment and a $250,000 fine (or, twice the gross financial gain from the offense) on each of the counts of conspiracy to violate export regulations and false statements to a government agency; for charges of violation of export regulations, the statutory maximum penalty is 10 years imprisonment and a $50,000 fine, or twice the gross gain from the offense.
Iranian National Charged with Violations of IEEPA, AECA, and the U.S. Iran Embargo
04/06/09 03:17 PM
On
April 6, 2009, the Department of Justice (DOJ)
issued a
press release announcing that
Baktash Fattahi, an Iranian national and U.S.
resident, was arrested on April 3, 2009, in
California, on charges of conspiring to
illegally export parts for fighter jets and
military helicopters to Iran, a violation of the
International Emergency Economic Powers Act
(IEEPA), the Arms Export Control Act (AECA), and
the U.S. Iran Embargo.
In an indictment, a Miami federal grand jury charged that Fattahi and ten other defendants conspired to and illegally shipped thirteen different types of aircraft parts designated as defense articles on the USML from the U.S. to Iran via Dubai, U.A.E.. The specific parts are known to be used primarily by the Iranian military. All of the parts exported were manufactured in the U.S., designed exclusively for military use, and designated by the U.S. Department of State as “defense articles” on the USML, which requires registration and licensing with the DDTC. Neither Fattahi nor other defendants were registered or obtained licenses from DDTC to ship these goods to Iran.
The indictment alleges that the defendants in Iran sent, via e-mail, orders to a co-conspirator in Novato, California, for specific aircraft parts. The co-conspirator in California would, allegedly, contact a counterpart in Florida and would make arrangements for the sale and shipment of the parts to one of the several defendant counterparts in Dubai. The parts were then shipped from Dubai to their final destination in Iran.
If convicted, the defendants face a statutory ten to twenty years imprisonment, and a fine of up to $1 million.
In an indictment, a Miami federal grand jury charged that Fattahi and ten other defendants conspired to and illegally shipped thirteen different types of aircraft parts designated as defense articles on the USML from the U.S. to Iran via Dubai, U.A.E.. The specific parts are known to be used primarily by the Iranian military. All of the parts exported were manufactured in the U.S., designed exclusively for military use, and designated by the U.S. Department of State as “defense articles” on the USML, which requires registration and licensing with the DDTC. Neither Fattahi nor other defendants were registered or obtained licenses from DDTC to ship these goods to Iran.
The indictment alleges that the defendants in Iran sent, via e-mail, orders to a co-conspirator in Novato, California, for specific aircraft parts. The co-conspirator in California would, allegedly, contact a counterpart in Florida and would make arrangements for the sale and shipment of the parts to one of the several defendant counterparts in Dubai. The parts were then shipped from Dubai to their final destination in Iran.
If convicted, the defendants face a statutory ten to twenty years imprisonment, and a fine of up to $1 million.
IEEPA Charges Filed Against an Iranian Man and Company
03/17/09 05:21 PM
On
March 16, 2009, the Department of Justice (DOJ)
issued
a press release stating that Ali
Khoshnevisrad (Khoshnevisrad) was arrested on March
14, 2009, after he arrived in San Francisco
International Airport on a flight from abroad. On
March 16, 2009, Khoshnevisrad, a citizen of Iran,
and his Iranian company Ariasa, AG (Ariasa) were
charged with purchasing helicopter engines and
advanced aerial cameras for fighter bombers from
U.S. firms and illegally exporting them to Iran
using companies in Ireland, Malaysia and the
Netherlands. One of the alleged recipients of the
U.S. goods was an Iranian military firm that has
since been designated by the U.S. as owned or
controlled by entities involved in Iran’s nuclear
and ballistic missile program.
Khoshnevisrad and his company Ariasa are each charged with two counts of unlawful export of U.S. goods to Iran and two counts of conspiracy to unlawfully export U.S. goods to Iran, in violation of the International Emergency Economic Powers Act (IEEPA) and the Iranian Transactions Regulations (ITR).
