Archive for the ‘Sanctions’ Category

OFAC Investigating Smartphone Company…Were They Working with ZTE?

Thursday, May 11th, 2017 by Danielle McClellan

By: Danielle McClellan

Huawei, one of the world’s biggest sellers of smartphones and the back-end equipment that makes cellular networks work has received an administrative subpoena from the United States Treasury Department’s Office of Foreign Assets Control (OFAC).  This subpoena was sent out in December 2016, following the Department of Commerce’s subpoena which was sent out in the summer of 2016 asking for the company to describe technology and services provided to Cuba, Iran, Sudan, and Syria over the past 5 years. North Korea was named in the Commerce Department subpoena, but not the OFAC subpoena. At this point Huawei has not been accused of any wrong doing and the subpoenas do not indicate that the company is part of any criminal investigations.

Not long ago the Chinese company, ZTE agreed to pay $1.2 billion after pleading guilty to shipping US-origin items to Iran (http://www.learnexportcompliance.com/News/The-Export-Control-Update-March-2017.aspx#ZTE). That investigation released documents that showed ZTE executives mapping out plans to work around, or break, US export control regulations. Further investigation found that ZTE learned about the plan from a company labeled as, F7, which closely mimics Huawei. Last month, ten members of Congress sent a letter demanding that F7 be publically identified and fully investigated, “We strongly support holding F7 accountable should the government conclude that unlawful behavior occurred,” read part of the letter.

It’s uncertain if the government believes that Huawei is F7 and that’s why the subpoenas were sent out or if they are just probing for other violations. Only time will tell.

More information: https://www.nytimes.com/2017/04/26/business/huawei-investigation-sanctions-subpoena.html?_r=0

Company Fined $500K for 56 ITSR Violations by OFAC

Thursday, March 30th, 2017 by Danielle McClellan

By: Danielle McClellan

United Medical Instruments, Inc. (UMI) agreed to a settlement of $515,400 with the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) based on 56 alleged violations of the Iranian Transactions and Sanctions Regulations (31 C.F.R. Part 560). Between 2007 and 2009 it was found that UMI sold medical imaging equipment with knowledge that the goods were going to be reexported from the United Arab Emirates to Iran. The total value of the goods associated with the transactions was approximately $2,493,597.

OFAC considered the following to be mitigating factors:

  1. The alleged violations occurred due to the actions of a single UMI employee rather than a systemic pattern of company-wide conduct;
  2. UMI took remedial action in response to the alleged violations, including by voluntarily ceasing transactions involving Iran and by implementing new procedures and updating its compliance program to prevent the recurrence of similar sanctions violations;
  3. UMI has not received a penalty notice or Finding of Violation from OFAC in the five years preceding the earliest date of the transactions giving rise to the alleged violations;
  4. UMI cooperated with OFAC’s investigation by providing timely responses to OFAC’s correspondence and by entering into multiple statute of limitations tolling agreements; (5) UMI is a small business, as determined by the size standards set forth by the Small Business Administration; and (6) based on the financial condition of UMI, including significant financial difficulties experienced by the company in recent years, additional mitigation is warranted.

Settlement: https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20170228.aspx

ZTE Pleads Guilty to Criminal Charges and Settles Civil Charges with BIS and OFAC

Thursday, March 30th, 2017 by Danielle McClellan

(Source: Thomsen & Burke, LLP)

Authors: Roszel C. Thomsen, Esq., Roz@t-b.com; Antoinette D. Paytas, Esq., Toni@t-b.com; and Maher M. Shomali, Esq., maher@t-b.com, Wesley A. Demory, Esq. All of Thomsen & Burke, LLP.

Earlier today, ZTE Corporation and the Departments of Justice, Commerce and Treasury announced a global settlement of charges that ZTE violated the International Emergency Economic Powers Act (IEEPA), the Export Administration Regulations (EAR) and the Office of Foreign Assets Control (OFAC) Regulations.

In total, ZTE has agreed to pay the U.S. Government $892,360,064 and agreed to a significant conduct remedy, in the various plea and settlement agreements described below.
CRIMINAL VIOLATIONS OF IEEPA

ZTE agreed (contingent on the court’s approval) to plead guilty to three criminal charges, including:

  1. Conspiracy to unlawfully export, re-export and transship U.S.-origin servers, switches, routers and other components of a cellular network infrastructure to Iran;
  2. Obstruction of justice by hiding data regarding its sales to Iran, causing its defense counsel to unwittingly provide false information to the Department of Justice, and deleting all communications related to its cover-up; and
  3. Making a materially false statement that it was complying with the laws and regulations of the United States.

