Norton Lilly International (Norton), Mobile, AL, has been assessed a penalty of $18,750 for its violation of the Iranian Transactions Regulations that occurred in November 2006. Norton engaged in a transaction or dealing related to services of Iranian origin, and facilitated a transaction by a foreign person involving Iranian-origin services. In the transaction, Norton acted as a paying agent for a foreign entity, to pay port charges incurred at an Iranian port in the amount of $14,936. OFAC determined that Norton did not voluntarily self-disclose the violation to OFAC and that the violation constituted a non- egregious case.
The base penalty amount for the violation was $25,000. The assessed penalty reflects OFAC’s consideration that Norton had knowledge or reason to know that the conduct, activity, or transaction giving rise to the violation involved port charges with respect to a ship calling in Iran; Norton did not have a compliance program in place at the time of the violation; Norton has instituted remedial measures by adopting procedures to comply with OFAC’s regulations in the future; Norton cooperated with OFAC by promptly responding to OFAC’s administrative subpoena and providing OFAC all relevant information regarding the violation; and Norton has not been subject to an OFAC enforcement action in the five years preceding the date of the violation.
CMA CGM (America) LLC (CCA), of Norfolk, VA, has remitted $374,400 to settle allegations of violations of the Cuban Assets Control Regulations, the Iranian Transactions Regulations, and the Sudanese Sanctions Regulations, occurring between December 2004 and April 2008. OFAC alleged that CCA, a global container shipping company, facilitated the exportation of goods from foreign ports to Sudan on at least two occasions and, in 28 separate transactions, accepted payments for shipping services provided by its foreign parent company, CMA CGM, or its foreign affiliates, in connection with shipments between third countries and Cuba, Iran, or Sudan. The transactions involving the alleged violations were valued at approximately $402,265.
OFAC determined that CCA did not voluntarily self-disclose the matter to OFAC and that the alleged violations constituted a non-egregious case. The base penalty amount for the alleged violations totaled $640,000. The settlement amount reflects OFAC’s consideration of the following: the alleged violations appear to have resulted from a pattern of conduct over a period of approximately three years; given the size and scope of CCA’s operations and the nature of its international business, it appears to have lacked an adequate compliance program to avoid U.S. sanctions violations; some of the goods exported from third countries to Cuba and Iran may have qualified as agricultural/medical products under the Trade Sanctions Reform and Export Enhancement Act of 2000 and, thus, may have been eligible for a license; CCA and CMA CGM have undertaken remediation to ensure that such alleged violations do not recur; CCA had not been the subject of OFAC penalties within the past five years; and CCA cooperated with OFAC throughout the investigation, including by requesting the cooperation of CMA CGM and its foreign affiliates in gathering relevant transaction data, and by agreeing to toll the statute of limitations.
Société Générale New York Branch, New York, NY (SGNY) has remitted $111,359 to settle allegations of violations of the Iranian Transactions Regulations (Regulations) occurring December 27, 2006, and May 9, 2007. OFAC alleged that SGNY dealt in Iranian-origin services and/or facilitated transactions by a foreign person where the transactions by the foreign person would have been prohibited by the Regulations if performed by a U.S. person. Specifically, OFAC alleged that SGNY, as the issuing bank of two letters of credit between two non-sanctioned parties, processed two payments under those letters of credit involving the shipment of cargo transported aboard vessels owned and/or managed by the Islamic Republic of Iran Shipping Lines of Tehran, Iran, an Iranian entity. The value of the payments was $329,954.
SGNY voluntarily self-disclosed the alleged violations and OFAC has determined that the alleged violations constituted a non-egregious case. The base penalty amount for the alleged violations was $164,977. The settlement amount reflects OFAC’s consideration of the following: SGNY improved its compliance program in response to the apparent violations by enhancing its internal controls related to screening trade finance transactions, and provided additional training to staff involved in processing such transactions; SGNY cooperated with OFAC’s investigation and resolution of this matter; and OFAC has not issued a penalty notice or Finding of Violation against SGNY in the five years preceding the transactions at issue.
Heritage Turbines, Inc., Hyannis, MA (Heritage) has remitted $4,500 to settle an alleged violation of the Sudanese Sanctions Regulations occurring on or about November 21, 2007. OFAC alleged that Heritage attempted to ship two fuel nozzle kits to Sudan without an OFAC license. The fuel nozzle kits were valued at a total of $2,000. OFAC determined that Heritage did not voluntarily self-disclose this matter to OFAC and the alleged violation constituted a non-egregious case. The base penalty amount for the alleged violation totaled $10,000. The settlement amount reflects the fact that Heritage had no history of sanctions violations and cooperated with OFAC’s investigation of this matter.
Iranian National Sentenced to Four Years in Prison for Conspiracy to Illegally Export Prohibited Parts to Iran
Baniameri was arrested on a criminal complaint on Sept. 9, 2009, and indicted in December 2009. A superseding indictment in July 2010 charged Baniameri and his two co-defendants Syed Majid Mousavi (Mousavi) and Andro Telemi (Telemi).
According to the plea agreement, sometime before October 10, 2008, Mousavi, based in Iran, contacted Baniameri in California and requested that he purchase and export radio test sets from the United States to Iran, through Dubai. Baniameri agreed and over the next few months negotiated the purchase of three Marconi radio test sets from a company in Illinois. Baniameri arranged for the radio test kits to be sent to him in California, where he shipped them to Dubai, for ultimate transshipment to Iran, without the required export license.
The plea agreement also states that, sometime before August 10, 2009, Mousavi contacted Baniameri and requested that he purchase and export to Iran via Dubai 10 connector adapters for the TOW and TOW2 missile systems. Baniameri agreed to purchase the items on behalf of Mousavi, and over the next few months, he admitted that he and his co-defendants attempted to purchase 10 connector adaptors from a company in Illinois, which unbeknownst to them, was in fact a company controlled by law enforcement. In September 2009, Baniameri admitted that he directed Telemi to take possession of the connector adaptors in California after having paid $9,450 to a representative of the Illinois company. To further facilitate the export of these items to Iran, Baniameri arranged to fly from the United States to Dubai and then from Dubai to Iran. Baniameri did not attempt to obtain a license from the U.S. government for the export of the connector adaptors. He was arrested before leaving the United States.
Singapore National Agrees to $100,000 Fine and 25-year Denial Order to Settle Export Conspiracy Charges
The carbon fiber at issue is controlled by BIS for nuclear non-proliferation and national security reasons and was valued at approximately $315,000. According to BIS, from February 2007 through April 2008, Ding conspired with others to export two types of the carbon fiber to CAST in China, via Hong Kong and Singapore, without the required Department of Commerce license.
BIS alleges that BIS used his position as a manager of several Singapore-based companies to acquired items for CAST. In addition, He directed the activities of individuals and entities in the United States and Singapore to deceive U.S. suppliers and avoid detection by law enforcement, and provided the money used to obtain the controlled materials for export from the U.S. to China.
Ding received repeated warnings that an export license was required for the export of carbon fiber to China. After the material had been purchased and stored in New York as part of the scheme, Ding ultimately directed a co-conspirator by email to export some carbon fiber to Hong Kong and some to a company under Ding’s control in Singapore.
The items were stopped by Special Agents of BIS’s Office of Export Enforcement (OEE) before they could be exported. Ding subsequently was arrested when he attempted to enter the U.S. and is now incarcerated in a federal prison. Prior to settling BIS’s administrative charge, Ding entered a guilty plea to criminal charges of conspiracy to violate the EAR and was sentenced to a period of 46 months imprisonment.
Former Managing Director of PPG Paints Trading (Shanghai) Co., Ltd., Charged with IEEPA and EAR Violations
Specifically, Wang, 51, is accused of conspiring to export and reexport, and exporting and reexporting specially designed, high-performance epoxy coatings to the Chashma 2 Nuclear Power Plant (Chashma II) in Pakistan, a nuclear reactor owned and/or operated by the Pakistan Atomic Energy Commission. This entity is on the list of prohibited end users under the EAR.
Wang was arrested on the indictment on June 16, 2011, at Atlanta Hartsfield-Jackson Airport and transferred to the District of Columbia. She is a Chinese national and lawful permanent resident of the United States. The United States is seeking to have her held without bond pending trial.
The indictment against Wang is related to the December 21, 2010, guilty plea of PPG Paints Trading (Shanghai) Co., Ltd. (PPG Paints Trading), to a four-count information in the U.S. District Court for the District of Columbia. Together, PPG Paints Trading and its parent company, PPG Industries, Inc., paid $3.75 million in criminal and administrative fines and over $32,000 in restitution. The combined amount of criminal and civil fines represented one of the largest monetary penalties for export violations in the BIS history.
According to the indictment against Wang, in January 2006, PPG Industries sought an export license for the shipments of coatings to Chashma II. In June 2006, the Department of Commerce (DOC) denied that license application. Following that denial, Wang and her co-conspirators agreed upon a scheme to export and reexport the high-performance epoxy coatings from the U.S. to Chashma II, via a third-party distributor in People’s Republic of China (PRC), without the required export license from the DOC.
