Enforcement
HSBC Holdings Agrees to $375 Million Penalty to Settle OFAC Charges
12/12/12 10:13 AM
On December 11, 2012, the Office of Foreign Assets Controls (OFAC) announced that HSBC Holdings, plc has agreed to remit $375 million to settle potential civil liability on behalf of the company and certain of its affiliates (collectively "HSBC Group") for violations of the Cuban Assets Control Regulations, the Burmese Sanctions Regulations, the Sudanese Sanctions Regulations, the now-repealed Libyan Sanctions Regulations, and the Iranian Transactions Regulations.
The settlement covers violations all of which OFAC has determined were egregious under its Economic Sanctions Enforcement Guidelines. Specifically, on numerous occasions between 2004 and 2010, HSBC Group processed wire transfers totaling millions of dollars that involved Cuba, the Governments of Libya and Iran, and other sanctioned countries and entities.
HSBC Group did not voluntarily self-disclose the violations. The total base penalty amount for these violations, which was the statutory maximum in this case, totaled $1,159,872,734.
The settlement covers violations all of which OFAC has determined were egregious under its Economic Sanctions Enforcement Guidelines. Specifically, on numerous occasions between 2004 and 2010, HSBC Group processed wire transfers totaling millions of dollars that involved Cuba, the Governments of Libya and Iran, and other sanctioned countries and entities.
HSBC Group did not voluntarily self-disclose the violations. The total base penalty amount for these violations, which was the statutory maximum in this case, totaled $1,159,872,734.
OFAC Agrees to $132 Million Settlement with Standard Chartered Bank for Violations of Sanctions Programs
12/11/12 10:18 AM
On December 10, 2012, the Office of Foreign Assets Controls (OFAC) announced a $132 million agreement with Standard Chartered Bank (SCB) to settle its potential liability for apparent violations of U.S. sanctions. The settlement is part of a combined $327 million settlement with federal and local government partners.
OFAC alleged that from 2001 to 2007, SCB's London head office and its Dubai branch engaged in payment practices that interfered with the implementation of U.S. economic sanctions by financial institutions in the U.S., including SCB's New York branch. In London, those practices included omitting or removing material references to U.S.-sanctioned locations or entities from payment messages sent to U.S. financial institutions. In Dubai, the practices included sending payment messages to or through the U.S. without references to locations or entities implicating U.S. sanctions. As a result, millions of dollars of payments were routed through U.S. banks for or on behalf of sanctioned parties in apparent violation of U.S. sanctions.
These actions were in violations of the Iranian Transactions Regulations; the Burmese Sanctions Regulations; the Sudanese Sanctions Regulations; and the now-repealed version of the Libyan Sanctions Regulations.
OFAC alleged that from 2001 to 2007, SCB's London head office and its Dubai branch engaged in payment practices that interfered with the implementation of U.S. economic sanctions by financial institutions in the U.S., including SCB's New York branch. In London, those practices included omitting or removing material references to U.S.-sanctioned locations or entities from payment messages sent to U.S. financial institutions. In Dubai, the practices included sending payment messages to or through the U.S. without references to locations or entities implicating U.S. sanctions. As a result, millions of dollars of payments were routed through U.S. banks for or on behalf of sanctioned parties in apparent violation of U.S. sanctions.
These actions were in violations of the Iranian Transactions Regulations; the Burmese Sanctions Regulations; the Sudanese Sanctions Regulations; and the now-repealed version of the Libyan Sanctions Regulations.
PRC Corporate Entity Pleads Guilty to Conspiring to Violate IEEPA and EAR
12/03/12 10:22 AM
On December 3, 2012, U.S. Bureau of Industry and Security (BIS) announced that China Nuclear Industry Huaxing Construction Co., Ltd., (Huaxing), a corporate entity owned by the People's Republic of China (PRC) and located in Nanjing, China, pleaded guilty to conspiring to violate the International Emergency Economic Powers Act (IEEPA) and the Export Administration Regulations (EAR).
It is believed that this plea marks the first time that a PRC corporate entity has entered a plea of guilty in a U.S. criminal export matter. As part of its plea agreement, Huaxing agreed to the maximum criminal fine of $2 million, $1 million of which will be stayed pending its successful completion of five years of corporate probation. Through an administrative agreement with the Department of Commerce, Huaxing has also agreed to pay another $1 million immediately and be subject to multiple third-party audits over the next five years to ensure the efficacy of its compliance with U.S. export laws.
According to court documents, from June 2006 to March 2007, Huaxing conspired to export PPG Industries' high-performance coatings from the United States to Chashma II, via China, without first having obtained the required export license from BIS in violation of the EAR. Chashma II is a PAEC power plant under construction near Kundian, Punjab province, Pakistan, and is on the list of prohibited end users under the EAR.
Court documents provide that in January 2006, PPG Industries sought such an export license for the shipments of coatings to Chashma II. The Commerce Department denied that license application. Following that denial, the Information states, Huaxing agreed upon an arrangement whereby the high-performance coatings would be sold to a third-party distributor in China which, in turn, would deliver the coatings to Huaxing for application at Chashma II. Further, members of the conspiracy stated that the coatings were to be used at a nuclear power plant in China, the export of goods to which did not require a license from the Department of Commerce. Through these means, the transactions were structured to evade U.S. export laws by concealing that the true end-user of the coatings was Chashma II. The total value of the three illegal exports in question was approximately $32,000.
Huaxing's guilty plea is related to the December 2010 guilty plea of PPG Paints Trading (Shanghai) Co., Ltd. (PPG Paints Trading), a Chinese subsidiary of Pittsburgh-based PPG Industries. Together, PPG Paints Trading and its parent company, PPG Industries, paid $3.75 million in criminal and administrative fines and more than $32,000 in restitution. In November 2011, Xun Wang, the highest ranking executive at the Chinese PPG subsidiary, pleaded guilty to conspiracy and agreed to cooperate with the government's investigation.
It is believed that this plea marks the first time that a PRC corporate entity has entered a plea of guilty in a U.S. criminal export matter. As part of its plea agreement, Huaxing agreed to the maximum criminal fine of $2 million, $1 million of which will be stayed pending its successful completion of five years of corporate probation. Through an administrative agreement with the Department of Commerce, Huaxing has also agreed to pay another $1 million immediately and be subject to multiple third-party audits over the next five years to ensure the efficacy of its compliance with U.S. export laws.
According to court documents, from June 2006 to March 2007, Huaxing conspired to export PPG Industries' high-performance coatings from the United States to Chashma II, via China, without first having obtained the required export license from BIS in violation of the EAR. Chashma II is a PAEC power plant under construction near Kundian, Punjab province, Pakistan, and is on the list of prohibited end users under the EAR.
Court documents provide that in January 2006, PPG Industries sought such an export license for the shipments of coatings to Chashma II. The Commerce Department denied that license application. Following that denial, the Information states, Huaxing agreed upon an arrangement whereby the high-performance coatings would be sold to a third-party distributor in China which, in turn, would deliver the coatings to Huaxing for application at Chashma II. Further, members of the conspiracy stated that the coatings were to be used at a nuclear power plant in China, the export of goods to which did not require a license from the Department of Commerce. Through these means, the transactions were structured to evade U.S. export laws by concealing that the true end-user of the coatings was Chashma II. The total value of the three illegal exports in question was approximately $32,000.
Huaxing's guilty plea is related to the December 2010 guilty plea of PPG Paints Trading (Shanghai) Co., Ltd. (PPG Paints Trading), a Chinese subsidiary of Pittsburgh-based PPG Industries. Together, PPG Paints Trading and its parent company, PPG Industries, paid $3.75 million in criminal and administrative fines and more than $32,000 in restitution. In November 2011, Xun Wang, the highest ranking executive at the Chinese PPG subsidiary, pleaded guilty to conspiracy and agreed to cooperate with the government's investigation.
China National Sentenced for Understating the Value of U.S. Imports
11/29/12 10:29 AM
On November 28, 2012, the U.S. Department of Justice announced that Jin Qing Huang, 57, a citizen of the People's Republic of China, was sentenced in the U.S. District court to 16 months imprisonment followed by one year of supervised release for understating the value of merchandise imported from China into the U.S. to avoid paying antidumping duties.
According to the plea agreement, from 2006 to 2010, Huang controlled Woncity and other corporations that imported merchandise, including plastic bags and other restaurant supplies, from China. Plastic bags exported from China are subject to a 77.57% antidumping duty. On July 19, 2007, Huang imported merchandise into the U.S., falsely stating that the value of merchandise was $52,494, when in fact the value was $82,196. Similarly, on May 22, 2008, Huang falsely stating that the value of imported goods was $10,073, when in fact the value was $30,118. Huang admits that he underpaid the legally required duty on imports, charged and not charged in this case, by an amount between $5,000 and $10,000.
According to the plea agreement, from 2006 to 2010, Huang controlled Woncity and other corporations that imported merchandise, including plastic bags and other restaurant supplies, from China. Plastic bags exported from China are subject to a 77.57% antidumping duty. On July 19, 2007, Huang imported merchandise into the U.S., falsely stating that the value of merchandise was $52,494, when in fact the value was $82,196. Similarly, on May 22, 2008, Huang falsely stating that the value of imported goods was $10,073, when in fact the value was $30,118. Huang admits that he underpaid the legally required duty on imports, charged and not charged in this case, by an amount between $5,000 and $10,000.
Iranian National and Company Charged in Conspiracy to Export Military Equipment from the U.S.
11/20/12 02:00 PM
On November 20, 2012, Department of Justice reported that Amin Ravan, a citizen of Iran, and his Iran-based company, IC Market Iran (IMI), have been charged in an indictment with conspiracy to defraud the United States, smuggling, and violating the Arms Export Control Act (AECA) in connection with the unlawful export of 55 military antennas from the United States to Singapore and Hong Kong.
According to the indictment, Ravan was based in Iran and, at various times, acted as an agent of IMI in Iran and an agent of Corezing International, Pte, Ltd, a company based in Singapore that also maintained offices in Hong Kong and China.
On Oct. 10, 2012, Ravan was arrested by authorities in Malaysia in connection with a U.S. provisional arrest warrant. The United States is seeking to extradite him from Malaysia to stand trial in the District of Columbia. If convicted of the charges against him, Ravan faces a potential twenty years in prison for the AECA violation, ten years in prison for the smuggling charge and five years in prison for the conspiracy charge.
According to the indictment, in March 2007, Ravan, through his co-conspirators at Corezing, ordered from a Massachusetts company 50 cavity-backed, military antennas for $86,750, and discussed structuring payment from Ravan to his Corezing co-conspirators in a manner that would avoid transactional delays caused by the Iran embargo. Ultimately, between July and September 2007, a total of 50 cavity-backed spiral antennas and five biconical antennas were exported from the United States to Corezing in Singapore and Hong Kong without the required State Department’s Directorate of Defense Trade Controls licenses.
Two of Ravan’s co-conspirators, principals of Corezing, have been charged in a separate indictment in the District of Columbia in connection with this particular transaction involving the export of military antennas to Singapore and Hong Kong. They were arrested in Singapore last year and the United States is seeking their extradition.
According to the indictment, Ravan was based in Iran and, at various times, acted as an agent of IMI in Iran and an agent of Corezing International, Pte, Ltd, a company based in Singapore that also maintained offices in Hong Kong and China.
On Oct. 10, 2012, Ravan was arrested by authorities in Malaysia in connection with a U.S. provisional arrest warrant. The United States is seeking to extradite him from Malaysia to stand trial in the District of Columbia. If convicted of the charges against him, Ravan faces a potential twenty years in prison for the AECA violation, ten years in prison for the smuggling charge and five years in prison for the conspiracy charge.
According to the indictment, in March 2007, Ravan, through his co-conspirators at Corezing, ordered from a Massachusetts company 50 cavity-backed, military antennas for $86,750, and discussed structuring payment from Ravan to his Corezing co-conspirators in a manner that would avoid transactional delays caused by the Iran embargo. Ultimately, between July and September 2007, a total of 50 cavity-backed spiral antennas and five biconical antennas were exported from the United States to Corezing in Singapore and Hong Kong without the required State Department’s Directorate of Defense Trade Controls licenses.
Two of Ravan’s co-conspirators, principals of Corezing, have been charged in a separate indictment in the District of Columbia in connection with this particular transaction involving the export of military antennas to Singapore and Hong Kong. They were arrested in Singapore last year and the United States is seeking their extradition.
OFAC Posts Recent Civil Penalty Enforcement Information
11/16/12 12:36 PM
The U.S. Office of Foreign Assets Controls (OFAC) posted recent civil penalty enforcement information on their website:
On October 19, 2012, Brasseler USA, a Savannah, GA, medical supply company, has agreed to pay $18,900 to settle potential civil liability for alleged violations of the Iranian Transaction Regulations (ITR) from 2006 to 2009. Specifically, OFAC alleged that on three separate occasions, Brasseler exported goods or services to a person in a third country with knowledge that they were intended specifically for transshipment to Iran, without authorization from OFAC. The total of the transactions amounted to $5,241. Brasseler did not voluntarily self-disclose the matter to OFAC. According to OFAC, the alleged violations constituted a non-egregious case, and the base penalty amount for the violations totaled $21,000.
On November 15, 2012, Sogda Limited, Inc., a Kirkland, WA company, has agreed to pay $128,250 to settle potential civil liability for alleged violations of the Iranian Transactions Regulations (ITR). The alleged violations occurred between March 25, 2009 and August 26, 2010, when the company engaged in seven export transactions that involved the transshipment of goods through Iran.
The company did not voluntarily disclose the matter to OFAC. The alleged violations constituted a non-egregious case, and the base penalty amount for the alleged violations was $570,000.
On October 19, 2012, Brasseler USA, a Savannah, GA, medical supply company, has agreed to pay $18,900 to settle potential civil liability for alleged violations of the Iranian Transaction Regulations (ITR) from 2006 to 2009. Specifically, OFAC alleged that on three separate occasions, Brasseler exported goods or services to a person in a third country with knowledge that they were intended specifically for transshipment to Iran, without authorization from OFAC. The total of the transactions amounted to $5,241. Brasseler did not voluntarily self-disclose the matter to OFAC. According to OFAC, the alleged violations constituted a non-egregious case, and the base penalty amount for the violations totaled $21,000.
On November 15, 2012, Sogda Limited, Inc., a Kirkland, WA company, has agreed to pay $128,250 to settle potential civil liability for alleged violations of the Iranian Transactions Regulations (ITR). The alleged violations occurred between March 25, 2009 and August 26, 2010, when the company engaged in seven export transactions that involved the transshipment of goods through Iran.
The company did not voluntarily disclose the matter to OFAC. The alleged violations constituted a non-egregious case, and the base penalty amount for the alleged violations was $570,000.
Army Sergeant Sentenced to 4 Years in Jail for AECA and ITAR Violations
11/01/12 01:38 PM
On October 30, 2012, U.S. Immigration and Customs Enforcement (ICE) reported that Fidel Ignacio Cisneros (Cisneros), 42, of Lynnwood, WA, was sentenced to 46 months in federal prison, followed by two years of supervised release, after he violated the Arms Export Control Act (AECA) and International Traffic in Arms Regulations (ITAR).
According to court documents, from 2007 to 2010, Cisneros served as a soldier in the U.S. Army where he performed various missions in Iraq and elsewhere. During his deployment, Cisneros stole three Acquired Tactical Illuminating Laser Aimers (Atilla-200 lasers), an ACOG rifle scope and several other items. He brought all of the items back to Orlando, FL. According to the press release, he did so without first obtaining permission from the Department of Defense.
Using his eBay account, Cisneros auctioned one of the Atilla-200 lasers to the highest bidder, noting in the auction advertisement that it was "impossible to find on the international market." Cisneros shipped the Atilla-200 laser from Orlando to a Japanese national in Tokyo in exchange for $3,200. According to the U.S. Munitions List (USML) and category XII(b) of the ITAR, individuals cannot export Atilla-200 lasers outside of the U.S. without a license. Cisneros did not have the appropriate license or permission to export the Atilla-200 laser to Japan.
In March 2010, Cisneros also auctioned several other controlled items, and shipped them to California, Nevada, and Kuwait.
On Jan. 26, 2011, Cisneros admitted to Homeland Security Investigations (HSI) special agents that he knew it was probably wrong to sell the items and that civilians probably were not allowed to possess them. That same day, agents recovered the remaining Atilla-200 lasers that Cisneros stole from the Army. Federal law enforcement agents in the United States and in Japan subsequently recovered all of the items, with the exception of the satellite phone, that Cisneros sold.
Cisneros pleaded guilty to the charges July 31, 2012.
According to court documents, from 2007 to 2010, Cisneros served as a soldier in the U.S. Army where he performed various missions in Iraq and elsewhere. During his deployment, Cisneros stole three Acquired Tactical Illuminating Laser Aimers (Atilla-200 lasers), an ACOG rifle scope and several other items. He brought all of the items back to Orlando, FL. According to the press release, he did so without first obtaining permission from the Department of Defense.
Using his eBay account, Cisneros auctioned one of the Atilla-200 lasers to the highest bidder, noting in the auction advertisement that it was "impossible to find on the international market." Cisneros shipped the Atilla-200 laser from Orlando to a Japanese national in Tokyo in exchange for $3,200. According to the U.S. Munitions List (USML) and category XII(b) of the ITAR, individuals cannot export Atilla-200 lasers outside of the U.S. without a license. Cisneros did not have the appropriate license or permission to export the Atilla-200 laser to Japan.
In March 2010, Cisneros also auctioned several other controlled items, and shipped them to California, Nevada, and Kuwait.
On Jan. 26, 2011, Cisneros admitted to Homeland Security Investigations (HSI) special agents that he knew it was probably wrong to sell the items and that civilians probably were not allowed to possess them. That same day, agents recovered the remaining Atilla-200 lasers that Cisneros stole from the Army. Federal law enforcement agents in the United States and in Japan subsequently recovered all of the items, with the exception of the satellite phone, that Cisneros sold.
Cisneros pleaded guilty to the charges July 31, 2012.
Iranian Pleads Guilty to Conspiring to Procure Supplies for Iranian Petrochemical Companies
09/27/12 12:34 PM
On September 26, 2012, Department of Justice announced that Seed Talebi, an Iranian national, pled guilty in Manhattan federal court to conspiring to illegally export from the U.S. to Iran parts and goods designed for use in industrial operations.
Court documents allege that on numerous occasions in 2010 and 2011, Talebi conspired with others to ship industrial parts from the U.S. to various petrochemical companies located in Iran, via an intermediary in Dubai, without the required Office of Foreign Assets Control (OFAC) license.
Talebi pleaded guilty to one count of conspiring to violate the International Emergency Economic Powers Act (IEEPA), relevant Executive Orders, and United States Treasury regulations. He faces a maximum sentence of five years in prison.
Court documents allege that on numerous occasions in 2010 and 2011, Talebi conspired with others to ship industrial parts from the U.S. to various petrochemical companies located in Iran, via an intermediary in Dubai, without the required Office of Foreign Assets Control (OFAC) license.
Talebi pleaded guilty to one count of conspiring to violate the International Emergency Economic Powers Act (IEEPA), relevant Executive Orders, and United States Treasury regulations. He faces a maximum sentence of five years in prison.
Chinese National Arrested After Attempting to Illegally Export Regulated Material to China
09/27/12 12:31 PM
On September 26, 2012, Bureau of Industry and Security (BIS) announced that Ming Suan Zhang was charged in Brooklyn federal court with attempting to illegally export thousands of pounds of aerospace-grade carbon fiber from the United States to China.
According to the complaint, Zhang was arrested after trying to negotiate a deal to acquire the specialized carbon fiber, a high-tech material used frequently in the military, defense and aerospace industries, and is therefore closely regulated by the United States Department of Commerce to combat nuclear proliferation and terrorism.
The complaint alleges that Zhang and two of his Taiwanese accomplices attempted to locate large quantities of the specialized carbon fiber via remote Internet contacts. Zhang told his accomplice that his usual order would be one to two tons, however, this time he was looking to purchase 100 kilograms of the carbon fiber. Shortly thereafter, Zhang contacted an undercover law enforcement agent in an effort to finalize the deal to export the carbon fiber from New York to China. In one conversation, Zhang stated that he had an urgent need for the carbon fiber in connection with the scheduled test flight of a Chinese fighter plane. Zhang then arranged a meeting with an undercover agent to take possession of a carbon fiber sample, which was to be shipped to China and analyzed to verify its authenticity. Zhang was subsequently placed under arrest.
If convicted, Zhang faces up to 20 years in prison.
According to the complaint, Zhang was arrested after trying to negotiate a deal to acquire the specialized carbon fiber, a high-tech material used frequently in the military, defense and aerospace industries, and is therefore closely regulated by the United States Department of Commerce to combat nuclear proliferation and terrorism.
The complaint alleges that Zhang and two of his Taiwanese accomplices attempted to locate large quantities of the specialized carbon fiber via remote Internet contacts. Zhang told his accomplice that his usual order would be one to two tons, however, this time he was looking to purchase 100 kilograms of the carbon fiber. Shortly thereafter, Zhang contacted an undercover law enforcement agent in an effort to finalize the deal to export the carbon fiber from New York to China. In one conversation, Zhang stated that he had an urgent need for the carbon fiber in connection with the scheduled test flight of a Chinese fighter plane. Zhang then arranged a meeting with an undercover agent to take possession of a carbon fiber sample, which was to be shipped to China and analyzed to verify its authenticity. Zhang was subsequently placed under arrest.
If convicted, Zhang faces up to 20 years in prison.
Former Soldier Pleads Guilty to Participation in International Arms Smuggling Ring
09/06/12 05:29 PM
On September 6, 2012, the Department of Justice (DOJ) reported that Joseph Debose, a resident of North Carolina and a former Staff Sergeant in a U.S. Special Forces National Guard Unit, pleaded guilty in the U.S. District Court for the Eastern District of New York to violating the Arms Export Control Act (AECA). According to court documents, Debose provided multiple shipments of firearms to co-conspirators who then concealed the weapons in packages and transported them to shipping companies to be sent to customers in China. The weapons included numerous semiautomatic handguns, rifles and shotguns.
Authorities initially learned of the arms smuggling scheme after police in China seized a package containing firearms with defaced serial numbers, which had been shipped from Queens, New York. Upon learning of the seizure of the weapons, U.S. law enforcement officials traveled to China to examine the evidence. The types of weapons seized by the Chinese authorities have been designated on the United States Munitions List (USML), and may not be exported without a license from the U.S. State Department. With the aid of forensic techniques, agents determined that one of the weapons seized in China had originally been purchased in North Carolina. Agents then traced that gun, and others, to Debose. Agents arrested Debose in a sting operation when he arrived at a meeting location with a truckload of guns for the next shipment. Debose was carrying a loaded .45 caliber pistol at the time of his arrest. To date, four individuals have been charged with weapons trafficking and export offenses as a result of this investigation.
When sentenced, Debose faces up to 20 years in prison.
Authorities initially learned of the arms smuggling scheme after police in China seized a package containing firearms with defaced serial numbers, which had been shipped from Queens, New York. Upon learning of the seizure of the weapons, U.S. law enforcement officials traveled to China to examine the evidence. The types of weapons seized by the Chinese authorities have been designated on the United States Munitions List (USML), and may not be exported without a license from the U.S. State Department. With the aid of forensic techniques, agents determined that one of the weapons seized in China had originally been purchased in North Carolina. Agents then traced that gun, and others, to Debose. Agents arrested Debose in a sting operation when he arrived at a meeting location with a truckload of guns for the next shipment. Debose was carrying a loaded .45 caliber pistol at the time of his arrest. To date, four individuals have been charged with weapons trafficking and export offenses as a result of this investigation.
When sentenced, Debose faces up to 20 years in prison.
OFAC Posts Civil Penalty Enforcement Information
08/12/12 05:18 PM
The Office of Foreign Assets Controls (OFAC) posted recent civil penalty enforcement information on their website:
On July 10, 2012, Great Western Malting Co. (Great Western), of Vancouver, Washington, has agreed to pay $1.35 million to settle apparent violations of the Cuban Assets Control Regulations (CACR). OFAC alleged that between August 2006 and March 2009, the Great Western performed various back-office functions for the sales by a foreign affiliate of non-U.S. origin barley malt to Cuba. The base penalty amount for the apparent violations was $5,990,000. The company did not disclose the matter to OFAC, and the apparent violations constituted a non-egregious case.
On August 12, 2012, Grand Resources USA, Inc. (GR-Duratech), a Houston, TX company, was assessed a penalty of $402,000 for violating the Iranian Transactions Regulations (ITR) and the Weapons of Mass Destruction Proliferators Sanctions Regulations (WMDPSR).
In 2005, GR-Duratech negotiated a sale of graphitized petroleum coke to a company in the United Arab Emirates, with knowledge that the goods were for delivery to Bandar Abbas, Iran. After negotiating the terms of the sale and the related letter of credit, GR-Duratech referred the sale to its parent company, Grand Resources Co., Ltd. (Grand Resources), in Beijing, China, and later received a commission payment from Grand Resources for the sale. From July 2009 to August 2009, GR-Duratech dealt in property in which the Islamic Republic of Iran Shipping Lines (IRISL) had an interest, and engaged in transactions or dealings in or related to services of Iranian origin, when GR-Duratech was involved in the shipment of cargo aboard the blocked vessel “Sabalan,” a vessel in which IRISL had an interest, and presented trade documents related to the shipment to its bank for payment pursuant to a letter of credit referencing the blocked vessel.
GR-Duratech also engaged in transactions that resulted in the removal of references to Iran and an Iranian entity from the trade documents associated with the shipment. In September 2009, GR-Duratech dealt in property in which IRISL had an interest by transferring the trade documents related to the shipment to its customer in Turkey without OFAC’s authorization.
GR-Duratech did not voluntarily self-disclose the violations to OFAC. OFAC concluded that the 2005 ITR violation was a non-egregious case, but that the 2009 violations of the ITR and WMDPSR were an egregious case, in light of the company’s willful concealment and evasion involving GR-Duratech’s senior-level management. The base penalty amount for the violations totaled $670,000.
On July 10, 2012, Great Western Malting Co. (Great Western), of Vancouver, Washington, has agreed to pay $1.35 million to settle apparent violations of the Cuban Assets Control Regulations (CACR). OFAC alleged that between August 2006 and March 2009, the Great Western performed various back-office functions for the sales by a foreign affiliate of non-U.S. origin barley malt to Cuba. The base penalty amount for the apparent violations was $5,990,000. The company did not disclose the matter to OFAC, and the apparent violations constituted a non-egregious case.
On August 12, 2012, Grand Resources USA, Inc. (GR-Duratech), a Houston, TX company, was assessed a penalty of $402,000 for violating the Iranian Transactions Regulations (ITR) and the Weapons of Mass Destruction Proliferators Sanctions Regulations (WMDPSR).
In 2005, GR-Duratech negotiated a sale of graphitized petroleum coke to a company in the United Arab Emirates, with knowledge that the goods were for delivery to Bandar Abbas, Iran. After negotiating the terms of the sale and the related letter of credit, GR-Duratech referred the sale to its parent company, Grand Resources Co., Ltd. (Grand Resources), in Beijing, China, and later received a commission payment from Grand Resources for the sale. From July 2009 to August 2009, GR-Duratech dealt in property in which the Islamic Republic of Iran Shipping Lines (IRISL) had an interest, and engaged in transactions or dealings in or related to services of Iranian origin, when GR-Duratech was involved in the shipment of cargo aboard the blocked vessel “Sabalan,” a vessel in which IRISL had an interest, and presented trade documents related to the shipment to its bank for payment pursuant to a letter of credit referencing the blocked vessel.
GR-Duratech also engaged in transactions that resulted in the removal of references to Iran and an Iranian entity from the trade documents associated with the shipment. In September 2009, GR-Duratech dealt in property in which IRISL had an interest by transferring the trade documents related to the shipment to its customer in Turkey without OFAC’s authorization.
GR-Duratech did not voluntarily self-disclose the violations to OFAC. OFAC concluded that the 2005 ITR violation was a non-egregious case, but that the 2009 violations of the ITR and WMDPSR were an egregious case, in light of the company’s willful concealment and evasion involving GR-Duratech’s senior-level management. The base penalty amount for the violations totaled $670,000.
Gibson Guitar Corp. Settles Lacey Act Violations Charges
08/06/12 05:32 PM
On August 6, 2012, the Department of Justice (DOJ) announced that Gibson Guitar Corp. (Gibson) entered into a criminal enforcement agreement with the U.S. resolving a criminal investigation into allegations that the company violated the Lacey Act by illegally purchasing and importing ebony wood from Madagascar and rosewood and ebony from India.
According to the facts of the criminal enforcement agreement, the harvest of ebony in and export of unfinished ebony from, Madagascar has been banned since 2006.
Gibson purchased “fingerboard blanks,” consisting of sawn boards of Madagascar ebony, for use in manufacturing guitars. The Madagascar ebony fingerboard blanks were ordered from a supplier who obtained them from an exporter in Madagascar. Gibson’s supplier continued to receive Madagascar ebony fingerboard blanks from its Madagascar exporter after the 2006 ban. The Madagascar exporter did not have authority to export ebony fingerboard blanks after the law issued in Madagascar in 2006.
In 2008, an employee of Gibson participated in a trip to Madagascar, where he was told that a law passed in 2006 in Madagascar banned the harvest of ebony and the export of any ebony products that were not in finished form. He was also told by trip organizers that instrument parts, such as fingerboard blanks, would be considered unfinished and therefore illegal to export under the 2006 law. Trip participants also visited the facility of the exporter in Madagascar, from which Gibson’s supplier sourced its Madagascar ebony, and were informed that the wood at the facility was under seizure at that time and could not be moved.
After the Gibson employee returned from Madagascar with this information, he conveyed the information to superiors at Gibson. This information was not further investigated or acted upon prior to Gibson continuing to place orders with its supplier. Gibson received four shipments of Madagascar ebony fingerboard blanks from its supplier between October 2008 and September 2009.
The criminal enforcement agreement defers prosecution for criminal violations of the Lacey Act and requires Gibson to pay a penalty amount of $300,000 and provide a community service payment of $50,000 to the National Fish and Wildlife Foundation. In related civil forfeiture actions, Gibson will withdraw its claims to the wood seized in the course of the criminal investigation, including Madagascar ebony from shipments with a total invoice value of $261,844.
According to the facts of the criminal enforcement agreement, the harvest of ebony in and export of unfinished ebony from, Madagascar has been banned since 2006.
Gibson purchased “fingerboard blanks,” consisting of sawn boards of Madagascar ebony, for use in manufacturing guitars. The Madagascar ebony fingerboard blanks were ordered from a supplier who obtained them from an exporter in Madagascar. Gibson’s supplier continued to receive Madagascar ebony fingerboard blanks from its Madagascar exporter after the 2006 ban. The Madagascar exporter did not have authority to export ebony fingerboard blanks after the law issued in Madagascar in 2006.
In 2008, an employee of Gibson participated in a trip to Madagascar, where he was told that a law passed in 2006 in Madagascar banned the harvest of ebony and the export of any ebony products that were not in finished form. He was also told by trip organizers that instrument parts, such as fingerboard blanks, would be considered unfinished and therefore illegal to export under the 2006 law. Trip participants also visited the facility of the exporter in Madagascar, from which Gibson’s supplier sourced its Madagascar ebony, and were informed that the wood at the facility was under seizure at that time and could not be moved.
After the Gibson employee returned from Madagascar with this information, he conveyed the information to superiors at Gibson. This information was not further investigated or acted upon prior to Gibson continuing to place orders with its supplier. Gibson received four shipments of Madagascar ebony fingerboard blanks from its supplier between October 2008 and September 2009.
The criminal enforcement agreement defers prosecution for criminal violations of the Lacey Act and requires Gibson to pay a penalty amount of $300,000 and provide a community service payment of $50,000 to the National Fish and Wildlife Foundation. In related civil forfeiture actions, Gibson will withdraw its claims to the wood seized in the course of the criminal investigation, including Madagascar ebony from shipments with a total invoice value of $261,844.
Man Pleads Guilty to Attempt to Illegally Export Defense Articles to Iran
07/26/12 05:28 PM
On July 26, 2012, the Bureau of Industry and Security (BIS) reported that Andro Telemi, 42, of Sun Valley, CA, pleaded guilty to attempting to export defense articles on the U.S. Munitions List (USML) from the U.S. without authorization from the U.S. Department of State in violation of the Arms Export Control Act (AECA).
Telemi, a naturalized U.S. citizen from Iran, was indicted in December 2009, along with co-defendant Davoud Baniameri, 39, of Woodland Hills, CA. A superseding indictment in July 2010 charged Baniameri, Telemi and a third defendant, Syed Majid Mousavi, an Iranian citizen living in Iran. Baniameri pleaded guilty last year and was sentenced to 51 months in federal prison. Mousavi remains a fugitive and is believed to be in Iran.