The criminal penalties include a fine in the amount of $286,992,532, which represents the largest criminal fine in the history of IEEPA prosecutions, and a criminal forfeiture in the amount of $143,496,266, as well as a conduct remedy discussed below. Because a conduct remedy in a case involving the violation of IEEPA, EAR and OFAC regulations is unusual, a summary of the conduct remedy and its implications is included, below the discussion of ZTE’s settlement agreements with the Departments of Commerce and Treasury.
SETTLEMENT OF CHARGES WITH COMMERCE DEPARTMENT

ZTE also agreed to settle charges with the Commerce Department’s Bureau of Industry and Security (“BIS”) of 380 violations of the EAR, including (1) Conspiracy (2) Acting with Knowledge of a violation in Connection with Unlicensed Shipments of Telecommunications Items to North Korea via China and (3) Evasion. As part of the settlement:

  1. ZTE agreed to pay a penalty of $661 million to BIS, with $300 million suspended during a seven-year probationary period to deter future violations. This is the largest civil penalty ever imposed by BIS.
  2. ZTE agreed to active audit and compliance requirements designed to prevent and detect future violations.
  3. ZTE agreed to a seven-year suspended denial of export privileges, which could be activated by BIS if any aspect of this deal is not met.
  4. BIS will recommend that ZTE be removed from the Entity List.

SETTLEMENT OF CHARGES WITH TREASURY DEPARTMENT

OFAC administers a comprehensive embargo on Iran as set forth in the Iranian Transactions and Sanctions Regulations (“ITSR”; 31 CFR part 560), including prohibitions on the indirect supply of goods from the United States to Iran, the re-exportation of U.S.-origin goods with knowledge that those items are intended for Iran, and any activity designed to evade or cause a violation of the ITSR. OFAC identified at least 251 ZTE transactions that violated these prohibitions.

ZTE ultimately settled with OFAC for $100,871,266, which was 95% of the maximum statutory civil penalty. As a condition to settlement, ZTE agrees that it has terminated all conduct leading to the apparent violations and will maintain internal policies and procedures that are designed to minimize the risk of future occurrences. Should ZTE willfully violate this condition, the settlement can become null and void, subjecting ZTE to additional OFAC enforcement activity.

Key takeaways for U.S. companies include the need to identify red flags when a customer refuses to disclose the ultimate destination of goods and when a customer involves an unknown intermediary without an adequate explanation.
CONDUCT REMEDY

The conduct remedy imposed on ZTE includes some of the elements addressed in the recently updated BIS Export Compliance Guidelines – The Elements of an Effective Compliance Program and elements that are above and beyond the guidelines. In addition, ZTE’s press release regarding the Settlement includes additional compliance elements that the company implemented in its effort to implement an improved export compliance program.   The standard elements of a compliance program that are addressed in the conduct remedy are:

  1. Issuance of a statement of corporate policy of export control compliance from the chief executive officers of ZTE Corporation and ZTE Kangxun to ensure compliance with the EAR which will be distributed no less than annually to all relevant employees of ZTE Corporation and ZTE Kangxun and their subsidiaries and affiliates.
  2. Implementation of a training program on applicable export control requirements to be provided to (a) its leadership, management, and employees and (b) the leadership, management and employees of its affiliates, subsidiaries, and other entities worldwide over which it has ownership or control.
  3. Record retention as required by the EAR.

The elements that are above and beyond the BIS guidelines are:

  • Submission of six annual audit reports regarding export compliance.
  • Hiring an initial independent compliance monitor that is approved by the U.S. government for a three-year term. The duties of the monitor include preparing the initial three annual audit reports.
  • Hiring an independent compliance auditor, also approved by the U.S. government, for an additional three years to prepare the remaining three annual audit reports.
  • The audit reports must include a certification to BIS, executed under penalty of perjury, from the chief executive officer and chief legal officer of ZTE that to the best of their knowledge, after reasonable inquiry, ZTE and its subsidiaries and affiliates are in compliance with the terms of the Agreement including the compliance program obligations.
  • An affirmative duty to report potentially unlawful transactions to the U.S. government during the probationary period.
  • A requirement to meet at least annually with BIS to discuss any suggestions, comments or proposals for improvement ZTE may wish to discuss with BIS.
  • A requirement to provide copies of training materials, the training schedule and training locations to BIS on a quarterly basis until January 1, 2020.