The indictment further alleges that from June 2006 through March 2007, Wang and other co-conspirators intentionally concealed from PPG Industries that the paint would be delivered to Chashma II. Specifically, they falsely stated that the coatings were to be used at a nuclear power plant in China, the export of goods to which would not require a license from the DOC. The indictment alleges that, through these means, Wang and her co-conspirators took part in three shipments of coatings from the United States to Chashma 2 without the required license.
BIS alleged that on three occasions during June and July of 2006, Gamal sent networking equipment, controlled for Anti-Terrorism reasons, to the General Electric Company of Libya, without the required Department of Commerce licenses. In connection to one of these shipments, agents searched an ATI employee flying from Detroit, MI to Libya and found three computer cards hidden in his carry-on luggage.
To settle the administrative case, Gamal agreed to conduct a compliance audit of ATI covering the first year of exports following the settlement, put in place a compliance program, attend BIS export compliance training, and complete an audit for past exports.
On February 14, 2011, Gamal also pleaded guilty in the District Court for District of Columbia to one count of Material False Statements made to agents in the course of investigation. On May 16, 2011, he was sentenced by United States District Judge to pay a fine of $5,000, to perform 100 hours of community service, and to serve two years supervised probation. The judge also ordered Gamal to provide monthly reports to the Department of Commerce regarding his export activities during the probationary period.
One of the defendants and his company were sentenced on June 22, 2011, with the individual receiving almost five years in prison. Another defendant and his company have admitted their illegal conduct and also pleaded guilty in the investigation.
The indictment alleges that the defendants conspired to export components for attack helicopters and fighter jets to Iran without the required U.S. export licenses. These components included military parts for the Bell AH-1 attack helicopter, the UH-1 Huey attack helicopter, as well as the F-5 and F-4 fighter jets.
One of the defendants and his company in the U.A.E. are alleged to have placed orders and purchased military aircraft parts, including those for the Bell AH-1 attack helicopter, from a defendant and his company in the U.S., who then exported the aircraft parts to the U.A.E.
One defendant in Illinois is alleged to have placed orders and purchased U.S. aircraft parts from another defendant in Georgia on behalf of an Iranian national and his company in Iran. The charges specify that the defendant in Georgia and other defendants exported the aircraft parts to Iran via defendants in France.
A conspiracy charge carries a maximum penalty of five years in prison. A maximum penalty for an AECA violation is 20 years in prison, and an IEEPA violation carries a maximum penalty of 20 years. Money laundering carries a maximum 20 years in prison, while making false statements carries a maximum of five years in prison.
Analysts pursued the lead, piecing together information about a Mexican manufacturer who appeared to be involved in the alleged illegal scheme where the hangers were shipped form China to the U.S., sent to Mexico, and then imported back into the U.S. as products of Mexico. The 55-count indictment in the Southern District of California included conspiracy, entry of goods by means of false statements, false statement, wire fraud, and money laundering.
The filing resulted in the sentencing of the responsible individual from Tijuana, Mexico, to 70 months in federal prison and an order to pay more than $3 million in restitution to the U.S. government as well as a forfeiture of more than $4 million in proceeds gained through the illegal transshipment scheme.
BIS Revokes the Suspension of a $2M Penalty and Accelerates Payment of Outstanding $5.2 Penalty for Balli Group
BIS and the Treasury Department’s Office of Foreign Assets Control (OFAC) had entered into an agreement with Balli Group PLC and Balli Aviation Ltd. (collectively “Balli&rdquo in February 2010, with civil penalties totaling $15M, originally suspending $2M, regarding allegations that Balli conspired to export or reexport commercial aircraft from the United States to Iran in violation of the Export Administration Regulations (EAR) and the Iranian Transactions Regulations (ITR). This case represented the largest civil penalty ever imposed by BIS.
In his revocation order, BIS Assistant Secretary Mills stated: "[Balli] failed in my judgment to arrange its business and financial affairs in such a manner as to ensure compliance with its civil penalty payment obligations – obligations that were imposed, moreover, as a result of Balli’s egregious conduct that violated U.S. export control laws and provided support to Iran and its proliferation efforts."
BIS previously had charged that between 2005 and 2008 Balli conspired with an Iranian airline to export or reexport U.S.-origin Boeing 747 aircraft to Iran without the required U.S. Government authorization. Specifically, three of the aircraft were flying on routes in and out of Iran using Iranian flight numbers while under the operational control of the Iranian airline. Balli allowed the aircraft to continue to be operated contrary to U.S. export control laws, despite warnings from BIS and the manufacturer. Additionally, Balli misled and concealed information from BIS regarding the role the Iranian airline played in the acquisition and financing of the aircraft via funds from the Iranian Foreign Exchange Reserve Fund.
BIS also had charged that from July 2008, through September 2008, Balli took actions prohibited by a BIS order temporarily denying its export privileges. Balli conducted negotiations with persons, including another person subject to the Temporary Denial Order, concerning financing, receiving and/or using three additional U.S.-origin aircraft that had been exported from the United States and are subject to the EAR.
Iranian National Pleads Guilty to Illegally Exporting Missile Components and Radio Test Sets to Iran
U.S. District Judge Samuel Der-Yeghiayan set sentencing for Aug. 4. Baniameri, who remains in federal custody, faces a maximum penalty of 10 years in prison for violating IEEPA and a maximum of 20 years in prison for violating AECA and a maximum fine of $250,000 on each count. A written plea agreement contemplates a sentencing guideline range of 46 to 57 months imprisonment.
According to the plea agreement and other court records, sometime before Oct. 10, 2008, Mousavi, based in Iran, contacted Baniameri in California and requested that he purchase and export radio test sets from the United States to Iran, through Dubai. Baniameri agreed and over the next few months negotiated the purchase of three Marconi radio test sets from a company in Illinois. Ultimately, Baniameri arranged for the radio test kits to be sent to him in California, where he shipped them to Dubai, for ultimate transshipment to Iran. At no time did Baniameri obtain or attempt to obtain a license from the U.S. government for the export of the radio test sets.
The plea agreement also states that, sometime before Aug. 10, 2009, Mousavi contacted Baniameri and requested that he purchase and export to Iran via Dubai 10 connector adapters for the TOW and TOW2 missile systems. Baniameri agreed to purchase the items on behalf of Mousavi, and over the next few months, he admitted that he and his co-defendants attempted to purchase 10 connector adaptors from a company in Illinois, which unbeknownst to them, was in fact a company controlled by law enforcement. In September 2009, Baniameri admitted that he directed Telemi to take possession of the connector adaptors in California after having paid $9,450 to a representative of the Illinois company. To further facilitate the export of these items to Iran, Baniameri arranged to fly from the United States to Dubai and then from Dubai to Iran. At no time did Baniameri obtain or attempt to obtain a license from the U.S. government for the export of the connector adaptors. He was arrested before leaving the United States.
Under the Consent Agreement, BAES agrees to pay a total civil penalty of $79 million. Sixty-nine million dollars will be paid through several installments: (1) $18M to be paid within 10 days of the Order; (2) $17M to be paid within 1 year of the Order and then on each of the 2nd and 3rd anniversaries of the order; (3) $3M will be suspended on the condition that BAES has applied this amount to self-initiated, pre-Consent Agreement remedial compliance measures; and (4) $7M will be suspended on the condition that BAES applies this amount to the Consent Agreement authorized remedial compliance measures and for the purpose of defraying a portion of the costs associated with the specified remedial compliance measures.
The Consent Agreement also outlines that as a result of the conviction, BAES was statutorily debarred but there was an immediate lifting of the debarment. The Consent Agreement also outlines a policy of denial concerning certain non-U.S. subsidiaries of BAES involved in activities related to the conviction (BAE Systems CS&S International, Red Diamond Trading Ltd., and Poseidon Trading Investments Ltd., and their subsidiaries, divisions and business units, and successor entities), which means that there will be a presumption of denial of license and other applications involving these entities. DDTC posted guidance on its website to exporters regarding a policy of denial for BAE Systems plc.
According to the indictment, Commerce Department agents visited Shih’s business in New York in 2006 where they informed Shih about U.S. laws governing the export of goods from the U.S. to other countries, particularly embargoed countries like Iran. In April 2010, ICE-Homeland Security Investigations (HSI) agents seized hundreds of laptop computers that originated from Sunrise and were destined for Dubai, UAE. Communications related to these shipments indicated that the purchasers were located in Iran.
The indictment further alleges that agents subsequently identified a company in Dubai that was purchasing millions of dollars of computers from U.S. companies for export to Iran, through Dubai. ICE-HIS agents arrested one of company’s agents, who pleaded guilty in December 2010 and began cooperating with the government. In interviews with agents, the agent indicated that he and his company in Dubai had purchased million worth of laptops from Shih in recent years for shipment to Iran. The agents determined that more than 1,000 computers had been shipped by Shih’s company to Dubai and later to Iran, between April 2010, and May 2010, alone.
In February 2011, the cooperating agent met with Shih in New York. In recorded conversations, Shih allegedly told the agent he was aware of the U.S. embargo against Iran and U.S. export control laws. According to the indictment, Shih also told the cooperating individual how to avoid detection when shipping goods to Iran by using fake invoices and indicated that he treated the seizure of some of his shipments as a “loss” when reporting business income and loses on his U.S. taxes.