According to court records, sometime before Aug. 17, 2009, Baniameri contacted Telemi and requested his assistance in purchasing and exporting to Iran via Dubai, UAE, 10 connector adapters for the TOW and TOW2 anti-armor missile systems. Telemi agreed and over the next month, they negotiated the purchase of 10 connector adaptors for $9,450 from a company in Illinois, which unbeknownst to them, was controlled by law enforcement. In September 2009, after Baniameri made a down payment to the Illinois company, he arranged for Telemi to pay the remaining balance and take possession of the connector adaptors in California. Telemi knew that he needed to obtain a license from the U.S. government to export the connector adaptors, but did not request it.
Telemi faces a maximum penalty of 20 years in prison a $250,000 fine. Telemi pleaded guilty without entering into a plea agreement with the government.
Telemi, a naturalized U.S. citizen from Iran, was indicted in December 2009, along with co-defendant Davoud Baniameri, 39, of Woodland Hills, CA. A superseding indictment in July 2010 charged Baniameri, Telemi and a third defendant, Syed Majid Mousavi, an Iranian citizen living in Iran. Baniameri pleaded guilty last year and was sentenced to 51 months in federal prison. Mousavi remains a fugitive and is believed to be in Iran.
According to court records, sometime before Aug. 17, 2009, Baniameri contacted Telemi and requested his assistance in purchasing and exporting to Iran via Dubai, UAE, 10 connector adapters for the TOW and TOW2 anti-armor missile systems. Telemi agreed and over the next month, they negotiated the purchase of 10 connector adaptors for $9,450 from a company in Illinois, which unbeknownst to them, was controlled by law enforcement. In September 2009, after Baniameri made a down payment to the Illinois company, he arranged for Telemi to pay the remaining balance and take possession of the connector adaptors in California. Telemi knew that he needed to obtain a license from the U.S. government to export the connector adaptors, but did not request it.
Telemi faces a maximum penalty of 20 years in prison a $250,000 fine. Telemi pleaded guilty without entering into a plea agreement with the government.
Company and Subsidiaries Agree to $75 Million Settlement for Illegally Exporting U.S.-origin Military Software to China
06/28/12 02:45 PM
On June 28, 2012, U.S. Department of Justice (DOJ) reported that Pratt & Whitney Canada Corp. (PWC), a Canadian subsidiary of the Connecticut-based defense contractor United Technologies Corporation (UTC), pleaded guilty to violating the Arms Export Control Act (AECA) and making false statements in connection with its illegal export to China of U.S.-origin military software used in the development of China’s first modern military attack helicopter, the Z-10.
UTC, its U.S.-based subsidiary Hamilton Sundstrand Corporation (HSC) and PWC have all agreed to pay more than $75 million as part of a global settlement with the DOJ and State Department in connection with the China arms export violations and for making false and belated disclosures to the U.S. government about these illegal exports.
The court documents allege that, beginning in the 1990s, after Congress had imposed the prohibition on exports to China of all U.S. defense articles and associated technical data, China sought to develop its attack helicopter under the guise of a civilian medium helicopter program in order to secure Western assistance. The Z-10, developed with assistance from Western suppliers, is China’s first modern military attack helicopter.
During the development phases of China’s Z-10 program, each Z-10 helicopter was powered by engines supplied by PWC. Despite the military nature of the Z-10 helicopter, PWC determined on its own that these development engines for the Z-10 did not constitute “defense articles,” requiring a U.S. export license, because they were identical to those engines PWC was already supplying China for a commercial helicopter. In addition, PWC knowingly supplied to Chinese entities via PWC Canada the Electronic Engine Control software, made by HSC in the U.S. to test and operate the PWC engines. Because it was modified for a military helicopter application, it was a defense article and required a U.S. export license.
According to the court documents, PWC knew from the start of the Z-10 project in 2000 that the Chinese were developing an attack helicopter and that supplying it with U.S.-origin components would be illegal, but failed to notify UTC or HSC about the attack helicopter until years later and purposely turned a blind eye to the helicopter’s military application. By early 2004, HSC and UTC learned there might an export problem and stopped working on the Z-10 project.
Today, the Z-10 helicopter is in production and initial batches were delivered to the People’s Liberation Army of China in 2009 and 2010.
UTC, its U.S.-based subsidiary Hamilton Sundstrand Corporation (HSC) and PWC have all agreed to pay more than $75 million as part of a global settlement with the DOJ and State Department in connection with the China arms export violations and for making false and belated disclosures to the U.S. government about these illegal exports.
The court documents allege that, beginning in the 1990s, after Congress had imposed the prohibition on exports to China of all U.S. defense articles and associated technical data, China sought to develop its attack helicopter under the guise of a civilian medium helicopter program in order to secure Western assistance. The Z-10, developed with assistance from Western suppliers, is China’s first modern military attack helicopter.
During the development phases of China’s Z-10 program, each Z-10 helicopter was powered by engines supplied by PWC. Despite the military nature of the Z-10 helicopter, PWC determined on its own that these development engines for the Z-10 did not constitute “defense articles,” requiring a U.S. export license, because they were identical to those engines PWC was already supplying China for a commercial helicopter. In addition, PWC knowingly supplied to Chinese entities via PWC Canada the Electronic Engine Control software, made by HSC in the U.S. to test and operate the PWC engines. Because it was modified for a military helicopter application, it was a defense article and required a U.S. export license.
According to the court documents, PWC knew from the start of the Z-10 project in 2000 that the Chinese were developing an attack helicopter and that supplying it with U.S.-origin components would be illegal, but failed to notify UTC or HSC about the attack helicopter until years later and purposely turned a blind eye to the helicopter’s military application. By early 2004, HSC and UTC learned there might an export problem and stopped working on the Z-10 project.
Today, the Z-10 helicopter is in production and initial batches were delivered to the People’s Liberation Army of China in 2009 and 2010.
OFAC Posts Civil Penalty Enforcement Information
06/14/12 02:26 PM
On June 14, 2012, Office of Foreign Assets Controls (OFAC) posted recent civil penalty enforcement information on their website:
National Bank of Abu Dhabi (NBAD) has agreed to remit $855,000 to settle potential civil liability for 45 transactions that appear to have violated the Sudanese Sanctions Regulations (SSR). The apparent violations occurred from November 2004 to December 2005.
In response to inquiries made by OFAC related to certain transactions, NBAD provided information to OFAC revealing that certain of its clerical staff removed or omitted Sudan-related references in payment instructions processed on behalf of its Sudan branch for payments routed through financial institutions located in the United States in apparent violation of the prohibition against the exportation of services from the U.S. to Sudan. The combined value of the 45 electronic funds transfers was close to $4.4 million.
NBAD did not voluntarily self-disclose the apparent violations; however, the company extended substantial cooperation throughout OFAC’s review of these matters. OFAC determined that the apparent violations constituted a non-egregious case. The base penalty amount for the apparent violations was therefore $4,276,000. In calculating the penalty amount, OFAC considered that NBAD took prompt and appropriate remedial action; NBAD provided substantial cooperation; and NBAD has not received a penalty notice or finding of violation in the five years preceding the transactions at issue.
National Bank of Abu Dhabi (NBAD) has agreed to remit $855,000 to settle potential civil liability for 45 transactions that appear to have violated the Sudanese Sanctions Regulations (SSR). The apparent violations occurred from November 2004 to December 2005.
In response to inquiries made by OFAC related to certain transactions, NBAD provided information to OFAC revealing that certain of its clerical staff removed or omitted Sudan-related references in payment instructions processed on behalf of its Sudan branch for payments routed through financial institutions located in the United States in apparent violation of the prohibition against the exportation of services from the U.S. to Sudan. The combined value of the 45 electronic funds transfers was close to $4.4 million.
NBAD did not voluntarily self-disclose the apparent violations; however, the company extended substantial cooperation throughout OFAC’s review of these matters. OFAC determined that the apparent violations constituted a non-egregious case. The base penalty amount for the apparent violations was therefore $4,276,000. In calculating the penalty amount, OFAC considered that NBAD took prompt and appropriate remedial action; NBAD provided substantial cooperation; and NBAD has not received a penalty notice or finding of violation in the five years preceding the transactions at issue.
ING Bank N.V. Forfeits $619 Million for Illegal Transactions with Sanctioned Entities
06/12/12 02:22 PM
On June 12, 2012, the U.S. Department of Justice announced that ING Bank N.V. (ING Bank), headquartered in Amsterdam, has agreed to forfeit $619 million for knowingly and willfully conspiring to violate the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA) and for violating New York state laws by illegally moving billions of dollars through the U.S. financial system on behalf of sanctioned Cuban and Iranian entities. The bank has also entered into a parallel settlement agreement with the Treasury Department’s Office of Foreign Assets Control (OFAC).
According to the court documents, starting in the early 1990s and continuing until 2007, ING Bank violated U.S. and New York state laws by moving more than $2 billion illegally through the U.S. financial system on behalf of Cuban and Iranian entities subject to U.S. economic sanctions. ING Bank eliminated payment data that would have revealed the involvement of sanctioned countries and entities, including Cuba and Iran; advised sanctioned clients on how to conceal their involvement in U.S. dollar transactions; fabricated ING Bank endorsement stamps for two Cuban banks to fraudulently process U.S. dollar travelers’ checks; and threatened to punish certain employees if they failed to take specified steps to remove references to sanctioned entities in payment messages.
ING Bank’s actions caused unaffiliated U.S. financial institutions to process transactions that otherwise should have been rejected, blocked or stopped for investigation pursuant to OFAC regulations.
ING Bank agreed to forfeit $619 million as part of the deferred prosecution agreements reached with the Justice Department and the New York County District Attorney’s Office. The fine is the largest ever against a bank in connection with an investigation into U.S. sanctions violations.
According to the court documents, starting in the early 1990s and continuing until 2007, ING Bank violated U.S. and New York state laws by moving more than $2 billion illegally through the U.S. financial system on behalf of Cuban and Iranian entities subject to U.S. economic sanctions. ING Bank eliminated payment data that would have revealed the involvement of sanctioned countries and entities, including Cuba and Iran; advised sanctioned clients on how to conceal their involvement in U.S. dollar transactions; fabricated ING Bank endorsement stamps for two Cuban banks to fraudulently process U.S. dollar travelers’ checks; and threatened to punish certain employees if they failed to take specified steps to remove references to sanctioned entities in payment messages.
ING Bank’s actions caused unaffiliated U.S. financial institutions to process transactions that otherwise should have been rejected, blocked or stopped for investigation pursuant to OFAC regulations.
ING Bank agreed to forfeit $619 million as part of the deferred prosecution agreements reached with the Justice Department and the New York County District Attorney’s Office. The fine is the largest ever against a bank in connection with an investigation into U.S. sanctions violations.
Chinese National Charged with Illegal Export of Sensitive Technology to China
05/23/12 02:16 PM
On May 23, 2012, the Bureau of Industry and Security (BIS) issued a press release stating that Qiang Hu, a/k/a Johnson Hu, 47, a Chinese national in Massachusetts on business, was arrested for illegally supplying U.S. origin parts to end-users in China in violation of U.S. export laws.
Hu was charged in a complaint with conspiracy to violate the Export Administration Regulations (EAR) and the International Emergency Economic Powers Act (IEEPA). Specifically, the complaint alleges that Hu has been the sales manager at MKS Instruments Shanghai, Ltd. (MKS-Shanghai) since 2008. MKS-Shanghai is the Shanghai sales office of MKS Instruments, Inc. (MKS), which is headquartered in Andover. Hu’s employment gave him access to MKS manufactured parts, including export-controlled pressure-measuring sensors (manometer types 622B, 623B, 626A, 626B, 627B, 722A, and 722B), which are commonly known as pressure transducers. Pressure transducers are export controlled because they are used in gas centrifuges to enrich uranium and produce weapons-grade uranium.
The complaint alleges that beginning in 2007, Hu and others caused thousands of MKS pressure transducers worth millions of dollars to be exported from the United States and delivered to unauthorized end-users using export licenses that were fraudulently obtained from the U.S. Department of Commerce. The conspirators either used licenses issued to legitimate MKS business customers to export the pressure transducers to China, and then caused the parts to be delivered to other end-users who were not themselves named on the export licenses or authorized to receive the parts; or obtained export licenses in the name of a front company and then used these fraudulently obtained licenses to export the parts to China, where they were delivered to the actual end-users.
MKS is not a target of the government's investigation into these matters. If convicted, Hu faces a maximum sentence of 20 years in federal prison to be followed by up to three years of supervised release, and a $1 million fine.
Hu was charged in a complaint with conspiracy to violate the Export Administration Regulations (EAR) and the International Emergency Economic Powers Act (IEEPA). Specifically, the complaint alleges that Hu has been the sales manager at MKS Instruments Shanghai, Ltd. (MKS-Shanghai) since 2008. MKS-Shanghai is the Shanghai sales office of MKS Instruments, Inc. (MKS), which is headquartered in Andover. Hu’s employment gave him access to MKS manufactured parts, including export-controlled pressure-measuring sensors (manometer types 622B, 623B, 626A, 626B, 627B, 722A, and 722B), which are commonly known as pressure transducers. Pressure transducers are export controlled because they are used in gas centrifuges to enrich uranium and produce weapons-grade uranium.
The complaint alleges that beginning in 2007, Hu and others caused thousands of MKS pressure transducers worth millions of dollars to be exported from the United States and delivered to unauthorized end-users using export licenses that were fraudulently obtained from the U.S. Department of Commerce. The conspirators either used licenses issued to legitimate MKS business customers to export the pressure transducers to China, and then caused the parts to be delivered to other end-users who were not themselves named on the export licenses or authorized to receive the parts; or obtained export licenses in the name of a front company and then used these fraudulently obtained licenses to export the parts to China, where they were delivered to the actual end-users.
MKS is not a target of the government's investigation into these matters. If convicted, Hu faces a maximum sentence of 20 years in federal prison to be followed by up to three years of supervised release, and a $1 million fine.
Two Individuals and Company Sentenced for Illegal Exports to Iran
05/16/12 02:12 PM
On May 16, 2012, the Bureau of Industry and Security (BIS) issued a press release stating that Massoud Habibion, 49, a U.S. citizen, Mohsen Motamedian, 44, a U.S. citizen, and their Costa Mesa, CA, company, Online Micro LLC, were sentenced in the U.S. District Court in the District of Columbia in connection with a scheme to illegally export millions of dollars worth of computer-related goods from the U.S. to Iran through the United Arab Emirates (UAE).
Specifically, in November 2009, and continuing through December 2010, Habibion and Online Micro conspired with a company operating in Dubai and Tehran, to procure U.S. -origin computer-related goods and export those goods to Iran via the UAE. During the scope of the conspiracy, Online Micro and Habibion sold to that company and exported from the U.S. numerous shipments of computer-related goods, worth a total of more than $4,904,962, with knowledge that the majority of those goods were destined for Iran.
Online Micro also filed false Shipper's Export Declarations (SEDs) with U.S. Customs and Border Protection (CBP) identifying the ultimate destination of the goods as the UAE. During the course of the investigation, Habibion and Motamedian told a government cooperator to lie to U.S. law enforcement officials about Iran being the true ultimate destination for the goods and counseled him to tell U.S. law enforcement agents that the computer-related goods remained in Dubai.
Habibion and Motamedian were arrested on a criminal complaint in California on April 7, 2011, and indicted on April 21, 2011. Habibion was sentenced to 13 months in prison for conspiracy to violate the International Emergency Economic Powers Act (IEPA) and to defraud the U.S. Motamedian was sentenced to three years supervised release for obstruction of justice.
Under the terms of their guilty pleas and related civil settlements with the Department of Commerce’s Bureau of Industry and Security (BIS) and OFAC, Habibion and his company have agreed to forfeiture of $1.9 million seized from Online Micro’s bank accounts by ICE’s Homeland Security Investigations (HSI) during the course of the investigation. In addition, Habibion and Online Micro are denied export privileges for 10 years, although the denial order will be suspended provided that neither Habibion nor Online Micro commit any export violations during the 10-year probationary period and comply with the terms of the criminal plea agreements and sentences. Motamedian separately agreed to a $50,000 monetary penalty to settle a civil charge that he solicited a false statement to federal law enforcement agents.
Specifically, in November 2009, and continuing through December 2010, Habibion and Online Micro conspired with a company operating in Dubai and Tehran, to procure U.S. -origin computer-related goods and export those goods to Iran via the UAE. During the scope of the conspiracy, Online Micro and Habibion sold to that company and exported from the U.S. numerous shipments of computer-related goods, worth a total of more than $4,904,962, with knowledge that the majority of those goods were destined for Iran.
Online Micro also filed false Shipper's Export Declarations (SEDs) with U.S. Customs and Border Protection (CBP) identifying the ultimate destination of the goods as the UAE. During the course of the investigation, Habibion and Motamedian told a government cooperator to lie to U.S. law enforcement officials about Iran being the true ultimate destination for the goods and counseled him to tell U.S. law enforcement agents that the computer-related goods remained in Dubai.
Habibion and Motamedian were arrested on a criminal complaint in California on April 7, 2011, and indicted on April 21, 2011. Habibion was sentenced to 13 months in prison for conspiracy to violate the International Emergency Economic Powers Act (IEPA) and to defraud the U.S. Motamedian was sentenced to three years supervised release for obstruction of justice.
Under the terms of their guilty pleas and related civil settlements with the Department of Commerce’s Bureau of Industry and Security (BIS) and OFAC, Habibion and his company have agreed to forfeiture of $1.9 million seized from Online Micro’s bank accounts by ICE’s Homeland Security Investigations (HSI) during the course of the investigation. In addition, Habibion and Online Micro are denied export privileges for 10 years, although the denial order will be suspended provided that neither Habibion nor Online Micro commit any export violations during the 10-year probationary period and comply with the terms of the criminal plea agreements and sentences. Motamedian separately agreed to a $50,000 monetary penalty to settle a civil charge that he solicited a false statement to federal law enforcement agents.
Freight Forwarder Sentenced to Prison for Conspiracy to Facilitate Illegal Exports to Iran
05/15/12 02:03 PM
On May 15, 2012, U.S. Attorney Paul J. Fishman announced that the U.S. District Court in Newark, NJ, sentenced Ulrich Davis, a Dutch citizen of Pumerend, The Netherlands, to six months in prison for conspiring to defraud the United States by facilitating the illegal export of goods to Iran.
Davis, a former manager of a Netherlands-based freight-forwarding company previously pleaded guilty to an Information charging him with conspiracy to defraud the United States through the violation of a U.S. Department of Commerce Temporary Denial Order.
Davis, a former manager of a Netherlands-based freight-forwarding company previously pleaded guilty to an Information charging him with conspiracy to defraud the United States through the violation of a U.S. Department of Commerce Temporary Denial Order.
OFAC Posts Recent Penalty Information
04/25/12 02:39 PM
The Office of Foreign Assets Control (OFAC) posted on its website recent penalty information:
On April 25, 2012, OFAC reported that Sandhill Scientific, Inc. (Sandhill) of Highlands Ranch, CO, a U.S. manufacturer of medical equipment, has agreed to remit $126,000 to settle allegations that it violated the Iranian Transactions Regulations (ITR) in May 2007 and OFAC’s Reporting, Procedures and Penalties Regulations on separate occasions in May and July 2008. Specifically, OFAC alleged that on May 4, 2007, Sandhill exported medical equipment valued at $6,700 to Dubai, UAE, with knowledge that the goods were intended for transshipment to a company in Iran with which Sandhill had an exclusive distributor agreement. OFAC also alleged that Sandhill failed to provide documents responsive to two administrative subpoenas issued by OFAC during its investigation.
Sandhill did not voluntarily disclose the matter to OFAC. OFAC determined that the alleged ITR violation constituted an egregious case because Sandhill’s unlicensed export appears to have resulted from willful and reckless conduct in which the company’s management was directly involved; Sandhill appears to have deliberately concealed the fact that the goods were destined for Iran; and Sandhill did not fully cooperate with the investigation. These determinations resulted in a base penalty amount of $250,000 for the alleged ITR violation.
The settlement amount reflected the fact that Sandhill did not appear to have any compliance program in place at the time of the alleged violations; Sandhill did not appear to have taken any remedial action after the alleged violations came to its attention; the export may have been eligible for an OFAC license under the ITR; and OFAC had no record of any prior sanctions enforcement actions against Sandhill.
On April 10, 2012, OFAC reported that Essie Cosmetics Ltd. (Essie) and its former individual corporate officer (Officer), of New York City, NY, have agreed to settle OFAC allegations involving Essie and the Officer’s unlicensed exports to Iran in violation of the Iranian Transactions Regulations (ITR). The apparent violations pertain to Essie and Officer’s knowing sale and export of nail care products on September 17, 2009, December 8, 2009 and February 23, 2010, to an Iranian distributor. Essie and the Officer did not voluntarily self-disclose the apparent violations and that the violations constituted an egregious case. The total transaction value for the three transactions settled with OFAC was $33,299, and the based penalty was $750,000. Essie, the Officer and OFAC agreed to settle in the amount of $450,000. The settlement amount reflected the fact that Essie and the Officer had no history of prior OFAC violations and have cooperated with the investigation.
On April 25, 2012, OFAC reported that Sandhill Scientific, Inc. (Sandhill) of Highlands Ranch, CO, a U.S. manufacturer of medical equipment, has agreed to remit $126,000 to settle allegations that it violated the Iranian Transactions Regulations (ITR) in May 2007 and OFAC’s Reporting, Procedures and Penalties Regulations on separate occasions in May and July 2008. Specifically, OFAC alleged that on May 4, 2007, Sandhill exported medical equipment valued at $6,700 to Dubai, UAE, with knowledge that the goods were intended for transshipment to a company in Iran with which Sandhill had an exclusive distributor agreement. OFAC also alleged that Sandhill failed to provide documents responsive to two administrative subpoenas issued by OFAC during its investigation.
Sandhill did not voluntarily disclose the matter to OFAC. OFAC determined that the alleged ITR violation constituted an egregious case because Sandhill’s unlicensed export appears to have resulted from willful and reckless conduct in which the company’s management was directly involved; Sandhill appears to have deliberately concealed the fact that the goods were destined for Iran; and Sandhill did not fully cooperate with the investigation. These determinations resulted in a base penalty amount of $250,000 for the alleged ITR violation.
The settlement amount reflected the fact that Sandhill did not appear to have any compliance program in place at the time of the alleged violations; Sandhill did not appear to have taken any remedial action after the alleged violations came to its attention; the export may have been eligible for an OFAC license under the ITR; and OFAC had no record of any prior sanctions enforcement actions against Sandhill.
On April 10, 2012, OFAC reported that Essie Cosmetics Ltd. (Essie) and its former individual corporate officer (Officer), of New York City, NY, have agreed to settle OFAC allegations involving Essie and the Officer’s unlicensed exports to Iran in violation of the Iranian Transactions Regulations (ITR). The apparent violations pertain to Essie and Officer’s knowing sale and export of nail care products on September 17, 2009, December 8, 2009 and February 23, 2010, to an Iranian distributor. Essie and the Officer did not voluntarily self-disclose the apparent violations and that the violations constituted an egregious case. The total transaction value for the three transactions settled with OFAC was $33,299, and the based penalty was $750,000. Essie, the Officer and OFAC agreed to settle in the amount of $450,000. The settlement amount reflected the fact that Essie and the Officer had no history of prior OFAC violations and have cooperated with the investigation.
Major Freight Forwarders Debarred From Contracting with U.S. Government
02/28/12 03:26 PM
Five major freight forwarders who in the past have provided services to the U.S. Government have been added to the Excluded Party List System (EPLS). Being placed on the EPLS means that the entity is debarred from contracting with the U.S. government. The debarred freight forwarders are:
- BAX Global Inc., 440 Exchange, Irvine, California 92602; - Kühne + Nagel International AG (Kühne), Post Office Box 67, Schindellegi, Switzerland; - Panalpina Welttransport (Holding) AG, Postfach, Basel, Switzerland 4002; - Panalpina Inc., 1776 On the Green, 67 E Park Place Fl 3, Morristown, New Jersey 07960; and - Schenker AG, Alfredstr. 81, Essen, Nordrhein-Westfalen, Deutschland 45130.
In September 2010, Kühne + Nagel International AG, Panalpina World Transport (Holding) Ltd., Schenker AG, and BAX Global Inc. pleaded guilty to criminal price-fixing charges and antitrust violations and agreed to pay $50.7 million in criminal fines to the U.S. Government.
- BAX Global Inc., 440 Exchange, Irvine, California 92602; - Kühne + Nagel International AG (Kühne), Post Office Box 67, Schindellegi, Switzerland; - Panalpina Welttransport (Holding) AG, Postfach, Basel, Switzerland 4002; - Panalpina Inc., 1776 On the Green, 67 E Park Place Fl 3, Morristown, New Jersey 07960; and - Schenker AG, Alfredstr. 81, Essen, Nordrhein-Westfalen, Deutschland 45130.
In September 2010, Kühne + Nagel International AG, Panalpina World Transport (Holding) Ltd., Schenker AG, and BAX Global Inc. pleaded guilty to criminal price-fixing charges and antitrust violations and agreed to pay $50.7 million in criminal fines to the U.S. Government.
President Obama Orders Establishment of the Interagency Trade Enforcement Center
02/28/12 03:19 PM
On February 28, 2012, President Obama signed Executive Order that establishes within the Office of the U.S. Trade Representative (USTR) an Interagency Trade Enforcement Center (ITEC). The ITEC will coordinate matters relating to enforcement of U.S. trade rights under international trade agreements and enforcement of domestic trade laws among USTR and the Departments of State, Treasury, Justice, Agriculture, and Homeland Security, the Office of the Director of National Intelligence, and other agencies as the President or the USTR may designate.
The mission of the ITEC is to:
“(a) serve as the primary forum within the Federal Government for USTR and other agencies to coordinate enforcement of U.S. trade rights under international trade agreements and enforcement of domestic trade laws;
(b) coordinate among USTR, other agencies with trade related responsibilities, and the U.S. Intelligence Community the exchange of information related to potential violations of international trade agreements by our foreign trade partners; and
(c) conduct outreach to U.S. workers, businesses, and other interested persons to foster greater participation in the identification and reduction or elimination of foreign trade barriers and unfair foreign trade practices.”
The mission of the ITEC is to:
“(a) serve as the primary forum within the Federal Government for USTR and other agencies to coordinate enforcement of U.S. trade rights under international trade agreements and enforcement of domestic trade laws;
(b) coordinate among USTR, other agencies with trade related responsibilities, and the U.S. Intelligence Community the exchange of information related to potential violations of international trade agreements by our foreign trade partners; and
(c) conduct outreach to U.S. workers, businesses, and other interested persons to foster greater participation in the identification and reduction or elimination of foreign trade barriers and unfair foreign trade practices.”
OFAC Posts Recent Penalty Information
02/27/12 03:36 PM
The Office of Foreign Assets Control (OFAC) posted on its website recent penalty information:
Online and the Owner each pleaded guilty in the U.S. District Court for the District of Columbia to one count of criminal conspiracy to violate IEEPA and the ITR after an indictment arising from the same conduct was filed by the U.S. Department of Justice. In addition to the forfeiture of a money judgment in the amount of $1,899,964 by Online and the Owner, Online and the Owner also accepted BIS Export Denial Orders which prohibit them from exporting any goods from the United States for a ten-year period. The BIS Export Denial Orders were suspended in their entirety provided Online and the Owner remain in compliance with the terms of their Settlement Agreements with BIS and with the Export Administration Regulations. Online and the Owner did not voluntary disclose these matters to OFAC. OFAC considers the apparent violations to be egregious.
- Teledyne Technologies Incorporated and its subsidiary, Teledyne RD Instruments, Inc. (Teledyne), have agreed to pay $30,385 to settle allegations of violating the Sudanese Sanctions Regulations. OFAC alleged that on two occasions in 2007 Teledyne indirectly exported Acoustic Doppler Current Profilers (ADCP) to Sudan valued at $122,766. The base penalty amount for the alleged violations was $61,383. Teledyne voluntarily self-disclosed this matter to OFAC. The settlement amount reflected the facts that Teledyne had no history of prior OFAC violations; the exports of the ADCPs caused minimal harm to sanctions programs objectives; and Teledyne took appropriate remedial action upon learning of the potential OFAC violations.
- Richland Trace Homeowners Association, Inc. (Richland Trace), of Dallas, TX, has been assessed a penalty of $9,000 for violating the Former Liberian Regime of Charles Taylor Sanctions Regulations (Liberian Regulations). Richland Trace used $9,500 of the proceeds from the February 3, 2009, sale of property in which a person designated pursuant to Executive Order 13348, Blocking Property of Certain Persons and Prohibiting the Importation of Certain Goods from Liberia, had an interest, to reimburse itself for past assessments and late fees that had accrued against the property since December 2005. As a result, OFAC determined that Richland Trace violated the prohibition against dealing in blocked property set forth in the Liberian Regulations. Richland Trace did not voluntarily self-disclose the violation to OFAC. The base penalty amount for the violation was $10,000. The assessed penalty amount reflected the fact that Richland Trace displayed reckless disregard for U.S. sanctions by failing to comply with the conditions of its OFAC license but had no history of prior OFAC violations.
- Online Micro, LLC (Online), of Costa Mesa, CA, and one of its principal owners (the Owner) have agreed to settle administrative charges made by the OFAC arising from apparent violations of the Iranian Transactions Regulations (ITR). The apparent violations relate to unlicensed exports by Online and the Owner, between 2009 and 2010, of computer-related goods indirectly from the United States through Dubai, United Arab Emirates, to Iran in apparent violation of the ITR. Online, the Owner, and OFAC agreed to a settlement in the amount of $1,054,388 with respect to apparent violations of the ITR by Online and the Owner. This settlement with OFAC was related to criminal plea agreements reached by Online, the Owner, and the Office of the United States Attorney for the District of Columbia, as well as settlement agreements between Online, the Owner, and the U.S. Department of Commerce’s Bureau of Industry and Security (BIS). OFAC’s settlement with Online and the Owner has been deemed satisfied by their acceptance of criminal responsibility, the criminal forfeiture of assets, and the restrictions imposed by BIS against Online and the Owner.
Online and the Owner each pleaded guilty in the U.S. District Court for the District of Columbia to one count of criminal conspiracy to violate IEEPA and the ITR after an indictment arising from the same conduct was filed by the U.S. Department of Justice. In addition to the forfeiture of a money judgment in the amount of $1,899,964 by Online and the Owner, Online and the Owner also accepted BIS Export Denial Orders which prohibit them from exporting any goods from the United States for a ten-year period. The BIS Export Denial Orders were suspended in their entirety provided Online and the Owner remain in compliance with the terms of their Settlement Agreements with BIS and with the Export Administration Regulations. Online and the Owner did not voluntary disclose these matters to OFAC. OFAC considers the apparent violations to be egregious.
NY Man and Company Sentenced for Conspiracy to Export Computer-Related Equipment to Iran
02/17/12 01:27 PM
On February 17, 2012, the U.S. Department of Justice (DOJ) issued a press release stating that Jeng “Jay” Shih, a 54-year old U.S. citizen, was sentenced in the District of Columbia to 18 months in prison, while his company Sunrise Technologies and Trading Corporation of Queens, NY, was sentenced to 2 years corporate probation for conspiracy to illegally export U.S.-origin computers from the U.S. to Iran through the UAE. Shih and his company must also forfeit $1.25 million.
On October 7, 2011, Shih and his company each pleaded guilty to conspiracy to violate the International Emergency Economic Powers Act (IEEPA) and to defraud the U.S. Under the terms of the plea and related civil settlements with the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) and Office of Foreign Asset Controls (OFAC), Shih and his company agreed to forfeiture in the amount of $1.25 million. In addition, Shih and his company are denied export privileges for 10 years; however, this penalty will be suspended as long as neither Shih nor Sunrise commits any export violations.
Shih was arrested on a criminal complaint on April 6, 2011, and indicted on April 21, 2011. The case court documents state that, beginning as early as about 2007, Shih conspired with a company operating in Dubai, UAE, and Tehran, Iran, to procure U.S.-origin computers through Sunrise and export those computers from the U.S. to Iran, through Dubai, without first obtaining a license or authorization from OFAC.
Specifically, in April 2010, Shih and his company illegally exported 368 units of computer-related goods to Dubai, which were later shipped to Iran. The defendants subsequently illegally exported additional 343 units of computer-related goods to Iran via Dubai.
On October 7, 2011, Shih and his company each pleaded guilty to conspiracy to violate the International Emergency Economic Powers Act (IEEPA) and to defraud the U.S. Under the terms of the plea and related civil settlements with the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) and Office of Foreign Asset Controls (OFAC), Shih and his company agreed to forfeiture in the amount of $1.25 million. In addition, Shih and his company are denied export privileges for 10 years; however, this penalty will be suspended as long as neither Shih nor Sunrise commits any export violations.
Shih was arrested on a criminal complaint on April 6, 2011, and indicted on April 21, 2011. The case court documents state that, beginning as early as about 2007, Shih conspired with a company operating in Dubai, UAE, and Tehran, Iran, to procure U.S.-origin computers through Sunrise and export those computers from the U.S. to Iran, through Dubai, without first obtaining a license or authorization from OFAC.