In its press release, ZTE noted that it has:

  • Appointed a new Chairman and Chief Executive Officer and made major changes to the senior management team, all of whom have a mandate of leading a new ZTE with a best-in-class export compliance program.
  • Created a Chief Executive Officer-led Compliance Committee with the authority and remit to significantly change the company’s policies and procedures, and provide greater oversight of support for the compliance initiatives.
  • Hired a new Chief Export Compliance Officer with responsibility for overseeing the continued development and improvement of the global export compliance program.
  • Created a separate compliance department with increased headcount to build the compliance program with full independence.
  • Issued a new Export Control Compliance Manual created in conjunction with the review of BIS to provide more detailed guidance to the employees. ZTE also now requires an annual Compliance Commitment Agreement from all employees.
  • Implemented a software automation tool which screens shipments from ZTE Corporation and certain subsidiaries for export control obligations. The system is used to determine which items are subject to the Export Administration Regulations (EAR), provides embargo and restricted party screening on the transactions, and places shipments on hold that require detailed classification analysis, application of license exceptions, or application of licenses when necessary.

CONCLUSION

The penalties assessed by Justice, Commerce and Treasury are significant.  Cumulatively, they comprise the largest global settlement involving violations of IEEPA, the EAR and OFAC regulations in history.

Nevertheless, these announcements most likely are not the end of the ZTE saga.  In its plea agreement with the Justice Department, ZTE specifically agreed to cooperate with the Justice Department regarding any criminal investigation it may undertake with respect to the activities of third parties.  In its settlement agreement with the Commerce Department, that agency merely agreed to recommend removal of ZTE from the Entity List.  Removal of ZTE from the Entity List will require the agreement of other agencies (including State and Defense, which are not parties to the global settlement) and publication of a new rule in the Federal Register.

Source Documents:

The United States Substantially Relaxes Existing Embargo on Sudan

Thursday, March 2nd, 2017 by Danielle McClellan

By: Cari N. Stinebower, Esq., cstinebower@crowell.com, 202-624-2757; Alan W.H. Gourley; Esq., agourley@crowell.com, 202-624-2561 and +44-20-7413-1342 (London Office); and Carlton Greene, Esq., cgreene@crowell.com, 202-624-2818.  All of Crowell & Morning LLP.

(Source: Crowell & Moring LLP)

On January 13, 2017, the United States suspended most of the comprehensive embargo that it has maintained on Sudan since the Clinton Administration. As described further below, new authorizations have been issued to permit U.S. persons to engage in most commercial activity with Sudan, including the exportation of most goods or services to Sudan and persons in Sudan, and to unblock property previously frozen under these sanctions. However, sanctions relating to the Darfur region of Sudan remain, and these, along with other sanctions programs relating to terrorism and weapons of mass destruction, may continue to affect transactions with Sudan.

 

Issuance of New Executive Order

On January 13, President Obama issued an (as-yet-unnumbered) Executive Order (EO) which announced the new U.S. policy changes towards Sudan. In recognition of a series of “positive actions” by the Government of Sudan, the EO announced that it would terminate most aspects of the two previous EOs-EO 13067 (Nov. 3, 1997) and EO 13412 (Oct. 13, 2006)-that had authorized the comprehensive embargo on Sudan. Importantly, however, this revocation will only occur on July 12, 2017 and only after the Secretary of State, in consultation with other Administration colleagues, publishes a notice that “the Government of Sudan has sustained the positive actions that gave rise to this order….”

 

Relaxation of OFAC Sanctions

In parallel to the new Executive Order, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) dramatically relaxed the existing restrictions imposed in the Sudanese Sanctions Regulations (SSR). Specifically, OFAC issued a final rule establishing a new General License (31 C.F.R. 538.540) (which it refers to as the “2017 Sudan Rule”), authorizing all transactions prohibited by the SSR, including transactions in which the Government of Sudan has an interest.

As OFAC has clarified in a Fact Sheet on its website, pursuant to the 2017 Sudan Rule, “U.S. persons will generally be able to transact with individuals and entities in Sudan, and the property of the Government of Sudan subject to U.S. jurisdiction will be unblocked.” In particular, this means that U.S. persons can:

  • Import goods or services of Sudanese origin.
  • Export most goods, technology, and services to Sudan (a separate licensing requirement may apply to goods or technology subject to the Export Administration Regulations (EAR) as summarized in the subsection below).
  • Engage in transactions with persons blocked pursuant to the SSR (designated by the tag [SUDAN]).
  • Engage in transactions in which the Government of Sudan has an interest.
  • Engage in “all transactions necessary to unblock any property or interests in property that were blocked pursuant to 31 C.F.R. 538.201”.
  • Engage in transactions relating to the petroleum or petrochemical industries in Sudan.