If Shih is convicted, he will face a maximum sentence of 20 years in prison and a $1 million fine for each of the IEEPA counts and five years for each false statement count, all related to this illegal exports case.
DOJ also reported that Massoud Habibion, 48, aka “Matt Habibion” or “Matt Habi, and Mohsen Motamedian, 43, aka “Max Motamedian” or “Max Ehsan,” both U.S. citizens, and their Costa Mesa, California, company, Online Micro LLC, were indicted in the District of Columbia on 32 counts relating to the illegal export of computer-related equipment to Iran without the required Department of Treasury license.
The indictment against Habibion and Motamedian alleges that a company in Dubai, referenced above in Shih’s case, purchased millions of dollars worth of laptop computers from Online Micro and that these computers were subsequently shipped to Iran. According to the affidavit, the cooperating agent for the Dubai company told federal agents that Habibion and Motamedian sold roughly $300,000 worth of computers to the Dubai company each month and that Habibion and Motamedian fully understood that the computers were destined for Iran.
In December 2010, the cooperating individual met with Habibion and Motamedian. Allegedly, they instructed the cooperating individual to make fake invoices to conceal that Iran was the destination of the shipments and to indicate that the end-users were in Dubai. In addition, the indictment alleges that in a Jan. 5, 2011, meeting, Habibion told the cooperating individual to lie to federal agents about conducting business in Iran, stating, “If they ask you, for instance, ‘Do you do business in Tehran?’ ‘No, I don't have any business in Tehran. I go there to visit my family, but I have no business there.’ They will ask such questions, it is part of their routine.”
If Habibion or Motamedian are convicted, they will face a maximum sentence of 20 years in prison and a $1 million fine for each of the IEEPA counts and five years for each false statement count relating to this illegal exports case. In addition, they also face 20 years for each obstruction of justice count.
According to the deferred prosecution agreement, J&J has acknowledged responsibility for the actions of its subsidiaries, employees and agents who made various improper payments to public health care providers in Greece, Poland and Romania in order to induce the purchase of medical devices and pharmaceuticals manufactured by J&J subsidiaries. J&J also acknowledged that kickbacks were paid on behalf of J&J subsidiary companies to the former government of Iraq under the United Nations Oil for Food Program in order to secure contracts to provide humanitarian supplies. A criminal information filed in connection with the deferred prosecution agreement charges J&J subsidiary DePuy Inc. with conspiracy and violations of the FCPA in connection with the payments to public physicians in Greece.
The agreement recognizes J&J’s timely voluntary disclosure, and thorough self-investigation of the underlying conduct; the extraordinary cooperation provided by the company to the department, the SEC and multiple foreign enforcement authorities, including significant assistance in the industry-wide investigation; and the extensive remedial efforts and compliance improvements undertaken by the company. Due to J&J’s pre-existing compliance and ethics programs, extensive remediation, and improvement of its compliance systems and internal controls, J&J was not required to retain a corporate monitor, but it must report to the Department of Commerce on implementation of its remediation and enhanced compliance efforts every six months for the duration of the agreement.
In a related matter, J&J reached a settlement with the Securities and Exchange Commission (SEC) under which it agreed to pay more than $48.6 million in disgorgement of profits, including pre-judgment interest.
- Aegis Electronic Group, Inc. (Aegis) has agreed to pay $20,000 to settle allegations of violations of the Iranian Transactions Regulations (ITR). OFAC alleged that Aegis, a U.S. distributor of industrial imaging products, including cameras, monitors, and related control units, violated the ITR by its unlicensed sale and export of camera control units to Austria with knowledge that the items were intended for re-export to Iran.
Specifically, OFAC alleged that, during the period August 2008 - January 2009, Aegis violated the ITR when it exported two camera control units from the United States to Austria for re-export to Iran. Aegis did not voluntarily disclose this matter to OFAC. The total transaction value of the camera control units exported to Austria for re-export to Iran was $2,685. The base penalty amount for Aegis’ apparent violation was $10,000, but the settlement amount reflects OFAC’s consideration of multiple factors including: the criminal charges set forth in the Deferred Prosecution Agreement reflect knowing and willful conduct by an employee that is attributable to the company; there is no indication that Aegis’ senior management participated in the apparent violations; and Aegis lacked a sanctions compliance program at the time of the apparent violations, but it has since implemented a compliance program that requires sanctions and export compliance training of all employees.
- McGriff, Seibels & Williams of Texas, Inc., Houston, TX (McGriff), has paid $122,408 to settle allegations of violations of the Iranian Transactions Regulations (ITR). OFAC alleged that McGriff, a U.S. insurance brokerage firm specializing in insurance coverage for the energy sector, violated the ITR by its unlicensed design, revision, and placement, with foreign insurers, of six commercial multiple peril (CMP) insurance policies that insured the risks of a submersible oil rig in Iranian waters. The policy periods were between May 1, 2004, and April 31, 2005.
The combined premiums received by the foreign insurers for the six CMP insurance placements totaled $453,364. McGriff voluntarily disclosed this matter to OFAC and the alleged violations constituted a non-egregious case. The settlement amount reflects OFAC’s consideration of the following: the insurance services provided by McGriff, which were highly specialized and involved the Iranian petroleum industry, were particularly harmful to the objectives of the sanctions program; the apparent violations resulted from the actions of a senior employee outside the knowledge of McGriff’s senior management; McGriff strengthened its OFAC compliance program in response to the apparent violations; McGriff has not been the subject of prior OFAC penalties or other OFAC administrative actions; and McGriff cooperated with OFAC in the investigation, including entering into two tolling agreements.
- Metropolitan Life Insurance Company (MetLife) has remitted $22,500 to settle allegations of a violation of the Cuban Assets Control Regulations. OFAC alleged that, in June 2006, MetLife mailed a check representing a $30,162 lump sum death benefit payment directly to the beneficiary in Cuba. This matter was not voluntarily disclosed by MetLife. The alleged violation was reported to OFAC and to MetLife by the attorney who administered the estate of the U.S. decedent. Upon the receipt of the notice, MetLife stopped payment and deposited the death benefit payment into a blocked account. The funds were subsequently transferred to a bank for distribution to the beneficiary. The alleged violations constituted a non-egregious case.
The base penalty amount for MetLife’s apparent violation was $50,000. The settlement amount reflects OFAC’s consideration of the following: MetLife provides specialized insurance services; MetLife has not been the subject of prior OFAC penalties; MetLife cooperated with OFAC by making an authorized transfer of the blocked payment to a blocked account opened in the name of the beneficiary for the purpose of making authorized distributions to the beneficiary; and MetLife has taken several steps to strengthen its OFAC compliance program, including requiring sanctions compliance training of all employees.
Specifically, BIS alleged that from April 2004 to August 2007, TW Metals made 48 exports of titanium alloy to China through Canada without the required Department of Commerce licenses. Titanium alloy is controlled for reasons of nonproliferation. In addition, TW Metals violated the EAR in 2007 by exporting aluminum bar, also controlled for reasons of nuclear nonproliferation, from the U.S. to Israel via Canada without the required Department of Commerce license.
TW Metals voluntarily disclosed the violations and cooperated fully with the investigation.
Akhtar, a Pakistani national and a lawful permanent resident of the U.S., owns Computer Communication USA (CCUSA). According to the indictment, from October 2005 through March 11, 2010, Akhtar conspired wit others to illegally export radiation detection devices, resins for coolant water purification, calibration and switching equipment, and surface refinishing abrasives to Pakistan without the necessary licenses. In addition, the indictment alleges that Akhtar attempted to conceal the ultimate end-use and/or end –users of the commodities that he sought to export, as well as their true value by providing false, misleading and incomplete information on sales documents such as invoices, purchase orders, air bills, and end-user statements.
Akhtar faces a maximum prison sentence of five years for conspiracy to commit export violations and to defraud the United States; a maximum prison sentence of twenty years for the unlawful export of the restricted goods; and a maximum of twenty years for conspiracy to commit money laundering.
The complaint alleges that Liu, a 47-year-old Chinese national who is a permanent resident of the U.S, was detained by the U.S. Customs officials on November 29, 2010, at Newark Liberty International Airport when he was returning from China.
At the time Liu was detained, he worked as a senior staff engineer for a New Jersey-based division of a technology company (Company) that develops precision navigation devices and other innovative components for the U.S. Department of Defense (DoD). Due to highly sensitive nature of the technology projects developed at the Company where Liu worked, most employees, including Liu, were forbidden from removing work product from the Company’s corporate facility.
On November 29, 2010, Liu arrived at Newark Liberty International Airport on a commercial airline flight from Shanghai and was selected for secondary inspection by Customs officers. When asked, Liu stated that the only purpose of his visit to China was to visit his family. An inspection of Liu’s baggage revealed an access card that had “ICMAN 2010, The 4th Annual International Workshop on Innovative and Commercialization of Micro & Nano Technologies, November 22-24, 2010” inscribed on it. Liu explained that it was a small conference that was not formal.
Investigation of ICMAN by the FBI revealed that the annual conference is organized and sponsored by various Chinese government entities. Its stated goal is to “gather people related with micro and nanotechnologies from all over the world, including the renowned researchers in the field, chief administrators and senior engineers from industries, research agencies and inventors, as well as venture capital and government representatives.”