Specifically, in April 2010, Shih and his company illegally exported 368 units of computer-related goods to Dubai, which were later shipped to Iran. The defendants subsequently illegally exported additional 343 units of computer-related goods to Iran via Dubai.
Massachusetts Man Found Guilty of Conspiring to Export Military Antennae to Singapore and Hong Kong
01/20/12 06:47 PM
On January 20, 2012, the U.S. Department of Justice (DOJ) announced that Rudolf L. Cheung, age 57 and a resident of Massachusetts, pleaded guilty to a conspiracy to violate the Arms Export Control Act (AECA) in connection with the unlawful export of 55 military antennae from the U.S. to Singapore and Hong Kong.
Cheung serves as the head of the R&D Department at a private company that manufactures a wide variety of antennae, many of which have military applications and are used by defense contractors.
According to court documents, in June 2006, Cheung learned that export compliance at his company had blocked export of two types of antennae because the buyer in Singapore would not agree to fill out a U.S. government form attesting that the goods would not be transferred. The antennae are classified by the U.S. government as defense articles and require a Department of State export license.
Cheung then arranged for an individual outside his company to bypass the export controls and arrange for the antennae to be exported to Singapore. This co-conspirator, who operated his own company in Massachusetts, negotiated the purchase of the antennae with two companies in Singapore. Between July and September 2007, the co-conspirator purchased 55 military antennae from Cheung's company, which he then exported to the Singaporean company with addresses in both Singapore and Hong Kong.
Court documents allege that Cheung was aware that the purchases by the co-conspirator were intended for export from the U.S. and that these exports had previously been blocked by his export compliance manager, but took no action to stop the sale of these antennae from his company or their subsequent export from the U.S., even though he knew a license was required for such exports. Cheung did not attempt to obtain any license from the State Department.
Cheung serves as the head of the R&D Department at a private company that manufactures a wide variety of antennae, many of which have military applications and are used by defense contractors.
According to court documents, in June 2006, Cheung learned that export compliance at his company had blocked export of two types of antennae because the buyer in Singapore would not agree to fill out a U.S. government form attesting that the goods would not be transferred. The antennae are classified by the U.S. government as defense articles and require a Department of State export license.
Cheung then arranged for an individual outside his company to bypass the export controls and arrange for the antennae to be exported to Singapore. This co-conspirator, who operated his own company in Massachusetts, negotiated the purchase of the antennae with two companies in Singapore. Between July and September 2007, the co-conspirator purchased 55 military antennae from Cheung's company, which he then exported to the Singaporean company with addresses in both Singapore and Hong Kong.
Court documents allege that Cheung was aware that the purchases by the co-conspirator were intended for export from the U.S. and that these exports had previously been blocked by his export compliance manager, but took no action to stop the sale of these antennae from his company or their subsequent export from the U.S., even though he knew a license was required for such exports. Cheung did not attempt to obtain any license from the State Department.
FedEx Settles Charges of EAR Violations
01/04/12 06:42 PM
On January 4, 2012, the U.S. Department of Commerce's Bureau of Industry and Security (BIS) announced that FedEx Express (FedEx) of Memphis, TN, has agreed to pay a $370,000 civil penalty to settle allegations that the company committed six violations of the Export Administration Regulations (EAR) relating to FedEx's provision of freight forwarding services to exporters.
Specifically, BIS alleged that on two occasions in 2006, FedEx facilitated the attempted unlicensed export of electronic components from the U.S. to Mayrow in Dubai, UAE. The exports to Mayrow were thwarted when delivery was halted at BIS's direction. On June 5, 2006, BIS had issued a General Order imposing a license requirement with a presumption of denial for the export or reexport of any item subject to the EAR to Mayrow General Trading and related entities. The General Order was issued based on information that Mayrow and the related entities were acquiring electronic components and devices that were being used in Improvised Explosive Devices deployed against Coalition forces in Iraq and Afghanistan.
BIS also alleged that in December 2005, FedEx facilitated acts prohibited by the regulations when it facilitated the unlicensed export of flight simulation software to Beijing University of Aeronautics and Astronautics, a/k/a/ Beihang University, an organization listed on the U.S. Department of Commerce's Entity List and located in the People's Republic of China.
BIS also alleged that in 2004, FedEx caused, aided, and abetted acts prohibited by the regulations when it facilitated the unlicensed export of printer components from the U.S. to end users in Syria, which was prohibited under General Order No. 2 as set forth in Supplement 1 to part 736 of the EAR.
Specifically, BIS alleged that on two occasions in 2006, FedEx facilitated the attempted unlicensed export of electronic components from the U.S. to Mayrow in Dubai, UAE. The exports to Mayrow were thwarted when delivery was halted at BIS's direction. On June 5, 2006, BIS had issued a General Order imposing a license requirement with a presumption of denial for the export or reexport of any item subject to the EAR to Mayrow General Trading and related entities. The General Order was issued based on information that Mayrow and the related entities were acquiring electronic components and devices that were being used in Improvised Explosive Devices deployed against Coalition forces in Iraq and Afghanistan.
BIS also alleged that in December 2005, FedEx facilitated acts prohibited by the regulations when it facilitated the unlicensed export of flight simulation software to Beijing University of Aeronautics and Astronautics, a/k/a/ Beihang University, an organization listed on the U.S. Department of Commerce's Entity List and located in the People's Republic of China.
BIS also alleged that in 2004, FedEx caused, aided, and abetted acts prohibited by the regulations when it facilitated the unlicensed export of printer components from the U.S. to end users in Syria, which was prohibited under General Order No. 2 as set forth in Supplement 1 to part 736 of the EAR.
OFAC Posts Recent Penalty Information
11/24/11 10:09 AM
The Office of Foreign Assets Control (OFAC) posted on its website recent penalty information:
- Wilson Tool International, Inc. (Wilson Tool) of White Bear Lake, MN, has agreed to remit $15,000 to settle an alleged violation of the Iranian Transactions Regulations (ITR) occurring on September 12, 2005. OFAC alleged that Wilson Tool sold and exported punch press tooling equipment to an entity in Iran without an OFAC license. The transaction value was $10,304.33. OFAC determined that Wilson Tool did not voluntarily self- disclose this matter to OFAC and that the alleged violation constituted a non-egregious case. The base penalty amount for the alleged violation was $25,000, but was reduced considering mitigating factors.
- ASF, Inc. (ASF), a Mobile, AL company, has agreed to remit $5,400 to settle allegations of a violation of the Iranian Transactions Regulations (ITR) that occurred on May 2, 2006. OFAC alleged that ASF engaged in a transaction related to goods destined for Iran and facilitated the exportation of goods from a third country to Iran by a foreign person, without an OFAC license. OFAC determined that ASF did not voluntarily disclose this matter to OFAC and that the apparent violation constituted a non-egregious case. The base penalty amount for the alleged violation was $10,000.
- Commerzbank AG, New York Branch (Commerzbank), of New York, NY, has agreed to remit $175,500 to settle apparent violations of the Cuban Assets Control Regulations that occurred from September 7, 2005, through September 30, 2005. The agreement covers allegations that Commerzbank, acting as an advising and confirming bank in connection with a letter of credit, presented four sets of trade documents, in which a Cuban Specially Designated National (SDN) had an interest, to the Miami branch of the foreign bank that issued the letter of credit, for payment in favor of a Canadian company. The aggregate value of the trade documents was $884,157. Commerzbank did not voluntarily self-disclose the matter, and the alleged violations constituted a non-egregious case. The base penalty amount for the alleged violations totaled $260,000. The settlement amount reflects OFAC’s consideration of the following facts and circumstances, pursuant to the General Factors under OFAC’s Economic Sanctions Enforcement Guidelines: Commerzbank should have been aware of the prohibited Cuban interest, given that the trade documents contained repeated references to the SDN and its vessels; Commerzbank has undertaken remedial measures to strengthen its OFAC compliance program to ensure that such apparent violations do not recur in the future; and Commerzbank cooperated with OFAC’s investigation, including by agreeing to toll the statute of limitations.
OFAC Posts Recent Penalty Information
10/28/11 02:34 PM
In October, Office of Foreign Assets Control (OFAC) posted on its web site information on recent OFAC enforcement actions:
On October 14, 2011, Sunrise Technologies and Trading Corporation of Flushing, NY, and its principal owner (Sunrise) have agreed to settle administrative charges made by the OFAC arising from violations of the Iranian Transactions Regulations (ITR), which are administered by OFAC. OFAC alleged that between 2007 and 2011, Sunrise exported computer-related goods indirectly from the United States through Dubai, United Arab Emirates, to Iran without the required export licenses. OFAC initiated the inquiry into these matters and referred the case to criminal law enforcement authorities for further investigation. Sunrise and OFAC agreed to a settlement in the amount of $1,661,672 with respect to apparent violations of the ITR by Sunrise.
This settlement with OFAC is related to criminal plea agreements reached by Sunrise and the Office of the United States Attorney for the District of Columbia, as well as settlement agreements between Sunrise and the U.S. Department of Commerce’s Bureau of Industry and Security (BIS). OFAC’s settlement with Sunrise has been deemed satisfied by their acceptance of criminal responsibility, the criminal forfeiture of assets, and the restrictions imposed by BIS against Sunrise and its principal owner.
Sunrise and its principal owner each pleaded guilty in the U.S. District Court for the District of Columbia to one count of criminal conspiracy to violate the International Emergency Economic Powers Act (IEEPA) and the ITR after an indictment arising from the same conduct was filed by the U.S. Department of Justice. In addition to the forfeiture of a money judgment in the amount of $1,250,000, Sunrise also accepted BIS Export Denial Orders which prohibit them from exporting any goods from the United States for a ten-year period. The BIS Export Denial Orders were suspended in their entirety provided Sunrise remains in compliance with the terms of their Settlement Agreements with BIS.
For the violations that OFAC considered to be an egregious case, Sunrise did not voluntary disclose these matters to OFAC.
On October 27, 2011, Zurigo Trading, Inc. (Zurigo) of Weston, FL, was assessed a penalty of $7,000 for violating the Iranian Transactions Regulations (ITR). Specifically, in September 2006, Zurigo attempted to export goods valued at $7,168 to Iran on behalf of its foreign customer. OFAC determined that Zurigo 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 $10,000. The assessed penalty amount reflects OFAC’s consideration of the fact that Zurigo had knowledge or reason to know that the goods were destined for Iran; Zurigo did not have an OFAC compliance program in place at the time of the violation; Zurigo has not been the subject of an OFAC enforcement action in the five years preceding the transaction at issue; and, some of the goods Zurigo attempted to ship appear to have been eligible for an OFAC license had an application been submitted to OFAC.
On October 14, 2011, Sunrise Technologies and Trading Corporation of Flushing, NY, and its principal owner (Sunrise) have agreed to settle administrative charges made by the OFAC arising from violations of the Iranian Transactions Regulations (ITR), which are administered by OFAC. OFAC alleged that between 2007 and 2011, Sunrise exported computer-related goods indirectly from the United States through Dubai, United Arab Emirates, to Iran without the required export licenses. OFAC initiated the inquiry into these matters and referred the case to criminal law enforcement authorities for further investigation. Sunrise and OFAC agreed to a settlement in the amount of $1,661,672 with respect to apparent violations of the ITR by Sunrise.
This settlement with OFAC is related to criminal plea agreements reached by Sunrise and the Office of the United States Attorney for the District of Columbia, as well as settlement agreements between Sunrise and the U.S. Department of Commerce’s Bureau of Industry and Security (BIS). OFAC’s settlement with Sunrise has been deemed satisfied by their acceptance of criminal responsibility, the criminal forfeiture of assets, and the restrictions imposed by BIS against Sunrise and its principal owner.
Sunrise and its principal owner each pleaded guilty in the U.S. District Court for the District of Columbia to one count of criminal conspiracy to violate the International Emergency Economic Powers Act (IEEPA) and the ITR after an indictment arising from the same conduct was filed by the U.S. Department of Justice. In addition to the forfeiture of a money judgment in the amount of $1,250,000, Sunrise also accepted BIS Export Denial Orders which prohibit them from exporting any goods from the United States for a ten-year period. The BIS Export Denial Orders were suspended in their entirety provided Sunrise remains in compliance with the terms of their Settlement Agreements with BIS.
For the violations that OFAC considered to be an egregious case, Sunrise did not voluntary disclose these matters to OFAC.
On October 27, 2011, Zurigo Trading, Inc. (Zurigo) of Weston, FL, was assessed a penalty of $7,000 for violating the Iranian Transactions Regulations (ITR). Specifically, in September 2006, Zurigo attempted to export goods valued at $7,168 to Iran on behalf of its foreign customer. OFAC determined that Zurigo 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 $10,000. The assessed penalty amount reflects OFAC’s consideration of the fact that Zurigo had knowledge or reason to know that the goods were destined for Iran; Zurigo did not have an OFAC compliance program in place at the time of the violation; Zurigo has not been the subject of an OFAC enforcement action in the five years preceding the transaction at issue; and, some of the goods Zurigo attempted to ship appear to have been eligible for an OFAC license had an application been submitted to OFAC.
Singapore Nationals and Companies Indicted in a Conspiracy Involving Illegal Exports
10/25/11 03:44 PM
On October 25, 2011, the Department of Justice (DOJ) announced that five individuals and four of their companies have been indicted as part of a conspiracy to defraud the U.S. that allegedly caused thousands of radio frequency modules to be illegally exported from the United States to Iran, at least 16 of which were later found in unexploded improvised explosive devices (IEDs) in Iraq. Some of the defendants are also charged in a fraud conspiracy involving exports of military antennas to Singapore and Hong Kong.
On October 24, 2011, authorities in Singapore arrested defendants Wong Yuh Lan (Wong), Lim Yong Nam (Nam), Lim Kow Seng (Seng), and Hia Soo Gan Benson (Hia), all citizens of Singapore, in connection with a U.S. request for extradition. The United States is seeking their extradition to stand trial in the District of Columbia. The remaining individual defendant, Hossein Larijani, is a citizen and resident of Iran who remains at large.The indictment also names defendants’ companies based in Iran, Singapore, and China.
Specifically, DOJ alleges that Wong, Nam, Seng and Hia conspired to defraud the United States by impeding U.S. export controls relating to the shipment of 6,000 radio frequency modules from a Minnesota company through Singapore to Iran, some of which were later found in unexploded IEDs in Iraq. Seng and Hia are also accused of conspiring to defraud the United States relating to the shipment of military antennas from a Massachusetts company to Singapore and Hong Kong. Singapore has agreed to seek extradition for Wong and Nam on the charge of conspiracy to defraud the United States relating to the components shipped to Iran, and to seek extradition for Seng and Hia on the charge of conspiracy to defraud the United States relating to the military antenna exports.
Pursuant to the criminal actions against the defendants, the Commerce Department announced the addition of 15 persons located in China, Hong Kong, Iran and Singapore to the Commerce Department's Entity List. In addition to the five individual defendants in this case, the Commerce Department named additional companies and individuals associated with this conspiracy. In placing these parties on the Entity List, the Commerce Department is imposing a licensing requirement for any item subject to Commerce regulation with a presumption that such a license would be denied.
On October 24, 2011, authorities in Singapore arrested defendants Wong Yuh Lan (Wong), Lim Yong Nam (Nam), Lim Kow Seng (Seng), and Hia Soo Gan Benson (Hia), all citizens of Singapore, in connection with a U.S. request for extradition. The United States is seeking their extradition to stand trial in the District of Columbia. The remaining individual defendant, Hossein Larijani, is a citizen and resident of Iran who remains at large.The indictment also names defendants’ companies based in Iran, Singapore, and China.
Specifically, DOJ alleges that Wong, Nam, Seng and Hia conspired to defraud the United States by impeding U.S. export controls relating to the shipment of 6,000 radio frequency modules from a Minnesota company through Singapore to Iran, some of which were later found in unexploded IEDs in Iraq. Seng and Hia are also accused of conspiring to defraud the United States relating to the shipment of military antennas from a Massachusetts company to Singapore and Hong Kong. Singapore has agreed to seek extradition for Wong and Nam on the charge of conspiracy to defraud the United States relating to the components shipped to Iran, and to seek extradition for Seng and Hia on the charge of conspiracy to defraud the United States relating to the military antenna exports.
Pursuant to the criminal actions against the defendants, the Commerce Department announced the addition of 15 persons located in China, Hong Kong, Iran and Singapore to the Commerce Department's Entity List. In addition to the five individual defendants in this case, the Commerce Department named additional companies and individuals associated with this conspiracy. In placing these parties on the Entity List, the Commerce Department is imposing a licensing requirement for any item subject to Commerce regulation with a presumption that such a license would be denied.
Texas Firm To Pay $2.5 Million to Settle Charges of Unlicensed Exports
10/03/11 12:22 PM
On October 3, 2011, Bureau of Industry and Security (BIS) reported that Flowserve Corporation of Irving, TX, and ten of its foreign affiliates have agreed to pay a civil penalty totaling $2.5 million to settle 288 charges for violating the Export Administration Regulations (EAR). Specifically, BIS alleges that Flowserve exported and reeexported pumps, valves and related components to Iran, Syria and other countries without the required licenses.
Flowserve is a supplier of goods and services to the oil, gas, chemical, and other industries. BIS alleged that between 2002 and 2008, Flowserve and six of its foreign affiliates exported items classified under ECCN 2B350 of the Commerce Control List (CCL) to various countries, including China, Singapore, Malaysia and Venezuela, without the required licenses. In addition, BIS alleged that six of Flowserve’s foreign affiliates transshipped EAR99 items to Iran and/or reexported EAR99 items to Syria without the required U.S. Government authorization.
Flowserve voluntarily disclosed the violations and its cooperation with the investigation significantly reduced the penalty amount, according to BIS. In addition to the civil penalty, Flowserve and its affiliates will be required to conduct external audits of their compliance programs and submit the results to BIS.
In a related case, the Department of Treasury’s Office of Foreign Assets Control (OFAC) settled charges with Flowserve for a total of 58 alleged violations of OFAC’s Iranian, Cuban and Sudanese sanctions programs. Flowserve agreed to pay a $502,408 penalty to settle the OFAC charges.
Flowserve is a supplier of goods and services to the oil, gas, chemical, and other industries. BIS alleged that between 2002 and 2008, Flowserve and six of its foreign affiliates exported items classified under ECCN 2B350 of the Commerce Control List (CCL) to various countries, including China, Singapore, Malaysia and Venezuela, without the required licenses. In addition, BIS alleged that six of Flowserve’s foreign affiliates transshipped EAR99 items to Iran and/or reexported EAR99 items to Syria without the required U.S. Government authorization.
Flowserve voluntarily disclosed the violations and its cooperation with the investigation significantly reduced the penalty amount, according to BIS. In addition to the civil penalty, Flowserve and its affiliates will be required to conduct external audits of their compliance programs and submit the results to BIS.
In a related case, the Department of Treasury’s Office of Foreign Assets Control (OFAC) settled charges with Flowserve for a total of 58 alleged violations of OFAC’s Iranian, Cuban and Sudanese sanctions programs. Flowserve agreed to pay a $502,408 penalty to settle the OFAC charges.
Freight Forwarder Settles Charges of Aiding and Abetting Unlicensed Exports to a Listed Entity in Pakistan
09/16/11 01:27 PM
On September 16, 2011, the U.S. Department of Commerce Bureau of Industry and Security (BIS) announced that the freight forwarder Ram International Inc. (Ram) of St. Louis, MO, has agreed to pay a $40,000 civil penalty to settle allegations that it committed two violations of the Export Administration Regulations (EAR).
Specifically, BIS alleges that on two occasions in 2006, Ram’s Elk Grove Village location in Illinois helped to export salvage scrap electrolytic tin plate steel to Allied Trading Company (Allied) in Karachi, Pakistan, without the required BIS licenses. Allied is included on the Commerce Department’s Entity List which names certain foreign persons that are subject to license requirements for the export, reexport and/or transfer in-country of specified items.
Specifically, BIS alleges that on two occasions in 2006, Ram’s Elk Grove Village location in Illinois helped to export salvage scrap electrolytic tin plate steel to Allied Trading Company (Allied) in Karachi, Pakistan, without the required BIS licenses. Allied is included on the Commerce Department’s Entity List which names certain foreign persons that are subject to license requirements for the export, reexport and/or transfer in-country of specified items.
Pakistani National Pleads Guilty to Conspiracy to Illegally Export Restricted Nuclear Materials to Pakistan
09/09/11 01:27 PM
On September 9, 2011, the U.S. Department of Justice announced that Nadeem Akhtar of Silver Spring, Maryland, pleaded guilty to conspiracy to illegally export nuclear-related materials and to defraud the United States in a related scheme.
The plea agreement states that Akhtar, a 46-year old Pakistani national and lawful permanent resident of the U.S., owns Computer Communication USA (CC USA). From October 2005 through March 2010, Akhtar and his conspirators obtained radiation detection devices, resins for coolant water purification, calibration and switching equipment, attenuators and surface refinishing abrasives for export to restricted entities in Pakistan, using Akhtar’s company CC USA. Due to the materials’ use in both commercial and military applications, an export license is required when exporting these items to an end-user of concern or if the items are exported in support of a prohibited end-use, such as activities related to nuclear explosives or reactors, or the processing and manufacture of nuclear-related materials.
Akhtar also illegally exported to restricted entities in Pakistan mechanical and electrical valves, cranes and scissor lifts, valued at over $400,000. The restricted entities in Pakistan included Pakistan’s Space and Upper Atmosphere Research Commission; and the Pakistan Atomic Energy Commission (PAEC) and its subordinate entities, specializing in nuclear-related research and development. These entities are of concern to the U.S. government as acting contrary to the national security or foreign policy interests of the United States. Accordingly, exports of commodities to these organizations were prohibited absent the issuance of an export license.
The plea agreement details that Akhtar attempted to evade export regulations and licensing requirements by undervaluing and falsely describing the items being exported; failing to reveal the true end-user by using third parties and/or real and fake business entities/locations in Pakistan, Dubai and the United States; using individuals in Illinois and California to procure items for him under false pretenses; shipping items to his residences in Maryland so it would appear as though his company was the actual purchaser/end-user of the items; and transshipping the items from the U.S. through the UAE.
Akhtar was the U.S. contact for the owner of a trading company located in Karachi, Pakistan, who had business relationships with governmental entities in Pakistan and who would obtain orders for nuclear-related and other commodities from Pakistani government entities identified above, and then would direct Akhtar as to what commodities to purchase in the United States for export to Pakistan, and the methods to use to conceal the true nature, value and end-user of the items. Akhtar would negotiate prices with manufacturers and suppliers of commodities sought in the U.S. and arrange for shipment of the commodities. Akhtar’s coconspirators included individuals in Pakistan, Dubai, UAE and New York associated with the owner of the Pakistani trading company. The owner usually paid Akhtar a commission of 5-7.5% of the cost of each item Akhtar obtained for export from the U.S. Akhtar faces a maximum sentence of five years in prison and a $250,000 fine.
The plea agreement states that Akhtar, a 46-year old Pakistani national and lawful permanent resident of the U.S., owns Computer Communication USA (CC USA). From October 2005 through March 2010, Akhtar and his conspirators obtained radiation detection devices, resins for coolant water purification, calibration and switching equipment, attenuators and surface refinishing abrasives for export to restricted entities in Pakistan, using Akhtar’s company CC USA. Due to the materials’ use in both commercial and military applications, an export license is required when exporting these items to an end-user of concern or if the items are exported in support of a prohibited end-use, such as activities related to nuclear explosives or reactors, or the processing and manufacture of nuclear-related materials.
Akhtar also illegally exported to restricted entities in Pakistan mechanical and electrical valves, cranes and scissor lifts, valued at over $400,000. The restricted entities in Pakistan included Pakistan’s Space and Upper Atmosphere Research Commission; and the Pakistan Atomic Energy Commission (PAEC) and its subordinate entities, specializing in nuclear-related research and development. These entities are of concern to the U.S. government as acting contrary to the national security or foreign policy interests of the United States. Accordingly, exports of commodities to these organizations were prohibited absent the issuance of an export license.
The plea agreement details that Akhtar attempted to evade export regulations and licensing requirements by undervaluing and falsely describing the items being exported; failing to reveal the true end-user by using third parties and/or real and fake business entities/locations in Pakistan, Dubai and the United States; using individuals in Illinois and California to procure items for him under false pretenses; shipping items to his residences in Maryland so it would appear as though his company was the actual purchaser/end-user of the items; and transshipping the items from the U.S. through the UAE.
Akhtar was the U.S. contact for the owner of a trading company located in Karachi, Pakistan, who had business relationships with governmental entities in Pakistan and who would obtain orders for nuclear-related and other commodities from Pakistani government entities identified above, and then would direct Akhtar as to what commodities to purchase in the United States for export to Pakistan, and the methods to use to conceal the true nature, value and end-user of the items. Akhtar would negotiate prices with manufacturers and suppliers of commodities sought in the U.S. and arrange for shipment of the commodities. Akhtar’s coconspirators included individuals in Pakistan, Dubai, UAE and New York associated with the owner of the Pakistani trading company. The owner usually paid Akhtar a commission of 5-7.5% of the cost of each item Akhtar obtained for export from the U.S. Akhtar faces a maximum sentence of five years in prison and a $250,000 fine.
Recent OFAC Enforcement Actions
08/16/11 12:14 PM
On August 16, 2011, Office of Foreign Assets Control (OFAC) posted on its web site information on recent OFAC enforcement actions:
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.
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
08/15/11 12:22 PM
On August 15, 2011, U.S. Department of Justice (DOJ) announced that Davoud Baniameri, 38, an Iranian national who maintained a residence and business in California was sentenced to 51 months in federal prison after he pleaded guilty in May to one count of conspiracy to export goods and technology to Iran without a license from the U.S. Department of Treasury in violation of the International Emergency Economic Powers Act (IEEPA) and one count of attempting to export defense articles on the U.S. Munitions List from the United States without a license or approval from the U.S. Department of State in violation of the Arms Export Control Act (AECA).
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.
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
08/10/11 11:46 AM
On August 10, 2011, Bureau of Industry and Security (BIS) announced that Jianwei Ding of Singapore has agreed to pay a $100,000 civil penalty and have his export privileges denied for a period of 25 years, to settle allegations that he conspired to violate the Export Administration Regulations (EAR) by knowingly and willfully attempting to export carbon fiber to China for use by the China Academy of Space Technology (CAST) without the required export licenses.
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.
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
07/08/11 01:02 PM
On July 8, 2011, the Bureau of Security and Security (BIS) announced that Xun Wang, a former Managing Director of PPG Paints Trading (Shanghai) Co., Ltd., a wholly-owned Chinese subsidiary of U.S.-based PPG Industries, Inc., has been charged with conspiring to violate the International Emergency Economic Powers Act (IEEPA) and the Export Administration Regulations (EAR), and other related offenses.
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.
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.
North Carolina CEO Fined for Unauthorized Exports to Libya
07/01/11 12:41 PM
On July 1, 2011, the Bureau of Industry and Security (BIS) announced that Mohammed El-Gamal, also known as Moe Zayed El-Gamal (Gamal), President and CEO of Applied Technology, Inc. (ATI) of Kenansville, NC, has agreed to pay a civil penalty of $340,000 to settle allegations that he violated the Export Administration Regulations (EAR) by exporting controlled networking equipment to Libya without the required export licenses.
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.
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.
Nationals of Four Countries Indicted for Supplying Iran with U.S. Military Aircraft Components
06/23/11 09:06 PM
On June 23, 2011, the U.S. Department of Justice announced that seven individuals and five companies based in the U.S., France, the UAE, and Iran have been indicted in the Middle District of Georgia for their alleged roles in a conspiracy to illegally export military components for fighter jets and attack helicopters from the U.S. to Iran. Specifically, eight of the defendants were charged with conspiring to violate and violating the Arms Export Control Act (AECA), the International Emergency Economic Powers Act (IEEPA) and the Iranian Transactions Regulations, as well as conspiracy to defraud the United States, money laundering and false statement violations.
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.
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.
CBP E-Allegation Leads to Criminal Conviction
06/15/11 09:08 PM
On June 15, 2011, U.S. Customs and Border Protection’s (CBP) announced that analysts of its trade fraud targeting unit, responding to a complaint filed through E-Allegations, CBP’s online trade violation reporting system, uncovered a transshipment scheme to avoid paying antidumping duties on imported steel-wire hangers. The scheme was identified in December 2009 after analyzing a commercial allegation.
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.
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
06/13/11 09:25 PM
On June 13, 2011, the Bureau of Industry and Security (BIS) announced that in response to a May 20, 2011 order revoking the suspension of a $2M civil penalty and invoking the acceleration clause for the two remaining $2.6M installment payments, Balli Group PLC and Balli Aviation paid a total of $7.2M in civil penalties.
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.
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
05/31/11 03:43 PM
On May 31, 2011, the Bureau of Industry and Security (BIS) and the U.S. Department of Justice (DOJ) announced that Davoud Baniameri, 38, of Woodland Hills, CA, pleaded guilty to one count of conspiring to export goods and technology to Iran without a license or approval from the U.S. Department of Treasury, in violation of the International Emergency Economic Powers Act (IEEPA) and one count of attempting to export defense articles on the U.S. Munitions List from the United States without a license or approval from the U.S. Department of State in violation of the Arms Export Control Act (AECA).
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.
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.
BAES Agrees to $79M Consent Agreement with DDTC
05/17/11 04:05 PM
On March 2, 2010, in the United States District Court for the District of Columbia, judgment was filed against BAE Systems plc (“BAES&rdquo for conspiracy to violate certain U.S. laws, including the Arms Export Control Act (“AECA&rdquo. On May 16, 2011, the Department issued an Order after entering into a Consent Agreement with BAES regarding alleged civil violations of the AECA and International Traffic in Arms Regulations (ITAR) committed by BAES. See Proposed Charging Letter here.
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.
for conspiracy to violate certain U.S. laws, including the Arms Export Control Act (“AECA&rdquo. On May 16, 2011, the Department issued an Order after entering into a Consent Agreement with BAES regarding alleged civil violations of the AECA and International Traffic in Arms Regulations (ITAR) committed by BAES. See Proposed Charging Letter here.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.
Individuals Indicted for Conspiracy to Export Computer-related Equipment to Iran
04/21/11 01:40 PM
On April 21, 2011, U.S. Department of Justice (DOJ) reported that Jeng “Jay” Shih, a U.S. citizen, and his Queens, N.Y. company, Sunrise Technologies and Trading Company, were indicted in the District of Columbia on 27 counts relating to the illegal export of computer-related equipment to Iran without first having obtained the required Department of Treasury license.
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 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.
Johnson & Johnson to Pay $70 Million to Settle FCPA Allegations
04/09/11 12:38 PM
On April 8, 2011, U.S. Department of Justice (DOJ) reported that Johnson & Johnson (J&J) has agreed to pay a $21.4 million criminal penalty as part of a deferred prosecution agreement with the DOJ to resolve improper payments by J&J subsidiaries to government officials in Greece, Poland and Romania in violation of the Foreign Corrupt Practices Act (FCPA).
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.
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.
Recent OFAC Enforcement Actions
04/08/11 12:31 PM
On April 7, 2011, Office of Foreign Assets Control (OFAC) posted on its web site information on recent OFAC enforcement actions:
- 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.
- 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.
PA Company Fined for Export Violations
03/15/11 12:42 AM
On March 15, 2011, the Bureau of Industry and Security (BIS) reported that TW Metals, Inc. of Exton, PA, has agreed to pay a $575,000 civil penalty to settle allegations that it violated the Export Administration Regulations (EAR) by exporting on numerous occasions titanium alloy and aluminum bar to China and Israel without the required export licenses.
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.
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.
Man Charged with Illegal Exports of Goods and Technologies to Pakistan
03/09/11 12:40 AM
On March 9, 2011, U.S. Department of Justice (DOJ) reported that a federal grand jury has indicted Nadeem Akhtar of Silver Spring, Maryland, on charges that he illegally exported items used in activities related to nuclear reactors and the processing and production of nuclear-related materials.
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.
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.
Defense Contractor Charged with ITAR Violations
03/04/11 12:43 AM
On March 4, 2011, Sixing “Steve” Liu was indicted with illegally exporting technical data in violation of the International Traffic in Arms Regulations (ITAR) without the required Department of State, Directorate of Defense Trade Controls (DDTC) license.
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.
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.
OFAC Posts Information on Recent Civil Penalties
02/01/11 05:16 PM
On February 1, 2011, Office of Foreign Assets Controls (OFAC) published recent civil penalty information:
• 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.
• 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.
Iranian Man Charged with Illegally Exporting Specialized Metals
02/01/11 02:04 PM
On February 1, 2011, the U.S. Department of Justice (DOJ) issued a press release reporting that Milad Jafari, (Jafari), a 36-year old citizen and resident of Iran, has been indicted for conspiracy, smuggling and illegally exporting specialized metals and other materials from the U.S. through companies in Turkey to several entities in Iran, including some that have been sanctioned for involvement in ballistic missile activities.