OFAC has clarified in a set of Frequently Asked Questions posted on its website that the 2017 Sudan Rule supersedes existing general licenses as well as existing specific licenses or pending specific license applications. U.S. persons need only now comply with the terms of the 2017 Sudan Rule and not with any additional conditions contained in pre-existing and more restrictive general or specific licenses.

The 2017 Sudan Rule did not remove all restrictions on transactions with Sudan. In particular, the following restrictions remain:

  • Export of Agricultural Commodities, Medicine, or Medical Devices: Due to a statutory restriction, exports or re-exports of agricultural commodities, medicine, or medical devices eligible for export under the Trade Sanctions Reform and Export Enhancement Act (TSRA) “must be shipped within the 12 month period beginning on the date of the signing of the contract for export or reexport.”
  • Transactions with Other SDNs: While U.S. persons may now engage in transactions with persons designated pursuant to the SSR (identified with a [SUDAN] tag), the changes did not remove any other designations. U.S. persons, therefore, remain prohibited from engaging in virtually all transactions with persons remaining on the SDN list designated pursuant to other programs, including inter alia, Darfur ([DARFUR]), South Sudan ([SOUTH SUDAN]), terrorism ([SDGT]), or proliferation ([NPWMD]).
  • Other Agency Restrictions: OFAC’s 2017 Sudan Rule also did not affect any restrictions administered by other agencies, including but not limited to the export restrictions administered by the Bureau of Industry and Security (BIS) (see below).

 

BIS Relaxations

Simultaneously, BIS issued a new review policy for certain limited Sudan-related exports. BIS will continue to require a license for the export or re-export to Sudan of nearly all goods, technology, or software subject to the EAR that are specified on the Commerce Control List, and will continue to maintain its general policy of denial for applications to export or reexport most controlled items when intended for any end-user or end-use in Sudan, with two exceptions. BIS has now adopted a general policy of approval for the following two types of exports or reexports:

  • Civil Aircraft: items controlled only for AT reasons and “that are intended to ensure the safety of civil aviation or the safe operation of fixed-wing commercial passenger aircraft.”
  • Railroads: items controlled only for AT reasons that “will be used to inspect, design, construct, operate, improve, maintain, repair, overhaul or refurbish railroads in Sudan.”
  • This general policy of approval, however, does not apply to transactions involving “sensitive” end-users, including Sudan’s “military, police, and/or intelligence services and persons that are owned by or are part of or are operated or controlled by those services.”

 

Additional Risk Factors

In addition to the lingering sanctions and export control restrictions summarized above, there are additional risk factors to consider before undertaking any transactions with Sudan. These include, inter alia:

  • State Sponsor of Terrorism: These relaxations did not affect Sudan’s current designation as a state sponsor of terrorism.
  • Skepticism from the New Administration and the Hill: The continuation of the relaxations will be heavily dependent on the views of the incoming Administration. President Trump’s administration will be responsible for making the notification required in the EO and it could revoke these changes as quickly as President Obama’s administration implemented them.

OFAC Radically Expands Its Extraterritorial Jurisdiction with B Whale Ruling

Thursday, March 2nd, 2017 by Danielle McClellan

By: R. Clifton Burns, Esq., Bryan Cave LLP, Wash DC, Clif.Burns@bryancave.com, 202-508-6067

(Source: Export Law Blog. Reprinted by permission.)

The recent decision by the Office of Foreign Assets Control (“OFAC”) to issue a finding of violation, but no fine, against B Whale, a member of the Taiwanese TMT Shipping Group represents a new high (or low, depending on your point of view) for OFAC’s general belief that it has jurisdiction over anyone anywhere in the world.  At issue was the transfer of Iranian oil from an Iranian vessel in international waters to a Monrovian-registered Liberian-flag ship owned by a Taiwanese company without any branches or business operations in the United States.

OFAC claimed that this was an illegal importation of Iranian goods into the United States in violation of section 560.201 of the Iranian Transactions and Sanctions Regulations (“ITSR”).  Say what?  According to OFAC, the foreign flagged ship in international waters became a part of the United States once TMT filed a bankruptcy petition in the United States, thereby placing all its assets under the control of the bankruptcy court.  Because, you see, the ITSR defines the United States in section 560.307 of the ITSR as “the United States, its territories and possessions, and all areas under the jurisdiction or authority thereof.”  I imagine that TMT, and probably the government of Taiwan, will be somewhat surprised to learn that real property owned by TMT in Taipei is now a part of the United States.  By this logic, a bankrupt’s trucks in foreign countries would become “areas” under the jurisdiction of the United States.  Certainly these absurd results demonstrate that “area” in section 560.307 means geographic areas and not simply any physical space somewhere in the world.