The FBI also discovered that the schedule of events for the ICMAN 2010 forum included presentations and remarks given by China’s government entities. Liu was one of the presenters as well as the co-chair for ICMAN 2010.
Upon inspection of Liu’s belongings on November 29, 2010, Customs officers found a folder containing multiple pages of technical language, pictures of military weapons systems, and documents written in Chinese. Liu also had a non-Company issued laptop computer and other electronic storage devices and media, which contained hundreds of documents belonging to the Company he worked for, including internal communications, analyses, data, test results, schematics, images, and security protocols.
Numerous documents on Liu’s computer included prominent markings indicating that the contents contain export-controlled technical data under the Arms Export Control Act (AECA) and ITAR. One such documents is titled “Summary of Simulation Analysis for [Technology Program No. 1]” and pertains to a precision navigation/positioning system that the company where Liu worked, developed for the DoD. Each page of the documents is prominently marked “ITAR Controlled.”
On February 10, 2011, the DDTC certified that the document contains technical data that is covered by the USML Category XII. Accordingly, export of that document from the U.S. to China is prohibited by any person who is unlicensed to do so.
• Trans Pacific National Bank of San Francisco, CA (Trans Pacific) paid $12,500 to settle allegations of violating the Iranian Transactions Regulations (ITR) from September 18, 2007 to March 19, 2008. OFAC alleged that Trans Pacific engaged in transactions related to goods of Iranian origin and services for exportation to Iran, and facilitated transactions by a foreign person by initiating two separate wire transfers on behalf of an account holder for an underlying commercial transaction prohibited by the ITR, which is prohibited by the ITR if performed by a U.S. person. In one instance, the wire transfer instructions referenced “Iranian material” and in the other instance the instructions referenced “Iran material.” The value of the transactions totaled $35,600. Trans Pacific did not voluntarily disclose this matter to OFAC. The settlement amount reflected the fact that at the time of the transactions, Trans Pacific’s filtering system was not designed to detect references to sanctions targets in the “Originator to Beneficiary Information” field leading to both of these apparent violations; and Trans Pacific has enhanced its compliance program in response to the violations by requiring that the memorandum information of each wire transfer also be reviewed for OFAC sanctions references.
• Aon International Energy, Inc. of Houston, TX (Aon Energy), a subsidiary of Aon Corporation, paid $36,000 to settle allegations of violations of the Iranian Transactions Regulations (ITR) that occurred in October 2005. OFAC alleged that Aon Energy had facilitated the placement of coverage and the payment of premiums for facultative retrocession reinsurance that reinsured construction risks associated with a petroleum project on Kharg Island in Iran. Specifically, Aon Energy brokered and placed facultative retrocession reinsurance on behalf of a European reinsurer with two European retrocessionaires. The combined premium for the two retrocession reinsurance placements was $62,883. Aon Energy did not voluntarily disclose this matter to OFAC. The settlement amount reflected OFAC’s consideration of the fact that AON Energy provides specialized insurance services resulting in transactions that were particularly harmful to the sanctions program; OFAC viewed the apparent violations as part of a pattern of reckless, but not egregious, conduct by Aon Energy in connection with these policies; Aon Energy, under the direction of its parent, Aon, took several steps to strengthen its OFAC compliance program and its existing OFAC procedures after the apparent violations; Aon Energy has not been the subject of prior OFAC penalties or other OFAC administrative actions; and Aon Energy cooperated with OFAC and also entered into a tolling agreement with OFAC which was undertaken by Aon on behalf of Aon Energy.
Specifically, the indictment alleges that from about February 2004 through about August 2007 Jafari engaged in conspiracy and exported goods to Iran in violation of the U.S. embargo and without the required U.S. government licenses. Jafari and his conspirators allegedly solicited orders from customers in Iran and purchased goods from U.S. companies on behalf of these Iranian customers. Jafari and others allegedly wired money to the U.S. companies as payment, concealed from the U.S. companies the end-use and end-users of the goods, and caused the goods to be shipped to Turkey and later to Iran.
Jafari and his associates are thought to operate a procurement network that provides direct support to Iran's missile program by securing metal products, including steel and aluminum alloys, for subordinates of Iran's Aerospace Industries Organization (AIO). On February 1, 2011, the U.S. Department of the Treasury designated Jafari, his associates and several corporate entities in Iran and Turkey under Executive Order 13382, which targets for sanctions proliferators of weapons of mass destruction and their supporters. This is expected to block Jafari and his associates from the U.S. financial and commercial systems.
The indictment seeks forfeiture of $177,868 in connection with these offenses. Jafari remains at large and is believed to be in Iran. He faces a maximum potential sentence of five years in prison for the conspiracy count, 20 years in prison for each count of illegal exports to Iran, and 10 years in prison for each smuggling count.
On May 17, 2010, Wu was convicted of conspiring from 1997 to 2007 to unlawfully export to the PRC military electronics and export restricted electronics components and illegally exporting such parts to the PRC on numerous occasions between 2004 and 2007. At trial, the government proved that the defendants’ illegal enterprise involved the use of Chitron Electronics, Inc. (“Chitron-US&rdquo, a Waltham Massachusetts company Wu owned and controlled. Wu used Chitron-US to procure export restricted equipment from U.S. suppliers and then export the goods to China, through Hong Kong. The exported equipment is used in electronic warfare, military radar, fire control, military guidance and control equipment, missile systems, and satellite communications.
Wu founded and controlled Chitron, including its headquarters in Shenzhen, China, Chitron-Shenzen, and its U.S. office located in Waltham, Massachusetts. Using Chitron, Wu targeted Chinese military factories and military research institutes as customers of Chitron, including numerous institutes of the China Electronics Technology Group Corporation (“CETC&rdquo, which is responsible for the procurement, development, and manufacture of electronics for the Chinese military, including the People’s Liberation Army. Indeed, Wu referred to Chinese military entities as Chitron’s major customer since as early as 2002.
The Department of Defense’s Defense Technology Security Administration has concluded in a report filed with the Court that the defendants’ activities seriously threatened “U.S. national and regional security interests.” According to the Department of Defense, the parts the defendants were convicted of illegally exporting are “vital for Chinese military electronic warfare, military radar, fire control, military guidance and control equipment, and satellite communications.” Further, the illegally exported parts are “precisely the [types of] items ... that the People’s Liberation Army actively seeks to acquire.”
United States Attorney Carmen M. Ortiz said, “This defendant violated U.S. export laws and compromised our national security for more than a decade. He conspired to procure U.S. military products and other controlled electronic components for use in mainland China – for military radar, satellite communications, and guidance systems. Today’s sentence acknowledges the seriousness of those crimes and should send a strong message to anyone considering violating our export laws.”
“This case demonstrates the importance of safeguarding America’s sensitive technology against illicit foreign procurement efforts and should serve as a warning to others who seek to covertly obtain or provide such materials to advance foreign military systems. I applaud the many agents, analysts and prosecutors who helped bring about this successful outcome,” said David Kris, Assistant Attorney General for National Security.
“This sentence reflects the seriousness of the crime and sends a strong message that we will pursue, arrest and prosecute others who flout our laws by diverting sensitive U.S.-origin items through third countries,” said John McKenna, Special Agent in Charge of the Commerce Department’s Office of Export Enforcement Boston Field Office.
On September 3, 2008, the Eastern District court of Tennessee at Knoxville, Roth was found to have violated the AECA when he exported data from a defense research project on a trip to China and allowed two foreign nationals in Knoxville to access certain data and equipment in violation of the AECA.
Roth is a published author in the field of plasma technology and a minority owner at Atmospheric Glow Technologies, Inc. (Atmospheric), a Knoxville, TN corporation. In May 2004, Atmospheric was awarded a U.S. Air Force military-purpose contract to develop plasma actuators that could be used to control the flight of small, subsonic, unmanned, military drone aircraft. The project was broken down into Phase I, which entailed developing the design of the actuators, and Phase II, which involved testing the actuators in a wind tunnel and on a non-military aircraft. Roth was told at the beginning of the project, on which he was to work as a consultant, that it was to be paid with “6.2” funds, which Roth knew meant that the research would be subject to export control laws that prohibited access to the research outside the U.S. or to foreign persons unless a license had been obtained.
When Phase I was completed, Roth signed a subcontract between him and Atmospheric acknowledging that Phase II work was subject to export controls. During the project, Roth had two UT graduate students, Xin Dai, a Chinese national and Sirous Nourgostar, an Iranian national, work on the project. The work scope included access to project’s technical data and to a device called Force Stand, which was designed specifically to collect data and to test the plasma actuators.
After meeting with opposition from Daniel Sherman, the principal of Atmospheric, regarding foreign nationals working on the project, Roth sought advice from an the UT and was directed to Robin Witherspoon, UT’s officer in charge of export controls, who notified Roth that the project data was export controlled. After the notification, Dai was removed from the project. In addition, knowing of Roth’s upcoming lecture trip to China, Witherspoon warned Roth not to take any information related to Phase II abroad. Atmospheric also obtained agreement from Roth not to take any project information to China.