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.
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.
Chinese National Sentenced to 97 Months Imprisonment for ITAR Violations
01/26/11 12:03 PM
On January 26, 2011, the U.S. Department of Justice announced that Zhen Zhou Wu, 46, a Chinese national who traveled to the United States on an annual basis using business visas, was sentenced to 97 months imprisonment for conspiring to illegally export U.S. Munitions List (USML) parts and export restricted sensitive technology to the PRC over a period of ten years, illegally exporting electronics to the PRC on 14 occasions between 2004 and 2007, and conspiring to file, and filing, false shipping documents with the U.S. Department of Commerce from 2005 through 2007. Wu was also ordered to pay a fine of $15,000, a special assessment of $1,700 and forfeit $65,881.71.
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 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.
Retired University Professor Loses Appeal of Criminal Export Conviction
01/10/11 03:19 PM
On January 5, 2011, Court of Appeals for the 6th Circuit upheld the conviction of John Roth (Roth), a retired electrical engineering professor at the University of Tennessee at Knoxville (UT), found guilty of the Arms Export Control Act (AECA) violations in 2008.
Case Facts
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.
Case Facts
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.
Man Charged with Illegally Exporting Military Technology to South Korea
01/10/11 11:09 AM
On January 10, 2011, U.S. Department of Justice announced that Kue San Chun, 66, of Avon Lake, Ohio, was charged with illegally exporting defense articles on the U.S. Munitions List (USML), and with knowingly making and subscribing a false U.S. individual income tax return.
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.
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.
Former Probation Officer Sentenced to Prison for Export Violations
01/03/11 10:30 AM
On January 3, 2011, U.S. Department of Justice (DOJ) reported that District Court in Greenbelt, Maryland, sentenced Emenike Charles Nwankwoala, of Laurel, Maryland, to 37 months in prison followed by two years of supervised release for exporting arms and controlled goods without a license and delivery of a package containing a gun to a carrier without notifying the carrier of the gun as part of a scheme to export guns and ammunition to Nigeria.
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.
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.
Exporter Fined $92M to Settle FCPA Allegations
12/27/10 02:10 PM
On December 27, 2010, Department of Justice (DOJ) reported that Alcatel-Lucent S.A. and three of its subsidiaries have agreed to pay a $92 million penalty to resolve a Foreign Corrupt Practices Act (FCPA) investigation into the sales practices of Alcatel S.A. prior to its merger with Lucent Technologies Inc. in 2006.
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.
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.
PPG Subsidiary Settles Export Charges with Forfeiture & $3.75 Million Fine
12/21/10 02:05 PM
On December 21, 2010, U.S. Department of Justice (DOJ) reported that PPG Paints Trading (Shanghai) Co., Ltd., a wholly-owned Chinese subsidiary of U.S.-based PPG Industries, Inc. (PPG Industries), pled guilty to conspiring to violate the International Emergency Economic Powers Act (IEEPA) and the Export Administration Regulations (EAR).
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.
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.
OFAC Posts Recent Civil Enforcement Information
12/16/10 01:56 PM
On December 16, 2010, Office of Foreign Assets Controls(OFAC) published recent civil penalty information:
- Discover 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 sanctions program.
CA Man Charged with Export Violations
12/16/10 01:52 PM
On December 16, 2010, Newswire reported that Marc Knapp (Knapp) of Simi Valley, CA, has been charged with violating the International Emergency Economic Powers Act (IEEPA) and the Arms Export Control Act (AECA). Knapp illegally exported to Hungary and attempted to export to the Islamic Republic of Iran and Russia a number of items, which triggered IEEPA and AECA jurisdiction.
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.
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.
12/10/10 01:43 PM
On 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.
Washington Man Charged with AECA Violations
12/06/10 12:18 PM
On December 6, 2010, the Associated Press reported that Lian Yang, a resident of Wodinville, WA, was arrested accused of conspiring to smuggle restricted satellite parts to the People’s Republic of China.
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.
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.
OFAC Posts Information on Recent Civil Penalties
11/16/10 04:46 PM
On November 16, 2010, Office of Foreign Assets Controls (OFAC) published recent civil penalty information:
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.
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.
Panalpina and Oil Service Companies Settle Allegations of FCPA Violations
11/04/10 04:41 PM
On November 4, 2010, the U.S. Department of Justice (DOJ) announced that Panalpina, a global freight forwarder, and five oil and gas service companies, have all agreed to resolve investigation of Foreign Corrupt Practices Act (FCPA) violations. The companies agreed to pay a total of $156.5 million in criminal penalties.
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.
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.
Nippon Airways Co. Pleads Guilty to Price Fixing on Air Cargo and Air Passenger Services
11/01/10 04:39 PM
On November 1, 2010, the U.S. Department of Justice (DOJ) announced that All Nippon Airways Co. Ltd (Nippon), a Japan-based company, has agreed to pay a $73 million criminal fine for two separate conspiracies to fix prices in the air transportation industry.
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.
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.
Exporter Fined $1 Million for Export Violations
11/01/10 04:36 PM
On October 29, 2010, U.S. Politics Today reported that Rocky Mountain Instrument Co. (Rocky Mountain) has agreed to pay a $1 million penalty to settle civil charges related to illegal exports of sensitive military information.
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.
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.
OFAC Posts Recent Civil Penalties Cases
10/29/10 03:23 PM
On October 29, 2010, Office of Foreign Assets Controls (OFAC) published recent civil penalties cases:
- 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 Yokozuna's owner.
- Hydra-Tech 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.
Blackwater to Pay $42 Million to Settle Allegations of Violating U.S. Export Controls Regulations
08/23/10 10:53 PM
On August 23, 2010, the U.S. State Department’s Directorate of Defense Trade Controls (DDTC) announced that Blackwater Worldwide, a private security company now called Xe Services (Blackwater), has entered into a consent agreement to settle 288 violations of the Arms Export Control Act (AECA) and International Traffic in Arms Regulations (ITAR) in connection with unauthorized export of defense articles, including technical data, unauthorized provision of defense services, violating the terms of license authorizations, unauthorized sales activity involving a proscribed country, failure to maintain records involving ITAR-controlled transactions and false statements, misrepresentations, and omissions of material facts.
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.
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 Bank Settles Allegations of Multiple Sanctions Programs for $176 Million
08/18/10 01:07 PM
On August 18, 2010, Office of Foreign Assets Control (OFAC) announced that Barclays Bank PLC (Barclays) has agreed to settle allegations of violating the Sudanese Sanctions Regulations, the Iranian Transactions Regulations, the Burmese Sanctions Regulations, and the Cuban Assets Control Regulations, promulgated under either the International Emergency Economic Powers Act (IEEPA) or the Trading With the Enemy Act (TWEA). The settlement with OFAC is part of a global settlement among Barclays, OFAC, the U.S. Department of Justice, and the New York Country District Attorney’s Office.
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.
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.
Recent OFAC Enforcement Actions
08/13/10 01:13 PM
On August 13, 2010, Office of Foreign Assets Control (OFAC) posted on its web site information on recent OFAC enforcement actions:
- 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.
OFAC Posts Recent Enforcement Actions
07/26/10 02:48 PM
On July 28, 2010, Treasury Department’s Office of Foreign Assets Control (OFAC) published information on recent enforcement actions:
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.
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.
New Charges Filed Against Irish Firm for Exporting Military Aircraft Parts to Iran
07/07/10 12:06 PM
On July 7, 2010, a federal grand jury in Washington, D.C., has charged Mac Aviation Group, an Irish trading company, and its officers Thomas and Sean McGuinn of Ireland, in a superseding indictment with purchasing F-5 fighter aircraft parts, helicopter engines and other aircraft components from U.S. firms and illegally exporting them to Iran.
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.
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.
French Company Settles FCPA Charges for $240 Million
06/30/10 12:31 PM
On June 28, 2010, Department of Justice (DOJ) announced that Technip S.A., a global engineering, construction, and services company based in Paris, France, has agreed to a $240 million criminal penalty to resolve charges related to the Foreign Corrupt Practices Act (FCPA) for its participation in a decade-long scheme to bribe Nigerian government officials to obtain engineering, procurement, and construction (EPC) contracts. The EPC contracts to build liquefied natural gas (LNG) facilities on Bonny Island, Nigeria, were valued at more than $6 billion.
DOJ filed a deferred prosecution agreement and a criminal information against Technip in the U.S. District Court for the Southern District of Texas. The two-count information charges Technip with one count of conspiracy and one count of violating the FCPA.
Technip, Kellogg Brown & Root Inc (KBR) and two other companies were part of a joint venture that was awarded four EPC contracts by Nigeria LNG Ltd. (NLNG) between 1995 and 2004 to build LNG facilities on Bonny Island. The government-owned Nigerian National Petroleum Corporation (NNPC) was the largest shareholder of NLNG.
According to court documents, Technip authorized the joint venture to hire two agents to pay bribed to a range of Nigerian government officials, including top-level executive branch officials, to assist Technip and the joint venture in obtaining the EPC contracts. The joint venture paid approximately $182 million to its agents to be forwarded to Nigerian government officials as bribes.
Under the terms of the deferred prosecution agreement, DOJ agreed to deter prosecution of Technip for two years. Meanwhile, Technip is obligated to obtain an independent compliance monitor for a two-year period to review the design and implementation for Technip’s compliance program and to cooperate with the department in ongoing investigations. If Technip abides by the terms of the deferred prosecution agreement, DOJ will dismiss the criminal information when the term of the agreement expires.
Technip also reached a settlement of a related civil complaint filed by the Securities and Exchange Commission (SEC) charging Technip with violating the FCPA’s anti-bribery, books and records, and internal controls provisions. As part of this settlement, Technip agreed to pay $98 million in disgorgement of profits relating to those violations.
Including today’s resolutions, a total of $917 million in criminal and civil penalties have been obtained to date as a result of the ongoing DOJ and SEC investigations of the scheme to bribe Nigerian government officials in order to win the Bonny Island EPC contract.
DOJ filed a deferred prosecution agreement and a criminal information against Technip in the U.S. District Court for the Southern District of Texas. The two-count information charges Technip with one count of conspiracy and one count of violating the FCPA.
Technip, Kellogg Brown & Root Inc (KBR) and two other companies were part of a joint venture that was awarded four EPC contracts by Nigeria LNG Ltd. (NLNG) between 1995 and 2004 to build LNG facilities on Bonny Island. The government-owned Nigerian National Petroleum Corporation (NNPC) was the largest shareholder of NLNG.
According to court documents, Technip authorized the joint venture to hire two agents to pay bribed to a range of Nigerian government officials, including top-level executive branch officials, to assist Technip and the joint venture in obtaining the EPC contracts. The joint venture paid approximately $182 million to its agents to be forwarded to Nigerian government officials as bribes.
Under the terms of the deferred prosecution agreement, DOJ agreed to deter prosecution of Technip for two years. Meanwhile, Technip is obligated to obtain an independent compliance monitor for a two-year period to review the design and implementation for Technip’s compliance program and to cooperate with the department in ongoing investigations. If Technip abides by the terms of the deferred prosecution agreement, DOJ will dismiss the criminal information when the term of the agreement expires.
Technip also reached a settlement of a related civil complaint filed by the Securities and Exchange Commission (SEC) charging Technip with violating the FCPA’s anti-bribery, books and records, and internal controls provisions. As part of this settlement, Technip agreed to pay $98 million in disgorgement of profits relating to those violations.
Including today’s resolutions, a total of $917 million in criminal and civil penalties have been obtained to date as a result of the ongoing DOJ and SEC investigations of the scheme to bribe Nigerian government officials in order to win the Bonny Island EPC contract.
Freight Forwarder Settles Allegation Of Antiboycott Violation
06/25/10 04:26 PM
On June 25, 2010, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) announced that Plane Cargo Inc. (PCI), a freight forwarder located in Houston, TX, has agreed to pay a $5,200 civil penalty to settle allegations that it violated the antiboycott provisions of the Export Administration Regulations (EAR).
The announcement provided that:
The announcement provided that:
BIS, through its Office of Antiboycott Compliance, alleged that on one occasion in 2003, PCI, in connection with a transaction involving the sale and transfer of goods from the United States to Syria, furnished an invoice to a company in Syria that certified that the goods were not of Israeli origin in violation of the antiboycott provisions of the EAR. PCI cooperated fully with the investigation.
VA Resident Sentenced for FCPA Violations
06/25/10 12:24 PM
On June 25, 2010, the U.S. Department of Justice announced that John Webster Warwick, a 64-year old Virginia Beach, VA, resident, was sentenced in U.S. District Court in Richmond, VA, to 37 months in prison for conspiring to pay bribes to former Panamanian government officials to secure maritime contracts.
On February 10, 2010, Warwick pleaded guilty to conspiracy to make corrupt payments to foreign government officials for the purpose of securing business for Ports Engineering Consultants Corporation (PECC) in violation of the Foreign Corrupt Practices Act (FCPA).
According to court documents, Warwick and others conspired to pay money secretly to Panamanian government officials for awarding contracts to PECC. In December 1997, the Panamanian government awarded PECC a no-bid 20-year concession. In December 1997, Warwick and others authorized payments to be made to the Panamanian government officials, which totaled more than $200,000.
In addition to the prison term, Warwick forfeited $331,000 in proceeds of the conspiracy and will be subject to a two-year supervised release following his prison term.
On February 10, 2010, Warwick pleaded guilty to conspiracy to make corrupt payments to foreign government officials for the purpose of securing business for Ports Engineering Consultants Corporation (PECC) in violation of the Foreign Corrupt Practices Act (FCPA).
According to court documents, Warwick and others conspired to pay money secretly to Panamanian government officials for awarding contracts to PECC. In December 1997, the Panamanian government awarded PECC a no-bid 20-year concession. In December 1997, Warwick and others authorized payments to be made to the Panamanian government officials, which totaled more than $200,000.
In addition to the prison term, Warwick forfeited $331,000 in proceeds of the conspiracy and will be subject to a two-year supervised release following his prison term.
Iranian National Convicted of Export Violations
06/17/10 11:49 AM
On June 17, 2010, the U.S. Department of Justice announced that Omid Khalili, an Iranian national, pleaded guilty in U.S. District Court for the Southern District of Alabama to attempting to illegally export fighter jet or military aircraft parts from the U.S. to Iran.
Khalili and other defendant were charged in a nine-count indictment returned on January 28, 2010, with conspiracy, money laundering, smuggling, and violations of the Arms Export Control Act (AECA), and the International Emergency Economic Powers Act (IEEPA).
According to court documents, Khalili and his co-conspirator have been working with the Iranian government to procure military items for the Iranian government. In November 2009, Khalili contacted an undercover agent seeking parts for the military aircraft for export to Iran.
The parts requested by Khalili are designated as defense articles on the U.S. Munitions List and require a U.S. State Department export license. In addition, these items may not be exported to Iran without a license from the U.S. Treasury Department due to the U.S. trade embargo on Iran. Neither Khalili nor his co-conspirator obtained the required export licenses.
On November 20, 2009, Khalili send an e-mail to the undercover agent containing a list of aircraft parts for the military aircraft and inquiring about their prices. In December 2009, Khalili and his co-conspirator talked with the agent and informed him that the parts were to be sent to Iran and that, because of the U.S. embargo, they would need to be re-routed through an intermediate country. When the undercover agent agreed to send the requested parts to the defendants, Khalili and his other co-conspirators sent four separate cash deposits totaling in excess of $70,000 from a bank in U.A.E. to a bank in Alabama as down-payment for the aircraft parts.
Khalili faces a maximum penalty of ten years in prison and a $1 million fine.
Khalili and other defendant were charged in a nine-count indictment returned on January 28, 2010, with conspiracy, money laundering, smuggling, and violations of the Arms Export Control Act (AECA), and the International Emergency Economic Powers Act (IEEPA).
According to court documents, Khalili and his co-conspirator have been working with the Iranian government to procure military items for the Iranian government. In November 2009, Khalili contacted an undercover agent seeking parts for the military aircraft for export to Iran.
The parts requested by Khalili are designated as defense articles on the U.S. Munitions List and require a U.S. State Department export license. In addition, these items may not be exported to Iran without a license from the U.S. Treasury Department due to the U.S. trade embargo on Iran. Neither Khalili nor his co-conspirator obtained the required export licenses.
On November 20, 2009, Khalili send an e-mail to the undercover agent containing a list of aircraft parts for the military aircraft and inquiring about their prices. In December 2009, Khalili and his co-conspirator talked with the agent and informed him that the parts were to be sent to Iran and that, because of the U.S. embargo, they would need to be re-routed through an intermediate country. When the undercover agent agreed to send the requested parts to the defendants, Khalili and his other co-conspirators sent four separate cash deposits totaling in excess of $70,000 from a bank in U.A.E. to a bank in Alabama as down-payment for the aircraft parts.
Khalili faces a maximum penalty of ten years in prison and a $1 million fine.
Chinese Nationals Convicted of Illegally Exporting ITAR-Controlled Items to China
05/17/10 12:28 PM
On May 17, 2010, Bureau of Industry and Security (BIS) announced that a federal jury in Massachusetts convicted Chinese nationals Zhen Zhou Wu (Wu) and Yufeng Wei (Wei) of conspiracy to violate U.S. export laws and illegally exporting electronic equipment from the U.S. to China on numerous occasions from 2004 to 2007.
Evidence presented at trial showed that between April 2004 and June 2006 Wu and Wei illegally exported military electronic components, designated on the U.S. Munitions List (USML), to mainland China via Hong Kong. The defense articles that defendants exported are primarily used in military phased array radar, electronic warfare, military guidance systems, and military satellite communications.
Also indicted was Chitron Electronics, Inc. (Chitron), a company created by Wu. Using Chitron, Wu targeted Chinese military factories and research institutes as customers of Chitron, including numerous institutes of the China Electronics Technology Group Corporation, which is responsible for the procurement, development, and manufacture of electronics for the Chinese military.
Based on the correspondence, Wu, Wei and other Chitron employees knew that exports of restricted parts were being shipped to Chinese customers without required export licenses. Wu instructed Wei and Chitron employees to never tell U.S. companies that parts were being exported overseas. Instead, U.S. companies were told to ship all ordered products to the Chitron office located in Waltham, Massachusetts. Upon receiving the products, Chitron employees forwarded them to Chitron’s Shenzhen office using freight forwarders in Hong Kong. The shipments were done without the requisite Department of State and Department of Commerce export licenses.
Wu and Wei both face up to 20 years imprisonment to be followed by three years supervised release and a $1 million fine. After serving their sentence, both will face deportation to China.
Chitron faces up to a $1 million fine for each count in the indictment charging them with illegal export of U.S. Munitions List items and $500,000 for each count in the indictment charging them with illegal export of Commerce controlled electronics. Sentencing is scheduled for August 17, 2010.
Evidence presented at trial showed that between April 2004 and June 2006 Wu and Wei illegally exported military electronic components, designated on the U.S. Munitions List (USML), to mainland China via Hong Kong. The defense articles that defendants exported are primarily used in military phased array radar, electronic warfare, military guidance systems, and military satellite communications.
Also indicted was Chitron Electronics, Inc. (Chitron), a company created by Wu. Using Chitron, Wu targeted Chinese military factories and research institutes as customers of Chitron, including numerous institutes of the China Electronics Technology Group Corporation, which is responsible for the procurement, development, and manufacture of electronics for the Chinese military.
Based on the correspondence, Wu, Wei and other Chitron employees knew that exports of restricted parts were being shipped to Chinese customers without required export licenses. Wu instructed Wei and Chitron employees to never tell U.S. companies that parts were being exported overseas. Instead, U.S. companies were told to ship all ordered products to the Chitron office located in Waltham, Massachusetts. Upon receiving the products, Chitron employees forwarded them to Chitron’s Shenzhen office using freight forwarders in Hong Kong. The shipments were done without the requisite Department of State and Department of Commerce export licenses.
Wu and Wei both face up to 20 years imprisonment to be followed by three years supervised release and a $1 million fine. After serving their sentence, both will face deportation to China.
Chitron faces up to a $1 million fine for each count in the indictment charging them with illegal export of U.S. Munitions List items and $500,000 for each count in the indictment charging them with illegal export of Commerce controlled electronics. Sentencing is scheduled for August 17, 2010.
UK Firm Fined $2M for Exporting Boeing 747 Aircraft to Iran
05/11/10 12:10 PM
On May 11, 2010, the Department of Justice (DOJ) announced that Balli Aviation Ltd., a subsidiary of the United Kingdom-based Balli Group PLC, was sentenced that day in the U.S. District Court for the District of Columbia to pay a $2 million fine and to serve a five-year corporate period of probation after pleading guilty on Feb. 5, 2010, to a two-count criminal information in connection with its illegal export of commercial Boeing 747 aircraft from the United States to Iran.
DOJ stated that:
The court imposed the maximum $2 million fine and a corporate probation of five years. The $2 million fine combined with a related $15 million civil settlement among Balli Group PLC, Balli Aviation Ltd., the U.S. Department of Commerce’s Bureau of Industry and Security (BIS), and the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), is one of the largest fines for an export violation in BIS history.
DOJ stated that:
According to count one of the criminal information filed with the court, beginning in at least October 2007, through July 2008, Balli Aviation Ltd. conspired to export three Boeing 747 aircraft from the United States to Iran without first having obtained the required export license from BIS or authorization from OFAC, in violation of the Export Administration Regulations (EAR) and the Iranian Transactions Regulations. Specifically, the information states that Balli Aviation Ltd., through its subsidiaries, the Blue Sky Companies, purchased U.S.-origin aircraft with financing obtained from an Iranian airline and caused these aircraft to be exported to Iran without obtaining the required U.S. government licenses. Further, Balli Aviation Ltd. entered into lease arrangements that permitted the Iranian airline to use the U.S.-origin aircraft for flights in and out of Iran.Count two of the criminal information states that Balli Aviation Ltd. violated a Temporary Denial Order (TDO) issued by BIS on March 17, 2008, that prohibited the company from conducting any transaction involving any item subject to the EAR. Starting in or about March 2008 and continuing through about August 2008, Balli Aviation Ltd. willfully violated the TDO by carrying on negotiations with others concerning buying, receiving, using, selling and delivering U.S.-origin aircraft which went to the Export Administration Regulations.
The court imposed the maximum $2 million fine and a corporate probation of five years. The $2 million fine combined with a related $15 million civil settlement among Balli Group PLC, Balli Aviation Ltd., the U.S. Department of Commerce’s Bureau of Industry and Security (BIS), and the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), is one of the largest fines for an export violation in BIS history.
French Court Refuses U.S. Request to Extradite Iranian Engineer
05/05/10 09:44 AM
The New York Times reported that on May 5, 2010, French court rejected a U.S. request to extradite Majid Kakavand (Kakavand), an Iranian engineer and businessman accused of buying equipment for a front company in Malaysia and then rerouting it to Iranian military firms, in violation an American embargo on exports to Iran.
Specifically, the indictment against Kakavand alleged that from January 2006 to December 2008 he purchased online dual-use equipment intended for military purposes and had it shipped to Iran via Malaysia. The equipment included capacitors, resistors, connectors, reflectometers and pressure sensors that have a military application.
Iran Electronics Industry, one of the Iranian companies Kakavand bought the equipment for, was put on the European Union blacklist in June 2008. The last transaction between him and the company took place in April 2008. The other company, Iran Communications Industry, manufactures military and civilian communication equipment and now too is on the European blacklist.
The French government prosecutor opposed the request to extradite Kakavand on the grounds that he had not violated French law and that equipment at issue was not necessarily military in nature. In addition, he emphasized that, in contrast to the U.S., neither France nor the European Union has a general trade embargo on Iran.
The court ordered Kakavand set free, and his passport and bail returned. The U.S. Justice Department spokesman said efforts to apprehend Kakavand would continue, and that he would stand trial for his alleged crimes if he came into U.S. custody.
Specifically, the indictment against Kakavand alleged that from January 2006 to December 2008 he purchased online dual-use equipment intended for military purposes and had it shipped to Iran via Malaysia. The equipment included capacitors, resistors, connectors, reflectometers and pressure sensors that have a military application.
Iran Electronics Industry, one of the Iranian companies Kakavand bought the equipment for, was put on the European Union blacklist in June 2008. The last transaction between him and the company took place in April 2008. The other company, Iran Communications Industry, manufactures military and civilian communication equipment and now too is on the European blacklist.
The French government prosecutor opposed the request to extradite Kakavand on the grounds that he had not violated French law and that equipment at issue was not necessarily military in nature. In addition, he emphasized that, in contrast to the U.S., neither France nor the European Union has a general trade embargo on Iran.
The court ordered Kakavand set free, and his passport and bail returned. The U.S. Justice Department spokesman said efforts to apprehend Kakavand would continue, and that he would stand trial for his alleged crimes if he came into U.S. custody.
Former Probation Officer Convicted For Illegally Exporting Guns and Ammunition To Nigeria
04/28/10 12:24 AM
On April 28, 2010, the Department of Justice (DOJ) announced that Emenike Charles Nwankwoala, age 49, of Laurel, Maryland, pleaded guilty today to exporting arms without a license, exporting controlled goods without a license and willful delivery of a firearm to a common carrier without written notice, in connection with a scheme to export firearms and ammunition to Nigeria.
DOJ states that:
DOJ states that:
Nwankwoala faces a maximum sentence of 10 years in prison for exporting arms without a license; 20 years in prison for exporting controlled goods without a license; and five years in prison for willful delivery of a firearm to a common carrier without written notice. U.S. District Judge Peter J. Messitte has scheduled sentencing for July 21, 2010 at 9:30 a.m.According to Nwankwoala’s plea agreement, he was employed by the State of Maryland as a Probation Officer. Investigation showed that during a six-month period beginning in December 2008, Nwankwoala purchased at least 37 Maverick Model 88 shotguns from a Federal Firearms Licensee located in Kensington, Maryland. On April 21, 2009, Nwankwoala ordered an additional 25 shotguns over the internet from Impact Guns in Ogden, Utah, a Federal Firearms Licensee. Nwankwoala stated that he was purchasing these shotguns for hunting in Nigeria. The licensee asked Nwankwoala if he had an export license, and Nwankwoala falsely indicated that he did. Nwankwoala never obtained guns through this gun store.
Virginia Resident Sentenced to 87 Months for FCPA Violations
04/26/10 12:40 AM
On April 19, 2010, the Department of Justice (DOJ) announced that Charles Paul Edward Jumet of Fluvanna County, CA, was sentenced to 87 months in prison for bribing former Panamanian government officials to secure maritime contracts in violation of the Foreign Corrupt Practices Act (FCPA), and for making false statements to federal agents.
According to the court documents, from 1997 through 2003, Jumet and others conspired to bribe Panamanian government officials in exchange for awarding contracts to Ports Engineering Consultants Corporation (PECC) to maintain lighthouses and buoys along Panama’s waterway. In December 1997, the Panamanian government awarded PECC a no-bid 20-year concession. Upon receipt of the concession, Jumet admitted that he and others authorized corrupt payments to be made to the Panamanian government officials totaling more that $200,000.
In addition, Jumet also made a false statement to federal agents about a dividend check payable to the bearer in the amount of $18,000 that was endorsed and deposited into an account belonging to the high-ranking elected Panamanian government official. Jumet falsely claimed that this check was a donation for the official’s re-election campaign, when, in fact, Jumet admitted it was given to the Panamanian government official as a corrupt payment for allowing PECC to receive the contract.
In a related case, in February 2010, John Warwick pleaded guilty for his role in the same conspiracy to violate the FCPA. His sentencing is scheduled for May 14, 2010.
According to the court documents, from 1997 through 2003, Jumet and others conspired to bribe Panamanian government officials in exchange for awarding contracts to Ports Engineering Consultants Corporation (PECC) to maintain lighthouses and buoys along Panama’s waterway. In December 1997, the Panamanian government awarded PECC a no-bid 20-year concession. Upon receipt of the concession, Jumet admitted that he and others authorized corrupt payments to be made to the Panamanian government officials totaling more that $200,000.
In addition, Jumet also made a false statement to federal agents about a dividend check payable to the bearer in the amount of $18,000 that was endorsed and deposited into an account belonging to the high-ranking elected Panamanian government official. Jumet falsely claimed that this check was a donation for the official’s re-election campaign, when, in fact, Jumet admitted it was given to the Panamanian government official as a corrupt payment for allowing PECC to receive the contract.
In a related case, in February 2010, John Warwick pleaded guilty for his role in the same conspiracy to violate the FCPA. His sentencing is scheduled for May 14, 2010.
OFAC Posts Recent Enforcement Actions
04/23/10 12:50 AM
On April 23, 2010, the Office of Foreign Assets Controls (OFAC) issued information on recent enforcement cases:
LD Telecommunications, Inc. of Coral Gables, FL, has agreed to remit $21,671 to settle allegations of violations of the Cuban Assets Control Regulations (CACR) occurring between December 2005 and March 2006. OFAC alleged that LD Telecommunications, Inc. initiated unlicensed funds transfers for the provision of telecommunications services to Cuba. LD Telecommunications, Inc. did not voluntarily disclose this matter to OFAC.
Hilton International Co. of McLean, VA (HI), a subsidiary of Hilton Worldwide, has remitted $735,407 to settle allegations of violations of the Sudanese Sanctions Regulations (SSR). OFAC alleged that between June 2002 and February 2006 HI engaged in 142 violations of the SSR in connection with its unlicensed operation of two Hilton brand hotels in Sudan. HI voluntarily disclosed this matter to OFAC. The alleged violations were discovered and self-reported as a result of pre-acquisition due diligence directed by Hilton Hotels Corporation, which acquired HI from the UK-based Hilton Group plc. in February 2006.
Pursuant to OFAC’s Civil Penalties - Interim Policy (Nov. 27, 2007), because HI signed a statute of limitation tolling agreement covering alleged violations for which the statute of limitations would have otherwise expired prior to October 16, 2007 (the effective date of the IEEPA Enhancement Act), the settlement agreement is based on the maximum statutory penalties in place at the time the tolling agreement was signed, which in this case equaled $11,000 per alleged violation.
LD Telecommunications, Inc. of Coral Gables, FL, has agreed to remit $21,671 to settle allegations of violations of the Cuban Assets Control Regulations (CACR) occurring between December 2005 and March 2006. OFAC alleged that LD Telecommunications, Inc. initiated unlicensed funds transfers for the provision of telecommunications services to Cuba. LD Telecommunications, Inc. did not voluntarily disclose this matter to OFAC.
Hilton International Co. of McLean, VA (HI), a subsidiary of Hilton Worldwide, has remitted $735,407 to settle allegations of violations of the Sudanese Sanctions Regulations (SSR). OFAC alleged that between June 2002 and February 2006 HI engaged in 142 violations of the SSR in connection with its unlicensed operation of two Hilton brand hotels in Sudan. HI voluntarily disclosed this matter to OFAC. The alleged violations were discovered and self-reported as a result of pre-acquisition due diligence directed by Hilton Hotels Corporation, which acquired HI from the UK-based Hilton Group plc. in February 2006.
Pursuant to OFAC’s Civil Penalties - Interim Policy (Nov. 27, 2007), because HI signed a statute of limitation tolling agreement covering alleged violations for which the statute of limitations would have otherwise expired prior to October 16, 2007 (the effective date of the IEEPA Enhancement Act), the settlement agreement is based on the maximum statutory penalties in place at the time the tolling agreement was signed, which in this case equaled $11,000 per alleged violation.
Exporter Assessed $100,000 Penalty for Unauthorized Exports to Iran
04/02/10 11:18 PM
On April 2, 2010, Aqua-Loop Cooling Towers Co. (Aqua-Loop) of Folsom, CA, settled with Bureau of Industry and Security (BIS) charges of violating the Export Administrations Regulations (EAR).
According to the settlement agreement, from June 2004 to April 2005, Aqua-Loop exported items subject to the EAR from the U.S. to Iran, via the United Arab Emirates, without the required authorization from the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC).
Specifically, Aqua-Loop searched for and obtained items from U.S. distributors and then exported them to an Iranian customer and co-conspirator, Parto Abgardan Cooling Towers Co. (Parto). On one occasion, Parto asked Aqua-Loop to purchase a filament winding machine in the U.S. on its behalf and forward it on to Dubai and then to Iran.
According to the settlement agreement, Aqua-Loop was assessed a civil penalty of $100, 000 that was suspended for 10 years. The company is also prohibited from dealing in any transaction that is subject to the EAR for ten years
According to the settlement agreement, from June 2004 to April 2005, Aqua-Loop exported items subject to the EAR from the U.S. to Iran, via the United Arab Emirates, without the required authorization from the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC).
Specifically, Aqua-Loop searched for and obtained items from U.S. distributors and then exported them to an Iranian customer and co-conspirator, Parto Abgardan Cooling Towers Co. (Parto). On one occasion, Parto asked Aqua-Loop to purchase a filament winding machine in the U.S. on its behalf and forward it on to Dubai and then to Iran.