According to the affidavit in support of the criminal complaint filed in August 2008, Khoshnevisrad and Ariasa instructed a trading company in Ireland to purchase several model 250 turbo-shaft helicopter engines from Rolls-Royce Corp in Indiana. This type of engine was originally designed for a U.S. Army light observation helicopter and is now installed in civil and military helicopters. The Irish trading company purchased 17 of the engines for a total of $4.27 million, falsely stating that the helicopters would be used by the Irish company or by fake companies. The affidavit alleges that these helicopter engines were exported from the U.S. to a company in Malaysia pretending to be a book publisher, at a freight forwarding company address. From there, the engines were shipped to Iran. Among the recipients was the Iran Aircraft Manufacturing Industrial Company, known by its Iranian acronym as HESA. In September 2008, HESA was designated by the Treasury Department as an Iranian proliferator of weapons of mass destruction.
The affidavit further alleges that Khoshnevisrad and Ariasa instructed in 2006 a Dutch aviation parts company to place an order for several aerial panorama cameras from the U.S. The specific cameras were designed for the U.S. Air Force, for use on bombers, fighters and surveillance aircraft. The Dutch company was supposed to place the order with a Pennsylvania company and to ship them to an address in Iran. Khoshnevisrad, knowing that Iranian end user would be prohibited in this case, instructed the Dutch company to “give them an end user by yourself.” In August 2006, a representative of the Dutch company notified Khoshnevisrad that the cameras were received and would soon be shipped to Tehran.
The affidavit alleges that neither Khoshnevisrad nor Ariasa ever sought an authorization or a license from the U.S. Department of Treasure to export any goods or technology to Iran. If convicted, Khoshnevisrad faces a prison sentence of up to 20 years for each of the first three counts of the complaint, and a prison sentence of up to five years on the fourth count.
Khoshnevisrad and his company Ariasa are each charged with two counts of unlawful export of U.S. goods to Iran and two counts of conspiracy to unlawfully export U.S. goods to Iran, in violation of the International Emergency Economic Powers Act (IEEPA) and the Iranian Transactions Regulations (ITR).
According to the affidavit in support of the criminal complaint filed in August 2008, Khoshnevisrad and Ariasa instructed a trading company in Ireland to purchase several model 250 turbo-shaft helicopter engines from Rolls-Royce Corp in Indiana. This type of engine was originally designed for a U.S. Army light observation helicopter and is now installed in civil and military helicopters. The Irish trading company purchased 17 of the engines for a total of $4.27 million, falsely stating that the helicopters would be used by the Irish company or by fake companies. The affidavit alleges that these helicopter engines were exported from the U.S. to a company in Malaysia pretending to be a book publisher, at a freight forwarding company address. From there, the engines were shipped to Iran. Among the recipients was the Iran Aircraft Manufacturing Industrial Company, known by its Iranian acronym as HESA. In September 2008, HESA was designated by the Treasury Department as an Iranian proliferator of weapons of mass destruction.
The affidavit further alleges that Khoshnevisrad and Ariasa instructed in 2006 a Dutch aviation parts company to place an order for several aerial panorama cameras from the U.S. The specific cameras were designed for the U.S. Air Force, for use on bombers, fighters and surveillance aircraft. The Dutch company was supposed to place the order with a Pennsylvania company and to ship them to an address in Iran. Khoshnevisrad, knowing that Iranian end user would be prohibited in this case, instructed the Dutch company to “give them an end user by yourself.” In August 2006, a representative of the Dutch company notified Khoshnevisrad that the cameras were received and would soon be shipped to Tehran.
The affidavit alleges that neither Khoshnevisrad nor Ariasa ever sought an authorization or a license from the U.S. Department of Treasure to export any goods or technology to Iran. If convicted, Khoshnevisrad faces a prison sentence of up to 20 years for each of the first three counts of the complaint, and a prison sentence of up to five years on the fourth count.