When on May 16, 2006, Roth traveled to China to lecture at universities regarding his work, he took with him a paper copy of a Phase II Weekly Report, a flash drive with electronic copies of Phase II reports, and a laptop computer that stored a copy of the Department of Defense Advance Research Projects Agency’s project proposal (Agency Proposal). Roth also told Dai to send to him a copy of a paper containing Phase II data via a Chinese professor’s e-mail address.
On September 3, 2008, the U.S. District Court for the Eastern District of Tennessee convicted Roth with one count of conspiracy to export defense articles in violation of the AECA, fifteen counts of exporting defense articles in violation of the Act, and one count of wire fraud.
Court of Appeals Holding
On appeal, Roth argued that: (1) the Phase II data and the data included in the Agency Proposal were not defense articles or services as a matter of law because they were not developed to put plasma actuators on items identified on the Munitions List; (2) the district court incorrectly instructed the jury as to willfulness and improperly failed to deliver his proposed instruction regarding ignorance of the law; and (3) there was insufficient evidence to support the jury’s conclusion that he willfully exported the Agency Proposal because he never opened the electronic file and could not have known its contents until after he returned to China.
With regard to Roth’s first contention, the Court of Appeals held that “the federal regulations extend export controls to all stages of defense projects that are covered by the [AECA], not just the final stages when military devices are directly involved.” Accordingly, the Court explained, in deciding whether AECA applies to information, articles or services, project stages must not be considered in isolation but, rather, in context of other project stages. The Court stated that it was incorrect to think that “barriers exist between the stages of the project that prevent the defense article qualification from being imputed from one stage to another.” As Phase II involved incorporating plasma actuators on military drone aircraft, all of the project work was correctly held by the district court to be defense articles and services.
With regard to Roth’s second contention as to whether the instruction on “willfulness” issued by the district court was correct, the Court decided that the instruction was proper. Roth had argued in its appeal that the “willfulness” required the defendant to intentionally export defense articles that he specifically knew were on the Munitions List. The Court held that the section 2778 of the AECA does not require a defendant to know that the items being exported are on the Munitions List. Rather, it only requires knowledge that the underlying action is unlawful. Accordingly, the Court held that the instruction given by the district court defining willfulness as doing something intentionally that the defendant knew was unlawful, was proper.
The Court also held that ignorance of the law as a defense instruction, as proposed by Roth, was not a correct statement of the law, and the portion that was correct was substantially covered by another instruction.The Court noted that no circuit court cases have decided whether ignorance of the law was a separate defense to charges under the Act, and in the two Fifth Circuit cases that addressed the issue, neither held that juries must be instructed about ignorance as a separate, affirmative defense. Moreover, in this case the ignorance element was substantially covered by the district court’s instruction regarding willfulness in the “[n]egligent conduct, or conduct by mistake or accident, or with a good faith belief that the conduct was lawful, is not sufficient to constitute willfulness” language. In addition, the Court found that because the district court addressed much of the proposed instruction in the willfulness instruction, failing to deliver Roth’s proposed ignorance of the law instruction to the jury impaired his case only slightly, if at all. As such, the Court held that the district court did not abuse its discretion in declining to deliver Roth’s proposed instruction on ignorance of the law as a separate defense.
On Roth’s final contention, the Court held that the purpose of the Agency Proposal was to build military munitions, and it was premised upon the Phase II technology that UT had told Roth was export controlled and instructed him to not take anything relating to Phase II on his trip to China. In addition, both Roth and the Atmospheric’s principal Sherman had discussed the project information and Roth knew that it was export controlled as the discussions were conducted with Phase II or the Proposal background. Finally, Roth knew that the research he was conducting in Phase II was export controlled, and that it was essentially the same technology used in the Agency Proposal. The Court stated that, “Roth’s conviction could be sufficiently supported by nothing more than circumstantial evidence.” Thus, a rational jury could find beyond a reasonable doubt that Roth knew that the Proposal contained export controlled information and could not be exported out of the U.S. without a license.
Absent a review by the U.S. Supreme Court, Roth must now report to prison to serve the four-year prison sentence imposed by the district court in 2010.
Chun, 66, was a longtime employee at the NASA Glenn Research Center although he is not accused of taking technology or related materials from his work.
Count one of the criminal information specifies that Chun, from March 2000 and November 2005, knowingly exported from the U.S. to the Republic of Korea Infra Red Focal Place Array detectors and Infra Red camera engines which were designated as defense articles on the USML without first obtaining the required export license or authorization from the U.S. Department of State.
Chun is also accused of knowingly making and subscribing a false U.S. individual income tax return for the year 2005, which failed to report over $80,000 of taxable income he earned in 1995.
According to the plea agreement, Nwankwoala worked as a state probation officer. In February 2008, Nwankwoala was granted a license to export a 12 gauge shotgun to Nigeria for personal use. In February 2009, Nwankwoala applied for an export license to export shotguns to Nigeria, stating that these weapons were to be used in the operation of a newly-opened shooting range in Nigeria. The U.S. Department of Commerce denied the license because Nwankwoala did not provide evidence of that the shooting range existed.
From December 2008 to May 2009, Nwankwoala purchased at least 37 shotguns from a gun shop in Washington, D.C. metro area and ordered 25 more shotguns over the internet from a licensed company in Ogden, Utah, falsely advising the company that he had an export license.
On May 13, 2009, Nwankwoala told an undercover ICE agent that he had made a large profit over 10 years from purchasing shotguns and shipping them to Nigeria in shipping containers with vehicles and hospital beds. Nwankwoala said he knew he needed a license to ship the guns, but had not obtained one because he could not identify the end user as required by federal law. The end user was not licensed to receive the weapons.
In July or August 2009, Nwankwoala prepared a shipping container with 24 shotguns, six pistols and ammunition, all concealed in suitcases and a car. Nwankwoala did not disclose that je was shipping firearms or ammunition. The container was delivered to a ship in Port Elizabeth, in Newark, New Jersey for shipment to Nigeria.
The ship left Porit Elizabeth and arrived in Nigeria on September 15, 2009, but the container was not unloaded based upon a request from law enforcement to have the container returned for inspection. On October 6, 2009, U.S. and Spanish law enforcement inspected the container in Algeciras, Spain, and seized the firearms, ammunition and automobile. Further investigation showed that Nwankwoala had bought five of the pistols and 12 of the shotguns.
From August 2006 through August 2009, eight other shipments were made to Nigeria in an identical manner. Nwankwoala did not have the licenses or authorizations from the Department of State or the DOC to export the firearms and ammunition to Nigeria, nor did he possess a federal license to engage in the business of dealing in firearms.
Alcatel-Lucent and DOJ agreed to resolve the FCPA charges by entering into a deferred prosecution agreement for a term of three years. According to court documents, Alcatel-Lucent was formed in 2006 after Lucent Technologies merged with Alcatel, a French telecommunications equipment and services company. Beginning in the 1990s and through 2006, Alcatel pursued many of its business opportunities around the globe through subsidiaries using third-party agents and consultants who were retained by Alcatel Standard. This business model was shown to be prone to corruption, as consultants were repeatedly used as conduits to bribe foreign officials and business executives of private customers to obtain or retain business in many countries.
Court documents allege that Alcatel-Lucent’s three subsidiaries paid millions of dollars to bribe foreign officials in order to obtain and retain business. Alcatel-Lucent also admitted that it violated the internal controls and books and records provisions of the FCPA related to the hiring of third-party agents. Overall, the company admitted that it earned approximately $48.1 million in profits as a result of these payments.
In a related case, two former Alcatel executives were charged in March 2007 with conspiracy to violate the FCPA, making corrupt payments in violation of the FCPA, and laundering bribe payments through a third-party.
According to the charges, PPG Paints Trading actions illegally exported, reexported and/or transshipped high-performance coatings from the U.S. to the Chashma 2 Nuclear Power Plant in Pakistan via a third party distribution in the People’s Republic of China. Chashma 2 is a Pakistan Atomic Energy Commission (PAEC) power plant under construction near Kundian, Punjab province, Pakistan.
The PAEC is the science and technology organization in Pakistan responsible for Pakistan’s nuclear program including the development and operation of nuclear power plants in Pakistan. In November 1998, following Pakistan’s first successful detonation of a nuclear device, BIS added the PAEC, as well as its subordinate nuclear reactors and power plants, to the list of prohibited end users under the EAR. As such, exports, reexports, or transshipment of any items subject to the EAR to the PAEC require a Department of Commerce license.
According to count one of the information, in January 2006, PPG Industries sought such an export license for the shipments of coatings to Chashma 2, which was denied by the Commerce Department in June 2006. Following that denial, PPG Paints Trading agreed upon an arrangement whereby it sold the high-performance coatings to a third-party distributor in China which, in turn, delivered the coatings for application at Chashma 2. In its purchase orders for the shipments in question, PPG Paints Trading falsely stated that the coatings were to be used at a nuclear power plant in China, the export of goods to which would not require a license from the Department of Commerce.
As part of its plea agreement, PPG Paints Trading agreed to pay the maximum criminal fine of $2 million, and serve five years of corporate probation. The gross proceeds received by PPG Paints Trading for these three illegal exports was $32,319, which it forfeited as part of the plea agreement. In addition to the forfeiture and the fine, the Bureau of Industry and Security (BIS) also required an audit of 2011 and 2012 export transactions of PPG and its relevant business units in the U.S. and China, including transactions related to restricted end users on the agency’s Entity List and nuclear end uses and end users.