According to the settlement agreement, Aqua-Loop was assessed a civil penalty of $100, 000 that was suspended for 10 years. The company is also prohibited from dealing in any transaction that is subject to the EAR for ten years
Daimler Settles FCPA Charges for $185 Million
04/01/10 11:06 PM
On April 1, 2010, German auto manufacturer Daimler AG (Daimler) and three of its subsidiaries settled Foreign Corrupt Practices Act (FCPA) charges in Washington’s U.S. District Court.
The complaint filed against Daimler alleged that from 1998 to 2008 the company bribed foreign officials in 22 countries, including Russia, Iraq and China, to secure business. According to the settlement agreement, acknowledged its FCPA violations and entered into a two-year deferred prosecution agreement with the Justice Department. In addition, Daimler must disgorge $91.4 million in profits to the Securities and Exchange Commission (SEC) and pay a $93.6 million fine to the Justice Department, for a total of $185 million in combined criminal and civil penalties.
Federal sentencing guidelines call for a larger fine, but the Justice Department decided to reduce the penalty following Daimler’s cooperation with the government. As part of its deferred prosecution agreement, Daimler agreed to retain an independent compliance monitor for three years to oversee its implementation of a compliance program.
The complaint filed against Daimler alleged that from 1998 to 2008 the company bribed foreign officials in 22 countries, including Russia, Iraq and China, to secure business. According to the settlement agreement, acknowledged its FCPA violations and entered into a two-year deferred prosecution agreement with the Justice Department. In addition, Daimler must disgorge $91.4 million in profits to the Securities and Exchange Commission (SEC) and pay a $93.6 million fine to the Justice Department, for a total of $185 million in combined criminal and civil penalties.
Federal sentencing guidelines call for a larger fine, but the Justice Department decided to reduce the penalty following Daimler’s cooperation with the government. As part of its deferred prosecution agreement, Daimler agreed to retain an independent compliance monitor for three years to oversee its implementation of a compliance program.
Virginia Man Convicted of Theft of DuPont Trade Secrets
03/18/10 10:33 PM
On March 18, 2010, the Department of Justice (DOJ) issued a press release regarding the sentencing of Michael David Mitchell, a Virginia man, to 18 months imprisonment for theft of trade secrets and obstruction of justice. Mitchell was employed as an engineer and salesperson for DuPont for over 25 years. During his last two years of employment, Mitchell worked in the sales and marketing of Kevlar,® DuPont's registered trademark for a very light, very strong synthetic fiber that is spun into ropes or fabric sheets that can be used as such, or as an ingredient in composite material components.
After DuPont terminated his employment, Mitchell began work as a consultant for Kolon Industries, Inc. (Kolon), a DuPont competitor. In 2007, DuPont officials became aware that Mitchell had been contacting current and former employees of DuPont seeking technical information on behalf of Kolon. DuPont officials raised their concerns with FBI and Department of Commerce (DoC) investigators, who launched a joint investigation. On March 12, 2008, FBI and DoC special agents executed a federal search warrant on Mitchell's house, seizing documents and multiple computers. Forensic analysis of the defendant's computers revealed hundreds of pages of DuPont proprietary documents, along with the evidence of the above-referenced Denier Economics email.
Following the execution of the search warrant, Mitchell agreed to become a cooperator for the government during its ongoing investigation relating to possible attempted theft of trade secrets and violations of export control laws. Under the direction and supervision of federal investigators, Mitchell made numerous recorded telephone conversations and exchanged emails with Kolon employees.
After DuPont terminated his employment, Mitchell began work as a consultant for Kolon Industries, Inc. (Kolon), a DuPont competitor. In 2007, DuPont officials became aware that Mitchell had been contacting current and former employees of DuPont seeking technical information on behalf of Kolon. DuPont officials raised their concerns with FBI and Department of Commerce (DoC) investigators, who launched a joint investigation. On March 12, 2008, FBI and DoC special agents executed a federal search warrant on Mitchell's house, seizing documents and multiple computers. Forensic analysis of the defendant's computers revealed hundreds of pages of DuPont proprietary documents, along with the evidence of the above-referenced Denier Economics email.
Following the execution of the search warrant, Mitchell agreed to become a cooperator for the government during its ongoing investigation relating to possible attempted theft of trade secrets and violations of export control laws. Under the direction and supervision of federal investigators, Mitchell made numerous recorded telephone conversations and exchanged emails with Kolon employees.
U.K. Co. Pleads Guilty to Conspiracy to Defraud U.S. Government Agencies
03/02/10 05:32 PM
On March 1, 2010, Department of Justice (DOJ) issued a press release announcing that BAE Systems plc (BAES) pleaded guilty in U.S. District Court in the District of Columbia to conspiracy to defraud the U.S. by impairing and impeding its lawful functions, to make false statements about its Foreign Corrupt Practices Act (FCPA) compliance program, and to violate the Arms Export Control Act (AECA) and International Traffic in Arms Regulations (ITAR). BAES was sentenced to pay $400 million criminal fine.
Headquartered in the U.K., BAES is a multinational defense contractor. The company also has a U.S. subsidiary, BAE Systems, Inc., headquartered in Rockville, Maryland. None of the criminal conduct described in the case is attributable to the American company.
According to court documents, from approximately 2000 to 2002, despite its promises to create mechanisms to ensure compliance with the legal prohibitions on foreign bribery stemming from FCPA, as well as foreign laws implementing the Organization for Economic Cooperation and Development (OECD) Anti-Bribery Convention, BAES knowingly and willfully failed to do so.
Instead, BAES made a series of substantial payments to shell companies and third party intermediaries that were not subject to the degree of scrutiny and review to which BAES told the U.S. government the payments would be subjected. BAES admitted it regularly retained what it referred to as “marketing advisors” to assist in securing sales of defense items without scrutinizing those relationships.
BAES also encouraged the advisors to establish their own offshore shell companies to receive payments from BAES while disguising the origins and recipients of these payments. BAES set up a company in the British Virgin Islands (BVI) to conceal its marketing advisor relationships and to circumvent laws in countries that did not allow such relationships, to create obstacles for investigators to penetrate the arrangements, and to assist advisors in avoiding tax liability for payment from BAES.
BAES used this BVI entity to make payments totaling more than £135 million in addition to $14 million, although being aware, in some cases, that there was a high probability that part of the payment would be used to ensure that BAES was favored in foreign government contracts regarding purchase of defense articles.
BAES also served as the prime contractor to the U.K. government in the mid-1980s, after the U.K. and the Kingdom of Saudi Arabia (KSA) entered into a formal understanding. There, BAES provided “support services” resulting in substantial benefits to a foreign public official of KSA, who was in position to influence sales of fighter jets, and other defense materials and related support services. BAES did not review or verify benefits provided to the KSA official, including it did not perform adequate review of more than $5 million in invoices submitted by a BAES employees from May 2001 to early 2002 to establish whether the listed expenses were in compliance with previous statements made by BAES to the U.S. government regarding its anti-corruption compliance measures.
As part of its guilty plea, BAES has agreed to maintain a compliance program designed to detect and deter violations of the FCPA, other foreign laws implementing the OECD Anti-bribery Convention, and any other applicable anti-corruption laws, and that is designed to detect and deter violations of the AECA and ITAR, as well as similar export control laws.
Headquartered in the U.K., BAES is a multinational defense contractor. The company also has a U.S. subsidiary, BAE Systems, Inc., headquartered in Rockville, Maryland. None of the criminal conduct described in the case is attributable to the American company.
According to court documents, from approximately 2000 to 2002, despite its promises to create mechanisms to ensure compliance with the legal prohibitions on foreign bribery stemming from FCPA, as well as foreign laws implementing the Organization for Economic Cooperation and Development (OECD) Anti-Bribery Convention, BAES knowingly and willfully failed to do so.
Instead, BAES made a series of substantial payments to shell companies and third party intermediaries that were not subject to the degree of scrutiny and review to which BAES told the U.S. government the payments would be subjected. BAES admitted it regularly retained what it referred to as “marketing advisors” to assist in securing sales of defense items without scrutinizing those relationships.
BAES also encouraged the advisors to establish their own offshore shell companies to receive payments from BAES while disguising the origins and recipients of these payments. BAES set up a company in the British Virgin Islands (BVI) to conceal its marketing advisor relationships and to circumvent laws in countries that did not allow such relationships, to create obstacles for investigators to penetrate the arrangements, and to assist advisors in avoiding tax liability for payment from BAES.
BAES used this BVI entity to make payments totaling more than £135 million in addition to $14 million, although being aware, in some cases, that there was a high probability that part of the payment would be used to ensure that BAES was favored in foreign government contracts regarding purchase of defense articles.
BAES also served as the prime contractor to the U.K. government in the mid-1980s, after the U.K. and the Kingdom of Saudi Arabia (KSA) entered into a formal understanding. There, BAES provided “support services” resulting in substantial benefits to a foreign public official of KSA, who was in position to influence sales of fighter jets, and other defense materials and related support services. BAES did not review or verify benefits provided to the KSA official, including it did not perform adequate review of more than $5 million in invoices submitted by a BAES employees from May 2001 to early 2002 to establish whether the listed expenses were in compliance with previous statements made by BAES to the U.S. government regarding its anti-corruption compliance measures.
As part of its guilty plea, BAES has agreed to maintain a compliance program designed to detect and deter violations of the FCPA, other foreign laws implementing the OECD Anti-bribery Convention, and any other applicable anti-corruption laws, and that is designed to detect and deter violations of the AECA and ITAR, as well as similar export control laws.
Customs Broker Sentenced in a Fraud Scheme
02/18/10 10:42 PM
On February 18, 2010, the U.S. Department of Justice (DOJ) announced the sentencing of a Long Island customs broker who defrauded a Massachusetts medical equipment distributor out of $1.2 million.
Gregory Manuelian (Manuelian) of Manhasset, N.Y, was sentenced to 24 months in prison, followed by 3 years of supervised release and ordered to pay almost $1.2 million in restitution based on charges that he defrauded his client, B-K Medical Systems, by repeatedly submitting falsified customs documents indicating that B-K owed customs duties on goods that were actually duty-free.
Manuelian operated Marquis Clearance, Ltd., a customs brokerage in Jamaica, N.Y. and served as B-K’s customs broker since 1980. On B-K’s goods entering the U.S., Manuelian ordinarily paid the duties and then faxed the invoices to the client. B-K reimbursed Manuelian for the duties and paid him a brokerage fee. In 1996, the U.S. Department of Commerce began to phase out the duties on the types of goods imported by B-K; by 1999, the imports of the goods imported by B-K were duty free.
Throughout the duty phase-out program and when the imports became duty-free, Manuelian continued to bill its client for supposedly pre-paid duties on the equipment. To support the claims, Manuelian mailed its client falsified customs forms which showed a duty owed on the imported equipment, usually set at 5.3% of the equipment’s value. By the time B-K discovered its loss in 2006, Manuelian had defrauded it out of approximately $1.2 million.
Gregory Manuelian (Manuelian) of Manhasset, N.Y, was sentenced to 24 months in prison, followed by 3 years of supervised release and ordered to pay almost $1.2 million in restitution based on charges that he defrauded his client, B-K Medical Systems, by repeatedly submitting falsified customs documents indicating that B-K owed customs duties on goods that were actually duty-free.
Manuelian operated Marquis Clearance, Ltd., a customs brokerage in Jamaica, N.Y. and served as B-K’s customs broker since 1980. On B-K’s goods entering the U.S., Manuelian ordinarily paid the duties and then faxed the invoices to the client. B-K reimbursed Manuelian for the duties and paid him a brokerage fee. In 1996, the U.S. Department of Commerce began to phase out the duties on the types of goods imported by B-K; by 1999, the imports of the goods imported by B-K were duty free.
Throughout the duty phase-out program and when the imports became duty-free, Manuelian continued to bill its client for supposedly pre-paid duties on the equipment. To support the claims, Manuelian mailed its client falsified customs forms which showed a duty owed on the imported equipment, usually set at 5.3% of the equipment’s value. By the time B-K discovered its loss in 2006, Manuelian had defrauded it out of approximately $1.2 million.
U.S. Seeks Extradition of Iranian Engineer Who Purchased Sensitive Items Online
02/17/10 10:12 PM
The Associated Press reported that on February 17, 2010, a French court postponed a decision on whether to extradite an Iranian Engineer to the U.S., where he is accused of exporting goods to an embargoed country, money laundering, smuggling goods, and other charges. Majid Kakavand (Kakavand) was arrested in Paris on March 20, 2009 and held in prison until August 26, 2009, until his release on condition that he stays in Paris.
U.S. government claims that Kakavand went online to purchase U.S. electronics, including capacitors, inductors, resistors, sensors and connectors, and had them shipped to Malaysia, from where they were forwarded to two Iranian military entities.
The French court must decide whether Kakavand is to be extradited based on whether his actions were illegal in France as well as the United States. U.S. government claims that Kakavand needed export licenses to send the items to Iran. Kakavand’s attorneys argue that he did not violate French or European Union laws which have no general trade embargo on Iran like the U.S, and that documents in all sales transactions were stamped NLR, for “No License Required.”
The main argument in this case is whether items that Kakavand purchased have sensitive defense uses. The accused firefengineer contends that the electronics that he bought online are ordinary and commonplace; however, the U.S. in its extradition request argue that many items at issue meet military standards.
In February’s hearing, the judge handling the case asked for additional information on the matter, including France’s military armament body studies, before making the extradition decision. The new hearing has been set for March 31, 2010.
U.S. government claims that Kakavand went online to purchase U.S. electronics, including capacitors, inductors, resistors, sensors and connectors, and had them shipped to Malaysia, from where they were forwarded to two Iranian military entities.
The French court must decide whether Kakavand is to be extradited based on whether his actions were illegal in France as well as the United States. U.S. government claims that Kakavand needed export licenses to send the items to Iran. Kakavand’s attorneys argue that he did not violate French or European Union laws which have no general trade embargo on Iran like the U.S, and that documents in all sales transactions were stamped NLR, for “No License Required.”
The main argument in this case is whether items that Kakavand purchased have sensitive defense uses. The accused firefengineer contends that the electronics that he bought online are ordinary and commonplace; however, the U.S. in its extradition request argue that many items at issue meet military standards.
In February’s hearing, the judge handling the case asked for additional information on the matter, including France’s military armament body studies, before making the extradition decision. The new hearing has been set for March 31, 2010.
Ex-Boeing Engineer Sentenced for Stealing Aerospace Secrets for China
02/08/10 11:22 PM
The Wall Street Journal reported that on February 8, 2010, Dongfan “Greg” Chung, a Chinese-born former Boeing engineer was sentenced to 15 years and 8 months in prison for acquiring sensitive U.S. space shuttle information and other documents for China.
The case against Chung was the first U.S. trial on economic espionage charges. The government charged that Chung began spying for the Chinese in the late 1970s, after he became a naturalized U.S. citizen and was hired by Rockwell International, where he worked until it was acquired by Boeing in 1996. Chung stayed with Boeing until he was laid off in 2002, but a year later he was brought back as a consultant. Boeing fired Chung when FBI began its investigation in 2006.
The government accused Chung, a stress analyst with high-level clearance, of stealing documents related to aerospace technology development while working for Rockwell and Boeing. When FBI agents searched Chung’s house in 2006, they found more than 300,000 pages of documents on Boeing-developed aerospace and defense technologies. Specifically, the technologies involved an antenna developed for radar and communications on the U.S. shuttle and a fueling mechanism for a booster rocket used to launch manned space vehicles.
During trial, Chung claimed that he had brought the documents home to write a book. Chung’s lawyers argued that he may have violated Boeing policy by bringing the papers home, but he did not break any laws by doing so, and U.S. government could not prove that he had given away any sensitive information to China.
Assistant U.S. Attorney noted in sentencing papers that Chung acquired a personal wealth of more than $3 million during his cooperation with China.
Chung’s activities were discovered while investigating Chi Mak, another suspected Chinese spy living in Southern California. In 2007, Mak was convicted of conspiracy to export U.S. defense technology to China and sentenced to 24 years in prison.
The case against Chung was the first U.S. trial on economic espionage charges. The government charged that Chung began spying for the Chinese in the late 1970s, after he became a naturalized U.S. citizen and was hired by Rockwell International, where he worked until it was acquired by Boeing in 1996. Chung stayed with Boeing until he was laid off in 2002, but a year later he was brought back as a consultant. Boeing fired Chung when FBI began its investigation in 2006.
The government accused Chung, a stress analyst with high-level clearance, of stealing documents related to aerospace technology development while working for Rockwell and Boeing. When FBI agents searched Chung’s house in 2006, they found more than 300,000 pages of documents on Boeing-developed aerospace and defense technologies. Specifically, the technologies involved an antenna developed for radar and communications on the U.S. shuttle and a fueling mechanism for a booster rocket used to launch manned space vehicles.
During trial, Chung claimed that he had brought the documents home to write a book. Chung’s lawyers argued that he may have violated Boeing policy by bringing the papers home, but he did not break any laws by doing so, and U.S. government could not prove that he had given away any sensitive information to China.
Assistant U.S. Attorney noted in sentencing papers that Chung acquired a personal wealth of more than $3 million during his cooperation with China.
Chung’s activities were discovered while investigating Chi Mak, another suspected Chinese spy living in Southern California. In 2007, Mak was convicted of conspiracy to export U.S. defense technology to China and sentenced to 24 years in prison.
UK Firm Pleads Guilty to Exporting Boeing 747 Aircraft to Iran; Pays $15 Million in Fines
02/06/10 02:58 PM
On February 5, 2010, the Department of Justice (DOJ) announced that Balli Aviation Ltd., a subsidiary of United Kingdom-based Balli Group PLC, pleaded guilty in the U.S. District Court for the District of Columbia to a two-count criminal information in connection with its illegal export of commercial Boeing 747 aircraft from the United States to Iran. (BIS’ press release can be found here.)
The DOJ announced:
Under the plea agreement, Balli Aviation Ltd. agreed to pay a $2 million criminal fine and be placed on corporate probation for five years. The $2 million fine, combined with a related $15 million civil settlement among Balli Group PLC, Balli Aviation Ltd., the U.S. Department of Commerce's Bureau of Industry and Security (BIS), and the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC), that was also announced today, represents one of the largest fines for an export violation in BIS history.
Under the terms of the related civil settlement, Balli Group PLC and Balli Aviation Ltd. have agreed to pay a civil penalty of $15 million of which $2 million will be suspended if there are no further export control violations. In addition, Balli Aviation Ltd. and Balli Group PLC are denied export privileges for five years, although this penalty will be suspended provided that neither Balli Aviation nor Balli Group commits any export violations and pays the civil penalty. Under the terms of the settlement, Balli Group PLC and Balli Aviation, Ltd. will also have to submit the results of an independent audit of its export compliance program to BIS and OFAC for each of the next five years.
According to count one of the information filed with the court, beginning in at least October 2005, through October 2008, Balli Aviation Ltd. conspired to export three Boeing 747 aircraft from the United States to Iran without first having obtained the required export license from BIS or authorization from OFAC, in violation of the Export Administration Regulations (EAR) and the Iranian Transactions Regulations. More particularly, the information states that Balli Aviation Ltd., through its subsidiaries, the Blue Sky Companies, purchased U.S.-origin aircraft with financing obtained from an Iranian airline and caused these aircraft to be exported to Iran without obtaining the required U.S. government licenses. Further, Balli Aviation Ltd. entered into lease arrangements that permitted the Iranian airline to use the U.S.-origin aircraft for flights in and out of Iran.
Count two of the information states that Balli Aviation Ltd. violated a Temporary Denial Order (TDO) issued by BIS on March 17, 2008, that prohibited the company from conducting any transaction involving any item subject to the EAR. Starting in or about March 2008 and continuing through about August 2008, Balli Aviation Ltd. willfully violated the TDO by carrying on negotiations with others concerning buying, receiving, using, selling and delivering U.S.-origin aircraft which went to the Export Administration Regulations.
"Today's case should serve as further warning of Iran's continued efforts to circumvent sanctions and obtain U.S. technology. Together with our colleagues from the Justice and Commerce departments, OFAC will continue to aggressively pursue both domestic and foreign entities that seek to violate U.S. sanctions programs by exporting goods to Iran from the United States." said Adam J. Szubin, Director, Office of Foreign Assets Control.
The DOJ announced:
Under the plea agreement, Balli Aviation Ltd. agreed to pay a $2 million criminal fine and be placed on corporate probation for five years. The $2 million fine, combined with a related $15 million civil settlement among Balli Group PLC, Balli Aviation Ltd., the U.S. Department of Commerce's Bureau of Industry and Security (BIS), and the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC), that was also announced today, represents one of the largest fines for an export violation in BIS history.
Under the terms of the related civil settlement, Balli Group PLC and Balli Aviation Ltd. have agreed to pay a civil penalty of $15 million of which $2 million will be suspended if there are no further export control violations. In addition, Balli Aviation Ltd. and Balli Group PLC are denied export privileges for five years, although this penalty will be suspended provided that neither Balli Aviation nor Balli Group commits any export violations and pays the civil penalty. Under the terms of the settlement, Balli Group PLC and Balli Aviation, Ltd. will also have to submit the results of an independent audit of its export compliance program to BIS and OFAC for each of the next five years.
According to count one of the information filed with the court, beginning in at least October 2005, through October 2008, Balli Aviation Ltd. conspired to export three Boeing 747 aircraft from the United States to Iran without first having obtained the required export license from BIS or authorization from OFAC, in violation of the Export Administration Regulations (EAR) and the Iranian Transactions Regulations. More particularly, the information states that Balli Aviation Ltd., through its subsidiaries, the Blue Sky Companies, purchased U.S.-origin aircraft with financing obtained from an Iranian airline and caused these aircraft to be exported to Iran without obtaining the required U.S. government licenses. Further, Balli Aviation Ltd. entered into lease arrangements that permitted the Iranian airline to use the U.S.-origin aircraft for flights in and out of Iran.
Count two of the information states that Balli Aviation Ltd. violated a Temporary Denial Order (TDO) issued by BIS on March 17, 2008, that prohibited the company from conducting any transaction involving any item subject to the EAR. Starting in or about March 2008 and continuing through about August 2008, Balli Aviation Ltd. willfully violated the TDO by carrying on negotiations with others concerning buying, receiving, using, selling and delivering U.S.-origin aircraft which went to the Export Administration Regulations.
"Today's case should serve as further warning of Iran's continued efforts to circumvent sanctions and obtain U.S. technology. Together with our colleagues from the Justice and Commerce departments, OFAC will continue to aggressively pursue both domestic and foreign entities that seek to violate U.S. sanctions programs by exporting goods to Iran from the United States." said Adam J. Szubin, Director, Office of Foreign Assets Control.
Executives of Military and Security Product Companies Indicted in Foreign Bribery Scheme
01/19/10 10:37 PM
On January 19, 2010, the U.S. Department of Justice (DOJ) announced that twenty-two executives working in the military and security industries were arrested and charged with conspiracy to bribe an African defense minister in violation of the Foreign Corrupt Practices Act (FCPA).
The indictments are a result of the largest single investigation and prosecution against individual defendants in the history of DOJ’s enforcement of FCPA. The indictments allege that the defendants engaged in a scheme to bribe an African defense minister and agreed to pay a 20% “sales commission” to someone they believed was the minister’s representative in order to win a portion of a $15 million contract to outfit the country’s presidential guard. The defense minister’s representative, who in fact was an undercover FBI agent, told the defendants that the “sales commission” would be paid directly to the minister of defense.
The defendants allegedly agreed to engage in a small test deal to show the minister of defense that he would personally receive the bribe, and to create two price quotations in connection with the deal: one representing the true cost of the goods, and another representing the cost of the goods plus the 20% commission.
Each of the indictments alleges that the defendants conspired and violated the Foreign Corrupt Practices Act (FCPA) and conspired to engage in money laundering.
The defendants face five years imprisonment for the conspiracy count and for each FCPA count. The indictments in this case also seek criminal forfeiture of the defendants’ gains.
The indictments are a result of the largest single investigation and prosecution against individual defendants in the history of DOJ’s enforcement of FCPA. The indictments allege that the defendants engaged in a scheme to bribe an African defense minister and agreed to pay a 20% “sales commission” to someone they believed was the minister’s representative in order to win a portion of a $15 million contract to outfit the country’s presidential guard. The defense minister’s representative, who in fact was an undercover FBI agent, told the defendants that the “sales commission” would be paid directly to the minister of defense.
The defendants allegedly agreed to engage in a small test deal to show the minister of defense that he would personally receive the bribe, and to create two price quotations in connection with the deal: one representing the true cost of the goods, and another representing the cost of the goods plus the 20% commission.
Each of the indictments alleges that the defendants conspired and violated the Foreign Corrupt Practices Act (FCPA) and conspired to engage in money laundering.
The defendants face five years imprisonment for the conspiracy count and for each FCPA count. The indictments in this case also seek criminal forfeiture of the defendants’ gains.
Banks Settle Charges of Violating OFAC Regulations
12/11/09 10:42 PM
On December 11, 2009, the U.S. Department of Justice and Credit Suisse AG (Credit Suisse) entered into a global settlement agreement to settle alleged violations of the International Emergency Economic Powers Act (IEEPA), Trading with the Enemy Act (TWEA), the Executive Orders, and Office of Foreign Assets Control (OFAC) regulations.
Credit Suisse, Lloyds TSB Bank PLC (Lloyds) and several other banks have been investigated for deleting and manipulating wire transfer information to conceal illegal money transfers involving Iran, Burma, Cuba, and Libya from the mid-1990s through 2006. Credit Suisse also instructed Iranian customers on how to format dollar-denominated transactions to avoid detection by the U.S. authorities.
Credit Suisse was fined $536 million after disclosing various apparent violations in a voluntary self-disclosure. According to the Assistant Attorney General, the fine would have been much higher had Credit Suisse not cooperated fully.
Lloyds used a similar technique to manipulate information that disguised clients in Iran and Sudan who were barred from doing business in the U.S. Based on OFAC’s analysis of Lloyds’ transactions, the bank routed over 4,200 wire transfers in apparent violation of IEEPA and the OFAC regulations related to Iran, Sudan, and Libya from June 2003 through August 2006.
Lloyds indicated that it terminated these illegal activities, including ceasing U.S. dollar clearing activities for Iranian bank customers in 2003, and has cooperated fully with OFAC investigation. Lloyds has settled with OFAC for $217 million, a sum which has been deemed satisfied by its prior payment of a larger amount in satisfaction of penalties assessed by the U.S. Department of Justice.
While Lloyds did not voluntarily self-disclose the apparent violations, OFAC mitigated the total potential penalty based on Lloyds’ substantial cooperation and its prompt and thorough remedial response.
Credit Suisse, Lloyds TSB Bank PLC (Lloyds) and several other banks have been investigated for deleting and manipulating wire transfer information to conceal illegal money transfers involving Iran, Burma, Cuba, and Libya from the mid-1990s through 2006. Credit Suisse also instructed Iranian customers on how to format dollar-denominated transactions to avoid detection by the U.S. authorities.
Credit Suisse was fined $536 million after disclosing various apparent violations in a voluntary self-disclosure. According to the Assistant Attorney General, the fine would have been much higher had Credit Suisse not cooperated fully.
Lloyds used a similar technique to manipulate information that disguised clients in Iran and Sudan who were barred from doing business in the U.S. Based on OFAC’s analysis of Lloyds’ transactions, the bank routed over 4,200 wire transfers in apparent violation of IEEPA and the OFAC regulations related to Iran, Sudan, and Libya from June 2003 through August 2006.
Lloyds indicated that it terminated these illegal activities, including ceasing U.S. dollar clearing activities for Iranian bank customers in 2003, and has cooperated fully with OFAC investigation. Lloyds has settled with OFAC for $217 million, a sum which has been deemed satisfied by its prior payment of a larger amount in satisfaction of penalties assessed by the U.S. Department of Justice.
While Lloyds did not voluntarily self-disclose the apparent violations, OFAC mitigated the total potential penalty based on Lloyds’ substantial cooperation and its prompt and thorough remedial response.
Gibson Guitar May Be First Prosecuted under Revised Lacey Act
11/19/09 03:55 PM
The Nashville Business Journal has reported that on November 10, 2009, U.S. Fish & Wildlife Service agents executed a search warrant at the Gibson Guitar Corporation’s (Gibson Guitar) Nashville manufacturing plant. The search is said to be part of an investigation into the use of endangered rosewood from Madagascar in violation of the revised Lace Act.
Gibson Guitar, heralded in the past for its pioneering efforts to use sustainable wood products, is the first U.S. company to face prosecution under the revised Lacey Act – a new federal law banning trade in articles made of or containing specifically designated wood. The company issued a statement in which it proclaims full cooperation with the U.S. Fish & Wildlife Service investigation into the wood procurement.
The Lacey Act was expanded by the 2008 Farm Bill (the Food, Conservation, and Energy Act of 2008) to include timber and wood products, making the U.S. the first in the world to regulate trade in plants. Among other things, the Lacey Act requires an import declaration for certain plants and plant products, including the plant’s geographical origin and biological genus.
Penalties for violations of the Lacey Act range from a forfeiture of goods to fines up to $500,000 and even imprisonment if the company is found to have knowingly engaged in trade of illegally sourced wood.
Gibson Guitar, heralded in the past for its pioneering efforts to use sustainable wood products, is the first U.S. company to face prosecution under the revised Lacey Act – a new federal law banning trade in articles made of or containing specifically designated wood. The company issued a statement in which it proclaims full cooperation with the U.S. Fish & Wildlife Service investigation into the wood procurement.
The Lacey Act was expanded by the 2008 Farm Bill (the Food, Conservation, and Energy Act of 2008) to include timber and wood products, making the U.S. the first in the world to regulate trade in plants. Among other things, the Lacey Act requires an import declaration for certain plants and plant products, including the plant’s geographical origin and biological genus.
Penalties for violations of the Lacey Act range from a forfeiture of goods to fines up to $500,000 and even imprisonment if the company is found to have knowingly engaged in trade of illegally sourced wood.
OFAC Releases Economic Sanctions Enforcement Guidelines
11/09/09 04:18 PM
On November 9, 2009, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued “Economic Sanctions Enforcement Guidelines” as final rule in the Federal Register, setting forth the enforcement guidelines that OFAC will follow in determining a response to violations of the OFAC-enforced U.S. economic sanctions programs.
This rule has been initially published as an interim final rule with request for comments on September 8, 2008. In response to comments received, OFAC made several changes to the final version of the rule:
More detailed discussion of the amendments and public comments can be found in the final rule, published as Appendix A to Part 501 – Economic Sanctions Enforcement.
This rule has been initially published as an interim final rule with request for comments on September 8, 2008. In response to comments received, OFAC made several changes to the final version of the rule:
- The definition of “voluntary self-disclosure” was amended to clarify that when a third party required to report an apparent violation fails to do so, but a person that has committed an apparent violation and is subject to any of the OFAC sanctions ("Subject Person") reports the violation to OFAC, the notification will still be considered a voluntary self-disclosure. However, in those cases where the third party does notify OFAC before a final enforcement response to the violation, a Subject Person’s notification will not be considered a voluntary self-disclosure even if it precedes the third party’s notification.
- The definition of “voluntary self-disclosure” was also amended to clarify that a self-initiated notification to OFAC made at the same time as another government agency learns of the apparent violation (either through disclosure or otherwise) does qualify as voluntary self-disclosure if the other aspects of the definitions are met. This change is intended to cover self-disclosures made to OFAC and another government agency simultaneously.
- Similarly, if a Subject Person notifies another government agency of an apparent violation as required by that agency, the notification may be considered a voluntary self-disclosure by OFAC, based on a case-by-case determination.
- On the requested clarification on Suspicious Activity Report (SAR) filing, OFAC responded that the filing of a SAR does not itself preclude a determination of voluntary self-disclosure for a subsequent self-disclosure to OFAC of the same transaction, unless OFAC learns of the apparent violation prior to the self-disclosure filing.
- Regarding party cooperation and tolling agreements, the final rule eliminates any reference to statute of limitations waivers. Furthermore, with respect to whether a Subject Person’s refusal to enter into a tolling agreement should be considered an aggravating factor in assessing the person’s cooperation, the final rules states that a Subject Person’s unwillingness to enter into a tolling agreement will not be considered against the Subject Person. On the other hand, if a Subject Person is willing to enter into a tolling agreement, it may be considered a mitigating factor.
- For the purposes of calculating a penalty in cases involving a set of “substantially similar violations,” OFAC clarified that the penalty reduction of up to 25% for a Subject Person’s first violation will generally apply to the entire set of “substantially similar violations” and not solely to the first of those violations.
- OFAC also amended the final rule to make clear that determination of appropriate enforcement response is not limited to prior formal determinations of sanctions violations. Thus, prior cautionary letters, warning letters, and evaluative letters will be considered in determining OFAC sanctions, if any. This particular amendment specifies that consideration of a Subject Person’s sanction history will be limited to the five years preceding the transaction giving rise to the apparent violation.