I am unable to find any precedent from OFAC itself or any other court or agency for such an expansive definition of the United States   Interestingly, Congress, when defining the scope of federal criminal law, stops far short of OFAC’s definition.  The definition of “United States” in the federal criminal code is defined as “all places and waters, continental or insular, subject to the jurisdiction of the United States, except the Canal Zone.” See 18 U.S.C. § 5.  To cover ships, which are not “places and waters, continental and insular” the federal criminal codes defines the “special maritime and territorial jurisdiction” of the United States which covers ships on the high seas owned by at least one U.S. citizen or a foreign vessel with a scheduled departure or arrival in the United States “to the extent permitted by international law.”  See 18 U.S.C. § 7.  Ships owned by bankrupts aren’t either the United States or part of the special maritime jurisdiction as far as Congress was concerned.  It is hard to imagine that OFAC has the statutory authority to expand the scope of its jurisdiction in this fashion by calling every asset of a bankrupt anywhere on the face of the planet a part of “the United States.”

Not only does OFAC stretch the concept of “United States” beyond the breaking point, but also it does the same thing to the definition of “United States person.”  Whale B was found to have violated section 560.211 when it engaged in a transaction with a blocked Iranian vessel.  The violation occurred because OFAC decided that Whale B was a “United States person.” That term is defined in section 560.314 to cover a “person in the United States.”  And Whale B, a company organized under the laws of Taiwan and without any physical presence in the United States, was “in the United States” because it filed a bankruptcy case in the United States. It’s difficult to imagine where a principled limit could be drawn if filing a lawsuit in the United States means that a company is “in the United States.”  Is a company with a U.S copyright registration now “in the United States” and fully subject to U.S. sanctions? What if it has a dot com domain name issued by a U.S. registrar? Or it uses an email service that has servers in the United States?  Or it has a pending sales order it made with a U.S. company over the Internet?

And here’s one last comment on the B Whale shipwreck.  OFAC cites this as an aggravating factor: B Whale “took steps to conceal a ship-to-ship transfer of Iranian oil with an Iranian vessel on the SDN List … by … switching off the vessel’s automatic identification system during the time period corresponding with the ship-to-ship transfer.”  Apparently OFAC forgot that, because of the TMT bankruptcy, Whale B was subject to seizure and detention by foreign creditors in jurisdictions not interested in observing the automatic stay arising from the U.S. bankruptcy.  In such a situation, the more likely reason for turning off the AIS was the common practice of doing so to hide from foreign creditors, not from OFAC.

U.S. Antiboycott Compliance: New Federal List Published

Tuesday, January 31st, 2017 by Danielle McClellan

By: Melissa Proctor, Polsinelli PC

Companies doing business in the Middle East take note: The Treasury Department recently published its quarterly list of countries that currently require participation or cooperation with an international boycott, such as the Arab League‘s boycott of Israel.

Even though many of these countries are WTO members and were required to shut down their Arab League offices as a condition of membership, many boycott-related requests are still being issued by government agencies and companies in these countries. The countries that are designated on this list, which by the way are the very same countries that were listed in the Third Quarter list, are:

  • Iraq
  • Kuwait
  • Lebanon
  • Libya
  • Qatar
  • Saudi Arabia
  • Syria
  • United Arab Emirates
  • Yemen

To view the list, click here.

If you are not familiar with U.S. antiboycott requirements, Part 750 of the Export Administration Regulations (EAR) prohibits U.S. companies and their foreign affiliates from complying with requests related to a foreign boycott that is not sanctioned by the U.S. Government. Specifically, U.S. companies and their overseas affiliates are prohibited from agreeing to:

  1. Refuse to do business with or in Israel or with blacklisted companies
  2. Discriminate against other persons based on race, religion, sex, national origin or nationality
  3. Furnish information about business relationships with or in Israel or with blacklisted companies, or
  4. Furnish information about the race, religion, sex, or national origin of another person

Foreign boycott-related requests can take many forms, and can be either verbal or written. They can appear in bid invitations, purchase agreements, letters of credit and can even be seen in emails, telephone conversations and in-person meetings. Some recent examples of boycott-related requests include:

  • “Provide a certificate of origin stating that your goods are not products of Israel.”
  • “Provide the religion and nationality of your officers and board members.” 
  • “Suppliers cannot be on the Israel boycott list published by the central Arab League.”  
  • “Provide a signed statement from the shipping company or its agent containing the name, flag and nationality of the carrying vessel and its eligibility to enter Arab ports “

In addition, implementing letters of credit that contain foreign boycott terms or conditions is also prohibited under the EAR.