Financial Services of Riverwoods, IL (Discover)
has remitted $8,720 to settle allegations of the
Foreign Narcotics Kingpin Sanctions Regulations
(FNKSR) violations occurring from December 2005
to November 2007. OFAC alleged that Discover
dealt in property in the United States in which a
Specially Designated Narcotics Trafficker had an
interest by maintaining a personal credit card
account on his behalf. Discover processed
twenty-eight transactions through this personal
credit card account. The value of the
transactions processed over three years totaled
$23,252. The base penalty amount was adjustment
to account for several General Factors: Discover
voluntarily disclosed this matter to OFAC, took
steps to strengthen its OFAC compliance program
and its existing OFAC procedures, assigned a new
employee to review the credit card portfolio
against SDN list updates, and provided extra
training to its employees. In addition, Discover
had no other known violations on record with OFAC
prior to these allegations.
- Wells Fargo
Bank, N.A. (Wells Fargo) has remitted $67,500 to
settle allegations of violations of the Iranian
Transactions Regulations (ITR) from March 2005 to
July 2006. OFAC alleged that Wells Fargo exported
financial services to Iran by performing
financial services in the United States on behalf
of an account holder while the account holder was
located in Iran. The value of the transactions
totaled $55,959.62. Wells Fargo did not
voluntarily disclose this matter to OFAC. The
base penalty amount for the apparent violations
was $90,000. The settlement amount reflects
OFAC’s consideration of the following General
Factors: OFAC expressed to Wells Fargo an
interest in this account holder as early as April
2002 but Wells Fargo failed to conduct an
investigation until September 2006. There were
three prior penalty cases against Wells Fargo for
violations of the ITR. In addition, Wells Fargo
created and implemented a risk-based OFAC
compliance program, which includes the use of
Internet Protocol addresses to identify
registered users located in Iran. Finally, Wells
Fargo established open and timely communications
with OFAC, and entered into two tolling
agreements with OFAC.
- One unnamed
individual was assessed a penalty totaling
$30,000 for violating the Iranian Transactions
Regulations (ITR). Specifically, the individual
engaged in prohibited transactions in 2006 when
he sent and/or attempted to send funds to Iran
for investment in a catering business located in
Iran. The individual did not voluntarily disclose
the violations to OFAC, however the violations
were considered nonegregious in nature. The
assessment amount reflected OFAC’s consideration
pursuant to its Enforcement Guidelines this being
the first individual’s violation of an OFAC
Specifically, Knapp is charged with illegally exporting and attempting to export an F-5B Tiger II fighter jet; CSU-13 anti-gravity flight suits, which are worn by pilots to counteract the forces of gravity and acceleration; an F-14 NATOPS emergency procedures manual, which is designed for use by pilots during in-flight emergencies in fighter jets; electronic versions of the NATOPS emergency procedures manual; AN/PRC-149 survival radios, which are hand-held search and rescue radios used primarily by U.S. Navy pilots as an emergency locator beacon; and F-14 ejection seats.
According to court documents, a cooperating defendant introduced Knapp to an undercover U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI) special agent who met with Knapp on several occasions. During the meetings, Knapp informed the ICE agent that he had various defense items for sale. He also admitted procuring an F-14 ejection seat, which was sold to the agent by another source. Over the course of their interaction, Knapp provided the agent with various lists containing items for sale, including photographs and descriptions.
Knapp faces a maximum statutory sentence of 40 years imprisonment, a $2 million fine and a forfeiture of profits.
California Company Settles Criminal and Civil FCPA Allegations for $1.7 MillionOn December 10, 2010, Department of Justice (DOJ) reported that RAE Systems, Inc. (RAE), a San Jose, CA, corporation, has agreed to pay $1.7 million to resolve charges of violating the Foreign Corrupt Practices Act (FCPA). The information included in the non-prosecution agreement which resulted after RAE voluntarily disclosed the violations, RAE is an equipment manufacturer who is engaged in the development and manufacture of rapidly deployable, multi-sensor chemical and radiation detection monitors and networks. From 2005 to 2008, the company had significant operations in the People’s Republic of China (China), and sold its products and services primarily through two subsidiaries organized as joint ventures with local Chinese entities: RAE-KLH (Beijing) Co. Limited (RAE-KLH) and RAE Coal Mine Safety Instruments (Fushun) Co. Ltd. (RAE Fushun). The information further provides that a significant number of RAE-KLH’s and RAE Fushun’s customers were Chinese government departments and bureaus, and large state-owned agencies and instrumentalities, including regional fire departments, emergency response departments and entities under the supervision of the provincial environmental agency. The agreement describes that RAE used RAE-KLH and RAE Fushun employees to pay bribes to foreign officials in China. As a result of due diligence conducted by RAE before acquiring the majority of the joint venture that became known as RAE-KLH, RAE became aware of improper commissions, kickbacks and “under table greasing to get deals” by employees. The information contained in the agreement provides, however, that RAE elected to implement internal controls only “halfway” so as not to “choke the sales engine and cause a distraction for the sales guys.” As a result, improper payments continued at RAE-KLH. When acquiring the majority of RAE Fushun, RAE did not conduct any pre-acquisition corruption due diligence in spite of a number of red flags. It was later confirmed that RAE Fushun also gave bribes to Chinese officials. According to the settlement agreement, RAE Systems voluntarily disclosed this conduct to the department, conducted a thorough and credible internal investigation, and undertook extensive remediation. RAE agreed to fully cooperate with investigations by law enforcement authorities, to adhere to a set of enhanced corporate compliance and reporting obligations, and to submit periodic reports to the department regarding RAE’s compliance with its obligations under the agreement. In a related matter, RAE reached a settlement with the U.S. Securities and Exchange Commission (SEC) in which RAE consented to the entry of a permanent injunction against FCPA violations and agreed to pay $1,147,800 in disgorgement and $109,212 in prejudgment interest. RAE also agreed to comply with certain undertakings regarding its FCPA compliance program.
The information included in the non-prosecution agreement which resulted after RAE voluntarily disclosed the violations, RAE is an equipment manufacturer who is engaged in the development and manufacture of rapidly deployable, multi-sensor chemical and radiation detection monitors and networks. From 2005 to 2008, the company had significant operations in the People’s Republic of China (China), and sold its products and services primarily through two subsidiaries organized as joint ventures with local Chinese entities: RAE-KLH (Beijing) Co. Limited (RAE-KLH) and RAE Coal Mine Safety Instruments (Fushun) Co. Ltd. (RAE Fushun). The information further provides that a significant number of RAE-KLH’s and RAE Fushun’s customers were Chinese government departments and bureaus, and large state-owned agencies and instrumentalities, including regional fire departments, emergency response departments and entities under the supervision of the provincial environmental agency.
The agreement describes that RAE used RAE-KLH and RAE Fushun employees to pay bribes to foreign officials in China. As a result of due diligence conducted by RAE before acquiring the majority of the joint venture that became known as RAE-KLH, RAE became aware of improper commissions, kickbacks and “under table greasing to get deals” by employees. The information contained in the agreement provides, however, that RAE elected to implement internal controls only “halfway” so as not to “choke the sales engine and cause a distraction for the sales guys.” As a result, improper payments continued at RAE-KLH. When acquiring the majority of RAE Fushun, RAE did not conduct any pre-acquisition corruption due diligence in spite of a number of red flags. It was later confirmed that RAE Fushun also gave bribes to Chinese officials.
According to the settlement agreement, RAE Systems voluntarily disclosed this conduct to the department, conducted a thorough and credible internal investigation, and undertook extensive remediation. RAE agreed to fully cooperate with investigations by law enforcement authorities, to adhere to a set of enhanced corporate compliance and reporting obligations, and to submit periodic reports to the department regarding RAE’s compliance with its obligations under the agreement.
In a related matter, RAE reached a settlement with the U.S. Securities and Exchange Commission (SEC) in which RAE consented to the entry of a permanent injunction against FCPA violations and agreed to pay $1,147,800 in disgorgement and $109,212 in prejudgment interest. RAE also agreed to comply with certain undertakings regarding its FCPA compliance program.
The U.S. Attorney’s office states that Yang tried to recruit people to help him export 300 radiation-hardened semiconductor devices. The U.S. Attorney claims that Yang knew that these parts required a State Department authorization as they are covered by the Arms Export Control Act (AECA). The complaint against Yang provides that in a series of meetings with undercover agents this year, Yang agreed to pay $620,000 for the parts and also planned to create a U.S. shell company that would appear to be purchasing the parts concealing the fact that the were destined for China. Yang planned to falsify purchase orders indicating that parts purchased were not restricted.
Yang faces up to five years imprisonment for the AECA violations.
Pinnacle Aircraft Parts, Inc. (Pinnacle) of Miami, FL, has paid $225,000 to settle allegations of violating OFAC’s Reporting, Procedures and Penalties Regulations (the “RPPR&rdquo, occurring in November 2007. OFAC alleged that Pinnacle failed to provide documents in response to an administrative subpoena issued by OFAC as part of its investigation of Pinnacle’s 2004 sale and delivery of a jet engine, valued in excess of $1 million, that was destined to Iran.