- On the issue of attorney-client privilege or the attorney work product doctrine, the final rule was amended by eliminating the reference to “failure to furnish the requested information” and instead referring to a “failure to comply” with a request for information. The language is intended to specify that OFAC will not seek penalties in cases where responsive information is withheld on the basis of apparently applicable and properly invoked privilege.
- The Enforcement Guidelines also clarify the base penalty amounts for transactions within the scope of the Trading With the Enemy Act (TWEA), which are capped at the $65,000. In non-egregious cases involving apparent violations of TWEA, when the apparent violation is disclosed through a voluntary self-disclosure, the civil penalty is capped at the $32,500. Non-egregious violations of TWEA not voluntarily disclosed are capped at the $65,000.
- The penalty for failure to maintain records in conformance with the requirements of OFAC regulations is set at a maximum of $50,000.
More detailed discussion of the amendments and public comments can be found in the final rule, published as Appendix A to Part 501 – Economic Sanctions Enforcement.
Director of Singapore Company Sentenced for Iran Embargo Violations
11/06/09 04:15 PM
On November 5, 2009, a federal court in Brooklyn, NY sentenced Laura Wang-Woodford, a U.S. citizen and a director of Singapore-based Monarch Aviation Pte, Ltd. (Monarch), to 46 months’ incarceration for conspiracy to violate the U.S. trade embargo by exporting controlled aircraft components to Iran.
Monarch has been engaged in imports and exports of military and commercial aircraft components for over 20 years.
Wang-Woodford was arrested at San Francisco International Airport in December 2007 after arriving on a flight from Hong Kong and has remained incarcerated ever since. Originally, Wang-Woodford was charged along with her husband Brian D. Woodford in a 20-count indictment returned in the Eastern District of New York on January 15, 2003. A superceding indictment charging Wang-Woodford with operating Jungda International Pte. Ltd (Jungda), a Singapore-based successor to Monarch, was returned on May 22, 2008. Brian Woodford, a U.K. citizen who served as chairman and managing director of Monarch, remains a fugitive.
The 2008 indictment alleged that between January 1998 and December 2007, the defendants exported controlled U.S. aircraft parts from the U.S. to Monarch and Jungda in Singapore and Malaysia and then re-exported those items to buyers in Iran without the required U.S. government licenses. The parts exported included aircraft shields, shears, “o” rings, and switch assemblies. On the export documents filed with the U.S. government, the defendants falsely listed Monarch and Jungda as the ultimate recipients of the parts.
At the time of her arrest, Wang-Woodford had in her possession catalogues from China National Precision Machinery Import and Export Corporation (CPMIEC) containing advertisements for military technology and weaponry, including surface-to-air missile systems and rocket launchers. CPMIEC, a Chinese company, has been sanctioned by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) based on the company’s history of selling military hardware to Iran. Under those sanctions, all U.S. persons and entities are prohibited from engaging in business with CPMIEC.
The Bureau of Industry and Security publish on its website Lists to Check that include sanctions by various government agencies and that should be consulted by persons involved in export or re-export transactions.
Monarch has been engaged in imports and exports of military and commercial aircraft components for over 20 years.
Wang-Woodford was arrested at San Francisco International Airport in December 2007 after arriving on a flight from Hong Kong and has remained incarcerated ever since. Originally, Wang-Woodford was charged along with her husband Brian D. Woodford in a 20-count indictment returned in the Eastern District of New York on January 15, 2003. A superceding indictment charging Wang-Woodford with operating Jungda International Pte. Ltd (Jungda), a Singapore-based successor to Monarch, was returned on May 22, 2008. Brian Woodford, a U.K. citizen who served as chairman and managing director of Monarch, remains a fugitive.
The 2008 indictment alleged that between January 1998 and December 2007, the defendants exported controlled U.S. aircraft parts from the U.S. to Monarch and Jungda in Singapore and Malaysia and then re-exported those items to buyers in Iran without the required U.S. government licenses. The parts exported included aircraft shields, shears, “o” rings, and switch assemblies. On the export documents filed with the U.S. government, the defendants falsely listed Monarch and Jungda as the ultimate recipients of the parts.
At the time of her arrest, Wang-Woodford had in her possession catalogues from China National Precision Machinery Import and Export Corporation (CPMIEC) containing advertisements for military technology and weaponry, including surface-to-air missile systems and rocket launchers. CPMIEC, a Chinese company, has been sanctioned by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) based on the company’s history of selling military hardware to Iran. Under those sanctions, all U.S. persons and entities are prohibited from engaging in business with CPMIEC.
The Bureau of Industry and Security publish on its website Lists to Check that include sanctions by various government agencies and that should be consulted by persons involved in export or re-export transactions.
Exporters Settle Allegations of Unlawful Exports
09/15/09 04:09 PM
On September 15, 2009, the Commerce Department’s Bureau of Industry and Security (BIS) issued press releases announcing companies settling allegations of unlawful exports:
• Five foreign subsidiaries of Thermon Manufacturing Company (Thermon US), a Texas-based firm, have agreed to pay a $176,000 in combined civil penalties to settle allegations that they exported and reexported EAR99 heat tracing equipment to Iran, Syrian, Libya, and listed entities in India without the required BIS or the Treasury Department’s Office of Foreign Assets Controls (OFAC) licenses. The foreign subsidiaries were told by the parent company that products manufactured by Thermon US may not be sold to countries on the U.S. trade sanctions list; however, the subsidiaries exported the equipment to prohibited end users without informing the parent company of the ultimate destination for the items. Thermon US voluntarily disclosed the violations to BIS.
• Foxsemicon Integrated Technologies, Inc. (FITI) of Taiwan has agreed to pay $250,000 to settle allegations that between August 2005 and May 2006, the company made unlicensed exports of pressure transducers to China, in violation of the EAR. The transducers are used as spare components of manufacturing systems controlled for nuclear non-proliferation reasons. BIS alleged that FITI knew that licenses were required for the parts but made no attempt to apply for the shipment authorization. FITI was also alleged to have made false statements on export documentation stating that no license was required for the exports. In addition to FITI, FITI’s wholly-owned affiliate, Foxsemicon LLC of San Jose, CA, settled allegations that it aided and abetted FITI’s violations. Foxsemicon’s $160,000 civil penalty was suspended provided no additional violations occur in the next year.
• Five foreign subsidiaries of Thermon Manufacturing Company (Thermon US), a Texas-based firm, have agreed to pay a $176,000 in combined civil penalties to settle allegations that they exported and reexported EAR99 heat tracing equipment to Iran, Syrian, Libya, and listed entities in India without the required BIS or the Treasury Department’s Office of Foreign Assets Controls (OFAC) licenses. The foreign subsidiaries were told by the parent company that products manufactured by Thermon US may not be sold to countries on the U.S. trade sanctions list; however, the subsidiaries exported the equipment to prohibited end users without informing the parent company of the ultimate destination for the items. Thermon US voluntarily disclosed the violations to BIS.
• Foxsemicon Integrated Technologies, Inc. (FITI) of Taiwan has agreed to pay $250,000 to settle allegations that between August 2005 and May 2006, the company made unlicensed exports of pressure transducers to China, in violation of the EAR. The transducers are used as spare components of manufacturing systems controlled for nuclear non-proliferation reasons. BIS alleged that FITI knew that licenses were required for the parts but made no attempt to apply for the shipment authorization. FITI was also alleged to have made false statements on export documentation stating that no license was required for the exports. In addition to FITI, FITI’s wholly-owned affiliate, Foxsemicon LLC of San Jose, CA, settled allegations that it aided and abetted FITI’s violations. Foxsemicon’s $160,000 civil penalty was suspended provided no additional violations occur in the next year.
Exporter Settles Allegations of EAR Violations & Agrees to $190,000 Penalty
08/15/09 08:40 PM
On August 14, 2009, the Commerce Department’s Bureau of Industry and Security (BIS) announced that RF Micro Devices, Inc. (RFMD) of Greensboro, N.C. has agreed to pay a $190,000 civil penalty to settle allegations that it exported spread-spectrum modems in violation of the Export Administration Regulations (EAR) to China. In addition, Carol Wilkins, RFMD manager whose responsibilities, at the time of the violations, included export control compliance, has agreed to pay a civil penalty in the amount of $15,000 for making false and misleading statements to BIS Special Agents during the investigation.
The allegations involved fourteen unlicensed exports of spread-spectrum modems, classified under Export Control Classification Number 5A001 and controlled for national security reasons, to China with knowledge that a violation of the Regulations was occurring, was about to occur or was intended to occur in connection with the spread-spectrum modems. Additionally, BIS alleged that on thirteen occasions RFMD made false or misleading statements about the submission of Shipper’s Export Declarations (SEDs).
RFMD voluntarily disclosed the violations that occurred in 2002 and 2003.
The allegations involved fourteen unlicensed exports of spread-spectrum modems, classified under Export Control Classification Number 5A001 and controlled for national security reasons, to China with knowledge that a violation of the Regulations was occurring, was about to occur or was intended to occur in connection with the spread-spectrum modems. Additionally, BIS alleged that on thirteen occasions RFMD made false or misleading statements about the submission of Shipper’s Export Declarations (SEDs).
RFMD voluntarily disclosed the violations that occurred in 2002 and 2003.
Physicist Sentenced to 28 Months Imprisonment for ITAR Violations
08/12/09 08:45 PM
On August 11, 2009, Knoxnews.com reported that Daniel Max Sherman, a 38-year old physicist, was sentenced to 28 months in federal prison for his involvement with a Knoxville company and former University of Tennessee professor, John Reece Roth, who violated the International Traffic in Arms Regulations (ITAR) by allowing foreign nationals to have access to military-related technical information.
Sherman faced a potential sentence of five years in prison and $250,000 fine, but received a lesser sentence because of his cooperation in the federal investigation. He already served fourteen months of his sentence. Roth, 73-year old former professor, was sentenced to four years in prison.
Roth, an expert in plasma research, was a subcontractor on a U.S. Air Force project awarded to Atmospheric Glow Technologies Inc. (AGT), a plasma technology company based in Knoxville and Sherman's employer. The project developed advanced plasma actuators for Air Force drones, which are covered by U.S. governing munitions. Both Roth and Sherman were involved in the project for which they allowed foreign and Chinese graduate students to work. Additionally, Roth was convicted of taking protected information with him on a lecture trip to China, a felony regardless of the intent.
Sherman faced a potential sentence of five years in prison and $250,000 fine, but received a lesser sentence because of his cooperation in the federal investigation. He already served fourteen months of his sentence. Roth, 73-year old former professor, was sentenced to four years in prison.
Roth, an expert in plasma research, was a subcontractor on a U.S. Air Force project awarded to Atmospheric Glow Technologies Inc. (AGT), a plasma technology company based in Knoxville and Sherman's employer. The project developed advanced plasma actuators for Air Force drones, which are covered by U.S. governing munitions. Both Roth and Sherman were involved in the project for which they allowed foreign and Chinese graduate students to work. Additionally, Roth was convicted of taking protected information with him on a lecture trip to China, a felony regardless of the intent.
BIS and OFAC Announce a Multi-Million Dollar Settlement with DHL BIS and OFAC Announce a Multi-Million Dollar Settlement with DHL BIS and OFAC Announce a Multi-Million Dollar Settlement with DHL BIS and OFAC Announce a Multi-Million Dollar Settlement with DHL BIS and OFAC Announce a Multi-Million Dollar Settlement with DHL BIS and OFAC Announce a Multi-Million Dollar Settlement with DHL BIS and OFAC Annouce Multi-Million Dollar Settlement with DHL
08/10/09 03:04 PM
On August 6, 2009, the Commerce Department’s Bureau of Industry and Security (BIS) and the Treasury Department’s Office of Foreign Assets Control (OFAC) announced they have jointly entered into a settlement agreement with DPWN Holdings (USA), Inc. and DHL Express (USA), Inc. (collectively DHL) The settlement agreement has been reached following allegations that DHL unlawfully aided and abetted illegal exports of goods to Syria, Iran and Sudan and failed to comply with record keeping requirements of the Export Administration Regulations (EAR) and OFAC regulations.
Specifically, BIS charged that between June 2004 and September 2004, DHL transported articles subject to the EAR from the U.S. to Syria, and failed to retain air waybills and other export control documents, as required by the EAR. OFAC charged that between 2002 and 2006 DHL violated various OFAC regulations when it made thousands of shipments to Iran and Sudan, mainly failing to comply with applicable recordkeeping requirements.
Pursuant to the settlement agreement, DHL must pay a civil penalty of nearly $9.5 million and conduct external audits of exports to Iran, Syria and Sudan from March 2007 to December 2009, as well as conduct annual calendar year audits in 2010 and 2011.
Specifically, BIS charged that between June 2004 and September 2004, DHL transported articles subject to the EAR from the U.S. to Syria, and failed to retain air waybills and other export control documents, as required by the EAR. OFAC charged that between 2002 and 2006 DHL violated various OFAC regulations when it made thousands of shipments to Iran and Sudan, mainly failing to comply with applicable recordkeeping requirements.
Pursuant to the settlement agreement, DHL must pay a civil penalty of nearly $9.5 million and conduct external audits of exports to Iran, Syria and Sudan from March 2007 to December 2009, as well as conduct annual calendar year audits in 2010 and 2011.
SEC Imposes Control Person Liability on Corporate Officers of Public Companies for Foreign Corrupt Practices
08/01/09 08:31 PM
On Jul 31, 2009 the U.S. Securities and Exchange Commission (SEC) filed a settled enforcement of $600,000 against Nature's Sunshine Products Inc. (NSP) and $25,000 against NSP Chief Executive Officer Douglas Faggioli and former Chief Financial Officer Craig D. Huff. NSP’s Brazilian subsidiary allegedly paid the Brazilian custom officials to import unregistered products into Brazil and subsequently falsified its books and records to conceal the payments.
The SEC based its charge on NSP’s violations of the anti-bribery provision of the Foreign Corrupt Practices Act (FCPA). But, according to Philip Urofsky, a former federal prosecutor of FCPA claims, the SEC also invoked, for the first time, Section 20(a) of the Securities Exchange Act of 1934 to hold NSP’s officers liable.
In an interview with the National Law Journal on Control Person Liability theory, Mr. Urofsky, who now is a partner in the Washington office of New York's Shearman & Sterling, described this theory as an easy way to hold corporate individuals: the executives, directors, and accountants liable for the corporation’s books, records and internal controls violations “without pleading any knowledge or culpable involvement in the underlying bribes or accounting issues.”
The SEC based its charge on NSP’s violations of the anti-bribery provision of the Foreign Corrupt Practices Act (FCPA). But, according to Philip Urofsky, a former federal prosecutor of FCPA claims, the SEC also invoked, for the first time, Section 20(a) of the Securities Exchange Act of 1934 to hold NSP’s officers liable.
In an interview with the National Law Journal on Control Person Liability theory, Mr. Urofsky, who now is a partner in the Washington office of New York's Shearman & Sterling, described this theory as an easy way to hold corporate individuals: the executives, directors, and accountants liable for the corporation’s books, records and internal controls violations “without pleading any knowledge or culpable involvement in the underlying bribes or accounting issues.”
Retired University Professor Sentenced to 4 Years Imprisonment for Export Violations
07/02/09 10:34 PM
On July 1, 2009, the Department of Justice issued a press release announcing the sentencing of a retired university professor convicted of the Arms Export Control Act (AECA) violations. The AECA prohibits the exports of defense-related materials, including the technical information or data, to a foreign national or foreign nation.
In a U.S. District Court in Knoxville, Tennessee, Dr. John Reece Roth, a retired University of Tennessee professor, was sentenced to four years in prison.
In a highly publicized trial that ended in September 2008, Dr. Roth was convicted of more than a dozen AECA violations for illegally exporting to China technical information relating to a U.S. Air Force research and development contract. The illegal exports of military technical information for use in an unmanned aerial vehicle involved specific information about advanced plasma technology that had been designed and was being tested for use on the wings of UAVs operating as weapons or surveillance systems.
In a U.S. District Court in Knoxville, Tennessee, Dr. John Reece Roth, a retired University of Tennessee professor, was sentenced to four years in prison.
In a highly publicized trial that ended in September 2008, Dr. Roth was convicted of more than a dozen AECA violations for illegally exporting to China technical information relating to a U.S. Air Force research and development contract. The illegal exports of military technical information for use in an unmanned aerial vehicle involved specific information about advanced plasma technology that had been designed and was being tested for use on the wings of UAVs operating as weapons or surveillance systems.
OFAC Issues Monthly Report of Alleged OFAC Violations
07/02/09 10:23 PM
On July 1, 2009, the Treasury Department’s Office of Foreign Assets and Controls (OFAC) issued its June 2009 report of civil penalties imposed for alleged violations of OFAC sanctioned regimes. The report lists the following four settlements of alleged violations:
- Oxbow Carbon and Minerals LLC of West Palm Beach, FL agreed to remit $276,250 to settle allegations that the company violated the Iranian Transactions Regulations occurring from November 2006 through October 2007. OFAC alleged that Oxbow engaged in transactions involving services originating in Iran and facilitated trade-related transactions by non-U.S. persons which involved the use of vessels owned and/or managed by the Islamic Republic of Iran Shipping Lines in Tehran, Iran, without an OFAC license. Oxbow did not voluntarily disclose the alleged violations to OFAC, but OFAC noted that the company “demonstrated cooperation” during OFAC’s review of the alleged violations and has made revisions to its compliance program as a remedial measure.
- National Marine Consultants, Inc. has remitted $42,075 to settle allegations of violations of the Iranian Transactions Regulations. OFAC alleged that between March 2005 and May 2007 NMCI outsourced to an Iranian entity inspection services it was contractually bound to perform for a third-party, without an OFAC license. NMCI did not voluntarily disclose the matter to OFAC, but later cooperated with OFAC’s investigation.
- Philips Electronics of North America Corporation, a New York, NY company, has remitted $128,750 to settle allegations of violations of the Cuban Assets Control Regulations occurring between June 2004 and March 2006. OFAC alleged that PENAC acted without an OFAC license through an employee’s travel to Cuba in connection with the sale of medical equipment by a foreign affiliate of PENAC. PENAC voluntarily disclosed this matter to OFAC.
- Willbros USA, Inc. of Houston, Texas, paid $6,600 to settle an allegation of violation of the Sudanese Sanctions Regulations occurring between June 18, 2003 and December 29, 2004. OFAC alleged that Willbros willfully violated the Regulations when it entered into a contract to bid on an oil development project in Sudan, despite its knowledge that such activities violated the Regulations, by facilitating the export of goods, technology or services to Sudan and evading the prohibitions set forth in the Regulations. Willbros voluntarily disclosed this matter to OFAC. OFAC applied its 2003 Economic Sanctions Enforcement Guidelines to this violation because Willbros and OFAC agreed to settle the allegation of violation, and memorialized the tentative agreement, prior to the issuance of OFAC’s Civil Penalties Interim Policy of November 27, 2007.
Illinois Company Has Export Privileges Suspended
06/19/09 02:41 PM
On June 18, 2009, the Bureau of Industry and Security (BIS) issued a notice in Federal Register detailing the sentencing of TAK Components, Inc. (TAK), an Illinois firm that was convicted of 16 counts of the International Emergency Economic Powers Act (IEEPA) violations in October, 2007.
TAK exported from the U.S. to Iran, via the United Arab Emirates, replacement and service parts and equipment for agricultural machinery without the requisite authorization from the Department of Treasury’s Office of Foreign Assets Control (OFAC).
TAK was sentenced to one year probation for each count, to run concurrently, was ordered to pay a special assessment of $6,400, and forfeited $181,000 obtained from the illegal transactions. TAK’s export privileges will be suspended until October 11, 2012.
TAK exported from the U.S. to Iran, via the United Arab Emirates, replacement and service parts and equipment for agricultural machinery without the requisite authorization from the Department of Treasury’s Office of Foreign Assets Control (OFAC).
TAK was sentenced to one year probation for each count, to run concurrently, was ordered to pay a special assessment of $6,400, and forfeited $181,000 obtained from the illegal transactions. TAK’s export privileges will be suspended until October 11, 2012.
Mattel Agrees to Pay $2.3M Fine for Allegedly Excessive Amounts of Lead in Toys
06/13/09 02:39 PM
On June 12, 2009, the U.S. Consumer Product Safety Commission (CPSC) issued a notice in Federal Register announcing that Mattel, Inc. (Mattel) and its wholly-owned subsidiary Fisher-Price, Inc. (Fisher-Price) have agreed to settle with CPSC the alleged violations of the Commission’s Ban of Lead-Containing Paint and Certain Consumer Products Bearing Lead Containing Paint (Lead Regulations).
CPSC alleged that Mattel and Fisher-Price imported from China to the U.S. thousands of units of various toys between July 2006 and August 2007. The subject toys were subject to CPSC’s Lead Regulations, and, upon testing, were found to contain lead in excess of federal standards.
As part of the settlement agreement, Mattel and Fisher-Price have agreed to pay a $2.3 million fine.
CPSC alleged that Mattel and Fisher-Price imported from China to the U.S. thousands of units of various toys between July 2006 and August 2007. The subject toys were subject to CPSC’s Lead Regulations, and, upon testing, were found to contain lead in excess of federal standards.
As part of the settlement agreement, Mattel and Fisher-Price have agreed to pay a $2.3 million fine.
Exporter Sentenced for Export of Aircraft Parts to Iran
06/12/09 02:09 PM
On June 11, 2009, the U.S. Department of Justice (DOJ) issued a press release announcing the sentencing of Traian Bujduveanu (Bujduveanu) for his participation in conspiracy to illegally export military and dual use aircraft parts to Iran.
Bujduveanu was sentenced in a U.S. Southern District of Florida Court to 35 months imprisonment, followed by 3 years of supervised release. Bujduveanu plead guilty in April, 2009 to conspiracy to export and export of aircraft parts from the U.S. to Iran, in violation of the Iran Embargo, the International Emergency Economic Powers Act (IEEPA), and the Arms Export Control Act (AECA).
Bujduveanu, a Romanian national and a naturalized U.S. citizen, admitted that he and his Orion Aviation corporation in Plantation, FL, sold aircraft parts to Hassan Keshari and Kesh Air International, who used a freight forwarder in Dubai, UAE, to forward the parts to Iran. Some of the parts exported were designed exclusively for fighter jets and military helicopters, and all are used in the Iranian military fleet.
All parts exported were designated by the U.S. Department of State as defense articles on the U.S. Munitions List, thus requiring export authorization from the Directorate of Defense Trade Controls with the Department of State. Neither Bujduveanu nor his co-defendants had such authorization.
Bujduveanu received from Keshari e-mails detailing specific aircraft part orders for buyers in Iran, and would ship the parts to a company in Dubai using false shipping documents. The parts would then be forwarded to the purchasers in Iran.
Bujduveanu was sentenced in a U.S. Southern District of Florida Court to 35 months imprisonment, followed by 3 years of supervised release. Bujduveanu plead guilty in April, 2009 to conspiracy to export and export of aircraft parts from the U.S. to Iran, in violation of the Iran Embargo, the International Emergency Economic Powers Act (IEEPA), and the Arms Export Control Act (AECA).
Bujduveanu, a Romanian national and a naturalized U.S. citizen, admitted that he and his Orion Aviation corporation in Plantation, FL, sold aircraft parts to Hassan Keshari and Kesh Air International, who used a freight forwarder in Dubai, UAE, to forward the parts to Iran. Some of the parts exported were designed exclusively for fighter jets and military helicopters, and all are used in the Iranian military fleet.
All parts exported were designated by the U.S. Department of State as defense articles on the U.S. Munitions List, thus requiring export authorization from the Directorate of Defense Trade Controls with the Department of State. Neither Bujduveanu nor his co-defendants had such authorization.
Bujduveanu received from Keshari e-mails detailing specific aircraft part orders for buyers in Iran, and would ship the parts to a company in Dubai using false shipping documents. The parts would then be forwarded to the purchasers in Iran.
Exporter Sentenced in Arms Export Conspiracy
05/18/09 01:06 AM
On May 18, 2009, CBS News reported that Joseph Piquet, a 55-year old Port St. Lucie, Florida man, was sentenced to 5 years in prison followed by two years of supervised release for his participation in conspiracy to export arms.
Piquet was charged with seven counts of arms export violations arising from conspiracy to purchase military use electronic components from Northrop Grumman Corporation, and then ship those items to China and Hong Kong without obtaining the required export licenses under the Arms Export Control Act (AECA) and the International Emergency Economic Powers Act (IEEPA). A federal jury in Fort Pierce convicted Piquet on all counts on March 5th.
Among the items involved in the conspiracy were high power amplifiers designed for U.S. military use and low noise amplifiers that have a dual – commercial and military – use. The testimony showed that on several occasions in 2004 and 2005, Piquet purchased restricted electronic parts and submitted false End Use Certificates to the manufacturer to conceal the intended final destination for those exports.
Piquet was charged with seven counts of arms export violations arising from conspiracy to purchase military use electronic components from Northrop Grumman Corporation, and then ship those items to China and Hong Kong without obtaining the required export licenses under the Arms Export Control Act (AECA) and the International Emergency Economic Powers Act (IEEPA). A federal jury in Fort Pierce convicted Piquet on all counts on March 5th.
Among the items involved in the conspiracy were high power amplifiers designed for U.S. military use and low noise amplifiers that have a dual – commercial and military – use. The testimony showed that on several occasions in 2004 and 2005, Piquet purchased restricted electronic parts and submitted false End Use Certificates to the manufacturer to conceal the intended final destination for those exports.
Exporter Settles Allegations of U.S. Export Regulations with a Civil Penalty
05/01/09 01:05 AM
On May 1, 2009, the Bureau of Industry and Security (BIS) announced that B.J. Services Company agreed to settle allegations that it exported certain butterfly and check valves in violation of the Export Administration Regulations (EAR) with an $800,000 civil fine.
The allegations against the company involved 63 cases of unlicensed exports to several countries during 2003 and 2007. The exports were controlled under Export Commodity Classification No. 2B350 for reasons of chemical and biological weapons proliferation.
The company voluntarily disclosed its EAR violations and fully cooperated in the investigation.
The allegations against the company involved 63 cases of unlicensed exports to several countries during 2003 and 2007. The exports were controlled under Export Commodity Classification No. 2B350 for reasons of chemical and biological weapons proliferation.
The company voluntarily disclosed its EAR violations and fully cooperated in the investigation.
Exporter Charged With Violations of U.S. Export Regulations and False Statements to Government Agency
04/06/09 03:31 PM
On April 6, 2009, the Department of Justice (DOJ) announced that federal grand jury sitting in San Jose, California, indicted Fu-Tain Lu (Lu), Funshine Technology, Inc. (Funshine), and Everjet Science and Technology Corporation (Everjet), charging them with conspiracy to violate U.S. export regulations and with lying to federal agents investigating Lu’s conduct.
Funshine, based in Cupertino, California, and Everjet, based in China, were founded by Lu. The indictment alleges that Lu and his two companies conspired to export sensitive microware amplifier technology to China without obtaining the required licenses or authorization from the U.S. Department of Commerce. Items that Funshine shipped and attempted to ship to China were restricted for reasons of national security.
The indictment details that the defendants knew about the licensing restrictions but chose not to comply. Charges against Lu and the companies are supported, in part, by using internal company e-mails in which an Everjet employee told a Funshine employee, “Since these products are a little bit sensitive, in case the maker asks you where the location of the end user is, please do not mention it is in China.” In another e-mail, Lu advised an employee to pretend that the intended end-user for the goods was in Singapore, not China.
Lu, as an individual defendant, faces five years imprisonment and a $250,000 fine (or, twice the gross financial gain from the offense) on each of the counts of conspiracy to violate export regulations and false statements to a government agency; for charges of violation of export regulations, the statutory maximum penalty is 10 years imprisonment and a $50,000 fine, or twice the gross gain from the offense.
Funshine, based in Cupertino, California, and Everjet, based in China, were founded by Lu. The indictment alleges that Lu and his two companies conspired to export sensitive microware amplifier technology to China without obtaining the required licenses or authorization from the U.S. Department of Commerce. Items that Funshine shipped and attempted to ship to China were restricted for reasons of national security.
The indictment details that the defendants knew about the licensing restrictions but chose not to comply. Charges against Lu and the companies are supported, in part, by using internal company e-mails in which an Everjet employee told a Funshine employee, “Since these products are a little bit sensitive, in case the maker asks you where the location of the end user is, please do not mention it is in China.” In another e-mail, Lu advised an employee to pretend that the intended end-user for the goods was in Singapore, not China.
Lu, as an individual defendant, faces five years imprisonment and a $250,000 fine (or, twice the gross financial gain from the offense) on each of the counts of conspiracy to violate export regulations and false statements to a government agency; for charges of violation of export regulations, the statutory maximum penalty is 10 years imprisonment and a $50,000 fine, or twice the gross gain from the offense.
Iranian National Charged with Violations of IEEPA, AECA, and the U.S. Iran Embargo
04/06/09 03:17 PM
On April 6, 2009, the Department of Justice (DOJ) issued a press release announcing that Baktash Fattahi, an Iranian national and U.S. resident, was arrested on April 3, 2009, in California, on charges of conspiring to illegally export parts for fighter jets and military helicopters to Iran, a violation of the International Emergency Economic Powers Act (IEEPA), the Arms Export Control Act (AECA), and the U.S. Iran Embargo.
In an indictment, a Miami federal grand jury charged that Fattahi and ten other defendants conspired to and illegally shipped thirteen different types of aircraft parts designated as defense articles on the USML from the U.S. to Iran via Dubai, U.A.E.. The specific parts are known to be used primarily by the Iranian military. All of the parts exported were manufactured in the U.S., designed exclusively for military use, and designated by the U.S. Department of State as “defense articles” on the USML, which requires registration and licensing with the DDTC. Neither Fattahi nor other defendants were registered or obtained licenses from DDTC to ship these goods to Iran.
The indictment alleges that the defendants in Iran sent, via e-mail, orders to a co-conspirator in Novato, California, for specific aircraft parts. The co-conspirator in California would, allegedly, contact a counterpart in Florida and would make arrangements for the sale and shipment of the parts to one of the several defendant counterparts in Dubai. The parts were then shipped from Dubai to their final destination in Iran.
If convicted, the defendants face a statutory ten to twenty years imprisonment, and a fine of up to $1 million.
In an indictment, a Miami federal grand jury charged that Fattahi and ten other defendants conspired to and illegally shipped thirteen different types of aircraft parts designated as defense articles on the USML from the U.S. to Iran via Dubai, U.A.E.. The specific parts are known to be used primarily by the Iranian military. All of the parts exported were manufactured in the U.S., designed exclusively for military use, and designated by the U.S. Department of State as “defense articles” on the USML, which requires registration and licensing with the DDTC. Neither Fattahi nor other defendants were registered or obtained licenses from DDTC to ship these goods to Iran.
The indictment alleges that the defendants in Iran sent, via e-mail, orders to a co-conspirator in Novato, California, for specific aircraft parts. The co-conspirator in California would, allegedly, contact a counterpart in Florida and would make arrangements for the sale and shipment of the parts to one of the several defendant counterparts in Dubai. The parts were then shipped from Dubai to their final destination in Iran.
If convicted, the defendants face a statutory ten to twenty years imprisonment, and a fine of up to $1 million.
IEEPA Charges Filed Against an Iranian Man and Company
03/17/09 05:21 PM
On March 16, 2009, the Department of Justice (DOJ) issued a press release stating that Ali Khoshnevisrad (Khoshnevisrad) was arrested on March 14, 2009, after he arrived in San Francisco International Airport on a flight from abroad. On March 16, 2009, Khoshnevisrad, a citizen of Iran, and his Iranian company Ariasa, AG (Ariasa) were charged with purchasing helicopter engines and advanced aerial cameras for fighter bombers from U.S. firms and illegally exporting them to Iran using companies in Ireland, Malaysia and the Netherlands. One of the alleged recipients of the U.S. goods was an Iranian military firm that has since been designated by the U.S. as owned or controlled by entities involved in Iran’s nuclear and ballistic missile program.
Khoshnevisrad and his company Ariasa are each charged with two counts of unlawful export of U.S. goods to Iran and two counts of conspiracy to unlawfully export U.S. goods to Iran, in violation of the International Emergency Economic Powers Act (IEEPA) and the Iranian Transactions Regulations (ITR).
According to the affidavit in support of the criminal complaint filed in August 2008, Khoshnevisrad and Ariasa instructed a trading company in Ireland to purchase several model 250 turbo-shaft helicopter engines from Rolls-Royce Corp in Indiana. This type of engine was originally designed for a U.S. Army light observation helicopter and is now installed in civil and military helicopters. The Irish trading company purchased 17 of the engines for a total of $4.27 million, falsely stating that the helicopters would be used by the Irish company or by fake companies. The affidavit alleges that these helicopter engines were exported from the U.S. to a company in Malaysia pretending to be a book publisher, at a freight forwarding company address. From there, the engines were shipped to Iran. Among the recipients was the Iran Aircraft Manufacturing Industrial Company, known by its Iranian acronym as HESA. In September 2008, HESA was designated by the Treasury Department as an Iranian proliferator of weapons of mass destruction.