Director of Singapore Firm Pleads Guilty to Illegal Exporting to Iran
03/15/09 05:25 PM
The
Department of Justice (DOJ) issued
a press release announcing that
Laura Wang-Woodford (Wang-Woodford), a U.S. citizen
and a director of Monarch Aviation Pte, Ltd.
(Monarch), pled guilty on March 13, 2009 to
conspiring to violate the U.S. trade embargo by
exporting controlled aircraft components to Iran.
Monarch is a Singapore company that traded in military and commercial aircraft parts for over 20 years. Wang-Woodford was arrested in December 2007, at San Francisco International Airport after arriving from Hong Kong, and has been incarcerated since then. Both Wang-Woodford and her husband Brian D. Woodford, a U.K. citizen who served as chairman and managing director of Monarch, were originally charged in a 20-count indictment returned in the Eastern District of New York in January 2003. While Brian D. Woodford is a fugitive, a superseding indictment charging Wang-Woodford with operating Jungda International Pte. Ltd (Jungda), a Singapore successor to Monarch, was returned on May 22, 2008.
The current indictment against the Woodfords alleges that between January 1998 and December 2007 defendants exported controlled U.S. aircraft parts from the U.S. to Monarch and Jungda in Singapore and Malaysia and then re-exported those parts to Tehran without obtaining the required U.S. government licenses. The aircraft parts included aircraft shields, shears, switch assemblies, and “o” rings. The defendants falsely listed Monarch and Jungda as the ultimate recipients of the parts on the U.S. export documents. The current indictment also charges that the defendants arranged for the illegal export of U.S. military aircraft equipment to Monarch, to be used in Chinook military helicopters.
When Wang-Woodford was arrested in San Francisco, she had the China National Precision Machinery Import and Export Corporation (CPMIEC) catalogues with her, which contained advertisements for military technology and weaponry. CPMIEC has been sanctioned by the U.S. Treasury Department Office of Foreign Assets Controls (OFAC) for their sales of military hardware to Iran. Engaging in business with CPMIEC is prohibited for all U.S. persons.
Wang-Woodford faces a prison sentence of up to five years and a fine of up to $250,000. She also agreed to forfeit $500,000 to the U. S. Treasury Department.
Monarch is a Singapore company that traded in military and commercial aircraft parts for over 20 years. Wang-Woodford was arrested in December 2007, at San Francisco International Airport after arriving from Hong Kong, and has been incarcerated since then. Both Wang-Woodford and her husband Brian D. Woodford, a U.K. citizen who served as chairman and managing director of Monarch, were originally charged in a 20-count indictment returned in the Eastern District of New York in January 2003. While Brian D. Woodford is a fugitive, a superseding indictment charging Wang-Woodford with operating Jungda International Pte. Ltd (Jungda), a Singapore successor to Monarch, was returned on May 22, 2008.
The current indictment against the Woodfords alleges that between January 1998 and December 2007 defendants exported controlled U.S. aircraft parts from the U.S. to Monarch and Jungda in Singapore and Malaysia and then re-exported those parts to Tehran without obtaining the required U.S. government licenses. The aircraft parts included aircraft shields, shears, switch assemblies, and “o” rings. The defendants falsely listed Monarch and Jungda as the ultimate recipients of the parts on the U.S. export documents. The current indictment also charges that the defendants arranged for the illegal export of U.S. military aircraft equipment to Monarch, to be used in Chinook military helicopters.
When Wang-Woodford was arrested in San Francisco, she had the China National Precision Machinery Import and Export Corporation (CPMIEC) catalogues with her, which contained advertisements for military technology and weaponry. CPMIEC has been sanctioned by the U.S. Treasury Department Office of Foreign Assets Controls (OFAC) for their sales of military hardware to Iran. Engaging in business with CPMIEC is prohibited for all U.S. persons.
Wang-Woodford faces a prison sentence of up to five years and a fine of up to $250,000. She also agreed to forfeit $500,000 to the U. S. Treasury Department.