The subpoena directed Pinnacle to provide a written report regarding the jet engine transaction and “copies of all transactional documents such as invoices, shipping documents, airway bills, correspondence, and all other documents pertaining to the payment or transportation of this shipment.”
According to OFAC, in its November 9, 2007, response to the subpoena, Pinnacle, through its outside counsel, submitted more than 260 pages of responsive documents but failed to submit a copy of a post-sale e-mail – which Pinnacle had provided to its counsel – indicating that the aircraft engine was likely destined for Iran as well as other responsive documents concerning the terms of sale.
Pinnacle did not voluntary disclose the violation to OFAC. OFAC determined that Pinnacle’s failure to produce responsive documents constituted an egregious case, resulting in a base penalty amount of $250,000. One of the deciding factors in determining the final penalty amount was that Pinnacle apparently relied in good faith on the advice on legal counsel in deciding not to produce the e-mail with Iran reference and other documents in response to the subpoena. However, OFAC noted that even though Pinnacle relied on the advice of its counsel in deciding not to produce the e-mail and other documents, Pinnacle was the party legally responsible for compliance with OFAC’s subpoena and the actions of its counsel were attributable to Pinnacle for purposes of calculating a base penalty and settlement amount.
The allegations stem from an investigation that primarily focused on allegations of foreign bribery in the oil field services industry.
In documents filed in a U.S. District court in Texas, Panalpina World Transport (Holding) Ltd., a global freight forwarding and logistics services firm based in Basel, Switzerland, and its U.S.-based subsidiary, Panalpina Inc., admitted that the companies, through subsidiaries and affiliates (collectively "Panalpina"), engaged in a scheme to pay bribes to numerous foreign officials on behalf of many of its customers in the oil and gas industry.
Panalpina admitted that between 2002 and 2007, it paid thousands of bribes totaling at least $27 million to foreign officials in at least seven countries, including Angola, Azerbaijan, Brazil, Kazakhstan, Nigeria, Russia and Turkmenistan. During the proceedings, several of Panalpina’s customers admitted that the companies approved of or condoned the payment of bribes on their behalf in Nigeria and falsely recorded the bribe payments made on their behalf as legitimate business expenses in their corporate books, records and accounts.
As part of the agreed resolution, DOJ filed a criminal information charging Panalpina World Transport with conspiring to violate and violating the anti-bribery provisions of the FCPA. DOJ and Panalpina World Transport agreed to resolve the charges by entering into a deferred prosecution agreement. The department also filed a criminal information charging Panalpina Inc. with conspiring to violate the books and records provisions of the FCPA and with aiding and abetting certain customers in violating the books and records provisions of the FCPA. Panalpina Inc. has agreed to plead guilty to the charges. The agreements require the payment of a $70.56 million criminal penalty.
In addition, DOJ charged several oil services providers, including SNEPCO, a subsidiary of Roayal Dutch Shell plc (Shell), Transocean, Inc., Tidewater Marine International Inc, and Pride International Inc., with various charges relating to FCPA, such as conspiring to violate the anti-bribery and books and records provisions of the FCPA, violating the anti-bribery provision of the FCPA, and aiding and abetting the violation of the books and records provisions of the FCPA.
Under the terms of the respective three-year deferred prosecution agreements, Panalpina World Transport, Shell, Pride International, Transocean and Tidewater are required to fully cooperate with U.S. and foreign authorities in any ongoing investigations of the companies’ corrupt payments. In addition, each of these companies is required to implement and adhere to a set of enhanced corporate compliance and reporting obligations.
According to a two-count felony charge, Nippon engaged in a conspiracy to fix one or more components of cargo rates charged for international air cargo shipments from April 2000 until February 2006. In addition, Nippon is charged with engaging in a conspiracy to fix unpublished passenger fares on tickets purchased in the U.S. from April 2000 until April 2004.
DOJ alleges that Nippon carried out the conspiracies by agreeing during meetings and other communications on certain components of the cargo rates to be charged for shipments on routes between the U.S. and Japan, and on unpublished passenger fares to be charged on tickets purchased in the U.S.
As part of the conspiracies, Nippon levied cargo rates and unpublished passenger fares in accordance with the agreements reached, and monitored and enforced adherence to the agreed-upon cargo rates and unpublished passenger fares.
Nippon is charged with two counts of price fixing in violation of the Sherman Act, which carries a maximum fine for corporations of $100 million for each violation committed after June 22, 2004, and $10 million for violations committed before that date. The maximum fine for each count may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.
As a result of DOJ’s investigation, a total of 19 airlines and 14 executives have been charged in the ongoing investigation into price fixing in the air transportation industry. To date, more than $1.6 billion in criminal fines have been obtained and four executives have been sentenced to serve prison time.
Charges are pending against the remaining 10 executives. Under the plea agreement, which is still subject to court approval, Nippon has also agreed to cooperate with the DOJ’s ongoing antitrust investigation.
This case represents the first time that the False Claims Act (FCA) has been used in relation to violations of International Traffic in Arms Regulations (ITAR) and the Arms Export Control Act (AECA). Rocky Mountain pleaded guilty to a related criminal charge in June of 2010 and was sentenced to forfeit $1 million and five years probation.The criminal plea agreement detailed that from 2005 to 2007 Rocky Mountain exported prisms and technical data related to various optics used in the military applications in Turkey, China, Russia, and South Korea without a required U.S. Department of State license.
The civil settlement covered a related allegation that Rocky Mountain caused defense contractors to submit false claims for payment to the Pentagon in violation of the FCA by illegally exporting technical data overseas that was later used to manufacture parts used in certain military equipment the contractors sold to the Pentagon.
The FCA prohibits companies from submitting claims for payment to the government that are false or fraudulent and is the government's primary law enforcement tool for combating fraud against the government.
- Garlock Sealing
Tech, LLC (Garlock), a subsidiary of Enpro
Industries (Enpro) of Charlotte, NC, has remitted
$16,875 to settle allegations of violations of
Executive Order 13405, “Blocking Property of
Certain Persons Undermining Democratic Processes
or Institutions in Belarus” occurring on June 23,
2008. OFAC alleged that Garlock attempted to
send, without authorization from OFAC, a funds
transfer in the amount of $14,308 to the account
of an entity blocked pursuant to Executive Order
13405. Garlock did not voluntarily disclose this
matter to OFAC. The base penalty for the apparent
violation was $25,000. The settlement amount
reflects OFAC’s consideration of the following
General Factors: Garlock was a sophisticated
entity with global operations; Garlock has not
been subject to an OFAC enforcement action in the
five years preceding the date of the apparent
violation; and Garlock has taken remedial steps
to prevent the recurrence of such a payment.
- OFAC issued a
Finding of Violation Letter to Christ for all
Nations (CfaN) of Orlando, FL, for violations of
the Sudanese Sanctions Regulations. CfaN exported
goods and services to Sudan in support of a
non-commercial event in Sudan during 2006. CfaN
has implemented steps to ensure that it does not
perform any activities in violation of OFAC
regulations and has not been subject to other
OFAC enforcement action. The transactions in
question appear to have been licensable had CfaN
timely submitted a license application. A Finding
of Violation was deemed appropriate given the
clear violation of OFAC regulations on the one
hand, and the licensable, non-commercial nature
of the conduct and the non-profit nature of the
violator on the other hand.
- Yokozuna Pearls
& Gems, Inc. (Yokozuna) of Monrovia, CA, has
been assessed a penalty of $25,000 for its
violation of the Burmese Sanctions Regulations
(BSR) that occurred in March 2006. Yokozuna
initiated a $220,465 funds transfer to Myanmar
Foreign Trade Bank, an entity blocked pursuant to
the BSR, in furtherance of a contract to purchase
and import pearls from Myanmar Pearl Enterprise,
Yangoon, Burma. The funds transfer was blocked by
a U.S. financial institution and the contract was
not completed. The exportation of financial
services (defined to include direct and indirect
transfers of funds from the U.S. or by a U.S.
person, wherever located, to Burma) is prohibited
by the BSR. Yokozuna did not voluntarily disclose
this matter to OFAC. The base penalty for the
violation was $250,000. The final penalty amount
reflects OFAC's consideration of the following
General Factors: this was Yokozuna's first OFAC
violation; Yokozuna received inaccurate legal
guidance before engaging in the prohibited
transaction; Yokozuna cooperated with OFAC and
terminated its business transactions with Burma;
and the documented financial condition of
Pumps, Inc. (Hydra-Tech), Nesquehoning, PA, has
been assessed a penalty of $1,961 for its
violation of the Sudanese Sanctions Regulations
that occurred in September 2007. Hydra-Tech
exported a hydraulic hose to Khartoum State Water
Corporation, Khartoum, Sudan. Hydra-Tech did not
voluntarily disclose this matter to OFAC but has
implemented enhanced export compliance
procedures. This matter was resolved according to
the prior enforcement guidelines published by
OFAC at 68 Fed. Reg. 4422.