Antiboycott compliance is a key issue for U.S. companies doing business in the Middle East, and personnel on the front lines with customers and supply chain partners in these countries should be trained to identify potential foreign boycott-related requests and escalate them to senior compliance personnel or in-house counsel to determine the applicable OAC and IRS reporting requirements.

Companies that receive boycott-related requests must submit quarterly reports to the Office of Antiboycott Compliance (OAC) unless an exemption applies. Failing to timely report a boycott request or complying with the request itself can lead to the imposition of civil penalties by the OAC. The IRS also requires U.S. taxpayers to report their operations in countries that require participation or cooperation with an international boycott on IRS Form 5713 (International Boycott Report) – the forms are submitted annually with U.S. tax returns.  Failure to comply with the Internal Revenue Code’s antiboycott requirements can lead to the revocation of certain international tax credits and benefits.

© Polsinelli PC, Polsinelli LLP in California

US Oil & Gas Company Fined $25 Million from BIS & OFAC

Tuesday, December 20th, 2016 by Danielle McClellan

National Oilwell Varco, Inc., a Delaware corporation, and its Canadian subsidiaries, Dreco Energy Services, Ltd (Dreco) and NOV Elmar (NOV) have agreed to pay a combined $25 Million for violations of the Cuban Assets Control Regulations, the Iranian Transactions and Sanctions Regulations, and the Sudanese Sanctions Regulations.

The charges are as follows:

  • Between 2002 and 2005, National Oilwell Varco approved four Dreco commission payments to a UK based entity related to the sale and exportation of goods from Dreco to Iran. The four commission payments had a combined value of $2,630,091.
  • Between 2006 and 2008 National Oilwell Varco was involved in two transactions involving the sale and exportation of goods to Iran that totaled $13,596,980.
  • Between 2003 and 2007, Dreco knowingly exported (indirectly) goods from the US to fill seven orders from Iranian customers. The transactions totaled $526,480.
  • During 2007 and 2009, Dreco engaged in 45 transactions involving the sale of goods to Cuba totaling $1,707,964.
  • NOV engaged in two transactions between 2007 and 2008 involving the sale of goods or services to Cuba that totaled $103,119.
  • Finally, between 2005 and 2006 NOV engaged is a $20,928 transaction involving the exportation of goods from the US to Sudan.

OFAC considered the violations to be egregious since senior-level executives approved the commission payments and the NOV “willfully blinded” itself of the regulation violations by continuing to approve payments and communications. NOV will pay OFAC a settlement of $5,976,028, this will be deemed satisfied with its payment of $25,000,000 in relation to its settlement agreement between OFAC, BIS, and a Non-Prosecution Agreement (NPA).

OFAC considered the following to be aggravating factors:

  1. NOV’s conduct that gave rise to the Apparent Violations demonstrated at least reckless disregard for U.S. sanctions requirements;
  2. Senior managers at National Oilwell Varco, Inc. and Dreco knew or had reason to know that their respective business transactions giving rise to the ITSR-related apparent violations involved Iran;
  3. NOV’s conduct caused harm to sanctions program objectives by providing a significant and sustained economic benefit to the petroleum industries in Cuba, Iran, and Sudan;
  4. NOV is a large and sophisticated company that is engaged in the business of providing oilfield services around the world, including regions with high sanctions risk; and
  5. NOV’s compliance program at the time of the Apparent Violations was wholly inadequate.

OFAC considered the following to be mitigating factors:

  1. NOV had not received a Penalty Notice or Finding of Violation in the five years preceding the date of the earliest transaction giving rise to the Apparent Violations;
  2. NOV cooperated with OFAC’s investigation, including by agreeing to toll the statute of limitations for more than 2,600 days; and
  3. NOV has made efforts to remediate its compliance program and agreed to further compliance enhancements.

More Information: https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20161114_varco.pdf

Company Fined $4 Million for Exporting Seeds to Iran

Wednesday, October 12th, 2016 by Danielle McClellan

By: Danielle McClellan

PanAmerican Seed Company (PanAm) of West Chicago, Illinois, a division of Ball Horticultural Company has agreed to pay $4,320,000 to settle potential civil liability for alleged violations of the Iranian Transactions and Sanctions Regulations (31 C.F.R. part 560 ITSR). Its alleged that the company exported seeds, primarily of flowers, to two Iranian distributors on 48 different occasions between May 2009 and March 2012.

PanAm and Ball Horticultural employees (including several mid-level managers) were aware of the US economic sanctions involving Iran and the requirement to apply for licenses to export the seeds to Iran. PanAm concealed the shipments by shipping the seeds to consignees based in two third countries located in Europe or the Middle East, and then the Iranian customers arranged for the re-exportation of the seeds to Iran.