KBR & Halliburton Agree to $579 Million Settlement for Violations of the Foreign Corrupt Practices Act
02/12/09 05:28 PM
The
DOJ
announced on February 11,
2009, that Kellogg Brown & Root LLC (KBR), a
global engineering, construction and services
company based in Houston, pleaded guilty to charges
related to the Foreign Corrupt Practices Act (FCPA)
for its participation in a decade-long scheme to
bribe Nigerian government officials to obtain
engineering, procurement and construction (EPC)
contracts. The contracts to build liquefied natural
gas (LNG) facilities on Bonny Island, Nigeria, were
valued at more than $6 billion. KBR agreed to pay a
$402 million criminal fine. According to court
documents, KBR was part of a four-company joint
venture that was awarded four EPC contracts by
Nigeria LNG Ltd. (NLNG) between 1995 and 2004 to
build LNG facilities on Bonny Island. The
government-owned Nigerian National Petroleum
Corporation (NNPC) was the largest shareholder of
NLNG, owning 49 percent of the company. Under the
terms of the plea agreement, KBR agreed to retain
an independent compliance monitor for a three-year
period to review the design and implementation of
KBR's compliance program and to make reports to KBR
and the Department of Justice. KBR also agreed to
cooperate with the Department in its ongoing
investigations. KBR's parent company, KBR
Inc., and its former parent company, Halliburton
Company, also reached a settlement of a related
civil complaint filed by the U.S. Securities and
Exchange Commission (SEC). The SEC's complaint
charged KBR Inc. with violating the FCPA's
anti-bribery provisions, and charged KBR and
Halliburton with engaging in books and records and
internal controls violations related to the
bribery. KBR Inc. and Halliburton jointly
agreed to pay $177 million in disgorgement of
profits relating to those violations.
Combined, the $579 million in fines constitutes the largest settlement of FCPA violations by any U.S. company in history.
Combined, the $579 million in fines constitutes the largest settlement of FCPA violations by any U.S. company in history.
California & Taiwan Companies Lose Export Privileges for 20 Years
02/07/09 05:30 PM
On
February 6, 2009, the Bureau of Industry and
Security (BIS)
announced that Well Being
Enterprise Co., Ltd. ("Well Being") of Taiwan and
Elecmat, Inc. of San Francisco, CA settled
allegations and each agreed to 20 year denials of
export privileges. Well Being also agreed to a
civil penalty of $250,000 to settle allegations
that it committed 25 violations of the Export
Administration Regulations (EAR) related to the
unlicensed export of chemicals and metals from the
United States to Taiwan that are controlled for
Nuclear Proliferation reasons. In addition, Hui-Fen
Chen, a Well Being employee, has agreed to a
twenty-year denial of export privileges for items
on the Commerce Control List (CCL), and Theresa
Chang, Elecmat’s former manger, has agreed to a
two-year denial of export privileges for items on
the CCL.
The denial orders imposed against Well Being, Chen and Chang prohibit them from participating in, or benefiting from, any transaction involving the export of an item listed on the CCL. The denial order imposed against Elecmat prohibits it from participating in, or benefiting from, any transaction involving the export of all items subject to the EAR. BIS has agreed to suspend $220,000 of Well Being’s fine, provided that, in the next five years, no additional violations occur.
Kevin Delli-Colli, Acting Assistant Secretary of Commerce for Export Enforcement stated that, "Individuals who devise schemes and willfully circumvent U.S. export controls warrant having their export privileges suspended. This case demonstrates that domestic sales of controlled items to persons with no technical understanding of the product should be considered a red-flag."
The denial orders imposed against Well Being, Chen and Chang prohibit them from participating in, or benefiting from, any transaction involving the export of an item listed on the CCL. The denial order imposed against Elecmat prohibits it from participating in, or benefiting from, any transaction involving the export of all items subject to the EAR. BIS has agreed to suspend $220,000 of Well Being’s fine, provided that, in the next five years, no additional violations occur.