The affidavit further alleges that Khoshnevisrad and Ariasa instructed in 2006 a Dutch aviation parts company to place an order for several aerial panorama cameras from the U.S. The specific cameras were designed for the U.S. Air Force, for use on bombers, fighters and surveillance aircraft. The Dutch company was supposed to place the order with a Pennsylvania company and to ship them to an address in Iran. Khoshnevisrad, knowing that Iranian end user would be prohibited in this case, instructed the Dutch company to “give them an end user by yourself.” In August 2006, a representative of the Dutch company notified Khoshnevisrad that the cameras were received and would soon be shipped to Tehran.
The affidavit alleges that neither Khoshnevisrad nor Ariasa ever sought an authorization or a license from the U.S. Department of Treasure to export any goods or technology to Iran. If convicted, Khoshnevisrad faces a prison sentence of up to 20 years for each of the first three counts of the complaint, and a prison sentence of up to five years on the fourth count.
Khoshnevisrad and his company Ariasa are each charged with two counts of unlawful export of U.S. goods to Iran and two counts of conspiracy to unlawfully export U.S. goods to Iran, in violation of the International Emergency Economic Powers Act (IEEPA) and the Iranian Transactions Regulations (ITR).
According to the affidavit in support of the criminal complaint filed in August 2008, Khoshnevisrad and Ariasa instructed a trading company in Ireland to purchase several model 250 turbo-shaft helicopter engines from Rolls-Royce Corp in Indiana. This type of engine was originally designed for a U.S. Army light observation helicopter and is now installed in civil and military helicopters. The Irish trading company purchased 17 of the engines for a total of $4.27 million, falsely stating that the helicopters would be used by the Irish company or by fake companies. The affidavit alleges that these helicopter engines were exported from the U.S. to a company in Malaysia pretending to be a book publisher, at a freight forwarding company address. From there, the engines were shipped to Iran. Among the recipients was the Iran Aircraft Manufacturing Industrial Company, known by its Iranian acronym as HESA. In September 2008, HESA was designated by the Treasury Department as an Iranian proliferator of weapons of mass destruction.
The affidavit further alleges that Khoshnevisrad and Ariasa instructed in 2006 a Dutch aviation parts company to place an order for several aerial panorama cameras from the U.S. The specific cameras were designed for the U.S. Air Force, for use on bombers, fighters and surveillance aircraft. The Dutch company was supposed to place the order with a Pennsylvania company and to ship them to an address in Iran. Khoshnevisrad, knowing that Iranian end user would be prohibited in this case, instructed the Dutch company to “give them an end user by yourself.” In August 2006, a representative of the Dutch company notified Khoshnevisrad that the cameras were received and would soon be shipped to Tehran.
The affidavit alleges that neither Khoshnevisrad nor Ariasa ever sought an authorization or a license from the U.S. Department of Treasure to export any goods or technology to Iran. If convicted, Khoshnevisrad faces a prison sentence of up to 20 years for each of the first three counts of the complaint, and a prison sentence of up to five years on the fourth count.
Director of Singapore Firm Pleads Guilty to Illegal Exporting to Iran
03/15/09 05:25 PM
The Department of Justice (DOJ) issued a press release announcing that Laura Wang-Woodford (Wang-Woodford), a U.S. citizen and a director of Monarch Aviation Pte, Ltd. (Monarch), pled guilty on March 13, 2009 to conspiring to violate the U.S. trade embargo by exporting controlled aircraft components to Iran.
Monarch is a Singapore company that traded in military and commercial aircraft parts for over 20 years. Wang-Woodford was arrested in December 2007, at San Francisco International Airport after arriving from Hong Kong, and has been incarcerated since then. Both Wang-Woodford and her husband Brian D. Woodford, a U.K. citizen who served as chairman and managing director of Monarch, were originally charged in a 20-count indictment returned in the Eastern District of New York in January 2003. While Brian D. Woodford is a fugitive, a superseding indictment charging Wang-Woodford with operating Jungda International Pte. Ltd (Jungda), a Singapore successor to Monarch, was returned on May 22, 2008.
The current indictment against the Woodfords alleges that between January 1998 and December 2007 defendants exported controlled U.S. aircraft parts from the U.S. to Monarch and Jungda in Singapore and Malaysia and then re-exported those parts to Tehran without obtaining the required U.S. government licenses. The aircraft parts included aircraft shields, shears, switch assemblies, and “o” rings. The defendants falsely listed Monarch and Jungda as the ultimate recipients of the parts on the U.S. export documents. The current indictment also charges that the defendants arranged for the illegal export of U.S. military aircraft equipment to Monarch, to be used in Chinook military helicopters.
When Wang-Woodford was arrested in San Francisco, she had the China National Precision Machinery Import and Export Corporation (CPMIEC) catalogues with her, which contained advertisements for military technology and weaponry. CPMIEC has been sanctioned by the U.S. Treasury Department Office of Foreign Assets Controls (OFAC) for their sales of military hardware to Iran. Engaging in business with CPMIEC is prohibited for all U.S. persons.
Wang-Woodford faces a prison sentence of up to five years and a fine of up to $250,000. She also agreed to forfeit $500,000 to the U. S. Treasury Department.
Monarch is a Singapore company that traded in military and commercial aircraft parts for over 20 years. Wang-Woodford was arrested in December 2007, at San Francisco International Airport after arriving from Hong Kong, and has been incarcerated since then. Both Wang-Woodford and her husband Brian D. Woodford, a U.K. citizen who served as chairman and managing director of Monarch, were originally charged in a 20-count indictment returned in the Eastern District of New York in January 2003. While Brian D. Woodford is a fugitive, a superseding indictment charging Wang-Woodford with operating Jungda International Pte. Ltd (Jungda), a Singapore successor to Monarch, was returned on May 22, 2008.
The current indictment against the Woodfords alleges that between January 1998 and December 2007 defendants exported controlled U.S. aircraft parts from the U.S. to Monarch and Jungda in Singapore and Malaysia and then re-exported those parts to Tehran without obtaining the required U.S. government licenses. The aircraft parts included aircraft shields, shears, switch assemblies, and “o” rings. The defendants falsely listed Monarch and Jungda as the ultimate recipients of the parts on the U.S. export documents. The current indictment also charges that the defendants arranged for the illegal export of U.S. military aircraft equipment to Monarch, to be used in Chinook military helicopters.
When Wang-Woodford was arrested in San Francisco, she had the China National Precision Machinery Import and Export Corporation (CPMIEC) catalogues with her, which contained advertisements for military technology and weaponry. CPMIEC has been sanctioned by the U.S. Treasury Department Office of Foreign Assets Controls (OFAC) for their sales of military hardware to Iran. Engaging in business with CPMIEC is prohibited for all U.S. persons.
Wang-Woodford faces a prison sentence of up to five years and a fine of up to $250,000. She also agreed to forfeit $500,000 to the U. S. Treasury Department.
KBR & Halliburton Agree to $579 Million Settlement for Violations of the Foreign Corrupt Practices Act
02/12/09 05:28 PM
The DOJ announced on February 11, 2009, that Kellogg Brown & Root LLC (KBR), a global engineering, construction and services company based in Houston, pleaded guilty to charges related to the Foreign Corrupt Practices Act (FCPA) for its participation in a decade-long scheme to bribe Nigerian government officials to obtain engineering, procurement and construction (EPC) contracts. The contracts to build liquefied natural gas (LNG) facilities on Bonny Island, Nigeria, were valued at more than $6 billion.
KBR agreed to pay a $402 million criminal fine. According to court documents, KBR was part of a four-company joint venture that was awarded four EPC contracts by Nigeria LNG Ltd. (NLNG) between 1995 and 2004 to build LNG facilities on Bonny Island. The government-owned Nigerian National Petroleum Corporation (NNPC) was the largest shareholder of NLNG, owning 49 percent of the company.
Under the terms of the plea agreement, KBR agreed to retain an independent compliance monitor for a three-year period to review the design and implementation of KBR's compliance program and to make reports to KBR and the Department of Justice. KBR also agreed to cooperate with the Department in its ongoing investigations. KBR's parent company, KBR Inc., and its former parent company, Halliburton Company, also reached a settlement of a related civil complaint filed by the U.S. Securities and Exchange Commission (SEC). The SEC's complaint charged KBR Inc. with violating the FCPA's anti-bribery provisions, and charged KBR and Halliburton with engaging in books and records and internal controls violations related to the bribery. KBR Inc. and Halliburton jointly agreed to pay $177 million in disgorgement of profits relating to those violations.
Combined, the $579 million in fines constitutes the largest settlement of FCPA violations by any U.S. company in history.
Combined, the $579 million in fines constitutes the largest settlement of FCPA violations by any U.S. company in history.
California & Taiwan Companies Lose Export Privileges for 20 Years
02/07/09 05:30 PM
On February 6, 2009, the Bureau of Industry and Security (BIS) announced that Well Being Enterprise Co., Ltd. ("Well Being") of Taiwan and Elecmat, Inc. of San Francisco, CA settled allegations and each agreed to 20 year denials of export privileges. Well Being also agreed to a civil penalty of $250,000 to settle allegations that it committed 25 violations of the Export Administration Regulations (EAR) related to the unlicensed export of chemicals and metals from the United States to Taiwan that are controlled for Nuclear Proliferation reasons. In addition, Hui-Fen Chen, a Well Being employee, has agreed to a twenty-year denial of export privileges for items on the Commerce Control List (CCL), and Theresa Chang, Elecmat’s former manger, has agreed to a two-year denial of export privileges for items on the CCL.
The denial orders imposed against Well Being, Chen and Chang prohibit them from participating in, or benefiting from, any transaction involving the export of an item listed on the CCL. The denial order imposed against Elecmat prohibits it from participating in, or benefiting from, any transaction involving the export of all items subject to the EAR. BIS has agreed to suspend $220,000 of Well Being’s fine, provided that, in the next five years, no additional violations occur.
Kevin Delli-Colli, Acting Assistant Secretary of Commerce for Export Enforcement stated that, "Individuals who devise schemes and willfully circumvent U.S. export controls warrant having their export privileges suspended. This case demonstrates that domestic sales of controlled items to persons with no technical understanding of the product should be considered a red-flag."
The denial orders imposed against Well Being, Chen and Chang prohibit them from participating in, or benefiting from, any transaction involving the export of an item listed on the CCL. The denial order imposed against Elecmat prohibits it from participating in, or benefiting from, any transaction involving the export of all items subject to the EAR. BIS has agreed to suspend $220,000 of Well Being’s fine, provided that, in the next five years, no additional violations occur.
Kevin Delli-Colli, Acting Assistant Secretary of Commerce for Export Enforcement stated that, "Individuals who devise schemes and willfully circumvent U.S. export controls warrant having their export privileges suspended. This case demonstrates that domestic sales of controlled items to persons with no technical understanding of the product should be considered a red-flag."
Optics Company Agrees to a $25 Million Civil Penalty for ITAR Violations
01/30/09 05:32 PM
On December 5, 2008, Qioptiq S.a.r.l., a Luxemborg optics company, agreed to a Consent Agreement with the Directorate of Defense Trade Controls (DDTC) involving a $25 million civil penalty. The Proposed Charging Letter outlines the facts and circumstances surrounding the 163 alleged violations of the Arms Export Control Act (AECA). DDTC has also published the Order in the matter and an Annex of Compliance Measures.
Qioptiq, an optics company with operations in the U.S., Singapore, UK, Germany and Hungary, had acquired Thales High Technology Optic Group companies. These companies were primarily involved in the manufacturing of quality optic components for use in both commercial and military applications. A large portion of Thales Singapore's business was and continues to be the manufacturing of military optics used in night vision equipment. U.S. night vision equipment manufacturers relied heavily on the Singaporean facility for supplying optical components, sub-assemblies, and related parts. Thales Singapore was an important supplier to ITT Night Vision.
Qioptiq, an optics company with operations in the U.S., Singapore, UK, Germany and Hungary, had acquired Thales High Technology Optic Group companies. These companies were primarily involved in the manufacturing of quality optic components for use in both commercial and military applications. A large portion of Thales Singapore's business was and continues to be the manufacturing of military optics used in night vision equipment. U.S. night vision equipment manufacturers relied heavily on the Singaporean facility for supplying optical components, sub-assemblies, and related parts. Thales Singapore was an important supplier to ITT Night Vision.
VP of California Company Arrested for Illegal IC Exports to China
01/12/09 05:38 PM
On January 10, 2009, William Chai-Wai Tsu, vice president of Cheerway, Inc., was arrested on charges of illegally exporting “miniscule” integrated circuits (which have potential use in sophisticated communications and military radar systems) in violation of the International Emergency Economic Powers Act (IEEPA). Tsu, a resident of Beijing and a naturalized U.S. citizen, made his initial court appearance on Monday following his arrest, where his formal arraignment was scheduled for February 2, 2008.
The court documents allege that Tsu purchased the ICs from a San Jose-based distributor. Tsu allegedly told the distributor that the ICs would not be exported from the U.S. The Department of Justice states that Tsu’s arrest was a result of investigation initiated by the agents of DOC and the Federal Bureau of Investigation (FBI), who opened the probe after receiving a lead on Tsu’s activities from their local counterparts in San Jose, California. The DOJ stated:
If convicted, Tsu faces up to 20 years in prison.
The court documents allege that Tsu purchased the ICs from a San Jose-based distributor. Tsu allegedly told the distributor that the ICs would not be exported from the U.S. The Department of Justice states that Tsu’s arrest was a result of investigation initiated by the agents of DOC and the Federal Bureau of Investigation (FBI), who opened the probe after receiving a lead on Tsu’s activities from their local counterparts in San Jose, California. The DOJ stated:
This case is the product of an investigation by the recently created Export and Anti-proliferation Global Law Enforcement (EAGLE) Task Force. The counter-proliferation task force was recently created by the United States Attorney's Office for the Central District of California in conjunction with federal law enforcement agencies to jointly investigate and combat the illegal exports of arms and sensitive technologies. Members of the EAGLE Task Force include the U.S. Department of Commerce, Bureau of Industry and Security, Office of Export and Enforcement; ICE; the FBI; U.S. Customs and Border Protection; the Diplomatic Security Service and the Transportation Security Administration.
If convicted, Tsu faces up to 20 years in prison.
Prosecution of Export Controls Violations Increased in the Past Year
10/28/08 12:35 AM
On October 28, 2008, the U.S. Department of Justice issued a statement in which it announced that the National Export Enforcement Initiative (NEEI), a multi-agency effort to combat illegal exports of restricted military and dual-use technology, has led to criminal charges against more that 145 defendants in the past fiscal year.
The NEEI was established in October 2007 and is designed to increase coordination among agencies involved in export controls, to enhance prosecution of these crimes, and to deter illicit exports. The 145 defendants in export controls and embargo cases in FY 2008 are an increase from the 110 charged in FY 2007. Charges brought in these cases include violations of the Arms Export Control Act (AECA), the International Emergency Economic Powers Act (IEEPA), the export control provision of the Patriot Reauthorization Act (PRA), the Trading with the Enemy Act (TEA), and other statutes.
About 43 percent of the defendants charged in FY 2008 were charged in export control or embargo cases that involved munitions or other restricted technology that were bound for Iran or China. Iran ranked as the leading destination for illegal exports of restricted technology in the prosecutions brought in both FY 2007 and FY 2008.
The illegal exports bound for Iran have involved such items as missile guidance systems, Improvised Explosive Device (IED) components, military aircraft parts, and night vision systems. The illegal exports to China have involved rocket launch data, space shuttle technology, missile technology, naval warship data, Unmanned Aerial Vehicle or “drone” technology, thermal imaging systems, military night vision systems and other materials. A significant portion of the cases in FY 2007 and FY 2008 involved illegal exports to Mexico. These prosecutions primarily involved illegal exports of firearms and large quantities of ammunition destined for Mexico.
The most recent indictment under the NEEI was returned on October 28, 2008, against three individuals in the District Court of Minnesota, charging them with conspiring to illegally export to China controlled carbon-fiber material with applications in rockets, satellites, spacecraft, and uranium enrichment process.
The U.S. Military items, dual-use equipment, and technological expertise may not be exported without the U.S. government approval. Foreign procurement networks rarely target complete weapons systems, but often focus on components to obtain their own weapons systems.
The NEEI was established in October 2007 and is designed to increase coordination among agencies involved in export controls, to enhance prosecution of these crimes, and to deter illicit exports. The 145 defendants in export controls and embargo cases in FY 2008 are an increase from the 110 charged in FY 2007. Charges brought in these cases include violations of the Arms Export Control Act (AECA), the International Emergency Economic Powers Act (IEEPA), the export control provision of the Patriot Reauthorization Act (PRA), the Trading with the Enemy Act (TEA), and other statutes.
About 43 percent of the defendants charged in FY 2008 were charged in export control or embargo cases that involved munitions or other restricted technology that were bound for Iran or China. Iran ranked as the leading destination for illegal exports of restricted technology in the prosecutions brought in both FY 2007 and FY 2008.
The illegal exports bound for Iran have involved such items as missile guidance systems, Improvised Explosive Device (IED) components, military aircraft parts, and night vision systems. The illegal exports to China have involved rocket launch data, space shuttle technology, missile technology, naval warship data, Unmanned Aerial Vehicle or “drone” technology, thermal imaging systems, military night vision systems and other materials. A significant portion of the cases in FY 2007 and FY 2008 involved illegal exports to Mexico. These prosecutions primarily involved illegal exports of firearms and large quantities of ammunition destined for Mexico.
The most recent indictment under the NEEI was returned on October 28, 2008, against three individuals in the District Court of Minnesota, charging them with conspiring to illegally export to China controlled carbon-fiber material with applications in rockets, satellites, spacecraft, and uranium enrichment process.
The U.S. Military items, dual-use equipment, and technological expertise may not be exported without the U.S. government approval. Foreign procurement networks rarely target complete weapons systems, but often focus on components to obtain their own weapons systems.
OFAC Issues New Economic Sanctions Enforcement Guidelines
09/10/08 11:05 PM
On September 8, 2008, the Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury published in the Federal Register an interim final rule, “Economic Sanctions Enforcement Guidelines” (Guidelines). The Guidelines are applicable to all persons subject to any of the sanctions programs administered by OFAC, including matters that fall under International Emergency Economic Powers Act (IEEPA) and Trading With the Enemy Act (TWEA).
The Guidelines establish several significant changes from the 2003 proposed rule.
First, rather than identifying “aggravating” and “mitigating” factors, the Guidelines set forth General Factors for Taking Administrative Action (General Factors) that OFAC will consider in determining an appropriate enforcement response to an apparent violation and, if a civil monetary penalty is warranted, in establishing the amount of the penalty. The Guidelines reflect a realization that in many cases, a particular factor may be considered either “aggravating” or “mitigating” (e.g. remedial action was considered a mitigating factor under 2003 rules; but, absence of remedial action considered as aggravating factor).
Some or all of the following General Factors will be considered in determining the appropriate administrative action in response to an apparent violation of U.S. sanctions by a person, and, where a civil monetary penalty is imposed, the amount of such penalty:
A. Willful or reckless violation of law,
B. Awareness of conduct at issue,
C. Harm to sanctions program objectives,
D. Individual characteristics of the subject person,
E. Compliance program,
F. Remedial response,
G. Cooperation with OFAC,
H. Timing of apparent violation in relation to imposition of sanctions,
I. Other enforcement actions taken by federal, state or local agencies against the subject person,
J. Future compliance / Deterrence effect, and
K. Other relevant facts on a case-by-case basis.
Second significant development is that the Guidelines provide for the issuance of either cautionary letters or findings of violation under certain circumstances, rather than the cautionary letters and warning letters provided for under the 2003 proposed rule and the evaluative letters provided for in the 2006 interim final rule.
Third, in recognition of OFAC’s position that enhanced maximum civil penalties authorized by the Enhancement Act should be reserved for the most serious cases, the Guidelines distinguish between egregious and non-egregious civil monetary penalty cases. Egregious cases are defined as those representing the most serious sanctions violations, based on an analysis of all applicable General Factors.
Fourth, in those cases in which the imposition of a civil monetary penalty is deemed appropriate, the Guidelines provide a new process for determining the penalty amount. This process involves first determining a base penalty amount, which is based on two considerations: (i) whether the conduct, activity, or transaction giving rise to a violation is egregious or non-egregious, and (ii) whether the case involves a voluntary self-disclosure by the subject person. The existence or lack of a voluntary self-disclosure is a major factor in establishing the penalty amount. The base penalty amount for a case involving self-disclosure reflects a 50 percent or more reduction from the base penalty amount that would otherwise be applicable.
Thus, under the Guidelines, the base penalty amount in a case determined to be non-egregious and involving voluntary self disclosure will not exceed one-half of the transaction value (capped at $125,000 per violation), while in an egregious case without voluntary self-disclosure, the penalty may reach the applicable statutory maximum.
Once a base penalty amount is determined based on the transaction value and egregiousness / voluntary self-disclosure factors, the amount may be adjusted upward or downward based on the other General Factors.
With respect to responses to apparent violations, depending on the facts and circumstances of a particular case, an OFAC investigation may lead to one or more of the following actions:
A. No action,
B. Request for additional information,
C. Cautionary letter,
D. Finding of violation,
E. Civil monetary penalty,
F. Criminal referral, or
G. Other administrative actions, including (1) License denial, suspension, modification, or revocation, and (2) Cease and desist order.
In establishing the amount of civil penalties, including for failure to furnish information or to keep records, OFAC will review the facts and circumstances surrounding an apparent violation and apply the General Factors.
Although this interim final rule is effective immediately, OFAC is soliciting comments for a 60-day period with a view of improving the Guidelines.
The Guidelines establish several significant changes from the 2003 proposed rule.
First, rather than identifying “aggravating” and “mitigating” factors, the Guidelines set forth General Factors for Taking Administrative Action (General Factors) that OFAC will consider in determining an appropriate enforcement response to an apparent violation and, if a civil monetary penalty is warranted, in establishing the amount of the penalty. The Guidelines reflect a realization that in many cases, a particular factor may be considered either “aggravating” or “mitigating” (e.g. remedial action was considered a mitigating factor under 2003 rules; but, absence of remedial action considered as aggravating factor).
Some or all of the following General Factors will be considered in determining the appropriate administrative action in response to an apparent violation of U.S. sanctions by a person, and, where a civil monetary penalty is imposed, the amount of such penalty:
A. Willful or reckless violation of law,
B. Awareness of conduct at issue,
C. Harm to sanctions program objectives,
D. Individual characteristics of the subject person,
E. Compliance program,
F. Remedial response,
G. Cooperation with OFAC,
H. Timing of apparent violation in relation to imposition of sanctions,
I. Other enforcement actions taken by federal, state or local agencies against the subject person,
J. Future compliance / Deterrence effect, and
K. Other relevant facts on a case-by-case basis.
Second significant development is that the Guidelines provide for the issuance of either cautionary letters or findings of violation under certain circumstances, rather than the cautionary letters and warning letters provided for under the 2003 proposed rule and the evaluative letters provided for in the 2006 interim final rule.
Third, in recognition of OFAC’s position that enhanced maximum civil penalties authorized by the Enhancement Act should be reserved for the most serious cases, the Guidelines distinguish between egregious and non-egregious civil monetary penalty cases. Egregious cases are defined as those representing the most serious sanctions violations, based on an analysis of all applicable General Factors.
Fourth, in those cases in which the imposition of a civil monetary penalty is deemed appropriate, the Guidelines provide a new process for determining the penalty amount. This process involves first determining a base penalty amount, which is based on two considerations: (i) whether the conduct, activity, or transaction giving rise to a violation is egregious or non-egregious, and (ii) whether the case involves a voluntary self-disclosure by the subject person. The existence or lack of a voluntary self-disclosure is a major factor in establishing the penalty amount. The base penalty amount for a case involving self-disclosure reflects a 50 percent or more reduction from the base penalty amount that would otherwise be applicable.
Thus, under the Guidelines, the base penalty amount in a case determined to be non-egregious and involving voluntary self disclosure will not exceed one-half of the transaction value (capped at $125,000 per violation), while in an egregious case without voluntary self-disclosure, the penalty may reach the applicable statutory maximum.
Once a base penalty amount is determined based on the transaction value and egregiousness / voluntary self-disclosure factors, the amount may be adjusted upward or downward based on the other General Factors.
With respect to responses to apparent violations, depending on the facts and circumstances of a particular case, an OFAC investigation may lead to one or more of the following actions:
A. No action,
B. Request for additional information,
C. Cautionary letter,
D. Finding of violation,
E. Civil monetary penalty,
F. Criminal referral, or
G. Other administrative actions, including (1) License denial, suspension, modification, or revocation, and (2) Cease and desist order.
In establishing the amount of civil penalties, including for failure to furnish information or to keep records, OFAC will review the facts and circumstances surrounding an apparent violation and apply the General Factors.
Although this interim final rule is effective immediately, OFAC is soliciting comments for a 60-day period with a view of improving the Guidelines.
Retired Professor Convicted of Arms Export Violations
09/05/08 09:44 PM
On September 3, 2008, Dr. J. Reece Roth, a retired University of Tennessee (UT) professor, was found guilty of conspiracy to violate the Arms Export Control Act (AECA) and fifteen separate violations of illegally exporting sensitive information relating to a U.S. Air Force research and development contract. The information concerned plasma technology to be used in the construction of drones under the U.S. Air Force contract.
The AECA prohibits transfer of defense-related materials, including technical data, to a foreign national without permission. Dr. Roth was convicted of conspiring with Atmospheric Glow Technology, Inc. (AGT), a Knoxville, Tennessee, technology company, with unlawfully transferring fifteen different "defense articles" to a graduate student, a national of China, in violation of the AECA. As part of a plea agreement, AGT recently pleaded guilty to 10 counts of exporting defense-related materials. Sentencing in that case in still pending.
Roth testified last week that he didn’t break the law because the prosecution had not proved that the research was successful, reports the Associated Press. "My understanding was that it only applied to things that worked, and we had not shown that. We had a lot of work to do," Roth testified.
Roth was also accused of taking reports and related studies in his laptop to China during a lecture tour in 2006, and having one report e-mailed to him there through a Chinese professor's Internet connection.
The government seized materials from Roth's office and took his laptop from him at the airport when he returned from the trip. Prosecutors claimed he violated the export control act simply by taking the laptop with sensitive materials outside the country even if, as forensic evidence showed, he didn't open all of those files while he was in China.
"Today's guilty verdict should serve as a warning to anyone who knowingly discloses restricted U.S. military data to foreign nationals," said Patrick Rowan, Acting Assistant Attorney General for National Security. United States Attorney Russ Dedrick said, "Our scientific and educational communities must take precautions to insure that technology and research are protected, when required, from disclosure to foreign governments."
The maximum punishment for the conspiracy to violate AECA is five years imprisonment and a fine of $250,000. The maximum penalty for each of the AECA offenses is 10 years imprisonment, a criminal fine of $1,000,000, and a mandatory special assessment of $100 for each offense. Dr. Roth's sentencing has been set for January 7, 2009, in United States District Court in Knoxville.
The AECA prohibits transfer of defense-related materials, including technical data, to a foreign national without permission. Dr. Roth was convicted of conspiring with Atmospheric Glow Technology, Inc. (AGT), a Knoxville, Tennessee, technology company, with unlawfully transferring fifteen different "defense articles" to a graduate student, a national of China, in violation of the AECA. As part of a plea agreement, AGT recently pleaded guilty to 10 counts of exporting defense-related materials. Sentencing in that case in still pending.
Roth testified last week that he didn’t break the law because the prosecution had not proved that the research was successful, reports the Associated Press. "My understanding was that it only applied to things that worked, and we had not shown that. We had a lot of work to do," Roth testified.
Roth was also accused of taking reports and related studies in his laptop to China during a lecture tour in 2006, and having one report e-mailed to him there through a Chinese professor's Internet connection.
The government seized materials from Roth's office and took his laptop from him at the airport when he returned from the trip. Prosecutors claimed he violated the export control act simply by taking the laptop with sensitive materials outside the country even if, as forensic evidence showed, he didn't open all of those files while he was in China.
"Today's guilty verdict should serve as a warning to anyone who knowingly discloses restricted U.S. military data to foreign nationals," said Patrick Rowan, Acting Assistant Attorney General for National Security. United States Attorney Russ Dedrick said, "Our scientific and educational communities must take precautions to insure that technology and research are protected, when required, from disclosure to foreign governments."
The maximum punishment for the conspiracy to violate AECA is five years imprisonment and a fine of $250,000. The maximum penalty for each of the AECA offenses is 10 years imprisonment, a criminal fine of $1,000,000, and a mandatory special assessment of $100 for each offense. Dr. Roth's sentencing has been set for January 7, 2009, in United States District Court in Knoxville.
Trial Begins for Retired Professor Charged with ITAR Violations
08/25/08 10:26 PM
On August 25, 2008, J. Reece Roth, a retired University of Tennessee (UT) physics professor went on trial charged with violating the Arms Export Control Act (AECA). As reported by USA Today, prosecutors allege Roth violated AECA by allowing two UT students, one from China and another from Iran, unrestricted access to information about the technology used in an U.S. Air Force project. The professor is also said to have taken documents relating to that project on his trip to China in 2006.
The Air Force contract involved developing lightweight flight control system technology for use in unmanned air vehicles, otherwise known as drones. According to USA Today, Atmospheric Glow Technologies (AGT), with Roth as a consultant and subcontractor, promised a control system that would use plasma, rather than mechanical flaps, to lift the aircraft. Roth, an expert in plasma technology, was one of the founders of AGT, but later the company went public. The company specialized in use of plasma technology that was developed by UT.
AECA bars the transfer of sensitive information to foreign nationals without permission. Roth came under investigation in 2006 when UT export-control officials discovered his use of foreign nationals in his UT lab on the military contract. Government agents searched his office and seized his laptop computer when he returned from a lecture trip to China in May of 2006.
On August 20, 2008, AGT pleaded guilty to 10 counts of AECA violations from late 2004 to May 2006, reports the Knoxville News Sentinel. AGT, which is in bankruptcy, still faces probation and a maximum fine of $1 million for each AECA violation. Knoxville News Sentinel reports that, as part of the plea agreement, AGT’s board of directors now admits company officials knew Roth had allowed the China national access to information on the Air Force project without notifying the Department of Defense.
Daily updates on the trial can be found at www.knoxnews.com.
The Air Force contract involved developing lightweight flight control system technology for use in unmanned air vehicles, otherwise known as drones. According to USA Today, Atmospheric Glow Technologies (AGT), with Roth as a consultant and subcontractor, promised a control system that would use plasma, rather than mechanical flaps, to lift the aircraft. Roth, an expert in plasma technology, was one of the founders of AGT, but later the company went public. The company specialized in use of plasma technology that was developed by UT.
AECA bars the transfer of sensitive information to foreign nationals without permission. Roth came under investigation in 2006 when UT export-control officials discovered his use of foreign nationals in his UT lab on the military contract. Government agents searched his office and seized his laptop computer when he returned from a lecture trip to China in May of 2006.
On August 20, 2008, AGT pleaded guilty to 10 counts of AECA violations from late 2004 to May 2006, reports the Knoxville News Sentinel. AGT, which is in bankruptcy, still faces probation and a maximum fine of $1 million for each AECA violation. Knoxville News Sentinel reports that, as part of the plea agreement, AGT’s board of directors now admits company officials knew Roth had allowed the China national access to information on the Air Force project without notifying the Department of Defense.
Daily updates on the trial can be found at www.knoxnews.com.
Airlines Plead Guilty to Price Fixing Air Cargo Rates and Agree to Pay Criminal Fines of More than $500 Million
06/30/08 10:54 PM
On June 26, 2008, the United States Department of Justice (DOJ) announced that five major international airlines (Air France, Cathay Pacific, KLM Royal Dutch Airlines, Martinair, and SAS) have agreed to each plead guilty and pay criminal fines totaling $504 million for participating in a multi-year conspiracy to fix prices for air cargo rates. Of the total, Air France-KLM, which now operates under common ownership by a single holding company, has agreed to pay a $350 million criminal fine, the second highest ever levied in a criminal antitrust prosecution, DOJ states.
According to the charges filed on June 26, 2008, the airlines each engaged in a conspiracy to suppress and eliminate competition by fixing the cargo rates charged to customers for international air shipments. The companies have each agreed to cooperate in the DOJ's ongoing investigation.
The DOJ stated:
According to the charges filed on June 26, 2008, the airlines each engaged in a conspiracy to suppress and eliminate competition by fixing the cargo rates charged to customers for international air shipments. The companies have each agreed to cooperate in the DOJ's ongoing investigation.