The maximum penalty for the violations would be $12 million, OFAC considered the following when applying the $4 million penalty:

OFAC considered the following to be aggravating factors:

  1. PanAm Seed willfully violated U.S. sanctions on Iran by engaging in, and systematically obfuscating, conduct it knew to be prohibited;
  2. PanAm Seed demonstrated recklessness with respect to U.S. sanctions requirements by ignoring its OFAC compliance responsibilities, despite substantial international sales and warnings that OFAC sanctions could be implicated;
  3. Multiple PanAm Seed and Ball Horticultural employees, including mid-level managers, had contemporaneous knowledge of the transactions giving rise to the Alleged Violations. They were aware that the seeds were intended for reexportation to Iran, and PanAm Seed continued sales to its Iranian distributors for nearly eight months after its Director of Finance learned of OFAC’s investigation;
  4. PanAm Seed engaged in this pattern of conduct over a period of years, providing over $770,000 in economic benefit to Iran;
  5. PanAm Seed did not initially cooperate with OFAC’s investigation, providing some information that was inaccurate, misleading, or incomplete; and
  6. PanAm Seed is a division of Ball Horticultural, a commercially sophisticated, international corporation.

OFAC considered the following to be mitigating factors:

  1. PanAm Seed has not received a Penalty Notice or Finding of Violation from OFAC in the five years preceding the earliest date of the transactions giving rise to the Alleged Violations, making it eligible for “first offense” mitigation of up to 25 percent;
  2. The exports at issue were likely eligible for an OFAC license under the Trade Sanctions Reform and Export Enhancement Act of 2000;
  3. PanAm Seed took remedial steps to ensure future compliance with OFAC sanctions, including stopping all exports to Iran, implementing a compliance program, and training gat least some of its employees on OFAC sanctions; and
  4. PanAm Seed cooperated with OFAC by agreeing to toll the statute of limitations for a total of 882 days.

OFAC Information: https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20160913_panam.pdf

It’s Not A Good Time for Iran Violations: Company Fined Over $16 Million for Medical Supplies Exported to Iran, Sudan and Syria

Tuesday, August 9th, 2016 by Danielle McClellan

By: Danielle McClellan

Alcon Laboratories, Inc., (Fort Worth), Alcon Pharmaceuticals Ltd. (Fribourg, Switzerland) and Alcon Management, SA (Geneve, Switerland) (collectively, “Alcon”) have agreed to settle a potential civil liability with the US Department of Treasury’s Office of Foreign Assets Controls (OFAC) and with the Department of Commerce’s Bureau of Industry and Security (BIS).

Between 2008 and 2011 Alcon exported end-use surgical and pharmaceutical products from their United States location to their sister companies in Switzerland and then along to distributors in Iran, Sudan and Syria. The charges are broken down as follows:

OFAC Charging Details

On 452 occasions Alcon violated the Sudanese Sanctions Regulations (SSR) when they sold and exported medical supplies to distributors in Sudan. On 61 occasions they violated the Iranian Transactions and Sanctions Regulations (ITSR) when they sold and exported their products to Iranian distributors. Alcon will pay $7,617,150 related to the OFAC violations. The statutory maximum monetary penalty amount was $138,982,584 and the base penalty amount for the Apparent Violations was $16,927,000.

OFAC considered the following to be aggravating factors in this case:

  1. Alcon demonstrated reckless disregard for U.S. sanctions requirements by having virtually no compliance program, despite significant business involving the exportation of goods from the United States to Iran and Sudan, and by failing to take adequate steps to investigate a third-party freight forwarder’s cessation of shipments to Iran on behalf of Alcon;
  2. Alcon and its then-senior management knew of the conduct giving rise to the Apparent Violations; and
  3. Alcon is a sophisticated multinational corporation with extensive experience in international trade.

OFAC considered the following to be mitigating factors in this case:

  1. The harm to U.S. sanctions program objectives was limited because the exports involved medical end-use products that were licensable under the Trade Sanctions Reform and Export Enhancement Act of 2000, and in fact had been previously and subsequently licensed by OFAC for Alcon;
  2. Alcon has no prior OFAC sanctions history, including receipt of a Penalty Notice or Finding of Violation in the five years preceding the date of the earliest transaction giving rise to the Apparent Violations, making it eligible for “first violation” mitigation of up to 25 percent;
  3. Alcon took remedial action by ceasing the unlicensed exports to sanctioned countries, initiating an internal investigation of the Apparent Violations, and instituting a robust compliance program that now includes:
    1. Updated or newly-created corporate export and trade sanctions compliance documents,
    2. Enhanced trade compliance training, and (c) enhanced compliance procedures for requesting OFAC licenses; and (4) Alcon substantially cooperated with OFAC’s investigation, including by providing detailed and well-organized information and entering into several statute of limitations tolling agreements with OFAC.