- Sumitomo Mitsui Banking Corporation (SMBC), a Japanese corporation, has agreed to pay $229,380 to settle allegations that SMBC’s New York Branch Office (SMBCNY) violated the Sudanese Sanctions Regulations (the SSR). OFAC alleged that, from December 9, 2005, until about December 1, 2006, SMBCNY appears to have violated the SSR when it exported services to Sudan through its processing of the payments for SMBC’s purchase of six export bills, in an aggregate amount of $1,037,988, relating to letters of credit (LC) issued by Sudanese banks and by its receipt of two USD payments, in the aggregate amount of $15,357,720, related to approximately forty LCs issued by a Sudanese bank.
- OFAC determined that SMBC voluntarily self disclosed the matter to OFAC and that the alleged violations constituted a non-egregious case. The base penalty amount for the apparent violations was $655,373. The settlement amount reflects OFAC’s consideration of the following General Factors: SMBCNY was part of a commercially sophisticated international bank and had reason to know its conduct may have violated the SSR; SMBC had no violations of this nature on record with OFAC; SMBC substantially cooperated with OFAC’s investigation of the alleged violations; and SMBC promptly responded to all requests for additional information and agreed to a statute of limitations tolling agreement when requested by OFAC.
According to the State Department, Blackwater sought training contracts from foreign governments and other foreign organizations without adhering closely to U.S. export regulations. Blackwater also shipped automatic weapons and other military equipment for use by its personnel in Iraq and Afghanistan in violation of export controls and in some cases sought to hide its actions. In one incident, Blackwater shipped weapons to Iraq hidden inside containers of dog food.
To settle the alleged violations, Blackwater must pay a civil penalty of $42 million, a portion of which will be suspended on the condition that Blackwater spends the funds on self-initiated or consent agreement-authorized remedial compliance measures.
Barclays agreed to settle with OFAC the alleged violations for $176 million. The obligation was deemed satisfied by Barclay’s payment of $298 million to the Department of Justice (DOJ) and the New York County District Attorney’s Office.
OFAC stated that, “Barclay’s violations arose out of practices designed to circumvent filters at U.S. banks installed to detect transactions in violation of OFAC regulations. This was done using cover payments to avoid referencing parties targeted by U.S. sanctions and omitting or removing information in payment messages in order to conceal the identities of U.S. sanctions targets – most notably Sudan – in electronic funds transfer instructions executed through the United States. In addition, Barclays sometimes processed payments involving sanctioned persons through a Barclays sundry account, making it appear as though Barclays was the remitting bank.”
Based on OFAC’s analysis of information provided by Barclays, from August 2002 through September 2006 Barclays routed at least 1,285 electronic funds transfers, with an aggregate value of approximately $112.7 million, through Barclays New York and third-party banks located in the United States.
Barclays has terminated the practices leading to violations of OFAC regulations and has put in place policies and procedures that are designed to minimize the risk of the recurrence of similar conduct in the future. The bank voluntarily self-disclosed the apparent violations and has cooperated fully with OFAC.
- Compass Bank of Birmingham, AL, has remitted $607,500 to settle allegations of violating the Sudanese Sanctions Regulations in September 2006. OFAC alleged that Compass Bank acted without an OFAC license or outside the scope of its license by initiating three funds transfers on behalf of one of its clients related to the petroleum or petrochemical industries in Sudan. Compass Bank did not voluntarily disclose this matter to OFAC and the alleged violation constituted a non-egregious case.
- Custom Polymers, Inc., a Charlotte, NC company, has agreed to remit $57,800 to settle an allegation of violating the Sudanese Sanctions Regulations on or about August 17, 2007. OFAC alleged that Custom Polymers attempted to make a payment involving Sudan, on behalf of its affiliate, without the required OFAC license. The $116,250 payment was allegedly for the purchase and export of bottle regrind from Sudan. OFAC determined that Customs Polymers did not voluntarily disclose this matter to OFAC and the alleged violation constituted a non-egregious case.
Maersk Line, Ltd., a Delaware corporation, and its wholly owned U.S. subsidiaries, Farrell Lines Incorporated, and E-Ships, Inc. (collectively, MLL), have remitted $3,088,400 to settle allegations of violations of the Sudanese Sanctions Regulations (SSR) and of the Iranian Transactions Regulations (ITR).
OFAC alleged that MLL violated the SSR and the ITR by providing unlicensed shipping services for 4,714 shipments of cargo originating in or bound for Sudan and Iran, including the transportation of such cargo on vessels owned, operated and/or chartered by MLL, but also chartered by MLL's parent, A.P. Moller-Maersk A/S, on at least one leg of the cargo's journey to or from Sudan and Iran.
MLL did not voluntarily self-disclose the matter to OFAC. OFAC concluded that the alleged violations constituted a non-egregious case. The base penalty amount for the apparent violations - which was calculated based on gross freight charges from origination to destination - was $61,768,000. OFAC stated that the settlement amount reflected OFAC's consideration of the General Factors, such as that MLL is part of a commercially sophisticated world-wide shipping conglomerate with significant experience operating under licenses issued by OFAC and other U.S. Government agencies; the activities conducted by MLL resulted in actual harm to sanctions program objectives by conferring an economic benefit on Sudan and Iran; MLL has not been found to have violated OFAC sanctions in the past five years; MLL substantially and fully cooperated with OFAC's investigation of the alleged violations; and MLL and its parent have undertaken substantial remediation to ensure that such alleged violations do not recur.
3M Imtec Corporation of Ardmore, OK (3M Imtec), successor in interest to Imtec Corporation (Imtec), has remitted $125,000 to settle allegations of violations of the Iranian Transactions Regulations (ITR), and the Export Administration Regulations (EAR). This settlement agreement was reached between 3M Imtec, 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).
Imtec voluntary disclosed information to OFAC detailing that it had engaged in unlicensed transactions that appeared to have violated the ITR and the EAR. Imtec was acquired by another company in July 2008 and its name was changed to 3M Imtec Corporation. In connection with the acquisition, a due diligence review was conducted which disclosed that, prior to its acquisition, Imtec engaged in unlicensed transactions with Iran. A full investigation of the apparent Iran violations was conducted and a disclosure of those findings was made to OFAC and BIS.
During the period of June 2004 to April 2007, Imtec appears to have violated the ITR by selling and shipping implants and related dental equipment to purchasers in a third country for delivery to Iran. ITR authorizes OFAC to issue licenses for the sale of agricultural commodities, medicines, and medical devices for use in Iran, provided that those agricultural commodities, medicines, and medical devices are not listed on the Commerce Control List (CCL). A proposed charging letter issued by BIS to 3M Imtec states that the items sold were classified as EAR99.
Although Imtec had previously requested and obtained separate licenses from OFAC authorizing the sale of dental equipment to Iran, the sales that are the subject of the settlement agreement were made outside of the effective dates of those licenses. Imtec did not have a trade compliance program in place at the time that the apparent violations occurred. Although Imtec management was aware of the need to obtain OFAC licenses authorizing sales to Iran as evidenced by its prior OFAC licenses, Imtec’s apparent lack of a comprehensive trade compliance program resulted in the lapse of those licenses.
Originally, defendants were changed in July 2008 with 2 counts of conspiracy, 19 counts of violating the International Emergency Economic Powers Act (IEEPA) and Iranian Transactions Regulations, four counts of false statements, and forfeiture allegations.
The superseding indictment added two additional counts that pertain to Mac Aviation and Tom McGuinn’s procurement of military items, specifically F-5 fighter aircraft parts, from a U.S. company and export of those parts to Iran, in violation of the Arms Export Control Act (AECA).
The indictment alleges that from August 2005 to July 2008, the defendants solicited purchase orders from customers in Iran for U.S.-origin aircraft engines and parts and then sent requests for aircraft components to U.S. companies. Among those parts were helicopter engines, aircraft bolts and vanes, and canopy panels for the F-5 fighter aircraft. The defendants wired money to banks in the U.S. as payment for these parts and concealed from U.S. sellers the ultimate end-use and end-users of the purchased parts. The defendants then exported these parts from the U.S. to Iran by transshipping them through third countries like Malaysia.
In addition, the superseding indictment alleges that from 2005 to 2006, the defendants exported canopy panels designed for the F-5 fighter aircraft from the U.S. to Iran. The defendants falsely claimed that the end user for the F-5 parts was the Republic of Nigeria. Instead, the parts were sold by the defendants to customers in Iran. The transaction was arranged through the Iran Aircraft Manufacturing Industrial Company, also known by its acronym HESA. HESA was one of several entities that U.S. Treasury Department designated as proliferator of weapons of mass destruction in September 2008.
If convicted, the defendants face a maximum sentence of 10-20 years in prison for each of the IEEPA counts, 10 years for the AECA charge, 5-20 years in prison for each of the conspiracy counts, and 5 years in prison for each of the false statement counts.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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
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.
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.
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.
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. 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.
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 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 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.
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, 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.
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
- 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
- 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
- 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
- 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.
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.
• 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.
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.
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
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
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.”
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.
- 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.
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.
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.
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.
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.
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.
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
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.
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.
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.
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
Combined, the $579 million in fines constitutes the largest settlement of FCPA violations by any U.S. company in history.
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."
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.
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.
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 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 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 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
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 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.
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.
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.
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."
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.
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 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.
According to the indictment,
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.
"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.
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.
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.
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
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.
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 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.
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.
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.
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.
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.