The DOJ stated:
The plea agreements are subject to court approval. Along with Air France-KLM’s $350 million fine, Cathay has agreed to pay a $60 million criminal fine, Martinair has agreed to pay a $42 million criminal fine, and SAS has agreed to pay a $52 million criminal fine. If the court accepts the plea agreements, it would bring the total fines imposed in the Antitrust Division’s investigation in the air transportation industry to more than $1.27 billion, marking the highest total amount of fines ever imposed in a criminal antitrust investigation.
CBP Develops New Online Trade Violation Reporting System
06/18/08 10:53 AM
On June 17, 2008, U.S. Customs and Border Protection (CBP) announced the development of a new online trade violation reporting system called eAllegations to provide concerned members of the public a means to confidentially report suspected trade violations to CBP. eAllegations is open for public use as of June 17, 2008.
CBP states that eAllegations is not intended to be used for reporting security issues such as terrorism or weapons of mass destruction, but rather is intended for trade violations such as misclassification, under valuation, country of origin markings, health and safety violations, intellectual property rights violations, and/or textile or other trade violations. CBP provided the following example --
To report a possible violation, the following information must be submitted via eAllegations: the type of trade violation, description of what has occurred, the products or goods involved in the violation, and the alleged violator's name and/or company. Other information may be provided on a voluntary basis.
CBP has provided frequently asked questions (FAQ) here.
CBP states that eAllegations is not intended to be used for reporting security issues such as terrorism or weapons of mass destruction, but rather is intended for trade violations such as misclassification, under valuation, country of origin markings, health and safety violations, intellectual property rights violations, and/or textile or other trade violations. CBP provided the following example --
eAllegations will provide a means to report a possible violator who is importing substandard steel, claiming that it is of a higher grade, therefore creating a potential safety issue. Other possible violations that can be reported include a company claiming a lower than actual value on a product they are importing to pay less duty or a company who is importing textiles from one country to avoid quota restrictions.
To report a possible violation, the following information must be submitted via eAllegations: the type of trade violation, description of what has occurred, the products or goods involved in the violation, and the alleged violator's name and/or company. Other information may be provided on a voluntary basis.
CBP has provided frequently asked questions (FAQ) here.
Retired Professor Indicted on 16 Counts for ITAR Violations
05/21/08 04:18 PM
On May 20, 2008, the Department of Justice announced that a federal grand jury returned an 18 count indictment charging J. Reece Roth, a professor emeritus who headed University of Tennessee's Plasma Sciences Lab, and Atmospheric Glow Technologies, Inc. (AGT), a Knoxville-based company Roth helped found, of conspiring to defraud the U.S. Air Force and disclose restricted U.S. military data about unmanned aerial vehicles (UAV) or "drones" to foreign nationals without first obtaining the required U.S. government license or approval. (The indictment is available here on Clif Burns' Export Law Blog.) Graduate students from China and Iran are alleged to have been given unfettered access to controlled technology.
Roth, who is 70 and now retired, was charged with one count of conspiracy to defraud the U.S. Air Force and violate the Arms Export Control Act (AECA); 15 counts of violating the AECA; and one count of wire fraud for defrauding the University of Tennessee. AGT is charged in the indictment with one count of conspiracy to defraud the U.S. Air Force and violate the AECA and 10 counts of violating the AECA.
The DOJ announcement states that:
Violations of the AECA carry a maximum possibly penalty of 10 years imprisonment and a $1 million fine. Wire fraud carries a maximum penalty of 20 years imprisonment and a $250,000 fine and conspiracy carries a maximum penalty of 5 years imprisonment and a $250,000 fine.
Roth, who is 70 and now retired, was charged with one count of conspiracy to defraud the U.S. Air Force and violate the Arms Export Control Act (AECA); 15 counts of violating the AECA; and one count of wire fraud for defrauding the University of Tennessee. AGT is charged in the indictment with one count of conspiracy to defraud the U.S. Air Force and violate the AECA and 10 counts of violating the AECA.
The DOJ announcement states that:
United States Attorney Russ Dedrick said, “The protection of United States technology is a continuing priority of the Department of Justice and this District. Whenever restricted U.S. military data is illegally disclosed to foreign nationals, America’s security is put at risk. Today’s indictment demonstrates just how seriously we view such violations.”According to the indictment, between January 2004 and May 2006, Roth and AGT engaged in a conspiracy to defraud the U.S. Air Force and transmit export-controlled technical data related to a restricted U.S. Air Force contract to develop plasma actuators for a munitions-type UAV, or “drone,” to one or more foreign nationals, including a citizen from the People’s Republic of China. The Chinese national was a graduate research assistant at the University of Tennessee. The University of Tennessee was victimized by the conspirators and cooperated throughout with the Federal Bureau of Investigation (FBI) led federal investigation.
Violations of the AECA carry a maximum possibly penalty of 10 years imprisonment and a $1 million fine. Wire fraud carries a maximum penalty of 20 years imprisonment and a $250,000 fine and conspiracy carries a maximum penalty of 5 years imprisonment and a $250,000 fine.
Company Agrees to Pay $22 Million Penalty for FCPA Violations
05/15/08 10:48 PM
On May 14, 2008, the Department of Justice (DOJ) announced that Willbros Group Inc., a publicly traded company that provides construction, engineering, and other services in the oil and gas industry, and its wholly owned subsidiary, Wilbros International Inc. have agreed to pay a $22 million penalty in connection with corrupt payments to Nigerian and Ecuadorean government officials in violation of the Foreign Corrupt Practices Act (FCPA).
The DOJ stated:
The DOJ stated:
According to the criminal information, from late 2003 through March 2005, Willbros employees agreed to make corrupt payments totaling more than $6.3 million to Nigerian government officials to assist in obtaining and retaining a $387 million contract for work on a major engineering, procurement and construction gas pipeline project known as the Eastern Gas Gathering System (EGGS). In exchange for the EGGS project, the conspirators corruptly paid, promised to pay and authorized payments to officials of the Nigerian National Petroleum Corporation (NNPC), the state-owned oil company in Nigeria; NNPC’s subsidiary, the National Petroleum Investment Management Services (NAPIMS); a senior official in the executive branch of the Nigerian federal government; officials of a multinational oil company serving as the operator of the EGGS joint venture; and a political party.
In recognition of Willbros' thorough review of the improper payments, the companies’ exemplary cooperation, the companies’ implementation of enhanced compliance policies and procedures, and the companies’ engagement of an independent corporate monitor, the Department has agreed to defer prosecution of these companies for three years. If Willbros Group and Willbros International abide by the terms of the agreement, the Department will dismiss the criminal information when the term of the agreement ends.
Chinese Grad Student Involvement Leads to Criminal Case: Physicist Pleads Guilty to ITAR Violation
04/16/08 01:08 AM
On April 15, 2008, the Department of Justice announced that Daniel Max Sherman, a physicist who formerly worked as the director of plasma research at Atmospheric Glow Technologies, Inc., a Knoxville, Tennessee based company. According the to plea agreement, between January 2004 and May 2006, Sherman and J. Reece Roth, a Professor Emeritus at the University of Tennessee, engaged in a conspiracy to transmit export controlled technical data related to a restricted U.S. Air Force contract to develop plasma actuators for munitions-type Unmanned Aerial Vehicle (UAV) or "drones", to a foreign national from the People's Republic of China.
The Chinese national was a graduate research assistant at the University of Tennessee. The DOJ reported that the University of Tennessee was victimized by the conspirators and cooperated throughout the FBI-led investigation.
Mr. Roth has not been charged in the case. The investigation of Mr. Roth has been watched closely by those in academics since May 2006 when it was reported that Customs agents copied his laptop as he returned from a trip to China and that search warrants were executed at his office and laboratory. University officials who monitor export control compliance believe that the Tennessee case may have arisen due to the involvement of a for-profit company. The International Traffic in Arms Regulations (ITAR) exempts fundamental research done by universities that is ordinarily published and shared broadly within the scientific community. However, when a private company is involved and the research is proprietary or restricted from publication or disclosure, no exemption applies.
A report on the matter in the New York Sun contained these insights from university officials:
The Chinese national was a graduate research assistant at the University of Tennessee. The DOJ reported that the University of Tennessee was victimized by the conspirators and cooperated throughout the FBI-led investigation.
Mr. Roth has not been charged in the case. The investigation of Mr. Roth has been watched closely by those in academics since May 2006 when it was reported that Customs agents copied his laptop as he returned from a trip to China and that search warrants were executed at his office and laboratory. University officials who monitor export control compliance believe that the Tennessee case may have arisen due to the involvement of a for-profit company. The International Traffic in Arms Regulations (ITAR) exempts fundamental research done by universities that is ordinarily published and shared broadly within the scientific community. However, when a private company is involved and the research is proprietary or restricted from publication or disclosure, no exemption applies.
A report on the matter in the New York Sun contained these insights from university officials:
"If you're blurring the lines between the work you do at one place and the work you do at another, you can quickly get into trouble," Patrick Schlesinger of the University of California said. Doing only publishable research also allows universities to avoid segregating foreigners, a task that may be impractical in physical science programs where American citizen students are often a minority. "If we want to preserve that safe harbor, we also need to be very vigilant," Steven Eisner of Stanford University said. "This particular case in Tennessee will wake up the university community to export controls if they weren't aware of it already."
California Engineer Sentenced to 24 Years in Prison
03/27/08 05:45 PM
The Los Angeles Times reported on March 25, 2008 that a Chinese-born, naturalized U.S. citizen was sentenced to 24 years and five months in federal prison and fined $50,000 for conspiring to export ITAR-controlled technology to China. Chi Mak, 67, was a former electrical engineer at Power Paragon, Inc. of Anaheim, CA, which handled Navy contracts. Mak was convicted of conspiracy to violate export control laws, attempting to violate export control laws, acting as an unregistered agent of China, and lying to the FBI.
Mak's conviction was the culmination of an 18-month long investigation of Mak's family that ended in October 2005 when he and four other family members were arrested by the FBI and charged with a scheme to illegally send military information to China. Mak's wife, brother, sister-in-law, and nephew have all pleaded guilty and agreed to jail terms or probation.
The government's case centered around three encrypted computer disks that the family had tried to take with them on a flight to China. Two of the disks contained information about an electrically powered propulsion system for warships and a solid-state power switch for ships. The third disk contained a Powerpoint presentation on the future of power electronics. Witnesses during the trial testified that some of these materials were available for purchase on the website of the American Society of Naval Engineers until the government put a stop to it. In addition, Mak's attorney stated that information contained on one of the disks was discussed at an international conference attended by Chinese engineers and the FBI.
Mak's attorney stated that Mak was "sentenced as a trophy rather than a human being" and the case against Mak was unwarranted. Mak will serve his sentence in a low security federal prison.
Mak's conviction was the culmination of an 18-month long investigation of Mak's family that ended in October 2005 when he and four other family members were arrested by the FBI and charged with a scheme to illegally send military information to China. Mak's wife, brother, sister-in-law, and nephew have all pleaded guilty and agreed to jail terms or probation.
The government's case centered around three encrypted computer disks that the family had tried to take with them on a flight to China. Two of the disks contained information about an electrically powered propulsion system for warships and a solid-state power switch for ships. The third disk contained a Powerpoint presentation on the future of power electronics. Witnesses during the trial testified that some of these materials were available for purchase on the website of the American Society of Naval Engineers until the government put a stop to it. In addition, Mak's attorney stated that information contained on one of the disks was discussed at an international conference attended by Chinese engineers and the FBI.
Mak's attorney stated that Mak was "sentenced as a trophy rather than a human being" and the case against Mak was unwarranted. Mak will serve his sentence in a low security federal prison.
Minnesota Company Fined $400,000 for Export Violations
03/13/08 03:07 PM
MTS Systems Corp. of Eden Prairie, MN, pleaded guilty and was sentenced on March 12, 2008 in connection with submitting false export license applications to the U.S. Department of Commerce for proposed shipments to India. (The DOJ news release can be found here.) MTS Systems Corp. was sentenced to two years probation and a $400,000 fine. Pursuant to the plea agreement, the court also ordered MTS to implement and maintain a model export compliance program and to sponsor an export compliance conference to be held at a future date.
The government alleged that MTS submitted a false export license application when it omitted any corporate knowledge of a possible nuclear end-use for seismic testing equipment to be shipped to India. Assistant Secretary of Commerce for Export Enforcement Darryl W. Jackson stated, "Omitting material information to a licensing official about the intended end-use of a controlled technology item is a serious offense. In this case, the omission clearly was an attempt to disguise the end-use of testing structural components of nuclear-power plants."
The case was the result of an investigation by BIS and ICE.
The government alleged that MTS submitted a false export license application when it omitted any corporate knowledge of a possible nuclear end-use for seismic testing equipment to be shipped to India. Assistant Secretary of Commerce for Export Enforcement Darryl W. Jackson stated, "Omitting material information to a licensing official about the intended end-use of a controlled technology item is a serious offense. In this case, the omission clearly was an attempt to disguise the end-use of testing structural components of nuclear-power plants."
The case was the result of an investigation by BIS and ICE.
BIS Fines Northrup Grumman $400,000 for Illegal Exports of Navigational Equipment
01/26/08 12:04 AM
On January 25, 2008, the Commerce Department's Bureau of Industry & Security (BIS) announced that Northrop Grumman agreed to pay a $400,000 civil penalty to settle allegations that it committed 131 violations of the Export Administration Regulations (EAR), both in its own capacity and as successor to Litton Industries, Inc., which it acquired in April 2001.
BIS states, "The allegations primarily involved unlicensed exports of specially designed components for navigation equipment and module manufacturing data that were to destinations in the Philippines, Singapore, Malaysia, Italy, and the United Kingdom between January 1998 and September 2002." Northrop Grumman made a voluntary self disclosure of these violations and cooperated fully in the investigation per BIS.
BIS states, "The allegations primarily involved unlicensed exports of specially designed components for navigation equipment and module manufacturing data that were to destinations in the Philippines, Singapore, Malaysia, Italy, and the United Kingdom between January 1998 and September 2002." Northrop Grumman made a voluntary self disclosure of these violations and cooperated fully in the investigation per BIS.
Former U.S. Defense Contractor Engineer Indicted For Spying
01/06/08 11:36 PM
The Washington Times reported on December 12, 2007 that Noshir S. Gowadia, an Indian-born engineer who former worked for Northop Grumman spent more than two years working with China's military to design and test a radar-evading component for a new Chinese cruise missile as part of an espionage conspiracy, according to a federal indictment submitted to the U.S. District Court in Hawaii in October 2997. The indictment states that he worked closely with a Chinese government agent and missile technicians during six visits to China between 2003 and 2005.
According to the indictment,
According to the indictment,
CBP Textile Enforcement Fiscal Year 2007 Review
12/17/07 12:58 AM
On December 17, 2007, the U.S. Customs House Guide posted a review of Customs and Border Protection (CBP) for Fiscal Year 2007. The report states that among this year's accomplishments are:
In FY 2007 CBP increased foreign factory visits by 57%. CBP visited 671 foreign factories to monitor for illegal transshipment by sending textile production verification teams (TPVT) to confirm actual country of origin and compliance with trade preference programs. These teams examine production documents at foreign factories to ensure that potentially violative shipments are stopped before being shipped to the United States;
CBP visited 168 foreign factories in 10 countries in FY 2007 to verify claims involving Free Trade Agreements like the Central America - Dominican Republic Free Trade Agreement and other trade preference programs such as the African Growth and Opportunity Act;
CBP auditors conducted 66 audits on textile importers and recommended additional revenue collections of $5.61 million in FY 2007 - an increase of 57% in audit activity;
CBP officers at the ports of entry examined 13,327 shipments in FY 2007 and found more than 2,300 shipments where discrepancies were identified;
Further, Import Specialists initiated 1,905 reviews of entry documents resulting in 959 detained shipments and 314 seized shipments worth $48.1 million for violations of China quota restraints; and
CBP also initiated 68 actions totaling $50.1 million in penalties for commercial fraud.
Pennsylvania Company Fined $470,000 for Export Violations
12/10/07 03:22 PM
On December 7, 2007, the Bureau of Industry and Security (BIS) announced that Mine Safety Appliances Company (MSA) of Pittsburgh, PA agreed to pay a $470,000 civil penalty. The settlement arose from allegations that MSA, through its branch office in Abu Dhabi, MSA Middle East, violated the Export Administration Regulations (EAR) on 107 occasions. The allegations relate to the reexport of safety equipment from the UAE to Iran and Syria without the required export licenses.
"Preventing the diversion of U.S.- origin goods so that they do not support the economies of countries that sponsor terrorism, such as Syria and Iran, is extremely important," said Darryl Jackson, assistant secretary of commerce for export enforcement. "This case demonstrates that companies must take extra care when implementing compliance programs with foreign subsidiaries.”
BIS alleged that between May 2001 and December 2005, MSA Middle East made 107 reexports of EAR99 and controlled items, including helmets, gas masks, detection equipment, filters, and other safety equipment to Iran and Syria from the UAE without required export licenses.
BIS stated that MSA voluntarily disclosed these violations to BIS and cooperated fully in the investigation, which was a mitigation factor in calculating the penalty. In addition, MSA received mitigation credit for its compliance efforts.
BIS stated:
"Preventing the diversion of U.S.- origin goods so that they do not support the economies of countries that sponsor terrorism, such as Syria and Iran, is extremely important," said Darryl Jackson, assistant secretary of commerce for export enforcement. "This case demonstrates that companies must take extra care when implementing compliance programs with foreign subsidiaries.”
BIS alleged that between May 2001 and December 2005, MSA Middle East made 107 reexports of EAR99 and controlled items, including helmets, gas masks, detection equipment, filters, and other safety equipment to Iran and Syria from the UAE without required export licenses.
BIS stated that MSA voluntarily disclosed these violations to BIS and cooperated fully in the investigation, which was a mitigation factor in calculating the penalty. In addition, MSA received mitigation credit for its compliance efforts.
BIS stated:
Parties who may have been involved in violations of the EAR are encouraged to submit a Voluntary Self Disclosure (VSD) to BIS’s Office of Export Enforcement, as provided in Part 764.5 of the EAR. VSDs are an important indicator of parties’ intent to bring themselves into compliance with the EAR, and may provide BIS important information on illicit proliferation networks. A VSD is considered a “great weight” mitigating factor in the settlement of BIS administrative cases.
Silicon Valley Export Broker Sentenced to 2 Years in Prison for Illegal Exports to China
12/04/07 01:08 PM
On December 4, 2007, the San Jose Mercury News reported that a Cupertino, CA man was sentenced to two years in prison and ordered to pay a fine of $50,000 for exporting controlled night vision equipment to China.
Philip Cheng, an export broker, was indicted in 2004 on export control and arms trafficking violations for his role in brokering the sale of night vision gear to Chinese governement authorities. Cheng, 60, pleaded guilty after a mistrial in which a jury voted 11-1 for conviction. He was sentenced by United States District Court Judge Ronald M. Whyte in San Jose today.
The Mecury News reports:
Philip Cheng, an export broker, was indicted in 2004 on export control and arms trafficking violations for his role in brokering the sale of night vision gear to Chinese governement authorities. Cheng, 60, pleaded guilty after a mistrial in which a jury voted 11-1 for conviction. He was sentenced by United States District Court Judge Ronald M. Whyte in San Jose today.
The Mecury News reports:
Federal authorities accused Cheng and Martin Shih, founder of Night Vision Technology, of selling a Panther series infrared camera to the North China Research Institute of Electro-Optics and the China National Electronics Import & Export Corporation. Authorities said the equipment could be used by China's military. Shih has since died of cancer. Cheng will begin serving his sentence on Feb. 18.
Export Penalties Increase to $250,000 or More Per Violation
12/01/07 10:04 PM
The new law increases civil penalties from $50,000 to the greater of either $250,000 or twice the amount of the transaction that is the basis for the violation. Fines for willful and knowing violations (criminal penalties) were increased from $50,000 to $1,000,000 with the maximum term of imprisonment remaining at 20 years.
Prior to changes brought by the USA PATRIOT ACT Improvement and Reauthorization Act of 2005, which went into effect in March 2006, civil penalties for such violations were limited to only $11,000 per violation and the maximum term of imprisonment was only 10 years. Thus, the new penalties are 250 times the amount of just 2 years ago!
Under the new law, it appears that even low dollar amount transactions could be subject to the maximum civil penalty of up to $250,000. For example, if a violative export transaction of $5,000 occurred, the Department of Commerce’s Bureau of Industry and Security (BIS) could impose a penalty of up to $250,000 (the greater) versus a penalty of up to twice the amount of the transaction, or $10,000 (the lesser).
Moreover, BIS or OFAC could impose a much higher penalty in the case of a large dollar amount transaction. For example, in the case of a violative export transaction or wire transfer of $1.5 million, BIS or OFAC would have the authority to impose a maximum penalty of twice the amount of the transaction or $3 million.
It remains to be seen how BIS or OFAC will actually assess maximum penalties in practice.
However, in a November 1, 2007 BIS Fact Sheet, BIS states that it will continue to grant up to a 25% reduction of the amount of penalties to be assessed for the existence of an effective export compliance program in place before the violation and later upgraded. Furthermore, for all valid Voluntary Self-Disclosures, BIS will generally reduce any calculated penalty by at least 50% - and does so after considering the aggravating and mitigating factors in the case.
Keep in mind that penalties may increase even more in the near future. Senator Christopher Dodd introduced bill S. 2000 on August 3, 2007, that is intended to increase the enforcement authority and extend the Export Administration Act of 1979. If that bill is passed, the Export Administration Act of 2007 will increase the maximum civil penalty to $500,000 per violation. It will also increase the maximum criminal penalties to the greater of $5 million or 10 times the value of the transactions involved for corporations and $1,000,000 and 10 years imprisonment for individuals.
Qantas Airways Agrees to Plead Guilty and Pay $61 Million Fine for Cargo Price Fixing
11/29/07 12:26 PM
The DOJ reports that during the time period of the felony charge, Qantas was the largest carrier of cargo between the United States and Australia and earned more than $600 million from its cargo flights to and from the United States. Under the plea agreement, which is subject to court approval, Qantas has agreed to cooperate with the DOJ in the ongoing investigation.
Thomas O. Barnett, Assistant Attorney General in charge of the Department's Antitrust Division, stated:
Qantas’ guilty plea sends a clear message that those who engage in price fixing and other forms of illegal collusion will pay a heavy price for their crimes. The shipment of consumer products by air transportation is critical to our global economy. Our investigation into this important industry will continue, and we will aggressively pursue those who engage in criminal conduct that harms American consumers.
In August 2007, British Airways Plc and Korean Air Lines Co. Ltd. pleaded guilty and were sentenced to pay separate $300 million criminal fines for their roles in conspiracies to fix the prices of passenger and cargo flights
The ongoing investigation is being conducted by the Antitrust Division’s National Criminal Enforcement Section and the Federal Bureau of Investigation.
OFAC Issues Updated Enforcement Information
11/28/07 11:23 AM
OFAC states that these new penalties are applicable to all enforcement actions that are pending or commenced on or after October 16, 2007 and interprets this provision to mean that the new civil penalty provisions apply to all violations with respect to which a Final Penalty Notice had not been issued as of October 16, 2007.
OFAC intends to publish revised enforcement guidelines and procedures to account for the new maximum penalty amounts set forth in the IEEPA Enforcement Act. Until that time, OFAC will continue to apply its current enforcement guidelines which are set out in the notice. As a practical matter, OFAC states that this means that prepenalty notices will generally be issued at the transaction amount. Aggravating and mitigating factors and percentages set forth in the current guidelines will continue to be applied.
However, OFAC lists the following exceptions to those rules:
- PPN Mailed - Where a prepenalty notice ("PPN") has been mailed to the cited party prior to October, 16, 2007, OFAC will not impose a penalty in excess of the PPN and will continue to apply the current enforcement guidelines to calculate the penalty amount.
- Tentative Settlement Amount Communicated and Memorialized - Where OFAC has communicated to a party that an settlement amount would be recommended internally, and the party has made a written settlement offer to OFAC, OFAC will continue to process the settlement under the terms of the communication from OFAC.
- SOL Waivers - In those cases where a party has agreed to a statute of limitations ("SOL") waiver and the SOL would have expired prior to October 16, 2007, OFAC will calculate the penalty amounts in accordance with the maximum penalty applicable at the time the waiver was signed.
Importer Fined $7.5 Million for Declaring Incorrect Customs Values
11/12/07 02:13 PM
Based on the facts found at trial, Seaveg would negotiate the initial price for the produce with the Mexican growers by telephone and then, under an agreement with its suppliers, receive an invoice at 70% of the negotiated price, with the understanding that the remaining 30% would be paid within 60 days of delivery into storage after certain adjustments were made. At the time of entry, the invoice at 70% of the true sales price was declared value to Customs. However, neither Inn Foods, Seaveg, nor the customs broker informed Customs that the invoice values declared at the time of entry were "provisional."
Firstly, the court found that Inn Foods was responsible for all of the liabilities despite the fact that Seaveg and Inn Foods were incorporated as two separate entities because it found that Seaveg was an alter ego or alias of its sister subsidiary Inn Foods.
Secondly, the court found that Inn Foods' conduct was fraudulent as Customs had proved that Inn Foods had deliberately introduced merchandise into the commerce of the United States by means of material false statements with the intent to defraud the revenue or otherwise violate the laws of the United States. Although Inn Foods and Seaveg argued that there was no evidence adduced at trial that indicates that "Inn Foods knew or understood the legal effect of post-importation price adjustments to the price actually paid or payable to the grower/packers based on the U.S. resale prices," the court found the argument to needlessly confuse the crux of the wrongdoing. The court stated that the wrongdoing is that:
Inn Foods knew that (1) the prices on the subject entries were significantly undervalued, (2) these undervaluations caused a commensurate reduction in lawful Customs duties owed and (3) there was no plan or intention to correct these undervaluations. . . . Therefore, while Inn Foods correctly states that "there is nothing sinister, per se, about provisional pricing agreements," it is not the provisional pricing agreement here that is at issue, but the underlying undervaluation scheme which the provisional pricing agreements only play a part.
Customs sought $624,602.55 in unpaid duties and merchandise processing fees and civil penalties in the amount of $15,319,513.35 if Inn Foods' conduct was found to be fraudulent. In determining the penalty to be assessed, the court noted that for violations of fraud, the maximum penalty is the domestic value of the merchandise with no set minimum penalty and that the court possesses the discretion to determine a penalty within the parameters of the statute. After considering a number of factors as set forth in United States v. Complex Machine Works Co., 23 CIT 942, 949-50, 83 F. Supp. 2d 1307, 1315 (1999), the court ordered that Inn Foods pay $624,602.55 for unpaid duties plus pre-judgment and post-judgment interest, and civil penalties in the amount of $7,500,000.00, plus costs and fees and interest from the date of judgment.
This case represents a cautionary tale for importers who use any type of provisional invoices, including those importers who true-up customs valuations at some point after entry due to the additions to value, such as assists, royalties, buying commissions, etc. Importers have a continuing obligation to review the correctness of information contained in invoices used as entry documents, and to declare to Customs the true and correct value of the goods at the time of entry. See 19 U.S.C. §§ 1484 and 1485. Accordingly, importers should maintain proactive internal controls over their Customs valuation and understand the impact of the full financial transaction for imported goods, including any possible additions to value.
If an intercompany or transfer price is declared as the customs value of an imported good, an importer should assess whether the intercompany or transfer price satisfies the customs valuation statute independent of the acceptability of the price for tax purposes. See Customs' Informed Compliance Publication, Determining the Acceptability of Transaction Value for Related Party Transactions. In addition, importers who utilize a customs value that must be adjusted subsequent to entry should consider joining Customs' Reconciliation program. This program allows importers to declare estimated customs values and subsequently adjust those values to final values and pay or be refunded any additional duties or fees owed.
Finally, an importer may be able to limit its liabilities for valuation and other errors it discovers on its own by filing a prior disclosure with Customs. By filing a prior disclosure, an importer voluntarily discloses to Customs the factual circumstances of a violation of the customs statute and tenders any duties and fees owing. If the prior disclosure is done properly, the importer's liability for penalties can be reduced to the interest owed, unless fraud is found.
Global Trade Expertise can assist with an importer in assessing the validity of their customs valuations, joining CBP's Reconciliation program, and/or filing a valid prior disclosure with CBP. Please contact us for assistance.
Customs Seizes Counterfeit Footwear and Jackets Worth $2 Million
11/07/07 03:44 PM
The report states that during fiscal year 2006, CBP made more than 14,000 seizures of counterfeit goods worth more than $155 million that violated intellectual property laws. Footwear and wearing apparel are among the top commodities seized by CBP in fiscal year 2006.
BIS Issues Press Release and Fact Sheet on Implementation of Enhanced IEEPA Penalty Provisions
11/02/07 11:24 PM
On November 1, 2007, BIS issued a press release and fact sheet regarding welcoming the enhanced penalties of the International Emergency Economic Powers Enhancement Act (IEEPA) signed into law by President Bush on October 16, 2007.
In its press release, BIS states:
The significant changes provided under the Act include:
In its press release, BIS states:
The significant changes provided under the Act include:
- Additional Unlawful Acts: Section 206(a) of IEEPA is amended to clarify that civil penalties may be assessed against those who conspire to violate, or cause a violation of any license, order, regulation, or prohibition of title 50 of the United States Code.
- Administrative Penalties: A civil penalty amounting to the greater of $250,000, or twice the value of the transaction that is the basis of the violation (Enhanced Penalties), may be imposed for each violation of IEEPA.
- Effective Date/Retroactivity: The new civil penalties apply to enforcement action that are pending, which BIS interprets an action to be if a Final Order has not been signed, or commenced on or after October 16, 2007.
- Criminal Penalties: Violators can be fined up to $1,000,000 and/or up to 20 years in prison. Additionally, criminal liability is provided for anyone who “willfully conspires to commit, or aids or abets in the commission of” an unlawful act described in the statute.
- Effective Date: The new criminal penalties apply to criminal enforcement actions commenced on or after October 16, 2007.
Court Refuses to Dismiss $42 Mil Recordkeeping Penalty
09/28/07 11:55 AM
The U.S. District Court for the Western District of Texas issued an order on September 27, 2007 denying Ford Motor Company's motion to dismiss a $42 million recordkeeping lawsuit brought by U.S. Customs and Border Protection ("CBP"). The lawsuit began when Ford refused to answer an administrative summons by CBP demanding documents relation to imports of products from Mexico under a NAFTA Certificate of Origin. Ford claimed that the documents sought by CBP were not "entry records" and thus, Ford had no obligation to keep those records. The records in question all involved components used by the Mexican exporter to manufacture the products purchased by Ford.
The Court disagreed with Ford and claimed that the "(a)(1)(A) list"of entry records includes "NAFTA Certificate[s] of Origin and supporting records." It then held, as a matter of law, that the documents requested by CBP were "supporting records" to the NAFTA Certificates of Origin and therefore qualified as entry records.
The Court went on to reject Ford's arguments that it should not be responsible for documents that were both created and maintained solely by the exporter. Even though the Court noted that the CBP publication, NAFTA Focused Assessment Program Guidelines, states that an importer is not responsible to maintain supporting documentation that is certified by the exporter of the NAFTA Certificate of Origin, the Court stated that the publication does not have the force of law to contradict the (a)(1)(A) list recordkeeping requirements.
The Court's order will allow CBP to continue pursuing the $42 million recordkeeping penalty against Ford. More importantly, it may create judicial precedent that should cause NAFTA importers to greatly expand their recordkeeping programs.
The Court disagreed with Ford and claimed that the "(a)(1)(A) list"of entry records includes "NAFTA Certificate[s] of Origin and supporting records." It then held, as a matter of law, that the documents requested by CBP were "supporting records" to the NAFTA Certificates of Origin and therefore qualified as entry records.
The Court went on to reject Ford's arguments that it should not be responsible for documents that were both created and maintained solely by the exporter. Even though the Court noted that the CBP publication, NAFTA Focused Assessment Program Guidelines, states that an importer is not responsible to maintain supporting documentation that is certified by the exporter of the NAFTA Certificate of Origin, the Court stated that the publication does not have the force of law to contradict the (a)(1)(A) list recordkeeping requirements.
The Court's order will allow CBP to continue pursuing the $42 million recordkeeping penalty against Ford. More importantly, it may create judicial precedent that should cause NAFTA importers to greatly expand their recordkeeping programs.
Export Control Freaks?
09/12/07 10:08 PM
An article entitled, Export Control Freaks, appeared today on Forbes website regarding the increased enforcement of export control penalties especially in regard to exports to China. The article discusses the U.S. government's concern over the potential for Seagate Technology to be purchased by a Chinese company and highlights recent enforcement actions against Springer Magrath Co. (resulting in a penalty of $500,000) and Armor Holdings (a division of BAE Systems) (resulting in a $1.1 million settlement agreement). The Armor Holdings settlement agreement was related to charges that Armor exported plastic handcuffs above the allowable license value. Armor had exported $1,980 under a license that allowed exports up to $1,000 in value.