Kevin Delli-Colli, Acting Assistant Secretary of Commerce for Export Enforcement stated that, "Individuals who devise schemes and willfully circumvent U.S. export controls warrant having their export privileges suspended. This case demonstrates that domestic sales of controlled items to persons with no technical understanding of the product should be considered a red-flag."
Optics Company Agrees to a $25 Million Civil Penalty for ITAR Violations
01/30/09 05:32 PM
On
December 5, 2008, Qioptiq S.a.r.l., a Luxemborg
optics company, agreed to a
Consent Agreement with the
Directorate of Defense Trade Controls (DDTC)
involving a $25 million civil penalty. The
Proposed Charging Letter
outlines
the facts and circumstances surrounding the 163
alleged violations of the Arms Export Control Act
(AECA). DDTC has also published the
Order in the matter and
an
Annex of Compliance
Measures.
Qioptiq, an optics company with operations in the U.S., Singapore, UK, Germany and Hungary, had acquired Thales High Technology Optic Group companies. These companies were primarily involved in the manufacturing of quality optic components for use in both commercial and military applications. A large portion of Thales Singapore's business was and continues to be the manufacturing of military optics used in night vision equipment. U.S. night vision equipment manufacturers relied heavily on the Singaporean facility for supplying optical components, sub-assemblies, and related parts. Thales Singapore was an important supplier to ITT Night Vision.
Qioptiq, an optics company with operations in the U.S., Singapore, UK, Germany and Hungary, had acquired Thales High Technology Optic Group companies. These companies were primarily involved in the manufacturing of quality optic components for use in both commercial and military applications. A large portion of Thales Singapore's business was and continues to be the manufacturing of military optics used in night vision equipment. U.S. night vision equipment manufacturers relied heavily on the Singaporean facility for supplying optical components, sub-assemblies, and related parts. Thales Singapore was an important supplier to ITT Night Vision.
VP of California Company Arrested for Illegal IC Exports to China
01/12/09 05:38 PM
On
January 10, 2009, William Chai-Wai Tsu, vice
president of Cheerway, Inc., was
arrested on
charges of
illegally exporting “miniscule” integrated circuits
(which have potential use in sophisticated
communications and military radar systems) in
violation of the International Emergency Economic
Powers Act (IEEPA). Tsu, a resident of Beijing and
a naturalized U.S. citizen, made his initial court
appearance on Monday following his arrest, where
his formal arraignment was scheduled for February
2, 2008.
The court documents allege that Tsu purchased the ICs from a San Jose-based distributor. Tsu allegedly told the distributor that the ICs would not be exported from the U.S. The Department of Justice states that Tsu’s arrest was a result of investigation initiated by the agents of DOC and the Federal Bureau of Investigation (FBI), who opened the probe after receiving a lead on Tsu’s activities from their local counterparts in San Jose, California. The DOJ stated:
If convicted, Tsu faces up to 20 years in prison.
The court documents allege that Tsu purchased the ICs from a San Jose-based distributor. Tsu allegedly told the distributor that the ICs would not be exported from the U.S. The Department of Justice states that Tsu’s arrest was a result of investigation initiated by the agents of DOC and the Federal Bureau of Investigation (FBI), who opened the probe after receiving a lead on Tsu’s activities from their local counterparts in San Jose, California. The DOJ stated:
This case is the product of an investigation by the recently created Export and Anti-proliferation Global Law Enforcement (EAGLE) Task Force. The counter-proliferation task force was recently created by the United States Attorney's Office for the Central District of California in conjunction with federal law enforcement agencies to jointly investigate and combat the illegal exports of arms and sensitive technologies. Members of the EAGLE Task Force include the U.S. Department of Commerce, Bureau of Industry and Security, Office of Export and Enforcement; ICE; the FBI; U.S. Customs and Border Protection; the Diplomatic Security Service and the Transportation Security Administration.
If convicted, Tsu faces up to 20 years in prison.
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.