BIS Charging Details

Alcon has received 100 charges of Acting with Knowledge of a Violation, 45 charges of Unlicensed Reexports to Syria, and 43 Charges of Unlicensed Exports to Iran. In the cases of unlicensed exports, Alcon Pharmaceuticals (Switzerland) sent orders and invoices to Alcon labs (United States) with instructions to ship the orders to warehouses and distribution centers that it used in various countries, most specifically Switzerland. The facilities would receive the products and then Alcon Pharmaceuticals transferred and/or forwarded the items to Iran and Syria without required government licenses.

Alcon collectively has been accessed a civil penalty from BIS in the amount of $8,100,000, all of which is due, and will accrue interest if not paid on time. Alcon must also pay the penalty amount due to OFAC in a timely manner and comply with all of the terms related to the OFAC Settlement Agreement.

OFAC Information: https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20160705_alcon.pdf

BIS Information: https://efoia.bis.doc.gov/index.php/component/docman/doc_download/1068-e2466?Itemid=

3 Men & Illegal Exports to Syria

Tuesday, July 12th, 2016 by Danielle McClellan

By: Danielle McClellan

In November 2012, three individuals and one company were indicted with charges of criminal conspiracy, wire fraud, illegal export of goods, money laundering, and false statements. Until now the indictment remained under seal pending the arrest of the defendants.

Between 2003 and 2012, d-Deri Contracting & Trading (owned by Ahmad Feras Diri of London) was exporting goods originally from the US from Global Parts Supply (owned by Harold Rinko of Hallstead, PA) to his brother and business partner Moawea Deri who was located in Syria.  The goods purchased from Rinko’s US company were done so based on false invoices, undervalued and mislabeled goods.  Then the purchased goods were exported by falsely listing their identity and final geographic location on all documentation. The items would be shipped from the US to Jordan, the UAE, and the UK, and finally transshipped to Syria.

The items exported allegedly included:

  • a portable gas scanner used for detection of chemical warfare agents by civil defense, military, police and border control agencies;
  • a handheld instrument for field detection and classification of chemical warfare agents and toxic industrial chemicals;
  • a laboratory source for detection of chemical warfare agents and toxic industrial chemicals in research, public safety and industrial environments;
  • a rubber mask for civil defense against chemicals and gases;
  • a meter used to measure chemicals and their composition;
  • flowmeters for measuring gas streams;
  • a stirrer for mixing and testing liquid chemical compounds;
  • industrial engines for use in oil and gas field operations and a device used to accurately locate buried pipelines

Note: Nearly all exports to Syria will be denied, other than a few items categorized under humanitarian food and medicine. The goal of the embargo on Syria is to shut down the supply chain used by the Syrian state to support terrorism and create proliferate weapons of mass destruction, and in this specific case, chemical weapons.

Fast forward to this month, Ahmad Feras Diri (age 43) of London has plead guilty to conspiracy to illegally export items used to detect chemical warfare agents to Syria. He lost his extradition fight in the UK in November 2015 at which point he was brought to the US to face the charges. Diri admitted that he conspired to export items from the US through third party countries to customers in Syria without obtaining the required US Commerce Department licenses.

Harold Rinko (age 73 of Hallstead, PA) was indicted by a grand jury in November 2012 and admitted in court that he conspired to export the items from the US through third party countries to customers in Syria without an export license.

Moawea Deri remains at large and is considered a fugitive but will likely remain in Syria as extradition is unlikely to occur.

“This extradition demonstrates HSI’s commitment to use all its resources to prevent sensitive and restricted technology from being exported to Syria through the black market,” said HSI Philadelphia Special Agent in Charge John Kelleghan. “No good comes of illegal exports to Syria, especially during this time of gross misgovernment and civil strife. As the principal enforcer of export controls, HSI will continue to do everything in its power to ensure that sensitive technology doesn’t fall into the wrong hands in Syria. I applaud our colleagues at the Department of Commerce, the U.S. Attorney’s Office for the Middle District of Pennsylvania, along with our law enforcement counterparts in the United Kingdom. This coordinated effort helped us make this complex investigation a success.”

More Information: https://www.ice.gov/news/releases/uk-resident-connected-syrian-export-scheme-extradited-us-face-federal-charges